Statistical Tabulating Corp., Inc., Matter of

• Decision Date: 02 August 1995
• Docket Number: No. 94-2331,94-2331
• Citation: 60 F.3d 1286
• Parties: -5863, 64 USLW 2118, 33 Collier Bankr.Cas.2d 1757, 27 Bankr.Ct.Dec. 775, Bankr. L. Rep. P 76,590 In the MATTER OF STATISTICAL TABULATING CORP., INC., Debtor. Appeal of UNITED STATES of America.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1286

60 F.3d 1286

76 A.F.T.R.2d 95-5863, 64 USLW 2118,

33 Collier Bankr.Cas.2d 1757, 27 Bankr.Ct.Dec. 775,

Bankr. L. Rep. P 76,590

In the MATTER OF STATISTICAL TABULATING CORP., INC., Debtor Appeal of UNITED STATES of America.

No. 94-2331.

United States Court of Appeals Seventh Circuit.

Argued Dec. 2, 1994.

Decided Aug. 2, 1995.

Gary R. Allen, Bruce R. Ellisen, Bridget M. Rowan (argued), Dept. of Justice, Tax Div., Appellate Section, Washington, DC, Joel R. Nathan, Asst. U.S. Atty., Civ. Div., Appellate Section, Chicago, IL, for U.S.

Bret A. Rappaport, Paula K. Jacobi (argued), Schwartz, Cooper, Greenberger & Krauss, Chicago, IL, for LaSalle Nat. Bank Lakeview.

Jerome Barton Kalish, Kalish & Colleagues, Chicago, IL, for Statistical Tabulating Corp., Inc.

Before BAUER, GARZA, ^* and ROVNER, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

This case presents a novel issue regarding the jurisdiction of bankruptcy courts. During the time the government was appealing an order of the bankruptcy court, the bankruptcy court disposed of remaining matters and dismissed the bankruptcy. LaSalle Bank Lake View ("LaSalle") now argues that the dismissal deprived the district court of jurisdiction to rule on the matter on appeal, and deprived the bankruptcy court of jurisdiction to accept the case on remand from the district court. This cannot be the result intended by Congress, and we therefore reverse.

I. BACKGROUND

Statistical Tabulating Corporation ("StatTab") filed a petition for relief under Chapter 11 of the Bankruptcy Code on February 27, 1990. The government submitted a proof of claim in that case for delinquent employment taxes. In order to determine its rights in relation to StatTab's other major creditor and lien holder, LaSalle, the government filed an adversary proceeding. As a result of that proceeding, the bankruptcy court entered an agreed order stating that LaSalle's lien had priority over the government's claim.

The bankruptcy court allowed StatTab's operating assets to be liquidated in June and August of 1990, and following the liquidation, LaSalle asked the bankruptcy court to turn over to LaSalle all the proceeds obtained from the liquidation (amounting to approximately $730,000) to partially satisfy its lien. LaSalle failed to properly notify the government of this motion, however, and the government did not appear in court to object. The court allowed the turnover and when the government learned belatedly of the court's order, it appealed to the district court, arguing that LaSalle had failed to properly serve notice of the motion for turnover, and that the turnover itself was improper because it provided LaSalle a greater share than had been intended by the agreed order that emerged from the adversary proceeding. ¹

While the government's appeal was pending, the remainder of StatTab's assets were liquidated, and LaSalle moved for a turnover of those amounts as well as for dismissal of the case. This time, LaSalle properly served the government with its motion, and the government did not object to the turnover. Although the government called the bankruptcy court's attention to the matter pending on appeal, and suggested that the court keep the case open, the government did not formally object to the dismissal of the case. The court disbursed the remaining assets to LaSalle and dismissed the case.

Approximately three months later, on April 16, 1992, the Honorable John A. Nordberg of the United States District Court for the Northern District of Illinois ruled in the government's favor in the pending appeal, holding that LaSalle had failed to properly serve notice of the first turnover motion, and directing the bankruptcy court to consider whether the agreed order in fact contemplated that LaSalle would hold a priority position over the government in all of the proceeds of StatTab. ² When LaSalle did not respond to the government's discovery, the government moved to reopen the case before the bankruptcy court and to compel a response to its discovery.

The bankruptcy court, sua sponte, questioned its jurisdiction to reopen the case and invited briefs on the subject. After full briefing, the bankruptcy court denied the motion to reopen, concluding that it no longer had jurisdiction to consider the issue remanded because it had previously dismissed the underlying case. The government appealed that decision to the district court, ³ which affirmed on March 21, 1994, explaining that the case had been dismissed, not closed and therefore could not be reopened. The government now appeals that decision.

II. DISCUSSION

LaSalle argues that the bankruptcy court lacked jurisdiction to "reopen" the case because dismissal of the underlying proceeding results in a dismissal of all related proceedings, including, apparently, matters then pending on appeal. LaSalle makes much of the distinction between closing a bankruptcy case and dismissing a bankruptcy case. A closed case, LaSalle argues, can be reopened for good cause in the court's discretion. A dismissed case, however, can never be "undismissed" in LaSalle's view, because the bankruptcy court divests itself of jurisdiction when it dismisses a case. Thus, LaSalle argues that the bankruptcy court is without jurisdiction even when a pending appeal that was not mooted by the dismissal is remanded to the court for further proceedings.

We see several problems with LaSalle's position. First, LaSalle admits that when a case is dismissed, "it is as if there had been no bankruptcy." (LaSalle Br. at 8.) Section 349 of the Bankruptcy Code explains that a dismissal "revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case...." The objective of section 349 is to "restore all property rights, insofar as is practicable, to their positions when the case was filed." In re Safren, 65 B.R. 566, 571 (Bankr.C.D.Cal.1986) (citations omitted); In re Newton, 64 B.R. 790, 793 (Bankr.C.D.Ill.1986) (to the extent possible, dismissal of a petition reverses what has transpired during a bankruptcy). A literal reading of section 349 then would require LaSalle to return to the estate the $730,000 that it received in the initial turnover. LaSalle does not argue, however, the dismissal had that effect here. ⁴

In LaSalle's view, when a bankruptcy court dismisses a case, it dismisses even those discrete issues which may be pending on appeal in the district court and that having done so, the bankruptcy court cannot accept the case back on remand from the district court because the case no longer exists. Carrying LaSalle's argument to its logical conclusion, the bankruptcy court could avoid review by the district court simply by disbursing the estate's assets and dismissing the case. LaSalle's interpretation would also suggest that the bankruptcy court and the district court must have concurrent jurisdiction over issues pending on appeal. Neither of these conclusions can be the result Congress intended in Section 349.

Dismissal of a bankruptcy proceeding normally results in dismissal of related proceedings because federal jurisdiction is premised upon the nexus between the underlying bankruptcy case and the related proceedings, but this general rule is not without exceptions. In re Morris, 950 F.2d 1531, 1534 (11th Cir.1992). Nothing in Section 349 requires that result in all cases. As the Ninth Circuit has explained, "[s]ection 349 of the Bankruptcy Code lists the various effects of dismissal of the underlying bankruptcy case; conspicuously absent from that list is automatic termination of jurisdiction of related cases." In re Carraher, 971 F.2d 327, 328 (9th Cir.1992). In the case of adversary proceedings, numerous courts have ruled that jurisdiction is not automatically terminated with the dismissal of the underlying bankruptcy case, and that bankruptcy courts have discretion to retain jurisdiction over adversary proceedings. Morris, 950 F.2d at 1534-35 (citations omitted). The rationale for retention of jurisdiction over an adversary proceeding is that some cases "have progressed so far that judicial interference is needed to unravel or reserve the rights of parties." Morris, 950 F.2d at 1535.

LaSalle makes much of the fact that the appeal at issue here did not derive from a separate adversary proceeding but from a turnover order that was entered on the bankruptcy case itself. Under the facts of this case, however, we find that is a distinction without a difference. The matter on appeal involved a discrete dispute between two creditors that was not mooted by the dismissal of the bankruptcy itself. In challenging the turnover order, the government was asking the district court to interpret the agreed order which emerged from the adversary proceeding between itself and LaSalle. The debtor's rights were not implicated in this dispute, as the sole issue was whether LaSalle was entitled to all or only a portion of the proceeds. The district court's remand for further exploration of that issue did not require the court to "dis-inter" the debtor, as LaSalle insists. Factually, then, the appealed matter was very much like the appeal of a separate adversary proceeding.

Furthermore, the general rule that when the underlying case is dismissed, all related proceedings are dismissed is clearly in tension with the general rule that the filing of a notice of appeal divests a lower court of jurisdiction over the matter on appeal. Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58, 103 S.Ct. 400, 402, 74 L.Ed.2d 225 (1982); In re Alwan Bros. Co., 115 B.R. 148, 150 (Bankr.C.D.Ill.1990) ("[u]pon the filing of a notice of appeal from an order of the bankruptcy court, the bankruptcy court loses jurisdiction over matters involved in the appeal").

The filing of a notice of appeal is an event of jurisdictional significance--it confers jurisdiction on the court of appeals and divests the district court of its...