Luck of the Irish Cannot Save Debtor’s Bankruptcy Appeal of Order Granting Relief from the Stay

Posted by Irve Goldman
April 10, 2014

The importance of obtaining a stay pending appeal of a bankruptcy court order lifting the automatic stay was recently illustrated in Dunne v. Ulster Bank (In re Dunne), 13 cv 00996-JBA (Mar. 11, 2014).  In the Dunne case, Sean Dunne (“Dunne”), an Irish citizen who had been residing in the United States for the past several years, sought to appeal the bankruptcy court’s order granting limited relief from the automatic stay to one of his creditors, Ulster Bank (“Ulster”), for purposes of completing an Irish bankruptcy proceeding against Dunne.  The Irish proceeding, which is analogous to an involuntary bankruptcy proceeding under the Bankruptcy Code, was automatically stayed when Dunne filed a voluntary chapter 7 bankruptcy here in Connecticut.  At that time, although the Irish proceeding had been commenced, Dunne had not yet been served with the petition seeking to adjudicate him a “bankrupt.”

In Dunne’s U.S. bankruptcy case, Ulster was granting limited relief from the automatic stay to proceed with the Irish bankruptcy to the extent of serving Dunne with the petition, completing the process of adjudicating Dunne a “bankrupt” and appointing a trustee.  Dunne appealed the lift stay order to the district court and sought a stay pending appeal from the bankruptcy court, which was denied.  He did not, however, take the additional step of seeking a stay pending appeal from the district court, as is provided for in Fed. R. Bankr. P. 8005.

After the bankruptcy court denied Dunne’s motion for stay pending appeal, Dunne was served with the Irish bankruptcy petition and was thereafter adjudicated a “bankrupt” by the Irish High Court.  Under Irish law, an “Official Assignee” was automatically appointed, but Ulster or the other creditors had not yet exercised their right to seek replacement of the assignee with a private trustee during the pendency of the appeal.

The district court dismissed the appeal on the ground of mootness, which, according to the Second Circuit authority it cited, involves equitable considerations as well as the constitutional requirement that there be a case or controversy.  The equitable aspect requires dismissal when, even though relief could conceivably fashioned, it would be inequitable to do so.

Citing the “dual concerns of Article III and equitable mootness,” the district court reasoned that because Dunne did not seek a stay pending appeal from the district court, he created a situation where only limited relief would be available, i.e., staying the appointment of an Irish trustee, which would be inequitable to grant and possibly offend international comity.  Accordingly, the appeal was dismissed as moot.

 

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