In re USA Baby, Inc.
| Decision Date | 28 March 2012 |
| Docket Number | Nos. 11–2018,11–2026.,s. 11–2018 |
| Parties | In re USA BABY, INC., Debtor.Appeals of Scott Wallis. |
| Court | U.S. Court of Appeals — Seventh Circuit |
OPINION TEXT STARTS HERE
Barry A. Chatz (submitted), Attorney, Chicago, IL, for Debtor–Appellee.
Scott Wallis, Elgin, IL, pro se.
Before POSNER, WOOD, and TINDER, Circuit Judges.
Creditors forced USA Baby, which had been formed in 2003 to franchise stores that sell furniture and other products for children, into bankruptcy under Chapter 11 (reorganization). A trustee appointed by the bankruptcy court moved to convert the case to a Chapter 7 bankruptcy (liquidation). The bankruptcy judge granted his motion over the objection of Scott Wallis, a 5 percent shareholder who had been the company's president when the trustee was appointed and took over the debtor's management. Wallis moved for reconsideration of the bankruptcy judge's order, accusing the trustee and franchisees of committing fraud; and in a second motion, contending that the company could regain solvency by collecting fees withheld by the franchisees, Wallis asked the bankruptcy court to grant “equitable relief” compelling the franchisees to pay USA Baby what he claimed they owed it. The bankruptcy judge denied both motions. He explained that Wallis had not offered a persuasive reason to doubt the trustee's judgment that reorganization was infeasible, and that in a Chapter 7 case Wallis could not bring claims on behalf of USA Baby or litigate personal claims against the franchisees. Wallis appealed to the district court and having lost there appeals to us.
Although the bankruptcy case has not been closed, we have jurisdiction over his appeals. Section 158(d)(1) of the Judicial Code empowers the courts of appeals to hear appeals “from all final decisions, judgments, orders, and decrees” of a district court under sections 158(a) and (b). The test for finality under section 158(d) is whether the challenged decision resolved a claim “that would be final as a stand-alone suit outside of bankruptcy.” In re Comdisco, Inc., 538 F.3d 647, 651 (7th Cir.2008); see also In re ASARCO, LLC, 650 F.3d 593, 599–600 (5th Cir.2011). The first of the challenged rulings by the bankruptcy court, rejecting Wallis's motion to rescind the conversion from Chapter 11 to Chapter 7, was final in the practical sense that a Chapter 7 proceeding results in liquidation, depriving the debtor of the chance he would have in a Chapter 11 proceeding to reorganize and continue as a going concern. In re Koerner, 800 F.2d 1358, 1360–61 (5th Cir.1986); see In re Rosson, 545 F.3d 764, 769–70 and n. 7 (9th Cir.2008); 16 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3926.2, p. 299 n. 43 (2d ed. 1996). The denial of the mandatory injunction that Wallis sought is also appealable. In effect he seeks damages for breach of contract by the franchisees and for breach of trust by the trustee—claims that, outside bankruptcy, would be independent actions against the franchisees and the trustee.
On the merits, Wallis does not engage with the bankruptcy judge's reasons for rejecting his claims, but instead argues that...
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...case to Chapter 7, one federal court of appeals stated that "nothing in Stern v. Marshall ... affects our analysis." In re USA Baby, Inc., 674 F.3d 882, 883 (7th Cir.2012). "The Supreme Court held in [Stern ] that bankruptcy judges may not enter final judgments on common law claims that are......
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