The Supreme Court ruled unanimously today in Ritzen v. Jackson Machinery that an order denying a motion to modify the automatic stay is a final, appealable order “when the bankruptcy court unreservedly grants or denies relief.”

In her unanimous opinion for the Court, Justice Ruth Bader Ginsburg said that a lift-stay motion is a “procedural unit” separate from the remainder of the bankruptcy case, even though the decision to retain the stay may be “potentially pertinent to other disputes.”

The decision in Ritzen may contain a trap for creditors: A bankruptcy court could deny a creditor the right to appeal, perhaps for an extended time, by denying a lift-stay motion without prejudice or offering to reexamine the result in light of subsequent events. 

The Facts

Before bankruptcy, the creditor had a contract to buy land from the debtor. The deal never closed, and the creditor sued in state court for breach of contract. Before trial, the debtor filed a chapter 11 petition.

In bankruptcy, the creditor moved to modify the stay so that the state court could decide who breached the contract. The bankruptcy court denied the motion. The creditor did not appeal.

The creditor filed a proof of claim, but the bankruptcy court disallowed the claim, ruling that the creditor, not the debtor, had breached the contract. Without objection from the creditor, the bankruptcy court confirmed the debtor’s plan.

The creditor then filed an appeal from denial of the lift-stay motion and from disallowance of the claim. The district court dismissed the stay appeal as untimely and upheld the claim ruling on the merits.

The Sixth Circuit affirmed. Ritzen Group Inc. v. Jackson Masonry LLC (In re Jackson Masonry LLC), 906 F.3d 494 (6th Cir. Oct. 16, 2018). To read ABI’s analysis of the Sixth Circuit’s opinion, click here.

The creditor filed a petition for certiorari, contending there was a split of circuits. The Supreme Court granted certiorari in May. The case was argued on November 13.

Bankruptcy Isn’t Like Ordinary Litigation

Appealability is governed by 28 U.S.C. § 158(a), which gives district courts jurisdiction over appeals from “final judgments, orders, and decrees . . . in cases and proceedings referred to bankruptcy judges . . . .”

Justice Ginsburg acknowledged that ordinary rules of finality are “not attuned to the distinctive character of bankruptcy litigation.” Bankruptcy, she said, is “an aggregation of individual controversies,” quoting the Collier treatise. She explained why appeals from individual controversies cannot await resolution of the entire bankruptcy case.

The outcome was guided, if not controlled, by Bullard v. Blue Hills Bank, 575 U.S. 496 (2015), where the Supreme Court held that denial of confirmation of a chapter 13 plan is not a final, appealable order. She paraphrased Bullard as holding that bankruptcy court orders are final when they “definitively dispose of discrete disputes within the overarching bankruptcy case.”

To be final under Bullard, an order must alter the status quo and fix the rights and obligations of the parties, Justice Ginsburg said.

Justice Ginsburg framed the question as whether denial of a lift-stay motion is a “distinct proceeding” that terminates “when the bankruptcy court rules dispositively on the motion.” She said that a majority of courts and leading treatises say that denial of a lift-stay motion is immediately appealable.

Addressing the facts of the case on appeal, Justice Ginsburg said that the lift-stay motion was “a procedural unit anterior to, and separate from, claim-resolution proceedings.” Stay relief, she said, “occurs before and apart from proceedings on the merits of creditors’ claims.”

Of potential significance in the future on questions about the finality of other types of orders, Justice Ginsburg said that resolution of a stay motion “can have large practical consequences.” For example, leaving the stay in place may “delay collection of a debt or cause collateral to decline in value.”

The decision by Justice Ginsburg is a categorical ruling. She saw “no good reason to treat stay adjudication as the relevant ‘proceeding’ in only a subset of cases.” Quoting Supreme Court authority in another context, she said that finality “should ‘be determined for the entire category to which a claim belongs.’ Digital Equipment Corp. v. Desktop Direct Inc., 511 U.S. 863, 868 (1994).”

Justice Ginsburg left little room for contending that denial of a lift-stay motion can sometimes be non-final. She said it “does not matter whether the court rested its decision on a determination potentially pertinent to other disputes in the bankruptcy case, so long as the order conclusively resolved the movant’s entitlement to the requested relief.”

In a footnote at the end of the opinion, Justice Ginsburg said the Court was not deciding whether denial of a motion without prejudice would be final if the bankruptcy court was awaiting “further developments [that] might change the stay calculus.”

Affirming the judgment of the Sixth Circuit, Justice Ginsburg held that the stay-relief motion was the “appropriate ‘proceeding.’” The order “conclusively denying” the motion was final, she said, because the “court’s order ended the stay-relief adjudication and left nothing more for the Bankruptcy Court to do in that proceeding.”

Observation

At first blush, the opinion seems beneficial for creditors by assuring them of their right to appeal denials of lift-stay motions. In practice, however, Ritzen can be used against creditors.

Suppose the bankruptcy court denies a lift-stay motion without prejudice, saying that unfolding events might persuade the court to modify the stay. Denial of a motion without prejudice could therefore cut off the ability to appeal, exerting leverage in favor of the debtor and persuading the creditor to settle.

In upcoming years, courts may be called upon to grapple with the question of whether denial without prejudice may sometimes have the trappings of a final order.