Cantwell, In re, 80-1711

• Decision Date: 04 February 1981
• Docket Number: No. 80-1711,80-1711
• Citation: 639 F.2d 1050
• Parties: In re Gerard J. CANTWELL, Debtor. Appeal of CONTINENTAL BANK and Beatrice Pitt and Samuel Pitt.
• Court: U.S. Court of Appeals — Third Circuit

Page 1050

639 F.2d 1050

7 Bankr.Ct.Dec. 807

In re Gerard J. CANTWELL, Debtor Appeal of CONTINENTAL BANK and Beatrice Pitt and Samuel Pitt.

No. 80-1711.

United States Court of Appeals Third Circuit.

Argued Nov. 6, 1980.

Decided Feb. 4, 1981.

S. Regen Ginsburg, Larry Pitt (argued), LaBrum & Doak, Harry R. Kozart, Philadelphia, Pa., for appellants.

Irwin Trauss (argued), Henry J. Sommer, Community Legal Services, Inc., Philadelphia, Pa., for appellee.

Before ADAMS and SLOVITER, Circuit Judges, and BROTMAN, District Judge. ^*

OPINION OF THE COURT

SLOVITER, Circuit Judge.

This is an appeal from an order of the district court sitting in bankruptcy which reversed an order of the bankruptcy court and thereby dissolved a stay of appellee's discharge in bankruptcy. Appellee claims the district court order is not appealable, that the matter is now moot, and that the court did not abuse its discretion in dissolving the stay. We do not reach the merits because, for the reasons stated below, we hold this appeal must be dismissed.

Facts

The relevant facts are not in dispute. On June 26, 1978 appellee, Gerard J. Cantwell, filed a voluntary petition in bankruptcy. ¹ In accordance with Bankruptcy Rule 404(a), the bankruptcy court entered an order on August 29, 1978 setting November 1, 1978 as the last day for filing complaints objecting to the discharge. November 1, 1978 was also fixed as the day on which the discharge would be granted if no complaint were filed.

In his schedule of debts, Cantwell listed among his creditors appellants, Continental Bank and Beatrice and Samuel Pitt. Apparently, Cantwell and his wife were co-sureties with the Pitts for a corporation's debts to Continental. Continental had confessed judgment against both Cantwell and his wife in January 1974, but the judgment was opened as to Mrs. Cantwell in April 1975 and remained open when Mr. Cantwell filed his petition in bankruptcy.

Mr. and Mrs. Cantwell own a house as tenants by the entirety. Under Pennsylvania law, entireties property can be attached only to satisfy the joint debts of a married couple. Therefore, Continental needed a joint judgment against the Cantwells to perfect a lien which it claimed to have on this property, and the Pitts intervened in the state proceedings to press their claim for contribution from the Cantwells for money they alleged to have paid to Continental in partial or complete satisfaction of their obligations as sureties.

In order to reach the property held by Mr. and Mrs. Cantwell as tenants by the entirety, Continental and the Pitts sought from the bankruptcy court relief from the automatic stay provided by Bankruptcy Rule 401(a) whereby the filing of a petition operates to stay commencement or continuation of any action against the bankrupt and the enforcement of any judgment against the bankrupt. On October 4, 1978, the bankruptcy judge entered an order providing such relief pursuant to Bankruptcy Rule 401(d) which permitted them to proceed with the state court action against the Cantwells. Continental and the Pitts also filed a "complaint" in the bankruptcy court to stay the discharge of Mr. Cantwell until their claims against Mrs. Cantwell could be reduced to judgment. Continental sought such a stay in an effort to secure a joint judgment before discharge to enable it to attempt enforcement of its lien against the entireties property. On November 1, 1978 the bankruptcy court granted their request and stayed Mr. Cantwell's discharge pending final determination of the state court action.

Mr. Cantwell appealed the grant of the stay to the district court. In an order dated April 22, 1980, the district court reversed the November 1, 1978 order of the bankruptcy court and dissolved the stay. The district court relied on the reasoning of the decision in Harris v. Manufacturers National Bank of Detroit, 457 F.2d 631 (6th Cir.) cert. denied, 409 U.S. 885, 93 S.Ct. 118, 34 L.Ed.2d 142 (1972), where the court enjoined execution of a joint judgment against entireties property following a husband's discharge in bankruptcy. The Harris court and the district court here both stressed that section 17 of the Bankruptcy Act reflects Congressional intention that a discharge in bankruptcy should release a spouse from joint as well as several debts and bar execution on a joint judgment. Continental Bank and the Pitts appealed the district court's order to this court on April 30, 1980. ²

On June 30, 1980, the Pitts filed a motion with the bankruptcy court for the entry of a qualified discharge of Mr. Cantwell. The same day this motion was sub silentio denied when the bankruptcy court granted Mr. Cantwell his discharge in bankruptcy. There has been no appeal from the order of discharge.

Appealability of the Order

Appellee argues that we have no jurisdiction over this appeal. Section 24(a) of the Bankruptcy Act, 11 U.S.C. § 47(a) (1976), which establishes the jurisdiction of appellate courts in bankruptcy cases provides, in relevant part:

The United States courts of appeals ... are invested with appellate jurisdiction from the several courts of bankruptcy in their respective jurisdictions in proceedings in bankruptcy, either interlocutory or final, and in controversies arising in proceedings in bankruptcy, to review, affirm, revise, or reverse, both in matters of law and in matters of fact...

This provision makes a distinction between "proceedings in bankruptcy" and "controversies arising in proceedings in bankruptcy." Orders "in proceedings in bankruptcy" are appealable whether "interlocutory or final." On the other hand, we have jurisdiction with respect to "controversies arising in proceedings in bankruptcy" only over those orders that are final. See In re W.F. Breuss, Inc., 586 F.2d 983 (3d Cir. 1978). See generally 2 Collier on Bankruptcy P 24.11(5) (14th ed. 1976).

The distinction between "proceedings" and "controversies" was discussed in In re Penn Central Transportation Co., 570 F.2d 1189, 1193 (3d Cir. 1978), where we stated:

As a general rule, "proceedings" are those matters of an administrative character, including questions between the bankrupt and his creditors, which are presented in the ordinary course of the administration of the bankrupt's estate. "Controversies", on the other hand, are usually described as matters which arise in the course of the bankruptcy proceedings which are not mere steps in the ordinary administration of the bankrupt, but which present distinct and separable issues between the trustee and adverse claimants concerning the right and title to the bankrupt's estate.

Here the appellants are not seeking any part of the estate in bankruptcy. Rather, they are attempting to alter the ordinary course of the administration of Cantwell's estate. Thus, the matter appealed here is a "proceeding in bankruptcy." Cantwell does not contend otherwise.

Read literally, section 24(a) provides the courts of appeals with jurisdiction over all orders in "proceedings in bankruptcy." Cantwell argues, however, that section 24(a) should not be construed literally. He points to a number of decisions that place a judicial gloss on this section, holding that orders concerning trivial, preliminary or procedural matters, not amounting to formal judicial rulings, adjudicating the asserted rights of a party, or substantially determining some issue, are not reviewable. See, e. g., In re Durensky, 519 F.2d 1024 (5th Cir. 1975). See generally 2 Collier on Bankruptcy P 24.39. Cantwell invokes this exception and argues that because the district court's order dissolving the stay merely allowed the discharge proceeding to continue to its conclusion, it did not finally determine any party's rights and thus is not appealable.

This court has not taken a strict approach to appealability in bankruptcy matters. In In re Pittsburgh Rys. Co., 164 F.2d 488 (3d Cir. 1947) (per curiam), we expressed doubt over whether two interlocutory orders which adjudicated no rights or claims but merely directed the special master to proceed and report were appealable. We recognized that these orders presented nothing "more than a procedural direction by the Court to its Special Master," but held that even assuming the orders were appealable, they were within the district court's discretion. Subsequently, in In re American Bantam Car Co., 193 F.2d 616, 621 (3d Cir. 1952), we held that an order appointing a special master to conduct hearings concerning a settlement offer was appealable. We explained that the order appealed from was not a mere "procedural direction" within the purview of Pittsburgh Rys., but rather had "immense substantive effect." Most recently, in In re W.F. Breuss, Inc., 586 F.2d 983 (3d Cir. 1978), we held that an order of the district court directing that an accountant appear before it or the bankruptcy court for a hearing to determine the validity of his claim that his testimony and production of documents at an examination pursuant to Bankruptcy Rule 205 would tend to incriminate him was an appealable interlocutory order under section 24(a). The majority made no mention of the "trivial order" exception even though the dissent relied on that exception in arguing that the appeal should be dismissed.

Our approach toward appealability of interlocutory orders under section 24(a) may be more liberal than that followed by some other courts. Compare, e. g., De Laney v. City Investment Co., 224 F.2d 808 (10th Cir. 1955). However, even assuming that we embrace the trivial order exception to the same extent as do other circuits, we do not believe the order appealed from falls within it. The order dissolving the stay had substance. The district court decided a controversial issue, adjudicating appellants' asserted right to a stay of discharge to enable them to attach assets not in the bankrupt's estate. Cantwell's argument that the order merely allowed the discharge proceeding to continue to its conclusion and did not affect the...