November 27, 2016
Authored by: Michelle Masoner
District courts can hear an appeal from any interlocutory order, as long as they agree to accept the appeal. 28 U.S.C. § 158(a)(3). Final judgments, orders and decrees are always immediately appealable. 28 U.S.C. § 158(a)(1). Certain interlocutory orders, such as orders increasing or reducing the exclusive time periods for a debtor to file and obtain acceptance of a plan for reorganization under Chapter 11 are also immediately appealable. 28 U.S.C. § 158(a)(2). Other interlocutory orders are appealable only “with leave of the court.” Preliminary injunctions are interlocutory orders that fall into the last category.
The timing and process for perfecting an appeal of a preliminary injunction is not certain. Recently, Judge James Zagel in the Northern District of Illinois declined to grant leave to appeal a preliminary injunction entered in the bankruptcy court, finding the debtor had no automatic right to appeal. Gilman v. Goldberg (In re Goldberg), Case No. 16 CV 6993 (N.D. Ill. October 17, 2016) (J. Zagel) (a link to the case is here: in-re-goldberg). Generally, leave to take an interlocutory appeal is granted for the same reasons that an interlocutory appeal to the court of appeals may be taken from an order of the district court. For bankruptcy appeals, district courts seek guidance from 28 U.S.C. § 1292 which guides courts of appeals when considering interlocutory appeals. Goldberg grappled with the analogy to this statute as the court considered the debtor’s efforts to appeal the grant of a preliminary injunction against it.
Background of the Case
The debtor filed a Chapter 11 bankruptcy in August, 2015. Among the debtor’s assets were membership interests in two real estate entities. The debtor was the only individual authorized to act for either entity. The entities leased the real properties to unrelated third parties who also had an option to purchase the real properties.
The debtor’s father loaned the debtor substantial sums of money. After the debtor’s father passed away in 2010, the debtor entered into a settlement agreement with his mother, siblings, and his father’s estate. The settlement required debtor to repay the loans he borrowed from his father totaling about $5 million. The settlement agreement was secured by a security interest in the debtor’s two real estate entities and the collateral assignments of rents and other payments from the tenants.
The debtor proposed a plan of reorganization funded by the rents from the tenants. The father’s estate filed an adversary proceeding challenging whether the debtor could use the rents because the funds were earmarked for repayment of the settlement agreement. The debtor moved to dismiss, but the bankruptcy court denied the motion and found that the plaintiff alleged sufficient facts to state a claim for relief, and if the settlement agreement was construed as alleged by the plaintiff, then the bankruptcy court might find the plaintiff entitled to an injunction prohibiting the debtor from receiving the using the rents.
After denying the motion to dismiss, the bankruptcy court entered a temporary injunction enjoining the debtor from disbursing and transferring the rents until the bankruptcy court determined the plaintiff’s rights, if any, to the rents. The bankruptcy court specifically limited the injunction to four months and set the matter for a hearing that would determine if the injunction would be allowed to expire. The debtor requested an appeal of the preliminary injunction.
Holding: No Automatic Appeal of the Interlocutory Order
The District Court turned immediately to 28 U.S.C. § 1292. No certification by the bankruptcy court was necessary. In re CIS Corp., 188 B.R. 873, 878 (S.D.N.Y. 1995) (agreeing with Third, Seventh, Ninth, and Tenth circuit courts that district court may grant leave to appeal without certification by the bankruptcy court); but see In re General Dev. Corp., 179 B.R. 335, 337 (S.D. Fla. 1995) (district court lacks jurisdiction over interlocutory order unless bankruptcy court certifies that there was no just cause for delay of the appeal).
Section 1292 “guides” the district court’s discretion in whether to grant leave to appeal an interlocutory order. In re Reserve Production, Inc., 190 B.R. 287, 289-90 (E.D. Tex. 1995). Goldberg quoted Reserve Production for the premise that an appeal of a preliminary injunction should be allowed because “[a]s a policy matter, the rulings of an non-Article III bankruptcy court should not be more insulated from appellate review than the rulings of an Article III district court.” Section 1292(a)(1) provides that a preliminary injunction is appealable as a matter of right. But Section 1292(b) provides that leave to hear an appeal of an interlocutory appeal should only be granted if the “order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation. Section 158 does not distinguish between preliminary injunctions and other interlocutory orders as does Section 1292. Goldberg determined that Section 1292(b) rather than Section 1292(a)(1) applied, and that the court would need to first consider whether it should even hear the appeal before reaching the merits.
Adopting the plain language approach, Goldberg concluded the debtor did not have an automatic right to appeal a bankruptcy preliminary injunction under Section 158(a)(3). Instead, the court found Section 158(a) requires leave of the district court before jurisdiction is appropriate. An interlocutory appeal under Section 158(a) must therefore meet Section 1292(b) standards.
Turning to Section 1292(b), Goldberg found the debtor failed to raise a controlling question of law which, if resolved, would speed up the litigation. Thus, the debtor failed to show an immediate appeal would assist the proceedings in the bankruptcy court below. The District Court found the injunctive order was set to expire in October, 2016; thus, the appeal would not materially advance the proceedings and remanded the case to the bankruptcy court.