Confirmation of the chapter 11 plan for Voyager Digital Holdings Inc. is making important law.
Citing a lack of appellate jurisdiction, the Second Circuit handed down a decision in short order, refusing to revoke the stay pending appeal that had been granted in district court. The ruling has at least four significant meanings:
(1) The district judge will decide on appeal whether a chapter 11 reorganization plan can enjoin the government from enforcing regulations or criminal laws if the government decides, after the fact, that consummation of the plan allegedly violated laws or regulations;
(2) The Second Circuit has established a precedent saying there is no appellate jurisdiction giving a right to appeal a district court order staying consummation of a plan pending appeal;
(3) At least when the appeal is expedited, a stay pending appeal is not “sufficiently like an injunction” to grant appellate jurisdiction under 28 U.S.C. § 1292(a)(1); and
(4) Until the district court rules on the appeal, the government’s appeal will not become equitably moot on the question of whether the bankruptcy court has power or jurisdiction to enjoin the government from prosecuting alleged violations of laws or regulations stemming from consummation of a plan.
The Voyager Plan
Voyager filed a chapter 11 petition in New York in July and confirmed a plan on March 8 calling for the sale of the business and the assets to Binance.US. The assets included cryptocurrencies held by the debtor and its customers. Binance is reputedly the world’s largest cryptocurrency exchange.
The government objected unsuccessfully to confirmation, challenging provisions in the plan granting exculpations and releases in favor of everyone involved in carrying out the plan. Perhaps based on the notion that cryptocurrencies are unregistered securities, the government evidently believes that distributing the cryptocurrencies to customers or opening new accounts might violate federal laws or regulations, including criminal laws.
Rebuffed in bankruptcy court, the government appealed and immediately applied to the district court for a stay pending appeal. District Judge Jennifer H. Rearden of New York granted a stay pending appeal on March 27 and filed an opinion and order on March 31 stating reasons for the stay. U.S. v. Voyager Digital Holdings Inc. (In re Voyager Digital Holdings Inc.), 23-02171, 2023 BL 110721, 2023 US Dist Lexis 57735 (S.D.N.Y. March 31, 2023). To read ABI’s report, click here.
Judge Rearden won’t let the appeal linger. She expedited the appeal and issued a scheduling order requiring that the last brief be filed by April 18.
The debtor filed an appeal to the Second Circuit on April 1 and a motion on April 3 to vacate the district court’s stay pending appeal. On the motion to vacate the stay pending appeal, the appeals court directed the debtor to file its brief by April 6, with the government’s response due by April 7. The circuit court scheduled oral argument for April 11.
After argument on April 11, the panel of the Second Circuit issued an order dismissing the appeal for lack of appellate jurisdiction.
The Grounds for Dismissing the Appeal from the Stay Pending Appeal
The panel was populated by three seasoned circuit judges: Pierre N. Level, Denny Chin and Richard J. Sullivan. They gave their reasons for dismissing the appeal in two short paragraphs, both important pronouncements for bankruptcy appeals.
Citing In re Flor, 79 F.3d 281, 283 (2d Cir. 1996), the unsigned order said that the appeal from the imposition of a stay pending appeal was not a final order under 28 U.S.C. § 158(d).
In Flor, the debtor had appealed to the circuit from an order of the district court affirming the bankruptcy court’s order denying confirmation of the individual debtors’ chapter 11 plan. The Flor court said that the order on appeal was not final because it neither dismissed the petition nor converted the case to chapter 7.
The Flor decision was a precursor to the Supreme Court’s decision in Bullard v. Blue Hills Bank, 575 U.S. 496 (2015), holding that denial of confirmation of a chapter 13 plan is not a final order subject to appeal. The Second Circuit is saying that a stay pending appeal is nonfinal in the sense that denial of confirmation was held nonfinal in Flor and Bullard.
Citing Nosik v. Singe, 40 F.3d 592, 596 (2d Cir. 1994), the panel said that imposition of a stay pending appeal was not “sufficiently like an injunction for purposes of 28 U.S.C. § 1292(a)(1).” That section provides jurisdiction for appeals from “interlocutory orders . . . granting, continuing, modifying, refusing or dissolving injunctions.”
Nosik was not a bankruptcy case. An individual had sued a school board to halt her termination proceedings. The district court denied the employee-plaintiff’s motion for a preliminary injunction but granted a protective order sealing the proceedings.
The Nosik court said that Section 1292(a)(1) allows the “review [of] an interlocutory appeal of a denial of a preliminary injunction.” However, the opinion went on to say that the court construes this section “narrowly.”
To bestow appellate jurisdiction, the panel in Nosik said that an interlocutory order must entail serious or perhaps irreparable harm that can be effectively challenged only by an immediate appeal.
At least when there is an expedited appeal from confirmation, Voyager seems to mean that a stay pending appeal is not “sufficiently like an injunction for purposes of 28 U.S.C. § 1292(a)(1)” to warrant appellate jurisdiction.
Observations
In this writer’s view, the decision on Section 1292(a)(1) might be a stretch. In refusing to vacate the stay pending appeal, the appeals court was perhaps motivated by the desire to have a definitive ruling in district court on an exceedingly important topic: Does the bankruptcy court have power or jurisdiction to enjoin the government’s enforcement of federal laws and regulations?
By allowing the stay to remain, the Second Circuit has avoided having to decide later whether there is an exception to the doctrine of equitable mootness allowing an appeal from a confirmation order enjoining the government from enforcing laws and regulations.
On the merits of the appeal in district court, the judge has several questions to consider:
If police and regulatory actions are not covered by the automatic stay, can they be permanently enjoined by a confirmation order?
Does the Bankruptcy Code provide any criminal jurisdiction to bankruptcy courts?
The bankruptcy court in some instances can override agency authority like the Federal Energy Regulatory Commission. In an untested area regarding cryptocurrencies and securities laws, where existing federal law is unclear, would mandatory withdrawal of the reference mean that the district court alone could enjoin governmental action?
Even if the bankruptcy court had fully litigated the question of whether consummating a plan could violate federal law or regulations, would the bankruptcy court’s ruling nonetheless have been an advisory opinion because it could not take into account events actually occurring after confirmation?
Confirmation of the chapter 11 plan for Voyager Digital Holdings Inc. is making important law.
Citing a lack of appellate jurisdiction, the Second Circuit handed down a decision in short order, refusing to revoke the stay pending appeal that had been granted in district court