The Supreme Court’s decisions in Bullard and Ritzen didn’t undercut the Third Circuit’s longstanding “pragmatic approach” to judging finality in bankruptcy cases, nor did they undermine In re Brown, 916 F.2d 120 (3d Cir. 1990), where the circuit decided 33 years ago that denial of a motion to dismiss a chapter 11 case is final and appealable.
In his decision on February 27, Delaware District Judge Gregory B. Williams of Delaware said, “Neither Bullard nor Ritzen involved a motion to dismiss a bankruptcy case and thus do not directly implicate Brown.”
Beyond distinguishing the facts in the case before him compared to Bullard and Ritzen, Judge Williams intricately analyzed the policy considerations underpinning the two Supreme Court cases in deciding that “an order denying a motion to dismiss a chapter 11 case is a final, appealable order.”
The Motion to Dismiss
One month after a corporate debtor filed a chapter 11 petition in Delaware, a group of creditors brought a motion to dismiss, contending that the filing was not in good faith. Four months later, Bankruptcy Judge Mary F. Walrath denied the motion to dismiss.
After the creditors appealed, the debtor filed a motion to dismiss the appeal, contending that the denial of the dismissal motion was not a final, appealable order under 28 U.S.C. § 158(a)(1). The section gives district courts jurisdiction over appeals “from final judgments, orders, and decrees.”
Citing Brown, Judge Williams said:
Indeed, over three decades ago, the Third Circuit held that a denial of a motion to dismiss a chapter 11 case for bad faith under § 1112(b) of the Bankruptcy Code is a “final” order under 28 U.S.C. § 158.
In a series of decisions following Brown, Judge Williams said that the Third Circuit adopted a “pragmatic approach” in evaluating the finality of orders in bankruptcy cases. Quoting In re Armstrong World Indus. Inc., 432 F.3d 507, 511 (3d Cir. 2005), he said:
The Third Circuit later distilled this pragmatic approach into a four-factor test that considers “(1) the impact on the assets of the bankruptcy estate; (2) the need for further fact-finding on remand; (3) the preclusive effect of a decision on the merits; and (4) the interests of judicial economy.”
Since Brown and its progeny were obviously controlling circuit precedent, meaning that the order on appeal was final, the creditors argued before Judge Williams that the Supreme Court adopted a more “textualist” approach to finality in Bullard v. Blue Hills Bank, 575 U.S. 496 (2015), and Ritzen Group Inc. v. Jackson Masonry LLC, 140 S. Ct. 582 (2020).
In Bullard, the Supreme Court decided that an order denying confirmation of a chapter 13 plan was not final. Consequently, a chapter 13 debtor could take an appeal by either (1) allowing the court to dismiss the chapter 13 case, or (2) confirming an amended plan and appealing confirmation of the amended plan.
Judge Williams said that Bullard “referenced the same pragmatic concerns that animate the Third Circuit’s approach to finality.”
In Ritzen, the Supreme Court ruled unanimously that an order denying a motion to modify the automatic stay is a final, appealable order “when the bankruptcy court unreservedly grants or denies relief.” Ritzen, supra, 140 S. Ct. 586. To read ABI’s report on Ritzen, click here.
Judge Williams quoted from Ritzen to say that the court must first identify the “relevant proceeding” and “then ask ‘whether the order in question terminates a procedural unit separate from the remaining case.’” Id. at 590.
Regarding both Supreme Court cases, Judge Williams said:
[T]he analysis applied in Bullard and Ritzen has not “overtaken” or otherwise “undermined” the Third Circuit's pragmatic approach to finality in the bankruptcy context, nor have those decisions called into question controlling law in this Circuit that an order denying a motion to dismiss a chapter 11 case is a final, appealable order.
Rather than the entire case, Judge Williams found that the relevant proceeding was the motion to dismiss, which, he said, was not analogous to a Rule 12 motion to dismiss, where the court does not delve intricately into the facts. “Rather,” he said, the motion to dismiss the chapter 11 case was “a dispute over the threshold and fundamental issue of whether the bankruptcy case should unfold at all — a discrete dispute, a proceeding separate from the remaining bankruptcy case.”
Judge Williams concluded that the order below was final and appealable under Brown. Even if there were some “tension” between Brown and the two Supreme Court decisions, he said that the “tension falls far short of what is required for this Court to cast Brown aside.”
The Third Circuit not having sat en banc to review Brown, and the two high court decisions not having undercut the rationale in Brown, Judge Williams denied the motion to dismiss, saying he would “not disregard thirty years of controlling precedent.”
The Supreme Court’s decisions in Bullard and Ritzen didn’t undercut the Third Circuit’s longstanding “pragmatic approach” to judging finality in bankruptcy cases, nor did they undermine In re Brown, 916 F.2d 120 (3d Cir. 1990), where the circuit decided 33 years ago that denial of a motion to dismiss a chapter 11 case is final and appealable.
In his decision on February 27, Delaware District Judge Gregory B. Williams of Delaware said, “Neither Bullard nor Ritzen involved a motion to dismiss a bankruptcy case and thus do not directly implicate Brown.”
Beyond distinguishing the facts in the case before him compared to Bullard and Ritzen, Judge Williams intricately analyzed the policy considerations underpinning the two Supreme Court cases in deciding that “an order denying a motion to dismiss a chapter 11 case is a final, appealable order.”