Procedural Issues In Bankruptcy Appeals

This article was originally published in Bankruptcy Litigation

Committee, ABI Committee News, Volume 5, Number 4 / July 2008

There are often numerous opportunities for appeals within a

single bankruptcy case, with a number of final orders from which

appeals can be taken being entered prior to plan confirmation or

some other case dispositive event. These are orders that in

"normal" plaintiff-versus- defendant (P v. D) litigation

would be viewed as interlocutory, yet are appealable in bankruptcy

cases. In addition, because bankruptcy courts are Article I courts,

see Northern Pipeline Co. Marathon Pipe Line Co., 458 U.S.

50 (1982), there are two levels of intermediate appellate review of

bankruptcy court orders – by the District Court or the

Bankruptcy Appellate Panel in the first instance, and by the

Circuit Court of Appeals thereafter. Thus, bankruptcy appellate

practice can be quite unlike appellate practice in the typical P v.

D litigation, where there is usually only one appeal, at the end of

the case following a dispositive ruling or entry of judgment, and

only one level of intermediate review.

Because of the intervening (as opposed to interlocutory) nature

of many bankruptcy court orders, and the vast number of parties who

participate in a typical bankruptcy proceeding, there are a number

of traps for the unwary that arise in bankruptcy appellate

litigation. These include narrower concepts of standing than those

typically presented by P v. D litigation; issues that are more

likely to become moot between the time of the initial court order

and the time that an appeal is heard; the somewhat unique

bankruptcy appellate doctrine of equitable mootness; and the

increased importance of obtaining a stay pending appeal. In

Sections I and II, this article discusses a few of these procedural

differences, and highlights some ways in which appellees may be

able to defeat an appeal on procedural grounds. In addition,

Section III details the recent BAPCPA amendments that permit

litigants in certain circumstances to short circuit the arduous

bi-level appellate process and seek direct review from the Court of

Appeals.

JURISDICTIONAL AND PRUDENTIAL LIMITATIONS

Appellate Standing In Bankruptcy Proceedings

Standing in bankruptcy appeals is more narrowly construed than

Article III standing. See, e.g., Spenlinhauer v.

O'Donnell (In re Spenlinhauer), 261 F.3d 113, 117 (1st Cir.

2001) (standing in bankruptcy appeals is delimited "more

stringently than the doctrine of Article III standing").

Whereas typical Article III standing exists so long as the

appellant's rights are "fairly traceable" to the

alleged actions at issue, to obtain bankruptcy appellate standing,

there must be a "financial" component to the injury that

would be suffered by the appellant if it were not permitted to

appeal a lower court decision. See, e.g.,

Travelers Ins. Co. v. H.K. Porter Co. (In re H.K. Porter

Co.), 45 F.3d 737, 741 (3d Cir. 1995) (contrasting bankruptcy

appellate standing with Article III standing which "need not

be financial and need only be 'fairly traceable' to the

allege illegal action"); Kane v. Johns-Manville Corp.,

843 F.2d 636, 642 n.2 (2d Cir. 1988) (same).

The First Circuit has provided a clear definition of what

constitutes financial injury for the purposes of determining

appellate standing. Only a "person aggrieved,"

i.e., a person whose rights or interests have been

"directly and adversely affected pecuniarily," has

standing to appeal a bankruptcy court order. In re El San Juan

Hotel, 809 F.2d 151, 154 (1st Cir. 1987). The other Circuits

have uniformly adopted the "person aggrieved" test for

bankruptcy appellate standing. See In re Westwood Cmty. Two

Ass'n, Inc., 293 F.3d 1132, 1335 (11th Cir. 2002); In re

Troutman Enter., Inc., 286 F.2d 359, 364 (6th Cir. 2002);

McGuirl v. White, 86 F.3d 1232, 1234- 35 (D.C. Cir. 1996);

In re Dykes, 10 F.3d 184, 187 (3d Cir. 1993); In re

Andreuccetti, 975 F.2d 413, 416 (7th Cir. 1992); Holmes v.

Silver Wing Aviation, Inc., 881 F.2d 939, 940 (10th Cir. 1989);

In re Cosmopolitan Aviation Corp., 763 F.2d 507, 513-14 (2d

Cir. 1985); In re Fondiller, 707 F.2d 441, 442 (9th Cir.

1983).

This heightened standing requirement is driven by the nature of

bankruptcy cases, which tend to be procedurally and

administratively unwieldy, and often involve a myriad of parties

who may be directly or indirectly affected by any particular order.

See San Juan Hotel, 809 F.2d at 154. If the impact of

an order on a party is indirect, or if reversal will not materially

change the party's financial situation, standing will be

lacking. Accordingly, courts have determined that standing is

absent for debtors, where there is no tangible or quantifiable

estate interest to protect; creditor bodies, where there is no

likelihood that reversal of the order would result in any

additional moneys for them; and other parties-in-interest who might

conceivably have to expend money defending against litigation in

the future should the bankruptcy court order not be reversed.

Litigants should not confuse the relatively lenient standard

governing a party's right to contest a motion before the

bankruptcy court under section 1109 ("a party in interest . .

. may raise and may appear and be heard on any issue in a case

under this chapter"), with the more rigorous standing

requirements on appeal. Thus, just because the bankruptcy court

entertains a party's objection to a motion does not meant that

the appellate courts will do so after that objection is denied, and

First Circuit courts have willingly dismissed appeals where

appellants have failed to carry their burden of showing that the

challenged order directly affected their pecuniary interests.

See, e.g., Davis v. Cox, 356 F.3d 76, 93-94

& n.15 (1st Cir. 2004) (debtor lacked standing to appeal order

permitting disbursement of escrow funds where funds were not

property of estate and debtor had only a contingent interest in

funds); Spenlinhauer, 261 F.3d at 117 (debtor lacked

standing to appeal from § 363 sale order where there was no

prospect of surplus to the debtor); Wynn v. Braunstein (In re

Wynco Distribs., Inc.), No. 94-1448, 1995 U.S. App. LEXIS 3623,

at *6 (1st Cir. Feb. 24, 1995) (debtor's minority shareholders

alleged no cognizable injury as a result of § 363 sale order

where there was no evidence sale was chilled); San Juan

Hotel, 809 F.2d at 155 (former trustee had no standing to

appeal order authorizing suit against him where only interest was

as a potential future defendant); Orion Fitness Group, LLC v.

River Valley Fitness One Ltd. P'ship, No. 03-474-JD, 2004

WL 524430, at *1 (D.N.H. Mar. 17, 2004) (creditors who proposed

unsuccessful plan but whose claims were to be paid in full under

confirmed plan, lacked standing to appeal confirmation order);

Austin Assocs. v. Howison (In re Murphy), 288 B.R. 1, 5 (D.

Me. 2002) (accountants lacked standing to object to assignment of

estate's litigation claims against them absent evidence of bad

faith, fraud, or collusion); Cofield v. Graham (In re Malmart

Mortgage Co.), 166 B.R. 499, 501-02 (D. Mass. 1994) (hopelessly

insolvent Chapter 7 debtors lacked standing to object to fee

applications); Kemper Life Ins. Co. v. Bezanson (In re Medomak

Canning Co., Inc.), 123 B.R. 671, 673 (D. Me. 1991)

(interpleader-plaintiff lacked standing to object to order

approving settlement among defendants which did not release claims

against plaintiff); Great Road Serv. Ctr., Inc. v. Golden (In re

Great Road Serv. Ctr., Inc.), 304 B.R. 547, 550-51 (B.A.P. 1st

Cir. 2004) (insolvent Chapter 7 debtor lacked standing to object to

fee applications or assert "fraud on the court");

Alfaro v. Vazquez (In re Benitez), 221 B.R. 927, 932 (B.A.P.

1st Cir. 1998) (debtor suffered no harm from bankruptcy court's

denial of request that a second lawyer represent him at

hearing).

Because of the limited standing present in bankruptcy appeals,

it is critical for a party whose standing to appeal a bankruptcy

court order is challenged to develop sufficient evidence showing

that the order directly affects its pecuniary interests. Such a

showing should be made early in any proceeding, as standing is

ordinarily a fact question for the lower court. See El

San Juan, 809 F.2d at 154 n.3. But even if the lower court does

not make this determination, appellate courts may find, in the

first instance, that an appellant has standing, provided that there

is evidentiary support in the record. See, e.g.,

In re Depoister, 36 F.3d 582, 585 (7th Cir. 1994) (based on

schedule of assets and liabilities, Chapter 7 debtor had standing

to appeal order approving trustee's settlement of claims with

other parties, even though district court did not make that

determination); In re Martin, 817 F.2d 175, 177 & n.2

(1st Cir. 1987) (debtors had standing to appeal order invalidating

pre-petition mortgage where appeals court determined that immediate

sale of property could be avoided if mortgage was held valid).

Article III Mootness

The doctrine of Article III mootness may present another

jurisdictional limitation in bankruptcy appellate proceedings.

Broadly speaking, the doctrine limits judicial power where no

effective remedy can be provided. See, e.g.,

Flester Publishing v. Burrell (In re Burrell), 415 F.3d 994,

998 (9th Cir. 2005) ("If the controversy is moot, both the

trial and appellate courts lack subject matter jurisdiction . . .

and the concomitant 'power to declare law' by deciding the

claims on the merits."); Rochman v. Northeast Utils. Serv.

Group (In re Public Serv. Co. of N.H.), 963 F.2d 469, 471 (1st

Cir. 1992) ("Mootness in bankruptcy appellate proceedings . .

. is premised on jurisdictional and equitable considerations

stemming from the impracticability of fashioning fair and effective

judicial relief."). As with standing, an appellate court has

an independent obligation to consider mootness at the outset.

See Burrell, 415 F.3d at 997.

Mootness frequently arises in bankruptcy appeals...