Supreme Court Decides Ritzen Group, Inc. v. Jackson Masonry, LLC

Faegre Drinker Biddle & Reath LLP

Faegre Baker Daniels

On January 14, 2020, the Supreme Court of the United States decided Ritzen Group, Inc. v. Jackson Masonry, LLC, No. 18-938, holding that an order unreservedly ruling on a creditor’s motion for relief from bankruptcy’s automatic stay is a final order that is immediately appealable under 28 U.S.C. § 158(a)(1).

Under Chapter 11 of the Bankruptcy Code, when a debtor files for bankruptcy, the Code imposes an automatic stay on creditors from attempting to collect from the debtor, whether through pending or new litigation or even through informal means, such as repossession. See 11 U.S.C. § 362(a). The bankruptcy case collects the creditors and resolves numerous individual controversies in one place. But for bankruptcy, those individual controversies between the creditor and debtor would be standalone lawsuits.

This case began as a standalone lawsuit in state court that was aggregated with a bankruptcy case after the debtor filed for Chapter 11 bankruptcy. Ritzen Group, Inc. contracted with Jackson Masonry, LLC to purchase land Jackson owned in Nashville, Tennessee. The deal wasn’t completed as agreed, and Ritzen sued Jackson for breach of contract in Tennessee state court. Ritzen and Jackson litigated in state court for over a year, but just days before trial, Jackson filed for bankruptcy. This had the immediate and automatic effect of staying the state court litigation during the pendency of the federal bankruptcy case.

Hoping to continue to pursue its claims in state court, Ritzen filed a motion in the Federal Bankruptcy Court for relief from the automatic stay, a procedure allowed by 11 U.S.C. § 362(d). The Bankruptcy Court denied the motion. Federal Rule of Bankruptcy Procedure 8002 requires parties to file a notice of appeal “within 14 days after entry of the judgment, order, or decree being appealed.” Nevertheless, Ritzen did not appeal the Bankruptcy Court’s denial of its motion within 14 days but instead litigated its breach of contract claim against the bankruptcy estate in the context of the federal bankruptcy case. Ritzen lost its breach of contract claim on the merits, with the Bankruptcy Court finding that it was Ritzen that breached, not Jackson, by failing timely to secure financing. Thereafter, Jackson submitted a plan to the Bankruptcy Court for reorganization. The plan called for permanently enjoining all creditors from pursuing any claims against Jackson. Ritzen did not object to the plan, and the Bankruptcy Court confirmed it.

Ritzen filed two notices of appeal in the District Court for the Middle District of Tennessee, one appealing the Bankruptcy Court’s denial of its motion for relief from the automatic stay and the other appealing the court’s resolution of its breach of contract claim. The District Court dismissed Ritzen’s first appeal as untimely because it did not file it within 14 days of the Bankruptcy Court’s order denying its motion for relief from the stay. Broadening the jurisdiction an appellate court typically has in civil litigation, a district court in bankruptcy litigation has jurisdiction to hear appeals from final judgments, orders and decrees “of bankruptcy judges entered in cases and proceedings” (emphasis added). 28 U.S.C. § 158(a)(1). Under that statute, the District Court reasoned that it had jurisdiction to hear Ritzen’s appeal as soon as the Bankruptcy Court denied its motion because the denial of the motion concluded a distinct “proceeding.” The Court of Appeals affirmed, likewise holding that the Bankruptcy Court’s denial of Ritzen’s motion was a final appealable order that Ritzen did not timely appeal.

Before the Supreme Court, Ritzen argued that the Bankruptcy Court’s denial of its motion for relief from the automatic stay did not constitute a final order of a proceeding. It maintained that adjudicating its stay-relief motion was but a first step in the process of adjudicating its claims against the bankruptcy estate. To treat it as separate and distinct, Ritzen argued, would slice the case too thin. Ritzen also argued that treating the stay-relief motion as a distinct “proceeding” would be inefficient and encourage piecemeal appeals.

The Supreme Court disagreed, relying on its analysis in Bullard v. Blue Hills Bank, 575 U.S. 496 (2015). Bullard explained that Congress made “orders in bankruptcy cases . . . immediately appeal[able] if they finally dispose of discrete disputes within the larger [bankruptcy] case.” Id. at 501. The Court applied that analysis and held that adjudication of the stay-relief motion is a discrete dispute that qualifies as a “proceeding” under 28 U.S.C. § 158(a)(1). The Court found three pieces of support for its holding: first, adjudication of the motion happens before the proceedings on the merits of the creditor’s claims and quite separately from those proceedings; second, a neighboring statutory provision characterizing motions to modify the automatic stay as “core proceedings” provided a textual clue that Congress also viewed stay-relief motions as “proceedings” under section 158(a)(1); and third, the Court likened an order on a stay-relief motion to orders dismissing a case for lack of personal jurisdiction or for improper venue, both of which are often final orders that are immediately appealable.

Finally, the Court rejected Ritzen’s claim that its holding would promote inefficiency and encourage piecemeal appeals. The Court believed just the opposite was true and pointed to Ritzen’s case as a prime example. Under Ritzen’s rule, creditors who lose stay-relief motions would be forced “to fully litigate their claims in bankruptcy court and then, after the bankruptcy case is over, appeal and seek to redo the litigation all over again in the original court.” Ritzen sought this second bite: It lost its stay-relief motion; it fully litigated, at great expense to both parties and the court, its breach of contract claim against the bankruptcy estate and lost; it declined to object to Jackson’s reorganization plan, which the Bankruptcy Court confirmed; and after all of that, it sought to challenge the Bankruptcy Court’s denial of its stay-relief motion so that it could relitigate its breach of contract claim in state court. Immediate appeal, in contrast, permits creditors to resolve their rights expeditiously and at the right time to efficiently administer the bankruptcy estate.

As the question was not before it, the Court did not decide whether an order denying a motion for stay without prejudice would be immediately appealable.

Justice Ginsburg delivered the opinion for a unanimous Court.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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