McDow v. Dudley

• Decision Date: 30 November 2011
• Docket Number: No. 10–1732.,10–1732.
• Parties: W. Clarkson McDOW, Jr., United States Trustee for Region Four, Trustee–Appellant, v. David V. DUDLEY; Anne M. Dudley, Debtors–Appellees,andRoy V. Creasy; Joseph Anthony Guzinski, III; Rebecca Connelly, Trustees.
• Court: U.S. Court of Appeals — Fourth Circuit

662 F.3d 284

W. Clarkson McDOW, Jr., United States Trustee for Region Four, Trustee–Appellant,

v.David V. DUDLEY; Anne M. Dudley, Debtors–Appellees,andRoy V. Creasy; Joseph Anthony Guzinski, III; Rebecca Connelly, Trustees.

No. 10–1732.

United States Court of Appeals, Fourth Circuit.

Argued: Sept. 22, 2011.Decided: Nov. 30, 2011.

ARGUED: Wendy Cox, United States Department of Justice, Washington, D.C., for Appellant. Garren Robert Laymon, Magee Goldstein Lasky & Sayers, PC, Roanoke, Virginia, for Appellees. ON BRIEF: Ramona D. Elliott, General Counsel, P. Matthew Sutko, Associate General Counsel, Executive Office for United States Trustees, United States Department of Justice, Washington, D.C.; W. Clarkson McDow, Jr., United States Trustee for Region 4, John R. Byrnes, Assistant United States Trustee, Office of the United States Trustee, United States Department of Justice, Roanoke, Virginia; Joseph A. Guzinski, Assistant United States Trustee, Office of the United States Trustee, United States Department of Justice, Alexandria, Virginia, for Appellant. Andrew S. Goldstein, Magee Goldstein Lasky & Sayers, PC, Roanoke, Virginia, for Appellees.

Before NIEMEYER, KING, and AGEE, Circuit Judges.

Vacated and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge KING and Judge AGEE joined.

OPINION

NIEMEYER, Circuit Judge:

The issue presented by this appeal is whether an order denying the U.S. Trustee's motion to dismiss a debtor's Chapter 7 bankruptcy case as abusive under 11 U.S.C. § 707(b) is a final order appealable under 28 U.S.C. § 158(a). The district court dismissed the U.S. Trustee's appeal, ruling that the bankruptcy court's order was interlocutory and therefore not appealable to the district court.

Because of the particular effect that an order denying a motion to dismiss a Chapter 7 bankruptcy case as abusive has on the bankruptcy proceedings, we conclude that a bankruptcy court's order denying such a motion is appealable to the district court. Accordingly, we vacate the district court's order dismissing the U.S. Trustee's appeal and remand for further proceedings.

I

David and Anne Dudley filed a voluntary petition for bankruptcy relief under Chapter 13 of the Bankruptcy Code on August 18, 2008. When the Chapter 13 trustee moved to dismiss the case or to convert it to a Chapter 7 case, the Dudleys filed a motion to convert their case to a Chapter 7 case, which the bankruptcy court granted. Thereafter, the U.S. Trustee, W. Clarkson McDow, Jr., filed a motion to dismiss the Chapter 7 case under 11 U.S.C. § 707(b)(1) as abusive. In support of his motion, the U.S. Trustee asserted that the Dudleys failed the means test under § 707(b)(2), claiming that their income, after the deduction of appropriate expenses, would leave the Dudleys with over $2,000 per month to pay creditors. The U.S. Trustee also relied on § 707(b)(3), alleging that the Dudleys' overall circumstances demonstrated abuse because they had the financial ability to repay their creditors.

The Dudleys opposed the U.S. Trustee's motion to dismiss and filed a motion for summary judgment, contending that § 707(b) did not apply to a case such as theirs where the petition was initially filed under Chapter 13 and thereafter converted to a Chapter 7 case. They relied on the language of § 707(b), which authorizes the bankruptcy court to dismiss a case “filed by an individual debtor under this chapter,” arguing that “this chapter” refers to Chapter 7.

The Bankruptcy Court agreed with the Dudleys. Although it recognized that it was ruling against the considerable weight of authority, it held that the plain meaning of “filed under this chapter” only included cases in which the petition was originally filed under Chapter 7 and did not encompass converted cases, such as the Dudleys' case. In re Dudley, 405 B.R. 790 (Bankr.W.D.Va.2009). Thus, the bankruptcy court denied the U.S. Trustee's motion to dismiss the bankruptcy case under § 707(b) and entered summary judgment on the issue in favor of the Dudleys. Id. at 801.

The U.S. Trustee appealed the bankruptcy court's order to the district court, and the district court, acting sua sponte, dismissed the appeal for lack of subject matter jurisdiction. McDow v. Dudley, 428 B.R. 686 (W.D.Va.2010). The district court held that the bankruptcy judge's order was not “final” within the meaning of 28 U.S.C. § 158(a)(1) (conferring appellate jurisdiction on district courts for review of “final judgments, orders, and decrees ... of bankruptcy judges”). Id. at 688–89.

This appeal followed.

While this appeal was pending, the bankruptcy court continued with the case and ultimately entered an order, over the U.S. Trustee's objection, discharging the Dudleys' debts. The U.S. Trustee argued that the order of discharge was improper because (1) the bankruptcy court lacked jurisdiction while the case was on appeal and (2) Bankruptcy Rule 4004(c)(1)(D) prohibits discharge if “a motion to dismiss the case under § 707 is pending.” The bankruptcy court responded to the U.S. Trustee's argument, stating that “should the Court of Appeals reverse the District Court and the District Court reverse this Court's decision to deny the Motion to Dismiss, which would dismiss the Debtor's case, the discharge granted by this Court could be vacated.” In re Dudley, 431 B.R. 703, 706 n. 5 (Bankr.W.D.Va.2010). The U.S. Trustee appealed the bankruptcy court's discharge order, as well as “all prior interlocutory orders that are merged into the final [discharge order],” and the district court has stayed that appeal pending resolution of this appeal.

II

The district court's appellate jurisdiction over bankruptcy orders is governed by 28 U.S.C. § 158(a), which provides, as pertinent here, that “the district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees ... entered in cases and proceedings referred to the bankruptcy judges under Section 157 of this title.” 28 U.S.C. § 158(a)(1). The district court concluded that a bankruptcy order denying the U.S. Trustee's motion to dismiss a bankruptcy proceeding under 11 U.S.C. § 707(b) as abusive is not a final order. The court explained that because the bankruptcy court had not yet decided whether the Dudleys would receive a discharge in bankruptcy, “the decision to be reviewed here is subject to being overtaken or superseded by other proceedings in the Bankruptcy Court and hardly seems ripe for appellate review.” McDow, 428 B.R. at 689.

Thus, the question presented is whether a bankruptcy judge's order denying a § 707(b) motion to dismiss a Chapter 7 bankruptcy case as abusive is a final order within the meaning of 28 U.S.C. § 158(a)(1).

We have recognized as a general matter, as have other courts of appeals, that “the concept of finality in bankruptcy cases ‘has traditionally been applied in a more pragmatic and less technical way ... than in other situations.’ ” In re Computer Learning Ctrs., Inc., 407 F.3d 656, 660 (4th Cir.2005) (quoting A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1009 (4th Cir.1986) (alteration in original)); see also In re ASARCO, L.L.C., 650 F.3d 593, 599–600 (5th Cir.2011); In re Marcal Paper Mills, Inc., 650 F.3d 311, 314 (3d Cir.2011); Ritchie Special Credit Invs., Ltd. v. U.S. Trustee, 620 F.3d 847, 852 (8th Cir.2010); In re McKinney, 610 F.3d 399, 401–02 (7th Cir.2010); In re Rudler, 576 F.3d 37, 43–44 (1st Cir.2009). As we explained in A.H. Robins Co.:

The special or unique reason for this relaxed rule of appealability in bankruptcy is that “[b]ankruptcy cases frequently involve protracted proceedings with many parties participating. To avoid the waste of time and resources that might result from reviewing discrete portions of the action only after a plan of reorganization is approved, courts have permitted appellate review of orders that in other contexts might be considered interlocutory.”

788 F.2d at 1009 (quoting In re Amatex Corp., 755 F.2d 1034, 1039 (3d Cir.1985)). Thus, because of the special nature of bankruptcy proceedings, which often involve multiple parties, claims, and procedures, the postponing of review by the district court and the court of appeals of discrete issues could result in the waste of valuable time and already scarce resources. See id. at 1009; see also In re Northwood Props., LLC., 509 F.3d 15, 21 (1st Cir.2007). We have concluded, therefore, that “orders in bankruptcy cases may be immediately appealed if they finally dispose of discrete disputes within the larger case.” In re Computer Learning Ctrs., Inc., 407 F.3d at 660 (quoting In re Saco Local Dev. Corp., 711 F.2d 441, 444 (1st Cir.1983)).

Noting this jurisprudence, the U.S. Trustee contends that, in this case, an order denying a § 707(b) motion to dismiss should be treated as a final order because it resolves a discrete dispute within a larger bankruptcy proceeding and therefore would be immediately appealable. The particular nature of a § 707(b) motion, the Trustee argues, distinguishes such a motion from motions to dismiss generally, such as those under Federal Rule of Civil Procedure 12(b) or under 11 U.S.C. § 1112(b)(1)-(4) (authorizing an action to dismiss a Chapter 11 proceeding for “cause”). Focusing on a § 707(b) motion, the Trustee suggests that it functions as a complaint that alleges a statutorily mandated cause of action for dismissal of a case that is abusive, and the denial of the motion therefore effectively extinguishes that claim. Without immediate review, the bankruptcy proceedings would continue with the liquidation and distribution of the debtors' assets, with the effect that the issue of bankruptcy abuse would be resolved only after the assets of the debtor have been liquidated and distributed. This scenario would result in significant inefficiency by depleting the resources of the judicial system and by exhausting debtor resources that could otherwise be used to pay creditors....