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Letters to the 107th Congress

July 24, 2001

Re: Bankruptcy Reform Act of 2001 (H.R. 333) - Direct Appeals Issue

Dear Representative/Senator:

As you prepare to participate in the upcoming conference committee for H.R. 333, the "Bankruptcy Reform Act of 2001," the American Bar Association ("ABA") respectfully urges you to support the language currently contained in Section 1234 of the House-passed bill providing for direct appeals of bankruptcy court orders to the existing circuit courts of appeals, instead of the weaker language contained in Section 1233 of the Senate bill.

The ABA, which has over 400,000 members throughout the country, strongly supports direct appeals of bankruptcy court orders to the circuit courts of appeals. This is a non-partisan proposal that would significantly improve the bankruptcy system. As Chair of the Business Bankruptcy Committee of the ABA Section of Business Law, I have been authorized to express the ABA's views to you on this important matter in an effort to improve the administration of the bankruptcy laws.

Direct appeals to the regional circuit courts of appeals has also been recommended by the National Bankruptcy Review Commission ("Commission"), which has studied the matter in depth. The Commission was composed of three members appointed by the President (then President Clinton), two members appointed by the Senate, two members appointed by the House of Representatives, and two members appointed by the Chief Justice. Although the Commission was split on a number of the bankruptcy issues addressed in its 1997 Report to Congress, the recommendation for direct appeals of bankruptcy matters received the unanimous support of all of the Commission's members.

Under the current system of bankruptcy appeals, a bankruptcy order (unlike other federal trial court orders) is subject to an additional level of review: an appeal must go first to either a district court or a bankruptcy appellate panel ("BAP") before the appeal may go to a circuit court. The two-level bankruptcy appellate process is extremely unusual. The ABA believes that this multi-tiered bankruptcy appellate structure works poorly and imposes unnecessary delays and costs on all parties. In addition, as stated in the Judicial Conference's 1995 Long Range Plan for the Federal Courts: "Under current practice, district courts and BAP decisions are not treated as stare decisis in other cases - resulting in a 'patchwork' of differing legal interpretations that encourage forum shopping and undermine the national system of [a uniform] bankruptcy law." (p. 48)

The ABA believes that a direct appeals system, designed to closely parallel the track of nonbankruptcy civil appeals, will result in:

  • Faster final decisions;

  • Greater certainty, uniform interpretation, and decisions of precedential value with respect to key bankruptcy issues; and

  • Reduction in unnecessary bankruptcy litigation.

The ABA believes that direct appeals will aid in achieving the important goal of reducing the time and costs associated with the bankruptcy process and will also assist in harmonizing bankruptcy laws and nonbankruptcy commercial laws generally.

The ABA recognizes, and is sensitive to, the possibility of increased workload for the circuit court judges, but recent studies suggest that any increase in appellate workload would be both modest and short lived. According to a recent report in 2000 by the Federal Judicial Center, even a total elimination of the intermediate level of bankruptcy review (i.e. a reform going well beyond the compromise provision contained in the House bill) would affect total appellate filings by only 4.5 to 6.9 percent, with their "best estimate" at the low end of this range.1 Similarly, after examining and analyzing the issue, the Commission concluded in its 1997 Report to Congress that, while direct appeals may temporarily increase the workload by approximately 9 percent, "over time.this number should decrease as more issues are settled within the circuit and fewer uncertainties linger, necessitating fewer appeals." (A copy of the relevant portions of the Commission's Final Report to Congress is enclosed for your convenience.) The Commission concluded that the substantial benefits of a direct appeals system significantly outweigh any modest short-term burdens, and the ABA agrees with this conclusion.2

The ABA supports Section 1234 of the House bill as it would allow for direct appeals in most bankruptcy cases. Under this provision (which is identical to the corresponding provision in H.R. 2415, the bill overwhelmingly approved by Congress last year but vetoed by President Clinton on other grounds), bankruptcy appeals initially would be routed to the district courts for a 30-day period. After the 30-day period, the appeals would automatically proceed to the regional court of appeals if the district court had not ruled or entered an order extending such 30-day period or if the parties had not consented to the retention of the appeal in the district court beyond the 30-day period.

Section 1234 of the House bill was designed to address concerns that some litigants may prefer to keep the appeal in the district court and that the district court should be given some latitude to keep the appeal. Although the ABA ideally would prefer a pure direct appeal system for the bankruptcy courts that is the same as the system used in the other federal trial courts, the system established by Section 1234 of the House bill (which is a compromise designed to permit the appeal to remain in the district court in some circumstances) is a clear improvement over current law. In essence, Section 1234 would permit direct appeals to the circuit courts in most cases, except where the district court ruled during the 30-day period, the parties otherwise consented, or the district court extended the 30-day period.

The Senate-passed version of H.R. 333 materially cuts back on direct appeals. Section 1233 of the Senate bill is designed to preserve, and would result in maintaining, the "extra step" appellate process as a general rule. It would allow direct appeals only where (i) the bankruptcy court, the district court, the bankruptcy appellate panel, or the parties certify that (a) a substantial question of law, or a question of law requiring resolution of conflicting decisions, or a matter of public importance is presented and (b) an immediate appeal may materially advance the progress of the case or proceeding and (ii) the circuit court then, in its discretion and without any statutory standards, agrees and accepts the appeal. This limited possibility of direct appeal would create a substantial barrier, not present in nonbankruptcy civil litigation, to direct access to the regional circuit courts of appeals.

The Senate bill's possibility of direct appeals is not likely to materialize in most large bankruptcy cases, and in small cases, direct appeals would be rarer still. Moreover, even raising the issue of certification in a lower court and then briefing to the court of appeals why it should take the appeal would itself involve time and costs to the parties and the judicial system. For these reasons, the ABA does not believe that Section 1233 of the Senate bill addresses the problems with the current bankruptcy appellate system or advances the goal of reducing the time and cost of bankruptcy proceedings. To be effective, direct appeals should be the rule and not the possible exception.

The ABA believes that direct appeals to the regional courts of appeals is an important component of bankruptcy reform. For the reasons discussed above, the ABA urges you to support the inclusion of Section 1234 of the House-passed version of H.R. 333 in the final Conference Report. Thank you for your consideration, and if you would like to discuss the ABA's views on these issues in greater detail, please feel free to contact me or Larson Frisby in the ABA Governmental Affairs Office at (202) 662-1760.


M. O. Sigal, Jr.
Chair, Business Bankruptcy Committee
ABA Section of Business Law


Letter sent to:
Sen. Joseph Biden
Sen. Mike Dewine
Sen. Richard Durbin
Sen. Russ Feingold
Sen. Charles Grassley
Sen. Orrin Hatch
Sen. Edward Kennedy
Sen. Herbert Kohl
Sen. Jon Kyl
Sen. Patrick Leahy
Sen. Mitch McConnell
Sen. Charles Schumer
Sen. Jeff Sessions
Rep. Bob Barr
Rep. John Conyers
Rep. George Gekas
Rep. James Sensenbrenner
Rep. Mel Watt

1Judith A. McKenna & Elizabeth C. Wiggins, Alternative Structures for Bankruptcy Appeals at 55-59 (Federal Judicial Center 2000).

2In its 1995 Long Range Plan for the Federal Courts, the Judicial Conference stated that the appellate review of orders of bankruptcy judges should be studied to "ensure prompt, inexpensive resolution.and foster coherent, consistent development of bankruptcy precedents." Recommendation 21 at 47. It was recommended that statutory change "should await the [National Bankruptcy Review Commission's] report in that respect." Id at 48. As noted above, the Commission unanimously recommended direct appeals in its Final Report to Congress.

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ph: 202-662-1760
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