An Appealing Proposition

The built-in double appeal process stems from the fact that bankruptcy courts are 'units' of the district courts. 28 U.S.C. ' 151. Unlike district court judges, bankruptcy judges are not Article III judges vested with lifetime tenure, nominated by the President, and confirmed by the Senate, as provided by the Constitution. Instead, they are Article I judges, with limited, 14-year terms, appointed by their respective circuit courts. 28 U.S.C. ' 152. As a result, bankruptcy court orders must normally first be appealed to the district court (or BAP, if applicable). 28 U.S.C. ' 158. Historical roots aside, the automatic double appeal process often results in a wasted and redundant level of appeal. The losing party at the first appellate level not only can appeal to the circuit court, but the circuit court then gives no deference to the first appellate court's ruling. Thus, in essence, the first level of appellate review is nothing more than a glorified ' and costly ' dress rehearsal. Plus, with more than 650 district court judges spread throughout 94 judicial districts and BAP panels employed in five circuits, the present patchwork appellate system fosters forum shopping and impedes creation of a unified body of binding precedent. As seasoned practitioners know, and often joke, one can usually find a case supporting any proposition.

Needless to say, the practice has been criticized. In a report on the 2005 bankruptcy law amendments, the House Committee on the Judiciary recognized the flaws: 'In addition to the time and cost factors attendant to the present appellate system, decisions rendered by a district court as well as a bankruptcy appellate panel are generally not binding and lack stare decisis value.' H.R. Rep. No. 109-31, pt. 1, at 148 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 206 ('House Report').

Direct Appeals to the Circuit Court

The bankruptcy law amendments passed last year, however, offer some relief. Although less discussed than other bankruptcy law changes, there is now a mechanism to appeal bankruptcy court orders directly to the circuit court, thereby leap-frogging the often wasteful and time-consuming first level of review.

Specifically, appeals from bankruptcy court orders and judgments may now be 'certified' to be heard directly by the circuit court. The certification process involves two steps: first, certification by the bankruptcy court, district court (or BAP), or the parties themselves, and then authorization by the circuit court. The amended statute, 28 U.S.C. ' 158(d), and related interim changes to Federal Rule of Bankruptcy Procedure ('Rule') 8001 provide the framework for the direct appeal process, including: 1) who may certify an appeal for circuit court review; 2) what the criteria are for certification; and 3) whether the circuit court must accept the direct appeal. As detailed below, however, the answers are not always clear.

Who May 'Certify' an Appeal for Circuit Court Review?

The amended statute, which applies to bankruptcy cases filed after Oct. 17, 2005, now provides that either: 1) the bankruptcy court, 2) the district court, 3) the BAP, if applicable, or 4) all of the parties to the appeal, if acting jointly, may make the certification request. 28 U.S.C. ' 158(d)(2)(A). Thus, any court involved in the appeal or all the parties together can certify the appeal.

At first glance, the idea of the bankruptcy court certifying the appeal is paradoxical because it is normally divested of all matters related to an appeal ' including 'certifying' it ' when the appellant files its notice of appeal. As such, unless a bankruptcy court was clairvoyant and somehow knew when it issued its order or judgment that an appeal would subsequently be filed, it would be unable to certify the appeal. In re Virissimo, 332 B.R. 208, 209 (Bankr. D. Nev. 2005) ('It would appear that the statute creates the classic 'Catch-22” by requiring a bankruptcy court to certify an appeal before it has been docketed). However, Interim Rule 8001(f)(2) addresses this problem, providing that the bankruptcy court maintains jurisdiction for certification purposes until the appeal is docketed with the district court (or BAP), which usually takes 30 to 60 days as the record is assembled per Rule 8007(b). Thus, as a practical matter, after the appellant files its notice of appeal, either party has a period of time to petition the bankruptcy court to certify the appeal, or the bankruptcy court may do so on its own initiative.

After the appeal has been docketed by the district court (or BAP) and the bankruptcy court is divested of jurisdiction, the ability to certify the appeal passes to the district court (or BAP). Presumably, even if the bankruptcy court already denied a certification request, nothing precludes a party from asking the district court (or BAP) anew to certify the appeal. Just like the bankruptcy court, the district court (or BAP) can also certify an appeal on its own initiative. 28 U.S.C. ' 158(d)(2)(A).

Finally, the parties, acting jointly, can bypass the courts and self-certify an appeal. Specifically, the statute provides that 'all the appellants and appellees acting jointly' may together make the certification request. Id. In such instances, the parties complete Official Form 24, titled 'Certification to Court of Appeals by all Parties.'

However, the statute is seemingly inconsistent because it later provides that rather than unanimity, a simple 'majority of the appellants and a majority of appellees' may make the certification request to the bankruptcy court, district court, or BAP, which then 'shall make the certification.' 28 U.S.C. ' 158(d)(2)(B). As a practical matter however, if the bankruptcy court, district court, or BAP does not endorse the majority parties' certification request, then it is unlikely the circuit court will accept the appeal, as described below.

Criteria for Certification

Regardless of who makes the certification request ' the bankruptcy court, district court, BAP, or the parties ' the criteria for certification are the same. The statute provides that an appeal is certifiable if any of the following three factors apply:

1. The appeal involves a matter of public importance or a question of law that neither the circuit court nor the Supreme Court has addressed;
2. The appeal requires resolution of conflicting decisions; or
3. The appeal may materially advance the progress of the case.

28 U.S.C. ' 158(d)(2)(A)(i)-(iii).

The first two criteria raise the macro issue of whether the appeal in question will bring uniformity to either an important or conflicting area of law. For instance, if bankruptcy courts within the circuit have reached conflicting decisions on an issue, an appeal of such issue would qualify. Since few appeals meet such stringent criteria, the first two criteria will normally not be applicable. The third criterion, however, only relates to the micro issue of whether the appeal will 'materially advance the progress of the case.' One could almost always argue that eliminating a layer of appeal and proceeding directly to the circuit court will materially advance the case, in that it will hasten final resolution. As such, seemingly all appeals would fall within the third criterion's basis for certification. However, the House Report cautions against such broad application:

While fact-intensive issues may occasionally offer grounds for certification even when binding precedent already exists on the general legal issue in question, it is anticipated that this procedure will rarely be used in that circumstance or in an attempt to bring to the circuit courts of appeals matters that can appropriately be resolved initially by district court judges or bankruptcy appellate panels. House Report at 148-49, 2005 U.S.C.C.A.N. at 206-07.

The statute provides that certification requests must be made within 60 days of the judgment, order, or decree being appealed. 28 U.S.C.
' 158(d)(2)(E). Rule 8001(f)(3) further provides that certification requests should include:

• the facts necessary to understand the question presented;
• the question itself;
• the relief sought;
• the reasons why the appeal should be allowed and why one of the criteria apply; and
• a copy of the order being appealed and any related memorandum or opinion.

Finally, one last head-scratcher: As discussed earlier, the statute provides that the lower court 'shall make the certification' if a majority of the parties so request. 28 U.S.C. ' 158(d)(2)(B). Likewise, all the parties acting jointly can self-certify the appeal by completing Official Form 24. Thus, taken at face value, the majority of parties can request certification of an appeal claiming that one of the criterion applies, even if none do, and the lower court must make the certification. As such, the process is potentially ripe for abuse. However, in such instances, it is unlikely that the circuit court will accept a direct appeal if the lower court does not endorse the parties' self certification, which leads to the final topic.

Must the Circuit Court Accept the Direct Appeal?

Undermining the utility of the new device, the circuit court ultimately decides whether to accept a direct appeal once certified. That is, the circuit court has discretion whether to accept an appeal that has been certified. 28 U.S.C. ' 158(d)(2)(A). Given that circuit courts have no shortage of work and appeals routinely span 2 years, circuit courts may simply decline to exercise their jurisdiction even when the criteria apply. If the circuit court declines to exercise its jurisdiction and hear the certified appeal, then the appeal is heard by the district court (or BAP). Of course, once the district court or BAP rules, the losing party has the right to appeal the decision anew to the circuit court, as is the practice under the traditional 'two-tier appeal' system.

Other Practice Pointers

No matter whether one appeals under the traditional two-tier process or directly to the circuit court, a few other restrictions apply and are worth reviewing. First, only final orders are automatically appealable. Given the unique nature of bankruptcy proceedings however, what constitutes a final order is construed liberally in bankruptcy. In re Forty-Eight Insulations, Inc., 115 F.3d 1294, 1299 (7th Cir. 1997) ('we treat as final those orders that ultimately determine a creditor's position in the bankruptcy proceeding, even though administration of the debtor's estate continues'). Thus, most discrete matters, eg, lift stay orders, are considered final orders and are immediately appealable. However, bankruptcy courts may only enter final orders in core proceedings. 28 U.S.C. ' 157(b)(1).

Second, per Rule 8002(a), bankruptcy orders must be appealed within 10 days, not 30 days, as is customary in district court. If not carefully monitored, this deadline can be easily ' and fatally ' missed. However, when it comes to the second tier appeal (eg, appealing the district court's or BAP's ruling), the appellant then has 30 days to file its notice of appeal with the court that entered the judgment. Fed.R.App.P. 3 & 4.

Finally, no matter how appealed, appellants should evaluate seeking a stay of the order being appealed. Otherwise, the appeal may later be dismissed as moot because the underlying bankruptcy case typically continues while the appeal is pending.

Conclusion: A More Efficient Process or Still Clumsy?

The good news is that there is now a mechanism for direct appeals of final bankruptcy orders to the circuit court, thereby potentially eliminating a level of appellate review. The bad news is that only 'certified' orders are eligible for direct appeal, and even then the circuit court ultimately has discretion whether to hear the direct appeal. Thus, it remains to be seen whether bankruptcy appeals will become more efficient or instead remain subject to the lengthy and inefficient double appeal process.

William Choslovsky is a partner in the Chicago office of DLA Piper Rudnick Gray Cary US LLP. A graduate of Harvard Law School and former judicial clerk, Choslovsky represents debtors, creditors, and committees in complex bankruptcy and restructuring matters. The author acknowledges and thanks his colleague, Ann Marie Bredin, a bankruptcy associate at DLA Piper, for her research, comments, and edits.

Let's face it, bankruptcy can be frustrating, not to mention costly and lengthy. First is the sober reality that in almost all cases, creditors ' and unsecured creditors especially ' will not be paid in full. Second is the fact that making sure your client's rights are protected, and recoveries maximized, takes time, money, and involvement in the bankruptcy process, all of which can be disruptive to its ongoing operations. The frustration factor, however, reaches its zenith with bankruptcy appeals. Unlike 'normal' appeals in state and federal courts, bankruptcy appeals provide for two levels of automatic appeal. Bankruptcy orders are first appealed to the district court or, in certain jurisdictions, to the bankruptcy appellate panel (BAP), and thereafter each party has the automatic right to appeal anew to the circuit court.

This article briefly reviews the existing two-tier bankruptcy appeal process and its attendant problems. It then summarizes the new, 'direct appeal to circuit court' alternative and highlights some of the opportunities ' and problems ' the new mechanism poses.

The 'Double Appeal' System

The built-in double appeal process stems from the fact that bankruptcy courts are 'units' of the district courts. 28 U.S.C. ' 151. Unlike district court judges, bankruptcy judges are not Article III judges vested with lifetime tenure, nominated by the President, and confirmed by the Senate, as provided by the Constitution. Instead, they are Article I judges, with limited, 14-year terms, appointed by their respective circuit courts. 28 U.S.C. ' 152. As a result, bankruptcy court orders must normally first be appealed to the district court (or BAP, if applicable). 28 U.S.C. ' 158. Historical roots aside, the automatic double appeal process often results in a wasted and redundant level of appeal. The losing party at the first appellate level not only can appeal to the circuit court, but the circuit court then gives no deference to the first appellate court's ruling. Thus, in essence, the first level of appellate review is nothing more than a glorified ' and costly ' dress rehearsal. Plus, with more than 650 district court judges spread throughout 94 judicial districts and BAP panels employed in five circuits, the present patchwork appellate system fosters forum shopping and impedes creation of a unified body of binding precedent. As seasoned practitioners know, and often joke, one can usually find a case supporting any proposition.

Needless to say, the practice has been criticized. In a report on the 2005 bankruptcy law amendments, the House Committee on the Judiciary recognized the flaws: 'In addition to the time and cost factors attendant to the present appellate system, decisions rendered by a district court as well as a bankruptcy appellate panel are generally not binding and lack stare decisis value.' H.R. Rep. No. 109-31, pt. 1, at 148 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 206 ('House Report').

Direct Appeals to the Circuit Court

The bankruptcy law amendments passed last year, however, offer some relief. Although less discussed than other bankruptcy law changes, there is now a mechanism to appeal bankruptcy court orders directly to the circuit court, thereby leap-frogging the often wasteful and time-consuming first level of review.

Specifically, appeals from bankruptcy court orders and judgments may now be 'certified' to be heard directly by the circuit court. The certification process involves two steps: first, certification by the bankruptcy court, district court (or BAP), or the parties themselves, and then authorization by the circuit court. The amended statute, 28 U.S.C. ' 158(d), and related interim changes to Federal Rule of Bankruptcy Procedure ('Rule') 8001 provide the framework for the direct appeal process, including: 1) who may certify an appeal for circuit court review; 2) what the criteria are for certification; and 3) whether the circuit court must accept the direct appeal. As detailed below, however, the answers are not always clear.

Who May 'Certify' an Appeal for Circuit Court Review?

The amended statute, which applies to bankruptcy cases filed after Oct. 17, 2005, now provides that either: 1) the bankruptcy court, 2) the district court, 3) the BAP, if applicable, or 4) all of the parties to the appeal, if acting jointly, may make the certification request. 28 U.S.C. ' 158(d)(2)(A). Thus, any court involved in the appeal or all the parties together can certify the appeal.

At first glance, the idea of the bankruptcy court certifying the appeal is paradoxical because it is normally divested of all matters related to an appeal ' including 'certifying' it ' when the appellant files its notice of appeal. As such, unless a bankruptcy court was clairvoyant and somehow knew when it issued its order or judgment that an appeal would subsequently be filed, it would be unable to certify the appeal. In re Virissimo, 332 B.R. 208, 209 (Bankr. D. Nev. 2005) ('It would appear that the statute creates the classic 'Catch-22” by requiring a bankruptcy court to certify an appeal before it has been docketed). However, Interim Rule 8001(f)(2) addresses this problem, providing that the bankruptcy court maintains jurisdiction for certification purposes until the appeal is docketed with the district court (or BAP), which usually takes 30 to 60 days as the record is assembled per Rule 8007(b). Thus, as a practical matter, after the appellant files its notice of appeal, either party has a period of time to petition the bankruptcy court to certify the appeal, or the bankruptcy court may do so on its own initiative.

After the appeal has been docketed by the district court (or BAP) and the bankruptcy court is divested of jurisdiction, the ability to certify the appeal passes to the district court (or BAP). Presumably, even if the bankruptcy court already denied a certification request, nothing precludes a party from asking the district court (or BAP) anew to certify the appeal. Just like the bankruptcy court, the district court (or BAP) can also certify an appeal on its own initiative. 28 U.S.C. ' 158(d)(2)(A).

Finally, the parties, acting jointly, can bypass the courts and self-certify an appeal. Specifically, the statute provides that 'all the appellants and appellees acting jointly' may together make the certification request. Id. In such instances, the parties complete Official Form 24, titled 'Certification to Court of Appeals by all Parties.'

However, the statute is seemingly inconsistent because it later provides that rather than unanimity, a simple 'majority of the appellants and a majority of appellees' may make the certification request to the bankruptcy court, district court, or BAP, which then 'shall make the certification.' 28 U.S.C. ' 158(d)(2)(B). As a practical matter however, if the bankruptcy court, district court, or BAP does not endorse the majority parties' certification request, then it is unlikely the circuit court will accept the appeal, as described below.

Criteria for Certification

Regardless of who makes the certification request ' the bankruptcy court, district court, BAP, or the parties ' the criteria for certification are the same. The statute provides that an appeal is certifiable if any of the following three factors apply:

1. The appeal involves a matter of public importance or a question of law that neither the circuit court nor the Supreme Court has addressed;
2. The appeal requires resolution of conflicting decisions; or
3. The appeal may materially advance the progress of the case.

28 U.S.C. ' 158(d)(2)(A)(i)-(iii).

The first two criteria raise the macro issue of whether the appeal in question will bring uniformity to either an important or conflicting area of law. For instance, if bankruptcy courts within the circuit have reached conflicting decisions on an issue, an appeal of such issue would qualify. Since few appeals meet such stringent criteria, the first two criteria will normally not be applicable. The third criterion, however, only relates to the micro issue of whether the appeal will 'materially advance the progress of the case.' One could almost always argue that eliminating a layer of appeal and proceeding directly to the circuit court will materially advance the case, in that it will hasten final resolution. As such, seemingly all appeals would fall within the third criterion's basis for certification. However, the House Report cautions against such broad application:

While fact-intensive issues may occasionally offer grounds for certification even when binding precedent already exists on the general legal issue in question, it is anticipated that this procedure will rarely be used in that circumstance or in an attempt to bring to the circuit courts of appeals matters that can appropriately be resolved initially by district court judges or bankruptcy appellate panels. House Report at 148-49, 2005 U.S.C.C.A.N. at 206-07.

The statute provides that certification requests must be made within 60 days of the judgment, order, or decree being appealed. 28 U.S.C.
' 158(d)(2)(E). Rule 8001(f)(3) further provides that certification requests should include:

• the facts necessary to understand the question presented;
• the question itself;
• the relief sought;
• the reasons why the appeal should be allowed and why one of the criteria apply; and
• a copy of the order being appealed and any related memorandum or opinion.

Finally, one last head-scratcher: As discussed earlier, the statute provides that the lower court 'shall make the certification' if a majority of the parties so request. 28 U.S.C. ' 158(d)(2)(B). Likewise, all the parties acting jointly can self-certify the appeal by completing Official Form 24. Thus, taken at face value, the majority of parties can request certification of an appeal claiming that one of the criterion applies, even if none do, and the lower court must make the certification. As such, the process is potentially ripe for abuse. However, in such instances, it is unlikely that the circuit court will accept a direct appeal if the lower court does not endorse the parties' self certification, which leads to the final topic.

Must the Circuit Court Accept the Direct Appeal?

Undermining the utility of the new device, the circuit court ultimately decides whether to accept a direct appeal once certified. That is, the circuit court has discretion whether to accept an appeal that has been certified. 28 U.S.C. ' 158(d)(2)(A). Given that circuit courts have no shortage of work and appeals routinely span 2 years, circuit courts may simply decline to exercise their jurisdiction even when the criteria apply. If the circuit court declines to exercise its jurisdiction and hear the certified appeal, then the appeal is heard by the district court (or BAP). Of course, once the district court or BAP rules, the losing party has the right to appeal the decision anew to the circuit court, as is the practice under the traditional 'two-tier appeal' system.

Other Practice Pointers

No matter whether one appeals under the traditional two-tier process or directly to the circuit court, a few other restrictions apply and are worth reviewing. First, only final orders are automatically appealable. Given the unique nature of bankruptcy proceedings however, what constitutes a final order is construed liberally in bankruptcy. In re Forty-Eight Insulations, Inc., 115 F.3d 1294, 1299 (7th Cir. 1997) ('we treat as final those orders that ultimately determine a creditor's position in the bankruptcy proceeding, even though administration of the debtor's estate continues'). Thus, most discrete matters, eg, lift stay orders, are considered final orders and are immediately appealable. However, bankruptcy courts may only enter final orders in core proceedings. 28 U.S.C. ' 157(b)(1).

Second, per Rule 8002(a), bankruptcy orders must be appealed within 10 days, not 30 days, as is customary in district court. If not carefully monitored, this deadline can be easily ' and fatally ' missed. However, when it comes to the second tier appeal (eg, appealing the district court's or BAP's ruling), the appellant then has 30 days to file its notice of appeal with the court that entered the judgment. Fed.R.App.P. 3 & 4.

Finally, no matter how appealed, appellants should evaluate seeking a stay of the order being appealed. Otherwise, the appeal may later be dismissed as moot because the underlying bankruptcy case typically continues while the appeal is pending.

Conclusion: A More Efficient Process or Still Clumsy?

The good news is that there is now a mechanism for direct appeals of final bankruptcy orders to the circuit court, thereby potentially eliminating a level of appellate review. The bad news is that only 'certified' orders are eligible for direct appeal, and even then the circuit court ultimately has discretion whether to hear the direct appeal. Thus, it remains to be seen whether bankruptcy appeals will become more efficient or instead remain subject to the lengthy and inefficient double appeal process.

William Choslovsky is a partner in the Chicago office of DLA Piper Rudnick Gray Cary US LLP. A graduate of Harvard Law School and former judicial clerk, Choslovsky represents debtors, creditors, and committees in complex bankruptcy and restructuring matters. The author acknowledges and thanks his colleague, Ann Marie Bredin, a bankruptcy associate at DLA Piper, for her research, comments, and edits.