U.S. Supreme Court: Creditors May Immediately Appeal Denials of Automatic-Stay Relief
On January 14, 2020, the U.S. Supreme Court held in Ritzen Group, Inc. v. Jackson Masonry, LLC, 589 U.S. __, 2020 WL 201023 (Jan. 14, 2020), that bankruptcy court orders conclusively denying relief from the automatic stay (11 U.S.C. § 362(a)) are appealable. The decision provides important guidance to bankruptcy courts, practitioners, and parties on the oft-recurring issues of taking and preserving bankruptcy appeals.
When a land sale fell through, Ritzen Group sued Jackson Masonry in state court. Days before trial, Jackson filed for chapter 11 bankruptcy, which automatically stayed the state court litigation. Ritzen sought relief from the stay, which the bankruptcy court denied. Instead of appealing, Ritzen filed a proof of claim and pursued its contract dispute in an adversary proceeding in the bankruptcy court. That court ruled against Ritzen, disallowed its proof of claim, and confirmed a plan enjoining all creditors (including Ritzen) from suits related to prepetition claims.
Ritzen then filed two separate appeals—from the bankruptcy court's decision on its contract claims and from the court's denial of relief from the automatic stay. Both the district court and the Sixth Circuit held (consistent with the majority view of the circuits) that the order denying stay relief had been immediately appealable, which made Ritzen's appeal untimely. (Both courts also rejected Ritzen's contract claims.)
Justice Ginsburg delivered the opinion for a unanimous court, affirming on the question of appealability. The Court relied heavily on its 2015 opinion in Bullard v. Blue Hills Bank, 575 U.S. 496. In Bullard, as Ritzen explained, the Court had held that an order rejecting a proposed chapter 13 plan was not "final" under 28 U.S.C. § 158(a) because a motion to confirm a plan was one step in a broader "plan-confirmation process," and thus the order "did not conclusively resolve the relevant 'proceeding.'" Under Bullard, "orders in bankruptcy cases may be immediately appealed if they finally dispose of discrete disputes within the larger case," fixing the rights and obligations of the parties. 575 U.S. at 501.
Applying that rule, the Court in Ritzen held that, as a category, "the adjudication of a motion for relief from the automatic stay forms a discrete procedural unit within the embracive bankruptcy case," which makes an order conclusively resolving such a motion appealable—and made Ritzen's appeal untimely. The Court rejected Ritzen's argument that such orders are merely a preliminary step of an overall claims adjudication process, noting their potentially significant consequences. The Court also expressed its belief (in response to Ritzen's argument) that its decision would "avoid … 'delays and inefficiencies'" by allowing appellate consideration of automatic-stay issues as they occur (quoting Bullard, 575 U.S. at 504).
The Court's decision is important because the practical consequences of orders denying stay relief can be significant. For example, in large chapter 11 cases, secured creditors often move for relief from the automatic stay to obtain adequate protection for the value of their collateral during the bankruptcy case. If orders denying such motions were not immediately appealable, secured creditors might not be able to pursue appellate review as to their particular issues until the bankruptcy case ended, at which point the value of their collateral might have substantially diminished.
The Ritzen opinion also might further clarify other circumstances in which a contested matter will be sufficiently distinct to qualify under Bullard as an independent "proceeding" that, once finally decided, can—indeed, must—be immediately appealed. Even so, because stay-relief motions were a relatively easy application of Bullard (as the lower court decisions and the majority view of the circuits confirmed), the Court did not have to grapple much with the line between appealable and nonappealable orders; it merely reiterated, drawing on Bullard, that "disputes over minor details about how a bankruptcy case will unfold" would, of course, not be distinct proceedings.
Thus, questions of what amounts to "a discrete procedural unit," distinct from the "umbrella bankruptcy case" (Ritzen, 2020 WL 201023, at **2, 3), will remain (along with questions of finality). Absent on-point precedent or at least judicial consensus, it may be difficult to know whether a contested matter satisfies the rule of Bullard. Such uncertainty creates real risks because appellate deadlines are generally jurisdictional, see Bowles v. Russell, 551 U.S. 205 (2007), and so a failure to appeal can, as the Ritzen Group found, forfeit a later appeal. Parties thus may have an incentive to file appeals anytime a contested matter is resolved against them. As a result, Ritzen will likely not be the Supreme Court's final word on this topic.
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.