In a nonprecedential opinion, the Eleventh Circuit split with the Second Circuit by holding that a discovery order in a chapter 15 case under Bankruptcy Rule 2004 is nonfinal and thus not appealable, even if the discovery was not sought in a pending adversary proceeding or contested matter.
The Atlanta-based appeals court appears to have ruled that a discovery order is not final and therefore not appealable if the fruits of discovery could be used in an adversary proceeding or contested matter that might be brought later.
Discovery by the Foreign Representative
The foreign representative of a Brazilian airline had received recognition of the Brazilian liquidation as a foreign main proceeding under chapter 15. According to the July 19 opinion by Circuit Judge Beverly B. Martin, the chapter 15 case was designed to locate assets of the debtor that were in the U.S. or transferred through the U.S.
In Brazil, the Brazilian trustee was in litigation attempting to pierce the corporate veil as to certain nondebtor third parties. The Brazilian trustee was aiming to include the third parties’ assets in the bankrupt estate.
Not having yet pierced the corporate veil, the Brazilian court had frozen the third parties’ assets and indicated in an order that the freeze should be implemented in the U.S. chapter 15 case.
The Brazilian trustee, as the foreign representative, obtained subpoenas from the bankruptcy court in Miami under Bankruptcy Rule 2004, directing several financial institutions to produce documents about the third parties’ banking and financial information.
The bankruptcy court denied the third parties’ motion for a protective order. The third parties appealed, but the district court dismissed the appeal for lack of appellate jurisdiction. The district court reasoned that the discovery order was nonfinal and thus not appealable. The third parties appealed once again to the circuit.
Ritzen Governs
Judge Martin began from the “general proposition” that discovery orders are nonfinal. However, the primary authority on finality in the bankruptcy context is Ritzen Group Inc. v. Jackson Masonry LLC, 140 S. Ct. 582, 205 L. Ed. 2d 419 (Sup. Ct. Jan. 14, 2020), where the Supreme Court held that an order denying a motion to modify the automatic stay is a final order that may be appealed. To read ABI’s report on Ritzen, click here.
More specifically, Judge Martin quoted the Supreme Court for holding that orders in a bankruptcy case “qualify as ‘final’ when they definitively dispose of discrete disputes within the overarching bankruptcy case.” Id., 140 S. Ct. at 586.
To decide whether an order is final and appealable, the Supreme Court went on to command that the appellate court must identify “the appropriate procedural unit for determining finality.” Id., 140 S. Ct. at 588-589.
In the case on appeal, Judge Martin said that the procedural unit was the implementation of the freeze order in the chapter 15 case. She arrived at this conclusion because “the record is clear” that the foreign representative was seeking discovery to aid in implementation of the Brazilian freeze order.
The Split with the Second Circuit
The third parties relied on Second Circuit authority that was almost, if not exactly, on point, despite Judge Martin’s statements to the contrary. Drawbridge Special Opportunities Fund LP v. Katherine Elizabeth Barnet (In re Barnet), 737 F.3d 238 (2d Cir. 2013).
In Barnet, a foreign representative was seeking foreign main recognition and sought discovery from a company. The court denied the company’s motion to stay discovery. On appeal, Judge Martin said that the Second Circuit “categorically” held that a discovery order in a chapter 15 case is immediately appealable.
Primarily, the Second Circuit analogized the chapter 15 case to discovery in aid of a foreign proceeding under 28 U.S.C. § 1782(a), where discovery orders are immediately appealable. In Section 1782 matters, a discovery order would be the final resolution of the dispute.
The Second Circuit reasoned that chapter 15 cases, like petitions under Section 1782, are ancillary to a suit in another tribunal, “such that there will never be a final resolution on the merits beyond the discovery relief itself.” Id. at 244.
Judge Martin said that Barnet was “distinguishable,” because it was decided before Ritzen. Therefore, she said, the Second Circuit “did not wrestle with the question of whether discovery under Chapter 15 is a ‘discrete’ or ‘separate’ proceeding or ‘merely a preliminary step’ in some other proceeding.” Ritzen, supra, 140 S. Ct. at 589–90.
Judge Martin also rejected the Second Circuit’s analogy between chapter 15 and Section 1782. In Section 1782, she said, “there is nothing but discovery.” In chapter 15, by contrast, she said that “a discovery order is ordinarily a ‘preliminary step’ of a larger proceeding.”
In the case on appeal, Judge Martin said that the discovery order was only a preliminary step in a forthcoming freeze proceeding in bankruptcy court.
Judge Martin rejected arguments that the discovery order fell within exceptions to the final order doctrine. She dismissed the appeal for lack of appellate jurisdiction.
Observations
According to a brief filed by third parties in the circuit, the foreign representative had not brought any proceedings in the bankruptcy court to extend the freeze order to the U.S. through the chapter 15 case.
This writer therefore interprets the Eleventh Circuit’s opinion to mean that the mere possibility of a later contested matter or adversary proceeding is sufficient to render a discovery order under Bankruptcy Rule 2004 beyond the pale of appeal, assuming the court does not grant leave to take an interlocutory appeal.
This writer questions whether Ritzen entirely altered the analysis regarding appeals of discovery orders in chapter 15 cases, where there may or may not be proceedings aside from discovery.
Considerations such as these may explain why the Eleventh Circuit’s opinion is nonprecedential.
In a nonprecedential opinion, the Eleventh Circuit split with the Second Circuit by holding that a discovery order in a chapter 15 case under Bankruptcy Rule 2004 is nonfinal and thus not appealable, even if the discovery was not sought in a pending adversary proceeding or contested matter.
The Atlanta-based appeals court appears to have ruled that a discovery order is not final and therefore not appealable if the fruits of discovery could be used in an adversary proceeding or contested matter that might be brought later.
The foreign representative of a Brazilian airline had received recognition of the Brazilian liquidation as a foreign main proceeding under chapter 15. According to the July 19 opinion by Circuit Judge Beverly B. Martin, the chapter 15 case was designed to locate assets of the debtor that were in the U.S. or transferred through the U.S.