Faster Route to Circuit Courts under BAPCPA

Journal Issue

Apr 2006

Column Name

Feature

Citation

ABI Journal, Vol. XXV, No. 3, p. 34, April 2006

Topic Tags

Venue/Jurisdiction

Journal HTML Content

Before the new amendments to the Bankruptcy Code (BAPCPA), appeals from bankruptcy
court orders, judgments or decrees went to Bankruptcy Appellate Panels (BAP)
in the circuits that employ them or to district judges as the first round of
appellate review1 and then to the circuit courts for the second round of appellate
review, if any.2 BAPCPA added provisions into 28 U.S.C. §158 to allow for
direct appeals of orders, judgments or decrees from bankruptcy courts to circuit
courts in certain circumstances. This article examines these provisions, codified
at 28 U.S.C. §158(d)(2)(A)-(E).

Pursuant to §158(d) (2)(A), a circuit court "shall" have jurisdiction
of final judgments, orders and decrees of bankruptcy courts if the bankruptcy
court, the district court or BAP involved "acting on its own motion"
or at the "request" of any party to a judgment, order or decree, or
all the appellants and appellees (if any) acting jointly, certify that (1) the
judgment, order or decree "involves a question of law as to which there
is no controlling decision of the appeals court for the circuit or of the Supreme
Court...or involves a matter of public importance," (2) the judgment, order
or decree "involves a question of law requiring resolution of conflicting
decisions," or (3) an "immediate appeal" from a judgment, order
or decree "may materially advance the progress of the case or proceeding
in which the appeal is taken, and if the court of appeals authorizes the direct
appeal of the judgment, order or decree." 28 U.S.C. §158(d)(2)(A)(i)-(iii).
The revised §158 further provides that if the bankruptcy court, district
court or BAP (1) on its own motion, or on the request of any party, determines
that a circumstance specified in subsection 158(d)(2)(A) exists; or receives
a request by a majority of the appellants and appellees (if any) to make the
above-described certification, then the bankruptcy court, the district court
or the BAP "shall" make the certification provided for in §158(d)(2)(A).
28 U.S.C. §158(d)(2)(B)(i)-(ii).
The revised §158 provides that the parties "may supplement the certification
with a short statement of the basis for the certification." 28 U.S.C. §158(d)(2)(C).
The revised §158 further provides that an appeal under this section does
not stay any proceedings before the bankruptcy court, district court or BAP
unless the respective court, or the court of appeals in which the appeal is
pending, issues a stay pending appeal. 28 U.S.C. §158(d)(2)(D). Lastly,
the revised §158 provides that a request for a certification for a direct
appeal "shall be made not later than 60 days after the entry of the judgment,
order or decree." 28 U.S.C. §158(d)(2)(E).
Initially, one can view the above-quoted provisions as being consistent with
other provisions of the revised Bankruptcy Code working toward more streamlined
and efficient bankruptcy proceedings, most prominently chapter 11 proceedings,
e.g., new limitations on the extensions of exclusivity. See 11
U.S.C. §1121(d) (non-small business cases), §1121(e) (small business
cases). And certain provisions of the revised §158—the possibility
that an appeal may "materially advance the progress of the case or proceeding,"
28 U.S.C. §158(d)(2)(A)(iii)—appear to derive from related nonbankruptcy
law standards governing whether litigants will be authorized to prosecute appeals
of interlocutory orders to circuit courts. See 28 U.S.C. §1292(b).
For an interlocutory order to be certified for appeal to a circuit court, the
order certified "involves a controlling of question of law," "as
to which there is substantial ground for difference of opinion," and "an
immediate appeal from the order may materially advance the ultimate termination
of the litigation." Id.
Regardless of the consistency with other provisions in the revised Code, or
the application of terminology in other appellate contexts, revised §158
provides opportunities for litigants to skip intermediate review of a bankruptcy
court order, judgment or decree (28 U.S.C. §158(a), (b)) altogether and
go straight to the circuit court. One can imagine several situations where one
would want to appeal directly to the circuit court. For example, a chapter 11
debtor might want to obtain a definitive ruling on an issue that would govern
the bankruptcy proceeding on a going-forward basis—that is, establish
the law of the case. In light of the numerous revisions to the Code, it would
be relatively easy (at least for the near future) to seek and obtain the required
certification since, pursuant to §158(d)(2)(i), it is unlikely that there
will be decisional law, let alone "controlling" decisional law, on
the new statute's interpretation or application. There is recent nonbankruptcy
case law looking into the meaning of a "controlling" question of law.
See, e.g., McFarlin v. Conseco Servs., LLC, 381 F.3d 1251,
1257-58 (11th Cir. 2004); Ahrenholz v. Board of Trustees of the University
of Illinois, 219 F.3d 674, 676 (7th Cir. 2000).

The alternative provision for certification under 28 U.S.C. §158(d) (2)(A)(i),
that an issue "involves a matter of public importance," is one that
is subject to argument of counsel. See, e.g., Reflector Inc.
v. Dalton, 60 F.3d 1572, 1574 (Fed. Cir. 1995) (holding that a first-impression
issue as to the appropriate definition of a claim under the Contract Disputes
Act was a matter of public importance); see, generally, United
States v. Hunter, 459 F.2d 205, 218 (4th Cir. 1972) (noting that in the
provisions of the 1964 Civil Rights Act authorizing three-judge courts, the
term "case of general importance" was defined in the legislative history
to mean "'the points of law involved...are of major significance or...the
particular decision will constitute a precedent for a large number of establishments....'")
(quoting 110 Cong. Rec. 12713 (June 4, 1964)).
At first blush, one might think that the provision for certification under
28 U.S.C. §158(d)(2)(A)(ii), that an immediate appeal from the judgment,
order or decree "involves a question of law requiring resolution of conflicting
decisions," would not be unavailable for at least the near future regarding
the new amendments to the Code in light of the lack of decisional law interpreting
or applying them. However, assuming for the sake of discussion that the conflict
does not have to be intra-circuit, there has already been at least one set of
conflicting decisions on application of the revised Code (11 U.S.C. §522(p)).
Cf. In re McNabb, 326 B.R. 785 (Bankr. D. Ariz. 2005), with In re
Kaplan, 331 B.R. 483 (Bankr. S.D. Fla. 2005). In McNabb, the Arizona
bankruptcy court, applying a strict constructionist approach, held that the
$125,000 homestead "cap" that is found in new 11 U.S.C. §522(p)
did not apply in "opt out" states such as Florida. Conversely, in
Kaplan, the Florida bankruptcy court looked to the "clear"
legislative intent to close "mansion loopholes" and held that the
$125,000 homestead "cap" applies in Florida. Such conflicting decisions
might provide the basis for a certification assuming that the conflicting decisions
need not be intra-circuit.

Arguing for a more expeditious resolution of a bankruptcy case—or an
adversary proceeding within a bankruptcy case—pursuant to §158(d)
(2)(A)(iii), see McFarlin, 381 F.3d at 1259 (construing §1292(b)'s
requirement for advancement of the ultimate termination of the litigation as
avoiding a trial or substantially shortening the litigation), is an argument
that would likely be met with open arms. See In re Buck, 331 B.R. 322,
324-25 (Bankr. N.D. Ohio 2005) (noting that "a primary function of the
Bankruptcy Code is to resolve, as expeditiously as possible, the competing interest
of the debtor and his or her creditors"); In re Best Prod. Co. Inc.,
140 B.R. 353, 356 (Bankr. S.D.N.Y. 1992) (noting that the "chief purpose
of the bankruptcy laws is to secure a prompt and effectual administration and
settlement of a debtor's estate within a limited period"); see,
also, Scott v. National Century Financial Enters., 432 F.3d 557,
561 (4th Cir. 2005) (noting that one factor in a bankruptcy court's determination
as to whether a creditors' committee should be given derivative standing to
sue in the name of a debtor is whether such a determination "is necessary
and beneficial to the fair and efficient resolution of the bankruptcy proceedings");
In re eToys Inc., 331 B.R. 176, 198 (Bankr. D. Del. 2005) (noting that
"settlements are favored as a means of minimizing litigation, expediting
administration of estates and providing for the resolution of bankruptcy cases").
In conclusion, there are now opportunities for litigants to take direct appeals
of bankruptcy court orders, judgments or decrees to circuit courts. See,
generally, Crabb, Hon. Barbara B., "In Defense of Direct Appeals:
A Further Reply to Professor Chemerinsky," 71 Am. Bankr. L.J. 137 (Spring,
1997) (pre-BAPCPA, arguing for direct appeals from bankruptcy courts to circuit
courts to further uniform construction of bankruptcy laws). Depending on the
particular case or adversary proceeding, it may well behoove a litigant to consider
exercising its rights and seek a certification for such an appeal, especially
where there is a colorable argument that resolution will move the case or proceeding
to a more efficient and cost-effective resolution. In addition, as a practical
matter, skipping intermediate appellate review by district courts will work
to minimize attorneys' fees by all litigants, which is of particular importance
to debtors, as they necessarily operate under financial constraints.

<hr>
<h3>Footnotes</h3>

1 See 28 U.S.C. §158(a) (review by a district judge) and §158(b)
(review by a BAP). 
2 See 28 U.S.C. §158(d)(1); U.S. Trustee v. Fishback (In
re Glados Inc.), 83 F.3d 1360, 1362 (11th Cir. 1996) (court of appeals sits
as second reviewing court in bankruptcy appeals).

Journal Authors

Paul A. Avron

Journal Date

Saturday, April 1, 2006 - 12:00

Bankruptcy Rule

2006

none