Memorial Estates, Inc., In re

• Decision Date: 08 September 1986
• Docket Number: No. 85-1196,85-1196
• Citation: 797 F.2d 516
• Parties: 15 Collier Bankr.Cas.2d 491, 14 Bankr.Ct.Dec. 1181, Bankr. L. Rep. P 71,282 In re MEMORIAL ESTATES, INC., Debtor. Appeal of CEMCO, INC.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 516

797 F.2d 516

15 Collier Bankr.Cas.2d 491, 14 Bankr.Ct.Dec. 1181,

Bankr. L. Rep. P 71,282

In re MEMORIAL ESTATES, INC., Debtor.

Appeal of CEMCO, INC.

No. 85-1196.

United States Court of Appeals, Seventh Circuit.

Argued June 17, 1986.

Decided July 31, 1986.

As Amended on Denial of Rehearing Sept. 8, 1986.

William L. Needler, William L. Needler & Associates, Ltd., Chicago, Ill., for appellant.

Jeffrey R. Liebman, Arvey, Hodes, Costello & Burman, Chicago, Ill., for appellee.

Before WOOD, POSNER and FLAUM, Circuit Judges.

POSNER, Circuit Judge.

This appeal in a bankruptcy case requires us to decide two questions of surprising novelty: whether an order by a district judge appointing a receiver in a bankruptcy case is ever appealable even though it is not a final order, and, if so (for, if not, we cannot reach the issue on the merits), whether the law ever allows the appointment of a receiver in a bankruptcy case.

The principal asset of Memorial Estates, Inc. is a cemetery on which the Chicago Bank of Commerce has a mortgage for more than $400,000. Memorial defaulted on the loan secured by the mortgage. The bank began a foreclosure action in an Illinois state court and asked the judge to appoint a receiver to operate the cemetery until the action was over. Memorial had (without the bank's consent) turned over the operation of the cemetery to Cemco, Inc., which was busy selling cemetery plots and was keeping the proceeds. Cemco took the position that the plots were not covered by the mortgage and hence that it owed the bank nothing. The bank vigorously disagreed, pointing out that if Cemco was right the only security for the mortgage was the part of the cemetery not actually usable for cemetery plots, mainly roads and paths, even though the mortgage instrument purported to secure the entire cemetery. The appointment of a receiver at the request of a creditor to prevent a waste of assets that secure the creditor's loan is a conventional application of receivership law, see 2 Story's Equity Jurisprudence Sec. 1145 (14th ed., Lyon, 1918); Kerr on the Law and Practice as to Receivers 26-27 (14th ed., Walton, 1972), and the state judge concluded that the bank was entitled to a receiver in the circumstances and announced he would appoint one. But before he got around to doing so Memorial filed a petition for bankruptcy and the foreclosure suit was removed to the bankruptcy court. See 28 U.S.C. Secs. 1334(b), (d).

After an evidentiary hearing the bankruptcy judge decided that a receiver for the cemetery should be appointed pending the foreclosure action, and he so recommended to the district judge, who agreed and appointed the receiver. The bankruptcy judge himself could not appoint the receiver, because the foreclosure suit was collateral to the bankruptcy--a "related" rather than "core" bankruptcy case--so that the actual rulings had to be made by the district judge, with the bankruptcy judge's role being advisory. See 28 U.S.C. Sec. 157(c)(1).

Cemco intervened in the district court to oppose the appointment of the receiver, and appeals from the appointment. A trustee has been appointed to liquidate Memorial, but he seems to be inactive pending outcome of the foreclosure action, which is proceeding in the district court while the receiver administers the cemetery. The trustee did not object to the appointment of the receiver.

1. If this were not a bankruptcy case there would be no doubt that the district judge's order was appealable, because 28 U.S.C. Sec. 1292(a)(2) makes orders appointing receivers appealable regardless of finality. See 7B Moore's Federal Practice Sec. 1292(a)(2) (2d ed. 1986). But a special statute, 28 U.S.C. Sec. 158(d), governs appeals from district courts to courts of appeals in bankruptcy cases, and it merely provides that "courts of appeals shall have jurisdiction of appeals from all final decisions, judgments, orders, and decrees" of district courts. The order appointing a receiver pending the decision of the foreclosure action is not a final order while that action is still going on, which it is in this case.

Although no statute makes section 1292(a)(2) inapplicable to bankruptcy cases, this court and most commentators have assumed that the reference in the section is to equity receivers rather than to bankruptcy receivers. See In re Cash Currency Exchange, Inc., 762 F.2d 542, 548 (7th Cir.1985); In re Licek Potato Chip Co., 599 F.2d 181, 184 n. 4 (7th Cir.1979); Note of Advisory Comm. to Fed.R.Civ.P. 66; 2 Collier on Bankruptcy p 24.27[2.1] at p. 762.1 n. 7 (14th ed. 1978); cf. Martin v. Partridge, 64 F.2d 591 (8th Cir.1933); 7B Moore's Federal Practice, supra, p 1292(a)(2). None of these cases, however, actually involved a receiver in bankruptcy, and there is a reason for this: the appealability of an order appointing a receiver in bankruptcy is generally a nonissue. First of all, a bankrupt's property is managed either by the trustee (in a liquidation case) or by the debtor itself (in the usual reorganization case), and in either case it is hard to see what room there would be for a receiver in bankruptcy. He would just be stepping on the toes of the trustee or of the debtor in possession. The inactivity of the trustee in this case illustrates that you don't need both a trustee and a receiver for the same property.

Under the old law of bankruptcy appeals, moreover, any nontrivial order concerning the bankruptcy proceeding itself, as distinct from related matters ("controversies"), mainly disputes between creditors or (as here) between the debtor and a creditor, was appealable regardless of finality. See In re Chicago, Milwaukee, St. Paul & Pac. R.R., 756 F.2d 508, 511-13 (7th Cir.1985). Therefore an order appointing a bankruptcy receiver would clearly have been appealable when made. See In re Homer Arth Well No. 1, 529 F.2d 1272, 1273-74 (6th Cir.1976) (order appointing trustee appealable). Although the distinction between proceedings and controversies has been abolished, see 28 U.S.C. Secs. 158(a), (d); In re Chicago, Milwaukee, St. Paul & Pac. R.R., supra, 756 F.2d at 511, the requirement of finality tends still to be administered somewhat more loosely in bankruptcy cases, see e.g., In re Sax, 796 F.2d 994, 996, 997 (7th Cir.1986); In re Riggsby, 745 F.2d 1153, 1154 (7th Cir.1984); Tringali v. Hathaway Machinery Co., 796 F.2d 553, 558 (1st Cir.1986); In re Saco Local Development Corp., 711 F.2d 441, 443 (1st Cir.1983)--though whether sufficiently so to allow an appeal in a case such as this may well be doubted in light of In re Cash Currency Exchange, supra, 762 F.2d at 546, and In re Delta Services Industries, 782 F.2d 1267, 1270-72 (5th Cir.1986), both of which hold that the appointment of a trustee in bankruptcy is not a final appealable order. We need not decide this question, however, as we believe that section 1292(a)(2) is applicable to this case after all.

Any need to make express provision in the new law (the Bankruptcy Code enacted in 1978) for appeals from orders appointing receivers in bankruptcy cases must have seemed eliminated by 11 U.S.C. Sec. 105(b) (enacted as part of the new Code), which states flatly, "a court may not appoint a receiver in a case under this title." As the legislative history explains, "the bankruptcy code has ample provision for the appointment of a trustee when needed. Appointment of a receiver would simply circumvent the established procedures." H.R.Rep. No. 595, 95th Cong., 1st Sess. 316 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 29 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5815, 6273. The reference is to the procedures in the Bankruptcy Code governing the appointment of the trustee. See 11 U.S.C. Secs. 321-325, 701-702, 1104. The purpose of section 105(b) is to prevent the district court from short-circuiting these procedures by appointing a receiver, thereby leaving the trustee with nothing to do. An especially relevant provision is 11 U.S.C. Sec. 701, which provides for the appointment of an interim trustee at the outset of the liquidation proceeding; his "function is similar to that of a receiver under current law, but his powers and duties are broader." H.R.Rep. No. 595, supra, at 102, U.S.Code Cong. & Admin.News 1978, p. 6063. Since the Code forbids the district court to appoint receivers in bankruptcy, the framers could not have thought it appropriate to make orders appointing receivers appealable regardless of finality; that would just have raised doubts about the meaning of section 105(b).

The key to the issue of appealability in the present case, however, is the distinction noted earlier between an equity receiver and a bankruptcy receiver. When the bank moved in state court for the appointment of a receiver, it was not asking for the appointment of a bankruptcy receiver; the case was not a bankruptcy case (and the state courts do not have bankruptcy jurisdiction, see 28 U.S.C. Sec. 1334(b)); it was a simple foreclosure action. When the case was removed to federal court because the defendant had declared bankruptcy, all the bank wanted was an equity receiver to administer the cemetery pending resolution of the bank's foreclosure action. Cf. Kerr, supra, at 3; 4 Pomeroy's Equity Jurisprudence Secs. 1330-1336 (5th ed., Symons, 1941). The bank did not want a receiver--more properly a trustee--who would liquidate Memorial Estates. When a suit is removed from state to federal court, the federal court has, with immaterial exceptions (see Granny Goose...