In re: United Tax Group, LLC
MEMORANDUM (Order to issue as separate entry) re: MTD 7 appeal 1 , motion for sanctions 15 , & motion to strike 19 . (See memo for complete details.) Signed by Judge Christopher C. Conner on 1/11/18. (McK,K)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
UNITED TAX GROUP, LLC,
GEORGE L. MILLER, Chapter 7
CIVIL ACTION NO. 1:16-CV-1323
(Chief Judge Conner)
Appellant Edward Welke (“Welke”) commenced this action against George L.
Miller, Chapter 7 Trustee for the bankruptcy estate of United Tax Group, LLC (“the
Trustee”), appealing an order from the United States Bankruptcy Court for the
Middle District of Pennsylvania granting judgment on the pleadings in favor of
Welke with leave for the Trustee to amend the complaint. (Doc. 1). The Trustee
moves to dismiss Welke’s appeal pursuant to 28 U.S.C. § 158(a) and seeks sanctions
pursuant to 11 U.S.C. § 105(a) and 28 U.S.C. § 1927. (Docs. 7, 15). For the reasons
that follow, the court will grant the Trustee’s motion (Doc. 7) to dismiss and deny
the Trustee’s motion (Doc. 15) for sanctions.
Factual Background & Procedural History
United Tax Group, LLC, filed a voluntary petition for Chapter 7 bankruptcy
on March 5, 2014. (Doc. 7 ¶ 1; Doc. 9 ¶ 1). The Trustee initiated an adversary
proceeding against Welke and John Does 1 through 100 alleging seven counts
seeking avoidance and recovery of preferential and fraudulent transfers. Miller v.
Welke (In re United Tax Group, LLC), No. 16-50088, Doc. 1 (Bankr. D. Del. Mar. 3,
2016). The bankruptcy court granted Welke’s motion for judgment on the pleadings
on December 13, 2016 and provided the Trustee 30 days to amend his complaint.
Id. at Docs. 6, 22, 23; (see also Doc. 7-1).
On December 27, 2016, Welke filed a notice of appeal from the bankruptcy
court’s order granting the Trustee leave to amend the complaint. (Doc. 1). The
Trustee moves to dismiss the appeal for lack of jurisdiction. (Doc. 7). In the
interim, the Trustee filed a motion (Doc. 15) for sanctions and a motion (Doc. 19) to
strike Welke’s response to the motion for sanctions as untimely. The motions are
fully briefed and ripe for disposition.
An appeal from a bankruptcy court’s order places the district court in the
posture of an appellate tribunal, requiring it to accord the appropriate level of
deference to the decision of the bankruptcy judge. In re Sharon Steel Corp., 871
F.2d 1217, 1222 (3d Cir. 1989); see also Stern v. Marshall, 131 S. Ct. 2594, 2603-04
(2011); FED. R. BANKR. P. 8013. The court reviews the factual findings of the
bankruptcy court for clear error and its legal conclusions de novo. Sharon Steel,
871 F.2d at 1222-23. This court will not disturb the resolution of an issue committed
to the discretion of the bankruptcy court unless a manifest abuse of that discretion
is apparent. See id.
The Trustee’s argument in favor of dismissal is twofold: first, that the
bankruptcy court’s order is not final and thus is not appealable as of right, and
second, that the circumstances do not warrant interlocutory review. The Trustee
also seeks sanctions pursuant to 28 U.S.C. § 1927. The court will address the
Trustee’s arguments seriatim.
District courts have jurisdiction to hear appeals from “final judgments,
orders, and decrees” by a bankruptcy court. 28 U.S.C. § 158(a)(1). The concept of
finality is viewed “in a more pragmatic and less technical sense” in bankruptcy
cases than in other types of civil cases. In re Armstrong World Indus., Inc., 432 F.3d
507, 511 (3d Cir. 2005); 718 Arch St. Assocs., Ltd. v. Blatstein (In re Blatstein), 192
F.3d 88, 94 (3d Cir. 1999). This broader view of finality permits hearing an appeal of
an order that implicates issues unique to bankruptcy proceedings. Armstrong, 432
F.3d at 511 (citing In re Owens Corning, 419 F.3d 195, 203 (3d Cir. 2005), as amended
(Nov. 1, 2007)). Ordinary concepts of finality in civil litigation otherwise govern
bankruptcy orders that do not fully adjudicate a specific adversary proceeding. In
re Truong, 513 F.3d 91, 94 (3d Cir. 2008) (citing United States v. Nicolet, Inc., 857
F.2d 202, 206-07 (3d Cir. 1988)). A bankruptcy court order in an individual
adversary proceeding is final if it “ends the litigation on the merits and leaves
nothing more for the court to do but execute the judgment.” Id. (quoting Bethel v.
McAllister Bros., Inc., 81 F.3d 376, 381 (3d Cir. 1996)).
Obviously, a bankruptcy court’s decision to grant leave to amend a complaint
does not resolve “an issue central to the progress of [a] bankruptcy petition.”
Owens, 419 F.3d at 203 (citations omitted). Welke appeals only the portion of the
bankruptcy court’s December 13, 2016 order granting the Trustee leave to amend
his complaint. (Doc. 9 at 4; see also Doc. 7-1 at 12-13). As the order relates solely to
the progress of litigation before the bankruptcy court, Truong, 513 F.3d at 94,
traditional concepts of finality control disposition of this matter.
The bankruptcy court granted Welke’s motion for judgment on the pleadings
and provided the Trustee 30 days to amend the complaint. (Doc. 7-1 at 13). Welke
filed his appeal before the expiration of this deadline. (See Doc. 1; Doc. 7-1).
Therefore, at the time Welke appealed, the bankruptcy court’s order did not end the
litigation. See Truong, 513 F.3d at 94. The Trustee’s decision to file an amended
complaint would revive the litigation and trigger the need for further factual
development. Consequently, the bankruptcy court’s order was not final.
Discretion to Hear as an Interlocutory Appeal
District courts have discretion to hear appeals from “interlocutory orders and
decrees” by a bankruptcy court. 28 U.S.C. § 158(a)(3); see also FED. R. BANKR. P.
8003(c). In the absence of statutory guidance, district courts in the Third Circuit
have imported the criteria of 28 U.S.C. § 1292(b) to determine when granting leave
to appeal an interlocutory order of a bankruptcy court is appropriate. See, e.g., In
re AE Liquidation, Inc., 451 B.R. 343, 346 (D. Del. 2011); In re Philadelphia
Newspapers, LLC, 418 B.R. 548, 556 (E.D. Pa. 2009), aff’d, 599 F.3d 298 (3d Cir.
2010), as amended (May 7, 2010); Patrick v. Dell Fin. Servs., 366 B.R. 378, 385 (M.D.
Under Section 1292(b), an interlocutory appeal may be granted if (1) a
controlling question of law is at issue; (2) there are substantial grounds for
difference of opinion as to that question of law; and (3) an immediate appeal would
materially advance the litigation’s termination. In re Rosen, 560 B.R. 415, 421 (E.D.
Pa. 2016); AE Liquidation, 451 B.R. at 346. The party seeking leave to appeal an
interlocutory order must establish the existence of these criteria. Patrick, 366 B.R.
at 385. The party seeking leave must also demonstrate that “exceptional
circumstances justify a departure from the basic policy of postponing review until
after the entry of final judgment.” Rosen, 560 B.R. at 421 (quoting In re Del. &
Hudson Ry. Co., 96 B.R. 469, 472-73 (D. Del. 1989), aff’d, 884 F.2d 1383 (3d Cir.
1989)); In re SemCrude, L.P., 407 B.R. 553, 557 (D. Del. 2009).
Welke contends that the court should exercise discretionary jurisdiction to
hear this interlocutory appeal pursuant to Section 158(a)(3).1 (Doc. 9 ¶¶ 15-16).
Assuming arguendo that his appeal satisfies the Section 1292(b) criteria, Welke has
not presented any exceptional circumstances warranting the need for immediate
review of the bankruptcy court’s order granting leave to amend. AE Liquidation,
451 B.R. at 348-49; (see Doc. 9). During the pendency of this interlocutory appeal,
The Trustee argues that Welke failed to obtain permission from the
bankruptcy court to appeal this interlocutory order. (Doc. 10 at 3). A district court
may grant leave to hear an interlocutory appeal when a party “mistakenly believes
the order appealed from is final and files only a notice of appeal.” Phila.
Newspapers, 418 B.R. at 556 (quoting FED. R. BANKR. P. 8003(c), advisory
committee’s note to Subdivision (c)).
the Trustee filed an amended complaint, Welke moved to dismiss the amended
complaint, and the Trustee requested leave to file a second amended complaint.
Miller v. Welke (In re United Tax Group, LLC), No. 16-50088, Docs. 41, 42, 43. Both
motions are fully ripe and ready for disposition. Id. at Docs. 45, 47. The bankruptcy
court is in the best position to resolve the issues presented by the parties in the
context of these cross motions. We therefore decline to exercise jurisdiction over
Welke’s interlocutory appeal.
Motion for Sanctions
A district court may impose sanctions on an attorney who unreasonably and
vexatiously multiplies the proceedings in any case. 28 U.S.C. § 1927. To impose
sanctions under Section 1927, a court must find an attorney has (1) multiplied
proceedings; (2) in an unreasonable and vexatious manner; (3) thereby increasing
the costs of the litigation; and (4) by engaging in bad faith or intentional
misconduct. In re Prosser, 777 F.3d 154, 161 (3d Cir. 2015) (citing In re Prudential
Ins. Co. Am. Sales Practice Litig. Agent Actions, 278 F.3d 175, 188 (3d Cir. 2002)
(quotations omitted)). Bad faith is evinced by findings that a party advanced
meritless claims, that counsel knew or should have known of their meritless nature,
and that there was an improper motive for filing the suit. Prudential, 278 F.3d at
188. In the bankruptcy context, bad faith disruption of the adjudication of a
bankruptcy petition or related adversary proceedings merits imposition of
sanctions. Prosser, 777 F.3d at 162 (citing In re Mansaray–Ruffin, 530 F.3d 230, 234
(3d Cir. 2008)). The circumstances of the appeal sub judice do not warrant
imposition of sanctions on counsel for Welke.
The court will grant the Trustee’s motion (Doc. 7) to dismiss and deny the
Trustee’s motion (Doc. 15) for sanctions. An appropriate order shall issue.
/S/ CHRISTOPHER C. CONNER
Christopher C. Conner, Chief Judge
United States District Court
Middle District of Pennsylvania
January 11, 2018
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