More Clarity on What Constitutes a Final, Appealable Order in Bankruptcy After Ritzen Group Inc. v. Jackson Masonry, LLC
by | posted in: Bankruptcy Administration and Jurisdiction, Bankruptcy Roundtable Updates, Supreme Court | 0

By Charles Tabb and Carly Everhardt (Foley & Lardner)

Charles Tabb
Carly Everhardt

In Ritzen Group Inc. v. Jackson Masonry, LLC, the Supreme Court unanimously held that a bankruptcy court’s order denying relief from the automatic stay constituted a final order, and thus that order may­—and must—immediately be appealed if so desired.  The holding regarding finality is important, because parties normally only have an absolute right to appeal when an order is final, not when an order is interlocutory.  In Ritzen, the Court announced a clear blueprint for gauging the finality of any bankruptcy order.

The opinion comes just a few years after the Supreme Court decided Bullard v. Blue Hills Bank, in which the Court held that an order denying confirmation of a plan was not final, because the plan confirmation process could continue notwithstanding the denial.  In Ritzen, the Court distinguished Bullard, explaining that the stay relief proceeding constituted its own complete procedural unit, separate and apart from any claims resolution issues.  Ritzen puts to rest the view that Bullard signaled relaxed finality in the context of bankruptcy.

The article analyzes Ritzen and how it will impact strategic decisions by creditors regarding stay relief and other forms of bankruptcy litigation.  The article considers open questions left by the Court, including the impact on the finality of an order which states it was entered “without prejudice,” and whether res judicata may apply in cases where creditors make multiple requests for relief.

The full article is available here.

Junior Creditors Could Share In 363 Bankruptcy Sales
by | posted in: 363 Sale, Priority, Valuation | 0

By Charles Tabb and Tamar Dolcourt (Foley & Lardner LLP).

In July, the Seventh Circuit Court of Appeals issued a decision that appeared to upend the long-held understanding that an underwater secured creditor was entitled to all of the proceeds of a sale under Section 363 of the Bankruptcy Code. In our new article, we analyzed the decision in Illinois Department of Revenue v. Hanmi Bank in which the Seventh Circuit opened the door to a potential recovery for out-of-the-money junior creditors based on the theory that a free and clear sale under the Bankruptcy Code created a premium for the assets that the junior creditor may be entitled to share. Though Hanmi dealt explicitly with a state taxing authority and its particular rights under Illinois state law, there is nothing in the opinion which limits it to those facts or that type of creditor. Furthermore, even though the court ultimately valued the interest that the Illinois Department of Revenue was forced to give up through the free and clear sale at zero, that was simply a failure of proof in the particular case. We also consider the long-term ramifications of this opinion and its likely effect on future sales under Section 363, including the possibility of increased costs and delays of negotiating these sales with recalcitrant junior creditors.

The article may be found at Law 360:  the original publication.

The Bankruptcy Clause, the Fifth Amendment, and the Limited Rights of Secured Creditors in Bankruptcy
by | posted in: Bankruptcy Administration and Jurisdiction | 0

By Charles J. Tabb, University of Illinois College of Law

2005-tabb The received wisdom in bankruptcy jurisprudence is that the Fifth Amendment Takings Clause independently limits the exercise of the bankruptcy power under the Bankruptcy Clause. Accordingly, secured creditors in bankruptcy are assumed to enjoy a constitutional right to receive the full value of their collateral in the bankruptcy case.

The thesis of this article is that the received wisdom is wrong. Professor Tabb argues that the Takings Clause of the Fifth Amendment does not and should not constrain the powers of Congress to modify the substantive rights of secured creditors under the Bankruptcy Clause. Instead, the only meaningful limits on the modification of substantive rights of stakeholders pursuant to the bankruptcy power are those that inhere in the Bankruptcy Clause itself.

The Bankruptcy Clause has only two limitations, both of which are extremely easy to satisfy regarding the treatment of secured creditors: that the law be “uniform,” and “on the subject of bankruptcies.”

The article first explains why it matters whether we continue to subscribe to the received wisdom that the Takings Clause limits what can be done to secured creditors in bankruptcy. Then it examines in considerable detail the historical evolution of bankruptcy jurisprudence in this area. Finally, the article assesses how we might best strike a prudential and meaningful constitutional balance.

To read the full article, click here.