Fund Recovery Services LLC v. Argon Credit LLC

Filing 17

MEMORANDUM Opinion and Order Signed by the Honorable Amy J. St. Eve on 8/14/2017. Mailed notice (eaa, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
In re ARGON CREDIT, LLC, et al.,

)
)
Debtors,
)
____________________________________)
FUND RECOVERY SERVICES, LLC,
)
)
Appellant,
)
v.
)
)
ARGON CREDIT, LLC, et al.,
)
)
Appellees.
)

Appeal from 16-bk-39654
Case No. 17 C 5381

MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Court Judge:
On July 20, 2017, Appellant Fund Recovery Services, LLC (“FRS”) filed a notice of
appeal and a motion for leave to appeal the Bankruptcy Court’s July 6, 2017 “Order Resolving
Disputed Trustee Election and Objection to Election.” See 28 U.S.C. § 158(a)(1), (3). Because
the Bankruptcy Court’s July 2017 decision was not a final order under § 158(a)(1), the Court
does not have jurisdiction to review FRS’ appeal. Moreover, for the reasons discussed below,
the Court, in its discretion, denies FRS’ motion for leave to appeal under § 158(a)(3).
BACKGROUND
On December 16, 2016, debtors Argon Credit, LLC and Argon X, LLC (“Debtors”) filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code after which the Bankruptcy
Court entered an order of joint administration. (16-bk-39654, R. 1, 12/16/16 Voluntary Pet.) After
the Bankruptcy Court granted FRS’ motion to convert the proceedings to Chapter 7 liquidation, the
U.S. Trustee appointed Deborah Ebner (“Ebner”) to serve as Trustee. (R. 68, 1/11/17 Order; R. 69,

1/11/17 Letter of Appt.) The U.S. Trustee appointed Eugene Crane (“Crane”) as Trustee after Ebner
resigned. (R. 144, 4/17/17 Letter of Appt.)
On April 19, 2017, the Bankruptcy Court issued a notice of a meeting of creditors under 11
U.S.C. § 341(a) to be held on May 17, 2017. (R. 164, 5/18/17 Trustee Report of Disputed Election ¶
6.) The following creditors appeared at the “341” meeting: (1) Margon Credit LLC (“Margon”); (2)
FRS; and (3) Little Owl Argon, LLC (“Little Owl”). (Id. ¶ 7.) A Debtors’ representative also
attended the May 17 meeting. (Id. ¶ 8.) Pursuant to 11 U.S.C. § 702, FRS – the only creditor present
that was eligible to participate in the election – requested a trustee election. (Id. ¶¶ 8, 9.) FRS
elected Patrick J. O’Malley as Trustee over the objections of the interim Chapter 7 Trustee, Eugene
Crane, and the two insider creditors. (Id. ¶ 10; Mem. Op., at 1.) On May 18, 2017, the Trustee filed
a Report of Disputed Election. (R. 164, 5/18/17 Report.)
Thereafter, FRS filed a motion to resolve the disputed trustee election. (R. 166, 5/19/17
Motion.) On July 6, 2017, the Bankruptcy Court found that FRS was not a “qualified creditor” that
could call for a Chapter 7 Trustee election under 11 U.S.C. § 702(b) because FRS’ interest was
materially adverse to other unsecured creditors. (R. 205, 7/06/17 Mem Op., at 1, 5.) The
Bankruptcy Court thus disqualified O’Malley as Trustee. (Id.) On July 20, 2017, FRS filed the
present notice of appeal and motion for leave to appeal. (R. 210.)
ANALYSIS
I.

Appeal as of Right – 28 U.S.C. § 158(a)(1)
FRS first argues that the bankruptcy judge’s “Order Resolving Disputed Trustee Election

and Objection to Election” is a final order under § 158(a)(1), and thus the Court has jurisdiction
to review its appeal. In re Sobczak-Slomczewski, 826 F.3d 429, 431 (7th Cir. 2016) (“Congress
confers jurisdiction on district courts to hear appeals from final orders of a bankruptcy court.”).
FRS’ argument, however, flies in the face of well-established Seventh Circuit precedent:

2

The decision of the bankruptcy court not to confirm the election of a trustee in a
Chapter 7 matter – allowing the interim trustee to become permanent – is not a
final order under our precedents. Such an order did not resolve the substantive
rights of the parties in any way, but merely decided one procedural question along
the way. Neither does such an order mark the conclusion of what, but for the
bankruptcy, would be the equivalent of a stand-alone suit.
In re Klein, 940 F.2d 1075, 1077 (7th Cir. 1991). Nonetheless, FRS points out that certain
Circuits have held otherwise. See, e.g., In re A & E 128 N. Corp., 528 B.R. 190, 196 (B.A.P. 1st
Cir. 2015) (“In the First Circuit, however, orders resolving trustee appointment disputes are final,
appealable orders because they conclusively determine a significant and discrete issue in the
bankruptcy case.”). FRS, however, does not explain how this Court can ignore controlling
Seventh Circuit precedent. See Nichols v. Illinois Dep’t of Transportation, 152 F. Supp. 3d
1106, 1143 (N.D. Ill. 2016).
Similarly, FRS argues – albeit in a footnote – that the “collateral order doctrine” permits
appellate review. See Evergreen Square of Cudahy v. Wisconsin Hous. & Econ. Dev. Auth., 848
F.3d 822, 829 (7th Cir. 2017) (“A party may waive an argument by presenting it only in an
undeveloped footnote.”). Under Seventh Circuit precedent, the collateral order doctrine requires
a showing of “irreparable harm stemming from a denial of immediate appeal.” In re Klein, 940
F.2d at 1078; see also Travis v. Sullivan, 985 F.2d 919, 925 (7th Cir. 1993). Here, FRS has
failed to argue or establish that its rights would be “irretrievably lost” if the Court denied
jurisdiction. See In re Klein, 940 F.2d at 1078. Accordingly, the Bankruptcy Court’s July 2017
ruling is not a final order under § 158(a)(1).
II.

Discretionary Appeal – 28 U.S.C. § 158(a)(3)

Next, FRS asks the Court to grant a discretionary interlocutory appeal. See 28 U.S.C. §
158(a)(3). When addressing a motion under § 158(a)(3), district courts apply the standard set
forth in 28 U.S.C. § 1292(b), which governs interlocutory appeals from the district court to the
3

court of appeals. See 880 S. Rohlwing Rd., LLC v. T&C Gymnastics, LLC, No. 16-CV-07650,
2017 WL 264504, at *4 (N.D. Ill. Jan. 19, 2017); In re IFC Credit, No. 09 B 27094, 2010 WL
1337142, at *2 (N.D. Ill. Mar. 31, 2010). This standard includes “whether the order to be
appealed involves a controlling question of law, whether an immediate appeal would materially
advance the ultimate termination of the litigation, and whether there is a substantial ground for
difference of opinion on the question of law.” Kenosha Unified Sch. Dist. No. 1 Bd. of Educ. v.
Whitaker, 841 F.3d 730, 732 (7th Cir. 2016). These criteria are in the conjunctive, and thus the
movant must demonstrate all three factors. See Ahrenholz v. Bd. of Trustees of the Univ. of Ill.,
219 F.3d 674, 676 (7th Cir. 2000); Wolf v. FirstMerit Bank, N.A., 535 B.R. 772, 775 (N.D. Ill.
2015). In addition, “because interlocutory appeals violate the normal judicial goals of finality
and efficiency that come with the final judgment rule, leave to appeal should not be granted
‘absent exceptional circumstances.’” Wolf, 535 B.R. at 776 (citation omitted).
As to the first requirement, a “question of law may be deemed ‘controlling’ if its
resolution is quite likely to affect the further course of the litigation, even if not certain to do so.”
Sokaogon Gaming Enter. Corp. v. Tushie-Montgomery Assocs., Inc., 86 F.3d 656, 659 (7th Cir.
1996); see also Trustee of Jartran, Inc. v. Winston & Strawn, 208 B.R. 898, 900 (N.D. Ill. 1997)
(question of law is controlling when “its resolution is quite likely to affect the outcome or the
further course of litigation, even if it is not certain to do so.”). As the Seventh Circuit explains:
We think “question of law” as used in section 1292(b) has reference to a question
of the meaning of a statutory or constitutional provision, regulation, or common
law doctrine.... The idea was that if a case turned on a pure question of law,
something the court of appeals could decide quickly and cleanly without having to
study the record, the court should be enabled to do so without having to wait till
the end of the case[.]
Ahrenholz, 219 F.3d at 676-77; see also Illinois Dep’t of Revenue v. Elk Grove Vill. Petroleum,
LLC, No. 14 C 5072, 2015 WL 8481961, at *5 (N.D. Ill. Dec. 9, 2015) (“Court may only certify
4

a ‘pure’ question of law, meaning an issue the Seventh Circuit could decide ‘quickly and cleanly
without having to study the record.’”) (citation omitted).
FRS’ appeal does not involve a controlling question of law, but rather concerns the
Bankruptcy Court’s factual findings that FRS’ interest was materially adverse to other unsecured
creditors’ interests. More specifically, the Bankruptcy Court based its conclusion on what it
considered “credible allegations of preference liability,” namely, the interim Chapter 7 Trustee’s
allegations that Argon Credit made several preference payments in the amount of approximately $1.2
million to a potential alter ego of FRS. (Mem. Op., at 4.) The interim Chapter 7 Trustee supported
these allegations with Argon Credit’s general ledger that listed certain transfers and the relevant
dates. (Id. at 4-5.) Because the crux of FRS’ appeal concerns the Bankruptcy Court’s application of
the facts to the law, FRS has not fulfilled the requirement that the appeal concerns a controlling
question of law. See 880 S. Rohlwing Rd., 2017 WL 264504, at *4 (“Interlocutory review is

generally reserved for ‘pure’ questions of law – that is, ‘abstract issue[s] of law ... suitable for
determination by an appellate court without a trial record.’”) (quoting Ahrenholz, 219 F.3d at
676-77); U.S. Commodity Futures Trading Comm'’ v. Kraft Foods Grp., Inc., 195 F. Supp. 3d
996, 1002 (N.D. Ill. 2016) (appeal does not involve “question of law because there is an essential
factual predicate that must be determined by the appellate court before making any meaningful
decision.”).
Nevertheless, FRS argues that the controlling questions of law are: (1) “whether the
existence of a material adverse interest under § 702(a) of the Bankruptcy Code must be
determined on a case-by-case basis in jointly administered cases;” and (2) “what an election
objector’s burden of proof is when challenging a creditors eligibility to elect a trustee under §
702(a) on the basis of a disputed preference claim.” (17 C 5381, R. 2, Mot. Leave Appeal ¶ 23.)
The answers to these questions, however, would not materially affect the outcome of the case.
5

See Sokaogon Gaming, 86 F.3d at 659; Trustee of Jartran, 208 B.R. at 900. To clarify, if the
answers to these questions are in FRS’ favor and the Court reverses the Bankruptcy Court’s July
6, 2017 decision, the result would be that FRS would get the Chapter 7 Trustee of its choice,
Patrick O’Malley. In sum, this Court’s reversal of the Trustee election would not materially
change the outcome of the case nor resolve any of the parties’ substantive rights because the
affect is merely procedural. See In re Klein, 940 F.2d at 1077-78 & n.3.
CONCLUSION
Because the Bankruptcy Court’s July 6, 2017 decision was not a final order under 28
U.S.C. § 158(a)(1), the Court does not have jurisdiction to review FRS’ appeal. In addition, the
Court, in its discretion, denies FRS’ motion for leave to appeal under 28 U.S.C. § 158(a)(3).
Dated: August 14, 2017
ENTERED

______________________________
AMY J. ST. EVE
United States District Court Judge

6