Pundits are raving about the current increase in business bankruptcy cases. But they rarely, if ever, mention the spike in bankruptcy appeals. A brief survey of recent decisions shows that appellate courts are, among other things, finding ways to (a) avoid making decisions or to (b) avoid litigation delay and uncertainty by expediting appellate review. Practitioners can avoid surprises by grasping what these courts are actually doing.

The recent decisions summarized below show how a simple reading of the Bankruptcy Rules and the Judicial Code will provide only limited guidance. Recent case law, summarized below, often undermines some of the accepted maxims recited in bankruptcy appellate practice. Stays pending appeal; appellate standing; timeliness; leave to appeal; direct appeals from the bankruptcy court to the Court of Appeals; appellate jurisdiction; appeals from fee awards; and appeals from arbitration are all addressed in a series of articles over the next few months.

Maxim 1: A Stay Pending Appeal Is Hard to Get

Stay Pending Appeal from Confirmation Order

The Second Circuit summarily denied a Chapter 11 debtor's motion to vacate the district court's stay of a plan confirmation order pending appeal. In re Voyager Digital Holdings, Inc., 2023 WL 4310688 (2d Cir. Apr. 11, 2023). According to the court, it lacked jurisdiction because "the stay is neither a final order" under 28 U.S.C. §158(d) "nor sufficiently like an injunction" under 28 U.S.C. § 1291(a)(1). The stay here, said the court, "also does not meet the requirements of the 'collateral order' doctrine." In addition, because the debtor and creditors' committee failed "to show that the district court usurped power or clearly abused its discretion," the court denied their petition for a writ of mandamus. The Second Circuit once again found a way to avoid a decision.

The district court had earlier granted the emergency motion of the United States and the United States Trustee (collectively, the "Government") for a stay pending appeal of a bankruptcy court's plan confirmation order. In re Voyager Digital Holdings, Inc., 2023 WL 2731737 (S.D.N.Y. Apr. 1, 2023). According to that court, a "stay is warranted because the Government has demonstrated a substantial case on the merits and irreparable harm in the absence of a stay." Id. at *7. The Government had challenged the scope of exculpation provision in the plan that would "prospectively immunize debtors and nondebtors from law enforcement and other actions undertaken by the Government." Rejecting the position of the debtor and creditors' committee, the court explained that the rationale for exculpation provisions in reorganization plans did not apply "to exculpation from Government enforcement of the law following confirmation." Id. at *8.

Neither the debtor nor the committee rebutted the Government's argument that "an Article I bankruptcy court lacks any power over criminal matters." Nor did the debtor and the Committee rebut "the proposition that immunity must be raised as an affirmative defense, rather than granted preemptively before any action has even taken place." Id. at *9. "Using generic equity principles to enjoin a future criminal prosecution violates 'the general rule that equity will not interfere with the criminal processes, by entertaining actions for injunction or declaratory relief in advance of criminal prosecution." Id., quoting Zemel v. Rusk, 381 U.S. (1) (1965).

The Government had objected to a provision in the plan, as modified, that exculpated certain parties "from ... any claim for fines, penalties, damages or other liabilities based on their execution and completion of the ... transactions and the distribution ... to creditors in the ... Plan." Id. at *5. The bankruptcy court stressed that "no regulatory authority has taken the position during [court hearings] that such conduct would violate applicable laws or regulations." According to that court, the Government had "sat on the sidelines and said nothing ... to indicate that there is anything illegal about what [the parties] are going to do ...." Not only did the bankruptcy court disagree with the Government, but said that "the very suggestion offends me to no end. I can't believe that you would even take the position in front of me that you should have that right. It's preposterous .... If you think something's that illegal, speak up, but don't dare tell me that you kind of want to reserve that right to do that to somebody." Id., at *4 n. 4. In short, the bankruptcy court approved "an Exculpation Provision insulating Debtors and others from prospective governmental liability in ... their consummation of the transactions contemplated in the Plan and related documents." Id. at *4. But, held the district court, the Government made out a "substantial case on the merits" that weighed in favor of a stay. Id. at *9, quoting Ctr. For Int'l Env't L. v. Off. of U.S. Trade Representative, 240 F. Supp. 2d 21, 21-24 (D.D.C. 2003).

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Originally published by ALM | LAW.COM .

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