United States District Court, D. Connecticut
N. Chatigny United States District Judge.
Speer, a Chapter 7 debtor, seeks review of an order of the
Bankruptcy Court (Nevins, J.) overruling her objections to
proofs of claim filed by her principal creditor, appellee
Seaport Capital Partners, LLC. For reasons that follow, the
order is affirmed.
order under review, the Bankruptcy Court ruled that Ms. Speer
lacks standing to object to Seaport's claims. Ms. Speer
moved for reconsideration of the order, (Bankr. ECF No. 923),
then filed an appeal before the motion for reconsideration
was decided (Bankr. ECF No. 961). The Bankruptcy Court later
denied the motion for reconsideration in a lengthy ruling.
Order Den. Mot. Recons. (Bankr. ECF No. 1198).
denying reconsideration, the Court adhered to its ruling that
Ms. Speer lacks standing. However, the Court went on to
explain that even if standing should have been granted to Ms.
Speer to object to Seaport's claims, the error was
harmless because the Court would have overruled the
objections in any event without providing an opportunity for
further discovery.As the Court pointed out, Ms. Speer's
objections to Seaport's claims repeat arguments raised in
opposition to the involuntary petition, which were rejected
by the Court (Dabrowski, J.) after discovery and a trial
because Ms. Speer had failed to present a credible legal
theory or evidence that Seaport's claims are invalid. In
denying reconsideration, the Court concluded that Ms.
Speer's objections should be rejected in accordance with
the prior ruling.
the Bankruptcy Court's ruling on reconsideration, the
parties were asked to submit supplemental briefs addressing
the impact of the ruling on this appeal. In her supplemental
brief, Ms. Speer adheres to her position that she has
standing to object to Seaport's claims but she does not
address the Court's ruling that the objections are
unavailing in any event. Seaport contends that the Bankruptcy
Court's ruling on the merits of Ms. Speer's
objections moots the appeal. I conclude that even if the
Court erred in failing to grant standing to Ms. Speer in the
first place, which is by no means clear, any error was
harmless in light of the ruling denying reconsideration.
the Bankruptcy Code, a “party in interest” has
standing to object to a proof of claim. 11 U.S.C. §
502(a). To have standing, a party must show that its
pecuniary interest will be affected “directly and
adversely.” In re Adams, 424 B.R. 434, 436
(Bankr. N.D.Ill. 2010). A Chapter 7 debtor ordinarily lacks
standing to object to a claim because the debtor has no
pecuniary interest in the matter. See Pascazi v. Fiber
Consultants, Inc., 445 B.R. 124, 127 (S.D.N.Y. 2011)
(“The rule is based on the assumption that . . .
‘the debtor receives a distribution only after all
creditors have been paid in full, and an estate will rarely
have enough assets to do even that.'”) (quoting
In re Ulz, 401 B.R. 321, 328 (Bankr. N.D.Ill.
2009)). However, courts have granted standing to Chapter 7
debtors to object to claims in two circumstances: when there
is a reasonable possibility of a surplus; and when the claim
is or may be nondischargeable. See In re Mandel, 641
Fed.Appx. 400, 404-05 (5th Cir. 2016); McGuirl v.
White, 86 F.3d 1232, 1235 (D.C. Cir. 1996); In re
Chaitan, 517 B.R. 419, 426 (Bankr. E.D.N.Y. 2014);
In re Willard, 240 B.R. 664, 668 (Bankr. D. Conn.
1999). Ms. Speer contends that both circumstances are present
denying the motion for reconsideration, the Bankruptcy Court
found that there would be no surplus in this case even if
Seaport's claims were disallowed. See Order Den.
Mot. Recons. 17-18 (Bankr. ECF No. 1198). In her supplemental
brief, Ms. Speer continues to assert that there might well be
a surplus if Seaport's claims are rejected. However, Ms.
Speer has not shown that the Bankruptcy Court's finding
to the contrary is erroneous. In the absence of such a
showing, the finding cannot be disturbed.
regard to the other potential basis for standing in this
Chapter 7 case - the risk that the debt is nondischargeable -
Seaport has commenced an adversary proceeding seeking to deny
a discharge to Ms. Speer and the proceeding remains pending.
In denying reconsideration, the Bankruptcy Court found that,
even though Ms. Speer may ultimately be denied a discharge on
Seaport's claims, the pendency of the adversary
proceeding does not give her standing to object to the claims
because her objections lack a good faith basis and were filed
for the purpose of undermining the effective administration
of the bankruptcy estate. Id. at 22. Construing Ms.
Speer's supplemental brief in a manner favorable to her,
she contends that the merits of her objections are irrelevant
to the issue of her standing to object. In her view, a
Chapter 7 debtor automatically has standing to object to a
claim when the debt is or may be nondischargeable regardless
of the merits of the objections.
the Bankruptcy Code confers automatic standing on a Chapter 7
debtor to object to a claim when the debt is or may be
nondischargeable appears to be an issue of first impression
in this Circuit. The issue implicates competing interests. On
the one hand, allowing a claim based on a nondischargeable
debt may affect a debtor's pecuniary interest, especially
if the Bankruptcy Court's claim allowance order has res
judicata effect. On the other hand, the purpose of the
bankruptcy system is “to provide an efficient and
expeditious administration of bankrupt estates.” In
re Raytech Corp., 222 B.R. 19, 24 (Bankr. D. Conn.
1998). The circumscribed standing provided to Chapter 7
debtors by the pecuniary-interest test serves this purpose by
protecting the trustee against undue interference. The rule
of automatic standing invoked by Ms. Speer likely would have
the opposite effect. As one bankruptcy court has observed,
“[g]ranting standing to every debtor who happens to be
subject to some nondischargeable claim would interfere with
the administration of chapter 7 cases. Many debtors are
subject to nondischargeable claims. If every such debtor were
suddenly entitled to take an active role in the trustee's
administration of the case, the result would slow down the
bankruptcy system and make it more costly.” In re
Adams, 424 B.R. 434, 437 (Bankr. N.D.Ill. 2010).
concern is particularly salient here. Seaport seeks to
prevent Ms. Speer from receiving a discharge on the ground
that she has engaged in various forms of misconduct,
including intentionally delaying the bankruptcy proceeding by
filing frivolous pleadings. See App. to
Appellant's Init. Brief 104-112 (ECF No. 9-1 at 106-14).
Indeed, the Bankruptcy Court has determined that the
objections at issue here lack a good faith basis and were
filed solely for purposes of delay. Ms. Speer's conduct
in the Bankruptcy Court has resulted in sanctions orders and
a stay of all filings. See Scheduling Order &
Order to Show Cause (Bankr. ECF No. 1536).
unnecessary to decide whether the risk that Ms. Speer will be
denied a discharge in the adversary proceeding gives her
automatic standing to object to Seaport's claims. Even
assuming she has standing to object on that basis, any error
that might have occurred here was harmless in light of the
Bankruptcy Court's ruling on reconsideration. The Court
has made it clear that even if standing had been granted to
Ms. Speer, her objections would have been overruled without
opportunity for more discovery because they merely repeat
arguments previously rejected after discovery and a trial.
Order Den. Mot. Recons. 14, 23-25 (Bankr. ECF No. 1198). Ms.
Speer has not shown that the Bankruptcy Court erred in this
regard. In the absence of such a showing, the ruling of the
Bankruptcy Court on the issue of standing is at most harmless
error because it does not affect Ms. Speer's substantial
rights. Fed.R.Bankr.P. 9005; In re Sanshoe Worldwide
Corp., 993 F.2d 300, 305 (2d Cir. 1993). Even if this
Court were to reverse on the standing question and remand to
the Bankruptcy Court, the result would remain the same: the
objections would be overruled without an opportunity for
further discovery. See Sanshoe, 993 F.2d at 305
(holding that “applying harmless-error
principles” was “particularly appropriate
because, had the issue been addressed by the bankruptcy
court, we already know that there is not even a triable
issue” on the disputed question).
the order that gave rise to this appeal is hereby affirmed.
Clerk may ...