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Opinion analysis: Justices slam the door on appeals of bankruptcy plan denials

In Bullard v. Hyde Park Savings Bank yesterday, the Court unanimously rebuffed efforts to gain review of orders that deny confirmation of plans in a bankruptcy proceeding. Although the case arose in the context of a small consumer bankruptcy, it has stark repercussions for the Chapter 11 proceedings that reorganize the affairs of large firms.

To put the issue in context, Bullard’s bankruptcy involves a home worth considerably less than the mortgage that encumbers it. He proposed a so-called “hybrid” plan, under which he would make regular payments on his mortgage under the existing payment schedule until he had paid off the current value of the house; the bankruptcy proceeding would discharge the remainder of the mortgage debt (about $100,000). It is not clear whether the Bankruptcy Code permits that form of plan; creditors argue that if the plan discharges the excess debt (the part that is above the value of the house), the bankrupt has to repay the secured debt during the term of the plan – that is, during the next five years. Decisions on that question conflict.

The bankruptcy court in this case held that such a plan is impermissible, noting that other judges in the same circuit have reached the opposite conclusion. Bullard attempted to appeal to the bankruptcy appellate panel in the First Circuit; that court granted discretionary leave to appeal under a provision of Title 28 (“Section 158”) that allows appeals of orders by bankruptcy courts “with leave of the court.” When the bankruptcy appellate panel also ruled against him, Bullard tried to appeal to the First Circuit. The First Circuit, though, decided that the order denying confirmation was not final; lacking any other basis for jurisdiction, it dismissed Bullard’s appeal.

The Court acknowledged that bankruptcy procedure differs markedly from conventional civil procedure, in which a single final judgment typically disposes of an entire proceeding. A bankruptcy case, by contrast, presents the intersection of a determination as to the borrower’s obligations with any number of disputes about the claims that creditors hold against the borrower and their priority among themselves. Suffice it to say that in large business cases, those individual disputes receive the attention and process that is comparable to the treatment of similar disputes in a federal district court.

Recognizing that the concept of finality does not map well to the bankruptcy process, federal procedure always has had a looser conception of finality in that context. Specifically, Section 158 permits appeals as of right from final judgments not only in “cases,” but also in “proceedings.” The question, then, is whether the denial of a plan ends a “proceeding” for purposes of Section 158. The problem for the debtor, however, is that the proponent of a plan ordinarily can amend the plan and submit another. To be sure, if the bankruptcy court finally has ruled on the legality of the type of plan the debtor desires, the debtor can be sure that the court will refuse to confirm any plan the debtor desires.

Writing for a unanimous Court, Chief Justice John Roberts explained that in a bankruptcy proceeding it is the confirmation of a plan and dismissal of a whole case that have the kind of serious consequences that approximate finality in the general civil context. A confirmed plan binds the parties and has preclusive effect; a dismissal lifts the automatic stay and limits its availability in later cases. Denial of confirmation, by contrast, has no similarly concrete consequences.

The Court seemed particularly concerned that a rule permitting debtors to appeal the denial of a plan would slow the process. With a separate appeal for each denial, “each climb up the appellate ladder and slide down the chute can take more than a year.” The Court also gave scant weight to concerns about symmetry: if the bankruptcy court had confirmed the plan in this case, the creditor would have had an immediate right to appeal; because the court ruled in favor of the creditor, in contrast, the debtor has no remedy. The Court found it “not clear that this asymmetry will always advantage creditors,” noting the likelihood that in many cases some creditors will support plans that other will oppose. Sustaining an objection from one group of creditors might cause the proponent creditors to “have as keen an interest in a prompt appeal as the debtor.”

By far the strongest argument for the debtor is the practical insulation the Court’s rule gives to bankruptcy courts: if the debtor cannot appeal the bankruptcy court’s refusal to confirm a plan, then such an order for all practical purposes is unreviewable. The only options for a debtor are to seek dismissal of the case (which would end the automatic stay and expose it to immediate collection) or to submit a plan that it dislikes and file an appeal challenging the bankruptcy court’s approval of the debtor’s own plan. The Court’s response was harsh: “All good points. We do not doubt that in many cases these options may be . . . unappealing [sic: pun presumably intentional]. But our litigation system has long accepted that certain burdensome rulings will be only imperfectly reparable by the bankruptcy process.” The most the Court would say is that the prospect is “made tolerable in part by our confidence that bankruptcy courts, like trial courts in ordinary litigation, rule correctly most of the time.” Cold comfort at best to the affected litigants.

The tone of the Court throughout was pitiless, if not in fact callous, taking the view that “when [bankruptcy courts] slip, many of their errors—wrongly concluding, say, that a debtor should pay unsecured creditors $400 a month rather than $300—will not be of a sort that justifies the costs entailed by a system of universal immediate appeals.” To the debtors for whom the discharge turns on those questions, a system in which they can never have an appeal seems strikingly indifferent.

I was most surprised by the closing paragraphs of the opinion. Section 158 does include provisions that permit interlocutory appeal with “leave.” I would have expected, in an opinion shutting down all avenues for an appeal as of right, that the Court might suggest that the lower courts should consider the absence of any appeal as of right as a strong factor leaning in favor of a determination to grant leave for an appeal. The Court was far from helpful on that front. To the debtor’s contention that “lower courts have been too reticent in granting” such appeals, the Court only stated that the proceedings below do “not undermine our expectation that lower courts will certify and accept interlocutory appeals from plan denials in appropriate cases.”

However small the dispute before the Court, this is an opinion likely to have systemic consequences. All would agree that “proceedings” is a fuzzy term, susceptible of a wide variety of readings. The Court in this case made it clear that its reading of the term was influenced by an abhorrence of interlocutory appeals in bankruptcy cases. We can expect that intermediate courts faced with questions about the finality of other orders will find guidance in that concern rather than any desire to ensure that the bankruptcy court’s crucial decisions are cabined by the threat (or even the possibility) of appellate supervision.

The title of this post suggests that the decision slams the door shut on a class of bankruptcy appeals. Perhaps it would be more accurate to say that the Court has locked the door and thrown away the key.

Recommended Citation: Ronald Mann, Opinion analysis: Justices slam the door on appeals of bankruptcy plan denials, SCOTUSblog (May. 5, 2015, 10:04 AM),