An order dismissing a debtor as plaintiff and substituting the trustee to prosecute the suit is an interlocutory order that is not appealable, the Second Circuit held on June 21.
The debtor was a plaintiff in a lawsuit pending in district court when he filed bankruptcy. The defendant moved to dismiss, contending that the debtor lacked standing because the claim belonged to the trustee.
The debtor argued that he had properly scheduled the lawsuit and that it had been abandoned by the trustee. The district judge found that the suit was not properly scheduled and thus belonged to the trustee. Rather than dismissing the suit entirely, the district court allowed the bankruptcy trustee to be substituted as plaintiff.
With the trustee’s substitution as plaintiff, the district court dismissed the suit as to the debtor. The debtor appealed, urging the Second Circuit to rule that he had properly scheduled the asset, that he was the proper plaintiff, and that dismissing him as plaintiff was error.
In an opinion by Circuit Judge Gerard E. Lynch, the appeals court dismissed the appeal for lack of appellate jurisdiction, holding that dismissal of the debtor as plaintiff was “plainly” not a final order appealable under 28 U.S.C. § 1291, nor was it subject to the collateral order doctrine.
Simply stated, dismissal as to the debtor was not a final order because he could appeal his dismissal once there was a final adjudication of the lawsuit to be prosecuted by the trustee. Judge Lynch said the case was not analogous to denial of a motion to intervene, which can be appealable.
To the contrary, Judge Lynch said the debtor’s case was analogous to those where some plaintiffs are dismissed but others remain as plaintiffs. In those cases, he said, “dismissal of a co-plaintiff’s claim does not resolve the litigation.”
Nor was dismissal appealable under the collateral order doctrine, which requires, among other things, that the decision be “effectively unreviewable on appeal from a final judgment.”
With allegiance only to creditors, the debtor argued that the trustee was likely to accept a settlement generating a recovery for creditors, but not for him. Even though he might have lost the ability to control a settlement, Judge Lynch said the order on appeal was nonetheless interlocutory because the debtor could still appeal his dismissal after a final order in the lawsuit. In other words, theoretical prejudice from the inability to appeal is not the same as unreviewability.