The Bottom Line

The United States Supreme Court recently issued a unanimous decision in Ritzen Group, Inc. v. Jackson Masonry, LLC, No. 19-938 589 U.S. __ (2020), which held that a bankruptcy court’s unreserved denial of a motion for relief from the automatic stay is a final, immediately appealable order within the meaning of 28 U.S.C. 158.

What Happened

The petitioner, Ritzen Group, Inc. (Ritzen) entered into a contract to purchase land from Jackson Masonry, LLC (Jackson). The transaction never closed, and Ritzen sued for breach of contract in state court. Just days before the trial was scheduled to begin, Jackson filed a petition for relief under Chapter 11 of the Bankruptcy Code. By operation of the automatic stay in Section 362 of the Bankruptcy Code, the trial and any other proceedings in the state court action were stayed.

Ritzen sought to lift the automatic stay to pursue the state court litigation, but the court denied Ritzen’s motion. Federal law allows final orders of the bankruptcy court to be appealed but requires a party to file a notice of appeal within 14 days after the final order is entered. 28 U.S.C. 158. Ritzen did not file a notice of appeal within that time frame.

As the case progressed, Ritzen filed a proof of claim, and the bankruptcy court determined that Ritzen was actually the party that breached the land sale contract for failing to obtain financing. Accordingly, Ritzen’s claim in the bankruptcy case was set to zero, and Ritzen would receive no recovery under Jackson’s Chapter 11 plan. Following the bankruptcy court’s confirmation of the plan, Ritzen filed a notice appealing the plan confirmation and a notice appealing the court’s denial of Ritzen’s lift stay motion. The bankruptcy court ruled that the appeal of the stay ruling was untimely, since the order denying the lift stay motion was an immediately appealable final order. The district court and the Court of Appeals for the Sixth Circuit affirmed.

If the bankruptcy court’s denial of Ritzen’s lift stay motion was a “final order” within the meaning of 28 U.S.C. 158, then Ritzen had filed his notice of appeal much later than the 14-day appeal period. However, if the court’s order denying the lift stay motion was not a final order, then Ritzen’s appeal of that bankruptcy court decision could proceed if the finality came only once the Chapter 11 plan was confirmed and the case had effectively concluded.

Justice Ginsburg, writing for a unanimous Court, acknowledged the differences between an immediately appealable final order in most civil litigation as compared to appealable orders in a bankruptcy case. In a bankruptcy case, the court often decides individual controversies with finality, while the “umbrella” bankruptcy case continues onward. For that reason, 28 U.S.C. § 158 recognizes that in the bankruptcy context, a party may appeal “final judgments, orders, and decrees” entered by bankruptcy courts “in cases and proceedings.”

The courts of appeal all have uniformly held that a bankruptcy court order granting relief from the automatic stay is immediately appealable — see In re BancTexas Dallas, N.A. v. Chateaugay Corp. (In re Chateaugay Corp.), 880 F.2d 1509, 1511 (2d Cir. 1989) — but the circuits have not ruled consistently on orders denying stay relief. In Ritzen, the Supreme Court agreed with the majority of circuits and treatises that orders denying stay relief motions are final, immediately appealable decisions. The Court found that a creditor’s lift stay motion practice makes up a “proceeding” separate from the merits-based claims adjudication process that usually occurs before and apart from the automatic stay litigation. The lift stay and claims litigation also are substantively separate, since the claims adjudication often relies on state law governing the creditor’s rights against the debtor, while lift stay litigation does not depend on state law.

The Court rejected Ritzen’s argument that a decision denying relief from the automatic stay merely determines the forum for the claim adjudication. In the Court’s view, “[r]esolution of a motion for stay relief can have large practical consequences.” Other court decisions, such as decisions finding lack of personal jurisdiction, have similar consequences of determining the forum for resolving disputes, but such decisions are nonetheless final, immediately appealable decisions.

Why This Case Is Interesting

The Supreme Court recognized the importance of delineating what constitutes a bankruptcy proceeding for purposes of an immediate appeal. If an interlocutory order were mischaracterized as “final,” then parties might waste effort pursing an appeal over which the district and appellate courts have no jurisdiction. On the other hand, erroneously identifying a final order as interlocutory could result in a party filing its notice of appeal after the statutory 14-day deadline. This decision is important because the Supreme Court has offered greater clarity and resolved ambiguities in the case law among the courts of appeal, which practitioners can use to more accurately deploy their appellate resources.