Appeals of Bankruptcy (and Other Business) Disputes Take Too Long — Mediation and Other Remedies


By: Donald L. Swanson

Advertised Prices:

“Haircuts $10 (we add a 3% surcharge if you pay by credit card)”

“Sundaes $10 (with a $0.30 surcharge for credit card users)”

State Law Violation

The State of New York says these advertised prices violate New York General Business Law § 518, which provides:

“No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.”

Anyone who violates this prohibition “shall be guilty of a misdemeanor punishable” by a fine “not to exceed” $500 or “imprisonment up to one year,” or “both.”

Supreme Court Ruling

In its March 29, 2017 ruling in Expressions Hair Design v. Schneiderman, Case No. 15-1391, the U.S. Supreme Court:

–determines that, “In regulating the communication of prices rather than prices themselves, § 518 regulates speech”; and

— remands the case to the Second Circuit Court of Appeals “to analyze § 518 as a speech regulation.”

A two-Justice concurring opinion adds that the true meaning of § 518 is unclear and should be certified to New York’s state appellate court for clarification: “§ 518 evades easy interpretation” and the Second Circuit “erred by not asking” the New York state appellate court “for a definitive interpretation of § 518.”

Case Timeline

Here’s a timeline of the progression of this case:

–June 4, 2013 – A Complaint is filed in the U.S. District Court.

–November 4, 2013 – Final Judgment is entered by the U.S. District Court, declaring that § 518 “violates the First Amendment.”

–December 2, 2013 – Final Judgment is appealed to the Second Circuit Court of Appeals.

–March 5, 2015 – Court of Appeals reverses the District Court, declaring that “§ 518 does not violate the First Amendment.”

–April 1, 2016 – First filing (a request for extension) is made with the U.S. Supreme Court.

–September 29, 2016 – Supreme Court grants Petition for a Writ of Certiorari.

–March 29, 2017 – Supreme Court issues its ruling and remands the case to the Second Circuit “for further proceedings consistent with this opinion.”

–June 6, 2016 – Second Circuit establishes July 13, 2017, as the “time for all parties to file their simultaneous letter briefs.”

So . . . this case has been wending its way through the Federal Courts for four years.  Three-and-a-half of those four years have been on appeal.  And the dispute is now back with the Circuit Court for another appellate round.  All this appellate activity is over a seemingly-minor question of how a merchant can post its prices.  Heck, by the time a final ruling is actually made on this dispute, we’ll probably have progressed to a cashless society – and the ruling won’t matter.

A Major Problem

This case illustrates a major problem for appeals of commercial disputes in general and of business bankruptcy disputes in particular.  They take too long!!

Every business bankruptcy case has two functions:  (1) maximizing the value of the business and its assets, and (2) deciding who gets the money.  Unless the maximizing value function is performed well in a particular case, you can forget about the distribution function.  And there is, typically, an overwhelming need for speed in efforts to maximize value.

And so, in an appeal of a business bankruptcy dispute, it’s a bad thing to hold up distributions while a dispute languishes on appeal.  But it’s a much worse thing when the issue languishing on appeal impairs or impedes the maximizing value function.

Moreover, bankruptcy cases, despite their need for speed, have an extra layer of appeals.  In a U.S. district court case, the appeal is a two-step process: appeal is taken, first, to the circuit court of appeals and goes from there to the U.S. Supreme Court.  A bankruptcy court appeal, however, must first go to the U.S. district court (or to the bankruptcy appellate panel), and then to the circuit court of appeals, and from there to the U.S. Supreme Court.  Accordingly, the appellate delays in bankruptcy cases (where the need for speed is paramount) can be maddeningly long.

Potential Remedies

It’s difficult to come up with appropriate remedies for this problem.  But here are a couple ideas:

–Expand the doctrine of equitable mootness, whenever value maximization would be impaired by delays on appeal; and

–Mandate mediation for every appeal of a bankruptcy dispute, with mediation to occur within 30 days after the notice of appeal is filed and while the briefing schedule progresses.  Circuit courts of appeals are already doing some mandatory mediation like this (and are achieving excellent results); such efforts should extend, for bankruptcy appeals, to the district courts and bankruptcy appellate panels as well.

Each of these two remedies would help address the delays-on-appeal problem.  Additional remedies need to be explored and pursued as well.      

**  If you find this article of value, please feel free to share.  If you’d like to discuss, let me know.

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