Why Practicality Should Trump Technicality: a Brief Argument for the Precedential Value of Bankruptcy Appellate Panel Decisions

• Publication year: 1998
• Citation: Vol. 33

33 Creighton L. Rev. 565. WHY PRACTICALITY SHOULD TRUMP TECHNICALITY: A BRIEF ARGUMENT FOR THE PRECEDENTIAL VALUE OF BANKRUPTCY APPELLATE PANEL DECISIONS

Creighton Law Review

Vol. 33

THALIA L. DOWNING CARROLL(fn*)

INTRODUCTION

In 1978, Congress exercised its powers under Article I, Section 8 of the Constitution in passing the Bankruptcy Reform Act of 1978.(fn1) The act authorized, but did not require, the creation of Bankruptcy Appellate Panels ("BAP").(fn2) In contrast, the Bankruptcy Reform Act of 1994(fn3) requires the judicial council of every circuit to establish a BAP.(fn4) According to the statute, once a BAP has been created, any party who wishes to appeal a final decision of a bankruptcy court may appeal to the BAP - a panel of three bankruptcy court judges - or elect to have the appeal heard before a United States District Court judge.(fn5) After a determination at this level, the next stage in the appellate process is the United States Court of Appeals for the circuit in which the bankruptcy court is located.(fn6) As is evident, the BAP holds a somewhat nebulous position in the appellate hierarchy. In the Ninth Circuit, for instance, the battle has been raging for years considering the precedential value of BAP decisions.(fn7) The precarious position of the BAP is evinced by the interesting holding, by a BAP, that it's own decisions are binding on all bankruptcy courts within the district.(fn8) This Article will attempt to investigate the problem and present a brief argument as to why practicality demands that BAP decisions should bind both bankruptcy courts and district courts within the circuit for which they sit.(fn9)

First, this Article will give a brief legislative history behind the creation of BAPs and their purpose in the appellate scheme.(fn10) Second, this Article will show the conclusions of several courts regarding the precedential effect of BAPs on bankruptcy courts and district courts.(fn11) Finally, this Article will argue that practicality demands that BAP decisions should bind all bankruptcy courts in a district as well as all district courts in a district because: (1) the legislative history evinces such intent; (2) such a policy is consistent with the doctrine of stare decisis; (3) such a policy operates to discourage forum shopping on appeal; and (4) such a policy serves to strengthen the integrity of the judicial system as a whole.(fn12)

LEGISLATIVE HISTORY

The Bankruptcy Reform Act of 1978 thoroughly revised the role of the bankruptcy court in bankruptcy proceedings and provided for the creation of bankruptcy judges and Bankruptcy Appellate Panels ("BAP"). Prior to 1978, no bankruptcy judges existed. Rather, individuals titled "referees" presided over bankruptcy cases. Amongst other things, the referees' lack of jurisdiction, status, and power lead to the creation of the bankruptcy system as it exists today.(fn13) No Article III status was, nor ever has been, conferred on bankruptcy judges.

Although permitted under the Bankruptcy Reform Act of 1978, BAPs were largely creatures of only the Ninth and First Circuits until 1994, when Congress enacted the Bankruptcy Reform Act of 1994(fn14) ("Act").(fn15) The Act states that a BAP should be established by the judicial council of the circuit in which the BAP is to sit unless two distinct sets of circumstances are found.(fn16) First, the Act does not require the creation of a BAP in a district in which there is an insufficient number of judges to form a panel.(fn17) Second, no BAP need be formed in a district where the establishment of a BAP would result in "undue delay" or an increase of expense to the parties in bankruptcy.(fn18) Further, the Act does not require that each circuit have a separate BAP but, rather, provides that a joint BAP may be established between two or more circuits.(fn19)

The BAP is to consist of bankruptcy judges appointed to the panel by the judicial council of the circuit.(fn20) The BAP is to consist of three judges. However, no judge serving on the panel may hear an appeal originating in the district from which the judge has been appointed.(fn21) Once a BAP has been established by a circuit court, the district court then makes the election of whether or not to participate in the BAP.(fn22) Although the creation of BAPs is seemingly mandatory, an appeal from a bankruptcy court may be heard, in the alternative, by the district court for the district in which the bankruptcy court sits.(fn23) Any party to the appeal may elect to utilize this "opt-out" provision as long as the party opting-out does so within thirty days of the filing of the notice of appeal.(fn24) The precarious role of the BAP is largely shown by how a BAP is formed under the Act. In sum, the circuit court of appeals is charged with the creation of a BAP and, therefore, they are (at a creation level) on par with the court of appeals. However - and this is where it becomes strange - BAPs exist only at the will of the district court, as it is the district court that decides whether or not it will participate in the BAP. Thus, from inception, the dual status of the BAP is clear; at the level of creation they are creatures of the circuit courts but, following creation, exist at the will of the district courts. Confused yet? Well, the one thing that is seemingly clear about the BAP is the congressional intent that underlies the requirement making the creation of BAPs mandatory.

In proposing the establishment of a BAP, congressional intent is clear - to provide a dependable and predictable body of bankruptcy law.(fn25) The existence of a BAP would, according to one senator, "[f]oster expertise, and increase the morale" among the judiciary.(fn26) Finally, the main purpose of the BAP, according to further comments on the senate floor, is to save Article III judicial time by having bankruptcy judges hear and decide bankruptcy appeals.(fn27) In sum, BAPs were created with the intention of creating a uniform body of bankruptcy law.(fn28) Creation of a BAP, according to Congress, would result in bankruptcy judges hearing appeals in their particular specialty, i.e., bankruptcy. This system would lead to a uniform, educated body of law on bankruptcy at the appellate level. However, just as the power and rightful place of the BAP has been questioned by courts attempting to determine the precedential effect of BAP opinion, so, too, has congressional purpose.

COURT DECISIONS INTERPRETING THE PRECEDENTIAL EFFECT OF BAP DECISIONS

Courts who have reached the issue regarding the precedential effect of BAP decisions hold along a wide spectrum and, seemingly, on a case-by-case basis. One could almost say that BAP decisions are binding when the reviewing court agrees with the BAP on the particular issue of law at question. Some courts agree that there is an issue as to the binding effect of the BAP, then refuse to answer the question - continuing on to hold contrary to the BAP decision.(fn29) However, there are basically five categories of holdings which have evolved over time: (1) that BAP decisions are not binding on district courts; (2) that BAP decisions are binding on district courts; (3) that BAP decisions are binding on all bankruptcy courts within a circuit; (4) that BAP decisions are not binding on a bankruptcy court outside the district from which the appeal originated; and (5) that BAP decisions are not binding upon any bankruptcy court.(fn30)

BAP DECISIONS ARE NOT BINDING ON DISTRICT COURTS

Those courts that have held that BAP decisions are not binding upon district courts within the circuit in which the BAP sits have relied on the premise that BAPs occupy a similar position to district courts. If a BAP occupies the same position as a district court, then their decisions are not binding upon district court judges because, according to the United States Supreme Court, the decisions of one district court are not binding upon another.(fn31) Further, as the Ninth Circuit Court of Appeals noted in Bank of Maui v. Estate Analysis Inc.,(fn32) there appears to be a constitutional problem - specifically, a separation of powers issue - if district courts are bound by decision of a BAP.(fn33) This constitutional problem arises because bankruptcy courts, and therefore bankruptcy judges, are not creatures of Article III.(fn34) Instead, because bankruptcy courts are created under...