Chapter 15 petitions seeking recognition in the United States of foreign bankruptcy proceedings have increased significantly during the more than 16 years since chapter 15 was enacted in 2005. Among the relief commonly sought in such cases is discovery concerning the debtor's assets or asset transfers involving U.S.-based entities. A nonprecedential ruling recently handed down by the U.S. Court of Appeals for the Eleventh Circuit has created a circuit split on the issue of whether discovery orders entered by a U.S. bankruptcy court in a chapter 15 case are immediately appealable. Disagreeing with the Second Circuit and based upon the "framework" recently established by the U.S. Supreme Court for determining the finality of bankruptcy court orders, the Eleventh Circuit ruled in In re Transbrasil S.A. Linhas Aéreas, 2021 WL 3028768 (11th Cir. July 19, 2021), that an order denying a request to quash a subpoena was not final and could not be appealed immediately because the order was "merely a preliminary step" in the context of a broader proceeding. In dicta, however, the Eleventh Circuit appeared to cabin its ruling to the facts before it and noted that if the only purpose of the chapter 15 case is to obtain discovery, a discovery order may be final and immediately appealable because the discovery order is effectively the entire proceeding.
Procedures, Recognition, and Relief Under Chapter 15
Chapter 15 was enacted in 2005 to govern cross-border bankruptcy and insolvency proceedings. It is patterned on the 1997 UNCITRAL Model Law on Cross-Border Insolvency, which has been enacted in some form by more than 50 countries.
Under section 1515 of the Bankruptcy Code, the representative of a foreign debtor may file a petition in a U.S. bankruptcy court seeking "recognition" of a "foreign proceeding." Section 101(24) of the Bankruptcy Code defines "foreign representative" as "a person or body, including a person or body appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor's assets or affairs or to act as a representative of such foreign proceeding."
"Foreign proceeding" is defined in section 101(23) of the Bankruptcy Code as:
[A] collective judicial or administrative proceeding in a foreign country, including an interim proceeding, under a law relating to insolvency or adjustment of debt in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation.
More than one bankruptcy or insolvency proceeding may be pending with respect to the same foreign debtor in different countries. Chapter 15 therefore contemplates recognition in the United States of both a foreign "main" proceeding—a case pending in the country where the debtor's center of main interests ("COMI") is located (see 11 U.S.C. § 1502(4))—and foreign "nonmain" proceedings, which may be pending in countries where the debtor merely has an "establishment" (see 11 U.S.C. § 1502(5)). A debtor's COMI is presumed to be the location of the debtor's registered office, or habitual residence in the case of an individual. See 11 U.S.C. § 1516(c). An establishment is defined by section 1502(2) as "any place of operations where the debtor carries out a nontransitory economic activity."
Upon recognition of a foreign "main" proceeding, section 1520(a) of the Bankruptcy Code provides that certain provisions of the Bankruptcy Code automatically come into force, including: (i) the automatic stay preventing creditor collection efforts with respect to the debtor or its U.S. assets (section 362, subject to certain enumerated exceptions); (ii) the right of any entity asserting an interest in the debtor's U.S. assets to "adequate protection" of that interest (section 361); and (iii) restrictions on use, sale, lease, transfer, or encumbrance of the debtor's U.S. assets (sections 363, 549, and 552).
Following recognition of a main or nonmain proceeding, section 1521(a) provides that, to the extent not already in effect, and "where necessary to effectuate the purpose of [chapter 15] and to protect the assets of the debtor or the interests of the creditors," the bankruptcy court may grant "any appropriate relief," including a stay of any action against the debtor or its U.S. assets not covered by the automatic stay, an order suspending the debtor's right to transfer or encumber its U.S. assets, and, with certain exceptions, "any additional relief that may be available to a trustee." Under section 1521(b), the court may entrust the distribution of the debtor's U.S. assets to the foreign representative or another person, provided the court is satisfied that the interests of U.S. creditors are "sufficiently protected."
Section 1507(a) of the Bankruptcy Code provides that, upon recognition of a main or nonmain proceeding, the bankruptcy court may provide "additional assistance" to a foreign representative "under [the Bankruptcy Code] or under other laws of the United States." However, the court must consider whether any such assistance, "consistent with principles of comity," will reasonably ensure that: (i) all stakeholders are treated fairly; (ii) U.S. creditors are not prejudiced or inconvenienced by asserting their claims in the foreign proceeding; (iii) the debtor's assets are not preferentially or fraudulently transferred; (iv) proceeds of the debtor's assets are distributed substantially in accordance with the order prescribed by the Bankruptcy Code; and (v) if appropriate, an individual foreign debtor is given the opportunity for a fresh start. See 11 U.S.C. § 1507(b).
Section 1522(a) provides that the bankruptcy court may exercise its discretion to order the relief authorized by sections 1517 and 1521 upon the commencement of a case or recognition of a foreign proceeding "only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected."
Finally, section 1506 sets forth a public policy exception to the relief otherwise authorized in chapter 15, providing that "[n]othing in this chapter prevents the court from refusing to take an action governed by this chapter if the action would be manifestly contrary to the public policy of the United States." However, section 1506 requires a "narrow reading" and "does not create an exception for any action under Chapter 15 that may conflict with public policy, but only an action that is 'manifestly contrary.'" In re Fairfield Sentry Ltd., 714 F.3d 127, 139 (2d Cir. 2013).
Discovery in Bankruptcy Cases
Rule 2004 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules") provides a broad-ranging discovery mechanism in bankruptcy cases. It provides that "[o]n motion of any party in interest, the court may order the examination of any entity." Such an examination "may relate only to the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor's estate, or to the debtor's right to a discharge." In addition, in a non-railroad "reorganization case under chapter 11" (among other cases), the examination "may also relate to the operation of any business and the desirability of its continuance, the source of any money or property acquired or to be acquired by the debtor for purposes of consummating a plan and the consideration given or offered therefor, and any other matter relevant to the case or to the formulation of a plan."
Discovery may also be sought in "adversary proceedings" (see Bankruptcy Rule 7001) or "contested matters" (see Bankruptcy Rule 9014) commenced during a bankruptcy case, and in certain other contexts, such as contested involuntary bankruptcy or chapter 15 petitions. Such discovery is governed by Bankruptcy Rules 7026-7037 and 9016, which incorporate many of the discovery procedures under the Federal Rules of Civil Procedure that apply to other kinds of federal litigation. These rules include specific procedures governing disclosure, witnesses, subpoenas, depositions, interrogatories, document production, physical and mental examinations, requests for admission, and other discovery-related matters.
Discovery in Chapter 15 Cases
In a chapter 15 case, section 1521(a) of the Bankruptcy Code provides that, upon recognition of a foreign main or nonmain proceeding, the court may, upon the request of the foreign representative, grant any appropriate relief, including "providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor's assets, affairs, rights, obligations or liabilities." 11 U.S.C. § 1521(a)(4). See In re Millennium Glob. Emerging Credit Master Fund Ltd., 471 B.R. 342, 346 (Bankr. S.D.N.Y. 2012) (discovery under section 1521(a)(4) "enables a Foreign Representative to take broad discovery concerning the property and affairs of a [foreign] debtor").
Where discovery is requested, however, section 1522 provides that the court may grant such relief "only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected." See In re AJW Offshore, Ltd., 488 B.R. 551, 561 (Bankr. E.D.N.Y. 2013) (discovery under section 1521(a)(4) "will only be permitted by motion on notice with an opportunity for hearing to the adverse parties and by making examination and production of documents…, with any discovery to be allowed to be subject to conditions imposed in accordance with §1522").
Discovery under section 1521(a)(4) need not "concern the preservation or recovery of property in the United States" because chapter 15 "is not an independent in rem proceeding but an ancillary proceeding designed to assist a foreign representative in administering the foreign estate." Millennium, 471 B.R. at 347; In re Fairfield Sentry Ltd. Lit., 458 B.R. 665, 679 n.5 (S.D.N.Y. 2011) (stating that section 1521(a)(4) "allows for discovery in the United States whether or not a debtor has assets here").
Chapter 15 discovery is not limited to documents located in the United States but also extends to documents in the possession, custody, or control of a party, including documents held by a party's attorneys or agents. See In re Markus, 607 B.R. 379, 389 (Bankr. S.D.N.Y. 2019), aff'd in part, vacated in part and remanded, 615 B.R. 679 (S.D.N.Y. 2020). A subpoena issued under Fed. R. Civ. P. 45, which is made applicable to all bankruptcy cases by Bankruptcy Rule 9016, requires the production of documents responsive to the subpoena, wherever the documents may be located. Sergeeva v. Tripleton Int'l Ltd., 834 F.3d 1194, 1200 (11th Cir. 2016); In re Hulley Enters., 358 F. Supp. 3d 331, 345 (S.D.N.Y. 2019); Marcus, 607 B.R. at 391.
Most of the ordinary discovery mechanisms applying to adversary proceedings or contested matters expressly apply to contested recognition petitions in chapter 15 cases (see Bankruptcy Rule 1018). And, outside contested recognition proceedings, broad discovery under Bankruptcy Rule 2004 is available in chapter 15 cases as a form of "additional assistance" that can be granted in the court's discretion under section 1507(a). See Millennium, 471 B.R. at 346–47; accord In re Platinum Partners Value Arbitrage Fund L.P., 583 B.R. 803, 810 (Bankr. S.D.N.Y. 2018) (noting that "[r]elief sought pursuant to Bankruptcy Rule 2004 may also be available pursuant to sections 1507, 1521(a)(4) or 1521(a)(7)"); In re Petroforte Brasileiro de Petroleo Ltda., 542 B.R. 899, 911 (Bankr. S.D. Fla. 2015) (concluding that scope of chapter 15 discovery was not solely controlled by section 1521; Bankruptcy Rule 2004 is also applicable). As the court in Millennium noted, "one of the main purposes of chapter 15 is to assist a foreign representative in the administration of the foreign estate, … which would militate in favor of granting a foreign representative broad discovery rights using the full scope of Rule 2004." Millenium, 471 B.R. at 347.
Discovery in chapter 15 cases has also been sought by foreign representatives under section 542(e) of the Bankruptcy Code, which provides that, "[s]ubject to any applicable privilege, after notice and a hearing, the court may order an attorney, accountant, or other person that holds recorded information, including books, documents, records, and papers, relating to the debtor's property or financial affairs, to turn over or disclose such recorded information to the trustee." 11 U.S.C. § 542(e); see, e.g., AJW, 488 B.R. at 564.
Discovery in connection with foreign court proceedings is also authorized by 28 U.S.C. § 1782(a), which provides in relevant part that:
The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation. The order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal or upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court.
Even though section 1509 of the Bankruptcy Code indicates that chapter 15 recognition is a condition to enforcing foreign bankruptcy court orders or judgments under principles of international comity, courts disagree over whether such recognition is necessary. Compare EMA Garp Fund v. Banro Corp., 2019 WL 773988 (S.D.N.Y. Feb. 21, 2019) (despite the absence of any order issued by a U.S. bankruptcy court recognizing a Canadian bankruptcy proceeding under chapter 15, dismissing litigation against the company and its CEO under principles of comity because the lawsuit was barred by orders approving the company's Canadian bankruptcy proceeding and releasing all claims against the defendants), aff'd, 783 Fed. Appx. 82 (2d Cir. Nov. 5, 2019), with Halo Creative Design Ltd. v. Comptoir Des Indes Inc., 2018 WL 4742066 (N.D. Ill. Oct. 2, 2018) (a foreign representative must comply with the requirements of chapter 15 to obtain the various forms of relief or assistance contemplated by the chapter, including a stay or dismissal of U.S. court proceedings against a foreign debtor or its assets).
Courts are also uncertain as to whether chapter 15 recognition is a necessary "ticket to entry" to U.S. courts to seek discovery for use in a foreign bankruptcy court under 28 U.S.C. § 1782(a). See In re Soundview Elite, Ltd., 503 B.R. 571, 592 n.56, 594 (Bankr. S.D.N.Y. 2014) (discussing the interplay between chapter 15 and 28 U.S.C. § 1782 and noting uncertainty among the courts as to whether chapter 15 recognition is necessary to seek discovery under 28 U.S.C. § 1782) (citing and discussing In re Glitnir banki hf., 2011 WL 3652764 (Bankr. S.D.N.Y. Aug. 19, 2011); In re Toft, 453 B.R. 186 (Bankr. S.D.N.Y. 2011)).
Appeals of Bankruptcy Court Orders and the Relaxed Final Judgment Rule
Sections 158, 1291, and 1292 of title 28 of the U.S. Code determine whether federal appellate courts other than the U.S. Supreme Court have jurisdiction to hear appeals of orders or judgments issued by lower courts. That determination hinges on whether the order or judgment is "final" or merely "interlocutory."
Section 1291 provides that, with certain exceptions, the federal courts of appeals "shall have jurisdiction of appeals from all final decisions of the district courts of the United States." Section 1292 gives the courts of appeals jurisdiction over certain interlocutory appeals.
In ordinary civil litigation, a final order or judgment "ends litigation on the merits and leaves nothing for the … court to do but execute the judgment." Hooker v. Cont'l Life Ins. Co., 965 F.2d 903, 904 (10th Cir. 1992). Therefore, an interlocutory order is an order that does not constitute a final judgment on the merits. See Black's Law Dictionary (11th ed. 2019) (defining "interlocutory" as "interim or temporary; not constituting a final resolution of the whole controversy").
A bankruptcy case differs from ordinary civil litigation because it is a framework within which the court resolves a wide variety of disputes that precede the closure of the bankruptcy case after confirmation of a plan, discharge of the debtor following administration of its non-exempt assets, or dismissal.
Thus, the rules governing appeals in bankruptcy cases permit appeals of orders or judgments that would not be regarded as final and therefore immediately appealable in other civil litigation. See Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582, 586 (2020) ("The ordinary understanding of 'final decision' is not attuned to the distinctive character of bankruptcy litigation."); Matter of Forty-Eight Insulations, Inc., 115 F.3d 1294, 1299 (7th Cir. 1997) (finality is applied with a "relaxed eye" in the bankruptcy context); In re Dow Corning Corp., 86 F.3d 482, 488 (6th Cir. 1996) (the finality requirement in bankruptcy "is considered in a more pragmatic and less technical way in bankruptcy cases than in other situations").
Twenty-eight U.S.C. § 158(a) reflects this by providing that federal district courts shall have jurisdiction to hear appeals: (i) from final bankruptcy court judgments, orders, and decrees; (ii) from interlocutory orders and decrees increasing or reducing a debtor's exclusive right to propose and seek acceptances for a chapter 11 plan; and (iii) "with leave of the court, from other interlocutory orders or decrees."
Appeals from the same types of bankruptcy court orders may instead be heard by bankruptcy appellate panels under the circumstances specified in section 158(b).
Section 158(d)(1) provides that federal circuit courts shall have jurisdiction over appeals from "all final decisions, judgments, orders, and decrees entered [by district courts or bankruptcy appellate panels] under subsections (a) and (b)." Finally, section 158(d)(2) provides that a circuit court, in its discretion, shall have jurisdiction to hear appeals from final judgments, orders, and decrees if a bankruptcy court, district court, or bankruptcy appellate panel certifies that the judgment, order, or decree: (i) involves a question of law as to which there is no controlling circuit court or U.S. Supreme Court precedent or "involves a matter of public importance"; (ii) involves a question of law requiring the resolution of conflicting rulings; or (iii) if immediately appealed, "may materially advance the progress of the case or proceeding in which the appeal is taken."
Reviewing courts have considered several factors to determine whether a lower court's decision in a bankruptcy case is final. For example, in the Third Circuit, courts typically examine: (i) the impact on the bankruptcy estate's assets; (ii) the need for further fact-finding on remand; (iii) the preclusive effect of a ruling on the merits; and (iv) the interests of judicial economy. See In re Armstrong World Indus., 432 F.3d 507, 511 (3d Cir. 2005) (citing In re Owens, 419 F.3d 195, 203 (3d Cir. 2005)). In the Ninth Circuit, courts applying the flexible finality standard in bankruptcy cases will treat an order as final if it "1) resolves and seriously affects substantive rights and 2) finally determines the discrete issue to which it is addressed." Elliott v. Four Seasons Props. (In re Frontier Props.), 979 F.2d 1358, 1363 (9th Cir. 1992); accord In re GACN, Inc., 555 B.R. 684, 691 (B.A.P. 9th Cir. 2016).
Appeals of Discovery Orders
Discovery orders, whether in civil litigation or bankruptcy, are generally regarded as interlocutory and therefore not appealable as of right. See Am. Bank v. City of Menasha, 627 F.3d 261, 264 (7th Cir. 2010) ("[D]iscovery orders, being interlocutory, generally are not appealable in the federal court system."); In re Bryson, 406 F.3d 284, 288 (4th Cir. 2005) (describing a discovery order as a "clearly interlocutory decision"); In re Royce Homes LP, 466 B.R. 81, 89 (S.D. Tex. 2012) (noting "extensive case law holding bankruptcy discovery orders to be interlocutory"); In re Kaiser Grp. Int'l, Inc., 400 B.R. 140, 144 (D. Del. 2009) (noting that the majority of courts have concluded that [bankruptcy discovery] orders are interlocutory); In re Betteroads Asphalt, LLC, 2019 WL 3070241, *6 (Bankr. D.P.R. July 12, 2019) ("[I]t is well recognized that bankruptcy court discovery orders are interlocutory and not final appealable orders."), appeal dismissed, 2020 WL 7048697 (D.P.R. Nov. 30, 2020).
However, there are exceptions to this rule, especially in chapter 15 cases where the primary purpose of the chapter 15 case is to obtain discovery in the United States. For example, in In re Barnet, 737 F.3d 238 (2d Cir. 2013), foreign representatives seeking recognition under chapter 15 of a debtor's Australian "external administration" proceeding also sought discovery from the debtor's U.S. affiliate. The bankruptcy court granted the petition for chapter 15 recognition and denied the affiliate's motion to stay the discovery.
The U.S. Court of Appeals for the Second Circuit granted the parties' joint motion for a direct appeal. Initially, it acknowledged that "the general rule is that discovery orders are not appealable unless the object of the discovery order refuses to comply and is held in contempt." Id. at 244. Even so, the court of appeals held that the order denying discovery in the case before it was immediately appealable for two reasons.
First, the Second Circuit compared discovery under chapter 15 to discovery under 28 U.S.C. § 1782(a), which permits discovery "for use in a proceeding in a foreign or international tribunal." Id. (quotation marks omitted). According to the court, like discovery under 28 U.S.C. § 1782(a), discovery under chapter 15 is "ancillary to a suit in another tribunal, such that there will never be a final resolution on the merits beyond the discovery itself." Id. (quotation marks and citation omitted).
Second, the Second Circuit noted that "a party aggrieved by the automatic relief imposed by Section 1520" upon recognition of a foreign main proceeding (e.g., the automatic stay) could immediately appeal, as "the imposition of automatic relief requires no further action by the Bankruptcy Court." Id. Therefore, the Second Circuit reasoned, if "appellate review is available to one, … it should be available to the other." Id.
Other courts have adopted the Barnet rationale in finding that that chapter 15 discovery orders are immediately appealable. See, e.g., Markus, 615 B.R. at 698.
The Supreme Court Weighs in on the Finality of Bankruptcy Court Orders
Seven years after Barnet was handed down, the U.S. Supreme Court weighed in on the finality of bankruptcy court orders in Ritzen. The unanimous Court held that bankruptcy court orders conclusively denying relief from the automatic stay imposed by section 362(a) of the Bankruptcy Code are appealable.
The Court relied heavily on its 2015 opinion in Bullard v. Blue Hills Bank, 575 U.S. 496 (2015). In Bullard, the Court had held that an order denying confirmation of a proposed chapter 13 plan was not "final" under 28 U.S.C. § 158(a) because a request to confirm a plan was one step in a broader "plan-confirmation process" and thus the order "did not conclusively resolve the relevant 'proceeding.'" Under Bullard, "orders in bankruptcy cases may be immediately appealed if they finally dispose of discrete disputes within the larger case," fixing the rights and obligations of the parties. 575 U.S. at 501.
Applying that rule, the Court in Ritzen held that, as a category, "the adjudication of a motion for relief from the automatic stay forms a discrete procedural unit within the embracive bankruptcy case," which makes an order conclusively resolving such a motion appealable—and made the appellant's appeal untimely. The Court rejected the appellant's argument that such orders are "merely a preliminary step" of an overall claims adjudication process, noting their potentially significant consequences. The Court also expressed its belief that its decision would "avoid … 'delays and inefficiencies'" by allowing appellate consideration of automatic stay issues as they occur (quoting Bullard, 575 U.S. at 504).
Although Ritzen did not specifically address bankruptcy discovery orders, the Eleventh Circuit applied Ritzen's holding as it considered the question in Transbrasil.
Airline Transbrasil S.A. Linhas Aéreas ("debtor") was placed into involuntary bankruptcy in Brazil in 2002. In 2011, the trustee in the Brazilian bankruptcy case, as the debtor's foreign representative, filed a petition in the U.S. Bankruptcy Court for the Southern District of Florida seeking recognition of the debtor's Brazilian bankruptcy under chapter 15 for the purpose of obtaining information regarding any assets of the debtor or its affiliates that might have been located or transferred in the United States. The U.S. bankruptcy court entered an order on May 11, 2011, recognizing the debtor's Brazilian bankruptcy under chapter 15 as a foreign main proceeding.
In 2015, the trustee petitioned the Brazilian court to extend the debtor's bankruptcy case to include various affiliates ("affiliates") and their assets under a veil-piercing theory. The trustee also asked for a "freeze order" preventing the affiliates from transferring their assets due to their alleged misconduct. The Brazilian court entered the freeze order and directed the trustee to seek enforcement of the order in the United States.
In 2019, to support claims against the affiliates and to aid in implementing the freeze order, the trustee sought discovery from various U.S.-based financial entities regarding the affiliates' financial affairs. The affiliates sought a protective order, which the U.S. bankruptcy court denied. The U.S. District Court for the Southern District of Florida, relying on a 2015 Eleventh Circuit ruling in the same chapter 15 case, dismissed the affiliates' appeal for lack of jurisdiction because the discovery order was not final. The affiliates appealed to the Eleventh Circuit.
The Eleventh Circuit's Ruling
A three-judge panel of the Eleventh Circuit affirmed.
Writing for the panel, U.S. Circuit Judge Beverly B. Martin noted that "[i]t is well established that, as a 'general proposition,' discovery orders are 'not final orders' and therefore 'not immediately appealable.'" Transbrasil, 2021 WL 3028769, at *3 (citations omitted). She also explained that the "framework for deciding whether a bankruptcy court order is final" comes from Ritzen. Id.
Applying that framework, Judge Martin concluded that the U.S. bankruptcy court's order denying the affiliates' motion to quash the trustee's subpoenas was not a final order because, unlike in Ritzen, it was not "discrete" or "separate" from the proceeding for which the discovery was sought. Instead, it was "merely a preliminary step" to obtain information that could be used to support the trustee's claims against the affiliates in the Brazilian bankruptcy and to implement the freeze order in the United States as part of the debtor's chapter 15 case. Id. at *4.
Judge Martin rejected the affiliates' argument, relying on Barnet, that chapter 15 discovery orders "should receive special treatment in terms of finality" because "chapter 15 proceedings are, by definition, proceedings ancillary to bankruptcy cases in foreign courts," and thus "a bankruptcy court has nothing left to do after granting or denying discovery." In this case, she noted, the U.S. bankruptcy court might be asked to implement the freeze order based on the requested discovery.
Moreover, Judge Martin concluded that Barnet was both noncontrolling and distinguishable. First, she explained, in Barnet, the Second Circuit did not have the benefit of the Ritzen framework for examining the finality of bankruptcy court orders. Second, she wrote, unlike in this case, "there is no indication in Barnet that any proceedings other than discovery were contemplated in that Chapter 15 case." Id. at *5.
In ruling on the facts before the court, Judge Martin noted that "if a Chapter 15 case exists solely to obtain discovery for use in a foreign bankruptcy case, then the discovery might not be 'merely a preliminary step' in some other Chapter 15 proceeding … [and] it would seem the discovery is the only proceeding" and, as such, be a final order that is immediately appealable. Id.
Judge Martin declined to embrace Barnet's analogy between chapter 15 discovery orders and discovery orders issued pursuant to 28 U.S.C. § 1782, which both the Second and Eleventh Circuits have held to be immediately appealable because the underlying case is pending in a foreign court and nothing remains for a U.S. district court to do after it has ruled on the discovery request. "[I]t does not follow from the section 1782(a) context," she wrote, "that all discovery orders in the Chapter 15 context are also categorically final and thus immediately appealable." Instead, a chapter 15 discovery order may be "merely a preliminary step" in a larger proceeding. Id. at *5 n.8.
Finally, Judge Martin rejected the affiliates' argument that the discovery order fell under the exception to the final judgment rule articulated in Gillespie v. U.S. Steel Corp., 379 U.S. 148, 153-54 (1964), because immediate resolution of the issue was "fundamental to the merits of the case." According to Judge Martin, the U.S. Supreme Court has since limited the Gillespie exception to its "unique facts" based on the Court's concerns that the final judgment rule "would be stripped of all significance," and moreover, the affiliates had not claimed that such unique facts existed in this case. In addition, she noted, the affiliates failed to show how the validity of the discovery order was fundamental to the conduct of the debtor's chapter 15 case because "[t]he record does not indicate that the Chapter 15 case exists solely to obtain information about the [affiliates'] financial affairs." Id. at *6.
Even though the ruling in Transbrasil is nonprecedential, the Eleventh Circuit's departure from the approach adopted in Barnet creates a circuit split regarding whether chapter 15 discovery orders are immediately appealable. The volume of chapter 15 cases seeking recognition of foreign bankruptcy and insolvency proceedings has more than doubled since 2017. Discovery has been sought in many of these cases concerning the debtor's U.S. assets and asset transfers involving U.S.-based entities. Whether discovery orders issued by a U.S. bankruptcy court can be appealed immediately, or must await the resolution of litigation commenced during the chapter 15 case, may be an important issue in these cases. Transbrasil and Barnet indicate that the answer to this question may depend on the venue of the chapter 15 case and how the discovery requested fits into the larger context of the chapter 15 proceeding.