Bankruptcy Courts Don’t Issue Advisory Opinions

I was recently asked by a client to include specific language in a Chapter 13 Confirmation Order.   That seemed like a relatively benign request.   However, the problem was that the client (unquestionably a secured lender with a valid, timely, filed POC and provided for in the debtor’s Plan as such) wanted an order that its secured lien (which was not being modified) would survive Bankruptcy.   Of course, that concept is an axiomatic tenet of the Code.   Unless avoided by the Court, a creditor’s lien will pass through bankruptcy unaffected.  See Dewsnup v. Timm, 502 U.S. 410, 418 (1992).   In short, the creditor simply did not understand this point.  That’s ok, that is part of the reason we are here–to counsel clients and answer questions and perceived issues like this.   I let the client know all of this and assured them their legal and equitable interests were fully covered.  The Plan and the Court’s Confirmation Order fully provides for the secured creditor and its lien, if not satisfied during the bankruptcy process, will remain intact.  If you or your business have any legal questions, please just ask us; we’ll point you in the right direction and be there for you.

So-called “comfort orders” 11 U.S.C. §362(c)(4)(A) are sometimes issued in the context of the automatic stay, usually when there are multiple cases or the stay has been extended or terminated automatically by serial filings.  In the situation I mentioned above, there was no controversy or dispute for the judge to decide.  What the creditor was in effect asking is that the court include an advisory opinion within the Chapter 13 Confirmation Order.  Bankruptcy courts are not Article III courts.  However, that does not free them to issue advisory opinions.  Bankruptcy courts’ subject-matter jurisdiction is derived from statutory grants of authority to the district courts, which pass to bankruptcy courts through the reference that is codified at 28 U.S.C. § 157(a).   Accordingly, because district courts, as true Article III courts, lack the power to render advisory opinions, it is now accepted that bankruptcy courts, as units of the district courts, operate under the same limitation.  See N.J. v. Heldor Indus. Inc., 989 F.2d 702, 707 n.8 (3d Cir. 1993) (citing Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 76 (1982)).

In chapter 11 cases of large multinational companies, bankruptcy judges sometimes issue orders at the outset of such cases declaring the automatic stay to be applicable to the debtors’ property located outside of the U.S.  Another prophylactic order frequently entered in chapter 11 cases directs that claims of sellers of goods in transit on the petition date and received by the debtor on or after the petition date will be afforded administrative-expense priority in the debtor’s bankruptcy case.  Such orders reflect the reality that business debtors (and their creditors) often require some measure of certainty to successfully reorganize or maximize value.  Given these tensions, it is no wonder then that the Third Circuit has observed that in bankruptcy cases, “[t]he precise analytical contours of what constitutes an advisory opinion … are less than clear.”  See, In re McDonald, 205 F.3d 606, 608 (3d Cir. 2000); Lazy Days’ RV Center Inc., 724 F.3d 418 (3d Cir. 2013) (“Lazy Days’ III”).