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In re Eurogas, Inc.

United States Bankruptcy Appellate Panel of the Tenth Circuit

November 21, 2017

IN RE EUROGAS, INC., Debtor.
v.
ELIZABETH R. LOVERIDGE, Chapter 7 Trustee, EUROGAS, INC., and TEXAS EURO GAS CORP., Appellees. THE SLOVAK REPUBLIC, Appellant,

         Chapter 7

         Appeal from the United States Bankruptcy Court for the District of Utah

          Brent D. Wride (Michael R. Johnson with him on the brief) of Ray Quinney & Nebeker P.C., Salt Lake City, Utah, for Appellant.

          Reid W. Lambert of Woodbury & Kesler, P.C., Salt Lake City, Utah, for Appellee Elizabeth R. Loveridge, Chapter 7 Trustee.

          Doyle S. Byers (Mona L. Burton with him on the brief) of Holland & Hart LLP, Salt Lake City, Utah, for Appellee Eurogas, Inc.

          Before MICHAEL, ROMERO, and HALL, Bankruptcy Judges.

          OPINION

          ROMERO, Bankruptcy Judge.

         Appellant, the Slovak Republic, appeals the bankruptcy court's order approving a settlement agreement proposed by the Chapter 7 trustee, which provides for the bankruptcy estate's abandonment of litigation claims in exchange for consideration and waiver of claims. Because we find Appellant lacks standing, we dismiss this appeal.

         I. BACKGROUND

         a. The 2004 Bankruptcy

         In June 2004, the Southern District of Texas bankruptcy court entered a judgment against Eurogas, Inc. (the "Debtor"), the Debtor's principals, and five other corporate entities in the amount of $113, 733, 315 plus interest. The judgment creditors, consisting of several bankrupt entities and their principals, were represented by a Chapter 7 trustee (the "Texas Trustee"). The Texas Trustee initiated the Debtor's involuntary Chapter 7 proceeding in the District of Utah bankruptcy court in May 2004. In November 2004, the Texas Trustee filed a proof of claim in the Debtor's bankruptcy case in the amount of $113, 371, 837 (the "$113 Million Judgment"). Texas Euro Gas Corp. ("Texas Euro Gas") purchased the $113 Million Judgment claim from the Texas Trustee in September 2007.[1]

         Neither the Debtor nor its officers or representatives filed schedules or statements in the bankruptcy case, despite a court order to do so.[2] The appointed Chapter 7 trustee in the Debtor's case investigated assets, liquidated them, and distributed approximately $700, 000 to creditors, representing a .56 percent distribution on the claims in the case.[3]Texas Euro Gas received the majority of that distribution on account of the $113 Million Judgment.[4] The bankruptcy court closed the case in March 2007. During the Debtor's bankruptcy case, the Debtor's officers, directors, and shareholders formed a second entity also named EuroGas, Inc. ("EuroGas"). EuroGas incorporated in November 2005 and asserts that it merged with the Debtor in July 2008, assuming all of the Debtor's assets and liabilities.[5]

         b. The 2015 Reopening

         In September 2015, Texas Euro Gas sent a letter to the United States Trustee for the District of Utah (the "U.S. Trustee"), urging the U.S. Trustee to reopen the bankruptcy case to investigate additional property of the estate, which Texas Euro Gas suggested had not been administered during the bankruptcy case. The assets related to the Debtor's interest in a foreign entity. As of the date of the involuntary petition, the Debtor was the sole stockholder of an Austrian company. The Austrian company owned a thirty-three percent interest in a Slovakian corporation, Rozmin, s.r.o. ("Rozmin").[6] Rozmin owned a twenty-four percent interest in mining rights to talc deposits in the Slovak Republic (the "Talc Mining Rights").[7] The Slovak Republic revoked the Talc Mining Rights in December 2004.[8] This led to several lawsuits in the Slovak Republic over the Talc Mining Rights, which remain unresolved (the "Talc Mining Rights Claims"). Prior to Texas Euro Gas' letter to the U.S. Trustee, EuroGas initiated an arbitration proceeding before the International Centre for Settlement of Investment Disputes in Paris, France, seeking resolution of the Talc Mining Rights Claims (the "Arbitration").

         The U.S. Trustee filed a motion to reopen the bankruptcy case, explaining the Chapter 7 trustee may not have administered the Talc Mining Rights Claims. The U.S. Trustee requested the bankruptcy court reopen the case to allow a trustee to investigate and potentially administer the Talc Mining Rights Claims.[9] The bankruptcy court reopened the bankruptcy case over EuroGas' objection. The U.S. Trustee selected Elizabeth Loveridge for appointment as the Chapter 7 trustee ("Trustee Loveridge") on December 21, 2015.

         c. Motion to Approve Settlement Agreement and Notice of Abandonment

         After her appointment, Trustee Loveridge investigated ownership of the Talc Mining Rights Claims. Trustee Loveridge determined she "would be required to bring an adversary proceeding against EuroGas, " to establish the estate's interest in the Talc Mining Rights Claims, "which would require substantial time and resources."[10]Accordingly, Trustee Loveridge negotiated a settlement agreement with EuroGas that provided for Trustee Loveridge's abandonment of the estate's interest in the Talc Mining Rights Claims in exchange for consideration (the "Agreement"). The pertinent portions of the Agreement provide that in exchange for consideration of $150, 000 from EuroGas to the bankruptcy estate, Trustee Loveridge would file a notice of abandonment of any remaining interest in the Talc Mining Rights Claims (the "Abandonment"). Upon bankruptcy court approval of the Abandonment, EuroGas would make an additional payment of the lesser of (a) $100, 000; or (b) the amount needed to pay administrative claims in full plus an additional $175, 000 distribution to creditors. This effectively capped EuroGas' consideration at $250, 000. As further incentive for the Abandonment, Texas Euro Gas agreed to withdraw its proof of claim for the $113 Million Judgment, eliminating the debt from the estate.

         Trustee Loveridge filed the Motion to Approve Agreement and Notice of Intent to Abandon Property of the Estate (the "Settlement Pleadings") in August 2016.[11] The Slovak Republic objected to the Settlement Pleadings, arguing the Agreement was effectively a sale under 11 U.S.C. § 363, [12] instead of a settlement or compromise and the Agreement was not made in good faith because it relied on the withdrawal of Texas Euro Gas' claim-among other arguments.[13] After Trustee Loveridge and EuroGas entered the Agreement, the Slovak Republic offered $250, 000 to purchase the estate's interest in the Talc Mining Rights Claims by quitclaim deed.[14]

         After conducting a three-day hearing, the bankruptcy court approved the Agreement, finding its terms, including withdrawal of Texas Euro Gas' claim, resulted in a fifteen to twenty percent distribution on the claims of unsecured creditors.[15] The bankruptcy court noted whether the Talc Mining Rights Claims were property of the bankruptcy estate or were previously abandoned was "of great interest to both [EuroGas] and the Slovak Republic."[16] The bankruptcy court also noted the Slovak Republic objected "not because it believe[d] it [would] be paid more as a creditor if the Agreement [was] rejected, but because it [stood] to benefit in the [Arbitration]" if the bankruptcy court did not approve the Agreement and Abandonment.[17] The bankruptcy court considered the Slovak Republic's argument that the Agreement was effectively a § 363 sale, but determined there was no advantage to creditors to applying a § 363 analysis. The bankruptcy court found Trustee Loveridge "compromised several issues that would require protracted litigation" and that "[a]voiding litigation may be the subject of a compromise or settlement."[18]

         Accordingly, the bankruptcy court reviewed the Agreement as a Federal Rule of Bankruptcy Procedure Rule 9019 settlement and applied the analysis set forth in Kopexa.[19] The bankruptcy court's analysis under the Kopexa factors weighed in favor of approving the Agreement. The bankruptcy court also authorized Trustee Loveridge to abandon any claim to the Talc Mining Rights Claims pursuant to § 554(a) as being burdensome and of inconsequential value to the estate. Specifically, the bankruptcy court found litigation to determine the bankruptcy estate's interest in the Talc Mining Rights Claims would be costly and the Talc Mining Rights Claims were of inconsequential value to any parties outside of the Arbitration.[20] The bankruptcy court also relied on Trustee Loveridge's business judgment for rejecting the Slovak Republic's offer to purchase the Talc Mining Rights Claims for $250, 000 by quitclaim transfer.

         Trustee Loveridge requested the bankruptcy court approve the abandonment nunc pro tunc, but the bankruptcy court did not specifically order nunc pro tunc relief because "[w]hen property is abandoned, it 'reverts to the debtor and stands as if no bankruptcy petition was filed.'"[21] The bankruptcy court concluded that the Agreement and Abandonment removed the dispute over title of the Talc Mining Rights Claims from the context of the bankruptcy case. Any further disputes as to the Talc Mining Rights Claims' title would be resolved in the Arbitration. Accordingly, the bankruptcy court entered the Order Granting Trustee's Motion to Approve Agreement and Memorandum Decision (collectively, the "Decision"), granting the Settlement Motion and approving the Abandonment. The Slovak Republic filed a timely notice of appeal of the Decision. EuroGas filed the Motion to Dismiss Appeal (the "Motion to Dismiss"), [22] alleging the Slovak Republic lacks standing to appeal, which we now consider.

         II. JURISDICTION AND STANDARD OF REVIEW

         This Court has jurisdiction to hear timely filed appeals from "final judgments, orders, and decrees" of bankruptcy courts within the Tenth Circuit, unless one of the parties elects to have the district court hear the appeal.[23] The Slovak Republic appeals an order approving a settlement agreement pursuant to Rule 9019, which is a final order of the bankruptcy court.[24] None of the parties elected to have this appeal heard by the United States District Court for the District of Utah.

         While a determination as to the legal standard applied to an issue is typically reviewed de novo, [25] the Tenth Circuit recognizes that a bankruptcy court's decision "[w]hether to impose formal [§ 363] sale procedures is ultimately a matter of discretion that depends on the dynamics of the particular situation."[26] The bankruptcy court's approval of a settlement agreement brought pursuant to Rule 9019 is also reviewed for abuse of discretion.[27] A bankruptcy court's decision to authorize or disallow abandonment is reviewed for abuse of discretion.[28] Similarly, a bankruptcy court's decision whether to enter an order nunc pro tunc will not be disturbed absent abuse of discretion.[29]

         III. DISCUSSION

         a. The Slovak Republic's Standing to Appeal

         In the Motion to Dismiss, EuroGas argues the Slovak Republic lacks standing to appeal the Decision. The Slovak Republic obtained standing as an unsecured creditor in the bankruptcy case by purchasing two unsecured claims.[30] In the Motion to Dismiss, EuroGas argues the Slovak Republic is not an aggrieved party because, as an unsecured creditor, the Slovak Republic stands to receive a greater return on its claim under the Agreement than it otherwise would. The Slovak Republic responds, arguing: (1) EuroGas waived its right to contest the Slovak Republic's standing by not objecting below; and (2) the Slovak Republic is an aggrieved party because the bankruptcy court's orders foreclosed a § 363 sale, which may have generated a greater distribution to creditors.

         We begin with a review of standing. Constitutional standing is a threshold issue that may be raised at any time.[31] Constitutional standing requires an injury in fact; a causal relationship between the injury in fact and the challenged conduct; and a likelihood that the injury will be redressed by the court's review.[32] Where existence of a case or controversy is not an issue, courts may impose "a judicially-created set of principles that, like constitutional standing, places 'limits on the class of persons who may invoke the courts' decisional and remedial powers, '" known as prudential standing.[33] Generally, the "'party invoking federal jurisdiction bears the burden of establishing' standing."[34]

         "[A] party that has satisfied the requirements of constitutional standing may nonetheless be barred from invoking a federal court's jurisdiction."[35] Prudential standing necessitates meeting three conditions a party must overcome before invoking federal jurisdiction: (1) "a plaintiff must assert his own rights, rather than those belonging to third parties;" (2) "the plaintiff's claim must not be a generalized grievance shared in substantially equal measure by all or a large class of citizens;" and (3) "a plaintiff's grievance must arguably fall within the zone of interests protected or regulated by the statutory provision or constitutional guarantee invoked in the suit."[36]

         The Tenth Circuit Court of Appeals places prudential standing limitations on bankruptcy appeals, recognizing that, "although the Bankruptcy Code 'does not contain an explicit grant or limitation on appellate standing, ' only a 'person aggrieved' by a bankruptcy court's order may appeal."[37] The "person aggrieved" standard "is more stringent . . . than the 'case or controversy' standing requirement . . . because it is designed to limit appellate standing 'in order to avoid endless appeals brought by a myriad of parties who are indirectly affected by every bankruptcy court order.'"[38] A "person aggrieved" is a person "whose rights or interests are directly and adversely affected pecuniarily by the decree or order of the bankruptcy court."[39] "Accordingly, to qualify as a person aggrieved, [a party] would have to show that the bankruptcy court order at issue 'diminish[ed his] property, increase[ed his] burdens, or impair[ed his] rights."[40] "Appellants bear the burden to demonstrate standing."[41]

         The Slovak Republic correctly points out prudential standing differs from constitutional standing in that the former is not jurisdictional and may be waived.[42]However, Tenth Circuit authority provides the "'person aggrieved' test is meant to be a limitation on appellate standing."[43] Furthermore, the Rules required Trustee Loveridge to provide all creditors with notice and opportunity to object to the Settlement Pleadings.[44]Accordingly, EuroGas had no basis to object to the Slovak ...


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