A Critical Election: BAP or District Court?
By James L. Baillie & Ethan Yaro
In the First, Sixth (in some districts within the circuit), Eighth, Ninth and Tenth Circuits an appeal from a bankruptcy court order may go either to the district court, as elsewhere in the country, or, uniquely to those five circuits, to a Bankruptcy Appellate Panel (BAP). The BAP is a three-judge panel selected from bankruptcy judges in the circuit but not the same district. Under the statute, presumptively the appeal goes to the BAP but the appellant may elect to go to the district court. If the appellant chooses the BAP, the appellee may elect to have the appeal go to the district court instead. In effect, either party may be assured of having the option for a decision from an Article III judge. If a case goes to a BAP both parties may be deemed to have waived any right to an Article III judge by preferring the panel of Article 1 bankruptcy judges. A subsequent decision by either a district court judge or a BAP may be appealed of right to the circuit court. (A small percentage of appeals, about one percent, go directly from the bankruptcy court to the circuit court.)
Some considerations in deciding on an appeal route may seem obvious but what do the statistics and scholarly research tell us about the consequences of the choice?
This subject was the topic of a research paper by one of the authors, Ethan Yaro, currently a 3L at the University of Minnesota Law School under the supervision of the other author, James Baillie of Fredrikson & Byron, P.A. an adjunct professor at that law school. This subject that became the topic of a panel discussion among Ethan Yaro and other experts: Sam Maizel, co-author of the ABI Bankruptcy Appeal Manual; Elizabeth Wiggins, head researcher at the Federal Judicial Center and co-author of the judiciary’s original study of the topic, prior to its adoption into the Judicial Code; Bankruptcy Judge Charles Nail, Chief Judge of the Eighth Circuit BAP; and District Court John Tunheim, Chief Judge of the District Court for the District of Minnesota. The discussion occurred as part of the Annual Minnesota Bankruptcy Institute on October 11, 2021.
The history of the BAP begins with the Bankruptcy Reform Act of 1978, which led to the creation of BAPs in the First and Ninth Circuits. After a ruling from the Supreme Court that held BAPs to be an unconstitutional grant of jurisdiction to bankruptcy courts, the First Circuit disbanded its BAP, while the Ninth maintained its BAP. The modern BAP structure is based on a Federal Court Study Committee proposal from 1990 that recommended the establishment of BAPs to reduce the workload of district and appellate courts. The proposal became law in 1994 as part of §158 of the Judicial Code. The creation of BAPs was theoretically mandatory, but the circuits were authorized to not form BAPs in the event of “insufficient judicial resources, undue delay or increased costs to the parties.” Several circuits declined to form BAPs or formed a BAP and then disbanded it. Since 1994 no substantial legislation has been introduced that alters the jurisdiction of BAPs, although several bills to alter the bankruptcy appellate process have been unsuccessfully brought before Congress. This leaves us with five circuits with BAPs and six without, creating a kind of natural experiment. The current lineup appears stable with no change currently in the works.
From the judiciary’s perspective, one question might be: which is more costly? A National Conference of Bankruptcy Judges (NCBJ) Task Force report argued in 2011 that BAPs are better at cost containment and argued against the elimination of BAPs.
What about from the client perspective? One key difference is that a BAP consists of three judges–a more familiar appellate structure. A second difference is that the BAP judges are specialists in bankruptcy law with more familiarity with the likely applicable law but, some might argue, perhaps less familiar with other bodies of law which sometimes need to be taken into consideration or weighed against bankruptcy considerations. District court judges won’t usually be familiar with the points of bankruptcy law presented. Some argue that the district court is slower to reach a conclusion and more likely to issue opinions that contain errors where bankruptcy law is at issue.
One 1999 law review article cited in the paper concluded that BAP decisions are “of higher quality” than decisions rendered by district court judges. A 2008 law review article by Professors Jonathan Nash and Rafael Pardo reported that their empirical study on the perceived quality of appellate review concluded that BAP decisions were more likely to be cited to and discussed by other courts, and that other courts treat the BAP decisions more favorably. Nash and Pardo argue that these differences in treatment of BAP and district court decisions exist because BAPs feature specialist judges and collaborative panel review of underlying decisions.
So, what do parties do? In circuits with a BAP from 2005 to 2019, 53.35 percent of appeals ultimately went to the BAP and 46.65 percent went to district court after elections by either party. Of course, this is not the same as a poll of the preferences of all parties since a case will go to the district court if either party elects the district court.
Significantly, an appeal to the BAP is more likely to be the last appeal. BAP decisions are less likely to be appealed to the circuit court. There are several studies that have applied alternative measures but, restricting the considerations of appeal rates to circuits which have a BAP, it appears that appeals from BAPs are half that of appeals from district courts. Further, in that second appeal, BAP decisions are less likely to be reversed by the circuit court than district court decisions. (Unfortunately, the authors were unable to uncover data sufficient to draw conclusions about reversal rates in the first appeals, despite some help from experts in federal judicial statistics).
First appeals to the BAP get decided more quickly, but second appeals decided by the circuit courts take longer if the appeal is from a BAP.
The choice of a BAP is a continuing experiment. Discussed in the study but beyond the scope of this shorter article is the consideration that should be given to the specific issues or issues likely to be dispositive to the outcome. Where the appeal will address a matter of bankruptcy law, a BAP may be better suited to handle the appeal. Alternately, where the appeal concerns some other topic, the district court might be more capable of resolving it.
Both the bankruptcy judge and the district court judge on the CLE panel preferred to have oral argument although they agreed was that oral argument changed their minds from their initial conclusions in only a minority of the cases.