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Waterson v. Hall: APPELLATE PROCEEDURE | BANKRUPTCY - stay not final appealable order; undisclosed bankruptcy asset: insurance policy

United States Court of Appeals
Nos. 06-4074/07-1106
Mary H. Waterson, Administratrix *
of the Estate of Hellen Sue Nash, *
Appellant, *
* Appeals from the United States
v. * District Court for the
* Eastern District of Arkansas.
Jeffrey A. Hall, M.D., *
Appellee. *
Submitted: September 24, 2007
Filed: February 11, 2008
Before BYE, BENTON, and SHEPHERD, Circuit Judges.
BYE, Circuit Judge.
Mary Waterson appeals the district court's order granting Dr. Jeffrey Hall's
motion to stay the medical malpractice claim Waterson brought against him. The
district court granted the stay on the grounds the claim had been discharged in Hall's
bankruptcy proceeding. Because we conclude we have no final appealable order
before us, we dismiss for lack of appellate jurisdiction.
111 U.S.C. § 523(a)(3) provides in relevant part:
A discharge under section 727 . . . does not discharge an individual
debtor from any debt . . . neither listed nor scheduled . . . in time to
permit . . . if such debt is not of the kind specified in paragraph (2), (4),
Dr. Jeffrey Hall performed a colonoscopy on Hellen Nash, at which time he
found a cancerous mass. Three days later he performed a surgery to remove the mass,
but allegedly failed to remove all of the cancerous tissue. As a result, Nash allegedly
developed complications and had to undergo additional medical and surgical
Nash brought a medical malpractice action against Hall in federal district court
for the Eastern District of Arkansas. Four months later, Hall filed for Chapter 7
bankruptcy in the United States Bankruptcy Court for the District of Arizona. He did
not list Nash as a creditor with a contingent claim, nor did he reveal the existence of
Nash's pending litigation in his sworn statement of financial affairs. As a
consequence, Nash did not receive notice of the bankruptcy action. The bankruptcy
trustee identified the filing as a "no asset" case and thus no deadline was set for filing
claims against the bankruptcy estate. Hall obtained a general discharge of his debts
pursuant to 11 U.S.C. § 727. The Arizona bankruptcy proceeding closed on June 7,
Nash died on June 1, 2006. After Mary Waterson, administratrix of Nash's
estate, was substituted as a plaintiff in the medical malpractice action, she filed an
amended complaint to add a claim for wrongful death. Hall filed an answer to the
amended complaint, as well as a motion to stay, pleading his bankruptcy discharge as
a defense. Waterson opposed the stay contending her contingent debt was excepted
from discharge under 11 U.S.C. § 523(a)(3)1 because it was neither listed nor
or (6) of this subsection, timely filing of a proof of claim, unless such
creditor had notice or actual knowledge of the case in time for such
scheduled in the bankruptcy proceeding, and Nash did not receive notice of the
bankruptcy proceeding before it was closed.
Hall responded arguing Nash's lack of notice was immaterial because the
bankruptcy estate had no assets to distribute, and thus Nash suffered no prejudice by
not receiving notice of the bankruptcy. Hall indicated he did not list Nash's lawsuit
in the bankruptcy proceeding because he believed his malpractice carrier's duty to
indemnify him "had the effect of eliminating [Nash] as a creditor for bankruptcy
purposes." Significantly, the pleading Hall filed in district court states "Jeffrey Hall
and his insurer admit that the bankruptcy has no effect on the plaintiff's ability to seek
recovery from the liability insurance proceeds. Defendant does not object to an order
granting relief from the stay to allow plaintiff to proceed to the extent of any liability
insurance proceeds." Jt. App. 88.
Despite Hall's concession that Waterson was entitled to limited relief from the
stay to pursue his liability insurance proceeds, the district court entered an order which
granted the motion for a stay in its entirety. The district court did so on the ground
Nash's lack of notice of the bankruptcy proceeding did not prejudice her because the
bankruptcy was a "no asset" case with nothing to distribute even if a claim had been
Ten days later, Waterson filed a motion for clarification of the district court's
order, asking whether the stay was temporary or permanent. Before the district court
ruled on the clarification motion, however, Waterson filed an appeal of the original
order granting the stay. The district court subsequently addressed the clarification
motion, stating the "stay is permanent . . . [u]nless plaintiff is able to provide authority
to the contrary." The district court further indicated "[t]he Court will grant plaintiff
2See 11 U.S.C. § 524(a)(2); In re Hensler, 248 B.R. 488, 491 (Bankr. D.N.J.
2000) ("Section 524 of the Bankruptcy Code both (1) voids any judgment of any court
that violates the bankruptcy discharge, and (2) operates as an injunction against the
continuation or commencement of an action to collect any discharged debt.").
leave to file an amended complaint if she wishes to proceed with this action. Should
plaintiff take no action with (sic) twenty days of the date of this Order, the Court will
dismiss this action." Although twenty days have now passed since the district court
entered the clarification order, the district court docket sheet does not indicate the
action has ever been dismissed.
Waterson also filed an appeal of the clarification order. The two appeals were
consolidated for argument. Waterson urges us to reverse the district court's orders
entering a permanent stay of her medical malpractice action contending her claim was
not discharged in Hall's bankruptcy because of her lack of notice and the fact the claim
was not listed or scheduled as a contingent debt. Waterson also contends the
permanent nature of the stay effectively terminates her case against Hall in its entirety.
Noting Hall's concession in the district court, Waterson argues she should be allowed
to proceed with litigation against Hall at least to the extent of his liability coverage.
In response, Hall challenges our appellate jurisdiction contending the orders
appealed from were not final appealable orders because the second clarification order
left open the possibility Waterson could file an amended complaint. Assuming we
have jurisdiction, Hall further contends 1) the "no asset" nature of the bankruptcy
proceeding renders immaterial the fact that Waterson did not receive notice of the
bankruptcy, and 2) his general discharge under 11 U.S.C. § 727 bars Waterson's claim
and her attempts to proceed with any litigation against him.2 Finally, Hall contends
the permanent nature of the stay was appropriate because Waterson did not limit her
claim against him solely to his liability coverage, and Waterson's arguments with
respect to that alleged error should be considered waived on appeal.
3Although Hall does not rely upon the initial order to challenge our appellate
jurisdiction, we our obligated to raise the issue on our own. See James Neff Kramper
Family Farm P'ship v. IBP, Inc., 393 F.3d 828, 834 (8th Cir. 2005) (discussing the
court's obligation to raise the issue of jurisdiction sua sponte).
We first address the challenge to our appellate jurisdiction. Hall contends we
lack jurisdiction because the clarification order is not a final, appealable order. The
district court, however, entered the clarification order after Waterson had filed a notice
of appeal challenging the initial stay order. Under such circumstances, the district
court lacks jurisdiction to enter a subsequent order regarding aspects of the case
involved on appeal, Ahlberg v. Chrysler Corp., 481 F.3d 630, 638 (8th Cir. 2007),
unless the initial order is not itself a final, appealable order. See State ex rel. Nixon
v. Coeur D'Alene Tribe, 164 F.3d 1102, 1106 (8th Cir. 1999) ("To prevent parties
from using frivolous appeals to delay or interrupt proceedings in the district court, that
court does not normally lose jurisdiction to proceed with the case when one party
appeals a non-appealable order."). Thus, before we can review Hall's challenge to the
clarification order, we must determine whether the initial stay order is a final,
appealable order.3
"To determine whether the district court meant to end the litigation, we must
examine the substance of what the court intended." Boushel v. Toro Co., 985 F.2d
406, 408 (8th Cir. 1993). "A district court decision is not final, and thus not
appealable, unless there is 'some clear and unequivocal manifestation by the trial court
of its belief that the decision made, so far as [the court] is concerned, is the end of the
case.'" Hunt v. Hopkins, 266 F.3d 934, 936 (8th Cir. 2001) (quoting Goodwin v.
United States, 67 F.3d 149, 151 (8th Cir. 1995)).
The district court's initial stay order does not clearly and unequivocally
terminate Waterson's case. In the order, the district court not only addressed Hall's
request for a stay, but also a motion in limine concerning a dispute about expert
testimony. The district court denied the motion in limine "without prejudice to renew"
it at a later time when the court would "be in a better position to determine [the
testimony's] admissibility when it is proffered." The district court also denied a
motion to transfer the venue of the action. The district court would not have taken
action on the motion in limine, or the motion to transfer venue, if it believed that by
granting the stay it was permanently terminating Waterson's litigation. In addition,
it is significant the district court docket sheet does not reflect an order actually
dismissing Waterson's case, or an order for judgment. Thus, this action remains
pending in the district court even today. Accordingly, we conclude the initial stay
order was not appealable, and the district court retained jurisdiction to enter the
clarification order.
Moving our attention to the clarification order, we agree with Hall's contention
the order is not appealable because it left open the possibility Waterson could file an
amended complaint. See Hunt v. Hopkins, 266 F.3d at 936 ("[A] dismissal order is
presumptively final when the district court does not explicitly grant the plaintiff leave
to amend his complaint. This presumption of finality erodes, however, when the
district court clearly manifests an intention to permit the plaintiff's action to continue
once new pleadings are filed." (internal citation omitted)). In addition, although the
clarification order states the stay is permanent, the district court immediately qualified
that statement by saying "[u]nless plaintiff is able to provide authority to the
contrary." This indicates the district court would have considered the stay temporary
upon Waterson providing authority to that effect.
Waterson nevertheless contends the stay was permanent and unqualified
because the clarification order was "the practical equivalent of an order dismissing the
case," Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 713 (1996), and thus should
be treated the same as an order of dismissal. To determine whether such is the case,
we find it necessary to conduct a cursory examination of the merits of the claims
raised on appeal. After doing so, we disagree the district court's order granting a stay
was the practical equivalent of an order dismissing the case.
Although Hall's bankruptcy proceeding was identified as a "no asset" case in
bankruptcy court and by the district court, it was not. The liability policy covering
Hall qualifies as an asset of the bankruptcy estate. Nat'l Union Fire Ins. Co. v. Titan
Energy, Inc. (In re Titan Energy, Inc.), 837 F.2d 325, 329 (8th Cir. 1988); see also In
re Shondel, 950 F.2d 1301, 1305 (7th Cir. 1991) ("The dominant view is that
insurance policies that provide coverage for the debtor's liability are property of the
debtor's estate."). Thus, Hall's bankruptcy proceeding actually involves an
undisclosed creditor (Nash/Waterson) and an undisclosed asset (Hall's insurance
As a consequence, we doubt whether the discharge Hall received in bankruptcy
even applies to Waterson's claim. Under 11 U.S.C. § 523(a)(3), a discharge does not
apply to claims neither listed nor scheduled in the bankruptcy, and Waterson's claim
was not listed or scheduled. Every case Hall cites in support of his contention that
Waterson was not prejudiced by the lack of notice is truly a "no asset" case. See, e.g.,
Zirnhelt v. Madaj (In re Madaj), 149 F.3d 467, 468-69 (6th Cir. 1998); Beezley v. Cal.
Land Title Co. (In re Beezley), 994 F.2d 1433, 1434 (9th Cir. 1992). These cases do
not apply in a situation where there is an undisclosed asset in the form of an insurance
policy. Cf. Houston v. Edgeworth (In re Edgeworth), 993 F.2d 51, 53 (5th Cir. 1993)
(holding a § 727 discharge does not apply to a lawsuit brought to collect a judgment
solely to proceed against a malpractice liability policy "because 11 U.S.C. § 524(e)
excludes the liability insurance carrier from the protection of bankruptcy discharge").
The lack of finality expressed in the district court's order also leaves open the
possibility the district court contemplated Waterson would seek to reopen Hall's
Arizona bankruptcy proceeding "for cause" pursuant to 11 U.S.C. § 350(b), modify
the discharge, and then return to the district court in Arkansas to pursue the medical
malpractice action. See, e.g., Hendrix v. Page (In re Hendrix), 986 F.2d 195, 197-98
(7th Cir. 1993) (discussing the situation of an undisclosed liability policy and the
creditor's right to reopen the bankruptcy proceeding and citing the "nearly unanimous"
cases which recognize a bankruptcy stay does not apply "to a suit only nominally
against the debtor because the only relief sought is against his insurer").
Because we lack jurisdiction over this appeal, we express no opinion on
whether interests of comity require Waterson to reopen the Arizona bankruptcy
proceeding to "fix" the erroneous "no asset" designation, or whether the literal
language of § 523(a)(3) allows Waterson to pursue Hall to the extent of his liability
proceeds without having to reopen the bankruptcy proceeding.
We dismiss these appeals for lack of appellate jurisdiction, and return the case
to the district court for further proceedings.


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  Is Insurance Involved?
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Bystanders Witnessed This.
Police Responded and Filed
        a Police Report

Police Responded but Did
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