The Ninth Circuit focused in depth on the appropriate standard to apply in determining whether a party has standing. The Clifton opinion highlighted that, historically, bankruptcy courts bypassed the Article III standing inquiry, and instead opted to employ the “person aggrieved” standard, even after the Bankruptcy Act of 1898 - that applied the prudential standard - was repealed and replaced. The Ninth Circuit drew attention to the Supreme Court’s decision in Susan B. Anthony List v. Driehaus, 573 U.S. 149, 167 (2014), which cautioned that prudential standing is “in tension with the Supreme Court’s affirmation that a federal court’s obligation to hear and decide cases within its jurisdiction is virtually unflagging”. As a result of the Driehaus decision, the Ninth Circuit noted a return to traditional Article III standing and applied the same in Clifton.
Clifton argued that an enhanced fee order of $400,000 – the statutory maximum – to the trustee as a bonus for exceptional performance harmed both the likelihood and timeliness of payments under the Chapter 11 plan. Clifton argued that, because the Chapter 11 plan established full repayment of Clifton’s claim, and full payout had not yet occurred, the fee order created an injury in fact, because the fee award would subordinate Clifton’s claim. The Trustee countered by arguing any injury projected by Clifton was conjectural and hypothetical. The Ninth Circuit agreed with the Trustee.
In examining the Chapter 11 plan itself, the Ninth Circuit highlighted that the payment timeline listed in the plan estimated distribution for subordinated claims between 2022 and 2024. Therefore, the Ninth Circuit determined, Clifton could not demonstrate injury in fact, because the timeframe for repayment – that Clifton agreed to – had not expired nor been extended. In light of this determination, the Ninth Circuit dismissed the appeal.
]]>In Rodriguez/Schipull, the debtor was the treasurer and Chief Financial Officer of a failed company ("Debtor"). Following the company’s downfall, several of the company’s investors obtained judgments against Debtor for Nevada securities law violations, which led to Debtor filing a Chapter 7 bankruptcy. In response to Debtor filing for bankruptcy, the judgment holders filed an adversary proceeding challenging the dischargeability of their judgments under § 523(a)(19)(A)(i). Debtor argued that, because he was secondarily liable – not primarily liable – for securities law violations, Section 523(a)(19)(A)(i) did not apply to him. However, the BAP did not agree.
The BAP focused on the language of Section 523(a)(19), which states that a debtor may not discharge debts that result from a court judgment for the violation of securities laws. Contrary to Debtor’s position that Section 523(a)(19)(A)(i) contains a primary liability standard, the BAP highlighted that the language does not support that assertion. Further, the BAP distinguished the facts of the case from those in Debtor’s chief cited case, Sherman v. SEC (In re Sherman), 658 F.3d 1009 (9th Cir. 2011). In Sherman, the Ninth Circuit held that Section 523(a)(19) only prevents the discharge of a debt for a securities violation “when the debtor is responsible for that violation.” Because in Sherman, the debtor was a third party, and he was not named in any securities law violation action nor was he found liable for violating securities law, the debt he sought discharge for was not exempted by Section 523(a)(19). Here, the BAP highlighted, Debtor was both named in a securities law violation action, and a state court determined that Debtor did engage in securities violations.
Thus, the BAP concluded that Sherman further undermined Debtor’s position, and instead provided the Court with further support in affirming the bankruptcy court’s determination that, under Section 523(a)(19)(A)(i), the judgment related to securities violations committed by Debtor as determined by a Nevada State court was properly excepted from discharge.
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