finish race conceptThe courts have long struggled with the question of whether particular orders entered by a bankruptcy court are final, and therefore appealable as a matter of right. It is generally recognized that a bankruptcy case is distinctly different from the usual civil case in that it is a framework within which a variety of disputes arise and are resolved. That distinction is recognized in 28 U.S.C. §158(d)(1), which provides that appeals as of right maybe taken not only from final judgments in cases but from “final judgments, orders, and decrees…in cases and proceedings….”

Recently, the Seventh Circuit addressed the question of whether an order approving a settlement, and overruling an objection from a secured creditor, was eligible for appeal by the creditor as a matter of right. In Schaumburg Bank & Trust Co., N.A., v. Alsterda, the Seventh Circuit concluded such an order was not final and therefore that that it did not have jurisdiction over the objecting creditor’s appeal.

Briefly stated, the issue in Schaumburg arose from competing claims regarding two avoidable transfers made by the debtor. The trustee sought court approval of a settlement with the transferee returning the funds to the estate. The secured party bank objected to the settlement on the grounds that it had a superior claim to the assets based on a court judgment following relief from stay previously afforded to the secured creditor.

The bankruptcy court overruled the creditor’s objection, holding that its relief from stay did not amount to an abandonment of the estate’s avoidance causes of action regarding the two transfers. At the hearing, after a colloquy on whether the bank lien attached to the proceeds in the trustee’s hands, the bankruptcy court set a further hearing to consider the handling of that issue. In the interim between the approval of the settlement and the hearing on the bank’s lien rights, the bank filed a notice of appeal of the bankruptcy court’s order approving the settlement. The decision was affirmed by the District Court and appealed by the bank to the Seventh Circuit.

Rather than examining the merits of the rulings below, the Circuit Court began by considering whether it had jurisdiction to hear the appeal. It characterized the question as whether the decision below had finally disposed of a “discrete dispute” or whether it merely resolved a “discrete issue” within a dispute.

The Seventh Circuit found that “[t]o be ‘final,’ the order, judgment, or decree in question must conclusively determine a separable dispute over a creditor’s claim or priority.” For that proposition, it cited the Supreme Court’s 2015 decision in Bullard v. Blue Hills Bank.  In Bullard, the Supreme Court found that, in order to be final and appealable, an order should be one that “alters the status quo and fixes the rights and obligations of the parties.”  The Supreme Court applied that rationale to conclude an order denying confirmation of a Chapter 13 plan was not a final order.

However, it seems overly aggressive to stretch the Bullard rationale in order to apply it to the factual context of Schaumburg. Not every dispute involves resolution of a creditor’s claim. In Schaumburg, the proceeding in question was the approval of a compromise. Nothing inherent in the original contested matter involved issues concerning creditor claims. The question presented to the bankruptcy court was whether the proposed settlement represented a reasonable resolution of the estate’s claims. However, the Seventh Circuit seemed to feel that by virtue of the nature of the bank’s objection, a ruling would not be final unless it finally determined the bank’s rights as a creditor.

It seems difficult to accept the notion that the rationale for a compromise objection could change the underlying nature of the preceding itself. If a creditor had objected to the settlement is unreasonable, and had that objection been overruled, the dispute at issue (the compromise) would have been finally adjudicated. The Seventh Circuit seems to find that the basis for the banks settlement objection somehow converted the dispute from approval of the compromise to treatment of the bank’s claim.

The question of finality continues to bedevil the courts in the bankruptcy context. All acknowledge that, as the Supreme Court said in Bullard, “[t]he rules are different in bankruptcy.” But the application of those rules by the appellate courts remains uneven. This writer feels that the Seventh Circuit decision in Schaumburg serves to confuse the issue rather than adding clarification.