Supreme Court Holds That an Order on a Motion for Relief from Stay Is a Final, Appealable Order

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Bradley Arant Boult Cummings LLPIn a unanimous opinion released last week, the Supreme Court provided guidance as to how to determine the finality of an order in a bankruptcy case for purposes of an appeal under 28 U.S.C. § 158(a). The Court held that the adjudication of a creditor’s motion for relief from stay is properly considered a discrete and independent proceeding within a bankruptcy case and is immediately appealable. While the Court’s opinion may have implications beyond the context of motions for relief from stay, it also leaves unanswered questions as to how creditors should react to the routine denial or conditional denial of motions for relief in bankruptcy cases.

The opinion stems from the bankruptcy case of Jackson Masonry, LLC , pending in the United States Bankruptcy Court for the Middle District of Tennessee. Prior to the commencement of the bankruptcy case, Jackson entered into a contract with the Ritzen Group to sell real property. A dispute arose regarding the contract, and Ritzen filed a state court breach-of-contract lawsuit. Within one week prior to the state court trial, Jackson filed a Chapter 11 case. Ritzen filed a motion for relief from the stay to proceed with its state court lawsuit to adjudicate its claim.

The bankruptcy court denied Ritzen’s motion, and Ritzen did not appeal the court’s order under Bankruptcy Rule 8002(a). Ritzen did, however, file a proof of claim. Jackson objected to the proof of claim, and the claim objection was litigated before the bankruptcy court. The bankruptcy court ultimately concluded that Ritzen had breached the contract, and Ritzen appealed that decision – along with the earlier order denying stay relief. In its appeal, Ritzen relied on existing precedent in the courts that finality of an order was based on the circumstances of the case.  Ritzen argued that under these circumstances there had been no substantive issue before the court in the stay relief motion, as it decided only where the contract dispute was to be determined. The district court dismissed Ritzen’s appeal regarding the stay motion as having been untimely filed.  The district court also affirmed the bankruptcy court’s ruling in favor of Jackson on the claim objection. The United States Court of Appeals for the Sixth Circuit affirmed the district court’s opinion, and the Supreme Court granted cert.

In considering Ritzen’s arguments, the Court looked to its prior opinion in In Bullard v. Blue, the Court held that an order denying confirmation of a Chapter 13 plan is not final because the debtor could amend the plan, meaning denial of confirmation of the plan did not conclude the confirmation process. Under Bullard, the focus was on the process and not the substance of the motion. Consistent with Bullard, the Court focused on the language of 28 U.S.C. § 158(a), which gives jurisdiction for appeals from the bankruptcy court to the district court “from final judgments, orders and decrees … entered in cases and proceedings.” The Court stated that the issues were whether a motion for relief from stay is a distinct proceeding and whether the bankruptcy court order terminated that proceeding. The Court found the answer in both instances to be rather clear. The Court opined that a motion for relief from stay under § 362(a) clearly is a proceeding and the bankruptcy court terminated that proceeding by denying the relief being requested. The Court stated that this was similar to a dismissal for personal jurisdiction or dismissal for improper venue, both of which would be final decisions. Also, the Court was concerned that a ruling based on whether the outcome is substantive could lead to inconsistent results. The Court determined that there should not be a subset of finality within stay proceedings, concluding that the analysis should focus on the proceeding itself and not the substantive issue within the motion.

Those critical of the Supreme Court decision state that the Court did not fully appreciate the dynamic nature of bankruptcy cases and, specifically, a motion for relief from stay. A determination that the order is final may preclude the party from seeking relief from stay later in a case, even though circumstances may have changed that would justify a grant of relief. In order to avoid this outcome, parties should ask the bankruptcy court to make it clear in its order that the ruling on a motion for relief from stay, while it may be final, it is not prejudicial to the party asserting the motion at a later date.

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