Circuit courts don’t have jurisdiction to entertain appeals over abstention. To avoid the abstention prohibition, a litigant in the Ninth Circuit appealed everything else but still lost.

A competitor, whom we shall refer to as the creditor, filed a lawsuit in federal district court for unfair competition and false advertising against a company that would later end up in chapter 11. Eventually, the district court entered a $14.5 million judgment against the defendant, which filed a chapter 11 petition in response.

The creditor was represented in district court by a law firm. The engagement agreement called for any judgment to be paid to the firm, which would deduct its fee and remit the remainder to the creditor.

The law firm and the creditor both filed claims for the $14.5 million, and both objected to the other’s claim.

The debtor filed and confirmed a 100% chapter 11 plan that put $14.5 million in escrow to be paid to whomever was eventually held to own the claim.

Rather than adjudicate the competing claims, Bankruptcy Judge Scott C. Clarkson of Santa Ana, Calif., permissibly abstained under 28 U.S.C. § 1334(c)(1). Instead of resolving a two-party dispute, Judge Clarkson concluded that deciding ownership of the claim would have no effect on the administration of the estate and could be better handled in district court.

Section 1334(c)(1) does allow appeal of abstention decisions to district courts and therefore also to bankruptcy appellate panels. In this case, the creditor appealed to the Ninth Circuit Bankruptcy Appellate Panel, which affirmed in a nonprecedential, per curiam opinion. The creditor appealed to the circuit court.

The Ninth Circuit affirmed in a three-page, per curiam, nonprecedential opinion on June 20. The appeals court could not review abstention because Section 1334(d) says, “Any decision to abstain or not to abstain made under subsection (c) . . . is not reviewable by appeal or otherwise by the court of appeals . . . or by the Supreme Court . . . .”

The creditor instead appealed standing, contending that the law firm did not own the claim and thus lacked standing for an objection to the creditor’s $14.5 million claim. Without standing, the creditor argued that the bankruptcy court had no jurisdiction to abstain.

The appeals court disposed of the standing argument by holding that the dueling claim objections were core proceedings giving jurisdiction to the bankruptcy court. Even if the underlying dispute between the law firm and the creditor were noncore, the circuit panel said that the bankruptcy court had jurisdiction because the creditor and the law firm voluntarily subjected the dispute to the bankruptcy court’s jurisdiction.

Since the bankruptcy court had core jurisdiction over the contending parties’ claims, the appeals court affirmed, holding that the bankruptcy court had jurisdiction to abstain permissively.

Observation

To close the circle, the Ninth Circuit might have ended the opinion with an observation that Section 1334(d) deprived the appeals court of jurisdiction to review the merits of the abstention ruling and the BAP’s affirmance of abstention.

The Ninth Circuit’s opinion is another testament to the utility of a BAP.

The BAP wrote an 18-page opinion, vastly more detailed than the issues required. On appeal in the circuit, the appellant submitted a 52-page brief. Because the BAP had covered the waterfront, the circuit’s opinion amounted to two-and-a-half pages of analysis.

The same history is habitually written in Ninth Circuit bankruptcy appeals. The BAP writes detailed opinions, covering every issue that the appellant might conceivably raise in the circuit. In substance, Ninth Circuit BAP opinions read like bench memoranda written by a law clerk for a circuit court judge.

Comforted by the BAP’s thorough analysis, the Ninth Circuit habitually disposes of bankruptcy appeals in terse, per curiam opinions. Circuits without BAPs should consider bringing them to life, thereby lessening the burden on Article III judges and their clerks when confronted with obtuse questions of bankruptcy law.