Direct appeals from bankruptcy courts to the courts of appeals: the experience after two years.

• Date: 22 March 2007
• Author: George, David
• Published date: 22 March 2007
• Author: George, David

1. INTRODUCTION

   Until recently, there was no way to appeal a bankruptcy case directly from a bankruptcy court to a court of appeals. Instead, the case had to be first appealed to the district court (1) or bankruptcy appellate panel. (2) Only after that court or BAP had ruled could the case be heard in the court of appeals. (3) That changed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), (4) which provides in some circumstances for direct review of bankruptcy court orders by the courts of appeals. (5)

   For years, many in the bankruptcy community sought direct appeals from bankruptcy courts to courts of appeals. (6) Direct appeal proponents argued that the system of appeals by right from the bankruptcy court to the district court and then to the relevant court of appeals was inefficient for two reasons. (7) First, district court decisions are not binding precedent, so there is increased uncertainty regarding the state of bankruptcy law. Second, the two appeals by right add delay and expense to the bankruptcy system.

   Instead of abolishing district court review, BAPCPA, which was passed in 2005, added direct review of bankruptcy court orders by the courts of appeals, allowing a bankruptcy court (or a district court handling a bankruptcy appeal) to certify an appeal directly to the court of appeals. (8) The appeals court can then decide whether to accept the direct appeal. (9) Absent a certification by the lower court and an acceptance by the court of appeals, however, the appeal still goes through the traditional two-tier process.

   This article explains the direct appeal statute and considers how it has been applied in the two years since it was passed.

2. THE DIRECT APPEAL STATUTE DOES NOT APPLY TO BANKRUPTCIES FILED BEFORE OCTOBER 17, 2005.

   BAPCPA was signed in April 2005, but most of its provisions--including the direct appeal provision--do not apply to bankruptcies filed before its October 17, 2005, effective date. (10) The Seventh Circuit has held that this provision is jurisdictional. (11) So, even if the parties agree that a pre-October 17, 2005, case is subject to the direct appeal statute, the court of appeals cannot hear a direct appeal in that case.

   Because bankruptcies can take years, not many bankruptcies filed after the effective date have been appealed. The number of cases involving the direct appeal statute is therefore relatively small. As more cases filed after the effective date are appealed, the direct appeal statute will likely be used more often.

3. LOWER COURT CERTIFICATION OF DIRECT APPEALS

   There are two ways for the lower court (12) to certify a direct appeal. The lower court, acting on its own motion (13) or a party's request, can certify that

   * The judgment or order involves a question of law as to which there is no controlling authority from the relevant court of appeals or the Supreme Court;

   * The judgment or order involves a matter of public importance;

   * The judgment or order involves a question of law requiring resolution of conflicting decisions; or

   * An immediate appeal from the judgment or order may materially advance the case's progress. (14)

   In addition, if both a majority of the appellants and a majority of the appellees request the lower court to certify a direct appeal, and they represent that the above-listed standards are met, then the lower court must certify the direct appeal. (15)

   BAPCPA does not make clear whether the certification request should be made in the bankruptcy court or the district court. The interim bankruptcy rules, which most bankruptcy courts have adopted, (16) provide that while the case is pending in the bankruptcy court, the certification request must be made in the bankruptcy court. (17) After an appeal has been docketed in the district court, or the district court has allowed an interlocutory appeal under 28 U.S.C. [section] 158(a), the certification request must be made in the district court. (18)

   A request for direct appeal certification must be made within sixty days after the judgment or order is entered. (19) Direct appeals do not stay the proceedings in the lower court unless the lower court or the relevant court of appeals stays the proceedings pending appeal. (20)

4. PROCEDURES FOR REQUESTING CERTIFICATION AND PETITIONING FOR DIRECT APPEAL

   The direct appeal process is two-fold, and requires approval from both the lower court and the court of appeals. If the lower court certifies a direct appeal, then the parties file a notice of appeal with the lower court (21) and a petition with the court of appeals requesting permission to appeal. (22) The appeals court then must grant the petition before a direct appeal is allowed. (23)

   BAPCPA provides temporary direct appeal procedures that are in effect until the Federal Rules of Appellate Procedure are amended. (24) Under the temporary rules, a party must file the petition requesting permission to appeal within ten days of the lower court's certification. (25) That could change under the amended Federal Rules of Appellate Procedure, so caution should be used. Until the federal rules are amended, current Federal Rule of Appellate Procedure 5--which governs appeals by permission in general--applies to BAPCPA direct appeals. (26)

   Both the certification request to the lower court and the petition for direct appeal to the court of appeals should include enough information to allow the court to determine whether to allow the direct appeal. The request and petition must include

   * The facts necessary to understand the question presented;

   * The question itself;

   * The relief sought;

   * Reasons showing why the direct appeal should be allowed and that it is authorized by a statute or rule; and

   * A copy of the order complained of and any related opinion. (27)

   The other parties can oppose the request or petition, or they can file their own requests or petitions. These are due in the lower court within ten days of the original request and in the court of appeals within seven days of the original petition. (28)

5. THE STANDARDS FOR A COURT OF APPEALS TO ACCEPT A DIRECT APPEAL

   The direct appeal statute does not provide any standards for the court of appeals to use when deciding whether to accept a direct appeal, but the legislative history says that the appeals courts "are encouraged to authorize direct appeals" when the factors described above in Section III are met. (29) So far, only two circuits--the Second and the Seventh--have discussed the standards that they will apply in deciding whether to accept direct appeals. A summary of each approach follows.

   1. The Second Circuit's Approach

      In Weber v. United States Trustee, (30) the Second Circuit discussed at length when it would accept bankruptcy direct appeals. The court noted that this was a question of first impression among the circuits. (31) To provide "guidance," (32) the court gave a detailed explanation of the policies behind the bankruptcy direct appeal statute and outlined its standards for accepting the appeals. The court admitted, however, that some of its discussion was dicta and that each Second Circuit panel is "free to authorize a direct appeal if they believe it would be consonant with Congress's goals." (33) While the Second Circuit's opinion in Weber contains dicta and broad guidance, and is not binding on the other circuits, its detailed discussion of when bankruptcy direct appeals should be allowed will likely be considered--if not followed--by other circuits. So, it is worth examining the case in detail.

      1. The Facts in Weber

         In Weber, the question was whether a New York law that raised the homestead exemption applied retroactively. (34) The bankruptcy court held that the exemption was retroactive, and granted leave for a direct appeal. (35) The Second Circuit refused to accept...