Restructuring

Contributed by Alexander Woolverton
As we previously reported, on April 1, 2015, the Supreme Court heard oral argument in Bullard v. Blue Hills Bank, which addressed whether an order denying confirmation of a debtor’s proposed plan of reorganization is a final order that the debtor can immediately appeal.  On May 4, 2015, in a unanimous opinion, the Court roundly rejected the arguments from, among others, the debtor and the Solicitor General, and held orders denying plan confirmation are not final orders from which an appeal may be immediately taken as a matter of right.  The Court’s decision in Bullard resolves a significant circuit split in the area of bankruptcy appeals: while the Third, Fourth, and Fifth Circuits had ruled orders denying plan confirmation were final, the First, Second, Sixth, Eighth, Ninth, and Tenth Circuits ruled such orders were not final. 
The Court’s Opinion
Because bankruptcy cases involve “‘an aggregation of individual controversies,’ many of which would exist as stand-alone lawsuits but for the bankrupt status of the debtor,” determining when an order is final is a complicated affair.  To account for the unique nature of bankruptcy proceedings, the rules of finality have been adapted such that final orders are those that “dispose of discrete disputes within the larger case.”  This is important because final orders are immediately appealable as a matter of right, while interlocutory orders are only appealable under certain circumstances, such as when the court grants leave to appeal.
In determining whether orders denying plan confirmation are final, the Court stated the dispute was really “about how to define the immediately appealable ‘proceeding’ in the context of consideration of . . . plans.”  The debtor, urging that orders denying plan confirmation are final, argued “for a plan-by-plan approach.”  Under the debtor’s rationale, each review of a proposed plan constitutes a separate proceeding.  Therefore, the debtor urged, an order denying or confirming a plan is immediately appealable.  The bank argued the relevant proceeding was the overall plan process.  Under the bank’s rationale, “[a]n order denying confirmation is not final, so long as it leaves the debtor free to propose another plan.”
The Court agreed with the bank and ruled accordingly.  In the first instance, the Court’s ruling was grounded in a straightforward application of the rules regarding flexible finality.  “[O]nly plan confirmation—or case dismissal—alters the status quo and fixes the rights and obligations of the parties.”  By contrast, when confirmation is denied but the debtor can propose a new plan, “[t]he automatic stay persists.  The parties’ rights and obligations remain unsettled. . . . The possibility of a discharge lives on.  ‘Final’ does not describe this state of affairs.”
The Court was also keenly aware that ruling in favor of the debtor would give debtors a tremendous amount of leverage that could easily be abused.  Every “climb up the appellate ladder and slide down the chute can take more than a year,” the Court observed.  As such, the Court concluded it would “not make much sense to define the pertinent proceeding so narrowly that the requirement of finality would do little work as a meaningful constraint on the availability of appellate review.”
The debtor also argued that if orders denying plan confirmation are not final, there would be “no effective means of obtaining appellate review of the denied proposal.”  The debtor would be eek or accept dismissal of his case and then appeal, or to propose an amended plan and appeal its confirmation.”  Just as it did during oral argument, the Court’s opinion expressed “no sympathy for the Rube-Goldberg alternatives of feigned dismissal and approval of an unwanted plan.”  Indeed, the Court reminded the parties of the availability of interlocutory review of an order denying plan confirmation when, for example, denial of plan confirmation turns on a pure question of law over which bankruptcy courts are divided.  The bankruptcy appellate panel or district court can grant leave to hear an interlocutory appeal.  A bankruptcy or district court, “or the parties acting jointly can also certify a bankruptcy court’s order to the court of appeals, which then has the discretion to hear the matter.”  In the end, the Court determined that, in appropriate circumstances, lower appellate courts would accept an appeal from an interlocutory plan denial, thus leaving a safety valve from a flat denial of access to appellate review.
Analysis
Bullard provides a final answer to a vexing question of flexible finality.  But for the majority of debtors and would-be debtors, this decision changes nothing; orders denying plan confirmation were already not final orders.  Nevertheless, commentators have suggested that Bullard “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,” and after Bullard, “a creditor can know that, if it successfully challenges a plan provision that even the bankruptcy judge thinks goes too far, the debtor will likely have to negotiate better terms.”
These prognostications could overstate the impact Bullard may have on plan negotiations.  While Bullard prohibits plan proponents from intentionally slowing the plan process by appealing a bankruptcy court’s denial of a plainly unconfirmable plan—something plan proponents theoretically could have done in the Third Circuit—it seems unlikely the inability to appeal the denial of plan confirmation as a matter of right will play a significant role in contentious plan negotiations.  For instance, where the denial of a proposed plan involves a “question of law requiring resolution of conflicting decisions,” courts can review such denials, despite the fact they do not constitute ‘final’ orders, just as the Bankruptcy Appellate Panel for the First Circuit did in Bullard.  Thus, Bullard may change little, particularly in light of courts’ ability to hear interlocutory appeals in appropriate cases.