Circuit Courts Split on Review of Bankruptcy Court's Denial of Motion to Dismiss

September 25, 2024 at 11:00 AM

11 minute read

What You Need to Know

A Louisiana District Court followed the Fifth Circuit's reasoning and ruled that the denial of a motion to dismiss a bankruptcy petition was a "preliminary step," merely allowing the case to continue.
A Delaware District Court cited Third Circuit precedence and agreed to hear an appeal from a bankruptcy court order that had denied a motion to dismiss a Chapter 11 reorganization case, holding that the order was final and appealable.
If Congress does not resolve this particular circuit split, appellate courts should adopt the Third Circuit's "pragmatic" approach to review these denial orders.

Appellate courts are split on whether to review a bankruptcy court's denial of a motion to dismiss an entire case. Two district judges within the past few months, hearing appeals from the bankruptcy court, have reached contrary results that underline the split among the nation's courts of appeals noted below. See, e.g., In re Maison Royale, LLC, 2024 WL 2699994 (E.D. La. May 24, 2024) (denied leave to appeal interlocutory order that denied a creditor's "motion to dismiss the bankruptcy case due to bad faith filing.") citing In re Phillips, 844 F.2d 230 (5th Cir. 1988); contra, In re AIG Financial Products Corp., 2024 WL 810051 (D. Del. Feb. 27, 2024) (order denying dismissal of Chapter 11 case is final and appealable), citing In re Brown, 916 F.2d 120 (3d Cir. 1990). As discussed below, if Congress does not resolve this particular circuit split, appellate courts should adopt the Third Circuit's "pragmatic" approach to review these denial orders.

Relevant Statute: 28 U.S.C. §158

District Courts and Bankruptcy Appellate Panels

District courts and bankruptcy appellate panels (BAP) have jurisdiction over final judgments entered by bankruptcy judges as well as the jurisdiction to hear appeals with leave of court from interlocutory orders and decrees. 28 U.S.C. §158(a)(l), (3). See, In re Genter, 2020 WL 3129637 (N.D. Tex. June 12, 2020) (denied motion for leave to appeal interlocutory order; such appeals disfavored; leave to appeal "sparingly granted"; appellants failed to show "substantial ground for difference of opinion" on bankruptcy court's order); In re Latam Airlines Grp. S.A., No. 22-CV-2556 (JMF), 2022 WL 1471125 (S.D.N.Y. May 5, 2022) (dismissed appeal from non-final approval of backstop fee agreements; resolution should await imminent ruling on confirmation of plan). Additionally, an interlocutory order issued under 11 U.S.C. §1121(d) affecting the debtor's exclusive period to file a reorganization plan is automatically appealable.

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