In In re Schubert, the Sixth Circuit affirmed the bankruptcy court’s dismissal of an adversary proceeding because the appellants had failed the “person-aggrieved” test for bankruptcy appellate standing. Had they challenged this standard’s existence, two of the three judges likely would have “abrogate[d]” it; the third would have salvaged it. This decision’s dicta represents perhaps the first outright rejection of bankruptcy’s appellate standing touchstone based on the Supreme Court’s analysis in Lexmark International Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014).
While Lexmark dealt with federal trademark law, the Supreme Court challenged “prudential” non-Article III “standing” tests. The Court concluded that the proper test is whether a plaintiff is in the “zone of interests” to be protected by a statute, along with proof of proximate causation, and declared that courts are not free to impose other purported “standing” limitations on a congressionally-authorized cause of action.
The often-applied “person-aggrieved” standard for appellate standing in the bankruptcy context is anchored in repealed language of the Bankruptcy Act of 1898. The modern bases for that standard are “prudential” concerns untethered to any specific legislative text. Thus, one may argue that the “person aggrieved” standard constitutes an extra-textual “standing” theory similar to those barred by Lexmark whenever it results in the denial of appellate standing to persons who, as “parties in interest,” are statutorily entitled to appear in a bankruptcy case or proceeding. That, case law suggests, happens regularly.
Post-Lexmark Law: Accommodation or Avoidance?
While the Supreme Court has stayed silent, circuit after circuit has upheld the validity of the “person-aggrieved” standard. Decisions from some have hinted at how Lexmark could eventually change this yardstick. With its Schubert decision, the Sixth Circuit may foreshadow future challenges to the “person-aggrieved” standard.