In ordinary civil litigation, appellate review is generally limited to “final judgments,” in order to prevent the wastefulness of appeals on rulings that are not truly dispositive of the case. That notion becomes somewhat more difficult in a bankruptcy, where there are often multiple litigations within the umbrella bankruptcy case. But does that mean that notions of finality should be different in the bankruptcy context? Not so, at least according to the Sixth Circuit.
In Kraus Anderson Capital, Inc. v. Bradley (In re Bradley), the Sixth Circuit addressed lower court rulings on the dischargeability of certain debts under Section 523 of the Bankruptcy Code. Krause Anderson Capital had provided floor-plan financing to the debtor. Kraus asserted that the debtor had sold certain items of equipment collateral “out of trust,” i.e., without remitting the proceeds to Kraus as required. The Sixth Circuit Bankruptcy Appellate Panel (“BAP”) reversed a ruling by the Bankruptcy Court, and held that the debtor’s debt to Kraus was excepted from discharge. The debtor appealed the BAP’s ruling of non-dischargeability to the Sixth Circuit.
Without addressing the merits of the BAP ruling, the Sixth Circuit dismissed the appeal sua sponte on the ground that it did not have subject matter jurisdiction. Under 28 U.S.C. § 158(d), Circuit Courts have jurisdiction to review “final decisions, judgments, orders, and decrees” of the BAP. In Bradley, the Bankruptcy Court had not yet determined the damages caused to Kraus by the debtor’s culpable conduct. The Sixth Circuit found that such determination might require further evidentiary hearings, which would not be “purely ministerial” and that, accordingly, the dischargeability ruling was not a “final judgment.” For additional discussion of the Bradley decision, refer to the recent post in the Squire Patton Boggs Sixth Circuit Blog.
The Bradley decision is consistent with the earlier Sixth Circuit decision in Lindsey v. Pinnacle Nat’l. Bank, et al., (In re Lindsey), a 2013 case in which the Court ruled it did not have subject matter jurisdiction to consider an appeal of a decision denying confirmation of a plan of reorganization. As in the Bradley decision, the Court focused on the fact that “[f]ar more than a few ministerial tasks remain to be done after such a decision.” Id. at 4.
The Sixth Circuit’s ruling in Lindsey has also served as support for a decision from the First Circuit Court of Appeals in Bullard v. Hyde Park Savings Bank (In re Bullard). The Supreme Court recently granted a Petition for Certiorari in Bullard to resolve a split among the Circuits, with Bullard, Lindsey and decisions from four other Circuits aligned against decisions from three other Circuits.
While denial of plan confirmation may not strike bankruptcy practitioners as a “final judgment,” that analysis seems more difficult to apply to a dischargeability ruling like that in Bradley. To avoid the “purely ministerial” activities cited by the Sixth Circuit in Bradley would seem to require the Bankruptcy Court to determine, at the outset, both the claim amount and the damages resulting from culpable conduct that allegedly rendered the claim non-dischargeable. And in Bradley, the initial ruling was that the Kraus claims were, in fact, dischargeable. Thus, a ruling on damages for non-dischargeability would have been logically inconsistent with the Bankruptcy Court’s ruling. The damages issue arose only on appeal, when the BAP reversed and held the Kraus claims non-dischargeable.
While some appellate courts share the view of most practitioners that finality is a broader concept in the bankruptcy context than in ordinary civil litigation, the Sixth Circuit and a majority of other Circuits do not seem to hold that view. The Supreme Court’s ruling in Bullard may provide some guidance. Watch this space as the events unfold.