In re Inc.

• Decision Date: 05 August 2011
• Docket Number: No. 10–1351.,10–1351.
• Citation: 55 Bankr.Ct.Dec. 70,653 F.3d 1154
• Parties: In re HEALTHTRIO, INC., Debtor.HealthTrio, Inc., Appellant,v.Centennial River Corp., f/k/a Immedient Corp.; Axiom Systems, Inc.; Johnson–Laird, Inc., Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

653 F.3d 1154

55 Bankr.Ct.Dec. 70

In re HEALTHTRIO, INC., Debtor.HealthTrio, Inc., Appellant,

v.Centennial River Corp., f/k/a Immedient Corp.; Axiom Systems, Inc.; Johnson–Laird, Inc., Appellees.

No. 10–1351.

United States Court of Appeals, Tenth Circuit.

Aug. 5, 2011.

Submitted on the briefs: ^*Peter J. Lucas, James P. Eckels, Appel & Lucas, P.C., Denver, CO, for Appellant.Roger M. Bould, Keevican, Weiss, Bauerle & Hirsch, LLC, Pittsburgh, PA, Edgar L. Neel, Pendleton, Friedberg, Wilson & Hennessey, P.C., Denver, CO, for Appellees.

Before HOLMES and ANDERSON, Circuit Judges, and BRORBY, Senior Circuit Judge.BRORBY, Senior Circuit Judge.

The primary issue in this Chapter 7 bankruptcy case is whether the United States Bankruptcy Appellate Panel of the Tenth Circuit (BAP) had jurisdiction to review an “order for relief” entered by a bankruptcy judge serving in the United States Bankruptcy Court for the District of Delaware (Delaware Bankruptcy Court). The Delaware bankruptcy judge entered the order for relief after the effective date of a transfer of venue he had ordered under 28 U.S.C. § 1412 to the United States Bankruptcy Court for the District of Colorado (Colorado Bankruptcy Court).

The parties agree that the order should be vacated on the ground that it is void because it was issued after the transfer was complete and therefore in the absence of jurisdiction, a proposition that finds footing in the case law of both the Third and Tenth Circuits. See Hudson United Bank v. Chase Manhattan Bank of Conn., N.A., 43 F.3d 843, 845 n. 4 (3d Cir.1994) (explaining that transferor court loses jurisdiction once transfer is complete, which occurs “when the files in a case are physically transferred to the transferee court”); Chrysler Credit Corp. v. Country Chrysler, Inc., 928 F.2d 1509, 1516–17, 1520 (10th Cir.1991) (same); see also Cunningham v. BHP Petroleum Gr. Brit. PLC, 427 F.3d 1238, 1245 (10th Cir.2005) (stating that judgment is void if court lacked subject matter jurisdiction); Union Switch & Signal Div. Am. Standard Inc. v. United Elec., Radio & Mach. Workers of Am., Local 610, 900 F.2d 608, 612 n. 1 (3d Cir.1990) (same). However, the BAP concluded that it did not have jurisdiction because the second sentence of 28 U.S.C. § 158(a) provides that an appeal of a decision by a bankruptcy judge “shall be taken only to the district court for the judicial district in which the bankruptcy judge is serving.” ¹ We agree with the BAP and therefore affirm.

I. BACKGROUND

An involuntary Chapter 7 case may be commenced by “three or more entities, each of which is ... a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute.” 11 U.S.C. § 303(b)(1). Appellees Centennial River Corp., f/k/a Immedient Corp.; Axiom Systems, Inc.; and Johnson–Laird, Inc. (together, the Petitioning Creditors) filed their involuntary petition against HealthTrio, Inc., in the Delaware Bankruptcy Court. HealthTrio answered the petition and filed counterclaims, but it also moved to dismiss the petition and to transfer venue to the Colorado Bankruptcy Court. The transfer motion was based on 28 U.S.C. § 1412, which authorizes a transfer of venue “in the interest of justice or for the convenience of the parties.” HealthTrio claimed that although it was a Delaware corporation in “delinquent” status, its books, records, principal offices, assets, business operations, and some of its officers were located in Colorado. App. at 48–49.

After a hearing on the motion to dismiss, the Delaware bankruptcy judge denied it in a written order entered as Docket No. 19. Petitioning Creditors then moved for summary judgment on the involuntary petition, requesting that an order for relief be entered against HealthTrio.

Before continuing our discussion of the procedural facts, some background on an “order for relief” is helpful. Used extensively in the bankruptcy code, the phrase is defined by statute as follows: “ ‘order for relief’ means entry of an order for relief.” 11 U.S.C. § 102(6). As fleshed out in case law, an order for relief is “the equivalent of an ‘adjudication’ under the Bankruptcy Act of 1898,” and therefore is “a judgment in rem, a conclusive determination of the debtor's status in bankruptcy.” Mason v. Integrity Ins. Co. (In re Mason), 709 F.2d 1313, 1315 (9th Cir.1983). It “effectively divests the debtor of his assets, creating an estate controlled by the bankruptcy court.” Id. at 1317. In a voluntary case, the commencement of the case itself “constitutes an order for relief.” 11 U.S.C. § 301. In an involuntary case, such as this one, the debtor may answer. Id. § 303(d). If the involuntary “petition is not timely controverted,” the court must issue an order for relief; but if the petition is controverted, the court must determine “after trial” whether to issue an order for relief. Id. § 303(h). Once an order for relief is entered in a Chapter 7 case (either voluntary or involuntary), an interim trustee is “ ‘promptly’ ” appointed, “and eventually, a permanent trustee ... is installed for the duration of the bankruptcy.” C.W. Mining Co. v. Aquila, Inc. (In re C.W. Mining Co.), 636 F.3d 1257, 1261 (10th Cir.2011) (quoting 11 U.S.C. § 701 and citing id. § 702), petition for cert. filed, 79 U.S.L.W. 3674 (U.S. May 16, 2011) (No. 10–1412).

With this understanding of an order for relief, we return to the procedural history of our case. The Delaware bankruptcy judge held a hearing on September 15, 2009, at which he stated “[i]t appears to me that an Order for Relief ... should be entered in this case,” but there is “not ... a sufficient record before me today to answer that question.” App. at 148. Although the judge repeated his belief that an order for relief was appropriate, see id. at 152, he ultimately ordered discovery pertaining to the motion to transfer, set a hearing on that motion, and set a trial on the merits for October 7, 2009, stating that “if the parties can come to agreement on the issue of the order for relief, then I would expect that under certification. Otherwise, we'll deal with it on the 7th,” id. at 154.

After a continuance and a hearing on a discovery dispute, the judge held another hearing on November 12, 2009, at which the parties again presented a discovery dispute. The judge took matters under advisement and stated his intent to review the record in order to “understand the full context of these proceedings.” Id. at 178. The judge informed the parties that he would either issue rulings on pending motions or set up another hearing, and that he would issue an order on the discovery dispute. The judge did not mention or issue an order for relief.

The same day as the hearing, November 12, the Delaware bankruptcy judge entered an order granting HealthTrio's motion to transfer venue to the Colorado Bankruptcy Court pursuant to 28 U.S.C. § 1412. The judge referred to “an order for relief having been entered in this involuntary case [Docket No. 19]” as one of the factors that informed his decision. Id. at 169 (brackets in original). As noted, however, Docket No. 19 was the order denying HealthTrio's motion to dismiss, not an order for relief.

On November 16, 2009, the case was docketed in the Colorado Bankruptcy Court. The transmittal letter sent by the Delaware Bankruptcy Court, dated the same day, states that “[d]ocuments were electronically filed and can be viewed through the Court's ecf [electronic case filing] link.” Id. at 180.

On November 23, 2009, Petitioning Creditors filed a motion in the Delaware Bankruptcy Court for clarification of the transfer order. They noted that the order entered as Docket No. 19 denied HealthTrio's motion to dismiss but did “not explicitly enter an Order for Relief against [HealthTrio].” Id. at 182. Petitioning Creditors asked the court to clarify the transfer order “by amending it to expressly enter an order for relief against [HealthTrio].” Id. In response, the Delaware bankruptcy judge entered an “Order of Relief” [sic] on December 10, 2009, which read, in its entirety:

And now, this 10th day of December, 2009, upon consideration of the Motion for Clarification filed by the Petitioning Creditors in the above-captioned case, and the Court having determined that the clarification requested is appropriate under the circumstances; it is hereby Ordered that the Court's Order dated November 12, 2009 is amended to explicitly provide that an Order for Relief against Health Trio, Inc. be and hereby is entered under Chapter 7 of Title 11, U.S.C.

Id. at 184.

The order for relief was docketed in both the Delaware Bankruptcy Court and the Colorado Bankruptcy Court, and HealthTrio filed timely notices of appeal from that order in the United States District Court for the District of Delaware and in the United States District Court for the District of Colorado. ² Meanwhile, the Colorado Bankruptcy Court granted HealthTrio's motion to stay the case pending appeal, concluding that HealthTrio was likely to prevail on the merits of its argument that once the case was docketed in Colorado, the Delaware Bankruptcy Court lost jurisdiction to enter the order for relief, and therefore the order for relief was void. The Colorado Bankruptcy Court expressed its opinion that the reference to “an order for relief having entered” in the transfer order was “simply an error” and “that no order for relief was ever entered at any time during which the Delaware court had jurisdiction over this case.” In re HealthTrio, Inc., No. 09–34404–HRT, 2010 WL 749800, at *3 (Bankr.D.Colo. Feb. 25, 2010) (unpublished).

In the Colorado appeal, HealthTrio asserted that the BAP had jurisdiction under 28 U.S.C. § 158(a)(1) and presented its arguments on the merits, including that the Delaware Bankruptcy Court lost jurisdiction once the case was docketed in the Colorado Bankruptcy Court.³ Petitioning Creditors joined with HealthTrio in requesting expedited disposition and...