The Ninth Circuit Affirms Inflexible Standard Of Finality For Purposes Of District Court Appeals

On March 6, 2012, the United States Court of Appeals for the Ninth Circuit held that the flexible standard for finality generally applied in bankruptcy cases does not apply to appeals from orders of a district court sitting in bankruptcy. Klesdadt & Winters, LLP v. Cangelosi, 642 F.3d 809 (9th Cir. 2012). In so holding, the Ninth Circuit reaffirmed its position as the only circuit that applies less flexible jurisdictional standards to appeals from district courts sitting in bankruptcy as compared with appeals from bankruptcy courts.

Background

In the summer of 2009, the Nevada District Court issued rulings in a contract dispute that were adverse to Silar Advisors, LP and its subsidiary, Asset Resolution LLC. Shortly thereafter, Asset Resolution and its affiliated SPEs commenced chapter 11 cases in the Southern District of New York, which were then transferred to the District of Nevada in November 2009. On January 25, 2010, the standing reference to the bankruptcy court was withdrawn and, on January 29, 2010, the Nevada District Court converted the debtors' bankruptcy cases to chapter 7 proceedings.

On February 9, 2010, the chapter 7 trustee and the plaintiffs in the contract dispute filed a motion for sanctions against Silar Advisors, the debtors' bankruptcy counsel, and certain affiliated individuals on the grounds that the debtors never had any intention to reorganize and that their bankruptcy filing was an attempt to evade the district court's prior orders in the contract dispute. The district court granted the motion and the defendants appealed.

Ninth Circuit's Analysis

The sole issue addressed on appeal was whether the Ninth Circuit had jurisdiction over the appeal. Courts of appeals have jurisdiction over appeals of orders entered in bankruptcy cases pursuant to 28 U.S.C. § 1291 and 28 U.S.C. § 158(d). 28 U.S.C. § 1291, enacted in 1948 during the referee system employed prior to the establishment of the Bankruptcy Code, provides, in relevant part, that the "courts of appeals shall have jurisdiction of appeals from all final decisions of the district courts of the United States . . . ."

28 U.S.C. § 158(d) was promulgated as part of the Federal Judgeship Act of 1984 in response to the Supreme Court's Marathon decision, which held that jurisdiction afforded bankruptcy courts under the Bankruptcy Reform Act of 1978 was too broad. Still, 28 U.S.C. § 158(d) has broader language than 28 U.S.C. § 1291 and provides that the "courts of appeals...