ROBERT L. PRYOR v. DAVID ROSENBLATT, DHR PROCESSING INC., MARZAK REALTY ASSOCIATES LLC, and UNITED STATES
24-CV-7895-SJB
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
July 16, 2025
BULSARA, United States District Judge
In re: STAIN-LESS, INC. d/b/a CEDARWOOD CLEANERS, Debtor. Case No. 8:22-70689-las (Chapter 7); Adv. Proc. Case No. 8:23-08001-las
BULSARA, United States District Judge:
The Appellant-Trustee Robert Pryor (the “Trustee“) has appealed the decision of the Bankruptcy Judge, Louis A. Scarcella, denying his motion to approve a settlement agreement with Defendants David Rosenblatt (“Rosenblatt“) and DHR Processing, Inc. (“DHR“) in adversary proceeding, Case No. 8:23-08001. The United States Environmental Protection Agency (the “EPA“) and Marzak Realty Associates LLC (“Marzak“) are creditors of the Debtor Stain-Less, Inc., doing business as Cedarwood Cleaners, and parties to the adversary proceeding. The EPA and Marzak both objected to the settlement in the first instance, and now seek to have the Trustee‘s appeal
With limited exception, district courts have jurisdiction over bankruptcy appeals only when a final decision is rendered, or where the appellant has received leave to file an interlocutory appeal on a non-final decision.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The underlying bankruptcy case, No. 8:22-70689, commenced with the Debtor‘s filing of a voluntary petition under
On July 10, 2023, the Trustee filed a motion to approve a settlement agreement, pursuant to
He analyzed the proposed settlement under the seven-factor Iridium test1, (id. 10:10-12), and found that there was a high likelihood of litigation success that weighed “in favor of not approving the settlement.” (Id. at 16:17-21). The objections of creditors also weighed heavily against approval. (Id. at 23:20-22). Specifically, Marzak‘s claim against the debtor was for $ 448,064.70, (id. at 22:16-21), and US EPA filed a claim for close to $ 6.9 million. (Id. at 23:1). Both objected, contending that Rosenblatt engineered
DISCUSSION
I. The Decision to Deny Settlement Approval is Not a Final Order.
Section 158(a)(1) of the Bankruptcy Code provides that a district court has jurisdiction to “hear appeals” from “final judgments, orders, and decrees” of “bankruptcy judges.”
An order denying a proposed settlement of an adversary proceeding lacks the indicia of a final disposition or resolution. A bankruptcy court‘s decision to approve a settlement, “conclusively resolve[s] the adversary action by establishing the settlement amount and extinguishing claims.” In re The Bennett Funding Grp., Inc., 439 F.3d at 160. It “alters the status quo and fixes the rights and obligations of the parties.” Bullard v. Blue Hills Bank, 575 U.S. 496, 502 (2015). A decision to deny approval does precisely the opposite: the litigation continues, and no claims are extinguished. In re Merle‘s Inc., 481 F.2d 1016, 1018 (9th Cir. 1973) (“An order approving a compromise . . . is final because it finally determines the rights of the parties. An order disapproving a compromise, however, is not final. It determines no rights and settles no issues. It merely leaves the question open for future adjudication.“).
To be sure, the Order “does rule out the specific arrangement of relief embodied” in the settlement proposed. Bullard, 575 U.S. at 503. But that does not make the Order final. After Judge Scarcella denied approval, the bankruptcy court was “still left with an adversary proceeding.” In re Holloway, 370 F. App‘x 490, 493 (5th Cir. 2010) (per
“Clearly an order is inconclusive where events which follow the order can move interested parties from a position of opposition to a position of support.” In re Am. Colonial Broad. Corp., 758 F.2d 794, 802 (1st Cir. 1985); see also 1 Collier on Bankruptcy ¶ 5.08 (16th 2025):
[O]rders . . . refusing to approve a settlement agreement . . . [are] not the end of the road for the losing party (who . . . can revise the settlement agreement to deal with the court‘s concerns). Arguments can be made that these orders should be considered final; that is, the merits are reached and disposed of. These arguments have been unavailing, however, and the disappointed party must rely on the appellate tribunal to grant leave to appeal if it is not to be forced back to the drawing board.
The Trustee contends that In re Maynard held the opposite, i.e., a decision denying settlement approval is a resolution of a discrete dispute and appealable. (Appellant‘s Br. dated Jan. 13, 2025 (“Trustee‘s Br.“), Dkt. No. 10 at 3 (citing In re Maynard, 290 B.R. 67, 69-70 (D. Vt. 2002))). The case is not persuasive or analogous here. For one thing, there the district court recognized that its decision was an outlier; a wealth of cases in the Second Circuit were to the contrary. In re Maynard, 290 B.R. at 69 (“[T]he Court recognize[s] that there is authority for the conclusion that an order disapproving a settlement agreement between debtors and the trustee is not final.“) (collecting cases); see also In re Maynard, 269 B.R. 535, 539 (D. Vt. 2001) (same). For another, Maynard was an attempt to read into contemporary Second Circuit cases a suggestion that denials of settlement approvals were appealable. In re Maynard, 290 B.R. at 70 (“[I]t feels that the Second Circuit‘s most recent precedent permits a determination that the order is final.“). No court in this Circuit has, in the two decades plus since Maynard, concurred with this analysis. But perhaps explaining its unique character, Maynard was a
It is my view that complaints to deny a discharge must be granted in full or denied in full; there is no middle ground. Neither the Bankruptcy Code nor the Bankruptcy Rules authorize a trustee to seek funds from a debtor in exchange for the trustee giving up an objection to discharge founded upon debtor misconduct.
rev‘d, 269 B.R. 535 (D. Vt. 2001), with In re Maynard, 269 B.R. at 542 (“This Court concludes that a per se rule prohibiting the settlement or compromise of
The Trustee — in attempting to create a final disposition — claims that he will not pursue the adversary proceeding any further. (This about-face is quite contrary to a representation that he will “continue” the case “to conclusion.” (Dec. 2023 Tr. at 41:19-22)). In other words, unless the decision to deny approval is deemed final, and reversed, he will simply drop the case against DHR and Rosenblatt. (Trustee‘s Br. at 2 (“If the Orders are not reversed, the Trustee will close the Chapter 7 case terminating both the Adversary Proceeding and the bankruptcy case.“); see also Appellant‘s Reply Br. dated Feb. 24, 2025 (“Trustee‘s Reply“), Dkt. No. 14 at 3). But a party‘s decision — and a probabilistic, yet-to-be-taken future contingent one — does not determine finality; the Bankruptcy Court‘s action does. And, here, the sole action by the Bankruptcy Court was to let the action proceed. The fact that the Trustee may opt to discontinue the case in the future does not make that decision final. Should the Trustee opt to end his case, the adversary proceeding would be closed, and then the dispute would be appealable. But it is not now; a party cannot manufacture finality on the basis of hypothetical future conduct to create appellate jurisdiction.
As an alternative, the Trustee contends that the decision to deny approval is appealable under the collateral order exception. The exception permits review of “a small class” of orders which “do not end the litigation,” but are nonetheless, “deemed final.” In re ALBA Petroleos de El Salvador S.E.M. de C.V., 82 F.4th 105, 110 (2d Cir. 2023) (quotations omitted). But to avoid the exception swallowing the finality requirement,
The Order does not qualify as a collateral order. The Iridium framework for settlement approval requires consideration of the merits of each side‘s litigation and financial position. Supra note 1. And the Order‘s rationale for denying the proposed resolution was intimately tied to the merits of the parties’ claims in the adversary proceeding. (Oct. 2024 Tr. at 21:05-11 (“[T]he record, the evidence, does indeed show a likelihood of success in the adversary proceeding commenced by the Chapter 7 Trustee.“)).
The Court cannot extricate the question presented — whether the Bankruptcy Court‘s decision to deny settlement approval was erroneous — from the decision about the case that remains to be litigated. And, therefore, the collateral order exception does not permit review. E.g., In re Holloway, 370 F. App‘x at 494 (“The bankruptcy court‘s
II. The Motion for Interlocutory Appeal is Denied.
Because the Trustee is not appealing a final decision — and the decision of the Bankruptcy Court is not a collateral order — his appeal is interlocutory. Section 158(a)(3) provides that the “district courts of the United States shall have jurisdiction to hear appeals . . . with leave of the court, from other interlocutory orders and decrees . . . of bankruptcy judges entered in cases and proceedings[.]”
“A ‘question of law’ under
CONCLUSION
For the reasons explained above, the Court finds that it lacks jurisdiction over this appeal and declines to grant leave for an interlocutory appeal. Accordingly, the
Date: July 16, 2025
Central Islip, New York
SO ORDERED.
/s/ Sanket J. Bulsara
SANKET J. BULSARA
United States District Judge
Notes
Those factors are:
(1) the balance between the litigation‘s possibility of success and the settlement‘s future benefits; (2) the likelihood of complex and protracted litigation, with its attendant expense, inconvenience, and delay, including the difficulty in collecting on the judgment; (3) the paramount interests of the creditors, including each affected class‘s relative benefits and the degree to which creditors either do not object to or affirmatively support the proposed settlement; (4) whether other parties in interest support the settlement; (5) the competency and experience of counsel supporting, and the experience and knowledge of the bankruptcy court judge reviewing, the settlement; (6) the nature and breadth of releases to be obtained by officers and directors; and (7) the extent to which the settlement is the product of arm‘s length bargaining.
In re Iridium Operating LLC, 478 F.3d 452, 462 (2d Cir. 2007) (quotations omitted).
In re Hass, 273 B.R. 45, 49 (Bankr. S.D.N.Y. 2002):
Section 727(a) of the Bankruptcy Code sets forth grounds upon which the debtor‘s discharge may be denied for reasons relating to conduct of the debtor affecting all creditors. Successful prosecution of a claim under
Section 158(d)(2), which is not at issue in this case, allows “a bankruptcy court, district court, BAP, or the parties acting jointly to certify a bankruptcy court‘s order to the court of appeals, which then has discretion to hear the matter.” Bullard, 575 U.S. at 508.
The Trustee again leans on Maynard and its language noting that without hearing the appeal, the settlement denial will be unrenewable. In re Maynard, 290 B.R. at 70. But the review is only delayed, not forfeited, until conclusion of the adversary proceeding. In re Miner, 222 B.R. 199, 203 (B.A.P. 2d Cir. 1998) (finding inability to appeal bankruptcy court decision that enforceable settlement did not exist did not mean rights were “irretrievably lost” (quotations omitted)). Any delay is made worse when a party seeks interlocutory appeal and, by so doing, places the underlying adversary proceeding in suspended animation. Judge Scarcella‘s decision was issued in October 2024, and the case will not resume in earnest until issuance of this decision. This single appeal has cost the parties more than nine months of time. “[E]ach climb up the appellate ladder and slide down the chute” costs the parties valuable time, and “[a]voiding such delays and inefficiencies is precisely the reason for a rule of finality.” Bullard, 575 U.S. at 504.