Continued Stay in Bankruptcy Cases Is Immediately Appealable

WASHINGTON (CN) — Weighing in on a dense issue that has split appellate judges across the country, the Supreme Court ruled unanimously Tuesday that there is an immediate right to appeal when an automatic pause on other litigation against a bankrupt company is kept in place.

Federal law institutes an automatic pause on litigation seeking monetary damages from a company that has filed for bankruptcy and goes to bankruptcy court. There are conditions, however, under which a court may hold off on that pause, including if it finds the company filed for bankruptcy in bad faith.

That is just what Ritzen Group says Jackson Masonry did while the two companies were locked in a state court contract dispute in 2013. Jackson Masonry filed for bankruptcy 17 minutes before a hearing in a lawsuit brought by Ritzen, triggering the automatic stay that prevented Ritzen from pressing its breach of contract claims. 

Ritzen asked the bankruptcy court to lift the stay, arguing Jackson Masonry filed for bankruptcy just so it could dodge Ritzen’s contract suit. The court denied the motion, and the contract claims went forward before the bankruptcy court. 

The bankruptcy court ultimately ruled in favor of Jackson Masonry, leading Ritzen to claim on appeal that the bankruptcy court should not have denied its request to lift the automatic stay and that the contract dispute should have been heard in state court. 

A federal court never considered Ritzen’s claims about the stay, nor did the Sixth Circuit, saying the company should have immediately appealed the bankruptcy court’s denial because that ruling was a final order. 

Ritzen took the case to the Supreme Court, arguing that decision runs counter to how other requests to move litigation to another forum are handled and to the high court’s precedent.

Writing for the court, Justice Ruth Bader Ginsburg explained today that the process of resolving stay relief is entirely separate from the rest of the bankruptcy case. Under the Supreme Court’s precedent, this allows litigants to immediately appeal the bankruptcy court’s order.

Ginsburg also wrote that following Ritzen’s proposal would effectively give litigants a mulligan if they were unsuccessful in persuading the bankruptcy court with their first shot.

“By endeavoring now to appeal the stay-relief order, after forgoing an appeal directly after the denial, Ritzen seeks to return to square one,” Ginsburg wrote. “Its aim, to re-litigate the opposing contract claims in state court. Nevermind that the bankruptcy court has fully adjudicated the contract claims and has, without objection from Ritzen, approved Jackson’s reorganization plan. The second bite Ritzen seeks scarcely advances the finality principle.”

Ritzen is represented by Shane Ramsey with the Nashville firm Nelson Mullins Riley & Scarborough. Ramsey did not immediately return a request for comment on the decision.

Griffin Dunham, an attorney with the Nashville firm Dunham Hildebrand who represented Jackson Masonry, also did not immediately respond to an email seeking comment Tuesday morning.

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