Continental Inv. Corp., In re, 80-1362

• Decision Date: 31 October 1980
• Docket Number: No. 80-1362,80-1362
• Citation: 637 F.2d 1
• Parties: Fed. Sec. L. Rep. P 97,800, Bankr. L. Rep. P 67,739, Bankr. L. Rep. P 67,804 In re CONTINENTAL INVESTMENT CORPORATION, Debtor. Monte J. Wallace and Neil W. Wallace, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 1

637 F.2d 1

Fed. Sec. L. Rep. P 97,800, Bankr. L. Rep. P 67,739,

Bankr. L. Rep. P 67,804

In re CONTINENTAL INVESTMENT CORPORATION, Debtor Monte J. Wallace and Neil W. Wallace, Appellants.

No. 80-1362.

United States Court of Appeals First Circuit.

Argued Sept. 4, 1980.

Decided Oct. 31, 1980.

Arthur F. Mathews, Washington, D. C., with whom John H. Pickering, Robert B. McCaw, Wilmer & Pickering, Washington, D. C., William F. Macauley, Joanne M. Neale, and Craig & Macauley, Boston, Mass., were on brief, for appellants.

Michael K. Wolensky, Associate Gen. Counsel, Washington, D. C., with whom Ralph C. Ferrara, Gen. Counsel, John P. Sweeney, Asst. Gen. Counsel, Anne C. Flannery, Sp. Counsel, Theodore S. Bloch, and Harlan W. Penn, Washington, D. C., were on brief for appellee, S. E. C.

Peter Gruenberger, New York City, with whom Harvey R. Miller, Bruce R. Zirinsky, Irwin H. Warren, and Weil, Gotshal & Manges, New York City, were on brief for appellee, O.C. Associates.

Daniel M. Glosband, Boston, Mass., with whom Richard T. D'Elia, New Hyde Park, N. Y., and Goldstein & Manello, Boston, Mass., were on brief for appellee, Paul Lazzaro, Trustee of Continental Inv. Corp.

Henry L. Goodman, Shelly Rothschild, and Zalkin, Rodin & Goodman, New York City, on brief for appellee, Chemical Bank.

Before COFFIN, Chief Judge, BOWNES, Circuit Judge, WYZANSKI, Senior District Judge ^*.

COFFIN, Chief Judge.

Appellants Monte and Neil Wallace, the majority stockholders of Continental Investment Corporation (CIC), seek to take an interlocutory appeal from an order denying their motion to disqualify from CIC's Chapter X reorganization proceedings the law firm representing a substantial creditor of the bankrupt.

The disqualification motion focused on the role played by Marvin Jacob in connection with the reorganization proceedings. As head of the Bankruptcy Division of the SEC's New York Regional Office, Jacob had represented the SEC in its ultimately successful efforts to gain a transfer of the CIC proceedings from Chapter XI to Chapter X. Jacob left the SEC shortly thereafter, and became a partner in the New York law firm of Weil, Gotshal & Manges (WG&M). WG&M had as a client O.C. Associates, a general partnership which prior to Jacob's arrival had begun to purchase a significant portion of CIC's outstanding debentures. Recognizing that Jacob was personally disqualified from any work on the CIC matter, and in an attempt to avoid the imputation of that disqualification to the firm, WG&M undertook "screening" procedures designed to keep Jacob from any contact with or income from CIC matters. Appellants moved to disqualify WG&M from the proceedings upon learning of Jacob's position at the firm, contending that while they alleged no actual impropriety the circumstances were prejudicial to them and required disqualification. The district court denied the motion, and appellants bring this interlocutory appeal.

The first question we must consider is whether we have jurisdiction to hear such an appeal. Because we conclude that we do not, and because we find no reason sufficient to justify our reaching the merits of the motion in the absence of jurisdiction, we do not consider the substantive standards to govern attorney disqualification motions in this circuit.

We start from the general rule that interlocutory orders are not appealable in federal courts. Cobbledick v. United States, 309 U.S. 323, 60 S.Ct. 540, 84 L.Ed. 783 (1940); see 28 U.S.C. § 1291 (providing courts of appeals with jurisdiction over "all final decisions of the district courts"). This final judgment rule serves "a strong congressional policy against piecemeal review, and against obstructing or impeding an ongoing judicial proceeding by interlocutory appeals." United States v. Nixon, 418 U.S. 683, 690, 94 S.Ct. 3090, 3098, 41 L.Ed.2d 1039 (1974); see 9 Moore's Federal Practice P 110.06-110.07 (2d ed. 1975).

Appellants press two grounds as supporting an exception to this principle in the case before us. The first, unique to disqualification motions made in the course of bankruptcy litigation and apparently a question of first impression, is that disqualification motions fall within the special appellate jurisdiction provided over "proceedings in bankruptcy" by section 24(a) of the Bankruptcy Act of 1898, 11 U.S.C. § 47(a) (repealed 1978). The second, applicable to all denials of disqualification motions and an issue upon which every other circuit has ruled, is that such orders are appealable under the collateral order doctrine first established in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). We address each ground in turn.

The Bankruptcy Act

Section 24(a) of the Bankruptcy Act of 1898 (the Bankruptcy Act), 11 U.S.C. § 47(a) (repealed 1978), grants the courts of appeals jurisdiction over appeals from interlocutory orders entered in "proceedings in bankruptcy." ¹ Appellants urge that this "clear statutory language" compels a holding that denials of disqualification motions made during bankruptcy litigation are immediately appealable. But taken in its entirety, the language of § 24(a) is anything but clear. For the section turns on a distinction between "proceeding(s) in bankruptcy", which generally are immediately appealable, and "controvers(ies) arising in a proceeding in bankruptcy", which are not, see In re Lloyd, Carr & Co., 614 F.2d 17, 19 (1st Cir. 1979); 2 Collier on Bankruptcy §§ 24.12, 24.28 (14th ed. 1976)-a distinction which has been characterized as "not always simple", ² "hairline thin", ³ and "obscure and indefensibly confusing." ⁴ Nor do we find the familiar definition of those terms to shed much light on the question before us, a novel and unusual issue whose contours clearly were not anticipated by those invoking that general definition. ⁵ Rather, we find most compelling what we perceive to be the policy rationale underlying the special appealability of "proceedings", well described by Judge Hufstedler in In re Brissette, 561 F.2d 779, 782 (9th Cir. 1977), as follows:

"The esoteric draftsmanship of Section 24(a) does not completely obscure the draftsmen's intent that decisions involving interpretation of fundamental provisions of the Bankruptcy Act should be subject to interlocutory appeal. Due to the peculiar nature of bankruptcy proceedings, certain interlocutory decisions may effectively determine the ultimate outcome or finally resolve rights and duties of parties in a manner not susceptible to meaningful review on appeal from the final judgment .... Resolution of such issues will often wind up the entire litigation. If these consequences do not flow from permitting an interlocutory appeal, appeals in this field should be as firmly restricted as those in other kinds of civil litigation."

See Cope v. Aetna Finance Co. of Me., 412 F.2d 635, 639 (1st Cir. 1969) ("The critical question is whether the ... order was determinative of the rights of the parties."); In re Durensky, 519 F.2d 1024, 1028 (5th Cir. 1975) (same).

Applying this rationale to the question before us, we think it plain that no fundamental provision of the Bankruptcy Act, no decision effectively determining the rights of any party, indeed no matter at all peculiar to bankruptcy administration is presented. To the contrary, attorney disqualification motions can and do arise in any type of litigation whatsoever-their invocation in bankruptcy proceedings is only accidentally related to the Bankruptcy Act. Were we to have any substantial doubt on this matter, it would nonetheless be resolved in favor of finding a nonappealable controversy by virtue of the preference for such treatment in close cases recognized in In re Lloyd, Carr, supra, 614 F.2d at 19-20. ⁶

The Collateral Order Doctrine

Orders which are not final dispositions of an action may be immediately appealed in any type of litigation if they satisfy the criteria of the collateral order exception to the final judgment rule first enunciated in Cohen v. Beneficial Loan Corp., supra, 337 U.S. at 541, 69 S.Ct. at 1223. See Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 2457, 57 L.Ed.2d 351 (1978). This court has recently analyzed the Cohen doctrine as follows:

"Four requisites of appealability under this exception can be gleaned from the Cohen opinion and the cases applying it. The order must involve: (1) an issue essentially unrelated to the merits of the main dispute, capable of review without disrupting the main trial; (2) a complete resolution of the issue, not one that is 'unfinished' or 'inconclusive'; (3) a right incapable of vindication on appeal from final judgment; and (4) an important and unsettled question of controlling law, not merely a question of the proper exercise of the trial court's discretion." United States v. Sorren, 605 F.2d 1211, 1213 (1st Cir. 1979).

See Note, The Appealability of Orders Denying Motions for Disqualification of Counsel in the Federal Courts, 45 U.Chi.L.Rev. 450, 454-55 (1978). These requisites may be summarized as separability, finality, urgency, and importance. See Grinnell Corp. v. Hackett, 519 F.2d 595, 596 (1st Cir.), cert. denied sub nom. Chamber of Commerce v. United Steelworkers of America, 423 U.S. 1033, 96 S.Ct. 566, 46 L.Ed.2d 407 (1975).

We are apparently the last circuit to consider the applicability of these criteria to orders denying disqualification motions. ⁷ Following a period in which it was "generally agreed" that such orders were immediately appealable, Schloetter v. Railoc, 546 F.2d 706, 709 (7th Cir. 1976), several circuits, apparently faced with a "deluge" of such appeals, Community Broadcasting of Boston, Inc. v. FCC, 546 F.2d 1022, 1027 (D.C.Cir.1976), have reconsidered their earlier positions. Pointing to the frequent use of such appeals as tools for harassment and delay, these courts have overruled prior decisions and held denial orders non-appealable. See Armstrong v. McAlpin, ...