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What's Wrong with the Bankruptcy Courts?

posted by Jason Kilborn

The Judiciary Data and Analysis Office of the Administrative Office of the US Courts has launched a new feature called "Just the Facts," highlighting statistical trends in the US judiciary. Table 2 and Chart 3 of the inaugural report reflect a curious spike in the appellate reversal rate in bankruptcy cases in 2015. While the reversal rate for both ordinary civil cases and bankruptcy cases in the Courts of Appeals had hovered steadily around 10-12% from 2011 to 2014, the reversal rate in bankruptcy cases suddenly shot up to double that, 24% (!), in 2015. It is not entirely clear to me whether this is reversal of the Bankruptcy Courts' rulings or the District Courts' rulings (it may be a bit of both, taking into account direct appeals, etc.), but in either case, whoa! Anyone have any idea what happened here? Why did the appellate courts get so mad at the lower courts in bankruptcy cases all of a sudden the year before last? I wonder if this continued in 2016. Lots of Stern reversals? Something else? Curious.

UPDATE 1/31/17: Bankruptcy statistics guru, Ed Flynn (whose fabulous work you've probably seen in the ABI Journal), helped me to understand that (1) the statistics referenced here (from Tables B-1 and B-5)  are for appeals from District Courts to Courts of Appeals, as BAP cases and District Court bankruptcy appeals are reported elsewhere (Tables BAP-1 and -2 and C-7, none of which indicates the numbers of reversals at these intermediate appeal levels), (2) the 110 merits reversals in 2015 come predominantly from the 11th Circuit and involve mostly one appellant, (3) we can probably now guess who it was and therefore what happened: Bank of America's appeals of wholly underwater second mortgage stripdown in Ch. 7  had to be granted (lower courts reversed) after the Supreme Court reversed the aberrant 11th Circuit position on allowing such stripdowns in Caulkett in mid-2015. Mystery most likely solved. Thanks, Ed!

Comments

My priors on any reversal of a bankruptcy court by an Article III court is that it is more likely the Article III court got it "wrong." We see this with most any specialized tribunal and is the price we have to pay for appellate review.

My guess is that what you are seeing are district courts getting reversed as there are not that many direct appeals. Also, was there any information about how often BAPs are reversing bankruptcy courts? It would be telling if that had stayed the same.

Does the judiciary keep statistics on the average number of years judges have served? Anecdotally, it seems there has been a generational change on the bankruptcy bench, with an increasing number of post-BACPA judges. Breaking down the statistic tilting on the reversal rate of that fulcrum could be interesting.

Bob--agreed on what's likely reflected here, though what I'd really like to know is if the reversals were 360 degrees, back to the Bankruptcy Courts' positions or 180 degrees, after the District Court agreed with the Bankruptcy Court. And the squib makes no mention of BAPs at all. I might try to track this down just out of interest, though.

Ed--I also don't know about this, but what an interesting comment! I am getting an itch to follow up on this interesting anomaly now ...

Fascinating! I agree with the comments above; it would be interesting to see how many of these are 180 vs. 360 reversals, and the extent to which the BAPs play any role in it. Additionally, are the reversals concentrated in any particular circuit, or more evenly distributed across the country?

Jason:

There may not be all that much to these figures. Table B.5 published by the AO shows that there were 110 reversals (on the merits) of bankruptcy appeals nationwide during 2015. Of these, 73 were in the 11th Circuit. The reversal rate outside of the 11th Circuit was 10.8%, (37 of 344) -compared to 68.2% (73 of 107) in the 11th Circuit.

It looks like most of the 11th Circuit bankruptcy appeals were filed by Bank of America, so my guess is that the national figures were skewed by reversals that occurred in a single circuit filed by a single party.

Ed

Well, summary reversals in the 11th Circuit after Caulkett and Toledo-Cardona would explain this ... but the 11th Circuit doesn't have a BAP, and the figure I originally described seems to have come from Table B-1, the "Bankruptcy" field of which seems to correspond fairly closely with the figures on table BAP-1. It seems to me most likely that the "Bankruptcy" field on Table B-1 (and the spike in reversal rates) refers to rulings by BAPs. That would seem to exclude the 11th Circuit, no?

I can't seem to find Table B-5, by the way, Ed. I can find B-1, -2, -3, and -10, but nothing between. And it seems odd that only 110 reversals would had issued in all bankruptcy-related cases in all of 2015. Hmmmm. I wish these darned tables had notes to explain what the headings mean ...

Found B-5 ... The AO's interface is just terrible.

Jason:

I agree that the AO doesn't make it easy to find or understand their data.

I am pretty sure that the reversal rate cited by the AO applies only to cases decided on the merits in the circuit courts. Cases that are terminated based on procedural reasons are reported in an even more obscure table (Table B-5A).

Even though 110 reversals doesn't seem very high, it is the most in a single year since at least 2001 (the annual average of bankruptcy reversals was 56/year between 2001 and 2014.)


Data on activities by the BAPs is reported on Tables BAP-1 and BAP-2. These tables are only compiled for years ending March 31 and September 30th, not by Calendar Year. Also, these BAP tables do not show how many cases were reversed. Therefore, the reversal figures cited in "Just the Facts" probably do not include BAP cases.

Ed

I think summary reversals post-Caulkett would explain this (Caulkett reversed Eleventh Circuit precedent that the bankruptcy courts would have been following until Caulkett).

I think Stern appeals would explain only a tiny fraction of the reversals. I periodically look at opinions citing Stern and I can't even recall a Stern reversal in months.

Don't discount the possibility of random walk as an explanation. Humans are programmed to see patterns where they don't exist and we are overly attentive to what appear to be anomalies, such as a basketball player with a "hot hand" or the opposite.

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