Commercial Litigation and Arbitration

Disqualification — Neither a Court’s Decision to Disqualify Counsel Nor Its Refusal to Do So Is an Appealable Final Order — Nor Is a Bankruptcy Judge’s Decision to Appoint Counsel, Or Not to Do So

In re Danner (Danner v. U.S. Trustee), 2013 U.S. App. LEXIS 24798 (9th Cir. Dec. 13, 2013):

The debtors in separate bankruptcy proceedings appeal decisions of the bankruptcy appellate panel affirming orders of the bankruptcy court, which denied a law firm's applications to serve as counsel to the debtors. Because the bankruptcy court's orders were interlocutory and one of the appeals is moot, we dismiss for lack of jurisdiction.

I.  Finality

This court's jurisdiction over bankruptcy appeals is limited to appeals involving "'final decisions, judgments, orders, and decrees'" of the bankruptcy court. In re AFI Holding, Inc., 530 F.3d 832, 836 (9th Cir. 2008) (quoting 28 U.S.C. § 158(d)). A bankruptcy court order is final if it "'1) resolves and seriously affects substantive rights and 2) finally determines the discrete issue to which it is addressed.'" Id. (quoting In re Lazar, 237 F.3d 967, 985 (9th Cir. 2001)).

It is well-settled that a bankruptcy court's decision to appoint counsel is not appealable. See In re S.S. Retail Corp., 162 F.2d 1230, 1231 (9th Cir. 1998) (per curiam); In re Westwood Shake & Shingle, Inc., 971 F.2d 387, 388 (9th Cir. 1992). Although this court has not squarely held that the same is true of an order that denies an attorney's application to serve as counsel, we have suggested that it is.

See In re Westwood Shake, 971 F.2d at 389 ("Where the underlying bankruptcy court order involves the appointment or disqualification of counsel, courts have uniformly found that such orders are interlocutory even in the more flexible bankruptcy context.").

In ordinary civil litigation, neither a court's decision to disqualify counsel nor a court's refusal to do so is a final order. See Richardson-Merrell v. Koller, 472 U.S. 424, 430 (1984); Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 374 (1980).  An order that affects a party's choice of counsel in bankruptcy proceedings is no different. When a bankruptcy court accepts or rejects an attorney's application, we cannot say if the decision will seriously affect the substantive rights of any party until the case is actually litigated. See In re Westwood Shake, 971 F.2d at 390 (citing Richardson-Merrell, 472 U.S. at 439).

The only immediate effect of either acceptance or rejection is on the ability of a particular attorney to earn fees for future   services. An attorney need not submit an application to retain fees for services performed before a bankruptcy petition is filed. See 11 U.S.C. § 329(a) (requiring only disclosure). And an attorney cannot obtain fees for post-petition services until his application is approved. See Lamie v. U.S. Trustee, 540 U.S. 526, 529 (2004). Although the debtors argue that the order's effect on future earnings renders it final, an order approving of an application is interlocutory even though it affects the payment of fees and, by extension, the distribution of the estate. Our precedent thus requires us to treat the orders here as interlocutory.

Footnote 1.  Two of our sister circuits agree that orders denying an attorney's applications are interlocutory. See In re M.T.G., Inc., 403 F.3d 410, 413-14 (6th Cir. 2005); In re Devlieg, Inc., 56 F.3d 32, 33-34 (7th Cir. 1995) (per curiam) . Only the Second Circuit has concluded otherwise on materially similar facts. See In re Kurtzman, 194 F.3d 54, 57 (2d Cir. 1999) (per curiam). That decision, however, rested on the assumption that orders appointing counsel are also final, see id., at 57 & n.1 - a premise we have firmly rejected, see In re S.S. Retail, 162 F.3d at 1231; In re Westwood Shake, 971 F.2d at 388.


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