Supreme Court Agrees to Rule on What Is or Is Not a ‘Final, Appealable’ Order

In addition to ruling on the effect of rejecting a trademark license, the Supreme Court yesterday agreed to review one bankruptcy case and denied a petition for certiorari in another.

In Ritzen Group Inc. v. Jackson Masonry LLC, the Court granted certiorari to shed more light on what is or is not a final order conveying a right of appeal in a bankruptcy case. The justices declined to review Davis v. Tyson Prepared Foods Inc., a case that could have said whether passively holding property of the estate violates the automatic stay under Section 362(a).

Yesterday, the high court ruled that rejecting an executory trademark license does not bar the licensee from continuing to use the license. To read ABI’s report on Mission Product Holdings Inc. v. Tempnology LLC, 17-1657 (Sup. Ct. May 20, 2019), click here.

Ritzen and Final Orders

In Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015), the Supreme Court ruled that an order denying confirmation of a chapter 13 plan is not a final order conferring a right to appeal. In Ritzen, the high court will have an opportunity to flesh out the definition of finality.

The creditor who lost in Ritzen contends that the Sixth Circuit deepened an existing circuit split by erroneously holding that an order denying a motion to modify the automatic stay is always a final order that must be appealed immediately.

In bankruptcy court, the creditor lost a motion to modify the automatic stay in Section 362 but did not appeal within 14 days. Instead, the creditor appealed from denial of the lift-stay motion months later when the bankruptcy judge sustained the debtor’s objection to the creditor’s claim.

In October, the Sixth Circuit upheld the district judge who had dismissed the stay appeal for being untimely. 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 Sixth Circuit cited five other circuits and the Collier treatise for saying that courts “almost uniformly” hold that denial of a lift-stay motion is an appealable order. However, the Sixth Circuit went on to lay down a two-part rule to determine whether any type of order is final and therefore appealable.

Interpreting the governing statute, 28 U.S.C. § 158(a), the Sixth Circuit said that an order is final if it was entered in a “proceeding” and if the order terminated that proceeding. Because a lift-stay motion is a core “proceeding,” denial of motion was final because it was procedurally complete and precluded the creditor from pursuing its claim against the debtor outside of bankruptcy court, citing Bullard.

In the petition for certiorari, the creditor contends there is a split of circuits, with eight circuits holding that orders denying lift-stay motions “are categorically appealable.” On the other hand, the petitioner claims that the First and Third Circuits take a flexible approach by saying that denying a modification of the stay sometimes may not be final.

The petitioner believes that the Sixth Circuit misapplied Bullard and Gillespie v. U.S. Steel Corp., 379 U.S. 148, 152 (1964). In Gillespie, the petitioner says, the Supreme Court said that finality is sometimes a “close question” and that it is “impossible to devise a formula to resolve all marginal cases.”

The petitioner may be correct in interpreting Supreme Court precedent. The Sixth Circuit did establish a seemingly rigid, two-part test for all cases, arguably at odds with Gillespie. However, the Sixth Circuit may have correctly applied Bullard and Gillespie to the case before the appeals court. In Bullard, the high court ruled that an order denying confirmation of a chapter 13 plan was not a final, appealable order because denying confirmation did not terminate the proceeding, unlike denial of a lift-stay motion.

In deciding Ritzen, the Supreme Court might lay down a one-size-fits-all rule to discern between orders that are final and those that are not. A more difficult question arises with denials of lift-stay motions.

Suppose that the bankruptcy court denies a lift-say motion without prejudice, saying the creditor can apply again because the passage of time might inform a difficult result. In times past, some bankruptcy judges routinely denied stay motions without prejudice, ostensibly to preclude the creditor from appealing.

Ruling that denials of stay motions are never appealable can effectively preclude appellate review, because later events in the case can moot the stay appeal. To this writer, a hard-and-fast rule may appeal to those seeking an answer in the statute, but rigidity ignores the realities of bankruptcy practice.

For decades, courts have been taking a flexible approach to appealability in bankruptcy cases. Bullard cut back on the notion of flexibility, and Ritzen may allow the Court to impose a more inflexible standard.

With certiorari granted this spring, the case will be argued in the fall of 2019, unless the parties request extensions of time to file their briefs on the merits. A decision could be expected two or three months later.

The Automatic Stay Case

The high court refused to permit a final appeal in Davis v. Tyson, where the Tenth Circuit held that the automatic stay does not prevent a statutory worker’s compensation lien from attaching automatically after bankruptcy to a recovery in a lawsuit. Davis v. Tyson Prepared Foods Inc. (In re Garcia), 740 Fed. Appx. 163 (10th Cir. Oct. 17, 2018). To read ABI’s analysis of Davis, click here.

The outcome in Davis was not surprising, because the Tenth Circuit had ruled in WD Equipment v. Cowen (In re Cowen), 849 F.3d 943 (10th Cir. Feb. 27, 2017), that passively holding an asset of the estate in the face of a demand for turnover does not violate the automatic stay in Section 362(a)(3) as an act to “exercise control over property of the estate.”

The circuits are split. According to the debtor who sought Supreme Court review in Davis, the Second, Seventh, Eighth, Ninth and Eleventh Circuits have held that passively holding estate property or passively obtaining an interest in estate property after filing violates the automatic stay. In those circuits, for example, a creditor who repossessed an auto before bankruptcy must automatically return the car after the debtor files a chapter 13 petition, on pain of contempt.

The Tenth and the District of Columbia Circuits have ruled to the contrary, holding that an affirmative action is required to underpin an automatic stay violation.

Although the Court will not rule on Davis, the same issue likely will come to the justices again, sooner rather than later. Last week, the identical question was argued in the Seventh Circuit in City of Chicago v. Fulton, 18-2527 (7th Cir.). Indeed, Fulton may turn out to be a better vehicle for the Supreme Court to resolve the circuit split.

Fulton deals with cars impounded by the City of Chicago for unpaid parking tickets. Chicago believes that the mere filing of a chapter 13 petition does not compel the automatic turnover of an impounded car. The debtors argue that holding onto a car violates the automatic stay.

At last week’s oral argument, the appeals court panel seemed to believe that the outcome was already decided in that circuit by Thompson v. General Motors Acceptance Corp., 566 F.3d 699 (7th Cir. 2009). There, the Seventh Circuit ruled that passively holding an asset is an act to “exercise control” that violates the automatic stay under Section 362(a)(3).

Whoever wins in Fulton, there is likely to be a petition for certiorari. If the Seventh Circuit hands down a decision this summer, the request for Supreme Court review could arrive before the year’s end.

The cases are Ritzen Group Inc. v. Jackson Masonry LLC, 18-938 (Sup. Ct.) (cert. granted May 20, 2019), and Davis v. Tyson Prepared Foods Inc., 18-941 (Sup. Ct.) (cert. denied May 20, 2019).