Walden v. Walker (In re Walker), 06-11743 (11th Cir. January 31, 2008) (click here for pdf). The debtor filed a motion to remove the Chapter 7 Trustee. The Bankruptcy Court, after hearing evidence, held that the Chapter 7 Trustee lied about her previous relationship with a creditor of the estate and removed her as Trustee in an oral order. The Trustee filed a Notice of Appeal of the oral order, and then the Bankruptcy Court issued a written removal order. The District Court affirmed and the Trustee appealed.
The first issue was whether the removal order(s) were final and appealable, an issue of first impression in the Circuit –
Other appellate courts are split as to whether the removal or appointment of a trustee is a “final” order. The Third and Fourth Circuits hold that these decisions are final, but the Seventh Circuit disagrees. The Fifth Circuit has concluded both ways.
In In re Marvel, the Third Circuit concluded that the order appointing the trustee met the finality requirement. In re Marvel Entm’t Group, Inc., 140 F.3d 463, 470-71 (3rd Cir. 1998). In that case, the court wrote that the purpose of the finality requirement is judicial economy but that judicial efficiency would be “turned on its head” if the court were to delay reviewing the trustee appointment until after the entire bankruptcy proceeding concluded. Id. at 470. The court noted that “[l]iberal finality considerations in orders appointing bankruptcy trustees are necessary because these orders cannot be meaningfully postponed to the bankruptcy’s conclusion.” Id. The court wrote that if it did not have jurisdiction “no meaningful review of the order appointing the trustee could ever take place.” Id. It would “strain credulity to suggest that a reviewing court would jettison years of bankruptcy infighting, compromise[,] and final determinations solely for the purpose of reversing” on the issue of the identity of the trustee. Id.
We are persuaded by the logic of the Third Circuit and conclude that the removal of a bankruptcy trustee is a “final” order appealable to this Court.
The second issue was whether the Bankruptcy Court had jurisdiction to enter a written order removing the Trustee after the Court entered an oral order and after the Trustee filed an appeal of the oral ruling –
This Court concluded [in In re Mosley, 494 F.3d 1320, 1328 (11th Cir. 2007)] that while the filing of a notice of appeal generally “confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal,” an exception exists. Id. at 1328 (quoting Griggs, 459 U.S. at 58). We concluded that when a trial court reduces its oral findings to writing and cites relevant case law, it does not lack jurisdiction to do so because the losing party filed a notice of appeal after the oral hearing but before the entry of the written order. Id. Such a subsequent order aids appellate review. Accordingly, we conclude that the bankruptcy court had jurisdiction to enter Removal Order II and the Final Judgment.
The Trustee also argued that the debtor did not have standing to move for removal because he did not have a pecuniary interest in the estate. The Court noted that the question was also one of first impression in the Circuit, but that the Court did not have to decide it –
The statute governing the removal of a trustee does not require that a “party in interest” request the removal. 11 U.S.C § 324. It reads, “The court, after notice and a hearing, may remove a trustee, other than the United States trustee, or an examiner, for cause.” Id. The statute’s language does not restrict the court’s ability to remove a trustee to only those instances in which specific parties move for removal. See Morgan v. Cast, 375 B.R. 838, 848 (BAP 8th Cir. 2007) (concluding that lying under oath provides cause for sua sponte removal). We conclude that § 324 authorizes the bankruptcy judge to remove the trustee sua sponte when, after notice and a hearing, the judge finds that the trustee had lied under oath.