Keeping Tabs on the Ninth Circuit
May 12, 2023 - This Week at the Ninth

This Week At The Ninth: Easements And Bankruptcy Standing

forest road

This week, the Court considers a property owner’s claim to an easement over a maintenance road on federal land, and casts doubt on the longstanding “person aggrieved” standing requirement in bankruptcy appeals.

The Court rejects a property owner’s claim to an easement over a maintenance road on federal land.

The panel:  Judge M. Smith, Collins, and Lee, with Judge M. Smith writing the opinion.

Key highlight: “Now that the Supreme Court has overruled our precedent and held that the Q[uiet] T[itle] A[ct]’s statute of limitations is merely a claims-processing rule, we need not decide whether the statute of limitations applies in this case. With our jurisdiction no longer in question, we may affirm on any ground supported by the record.” (Internal quotation marks omitted.)

Background: In 1952, the United States acquired land in Montecito, California to build the Ortega Reservoir. Both the 1955 district court judgment documenting the taking and the 1952 Decree of Taking provided that the government took the land “subject . . . to existing rights of way in favor of the public or third parties.” Plaintiff Kimball-Griffith owns property directly north of the Ortega Reservoir. A maintenance road runs directly south of Kimball-Griffith’s property, just within the federal reservoir land. Fences blocking public entry to that road were installed in 1989.

In 2020, Kimball-Griffith sued the Bureau of Reclamation (BOR), its officials, and various local government entities and contractors seeking access to the maintenance road on the theory that Kimball-Griffith’s predecessors-in-interest, the Cunniffs, enjoyed an easement over the road that passed to Kimball-Griffith. The district court held that Kimball-Griffith’s claim against BOR and its officials were required to proceed under the Quiet Title Act and were therefore barred by its statute of limitations. Kimball-Griffith’s other claims were either time-barred or precluded by its failure to allege a property interest in the maintenance road.

Result: The Ninth Circuit affirmed. First, the Court held that it was unnecessary to determine whether Kimball-Griffith’s claims were required to be brought under the Quiet Title Act, which is generally the sole avenue to challenge the United States’ title to real property. The Supreme Court recently held that the Quiet Title Act’s statute of limitations is a claims-processing rule, rather than a jurisdictional requirement. Wilkins v. United States, 143 S. Ct. 870, 877, 881 (2023). Because the Quiet Title Act’s applicability did not implicate the Court’s subject matter jurisdiction, it could reach the merits and dismiss on an alternative basis.

The Court affirmed dismissal because Kimball-Griffith had not established a property interest in an easement over the road, a prerequisite to all its claims. Kimball-Griffith’s case depended on its allegation that the Cunniffs had enjoyed an easement over the road that was explicitly preserved by the 1955 district court judgment and the 1952 Decree of Taking. Kimball-Griffith asserted that the Cunniffs’ easement was established by California law providing that interference with property owners’ access to public streets adjoining their property is a taking to the extent it impairs their access to the public roads. This theory failed because Kimball-Griffith did not allege facts showing that the maintenance road was a public street. Kimball-Griffith also could not show “that the Cunniffs acquired an easement over the [road] as a third-party” because prior to the creation of the Ortega Reservoir the Cunniffs owned the land on either side of and underlying the road. The Cunniffs could not acquire an easement against themselves.

The Court holds that a bankruptcy creditor did not suffer Article III injury from a trustee fee award when payment to the creditor was guaranteed under the bankruptcy plan.

The panel: Judges M. Smith, Nelson, and Drain (E.D. Mich.) with Judge Nelson writing the opinion.

Key highlight: “It is unclear why we continued to apply the person aggrieved rule in the absence of the statute providing the basis for doing so. We appear to have recast the pre-1978 statutory standard and applied it as a principle of prudential standing. But the Supreme Court has since questioned prudential standing, noting it is in some tension with the Court’s recent reaffirmation of the principle that a federal court’s obligation to hear and decide cases within its jurisdiction is virtually unflagging. Still, our bankruptcy cases have historically addressed prudential standing with little attention to Article III standing. After the Supreme Court’s decision in Driehaus, however, we have returned emphasis to Article III standing. And determining our Article III jurisdiction before any prudential considerations does not offend our precedent. We thus first examine Article III standing, which we find lacking here.” (Citations, quotation marks, and alterations omitted.)

Background: East Coast Foods, Inc. (which manages Roscoe’s House of Chicken & Waffles, a famous Los Angeles Restaurant) filed for Chapter 11 bankruptcy in 2016. Clifton Capital Group, LLC was chair of an unofficial committee of unsecured creditors. The bankruptcy court appointed Bradley Sharp as trustee. East Coast Foods’ Chapter 11 bankruptcy plan guaranteed creditors full payment of their claims, including from non-Estate sources. 

Over Clifton’s objection, the bankruptcy court awarded Sharp a fee award of over $1 million dollars, representing the statutory maximum. The district court ruled that Clifton had standing to appeal that order and remanded to the bankruptcy court. The court again awarded the maximum fee and Clifton again appealed. The district court affirmed.

Result: The Ninth Circuit reversed, holding that Clifton lacked Article III standing to appeal the fee award. 

The Court first acknowledged that it had historically bypassed the Article III inquiry in the bankruptcy context, instead assessing whether a party is “aggrieved” by a bankruptcy order. This standard derives from the Bankruptcy Act of 1898, which stated that any “person aggrieved by an order of a referee” could appeal that order. But even after Congress repealed and replaced that Act, the Court continued to use the “person aggrieved” standard, “appl[ying] it as a principle of prudential standing.” As the panel explained, the Supreme Court has since questioned prudential standing, which arguably stands in “tension” with courts’ “virtually unflagging” obligation to hear cases within their jurisdiction. 

Accordingly, the Court started—and ended—by examining Clifton’s Article III standing. Clifton argued that the fee award harmed “both the likelihood and timing of any payment” to Clifton under the bankruptcy plan “by further subordinating it.” This alleged injury, the Court determined, was “too conjectural and hypothetical to establish an injury in fact.” Moreover, Clifton was wrong as to both likelihood and timing.

The Court first explained that the fee award did not impair the likelihood of Clifton’s payment. It determined that the district court had clearly erred in finding that the plan here concerned a limited fund with a finite amount of assets. The Court recognized that “[i]n the limited fund context, changes to any allotment or transfer of funds, including an enhanced fee award, would materially affect the likelihood of any potential payment and therefore directly implicate creditor interests.” But this plan, by contrast, was “a reorganizing plan that proposes to pay all Allowed Claims in full . . . from the Debtor’s ongoing operations and non-Estate sources.” Thus, even if the trustee received the full award and bonus, that would not impact Clifton’s ability to be paid because there were other sources from which to make that payment.

The Court also disagreed that Clifton had suffered injury to the timing of his payment. When it first agreed to the plan, Clifton knew the timing of payment could differ from the initial estimates depending on amounts owed to senior claimants. Moreover, Clifton’s alleged harms were “conjectural at best” because it was still possible that he would be paid within the plan’s estimated window.