Supreme Court, Overruling 3rd and Other Circuits, Says Order Denying Confirmation of Bankruptcy Plan Is Not Final. Government Position Loses 9-0

The U.S. Supreme Court on May 4, 2015 held in Bullard v. Blue Hills Bank┬áthat a Bankruptcy Court order declining to confirm a bankruptcy plan is not ‘final’ and therefore not appealable as of right under federal law. The 3rd Circuit and others had held to the contrary. The Court’s ruling is also a unanimous defeat for the administration, which supported Bullard’s position. The decision is important to creditors, most particularly secured lenders, and to debtors and their counsel.

Bullard filed for bankruptcy and sought to confirm a plan that would save his ‘underwater’ house from foreclosure. The plan was to value the house at a about $245,000.00, well below his mortgage balance ($346,000.00), pay the former amount in full over many years as secured mortgage debt, but put the remainder of the mortgage debt ($101,000.00) into the unsecured claims category – to be paid only in some small percentage from his future income over 5 years in the plan and then have it discharged. This is a somewhat common structure attempted in chapter 13 bankruptcy. The Bankruptcy Court declined to confirm this particular plan. Bullard appealed, with no success, and eventually the Supreme Court granted certiorari.

Practitioners in this area know the federal court rule: trial court decisions are appealable as of right when they are final. Non-final decisions can be appealed on an interlocutory basis if you can meet the standards for such special treatment. This is to ensure that litigants cannot gum up the proceedings with of-right appeals for procedural, minor trial court rulings or on decisions other than those that fully and finally resolve a case between parties. Allowing all parties to appeal such decisions in the middle of a case would cause serious delay, expense, and docket confusion, as the matter repeatedly moves up and down the appellate chain before trial. Bankruptcy, however, sweeps up all claims against the Debtor and claims the Debtor may hold against others, including claims that would (outside of BCY) likely each be stand-alone civil lawsuits. Many, though not all of these, are called ‘contested matters’ in bankruptcy. The bankruptcy statute is broader on this point than the normal federal rule – it authorizes appeals as of right for ‘final judgments, orders and decrees . . . in cases and proceedings.’

The plan, and attempts to confirm it, are the raison d’etre of bankruptcy in chapter 13 (common for individuals) and in chapter 11 (common for large and small businesses), and in theory the plan is supposed to resolve all such matters one way or the other. Decisions to confirm a plan are final by statute, as the plan binds all parties thereto and often significantly re-sets the parties’ economic rights and relationship to the Debtor. Plans frequently alter the status quo and permanently fix the parties’ rights and obligations.

If a debtor proposes a plan but the Judge declines to confirm it, is that decision a ‘final’ judgment? The Court said the issue is whether that decision finally resolves a ‘proceeding’ under the statute quoted above, and the answer is no. Why? For several reasons. First, when a Bankruptcy Judge declines to confirm a plan, the Debtor is free (indeed, encouraged) to file an amended plan and seek to confirm same. The Bankruptcy Code and common practice allows for Debtors to submit multiple amended plans before the case will be dismissed. So simply declining to confirm one plan of the Debtor does not fully and finally resolve his/her/its disputes with creditors (most often, the debts). Denial of plan confirmation does not lead automatically to dismissal of the case (dismissal orders, by contrast, are final) or even the termination of the Debtor’s automatic stay. So ultimately the ‘proceeding’ at hand is not denial of a specific plan, but instead the entire process of considering debtors’ plans and amendments in trying to reach one that is confirmable. Second, the bankruptcy statute listing ‘plan confirmation’ as among the core functions of the Bankruptcy Court does not reference the denial of plans. Finally, the Court suggested that Bullard’s argument (he can appeal as of right each time a plan is denied confirmation) would lead to ‘chutes and ladders’ litigation, with debtors traipsing up and down between the Bankruptcy Court and appeals courts over denied plans while retaining the right to amend them. Bullard argued that the Court’s position is inherently unfair to the plan proponent (often, but not always, the debtor): his creditors can appeal confirmation of his plan by right, but he cannot appeal its denial by right. The Court dismissed this, noting that for important or novel legal issues the interlocutory appeal route provides a safety valve that will protect serious miscarriages of justice at trial. So, if you proposed what you thought was a good confirmable plan but lost, one option (appeal of right) has now been closed off. Either amend the plan to make it confirmable, or find a serious dispute or authority split on a controlling question or law that would materially advance your case – the rough standard for a motion for leave to file an interlocutory appeal. You will no longer appeal denial of plan confirmation by right.