Appealability of Discovery Orders Under Chapter 15

On March 7, 2022, the U.S. Supreme Court in Estate of Omar Fontana v. ACFB Administração Judicial Ltda.-ME, No. 21-828 (U.S. Mar. 7, 2022), denied a petition for review of a decision by the Eleventh Circuit, In re Transbrasil S.A. Linhas Aéreas, 860 Fed. Appx 166 (11th Cir. 2021). The Eleventh Circuit held that an order denying a motion for a protective order to shield parties from discovery subpoenas in a chapter 15 proceeding was interlocutory and thus not final and appealable. [1]

On its face, Transbrasil does not seem too controversial. After all, discovery orders in civil litigation generally are not appealable. [2] Likewise, discovery orders in bankruptcy proceedings (i.e., for Rule 2004 examinations) generally are not appealable, either. [3]

Nonetheless, Transbrasil contradicts a holding by the Second Circuit in Drawbridge Special Opportunities Fund LP v. Katherine Elizabeth Barnet (In re Barnet), 737 F.3d 238 (2d Cir. 2013). In that case, the Second Circuit categorically determined that discovery orders in chapter 15 proceedings are immediately appealable. [4] The Barnet court compared discovery in a chapter 15 proceeding to discovery in aid of a “proceeding in a foreign or international tribunal” under 28 U.S.C. § 1782(a). [5] In a § 1782 proceeding, discovery orders are final, since they constitute “the final resolution of a petition to take discovery in aid of a foreign proceeding.” [6] Like § 1782 proceedings, the Second Circuit reasoned, chapter 15 proceedings “are ancillary to a suit in another tribunal such that there will never be a final resolution on the merits beyond the discovery itself.” [7]

The Eleventh Circuit refused to apply Barnet for two reasons. First, the court examined a Supreme Court opinion issued several years after Barnet that dealt directly with the appealability of bankruptcy orders: Ritzen Grp. Inc. v. Jackson Masonry LLC, 140 S. Ct. 582 (2020). The Supreme Court noted that in civil litigation, a “final decision” is normally limited to an order that resolves the entire case. [8] Bankruptcies, however, are different. Final orders can resolve either the entire bankruptcy case or a proceeding within a case. [9] “By providing appeals from final decisions in bankruptcy ‘proceedings’ ... Congress made orders in bankruptcy cases ... immediately appealable if they finally dispose of discrete disputes within the larger bankruptcy case.” [10] The Supreme Court used this reasoning to find that a stay-relief motion was its own “discrete” or “separate” proceeding, and therefore an order denying the motion was a final and appealable order. [11]

The Eleventh Circuit applied Ritzen and determined that the Transbrasil discovery orders were not distinct or separate proceedings; instead, they were merely “preliminary” steps in the larger proceeding, enforcing a freeze order issued in the foreign main proceeding. [12] The Eleventh Circuit noted that the Second Circuit did not have Ritzen when it issued Barnet, so the court did not consider whether discovery under chapter 15 was a “discrete” dispute in some other proceeding. [13]

Second, although the Eleventh Circuit acknowledged that discovery orders under § 1782 are final orders, the court flatly rejected the analogy between discovery orders in a § 1782 proceeding and those under chapter 15. [14] The court explained that in a § 1782 proceeding, there is nothing to do but conduct discovery; on the other hand, in a chapter 15 proceeding “a discovery order is ordinarily a ‘preliminary step’ of a larger proceeding.” [15] In Barnet, according to the Eleventh Circuit, there was “no indication ... that any proceedings other than discovery were contemplated,” [16] whereas in Transbrasil, many reasons existed for the chapter 15 other than the contemplated discovery, including enforcing the freeze order.

Transbrasil’s importance is questionable. The opinion is unpublished and therefore nonprecedential. The opinion is also limited to the facts. While the court explained that a discovery order under chapter 15 is “ordinarily” a “preliminary” step, the court noted that “[i]f a chapter 15 case exists solely to obtain discovery for use in a foreign bankruptcy case ... it would seem the discovery is the only proceeding, and thus a discovery order may be a final order.” [17]

[1] Transbrasil, 860 Fed. App’x at 169.

[2] See, e.g., In re Barnet, 737 F.3d 238, 243 (2d Cir. 2013) (listing cases).

[3] See, e.g., Turtur v. Nat’l Union Fire Ins. Co. PA, 233 F.3d 574, 574 (5th Cir. 2000) (noting that order denying motion to quash Rule 2004 examination and subpoena “was clearly an interlocutory order”).

[4] In re Barnet, 737 F.3d at 244.

[5] Id.

[6] Id. (internal citations omitted).

[7] Id.

[8] Id. at 586.

[9] Ritzen, 140 S. Ct. at 586.

[10] Id. (internal citations and quotations omitted).

[11] Id. at 589.

[12] Transbrasil, 860 Fed. App’x at 169.

[13] Id.

[14] Id. n. 8.

[15] Id.

[16] 169.

[17] Id. (emphasis added).