Bankruptcy Appeals

Journal Issue

Jun 2005

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Editor's Note:This is the last installment of our Chapter 11 - "101" column. It deals with appeals from bankruptcy court decisions. After a short break, we
will move to Chapter 11 - "201," a new column that will deal with issues
at the intersection of bankruptcy law and other areas of law
(environmental, tax, securities, etc.).

Just like the orders of other trial courts,
bankruptcy court orders can be appealed. But there are important
differences between bankruptcy appeals and appeals in other courts.
First, only certain orders can be appealed. Second, they are appealed to
different courts. Third, the procedural rules differ. Because bankruptcy
cases move quickly and appellate litigation tends to move less quickly,
issues surrounding the effect of an appeal on the chapter 11 process
need to be considered.

What Orders Can Be Appealed?

Any final order of a bankruptcy court can be appealed. This
includes orders entered in a contested matter (such as an order granting
relief from the automatic stay or an order authorizing use of cash
collateral), as well as orders entered in an adversary proceeding (such
as an order granting summary judgment).

The difficult question is, what is a final order of a
bankruptcy court? One recent case defined a final order as one that
"resolves the litigation, decides the merits, settles liability,
establishes damages or even determines the rights of any party to the
bankruptcy case."¹

The court contrasted this with an interlocutory order—"one
which does not finally determine a cause of action but only decides some
intervening matter pertaining to the cause, and which requires further
steps to be taken to enable the court to adjudicate the cause on the
merits."²

If an order meets the definition of a final order, it may be
appealed. If it is interlocutory, then it may be appealed only with
permission from the appellate court. Sometimes it is not clear whether
an order is final or interlocutory, and more than occasionally that
issue is the subject of dispute.

It is sometimes said that bankruptcy courts have a more relaxed
standard for what is a final order than nonbankruptcy courts. This is in
part because, in the typical chapter 11 process, one event builds upon
another. It is therefore often more economical and efficient to resolve
issues on appeal when they arise (or as soon thereafter as possible),
rather than having the chapter 11 process continue to move
forward—under the assumption that some particular dispute has been
resolved—only to have the result of the resolution reversed much
later, and a lot of events or agreements based on that resolution
potentially unwound. In addition, appeals can be mooted by subsequent
decisions that may be implemented (such as confirmation of a plan), and
interpreting the finality requirement somewhat liberally may be the only
way to grant an effective appellate right.

To What Court Can You Appeal?

It used to be that bankruptcy appeals automatically went to the
district court. Title 28 was later amended to authorize the creation of
bankruptcy appellate panels (BAPs)—specialized three-judge courts
(comprised of bankruptcy court judges from the particular circuit)
designated to hear bankruptcy appeals. Currently, there are bankruptcy
appellate panels in the First, Second, Sixth, Eighth, Ninth and Tenth
Circuits. The remaining circuits do not have BAPs. The details regarding
formation of BAPs and appointment of BAP judges can be found in 28
U.S.C. §158(b). Where there is a BAP, appeals from bankruptcy court
decisions go to the BAP unless one of the parties elects to have the
appeal heard by a district court judge.³ The standard of appellate review is de
novo on issues of law, clearly erroneous on issues of fact and abuse
of discretion on issues that are committed to the bankruptcy judge's
discretion.

Appeals from a decision of the BAP or district court can be taken to
a U.S. Court of Appeals.⁴ The standard of review is de novo.

Under the Bankruptcy Abuse and Consumer Protection Act of 2005
(BACPA), which was recently passed by Congress and signed into law by
President Bush, an appeal of a bankruptcy court's order will be able to
be taken directly to the appeals court under some circumstances (the new
law is generally not effective until six months after its enactment). If
the bankruptcy court, district court, BAP or all of the parties to the
appeal certify that (1) the appeal involves a matter of public
importance or a question of law that neither the circuit court nor the
Supreme Court has addressed, (2) the appeal requires resolution of
conflicting decisions or (3) the appeal may materially advance the
progress of the case, the appeal will go to the court of appeals unless
it chooses not to accept it. In addition, the amendment to the Code will
require the relevant lower courts to make the certification to the
appeals court if the majority of the appellants and appellees request
certification. Whether intentional or not, this second provision appears
to require the lower court to make the certification even if the grounds
for certification are not met.

What Is the Process for Appeals?

The procedural rules for appeals are in Part VIII of the Federal
Rules of Bankruptcy Procedure—the 8000 series rules. Here's a quick
summary of the highlights:

If you want to appeal a bankruptcy court decision, you must file
a notice of appeal within 10 days after the order you are appealing from
becomes final. (Note that this is different than the 30-day period
to appeal a district court's order to a court of appeals; more than a
few lawyers have just assumed they had 30 days, and found themselves
having a conversation with their insurance carrier.) The bankruptcy
judge may grant a limited extension of the 10-day period for most, but
not all, types of appeals. For the exceptions, see Rule 8002(c).
Usually, however, you will want to file within the 10 days rather than
seeking an extension. If you want to pursue the direct route to the
court of appeals under the new legislation, you must request
certification within 60 days of the entry of the order.
If you want to appeal an interlocutory order, you should file a
notice of appeal and a motion for leave to appeal. If you just file
a notice of appeal, and the order from which you are appealing is
determined to be interlocutory, the court may direct you to file a
motion or, alternatively, may treat your notice of appeal as a motion
for leave to appeal.⁵ However, if you think your order is
probably interlocutory, it is better to file the motion so you can
explain why you should be permitted to appeal. When making this
explanation, think in terms of the need to get your appeal resolved in
order to give you an effective remedy and to avoid delaying the
reorganization process to the detriment of all parties. Of course, the
specifics will vary from case to case.
If you are in one of the circuits that has a BAP but you want
your appeal heard by a district judge rather than a BAP, you must file
an election.⁶
If you need a stay pending appeal, the Rule governing that is
8005. The standard is generally something like the traditional
injunction standard—likelihood of success on the merits,
irreparable harm, the public interest, etc. Ordinarily, you seek the
stay first from the bankruptcy judge, and if she/he denies the stay,
then you can go to the district judge or BAP and, if need be, to the
court of appeals. Often the party seeking the stay will be required to
post a bond as a condition of the stay. If you fail to obtain a stay,
then the order from which you are appealing may be implemented during
the pendency of your appeal. On occasion, this will result in your
appeal being mooted. A somewhat common example of this is an appeal from
a plan confirmation order. If you don't get a stay and the plan is
consummated, you may find your appeal being dismissed as "equitably
moot." The notion is that the plan has been consummated, and parties
have relied on the consummation to an extent such that effective relief
can no longer be granted to the appellant without unfairly upsetting the
expectations of other parties. You hear a lot in this context about
"un-ringing bells" and "un-scrambling eggs." A similar result may be
obtained in the case of an appeal from a post-petition financing order
under §364 or an asset sale order under §363 as a result of
statutory provisions.⁷
Note that certain types of bankruptcy court orders are
automatically stayed for 10 days, unless the bankruptcy court orders
otherwise. These include orders authorizing the use, sale or lease
of property (Rule 6004(g)), orders authorizing the assignment of
executory contracts (Rule 6006(d)) and an order confirming a chapter 11
plan (Rule 3020(e)).
If you cannot obtain a stay, an alternative may be to ask the
appellate court for an expedited briefing schedule and expedited
treatment of the appeal. Cases where this is justified obviously are
limited, but if there is a true need and demonstrable prejudice would
result from things proceeding at the normal speed, you should request an
expedited appeal.
Soon after the appeal is filed, the parties designate the record
(Rule 8006) and the record is then transmitted from the bankruptcy court
to the BAP or district court.
The briefing schedule and other rules concerning briefs and oral
arguments are found in Rules 8009, 8010 and 8012. They provide that
the appellant files a brief within 15 days after the appeal is docketed,
the appellee files its brief within 15 days after the appellant's brief
is served, and then the appellant has 10 days to reply. This schedule is
sometimes modified by court order. The BAP or district court has
discretion to hold oral argument or not.⁸
A party can take further appeal from the BAP or district court's
decision to the court of appeals. BAP and district court decisions
on bankruptcy appeals are automatically stayed for 10 days in order to
facilitate this.⁹
If you want a further stay, you need to seek it under Rule 8017(b).
These appeals are governed by the Federal Rules of Appellate Procedure
and, as a result, the time limits, briefing rules, etc., differ.

And if you are not happy with the appeals court's decision, you can
always seek certiorari—although the chances of it being
granted aren't very good.