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In re Powelson

decided: June 21, 1989.

IN THE MATTER OF: DONALD ARTHUR POWELSON AND MARY MARGIE POWELSON, DEBTORS. APPEAL OF JAMES M. MORE, TRUSTEE


Appeal from the United States District Court for the Northern District of Indiana, Fort Wayne Division, No. 86-10087, William C. Lee, Judge.

Cudahy and Ripple, Circuit Judges, and Will,*fn* Senior District Judge.

Author: Cudahy

CUDAHY, Circuit Judge

This appeal involves the metamorphic role assigned to district courts by the Bankruptcy Act Amendments, 28 U.S.C. §§ 157, 158 (Supp. 1988), which accord both original and appellate jurisdiction to district courts sitting in bankruptcy proceedings. Trustee James M. More, on behalf of the unsecured creditors' committee, appeals the district court's order that withdrew the reference of this case to the bankruptcy court, stayed enforcement of the bankruptcy court's liquidation confirmation order, stayed the debtors' appeal of that order and substituted an interim plan. The order is innovative and, as far as we know, unprecedented, presenting unique problems on appeal.

I.

In January 1986, the Powelsons (the "Debtors"), who are farmers, petitioned for relief under Chapter 11 of the Bankruptcy Code. On June 5, 1986, following the exclusive period that a debtor is accorded under 11 U.S.C. section 1121(b) to file a disclosure statement and reorganization plan, the unsecured creditors' committee (the "Creditors") submitted their own disclosure statement and liquidation plan. During the next year and a half, the Debtors failed to file a complete disclosure statement and acceptable reorganization plan. Consequently, on November 6, 1987, the bankruptcy court entered an order confirming the Creditors' liquidation plan. The plan provided, inter alia, for the removal of the Debtors from possession of their farm and for the appointment of James M. More as the trustee responsible for carrying out the terms of the plan. The Debtors filed a motion to reconsider the confirmation order and a motion to convert to Chapter 12, both of which the bankruptcy court denied. Thereafter, on February 19, 1988, the Debtors filed a notice of appeal to the district court, appealing the bankruptcy court's denial of their motion to reconsider and their motion to convert to Chapter 12, as well as the confirmation order of November 6, 1987.

On the same date, the Debtors filed an amended motion for an emergency withdrawal of the reference of the case to the bankruptcy court and for a temporary stay pending hearing. This motion implored the district court to withdraw the reference in order to prevent the Debtors from being immediately evicted from their farm pursuant to a writ of assistance ordered by the bankruptcy judge. The Debtors claimed that the liquidation plan was improperly forced upon them notwithstanding their status as farmers, who allegedly cannot be involuntarily liquidated under the Bankruptcy Code, and despite their apparent financial capacity to pay their creditors in full. During a hearing on February 26, 1988, the district court inquired into the appropriateness of liquidation in this case. The Creditors conceded that, because the farmland was appraised at approximately $350,000 while the Creditors claims were estimated at only $237,000, the excess cash proceeds after liquidation would be returned to the Debtors. See Tr. at 15-17. Noting that, under these circumstances, liquidation seemed contrary to the objectives of the Bankruptcy Code, the district judge then urged the parties to negotiate a more equitable agreement which would keep the Debtors in possession while protecting the Creditors' interests. See Tr. at 28. When the parties appeared unable to reach an agreement after the lunch recess, the judge admonished the lawyers, stating, "I for the life of me can't understand why this matter can't be resolved by agreement; but if it can't, I'll decide it." Tr. at 47. Following this exhortation, the court ordered another short recess.

Thereafter, the Debtors submitted a draft order which the court ultimately adopted with minor modifications. The court then entered its order withdrawing the reference of the case, and, in accordance with the new plan, restored the Debtors to possession of their farm, stayed enforcement of the Creditors' confirmed liquidation plan and stayed the pending appeal. The substituted plan specifically provided a method for the Debtors to fully satisfy their indebtedness over a four-year period. The plan also created a continuing lien on the Debtors' property as security for the Creditors' claims. From this somewhat extraordinary order, the trustee, on behalf of the Creditors, has appealed to this court.

II.

This case, with its unusual procedural background, initially presents a puzzling jurisdictional issue: whether the district court's order in this bankruptcy proceeding is an appealable final order over which we can exercise appellate jurisdiction. Resolution of this difficult prefatory question does not end our quandary, however. For even if there is a basis for jurisdiction, the further question arises whether we should exercise it at this stage to review the Creditors' objections to the district court's order, which they apparently consented to after negotiation. With these problems in mind, we begin our jurisdictional analysis by examining the elusive provisions of the recent Bankruptcy Act Amendments.

The Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 73 L. Ed. 2d 598, 102 S. Ct. 2858 (1982), invalidated the 1978 Bankruptcy Reform Act's broad jurisdictional grant of authority to non-Article III bankruptcy judges. Thereafter, the Bankruptcy Act was amended to provide that district courts exercise original jurisdiction in bankruptcy actions, but may automatically refer these matters to bankruptcy courts. See 28 U.S.C. § 157.*fn1 Such referrals do not completely divest the district court of its original jurisdiction, however, for section 157(d) of the amended Bankruptcy Act provides: "The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown." 28 U.S.C. § 157(d). Because courts rarely invoke this discretionary power, there is a paucity of judicial opinions construing this provision.*fn2 Yet the few decisions addressing appellate review of withdrawn cases have generally concluded that a decision to withdraw a reference or to refuse such a withdrawal is interlocutory and non-reviewable. See, e.g., In re Moens, 800 F.2d 173, 175 (7th Cir. 1986); see also In re Chateaugay Corp., 826 F.2d 1177 (2d Cir. 1987); In re King Memorial Hospital, Inc., 767 F.2d 1508, 1510 (11th Cir. 1985); In re Kemble, 776 F.2d 802, 805-06 (9th Cir. 1985); In re Dalton, 733 F.2d 710 (10th Cir. 1984) (reviewable only after final judgment or by writ of mandamus), cert. dismissed, 469 U.S. 1185, 105 S. Ct. 947, 83 L. Ed. 2d 959 (1985). Accordingly, a district court's discretionary decision to withdraw a case is generally not reviewable until a final order is subsequently entered.

Assuming this general principle of non-reviewability applies here, our jurisdiction to review this withdrawn case depends on whether the district court's order staying the bankruptcy proceedings and substituting an interim plan is "final" under the appropriate jurisdictional statute. The parties disagree about whether the relevant statute is the general provision for appellate jurisdiction, 28 U.S.C. section 1291, or 28 U.S.C. section 158(d) of the amended Bankruptcy Act. Several courts and commentators have concluded that, when the district court has withdrawn a reference and is acting as a court of original jurisdiction, the general appellate procedures of 28 U.S.C. section 1291, rather than section 158(d) of the Bankruptcy Act, govern appeals from its actions. See In re Benny, 791 F.2d 712, 717 (9th Cir. 1986) (collecting cases); In re Manoa Finance Co., 781 F.2d 1370 (9th Cir. 1986), cert. denied, 479 U.S. 1064, 107 S. Ct. 948, 93 L. Ed. 2d 997 (1987); In re Amatex Corp., 755 F.2d 1034 (3d Cir. 1985); Green v. Drexler, 760 F.2d 406 (2d Cir. 1985); 1 Collier on Bankruptcy para. 3.03[6][a], at 3-171--3-172 & n. 32 (15th ed. 1987); 1 Norton Bankr. L. & Prac. § 5.35 (1987). This conclusion seems correct since section 158(d) refers only to appeals from judgments and orders entered under sections 158(a) and (b),*fn3 neither of which pertains to withdrawn proceedings. See id. Because the district court withdrew the reference in this case, thereby exercising its original jurisdiction, the appropriate basis, if any, for appeal to this court must be section 1291.*fn4

Nevertheless, since this appeal arises in a bankruptcy context, we should interpret the "finality" standards governing the availability of appellate review under section 1291 more flexibly than is generally the case. See In re Amatex Corp., 755 F.2d at 1039; cf. In the Matter of UNR Indus., Inc., 725 F.2d 1111, 1115 (7th Cir. 1984) ("while 'finality,' interpreted functionally, might mean something different in a bankruptcy case from what it does in other cases, section 1291 is flexible enough to be applied differently depending on circumstances").*fn5 We have indicated on a number of occasions that " '[final]' is interpreted more liberally in bankruptcy cases than in other federal cases." In the Matter of Childress, 851 F.2d 926, 928 (7th Cir. 1988). See also In re Sax, 796 F.2d 994, 996 (7th Cir. 1986); In re Goldblatt Bros., Inc., 758 F.2d 1248, 1251 (7th Cir. 1985). The rationale for this greater flexibility derives from the uniqueness of the bankruptcy process, involving, as it does, successive procedural stages, and "many claims and problems, each of which may come to a final conclusion before the estate has been wrapped up." In the Matter of Morse Elec. Co., Inc., 805 F.2d 262, 264 (7th Cir. 1986).

The Creditors assert that the finality of the district court's order arises from the stay of the confirmation order conjoined with the stay of the Debtors' appeal of that order. They argue that because the appeal was "indefinitely shelved," the court, in essence, reversed the ...


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