On Monday, the U.S. Supreme Court affirmed the First Circuit Court of Appeals in Bullard v. Blue Hills Bank and, in the process, likely resolved a Circuit split on an important bankruptcy confirmation issue: Is an order denying confirmation of a bankruptcy plan “final” and, thus, immediately appealable? Siding with the majority view, Chief Justice Roberts answered “No” on behalf of a unanimous Court (at least in the Chapter 13 context, but likely in all plan confirmation contexts).
In summary, the Supreme Court held that, unlike a confirmation or dismissal, an order denying confirmation is not final because it doesn’t terminate the “entire process of attempting to arrive at an approved plan.” Further, unlike a confirmation or a dismissal, a confirmation denial doesn’t alter the status quo or bind the rights and obligations of the parties. After all, when a court denies confirmation, the plan proponent may still “modify freely” its bankruptcy plan or pursue an interlocutory appeal. Therefore, a denial doesn’t result in the sort of “significant consequences” that justify immediate appeal, as of right.
Bullard is a significant win for creditors. It’s likely more significant than it first appears, especially for Chapter 11 where unsettled confirmation issues abound. Therefore, we’ll cover it in 2 posts. In this first post, we’ll summarize the decision. In our second post, we’ll provide some humble, but pointed criticism.
Thankfully, Bullard‘s procedural history is pretty straightforward.
Louis Bullard filed a Chapter 13 in Massachusetts. His Chapter 13 plan proposed to bifurcate his $346,000 mortgage to Blue Hills Bank, with the secured portion ($245,000) to be paid over a long period of time and the unsecured portion ($101,000) to be paid over the shorter statutory period. The Bankruptcy Court denied confirmation because Bullard’s “hybrid” plan violated the Bankruptcy Code.
The First Circuit’s Bankruptcy Appellate Panel concluded that the order denying confirmation was not final because Bullard was “free to propose an alternate plan.” Nevertheless, it heard the appeal as an interlocutory appeal under 28 U.S.C. § 158(a)(3) because it presented a purely legal question over which there was a split of opinion. However, the BAP affirmed the Bankruptcy Court’s decision.
Bullard appealed to the First Circuit. However, because the BAP denied Bullard’s motion to certify the appeal under § 158(d)(2), the First Circuit’s jurisdiction was limited to § 158(d)(1) (i.e., appeals of final orders).Under the majority view, the First Circuit held that the Bankruptcy Court order was not final and, thus, that the BAP order was also not final. Therefore, the First Circuit dismissed the appeal.
Notably, the First Circuit Court of Appeals dismissed the appeal for lack of jurisdiction even though it acknowledged that (i) “finality” in bankruptcy is “given flexible interpretation” and (ii) the issue on appeal involved “an important and unsettled question of bankruptcy law.”
The Supreme Court granted certiorari.
Boiled down, Bullard stands for the following propositions:
1. Finality is not as clear-cut in bankruptcy.
The Court acknowledges that “finality” in bankruptcy is not as clear-cut as it is in ordinary civil litigation because a bankruptcy case is “an aggregation of individual controversies.” For an excellent discussion of the differences between ordinary civil litigation and bankruptcy, as well as the flexible finality doctrine that has evolved in bankruptcy since 1898, see Eric Brunstad’s Amicus Brief.
2. Finality depends on the scope of “proceedings” in § 158(a).
The Supreme Court focuses on the scope of “proceedings” in 28 U.S.C. § 158(a), as § 158(a) only permits immediate appeals from “final judgments, orders, and decrees . . . in cases and proceedings.” In the Court’s view, “proceedings” is the “entire process of considering plans,” not the denial of a particular plan. And for the Court, that entire process is only final upon a confirmation or dismissal.
A confirmation or dismissal indicates finality because, as applicable, it (i) alters the status quo; (ii) binds the rights and obligations of the parties; (iii) causes various Ch. 13 provisions to kick-in (e.g., re-vesting of property in the debtor, trustee distributions, etc.); (iv) terminates the automatic stay; (v) results in issue preclusion; (vi) alienates the debtor’s discharge; and/or (vii) limits subsequent bankruptcy filings.
3. A confirmation denial does not alter the status quo or bind the parties.
The Court views a denial of confirmation differently. Unlike a confirmation order, a denial of confirmation still leaves the plan proponent with an “exclusive” opportunity to amend, leaves the automatic stay in place, does not alter the status quo, leaves the rights and obligations of the parties unsettled, and preserves the possibility of a discharge.
In other words, a denial does not terminate the “entire process of considering plans” or present the “significant consequences” that a confirmation or a dismissal presents (even if a denial does, in fact, “rule out the specific arrangement of relief embodied in a particular plan”). That is how the Court views a denial, at least.
4. 28 U. S. C. § 157(b)(2)(L) provides the Court a “textual clue.”
As additional support, the Court looks to the “confirmation of plans” language in 28 U. S. C. § 157(b)(2)(L) (which lists the “core proceedings”) as supporting its “entire process” view of “proceedings” in § 158(a), particularly given that § 157(b)(2)(L) does not refer to denials of confirmation. Nevertheless, the Court acknowledges that § 157(b)(2)(L) “hardly clinches the matter” for Blue Hills. As we suggest in Part 2, the Court’s reliance on § 157(b)(2)(L) seems forced.
5. The minority view could encourage a series of wasteful appeals.
The Court is worried that permitting immediate appeals of confirmation denials could encourage an endless, wasteful game of appellate “chutes and ladders” (our phrase). The Court explains that avoiding “delays and inefficiencies” is “precisely the reason for a rule of finality.” In fact, as Ronald Mann of SCOTUSBlog points out, the Court “made it clear that its reading of [“proceedings”] was influenced by an abhorrence of interlocutory appeals in bankruptcy cases.”
6. Finality must depend on the manner in which a contested matter is resolved.
The Court submits that the outcome of a proceeding determines whether the status quo is altered, the rights and obligations of the parties are set, and, thus, whether an order is final. Therefore, the Court rejects as “implausible” a blanket rule that would deem any order resolving any contested matter by any means as “final” and, thus, immediately appealable, particularly given the endless list of potential contested matters, both significant and ministerial.
7. The majority view does not create an “unfair asymmetry” for appeals.
The Court does not agree that the majority rule creates “an unfair asymmetry” for appeals by requiring a losing debtor to wait while permitting a losing creditor to appeal immediately. Again, the Court emphasizes whether the outcome alters rights (i.e., has “significant consequences”), with the assumption that a confirmation denial does not present the sort of significant consequences that indicate finality.
8. The interlocutory appeal process is a sufficient “safety valve.”
The Court looks to the discretionary interlocutory appeal provisions to provide the ultimate “safety valve” for debtors who might be burdened by the majority rule, especially for debtors appealing pure questions of law that have divided courts. For a thorough overview of the multi-layered interlocutory appeal process in bankruptcy, as well as the appeals process, generally, see this ABI article.
9. Bankruptcy Courts get it right most of the time anyway.
The Court finds comfort in its views that (i) bankruptcy judges “rule correctly most of the time” (!!) and (ii) the appellate process has never been perfect. True or not, it’s remarkable that the highest appellate court in the land chose to put those views, especially the former view, in print.
Ultimately, the Court is comfortable that the majority view strikes an appropriate balance between avoiding a series of wasteful appeals and protecting plan proponents from erroneous confirmation decisions, even if that view might, as it did in Bullard, occasionally leave a plan proponent without an “effective means of obtaining appellate review of the denied proposal.” After all, “certain burdensome rulings” will be “only imperfectly reparable” by the appellate process.
In Part 2, we’ll provide our humble take on Bullard, with an emphasis on (i) whether the ability to “modify freely” is illusory (we think it is) and (ii) whether the discretionary interlocutory appeal process provides a sufficient “safety valve” (we think it doesn’t).