Summary:
Bestwall, LLC filed for Chapter 11 bankruptcy in November 2017 to address asbestos-related claims and sought discovery to estimate its asbestos liabilities, leading to a personal injury questionnaire (PIQ) order for all mesothelioma claimants. The PIQ order was contested but upheld, with the court retaining jurisdiction to enforce it.
Claimants attempted to appeal the PIQ order, but the district court dismissed it for lack of jurisdiction. Some claimants, represented by Maune, Raichle, Hartley, French & Mudd, LLC, filed a lawsuit in Illinois to block the PIQ order, leading Bestwall to seek enforcement in the bankruptcy court. The bankruptcy court found the plaintiffs and their counsel in contempt and sanctioned them for continuing the Illinois lawsuit. The appellants appealed the contempt and sanctions orders, but the district court dismissed these appeals as non-final.
The Court of Appeals held that parties cannot immediately appeal a civil contempt order. Instead, they must wait for a final judgment to appeal. In bankruptcy, a final judgment can be either the end of the entire case or the end of a discrete proceeding within the case. Examples provided of the end of a discrete proceeding include the entry of a judgment in an Adversary Proceeding, the confirmation of a bankruptcy plan, or the adjudication of a motion for relief from the automatic stay.
These contempt and sanctions orders for defying a discovery order, however, did not end a separate procedural unit, making them non-final and non-appealable. and the district court’s dismissal of the appeals for lack of jurisdiction was affirmed.
Commentary:
While contempt and sanctions for defiance of discovery are not the the end of a discrete proceeding, this should not lead to confusion about whether a contempt and sanctions order for violation of the automatic stay or discharge is final and appealable, as those are examples of where "the bankruptcy court unreservedly grants or denies relief." Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582, 589 (2020). See also In re Webb, 472 B.R. 665 (B.A.P. 6th Cir. 2012) (unpublished) (same for violating automatic stay); In re Nelson, No. BAP WW-15-1416, 2016 WL 7321196, at *1 (B.A.P.
9th Cir. Dec. 15, 2016) Similarly, the resolution of an objection to claim should be a final appealable order.
This decision, with its focus on how a discrete proceeding in bankruptcy is different from a the overarching bankruptcy case, also has collateral implications regarding the need for reaffirmations in Chapter 7 cases, Many retail installment sales contracts have language that states that it is an event of default if the Debtor "starts a proceeding in bankruptcy or a proceeding in bankruptcy is started against them or the property". "A proceeding in bankruptcy" IS NOT simply the filing of bankruptcy. Accordingly, most of these ipso facto provisions do not alone put a debtor in default merely because a bankruptcy was filed, making a reaffirmation unnecessary as absent any default the lender has no contractual basis for either repossession or refusal to accept payments.
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