The Seventh Circuit Interprets Wisconsin Exemption Law on College Savings Accounts and Retirement Annuities, but Did It Have Jurisdiction? (Part 2 of 2)

As we explained in a post yesterday, the Seventh Circuit in In re Bronk (Cirilli v. Bronk), No. 13-1123 (7th Cir. Jan. 5, 2015), made some new law on Wisconsin’s college savings account (Edvest) and annuity exemptions for debtors.

But in deciding that it had jurisdiction to decide the annuity issue on the merits, despite the trustee’s failure to cross-appeal the bankruptcy court’s decision in the debtor’s favor to the district court, the Seventh Circuit seems to have missed the jurisdictional boat. As we noted, the court relied entirely, slip op. at 7 n.2, on its decision in Luevano v. Wal-Mart Stores, Inc., 722 F.3d 1014 (7th Cir. 2013), an employment discrimination case under Title VII, not a bankruptcy case. 

Luevano was a civil action that spent its entire lower-court career in a district court, which dismissed the initial pro se complaint without prejudice but ultimately (after several repleadings) dismissed the action with prejudice on statute of limitations grounds. The key jurisdictional issue was whether the appeal from the final judgment of dismissal allowed the Seventh Circuit to review the initial dismissal order, since the original complaint had clearly been timely filed. The court allowed the appeal to proceed, citing the “general rule . . . that an appeal from a final judgment allows the appellant to challenge any interlocutory actions by the district court along the way toward that final judgment.” Id. at 1019.

But how could the Seventh Circuit apply this “general rule” to a case that was in the district court only on appeal from another court? The court appears, by its reference to “interlocutory actions by the district court along the way toward that final judgment,” to refer to the district court’s non-final decision resolving the first appeal and remanding the case to the bankruptcy court for further proceedings on the annuity issue. Had the trustee properly invoked the district court’s jurisdiction to get to that court a second time, the district court’s first decision (i.e., its rationale for allowing the annuity exemption) would have been subsumed in its second, summary decision affirming the bankruptcy court. The problem is that the district court seems not to have had jurisdiction to issue the second decision to the extent that it affirmed the bankruptcy court’s order on the annuity issue.

The Bronk court’s essential holding on the jurisdictional issue is that the debtor’s notice of appeal from the bankruptcy court was sufficient to re-invoke the district court’s jurisdiction to decide all other issues previously before it in the same case. As most bankruptcy practitioners know from painful experience, a large bankruptcy case can involve a number of appeals to the district court, with issues bouncing between the bankruptcy and district courts for years. The rule in Bronk, that the district court had jurisdiction to consider the annuity issue on the second appeal, effectively allows an aggrieved party to bring up its argument again and again in subsequent appeals to the district court, despite having failed to appeal the bankruptcy court’s intervening orders. That cannot be the rule, either as a practical matter or a legal one.

Having remanded the case to the bankruptcy court after the first appeal, the district court no longer had jurisdiction over the case and could reacquire jurisdiction only by another valid appeal by an aggrieved party. The bankruptcy court’s second order on the annuity issue was a final, appealable order providing the avenue for an appeal by which the district court could have reacquired jurisdiction. Bankruptcy Rule 8002(a) required the trustee to file a notice of appeal within 14 days after the bankruptcy court’s second order, or within 14 days after the debtor’s earlier notice of appeal. The trustee did not do that, relying instead on the debtor’s notice of appeal to invoke the district court’s jurisdiction the second time around. While the circuits are split on the jurisdictional necessity of a notice of cross-appeal generally, see, e.g., Mendocino Envtl. Ctr. v. Mendocino Cnty., 192 F.3d 1283, 1298 (9th Cir. 1999) (collecting cases), the Seventh Circuit long ago came down on the side of treating a cross-appeal as a jurisdictional prerequisite to the court of appeals’ providing relief to a cross-appellant from the district court. Chowaniec v. Arlington Park Race Track, Ltd., 934 F.2d 128, 130 (7th Cir. 1991). Without a timely notice of appeal here, the district court could not rule in the trustee’s favor on the annuity issue, and, therefore, neither could the Seventh Circuit. 28 U.S.C. § 1291 gives the courts of appeals jurisdiction only over appeals from “final decisions” of district courts. The district court’s second decision on the annuity issue cannot have been a final decision because it lacked jurisdiction to issue it.

Although it may seem odd for the trustee to have to ask the district court (through a timely notice of appeal) to reconsider the holding it made on the annuity issue during the first appeal (a request the trustee knew the court would deny), litigants seeking redress from a higher court often must repeatedly ask courts at lower stages of a proceeding to reconsider prior legal rulings, or even to overrule long-settled precedent, for the sake of preserving the issues for appellate review. Indeed, the debtor in this case did just that by filing a notice of appeal from the bankruptcy court’s second decision, which did not even address the Edvest issue (on which the district court had already affirmed the bankruptcy court’s initial ruling), but the debtor knew he needed to re-appeal to the district court to preserve his argument for Seventh Circuit review.

We pause to consider the continuing validity of cases like Chowaniec and their applicability to bankruptcy appeals and cross-appeals. Chowaniec was decided before the Supreme Court’s decision in Bowles v. Russell, 551 U.S. 205 (2007), in which the Court distinguished between time limits that are jurisdictional and those that are merely claims-processing rules. Jurisdictional time limits, said the Court, are those grounded in statute, such as the 30-day deadline to file a notice of appeal from the district court to the court of appeals, Fed. R. App. P. 4(a)(1) (the rule at issue in Bowles), grounded in the statutory time limit for appeal set in 28 U.S.C. § 2107. All other time limits in the rules do not affect the jurisdiction of federal courts and can be relaxed in the right circumstances. The deadline to file a notice of cross-appeal in Fed. R. App. P. 4(a)(3) (again, from the district court to the court of appeals) has no basis in statute, potentially making the rule a claims-processing rule, rather than a jurisdictional bar to consideration of a cross-appeal, and leaving the Chowaniec holding subject to re-examination in the right case.

But the deadline for cross-appeals from the bankruptcy court to the district court, unlike cross-appeals to the court of appeals under Fed. R. App. P. 4(a)(3), does have a statutory basis. 28 U.S.C. § 158(c) provides that an appeal under 28 U.S.C. § 158(a) (the basis for the Bronk appeal) shall be taken “in the time provided by Rule 8002 of the Bankruptcy Rules.” Bankruptcy Rule 8002 in turn sets the time limit for both appeals and cross-appeals. Although it delegated the determination of the precise number of days to the rules committee, Congress did set the cross-appeal deadline in a statute. At least one court has held that the language in § 158(c) referring to the time limits in Rule 8002 makes the deadline a jurisdictional bar to consideration of a bankruptcy appeal. See In re Latture, 605 F.3d 830, 837 (10th Cir. 2010). Thus, even after Bowles, a timely notice of cross-appeal by the trustee seems to have been jurisdictionally necessary if the district court in Bronk was to consider the trustee’s second appeal (and, therefore, if the court of appeals was to consider the trustee’s appeal).

In the end, of course, it makes little difference to the parties whether the district court’s decision on the annuity question was affirmed or the appeal from it was dismissed for lack of jurisdiction. But it makes a difference for the development of the law, for the Seventh Circuit should not have resolved the annuity question on the merits. Of course, the Seventh Circuit’s decision on both statutory interpretation questions is not definitive. The Wisconsin Legislature can change the statutes, if it doesn’t like the result, and the Wisconsin Supreme Court can decide the interpretation questions differently, in which case the federal courts will have to follow the state decision. But unless and until one of those things happens, this annuity decision, made by a court that lacked jurisdiction to decide it, will govern interpretation of the statute in the bankruptcy and district courts of Wisconsin.