On May 4, 2015, the Supreme Court of the United States affirmed the order of the United States Court of Appeals for the First Circuit dismissing the appeal of chapter 13 debtor Luis Bullard for lack of jurisdiction.1 The Court held that the order of the Bankruptcy Court denying confirmation of Bullard’s proposed chapter 13 plan was not a final order from which Bullard could immediately appeal as of right.2 The Court reasoned that, while confirmation of a plan can be said to fix the rights and obligations of the parties in a way that alters the status quo, denial of a proposed plan does not fix such rights and obligations so long as the debtor can propose an alternative plan. Concluding that such denial does not dispose of the case or a proceeding, the Court held that the Bankruptcy Court’s determination that a plan is not confirmable is not a final order for purposes of allowing an appeal as of right.

Background

Luis Bullard filed a petition for relief under chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Massachusetts (the “Bankruptcy Court”) in December 2010 and filed a proposed repayment plan shortly thereafter (as later amended, the “Proposed Plan”). As set forth in the Proposed Plan, Bullard had an “underwater” mortgage with Blue Hills Bank (“Blue Hills”), which he proposed to split into a secured portion, in the amount equal to the current value of the dwelling subject to the mortgage, and an unsecured portion. Under this “hybrid” treatment, Bullard would continue to make mortgage payments until he paid in full the secured portion of the claim. With respect to the unsecured portion, however, Bullard would  make  payments for the duration of his five-year plan in  amounts determined based on Bullard’s income.

Following an objection by Blue Hills, the Bankruptcy Court declined to confirm the Proposed Plan, holding that Bullard could not bifurcate the bank’s claim as he proposed unless he paid the unsecured portion in full during the course of his chapter 13 plan. The Bankruptcy Court did note, however, that other bankruptcy courts in the First Circuit had approved the type of treatment Bullard proposed. Bullard appealed to the Bankruptcy Appellate Panel for the First Circuit (the “BAP”). The BAP found that the order denying confirmation of the Proposed Plan was not a final order from which Bullard could immediately appeal, but agreed to hear the appeal as an interlocutory appeal permissible with leave of the court.3 The BAP affirmed the decision of the Bankruptcy Court, holding that Bullard’s proposed treatment of Blue Hills’ debt was not permissible.

Bullard appealed to the Court of Appeals for the First Circuit, which found that the Bankruptcy Court’s order was not a final order because Bullard was free to amend his plan and seek confirmation of the amended plan. The Court of Appeals held that because the Bankruptcy Court’s order was not final, the order of the BAP was also not final, and therefore the Court of Appeals did not have jurisdiction to hear the appeal and dismissed it. Bullard then appealed to the Supreme Court, which granted certiorari.

Final Appealable Orders

Due to its unique nature, the threshold for appeals as of right in the bankruptcy context differs from that applied in other kinds of cases in federal court. In general, an order is final in a non-bankruptcy context if it finally resolves the case. But orders in the bankruptcy context “may be immediately appealed if they finally dispose of discrete disputes within the larger case.”4 Since in the bankruptcy context there is a right to appeal from final  orders entered  “in cases and proceedings,”5 the  Court analyzed whether the “proceeding” in this case is the process of considering confirmation of the Proposed Plan or is instead the process of considering all proposed plans until a plan is confirmed or the case is dismissed. The Court concluded that it is the latter.

The Court focused on the consequences of plan confirmation and case dismissal, on the one hand, and denial of plan confirmation, on the other hand. The Court noted that plan confirmation and case dismissal both have significant consequences as each settles the rights and obligations of the parties. Plan confirmation, the Court reasoned, precludes relitigation of any issue litigated by the parties, vests the property of the estate with the debtor and triggers duties of the chapter 13 trustee to distribute property to creditors. Conversely, when a bankruptcy case is dismissed, the debtor is denied the benefit of a discharge and the automatic stay is lifted, allowing creditors to pursue collection efforts against the debtor. The Court found that denial of plan confirmation, however, does not significantly change the status quo. The debtor remains free to propose another plan, the trustee continues to collect funds from the debtor in anticipation of a future distribution and the automatic stay remains in place. “’Final’ does not describe this state of affairs.”6

In addition to the above analysis, the Court examined the statutory definition of “core proceedings” in the bankruptcy context and found that it specifically includes plan confirmation, but does not mention denial of plan confirmation.7 The Court found that, while not dispositive, this indicates that Congress agrees with Blue Hills’ conception of the term “proceeding”, for plan confirmation purposes, as encompassing the larger confirmation process and not the ruling on each specific plan.

The Court then turned to the policy underlying the requirement that orders be final before they are immediately appealable as of right. The Court found that Bullard’s proposed definition of “proceeding” is so narrow that application of it would undermine and hinder the expedience and efficiency the requirement seeks to achieve. As the Court observed:

In Bullard’s view the debtor can appeal the denial of the first plan he submits to the bankruptcy court. If the court of appeals affirms the denial, the debtor can then revise the plan. If the new plan is also denied confirmation, another appeal can ensue. And so on. As Bullard’s case shows, each climb up the appellate ladder and slide down the chute can take more than a year. Avoiding such delays and inefficiencies is precisely the reason for a rule of finality.8

Bullard argued that any concerns about frequent piecemeal appeals are misplaced in this context because few chapter 13 debtors will have the resources to exercise the right to appeal denial of confirmation. The Court, however, noted that “Bullard’s assurance notwithstanding, debtors may often view, in good faith or bad, the prospect of appeals as important leverage in dealing with creditors.”9   More significantly, the Court explained that “these concerns are heightened if the same rule applies in Chapter 11, as the parties assume. Chapter 11 debtors, often business entities, are more likely to have the resources to appeal and may do so on narrow issues.”10

The Court also noted that the debtor will not be unfairly burdened by not having a right to an immediate appeal from denial of confirmation because of the ability to propose modified plans. Indeed, a debtor who knows that he may not immediately appeal denial of plan confirmation will be encouraged to work constructively with creditors to develop a confirmable plan as promptly as possible and “expedition is always an important consideration in bankruptcy.”11

In support of Bullard’s position, the Solicitor General pointed out that an objection to a proposed plan initiates a “contested matter” in the bankruptcy context. Therefore, just like a court’s order overruling such an objection and confirming the proposed plan is considered a final order, a court’s order denying plan confirmation also resolves the contested matter, and must be considered a final order. The Court found flaws in this argument, noting that “contested matter” is a catchall term and that if the resolution of each and every “contested matter” is considered a final order, a party would have the right to appeal many minor decisions of the court. The Court explained that an order confirming a plan is a final order because it resolves the entire plan consideration process and not because it resolves a contested matter.

In response to arguments that allowing a creditor to immediately appeal confirmation of a plan while denying the debtor the right to immediately appeal denial of confirmation creates an asymmetry of rights among the parties, the Court explained that such a discrepancy is warranted because confirmation allows the bankruptcy process to go forward, while denial maintains the status quo.

The Court understood Bullard’s concern that the debtor may find himself forced to choose between two unappealing options – seeking dismissal of the case or confirmation of an alternative plan and then appealing such dismissal or confirmation. The Court found, however, that while the appeal process is not perfect, the burden on debtors such as Bullard is mitigated by the Court’s confidence that bankruptcy courts rule correctly most of the time as well as the discretion afforded to courts to agree to hear an interlocutory appeal that is not an appeal as of right. The Court mentioned three avenues for discretionary review of interlocutory orders: The debtor can seek leave from the district court or BAP to appeal, as was done in Bullard. If the district court hears the appeal but the debtor loses, leave to appeal can be requested in the court of appeals. Alternatively, the debtor can seek a direct appeal to the court of appeals from the decision of the bankruptcy court upon proper certification and permission of the court of appeals.12

Conclusion

Since it appears that the Supreme Court’s reasoning in Bullard is applicable in chapter 11 cases, as well as in chapter 13 cases, the decision will undoubtedly have implications in the context of orders denying confirmation of chapter 11 plans. It is important to note, however, that the application of the Bullard decision in chapter 11 cases will not change the law for courts in several circuits, which have ruled previously that an order denying plan confirmation is not a final order from which an immediate appeal is available. Most notably, the Second Circuit, which includes the Bankruptcy Court for the Southern District of New York, has held that such denials are interlocutory orders, so that Bullard should have no effect in that circuit.13  In contrast, Bullard should have an impact on courts in the Third Circuit, including the Bankruptcy Court for the District of Delaware, which have held that an order denying plan confirmation in chapter 11 cases is a final order immediately appealable as of right.14 It remains to be seen, however, whether and to what extent the Court’s decision will alter the leverage enjoyed by parties and the dynamics of plan negotiations in a contested chapter 11 case pending in courts located in those circuits, such as the Bankruptcy Court for the District of Delaware, that have previously treated such orders as final.