Don’t Guess Wrong on Finality for Appeal: Comparing U.S. Supreme Court Opinions (Rytzen and Bullard)

By: Donald L Swanson

“An erroneous identification of a final order as interlocutory may cause a party to miss the appellate deadline.”

–U.S. Supreme Court in Rytzen Group, Inc. v Jackson Masonry, LLC (decided 1/14/2020)

Rarely has a Supreme Court bankruptcy ruling had a more-expansive effect that its most recent pronouncement. The quotation above shows why—because every lawyer on the short end of every bankruptcy ruling must correctly answer this question:

• Is the appeal clock running on this ruling?

And getting the answer wrong may require a notification to the lawyer’s malpractice carrier. That puts us all on edge!

Fortunately, the Supreme Court’s Rytzen Group ruling adopts a “majority” position (from the Second, Fourth, Fifth, Seventh, Eighth, Ninth and Tenth circuit courts of appeals, and from treatises by Collier and Wright, Miller & Cooper (see the Court’s Footnote 2)).

So, it’s not like everyone has to adjust to a new way of thinking. That’s a positive.  But uncertainties still exist for rulings in other contexts—as will opportunities to contact malpractice carriers, when we guess wrong.

Two Companion Opinions

Actually, the U.S. Supreme Court has weighed-in twice, recently, on whether a bankruptcy court order denying requested relief is a “final” order that can and must be immediately appealed.

Rytzen Group is the second-of-two. As you might guess, the results of the two rulings diverge on what is a final order: one says “No” (on denial of plan confirmation) and the other says “Yes” (on denial of a motion for relief from stay).

Fortunately, the legal standard and rationale for the two cases are the same.  The two opinions are companion rulings, intended to provide guidance for bankruptcy practitioners.

So, this article compares and contrasts the two opinions, toward a better understanding of their common rationale, differing results, and guidance for the future.

Bullard v. Blue Hills Bank

The older of the two opinions is Bullard v. Blue Hills Bank, 575 U.S. 496 (2015). Here’s the essence of its ruling.

In Chapter 13, a debtor must propose a plan that uses future income to make payments on debts. If the plan is confirmed and performed, debtor receives a discharge. However, the bankruptcy court may deny plan confirmation, in which case the debtor may want to appeal.

The question presented in Bullard is whether an order denying plan confirmation is a “final” order that can/must be appealed immediately.

The Supreme Court ruled: “We hold that it is not.”

Rytzen Group, Inc. v. Jackson Masonry, LLC

The new opinion is Ritzen Group, Inc. v Jackson Masonry, LLC, Supreme Court Case No. 18-938 (decided January 14, 2020). Here is the essence of its ruling.

Under the Bankruptcy Code, a bankruptcy filing “operates as a stay” of creditors’ debt-collection efforts.

The question presented in Ritzen is whether a bankruptcy court’s order denying a creditor’s request for relief from the stay is a “final” order that can/must be appealed immediately.

The Supreme Court ruled: “our answer is yes.”

Common Starting Point and the “Proceeding” Unit of Analysis

The Supreme Court’s opinions in both Bullard and Ritzen start at the same point and identify the same unit of analysis. Here’s how.

1. In ordinary civil litigation, rulings that can be appealed as of right are limited to orders resolving the entire case. The purpose is to prevent piecemeal appeals that undermine efficient judicial administration and prerogatives of trial judges.
2. Finality rules are different in bankruptcy. That’s because each bankruptcy case is an aggregation of individual controversies that would be stand-alone lawsuits outside bankruptcy. So, Congress has long provided that a bankruptcy order, which finally disposes of a discrete dispute, may/must be appealed immediately.

The appeal of right in bankruptcy is from final orders in “proceedings,” not “cases.” So, the judicial unit for analyzing bankruptcy finality is the “proceeding.”

–Application to Denial of Plan Confirmation — Bullard

For an order denying confirmation of a Chapter 13 plan, the relevant “proceeding” is the entire process of considering plans. So, an order confirming a plan is a final order—it resolves the proceeding.

But an order denying plan confirmation can go either way: (i) if it includes a dismissal of the bankruptcy, the denial order is final and appealable immediately, but (ii) if it allows an opportunity to amend, the denial order is neither final nor immediately appealable—the proceeding is not yet resolved.

Such a distinction exists because, (i) both plan confirmation and case dismissal fix the rights and obligations of debtors and creditors, but (ii) confirmation denial, with leave to amend, changes little—e.g., the automatic stay persists, rights and obligations remain unsettled, and the possibility of a discharge lives on: “It ain’t over till it’s over,” quipped the Supreme Court in Bullard.

Other considerations include:

• “confirmations of plans” is among the statutory list of core proceedings, while confirmation denial is not;
• appeals consume time—so, finality rules must provide “a meaningful constraint” on availability of appellate review;
• all parties would be tempted use and abuse opportunities for piecemeal appeals as leverage;
• the absence of an immediate appeal from a confirmation denial, when opportunity to amend exists, will encourage debtors to work toward a confirmable plan; and
• mechanisms for interlocutory appeals are available when important circumstances exist.

–Application to Denial of Motion for Relief from Stay – Rytzen Group

Since the automatic stay preserves the status quo and prevents dismemberment of the estate, a creditor’s motion for relief from stay is the “proceeding” for finality purposes. Here’s why:

• A motion for stay relief initiates a discrete procedural sequence, in which a decision turns on statutory standards such as “cause”;
• Motions for stay relief are included in the statutory list of “core proceedings” and are more than mere steps in resolving claims;
• The resolution of a motion for relief can have large practical consequences, such as (i) determining whether a creditor can isolate its claim and go it alone outside bankruptcy, (ii) delaying collection of a debt, or (iii) causing collateral to decline in value;
• Classifying orders that conclusively resolve stay-relief motions as final will avoid, rather than cause, delays and inefficiencies; and
• A contrary rule could have dire consequences, such as undermining subsequent rulings in other disputes that rely upon the stay relief denial.

Fact Background for Each Case

The fact background for the ruling in each case is instructive. What follows is a summary of facts in each case.

—Bullard

Louis Bullard filed Chapter 13 bankruptcy and a proposed plan. Bullard owed $346,000 to Blue Hills Bank, secured by a mortgage on a multifamily house.

Bullard’s plan treated the Blue Hills mortgage as significantly underwater, and he amended such provision three times. Blue Hills objected. The Bankruptcy Court denied confirmation and ordered Bullard to submit a new plan within 30 days.

Bullard appealed to the First Circuit’s Bankruptcy Appellate Panel, which affirmed. The BAP reasoned that the order denying plan confirmation could not be final because Bullard was free to amend. Nevertheless, the BAP heard the case as an interlocutory appeal, because the confirmation dispute involved a “controlling question of law” and because an immediate appeal would advance the ultimate termination of the case.

The BAP agreed with the Bankruptcy Court on the merits: that plan treatment of the Blue Hills claim cannot be approved.

Bullard appealed to the First Circuit Court of Appeals, which dismissed the appeal for lack of jurisdiction: it did so based on an appellate technicality and because it held that an order denying confirmation with leave to amend is not final.

Then, the Supreme Court granted certiorari.

—Rytzen Group

Ritzen Group, Inc., agreed to buy land in Nashville, Tennessee, from Jackson Masonry, LLC. The sale never closed, and Ritzen Group sued Jackson Masonry for breach of contract. Days before trial began, Jackson Masonry filed Chapter 11 Bankruptcy, which stayed the lawsuit.

Ritzen Group moved the Bankruptcy Court for relief from stay so the lawsuit could proceed to trial. The Bankruptcy Court denied the motion.

Instead of appealing, Ritzen Group filed a proof of claim. Additionally, in an adversary proceeding, the Bankruptcy Court found that Ritzen Group, not Jackson Masonry, breached the land-sale contract by failing to secure financing.

So, the Bankruptcy Court, (i) disallowed Ritzen Group’s claim, and (ii) confirmed Jackson’s plan, which permanently enjoined all creditors from suing Debtor on pre-petition claims.

Then, Ritzen filed two separate appeals: (i) challenging the earlier order that denied relief from stay, and (ii) challenging the order resolving breach-of-contract claims.

The District Court on appeal, (i) rejected the relief-from-stay appeal as untimely, holding that the time to appeal expired 14 days after entry of the order denying stay relief, and (ii) ruled against Ritzen Group’s breach-of-contract appeal on its merits.

On further appeal, the Sixth Circuit Court of Appeals affirmed, declaring that adjudication of Ritzen Group’s motion for relief from stay qualified as the resolution of a discrete “proceeding,” which started the 14-day appeal clock running.

Then, the Supreme Court granted certiorari.

Conclusion

Here’s a “Thank you” to the U.S. Supreme Court for weighing-in on the Rytzen Group case and providing guidance to bankruptcy professionals on what qualifies as a “final” bankruptcy order for appeal purposes.

Ambiguities and uncertainties will still exist out there, for bankruptcy rulings in other contexts. But the Rytzen Group opinion, in combination with its companion Bullard opinion, is helpful for minimizing the uncertainties that remain.

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