Ninth Circuit Rejects “Person Aggrieved” Test for Standing in Roscoe’s House of Chicken & Waffles Bankruptcy

Clifton Capital Group, LLC v. Sharp (In re East Coast Foods, Inc.), — F.4th —, 2023 WL 3296746, at *1 (9th Cir. May 8, 2023)

This case is about a very famous Los Angeles restaurant.  Specificlaly, in reaction to a $3.2 million judgment for racial discrimination, the operator of Roscoe’s House of Chicken & Waffles in Los Angeles, California, commenced a chapter 11 bankruptcy case. Nevertheless, the restaurant is extremely popular, having catered to President Obama, being referred to in several movies and songs, and having received Snoop Dogg’s interest in purchasing it.

A chapter 11 trustee was eventually appointed to displace management.  Ultimately, a chapter 11 plan was confirmed that promises to pay the claims of all creditors in full, with interest.

The bankruptcy court awarded fees of over $1 million to the trustee, including an enhancement of 65% for exceptional services. Clifton Capital Group, an unsecured creditor, objected to the award of compensation, arguing that it was unreasonable and that it created a risk of diminished or delayed recovery for unsecured creditors.

“Injury in fact” is a crucial element of Article III standing. Here, the court found Clifton’s alleged injury to be hypothetical and conjectural as the confirmed plan promised full payment to creditors.  Thus, the award of compensation to the trustee did not diminish Clifton’s recovery.

The court rejected the less demanding “person aggrieved” test for standing. The opinion points out the confusion surrounding the historical application of this test, a prudential requirement found in the Bankruptcy Act of 1898, which continued to be used despite the act’s repeal in 1978. Although not expressly stated in the opinion, presumably the “person aggrieved” test survives as a prudential standing doctrine. But in a footnote, the court commented that it need not address prudential standing because it determined that Clifton lacks Article III standing.

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