The Second Circuit held that denial of an individual chapter 7 debtor’s motion to dismiss the petition is not a final order and is not subject to appeal.

True, in ordinary civil litigation, the denial of a motion to dismiss is an archetypical interlocutory order not subject to appeal. In bankruptcy, though, when could a debtor ever appeal denial of a motion to dismiss? When the case is over and the property has been distributed, an appeal would be moot.

Respectfully, the Second Circuit needs to rethink the opinion. Otherwise, the opinion could be read to mean that precious few decisions by bankruptcy judges are appealable in the Second Circuit in contested matters.

Denial of the Motion to Dismiss

The individual debtor filed a chapter 7 petition and listed debts of less than $45,000. After a change of heart, the debtor filed a motion under Section 707(a) to dismiss the petition based on several arguments, one being the debtor’s claim that he was not an eligible debtor under Section 109(a).

The bankruptcy court denied the motion to dismiss, finding that dismissal was not in the interests of the estate or creditors. The debtor appealed. Without reaching the merits, the district court dismissed the appeal, holding that denial of the dismissal motion was not a final order subject to appeal under 28 U.S.C. § 158(a).

When the debtor appealed a second time, Circuit Judge Michael H. Park dismissed for lack of appellate jurisdiction.

Denial of Dismissal Didn’t Finally Dispose of the Dispute — Really?

Under 28 U.S.C. § 158(d), the circuit court has jurisdiction over “all final decisions, judgments, orders, and decrees” from district courts reviewing decisions by bankruptcy courts.

In his August 8 opinion, Judge Park noted how the district court had said that the Second Circuit has not “definitively ruled” on whether denial of a motion to dismiss a bankruptcy case is a final, appealable order. He went on to mention how the district court reported that “other circuits and district courts in this Circuit have concluded that such orders are nonfinal.”

Interpreting Section 158(d), Judge Park cited a 2023 decision from the Second Circuit saying that “a district court’s order is not final if it ‘remand[s] for significant further proceedings in bankruptcy courts,’ In re Décor Holdings, Inc., 86 F.4th 1021, 1024 (2d Cir. 2023) (per curiam).” [Note: Décor held that a motion reopening a default judgment was not a final order, a circumstance quite different from an order denying a debtor’s motion to dismiss. In Décor, there was a remand for further proceedings. In the case in the Second Circuit, there was no remand for further proceedings having to do with denial of dismissal.]

Judge Park proceeded to hold that the “district court’s order denying [the debtor’s] motion to dismiss his petition is nonfinal because it did not ‘finally dispose of [a] discrete dispute[] within the larger bankruptcy case.’ In re Penn Traffic Co., 466 F.3d at 77-78 (alteration omitted).” [Note: In Penn Traffic, the district court had reversed and remanded for the bankruptcy court to make findings on whether the debtor properly exercised business judgment in opting to reject an executory contract. Remand required the bankruptcy court to conduct significant further proceedings.]

Applying those principles to the case on appeal, Judge Park held that denial of the motion to dismiss “allowed the case to proceed and did not ‘finally dispose’ of any claim or dispute.” [Didn’t the order finally dispose of the debtor’s motion to dismiss?]

Judge Park dismissed the appeal for lack of appellate jurisdiction, saying that denial of the motion to dismiss “left work to be done in the bankruptcy court.”

Observations

True, denying the motion to dismiss left the bankruptcy court with the chore of administering the entire case, but the bankruptcy court was not charged with doing anything more regarding the debtor’s motion to dismiss. Didn’t that make the order final?

The rule set down in this case would seem to mean that a chapter 7 debtor cannot appeal denial of dismissal until the case is over, but that cannot be the law.

This writer cannot understand how or when a debtor could ever appeal denial of dismissal. Could the debtor appeal when the bankruptcy court is selling property or settling a dispute? In those circumstances, though, chapter 7 debtors are typically held to lack standing to object unless the estate is solvent.

Once estate property is sold and distributed, it would be too late for the debtor to appeal dismissal because the appeal would be moot.

The Second Circuit cited neither of the two controlling Supreme Court decisions on finality in bankruptcy, Bullard v. Blue Hills Bank, 575 U.S. 496 (2015), and Ritzen Group, Inc. v. Jackson Masonry, LLC, 589 U.S. 35 (2020). Rather, the Second Circuit’s primary authorities were Second Circuit opinions handed down before Bullard and Ritzen. Notably, neither party cited Bullard or Ritzen in their briefs to the circuit.

Respectfully, this writer believes that the Second Circuit should have ruled on the merits, because denying the motion to dismiss left the bankruptcy court with no further proceedings regarding dismissal. Compare Aspen Skiing Co. v. Cherrett (In re Cherrett), 873 F.3d 1060, 1065 (9th Cir. 2017) (holding that “the bankruptcy court’s order denying [the debtor’s] motion to dismiss under § 707(b) was final and appealable to this court.”).