The U.S. Supreme Court’s Decision in Bullard v. Blue Hills Bank: “It ain’t over till it’s over”

. . . but is it really over?

Malhar Pagay
May 6, 2015

A new decision by a unanimous United States Supreme Court may shift the balance of power in bankruptcy cases to the detriment of debtors seeking to confirm plans and emerge from the bankruptcy process on their own terms. 

History of the Case 

In Bullard v. Blue Hills Bank, No. 14-116 (May 4, 2015), the debtor, Louis Bullard, filed his third amended chapter 13 plan in which he proposed to pay claims of creditors over a five-year period, including Blue Hills Bank, which held a $364,000 mortgage on a multi-family property owned by the debtor. Bullard estimated the value of the property to be $245,000 and, under his plan, he bifurcated Blue Hills’s debt into a $245,000 secured claim (based on the estimated property value) and a $101,000 unsecured claim. Bullard’s plan proposed to pay Blue Hills’s secured claim by continuing regular mortgage payments years into the future and its unsecured claim under the same terms as other unsecured creditors, which would receive as much as Bullard’s anticipated income would allow over the five-year period. The plan’s proposed treatment would result in the bank’s receiving around $5,000 of its $101,000 unsecured claim. Blue Hills Bank successfully objected to the plan on the grounds that the bifurcation of its claim is impermissible under chapter 13 of the Bankruptcy Code and Bullard appealed the denial of confirmation to the Bankruptcy Appellate Panel of the United States Court of Appeals for the First Circuit (BAP). See In re Bullard, 475 B.R. 304 (Bankr. D. Mass. 2012). On appeal, the BAP held that the order denying confirmation of Bullard’s plan was not a final appealable order but nevertheless exercised its discretion to hear an appeal from the interlocutory order because of the legal issues raised, affirming the bankruptcy court’s decision on substantive grounds. See In re Bullard, 494 B.R. 92 (BAP 1st Cir. 2013). The debtor again appealed, but the United States Court of Appeals for the First Circuit dismissed the appeal on the grounds of lack of jurisdiction, holding that an order denying confirmation of a plan is not final as long as a debtor may propose another plan. See In re Bullard, 752 F.3d 483, 486-90 (1st Cir. 2014).  

Only Orders That Dispose of the Case Should Be Appealable

The Supreme Court emphasized that bankruptcy proceedings are different from other federal court litigation because they involve “an aggregation of individual controversies” within the context of a single case, thereby prompting Congress to allow “orders in bankruptcy cases [to] be immediately appealed if they finally dispose of discrete disputes within the larger case.” Bullard, slip op. at 4 (citation omitted). Bullard argued that the conclusion of a bankruptcy court’s proceedings considering a single plan—whether favorably, through confirmation, or unfavorably, through denial of confirmation—should be subject to appellate review. The bank urged the Court to find that only orders that dispose of the entire case should be appealable—either an order confirming a plan or, in the absence of a debtor’s proposal of a confirmable plan, an order dismissing the bankruptcy case. The Court sided with Blue Hills Bank. Chief Justice John Roberts, writing for the Court, stated:  

The relevant proceeding is the process of attempting to arrive at an approved plan that would allow the bankruptcy to move forward. This is so, first and foremost, because only plan confirmation—or case dismissal—alters the status quo and fixes the rights and obligations of the parties.

. . . .

Denial of confirmation with leave to amend, by contrast, changes little. The automatic stay persists. The parties’ rights and obligations remain unsettled. . . . “Final” does not describe this state of affairs. An order denying confirmation does rule out the specific arrangement of relief embodied in a particular plan. But that alone does not make the denial final any more than, say, a car buyer’s declining to pay the sticker price is viewed as a “final” purchasing decision by either the buyer or seller. “It ain’t over till it’s over.” 

Id. at 6.

Not So Straightforward 

Although the decision seemingly offers a simple, straightforward approach towards analyzing finality in cases of chapter 13 plan confirmation, aspects of the opinion raise questions about its underpinnings and impact.

The Court highlighted that “confirmations of plans” are among the enumerated proceedings that form part of a bankruptcy court’s “core” jurisdiction, which suggests that the entire confirmation process should be viewed as a single proceeding. See 28 U.S.C. § 157(b)(2)(L).  Although the Court conceded that this provision of the U.S. Code has nothing whatsoever to do with appealability, the Court found significant the absence of a reference to “denials” of confirmations among the list of “core proceedings.” It’s curious that the Court would acknowledge the lack of correlation between core jurisdiction and appeal rights while, in the same breath, note that the absence of mentioning denials of confirmation “cut[s] in the bank’s favor.” Id. 

Little credence was given to the debtor’s argument that the Court’s concerns about serial appeals spawned by each new version of a plan were misplaced, because debtors typically lack the resources or incentives to repeatedly appeal “over small beer issues.” Id.  (“Small beer” is low-alcohol beer. The British slang expression also refers to something of little or no importance.) The Court believes that even “the prospect of [such] appeals” might constitute “important leverage in dealing with creditors.” The Court concluded: “But even if Bullard is correct that such appeals will be rare, that does not much support his broader point that an appeal of right should be allowed in every case. It is odd, after all, to argue in favor of allowing more appeals by emphasizing that almost nobody will take them.” Id. at 6-7. Odd or not, in a decision rife with consideration of real-world impact, Bullard’s argument seems relevant to the Court’s concern that allowing appeals of denials of confirmation will “open the floodgates.” 

The Court seemingly acknowledged the shift in the balance of power to creditors as a result of its decision, but believed it would encourage the debtor to make a deal with parties in interest regarding the terms of the plan: “We think that in the ordinary case treating only confirmation or dismissal as final will not unfairly burden a debtor. He retains the valuable exclusive right to propose plans, which he can modify freely. The knowledge that he will have no guaranteed appeal from a denial should encourage the debtor to work with creditors and the trustee to develop a confirmable plan as promptly as possible. And expedition is always an important consideration in bankruptcy.” Id. at 8. Moreover, the Court was not troubled by allowing only a creditor to appeal plan confirmation without a corresponding right being given to the debtor (and others) to appeal its denial: “[A]ny asymmetry in this regard simply reflects the fact that confirmation allows the bankruptcy to go forward and alters the legal relationships among the parties, while denial does not have such significant consequences.” Id. at 10. 

Bullard argued that if the Court were to adopt the bank’s position, debtors would be left with two unsavory and impractical alternatives: A debtor either would have to move for or accept dismissal of the bankruptcy case and then appeal or propose an amended plan “he does not want” and then appeal its confirmation. Id. The Court recognized the considerable jeopardy and waste of resources presented respectively by such alternatives, but noted that “our litigation system has long accepted that certain burdensome rulings will be ‘only imperfectly reparable’ by the appellate process.” Id. at 10-11. These concerns were insufficient to change the Court’s view: “This prospect is made tolerable in part by our confidence that bankruptcy courts, like trial courts in ordinary litigation, rule correctly most of the time. And even when they slip, many of their errors—wrongly concluding, say, that a debtor should pay unsecured creditors $400 a month rather than $300—will not be of a sort that justifies the costs entailed by a system of universal immediate appeals.” Id. at 11. It is hard to discern whether this represents a vote of confidence in the bankruptcy system or a belief that, even when bankruptcy courts make mistakes in their rulings, in “many” cases, such rulings involve seemingly trivial matters.

Perhaps the Court does not express great sympathy for debtors whose plans are denied confirmation because (as it discussed) the debtor may pursue one of “several mechanisms for interlocutory review,” such as appeals emanating from orders presenting a pure question of law dividing the courts and making a significant financial impact on the parties, see, e.g., 28 U.S.C. sec. 158(a)(3), or orders that may be certified for review through a general interlocutory appeals statute. See, e.g., 28 U.S.C. §§ 158(d)(2), 1292(b).

Application to Chapter 11 Cases

Although the decision focuses on an order denying confirmation of a plan in a chapter 13 case, the arguments of the parties and the decision’s broad discussion of finality and appealability in bankruptcy proceedings beg the question of whether the ruling applies in chapter 11 cases. Certainly, the parties and the insolvency community considered the case as an opportunity for the Supreme Court to resolve an important, unresolved, and broad issue of bankruptcy law (e.g., amicus briefs were submitted by the National Association of Consumer Bankruptcy Attorneys and Public Citizen, Inc., by Bank of America, by the United States, and by G. Eric Brunstad, Jr., a law professor and attorney who frequently argues before the Supreme Court regarding bankruptcy-related issues).

The First Circuit’s decision in this case was seen as the latest in a series of conflicting rulings by the appellate courts, leading to a split among the circuits that the Supreme Court could resolve through this opinion:  

As the Petitioner [Bullard] correctly outlines in his petition, there is an entrenched split between the circuits with respect to whether an order denying the confirmation of a proposed bankruptcy plan is a final order appealable pursuant to 28 U.S.C. § 158(d)(1). Currently, the majority of the circuits . . . have held that an order denying confirmation of a Chapter 11—or a Chapter 11—bankruptcy plan is not a final order. . . . Conversely, a minority of circuits . . . have held that an order denying confirmation of a Chapter 13—or a Chapter 11—bankruptcy plan is, or may be considered, a final appealable order. . . .

Since several of the circuits have considered whether the denial of plan confirmation is a final appealable order in the last two years and reached different conclusions—each while acknowledging the existence of the split—only this Court can resolve the split and create uniformity amongst the circuits and issue a binding mandate as to whether denial of plan confirmation is a final order that is appealable. . . .

Brief for Respondent (No. 14-116) (“Respondent Brief”) at 2-4. It is unclear, however, whether this decision has the far-reaching implications sought by the parties and fully resolves the described split among the circuits.       

Certainly, the First Circuit framed the appealability issue broadly (“The finality of an order denying confirmation of a reorganization plan is the subject of a circuit split.”) and cited to both chapter 13 and chapter 11 cases in its discussion. Similarly, both parties’ briefs to the Supreme Court state the question presented for appeal in broad terms—“Whether an order denying confirmation of a bankruptcy plan is appealable.” Brief for Petitioner (No. 14-116) at (i); “Whether an order of a bankruptcy court denying confirmation of a bankruptcy plan with leave to file a further amended plan is a ‘final’ order appealable as of right.” Respondent Brief at (I)—and contain arguments relating to both the chapter 13 and chapter 11 plan processes. However, the Supreme Court explicitly framed the issue it decided more narrowly: “The present dispute is about how to define the immediately appealable ‘proceeding’ in the context of the consideration of Chapter 13 plans.” Id. at 5 (emphasis added).

Additionally, the decision itself may offer clues to the Court’s view regarding the intended breadth of its application. For example, the Court mentions in passing the application of its rationale to chapter 11 in its discussion regarding the leverage that would be enjoyed by a debtor against its creditors if the debtor could raise the specter of an appeal of denial of confirmation of each version of the plan. Chief Justice Roberts is careful to remark that the parties, and not the Court, analogized to chapter 11. (Indeed, the Court makes no citation to any provision of chapter 11 anywhere in its decision): “An appeal extends the automatic stay that comes with bankruptcy, which can cost creditors money and allow a debtor to retain property he might lose if the Chapter 13 proceeding turns out not to be viable. These concerns are heightened if the same rule applies in Chapter 11, as the parties assume. Chapter 11 debtors, often business entities, are more likely to have the resources to appeal and may do so on narrow issues. See Tr. of Oral Arg. 51.” Id. at 7 (emphasis added). 

To the contrary, the Court’s concerns and comments set forth in the decision do not lend themselves readily to application in the chapter 11 context due to fundamental differences between the processes governing a chapter 13 consumer repayment plan and a chapter 11 plan of reorganization or liquidation. For example, even with potentially greater financial resources to fund an appeal, as noted by the Court, the chapter 11 debtor faces a vastly more cumbersome and costly plan process—e.g., the requirements that the plan proponent prepare and disseminate a disclosure statement and that impaired creditors be permitted to submit ballots to vote for or against approval of the plan, see 11 U.S.C. § 1125—making “universal immediate appeals” unlikely. Also, as noted above, the Court’s remarks that its decision would encourage the debtor to “work with creditors and the trustee to develop a confirmable plan as promptly as possible,” id. at 8, belies the Court’s exclusive focus on the chapter 13 plan process, because (i) the chapter 13 trustee is duty-bound to  participate in the plan confirmation process, see 11 U.S.C. § 1302(b)(2(B), and (ii) a trustee is rarely appointed in chapter 11 cases and, when one is appointed, the trustee typically supplants, and does not collaborate with, the debtor with respect to the formulation of a plan or otherwise, see 11 U.S.C. §§ 1104, 1106(a)(5).


Accordingly, while the issue of the appealability of orders denying confirmation of chapter 13 plans has been decided squarely and, as a practical matter, the Bullard decision will influence chapter 11 practice, it may not fully resolve the corresponding question for individual or corporate debtors pursuing reorganization or liquidation through a chapter 11 plan.

The information contained in this article is provided for informational and discussion purposes only, and should not be construed as legal advice on any subject matter, or necessarily reflective of the views of the author, the firm, its clients or any of the firm’s affiliates, attorneys or employees, with respect to any past, pending or future legal or other matter.

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