Debtor alleges violation of the Thirteenth Amendment; The court declares that the debtor has standing to assert the claim; Decision on the merits to follow | Patterson Belknap Webb & Tyler LLP

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It is rare for a bankrupt debtor to raise allegations of involuntary easement and violation of the Thirteenth Amendment. But that’s exactly what a debtor did after a Chapter 11 trustee was appointed to take over the bankruptcy assets from the debtor. The debtor alleged the constitutional violation on the grounds that he would be involuntarily compelled to work for his creditors.

An initial decision has been appealed to the Eleventh Circuit, which returned last week for further consideration of the matter. Breland v. United States (In re Breland), No. 19-14321, 2021 US App. LEXIS 6970 (11th Cir. March 10, 2021). As such, we’ll have to follow the case further to see how this issue is resolved.

The case concerns an unusual claim. The debtor is a real estate developer who filed Chapter 11 in the Southern District of Alabama. The bankruptcy court appointed a trustee based on evidence that the debtor was defrauding his creditors. The debtor alleged that his Thirteenth Amendment rights were violated because his income would go to the bankruptcy estate and would be out of his control.

The bankruptcy court rejected the claim on the grounds that it was not yet mature since no reorganization plan had been proposed to force the debtor to work for the bankruptcy estate or its creditors. On appeal, the district court asserted on the grounds that the debtor did not have standing because he had not demonstrated de facto prejudice. The recent Eleventh Circuit decision addressed the permanent issue. But the court also sent the case back to the district court for consideration of the alleged Thirteenth Amendment violation.

For a claimant to have standing under Article III, he must demonstrate (i) actual, actual or imminent factual prejudice, (ii) which is attributable to the actions of the defendant, and (iii) who may be repaired by a favorable decision. Friends of the Earth, Inc. v. Laidlaw Envtl. Serv., Inc., 528 US 167 (2000).

In Brandenburg, the appointment of the Chapter 11 trustee [the debtor] the capacity to – or to request authorization to “administer one’s bankruptcy patrimony (for example, to retain professionals; sell assets outside the ordinary course of business; assume and reject binding contracts; and initiate avoidance actions). US application 2021. LEXIS 6970, * 6.

The Eleventh Circuit ruled that this deprivation had given rise to de facto prejudice. The damage could be remedied by removing the trustee and allowing the debtor to resume his role as debtor-in-use. Accordingly, the Eleventh Circuit ruled that the debtor had standing to assert his claim under Article III.

How the debtor will fare on the merits of the Thirteenth Amendment claim is another question. The observation of the Eleventh Circuit on this point deserves to be mentioned:

“It’s so tempting to go ahead and address the merits of [the debtor’s] The Thirteenth Amendment claim, but our hands are tied. It is true, of course, that we can uphold the judgment of a district court on the basis of any ground supported by the record. . . . But when the district court here ruled that [the debtor] lacked standing, he dismissed his claim for lack of jurisdiction in the matter – and therefore without prejudice. US application 2021. LEXIS 6970, * 7 (emphasis in original). . . . Were we going to go beyond the question of competence here and reject [the debtor’s] claim at the bottom, we would, in fact, be in the direction of a dismissal with prejudice – and thus modifying the judgment of the district court. This we cannot do. Identifier. (emphasis in original).

We will follow what happens in the case and report again when there is a decision on the merits.


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