“Ain’t Over Till It’s Over”: SCOTUS Holds Denial of Plan Confirmation Absent Dismissal of the Case Not a Final, Appealable Order

Bullard v. Blue Hills Bank, 575 U.S. ___ (2015)

On May 4, 2015, the Supreme Court of the United States delivered a unanimous Opinion, penned by Chief Justice Roberts, holding that an order denying confirmation but not dismissing a bankruptcy case is not a “final” order that the debtor can immediately appeal.  In so holding, the Supreme Court held that the relevant “proceeding” is the entire process of considering plans for confirmation and if the debtor has the opportunity to propose another plan, the order denying confirmation is not final and not immediately appealable as a matter of right.  Op. at 5.

In this case, Louis Bullard (the “Debtor”) filed a chapter 13 petition seeking to shed certain debts and retain an “underwater” property with a mortgage owed to Blue Hills Bank (the “Respondent”).  He filed a plan that contemplated splitting the debt he owed to the Respondent into a secured claim in the amount of the house’s current value and an unsecured claim for the remainder.  Under the plan, he proposed to make regular mortgage payments toward the secured claim, which would be repaid after the conclusion of the chapter 13 proceeding, and pay only a portion of the unsecured mortgage claim.  The Respondent objected to this rubric.  The bankruptcy court sustained Respondent’s objection and denied confirmation.  The Debtor appealed the denial to the Bankruptcy Appellate Panel of the First Circuit (“BAP”).  The BAP concluded that the denial of plan confirmation was not “final” because the Debtor was free to propose an alternate plan, but the court exercised its discretion under 28 U.S.C. § 158(a)(3) (applicable to interlocutory appeals) to review the denial on the merits.  It then concluded that the Debtor’s proposed treatment of the mortgage claim was not allowed, and denied the Debtor’s request for certification to the First Circuit under 28 U.S.C. § 158(d)(2).  The First Circuit dismissed the Debtor’s further appeal for lack of jurisdiction and held that “an order denying confirmation is not final so long as the debtor remains free to propose another plan.”  Op. at 4.

In deciding the issue before it, which has divided the lower courts, the Supreme Court first noted that bankruptcy cases are much different than ordinary civil litigation given the numerous stand-alone controversies that arise therein and could give rise to discrete appeals.  To that end, Congress drafted 28 U.S.C. § 158 to allow for appeals from final judgments, orders, and decrees in cases and “proceedings.”  Compare 28 U.S.C. § 158(a) with 28 U.S.C. § 1291.  The Supreme Court, siding with the Respondent, ruled that the relevant “proceeding” at issue in the confirmation context is the process of attempting to arrive at a confirmed plan, as opposed to a plan-by-plan approach.  The Supreme Court focused on whether denial of plan confirmation altered the status quo or fixed the rights and obligations of the parties.  It stated that plan confirmation binds the debtor and creditors, vests property in the debtor, renders property free and clear of claims as provided for by the plan, and triggers distributions to creditors.  Likewise, denial of confirmation resulting in a dismissed case lifts the automatic stay and extinguishes the debtor’s ability to receive a discharge.  However, denial of confirmation with leave to amend—at issue here—changes little in that the automatic stay remains in place and the possibility of discharge continues.

The Supreme Court also found comfort in the list of “core proceedings” enumerated by Congress, which includes “confirmations of plans.”  28 U.S.C. § 157(b)(2)(L).  The absence of any reference to denials signaled to the High Court that Congress viewed the entire confirmation process as the “proceeding.”  Practically, Chief Justice Roberts questioned how inefficient the bankruptcy system would become if every plan denial could be reviewed as a matter of right (each of which could take more than one year).  But more significant than inefficiencies of time or money, the Supreme Court noted that “[t]he knowledge that [the 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.”  Op. at 8.  Encouraging a “give and take” amongst parties is exactly what was contemplated when Congress drafted the Bankruptcy Code, and this ruling is consistent therewith.

The Debtor further argued that if he cannot appeal the denial of plan confirmation, he is put between a rock and a hard place: accept dismissal of his bankruptcy case and appeal, or propose an amended plan and appeal its confirmation.  The Supreme Court appeared to be apologetically understanding of this concern, but noted that interlocutory appellate review in bankruptcy cases is broader than in typical civil litigation.  District Courts and the BAP have the ability to grant leave to hear such appeals, 28 U.S.C. § 158(a)(3), and can also certify a bankruptcy court order to the appropriate court of appeals under 28 U.S.C. § 158(d)(2).  Although the BAP denied the Debtor’s certification to appeal to the First Circuit in this case, the Supreme Court was confident that courts would use these “safety valves” in appropriate cases.  Op. at 12.