In re: SS Farms, LLC, et al v. Bradley Sharp

Filing

FILED OPINION (ALEX KOZINSKI, CARLOS T. BEA and ROBERT W. GETTLEMAN) DISMISSED. Judge: CTB Authoring, FILED AND ENTERED JUDGMENT. [8062431] [10-16153, 10-16154, 10-16155, 10-16156, 10-16157, 10-16160]--[COURT UPDATE: Attached corrected Opinion. Opinion corrected to include case number 10-16157. The number was not complete on the original opinion. Resent NDA. 02/09/2012 by RY]

Case: 10-16153

02/09/2012

ID: 8062431

DktEntry: 42-1

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: SK FOODS, L.P.
AND RHM INDUSTRIAL/SPECIALTY
FOODS, INC.,
Debtor,
SS FARMS, LLC, SSC FARMING,
LLC, SSC FARMS I, LLC, SSC
FARMS II, LLC, AND SCOTT SALYER,
Appellants,
v.
BRADLEY D. SHARP,
Trustee-Appellee.

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No. 10-16153
D.C. No.
2:09-cv-02937-MCE

Case: 10-16153

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ID: 8062431

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IN THE MATTER OF SK FOODS

In the Matter of: SK FOODS, L.P.
AND RHM INDUSTRIAL/SPECIALTY
FOODS, INC.,
Debtor,
SS FARMS, LLC, SSC FARMING,
LLC, SSC FARMS I, LLC, SSC
FARMS II, LLC, AND SCOTT SALYER,
Appellants,
v.
BRADLEY D. SHARP,
Trustee-Appellee.

In the Matter of: SK FOODS, L.P.
AND RHM INDUSTRIAL/SPECIALTY
FOODS, INC.,
Debtor,
SS FARMS, LLC, SSC FARMING,
LLC, SSC FARMS I, LLC, SSC
FARMS II, LLC, AND SCOTT SALYER,
Appellants,
v.
BRADLEY D. SHARP,
Trustee-Appellee.

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

No. 10-16154
D.C. No.
2:09-cv-02938-MCE

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No. 10-16155
D.C. No.
2:09-cv-02940-MCE

Case: 10-16153

02/09/2012

ID: 8062431

DktEntry: 42-1

IN THE MATTER OF SK FOODS

In the Matter of: SK FOODS, L.P.
AND RHM INDUSTRIAL/SPECIALTY
FOODS, INC.,
Debtor,
SS FARMS, LLC, SSC FARMING,
LLC, SSC FARMS I, LLC, SSC
FARMS II, LLC, AND SCOTT SALYER,
Appellants,
v.
BRADLEY D. SHARP,
Trustee-Appellee.

In the Matter of: SK FOODS, L.P.
AND RHM INDUSTRIAL/SPECIALTY
FOODS, INC.,
Debtor,
SS FARMS, LLC, SSC FARMING,
LLC, SSC FARMS I, LLC, SSC
FARMS II, LLC, AND SCOTT SALYER,
Appellants,
v.
BRADLEY D. SHARP,
Trustee-Appellee.

Page: 3 of 9

1491

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No. 10-16156
D.C. No.
2:09-cv-02941-MCE

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No. 10-16157
D.C. No.
2:09-cv-02942-MCE

Case: 10-16153

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ID: 8062431

DktEntry: 42-1

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IN THE MATTER OF SK FOODS

In the Matter of: SK FOODS, L.P.
AND RHM INDUSTRIAL/SPECIALTY
FOODS, INC.,
Debtor,
SS FARMS, LLC, SSC FARMING,
LLC, SSC FARMS I, LLC, SSC
FARMS II, LLC, AND SCOTT SALYER,
Appellants,
v.
BRADLEY D. SHARP,
Trustee-Appellee.





No. 10-16160
D.C. No.
2:09-cv-02939-MCE
OPINION



Appeal from the United States District Court
for the Eastern District of California
Morrison C. England Jr., District Judge, Presiding
Argued and Submitted
November 15, 2011—San Francisco, California
Filed February 9, 2012
Before: Alex Kozinski, Chief Judge, Carlos T. Bea,
Circuit Judge, and Robert W. Gettleman,
Senior District Judge.*
Opinion by Judge Bea

*The Honorable Robert W. Gettleman, Senior United States District
Judge for the Northern District of Illinois, sitting by designation.

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IN THE MATTER OF SK FOODS

COUNSEL
Kelly A. Woodruff (argued), Farella Braun & Martel LLP,
San Francisco, California, for the appellants.
Malcolm S. Segal, James R. Kirby II and James P. Mayo,
Segal & Kirby LLP, Sacramento, California, for appellant
Scott Salyer.
Larry J. Lichtenegger, Lichtenegger Law Office, Carmel, California, for appellants SS Farms, LLC, SSC Farming, LLC,
SSC Farms I, LLC and SSC Farms II, LLC.
Nancy Winkelman (argued) and Bruce Merenstein, Schnader
Harrison Segal & Lewis LLP, Philadelphia, Pennsylvania,
Gregory C. Nuti and Kevin W. Coleman, Schnader Harrison
Segal & Lewis LLP, San Francisco, California, for the appellee.

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IN THE MATTER OF SK FOODS

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OPINION
BEA, Circuit Judge:
A trustee in Chapter 11 bankruptcy proceedings took possession of Appellants’ documents, which Appellants had
deposited at the debtor’s office. Appellants claim the trustee
acted illegally; that the documents should be returned; and
that the trustee and his counsel should be removed. The bankruptcy court denied such relief, and the district court affirmed.
This appeal raises the issue whether such orders of the bankruptcy court, affirmed by the district court, are final appealable orders under 28 U.S.C. § 158(d)(1). As explained below,
we hold that they are not; accordingly, we dismiss for lack of
jurisdiction.
I.

Facts and Procedural History

Debtor SK Foods permitted Appellants to store financial,
business, estate planning, and other documents on its premises. Some of these documents were physically stored on site;
others were stored in a combined computer system run by SK
Foods personnel.
In April 2008, the United States Department of Justice
Antitrust Division and other government agencies raided the
premises of SK Foods, seized “an enormous volume of
records and copied many other documents and computers.”
The raid was followed by a federal grand jury investigation
and criminal informations charging current and former
employees of SK Foods with fraud, bribery and other
offenses.
More than a year later, SK Foods filed for Chapter 11 bankruptcy. Bradley Sharp was appointed as trustee of the debtor’s
estate, and he took possession of all records located on its
premises, including documents and electronic files belonging
to Appellants. Upon discovering that the trustee had taken

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IN THE MATTER OF SK FOODS

possession of their documents, Appellants demanded return of
the original documents without further review. The trustee
refused, stating that possession and review of the documents
were attendant to the discharge of his duties.
Appellants filed a motion to remove the trustee and disqualify his counsel on the grounds that the seizure and continued possession of Appellants’ documents violated the Fourth
Amendment and various state laws. On the same grounds,
Appellants’ motion also requested a protective order requiring
the return of their documents. The trustee filed a countermotion requesting an order confirming his authority to continue to possess and review the documents.
The bankruptcy court held oral argument on three issues:
(1) removal of the trustee; (2) disqualification of the trustee’s
counsel; and (3) the trustee’s continued possession of Appellants’ documents. It then denied Appellants’ motion and
granted the trustee’s counter-motion.
Appellants appealed to the district court, which affirmed
the bankruptcy court on all issues. Appellants appealed to this
court.
II.

Jurisdiction

[1] Under 28 U.S.C. § 158(d)(1), we have appellate jurisdiction over “final orders of the district courts reviewing
bankruptcy court decisions.” In re Westwood Shake & Shingle, Inc., 971 F.2d 387, 389 (9th Cir. 1992). “To determine
whether a district court order is final, we must look to the
nature of the underlying bankruptcy court order. If the underlying bankruptcy court order is interlocutory, so is the district
court order affirming or reversing it.” Id. (internal citation
omitted). Although the district courts have discretion to consider interlocutory appeals, we do not. Id.
[2] A bankruptcy court order is considered final “where it
1) resolves and seriously affects substantive rights and 2)

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finally determines the discrete issue to which it is addressed.”
In re AFI Holding, 530 F.3d 832, 836 (9th Cir. 2008) (internal
quotation marks and citations omitted).
[3] The bankruptcy court’s order denying removal of the
trustee is not final: It neither resolves nor seriously affects
substantive rights, nor finally determines the discrete issue to
which it is addressed, since the trustee could be removed at
a later time. Moreover, if a party could file an interlocutory
appeal every time he tried unsuccessfully to remove a trustee,
he could bring the litigation to a never-ending standstill.
[4] In AFI Holding, this court held that a bankruptcy
court’s order granting removal of a trustee is a final order. Id.
at 837. However, the two situations—removal and denial of
removal—are not symmetrical. So long as a trustee remains
in office, the status quo ante continues and his actions may be
reviewed throughout the bankruptcy proceedings. However,
when a trustee is removed for cause, such an order alters the
status quo ante because the trustee can no longer act in the
continued bankruptcy proceedings. Therefore, since an order
denying removal of the trustee preserves the status quo ante
and may be later revisited, such an order is not an appealable
final order.1
[5] The bankruptcy court’s order denying Appellants’
motion for the return of records and granting the trustee’s
counter-motion does not resolve substantive rights or finally
determine a discrete issue. Instead, the order permits the continued possession and review of documents already in the
possession of the trustee. Reviewing the order on appeal now
would not finally determine the issue whether the trustee
1

AFI Holding cited Matter of Schultz Mfg. Fabricating Co., 956 F.2d
686, 691-92 (7th Cir. 1992), as “treating the denial of a motion to remove
a trustee as a final order.” However, AFI Holding did not hold that such
a denial is a final order, and Schultz did not address the issue; it merely
assumed that the denial was a final order.

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could use the documents, because the issue of possession and
use of the records could arise again in further proceedings—
for instance, in a motion for relief from the automatic stay or
in a discovery dispute in an adversary proceeding. See In re
Lewis, 113 F.3d 1040, 1043 (9th Cir. 1997) (“[T]raditional
finality concerns nonetheless dictate that we avoid having a
case make two complete trips through the appellate process.”
(internal quotation marks and citations omitted)). Therefore,
the bankruptcy court’s order denying Appellants’ motion for
the return of records and granting the trustee’s counter-motion
is not a final order.
[6] Nor is the bankruptcy court’s order denying disqualification of counsel final: “Where the underlying bankruptcy
court order involves the appointment or disqualification of
counsel, courts have uniformly found that such orders are
interlocutory even in the more flexible bankruptcy context.”
In re Westwood Shake & Shingle, Inc., 971 F.2d at 389.
[7] Because all issues on appeal involve interlocutory
orders, we dismiss for lack of jurisdiction.
DISMISSED.