Summary:
The Western District of North Carolina (Judge Volk, sitting by designation) issued a consolidated Memorandum Opinion and Order denying attempts by asbestos claimants in Bestwall and Aldrich Pump/Murray Boiler to take an interlocutory appeal challenging the bankruptcy courts’ refusal to dismiss the Texas Two-Step cases for bad faith.
The opinion is both unsurprising and important: it reaffirms that Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989), remains a nearly insurmountable gatekeeping standard for dismissing a Chapter 11 on bad-faith grounds, and that interlocutory appeals under § 1292(b) are not the place to argue “the bankruptcy court applied the test wrong.” The asbestos claimants sought leave to appeal the bankruptcy courts’ denial of motions to dismiss in both Bestwall and Aldrich Pump, arguing:
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The debtors are solvent (in fact, ultra-wealthy “Texas Two-Step” creations),
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The bankruptcy courts misapplied Carolin, and
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The continued bankruptcy cases deprive asbestos victims of jury trial rights.
Judge Volk rejected the § 1292(b) appeal by holding:
1. No “controlling question of law.”
The appeal raised no abstract, clean legal question, but only whether the bankruptcy courts misapplied Carolin to the facts. That is classic “you just disagree with the judge” territory.
“Appellants reiterate … that the basis for their appeal is the bankruptcy courts’ purported misapplication of Carolin, which is sufficient to doom their request.”
2. No “substantial ground for difference of opinion.”
Whatever broader policy concerns exist about solvent debtors using bankruptcy, the bankruptcy courts applied settled Fourth Circuit law, and the district court wasn’t going to create new doctrine by interlocutory review.
3. Immediate appeal would not materially advance the litigation.
Even if the Fourth Circuit took the appeal, reversed, or invented a new Carolin standard, the cases would come back down for more proceedings. Nothing would end quickly.
Thus, the motion failed at all three § 1292(b) prongs.
The court also noted (for Bestwall) that the bankruptcy judge had not even reconsidered Carolin on the merits—the law-of-the-case doctrine resolved the renewed motion. That meant there literally was no bad-faith ruling to appeal.
Commentary:
1. Carolin remains the Fort Knox against bad-faith dismissals.
As much as academics, judges, and asbestos claimants may lament the “Texas Two-Step,” the Fourth Circuit’s decision in Carolin—requiring both:
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Objective futility, and
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Subjective bad faith
—continues to protect even wealthy, fully-funded corporate entities from early dismissal.
2. Nothing irritates a district judge more than being asked to review fact-finding midstream.
Judge Volk politely-but-firmly reminds litigants that:
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§ 1292(b) is for pure questions of law, not “you weighed the evidence wrong.”
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District courts won’t rewrite Fourth Circuit doctrine by interlocutory appeal.
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Dissatisfaction ≠ jurisdiction.
This matters for consumer attorneys: whenever a creditor tries to bring a mid-case appeal (e.g., stay extension, plan confirmation issues, dismissal denials), Semian reinforces that interlocutory review is nearly impossible.
3. The elephant in the room: the Texas Two-Step isn’t going away (in the Fourth Circuit).
The Fourth Circuit already held in Bestwall that federal courts have jurisdiction over solvent debtors. The court, again, declined to revisit the big questions:
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Is the Texas Two-Step a permissible restructuring tactic?
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Should solvent debtors be allowed into Chapter 11?
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Does this deny tort claimants their Seventh Amendment rights?
Judge Volk was explicit:
“The bankruptcy courts simply applied settled precedent.”
Translation: If Carolin is to be fixed, it must happen en banc or at the Supreme Court—not via clever interlocutory appeals. Whether this case is just being set up for that certiorari request remains to be seen
III. How Consumer Bankruptcy Lawyers Can Use This Case
Believe it or not, Semian provides several tools for everyday practice in Chapter 7 and Chapter 13 cases:
1. When creditors or trustees argue “bad faith,” cite the case to show the Fourth Circuit’s standard is extraordinarily high.
Creditors routinely throw around “bad faith” when:
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A debtor has high income,
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A debtor files on the eve of foreclosure,
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A debtor discharges business debts while keeping assets,
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A debtor files multiple cases.
Use Semian to reinforce:
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Bad faith under Carolin is narrowly confined.
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Creditors rarely satisfy either prong, let alone both.
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Bankruptcy courts apply settled law, and district courts won’t intervene midstream.
This is particularly effective in:
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362(c)(3) “good faith” disputes (to show the bar is high);
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motions to dismiss under § 707(b)(3) (suggesting subjective bad faith alone is insufficient);
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Attempts to bring post-petition assets into a converted Chapter 7 estate under § 348 through an assertion of bad faith;
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post-confirmation modification fights (“debtor acted in bad faith by incurring debt,” etc.).
2. Strengthen arguments that bankruptcy courts may apply law-of-the-case and decline to relitigate repetitive creditor motions.
Judge Beyer’s refusal to reconsider bad-faith allegations in Bestwall was upheld “The focus is on substantially the same facts… and [this] was the law of the case.”
For consumer practice:
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When a mortgage creditor repeats objections to confirmation or subsequently objects to an amended plan which had not previously been raised.
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When a trustee brings serial motions to dismiss,
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When a repeat filer debtor faces rehashed allegations,
Semian can be cited for the proposition that Bankruptcy courts may decline to revisit identical issues, even if the movant changes.
3. Reinforce that bankruptcy protection is not limited to insolvent debtors.
The opinion reaffirms what consumer lawyers already know:
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Solvency is not a barrier to Chapter 11,
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and by analogy, not a barrier to Chapter 13 or Chapter 7.
Every time a creditor argues:
“The debtor could pay these debts outside bankruptcy!”
You can respond with authority:
The Fourth Circuit and district courts have repeatedly confirmed that seeking a centralized forum to resolve liabilities—even for solvent or funded debtors—is a legitimate bankruptcy purpose.
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