Blogs

In Wigley v. Wigley (In re Wigley), No. 16-4075, 2018 WL 1525832 (8th Cir. Mar. 29, 2018), the Eighth Circuit considered whether a non-party to a bankruptcy proceeding has standing to appeal a bankruptcy court order that allows litigation to proceed against the non-party.

Prior to the bankruptcy case, a creditor sued the debtor for past-due and future accruing rent based on a personal guaranty. While the action was pending, the debtor transferred some of his assets to his wife. After obtaining judgment against the debtor, the creditor (and others) sued the debtor and his wife in state court under the Minnesota Uniform Fraudulent Transfer Act. The state court found the debtor and his wife jointly and severally liable for $795,098 of fraudulently transferred funds. The debtor then filed for Chapter 11 bankruptcy.

The debtor’s first proposed plan of reorganization sought to settle the fraudulent transfer action for a $350,000 payment from his wife. The bankruptcy court denied confirmation, concluding that the proposed settlement was not fair. The court eventually confirmed a subsequent plan, which did not settle the fraudulent transfer action, and separately granted the creditor’s motion for relief from stay so that the creditor could exercise its rights against the debtor’s wife. The debtor’s wife appealed to the BAP, which dismissed her appeal for lack of standing.

The Eighth Circuit affirmed, explaining that only a “person aggrieved” has standing to appeal an order of the bankruptcy court. An individual is a “person aggrieved” only if she has been “directly and adversely affected pecuniarily” by the order. The Eighth Circuit found that the wife’s alleged harm—which was based on potential litigation—was too indirect to confer standing. The court reaffirmed its prior holding that “a bankruptcy court order allowing litigation to proceed against an adversary defendant does not make that defendant a party aggrieved.” See Opportunity Finance, LLC. v. Kelley, 822 F.3d 451, 458 (8th Cir. 2016). Because the wife’s risk of liability and burden of litigation pre-existed the bankruptcy proceeding, the bankruptcy court's orders did not increase her burdens or diminish her rights. Therefore, she was not a “person aggrieved” and lacked standing to appeal.