Restructuring

The Supreme Court, in Ritzen Group, Inc. v. Jackson Masonry, LLC,¹ issued an unanimous opinion last week, ruling that the Court of Appeals for the Sixth Circuit correctly denied the ability of creditor Ritzen Group Inc. (“Ritzen”) to appeal the bankruptcy court’s order denying as untimely Ritzen’s motion for relief from the automatic stay in Jackson Masonry, LLC’s (“Jackson”) chapter 11 case.² The Supreme Court stated, citing to both the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure, that a party must appeal a final order within 14 days after entry of the relevant order and an order denying a motion for stay relief is such a final order. 

Determining what orders in a bankruptcy case are final, requiring a party to appeal it within 14 days, has been a challenging task for practitioners. A final order is generally one that alters the status quo and sets the rights and obligations of parties.³ While uncertainty in making this determination remains, through Ritzen Group Inc. the Supreme Court has laid down a marker that orders denying relief from the automatic stay are final orders. 

Background

The dispute between Ritzen and Jackson began prior to Jackson’s bankruptcy filing: Ritzen sued Jackson for breach of contract in Tennessee state court for unraveling a land sale transaction. After over a year of litigation, and on the eve of trial, Jackson commenced a chapter 11 case, which put a hold on the state-court litigation pursuant to the automatic stay provided debtors under section 362(a) of the Bankruptcy Code. Ritzen filed a motion to lift the stay to allow the litigation to continue in state court, which the bankruptcy court denied.

Instead of appealing the bankruptcy court’s decision to deny the motion to lift the stay, Ritzen brought an adversary proceeding against Jackson for the breach of contract claim. Disposing of the adversary proceeding, the bankruptcy court for the Middle District of Tennessee found that Ritzen, and not Jackson, was the party in breach of the land-sale contract; the bankruptcy court disallowed Ritzen’s claim against Jackson’s bankruptcy estate.

Subsequently, the bankruptcy court confirmed Jackson’s plan of reorganization without objection from Ritzen. The plan enjoined all creditors from the commencement or continuation of any proceeding against Jackson based on claims against Jackson.⁴ 

Against this background, Ritzen finally filed two separate notices of appeal.  The first challenged the bankruptcy court’s order denying relief from the automatic stay. The second challenged the court’s resolution of the breach of contract claim. 

The district court held that Ritzen did not timely appeal the order denying relief from the automatic stay. The district court held that under 28 U.S.C. § 158(c)(2)⁵ and Federal Rule of Bankruptcy Procedure 8002(a),⁶ the time to appeal expired 14-days after the bankruptcy court’s entry of the order. The Court of Appeals for the Sixth Circuit subsequently affirmed.

Court of Appeals’ Decision

The crux of the Court of Appeals decision was whether an order denying relief from the automatic stay qualifies as a “final order” under the standard set by the Supreme Court in Bullard v. Blue Hills Bank, 575 U.S. 496 (2015), where the Supreme Court held that a party must promptly appeal an order in a bankruptcy case or a proceeding, pursuant to 28 U.S.C. § 158(a),⁷ that finally disposes of a discrete dispute within the larger case.⁸ Specifically, the Court of Appeals held that adjudication of Ritzen’s motion for relief qualified as a discrete “proceeding.” The Court of Appeals determined that this discrete proceeding commenced by Ritzen’s filing of the motion, followed by procedural steps, and culminated in a “[dispositive] decision based on the application of a legal standard.”⁹ This meant that the 14-day appeal clock started running the moment the bankruptcy court entered an order denying the motion to lift the stay because the entry of such order encompassed a disposition “(1) entered in a proceeding and (2) final[ly] terminating that proceeding.”¹⁰

Supreme Court’s Analysis

Before the Supreme Court, Jackson argued that the Court of Appeals properly held that adjudication of a stay relief motion is a discrete “proceeding” and, therefore, a “final order.” Ritzen, in contrast, claimed that the court should consider an adjudication with respect to stay relief as just a first step in the process of adjudicating a creditor’s claim against the estate and therefore defer an appeal until after the bankruptcy court enters orders on substantive issues, such as bad faith, which may be raised later in the litigation.

The Supreme Court agreed with Jackson (and the Court of Appeals) “that the appropriate ‘proceeding’ is the stay-relief adjudication.” The Supreme Court reasoned that “[a]djudication of a stay-relief motion . . . occurred before and apart from proceedings on the merits of creditors’ claims: The motion initiates a discrete procedural sequence, including notice and a hearing, and the creditor’s qualification for relief turns on the statutory standard [found in Section 362 of the Bankruptcy Code].”¹¹

The Supreme Court concluded its opinion by further defining the contours of its decision. The Supreme Court stated that courts should not define “proceeding” to include disputes over minute details about how a bankruptcy case will unfold. For example, the concept of finality does not cover an order resolving a disputed request for an extension of time. The Court stated that, contrary to Ritzen’s contentions, denial of stay relief determines more than the forum for claim adjudication. Denial of stay relief constitutes a central and important issue in a bankruptcy case:  “whether a creditor can isolate its claim from those of other creditors and go it alone outside bankruptcy.” This, the Supreme Court confirmed, is not a minor detail. Indeed, this is becomes even clearer when one acknowledges that many motions to lift the stay, for instance, seek permission to “repossess or liquidate collateral, to terminate a lease, or to set off debts.” 

Summarizing its decision, the Supreme Court stated, “[b]ecause the appropriate ‘proceeding’ in this case is the adjudication of the motion for relief from the automatic stay, the Bankruptcy Court’s order conclusively denying that motion is ‘final.’ The court’s order ended the stay-relief adjudication and left nothing more for the Bankruptcy Court to do in that proceeding.”

Conclusions and Takeaways

This opinion provides another piece for the puzzle about what bankruptcy court orders a party must appeal within the time constraints of Rule 8002 of the Federal Rules of Bankruptcy Procedure. Through this decision, the Supreme Court provided further guidance as to what orders in a bankruptcy proceeding are discrete issues—amenable to being segregated from the case at large—and as a result what orders must be appealed promptly. Notwithstanding this decision, however, a large list of bankruptcy proceedings remain that require thoughtful analysis and discretion when determining whether the relevant order is final and therefore requires a prompt appeal.