Supreme Court Holds Order Denying Plan Confirmation Is Not a Final Order Subject To Immediate Right To Appeal

On May 4, 2015, the Supreme Court of the United States held in Bullard v. Blue Hills Bank that an order denying confirmation of a plan is not a “final” order that the debtor can immediately appeal.¹ While the case before the Court concerned a Chapter 13 individual debtor, there is no reason to believe that the Court’s reasoning would not be applied in the context of Chapter 11 plan confirmation. In fact, the leading case on cramdown interest rates in Chapter 11 is a Supreme Court decision that arose under Chapter 13.² Thus, this ruling should serve to spare Chapter 11 participants from time-consuming and costly appellate review of plans that did not pass muster under Section 1129 of the Bankruptcy Code, and encourage debtors to negotiate with creditors over contested plan provisions.

Background

Bullard’s plan proposed a “hybrid” treatment of his home mortgage owed to the Bank, i.e., splitting the debt into a secured claim in the amount of his house’s then-current value (which he estimated at $245,000) and an unsecured claim for the remainder (roughly $101,000). The secured claim would be paid in full over time, but long after the conclusion of his bankruptcy case, while the unsecured claim would only be paid about $5,000. The Bank objected and the Bankruptcy Court denied confirmation of the plan, concluding that Chapter 13 did not allow Bullard to split the Bank’s claim unless he paid the secured portion in full during the plan period. The Bankruptcy Court ordered Bullard to submit a new plan within 30 days.

Bullard appealed to the Bankruptcy Appellate Panel (“BAP”) of the First Circuit. The BAP concluded that the order denying plan confirmation was not final because Bullard was “free to propose an alternate plan,” but exercised its discretion to hear the appeal under a provision that allows interlocutory appeals “with leave of the court.”³ The BAP agreed with the Bankruptcy Court that the plan’s proposed treatment of the Bank’s claim was improper. Bullard sought review in the Court of Appeals for the First Circuit, but that court dismissed his appeal for lack of jurisdiction reasoning that an order denying confirmation is not final so long as the debtor remains free to propose another plan. Bullard then sought review by the Supreme Court.

The Supreme Court’s Analysis

Chief Justice Roberts, writing for a unanimous Court, began by observing that 28 U. S. C. § 158(a) authorizes appeals as of right not only from final judgments in cases, but also from “final judgments, orders, and decrees . . . in cases and proceedings.” Bullard argued that each time the bankruptcy court reviews a proposed plan, it conducts a separate “proceeding,” such that an order denying confirmation and an order granting confirmation both terminate that proceeding, and both are therefore final and appealable. The Bank argued that the relevant “proceeding” is the entire process of considering plans, which terminates only when a plan is confirmed or, if the debtor fails to offer any confirmable plan, when the case is dismissed, whereas an order denying confirmation is not final so long as it leaves the debtor free to propose another plan.

The Supreme Court agreed with the Bank because only plan confirmation, or the dismissal of the case, alters the status quo and fixes the rights and obligations of the parties. Confirmation has preclusive effect, foreclosing relitigation of “any issue actually litigated by the parties and any issue necessarily determined by the confirmation order.”⁴ “When confirmation is denied and the case is dismissed as a result, the consequences are similarly significant,” whereas denial of confirmation with leave to amend changes little.⁵ As Justice Roberts observed: “An order denying confirmation does rule out the specific arrangement of relief embodied in a particular plan. But that alone does not make the denial final any more than, say, a car buyer’s declining to pay the sticker price is viewed as a ‘final’ purchasing decision by either the buyer or seller. ‘It ain’t over till it’s over.'”⁶

Chief Justice Roberts made several other observations that are pertinent to participants in the Chapter 11 plan confirmation process. First, “each climb up the appellate ladder and slide down the chute can take more than a year. Avoiding such delays and inefficiencies is precisely the reason for a rule of finality.”⁷ Second, the Bullard Court recognized that the prospect of appeals may be viewed by debtors as important leverage in dealing with creditors. Along this vein, the Court noted that: “These concerns are heightened if the same rule applies in Chapter 11, as the parties assume. Chapter 11 debtors, often business entities, are more likely to have the resources to appeal and may do so on narrow issues.”⁸ Third, Justice Roberts opined that “[t]he knowledge that [the debtor] will have no guaranteed appeal from a denial [of plan confirmation] should encourage the debtor to work with creditors . . . to develop a confirmable plan as promptly as possible. And expedition is always an important consideration in bankruptcy.”⁹

Finally, the Bullard Court noted that there were several mechanisms to take interlocutory appeals when parties and courts are faced with questions that are important enough that they should be addressed immediately, as Bullard had done here in light of a split in First Circuit authority on his proposed treatment of the Bank’s claim. “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.”¹⁰

Conclusion

In short, the Court recognized that endless appeals of plan confirmation denials will add needless time and expense to the bankruptcy process and provide undue leverage to recalcitrant debtors. Instead, this ruling should serve to encourage debtors to negotiate consensual plans with their major constituencies. In fact, Bullard may cause debtors to be more circumspect in proposing plans that do not enjoy broad creditor support, especially plans that contain provisions that envision a stretch from existing law. Debtors have to be mindful that failure to confirm a plan could constitute “cause” for conversion or dismissal of the Chapter 11 case.¹¹

For More Information

For more information on how these issues may affect your rights, contact Nicholas F. Kajon at 212.537.0403.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.

¹ No. 14–116.
² Till v. SCS Credit Corp., 541 U.S. 465 (2004)(adopting the “prime-plus” formula approach).
³ Slip Op. at 3.
⁴ Slip Op. at 5.
⁵ Slip Op. at 6.
⁶ Id.
⁷ Slip Op. at 7.
⁸ Id.
⁹ Slip Op. at 8.
¹⁰ Slip Op. at 12, quoting Mohawk Industries, Inc. v. Carpenter, 558 U. S. 100, 111 (2009).
¹¹ 11 U.S.C. § 1112(b)(1)&(4)(J).