Harold Wade v. Kreisler Law, P.C. ( 2019 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18-2564
IN RE:
HAROLD WADE and LORRAINE WADE,
Debtors-Appellants.
____________________
Appeal from the United States Bankruptcy Court for the
Northern District of Illinois, Eastern Division.
No. 15-BK-01035 — LaShonda A. Hunt, Bankruptcy Judge.
____________________
ARGUED FEBRUARY 6, 2019 — DECIDED JUNE 14, 2019
____________________
Before KANNE, SYKES, and HAMILTON, Circuit Judges.
SYKES, Circuit Judge. Debtors Harold and Lorraine Wade
moved for sanctions against Kreisler Law, P.C., alleging that
the law firm violated the automatic stay arising from their
bankruptcy petition by filing a lien against Lorraine’s home.
The couple had voluntarily dismissed a prior bankruptcy
petition just a few months earlier, so the bankruptcy judge
denied their motion based on 11 U.S.C. § 362(c)(3), which
lifts the automatic stay after 30 days in the case of a succes-
sive petition. But the bankruptcy courts are divided over the
proper interpretation of § 362(c)(3), so the judge certified her
2 No. 18-2564
order for direct appeal to this court under 28 U.S.C.
§ 158(d)(2)(A). A timely notice of appeal followed.
But the Wades never filed a petition for permission to
appeal as required by Rule 8006(g) of the Federal Rules of
Bankruptcy Procedure. Kreisler moved to dismiss the appeal
based on this omission. We provisionally accepted the
appeal and directed the parties to address the effect of the
procedural violation in their merits briefs.
We now dismiss the appeal. Rule 8006(g) is a mandatory
claim-processing rule, and if properly invoked, it must be
enforced. See Hamer v. Neighborhood Hous. Servs. of Chi.,
138 S. Ct. 13, 17 (2017). Because Kreisler properly objected,
the appeal must be dismissed.
I. Background
The Wades filed a Chapter 13 bankruptcy petition in
January 2015, which automatically stayed any collection
actions against their property. See 11 U.S.C. § 362(a). But the
petition was successive—they had voluntarily dismissed a
different petition two months earlier—and § 362(c)(3) states
that if a prior petition “was pending within the preceding
1-year period but was dismissed,” the automatic stay “shall
terminate with respect to the debtor on the 30th day after the
filing of the later case.”
Just how much of the stay was lifted became relevant af-
ter the Wades discovered that Kreisler recorded a lien
against Lorraine’s home in April 2015. Because their bank-
ruptcy case was active at that time, the Wades moved in the
bankruptcy court to sanction Kreisler for violating the stay.
The parties disagreed about the meaning of § 362(c)(3).
Kreisler contended that it lifts the entire stay. The Wades
No. 18-2564 3
argued that the phrase “with respect to the debtor” limits
the statute’s effect so that it lifts the stay only for non-estate
property. In their view the stay still prevented Kreisler from
recording the lien because Lorraine’s house was estate
property.
The bankruptcy judge denied the Wades’ motion, con-
cluding that the entire stay lifted in February 2015, which
validated Kreisler’s April 2015 lien. The Wades appealed to
the district court. But they also asked the bankruptcy judge
to certify her order for direct appeal to this court under
§ 158(d)(2)(A). The judge granted that request and issued a
certification order. The Wades then filed a notice of appeal,
but they never filed a petition for permission to appeal as
required by Rule 8006(g) of the Federal Rules of Bankruptcy
Procedure. Kreisler moved to dismiss based on this proce-
dural oversight. We provisionally accepted the appeal but
instructed the parties to brief the dismissal motion with the
merits.
II. Discussion
We begin (and end) with the question whether the failure
to file a petition for permission to appeal requires dismissal
of this appeal. We are permitted to consider a direct appeal
from an order of the bankruptcy court if the bankruptcy
judge certifies the order for appeal and we “authorize[] the
direct appeal.” 28 U.S.C. § 158(d)(2)(A). The Federal Rules of
Bankruptcy and Appellate Procedure jointly set forth the
procedural steps to obtain authorization for a direct appeal.
As relevant here, Bankruptcy Rule 8006(g) mandates that
“[w]ithin 30 days after the [bankruptcy court’s] certification
becomes effective … , a request for permission to take a
4 No. 18-2564
direct appeal to the court of appeals must be filed with the
circuit clerk.” Ignoring this rule short-circuits our approval
process, which is detailed in Rule 5 of the Federal Rules of
Appellate Procedure. Rule 5 states that “[t]o request permis-
sion to appeal … , a party must file a petition for permission
to appeal.” FED. R. APP. P. 5(a)(1). Rule 5(b)(1) specifies the
required contents of the petition, which include a statement
of “the reasons why the appeal should be allowed and is
authorized by a statute or rule.” Rule 5(b)(2) provides a ten-
day window for other parties to oppose the petition or file a
cross-petition. Whether opposed or not, under Rule 5(b)(3)
the petition for leave to appeal is decided “without oral
argument unless the court of appeals orders otherwise.”
Because Rule 8006(g) is a “time limitation … found in a
procedural rule, not a statute, it is properly classified as a
nonjurisdictional claim-processing rule.” Nutraceutical Corp.
v. Lambert, 139 S. Ct. 710, 714 (2019). The question here is
whether Rule 8006(g) is a “mandatory” claim-processing
rule, which “[i]f properly invoked … must be enforced.”
Hamer, 138 S. Ct. at 7.
The Supreme Court’s recent decision in Nutraceutical
Corp. is instructive on this point. There the Supreme Court
considered Rule 23(f) of the Federal Rules of Civil Proce-
dure, which permits an interlocutory appeal of a class-
certification order if the appellant files a petition for permis-
sion to appeal “within 14 days after the order is entered.”
The Court held that Rule 23(f) is a mandatory claim-
processing rule, noting that “the Federal Rules of Appellate
Procedure single out Civil Rule 23(f) for inflexible treat-
ment,” Nutraceutical, 139 S. Ct. at 715, because Rule 26(b)(1)
No. 18-2564 5
bars courts from “extend[ing] the time to file … a petition for
permission to appeal,” FED. R. APP. P. 26(b).
That reasoning applies with equal force here. Like
Rule 23(f), Rule 8006(g) speaks in mandatory terms. See FED.
R. BANKR. P. 8006(g) (petition “must be filed” before the
deadline). And like Rule 23(f), Rule 8006(g) requires a peti-
tion for permission to appeal, so Rule 26(b)(1) “singles [it]
out … for inflexible treatment.” Nutraceutical Corp., 139 S. Ct.
at 715. Rule 8006(g) is thus a mandatory claim-processing
rule. Because Kreisler properly invoked the rule, it “must be
enforced.” Hamer, 138 S. Ct. at 17.
In response the Wades rely on the lead opinion in In re
Turner, 574 F.3d 349 (7th Cir. 2009), and our decision in
Marshall v. Blake, 885 F.3d 1065 (7th Cir. 2018). In both cases
the appellants obtained certification from the bankruptcy
court for a direct appeal but failed to file a petition for
permission to appeal as required by the Bankruptcy and
Appellate Rules. In both cases we declined to dismiss the
appeal, but the decisions rested on slightly different
grounds.
The lead opinion in Turner, representing only the author’s
views, concluded that the record transmitted from the
bankruptcy court contained the information that a petition
for leave to appeal would have provided. See 574 F.3d at 352(Posner, J.). Invoking the Supreme Court’s decision in Torres
v. Oakland Scavenger Co., the lead opinion concluded that the
record sent by the bankruptcy court brought
the case within the principle that “if a litigant
files papers in a fashion that is technically at
variance with the letter of a procedural rule, a
6 No. 18-2564
court may nonetheless find that the litigant has
complied with the rule if the litigant’s action is
the functional equivalent of what the rule re-
quires.”
Id. (quoting Torres v. Oakland Scavenger Co., 487 U.S. 312, 316–
17 (1988)). In the lead opinion’s view, dismissal was unwar-
ranted because treating the bankruptcy-court record as the
“functional equivalent” of a petition would not prejudice the
appellee. Id.; see also id. at 356 (Van Bokkelen, J., concurring
in the judgment).
In Marshall we dropped any reliance on functional equiv-
alence and instead emphasized Turner’s discussion of harm-
lessness. See 885 F.3d at 1073 (“[W]e have excused the failure
to file a Rule 5 petition if the party filed a timely notice of
appeal and ‘no one is harmed by the failure.’” (quoting
Turner, 574 F.3d at 354)). Marshall found that the failure to
comply with Rule 8006(g) was harmless in that case.
Turner was decided before Hamer clarified the effect of
mandatory claim-processing rules. The lead opinion pre-
sumed that as long as a rule is not jurisdictional, courts
could create equitable exceptions. See 574 F.3d at 354 (“[T]he
failure to comply with a rule that is not jurisdictional … is
not fatal if no one is harmed by the failure … .”). And
Marshall postdates Hamer but does not mention the case.
There the litigants framed the Rule 8006(g) objection in
jurisdictional terms, and our opinion treated the issue ac-
cordingly, concluding that “we have jurisdiction to hear the
direct appeal” after rejecting the appellee’s Rule 8006(g)
objection. Marshall, 885 F.3d at 1074.
No. 18-2564 7
Marshall and Turner are irreconcilable with the Supreme
Court’s recent decisions on the effect of noncompliance with
mandatory claim-processing rules. Marshall’s harmless-error
analysis cannot coexist with the Court’s decision in Manrique
v. United States, 137 S. Ct. 1266, 1274 (2017), which held that
“mandatory claim-processing rules … are not subject to
harmless-error analysis.” More broadly, the Court’s recent
decisions in this area have consistently compelled enforce-
ment of mandatory claim-processing rules. See, e.g.,
Nutraceutical Corp., 139 S. Ct. at 714 (stating that mandatory
claim-processing rules are “unalterable”); Hamer, 138 S. Ct.
at 17 (stating that mandatory claim-processing rules “must
be enforced”); Manrique, 137 S. Ct. at 1272 (“[T]he court’s
duty to dismiss the appeal was mandatory.”) (quotation
marks omitted). Adopting a harmless-error exception, as
Marshall did, necessarily alters an “unalterable” claim-
processing rule.
The approach of Turner’s lead opinion is also unsustaina-
ble in light of the Court’s recent cases. The Wades note that
Torres remains on the books. True, but we’re not persuaded
that we may accept the bankruptcy court’s certification order
as the functional equivalent of a petition for permission to
appeal.
To start, it’s unclear if Torres itself ever extended that far.
See 487 U.S. at 315–16 (“Permitting imperfect but substantial
compliance with a technical requirement is not the same as
waiving the requirement altogether … .”). Regardless, the
Court has now clearly rejected the reasoning of the lead
opinion in Turner. In Manrique a criminal defendant failed to
file a second notice of appeal after the lower court issued an
amended judgment, as Rule 4 of the Federal Rules of Crimi-
8 No. 18-2564
nal Procedure requires. The dissent reasoned that “the
clerk’s transmission of the amended judgment to the Court
of Appeals [was] an adequate substitute for a second notice
of appeal.” Manrique, 137 S. Ct. at 1275 (Ginsburg, J., dissent-
ing). But the Court didn’t agree. It treated Rule 4 as a manda-
tory claim-processing rule and held that the court of appeals
“may not overlook the failure to file a notice of appeal at
all.” Id. at 1274 (majority opinion). Because that omission ran
afoul of Rule 4, the appeal had to be dismissed. Id.The same result is required here. We cannot overlook the
Wades’ failure to file a petition for permission to appeal.
Because Kreisler properly objected to the violation of
Rule 8006(g), our “duty to dismiss the appeal [is] mandato-
ry.“ Id. at 1272 (quotation marks omitted). Based on the clear
conflict with Nutraceutical Corp., Hamer, and Manrique, we
overrule Turner and Marshall to the extent that they ap-
proved exceptions to compliance with Bankruptcy
Rule 8006(g) and Rule 5(a)(1) of the Federal Rules of Appel-
late Procedure—whether based on the functional-
equivalence doctrine, the harmless-error doctrine, or both. 1
The Wades must pursue their appeal through the ordinary
process, which starts with the district court.
APPEAL DISMISSED.
1 Because this opinion overrules circuit precedent, we circulated it to all
judges in active service. See 7TH CIR. R. 40(e). No judge favored rehearing
en banc.