Supreme Court Addresses Bankruptcy Appellate Jurisdiction
Denial of Plan Confirmation Not Automatically Appealable
On May 4, 2015, the Supreme Court of the United States issued its opinion in Bullard v. Blue Hills Bank on the question of whether a bankruptcy court order denying confirmation of a debtor's proposed Chapter 13 plan was a final order subject to immediate appeal. Although Bullard is a Chapter 13 case, the Court's rationale likely applies to chapters 11 and 12 as well.
Louis Bullard filed a petition for relief under Chapter 13 of the Bankruptcy Code in December 2010. At the time he filed for bankruptcy, the debtor's largest debt was his mortgage on a multifamily home. The mortgage was underwater, and Bullard proposed a plan that split the bank's claims into secured and unsecured claims. The bank objected to the proposed plan and the bankruptcy court sustained the objection, concluding that Chapter 13 did not allow the debtor to split the bank's claim under the circumstances of the case in the manner the debtor proposed. Thus, the bankruptcy court entered an order denying confirmation of the plan, with directions to submit a new plan within 30 days. The decision was appealed to the First Circuit Bankruptcy Appellate Panel ("BAP"), which concluded that the order denying confirmation was not a final appealable order, but exercised its discretion to hear interlocutory appeals under 28 U.S.C. § 158(a)(3). The BAP affirmed the bankruptcy court decision on the merits.
The debtor sought further review before the First Circuit Court of Appeals, but the appeal was dismissed for lack of jurisdiction because the underlying order denying confirmation was not a final order. The Supreme Court granted certiorari to decide whether orders denying confirmation of a plan are final appealable orders. In a unanimous decision, the Court held that they were not final orders.
The Court began its analysis by recognizing that bankruptcy cases involve "an aggregation of individual controversies" many of which could stand as separate lawsuits but for the bankruptcy. Accordingly, with respect to bankruptcy appeals, Congress has authorized appeals, not only from final judgments, but from "final judgments, orders and decrees … in cases and proceedings."
The debtor argued that each proposed bankruptcy plan constituted a "proceeding" and that an order denying confirmation of each plan terminated the proceeding entitling the debtor to appellate review. In contrast, the bank argued that the relevant proceeding was the confirmation process, and that the proceeding only terminated when a plan was confirmed or the case dismissed. The Court agreed with the bank, noting that only plan confirmation or dismissal alters the status quo and fixes the rights and obligations of the parties, precluding litigation regarding issues litigated at confirmation or necessarily decided by confirmation, discharging debts, and re-vesting property with the debtor. Similarly, when a case is dismissed upon denial of confirmation, the automatic stay terminates as does the possibility of a discharge.
In contrast, where the bankruptcy court denies confirmation with leave to amend, the parties' rights and obligations remain unsettled, with the status quo in place, and only rules out the "specific arrangement of relief embodied in a particular plan." Thus, according to the Court, such orders are not properly viewed as "final."
The Court voiced concern over the possibility of piecemeal appeals on multiple failed plans. While the debtor argued that most chapter 13 debtors would not have the resources to appeal multiple failed plans, chapter 11 debtors might, and the parties had assumed that the same rule would apply in chapter 11 cases. The Court also recognized the leverage that an appeal of right presents, and apparently believed the debtor would hold too much leverage when combined with the ability to freely modify a plan. Thus, the Court believed that the lack of a guaranteed appeal would "encourage the debtor to work with creditors and the trustee to develop a confirmable plan as promptly as possible."
The Court continued its analysis by reasoning that in many situations, whether an order is final depends upon its specific ruling. For example, an order granting summary judgment is final yet an order denying summary judgment is not.
Finally, the Court rejected the debtor's argument that it did not have a way to effectively seek appellate review. As an initial matter, the Court acknowledged the principle that some rulings will be "only imperfectly reparable." This is tolerable because bankruptcy courts rule correctly most of the time, and that many errors are insignificant. In addition, the Court held that the mechanisms for interlocutory appeals, first to the district court or BAP and then to the Circuit Court appropriately protected parties, particularly in light of the ability of bankruptcy courts to certify interlocutory appeals to the Circuit Courts. While acknowledging that such review was discretionary, the Court concluded that they provided "useful safety valves for promptly correcting serious errors."
The Court's ruling provides guidance to counsel litigating chapter 13 plan confirmations, and will likely serve as the rule in chapter 11. Parties should be aware of their appellate rights (or lack thereof) in connection with plan confirmations and similar proceedings. However, the ability to seek interlocutory review of a decision denying confirmation provides some comfort to debtors that believe the bankruptcy court has erred in its rulings.
For additional information, please contact Dylan Trache at firstname.lastname@example.org or 202-545-2993
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