(BK) In Re: Svenhard's Swedish Bakery

• Court: District Court, E.D. California
• Decided: October 26, 2021
• Docket: 2:20-cv-02105
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 | United States Bakery, No. 20-cv-02105-KJM 12 Appellant, ORDER 13 v. Svenhard’s Swedish Bakery, 1S Appellee. 16 17 United States Bakery (“US Bakery”) appeals the bankruptcy court’s final order denying 18 | its motion to convert debtor appellee’s Chapter 11 bankruptcy case to Chapter 7. Debtor 19 | appellee, Svenhard’s Swedish Bakery (“Svenhard’s”), opposes. This court has jurisdiction to 20 | review final bankruptcy court orders under 28 U.S.C. § 158(a). For the following reasons, the 21 | court finds it lacks jurisdiction to review this case and therefore the appeal is dismissed. 22 | I. BACKGROUND 23 A. Factual Background 24 Svenhard’s was a bakery that produced a variety of Swedish pastries such as “bear claws, 25 | raisin snails, cinnamon rolls” and other pastries sold in stores across the country. Chief Operating 26 | Officer David Kunkel Decl. in Support of Special Counsel ¥ 4, App-177 (Kunkel Special Counsel

1 Decl.), ECF No. 5-1.1 US Bakery is one of Svenhard’s largest creditors. See Bankr. Schedules at 2 App-87; Hr’g Tr. (May 12, 2020) at App-606. 3 In 2014, Svenhard’s entered into a business relationship with US Bakery in order to sell 4 its business to USB. See Kunkel Special Counsel Decl. ¶ 5, App-177. The arrangement provided 5 for Svenhard’s taking on significant debt. Id. On December 19, 2019, after defaulting on a 6 settlement agreement with “its former union on account of pension liability,” id. ¶ 6, Svenhard’s 7 filed a voluntary bankruptcy petition seeking financial relief under Chapter 11 of the United 8 States Code (the “Bankruptcy Code”), see Chapter 11 Voluntary Pet., ECF No. 1 in In re: 9 Svenhard’s Swedish Bakery, Bankr. No. 19-15277-C-l 1 (E.D. Cal filed Dec. 19, 2019) (hereafter 10 Bankr. Case). Svenhard’s is not currently operating. Appellant Opening Br. at 5, ECF No. 5 11 (Brief); Appellee Br. at 22, ECF No. 7 (Appellee Brief). Svenhard’s bankruptcy schedules2 12 reflect no accounts receivable within the last 90 days of the schedules’ filing, nor assets including 13 pieces of inventory, raw materials, supplies, office furniture, equipment, collectibles, machinery, 14 customer lists or an internet domain name. See December 2019 Monthly Report at App-179–194; 15 January 2020 Monthly Report at App-219–235; February 2020 Monthly Report at App-236–251. 16 Svenhard’s most recent monthly report does not alter this conclusion. See September 2021 17 Monthly Report, ECF No. 354 in Bankr. Case (reflecting $0 dollars in cash sales and $0 in 18 interest received). 19 Despite the fact the business is not operating, Svenhard’s estate has incurred expenses 20 since the bankruptcy filing. Brief at 6–7. This includes $23,500 in payments to Svenhard’s sole 1 All citations referencing the appellate record refer to the black letters and numbers on the bottom page of the appellate record filed by US Bakery as an exhibit to its notice of appeal, ECF No. 5-1, and the court relies on the pagination of that record to the extent available. If a cited document is not included in the appellate record, the court cites to the docket number in the bankruptcy case with a reference to that case number. 2 Bankruptcy schedules are documents reflecting the financial status of the debtor, prepared by the debtor. The schedules include summaries of assets and liabilities, current income and expenditures, a statement of financial affairs, and other documents. See Schedules, statements, and other documents required, Fed. R. Bankr. P. 1007(b)(1). 1 employee, Mr. David Kunkel, disbursed in February 2020, and an additional $10,000 in March 2 2020. Id. at 6–7 (citing February 29 Wells Fargo Statement at App-248; March 2020 Monthly 3 Operating Report at App-431). Mr. Kunkel is the chief operating officer and one of the owners of 4 the bakery. Id. at 5 (citing to Kunkel Special Counsel Decl. at App-174, App-177). Svenhard’s 5 paid a portion of these funds to Mr. Kunkel using US Bakery’s cash collateral, which US Bakery 6 did not authorize. Id. at 7. From April 2020 to at least October 2020, the estate has also noted a 7 $10,000 monthly salary is due to Mr. Kunkel though not yet paid. Brief at 6 (citing Feb. 2020 8 Monthly Operating Report at App-236, App-238–239, App-241, App-248; March 2020 Monthly 9 Operating Report at App-431, App-433–434, App-436). In February 2020, the monthly report 10 reflected a salary exceeding $20,000 to Mr. Kunkel. Feb. 2020 Monthly Operating Report at 11 App-236. Appellees represent Mr. Kunkel has not drawn on USB’s alleged cash collateral since 12 February 2020. Appellee Br. At 16. 13 Svenhard’s also continues to incur expenses by virtue of its representation by bankruptcy 14 counsel and special counsel. As of August 2020, the attorney’s fees incurred totaled $462,000. 15 Brief at 15 (citing August 2020 Monthly Operating Report at App-726). Most recently, the fees 16 have reached at least $836,379. See September 2021 Monthly Operating Report, ECF No. 354 in 17 Bankr. Case. 18 B. Procedural History 19 Given its concerns about the administrative expenses accruing and the unauthorized use of 20 its cash collateral, US Bakery filed a motion to convert Svenhard’s Chapter 11 case to one under 21 Chapter 7 on April 7, 2020. See Docket Text at App-11; see also Mot. to Convert at App-252– 22 253. US Bakery relied on 11 U.S.C. § 1112(b), which is a provision of the bankruptcy code that 23 permits creditors to seek conversion of bankruptcy cases from Chapter 11 to Chapter 7 for cause. 24 US Bakery argued the bankruptcy case must be converted because (1) there is a “substantial or 25 continuing loss to or diminution of the estate” and an “absence of reasonable likelihood of 26 rehabilitation,” U.S.C. § 1112 (b)(4)(A), (2) Svenhard’s use of unauthorized cash collateral 27 substantially harms US Bakery, id. § (b)(4)(D), and (3) the unauthorized use of cash demonstrates 28 ///// 1 “gross mismanagement of the estate,” id. § (b)(4)(B). Mem. P.& A. Mot. to Convert at App-419– 2 420. 3 On May 12, 2020, Bankruptcy Judge Lastreto heard US Bakery’s motion. See Hr’g Tr. 4 (May 12, 2020) at App-590. Although the judge provided an opportunity for the parties to 5 present witness testimony and conduct further discovery, all parties declined and the judge then 6 submitted the matter, indicating the court would “issue its ruling shortly”. Hr’g Tr. (May 12, 7 2020) at App-592–595, App-630. Within a short period of time, however, the judge recused 8 himself from the case and the matter was reassigned to Bankruptcy Judge Klein. Order of 9 Recusal, ECF No. 166 in Bankr. Case. 10 After a number of continuances, the court set the conversion motion for hearing on 11 September 23, 2020. Civ. Min. (August 26, 2020) at App-718. At hearing, Judge Klein denied 12 the conversion motion from the bench. Civ. Min. (Sept. 23, 2020) at App-740. On October 6, 13 2020, the court issued a short order confirming its denial of the motion: “[f]indings of fact and 14 conclusions of law having been stated orally on the record and good cause appearing. It is 15 ordered that the motion is denied without prejudice.” Order (October 6, 2020) at App-952. 16 On October 21, 2020, US Bakery timely filed a notice of this appeal from the October 6, 17 2020 Order. Notice of Appeal, ECF No. 1. It filed its opening brief on January 4, 2021 arguing 18 this court has jurisdiction to hear the appeal under 28 U.S.C. § 158 and the bankruptcy court 19 committed reversible error when it failed to convert the case to Chapter 7 without making the 20 necessary findings on the record. See generally Brief. Svenhard’s moves to dismiss the appeal or 21 in the alternative to affirm the order of the bankruptcy court to deny the conversion motion. 22 Appellee Brief at 18. Svenhard’s argues the October 6, 2020 order is a non-appealable 23 interlocutory order, and even if this court were to find jurisdiction to review the order, the 24 conversion motion was properly denied when the bankruptcy court did not find cause to convert. 25 Id. at 17–18. Appellants responded, Reply, ECF No. 8, and the court held a hearing on the matter 26 on May 28, 2021. Timothy Conway and Hagop Bedoyan appeared for US Bakery, Derrick 27 Talerico appeared for Svenhard’s Swedish Bakery, and Paul Jaspar appeared on behalf of the 28 ///// 1 Official Committee of Unsecured Creditors. Hr’g Min. (May 28, 2021), ECF No. 12. After oral 2 argument the court submitted the matter. 3 II. LEGAL STANDARD 4 A. Final Orders 5 “[D]istrict courts have jurisdiction to hear appeals from the bankruptcy court of: (1) final 6 judgments, orders, and decrees; (2) interlocutory orders and decrees issued under section 1121(d) 7 of title 11; and (3) with leave of the court, from other interlocutory orders and decrees.” 8 In re Gabriel Techs. Corp., No. 13-03061, 2013 WL 4672785, at *3 (N.D. Cal. Aug. 30, 2013) 9 (Gabriel); see also Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582, 587 (2020). In 10 “ordinary civil litigation, a case in federal district court culminates in a final decision” where the 11 district court “disassociates itself from [the] case” and a party can only appeal “as of right” from 12 that final decision. Bullard v. Blue Hills Bank, 575 U.S. 496, 501 (2015). However bankruptcy 13 cases “involve[] ‘an aggregation of individual controversies,’” and therefore a different standard 14 applies. Id. (internal citation omitted). 15 The Ninth Circuit approaches finality in bankruptcy cases with a “pragmatic or flexible” 16 eye. See In re Liu, 611 B.R. 864, 870 (B.A.P. 9th Cir. 2020); see also In re Linton, No. 17 18-30773, 2021 WL 4592517, at *4 (B.A.P. 9th Cir. Oct. 6, 2021) (“the Supreme Court’s 18 Bullard-Ritzen decisions confirmed the continued vitality of the Ninth Circuit’s pragmatic or 19 flexible approach to finality in bankruptcy” (internal quotations omitted)). “This approach to 20 finality is driven by the realization that ‘certain proceedings in a bankruptcy case are so distinct 21 and conclusive either to the rights of individual parties or the ultimate outcome of the case that 22 final decisions as to them should be [immediately] appealable as of right.’” In re Liu, 611 B.R. 23 at 870) (quoting United States v. Technical Knockout Graphics, Inc., 833 F.2d 797, 800 (9th Cir. 24 1987)). “An order in a bankruptcy proceeding is final and thus appealable if it ‘alters the status 25 quo and fixes the rights and obligations of the parties . . . [or] alters the legal relationships among 26 the parties.’” Ocwen Loan Servicing LLC v. Marino (In re Marino), 949 F.3d 483, 487 (9th Cir. 27 2020) (internal citation omitted). “Under the Ninth Circuit approach, a bankruptcy court’s order 28 is final for purposes of immediate appeal under § 158(a)(1) if: (1) it fully and finally determined 1 the discrete issue or issues it presented; and (2) the resolution of discrete issues seriously affected 2 substantive rights.” In re Linton, 2021 WL 4592517, at *4. 3 Examples of a bankruptcy court’s final orders include: an order denying relief from an 4 automatic stay, Ritzen Grp., 140 S. Ct. at 589; an order dismissing a Chapter 7 debtor’s 5 bankruptcy petition, In re Liu, 611 B.R. at 879; an order converting a bankruptcy case to Chapter 6 7; In re Rosson, 545 F.3d 764, 769 (9th Cir. 2008), overruled on other grounds, In re Nichols, 10 7 F.4th 956, 964 (9th Cir. 2021); an order determining the discrete issue whether debtor’s “debt was 8 primarily non-consumer and therefore subject to discharge under Chapter 7.” In re Cherrett, 873 9 F.3d 1060, 1065 (9th Cir. 2017). 10 B. Motions to Convert Chapter 11 Cases to Chapter 7 Cases 11 Businesses may file for bankruptcy under either Chapter 11 or Chapter 7 of the 12 Bankruptcy Code. Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 978 (2017). The primary 13 difference between a Chapter 7 and Chapter 11 bankruptcy is whether or not the creditor or 14 debtor hopes to keep the business operating. See id. In Chapter 7, a trustee liquidates assets and 15 then makes distributions to creditors. Id. In Chapter 11, a debtor and creditors work to negotiate 16 a plan to govern the distribution of estate assets and “often keep the business operating as a going 17 concern.” Id. 18 A debtor may convert a case to a Chapter 7 bankruptcy in certain circumstances not 19 relevant to this matter; a creditor also may seek to convert a case as US Bakery attempted to do 20 here. 11 U.S.C.A. § 1112. “Section 1112 of the Bankruptcy Code (‘Section 1112’) governs the 21 conversion or dismissal of a case filed under Chapter 11, and ‘is intended to preserve estate assets 22 by preventing the debtor in possession from gambling on the enterprise at the creditors’ expense 23 when there is no hope of rehabilitation.’” Lynch v. Barnard, 590 B.R. 30, 35 (E.D.N.Y. 2018), 24 aff’d sub nom., In re Lynch, 795 F. App’x 57 (2d Cir. 2020). “Under Chapter 11, upon request of 25 a party in interest, a bankruptcy court shall either convert a case to Chapter 7 or dismiss it based 26 on its determination of the best interests of the creditors and the estate.” Salubrious Pharm., LLC 27 v.Pharmo, LLC, No. 15-07314, 2016 U.S. Dist. LEXIS 17136, at *4 (C.D. Cal. Feb. 10, 2016). 28 The relevant statute provides a non-exhaustive list of sixteen “causes” for conversion or dismissal 1 including “(A) substantial or continuing loss to or diminution of the estate and the absence of a 2 reasonable likelihood of rehabilitation; (B) gross mismanagement of the estate; . . . (D) 3 unauthorized use of cash collateral substantially harmful to 1 or more creditors; . . . [and] (F) 4 unexcused failure to satisfy timely any filing or reporting requirement established by this title or 5 by any rule applicable to a case under this chapter.” 11 U.S.C.A. §§ 1112(b)(4)(A), (B), (D), (F). 6 III. ANALYSIS 7 A. Jurisdiction 8 There is sparse case law addressing directly whether an order denying a motion to convert 9 a case from Chapter 11 to Chapter 7, as the bankruptcy judge did here, is an appealable final 10 order of the bankruptcy court.3 In 1987, the Ninth Circuit’s bankruptcy appellate panel found an 11 order denying such a motion was an interlocutory order, but never expressly addressed in the first 12 instance whether it was a “final” order. In re Klein/Ray Broad., 100 B.R. 509, 510–11 (B.A.P. 13 9th Cir. 1987) (Klein). Since then only one other district court within the Circuit appears to have 14 reviewed the issue substantively. Specifically, in 2013, a district judge in the Northern District of 15 California concluded, taking into account the facts of the case before him, that a denial of a 16 conversion motion was neither final nor interlocutory and therefore was not appealable to the 17 district court. Gabriel, No. 13-03061, 2013 WL 4672785, at *4. Both Klein and Gabriel are of 18 course persuasive authority only, and not precedential. Elsewhere, the Tenth Circuit’s bankruptcy 19 appellate panel has found that denial of a motion to convert is not final but rather interlocutory, 20 where the court below gave leave to appeal. See In re Kearney, 625 B.R. 83, 92 (B.A.P. 10th Cir. 21 2021) 22 The Supreme Court and Ninth Circuit have issued opinions addressing the concept of 23 finality in other types of bankruptcy proceedings. See Bullard, 575 U.S. at 503 (denial of 24 proposed confirmation plan with leave to amend was not final order); In re Cherrett, 873 F.3d at 3 In contrast, the Ninth Circuit has held that orders granting a motion to convert are final orders. In re Rosson, 545 F.3d 764, 770 (9th Cir. 2008) (“An order converting a case under another chapter to one under Chapter 7 determines finally the discrete issue to which it is addressed, i.e., whether or not the case will be converted . . . . Moreover, because a conversion to Chapter 7 takes control of the estate out of the hands of the debtor, it seriously affects substantive rights and may lead to irreparable harm to the debtor if immediate review is denied.”). 1 1065 (order denying motion to dismiss case for abuse under Chapter 7 is final order); Ritzen Grp., 2 140 S. Ct. at 586 (denial of relief from stay in bankruptcy context was final appealable order). 3 Debtors rely heavily on Gabriel in their brief. In Gabriel, creditors brought a motion to 4 convert a Chapter 11 bankruptcy to one under Chapter 7 for cause under 11 U.S.C. § 1112(b), due 5 to the substantial or continuing loss or diminution of the estate and gross mismanagement of the 6 estate, similar to the motion US Bakery brings here. Gabriel, No. No. 13-03061, 2013 WL 7 4672785, at *1–2. The bankruptcy court denied the motion, the creditors appealed, and as noted 8 the district court ultimately held the denial was neither a final nor interlocutory order and 9 therefore the court had no jurisdiction to hear the appeal. Id. at *2–4. The district court held the 10 denial of the motion was not a final order because unlike an order approving conversion to 11 Chapter 7, where the estate is taken “out of the hands of the debtor . . . and [the decision] may 12 lead to irreparable harm to the debtor if immediate review is denied,” a denial of a motion to 13 convert from Chapter 11 to Chapter 7 “does not have an immediate or irreparable impact on 14 debtor or creditor rights and simply requires the creditor’s continued participation in the 15 bankruptcy proceedings.” Id. at *3. The court also found the denial was not interlocutory, as the 16 order did not turn on one controlling question of law but “on law combined with fact” regarding 17 whether there was an actual loss to the estate. Id. at *4–5. 18 In Bullard, the Supreme Court held that an order denying a repayment plan4 in a Chapter 19 13 bankruptcy is not final, so long as it leaves the debtor free to propose another plan. See 20 Bullard, 575 U.S. at 503. The Court expressly determined the denial of a proposed confirmation 21 plan was not a “discrete” proceeding as the debtor could continue proposing a plan until one was 22 confirmed. Id. at 501–03. It also distinguished between an order granting a confirmation plan as 23 opposed to an order denying one with leave to amend. Id. at 502–03. The Court stated that a 24 ///// 25 ///// 4 A repayment confirmation plan is proposed by the debtor and describes how the debtor will use future income to repay a portion of debt over the next three to five years. Id. at 498. “If the bankruptcy court confirms the plan and the debtor successfully carries it out,” the debt is discharged. Id. 1 grant of a confirmation plan should be immediately appealable because it would change the status 2 quo of the parties but 3 denial of confirmation with leave to amend, by contrast, changes 4 little. The automatic stay persists. The parties’ rights and obligations 5 remain unsettled. The trustee continues to collect funds from the 6 debtor in anticipation of a different plan’s eventual confirmation. The 7 possibility of discharge lives on. ‘Final’ does not describe this state 8 of affairs. 9 Id. at 503. 10 Two years after Bullard, in Cherrett, the Ninth Circuit held that a bankruptcy court’s 11 order denying a motion to dismiss for abuse of Chapter 7 under 11 U.S.C. § 707(b) was final and 12 appealable. In re Cherrett, 873 F.3d at 1065. In so doing, the Ninth Circuit affirmed the 13 Bankruptcy Appellate Panel’s decision, joining the “First, Third, Fourth, Fifth, Seventh, and 14 Eighth Circuits,” In re Cherrett, 523 B.R. 660, 666 (B.A.P. 9th Cir. 2014), and focused on the 15 legislative history of § 707(b), In re Cherrett, 873 F.3d at 1065–66. Given that the 2005 16 Bankruptcy Abuse Prevention and Consumer Protection Act “manifest[ed] a congressional policy 17 to police all Chapter 7 cases for abuse at the outset of a Chapter 7 proceeding,” the court found 18 that an order denying a motion to dismiss under this section of the code was a final order. Id. at 19 1065 (“[i]f the denial of a § 707(b) motion to dismiss cannot be appealed immediately . . . . , the 20 Chapter 7 proceedings would have to be completed before it could be determined whether the 21 proceedings were abusive in the first place.”). 22 Most recently, the Supreme Court returned to the nuanced concept of finality in 23 bankruptcy cases in the Ritzen case. In Ritzen, creditors moved for relief from a stay in a Chapter 24 11 bankruptcy case months after the bankruptcy case denied their motion. Ritzen Grp., 140 S. Ct. 25 at 584. In determining “the adjudication of a motion for relief from the automatic stay forms a 26 discrete procedural unit within the embracive bankruptcy case . . . . [t]hat . . . yields a final, 27 appealable order when the bankruptcy court unreservedly grants or denies relief,” the Court 28 looked to Bullard, the procedural process required by the motion requiring notice and a hearing, 29 the statutory text, and the practical results of the order. Id. at 586–89. “[D]elaying appeal until 30 the termination of the entire bankruptcy case . . . could . . . require the bankruptcy court to 1 unravel later adjudications rendered in reliance on an earlier decision” given the proceeding 2 “occurs before and apart from proceedings on the merits of creditors’ claims.” Id. at 586, 587. 3 Reading these cases together, they suggest that a bankruptcy order denying a motion to 4 convert a Chapter 11 case to Chapter 7 is not a final order. First, the denial of a motion to convert 5 a Chapter 11 case to a Chapter 7 case is not a discrete proceeding as it does not disrupt the status 6 quo of the case. See Gabriel, No. 13-03061, 2013 WL 4672785, at *4; Bullard, 575 U.S. at 503. 7 Instead, creditors remain the creditors and the legal relationship between the parties has not 8 shifted. See Ad Hoc Comm. of Holders of Trade Claims v. PG&E Corp, 614 B.R. 344, 351 9 (N.D. Cal. 2020). Denying the motion to convert also does not expose the debtor to new legal 10 actions nor does it necessarily bar the creditor from moving to convert the case at a later time if 11 the motion is denied without prejudice, as it was in this case. See Bullard, 575 U.S. at 503–04. 12 Second, the denial does not undermine “judicial efficiency.” In re Cherrett, 523 B.R. at 13 666. While motions to convert do require notice and a hearing similar to motions for relief from a 14 stay, bankruptcy courts would not be required to unravel later adjudications as the courts would if 15 they erroneously denied relief from a stay. See Ritzen, 140 S. Ct. at 591. 16 Third, conversion motions are not listed as a “core proceeding” in 28 U.S.C. § 157(b)(2), 17 a “textual clue” from Congress and a statutory reference point noted in both Bullard and Ritzen. 18 Bullard, 135 S. Ct. at 1689 (“Statute defining core bankruptcy proceedings lists ‘confirmations of 19 plans,’ § 157(b)(2)(L), but omits any reference to denials.”); Ritzen Grp., 140 S. Ct. at 590 20 (“although the discrete core proceedings listings hardly clinc[h] the matter, as the provision’s 21 purpose is not to explain appealability, they provide textual clue that Congress viewed 22 adjudication of stay-relief motions as proceedings distinct from claim adjudication.” (internal 23 citations omitted)). Finally, a bankruptcy court’s order denying a motion to convert to a Chapter 24 7 case by a creditor does not “finally and conclusively resolve[] the issue,” as a creditor may 25 move again to convert if new causes arise as the case proceeds. In re Cherrett, 873 F.3d at 1065. 26 For all the above reasons, this court cannot find a denial of a motion to convert from 27 Chapter 11 to Chapter 7 by a creditor is a “discrete proceeding” and therefore sufficiently final to 28 support this court’s exercise of jurisdiction. 1 B. Interlocutory Appeal 2 US Bakery argues even if the bankruptcy court’s denial of their conversion motion is not a 3 final order, this court should deem its motion as one seeking leave to appeal an interlocutory 4 under 28 U.S.C. § 158(a)(3). Brief at 3. In the Ninth Circuit, district courts may exercise 5 discretion to grant leave to appeal “in order to avoid wasteful litigation and expense,” In re Belli, 6 268 B.R. 851, 858 (B.A.P. 9th Cir. 2001), when “(1) there is a controlling question of law, (2) as 7 to which a substantial ground for a difference of opinion exists, and (3) an immediate appeal 8 could materially advance the ultimate termination of the litigation.” Ad Hoc Comm. of Holders of 9 Trade Claims, 614 B.R. at 351. 10 As noted above, the Ninth Circuit’s bankruptcy appellate panel once found a denial of a 11 motion to convert an interlocutory order but provided little analysis for the determination. See 12 Klein, 100 B.R. at 510–11. Specifically, the panel found “although no formal motion for leave to 13 appeal was filed,” the panel would consider the mere notice “of appeal as a motion for leave to 14 appeal”; it then determined the lower court’s order denying without prejudice a motion to convert 15 to be an interlocutory decree and reviewed the matter on the merits. Id. Because the panel did 16 not conduct a thorough interlocutory appeal analysis, the court does not give it great persuasive 17 weight. 18 Here, the court finds the order denying without prejudice the motion to convert is not 19 interlocutory, as it does not rest on a controlling question of law. “[A] question of law is 20 ‘controlling’ if its resolution on appeal could ‘materially affect the outcome of the litigation.’” 21 Ad Hoc Comm. of Holders of Trade Claims., 614 B.R. at 351–52 (citing Cement, 673 F.2d at 22 1026). “The fact that an issue is novel, or that there is a disagreement about which authority is 23 controlling does not, by itself, constitute a substantial difference of opinion to support an 24 interlocutory appeal.” Id. 25 Here, US Bakery suggests the controlling question of law is whether the bankruptcy 26 court’s failure to make findings of fact and conclusions of law were required by Federal Rule of 27 Bankruptcy Procedure 7052 and 11 U.S.C. § 1112, and whether 11 U.S.C. § 1112 mandates 28 conversion of this case. Brief at 3; Reply at 3–4. As to the first argument, whether or not the 1 bankruptcy judge was required to make more detailed oral findings is not a controlling question 2 of law as it does not materially affect the outcome of the case. The bankruptcy judge denied the 3 motion without prejudice and therefore US Bakery is welcome to move again to convert. Order 4 (September 23, 2020) at App-952. Questions regarding the judge’s findings of fact, in the 5 absence of express statutory language requiring more, do not raise such a “fundamental issue” as 6 “the determination of who are necessary and proper parties, whether a court to which a case has 7 been transferred has jurisdiction, or whether state or federal law should be applied.” Rieve v. 8 Coventry Health Care, Inc., 870 F. Supp. 2d 856, 879 (C.D. Cal. 2012). Regarding whether 9 11 U.S.C. § 1112 mandates conversion is necessarily a question of both law and fact and 10 therefore cannot be resolved as a pure question of law. See Gabriel, 2013 WL 4672785, at *5. 11 As noted above, US Bakery argues the bankruptcy case must be converted because (1) there is a 12 “substantial or continuing loss to or diminution of the estate” and “absence of reasonable 13 likelihood of rehabilitation,” (2) Svenhard’s unauthorized use of cash collateral substantially 14 harms US Bakery, and (3) the unauthorized use of cash demonstrates “gross mismanagement of 15 the estate.” Mem. P. & A. Mot. to Convert at App-417–420. All of these assertions call for fact- 16 specific determinations. 17 The bankruptcy court’s order is not interlocutory and this court does not have jurisdiction 18 on these grounds either. 19 IV. CONCLUSION 20 US Bakery’s appeal is dismissed. This order resolves ECF No. 5. 21 IT IS SO ORDERED. 22 DATED: October 25, 2021. 23