Klestadt & Winters, LLP v. Cangelosi

Citation: 
--F.3d-- (March 6, 2012, 9th Cir.); case no. 10-16974
Ruling: 
The Ninth Circuit Court of Appeals held that Appellants, the "Silar Parties" and their counsel, had no right to an immediate and interlocutory appeal from an order of the District Court awarding sanctions pursuant to Federal Rule of Bankruptcy Procedure 9011, where the order was issued by the District Court sitting as a bankruptcy court. The provisions of 28 U.S.C. Section 1291, which govern appeals to a circuit court from district courts sitting in bankruptcy, allows appeals only from "final decisions" and is more narrow in scope than 28 U.S.C. Section 158(d)(1), which gives the Court authority to hear bankruptcy appeals from "final decisions, judgments, orders and decrees" of the District Court and/or the Bankruptcy Appellate Panel, sitting as appellate courts.
Procedural context: 
The Ninth Circuit Court of appeals dismissed the appeal from the District Court for the District of Nevada, on the grounds that there is no right to an interlocutory appeal of a sanctions order issued from the District Court sitting as a bankruptcy court so that the Circuit Court lacked jurisdiction to determine the matter.
Facts: 
The so-called "Silar Parties" were a group of owners and officers of Asset Resolution, LLC, which had serviced loans that were funded in part by a group of lenders ("Lenders"). The Lenders filed suit in the District Court for the District of Nevada regarding their contractual rights under certain loan servicing agreements. Subsequently, the District Court issued a series of orders regarding the amount of compensation owed to the Silar Parties and awarding them less the full amount sought. In response, the Silar Parties filed Chapter 11 petitions with the Bankruptcy Court for the Southern District of New York. The New York bankruptcy cases were subsequently transferred back to Nevada, and the District Court withdrew the reference and converted the bankruptcy cases to Chapter 7. Then, Judge Jones, sitting in bankruptcy, awarded sanctions under Federal Rule of Bankruptcy Procedure 9011 to the Lenders, and against the Silar Parties and their legal counsel, in the amount of $279,615 (representing the Lenders' legal expenses) on account of their "improper" and "frivolous" bankruptcy filings. Further, the Court ordered that the Silar Parties' legal counsel disgorge their retainers of $300,000 each for filing and litigating the underlying case. The Silar Parties and their counsel ("Appellants") immediately appealed the sanctions awards to the Ninth Circuit, arguing that more flexible and broad jurisdictional principles apply to appeals in bankruptcy. The Ninth Circuit disagreed, holding that 28 U.S.C. Section 1291 governs appeals from a district court when it is sitting as a bankruptcy court and grants more narrow appeal rights to "final decisions." The more broad appeal rights granted by 28 U.S.C. Section 158 are applicable in bankruptcy appeals only when an appeal is taken from a decision of a district court and/or the Bankruptcy Appellate Panel when acting as appellate courts. For these reasons, the Ninth Circuit dismissed the interlocutory appeal on the grounds that it lacked jurisdiction.
Judge(s): 
The Honorable Susan P. Graper and the Honorable Sandra S. Ikuta, Circuit Judges; the Honorable Gordon J. Quist, Senior District Judge.