Posted by: Andy Taylor | September 28, 2020

(Non) Effect of Bankrupt Defendant on Finality of Order: Jackson, et al. v. Iberiabank

The Court of Appeals in Jackson, et al v. Iberiabank, 2020 Ark. App. 372, reiterated a prior holding: That the bankruptcy of one defendant does not create a final order as to another defendant. But, as discussed below, that can create a trap for attorneys if the bankrupt defendant gets dismissed later.

In Jackson, a bank sued two defendants (an individual and a corporation) for defaulting on a promissory note. After the complaint was filed, the corporation filed for bankruptcy. This, of course, caused the corporation to receive the protections of the automatic bankruptcy stay, preventing the bank from proceeding against the corporation. The bank then filed–and prevailed on–a motion for summary judgment against the individual defendant, and the individual defendant appealed.

On appeal, the Arkansas Court of Appeals raised sua sponte a jurisdictional issue: Was the summary judgment order against the individual defendant a final order for purposes of appeal? Relying on prior similar cases, the Arkansas Court of Appeals held that one defendant’s bankruptcy “does not affect the lack of finality.” The Arkansas Court of Appeals further held that “while [the bank’s] claims against [the corporation] were stayed by the bankruptcy court when the summary-judgment order on appeal was entered, those claims remained pending and the trial court could reacquire the ability to rule on them at any time.” Therefore, the court dismissed the appeal. The dismissal was without prejudice, so the appellant will have another shot at this once the finality issue can be resolved at the trial court.

For an example of a nightmarish scenario where the Arkansas Court of Appeals dismissed an appeal with prejudice, one need look no further than Ballard v. Allied Financial, Inc., 2016 Ark. App. 539, which was cited in Jackson. In Ballard, a bank sued a couple for replevin to recover a vehicle, and later added the repair facility that had actual possession of the vehicle as a defendant. The couple filed bankruptcy, giving them the protection of the automatic stay. The repair facility did not timely file an answer, and an order of default was entered against the repair facility. The repair facility then filed a notice of appeal. After the repair facility filed its notice of appeal, the court dismissed the couple without prejudice. The repair facility did not file a notice of appeal from that dismissal order.

On appeal, the Arkansas Court of Appeals held that the default judgment against the repair facility was not a final order. However, once the dismissal was entered as against the couple, a final order was created, even though the dismissal as to the couple was without prejudice. Because the repair facility did not file a notice of appeal from the order dismissing the couple, the Court of Appeals held that it did not have jurisdiction to hear the appeal. The court’s reasoning was that the appeal from the first order wasn’t effective because that order was a nonfinal order, and there was no notice of appeal from the second order (and, of course, it was too late to file a notice of appeal by the time the Court of Appeals considered the case). Therefore, the Court of Appeals dismissed the appeal with prejudice.

Probably the cleanest solution to this problem is to try to get the circuit court to attach a Rule 54(b) certificate to the order against the non-bankrupt party. We have previously blogged about Rule 54(b) certificates. And the safest thing to do whenever multiple orders are being entered is to file notices of appeal (and amended notices of appeal) early and often.


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