A bankruptcy case is different from other court proceedings. While most litigation pits two or more parties on opposing “sides” against each other, a bankruptcy case may involve disputes between creditors and a debtor, among creditors, or between a party to the proceeding and a third party. The bankruptcy case may act as an umbrella for multiple adversary proceedings with their own case numbers. The potential for confusion may result in uncertainty as to whether a particular ruling is “final” or not. Federal appellate courts only have jurisdiction over appeals of “final” rulings in bankruptcy cases. The Sixth Circuit recently considered the appeal of a Bankruptcy Appellate Panel (BAP) ruling on the dischargeability of certain debts. In re Bradley (“Bradley I”), 507 B.R. 192 (B.A.P. 6th Cir. 2014). The court held that it lacked subject matter jurisdiction because the BAP’s ruling was not “final.” In re Bradley (“Bradley II”), No. 14-3401, slip op. (6th Cir., Dec. 10, 2014).
The debtors, a married couple, filed a Chapter 7 petition in November 2010. The husband owned a limited liability company (LLC) that sold and rented construction equipment. He personally guaranteed financing provided by the creditor to the LLC. The creditor filed an adversary proceeding in March 2011, claiming that the LLC had sold equipment “out of trust,” or without forwarding the sale proceeds to the creditor as required by their contract. The debt owed to the creditor was allegedly excepted from discharge because of fraud, embezzlement, or “willful and malicious injury” to the creditor. 11 U.S.C. §§ 523(a)(2)(A), (a)(4), (a)(6).
The bankruptcy court ruled that the debt was not excepted from discharge, finding that the creditor failed to prove the intent required for fraud, failed to prove embezzlement because the equipment was sold in the “ordinary course of business,” and failed to prove willful or malicious injury because the debtor “always intended to repay the debts.” Bradley II, slip op. at 3. The BAP reversed the bankruptcy court’s rulings with regard to the fraud and “willful and malicious injury” claims. It held that the debtor benefited from the creditor’s reliance on his false statements, which supports a finding of fraud, and that the debtor knew that the failure to remit the proceeds of sale would harm the creditor. Bradley I, 507 B.R. at 209. It remanded the case for a determination of damages suffered by the creditor.
The debtor appealed to the Sixth Circuit Court of Appeals, asking the court to reverse the BAP’s decision. The Sixth Circuit did not address any of the debtor’s claims, however, since it made a sua sponte determination that it lacked subject matter jurisdiction. Federal appellate courts only have jurisdiction over appeals of “final decisions, judgments, orders, and decrees” from bankruptcy courts and BAPs. 28 U.S.C. § 158(d).
Since the BAP remanded the case, and the issues on remand were not “of a purely ministerial character,” Bradley II at 4, the court held that the BAP’s ruling was not “final.” In the Ninth Circuit, a lower-court ruling remanding a case is generally not considered “final” if it leaves relevant issues of fact unresolved. See In re Saxman, 325 F.3d 1168, 1171 (9th Cir. 2003); In re Dyer, 322 F.3d 1178, 1186 (9th Cir. 2003).
Since 1997, bankruptcy attorney Devin Sawdayi has represented individuals and families in the Los Angeles area in Chapter 7 and Chapter 13 bankruptcies. To schedule a free and confidential consultation to see how we can help you, contact us today online or at (310) 475-939.
More Blog Posts:
Federal Judge Gives Debtors Additional Time to Perfect Appeal in California Chapter 7 Bankruptcy Case, Los Angeles Bankruptcy Lawyer Blawg, September 28, 2014
Debtor’s Adversary Proceeding in Chapter 7 Bankruptcy Dismissed on Procedural Grounds; Appeal Dismissed as Untimely, Los Angeles Bankruptcy Lawyer Blawg, November 13, 2013
California Appeals Court Allows Involuntary Bankruptcy Case to Proceed Where Creditors’ Claims Are State Court Judgments Under Appeal, Los Angeles Bankruptcy Lawyer Blawg, July 2, 2013