Is an order denying a motion for relief from the automatic stay in a bankruptcy proceeding a final order—and thus immediately appealable—under 28 U.S.C. § 158(a)(1)?
This case asks the Supreme Court to decide whether, under 28 U.S.C. § 158(a)(1), an order denying a motion for relief from an automatic stay in a bankruptcy proceeding is a final order. Petitioner Ritzen Group, Inc. argues that an order denying stay relief is an interlocutory order—and thus not immediately appealable—because it merely affects the bankruptcy claims-adjudication process by determining where the parties can resolve underlying claims. Respondent Jackson Masonry, LLC argues that an order denying stay relief is final and subject to immediate appeal because proceedings deciding motions for stay relief are distinct from the overall bankruptcy proceeding and involve discrete claims, procedural standards, and legal standards. The outcome of this case will have implications on the judicial efficiency of bankruptcy litigation.
Questions as Framed for the Court by the Parties
Whether an order denying a motion for relief from the automatic stay is a final order under 28 U.S.C. § 158(a)(1).
On March 21, 2013, petitioner Ritzen Group, Inc. entered into a Real Estate Contract (“the Contract”) with respondent Jackson Masonry, LLC. Under the Contract, Jackson Masonry was supposed to sell real property to Ritzen Group; however, the sale fell apart at the closing deadline.
Ritzen Group sued Jackson Masonry in Tennessee State Court for breach of contract. Ritzen Group alleged that Jackson Masonry breached the Contract by failing to provide accurate documentation regarding the sale leading up to the deadline. Jackson Masonry countered that Ritzen Group breached the Contract because they lacked the finances to pay for the property by the deadline.
About a week before that case went to trial however, Jackson Masonry filed for bankruptcy. As a result of this filing, under 11 U.S.C. § 362, Ritzen Group’s breach-of-contract case was automatically stayed. Ritzen Group moved to lift the automatic stay, but the bankruptcy court denied the motion. Instead of appealing this decision, Ritzen Group then brought its breach-of-contract claim against Jackson Masonry’s bankruptcy estate in the bankruptcy court.Unfortunately for Ritzen Group though, the bankruptcy court found that it—not Jackson Masonry—breached the Contract.
Following the bankruptcy court’s decision on its breach-of-contract claim, Ritzen Group filed two appeals in United States District Court. Ritzen Group first appealed the bankruptcy court’s initial refusal to grant Ritzen Group’s motion to lift the automatic stay. Additionally, Ritzen Group appealed the bankruptcy court’s finding in the breach-of-contract claim. The district court ruled against Ritzen Group on both appeals. First, the district court determined that Ritzen Group’s appeal regarding the automatic stay was untimely. Next, the district court found for Jackson Masonry on the merits of the second appeal regarding the breach-of-contract claim. Ritzen Group appealed the district court’s holding to the United States Court of Appeals for the Sixth Circuit.
On October 16, 2018, the United States Court of Appeals for the Sixth Circuit decided Ritzen Group’s appeal and affirmed the judgments of the district court and bankruptcy court. The Sixth Circuit denied Ritzen Group’s appeal on the breach-of-contract claim because, under Tennessee law, a plaintiff cannot recover on a breach-of-contract claim unless they were able to follow through with the contract themselves. The lower courts determined that Ritzen Group was unable to follow through with the Contract and thus the Sixth Circuit affirmed this finding. The Sixth Circuit denied Ritzen Group’s appeal of the initial denial of its motion to lift the automatic stay because, according to the court’s statutory interpretation, the deadline for the appeal had passed. Specifically, the Sixth Circuit held that bankruptcy courts’ orders may be immediately appealed if they are entered in a proceeding and are final. The court then found that stay-relief adjudication is a proceeding; and, that an order denying stay relief is a final order. Because parties in bankruptcy cases must file appeals of final orders within fourteen days, and because Ritzen Group did not do so, the Sixth Circuit denied Ritzen Group’s appeal.
Following the Sixth Circuit’s decision, Ritzen Group filed a petition for a writ of certiorari to the Supreme Court of the United States based on the Sixth Circuit’s holding on the automatic stay issue. On May 20, 2019, the Supreme Court granted Ritzen Group’s petition.
THE CATEGORIZATION OF DENIALS OF AUTOMATIC STAY RELIEF AS INTERLOCUTORY OR FINAL ORDERS
Ritzen Group argues that an order denying stay relief (“Denial Order”) is an interlocutory order that is not a final determination subject to immediate appeal. As Ritzen Group notes, 28 U.S.C. § 158(a) states that district courts only have jurisdiction to hear appeals from “final” orders of bankruptcy judges in “cases” or “proceedings.” Similarly, Ritzen Group notes that 28 U.S.C. § 158(d) allows courts of appeals to hear appeals from final determinations entered under section 158(a). Ritzen Group contends that the section 158 finality definition is akin to the Supreme Court’s finality definition in Bullard v. Blue Hills Bank, in which the Court considered what Ritzen Group characterizes as “the closely analogous context of an order denying confirmation of a chapter 13 plan.” In Bullard, Ritzen Group notes, the Court stated that “only plan confirmation—or case dismissal—alters the status quo and fixes the rights and obligations of the parties.” Taking this reasoning to also apply to the context of an order denying stay relief, Ritzen Group asserts that the Sixth Circuit incorrectly applied its own two-part test that looked at procedural finality instead of substantive finality that “alters the status quo” and “fixes the rights and obligations of the parties.” Ritzen Group argues that the Denial Order is not a final order because it merely made a procedural determination about where the parties could litigate the breach-of-contract dispute—in the bankruptcy forum through the bankruptcy claims-adjudication process. Because the Denial Order did not resolve the underlying merits of the breach-of-contract claim, Ritzen Group contends that “the order was not final until litigation over the merits” of that claim had concluded. Thus, according to Ritzen Group, the Denial Order’s impact on the larger claims-adjudication process is what matters, and from that perspective the Denial Order was “clearly interlocutory.” As such, Ritzen Group argues, it was only required to seek appellate review of the initial stay relief denial after the bankruptcy court ruled on the merits of the breach-of-contract claim—which Ritzen Group claims it did.
As further evidence that the Denial Order is interlocutory, Ritzen Group cites the history of section 158. Ritzen Group asserts that Congress modeled section 158 after the general appellate statute, 28 U.S.C. § 1291, which treats orders resolving where parties can litigate as characteristically interlocutory. Ritzen Group argues that because section 158 uses the language of section 1291 without any indication from Congress to apply the rule differently, the same finality standard should be read into section 158. Additionally, Ritzen Group contends that the current Bankruptcy Code’s predecessor, the Bankruptcy Act of 1898, also indicates that the Denial Order is an interlocutory order. According to Ritzen Group, the former Bankruptcy Act treated orders regarding the automatic stay as having “no immediate appellate right.” Further, Ritzen Group argues that Congress has generally deemed orders that determine where parties will litigate as unreviewable or not immediately appealable, such as in 28 U.S.C. § 1334(c)(2) and 11 U.S.C. § 1452(b).
Jackson Masonry counters that the Denial Order was immediately appealable because it did fix the rights and obligations of the parties. Jackson Masonry agrees with Ritzen Group that Bullard supplies the correct standard for determining the finality of orders in bankruptcy cases. However, according to Jackson Masonry, Bullard explains that bankruptcy courts follow different finality rules than general civil courts and that finality is established for orders in bankruptcy courts when they “finally dispose of discrete disputes within the larger case.” Jackson Masonry contends that orders denying stay relief conclude a discrete proceeding because denial of stay relief requires a bankruptcy court to adjudicate a discrete claim for relief, follow various procedural steps, apply a relevant legal standard, and conclude definitively about the rights and obligations of parties regarding the automatic stay. Contrary to Ritzen Group’s argument that the Denial Order does not “alter the status quo” of the parties, Jackson Masonry argues that the denials of stay relief do change the status quo in that they change how the moving party and debtor resolve all pre-bankruptcy claims; dictate how creditors communicate with the debtor; and eliminate creditors’ choice of forum and, typically, their right to a jury trial. Jackson Masonry further asserts that under 28 U.S.C. § 157(b)(2), Congress has specifically identified the claims-adjudication process that Ritzen Group refers to and motions for stay relief as separate proceedings. Thus, according to Jackson Masonry, the “proceedings” discussed in section 158(a)—which are immediately appealable—also encapsulate stay relief motions described in section 157(b)(2). As such, Jackson Masonry believes that the Sixth Circuit correctly determined that “conclusive resolution of a stay relief motion involves a process that is ‘distinct from the overall bankruptcy case,’” and that Ritzen Group was required to appeal the Denial Order immediately.
Jackson Masonry further counters that the Bankruptcy Code’s history does not support Ritzen Group’s argument that the Denial Order is an interlocutory order. Jackson Masonry states that the current Bankruptcy Code, adopted in 1978, dramatically changed the bankruptcy system and stripped the Bankruptcy Act of 1898 of any significant interpretive value. Further, Jackson Masonry notes that Supreme Court precedent dictates that, when Congress repeals a statute and enacts a new statute in its place, the Court will not presume that Congress meant to enact the same statutory language it discarded. Additionally, Jackson Masonry contends that a majority of the United States Courts of Appeals have consistently held that denials of stay relief are final orders. Likewise, Jackson Masonry asserts that a leading bankruptcy treatise and the Department of Justice both regard automatic-stay rulings as final, immediately-appealable orders. Jackson Masonry thus claims that regarding denials of stay relief as final orders has been the status quo for decades.
THE EFFECT OF A DEBTOR’S BAD FAITH ON APPEALABILITY
Alleging that Jackson Masonry filed its bankruptcy petition in bad faith, Ritzen Group argues that even if some denials of stay relief may be final orders, a denial of a stay-relief motion premised on the debtor’s bad faith is not immediately appealable. According to Ritzen Group, the requirement that a debtor act in good faith “permeates the entire bankruptcy case,” as evidenced by the fact that a bankruptcy court may, sua sponte, consider both whether a case was filed in good faith and whether to lift the automatic stay or dismiss the case on the grounds of a debtor’s bad faith. Ritzen Group further contends that bankruptcy courts do not finally determine the fulfillment of the good-faith requirement until bankruptcy plan confirmation or dismissal of the case. As such, Ritzen Group asserts, an order denying a stay-relief motion that was premised on the debtor’s bad faith cannot finally resolve the good-faith issue and thus cannot be a final order. Moreover, Ritzen Group claims that orders denying motions to dismiss a bankruptcy case due to a debtor’s bad faith are interlocutory orders, and thus that orders denying motions for stay relief premised on bad faith should likewise be interlocutory orders.
Jackson Masonry counters that Ritzen Group’s attempt to compare the finality of a denial of a motion for stay of relief premised on bad faith with the finality of a denial of a motion to dismiss premised on bad faith is incorrect. This is because, according to Jackson Masonry, an order denying a motion to dismiss does not “fix the parties’ rights and obligations or otherwise trigger significant consequences,” unlike an order denying a motion for stay relief. That is, the consequences of denying a motion to dismiss are different than the consequences of denying a motion for stay relief. Nonetheless, Jackson Masonry contends that even if Ritzen Group is correct on the bad-faith point, the bankruptcy court conclusively determined in the Denial Order that Jackson Masonry’s bankruptcy petition was not filed in bad faith. Furthermore, Jackson Masonry claims that Ritzen Group did not renew its bad-faith argument or object to plan confirmation based on bad faith.
THE EFFECT ON JUDICIAL EFFICIENCY IN BANKRUPTCY CASES
Ritzen Group argues that considering denials of motions for stay relief to be final orders will impede judicial efficiency in the bankruptcy context by violating the policy against “piecemeal appeals.” According to Ritzen Group, the policy against piecemeal appeals increases judicial efficiency by requiring that all issues in a case be decided in a single appeal rather than in multiple appeals, thus saving time and expenses. Further, Ritzen Group asserts, the policy against piecemeal appeals encourages settlement of claims, which is particularly important in the bankruptcy context where resources are already scarce. Ritzen Group claims that following the Sixth Circuit’s approach to determining appealability will directly violate the important policy against piecemeal appeals by transforming any order that disposes of a procedurally defined action within a bankruptcy case into a final order subject to immediate appeal. The effect of this, Ritzen Group contends, will be to cause protracted delays and impose costs associated with appellate litigation on parties at the outset of bankruptcy litigations.
The National Association of Consumer Bankruptcy Attorneys (“the Association”), in support of Jackson Masonry, disagrees with Ritzen Group and maintains that making denials of stay relief immediately appealable will not lead to piecemeal appeals in bankruptcy litigation. According to the Association, because a bankruptcy court’s order denying stay relief is the final decision on the matter, there cannot be successive appeals over that same dispute. Further, the Association emphasizes the need for expedition when resolving such motions. Because stay-relief motions present threshold questions that affect how the bankruptcy case proceeds, the Association contends that it is better to quickly and conclusively resolve those motions at the outset of the bankruptcy case. Jackson Masonry adds that it is Ritzen Group’s proposed rule of treating denial orders as interlocutory orders that would cause a tremendous waste of time and resources. Jackson Masonry argues Ritzen Group’s rule wastes times and money by forcing creditors to litigate their underlying claims in bankruptcy court and then appeal the denial order and seek to relitigate those same claims in the original court they were filed in. The Association concludes that making the bankruptcy process more costly will particularly harm consumer debtors, who often “have limited financial resources” and whose “lawyers typically work on modest fixed retainers.”
- Michael L. Cook: Third Circuit Clarifies Appeal Process in Settlement and Reorganization Plan Disputes, Law Journal Newsletters (Sept. 2019).
- Brad Kutner: Bankruptcy Stay of Land Deal Spat Heads to High Court, Courthouse News Service (May 20, 2019).
- Bill Lewis: Nations Land Deal Dispute Headed to Supreme Court, Nashville Post (Jul. 24, 2019).