In Ritzen Group, Inc. v. Jackson Masonry, , 589 U.S. ___ (2020), the United States Supreme Court unanimously ruled that where a creditor seeks “relief” from the “automatic stay” in a bankruptcy case and is denied that relief, the creditor has an immediately right to appeal the denial as a “final order” within the meaning of federal law.
Overview of bankruptcy case
Jackson Masonry, was a Tennessee business who was faced a variety of financial and debt issues including alleged outstanding amounts owed to Ritzen Group, Inc.. Ritzen sued Jackson in Tennessee state court for breach of contract. Due to its financial issues and after the Ritzen complaint was filed, Jackson filed a Chapter 11 bankruptcy petition.
After the bankruptcy case was filed, Ritzen filed a motion motion for relief from the automatic stay seeking to pursue collection against Jackson outside of the bankruptcy case. The Bankruptcy Court denied Ritzen’s motion for relief from the stay.
Ritzen then filed a proof of claim with the bankruptcy court which alleged that Jackson owed the amounts which Ritzen sought to collect in the state court case but did not object to the Jackson plan of reorganization. The Bankruptcy Court later disallowed Ritzen’s claim against Jackson. The Court also confirmed Jackson’s plan of reorganization.
After all of this, Ritzen then filed an appeal which challenged the denial of relief from the automatic stay. The federal district court rejected Ritzen’s appeal as untimely under 28 U.S.C. 158(c)(2) and Federal Rule of Bankruptcy Procedure 8002(a), which require appeals from a bankruptcy court order to be filed “within 14 days after entry of [that] order.”
Supreme Court Ruling
Ritzen appealed to the United States Supreme Court arguing that the bankruptcy court’s denial of the stay relief motion should not be deemed final under 28 U.S.C. 158(c)(2) and Federal Rule of Bankruptcy Procedure 8002(a). Ritzen argued that the denial of stay relief only is a “preliminary step” in the process of adjudicating claims in the bankruptcy case. Further, Ritzen argued that the court’s decision in denying the motion may rely on an issue which may be raised later in the bankruptcy case.
The Supreme Court, in a unanimous decision written by Justice Ginsburg, rejected Ritzen’s appeal and affirmed the bankruptcy court holding.
Supreme Court Analysis
First, the Court revisited the Supreme Court’s holding in Bullard v. Blue Hills Bank, 575 U.S. 496 (2015). In Bullard, the Court held that bankruptcy court’s order rejecting a proposed plan in a Chapter 13 bankruptcy case was not “final” under §158(a) because it did not conclusively resolve the relevant “proceeding.” Id., at 499, 502–503.
The Court, using the same analysis as Bullard, concluded that the court’s ruling on a stay-relief motion is separate from the adjudication on the merits of creditors’ claims with a “discrete procedural sequence, including notice and a hearing, and the creditor’s qualification for relief turns on the statutory standard, i.e., “cause” or the presence of specified conditions.” Justice Ginsburg further noted that provisions of the Bankruptcy Code treat this process differently, including the designation of a stay-relief motion as a “core proceeding” under the Code.
The Court also rejected Ritzen’s arguments that this holding would disrupt the efficiency of the bankruptcy process. The Court asserted that the opposite was true and that the case was illustrative. If the Court had allowed Ritzen to seek an appeal after the Chapter 11 Plan was confirmed, the appeal process would have potentially upset the significant work achieved through the reorganization.
The holding in Ritzen follows the majority rule which has been followed by federal courts and the unanimous holding is evidence that this position was generally accepted by courts, parties and their attorneys. The Supreme Court’s holding also reinforces the importance of efficiency in bankruptcy cases in allowing the “honest debtor” a “fresh start” or opportunity to reorganize.