In an opinion issued today, the Supreme Court held that debtors do not have the right to immediately appeal a bankruptcy court’s decision denying confirmation of a proposed reorganization plan. This decision resolves a circuit split, and confirms the balance of power between debtors and creditors in the plan confirmation process. As the Supreme Court explained, “the knowledge that [a debtor] will have no guaranteed appeal from a denial should encourage the debtor to work with creditors and the trustee to develop a confirmable plan as promptly as possible.”
In Bullard v. Blue Hills Bank, the debtor obtained a $387,000 loan to purchase a multi-family home and granted the bank a mortgage on the property. He later filed for bankruptcy under Chapter 13 of the bankruptcy code. Petitioner/Debtor argued that the debt he owed to the bank was greater than the value of the property, and proposed a plan that involved splitting his debt to the bank so that the bank would have a secured claim in the amount of the value of the property and an unsecured claim for the remaining debt. The bank objected to the proposed plan, and bankruptcy court denied confirmation of the plan and ordered the debtor to submit an amended plan to avoid dismissal; the debtor sought to appeal this order.
The Bankruptcy Appellate Panel (“BAP”) of the First Circuit determined that the denial of confirmation was not a final order, but exercised its discretion to hear the case as an interlocutory appeal “with leave of the court” and ultimately affirmed the bankruptcy court’s decision on the merits. The United States Circuit Court for the First Circuit held that the bankruptcy court’s denial of confirmation was not a “final” order under 28 U.S.C. § 158, and thus it did not have jurisdiction to hear the appeal. In so deciding, the First Circuit joined the majority position in the circuit split on this issue. The First Circuit noted that the debtor would have the right to appeal after either: (1) he submitted an acceptable plan and then appealed the confirmation of that plan; or (2) his case was dismissed.
Before the Supreme Court, the debtor and amici (which included the federal government and Bank of America) argued that the First Circuit’s decision promoted inefficient use of court resources, and that a confirmation decision should be immediately appealable because it determines the debtor’s rights and impairs debtors’ access to the “fresh start” envisioned by the Bankruptcy Court. Furthermore, the debtor and amici argued that because an order granting confirmation is immediately appealable, an order denying confirmation should also be immediately appealable. The respondent bank argued that the First Circuit’s decision minimized waste of judicial resources and recognized the balance between creditors and debtors in the plan confirmation process.
In a 9-0 opinion written by Justice Roberts, the Supreme Court resolved the circuit split, holding that “a bankruptcy court’s order denying confirmation of a debtor’s proposed repayment plan is not a final order that the debtor can immediately appeal.” The Supreme Court explained that although civil litigation generally culminates in one final, appealable judgment and order, bankruptcy cases typically involve several distinct controversies. For this reason, a bankruptcy order may be immediately appealed if it finally disposes of a discrete dispute. The Court agreed with the bank that the discrete proceeding at issue is the process of approving a plan. Following an order denying confirmation, a debtor is free to propose a new plan, which he may modify freely, and may still receive confirmation that would allow the bankruptcy to move forward to discharge. Conversely, when a bankruptcy court confirms a plan, its terms become binding on both the debtor and the creditor, triggering the trustee’s duty to distribute funds to creditors and foreclosing re-litigation of issues necessarily determined by the confirmation order. Similarly, an order dismissing a case lifts the automatic stay.
Following the Court’s ruling, debtors will have a continued incentive to propose plans that will avoid objections from their creditors, as debtors will not have the right to immediately appeal the denial of a proposed plan.