Supreme Court Offers Ruling on Bankruptcy Appeals Case

On Writ of Certiorari to the United States Court of Appeals for the Sixth Circuit, the Supreme Court rendered a decision in the case of Ritzen Grp., Inc. v. Jackson Masonry, LLC (In re Jackson Masonry, LLC), 906 F. 3d 494, 2018 U.S. App. LEXIS 29009 (6th Cir. Tenn. Oct. 16, 2018).  which held that an order granting relief from the automatic stay that entered without prejudice was final and immediately appealable.  

In its decision, the court did not rule on whether an order denying a motion for relief from stay without prejudice is a final order noting that further developments might change the stay calculus under any such ruling.  

This decision stems from the case of Ritzen Grp., Inc. V. Jackson Masonry, LLC, 2020 U.S. LEXIS 526.  Ritzen Group, Inc. (Ritzen) sued Jackson Masonry, LLC (“Jackson”) in state court for breach of a land-sale contract.  Thereafter, Jackson filed for Chapter 11 bankruptcy protection which followed by Ritzen’s filing of a motion for relief from the automatic stay seeking an order from the Bankruptcy Court allowing the trial to proceed in state court.  After a hearing on Ritzen’s motion, the Bankruptcy Court denied the motion. Pursuant to 28 U.S.C. §158(c)(2) and Fed. Rule Bkrtcy. Proc. 8002(a), parties are required to appeal from a final order “within 14 days after entry of the …order being appealed”.  Ritzen did not appeal from the order denying relief from stay within that 14 day period, instead, Ritzen proceeded with filing a proof of claim in the underlying Chapter 11 bankruptcy case in pursuit of his breach of contract claim. Only after Ritzen’s Proof of Claim was disallowed did Ritzen filed an appeal in the District Court for the Middle District of Tennessee seeking to challenge the order denying relief from the automatic stay.  

On appeal to the District Court, the District Court rejected Ritzen’s appeal of the order holding that under §158(c)(2) and Fed. Rule Bkrtcy Proc. 8002(a), the time to appeal expired 14 days after entry of the bankruptcy order.  Ritzen thereafter filed a further appeal to the Court of Appeals for the Sixth Circuit wherein it affirmed the District Court’s decision. Thereafter, the United States Supreme Court granted certiorari to resolve whether the orders granting relief from stay were final appealable orders under §158(a)(1).  

Under review by the Supreme Court was the question of the finality of the order granting relief from stay and therefore the time allowed for appeal from that order.  Ritzen argued that denial of stay relief determines nothing more than the forum for claim adjudication and is nothing more than a preliminary step in the claims adjudication process.  The court rejected that argument. In its analysis, the court determined the applicability of §158(a)’s finality requirement together with its opinion in Bullard V. Blue Hills Bank, 575 U.S. 496, 135 S. Ct. 1686, 191 L. Ed. 2d 621.  In the Bullard case, the court held that an order rejecting a proposed plan was not final because it did not conclusively resolve the relevant “proceeding” and that “proceeding” would continue up to the time the plan was approved.  Id. At 502, 135 S. Ct 1686, 191 L. Ed. 2d 621, Pg. 6. In applying Bullard to its analysis in this case, the court had to determine how to define the immediate appealable “proceeding” in the context of a relief from stay motion. Under this analysis, the court determined that motions for relief from stay are considered a discrete proceeding which disposes of a procedural unit anterior to, and separate from, claim-resolution proceedings which occurs before and apart from the proceedings on the merits of a creditor’s claim.

Unlike in Bullard where the court held that an order denying a proposed plan did not resolve the relevant proceeding, the relief from bankruptcy’s automatic stay presents a “discrete dispute qualifying as an independent proceeding within the meaning of §158(a) which terminates a procedural unit separate from the remaining case, not whether the bankruptcy court has preclusively resolved a substantive issue”. The court went on to say that it is common for bankruptcy courts to resolve discrete controversies definitively while leaving the underling bankruptcy case pending.  Delaying appeals of these controversies would postpone appellate review of fully adjudicated disputes until termination of the entire bankruptcy case causing an “untoward consequence”. Early reversals of incorrect decisions would allow a bankruptcy court to unravel later adjudications rendered in reliance on the earlier decision. See Ritzen Grp., Inc. V. Jackson Masonry, LLC at page 6. In rejecting Ritzen’s argument that the denial of stay relief determines nothing more than the forum for claim adjudication and is nothing more than a preliminary step in the claims adjudication process, the court argued that resolution of a motion for stay relief can have large practical consequences including isolating the claim from creditors in lieu of going it alone outside of bankruptcy and that leaving the stay in place can cause value decline and collection delay.  

Because the underlying “proceeding” in the Ritzen case was adjudication of a motion for relief from the automatic stay, that denial order was final with nothing more for the bankruptcy court to do in that proceeding.  The decision of the Court of Appeals was Affirmed.