Fund Recovery Services LLC v. Argon Credit LLC
1:17-cv-05381
N.D. Ill.Aug 14, 2017Background
- Debtors Argon Credit, LLC and Argon X, LLC filed Chapter 11 petitions; cases were later converted to Chapter 7.
- U.S. Trustee appointed Deborah Ebner as interim trustee; after her resignation Eugene Crane was appointed interim Chapter 7 Trustee.
- A § 341 meeting was held May 17, 2017; creditors present included Margon, Fund Recovery Services, LLC (FRS), and Little Owl; FRS (the only eligible creditor present) requested an election under 11 U.S.C. § 702.
- FRS elected Patrick J. O’Malley as trustee over objections from the interim trustee and insider creditors; the interim trustee filed a Report of Disputed Election.
- Bankruptcy Court held (July 6, 2017) FRS was not a “qualified creditor” under § 702(b) because its interest was materially adverse to other unsecured creditors due to credible allegations of preference liability, disqualifying O’Malley.
- FRS appealed and sought leave to appeal; the district court concluded it lacked jurisdiction under 28 U.S.C. § 158(a)(1) and denied discretionary leave under § 158(a)(3).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Bankruptcy Court's order disqualifying FRS from calling a trustee election is a final, appealable order under 28 U.S.C. § 158(a)(1) | The order is final because it conclusively decides a discrete, significant issue (trustee appointment) warranting immediate appeal | Seventh Circuit precedent treats trustee-election rulings as nonfinal and procedural, not resolving substantive rights | Not final; district court lacks jurisdiction under § 158(a)(1) |
| Whether the collateral-order doctrine permits immediate appeal | FRS contends collateral-order doctrine applies and warrants review | FRS failed to show irreparable harm or that rights would be irretrievably lost without immediate appeal | Collateral-order doctrine inapplicable; no showing of irreparable harm |
| Whether the district court should grant discretionary interlocutory appeal under 28 U.S.C. § 158(a)(3) (applying § 1292(b) factors) | Questions presented (material-adversity standard; objector's burden on disputed preference claims) are controlling legal issues that merit interlocutory review | The dispute is fact-driven (credibility and preference allegations); not a pure controlling question of law and reversal would be only procedural | Denied: FRS did not meet the conjunctive § 1292(b)-type factors; no controlling pure question of law and appeal would not materially advance termination |
| Whether factual findings (preference allegations) justified disqualification under § 702(b) | FRS argued it was eligible and the preference allegations did not show material adversity | Bankruptcy Court relied on ledger entries and credible allegations of ~ $1.2M in preferential transfers to an entity related to FRS, creating material adversity | Court upheld that facts supported disqualification; factual nature of issue precluded interlocutory appellate review |
Key Cases Cited
- In re Klein, 940 F.2d 1075 (7th Cir. 1991) (trustee-election rulings are not final and resolve a procedural question rather than substantive rights)
- Ahrenholz v. Bd. of Trustees of the Univ. of Ill., 219 F.3d 674 (7th Cir. 2000) (standards for interlocutory certification under § 1292(b))
- Sokaogon Gaming Enter. Corp. v. Tushie-Montgomery Assocs., Inc., 86 F.3d 656 (7th Cir. 1996) (definition of a controlling question of law for interlocutory appeal)
- Evergreen Square of Cudahy v. Wisconsin Hous. & Econ. Dev. Auth., 848 F.3d 822 (7th Cir. 2017) (procedural rules on waiver and appellate doctrines)
- In re Sobczak-Slomczewski, 826 F.3d 429 (7th Cir. 2016) (district courts have jurisdiction to hear appeals from final bankruptcy orders)