2009 Chapter 11 Recent Developments (Part I)

does not mean that the FDIC is afforded better treatment in such a case. Thus, it is entitled to ninth priority pursuant to § 507(a)(9). The only consequence Congress dealt a debtor who did not pay its obligation under § 365(o) is the debtor's inability to reorganize under chapter 11.

Official Committee of Unsecured Creditors v. Western United Life Assurance Co. (In re Tri-Valley Distributing, Inc.), 533 F.3d 1209 (10th Cir. 2008)

Facts: Tri-Valley Distributing, Inc. ("Tri-Valley"), Cook Oil Company, Snobird, Inc. (collectively, the "Debtors") filed for chapter 11 in November 2001. Post-petition and without the approval of the bankruptcy court, Tri-Valley transferred title to real property (the "Property") to Seven C Enterprises, Inc. ("Seven C"). Later, Western United Life Assurance Co. ("WULA") loaned money to Speedy Turtle Petroleum, Inc. ("Speedy Turtle"), which was secured in part by the Property. Speedy Turtle defaulted on the loan and WULA foreclosed on the Property. Later still, WULA was placed into a receivership by a Washington state court. In March 2004, the Debtors (including the Committee) sued WULA, as a creditor of Seven C (based on the loan to Speedy Turtle) alleging, inter alia, fraudulent conveyance and negligent lending (the "Other Claims"). In October 2004, the Washington state court stayed all litigation as to the Receiver's title to WULA's assets. In December, the bankruptcy court allowed the Debtors to amend the complaint to avoid the Receiver's title in the Property (the "Property Claims") based on an unauthorized post-petition transfer claim. WULA filed a motion to dismiss and claimed that it was prohibited by the McCarran-Ferguson Act, which the bankruptcy court granted and denied in part. The bankruptcy court said that the McCarran-Ferguson Act did not apply to the Property Claims and denied WULA's motion on that portion of the complaint, but granted the motion as to the Other Claims. WULA and the Debtors appealed to the BAP. The BAP said that it had jurisdiction over the appeal under the collateral order doctrine and affirmed the bankruptcy court but held that the bankruptcy court's decision that the McCarran-Ferguson Act applied to the Other Claims was in error although it could have permissibly abstained under 28 U.S.C. § 1334(c)(1). Issues: Whether the court of appeals has jurisdiction over the Debtors' and WULA's appeal of the bankruptcy court's order dismissing the Debtors' complaint in part and the BAP's order affirming the bankruptcy court's order, but on a different basis.

Rules:

(1) "[L]ook to the order of the BAP itself [instead of the order from the bankruptcy court], determining whether it is final by considering the effect that the order will have in the context of the particular appeal. If the BAP's order results in significant further proceedings in the bankruptcy court, the BAP's order is not final, and we do not have jurisdiction to consider an appeal therefrom ... If the BAP's decision does not cure the nonfinal character of the bankruptcy court order... then the BAP's decision is likewise not final."

Holding: Appeal dismissed for lack of jurisdiction.

Reasoning:

(1)

Because the bankruptcy court's order only resolved part of the adversary proceeding, it was not final; and because the BAP's order did not cure the nonfinal character of the order, it is likewise not final and appealable under § 158(d)(1).

(2)

The court does not have jurisdiction over the appeal even under the collateral order doctrine.

a.

As to WULA's appeal, the bankruptcy court's order does not fall under the collateral order doctrine because it is not effectively unreviewable on appeal from entry of a final judgment in the adversary proceeding because the Washington Uniform Insurers Liquidation Act does not create an exclusive forum in Washington state court. Moreover, the bankruptcy court's jurisdiction (in light of the state court's injunction) is reviewable on appeal.

b.

As to the Debtors' appeal, based on the papers and the bankruptcy court's order, it is not possible to determine whether it is a final collateral order. As for the BAP's order, with regard to the portion affirming the bankruptcy court's order of the Property Claims, the collateral order doctrine does not