In Re: AIG Financial Products Corp.
Filing
34
MEMORANDUM OPINION re 26 motion to dismiss. Signed by Judge Gregory B. Williams on 2/27/24. (ntl)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
IN RE: AIG FINANCIAL PRODUCTS CORP.,
Debtor.
Chapter 11
Bankr. No. 22-11309-MFW
EMPLOYEE PLAINTIFFS,
Appellants,
Civ. No. 23-573-GBW
V.
AIG FINANCIAL PRODUCTS CORP.,
Appellee.
MEMORANDUM OPINION
This appeal arises in the chapter 11 case of AIG Financial Products Corporation
("AIGFP" or "Debtor"), in connection with a motion to dismiss AIGFP ' s chapter 11 case, which
motion was filed by certain of AIGFP ' s former employees ("Former Employees") and denied by
the Bankruptcy Court' s May 10, 2023 Order (B.D.I. 194, D.I. 1-1 ) 1 ("Denial Order") and
accompanying Opinion, In re AIG Financial Products Corp., 651 B.R. 463 (Bankr. D. Del.
2023). The Former Employees have appealed the Denial Order, and AIGFP has moved to
dismiss their appeal (D.I. 26) ("Motion to Dismiss") on the basis that the Denial Order is not
final under 28 U.S.C. 158(a), and this Court lacks subject matter jurisdiction. For the reasons set
forth herein, the Motion to Dismiss is denied.
I.
BACKGROUND
Given the limited issue before the Court, only a brief procedural history is set forth herein.
On December 14, 2022, AIGFP filed a voluntary petition for relief under chapter 11 of the
1
The docket of the chapter 11 case, captioned In re AIG Financial Products Corp. , No. 2211309-MFW (Bankr. D. Del.) is cited herein as "B.D.I. _," and the appendix (D.I. 24) filed in
support of the Former Employees' opening brief is cited herein as "A- ."
1
Bankruptcy Code. On January 13, 2023 , the Former Employees filed a motion to dismiss the
bankruptcy case "for cause" pursuant to§ 111 2 of the Bankruptcy Code. According to the Former
Employees, cause existed to dismiss the case because AIGFP did not-as required by§ 1112(b}file its bankruptcy case in good faith. Rather, the Former Employees asserted, AIGFP filed its
bankruptcy case based on the pretext that it was in financial distress due to amounts purportedly
owed to its parent, with the aim of avoiding payments to the Former Employees under certain
deferred compensation plans.2 The Former Employees' motion to dismiss therefore raised a
threshold issue in the chapter 11 case: whether AIGFP initiated the bankruptcy case in good faith
and was therefore entitled to the protections afforded and powers granted by the Bankruptcy Code.
On March 27, 2023, the Bankruptcy Court held an evidentiary hearing on the motion to dismiss.
(A-2817). On May 10, 2023 , the Bankruptcy Court issued the Denial Order and accompanying
Opinion denying the Former Employees' motion to dismiss the chapter 11 case.
On May 24, 2023, the Former Employees filed their notice of appeal. (D.I. 1). On October
6, 2023 , AIGFP filed its Motion to Dismiss the appeal for lack of subject matter jurisdiction. (D.I.
26). Briefing on the Motion to Dismiss the appeal is complete. (See D.I. 26, 31 , 33). The Court
did not hear oral argument because the facts and legal arguments are adequately presented in the
briefs and record, and the decisional process would not be significantly aided by oral argument.
II.
PARTIES' CONTENTIONS
The district courts have jurisdiction to hear appeals "from final judgments, orders, and
decrees" entered by the bankruptcy courts "in cases and proceedings." 28 U.S.C. § 158(a)(l).
The Third Circuit treats the finality of orders in the bankruptcy context "pragmatically, looking
2
The Former Employees further asserted that cause existed to dismiss the chapter 11 case
because the case would result in the substantial or continuing loss to or diminution of the estate
without reasonable likelihood of rehabilitation, pursuant to§ 1112(b)(4)(A) of the Bankruptcy
Code, and that dismissal of the case was in the best interests of creditors and the Debtor,
pursuant to§ 305 of the Bankruptcy Code. (See B.D.I. 101).
2
at the effect of the district court's ruling." In re Christian, 804 F .2d 46, 47-48 (3d Cir. 1986); see
In re Trans World Airlines, Inc., 18 F.3d 208, 215 (3d Cir. 1994) (noting that "finality must be
viewed more pragmatically in bankruptcy appeals under § 158(d) than in other contexts"). The
Third Circuit later distilled this pragmatic approach into a four-factor test that considers "(1) the
impact on the assets of the bankruptcy estate; (2) the need for further fact-finding on remand; (3)
the preclusive effect of a decision on the merits; and (4) the interests of judicial economy." In re
Armstrong World Indus., Inc., 432 F.3d 507, 511 (3d Cir. 2005). This approach is based on the
"protracted" nature of bankruptcy proceedings and the fact that they often "involve numerous
parties with different claims." In re White Beauty View, Inc. , 841 F.2d 524, 526 (3d Cir. 1988).
The Former Employees argue that an order denying dismissal of a chapter 11 case
satisfies the test for finality under long standing Third Circuit law. Indeed, over three decades
ago, the Third Circuit held that a denial of a motion to dismiss a chapter 11 case for bad faith
under§ 1112(b) of the Bankruptcy Code is a "final" order under 28 U.S.C. § 158. In re Brown,
916 F.2d 120, 124 (3d Cir. 1990). The rationale of Brown remains persuasive: "If the order here
is not now appealable the entire bankruptcy proceedings must be completed before it can be
determined whether they were proper in the first place." Id. at 123 (quoting In re Christian, 804
F.2d at 48). Brown is part of a line of Third Circuit decisions holding that denials of a motion to
dismiss a bankruptcy case are final, appealable orders under 28 U.S.C. § 158(a). See In re
Christian, 804 F.2d at 47-48 (denial of a motion to dismiss chapter 7 case under 11 U.S.C. §
707(b) was a final, appealable order); In re Taylor, 913 F.2d 102, 104 (3d Cir. 1990) (denial of a
motion to dismiss chapter 11 case was a final, appealable order).
Notwithstanding this controlling precedent, AIGFP argues that two Supreme Court
cases-Bullard v. Blue Hills Bank, 575 U.S. 496 (2015), and Ritzen Group, Inc. v. Jackson
Masonry, LLC, 140 S. Ct. 582 (2020)--have "adopted a more textual approach to bankruptcy
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finality" which has "overtaken" the Third Circuit' s finality determination in Brown. (D.I. 26 at
2, 4-5). " [U]nder that approach, an order that does not dispose of an entire case is considered
final only when the order finally disposes of a discrete dispute within the larger bankruptcy
case." (Id. at 2 (citing Bullard, 575 U.S. at 501-02; Ritzen, 140 S. Ct. at 586-87)). "Applying
that controlling precedent," AIGFP argues, "an order denying a motion to dismiss a bankruptcy
case is not final because it does not dispose of any discrete dispute within the larger bankruptcy
case; it simply allows the entire case to go forward." (Id.) While neither Bullard nor Ritzen even
considered whether the denial of a motion to dismiss a chapter 11 case is a final, appealable
order, AIGFP asserts that application of the analytical framework applied in these decisions "can
yield only one conclusion: such denials are not ' final' within [the scope of28 U.S .C.] § 158."
(Id. at 9). "Because the Brown line of precedent directly conflicts with Bullard and Ritzen,"
AIGFP argues, the Denial Order is "an interlocutory order, not subject to an appeal as of right."
(Id. at 10). Because the Denial Order does not otherwise warrant leave for interlocutory review,
AIGFP argues, the appeal should be dismissed. (See id. at 10-14).
III.
ANALYSIS
A.
The Supreme Court Decisions
As the Supreme Court has explained, "By providing for appeals from final decisions in
bankruptcy 'proceedings,' as distinguished from bankruptcy ' cases,' Congress made ' orders in
bankruptcy cases .. . immediately appeal[able] if they finally dispose of discrete disputes within
the larger [bankruptcy] case."' Ritzen, 140 S. Ct. at 587 (quoting Bullard, 575 U.S. at 501). "In
short, the usual judicial unit for analyzing finality in ordinary civil litigation is the case, but in
bankruptcy, it is often the proceeding." Id. (internal quotations and alterations omitted).
For purposes of determining the finality of a bankruptcy court order, the Supreme Court
explains, the key inquiry is (i) determining the "relevant proceeding," Bullard, 575 U.S. at 5024
or "appropriate procedural unit," Ritzen, 140 S. Ct. at 588- and (ii) "asking whether the order in
question terminates a [relevant proceeding or] procedural unit separate from the remaining case."
See Bullard, 575 U.S. at 502 (determining the "relevant proceeding" and looking to whether the
order in question "finally disposed of discrete disputes within the larger case"); see Ritzen, 140
S. Ct. at 588 (determining the "appropriate procedural unit" and looking to 28 U.S.C. § 158,
which "asks whether the order in question terminates a procedural unit separate from the
remaining case"). It is application of this analytical framework which, according to AIGFP,
undermines Third Circuit precedent that an order denying dismissal of a bankruptcy case is a
final, appealable order.
1.
Bullard
Recognizing that "Congress has long provided that orders in bankruptcy cases may be
immediately appealed if they finally dispose of discrete disputes within the larger case," the
Supreme Court in Bullard considered whether a bankruptcy court order denying approval of an
individual' s proposed chapter 13 repayment plan-now on its fourth iteration-with leave to
amend the plan, was "final" under 28 U.S.C. § 158(a). Bullard, 575 U.S. at 501 (quoting
Howard Delivery Service, Inc. v. Zurich American Ins. Co ., 547 U.S. 651 , 657, n. 3 (2006)). The
parties disagreed as to "how to define the immediately appealable 'proceeding' in the context of
the consideration of Chapter 13 plans." Id. at 502. In defining the "relevant proceeding" for
purposes of determining finality, the Bullard Court rejected the "plan-by-plan approach"
advocated by the debtor-i.e. , each time the bankruptcy court reviews a proposed plan, it
conducts a separate proceeding, which results in a final, appealable order. Id. "The appropriate
procedural unit for determining finality," the Bullard Court concluded, "is not a plan proposal, it
is 'the process of attempting to arrive at an approved plan. "' Ritzen, 140 S. Ct. at 588 (quoting
and summarizing its prior holding in Bullard, 575 U. S. at 502). While plan proposal rejections
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may be followed by amended or new proposals, only plan approval "alters the status quo and
fixes the rights and obligations of the parties." Bullard, 575 U.S. at 502. The "relevant
proceeding"-the process of confirming the plan through an iterative negotiations process- was
therefore not conclusively resolved or terminated by the order in question, and it was not final.
Whereas the Bullard Court considered a "proceeding" very different from a motion to dismiss a
chapter 11 case, its decision referenced the same pragmatic concerns that animate the Third
Circuit's approach to finality-i.e., guarding against "frequent piecemeal appeals" in certain
inherently iterative bankruptcy proceedings, while permitting appeals, as Congress has provided,
of orders that "finally dispose of discrete disputes within the larger case." Bullard, 575 U.S. at
498-99, 504.
2.
Ritzen
In Ritzen, the Supreme Court considered a bankruptcy court's denial of a creditor' s
request for relief from the automatic stay to pursue state court litigation. See Ritzen, 140 S. Ct. at
587. The precise issue, as framed by the Ritzen Court, was whether "a creditor' s motion for
relief from the automatic stay initiate[ s] a distinct proceeding terminating in a final, appealable
order when the bankruptcy court rules dispositively on the motion." Id. at 586. Before
addressing that question, Justice Ginsburg noted the overarching concerns related to finality
determinations in the bankruptcy context, including the possible, needless delay of appeals from
discrete, controversy-resolving decisions:
The ordinary understanding of "final decision" is not attuned to the
distinctive character of bankruptcy litigation. A bankruptcy case
encompasses numerous "individual controversies, many of which
would exist as stand-alone lawsuits but for the bankrupt status of the
debtor." It is thus common for bankruptcy courts to resolve discrete
controversies definitively while the umbrella bankruptcy case
remains pending. Delaying appeals from discrete, controversyresolving decisions in bankruptcy cases would long postpone
appellate review of fully adjudicated disputes. Moreover,
controversies adjudicated during the life of a bankruptcy case may
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be linked, one dependent on the outcome of another. Delaying
appeal until the termination of the entire bankruptcy case, therefore,
could have this untoward consequence: Reversal of a decision made
early on could require the bankruptcy court to unravel later
adjudications rendered in reliance on an earlier decision.
Ritzen, 140 S. Ct. at 586-87 (quoting Bullard, 575 U.S. at 501).
Turning to the question before it, the Ritzen Court took up Bullard' s instruction to
"inquire 'how to define the immediately appealable 'proceeding' [or procedural unit] in the
context of [stay-relief motions]'" and then ask "whether the order in question terminates a
procedural unit separate from the remaining case." Id. at 590 (quoting Bullard, 575 U.S. at 502).
The Ritzen Court ultimately held that "the adjudication of a motion for relief from the automatic
stay forms a discrete procedural unit within the embracive bankruptcy case" and "[t]hat unit
yields a final appealable order when the bankruptcy court unreservedly grants or denies relief."
Id. at 586.
As to the first part of the analysis, the Ritzen Court noted that the motion for relief from
the stay initiates "a discrete procedural sequence, including notice and a hearing;" that "the
creditor' s qualification for relief turns on the statutory standard, i.e., ' cause' or the presence of
specified conditions;" and that resolution of such a motion "does not occur as part of the
adversary claims-adjudication process." Id. at 589. Thus, " [u]nder Bullard, a discrete dispute of
this kind constitutes an independent ' proceeding' within the meaning of 28 U.S.C. § 158(a)." Id.
(citing Bullard, 575 U.S. at 502-05). In reaching this conclusion, the Ritzen Court rejected the
argument that the order denying stay relief merely decided the forum for claim adjudication, and,
as a preliminary step in the claims-adjudication process, was not final. Agreeing that courts
should not define the "relevant proceeding" to include "disputes over minor details about how a
bankruptcy case will unfold," the Ritzen Court rejected such a characterization of the proceeding
before it, noting that resolution of a motion for stay relief can have "large practical
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consequences" for a creditor, including the remedies available, manner of adjudication, costs,
and delay. See id. at 590-91.
As to the second part of the analysis, the Ritzen Court easily concluded that the order in
question "resolve[d] a discrete procedural unit within the embracive bankruptcy case." "Because
the appropriate 'proceeding' in this case is the adjudication of the motion for relief from the
automatic stay," the Ritzen Court explained, "the Bankruptcy Court's order conclusively denying
that motion is 'final,"' as it "ended the stay-relief adjudication and left nothing more for the
Bankruptcy Court to do in that proceeding." Id. at 592.
B.
Application to the Denial Order
According to AIGFP, "the Brown line of precedent directly conflicts with Bullard and
Ritzen." (D.I. 26 at 10). Under the Supreme Court's analytical framework, AIGFP argues, "an
order denying a motion to dismiss a bankruptcy case is plainly not 'final' within [the scope of 28
U.S.C.] § 158" because "[t]he appropriate judicial unit [or relevant proceeding] for evaluating
the finality of such an order is the entire chapter 11 case." (Id. at 7) (emphasis added). "In this
regard," AIGFP argues, "it is no different than the denial of a motion to dismiss in ordinary civil
litigation-all it means is that the case may proceed." (Id.) Because the Denial Order does not
resolve a discrete proceeding within the case, and does not resolve the chapter 11 case as a
whole, AIGFP argues, it cannot properly be described as "final." (See id.)
Contrary to AIGFP's position, the analysis applied in Bullard and Ritzen has not
"overtaken" or otherwise "undermined" the Third Circuit's pragmatic approach to finality in the
bankruptcy context, nor have those decisions called into question controlling law in this Circuit
that an order denying a motion to dismiss a chapter 11 case is a final, appealable order.
With respect to the first part of the analysis, the Court disagrees that, in the context of a
motion to dismiss a chapter 11 case for lack of good faith, the relevant proceeding for purposes
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of finality is "the entire chapter 11 case," as AIGFP asserts. Rather, the "relevant proceeding" is
a determination as to whether AIGFP is entitled to the protections of the Bankruptcy Code-a
"discrete dispute[] within the larger [bankruptcy] case." In re Saco Loe. Dev. Corp. , 711 F.2d
441 , 444 (1st Cir. 1983). Here, as in Ritzen, the motion to dismiss the chapter 11 case initiated
"a discrete procedural sequence, including notice and a hearing" under§ 1112(b)(l) of the
Bankruptcy Code. Ritzen, 140 S. Ct. at 589. The Former Employees ' qualification for reliefdismissal of the chapter 11 case-"tums on the statutory standard, i.e., ' cause," ' which may be
based on the Debtor' s failure to file its bankruptcy case in good faith under Third Circuit law
and/or ''the presence of specified conditions" as set forth in§ 1112(b)(l)(A)-(P) of the
Bankruptcy Code. Ritzen, 140 S. Ct. at 589. Finally, the resolution of such a motion "does not
occur as part of the adversary claims-adjudication process." Id. Thus, " [u]nder Bullard, a
discrete dispute of this kind constitutes an independent 'proceeding' within the meaning of28
U.S.C. § 158(a)." Id.
With respect to the second part of the analysis, " [b]ecause the appropriate ' proceeding' in
this case is the adjudication of the motion [to dismiss the chapter 11 case]," the Denial Order
conclusively denying that motion is "final," as it determined that AIGFP is entitled to the
protections of the Bankruptcy Code, ended adjudication of the motion to dismiss the chapter 11
case, and "resolve[d] a discrete procedural unit within the embracive bankruptcy case," leaving
"nothing more for the Bankruptcy Court to do in that proceeding." See id. at 592.
AIGFP incorrectly characterizes the Denial Order as merely permitting the chapter 11
case to proceed and otherwise leaving everyone' s rights unaffected. (See D.I. 26 at 9). The
Court rejects AIGFP's attempt to analogize this proceeding with a motion to dismiss under Rule
12 of the Federal Rules of Civil Procedure, a proceeding which simply determines whether
claims have sufficient legal basis to proceed to discovery. The motion to dismiss the chapter 11
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case required notice and a hearing, the submission of evidence, a lengthy opinion, and a final
determination on the threshold issue of whether the Debtor filed its petition in good faith-a fact
intensive inquiry in which, as the Bankruptcy Court explained, the court must examine the
totality of facts and circumstances and determine where a petition falls along the spectrum
ranging from the clearly acceptable to the patently abusive. See In re AIG Financial Products
Corp., 651 B.R. at 469; see also generally In re LTL Mgmt. , LLC, 64 F.4th 84, 100 (3d Cir.
2023) (holding that chapter 11 bankruptcy petitions are subject to dismissal unless filed in good
faith) ; In re SGL Carbon Corp., 200 F.3d 154, 159 n.8 (3d Cir. 1999) ("(t]he proponent of an
abusive petition does not belong in bankruptcy").
Moreover, resolution of the motion to dismiss the chapter 11 case carried "large practical
consequences" for all of the parties. Ritzen, 140 S. Ct. at 590. The Denial Order determined
whether AIGFP is afforded the myriad powers and protections of the Bankruptcy Code, on the
one hand, and determined whether the Former Employees, as creditors of the Debtor, can
"isolate their claims from those of other creditors and go it alone outside bankruptcy," on the
other hand. Id. And, as in Ritzen, the "immediate appeal [of the Denial Order,] if successful,
will permit creditors to establish their rights expeditiously outside the bankruptcy process." Id.
at 591.
As the Former Employees correctly point out, whether AIGFP ' s chapter 11 case proceeds
in this context is not merely a "dispute(] over minor details about how a bankruptcy case will
unfold." Ritzen, 140 S. Ct. at 59. Rather, it is a dispute over the threshold and fundamental issue
of whether the bankruptcy case should unfold at all-a discrete dispute, a proceeding separate
from the remaining bankruptcy case, which was terminated by the Denial Order and is therefore
final and appealable. If "the entire bankruptcy case" is the "relevant proceeding" for purposes of
finality of the Denial Order, as AIGFP asserts, then the entire bankruptcy case "must be
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completed before it can be determined whether [it was] proper in the first place"-a resolution
that is neither "desirable" nor "practical." In re Brown, 916 F.2d at 123 (quoting In re Christian,
804 F.2d at 48). Such a result is clearly at odds with the bankruptcy-specific finality concerns
expressed in Bullard and Ritzen, decisions which adopted an analytical framework permitting
the appeal of orders that "finally dispose of discrete disputes within the larger case," as opposed
to one foreclosing appeals of any orders that do not resolve "the entire bankruptcy case."
Bullard, 575 U.S. at 501.
Finally, even if there is some degree of tension between controlling Third Circuit law and
Bullard I Ritzen which this Court has failed to appreciate, that tension falls far short of what is
required for this Court to cast Brown aside. In the Third Circuit, the only two ways to depart
from precedent are through en bane review that overturns prior precedent3 or based on the
conclusion that "intervening legal developments have undercut the decisional rationale of [Third
Circuit] precedent." United States v. Stimler, 864 F.3d 253, 263 (3d Cir. 2017), vacated in part
on other grounds, United States v. Goldstein, 902 F.3d 411 (3d Cir. 2018). The latter is an
"exacting standard," id. , which requires a showing that prior precedent "no longer has any
vitality," West v. Keve, 721 F.2d 91 , 93 (3d Cir. 1983) (emphasis added) (quoting Halderman v.
Pennhurst State Sch. & Hosp. , 673 F.2d 628, 644 (3d Cir. 1982)), or is "patently inconsistent"
with such intervening legal authority, United States v. Tann, 577 F.3d 533, 541 (3d Cir. 2009)
(emphasis added). Neither Bullard nor Ritzen indicate that Brown is "patently" inconsistent or
3
The Third Circuit's Internal Operating Procedures provide that a precedential opinion is
binding on subsequent panels and may only be overruled en bane. See 3d Cir. Internal Operating
Procedures 9.1 (2023); see also Pou/is v. State Farm Fire & Cas. Co., 747 F.2d 863, 867 (3d Cir.
1984) (quoting the Internal Operating Procedures of the Third Circuit and noting " [i]fthejudges
of this court are bound by earlier panels, a fortiori district court judges are similarly bound.
Recognition of the hierarchical nature of the federal judiciary requires no less.").
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no longer has "any" vitality. Without instruction from the Supreme Court or Third Circuit, the
Court will not disregard thirty years of controlling precedent.
IV.
CONCLUSION
Neither Bullard nor Ritzen involved a motion to dismiss a bankruptcy case and thus do not
directly implicate Brown. Moreover, the analytical framework applied by the Supreme Court in
Bullard and Ritzen is consistent with the Third Circuit's pragmatic approach to determining the
finality of orders in the bankruptcy context. For the reasons explained above, the Court will deny
the Motion to Dismiss. A separate Order will be entered.
Date: February 27, 2024
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