Nevada Homestead Decision Certified for Direct Appeal

One other interesting side-note about the Nevada decision in Virissimo. As a matter of first impression involving the "statutory construction of a hotly contested provision of BAPCPA," and in light of the conflict with the decision in McNabb, the Bankruptcy Judge in Virissimo has certified the decision for direct appeal to the Ninth Circuit Court of Appeals -- invoking another of the new provisions added by BAPCPA. In re Virissimo, 332 B.R. 208 (Bankr. D. Nev. 2005). If the Ninth Circuit authorizes the direct appeal (and if any of the litigants actually take an appeal, see below), there may be a circuit-level decision on the issue sooner rather than later.

Prior to BAPCPA, appeals of all bankrutpcy orders were subject to a two-stage appellate process: first to the District Court (or to a Bankruptcy Appellate Panel in the jurisdictions which have them), and then (at the elction of either party) to the Circuit Court of Appeals. The efficiency of the system was certainly subject to question, since the standard of review exercised by both the District Court and the Circuit Court of Appeals is identical. In amendments to 28 U.S.C. 158, Congress has created a mechanism for bypassing the two-step review in certain situations.

I'll confess I had not looked closely at the 28 U.S.C. 158 amendments before seeing Virissimo. On first reading, they may sound familiar -- because the standard is similar to (but not identical to) the standard for interlocutory appeals from the District Court to the Circuit Courts of Appeal under 28 U.S.C. 1292. The facial similarity may be misleading, though, since there are significant differences. Under new 28 U.S.C. 158(d)(2), the Court of Appeals can authorize a direct appeal, bypassing the District Court, if (1) the order involves "a question of law as to which there is no controlling decision" from the circuit or the Supreme Court, "or involves a matter of public importance"; (2) the order "involves a question of law requiring resolution of conflicting decisions"; or (3) an immediate appeal "may materially advance the progress of the case or proceeding in which the appeal is taken". The lower court can certify sua sponte or on motion by a party if it finds that one of these conditions exists, or apparently, is required to certify even if it does not find any of the conditions are satisfied, if the appellants and a majority of the appellees request it. The decision of whether to authorize the direct appeal rests with the circuit.

By comparison, under 28 U.S.C. 1292(b), a district court can certify an interlocutory appeal to the circuit if the order "involves a controlling question of law as to which there is substantial ground for difference of opinion and ... an immediate appeal may materially advance the ultimate termination of the litigation." The bankruptcy direct appeal provision is similar, but would appear to be broader: (1) unlike the interlocutory appeal statute, the bankruptcy direct appeal statute is not limited to "controlling" issues of law; (2) the bankrutpcy direct appeal provisions expressly include matters of first impression and does not specify the level of the "conflicting decisions" to be resolved, while the interlocutory appeal standard has been interpreted as not requiring certification of matters of first impression or conflicts among lower courts; (3) the interlocutory appeal statute uses the conjunctive "and," while the bankrutpcy direct appeal statute uses the disjunctive "or," when referring to the appeal materially advancing the termination of the litigation. As a result, while the interlocutory appeal must both involve a controlling question of law and also must have the potential to materially advance the litigation, a bankruptcy order could theoretically be certified for direct appeal even if it did not involve a controlling question of law, if its resolution might advance the "progress of the case or proceeding". Also interesting is the requirement that the court certify upon the agreement of the parties, even if it does not find any of the conditions to be satisfied. (Whether or not the circuit would accept the certification is, of course, another matter).

One of the curious things about the process in the Virissimo case is that the judge issued the certfication before any party had taken an appeal. She notes in the opinion that the statute "creates the classic 'catch-22.'" Since the filing of an appeal typically ends the jurisdiction of the bankruptcy court, Judge Riegle concluded that a court that believes certification is appropriate must do so before an appeal is docketed. Of course, if no appeal is taken then the certification is a pointless act.

The homestead issue would seem to be a good candidate for direct appeal, especially with the conflict within the Ninth Circuit between McNabb and Virissimo -- we'll be following it to see if the Ninth Circuit takes it.