Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_09-cv-04222/USCOURTS-cand-3_09-cv-04222-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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United 

States District 

Court

For the Northern District of California 

**E-filed 04/14/2010** 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In Re PLANT INSULATION COMPANY,

 Debtor. 

____________________________________/

UNITED STATES FIRE INSURANCE 

COMPANY, 

 Appellant, 

 v. 

OFFICIAL COMMITTEE OF 

UNSECURED CREDITORS, 

 

 Appellee. 

____________________________________/

No. C 09-4222 RS 

Bankr. Ct. No, 09-31347 TEC 

ORDER DENYING MOTION FOR 

LEAVE TO APPEAL AND 

DISMISSING APPEAL 

I. INTRODUCTION 

 United States Fire Insurance Company initiated this proceeding by simultaneously filing a 

notice of appeal from a decision of the Bankruptcy Court and, in the alternative, a motion for leave 

to appeal, in the event there is no appeal as of right. The order that US Fire seeks to challenge 

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United 

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For the Northern District of California 

appoints the Law Firm of Sheppard Mullin Richter & Hampton, LLP as counsel for the Official 

Committee of Unsecured Creditors in the bankruptcy proceedings. US Fire contends that Sheppard 

Mullin should have been disqualified from representing the Committee, given its prior 

representation of US Fire in another matter. 

 The Committee opposes US Fire’s motion for leave to appeal, and separately moves to 

dismiss as to the notice of appeal that US Fire filed. The two motions were both set for hearing on 

the same day, but the Court took them under submission without oral argument, prior to the 

reassignment of this case to the undersigned. Under Ninth Circuit precedent, the Bankruptcy order 

in dispute here is not separately appealable either as a “final” or a “collateral” order. Accordingly, 

dismissal of the notice of appeal must be granted. While the Court has discretion to grant leave to 

appeal an interlocutory order in appropriate circumstances, US Fire has not shown that such leave is 

warranted here. Therefore its motion will be denied. 

II. DISCUSSION 

 Appeals from Bankruptcy Court decisions are governed by 28 U.S.C. §158. Subdivision 

(a)(1) of that section vests in district courts the jurisdiction to hear appeals “from final judgments, 

orders, and decrees.” Subdivision (a)(3) permits appeals to district courts of interlocutory 

bankruptcy orders and decrees, “with leave of court.” Here, US Fire contends it is entitled to appeal 

as of right the order appointing Sheppard Mullin as counsel for the Committee, either as a “final” or 

“collateral” order, or that it should be granted leave to appeal under subdivision (a)(3) of section 

158. 

 a. “Final” judgments 

 Relying on the Third Circuit decision in In re BH&P, Inc., 949 F.2d 1300 (3rd Cir. 1991), 

US Fire insists that the order appointing Sheppard Mullen is “final” and immediately appealable 

under §158 (a)(1). In BH&P, however, the bankruptcy court had disqualified counsel, thereby 

rendering a final decision with respect to that counsel’s participation in the case. See also, Bruce I. 

McDaniel, Annotation, Order on Motion to Disqualify Counsel as Separately Appealable under 28 

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U.S.C.A. § 1291, 44 A.L.R. Fed. 709 (1979) (collecting cases and observing that while orders 

disqualifying counsel are “uniformly held” to be appealable, treatment of orders denying requests to 

disqualify varies by jurisdiction.) 

 The Ninth Circuit has unambiguously held that a bankruptcy order appointing counsel in the 

face of objections regarding a purported conflict is not a “final” order, but an interlocutory one. In 

re Westwood Shake & Shingle, Inc., 971 F.2d 387 (9th Cir. 1992). US Fire’s contention that the 

order is “final” for purposes of permitting immediate appeal as of right is simply not tenable. 

 b. “Collateral” orders 

 The collateral order doctrine enunciated in Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 

541 (1949), allows an interlocutory order to be treated as final for purposes of appealability if three 

conditions are met. The order must (1) conclusively determine the disputed question, (2) resolve an 

important question completely separate from the merits of the action, and (3) be effectively 

unreviewable on appeal from final judgment. Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 

(1978). Although this doctrine was developed in the context of 28 U.S.C. §1291, which governs 

appeals from district courts, there is no reason it could not in theory apply to render an interlocutory 

bankruptcy order immediately appealable to a district court under 28 U.S.C. §158(a)(1). Again, 

however, clear Ninth Circuit precedent precludes a conclusion that the order appointing Sheppard 

Mullen is immediately appealable as a collateral order. In re Westwood Shake & Shingle, Inc., supra, 

971 F.2d at 390-391.1

 

1

 US Fire appears to conflate appeal as of right under the collateral order doctrine with appeals by 

leave of court under 28 U.S.C. §158(a)(3). For example, even though US Fire’s original motion 

expressly seeks leave to appeal under section 158(a)(3), the brief only discusses the collateral order 

doctrine, leading the Committee to argue in its opposition and own motion that US Fire has not 

sought permission to appeal under section 158(a)(3). Then, in its reply brief, US Fire attempts to 

distinguish Westwood Shake on grounds that it was the Ninth Circuit, not the district court, that 

declined to entertain the appeal. While it is true that the district court in Westwood Shake had 

reviewed the bankruptcy court order, presumably under section 158(a)(3), that does not somehow 

undermine or render inapplicable the Ninth Circuit’s holding that the bankruptcy order was neither 

final nor within the collateral order doctrine. 

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 c. Permissive appeal under section 158(a)(3)

 To determine whether leave to appeal an interlocutory order is warranted under section 

158(a)(3), it is appropriate to look to the analogous provisions of 28 U.S.C. § 1292(b), which 

governs appellate review by the Courts of Appeals of interlocutory district court orders. Belli v. 

Temkin (In re Belli), 268 B.R. 851, 858 (B.A.P. 9th Cir. 2001).2 Under this standard, leave to 

appeal is proper where, “the appeal presents a meritorious issue on a controlling question of law as 

to which there is substantial ground for difference of opinion and an immediate appeal would 

materially advance the ultimate termination of the litigation.” Id. at 858. 

 Here, as noted, US Fire’s initial brief in support of its motion completely fails to argue that 

the standards of section 158(a)(3) are met here, although it does address somewhat similar issues in 

the context of arguing that review should be permitted under the collateral order doctrine. US Fire’s 

opposition to the Committee’s motion to dismiss argues generally that equitable considerations 

support immediate review, but does not specifically address section 158(a)(3) standards. US Fire’s 

reply brief in support of its own motion finally addresses the crucial issues, but falls short of 

establishing that leave to appeal should be granted here. 

 Whether the denial of a disqualification motion is ever subject to discretionary review under 

Ninth Circuit precedent is somewhat unclear. In Shurance v. Planning Control Int’l, Inc., 839 F.2d 

1347 (9th Cir. 1988), the court strongly suggested that such matters will rarely, if ever, support 

review. First, the court observed that denial of disqualification does not present a “controlling 

question of law” bearing on the outcome of the litigation. 839 F.2d at 1347-48. Second, the court 

noted that allowing the appeal would not “materially advance the ultimate termination of the 

litigation.” Id. at 1348. 

 The Shurance court acknowledged that what it characterized as “dicta” in Firestone Tire & 

Rubber Co. v. Risjord, 449 U.S. 368 (1981), supports the proposition that an appeal of a denial of a 

 

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 As the Belli court pointed out, the procedures under the two statutes are somewhat different in that 

section 158(a)(3) does not involve certification by the first court that a question warranting 

immediate review exists. 

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disqualification may sometimes satisfy the criteria for a discretionary interlocutory appeal, but only 

upon a compelling showing of irreparable harm. The Shurance court went on to declare simply that 

“28 U.S.C. § 1292(b) is not the proper avenue by which to obtain review of the district court's denial 

of a motion to disqualify an attorney for conflict of interest.” 839 F.2d at 1348.3

 Assuming that discretionary review is nonetheless permissible upon an adequate showing of 

potential irreparable harm notwithstanding a failure to meet the usual requirements for such review, 

US Fire has not established that review is warranted here. US Fire criticizes the bankruptcy court 

for having on the one hand found there to be no “substantial relationship” between the two matters, 

while on the other hand having imposed restrictions that preclude Sheppard Mullen from 

representing the Committee with respect to issues that would bring it into direct conflict with US 

Fire’s interests. US Fire contends this demonstrates a flawed legal analysis, because either there is a 

conflict requiring disqualification, or there is not. Even assuming, for purposes of argument, that 

the Bankruptcy Court had committed legal error in one or more aspects of its ruling, the fact that 

Sheppard Mullen has been barred from advising the Committee where its interests are directly 

adverse to US Fire undermines any argument that irreparable harm is certain to result. 

 Whatever harm to US Fire might theoretically arise from Sheppard Mullen’s representation 

of the Committee on other matters simply is insufficient to support an appeal at this juncture, 

particularly in light of the Supreme Court’s observation that, “[a]n order refusing to disqualify 

counsel plainly falls within the large class of orders that are indeed reviewable on appeal after final 

 

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 The Shurance court described this as a rule laid down with “clarity” in Trone v. Smith, 553 F.2d 

1207 (9th Cir. 1977). Although the Trone court did not explain its reasoning, the case citations it 

employed imply that the court then believed review under section 1292(b) was unnecessary because 

review was available under the collateral order doctrine. See Trone, 553 F.2d at 1207 (citing, e.g., 

Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 496 F.2d 800 (2nd. Cir. 1974)); Silver 

Chrysler, 496 F.2d at 805-806 (holding denial of disqualification motion appealable as of right 

under the collateral order doctrine). As a result, Ninth Circuit case law appears to present a Catch 

22 for parties challenging disqualification motion determinations: Per Trone discretionary review is 

not available because appeal as of right is possible, but per Westwood Shake the order is neither final 

nor within the collateral order doctrine, so there is no appeal as of right. 

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judgment, and not within the much smaller class of those that are not.” Firestone Tire & Rubber 

Co. v. Risjord, supra, 449 U.S. at 374. Accordingly, the motion for leave to appeal is denied. 

IV. CONCLUSION 

 The motion to dismiss the appeal is granted. US Fire’s alternative motion for leave to appeal 

is denied. The Clerk shall close the file. 

IT IS SO ORDERED. 

Dated: 04/14/2010 

RICHARD SEEBORG 

UNITED STATES DISTRICT JUDGE 

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