2d Circuit Rules that 9019 Order Approving Settlement Is Final Upon Entry Even Though Separate Stipulated Judgment Hadn't Been Entered and Condition Precedent Hadn't Been Satisfied

Knowing when a bankruptcy order is final and appealable is not always obvious in a bankruptcy case, as demonstrated by a recent decision from the Second Circuit in In re The Bennett Funding Group, Inc., 2006 WL 436006 (2d Cir., 2/24/06). You may recall The Bennett Funding Group, which in 1997 had earned the dubious distinction of being the largest Ponzi scheme in history. This scheme was effected through sales of bogus equipment leases, often pledged to multiple parties as collateral, and resulted in nearly $700 million in losses to approximately 12,000 hapless investors. It also landed Patrick Bennett, the Group's CFO, 30 years in jail.

Here, after nearly six years of litigation over who had right to insurance proceeds to cover shortfalls in lease collections, the bankruptcy trustee and the settlement class in the District Court for the Southern District of New York reached an agreement with certain lease collection insurers for payment of $27.5 million in exchange for full releases. The agreement, however, was expressly conditioned upon the occurrence of two events:

  • first, entry of an order by the Bankruptcy Court for the Northern District of New York approving the settlement "substantially in the form annexed" (which proposed form of order was styled as a "Final Order and Judgment Pursuant to Rule 54(b) of the Federal Rules of Civil Procedure and to Rules 7054(B) and 9019 of the Federal Rules of Bankruptcy Procedure Approving Settlement and Compromise of Trustee's Claims Against the Settling Defendants");
  • second, entry of a judgment approving the settlement agreement in the parallel class action case pending in the Southern District of New York.

According to the Second Circuit, the relevant facts were as follows:


  • On May 22, 2003, the Bankruptcy Court issued a "Memorandum Decision, Findings of Fact, Conclusions of Law, and Order" on May 22, 2003 that granted the Trustee's 9019 motion and authorized the Trustee to consummate a settlement agreement.
  • On June 12, 2003, the District Court for the Southern District of New York in connection with related class action litigation also approved the settlement agreement pursuant to a "Final Order and Judgment." The Southern District then remanded the case to the Bankruptcy Court for the distribution of settlement proceeds.
  • On June 17, 2003, the objectors to the 9019 settlement moved to alter or amend the 9019 order pursuant to Rules 9023 and 9024 of the Federal Rules of Bankruptcy Procedure (which adopt Fed. R. Civ. P. 59 and 60, respectively).
  • On June 23, 2003, pursuant to Rule 8002(c) of the Federal Rules of Bankruptcy Procedure (which permits a motion to extend the time to file a notice of appeal, but if the motion is filed untimely, requiring "excusable neglect"), the objectors moved the Bankruptcy Court for an extension of time to file a notice of appeal from the 9019 Order and filed a notice of appeal from that Order.
  • On July 10, 2003, the Clerk of the Bankruptcy Court issued a certificate of non-compliance to the objectors, noting that the notice of appeal from the 9019 Order was untimely under Rule 8002.
  • On February 9, 2004, the Bankruptcy Court ruled that the 9019 motion arose as "a discrete matter within the larger bankruptcy case," that the appeal was not timely filed, and that the objectors' other requests relief lacked merit.
  • On February 2, 2005, the Northern District Court affirmed the bankruptcy court's judgment.

The Second Circuit affirmed, rejecting the appellants' arguments that "the Bankruptcy Court's 9019 Order did not constitute a final order [because]: (i) the 9019 Order did not conform to the proposed Final Order and Judgment that was attached to the Agreement; and (ii) the Agreement upon which it was based was contingent upon the Southern District Court's entry of a final judgment approving the Agreement." The Second Circuit ruled first that "nonconformity of the 9019 Order with the stipulated form of judgment did not affect the finality of the 9019 Order, which is final on its face." It then ruled, consistent with the Bankruptcy Court's ruling, that "the approval of the Bankruptcy Court and the approval of the Southern District Court were each 'distinct' and that each approval 'was, itself, a final order.'"

In conclusion, the Second Circuit summed up its views on finality as follows:

We recognize "the strong federal policy against piecemeal appeals," Fugazy, 982 F.2d at 775, but believe that our conclusion in this case does not contravene that policy. Once the Bankruptcy Court issued the 9019 Order there was simply nothing further to be done in the Bankruptcy Court, and the case was ripe for appeal despite the pending approvals of other courts. In a situation such as this, where various courts must all approve a settlement before it becomes effective, having finality of one court's order turn on the actions of a different court, the rule advanced by [the objectors], is a recipe for confusion. Any inefficiencies resulting from separate appeals of other court approvals of a settlement are outweighed by the need for finality of bankruptcy court orders of approval. This is so because even greater inefficiencies would be the consequence if a party could not seek review of an otherwise final bankruptcy court order approving a settlement until another court ruled, weeks, months, or even years later. For the foregoing reasons, we hold that the Bankruptcy Court Order of May 22, 2003, was a "final order" and, therefore, that [the objector's] ten-day window to file a notice of appeal began to run on that day.

© Steve Jakubowski 2006

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