BANKRUPTCY CORNER
BANKRUPTCY CORNER
Party in Interest and Objecting to Claims
JASON S . RIGOLI
What is a “ party in interest ”? This undefined term in the Bankruptcy Code is a broad concept related to standing in a bankruptcy case . In June , a unanimous Supreme Court addressed the breadth of “ party in interest ” in connection with 11 U . S . C . § 1109 ( b ), which allows any party in interest to raise and be heard on any issue in a Chapter 11 bankruptcy . See Truck Ins . Exch . v . Kaiser Gypsum Co ., 144 S . Ct . 1414 , 219 L . Ed . 2d 41 ( 2024 ). While declaring its opinion to be narrow in scope , the Supreme Court made three pertinent points :
( i ) that “[ t ] he general theory behind 11 U . S . C . § 1109 ( b ) is that anyone holding a direct financial stake in the outcome of the case should have an opportunity ( either directly or through an appropriate representative ) to participate in the adjudication of any issue that may ultimately shape the disposition of his or her interest [,]” id . at 1424 ( quoting 7 Collier on Bankruptcy ¶ 1109.01 ( 16th ed . 2023 ) Internal quotations omitted ),
( ii ) that “[ c ] ourts must determine on a caseby-case basis whether a prospective party has a sufficient stake in reorganization proceedings to be a ‘ party in interest [,]’” id . at 1423 , and
( iii ) “ that Congress uses the phrase ‘ party in interest ’ in bankruptcy provisions when it intends the provision to apply ‘ broadly .’” Id . at 1424 ( Hartford Underwriters Ins . Co . v . Union Planters Bank , N . A ., 530 U . S . 1 , 7 , 120 S . Ct . 1942 , 147 L . Ed . 2d 1 2000 ) ( quoting 11 U . S . C . § 502 ( a )) ( internal quotation marks omitted )). While chapters 7 , 12 , and 13 do not have a corollary to § 1109 ( b ), as noted in Truck Ins . Exch ., the term “ party in interest ” is used in other sections of the Bankruptcy Code which are applicable in each of those chapters . Id . at 1424 . One such section is Section 502 ( a ), which reads :
A claim or interest , proof of which is filed under section 501 of this title , is deemed allowed , unless a party in interest , including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title objects .
11 U . S . C . § 502 ( a ) ( emphasis added ).
Is a creditor a “ party in interest ” with standing to object to another creditor ’ s claim ?
Notwithstanding the use of “ party in interest ” in § 502 ( a ), courts have been divided about whether one creditor has standing to object to another creditor ’ s claim in a chapter 7 case with a trustee appointed , without obtaining leave of the court .
On October 21 , 2024 , Bankruptcy Judge Goldblatt from Delaware addressed this issue post-Truck Ins . Exch . See In re Team Sys . Int ’ l , LLC , Case No . 22-10066 ( CTG ), 2024 Bankr . LEXIS 2573 ( Bankr . D . Del . Oct . 21 , 2024 ). Applying the application of “ party in interest ” given by the Supreme Court in Truck Ins . Exch ., Judge Goldblatt found that “[ i ] n light of Truck Insurance , § 502 ( a ) must be read to permit not only the chapter 7 trustee , but all parties with a direct financial stake in the outcome of a claims allowance dispute , to object to the allowance of claims .” Id . at * 4 . Judge Goldblatt notes that some courts had held that only a chapter 7 trustee could object to claims under 502 ( a ). 2024 Bankr . LEXIS 2573 at * 3-4 n . 8 ( citing Pascazi v . Fiber Consultants , Inc ., 445 B . R . 124 , 129 ( S . D . N . Y . 2011 )). Accord In re Grassgreen , 172 B . R . 383 , 388 ( Bankr . M . D . Fla . 1994 ) (“ when a trustee is appointed a creditor must receive authority from the court to assert an objection to claim , but when the debtor is acting as debtor in possession , a creditor , as a party in interest , has standing to object to claims without the necessity of Court approval .”); In re Marvelay ,
LLC , Case No . 18-69019-LRC , 2019 Bankr . LEXIS 2275 , at * 20-21 , 2019 WL 3334706 ( Bankr . N . D . Ga . July 23 , 2019 ) (“ The state of the law is unsettled with regard to whether a creditor has standing to object to another creditor ' s claim when the Trustee agrees to allow a claim .”) ( internal citation omitted ).
The rationale is consistent with the Fifth Circuit ’ s opinion issued on October 11 , 2024 , regarding whether a chapter 7 debtor was a
“ party in interest ” with standing to object to claims . Okorie v . Citizens Bank ( In re Okorie ), 2024 U . S . App . LEXIS 25700 ( 5th Cir ., Oct . 11 , 2024 ). The Fifth Circuit stated that the general rule is that a debtor is not a “ party in interest ” because the debtor would have no financial stake in the outcome , however , there are three exceptions to the general rule , including , “ if there exists a possibility that there will be a surplus after payment of claims [, or ] if the sustained claim objection will pay more towards a non-discharged debt .” Id . at * 3-4 .
Conclusion
Accordingly , it appears that Truck Ins .
Exch . should move the needle on who is considered a “ party in in interest ” in all chapters of Bankruptcy , because terms used throughout the code are generally give the same meaning throughout and “ party in interest ” as used in § 502 ( a ) should be read as broadly as § 1109 ( b ).
This article was submitted by Jason S . Rigoli , Esq ., Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL 33431 , jrigoli @ furrcohen . com
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