Breaking News

Argument analysis: Justices weigh practicalities of appellate review of decisions rejecting bankruptcy plans

The last case of the March argument session, Bullard v. Blue Hills Bank, finished the Court’s foray into consumer bankruptcy. Unlike the narrow and low-stakes issue discussed the first hour of the day (in Harris v. Viegelahn), this case involves a question of great importance in consumer and commercial bankruptcies alike: can a debtor appeal a bankruptcy court’s decision to reject the debtor’s proposed plan? As in the earlier argument, the Justices found themselves largely unmoored by any statutory text and thus spent most of the argument debating the wisdom of permitting such appeals.

Accordingly, most of the argument involved considering whether debtors would have an adequate opportunity to seek appellate review if the plan denial itself is not treated as an appealable order. The answer turns on the Justices’ assessment of the three mechanisms for appeal that would remain if the denial itself cannot be appealed. The first possibility is the procedure the statute plainly authorizes: an interlocutory appeal, which is available whenever the debtor can convince the lower courts that the question is important enough to warrant interlocutory review. The difficulty with that approach is that the Justices seem convinced (and properly so) that the lower courts have rarely authorized such appeals.

Justice Kagan’s comments are illustrative of the quandary in which the Justices found themselves:

I mean, we’re trying to figure out what’s the best alternative of these systems in a world in which we’re not particularly limited by text. So it’s quite important how the other alternatives work. And if the interlocutory appeal alternative really isn’t working because courts aren’t using it for these kinds of purposes, then that’s an important factor to know about, isn’t it?

Justice Stephen Breyer seemed to have considerable sympathy for that approach, although he too seemed to take for granted the limited use of the provisions courts have permitted to date: “It would then seem important to put in the opinion there is a problem here about there being insufficient appeals to generate law, but there is a mechanism, namely, the interlocutory mechanism, which perhaps has been used too sparingly.” Ever the skeptic, Justice Antonin Scalia wryly downplayed the effectiveness of such an approach, commenting: “You know, sometimes they even ignore our holdings. Do you think they’re not going to ignore this piece of advice?”

One of the biggest problems that Douglas Hallward-Driemeier, arguing on the bank’s behalf, faced is that the two opportunities available once you get beyond interlocutory appeal are procedurally eccentric (at best). One possibility is that the debtor should refuse to amend the rejected plan, await dismissal of the bankruptcy case; all agree that the debtor could appeal from such a dismissal. The central problem with that approach, as James Feldman (arguing for the debtor Bullard) emphasized in a lengthy colloquy with Justice Breyer, is that the debtor loses the automatic stay when the case is dismissed.

Unimpressed, Justice Breyer suggested that the debtor should seek a stay from the bankruptcy court. When Feldman argued that it is not practical for the debtor to hope to get such a stay, Justice Breyer remarked: “What we do is we do there the same as any other case. … And if the bankruptcy judge doesn’t do it, you ask the appellate panel to do it. That comes every day in the week, it comes up in criminal cases, civil cases all the time.”

Justice Elena Kagan and Sonia Sotomayor, in contrast, seemed persuaded by Feldman’s point. Justice Kagan, for example, summarized her understanding of Feldman’s point sympathetically: “Does that mean that they would have to say that there’s a likelihood that their own ruling is wrong. Because if Justice Breyer were right, that that’s a possibility, you would think that would be a very good way to solve this problem. But you’re just saying that the automatic stays are going to disappear on most of these debtors?” More firmly, Justice Sotomayor responded to Hallward-Driemeier’s suggestion of dismissal as a solution that he should “[a]ssume we don’t think that’s very effective.”

The third alternative available to debtors is to respond to a denial of the preferred plan by proposing a plan acceptable to the district court and then taking an appeal from the acceptance of their plan. None of the Justices seemed to think that sensible. Justice Kagan, for example, characterized that approach as “just making people run through hoops to agree to plans that nobody is willing to live under.”

As the argument wound down, the Justices seemed to be coming around to the debtor’s side, largely because of the success of three practical arguments. The first is the reality that creditors plainly can appeal to challenge confirmation; it seems unfair that the debtor should not have a parallel right to challenge rejection. As Justice Ruth Bader Ginsburg put it: “It’s a given, isn’t it, [that] the confirmation of a plan can be appealed. And I thought your argument was that this is just the flip side. You can confirm or you can deny. Creditors can appeal if it’s confirmed.” Both Feldman and Assistant to the Solicitor General Zachary Tripp (arguing for the federal government) returned to that point repeatedly, with apparent success.

The second is the empirical reality that appeals of this sort in fact seem to be rare, even in the courts in which they are permitted. While Feldman was arguing, both Chief Justice John Roberts and Justice Breyer seemed unpersuaded by his argument that impecunious debtors would be likely to appeal plan denials only in important cases. Later in the argument, however, Justice Kagan took the view that the history in the circuits that have permitted such appeals for many years is telling: “Well 2005, that’s ten years [these appeals have been available]. And these cases are coming up all of the time, and it seems as though you have a good natural experiment that goes on here. And it hasn’t really led to the kinds of bad consequences that we’re all surmising about.”

The final point ended up consuming a good bit of Hallward-Driemeier’s time: what to make of the decision of the major institutional actors that appeared in the case – the United States and the Bank of America – to file on the debtor’s side, supporting the right to appeal. So, for example, when Hallward-Driemeier argued that a right to appeal would give debtors unfair leverage in plan negotiations, Justice Anthony Kennedy interjected: “When you argue, as you’ve just argued, that this would give the debtors too much unfair leverage, how does that account for the fact that some of the very major creditors in the country are on the Petitioner’s side? I mean, they must not think there’s too much leverage.”

Justices Kagan and Scalia also pressed the point vigorously. Justice Kagan, for example, commented to Hallward-Driemeier: “One of the things that confuses me about this case, quite honestly, is why you don’t have more people on your side. In other words, where are the creditors, and where are the amicus briefs from the creditors who think your position is important to prevent all of these appeals that you say are going to ruin the system?”

The colloquy doubtless brought a smile to the face of Craig Goldblatt, one of the counsel for Bank of America on the brief in question, sitting in the courtroom after his argument earlier in the day. As the summary above should illustrate, however, it is not at all clear that the notice the Justices took of the bank’s position presages acceptance of that position. What the argument suggests to me is a consensus on two points: that there should be some practical mechanism for review; and that there is no sympathy for the Rube-Goldberg alternatives of feigned dismissal and approval of an unwanted plan. If the Court can’t coalesce around a bright-line permission of appeals from plan rejection, it is not at all unlikely that the Court might accept Justice Breyer’s suggestion that the lower courts be urged to make interlocutory review more readily available.

Recommended Citation: Ronald Mann, Argument analysis: Justices weigh practicalities of appellate review of decisions rejecting bankruptcy plans, SCOTUSblog (Apr. 3, 2015, 10:44 AM),