The Fourth Circuit held unanimously earlier this week in McDow v. Dudley that a bankruptcy court’s order denying a motion to dismiss as abusive under § 707(b) is an appealable final order. Judge Niemeyer wrote the opinion for the Court, which was joined in by Judge King and Judge Agee. The opinion discusses the pragmatic and flexible nature of the finality inquiry in bankruptcy, as compared, for instance, to the operative conception of finality regarding denial of a motion to dismiss under Rule 12 of the Federal Rules of Civil Procedure. The opinion also discusses congressional intent evident in modifications to § 707(b) in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). Some key language:
We agree with the circuits that have specifically addressed both the current and prior versions of § 707(b) and hold that a bankruptcy court’s order denying a § 707(b) motion to dismiss a Chapter 7 case as abusive is a final order within the meaning of 28 U.S.C. § 158(a). Section 707(b) creates a statutory gateway based on whether the case is abusive, and an order denying that motion to dismiss as abusive, in effect, finally and conclusively resolves the issue. If the denial of a § 707(b) motion to dismiss cannot be appealed immediately to the district court, the Chapter 7 proceedings would have to be completed before it could be determined whether the proceedings were abusive in the first place. See In re Koch, 109 F.3d at 1288 (citing In re Christian, 804 F.2d at 48).
This case presents a good example of the problem that denying an immediate appeal creates. The bankruptcy court denied the Trustee’s motion to dismiss for abuse because the court concluded that § 707(b) does not apply to cases converted from Chapter 13 to Chapter 7, even though the court recognized that the “majority of courts having considered the question” disagreed. In re Dudley, 405 B.R. at 793 n.2. The district court was thus presented with the purely legal question of whether § 707(b) should apply and could not therefore have concluded that further development of the case would shed new light on the issue. See In re Rudler, 576 F.3d at 43. Nonetheless, the district court required the bankruptcy proceedings to be completed by liquidating the debtor’s assets and distributing the proceeds to creditors before the district court even determined whether the petitioners had the right to file their petition in the first place.
It is readily apparent that pragmatic considerations of preserving resources for creditors in bankruptcy and promoting judicial economy weigh heavily in favor of recognizing the finality of an order denying a § 707(b) motion to dismiss. Delaying appellate consideration of abuse could “frustrate both principles of judicial economy and Congress’s goal of ensuring that debtors allocate as much of their resources as possible toward repaying their debts.” In re Rudler, 576 F.3d at 43. The resources of the debtor could be wasted in completing the bankruptcy proceeding before finally resolving the abuse issue. “Requiring trustees to complete Chapter 7 proceedings before appealing denial of their § 707(b) motions wastes debtor resources that should be used to pay creditors, and forces trustees and bankruptcy courts to expend their scarce institutional resources on abusive Chapter 7 petitioners.” In re Koch, 109 F.3d at 1288.