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Argument preview: Justices to use consumer bankruptcy case to resolve crucial question of reorganization process

The last day of the March argument calendar presents the Justices with two consumer bankruptcy cases. The second case is Bullard v. Blue Hills Bank, which presents a basic fact pattern doubtless repeated in tens (if not hundreds of thousands) of bankruptcy filings this decade: a bankrupt homeowner, whose home indisputably is worth far less than the mortgage that burdens it, with few other significant debts. Indeed, the Justices face that fact pattern three times this month (earlier this week in Caulkett and next Wednesday in this case and Harris v. Viegelahn).

As with Harris and Caulkett, the monetary stakes of this case are slight. But the similarities end there, for Bullard presents a procedural problem that has plagued the courts of appeals for years: whether a debtor can appeal a bankruptcy court order that denies confirmation of a plan. The ramifications of that question go far beyond individual homeowner filings; the problem is crucial in large reorganizations where plan confirmation often is quite contentious. In those cases, at least in circuits that do not permit appeal from plan denial, the refusal of a bankruptcy court to approve the debtor’s plan leaves the debtor with no practical recourse unless it can persuade the same judge that just denied confirmation to approve an immediate appeal. Because the Second Circuit is in that group of circuits, that rule applies to the many large business reorganizations filed in New York.

The problem is only exacerbated by the parallel doctrine of “equitable mootness,” which effectively bars an appeal from an order that confirms a plan: courts often hold that an appeal from creditors challenging a confirmed plan as inappropriate is “equitably” moot on the theory that it is inequitable to disturb a plan that already has gone into operation. Together, those doctrines all but insulate the process of plan approval from appellate review. It is difficult to accept the idea that something so central to the bankruptcy process, and so fundamentally contentious, should be largely insulated from appellate supervision. But that is the state of the law into which the lower courts have fallen.

Turning to the legal question presented for resolution, the statute is no more specific than you would expect. Because of the differences in the structure of appeals from bankruptcy courts (related in part to their lack of Article III status), these appeals do not fall under the traditional rule set out in Section 1291, which permits appeals only of final decisions that dispose of an entire case. Rather, courts have recognized since the nineteenth century that a bankruptcy case involves a set of discrete proceedings, which can begin, end, and be appealed separately. What the statute does not do, however, is offer any guidance as to what should count as a proceeding sufficiently separate or definite to justify an appeal from its resolution. Rather Section 158(d)(1) permits appeals not only from final “decisions” (the object of Section 1291), but also from final “judgments, orders, and decrees.” It is not at all obvious how to fit the structure of plan approval into those terms.

On the one hand, as emphasized above (perhaps tendentiously), the decision to reject a plan can effectively decide an entire case. That is clear in a case like this one, where the only practical form of plan involved a dubious legal structure for “hybrid” treatment of secured claims. The debtor in this case might tinker around the edges in designing its plan, but that is the only type of plan it possibly could confirm. On the other hand, in other cases, where the issues are more gradual, denial of one plan easily could lead to the submission and approval of a similar plan: consider a bankruptcy court’s rejection of a Chapter 13 plan in which the debtor proposes to pay ten percent of its unsecured debt, in an order explaining that the judge believes that the debtor reasonably could (and should) repay twenty percent of the claims of its unsecured creditors. In a case like that one, the denial of confirmation plainly is an interim step in a give-and-take process leading to confirmation.

My guess, given the vagueness of the statute, is that the Justices will decide this case based on their sense of the practicalities. They obviously have no desire to overwhelm the courts of appeals with trivial disputes not yet ripe for appellate consideration. But at the same time I expect they will be troubled by the practical implications of a rule that denies an appeal as of right to the debtor with a rejected plan. As the discussion above probably makes clear, I have a strong predisposition as to the direction that the practical realities point. As any reader of this blog knows, my predisposition is no reliable guide to the perspective the Justices will take at the argument next week.

Recommended Citation: Ronald Mann, Argument preview: Justices to use consumer bankruptcy case to resolve crucial question of reorganization process, SCOTUSblog (Mar. 30, 2015, 9:36 AM),