To give better definition to what is or is not a final, appealable order in a bankruptcy case, the Supreme Court heard oral argument in Ritzen Group Inc. v. Jackson Masonry LLC, 18-938 (Sup. Ct.). The decision will allow the justices to refine the holding in Bullard v. Blue Hills Bank, 135 S. Ct. 1686, 191 L. Ed. 2d 621 (2015), where the Court ruled that an order denying confirmation of a chapter 13 plan is not a final order granting the debtor a right of appeal.
At oral argument on November 13, the justices were remarkably quiet, suggesting that they were either bored or had made up their minds already.
Denial of the ‘Lift Stay’ Motion
In bankruptcy court, the creditor lost a motion to modify the Section 362 automatic stay but did not appeal within 14 days. Instead, the creditor appealed from denial of the lift-stay motion months later after the bankruptcy judge had sustained the debtor’s objection to the creditor’s claim. Arguably, the creditor wanted the appellate court to reverse, modify the stay, and permit the creditor to relitigate the claim objection in state court.
In October 2018, 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 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 Supreme Court, the creditor 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.
The creditor believes that eight circuits hold that orders denying lift-stay motions “are categorically appealable.” On the other hand, the creditor contends that the First and Third Circuits take a flexible approach by saying that denying a modification of the stay sometimes may not be final.
Questions from the Bench
Justice Samuel A. Alito prevailed on the creditor’s counsel to admit that the lift-stay motion was a proceeding, thus satisfying the first half of the Sixth Circuit’s test. However, the creditor did not concede that denial of the motion was a final order. The creditor’s attorney said that the denial order would become final at the end of the claim-allowance process.
Highlighting a shortcoming in the creditor’s theory of finality, Justice Alito asked what relief could be given after the bankruptcy court had disallowed the claim. Would the creditor be entitled to a re-do in state court if the stay should have been modified? Justice Alito answered his own question by saying, “I don’t understand how you can unscramble the egg.”
The creditor’s lawyer admitted that the debtor could have appealed immediately if the bankruptcy court had modified the stay. Justice Stephen G. Breyer, who wrote a bankruptcy opinion in the last term, then honed in on the notion of symmetry. If the debtor could appeal immediately, why couldn’t the creditor also take an immediate appeal?
Touching on an issue central to the case, Justice Breyer said that ruling either way on a lift-stay motion makes an “enormous change” in the bankruptcy case because it affects how much property will be left in the estate to administer. To the same point, Justice Alito inquired as to why denial of a lift-stay motion was not final given the effect on the case.
Chief Justice John G. Roberts, Jr. likewise focused on finality. He observed that denying a lift-stay motion means there is “nothing left to do” other than litigate in bankruptcy court.
Justices Sonia Sotomayor and Neil M. Gorsuch raised a troubling issue for the debtor. Since bankruptcy judges can revisit lift-stay motions, does the possibility of reconsideration suggest that denial is not a final order? Justice Breyer piped in, adding that courts in some countries are bogged down because they are too liberal in permitting appeals. (No one mentioned at oral argument that there has been no flood of appeals from lift-stay denials although the circuits treat them as appealable. In this writer’s experience, most stay appeals are taken by debtors after the court has modified the stay.)
During argument by the debtor’s counsel, Justices Alito and Brett M. Kavanaugh focused on the concept of altering the status quo, an issue that may become the focus of the Court’s opinion. They referred to Bullard as suggesting that an order is not final if it does not alter the status quo.
Is denial of a lift-stay motion an interlocutory order because it does not alter the status quo? Justice Alito questioned whether the Court should elevate alteration of the status quo to “an essential element of finality.” On the other hand, he said, perhaps maintenance of the status quo can sometimes be a final order.
Taking sides with the debtor, the U.S. Solicitor General argued that altering the status quo can occur by making things certain, not just by changing things. In other words, denial of a lift-stay motion makes it certain that litigation will occur in bankruptcy court, not in state court.
Justice Gorsuch wondered whether the Sixth Circuit had the right idea but used the wrong terms. Rather than focusing on whether the bankruptcy court had denied the motion with or without prejudice, perhaps the outcome should turn on whether the ruling by the bankruptcy court was final versus preliminary.
At the end of the Solicitor’s General’s argument, the question of remedy again arose. When the case is over, what relief could an appellate court grant by ruling that the stay should have been lifted? The Solicitor General said he was “highly skeptical” that reversal at the end of the case would be grounds for overturning an otherwise final order.
Justice Elena Kagan summed up the competing policy questions confronting the Court: Should the Court risk allowing piecemeal appeals, or come down with a ruling that would unwind bankruptcy proceedings?
The Focus on ‘Finality’
Practical considerations rather than labels seemed to be at the core of many questions from the Court. The justices seemed to shy away from the notion given birth in Bullard that alteration of the status quo is a requisite for a final order.
As Justice Alito said at the outset and Justice Kagan observed at the end, what relief could be granted at the end of the case if denial of a lift-stay motion was error? And as Justices Alito and Kavanaugh indicated, the element of certainty resulting from denial of a lift-stay motion may contain the necessary indicia of finality. In that regard, the Court could analogize denial of a lift-stay motion to the entry of a permanent injunction, which is appealable.
Unlike some circuits, the justices did not mention a flexible, pragmatic, case-by-case approach to finality. While the Court will surely search for a bright-line rule, the subtleties of bankruptcy litigation, we hope, will persuade the justices to lay down a standard recognizing fine distinctions from one case to another.
To read the transcript of oral argument, click here.
To give better definition to what is or is not a final, appealable order in a bankruptcy case, the Supreme Court heard oral argument in Ritzen Group Inc. v. Jackson Masonry LLC, 18-938 (Sup. Ct.). The decision will allow the justices to refine the holding in Bullard v. Blue Hills Bank, 135 S. Ct. 1686, 191 L. Ed. 2d 621 (2015), where the Court ruled that an order denying confirmation of a chapter 13 plan is not a final order granting the debtor a right of appeal.
At oral argument on November 13, the justices were remarkably quiet, suggesting that they were either bored or had made up their minds already.
Denial of the ‘Lift Stay’ Motion
In bankruptcy court, the creditor lost a motion to modify the Section 362 automatic stay but did not appeal within 14 days. Instead, the creditor appealed from denial of the lift-stay motion months later after the bankruptcy judge had sustained the debtor’s objection to the creditor’s claim. Arguably, the creditor wanted the appellate court to reverse, modify the stay, and permit the creditor to relitigate the claim objection in state court.
In October 2018, 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 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 Supreme Court, the creditor 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.
The creditor believes that eight circuits hold that orders denying lift-stay motions “are categorically appealable.” On the other hand, the creditor contends that the First and Third Circuits take a flexible approach by saying that denying a modification of the stay sometimes may not be final.