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Bankruptcy Law

An Interlocutory Order Can Become Final When Reversed On Appeal

By Michael Enright

After obtaining relief from the automatic stay in the bankruptcy case of one of its two borrowers (the other borrower was not in bankruptcy), the lender completed a real estate foreclosure in Illinois state court. The lender did not seek a deficiency judgment against the bankrupt borrower in the state court, it only sought one against the nonbankrupt borrower. Subsequently, the lender sought to have the Bankruptcy Court allow a deficiency claim against the bankrupt borrower. The bankrupt borrower asked the Bankruptcy Court to hold that the lender was too late in asking, because it had not sought a deficiency in the state court, but the Bankruptcy Court declined. The debtor then took an interlocutory appeal pursuant to 28 U.S.C. Section 158(a)(3) , and the District Court reversed. The lender then appealed from the District Court’s ruling, and the Court of Appeals took up the issue of whether it could hear the lender’s appeal. Although the Bankruptcy Court’s order was not a final order for appeal purposes, the District Court’s order clearly was.  The Court of Appeals held that the appeal was properly before it. Matter of Anderson, Case No. 17-3073 (7thCir. February 26, 2019) . The Court reasoned that when an interlocutory decision by a bankruptcy judge is reversed by a ruling that leaves no more work for either the Bankruptcy Court or the District Court, the decision is final, making an appeal to the Court of Appeals proper. The Court even provided a handy table to help visualize the possible permutations, depending on whether a Bankruptcy Court’s decision is final or not, and whether the District Court’s decision is final or not, for purposes of appeal to the Court of Appeals. The decision is also an interesting exercise in outlining the correct approach for preclusion analysis in situations where litigation has occurred in state court, and inconsistent relief is afterwards sought in a federal court.

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