Sixth Circuit Pronounces a Two-Prong Test to Determine ‘Finality’

Appointed to the appeals court last year, Circuit Judge Amul Thapar attempted what no court or commentator has so far accomplished successfully: He formulated a test for deciding when an order is “final” and therefore appealable in the bankruptcy context.

It is unclear, however, whether Judge Thapar’s test can predictably and fairly discriminate between appealable and non-appealable orders in all circumstances.

The appeal to the Sixth Circuit involved a motion to lift the automatic stay, which was denied in bankruptcy court. The creditor who lost the motion did not appeal within 14 days.

Instead, the creditor filed an appeal from the denial of the lift-stay motion months later when the bankruptcy judge sustained the debtor’s objection to the creditor’s claim. In his October 16 opinion, Judge Thapar upheld the district judge who had dismissed the appeal for being untimely.

In his 15-page opinion, Judge Thapar cited five circuits and the Collier treatise for saying that courts “almost uniformly” hold that denial of a lift-stay motion is an appealable order. Rather than cite those authorities and be done with it, he searched for a principled standard to discern “finality.”

Judge Thapar cited Bullard v. Blue Hills Bank, 135 S. Ct. 1686, 1692 (2015), for the proposition that orders are appealable in bankruptcy “if they dispose of discrete disputes within the larger case.” He went on to say that “courts have taken the loose finality in bankruptcy as license for judicial invention. The result: a series of vague tests that are impossible to apply consistently.”

According to Judge Thapar, some courts do not articulate a general test at all. They “simply treat the finality of the specific order before them as a case-by-case question and do not look to or articulate principles that can be applied to other types of orders.”

For guidance in formulating a test, Judge Thapar took counsel from the statute governing appealability, 28 U.S.C. § 158(a), which grants appellate jurisdiction to district courts from “final judgments, orders, and decrees . . . of bankruptcy judges entered in cases and proceedings” under the Bankruptcy Code. “These extra words [cases and proceedings] have meaning,” he said. For 100 years, “courts have viewed ‘proceeding’ as the relevant ‘judicial unit’ for bankruptcy finality,” Judge Thapar said.

For Judge Thapar, the statute provides “a clear test for courts to apply: a bankruptcy court’s order may be immediately appealed if it is (1) ‘entered in [a] . . . proceeding’ and (2) final — terminating that proceeding.”

Applying the two-part test to the case at hand, Judge Thapar first analyzed whether the lift-stay motion was a “proceeding.” He said that a “proceeding” under Section 158(a) is “a discrete dispute within the overall bankruptcy case.” He concluded that a lift-stay motion “fits this description,” because “there is a discrete claim for relief, a series of procedural steps, and a concluding decision.”

Judge Thapar buttressed his conclusion by referencing 28 U.S.C. § 157(b)(2)(G), where lift-stay motions are listed among “core proceedings.”

Turning to the second part of the test and the question of “finality,” Judge Thapar quoted Bullard’s statement that a final order “alters the status quo and fixes the rights and obligations of the parties.” Bullard, 135 S. Ct. at 1692. He quoted a commentator on the idea that “a bankruptcy order is final ‘if it is both procedurally complete and determinative of substantive rights.’”

Applying the definition to conclude that the order was appealable when entered, Judge Thapar ruled that denial of a lift-stay motion was “final” because it was procedurally complete and precluded the creditor from pursuing its claim against the debtor outside of bankruptcy court.

Judge Thapar then claimed that denial of a lift-stay motion without prejudice is an exception that “helps prove the rule.” Insinuating that denial of a motion without prejudice is non-final, he said that courts “may deny stay-relief motions without prejudice if it appears that changing circumstances could change the stay calculus.”

Having dangled the prospect that denial without prejudice is non-final, Judge Thapar said that “we need not determine now whether a stay-relief denial without prejudice is ‘final,’” because denial with prejudice in the case at hand was the “final word on the matter.”

Observation: This writer questions whether “finality” is susceptible to hard-and-fast rules applicable in all circumstances, much like the concept of an executory contract, on which scholars disagree.

Denial of a lift-stay motion without prejudice is a situation where application of Judge Thapar’s test is problematic, because denial without prejudice raises additional considerations beyond the two prongs of his test.

In decades past, some bankruptcy judges often, if not routinely, denied lift-stay motions without prejudice, leading appellate courts to rule that the orders were not appealable because they were not final. For the duration of the bankruptcy case, the creditor would not have recourse to appellate review, thus giving the debtor leverage in negotiations with the creditor.

Over time, some courts came to the view that denial without prejudice did not destroy finality, because dismissing an appeal would be manifestly unfair to the creditor when there was no realistic possibility of appellate review.

Perhaps decisions on finality are circumstances where judges should apply their experience and judgment rather than search for a blanket answer in the skeletal words of a statute. Perhaps case-by-case analysis of finality is not such a bad idea after all. Perhaps the underlying facts of a case will affect finality and defy categorizing specific types of orders as always either final or non-final.

The foregoing observation represents the views of this writer, not ABI.