Lonnie E. McKinney v. Salta Group, Incorporated ( 2010 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-1271
IN RE:
L ONNIE E. M C K INNEY,
Debtor-Appellee.
A PPEAL OF:
S ALTA G ROUP, INC.
Appeal from the United States District Court
for the Central District of Illinois.
No. 06 C 1194—Joe Billy McDade, Judge.
A RGUED D ECEMBER 8, 2009—D ECIDED JUNE 23, 2010
Before E ASTERBROOK, Chief Judge, and R OVNER and
T INDER, Circuit Judges.
T INDER, Circuit Judge. Lonnie McKinney owned and
lived in a duplex for which he owed $5786.66 in property
taxes for the year 2001. Peoria County, where the duplex
is located, sold the tax debt to Salta Group at its annual
tax sale in 2002. At a tax sale in Peoria County, an
investor can bid on delinquent taxes by announcing
what interest rate the investor will charge on the delin-
2 No. 08-1271
quent fees. The lowest bidder (he who proposes the
lowest interest rate) will own the tax debt in return for
his payment of the full value of the tax debt plus costs.
As owner of the tax debt, Salta Group could make
money in two ways. First, McKinney had two years to
pay the debt plus the interest to the county, who would
pass it on to Salta Group; this would generate revenue
for Salta Group based on the interest rate it charged.
Second, if McKinney did not pay off the debt in two
years, Salta Group could get a tax deed to the property.
McKinney did not pay off the debt and on April 21, 2005,
he was notified that the duplex had been sold for delin-
quent taxes but that he could redeem the property until
September 1. After that date, a hearing would be held
on the issuance of a tax deed to Salta Group.
On August 31, 2005 (one day before the end of the
redemption period), McKinney filed for Chapter 13
bankruptcy. In his proposed bankruptcy plan, he was
given five years to pay off the tax debt with interest. Salta
Group objected to the plan, arguing that pursuant to
11 U.S.C. § 108(b), which provides a time limit for
curing a default, McKinney had no more than 60 days
to pay the tax debt. Salta Group argued that if McKinney
did not pay his taxes within 60 days, it was entitled to a
tax deed on the property. (Indeed, Salta Group got a tax
deed in state court soon after the Chapter 13 filing;
the bankruptcy court voided the deed because it vio-
lated the bankruptcy stay. Salta Group does not appeal
the order declaring the deed void.) The bankruptcy
court disagreed and denied Salta Group’s objection. Salta
No. 08-1271 3
Group appealed the denial of the objection to the
district court, which affirmed the bankruptcy court.
Salta Group’s appeal has now reached us but we must
first assess whether we have jurisdiction to consider it.
Salta Group, remember, is not appealing an order con-
firming the proposed bankruptcy plan (indeed that order
has not been entered because Salta Group asked for and
was granted a stay of the proceedings in the bankruptcy
court), but instead is simply appealing the denial of its
objection to the plan. Salta Group argues that we have
jurisdiction to hear the appeal under 28 U.S.C. § 158(d)(1),
which provides for appeals from final decisions of the
bankruptcy court, as well as a series of interlocutory
orders not relevant here. McKinney, for his part, argues
that the decision below was not sufficiently final to vest
jurisdiction in this court, because while the bankruptcy
court denied the objection to the confirmation of the
plan, future proceedings with regards to Salta Group’s
rights are still pending. For instance, Salta Group has not
submitted its proof of claim to the bankruptcy court and
the interest rate that Salta Group is owed has not been
determined. (Salta Group argued that because it was
entitled to payment within 60 days, its claim could not
be considered part of the estate). McKinney argues
that Salta Group should be able to appeal only when the
plan, which establishes the amount of Salta Group’s
claim and an appropriate interest rate, is confirmed.
The proposed basis for our jurisdiction, 28 U.S.C.
§ 158(d)(1), gives us jurisdiction over appeals “from all
final decisions, judgments, orders, and decrees entered
4 No. 08-1271
under subsections (a) and (b) of [§ 158].” This appeal
was taken from the district court, which claimed juris-
diction under subsection (a) as an appeal from the final
judgment of the bankruptcy court. So, our jurisdiction
depends on whether what the district court heard was
an appeal from a final judgment or order of the bank-
ruptcy court.
Finality is a fairly strict concept in most federal litiga-
tion. Generally, a party must wait for the entire case to
be disposed of before taking an appeal. See Mohawk Indus.,
Inc. v. Carpenter, 130 S. Ct. 599, 605 (2009). But in the
bankruptcy context, some decisions are more final than
others. In bankruptcy we deal with the concept of
“flexible finality.” See Zedan v. Habash, 529 F.3d 398, 402
(7th Cir. 2008). While perhaps a contradiction in terms,
the concept of flexible finality is based both on the tradi-
tional approach to bankruptcy proceedings and the
commonsense understanding that the breadth of bank-
ruptcy cases necessitates an approach that allows for
the efficient resolution of certain discrete disputes that
may arise in a given bankruptcy.
Bankruptcies are sprawling events that are made up
of smaller, discrete proceedings. See In re Morse Elec. Co.,
805 F.2d 262, 264 (7th Cir. 1986). Then-Judge Breyer,
writing for the First Circuit, explained that the term
“proceeding” within a bankruptcy is actually a term of
art, traditionally referring to “any dispute between a
bankrupt and his creditors over a claim or priority.” In re
Saco Local Dev. Corp., 711 F.2d 441, 445 (1st Cir. 1983)
(analyzing finality under a predecessor jurisdictional
No. 08-1271 5
statute, 28 U.S.C. § 1293(b)). Judge Breyer, in the modern
context, characterized these proceedings as “contested
matters, adversary proceedings, and plenary suits” and
described these smaller proceedings as the judicial units
from which appeals should be taken. Id. (quotation omit-
ted). “[A] ‘proceeding’ within a bankruptcy case [is] the
relevant ‘judicial unit’ for purposes of finality, and . . . a
‘final judgment, order, or decree’ . . . includes an order
that conclusively determines a separable dispute over
a creditor’s claim or priority.” Id. at 445-46; see In re
Comdisco, Inc., 538 F.3d 647, 651 (7th Cir. 2008).
That much is clear; the hard part is figuring out what
stage of these proceedings must be terminated for
finality to attach. As we have noted, “this area still
suffers from a lack of clarity.” Comdisco, 538 F.3d at 651.
Generally, the easiest way to tell whether an order is
sufficiently final in the bankruptcy context is whether
it resolves a proceeding within the bankruptcy that
would be a freestanding lawsuit if there were no bank-
ruptcy action. Zedan, 529 F.3d at 402 (“[T]he test we
have utilized to determine finality under § 158(d) is
whether an order resolves a discrete dispute that, but
for the continuing bankruptcy, would have been a stand-
alone suit by or against the trustee.”); Morse Elec. Co., 805
F.2d at 265 (“A disposition of a claim that would be
final as a stand-alone suit outside of bankruptcy is also
final under § 158(d) in bankruptcy.”). But, the “stand-
alone” test leaves room for enough interpretation to
make the “illustrative list of orders that are either found
to be final for purposes of appeals under § 158(d) or that
are not considered final . . . dismayingly long and incon-
6 No. 08-1271
sistent.” Comdisco, 538 F.3d at 651 (citing 16 Charles Alan
Wright, Arthur R. Miller & Edward H. Cooper, Federal
Practice and Procedure § 3926.2, at 298-324 (2d ed. 1996)).
In this case, Salta Group’s claim does not present an
issue that would ordinarily be a freestanding lawsuit.
Salta Group simply objects to the proposed plan for the
management of McKinney’s debts. The bankruptcy
court rejected the objection and ordered that there be a
continued hearing on “the amount of Salta’s secured
claim and the interest rate to be paid” on that claim. In
its opinion denying Salta Group’s objection, the bank-
ruptcy court found that the amended plan “treats
SALTA’s claim permissibly by classifying it as fully
secured and proposing to pay it in full over the term of
the plan. SALTA has not filed a proof of claim, however,
having taken the position that it is not a creditor and
has no claim [i.e., that the tax debt must be paid outside
the bankruptcy]. That position having now been
rejected, the issue of the proper amount of SALTA’s
claim and the interest rate to be paid . . . must now be
addressed and a hearing will be scheduled.”
Orders that dispose of a creditor’s claim count as final
for bankruptcy purposes “when the claim has been ac-
cepted and valued, even though the court has not yet
established how much of the claim can be paid given
other, unresolved claims.” Morse Elec. Co., 805 F.2d at 264.
Salta Group argues that its claim has been valued even
though it really hasn’t submitted the claim. Salta Group
argues that figuring out the actual amount of its claim
is simply a “ministerial task.” See Saco Local Dev. Corp.,
711 F.2d at 446 (“[O]rders in ordinary cases that effec-
No. 08-1271 7
tively settle a controversy and merely leave the court
with ministerial or mechanical tasks concerning
damages are normally viewed as final, even if a precise
damage figure has not been committed to paper.”). There-
fore, according to Salta Group, the situation here is analo-
gous to the “stand-alone” situations we described above.
Fundamentally, Salta Group’s argument is that it has
only one horse running in this bankruptcy—whether the
tax lien it holds on McKinney’s duplex is properly con-
sidered part of the bankrupt’s estate. Now that the bank-
ruptcy court found that the tax lien is properly included
(and subject to whatever plan is settled on), Salta Group
believes that its horse is out of the race and the dispute
has been resolved. In UAL Corp., we noted that “[i]n a
strict sense a Chapter 11 bankruptcy is not final until a
plan of reorganization is confirmed. But as soon as the
right of a particular creditor is determined, the ruling
determining that right is appealable, although until the
plan is confirmed there will be uncertainty concerning
how much of his right he will actually be able to enforce.”
In re UAL Corp., 411 F.3d 818, 821 (7th Cir. 2005).
We have analogized the finality determination to the
finality determination in a civil suit. “A judgment
does not lose its finality merely because there is uncer-
tainty about its collectibility, corresponding to uncer-
tainty about how many cents on the dollar the creditor
will actually receive on his claim once all the bankrupt’s
assets are marshaled and compared with the total of
allowed claims, and the priorities among those claims
are determined.” In re Szekely, 936 F.2d 897, 899 (7th Cir.
1991). In UAL Corp. we implied that some proceedings
that are not akin to stand-alone lawsuits may be
8 No. 08-1271
appealed before the confirmation of the plan. There, we
held that a bankruptcy court’s decision to vacate a previ-
ous order establishing the status of certain airplane
leases within United Airlines’ bankruptcy was suf-
ficiently final to be appealable. UAL Corp., 411 F.3d at
822. An appeal was proper even though the final bank-
ruptcy plan hadn’t been confirmed because the decision
to vacate the previous order “fixed the bank’s status as a
creditor, determining both the amount due it and the
priority of its claim.” Id. We offer no opinion on
whether our decision in UAL Corp. opened up a new
universe of appealable bankruptcy orders because,
under UAL Corp.’s specific terms, the order below did not
fix Salta Group’s status as a creditor. It determined
neither the amount due to Salta Group nor the priority of
its claim.
Salta Group has not even submitted its claim to the
bankruptcy estate and its claim has therefore not been
valued as part of the bankruptcy estate. See In re Forty-
Eight Insulations, Inc., 115 F.3d 1294, 1299 (7th Cir. 1997)
(finding that an order that failed to “ultimately establish”
the creditor’s entitlement to funds was not final and
therefore unappealable). While the issue that Salta
Group cares about may have been resolved, its basic
dispute with the bankrupt estate has not been resolved
and therefore the judgment below is not final. When
we talk about finality in bankruptcy we talk about pro-
ceedings resolving disputes, not issues. “[A] decision or
order that resolves only an issue that arises during the
administration of a bankruptcy estate is too small a litiga-
tion unit to justify treatment as a final judgment.”
Comdisco, 538 F.3d at 651; see also id. at 652 (“[T]here is a
No. 08-1271 9
difference between a discrete issue and a discrete
dispute, and the ruling here fails to qualify as a
separable dispute.”); Saco Local Dev. Corp., 711 F.2d at 445-
46 (“[W]e conclude that a ‘final judgment, order, or
decree . . . includes an order that conclusively deter-
mines a separable dispute over a creditor’s claim or
priority.”). While Salta Group may claim that it does
not care about the interest rate it is subject to, or the way
its claim is treated within the bankruptcy plan, those
issues must be resolved before it can take an appeal.
Accordingly, we have no jurisdiction over this appeal.
Lonnie McKinney died fifteen days after oral argu-
ment. Both his attorneys and Salta Group’s have sub-
mitted briefs explaining how his death affects the
outcome of his case. McKinney’s attorneys explain
that the continuation of the proceedings depends on
whether continuing is in the best interest of the parties
and whether the case may proceed as though
McKinney’s death has occurred. See Fed. R. Bankr. P.
1016. The parties dispute whether both conditions are
satisfied. Salta Group further argues that new representa-
tives must be brought in to represent McKinney’s estate
and that the failure of McKinney’s counsel to do so
should result in dismissal. See Fed. R. Bankr. P. 7025.
Because we don’t have jurisdiction over the matter, we
take no position on the parties’ arguments. The effects
of McKinney’s death will be appropriately taken up by
the bankruptcy court in the first instance.
The appeal is D ISMISSED for want of jurisdiction.
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