                            PUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT


In Re: BALTIMORE EMERGENCY               
SERVICES II, CORPORATION,
                          Debtor.


STEVEN M. SCOTT,
                            Appellant,            No. 05-1104
                 v.
NATIONAL CENTURY FINANCIAL
ENTERPRISES, INCORPORATED; PAPPG
GRANTOR TRUST,
                Creditors-Appellees.
                                         
           Appeal from the United States District Court
            for the District of Maryland, at Baltimore.
                Catherine C. Blake, District Judge.
                            (CA-04-207)

                       Argued: October 25, 2005

                      Decided: December 20, 2005

      Before WILKINS, Chief Judge, and WILKINSON and
                 GREGORY, Circuit Judges.



Reversed and remanded with instructions by published opinion. Judge
Wilkinson wrote the opinion, in which Chief Judge Wilkins and
Judge Gregory joined.
2              IN RE: BALTIMORE EMERGENCY SERVICES
                             COUNSEL

ARGUED: Mack Sperling, BROOKS, PIERCE, MCLENDON,
HUMPHREY & LEONARD, Greensboro, North Carolina, for Appel-
lant. Richard Marc Goldberg, SHAPIRO, SHER, GUINOT &
SANDLER, Baltimore, Maryland, for Appellees. ON BRIEF: Scott
Baena, Jay M. Sakalo, BILZEN, SUMBERG, BAENA, PRICE &
AXELROD, L.L.P., Miami, Florida; Matthew G. Summers, MILES
& STOCKBRIDGE, P.C., Baltimore, Maryland, for Appellant. Joel
I. Sher, Kimberly M. Stoker, SHAPIRO, SHER, GUINOT &
SANDLER, Baltimore, Maryland; David S. Cohen, MILBANK,
TWEED, HADLEY & MCCLOY, L.L.P., Washington, D.C., for
Appellee The PAPPG Grantor Trust.


                              OPINION

WILKINSON, Circuit Judge:

   This case concerns the standing of creditors to file an adversary
action in bankruptcy court asserting the interests of the estate. Plain-
tiffs, a secured creditor and a committee of unsecured creditors, sued
a former insider of several debtor corporations to prevent his interfer-
ing with the debtors’ Chapter 11 restructuring. The bankruptcy court
held that plaintiffs had standing and subsequently entered a prelimi-
nary injunction and contempt order in their favor. On appeal, the dis-
trict court affirmed the standing determination.

   Plaintiffs argue that they had "derivative standing" to file this
action because they had the debtors’ consent. Even if the Bankruptcy
Code allows such standing — a threshold question that neither the
parties nor the lower courts addressed — it would be inappropriate
here. Plaintiffs presented no evidence to the bankruptcy court that
they actually had the debtors’ consent, nor did the bankruptcy court
determine that allowing the suit would be beneficial to the estate and
necessary to a fair and efficient resolution of the bankruptcy proceed-
ings. Without these procedural safeguards, there is no clear way to
prevent creditors from commandeering bankruptcy proceedings to
pursue their own interests to the detriment of the estate and other
                IN RE: BALTIMORE EMERGENCY SERVICES                     3
creditors. We therefore reverse the district court and remand with
instructions that the injunction and contempt order be vacated.

                                    I.

   Defendant Dr. Steven M. Scott was the 100% equity holder in, and
the CEO, director, and/or managing member of, several companies
(the "debtors") that supply management and physician services to
healthcare providers. In combination, the debtor companies owned
contracts involving over 2000 doctors and more than 200 hospitals
and clinics, generating a total annual revenue exceeding $420 million.
Among the most valuable of these contracts were those with the
Broward Hospital District ("Broward"), which brought in about $40
million.

   Between November 2002 and April 2003, the debtors filed a series
of petitions with the U.S. Bankruptcy Court in the District of Mary-
land seeking Chapter 11 bankruptcy protection. See 11 U.S.C. § 1101
et seq. (2000). Appellee PAPPG Grantor Trust is the successor-in-
interest to National Century Financial Enterprises (NCFE), the debt-
ors’ largest secured creditor, and the Official Committee of Unse-
cured Creditors appointed to represent the interests of the unsecured
creditors (collectively "plaintiffs"). Together, plaintiffs hold claims of
more than $430 million against the debtors.

   The debtors’ contracts with the Broward Hospital District were due
to expire by their own terms on December 31, 2003. Though there
had been some discussion regarding possible extensions, counsel for
Broward sent a letter to the debtors on December 2, 2003, informing
them that it was breaking off these negotiations. On that same day,
Scott resigned. On or around December 5, 2003, Scott began his own
independent negotiations with Broward to supply the services that the
debtors had been providing. Six days later, Broward and Scott
reached an agreement that he would do so. According to plaintiffs,
Scott also began to sow dissent among physicians at Broward who
worked for the debtors, presumably to recruit them for his new ven-
ture.

   The plaintiff creditors became aware of Scott’s activities shortly
thereafter. They believed that his actions were undermining the debt-
4               IN RE: BALTIMORE EMERGENCY SERVICES
ors’ reorganization process and diverting assets of the debtors’
estates. The debtors were at this time represented by Charles Gold-
stein, their Chief Restructuring Officer (CRO). According to an affi-
davit Goldstein filed several months later with the district court on
appeal, plaintiffs discussed their concerns with him and received his
permission to pursue potential claims against Scott.

   Plaintiffs filed an adversary complaint against Scott with the bank-
ruptcy court on December 18, 2003, seeking declaratory and injunc-
tive relief. They asserted various state-law tort and contract claims, as
well as claims under the federal Bankruptcy Code. The gravamen of
the complaint was that Scott had undermined the debtors’ business
relationships and reduced the value of the estate. The debtors were
parties to neither the complaint nor the motion for injunctive relief.

    The bankruptcy court held a preliminary injunction hearing the fol-
lowing day. At that hearing, the bankruptcy court briefly addressed
the issue of plaintiffs’ standing. It found that "standing for some of
the request for relief certainly is an open issue and one that would be
raised going toward the merits." But it went on to note that "[a]t this
very preliminary stage it seems to me we have standing by the [credi-
tors’] committee . . . because of its concern over the reorganization."
It further stated that "NCFE, as a real party in interest, was the biggest
creditor in the case. Certainly it has standing in the sense that it is a
party in interest in what is the outcome."

   After hearing evidence concerning Scott’s activities, the bank-
ruptcy court issued a preliminary injunction prohibiting Scott for a
period of one year from undertaking various activities deemed poten-
tially harmful to the estate. On January 9, 2004, plaintiffs and the
debtors filed a contempt motion, alleging that Scott had violated this
injunction. Following a hearing, the bankruptcy court found that vio-
lations had occurred and issued a contempt order against Scott.

   Scott appealed to the district court from both the preliminary
injunction and the contempt order. He argued that plaintiffs lacked
standing to request the preliminary injunction, and also challenged
various procedural and substantive aspects of the bankruptcy court’s
determinations. The district court rejected all of Scott’s arguments,
                IN RE: BALTIMORE EMERGENCY SERVICES                     5
affirmed the preliminary injunction, and dismissed the appeal of the
contempt order.

   Scott appeals. We review the district court’s judgment de novo,
applying the same standards of review that it did to the judgment of
the bankruptcy court. See Logan v. JKV Real Estate Servs. (In re Bog-
dan), 414 F.3d 507, 510 (4th Cir. 2005). In particular, we review the
bankruptcy court’s legal conclusions de novo. Id.

                                   II.

   Because we find it dispositive of his various procedural and sub-
stantive challenges to the bankruptcy court’s actions, we consider
only Scott’s argument that plaintiffs lacked standing to request the
preliminary injunction.*

   Under the doctrine of "derivative standing," some of our sister cir-
cuits allow a creditor or creditors’ committee under certain narrow
conditions to file an action in bankruptcy court in place of the debtor-
in-possession or trustee. See, e.g., Smart World Techs., LLC v. Juno
Online Servs., Inc. (In re Smart World Techs., LLC), 423 F.3d 166,
176 & n.15 (2d Cir. 2005). The Bankruptcy Code does not expressly
permit such parties to initiate adversary proceedings. See, e.g., Unse-
cured Creditors Comm. of Debtor STN Enters., Inc. v. Noyes (In re
STN Enters.), 779 F.2d 901, 904 (2d Cir. 1985). Derivative standing
is thus an implicit exception to the "general rule" whereby the Bank-
ruptcy Code assigns to the trustee or debtor-in-possession "the privi-
lege of prosecuting" various actions on behalf of the estate. 7 Collier
on Bankruptcy ¶ 1109.05[1] (Alan N. Resnick & Henry J. Sommer
eds., 15th ed. rev. 2005); id. at nn.3-5 (citing cases).

  Our sister circuits that acknowledge the doctrine have allowed a
bankruptcy court to grant derivative standing to a creditor or credi-

   *We reject plaintiffs’ contention that Scott’s appeal of the injunction
is moot. Despite the fact that the injunction’s one-year term has expired,
"the parties have a concrete interest in the outcome of the litigation."
Firefighters Local Union No. 1784 v. Stotts, 467 U.S. 561, 571 (1984).
The proceedings in this case are ongoing, and PAPPG claims damages
from violations of the injunction.
6                IN RE: BALTIMORE EMERGENCY SERVICES
tors’ committee in two limited circumstances. First, several circuits
have recognized such standing when the trustee or debtor-in-
possession unreasonably refuses to bring suit on its own. See, e.g., In
re Smart World Techs., 423 F.3d at 176; Official Comm. of Unsecured
Creditors of Cybergenics Corp. ex rel. Cybergenics Corp. v. Chinery,
330 F.3d 548, 583 (3d Cir. 2003) (en banc); Fogel v. Zell, 221 F.3d
955, 965 (7th Cir. 2000); Canadian Pac. Forest Prods. Ltd. v. J.D.
Irving, Ltd. (In re Gibson Group, Inc.), 66 F.3d 1436, 1440-41 (6th
Cir. 1995); La. World Exposition v. Fed. Ins. Co., 858 F.2d 233, 247-
48 (5th Cir. 1988). Second, two circuits have permitted creditor deriv-
ative actions when the trustee or debtor-in-possession grants consent.
See In re Smart World Techs., 423 F.3d at 176 n.15; Avalanche Mar.,
Ltd. v. Parekh (In re Parmetex, Inc.), 199 F.3d 1029, 1031 (9th Cir.
1999). It is this latter type of derivative standing that is at issue in this
case.

   We have never decided whether creditor derivative suits are per-
mitted in the bankruptcy courts of this circuit. See Ford Motor Credit
Co. v. Reynolds & Reynolds Co. (In re JKJ Chevrolet, Inc.), 26 F.3d
481, 485 n.7 (4th Cir. 1994) (expressly withholding the question in
the context of 11 U.S.C. § 506(c)); see also Hartford Underwriters
Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 13 n.5 (2000)
(same). The question is a significant one, for limitations on standing
are of paramount importance in bankruptcy proceedings. As we have
recognized in an analogous Chapter 7 context, "[c]ourts consistently
have noted a public policy interest in reducing the number of ancillary
suits that can be brought in the bankruptcy context so as to advance
the swift and efficient administration of the bankrupt’s estate. This
goal is achieved primarily by narrowly defining who has standing in
a bankruptcy proceeding." Richman v. First Woman’s Bank (In re
Richman), 104 F.3d 654, 656-57 (4th Cir. 1997).

   It is far from self-evident that the Bankruptcy Code permits credi-
tor derivative standing. Strong arguments exist on both sides of the
debate, as evidenced by the differing opinions offered in the Third
Circuit’s recent en banc consideration of the matter. See Cybergenics,
330 F.3d 548. The issue in Cybergenics was whether a creditors’
committee could sue under 11 U.S.C. § 544(b) to avoid a fraudulent
transfer when the debtor-in-possession had unreasonably refused to
do so itself. See Cybergenics, 330 F.3d at 552, 555.
                IN RE: BALTIMORE EMERGENCY SERVICES                     7
   The majority found such derivative actions to be permissible, rely-
ing upon three provisions of the Bankruptcy Code that appeared to
implicitly condone them, see id. at 559-67, the equitable power of
bankruptcy courts, see id. at 567-69, bankruptcy court practice prior
to the enactment of the Code, see id. at 569-72, and various policy
considerations, see id. at 572-80. A four-judge dissent, however,
found that the Bankruptcy Code nowhere authorizes the practice, see
id. at 582-84 (Fuentes, J., dissenting), that equity provides no basis for
expanding the class of potential plaintiffs beyond its statutory bound-
aries, see id. at 584-86, that pre-Code practice cannot supplement the
statutory text, see id. at 586-87, and that Congress is the proper body
for weighing different policy concerns, see id. The outcome in Cyber-
genics itself has only added further fuel to the debate. Compare, e.g.,
Alan R. Lepene & Sean A. Gordon, The Case for Derivative Standing
in Chapter 11, 11 Am. Bankr. Inst. L. Rev. 313 (2003) (favoring
derivative standing), with Keith Sharfman, Derivative Suits in Bank-
ruptcy, 10 Stan. J.L. Bus. & Fin. 1 (2004) (opposing derivative stand-
ing).

   It would be ill-advised to decide this important and difficult issue
here. Despite the fact that this is an open question in our circuit, nei-
ther party has addressed it in either their written or oral submissions.
Instead, the parties, like the district court, simply presume that the
doctrine exists in some form, and merely debate its proper contours.
But even if we assume, purely for purposes of argument, that deriva-
tive standing is possible where a debtor-in-possession consents to a
creditor’s suit, it would nevertheless be inappropriate in this case.

                                   III.

   Even those circuits that permit derivative standing do so only under
strict conditions. Plaintiffs here claim that they obtained the debtors’
consent to file this action. The leading case on such consent-based
derivative suits, cited approvingly by both parties and the district
court, specifies that they are permissible only as follows:

     A creditors’ committee [or secured creditor] may acquire
     standing to pursue the debtor’s claims if (1) the committee
     [or creditor] has the consent of the debtor in possession or
     trustee, and (2) the court finds that suit by the committee [or
8               IN RE: BALTIMORE EMERGENCY SERVICES
     creditor] is (a) in the best interest of the bankruptcy estate,
     and (b) is necessary and beneficial to the fair and efficient
     resolution of the bankruptcy proceedings.

In re Commodore Int’l, Ltd., 262 F.3d 96, 100 (2d Cir. 2001) (internal
quotation marks omitted); see Glinka v. Murad (In re Housecraft
Indus. USA, Inc.), 310 F.3d 64, 72 (2d Cir. 2002) (applying Commo-
dore to derivative suits by a secured creditor). "This approach permits
a reasoned and practicable division of labor between the creditors’
committee [and individual creditors] and the debtor in possession or
trustee." In re Commodore Int’l, 262 F.3d at 100. Critically, however,
it "also provid[es] bankruptcy courts with significant authority both
to manage the litigation and check any potential for abuse by the par-
ties." Id.

   As our sister circuits that permit derivative standing have recog-
nized, the bankruptcy court plays a vital gatekeeper role in determin-
ing whether derivative standing is appropriate in a given case. See,
e.g., Cybergenics, 330 F.3d at 580 (recognizing derivative standing
that "bankruptcy courts can authorize"); Fogel, 221 F.3d at 965 (rec-
ognizing derivative standing by "obtain[ing] the permission of the
bankruptcy court"); In re Gibson Group, 66 F.3d at 1442 (recognizing
derivative standing "if the bankruptcy court determines that certain
conditions exist and certain prerequisites are met").

   Even if permitted under the Bankruptcy Code, derivative standing
is the exception rather than the rule. If the former were to swallow the
latter, creditors could usurp the central role that the trustee or debtor-
in-possession plays as the representative of the estate. This state of
affairs would be problematic, because the interests of a creditor or
creditors’ committee may not always align with those of the estate.
See, e.g., Official, Unsecured Creditors’ Comm. v. Stern (In re SPM
Mfg. Corp.), 984 F.2d 1305, 1315 (1st Cir. 1993) (noting that an unse-
cured creditors’ committee "is a fiduciary for those whom it repre-
sents, not for the debtor or the estate generally"). Though the dealings
between a debtor and its creditors "may be supportive and friendly,"
the fact that the interests are "necessarily different" means that the
relationship "must necessarily be adversarial in a sense." Id. at 1316
(internal quotation marks omitted). Moreover, the interests of one
creditor may not align precisely with those of another, since they are
                IN RE: BALTIMORE EMERGENCY SERVICES                     9
competing with each other to recover from the limited resources of
the estate. See id. at 1317 ("No two creditors have identical inter-
ests.").

   A bankruptcy court must therefore ensure that a would-be deriva-
tive suit would not simply advance the interests of a particular plain-
tiff at the expense of other parties to the bankruptcy proceeding. The
court’s approval acts as a critical check upon creditor actions that
might, for example, "prejudice the estate and rival creditors," or
would "recover only enough to pay the lawyers." Cybergenics, 330
F.3d at 568, 575. Although the debtor-in-possession or trustee must
also have approved the suit, the additional disinterested evaluation of
the bankruptcy court can prevent well-intentioned oversights or situa-
tions where a debtor is for some reason predisposed to favor particu-
lar creditors. See In re Gibson Group, 66 F.3d at 1441 ("A debtor-in-
possession often acts under the influence of conflicts of interest and
may be tempted to use its discretion [to avoid preferential or fraudu-
lent transfers] to favor certain creditors over others."). Permitting a
creditor to sue in such a circumstance would undermine not only the
efficiency, but also the efficacy and fairness, of the bankruptcy pro-
ceeding.

                                   IV.

  Plaintiffs here failed to satisfy any prong of the Commodore test.
Thus, even if we were to recognize derivative standing in some cases,
we would not permit it here.

   First, there was no evidence at the time of the preliminary injunc-
tion that the debtors had in fact consented to the suit. The only evi-
dence in the record of such permission appears in the affidavit of
Goldstein, the CRO, which was filed several months later with the
district court on appeal. Plaintiffs argue that it was sufficient for
Goldstein to appear at the preliminary injunction hearing in the bank-
ruptcy court and testify on their behalf, but they concede that his testi-
mony did not address the issue of consent to sue.

   The district court suggested that a debtor-in-possession’s approval
after the fact may be sufficient to confer standing. We disagree. Con-
sent is the sine qua non in derivative suits of this type. If such suits
10              IN RE: BALTIMORE EMERGENCY SERVICES
are to be allowed at all, the consent must occur before, not after, the
action is filed.

   Second, the bankruptcy court did not determine that this suit was
either "in the best interest of the bankruptcy estate" or "necessary and
beneficial to the fair and efficient resolution of the bankruptcy pro-
ceedings." In re Commodore Int’l, 262 F.3d at 100 (internal quotation
marks omitted). Although it made an oral ruling on the standing issue
at the preliminary injunction hearing, that ruling addressed neither of
these concerns. Plaintiffs contend that the bankruptcy court’s decision
to allow the action to proceed, particularly given its familiarity with
the facts of the case after approximately a year of Chapter 11 proceed-
ings, suffices to show that the required findings were made implicitly.
But it would be pure speculation on our part to assume that the bank-
ruptcy court took these factors into consideration. The bankruptcy
court’s familiarity should simply have made it easier to make the
required findings on the record; it did not obviate the need to do so.

   We furthermore reject plaintiffs’ suggestion that it is possible to
grant derivative standing retroactively in the absence of up-front
approval by the bankruptcy court. See, e.g., Catwil Corp. v. Derf II
(In re Catwil Corp.), 175 B.R. 362, 365 (Bankr. E.D. Cal. 1994)
(finding nunc pro tunc standing appropriate where extenuating cir-
cumstances exist). This would run contrary to the very purpose of
imposing standing limitations: preventing bankruptcy proceedings
from being sidetracked, even temporarily, by wasteful ancillary litiga-
tion. Where, as here, plaintiffs have already received equitable relief,
it is certainly too late to grant them standing.

   All of plaintiffs’ arguments derive from the premise that the Com-
modore safeguards should add up to a loose functional requirement
rather than a strict formal one. This is a premise we cannot accept. As
we have observed in a related Chapter 7 context, "lax rules . . . are
too likely to generate protracted litigation that ultimately serves the
interest of neither the debtor’s estate nor the creditors. . . . Stricter
rules, on the other hand, have the salutary effects of advancing the
estate’s timely administration and shielding the courts from the need-
less multiplication of lawsuits." In re Richman, 104 F.3d at 657 (inter-
nal quotation marks and citations omitted). If derivative standing is
permissible at all, requiring a formal determination of its propriety in
                IN RE: BALTIMORE EMERGENCY SERVICES                   11
a given case is the only way to prevent the creditor from unjustly
hijacking the bankruptcy proceedings. Such a determination "is not
unduly burdensome," Cybergenics, 330 F.3d at 576, and the cost,
even across a large number of cases, is small compared to the large-
scale disruption that it prevents.

   This case aptly demonstrates the potential consequences of a
relaxed derivative standing doctrine. As we have repeatedly stated,
"‘[p]reliminary injunctions are extraordinary remedies involving the
exercise of very far-reaching power to be granted only sparingly and
in limited circumstances.’" Sun Microsystems, Inc. v. Microsoft
Corp., 333 F.3d 517, 524 (4th Cir. 2003) (quoting Microstrategy Inc.
v. Motorola, Inc., 245 F.3d 335, 339 (4th Cir. 2001)). A court greatly
exceeds its power, and may effect grave harm, by granting such a
remedy to a party that has not demonstrated standing to request it.

                                   V.

   Our conclusion that plaintiffs lacked standing to seek a preliminary
injunction against Scott does not in any way express approval of
Scott’s actions. Scott oversaw the debtors’ business operations,
guided them into bankruptcy, and then abruptly jumped ship. As the
bankruptcy court found, Scott subsequently sought to undermine the
debtors by securing for himself their workforce and their most valu-
able contracts.

   It remains to be established in further proceedings whether Scott
breached any fiduciary, contractual, or statutory duty, or whether he
simply acted in a legal but less-than-admirable fashion, by taking
advantage of his bankrupt former charges for personal gain. Such pro-
ceedings are currently ongoing in the bankruptcy court, as PAPPG
continues to litigate the merits of a now substantially amended com-
plaint. Its standing to do so is not before us in this appeal, which
addresses only the preliminary injunction and contempt order.

   For reasons stated above, even if we were to recognize derivative
standing for creditors, plaintiffs were not proper parties to the request
for preliminary injunctive relief. We therefore reverse the district
court and remand with instructions that the preliminary injunction and
12             IN RE: BALTIMORE EMERGENCY SERVICES
the resulting contempt order be vacated.

            REVERSED AND REMANDED WITH INSTRUCTIONS
