Alternative Structures for

Bankruptcy Appeals

Judith A. McKenna & Elizabeth C. Wiggins

Federal Judicial Center

2000

This Federal Judicial Center publication was undertaken in furtherance of the

Center’s statutory mission to conduct and stimulate research and development for

the improvement of judicial administration. The views expressed are those of the

authors and not necessarily those of the Federal Judicial Center.
iii

Contents

Preface vii

Executive Summary 1

Findings 1

Regarding precedent 1

Regarding disposition speed 3

Regarding cost 3

Regarding process and outcome 4

Implications of alternatives 5

Options and considerations 7

Focusing on precedent quality 7

Focusing on process quality 8

Focusing on speed and economy 8

A possible first step 9

I. Overview of Issues 11

Arguments of proponents of change 11

Arguments of opponents of change 12

Evaluating the arguments 13

II. History and Overview of Reform Movements and Legislation 15

Bankruptcy Act of 1898 and the Commission on the Bankruptcy Laws

of the United States 15

Bankruptcy Reform Act of 1978 15

Northern Pipeline Construction Co. v. Marathon Pipe Line Co. 18

Emergency Model Rule 18

Bankruptcy Amendments and Federal Judgeship Act of 1984 (current

Bankruptcy Code) 19

Federal Courts Study Committee recommendation 20

Long Range Plan for the Federal Courts 20

Bankruptcy Reform Act of 1994 22

National Bankruptcy Review Commission 22

Efforts in the 105th Congress to change bankruptcy appellate

structures 23

Commission on Structural Alternatives for the Federal Courts of

Appeals 24

Efforts in the 106th Congress to change bankruptcy appellate

structures 24

Commonalities in reform efforts 25
iv Alternative Structures for Bankruptcy Appeals

III. Current Bankruptcy Appellate Systems and the Arguments for

Changing Them 27

Is structural uniformity important? 28

Precedent and its relationship to structure 28

Multiplicity of decision makers 29

Production of precedential opinions and other guidance 31

Sources of precedent in bankruptcy 31

Experiences with unclear precedent: survey research 33

Disposition times, appeal rates, and their relationship to structure 39

Caveats about evaluating disposition time information 40

District court disposition times 41

Bankruptcy appellate panel disposition times 42

Appeal outcomes and further proceedings 44

IV. Alternative Bankruptcy Appeal Structures 51

Option 1: Direct appeal to the courts of appeals 53

Effects on precedent, cost, and disposition time 53

Constitutionality 53

Effects on judicial workloads 55

Other disadvantages to direct appeal 61

Option 2: Direct appeal to the courts of appeals, with subject-matter

panels to hear bankruptcy appeals 62

Option 3: Direct appeal to the court of appeals, with presumptive

decisions by a BAP 63

Option 4: Direct appeal to the court of appeals or to the BAP by consent, with discretionary appeals from BAP decisions 64

Option 5: Direct appeal to the regional courts of appeals, using BAPs as

an alternative dispute resolution forum 67

Option 6: Direct appeal to a Federal Court of Bankruptcy Appeals

staffed by Article III judges 67

Option 7: Direct appeal to the Court of Appeals for the Federal

Circuit 69

Option 8: Appeal as of right to the district court or BAP with

subsequent discretionary appeal to the court of appeals (November

1994 Proposed Long Range Plan) 69

Option 9: Appeal as of right to the BAP with review by the regional

court of appeals 71
Contents v

Option 10: Appeal as of right to the district court and court of appeals

with direct appeal to the court of appeals in some instances 72

Option 11: Change to the rules of precedent 73

V. Conclusion 75

Appendix A 77

Appendix B 79

Appendix C 93

Appendix D 109
vii

Preface

With the dramatic rise in bankruptcy filings beginning in the mid-1980s,

the debate over the appropriate structure and operation of the bankruptcy

system began to command increasing attention from Congress and other

observers and users of the system. The debate has focused largely on substantive bankruptcy law, particularly as it affects consumer debtors and their

creditors, but some efforts to examine the system have taken a broader approach (e.g., the work of the congressionally created National Bankruptcy

Review Commission). These efforts have refocused attention on how firstlevel bankruptcy decisions should be reviewed on appeal. Some in Congress

moved to implement the Bankruptcy Review Commission’s 1997 recommendations, including one recommendation to route bankruptcy appeals

directly to the courts of appeals rather than, as now, to the district courts or

bankruptcy appellate panels. The Judicial Conference of the United States

asked Congress to defer action on these proposals until the judiciary had an

opportunity to “study further the existing process and possible alternative

structures and to submit a subsequent report to Congress.” To facilitate the

Judicial Conference’s deliberations, its Committee on the Administration of

the Bankruptcy System (Bankruptcy Committee) asked the Federal Judicial

Center to study the existing bankruptcy appellate structure and possible

alternatives.

The Center’s study report served as the basis for discussion at the Bankruptcy Committee’s June 1999 meeting. At that meeting, the committee

recommended that appeals from dispositive orders should in most instances

continue to be taken to the district court or to the bankruptcy appellate

panel, if one has been established, with further appeal as of right to the

court of appeals. But the committee recommended that the dispositive orders of bankruptcy judges should be reviewable directly in the court of appeals if, upon certification from the district court or the bankruptcy appellate panel or on motion by all parties to the appeal, the court of appeals determines that (1) a substantial question of law or matter of public importance is presented and (2) an immediate appeal from the order to the court

of appeals is in the interests of justice. The Committee on Court Administration and Case Management, which also considered the Center’s report

at its June 1999 meeting, concurred in this recommendation. Shortly thereafter, in view of pending legislation that would provide for direct appeal of

bankruptcy court orders to the court of appeals, the Judicial Conference’s
viii Alternative Structures for Bankruptcy Appeals

Executive Committee took expedited action to approve the recommendation on behalf of the Conference. In September 1999, the Executive Committee assented to a proposal by Senator Patrick J. Leahy to modify the Judicial Conference recommendation by deleting the provision that would

allow the parties to bring a direct appeal without certification by the district

or bankruptcy court.

At the time of this writing, it is unclear whether Congress will pass a

major bankruptcy statute and how that legislation (if passed) will affect the

bankruptcy appeals process, if at all. The Senate version of the legislation

contains no appeal-related provisions, but the House version would permit

direct appeal to the courts of appeals. It would eliminate district court appellate jurisdiction but would also permit circuits to create or retain bankruptcy appellate panels, to which appeals could be taken with the consent of

the parties. During informal negotiations to resolve differences between the

House and Senate bills, yet another approach to changing the bankruptcy

appellate system was proposed: Any bankruptcy appeal not decided by the

district court within thirty days (or an extension thereof) could be taken to

the court of appeals as though the district court had affirmed the bankruptcy judge’s decision.

Interest in the bankruptcy appellate system will likely persist, regardless

of the outcome of the current legislative activity. At a minimum, information about the operation of the present system will be critical to any evaluation of structural changes that may be made. In light of continuing interest

in this recurring policy question about judicial administration, this report

sets out the major results of the Center’s study.
1

Executive Summary

Under the current bankruptcy appellate system, appeals from dispositive

orders of bankruptcy judges are taken to the district court or to the bankruptcy appellate panel, if one has been established and the district has chosen to participate, with further appeal as of right to the court of appeals. In

response to legislative proposals to change this system, the Judicial Conference of the United States asked Congress to defer action until the judiciary

had an opportunity to “study further the existing process and possible alternative structures and to submit a subsequent report to Congress.”1

 To facilitate the Conference’s deliberations, its Committee on the Administration

of the Bankruptcy System asked the Federal Judicial Center to study the

existing bankruptcy appellate structure and possible alternatives.2 This report sets out the results of that study. It describes the bankruptcy appellate

system now operating in the United States and how it evolved, sets out the

recent efforts to change this system, and analyzes the evidence regarding the

need for change and the desirability of proposed changes. Here we summarize the study’s major points regarding precedent, disposition speed, cost,

process, and outcome under the current appellate system, and how the proposed alternative systems might differ on these dimensions.

Findings

Regarding precedent

1. The bankruptcy appellate system is not well structured to produce

binding precedent. The number of first-level reviewers greatly exceeds

1. Report of the Proceedings of the Judicial Conference of the United States, Sept. 1998, at 47.

2. We are grateful to the Bankruptcy Committee, particularly Judge David R. Thompson, who

chaired it during this study, and Judge Sarah Vance, who chaired its Subcommittee on Bankruptcy

Appeals. The subcommittee and its liaison members from the Committee on Court Administration and

Case Management provided guidance and oversight of the project. This publication is substantially

similar to the report delivered to the committees. We are also grateful to our FJC colleagues who provided research assistance—George Cort, John Shapard, Naomi Medvin, Patricia Lombard, Dean Miletich, and Ross Jurewitz. Also, Russell Wheeler was a thoughtful sounding board on many occasions

and a careful reviewer of earlier drafts. Portions of this report are derived from two papers prepared by

the authors at the direction of the Commission on Structural Alternatives for the Federal Courts of

Appeals. See Elizabeth C. Wiggins & Judith A. McKenna, Evaluating Alternative Bankruptcy Appellate

Processes and Direct Bankruptcy Appeals to the Courts of Appeals and Alternatives Using Bankruptcy Appellate Panels, both in the commission’s Working Papers (1999). The empirical research described here

updates and expands the work we did for the Commission.
2 Alternative Structures for Bankruptcy Appeals

the number of bankruptcy judges producing the judgments reviewed,

and appellate caseloads are spread thinly among district judges, giving

few judges much opportunity to develop bankruptcy expertise. Moreover, the inability of most appellate reviewers to create binding precedent

diminishes the value of appellate review and is asserted to hinder lawyers’

and others’ ability to structure transactions and predict litigation outcomes. We did not independently assess the level of uncertainty among

lawyers, but we did survey bankruptcy and district judges about their experiences with precedent problems.

2. Neither bankruptcy judges nor district judges report high levels of uncertainty about bankruptcy law, but with their more specialized

caseloads, bankruptcy judges experience uncertainty more often and

identify more discrete instances in which they had to decide an issue on

which the law is unclear. Both bankruptcy and district judges attribute

much of this uncertainty to the dearth of binding precedent from the

courts of appeals or the Supreme Court. There are also clear examples of

unresolved issues on which bankruptcy and district court opinions conflict (within and between the groups).

3. Bankruptcy judges report more experiences with unclear or conflicting

precedents in their typical caseloads than district judges report having in

theirs. Moreover, district judges report more problems when asked only

about bankruptcy cases than they do when asked about their overall

caseloads.

4. Bankruptcy appellate panel (BAP) judges provide specialized bankruptcy

expertise that their bankruptcy colleagues (and, to a slightly lesser extent,

district judges) value highly as a source of authority. Specifically: Bankruptcy and district judges facing issues on which there is no binding circuit precedent find the decisions of BAPs important sources of information in deciding the issues, particularly when those decisions were rendered in cases coming from their own districts. A large majority of bankruptcy judges find BAP decisions “very important” even when they are

in cases arising from other districts. This finding is not discussed in this

report because a full report on the survey awaits completion of a companion survey of attorneys.
Executive Summary 3

Regarding disposition speed

Caveat: Substantial problems with measuring relevant disposition times

make comparisons among the appellate routes on this dimension problematic. For the BAPs and the courts of appeals, we can distinguish with some

confidence between cases determined on the merits and cases terminated in

other ways. However, in the district court statistics, we cannot distinguish

with much confidence between bankruptcy appeals determined on the

merits and those that are terminated in other ways. Disposition time analyses should be used with caution, but using the best available data, we find:

1. District courts are, on the whole, faster at deciding bankruptcy appeals

than are the courts of appeals (median disposition times of approximately 152–165 days v. 230–240 days), but data-quality problems preclude us from making a confident estimate of how those times break

down between merit and non-merit dispositions in the district courts.

2. It is too early to tell whether bankruptcy appellate panels will be on average slower or faster than district courts. The BAPs differ among themselves on this dimension, but also differ in the nature of the cases they

handle (e.g., some took cases transferred in after long delays in the district court, others took only new filings) in ways that may affect their

disposition times. The Ninth Circuit BAP appears to have a longer median disposition time than the district courts in the circuit, but we have

insufficient data to conclude that with any certainty.

3. For cases that continue on through the court of appeals, the time spent

at the district court or BAP adds substantially to the total time on appeal—for cases terminated on the merits by the courts of appeals in fiscal

1998, the average time spent in the total appellate process was more than

27 months (826 days), and the median time was more than 22 months

(663 days).

Regarding cost

1. For litigants who desire only a second, independent look at their cases

and would not pursue the matter further, district courts are likely to be a

less expensive appeal route than courts of appeals. (We did not independently assess costs, but base this conclusion on gross comparisons of

the procedural differences between the systems and their implications for

litigant expense.) For litigants who would pursue the appeal in any event
4 Alternative Structures for Bankruptcy Appeals

(e.g., to obtain a binding precedent), the dual appeal structure adds to

expense.

2. For the taxpayer, direct appeal to the courts of appeals (eliminating district court and BAP) would likely impose fairly substantial costs in circuit judge time and related resource needs. Those costs are likely to exceed whatever resources are saved in district judge time—total time

saved might amount to that of nine district judges, but few or no judgeships could be eliminated because the savings would be distributed so

widely across the nation. However, the additional burdens on the courts

of appeals are likely to be concentrated in a few circuits that will experience the highest increases in their caseloads.

3. Bankruptcy appellate panels have been structured differently in different

circuits. Their costs vary depending on the extent to which the functions

of the BAP clerk are integrated with those of the clerk of the court of

appeals. A full assessment of likely recurring costs (e.g., per case) was beyond our scope and premature as to all but the Ninth Circuit. Preliminarily, it appears likely that more integrated operations are better able to

absorb the cost of experimenting with a BAP, particularly in circuits that

are small or have relatively few cases eligible for BAP review.

Regarding process and outcome

1. Earlier reports claiming that only 18% to 25% of bankruptcy appeals in

the district courts require significant judge time can no longer be relied

on. Review of approximately 5,000 district court docket sheets reveals

that the nationally collected statistics reported by the courts to the Administrative Office about how bankruptcy appeals are decided in the

district courts are grossly inaccurate and cannot support the claims that

some academics and others have made based on them. A rough estimate

is that 60% to 75% of bankruptcy appeals decided by the district courts

are decided on the merits of the appeal or otherwise with non-trivial expenditure of judge time.

2. Only 20% of bankruptcy appeals filed in the district courts are taken

further on appeal to the courts of appeals; similar patterns seem to be

developing in the BAPs. However, the rate of appeal from cases decided

on the merits at the first level of appeal is higher—up to a third, depend-
Executive Summary 5

ing on how we estimate the number of district court decisions on the

merits.

3. The courts of appeals fully affirm the judgments of district courts in

bankruptcy appeals in about 73% of the cases appealed to them, and reverse at least in part, or remand, in about 20%. Few courts of appeals

other than the Ninth Circuit’s have had much opportunity to review

BAP decisions. From the data we have available, we estimate affirmance

rates from the bankruptcy appellate panels are about the same as from

the district courts, but Ninth Circuit sources report that the circuit’s

BAP historically has had a higher rate of affirmance than its district

courts.

Implications of alternatives

1. Eliminating district courts and BAPs from the appellate structure entirely

• might invite constitutional challenge, but probably would not render the

bankruptcy system unconstitutional;

• would likely affect detrimentally some courts of appeals that already have

high judicial vacancy rates or high per-judge caseloads, and would have

little net effect on others. Specifically:

– The courts of appeals overall could experience a net increase in total

appellate filings ranging from 4.5% (assuming that only about 65% of

appeals now taken to the district court or BAP would be taken to the

court of appeals) to slightly less than 7% (assuming every case now appealed would be taken to the courts of appeals). These numbers would

be affected by overall trends in bankruptcy litigation, but we did not

attempt to predict those trends.

– The largest percentage increases in filings would probably be experienced in the First Circuit (with a potential 10% to 16% increase) and

the Ninth (8% to 13% increase). The Second, Third, and Tenth Circuits would probably also experience noteworthy percentage increases,

but there would probably be little effect on total filings in the courts in

the D.C, Fourth, Fifth, and Seventh Circuits.

• would alleviate the lack-of-precedent problem somewhat, but probably

much less (and more slowly) than proponents suggest, in part because
6 Alternative Structures for Bankruptcy Appeals

merit termination and publication rates in the courts of appeals have fallen

in recent decades;

• would sacrifice the benefits of specialized review in core bankruptcy matters, benefits that are valued highly by judges at all levels of the system;

and

• would likely result in many appeals that now receive a second look by a

judge going unreviewed or being reviewed primarily by court staff rather

than an Article III judge or specialized bankruptcy panel.

2. If the district court is to be removed from the appellate structure, retaining bankruptcy appellate panels at party option could ameliorate the

resulting effect on the courts of appeals. However, it is impossible to

predict at this point whether parties who have opted for BAP review in

the past (possibly at a higher cost than district court review) would continue to go to the BAP for the benefits of specialized decision making, or

would simply go directly to the court of appeals. Since the BAP structure

is already in place in several circuits, there is little to be lost by continuing the BAP experiment.

3. Direct appeal to the courts of appeals on party stipulation would probably do little to alleviate whatever problems exist under the current system. When appeals to the courts of appeals on party stipulation were

permitted under the 1978 Bankruptcy Reform Act, relatively few bankruptcy appeals (about 2%) were taken directly to the courts of appeals. It

seems likely that the number would again be fairly low if a similar approach were adopted. This would bring to the courts of appeals the cases

that all parties believe need a definitive resolution, but this would obviously be smaller than the total number of cases in which such resolution

would be beneficial (because it depends on party cooperation, and delay

is in the interests of some). Some combination of certification requirements (e.g., party motion and bankruptcy or district court concurrence)

might better serve the end of precedent development. Allowing direct

appeal only at the discretion of the courts of appeals would help those

courts maintain control over their dockets, but perhaps at the expense of

precedent development.

4. If direct appeal is instituted, allowing the courts to continue the BAP as

an adjunct to the court of appeals might alleviate negative impacts on

overburdened courts. Substantial workload relief would derive from al-
Executive Summary 7

lowing the courts to refer bankruptcy appeals to the BAP as district

courts refer bankruptcy matters to the bankruptcy courts, perhaps with

analogous provisions for withdrawal of such a reference.

5. Allowing courts of appeals to refer cases to BAPs to issue presumptive

opinions akin to reports and recommendations would preserve many of

the benefits of the BAP for the parties who now choose that route anyway. If imposed on others who would not choose it, there may be objections to the additional layer of review and the time it would entail; however, the costs and delay should be lower than in the current system because there would be no need for dual briefing (other than filing objections to the report if necessary), additional filing fees, or duplicate oral

argument in the ordinary case. But there is a significant risk that bankruptcy judges would no longer choose to serve on the BAP (which they

now take on in addition to their trial duties) if the judges came to be

viewed as specialized staff attorneys.

6. Specialized expertise could also be obtained by routing bankruptcy appeals to a new Article III Federal Court of Bankruptcy Appeals or to the

Court of Appeals for the Federal Circuit. The dangers associated with

specialized courts will raise grave objections to a new court, and this alternative would probably go too far in sacrificing the countervailing

benefits of generalists, benefits now provided by review of BAP decisions

in the courts of appeals. The Federal Circuit option does not seem practical at the court’s current size and configuration.

Options and considerations

The data we examined do not point clearly to a preferred alternative. Much

depends on one’s beliefs about the values of appellate review and how best

to serve those values, and on one’s view of the tradeoffs inherent in the

bankruptcy appellate structure. In settling on a preferred option, it may be

best to focus on aspects of the system that appear to present problems:

precedent quality, process quality, and speed and economy.

Focusing on precedent quality

1. If one concludes that lack of binding precedent is a serious problem in

bankruptcy and that the courts of appeals will rectify it, some version of

direct appeal to the courts of appeals might be preferred. Direct appeal
8 Alternative Structures for Bankruptcy Appeals

for all cases is probably not the only way to increase precedent and the

stability of the law, and may not even be the best. Statutory changes to

clarify and strengthen the precedential effect of BAP decisions might be

most desirable to help stabilize bankruptcy law, but may not be politically feasible.

2. Stabilizing bankruptcy law by concentrating the law-declaring function

in a very few people (e.g., in a specialized court or the Federal Circuit)

may be both politically infeasible and go too far in the direction of specialization.

3. We found that some districts may concentrate their bankruptcy appeals

in a few judges. Although this would no doubt be anathema to some

courts, this would further the goal of increasing predictability and could

create a closer link between the district court and the bankruptcy court,

which the current widely dispersed appellate function may not do.

Focusing on process quality

1. If one concludes that the values of appeal can only be served by multipartite review, a preferred option might be to eliminate the district court

as an appellate forum in favor of the BAP, the court of appeals, or both.

2. If the primary value of an appeal is to provide an independent look at a

case, single-judge review may be sufficient. But it seems anomalous to restrict such appeals to one or two classes of cases solely because a nonArticle III judge entered the judgment being reviewed.

Focusing on speed and economy

1. If the fastest possible disposition for the majority of cases is the most

important value, a preferred option may be to retain the district court as

a first-level appellate forum where there is no BAP. But it is too early to

tell whether BAPs will be slower or faster than district courts, so there is

no speed-based reason to eliminate the BAP option.

2. The disadvantages of the time it takes for some appellants’ cases to traverse the two appellate levels may outweigh the benefits of speedier dispositions for those who stop at the first level. This is especially likely to be

true if many appellants who now stop after one appeal forgo further review solely because of the expense of pursuing it. Creating a two-track
Executive Summary 9

system in which parties may choose the BAP’s expertise (and in some

circuits, speed) over Article III review and the possibility of binding

precedent from the court of appeals may be a preferable alternative even

where district courts are faster, because the total time for parties forced

into the district court forum can be quite long. So long as BAPs maintain disposition times approximating the district courts’ and the BAP forum remains optional for the parties, delay can be reduced for those

seeking a binding precedent, without undue expense to those who would

not in any event go to the court of appeals.

3. Uncertainty remains about the effects of the system’s structure on the

majority of users, who are not represented by the business bankruptcy

community advocating change. A survey of the bar could obtain the

views of a broader cross-section of affected parties, and it could be especially useful in gathering baseline data with which to evaluate the experience of bankruptcy appellate panels as the Center did for the Ninth Circuit BAP in the 1970s.

A possible first step

If precedent is the most serious problem (as it appears to be from our examination), loosening access to the courts of appeals without opening the

floodgates may be a good first approach. But users of the complex bankruptcy system probably want precedent not just settled, but settled right

(Justice Brandeis notwithstanding). If early (and, in the Ninth Circuit, not

so early) impressions about the quality of work by the bankruptcy appellate

panels hold up, the dual needs for binding authority and substantive correctness, like the dual needs for generalist and specialist review of some

matters, argue for some sort of a dual or hybrid system involving the bankruptcy appellate panels in some form. The result may be worth the inelegance, but if it turns out not to be worth the price, the BAP (unlike, say, a

new Article III court) is easily disbanded without having imposed substantial lasting costs on the judicial budget.
11

I. Overview of Issues

Under the current system, in a core proceeding3 a bankruptcy judge may

both hear and determine the matter and enter a final order or judgment,

subject to appellate review in the district court or a bankruptcy appellate

panel, and subject to further review as of right in the court of appeals. In

related non-core proceedings, unless all the parties consent to entry of a

judgment by the bankruptcy judge, that judge may only hear the matter

and submit proposed findings of fact and conclusions of law to the district

judge, subject to de novo review on timely objection. The district judge then

enters the final order, which is subject to appellate review as of right by the

court of appeals. Bankruptcy litigation, therefore, often follows a longer and

more complicated path to final resolution than most other kinds of federal

cases. This difference in appellate structure has engendered criticism from

some and praise from others and underlies the suggestions for change that

we analyze in this report.

Arguments of proponents of change

The asserted problems of the bankruptcy system are qualitative (e.g., structural factors causing difficulty in knowing the applicable law) and quantitative (e.g., the time and cost associated with obtaining bankruptcy appellate

review). Many of the assertions have been based on a simple examination of

the system’s structure. In brief, critics argue that the current system is inadequate or undesirable for the following reasons:

1. The bankruptcy appellate system is not uniform. There is no nationally

uniform system of bankruptcy appeal (and, for some circuits, not a uniform system within the circuit). A variation on this argument complains

of non-uniformity of the appellate structure more generally, with bankruptcy cases treated differently from other kinds of cases in the system.

2. The bankruptcy system is not structured to serve the law-declaration

functions of an appellate system. In particular, it lacks the traditional

pyramid structure that concentrates appellate review in substantially

fewer judges than the number at the trial level. Moreover, most appellate

3. The U.S. Code provides a non-exhaustive list of core matters (28 U.S.C. § 157(b)(2)(A)–(O)

(1984)) and defines them generally as proceedings “arising under title 11 or arising in a case under title

11” (28 U.S.C. § 157(b)(1) (1984)).
12 Alternative Structures for Bankruptcy Appeals

decisions made in the bankruptcy system do not bind most actors in

most cases, and cannot be relied on when making later business or legal

judgments. The lack of binding precedent results in issues being repeatedly litigated and appealed.

3. Its multiple layers add time and expense to the appellate process.

4. It does not always ensure review by a panel of judges at the first level,

and the result is a review process that is less likely to serve the values of

appellate review than is the traditional process at the court of appeals.

5. Many district judges do not act promptly on bankruptcy appeals, which

involve especially time-sensitive matters. This causes undue hardship for

litigants.

Different critics argue for different alternatives to the current structure, but

many of them urge the removal of the district court from the appellate

structure in bankruptcy, arguing that ready access to the courts of appeals

would remedy these problems and would not create any new practical or

constitutional problems for the bankruptcy system.

Arguments of opponents of change

Those who reject the conclusions of the critics argue that the present system

is sufficient, or superior to alternatives (particularly direct appeal to the

courts of appeals) for the following reasons:

1. Nationally uniform bankruptcy laws are necessary, but nationally uniform structures and procedures to apply them are not.

2. Conflicting decisions and unresolved legal issues are found in all areas of

the law, and there is no evidence that the problem is worse in bankruptcy than in other areas or that problems would be lessened under alternative arrangements.

3. The current system strikes the appropriate balance between the values of

speed and economy for most litigants and the need for binding precedent. Most cases end after the first level of appellate review (either the

district court or a bankruptcy appellate panel). Many bankruptcy litigants cannot afford an appeal to the court of appeals (even if it were the

initial forum). Without a convenient, inexpensive forum, they would be

unable to obtain any appellate review of their cases. On the other hand,
I: Overview of Issues 13

most repeat players whose interests would be served by obtaining a precedential decision have the money and opportunity to do so.

4. Multijudge appellate review is most critical in law declaring; most bankruptcy appeals are fact-intensive and would not result in new or clearer

law regardless of who decided them. Further, most bankruptcy appellants simply want another set of eyes to look at their cases and make an

independent judgment, for which a panel of judges is not necessary. In

any event, multijudge review is available (if parties consent) from the

bankruptcy appellate panels in many districts, and ultimately from the

courts of appeals.

5. Since the Civil Justice Reform Act was implemented, district judges have

been managing their caseloads better and deciding bankruptcy appeals

more quickly, so any valid complaints about cases languishing in the

district courts should diminish.

6. The appellate function of the district courts is an integral part of the

overall bankruptcy system. Removing it would impair the constitutionality of the entire system and endanger the fragile balance created by the

Bankruptcy Amendments and Federal Judgeship Act of 1984.

7. Removing the intermediate appeal options would severely affect the

workloads of several courts of appeals (or create a substantial workload

for a new court such as a Federal Court of Bankruptcy Appeals), at the

very time that many in the judiciary and in Congress are arguing that the

size and jurisdiction of the courts of appeals should be constrained, not

expanded. The costs of the additional circuit judge power required

would exceed the likely benefits.

Evaluating the arguments

In this study, we sought evidence to help the Bankruptcy Committee assess

these various claims. Along with a literature review, our sources of information are case information reported to the Administrative Office by bankruptcy courts, district courts, bankruptcy appellate panels, and courts of

appeals; a study of docket sheets from more than 5,000 bankruptcy appeals

terminated in the district courts in fiscal 1997 and 1998; a questionnaire

administered to all bankruptcy judges and a sample of district judges to

learn their experiences ascertaining and applying bankruptcy precedent in

their courts; and informal interviews with chief judges and clerks of bank-
14 Alternative Structures for Bankruptcy Appeals

ruptcy appellate panels and with other bankruptcy judges. We also commissioned a report (Appendix C, infra) from Professor Susan Block-Lieb analyzing the constitutional implications of certain proposed alternatives.

One of the important issues in evaluating the appellate structure of the

bankruptcy system is how the bankruptcy appellate panels are functioning.

Because most of them are so new, it is too early to tell how well they will

fulfill their functions and whether litigants will choose them more or less

often once they become well known and well established in their circuits.

Much of what one would like to know about their performance cannot be

determined yet.

There are other constraints on our ability to describe the performance of

the system, and these constraints will be detailed as appropriate throughout

this report. In particular, some of the data on which we ordinarily would

rely are too inaccurate to be useful even as a general guide to how the district courts handle bankruptcy appeals. Additionally, caseload information

for recent years (typically fiscal 1998 and, for some matters, 1997), even

when valid, cannot be fully interpreted because too many of the cases that

began their lives together have not yet terminated. Because earlyterminating cases can be substantially different from cases that take longer

to terminate, it is dangerous to draw inferences about outcomes and disposition times until nearly all cases in a filing cohort have closed.

Certain elements of the inquiry into bankruptcy appellate structure

would be better informed by systematic input from bankruptcy practitioners. Although the views of the organized business bankruptcy community

are well known, a survey of counsel across a broader spectrum could give us

valuable information about the practical significance of the precedent situation, the likely effects of direct appeal on the decision to appeal, the reasons

for electing to have an appeal heard by the district court or BAP, and the

costs of a two-tiered appellate system. We are conducting such a survey as

part of our continued analysis of appellate structure and process.
15

II. History and Overview of Reform

Movements and Legislation

Bankruptcy Act of 1898 and the Commission on the

Bankruptcy Laws of the United States

Under the Bankruptcy Act of 1898, the district court could refer summary

proceedings to referees (formally called bankruptcy judges beginning in

1973 when the new bankruptcy rules became effective). Matters that arose

in the course of a bankruptcy case and did not fall within summary jurisdiction had to be resolved by plenary suit in either the federal district court

or a state court. This bifurcated jurisdiction was not clearly defined, and

litigation over threshold jurisdictional questions proliferated. Calling for

recommendations that would “reflect and adequately meet the demands of

present technical, financial, and commercial activities,” Congress established

in 1970 a Commission on the Bankruptcy Laws of the United States to

“study, analyze, evaluate, and recommend changes” in the Bankruptcy Act.4

The ensuing report and hearings ultimately led to the passage of the Bankruptcy Reform Act of 1978.

Bankruptcy Reform Act of 1978

The Bankruptcy Reform Act of 1978 granted pervasive jurisdiction to

bankruptcy courts. “The bankruptcy court for the district in which a case

under title 11 is commenced shall exercise all of the jurisdiction conferred

by this section on the district courts.”5

 The Act also gave the district court

original and exclusive jurisdiction of all cases under title 11 and original,

but not exclusive, jurisdiction of all civil proceedings arising under title 11,

or arising in or related to cases under title 11.

The 1970 Bankruptcy Commission had recommended that the district

court retain its appellate function in bankruptcy. That commission, devoting little more than four paragraphs in its report to the issue of appellate

review, recognized that single-judge review was anomalous but rejected direct appeal to the courts of appeals. The report cited as reasons the remote4. Commission on the Bankruptcy Laws of the United States, Report on the Bankruptcy Laws of

the United States, H.R. Doc. No. 137 93d Cong., 1st Sess., part I at 1–2 (1973).

5. 28 U.S.C. § 1471 (1978) (repealed 1984).
16 Alternative Structures for Bankruptcy Appeals

ness of the courts of appeals from many litigants, the likely effects on the

dockets of the courts of appeals, and the continued availability of the courts

of appeals in high-stakes cases by virtue of the right to appellate review of

the district court’s judgment.6

The appeal provisions in the 1978 Reform Act reflect a compromise

between divergent views about the proper status of the bankruptcy courts in

the federal judicial system and consequently what type of appellate review

was most appropriate.7

 Most parties to the reform process thought the jurisdiction of the bankruptcy courts as it existed under the Bankruptcy Act of

1898 should be expanded, but disagreed about whether there was a constitutional need for Article III bankruptcy judges to exercise that expanded

jurisdiction. Those favoring a bankruptcy court independent of the district

court and staffed by Article III judges urged appellate review outside the

district courts—either in the courts of appeals or a new separate bankruptcy

court of appeals. The major arguments for a separate bankruptcy court of

appeals were that it would avoid overloading the dockets of the courts of

appeals and would provide review by bankruptcy specialists before review by

a court of general jurisdiction, and thus would promote greater uniformity,

efficiency, and economy. Others favoring independent bankruptcy courts

thought appeals from bankruptcy court decisions should follow the same

route as appeals from district court decisions, that is, to the courts of appeals. Those who disfavored independent bankruptcy courts and Article III

bankruptcy judges favored the appellate review of bankruptcy decisions by

the district courts. Some courts of appeals judges who were concerned about

the increased burden on their courts also favored district court review.

The House and Senate reached different conclusions in response to these

arguments. The House bill gave bankruptcy judges Article III status and

proposed that bankruptcy appeals go directly to the courts of appeals,8

 in

part because the anomalous one-judge review in the district court was

thought likely to detract from the stature of the new bankruptcy courts and

would leave appeals in the hands of “unconcerned” district courts.9

 The

Senate bill did not provide Article III status for bankruptcy judges and pro6. Commission on the Bankruptcy Laws of the United States, supra note 4 at 97.

7. See generally Lloyd D. George, The Bankruptcy Appellate Panels: An Unfinished Experiment, 1982

BYU L. Rev. 205, 206–16 (providing a detailed account of the legislative history of the appeals provisions in the Bankruptcy Reform Act of 1978).

8. H.R. Rep. No. 95-595, at 39–43 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6000–04.

9. Richard B. Levin, Bankruptcy Appeals, 58 N.C. L. Rev. 967, 969 (1980).
II: History and Overview of Reform Movements and Legislation 17

posed that bankruptcy appeals go first to the district court.10 Under the

compromise reached by the House and Senate, the bankruptcy courts were

organized as adjuncts of the district court (and staffed by non-Article III

bankruptcy judges) but were given expanded jurisdiction to hear all cases

under title 11 of the United States Code, all proceedings arising in or related to cases under title 11, and all actions concerning the property of the

estate. The bankruptcy courts were free from direct control by district

courts, but the district courts would still hear bankruptcy appeals, unless the

circuit created a bankruptcy appellate panel or the parties agreed to take

their appeal directly to the court of appeals.

Thus, under the 1978 Act that emerged, appeals from most bankruptcy

judges’ final decisions were to be heard by the district court, or by the BAP

if the circuit had established one. District court and BAP decisions were

appealable as of right to the court of appeals. Interlocutory orders, judgments, and decrees of a bankruptcy court were appealable in the district

court and BAP only if the district court or BAP granted leave to appeal.

Only two circuits (the First and Ninth) established a BAP pursuant to the

1978 legislation, although several others considered doing so.

During the existence of this structure, roughly 1981–1987, relatively few

appeals were taken directly to the courts of appeals on party stipulation.

Overall, cases taken directly to the courts of appeals from the bankruptcy

courts never amounted to even 2% of the bankruptcy appeals filed annually,

as Table 1 shows.

Table 1. Appeals directly from bankruptcy court to courts of appeals,

as a percentage of all first-level bankruptcy appeals filed, fiscal

1981–1987

Year

filed 1st 2d 3d 4th 5th 6th 7th 8th 9th 10th 11th D.C. National

1981 0.6 1.7 0.0 1.3 3.4 1.7 2.1 1.0 2.0 2.9 0.3 0.0 1.7

1982 0.8 2.2 0.5 1.1 2.1 2.8 1.0 1.6 3.9 1.6 0.4 3.4 1.7

1983 3.3 1.3 2.0 1.1 1.0 1.5 1.8 1.2 0.7 2.7 0.7 4.0 1.4

1984 3.5 0.2 2.2 0.7 1.6 1.3 0.4 0.4 1.1 0.3 1.5 10.8 1.2

1985 0.0 0.5 1.8 0.7 0.6 0.4 0.2 0.6 0.7 0.0 1.1 0.0 0.5

1986 0.0 0.0 0.2 1.1 0.2 0.3 0.0 0.0 1.2 0.0 0.1 0.0 0.3

1987 1.1 0.0 2.3 2.4 0.0 0.0 0.0 0.4 2.6 0.0 0.0 0.0 0.8

Note: No comparable data are available for pre-1981 filings.

10. S. Rep. No. 95-989, at 18 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5804.
18 Alternative Structures for Bankruptcy Appeals

Northern Pipeline Construction Co. v. Marathon Pipe

Line Co.

The 1978 Act’s expansive grant of jurisdiction to the bankruptcy court was

invalidated in Northern Pipeline Construction Co. v. Marathon Pipe Line

Co.11 Justice Rehnquist’s concurring opinion, as summarized by Chief Justice Burger’s dissenting opinion, has been viewed by many commentators as

the true holding of the Court regarding the constitutionality of the Bankruptcy Reform Act of 1978: “[A] ‘traditional’ state common-law action, not

made subject to a federal rule of decision, and related only peripherally to

an adjudication of bankruptcy under federal law, must, absent the consent

of the litigants, be heard by an ‘Art. III court’ if it is to be heard by a court

or agency of the United States.”12 The Act “removed most, if not all, of ‘the

essential attributes of the judicial power’ from the Art. III district court, and

has vested those attributes in a non-Art. III adjunct.”13

Emergency Model Rule

To afford Congress time to reconstitute the bankruptcy courts, the Supreme

Court stayed its June 28, 1982, judgment in Marathon for more than three

months, then extended that stay to December 24, 1982. When Congress

failed to act during this period, the Administrative Office of the U.S.

Courts, at the direction of the Judicial Conference of the United States,

formulated the Emergency Model Rule to keep the bankruptcy courts in

operation. The provisions of this rule were similar to those of the Bankruptcy Amendments and Federal Judgeship Act of 1984 except that bankruptcy judges’ final orders, in addition to findings of fact and conclusions of

law, were subject to de novo review in the district court. The rule did not

mention BAPs. All districts adopted the Emergency Model Rule, or a

modification of it.

In the First Circuit, the court of appeals ruled that the circuit council’s

adoption of the emergency rule implicitly withdrew from the BAP its

authority to hear appeals.14 Accordingly, the First Circuit’s BAP ceased to

operate. In contrast, the Ninth Circuit decided that its emergency rule did

not directly or impliedly delegitimate the BAP, and that the continuing su11. 458 U.S. 50 (1982).

12. Id. at 92.

13. Id. at 87.

14. Massachusetts v. Dartmouth House Nursing Home, Inc., 726 F.2d 26 (1st Cir. 1984).
II: History and Overview of Reform Movements and Legislation 19

pervision of the BAP by the court of appeals met the Marathon criterion for

Article III review.15

Bankruptcy Amendments and Federal Judgeship Act of

1984 (current Bankruptcy Code)

The Bankruptcy Amendments and Federal Judgeship Act of 1984 (BAFJA)

was enacted on June 29, 1984, and became effective July 10, 1984, retroactive to June 27, 1984.16 BAFJA amended some provisions of the Bankruptcy

Reform Act of 1978 and effectively repealed others that had been found

unconstitutional in Marathon. BAFJA authorized district courts to refer any

or all bankruptcy cases and proceedings falling within bankruptcy jurisdiction to the bankruptcy judges for the district.17 A bankruptcy judge’s

authority to decide a referred proceeding depends upon whether the proceeding is “core” or “non-core.” In a core proceeding, the bankruptcy judge

may both hear and determine the matter and enter a final order or judgment, subject to traditional appellate review in the district court or BAP,

and from there to the court of appeals. In related non-core matters, unless

all the parties consent to entry of a judgment, the bankruptcy court may

only hear the matter and submit proposed findings of fact and conclusions

of law to the district judge, subject to de novo review on timely objection.

The district judge then enters the final order, which is subject to appellate

review by the court of appeals.

BAFJA granted the district courts jurisdiction to hear appeals from final

determinations of bankruptcy judges, but also allowed the judicial council

of a circuit to establish a bankruptcy appellate panel service for the circuit.

In circuits that have established a BAP, the judicial council appoints bankruptcy judges to it for specified terms of service, which vary from circuit to

circuit. By the terms of the statute, the BAPs operate in panels of three,

with judges ineligible to act on appeals arising from their district of appointment or designation. An appeal from a final judgment, order, or decree of a bankruptcy judge may be directed to the BAP only if (1) the appeal arises from a district whose district judges have, by majority vote,

15. Briney v. Burley, 738 F.2d 981, 986 (9th Cir. 1984) (“Because the court of appeals and the

BAP apply the same standard of review to the underlying judgment, the court of appeals effectively

reviews the decision de novo. . . . This close review contrasts sharply with the deference for bankruptcy

judges’ findings of fact that Marathon found fatal.”).

16. Pub. L. No. 98-353, 98 Stat. 333 (1984).

17. 28 U.S.C. § 157(a) (1984).
20 Alternative Structures for Bankruptcy Appeals

authorized referral of appeals to the BAP, and (2) all parties to the appeal

consent to have the appeal heard by the BAP. If the district court has not

authorized appeals to the bankruptcy appellate panel or if any party fails to

consent to the panel’s jurisdiction, the appeal must be taken to the district

court.

To conform to the new requirements of BAFJA, the Ninth Circuit Judicial Council entered a new order establishing a BAP. Whereas referral to the

BAP had once been automatic, the new order required both parties to consent to BAP review before the district court was divested of its jurisdiction

over appeals in core matters. Because the BAP received few cases under this

arrangement, the circuit council amended the consent requirement in 1985

so that failure to object was deemed consent. Thus, instead of “opting into”

the BAP, parties had to “opt out” to obtain district court review instead.

Federal Courts Study Committee recommendation

In its 1990 final report, the Federal Courts Study Committee recommended that Congress amend 28 U.S.C. § 158 to (1) require each circuit to

establish bankruptcy appellate panels to decide all bankruptcy appeals unless

a party affirmatively opted out of the BAP; and (2) authorize small circuits

to create multicircuit panels.

In response, Congress declined to mandate BAPs, but as a first step to

encourage experimentation, amended 28 U.S.C. § 158(b) to permit the

judicial councils of two or more circuits to adopt a multicircuit BAP if

authorized to do so by the Judicial Conference of the United States. The

Judicial Conference’s Executive Committee approved the Study Committee’s multicircuit BAP recommendation, but the Conference opposed the

call for mandatory BAPs, deciding instead merely to encourage BAP creation.

Long Range Plan for the Federal Courts

In 1994, the Judicial Conference’s Committee on Long Range Planning

issued a Proposed Long Range Plan for the Federal Courts, seeking comments. In that version of the plan, the committee proposed a partial return

to the system enacted in the 1978 Act, giving parties a role in determining

whether an appeal would be taken directly to the court of appeals, but with

a significant difference—both direct appeals and appeals from district court

appellate decisions would be in the discretion of the courts of appeals. In

particular, the 1994 proposed plan recommended the following:
II: History and Overview of Reform Movements and Legislation 21

• Leave most bankruptcy appellate review in the district courts, with further

review by the court of appeals discretionary, for significant questions of

law or public importance; but

• Where parties stipulate or other circumstances make it expedient, allow

direct court of appeals review, if the district court certifies the issue(s) to

be reviewed and the court of appeals grants leave to appeal.

After receiving comments on the proposed plan, the Long Range Planning Committee redrafted its recommendations and called for a study of the

existing system. The committee also recommended that until such a study

was conducted, Congress should permit direct appeal to the court of appeals

if the parties stipulated, or if the district court or bankruptcy judge certified

that immediate review was needed to establish legal principles on which

subsequent proceedings in the case might depend. As the recommendations

evolved, the Long Range Planning Committee received comments from

many members of the bankruptcy community, including some within the

Judicial Conference structure, who were concerned both about the stare

decisis needs of the bankruptcy system and about the potentially disruptive

effects of allowing parties to invoke the jurisdiction of the courts of appeals

by stipulation.18 In the end, the party stipulation provision was deleted from

the recommendation by the Judicial Conference, leaving only judicial certification as the key to obtaining immediate appeal to the court of appeals.

The 1995 plan, as adopted by the Judicial Conference, recommends the

following:

• Study existing mechanism to determine what appellate structure will ensure prompt, inexpensive resolution of bankruptcy cases and foster coherent, consistent development of bankruptcy precedent. (Recommendation

21)

• Pending completion of the study, Congress should allow direct review in

the court of appeals in those cases where the district court or BAP certifies

that such review is needed immediately to establish legal principles on

18. The Long Range Planning Committee received comments from two Judicial Conference committees (Committee on the Administration of the Bankruptcy System and Committee on Court Administration and Case Management), the ABA Standing Committee on Federal Judicial Improvements,

an ABA Joint Task Force established by the Business Law and Litigation Sections, and numerous individuals.
22 Alternative Structures for Bankruptcy Appeals

which subsequent proceedings in the case may depend. (Recommendation

22)

Bankruptcy Reform Act of 1994

In the Bankruptcy Reform Act of 1994, Congress renewed its effort to implement the Federal Courts Study Committee recommendations by directing the judicial council of each circuit to establish a BAP unless the council

determined that the circuit had insufficient judicial resources or that the

establishment of a BAP would result in undue delay or increased cost to the

parties. At the time of the 1994 legislation, a BAP was operating only in the

Ninth Circuit. Pursuant to the 1994 Act, the judicial councils of five circuits established BAPs—the First, Second, and Tenth Circuit BAPs began

operating on July 1, 1996, and the Sixth and Eighth Circuit BAPs began

operating on January 1, 1997. The judicial councils of five other circuits

(D.C., Third, Fourth, Fifth, and Eleventh) indicated that they did not intend to create BAPs at that time; one circuit (the Seventh) deferred its decision and has not created a BAP. On December 8, 1999, at its regular biannual meeting, the Second Circuit Judicial Council decided to terminate its

bankruptcy appellate panel service.

National Bankruptcy Review Commission

The Bankruptcy Reform Act of 1994 also created the National Bankruptcy

Review Commission (NBRC) to investigate and study issues related to the

Bankruptcy Code. The NBRC recommended that the current system be

changed to eliminate the first layer of appeal to a district court or BAP

(Recommendation 3.1.3).19 Recognizing that many orders in bankruptcy

cases determine substantive rights but are not technically “final,” the NBRC

also recommended an interlocutory appeal provision (Recommendation

3.1.4).20

19. NBRC Recommendation 3.1.3 states: “The current system which provides two appeals, the first

either to a district court or a bankruptcy appellate panel and the second to the U.S. Court of Appeals, as

of right from final orders in bankruptcy cases should be changed to eliminate the first layer of review.”

20. NBRC Recommendation 3.1.4 states: “28 U.S.C. § 1293 should be added to provide, in addition to the appeal of final bankruptcy orders, for the appeal to the courts of appeals of interlocutory

bankruptcy court orders under the following circumstances: (1) an order to increase or reduce the time

to file a plan under section 1121(d); (2) an order granting, modifying, or refusing to grant an injunction

or an order modifying or refusing to modify the automatic stay; (3) an order appointing or refusing to

appoint a trustee, or authorizing the sale or other disposition of property of the estate; (4) where an

order is certified by the bankruptcy judge that (x) it involves a controlling issue of law [as] to which there
II: History and Overview of Reform Movements and Legislation 23

After its September 1998 meeting, the Judicial Conference issued a position statement on NBRC Recommendations 3.1.3 and 3.1.4. The Conference supported the simplification of appellate review of dispositive orders

of bankruptcy judges; urged that no change in the current appellate process

be considered until the judiciary had an opportunity to study further the

existing process and possible alternative structures and to submit a subsequent report to Congress; and pending completion of the study, opposed

the appeal as of right from dispositive orders of bankruptcy judges directly

to the courts of appeals.

Efforts in the 105th Congress to change bankruptcy

appellate structures

Legislation introduced in the 105th Congress would have effectively eliminated BAP and district court appellate jurisdiction over bankruptcy appeals

(H.R. 3150) or substantially curtailed district court appellate jurisdiction (S.

1914).21 The Department of Justice opposed H.R. 3150 and urged Congress “not to lessen district court review and remove this potentially significant basis for the constitutionality of the bankruptcy court’s exercise of judicial power.”22 On behalf of the Judicial Conference of the United States,

the director of the Administrative Office of the U.S. Courts twice urged

Congress to defer consideration of the proposed changes until they had

been reviewed by both the Judicial Conference and the Commission on

Structural Alternatives for the Federal Courts of Appeals.23 The bill that

came out of conference during the 105th Congress did not contain any

provision that would have changed the route that bankruptcy appeals take,

nor did the conference report mention the abandonment of the appeal provisions.

is a substantial difference of opinion, and (y) immediate appeal of the order may materially advance

resolution of the litigation, and leave to appeal is granted by the court of appeals; and (5) with leave

from the court of appeals.”

21. S. 1914 would have left the district court as the first-level appellate forum but if the court did

not file a decision on the appeal within thirty days, any party could take it to the court of appeals, at

which point the chief judge of that court was to order the district clerk to enter the bankruptcy judge’s

order as a final order of the district court, clearing the way for review in the court of appeals.

22. Letter of Ann M. Harkins, Acting Assistant Attorney General, to the Hon. Henry J. Hyde,

Chair of the House Committee on the Judiciary, May 7, 1998 (on file with the Federal Judicial Center).

23. Letters of Leonidas Ralph Mecham, Director of the Administrative Office of the U.S. Courts, to

the Hon. Henry J. Hyde, Chair of the House Committee on the Judiciary, and to the Hon. Orrin G.

Hatch, Chair of the Senate Committee on the Judiciary, June 30, 1998, and July 2, 1998 (on file with

the Federal Judicial Center).
24 Alternative Structures for Bankruptcy Appeals

Commission on Structural Alternatives for the Federal

Courts of Appeals

In October 1998, the Commission on Structural Alternatives for the Federal Courts of Appeals issued its Tentative Draft Report. The Commission’s

bankruptcy-related recommendations urged Congress not to enact the direct appeal provisions recommended by the NBRC, but to consider alternatives, particularly three alternatives that would preserve bankruptcy appellate panels in some form. After the Tentative Draft Report had been

completed, the Judicial Conference announced the policy statement

adopted as a result of its September 1998 meeting. In light of the Conference’s position and the Bankruptcy Committee’s request to the Federal Judicial Center to conduct this study, the Commission on Structural Alternatives revised its recommendations. In its final report, the Commission retained its expressions of concern about the effects of direct appeal on the

courts of appeals and urged Congress to forgo making any changes pending

the completion of this study and the Conference’s report to Congress.

Given its agreement with the call for further study, the Commission deleted

from its final report the specific alternatives it had commended for Congress’s consideration in the draft report.

Efforts in the 106th Congress to change bankruptcy

appellate structures

In the 106th Congress, H.R. 833 originally contained no appeal-related

provisions. During the markup of the bill, Representative George W. Gekas

introduced an amendment that would permit direct appeal to the courts of

appeals. The amendment would eliminate district court appellate jurisdiction but would also permit circuits to create or retain bankruptcy appellate

panels, to which appeals could be taken with the consent of the parties.

Neither party stipulation nor certification would be required for a litigant to

take the appeal directly to the court of appeals—the appellant could elect to

do so at the time of filing, and any other party could do so not later than

ten days after service of the notice of the appeal. Appeal from the bankruptcy appellate panels would be by right to the courts of appeals. That

amendment is embodied in section 612 of H.R. 833 as passed by the

House. (See Appendix A, infra.)

The Senate’s bankruptcy reform bill, S. 625, contains no appeal-related

provisions. Senator Patrick J. Leahy planned to introduce the judiciary’s

recommendation—minus the provision that would allow direct appeal on
II: History and Overview of Reform Movements and Legislation 25

motion of the parties—as an amendment to S. 625. The Executive Committee, on behalf of the Judicial Conference, supported the amendment in

September 1999, after conferring with the incoming chair of the Bankruptcy Committee and the chair of the Committee on Court Administration and Case Management. However, the amendment was never considered by the full Senate.

During informal negotiations to resolve differences between the House

and Senate bills, yet another approach to changing the bankruptcy system

was proposed: Any bankruptcy appeal not decided by the district court

within thirty days (or an extension thereof) could be taken to the court of

appeals as though the district court had affirmed the bankruptcy judge’s

decision.

Commonalities in reform efforts

The proposed efforts to change the bankruptcy appellate system reflect beliefs about how the current structures operate and about the relationship

between structure and outcome, and they are based on predictions that an

alternative structure would better meet the goals of an appellate system. In

section IV we review major alternatives that have been advanced, with special attention to the direct appeal proposal embodied in H.R. 833. First we

describe the systems in place and review the evidence bearing on the primary arguments in favor of change, including qualitative and quantitative

claims about the performance of the system.
27

III. Current Bankruptcy Appellate Systems

and the Arguments for Changing Them

Depending on the level of analysis one uses in considering bankruptcy appellate structure, there are either two or three bankruptcy appellate systems

in the United States. At the circuit level of analysis (generally the most relevant one when analyzing the knowability and predictability of the law),

there are essentially three systems currently in place. All of them ensure a

right of review by a court of appeals, but these systems differ in how they

handle first-level appeals—some circuits use only district courts to review

bankruptcy appeals; some circuits have created a BAP in which all of their

districts participate; and some circuits have created a BAP in which not all

of their districts participate. Thus, at the level of individual litigants, there is

either one appeal route or two. In fiscal 1998, for litigants in 39 districts in

six circuits, there was a choice between the district court and the bankruptcy

appellate panel. For litigants in the remaining 55 districts, appeal had to be

to the district court.24 Table 2 shows how the appellate caseload was distributed that year.

Table 2. Distribution of first-level bankruptcy appeals filed in

fiscal 1998

1st 2d 3d 4th 5th 6th 7th 8th 9th 10th 11th D.C.

USDC 53% 91% 100% 100% 100% 75% 100% 42% 41% 68% 100% 100%

BAP (all

districts)

47% — — — — — — — 59% — — —

BAP (some

districts)

— 9% — — — 25% — 58% — 32% — —

Total filings 227 517 427 299 408 332 166 141 1,236 255 388 32

Note: Elections to withdraw from the BAP are treated here as filings in the district court only.

District courts continue to handle the large majority of appeals from

orders and judgments of bankruptcy judges overall and in most circuits. In

fiscal 1998, in only two circuits (the Eighth and Ninth) did bankruptcy

appellate panels receive more than half the appeals filed.

24. Under H.R. 833, this non-uniformity would remain, but the first-level choice would be between

the court of appeals and the BAP if a BAP is available for appeals from the district in which the bankruptcy court sits.
28 Alternative Structures for Bankruptcy Appeals

Is structural uniformity important?

For some observers, the mere existence of multiple systems is sufficient to

condemn the arrangement, because a national judicial system should, in

their view, be uniform. As some point out, the Constitution calls for uniform laws on the subject of bankruptcies throughout the United States. But

there is no obvious reason why uniform laws must be applied and interpreted with uniform structures using uniform procedures. The federal judicial system accommodates—and sometimes encourages—great diversity of

practice among the circuits and individual courts. For example, regardless of

efforts to discourage or eliminate local rules and standing orders, deference

to local cultures and preferences, and respect for the autonomy of courts,

remain dominant principles in judicial administration (so long as differences do not affect substantive rights).

Structural nonuniformity may or may not detrimentally affect the functioning of the system and the practice of bankruptcy law. Although nonuniform interpretation of the bankruptcy laws is undesirable (at least beyond a certain healthy percolation), it is likely that intercircuit nonuniformity of structure affects few users of the system. Intracircuit nonuniformity, on the other hand, may raise costs somewhat for those litigants

whose counsel must evaluate the likelihood of success under alternate routes

by researching different lines of (nonbinding) authority. This is a subject

ripe for exploration in a comprehensive survey of the bar, whose members

in BAP districts might give insight into whether the costs of such research

are preferable to losing the forum choice they now have. At this point, it

seems likely that the greater cost derives from the fact that much of the legal

research they might do is unlikely to be fruitful in the attempt to determine

either what the law is or what the reviewing entity is likely to say it is. That

problem derives from the role of precedent in the bankruptcy appellate

structure.

Precedent and its relationship to structure

More troubling than structural disparities are the aspects of the bankruptcy

appellate system that seem bound to foster uncertainty and unpredictability.

Commentators argue that litigants and counsel are unable to know what the

law is or predict how a case will be decided because there is very little binding precedent in bankruptcy law. This lack, they claim, is a direct result of

structure: the large number of appellate reviewers makes for unpredictable

results; first-level appellate reviewers are unable to create binding precedent
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 29

in most instances; and the two-tiered structure makes it too expensive to

pursue the matter to the court of appeals in search of a definitive ruling.25

Multiplicity of decision makers

The traditional appellate structure is a pyramid in which many trial-level

judges feed into a much smaller number of appellate reviewers, but the

bankruptcy appellate structure in most parts of the country cannot fairly be

characterized as pyramidal. For example, in fiscal 1997, during which 3,172

bankruptcy appeals were terminated by the district courts, approximately

705 different district judges were listed as the terminating judge, for an average of five cases per judge that year (the median number of cases was

four). With the lower number of appeals in fiscal 1998 (2,638), slightly

fewer district judges handled bankruptcy appeals—approximately 630

judges, for an average of four and a median of three. Note that “terminated”

does not mean “decided,” so a given judge’s actual opportunities to apply

and interpret bankruptcy law in the appellate context are likely to have been

somewhat less than indicated by the number of cases. Indeed, when we

asked a sample of district judges to report the number of bankruptcy appeals they had handled in the past year, the mean was again five and the

median four, but the most frequent response was zero.26

In most districts, it appears bankruptcy appeals are distributed among

judges according to the normal civil case assignment system (i.e., essentially

by lot). In a few districts, it appears bankruptcy appeals may be assigned to

one or perhaps two judges, suggesting a concentration of effort that may

have implications for both precedent in the district and the supervisory

function of the district court over the bankruptcy court. We did not set out

to find this information, so we did not survey districts about their caseassignment practices. However, along with looking at the distribution of

judges for cases decided in fiscal 1997 and 1998 by district, we also noticed

in our review of docket sheets that in at least one district, statistical closings

were accompanied by a docket entry noting that the case was transferred to

25. See generally Steven W. Rhodes, Eight Statutory Causes of Delay and Expense in Chapter 11 Bankruptcy Cases, 67 Am. Bankr. L.J. 287 (1993); Paul M. Baisier & David G. Epstein, Resolving Still Unresolved Issues of Bankruptcy Law: A Fence or An Ambulance, 69 Am. Bankr. L.J. 525 (1995); Nathan B.

Feinstein, The Bankruptcy System: Proposal to Restructure the Bankruptcy Court and Bankruptcy Appellate

Processes, 1995–1996 Ann. Surv. Bankr. L. 517; Daniel J. Bussel, Bankruptcy Appellate Reform: Issues and

Options, 1995–1996 Ann. Surv. Bankr. L. 257.

26. Our survey is described in more detail below, and the survey instruments are reproduced in

Appendix D, infra.
30 Alternative Structures for Bankruptcy Appeals

one of two of the district’s judges and the reason given for the transfer was

“bankruptcy-related.” Additionally, we received in response to our survey a

comment from one district judge who said he supervises all bankruptcy appeals in his district.

In addition to the more than 700 district judges handling bankruptcy

appeals, some district courts also involve magistrate judges in the process,

usually to manage the development of the appeal (e.g., by ruling on motions), and sometimes to write a report and recommendation as to the ultimate disposition of the appeal. At its June 1992 meeting, the Bankruptcy

Committee was briefed on the status of efforts by various districts to develop litigation management plans required by the Civil Justice Reform Act,

and was advised that some districts were considering the use of magistrate

judges to resolve bankruptcy appeals. The committee resolved unanimously

to express opposition to this practice to the Committee on Court Administration and Case Management because the practice would raise jurisdictional problems, was not contemplated by Congress, and would not be

sound policy.27 The Judicial Conference’s Long Range Plan for the Federal

Courts discouraged the practice, calling it “questionable both in terms of its

efficient resource allocation and in its impact on expeditious resolution of

appeals.”28 Although a few districts apparently continue to refer bankruptcy

appeals to magistrate judges under their CJRA plans or other formal arrangements, we found little evidence—from national data, our survey, and

our review of docket sheets—of widespread use of magistrate judges to prepare reports and recommendations in bankruptcy appeals.29

27. Report of the Judicial Conference Committee on the Administration of the Bankruptcy System,

Agenda Item E-4, 32–33 (September 1992).

28. Long Range Plan for the Federal Courts (December 1995), at 48, n.22. We could not find

enough cases to determine whether cases involving a magistrate judge were decided more quickly or

more slowly than other cases, and we cannot evaluate here whether referral to magistrate judges may be

the best use of resources in particular districts.

29. Only three district judges who responded to our survey reported that they had used the services

of a magistrate judge for a bankruptcy appeal in the past year. National data suggest that magistrate

judges were used for these cases in at least 27 districts in fiscal 1998, but the total number of cases was

only 205, and most of these were concentrated in a few districts. At least one court of appeals has ruled

that referral to a magistrate judge to decide a bankruptcy appeal is unauthorized even with the parties’

consent, Minerex Erdoel, Inc. v. Sina, Inc., 838 F.2d 781, 786 (5th Cir. 1988), although referral for a

report and recommendation is not barred by 28 U.S.C. § 158, Allstate Ins. Co. v. Foreman, 906 F.2d

123 (5th Cir. 1990).
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 31

Production of precedential opinions and other guidance

All of the reviewers in the bankruptcy appellate structure may produce

written opinions that are often made available in the West reporter system,

online, or in specialized publications. The availability of published opinions

is generally thought to be an important aspect of the appellate process because written opinions provide guidance to judges and litigants by explaining the reasons for the appellate decision. Table 3 gives a sense of the number of opinions in bankruptcy-related matters from various sources in just

two fiscal years.

Table 3. Opinion publication in bankruptcy between October 1,

1996, and September 30, 1998

Source 1st 2d 3d 4th 5th 6th 7th 8th 9th 10th 11th D.C. National

U.S.C.A.* 21 35 71 70 109 51 48 44 65 22 54 5 595

Merit publ’n rate 53% 41% 25% 18% 32% 36% 75% 54% 28% 44% 20% 42% 35%

BAP* 24 12 — — — 31 — 55 70 40 — — 232

Merit publ’n rate 45% 67% — — — 69% — 93% 22% 65% — — 42%

U.S.D.C. (est.)* 71 253 135 94 113 42 126 25 56 68 54 18 1,055

U.S.B.C. (est.)* 158 370 361 224 172 338 378 350 224 109 514 10 3,208

*Note: Figures represent number of published opinions. U.S. District Court and U.S. Bankruptcy Court opinions were

estimated from Lexis and Westlaw searches for the two-year period. U.S. Court of Appeals and BAP figures were obtained from case termination information regularly submitted by the courts and panels to the Administrative Office.

Clearly, along with the binding precedent issued by the courts of appeals, judges and lawyers have access to other sources of authority that may

be helpful even without being binding. But along the way, critics assert, a

helpful plethora of published opinions became a glut. With so much written yet so little that is binding, lawyers can cite relevant authority for any

proposition, with no ethical obligation to cite opposing authority because it

is not controlling. As a practical matter, busy district judges may be unable

(and perhaps may be disinclined) to look for alternative reasoning when the

bankruptcy judge’s conclusion seems reasonable and there is no circuit

precedent to the contrary. If the adversary system does not function well in

bankruptcy to prevent such occurrences, the proliferation of opinions is a

negative aspect of the system.

Sources of precedent in bankruptcy

The legislative history of the 1994 amendments reveals that one driving

force behind the move to bankruptcy appellate panels was the idea that
32 Alternative Structures for Bankruptcy Appeals

BAPs would help to remedy the lack of precedent. In commenting on the

1994 legislation that mandated BAPs for all circuits (absent extenuating

circumstances), Senator Howell Heflin noted: “It should be recognized that

the creation of a bankruptcy appellate panel service can help to establish a

dependable body of case law.”30 (Senator Heflin had been a member of the

Federal Courts Study Committee, which recommended BAP creation. The

Study Committee’s report did not itself employ this rationale, mentioning

instead the role of the BAP in reducing workloads at the district courts and

courts of appeals, and venturing the opinion that BAPs foster expertise and

increase the morale of bankruptcy judges.) By the time of the 1994

amendments, the Ninth Circuit’s court of appeals had already decided that

bankruptcy appellate panel decisions do not bind the district courts,31 and

the precedential effect of BAP decisions on other parts of the system had

been well vetted, though not settled.32 It is possible, then, either that Congress intended to move in the direction of making BAP decisions binding

on a broader scale, or that it recognized that even absent the ability to bind

other courts, the concentration of a circuit’s bankruptcy appeals among a

smaller group of more specialized judges would bring some order to the

perceived chaos.

To some extent, the hope of increased stability may be realized with

bankruptcy appellate panels, at least if they adopt the same posture as the

Ninth Circuit BAP with regard to following prior BAP decisions, just as the

courts of appeals agree by custom or local rule to be bound by the decisions

of panels of their courts. Thus litigants can have some ability to predict how

an appeal will be decided by the BAP. But because any party can opt out of

the BAP, litigants have no assurance that the BAP will ultimately decide

their cases. It is beyond our scope here to explore the issue of whether and

when a panel of judges without Article III protections can bind an Article

III district court, or even a bankruptcy court. Suffice it to say that the issue

remains unsettled.33 One author cites cases to show that support can be

found for inconsistent positions:

30. 140 Cong. Rec. S14463 (daily ed. Oct. 6, 1994).

31. Bank of Maui v. Estate Analysis, Inc., 904 F.2d 470, 472 (9th Cir. 1989).

32. See, e.g., Henry J. Boroff, The Precedential Effect of Bankruptcy Appellate Panel Decisions, 103

Com. L.J. 212 (1998), and cases cited therein; Kathleen P. March & Rigoberto V. Obregon, Are BAP

Decisions Binding on Any Court?, 18 Cal. Bankr. J. 189 (1990); Jeffrey J. Brookner, Note, Bankruptcy

Courts and Stare Decisis: The Need for Restructuring, 27 U. Mich. J.L. Ref. 313 (1993).

33. See, e.g., Boroff, supra note 32; March & Obregon, supra note 32; Bryan T. Camp, Bound by the

BAP: The Stare Decisis Effects of BAP Decisions, 34 San Diego L. Rev. 1643 (1997).
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 33

• BAP decisions are not binding on district courts;

• BAP decisions are binding on district courts;

• BAP decisions are not binding on bankruptcy courts outside a district

from which a BAP appeal originated; and

• BAP decisions are not binding on any bankruptcy courts.34

Regardless of the formal effect of BAP or district court decisions as a

matter of hierarchy, judges can choose to act independently in every case, or

they can follow the decisions of coordinate judges or a specialist panel as a

matter of comity, exercising self help to begin to stabilize the law. Although

this gives litigants no guarantees, public statements of inclination to follow

the BAP or another source of precedent could go some measure towards

increasing the predictability of bankruptcy decisions. Indeed, we have some

evidence of that sort of approach, which we are still analyzing and will report at a later time, from the survey we describe next.

Experiences with unclear precedent: survey research

If the appellate system causes the kind of chaos alleged, it should affect the

ability of judges to perform their roles effectively. Bankruptcy judges should

experience difficulty in knowing the law, or deciding legal issues quickly

and efficiently. Similarly, district judges performing their appellate functions should have more difficulty deciding legal issues than they would if

the courts of appeals issued more decisions in the area. To get a sense of

judges’ perceptions about the state of bankruptcy law, and how the asserted

lack of precedent affects their work, we surveyed all bankruptcy judges and

a random sample of active and senior district judges.

We designed our survey after consulting with chief or presiding judges of

the bankruptcy appellate panels and several other interested bankruptcy

judges, including Chief Judge A. Thomas Small of the Federal Judicial

Center’s Board. To account for differences in the kinds of authority available to judges in different districts, we developed three versions of each

questionnaire—one for BAP-participating districts, one for nonparticipating districts in circuits with a BAP, and one for districts in nonBAP circuits. We mailed questionnaires to all bankruptcy judges and to 356

district judges. Within each group of district judges, we selected a random

34. Boroff, supra note 32 (citations omitted).
34 Alternative Structures for Bankruptcy Appeals

sample of judges, stratified by district. Table 4 shows the group sizes and

response rates.35

Table 4. Survey group sizes and response rates

Bankruptcy judges District judges

BAP

participating

BAP nonparticipatingNonBAP TotalBAP

participating

BAP nonparticipatingNonBAP Total

Surveys mailed 145 53 142 340 131 55 170 356

Valid mailings 145 53 140 338 122 49 164 335

Usable responses 110 33 87 230 61 29 81 171

Usable response rate 75.9% 62.3% 62.1% 68.0% 50% 59.2% 49.4% 51%

Response rates were significantly higher among bankruptcy judges from

districts that participate in BAPs than from districts that do not, probably

suggesting a heightened awareness of the structural issues being debated.

However, there were no significant differences in responses from BAPparticipating, BAP non-participating, and non-BAP districts on the questions we report here.

We asked both sets of judges questions to elicit reports of difficulty with

unclear or insufficient precedent. We designed two questions to closely parallel a similar inquiry made of district judges (but not limited to bankruptcy

law) in a 1998 Center survey for the Commission on Structural Alternatives

for the Federal Courts of Appeals. The questions and results follow:

QUESTION: “When deciding a question of [bankruptcy] law, do you

find the body of precedent coherent, consistent, and developed enough to

allow you to decide the question efficiently and confidently?”

35. These response rates are generally consistent with first mailings of Center surveys, but the response rate for district judges was a bit low. Because of time constraints, we did not send reminder postcards or follow-up surveys. Twenty-one district judges wrote or called to tell us they had not had enough

bankruptcy appeals in recent memory to make their responses useful, and it is likely that other nonrespondents had similar reasons. These judges were not replaced in the sample. Several of these were

senior judges, some were recent appointees, and one said a single judge handled all bankruptcy appeals

in the district. We included senior judges in our sample even though they might be expected to have

even fewer bankruptcy appeals than average, because we had indications that in some districts, bankruptcy appeals might be routed to one or two senior judges to the exclusion of most other judges in the

district. Those indications were confirmed, but probably at some cost to the response rates for district

judges.
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 35

Table 5. Frequency with which judges find the law sufficiently

coherent, consistent, and developed

Bankruptcy judges

District judges

(bankruptcy law)

District judges

(circuit law generally)*

Almost always 18.8% 18.8% 32%

Frequently 51.8% 46.1% 50%

About 1/2 the time 21.4% 29.2% 15%

Infrequently 7.6% 5.8% 3%

Almost never 0.4% 0.0% 0%

N = 224 N = 154 N = 726

*Data from survey for Commission on Structural Alternatives (see footnote 36).

Although the overall results do not seem to reflect grave problems with

precedent in the overall experience of judges, the responses of the district

judges to the two surveys suggest that they are less likely to find sufficient

precedent in bankruptcy than in other areas of the law. When thinking of

circuit law in general, 82% of district judge respondents said they frequently

or almost always found precedent sufficient, but when focusing on bankruptcy law, only about 65% said so. This may reflect their lesser familiarity

with bankruptcy law than with other areas (attributable to the relatively few

bankruptcy matters that appear on their dockets) or the difficulty of the

subject matter relative to the typical case on their dockets. But it may also

suggest that the state of the law is in fact considerably less settled in bankruptcy. Although structure is not the only possible cause for this lack of stability—changes in bankruptcy and state laws may also play a role—it seems

a likely one.

We find support for the proposition that bankruptcy law is less settled

than in other areas of law—and that it affects judges’ work—in reports of

the number of actual occurrences of difficulty discerning the law. We asked

the surveyed judges: “About how often have you had to decide an issue of

[bankruptcy] law on which you found precedent was not clear enough to

give you confidence in your decision?” They were to estimate the number of

such occurrences in the past twelve months. For bankruptcy judges, the

mean number of times was 10.1; for district judges, only 1.1. Given the few

bankruptcy matters the typical district judge handles in a twelve-month

period, and the wider range of matters bankruptcy judges handle in their

more specialized caseloads, this difference is not surprising. But once again,

the more telling comparison is between the bankruptcy judges who answered this survey and the district judges who responded to a similar in-
36 Alternative Structures for Bankruptcy Appeals

quiry, not constrained to bankruptcy law.36 On that survey, district judges

reported encountering such a situation an average of 6.1 times in the prior

twelve months (with the most frequently reported response being only 2).

Within their own typical caseloads, then, district judges are less likely to

experience problems from lack of precedent than are bankruptcy judges.

Indeed, if we consider the fact that the median number of bankruptcy appeals the responding district judges reported handling in the past year was

only 4, with many handling fewer, even the seemingly low mean problem

rate of 1.1 might be viewed as somewhat alarming—i.e., they may experience precedent-related difficulties in about a quarter of the bankruptcy appeals they handle.

We also asked the judges who had experienced such difficulties to estimate which factors were most often responsible for the problem. Figure 1

shows how the bankruptcy and district judge respondents ranked the frequency with which potential sources of difficulty were associated with the

lack of clear precedent, on a scale from “almost never” to “almost always.”

Figure 1. Reported sources of difficulty in deciding a bankruptcy law

issue*

BAP decisions conflicted with

court of appeals decisions

Conflicting BAP decisions

BAP decisions conflict with

district court decisions

Conflicting decisions by district judges

Conflicting bankruptcy

decisions in my district

Conflicting court of appeals decisions

No bankruptcy decisions in my district

Fact-intensive, multi-factor application

No district court decisions in my district

No court of appeals precedent

No Supreme Court precedent

1 2 34 5

District judges

Bankruptcy judges

*Note: 1 = Almost never; 2 = Infrequently; 3 = About half the time; 4 = Frequently; and 5 = Almost always.

36. See Federal Judicial Center Survey of United States District Judges, Commission on Structural

Alternatives for the Federal Courts of Appeals, Working Papers (1999), at 47.
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 37

Despite the complaints of some commentators about conflicting decisions

from district courts and bankruptcy judges, the clearer problem is the lack

of authoritative decisions from a body able to issue binding precedents.

Unresolved issues of bankruptcy law. Consistent with the survey results shown

in Figure 1, judges, academic commentators, and practitioners have collected examples of issues of bankruptcy law that they assert are repeatedly

litigated because there is no binding precedent that resolves them.37 Along

with fostering litigation, they assert, the lack of precedent interferes with

business planning and other client counseling.38 These issues, they argue,

would lessen or disappear if appeal to the courts of appeals were more readily available.

Baisier and Epstein argued in 1995 that in the seventeen years since the

Bankruptcy Reform Act of 1978, many basic questions of substantive bankruptcy law had been answered differently by different lower courts.39 They

blamed the absence of settled law “at least in part” on the structure of bankruptcy appeals in the U.S.—the structure, at the time they wrote, was district court review everywhere except the Ninth Circuit, where a BAP was

also operating. Some of the commentary by academics and practitioners

probably overstates the ease and speed with which bankruptcy law would

become clear if only the courts of appeals were the courts of first resort.40

While we do not know the extent of practical uncertainty (and we recommend further study), it is beyond dispute that the surest way to move towards stability and predictability in bankruptcy law is to obtain more

authoritative decisions from the courts of appeals.

37. See, e.g., Rhodes, supra note 25; Baisier & Epstein, supra note 25; Feinstein, supra note 25.

38. See, e.g., Lissa Lamkin Broome, Bankruptcy Appeals: The Wheel Has Come Full Circle, 69 Am.

Bankr. L. J. 541, 542 (1995) (lack of precedent “means that attorneys acting in their planning capacity

may have little guidance in advising a client on the best way to avoid adverse consequences should bankruptcy ensue”).

39. Baisier & Epstein, supra note 25. As an example, they pointed to the intercircuit split over the

issue of whether a Chapter 11 debtor may propose a plan of reorganization that classifies an undersecured secured creditor’s unsecured deficiency claim separately from other general unsecured claims,

which they described as “a basic [issue] that arises in virtually every Chapter 11 case in which real estate

is a significant asset.” Other examples they reported were: if § 553 mutuality exists for claims by and

against different government agencies; whether Chapter 12 debtors can avoid trustees’ fees by making

direct payments to creditors; when lease rejection is effective (on court approval vs. on filing of motion

to reject); and six issues on which there were splits of authority until Congress resolved them in the 1994

amendments. Id. at 527, note 9.

40. One bankruptcy professor, for example, asserts: “Normally, outside bankruptcy, a first-tier

appellate decision settles law circuit-wide.” Bussel, supra note 25. Many are not so sanguine about the

state of precedent in other areas of the law.
38 Alternative Structures for Bankruptcy Appeals

To get current examples of unresolved issues that might pose problems

for judges, we asked both sets of judges we surveyed whether there are issues

or areas of bankruptcy law that are particularly difficult to know. District

judges and bankruptcy judges differed on whether there are any such issues.

Only 7.4% of district judges said “Yes,” whereas a third of the bankruptcy

judge respondents did so. Eighty-two bankruptcy judges identified at least

one such issue. (The questionnaire provided space for two examples—42

judges mentioned only one issue; 40 identified two.) Some of the comments

raise broadly defined issues (e.g., post-confirmation Chapter 13 issues, relationship between bankruptcy law and tax law, jurisdiction), but others raise

narrower ones (e.g., reasonableness of attorneys’ fees, whether a Chapter 13

debtor can void the lien of a totally unsecured second mortgage, nondischargeability of marital dissolution debts). Many fall somewhere in between. Thus, it is impossible to count the discrete number of issues the

judges’ comments raised. The entire set of issues is listed in Appendix B.41

Some comments related to the interpretation of changes made to the

Bankruptcy Code by the 1994 Bankruptcy Reform Act (e.g., nondischargeability of marital dissolution debts, payment of a mature mortgage over the

life of a Chapter 13 plan). Other comments referred to the difficulty of applying standards set out in the Bankruptcy Code (e.g., good faith standard

in many statutes, “undue hardship” standard in the context of discharging

student loan debt, reasonableness of attorney fees, nondischargeability of

debts for “willful and malicious” injury by the debtor, discretionary withdrawal of the reference for “cause shown”) or of supplying standards absent

from the Code (e.g., the Code requires approval of the assumption or rejection of executory contracts, but does not set out criteria).

Some judges raised issues of broad significance (e.g., collateral estoppel

in dischargeability actions, whether the government should be treated as a

single debtor/creditor (mutuality rule), whether 11 U.S.C. § 106 regarding

sovereign immunity is constitutional), while others raised less far-reaching

questions (e.g., whether an agency that makes educational loans is entitled

to unpaid administrative costs of collection).

Several judges identified the “new value exception” to the absolute priority rule as a problem area. The Supreme Court recently decided a case

that observers thought would settle whether the rule has such an exception,

41. Special thanks to Chief Bankruptcy Judge David S. Kennedy who helped interpret the issues

identified by survey respondents.
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 39

but the Court decided it on narrower grounds, and did not issue a per se

prohibition against old equity participating in a reorganization on the basis

of new capital infusion.42

Another issue that many judges identified concerns undersecured and

unsecured liens. In Dewsnup v. Timm,43 the Supreme Court held that a

Chapter 7 debtor could not strip down or bifurcate an undersecured lien.

And in Nobelman v. American Savings Bank,

44 the Court disallowed bifurcation of an undersecured lien on a Chapter 13 debtor’s principal residence.

The hot issue now is whether a completely unsecured junior mortgage on a

principal residence can be “stripped off” (treated as unsecured debt).

Sources of ambiguity in bankruptcy law. We asked judges who identified a

problematic issue to identify the source or sources of the difficulty. Results

closely tracked those for the more general question, with the absence of

precedent from the courts of appeals and Supreme Court being the most

frequently identified. Because we were seeking information on precedent

specifically, we did not ask about ambiguities in the Bankruptcy Code,

which obviously overlap with issues of unclear precedent. For some, perhaps

many, of the problems identified, the appropriate remedy may be statutory.

Although this has been interpreted as a failing of the system’s structure, responsibility may lie equally with Congress.

Disposition times, appeal rates, and their relationship to

structure

Critics of the current system express concern about the time it takes for

bankruptcy appeals to be decided. Some argue that bankruptcy appeals

“languish” on the dockets of district judges, for asserted reasons ranging

from district judge disinterest to the pressures of criminal and other cases

with statutory priority. Others assert that even when the district court or

BAP acts in a timely way, the time required to take the matter further to get

a definitive ruling from the court of appeals is prohibitive.

42. Bank of America Nat’l Trust & Savings Ass’n v. 203 N. La Salle St. Partnership, 526 U.S. 434,

119 S. Ct. 1411 (1999).

43. 502 U.S. 410 (1992).

44. 508 U.S. 324 (1993).
40 Alternative Structures for Bankruptcy Appeals

Caveats about evaluating disposition time information

Measuring disposition time for bankruptcy appeals is not a straightforward

matter. We report disposition times for all district courts combined, but the

actual disposition times experienced by litigants differ fairly dramatically by

district (and to some extent vary within districts over time). They may also

differ by BAP, but it is too early to determine what the disposition speed is

likely to be in the individual BAPs. Only the Ninth Circuit has had a functioning BAP long enough to produce a substantial body of cases, and only

recently has it collected caseload information comparable to that now collected for the other BAPs at the national level. Therefore, we cannot be

confident of trends in the Ninth Circuit panel’s disposition times.

A second problem arises from differences in how courts conduct their

business. In some districts and BAPs, a bankruptcy appeal is not opened

until the record is complete and transmitted by the bankruptcy court. In

others, the bankruptcy court transmits the notice of appeal immediately, so

the case is opened, but there may be no action on the appeal until the record is completed and transmitted (e.g., 60 days later). (This reality is incorporated in the Judicial Conference’s determination not to define a bankruptcy appeal as “pending” for CJRA reporting requirements until 60 days

after the notice of appeal is docketed.)

Finally, we cannot yet know the effects, if any, of changes occurring as a

result of CJRA or other case-management efforts, and whether any such

effects will be lasting. Between September 30, 1997, and September 30,

1998, the number of bankruptcy appeals pending three years or more

dropped slightly—from 107 to 91.45 After the most recent reporting period

closed, we attempted to obtain from the Administrative Office a report on

the bankruptcy appeal matters that must now be reported more frequently,

but at the time of our request some districts had not yet reported and we

were not able to obtain the information. In any event, bankruptcy appeals

were so recently added to the list of matters for which such reports must be

filed that it would not be possible to draw strong inferences from the information. It may be that disposition times will drop as a result of the new

requirement. That seems likely, because the reporting requirement may spur

docket-clearing activities that will dispose of matters forgotten but not gone.

We saw evidence of this sort of docket clearing in our review of docket

45. Administrative Office of the U.S. Courts, 1998 Annual Report of the Director, at Table S-11.
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 41

sheets, although we cannot link it causally with any particular casemanagement change, nor do we have a comparison set of dockets from a

pre-CJRA period to examine to discover whether such activities are regular

occurrences. Activity we saw included disposal of long-pending cases by

transfer to the BAP in several circuits, transfers of many cases to a single

judge who promptly either disposed of them or got them moving, and

large-scale statistical and administrative closings that appeared to be the result of a deliberate push from the court rather than from a party.

It is possible, therefore, that disposition times—particularly average

times—will fall as these statistical outliers are eliminated. That result will

not necessarily indicate that litigants who actually care about having their

appeals decided are experiencing any more expeditious service from the

courts, any more than long average times directly indicate undue delay. If

our observations generalize to the larger population of cases, times will drop

because the appeals that parties have essentially abandoned will no longer

linger on the docket, yet the appeals that require a judge to dismiss or decide them may not take any less time. With those caveats, we next present

information on disposition times for first-level bankruptcy appeals.

District court disposition times

As Table 6 shows, district courts generally dispose of bankruptcy appeals

considerably more quickly than they dispose of all civil cases. Once nearly

all cases have made their way through the system, median disposition times

for bankruptcy appeals appear to hover around 5 to 5.4 months, compared

to 7 to 7.3 months for all civil cases as a group. (Of course, the nature of

most civil cases on the courts’ dockets is quite different from an appeal, as is

the process they require, so we would expect the disposition times to differ.)

Table 6. Disposition times from filing to judgment for bankruptcy

appeals and all civil cases filed in the district courts in fiscal

1994–1996

Bankruptcy appeals in district courts All civil cases in district courts

Year filed Percent pending Mean (days) Median (days) Percent pending Mean (days) Median (days)

1994 0.4% 250 161 2.0% 330 222

1995 1.2% 241 165 3.0% 299 212

1996 3.1% 216 152 8.1% 276 204
42 Alternative Structures for Bankruptcy Appeals

Bankruptcy appellate panel disposition times

As a multijudge appellate court whose judges must coordinate to decide

many appeals, a bankruptcy appellate panel might be expected to take

longer than a single judge to decide an appeal. This is especially likely given

that the judges on the panel also serve as trial judges, and most have little or

no additional law clerk assistance. So far, that expectation does not appear

to be the reality for most BAPs. Table 7 shows the disposition times in the

BAPs for cases filed in fiscal 1997. In most circuits, the overall mean and

median disposition times for BAPs are lower than the national figure for

bankruptcy appeals to the district courts, but in most circuits they are based

on a rather small number of cases, which limits the conclusions to be drawn

from the figures. (There are too few cases to make a merits/procedural distinction meaningful at this point, and no good comparable breakdown for

district courts.) Only in the Ninth Circuit have BAP disposition times been

substantially longer than in the district courts; in most of the other circuits

with a BAP, the panels have had noticeably faster disposition times than the

district courts.

Table 7. Disposition times from filing to judgment for bankruptcy

appeals filed in the bankruptcy appellate panels in fiscal 1997*

Circuit Number filed

Number

terminated Percent pending Mean (days) Median (days)

1st 109 102 6.4% 145 120

2d 55 50 9.1% 140 129

6th 90 83 7.8% 156 128

8th 69 69 0.0% 128 118

9th 742 713 3.9% 241 239

10th 63 63 0.0% 162 163

All BAPs 1,128 1,080 4.3% 209 195

*Too many cases filed in FY 1998 and 1999 are still pending to permit a meaningful assessment of mean and median

times for those years; full information for FY 1996 is not available. The “All BAPs” figures are heavily influenced by the

much larger proportion of Ninth Circuit cases in the total BAP caseload.

If BAP judges, particularly those of the newer bankruptcy appellate panels, are heavily invested in the success of the panels, they may be especially

attentive to the needs of the litigants and the likelihood that their disposition times and other performance measures will be examined. It is impossible to know whether that would continue as the BAPs mature; future performance may depend on how large the judges’ trial and appellate caseloads

grow. In short, it is too early to tell whether the BAPs or the district courts

give prompter service to bankruptcy litigants on appeal. When the number
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 43

of cases is sufficient to make such a judgment, it is likely to be a mixed

one—some district courts will be faster, some slower. However, as long as

litigants have a choice between the two routes, attorneys will be able to

make their own judgments about the speed of each and, if time is of the

essence in the individual case, choose the forum more likely to render the

quicker decision.

More important than the comparison between BAP times and district

court times (which cannot be made with confidence yet) is the consideration of the total time on appeal and how that relates to the system’s structure. While there cannot yet be a conclusion about which first-level forum is

faster, it cannot be disputed that a single level would be faster overall for

most cases that would have progressed through the court of appeals level, as

a comparison of Tables 6, 7, and 8 suggests. Whether that were to be

achieved by leaving most review at the first level and making court of appeals review discretionary, or by eliminating the current first level for some

or all appeals, the total appeal time for most cases would fall.

Table 8. Disposition times for bankruptcy appeals, from filing in the

district court to termination in the court of appeals46

Bankruptcy appeals terminated

procedurally in court of appeals

Bankruptcy appeals terminated on the

merits in court of appeals

Fiscal year terminated

in court of appeals Mean (days) Median (days) Mean (days) Median (days)

1995 896 487 675 595

1996 1,821 766 801 687

1997 602 480 798 694

1998 709 505 826 663

Note: Includes cases that had been filed in the district court by October 1, 1993.

Some have argued for keeping the appellate function in the district

courts because although appeals that progress to the next level will take

longer, a greater proportion of the total bankruptcy appellate population

will be decided faster because the district courts are faster than the courts of

appeals. Moreover, they argue, the district court provides a valuable filtering

function and relatively few cases move on to the courts of appeals. Those

that do are sometimes presumed to be the more serious cases in which a

precedential opinion is needed or where reversible error has obviously been

46. We do not report similar measures for cases appealed from the BAPs because the courts of appeals have been inconsistently reporting the date from which the time is counted, with some using the

date of docketing in the BAP and others apparently using the filing date in the bankruptcy courts.
44 Alternative Structures for Bankruptcy Appeals

committed. In the next section we examine the evidence for those claims,

with particular reference to their importance in the debate over direct appeal.

Appeal outcomes and further proceedings

The evidence for the filtering function of the first level of appellate review

has been used by both proponents and opponents of direct appeal to the

courts of appeals. On the one hand, the fact that fewer than one-fifth of

bankruptcy appeals in the district courts move on to the courts of appeals

has been offered as proof of the insubstantiality of the typical bankruptcy

appeal and, by some, as evidence of the general satisfaction of litigants with

the process and outcomes afforded at the first level of appeal. The courts of

appeals, it is argued, should not be subjected to several thousand more cases

if those cases are rarely meritorious and can be disposed of more quickly and

economically below. On the other hand, the same data are used to show

that this potential flood of cases would be of little practical significance to

the most precious resource of the courts of appeals—circuit judge

time—because so many of them will be dismissed without a judicial decision on the merits.

Whatever the force of these arguments might be if supportable, in fact

the data on which the original claims were based are so unreliable as to

make the claims impossible to evaluate empirically. Although we have reasonably good information about how BAPs are disposing of their caseloads

(at least in the past two years of their operation), we do not have comparably useful information about district court appeals. The data reporting system for BAPs is modeled on the reporting system for the courts of appeals,

but the district courts use codes developed for the typical civil caseload.

This difference has important implications for efforts to compare the two

appellate routes, especially on appellate process dimensions (e.g., oral argument vs. decision without oral argument).

From the more accurate coding system used in the BAPs, we know that

approximately 35% to 45% of appeals are terminated on the merits in that

forum, although circuits differ and the figures have probably not yet stabilized. District courts, on the other hand, have been reported to dispose of

no more than about a quarter of their bankruptcy appeals on the merits.

Some have used these reports to support the claim that the predicted increased workload for the courts of appeals should be substantially discounted. The claim is premised on the distribution of reported district court
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 45

outcomes in bankruptcy appeals, and on suppositions about the relationship

between those outcomes and the amount of judge time required to produce

them. In previous work, we have reported this distribution of district court

dispositions, relying on codes used by the district clerks to report how, and

at what stage, a case was terminated. Table 9 shows the distribution of reported dispositions in the cases filed in the district courts since October

1993. There are actually at least 20 distinct codes that district clerks use,

but these figures group them in logical categories.

Table 9. Reported outcomes of bankruptcy appeals filed in the

district courts in fiscal 1994–1998 (caveat: figures contain substantial

errors)

Fiscal year filed

Reported method of disposition 1994 1995 1996 1997 1998

Appeals: Decision affirmed 15.2% 14.3% 16.3% 15.1% 9.1%

Appeals: Decision reversed at least in part 3.3% 2.7% 2.5% 2.3% 1.5%

Other judgment 14.5% 15.0% 14.4% 13.7% 11.2%

Dismissal 56.1% 56.8% 52.9% 50.6% 39.5%

Transfer (to other district or MDL) or remand to

state court

1.2% 1.4% 1.6% 1.0% 1.1%

Remand to U.S. agency 7.4% 6.5% 7.2% 7.2% 5.7%

Statistical closing 1.8% 2.2% 2.0% 2.0% 1.4%

Still pending as of 12/31/98 0.4% 1.2% 3.1% 8.1% 30.5%

Total filings 4,512 4,290 3,845 3,450 3,314

Some have inferred from reported information about bankruptcy appeals

in the district courts, particularly the percentage reported dismissed, that

the great majority of cases terminate without receiving substantial judicial

attention. These inferences are typically based on distributions such as that

shown in Table 9 or similar ones relying on the courts’ reports of the stage

at which a case terminated. Law review articles, letters in the bar’s campaign

to obtain a right to direct appeal, the commentary to the Long Range Plan,

and a letter from the director of the AO to Congress opposing certain appeal provisions in legislation proposed in the 105th Congress have relied on

these numbers to argue that most bankruptcy appeals take only minimal

judge time in the district courts. Some have inferred that these appeals will

therefore take little or no judge time in the courts of appeals.47 We have re47. See, e.g., Letter from Nathan B. Feinstein to Commission on Structural Alternatives for the

Federal Courts of Appeals, Nov. 5, 1998 (on file with the Federal Judicial Center); Letter from Daniel J.

Bussel to the Hon. Byron R. White, Chairman of the Comm’n on Structural Alternatives, Oct. 28,
46 Alternative Structures for Bankruptcy Appeals

lied on these numbers ourselves.48

Unfortunately, the conclusions are unwarranted because the data are

nearly worthless for the purpose of determining whether a case was decided

on the merits or otherwise required nontrivial amounts of judge time. In

our review of more than 5,000 docket sheets, we discovered several anomalies in the coding that convinced us that the nationally reported statistics

(i.e., the case information the district courts report to the Administrative

Office) should not be relied on for making this assessment. Nor can the

reported data be used for estimating district court affirmance and reversal

patterns in bankruptcy appeals. Among other things, our review found that:

• Twenty federal district courts do not use the code for “affirmed” or “reversed” at all.49 That is, in the information reported by the courts to the

AO for cases filed in the district courts beginning in FY 1994 and terminated by December 31, 1998, twenty districts did not report a single affirmance or reversal. Review of their dockets showed, not surprisingly,

that bankruptcy judge orders were in fact being affirmed and reversed in

these districts during the two-year period examined.

• In many districts, cases coded as “dismissed” appear to be decisions on the

merits. In some districts they are straightforward affirmances and reversals

(often of the form “the judgment of the bankruptcy court is affirmed, and

1998 (on file with the Federal Judicial Center) (referring to “disproportionate procedural terminations”).

In making these arguments, the commentators have relied on a memorandum by A. Fletcher Mangum,

then of the Federal Judicial Center, to the Long Range Planning Committee. That memorandum, which

relied on information the courts reported to the AO about “procedural progress at termination,” reported results allowing the inference that 73% of bankruptcy appeals to the district courts were disposed

of with little or no judicial involvement. Obviously, the conclusions in that memorandum were only as

valid as the data on which they were based, which we now believe to be grossly inaccurate.

48. See Judith McKenna, Elizabeth C. Wiggins, & Patricia Lombard, Statistical Information Regarding Bankruptcy Appeals, prepared for the 71st Annual Meeting of the National Conference of Bankruptcy Judges (Oct. 16–19, 1997), p. 6–23.

49. Although we did not do a district-by-district analysis of the docket sheets, it appears that some

districts regularly use fairly accurate codes in their reports, but these were in the minority. We have

reported elsewhere that the materials used at the Administrative Office’s San Antonio training center

gave incorrect instructions for how the codes are to be used. McKenna, Wiggins, and Lombard, id. We

do not know whether the materials have been revised, but we did determine that the mistakes clerks are

making do not track the instructions. With a few exceptions, if the “affirmed” and “reversed” codes were

used at all, they were used correctly. The problem lies in the courts’ failure to use them. Inaccurate coding of relatively rare events (in the scheme of a district clerk’s duties) such as bankruptcy appeals is not

especially unusual, and in the case of bankruptcy appeals the problem is compounded by the novelty of

the appellate outcome codes “affirmed” and “reversed” relative to the other disposition codes. [In the

summer of 1999 the training materials were corrected and the AO distributed new instructions to the

district clerks. Thus, for cases terminating after July 1999, the accuracy of the disposition coding should

improve markedly.]
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 47

this appeal is dismissed”). In many they are judgments on a motion to

dismiss, in which the judge reaches the merits of the appeal. “Dismissed—other” appears to be the category most seriously out of kilter,

containing large numbers of cases that should have been classified in a

merit-related category, but also many dismissals that did not appear to require much judicial involvement.

• Cases coded “Judgment: Other” generally reflect a decision on the merits

by the district judge. (This is an impression developed during the coding

process, not a systematic assessment.)

We concluded this after recoding by hand the disposition information in

4,264 cases terminated in the last two fiscal years.50 Using the recoded values, we estimate that bankruptcy appeals have been disposed of as shown in

Table 10.

Table 10. Estimated distribution of district court decisions in

bankruptcy appeals terminated in fiscal 1997 and 1998

Recoded method of disposition Number of cases

Percentage of

dispositions

Merit terminations (includes appellate judgments that affirm, reverse in whole

or part, or vacate a bankruptcy court judgment or order; remands following an

apparent determination on the merits; and other judgments and dismissals on

the merits)

2,593 61%

Non-merit terminations (includes voluntary dismissals and settlements; dismissals for want of prosecution or for noncompliance with rules; statistical/administrative closings; consolidations; intra- and interdistrict transfers;

transfers to BAP; remands to state court)

1,113 26%

Unclear or Dismissed—other (includes cases so categorized by the court when

no more specific category appeared correct; jurisdictional dismissals where they

appeared straightforward)

558 13%

Total terminations examined 4,264

50. We obtained and did preliminary coding on just over 5,000 docket sheets, representing approximately 70% of the cases terminated in the two-year period. Technical details are available from the

Center. For the disposition method study, we coded 4,264 docket sheets; we coded the entire set for

some other variables. Most recoding was done by experienced attorneys on the Center’s research staff. A

small amount was done by a law student; attorneys sampled his work to ensure reasonable accuracy.

However, these numbers must be viewed as estimates because the recoding often required judgment calls

about the terminating event. Where the category was unclear but the docket sheet reflected significant

judicial action (including magistrate judge action), cases were generally categorized as “dismissed—other” or a merit termination.
48 Alternative Structures for Bankruptcy Appeals

We have no way to approximate a district court equivalent of “procedural termination by judges/by staff” as those terms are used in the courts of

appeals or BAPs. Many dismissals on procedural grounds are encompassed

in the non-merit and unclear categories in Table 10, and they entail a range

of judicial time investments. Accordingly, we believe that 61% is likely to

be an underestimate of the cases that consume nontrivial amounts of judge

time; in view of the ambiguity of the measure, for purposes of this report,

we estimate the percentage to fall between 60% and 75%.

The finding that perhaps 60% to 75% of bankruptcy appeals to the district courts result in some kind of “merit” termination cuts both ways in the

debate over whether the system needs to be changed and, if so, whether direct appeal is the best way to change it. If the same merit/non-merit pattern

were to hold true at the court of appeals, the effect on their workloads

would actually be higher than we have projected in the past, because the

merit termination rate in most courts of appeals is lower than 60% to

75%—approximately 45% to 50% depending on the case types examined.

It is not clear whether the courts of appeals would tend to treat direct bankruptcy appeals more like the district courts do, or like the courts of appeals

now treat second-level bankruptcy appeals. In bankruptcy appeals now

handled in the courts of appeals, the merit termination rates are virtually

identical to those for other civil, non-prisoner appeals overall.

Yet while the figures underscore the potential workload impacts for the

courts of appeals, they also undercut the assertion that no change is needed

because so few cases go on to the second level. As Table 11 shows, only

about 20% of bankruptcy appeals filed in the district courts go on to the

next level, a figure that has been fairly stable over the last several years of

complete data. Appeals from the BAPs occur at about the same, or slightly

lower, rate.

Table 11. Number of bankruptcy appeals filed in the district courts

that generated at least one appeal to the courts of appeals

Fiscal year of

bankruptcy

appeal filing

Total appeals

filed in district

court

Appeals that

generated at least

one appeal to the

court of appeals

Percentage of

total appeals

filed in district

court

Total appeals

filed in BAPs

Appeals that

generated at least

one appeal to the

court of appeals

Percentage of

total appeals

filed in BAP

1994 4,512 869 19.3% * * *

1995 4,290 862 20.1% * * *

1996 3,845 772 20.1% 907 167 (est) 18.4%

1997 3,450 591 17.1% 1,128 169 15.0%

* Insufficient data.
III: Current Bankruptcy Appellate Systems and the Arguments for Changing Them 49

But a true rate of appeal—and a better measure of litigant satisfaction

with the first-level process—is the number of appeals as a percentage of appealable judgments, not filings.51 With a potentially large margin of error,

we can estimate that number by using the 60% to 75% merit termination

rate we observed for appeals terminated by the district courts in fiscal

1997–1998. Table 12 shows the rate of appeal from district court bankruptcy judgments (using merit terminations as an admittedly rough proxy

for appealable judgments).

Table 12. Estimated rate of appeal from the district courts to the

courts of appeals

Fiscal year of

bankruptcy appeal

filing

Total appeals filed

in district court

Estimated number

of terminations on

the merits

Number of terminations

that generated at least

one appeal to the court

of appeals

Est. percentage of merit

terminations that get

appealed to court

of appeals

1994 4,512 2,707–3,384 869 26%–32%

1995 4,290 2,574–3,218 862 27%–33%

1996 3,845 2,307–2,884 772 27%–33%

1997 3,450 2,070–2,588 591 23%–29%

We do not have sufficient data for the BAPs to make a similar assessment, although our best estimate is that of the 1,128 cases filed in the BAPs

in fiscal 1997, 384 were terminated on the merits and 140 of those gave rise

to a further appeal, for a rate of 36%. However, we have serious reservations

about the comparability of these estimates to the ones for the district courts.

51. See Carol Krafka, Civil Caseload Trends in the U.S. Courts of Appeals, Commission on Structural Alternatives, Working Papers, 1999; Carol Krafka et al., Stalking the Increase in the Rate of Federal Civil Appeals (Federal Judicial Center 1995).
51

IV. Alternative Bankruptcy Appeal Structures

Here we describe and compare several options for the bankruptcy appellate

system.52 We first review the NBRC proposal for direct appeal. This alternative addresses the problems of delay (at least in circuits whose courts of

appeals will be able to handle the increased caseload in a timely way) and

the lack of precedent, and goes some way to decreasing litigant cost. It is

also the alternative that imposes the greatest immediate burden on the

courts of appeals.

Option 2 is a variation on direct appeal to the courts of appeals, also addressing the need for coherent precedent. In larger courts of appeals, it

would concentrate bankruptcy appellate review in relatively few of the

court’s judges, who would over time develop subject-matter expertise analogous to that supplied by the BAP.

Options 3, 4, and 5 would direct appeals to the courts of appeals but

allow those courts to use BAPs in a variety of ways to help manage the increase in caseload and bring subject-matter expertise to bear on the decision-making process.

Options 6 and 7 put a premium on developing precedent; they would

use Article III reviewers with specific subject-matter expertise.

Option 8, originally proposed by the Long Range Planning Committee

of the Judicial Conference, would limit appeals as of right to the district

court or the BAP, thereby addressing cost and delay, but it is inadequate

with respect to the need to develop a body of precedent.

Option 9 would use BAPs to develop within-district (and, to some extent, within-circuit) consistency, with possible recourse to the regional court

of appeals, in its discretion, to develop circuit law. The discretionary appeal

52. In describing and comparing the various options, we relied on statements to the Judicial Conference Long Range Planning Committee, Recommendation and Report to the American Bar Association House of Delegates by the Litigation and Business Law Sections (adopted August 9, 1995); Recommendation and Report to the American Bar Association House of Delegates by the Standing Committee on Federal Judicial Improvements (adopted August 9, 1995); Report of the National Bankruptcy

Review Commission, Vol. I (October 20, 1997); Memorandum to the Ninth Circuit Judicial Council

from its Committee on Bankruptcy Appeals (February 27, 1998); Baisier & Epstein, supra note 25;

Broome, supra note 38; Bussel, supra note 25; Thomas E. Carlson, The Case for Bankruptcy Appellate

Panels, 1990 BYU L. Rev. 545; Feinstein, supra note 25. We also used materials on bankruptcy appeals

prepared by Hon. Elizabeth L. Perris, Hon. Paul A. Magnuson, and Hon. David R. Thompson for the

71st Annual Meeting of the National Conference of Bankruptcy Judges (Oct. 16–17, 1997). We thank

Hon. Thomas E. Carlson for his input regarding the use of BAPs, and are especially grateful to Judge

Perris for her ongoing dialogue with us over the years about bankruptcy appellate structure.
52 Alternative Structures for Bankruptcy Appeals

not only presents constitutional problems but also could develop precedent

much more slowly than would appeal as of right. On the other hand, having two appeals as of right slows the process for individual litigants.

Options 10 and 11 would make procedural changes, rather than structural ones, to improve the stare decisis situation.

 We analyzed each proposal using the following criteria, and comment

on the criteria where relevant:

• What relationship does it set between the bankruptcy courts and the rest

of the judiciary? To what extent does it avoid problems associated with

specialization and preserve values of generalist review? To what extent

does it preserve the value of an expert review?

• What are its effects on precedent? Within districts, circuits, and the nation, what are the likely effects on “percolation” of issues, and predictability and uniformity of decisions?

• What are its effects on the speed and economy for the parties, and the

quality and fairness of individual decisions? Are core and non-core matters

appealed to the same forum?

• What are its effects on the workload of judicial system, including the

courts of appeals, the district courts, and the bankruptcy courts?

• Is it constitutional? What are its implications for the constitutionality of

the bankruptcy system?

With regard to interlocutory appeals, we can do little more at this time

than note that a workable bankruptcy appellate system must provide for

review of interlocutory orders of bankruptcy judges. The issues of finality

(flexible or otherwise) and mootness relate to structure, but are sufficiently

distinct that the Judicial Conference Bankruptcy Committee may wish to

study them separately. As the NBRC (and others before and since) noted, it

would be unworkable for the only appealable order to be the technically

“final” one (viz., the order confirming the plan in a Chapter 9, 11, or 12

case, or the order discharging the debtor in a Chapter 7 or 13 case). Many

orders in bankruptcy cases determine substantive rights even though they

do not end the case.
IV: Alternative Bankruptcy Appeals Structures 53

Option 1: Direct appeal to the courts of appeals (National

Bankruptcy Review Commission recommendation)

The NBRC recommendation would eliminate BAPs entirely. It would leave

for the district court only de novo review of the findings of fact and conclusions of law submitted by bankruptcy judges in non-core matters where the

parties did not consent to the entry of a final order by a bankruptcy judge.

Appeal from the district court’s decision could then be taken to the court of

appeals. All other bankruptcy matters (viz., all appealable bankruptcy orders

in core matters and non-core-with-consent matters) would go directly to the

regional courts of appeals, bypassing the district court. Review from the

courts of appeals would be by certiorari to the U.S. Supreme Court.

Effects on precedent, cost, and disposition time

Routing bankruptcy appeals to the courts of appeals would go a long way

toward ameliorating current precedent problems because the first appellate

reviewer would be able to set binding circuit-wide precedent, but proponents of direct appeal probably overestimate the rapidity with which a body

of precedent would develop. Regardless of the estimated merit termination

rate one uses, most bankruptcy appeals will not end in a merits decision and

published opinion, if current court practices in other areas of the law prevail. But direct appeal should cut appellate litigation costs and disposition

times in some cases—those that would have been appealed to the court of

appeals in any event. It would also extend to a larger number of cases the

benefits of collegial review by three generalist judges who can evaluate the

appellate issues within a broader framework, and can decide both core and

non-core bankruptcy matters using the same standard of review.

Constitutionality

While the issue is not free from doubt, and we may assume that constitutional challenges would be mounted, moving initial appellate review to the

courts of appeals would probably not endanger the constitutionality of the

bankruptcy system.53 A system of direct appeals to the courts of appeals

should be constitutionally sound to the extent the current bankruptcy system organized around core and non-core matters is constitutionally sound.54

53. See Susan Block-Lieb, Assessing the Constitutionality of Proposed Reforms to the Bankruptcy Appellate Process (1999), reproduced as Appendix C.

54. The NBRC reached the same conclusion. National Bankruptcy Review Commission, Final
54 Alternative Structures for Bankruptcy Appeals

That is, if there is an “Article III problem,” it is that the initial decision is

made by non-Article III judges, not that appellate review of that decision is

performed by the courts of appeals rather than by the district courts. The

availability of appellate review of bankruptcy court decisions by an Article

III court, although necessary, does not by itself ensure that all the “essential

attributes” of the judicial power of the United States will be exercised by

Article III judges. The current Bankruptcy Code provides several Article III

controls over the trial court functions of bankruptcy courts: (1) courts of

appeals appoint bankruptcy judges, who may be removed for cause by the

judicial council of the circuit; (2) district courts have discretion to refer a

case or proceeding to the bankruptcy court (although currently all districts

automatically refer cases and proceedings to the bankruptcy court under

orders of general reference) and may withdraw the reference for cause; and

(3) in non-core matters, bankruptcy judges submit proposed findings of fact

and conclusions of law to the district court, subject to de novo review of

those matters to which any party has timely objected. It seems that the constitutionality of the bankruptcy system would depend on whether these trial

level controls are adequate, not whether bankruptcy judge decisions are reviewable by just the courts of appeals rather than by both the district courts

and courts of appeals.55

Some argue that regardless of whether the system would be constitutional, eliminating the appellate function of the district courts in bankruptcy may have negative consequences for the relationship between district

courts and their bankruptcy court units. We are not aware of empirical evidence that would bear on the validity of this argument. Given the way

bankruptcy appeals typically are spread across a district’s judges, it is not

clear how much oversight an individual judge actually exercises in most

districts by way of the appellate function. The district court’s responsibility

to supervise closely the work of the bankruptcy court does not require an

appellate component. The power to withdraw the reference, or decline to

refer in the first instance, is sufficient for this purpose.

Direct review has other drawbacks, though, the most significant of

which is the increased workload it would bring to the courts of appeals. Although bankruptcy appeals have always been a small part of the dockets of

Report at 758–59 (concluding that the bankruptcy system’s constitutional infirmity, if any, rests in the

original adjudication, not the appeal process).

55. See Block-Lieb, supra note 53; Carlson, supra note 52 at 565–67.
IV: Alternative Bankruptcy Appeals Structures 55

the courts of appeals, their addition at a time when many courts are overburdened may prove troublesome. It may be argued that this should not

figure into the policy decision to be made—if appellate review to the courts

of appeals is the right decision on the merits, Congress should simply create

the conditions necessary to make this happen, whether that be new judgeships, other resources, or reduced jurisdiction in some other area. But it is

still important to know what the likely effects are in the event only the burden, not the relief, is forthcoming.

Effects on judicial workloads

For the last decade, bankruptcy appeals have represented less than 3% of all

appeals terminated by the courts of appeals, a proportion that has not varied

substantially from year to year.56 The NBRC estimated that the share of the

dockets of the courts of appeals accounted for by bankruptcy cases would

increase under the proposed system to approximately 11%, ranging from

1% in the D.C. Circuit to 21% in the First Circuit.57 However, because the

dockets of the courts of appeals vary greatly in size, the net increase in the

number of appeals filed is a better indicator of increased workload. The

NBRC estimated that direct appeal would increase the caseloads of the

courts of appeals overall about 9% (or 3,937 cases).58 The NBRC estimate

assumes that every appeal currently filed in the district courts and BAPs

would be filed in the courts of appeals, that a growing body of binding

precedent would not diminish the number of appeals taken, and that the

possibility of obtaining such precedent in a single step would not cause appeals to be filed that are not now taken.

We cannot assess the plausibility of these assumptions. It seems likely

that some matters currently appealed to the district court or BAP would not

be appealed to the court of appeals because of the expense and inconvenience involved,59 but as more appeals are handled without oral argument

and using other efficiency measures, the differences between the appeal avenues may diminish on those dimensions.

In Table 13, we estimate how direct appeal would affect the caseloads of

56. McKenna et al., supra note 48.

57. Report of the National Bankruptcy Review Commission, supra note 54, at 762–64.

58. The projected figure actually represents an almost 10% increase.

59. See Broome, supra note 38, at 543 (describing the substantial costs associated with an appeal to

the court of appeals and arguing that in many bankruptcy cases where assets are limited and likely to

dwindle, costs may preclude any appeal at all).
56 Alternative Structures for Bankruptcy Appeals

the courts of appeals. We present three possible projections, each based on a

five-year average of filings and an assumption about how the change might

affect litigants’ decisions to appeal. The first is the most extreme of the plausible cases, and uses the assumption the NBRC used—100% passthrough of

all appeals (i.e., all appeals now filed in the district courts and BAPs would

be filed in the courts of appeals). The second and third assume an 80% and

65% passthrough rate, respectively. Assuming a 100% passthrough rate, we

estimate the courts of appeals would experience a filing increase of about

6.9%, or 3,531 appeals annually.60 Of course, the effects will vary over time

as the total number of bankruptcy cases fluctuates. For example, in the year

ending September 30, 1998, there could have been at least 4,464 bankruptcy appeals in the court of appeals under a direct appeal system (3,261

more bankruptcy cases than were filed in the courts of appeals that year).

The effects also vary greatly by circuit. For example, if every current appeal were taken to the court of appeals, the percentage caseload increase

could range from 1.9% in the District of Columbia Circuit to 15.8% and

12.7% in the First and Ninth Circuits, respectively. The Fourth Circuit

estimates in our tables may differ from actual effects because of an anomalous year with very high (but related) filings that were not terminated on the

merits.

It may be that bankruptcy appeals now taken to the district courts and

BAPs differ in kind from those now taken to the courts of appeals and that

the figures should be adjusted to account for the plausible assumption that

many who now appeal to the district court (or perhaps the BAP) will find

the court of appeals too remote or expensive a forum and will simply not

appeal at all. Accordingly, the second and third projections in Table 13 assume that fewer appeals will be taken to the court of appeals than are now

taken to the district courts and BAPs. The 65% rate reflects our best estimate of merit disposition rates in the district courts, used here as a rough

measure of serious appeals (ones likely to be pursued by the parties through

to decision and resolved by judges).

60. The estimated net filing increase in the courts of appeals is the number of bankruptcy appeals

filed in the district courts and BAPs minus the number of bankruptcy appeals filed in the courts of

appeals under the current system.
IV: Alternative Bankruptcy Appeals Structures 57

Table 13. Projected increase in total filings using alternative

passthrough rates

1st 2d 3d 4th 5th 6th 7th 8th 9th 10th 11th DC National

Average annual filings (all case types, five-year average)

1,402 4,425 3,557 4,748 7,178 4,604 3,219 3,287 8,552 2,625 6,095 1,580 51,271

 Rate Average annual filings (all case types, five-year average) with direct appeal of bankruptcy matters

100% 1,624 4,774 3,883 4,877 7,457 4,882 3,376 3,412 9,641 2,828 6,439 1,609 54,802

80% 1,579 4,704 3,818 4,851 7,401 4,826 3,345 3,387 9,423 2,788 6,370 1,603 54,096

65% 1,546 4,652 3,769 4,832 7,359 4,784 3,321 3,368 9,260 2,757 6,319 1,599 53,566

Increase in filings with direct appeal

100% 222 349 326 128 278 278 158 125 1,089 204 344 29 3,531

80% 177 279 261 103 223 222 126 100 871 163 275 24 2,825

65% 144 227 212 83 181 181 103 82 708 132 224 19 2,295

Percentage increase in filings with direct appeal

100% 15.8 7.9 9.2 2.7 3.9 6.0 4.9 3.8 12.7 7.8 5.6 1.9 6.9

80% 12.7 6.3 7.3 2.2 3.1 4.8 3.9 3.1 10.2 6.2 4.5 1.5 5.5

65% 10.3 5.1 6.0 1.8 2.5 3.9 3.2 2.5 8.3 5.0 3.7 1.2 4.5

Note: The national figures may not equal the sums of the circuit figures as a result of rounding.

An appeal filed in the district court generally affects the caseload of a

single judge. Because courts of appeals operate in panels, a single appeal can

affect the caseloads of three judges. Thus appellate caseloads are often reported as appeals per panel. Table 14 shows recent per-panel caseloads in

the courts of appeals and the estimated per-panel increase in filings at each

of the three passthrough rates.

Table 14. Projected increase in per-panel filings using alternative

passthrough rates

1st 2d 3d 4th 5th 6th 7th 8th 9th 10th 11th DC National

Per-panel filings without direct appeal (FY 1998)

719 1,115 769 979 1,420 888 891 901 976 646 1,589 407 967

Rate Additional filings per panel with direct appeal

100% 97 100 74 35 37 50 32 27 99 55 64 6 59

80% 78 80 60 28 30 40 26 22 79 44 51 5 47

65% 63 65 48 23 24 33 21 18 64 35 41 4 38

Relationship of disposition methods in courts of appeals to projected workloads.

Some have argued that using the total number of new filings that would

come to the courts of appeals may overstate the problem of increased

workload. One commentator has suggested that we should discount the
58 Alternative Structures for Bankruptcy Appeals

filings because many cases are disposed of without substantial judicial attention.61 This is true for all case types, but only relevant to the comparative

analysis if bankruptcy cases are more likely or less likely to be terminated on

the merits than the rest of the caseload. Bankruptcy cases currently taken to

the courts of appeals are terminated on the merits at rates virtually identical

to those of other kinds of civil appeals. Merit termination rates differ somewhat by circuit, but within circuits, the rates for bankruptcy and other cases

are quite similar. Accordingly, in estimating the effects of direct appeal on

judgeship needs, we do not have to adjust the figures so long as the judiciary

assesses those needs on the basis of filings (which it has been doing for several years) and not on the basis of merit terminations.62

Nevertheless, because raw filing numbers can be misleading regardless of

appeal type, in Table 15 we remove the cases likely to be terminated without any judicial action, and refer to the remainder as the adjusted judicial

workload.

Table 15. Projected increase in adjusted judicial workload using

alternative passthrough rates

1st 2d 3d 4th 5th 6th 7th 8th 9th 10th 11th DC National

Adjusted judicial workload based on 5-year average of filings

963 2,422 2,685 3,691 5,036 3,124 2,081 2,772 6,199 1,991 4,512 1,001 36,483

 Rate Adjusted judicial workload with an increase due to direct appeal

100% 1,108 2,551 2,888 3,747 5,232 3,278 2,181 2,867 6,840 2,123 4,779 1,023 38,588

80% 1,079 2,525 2,847 3,736 5,193 3,247 2,161 2,848 6,712 2,097 4,726 1,018 38,167

65% 1,057 2,506 2,817 3,727 5,163 3,224 2,146 2,834 6,616 2,077 4,686 1,015 37,851

Note: Adjusted judicial workload = (filings x merit termination rate) + (filings x rate of procedural termination with

judicial action). Adjustment rates were individually calculated for each circuit using the last five years of terminations in

the courts of appeals. The national figures may not equal the sums of the circuit figures as a result of rounding.

A note on interlocutory appeals. The committee expressed a particular interest

in learning the number of interlocutory appeals in bankruptcy matters. Tables 13–15 include some of the interlocutory appeals that the courts would

likely receive, but not all of them. Some districts place interlocutory appeals

on the general docket immediately, coded as bankruptcy appeals, and those

61. Feinstein, supra note 47.

62. The Federal Judicial Center paper analyzing the effect of direct appeal for the Commission on

Structural Alternatives did project merit terminations per panel, not just filings, but did so using the

merit termination rates for the courts of appeals, at that time the only valid measure available. See Wiggins & McKenna, supra note 2 at 198.
IV: Alternative Bankruptcy Appeals Structures 59

would be included in our overall filing numbers.63 Other districts place

them on a miscellaneous docket unless the court grants review, so petitions

that are denied do not show up in the national statistics. A better count

could only be obtained from bankruptcy court records, a task beyond the

scope of this study. We can assess some aspects of the interlocutory appeal

situation by counting the number of petitions for interlocutory review that

do appear on available district court dockets. In the approximately 5,000

docket sheets we examined from bankruptcy appeals terminated in the district courts in fiscal 1997 and 1998, we found 73 instances in which interlocutory review was clearly or fairly clearly granted, 138 in which it was denied, and 13 in which a motion for leave had been filed but was mooted or

the outcome was unclear.64 Extrapolating to the 4,464 bankruptcy appeals

that might have been filed in fiscal 1998, we would expect to see at least

204 instances in which an appellant seeks interlocutory review. We emphasize, though, that in light of the varying docketing practices in the district

courts, and the ambiguous distinctions between interlocutory and noninterlocutory matters, this figure should definitely be regarded as a floor,

not a ceiling.

Type of work required by the increased caseload. The courts of appeals report

whether an appeal was terminated on the merits after oral argument, terminated on the merits after being submitted on briefs, terminated procedurally

with judicial action, or terminated procedurally by staff. Nationally, about

one-half of bankruptcy cases are decided on the merits, but the individual

circuit rates range from 31% to 73%. Of bankruptcy appeals filed nationwide since fiscal 1994 and terminated by December 31, 1998, 49% were

terminated on the merits, and of these a little more than half received oral

argument. Most of the appeals that were procedurally terminated were terminated by staff.

63. Bankruptcy appellate panels also differ in how they record these matters. Clerks from two BAPs

independently estimated that about 20% of the matters their panels receive are or could be considered

interlocutory, but they do not separately track interlocutory matters so we could not confirm the estimates or see if others experience like filings.

64. For this part of our docket study we relied on a computerized search of the dockets to identify a

pool of cases in which it appeared interlocutory review may have been implicated. We first identified

cases in which docket sheets contained pertinent words or phrases (e.g., “interloc,” “leave to appeal,”

“motion to appeal,” “motion to certify for appeal,” “permission to appeal,” and variants thereof). Then a

coder examined the docket sheet to ascertain whether it was a valid instance and, if so, the outcome of

the motion.
60 Alternative Structures for Bankruptcy Appeals

Table 16. Disposition of bankruptcy appeals filed in the courts of

appeals since fiscal 1994 and terminated by December 31, 1998

Termination

method 1st 2d 3d 4th 5th 6th 7th 8th 9th 10th 11th DC National

 % on the merits 56.4 37.2 56.2 31.4 59.1 45.8 56.3 72.8 50.6 52.6 48.6 62.8 49.3

–orally argued 39.3 29.8 24.9 18.4 30.6 28.4 43.7 44.9 26.2 20.6 21.6 27.9 27.4

–on briefs 17.2 7.4 31.3 13.0 28.4 17.3 12.7 27.9 24.5 32.0 27.0 34.9 21.9

 % procedural 43.6 62.8 43.8 68.6 40.9 54.2 43.7 27.2 49.4 47.4 51.4 37.2 50.7

–proc/judge 9.8 4.0 7.7 14.7 13.0 11.1 10.8 5.1 9.9 14.2 30.0 16.3 12.4

–proc/staff 33.7 58.8 36.1 53.8 28.0 43.1 32.9 22.1 39.5 33.2 21.4 20.9 38.2

Note: Discrepancies in sums may result from rounding.

Almost a third of the appeals filed in the BAPs during fiscal 1997 were

terminated on the merits and of these about three-fourths received oral argument. About two-thirds of the appeals that were procedurally terminated

received some judicial attention. This is a considerably higher number than

in the courts of appeals, possibly because the BAPs do not have the same

extensive network of staff support that the courts of appeals have. Some

BAPs have staff who function like the staff attorneys in the courts of appeals, but in some BAPs the staff does not perform legal work.

The nationwide publication rate for bankruptcy merits terminations in

the courts of appeals is similar to that for all merits terminations (i.e., in

fiscal 1997, the publication rate for bankruptcy merits terminations was

25% and that for all terminations was 23%). In some circuits, however, the

rate for bankruptcy merits terminations appears to be slightly higher and in

other circuits, slightly lower than the circuit publication rate for all merits

terminations.

Proponents of direct appeal argue that the increasing body of binding

precedent might diminish the number of appeals over time. This is a plausible supposition, but appeal rates have proven to be considerably more

complex than the hunches about what factors affect the rates and how those

rates can be reduced.65 Especially in an area prone to substantive legislative

changes, the expectation that direct appeal will markedly reduce the appeal

rate by stabilizing the law (as distinct from pricing many appellants out of

the market) should be recast as a hope.

Savings to the district courts from direct appeal. Proponents of direct appeal

argue correctly that direct appeal would, notwithstanding the increased

65. See Krafka et al., supra note 51.
IV: Alternative Bankruptcy Appeals Structures 61

caseload pressures on the courts of appeals, also create savings at other levels

of the system. First, to the extent that the total appeals filed would decrease

somewhat (by virtue of eliminating a layer of review), the system could realize savings in the form of deputy clerk positions and other court staff. The

asserted saving of judge time is more speculative. If we view the entire district court caseload as an undifferentiated whole unconstrained by circuit or

district lines, being processed by fungible judges who may be sent anywhere,

then some savings could conceivably be realized. A reasonable estimate is

that overall, eliminating the district court’s appellate function in bankruptcy

could free up the time equivalent to nine district judges (some of which is

already freed up by the gratuitous services of BAP judges). We arrived at the

nine-judge estimate by using the weight that the Judicial Conference assigns

to bankruptcy appeals at the district court, .86, multiplying it by the possible appellate filings for fiscal 1998 (4,464), and dividing by 43066 (430

weighted filings is the approximate threshold for when a district might be

eligible, depending on many factors, to obtain a new district judgeship).

But there are practical limits to this analysis because judges are not fungible and are not equally available to do work anywhere in the country.

Courts with a currently heavy bankruptcy load may find some relief as they

are freed from bankruptcy appeals in large numbers, but this would occur in

a minority of districts. The district with the heaviest volume of bankruptcy

cases in the nation (the Central District of California) is also in a circuit

that has experienced chronic judicial vacancies on its court of appeals—in

recent years, vacancies of up to one-third of its authorized strength.

Other disadvantages to direct appeal

Although a prompt decision is often essential in bankruptcy appeals, in

some already overburdened courts of appeals bankruptcy appeals probably

will not be decided soon enough to realize the proponents’ efficiency hopes.

And cost savings for litigants are not assured. Many appeals will be heard

outside the district in which they arose because most courts of appeals hold

66. The case weight was derived from a Federal Judicial Center time study in which district and

magistrate judges were asked to record all the time they spent working on cases in a sample of more than

8,000 civil cases. The resulting time reports were used to construct a scale of relative case weights. Based

on the time reported in the study, bankruptcy cases in the district courts were assigned a weight of .86.

This case weight was developed based on time recorded in both bankruptcy appeals and bankruptcy

cases in which the district court had withdrawn the reference. Bankruptcy appeals accounted for 88% of

the cases that contributed to the weight, and 88% of the hours reported.
62 Alternative Structures for Bankruptcy Appeals

court in only one or two places. Thus, in those cases in which oral argument

is held, parties who would have stopped at one appeal in any event will incur more expense and inconvenience than they would in the current system.

Finally, direct review would sacrifice the benefits of bankruptcy judge

expertise that have been realized in circuits that have created BAPs. Circuit

judges, on average, have less specialized knowledge than bankruptcy judges,

particularly those selected to serve on BAPs. There is anecdotal evidence

that circuit judges find the BAP decisions they review better reasoned and

the cases better prepared for review than decisions from the district courts,

and that this impression is independent of the likelihood of affirmance or

reversal.

Option 2: Direct appeal to the courts of appeals, with

subject-matter panels to hear bankruptcy appeals

This option is identical to Option 1, except a court of appeals could by rule

provide for a relatively stable subset of its judges to hear bankruptcy appeals.

This would allow the development of a “known bench” within a subject

area asserted to be lacking in predictability and consistency.67 It would ensure review by Article III judges without entirely sacrificing the advantage

that BAPs have in developing subject-matter expertise.

Many of the dangers associated with increased specialization of courts are

discussed more fully in connection with Options 6 and 7 (direct appeal to a

new national court of bankruptcy appeals, or to the Court of Appeals for

the Federal Circuit). The advantage of this option over Options 6 and 7 is

that appeals would be heard by generalist judges who would develop bankruptcy expertise but would continue to bring a broader perspective to the

development of bankruptcy precedent. This would avoid most of the dangers of capture, and fear of lessened prestige for those handling bankruptcy

appeals. And it would prevent the feared boredom of the judges because

they would continue to hear appeals of all types. If adopted, a specialist

panel approach could ensure that judges would still hear the full range of

appeals, but bankruptcy appeals would be concentrated among a few judges,

not the entire court.

67. One author pointed to the perceived success of the Ninth Circuit BAP as an indicator of the

potential for the specialized panel approach in other areas of the law. Michael A. Berch, The BAP and Its

Implications for Adoption of Specialist Panels in the Courts of Appeals, in Restructuring Justice 165 (Arthur

D. Hellman ed., 1990).
IV: Alternative Bankruptcy Appeals Structures 63

Option 3: Direct appeal to the court of appeals, with

presumptive decisions by a BAP

Borrowing a page from district court practice, this approach would use adjunct decision makers with expertise to aid the court of appeals. In this system, there would be only one appeal as of right to the court of appeals. In

its discretion, the court of appeals could use panels of bankruptcy judges to

prepare recommended dispositions in appeals from the judgments of other

bankruptcy judges, subject to de novo review by the court of appeals. Unless

a party objected or the court disagreed with the BAP’s decision, the BAP’s

decision (akin to a report and recommendation) would be adopted as the

court of appeals’ decision. The BAPs would sit in panels of three and hear

oral argument when appropriate.

This option would help the courts of appeals handle their workloads if

the NBRC’s recommendation regarding direct appeals were adopted. During 1996, the losing party appealed in only 15% of cases decided by the

Ninth Circuit BAP. In the best case, we may assume a similar percentage

would object to the BAP’s recommendation, keeping the workload of the

courts of appeals substantially lower than it would be without the BAP assistance. It is likely, however, that parties would object to a BAP’s presumptive decision more frequently than they file formal appeals from BAP

decisions under current law, because less time and expense would be involved.

The relief does not come without cost. At least in the short run, a court

of appeals may be reluctant to use the BAP’s report to create precedent

without full-fledged review by circuit judges. If so, the court might issue the

BAP-generated decision as an unpublished opinion, or might undertake a

full review of its own. The former would defeat the precedent-building purpose; the latter would defeat the efficiency advantages of the option. Still,

the option might serve to improve the quality of precedent in the long run.

It seems generally accepted that BAP decisions are of high quality and that

even when the court of appeals rejects the BAP’s conclusions, it finds the

analysis useful in reaching its own conclusion. And the BAP could serve an

important function by identifying for the court of appeals cases in which a

precedential opinion is needed to settle or clarify a question of law, regardless of whether an objection is filed.

This approach should satisfy all constitutional requirements, for the

same reason that a district judge is not constitutionally barred from referring a bankruptcy appeal to a magistrate judge for a report and recommen-
64 Alternative Structures for Bankruptcy Appeals

dation. The Article III court retains ultimate power—that is, the court of

appeals would exercise “the essential attributes of the judicial power” of an

Article III court as required by Marathon, as long as the parties have the

opportunity to object to the BAP report, and obtain de novo Article III review. Of course, the procedure’s compliance with the spirit of Article III

review also rests on the assumption that the court of appeals would give

more than cursory review to the BAP’s decision.

A serious disadvantage to this approach is its potential for turning BAP

judges into glorified staff attorneys for the courts of appeals. If judges or

litigants come to view them this way, there may be little incentive for bankruptcy judges to take on the often substantial additional work that comes

with being a member of a BAP. If this approach is adopted, courts should

take steps to avoid this development, perhaps by refraining from needlessly

tinkering with the BAP’s decision and by retaining the BAP’s signed opinion where the court adopts it as its own. Accountability demands that the

circuit judges be identified as well, of course, but methods could probably

be devised to give BAP judges adequate credit for their work.

Option 4: Direct appeal to the court of appeals or to the

BAP by consent, with discretionary appeals from BAP

decisions

One way to preserve the advantage of the BAP while reducing the problems

associated with a guaranteed second level of review would be to allow parties to choose their forum. Under this approach, there would be only one

appeal as of right, but the parties could appeal to either the court of appeals

or a BAP, which would decide all bankruptcy appeals in which the parties

expressly consented to its jurisdiction. Further review of a BAP decision

would be to the court of appeals, but only by leave of that court. The approach need not be the same for every circuit; the circuit could retain the

discretion to decide whether its resources and caseload warranted a BAP.

The Ninth Circuit Council argues that using BAPs in this way would

avoid a large increase in the workload of the courts of appeals, and simultaneously would provide for faster resolution of issues by judges especially

knowledgeable about bankruptcy.68 Under this option, the courts of appeals

68. Letter from the Hon. Procter Hug, Jr., Chief Judge of the Ninth Circuit, to the Hon. Wm.

Terrell Hodges, Chair of the Executive Committee of the Judicial Conference of the United States

(March 27, 1998) (on file with the Federal Judicial Center); see also the Memorandum to the Ninth
IV: Alternative Bankruptcy Appeals Structures 65

would be least burdened if parties were required to “opt out” of the BAP

system rather than “opt in.” That is, consent to BAP jurisdiction would be

implied by a party’s failure to timely request direct review by the courts of

appeals.69 This option would save parties time and money, the Council argues, because the BAP would decide appeals more quickly than the courts

of appeals. The Council also noted that the Federal Judicial Center 1989

study of the Ninth Circuit BAP70 found that a large majority of attorneys

had high regard for the BAP and supported its continuation. The persistence of these views is supported by Ninth Circuit data that show (1) parties

consent to BAP review in 50% to 60% of bankruptcy appeals, and (2) the

rate of further appeal from BAP decisions in bankruptcy appeals is about

half the rate of appeal from district court decisions. Experience therefore

suggests that the parties would be fairly unlikely to seek further review; in

any event the court of appeals would be free to deny such requests.

This approach would meet the National Bankruptcy Review Commission’s major objectives of (1) eliminating the cost and delay inherent in two

levels of appeal of right, and (2) ensuring bankruptcy appeals are heard by

tribunals having typical attributes of an appellate court (sit in multijudge

panels and render decisions that bind lower courts in the circuit). But it

would probably be less successful in achieving the goal of precedent development. It would likely do less to clarify and stabilize bankruptcy case law

than a straight system of direct appeal for reasons discussed above with regard to the report and recommendation or presumptive decision approach—the possible reluctance of the court of appeals to be bound by decisions made in the first instance by others. Moreover, if BAP decisions carry

precedential weight, this option would continue the current problems associated with having two entities declaring law on the same subject. On the

other hand, it is likely that more appeals would receive full review by the

courts of appeals under this approach compared to the report and recommendation approach, especially if express rather than implied consent is

Circuit Council by its Committee on Bankruptcy Appeals (February 27, 1998) (on file with the Federal

Judicial Center). 69. The Bankruptcy Amendments and Federal Judgeship Act of 1984 required consent of all parties

before an appeal could be decided by a BAP. Initially, the Ninth Circuit required affirmative, express

consent from the parties and the BAP received few appeals. When the circuit amended the procedure to

require parties to opt out of BAP review, the BAP caseload soared (i.e., increased by tenfold). Gordon

Bermant & Judy B. Sloan, Bankruptcy Appellate Panels: The Ninth Circuit’s Experience, 21 Ariz. St. L. J.

181, 198 (1989).

70. Id.
66 Alternative Structures for Bankruptcy Appeals

required, since experience suggests that parties oftentimes would not object

to BAP decisions.

It may be argued that the approach would be unconstitutional because it

would allow parties to waive their sole right to review by an Article III

court. But a fair reading of the Supreme Court’s decision in Thomas v. Arn71

suggests that the approach is constitutional. Thomas had been convicted of

homicide in state court. She filed a federal habeas corpus petition asserting

that exculpatory evidence had been improperly excluded at trial, and the

petition was referred to a magistrate judge who recommended that the petition be dismissed. Thomas was expressly warned that, pursuant to a Sixth

Circuit local rule, if she failed to file an objection to the magistrate’s report

within ten days, she would waive her right to review in the court of appeals.

She failed to file a timely objection. The district court reviewed the recommendation de novo, notwithstanding the lack of objection, and dismissed

the petition. The court of appeals affirmed without reaching the merits,

reasoning that Thomas had waived her right of appeal by not timely objecting to the magistrate judge’s report. The Supreme Court upheld the

court of appeals’ decision, holding that the waiver rule did not violate the

requirements of Article III. The Court stated:

Even assuming, however, that the effect of the Sixth Circuit’s

rule is to permit both the district judge and the court of appeals

to refuse to review a magistrate’s report absent timely objection,

we do not believe that the rule elevates the magistrate from an

adjunct to the functional equivalent of an Article III judge. . . .

Any party that desires plenary consideration by the Article III

judge need only ask.72

The Court also noted that the waiver rule did not create a jurisdictional bar,

and the court of appeals therefore retained jurisdiction to excuse a waiver

and reach the merits of an appeal.73 Likewise under this option, the court of

appeals would retain the ability to review BAP decisions if a party requested

further review.

71. 474 U.S. 140 (1985). This analysis was taken from the Memorandum to the Ninth Circuit

Council from its Committee on Bankruptcy Appeals (February 27, 1998).

72. 474 U.S. at 154.

73. Id. at 155 & n.15.
IV: Alternative Bankruptcy Appeals Structures 67

Option 5: Direct appeal to the regional courts of appeals,

using BAPs as an alternative dispute resolution forum

One can view the BAP as analogous to the court-annexed alternative dispute resolution forums used in district courts and by courts of appeals in

their appellate conferencing programs. Other options then open up. Parties

could consent to, for example, (1) a nonbinding report and recommendation by the BAP; (2) a final judgment by the BAP, with discretionary review

to the court of appeals; or (3) a non-appealable judgment. This proposed

use of the BAPs is like ADR in that it is an alternative forum selected by the

parties, and is arguably consistent with the federal judiciary’s use of ADR

and non-Article III judges to conserve the time of Article III judges. But it

does raise constitutional and policy questions, such as whether parties can

waive their right to Article III review and whether the system as a whole

benefits from such waivers.

Option 6: Direct appeal to a Federal Court of Bankruptcy

Appeals staffed by Article III judges

Proponents of centralized review to establish a national body of bankruptcy

precedent favor a specialized court, sometimes called a Federal Court of

Bankruptcy Appeals. Such a court would be staffed by Article III judges

who would sit in panels of three in each of the places that courts of appeals

currently sit. It would hear all appeals from bankruptcy judges and from

district judges exercising their original jurisdiction in bankruptcy. Review

from the Federal Court of Bankruptcy Appeals would be by certiorari to the

U.S. Supreme Court.

The advantages of this option are the same as those for Option 1 (direct

appeals to the regional courts of appeals), plus the salutary effects of decision makers who, on average, have more familiarity with bankruptcy law. It

gains those advantages without the detrimental effects on the dockets of the

courts of appeals.

The arguments in opposition are the familiar objections to national subject-matter courts.74

• Judicial selection could become politicized, interfering with the reality or

appearance of the court’s impartiality. The lobbying efforts with respect to

74. See Judith A. McKenna, Structural and Other Alternatives for the Federal Courts of Appeals:

Report to the United States Congress and the Judicial Conference of the United States 84–85 (Federal

Judicial Center 1993).
68 Alternative Structures for Bankruptcy Appeals

bankruptcy legislation considered in the 105th and 106th Congresses suggest that this is a legitimate concern.

• As a specialty bench developed, the specialty bar could gain unfair advantages from their familiarity with the same judges, often drawn from their

ranks.

• The judges’ vision will narrow with continued service concentrated on a

particular area, contributing to the creation of an insular area of law. This

is particularly problematic in bankruptcy because of its relationship to

state law and commercial law beyond bankruptcy.

• Specialized courts, it is argued, ultimately result in lessened prestige for

their members—members of the new court would likely have less prestige

than generalist circuit judges, but certainly would have more prestige than

bankruptcy judges serving on BAPs because under this proposal, the appellate judges would have Article III status.

In addition:

• The concentration of law-declaration power in relatively few hands will result in less “percolation” of the issues; accordingly, the Supreme Court

will receive issues before there has been sufficient development of competing positions in the courts below.

• The new court might need to decide commercial and other state law issues

for which independent lines of circuit precedent may be developing—will

the court follow the precedent of the circuit from which the appeal originates or opt for national uniformity? Will the court’s rulings be binding

on the regional courts of appeals? This is especially problematic if the

court hears appeals from decisions in both core and non-core matters.

• The current volume of bankruptcy appeals implies that the new court

would be relatively large. Depending on the estimates one uses for how

many appeals would be taken to such a court, and the number of those

that would be by pro se litigants, up to twenty new judges could be

needed to handle the volume of appeals in a timely fashion.75 Although

diverting bankruptcy appeals to this court would save some district judge

time, the district-level savings would not completely offset the costs associated with creating a court that sits in panels. The few districts with a

75. This estimate is based on the current formula used to assess circuit judgeship needs.
IV: Alternative Bankruptcy Appeals Structures 69

high volume of bankruptcy appeals might realize a savings in judgeships,

but most districts’ judgeship needs would be unaffected.

• Appeals might be heard outside the district, adding to the expense and inconvenience for the parties.

This option raises the same constitutional issue as Option 1 (direct appeals to the courts of appeals).

Option 7: Direct appeal to the Court of Appeals for the

Federal Circuit

Some proponents of centralized review who assess as remote the chances

that Congress would establish an entirely new court of appeals for bankruptcy suggest that review be centralized in the Court of Appeals for the

Federal Circuit. Further review would be by certiorari to the U.S. Supreme

Court.

This option provides the advantages of direct and centralized review, but

by a court with a somewhat broader focus than a Federal Court of Bankruptcy Appeals. The Court of Appeals for the Federal Circuit currently

functions in several relatively discrete areas and is authorized to sit in panels

throughout the country. Moreover, the court has extensive experience in

economic and commercial matters, and some argue that it has brought order and speedy resolution of disputes in commercially important fields.

The current volume of bankruptcy appeals, however, would impose a

significant burden on the court, and could require additional judgeships to

handle bankruptcy appeals in a timely fashion. Moreover, the arguments

made against subject-matter courts in general and offered as criticisms of the

Court of Appeals for the Federal Circuit in particular apply equally in the

bankruptcy context.

This option raises essentially the same constitutional issue as Option 1

(direct appeals to the courts of appeals), and is therefore likely to be constitutional, although the remoteness of available review might call into question its constitutionality.

Option 8: Appeal as of right to the district court or BAP

with subsequent discretionary appeal to the court of appeals

(November 1994 Proposed Long Range Plan)

Under the initial proposals of the Long Range Planning Committee, dispositive orders of bankruptcy judges would continue to be reviewable by Arti-
70 Alternative Structures for Bankruptcy Appeals

cle III judges in the district court or BAP, with further review available only

at the discretion of the court of appeals for significant questions of law or

public importance.

The advantages of this proposal are:

• Appeals as of right are limited to one, thus reducing the cost and delay of

obtaining a final decision.

• Bankruptcy appeals will be determined more quickly than they would be

under the current appellate system or by direct appeal to the court of appeals.

• Preserving the opportunity for review at the district court level is consistent with the bankruptcy court’s configuration as a unit of the district

court.

• The workload of the courts of appeals would be reduced by eliminating

most bankruptcy appellate matters from their dockets.

The disadvantages are:

• Circuit and district-wide precedent would be slow to develop—even

slower than it is now. District judges deciding bankruptcy appeals might

not defer to the non-binding decisions of their colleagues. There is a split

of authority as to whether bankruptcy courts are bound by district court

decisions, but the trend appears to be against stare decisis. Stare decisis

problems arguably would be compounded in circuits that established

BAPs because district judges deciding bankruptcy appeals and bankruptcy

judges might view BAP decisions as merely persuasive, not binding precedent.76

The November 1994 Proposed Long Range Plan coupled this proposal

with another that allowed for certification of issues directly to the courts

of appeals if such review was needed immediately to establish legal principles on which subsequent proceedings in the case may depend. Such a

provision would improve the stare decisis effects of this proposal.

• Many bankruptcy appeals will be decided by a single judge, rather than a

three-judge panel with the advantage of a collegial appellate process.

76. Bussel, supra note 25, at 259.
IV: Alternative Bankruptcy Appeals Structures 71

• Bankruptcy decisions of bankruptcy judges would be heard in the district

court or BAP, whereas bankruptcy decisions of district judges would be

heard in the courts of appeals. Appeals from core and non-core matters

within a case could thus be fragmented.

This proposal most likely raises no constitutional issues, except in districts

with BAPs—there the constitutional issue would be whether parties may

waive their right to Article III review.

Option 9: Appeal as of right to the BAP with review by the

regional court of appeals

This option would substitute BAP review for district court appellate review

of bankruptcy judge decisions in core bankruptcy proceedings and in noncore proceedings where the parties had consented to final judgment by a

bankruptcy judge. (District courts would continue to provide de novo review of bankruptcy court findings of fact and conclusions of law in noncore matters where parties had not consented to final judgment by the

bankruptcy judge.) The decisions of the BAPs would bind bankruptcy

judges but not district judges. The regional courts of appeals would have

jurisdiction in appeals from BAP decisions and from decisions by district

courts exercising their original bankruptcy jurisdiction.

At first glance, this proposal appears to have significant advantages. Circuit precedent would be established more quickly than under the current

system, because bankruptcy judges would be bound by their circuit’s BAP

and the current dual appeal routes for bankruptcy court orders (that is, via

district court or BAP to the court of appeals) would be eliminated. Determination of appeals at all levels would involve the deliberation of a threejudge panel, a hallmark of the federal appellate system. The first appeal

would be heard by judges with expert knowledge of bankruptcy law, and

any subsequent appeal would be heard by generalist judges, each type

bringing strengths. And the workload of the district courts would be reduced by removing bankruptcy appeals from their dockets.

A major disadvantage of this approach is that litigants would have another non-Article III hurdle to clear before obtaining review by an Article

III court. The remoteness of Article III review might weaken or destroy the

constitutional validity of bankruptcy courts, which require Article III supervision to pass constitutional muster. Also, although BAPs are likely to be

more convenient than courts of appeals, they are less convenient than district courts, and thus could increase cost and inconvenience for parties.
72 Alternative Structures for Bankruptcy Appeals

Making BAPs truly mandatory would cause problems in some circuits

(and would probably not be cost effective in a circuit as small as the D.C.

Circuit). Difficulties arise in circuits in which bankruptcy caseloads are concentrated in a single district. The judges in that district produce most of the

decisions to be reviewed, but cannot fully share the load (or rewards) of

BAP participation because they are not eligible to sit on most of the circuit’s

bankruptcy appeals. Yet eliminating the “same district” rule could undermine the litigants’ confidence in the integrity of the appellate system and

might interfere with the working relationships among bankruptcy judges

within a district. For this proposal to work, therefore, arguably either a

number of separate BAP judges would need to be appointed, imposing a

cost on the system, or two or more circuits would have to create a single

BAP, imposing added expense and inconvenience to litigants. The experiences of the First and Second Circuits could be studied to determine

whether a single-circuit BAP is a feasible option even in a small circuit. Of

particular interest would be the reasons that the Second Circuit Judicial

Conference decided to terminate its Bankruptcy Appellate Panel service on

December 8, 1999, only three and a half years after the service was established.

Option 10: Appeal as of right to the district court and court

of appeals with direct appeal to the court of appeals in some

instances

A hybrid proposal situating some review in the district court or BAP and

some in the courts of appeals has been made in at least three forms:

10-1. Dispositive orders of bankruptcy judges would continue to be reviewable by Article III judges as of right in the district court and

then in the courts of appeals, but also would be reviewable directly

in the court of appeals in those cases where the parties stipulate, or

the district court or BAP certifies, that such review is needed immediately to establish legal principles on which subsequent proceedings in the case may depend. (One such interim measure was

described in the March 1995 Proposed Long Range Plan.)

10-2. A second version would be structured like Option 10-1, except orders would not be appealable directly to the courts of appeals on

stipulation of the parties.
IV: Alternative Bankruptcy Appeals Structures 73

10-3. A third version would also be structured like Option 10-1, but the

certification could be made by the bankruptcy court, the district

court, the bankruptcy appellate panel, or the court of appeals.

These options track the basic idea of the 1978 Act’s arrangement—selective access to the court of appeals. Requiring party agreement

would keep the number of direct appeals quite low, if history is any guide.

When appeals to the courts of appeals on party stipulation were permitted

under the 1978 Bankruptcy Reform Act, relatively few bankruptcy appeals

(about 2%) were taken directly to the courts of appeals. Commentators

have identified several circumstances in which litigants in bankruptcy are

more likely than litigants in other kinds of cases to agree to take the case

directly to the court of appeals. Still, it seems likely that so few cases would

come directly to the court of appeals under such a system that it would do

relatively little to solve the precedent problems. Some combination of certification requirements (e.g., party motion and bankruptcy court or district

court concurrence) might better serve the end of precedent development.

Many of the disadvantages of the current system would remain, but

these options would expedite resolution of conflicts among district judges or

between the district court and BAP. On the other hand, the courts of appeals would likely object to having no control over whether to grant review,

and the procedure would deprive the courts of appeals of the benefit of a

district court appellate opinion. Moreover, giving priority to certain bankruptcy appeals (even if few in number) necessarily implies subordinating, if

only to a small degree, the rest of the workload of the courts of appeals.

This could open the door to similar proposals that might have a greater impact on the operations of the courts of appeals.

The position adopted by the Judicial Conference after the June 1999

committee meetings is essentially that set out in Option 10-1, except that

the Conference would allow a court of appeals to accept or reject the appeal.

The Conference’s September 1999 position parallels Option 10-2, but

again would give the courts of appeals discretion to deny leave to appeal

directly.

Option 11: Change to the rules of precedent

In recommending direct appeals to the courts of appeals, the NBRC report

cited the stare decisis problem and how it resulted in non-uniform bankruptcy laws. It noted that certain bankruptcy courts have held that a decision by one district court judge does not create binding precedent for all of
74 Alternative Structures for Bankruptcy Appeals

the bankruptcy judges within the circuit, and similarly, that BAP decisions

often do not have precedential effect in either bankruptcy courts or district

courts. The system thus leads to multiple non-binding—and conflicting—decisions of the same issue.

Law within a district could be clarified by requiring, through legislation

or judicial action. that the bankruptcy courts follow the decisions of their

district court and BAP, unless there are conflicting district court decisions

or conflicting decisions between the district court and BAP. However, this

change would not resolve conflicts between the district court and BAP,

within district courts, or between districts, and thus would not ensure uniform national bankruptcy laws.

Requiring district courts to follow BAP decisions would enhance uniformity and give a greater role in settling bankruptcy law to specialist

judges. It would lead to relatively quick establishment of circuit-wide precedent, and would reduce forum shopping between the BAPs and district

courts. But this proposal raises serious constitutional issues because it would

make decisions by non-Article III courts binding on Article III courts.
75

V. Conclusion

The discussion of alternatives here has of necessity been based to some extent on assertions made by those promoting and opposing the alternatives.

Some of the asserted problems can be assessed, although fewer of them can

be tested empirically. As we anticipated, some issues about the performance

of the new BAPs are not answerable yet. Too few cases have made their way

through the system to allow us to evaluate the BAPs with any confidence,

particularly to examine their effects on the predictability or stability of

bankruptcy law. However, our planned survey of the members of the bar

who use the system is essential to understanding how the structure of the

system affects bankruptcy practice and the costs of litigation outside the

judicial branch.

Much depends on one’s beliefs about the values of appellate review and

how best to serve those values, and on one’s view of the tradeoffs inherent

in the bankruptcy appellate structure. In settling on a preferred option, it

may be best to focus on aspects of the system that appear to present problems: precedent quality, process quality, and speed and economy. If precedent is the most serious problem (as it appears to be from our examination),

loosening access to the courts of appeals without opening the floodgates

may be a good first approach. But users of the complex bankruptcy system

probably want that precedent not just to be settled, but to be settled right

(Justice Brandeis notwithstanding). If early (and, in the Ninth Circuit, not

so early) impressions about the quality of work by the bankruptcy appellate

panels holds up as the experiment progresses, the dual needs for binding

authority and substantive correctness, like the dual needs for generalist and

specialist review of some matters, may strengthen arguments for some sort

of a dual or hybrid system involving the bankruptcy appellate panels. The

result may be worth the inelegance. But if it turns out not to be worth the

price, the BAP (unlike, say, a new Article III court) is easily disbanded

without having imposed substantial lasting costs to the judicial budget.
77

Appendix A

Section 612 of H.R. 833

SEC. 612. BANKRUPTCY APPEALS.

Title 28 of the United States Code is amended by inserting after

section 1292 the following:

“§ 1293. Bankruptcy appeals

“(a) The courts of appeals (other than the United States Court of

Appeals for the Federal Circuit) shall have jurisdiction of appeals from the

following:

“(1)Final orders and judgments entered by bankruptcy courts and district courts in cases under title 11, in proceedings arising under title 11,

and in proceedings arising in or related to a case under title 11, including final orders in proceedings regarding the automatic stay of section

362 of title 11.

“(2) Interlocutory orders entered by bankruptcy courts and district

courts granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions in cases under title

11, in proceedings arising under title 11, and in proceedings arising in

or related to a case under title 11, other than interlocutory orders in

proceedings regarding the automatic stay of section 362 of title 11.

“(3) Interlocutory orders of bankruptcy courts and district courts entered under section 1104(a) or 1121(d) of title 11, or the refusal to enter an order under such section.

“(4) An interlocutory order of a bankruptcy court or district court entered in a case under title 11, in a proceeding arising under title 11, or

in a proceeding arising in or related to a case under title 11, if the court

of appeals that would have jurisdiction of an appeal of a final order entered in such case or such proceeding permits, in its discretion, appeal

to be taken from such interlocutory order.

“(b) Final decisions, judgments, orders, and decrees entered by a

bankruptcy appellate panel under subsection (b) of this section.

“(c)(1) The judicial council of a circuit may establish a bankruptcy

appellate panel composed of bankruptcy judges in the circuit who are appointed by the judicial council, which panel shall exercise the jurisdiction to

review orders and judgments of bankruptcy courts described in paragraphs

(1)–(4) of subsection (a) of this section unless—
78 Alternative Structures for Bankruptcy Appeals

“(A) the appellant elects at the time of filing the appeal; or

“(B) any other party elects, not later than 10 days after service

of the notice of the appeal;

to have such jurisdiction exercised by the court of appeals.

“(2) An appeal to be heard by a bankruptcy appellate panel under

this subsection (b) shall be heard by 3 members of the bankruptcy appellate

panel, provided that a member of such panel may not hear an appeal originating in the district for which such member is appointed or designated

under section 152 of this title.

“(3) If authorized by the Judicial Conference of the United States,

the judicial councils of 2 or more circuits may establish a joint bankruptcy

appellate panel.”.
79

Appendix B

Sources of Precedent in Bankruptcy: 1999 Federal Judicial

Center Survey of U.S. Bankruptcy and District

Judges—Issues Identified as Particularly Inconsistent or

Difficult to Know in Judge’s Circuit*

* The second column of this table consists of the comments (with some editing) of bankruptcy

and district judges who responded to the survey. We retained duplicate comments to show how frequently certain issues were raised. Unless otherwise noted, references in the third column are to the

Bankruptcy Code.
80 Alternative Structures for Bankruptcy Appeals

1

2

3

4

5

6

7

8

9

10

11

Attorney’s fees in Ch. 7 cases

Determining reasonable fees in bankruptcy

Propriety of paying professionals more

frequently than every 120 days

Retroactive orders approving employment

of professional persons

The applicability of section 362(a) to state

court enforcement of criminal court orders

re payment of fines and restitution

Section 362(a)(3)

Violations of the automatic stay and

damages therefor

Executory contracts

Executory contracts

—assumption and

assignment

Section 365(d)(3) interpretation of “timely

perform all obligations”

Time for assumption/rejection of nonresidential real property lease

327, 328, 329, 330,

331

330

331

327, 1103, 901

362(a), 362(b)(1)

362(a)(3)

362(h)

365, Rule 6006

365, Rule 6006

365(d)(3)

365

Attorney’s fees

—Chapter 7

Attorney fees

—reasonableness of fees

Attorney fees

—frequency of payment

Employment of professions

—nunc pro tunc approval

Does section 362(a) automatic stay prohibit state enforcement of criminal court orders re

fines/restitution?

Automatic stay of “any act to obtain possession of property of the estate or of property

from the estate, or to exercise control over property of the estate”

Violations of the automatic stay and damages therefor (may recover actual damages and

in appropriate cases punitive damages)

Assumption or rejection of executory contracts and unexpired leases

—there are many

issues here: e.g., (1) code requires court approval but does not set out criteria—most but

not all circuit apply business judgement rule; some use the “balancing of the equities”

test; (2) “lease-restriction” cases, where debtor wants to assume and assign lease; (3)

intellectual property rights under 365(h); also see issues below regarding (4) 365(d)(3),

and (5) time for assuming/rejecting nonresidential real property lease.

Assumption or rejection of executory contracts and unexpired leases

—there are many

issues here: e.g., (1) code requires court approval but does not set out criteria—most but

not all circuit apply business judgement rule; some use the “balancing of the equities”

test; (2) “lease-restriction” cases, where debtor wants to assume and assign lease; (3)

intellectual property rights under 365(h); also see issues below regarding (4) 365(d)(3),

and (5) time for assuming/rejecting nonresidential real property lease.

Assumption or rejection of executory contracts and unexpired leases

—interpretation of

“timely perform all obligations” in 365(d)(3)

Assumption or rejection of executory contracts and unexpired leases

—time for

assumption/rejection of non-residential real property lease

Problem areas identified by

bankruptcy judges

Related statute or

rule provision Description of issue/notes Comment #
Appendix B 81 12131415161718192021 Whether an agency that makes educational loans is entitled to “unpaid administrative costs of collection”—there appears to be no case law on point Whether certain types of expenses, such as severance pay and post-petition rent constitute administrative expenses Exemptions Exemption questions Definition of “intent to hinder, delay, or defraud” in context of fraudulent-transfer litigation, objections to discharge, and objections to exemptions 11 U.S.C. § 523(a)(15) Section 523(a)(15) issues Code § 523 (a)(15) application Section 523(a)(15) issues Section 523(a)(5) 503, Rule 4003 503, 365 522 522 522, 544(b), 548, 727(a)(2) 523(a)(15) 523(a)(15) 523(a)(15) 523(a)(15) 523(a)(5) Administrative expenses (this is likely not too controversial an issue) Administrative expenses, including post-petition rent Exemptions Exemptions Fraudulent-transfer litigation, objections to discharge, and objections to exemptions: definition of “intent to hinder, delay, or defraud.” Nondischargeability of marital dissolution debts. Before the 1994 amendments, alimony, maintenance, and support were nondischargeable under § 523(a)(5), but debts related to the division of property were dischargeable. Now the latter type of debts are also nondischargeable under § 523(a)(15). Nondischargeability of marital dissolution debts. Before the 1994 amendments, alimony, maintenance, and support were nondischargeable under § 523(a)(5), but debts related to the division of property were dischargeable. Now the latter type of debts are also nondischargeable under § 523(a)(15). Nondischargeability of marital dissolution debts. Before the 1994 amendments, alimony, maintenance, and support were nondischargeable under § 523(a)(5), but debts related to the division of property were dischargeable. Now the latter type of debts are also nondischargeable under § 523(a)(15). Nondischargeability of marital dissolution debts. Before the 1994 amendments, alimony, maintenance, and support were nondischargeable under § 523(a)(5), but debts related to the division of property were dischargeable. Now the latter type of debts are also nondischargeable under § 523(a)(15). Nondischargeability of alimony, maintenance, support Problem areas identified by bankruptcy judges Related statute or rule provision Description of issue/notes Comment #
82 Alternative Structures for Bankruptcy Appeals 222324252627282930 Extent to which marital claims may be discharged in bankruptcy Marital litigation Nondischargeability of alimony obligations Credit card dischargeability standards Dischargeability in credit card cases What are standards for dischargeability of credit card debts under section 523(a)(2)(A) and (a)(2)(C)? Section 523(a)(2)(B) Section 523(a)(4) fiduciary standard Section 523(a)(6) 523(a)(5), (15) 523(a)(5), (15) 523(a)(5), (15) 523(a)(2)(A), (B), (C) 523(a)(2)(A), (B), (C) 523(a)(2)(A), (B), (C) 523(a)(2)(B) 523(a)(4) 523(a)(6) Nondischargeability of marital dissolution debts. Before the 1994 amendments, alimony, maintenance, and support were nondischargeable under § 523(a)(5), but debts related to the division of property were dischargeable. Now the latter type of debts are also nondischargeable under § 523(a)(15). Nondischargeability of marital dissolution debts. Before the 1994 amendments, alimony, maintenance, and support were nondischargeable under § 523(a)(5), but debts related to the division of property were dischargeable. Now the latter type of debts are also nondischargeable under § 523(a)(15). Nondischargeability of marital dissolution debts. Before the 1994 amendments, alimony, maintenance, and support were nondischargeable under § 523(a)(5), but debts related to the division of property were dischargeable. Now the latter type of debts are also nondischargeable under § 523(a)(15). Nondischargeability of credit card debts (obtained by false pretenses, obtained by materially false writing, or for luxury goods/services or cash advances within 60 before filing bankruptcy) Nondischargeability of credit card debts (obtained by false pretenses, obtained by materially false writing, or for luxury goods/services or cash advances within 60 before filing bankruptcy) Nondischargeability of credit card debts (obtained by false pretenses or for luxury goods/ services or cash advances within 60 before filing bankruptcy) Nondischargeability of debts for money, property, services, or an extension, renewal, refinancing of credit, obtained by use of a written statement that is materially false. Nondischargeability of debts for fraud or defalcation while acting in a fiduciary capacity—what is fiduciary standard? Nondischargeability of debts for “willful and malicious injury by the debtor to another entity or to the property of another entity.” Injury to property cases are commonly referred to as “collateral conversion” cases. See the recent Supreme Court case regarding the “willful and malicious” standard in the context of a medical malpractice injury (In re Geiger, 118 S. Ct. 974 (1998)). Problem areas identified by bankruptcy judges Related statute or rule provision Description of issue/notes Comment #
Appendix B 83 3132333435363738 Section 523(a)(6) issues in light of Geiger Section 523(a)(8)(B)—many courts differ on hardship Burden of proof—dischargeability cases Ability to enter money judgments by default in dischargeability actions—no ruling on appeal by district court Whether the debtor’s (or trustee’s) interest in an officer’s and director’s insurance policy is property of the bankruptcy estate subject to the automatic stay? Conflict between In re Minoco, 799 F.2d 517 (9th Cir. 1986) and In re Pinkler Corp., 124 F.3d 1310 (9th Cir. 1997) Avoidance actions Uniform Commercial Code issues as to chattel paper, proceeds and applicability of Code section 546(b) Reclamation obligations 523(a)(6) 523(a)(8)(B) 523 523,Rule 7005 541 544, 546, 547, 548, 549, 550, and others 546(b) 546(c) Nondischargeability of debts for “willful and malicious injury by the debtor to another entity or to the property of another entity.” Injury to property cases are commonly referred to as “collateral conversion” cases. See the recent Supreme Court case regarding the “willful and malicious” standard in the context of a medical malpractice injury (In re Geiger, 118 S. Ct. 974 (1998)). What constitutes “undue hardship” for the dischargeability of student loans? Dischargeability—burden of proof Dischargeability—ability to enter money judgements by default. Is a motion for discharge judgement required, and is a hearing required? Property of estate subject to automatic stay: interest in insurance policy Avoidance actions, generally Limitations on avoiding powers Seller’s right to reclaim goods received by insolvent debtor Problem areas identified by bankruptcy judges Related statute or rule provision Description of issue/notes Comment #
84 Alternative Structures for Bankruptcy Appeals Good faith standards Disposition of Chapter 7 proceeds when parties “settle” to distribute in a way that does not comport with Chapter 7 priorities Chapter 7 administrative status being given to pre-petition claims Chapter 13 generally 109, 363, 364, 542, 548, 549, 550, 727, 746, 921, 1113, 1114, 1125, 1126, 1129, 1144, 1225, 1325. Also, 707(a), 930, 1112(b), 1208(c), 1307(c) 726, Rule 9019(a) 726, 105(a), 503(a) Chapter 13 of the Bankruptcy Code Eighteen statutes in the Code contain good faith standards. Also, there is much case law stating that bankruptcy cases must be filed in good faith, and that filing in bad faith is cause for dismissal (see 7007(a), 930, 1112(b), 1208(c), and 1307(c)) and relief from the stay (see 365(d)(1)). Additional notes/comments: 109: to file under chapter 9, municipal debtor must have negotiated in good faith with creditors; 363: effect of reversal or modification on appeal of authorization for sale or lease of property on entity that purchases or leased the property in good faith; 365: effect of reversal or modification on appeal of authorization for obtaining credit on entity that extended credit in good faith; 542: transfer of property or payment of debt owing to the debtor in good faith by entity that has neither actual notice or actual knowledge of bankruptcy case; 548: interests of transferee or obligee that took for value and in good faith a fraudulent transfer/obligation; 549: rights of a good faith post-petition purchaser of real property; 550: rights of transferee that took for value and in good faith voidable transfer; 727: denial of discharge to debtor who received discharge under 1228 or 1328 within previous six years unless . . . plan in such case was proposed in good faith

—good

faith conference required when seeking rejection of collective bargaining agreement; 746:

rights of post-petition good faith customer. 921: Chapter 9 case must be filed in good

faith; 1113: good faith conference required when seeking rejection of collective

bargaining agreement; 1114: good faith conference required when seeking modification

of retiree benefits; 1125: liability of person that solicits acceptance/rejection of a plan in

good faith, or that participates in good faith in the offer, issuance, sale, or purchase of a

security offered or sold under the plan; 1126: court may designate entity whose

acceptance/rejection of Chapter 11 plan was not in good faith, or was not solicited or

procured in good faith; 1129: Chapter 11 plan must be proposed in good faith; 1144:

protection of entity who relied on order of confirmation in good faith, upon the orders

revocation; 1225: Chapter 12 plan must be proposed in good faith; 1325: Chapter 13

plan must be proposed in good faith.

Because multiple parties are involved in a bankruptcy case, court approval is required for

settlement

Rarely would pre-petition debts be given administrative expense status; need compelling

reason to do it (“necessity of payment” doctrine)

Chapter 13, generally

39

40

41

42

Problem areas identified by

bankruptcy judges

Related statute or

rule provision Description of issue/notes Comment #
Appendix B 85 “Good faith” in Chapter 13 confirmation (11 U.S.C. § 1325(a)(3)) Bad faith filing of Chapter 13 Successive purchaser’s ability to raise claim objection Lien avoidance issues—circuit court persisted in a line of cases overruled by Supreme Court (finally recently resolved) Lien avoidance Application of lien stripping (Nobelman v. American Savings Bank) in Chapter 13 Lien stripping in Chapter 13 Lien stripping in Chapter 13’s of unsecured second trust deed Strip off of junior liens vs. principal residences in Chapter 13 cases when there is no value to those liens In a Chapter 13, debtor’s right to void the lien of a totally unsecured second mortgage Home mortgage modifications in Chapter 13 1325(a)(3); compare 1129(a), 901, 1225(a)(3) 1307(c) 502, Rule 3007 506(d), 522(f) 506(d), 522(f) 506(d), 522(f), 1322(b)(2) 506(d), 522(f), 1322(b)(2) 506(d), 522(f), 1322(b)(2) 506(d), 522(f), 1322(b)(2) 506(d), 522(f), 1322(b)(2) 506(d), 522(f), 1322(b)(2) Whether the Chapter 13 plan was proposed in good faith Whether the Chapter 13 case was filed in good faith Claim objection by successive purchaser Lien avoidance and stripping: In Dewsnup v. Timm (502 U.S. 410 (1992)), the Supreme Court held that a Chapter 7 debtor could not strip down or bifurcate an undersecured lien, and in Nobelman v. American Savings Bank (508 U.S. 324 (1993)) the court disallowed bifurcation of an undersecured lien on a Chapter 13 debtor’s principal residence. The hot issue now is whether a completely unsecured junior mortgage on a principal residence can be “stripped off ” (treated as unsecured debt). Lien avoidance and stripping Lien avoidance and stripping Lien avoidance and stripping Lien avoidance and stripping Lien avoidance and stripping Lien avoidance and stripping Lien avoidance and stripping 4344454647484950515253 Problem areas identified by bankruptcy judges Related statute or rule provision Description of issue/notes Comment #
86 Alternative Structures for Bankruptcy Appeals Lien avoidance and stripping—also at issue is how to treat “mixed collateral” liens Lien avoidance and stripping: procedural issues Prior to the 1994 Reform Act, courts disagreed about whether payment could be spread over the life of the plan for a loan that was secured by the debtor’s principal residence and that fully matured before the filing of a Chapter 13 case or would mature during the pendency of the plan. Section 1322(c)(2) was amended so that the payment could be spread over the life of the plan on the condition that the loan was paid in full before plan completion. Should judicial lien fall under section 1322(c)(2) exception? Chapter 11 generally Claim classification Claim classification (Chapter 11) Claim classification (Chapter 11) Claim classification (Chapter 11) 545556575859606162 Section 1322(b)(2)

—What kind of

security must be taken to put contract out

of scope of section? E.g., is security in

rents, fixtures, insurance, and escrowed

funds enough? Is a totally undersecured

loan exempt from section 1322(b)(2)?

Extent to which adversary proceedings

must be filed to accomplish routine lien

avoidance or reduction in secured amount

of claim

Section 1322(c)(2)

Whether Section 1322(c?) applies to

Colorado judgment liens

Chapter 11 generally

Classification of claims

Permissibility of separately classifying nonrecourse deficiency claim in Chapter 11

Separate classification of various unsecured

creditors (deficiency of secured claims) in

Chapter 11

Chapter 11 classification issues

506(d), 522(f),

1322(b)(2)

506(d),1322(b)(2),

Rule 7001(2); also see

522(d), Rule 4003(d)

1322(c)(2), which is

an exception to

1322(b)(2)

1322(c)(2)

Chapter 11 of the

Bankruptcy Code

1122, 901, 1322(a)(3),

1322(b)(1)

506(a), 1111(b)(2),

1122

506(a), 1111(b)(2),

1122

506(a), 1111(b)(2),

1122

Problem areas identified by

bankruptcy judges

Related statute or

rule provision Description of issue/notes Comment #
Appendix B 87 6364656667686970717273 Continued viability of the exception to the absolute priority rule under the code Is there a new value exception to the absolute priority rule? New value exception New value exception New value exception Status of new value exception under section 1129(b) New value exception—no Supreme Court decisions; In re Rash—unclear Supreme Court decision Application of Rash replacement value standards Interest rate—present value in Chapter 13 cases Interest rates and valuation in “cramdown” Chapter 13 cases Valuation of collateral for “cramdown” purposes in Chapter 13 cases 1129(b) 1129(b) 1129(b) 1129(b) 1129(b) 1129(b) 1129(b) 1325(a)(5), 1325(a)(4), 1322(e) 1325(a)(5), 1325(a)(4), 1322(e) 1325(a)(5), 1325(a)(4), 1322(e) New value exception to absolute priority rule—on 5/3/99, the Supreme Court restricted the new value exception. The once common use of the exception to lock in old equity’s ownership of a reorganized debtor is no longer permitted, but the Court did not issue a per se prohibition against old equity participating in a reorganization on the basis of new capital infusion. The ABI Web site has a nice summary of the case and its practical significance (Bank of American National Trust & Savings Association v. North LaSalle Street Partnership). New value exception to absolute priority rule New value exception to absolute priority rule New value exception to absolute priority rule New value exception to absolute priority rule New value exception to absolute priority rule New value exception to absolute priority rule Rash replacement value standards Interest rate that is used varies across jurisdictions (e.g., some use the prevailing market rate and others use a modification of the prime rate). Another issue is whether the return to the creditor, given the rate, satisfies the best interest test. Interest rate that is used varies across jurisdictions (e.g., some use the prevailing market rate and others use a modification of the prime rate). Another issue is whether the return to the creditor, given the rate, satisfies the best interest test. Interest rate that is used varies across jurisdictions (e.g., some use the prevailing market rate and others use a modification of the prime rate). Another issue is whether the return to the creditor, given the rate, satisfies the best interest test. Problem areas identified by bankruptcy judges Related statute or rule provision Description of issue/notes Comment #
88 Alternative Structures for Bankruptcy Appeals 1325(a)(5), 1325(a)(4), 1322(e), and other statutes 1325(a)(5), 1325(a)(4), 1322(e), and other statutes 28 U.S.C. 151, 157, 1334, 1452 28 U.S.C. 151, 157, 1334, 1452 28 U.S.C. 1334; 11 U.S.C. 305, and 543(d) 28 U.S.C. 1452 28 U.S.C. 1412, Rule 1014 28 U.S.C. 158 28 U.S.C. 158 Interest rate that is used varies across jurisdictions (e.g., some use the prevailing market rate and others use a modification of the prime rate). Another issue is whether the return to the creditor, given the rate, satisfies the best interest test. Interest rate that is used varies across jurisdictions (e.g., some use the prevailing market rate and others use a modification of the prime rate). Another issue is whether the return to the creditor, given the rate, satisfies the best interest test. Jurisdiction generally Jurisdiction generally Jurisdiction

—abstention (proceeding and case)

Jurisdiction

—removal and remand

Jurisdiction

—venue: Does Rule 1014 conflict with 18 U.S.C. 1412 (“may” versus “must”

transfer)?

The Rooker-Feldman doctrine, established by two U.S. Supreme Court decisions handed

down sixty years apart, provides that a federal district court lacks the jurisdiction to hear a

collateral attack on a state court judgment or to review final determinations of state court

decisions. Instead, the proper court in which to obtain such review is the U.S. Supreme

Court. See Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District of Columbia

Court of Appeals v. Feldman, 460 U.S. 462 (1983).

Binding effect of BAP decisions

Binding effect of district court decisions

Interest rates

Interest rates

Jurisdiction

Appropriate exercise of jurisdiction by

bankruptcy judge

Abstention

Remand, etc.

What should and what can the bankruptcy

court do when venue is not proper? 28

U.S.C. 1412; Rule 1014

Application of Rooker Feldman to

concurrent jurisdiction situations

Binding effect (if any) of BAP decisions in

districts that do participate in the BAP and

in districts that do not participate in the

BAP

Binding effect (if any) of district court

decisions on Bankruptcy Court

74

75

76

77

78

79

79

80

81

82

Problem areas identified by

bankruptcy judges

Related statute or

rule provision Description of issue/notes Comment #
Appendix B 89 Among others, 1329, 1307, 362(d), 1305 541, 1306, 1207 541, 1306, 1327(b) 362(d) 1141–1146 (Chapter 11, subchapter III), Rule 3020(d) 106, 505, 525 106 106 505 505 This encompasses many issues. For starters, 1329 (post-confirmation modification of the plan), 1307 (discharge), 362(d) (relief from the stay), 1305 (debtor wants to incur post- petition debt). See the specific comments regarding 541, 1306, and 362(d). Post-confirmation Chapter 12 and 13—property of the estate and other jurisdiction issues Post-confirmation Chapter 13—property of estate Post-confirmation Chapter 13—can relief from stay be entered for creditor to whom debtor is making direct payments? Jurisdiction in post-confirmation Chapter 11 cases. There is no provision that expressly deals with the extent to which the court retains jurisdiction of a Chapter 11 case once the plan is confirmed. The provisions in Chapter 11, subchapter III imply that some jurisdiction is retained, but the framers of the Code did not contemplate that the court would oversee the case for the life of the plan. Note that the Code requires a Chapter 11 case be closed once the plan is confirmed and the plan is substantially consummated (can’t modify plan after this time). Sovereign immunity: dispute over the constitutionality of 11 U.S.C. 106 Sovereign immunity: dispute over the constitutionality of 11 U.S.C. 106 Sovereign immunity: dispute over the constitutionality of 11 U.S.C. 106 Federal tax laws and bankruptcy, generally Federal tax laws and bankruptcy—method of proving timely filing and mailing Chapter 13 post—confirmation issues Jurisdictional and property of the estate questions in Chapter 12 and 13 cases with a confirmed plan What constitutes property of the estate in a Chapter 13 case after confirmation of a plan in the case Whether relief from stay can enter for creditor after confirmation of Chapter 13 plan for nonpayment outside plan Jurisdictional questions in Chapter 11 cases after confirmation of a plan Sovereign immunity issues in state tax issues and student loan cases Jurisdiction after Seminole Sovereign immunity of states Interrelationship of federal tax laws with bankruptcy laws Is 26 U.S.C.. § 7502 the exclusive method to prove timely filing and mailing of IRS documents? 83848586878889909192 Problem areas identified by bankruptcy judges Related statute or rule provision Description of issue/notes Comment #
90 Alternative Structures for Bankruptcy Appeals In an individual Chapter 7, the right of the Trustee to step into Debtor’s shoes re federal tax advantage in sale of home for a debtor over age 65 years old, who owned the property for last 3 years Collateral estoppel Preemption

“Milk base”—the appropriate place to file

a financing statement - no clear precedent

from court of appeals

Environmental injury potentially incurred

prepetition, notice by publication, etiology

uncertain

Federal tax laws and bankruptcy—tax advantage for sale of home by trustee in Chapter 7

case

Collateral estoppel

—the Bankruptcy Review Commission had an extensive discussion

about this issue and recommended that Congress resolve it. Briefly, in 1973 the Supreme

Court held that the doctrine of res judicata did not apply to dischargeability proceedings

but left open the question of whether collateral estoppel applied. In 1991 the Supreme

Court said it did apply (Grogan v. Garner, 111 S. Ct. 654 (1991)). This has led to some

arguably unfair situations where state court default judgments affect substantive rights in

bankruptcy.

93

94

95

96

97

505

Problem areas identified by

bankruptcy judges

Related statute or

rule provision Description of issue/notes Comment #
Appendix B 91 “Claim” vs. setoff vis-a-vis automatic stay Applicability of automatic stay to post petition set off Executory contracts and discharge of pre- petition debt with a number of intervening bankruptcies What to do about multiple, successive filings Whether reference should be withdrawn under 11 U.S.C. § 157(d) when resolution of the issues involves substantial and material consideration of non-bankruptcy code statutes Discretionary vs. mandatory withdrawal to U.S.D.C. Potential conflict between 11 U.S.C. §§ 522(f)(1) & 522(l) Government as single debtor/creditor (mutuality rule) Interpretation and application of certain bankruptcy rules 362(a)(7), 553 362(a)(7), 553 365, 727, 1328, 1141(d), 1228 7007(a), 930, 1112(b), 1208(c), 1307(c), 349 157(d) 157(d) 522 If a set off is already in place before the petition is filed, it is valid. If it is not, the automatic stay prevents the set off, and so, a motion for relief from the stay must be filed and granted for a valid set off. This issue is difficult to understand but it is not in conflict. If a set off is already in place before the petition is filed, it is valid. If it is not, the automatic stay prevents the set off, and so, a motion for relief from the stay must be filed and granted for a valid set off. This issue is difficult to understand but it is not in conflict. Multiple filings: executory contracts and discharge of prepetition debt Multiple filings: This relates to the good faith filing issue and to the effect of a dismissal. Pending legislation seeks to address this issue. Interpretation of 157(d). Court MAY withdraw cases and proceedings for cause on its own motion or own motion of a party, and MUST withdraw a proceeding on timely motion of party if its resolution requires consideration of both title 11 and laws affecting interstate commerce. Interpretation of 157(d). Court MAY withdraw cases and proceedings for cause on its own motion or own motion of a party, and MUST withdraw a proceeding on timely motion of party if its resolution requires consideration of both title 11 and laws affecting interstate commerce. Exemptions: avoidance of liens that impair an exemption to which the debtor would have been entitled Split as to whether the United States is one entity or each agency is a separate entity (e.g., can a government agency set off a tax refund). This is an important issue. 9899 100 101 102 103 104 105 106 Problem areas identified by district judges Related statute or rule provision Description of issue/notes Comment #
93

Appendix C

Assessing the Constitutionality of Proposed Reforms to the

Bankruptcy Appellate Process

by Susan Block-Lieb

Professor of Law, Fordham University School of Law

Under current law, bankruptcy litigants have a right of appeal to the district

court from “final judgments, orders, and decrees” entered by a bankruptcy

judge in a core proceeding,1

 and from interlocutory orders and decrees increasing or reducing the time periods set forth in 11 U.S.C. § 1121(d).2

They also can request that the district court grant leave to appeal “other

interlocutory orders and decrees” of the bankruptcy court.3

 Alternatively, if

the judicial council has established a Bankruptcy Appellate Panel (“BAP”)

for the circuit4

 and the parties to the appeal have consented to BAP appellate jurisdiction,5

 then they have the same rights of appeal and ability to

request leave to appeal to a BAP as are available to a district court.6

 Following this intermediate appellate review, the parties have a right of appeal to

1. 28 U.S.C. § 158(a)(1) (1984).

2. Id. at § 158(a)(2). 11 U.S.C. § 1121(d) permits a bankruptcy court “for cause” to reduce or

increase the 120-day and 180-day exclusive periods relating to the filing of a Chapter 11 plan of reorganization and solicitation of its acceptance.

3. Id. at § 158(a)(3).

4. 28 U.S.C. § 158(b)(1) would seem to make the creation of a BAP the rule, rather than the exception:

The judicial council of a circuit shall establish a bankruptcy appellate panel service composed of bankruptcy judges of the districts in the circuit who are appointed by the judicial council . . . to hear and determine, with the consent of all parties, appeals under [28 U.S.C. § 158(a) applicable to district courts]

unless the judicial council finds that –

(A) there are insufficient judicial resources available in the circuit; or

(B) establishment of such service would result in undue delay or increased cost to parties in cases under

title 11.

Not later than 90 days after making the finding, the judicial council shall submit to the Judicial Conference of the United States a report containing the factual basis of such finding.

To date, the First, Second, Sixth, Eighth, Ninth, and Tenth Circuits have constituted a bankruptcy

appellate panel service, but the Second Circuit has discontinued its service.

5. “Consent” is presumed under the statute unless the parties opt-out. 28 U.S.C. § 158(c)(1) provides that

[s]ubject to subsection (b), each appeal under subsection (a) shall be heard by a 3-judge panel of the bankruptcy appellate panel service established under subsection (b)(1) unless –

(A) the appellant elects at the time of filing the appeal; or

(B) any other party elects, not later than 30 days after service of notice of the appeal;

to have such appeal heard by the district court.

6. Id. at § 158(b)(1).
94 Alternative Structures for Bankruptcy Appeals

the courts of appeals “from all final decisions, judgments, order, and decrees

entered under subsection (a) [pertaining to district courts] and (b) [pertaining to BAPs] of this section.”7

 Although section 158(d) does not, on its

face, admit of exceptions to the final order rule applicable to the bankruptcy

appellate jurisdiction of courts of appeals, the Supreme Court has held that

28 U.S.C. § 1292 also governs bankruptcy appeals.8

In its report to Congress, the National Bankruptcy Review Commission

(NBRC) recommended that appeals from bankruptcy court orders entered

in core proceedings proceed directly to courts of appeals.9

 Congress reacted

favorably to this recommendation, incorporating it into H.R. 3150. Section

411 of H.R. 3150,10 which passed the House of Representatives last Congress but did not successfully emerge from conference, would have eliminated all intermediate levels of appellate review in the bankruptcy context

and provided for direct appeals to courts of appeals. Similarly, in this Congress, the House recently passed H.R. 833.11 Section 612 of H.R. 833 also

provides for direct appeals to courts of appeals, but, unlike H.R. 3150,

would permit circuits to establish bankruptcy appellate panels as an optional

intermediate level of appellate review.12

During the last Congress’s session, in a letter to the House Judiciary

Committee, the Department of Justice voiced its objection to section 411 of

H.R. 3150 and urged Congress “not to lessen district court review and remove this potentially significant basis for the constitutionality of the bankruptcy court’s exercise of judicial power.”13 In a recent law review article,

7. Id. at § 158(d).

8. Connecticut National Bank v. Germain, 503 U.S. 249 (1992). 28 U.S.C. § 1292 provides, in

relevant part as follows:

(a) . . the courts of appeals shall have jurisdiction of appeals from:

(1) Interlocutory orders of the district courts . . . granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions, . . .

(2) Interlocutory orders appointing receivers, or refusing orders to wind up receiverships or to take

steps to accomplish the purposes thereof, such as directing sales or other disposals of property;

(3) Interlocutory decrees of such district courts or the judges thereof determining the rights and liabilities of the parties to admiralty cases in which appeals from final decrees are allowed.

(b) When a district judge, in making in a civil action an order not otherwise appealable under this section,

shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion, and that immediate appeal from the order may materially advance

the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals

may thereupon, in its discretion, permit an appeal to be taken from such order. . . .

9. National Bankruptcy Review Commission, Final Report, Bankruptcy: The Next Twenty Years,

Recommendation 3.1.3 at 752–53 (1997).

10. H.R . 3150 , 105t h Cong . ( 199 8) . A v ail abl e onl ine at www.abiworld.org/legis/bills/hr3150rev.pdf.

11. H.R. 833, 106th Cong. (1999). Available online at www.abiworld.org/legis/bills/hr833rev.pdf.

12. Section 612 of H.R. 833 appears as Appendix A, supra.

13. Letter from Ann N. Harkins, Acting Assistant Attorney General, to Rep. Henry J. Hyde (May

7, 1998). Section 411 did not survive the conference on H.R. 3150.
Appendix C 95

Prof. John P. Hennigan, Jr., also opines that direct appeals from bankruptcy

orders to the courts of appeals would create constitutional concerns.14 Hennigan argues that direct appeals from orders entered in core proceedings

that do not involve public rights—particularly, orders arising in a preference

or fraudulent transfer action—may be unconstitutional in that the lack of

intermediate appellate review by a federal district court undercuts the contention that the bankruptcy court acted as an “adjunct” of the district court

when it entered the order.15

This report considers whether certain appellate reform proposals that

would eliminate district court appellate review would raise constitutional

concerns. Direct appeals to courts of appeals are considered in the first section, direct appeals with bankruptcy appellate panel involvement in the second.

I. Direct Appeals to Courts of Appeals

Based on the recommendation of the National Bankruptcy Review Commission, section 411 of H.R. 3150 proposed that appeals from bankruptcy

court orders entered in core proceedings go directly to the court of appeals.

Would removal of an extra layer of appeal to the district court or bankruptcy appellate panel create constitutional uncertainties for the bankruptcy

court system?16

Any discussion of the constitutionality of the bankruptcy system should

consider the Supreme Court’s decision in Northern Pipeline Construction Co.

v. Marathon Pipe Line Co.,17 as well as its subsequent constructions of the

requirements of Article III of the U.S. Constitution—Commodity Futures

Trading Commission v. Schor18 and Thomas v. Union Carbide Agricultural

Products Co.

19

In Northern Pipeline the Court held 28 U.S.C. § 1471, the former bankruptcy jurisdictional provision, unconstitutional, invalidating the wholesale

reference of the broad grant of bankruptcy jurisdiction to untenured bank14. John P. Hennigan, Jr., The Appellate Structure Regularized: The NBRC’s Proposal, 102 Dick. L.

Rev. 839 (1998).

15. Id. at 853 (“There is a plausible argument that the constitutionality of the present system depends upon classifying bankruptcy judges as adjuncts to the district courts and bypassing those courts on

appeal obviates that classification.”).

16. Implicit in this question is an assumption that the existing bankruptcy court system is constitutional, although there is some uncertainty as to this underlying premise. See Susan Block-Lieb, The Costs

of a Non-Article III Bankruptcy Court System, 72 Amer. Bankr. L. J. 529 (1998).

17. 458 U.S. 50 (1982).

18. 478 U.S. 833 (1986).

19. 473 U.S. 568 (1985).
96 Alternative Structures for Bankruptcy Appeals

ruptcy judges.20 Northern Pipeline, a Chapter 11 debtor-in-possession, had

filed suit against Marathon in the bankruptcy court, seeking damages for

alleged breach of contract, warranty, misrepresentation, coercion, and duress. Marathon had not filed a proof of claim against the Northern Pipeline

estate. Although the bankruptcy court denied Marathon’s motion to dismiss, the district court reversed, holding that the delegation of authority to

bankruptcy judges was unconstitutional. On direct appeal the Supreme

Court held constitutionally invalid Congress’s grant to the bankruptcy

court of jurisdiction to make final determinations in matters involving

purely private disputes—i.e., matters merely related to the bankruptcy case.

Under the jurisdictional provisions enacted in 1978, Congress had “vest[ed]

all ‘essential attributes’ of the judicial power of the United States in the . . .

bankruptcy court.”21 The Court held that such judicial power could not

constitutionally be exercised by a court whose judges lacked the attributes of

life tenure and salary protection mandated by Article III. The rationale of

this holding is obscured by the Court’s splintered decisions in Northern

Pipeline, however.22

The plurality concluded that the bankruptcy court jurisdiction at issue

violated Article III because it did not fit within its description of the Supreme Court’s previous judicially created exceptions to the general rule that

federal judicial power is to be exercised only by Article III judges. It described the two most relevant exceptions as those involving the adjudication

of “public rights,” and those in which the non-Article III decision maker

acted as an “adjunct” to an Article III court.

The public rights doctrine finds its origins in a group of cases in which

the Supreme Court has upheld the constitutionality of legislative and administrative courts. The plurality in Northern Pipeline described the public

rights doctrine as limited to matters arising “between the [United States]

Government and persons subject to its authority in connection with the

performance of the constitutional functions of the legislative or executive

departments” and which “historically could have been determined exclusively by those departments.”23 The Northern Pipeline plurality declined to

uphold the exercise of jurisdiction at issue under the public rights doctrine

because the suit there was between two private parties concerning liability

under state law. However, the plurality noted that some bankruptcy proceedings may fall within the public rights exception:

20. 458 U.S. at 87.

21. Id. at 84–85.

22. Only four justices joined in the plurality decision, and the two justices who concurred in the

judgement did so based only on a terse explanation of the holding.

23. 458 U.S. at 67–68.
Appendix C 97

[T]he restructuring of debtor-creditor relations, which is at the core of the

federal bankruptcy power, must be distinguished from the adjudication of

state-created private rights, such as the right to recover contract damages

that is at issue in this case. The former may well be a “public right,” but the

latter obviously is not.24

The Northern Pipeline plurality went on to derive the adjunct court exception to Article III from two cases, Crowell v. Benson25 and United States

v. Raddatz.

26 Crowell validated the statutory grant of authority to a federal

administrative agency to make initial factual determinations pursuant to a

federal statute requiring employers to compensate their employees for workrelated injuries occurring upon the navigable waters of the United States. In

Raddatz, the Supreme Court upheld the practice, authorized by the 1978

Federal Magistrates Act, of referring certain pretrial criminal motions to a

magistrate judge for initial determination. From these cases, the plurality

derived two principles relevant to determining the extent to which Congress

constitutionally may vest judicial power in an adjunct to an Article III

court. First, it determined that Congress, when it creates a substantive federal right, possesses substantial discretion to prescribe the process under

which that right may be adjudicated—including the right to delegate judicial functions to a non-Article III adjunct. The second principle that the

plurality inferred from these cases is that the adjunct must be limited in

such a way that the “essential attributes” of judicial power are retained in

the Article III court.

In applying this “adjunct courts” analysis, the Northern Pipeline plurality

found that the first principle—Congress’s discretion to prescribe the process

under which federally created rights are adjudicated—was of no assistance

to Northern Pipeline, because the suit there involved state, not federal, law.

The plurality also found that the delegation of jurisdiction to bankruptcy

judges under the 1978 Bankruptcy Code was far greater than that approved

in either Crowell or Raddatz, and, thus, not supportable under the adjunct

courts doctrine. In reaching the latter conclusion, the plurality noted that

under former section 1471(c) of the 1978 Act, bankruptcy courts exercised

all of the ordinary powers of federal district courts. These powers included

the power to preside over jury trials, and to issue declaratory judgments,

writs of habeas corpus, and any other order necessary or appropriate to enforcement of the provisions of the Code, as well as the power to make conclusive findings of fact and conclusions of law subject to conventional ap24. 458 U.S. at 71.

25. 285 U.S. 22 (1932).

26. 447 U.S. 667 (1980).
98 Alternative Structures for Bankruptcy Appeals

pellate review by Article III courts, under which findings of fact are upheld

unless clearly erroneous.

The concurring opinion in Northern Pipeline did not join in the plurality’s description of the “public rights” and “adjunct court” exceptions to

Article III. The plurality and concurring decisions agreed, however, that

because the grant of jurisdiction to bankruptcy courts over matters related

to bankruptcy cases was made in the same statutory provision as the remaining grant of jurisdiction to bankruptcy courts, the Court could not

simply remove jurisdiction of the bankruptcy court over state common law

actions.27 Thus, the Supreme Court invalidated the jurisdiction granted to

non-Article III bankruptcy courts in its entirety.

Despite the broad language of the plurality decision in Northern Pipeline,

the Supreme Court later limited its holding:

The Court’s holding in Northern Pipeline establishes only that Congress

may not vest in a non-Article III court the power to adjudicate, render final judgment, and issue binding orders in a traditional contract action

arising under state law, without consent of the litigants, and subject only

to ordinary appellate review.28

More than simply narrowing the holding in Northern Pipeline, these subsequent Supreme Court decisions also represented a shift in Article III jurisprudence from formalized, bright-line tests to a flexible, balancing approach. 29

In Commodity Futures Trading Commission v. Schor,

30 the Court indicated that determinations of the constitutionality of a congressional delegation of judicial authority to a non-Article III tribunal “must be assessed by

reference to the purposes underlying the requirements of Article III” and

that “[t]his inquiry, in turn, is guided by the principle that practical attention to substance rather than doctrinaire reliance on formal categories

should inform application of Article III.”31 Applying this pragmatic approach, the Court upheld the constitutionality of regulations enabling the

Commodity Futures Trading Commission to hear not only reparation

claims but also all counterclaims “aris[ing] out of the transaction or occur27. Id. at 71.

28. Thomas v. Union Carbide Agricultural Prods. Co., 473 U.S. 568, 584 (1985); see also Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833 (1986).

29. See, e.g., Erwin Chemerinsky, Federal Jurisdiction § 4.5.4 (1994).

30. 478 U.S. 833 (1986) (upholding constitutionality of regulations permitting Commodity Futures Trading Commission to provide reparations to individuals injured by fraudulent or illegally manipulative conduct by brokers, and hear all counterclaims arising out of same allegedly impermissible

transactions).

31. Id. at 847–48.
Appendix C 99

rence or series of transactions or occurrences set forth in the [reparation]

complaint.”32 In addressing the constitutionality of the exercise of jurisdiction by the CFTC over counterclaims arising under state law, the Court

weighed the benefits of administrative efficiencies and expertise against the

costs of intrusions on the underlying purposes of Article III. It identified

two such purposes: first, to provide an independent and fair-minded judiciary to individual litigants; and second, to promote institutional interests in a

judiciary separate and independent from the other branches of government.

The Court in Schor found both of these purposes fulfilled in the case before

it, despite the delegation of authority over the counterclaims to the nonArticle III tribunal.

It viewed individuals’ interests in fairness protected in that the plaintiff

had consented to the CFTC’s exercise of jurisdiction, both by commencing

that proceeding with the CFTC rather than in a federal district court, and

by expressly demanding that the defendant dismiss its parallel federal court

action and litigate its counterclaim in the administrative setting. It also

viewed separation of powers interests satisfied, applying a factor approach

that considered

the extent to which the ‘essential attributes of judicial power’ are reserved

to Article III courts, and, conversely, the extent to which the non-Article

III forum exercises the range of jurisdiction and powers normally vested

only in Article III courts, the origins and importance of the right to be

adjudicated, and the concerns that drove Congress to depart from the requirements of Article III.33

In Schor, although no single factor was viewed as determinative, the

Court concluded that the exercise of agency jurisdiction over state-law

counterclaims did not, standing alone, intrude on separation of powers interests inherent in Article III, because the counterclaims were factually related to reparation proceedings that otherwise closely resembled traditional

agency exercises of jurisdiction. It also found Congress’s intent to expedite

the resolution of reparations claims important in concluding that the delegation fulfilled the mandates of Article III.

The Schor Court’s pragmatic view of Article III had also been followed

in its earlier decision in Thomas v. Union Carbide Agricultural Products Co.

34

In Thomas, the Court upheld the constitutionality of provisions requiring

participants in a pesticide registration program to submit their compensa32. Id. at 837.

33. Id. at 851.

34. 473 U.S. 568 (1985) (upholding constitutionality of arbitration system designed to resolve

valuation disputes among private parties participating in federal pesticide registration program).
100 Alternative Structures for Bankruptcy Appeals

tory valuation claims to binding arbitration. Like in Schor, the Court in

Thomas narrowly stated the holding in Northern Pipeline and rejected the

notion, implicit in the plurality of Northern Pipeline, that there exist four

categories of circumstances in which legislative courts are constitutionally

permissible. And like in Schor, the Court in Thomas instead adopted a

functional approach to Article III that weighed the policy purposes of the

delegation of jurisdiction to the non-Article III decision maker and the extent to which the non-Article III tribunal encroached upon functions traditionally viewed as properly within the province of the judiciary. In balancing these interests, the Court in Thomas found that, consistent with the

mandates of Article III, Congress could create “a seemingly ‘private’ right

that is so closely integrated into a public regulatory scheme as to be a matter

appropriate for agency resolution with limited involvement by the Article

III judiciary.”35

The Supreme Court has not ruled on the constitutionality of the bankruptcy jurisdictional provisions enacted with the 1984 Amendments. However, in Granfinanciera, S.A. v. Nordberg,

36 the Court held that a fraudulent

transfer action commenced under federal bankruptcy law by a trustee in

bankruptcy against a transferee that has not filed a proof of claim involves

“private” not “public rights,” and that, as a result, the defendant in this action was entitled to assert its Seventh Amendment jury trial right in this

proceeding. Although the plurality in Northern Pipeline had indicated that

the restructuring of debtor-creditor relations “may well be a ‘public

right,’”37 the Court in Granfinanciera distanced itself from this dicta, stating

that “[w]e do not suggest that the restructuring of debtor-creditor relations

is in fact a public right.”38 Moreover, although the Court in Granfinanciera

narrowly held only that the defendant in that fraudulent transfer action retained a jury trial right under the Seventh Amendment, the Court went out

of its way to declare in dicta that “the question whether the Seventh

Amendment permits Congress to assign its adjudication to a tribunal that

does not employ juries as factfinders requires the same answer as the question whether Article III allows Congress to assign adjudication of that cause

of action to a non-Article III tribunal.”39

Thus, any argument for the constitutionality of the exercise of bankruptcy court jurisdiction in core proceedings depends on a confluence of

factors:

35. Id. at 593–94.

36. In re Chase & Sanborn, Inc., 492 U.S. 33 (1989).

37. 458 U.S. at 71.

38. 492 U.S. at 56 n.11.

39. Id. at 53.
Appendix C 101

1. whether private rights are implicated in the core proceeding;

2. whether district courts exercise the “essential attributes of judicial authority” as to these core proceedings because they retain the power

to withdraw the reference of any title 11 case or any proceeding arising under title 11 or arising in or related to such case, “for cause”;

3. whether district courts exercise this essential judicial authority because the power of a bankruptcy court is limited in important respects—bankruptcy judges cannot conduct jury trials absent the parties’ consent—they may not be able to exercise supplemental jurisdiction; they may have limited authority to sanction for contempt,

they may have limited authority as “courts of the United States” to

impose certain statutory fines; and

4. whether, by virtue of their involvement in the bankruptcy case and

the litigated proceeding at issue, the parties may be viewed to have

consented to the exercise of bankruptcy court jurisdiction, especially

where a proof of claim has been filed.

The question is whether the fact that district courts and courts of appeals

both retain appellate jurisdiction over final and certain interlocutory orders

entered by bankruptcy courts in core proceedings has any constitutional

significance.

Hennigan argues that there is “serious doubt about the validity of a system combining Article I bankruptcy judges with direct appeals.”40 He bases

this contention, first, on the recognition that the constitutionality of an exercise of bankruptcy court jurisdiction over core proceedings may depend

upon the characterization of bankruptcy judges as adjuncts of the district

court.41 This is particularly true for core proceedings that do not involve

public rights, such as the preference or fraudulent transfer actions at issue in

Granfinanciera. He next asserts that direct appeal would undercut the adjunct status of bankruptcy courts, raising significant questions as to the constitutionality of an exercise of its jurisdiction over core proceedings.

If appeals are routed around the district courts, . . . their only remaining

vestiges of control would be their broadly ignored option not to make the

reference in the first instance and their occasionally exercised power to

withdraw a reference already made.42

40. Hennigan, supra note 14, at 856.

41. Id. at 854–55 (arguing that bankruptcy courts can be construed as adjuncts of district courts

even when considering their broader authority to enter orders in core proceedings: “they are acting on

reference from the Article III district court, which has the power either to withdraw the reference or to

review any appealable decision”).

42. Id. at 855–56.
102 Alternative Structures for Bankruptcy Appeals

In making this argument, however, Hennigan confuses appellate review

with the retention of the “essential attributes of judicial authority” that constitutes the hallmark of an adjunct court relationship. In its decision in

Raddatz, the Supreme Court was careful to identify de novo review, rather

than ordinary appellate review, as characteristic of adjunct court status.43

Similarly, in Thomas v. Arn,44 the Court rejected the argument that a rule

viewing a failure timely to object to a magistrate judge’s decision as a waiver

of appellate review would violate Article III on these terms, emphasizing

that

[t]he waiver of appellate review does not implicate Article III, because it is

the district court, not the court of appeals, that must exercise supervision

over the magistrate.45

If adjunct status depends on the supervision of the district

court—specifically, the supervision that follows from the power to review de

novo—then there should be no constitutional significance to the shift to a

system permitting direct circuit court appellate review of core proceedings.

Under either the current two-tiered system, or the proposed direct appeal

system, bankruptcy court orders in core proceedings will not be reviewed de

novo unless the district court withdraws its reference of the proceeding.

Although Hennigan does not put his argument in quite these terms, he

might be read to contend that direct appeals raise constitutional concerns

because they alter the ability of an appellate court to withdraw the reference

of a core proceeding. Under the current bankruptcy appellate and jurisdictional provisions, in the course of conducting ordinary appellate review of

an order entered in a core proceeding, the district court may determine to

withdraw the reference of the order on appeal “for cause.”46 Hennigan may

be read to argue that a system of direct appeals would preclude this response

since courts of appeals are not authorized by statute to withdraw the reference of a proceeding.

The direct appeal proposal should not be viewed as unconstitutional for

this reason either, however. First, if the argument has any merit, then it also

43. U.S. v. Raddatz, 447 U.S. 667 (1980) (in holding delegation to untenured magistrates as consistent with Article III, Court emphasized the “Congress has provided that the magistrate’s proposed

findings and recommendations shall be subjected to de novo determination ‘by the judge who . . . then

exercise[s] the ultimate authority to issue an appropriate order’” (quoting from S. Rep. No. 94-625 at 3

(1976))).

44. 474 U.S. 140 (1985).

45. Id. at 153–54.

46. 28 U.S.C. § 157(d) (permitting district courts to withdraw “in whole or in part, any case or

proceeding referred under this section, on its own motion or on timely motion of any party, for cause

shown”).
Appendix C 103

finds constitutional infirmity in the jurisdiction of bankruptcy appellate

panels since BAPs also possess no statutory authority to withdraw the reference of a proceeding on appeal. Second, courts of appeals are divided as to

the propriety of a withdrawal of the reference of a proceeding after an appeal of a bankruptcy court order has been entered in such a proceeding.47

Moreover, although courts of appeals are not explicitly permitted by statute

to withdraw a reference as a practical matter, they could cause the reference

to be withdrawn by communicating such a desire to the district court in the

course of reversing and remanding the decision on appeal. Finally, assuming

the presence of constitutional significance, Congress might simply fix the

problem by authorizing courts of appeals to direct that the district court

withdraw the reference “for cause.”

In sum, nothing in the Constitution or Supreme Court precedent construing Article III of the Constitution suggests the need for two layers of

appellate review or mandates the level at which appellate review is available.48 So long as there is some form of appellate review by an Article III

court, the constitutional balance of the bankruptcy court system should be

maintained.49 The constitutionality of a system of direct bankruptcy appeals

to courts of appeals is also strengthened by reference to the process for appeals from non-Article III magistrate judges’ decisions by analogy. Under

28 U.S.C. § 636(c)(1), magistrate judges are authorized, upon the consent

47. Compare In re Burger Boys, Inc., 94 F.3d 755, 762–63 (2d Cir. 1996) (upholding withdrawal of

reference in interest of judicial economy) with In re Hall Bayoutree Assocs., Ltd., 939 F.2d 802, 805

(9th Cir. 1991) (“[District court’s] decision to reach the issue of bad faith was not a withdrawal by implication, but rather an incorrect attempt by an appellate court to assume the role of fact finder.”); In re

Pruitt, 910 F.2d 1160, 1168 (3d Cir. 1990) (“[T]he ‘district court has, in effect, derailed the appellate

process provided by statute. . . . Moreover, allowing the Pruitts a second opportunity to adduce the facts

will encourage forum shopping, dissipate the parties’ resources, and prolong the bankruptcy process.”);

In re Powelson, 878 F.2d 976, 983–84 (7th Cir. 1989) (“We think that, if consent were not in the

picture here, it would be clearly wrong for the district court to suspend the mandated appeal process as it

has done in this case. Although the statute does not expressly forbid the course taken here, it appears to

violate the intent of Congress as reflected in the statutory scheme.”).

48. Briney v. Burley, 738 F.2d 981, 986 (9th Cir. 1984) (“Because there is no constitutional right

to an appeal, . . . a fortiori there is no constitutional right to two levels of appeal . . . by an Article III

judge.”).

49. See Atlas Roofing Co. v. Occupational Safety Comm’n, 430 U.S. 442, 455 n.13 (1976) (in

upholding constitutionality of delegation of jurisdiction to non-Article III administrative tribunal, Court

emphasized that the administrative decision would be subject to review by courts of appeals under substantial-evidence test, and noted that its decision did not “present the question whether Congress may

commit the adjudication of public rights . . . without any sort of intervention by a court at any stage of

the proceedings”). This is not to say that the presence of appellate review by an Article III court on its

own satisfies the requirements of Article III of the Constitution. Northern Pipeline, supra note 17, 458

U.S. at 74 n.28 (“The dissent’s view that appellate review is sufficient to satisfy either the command or

the purpose of Article III is incorrect.”); id. at 91 (concurring in judgment and agreeing that “the extent

of review by Article III courts provided on appeal from a decision of the bankruptcy court in a case such

as Northern’s does not save the grant of authority”).
104 Alternative Structures for Bankruptcy Appeals

of the parties, to “conduct any or all proceedings in a jury or nonjury civil

matter and order the entry of judgment in the case.” Judgments in such

cases are subject to ordinary appellate review by courts of appeals, without

intermediate appellate review by the district court.50 Courts of appeals have

uniformly upheld the constitutionality of § 636(c).51

Moreover, the appellate jurisdiction of district courts to review core

bankruptcy proceedings duplicates the appellate jurisdiction of the courts of

appeals.52 Because the scope of the appellate jurisdiction of district courts

and courts of appeals is identical, the shift from a two-tiered to a one-tiered

system of bankruptcy appeals alters the number of Article III courts that

review the bankruptcy court decision but neither the standard for review

nor the scope of appellate jurisdiction. As a result, there should be no constitutional significance to a two-tiered system of bankruptcy appeals.

II. Direct Appeals, with Bankruptcy Appellate Panel

Involvement

Section 612 of H.R. 833 would create a system for direct bankruptcy appeals to the courts of appeals, but would continue to authorize each circuit

50. 28 U.S.C. § 636(c)(3). Pursuant to § 636(c)(4), the parties are permitted, “at the time of reference to a magistrate,” to consent to appeal to a judge of the district court, with these district court decisions reviewable by the court of appeals only upon petition for leave to appeal. 28 U.S.C. §§ 636(c)(4)

& (5).

51. See, e.g., K.M.C., Inc. v. Irving Trust Co., 757 F.2d 752, 755 (6th Cir. 1985); Gairola v.

Commissioner of Va. Dept. of Gen. Servs., 753 F.2d 1281, 1284–85 (4th Cir. 1985); D.L. Auld Co. v.

Chroma Graphics Corp., 753 F.2d 1029, 1031–32 (Fed. Cir.), cert. denied, 474 U.S. 825 (1985); Fields

v. Washington Metro. Area Transit Auth., 743 F.2d 890, 893–95 (D.C. Cir. 1984); Geras v. Lafayette

Display Fixtures, Inc., 742 F.2d 1037, 1045 (7th Cir. 1984); Lehman Bros. Kuhn Loeb, Inc. v. Clark

Oil & Ref. Co., 739 F.2d 1313, 1316 (8th Cir. 1984) (en banc), cert. denied, 469 U.S. 1158 (1985);

Puryear v. Ede’s Ltd., 731 F.2d 1153, 1154 (5th Cir. 1984); Collins v. Foreman, 729 F.2d 108, 120 (2d

Cir.), cert. denied, 469 U.S. 870 (1984); Pacemaker Diagnostic Clinic, Inc. v. Instromedix, Inc., 725

F.2d 537, 547 (9th Cir.) (en banc), cert. denied, 469 U.S. 824 (1984); Wharton-Thomas v. United

States, 721 F.2d 922, 929–30 (3d Cir. 1983).

52. Assessment of the plain language of the two appellate jurisdictional statutes might initially lead

one to conclude that the district courts’ appellate jurisdiction is far broader. Section 158(a) explicitly

confers on district courts jurisdiction to grant leave to review interlocutory bankruptcy court orders,

whereas courts of appeals appear to enjoy no parallel discretionary authority under § 158(d). But district

courts uniformly construe the standard by which they determine whether to grant leave to appeal interlocutory bankruptcy court orders as identical to that applied under 28 U.S.C. § 1292(b). See William L.

Norton, Jr., Bankruptcy Law and Practice 2d § 148:15 (1999). Moreover, notwithstanding the apparently unqualified language of § 158(d), the Supreme Court has held that courts of appeals have jurisdiction under 28 U.S.C. § 1292(b) to grant leave to appeal interlocutory bankruptcy orders entered by

district courts in the exercise of their appellate jurisdiction under § 158(a). Connecticut National Bank

v. Germain, 503 U.S. 249 (1992). That is, it has construed § 158(d) to parallel § 1291, and § 1292 to

supplement the appellate jurisdiction of courts of appeals in both the bankruptcy and non-bankruptcy

contexts. As a result, there is no practical difference between the appellate jurisdiction of district courts

and courts of appeals over bankruptcy orders entered in core proceedings.
Appendix C 105

to create a bankruptcy appellate panel for intermediate appellate review of

orders entered in core bankruptcy proceedings as to which the parties have

consented to BAP review.53 Inserting a non-Article III appellate panel into

the bankruptcy appellate process raises distinct constitutional questions.54

First, would a non-Article III BAP’s exercise of appellate jurisdiction

over orders entered in a core proceeding constitute an unconstitutional exercise of the “essential attributes of [appellate] judicial authority,” where

there exists no alternate route for intermediate appellate review in the district courts? If the constitutionality of the current BAP system is assumed,

there would seem to be little constitutional difference between proposals for

direct bankruptcy appeals and proposals to provide for intermediate appellate review by BAPs on consent. Put another way, there would seem to be

little constitutional significance to the intermediate appellate review by the

district court in the absence of the parties’ consent to the exercise of BAP

jurisdiction if it is assumed that direct bankruptcy appeals to courts of appeals would be constitutional.

Existing Supreme Court precedent does not assist in resolving this question. Neither Raddatz nor Arn directly speak to the issue, since magistrate

judges hold no appellate jurisdiction. Nonetheless, the Ninth Circuit’s decision in Briney v. Burley is instructive.55 In Burley, the court of appeals analogized BAPs to the magistrate judge courts upheld in Raddatz and concluded

that the BAP was a constitutional “adjunct” of the courts of appeals.

We believe that the court of appeals retains all of the essential attributes of

the judicial power that were retained by the district court in Raddatz. The

court of appeals retains the power to make the final determination of all

questions because it reviews decisions of the BAP de novo. The circuit

council also makes the choice whether or not to establish a BAP. Thus, we

conclude that the continued functioning of the BAP is consistent with

Article III and the Marathon decision.56

Thus, one could look to Raddatz by analogy and argue that, under proposed

section 612 of H.R. 833, the appellate jurisdiction of the BAP would not

exceed Article III because (1) the jurisdiction would be limited to appeals

from orders entered in core proceedings; (2) the parties to the appeal would

have consented to the exercise of the BAP review; (3) life-tenured courts of

53. See Appendix A, supra.

54. In asking these questions, I assume that bankruptcy appellate panels and the bankruptcy court

system are constitutional under current law.

55. Burley, 738 F.2d 981 (9th Cir. 1984) (upholding constitutionality of bankruptcy appellate panel

as applied to appeals filed before effective date of Supreme Court’s decision in Northern Pipeline but

after promulgation of emergency rule).

56. Id. at 987.
106 Alternative Structures for Bankruptcy Appeals

appeals judges would review BAP appellate decisions de novo;

57 and (4) the

circuit could “withdraw the reference” of appeals to the BAP by discontinuing the BAP altogether. The analogy is imperfect, however, in that

courts of appeals could not withdraw the reference of individual appeals

from a BAP.58 Moreover, one could argue that parties’ consent to BAP jurisdiction would not be wholly voluntary under a proposal where there exists no alternative route of intermediate appeal and exigencies preclude consideration of a direct appeal to the court of appeals as a practical alternative.

Second, would the exercise of appellate jurisdiction by a non-Article III

BAP impinge upon the constitutionality of the bankruptcy court system

itself? Under H.R. 833, if litigants consent to BAP jurisdiction, courts of

appeals would review only the final decisions of a bankruptcy appellate

panel.59 The literal language of the proposed statute could be construed to

differentiate between the scope of the jurisdiction on direct appeal to courts

of appeals and that on appeal from an intermediate BAP determination. As

a result, courts of appeals might have broader appellate jurisdiction of the

judgments, orders, and decrees of the bankruptcy court than of the BAP,

although both are non-Article III tribunals.

In practical effect, however, the jurisdiction of courts of appeals will depend on whether the Supreme Court’s decision in Connecticut National

Bank v. Germain would remain good law following enactment of H.R. 833.

Germain construes current 28 U.S.C. § 158(d).60 It found that the plain

language of section 158(d) does not preclude courts of appeals from granting leave to appeal from interlocutory district court and BAP determinations pursuant to the guidelines set forth in 28 U.S.C. § 1292(b).61 Courts

have also construed Germain to incorporate 28 U.S.C. § 1292(a) into bank57. Although courts of appeals only review de novo the legal determinations of a BAP, the BAP will

not itself have made any factual determinations.

58. The dissent in Burley noted this inflexibility, as follows:

The circuit council is presented with a flat choice between having BAPs and not having BAPs. If a sensitive case arises after the BAPs have been created, the council has no recourse other than the total abolition

of the system—a radical measure unlikely to be employed. Thus, the circuit council’s power to create or

abolish the BAPs offers little in the way of Article III protection.

Briney v. Burley, 738 F.2d 981, 992 (Norris, J., dissenting). Of course, Congress could authorize courts

of appeals to withdraw the reference of an appeal to a BAP. They could also make the analogy a better fit

by literally providing by statute for the reference of appellate jurisdiction to the BAP. Cf. 28 U.S.C.

§ 157(a).

59. See Appendix A.

60. 28 U.S.C. § 158(d) provides, as follows:

The courts of appeals shall have jurisdiction of appeals from all final decision, judgments, orders, and decrees entered under subsections (a) [applicable to the intermediate appellate jurisdiction of district courts]

and (b) [applicable to BAPs] of this section.

61. See note 8, supra (quoting § 1292 in its entirety).
Appendix C 107

ruptcy appeals.62 If Germain were construed as governing new section 1293

following enactment of H.R. 833, then circuit court review of BAP determinations would not differ substantially from circuit court review of bankruptcy court orders, notwithstanding apparent differences between the language of subsections (a) and (b) of the proposal.

However, differences in the statutory language of current section 158(d)

and the proposal may convince courts that Congress intends to override the

result in Germain. If courts were to construe section 612 of H.R. 833 as

overriding Germain, then there may be some BAP determinations that

would not enjoy immediate review by a court of appeals. Atlas Roofing indicates in dicta that a complete absence of Article III appellate review of a

non-Article III court’s determinations may be unconstitutional,63 but section 612 would not altogether obviate circuit court review of BAP appellate

decisions. Moreover, the possibility of immediate review by an Article III

circuit court would have been waived by the parties’ consent to BAP review,

in circumstances not so dissimilar from those upheld in Thomas v. Arn.64

Finally, the court of appeals rejected just this argument in its decision in

Burley.

65

62. Id.

63. See note 49, supra.

64. 474 U.S. 140 (1985).

65. Briney v. Burley, 738 F.2d 981, 987 (1984) (concluding that “there is no constitutional right to

. . . immediate review of interlocutory decisions by an Article III judge”). However, the dissent in Burley

criticized this argument as “obscure.” Id. at 992. It went on to elaborate its disagreement at some length:

If the majority intends to claim that despite the absence of article III review of interlocutory appeals, the

court of appeals retains sufficient control over the BAP’s resolution of interlocutory appeals, the control

which the majority finds sufficient is nothing more than the clearly inadequate administrative controls I

have already discussed. If the majority intends to argue that despite the absence of article III review of interlocutory appeals, the court of appeals retains sufficient control over the BAP resolutions of cases generally, the majority is advancing the novel proposition that article III is satisfied even when ‘the essential attributes of the judicial power’ are not retained by article III judges in all cases. . . . [Finally, the majority’s

argument that because BAP review of interlocutory orders is not constitutionally compelled it is not necessary to satisfy article III standards if such review is provided] is in essence, an application of the rightprivilege distinction to the field of appellate review. Since there is no right to appellate review, the government may provide any form of appellate review it deems appropriate. The right-privilege distinction

has long been discredited. . . . In fact, the Supreme Court has implicitly rejected the right-privilege distinction in precisely this context [in its decision in Northern Pipeline].

Id. at 993 (Norris, J., dissenting).
109

Appendix D

Sources of Precedent in Bankruptcy

Federal Judicial Center Survey of U.S. Bankruptcy Judges

(Version 1: BAP-participating districts)

What is your circuit? __________________

What is your district? __________________

1. When deciding a question of bankruptcy law, do you find the body of precedent coherent, consistent, and developed enough to allow you to decide the

question efficiently and confidently?

❒ Almost always

❒ Frequently

❒ About half the time

❒ Infrequently

❒ Almost never

2. About how often have you had to decide an issue of [bankruptcy] law on

which you found precedent was not clear enough to give you confidence in

your decision?

_____ times in the past twelve months

3. For these instances, how often was the lack of clarity attributable to the following sources?

Almost

always Frequently

About half

the time Infrequently

Almost

never

No Supreme Court precedent

No precedent from my court of

appeals

Conflicting decisions by my

court of appeals

No decisions on point by district

judges in my district
110 Alternative Structures for Bankruptcy Appeals

Conflicting decisions by district

judges in my district

No decisions on point by bankruptcy judges in my district

Conflicting decisions by bankruptcy judges in my district

BAP decision(s) in conflict with

district court decision(s)

BAP decision(s) in conflict with

court of appeals decision(s)

Conflicting BAP decisions

Application of law was factintensive, or based on multifactor test rather than bright-line

test

Other (please specify):

4. Are there issues or areas of bankruptcy law that appear to be particularly inconsistent or difficult to know in your circuit?

❒ No Skip to question 6.

❒ Yes Please answer question 5.

5. Please briefly describe these issues or areas and identify the sources of the difficulty.

Issue #1 (briefly describe)

Source of difficulty (mark all that apply)

❒ No Supreme Court decisions

❒ No precedent from my court of appeals

❒ Conflicting decisions by my court of appeals

❒ No decisions on point by district judges in my district

❒ Conflicting decisions by district judges in my district

❒ No decisions on point by bankruptcy judges in my district

❒ Conflicting decisions by bankruptcy judges in my district
Appendix D 111

❒ BAP decision(s) in conflict with district court decision(s)

❒ BAP decision(s) in conflict with court of appeals decision(s)

❒ Conflicting BAP decision(s)

❒ Application of law was fact-intensive, or based on multi-factor rather than

bright-line test

❒ Other (please specify): _____________________________

Issue #2 (briefly describe)

Source of difficulty (check all that apply)

❒ No Supreme Court decisions

❒ No precedent from my court of appeals

❒ Conflicting decisions by my court of appeals

❒ No decisions on point by district judges in my district

❒ Conflicting decisions by district judges in my district

❒ No decisions on point by bankruptcy judges in my district

❒ Conflicting decisions by bankruptcy judges in my district

❒ BAP decision(s) in conflict with district court decision(s)

❒ BAP decision(s) in conflict with court of appeals decision(s)

❒ Conflicting BAP decision(s)

❒ Application of law was fact-intensive, or based on multi-factor rather than

bright-line test

❒ Other (please specify): _____________________________

6. When deciding a question of bankruptcy law for which your circuit’s court of

appeals has not issued a binding precedent, how important are the following

sources of information?

Very

important

Somewhat

important

Of little

importance

Bankruptcy court decisions in your district

Bankruptcy court decisions in other districts

District court appellate decisions in your district

District court appellate decisions in other districts

Court of appeals decisions in your circuit, related

but not controlling
112 Alternative Structures for Bankruptcy Appeals

Court of appeals decisions in other circuits

Decisions by the bankruptcy appellate panel in

your circuit in cases originating in your district.

Decisions by the bankruptcy appellate panel in

your circuit in cases originating in other districts.

Decisions by bankruptcy appellate panels in other

circuits

7. This question concerns how, when you face an issue of bankruptcy law [that is

new to you and] on which your circuit’s court of appeals has not issued binding precedent, you treat district court and BAP decisions on the issue. For each

subquestion, read the set of assumptions and then mark the statement that best

describes your typical treatment of decisions by your district court and your

circuit’s BAP.

a. Assume:

i. Your district court’s decisions on point are consistent with one another.

ii. There are no BAP decisions on point.

❒ I would always or almost always follow the district court decisions.

❒ I would treat the district court decisions as persuasive authority.

❒ I would give no special weight to the district court decisions.

b. Assume:

i. The decisions on point by your circuit’s BAP are consistent with one another.

ii. There are no district court decisions on point.

❒ I would always or almost always follow the BAP decisions.

❒ I would treat the BAP decisions as persuasive authority.

❒ I would give no special weight to the BAP decisions.

c. Assume:

i. Your district court’s decisions on point are consistent with one another.

ii. The BAP decisions on point are consistent with one another.

iii. BAP decisions in cases from your district conflict with your district court’s

position.

❒ I would always or almost always follow the district court decisions.

❒ I would always or almost always follow the BAP decisions.

❒ I would treat the district court decisions as persuasive authority.

❒ I would treat the BAP decisions as persuasive authority.
Appendix D 113

❒ I would treat both the district court and BAP decisions as persuasive

authority.

❒ I would give no special weight to the district court or BAP decisions.

d. Assume:

i. Your district court’s decisions on point are consistent with one another.

ii. The BAP decisions on point are consistent with one another.

iii. The BAP decisions conflict with your district court’s position, but arise

only from cases outside your district.

❒ I would always or almost always follow the district court decisions.

❒ I would always or almost always follow the BAP decisions.

❒ I would treat the district court decisions as persuasive authority.

❒ I would treat the BAP decisions as persuasive authority.

❒ I would treat both the district court and BAP decisions as persuasive

authority.

❒ I would give no special weight to the district court or BAP decisions.

District judges were also asked:

8. a. About how many bankruptcy appeals have you handled in the past 12

months?

b. Of these, in about how many have you used the services of a magistrate

judge?
114 Alternative Structures for Bankruptcy Appeals

Sources of Precedent in Bankruptcy

Federal Judicial Center Survey of U.S. Bankruptcy Judges,

April 1999

(Version 2: Non-participating districts in a BAP circuit)

What is your circuit? __________________

What is your district? __________________

1. When deciding a question of bankruptcy law, do you find the body of precedent coherent, consistent, and developed enough to allow you to decide the

question efficiently and confidently?

❒ Almost always

❒ Frequently

❒ About half the time

❒ Infrequently

❒ Almost never

2. About how often have you had to decide an issue of [bankruptcy] law on

which you found precedent was not clear enough to give you confidence in

your decision?

_____ times in the past twelve months

3. For these instances, how often was the lack of clarity attributable to the following sources?

Almost

always Frequently

About half

the time Infrequently

Almost

never

No Supreme Court precedent

No precedent from my court of

appeals

Conflicting decisions by my court

of appeals

No decisions on point by district

judges in my district

Conflicting decisions by district

judges in my district

No decisions on point by bankruptcy judges in my district
Appendix D 115

Conflicting decisions by bankruptcy judges in my district

BAP decision(s) in conflict with

district court decision(s)

BAP decision(s) in conflict with

court of appeals decision(s)

Conflicting BAP decisions

Application of law was factintensive, or based on multi-factor

test rather than bright-line test

Other (please specify):

4. Are there issues or areas of bankruptcy law that appear to be particularly inconsistent or difficult to know in your circuit?

❒ No Skip to question 6.

❒ Yes Please answer question 5.

5. Please briefly describe these issues or areas and identify the sources of the difficulty.

Issue #1 (briefly describe)

Source of difficulty (check all that apply)

❒ No Supreme Court decisions

❒ No precedent from my court of appeals

❒ Conflicting decisions by my court of appeals

❒ No decisions on point by district judges in my district

❒ Conflicting decisions by district judges in my district

❒ No decisions on point by bankruptcy judges in my district

❒ Conflicting decisions by bankruptcy judges in my district

❒ BAP decision(s) in conflict with district court decision(s)

❒ BAP decision(s) in conflict with court of appeals decision(s)

❒ Conflicting BAP decision(s)

❒ Application of law was fact-intensive, or based on multi-factor rather than

bright-line test

❒ Other (please specify): _____________________________
116 Alternative Structures for Bankruptcy Appeals

Issue #2 (briefly describe)

Source of difficulty (check all that apply)

❒ No Supreme Court decisions

❒ No precedent from my court of appeals

❒ Conflicting decisions by my court of appeals

❒ No decisions on point by district judges in my district

❒ Conflicting decisions by district judges in my district

❒ No decisions on point by bankruptcy judges in my district

❒ Conflicting decisions by bankruptcy judges in my district

❒ BAP decision(s) in conflict with district court decision(s)

❒ BAP decision(s) in conflict with court of appeals decision(s)

❒ Conflicting BAP decision(s)

❒ Application of law was fact-intensive, or based on multi-factor rather than

bright-line test

❒ Other (please specify): _____________________________

6. When deciding a question of bankruptcy law for which your circuit’s court of

appeals has not issued a binding precedent, how important are the following

sources of information?

Very

important

Somewhat

important

Of little

importance

Bankruptcy court decisions in your district

Bankruptcy court decisions in other districts

District court appellate decisions in your district

District court appellate decisions in other districts

Court of appeals decisions in your circuit, related

but not controlling

Court of appeals decisions in other circuits

Decisions by the bankruptcy appellate panel in

your circuit in cases originating in other districts.

Decisions by bankruptcy appellate panels in

other circuits
Appendix D 117

7. This question concerns how, when you face an issue of bankruptcy law [that is

new to you and] on which your circuit’s court of appeals has not issued binding precedent, you treat district court and BAP decisions on the issue. For each

subquestion, read the set of assumptions and then mark the statement that best

describes your typical treatment of decisions by your district court and your

circuit’s BAP.

a. Assume:

i. Your district court’s decisions on point are consistent with one another.

ii. There are no BAP decisions on point.

❒ I would always or almost always follow the district court decisions.

❒ I would treat the district court decisions as persuasive authority.

❒ I would give no special weight to the district court decisions.

b. Assume:

i. The decisions on point by your circuit’s BAP are consistent with one another.

ii. There are no district court decisions on point.

❒ I would always or almost always follow the BAP decisions.

❒ I would treat the BAP decisions as persuasive authority.

❒ I would give no special weight to the BAP decisions.

c. Assume:

i. Your district court’s decisions on point are consistent with one another.

ii. The BAP decisions on point are consistent with one another.

iii. The BAP decisions conflict with your district court’s position, but arise

only from cases outside your district.

❒ I would always or almost always follow the district court decisions.

❒ I would always or almost always follow the BAP decisions.

❒ I would treat the district court decisions as persuasive authority.

❒ I would treat the BAP decisions as persuasive authority.

❒ I would treat both the district court and BAP decisions as persuasive

authority.

❒ I would give no special weight to the district court or BAP decisions.

d. The assumptions here are the same as for subquestion c, but also assume

that your district participates in your circuit’s BAP.

i. Your district participates in your circuit’s BAP.

ii. Your district court’s decisions on point are consistent with one another.
118 Alternative Structures for Bankruptcy Appeals

iii. The BAP decisions on point are consistent with one another.

iv. The BAP decisions conflict with your district court’s position, but arise

only from cases outside your district.

❒ I would always or almost always follow the district court decisions.

❒ I would always or almost always follow the BAP decisions.

❒ I would treat the district court decisions as persuasive authority.

❒ I would treat the BAP decisions as persuasive authority.

❒ I would treat both the district court and BAP decisions as persuasive

authority.

❒ I would give no special weight to the district court or BAP decisions.

e. Assume:

i. Your district participates in your circuit’s BAP.

ii. Your district court’s decisions on point are consistent with one another.

iii. The BAP decisions on point are consistent with one another.

iv. BAP decisions in cases from your district conflict with your district court’s

position.

❒ I would always or almost always follow the district court decisions.

❒ I would always or almost always follow the BAP decisions.

❒ I would treat the district court decisions as persuasive authority.

❒ I would treat the BAP decisions as persuasive authority.

❒ I would treat both the district court and BAP decisions as persuasive

authority.

❒ I would give no special weight to the district court or BAP decisions.

District judges were also asked:

8. a. About how many bankruptcy appeals have you handled in the past 12

months?

b. Of these, in about how many have you used the services of a magistrate

judge?
Appendix D 119

Sources of Precedent in Bankruptcy

Federal Judicial Center Survey of U.S. Bankruptcy Judges,

April 1999

(Version 3: Districts in a non-BAP circuit)

What is your circuit? __________________

What is your district? __________________

1. When deciding a question of bankruptcy law, do you find the body of precedent coherent, consistent, and developed enough to allow you to decide the

question efficiently and confidently?

❒ Almost always

❒ Frequently

❒ About half the time

❒ Infrequently

❒ Almost never

2. About how often have you had to decide an issue of [bankruptcy] law on

which you found precedent was not clear enough to give you confidence in

your decision?

_____ times in the past twelve months

3. For these instances, how often was the lack of clarity attributable to the following sources?

Almost

always Frequently

About half

the time Infrequently

Almost

never

No Supreme Court precedent

No precedent from my court of

appeals

Conflicting decisions by my court

of appeals

No decisions on point by district

judges in my district

Conflicting decisions by district

judges in my district

No decisions on point by bankruptcy judges in my district
120 Alternative Structures for Bankruptcy Appeals

Conflicting decisions by bankruptcy judges in my district

BAP decision(s) in conflict with

district court decision(s)

BAP decision(s) in conflict with

court of appeals decision(s)

Conflicting BAP decisions

Application of law was factintensive, or based on multi-factor

test rather than bright-line test

Other (please specify):

4. Are there issues or areas of bankruptcy law that appear to be particularly inconsistent or difficult to know in your circuit?

❒ No Skip to question 6.

❒ Yes Please answer question 5.

5. Please briefly describe these issues or areas and identify the source of the difficulty.

Issue #1 (briefly describe)

Source of difficulty (check all that apply)

❒ No Supreme Court decisions

❒ No precedent from my court of appeals

❒ Conflicting decisions by my court of appeals

❒ No decisions on point by district judges in my district

❒ Conflicting decisions by district judges in my district

❒ No decisions on point by bankruptcy judges in my district

❒ Conflicting decisions by bankruptcy judges in my district

❒ BAP decision(s) in conflict with district court decision(s)

❒ BAP decision(s) in conflict with court of appeals decision(s)

❒ Conflicting BAP decision(s)

❒ Application of law was fact-intensive, or based on multi-factor rather than

bright-line test

❒ Other (please specify): _____________________________
Appendix D 121

Issue #2 (briefly describe)

Source of difficulty (check all that apply)

❒ No Supreme Court decisions

❒ No precedent from my court of appeals

❒ Conflicting decisions by my court of appeals

❒ No decisions on point by district judges in my district

❒ Conflicting decisions by district judges in my district

❒ No decisions on point by bankruptcy judges in my district

❒ Conflicting decisions by bankruptcy judges in my district

❒ BAP decision(s) in conflict with district court decision(s)

❒ BAP decision(s) in conflict with court of appeals decision(s)

❒ Conflicting BAP decision(s)

❒ Application of law was fact-intensive, or based on multi-factor rather than

bright-line test

❒ Other (please specify): _____________________________

6. When deciding a question of bankruptcy law for which your circuit’s court of

appeals has not issued a binding precedent, how important are the following

sources of information?

Very

important

Somewhat

important

Of little

importance

Bankruptcy court decisions in your district

Bankruptcy court decisions in other districts

District court appellate decisions in your

district

District court appellate decisions in other

districts

Court of appeals decisions in your circuit,

related but not controlling

Court of appeals decisions in other circuits

Decisions by bankruptcy appellate panels

in other circuits

7. This question concerns how, when you face an issue of bankruptcy law [that is

new to you and] on which your circuit’s court of appeals has not issued bind-
122 Alternative Structures for Bankruptcy Appeals

ing precedent, you treat district court decisions on the issue. Some of the

subquestions ask you to assume that your circuit has a BAP and that your district participates in it, and then to predict how you would treat the BAP’s decisions. For each subquestion, read the set of assumptions and then mark the

statement that best describes your typical treatment of district court and BAP

decisions.

a. Assume:

i. Your district court’s decisions on point are consistent with one another.

❒ I would always or almost always follow the district court decisions.

❒ I would treat the district court decisions as persuasive authority.

❒ I would give no special weight to the district court decisions.

b. Assume:

i. Your circuit has a BAP and your district participates in it.

ii. The decisions on point by your circuit’s BAP are consistent with one another.

iii. There are no district court decisions on point.

❒ I would always or almost always follow the BAP decisions.

❒ I would treat the BAP decisions as persuasive authority.

❒ I would give no special weight to the BAP decisions.

c. Assume:

i. Your circuit has a BAP and your district participates in it

ii. Your district court’s decisions on point are consistent with one another.

iii. The BAP decisions on point are consistent with one another.

iv. BAP decisions in cases from your district conflict with your district court’s

position.

❒ I would always or almost always follow the district court decisions.

❒ I would always or almost always follow the BAP decisions.

❒ I would treat the district court decisions as persuasive authority.

❒ I would treat the BAP decisions as persuasive authority.

❒ I would treat both the district court and BAP decisions as persuasive

authority.

❒ I would give no special weight to the district court or BAP decisions.

d. Assume:

i. Your circuit has a BAP and your district participates in it.

ii. Your district court’s decisions on point are consistent with one another.
Appendix D 123

iii. The BAP decisions on point are consistent with one another.

iv. The BAP decisions conflict with your district court’s position, but arise

only from cases outside your district.

❒ I would always or almost always follow the district court decisions.

❒ I would always or almost always follow the BAP decisions.

❒ I would treat the district court decisions as persuasive authority.

❒ I would treat the BAP decisions as persuasive authority.

❒ I would treat both the district court and BAP decisions as persuasive

authority.

❒ I would give no special weight to the district court or BAP decisions.

District judges were also asked:

8. a. About how many bankruptcy appeals have you handled in the past 12

months?

b. Of these, in about how many have you used the services of a magistrate

judge?