How Courts in the Second Circuit Decide on a Stay Pending Appeal in Bankruptcy Actions

(Excerpt) Absent a stay, an appeal may be mooted by actions taken while the appeal is pending. The Federal Rules of Bankruptcy Procedure permit a court to grant “a stay of a judgment, order, or decree” pending an appeal. The purpose of a stay “is to preserve the status quo pending appeal and to protect the rights of all parties in interest.” The standard for a grant or denial of a stay under Bankruptcy Rule 8007 has historically differed among courts, with some favoring the “judicial discretion” test and others opting for the “preliminary injunction” test, depending on the nature of the stay. This memorandum explores the various ways the Second Circuit’s bankruptcy appellate panel (“B.A.P.”), district courts, and bankruptcy courts consider applications for stays pending appeal. Part I discusses two tests, the “judicial discretion” and the “preliminary injunction” test, that the courts in the Second Circuit may use, and then how each factor of the preliminary injunction test is analyzed. Part II discusses the two approaches courts in the Second Circuit adopt under the preliminary injunction test (whether or not all four factors must be satisfied) and how the courts weigh each of the four factors, regardless of the approach taken