Sixth Circuit Discusses Appellate Jurisdiction

Posted by NCBRC - December 29, 2020

Where the BAP remanded to the bankruptcy court for a finding on whether the creditor violated the automatic stay by failing to prevent the continuation of a contempt hearing against the debtor, the Sixth Circuit relied on precedent to conclude that the BAP’s order was not final and appealable. Wohleber v. Skurko (In re Wohleber), No. 19-3223/3225 (6th Cir. Nov. 18, 2020) (unpublished). In her concurring opinion, Judge Batchelder argued that the precedent relied on by the majority was erroneous and advocated for adopting a rule that “we have appellate jurisdiction if either the bankruptcy court’s judgment or the intermediate appellate judgment is final.”

The debtor owed over $30,000 to his ex-wife under a divorce settlement agreement. When he failed to make the payment according to a state court order, the court scheduled a contempt hearing. A few days before the hearing, the debtor filed for bankruptcy. On the day of the hearing, the judge met with the parties in her chambers to discuss the impact of the bankruptcy filing on the contempt hearing, stating her opinion that the hearing would not violate the bankruptcy stay. After the hearing, at which the creditor testified solely to the fact that the debt had not yet been paid, the judge sentenced the debtor to thirty days in prison. Ten days into his incarceration the parties agreed to his release pending resolution of his bankruptcy case. The debtor then dismissed his bankruptcy, and the creditor sought reimposition of the contempt sentence. Prior to a hearing on the second contempt motion, the debtor filed a second bankruptcy and the state court suspended all proceedings.

Two years later, the debtor filed an adversary proceeding in the bankruptcy court against his ex-wife, her lawyer, and the state court judge, alleging that the contempt hearing and incarceration violated the automatic stay. The bankruptcy court dismissed the case against the judge on immunity grounds and held a trial on the remaining claims. It found no violation of the automatic stay. The debtor appealed to the bankruptcy appellate panel. The BAP found that the contempt hearing and sentencing were a continuation of efforts to collect a pre-petition debt in violation of section 362. The BAP remanded with instructions to the bankruptcy court to make findings as to whether the creditor and her lawyer took steps to prevent the contempt hearing from occurring and, if not, to determine damages under section 362(k).

The creditor and her lawyer appealed to the Sixth Circuit. Relying on Settembre v. Fid. & Guar. Life Ins. Co., 552 F.3d 438, 441 (6th Cir. 2009), the court found it lacked jurisdiction to consider the appeal. Settembre established the rule that “a decision by the [BAP] on appeal remanding the bankruptcy court’s decision for further proceedings in the bankruptcy court is not final, and so is not appealable to this court, unless the further proceedings contemplated are of a purely ministerial character.” Because the BAP remanded for a determination of liability and damages if appropriate, the court found the remand was not purely ministerial.

The court rejected the creditor’s argument that bankruptcy’s unique structure allows for appeals of discrete issues that are fully resolved by the appealed order even though the remainder of the bankruptcy case is ongoing. Here, the issue being appealed was itself unresolved.

The court was also unconvinced by the creditor’s argument that the circuit court would not be able to address a later challenge to the BAP’s rulings in the event the case found its way back up the appellate ladder. Rather, the court found that if the bankruptcy court decision on remand made its way back to the BAP and the BAP was bound by law-of-the-case, the circuit court at that time would be able to address all outstanding issues including some of those determined in the case currently on appeal.

Finally, the court found that the collateral-order doctrine was inapplicable. That doctrine holds that an order that “[1] conclusively determine[s] the disputed question, [2] resolve[s] an important issue completely separate from the merits of the action, and [3] [is] effectively unreviewable on appeal from a final judgment,” may be subject to immediate appeal. The court found that this appeal met none of these criteria. The BAP’s order remanding for consideration of whether the creditor’s conduct violated the automatic stay involved the central issue in the adversary proceeding.

The court dismissed the appeal.

In a concurring opinion, Judge Batchelder agreed that Settembre mandated the decision reached by the majority, but argued that the rule stated in that case is erroneous. She maintained that the BAP erred when it found that the creditor and her attorney had a duty to stop the contempt hearing, noting that the BAP decision would impose a duty on the creditor’s attorney to argue a position contrary to her client’s interest. She predicted that the case would ultimately make its way back to the Sixth Circuit at which time the court would find for the creditor and her attorney on that basis thereby rendering all intervening litigation useless.

Judge Batchelder argued that the more practical considerations set out in Bullard v. Blue Hills Bank, 575 U.S. 496, 135 S. Ct. 1686, 1691 (2015), supported the alternative of allowing the circuit court look to whether the bankruptcy court order met the requirements of finality even if the intervening appellate court’s order did not. She noted that such an approach harmonizes with other precedent, such as In re Charfoos, 979 F.2d 390, 392 (6th Cir. 1992), under which the circuit court gives no deference to the intermediate appeal when confronted with an appeal from a bankruptcy court order. She argued that a decision that would be ignored when addressing the merits of an appeal should not stand as an obstacle to hearing the appeal in the first place by depriving the appellate court of jurisdiction.

Wohleber 6th Cir. Nov 2020

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