November 6, 1998

Re: Comments of the American Bar Association to Chapter 5 A. of the Tentative Draft Report of the Commission on Structural Alternatives for the Federal Courts of Appeal Concerning Appellate Jurisdiction of Bankruptcy Appeals

Commission on Structural Alternatives
for the Federal Courts of Appeals
Thurgood Marshall Federal Judiciary Building
One Columbus Circle, N.E.
Washington, D.C. 20544

Dear Sir/Madam:

We write to convey the American Bar Association's comments on the provisions of the Tentative Draft Report of the Commission on Structural Alternatives for the Federal Courts of Appeals ("Draft Report") which relate directly to the bankruptcy appellate process. The undersigned are the current chair, the vice chair/chair elect, and the immediate past chair of the Business Bankruptcy Committee of the Business Law Section of the American Bar Association, a committee consisting of 1,500 bankruptcy lawyers, professors and judges representing all aspects of the legal profession concentrating on bankruptcy law. In that capacity, we have been authorized to express the ABA's position on the important issues raised in your Draft Report.

This letter focuses on the Draft Report's rejection of the multiple benefits of direct appellate review recommended by the National Bankruptcy Review Commission (the "NBRC") and then addresses the potential deficiencies in the alternatives recommended by the Draft Report.

As one of its first acts, the NBRC adopted its Recommendation 3.1.3 proposing that the first stage of the appellate process, appeals to the District Courts, be eliminated.

The NBRC recommendation followed Conference Plan Recommendation 22 of the Proposed Long Range Plan for the Federal Courts (the "Conference Plan") proposed by the Judicial Conference's Committee on Long Range Planning in 1995. Recommendation 22 had recommended that the existing mechanism for review of dispositive orders of bankruptcy judges should be studied to determine what

appellate structure will ensure prompt, inexpensive resolution of bankruptcy cases and foster coherent, consistent development of bankruptcy precedents. Recommendation 21 in the Conference Plan provided the general rule that actions of decisions of Article I courts should be reviewable directly in the regional courts of appeals.

The American Bar Association's response to each recommendation in the Conference Plan was comprised of a statement of ABA Policy and a more expansive Comment thereon. The ABA Comment regarding Recommendation 22 states:

"The bankruptcy appellate process does not produce a coherent body of guiding precedent. One reason for the amount of bankruptcy litigation ­ and the attendant cost and duration of insolvency proceedings ­ is the failure of stare decisis to function in the bankruptcy system.

"Bankruptcy appeals may be argued either before the almost 550 district judges or may proceed to bankruptcy appellate panels where they exist. Virtually none of the decisions of those courts are viewed as binding upon bankruptcy judges or on district judges hearing appeals in bankruptcy cases. Notwithstanding the hundreds of bankruptcy opinions, little binding precedent has emerged. One result is that issues which commonly arise are litigated again and again throughout the country. Note should also be taken of the shortcomings of "finality" as a standard for appealability in bankruptcy matters.

"Substantial portions of the bankruptcy bench and bar believe that the bankruptcy appellate process is time-consuming, expensive, and fails to produce useful bankruptcy precedent. There is a growing consensus that the time has come for a study which might lead to solutions in the form of legislation or reorganization of the bankruptcy appellate structure."

Thus, the recommendations of the NBRC and the Committee on Long Range Planning and the Comment by the ABA all recognize the problems created by the lack of binding bankruptcy law precedent and suggest direct appeals to the regional circuit courts of appeal as a possible solution.

The problems arising from the dearth of binding precedent and the additional expense in time and money of an extra layer of appeal in bankruptcy matters cannot be reduced, much less eliminated, by most of the proposals in the Draft Report. Generally speaking, the ABA believes

that both shortcomings of the existing system would be dramatically improved through some system of direct appeals to the circuit courts.

We believe the multiple benefits of permitting direct appeals to the regional circuit courts of appeal outweigh other considerations. First, eliminating one level of appeal will, as a necessary corollary, result in fewer appeals in the court system as a whole. Second, direct appeals will result in a body of binding precedent which will reduce the number of appeals over time. Third, a significant number of bankruptcy appeals filed with the district courts are not prosecuted so that the burden on the circuit courts will be less than would be indicated by the gross number of bankruptcy appeals filed. Fourth, the important economic and commercial decisions which often arise in the context of bankruptcy cases are worthy of the valuable resources of the circuit courts. The relative burden of such cases does not justify dismissing the benefits and efficiencies of direct appeals out-of-hand.

Problems With the Alternatives to Direct Review Proposed by the Draft Report

In its Draft Report, the Commission sets forth three alternative structural changes for bankruptcy related appeals in Chapter 5, §A.2, at pages 59 - 61. Those three alternatives are: (1) direct appeal to the circuit court, but with the use of a BAP to provide it with a report and recommendation; (2) direct appeal to the circuit court, or with the agreement of all parties, to the BAP; and (3) BAP review (rather than district court review) in core bankruptcy proceedings and non-core bankruptcy proceedings where the parties have consented to a final judgment by the bankruptcy judge, with district courts providing de novo review of findings of fact and conclusions of law in non-core matters where the parties have not consented.

Of the three proposals outlined by the Commission in the Draft Report, the ABA believes that the second alternative comes closest to addressing the issues identified by the ABA in its 1995 policy. This option appears most likely to result in a coherent body of guiding precedent and by allowing the parties to collectively refer appeals to the BAP, it would allow them to avail themselves of the knowledge and expertise of the experienced bankruptcy judges who sit on the BAP if they chose to do so.

The other two alternatives suggested by the Commission are more problematic. The first alternative suggested in the Draft Report would adopt a procedure which currently applies to trials conducted by bankruptcy judges in non-core matters (and by federal magistrates in certain non-bankruptcy cases) where there may be extensive factual disputes. Such a delegation to a BAP of the appellate review process would not save the parties or the court any time over the current appellate system because the only matter to be reviewed in bankruptcy appeals is the record which has already been created in the trial court.

Under these circumstances, the circuit court's review of the report and recommendation of the BAP would take one of two forms. Either the circuit court: (1) will accept the report and recommendation; or (2) the circuit court will conduct an independent review of that same record. It is highly unlikely that the circuit court would act as a rubber stamp and thus it is unlikely that any substantial savings of time would result if the circuit court independently reviews the record. Under such circumstances, the process of the BAP making a report and recommendation would appear to be little different than the existing appellate process of first appealing to the district court. If anything, this proposal might add to the lack of precedential authority because throughout the intervening period of time after the BAP has made a report and recommendation but the circuit court has not yet ruled, there is not even an order or published opinion to be cited as persuasive (as opposed to binding) precedent.

If the Commission believes that the report and recommendation process would eliminate oral argument before the circuit court, the circuit court has other methods for eliminating oral argument when it concludes such argument is not likely to be helpful. No other significant time saving would appear to be evident from such a report and recommendation procedure with respect to appeals.

The third approach suggested by the Draft Report would provide that core proceedings are to be determined by the BAP and not the district court while non-core matters are to be determined by the district court. Such an approach has at least three major drawbacks. First, even a cursory review of the volume of litigation over what constitutes a "core proceeding" demonstrates that this proposal is likely to generate more time-consuming and expensive litigation.⁽¹⁾ Second, this proposal does not eliminate the expense of two levels of appeal. And finally, although it might marginally improve the current state of the law with respect to the precedential value of BAP opinions, this proposal ignores the fact that many of the same legal issues can and will be presented in both core and non-core proceedings, thereby still resulting in multiple intermediate appellate reviewers of the same issues.

Thank you for providing the American Bar Association with an opportunity to comment on the provisions of the Commission's Draft Report.

Very truly yours,

_________________________________
William H. Schorling, Chair
ABA Section of Business Law
Business Bankruptcy Committee

_________________________________
Mike Sigal, Vice Chair/Chair Elect
ABA Section of Business Law
Business Bankruptcy Committee

_______________________________
Hugh M. Ray, Immediate Past Chair
ABA Section of Business Law
Business Bankruptcy Committee