Abdulla v. Coleman

Filing 20

ORDER granting 5 Motion to Dismiss. Signed by Judge William T. Moore, Jr on 3/26/2013. (loh)

IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF GEORGIA
SAVANNAH DIVISION
(F)

In re:
SPORTSMAN'S LINK, INC.
SOHAIL ABDULLA,
Appellant,
CASE NO. CV41215

V.

EDWARD J. COLEMAN, III,
Trustee,
Appellee.

ORDER
Before the Court is Appellee Edward J. Coleman's
Motion to Dismiss Appeal Due to Lack of Standing.
5.)

(Doc.

For the following reasons, Appellee's motion

GRANTED and Appellant's appeal is DISMISSED.

is

Accordingly,

the Clerk of Court is DIRECTED to close this case.
BACKGROUND

In this case, Appellant seeks to appeal the Trustee's
decision to enter into a settlement agreement compromising
an unauthorized adversary proceeding brought by Appellant's
counsel on behalf of Debtor, Sportsman's Link, Inc.
1, Attach. 13 at 199-201.)

(Doc.

Appellant is the sole

shareholder of Debtor Sportsman's Link, while Appellee is
the Bankruptcy Trustee for Debtor.

(Id. at 180-81.)

In

the bankruptcy proceeding, Appellant's counsel unilaterally
filed an adversary proceeding alleging legal malpractice
against Debtor's former bankruptcy counsel based on
Debtor's failure to timely assume a lease offered by its
former landlord. 1 (Id.) The Trustee accepted $20,000 in
full settlement of any claims Debtor may have had against
the parties. (Id. at 201.) Appellant filed an objection
to the settlement. (Id.) After conducting a hearing, the
Bankruptcy Judge ultimately agreed with the Trustee that
the settlement was in the best interest of the bankruptcy
estate, finding that "nothing in the record [] suggests a
legal malpractice action would likely result in an award of
substantial damages." (Id. at 220.) The Bankruptcy Judge,
therefore, concluded that "the Court should not and will
not require the Trustee to pursue litigation that is so
speculative simply because the Debtor's principal seeks
that result." (Id.)
Appellant timely appealed the Bankruptcy Judge's
decision. In his brief, Appellant argues that the

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Appellant filed an earlier suit against the same parties
alleging a different theory of legal malpractice based on
counsel advising him to sign a personal guaranty for
certain debt obligations of the debtor. (Id.) In that
case, Appellant's claims failed to survive summary
judgment, a decision that is currently being appealed.
Abdulla v. Klosinski, et al., 1:10-cv--159, Doc. 73 (S.D.
Ga. September 2, 2012)
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Bankruptcy Judge incorrectly concluded that Debtor was
unlikely to succeed on the merits of its claims.
at 22--30.)

(Doc. 8

In addition, Appellant contends that the

Bankruptcy Judge incorrectly determined that the
complexity, expense, inconvenience, and delay in litigation
weighed in favor of accepting the settlement; and failed to
give sufficient weight to the position of Debtor's largest
unsecured creditor that the settlement should be rejected.
(Id. at 30-31.) In his response brief, the Trustee
maintains that the Bankruptcy Judge's conclusions were
correct and that appropriate deference was given to the
Trustee's business judgment. (Doc. 16.)
In addition to his brief on the merits, the Trustee
filed a Motion to Dismiss Appeal Due to Lack of Standing.
(Doc. 5.) In his motion, the Trustee argues that Appellant
lacks standing because he is not a person aggrieved by the
Bankruptcy Judge's decision. (Id. at 5.) The Trustee
reasons that Appellant's pecuniary interests are not
directly and adversely affected by Bankruptcy Court's order
approving the settlement. (Id. at 5-8.) In his terse
response, Appellant simply claims that he was an aggrieved
party because the value of the malpractice claim greatly
exceeded the amount Debtor owes to its creditors. (Doc. 11
at 2.) Appellant reasons that his pecuniary interests have
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been directly and adversely affected because he would have
personally received any monies obtained from the
malpractice suit that were in excess of the amount of
Debtor's obligations. (Id.)
ANALYSIS

A party seeking to appeal a decision by the Bankruptcy
Court must establish that the Federal Bankruptcy Code
confers him standing to prosecute the appeal. See Westwood
Cruty. Two Assn, Inc., Unofficial Ad Hoc Comm. v. John P.
Barbee (In re Westwood Cmty. Two Ass'n, Inc.), 293 F.3d
1332, 1334-36 (11th Cir. 2002) . In this Circuit, only
individuals that are "persons aggrieved" by the bankruptcy
order being appealed have standing to appeal that decision.
Id. at 1335. A "person aggrieved" is one that has a
"direct and substantial interest in the question being
appealed." Id. (quoting In re Odom, 702 F.2d 962, 963
(11th Cir. 1983)) (internal quotations omitted)
This standard is more exacting than constitutional
standing under Article III, requiring instead that an
individual be " 'directly and adversely affected
pecuniarily by the order.' " Id. (quoting In re Troutman
Enters., Inc., 286 F.3d 359, 364 (6th Cir. 2002))
Therefore, standing is restricted to those individuals that
have a financial stake in the order being appealed such
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that the order " 'diminishes their property, increases
their burdens or impairs their rights.' "

Id. (quotin

Troutman, 286 F.3d at 364). According to the Eleventh
Circuit Court of Appeals, " '[t]his general rule was
developed as a means to control, in an orderly manner,
proceedings that often involve numerous creditors who are
dissatisfied with any compromise that jeopardizes full
payment of their outstanding claims against the bankrupt."
Id. (quoting In re Carbide Cutoff, Inc., 703 F.2d 259, 264
(7th Cir. 1983)
Put another way,
'[tJhe rationale for such a strict requirement is
that bankruptcy litigation almost always involves
the interests of numerous parties who may or may
not be parties to the litigation. Restricting
standing to those who have a direct pecuniary
interest in the litigation avoids endless appeals
brought by individuals affected only indirectly by
the bankruptcy court's orders."
In re Attorneys at Law & Debt Relief Agencies, 353 B.R.
318, 322 (S.D. Ga. 2006) (quoting Lynch v. Cal. Pub, Utils.
Comm's, 311 B.R. 798 (N.D. Cal. 2004)); accord Westwood,
293 F.3d at 1335 n.3. Therefore, a party has standing to
appeal an order when its reversal would have an immediate
effect on that individual's pecuniary interests, not where
reversal simply raises the mere possibility that some

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pecuniary benefit may inure to the individual in the
future.
With these principles in mind, it quickly becomes
apparent that Appellant lacks standing to pursue this
appeal. In short, Appellant is not a 'person aggrieved"
because the Bankruptcy Court's order does not directly and
adversely affect his pecuniary interests. This Court
recognizes that the bankruptcy court's order does remove
the possibility that Appellant may personally receive
monies should Debtor prevail on its malpractice suit and
recover damages in excess of its liabilities. The
bankruptcy court's elimination of this possibility,
however, is insufficient to confer standing. As noted
above, Appellant's pecuniary interests must be directly and
immediately affected by the bankruptcy court's decision for
Appellant to obtain standing under the Federal Bankruptcy
Code. Simply put, there are far too many contingencies
associated with Appellant's argument for this Court to
conclude that he possesses standing to prosecute this
appeal. For example, Debtor must prevail in the
malpractice claim, Debtor must receive a substantial
recovery, and the recovery must exceed Debtors outstanding
liabilities.
best,

This chain of possibilities establishes, at

an indirect effect on Appellant's pecuniary
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interests, far from the direct and adverse effect required
to impart standing to prosecute this appeal.
In his peculiarly short two-page response, Appellant
seems to recognize as much. First, Appellant failed to
cite any legal authority in his response, much less offer
any legal authority for the proposition that a shareholder
of an insolvent corporation possesses standing to appeal a
decision by the bankruptcy court settling a potential claim
that may have awarded damages in excess of liabilities.
Second, Appellant's own argument portrays the contingent
nature of his argument. In his response, Appellant argues
that

'[i]f Appellant's theories of malpractice are correct,

and the failure of Debtor was caused by the mistakes of
counsel, then the potential recovery in a malpractice
action will far exceed the $1.1 million value declared by
the bankruptcy court." (Doc. 11 at 2 (emphasis added).)
Appellant's own argument, therefore, shows that it relies
on at least three unknowns: (1) his theory of legal
malpractice being correct; (2) Debtor's losses being caused
by former counsel's malpractice; and (3) recovery of
damages of an amount in excess of Debtor's liabilities.
This contingent nature regarding Appellant's claim for any
personal recovery of monies serves to deprive him of
standing to appeal the bankruptcy court's decision to allow
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the Trustee to settle Debtor's potential malpractice claim
for $20,000. To find otherwise would be to impart on an
indirectly affected party the ability to delay the ultimate
resolution of a debtor's bankruptcy proceedings to the
detriment of its creditors, the very same fear underlying
the more restrictive standing requirements present in the
Federal Bankruptcy Code.
CONCLUSION

For the foregoing reasons, Appellee Edward

J.

Coleman's Motion to Dismiss Appeal Due to Lack of Standing
(Doc. 5)

is GRANTED and Appellant's appeal is

DISMISSED.

Accordingly, the Clerk of Court is DIRECTED to close this
case.
SO ORDERED this

2

M ay of March 2013.

az

WILLIAM T. MOORE, JR.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA

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