PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
W. CLARKSON MCDOW, JR., United
States Trustee for Region Four,
Trustee-Appellant,
v.
DAVID V. DUDLEY; ANNE M.
DUDLEY, No. 10-1732
Debtors-Appellees,
and
ROY V. CREASY; JOSEPH ANTHONY
GUZINSKI, III; REBECCA CONNELLY,
Trustees.
Appeal from the United States District Court
for the Western District of Virginia, at Roanoke.
Samuel G. Wilson, District Judge.
(7:09-cv-00336-sgw)
Argued: September 22, 2011
Decided: November 30, 2011
Before NIEMEYER, KING, and AGEE, Circuit Judges.
Vacated and remanded by published opinion. Judge Niemeyer
wrote the opinion, in which Judge King and Judge Agee
joined.
2 MCDOW v. DUDLEY
COUNSEL
ARGUED: Wendy Cox, UNITED STATES DEPARTMENT
OF JUSTICE, Washington, D.C., for Appellant. Garren Rob-
ert Laymon, MAGEE GOLDSTEIN LASKY & SAYERS,
PC, Roanoke, Virginia, for Appellees. ON BRIEF: Ramona
D. Elliott, General Counsel, P. Matthew Sutko, Associate
General Counsel, Executive Office for United States Trustees,
UNITED STATES DEPARTMENT OF JUSTICE, Washing-
ton, D.C.; W. Clarkson McDow, Jr., United States Trustee for
Region 4, John R. Byrnes, Assistant United States Trustee,
Office of the United States Trustee, UNITED STATES
DEPARTMENT OF JUSTICE, Roanoke, Virginia; Joseph A.
Guzinski, Assistant United States Trustee, Office of the
United States Trustee, UNITED STATES DEPARTMENT
OF JUSTICE, Alexandria, Virginia, for Appellant. Andrew S.
Goldstein, MAGEE GOLDSTEIN LASKY & SAYERS, PC,
Roanoke, Virginia, for Appellees.
OPINION
NIEMEYER, Circuit Judge:
The issue presented by this appeal is whether an order
denying the U.S. Trustee’s motion to dismiss a debtor’s Chap-
ter 7 bankruptcy case as abusive under 11 U.S.C. § 707(b) is
a final order appealable under 28 U.S.C. § 158(a). The district
court dismissed the U.S. Trustee’s appeal, ruling that the
bankruptcy court’s order was interlocutory and therefore not
appealable to the district court.
Because of the particular effect that an order denying a
motion to dismiss a Chapter 7 bankruptcy case as abusive has
on the bankruptcy proceedings, we conclude that a bank-
ruptcy court’s order denying such a motion is appealable to
the district court. Accordingly, we vacate the district court’s
MCDOW v. DUDLEY 3
order dismissing the U.S. Trustee’s appeal and remand for
further proceedings.
I
David and Anne Dudley filed a voluntary petition for bank-
ruptcy relief under Chapter 13 of the Bankruptcy Code on
August 18, 2008. When the Chapter 13 trustee moved to dis-
miss the case or to convert it to a Chapter 7 case, the Dudleys
filed a motion to convert their case to a Chapter 7 case, which
the bankruptcy court granted. Thereafter, the U.S. Trustee, W.
Clarkson McDow, Jr., filed a motion to dismiss the Chapter
7 case under 11 U.S.C. § 707(b)(1) as abusive. In support of
his motion, the U.S. Trustee asserted that the Dudleys failed
the means test under § 707(b)(2), claiming that their income,
after the deduction of appropriate expenses, would leave the
Dudleys with over $2,000 per month to pay creditors. The
U.S. Trustee also relied on § 707(b)(3), alleging that the Dud-
leys’ overall circumstances demonstrated abuse because they
had the financial ability to repay their creditors.
The Dudleys opposed the U.S. Trustee’s motion to dismiss
and filed a motion for summary judgment, contending that
§ 707(b) did not apply to a case such as theirs where the peti-
tion was initially filed under Chapter 13 and thereafter con-
verted to a Chapter 7 case. They relied on the language of
§ 707(b), which authorizes the bankruptcy court to dismiss a
case "filed by an individual debtor under this chapter," argu-
ing that "this chapter" refers to Chapter 7.
The Bankruptcy Court agreed with the Dudleys. Although
it recognized that it was ruling against the considerable
weight of authority, it held that the plain meaning of "filed
under this chapter" only included cases in which the petition
was originally filed under Chapter 7 and did not encompass
converted cases, such as the Dudleys’ case. In re Dudley, 405
B.R. 790 (Bankr. W.D. Va. 2009). Thus, the bankruptcy court
denied the U.S. Trustee’s motion to dismiss the bankruptcy
4 MCDOW v. DUDLEY
case under § 707(b) and entered summary judgment on the
issue in favor of the Dudleys. Id. at 801.
The U.S. Trustee appealed the bankruptcy court’s order to
the district court, and the district court, acting sua sponte, dis-
missed the appeal for lack of subject matter jurisdiction.
McDow v. Dudley, 428 B.R. 686 (W.D. Va. 2010). The dis-
trict court held that the bankruptcy judge’s order was not
"final" within the meaning of 28 U.S.C. § 158(a)(1) (confer-
ring appellate jurisdiction on district courts for review of
"final judgments, orders, and decrees . . . of bankruptcy
judges"). Id. at 688-89.
This appeal followed.
While this appeal was pending, the bankruptcy court con-
tinued with the case and ultimately entered an order, over the
U.S. Trustee’s objection, discharging the Dudleys’ debts. The
U.S. Trustee argued that the order of discharge was improper
because (1) the bankruptcy court lacked jurisdiction while the
case was on appeal and (2) Bankruptcy Rule 4004(c)(1)(D)
prohibits discharge if "a motion to dismiss the case under
§ 707 is pending." The bankruptcy court responded to the
U.S. Trustee’s argument, stating that "should the Court of
Appeals reverse the District Court and the District Court
reverse this Court’s decision to deny the Motion to Dismiss,
which would dismiss the Debtor’s case, the discharge granted
by this Court could be vacated." In re Dudley, 431 B.R. 703,
706 n.5 (Bankr. W.D. Va. 2010). The U.S. Trustee appealed
the bankruptcy court’s discharge order, as well as "all prior
interlocutory orders that are merged into the final [discharge
order]," and the district court has stayed that appeal pending
resolution of this appeal.
II
The district court’s appellate jurisdiction over bankruptcy
orders is governed by 28 U.S.C. § 158(a), which provides, as
MCDOW v. DUDLEY 5
pertinent here, that "the district courts of the United States
shall have jurisdiction to hear appeals from final judgments,
orders, and decrees . . . entered in cases and proceedings
referred to the bankruptcy judges under Section 157 of this
title." 28 U.S.C. § 158(a)(1). The district court concluded that
a bankruptcy order denying the U.S. Trustee’s motion to dis-
miss a bankruptcy proceeding under 11 U.S.C. § 707(b) as
abusive is not a final order. The court explained that because
the bankruptcy court had not yet decided whether the Dudleys
would receive a discharge in bankruptcy, "the decision to be
reviewed here is subject to being overtaken or superseded by
other proceedings in the Bankruptcy Court and hardly seems
ripe for appellate review." McDow, 428 B.R. at 689.
Thus, the question presented is whether a bankruptcy
judge’s order denying a § 707(b) motion to dismiss a Chapter
7 bankruptcy case as abusive is a final order within the mean-
ing of 28 U.S.C. § 158(a)(1).
We have recognized as a general matter, as have other
courts of appeals, that "the concept of finality in bankruptcy
cases ‘has traditionally been applied in a more pragmatic and
less technical way . . . than in other situations.’" In re Com-
puter Learning Ctrs., Inc., 407 F.3d 656, 660 (4th Cir. 2005)
(quoting A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1009 (4th
Cir. 1986) (alteration in original)); see also In re ASARCO,
L.L.C., 650 F.3d 593, 599-600 (5th Cir. 2011); In re Marcal
Paper Mills, Inc., 650 F.3d 311, 314 (3d Cir. 2011); Ritchie
Special Credit Invs., Ltd. v. U.S. Trustee, 620 F.3d 847, 852
(8th Cir. 2010); In re McKinney, 610 F.3d 399, 401-02 (7th
Cir. 2010); In re Rudler, 576 F.3d 37, 43-44 (1st Cir. 2009).
As we explained in A.H. Robins Co.:
The special or unique reason for this relaxed rule of
appealability in bankruptcy is that "[b]ankruptcy
cases frequently involve protracted proceedings with
many parties participating. To avoid the waste of
time and resources that might result from reviewing
6 MCDOW v. DUDLEY
discrete portions of the action only after a plan of
reorganization is approved, courts have permitted
appellate review of orders that in other contexts
might be considered interlocutory."
788 F.2d at 1009 (quoting In re Amatex Corp., 755 F.3d 1034,
1039 (3d Cir. 1985)). Thus, because of the special nature of
bankruptcy proceedings, which often involve multiple parties,
claims, and procedures, the postponing of review by the dis-
trict court and the court of appeals of discrete issues could
result in the waste of valuable time and already scarce
resources. See id. at 1009; see also In re Northwood Props.,
LLC., 509 F.3d 15, 21 (1st Cir. 2007). We have concluded,
therefore, that "orders in bankruptcy cases may be immedi-
ately appealed if they finally dispose of discrete disputes
within the larger case." In re Computer Learning Ctrs., Inc.,
407 F.3d at 660 (quoting In re Saco Local Dev. Corp., 711
F.2d 441, 444 (1st Cir. 1983)).
Noting this jurisprudence, the U.S. Trustee contends that,
in this case, an order denying a § 707(b) motion to dismiss
should be treated as a final order because it resolves a discrete
dispute within a larger bankruptcy proceeding and therefore
would be immediately appealable. The particular nature of a
§ 707(b) motion, the Trustee argues, distinguishes such a
motion from motions to dismiss generally, such as those
under Federal Rule of Civil Procedure 12(b) or under 11
U.S.C. § 1112(b)(1)-(4) (authorizing an action to dismiss a
Chapter 11 proceeding for "cause"). Focusing on a § 707(b)
motion, the Trustee suggests that it functions as a complaint
that alleges a statutorily mandated cause of action for dis-
missal of a case that is abusive, and the denial of the motion
therefore effectively extinguishes that claim. Without imme-
diate review, the bankruptcy proceedings would continue with
the liquidation and distribution of the debtors’ assets, with the
effect that the issue of bankruptcy abuse would be resolved
only after the assets of the debtor have been liquidated and
distributed. This scenario would result in significant ineffi-
MCDOW v. DUDLEY 7
ciency by depleting the resources of the judicial system and
by exhausting debtor resources that could otherwise be used
to pay creditors. In addition, the U.S. Trustee points out, the
postponing of review of the denial of a § 707(b) motion until
the assets have been liquidated and distributed could result in
substantial unfairness and inefficiency because the bankruptcy
proceedings and distributions would then have to be "un-
wound" after appeal, if that were then possible.
The Dudleys contend that the denial of a § 707(b) motion
to dismiss is not a final order because it does not represent the
conclusive resolution of a discrete dispute within the larger
bankruptcy case. They argue that the denial simply permits
the case to continue in the same way that denial of a Federal
Rule of Civil Procedure 12(b) motion to dismiss in civil cases
permits the case to continue. The Dudleys claim that allowing
immediate appeal from the denial of a § 707(b) motion will
multiply the number of appeals in bankruptcy proceedings
and thereby delay the ultimate resolution of the case, espe-
cially since Chapter 7 proceedings are typically liquidation
proceedings. Thus, the Dudleys conclude that allowing the
U.S. Trustee to appeal the denial only after the bankruptcy
court has entered an order effectively ending the case would
result in judicial efficiency.
To resolve the issue before us, it is beneficial to consider
the precise nature and effect of the order at issue—an order
denying a § 707(b) motion.
Congress added the current version of § 707(b) to the
Bankruptcy Code with its enactment of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005
("BAPCPA"). The prior version of § 707(b) required a show-
ing of "substantial abuse" to justify dismissal of a Chapter 7
case, and even then a presumption existed in favor of the
debtor. The BAPCPA, however, repealed the "substantial"
qualifier of "abuse" and altered the presumption favoring the
debtor by adding a "means test" under which a Chapter 7 case
8 MCDOW v. DUDLEY
can be found presumptively abusive. Under the means test, if
the debtor’s average monthly disposable income, as calculated
under the statute, exceeds the statutory threshold, then the
case is presumptively abusive and must be dismissed unless
the debtor can show "special circumstances." 11 U.S.C.
§ 707(b)(2)(A)-(B). The BAPCPA also added § 707(b)(3),
which authorizes the dismissal of a Chapter 7 case as abusive
even when the means test does not create a presumption or the
presumption is rebutted, giving the bankruptcy court the dis-
cretion to dismiss a case as abusive if there is "bad faith" or
the "totality of the circumstances . . . demonstrates abuse." Id.
§ 707(b)(3).
The BAPCPA also made the determination of whether a
Chapter 7 case is abusive a mandatory threshold question.
Under the BAPCPA, the U.S. Trustee is directed to determine
whether a case is presumptively abusive according to the
means test and to file a statement about his conclusion within
10 days of the initial meeting of creditors. 11 U.S.C.
§ 704(b)(1)(A). Then, within 30 days of filing this statement,
the U.S. Trustee must either file a motion to dismiss the case
as presumptively abusive or file a detailed statement explain-
ing why dismissal is not appropriate if the presumption has
arisen from application of the means test. Id. § 704(b)(2).
These new provisions manifest a congressional policy to
police all Chapter 7 cases for abuse at the outset of a Chapter
7 proceeding, and they raise pragmatic considerations that
indicate that the denial of a § 707(b) motion to dismiss is dif-
ferent from the denial of other motions to dismiss, such as
those filed under Federal Rule of Civil Procedure 12(b) or 11
U.S.C. § 1112(b)(1)-(4). Section 707(b) requires that the U.S.
Trustee apply the means test to Chapter 7 cases within a short
time frame and, if the means test creates a presumption of
abuse, to file a motion to dismiss the case within another rela-
tively short time frame. Because of these strict time periods,
which indicate that the issue is a threshold matter, the motion
to dismiss a Chapter 7 case as abusive cannot be filed at any
MCDOW v. DUDLEY 9
other time during the bankruptcy proceedings. Moreover, the
U.S. Trustee is directed to apply the statutory means test and,
if a presumption of abuse is created, to file the motion to dis-
miss or explain his decision not to. In contrast, under the dis-
missal provision in Chapter 11 proceedings, parties may bring
an action to dismiss for "cause" under § 1112(b) throughout
the bankruptcy proceedings, and the circumstances or events
that constitute "cause" may arise at any time.
The Seventh Circuit has recognized the importance of these
differences, holding that the denial of a motion to dismiss a
case as abusive under § 707(b) is a final order despite prece-
dent establishing that the denial of a motion to dismiss a
Chapter 11 case under § 1112(b) is not final. See In re Ross-
Tousey, 549 F.3d 1148, 1152-53 (7th Cir. 2008) (distinguish-
ing In re Jartran, 886 F.2d 859 (7th Cir. 1989)), abrogated
on other grounds by Ransom v. FIA Card Services, 131 S. Ct.
716 (2011). The First Circuit, the only other circuit to have
addressed the finality of the denial of a motion to dismiss a
case as abusive under the current version of § 707(b), has
agreed with the Seventh Circuit’s reasoning, noting that "mo-
tions to dismiss for abuse under section 707(b) are subject to
statutory deadlines, presumably foreclosing renewed requests
for dismissal as the Chapter 7 case proceeds." In re Rudler,
576 F.3d at 44. As a practical matter, therefore, "the ‘discrete
dispute’ over a debtor’s abuse of Chapter 7 will be finally
resolved when a court denies a motion to dismiss under sec-
tion 707(b)," rendering the court’s order appealable. Id.
Three other circuits, addressing the earlier version of
§ 707(b)—which imposed no filing deadlines on the U.S.
Trustee—nonetheless concluded that a bankruptcy court’s
order denying a § 707(b) motion to dismiss was a final order
that was immediately appealable to the district court. See In
re Cortez, 457 F.3d 448, 453-54 (5th Cir. 2006); Stuart v.
Koch (In re Koch), 109 F.3d 1285, 1288 (8th Cir. 1997); In
re Christian, 804 F.2d 46, 47-48 (3d Cir. 1986).
10 MCDOW v. DUDLEY
Only the Eleventh Circuit has reached a different conclu-
sion. See In re Donovan, 532 F.3d 1134, 1137 (2008). That
decision, however, rests on the court’s consideration of deni-
als of motions to dismiss under Chapter 11, and the court did
not address the particular nature and consequences of an order
denying a motion to dismiss under § 707(b). The Eleventh
Circuit also did not have the benefit of the reasoning in In re
Ross-Tousey and In re Rudler, which did consider the particu-
lar nature and consequences of an order denying a § 707(b)
motion to dismiss and found such an order to be final and
appealable.
We agree with the circuits that have specifically addressed
both the current and prior versions of § 707(b) and hold that
a bankruptcy court’s order denying a § 707(b) motion to dis-
miss a Chapter 7 case as abusive is a final order within the
meaning of 28 U.S.C. § 158(a). Section 707(b) creates a statu-
tory gateway based on whether the case is abusive, and an
order denying that motion to dismiss as abusive, in effect,
finally and conclusively resolves the issue. If the denial of a
§ 707(b) motion to dismiss cannot be appealed immediately to
the district court, the Chapter 7 proceedings would have to be
completed before it could be determined whether the proceed-
ings were abusive in the first place. See In re Koch, 109 F.3d
at 1288 (citing In re Christian, 804 F.2d at 48).
This case presents a good example of the problem that
denying an immediate appeal creates. The bankruptcy court
denied the Trustee’s motion to dismiss for abuse because the
court concluded that § 707(b) does not apply to cases con-
verted from Chapter 13 to Chapter 7, even though the court
recognized that the "majority of courts having considered the
question" disagreed. In re Dudley, 405 B.R. at 793 n.2. The
district court was thus presented with the purely legal ques-
tion of whether § 707(b) should apply and could not therefore
have concluded that further development of the case would
shed new light on the issue. See In re Rudler, 576 F.3d at 43.
Nonetheless, the district court required the bankruptcy pro-
MCDOW v. DUDLEY 11
ceedings to be completed by liquidating the debtor’s assets
and distributing the proceeds to creditors before the district
court even determined whether the petitioners had the right to
file their petition in the first place.
It is readily apparent that pragmatic considerations of pre-
serving resources for creditors in bankruptcy and promoting
judicial economy weigh heavily in favor of recognizing the
finality of an order denying a § 707(b) motion to dismiss.
Delaying appellate consideration of abuse could "frustrate
both principles of judicial economy and Congress’s goal of
ensuring that debtors allocate as much of their resources as
possible toward repaying their debts." In re Rudler, 576 F.3d
at 43. The resources of the debtor could be wasted in complet-
ing the bankruptcy proceeding before finally resolving the
abuse issue. "Requiring trustees to complete Chapter 7 pro-
ceedings before appealing denial of their § 707(b) motions
wastes debtor resources that should be used to pay creditors,
and forces trustees and bankruptcy courts to expend their
scarce institutional resources on abusive Chapter 7 petition-
ers." In re Koch, 109 F.3d at 1288.
Also, by recognizing the finality of an order denying a
§ 707(b) motion, Congress’ policy of having the issue of
abuse determined at the threshold of a Chapter 7 proceeding
is better served.
Finally, an immediate appeal that results in a finding of
abuse will give creditors an opportunity to proceed against the
limited assets of the debtor outside of bankruptcy while the
debtor still has assets to be attached. Postponing that appeal
until the end of the bankruptcy proceeding will result in most
if not all of those assets being liquidated and distributed under
Chapter 7—actions that will have to be unwound, if possible,
in the event that the district court disagrees with the bank-
ruptcy court’s legal conclusions with respect to the merits of
the § 707(b) motion.
12 MCDOW v. DUDLEY
Accordingly, we vacate the district court’s order of dis-
missal dated April 28, 2010, and remand for further proceed-
ings.
VACATED AND REMANDED