The Finality Countdown: Why the Supreme Court Is Unlikely to Adopt a “Blanket Rule” of Finality for Orders Denying Stay Relief in Ritzen Group, Inc. v. Jackson Masonry LLC

This November, the Supreme Court will hear oral argument in Ritzen Group Inv. v. Jackson Masonry LLC[1] and ultimately will determine whether a particular bankruptcy court order that denied a stay-relief motion is a final, immediately appealable order under 28 U.S.C. § 158(a)(1). But perhaps the most important issue in the case for practitioners generally is that the Court is poised to resolve a circuit split over whether all orders denying stay relief are final, immediately appealable orders as a categorical rule. In this article, I briefly outline three arguments against the rationales that have developed in the case law in favor of the so-called “blanket rule” of finality, which I suggest will convince the Court not to adopt the blanket rule.[2]

The Exception that Undermines the Blanket Rule

Put simply, if one can identify even one example of a non-final stay-relief denial order, there can be no blanket rule. In fact, the First Circuit Court of Appeals has held that an order denying stay relief was not final.[3] To make a long story short, in Atlas IT Export, the First Circuit held that a stay-relief denial order was nonfinal because the moving party had recourse in another, nonbankruptcy forum to have its rights determined with respect to a nonbankruptcy litigation issue that formed the basis for its stay-relief motion. In its ruling, the First Circuit highlighted the fact that the bankruptcy court could revisit the stay-relief question again based on subsequent events in the nonbankruptcy courts, thus demonstrating the lack of finality of the bankruptcy court’s order.[4]

To underscore the possibility that an order denying stay relief could be nonfinal, take a more common example: a motion for stay relief under § 362(d)(2). Under that section, the creditor must show that the debtor has no equity in its collateral property, and upon meeting this burden, the debtor then has the burden to show that the property is “necessary for an effective reorganization.” Whether the property is “necessary for an effective reorganization” is judged on a sliding scale: The debtor may make a lesser showing that reorganization is probable during the exclusivity period, but must show more than mere “plausibility” of its chances to reorganize after exclusivity has expired.[5]

Given this sliding scale, an order denying a § 362(d)(2) motion that is issued during the exclusivity period lacks the indicia of finality set forth in Bullard,[6] Jackson Masonry and elsewhere. The status quo is not altered, and the substantive rights and obligations of the parties are not set in stone. Indeed, the passage of time alone could lead a bankruptcy court to revisit the issue and grant stay relief. These facts all suggest that an early-case § 362(d)(2) denial order may not be a final, appealable order.

Supreme Court Has Previously Rejected Mootness and Judicial Economy Arguments

The judicial economy policy most often cited in support of the rule of finality generally is that it discourages piecemeal litigation. In Bullard, the U.S. Supreme Court emphasized the importance of discouraging piecemeal appeals in bankruptcy, stating that the cost of denying an immediate appeal is outweighed by the costs of piecemeal appeals generally.[7] The Court made clear that our court system is not designed to provide recourse by appeal for every order.[8] In other words, the Court is not concerned that creditors might not always have immediate appellate recourse. What concerns the Court is whether a particular order bears the telltale signs of a final order — that it alters the status quo and determines the parties’ substantive rights, leaving no more judicial labor for the court with respect to the issue.

Given Bullard, the Court is unlikely to adopt a blanket rule that not only encourages, but requires, mid-case appeals, thereby eviscerating the judicial economy rationale for the rule of finality. Likewise, the Court will not be persuaded to adopt a blanket rule by the fact that some creditors may never have recourse to appellate review due to subsequent events mooting their appeal. In the Court’s view, the prospect of “burdensome rulings” being only “imperfectly reparable” is “made tolerable in part by our confidence that bankruptcy courts, like trial courts in ordinary litigation, rule correctly most of the time.”[9]

Injunction Analogy Inverts Reality

Some courts have justified the “blanket rule” by analogizing the denial of stay relief to the imposition of a temporary injunction. Respectfully, a stay-relief-denial order is not analogous to a permanent injunction.[10] The default status quo upon filing a bankruptcy case is the cessation of all creditor collection activity. This is so solely by operation of § 362 of the Code. An order lifting the stay upsets that status quo and makes the debtor’s property subject to creditor collection activity again, no doubt warranting immediate appellate review. By contrast, an order denying stay relief preserves the status quo and, in most circumstances, does not preclude the moving creditor from renewing its request for stay relief upon a change in circumstances. For these reasons, the Court should not be persuaded by the faulty injunction analogy to adopt the blanket rule.

Conclusion

While there are multiple reasons why courts and practitioners alike may prefer the straightforward certainty of a categorical, blanket rule of finality with respect to orders denying stay relief, there are at least three good reasons to think the Supreme Court will not adopt such a rule in Jackson Masonry.