Appellate Jurisdiction Doesn’t Terminate on Dismissal of the Underlying Bankruptcy

Dismissal of the underlying bankruptcy case doesn’t mean that the district court must dismiss an appeal, according to District Judge Carl J. Barbier of New Orleans.

A buyer made a $105,000 deposit in connection with a contract to purchase a home for $2.1 million. The sale never closed because the purchaser could not obtain financing. The purchaser filed suit in Louisiana state court seeking return of the deposit, but the seller filed a chapter 11 petition.

The purchaser filed suit in bankruptcy court for return of the deposit. The bankruptcy court granted judgment in favor of the purchaser. Later, the bankruptcy court dismissed the chapter 11 case but specifically said the court was not dismissing the adversary proceeding, which was already on appeal.

The debtor then filed a motion in Judge Barbier’s court contending that the district court lacked jurisdiction and was obliged to dismiss the appeal. Judge Barbier denied the motion in an opinion on April 23.

Judge Barbier said that the motion to dismiss the appeal “is not without reason, [but] it is contrary to law.” He cited In re Querner, 7 F.3d 1199, 1201 (5th Cir. 1993), where the Fifth Circuit said that “nothing in the statute governing bankruptcy jurisdiction mandates automatic dismissal of related proceedings upon termination of the underlying bankruptcy case.”

The retention of jurisdiction, Judge Barbier said, is in the sound discretion of the bankruptcy court, although the general rule calls for dismissal of related proceedings once the principal bankruptcy case is dismissed.

The exercise of discretion is governed by the same four factors employed when deciding whether to retain jurisdiction over state law claims after federal claims have been dismissed, Judge Barbier said. The four factors are economy, convenience, fairness, and comity.

Dismissing the appeal would be “improper,” Judge Barbier said, because dismissal would result in “a great waste of time and judicial resources” given that the bankruptcy court had rendered judgment after a two-day trial and the appeal had already been briefed.

Judge Barbier added that dismissing the appeal would give the debtor a “redo” in state court. He cited the Ninth Circuit in support of his conclusion on continuing jurisdiction. See In re Carraher, 971 F.2d 327, 328 (9th Cir. 1992).

In a separate opinion, Judge Barbier reached the merits and upheld the judgment in favor of the erstwhile buyer.