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Article: December 2018: Appellate Practice Update

Business Litigation Reports

New Sixth Circuit Precedent on Appellate Jurisdiction in Bankruptcy Cases. On October 16, 2018, the Sixth Circuit decided a case setting forth a new standard for the appealability of bankruptcy court decisions. In In re Jackson Masonry, LLC, 906 F.3d 494 (6th Cir. 2018), the Sixth Circuit held that the denial of relief from an automatic stay is immediately appealable, and in doing so, outlined a two-part test for determining the appealability of bankruptcy court orders.

The Sixth Circuit began with the words of the statute: “The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees [and certain interlocutory orders] of bankruptcy judges entered in cases and proceedings ....” 28 U.S.C. § 158(a). The court explained that “[i]nstead of limiting appeals to final judgments in cases, Congress specifically extended the scope of appellate jurisdiction in bankruptcy matters to include ‘final judgments, orders, and decrees’ entered in both ‘cases and proceedings.’Jackson Masonry, 906 F.3d at 499 (quoting Bullard v. Blue Hills Bank, 135 S. Ct. 1686, 1692 (2015) (in turn quoting 28 U.S.C. § 158(a)) (emphasis added in Jackson Masonry). This broader language makes sense in the bankruptcy context because “[a] bankruptcy case is an aggregation of individual disputes, many of which could be entire cases on their own,” and “a bankruptcy case is like a jigsaw puzzle,” such that “[t]o complete the puzzle, one must start by putting some of the pieces firmly in place.” Id. at 498 (internal quotation marks omitted).

In drawing a test from the statutory language, the Sixth Circuit criticized other courts for taking “the loose finality
in bankruptcy as a license for judicial invention,” resulting in “a series of vague tests that are impossible to apply consistently.” Id. In particular, the Sixth Circuit referred to the First Circuit’s test, whereby “‘[e]verything depends on the circumstances,’” as vague and unpredictable. Id. at 499 (quoting In re Atlas IT Export Corp., 761 F.3d 177, 185 (1st Cir. 2014)). Instead, the Sixth Circuit put forward what it deemed “a clear test for courts to apply: a bankruptcy court’s order may be immediately appealed if it is (1) ‘entered in [a] ... proceeding’ and (2) ‘final’— terminating that proceeding.” Id.

Applying that test, the Sixth Circuit held that an order denying relief from an automatic stay is immediately appealable. First, the court explained that it is a proceeding because a proceeding is simply “a discrete dispute within the overall bankruptcy case,” and “a stay-relief adjudication fits this description” because “there is a discrete claim for relief, a series of procedural steps, and a concluding decision based on the application of a legal standard.” Id. at 500. The court also relied in part on the fact that stayrelief motions are referred to as “core proceedings” in 28 U.S.C. § 157. Id. at 501. Second, the court explained that an order denying stay relief is final because it “is both procedurally complete and determinative of substantive rights.” Id. (quotation marks omitted). In Bullard, the Supreme Court concluded that a bankruptcy court order denying a debtor’s repayment plan with leave to amend is not final. The Sixth Circuit held that a stay-relief denial, in contrast, is procedurally complete because “once entered there are no more ‘rights and obligations’ at issue in the stayrelief proceeding,” id., and “[t]he consequences of a stayrelief denial are both significant and irreparable,” id. at 502.

Jackson Masonry shows the need for litigants to be mindful of the potential appealability of various bankruptcy court orders that would not be considered appealable outside the bankruptcy context. While it is unclear whether other circuits will follow Jackson Masonry’s approach, its test provides a potentially low bar for appealability. In particular, its narrow framing of the “proceeding” at issue (there, deemed the “stay-relief proceeding”) means that many orders may be considered final that otherwise do not end the proceeding as more broadly construed. In addition, the Sixth Circuit’s use of section 157 as a factor (though not dispositive) in deciding what qualifies as a proceeding should make litigants wary of waiting to appeal any arguably final order listed in section 157. More generally, the Sixth Circuit’s ruling highlights the need for litigants to appeal immediately any potentially appealable bankruptcy order, or risk having a later appeal ruled untimely.