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In re Brown

filed: October 18, 1990; As Amended October 24, 1990.

IN RE ROSEMARY BROWN, THE FIRST JERSEY NATIONAL BANK, APPELLANT


On Appeal from the United States District Court for the District of New Jersey; D.C. Civ. No. 90-371.

Greenberg, Hutchinson, and Cowen, Circuit Judges.

Author: Greenberg

GREENBERG, Circuit Judge

First Jersey National Bank appeals from an order of the district court entered April 17, 1990, on an appeal from an order of the bankruptcy court entered December 13, 1989, which denied First Jersey's motion to dismiss these Chapter 11 proceedings brought by the debtor, Rosemary Brown. The district court order provided that First Jersey's appeal "be and hereby is denied, and the matter is remanded to the bankruptcy court for further proceedings." In an accompanying unpublished memorandum opinion, the district court concluded that the bankruptcy court's order was not final. Thus, it held that under 28 U.S.C. § 158(a) it could entertain the appeal only if it granted First Jersey leave to appeal, which it denied. We will reverse on the ground that the order of the bankruptcy court was final within 28 U.S.C. § 158(a) and we will therefore remand the case to the district court for adjudication on the merits.

In view of the limited issue before us, we need only summarize the background of this complex matter. The case had its genesis in a prior Chapter 11 proceeding of Repro Supply Corporation. Rosemary Brown and her husband, Gary Brown, were the principals of Repro. In 1985, Repro obtained a line of credit with First Jersey, but by October, 1986, Repro apparently exceeded its credit limit, leading First Jersey to withhold further advances from it. On November 13, 1986, Repro filed its Chapter 11 proceeding and thereafter remained in business as a debtor in possession. Repro needed additional financing which First Jersey agreed to supply on condition that it be given mortgages on three properties personally owned by the Browns, two in New Jersey and one in Florida. On November 21, 1986, on Repro's application, the bankruptcy court entered a cash collateral order*fn1 authorizing the advances on the security of the three properties and the mortgages were subsequently executed and delivered.*fn2 Ultimately the attempt at reorganization failed, so that by an order of the bankruptcy court of September 16, 1987, First Jersey was ordered to liquidate Repro's assets.

This liquidation did not satisfy Repro's debt to First Jersey, which therefore brought an action in the Superior Court of New Jersey against the Browns to foreclose the mortgages on the New Jersey properties. Though the foreclosure was contested, on February 6, 1989, First Jersey obtained an order for summary judgment striking the Browns' pleadings and permitting the action to proceed as though not contested. On application of the Browns, the Superior Court reconsidered its order but by a letter opinion of July 27, 1989, the court again granted First Jersey's motion for summary judgment.

On September 25, 1989, the Browns requested a hearing in the Superior Court to determine the amount due on the mortgage. However, on October 10, 1989, before the hearing was held, Rosemary Brown filed her Chapter 11 petition. First Jersey then moved under 11 U.S.C. § 1112(b) to dismiss her petition, asserting it was brought in bad faith to circumvent the foreclosure proceedings. After hearing oral argument, the bankruptcy court in an oral opinion denied the motion. The court said that it was not disturbed that the Chapter 11 petition was filed while the foreclosure was pending. Furthermore, it indicated that Rosemary Brown could bring the proceeding even though she was not directly operating a business. The court thought that it would be "premature to conclude that there is no reasonable likelihood of successful reorganization or liquidating plan of reorganization within a reasonable period of time since the case had just commenced." While the court was concerned with the fact that Gary Brown had not also filed a bankruptcy petition, thus leaving open the possibility that there might be an additional filing to delay creditors, it stated that this problem could be obviated for if Gary Brown filed a petition in bad faith it could be dismissed.*fn3

First Jersey then appealed to the district court from the bankruptcy court's order of December 13, 1989, pursuant to 28 U.S.C. § 158(a), which provides in pertinent part:

The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees, and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges

The district court, however, did not reach the merits of the bankruptcy court's order. While it recognized in its memorandum opinion that "finality in the bankruptcy context is construed more broadly than in 28 U.S.C. § 1291," it held that "a bankruptcy court order denying a creditor's motion to dismiss a debtor's petition on bad faith grounds is not a final appealable order," citing In re Jartran, Inc., 886 F.2d 859 (7th Cir. 1989); In re 405 N. Bedford Dr. Corp., 778 F.2d 1374 (9th Cir. 1985); and In re Committee of Asbestos-Related Litigants, 749 F.2d 3 (2d Cir. 1984). In addition, referring to the bankruptcy court's indication that Rosemary's case was too nascent to find bad faith, the district court found that the particular order on appeal was interlocutory. The district court indicated:

In the instant matter, the bankruptcy court made no factual findings, stating that the limited record before it, at very least, raised several factual issues. The court's decision did not permanently dispose of the good faith issue; [First Jersey] is not precluded from raising the issue at a later date. Good faith, after all, is an integral aspect of a final plan of reorganization. See 11 U.S.C. § 1129(a)(3).

The district court set forth that First Jersey had not alleged that it would be prejudiced if Rosemary's reorganization continued, and that First Jersey, as a secured creditor, would, in any event, be adequately protected under the Bankruptcy Code. The district court further ruled that it would not grant leave to appeal.*fn4 The appeal to this court followed.

The initial question we must resolve is whether we have jurisdiction. Rosemary Brown contends that we do not, as the district court's order was not final within 28 U.S.C. § 158(a). If we have jurisdiction, it is under 28 U.S.C. § 158(d), which provides in pertinent part that

the courts of appeals shall have jurisdiction of appeals from all final decisions, judgments, ...


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