Reaching an issue the Supreme Court left undecided in Ritzen, the Ninth Circuit held that denial of a stay-relief motion without prejudice can still be a final, appealable order.
The appeals court looked beyond the “without prejudice” label placed on the order by the bankruptcy court to decide whether denial of the motion meant that the creditor would not have stay relief for the purpose sought by the creditor.
Reversing the district court, which had believed that the order was not appealable, the panel majority reached the merits and upheld the bankruptcy court’s denial of stay relief.
Stay-Relief Motion Denied
The debtor and a creditor had been embroiled in litigation in Massachusetts state court for seven years, trading claims and counterclaims about breach of fiduciary duty and fraudulent misrepresentation. One week before a jury trial was to begin in Massachusetts, the debtor-defendant filed a chapter 7 petition in California.
The creditor filed a $2 million claim in bankruptcy court, a complaint in bankruptcy court to bar discharge of the debt and a companion motion to modify the automatic stay. The creditor reasoned in the lift-stay motion that the Massachusetts court was familiar with the case and could resolve all questions about the validity of the claim and facts indicating whether the claim was dischargeable.
Originally inclined to modify the stay, the bankruptcy court ultimately denied the motion without prejudice.
The district court denied the creditor’s motion for leave to appeal an interlocutory order. The creditor appealed to the circuit.
The Ninth Circuit panel handed down two decisions on March 8. One decision unanimously reversed the district court by holding that lift-stay denial was a final, appealable order. In the second opinion, all three judges found reason to rule on the merits. Over a dissent, two judges in the second opinion upheld denial of the lift-stay motion.
Lift-Stay Denial Was Appealable
In his precedential opinion on finality, Circuit Judge A. Wallace Tashima began by citing Ritzen Group, Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582 (2020), where the Supreme Court held that an order denying a stay-relief motion is final and appealable when it “conclusively resolve[s] the movant’s entitlement to the requested relief.” Id. at 591. Citing Bullard v. Blue Hills Bank, 575 U.S. 496, 501 (2015), the Supreme Court went on to say that “[o]rders in bankruptcy cases qualify as ‘final’ when they definitively dispose of discrete disputes within the overarching bankruptcy case.” Id. 586.
In Ritzen, Judge Tashima said that the Supreme Court “did ‘not decide whether finality would attach to an order denying stay relief if the bankruptcy court enters it “without prejudice” because further developments might change the stay calculus.’” Id. at 592, n.4. To read ABI’s report on Ritzen, click here.
Confronting the question left undecided in Ritzen, Judge Tashima said, “We address the finality of an order denying stay relief without prejudice.”
In the case on appeal, Judge Tashima said that “the record makes clear that the [bankruptcy] court ‘unreservedly denied relief’” even though “the bankruptcy court stated that the denial was without prejudice.”
Judge Tashima gave several reasons for his conclusion about finality. Principally, the bankruptcy judge made it clear that the issues in the creditor’s proof of claim and adversary proceeding would be tried in bankruptcy court, not before a jury in state court. The bankruptcy court said it would hold trial in short order and gave no indication of an inclination to revisit stay relief.
In saying that stay denial was without prejudice, Judge Tashima said that the bankruptcy court meant that it was “willing to consider stay relief if sought for a different purpose, but not for the purpose of resolving [the creditor’s] state claims against [the debtor].”
The Merits of Stay Relief
In a separate but nonprecedential opinion, the panel dealt with the merits: Did the bankruptcy court abuse its discretion in denying stay relief? On the merits, the panel was divided. Oddly enough, Judge Tashima would have reversed and modified the stay.
The affirmance on the merits was an unsigned memorandum principally by the other two judges on the panel, Circuit Judges Milan D. Smith, Jr. and Paul J. Watford.
Generally, the two judges said, the appeals court would remand to the district court after reversing on appealability. In the case before them, they said that the record presented the issues, and the circuit court was in as good a position as the district court to address the merits.
The two judges saw no abuse of discretion and upheld denial of the stay-relief motion. Among other things, they said that the bankruptcy court “properly considered the interests of judicial economy.”
The Dissent
Judge Tashima agreed that the panel should reach the merits of stay relief. However, he “respectfully” dissented. He identified several reasons why the stay should have been modified.
State law issues predominated, he said. There would have been no basis for federal jurisdiction on many of the issues had there been no bankruptcy, and the creditor had a right to a jury trial.
Judge Tashima believed that denial of stay modification was an abuse of discretion.
The opinions are Harrington v. Mayer (In re Mayer), 20-56340 (9th Cir. March 8, 2022), and Harrington v. Mayer (In re Mayer), 20-56340 (9th Cir. March 8, 2022).
Reaching an issue the Supreme Court left undecided in Ritzen, the Ninth Circuit held that denial of a stay-relief motion without prejudice can still be a final, appealable order.
The appeals court looked beyond the “without prejudice” label placed on the order by the bankruptcy court to decide whether denial of the motion meant that the creditor would not have stay relief for the purpose sought by the creditor.
Reversing the district court, which had believed that the order was not appealable, the panel majority reached the merits and upheld the bankruptcy court’s denial of stay relief.