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In re Clifton Capital Group, LLC v. Bradley Sharp

by | May 22, 2023 | Firm News

In In re Clifton Capital Group, LLC v. Sharp (In re Matter of: East Coast Foods, Inc.), No. 21-55967 (9th Cir. May 8, 2023), the United States Court of Appeals for the Ninth Circuit (“Ninth Circuit”) upheld the Bankruptcy Court’s determination that a creditor (“Clifton”) did not have standing to contest an enhanced fee award to a Chapter 11 trustee (“Trustee”) where the award did not impair distribution under the Chapter 11 plan. The Ninth Circuit reasoned that, because payments to Clifton under the Chapter 11 plan were not delayed or otherwise impacted, Clifton could not demonstrate an “injury in fact”, and therefore lacked Article III standing.

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the “person aggrieved” standard, even after the Bankruptcy Act of 1898 – that applied the prudential standard – was repealed and replaced.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.