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holding that the Court's acknowledgment that the issue decided was a “close call” and one “on the razor's edge” did not support a finding of “substantial ground for difference of opinion” under 28 U.S.C. § 1292(b)
Summary of this case from Newsome v. Young Supply Co.Opinion
No. 01 C 4370
February 5, 2002
MEMORANDUM OPINION AND ORDER
This case is before the Court on defendants/appellants Carolyn Kontrick and Andrew J. Kontrick's motion for leave to appeal an interlocutory order entered by Judge John D. Schwartz of the United States Bankruptcy Court for the Northern District of Illinois. For the following reasons, we deny leave to appeal the bankruptcy court's order.
BACKGROUND
Andrew J. Kontrick, M.D. filed a chapter 7 bankruptcy case on April 4, 1997. John E. Gierum was appointed trustee for his bankruptcy estate. On April 2, 1999, the trustee filed a complaint against Kontrick's wife, Carolyn Kontrick, and his service corporation, Andrew J. Kontrick, M.D.S.C., seeking to recover alleged fraudulent transfers of Kontrick's salary from Carolyn or the service corporation.
The defendants moved to dismiss this initial complaint for failure to plead fraud with particularity pursuant to Federal Rule of Civil Procedure 9(b) and its parallel provision Federal Rule of Bankruptcy Procedure 7009. In response to this motion, the trustee withdrew the first complaint and requested leave to file an amended complaint. The defendants again moved to dismiss the amended complaint on the grounds of insufficient pleading of fraud and again the trustee withdrew the complaint.
On November 22, 1999, the trustee filed his Second Amended Complaint. Once again, the defendants moved to dismiss this complaint for, among other things, a failure to plead fraud with sufficient particularity. The trustee did not withdraw this complaint and on April 27, 2000, Judge Schwartz issued an opinion granting the motion to dismiss. In his opinion, Judge Schwartz indicated that the trustee would "have one final bite at the apple to properly plead consistent and explicit facts to support the allegations in the Complaint." (Mem Op. at 1-2.)
On May 30, 2000, the trustee filed his Third Amended Complaint naming Carolyn and the Kontrick service corporation as defendants and raising essentially the same allegations he had in the earlier complaints. Specifically, the trustee alleged that sometime in either 1992 or 1993, the debtor, Andrew Kontrick, no longer possessed a personal checking account and that, as a consequence, he deposited his salary into an account opened in his wife's name. The Third Amended Complaint also stated that Kontrick disclosed to a creditor, Robert Ryan, during the course of a citation to discover assets in June 1993, that he did not have any assets to satisfy a judgment entered against him in the Circuit Court of Cook County.
The defendants moved to dismiss the Third Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) (Federal Rule of Bankruptcy Procedure 7012). In their motion, the defendants maintained that the trustee's latest complaint did not cure the defect (i.e. conclusory allegations of transfers to the service corporation) that had compelled the court to dismiss the previous complaint. Specifically, the defendants argued that, though transfers were made by the corporation, there were no factual allegations to establish the trustee's claim that the corporation also received some undefined amount of Kontrick's salary every time it issued a check.
The defendants also asserted that the trustee's claim was barred by laches because Ryan knew at the time of the citation to discover assets in June 1993 that Kontrick no longer had a bank account in his own name and that his salary was being deposited into a family account in his wife's name. The defendants argued that Ryan could have at that point brought legal action to challenge this practice if it was actually fraudulent. Instead, defendants claimed that Ryan acquiesced in the financial arrangement and allowed the alleged fraudulent transfers to accumulate over a period of numerous years.
The bankruptcy court held a status hearing on December 21, 2000 on the motion to dismiss. At that time, the court stated that the trustee's complaint was on the "razor's edge" and that the trustee stated a claim by only a "millimeter." Nevertheless, Judge Schwartz denied the motion to dismiss holding that the same transfers made by the service corporation could, at the same time, also constitute transfers to the service corporation, and thus the trustee's complaint did in fact state a claim. On March 22, 2001, the bankruptcy court denied the defendants' motion to reconsider its denial of the motion to dismiss.
DISCUSSION
The denial of a motion to dismiss by a bankruptcy court is an interlocutory order. As a result, the defendants/appellants may appeal such an order of the bankruptcy court only if they obtain leave of the district court. 28 U.S.C. § 158 (a). It is within the district court's discretion to decide whether to allow the appeal. In re Jartran, Inc., 886 F.2d 859, 866 (7th Cir. 1989). Although the Bankruptcy Code does not provide an explicit standard for assessing the appropriateness of such an appeal, courts in this district have applied the standard set forth in 28 U.S.C. § 1292 (b), which governs interlocutory appeals from the district court to the court of appeals, to the bankruptcy context. See, e.g., In re OBT Partners, 218 B.R. 418, 419 (N.D. Ill. 1998); In re Energy Insulation, Inc., 143 B.R. 490, 493 (N.D. Ill. 1992) (citing In re Lifschultz Fast Freight Corp., 127 B.R. 418 (N.D. Ill. 1991)); In re Bowers-Siemon Chemicals Co., 123 B.R. 821, 824 (N.D. Ill. 1991).
District courts applying the standard set forth in § 1292(b) in bankruptcy appeals have adopted its three part test. Under the three part test, an interlocutory appeal is appropriate when it: 1) involves a controlling question of law; 2) over which there is a substantial ground for difference of opinion; and 3) an immediate appeal from the order may materially advance the termination of the litigation. See 28 U.S.C. § 1292 (b); Trustee of Jartran, Inc v. Winston Strawn, 208 B.R. 898, 900 (N.D. Ill. 1997); In re Capen Wholesale, Inc., 184 B.R. 547, 549 (N.D. Ill. 1995). In considering the Kontrick's motion for leave to appeal the bankruptcy court's interlocutory order denying the motion to dismiss under 28 U.S.C. § 158 (a), the Court adopts the three part test of § 1292(b).
The Seventh Circuit has recently provided additional guidance to district courts in this circuit regarding the correct application of the § 1292(b) three part test. In Ahrenholz v. Board of Trustee of the Univ. of Illinois, 219 F.3d 674 (7th Cir. 2000), the court provided a definition of "question of law" that is instructive in this case. The court stated that a "question of law" as used in § 1292(b) "has reference to a question of the meaning of a statutory or constitutional