Non-Core Proceedings and Certified Bankruptcy Appeals

Appellate jurisdiction in bankruptcy cases can be tricky. The rules governing finality are different. And there’s an an extra tier of intermediate appellate review, with cases first going to a district court or Bankruptcy Appellate Panel before they can reach the courts of appeals. Litigants can skip this extra tier of review and proceed straight to the courts of appeals if the bankruptcy court certifies a decision for a direct appeal. But only certain kinds of decisions—those entered in “core” bankruptcy proceedings—can be certified.

The Eleventh Circuit recently had to tackle these matters in In re Gateway Radiology Consultants, P.A. The case involved a debtor’s attempts to secure a loan under the Paycheck Protection Program. In a non-core proceeding, the bankruptcy court enjoined the enforcement of regulations that prohibited debtors from obtaining loans under the Program. And in a core proceeding, the court authorized the debtor to incur the additional debt of a loan under the Program. The bankruptcy court then certified both of these decisions for a direct appeal under 28 U.S.C. § 158(d)(2).

The Eleventh Circuit held that certification of both orders was appropriate. Granted, only one—the order authorizing additional debt—was entered in a core proceeding and thus normally eligible for certification under § 158(d)(2). But that decision depended entirely on the injunction entered in the non-core proceeding. And that made the resolution of the non-core proceeding sufficiently final for a certified appeal.

The Gateway Radiology Bankruptcy Proceedings

Simplifying a fair bit, Gateway Radiology involved the availability of loans under the Paycheck Protection Program, which is part of the Coronavirus Aid, Relief, and Economic Security (or “CARES”) Act. The Small Business Administration, which implements the Program, issued regulations prohibiting bankruptcy debtors from obtaining loans under the program. The debtor in Gateway Radiology applied for one anyway, with its application falsely stating that the debtor was not in bankruptcy. Relying on that false statement, a private lender approved the loan.

After securing the loan, the debtor sought permission from the bankruptcy court to incur additional debt, which bankruptcy debtors must do before taking on new loans. The Small Business Administration objected. The debtor then filed a new adversary proceeding in bankruptcy, asking the bankruptcy court to enjoin enforcement of the regulations. In that adversary proceeding, the bankruptcy court concluded that the regulations were invalid and enjoined their enforcement. Back in the main bankruptcy proceeding, the bankruptcy court approved the debtor’s request to borrow the money.

The bankruptcy court then certified its decisions for a direct and immediate appeal to the court of appeals via 28 U.S.C. § 158(d)(2).

Certified Appeals Under § 158(d)(2)

Bankruptcy appeals normally go first to a district court or Bankruptcy Appellate Panel, which have jurisdiction to review (among other things) “final judgments, orders, and decrees” entered in bankruptcy “cases and proceedings.” Litigants can then seek further review in the courts of appeals. But § 158(d)(2) lets litigants skip the first stage of appellate review and proceed straight to the courts of appeals.

The provision is a little like 28 U.S.C. § 1292(b), which authorizes certified appeals from district courts to the courts of appeals. A bankruptcy court can certify a final judgment, order, or decree under § 158(d)(2) if one of three conditions is met:

• “[T]he judgment, order, or decree involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court of the United States, or involves a matter of public importance;”
• “[T]he judgment, order, or decree involves a question of law requiring resolution of conflicting decisions;” or,
• “[A]n immediate appeal from the judgment, order, or decree may materially advance the progress of the case or proceeding in which the appeal is taken.”

The court of appeals then has discretion over whether to hear the certified appeal.

Certification in Core and Non-Core Proceedings

After the bankruptcy court in Gateway Radiology certified both its order approving the additional debt and its injunction, the Small Business Administration sought permission to appeal from the Eleventh Circuit. The Eleventh Circuit granted that petition and ultimately reversed. But before doing so, the court had to determine its jurisdiction.

Jurisdiction over the order approving the additional debt was straightforward. A motion for permission to incur additional debt is a “core proceeding” under bankruptcy law. And the resolution of a core proceeding is a final order in bankruptcy. The bankruptcy court’s certification of that decision under § 158(d)(2)(A) thus allowed the parties to skip the district court or Bankruptcy Appellate Panel and proceed directly to the Eleventh Circuit.

The injunction was a bit more complicated. That order came in a non-core proceeding. “And bankruptcy courts generally cannot enter a final order, which is the kind of order [a court of appeals] can review directly, in non-core proceedings.”

But an exception to this general rule exists. In Stern v. Marshall, the Supreme Court said that bankruptcy courts can enter “final orders about non-core matters” if “those matters need to ‘necessarily be resolved’ in the course of deciding a core matter.” And the core matter in Gateway Radiology—the motion for approval to incur additional debt—depended entirely on the non-core issue of whether the Small Business Administration’s regulation was valid. So “[t]he injunction issue was, as a practical matter, subsumed in the approval order.” Certification of that order was thus proper. And the Eleventh Circuit had jurisdiction to address it.

In re Gateway Radiology Consultants, P.A., 2020 WL 7579338 (11th Cir. Dec. 22, 2020), available at the Eleventh Circuit and Westlaw.