Fifth Circuit Dismisses Gadzooks Appeal

Practitioners waiting for further illumination of the Fifth Circuit's Pro-Snax decision will have to continue waiting. The Gadzooks case involves whether Hughes & Luce will be compensated for nearly a million dollars worth of legal work done for an equity security holders' committee in a case where subsequent, unforeseen events negated the value of the committee's work.

The Bankruptcy Court found an exception to the requirement in Matter of Pro-Snax Distributors, Inc., 157 F.3d 422, 426 (5th Cir. 1998) that services yield “an identifiable, tangible and material benefit to the bankruptcy estate.” The District Court reversed and an appeal was taken to the Fifth Circuit.

The Fifth Circuit has now dismissed the appeal for lack of jurisdiction. Kaye v. Hughes & Luce, LLP, No. 07-10813 (5th Cir. 9/9/08). When the District Court ruled, it reversed and remanded the case to the Bankruptcy Court for further proceedings. Under 28 U.S.C. Sec. 158(d), the Fifth Circuit has jurisdiction over "final decisions, judgments, order and decrees." When a case is remanded for "significant further proceedings," the order is not final. Instead, the parties must obtain leave for an interlocutory appeal under 28 U.S.C. Sec. 1292.

Now that the appeal has been dismissed, the parties must proceed with the remand and then take the case back up the appellate chain. As a result, it is not likely that the Fifth Circuit will resolve the apparent conflict between Pro-Snax and 11 U.S.C. Sec. 330(a)(3)(C) for some time.