In Re: Revstone Industries v. , 690 F. App'x 88 ( 2017 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 16-2167
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In re: REVSTONE INDUSTRIES LLC, et al., Debtors
Ascalon Enterprises LLC,
Appellant
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On Appeal from the United States District Court
for the District of Delaware
District Court No. 1-15-cv-00347
District Judge: The Honorable Sue L. Robinson
Argued March 22, 2017
Before: SMITH, Chief Judge, JORDAN and ROTH, Circuit Judges
(Filed: June 6, 2017)
Sheldon S. Toll [ARGUED]
Suite 100
29580 Northwestern Highway
Southfield, MI 48034
Counsel for Appellant
Laura D. Jones
James E. O’Neill, III
Colin R. Robinson
Pachulski Stang Ziehl & Jones
919 North Market Street
P.O. Box 8705, 17th Floor
Wilmington, DE 19801
Alan J. Kornfeld [ARGUED]
Pachulski Stang Ziehl & Jones
10100 Santa Monica Boulevard
13th Floor
Los Angeles, CA 90067
Counsel for Appellee
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OPINION*
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SMITH, Chief Judge.
*
This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does
not constitute binding precedent.
2
In this bankruptcy case, the debtors, Revstone Industries, LLC (“Revstone”)
and associated entities, proposed a Chapter 11 plan approved by almost all
creditors. The plan provides for the eventual “sale of all or substantially all of the
property of the estate.” 11 U.S.C. § 1123(b)(4); see In re PPI Enterprises (U.S.),
Inc., 324 F.3d 197, 211 (3d Cir. 2003) (“[A] debtor may develop a Chapter 11 plan
to sell off all of its assets.”). Ascalon Enterprises, LLC (“Ascalon”), Revstone’s
sole member and a non-creditor, filed a limited objection to the plan. According to
Ascalon, Revstone is not entitled to discharge certain debts, as provided in Article
X of the plan, because Revstone would “not engage in business after
consummation of the plan.” 11 U.S.C. § 1141(d)(3)(B). The Bankruptcy Court
disagreed. It concluded that Revstone is entitled to discharge because, after
emerging from bankruptcy, Revstone will continue to operate its business in
substantially the same manner as it did before filing for bankruptcy. [A516] The
Bankruptcy Court approved the plan over Ascalon’s objection, and Ascalon timely
appealed. The District Court affirmed, and Ascalon timely appealed again.1
We conclude that Ascalon lacks standing to appeal. We will affirm on that
alternative ground. See, e.g., Oss Nokalva, Inc. v. European Space Agency, 617
1
The Bankruptcy Court had jurisdiction pursuant to 28 U.S.C. §§ 157 and
1334. The District Court had jurisdiction pursuant to 28 U.S.C. §§ 158(a) and
1334. We have jurisdiction pursuant to 28 U.S.C. §§ 158(d)(1) and 1291.
3
F.3d 756, 761 (3d Cir. 2010) (“[We] may affirm a judgment on any ground
apparent from the record, even if the district court did not reach it.” (citation
omitted)).
APPELLATE BANKRUPTCY STANDING
Appellate standing in bankruptcy is limited to “persons aggrieved” by an
order of the bankruptcy court. In re Combustion Eng’g, Inc., 391 F.3d 190, 214 (3d
Cir. 2004) (citation omitted). The persons-aggrieved test “now exists as a
prudential standing requirement that limits bankruptcy appeals to persons ‘whose
rights or interests are directly and adversely affected pecuniarily by an order or
decree of the bankruptcy court.’” Id. (further quotation marks omitted) (quoting In
re Dykes, 10 F.3d 184, 187 (3d Cir. 1993)). To be a person aggrieved, a party must
challenge an order that “diminishes their property, increases their burdens, or
impairs their rights.” Id. (quoting In re PWS Holding Corp., 228 F.3d 224, 249 (3d
Cir. 2000)).
This standard is “more restrictive than Article III standing.” Id. at 215.
Appellate bankruptcy standing, unlike Article III standing, must be based strictly
on financial injury. Id. Furthermore, this Court has denied standing to parties
“who, even though they may be exposed to some potential harm incident to the
bankruptcy court’s order, are not directly affected by that order.” Id. (internal
quotation marks omitted) (quoting Travelers Ins. Co. v. H.K. Porter Co., 45 F.3d
4
737, 741 (3d Cir. 1995)). These requirements are rooted in the “‘particularly acute’
need to limit appeals in bankruptcy proceedings, which often involve a ‘myriad of
parties . . . indirectly affected by every bankruptcy court order[.]’” Id. (alterations
in original) (quoting Travelers, 45 F.3d at 741).
ASCALON’S STANDING ARGUMENT
In its reply brief, Ascalon argues that it has standing based on the tax
consequences of discharging certain liabilities under the plan. According to
Ascalon, it designated Revstone as an S corporation, and thus any tax liability
would pass from Revstone to Ascalon. Ascalon claims that Revstone incurred
millions of dollars in unpaid federal and state taxes arising from asset sales during
bankruptcy. Subsequently, Ascalon elected to revoke Revstone’s pass-through
status, ending Ascalon’s liability for Revstone’s tax obligations. See I.R.C.
§ 1362(d); In re Majestic Star Casino, LLC, 716 F.3d 736 (3d Cir. 2013)
(discussing the revocation of a debtor’s pass-through status). According to
Ascalon, Revstone stated in open court that it intends to have Ascalon’s tax
election set aside.
Against that backdrop, Ascalon argues that it “is justly apprehensive that, if
Revstone discharges its tax liability, the taxing authorities might seek to impose
liability on Ascalon, despite the election it made.” Reply Br. 1–2.
5
APPLICATION
Ascalon’s argument does not establish standing because it is waived, and in
any event, fails to allege a sufficiently direct financial interest in the litigation.2
Ascalon’s explanation for its own standing has shifted throughout this
litigation. In the District Court, Ascalon argued that it has standing as a creditor
because it submitted a claim that the Bankruptcy Court disallowed without
prejudice. Ascalon has now abandoned that argument3 and raises the taxation issue
for the first time on this second-level appeal. “[A]rguments not squarely put before
the district court are waived on appeal.” Issa v. Sch. Dist. of Lancaster, 847 F.3d
121, 139 n.8 (3d Cir. 2017) (citing P.R.B.A. Corp. v. HMS Host Toll Roads, Inc.,
2
The District Court declined to address standing, “[g]iven the lack of timely
objection or cross-appeal.” In re Revstone Indus., LLC, No. 15-347, 2016 WL
1271462, at *2 (D. Del. Mar. 30, 2016). We disagree with that analysis.
Our sister circuits are divided on whether a party may waive a defense based
on prudential standing. See Lewis v. Alexander, 685 F.3d 325, 340 n.14 (3d Cir.
2012). We need not decide that issue because Revstone timely preserved its
standing objection at every stage of the proceeding. Nor was Revstone required to
take a cross-appeal. As the prevailing party in the Bankruptcy Court, it was not
“aggrieved,” and thus lacked standing to file a separate appeal. See Deposit Guar.
Nat’l Bank, v. Roper, 445 U.S. 326, 333 (1980); Nanavati v. Burdette Tomlin
Mem’l Hosp., 857 F.2d 96, 102 (3d Cir. 1988); see also Smith v. Johnson &
Johnson, 593 F.3d 280, 283 n.2 (3d Cir. 2010) (“Yet a party, without taking a
cross-appeal, may urge in support of an order from which an appeal has been taken
any matter appearing in the record, at least if the party relied on it in the district
court.”).
3
Ascalon re-raised this issue at oral argument, despite excluding it from its
briefing. Because the argument was not presented in any of Ascalon’s briefs, it is
waived. See Halle v. W. Penn Allegheny Health Sys. Inc., 842 F.3d 215, 230 n.17
(3d Cir. 2016).
6
808 F.3d 221, 224 n.1 (3d Cir. 2015)); cf. Nichols v. City of Rehoboth Beach, 836
F.3d 275, 282 n.1 (3d Cir. 2016) (holding that the plaintiff waived an argument in
favor of standing). Furthermore, Ascalon’s standing argument is articulated for the
first time in its reply brief, and does not explain Ascalon’s injury beyond the single
sentence quoted above. See Prometheus Radio Project v. FCC, 824 F.3d 33, 53 (3d
Cir. 2016) (arguments raised for the first time in a reply brief are waived on
appeal); John Wyeth & Brother Ltd. v. CIGNA Int’l Corp., 119 F.3d 1070, 1076 n.6
(3d Cir. 1997) (“[A]rguments raised in passing . . . , but not squarely argued, are
considered waived.”).
Regardless, Ascalon’s “apprehensi[on]” about what the taxing authorities
“might” do, Reply Br. 1–2, is not sufficiently direct to establish appellate
bankruptcy standing. Any consequences flowing from Revstone reverting to a
pass-through entity are “too contingent” to establish standing. Travelers, 45 F.3d at
742; see id. at 742–44 (rejecting appellate standing where the claimed injury was
based on future litigation). But more fundamentally, Ascalon has failed to provide
any support for the proposition that the Bankruptcy Court’s discharge injunction
permits the relevant authorities to assess Ascalon for Revstone’s tax liability, let
alone demonstrate a “direct[] or immediate[]” danger that a taxing authority will do
so. Id. at 742.
7
At oral argument, Ascalon acknowledged that it may fail the persons-
aggrieved test but argued for the first time that that we should abandon that
standard. That argument is also waived. In any event, the persons-aggrieved test is
well established in our precedents, which we are bound to follow. IOP 9.1.
CONCLUSION
Because Ascalon failed to carry its burden to establish appellate standing,
we will affirm.
8