Written by: Robert DeMarco
Earlier this month, the United States Supreme Court ruled that an order denying confirmation of a chapter 13 plan of reorganization was not immediately appealable. Bullard v. Blue Hills Bank, No. 14-116, 2015 WL 1959040 (U.S. May 4, 2015). Petitioner Louis B. Bullard (“Bullard”) filed a chapter 13 bankruptcy case in December, 2010, and his chapter 13 plan was filed shortly thereafter. After several revisions, the chapter 13 plan, as amended (the “Plan”), which is the subject of this appeal, was set for fearing.
One of Bullard’s more significant debts was a secured obligation of approximately $346,000 due and owing to Blue Hills Bank (the “Bank”); Bullard’s chief protagonist. The Bank debt was secured by a mortgage on a multifamily house (the “Property”), the value of which was significantly less than the amount of the debt.
The Plan proposed to restructure the Bank debt in order to address the negative equity. Bullard proposed splitting the Bank debt into a secured claim of $245,000 (the value of the Property) and an unsecured claim of $101,000. Under the Plan, Bullard would pay the Bank’s secured claim according to the terms of the mortgage and promissory note, but the balance would be reduced to $245,000. The secured claim would be paid in full, but not until many years after the bankruptcy case was concluded. The Bank’s unsecured claim would be treated in the same manner as the other unsecured claims, receiving a dividend of approximately $5,000 over the Plan term. The Bank objected to confirmation, which objection was sustained by the Bankruptcy Court. See 11 U.S.C. §§ 1322(b)(2) and (d).
Bullard appealed the matter to the First Circuit Bankruptcy Appellate Panel (the “BAP”). The BAP, as an initial matter concluded that it lacked jurisdiction to hear the appeal “noting that a party can immediately appeal only “final” orders of a bankruptcy court. In re Bullard, 494 B.R. 92, 95 (2013) (citing 28 U.S.C. § 158(a)(1)).” Bullard v. Blue Hills Bank, No. 14-116, 2015 WL 1959040, at *3. The BAP reasoned that because Bullard was “free to propose an alternate plan” the order denying confirmation could not be a final appealable order. In re Bullard, 494 B.R. at 95. The BAP nonetheless heard the appeal on the merits pursuant to 28 U.S.C. § 158(a)(3), which confers jurisdiction upon the BAP, with leave of court, to hear appeals of interlocutory orders. The BAP affirmed the decision of the Bankruptcy Court.
Bullard, obviously unhappy with the result, appealed the BAP’s decision to the First Circuit Court of Appeals. “Adopting the majority view, the First Circuit concluded that an order denying confirmation is not final so long as the debtor remains free to propose another plan.” Bullard v. Blue Hills Bank, No. 14-116, 2015 WL 1959040, at *4.
Chief Justice John Roberts, writing for a unanimous Court reasoned that “only plan confirmation — or case dismissal — alters the status quo and fixes the rights and obligations of the parties.” Bullard v. Blue Hills Bank, No. 14-116, 2015 WL 1959040, at *5 (U.S. May 4, 2015). Justice Roberts continued:
Confirmation has preclusive effect, foreclosing relitigation of “any issue actually litigated by the parties and any issue necessarily determined by the confirmation order.”
When confirmation is denied and the case is dismissed as a result, the consequences are similarly significant [and] dooms the possibility of a discharge and the other benefits available to a debtor under Chapter 13.
Bullard v. Blue Hills Bank, No. 14-116, 2015 WL 1959040, at *5 (citations omitted; emphasis in original).
Denial of confirmation, on the other hand, suffers from no such calamities.
Denial of confirmation with leave to amend, by contrast, changes little. The automatic stay persists. The parties’ rights and obligations remain unsettled. The trustee continues to collect funds from the debtor in anticipation of a different plan’s eventual confirmation. The possibility of discharge lives on.
Bullard v. Blue Hills Bank, No. 14-116, 2015 WL 1959040, at *6.
Justice Roberts bolstered his conclusions with a practical application of the situation. Debtors have the exclusive right to propose a chapter 13 plan and may freely amend such plans as need arises. Debtors should not also be able to lord the threat of appeal over a creditor during the bankruptcy process. Additionally, while Bullard contends such appeals would be rare in light of the “small beer issues”, the position asserted is an oxymoron. “It is odd, after all, to argue in favor of allowing more appeals by emphasizing that almost nobody will take them.” Id.
Lastly, the Court made clear there are several mechanisms available for interlocutory review. First, the District Court or Bankruptcy Appellate Panel might grant leave to appeal pursuant to 28 U.S.C. § 158(a)(3). If a debtor loses the aforementioned appeal, a debtor may seek certification to the court of Appeals under the general interlocutory statute: 28 U.S.C. § 1292(b). A third option is for the lower courts, or the parties acting jointly, to certify the matter to the Court of Appeals pursuant to 28 U.S.C. § 158(d)(2). “While discretionary review mechanisms such as these “do not provide relief in every case, they serve as useful safety valves for promptly correcting serious errors” and addressing important legal questions.” Mohawk Industries, 558 U.S., at 111, 130 S.Ct. 599 (internal quotation marks and brackets omitted). Bullard v. Blue Hills Bank, No. 14-116, 2015 WL 1959040, at *9.