Finality of Bankruptcy Court Orders for Appeal: U.S. Supreme Court Will Weigh In (Ritzen v. Jackson)

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Finality (photo by Marilyn Swanson)

By: Donald L. Swanson

Appellate deadlines cannot serve their purpose when their trigger is unclear.”

–U.S. Sixth Circuit Court of Appeals in Ritzen v. Jackson.

This should be interesting.

On May 20, 2019, the U.S. Supreme Court granted certiorari to decide whether the denial of a motion for relief from automatic bankruptcy stay is appealable as a “final” order under 28 U.S.C. § 158(a)(1). The case is Ritzen Group, Inc., v. Jackson Masonry, LLC, Supreme Court Case No. 18-938.

Ritzen v. Jackson is interesting because:

  1. The U.S. Supreme Court ruled several years ago that an order denying confirmation of a Chapter 13 plan is neither final nor appealable because Debtor retained the right to file an amended plan; and
  2. The Sixth Circuit Court of Appeals, in Ritzen v. Jackson, reached a seemingly-contrary decision—that an order denying a motion for relief from stay is both final and appealable.

Here’s what the Sixth Circuit said in its Ritzen v. Jackson opinion that’s now before the U.S. Supreme Court.

Facts and Procedural History

Ritzen contracts to buy a piece of property from Jackson. But the sale never happens, and both parties claim a contract breach by the other. A lawsuit ensues, and Jackson files bankruptcy a week before the scheduled trial date.

The bankruptcy automatically stays the lawsuit. So Ritzen files a motion to lift the stay. The Bankruptcy Court denies the motion. Ritzen does not appeal. Instead, Ritzen files a claim in the bankruptcy court, which the parties litigate. Ritzen loses: the Bankruptcy Court finds that Ritzen, not Jackson, breached the contract.

So Ritzen files two appeals with the U.S. District Court: one targets the order denying relief from automatic stay, and the other targets the breach-of-contract determination. The District Court rejectes both appeals: the first as untimely, and the second on the merits.

Ritzen appeals again to the Sixth Circuit Court of Appeals.

Finality of Order Denying Relief from Stay

The Sixth Circuit starts its finality analysis with the language of 28 U.S.C. § 158(a), which authorizes appeals as of right from “final judgments, orders, and decrees.” The Sixth Circuit declares:

“An order denying stay relief terminates a proceeding, so it is final,” and any appeal from such an order must be taken “within fourteen days of the court’s ruling”; and
“Ritzen did not appeal the stay-relief denial within fourteen days,” so “Ritzen’s appeal is untimely.”

The Sixth Circuit explains further: outside of bankruptcy, parties can appeal “final decisions.” Such decisions must dispose of “every claim for relief by every party” so that nothing is left to do “but execute the judgment.” In other words, “parties cannot appeal until the entire case is complete.” The purpose of such a rule is to prevent piecemeal appeals that bog things down and undermine efficient judicial administration.

Bankruptcy is Different

Bankruptcy is different: “A bankruptcy case is an aggregation of individual disputes, many of which could be entire cases on their own.” Ritzen’s contract claim against Jackson is an example:

The contract claim is a fully discrete dispute litigated within the overall umbrella of Jackson’s bankruptcy case; and
Once such a dispute is finally decided, it is immediately appealable—the fact that the overall bankruptcy case may be ongoing is no reason to delay.

A bankruptcy case is like a jigsaw puzzle, and the claims against the bankrupt debtor are the pieces. To complete the puzzle, one must start by putting some of the pieces firmly in place;

Accordingly, Congress has long provided that orders in bankruptcy cases may be immediately appealed if they finally dispose of discrete disputes within the larger case;

–A Problem with the Bankruptcy Test

Unfortunately, courts have taken the loose finality in bankruptcy as a license for judicial invention. The result is a series of vague tests that are impossible to apply consistently. One appellate court, for example, has complained that caselaw on this issue is unclear and that the list of orders considered final is dismayingly long and inconsistent.

In some cases, courts do not articulate a general test at all. They simply treat finality as a case-by-case question.

The upshot is that parties must constantly guess, at risk of either appealing too early and getting bounced back, or appealing too late and forfeiting their rights.

The problem is that appellate deadlines cannot serve their purpose when their trigger is unclear. Ritzen v. Jackson is a perfect example: the parties are unable to articulate a clear test for whether a bankruptcy order is final because the courts have not given them one;

–The Sixth Circuit’s Finality Test

The starting place for a finality test, says the Sixth Circuit, is the text of the bankruptcy appeals statute, 28 U.S.C. § 158. This statute says:

“The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees . . . of bankruptcy judges entered in cases and proceedings.”

By contrast, finality language in the statute on appeals in non-bankruptcy cases (28 U.S.C. § 1291) authorizes appeals “from all final decisions of the district courts of the United States.”

These two statutes are obviously different. The bankruptcy statute replaces the § 1291 words, “all final decisions,” with this expanded language: “final judgments, orders, and decrees” in “cases and proceedings.” The extra “cases and proceedings” words have meaning, and we must give effect to every word of a statute wherever possible.

Thus, § 158 provides a clear test for courts to apply: a bankruptcy court’s order may be immediately appealed if it is (i) entered in a proceeding, and (ii) final—i.e., terminates the proceeding.

Applying the Finality Test

Here’s how the Sixth Circuit’s test works in Ritzen v. Jackson: the order denying a relief from stay motion is final and immediately appealable—and it starts the fourteen-day appeal clock. That’s because, (i) stay-relief motions initiate a “proceeding,” and (ii) stay relief denial is a “final order.”

–A “Proceeding”

When a court follows formal procedural steps to adjudicate a moving party’s claim for relief, that’s a “proceeding.” In bankruptcy, a “proceeding” is a discrete dispute within the overall bankruptcy case, resolved through a series of procedural steps. Adversary proceedings are the archetypal example: they are essentially full civil lawsuits carried out under the umbrella of the bankruptcy case.

In other words, a “proceeding” is a case within a case—and a bankruptcy court’s stay-relief adjudication fits this description:

  • it begins “on request of a party” through a motion;
  • the non-moving party must be given notice through service;
  • then, the court must conduct a hearing where both parties are present; and
  • then, the court determines whether the relevant legal standard has been met and grants or denies relief accordingly.

A relief from stay motion is a discrete claim for relief that’s distinct from the overall bankruptcy case, and it involves a series of procedural steps with a concluding decision based on the application of a legal standard. “This sure looks like” a “proceeding” under 28 U.S.C. § 158(a).

–A “Final order”

The primary test for finality of a bankruptcy order is this, says the Sixth Circuit: whether the order “alters the status quo and fixes the rights and obligations of the parties” and whether the order completely resolves all substantive litigation within the proceeding. Put another way, a bankruptcy order is final “if it is both procedurally complete and determinative of substantive rights.”

Applying Bullard v. Blue Hills Bank

In Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015), the U.S. Supreme Court ruled that a bankruptcy court order denying confirmation of a debtor’s Chapter 13 plan, with leave to amend, is not final.

Here’s how the Sixth Circuit applies Bullard and distinguishes it from Ritzen v. Jackson circumstances:

  1. Because the Bullard debtor has leave to amend, the plan confirmation process continues until either (1) debtor proposes another plan that is confirmed confirmed, or (2) the court dismisses the bankruptcy case in its entirety. Either outcome “fixes the rights and obligations of the parties” at issue in the plan confirmation process; whereas, a simple plan denial with leave to amend does not.
  2. By contrast, a stay-relief denial is procedurally complete—there are no more “rights and obligations” at issue: stay-relief denial prohibits the moving party from pursuing its pre-bankruptcy claim against the debtor. The “judicial unit” is the stay-relief proceeding, and that unit is completed once a stay-relief denial is issued—unlike Bullard’s plan confirmation denial with leave to amend.
  3. Stay-relief denial is unlike the denial of a motion to dismiss or a motion for summary judgment in an ordinary civil case, where granting the motion is a final answer on the merits, but denying the motion is not.  A stay-relief motion asks its own discrete question, and the question is finally answered by either a grant or a denial;
  4. Exceptions can exist in bankruptcy: e.g., stay-relief motions may be denied without prejudice, but the bankruptcy court did not do that in Ritzen v. Jackson.
  5. Bullard teaches that consequences of an order must be considered in the finality analysis: the more significant and irreparable the consequences, the more likely a given order is final. Consequences of a stay-relief denial are both significant and irreparable. Here’s why: once denied, the creditor usually has no choice but to file a proof of claim in bankruptcy, litigating their pre-bankruptcy dispute anew in the bankruptcy court. The result is that, if stay-relief denial is not immediately appealable, then it is effectively never appealable.

In summary, a stay-relief denial ends a proceeding, fixes the rights of the parties, and has significant consequences for them. Under Bullard, it qualifies as a final order.

Conclusion

Can’t wait to see what the Supreme court does with this case!

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