7th Circuit Overrules Precedent and Dismisses Direct Appeal for Failure to File Timely Petition

Posted by NCBRC - June 25, 2019

Rule 8006(g) states a mandatory requirement that a party seeking direct appeal file a petition in support. Failure to do so, if properly invoked by the opposing party, is cause for dismissal. In re Wade, No. 18-2564 (7th Cir. June 14, 2019).

This case came to the Seventh Circuit on certification of direct appeal by the bankruptcy court to address the scope of section 362(c)(3)(A), which, in the case of successive petitions, lifts the automatic stay after 30 days with respect to property of the debtor. The Wades’ previous attorney, Kreisler Law, P.C., filed a lien against Ms. Wade’s residence while the Wades’ second bankruptcy was pending and the Wades sought sanctions for violation of the automatic stay. The bankruptcy court determined that the stay was no longer in effect when the lien was filed and denied the motion for sanctions. Recognizing, however, that courts have disagreed as to the meaning of the phrase “with respect to the debtor,” in section 362(c)(3)(A), the bankruptcy court certified the Wades’ appeal to the Seventh Circuit.

In the circuit court, Kreisler filed a motion to dismiss for lack of jurisdiction due to the Wades’ failure to file a petition for direct appeal as required by Bankruptcy Rule 8006(g) and Fed. R. App. Proc. 5. Noting that its own precedent supported the Wades’ view that the bankruptcy court’s certification of the appeal could satisfy the requirements of Rule 8006(g) or that failure to file the petition may be forgiven as harmless error, (In re Turner, 574 F.3d 349 (7th Cir. 2009), Marshall v. Blake, 885 F.3d 1065, 1073 (7th Cir. 2018)), the Seventh Circuit provisionally accepted the appeal and ordered the parties to brief the issue along with the merits. (NACBA submitted an amicus brief in support of the debtors on the substantive issue).

After argument, the circuit court concluded that Rule 8006(g) states a mandatory procedural, albeit non-jurisdictional, requirement that cannot be satisfied by any means other than the filing of the petition by the party seeking leave to appeal. The circuit court drew a parallel with the time limitation in Rule 23(f) for taking an interlocutory appeal of a class certification decision. In Nutraceutical Corp. v. Lambert, 139 S. Ct. 710, 714 (2019), the Supreme Court held that, while the 14-day time for appeal of the decision is not jurisdictional, it is an inflexible claims-processing requirement that precludes a court from extending the time for filing the appeal. In Hamer v. Neighborhood Housing Services, 138 S. Ct. 13 (2017), the Court held that mandatory claims-processing rules are not subject to harmless error analysis. Based on these cases, the court here found Rule 8006(g)’s petition-filing requirement is mandatory and inflexible and failure to comply, if properly invoked by the opposing party, is cause for dismissal.

The court turned to its previous decisions in Turner and Marshall. In Turner, which predated Hamer, the court found that papers filed by the bankruptcy court were the functional equivalent of the petition required by Rule 8006(g) and therefore, could stand in its place. In Marshall, which post-dated but did not discuss Hamer, the decision rested on a finding that the party opposing appeal was not harmed by the omission of the petition. The court here found both Turner and Marshall to be unsustainable in light of the holding in Hamer and the mandatory nature of the filing rule. It therefore overruled those decisions to the extent they conflicted with the decision in this case.

The court thus concluded that because the Wades failed to file their petition, and the opposing party invoked the rule in a motion to dismiss, the direct appeal was properly dismissed.

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