On March 3, 2015, the Eighth Circuit issued an opinion holding—consistent with past Eighth Circuit precedent—that an order denying plan confirmation does not constitute a final order that may be appealed without leave of the court.  The opinion was not only a harsh reality-check for the debtor, but a reminder of the circuit split that exists with respect this important issue.  Luckily, there is cause to believe that the circuit split may not exist for much longer: earlier this month, the Supreme Court heard oral argument in a case presenting the very question whether an order denying plan confirmation constitutes a “final order” within the meaning of 28 U.S.C. § 158(a)(1).  

“Flexible” Finality

District courts, where appeals from bankruptcy court orders are generally first heard, “have jurisdiction to hear appeals from final judgments, orders, and decrees” from bankruptcy courts.  In the non-bankruptcy context, determining when an order is “final” is a relatively straightforward matter, because ordinary lawsuits generally involve discrete disputes.  Thus, a final order is generally one that disposes of a dispute in its entirety, while an interlocutory order is one that addresses a particular issue of point in a litigation, but does not determine the matter completely.  The distinction between final and interlocutory orders is important because, while a party must obtain a court’s permission to appeal an interlocutory order, all final orders are appealable as a matter of right.  See 28 U.S.C. § 158(a)(3) (non-final or interlocutory orders may only be appealed “with leave of the court”).  In bankruptcy cases, courts have long recognized that cases involve sets of discrete proceedings that can be independently decided and appealed.

To fashion rules to determine when orders entered in bankruptcy cases are final orders, courts have developed the concept of “flexible finality.”  In 1984, then-Circuit Court Judge Stephen Breyer wrote that “orders in bankruptcy cases may be immediately appealed if they dispose of discrete disputes within the larger case.”  There, the court held that an order “that conclusively determines a separable dispute over a creditor’s claim or priority” constitutes a final order that is immediately appealable as a matter of right.

While the concept of flexible finality in the bankruptcy process is sensible, the distinction between final and interlocutory orders in bankruptcy cases is complicated, fact-intensive, and oftentimes idiosyncratic.  However, one of the most controversial distinctions surrounds orders confirming a plan of reorganization—which are considered to be final—and orders denying confirmation of a plan—which certain courts consider to be interlocutory.

Civic Partners: A Hard Lesson in Flexible Finality

In In re Civic Partners Sioux City, LLC, a case that has received this blog’s attention in the past, a debtor sought to confirm a plan of reorganization that would subordinate the claims of its two largest creditors on the basis that “they had defrauded [the debtor].”  The bankruptcy court twice denied the debtor’s attempt to confirm its plan, and the debtor appealed, ultimately to the Eighth Circuit.  Relying on prior Eighth Circuit precedent, the court held that “bankruptcy orders denying confirmation of a proposed plan but not dismissing the underlying petition are nonfinal decisions not subject to appeal.”

If the debtor’s case had been pending in the Third, Fourth, or Fifth Circuits, then its appeal of the bankruptcy court’s denial of plan confirmation may have been upheld.  Unfortunately for the debtor, however, the Eighth Circuit follows the First, Second, Sixth, Ninth, and Tenth Circuits in holding that an order denying plan confirmation—but not dismissing the bankruptcy case outright—is not appealable as a final order.  Thus, the debtor’s quest to subordinate the claims of its lenders died a quiet, procedurally complicated death.

Bullard: The Supreme Court Grants Review

On December 12, 2014, the Supreme Court granted certiorari in Bullard v. Blue Hills Bank, a chapter 13 case on appeal from the First Circuit, which will hopefully resolve the circuit split over whether an order denying plan confirmation is a final order.  In Bullard, the debtor owned real property that was worth less than the amount owed to the bank on his mortgage.  Through his plan, the debtor proposed to modify both the amount of the bank’s claim, and his obligations to the bank on account of the mortgage.  The bankruptcy court denied confirmation of the debtor’s plan.  The Bankruptcy Appellate Panel and the First Circuit both held that it did not have jurisdiction to review the bankruptcy court’s order on the basis that it was not a final order.  The debtor appealed these orders, and the Supreme Court heard oral argument in this case on April 3, 2015.

The Justices’ questions to counsel in Bullard seem to indicate that the Court will provide parties with increased ability to appeal courts’ denial of plan confirmation.  But it is unclear whether that access will come in the form of a new rule that orders denying plan confirmation are final orders, or whether it will come in the form of a directive from the Supreme Court that lower courts should more liberally grant leave to appeal orders denying plan confirmation.  While practitioners may have a final answer to this question when the Supreme Court issues its decision in Bullard, the Court’s questions to counsel also suggest that it may be willing to take a somewhat more flexible approach when it comes to orders denying plan confirmation.