Richards Layton & Finger
 

Questions Remain About When to Appeal an Order, Citing Debtor's Need for a Breathing Spell

April 2020

On Jan. 14, 2020, a unanimous U.S. Supreme Court held in Ritzen Group Inc. v. Jackson Masonry LLC that “when the bankruptcy court unreservedly grants or denies relief” from the automatic stay, its order is final and therefore immediately appealable. Thus, a creditor’s appeal of a denial of stay relief was untimely because it was filed within 14 days not of the stay relief denial but of plan confirmation, which occurred a significant time later.

Ritzen certainly provides a clear rule in instances where the bankruptcy court denies stay relief “unreservedly.” However, the Supreme Court expressly did “not decide whether finality would attach to an order denying stay relief if the bankruptcy court enters it ‘without prejudice’ because further developments might change the stay calculus.” While orders denying stay relief heretofore frequently do not specify whether they are made with or without prejudice, it appears that bankruptcy judges and parties hereafter will pay close attention to this issue when orders are submitted and entered, given that the timing of an appeal now might well turn on the issue.

Moreover, it might well be that far more stay-relief orders will be entered without prejudice than with prejudice. If the standard is whether “further developments might change the calculus,” many stay-relief orders routinely fall into that category. For example, early in a chapter 11 case, bankruptcy judges often deny motions by state court litigants to lift the stay to proceed with litigation because the court wants to maintain the debtor’s “breathing spell.” Several months later, all other factors being equal, the “calculus” might be viewed as having changed because the breathing spell might not be needed anymore.

As another example, stay relief to foreclose on collateral might be denied early in a case because the value of the collateral is perceived to provide the debtor with equity in the asset. However, since valuation is as of a moment in time, it might well be that a few months later the valuation has decreased to the point that the debtor no longer has equity in the collateral, thereby supporting stay relief. However, it appears that the issue that the Supreme Court left open in Ritzen might be an exception that swallows the rule.