Supreme Court: Chapter 13 Denial of Confirmation is not an “Appealable Order”

The Supreme Court unanimously decided today that denial of confirmation is not a final, appealable, order. Bullard v. Blue Hills Bank, 575 U.S. ___, No. 14-116 (U.S. May 4, 2015).

us supreme courtThe bankruptcy court denied confirmation of the chapter 13 debtor’s “hybrid” plan (bifurcating mortgage into secured and unsecured portions and paying secured portion outside and beyond life of plan and unsecured through plan). In re Bullard, 475 B. R. 304 (Bankr. D. Mass. 2012). The BAP for the First Circuit found that the denial of confirmation was not a final, appealable order, but exercised its discretion to hear the appeal on the merits and affirmed the decision of the bankruptcy court. In re Bullard, 494 B. R. 92, 95 (B.A.P. 1st Cir. 2013). The BAP did not certify the appeal to the First Circuit and that court found that section 158(d)(1) did not contemplate jurisdiction over an appeal from the BAP where the underlying bankruptcy decision was not a final order. The circuit court dismissed the appeal. In re Bullard, 752 F. 3d 483 (1st Cir. 2014).

The Supreme Court began its analysis with the recognition that bankruptcy differs from other civil litigation in that it often involves “an aggregation of individual controversies,” and that “Congress has long provided that orders in bankruptcy cases may be immediately appealed if they finally dispose of discrete disputes within the larger case.” Section 158(a), therefore, permits appeals not only of final judgments, but also from orders and decrees.

Bullard proposed that the Court view each consideration of a proposed chapter 13 plan to be a separate, appealable, step in the bankruptcy process, regardless of whether the plan is confirmed or denied. The Court rejected this view in favor of the creditor’s argument that so long as the debtor is free to propose a new plan, the plan confirmation process is not final. Thus, only upon confirmation, or dismissal, is the issue finally disposed of. The Court reasoned that confirmation alters the status quo and establishes the parties’ rights and obligations going forward, likening the debtor’s right to continue proposing amended plans to a car buyer’s counter offer to the car sticker price: a negotiation step rather than a conclusion of a controversy.

The Court dismissed Bullard’s argument that, as a practical matter, debtors will rarely seek to appeal a confirmation denial because the cost is simply too high, noting that debtors may have incentives such as extension of the automatic stay or application of leverage upon creditors. The Court found that appealability need not be symmetrical, i.e. where one result of a dispute is appealable, the opposite result must also be appealable.

Turning to the debtor’s argument that not permitting an appeal of a denial of confirmation results in there being no effective review of such orders leaving the debtor with the untenable options of either dismissing his own case and attempting to appeal at that point, or appealing the confirmation of a plan that he proposed, the Court simply concluded that, while these points were valid, it is a fact of judicial process that some burdensome rulings will be “imperfectly reparable by the appellate process.”

A tiny ray of light managed to shine through this otherwise bleak decision. The Court noted that avenues for appeal exist either under the general interlocutory appeals statute, section 1292(b), or under section 158(d)(2) which permits a BAP or district court to certify an appeal to the circuit court which may then exercise its discretion to hear it. In a gentle admonishment, the Court noted that, in this case, the issue presented—confirmability of a hybrid plan—was sufficiently important and subject to conflict among the bankruptcy courts that the First Circuit should have exercised its power to address it. Where serious errors occur, these options for interlocutory appeal provide a “safety valve.”

Courtesy NCBRC

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