Are You Stuck in Bankruptcy Court if Stay Relief is Denied?

You’ve been slugging it out with your opponent in state court for years. The end of that hard-fought battle is in sight. Maybe you even hold a judgment already and are taking steps to enforce it. Then, your adversary files bankruptcy, and everything grinds to a halt. You know the automatic stay that arises on account of the bankruptcy filing prohibits you from taking further actions to recover from the debtor outside of bankruptcy court. But, you’re so close to the end of the fight, and you certainly don’t want to be stuck before the bankruptcy court for the next several months or, worse, years.

So, you file a motion with the bankruptcy court seeking relief from the automatic stay. The bankruptcy court denies your motion for stay relief. What now? Are you stuck in bankruptcy court for the foreseeable future?

The answer, at least at the moment, is that it depends on where the bankruptcy case was filed. Eight of the Circuit Courts of Appeals (the Second, Fourth, Fifth, Sixth, Eighth, Ninth, Tenth, and Eleventh) have held that the order is immediately appealable. The First and Third Circuits have held that such orders may be appealable, depending on the nature of the dispute and the operative effect of the order (note the potential confusion that exists with a such a rule). And, the Seventh and D.C. Circuits have yet to adopt a specific test.

Clarity and continuity across the Circuits may soon be provided. On November 13, 2019, in Ritzen Group, Inc. v. Jackson Masonry, LLC, the Supreme Court heard oral argument on the question whether an order denying a motion for stay relief is “final” and, thus, immediately appealable.

The procedural posture before the Supreme Court is atypical to most stay relief disputes and warrants mention. In this case, Ritzen Group had litigated for years with Jackson Masonry. After Jackson Masonry filed for bankruptcy, Ritzen Group moved for stay relief, which was denied. Rather than take an appeal, Ritzen Group litigated its claims against Jackson Masonry before the bankruptcy court, and once the case concluded, sought to appeal the denial of stay relief. Jackson Masonry argued that the order denying stay relief had been immediately appealable, and thus, Ritzen Group’s appeal was untimely. The district court and the Sixth Circuit Court of Appeals agreed and dismissed the appeal. Before the Supreme Court, Ritzen Group, the creditor, argues that orders denying stay relief should not be final and appealable, a position contrary to that most often taken by creditors seeking to escape bankruptcy court as soon as possible.

As is often the case, it is unclear based on oral argument how the Supreme Court will resolve the issue. The justices pressed both litigants on their positions, although it seems the court is leaning in favor of permitting immediate appeals. That said, the Supreme Court’s recent decision in Bullard v. Blue Hills Bank, in which the court held that an order denying confirmation of a chapter 13 plan is not immediately appealable, may impact the outcome. In Bullard, the Supreme Court reasoned that the bankruptcy court might confirm another plan, so the order denying confirmation could not be final. Similarly, if a stay relief motion is denied, the bankruptcy court could potentially grant stay relief at another time in the future.

In the meantime, if you find yourself subject to the automatic stay in bankruptcy, reach out to the author or one of Seyfarth’s other capable bankruptcy lawyers.