Stable Mews Associates, In re

• Decision Date: 04 December 1985
• Docket Number: No. 167,D,167
• Citation: 778 F.2d 121
• Parties: , Bankr. L. Rep. P 70,871 In re STABLE MEWS ASSOCIATES. STABLE MEWS ASSOCIATES, Appellant, v. Albert TOGUT, Chapter XI Trustee, Appellee. ocket 85-5048.
• Court: U.S. Court of Appeals — Second Circuit

Page 121

778 F.2d 121

13 Bankr.Ct.Dec. 1251, Bankr. L. Rep. P 70,871

In re STABLE MEWS ASSOCIATES STABLE MEWS ASSOCIATES, Appellant, v. Albert TOGUT, Chapter XI Trustee, Appellee.

No. 167, Docket 85-5048.

United States Court of Appeals Second Circuit.

Argued Sept. 12, 1985.

Decided Dec. 4, 1985.

Luigi DeMaio, New York City (DeMaio & Meglio, New York City, of counsel), for appellant.

Albert Togut, New York City (Norman N. Kinel, New York City, on brief), for appellee Chapter 11 Trustee.

Harold Jones, Asst. U.S. Trustee, S.D.N.Y., New York City (Cornelius Blackshear, U.S. Trustee, S.D.N.Y., of counsel), for appellee U.S. Trustee.

Before FEINBERG, Chief Judge, KAUFMAN and MESKILL, Circuit Judges.

MESKILL, Circuit Judge:

This is an appeal from an order of the United States District Court for the Southern District of New York, Edelstein, J., affirming an order of the United States Bankruptcy Court, Buschman, J., which granted an interim award of compensation to appellee Albert Togut in his dual capacity as Chapter 11 trustee and attorney for the trustee. Because the order of the bankruptcy court is interlocutory in nature and therefore not properly appealable to this Court, we dismiss for lack of subject matter jurisdiction.

Stable Mews Associates is a New York limited partnership formed to develop a building at 412-414 East 75th Street, New York City. The partnership filed a voluntary petition under Chapter 11 of the Bankruptcy Code, 11 U.S.C. Secs. 1101-74 (1982), on December 30, 1982, one day before the first mortgagee's scheduled foreclosure sale of the building, the partnership's sole asset. On June 1, 1983, Bankruptcy Judge Lifland directed the United States Trustee for the Southern District of New York to appoint a Chapter 11 trustee. The following day, Judge Lifland approved the United States Trustee's selection of Attorney Albert Togut as Chapter 11 trustee. With Judge Lifland's approval, Togut chose to retain his own law firm as attorney for the trustee, as permitted by 11 U.S.C. Sec. 327(d) (1982).

The Chapter 11 trustee/attorney's handling of the estate has been strongly acclaimed by the bankruptcy court and the United States Trustee and just as strongly attacked by the appellant/debtor. Appellant's criticism permeates its attack on the award of interim compensation. Because we cannot reach the merits, we will not discuss the trustee/attorney's conduct in detail.

The present posture of the estate is as follows. The building has been sold. According to Togut, after satisfaction of a first mortgage and payment of capital gains and transfer taxes, there was a balance in the estate of $267,862.76. A second mortgage of $150,000, listed as "disputed" in debtor's Chapter 11 petition, is asserted against that balance. ¹ Attorney Togut has commenced an adversary proceeding in an attempt to have that mortgage set aside on grounds of fraud.

Pursuant to 11 U.S.C.A. Secs. 326, 331 and 506(c) (West 1979 & Supp. 1985), Togut filed the instant application for interim compensation of $189,742.91 on December 26, 1984. A hearing on the application was held by Judge Buschman on January 24, 1985. On March 7, 1985, Judge Buschman filed a twenty-five page opinion in which he awarded Togut a total of $163,144.25 in fees, expenses and commissions. 49 B.R. 395 (Bkrtcy S.D. N.Y.) The appellant/debtor sought leave to appeal the award to the district court. On April 17, 1985, Judge Edelstein granted leave to appeal and then affirmed the bankruptcy court's decision. The debtor appeals from that affirmance.

This case was briefed by the debtor, the Chapter 11 trustee/attorney, and the United States Trustee, but none of the briefs or arguments addressed the question of this Court's jurisdiction over an interim fee award. Accordingly, we sought and obtained additional briefs from the parties and United States Trustee on that subject. Having reviewed those briefs, we now dismiss for lack of subject matter jurisdiction.

The controlling jurisdictional statute is 28 U.S.C.A. Sec. 158 (West Supp.1985). ² While subsection (a) of that statute permits district courts "with leave of the court" to hear appeals from interlocutory orders of bankruptcy courts, subsection (d) permits no such discretionary review by the courts of appeals. Our jurisdiction is more narrowly limited to "appeals from all final decisions, judgments, orders, and decrees" of the bankruptcy court. Id. (emphasis added). The district court's decision on an interlocutory matter generally is not, itself, a final judgment for purposes of appeal to us under subsection (d). See Matter of Cash Currency Exchange, 762 F.2d 542, 545 & n. 3 (7th Cir.1985); Matter of Riggsby, 745 F.2d 1153, 1154 (7th Cir.1984); In re Comer, 716 F.2d 168, 172 (3d Cir.1983). Cf. In re Tidewater Group, Inc., 734 F.2d 794, 796 (11th Cir.1984).

The many cases cited to us in the supplemental briefs recognize the difference in the scope of review permitted to district and appellate courts in bankruptcy matters. See, e.g., Matter of Cash Currency Exchange, 762 F.2d at 545; Matter of Pizza of Hawaii, 761 F.2d 1374, 1377-78 (9th Cir.1985). While several cases refer to a flexible approach to finality in bankruptcy "proceedings" ------ an approach that may no longer be correct under the Bankruptcy Code, see In re International Environmental Dynamics, Inc., 718 F.2d 322, 325 & n. 5 (9th Cir.1983) (contrasting review under old Bankruptcy Act to that available under new Bankruptcy Code)--even that flexibility is limited by the requirement that there be a final decision on the discrete issue at bar. See In re American Colonial Broadcasting Corp., 758 F.2d 794, 801 (1st Cir.1985). A decision approving a partial payment of fees to a trustee/attorney whose meter is still running simply is not such a final decision. ³

The appellant/debtor here treated the interim award of compensation in the courts below as interlocutory. It sought and obtained leave to appeal the bankruptcy court decision to the district court. App. at 584. Such leave is required only for interlocutory appeals; appeals from final decisions may be taken as of right. 28 U.S.C.A. Sec. 158(a); Bankr.Rules 8001(a) and (b), 8003, 11 U.S.C.A. (West 1984). The district court granted leave to appeal before affirming the bankruptcy court's interim award, apparently joining the debtor in viewing the issue as interlocutory. App. at 725. See Matter of King City Transit Mix, Inc., 738 F.2d 1065, 1067 (9th Cir.1984) (per curiam) (appellate jurisdiction in bankruptcy extends only to matters appealable to the district court as of right).

To support its contention that this Court has jurisdiction the debtor relies on three cases, none of which is persuasive. The first case, In re Flagstaff Foodservice Corp., 739 F.2d 73 (2d Cir.1984), never discussed the issue of jurisdiction over an interim fee award, concentrating instead on a separate question of whether such fees could be paid out of a fund subject to a super-priority lien. See In re Saco Local Development Corp., 711 F.2d 441 (1st Cir.1983) (priority issue finally decided below and therefore appealable). The second case, In re New England Carpet Co., 744 F.2d 16 (2d Cir.1984), is also clearly inapposite. In it, there had been a final fee award prior to appellate review. The court in the third case, In re International Environmental Dynamics, Inc., 718 F.2d 322 (9th Cir.1983), specifically noted that it was dealing with an award made under the old Bankruptcy Act. If International Environmental Dynamics, like the case at bar, had been brought under the new Bankruptcy Code, interlocutory review would not have been available. Id. at 325 n. 5.

The debtor and the United States Trustee argue that under Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), and its progeny, we should overlook the jurisdictional infirmity of the instant appeal. This argument fails both under the narrow approach to Cohen taken in Richardson-Merrell, Inc. v. Koller, --- U.S. ----, 105 S.Ct. 2757, 86 L.Ed.2d 340 (1985) (order disqualifying counsel not immediately appealable), and under the original Cohen criteria.

Cohen recognized an exception to the final judgment rule for a small class of prejudgment orders which "finally determine claims of right separable from, and collateral to, rights asserted in the action, [and which are] too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated." 337 U.S. at 546, 69 S.Ct. at 1225. The Court in Koller limited Cohen 's "narrow exception" to "trial court orders affecting rights that will be irretrievably lost in the absence of an immediate appeal." --- U.S. ----, 105 S.Ct. at 2761. No such irretrievable loss will occur here if review is delayed until there is a final award of compensation, as discussed more fully below.

Furthermore, even if the award of attorney's fees were completely severable from the merits here, one of the three requirements of Cohen, the other two Cohen criteria are not satisfied. First, the attorney/trustee is still working for the estate, so the interim award does not " 'conclusively determine the disputed question,' " and second, the fee question is not " 'effectively unreviewable on appeal from a final judgment.' " See Koller, --- U.S. at ---- - ----, 105 S.Ct. at 2761 (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 2457, 57 L.Ed.2d 351 (1978)). Thus, following the strong direction of the Supreme Court, we must resist the temptation to reach the merits in this particular case. ⁴ See --- U.S. at ----, 105 S.Ct. at 2765. Accordingly, we now establish the rule that this class of cases will not be immediately appealable. See In re Four Seas Center, Ltd., 754 F.2d 1416, 1419 (9th Cir.1985) (rejecting Cohen argument for review of interim attorney fee, noting that interim award to attorney who...