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In re Chateaugay Corp.

decided: June 30, 1989.

IN RE CHATEAUGAY CORPORATION, REOMAR, INC., THE LTV CORPORATION, ET AL., DEBTORS. IN RE BANCTEXAS DALLAS, N.A., ELLIOTT ASSOCIATES, AND SPEER, LEEDS & KELLOGG, PLAINTIFFS-APPELLANTS,
v.
CHATEAUGAY CORPORATION, REOMAR, INC., THE LTV CORPORATION, AND REPSTEEL OVERSEAS FINANCE, N.V., DEFENDANTS-APPELLEES



Appeal from order of the United States District Court for the Southern District of New York, dismissing an appeal from the bankruptcy court's denial of relief from the automatic stay for lack of finality, and refusing to grant leave to appeal. Reversed and remanded.

Feinberg and Kearse, Circuit Judges, and Metzner, District Judge.*fn*

Author: Feinberg

FEINBERG, Circuit Judge:

BancTexas Dallas, M.A. (BancTexas), Elliott Associates (Elliott) and Speer, Leeds & Kellogg (Speer) appeal from an order, dated January 25, 1989, of the United States District Court for the Southern District of New York, Charles E. Stewart, Jr., J., dismissing their appeal, and denying leave to appeal, from an order, dated October 20, 1988, of the United States Bankruptcy Court for the Southern District of New York, Burton R. Lifland, Ch. J. In the October 1988 order, the bankruptcy court had denied BancTexas's motion for relief from the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362(a). Appellants contend that such denial should be immediately appealable.

Background

RepSteel Overseas Finance, N.V. (RepSteel), the debtor in this case and a wholly-owned subsidiary of the LTV Corporation (LTV), filed a voluntary petition under chapter 11 of the Bankruptcy Code in July 1986, along with LTV and LTV's other subsidiaries and affiliates. At that time, the automatic stay under § 362(a) went into effect. The previous July, RepSteel had issued convertible secured notes having a face value of $65,138,000 (the Notes), for which it pledged as collateral a promissory note in excess of $117 million made by LTV to RepSteel (the LTV Note). BancTexas is the indenture trustee for the Notes and Elliott and Speer are holders of the Notes.

In June 1988, BancTexas moved, under § 362(d) of the Bankruptcy Code, 11 U.S.C. § 362(d), for relief from the automatic stay so that it could foreclose on the LTV Note. BancTexas claimed that RepSteel lacked equity in the LTV Note, the LTV Note was not necessary for RepSteel's reorganization, the LTV Note was of insufficient value to adequately protect the holders of the Notes, and fluctuations in the value of the LTV Note provided cause for lifting the stay. Thereafter, Bankruptcy Judge Lifland held an evidentiary hearing on the motion. After characterizing the testimony offered by BancTexas concerning the value of the LTV Note as "inept," he denied the motion because BancTexas had not satisfied the requirements for lifting the stay under § 362. However, in order to avoid "disrupting . . . the natural relationships between all of the parties," the judge chose a "practical solution" that he believed to be fair and equitable. That "solution" was to revisit the matter in one year, and in the meantime to require LTV to set aside a fund of $20 million, equal to approximately one-half of the amount that BancTexas's expert estimated the value of the collateral to be on the date of the hearing, appropriately discounted. BancTexas, Elliott and Speer then filed notices of appeal, and, alternatively, motions for leave to appeal to the district court.

In a memorandum decision dated January 25, 1989, Judge Stewart found that the order of the bankruptcy court was interlocutory because of the interim relief provided by the bankruptcy judge, and therefore, the order was not appealable as of right. The district judge was apparently also not persuaded to grant appellants leave to appeal an interlocutory order under 28 U.S.C. § 158(a). He therefore declined to exercise the discretion granted him by that section, and dismissed the appeal.

BancTexas, Elliott and Speer then appealed to this court. Appellees moved to dismiss the appeal for lack of appellate jurisdiction, arguing that the district court's decision was not final within the meaning of 28 U.S.C. § 158(d). A panel of this court denied the motion without prejudice to its renewal before the panel hearing the appeal, holding that this court clearly has jurisdiction to review the district court's ruling that the bankruptcy court's decision was interlocutory and thus not appealable as of right, but noting that if we concluded that the bankruptcy court's order was nonfinal, we would lack jurisdiction to review both the merits of the bankruptcy court order and the district court's decision to deny leave to appeal. The panel noted that "otherwise we would not be able to determine the issue on which our own jurisdiction depends." BancTexas Dallas, N.A. v. Chateaugay Corp., 876 F.2d 8, 9 (2d Cir. 1989) (per curiam). After receiving full briefs and hearing argument on the question of whether the bankruptcy court's order is interlocutory, we reverse the decision of the district court and remand for a determination of the merits.

Discussion

Under 28 U.S.C. § 158(a), district courts have jurisdiction to hear appeals from final orders of the bankruptcy courts. Because bankruptcy proceedings often continue for long periods of time, and discrete claims are often resolved at various times over the course of the proceedings, the concept of finality that has developed in bankruptcy matters is more flexible than in ordinary civil litigation. See In re Johns-Manville Corp., 824 F.2d 176, 179-80 (2d Cir. 1987). Some appeals are therefore allowed before the entire bankruptcy is resolved. Of course, not every order of a bankruptcy court is appealable as a final order -- only those orders that "finally dispose of discrete disputes within the larger case" satisfy the test. In re Saco Local Development Corp., 711 F.2d 441, 444 (1st Cir. 1983) (emphasis in original); see also In re Stable Mews Associates, 778 F.2d 121, 122 (2d Cir. 1985).

The automatic stay provisions of section 362 of the Bankruptcy Code provide the unique context in this case for application of these finality principles. Courts have uniformly held an order lifting the automatic stay to be final and appealable, see Tringali v. Hathaway Machinery Co., 796 F.2d 553, 557-58 (1st Cir. 1986); 1 Collier on Bankruptcy para. 3.03(6)(e) (15th ed. 1988) (hereafter "Collier"). Moreover, although "courts have had a more difficult time" deciding whether orders denying relief from the stay are final, see 1 Collier at para. 3.03 (6)(e), most circuits that have considered the issue have held that such orders are final. See In re American Mariner Industries, Inc., 734 F.2d 426, 429 (9th Cir. 1984); In re Leimer, 724 F.2d 744, 745 (8th Cir. 1984); Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306, 1308 (11th Cir. 1982). This court has held denial of relief from the automatic stay to be a final, appealable order because such denial is the functional equivalent of a permanent injunction:

Bankruptcy Judge Parente's denial of relief from the automatic stay was the equivalent of a permanent injunction. . . . It was a final order disposing of Di Pierro's petition for relief from the automatic stay, and was therefore appealable as of right to the district court. . . . An order granting a permanent injunction is a final order. See Vicksburg v. Henson, 231 U.S. 259, 266-67, 34 S. Ct. 95, 97-98, 58 L. Ed. 209 ...


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