Bankruptcy

Do "Activists" Have Standing To Object To A Chapter 11 Plan Of Newspaper Publisher?

By Scott Riddle

Seraphin v. Morris Publ'g Group LLC (In re Morris Publ'g Group LLC), 2010 Bankr. LEXIS 488, Ch. 11 Case No. 10-10134 (Bankr. S.D. Ga. Feb. 9, 2010). Morris Publishing Group and 15 affiliates filed Chapter 11 petitions on January 19, 2010.  The Debtors filed a prepackaged plan under which all classes were unimpaired. 

A group of "longtime readers and subscribers" of the St. Augustine Record (one of Debtors' newspapers), objected to the Plan saying they are "horrified" at the quality of the newspaper and its news coverage.  Because the newspaper promised "no change" as a result of the bankruptcy, the Activists argued that the Plan did not work.

The Objecting Parties object to "the promise of 'no change'" (id. P 3) as "uphold[ing] Morris family mismanagement" of the Debtors' media properties (id. P 10). The Objecting Parties see the Debtors' plan as "a potential death sentence for smaller newspapers" like the Record, the demise of which "would be a clear and present danger to our democracy, allowing wrongdoers to prosper without investigative news coverage." 2 (Id. P 7.) The Objecting Parties assert that "Morris Publishing must be held accountable" for inadequate news coverage and for "violating the standard of care . . . . result[ing] in a death spiral of declining interest in newspapers." (Id. P 8.) The Objecting Parties further argue that "[r]efusal to cover the news adequately is contrary to the interest of bondholders . . . in selling newspapers and advertising." (Id. P 9.)

It is not a surprise that the Court found that the Activists had no standing to object to the Plan as creditors.  The Court further held that they had no standing as "newspaper readers" or "community activists."

Mere interest in the outcome of the proceeding is not sufficient to meet the standard. In re Goldman, 82 B.R. 894, 896 (Bankr. S.D. Ohio 1988). Thus an entity without some kind of direct relationship with the debtor, the debtor's property, or the administration of the bankruptcy estate--an entity that is a stranger to the bankruptcy case--is generally not a party in interest under § 1109(b).

The Objecting Parties, as newspaper readers and community activists, are just such strangers to the bankruptcy case here, with nothing more than mere interest in the confirmation of the Debtors' plan. The Objecting Parties, self-styled as community activists or readers, have no direct relationship with the Debtors, the Debtors' property, or the administration of this chapter 11 case. Further, the Objecting Parties do not assert a pecuniary interest that is directly or adversely affected by confirmation and as to which they require representation. Indeed, the Objecting Parties do not assert any pecuniary interest at all.

None of the issues raised by the Objecting Parties are in any way related to the purpose of this chapter 11 case, which is to give the Debtors the breathing space necessary to accomplish their financial rehabilitation. The Objecting Parties raise what could generally be termed public interest issues. The Objecting Parties, self-styled as community activists or merely readers, therefore have not met the standard under § 1109(b) and consequently are not parties in interest as such.

Moreover, even if the Objecting Parties had met the standard under § 1109(b), they still would not have standing to object to confirmation as newspaper readers and community activists any more than they have standing to object as newspaper subscribers. Newspaper readers and community activists have no legally protected interest affected by confirmation in this case. The Objecting Parties are thus precisely the prospective litigants that the limits on standing were designed to exclude: the "clouds of persons indirectly affected by the acts and entitlements of others . . . [who] buzz about, delaying final resolution of cases"

Again, it is obviously no surprise that the group was denied standing to object to the Plan.  However, what if an "activist-minded" Congress decided that such groups did have standing?  What kinds of objections to Plans would we see in cases?  Environmental groups objecting to General Motors' filings because the cars do not meet a certain level of emission control? The local Homeowners' Association objecting to the plan of a business down the road?

Full post as published by Georgia Bankruptcy Blog on March 07, 2010 (boomark / email).