544 B.R. 444
10th Cir. BAP2016Background
- Stephen N. Lynch (debtor) filed Chapter 11 in Aug 2011, converted to Chapter 7; Trustee Malloy appointed. Lynch later filed an adversary proceeding that was dismissed. Trustee sought Rule 2004 discovery to investigate funding for that adversary proceeding.
- Trustee filed an initial 2004 exam motion (granted June 18, 2015); Lynch moved to vacate and that motion was denied. Lynch briefly appealed then voluntarily dismissed that appeal.
- Trustee renewed the 2004 motion in Sept 2015; the bankruptcy court granted it, denied Lynch’s quash motion, and later granted a motion to compel answers and production (October–November 2015), then entered an Amended Order setting production deadlines and rescheduling the 2004 exam.
- Lynch filed a Motion to Reconsider the Amended Order (raising objections and fee/disgorgement claims); the bankruptcy court denied reconsideration on Dec 1, 2015 (the Reconsideration Order). Lynch timely appealed that denial to the BAP.
- The BAP issued an Order to Show Cause focusing on whether the Reconsideration Order was final and appealable; Lynch clarified he appealed only the denial of reconsideration. Trustee sought sanctions against Lynch for a frivolous appeal.
- The BAP dismissed the appeal as interlocutory (not a final order) and denied the Trustee’s motion for sanctions.
Issues
| Issue | Lynch's Argument | Trustee's Argument | Held |
|---|---|---|---|
| Whether the Reconsideration Order is a final, appealable order under 28 U.S.C. § 158 | The Reconsideration Order finally resolved a discrete discovery dispute (Rule 2004) and left only execution of the Amended Order | The 2004-related orders are interlocutory because further action may follow and the bankruptcy case remains pending | The Reconsideration Order is interlocutory and not appealable as of right; appeal dismissed (leave to appeal denied) |
| Whether sanctions should be imposed for filing the appeal | Lynch implicitly contends appeal was colorable given differing authority on finality of 2004 orders | Trustee argues Lynch acted in bad faith and brought a frivolous appeal warranting sanctions | Motion for sanctions denied; BAP declines to impose sanctions in this forum and notes filing such an appeal is not typically sanctionable here |
Key Cases Cited
- Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015) (Supreme Court: define the relevant "proceeding" for finality in bankruptcy; plan-denial order not final where it does not end the process)
- In re Faragalla, 422 F.3d 1208 (10th Cir. 2005) (finality in bankruptcy: final if it ends the litigation on the merits of the proceeding)
- Adelman v. Fourth Nat’l Bank & Tr. Co., (In re Durability, Inc.), 893 F.2d 264 (10th Cir. 1990) (describing general finality rule for appeals)
- S.E.C. v. Merrill Scott & Assoc. Ltd., 600 F.3d 1262 (10th Cir. 2010) (discovery orders during litigation are ordinarily not final)