October 28, 1998

The Honorable Byron R. White
Chairman, Commission on Structural Alternatives
for the Federal Courts of Appeal
Thurgood Marshall Federal Judiciary Building
One Columbus Circle, NE
Washington, DC 20544

Re: Tentative Draft Report of the Commission dated Oct. 7, 1998 ("Tentative Draft")

Dear Justice White:

The Tentative Draft recognizes that bankruptcy appellate process reform is an important national priority and makes certain recommendations regarding direct appeal of final orders of bankruptcy courts to the Courts of Appeal and discusses possible alternatives.

I am a law professor specializing in bankruptcy law at the UCLA School of Law. Over the last five years I have devoted a significant amount of thought and effort to the problems of bankruptcy appellate process. Those efforts have resulted in two articles and an unpublished statistical analysis of bankruptcy appeals prepared at the behest of the American Bar Association. I enclose copies of these documents for the Commission's consideration as it goes about the process of finalizing the Commission's Report to the Congress.

Every year, the federal bankruptcy laws affect over one million American debtors, and millions more of their dependents and their creditors, as well as thousands of financial institutions, employees, and businesses. Probably the Internal Revenue Code and the Social Security/Medicare/Medicaid system are the only federal statutory schemes that have a more pervasive effect on the lives of Americans. And in contrast to tax and social security, no federal bureaucracy has overall responsibility for uniform enforcement of bankruptcy law. Accordingly, the role of the federal judiciary is especially vital in this area, as is reflected by the fact that some 326 specialized federal bankruptcy judges administer this statute in the first instance. Given this highly decentralized system of district-by-district bankruptcy courts, the only mechanism for ensuring uniform federal bankruptcy law is through the stare decisis effect of appellate decisionmaking.

Given the importance of appellate process issues to bankruptcy law administration, I reviewed with great interest the Tentative Draft's recommendations on the subject.

From the point of view of bankruptcy administration, the recommendation of the National Bankruptcy Review Commission for direct appeal to the Courts of Appeals is highly desirable. I recognize that there is a cost to this proposal in terms of the workload of the Courts of Appeals. But I believe the Tentative Draft overstates the cost in suggesting that there may be a 6% increase in appellate workloads. The enclosed 1995 unpublished statistical analysis indicates that the figure is likely to be closer to 3% after factoring in disproportionate procedural terminations, lower case weights on average and the fact that many appeals would have to be heard eventually by the Court of Appeals anyway under the existing three-tier system. In fact 3% is probably a high end estimate given the likelihood that fewer appeals will be taken to Courts of Appeals than currently go to BAPs or districts courts given the greater cost and delay associated with Court of Appeals review and the benefits of a growing body of Court of Appeals precedent under a direct appeal system.

The three BAP alternatives described in the Tentative Draft bear strong resemblance to the "mandatory BAP" alternative, I sketched in "Bankruptcy Appellate Reform: Issues and Options," 1995-1996 Norton's Annual Survey of Bankruptcy Law 257 (Clark, Boardman & Callaghan). From the point of view of bankruptcy administration, this option is inferior to direct review because it maintains a two-tier appellate review system that no non-bankruptcy federal litigants have to contend with.

Nevertheless, it represents a substantial improvement in existing institutional arrangements, but only if coupled with a clear statutory provision confirming the circuit-wide binding precedential effect of BAP decisions. (I did not see a binding precedent provision in the Tentative Draft's proposed statute). My 1995 statistical analysis suggested (although it could not prove it given the then existing data) that the BAP is a superior appellate institution to the federal district court. In any event its circuit-wide jurisdiction clearly places the BAP in a superior position to clarify the law and establish binding precedent as fully argued in "Power, Authority and Precedent in Interpreting the Bankruptcy Code," 41 UCLA L. Rev. 1063 (1994).

I do not understand the necessity or utility of tying what I consider to be essentially "mandatory BAP" review to a complex opt-out/adjunct scheme at the Court of Appeals level as described in the first two BAP alternatives in the Tentative Draft. If the Commission views "mandatory BAP" as the correct balance between the needs of the Courts of Appeals and the needs of efficient bankruptcy administration, then, consistent with the Commission's third BAP approach, all core matter appeals and final bankruptcy court judgments in non-core matters should be simply routed to BAP subject to further "of right" appellate review in the Court of Appeals on ordinary appellate review standards. As the Commission recognizes, because of the BAP's Article I status, the constitutionality of "mandatory BAP" is an issue to consider, but so long as meaningful "of right" appellate review remains in an Article III court, the proposal should most probably pass constitutional muster.

The expanded discretionary interlocutory review authority in the Commission's proposed new statutes is highly desirable. A significant problem in bankruptcy practice is that appellate review of non-final orders is unavailable in the Court of Appeals in most instances, while appellate review of final orders is often unavailable as well on mootness grounds. Providing for mandatory Court of Appeals review of BAP certified interlocutory orders would also be desirable.

I hope these comments and enclosed articles and statistical analysis are useful to the Commission. I regret the delay in getting these materials to you. I was simply unaware that the Commission had decided to tackle bankruptcy appellate reform as part of its larger project.

While as a California lawyer and observer of the Ninth Circuit, I have views on the central recommendation of the Tentative Draft concerning the Ninth Circuit, I can not claim any special expertise on that matter. While I see merit in the proposal in the abstract, my practical sense is that the recommendation will leave both the Ninth Circuit's defenders and its detractors highly dissatisfied. I do not envy the Commission the job of sorting through the comments and political fallout its proposal is likely to engender!

On a happier note, if I can be of any assistance in connection with finalizing the Commission recommendations for bankruptcy appellate process, please do not hesitate to call on me.

As requested in the public notice of the Tentative Draft, I enclose diskettes of these comments and the unpublished statistical analysis. I regret that I do not have the final published versions of the other enclosed articles easily available to me in electronic form. Thank you for your consideration of this submission.

Very truly yours,

Daniel J. Bussel

 


Statistical Overview of Bankruptcy Appeals(1)

The most current published data on federal appeals relates to the year ended September 30, 1993.(2) The only known longitudinal study of bankruptcy appeals is dated December 23, 1993 and relates to appeals over the period 1990-1992 (the "Mangum Study").(3) This overview provides data on the historical volume of bankruptcy appeals, analyzes the Mangum Study and concludes with a brief summary and recommendation for further empirical research.

A. Appellate Caseloads.

The volume of bankruptcy appeals has been growing modestly at all levels in recent years.


Table 1. Bankruptcy Appeals in District Courts(4)

 

  Filings All Terminations Merits Terminations

1993

4892 n.a. n.a.

1992

4626 4252 (5) 1144 (6)

1991

4332 n.a. n.a.

1990

4312 3787 991

1989

4109 n.a. n.a.


 

Table 2. Bankruptcy Appeals in BAP (9th Cir. Only)(7)

  Assigned To BAP(8) All Terminations Merits Terminations

1993

882 800 244

1992

913 832 243

1991

752 762 236
1990

782

580 239

1989

659 n.a. n.a.


Table 3. Bankruptcy Appeals in the USCA(9)

 

Filings

All Terminations Merits Terminations

1993

1388 1405 667

1992

1637 1298 644

1991

1277 1201 580

1990

1118 1040 553

1989

1105 1105 461



B. Analysis of Mangum Study.

While valuable, the Mangum Study is suggestive rather than probative on the key question of which institution, the Bankruptcy Appellate Panels ("BAP"), or the United States District Courts ("DC"), or the United States Courts of Appeals ("USCA"), offers higher quality, more regular and lower cost resolution of first-tier appeals from Bankruptcy Court ("BC") decisions.

The principal objective of the Mangum Study appears to have been to evaluate the potential burdens and benefits of direct appeal from BC to USCA.

The Mangum Study implicitly found that direct appeal to the USCA would not greatly burden the USCA given the small relative number of bankruptcy appeals to total appeals and the high relative number of procedural terminations of bankruptcy appeals.

Bankruptcy appeals are a minimal burden on the USCA, and would remain so under any plausible reform scenario.

Seventy percent of all first-tier bankruptcy appeals (those lodged in the DC and BAP) are dismissed on procedural grounds.(10) The DC decides only approximately 1200 appeals on the merits and BAP 250. Currently the USCA decides between 600 and 700 bankruptcy appeals on the merits. Even if every DC and BAP appeal were sent to the USCA in the first instance, the USCA would only face an increase of about 750 cases in its merits caseload, or less than 3%.(11) Finally there are indications that bankruptcy appeals are relatively easier to dispose of than other matters. The Federal Judicial Center gives a case weight of .86 to bankruptcy appeals. For purposes of comparison ERISA cases receive .67, civil RICO cases 2.96 and death penalty habeas corpus case 5.99.(12)

The Mangum Study attempts to capture a sense of the benefit of direct appeal to USCA by focusing on the lengthy disposition time associated with multiple appeals and the actual frequency of multiple appeals. The key finding here is that the two-tier appellate process creates significant delay in adjudicating the 18% of bankruptcy appeals that wend their way to the USCA.(13)

The DC takes on average 275 days to decide a bankruptcy appeal on the merits.(14) About 25% of all DC decisions on the merits are further appealed.(15) The USCA takes an additional 320 days on average.(16) In contrast, the average non-bankruptcy private civil appeal takes only 10.6 months to adjudicate--about half as long.(17) In the Ninth Circuit the two-tier approach combined with the generally slow appellate process in the Ninth Circuit creates extreme delay. BAP averages 380 days to arrive at a merits decision and the Ninth Circuit takes 505 days for a total of 885 days--almost 30 months.(18)

Analysis of the data set in the Mangum Study suggests that the caseload burden of direct appeal to the USCA would be spread fairly evenly across the Nation. Rerouting all DC and BAP appeals directly to the USCA would increase the net number of appellate filings at the USCA level by 4300 or so, but analysis of SY 1992 data suggests those new appeals would be spread among the Circuits in a way that would not meaningfully change any Circuit's share of the Nation's caseload. Assuming SY 1992 is representative and not related to say the regional business cycle or some other idiosyncratic factor, the Ninth Circuit would suffer a small increase in relative caseload under a direct appeal system.

[Insert Table 4]

This cost-benefit analysis based on the Mangum Study probably overestimates the burden of direct appeals(19) but seriously underestimates the benefits. Quicker disposition and less cost by elimination of an appellate tier is at best half the story. Direct appeal would facilitate prompt settlement of law of the circuit through the creation of a stable and sizable body of binding precedent. This benefit is not captured in the Mangum Study.

A secondary objective of the Mangum Study appears to have been to compare DC and BAP decisionmaking. This is a much more difficult task and the Mangum Study is only a tentative first step in making an overall assessment of DC and BAP decisionmaking. Among the problems precluding strong findings on these questions:

A. The data set on BAP is extremely limited. Only SY 1992 figures are available. While there were 844 terminations, only 249 of those terminations were on the merits. No longitudinal data are available. Analysis of disposition of BAP source appeals in the Ninth Circuit is based on 102 filings and only 62 merits decisions.

B. The voluntary opt-out procedure creates a potential for self-selection bias in the population of BAP appeals. No data exist that suggest whether certain types of cases with different appellate characteristics are routed to BAP rather than the DC, but this possible hidden biases may skew the results.

C. No generally accepted measures of the quality (as opposed to the quantity and timeliness) of judicial decisionmaking exist. Possible surrogates are whether decisions are published, and the frequency of subsequent citation, but the Mangum Study does not purport to use these criteria and no data exists using these measures. The Mangum Study does include data on subsequent affirm/reverse ratios which may be an indicator of quality.

D. The coding of dispositions is not consistent between BAP and DC, making comparison rough and imperfect. For example, the category "judgment" in the DC data corresponds only roughly with the category "disposition issued by judge" in the BAP data, though for purposes of this analysis both are treated as merits dispositions.

Despite these constraints, analysis of the Mangum Study reasonably suggests three findings:

1. BAP is more regular and consistent in its processing of appeals than DC. DC disposition times vary widely. The wide difference between mean and median disposition times in the DC indicates that a significant number of appeals languish for years in the DC. The ratio of the mean to the median in BAP appeals decided on the merits is 1.14. The mean/median ratio for similar DC merits decisions is 1.72. This suggests (but does not conclusively establish) that most DC dispose of bankruptcy appeals promptly, but a few drag their heels for years, while BAP tends to treat all filings consistently in terms of disposition time. This finding would be stronger if data existed to cross-tabulate BAP and DC disposition times (broken down into ranges) against type of disposition. Such an analysis would be hampered by the fact that disposition codes maintained by the DC and BAP are not consistent.(20)

2. DC is somewhat faster than BAP. For SY 1992, the DC mean disposition time (252 days in the Ninth Circuit, 250 days nationwide) was about 10 days shorter than the BAP mean disposition time (261 days). The gap in median disposition times favored the DC 84 days nationwide and 73 days within the Ninth Circuit.(21)

3. BAP decisions stand-up better than DC decisions upon further review in the USCA. Most telling is the fact that BAP decisions are far more likely to be affirmed than DC decision (51%-20% in the Ninth Circuit).(22) The large difference appears to be relate partially to fewer reversals but principally to many fewer settlements pending appeal in BAP source appeals than DC source appeals.(23) One can infer that prevailing parties in the BAP are sufficiently confident of affirmance in the USCA that they are significantly less willing to settle, notwithstanding the long wait to final decision in the Ninth Circuit. This inference is consistent with the fact that losing litigants are significantly less likely to further appeal BAP decisions than DC decisions.(24) The Ninth Circuit is also significantly more likely to reverse DC decisions than BAP decisions. The ratio of USCA affirmances to reversals is 3:1 for DC source appeals and 10:1 for BAP source appeals. The Mangum Study states that 20% of DC source appeals in the Ninth Circuit were affirmed and 6% reversed, indicating a ratio of 10:3.(25) BAP is somewhat more likely to reverse Bankruptcy Court decisions than the DC indicating that BAP review may be more rigorous.(26) Finally, BAP is far more likely to clarify law in the course of deciding bankruptcy appeals by publishing reasoned decsions than the DC. All BAP merits dispositions are by published opinion. Only a small fraction of appeals heard in the DC result in a published opinion.(27)

C. Summary and Recommendation.

The Mangum Study makes a reasonably persuasive case that the benefits of direct appeal to the USCA outweigh the burdens, even while ignoring the greater precedent setting capacity of the USCA and the benefits associated therewith.

The Mangum Study suggests more weakly that BAP is a superior appellate institution to the DC. BAP appears to be more regular and consistent in its handling of appeals, albeit somewhat slower, than the DC. Data inadequacies preclude stronger findings on these issues. Possible self-selection biases, a small data base for BAP appeals (one year only), inconsistencies between disposition codes between BAP and DC and differential publication rates are the principal culprits.

The comparative data on quality of BAP versus DC decisionmaking is also suggestive but weak. No data is presented on the number of published decisions and citation frequency, important markers of quality. Affirm/reverse ratios suggest that BAP decisions do better on appeal, but again the BAP database is narrow and there may be systematic biases in the nature of the cases not revealed by the data.

Focus on the BAP-DC quality issue is central to addressing the law development and lack of precedent issues that concern the Task Force. Further empirical work addressing that issue is called for to the extent the Task Force moves away from the "direct appeal to USCA" alternative towards an institutional structure that continues to rely on the existing BAP and DC.



Footnotes:

1. This overview was prepared for the ABA Joint Task Force on Bankruptcy Court Structure by Prof. Daniel J. Bussel, UCLA School of Law. Mr. Bussel gratefully acknowledges the insights and assistance of Prof. Richard Sander with the statistical analysis and the fine research assistance of Andrew Gilmour, UCLA School of Law, Class of 1996, and the financial support of the Academic Senate of the University of California, Los Angeles.

2. Administrative Office of the US Courts, 1993 Annual Report of the Director (1994).

3. F. Mangum, Memorandum to Members of the Long Range Planning Committee (Federal Judicial Center, Dec. 23, 1993).

4. Filing figures are from 1993 Annual Report Table C-2A at AI-58. The figures shown are for appeals under 28 U.S.C. § 158. Recently there has been a large increase in the number of cases wherein the District Court has withdrawn the reference pursuant to 28 U.S.C. § 157. In 1993, there were 1410 withdrawals. In each of the five previous years the figure was approximately 750 cases. All Terminations and Merits Terminations figures are from Mangum Study Tables 4 & 11.

5. This figure is from the Mangum Study Table 11 at p. 15 and is based on a June 30 rather than a September 30 statistical year. Accordingly it is only approximately comparable to the cited filing figure.

6. Id.

7. 1993 Annual Report Table 16 at p. 24.

8. About 40% of all appeals to the BAP are reassigned to the DC under the "opt-out" procedure. "Assigned to BAP" represents appeals remaining in BAP after "opt-out" rights have been exercised.

9. Table B-1 in Annual Reports, Administrative Office of the US Courts (1989-1993).

10. The principal reasons for procedural terminations appear to be a failure to prosecute or other default or voluntary dismissal of the appeal on account of settlement or mootness.

11. In 1993, the USCA terminated 25,761 cases on the merits. 1993 Annual Report Table B-5 at AI-26.

12. Mangum Study at 2. The case weights correlate to the amount of judge-hours spent on the matter.

13. Mangum Study at 2 & passim.

14. Mangum Study Table 11.

15. Of 991 DC bankruptcy appeals going to judgemnt in the DC in Statistical Year ("SY") 1990, 250 were subsequently appealed. Mangum Study Tables 4 & 5. Peculiarly, 46 cases settled in the DC in SY 1990 were also subsequently appealed, suggesting some anomalies in the data set. Id.

16. Mangum Study Table 14 at 19.

17. 1993 Annual Report Table B-4 at AI-24.

18. Mangum Study Tables 12 & 15. The Ninth Circuit resolves the average Other Private Civil appeal in 17.7 months. Id.

19. The burden on the USCA is a function of additional caseload re-routed from DC and BAP. The Mangum Study itself acknowledges that "some of the bankruptcy appeals currently filed in district court would probably be "priced out" by direct appeal ... and hence not pursued." Mangum Study at 2. In addition, one one hope that development of a body of stable binding precedents would eventually mean fewer unsettled questions of bankruptcy law and hence fewer appeals.

20. In SY 1990, Mean and Median DC Disposition Times were 248 and 156 days, respectively. In SY 1992, Mean and Median DC Disposition Times were 250 and 145 days, respectively. In SY 1992 Mean and Median BAP Disposition Times were 261 and 229 days, respectively. Mangum Memorandum Tables 1, 11 & 12.

21. Id.

22. Outside the Ninth Circuit the affirmance rate is 35%. Mangum Study Table 14.

23. Id.

24. Out of 3787 DC appeals SY 1990, 673 were eventually appealed to the USCA, although there were only 991 DC judgments. Approximately 350 of these cases resulted in USCA terminations on the merits assuming that the ratio of procedural to merits terminations in the USCA in SY 1992 (46:54) can be applied to this figure. Mangum Memorandum Tables 4, 5 & 14. In SY 1992 the USCA disposed of 102 BAP source appeals, 62 of them on the merits. There were 782 BAP appeals in SY 1990 of which 239 were disposed of on the merits. 1993 Annual Report Table 16 at p. 24. Although the figures are not strictly comparable because of inconsistency in disposition coding at the DC and BAP levels it appears that disproportionately more DC decisions are appealed, but disproportionately fewer of those appeals result in a merits decision in the USCA.

25. Mangum Study at 3, 18 & tables 14 & 15. Chi-square analysis indicates that the disparity of affirm/reverse ratios within the Ninth Circuit between BAP source appeals and DC source appeals is statistically significant at the 5% level. This relatively weak statistical significance is owing to the small number of Ninth Circuit merit dispositions of DC source appeals. But the disparity within the Ninth Circuit is consistent both in magnitude and direction with the disparity between affirm/reverse rates between BAP source appeals and all DC appeals nationwide. The large number of nationwide DC source appeals makes the finding highly significant--at the 1% level.

26. The BAP affirmed 162 cases and reversed 35 in 1992. Mangum Memorandum Table 12 at p. 16. The DC affirmed 408 cases and reversed 77. Id. Table 11 at p. 15.

27. West Publishing Co.'s Bankruptcy Reporter published 459 District Court decisions during SY 1992. LEXIS (BKRTCY Library; COURTS file; search terms: DATE BEF 7/1/92 AND DATE AFT 6/30/91 AND COURT (DISTRICT COURT) AND CITE (BANKR OR BR)). Some of these 459 opinions related to de novo review of non-core matters or trial court decisions in matters wherein the reference had been withdrawn, so fewer than 459 bankruptcy appeals resulted in published DC decisions. The Mangum Study indicates that the DC disposed of 4252 appeals in SY 1992 and issued 1144 judgments. Taking 459 as the upper bound, no more than 11% of appeals disposed of in the DC resulted in published opinions. Thirty percent (including 100% of those matters going to judgment) of the 844 BAP terminations in SY 1992 resulted in published decisions.