Sonnax Industries, Inc., In re

• Decision Date: 25 June 1990
• Docket Number: No. 955,D,955
• Citation: 907 F.2d 1280
• Parties: 23 Collier Bankr.Cas.2d 132 In re SONNAX INDUSTRIES, INC., Debtor. SONNAX INDUSTRIES, INC., Plaintiff-Appellee, v. TRI COMPONENT PRODUCTS CORP., Defendant-Appellant. ocket 89-5023.
• Court: U.S. Court of Appeals — Second Circuit

Page 1280

907 F.2d 1280

23 Collier Bankr.Cas.2d 132

In re SONNAX INDUSTRIES, INC., Debtor SONNAX INDUSTRIES, INC., Plaintiff-Appellee, v. TRI COMPONENT PRODUCTS CORP., Defendant-Appellant.

No. 955, Docket 89-5023.

United States Court of Appeals Second Circuit.

Argued March 28, 1990.

Decided June 25, 1990.

John R. Canney, III, Rutland, Vt. (Hull, Webber, Reis & Canney, Rutland, Vt., of counsel), for defendant-appellant.

Potter Stewart, Jr., Brattleboro, Vt. (Kristensen, Cummings, Murtha & Stewart, Brattleboro, Vt., of counsel), for plaintiff-appellee.

Before WINTER and WALKER, Circuit Judges, and MUKASEY, District Judge. ^*

WINTER, Circuit Judge:

This is an appeal from a denial of relief from the automatic stay provision of 11 U.S.C. Sec. 362 (1988). 99 B.R. 591. Appellee Sonnax Industries, Inc. ("Sonnax") filed for bankruptcy after failing to obtain relief in New York state courts from an injunction prohibiting it from soliciting business from, or conducting business with, customers of appellant Tri Component Products Corporation ("Tri Component"). Following the bankruptcy filing, Tri Component moved to modify the automatic stay to allow it to continue prosecution of its state-court claim against Sonnax and the other defendants and to file motions for contempt for violation of the state-court injunction. Because we find that we have appellate jurisdiction and that the district court did not abuse its discretion in denying relief from the stay, we affirm.

BACKGROUND

Sonnax was founded in 1977 as a Vermont corporation engaged in the manufacture of automobile parts, particularly transmission parts. In 1986, Sonnax began to manufacture torque converter parts.

Tri Component, a New York corporation, is a full-line manufacturer and distributor of torque converter parts with annual sales in excess of $7 million. It has developed a copyrighted numbering system of the parts it sells. In November 1982, Tri Component hired Lawrence May as sales manager of its torque converter department. At some point May signed a restrictive covenant in which he agreed not to use information or knowledge gained within three years of leaving his job at Tri Component. In September 1986, May left Tri Component and shortly thereafter was hired by Sonnax as an independent sales representative.

In May 1987, Tri Component filed an action in New York state court against Sonnax, its president Neil Joseph, and May, alleging that May had breached the restrictive covenant by using confidential knowledge gained at Tri Component, including Tri Component customer lists, in his job at Sonnax. Tri Component requested not only money damages but also injunctive relief. A preliminary injunction was granted on November 30, 1987, prohibiting Sonnax from soliciting business from, or doing business with, entities who had been customers of Tri Component prior to September 1986; from distributing or otherwise using a catalog referring to Tri Component's cataloguing and parts numbering system, copyrighted material and trade secrets; and from using Tri Component's customer list. On January 15, 1988, the three defendants appealed to the Appellate Division, First Department, and thereafter moved to stay the injunction pending the appeal. The motion was denied on March 8, 1988.

The next day Sonnax filed its petition for bankruptcy in the Bankruptcy Court for the District of Vermont. After Tri Component filed its proof of claim, it moved to modify the automatic stay of 11 U.S.C. Sec. 362 to allow it to continue prosecution of its litigation in New York courts and to enforce the injunction. The motion was transmitted from the bankruptcy court to the district court pursuant to 28 U.S.C. Sec. 157(d) (1982 & Supp. V 1987). The district court denied Tri Component's motion. Tri Component appealed.

DISCUSSION

1. Jurisdiction

We first address the question of appellate jurisdiction. The procedural posture of this appeal is somewhat unusual. Ordinarily, a bankruptcy court would deny the motion to lift the stay, a decision reviewable on appeal by a district court under Section 158, 28 U.S.C. Sec. 158(a) (1988). Because Section 158 grants courts of appeals "jurisdiction of appeals from all final decisions, judgments, orders, and decrees entered under" Section 158, only a "final" decision by a district court would be reviewable by a court of appeals. See 28 U.S.C. Sec. 158(d).

In this case, however, the district court was acting under Section 157(d), which authorizes district courts to "withdraw [from the bankruptcy court], in whole or in part, any case or proceeding referred under [Section 157]." We hold that we do not have jurisdiction under Section 158, but the denial of the motion to lift the stay was a final appealable order under 28 U.S.C. Section 1291.

Section 158 grants courts of appeals jurisdiction to hear appeals from "final decisions ... entered under subsections (a) and (b) of [Section 158]." Subsections (a) and (b), however, concern only appeals heard by district courts from bankruptcy courts. Because the district court in the instant matter was exercising original jurisdiction under Section 157(d), we do not have appellate jurisdiction under Section 158. See United States v. Nicolet, Inc., 857 F.2d 202, 204 (3d Cir.1988).

We nonetheless have jurisdiction under DiPierro v. Taddeo (In re Taddeo), 685 F.2d 24, 26 n. 4 (2d Cir.1982), although that decision has been followed in only modified fashion by other courts and has been impliedly criticized by a familiar commentator. Before addressing that criticism, we note that because we conclude that the order is final, we do not reach an issue, discussed in the margin, ¹ that might otherwise complicate this case.

The standards for determining finality in bankruptcy differ from those applicable to ordinary civil litigation. The need for different standards arises from the fact that a bankruptcy proceeding is umbrella litigation often covering numerous actions that are related only by the debtor's status as a litigant and that often involve decisions that will be unreviewable if appellate jurisdiction exists only at the conclusion of the bankruptcy proceeding. See Dubin v. Securities & Exchange Comm'n (In re Johns-Manville), 824 F.2d 176, 179 (2d Cir.1987). We have thus recognized that Congress intended to allow for immediate appeal in bankruptcy cases of orders that "finally dispose of discrete disputes within the larger case." Id. (quoting In re Saco Local Development Corp., 711 F.2d 441, 444 (1st Cir.1983)). This caselaw has developed, however, in the course of reviewing decisions under Section 158(d). Our cases appear not to have addressed the question of whether the standards for determining finality under Section 158(d) apply to bankruptcy appeals under Section 1291 or whether resort must be had to the principles established in Cohen v. Beneficial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). We perceive nothing to be gained by creating a second set of standards--which, when painstakingly developed, might not differ significantly from those already in place under Section 158(d)--for reviewing identical cases. We therefore follow the Third Circuit in holding that decisions regarding finality under Section 158(d) apply under Section 1291. See Nicolet, 857 F.2d at 205.

We now turn to the appealability of decisions on motions to lift or modify the automatic stay. All seem to agree that orders lifting the automatic stay are final because the issue of whether the litigation in question may proceed has been resolved and because an immediate appeal by the trustee or debtor is necessary if there is to be appellate review at all. See 1 Collier on Bankruptcy p 3.03(6)(e), at 3-198 (L. King 15th ed. 1990). A modest controversy continues to exist, however, with regard to orders denying motions to lift or to modify the automatic stay, because such orders may seem not necessarily to preclude appellate review later on. The Collier text originally took the position that such orders are interlocutory. See 1 Collier on Bankruptcy p 3.03(7)(e) (1981). However, in DiPierro v. Taddeo (In re Taddeo), 685 F.2d 24, 26 n. 4 (2d Cir.1982) (citing Vicksburg v. Henson, 231 U.S. 259, 266-67, 34 S.Ct. 95, 97-98, 58 L.Ed. 209 (1913)), we expressly rejected the Collier view and stated broadly that the denial of relief from an automatic stay in bankruptcy is equivalent to a permanent injunction and is thus a final order. Other circuits have also held appeals from such denials to be reviewable by the court of appeals. See, e.g., Nicolet, 857 F.2d at 204-07; Sun Valley Foods Co. v. Detroit Marine Terminals, Inc. (In re Sun Valley Foods Co.), 801 F.2d 186, 189-90 (6th Cir.1986); Crocker Nat'l Bank v. American Mariner Indus., Inc. (In re American Mariner Indus., Inc.), 734 F.2d 426, 429 (9th Cir.1984); Aetna Life Ins. Co. v. Leimer (In re Leimer), 724 F.2d 744, 745 (8th Cir.1984); Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306, 1309 (11th Cir.1982).

Most circuits, however, have stopped short of adopting the broad rule that all denials of relief from the automatic stay constitute final, appealable orders. In Nicolet, for instance, the Third Circuit held that the particular denial met "the required indicia for finality," 857 F.2d at 206, but indicated that not all orders denying relief from the automatic stay were appealable. See id. at 206 n. 2 (citing In re West Electronics Inc., 852 F.2d 79, 81-82 (3d Cir.1988); Moxley v. Comer (In re Comer), 716 F.2d 168, 174 & n. 11 (3d Cir.1983)). The Comer decision was also critical of the Collier position but on grounds different from those expressed in Taddeo. Comer "caution[ed] that in some instances a permanent injunction that did not dispose of all the matters at issue might not be final under section 1291." 716 F.2d at 174. Comer noted nevertheless that on the facts of that case the order denying relief "became the law of the case in that court and resulted in a...