U.S. Supreme Court: Denial of Stay Relief Motions Must be Immediately Appealed
Determining whether and, more importantly, when to appeal a bankruptcy court order is a vexing issue for creditors. While only “final” orders, judgments and decrees in bankruptcy cases and proceedings may be appealed, the discrete and interrelated nature of bankruptcy proceedings within bankruptcy cases makes the precise determination of when an order is “final” for appellate purposes difficult to discern. Orders denying creditors’ motions for relief from the automatic stay constitute one such proceeding where courts had not uniformly determined when an appeal was required to be taken.
On January 14, 2020, the U.S. Supreme Court resolved the issue with its decision in Ritzen Group, Inc. v. Jackson Masonry, LLC. The case stemmed from litigation in Tennessee state court between Ritzen and Jackson over the alleged failure to perform under a land purchase contract. Jackson filed a Chapter 11 petition on the eve of trial, triggering the automatic stay. Ritzen filed a motion for relief from the automatic stay on grounds the bankruptcy was filed in bad faith and on the basis of judicial economy. The bankruptcy court denied Ritzen’s motion. Instead of filing an appeal within 14 days as required under federal law and court rules, Ritzen filed a proof of claim and litigated the merits of the state law claim as an adversary proceeding in the bankruptcy court. The bankruptcy court ruled in favor of Jackson, disallowed Ritzen’s claim, and confirmed Jackson’s Chapter 11 plan of reorganization. Ritzen appealed both the merits of the bankruptcy court’s decision of the state law claims and its denial of the stay-relief motion. As to the stay-relief motion, the District Court concluded the appeal was not timely filed and the Court of Appeals for the Sixth Circuit affirmed.
The U.S. Supreme Court accepted the matter to resolve whether orders denying relief from the automatic stay were final orders necessitating immediate appeal. Relying upon its earlier decision in Bullard v. Blue Hills Bank, the Supreme Court concluded that stay-relief motions are discrete “proceedings” because the court’s ruling disposes of a matter separate from, and anterior to, the claims resolution process and other bankruptcy proceedings within the bankruptcy case. An order denying a stay-relief motion that fully and finally resolves a stay-relief proceeding is a final order. Moreover, the Court was attuned to the practical problem of the significant inefficiency of resolving stay-relief motions at the conclusion of the bankruptcy case. Immediate appeal of stay-relief motions promotes expeditious resolution of creditors’ rights outside of the bankruptcy forum. To hold otherwise would effectively require creditors to litigate substantive claims in bankruptcy court only to seek a “redo” in state court after a (presumably) successful appeal.
The Court expressly reserved judgment as to whether orders denying relief from stay expressly entered “without prejudice” to the creditor’s right to re-file a stay-relief motion upon change of factual circumstances are considered final orders. Absent clarity on this common issue, creditors are advised to quickly decide whether stay-relief denial warrants the expense of appeal and act accordingly to protect their appellate rights.
Disclaimer: The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.