Banking and Business Monthly – January 2020

SCOTUS REQUIRES BANKRUPTCY STAY APPEALS TO BE FILED QUICKLY; ILLINOIS RECOGNIZES BLOCKCHAIN TECHNOLOGY

A. SCOTUS Requires Bankruptcy Stay Appeals to be Filed Quickly

In Ritzen Grp., Inc. v. Jackson Masonry, LLC , No. 18-938, 2020 WL 201023 (U.S. Jan. 14, 2020), the Supreme Court of the United States (SCOTUS) resolved the question whether an order denying a motion for relief from the automatic stay in a bankruptcy proceeding is a final order under 28 U.S.C. § 158(a). In a unanimous opinion, SCOTUS held that such an order is final and immediately appealable under §158(a).

The facts of the case are that Ritzen Group contracted to buy real estate from Jackson Masonry, but the sale was never completed. Ritzen claims that Jackson breached the contract by providing erroneous documentation about the property just before the deadline, while Jackson claims Ritzen breached by failing to secure funding to purchase the property by the deadline. Ritzen sued Jackson for breach of contract in Tennessee state court, and just before trial, Jackson filed for bankruptcy, triggering an automatic stay of the litigation under 11 U.S.C. § 362. Ritzen filed a motion to lift the stay, which the bankruptcy court denied, and Ritzen did not appeal the denial. Instead, Ritzen brought a claim against the bankruptcy estate. The bankruptcy court denied the claim, ruling for Jackson and finding that Ritzen, not Jackson, breached the contract.

After this ruling on the claim, Ritzen filed two appeals in the district court. The first appeal arose from the bankruptcy court’s order denying relief from the automatic stay (which Ritzen did not appeal at the time). The second appeal arose from the bankruptcy court’s determination that Ritzen, not Jackson, breached the contract. The district court ruled against Ritzen on both appeals, holding that the first appeal was untimely filed under 28 U.S.C. §158(c)(2) and Federal Rule of Bankruptcy Procedure 8002(a), which require appeals from a bankruptcy court order to be filed “within 14 days after entry of [that] order,” and the second one failed on the merits. Ritzen then appealed to the U.S. Court of Appeals for the Sixth Circuit, which reviewed the bankruptcy court’s findings of fact under the abuse of discretion standard and its legal conclusions de novo. The Sixth Circuit affirmed, finding that Ritzen had missed two deadlines: the contract deadline, leading to its breach, and the 14-day appeal deadline, leading to its waiver of appeal.

At issue before SCOTUS was the first appeal. Justice Ginsburg, writing for the Court, affirmed the Sixth Circuit and held that a bankruptcy court’s order unreservedly denying relief from the automatic stay constitutes a final, immediately appealable order under § 158(a), as adjudication of a motion for relief from bankruptcy’s automatic stay is a discrete proceeding anterior to, and separate from, the underlying claim-resolution proceeding. The 14-day appeal clock thus ran from the order denying the motion to lift the stay, and so Ritzen did not timely file its first appeal.

Ritzen teaches creditors that if they want to contest a bankruptcy court’s denial of a motion for relief from the automatic stay, they must appeal within 14 days of the bankruptcy court’s entry of the order.

B. The Blockchain Technology Act

Back on August 23, 2019, Governor Pritzker signed HB 3575 to create the Blockchain Technology Act effective January 1, 2020. Under the Act, “blockchain” is defined as “an electronic record created by the use of a decentralized method by multiple parties to verify and store a digital record of transactions which is secured by the use of a cryptographic hash of previous transaction information.” The Act provides legal recognition to smart contracts and blockchain-based records and signatures, while also providing some limitations, including a provision stating that if a law requires a contract or record to be in writing, the legal enforceability of it may be denied if the blockchain transaction cannot later be accurately reproduced for all parties. The Act also prohibits local governments from regulating or taxing blockchain technology or smart contracts.

The Act does not require the use of blockchain technology or smart contracts, nor directs state or local governments to adopt blockchain technology. Instead, it provides for regulatory certainty and assures blockchain developers and users that blockchain records, signatures and contracts will not be denied legal effect because of this technology.

Steven A. Migala is a partner at Lavelle Law and possesses over 20 years of providing excellent representation to banks, businesses, and individuals in a variety of matters. He can be contacted at (847) 705-7555 and smigala@lavellelaw.com.