United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

__________________________

01-6071MN

__________________________

In re: *

*

Coleman Enterprises, Inc., and *

American Cyber Corporation, *

*

Debtors. *

*

Coleman Enterprises, Inc., and * Appeal from the United States

American Cyber Corporation, * Bankruptcy Court for the 

* District of Minnesota

Appellants, *

*

v. *

*

QAI, Inc. and *

Pathfinder Capital, Inc *

*

Appellees. *

_____________

Submitted: March 6, 2002

Filed: March 27, 2002

_____________

Before KOGER, Chief Judge, SCHERMER, and FEDERMAN, Bankruptcy

Judges.

_____________

FEDERMAN, Bankruptcy Judge.
1

The Honorable Gregory F. Kishel, United States Bankruptcy Judge for the District

of Minnesota.

2

Jointly-administered debtors Coleman Enterprises, Inc. and American Cyber

Corporation (the Debtors) appeal from an Order of the bankruptcy court nullifying

their small- business election and denying their motion to dismiss the bankruptcy

cases. For the following reasons, we affirm the decision of the bankruptcy court to

nullify the small-business election.1

 We further find that the portion of the order

denying the motion to dismiss is not a final order, and we deny leave to appeal.

I

ISSUES PRESENTED

1. The Bankruptcy Code allows a business debtor to elect to proceed on

a small-business track, if the debtor’s aggregated, liquidated debt does not exceed

$2,000,000.00. Debtors made a small-business election even though their aggregated,

liquidated debt was in excess of $5,000,000.00. Was the election void ab initio?

2. The bankruptcy court denied Debtors’ motion to dismiss their jointlyadministered Chapter 11 cases. In the Eighth Circuit motions to dismiss can only be

final orders if: (1) the order leaves the bankruptcy court nothing to do save execute

the order; (2) a delay in obtaining review would prevent the aggrieved party from

obtaining effective relief; or (3) a later reversal on that issue would require

recommencement of the entire proceeding. Is denial of Debtors’ motion to dismiss

their bankruptcy cases a final order?
2

11 U.S.C. § 101(51C).

3

II

DECISION

1. Debtors, by definition, were not small businesses at the time they filed their

Chapter 11 petitions. They, therefore, did not satisfy the condition precedent to

making a small-business election, making the election void ab initio.

2. The denial of a motion to dismiss does not remove the bankruptcy court from

further proceedings, does not prevent the losing party from obtaining review at a later

time, and would not result in recommencement of the entire proceeding in the event

of a later reversal. Thus, such an order is interlocutory, and the appellate court has the

discretion to deny leave to appeal the interlocutory order.

III

On August 18, 2000, Coleman Enterprises, Inc. and American Cyber

Corporation filed separate Chapter 11 bankruptcy petitions, and on September 18,

2000, the bankruptcy court entered an order for joint administration of the two cases.

At the time of filing, Debtors elected to proceed as a “small business” under section

1121(e) of the Bankruptcy Code (the Code). The Code permits a debtor to proceed

as a small business if it has less than $2,000,000.00 in noncontingent and liquidated

debt.2

 Debtors’ two largest unsecured creditors are QAI and Pathfinder Capital, Inc.

(Pathfinder). On December 18, 2000, QAI filed an unsecured proof of claim in the

amount of $2,629,000.00. On that same date, Pathfinder filed an unsecured proof of

claim in the amount of $321,000.00. On May 7, 2001, both creditors amended their

proofs of claim. QAI increased the amount of its claim to $3,406,252.42, and

Pathfinder increased the amount of its claim to $1,664,545.04. Debtors did not file

objections to these claims. 
3

11 U.S.C. § 1121(e).

4

11 U.S.C. § 1121(c).

5

Black’s Law Dictionary 2 (Bryan A. Garner, ed. 1996)

4

Section 1121(e) of the Code provides that, if a debtor is a small business, by

the definition above, and makes the election to be considered as such, only the debtor

may file a plan for the first 100 days after the case is filed. Moreover, under the smallbusiness election, all plans have to be filed within 160 days.3

 At the end of the 160-

day period no proposed plan of reorganization was on file. In the meantime, Debtors’

financial picture had brightened. Debtors now wish to exit Chapter 11 and deal with

their creditors under applicable state law. But QAI and Pathfinder have proposed their

own plan of reorganization, which they would be free to do in a standard Chapter 11

case.4

 QAI and Pathfinder, therefore, filed a motion to abrogate the small-business

election. The United States Trustee filed a motion to dismiss or convert for Debtors’

failure to file a confirmable plan within the time constraints of the small-business

election, and Debtors also filed a motion to dismiss. On May 22, 2001, the

bankruptcy court held a hearing on all three motions, and on September 5, 2001, the

court ruled on two of the three motions. The court held that Debtors were not a small

business, based upon the amount of debt, therefore, it abrogated, or annulled,5

 the

small-business election. The court also denied Debtors’ motion to dismiss the case

and allowed the case to proceed as a standard Chapter 11. The court held in abeyance

the United States Trustee’s motion to dismiss or convert until it had determined

whether to confirm the plan proposed by QAI and Pathfinder. Debtors appealed both

the bankruptcy court’s denial of the motion to dismiss and its abrogation of the small

business election.

IV

We first turn to the portion of the order nullifying Debtors’ small-business

election. A bankruptcy appellate panel shall not set aside findings of fact unless
6

Gourley v. Usery (In re Usery), 123 F.3d 1089, 1093 (8th Cir. 1997); O'Neal v.

Southwest Mo. Bank (In re Broadview Lumber Co., Inc.), 118 F.3d 1246, 1250 (8th Cir.

1997) (citing First Nat'l Bank of Olathe, Kansas v. Pontow, 111 F.3d 604, 609 (8th

Cir.1997)). Fed. R. Bankr. P. 8013.

7

First Nat’l Bank of Olathe, Kansas v. Pontow (In re Pontow), 111 F.3d 604, 609

(8th Cir. 1997); Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 888 (8th Cir. 1997).

8

HR Rep. 103-834, 103rd Cong., 2nd Sess. 30; 140 Cong. Rec. H10768 (Oct. 4,

1994); Pub. L. 103-394 § 217(d) (effective for all cases commenced after October 22,

1994).

9

11 U.S.C. 101(51C).

10Id.

11In re Coleman Enterprises, Inc., 266 B.R. 423, 425 (Bankr. D. Minn. 2001).

5

clearly erroneous, giving due regard to the opportunity of the bankruptcy court to

judge the credibility of the witnesses.6

 We review the legal conclusions of the

bankruptcy court de novo.

7

In 1994, in order to streamline the reorganization process for smaller

businesses, Congress amended the Code and added sections 101(51C) and 1121(e).8

Section 101(51C) defines a small business as a person engaged in commercial or

business activities, other than real estate, whose debts do not exceed $2,000,000.00.

There are, thus, two eligibility requirements that must be satisfied before a debtor can

elect to proceed under section 1121(e). A small-business debtor’s primary activity

cannot be “the business of owning or operating real property,”9

 and the smallbusiness debtor’s “aggregate noncontingent liquidated secured and unsecured debts”

cannot exceed $2,000,000.00 on the petition date.10

The bankruptcy court found that Debtors’ two largest unsecured creditors, QAI and

Pathfinder Capital, Inc., asserted unsecured claims in these cases in the total amount

of $5,070,797.46.11 That finding is amply supported by the record, and, therefore, we

find it is not clearly erroneous.
12See e.g. Frentz v. Commissioner, 44 T.C. 485, 489 (1965) (holding that the filing

of articles of incorporation is a statutory prerequisite to making an election for subchapter S status, therefore, an election made before the articles of incorporation are filed

is void).

1311 U.S.C. § 101(51C).

14In re Coleman Enterprises, Inc., 266 B.R. at 436 (discussing the inclusion of

disputed debt in making an eligibility determination for Chapter 13 and citing Barcal v.

Laughlin (In re Barcal), 213 B.R. 1008, 1012 (8th Cir. B.A.P. 1997) and In re Sitarz, 150

B.R. 710, 725-26 (Bankr. D. Minn. 1993) for that premise).

15In re Western Steel & Metals, Inc., 200 B.R. 873, 875 (Bankr. S.D. Cal. 1996).

1611 U.S.C. § 1121(a) (emphasis added).

6

An election made by a party who does not satisfy the eligibility requirements

for that election is a nullity.12 Section 101(51C) of the Code specifically states that

a business is not considered a small business unless its aggregated and liquidated debt

does not exceed $2,000,000.00.13 Debtors argue that the debt to QAI and Pathfinder

is disputed and subject to a lawsuit in state court. The definition of aggregated and

liquidated debt, however, includes disputed debt.14

The most basic rule of statutory construction is that a statute must be

interpreted to

mean what it says.15 And section 1121(e) of the Code specifically limits the election

to debtors who are, in fact, small businesses:

(e) In a case in which the debtor is a small business and elects to be

considered a small business--16

We find that the election was void ab initio because debtors were not small

businesses as that term is defined by the Code. That finding does not nullify the

Chapter 11 filing itself, just the small-business election. The cases continue as
17Dunkley v. Rega Properties, LTD. (In re Rega Properties, LTD.), 894 F.2d 1136,

1138 n. 4 (9th Cir. 1990), citing 1 Collier on Bankruptcy ¶ 507[5], 5-29-30 (Lawrence P.

King, ed., 15th ed. rev. 2001). 

1828 U.S.C. § 158(a)(1).

19Id. at § 158(a)(3).

20Fed. R. Bankr. P. 8001(b).

7

Chapter 11 cases until the bankruptcy court makes a determination to confirm a plan

of reorganization, to convert the cases to Chapter 7, or to dismiss.

Based on the above, we affirm the bankruptcy court, and hold that the smallbusiness election was void, and of no force and effect.

V

Debtors also appeal the portion of the order denying their motion to dismiss.

Debtors claim that the bankruptcy court erred, as a matter of law, in denying that

motion. As a general rule, an order denying a motion to dismiss is interlocutory.17

Appellate courts have jurisdiction to hear appeals from final orders,18 and from

interlocutory orders with leave of the court.19 A party may only appeal an

interlocutory order by filing both a notice of appeal and a motion for leave to appeal

with the clerk of the bankruptcy court:

(b) APPEAL BY LEAVE; HOW TAKEN. An appeal from an

interlocutory judgment, order, or decree of a bankruptcy judge as

permitted by 28 U.S.C. § 158(a) shall be taken by filing a notice of

appeal . . . accompanied by a motion for leave to appeal prepared in

accordance with Rule 8003.20
21Fed. R. Bankr. P. 8002(a).

22Id. at Rule 8003(c).

23Dwyer v. Cohn (In re Dwyer), 244 B.R. 426, 431 (8th Cir. B.A.P. 2000); MoixMcNutt v. Coop (In re Moix-McNutt), 215 B.R. 405, 408-09 (8th Cir. B.A.P. 1997).

24Stuart v. Koch (In re Koch), 109 F.3d 1285, 1287 (8th Cir. 1997).

25Kelly, Howe & Scott v. Giguere (In re Giguere), 188 B.R. 486, 488 (D.R.I.

1995).

8

(a) TEN-DAY PERIOD. The notice of appeal shall be filed with the

clerk within 10 days of the date of the entry of the judgment, order, or

decree appealed from.21

Debtors in this case filed a notice of appeal, but they did not file a motion for leave

to appeal. Nonetheless, we may consider a timely-filed notice of appeal as a motion

for leave to appeal.22A decision to deny leave to appeal an interlocutory order is

purely discretionary.23 In determining whether a bankruptcy court order is final, the

Eighth Circuit considers three questions. (1) Does the order leave the bankruptcy

court anything to do save execute the order? Here, the bankruptcy court does have

work remaining, namely, to determine whether any plan of reorganization can be

confirmed and, if not, whether the case should then be converted to Chapter 7 or

dismissed. (2) Would a delay in obtaining review prevent the aggrieved party from

obtaining effective relief? Again, the answer is no. Two unsecured creditors have

filed a plan of reorganization, and all of the parties-in-interest have the opportunity

to participate in the confirmation process. If no confirmable plan is possible, the court

can still decide to dismiss the case. But in the meantime, all issues involving the

Debtors and their creditors might be capable of being resolved in a single forum. (3)

Would a later reversal on that issue require recommencement of the entire

proceeding?24 Once more, the answer is no. Other courts that have found that denial

of a motion to dismiss is not a final order, have done so because such an order does

not end the litigation.25 As the court stated in In re Giguere, “denial of a motion to

dismiss, ordinarily, is the ‘antithesis’ of a final order because, instead of terminating
26Id. (citations omitted).

27Ramona Moix-McNutt v. Coop (In re Ramona Moix-McNutt), 215 B.R. 405, 408

(8th Cir. B.A.P. 1997) (citing 28 U.S.C. § 1292(b)).

28Id. at 409 n. 6 (quoting 28 U.S.C. § 1292(b)).

29 11 U.S.C. § 1112(b)(4).

9

the case or any aspect of it, it allows the matter to proceed.”26 We find that the portion

of the order denying Debtors’ motion to dismiss is an interlocutory order.

We have previously stated that when deciding whether to grant leave to appeal

an interlocutory order it is helpful to apply the standards that govern certification of

interlocutory appeals to the circuit courts.27 According to section 1292(b) of Title 28

of the United States Code, appellate courts have jurisdiction over interlocutory

appeals when the order “‘involves a controlling question of law as to which there is

substantial ground for difference of opinion and . . . an immediate appeal from the

order may materially advance the ultimate determination of the litigation.’”28 Debtors

argue that section 1121(e) requires the court to dismiss a small-business case, as a

matter of law, if no plan of reorganization is on file within 160 days, therefore, as a

matter of law, this case must be dismissed. But as shown above, Debtors’ were not

small businesses, and their small-business election was void ab initio.

29 Moreover,

an immediate appeal will not materially advance the ultimate determination of the

litigation. The bankruptcy court continues to process these cases. At some point, that

court will either confirm a plan, convert the cases to Chapter 7, or dismiss them. It is

those determinations that will ultimately resolve the dispute between these parties.

We, therefore, find no basis to allow an appeal of this interlocutory order.

VI

ACCORDINGLY, based on our holding that the small-business election was

void ab initio, we affirm the bankruptcy court’s abrogation of that election. And we
10

deny Debtors’ motion for leave to appeal the bankruptcy court’s interlocutory order

denying Debtors’ motion to dismiss their cases.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL,

EIGHTH CIRCUIT