CHAPTER 9, A. I Lost; Should I Appeal Now?

• Jurisdiction: United States

A. I Lost; Should I Appeal Now?

Sixth Circuit Tackles When Bankruptcy Court Orders Are Appealable as a Matter of Right

ABI Journal

April 2019

David A. Beck¹

Carpenter Lipps & Leland LLP

Columbus, Ohio

Bankruptcy appeals pose a proverbial Goldilocks and the Three Bears problem that nonbankruptcy cases do not usually pose. In particular, 28 U.S.C. § 158 creates a less-than-clear jurisdictional test for bankruptcy appeals. Appeal too soon, and it gets dismissed because an order is not final. Appeal too late, and it gets dismissed for failure to timely appeal. Understanding whether an order is appealable as a matter of right is critical for bankruptcy practitioner.

The recent decision by the Sixth Circuit Court of Appeals in In re Jackson Masonry LLC clarifies the test for finality determinations.² This decision, when combined with two subsequent decisions by the Bankruptcy Appellate Panel (BAP) for the Sixth Circuit applying the Jackson Masonry test, provides needed guidance on when an order is appealable as a matter of right and when it is not.

Appealability in Bankruptcy

Appealability of the bankruptcy courts is provided for in 28 U.S.C. § 158, which authorizes bankruptcy appeals in certain cases — even when a bankruptcy case is not completed. First, appeals are allowed as a matter of right "from final judgments, orders, and decrees ... of bankruptcy judges entered in cases and proceedings." Second, appeals are allowed as a matter of right from orders altering the exclusive periods under § 1121 of the Bankruptcy Code. Third, appeals are allowed "with leave of the court, from other interlocutory orders and decrees." Courts have long struggled with narrowing down definitions of a final judgment, order or decree of a bankruptcy "proceeding" under 28 U.S.C. § 158(a).

Appealability Addressed in Bullard v. Blue Hills Bank

In 2015, the U.S. Supreme Court addressed what constitutes a final order in Bullard v. Blue Hills Bank.³ In this case, Louis Bullard (a chapter 13 debtor) proposed a "hybrid" plan that split the mortgage on a multi-family home into secured and unsecured portions.⁴ Blue Hills Bank, which held the mortgage on the home, objected to confirmation of the plan.⁵ The bankruptcy court concluded that the proposed bifurcation was impermissible, denied confirmation, and gave Bullard leave to amend the plan within 30 days.⁶

Bullard appealed,⁷ and the First Circuit BAP found that the order denying confirmation was not final, but the court decided that it met the standard for a discretionary review of an interlocutory order and proceeded to review and affirm the merits of the bankruptcy court's order.⁸ Bullard then appealed to the First Circuit Court of Appeals. His appeal was dismissed for lack of jurisdiction on a theory that the order was not final and the interlocutory order had not been appropriately certified for circuit court review under the rules set forth in 28 U.S.C. § 158(2).⁹

Thereafter, the Supreme Court commenced the finality inquiry by asking what the relevant "proceeding" was in which the order denying confirmation had been entered.¹⁰ In Bullard's case, the Court decided that the relevant "proceeding" was the process of getting a chapter 13 plan confirmed.¹¹ Denial of confirmation of the proposed plan with leave to amend was not a final order ending the confirmation process, as Bullard had another opportunity to confirm a plan.¹² The Supreme Court stated that it was willing to apply this test, even though it meant that there might not be an effective way to appeal the erroneous denial of confirmation of a chapter 13 plan.¹³

Sixth Circuit Refines Appealability Test in In re Jackson Masonry LLC

The Sixth Circuit's decision in In re Jackson Masonry LLC arose from a failed property transaction. The Ritzen Group contracted to buy a piece of property from Jackson Masonry, but the transaction failed to close, with each party blaming the other, and litigation followed.¹⁴ About a week before trial was to commence, Jackson Masonry filed for bankruptcy.¹⁵ In turn, Ritzen filed a motion to lift the automatic stay, which was denied.¹⁶ Rather than immediately appeal the denial, Ritzen filed a proof of claim.¹⁷

The bankruptcy court subsequently disallowed the proof of claim based on a finding that Ritzen breached the purchase contract.¹⁸ Ritzen then appealed both the order denying relief from the stay and the bankruptcy court's ruling on the proof of claim.¹⁹ The district court dismissed Ritzen's appeal of the order denying relief from the automatic stay as untimely.²⁰ However, the proof-of-claim appeal was deemed timely, but the bankruptcy court's ruling was affirmed. Ritzen appealed both rulings to the Sixth Circuit.²¹

The Sixth Circuit commenced its analysis by focusing on the Supreme Court's statement in Bullard that "orders in bankruptcy cases may be immediately appealed if they finally dispose of discrete disputes within the larger case."²² The Sixth Circuit observed that other courts had struggled with what this meant, resulting in "a series of vague tests that are impossible to apply consistently."²³

To address finality of an order, Ritzen asked the Sixth Circuit to adopt the First Circuit's test, where finality "depends on the circumstances, naturally taking into account the particular order's reasoning and effect, an inquiring court must determine ... whether that edict definitively decided a discrete, fully developed issue that is not reviewable somewhere else."²⁴ The Sixth Circuit, however, rejected this request and agreed with the district court's criticism of this test as "vague" and "unpredictable," to say the least.²⁵ Jackson Masonry also asked the Sixth Circuit to apply various tests from other courts, which the Sixth Circuit dismissed as "similarly vague tests or no consistent test at all."²⁶

The Sixth Circuit instead focused on the statutory language and mandated inquiring as to what "proceeding" the appealed order pertained.²⁷ The Sixth Circuit concluded that a proceeding "is a discrete dispute within a larger bankruptcy case."²⁸ A quintessential example of such a dispute is an adversary...