Coming Soon - Direct Appeals of Bankruptcy Decisions to the Courts of Appeal
by John R Burns
Mark A. Werling,
Baker & Daniels, LLP; Fort Wayne, Ind.
Direct Appeals of Bankruptcy Court Decisions
Buried deep within the technical amendments of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is a provision permitting direct appeals from bankruptcy courts to circuit courts of appeal. BAPCPA §1233(a)(2)(B). This section amends the present appellate provisions of 28 U.S.C. §158(d)(2) and might prove to be one of the most significant provisions of BAPCPA for bankruptcy litigators. Far removed from the debates that raged in the mid-1970s over the propriety of direct appeals from a non-Article III court to the courts of appeal, the new provisions address the need to accelerate resolution of significant issues in ordinary bankruptcy cases, or even ordinary issues in significant bankruptcy cases. It is likely that this provision will generate a substantial volume of appellate authority as the certification and authorization provisions are interpreted by several courts of appeal over the next few years.
Expressing concern for the “time and cost” of present appellate practices (H.R. Rep. No. 109-31, pt. I, at 148, §1233 (2005)), BAPCPA allows certain cases to bypass the district court or bankruptcy appellate panel (BAP) and be decided on direct appeal by the circuit courts of appeal. Although the legislative history is sparse, Congress seemed intent on streamlining appeals, consistent with its general effort to shorten the bankruptcy process. Other changes consistent with this goal include tighter restrictions on exclusivity periods in chapter 11 cases and extensions of lease-rejection decisions for certain types of tenants.
BAPCPA implements a two-step procedure for direct-appeals to a circuit court. First, the party must make the request of the bankruptcy court, district court or BAP. Requests for direct appeals must be made within 60 days of a final order being entered. Practitioners should note, however, that the 10-day rule for appeals to the district court or BAP under Bankruptcy Rule 8002 still applies. A conventional appeal should therefore be taken first, followed by a request for certification and a stay of the lower-court proceedings.
The “final decision, judgment, order or decree” of a bankruptcy court, district court or BAP must be certified as meeting certain criteria described in the statute to be eligible for direct appeal. Pub. L. No. 109-8, at §2. A direct appeal is possible if, on the court's own motion or at the request of a party, a finding is made that:
- there is no controlling decision in the circuit or from the U.S. Supreme Court on the question of law at issue, or the matter is of public importance;
- the decision involves a question of law that requires the resolution of conflicting decisions; or
- an immediate appeal may materially advance the progress of the case.
Certification can also be accomplished without such findings if a majority of the appellants and appellees jointly certify that at least one of the above criteria is met. In that case, a request for certification “shall” be granted. In other words, the parties can agree that the standards for certification have been satisfied, even if the lower court might have disagreed had the request been made by a single party.
Next, the circuit court must decide whether to accept the appeal. BAPCPA provides no specific guidance on the standard circuit courts should use in making these determinations. The legislative history indicates that the new procedures are designed to quickly settle “unresolved questions of law where there is a need to establish clear binding precedent at the court of appeals level.” H.R. Rep. No. 109-31, at 148. It also notes that direct appeals should “rarely be used” in fact-intensive issues where binding precedent exists. Id. This statement suggests that circuit courts will have broad discretion in deciding which bankruptcy court orders they choose to accept. It also suggests that circuits having relatively fewer established precedents could approach this issue differently than other circuits.
As noted above, the intent of Congress was to streamline and shorten the bankruptcy process. House Judiciary Chairman F. James Sensenbrenner Jr. stated, near the time BAPCPA was enacted, that “administrative reforms – like direct appeals – [were intended to] reduce unnecessary burdens upon the current bankruptcy system and by those who must administrate it and use it.” Press Release, H.R. Comm. on the Judiciary, Committee Approves Senate-Passed Bankruptcy Reform Legislation Without Amendment (Mar. 16, 2005). He added that this change, and others like it, would help restore “personal responsibility and accountability to the bankruptcy system.” Id.
As the courts of appeal, and ultimately the U.S. Supreme Court, interpret BAPCA's provisions relating to direct appeals, they will be informed by the rich legislative history of the Bankruptcy Reform Act of 1978 and the Bankruptcy Amendments and Federal Judgeship Act of 1984. Those debates seem to focus less on judicial efficiencies and costs and more with the constitutional status of bankruptcy judges prior to and following the Northern Pipeline Construction Co. v. Marathon Pipeline Co. decision. 102 S.Ct. 2858 (1982). In broad terms, the U.S. Supreme Court in Marathon held that the U.S. Constitution mandated that Article III judicial powers be exercised only by, or at the direction of, Article III judges. Id. Consequently, the Bankruptcy Reform Act of 1978 was held to have impermissively delegated to bankruptcy courts such “essential attributes” of an Article III court as broad jurisdiction, adjudicative powers, power to enforce its decisions and a deferential standard of review by higher judicial bodies. Id.
Following Marathon and significant House and Senate debate, the present system was created by the Bankruptcy Amendments and Federal Judgeship Act of 1984. Congress rejected the suggestions of many that a new Article III Federal Bankruptcy Judiciary should be created within each circuit with appeals being heard by each respective circuit court of appeals. Although such a structure probably would have solved the constitutional problems identified by the Supreme Court in Marathon, concern about the political and budgetary problems that many felt would arise from the creation of Article III bankruptcy courts prevailed.
BAPCPA approaches the problem differently and is intended to create a system that promotes judicial efficiency and reduces the time necessary to move any particular decision from the bankruptcy court through a court of appeals. At least as early as 2001, Congress began considering ways to facilitate direct appeals, notwithstanding concerns from some commentators that these revisions will re-open settled questions about the constitutionality of the bankruptcy system. Taken as a whole, the BAPCPA provisions are intended to streamline the bankruptcy process and reduce the overall cost of bankruptcy proceedings, particularly complex chapter 11 reorganization cases. With that purpose in mind, we are likely to see the number of direct appeals increase as judges and practitioners become accustomed to the new procedure.
The authors gratefully acknowledge the research assistance of Brian P. Clifford, a 2005 Summer Associate in the Fort Wayne, Ind., office of Baker & Daniels.