Courts in the Fourth and Seventh Circuits have disagreed whether objection and attendance at a hearing are prerequisites for satisfying the “person aggrieved” requirement for appellate standing. Compare In re Schultz Mfg. Fabricating Co., 956 F.2d 686, 690 (7th Cir. 1992) (attendance and objection at a bankruptcy court proceeding are requirements for appellate standing) with In re Urban Broad. Corp., 401 F.3d 236, 244 (4th Cir. 2005) (attendance and objection are not necessary for standing to appeal a bankruptcy court order).
In a case of first impression in the Ninth Circuit, the panel reversed a district court’s determination that the members of a limited liability company lacked standing to appeal a bankruptcy court order approving the trustee’s assumption of the company’s operating agreement because, despite receiving adequate notice, they did not file an objection or attend the hearing on the motion.
Siding with the Fourth Circuit the Court reasoned that, “bankruptcy standing concerns whether an individual or entity is ‘aggrieved,’ not whether one makes that known to the bankruptcy court.” So, it concluded that “an appellant’s failure to attend and object at a bankruptcy court hearing has no bearing on the question of whether that appellant has standing to appeal a bankruptcy court order.” Rather, the controlling inquiry is “whether the appellant was directly and adversely affected pecuniarily by the bankruptcy court's order.”
This case may offer some reprieve to non-objecting parties that wish to challenge a bankruptcy court’s order post-entry – at least in the Fourth and Ninth Circuits – but prudence always dictates the filing of an objection and attendance at a hearing. Even in courts where failure to object does not present a standing issue, the Ninth Circuit cautioned that such failure could nevertheless “result in waiver or forfeiture of the right to make certain arguments or object to certain claims.”
But more than a cautionary tale about waiver and forfeiture, this decision has practical application, too. Many bankruptcy-related transactions (e.g., the effectiveness of a plan of reorganization, the closing of a sale of assets, etc.) are tied to entry of a final order, i.e., one that is no longer subject to appeal. When an order of the bankruptcy court is unopposed, practitioners in jurisdictions that require an objection and attendance at a hearing to establish appellate standing might be more comfortable declaring an order to be “final” before the end of the 14-day appeal period set forth in Bankruptcy Rule 8002(a)(1). But, in jurisdictions that permit an aggrieved party to take an appeal from an order that it never objected to, the finality of unopposed bankruptcy court orders may depend on expiration of the time to appeal.