The Emerging Importance of Bankruptcy Rule 9033 After Stern
Much has been written about the impact of Stern v. Marshall on bankruptcy practice, including an article in this very publication discussing recent Delaware Bankruptcy Court decisions interpreting the ruling in Stern narrowly.
One practical consequence of Stern not widely discussed is that bankruptcy courts, including the Delaware Bankruptcy Court, now focus explicitly on their authority to issue final orders in bankruptcy proceedings. In the past, absent an affirmative act by a litigant seeking a ruling from the court that a matter was noncore, bankruptcy courts routinely issued final orders in all matters under consideration. In only rare instances did the bankruptcy court, sua sponte, question its authority to issue such rulings.
Post-Stern, however, bankruptcy court opinions routinely address, as a threshold issue, the bankruptcy judge's authority to issue final orders on the matters sub judice. With this intense focus on bankruptcy court authority, Federal Rule of Bankruptcy Procedure 9033 - which some practitioners do not even know exists - takes on a more prominent role. Familiarity with this rule, therefore, is critical to avoid potentially fatal mistakes.Federal Rule of Bankruptcy Procedure 9033 is titled "Review of Proposed Findings of Facts and Conclusion of Law in Non-Core Proceedings." Before jumping into the discussion of Bankruptcy Rule 9033, it is important to take a moment to discuss the different types of bankruptcy proceedings.
At least prior to Stern, a proceeding in bankruptcy (or an individual count in an adversary complaint) was either core or noncore. Unless the constitutional analysis prescribed by Stern mandates a different result (a topic explored in other articles), if the judge determines the entire proceeding is core, the bankruptcy judge can issue final rulings, which are subject to appeal under the provisions of 28 U.S.C. §158(a) rendering Rule 9033 irrelevant. If, however, a proceeding, or a part thereof, is found to be noncore, the bankruptcy judge can only issue proposed findings of fact and conclusions of law on the noncore components to the district court, and the provisions of Bankruptcy Rule 9033 apply.
Bankruptcy Rule 9033 is modeled, at least in part, after Federal Rule of Civil Procedure 72, which governs the treatment of recommendations from a magistrate judge, and the process of getting the proposed findings before the district court is largely the same. Any proposed findings entered in a noncore proceeding must be served by the clerk of the court on all the parties "forthwith." (Fed. R. Bankr. P. 9033(a).) Upon being served with the proposed findings, a party has 14 days to file written objections (also known as exceptions) to the proposed findings and conclusions. Other parties may respond to those objections within 14 days. The objecting party is responsible for arranging transcription of the record. The 14-day period for filing objections may only be enlarged pursuant to the procedures set forth in Bankruptcy Rule 9033(c). That provision permits the bankruptcy judge to extend the time period, for cause, up to 21 additional days, as long as the request is made before the expiration of the original time period. Any request for an extension sought after the initial expiration date but before 21 days after such date will be considered under the excusable neglect standard. Note, however, that pursuant to Bankruptcy Rule 9006(c)(2), the 14-day time periods to file objections and respond to objections may not be reduced, so do not attempt to seek an order shortening that period.
Although this process seems simple enough, Rule 9033 does not provide guidance on what to include in the objections to trigger the de novo review standard. Given the potentially significant ramifications of a party's failure to file objections to the proposed findings (discussed below), this is a significant issue. Bankruptcy Rule 9033 simply instructs the objecting party to file "written objections which identify the specific findings or conclusions objected to and state the grounds for such objection." Presumably, compliance with this language could range anywhere from a list of objectionable findings and conclusions, much like a list of issues on appeal, to a full-blown merits brief that reargues each point that the party finds objectionable. This would appear to be a strategic decision that should be tailored to the specifics of the case.
Once the proposed findings are transmitted to the district court, the district court judge must review de novo the proposed findings that have been specifically objected to. When reviewing the proposed findings, the district court has several options: (1) accept or reject the proposed findings in their entirety; (2) modify the proposed findings; (3) hear further evidence, either through supplemental briefing, oral argument or both; or (4) send the matter back to the bankruptcy court with further instructions. Assuming the district court does not send the matter back to the bankruptcy court, once the district court rules by either accepting, rejecting or modifying the proposed findings, its order is then final for purposes of appeal to the circuit court. (See 28 U.S.C.§§ 157(c)(1), 1291.)
Failure to file objections or, presumably, the failure to file sufficiently specific and detailed objections can have serious ramifications - not only at the district court level, but at the circuit court level. First, in the context of magistrate judges, the U.S. Supreme Court has found that district courts are not required to review the recommendations of magistrate judges if no objections to those recommendations are filed, though they may do so. (See Thomas v. Arn, 474 U.S. 140, 154 (1985).) This seems to suggest that the district court could use a much lower standard of review or simply rubber-stamp the magistrate's ruling rather than reviewing it de novo. Because some jurisdictions may have local rules providing for review standards, these should be consulted as well.
Second, a clear majority of circuit courts have adopted a "waiver rule," in which a party's failure to object to a magistrate's recommendations results in a waiver of its rights to appeal the district court's order approving those recommendations. (See Henderson v. Carlson, 812 F.2d 874, 877 (3d Cir. 1987) (collecting cases).) In Henderson, the U.S. Court of Appeals for the Third Circuit took the contrary position and found that even if a party waives its right to de novo review by the district court by failing to object to the magistrate's recommendations, that party does not lose its statutory right to appeal to the Third Circuit. Although the Third Circuit has not adopted the waiver rule, it is in the minority, and a party assuming it can challenge proposed findings on appeal to the Third Circuit may end up losing those rights on appeal to the U.S. Supreme Court. Importantly for bankruptcy practitioners, some circuits, including the Fourth and Eighth circuits, have extended the "waiver rule" to cases under Bankruptcy Rule 9033 and found that a party's failure to object to proposed findings results in a waiver of that party's right to raise those issues on appeal from the district court to the circuit court.
One additional issue to consider when crafting objections to proposed findings is whether Bankruptcy Rule 9033 applies to all proposed findings or just those that are case dispositive. For example, in a March 1 opinion in the New Dominion v. J. Aron & Co. adversary proceeding (Adv. No. 11-51774) in the SemCrude bankruptcy case, Judge Brendan L. Shannon issued proposed findings on New Dominion's summary judgment motion. Although the opinion granted partial summary judgment to New Dominion, it did not dispose of the case, and therefore would have been an interlocutory opinion had it been entered in a core proceeding. In such situations, it is unclear (1) whether parties are required to file objections to the proposed findings; (2) when those objections will be transmitted to the district court for review; and (3) when the district court will consider the proposed findings (i.e., in its interlocutory state or only after dispositive proposed findings are issued). Similar issues also could arise when the bankruptcy court rules on other interlocutory matters such as evidentiary objections. Until such case law develops, practitioners will likely resort to precedent in the Rule 72 context to fill in the gaps.
Given the bankruptcy judges' recent emphasis on their authority to issue final rulings in response to Stern, practitioners can reasonably anticipate that the number of instances in which bankruptcy judges issue proposed findings will increase dramatically. While this article raises a number of issues in connection with Bankruptcy Rule 9033, jurisprudence under that rule is largely undeveloped. As the number of proposed findings increases, a body of case law exploring these and other issues should eventually evolve. Until that time, bankruptcy practitioners should familiarize themselves with the procedures set forth in the text of Bankruptcy Rule 9033 and look to precedent in the Rule 72 context for additional guidance.
Reprinted with permission from 3/7/2012 issue of the Delaware Business Court Insider© 2012 ALM Media Properties LLC. Further duplication without permission is prohibited. All rights reserved.