Journal
AMERICAN
BANKRUPTCY
INSTITUTE
The Essential Resource for Today’s Busy Insolvency Professional
Exploring the Limits of Bankruptcy Court
Jurisdiction over a Chapter 11 Plan on Appeal
Contributing Editor:
Patrick A. Jackson
Young Conaway Stargatt & Taylor LLP
Wilmington, Del.
[email protected]
I
t is well settled that among the federal district courts and the circuit courts
of appeals, the filing of a notice of
appeal from a final judgment or order of
the district court is “an event of jurisdictional significance” that divests certain
jurisdiction from the district court and
confers it upon the court of appeals.1
Though couched in jurisdictional terms,
this “rule against concurrent jurisdiction”
(RACJ) is actually a judge-made doctrine,2 designed to avoid the confusion
and inefficiency that would result from
the simultaneous exercise of jurisdiction
by the trial and appellate courts.3
Cases applying the
RACJ vary in their
descriptions of the
scope of rule, some
finding it applicable
to the “case”4 or
“matter”5 on appeal,
ot h e r s t h e “ j u d g ment” 6 or “order” 7
on appeal, and othPatrick A. Jackson
ers yet the “issues”8
on appeal. However the RACJ is
framed, the general consensus appears
to be that, subject to specific exceptions in the procedural rules, 9 the district court retains jurisdiction only (1)
to enforce the judgment or order on
appeal (assuming it is not stayed pending appeal), and (2) over matters that
1
2
3
4
5
6
7
Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982).
Main Line Fed. S. & L. Ass’n v. Tri-Kell Inc., 721 F.2d 904, 907 (3d Cir. 1983).
20-303 Moore’s Federal Practice-Civil § 303.32[1] (3d ed. 2011).
See, e.g., United States v. Lafko, 520 F.2d 622, 627 (3d Cir. 1975).
See, e.g., In re Legend Radio Group Inc., 248 B.R. 281, 284 (W.D. Va. 1999).
See, e.g., United States v. Katsougrakis, 715 F.2d 769, 776 (2d Cir. 1983).
See, e.g., Missouri ex rel. Nixon v. Coeur D’Alene Tribe, 164 F.3d 1102,
1106 (8th Cir. 1999).
8 See, e.g., Sullivan Cent. Plaza I Ltd. v. BancBoston Real Estate Capital
Corp. (In re Sullivan Cent. Plaza I Ltd.), 935 F.2d 723, 727 (5th Cir. 1991).
9 See Fed. R. Civ. P. 59(e) and 60(a); Fed. R. App. P. 7 and 8.
About the Author
Patrick Jackson is an associate
in the Bankruptcy and Corporate
Restructuring Section at Young
Conaway Stargatt & Taylor LLP in
Wilmington, Del. His practice includes
the representation of corporate debtors
in chapter 11 proceedings and out-ofcourt restructurings.
are entirely collateral to the judgment
or order on appeal.10
Not surprisingly, courts have concluded that the RACJ applies perforce
to bankruptcy proceedings.11 While this
makes some sense, particularly in an
adversary proceeding where the bankruptcy court is acting most like a district
court, it raises some questions when
A debtor obtains confirmation of a
plan that includes a settlement of estate
causes of action against a nondebtor
party (NDP) in exchange for the NDP’s
contribution of cash to the reorganization. As a condition of NDP’s obligation
to pay, the settlement requires the order
approving the settlement to have become
a final, nonappealable order. A creditor
unhappy with his treatment under the
plan (the appellant) appeals the confirmation order to the district court, arguing that the plan was not confirmable.
The only issues on appeal identified
by the appellant concern his treatment
and do not go to the settlement with the
NDP. As a result of the appeal, the “final
order” condition to the NDP’s payment
obligation under the settlement has not
been met. However, the debtor believes
that the settlement with the NDP would
Practice & Procedure
applied outside the adversary context.
The trouble is, an adversary proceeding
is between a discrete number of parties
and resolves issues in a more or less
linear path (from complaint through to
judgment). A bankruptcy proceeding,
by way of contrast, is a collective proceeding involving a number of different
constituencies, in which issues may arise
and be resolved in a nonlinear fashion.
This is particularly so in a chapter 11
plan, which can itself encompass a number of discrete issues and disputes. It is
also precisely in this context where rote
application of RACJ case law generated
primarily in the adversary setting could
lead to odd results. To illustrate, assume
the following hypothetical.
10 See generally 20-303 Moore’s § 303.31[2][b].
11 See, e.g., In re Transtexas Gas Corp., 303 F.3d 571, 579 (5th Cir. 2002).
be beneficial to the estate, even if the
confirmation order were overturned.
Accordingly, the debtor seeks bankruptcy court approval of the settlement independent from the plan, which requires
certain amendments to the plan and confirmation order to sever the settlement
from them.
Whether the RACJ precludes the
bankruptcy court from “re-approving”
the settlement with the NDP may depend
on how the scope of the RACJ is framed
(i.e., as applying to the “case,” the “matter,” the “order,” and/or the “issues” on
appeal). Each of these alternatives is
discussed below, though the author concludes that an issues-based approach to
the RACJ is the most appropriate in the
unique context of a chapter 11 plan.
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The Case-Based Approach
Although a plan is the culmination of a chapter 11 case and governs
the rights of all parties in interest postconfirmation, it is difficult to imagine
the RACJ being applied to divest the
bankruptcy court of jurisdiction over the
entire bankruptcy case upon the appellant’s appeal from the confirmation
order. Intuitively, references in RACJ
cases to jurisdiction over “a case” must
refer to a discrete litigation proceeding
and cannot be intended to extend to an
entire bankruptcy proceeding.
This intuition is confirmed by 28
U.S.C. §§ 1334(a) and 157(a), which vest
“original and exclusive jurisdiction of all
cases under title 11” (emphasis added)
in the district court, and provide for the
reference of such exclusive jurisdiction
to the bankruptcy court. Thus, absent a
withdrawal of the reference by the district court, the bankruptcy court would
not lose jurisdiction over the bankruptcy
case at large. To conclude otherwise
would permit the RACJ, a judge-made
abstention doctrine, to contravene the
plain language of the bankruptcy jurisdictional statutes and standing referral
orders of the district courts.
The Matter-Based Approach
If the RACJ were applied to the
“matter” on appeal, then this would present a closer question for re-approval of
the settlement with the NDP, at least to
the extent it would require modification
of the plan. Because both the settlement
with the NDP and the treatment of the
appellant were contained in the plan, it is
at least arguable that they could be considered the same “matter” for RACJ purposes. However, so long as the proposed
modification of the plan to sever the settlement with the NDP would not affect
the treatment of the appellant under the
plan, then modification of the plan would
never raise the specter of concurrent
jurisdiction by the bankruptcy and district courts. In re Southold Development
Corp.12 and In re Legend Radio Group
Inc.13 are instructive.
In Southold, the debtor confirmed
a plan that was premised on the sale of
the debtor’s principal asset to a nondebtor party (the buyer) over the objection
of another party who had a contract to
purchase that asset from the debtor (the
optionee). The plan provided that the sale
would be automatically stayed until all
appeals from the confirmation order had
12 129 B.R. 18 (E.D.N.Y. 1991).
13 248 B.R. 281 (W.D. Va. 1999).
been resolved. The optionee appealed
the confirmation order. Thereafter, the
debtor moved the bankruptcy court to
approve modification of the plan so as
to remove the automatic stay provided
by the plan, thus allowing the sale to
the buyer to close. The bankruptcy court
granted this modification, but the district
court reversed, finding that the modification “so impacted the issues on appeal
that the Bankruptcy Court was divested
of jurisdiction” under the RACJ.14
In Legend Radio, competing chapter
11 plans were submitted by the debtor
and a creditor. The bankruptcy court
confirmed the creditor’s plan, which
required the sale of the debtor’s assets.
The debtor appealed to the district
court, which affirmed. The debtor then
appealed to the Fourth Circuit Court of
Appeals. Thereafter, the debtor found a
white knight to lend it sufficient funds
to pay its debts and keep its assets. On
motion by the debtor, the Fourth Circuit
suspended the briefing schedule to permit the debtor to seek modification of
the confirmed plan from the bankruptcy
court. The bankruptcy court entered an
interlocutory order finding that it had
jurisdiction to consider the proposed
modification, and the creditor/plan proponent appealed this order to the district
court. On appeal, the district court found
that modification of the confirmed plan
would implicate the RACJ because, as
between the confirmed plan and the modified plan, only one could be given effect.
However, the district court found that the
Fourth Circuit’s order suspending briefing had implicitly revested the bankruptcy court with jurisdiction to consider modification of the confirmed plan.
Accordingly, the bankruptcy court’s
interlocutory order was affirmed.15
While neither Southold nor Legend
Radio is directly on point with the hypothetical above, they suggest that the
RACJ does not categorically bar any
plan modification where the confirmation
order was on appeal. Indeed, were the
RACJ a categorical rule, then the courts’
explanation of the interrelation between
the proposed plan modifications and the
issues raised on appeal would have been
unnecessary to their analysis. Because
the modifications of the plan in our hypothetical to effect severance of the settlement with NDP would not affect the plan
treatment of Appellant, it stands to reason that the RACJ would not apply.
14 Southold, 129 B.R. at 19-21.
15 Legend Radio, 248 B.R. at 283-85.
The Order-Based Approach
If the RACJ were applied to the
“order” on appeal, the hypothetical would present a much closer call.
The RACJ case law strongly suggests
that any modification of the order
being appealed would be forbidden. 16
However, when considering the breadth
of plan confirmation orders against the
narrow purposes of the RACJ, a per se
rule seems untenable. This is especially
so given the warning in Moore’s Federal
Practice, echoed by at least one court,
that the RACJ should not be “employed
to defeat its purposes or to induce empty
paper shuffling.”17
A confirmation order encompasses
many different, often unrelated, things.
In the hypothetical, the confirmation
order approves both the settlement with
the NDP and the treatment of the appellant. It is also conceivable that the confirmation order would approve the assumption or rejection of contracts and leases,
establish bar dates for administrative
claims and contain administrative provisions governing the conduct of the case
post-confirmation, among other things.
Applying the RACJ as a per se rule to
forbid modification of these latter provisions of the confirmation order, however
extraneous to the issues on appeal, would
not serve the interests of judicial efficiency. Indeed, if anything, it could lead to
judicial inefficiency, as matters having
nothing to do with the appeal (e.g., a routine motion to enlarge the administrative
bar date pursuant to Bankruptcy Rule
9006(b)) would nonetheless be funneled
to the district court’s docket.
The Issue-Based Approach
The RACJ should be applied to
the “issues” on appeal, in which case
the bankruptcy court in the hypothetical clearly would have jurisdiction to
entertain modification of the plan and
confirmation order to sever the settlement with the NDP. The Fifth Circuit’s
decision in In re Transtexas Gas Corp.18
is instructive.
In Transtexas, the bankruptcy court
entered an order confirming a debtor’s
chapter 11 plan, which fixed the interest rate applicable to priority tax claims.
Certain state taxing authorities appealed
the confirmation order on the grounds
that this interest rate was too low. After
the notice of appeal and designation of
16 See, e.g., Coeur D’Alene Tribe, 164 F.3d at 1106 (“[W]hen an appeal is
pending, the district court may not reexamine or supplement the order
being appealed.”).
17 Main Line S&L, 721 F.3d at 906 (quoting Moore’s).
18 303 F.3d 571.
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the record and issues on appeal had been
filed, the debtor moved the bankruptcy
court for entry of a stand-alone order
determining the interest rate applicable
to the taxing authorities’ claims. The
bankruptcy court entered the order to
protect its confirmation order from being
disturbed on appeal. The taxing authorities then appealed the supplemental
order. Thereafter, the debtor moved to
dismiss the appeal of the confirmation
order on the grounds that it had been
mooted in pertinent part by the entry of
the supplemental order.19
The district court agreed with the
debtor that because the interest rate was
the sole issue raised in the appeal from
the confirmation order, and the taxing
authorities had appealed the supplemental order, the appeal from the confirmation order was moot. Accordingly, the
district court dismissed the appeal from
the confirmation order. It then affirmed
the supplemental order on the merits.20
The taxing authorities appealed the
affirmance of the supplemental order to
the Fifth Circuit Court of Appeals, which
reversed on the basis that the RACJ precluded the bankruptcy court from entering the supplemental order. However,
in a bizarre twist that must have left the
taxing authorities’ counsel scratching
their heads, the Fifth Circuit concluded
that the interest rate applicable to priority tax claims was not properly before it
because the taxing authorities had not
appealed the district court’s dismissal of
their appeal of the confirmation order.21
In reaching its conclusion on the
RACJ, the Fifth Circuit expressly noted
that the appeal from the confirmation
order had not divested the bankruptcy
court of jurisdiction “to address elements
of the bankruptcy proceeding that [we]re
not the subject of that appeal.” However,
the court concluded that this caveat
was inapplicable on the facts before it
because the portions of the confirmation
order that were challenged on appeal
were “indisputably the same portions”
addressed by the supplemental order.22
By negative implication, Transtexas
supports the proposition that portions
of a confirmation order that are not at
issue in an appeal from that order may
be made the subject of a supplemental
order without violating the RACJ. Thus,
in the hypothetical, the bankruptcy court
should consider the debtor’s request to
modify the plan and confirmation order
to sever from them the settlement with
NDP. To hold otherwise, and to require
the debtor to approach the district court
(sitting as an appellate court) to obtain
relief completely unrelated to the issues
on appeal, would not serve the purposes
of the RACJ.
Conclusion
Although framing the RACJ as applicable to “cases,” “matters” or “orders”
on appeal may lead to the correct result
in a typical litigation matter, an appeal
from a chapter 11 plan confirmation
order requires a more nuanced, “issues”based application of the rule. While the
case law is sparse on this point, what
little there is tends to support such an
approach, albeit largely by negative
implication. n
Reprinted with permission from the ABI
Journal, Vol. XXX, No. 9, November 2011.
The American Bankruptcy Institute is a
multi-disciplinary, nonpartisan organization
devoted to bankruptcy issues. ABI has
more than 13,000 members, representing
all facets of the insolvency field. For more
information, visit ABI World at www.
abiworld.org.
19 Id. at 573-76.
20 Id. at 576.
21 Id. at 577-82.
22 Id. at 580 n. 2.
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