Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-06026/USCOURTS-ca8-04-06026-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

_______________

No. 04-6026NI

________________

In re: *

*

Gilbertson Restaurants, LLC; *

Beaton, Inc.; *

KC Beaton Holding Co., LLC; and *

Beaton Holding Co., LC *

*

Debtors. *

*

*

FL Receivables Trust, 2002-A *

* Appeal from the United States

Creditor - Appellant, * Bankruptcy Court for the Northern

* District of Iowa

v. *

*

Gilbertson Restaurants, LLC; *

Beaton, Inc.; *

KC Beaton Holding Co., LLC; *

Beaton Holding Co., LC *

*

Debtors - Appellee. *

_____

Submitted: August 26, 2004 

Filed: October 14, 2004

_____

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1

 The Honorable David P. McDonald, United States Bankruptcy Court for

the Eastern District of Missouri, sitting by designation.

2

 The Honorable Paul J. Kilburg, United States Bankruptcy Judge for the

Northern District of Iowa.

3 The law firms are Heller, Draper, Hayden, Patrick & Horn, L.L.C., of

New Orleans, Louisiana, and Belin Lamson McCormick Zumbach Flynn, P.C., of

Des Moines, Iowa. After the bankruptcy court entered its order, Matthew Cronin

withdrew as an attorney for the Debtor.

2

Before MAHONEY, VENTERS, and MCDONALD,1 Bankruptcy Judges.

_____

VENTERS, Bankruptcy Judge.

This is an appeal from an order of the bankruptcy court2

 approving the

employment of Douglas S. Draper, Thomas L. Flynn, Matthew T. Cronin,3

 and their

associated law firms (collectively, “Heller and Belin”), as attorneys for the jointly

administrated bankruptcy estates of Gilbertson Restaurants, LLC (“Gilbertson”),

Beaton, Inc. (“Beaton”), KC Beaton Holding Co., LLC (“KC Beaton”), and Beaton

Holding Co., LLC (“Beaton Holding”) (collectively, the “Debtors”). A creditor, FL

Receivables Trust 2002-A (“FL Trust”), objected to the bankruptcy court’s approval

of that employment on the grounds that the Debtors’ counsel represent interests

adverse to the individual debtor estates, are not disinterested persons, made

inadequate Federal Rule of Bankruptcy Procedure 2014(a) disclosures, and that the

bankruptcy court misapplied the law. 

On May 27, 2004, an administrative panel of this Court granted leave to FL

Trust to file an interlocutory appeal of the bankruptcy court’s order, reasoning that

an immediate appeal would materially advance the reorganization process. For the

reasons stated below, we have determined that leave to appeal the interlocutory order

was improvidently granted and that the appeal should be dismissed.

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 Perry and Carol Beaton only own 75% of Gilbertson; the remaining 25%

is owned by Todd Gilbertson. KC Beaton is owned by Perry Beaton (30%), Carol

Beaton (30%), and Perry and Carol Beaton’s two sons, Ryan Beaton (20%) and

Kelly Beaton (20%). Perry and Carol are the equal and sole owners of Beaton and

Beaton Holding.

5

 Before the petition date, Gilbertson had paid the Debtors’ proposed

counsel $4,292.04 on December 16, 2003, $15,072.97 on January 13, 2004, and

$1,496.45 on January 27, 2004. 

3

I. BACKGROUND

Two of the companies involved in these jointly administered cases, Gilbertson

and Beaton, operate some twenty-six Burger King restaurants in Missouri, Iowa, and

Illinois. They lease the restaurant properties from KC Beaton and Beaton Holding,

respectively. The rental amounts are based on the volume of business. All of the

debtor entities are owned or controlled by Perry Beaton and Carol Beaton.4

Although the four companies arguably are “mutually dependent” and operate as a

“single common enterprise” for the purpose of owning and operating Burger King

franchises, several inter-company claims allegedly exist.

After the Debtors filed Chapter 11 bankruptcies on February 10, 2004, the

Debtors’ proposed counsel submitted their applications for employment to the

bankruptcy court for approval. FL Trust, the successor to a $3.5 million pre-petition

loan to KC Beaton, guaranteed by both Gilbertson and Beaton, opposed the retention

of the Debtors’ proposed counsel based, in part, on the inherent problems of

representing both landlords and tenants, the existence of the inter-company claims,

and on the allegations that the Debtors’ counsel might have received preferential

transfers.5

 FL Trust’s loan is secured by, among other items, mortgages on the real

property leased to Gilbertson and Beaton and by an assignment of rents.

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The bankruptcy court approved interim employment for Debtors’ counsel over

FL Trust’s objections, but reserved its final ruling pending a March 16, 2004 hearing.

After that hearing, the bankruptcy court concluded that no actual conflict of interest

existed at that time because the debtor entities currently shared an “identity of

interest” or “unity of purpose” in a common goal to reorganize and to continue the

operation of Burger King franchises. FL Trust did not demonstrate a better use for

the leased real property other than for the operation of Burger King franchises, and

with the amount of rent being tied to the volume of business, the bankruptcy court

determined that all the debtor entities shared parallel interests; thus, the bankruptcy

court adopted a “wait and see” approach to determine if the potential conflicts of

interest would manifest into actual conflicts. At the time, the bankruptcy court noted

that the Debtors already had serious financial problems; the expense and time of new

counsel was therefore deemed unnecessary. In the event that the potential conflicts

of interests ripened into actual conflicts, the bankruptcy court would resolve the

matter at that time. 

II. DISCUSSION

Upon consideration of the entire record, we have concluded that leave to

pursue the appeal of the bankruptcy court’s interlocutory order was improvidently

granted and that the appeal should be dismissed.

A bankruptcy appellate panel only has subject matter jurisdiction to hear

appeals with respect to the following types of actions from the bankruptcy court: (1)

final judgments, orders, and decrees; (2) interlocutory orders under 11 U.S.C. §

1121(d); and (3) with leave of court, other interlocutory orders and decrees. 28

U.S.C. § 158(a). Because the bankruptcy court’s approval of the Debtors’ application

to employ Heller and Belin does not involve 11 U.S.C.§ 1121(d), the appellate court

has jurisdiction only if either 28 U.S.C. § 158(a)(1) or (a)(3) applies.

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1. Is the bankruptcy court’s order final under § 28 U.S.C. § 158(a)(1)?

Generally, an order approving the employment of counsel in a civil case is

interlocutory in nature and may not be appealed under 28 U.S.C. § 1291. Firestone

Tire & Rubber Co. v. Risjord, 449 U.S. 368, 375, 101 S.Ct. 669, 674, 66 L.Ed.2d 571

(1981). Following the Supreme Court’s holding in Firestone, the majority of circuit

courts have adopted a per se rule that a bankruptcy court’s order granting a motion

to employ counsel under § 327(a) is not a final order under 28 U.S.C. § 158(a)(1).

Security Pacific Bank v. Steinberg (In re Westwood Shake & Single, Inc.), 971 F.2d

387, 389-90 (9th Cir. 1992); Foster Securities, Inc. v. Sandoz (In re Delta Services

Industries, Inc), 782 F.2d 1267, 1272 (5th Cir. 1986); In re Continental Inv. Corp.,

637 F.2d 1, 4 (1st Cir. 1980). Other courts have adopted a more flexible approach

and examine the facts and circumstances of the particular case to determine if the

order under § 327(a) is sufficiently final for review under 28 U.S.C. § 158(a)(1). In

re AroChem Corp., 176 F.3d 610, 620 (2d Cir. 1999); In F/S Airlease II, Inc., 844

F.2d 99, 104 (3d Cir. 1988). 

Although the Eighth Circuit has not specifically addressed this issue, we

believe it would take the latter approach. The Eighth Circuit has held that, because

of the peculiar litigation process in bankruptcy proceedings, the test for finality in

bankruptcy orders is more flexible and liberal than that for general civil proceedings.

Yukon Energy Corp. v. Brandon Investments, Inc. (In re Yukon Energy Corp.), 138

F.3d 1254, 1258 (8th Cir. 1998). 

The Eighth Circuit has identified three factors that an appellate court must

examine to determine whether the order from the bankruptcy court is final for

purposes of 28 U.S.C. § 158(a)(1). First, the reviewing court must examine whether

the order leaves the bankruptcy court nothing to do but execute the order. Second,

the reviewing court should identify whether delay in obtaining review would prevent

the aggrieved party from obtaining effective relief. Finally, the reviewing court

should analyze whether later reversal on the issue would require recommencement

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of the entire proceeding. Id. Applying these three factors, it does not appear that the

bankruptcy court’s order here is final for purposes of 28 U.S.C. § 158(a)(1).

First, the bankruptcy court’s order expressly left open the possibility that it will

reevaluate Heller and Belin’s employment by all four debtors when a more detailed

factual record is developed. Thus, it does not finally dispose of a discrete dispute

within the bankruptcy. See AroChem, 176 F.3d at 620. In fact, reviewing the

bankruptcy court’s order at this point when it has expressly left open the possibility

of future review gives rise to a significant possibility of piecemeal litigation, which

is the fundamental policy concern underlying the finality requirement for appellate

review. See Giove v. Stanko, 49 F.3d 1338, 1341-42 (8th Cir.1995).

Second, the delay in obtaining review of the bankruptcy court’s order will not

prevent FL Trust from obtaining effective relief for two reasons. First, as just

discussed, the bankruptcy court expressly adopted a “wait and see” approach and this

clearly gives FL Trust the opportunity to renew its objection when the facts of the

case become more clear. Also, FL Trust can always lodge an objection when Heller

and Belin seek compensation under § 330(a).

Finally, reversal of the bankruptcy court’s order would not require

recommencement of the entire proceeding. Rather, the remedial provisions of §§ 328

and 330 provide sufficient flexibility to the bankruptcy court if it later finds that

Heller and Belin are disqualified to represent any of the Debtors under § 327(a). 

2. May the appellate court review the bankruptcy court’s order under 28 U.S.C.

§ 158(a)(3)?

The bankruptcy appellate panel also has discretion to review any interlocutory

order under 28 U.S.C. § 158(a)(3). Review under this provision, however, should be

utilized sparingly and only in exceptional cases. General Electric Corp. v.

Machinery, Inc. (In re Machinery, Inc)., 275 B.R. 303, 306 (B.A.P. 8th Cir. 2002).

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Specifically, the appellate court should only exercise its discretion to review

interlocutory orders when: (1) the question at issue is one of law; (2) the legal

question is controlling; (3) there exists a substantial ground for difference of opinion

concerning the correctness of the bankruptcy court’s resolution of that question of

law; and (4) there is a finding that a review of the legal question at issue would

materially advance the ultimate termination of the litigation. Id. (noting that the

analysis to hear an appeal from an interlocutory order under 28 U.S.C. § 158(a)(3) is

identical to whether an appellate court should hear an interlocutory order in general

under the collateral order doctrine codified at 28 U.S.C. § 1292(b)). 

We hesitate to exercise our discretion to review the interlocutory order here for

two reasons. First, because discretionary review of interlocutory orders under 28

U.S.C. § 158(a)(3) requires the presence of a controlling question of law, if the

bankruptcy court’s order is fact intensive, review is not proper under 28 U.S.C. §

158(a)(3). Farmers State Bank v. Shirley (In re BTR Partnership), 292 B.R. 188, 194-

95 (D. Neb. 2003). The question of whether Heller and Belin represent an adverse

interest to any of the Debtors is fact specific. In re BH&P, Inc., 949 F.2d 1300, 1315

(3d Cir. 1991). Thus, the first three requirements for discretionary review of

interlocutory orders under 28 U.S.C. § 158(a)(3), as set out above, are not present.

Second, the factual record with respect to the objections raised by FL Trust was

not fully developed when the bankruptcy court entered the order. Indeed, no factual

record was made before the bankruptcy court. Thus, we are left to speculate as to

whether the alleged conflict of interest is real or imagined. At oral argument, counsel

for the Debtors assured the Court that, if the tenant/Debtors decided to reject any of

the leases involved, they would employ special counsel for that purpose, with

bankruptcy court approval. As for the alleged inter-company debts, there is no

evidence to establish at this juncture whether the claims are contingent and

unliquidated or even to establish which companies are the debtors and which are the

creditors.

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In sum, the undeveloped evidentiary record with respect to the nature and

extent of the alleged conflicts was the exact reason the bankruptcy court adopted its

“wait and see” approach. Given the fact that the parties had not fully developed the

factual record at the time the lower court entered the interlocutory order in question,

discretionary appellate review is not appropriate under 28 U.S.C. § 158(a)(3).

Charter Co. v. Prudential Ins. Co. (In re Charter Co.), 778 F.2d 617, 622 (11th Cir.

1985); see also, Paschall v. Kansas City Star Co., 605 F.2d 403, 411 (8th Cir. 1979)

(holding that interlocutory review under the collateral order doctrine generally is not

appropriate when the factual record below is incomplete). 

For the foregoing reasons, the appeal is dismissed. 

 

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