BAPCPA and bankruptcy direct appeals: the impact of procedural uncertainty on predictable precedent.

• Author: Freeman, Lindsey
• Position: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

1. BANKRUPTCY APPELLATE LAW: PAST CONSIDERATIONS AND CURRENT CHALLENGES II. RECENT DEVELOPMENTS: BAPCPA AND DIRECT APPEALS III. THE PROVISIONS OF [section] 158(D)(2) IV. A COMPARISON OF [section] 158(D)(2) AND [section] 1292(B) V. FOUR YEARS LATER: [section] 158(D)(2) AND THE CIRCUIT COURTS OF APPEALS A. Discretion: How the Circuit Courts Have Applied [section] 158(d)(2) B. Treatment of [section] 158(d)(2) Procedure by the Circuit Courts of Appeals C. The Success of [section] 158(d)(2) VI. THE ROLE OF THE LOWER COURTS: THE IMPACT OF STAYS AND THE DOCTRINE OF EQUITABLE MOOTNESS A. The Doctrine of Equitable Mootness and the Impact on Direct Appeals B. The Power of the Lower Courts: To Grant or Deny a Stay VII. CASE STUDY: IN RE PACIFIC LUMBER CO VIII. RECOMMENDATIONS On June 5, 2009, over 200 attorneys, reporters, and spectators filed into the courthouse of the Court of Appeals for the Second Circuit, eager to hear the court's decision on Chrysler's impeding bankruptcy. (1) After months of losses, billions of dollars in bailout funding, and a failed attempt at a merger, Chrysler filed for Chapter 11 bankruptcy and agreed to sell all of its operating assets to "New Chrysler," led by Italy's Fiat. (2) Among those anxiously awaiting the Second Circuit's opinion were representatives of Indiana's Police Pension Trust, the Teachers Retirement Fund, and the Major Moves Construction Fund (collectively, "Pensioners"), who had appealed the bankruptcy court's approval of the plan. If the sale moved forward, the Pensioners stood to receive only twenty-nine cents on the dollar for investments purchased less than a year earlier for forty-three cents on the dollar. (3) After only "an hour and [a] half of oral argument and a 10minute recess," the court ruled directly from the bench and affirmed the sale. (4) Five days later, the sale was closed. (5) Almost instantly, the loss of the American icon quickly became a hallmark of "the worst recession since the Great Depression." (6)

   One of the most startling aspects of the decision was the speed at which it occurred. As in most bankruptcy cases, the sense of urgency surrounding the proceedings had to be weighed against the opportunity for meaningful review. (7) In an attempt to protect both interests, the circuit court certified the Pensioners' motion for a stay and direct appeal, foregoing discussion in the district court entirely. Over the course of only five days, the matter was concluded in the bankruptcy court and affirmed by the court of appeals, and five days later, the sale was closed. (8)

   During this time of financial uncertainty, it is critical that decisionmakers develop procedures to guarantee efficient resolutions while also crafting predictable precedent to guide and govern bankruptcy law. In re Chrysler illustrates, however, that the realities of bankruptcy make it particularly difficult to strike the appropriate balance between speed and the opportunity for meaningful review. In an effort to streamline an often cumbersome bankruptcy appellate process, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), (9) which provided for, among other things, direct appeals from bankruptcy courts to the courts of appeals. (10 According to a comprehensive survey of the case law, the courts of appeals have largely used 28 U.S.C. [section] 158(d) (2) as Congress envisioned, granting direct appeals to resolve outstanding or particularly thorny issues of bankruptcy law. (11) This Comment argues that while [section] 158(d)(2) creates an important mechanism for expediting bankruptcy appeals, the provision unintentionally establishes a loophole thwarting an individual's right to Article III review and Congress's long-term intent to create predictable precedent. As [section] 158(d)(2) is currently written, the lower court (the bankruptcy court or district court) may certify a matter for direct appeal while denying the party's related motion for a stay pending that appeal. As a result, the case could move forward and the appellant could be denied review--even though the lower court has acknowledged that at least one issue deserves review by a court that can create binding precedent--because it would be "inequitable" to grant relief according to the doctrine of equitable mootness. (12) To correct these vulnerabilities, decisionmakers should consider the authority of the lower courts to grant or deny stays pending direct appeals in light of the potential threat of equitable mootness. Although granting a stay pending appeal may delay bankruptcy proceedings for the individual in the short term, long-term interests weigh heavily in favor of ensuring review by an Article III court capable of crafting binding precedent.

   Though this Comment will focus on a specific bankruptcy procedure, the problems direct appeals create highlight a tension inherent in bankruptcy law: the need to balance practical considerations such as speed, efficiency, and specialized review, with constitutional values, including fairness, due process, and the fight to an appeal. Thus, examining the use of [section] 158(d) (2) and the difficulties that have arisen over the past five years provides not only an overview of bankruptcy direct appeals, but also valuable insights for bankruptcy procedure in general. As the Appellate Rules Committee (13) and the Advisory Committee on Bankruptcy Rules (14) prepare to amend direct appeals in the near future, these insights should guide any changes to ensure that the urgency of an individual bankruptcy proceeding is appropriately considered against the long-term need for precedent in an unpredictable area of the law.

   Part I of this Comment will discuss bankruptcy appellate procedure, as well as the inherent tension between efficiency and the right to review in bankruptcy law. Part II describes the motivations behind direct appeals, including Congress's desire to streamline bankruptcy appellate procedures and to create a predictable body of precedent. Part III reviews the provisions of [section] 158(d) (2), focusing in particular upon the discretion of a court of appeals to accept or deny a direct appeal as well as the freedom of the lower court (bankruptcy or district court) to grant or deny a stay pending that appeal. Part IV compares [section] 158(d)(2) with 28 U.S.C. [section] 1292(b), a provision governing immediate appeals of interlocutory decisions that many circuit courts have relied upon to guide the application of direct appeals in bankruptcy. Part V examines circuit courts' use of [section] 158(d) (2) over the past five years, including a discussion of when courts have chosen to authorize direct appeals. Part VI analyzes the role of the lower courts, including how the choice to grant or deny a stay pending appeal has affected the long-term impact of direct appeals in light of the doctrine of equitable mootness. Part VII provides a case study of an instance in which a lower court granted the certification for direct appeal but denied the stay, illustrating the tension between direct appeals and the equitable mootness doctrine, as well as a weakness in the current drafting of [section] 158(d)(2) that may undermine Congress's objectives. Finally, Part VIII provides recommendations regarding how rulemakers and bankruptcy practitioners should reconsider the relationship between direct appeals and stays to protect the long-term aims of [section] 158(d)(2). In particular, this Comment argues that if a lower court deems a matter worthy of direct appeal, the relevant court of appeals should consider whether or not a stay should be granted in concert with the direct appeal to guarantee review by an Article III court.

1. BANKRUPTCY APPELLATE LAW: PAST CONSIDERATIONS AND CURRENT CHALLENGES

   Bankruptcy is a unique area of the law. Its highly technical and specialized nature, as well as the real-world urgency of bankruptcy proceedings, has forced decisionmakers to alter the rules of appellate procedure to meet the needs of the field. (15) For example, the flexible finality standard--a unique component of bankruptcy law--allows parties to appeal a discrete issue immediately to the higher court (either to the district court or, in the case of a direct appeal, to the circuit court). (16) Yet, the realities that have driven reform have also made finding the correct balance between speed and meaningful review particularly difficult. In such a complex area of the law, context is ne- cessary to appreciate the impetus for BAPCPA, as well as some of the current challenges facing bankruptcy appellate procedure.

   Bankruptcy law in the United States has been shaped by competing concerns: practical considerations (such as speed, efficiency, and specialized review) and constitutional values (including fairness, due process, and the right to an appeal). At the heart of this debate is the origin of bankruptcy law itself. Unlike Article III courts, which were created as a separate branch of government to protect litigants' rights, Congress established bankruptcy courts under Article I of the Constitution. (17) Due to bankruptcy courts' constitutional foundations, scholars have argued that the legitimacy of bankruptcy appeals depends upon proper review by an Article III court. (18) The possibility of such review, however, may be frustrated by the bankruptcy courts' authority to determine whether to grant a stay pending appeal. By refusing to grant a stay, a bankruptcy court affects the "application of the equitable mootness doctrine" and "allow[s] an Article I court to impact the power of review reserved strictly for an Article III court." (19) Part VI discuss the interplay between the failure to grant stays and the doctrine of equitable mootness.

   The debate regarding the constitutionality of bankruptcy courts came to a head in 1982, when a plurality of the Supreme Court held in Northern Pipeline Construction Co. v. Marathon Pipe Line that Congress did not...