A district judge in Arizona interpreted Bullard v. Blue Hills Bank in a fashion that can once again block secured creditors from automatically appealing orders that deny stay modifications without prejudice.
In the Arizona case, the bankruptcy court conducted a valuation hearing and concluded that the debtor’s chapter 11 plan placed an inadequate value on the secured lender’s collateral. The bankruptcy court entered a seemingly final order modifying the stay if the debtor were not able to confirm a plan by a specified date that incorporated the court’s higher valuation.
The debtor appealed the stay modification order, modified the plan, and successfully persuaded the bankruptcy judge to extend the “drop dead” date when the stay modification would become effective.
When the appeal came up for hearing, District Judge Neil V. Wake of Phoenix dismissed the appeal in an opinion on April 15, saying the stay modification order was interlocutory, not final.
Judge Wake cited the Supreme Court’s 2015 Bullard opinion for the proposition that denial of confirmation with leave to file an amended plan was not a final order. By analogy, he held that a seemingly final stay modification became non-final and thus not automatically appealable because the bankruptcy judge repeatedly extended the deadline.
In automatic stay litigation, some bankruptcy judges in years past would deny stay relief without prejudice, rendering their orders non-final and thus non-appealable without leave of the court. Later, district courts began treating non-final denials of stay modifications as final orders conferring an automatic right of appeal, because they saw how secured creditors were in substance bereft of the ability to appeal for extended periods of time.
In the lift-stay context, Judge Wake’s plausible interpretation of Bullard may be adopted by other courts to throw roadblocks in the way of secured creditors and give more ammunition to bankruptcy judges intent on giving debtors time to reorganize.
Secured creditors on the losing end of lift-stay litigation could try distinguishing Judge Wake’s case, pointing out how the debtor was the appellant and the Section 362 motion was granted. Still, Judge Wake’s case held that prospective stay modification is interlocutory.
Since modifying the stay even prospectively is more drastic than denying a motion without prejudice, Judge Wake arguably had a more compelling case for allowing an appeal.
Time will tell whether other district and circuit courts will adopt a similarly broad application of Bullard to cases not involving plan approvals. It is undeniable that the Supreme Court intended to narrow the types of orders than can be appealed and allow less discretion in deciding whether an order is final or interlocutory. It remains to be seen whether the high court was wise in limiting the ability to appeal in bankruptcy cases.