In re: EP Liquidation LLC

Filing 14

MEMORANDUM re 4 motion to dismiss appeal. Signed by Judge Leonard P. Stark on 8/4/15. (ntl)

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
INRE:
EP LIQUIDATION, LLC,

Banla. Case No. 14-10359-CSS

Debtor.
CHARLES A. STANZIALE, solely in his capacity
as Chapter 7 Trustee of EP Liquidation, LLC,
Appellant,
Civ. No. 15-309-LPS

v.
BROOKFIELD EQUINOX, LLC,
Appellee.

MEMORANDUM
Charles A. Stanziale ("the Trustee"), in his capacity as the Chapter 7 Trustee of EP
Liquidation, LLC, appeals from a March 27, 2015 Order of the United States Banlauptcy Court
for the District of Delaware. (D.I. 1) Pending before the Court is Brookfield Equinox, LLC's
("Brookfield") Motion for an Order Dismissing Appeal for Lack of Jurisdiction, or Alternatively
Denying Leave to Appeal. (D.I. 4) For the reasons stated below, the Court will grant
Brookfield's Motion and dismiss the Trustee's appeal.

I.

BACKGROUND
EP Liquidation, LLC ("Debtor") filed a petition for chapter 7 banlauptcy relief on

February 14, 2014. (Bankr. Case No. 14-10359, D.I. 1) Approximately one week earlier, the
Debtor had sold substantially all of its assets to Brookfield pursuant to an Asset Purchase
Agreement ("APA"). (D.1. 4 at 5; D.I. 7 at 2) Brookfield's consideration for the APA deal
consisted of cash and the assumption of some of Debtor's liabilities. (D.I. 4 at 5; D.I. 7 at 2)

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The Trustee, tasked with maximizing the value of the Debtor's estate, contends that the AP A
stripped the estate of valuable assets and decreased the potential recovery for remaining
creditors. (D.I. 7 at 2) He intends to file an adversary complaint to recover the payments that
Brookfield made to the Debtor's creditors on the liabilities assumed under the AP A. He
contends that these constituted improper preference payments under 11 U.S.C. § 547(b). (Id. at

1)
On November 13, 2014, the Trustee filed a Motion for Entry of an Order, Pursuant to
Rule 2004 of the Federal Rules of Bankruptcy Procedure Compelling the Production of
Documents by Brookfield Equinox, LLC ("the 2004 Motion"). (Bankr. Case No. 14-10359, D.I.
48) The 2004 Motion sought documents from Brookfield relating to payments that it made to the
Debtor's creditors pursuant to the liabilities it assumed under the AP A. (D.I. 4 at 5) The Trustee
claimed that he requires these documents to pursue the proposed adversary proceeding. (Id.)
The Bankruptcy Court issued an order ("the 2004 Order") on March 27, 2015 granting in
part and denying in part the 2004 Motion. (D.I. 1-1 at 2) Specifically, the 2004 Order directed
Brookfield to supply all information to the Trustee relating to the AP A prior to the closing of the
sale, but denied the Trustee's request for any post-closing documents. (Id.) The Trustee filed a
timely notice of appeal from the 2004 Order in this Court. (D .I. 1) Brookfield moved to dismiss
the appeal and the parties filed supporting briefs. (D.I. 4; D.I. 7; D.I. 10)

II.

CONTENTIONS
Brookfield argues that the Court should dismiss this appeal for lack of jurisdiction since

the 2004 Order is a not a final order under 28 U.S.C. § 158(a)(l). (D.I. 4 at 3) Alternatively,
Brookfield contends that even if this Court construes the Trustee's notice of appeal as a motion
for leave to appeal from an interlocutory order, the 2004 Order does not satisfy the applicable

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criteria for interlocutory appeal under 28 U.S.C. § 1292(b). (Id at 13) In response, the Trustee
asserts that according to the Third Circuit's relaxed and pragmatic view of finality, the 2004
Order is a final order. (D.1. 7 at 4) Alternatively, the Trustee argues that the 2004 Order is
appealable under the collateral order doctrine. (Id at 10) Finally, the Trustee maintains that
even if the 2004 Order is not construed as a final order, there is a basis for this Court to grant

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leave to appeal from an interlocutory order under 28 U.S.C. § 1292(b). (Id at 11-12)

III.

STANDARD OF REVIEW
Appeals from the Bankruptcy Court to this Court are governed by 28 U.S.C. § 158.

Pursuant to§ 158(a), district courts have mandatory jurisdiction to hear appeals "fromfinal

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judgments, orders, and decrees" and discretionary jurisdiction over appeals "from other
interlocutory orders and decrees." 28 U.S.C. § 158(a)(l) and (3) (emphasis added). If an order
from a bankruptcy court is not final, the district court can treat the appellant's notice of appeal as
a request for leave to appeal from an interlocutory order. See Fed. R. Bankr. P. 8004(d) ("If an
appellant timely files a notice of appeal under this rule but does not include a motion for leave,
the district court or BAP may order the appellant to file a motion for leave, or treat the notice of
appeal as a motion for leave and either grant or deny it."); Dal-Tile Int'!, Inc. v. Color Tile, Inc.,
203 B.R. 554, 557 (D. Del. 1996).
The Court determines whether to grant an interlocutory appeal in accordance with 28
U.S.C. § 1292(b). See Dal-Tile Int'!, 203 B.R. at 557. Under this framework, the Court can
review an interlocutory order if the Court is "of the opinion that such order involves a controlling
question of law as to which there is substantial ground for difference of opinion and that an
immediate appeal from the order may materially advance the ultimate termination of the
litigation .... " 28 U.S.C. § 1292(b); see also In re Kaiser Grp. Int'!, Inc., 400 B.R. 140, 145 (D.

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Del. 2009). "The decision to certify an order for appeal under Section 1292(b) lies within the

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sound discretion of the court." In re Kaiser Grp., 400 B.R. at 145.

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IV.

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DISCUSSION
A.

Whether the 2004 Order is Final

In bankruptcy cases, a reviewing court construes finality "more broadly than for other
types of civil case." In re Armstrong World Indus., Inc., 432 F.3d 507, 511 (3d Cir. 2005).
"Because bankruptcy proceedings are often protracted, and time and resources can be wasted if
an appeal is delayed until after a final disposition, [Third Circuit] policy has been to quickly
resolve issues central to the progress of a bankruptcy." Id. The Third Circuit's approach to
finality is flexible and pragmatic. In re Kaiser Grp., 400 B.R. at 143. "In civil litigation,
discovery orders are, with rare exception, non-appealable. A similar approach applies in
bankruptcy cases." In re Jeannette Corp., 832 F.2d 43, 46 (3d Cir. 1987) (internal citation
omitted).
The four factors relevant to determining whether the 2004 Order is a final, appealable
order are: "(1) The impact on the assets of the bankrupt estate; (2) Necessity for further factfinding on remand; (3) The preclusive effect of our decision on the merits of further litigation;

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and (4) The interest of judicial economy." Buncher Co. v. Official Comm. of Unsecured

Creditors ofGenFarm Ltd. P'ship JV, 229 F.3d 245, 250 (3d Cir. 2000). "[N]o specific
combination of factors is dispositive." In re Kaiser Grp., 400 B.R. at 143. However, "[t]he most
important of these factors is the impact on the bankruptcy estate." Buncher, 229 F.3d at 250.
Brookfield argues that Rule 2004 discovery orders are generally not considered final
orders and that all factors weigh against finality in this case. (D.I. 4 at 8, 10) The Trustee does
not address the relevant factors for finality; instead, he broadly appeals to the Third Circuit's

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relaxed and pragmatic view of finality. (D.I. 7 at 6-7) Additionally, the Trustee cites several
cases from outside the Third Circuit that have found that a rule 2004 order is a final, appealable
order. (Id) He concludes that the 2004 Order is final because the Bankruptcy Court determined
a discrete issue that requires no further decision. (Id at 7)
The Trustee's general reliance on the Third Circuit's "relaxed" approach to finality,
without more, is insufficient to establish that the 2004 Order is a final order. "Even under the
more relaxed standards of finality applicable to bankruptcy cases, discovery orders generally are
held to be interlocutory and non-appealable." Countrywide Home Loans, Inc. v. Office of the
US. Tr., 2008 WL 2388285, at *3 (W.D. Pa. June 11, 2008). Additionally, although the Trustee

cited cases highlighting scenarios in which a court did find that an order under Fed. R. Bankr. P.
2004 was final, he draws no comparisons between those cases and the facts of this case. (D.I. 7
at 14) None of those cited cases involves a court analyzing the order at issue under the
applicable Third Circuit factors. See In re Buckner, 271 B.R. 213 (B.A.P. 10th Cir. 2001)
(concluding that rule 2004 order was final simply because it resulted from a "separate
proceeding" and no further action was expected); In re Hawley Coal Mining Corp., 47 B.R. 392,
393 (S.D.W. Va. 1984) (concluding without analysis that rule 2004 order was final); In re
Rosenberg, 303 B.R. 172, 174 (B.A.P. 8th Cir. 2004) (same); Jn re Valley Forge Plaza Assocs.,

116 B.R. 420, 422 (E.D. Pa. 1990) (same).
Under the first factor, the Court finds that the 2004 Order does not have any impact on
the assets of the bankruptcy estate. The Trustee is seeking to reverse the portion of the 2004
Order that denies his request for production of post-closing documents from Brookfield. The
2004 Order pertains only to documents held by a third party-Brookfield Equinox, LLC-and
not to assets held by the Debtor. (See D .I. 1-1)

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The Court finds that the second factor does weigh in favor of finality. If the Court
reverses and remands the 2004 Order, further fact finding will not likely be necessary. Before
issuing the 2004 Order, the Bankruptcy Court considered Brookfield's Motion, the Trustee's
reply, oral arguments, and evidence submitted at the March 12, 2015 hearing. (Id.; see also In re
Owens Corning, 419 F.3d 195, 204 (3d Cir. 2005), as amended (Nov. 1, 2007) (reasoning that

fully developed factual record below precluded further fact finding on remand))
Third, the Court finds that the 2004 Order has no preclusive effect on the merits of
further litigation, and, therefore, this factor weighs against finality. The Trustee's argument to
the contrary stretches the Bankruptcy Court's holding in the 2004 Order. He claims that "the
Bankruptcy Court made clear that the Order on Appeal would be the final word on whether the
Post-Closing Documents would be produced and that the Bankruptcy Court would not entertain
any further argument on whether payments made by a third-party purchaser to a debtor's
creditors on the account of assumed liabilities in connection with an asset sale constitute
voidable preferences under Section 547(b) of the Bankruptcy Code." (D.I. 7 at 8) For support,
the Trustee highlights portions of the transcript from the March 12, 2015 hearing, where the
Bankruptcy Court indicated that it disagreed with the Trustee's preference theory. (Id.) (quoting
Bankr. Case No. 14-10359, D.I. 58 at 47) ("I reject the case law, which states that an assumption
of liability and payment under that liability, somehow constitutes a preference.")
Although the Bankruptcy Court may not agree with the Trustee's theory ofrecovery for
his anticipated preference action, this is not relevant to the present dispute. The Trustee has not

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yet filed its proposed adversary complaint and the Bankruptcy Court's statement is not a
preemptive ruling on the merits of that action. This statement does not preclude the Trustee from
bringing the preference action and attempting to persuade the Bankruptcy Court of the

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correctness of the Trustee's preference theory. If the Trustee does file this adversary complaint,

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the parties will have the opportunity to engage in discovery. See Fed. R. Bankr. P. 7026. 1 The
Bankruptcy Court's decision on the Trustee's Rule 2004 Motion does not necessarily preclude
the Trustee from attempting to recover the post-closing documents through discovery in an
upcoming adversary proceeding. For the same reasons, judicial economy compels the Court to
refrain from exercising appellate review over this dispute until the Trustee files, and the
Bankruptcy Court decides, the anticipated preference action.

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The majority of the relevant factors, including the most important one, weigh against

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finding that the 2004 Order is a final order under 28 U.S.C. § 158(a). The Court concludes that

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the 2004 Order is not a final, appealable order.

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B.

The Collateral Order Doctrine

The Trustee alternatively argues that the 2004 Order is appealable under the collateral
order doctrine, as recognized by the Supreme Court in Cohen v. Beneficial Indus. Loan Corp.,
337 U.S. 541 (1949). (D.1. 7 at 10) The Court finds that this doctrine is inapplicable to the 2004
Order. The Third Circuit has "determine[d] that we should not extend our case law beyond the
narrow categories of trade secrets and traditionally recognized privileges, such as attorney-client
and work product." Bacher v. Allstate Ins. Co., 211F.3d52, 57 (3d Cir. 2000); see also In re
Kaiser Grp., 400 B.R. at 144 (applying same restrictions). The 2004 Order on appeal does not
implicate either category. Thus, the collateral order doctrine does not provide the Trustee with
an avenue to appeal.

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The scope of discovery available in a Rule 2004 examination is different than the scope of discovery in an
adversary proceeding. Compare Fed. R. Banl<r. P. 2004 (limiting examinations to include only matters that "relate
[ ] only to the acts, conduct, or property or to the liabilities and financial condition of the debt, or to any matter
which may affect the administration of the debtor's estate, or to the debtor's right to discharge") with Fed. R. Banl<r.
P. 7026(b) (scope of discoverable material includes any material that is "nonprivileged" and "relevant" to the claim).

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C.

Whether Interlocutory Appeal is Appropriate

Finally, the Trustee argues that if the Court does not find support for either of the above
arguments, it should grant leave to appeal from the 2004 Order as an interlocutory order. The
Court is mindful that "[i]nterlocutory appeal under§ 1292 is 'used sparingly and in exceptional'
cases." Hulmes v. Honda Motor Co., 936 F. Supp. 195, 208 (D.N.J. 1996) (quoting 16 Charles
A. Wright, et al., Federal Practice and Procedure,§ 3929, at 134 (1977)), ajj'd, 141F.3d1154
(3d Cir. 1998). This strict application arises from the policy objective of avoiding "piecemeal
appellate review of [lower] court decisions which do not terminate the litigation." United States

v. Hollywood Motor Car Co., 458 U.S. 263, 265 (1982).
As the party seeking leave to appeal from an interlocutory order, the Trustee bears the
burden of demonstrating that: "(1) the order from which the appeal is sought involves a
controlling question of law, (2) there is substantial ground for difference of opinion with respect
to that question, and (3) an immediate appeal may materially advance the ultimate termination of
the litigation." In re Kaiser Grp., 400 B.R. at 145. The Court must certify that all three
requirements are satisfied. See Katz v. Carte Blanche Corp., 496 F.2d 747, 754 (3d Cir. 1974).
The Trustee's request for leave fails because the appeal from the 2004 Order does not
involve a controlling question of law. The Trustee argues that "there is a controlling issue of law
because reversal of the Order on Appeal would enable the Appellant to take advantage of the
broad rights of discovery in Bankruptcy Rule 2004. In particular, the Appellant would have a
right to receive through discovery the Post-Closing Documents evidencing its payments to the
Debtor's creditors on the account of assumed liabilities in connection with the asset sale under
the APA." (D.I. 7 at 13) The Trustee, in essence, is arguing that the Bankruptcy Court
improperly denied this portion of his Rule 2004 Motion. This contention does not call into

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question a controlling issue oflaw, but rather disputes the Bankruptcy Court's exercise of its

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discretion. See In re E. W Resort Dev. V, L.P., L.L.L.P., 2014 WL 4537500, at *7 (Bankr. D.

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Del. Sept. 12, 2014) ("As the permissive language of the rule suggests, the Court has the

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discretion to grant a request for a 2004 examination.").
"Questions that arise during the course of a bankruptcy proceeding concerning the
appropriate scope of discovery and that do not involve controlling questions of law are left to the
sound discretion of the court that is fully familiar with the entire proceeding-the bankruptcy
judge." See In re Towers Fin. Corp., 164 B.R. 719, 721 (S.D.N.Y. 1994). The Court concludes
that the Bankruptcy Court's decision not to permit the Trustee to recover the post-closing
documents from Brookfield does not implicate a controlling issue of law. The Trustee, therefore,
cannot establish the requirements necessary to justify leave to appeal from an interlocutory order.

V.

CONCLUSION
The Court finds that the 2004 Order is not a final order under 28 U.S.C. § 158(a). The

Court further declines to exercise its discretion to grant leave to appeal from an interlocutory
order. For the reasons explained above, the Court will GRANT Brookfield's Motion and
DISMISS this appeal. A separate Order will be entered

HON. L NARD P. S ~RK
UNITED STATES DISTRICT JUDGE

August 4, 2015
Wilmington, Delaware

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