Appellate Decisions

The Split on Appealing Receivership-Distribution Orders

A Seventh Circuit concurrence explained why litigants should not be able to take collateral-order appeals from orders orders distributing some of the assets in a receivership.

May 11, 2024

By Bryan Lammon

In SEC v. EquityBuild, Inc., the Seventh Circuit heard an appeal from order approving the distribution of some—but not all—of the assets in a receivership proceeding. The order was appealable under the Seventh Circuit’s caselaw, which deemed these orders appealable via the collateral-order doctrine. Judge Easterbrook concurred to express doubt in this caselaw and suggest that the issue—one on which the courts have split—should be resolved by the Supreme Court.

The Distribution Order in EquityBuild

EquityBuild involved the fallout from a Ponzi scheme. The parties in the appeal had both claimed a right to some of the property that had been recovered after the scheme collapsed. The district court held that individual investors, and not a private lender, should receive the funds in question.

This order did not resolve the distribution of all assets in the receivership. But it resolved all claims regarding some of the property. And under the Seventh Circuit’s decision in SEC v. Wealth Managemenet LLC, such an order is immediately appealable via the collateral-order doctrine.

A Concurrence Questioning Receivership-Distribution Appeals

Judge Easterbrook concurred to explain why Wealth Management was wrong. The underlying litigation was not over—the district court needed to resolve other claims regarding other property in the receivership. And the order did not satisfy two of the collateral-order doctrine’s requirements.

For one thing, the distribution order was not separate from the merits:

Far from being “collateral” to the merits, a decision about who receives how much of the proceeds from a sale is the merits. The goal of a receivership is to marshal and distribute assets. A distribution order such as the one at issue here is the end of the process for the claimants involved, rather than collateral to something else.

To be sure, liability had been established. But the district court still needed to decide the remedy—who got what. And a decision normally must resolve both liability and the remedy to be final.

For another thing, the distribution order could be resolved in a final-judgment appeal. There was nothing stopping the court of appeals from resolving the same issues after a final judgment. Granted, there might be some concern about distributed money being spent and thus becoming unrecoverable. “But that potential problem has multiple solutions,” including the receiver retaining funds until after a final judgment or the posting of security by prevailing parties.

The Split on Receivership-Distribution Appeals

Judge Easterbrook went on to explain that the courts have split on this matter. Most courts agree with the Seventh Circuit. The Ninth Circuit has gone the other way.

But Judge Easterbrook did not think the Seventh Circuit should reconsider the issue. He said “it is rarely prudent to move from one side of a conflict to the other.” So resolution of this split falls to Supreme Court (via either decision or the rulemaking process).

SEC v. EquityBuild, Inc., 2024 WL 1984874 (7th Cir. May 6, 2024), available at the Seventh Circuit and Westlaw

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