Bankruptcy Litigation Committee

ABI Committee News

Direct Appeals in Bankruptcy to the Circuit Courts of Appeals

Over the past year, courts have begun addressing issues raised by revised 28 U.S.C. §158(d) (§158(d)), and the Interim Bankruptcy Rules (8001 and 8003) adopted to implement them. Section 158(d) provides, under certain circumstances, for direct appeals from the bankruptcy courts to the circuit courts of appeal. This article examines these new provisions, but is not intended as an exhaustive guide.

Certification

Under §158(d)(2), a circuit court will have jurisdiction of an appealed order, judgment or decree if (1) the requisite certification is made by the applicable lower court and (2) the circuit court authorizes the direct appeal. Thus, the circuit court has the “final word” on whether it will hear a direct appeal. Pursuant to §158(d)(2)(B), the bankruptcy court, district court or bankruptcy appellate panel before which the matter is pending must certify the order for direct appeal if (1) a majority of the appellants and a majority of the appellees request that the court make the certification order or (2) the court determines, whether on its own initiative or at the request of the parties, that one of the following criteria set forth in §158(d)(2)(A) exists:

  1. The judgment, order or decree involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or of the U.S. Supreme Court, or involves a matter of public importance;
  2. The judgment, order or decree involves a question of law regarding resolution of conflicting decisions; or
  3. An immediate appeal from the judgment, order or decree may materially advance the progress of the case or proceeding in which the appeal is taken.

28 U.S.C. §158(d)(2)(A)(i)-(iii).

Bankruptcy Form 24 has been approved for use where all the parties request certification to the circuit court.

As provided in Interim Bankruptcy Rule 8001(f)(2), the court making the certification must have the case pending before it or the certification is meaningless. For example, if an appeal of a bankruptcy court order is docketed with the district court before the bankruptcy court certifies the appeal to the circuit court, the certification is ineffective because the bankruptcy court lacks jurisdiction over the appealed matter. Practice point: If you anticipate that one court is more likely to certify a direct appeal than another court, you should ensure that the preferred court has jurisdiction over the case before requesting and obtaining the certification.

Requirement of Timely Notice of Appeal

A certification does not self-effectuate an appeal. A timely notice of appeal must still be taken in the manner required by Bankruptcy Rule 8001(a) or 8001(b), and the appeal must become effective under Bankruptcy Rule 8002. Therefore, a court acting on its own initiative under §158(d) could certify an appeal, but without a timely notice of appeal, the certification would be ineffective.

This “catch-22” was noted by Bankruptcy Judge Linda Riegle in In re Virissimo, 332 B.R. 208, 208 n. 1 (Bankr. D. Nev. 2005). In Virissimo, the court certified for direct appeal the question of whether the state law homestead exemption cap imposed by the BAPCPA applied in “opt-out” states before any party filed a notice of appeal. The court recognized that its certification would be without moment if an appeal was not taken. Id. at 208 n. 1.

Revised §158(d) Does Not Apply to Pre-BAPCPA Cases

Relying on the plain language of the BAPCPA, two courts have concluded that the direct appeal provision of the Act does not apply to appeals arising out of bankruptcy cases filed before the Act’s effective date. See In re McKinney, __ F.3d ___, 2006 WL 2051319, No. 06-2538, at *1 (7th Cir. July 25, 2006); In re Berman, 344 B.R. 612, 615 (B.A.P. 9th Cir. 2006). These courts concluded that because BAPCPA expressly provided that the Act did not apply to bankruptcy proceedings filed before the effective date, and the new appellate rules for direct appeal were not one of the limited exceptions to that requirement, the provisions did not reach pre-BAPCPA cases.

Direct Appeal for Interlocutory Appeals

BAPCPA did not change the requirements for appeal of interlocutory orders. Therefore, to appeal an interlocutory order directly to the circuit court, an appellant, with one exception noted below, must not only meet the direct appeal requirements, but also receive leave to appeal an interlocutory order.

To appeal an interlocutory order, a party must first file a notice of appeal accompanied by a motion for leave to appeal prepared in accordance with Bankruptcy Rule 8003. The district court or bankruptcy appellate panel must then decide whether to allow the interlocutory appeal. Leave to appeal is not granted unless the movant shows that (1) refusal would result in wasted litigation and expense; (2) the appeal involves a controlling question of law as to which there is a substantial basis for difference of opinion; and (3) an immediate appeal may materially advance the ultimate termination of the litigation. See, e.g., In re Nat’l Metalcraft Corp., 211 B.R. 905, 907 (BAP 8th Cir. 1997) (citation omitted). Similarities exist between the requirements for an interlocutory appeal and the criteria in revised §158(d). However, the criteria for direct appeal are in the conjunctive. For an interlocutory appeal to proceed, all of the criteria must be met.

But if a circuit court authorizes a direct appeal of an interlocutory order, Interim Bankruptcy Rule 8003(d) provides that such authorization is deemed to satisfy the requirements for leave to appeal, even if a request in the district court for leave to appeal an interlocutory order is still pending and undecided.

Two Interesting Recent Cases Interpreting §158(d)

Research located a single reported decision in which a court denied a certification request in a post-Oct. 17, 2005 case. See In re Marrama, 345 B.R. 458, 473-74 (Bankr. D. Mass. 2006). Based on a liberal reading of §158(d), the Marrama court refused certification even though there was no controlling authority in the circuit because the out-of-circuit cases showed no significant dispute regarding the applicable standard. Id. at 474. A strict reading of §158(d)(2)(B) arguably compelled certification because one of the criteria in §158(d)(2)(A) was met: The order involved a question of law as to which there is no controlling circuit court or Supreme Court decision.

Likewise, in dicta, the court in In re Waczewski, 2006 WL 1594141, No. 6:06-BK-00620-KSJ, at *5 (Bankr. M.D. Fla. May 5, 2006) (slip copy), stated that mere speed in resolution of the appeal did not show that direct appeal would materially advance the case or proceeding - one of the direct - appeal criteria under §158(d)(2)(A)(iii). The Waczewski court reasoned that mere speed in resolution alone must be insufficient. Id. Otherwise, all appeals should be certified to the circuit court because eliminating intermediate review necessarily expedites resolution of the appeal.