Barnet v. Barnet

737 F.3d 238

In re Katherine Elizabeth BARNET,Drawbridge Special Opportunities Fund LP, Appellant,

v.Katherine Elizabeth Barnet, Foreign Representative, William John Fletcher, Foreign Representative, Appellees.

Docket No. 13–612.

United States Court of Appeals, Second Circuit.

Argued: Oct. 15, 2013.

Decided: Dec. 11, 2013.

David F. Heroy (Jacob Kaplan, Baker & McKenzie LLP, New York, NY; Erin Elizabeth Broderick, Baker & McKenzie LLP, Chicago, IL, on the brief), Baker & McKenzie LLP, New York, NY, for Appellant.

Howard Seife (Madlyn Gleich Primoff, Kaye Scholer LLP, New York, on the brief), Chadbourne & Parke LLP, New York, NY, for Appellees.

Before: JACOBS, STRAUB, Circuit Judges, and KUNTZ,^* District Judge.

STRAUB, Circuit Judge:

Drawbridge Special Opportunities Fund LP (“Drawbridge”) appeals from a September 6, 2012 order of the United States Bankruptcy Court for the Southern District of New York (Shelley C. Chapman, Bankruptcy Judge ) granting recognition of a foreign main proceeding (“Recognition Order”). Because we find that 11 U.S.C. § 109(a) applies to the debtor in a foreign main proceeding under Chapter 15 of the Bankruptcy Code, we VACATE and REMAND to the Bankruptcy Court for further proceedings consistent with this opinion.

BACKGROUND

Foreign Representatives are the liquidators of Octaviar Administration Pty Ltd. (“OA”), a company incorporated in Queensland, Australia. OA was placed into “external administration” in Australia on October 3, 2008. On July 31, 2009, the Supreme Court of Queensland ordered that OA be liquidated. As part of the investigation into OA's affairs, various Australian affiliates of Drawbridge have been investigated and, on April 3, 2012, a lawsuit was commenced in Australia against certain of those affiliates seeking AUD 210,000,000.

On August 13, 2012, Foreign Representatives petitioned the Bankruptcy Court for an order recognizing the Australian OA liquidation proceeding as a foreign main proceeding pursuant to 11 U.S.C. § 1515. Drawbridge appeared and filed an objection on August 30, 2012. On September 6, 2012, the Bankruptcy Court entered the Recognition Order, and Drawbridge filed a notice of appeal to the District Court on September 20. On October 5, 2012, Foreign Representatives filed a motion seeking discovery from Drawbridge and other parties. On October 9, 2012, Drawbridge sought a stay pending appeal.

On November 28, 2012, the Bankruptcy Court granted a joint application for certification of the Recognition Order for direct appeal to this Court pursuant to 28 U.S.C. § 158(d)(2)(A)(i), (A)(iii) and (B)(i). The same day, the court entered an opinion explaining its decision. The court determined that (1) there was no controlling precedent governing its holding “that a debtor within the meaning of chapter 15 is not required to have a domicile, residence, place of business or property in the United States”; (2) the same issue was “a matter of public importance” that would “dramatically impact the jurisdiction of the United States bankruptcy courts and the use of Chapter 15 to assist in the administration of cross-border insolvency cases and the legitimate investigation of claims and assets in the United States”; and (3) a direct appeal would “materially advance the progress of this Chapter 15 case.” Mem. Op. in Supp. of Certification of Direct Appeal to the Court of Appeals for the Second Circuit at 6, 9, In re Barnet, No. 12–13443, Dkt. No. 47 (Bankr.S.D.N.Y. Nov. 28, 2012).

The Bankruptcy Court denied Drawbridge's motion to stay discovery on December 10, 2012, and granted Foreign Representatives' discovery motion on December 12. The parties filed a joint application for direct appeal on December 21. On February 21, 2013, we granted the joint application and issued a stay of 17 discovery.

DISCUSSION

I. Appellate Standing

This case presents an unusual jurisdictional thicket. Foreign Representatives argue that Drawbridge lacks appellate standing because Drawbridge is not aggrieved by the Recognition Order—the order named in the parties' joint request for direct appeal. We agree that, under the facts of this case, Drawbridge may not appeal from the Recognition Order. However, that conclusion does not end our analysis. The Bankruptcy Court's subsequent discovery order cured the jurisdictional infirmity notwithstanding the parties' failure to discuss the discovery order in the joint request for direct appeal. In effect, we construe the appeal as being from the discovery order, which appeal brings up for review the non-final Recognition Order that was a necessary prerequisite to discovery.

A. The Recognition Order

We first consider whether Drawbridge is permitted to appeal from the Recognition Order. As this appeal is direct, the issue of appellate standing was not expressly addressed by any lower court opinion. Regardless, we review jurisdictional questions of law de novo. See Adams v. Zarnel ( In re Zarnel ), 619 F.3d 156, 161 (2d Cir.2010) (“[W]e must first determine whether we have jurisdiction. ... We review these legal issues [standing and mootness] de novo.”).

“The current Bankruptcy Code prescribes no limits on standing beyond those implicit in Article III of the United States Constitution. Congress has given us jurisdiction over all final decisions, judgments, orders, and decrees of the district courts in bankruptcy cases....” DISH Network Corp. v. DBSD N. Am., Inc. ( In re DBSD N. Am., Inc.), 634 F.3d 79, 88 (2d Cir.2011) (internal citations and quotation marks omitted). Nonetheless, our precedents establish “ ‘that in order to have standing to appeal from a bankruptcy court ruling, an appellant must be a person aggrieved—a person directly and adversely affected pecuniarily by the challenged order of the bankruptcy court.’ ” Id. at 89 (internal quotation marks omitted) (quoting Int'l Trade Admin. v. Rensselaer Polytechnic Inst., 936 F.2d 744, 747 (2d Cir.1991)).¹ This test is “stricter than Article III's ‘injury in fact’ test,” and its “stringency ... is rooted in a concern that freely granting open-ended appeals to those persons affected by bankruptcy court orders will sound the death knell of the orderly disposition of bankruptcy matters.” Licensing by Paolo, Inc. v. Sinatra ( In re Gucci ), 126 F.3d 380, 388 (2d Cir.1997); see In re DBSD N. Am., Inc., 634 F.3d at 110 (quoting In re Gucci, 126 F.3d at 388).

The Recognition Order neither names Drawbridge nor directs any relief against Drawbridge. Nor does Drawbridge argue that it is affected by the automatic relief provided for in 11 U.S.C. § 1520.²See Morning Mist Holdings Ltd. v. Krys ( In re Fairfield Sentry Ltd.), 714 F.3d 127 (2d Cir.2013) (considering an appeal from a recognition order by the party aggrieved by the automatic stay imposed by 11 U.S.C. § 1520(a)(1)). Instead, Drawbridge relies on the fact that at oral argument on the Recognition Order, Foreign Representatives stated their “intention ... to take discovery” of the American “directors of the Drawbridge affiliates that were sued in Australia.” Tr. of Record at 28:2–5, In re Octaviar Administration Pty. Ltd., No. 12–13443 (Bankr.S.D.N.Y. Sept. 6, 2012).

Were we to accept this argument, however, it would undermine the pecuniary interest test and ignore our “concern that if appellate standing is not limited, bankruptcy litigation will become mired in endless appeals brought by the myriad of parties who are indirectly affected by every bankruptcy court order.” Kabro Assocs. of W. Islip, LLC v. Colony Hill Assocs. ( In re Colony Hill Assocs.), 111 F.3d 269, 273 (2d Cir.1997) (internal quotation marks omitted). It is not the intentions of a litigant that cause pecuniary harm but the relief directed by a Bankruptcy Court, and here the Recognition Order contained no relief that affected Drawbridge.

Indeed, we have explicitly stated that “potential harm” from a bankruptcy court order is insufficient to justify appellate standing. See Kane v. Johns–Manville Corp. ( In re Johns–Manville Corp.), 843 F.2d 636, 642 n. 3 (2d Cir.1988) (noting that “potential harm incident to the bankruptcy court's orders” is insufficient to render a party “directly and pecuniarily affected by them”). Accord Nat'l Fire Ins. Co. of Hartford v. Thorpe Insulation Co. ( In re Thorpe Insulation Co.), 393 Fed.Appx. 467, 469 (9th Cir.2010) (summary order) (“Courts of appeal routinely deny standing ‘to marginal parties involved in bankruptcy proceedings who, even though they may be exposed to some potential harm incident to the bankruptcy court's order, are not directly affected by that order.’ ” (quoting Travelers Ins. Co. v. H.K. Porter Co., 45 F.3d 737, 741 (3d Cir.1995))); Duckor Spradling & Metzger v. Baum Trust ( In re P.R.T.C., Inc.), 177 F.3d 774, 778 (9th Cir.1999) (endorsing our distinction in In re Johns–Manville between a “creditor opposing a plan of reorganization,” who has standing, and “marginal parties ... who face potential harm,” who do not).

Here, the Recognition Order subjected Drawbridge only to potential future harm. To hold otherwise would ignore the Bankruptcy Court's discretion to deny discovery under 11 U.S.C. § 1521. It follows that the Recognition Order was not appealable by Drawbridge when issued.

B. The Discovery Order

Although we conclude that a recognition order is not itself appealable by a party that is not directly affected by the relief that order provides, this conclusion does not end our standing analysis. Here, Drawbridge is aggrieved by an order of the Bankruptcy Court—the discovery order issued on December 12, 2012. We next consider whether that order is appealable and conclude that it is.

Because they are not final orders, the general rule is that discovery orders are not appealable unless the object of the discovery order refuses to comply and is held in contempt. See, e.g., Golan v. Am. Airlines, Inc. ( In re Air Crash at Belle Harbor, N.Y. on Nov. 12, 2001 ), 490 F.3d 99, 104 (2d Cir.2007); Glotzer v. Stewart ( In re S.E.C....