In Re Helmstetter

44 F.4th 676

IN RE: Michael S. HELMSTETTER, Debtor-Appellant.

No. 21-2486

United States Court of Appeals, Seventh Circuit.

Argued May 17, 2022

Decided August 11, 2022

Nicola S. Tancredi, Attorney, Law Office of Nicola S. Tancredi, Oakbrook Terrace, IL, for Debtor-Appellant.

Gregory K. Stern, Attorney, Chicago, IL, for David Herzog.

Before Sykes, Chief Judge, and Kirsch and Jackson-Akiwumi, Circuit Judges.

Jackson-Akiwumi, Circuit Judge.

Chapter 7 Debtor Michael S. Helmstetter appeals the bankruptcy court's decision approving a settlement agreement entered into on behalf of his estate and executed by the estate's trustee. But because Helmstetter fails to show how it is likely—and not merely speculative—that his purported injury would be redressed by a favorable decision from this court, he lacks Article III standing to appeal the bankruptcy court's decision. Accordingly, we affirm the district court's judgment dismissing the bankruptcy appeal for lack of jurisdiction.

I

In 2014, five years before Helmstetter voluntarily filed for Chapter 7 bankruptcy, he filed a lawsuit in state court against his former employers, Kingdom Chevrolet, Inc., and Western Avenue Nissan, Inc., and their majority shareholder, Richard Ruscitti (collectively, the "Kingdom Entities"). The Kingdom Entities then filed counterclaims and a separate lawsuit against Helmstetter in state court. The state court litigation between Helmstetter and the Kingdom Entities was automatically stayed when Helmstetter filed his bankruptcy petition in October 2019. At the time of the stay, the parties had only completed limited written discovery.

As expected, after Helmstetter filed his bankruptcy petition, an estate was created containing all of his legal and equitable property interests, including the state court litigation. See 11 U.S.C. § 541(a)(1). The bankruptcy court appointed David Herzog as trustee over Helmstetter's estate. Trustee Herzog's task was to "gather the estate's assets for pro rata distribution to the estate's creditors." In re Teknek, LLC , 563 F.3d 639, 645 (7th Cir. 2009) (citation omitted). To facilitate the distribution process, Helmstetter filed three schedules of assets and liabilities under penalty of perjury with the bankruptcy court. He filed his first set of schedules in November 2019 and his first amended set in April 2020. In both sets of schedules, Helmstetter valued his total assets at approximately $8.5 million, which included his projected recovery in the state court litigation of between $5 million and $7.5 million, and some "other assets" worth roughly $1 million to $3.5 million. In both sets of schedules, Helmstetter valued his liabilities between approximately $6.5 million and $10.5 million.

After Helmstetter filed the first amended schedules but before Helmstetter filed his second amended schedules, Trustee Herzog moved the bankruptcy court to approve a settlement agreement between the Kingdom Entities and Trustee Herzog, on behalf of the estate. Relevant to this appeal, the parties agreed to dismiss the state court litigation; the Kingdom Entities agreed to pay $550,000 to Trustee Herzog for the benefit of the estate; and Trustee Herzog agreed to transfer to the Kingdom Entities the estate's interests, if any, in the Kingdom Entities and related companies.

Subsequently, Helmstetter filed his second amended schedules wherein he valued his total assets at $43 million¹ and his liabilities at approximately $20 million. His total assets included $16 million for the estate's recovery in the state court litigation and $24 million for other assets. The "other assets" valuation now included $20 million from purported claims against third parties. Helmstetter's new valuations copied estimates from a report produced by accountants from The BERO Group. Helmstetter provided no evidence to support the estimates, and the report does not explain how the accountants reached the estimates or what methodologies they used. Helmstetter then objected to Trustee Herzog's motion to approve the settlement, arguing that the settlement was improper because it undervalued the state court litigation.

The bankruptcy court held a hearing on Trustee Herzog's motion to approve the settlement. Relying on the second amended schedules and The BERO Group report, Helmstetter argued at the hearing that the state court litigation recovery was worth $16 million, so the $550,000 proposed settlement was insufficient. Trustee Herzog disputed Helmstetter's increased valuation of the state court litigation. He argued that Helmstetter wanted the estate to hire a new attorney who requested a 50 percent contingency fee to recover the projected $16 million, so even accepting the $16 million figure, the state court litigation recovery amount was much lower than Helmstetter's projections.

Over Helmstetter's objection, the bankruptcy court approved the settlement agreement, finding that it was fair and reasonable and that approving it was in the best interest of the estate.

Without seeking a stay of the bankruptcy court's order, Helmstetter appealed the bankruptcy court's decision to the district court, arguing that the bankruptcy court improperly approved the settlement agreement and undervalued the state court litigation.

He also filed a motion to supplement the record, to conduct discovery, and for appointment of a special master. Trustee Herzog moved to dismiss the appeal for lack of standing. He argued that Helmstetter did not have a reasonable expectation of recovering a surplus after the estate paid all creditors, therefore Helmstetter would not benefit from reversal of the bankruptcy court's order. Helmstetter countered that, based on The BERO Group report and the second amended schedules, the estate would have a $20 million surplus after paying the creditors.

The district court granted Trustee Herzog's motion and denied Helmstetter's motion. Helmstetter timely appealed to this court. At some point before this appeal, Trustee Herzog and the Kingdom Entities executed the settlement agreement and dismissed the state court litigation.

II

In this appeal, Helmstetter maintains that the bankruptcy court undervalued the estate's potential recovery from the state court litigation and erred in approving the settlement. He also challenges the district court's decision dismissing the matter for lack of jurisdiction and denying his request to supplement the bankruptcy court record. Trustee Herzog argues that Helmstetter lacks standing to bring this appeal for the same reasons advanced in the district court. Alternatively, Trustee Herzog argues that the appeal is moot, both equitably and under 11 U.S.C. § 363(m), because the settlement agreement is complete and the state court litigation has been dismissed.

Article III standing is...