In Ritzen Group, Inc. v. Jackson Masonry, LLC, 589 U.S. ___ (Jan. 14, 2020), the Supreme Court (the Court) agreed with the majority of circuit courts and unanimously held that an order unreservedly, that is, without prejudice or condition, adjudicating relief from the automatic stay of 11 U.S.C. § 362(a) is final and any appeal must be filed within the 14 day period under Rule 8002.
Jackson Masonry LLC (Jackson) filed its voluntary petition under chapter 11 right before the trial in a breach of contract lawsuit brought by Ritzen Group Inc (Ritzen). After the bankruptcy court denied Ritzen’s motion for relief from stay, Ritzen did not immediately appeal. Instead, it filed a proof of claim in the bankruptcy case and litigated the breach of contract claim in an adversary proceeding. After the bankruptcy court found that Ritzen was the breaching party and disallowed Ritzen’s claim, Ritzen appealed both the decision on the breach of contract and the decision denying relief from the automatic stay. The district court ruled against Ritzen on the merits of the breach of contract claim. Because the district court considered the order denying relief from stay to have been final, it dismissed that appeal as untimely. The Sixth Circuit affirmed both decisions.
The Court and the parties framed the issue as whether relief from stay is a discrete proceeding or a first step in the process of adjudicating a claim. In Bullard v Blue Hills Bank, 575 U.S. 496, (2015), the Court had previously held that an order denying confirmation of a plan does not alter the status quo and does not fix the rights or obligations of the parties, but is merely part of the process of attempting to arrive at an approved plan. Here, the Court rejected Ritzen’s argument that relief from stay is merely a preliminary step in the claims adjudication process.
Instead, the Court held that relief from stay is a discrete proceeding to decide “whether a creditor can isolate its claim from those of other creditors and go it alone outside bankruptcy.” The Court emphasized that adjudication of a motion for relief from stay occurs before and separately from adjudication of the merits of the creditor’s claims. In fact, the Court noted that relief from the automatic stay is often sought to repossess or liquidate collateral when there is no dispute over the validity of the creditor’s claim. Furthermore, the Court noted that claims adjudication must be separate from relief from stay because the two issues are determined by different standards. Claims adjudication is typically governed by state substantive law whereas relief from stay is determined under the federal standard set out in 11 U.S.C. § 362(d), specifically “cause,” including lack of equity in property that is not necessary for an effective reorganization.
Finally, the Court held that the finality of orders denying relief from stay encourages efficiency as exemplified by the instant case. If a creditor like Ritzen were allowed to litigate its claim fully in bankruptcy court before appealing denial of relief from stay, the creditor would effectively be allowed to take a second bite at the apple in state court.
In most circuits, including the Eighth Circuit, Ritzen Group, Inc. v Jackson Masonry, LLC merely affirms the status quo as the Court noted it agrees with the majority of circuit courts. But, now it is clear that a creditor hoping to continue litigating in state court must quickly decide whether to appeal denial of relief from stay or resign to litigating in a bankruptcy adversary proceeding.