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Appellate relief from interlocutory bankruptcy court abstention and remand orders: a reason for change?

The type of remand or abstention order which may be appealed and the vehicle for doing so is in a constant state of chaos.

Frustration typically overwhelms any party attempting to appeal an interlocutory federal court abstention or remand order to a circuit court of appeal. See In re Bethesda Memorial Hospital, Inc., 123 F.3d 1407 (11th Cir. 1997) (Hatchett, Chief J., dissenting), for an informative discussion of the current conflict surrounding appeals of federal district court remand and abstention orders. The type of remand or abstention order which may be appealed and the vehicle for doing so is in a constant state of chaos. Id.

This turmoil escalates when the interlocutory remand or abstention order originates in bankruptcy court. By statute and case law, such orders rarely are appealable to the circuit court of appeals. As of yet, the rationale of Bethesda Memorial Hospital, which recognizes the right to appeal certain interlocutory remand and abstention orders, has yet to be applied to bankruptcy court orders.

There are practical reasons why appellate courts would discreetly attempt to distinguish between remand and abstention orders emanating from bankruptcy courts. Within the confines of a single bankruptcy proceeding, numerous state law adversary proceedings typically are instituted. Nevertheless, if bankruptcy litigants -- unhappy with a remand or abstention order -- were afforded instant appellate review, appellate courts would be inundated with appeals, solely to determine the forum for resolution of the claim's merits.

This article suggests there is no logical reason to permit such appeals.

Statutory Restrictions

Like other federal litigants, parties in bankruptcy may, for any number of legal or strategic reasons, request bankruptcy courts to:

1) Abstain from jurisdiction over a state law claim under the mandatory abstention statute, 28 U.S.C. [sections] 1334(c)(2);

2) Abstain from jurisdiction over a state law claim under the permissive abstention statute, 28 U.S.C. [sections] 1334(c)(1); and

3) Remand a state law claim under 28 U.S.C. [sections] 1452(b).

By statute, two of these three rulings are expressly unappealable. Statute 28 U.S.C. [sections] 1334(d) provides that an order denying permissive abstention under 28 U.S.C. [sections] 1334(c)(1), although appealable to a district court,[1] is not reviewable in a court of appeal.[2] An order denying a [sections] 1452(b) remand is similarly unappealable.[3] As in 28 U.S.C. [sections] 1334(d), the express language of 28 U.S.C. [sections] 1452(b) precludes appellate review.[4]

Only one of the above requests mandatory abstention[5] -- is not expressly barred from appellate review. This topic likewise should be unappealable.[6] A mandatory abstention order does not involve a "final" decision appealable under 28 U.S.C. [sections] 158(d) or [sections] 1291; nor should it be appealable as an interlocutory decision under 28 U.S.C. [sections] 1292.

Logical Restrictions: The Finality Problem

Section [sections] 158(d) confers jurisdiction on appellate courts to entertain appeals from "final" decisions of district courts sitting in review of a bankruptcy court. In re F.D.R. Hickory House, Inc., 60 F.3d 724 (11th Cir. 1995).[7] For purposes of [sections] 158(d), a determination of the district court is not "final" unless the underlying order of the bankruptcy court is final. In re Flor, 79 F.3d 281 (2d Cir. 1996). Even under the more relaxed definition of "finality" within the bankruptcy context, the bankruptcy court's order generally is not "final" unless it resolves an adversary proceeding.

To ascertain whether the district court order is final, the circuit court of appeal probably will focus on the relief sought by the party in the bankruptcy court and the result of the bankruptcy court's resolution of that request. Here is the likely analysis: A motion to remand or abstain requests the bankruptcy court to perform one of two acts, remand the claim to state court or abstain from exercising jurisdiction over the claim. If the bankruptcy court denies this motion, the result of this denial is that the bankruptcy court retains the claim. The bankruptcy court never decided whether the party's claim was meritorious. The bankruptcy court left the merits determination for another day. The identical inquiry would apply equally to an order granting a remand or abstention order.

In this circuit, the "finality" of a bankruptcy court order is similar to, the finality definition used by the 11th Circuit to decide whether a district court order is final for purposes of the court's appellate jurisdiction. Jove Engineering, Inc. v. I.R.S., 92 F.3d 1539 (11th Cir. 1996). A final order is an order that concludes the litigation on the merits of the case and "leaves nothing for the court to do but execute the judgment." Catlin v. United States, 324 U.S. 229, 233 (1945). An order that is final with regard to a particular issue, but does not end the litigation on the merits, is not a final order under Catlin and is not immediately appealable. In bankruptcy proceedings, it is generally the particular adversary proceeding or controversy that must have been finally resolved, rather than the entire bankruptcy litigation, to make the order final for appellate purposes. In re Charter Company, 778 F.2d 617 (11th Cir. 1985).

Under this definition, bankruptcy litigants will be substantially handicapped arguing that an order either granting or denying remand and abstention orders is "final." The order simply decides which forum will entertain the state claim -- the federal bankruptcy or the state court. The merits are not implicated by this decision, nor are the parties' rights resolved by this order. The denial of remand or abstention orders does not end the litigation on the merits; certainly the denial contemplates a determination of the merits through litigation in the bankruptcy court. No matter how broadly one construes the definition of finality in the bankruptcy court setting, such an order hardly falls within the scope of that definition.

The collateral order doctrine provides an exception to this finality rule. The collateral order doctrine is a judicially created exception to 28 U.S.C. [sections] 1291. Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541 (1949). This doctrine allows an appeal from collateral orders if the order:

1) Conclusively determines the disputed question;

2) Resolves an important issue completely separate from the merits of the action; and

3) Would be effectively unreviewable on appeal from a final judgment.

A remand or abstention order fails to implicate an important right which would require immediate review,[8] nor is it likely that any harm will occur to the bankruptcy litigant if his or her grievance is heard by a federal, rather than a state, court. Not surprisingly, numerous courts have held that orders denying remand or abstention do not trigger the collateral order doctrine.

Use of the collateral order doctrine has been severely curtailed. In Digital Equipment Corp. v. Desktop Direct, Inc., 511 U.S. 863 (1994), appellant argued an order denying enforcement of a settlement agreement was immediately appealable because the settlement agreement afforded a party a "right not to stand trial," id. at 869, which required protection by way of an immediate appeal. The Supreme Court rejected this analysis, concluding that rights under private settlement agreements could be adequately vindicated on appeal from a final judgment. The Supreme Court's decision was premised upon the absence of a constitutional or statutory foundation for the "right not to stand trial." Merely identifying some interest that would be "irretrievably lost" does not suffice, the Supreme Court held, to make a right so important that an immediate appeal is required. Id. at 864. According to the Supreme Court, a right not to be tried must rise to a higher level of importance.

Given the Supreme Court's latest restrictions placed upon the collateral order doctrine, a bankruptcy court's remand or abstention order presumably is not "final." Although the bankruptcy court order may determine conclusively the disputed issue of whether the court should remand or abstain, the order does not resolve an important issue, nor is it effectively unreviewable on appeal from a final judgment. Remand and abstention orders hardly implicate constitutional rights. The issue is, merely, which court will decide the claim -- state or federal. This issue certainly does not reach the higher level of importance contemplated by the Supreme Court. Moreover, no irreparable harm will come to either party if the bankruptcy court remand or abstention order is appealed after the adversary proceeding is concluded. The mere fact of expense and inconvenience necessitated by a reversal is insufficient to justify the circuit court of appeal's accepting jurisdiction over the appeal. In re El San Juan Hotel, 809 F.2d 151, 154 (1st Cir. 1987).

The court's decision in In re Charter Co., 778 F.2d 617 (11th Cir. 1985), confirms this analysis. In Charter, the bankruptcy court entered an order allowing debtors to continue to consolidate the management of their cash and to transfer monies from affiliated entity to entity. Several lenders filed an emergency motion with the bankruptcy court, asking it to vacate the order. After several hearings, the bankruptcy court amended the cash management order. The amended order imposed new restrictions on cash transfers.

The lenders appealed the amended order to the district court. The district court concluded that the amended cash management order was interlocutory and treated the notice of appeal as a motion to appeal. Applying the three-pronged test of [sections] 1292(b), the district court then denied the lenders leave to appeal. The lenders appealed the district court order to the 11th Circuit.

The court employed a two-fold inquiry: 1) Did the district court err in determining that the bankruptcy court's order was interlocutory and, therefore, not immediately appealable; and 2) if the order was interlocutory, did the district court abuse its discretion in failing to grant leave to appeal? The court concluded the district court did not err on either issue. The 11th Circuit ruled that the amended order was not appealable under the collateral order doctrine. The court found that no irreparable harm would result if the amended order awaited ordinary appellate review. And, for these same reasons, the court concluded that the district court did not abuse its discretion when it denied the lenders leave to appeal.

Similarly, a bankruptcy litigant likely will not suffer irreparable harm if the bankruptcy remand or abstention order awaits ordinary appellate review. Although a party may complain that additional time and expense will be incurred if first forced to try this case before the bankruptcy court, this complaint is both speculative and legally insufficient. A party presumably has as equal a chance of winning in federal court as in state court. If the bankruptcy litigant were to win, an appeal would be obviated. Even were he or she to lose, the added expense and inconvenience of a subsequent trial in state court is legally insufficient to justify use of the collateral order doctrine. Matter of Rupp & Bowman Co., 109 F.3d 237 (5th Cir. 1997).

Further Constraints: The Interlocutory Dilemma

Alternatively, jurisdiction may be available under [sections] 1292's provisions involving interlocutory orders.[9]

Subsection 1292(b) provides that an appeal may be taken from an interlocutory order where the order involves 1) a controlling question of law, 2) as to which there is substantial ground for difference of opinion, and 3) an immediate appeal may materially advance the ultimate termination of the litigation. As the criteria set forth in [sections] 1292(b) are in the conjunctive, the bankruptcy litigant must meet the burden on all elements. And, the district court's conclusion whether the party met all three prongs is reversed only upon a showing of an abuse of discretion. In re Charter Co., 778 F.2d 617 (11th Cir. 1985).

The step that usually trips a bankruptcy litigant is procuring certification from the trial court to the appellate court under [sections] 1292(b). Without certification, the appellate court has no jurisdiction to entertain the appeal. In re Firstmark Corp., 46 F.3d 653,657 (7th Cir. 1995) (where bankruptcy appeal not certified by the district court, [sections] 1292(b) appeal foreclosed).

The procedure for obtaining certification is simple. A party requests in his or her motion for remand or abstention that the court certify the issue if the ruling is adverse, explaining the justification for such a request. Whether the trial court will certify the issue is another matter. All three requirements of [sections] 1292(b) must be met.

Even if the district court order contains such a certification, the litigant does not automatically have appellate jurisdiction. First, the party must file a petition for permission to appeal to the appellate court within 10 days of the order sought to be reviewed, as required by Fed. R. App. P. 5(a). In this petition, the litigant must convince the appellate court that it satisfies the three-pronged inquiry. Compelling grounds why the appellate court should exercise its discretion to entertain this appeal may include presentation of a novel issue; violation of constitutional rights if the order is not immediately reversed; or occurrence of an injustice if a federal court, rather than a state court, decides the claim. Predictable disagreements over a legal conclusion reached by a lower court are unlikely candidates for the appellate court to favor [sections] 1292 jurisdiction.

The propriety of refusing to remand or abstain does not involve a controlling question of law as to the merits of the case. In other words, resolution of this issue on appeal will not materially affect the outcome of the litigation. Rather, the only result of a reversal on appeal will be to place the merits' adjudication in a different forum.

A "substantial grounds for difference of opinion" is no easier to show. Typically, this prong is satisfied if there is conflict among the courts or the law in the area is indefinite. The law surrounding bankruptcy remand and abstention orders generally is well-settled, and there is no conflict among the courts that needs to be clarified or reexamined.

Even if a party could satisfy the first two prongs, it remains uncertain if a bankruptcy litigant could ever satisfy the third prong with a remand or abstention order. A resolution of these legal issues -- remand and abstention status -- will not likely terminate the litigation between the parties. Reversal of the bankruptcy court order will merely place the bankruptcy litigant in a different forum to voice his or her complaints.

This article's conclusion is uncomplicated: There is no convincing reason to permit appeals of bankruptcy remand or abstention orders. When confronted with the opportunity, appellate courts will likely endeavor to limit such appeals. Although easier said than done, win your abstention or remand motion in the bankruptcy court because the barriers to appeal of an interlocutory bankruptcy remand or abstention order may be legally and practically insurmountable.[10]

[1] See supra note 7.

[2 ]See also In re Goerg, 930 E2d 1563, 1566 (11th Cir. 1991) (although district court may review abstention order, court of appeal may not); Matter of Taylor, 913 F.2d 102, 104, n.1 (3d Cir. 1990) (to extent appeal challenges bankruptcy abstention issue, appeal dismissed).

[3] The analysis used to justify review of certain remand orders from district to circuit court -- the express language of 28 U.S.C. 1447 -- cannot be applied here. See Quackenbush v. Allstate Insurance Co., 116 S. Ct. 1712(1996). 28 U.S.C. 1452 omits the language employed by the Quackenbush Court to open the door to certain abstention-based remand order appeals.

[4] Things Remembered, Ina v. Petrarca, 116 S.Ct. 494, 497 (1995); Doddy v. Oxy USA, Inc., 101 E3d 448 (5th Cir. 1996); In re Cathedral of Incarnation in the Diocese of Long Island, 90 F.3d 28 (2d Cir. 1996) ([sections] 1452(b) precludes review in court of appeal regardless of whether decision to remand based on legal or equitable considerations); Dominick v. Dixie Nat. Life Ins. Co., 809 F.2d 1559 (11th Cir. 1987) (construing predecessor to [sections] 1452(b)).

[5] For a definition of mandatory abstension, see In re Dow Corning Corp., 86 F. 3d 482 (6th Cir, 1996.)

[6] The analysis employed here is applied ontly to remand and abstention orders. However, the analysis is equally applicable to many other types of interlocutory bankruptcy orders.

[7] Unlike circuit courts of appeal, 28 U.S.C. [sections] 158(a) expressly confers jurisdiction on the district courts to hear interlocutory orders of a bankruptcy court, with leave of court. In re F.D.R. Hickory House, Inc., 60 F.3d 724 (11th Cir. 1995).

[8] But see Quackenbush v. Allstate Ins. Co., 116 S.Ct. 1712, 1719-20 (1996), in which the Court held that an abstention-based remand order involved a right "sufficiently important to warrant an immediate appeal."

[9] In Connecticut Nat. Bank v. Germain, 503 U.S. 249 (1992), the Supreme Court held that [sections] 158(d) does not limit the ability of a court of appeal to entertain interlocutory bankruptcy appeals under 28 U.S.C. [sections] 1292:"So long as a party to a proceeding or case in bankruptcy meets the conditions imposed by [sections] 1292, a court of appeals may rely on that statute as a basis for jurisdiction Id. at 254. The point is that the party must satisfy the conditions of [sections] 1292.

[10] An interlocutory appeal need not be taken to preserve the issue for a later plenary appeal. In Caterpillar, Inc. v. Lewis, 117 S. Ct. 467 (1996), the Supreme Court held that a party is not required to take an interlocutory appeal to avoid waiving whatever ultimate appellate right he or she may have. Practically speaking, however, appeal after final judgment is hardly palatable.

Hala A. Sandridge is a shareholder in the Tampa appellate group of Fowler, White, Gillen, Boggs, VillaFeal & Banker, P.A. She received her B.A. from the University of Florida in 1981, and her J.D. with honors in 1984 from Florida State University College of Law. Ms. Sandridge is board certified in appellate practice, has extensively lectured and authored articles on appellate topics, and serves as treasurer of the Appellate Practice and Advocacy Section.

This column is submitted on behalf of the Appellate Practice and Advocacy Section, Christopher L. Kurzner, chair, and Jacqueline E. Shapiro, editor.
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Date:Apr 1, 1998
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