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In Harrington v. Mayer (In re Mayer)

On Behalf of | Mar 30, 2022 | Firm News

In Harrington v. Mayer (In re Mayer), 2022 U.S. App. LEXIS 5970 (9th Cir. March 8, 2022), the United States Court of Appeals for the Ninth Circuit held that a district court’s denial of a creditor’s motion from relief from stay without prejudice was final and appealable where the denial conclusively resolved the relief sought by the creditor.  The Ninth Circuit’s decision addressed a question left open in Ritzen Group, Inc. v. Jason Masonry, LLC, 140 S. Ct. 582 (2020): whether finality would attach to an order denying relief from the automatic stay if the bankruptcy court enters such an order without prejudice because further developments might change the stay calculus.

In Mayer, the debtor filed for a chapter 7 bankruptcy five days before the commencement of a jury trial in Massachusetts state court (the “State Court Action”). The State Court Action arose from a dispute between the debtor and his partner regarding a real estate company the two formed. Upon the debtor’s filing for bankruptcy, the Massachusetts court placed the State Court Action on inactive status. The partner immediately filed a complaint in the bankruptcy court for denial of the discharge of debt under 11 U.S.C. § 523(a) and denial of the debtor’s discharge  under 11 U.S.C. § 727(a) and filed a proof of claim against the debtor for over two million dollars based on his state law claims for breach of fiduciary duty, breach of contract, fraudulent misrepresentation, and other violations of Massachusetts state law.

Approximately one year later, the partner filed a motion for relief from the automatic stay in order to allow the State Court Action to proceed. After tentatively ruling to grant the motion, the bankruptcy court later denied the motion without prejudice. The partner filed a motion for leave to appeal but the district court denied the motion on the grounds that the bankruptcy court’s denial of the motion for relief from the stay: (1) was without prejudice; and (2) that the partner failed to establish his entitlement to an interlocutory appeal. The partner appealed the district court’s order, arguing that the bankruptcy court’s denial of relief from the stay in the State Court Action is a final order that is immediately appealable.

The Ninth Circuit found for the partner. In doing so, the Ninth Circuit held that under Ritzen, an order denying a relief from stay motion is immediately appealable when it conclusively resolves the movant’s entitlement to the requested relief. In the instant case, the Ninth Circuit found that the movant’s requested relief was to proceed against the Debtor in state court. While the order denying relief from stay was without prejudice, the order effectively determined that the partner’s claims would be litigated in bankruptcy court rather than Massachusetts state court and thus, the court’s denial conclusively resolved the movant’s entitlement to his requested relief. The order was thus final and appealable.

In Mayer, the Ninth Circuit acknowledges that “in contrast to ‘ordinary civil litigation’, the rules of finality in bankruptcy are ‘somewhat relaxed'”. The Ninth Circuit looks to provide guidance on the limits of these relaxed rules by addressing when an order denying relief from the automatic stay without prejudice is final and appealable.