Argument analysis: Justices lean toward validating immediate appeals of bankruptcy orders denying relief from the automatic stay
on Nov 13, 2019 at 4:48 pm
I suggested in my preview of Ritzen Group v. Jackson Masonry that the argument might tell us a great deal about how the Supreme Court will approach this technical bankruptcy matter. And for once I think I was right, as the argument suggested a considerable consensus on the bench about how to address the issues in this case. Ritzen Group is not one of the most important cases on the court’s docket this fall. Indeed, I doubt informed bankruptcy professionals would even place it anywhere on a list of pressing concerns in bankruptcy practice. Rather, this is a case the justices are hearing solely because they are persuaded that the lower courts are in conflict.
The case involves the Bankruptcy Code’s “automatic stay,” which stops all litigation and collection activity involving the debtor at the moment the debtor files for relief in the bankruptcy court. The Bankruptcy Code has a process under which creditors can ask the court to lift the stay, most commonly based on the argument that a creditor’s lien on some particular asset makes it improbable that other claimants would get any value from retaining the asset in the bankruptcy process. The specific question in Ritzen Group is whether a creditor frustrated by the bankruptcy court’s refusal to lift the stay can appeal that decision separately or instead must wait to challenge it at the end of the case. The lower courts held that immediate appeals are appropriate. Because petitioner Ritzen Group failed to appeal promptly, its appeal was ruled untimely. The debtor, Jackson Masonry, defends that outcome before the justices.
Representing Ritzen Group, the late-appealing creditor, James Lehman argued that it was proper not to appeal from the bankruptcy court’s denial of relief because the bankruptcy court could have reconsidered its order at any time. Several of the justices were notably skeptical of Lehman’s argument. For example, Justice Samuel Alito pressed him early on to explain, if the denial of relief wasn’t final when entered, exactly “when would it become final? At the end of the case?”
Alito’s rejection of Lehman’s perspective became increasingly evident as the argument progressed. At one point Alito commented that “I’m not sure I quite understand why … an order saying, ‘No, I’m not granting relief [in that] proceeding,’ is not final?” When Lehman stuck to his position, Alito sarcastically responded: “[W]hat if the order denying relief from the stay says, ‘And this is the final word on this subject. This is not going to be reexamined.’ It’s not final?”
Alito seemed to be motivated by the practical problem a creditor would face if it had no separate right to appeal from a motion denying relief from the stay, as he pressed Lehman repeatedly to tell him when “the party who sought relief from the stay [can] take an appeal?” Chief Justice John Roberts shared that perspective, emphasizing what he regarded as the impracticalities of dealing with such an important issue at the end of the entire proceeding. As Roberts put it, if you obligate the creditor to wait until the end of the case, “[t]he bankruptcy has concluded, and part of the bankruptcy is you’re divvying things up, and depending on how much this person gets, that person gets more, but now you say you’ve got to go back and start over? … I don’t understand how you can unscramble that egg.”
Justice Stephen Breyer pressed Lehman on a somewhat different point, the lack of parallelism between a decision to lift the stay (from which a debtor ordinarily can appeal) and a decision refusing to lift the stay (from which there should be no appeal, according to Lehman). As Breyer put it:
If the debtor can appeal [when the court decides to lift the stay], why can’t the creditor appeal if [the court] reaches the opposite conclusion. In both cases, I imagine the immediate appeal is given because, in many instances, though certainly not all, getting rid of a creditor or keeping a creditor will change in a pretty significant way the nature of the final plan. Now what have I said wrong?
This is not to say that the argument of Griffin Dunham, representing the debtor, Jackson Masonry, was entirely smooth sailing. Two threads were relevant. First, Roberts and Breyer pressed the idea that the motion to lift the stay was more procedural than substantive, because it had no effect on the underlying dispute. If you treat it like a motion for summary judgment, they suggested, then a judge’s refusal to lift the stay did so little to advance resolution of the case that perhaps an appeal would be premature. As Roberts quipped, once the judge rules on the stay motion, “there’s nothing left to do between the parties other than litigate the case.” Following up on that point, Breyer emphasized that a denial of summary judgment traditionally is treated as nonfinal: “A summary judgment motion, once it’s decided, there’s nothing left to do in respect to the summary judgment motion. … Do you want to say the summary judgment motion is final?” If a summary judgment motion is the appropriate analogy, then creditors should have no right to appeal from a decision refusing to lift the stay.
Justice Neil Gorsuch took a different tack, noting that the bankruptcy rules (and common practice) embrace the idea that bankruptcy judges can change their minds about stay relief at any time, deciding to lift the stay months or years after an initial decision refusing to lift the stay. He asked Dunham: “I think you’d agree … if [the judge’s refusal to lift the stay] can be [reconsidered at any time], does that pose a problem for you? … [H]ow do you call something final if it’s subject to reconsideration by a judge for a considerable period of time?”
With Justice Sonia Sotomayor joining in the discussion, Gorsuch advanced that “inherently nonfinal” point for a considerable part of Dunham’s argument and the argument of Assistant to the Solicitor General Vivek Suri, who appeared on behalf of the government in support of Jackson Masonry. As Suri explained, the logical consequence of the point would be that little if anything from the early stages of a bankruptcy case would be appealable, a position that is hard to square with the statutory appellate framework (which plainly contemplates appeals whenever the bankruptcy court completes a “proceeding” within the overall bankruptcy case). Suri seemed to make up considerable ground with Gorsuch near the end of his presentation, when he explored a distinction in the bankruptcy rules between a “preliminary denial” of stay relief and the more conclusive denial of stay relief at issue here.
The argument does not suggest a bench that is conclusively or unanimously settled on a single answer to this case. But it does suggest a bench leaning toward a resolution that would permit a creditor an immediate appeal when a bankruptcy court refuses to lift the stay. My prediction is that the justices will spend a fair amount of time sorting out the various arguments and issue a decision that is nearly unanimous sometime before the end of February.
Editor’s Note: Analysis based on oral argument transcript.