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.

 

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Footnotes

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).