Ritzen Group Holds that Denials of Relief from Bankruptcy’s Automatic Stay are Appealable

In Ritzen Group, Inc. v. Jackson Masonry, LLC, the Supreme Court held that litigants must immediately appeal the conclusive denial of relief from bankruptcy’s automatic stay. Under 28 U.S.C. § 158(a)(1), district courts have jurisdiction to hear appeals from “final judgments, orders, and decrees . . . of bankruptcy judges entered in cases and proceedings.” The Supreme Court reasoned that the adjudication of a motion to lift an automatic stay is a “proceeding.” The conclusive denial of that motion wraps up the proceedings to lift the stay. The denial is accordingly final, and parties must appeal within 14 days of the decision for the appeal to be timely.

The dispute in Ritzen Group

Ritzen Group contracted to buy property from Jackson Masonry. But the deal fell through, with both parties claiming that the other was at fault. Ritzen Group eventually sued Jackson Masonry in state court for breach of contract. But on the eve of trial, Jackson Masonry filed for bankruptcy.

Under 11 U. S. C. § 362(a), the filing of a bankruptcy petition stays all efforts by creditors to collect from the debtor. So Jackson Masonry’s filing automatically stayed the breach-of-contract action. Ritzen Group asked the bankruptcy court to lift the automatic stay so it could pursue its claim in state court. But the bankruptcy court refused. Ritzen Group accordingly pursued its breach-of-contract claim as part of the bankruptcy proceedings, where it lost on the merits.

Ritzen Group then appealed to the district court, challenging the bankruptcy court’s refusal to lift the automatic stay. Reversal would have meant vacating Ritzen Group’s loss on the merits of the breach-of-contract claim in the bankruptcy court and restarting the litigation in state court.

The district court held that the appeal was untimely. In the bankruptcy context, Federal Rule of Bankruptcy Procedure 8002(a)(1) requires that parties appeal within 14 days of the judgment, order, or decree being appealed. The district court concluded that the 14-day period for appealing began once the bankruptcy court refused to lift the stay. Ritzen Group had waited until after its loss on the merits, well outside that 14-day window. The district court accordingly dismissed Ritzen Group’s appeal for lack of jurisdiction. On further appeal, the Sixth Circuit affirmed. The Supreme Court then granted Ritzen Group’s cert petition to address whether a denial of relief from an automatic stay is a final, appealable decision.

The Supreme Court’s decision in Ritzen Group

The Supreme Court affirmed, holding that the denial of a motion to lift bankruptcy’s automatic stay is final and appealable under 28 U.S.C. § 158(a)(1).

Bankruptcy appeals, generally

The analysis was relatively straightforward. In most federal civil suits, appeals must wait until the end of proceedings, when all issues have been decided and all that remains is enforcing the judgment. This rule stems from 28 U.S.C. § 1291—the general grant of federal appellate jurisdiction—which gives the courts of appeals jurisdiction to hear only “final decisions” of district courts.

Bankruptcy is different. Bankruptcy proceedings often involve a collection of disputes that would each be their own action were they not consolidated in the bankruptcy court. Resolution of any one of those those disputes is often immediately appealable, regardless of whether other disputes remain pending in the bankruptcy court. This greater allowance for piecemeal appeals is necessary due to the potentially interrelated nature of bankruptcy disputes. As the bankruptcy court works through all disputes that are part of a bankruptcy, its decisions might rely on how it resolved earlier disputes. Were all appeals delayed until the close of bankruptcy, reversal on one dispute might require unraveling all subsequent decisions that were made in reliance on it. Regular appellate review as disputes are resolved thus avoids the need to undo—and redo—the bankruptcy proceedings.

The statutory provisions on bankruptcy appeals accordingly allow for more piecemeal appeals than the general civil case. As relevant to Ritzen Group’s appeal, § 158 says that district courts “have jurisdiction to hear appeals from final judgments, orders, and decrees . . . of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges.” There are two key requirements in this language. First, to be appealable a decision must be a final judgment, order, or decree. Second, it must also be entered in either a case or a proceeding.

Denials of relief from the automatic stay

The Court held that the adjudication of a motion for relief from an automatic stay is the relevant “proceeding”:

A bankruptcy court’s order ruling on a stay-relief motion disposes of a procedural unit anterior to, and separate from, claim-resolution proceedings. Adjudication of a stay-relief motion . . . occurs before and apart from proceedings on the merits of creditors’ claims: The motion initiates a discrete procedural sequence, including notice and a hearing, and the creditor’s qualification for relief turns on the statutory standard . . . .

Resolution of that motion is thus an order that ends that separate proceeding. The Court buttressed this analysis with a reference to 28 U.S.C. § 157’s non-exhaustive list of core bankruptcy “proceedings,” which include “motions to terminate, annul, or modify the automatic stay.”

The Court rejected the argument that denial of stay relief is merely the first step in a claim-resolution proceeding, determining the forum in which a claim will be adjudicated. The Court offered several reasons for doing so. For example, the decision of whether to lift the stay for a single creditor can have immense repercussions for the debtor and the other creditors. Also, other final, appealable decisions determine the forum in which a claim will be litigated, such as orders dismissing a case for lack of personal jurisdiction or improper venue. And not all motions to lift an automatic stay involve litigation—they can, for example, seek permission to repossess collateral or terminate a lease—so not all denials of stay relief will determine a forum for adjudication.

Finally, the Court discounted the risk that its rule would encourage piecemeal appeals—something courts normally try to avoid when dealing with appeal rules. The Court did so by shifting the focus from piecemeal appeals (which are thought to create inefficiencies in appellate courts) to the efficiency gains for bankruptcy proceedings. Again, due to the potentially interrelated nature of a bankruptcy court’s resolution of various disputes, immediate appeals in bankruptcy minimize the risk that reversal of any one bankruptcy decision will require undoing all decisions subsequent to the reversed one. Delaying appeals from refusals to lift the automatic stay would thus risk unraveling resolved bankruptcies. Moreover, the automatic-stay context creates another potential inefficiency in delaying appeals. Holding that a bankruptcy court erred in denying relief from the stay would mean (1) vacating the bankruptcy court’s resolution of the relevant dispute and (2) restarting that dispute in another forum.

In a footnote, the Court observed that its holding might be different if a bankruptcy court denied a motion to lift a stay “without prejudice.”

Thoughts on Ritzen Group

Ritzen Group is a solid decision. Given both statutory text and the practicalities of bankruptcy, denials of stay relief should be immediately appealable.

In his opinion analysis for SCOTUSBlog, Ronald Mann suggested that the opinion might have broader implications for courts trying to determine when other bankruptcy court decisions resolve discrete proceedings. The opinion noted that proceedings should not “include disputes over minor details about how a bankruptcy case will unfold.” But that doesn’t describe denials of stay relief; they have “have large practical consequences” and “can significantly increase creditors’ costs.” Mann expects that courts trying to apply Ritzen Group to other orders will rely on these statements.

One other thing about Ritzen Group struck me: its discounting the risk of piecemeal appeals. The Supreme Court never said that its rule would not produce piecemeal appeals. Nor could it; requiring immediate appeals from the denial of stay relief encourages piecemeal appeals. The Court instead seems to suggest that a contrary holding would produce greater inefficiencies: (1) a delayed appeal of an early bankruptcy court decision would require undoing (and redoing) subsequent decisions that relied on the reversed one, and (2) appeal and reversal after litigation on the merits would require restarting litigation on the merits.

These concerns might be particularly heightened in the bankruptcy context. But they also exist in general civil litigation. A district court decision made early in the course of litigation—such as a motion to dismiss or even a discovery order—might influence subsequent stages of the litigation. Reversal of that early decision on appeal might require undoing (and redoing) all of that subsequent litigation. And reversal on appeal might require restarting the litigation elsewhere, even after a full trial. This can occur, for example, when the court of appeals reverses on jurisdictional grounds.

So the concerns the Court had with delaying appeals in the bankruptcy context also apply to general civil litigation. But those concerns have rarely warranted discounting the risk of piecemeal appeals. Nor should they. In the bankruptcy context, piecemeal appeals are part of the design. In the general civil context, piecemeal appeals are to be avoided.

If litigants invoke Ritzen Group’s discussion of piecemeal appeals, I hope courts will quickly discount that discussion’s relevance outside of the bankruptcy context.

Ritzen Group, Inc. v. Jackson Masonry, LLC, 2020 WL 201023 (Jan. 14, 2020), available at the Supreme Court and Westlaw.