from the United States District Court for the Southern
District of Texas
SMITH, WIENER, and WILLETT, Circuit Judges.
WILLETT, CIRCUIT JUDGE.
bankruptcy litigation, the mishmash of multiple parties and
multiple claims can render things labyrinthine, to say the
least. To dissuade umpteen appeals raising umpteen issues,
courts impose a stringent-yet-prudent standing requirement:
Only those directly, adversely, and financially impacted by a
bankruptcy order may appeal it.
appeal is from a bankruptcy court order approving a
trustee's application to employ special counsel.
Appellant Robert Furlough, owner of the Debtor, Technicool
Systems, objects to Trustee Lowell Cage's application to
employ Stacy & Baker, P.C. (SBPC), alleging that SBPC
holds an interest "adverse to the estate" under 11
U.S.C. § 327(a). Both the bankruptcy court and the
district court held that Furlough lacked standing to object.
We agree. Furlough's indirect interest in the order fails
to meet the strict requirements for bankruptcy standing.
Because the order does not reach his wallet, he cannot reach
Oilwell Varco (NOV) purchased roughly 300 industrial-strength
air conditioners from manufacturer Technicool Systems for use
on specialty oil-and-gas rigs around the world. The total
cost to NOV exceeded $3 million. The units were marketed as
"desert-proof." They weren't. After multiple
units failed in the field, NOV, represented by SBPC, sued
Technicool in Texas state court for fraud, breach of
warranty, and negligent misrepresentation.
thereafter, Technicool filed for Chapter 7 bankruptcy and the
resulting automatic stay froze NOV's state court lawsuit.
NOV filed a Motion for Relief from the Stay to join
Technicool's owner, Robert Furlough, to its state suit.
After an evidentiary hearing, the bankruptcy court modified
the automatic stay; it allowed NOV to add Furlough but
prohibited NOV from alleging "any cause of action for
damages suffered directly or indirectly by the Estate, or
that otherwise are Estate property."
addition to its state court suit against Technicool and
Furlough, NOV filed a $3 million proof of claim in the
bankruptcy case, representing 93 percent of the total claims
filed by Technicool creditors. SBPC represented NOV in this
discovery revealed that Furlough had formed other companies
closely related to Technicool, the Trustee sought to
consolidate the businesses and pierce the corporate veil. To
that end, the Trustee filed an application to employ SBPC as
special counsel under 11 U.S.C. § 327(a). Furlough
objected to this application, arguing that SBPC was not a
disinterested person as required by § 327(a) and that
SBPC's representation of NOV was a disqualifying
"interest adverse to the estate."
bankruptcy court held a hearing on Furlough's objection.
The Trustee presented an engagement letter, signed by SBPC,
in which NOV agreed to transfer to the bankruptcy estate any
funds it recovered from Furlough in the state court
proceedings up to the total amount of creditor claims on
file. At the close of the hearing, the court held that
Furlough lacked standing to object because he was not a
creditor and did not have a stake in the estate. It then
approved the Trustee's application to employ SBPC.
district court affirmed on standing, and ...