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In re Midgard Corp.

February 4, 1997

IN RE MIDGARD CORPORATION, DEBTOR.
DAVID PERSONETTE, PLAINTIFF--APPELLANT, MIDGARD CORPORATION, PLAINTIFF--COUNTER-DEFENDANT--APPELLANT,
v.
CURTIS KENNEDY AND CLAUDNELL KENNEDY, DEFENDANTS--COUNTER-CLAIMANTS--APPELLEES.



Appeal from the United States Bankruptcy Court for the Western District of Oklahoma Bankr. No. 93-12740-BH Adv. No. 96-1218-BH

Before McFEELEY, Chief Judge, and Pusateri and Clark, Bankruptcy Judges.

The opinion of the court was delivered by: Clark, Bankruptcy Judge

PUBLISH

OPINION

The debtor, Midgard Corporation ("Debtor"), and David Personette, an insider of the Debtor ("Personette"), appeal the order of the United States Bankruptcy Court for the Western District of Oklahoma denying their motion for remand and their motion for reconsideration. We reverse and remand this proceeding to the Bankruptcy Court with instructions to remand it to state court. *fn1

I. Background

On May 13, 1993, the Debtor filed a petition in the Bankruptcy Court seeking relief under chapter 11 of the Bankruptcy Code. In May 1994, the Bankruptcy Court entered an order confirming the Debtor's chapter 11 plan of reorganization.

On May 20, 1996, approximately two years after the Debtor's plan was confirmed, the Debtor and Personette filed a petition in the District Court of Cleveland County, State of Oklahoma ("State Court") asserting various tort claims against Curtis and Claudnell Kennedy, the owners of real property located adjacent to the Debtor's place of business ("Kennedys"). The Kennedys removed the State Court action to the Bankruptcy Court where the Debtor's bankruptcy case was still pending, and filed an answer to the petition and counterclaim in the Bankruptcy Court.

The Debtor and Personette specially appeared in the Bankruptcy Court to contest the Court's jurisdiction over the State Court action and to request that it remand the action to State Court (the "Remand Motion"). In their Remand Motion, the Debtor and Personette stated that they did "not consent to entry of final orders or judgment by the bankruptcy judge . . . ." Plaintiffs' Removal Statement and Motion for Remand and Brief in Support ¶ 5. The Debtor and Personette also argued that the Bankruptcy Court was required to abstain from hearing the State Court action. Id. ¶ 10.

After a hearing, the Bankruptcy Court took the matter under advisement and thereafter entered an order denying the Remand Motion concluding, in relevant part, that: (1) it had jurisdiction over the State Court action under the terms of the Debtor's confirmed plan and 28 U.S.C. §§ 157(b) and 1334(b); (2) it had jurisdiction over Personette; (3) removal of the action from the State Court was proper under 28 U.S.C. § 1452(a); and (4) mandatory abstention under 28 U.S.C. § 1334(c)(2) was not required as a matter of law. The Debtor and Personette timely filed a motion requesting the Bankruptcy Court to reconsider its order denying their Remand Motion. That motion was denied by the Bankruptcy Court, and this appeal followed.

II. Appellate Jurisdiction

Although the parties have not raised any issues regarding appellate jurisdiction, two questions merit discussion: (1) whether we should decline review of the Bankruptcy Court's orders denying abstention and remand of the State Court action under 28 U.S.C. §§ 1334(c)(2) & 1452(b); and (2) whether the Bankruptcy Court's orders are "final orders" as required under 28 U.S.C. § 158(a)(1) or appealable interlocutory orders under 28 U.S.C. § 158(a)(3) . See Bender v. Williamsport Area School Dist., 475 U.S. 534, 541 (1986) (federal appellate court must satisfy itself that it has jurisdiction over appeal even if the parties concede it); City of Chanute v. Williams Natural Gas Co., 31 F.3d 1041, 1045 n.8 (10th Cir. 1994), cert. denied 115 S.Ct. 1254 (1995) (same). We conclude that appellate jurisdiction is proper.

A. Sections 1334(c)(2) And 1452(b) Do Not Bar Appellate Review

Sections 1334(c)(2) *fn2 and 1452(b) of title 28 of the United States Code limit appellate review of abstention and remand orders. Section 1334(c), governing abstention in bankruptcy cases, provides, in relevant part, that:

(2) . . . . Any decision to abstain or not to abstain made under this subsection is not reviewable by appeal or otherwise by the court of appeals under section 158(d), 1291, or 1292 of this title or by the Supreme Court of the United States under section 1254 of this title. 28 U.S.C. § 1334(c)(2).

Section 1452(b), governing remand of claims and causes of action in bankruptcy cases, states, in relevant part, that:

An order entered under this subsection remanding a claim or cause of action, or a decision to not remand, is not reviewable by appeal or otherwise by the court of appeals under section 158(d), 1291, or 1292 of this title or by the Supreme Court of the United States under section 1254 of this title. 28 U.S.C. § 1452(b).

The Bankruptcy Court's orders are decisions not to abstain from or remand the State Court action which would, at first glance, appear to be barred from appellate review under sections 1334(c)(2) and 1452(b). However, this Court is not the court of appeals referred to in sections 1334(c)(2) and 1452(b). The appellate jurisdiction of this Court arises under 28 U.S.C. § 158(a)-(c). Since the Court's jurisdiction does not arise under 28 U.S.C. §§ 158(d), 1291 or 1292, our jurisdiction is not limited by sections 1334(c)(2) or 1452(b). See 136 Cong. Rec. S 17,580 (daily ed. Oct. 27, 1990) (remarks of Sen. Grassley) (remand and abstention orders are subject to review by the district court, but not circuit courts of appeals).

B. The Bankruptcy Court's Orders Are "Final Orders" Or Are Appealable Interlocutory Orders

This Court has "jurisdiction to hear appeals from . . . final judgments, orders, and decrees[.]" 28 U.S.C. § 158(a)(1); see 28 U.S.C. § 158(c). "[A] decision is ordinarily considered final and appealable under § 1291 [and § 158(a)] only if it 'ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" Quackenbush v. Allstate Ins. Co., 116 S.Ct. 1712, 1718 (1996) (quoting Catlin v. United States, 324 U.S. 229, 233 (1945)). Orders may also be considered "final" if they meet the requirements of the collateral order doctrine. See, e.g., Quackenbush, 116 S.Ct. at 1718; Digital Equip. Corp. v. Desktop Direct, Inc., 511 U.S. 863 (1994); Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949). In Quackenbush, the Supreme Court held that an order requiring abstention and remand was a final order under the collateral order doctrine because it (1) conclusively determined a disputed question that was completely separate from the merits of the action, (2) was effectively unreviewable on appeal from a final judgment, and (3) was too important to be denied review. 116 S.Ct. at 1719-20 (relying on Richardson-Merrell Inc. v. Koller, 472 U.S. 424, 431 (1985); Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978); Cohen, 337 U.S. at 546)). *fn3

The Bankruptcy Court's orders in the present case are final orders under the collateral order doctrine. They conclusively determine the disputed questions of the Bankruptcy Court's jurisdiction, resolve an important issue completely separate from the merits of the action, and would be effectively unreviewable on appeal from a final judgment on the merits.

In Quackenbush, the lower court abstained from hearing an action and remanded it to state court, while in this case the Bankruptcy Court has refused to abstain from hearing the Debtor and Personette's action or to remand it to State Court. Quackenbush, however, does not preclude application of the collateral order doctrine to orders refusing to abstain and remand. *fn4

Even if the Bankruptcy Court's orders are not "final" under the collateral order doctrine, we grant leave to appeal under 28 U.S.C. § 158(a)(3). *fn5 Leave to hear appeals from interlocutory orders should be granted with discrimination and reserved for cases of exceptional circumstances. Appealable interlocutory orders must involve a controlling question of law as to which there is substantial ground for difference of opinion, and the immediate resolution of the order may materially advance the ultimate termination of the litigation. See 28 U.S.C. § 1292(b); Fed. R. Bankr. P. 8018(b); American Freight Sys., Inc. v. Transport Ins. Co. (In re American Freight Sys., Inc.), 194 B.R. 659, 661 (D. Kan. 1996); Intercontinental Enter., Inc. v. Keller (In re Blinder Robinson & Co.), 132 B.R. 759, 764 (D. Colo. 1991). The Bankruptcy Court's orders involve a controlling question of law as to which there is a substantial ground for difference of opinion and an immediate appeal may materially advance the ultimate termination of the litigation. See 9 James W. Moore, Moore's Federal Practice ¶ 110.22[2], at 271-72 (2d ed. 1996)("An order refusing to remand an action to the state court presents a controlling question [of law] and it may be certified" for interlocutory appeal). Accordingly, we have jurisdiction to hear this appeal.

III. Standard Of Review

"For purposes of standard of review, decisions by judges are traditionally divided into three categories, denominated questions of law (reviewable de novo), questions of fact (reviewable for clear error), and matters of discretion (reviewable for 'abuse of discretion')." Pierce v. Underwood, 487 U.S. 552, ...


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