NOTES

The Pros and Cons Behind the First Circuit's Decision to Establish Bankruptcy Appellate Panels and the Growing Question of Whether the Panels Will Last

I.  Introduction

On July 1, 1996, the Judicial Council of the First Circuit signed an order establishing bankruptcy appellate panels (BAPs)⁽¹⁾ to comply with amendments made by the Bankruptcy Reform Act of 1994 (1994 Act).⁽²⁾ The 1994 Act mandated that all circuits establish BAPs⁽³⁾ to hear bankruptcy appeals in place of the district courts, with the consent of all parties.⁽⁴⁾ The panels consist of three bankruptcy judges who are appointed by the circuit council to decide bankruptcy appeals at the first level of review.⁽⁵⁾ Once a case is decided by a BAP, it may be reviewed further by the circuit court of appeals.⁽⁶⁾

Historically, there have been concerns over the constitutionality of bankruptcy courts⁽⁷⁾ and BAPs,⁽⁸⁾ because both still utilize Article I administrative judges as opposed to Article III judicial officers.⁽⁹⁾ Some critics have proposed alternative systems that might avoid these potential constitutional concerns, but none have been implemented by Congress to date.⁽¹⁰⁾ The 1994 Act did, however, create the National Bankruptcy Review Commission to investigate and review issues relating to the Bankruptcy Code.⁽¹¹⁾ This is a significant development, because the Commission's recommendations to Congress may result in a completely different bankruptcy appellate system.⁽¹²⁾ A development such as this could be very damaging to the First Circuit and its new BAPs if a proposed system calls for the removal of BAPs from the appellate process.⁽¹³⁾

This note focuses on the advantages and disadvantages of the First Circuit's addition of bankruptcy appellate panels into its court structure and whether a more effective system might be available through improved legislation. Part II provides a historical overview of the bankruptcy system, including the history of bankruptcy courts and BAPs.⁽¹⁴⁾ Part II.A discusses the history of the 1978 Bankruptcy Reform Act as well as its content.⁽¹⁵⁾ Parts II.B-C explain the landmark case of Northern Pipeline Construction Co. v. Marathon Pipe Line Co.⁽¹⁶⁾ and its impact on the bankruptcy system.⁽¹⁷⁾ Part II.D introduces the 1984 Bankruptcy Amendments and explains how the Act addressed the constitutional issues of Marathon.⁽¹⁸⁾ Then, the more contemporary 1994 Act is discussed at length in Part II.E.⁽¹⁹⁾

Part II.F provides an historical overview of the post-reform developments within the circuits⁽²⁰⁾ while Part II.G explains the origin of the National Bankruptcy Review Commission and its agenda.⁽²¹⁾ Part III.A takes a closer look at the Marathon decision and the remedies provided by the 1984 Act analyzing the constitutionality of bankruptcy courts and BAPs.⁽²²⁾ Part III.B examines the advantages and disadvantages of BAPs,⁽²³⁾ while Part III.C analyzes a split in the courts over the question of whether BAP decisions are binding precedent.⁽²⁴⁾ Part III.D discusses the alternatives available to Congress with regard to the bankruptcy system⁽²⁵⁾ while Part III.E considers how proposed changes could have an impact on the First Circuit and the BAP service.⁽²⁶⁾ Finally, Part IV provides the Author's conclusions based upon the analysis.⁽²⁷⁾

II.  Historical Overview

A.  History of the Establishment of Bankruptcy Appellate Panels (BAPs) and the 1978 Bankruptcy Reform Act

1.  The Bankruptcy Judge

The first substantive bankruptcy laws were designed nearly a century ago with the enactment of the Bankruptcy Act of 1898 (1898 Act).⁽²⁸⁾ The 1898 Act referred to bankruptcy judges as "referees".⁽²⁹⁾ The referees were not thought of as judges and were not salaried officers as they are today.⁽³⁰⁾ Although referees were permitted to decide property related matters,⁽³¹⁾ the majority of bankruptcy cases were decided by federal district or state court judges.⁽³²⁾ The Chandler Act of 1938⁽³³⁾ changed this system and brought referees into a more judicial role,⁽³⁴⁾ eventually leading to the Rules of Bankruptcy Procedure in 1973 where the title of referee was changed to "bankruptcy judge."⁽³⁵⁾

2.  The 1978 Act

The Commission on the Bankruptcy Laws of the United States was created by Congress in 1970 to analyze current bankruptcy laws and recommend needed changes.⁽³⁶⁾ Their report, filed in 1973, led to what is now referred to as the Bankruptcy Reform Act of 1978 (1978 Act).⁽³⁷⁾ The primary purpose of the Act was to modernize the laws of bankruptcy and to provide more efficient bankruptcy procedures.⁽³⁸⁾

The 1978 Act was only the second substantial overhaul in bankruptcy since the inception of the bankruptcy system.⁽³⁹⁾ In the years following the 1938 revision, substantial changes occurred within the system, prompting the need for special attention.⁽⁴⁰⁾ Congress passed the 1978 Bankruptcy Reform Act to address these changes.⁽⁴¹⁾

One of the most significant reforms created by the 1978 Act was the shift in bankruptcy litigation from the state and federal district courts to the revamped bankruptcy courts.⁽⁴²⁾ Under the new bankruptcy court system, bankruptcy judges could exercise jurisdiction over all Title 11 cases, all civil cases arising under Title 11, and any case relating to bankruptcy.⁽⁴³⁾ The United States Bankruptcy Courts were created as "court[s] of record" and were designated as "adjunct[s] to the district court[s] for such district[s]."⁽⁴⁴⁾

3.  The Appeals Process

Another significant reform changed the appellate procedures and gave bankruptcy courts more finality in their decisions,⁽⁴⁵⁾ creating a more typical appellate structure.⁽⁴⁶⁾ Appeals could still be heard by district courts,⁽⁴⁷⁾ but could also be brought in two additional forums.⁽⁴⁸⁾ One choice was through the newly incorporated "Bankruptcy Appellate Panels",⁽⁴⁹⁾ and the other was directly to the court of appeals⁽⁵⁰⁾ if the parties consented to bypass the review by the district court or the BAP.⁽⁵¹⁾

After the 1978 Act passed, only two circuits (the First and the Ninth Circuits) chose to incorporate bankruptcy appellate panels into their appellate structure.⁽⁵²⁾ The panels consisted of three bankruptcy judges who were designated by the chief judge of the circuit.⁽⁵³⁾ Despite these advances, problems with the new bankruptcy court system arose in 1982, partly due to this structure, when the United States Supreme Court decided Northern Pipeline Construction Co. v. Marathon Pipe Line Co.⁽⁵⁴⁾

B. The Marathon Decision

In Marathon, Northern Pipeline, a debtor, had filed Chapter 11 reorganization in Bankruptcy Court.⁽⁵⁵⁾ Subsequently, Northern Pipeline filed a suit in the same court against Marathon, the creditor, for alleged breach of contract and warranty, misrepresentation, coercion, and duress.⁽⁵⁶⁾ Marathon moved for dismissal on the grounds that the 1978 Act "unconstitutionally conferred Article III judicial power" upon Article I judges.⁽⁵⁷⁾

The Court was concerned that judicial power was being exercised by judges who lacked the attributes normally given to Article III judges.⁽⁵⁸⁾ It held that "Article III bars Congress from establishing under its Art[icle] I powers legislative courts to exercise jurisdiction over all matters arising under the bankruptcy laws."⁽⁵⁹⁾ Since the 1978 Act granted bankruptcy courts much broader jurisdiction than the earlier referee system,⁽⁶⁰⁾ the Court found that the bankruptcy courts overstepped their jurisdiction.⁽⁶¹⁾

This broad grant of jurisdiction took Article III power away from the district courts and vested it within a non-Article III adjunct, so the Court held the provisions under 28 U.S.C. § 1471(c) unconstitutional.⁽⁶²⁾ Even though the Court held that bankruptcy judges exercised too much judicial authority, however, it did not hold that an adjunct system comprised of Article I judges was unconstitutional, so long as the district court (Article III judges) retained the essential Article III judicial power.⁽⁶³⁾ The Court did not reach the question of whether BAP appellate jurisdiction (granted by 28 U.S.C. § 1482) was constitutional.⁽⁶⁴⁾

C.  Fallout From Marathon

Due to the Marathon decision, Congress was forced to restructure the bankruptcy courts and certain sections of the United States Code.⁽⁶⁵⁾ In the meantime, upon motion of the Solicitor General, the Supreme Court stayed its judgment until December 24, 1982.⁽⁶⁶⁾ The Court denied a subsequent motion to extend the stay past that date,⁽⁶⁷⁾ but did allow for prospective application so that cases filed before that date could proceed without disruption.⁽⁶⁸⁾

The Judicial Conference adopted an "emergency rule" which would allow for the same essential institutional pattern that existed before the 1978 Act.⁽⁶⁹⁾ Bankruptcy judges were no longer authorized to issue final judgments⁽⁷⁰⁾ in cases which involved claims that were only related⁽⁷¹⁾ to "traditional proceedings."⁽⁷²⁾ The changes in bankruptcy law at the trial court level forced the First and Ninth Circuits to review the question of whether the modifications in the law affected the constitutionality of their BAPs.⁽⁷³⁾

The First Circuit abandoned its BAP structure in 1983.⁽⁷⁴⁾ Ironically, the decision to disband was essentially made by a BAP.⁽⁷⁵⁾ After the holding in Marathon, the circuits' adoption of the emergency rule "had the implicit effect of withdrawing from those panels [BAPs] their earlier conferred authority to hear appeals."⁽⁷⁶⁾ Because bankruptcy judges could no longer hear appeals, the First Circuit concluded that its earlier action, ordering the appointment of the BAPs under 28 U.S.C. § 160, was effectively revoked.⁽⁷⁷⁾

The Ninth Circuit, in a similar case,⁽⁷⁸⁾ addressed the constitutionality of BAPs, but reached an opposite conclusion.⁽⁷⁹⁾ In Briney v. Burley, the Ninth Circuit disagreed with the First Circuit and found that § 1482⁽⁸⁰⁾ had not been struck down, because the section could still be applied in those bankruptcy court cases where judgments were entered before December 24, 1982.⁽⁸¹⁾ The only jurisdiction struck down in Marathon was that of the trial court level of bankruptcy judges.⁽⁸²⁾

The Briney Court's interpretation of Marathon was that judicial functions could be performed by non-Article III officers as long as the "essential attributes of the judicial power" were retained by an Article III judge.⁽⁸³⁾ Since the Court of Appeals retained these "essential attributes" in the appellate process with BAPs, the Ninth Circuit decided that the BAPs are constitutional.⁽⁸⁴⁾ With these justifications in mind, the Ninth Circuit BAPs continued to operate while awaiting follow-up legislation.⁽⁸⁵⁾

D.  The Bankruptcy Amendments and Federal Judgeship Act of 1984

Two years after Marathon was decided, Congress amended the 1978 Act with the passage of the Bankruptcy Amendments and Federal Judgeship Act of 1984 (1984 Act).⁽⁸⁶⁾ The 1984 Act was an attempt to remedy the constitutional issues surrounding bankruptcy judges by amending the legislation in a way that would comply with the holding in Marathon.⁽⁸⁷⁾ Legislators amended the statute and attempted to turn over more control to the district court judges, giving Article III court jurisdiction over adjudication of claims that were based upon state law.⁽⁸⁸⁾ Bankruptcy judges were referred to as "judicial officer[s] of the district court," and bankruptcy courts were referred to as "unit[s] of the district court."⁽⁸⁹⁾

The 1984 Act made a distinction between "core"⁽⁹⁰⁾and "non-core"⁽⁹¹⁾ proceedings in an attempt to separate the pure bankruptcy cases from the cases that were only related to Title 11.⁽⁹²⁾ Bankruptcy judges were given the authority to hear "core" cases and to enter final judgment upon them,⁽⁹³⁾ but for "non-core" cases the situation was different.⁽⁹⁴⁾ The "non-core" proceedings could be heard by the bankruptcy judges who could submit their findings of fact and their conclusions, but a final judgment rested with the district court.⁽⁹⁵⁾

The 1984 Act attempted to reestablish bankruptcy appellate panels as an option for appellate review.⁽⁹⁶⁾ To comply with the holding in Marathon,⁽⁹⁷⁾ it was necessary for Congress to change the earlier legislation concerning BAPs.⁽⁹⁸⁾ The new guidelines allowed the judicial councils of the circuits to establish BAPs for deciding appeals in cases where all parties have consented.⁽⁹⁹⁾ Appeals would only be referred to the Panels in cases where district judges authorize the referral by majority vote,⁽¹⁰⁰⁾ and the court of appeals would have jurisdiction over all appeals where final orders, judgments, and decrees have been entered.⁽¹⁰¹⁾ In addition, the BAPs were only given jurisdiction over cases that had been decided by a bankruptcy judge at the trial level.⁽¹⁰²⁾

The Ninth Circuit maintained their BAPs after the 1984 Act passed, although the procedure had changed somewhat from the previous system.⁽¹⁰³⁾ One interesting modification made by the Ninth Circuit Court was a provision that required parties to "opt-out" in order to avoid transfer to a BAP.⁽¹⁰⁴⁾ The rule was changed from the affirmative "opt-in" consent, because the BAPs were not receiving many cases.⁽¹⁰⁵⁾ A constitutional question was raised regarding this practice because it did not allow for a free and voluntary waiver of personal rights.⁽¹⁰⁶⁾ This new method is more like "jurisdiction by ambush" since the parties must affirmatively revoke consent.⁽¹⁰⁷⁾ The First Circuit elected not to continue with the BAP structure⁽¹⁰⁸⁾ even though the 1984 Amendments allowed for the reestablishment of BAPs.⁽¹⁰⁹⁾

E.  The Bankruptcy Reform Act of 1994

After a series of hearings, committee meetings,⁽¹¹⁰⁾ and commission reports,⁽¹¹¹⁾ H.R. 5116⁽¹¹²⁾ was passed by Congress⁽¹¹³⁾ and presented to President Clinton who signed it on October 22, 1994.⁽¹¹⁴⁾ Officially, the law became known as the Bankruptcy Reform Act of 1994 (1994 Act).⁽¹¹⁵⁾ President Clinton stated that the 1994 Act was "the most broad-based bankruptcy reform measure to be signed into law in 16 years."⁽¹¹⁶⁾ Congress called for broad reform in the area of bankruptcy because it was concerned about the tremendous number of bankruptcy filings in the 1990's and the strain they placed on the system.⁽¹¹⁷⁾ They also wanted to address concerns presented by several "problematic court opinions construing the Bankruptcy Code."⁽¹¹⁸⁾

In light of these goals, the 1994 Act made several changes in the existing law.⁽¹¹⁹⁾ The law, as it relates to bankruptcy judges and their power to enter final judgments in only "core" proceedings and not in "non-core" proceedings, remains unaffected by the 1994 Act.⁽¹²⁰⁾

One major alteration in the 1994 Act, however, was the requirement that judicial councils within a circuit must establish a bankruptcy appellate panel service to decide bankruptcy appeals, in all cases where a party has not opted out.⁽¹²¹⁾ This requirement comes with two exceptions which should be recognized.⁽¹²²⁾ The Judicial Council for each circuit must evaluate (1) whether the circuit has sufficient judicial resources for the establishment of BAPs, and (2) whether implementation would cause "undue delay" upon bankruptcy litigation or heightened cost for the parties involved.⁽¹²³⁾ If either of these circumstances are present, the council may report that finding to the Judicial Conference of the United States⁽¹²⁴⁾ and refuse to implement a BAP service.⁽¹²⁵⁾ If BAPs are accepted by a circuit, the Judicial Council for the circuit may later reconsider its decision and terminate the BAP if it wishes to do so.⁽¹²⁶⁾ One option for those circuits that lack sufficient resources is to seek establishment of a joint BAP with another circuit.⁽¹²⁷⁾

Once BAPs are established in a circuit, they may only hear and determine an appeal if the district judges from that particular district authorize the appeal by a majority vote.⁽¹²⁸⁾ Also, the 1994 Act contains an "opt-out" provision for parties who want to avoid appeals in front of the bankruptcy appellate panels.⁽¹²⁹⁾ This provision resembles the Ninth Circuit pattern which was developed after the 1984 Act.⁽¹³⁰⁾ In situations where BAPs are not in place, or where they are in place and the parties have chosen to opt-out of the BAP process, the appeal will be given to the district court for review.⁽¹³¹⁾

The cases that are to be heard by BAPs will be presented to a three-judge panel comprised of bankruptcy judges from districts within the circuit.⁽¹³²⁾ The judges on the panel, however, may only hear cases that did not originate in the district for which the judges are normally assigned.⁽¹³³⁾ A final decision, judgment, order, or decree by a BAP may only be appealed in the court of appeals for the circuit, and will proceed according to Rule 8002 of the Bankruptcy Rules.⁽¹³⁴⁾

F.  Post-Reform Developments

Following the latest reform act, the Judicial Council for the First Circuit (Council) began working on a plan to re-establish a BAP for the first time since they abolished it in 1983.⁽¹³⁵⁾ The Council developed operating procedures for the panel and regulations governing the selection of judges for the BAP.⁽¹³⁶⁾ On July 1, 1996, the First Circuit Judicial Council signed the official order establishing the BAP in the circuit.⁽¹³⁷⁾

The system was implemented in every district in the circuit.⁽¹³⁸⁾ The Council appointed eight bankruptcy judges⁽¹³⁹⁾ to serve for staggered four-year terms, which are renewable at the discretion of the Council upon application.⁽¹⁴⁰⁾ An office for the clerk of the First Circuit BAPs has been established in Boston, Massachusetts.⁽¹⁴¹⁾ The caseload for bankruptcy appeals in the First Circuit may be as high as 200 cases in the first year of service.⁽¹⁴²⁾ The First Circuit made administrative preparations for the prospective caseload by appointing a clerk and several support personnel.⁽¹⁴³⁾

Several other circuits have reviewed the BAP requirements and the results have been mixed.⁽¹⁴⁴⁾ The Judicial Councils for the Second⁽¹⁴⁵⁾ and Tenth⁽¹⁴⁶⁾ Circuits decided to implement the BAP system and they became operable on July 1, 1996.⁽¹⁴⁷⁾ The Sixth⁽¹⁴⁸⁾ and Eighth⁽¹⁴⁹⁾ Circuits started operational BAPs on January 1, 1997.⁽¹⁵⁰⁾ The only other circuit that is presently operating a BAP is the Ninth Circuit.⁽¹⁵¹⁾ Since 1979, when the panel was implemented,⁽¹⁵²⁾ the Ninth Circuit BAP and its statistical information have been a useful model for research by other circuits.⁽¹⁵³⁾ The Third, Fourth, Fifth, Eleventh, and D.C. Circuits have decided against BAPs due to "insufficient judicial resources."⁽¹⁵⁴⁾ The Seventh Circuit also rejected the plan to establish a BAP, but said it would revisit the option again in the near future.⁽¹⁵⁵⁾

G.  The National Bankruptcy Review Commission

The Bankruptcy Reform Act of 1994 created an additional entity which may have a severe effect on the future of BAPs.⁽¹⁵⁶⁾ The National Bankruptcy Review Commission (Commission) was established in 1994 by Congress for the purpose of investigation and review of issues and difficulties relating to the Bankruptcy Code.⁽¹⁵⁷⁾ One of the Commission's duties was to prepare a report for submission to Congress, the President, and the Chief Justice of the U.S. Supreme Court.⁽¹⁵⁸⁾ The report contains an evaluation of the problems and concerns in the realm of bankruptcy and proposals for improvements for the system.⁽¹⁵⁹⁾

The Commission was made up of nine members who were appointed by the President, the Senate, the House of Representatives, and the Chief Justice of the Supreme Court.⁽¹⁶⁰⁾ Their agenda consisted of a wide variety of issues, but it was made clear that the paramount interest was the analysis of the bankruptcy court appellate structure.⁽¹⁶¹⁾ The issue was so vital that the Commission's first adopted proposal was the reconfiguration of the bankruptcy appellate structure.⁽¹⁶²⁾

The Commission recommended to Congress that bankruptcy judges' decisions should be directly appealed to the circuit courts of appeals, thus bypassing the current first level of appeal.⁽¹⁶³⁾ As a result, district courts and BAPs would no longer be utilized in the appeal process for bankruptcy cases. The larger issue here is that BAPs are unequivocally being jeopardized by these recommendations.⁽¹⁶⁴⁾

III.  Analysis

A.  Constitutional Concerns

In 1983, the First Circuit Bankruptcy Appellate Panels were found to be unconstitutional after a First Circuit BAP concluded that 28 U.S.C. § 1482 unconstitutionally vested Article III judicial powers in an Article I court.⁽¹⁶⁵⁾ If the BAPs are to survive again today, they must pass constitutional muster under Marathon.⁽¹⁶⁶⁾ There are mixed views as to whether the 1984 Amendments cured the constitutional problems introduced by Marathon.⁽¹⁶⁷⁾ To understand these views and weigh the constitutionality of the BAPs, it is important to first understand exactly what the Marathon Court decided.⁽¹⁶⁸⁾

1.  Marathon Revisited

The scope of the Marathon decision is a controversial and sometimes confusing subject due to the lack of a majority opinion.⁽¹⁶⁹⁾ The disagreement stems from the applicability of the plurality's reasoning when viewed in combination with the limited concurring opinion.⁽¹⁷⁰⁾ The plurality⁽¹⁷¹⁾ concentrated on the broad issue of whether the 1978 Bankruptcy Reform Act violated Article III by conveying "the essential attributes of Article III judicial power" to judges who were not under the command of Article III.⁽¹⁷²⁾ The plurality determined that adjunct fact finders may be used in the adjudication of constitutional rights, but in Marathon, the adjunct bankruptcy court was not subject to ample control by the Article III district court.⁽¹⁷³⁾

The concurring opinion⁽¹⁷⁴⁾ is much more limited and narrow in its analysis. The emphasis is placed solely upon the facts of the case and the bankruptcy judges' power to adjudicate claims which are based upon state law.⁽¹⁷⁵⁾ The concurrence decided that bankruptcy judges, as a legislative or Article I court, could not adjudicate state based causes of action, because, constitutionally, the jurisdictional grant of judicial power was one that could only be exercised by an Article III court.⁽¹⁷⁶⁾ Jurisdiction over the adjudication of "causes of action that are purely local in origin and arise by virtue of state law completely independent of any Title 11 proceeding" is a judicial function under the constitution.⁽¹⁷⁷⁾ Thus, although the concurring Justices disagreed with the plurality's reasoning, they did agree upon the fact that the 1978 Act was unconstitutional in that the broad grant of authority to the bankruptcy courts could not be severed from the defective portion.⁽¹⁷⁸⁾ In short, Marathon determined "that the bankruptcy judge cannot adjudicate the state claims, and further, that the bankruptcy judge could only provide narrowly circumscribed assistance as an adjunct or magistrate to Article III courts."⁽¹⁷⁹⁾

2.  The Bankruptcy Amendments and Federal Judgeship Act of 1984 (1984 Act) Corrects the Marathon Dilemma.

In the 1984 Act,⁽¹⁸⁰⁾ Congress made several changes to cure the statutory flaws articulated by Marathon.⁽¹⁸¹⁾ Bankruptcy court jurisdiction was the primary issue addressed in the Act.⁽¹⁸²⁾ Congress granted the district court "original and exclusive jurisdiction of all cases under title 11" and "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11."⁽¹⁸³⁾ This gave the district courts control over who hears certain cases.⁽¹⁸⁴⁾ It was important that Congress increase the "`control'" of the district courts over bankruptcy courts and its cases to avoid Marathon-type dilemmas.⁽¹⁸⁵⁾ A significant part of the statutory change of jurisdiction is section 157, which provides that district courts may refer bankruptcy cases to bankruptcy courts, but does not require them to do so.⁽¹⁸⁶⁾ This is symbolic because it is the district court that retains jurisdiction and control over bankruptcy matters instead of the bankruptcy court.⁽¹⁸⁷⁾

To further cure jurisdictional issues, section 157 separates cases into two separate categories: "core" and "non-core."⁽¹⁸⁸⁾ The distinction between them is that bankruptcy judges may hear and enter final judgments in "core"⁽¹⁸⁹⁾ proceedings, but may only hear and "submit proposed findings of fact and conclusions of law" in "non-core" proceedings.⁽¹⁹⁰⁾ This is significant in viewing the constitutionality of bankruptcy courts, because the statute forbids final judgments by bankruptcy judges, absent consent,⁽¹⁹¹⁾ on all "non-core" issues⁽¹⁹²⁾ (such as the "related" state-law based issue in the Marathon case).⁽¹⁹³⁾ One potential problem with the bankruptcy system is that bankruptcy judges are given the responsibility of determining which cases are core and which are non-core.⁽¹⁹⁴⁾ The dilemma is that the non-Article III bankruptcy judge is deciding "which proceedings constitutionally require an Article III forum."⁽¹⁹⁵⁾ For the present time, however, the Supreme Court appears to be "satisfied with the constitutionality of the current bankruptcy system."⁽¹⁹⁶⁾

3.  Constitutionality of BAPs

In analyzing whether BAPs are constitutional under present law, it is important to consider the factors that led to its abandonment in the early 1980's. The First Circuit BAP in Dartmouth House ruled that BAPs were unconstitutional, because they were non-Article III courts hearing appeals (thus hearing the same broad issues) from lower non-Article III courts, whose jurisdiction was found to be impermissible under Marathon.⁽¹⁹⁷⁾ Therefore, if congressional statutes were restructured in a way that constitutionally permitted bankruptcy trial courts to make final judgments upon core cases, as the 1984 Act did,⁽¹⁹⁸⁾ then it should follow that appellate review by BAPs is constitutionally permissible.⁽¹⁹⁹⁾

Several other constitutional concerns were raised by a U.S. District Court Judge, who believed that BAPs are unconstitutional.⁽²⁰⁰⁾ In a law review article, Judge Thomas A. Wiseman reviewed the Burley dissent⁽²⁰¹⁾ and made several constitutional observations.⁽²⁰²⁾ First, he was concerned with the fact that some BAP decisions may not be appealed and would therefore escape any Article III judicial review.⁽²⁰³⁾ The Burley dissent to which Wiseman refers, notes that Article III requires two components: "[1] an individual rights component concerned with the litigants right to an independent and unbiased judge and [2] an institutional component designed to ensure the separation and independence of the judiciary."⁽²⁰⁴⁾ Both requirements are satisfied when the "`essential attributes of the judicial power' are retained by Article III judges."⁽²⁰⁵⁾

The majority in Burley ruled that BAPs are actually adjuncts to the court of appeals, and that, with this relationship, the appeals court retains the "essential attributes of judicial power" over BAPs.⁽²⁰⁶⁾ Thus Article III requirements are satisfied regardless of whether the appeals court reviews the case because the opportunity for appeal is present under statutory authority.⁽²⁰⁷⁾

Another way of analyzing the so-called "`absence of direct Article III scrutiny over [] individual case[s]'"<sup>(208)</sup> is to view the scope of Article III review from an administrative law perspective in light of two Supreme Court decisions.<sup>(209)</sup> In Thomas v. Union Carbide Agric. Prods. Co.,<sup>(210)</sup> the court held that Congress may act pursuant to its powers under Article I "to vest decision making authority in tribunals that lack the attributes of Article III courts."<sup>(211)</sup> It went on to say that "`[neither] this Court nor Congress has read the Constitution as requiring every federal question arising under the federal law . . . to be tried in an Article III court before a judge enjoying life tenure and protection against salary reduction.'"⁽²¹²⁾ The Court noted that the Congressional Act (FIFRA) in Union Carbide limited review of arbitration proceedings by an Article III court, but did not preclude them.⁽²¹³⁾ The judicial function, therefore, was still appropriately secured by Article III courts and thus was a constitutional provision.⁽²¹⁴⁾

The Union Carbide case demonstrates that "preserving review of constitutional compliance goes a long way towards satisfying the requirements of Article III."⁽²¹⁵⁾ Therefore, since an Article III court of appeals may review and scrutinize BAP decisions under the authority of a congressional statute, constitutional requirements should be fulfilled.⁽²¹⁶⁾

The second case, Commodity Futures Trading Commission v. Schor,⁽²¹⁷⁾ enhances the Union Carbide decision by further analyzing the scope of the requirements of Article III.⁽²¹⁸⁾ In doing so, the Court examines the purposes behind the establishment of Article III section 1.⁽²¹⁹⁾ The Court states that "Article III, § 1, serves both to protect `the role of the independent judiciary within the constitutional scheme of tripartite government,' and to safeguard litigants' `right to have claims decided before judges who are free from political domination by other branches of government.'"⁽²²⁰⁾ If both of these directives are met in the congressional delegation of power, then Article III is not violated.⁽²²¹⁾

The first of the protections, the guarantee of an independent federal adjudication, is interpreted as a guarantee to protect personal interests over structural interests.⁽²²²⁾ This protection may be waived by the parties in a claim because it is a personal right.⁽²²³⁾ In all circumstances, parties have the opportunity to waive the right to an adjudication by a BAP. Therefore, personal interests are protected under the Code.⁽²²⁴⁾

The second protection, which deals with the system of checks and balances and separation of powers, cannot be cured by consent, because it is a principle of structure.⁽²²⁵⁾ The Schor Court, however, looked beyond the form of the organization to the substance of the congressional decision that established the Code.⁽²²⁶⁾ The Court's reasoning was that the agency only dealt with a narrow "`particularized area of law'" with limited jurisdiction and did not "exercise `all ordinary powers of district courts.'"⁽²²⁷⁾ In Schor, the court compared the agency structure to the unconstitutional agency (bankruptcy courts) found in Marathon and distinguished it on three separate issues.⁽²²⁸⁾ The Schor Court upheld the CFTC structure, but would have found an agency similar to the pre-Marathon bankruptcy courts unconstitutional.⁽²²⁹⁾ The 1984 Act, however, made several changes in bankruptcy court and BAP structure.⁽²³⁰⁾ These changes have altered the bankruptcy court structure in such a way that they are much more similar to the agency structure upheld in Schor.⁽²³¹⁾

Judge Wiseman's next argument is that BAPs are unconstitutional because they may hear and rule upon interlocutory orders, which are unappealable at the circuit level.⁽²³²⁾ According to Judge Wiseman, the absense of appellate review leaves judicial power in the hands of a non-Article III court.⁽²³³⁾ The Burley Court confronted this issue and stated that the question was not constitutionally significant because "[t]he court of appeals retains sufficient control over the BAPs, notwithstanding the court's inability to hear interlocutory appeals."⁽²³⁴⁾

The last potential constitutional problem with BAPs is the so-called "opt-out" rule.⁽²³⁵⁾ This rule refers to 28 U.S.C. § 158(c)(1), which advises that a party may avoid BAP review by affirmatively waiving their right.⁽²³⁶⁾ The potential problem arises because the party must take an affirmative step to avoid review by the non-Article III court.⁽²³⁷⁾ It seems clear, however, that the language in the statute provides for adequate notice to those who become a party to a case for review by a BAP. If a party chooses to ignore the opt-out warning, they are in fact giving an express consent.⁽²³⁸⁾

Generally, it seems as though the major constitutional issues surrounding bankruptcy courts and BAPs are resolved for the time being.⁽²³⁹⁾ Both BAP and bankruptcy court structures appear to comply with the requirements of Article III and Marathon.⁽²⁴⁰⁾

B.  The Pros and Cons of Adopting Bankruptcy Appellate Panels

There are distinct advantages and disadvantages for the First Circuit and other circuits that implement the BAP system.⁽²⁴¹⁾ A cost/benefit analysis is necessary in order to decide whether BAPs are the wise choice.⁽²⁴²⁾

1.  Advantages of BAPs

The primary advantages of utilizing BAPs are: (1) reduction in appellate court workload, (2) higher-quality decisions, and (3) the development of a dependable body of case law.⁽²⁴³⁾ Each of these will be discussed separately.

BAPs may reduce the workloads of both the district courts and the court of appeals.⁽²⁴⁴⁾ The district courts have a reduced amount of cases to decide, because each case that is heard by a BAP is one less case that the district court must decide.⁽²⁴⁵⁾ Nevertheless, Judge Wiseman theorizes that the reduction in workload would not be significant because judges in the district courts hear very few bankruptcy cases on a yearly basis, even without the use of BAPs.⁽²⁴⁶⁾

BAPs might reduce circuit judges' workloads as well, because panel decisions are appealed less often than district court decisions.⁽²⁴⁷⁾ One explanation for this phenomenon may be that there is an increased level of attorney confidence in BAP decisions as opposed to district court decisions.⁽²⁴⁸⁾ Another explanation for the lower appeal rate could be that BAP's are reversed less often than District Courts, so parties are less inclined to pay for an appeal.⁽²⁴⁹⁾

Another advantage to having panels decide bankruptcy appeals is the idea that decisions made by the BAPs will be of higher quality than if the district courts were to decide them.⁽²⁵⁰⁾ The rationale is that bankruptcy is a highly technical and specialized field, so bankruptcy judges are more uniquely qualified to deal with these cases.⁽²⁵¹⁾ Attorneys working in the field of bankruptcy believe that BAPs are more likely to correctly decide a complex case than a district court, partly because BAPs give closer study to the appeals.⁽²⁵²⁾ More than half of the attorneys surveyed would prefer to litigate bankruptcy appeals before a BAP.⁽²⁵³⁾

The quality issue can be broken down into a simpler analysis of "specialist versus generalist courts."⁽²⁵⁴⁾ Some say that generalist judges, who possess broad jurisdiction and experience outside of bankruptcy, have adequate resources and experience to deal with bankruptcy litigation.⁽²⁵⁵⁾ A specialized appellate court, therefore, is not needed to decide these issues that a district court could decide.⁽²⁵⁶⁾ Proponents would disagree based on the premise that bankruptcy can be extremely complex, and that it would be impractical to compare a district judge's expertise to that of a BAP judge, who works in bankruptcy on a daily basis.⁽²⁵⁷⁾

The last primary advantage enunciated by BAP advocates is the notion that BAPs provide a dependable body of bankruptcy case law.⁽²⁵⁸⁾ It is believed by some that BAPs will create a "predictable and coherent body of bankruptcy law."⁽²⁵⁹⁾ Others believe that BAPs have little, if any, precedential value.⁽²⁶⁰⁾ The issue regarding the binding effect of BAPs will be discussed at length in Part III.C.

2.  Disadvantages of BAPs

Some potential disadvantages of creating BAPs are apparent as well.⁽²⁶¹⁾ The disadvantages are the lack of speed and efficiency of case disposition, increased administrative costs, and the questionable constitutionality of BAPs.⁽²⁶²⁾

Some BAP advocates would suggest that BAPs provide more expeditious case handling because they only deal with one area of law.⁽²⁶³⁾ Judge Cyr of the First Circuit Court of Appeals is one advocate of BAPs who suggests that panels are "more expeditious[,]" because "district court dockets tend to be `more crowded than a BAP docket would be' and that the panel site may be more convenient to the parties than the district court."⁽²⁶⁴⁾ However, evidence has shown that BAPs actually delay the process and have a longer disposition time.⁽²⁶⁵⁾

Another disadvantage of BAPs, and the two-layer appeal process in general, is that the system is wasteful.⁽²⁶⁶⁾ A litigant in a bankruptcy case "has access to more appeals than a criminal defendant, a tax litigant, a tort victim or almost anyone else in the federal system."⁽²⁶⁷⁾ This wastefulness results in increased operating costs, as well as the needless costs to the parties.⁽²⁶⁸⁾ The consequence is that the party with the greatest resources has a considerable advantage over the other who might not be able to withstand an expensive appeal process.⁽²⁶⁹⁾

Aside from the argument that the two-layer system is wasteful, one could argue that BAPs are wasteful, because they pay three judges to do what one judge has done in the past.⁽²⁷⁰⁾ Each panel consists of three bankruptcy judges, so for a single appeal the administrative personnel costs are tripled.⁽²⁷¹⁾ These costs must then be combined with the operational expenses, such as office space and equipment, additional office personnel, travel expenses, and miscellaneous hidden costs to calculate total expenses.⁽²⁷²⁾

3.  BAP Application Within the Circuits

The question then becomes whether the number of First Circuit bankruptcy appeals justifies the additional expense imposed by the BAPs.⁽²⁷³⁾ Statistically, the First Circuit has an average of 238 bankruptcy appeals per year, which is the lowest number in the country.⁽²⁷⁴⁾ Districts within the Seventh Circuit, which have a greater number of appeals on average than the First Circuit, decided not to implement BAPs in 1995.⁽²⁷⁵⁾ One rationalization offered by judges in the Seventh Circuit was that the BAP system was not efficient, and the current system was already functioning well.⁽²⁷⁶⁾

Despite the known costs, however, the Second Circuit has implemented the BAP system in three districts.⁽²⁷⁷⁾ With these mixed results, it seems difficult to speculate why the system is thought to be more efficient in one circuit than another. A rational observer might conclude that a circuit with a lower number of appeals, such as the First Circuit,⁽²⁷⁸⁾ would be less likely to have need for a BAP since less cases are present. If BAPs are found to be unconstitutional for any reason, this could certainly constitute a disadvantage.⁽²⁷⁹⁾ Nevertheless, as discussed in Part III.A, it is unlikely that BAPs will be found to be unconstitutional absent any legislative alterations.⁽²⁸⁰⁾

C.  Are BAP Decisions Binding?

One important, yet inconsistent issue that has not been addressed by Congress, the U.S. Circuit Courts, or the Supreme Court is the question of stare decisis as it relates to bankruptcy law.⁽²⁸¹⁾ The U.S. Constitution permits Congress to establish "uniform Laws on the subject of Bankruptcies throughout the United States."⁽²⁸²⁾ The current configuration of the bankruptcy appellate structure, however, has produced contrary results.⁽²⁸³⁾

There have been a wide range of decisions entered in the Ninth Circuit with regard to the precedential effect of BAP and district court decisions on bankruptcy courts.⁽²⁸⁴⁾ Some courts have decided that neither district court decisions⁽²⁸⁵⁾ nor BAP decisions are binding.⁽²⁸⁶⁾ Others courts have announced that BAP decisions have stare decisis effect.⁽²⁸⁷⁾ The uncertainty and inconsistency in decisions regarding this issue of stare decisis is disturbing, because if BAP decisions are not binding on all bankruptcy courts in a circuit, then BAPs will not serve their intended purpose of developing a uniform body of bankruptcy law.⁽²⁸⁸⁾ "[A] uniform view of precedent in the bankruptcy system is necessary for efficient adjudication and development of bankruptcy law."⁽²⁸⁹⁾

The legal concept of "[s]tare decisis is a logical imperative of the BAP and district court law-declaring role."⁽²⁹⁰⁾ Unless the bankruptcy courts "are obliged to follow the rules announced by the appellate courts in deciding future cases, those courts are engaged in a meaningless abstract function."⁽²⁹¹⁾ In addition, the system is wasteful,⁽²⁹²⁾ because absence of stare decisis encourages needless, costly, and time-consuming appeals.⁽²⁹³⁾ Stare decisis only discourages appeals when "litigants have reason to believe that the reviewing court will adhere to its prior decisions."⁽²⁹⁴⁾ With the inconsistency in decisions on whether or not BAP decisions are binding precedent, there is no reason to believe that courts will adhere to foregoing opinions and discourage appeal.⁽²⁹⁵⁾

The precedent issue may rest on the question of whether BAPs are actually units of the circuit court of appeals, as opposed to being adjuncts of the district courts.⁽²⁹⁶⁾ If BAPs are units of a circuit court, then a BAP "decision is binding authority on all lower courts, just as any other circuit court's authority is binding on lower courts."⁽²⁹⁷⁾ In other words, a "[r]eferral of [a] bankruptcy appeal to [a] Bankruptcy Appellate Panel (BAP) is a referral to [the] circuit court, which in turn refers [the] appeal to [the] BAP as its adjunct."⁽²⁹⁸⁾

One legal scholar rejected the notion that BAPs were units of the circuit court because "it makes more sense to view the BAP as a unit of the district court."⁽²⁹⁹⁾ His reasoning is based on the fact that, under the current statutory scheme,⁽³⁰⁰⁾ BAPs may hear bankruptcy appeals only at the request of the district court.⁽³⁰¹⁾ After authorization by the district court, with a majority vote, the BAP may sit in place of the district court to decide appeals.⁽³⁰²⁾ Because BAPs are doing the work of the district courts, it would make sense to consider BAPs as units of the district courts.⁽³⁰³⁾ If BAPs are, in fact, the equivalent to the district court, "then BAP decisions would not bind the bankruptcy courts, since the district court (and its `unit,' the BAP) is not a higher court than the bankruptcy court."⁽³⁰⁴⁾

This conclusion seems to be contrary to congressional intent, because "[t]here is every reason to infer that Congress intended that these appellate decisions bind the bankruptcy courts."⁽³⁰⁵⁾ The Ninth Circuit Court in Bank of Maui v. Estate Analysis, Inc.⁽³⁰⁶⁾ elected not to address this issue, but Judge O'Scannlain's concurring opinion indicated that there was a need for BAP precedent.⁽³⁰⁷⁾ Judge O'Scannlain suggested that the Judicial Council adopt an order "requiring that Bankruptcy Appellate Panel (BAP) decisions [] bind all of the bankruptcy courts in the circuit,"⁽³⁰⁸⁾ but such an order was apparently never adopted.⁽³⁰⁹⁾

If bankruptcy courts are not compelled in some way to follow the guidance of the appellate courts, then "those courts are engaged in a meaningless, abstract function."⁽³¹⁰⁾

[S]tripping the BAP of its ability to make precedents leads one to question the BAPs institutional role as an expert appellate panel. If the BAP cannot assist in the orderly and coherent development of bankruptcy law, it serves no function beyond case-by-case error-correction, a function the federal district court can serve at less cost.⁽³¹¹⁾

Therefore, circuits should allow the BAPs to "meaningfully fulfill their law-making and doctrine developing function" by binding lower courts.⁽³¹²⁾ Since there is presently no case law decided on this issue in the First Circuit, the courts might look to the First Circuit Judicial Council to implement an order similar to that which was suggested by Judge O'Scannlain.⁽³¹³⁾

D.  Congressional Alternatives for the Future of the Bankruptcy System

The Bankruptcy Reform Act of 1994 provided for the establishment of the National Bankruptcy Review Commission.⁽³¹⁴⁾ The Commission's goal was to analyze the bankruptcy system and recommend to Congress, the President, and the Chief Justice improvements that would optimize the system.⁽³¹⁵⁾ With this goal in mind, the Commission must review the current bankruptcy appellate scheme and determine whether a more advantageous system is available.⁽³¹⁶⁾ The Commission's report will be submitted no later than October 20, 1997.⁽³¹⁷⁾ There are at least three possible alternative appellate systems that the Commission could recommend to Congress for consideration.⁽³¹⁸⁾ Each will be discussed separately along with possible variations that could be considered.⁽³¹⁹⁾

1.  A Federal Bankruptcy Appeals Court

One proposal for change is to establish a Federal Bankruptcy Appeals Court.⁽³²⁰⁾ This type of system would permit a single Federal Appeals Court, similar to the circuit courts of appeals, to hear all decisions of district court and bankruptcy judges in bankruptcy cases.⁽³²¹⁾ This type of structure would eliminate the need for appellate review by BAPs, district courts, and circuit courts of appeal.⁽³²²⁾ A Federal Bankruptcy Appeals Court would provide a coherent and dependable body of case law on a national level more expeditiously than the existing twelve regional appeals courts.⁽³²³⁾

There are a couple variations of this system which may be viable alternatives as well. First, bankruptcy courts could separate from the district courts altogether and become a separate court system.⁽³²⁴⁾ Bankruptcy courts could remain Article I and attach to an Article III bankruptcy appellate division (or possibly a BAP) that would take the place of the district courts in bankruptcy cases within each circuit.⁽³²⁵⁾ "Under this structure, the bankruptcy courts would become adjuncts of the bankruptcy appellate court, deriving their authority by delegation from the bankruptcy appellate court rather than the district courts."⁽³²⁶⁾ The appellate courts would exercise the same authority that district courts do in the current system, so district courts would be free from bankruptcy caseloads.⁽³²⁷⁾ This structure, however, would not totally eliminate the need for review by the circuit court of appeals because the circuit court would review the appellate court's decisions en banc when conflicts arise between the closely related areas of commercial law and bankruptcy law.⁽³²⁸⁾

Another variation would be to expand the Federal Circuit Court of Appeals, as opposed to making a new federal court, and routing all bankruptcy appeals to the single federal court.⁽³²⁹⁾ The plan would require an additional nine or ten judges on the Federal Circuit Court, but those Article III judges would not be specialized in bankruptcy.⁽³³⁰⁾ They would be generalist judges just as the current Federal Circuit Court judges are.⁽³³¹⁾ This may not be as advantageous as the Federal Bankruptcy Appeals Court idea because, unlike the specialized judges, the judges in the Federal Circuit Court are not experts in the field of bankruptcy.⁽³³²⁾ The Federal Circuit Court proposal, however, would have a cost advantage because it would be less expensive to fit bankruptcy appeals into an existing system rather than creating a new one.⁽³³³⁾

Each of these potential structures have the benefits of uniformity and efficiency, because each could provide effective means for the development of needed substantive bankruptcy law.⁽³³⁴⁾ Nevertheless, some scholars feel that the costs of these types of structures might outweigh the benefits.⁽³³⁵⁾

2.  Article III Status For Bankruptcy Courts

The Commission could propose Article III status for bankruptcy judges, giving them judicial independence from the district courts.⁽³³⁶⁾ The Article III issue is an unstable element in the legal system, as it relates to bankruptcy judges, so to meet society's demands for stability, the Commission should consider the question.⁽³³⁷⁾ This concept is far from original. Ever since the House of Representatives recommended to include it in the Bankruptcy Reform Act of 1978, this idea has been extremely controversial.⁽³³⁸⁾ The plan was never incorporated into the 1978 Act because the Senate rejected it.⁽³³⁹⁾ Nonetheless, granting Article III status would once and for all "resolve any constitutional concerns raised in Northern Pipeline v. Marathon."⁽³⁴⁰⁾

With Article III status, bankruptcy courts could decide all bankruptcy cases, both core and non-core, without doubt as to the court's constitutionality, and would free the district courts from bankruptcy caseloads.⁽³⁴¹⁾ Under the present system, bankruptcy judges already appear to be exercising the powers given to the United States judicial branch, so it would make sense to bestow Article III status upon bankruptcy judges.⁽³⁴²⁾

Once bankruptcy judges receive Article III status, BAPs would then become Article III tribunals as well, since BAPs are comprised of bankruptcy judges.⁽³⁴³⁾ An Article III BAP structure would be beneficial, because it would help to "create a body of uniform bankruptcy law with precedential value within the circuits."⁽³⁴⁴⁾ By creating stare decisis, BAPs may progress toward the ultimate constitutional goal of establishing "uniform Laws on the subject of Bankruptcies throughout the United States."⁽³⁴⁵⁾ In addition, the system would be less wasteful than the current system.⁽³⁴⁶⁾ The primary roadblock to this proposal may be the United States Judicial Conference, which has strongly opposed the idea of Article III status for bankruptcy judges.⁽³⁴⁷⁾

3.  Direct Appeal to the Court of Appeals

On June 21, 1996, the National Bankruptcy Review Commission announced that its first recommendation to Congress in late 1997 would be the elimination of the first layer of bankruptcy appellate review.⁽³⁴⁸⁾ The Commission unanimously adopted the plan which proposes a direct appeal from the bankruptcy courts to the U.S. courts of appeals.⁽³⁴⁹⁾ Obviously, implementation of this plan would bypass any need for appellate review by the district courts, or the BAPs, and would effectively eradicate the newly implemented BAPs.⁽³⁵⁰⁾ District courts, however, would not be totally out of the loop because direct appeal would not eliminate the hearing of non-core cases by the district court at trial level.⁽³⁵¹⁾ "`[C]ost and efficiency'" were the primary reasons cited for the change.⁽³⁵²⁾ It is believed that lack of stare decisis in the lower appellate courts (BAPs and district courts) multiplies appeals because litigants are more likely to bring an appeal if there is no set precedent.⁽³⁵³⁾ These additional superfluous appeals are costly both to the system and the parties involved.⁽³⁵⁴⁾ Accordingly, direct appeals to the Circuit Court of Appeals can avoid these problems since circuit court opinions establish binding precedent and will only require the cost of one appeal as opposed to two.⁽³⁵⁵⁾

Constitutionally, the proposed structure may intensify the current Article III concerns with regard to the bankruptcy courts because the "level of control currently exercised by the bankruptcy courts will become more evident if the appeals are taken to the courts of appeals."⁽³⁵⁶⁾ In essence, the Article I bankruptcy courts might appear more independent if district courts lose the right to review bankruptcy court opinions.⁽³⁵⁷⁾ Still, as articulated in Part III.A.3,⁽³⁵⁸⁾ recent Supreme Court decisions⁽³⁵⁹⁾ have demonstrated that the "Court's somewhat flexible approach to the scope of Article III adopted since Marathon, makes it clear that the elimination of the first layer of bankruptcy appellate review does not affect the propriety of a non-Article III bankruptcy court."⁽³⁶⁰⁾ Therefore, regardless of the proposed changes in the structure, the constitutional requirements are satisfied at the trial level.⁽³⁶¹⁾ "To the extent that the current bankruptcy system is constitutionally sound, the Proposal is constitutionally sound."⁽³⁶²⁾

One major negative effect that direct review may have, if implemented, is the increased burden on the circuit courts of appeals.⁽³⁶³⁾ By eliminating the first level of review, all bankruptcy appeals will be sent to the circuit courts.⁽³⁶⁴⁾ Statistics show that circuit court bankruptcy caseloads will increase from three percent of all appeals filed in the circuits to seven percent.⁽³⁶⁵⁾ These percentages may become increasingly dramatic in the future because bankruptcy filings are on the rise, and in 1996 bankruptcy filings surpassed the one million mark.⁽³⁶⁶⁾ This figure represents more than double the bankruptcy filings in 1986, only ten years prior.⁽³⁶⁷⁾ With circuit court dockets already growing at an enormous rate, it seems that the circuit courts need to identify alternative mechanisms that will reduce their caseloads, not increase them.⁽³⁶⁸⁾

Chief Justice Rehnquist points out that historically "the nation has looked to the federal courts to handle a larger and larger proportion of society's problems[,]" and this trend has led to an overburdening and clogging of the system.⁽³⁶⁹⁾ Between 1960 and 1990, the filing of appeals in the circuit courts of appeals increased by an incredible 1081%, while during the same time period the country's population only increased by approximately 35%.⁽³⁷⁰⁾ Trend projections have shown that the number of appeals filed in the federal courts will increase immensely in the near future, and will overwhelm the system if changes are not made.⁽³⁷¹⁾ Throughout the years, several proposals for revision of the federal system have been discussed, but none have been implemented.⁽³⁷²⁾ The circuit court caseloads may even have a profound effect on the Supreme Court's ability "to maintain national uniformity and coherence in federal law."⁽³⁷³⁾ The burden on the circuit courts may certainly be increased by direct review,⁽³⁷⁴⁾ so the question is whether it would be wise to attach additional burden to an already overburdened federal system.

E.  Impact on the First Circuit

Since their implementation on July 1, 1996, BAPs have had a positive impact on the First Circuit.⁽³⁷⁵⁾ They have provided a quick and inexpensive option, which benefits both the legal community and the judicial branch of the federal government.⁽³⁷⁶⁾ During its first six months in operation, the First Circuit BAPs had a higher number of appeals than initially expected by circuit administrators.⁽³⁷⁷⁾ This demonstrated that the legal community had confidence in the new system and would utilize its improved services, thus freeing up the district court dockets from a number of cases that would have been filed in the district court in the absence of the panels.⁽³⁷⁸⁾

The BAP Clerk for the First Circuit, Marcia C. Martin, was pleased by the speed of the BAP process as compared to the district court processing time for bankruptcy appeals.⁽³⁷⁹⁾ She indicated that in bankruptcy cases, time is of the essence due to the fast moving nature of bankruptcy situations.⁽³⁸⁰⁾ The BAP is easily accessible when needed for emergency orders and can act very quickly in those cases;⁽³⁸¹⁾ whereas the district courts and the circuit courts may not be as readily accessible because of their caseloads.⁽³⁸²⁾

The BAPs in the First Circuit were established at a minimal cost, especially in light of the amount of work diverted from the district courts.⁽³⁸³⁾ However, if a plan is approved to send all bankruptcy appeals to the circuit court of appeals and thereby call for the abolishment of BAPs, the costs will have been wasted and the First Circuit will be detrimentally affected.⁽³⁸⁴⁾ In some respects, the First Circuit Court of Appeals will be hit the hardest of any circuit under the direct review proposal.⁽³⁸⁵⁾ As illustrated in Table 1, in 1995 approximately two percent of all appeals heard in the First Circuit were bankruptcy appeals.⁽³⁸⁶⁾ With a direct review structure, that percentage would increase to approximately nineteen percent, which is the largest percentage increase of any circuit.⁽³⁸⁷⁾ With only six active circuit judgeships in the First Circuit, the smallest number of any circuit,⁽³⁸⁸⁾ it seems that the change would have a dramatic effect on the already overburdened circuit court of appeals.⁽³⁸⁹⁾ Therefore, the implementation of the direct appeal proposal may be more costly to the system overall.⁽³⁹⁰⁾

Table 1

Bankruptcy Appeals as a Percentage of Total Appeals

Filed By Circuit⁽³⁹¹⁾

July 1, 1994 through June 30, 1995

IV.  CONCLUSION

In consideration of the increasing dilemma presented by the federal judicial structure,⁽³⁹²⁾ it is apparent that the answer to the bankruptcy appellate structural question must not involve an additional burden on the circuit courts. The answer lies in the age old question of whether Article III status should be granted to bankruptcy courts. Bankruptcy courts themselves would not have to be given Article III status to become independent of the district courts.⁽³⁹³⁾ If BAP judges were granted Article III status, they could take the place of the district courts as they relate to bankruptcy courts.⁽³⁹⁴⁾ This would allow bankruptcy courts and the BAPs to become totally independent bodies and would save district courts from bankruptcy caseloads. As an Article III court, the BAPs could have a stare decisis effect and would start to build a dependable body of precedent.⁽³⁹⁵⁾

In addition, to eliminate the need for review in circuit courts, a Federal Bankruptcy Appellate Court should be established⁽³⁹⁶⁾ to assure that even the non-core cases decided by the BAPs will have some level of review. This is slightly different from the structure discussed earlier where appeals from the bankruptcy court would go directly to a Federal Bankruptcy Appeals Court, but both involve the use of a Federal Bankruptcy Appellate Court.⁽³⁹⁷⁾ In this structure, BAPs would still be included to provide a cushion for the Federal Bankruptcy Appeals Court, where legitimate legal issues could be weeded out and the BAPs would provide the needed availability for emergency orders.

Donald A. Brittenham Jr.^(*)

1. See Judicial Council of the First Circuit, Order Establishing the Bankruptcy Appellate Panel Service (July 1, 1996) (unpublished material on file with the clerk of the First Circuit Bankruptcy Appellate Panel and with the New England Law Review). Circuit Executive, Vincent Flanagan, signed the order on behalf of the Judicial Council.See id.

2. Pub. L. No. 103-394, 108 Stat. 4106.

3. See id. at 4109. Circuits may be exempt from this requirement if certain qualifications are met. See infra notes 123-27 and accompanying text.

4. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106, 4109 (1994).

5. See id. at 4110.

6. See 28 U.S.C. § 158(d) (1994).

7. See Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 50-51 (1982) (deciding that the extensive grant of jurisdiction given to bankruptcy judges violated Article III of the Constitution).

8. See Briney v. Burley (In re Briney), 738 F.2d 981, 983-84 (9th Cir. 1984) (concerning "the effect of the Marathon decision on the appellate functions of bankruptcy judges"); Commonwealth v. Dartmouth House Nursing Home, Inc. (In re Dartmouth House Nursing Home, Inc.), 30 B.R. 56, 58 (B.A.P. 1st Cir. 1983) (concluding that the statutory section that granted jurisdiction to BAPs was unconstitutional because it vested Article III power in a non-Article III court).

9. See In re Dartmouth House, 30 B.R. at 58.

10. See Thomas A. Wiseman, Jr., The Case Against Bankruptcy Appellate Panels, 4 Geo. Mason L. Rev. 1, 15-16 (1995); Memorandum from Professor Lawrence P. King & Elizabeth I. Holland to Professor Elizabeth Warren, Discuss[ing] the Issues Raised By the Proposal To Eliminate the First Layer of Review From the Bankruptcy Appellate Process (July 15, 1996), National Bankruptcy Review Commission [hereinafter King Memorandum] (on file with the New England Law Review).

11. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106, 4147 (1994).

12. See Nathan B. Feinstein & Timothy P. Branigan, Review Commission Recommends Eliminating District Court-Level Appeals in Favor of District Appeals from Bankruptcy Judges to the 12 Regional Circuit Courts, Nat'l L.J., Sept. 16, 1996, at B5-6.

13. See id.

14. See supra notes 28-35 and accompanying text.

15. See infra notes 36-54 and accompanying text.

16. 458 U.S. 50 (1982).

17. See infra notes 55-85 and accompanying text.

18. See infra notes 86-109 and accompanying text.

19. See infra notes 110-34 and accompanying text.

20. See infra notes 135-55 and accompanying text.

21. See infra notes 156-64 and accompanying text.

22. See infra notes 165-240 and accompanying text.

23. See infra notes 241-80 and accompanying text.

24. See infra notes 281-313 and accompanying text.

25. See infra notes 314-74 and accompanying text.

26. See infra notes 375-91 and accompanying text.

27. See infra notes 392-97 and accompanying text.

28. Bankruptcy Act of 1898, ch. 541, 30 Stat. 544 (repealed 1979).

29. See H.R. Rep. No. 95-595, at 8 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 5969 (providing historical overview of the 1898 Act).

30. See id. Referees served two-year terms by appointment and were paid by commission (fee). See id. They were regarded as having only ministerial functions, such as, the supervision and administration of bankruptcy cases (much like a trustee, today). See id. Judicial functions came into play when disagreements arose during the administration of estates. See id.

31. See id. Referees could exercise direct control over property related matters, where they had consent of the parties, and where the matters were referred by judges. See id.

32. See id. The referees did hear cases, but had minimal "finality" because their decisions could be reviewed by district judges simply by petition. Id.

33. Chandler Act, ch. 575, 52 Stat. 840 (1938).

34. See H.R. Rep. No. 95-595, at 8 (1978), reprinted in 1978 U.S.C.A.A.N. 5963, 5969. The Act eliminated many of the administrative functions (by giving them to the trustee or clerk) and allowed the referee to be more of a judicial officer. See id.

35. Id. at 9. The name change was an attempt by the Judicial Conference to recognize the judicial status of the referees. See id. The Judicial Conference is a body of twenty-seven federal judges who meet twice a year to "consider policy issues affecting the federal courts, to make recommendations to Congress on legislation affecting the judicial system, to propose amendments to the federal rules of practice and procedure, and to consider the administrative problems of the courts." Administrative Office of the U.S. Courts, Understanding the Federal Courts: Judicial Councils & Conferences (Oct. 1996) <http://www.uscourts.gov/understanding_courts/89914.htm>.

36. See S. Rep. No. 95-989, at 1 (1978), reprinted in 1978 U.S.C.C.A.N. 5787. The Commission was operational in June, 1971. See id.

37. See S. Rep. No. 95-989, at 1 (1978), reprinted in 1978 U.S.C.A.A.N. 5787, 5787-88. The Commission report was in two parts. See id. One part contained the findings and recommendations while the other portion consisted of the proposed changes.See id. at 1-2. Between 1973 and 1978 the bill took on several forms and was finally reintroduced as H.R. 8200. See id. at 2. The House passed the bill on February 1, 1978. See id.

38. See S. Rep. No. 95-1106, at 1 (1978).

39. See S. Rep. No. 95-989, at 2 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5788. The first overhaul was brought by the Chandler Act, 52 Stat. 840 (1938). See id.

40. See S. Rep. No. 95-989, at 2-3 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5788. Since the 1938 amendments, consumer credit became more widespread and notable changes developed in laws dealing with debtor-creditor relations. See id. Furthermore, the Uniform Commercial Code became more accepted in the country and the number of bankruptcies was growing rapidly to add to the strains in the system. See id.

41. See id.

42. See Lloyd D. George, From Orphan to Maturity: The Development of the American Bankruptcy System During L. Ralph Mecham's Tenure as Director of the Administrative Office of the United States Courts, 44 Am. U. L. Rev. 1491, 1493 (1995).

43. See id. Title 11 of the U.S. Code contains the laws relating to bankruptcy. See 11 U.S.C. § 101 (1978).

44. 28 U.S.C. § 151(a) (1978).

45. See H.R. Rep. No. 95-595, at 40 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6001. District judges could no longer review bankruptcy court orders sua sponte. See id. If a timely appeal was not made, the order became "final" and the district court could no longer receive new evidence on appeal. See id. The system became more like a traditional appellate structure (i.e. one where a trial court decision is reviewed by an appeals court), rather than one where a special master reviews orders of a subordinate (as it once was). See id.

46. See id.

47. See 28 U.S.C. § 1334(a) (1978) (repealed 1984) ("The district courts for districts for which panels have not been ordered appointed under section 160 of this title shall have jurisdiction of appeals from all final judgments, orders, and decrees of bankruptcy courts."). However, legislative history shows that this structure was heavily disfavored by the House and the National Bankruptcy Conference (NBC). See H.R. Rep. No. 95-595, at 41 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6002. The House and the NBC agreed that it would serve no useful purpose to have appeals from trial court decisions (specialized bankruptcy courts) advance to a co-equal trial court. See id. The House and the NBC believed it would be "anomalous" to have one trial judge of general jurisdiction review decisions of another trial judge in even a more specialized field. Id.

48. See Lissa Lamkin Broome, Bankruptcy Appeals: The Wheel is Come Full Circle, 69 Am. Bankr. L.J. 541, 544 (1995).

49. Id.; see also 28 U.S.C. § 160(a) (1978) (repealed 1984), which states:

If the circuit council of a circuit orders application of this section to a district within such circuit, the chief judge of each circuit shall designate panels of three bankruptcy judges to hear appeals from judgments, orders, and decrees of the bankruptcy court of the United States for such district.Id.

50. See 28 U.S.C. § 1293(b) (1978) (repealed 1984), which states:

[A] court of appeals shall have jurisdiction of an appeal from a final judgment, order, or decree of an appellate panel created under section 160 or a District court of the United States or from a final judgment, order, or decree of a bankruptcy court of the United States if the parties to such appeal agree to a direct appeal to the court of appeals.Id.

51. See Broome, supra note 48, at 544.

52. See Wiseman, supra note 10, at 1. The Ninth Circuit developed their BAP in 1979. See Paul M. Baisier & David G. Epstein, Resolving Still Unresolved Issues of Bankruptcy Law: A Fence or An Ambulance, 69 Am. Bankr. L.J. 525, 529 (1995). The First Circuit adopted its BAP in February of 1980. See Commonwealth v. Dartmouth House Nursing Home, Inc., 726 F.2d 26, 28 (1st Cir. 1984).

53. See 28 U.S.C. § 160(a) (1978) (repealed 1984).

54. 458 U.S. 50 (1982).

55. See id. at 56.

56. See id. The breach of contract claim as well as the other claim against Marathon were state-based, so there was an issue over whether the Bankruptcy Court could exercise jurisdiction over the suit. See id. at 56-57.

57. Id.

58. See id. at 59 (Brennan, J., plurality opinion). Some of the attributes of Article III judges are: life tenure during good behavior and protection against the diminution in salary. See id. These attributes were important because they were incorporated within the Constitution to ensure that the judicial branch would remain separate from the control of the other two branches. See id. Bankruptcy Court Judges only had a 14-year tenure and received a salary of $50,000 annually that was subject to adjustment. See 28 U.S.C. §§ 153-54 (Supp. II 1980).

59. Marathon, 458 U.S. at 51 (Brennan, J., plurality opinion) (emphasis added).

60. See 28 U.S.C. § 1471(b) (1978). Under the 1978 Act, bankruptcy courts were granted jurisdiction over "all civil proceedings arising under [T]itle 11 or arising in or related to cases under [T]itle 11." Id.

61. See Marathon, 458 U.S. at 54 (Brennan, J., plurality opinion).

62. See id. at 87 (Brennan, J., plurality opinion); see also Tisha Morris, Note, The Establishment of Bankruptcy Appellate Panels Under the Bankruptcy Reform Act of 1994: Historical Background and Sixth Circuit Analysis, 26 U. Mem. L. Rev. 1501, 1504 (1996).

63. See Morris, supra note 62, at 1504.

64. See id. at 1505.

65. See Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, 98 Stat. 333 (1984) (restructuring the bankruptcy system in light of the Marathon decision).

66. See United States v. Marathon Pipe Line Co. (Marathon II), 459 U.S. 813 (1982). The stay was ordered to give Congress some time to remedy the legislation, so that the effect of declaring the bankruptcy system unconstitutional would not be so powerful. See George, supra note 41, at 1494-95.

67. See Marathon II, 459 U.S. at 1094 (refusing application by the Solicitor General on December 23, 1982, the day before the first stay extension was to expire.).

68. See id.; see also White Motor Corp. v. Citibank, 704 F.2d 254, 255-56 (6th Cir. 1983) (providing the history and text of the emergency rule).

69. See White Motor Corp., 704 F.2d at 256. Eleven Circuits adopted the rule with a few minor modifications. See id. The emergency rule was used to avoid a possible breakdown in existing debt collection arrangements and provide for national debtor protection. See id.

70. See id. at 256-57 (providing an exception to the rule where parties consented to a bankruptcy judge's disposition).

71. See id. at 256. Related claims are those claims that are "brought by the estate against the parties who have not filed claims against the estate," as was the case in Marathon. Id. Bankruptcy judges may hear these "related cases," but may not make a final judgment on them. Id.

72. See Morris, supra note 62, at 1504. The rule provided that bankruptcy judges could enter final judgments in "core" proceedings and would be subject to the traditional appellate review of the district courts. Id. For discussion on core proceedings, see infra notes 90-95 and accompanying text.

73. See id. at 1505.

74. See Commonwealth v. Dartmouth House Nursing Home, Inc., 726 F.2d. 26, 30 (1st Cir. 1984) (concluding that "the circuit council's order appointing the [bankruptcy] appellate panels was effectively revoked by the order requiring adoption of the emergency rule").

75. See In re Dartmouth House Nursing Home, Inc., 30 B.R. 56, 62 (B.A.P. 1st Cir. 1983) (concluding that 28 U.S.C. § 1482 unconstitutionally vests Article III judicial powers in an Article I court). The panel granted a debtor's motion to dismiss on the ground that the Supreme Court's decision in Marathon divested them of jurisdiction to hear the case. See id. at 57.

76. Dartmouth House, 726 F.2d. at 29.

77. See id. at 29-30.

78. See Briney v. Burley (In re Burley), 738 F.2d 981, 984 (9th Cir. 1984) (addressing "the effect of the Marathon decision on the appellate functions of bankruptcy judges under the 1978 Act.").

79. Compare Briney, 738 F.2d 981, 987 (9th Cir. 1984) (holding that BAPs are constitutional as adjuncts to the courts of appeals) with Dartmouth House, 726 F.2d 26, 30 (1st Cir. 1984) (concluding that § 1482, which permitted the establishment of BAPs, unconstitutionally removed "most, if not all, of `the essential attributes of the judicial power' from the Art. III district court, and [vested] those attributes in a non-Art. III [appellate court]." (quoting Northern Pipeline v. Marathon Pipe Line Co., 458 U.S. 50, 86 (1982)).

80. 28 U.S.C. § 1482 (1978) (allowing BAPs to exercise jurisdiction over appeals from orders and judgments of bankruptcy judges).

81. See Briney, 738 F.2d at 984. Judgments entered by the bankruptcy courts before the expiration date of the stay, could be decided by BAPs because BAP authority had not expired. See id. Cases brought after that date could not be decided by bankruptcy courts due to Marathon, and appeals no longer went to BAPs, because section 1482 no longer applied. See id.

82. See Braniff Airways, Inc. v. Civil Aeronautics Bd. (In re Braniff Airways, Inc.), 700 F.2d 214, 214-215 (5th Cir. 1983) (holding that Marathon did not invalidate the statute that gives original jurisdiction to the district court in bankruptcy matters); First Nat'l Bank of Tekamah v. Hanson, 702 F.2d 728, 729 (8th Cir. 1983) (concluding that, despite Marathon, the district court retained jurisdiction over bankruptcy cases); see also Briney, 738 F.2d at 984 (agreeing that only 28 U.S.C. § 1471(c) was affected by Marathon).

83. Briney, 738 F.2d at 985 (quoting Northern Pipeline Co. v. Marathon Pipe Line Co., 458 U.S. 50, 80-81 (1982)).

84. See id. The Court of Appeals retains control over the panels, because it has jurisdiction over review of the appeals de novo. See id. at 985-86. This argument is weak with regard to interlocutory appeals. See Belo Broad. v. Rubin (In re Rubin), 693 F.2d 73, 74-75 (9th Cir. 1982) (holding that jurisdiction did not exist for the court of appeals to review a decision of a BAP on a bankruptcy court's interlocutory order, because it was not a final order).

85. See Morris, supra note 62, at 1506-07.

86. Pub. L. No. 98-353, 98 Stat. 333 (1984).

87. See H.R. Conf. Rep. No. 98-882 (1984), reprinted in 1984 U.S.C.C.A.N. 576, 603. The Marathon decision was interpreted by Congress (within their legislative history) to mean that "the adjudication of state created causes of action could not be accomplished, constitutionally, by a legislative or Article I court." Id. Congress added that this was a "judicial function" and that such jurisdiction could only extend to an Article III court, as long as diversity was met. Id. "[T]he bankruptcy judge could only provide narrowly circumscribed assistance as an adjunct or magistrate to Article III courts." Id. at 604.

88. See id. at 601-02; see also 28 U.S.C. § 157(c)(1) (Supp. II 1984) (requiring that district judges enter all final orders or judgments, in cases related to a case under Title 11 (bankruptcy), and that bankruptcy judges may only submit "findings of fact and conclusions of law").

89. 28 U.S.C. § 151 (Supp. II 1984).

90. Id. § 157(b)(2). Some examples of core proceedings include:

matters concerning the administration of the estate; []allowance or disallowance of claims against the estate or exemptions from property of the estate, and estimation of claims or interest for the purposes of confirming a plan under chapter 11, 12, or 13 of [T]itle 11 . . . ; []orders in respect to obtaining credit; [and][]orders to turn over property of the estate.Id.

91. Morris, supra note 62, at 1507. Non-core proceedings are state-law based claims that are independent of the Title 11 claims. See id.

92. See id.

93. See 28 U.S.C. § 157(b)(1) (Supp. II 1984) (giving bankruptcy judges the power to enter orders and judgments on all core proceedings and cases under title 11). These cases were subject to traditional appellate review under § 158. See id. § 158.

94. See § 157(c)(1) (stating that a bankruptcy judge could not enter a final judgment on a non-core case).

95. See id. The information submitted by the bankruptcy judges was subject to de novo review by the district court. See id.

96. See § 158(b)(1) (declaring that BAPs may be established by a circuit's judicial council).

97. 458 U.S. 50 (1982). See supra notes 66-73 and accompanying text for the Marathon holding.

98. See Wiseman, supra note 10, at 11.

99. See 28 U.S.C. § 158(b)(1) (Supp. II 1984).

100. See id. § 158(b)(2).

101. See id. § 158(d).

102. See id. § 158(a) (referring to "core" and "non-core" cases where the parties had consented to a judgment by the bankruptcy court).

103. See Wiseman, supra note 10, at 14 (noting that the Ninth Circuit replaced its original "opt-in" rule with an "opt-out" requirement).

104. See id. This rule became effective May 20, 1985, to increase the amount of cases transferred to BAPs. See id.

105. See id. The Ninth Circuit BAP was receiving "as few as four [cases] per month." Id.

106. See id. The Ninth Circuit "opt-out" rule provides:

[U]nless a party to the appeal files a written objection with the clerk of the bankruptcy appellate panel within twenty-one (21) days from the date of the filing of the notice of appeal the parties will be deemed to have consented to the hearing and the disposition of the appeal by the bankruptcy appellate panel . . . .Id. (quoting Gordon Bermant & Judy Sloan, Bankruptcy Appellate Panels: The Ninth Circuit Experience, 21 Ariz. St. L.J. 181, 192-93 (1989)).

107. Id. at 15.

108. See Morris, supra note 62, at 1508. The First Circuit's decision was based on a number of factors, but there were two primary reasons for its discontinuance. See First Circuit To Establish BAP, 27-9 Bankr. Ct. Dec. (LRP) 1 (July 18, 1995). First, the judges from the mainland were required to travel to and from Puerto Rico for BAP hearings, since it was the second busiest bankruptcy jurisdiction in the circuit. See id. This situation became impracticable for the circuit judges. See id. Second, there was concern about the division of labor; there were only three judges on the mainland who were not Massachusetts-based. See id. A problem arose, because those three judges were forced to handle all of the appeals in Massachusetts, which is the busiest bankruptcy jurisdiction in the circuit. See id.

109. See 28 U.S.C. § 158(b)(1) (Supp. II 1984).

110. See H.R. Rep. No. 103-835, at 34-35 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3342-43 (discussing history of hearings and meetings).

111. See H.R. Rep. No. 103-835, at 37.

112. Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106 (1994) (codified as amended in scattered sections of titles 11, 18, & 28 U.S.C.).

113. See id. (passing in the House on Oct. 4, 1994, and in the Senate on Oct. 6, 1994).

114. See id.

115. Id.

116. Statement by President William J. Clinton upon Signing H.R. 5116, 30 Weekly Comp. Pres. Doc. 2129 (Oct. 31, 1994).

117. See H.R. Rep. No. 103-835, at 32 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3340-41. Lack of efficiency due to the quantity of cases was the primary focus. See id.

118. Id.

119. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106 (1994).

120. See 28 U.S.C. § 157(b)-(c) (1994). See supra notes 88-93 and accompanying text for a discussion on core and non-core distinction.

121. See 28 U.S.C. § 158(b)(1) (1994).

122. See id. § 158(b)(1)(A)-(B).

123. See id.

124. See id. § 158(b)(1). The Judicial Council is required to submit its finding no later than 90 days after the finding is made, and the report must contain the factual basis for the finding. See id.

125. See id. § 158(b)(2)(D). The requirement that findings be submitted by the Judicial Councils may be an ineffective way to accomplish the desired goal of establishing BAPs in the circuits, because the legislation never specified a time period by which the circuits would have to make their findings, and it failed to provide any procedure for review of the findings. See Broome, supra note 48, at 545.

126. See 28 U.S.C. § 158(b)(2)(B)-(D). There are two methods for the termination of a BAP mentioned in § 158:

(B) On the request of a majority of the district judges in a circuit for which a bankruptcy appellate panel service is established under paragraph (1), [the section requiring establishment of BAPs] made after the expiration of the 1-year period beginning on the date such service is established, the judicial council of the circuit shall determine whether a circumstance specified in subparagraph (A) or (B) [the subparagraphs containing the two hardship exceptions] of such paragraph exists.

(C) On its own motion, after the expiration of the 3-year period beginning on the date a bankruptcy appellate panel service is established under paragraph (1), the judicial council of the circuit may determine whether a circumstance specified in subparagraph (A) or (B) of such paragraph exists.

(D) If the judicial council finds that either of such circumstances exists, the judicial council may provide for the completion of the appeals then pending before such service and the orderly termination of such service.Id.

127. See id. § 158(b)(4). Under the 1994 reform, two or more circuits may combine to establish a joint BAP upon approval of the Judicial Conference of the United States. See id.

128. See id. § 158(b)(6).

129. See id. § 158(c)(1)(A)-(B); See also Wiseman, supra note 10, at 14 (providing an in-depth analysis of the constitutional problems associated with the "opt-out" provision).

130. See supra notes 102-105 and accompanying text. The statute provides that appeals shall be heard by BAPs, unless the appellant elects to have the appeal heard by the district court at the time of filing, or "any other party" elects the same within 30 days of the time of service. 28 U.S.C. § 158(c)(1)(A)-(B) (1994).

131. See Broome, supra note 47, at 545.

132. See 28 U.S.C. § 158(c)(1) (1994).

133. See id. § 158(b)(5).

134. See id. § 158(c)(2).

135. See Mark A. Cohen, Report Issued On Bankruptcy Panels, Mass. Law. Wkly., Apr. 1, 1996, at 40.

136. See Judicial Council of the First Circuit, Operating Procedures for the Bankruptcy Appellate Panel for the First Circuit and Regulations covering the Appointment of Bankruptcy Judges to the Bankruptcy Appellate Panel (May 21, 1995) (unpublished material on file with the Clerk of the First Circuit Bankruptcy Appellate Panel and with the New England Law Review). The regulations and procedures were adopted by unanimous vote on May 21, 1996, and signed by the Secretary to the Judicial Council, Vincent Flanagan, on March 29, 1996. See id. They were prepared by Judge Conrad K. Cyr of the First Circuit Court of Appeals, Judge Robert E. Keeton of the District of Massachusetts, and Judge Arthur N. Votolato, Chief Justice for the First Circuit BAP. See id.

137. See Judicial Council of the First Circuit, supra note 1.

138. See Mark A. Cohen, 3-Judge Panels To Hear Bankruptcy Court Appeals: District Court No Longer Sole Option, Mass. Law. Wkly., April 1, 1996, at 1.

139. See BAPs Are Coming To Five New Circuits, Aug. 1, 1996, available in WL, 5 No. 21 Cons. Bankr. News (LRP) 7. Judges were selected according to several eligibility requirements including: Service as a bankruptcy judge within the First Circuit for a minimum of two years; "superior analytical and writing skills, as evidenced principally by the quality of her/his published opinions;" "commitment to congeniality, and a decisiveness in the disposition of cases;" "hav[ing] earned the respect of the relevant practicing bankruptcy bar;" and demonstrated "ability to maintain her/his assigned bankruptcy court caseload in current status." See Judicial Council of the First Circuit, supra note 1.

140. See Judicial Council of the First Circuit, supra note 1. The eight selected members will serve as follows:

Two members shall serve for one year, two members shall serve for two years, two members shall serve for three years and two members shall serve for four years. Term lengths shall be determined by lot. At the expiration of a term the member may reapply for an additional term. The standard term of service shall be four years.

Three judges shall be selected from the District of Massachusetts; two judges shall be selected from the District of Puerto Rico; and one judge each from the Districts of Maine, New Hampshire and Rhode Island. The judge senior in prior service on a bankruptcy appellate panel shall be designated Chief Judge.Id.

141. See BAPs Are Coming To Five New Circuits, supra note 139.

142. See id.

143. See Telephone Interview with Vincent Flanagan, First Circuit Executive (Jan. 30, 1997) [hereinafter Flanagan Interview].

144. See BAPs Are Coming To Five New Circuits, supra note 139 (noting that six circuits participate in the BAP process while the remaining circuits do not).

145. See id. The Second Circuit appointed twelve judges; four judges work on the panel at a time. See id. Judge Burton Lifland was appointed Chief Judge of the BAP. See id. The Clerk's Office for the Court of Appeals handles administrative matters for the BAP as opposed to a separate clerk's office. See id. The three districts that participate in the BAP (Vermont, Connecticut and the Northern District of New York) handle approximately 100 appeals or fewer per year. See id.

146. See id. The Tenth Circuit appointed nine judges who rotate with three-year terms. See id. Judge Mark B. McFeeley was appointed chief judge for the BAP and Barbara Schermerhorn was appointed as clerk for the separate clerk's office set up in the circuit. See id. Each of the districts in the circuit, with the exception of Colorado, participate in the BAP process handling 100-150 yearly appeals. See id.

147. See id.

148. See id. The Sixth Circuit appointed five judges who will serve four-year terms with staggered appointments. See id. The circuit uses the U.S. Court of Appeals for the handling of their administrative matters, just as the Second Circuit does. See id. Only the Northern and Southern Districts of Ohio participate in the BAP service, and handle the estimated 40 appeals per year. See id.

149. See New NCBJ President Offers Views of Consumer Filings, Chapter 12, BAPs, Am. Bankr. Inst. J., Oct. 1996, at 13. (Interview with Judge Frank W. Koger). The Eighth Circuit Council appointed six bankruptcy judges to serve on the BAP for a term of seven years. See id. On September 12, 1996, Judge Frank W. Koger, from the Western District of Missouri, was appointed Chief Judge of the Eight Circuit BAP. See id. Further, a BAP clerk's office was created in St. Louis to handle the administrative matters. See id. Eight of the ten districts in the circuit participate in the BAP service, and the two that did not opt in were "low population districts where the time element has already been good for the parties." see Id.

150. See id.; see also Appellate Panels: New BAPs Wrap Up First Month in Three Judicial Circuits, Aug. 8, 1996, available in WL, 8/8/96 BLD d5.

151. See id.

152. See id.

153. See John Flynn Rooney, District Judges Decide To Maintain Their Jurisdiction Over Bankruptcy Appeals, Chi. Daily L. Bull., Nov. 28, 1995, at 1 (stating that judges in the Seventh Circuit used Ninth Circuit BAP statistics to determine whether they would implement a BAP in their circuit).

154. See BAPs Are Coming To Five New Circuits, supra note 139.

155. See id.

156. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106, 4147 (1994).

157. See id.

158. See id. at 4149. The report was to be submitted no later than two years after the date of the first Commission meeting. See id. The report was scheduled to be received by October 27, 1997. See Feinstein & Branigan, supra note 12, at B5. Thirty days after the date of submission, the Commission will terminate. See id.

159. See id. at 4147.

160. See id. at 4147. The President appointed three members with one being designated as the chairman. See id. The President pro tempore of the Senate also appointed one member. See id. The Minority Leader of the Senate appointed one member; the Speaker of the House of Representatives appointed one member; the Minority Leader of the House of Representatives appointed one member; and the Chief Justice appointed two members. See id. The chairman who was originally appointed by the President (Rep. Mike Synar, D- Okla.) resigned on December 19, 1995 due to illness and died on January 9, 1996. See Feinstein & Branigan, supra note 12, at B5, n. 2. President Clinton appointed Brady C. Williamson, to replace Synar as Chairman. See id. Other members of the commission included: Vice Chairman Hon. Robert E. Ginsberg, U.S. Bankruptcy Judge; Jay Alix, C.P.A.; M. Caldwell Butler; Babette A. Ceccotti; John A. Gose; Jeffrey Hartley; Hon. Edith Hollan Jones, U.S. Cir. Judge; and James I. Shepard. See id.

161. See Feinstein & Branigan, supra note 12, at B5.

162. See id. (reviewing the unanimous adoption of the proposal which took place at the June 21, 1996 meeting in Washington D.C.).

163. See id.

164. See Feinstein & Branigan, supra note 12, at B5.

165. See Commonwealth v. Dartmouth Nursing Home, Inc. (In re Dartmouth House Nursing Home, Inc.), 30 B.R. 56, 57, 62 (1983) (finding that the holding in Marathon "divested the BAP of its jurisdiction"). Section 1482 provided the BAPs with jurisdiction over appeals from bankruptcy courts. See id. at 58. The court interpreted the holding of Marathon to be that "Congress could not constitutionally establish non-Article III courts to exercise jurisdiction over the wide range of issues encompassed by section 1471." Id. at 62. Congress, therefore, could not allow BAPs to hear "appeals of the same broad range of issues that section 1471 allowed bankruptcy courts to hear prior to [Marathon]." Id. In following this reasoning, one could conclude that, if Congress restructured the statute to constitutionally allow adjudication of cases by bankruptcy courts, then BAPs could constitutionally hear those cases on appeal. See infra Part III.A.2 (showing that Congress did constitutionally restructure bankruptcy court jurisdiction). See also supra Part II.C for a more thorough discussion of Marathon and its impact on the First Circuit BAP.

166. See Dartmouth, 30 B.R. at 62. But see Briney v. Burley (In re Burley), 738 F.2d 981 (9th Cir. 1984) (ruling that BAPs were constitutional as an adjunct of the Court of Appeals, because, under Marathon, the court only struck down the trial level jurisdiction of bankruptcy judges). See id. at 984-85. The First Circuit, however, did not follow the same reasoning. See Dartmouth, 30 B.R. at 56.

167. Compare, e.g., Morris, supra note 62, at 1507-08 (arguing that BAPs are constitutional), with, e.g., Wiseman, supra note 10, at 15 (arguing that BAPs should cease to operate).

168. See Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, 98 Stat. 344; see also H.R. Conf. Rep. No. 98-882 (1984), reprinted in 1984 U.S.C.C.A.N. 576, 602 ("[I]n amending the code to comply with the Marathon holding, one must be mindful of what issue Marathon decided and what issue was not decided.").

169. See Melodie Freeman-Burney, Note, Jurisdiction Under the Bankruptcy Amendments of 1984: Summing Up the Factors, 22 Tulsa L. J. 167, 173 (1986).

170. See id.

171. See Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 52 (1982) (Brennan J., for a plurality). Justice Brennan was joined by Justices Marshall, Blackmun, and Stevens. See id.

172. H.R. Conf. Rep. No. 98-882 (1984), reprinted in 1984 U.S.C.C.A.N. 576, 601. See also Freeman-Burney, supra note 167, at 173. The [plurality] concluded that the 1978 Act "violate[d] the Constitution's `clear institutional protections' of judicial autonomy by providing that the newly created, non-Article III bankruptcy courts must exercise all of the bankruptcy jurisdiction of the Article III district courts." Id. (quoting Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 60 (1982)). The plurality relied upon two principles for guidance in deciding the amplitude to which traditional judicial functions may be constitutionally vested in non-Article III officers by Congress. Marathon, 458 U.S. 50, 80 (1982). First, they recognized that Congress maintains substantial discretion in deciding the method in which a congressionally created federal substantive right will be adjudicated. See id. This would include assigning an adjunct to carry out functions that traditionally have been discharged by Article III judges. See id. "[W]ith respect to congressionally created rights, some factual determinations may be made by a specialized factfinding tribunal designed by Congress, without constitutional bar." Id. at 81. Second, the adjunct body and its functions must be circumscribed "in such a way that `the essential attributes' of judicial power are retained in the Article III court." Id. (quoting Crowell v. Benson, 285 U.S. 22, 54 (1931)).

173. See Wiseman, supra note 10, at 11.

174. See Marathon, 458 U.S. at 51. (Rehnquist, J., concurring). Justice Rehnquist was joined by Justice O'Connor. See id.

175. See H.R. Conf. Rep. No. 98-882 (1984), reprinted in 1984 U.S.C.C.A.N. 576, 601. The concurring Justices saw no need to rule upon the constitutionality of the "jurisdictional grant of other Article III powers." Id. at 602

176. See id. at 602-03.

177. Id. Note that under Article III, jurisdiction to these cases is only extended to the federal courts when diversity jurisdiction exists. See id.

178. See Freeman-Burney, supra note 169, at 176.

179. H.R. Conf. Rep. No. 98-882 (1984), reprinted in 1984 U.S.C.C.A.N. 576, 604. In deciding Marathon, the court invalidated the statute which provided that the bankruptcy courts were to exercise the same jurisdiction bestowed upon the district courts. 28 U.S.C. § 1471(c) (1978) (repealed 1984)). See Morris, supra note 60, at 1506.

180. Pub. L. No. 98-353, 98 Stat. 333 (1984).

181. See Elmer Dean Martin III, Consent: The Constitutional Basis For Bankruptcy Judge Authority, 19 Cal. Bankr. J. 1, 7 (1991) (noting that Congress enacted 28 USC §§ 151-157, 1334).

182. See Lawrence P. King, Jurisdiction and Procedure Under the Bankruptcy Amendments of 1984, 38 Vand. L. Rev. 675, 678 (1985).

183. 28 U.S.C. § 1334(a)-(b) (1984). By not granting exclusive jurisdiction in certain "related" proceedings the statute allows the district court to abstain from matters that may be purely state based. See id. § 1334(c)(1).

184. See Freeman-Burney, supra note 169, at 180-81.

185. See Morris supra note 62, at 1507 (quoting Pub. L. No. 98-353, 98 Stat. 333 (1984)) They accomplished this increased control in § 151 where bankruptcy courts were referred to as "`unit[s]' of the district court[s]" and bankruptcy judges were referred to as "judicial `officer(s)' of the . . . district court." Id. (quoting 28 U.S.C. §§ 151, 152(a)(1)(1994)). This leaves no further doubt that bankruptcy courts act as inferior adjuncts to the district courts. See 28 U.S.C. § 151(a) (1994).

186. See Morris, supra note 62, at 1507.

187. See id. This Act is different from the 1978 Act which gave bankruptcy courts jurisdiction over bankruptcy and related cases under § 1471(c). See Vern Countryman, Scrambling to Define Bankruptcy Jurisdiction: The Chief Justice, The Judicial Conference, and The Legislative Process, 22 Harv. J. on Legis. 1, 35 (1985). Although, the bankruptcy court may still ultimately decide some of the cases upon referral. See id.

188. See 28 U.S.C. § 157(b) (1994).

189. See id. Core proceedings are described as proceedings that "either arise under title 11 or arise in a case under title 11." Freeman-Burney, supra note 169, at 193 (emphasis added). "Congress used the phrase `arising under title 11' to describe those proceedings that involve a cause of action created or determined by a statutory provision of title 11." Wood v. Wood, 825 F.2d 90, 96 (5th Cir. 1987). Claims "`arising in' proceedings are those that are not based on any right expressly created by title 11, but nevertheless, would have no existence outside of the bankruptcy." Id. at 97. For a comprehensive in-depth analysis on core proceedings, see Jeffrey T. Ferriell, Core Proceedings in Bankruptcy Court, 56 UMKC L. Rev. 47 (1987).

190. 28 U.S.C. § 157(b) (1994). Non-core proceedings are described as those "which are only related to a case under title 11." Freeman-Burney, supra note 169, at 193. A "related" or non-core right is one that "does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy." Wood, 825 F.2d at 97. One distinction is that core proceedings only include rights created by Congress and non-core proceedings include all rights that are not congressionally created. See Freeman-Burney, supra note 169, at 193.

191. See Freeman-Burney, supra note 169, at 192-93. The district court may refer a non-core case to a bankruptcy judge for hearing and determination of final judgment or order, if all of the parties to the proceeding give consent. See 28 U.S.C. § 157(c)(2) (1994). There has been some debate over whether the consent provision might pose some problems. See King, supra note 182, at 682-83. The primary issues raised are whether consent must be expressed or implied and whether parties can give effective jurisdictional consent where courts would not otherwise possess jurisdiction. See id. The statute does not make it clear whether consent must be expressed or implied, and without some guidance on procedure, parties may find difficulty predicting which route is initiated. See id. Implied consent may cause the type of constitutional difficulties experienced in Marathon. See id.

Secondly, there is the question of whether one may consent to jurisdiction when the court has no jurisdiction otherwise. See Freeman-Burney, supra note 169, at 188. That question does not appear to apply with regard to bankruptcy courts because the problem is not so much a jurisdictional one since bankruptcy courts are in fact adjuncts to the district court. See 28 U.S.C. § 151 (1984). The bankruptcy court's jurisdiction falls under the district court's jurisdictional grant under § 1334. See 28 U.S.C. §§ 157, 1334 (1984). From that point, district courts refer cases to one of its units, such as the bankruptcy court, for adjudication. See id. Cf. Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 848 (1986) ("Article III's guarantee of an impartial and independent adjudication by the federal judiciary is subject to waiver.").

192. Freeman-Burney, supra note 169, at 192-93.

193. See Marathon, 458 U.S. at 50.

194. See 28 U.S.C. § 157(b)(5) (1984) (stating that the determination is to be made upon the judges' own motion or on a motion of a party).

195. Freeman-Burney, supra note 169, at 185.

196. Id. at 199.

197. Dartmouth, 30 B.R. 56, 62 (B.A.P. 1st Cir. 1983). See also supra Part III.A for a more thorough analysis of the Dartmouth case.

198. Pub. L. No. 98-353, 98 Stat. 333 (1984); see supra notes 86-109 and accompanying text.

199. See Morris, supra note 62, at 1523-24.

200. See Wiseman, supra note 10, at 2.

201. Briney v. Burley (In re Burley), 738 F.2d 981 (9th Cir. 1984) (Norris, J., dissenting) (deciding that BAPs were constitutional as an "adjunct to the Court of Appeals").

202. See Wiseman, supra note 10, at 11.

203. See id.

204. Burley, 738 F.2d at 990 (Norris, J., dissenting) (requiring that both be met to satisfy Article III).

205. Id. (Norris, J., dissenting) (quoting the majority opinion).

206. Id. at 987. The dissent analogized this relationship to one between a magistrate and the district court. See id. They held that Ar