In Re: Aramid Entertainment Fund Limited

Background

David Molner appealed an April 30, 2021 order by the United States Bankruptcy Court for the Southern District of New York. That order denied Molner’s motion asking the bankruptcy court to abstain from hearing his state-court lawsuit and to send the lawsuit back to New York state court.

Molner had worked for Aramid Entertainment Fund Limited, one of the debtors in the underlying Chapter 11 bankruptcy proceedings. He alleged that Reed Smith LLP, several Reed Smith lawyers, and other defendants falsely supported his plan to liquidate the Fund in the Cayman Islands, while secretly planning to remove him from control and commence bankruptcy proceedings in the United States. In the state-court summons, Molner identified claims including fraud, fraudulent concealment, constructive fraud, breach of confidence, unjust enrichment, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, breach of fiduciary duty, and breach of a written joint defense agreement.

The defendants removed the state-court action to the district court, arguing that it was connected to the Aramid bankruptcy. The district court transferred the matter to the bankruptcy court. Molner then sought abstention and remand. The bankruptcy court denied that request, finding that his allegations were closely connected to the bankruptcy and depended in substantial part on events and orders from the bankruptcy proceedings.

Issues on Appeal

The defendants moved to dismiss Molner’s appeal for lack of appellate jurisdiction. The district court considered whether the bankruptcy court’s order was appealable as a final order, whether it qualified for the collateral-order exception to the usual final-judgment rule, and whether the court should grant permission for an interlocutory appeal.

Finality

Under 28 U.S.C. § 158(a)(1), a district court generally may hear an appeal from a final bankruptcy-court judgment, order, or decree. The district court explained that an order is final in this setting only when it completely resolves at least an entire claim or other discrete dispute. An order refusing to abstain does not resolve the underlying claims; it only determines which court will adjudicate them.

Following Second Circuit precedent, the court held that the bankruptcy court’s denial of abstention and remand was not a final order. It therefore was not appealable as of right.

Collateral-Order Exception

The court also rejected Molner’s argument that the order was immediately appealable under the collateral-order doctrine. That doctrine applies only to a narrow group of orders that conclusively decide an important issue separate from the merits and cannot effectively be reviewed after final judgment.

The court distinguished orders granting abstention, which transfer jurisdiction to a state court, from orders refusing to abstain. A refusal to abstain ordinarily can be reviewed after the case reaches a final judgment. The court rejected Molner’s concerns that a later appeal could require the parties to repeat litigation or that a state court might be influenced by a bankruptcy court ruling. Those concerns did not create the exceptional circumstances necessary for immediate review.

Permission for an Interlocutory Appeal

A district court may permit an appeal from an otherwise nonfinal bankruptcy-court order in exceptional circumstances. The applicable standard requires a controlling legal question, substantial disagreement about that question, and a showing that an immediate appeal may materially advance the end of the litigation.

The court assumed, without deciding, that the first two requirements might be met. It held that Molner failed to establish the third. In the court’s view, an immediate appeal at that stage could prolong the litigation rather than advance its resolution. Molner therefore did not show the exceptional circumstances required for permission to appeal.

Disposition

The court granted the defendants’ motion to dismiss the appeal for lack of jurisdiction. The court also denied Molner leave to appeal the bankruptcy court’s interlocutory order. It directed the clerk to terminate the motion and close the case. The district court did not decide whether Molner’s underlying allegations were legally or factually valid.