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Bankruptcy Stay Orders Immediately Appealable, Justices Say (1)

Jan. 14, 2020, 4:31 PMUpdated: Jan. 14, 2020, 7:58 PM

A bankruptcy court’s ruling on a creditor’s request to lift the automatic stay against a debtor is an immediately appealable decision, the U.S. Supreme Court said.

Bankruptcy cases’ unique structure creates a final order when a motion to peel back debtors’ protections is approved or rejected, according to Ritzen Group v. Jackson Masonry, a unanimous decision written by Justice Ruth Bader Ginsburg Tuesday.

The “adjudication of a motion for relief from the automatic stay forms a discrete procedural unit within the embracive bankruptcy case” that can be challenged without waiting to see how the remainder of the case plays out, the justices said, affirming a number of lower courts.

Creditors either will have to appeal right away or push for rulings on motions to lift stays that are made without prejudice, meaning they can ask again for a lift as the bankruptcy case proceeds.

Shielded from Trial

Jackson Masonry filed for Chapter 11 protection in March 2016, seven days before it was scheduled to face a state court trial for allegedly breaching a $1.55 million land-sale contract with Ritzen, a real estate management company. The filing automatically paused the state court proceeding.

Ritzen urged the U.S. Bankruptcy Court for the Middle District of Tennessee to let the state court proceedings continue, claiming that Jackson filed the Chapter 11 case in bad faith to avoid the trial, according to court filings.

After losing its motion to lift the stay, Ritzen pursued its arguments against Jackson within the bankruptcy case’s claims adjudication process instead of filing an immediate appeal. Ritzen was dealt another blow when the bankruptcy court ruled that its contract claims were disallowed because of the creditor’s own breach of the sale agreement.

Ritzen finally appealed the denial of its motion to lift the stay after Jackson confirmed a Chapter 11 plan of reorganization. A federal district court and the U.S. Court of Appeals for the Sixth Circuit both said the company waited too long to challenge the denial. A 14-day appeal clock began running as soon the bankruptcy court made its decision on the motion, they said.

Specifying What’s Final

The high court agreed to hear Ritzen’s appeal last year “to resolve whether orders denying relief from bankruptcy’s automatic stay are final.” The issue drew the attention of the Department of Justice, which argued that the bankruptcy court ruling on the lift stay motion was a final order with immediate consequences.

Ritzen said the order wasn’t final because it didn’t define any party’s substantive rights and obligations, but merely determined whether the dispute would be litigated in bankruptcy court. As a result, Ritzen said it waited to appeal until the bankruptcy court ruled on the merits of the contract claims.

Citing its 2015 ruling in Bullard v. Blue Hills Banks, the Supreme Court said bankruptcy court orders are considered final “when they definitively dispose of discrete disputes within the overarching bankruptcy case.”

The determination of a motion for relief from a stay “occurs before and apart from proceedings on the merits of creditors’ claims” and has important implications that can affect the entire process of resolving claims against the bankruptcy estate, Ginsburg wrote for the court.

“These are not matters of minor detail; they can significantly increase creditors’ costs,” she said.

The case is Ritzen Grp., Inc. v. Jackson Masonry, LLC, U.S., No. 18–938, 1/14/20.

(Updated with additional reporting throughout)

To contact the reporter on this story: Alex Wolf in New York at awolf@bloomberglaw.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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