In re: USA Baby, Inc.

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 11-2018, 11-2026
IN RE:
USA BABY, INC.,
Debtor.
APPEALS OF:
SCOTT WALLIS.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
Nos. 09 C 3203, 3206—Joan Humphrey Lefkow, Judge.
SUBMITTED MARCH 7, 2012—DECIDED MARCH 28, 2012
Before POSNER, WOOD, and TINDER, Circuit Judges.
POSNER, Circuit Judge. Creditors forced USA Baby,
which had been formed in 2003 to franchise stores that
sell furniture and other products for children, into bank-
ruptcy under Chapter 11 (reorganization). A trustee
appointed by the bankruptcy court moved to convert
the case to a Chapter 7 bankruptcy (liquidation). The
bankruptcy judge granted his motion over the objection
of Scott Wallis, a 5 percent shareholder who had been

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2 Nos. 11-2018, 11-2026
the company’s president when the trustee was ap-
pointed and took over the debtor’s management. Wallis
moved for reconsideration of the bankruptcy judge’s
order, accusing the trustee and franchisees of committing
fraud; and in a second motion, contending that the com-
pany could regain solvency by collecting fees withheld
by the franchisees, Wallis asked the bankruptcy court to
grant “equitable relief” compelling the franchisees to
pay USA Baby what he claimed they owed it. The bank-
ruptcy judge denied both motions. He explained that
Wallis had not offered a persuasive reason to doubt the
trustee’s judgment that reorganization was infeasible,
and that in a Chapter 7 case Wallis could not bring claims
on behalf of USA Baby or litigate personal claims
against the franchisees. Wallis appealed to the district
court and having lost there appeals to us.
Although the bankruptcy case has not been closed,
we have jurisdiction over his appeals. Section 158(d)(1) of
the Judicial Code empowers the courts of appeals to hear
appeals “from all final decisions, judgments, orders, and
decrees” of a district court under sections 158(a) and (b).
The test for finality under section 158(d) is whether
the challenged decision resolved a claim “that would
be final as a stand-alone suit outside of bankruptcy.”
In re Comdisco, Inc., 538 F.3d 647, 651 (7th Cir. 2008); see
also In re ASARCO, LLC, 650 F.3d 593, 599-600 (5th
Cir. 2011). The first of the challenged rulings by the
bankruptcy court, rejecting Wallis’s motion to rescind
the conversion from Chapter 11 to Chapter 7, was final
in the practical sense that a Chapter 7 proceeding
results in liquidation, depriving the debtor of the chance

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Nos. 11-2018, 11-2026 3
he would have in a Chapter 11 proceeding to reorganize
and continue as a going concern. In re Koerner, 800 F.2d
1358, 1360-61 (5th Cir. 1986); see In re Rosson, 545 F.3d
764, 769-70 and n. 7 (9th Cir. 2008); 16 Charles Alan
Wright, Arthur R. Miller & Edward H. Cooper, Federal
Practice and Procedure § 3926.2, p. 299 n. 43 (2d ed. 1996).
The denial of the mandatory injunction that Wallis
sought is also appealable. In effect he seeks damages
for breach of contract by the franchisees and for breach
of trust by the trustee—claims that, outside bankruptcy,
would be independent actions against the franchisees
and the trustee.
On the merits, Wallis does not engage with the bank-
ruptcy judge’s reasons for rejecting his claims, but
instead argues that because the claims of the largest
creditors were based on contracts that were subject to
arbitration, they were outside the purview of the bank-
ruptcy court and so that court lost jurisdiction over
USA Baby. We cannot imagine why arbitration would
destroy bankruptcy jurisdiction any more than lifting
the automatic stay to permit the debtor to sue or be
sued would. See, e.g., In re National Energy & Gas Transmis-
sion, Inc., 492 F.3d 297, 299 and n. 2 (4th Cir. 2007);
In re Electric Machinery Enterprises, Inc., 479 F.3d 791, 796-97
(11th Cir. 2007). Anyway there was nothing to arbitrate,
because no one disputed the amounts that USA Baby
owed.
And nothing in Stern v. Marshall, 131 S. Ct. 2594 (2011),
which Wallis cites repeatedly, affects our analysis. The
Supreme Court held in that case that bankruptcy judges

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4 Nos. 11-2018, 11-2026
may not enter final judgments on common law claims
that are independent of federal bankruptcy law; we
cannot fathom what bearing that principle might have
on the present case.
Wallis has filed eight appeals to the district court
and five appeals to this court, all arising from USA
Baby’s bankruptcy, all pro se and frivolous. Enough is
enough. The next time he files a frivolous appeal he will
be sanctioned.
3-28-12

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