Recent Developments in Bankruptcy Litigation 2021


Dustin P. Smith

Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, NY 10004
(212) 837-6126
[email protected]

Michael D. Rubenstein

Liskow & Lewis APLC
1001 Fannin Street, Suite 1800
Houston, TX 77002
(713) 651-2953
[email protected]

§ 1.1 Recent Bankruptcy Litigation Decisions

§ 1.1.1 United States Supreme Court

Ritzen Group, Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582 (2020). The Ritzen Group, Inc. agreed to buy real property in Nashville, Tennessee, from Jackson Masonry, LLC.  The transaction was never consummated and Ritzen sued for breach of contract in state court.  Days before trial was set to begin, Jackson filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code.  Section 362(a) of the Bankruptcy Code stayed the litigation.  Ritzen filed a motion in the bankruptcy court for relief from the automatic stay.  The bankruptcy court denied the motion.  The bankruptcy court, in the context of an adversary proceeding, found that Ritzen was in breach of the contract because it had failed to secure the financing by the closing date.  Accordingly, the bankruptcy court disallowed Ritzen’s proof of claim.  Thereafter, the plan of reorganization was confirmed and all creditors were enjoined from commencing or continuing any proceeding against the debtor on account of claims.  Following confirmation, Ritzen filed two separate notices of appeal.  First, Ritzen challenged the bankruptcy court’s order denying stay relief.  Second, Ritzen challenged the court’s resolution of its breach of contract claim.  The district court, acting as the appellate court of first instance, dismissed the first appeal as untimely pursuant to 28 U.S.C. § 158(c)(2) and Rule 8002(a) of the Federal Rules of Bankruptcy Procedure.  With respect to Ritzen’s appeal of the breach of contract claim, the district court rejected the appeal on the merits.  The United States Court of Appeals for the Sixth Circuit affirmed.

The Supreme Court granted certiorari to resolve the question of whether orders denying relief from the automatic stay are final and, therefore, immediately appealable under Section 158(a)(1).  Justice Ginsburg, delivering the opinion for a unanimous court, began by noting that a majority of the circuit courts and the leading treatises consider orders denying relief from the automatic stay as final, immediately appealable decisions.  The Court agreed.

Jackson argued that adjudication of a stay-relief motion was a discrete proceeding, whereas Ritzen argued that it should be considered as the first step in the process of adjudicating a creditor’s claim against the estate.  The Supreme Court agreed with the appellate court and Jackson that the appropriate “proceeding” is the stay-relief adjudication.  The bankruptcy court’s order ruling on that motion disposed of “a procedural unit anterior to, and separate from, claim-resolution proceedings.”  The Court noted that “[m]any motions to lift the automatic stay do not involve adversary claims against the debtor that would be pursued in another form but for bankruptcy.  Bankruptcy’s embracive automatic stays stops even non-judicial efforts to obtain or control the debtor’s assets.”  The Court reasoned that there was “no good reason to treat stay adjudication as the relevant ‘proceeding’ in only a subset of cases.”  Because the appropriate “proceeding” was the adjudication of the stay-relief motion, the bankruptcy court’s order conclusively denying that request was “final.”  It ended the stay-relief proceedings and left nothing more for the bankruptcy court to do.  Accordingly, the appeal was untimely.  The Court held that “the adjudication of a motion for relief from the automatic stay forms a discrete procedural unit within the embracive bankruptcy case.  The unit yields a final, appealable order when the bankruptcy court unreservedly grants or denies relief.”

§ 1.1.2 First Circuit

Mission Prod. Holdings, Inc. v. Schleicher & Stebbins Hotels, LLC (In re Old Cold, LLC), 976 F.3d 107 (1st Cir. 2020). In the most recent litigation connected to the bankruptcy proceedings of Old Cold, LLC (the “Debtor”)—notable for spawning the Supreme Court’s decision …

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