In the Matter of Ferguson

In re Ferguson, No. 15-3093 (7th Cir. August 23, 2016) (unpublished)
In the bankruptcy context, an appeal lacks jurisdiction when a case is remanded deciding only an issue without resolving the underlying dispute, because such decision is not final.
Procedural context:
West Central shared a lien on farm equipment and crops with First Community Bank. However, First Community’s loan also had a lien on a farm mortgage. When the equipment and crops were sold, West Central requested the bankruptcy court allow First Bank to recoup its loan through the mortgage to allow West Central to be repaid through the sale of the equipment and crops. This process is called marshaling. The bankruptcy court initially denied the marshaling request and awarded First Community $238,000 from the sale of equipment and crops. However, after the parties did not agree on a repayment plan the court converted the case into a Chapter 7 liquidation, and the farm was sold for $411,000. Upon a second request from West Bank to allow marshaling, the bankruptcy court approved. In that scenario the $238,000 First Community initially received would be accounted as if they were received from the farmland sale. West Central would then be paid first from the actual land sale proceeds, First Bank would recover its remaining balance, and the remainder would go to pay the huge tax bills. The trustee and Debtor appealed to the district court. The district court reversed and remanded holding that marshaling was proper “only if two funds exist simultaneously. Because the money from one fund had been paid out […] only the other fund still exists.” Lacking precedent to support West Central’s argument, the district court remanded and ordered the bankruptcy court to resolve the case without marshaling. Upon West Central’s appeal to the Seventh Circuit Court, the court never reached the merits of the claim, as the court lacked jurisdiction. The Seventh Circuit explained that under 28 U.S.C. § 158(d)(1), “[i]n bankruptcy cases this court has jurisdiction over appeals from ‘final decisions, judgments, orders, and decrees’ of the district court.” The court distinguished issues vs. disputes, and pointed to the Supreme Court’s decision in Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015), in which the court held that a judgment is not final if the court is merely deciding an issue without resolving the underlying dispute. The court found that in this particular case, whether or not marshaling should be allowed is only an issue, and the dispute, the amount of money each party receives, is the underlying dispute. Therefore, the district court’s decision was not final. Lacking appellate jurisdiction, the Seventh Circuit affirmed the district court’s decision.
The Fergusons (the “Debtors”) owed a secured creditor $300,000 secured by a mortgage and a lien on farm equipment and crops, and West Central (the “Bank”) $176,000 secured by a junior lien on the equipment and crops. The equipment yielded $238,000 while Debtors kept the farm in hopes of a reorganization. Marshaling was not allowed and the senior creditor was awarded $238,000. The court eventually was converted to a Chapter 7 liquidation. The farm sold and the Bank requested marshaling to be applied retrospectively. Here, the Bank appeals the district court’s remand of the bankruptcy court’s marshaling approval.
Shadid, Easterbrook, Rovner, and Hamilton.

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