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In re Diamond Trucking, Inc.

United States District Court, N.D. Indiana, South Bend Division

January 24, 2019




         On February 8, 2018, the bankruptcy court issued two orders: (1) the Order Granting Motion for Rule 2004 Examination (the “Rule 2004 Order”) [Bkr Case No. 16-32627 DE 68]; and (2) the Order Granting Motion for Waiver of Attorney-Client and Work Product Privileges (the “Privilege Order”). [Bkr. DE 69] Together, the Orders permit creditor Central States, Southeast and Southwest Areas Pension Fund (“Central States”) to investigate Chapter 7 debtor Diamond Trucking, Inc. and several affiliated non-debtor third parties under Rule 2004 of the Federal Rules of Bankruptcy Procedure over any attorney-client or work product privileges Diamond Trucking may hold as to its pre-bankruptcy communications. Diamond Trucking now appeals these Orders, as do the third parties subject to the Rule 2004 Order: DT Leasing, LLC; Shoshone Trucking, LLC; Ms. Teresa J. Pendleton; and the law firm Scopelitis, Garvin, Light, Hanson & Feary, P.C. (collectively, the “Non-Debtors”). Although the parties have briefed the merits, Central States has moved to dismiss these appeals pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction. [DE 5] Also pending before the Court is Diamond Trucking's motion to consolidate appeals. [DE 3] For the reasons stated herein, the Court will grant Central States's motion to dismiss and deny as moot the outstanding motion to consolidate appeals.


         Diamond Trucking filed for bankruptcy under Chapter 7 on December 14, 2016. Its largest creditor, Central States (a pension plan), maintains that Diamond Trucking failed to remit contributions pursuant to various collective bargaining agreements. When Diamond Trucking ceased operations on August 24, 2014, it effectively withdrew from the pension plan, thereby incurring $4, 649, 785.19 in principal liability to Central States. The actions of Diamond Trucking's shareholders taken shortly before and after that date, however, provide the impetus for Central States's Rule 2004 examination.

         In February 2013, Diamond Trucking's then-shareholders (Teresa Pendleton and her three brothers) formed DT Leasing. An attorney at Scopelitis prepared DT Leasing's articles of incorporation and serves as its registered agent. According to Central States, one month later, Diamond Trucking apparently transferred its assets-40-50 tri-axle dump trucks-to DT Leasing, and DT Leasing immediately turned around and leased the trucks back to Diamond Trucking until Diamond Trucking ceased operations. Shortly after this close of business, Ms. Pendleton acquired ownership of Shoshone Trucking and then allegedly used Shoshone Trucking to continue Diamond Trucking's operations. Shoshone Trucking services Diamond Trucking's old clients, employs Diamond Trucking's former drivers and dispatcher, and uses the same dump trucks passed between DT Leasing and Diamond Trucking. Ms. Pendleton serves as the president for Diamond Trucking, DT Leasing, and Shoshone Trucking.

         Central States believes Appellants undertook these actions in an effort to evade withdrawal liability and defraud Diamond Trucking's creditors by stripping it of its value, and that Scopelitis advised Diamond Trucking in this regard. On September 12, 2017, Central States moved to conduct a Rule 2004 examination of Ms. Pendleton, Scopelitis, and these entities, and the Trustee supported the motion. [Bkr. DE 23] The Trustee waived Diamond Trucking's attorney-client and work product privileges, and Central States moved the bankruptcy court to accept said waiver with regard to Diamond Trucking's pre-bankruptcy communications. [Bkr. DE 24] The bankruptcy court heard argument on these motions on February 6, 2018, and granted the relief requested two days later. These appeals followed.


         Rule 12(b)(1) authorizes dismissal of claims over which the Court lacks subject matter jurisdiction. In analyzing a motion to dismiss, the Court must accept as true all well-pled factual allegations and must draw all reasonable inferences in favor of the plaintiff. Long v. Shorebank Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999). Further, “[t]he district court may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.” Id. (citations omitted). The burden of establishing proper federal subject matter jurisdiction rests on the party asserting it. Muscarello v. Ogle Cnty. Bd. of Comm'rs, 610 F.3d 416, 425 (7th Cir. 2010).


         A district court has jurisdiction to consider appeals from final orders of a bankruptcy court or may grant leave to appeal “from other interlocutory orders and decrees[.]” 28 U.S.C. §§ 158(a)(1), (3). Appellants argue that the Orders are “final” for purposes of appeal, and therefore insist that jurisdiction exists under § 158(a)(1). The Non-Debtors alternatively attempt to invoke the Perlman doctrine to override the jurisdictional statute's finality requirement. In addition, Appellants maintain that this case presents exceptional circumstances warranting leave to appeal under § 158(a)(3). The Court does not agree with any of these positions.

         1.The Court Lacks Subject Matter Jurisdiction Under 28 U.S.C. § 158(a)(1)

         “Finality in the bankruptcy context is ‘considerably more flexible than in an ordinary civil appeal.'” In re Dental Profile, Inc., No. 09 C 6160, 2010 WL 431590, at *3 (N.D. Ill. Feb. 1, 2010) (quoting Zedan v. Habash, 529 F.3d 398, 402 (7th Cir. 2008)). Analyzing the near-identical language of § 158(d), the Seventh Circuit has endorsed a “stand-alone” test to determine finality, “which asks whether an order resolves a discrete dispute that, but for the continuing bankruptcy, would have been a stand-alone suit by or against the trustee.” Schaumburg Bank & Trust Co., N.A. v. Alsterda, 815 F.3d 306, 313 (7th Cir. 2016) (citing Bullard v. Blue Hills Bank, 135 S.Ct. 1686, 1692 (2015); Zedan, 529 F.3d at 402). “To be ‘final,' the order, judgment, or decree in question must conclusively determine a separable dispute over a creditor's claim or priority.” Id. (citations omitted); see also In re Comdisco, Inc., 538 F.3d 647, 651 (7th Cir. 2008) (“The final disposition of an adversary proceeding within a core proceeding thus falls within our jurisdiction.”) (citing id.). An order that resolves “only an issue that arises during the administration of a bankruptcy estate is too small a litigation unit to justify treatment as a final judgment.” Id. Such orders resolve “discrete issues” and do not supply jurisdiction.

         Neither the Rule 2004 Order nor the Privilege Order in any way “resolve a discrete dispute.” Instead, the Orders resolve two discrete issues within the bankruptcy proceedings: whether Diamond Trucking and the Non-Debtors must submit to a Rule 2004 examination and whether Diamond Trucking's pre-bankruptcy communications are protected by the attorney-client and work product privileges. See id at 651-52 (dismissing appeal for lack of jurisdiction; bankruptcy court's order denying motion to terminate trust resolved only one particular issue within the bankruptcy proceedings-whether the trust's purposes had been fulfilled-not a “discrete dispute”). In the Seventh Circuit, orders granting motions for Rule 2004 examinations, like discovery orders, do not resolve discrete disputes and thus do not confer appellate jurisdiction; they are interlocutory as a categorical matter. Matter of Vance, 165 F.3d 34 (Table), (7th Cir. 1998). “A majority of courts” to have considered this issue have held the same, id. (citing cases that surveyed relevant opinions), and that trend has continued post-Vance. See, e.g., Dental Profile, 2010 WL 431590 (finding Rule 2004 order not final for purposes of § 158(a)(1) and dismissing its appeal); In re Santiago, No. 1:11-Cv-561, 2011 WL 1257209, at *2 (N.D. Ohio Mar. 31, 2011) (order granting Rule 2004 examination did not dispose of a discrete dispute within the bankruptcy case but rather authorized search for information that may lead to additional disputes therein); In re Gray, 447 B.R. 524, 532 (E.D. Mich. 2011) (same, citing Dental Profile). The Rule 2004 Order does not resolve any discrete disputes; like the district courts' observations in Santiago and Gray, the Order here leaves the door open for additional, new issues that would require the bankruptcy court's analysis. Thus, it is not a final order for purposes of § 158(a)(1).

         The same goes for the Privilege Order. In the analogous setting of motions to compel discovery, “orders to produce information over strong objections based on privilege are not appealable, despite the claim that once the cat is out of the bag the privilege is gone.” Reise v. Bd. of Regents of the Univ. of Wis. Sys., 957 F.2d 293, 295 (7th Cir. 1992). Such orders “at most resolve[ ] a discrete issue, not a discrete dispute.” In re Royce Homes LP, 466 B.R. 81, 88 (S.D. Tex. 2012) (discussing the Seventh Circuit's flexible finality standard as consistent with that of the Fifth Circuit). The district court in Royce Homes dismissed an appeal of the bankruptcy court's Rule 2004 order compelling production of documents that the owner of the debtor-entity claimed were privileged. In so doing, the court noted that the order resolved no claims and left the bankruptcy court with “more work to do between the parties.” Id. at 88. Similarly here, the Rule 2004 Order resolves no claims, and the fact that Diamond Trucking's pre-bankruptcy communications must be made available does not change that. Therefore, like the Rule 2004 Order, the Privilege Order cannot be immediately appealed under § 158(a)(1). See id.; In re Protron Digital Corp., ...

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