In Re: Genger

Background

Sagi Genger, a creditor of Orly Genger’s bankruptcy estate, asked the United States Bankruptcy Court for the Southern District of New York to dismiss Orly’s Chapter 7 bankruptcy petition. He relied on 11 U.S.C. § 305(a) and § 707(a). The Bankruptcy Court denied that motion and later denied reconsideration.

Sagi then filed a notice of appeal and asked the District Court for permission to take an interlocutory appeal. An interlocutory appeal is an appeal before the lower court has entered a final order. He principally challenged the Bankruptcy Court’s lengthy decision following a trial, which concluded that he had not established a basis for dismissing the Chapter 7 petition. He also appeared to seek review of a 2021 evidence-related ruling that allowed certain non-family creditors to participate in the trial and denied part of his request to exclude evidence.

Reason for Denial

Judge McMahon applied the stringent standard for permission to appeal a nonfinal Bankruptcy Court order. The proposed appeal had to involve a controlling legal question, a substantial disagreement about that legal question, and an immediate appeal that could materially advance the end of the litigation. Even if those conditions were met, permission would remain discretionary and limited to exceptional circumstances.

The District Court held that Sagi failed to satisfy the first requirement. Sagi argued that the Bankruptcy Court improperly relied on In re Grullon instead of the fourteen-factor test described in In re Lombardo for deciding whether a Chapter 7 petition was filed in bad faith. Judge McMahon explained that the Bankruptcy Court had also applied and made factual findings concerning all fourteen Lombardo factors. Because the denial of dismissal would remain valid under that alternative standard even if the discussion of Grullon were wrong, Grullon was not a controlling legal question in this case.

The court further held that the parties did not substantially disagree about the governing Lombardo legal standard. Their disagreements concerned the Bankruptcy Court’s factual findings, and errors in factual findings do not support an interlocutory appeal from a nonfinal order.

Reconsideration and Sanctions

The District Court also denied permission to appeal the ruling on reconsideration. Judge McMahon rejected Sagi’s claim that the Bankruptcy Court improperly allowed Orly to use attorney-client privilege as both a shield and a sword. The court said Orly had not relied on advice-of-counsel reasoning to defeat Sagi’s bad-faith challenge, and that she had testified about communications with her bankruptcy counsel at the hearing.

The opponents’ request for sanctions was denied as well. The District Court directed the clerk to remove Sagi’s motion from the list of open motions and close the case. The order stated that the case was not to be reopened if there were an appeal from a later final Bankruptcy Court order; that would be a new matter.