Restructuring

Contributed by Prashant Rai
Gary Ozenne seems to love bankruptcy court.  To wit, Mr. Ozenne filed, on his own behalf, seven bankruptcy cases over the course of five years.  Mr. Ozenne has three times petitioned the United States Supreme Court, on each occasion seeking bankruptcy-related relief.  Unfortunately for Mr. Ozenne, his latest foray in the world of bankruptcy law has resulted in a decision that cuts back on the jurisdiction of one of his favorite hang-out spots.  In Gary Lawrence Ozenne v. Chase Manhattan Bank (In re Gary Lawrence Ozenne), the Ninth Circuit rejected the latest of Mr. Ozenne’s petitions for relief and ruled that bankruptcy appellate panels do not have authority under the All Writs Act to issue writs of mandamus.  In the wake of Ozenne, what remains of BAP jurisdiction is unclear. 
Several years after the close of his most recent chapter 11 filing, Mr. Ozenne filed a motion with the bankruptcy court in which he accused a creditor that had foreclosed on his property of violating the automatic stay.  The bankruptcy court denied the motion for lack of jurisdiction on the theory that Mr. Ozenne’s bankruptcy case closed years prior.  Mr. Ozenne did not appeal from the bankruptcy court’s ruling, and it became final.  Mr. Ozenne then petitioned the Ninth Circuit BAP to issue a writ of mandamus directing the bankruptcy court to hear the motion.  The panel considered the petition and summarily denied it.  Mr. Ozenne then appealed from the panel’s order to the Ninth Circuit.
On appeal, the Ninth Circuit raised the issue of whether the panel had jurisdiction to adjudicate the writ petition.  Although Mr. Ozenne’s appellate papers did not raise this question (and logically, given Mr. Ozenne’s procedural posture, could not have), circuit courts are bound to consider jurisdictional defects sua sponte.  Thus, even though, as Judge Bybee noted in his concurrence, “even among fly-specks, this case [was] a nothing,” the stage was now set for the court to reconsider the scope of bankruptcy appellate panel jurisdiction wholesale.
The court framed the issue as whether the All Writs Act authorizes bankruptcy appellate panels to issue writs of mandamus directing bankruptcy courts to hear motions.  The court answered this question in the negative.
Courts Established by Act of Congress
The All Writs Act assigns to the “Supreme Court and all courts established by Act of Congress” the authority to issue “all writs necessary or appropriate in aid of their respective jurisdictions . . . .”  The first question that the Ozenne court addressed was whether a bankruptcy appellate panel is the kind of court to which the All Writs Act grants writ-issuing authority.  That is, to issue a writ pursuant to the All Writs Act, a bankruptcy appellate panel must be a “court[] established by Act of Congress.”
This inquiry began for the court, as it should, with an examination of the 28 U.S.C. § 158(b), the statute establishing bankruptcy appellate panels, which states, in relevant part, that “[t]he judicial council of a circuit shall establish a bankruptcy appellate panel service . . . unless the judicial council finds that (A) there are insufficient judicial resources available in the circuit; or (B) establishment of such service would result in undue delay or increased cost to parties under title 11.”  The statute also permits a “judicial council” to “reconsider, at any time,” such finding.
On its face, the statute’s plain language vests the authority to establish a bankruptcy appellate panel with the circuit court’s judicial council, not Congress.  On the other hand, the enacting statute is itself a congressional act.  Does it follow that bankruptcy appellate panels are “courts established by Act of Congress” within the meaning of the All Writs Act?
The Ninth Circuit thought not.  The court noted that the enacting statute does not, in itself, establish bankruptcy appellate panels.  Put differently, the judicial council’s role under the enacting statute is not merely to implement an already-established panel.  The establishment of a bankruptcy appellate panel requires an intervening finding by the judicial council that a panel would not unjustifiably drain the circuit’s judicial resources or result in undue delay and/or increased cost to parties filing for chapter 11 relief.  The judicial council could decide not to establish a panel at all and would still be acting consistently with the enacting statute’s mandate.
In adopting this position, the court explicitly rejected the Ninth Circuit BAP’s own prior decision in In re Salter.  In Salter, the panel compared the statute establishing bankruptcy appellate panels to Article 66 of the Uniform Code, which authorizes the Judge Advocate General to establish a Court of Military Review.  In Dettinger v. United States, the Court of Military Appeals held that the Court of Military Review is a “court established by Act of Congress” within the meaning of the All Writs Act.  The Dettinger court drew this conclusion notwithstanding that Article 66 vests authority to create the Court of Military Review in the Judge Advocate General.  The Dettinger court reasoned that Article 66 assigns the Judge Advocate General no discretion regarding whether or not to create the Court of Military Review and that Article 66 (not the Judge Advocate General) confers upon that court the judicial power that Congress determined that it should have.  Under Dettinger, Congress, by passing Article 66, established the Court of Military Review.  Similarly, the Salter panel reasoned that, “although Congress chose to act through the circuit judicial councils to create the BAPs, it authorized the BAPs and conferred on them ‘the judicial power it determined the court should have.’”
The Ozenne court found Salter’s analogy unpersuasive because Article 66 and the All Writs Act differ markedly.  While Article 66 provides no discretion to the Judge Advocate General to establish a Court of Military Review, the All Writs Act permits a judicial council to decline to establish a bankruptcy appellate panel.  That some circuits do not have a panel is perhaps the best illustration of this proposition.
“In Aid” of Jurisdiction
Under the All Writs Act, courts may only issue writs that are “in aid” of their jurisdiction.  Courts have construed this to mean that the All Writs Act “does not confer an independent source of jurisdiction.”  The Ozenne court observed that a petition for writ of mandamus exceeds the jurisdiction that bankruptcy appellate panels normally exercise in an important respect.  Bankruptcy appellate panel jurisdiction depends upon the consent of all parties.  Any party to an appeal from a bankruptcy court order may elect to have the district court hear the appeal instead.  Petitions for writs of mandamus, on the other hand, are not “appeals” within the meaning of the relevant statutes, and thus do not trigger parties’ rights to opt out of bankruptcy appellate panel review.  It follows that by hearing a writ petition, the Ozenne panel extended its jurisdiction over a non-consenting party, an act that exceeded, rather than aided, its existing jurisdiction.
In light of the above, the court overruled Salter, reversed the panel’s order denying the petition, and directed the panel to dismiss the petition for lack of jurisdiction.
The Implications of the Decision
As Judge Bybee’s concurrence notes, the court could probably have decided this case on more narrow grounds.  Although the panel’s order contains no such discussion, it seems likely that the panel was correct in concluding that Mr. Ozenne failed to carry the extraordinary evidentiary burden that comes with filing a writ petition.  The court could have summarily affirmed the panel.
That is not what the court chose to do.  Instead, the court chose to re-evaluate Salter, a precedent from over a decade prior, to remove a tool that parties seeking bankruptcy appellate panel review have previously used.  It is not clear from the decision how the court contemplates that bankruptcy appellate panels should react to the decision.  It might be that panels should call on district judges to provide panels with some kind of referral jurisdiction.  Another possibility is that panels could, like bankruptcy courts in non-core proceedings, make findings of fact on writ petitions, but seek binding rulings of law from an Article III court.  Alternatively, panels may think of some other complicated jurisdictional scheme to work around the demands of the All Writs Act.
A subsequent decision also could authorize bankruptcy appellate panels to issue writs under some jurisdictional grant other than the All Writs Act (e.g., section 105 of the Bankruptcy Code), in an attempt to limit Ozenne’s effect.  On the other hand, it might be that the decision will have little practical effect and will not warrant much response at all, as the court made clear that federal district courts continue to maintain jurisdiction to hear writ petitions.  Moreover, writs of mandamus are an important remedy primarily in the context of when an appeal is unavailable (such as in the case of certain interlocutory orders).  In most circumstances, then, parties will still be able seek relief from bankruptcy orders through a traditional appeal and by requesting leave to appeal from interlocutory orders.
Therefore, it may turn out that Ozenne will be largely a non-event and stand for little other than as a reminder of the inherent limits of bankruptcy appellate panel jurisdiction.  Ozenne certainly fits squarely within the recent trend of courts attempting to reign in the jurisdiction of bankruptcy-related courts.  Indeed, the Ninth Circuit used Ozenne as an opportunity to express concern about the effect that broad bankruptcy appellate panel jurisdiction might have on the strength of Article III: “Even though the barriers to Article III review the BAP would create by having authority under the All Writs Act ‘seem innocuous at first blush,’ they nevertheless ‘chip away at the authority of the Judicial Branch.’”
That said, notwithstanding the purgatory that Ozenne potentially places bankruptcy jurisdiction in the future, what is clear is that Mr. Ozenne is likely out of procedural avenues to continue his case.