Morse Elec. Co., Inc., Matter of

Decision Date04 November 1986
Docket NumberNo. 86-1099,86-1099
Citation805 F.2d 262
PartiesBankr. L. Rep. P 71,496 In the Matter of MORSE ELECTRIC COMPANY, INC., Debtor. Appeal of HOOSIER FENCE COMPANY, INC.
CourtU.S. Court of Appeals — Seventh Circuit

Robert G. Barker, Indianapolis, Ind., for appellant.

Mark D. Boveri, South Bend, Ind., for appellee.

Before FLAUM and EASTERBROOK, Circuit Judges, and SWYGERT, Senior Circuit Judge.

EASTERBROOK, Circuit Judge.

This is a bankruptcy case. Morse Electric Co., the bankrupt, took part in the construction of a toll plaza and utility building on the Indiana Toll Road. The project was covered by a performance bond, as state law required. The bond secures payment to suppliers that "furnished material or other service in the construction of any highway", Ind. Code Sec. 8-13-5-9.2. The parties have treated claims against the bond as secured claims for purposes of bankruptcy law.

When Morse filed its petition in bankruptcy, it was owed a substantial sum for its work on the highway and three other projects. Morse filed an adversary proceeding in the bankruptcy demanding that the money be turned over to it and naming 21 firms that might claim an interest in the money. After some preliminary proceedings that are no longer important, the money was tendered into court. Because the bonding company, if called on to pay, would be subrogated to any claims to this fund, the parties have agreed to proceed in its absence and to treat all claims covered by the construction bond as secured claims against the fund. One of the claims is before us now: Hoosier Fence Co. seeks $65,000 plus interest for five large concrete barriers sold to Morse.

The bankruptcy judge concluded that the barriers, designed to separate traffic from hazards and people during a construction project, are movable and reusable. They were not incorporated in the project and so were covered by the bond, the judge concluded, only to the extent of their implicit rental value for the duration of the project. The bankruptcy judge fixed this at $40,000, giving Hoosier a secured claim for $40,000 and an unsecured claim for $25,000. On appeal by Morse, the district court concluded that because the barriers are reusable they are not covered by the bond at all. This left Hoosier with an unsecured claim for $65,000, and it appealed to us.

I

The jurisdictional section of Hoosier's brief states that this court "has jurisdiction over this cause in accordance with 28 U.S.C. Sec. 1291 (1976), in that it is an appeal from a final judgment" of a district court. Section 1291 is the wrong statute in bankruptcy cases--at least as a rule, and we need not consider whether there are exceptions. Cf. In re Memorial Estates, Inc., 797 F.2d 516 (7th Cir.1986) (on occasion 28 U.S.C. Sec. 1292(a)(2) may supply appellate jurisdiction). The right statute here is 28 U.S.C. Sec. 158(d), which also contains a finality requirement. At oral argument we inquired whether the disposition could be final, when the adversary proceeding in the bankruptcy court continued. Questions from the bench explicitly inquired about the status of Westinghouse Electric Supply Co., which had a substantial claim against the fund, and asked whether the district court had made the judgment final under Fed.R.Civ.P. 54(b). The court called for supplemental memoranda from the parties.

The memoranda were filed, but neither mentions Rule 54(b) or the word "Westinghouse". Hoosier, the appellant, does not say a thing about which claims remain to be resolved in the adversary proceeding. Morse's memorandum catalogs some of the remaining parties, of which there are at least seven, but does not describe their claims. These submissions are unresponsive to the court's request. We wanted to know the status of Westinghouse and any order under Rule 54(b). Neither side supplied the information that the court requested.

The court needs--more, is entitled to--the scrupulous assistance of the bar in determining jurisdiction. Jurisdiction is the first question in every appeal. In re Boomgarden, 780 F.2d 657, 659 (7th Cir.1985). The appellant must investigate jurisdictional factors before appealing and explain those factors fully to the court. Jurisdictional questions are pervasive in bankruptcy cases because of the tension between the "finality" rule of Sec. 158(d) and the fact that each bankruptcy proceeding contains many claims and problems, each of which may come to a final conclusion before the estate has been wrapped up. Most courts have treated "final" in Sec. 158(d) more liberally than they treat the same word in Sec. 1291. E.g., In re Riggsby, 745 F.2d 1153, 1154 (7th Cir.1984); see also In re Saco Local Development Corp., 711 F.2d 441, 444 (1st Cir.1983). But see In re Delta Services Industries, 782 F.2d 1267, 1270-72 (5th Cir.1986). The task is complicated by the fact that district courts may elect to hear appeals from bankruptcy judges' interlocutory orders, 28 U.S.C. Sec. 158(a), while only "final" orders of district judges are appealable to the court of appeals under Sec. 158(d). We have jurisdiction only if the bankruptcy court's decision also was final. In re Cash Currency Exchange, 762 F.2d 542, 546 (7th Cir.), cert. denied, --- U.S. ---, 106 S.Ct. 233, 88 L.Ed.2d 232 (1985). There is therefore a large but ill-defined category of orders for which the appeal to the district court is the end of the line. Counsel must scrutinize the record and consider the cases to separate the appealable from the interlocutory; they may not automatically appeal, as Hoosier appears to have done, and hope that the problem will escape notice or that the judges will do all the work of separating interlocutory from final orders. Nonetheless, we must decide the case on the merits if it is within our jurisdiction. A party that fails to make the necessary jurisdictional allegations will have its claim dismissed, see Sarnoff v. American Home Products Corp., 798 F.2d 1075, 1078-79 (7th Cir.1986), but Hoosier made the appropriate allegations, and we conclude that the memoranda jointly show that we have jurisdiction.

A disposition of a creditor's claim in a bankruptcy is "final" for purposes of Sec. 158(d) when the claim has been accepted and valued, even though the court has not yet established how much of the claim can be paid given other, unresolved claims. See In re Fox, 762 F.2d 54, 56 (7th Cir.1985). When one creditor's position is finally determined (subject only to proration at the end of the case to reflect the amount of assets and other allowed claims), the disposition is final. An order that leaves a claimant "nothing more to do than await the outcome of third-party litigation" is final under Sec. 158(d) even though an equivalent order would not be final under Sec. 1291 in the absence of a judgment under Rule 54(b). Cf. In re Goldblatt Bros., Inc., 758 F.2d 1248, 1251 (7th Cir.1985). The rationale for this is that the bankruptcy case has several stages that are independent in ordinary litigation. If Creditor C had sued Debtor D outside of bankruptcy and secured a judgment certain in amount, the judgment would be appealable even though C' § ability to collect was doubtful. Collection proceedings are separate. The bankruptcy case comprises proceedings involving many C § and containing its own collection and distribution processes. A disposition of a claim that would be final as a stand-alone suit outside of bankruptcy is also final under Sec. 158(d) in bankruptcy. Such a claim is far enough along to be intelligently resolved, without duplicative appellate review of the same creditor's situation. Only the collective decision (what percentage of each claim of a given class will be paid) remains for final review. Deferring appellate review would complicate this computation without making it any easier to resolve each individual claim.

If Hoosier's claim were a suit outside of bankruptcy, the district court's disposition would be "final". The district court held Hoosier entitled to $65,000 but determined that none of Hoosier's claim is secured. All that remains is the decision what percentage of Morse's unsecured claims will be paid. That will be influenced by whether the bankruptcy court allows other claims to Morse's assets, but these third-party disputes do not involve Hoosier or pose a risk of a second appellate goround on additional issues peculiar to it. If the district judge had affirmed the bankruptcy judge, however, things might have been otherwise. ("Might" because the parties have not furnished enough information to enable us to tell.) There are other claims against the fund, and these competing claims may have led to a reassessment of how much of Morse's claim would be deemed secured. The total of allowed "secured" claims cannot exceed the amount of the fund, posing a risk that Hoosier's claim would be back for further proceedings. On the other hand, we have held that an order fixing the amount of a secured claim may be appealed even though the priority of the claim is not yet settled. In re J. Catton Farms, Inc., 779 F.2d 1242, 1250 (7th Cir.1985). Perhaps this principle could support an appeal. We need not say. Because the district court turned Hoosier into an unsecured creditor, the remaining goings-on in the adversary proceeding do not prevent the appeal.

Although, as we have emphasized, the disposition of one but not all claims in a larger case is not final under Sec. 1291 in the absence of separate judgment under Rule 54(b), such separate judgments are not necessary in bankruptcy cases. Rule 54(b) is a device to make a judgment "final" and allow immediate execution--or allow a prevailing party to go his way secure that the case against him is over. The filing of the Rule 54(b) judgment starts a mechanical process: appeal now or never. Exchange National Bank v. Daniels, 763 F.2d 286 (7th Cir.1985). The definition of "finality" in a bankruptcy proceeding, however, does not...

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