State Bank of Toulon v. Covey
Filing
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ORDER & OPINION Entered by Judge Joe Billy McDade on 10/1/2012. For the foregoing reasons, the Motion to Determine Jurisdiction (12-cv-1148: 2 ; 12-cv-1149: 2 ; 12-cv-1150: 2 is GRANTED insofar as the Courtrules on the issue of jurisdiction. The C ourt finds that it does not have jurisdiction over these appeals, and so they are DISMISSED FOR LACK OF JURISDICTION. The Motion to Consolidate (12-cv-1148: 4 ; 12-cv-1149: 4 ; 12-cv-1150: 4 is therefore DENIED AS MOOT. CASE TERMINATED. IT IS SO ORDERED.Entered this 1st day of October, 2012. (RP, ilcd)
E-FILED
Tuesday, 02 October, 2012 09:18:36 AM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION
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DAVID L. DUCKWORTH,
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Debtor,
______________________________________ )
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CHARLES E. COVEY, Chapter 7 Trustee )
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for David L. Duckworth, MICHLIG
AGRICENTER GRAIN, LLC, MICHLIG )
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AGRICENTER, INC., and RURAL
COMMUNITY INSURANCE AGENCY, )
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INC.,
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Appellants and Cross-Appellees,
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v.
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STATE BANK OF TOULON,
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Appellee and Cross-Appellant,
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AND
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MICHLIG AGRICENTER GRAIN, LLC, )
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MICHLIG AGRICENTER, INC., and
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RURAL COMMUNITY INSURANCE
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AGENCY, INC.,
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Miscellaneous Parties.
In Re:
Case Nos. 12-cv-1148
12-cv-1149
12-cv-1150
ORDER & OPINION
This matter is before the Court on Charles Covey’s, as Chapter 7 Trustee for
David L. Duckworth (“Trustee”), Motion to Determine Jurisdiction in each of these
three bankruptcy appeals, and the parties’ Agreed Motion to Consolidate these
appeals. For the reasons stated below, the Motion to Determine Jurisdiction is
granted insofar as the Court rules on the issue of jurisdiction, the Court finds that it
does not have jurisdiction over this appeal, and the Motion to Consolidate is denied
as moot.
Following Mr. Duckworth’s filing for relief under Chapter 7 of the
Bankruptcy Code, the State Bank of Toulon (“Bank”) filed an Amended Complaint
to determine the validity, priority, and extent of its claimed liens against the estate.
The Bank also filed a second adversary proceeding related to certain excess
equipment proceeds. The Trustee filed Counter-Claims and Cross-Claims in the
Bank’s first adversary proceeding, seeking, inter alia, a determination that the
Bank held no valid liens, and to avoid statutory landlord liens against crop proceeds
by several of Mr. Duckworth’s landlords.1 The Bank and Trustee filed Motions for
Partial Summary Judgment as to the Bank’s claimed security interest, and Michlig
Agricenter Grain, LLC and Michlig Agricenter, LTD (“Michlig”) also opposed the
Bank’s Motion for Partial Summary Judgment. The bankruptcy court determined
that the Bank held the first lien on the crop and machinery proceeds to secure the
2008 note, that it held no lien on those assets to secure the 2010 note, and that the
Bank had no lien on the crop insurance proceeds. The bankruptcy court also noted
that the relative priority of the Bank’s existing lien remained undetermined
because of the unresolved landlord lien claims and Michlig’s priority setoff right
claim.
The Trustee also filed other counterclaims, third party claims, and
crossclaims against the Bank and Michlig in the adversary proceeding.
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After each of these appeals was filed in this Court, the Trustee filed an
identical Motion to Determine Jurisdiction in each case, which argued for a finding
that this Court has jurisdiction over the appeal, and both the Bank and the Michlig
parties filed responses arguing that the Court does not have jurisdiction. (Docs. 2, 5,
6).2 Before proceeding with this appeal, the Court must determine whether it has
jurisdiction. A district court has jurisdiction over appeals from final judgments,
orders, and decrees of a bankruptcy court. 28 U.S.C. § 158(a)(1). A final order need
not dispose of the entire bankruptcy proceeding, but must finally determine one
creditor’s position. In re Jartran, Inc., 886 F.2d 859, 862 (7th Cir. 1989) (citing In re
Morse Electric Co., 805 F.2d 262, 264 (7th Cir. 1986)). The Court may also hear an
interlocutory appeal in appropriate circumstances. 28 U.S.C. § 158(a)(3).
As noted above, the bankruptcy court has ruled on the Bank’s claims to a first
lien on the crop and machinery proceeds to secure its 2008 and 2010 notes, and its
claimed lien on the crop insurance proceeds. The bankruptcy court has not yet
determined the status of the landlords’ liens, one of which is claimed by the Bank,
and has not issued a ruling in the Bank’s second adversary proceeding. Each party
to the present appeal filed an appeal of this order, though the Bank and Michlig
believe that the order is not an appealable final order.
The Trustee argues that the bankruptcy court’s order is an appealable final
order because it “finally determined the existence and avoidability of the Bank’s
claimed UCC security interest.” (Doc. 2 at 4). However, the Trustee concedes that
As this Order will be entered in each of the three cases, and because the
relevant documents are identical in the three cases, the Court’s discussion will
hereinafter cite only to the case and document numbers of case number 12-cv-1148.
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the existence of other issues within the adversary case remain unresolved, including
the status of the landlords’ liens, including one claimed by the bank, the
avoidability of the preference payment and security interests and assignments
granted to Michlig, and Michlig’s right of setoff, and that the status of these issues
“may render the Order non-final.” (Doc. 2 at 4). In response, the Bank argues that
the bankruptcy court’s order is not a final order because “it did not resolve all the
issues before the Bankruptcy Court in the Adversary Proceeding and because some
of the Bank’s claims against the Debtor await adjudication in” its second adversary
proceeding. (Doc. 5 at 3). Michlig adopts the position taken by the Bank, and does
not offer separate argument. (Doc. 6 at 2).
The Seventh Circuit set out the general principles of finality for bankruptcy
court orders in Matter of Morse Elec. Co., Inc.:
A disposition of a creditor's claim in a bankruptcy is “final” for
purposes of [appeal] when the claim has been accepted and valued,
even though the court has not yet established how much of the claim
can be paid given other, unresolved claims. When one creditor's
position is finally determined (subject only to proration at the end of
the case to reflect the amount of assets and other allowed claims), the
disposition is final. An order that leaves a claimant “nothing more to
do than await the outcome of third-party litigation” is final [for a
bankruptcy appeal] even though an equivalent order would not be final
under § 1291 in the absence of a judgment under Rule 54(b).
805 F.2d at 264 (citing In re Fox, 762 F.2d 54, 56 (7th Cir. 1985)). The Northern
District of Illinois has helpfully set out a three-category analysis of district courts’
jurisdiction over bankruptcy orders that do not dispose of the entire bankruptcy
proceeding: (1) orders that resolve all contested issues in the proceeding, leaving
only the distribution of assets, (2) orders that determine the status of all of one
creditor’s claims, and (3) orders that determine a “discrete dispute that, but for the
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continuing bankruptcy, would have been a stand-alone suit by or against the
trustee.” In re J.S. II, L.L.C., 08 C 3582, 2009 WL 889988, *2-3 (N.D. Ill. Mar. 31,
2009) (some citations omitted; quoting Zedan v. Habesh, 529 F.3d 398, 402 (7th Cir.
2008)). The first two categories are plainly inapplicable. There are still a number of
contested issues in the bankruptcy proceeding as a whole, even if one considers only
those involving these parties. In addition, the Bank itself has an additional claim on
one of the landlords’ liens, and has a second adversary proceeding still ongoing. In
the language of Morse Electric, there are many issues remaining beyond the final
proration, and the Bank is not merely waiting for the outcome of third-party
litigation. 805 F.2d at 264.
The third category of final appealable orders is inapplicable, as well. Though
Zedan shows that often adversary suits constitute such “discrete” or “separable”
disputes that can be appealed as soon as they are fully resolved, in this suit, the
first adversary proceeding has only partially been resolved. Zedan, 529 F.3d at 40203; see also In re Resource Technology Corp., 528 F.3d 467, 474 (7th Cir. 2008)
(resolution of “distinct and severable” issues can be final and appealable). There
still remain the third-party claims, cross-claims, and counterclaims filed by the
Trustee, as well as the status of the landlords’ liens claimed by the Bank, in the
adversary proceeding. In contrast, in Zedan, the entire adversary proceeding had
been dismissed by the bankruptcy court, and was thus fully resolved. The Court
finds that it does not have jurisdiction over the bankruptcy court’s order deciding
the Bank’s and Trustee’s Motions for Summary Judgment in the Bank’s first
adversary proceeding, because that order was not final.
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As the Bank argues, this is not the occasion for an interlocutory appeal,
either. Whether an interlocutory appeal of a non-final bankruptcy court order is
appropriate is analyzed under the standards found in 28 U.S.C. § 1292(b); the party
seeking to appeal bears the burden of establishing that the requirements are met
and “of convincing the court that the case involves ‘exceptional circumstances [that]
justify a departure from the basic policy of postponing appellate review until after
the entry of a final judgment.’” In re J.S. II, L.L.C., 2009 WL 889988, *4 (quoting In
re Woltman, 06-2088, 2006 WL 2052078, *1 (C.D. Ill. May 24, 2006) (alteration in
original); citing Trustee of Jartran, Inc. v. Winston & Strawn, 208 B.R. 898, 900
(N.D. Ill. 1997)). “Under the three part test [found in § 1292(b)], an interlocutory
appeal is appropriate when it: (1) involves a controlling question of law; (2) over
which there is substantial ground for difference of opinion; and (3) an immediate
appeal from the order may materially advance the ultimate termination of the
litigation.” Trustee of Jartran, 208 B.R. at 900 (citing 28 U.S.C. § 1292(b); In re
Capen Wholesale, Inc., 184 B.R. 547, 549 (N.D. Ill. 1995)).
As an initial matter, the Trustee, the only party seeking an immediate
appeal, makes no effort to show that any of the § 1292(b) elements are met, or that
“exceptional circumstances” exist in this case. Moreover, as the Bank points out, the
crop proceeds in question make up almost the entire fund currently held by the
Trustee for distribution to creditors, and the various other claims in this matter,
including those involving the Bank, will likely also be appealed. The Bank itself
may be involved in another appeal of this very adversary proceeding, since it is a
party to other claims within it, so it would promote the efficient use of both the
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parties’ and the Court’s resources to allow further development of these claims.
Also, once those other claims are resolved by the bankruptcy court, it may be that
some of the claimants will decide not to further pursue their claims on appeal, as
their prospects of recovering anything may be so diminished; it is not efficient for
the Court to unnecessarily resolve complicated legal arguments that may well be
resolved on their own. Finally, as pointed out by the Bank, none of the creditors
would receive any distribution from the remaining funds at this time even if this
Court were to take the appeal, and so there is no prejudice to awaiting the final
resolution of these related and overlapping claims by the bankruptcy court before
delving into an appeal. Because the Trustee has failed to carry his burden of
showing that an interlocutory appeal is necessary, and because the Court finds that
it would be inappropriate in this circumstance, the Court will not grant an
interlocutory appeal.
CONCLUSION
For the foregoing reasons, the Motion to Determine Jurisdiction (12-cv-1148:
Doc. 2; 12-cv-1149: Doc. 2; 12-cv-1150: Doc. 2) is GRANTED insofar as the Court
rules on the issue of jurisdiction. The Court finds that it does not have jurisdiction
over these appeals, and so they are DISMISSED FOR LACK OF JURISDICTION.
The Motion to Consolidate (12-cv-1148: Doc. 4; 12-cv-1149: Doc. 4; 12-cv-1150: Doc.
4) is therefore DENIED AS MOOT. CASE TERMINATED. IT IS SO ORDERED.
Entered this 1st day of October, 2012.
s/ Joe B. McDade
JOE BILLY McDADE
United States Senior District Judge
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