Aramid Entertainment Fund Limited, et al.,

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
In Re: ARAMID ENTERTAINMENT
FUND LIMITED
OPINION & ORDER
21 Civ. 4840
DAVID MOLNER,
Appellant,
– against –
REED SMITH LLP, JAMES C
McCARROLL, JAMES L. SANDERS,
FRANCISCA MOK, JORDAN W. SIEV,
KURT GWYNNE, GEOFFREY VARGA,
JESS SHAKESPEARE, KINETIC
PARTNERS, DUFF & PHELPS, LLC,
DAVID BREE, DAVIS SEYMOUR,
ROGER HANSON, and DMS
GOVERNANCE LTD,
Appellees.
Ramos, D.J.:
I. 	INTRODUCTION
David Molner brings this appeal of the April 30, 2021 Order issued by Judge David S.
Jones of the United States Bankruptcy Court for the Southern District of New York denying his
motion for abstention and remand of this adversary proceeding, which was originally
commenced in New York state court. On July 19, 2021, Defendants Reed Smith LLP, James C.
McCarroll, James L. Sanders, Francisca Mok, Jordan W. Siev, and Kurt Gwynne moved to
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dismiss this appeal for lack of appellate jurisdiction. 1 For the reasons set forth below,
Defendants’ motion is GRANTED, and this appeal is dismissed for lack of jurisdiction.
II. 	BACKGROUND
Molner worked for Aramid Entertainment Fund, Limited (the “Fund”), one of the
debtors 2 in the underlying Chapter 11 proceedings (the “Aramid bankruptcy”). Molner contends
that Defendants, among them Reed Smith LLP, the Fund’s counsel, conspired to oust him from
the Fund, just as he was preparing to liquidate the fund.
Molner managed the Fund pursuant to agreements between the Fund and two entities:
Aramid Capital Partners, LLP (“ACP”), and Asset Resolution Partners, Ltd. (“ARP”). ACP
served as the Fund’s only voting shareholder. See Memorandum of Motion to Abstain and/or
Remand (“AP Doc. 6”) at 9. 3
Reed Smith represented the Fund, and, although it never represented Molner personally,
Molner alleged that the firm interacted with him “directly” on “more than a hundred occasions in
[his] capacity as the Fund’s manager.” Id. Through this ongoing relationship, Molner gained
familiarity with a number of Reed Smith’s attorneys, including defendants James C. McCarroll,
James L. Sanders, Francisca Mok, Jordan W. Siev, and Kurt Gwynne, (collectively, the
“Individual Lawyer Defendants”). Id.
1 Defendants Duff & Phelps LLC, Duff & Phelps (Cayman) Limited (incorrectly sued as Kinetic Partners), Geoffrey
Varga, Jess Shakespeare, Waystone Governance, Ltd. f/k/a DMS Governance, LTD., Don M. Seymour, Roger
Hanson, and David Bree also join in the motion to dismiss. Docs. 19, 20.
2 The debtors are as follows: Aramid Entertainment Fund Limited; Aramid Liquidating Trust, Ltd. (f/k/a Aramid
Entertainment Participation Fund Limited); and Aramid Entertainment, Inc. AP Doc. 28.
3 This opinion refers to docket entries from the adversary proceeding as “AP Doc.,” to docket entries from the
bankruptcy proceeding as “Bankr. Doc.,” and to docket entries from the district court case (having been removed
from state court) as “Removal Doc.” Docket entries from this appeal are referred to as “Doc.”.
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In January 2014, Molner approached a subcommittee of the Fund’s Board of Directors,
composed of defendants David Bree and Roger Hanson, with a plan to voluntarily liquidate the
Fund in the Cayman Islands. Id. Molner contends that: (1) Reed Smith and the Individual
Lawyer Defendants feigned support for the liquidation plan, making misrepresentations to him,
the Fund’s Board, and the Fund’s shareholders; (2) he relied on Reed Smith’s recommendation
when he hired defendants Geoffrey Varga and Jess Shakespeare to be the plan’s joint voluntary
liquidators, along with their firm, defendant Kinetic Partners (now Duff & Phelps, LLC); (3) he
hired DMS Services and its founder Donald Seymour 4 to help him prepare his liquidation plan;
and (4) Reed Smith, the Individual Lawyer Defendants, Varga, and Shakespeare all assured
Molner that they were working towards liquidating the Fund in the Cayman Islands, and that
they would not proceed with a bankruptcy in the United States absent his consent. Id. at 6 n.1, 9-
11.
a. 	Chapter 11 Petition
In June, 2014, Varga and McCarroll commenced the Aramid bankruptcy by filing a
Chapter 11 petition in the United States Bankruptcy Court for the Southern District of New
York. Bankr. Doc. 1. Varga filed a declaration, describing the liquidation plan and Molner’s
role. Bankr. Doc. 2. In particular, Varga declared that the debtors faced liquidity concerns,
based on the inability to collect on certain loans and litigation stemming from those loans, and
that ACP, through Molner, had brought a “multitude of litigation” on behalf of the debtors or
4 While the case captions in the bankruptcy, state court, removal, and adversary proceedings all list “Donald M.
Seymour” as a defendant, the case caption for Molner’s appeal—and for all other documents in the instant
proceeding—replaces “Donald M. Seymour” with “Davis Seymour.” Neither party addresses this change or
whether Donald Seymour and Davis Seymour are the same person.
In any event, the identity of Mr. Seymour is irrelevant to the Court’s analysis.
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caused the debtors to appear as defendants, which resulted in substantial litigation expenses.
Bankr. Doc. 2 at 9, 10-18.
In October 2014, the debtors moved under 11 U.S.C. § 365(a) to reject an executory
contract between the debtors and ARP, which they argued the business no longer needed. Bankr.
Doc. 127 at 1-3. The Court authorized the rejection of the agreement. Bankr. Doc. 217.
Molner, ACP, and ARP—with Molner acting on behalf of ACP and ARP—separately filed
proofs of claim during the Aramid bankruptcy. The debtors objected to all three claims. Bankr.
Docs. 521, 522, 523.
In February 2016, while these three claims remained pending, the Court confirmed the
Debtors’ Modified First Amended Joint Liquidating Plan of Reorganization (the “Plan”). Bankr.
Doc. 710 (the “Confirmation Order”). 	The Plan provided for the establishment of a Distribution
Trust to resolve all disputed claims and interests of the estate. Bankr. Doc. 667 at 23-26. The
Plan also contained exculpation provisions for “released parties” that protected them from
liability for any act taken or omitted in connection with the debtors’ post-petition activity. Id. at
32. The Confirmation Order determined that the debtors proposed the Plan in good faith. Bankr.
Doc. 710 at 4.
Also in February 2016, the debtors commenced an adversary proceeding against Molner
and ACP, seeking to recoup $150.5 million in losses they alleged were incurred as a result of
litigation fees and transactions caused by Molner’s alleged misconduct. See Bankr. S.D.N.Y. 16-
ap-1025, Doc. 1. In May 2016, the parties consented to proceed to arbitration before the London
Court of International Arbitration. Bankr. S.D.N.Y. 16-ap-1025, Doc. 16. Under that
agreement, the debtors consented to withdraw the adversary proceeding seeking recoupment, and
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the parties held in abeyance any decision on the Molner claims in the Aramid bankruptcy
pending the final resolution of the arbitration. Id.
In May 2020, the parties submitted a consent order that expunged, with prejudice,
Molner’s (and his affiliated entities’) claims against the Aramid bankruptcy estate (the
“Expungement Order”). See Bankr. Doc. 1018. The Court entered the Expungement Order on
June 8, 2020. Bankr. Doc. 1020.
b. 	State Court Action, Removal, and Transfer
On June 11, 2020, days after the entry of the Expungement Order, Molner brought suit
against Defendants in New York state court, alleging that they deceived him into relinquishing
control over Aramid and then fraudulently commenced Chapter 11 proceedings for Aramid so
they could usurp control of the company in bankruptcy and redirect its assets to themselves.
Removal Doc. 1-2 at 3. Molner made these allegations in a summons; he did not file a
complaint.
Molner alleged that even as he prepared the liquidation plan, Defendants executed an
alternative plan to oust him from his managerial position and “install themselves as the control
persons,” filing the Chapter 11 petition without his knowledge, as a means of “taking control out
of [his] hands and into their own.” Id. at 3, 6. Molner alleged this “bait-and-switch defrauded
[him] out of millions of dollars’ worth of compensation he would have been entitled to.” Id. at
3. According to Molner, Defendants worked together to ensure he would lose income, business
opportunities, and other compensation and incur millions in fees associated with the bankruptcy
filing and related litigation. Id. at 6. As a result, Molner alleged, he suffered years of
reputational and emotional harm as he “weathered the loss of business” and the “sting of the
unnecessary bankruptcy,” all while Defendants “quickly took control of Aramid’s books, records
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and treasury, and set about looting the assets through their control of the bankruptcy process and
the hefty fees they charged.” Id. at 6-7. Though the allegations in his summons center on the
bankruptcy proceedings, Molner nonetheless maintained he brought the state court action
“exclusively in regard to [Defendants’] pre-petition conduct.” Id. at 7.
In the summons, Molner characterized his claims as follows:
Plaintiff’s causes of action against all Defendants include fraud, fraudulent concealment,
constructive fraud, breach of confidence, unjust enrichment, aiding and abetting fraud,
and aiding and abetting breach of fiduciary duty. Plaintiff’s additional causes of action
against Reed Smith, McCarroll, Sanders, Mok, Gwynne, and Siev include breach of
fiduciary duty and breach of the written Joint Defense Agreement. Plaintiff will also
seek punitive damages.
Id.
On October 20, 2020, Defendants removed the state court action to this Court pursuant to
28 U.S.C. §§ 1334(b), 1446, and 1452(a), and Federal Rule of Bankruptcy Procedure 9027.
Removal Doc. 1. Defendants asserted the District Court had jurisdiction over the state court
action under Section 1334(b) because it arose in and was related to the Aramid bankruptcy. AP
Doc. 1 at 33-35. Specifically, Defendants contended the court resolving the state court action
would need to: (1) interpret and enforce the Plan and several bankruptcy court orders; (2)
adjudicate whether Molner’s claims were barred as a collateral attack on the Plan; (3) determine
whether the doctrines of waiver and estoppel precluded Molner’s claims; (4) rule on whether the
proofs of claim filed by Molner, ACP, and ARP barred the claims raised by Molner in the state
court action; and (5) decide whether this court retained exclusive jurisdiction to adjudicate those
claims. Id. at 35-49.
Defendants also moved for transfer to the bankruptcy court for this district. Removal
Doc. 1. On November 4, 2020, Judge Lorna G. Schofield granted Defendants’ request for
transfer, noting significant overlap between Molner’s claims and the issues raised in the
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bankruptcy proceeding, and finding it necessary to interpret and enforce the approved
bankruptcy plan and various other orders and agreements arising out of the bankruptcy
proceedings to resolve Molner’s claims. Removal Doc. 17 at 2. Accordingly, and pursuant to
Standing Order M-431 and 28 U.S.C. § 157(a), which provide that cases arising under or related
to Title 11 are referred to bankruptcy judges for this district, Judge Schofield referred this matter
to the United States Bankruptcy Court for the Southern District of New York. Removal Doc. 17.
c. 	Motion for Abstention and Remand
On November 18, 2020, Molner moved the Bankruptcy Court for abstention and remand.
See AP Doc. 6. He argued the Bankruptcy Court did not have either “arising in” or “related to”
jurisdiction over the claims asserted in the state court action and that the state court action did
not concern the Aramid bankruptcy, but only pre-petition conduct. AP Doc. 6-1 at 14-15.
Molner argued his case met the standard for mandatory abstention because (1) the motion was
timely; (2) state law claims form the basis of the state court action; (3) at most some, but not all
of the claims in the action are “related to” the Aramid bankruptcy, and none of his claims
“arise[s] in” that proceeding or “arise[s] under” the Bankruptcy Code; (4) 28 U.S.C. § 1334
provides Defendants’ sole basis for federal jurisdiction; (5) he commenced the action in state
court; and (6) the state court could timely adjudicate the action. Id. at 16-23. In the alternative,
Molner urged the Court to exercise permissive abstention and order an equitable remand of the
action to state court, arguing that several factors—including that his claims are based solely on
pre-petition conduct and that they arise only under state law—favor abstention and remand. Id.
at 24-34.
In response, Defendants argued that removal of the state court action was proper because
the Bankruptcy Court has both “arising in” and “related to” jurisdiction under Section 1334. AP
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Doc. 12 at 11. Defendants argued the Court has “arising in” jurisdiction for several reasons,
including, among others, that (1) Molner’s claims allege damages that arose during the Aramid
bankruptcy; (2) there is an issue whether waiver, estoppel, and collateral attack doctrines bar
Molner’s claims; (3) Molner asserts derivative claims that belong to the debtors’ estates; and (4)
the action requires the Bankruptcy Court to interpret and enforce its prior orders, including those
regarding professional engagement and compensation and the Plans’ release and exculpation
provisions; and (5) the action presents the question whether the Barton doctrine—which
precludes claims against Bankruptcy Court-appointed officers without advance leave of the
Bankruptcy Court—applies; Id. at 11-13. Thus, Defendants argued, Molner cannot meet his
burden of establishing that mandatory abstention applies, and that neither permissive abstention
nor equitable remand applies to this case.
d. 	The Bankruptcy Court’s Decision
The Bankruptcy Court heard oral argument on March 10, 2021, and issued a decision on
April 30, 2021, denying Molner’s motion in full. See AP Doc. 28. The Bankruptcy Court found,
first, that Molner could not meet the standard for mandatory abstention, and, second, that he
failed to establish that the court should permissively abstain or equitably remand the matter even
if mandatory abstention does not apply. Id. at 18-19, 20.
As the Bankruptcy Court made clear, the mandatory abstention doctrine requires federal
courts to abstain from hearing non-core bankruptcy matters concerning state law issues in certain
circumstances. Under 28 U.S.C. § 1334(c)(2), abstention is required if each of six conditions is
met: (1) the abstention motion is timely; (2) the action is based on a state law claim; (3) the
action is “related to” but does not “arise in” a bankruptcy case or “arise under” the Bankruptcy
Code; (4) section 1334 provides the sole basis for federal jurisdiction; (5) an action is
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commenced in state court; and (6) that action can be “timely adjudicated” in state court. See
N.Y.C. Emps.’ Ret. Sys. v. Ebbers (In re WorldCom, Inc. Secs. Litig.), 293 B.R. 308, 331
(S.D.N.Y. 2003), aff’d sub nom. Cal. Pub. Emps’ Ret. Sys. v. WorldCom, Inc., 368 F.3d 86 (2d
Cir. 2004); Renaissance Cosms., Inc. v. Dev. Specialists Inc., 277 B.R. 5, 12 (S.D.N.Y. 2002); In
re Dreier, 438 B.R. 449, 457 (Bankr. S.D.N.Y. 2010).
In this case, as the Bankruptcy Court explained, there was no dispute as to the first,
second, and fifth prongs of the mandatory abstention standard. AP Doc. 28 at 15. The parties
disputed whether the third, fourth, and sixth prongs are satisfied. The Bankruptcy Court found
Molner failed to meet the third prong and, as a result, could not satisfy the standard for
mandatory abstention. Id. at 18.
Specifically, the Bankruptcy Court found Molner’s claims and theories are “inseparable
from the Aramid Bankruptcy, giving rise to ‘arising under’ jurisdiction of this Court.” Id. As
the Bankruptcy Court made clear, Molner’s “own court filings belie his attempt to characterize
his lawsuit as disconnected from the Aramid Bankruptcy:”
Molner’s own description of his claims . . . shows that the claims arise in the underlying
Aramid Bankruptcy and that events within that bankruptcy are integral to his claims.
Molner complains that the bankruptcy itself was “Defendants’ means of taking control
out of Plaintiff’s hands,” and caused him to incur fees and reputational harm resulting
from the bankruptcy itself.
Id. Even though the summons purported to advance common-law claims that could be brought
outside of bankruptcy, those claims, the Bankruptcy Court reasoned, “so closely involve the
administration of the Aramid Bankruptcy, and at least in substantial part depend on proof of
events that occurred in that proceeding, that they qualify for ‘arising in’ jurisdiction.” Id. This
conclusion—that the state court action and the bankruptcy proceeding are inseparably
intertwined—is “borne out by [Molner’s] explanation of alleged damages, which clearly arose at
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least in large part during the bankruptcy.” Id. In other words, Molner “complains that the
bankruptcy itself caused him to lose income . . . .” Id.
Beyond “the bankruptcy’s centrality to the claims . . . as Molner himself describes them,”
the Bankruptcy Court reasoned, his claims also will require “consideration of whether proofs of
claim that Molner and parties affiliated with him unsuccessfully advanced in the bankruptcy
would bar the State Court Action,” given that “Molner actively participated in the Aramid
Bankruptcy on behalf of himself and on behalf of [his entities], and he waited until days after the
[Bankruptcy Court’s] Expungement Order to bring the State Court Action.” Id. at 19. 	Other
aspects of the Aramid bankruptcy also would be at issue, including the “Debtors’ very decision
to restructure in a U.S. bankruptcy proceeding,” the “Court-authorized termination of the
services agreement through which [Molner] was compensated,” and the Bankruptcy Court’s
“approval of numerous fee requests for services that the Court necessarily found were reasonable
and benefitted the estate.” Id. at 19-20. The Bankruptcy Court also found that a “multitude” of
its findings and conclusions likely would be implicated as well. Id. at 20-21.
Thus, “any review of Molner’s claims would in part require the interpretation of this
Court’s orders throughout the Aramid Bankruptcy and an assessment of how if at all those orders
affect Molner’s entitlement to relief here.” Id. at 21. That analysis, the Bankruptcy Court
continued, “may well in turn require consideration of the events and submissions that led to those
orders.” Id. According to the Bankruptcy Court,
All these aspects of the Aramid Bankruptcy are integral mechanisms by which the
scheme Plaintiff alleges actually was carried out and caused whatever harm (if any) that
he can show, and they are indispensable to Molner’s damages claims (not to mention to
numerous defenses that defendants have identified).
Id. Therefore, the Bankruptcy Court found, “no matter how he characterizes his claims,
Molner’s state-court proceeding in reality ‘ar[ose] in’ the Aramid Bankruptcy.” Id. Because
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“arising in” jurisdiction applies, the Court reasoned, Molner cannot meet the standard for
mandatory abstention. Id. at 23.
As to permissive abstention, the Bankruptcy Court found that because this action is
“inextricably intertwined with the Aramid Bankruptcy and this Court’s prior rulings,” and
because “bankruptcy-related issues predominate,” it would be “inappropriate to permissively
abstain from hearing this action.” Id. at 25. As such, the Bankruptcy Court denied Molner’s
motion. Molner now appeals that decision.
III. 	LEGAL STANDARD
Pursuant to 28 U.S.C. § 158(a), this Court has appellate jurisdiction over “final
judgments, orders, and decrees” of bankruptcy courts. 28 U.S.C. § 158(a)(1). Under the
collateral order doctrine, an order is treated as “final” if it “conclusively determine[s] a disputed
question that is completely separate from the merits of the action, effectively unreviewable on
appeal from a final judgment, and too important to be denied review.” Mt. McKinley Ins. Co. v.
Corning Inc., 399 F.3d 436, 442 (2d Cir.2005) (quoting Quackenbush v. Allstate Ins. Co., 517
U.S. 706, 712 (1996)). A district court may also grant discretionary leave to appeal an
interlocutory order. 28 U.S.C. § 158(a)(3). Leave to appeal an interlocutory order is granted
only “in exceptional circumstances.” Securities Investor Prot. Corp. v. Bernard L. Madoff Inv.
Sec. LLC, No. M 47, 2010 WL 185102, at *1 (S.D.N.Y. Jan.11, 2010). Leave is appropriate
where the interlocutory order (1) involves a controlling question of law, (2) as to which there is
substantial ground for difference of opinion, and (3) that an immediate appeal from the order
may materially advance the ultimate termination of the litigation. Id. (citing 28 U.S.C. §
1292(b)).
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A district court reviews a bankruptcy court’s conclusions of law de novo and its findings
of fact for clear error. See, e.g., In re Ionosphere Clubs, Inc., 922 F.2d 984, 988 (2d Cir. 1990);
In re Residential Capital, LLC, 519 B.R. 606, 612 (S.D.N.Y. 2014). A bankruptcy court's
discretionary decisions are reviewed for abuse of discretion. See, e.g., In re Boodrow, 126 F.3d
43, 47 (2d Cir. 1997).
IV. 	DISCUSSION
Under § 158(a), certain “final judgments, orders, and decrees” of the Bankruptcy Court
orders are appealable as of right. In addition, a small class of rulings may be appealable as of
right under the collateral order doctrine. See Will v. Hallock, 546 U.S. 345, 349. If not
appealable as of right—because they are not final or do not fall within the collateral order
exception—other interlocutory orders and decrees of the Bankruptcy Court nonetheless may be
appealable “with leave of the court.” 28 U.S.C. § 158(a)(3). Here, Molner did not seek leave
before filing his notice of appeal. Thus, at issue, first, is whether the Bankruptcy Court order is
final, and, second, is whether the collateral order doctrine applies. The Court finds the order is
not final, and the collateral order doctrine is inapplicable. In other words, the Bankruptcy Court
order is not appealable as of right. Beyond this, the Court declines to grant Molner leave to
appeal.
a. 	Final Order
The Bankruptcy Court’s order denying abstention is not a final order under § 158(a)(1).
An order is final “if [it] finally dispose[s] of discrete disputes within the larger [bankruptcy]
case.” In re Penn Traffic Co., 466 F.3d 75, 77-78 (2d Cir. 2006) (citation omitted). The
resolution of a “dispute” does not simply refer to the determination of a separable issue. In re
Flor, 79 F.3d 281, 283 (2d Cir. 1996). Rather, “[g]iven the strong federal policy against
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piecemeal appeals, . . . a ‘dispute,’ for appealability purposes in the bankruptcy context, means at
least an entire claim on which relief may be granted.” In re Fugazy Exp, Inc., 982 F.2d 769,
775-76 (2d Cir. 1992). In other words, for a Bankruptcy Court order to be final within the
meaning of § 158, the order need not resolve all of the issues raised by the bankruptcy, but it
must completely resolve all of the issues pertaining to a discrete claim, including issues as to the
proper relief. In re Prudential Lines, Inc., 59 F.3d 327, 331 (2d Cir. 1995). While the concept of
finality in bankruptcy matters is more flexible than in ordinary civil litigation, “even that
flexibility is limited by the requirement that there be a final decision on the discrete issue at bar.”
In re Chateaugay Corp., 838 F.2d 59, 61-62 (2d Cir. 1988) (citation omitted).
As the Second Circuit has held, finality analysis under § 158(a) involves “the same
standards of finality that [courts] apply to an appeal under 28 U.S.C. § 1291.” In re Prudential
Lines, Inc., 59 F.3d at 331; In re Integrated Res., Inc., 3 F. 3d 49, 53 (2d Cir. 1993) (citation
omitted); In re Fugazy Express, Inc., 982 F.2d 769, 775 (2d Cir. 1992). And, in cases involving
appeals under § 1291, the Second Circuit specifically has held that an “order declining to abstain
[is] not a final decision,” because it “d[oes] not resolve any of the substantive issues addressed in
the lawsuit.” Beightol v. UBS Painewebber, Inc., 354 F.3d 187, 189 (2d Cir. 2004). Rather, the
challenged order “merely determined whether the case would be adjudicated.” Id.; see also RRI
Realty Corp. v. Inc. Vill. of Southampton, 766 F.2d 63, 65 (2d Cir. 1985) (“The decision not to
abstain . . . is in no way a final decision . . . and is consequently not appealable under 28 U.S.C.
1291.”).
Similarly, as another court in this district made clear, a bankruptcy court denying a
motion to abstain and remand “is not a final order under section 158(a)(1)” because “it does not
resolve an entire claim.” In re Extended Stay, Inc., No. 09-13764 (JMP), 2012 WL 491436, at *2
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(S.D.N.Y. Feb. 14, 2012). That is the case here. In the instant case, the challenged order is a
denial of a motion to abstain and remand. Under Second Circuit precedent, such an order is non-
final and is, therefore, not appealable as of right.
b. 	Collateral Order Doctrine
A “small class” of rulings may be appealable as of right under the collateral order
doctrine. Will, 546 U.S. at 349. While they may not conclude the litigation, such rulings
“conclusively resolve[e] claims of right separable from, and collateral to, rights asserted in the
action.” Id. A collateral order is only appealable if it “conclusively determine[s] a disputed
question that is completely separate from the merits of the action, [is] effectively unreviewable
on appeal from a final judgment, and [is] too important to be denied review.” Mt. McKinley, 399
F.3d at 442 (quoting Quackenbush, 517 U.S. at 712 (1996)). Here, the parties dispute whether
the Bankruptcy Court decision denying abstention is reviewable on appeal.
While a decision to abstain falls within the collateral order exception—because it
surrenders federal jurisdiction to a state court—a refusal to abstain, under ordinary
circumstances, would be reviewable on appeal from final judgment, rendering the collateral
order exception inapplicable. Mt. McKinley, 399 F.3d at 442; see also Beightol, 354 F.3d at 189
(“decisions not to abstain are not so conclusive of the litigation or effectively unreviewable as
part of an eventual final judgment as to be appealable as collateral orders . . .); RRI Realty, 766
F.3d at 65 (“the refusal to abstain does not fit within the small class of decisions which, although
not final . . . , are nevertheless appealable as collateral orders”). As the Second Circuit has made
clear, “a decision refusing to abstain is reviewable, both theoretically and as a practical matter,
on appeal from a merits determination.” RRI Realty, 766 F.3d at 65. “In the event of error in the
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decision not to abstain, the effects of any final judgment can still be undone, and the judgment
vacated.” Id.
Molner suggests these are not “ordinary circumstances” and, as such, the Bankruptcy
Court order is unreviewable on appeal. Doc. 23 at 10-12. He argues the Bankruptcy Court order
is “effectively unreviewable on appeal” because Defendants intend to rely on federal bankruptcy
law: in light of this intent, Molner writes, it is “highly unlikely if not impossible”—in the event
of a successful appeal and remand to state court—that the state court “would be willing to reach
a different conclusion than a federal bankruptcy court on [bankruptcy issues].” Id. at 11. As
Defendants write, this “entire argument . . . is premised on the strained proposition that a state
court, on a hypothetical post-verdict remand, might afford persuasive value to the Bankruptcy
Court’s hypothetical, vacated ruling on the merits of his state law claims.” Doc. 24 at 4.
Beyond this, Molner argues this concern is exacerbated by his jury trial demand. Doc. 23
at 11. According to Molner, it would be “absurd” and “unrealistic” for a state court—in the
event of an appeal—to “start from scratch” and “go through a whole new jury trial.” Id. at 11-
12.
These are not extraordinary circumstances. See, e.g., Mt. McKinley, 399 F.3d 436 at 443
(circumstances not ordinary where issue preclusion would bar further litigation and prevent
appellate review of abstention decision); see also In re Extended Stay, 2012 WL 491436 at *2
(noting “complex and unusual posture” in Mt. McKinley). As Defendants argue, that “one judge
might be persuaded by another’s reasoning as to the merits of certain underlying claims or
defenses has no bearing on the dispositive factor here: the [Bankruptcy Court order] itself—i.e.,
the decision not to remand or abstain—will plainly be reviewable by a judge of this Court
following final judgment.” Doc. 24 at 4. In other words, that a state court might be likely to
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reach a certain conclusion after appeal does not change that the order denying abstention is
reviewable on appeal.
As to Molner’s concerns about having to “start from scratch,” the Second Circuit made
clear in RRI Realty that while “[i]t is true that the refusal to accelerate review may force a would-
be-appellant to litigate in an improper forum and later render an entire proceeding nugatory,”
these “dangers . . . are not the sort upon which the [collateral order] exception is founded.” RRI
Realty Corp., 766 F.2d at 65.
Because this is an order denying abstention, under ordinary circumstances, it is
reviewable on appeal from final judgment, and the collateral order exception does not apply. Mt.
McKinley, 399 F.3d at 442; Beightol, 354 F.3d at 189; RRI Realty Corp., 766 F.2d at 65.
c. 	Leave to Appeal
Even when orders are not final under § 158(a), district courts have jurisdiction to hear
appeals from interlocutory orders and decrees with leave of the court. In re Sterling, No. 17 Civ.
248, 2018 WL 1157970, at *3 (S.D.N.Y. Mar 2, 2018) (citing In re Kassover, 343 F.3d 91, 94
(2d Cir. 2003)), appeal dismissed, No. 18-995, 2018 WL 4859355 (2d Cir. July 23, 2018); see
also Fed. R. Bankr. P. 8004 (providing procedure for appeal requiring leave).
While neither § 158 nor the Bankruptcy Rules “provides guidelines for determining
whether a district court should grant leave to appeal, . . . most district courts in the Second
Circuit have applied the analogous standard for certifying an interlocutory appeal from a district
court order, set forth in 28 U.S.C. § 1292(b).” In re Cutter, No. 05 Civ. 5527 (FB), 2006 WL
2482674, at *4 (E.D.N.Y. Aug. 29, 2006) (citations omitted); see also In re Futter Lumber
Corp., 473 B.R. 20, 26–27 (E.D.N.Y. 2012).
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In order to permit an interlocutory appeal under § 1292(b), the order being appealed must
involve “(1) a controlling question of law (2) as to which there is substantial ground for
difference of opinion and (3) that an immediate appeal from the order may materially advance
the ultimate termination of the litigation.” 28 U.S.C. § 1292(b). All three § 1292(b) criteria
must be met before a court may grant leave to appeal. In re Futter Lumber Corp., 473 B.R. at
26–27 (citing N. Fork Bank v. Abelson, 207 B.R. 382, 390 (Bankr. E.D.N.Y. 1997)). “This
standard is strictly applied as interlocutory appeals from bankruptcy courts’ decisions are
‘disfavored’ in the Second Circuit.” In re Madoff, No. 08 Civ. 01289 (SAS), 2010 WL 3260074,
at *3 (S.D.N.Y. Aug. 6, 2010) (internal citation omitted). “The party seeking an interlocutory
appeal has the burden of showing exceptional circumstances to overcome the general aversion to
piecemeal litigation and justify a departure from the basic policy of postponing appellate review
until after the entry of a final judgment.” In re Perry H. Koplik & Sons, Inc., 377 B.R. 69, 74
(S.D.N.Y. 2007) (citations omitted).
In addition, “district court judges have broad discretion to deny certification even where
the statutory criteria are met.” SPL Shipping Ltd. v. Gujarat Cheminex Ltd., No. 06-CV-15375
(KMK), 2007 WL 1119753, at *1 (S.D.N.Y. Apr. 12, 2007) (quoting Nat’l Asbestos Workers
Med. Fund v. Philip Morris, Inc., 71 F. Supp. 2d 139, 166 (E.D.N.Y. 1999)). “Indeed ‘only
exceptional circumstances [will] justify a departure from the basic policy of postponing appellate
review until after the entry of a final judgment.’” In re Lehman Bros. Holdings Inc., No. 13 Civ.
2211 (RJS), 2014 WL 3408574, at *1 (S.D.N.Y. June 30, 2014) (quoting Klinghoffer v. S.N.C.
Achille Lauro Ed Altri-Gestione Motonave Achille Lauro in Amministrazione Straordinaria, 921
F.2d 21, 25 (2d Cir. 1990)). “Section 1292(b)’s legislative history reveals that although that law
was designed as a means to make an interlocutory appeal available, it is a rare exception to the
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final judgment rule that generally prohibits piecemeal appeals.” Koehler v. Bank of Bermuda
Ltd., 101 F.3d 863, 865 (2d Cir. 1996). The use of § 1292(b) is therefore “reserved for those
cases where an intermediate appeal may avoid protracted litigation.” Id. (citing Milbert v. Bison
Labs., 260 F.2d 431, 433–35 (3d Cir. 1958)).
Here, even assuming the first two factors are met, Molner fails to establish the third
factor: that an immediate appeal may materially advance the ultimate termination of the
litigation. This third factor, which primarily concerns judicial efficiency, is considered the most
important of the § 1292(b) factors. See SEC v. Gruss, No. 11 Civ. 2420 (RWS), 2012 WL
3306166, at *4 (S.D.N.Y. Aug. 13, 2012); In re Lehman Bros., 2014 WL 3408564, at *1. The
factor is satisfied when the “appeal promises to advance the time for trial or to shorten the time
required for trial.” In re St. Clair, No. 13 Misc. 1057 (SJF), 2014 WL 279850, at *5 (E.D.N.Y.
Jan 21, 2014) (citing In re Perry H. Koplik & Sons, Inc., 377 B.R. at 74).
Here, in urging the Court to grant him leave to appeal, Molner focuses much of his
argument on Defendants’ failure to show that an immediate appeal would not materially advance
the litigation. Doc. 23 at 13. This is not Defendants’ burden. Instead, Molner must prove this
factor. And this he cannot do. Molner argues that “waiting to appeal the jurisdiction question
after a final judgment would be incredibly inefficient . . . .” Doc. 23 at 13. If, Molner argues, he
succeeds in overturning the Bankruptcy Court order in an appeal at the conclusion of the case,
the parties “will have to do everything over again.” Id. In support of this argument, Molner cites
a single case, noting the Second Circuit has “considered ‘inefficiencies’ in determining finality,”
and, as such, it follows that “efficiencies matter to the Second Circuit’s analysis.” Id. at 14.
Molner argues the “efficiencies—and a prompt resolution of this litigation—favor conclusively
determining jurisdiction prior to litigating the merits, not after.” Id. (citing In re The Bennett
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Funding Grp., Inc., 439 F.3d 155, 162-64 (2d Cir. 2006)). But this Second Circuit case did not
involve a motion for leave to appeal. In any event, the Court agrees with Defendants that, if
anything, “an interlocutory appeal at this stage would further prolong the litigation and prevent it
from moving forward on the merits, even as the case enters its second year.” Doc. 24 at 13.
The more relevant case here is In re Extended Stay, where Judge Scheindlin, facing the
exact same circumstances—an appeal of an order denying abstention and remand—found an
“immediate appeal would not advance the termination of this litigation to the degree that it
presents an ‘exceptional circumstance’ justifying leave to appeal an interlocutory order.” 2012
WL 491436, at *3. As Judge Scheindlin wrote, “[a]t most, the resolution of this appeal would
finally determine whether this action proceeds in the Bankruptcy Court or New York state court.
If that were a sufficient concern to grant leave to appeal an interlocutory order, then every
decision not to abstain and remand would be immediately appealable.” Id. As Judge Scheindlin
made clear, the Second Circuit has stated otherwise. Id. (citing RRI Realty Corp., 766 F.2d at
65). As this case, as did Extended Stay, involves an appeal from a denial of abstention, and as
Molner has not otherwise established the exceptional circumstances required to allow an appeal,
he is denied leave to appeal.
V. 	CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss is GRANTED. The Clerk of
Court is respectfully directed to terminate the motion, Doc. 13, and close the case.
It is SO ORDERED.
Dated: 	January 12, 2022
New York, New York
EDGARDO R AMOS , U.S.D.J.
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