Creditor in bankruptcy sought payment on a note previously held valid in state court litigation between debtor and creditor. Bankruptcy court held state disposition preclusive and allowed the claim, but the United States District Court for the District of Connecticut, Nevas, J., reversed on appeal. District court held that Connecticut courts would not give preclusive effect to the prior adjudication of validity, and remanded to the bankruptcy court for further proceedings to evaluate the validity of the note de novo. Creditor appeals. Appeal dismissed for lack of jurisdiction. 28 U.S.C. § 158(d).
Meskill and Altimari, Circuit Judges, and Mishler, District Judge.*fn*
This is an appeal from a judgment of the United States District Court for the District of Connecticut, Nevas, J., reversing a decision of the United States Bankruptcy Court, Krechevsky, J., and remanding for further proceedings. For reasons that follow, we conclude that we lack appellate jurisdiction and accordingly dismiss this appeal.
We summarize the long history that brings these parties before us. On April 23, 1980, Florence Bowers executed a demand note in the amount of $40,000 in favor of Hartford National Bank and Trust Co., now known as Connecticut National Bank (the Bank). The note was secured by a mortgage on her house in Burlington, Connecticut. Within days, however, the Bank allegedly discovered other encumbrances on the house and made demand for full payment on the note. In September 1980, the Bank commenced a foreclosure proceeding in Connecticut Superior Court. Bowers counterclaimed for cancellation of the mortgage. The Bank also sought a prejudgment attachment of money that Alfred and Barbara Marulli owed Bowers. On January 14, 1981, the Superior Court found that there was probable cause to sustain the validity of the Bank's claim and accordingly granted the request for the attachment pursuant to Conn. Gen. Stat. Ann. §§ 52-278d, 52-278h (West Supp. 1988). See J. App. at 16.
The foreclosure action was tried in 1983. The Superior Court found, for reasons not relevant here, that the Bank's demand on the note constituted a "failure of consideration" that "invalidated the complete transaction." J. App. at 171-72. The court accordingly denied the Bank's request for foreclosure and directed judgment for Bowers on her counterclaim, declaring the mortgage "null and void." Id. at 172.
The Connecticut Appellate Court affirmed the Superior Court's decision in most respects. Hartford National Bank and Trust Co. v. Bowers, 3 Conn. App. 656, 491 A.2d 431 (1985). The court did not disturb the Superior Court's conclusions as to the invalidity of the mortgage or the denial of foreclosure. The Appellate Court noted, however, that "[t]here was no dispute . . . as to the validity of the note in the principal amount of $40,000." Id. at 660, 491 A.2d at 433. Based on this finding of partial error, the case was remanded to the Superior Court "with directions to render judgment for the [Bank] as to the principal amount due on the note," as well as for further proceedings to calculate interest and costs, including attorney's fees, according to the note's terms. Id. at 661, 491 A.2d at 433. The Connecticut Supreme Court denied Bowers' petition for certification to appeal. 196 Conn. 810, 494 A.2d 906 (1985).
Before judgment could be entered on the note, however, Bowers commenced a Chapter 13 bankruptcy proceeding on October 13, 1985, in the United States Bankruptcy Court for the District of Connecticut. The filing of Bowers' bankruptcy petition brought into play the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362 (1982 & Supp. IV 1986), which prevented the entry of a judgment on the note. The Bank thereafter presented an Application for Partial Payment of Secured Claim, seeking payment of the funds garnished pursuant to the prejudgment attachment obtained in the foreclosure action. The bankruptcy court, Krechevsky, J., granted the application, holding that the Bank was entitled to the garnished funds and interest, reduced by an exemption of $4,050 pursuant to the judicial lien avoidance provision of 11 U.S.C. § 522(f)(1) (1982). Judge Krechevsky did not reach Bowers' argument that the note in the original transaction was tainted by the same factors that voided the mortgage, however, because he concluded that the decision of the Connecticut Appellate Court was res judicata as to the note's validity.
Bowers appealed to the United States District Court for the District of Connecticut pursuant to 28 U.S.C. § 158(a) (Supp. III 1985). Judge Nevas reversed the bankruptcy judge's decision, holding that the bankruptcy court was not precluded from considering the issue of the note's validity. He observed that bankruptcy courts extend full faith and credit to judgments of state courts and accord them preclusive effect to the same extent as would the state courts themselves. See J. App. at 202-04 (citing Kelleran v. Andrijevic, 825 F.2d 692, 694 (2d Cir. 1987), cert. denied, 484 U.S. 1007, 108 S. Ct. 701, 98 L. Ed. 2d 652 (1988)). He proceeded to discuss Osterlund v. State, 135 Conn. 498, 66 A.2d 363 (1949), which holds that "a decision of [the Connecticut Supreme Court or of the Connecticut Appellate Court] does not make res adjudicata any issue of fact involved in it; it is the judgment of the tribunal from which an appeal is taken which, if affirmed by [the reviewing court] or rendered in conformity to a decision [it] make[s], conclusively determines any such issues." Id. at 502, 66 A.2d at 366. Relying on this principle, he concluded that Connecticut would not consider the Appellate Court's decision preclusive because it did not "affirm" a finding of the trial court on the note's validity, and because there had been no "judgment rendered in conformity" to it. He accordingly remanded the case to the bankruptcy court for proceedings to determine the validity of the note.
The Bank appealed to this Court. Both parties briefed the merits of the district court's disposition of the preclusion issue. At oral argument we questioned our appellate jurisdiction. Specifically, we expressed concern that the district court's order of remand for further proceedings was not sufficiently final to constitute an appealable order. Assisted by further briefing from the parties, we now turn to that issue.
28 U.S.C. § 158 defines jurisdiction over appeals in bankruptcy matters. Although interlocutory orders of bankruptcy courts may be appealed to the district courts "with leave of the court," see 28 U.S.C. § 158(a), the jurisdiction of the courts of appeals is confined to "appeals from all final decisions, judgments, orders, and decrees" of district courts sitting in review of bankruptcy courts, id. § 158(d) (emphasis added). See also In re Chateaugay Corp., 838 F.2d 59, 61 (2d Cir. 1988); In re Johns-Manville Corp., 824 F.2d 176, 179 (2d Cir. 1987); In re Stable Mews Associates, 778 F.2d 121, 122 (2d Cir. 1985). Furthermore, a district court decision is not "final" for purposes of our jurisdiction when the underlying bankruptcy court decision is interlocutory and appeal to the district court is taken under the "with leave" provision of section 158(a). See In re Stable Mews, 778 F.2d at 122. See also In re Louisiana World Exposition, Inc., 832 F.2d 1391, 1395 & n.5 (5th Cir. 1987); In re Ryther, 799 F.2d 1412, 1414 (9th Cir. 1986); In re American ...