ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA D.C. Civ. No. 95-01860 Argued Thursday, December 11, 1997
Before: Nygaard and Alito, Circuit Judges, and Debevoise, District Judge*
The opinion of the court was delivered by: Nygaard, Circuit Judge.
(Opinion Filed April 10, 1998)
Appellants, Krebs Chrysler-Plymouth, Inc. and Chrysler Corporation, challenge a bankruptcy court's order denying their motions to reconsider, alter, or amend its prior decisions. Those decisions approved the rejection of a buy-sell agreement between debtor Valley Motors, Inc. and Krebs and the subsequent assumption and auction sale of the underlying franchises. In response to Chrysler's appeal, General Motors Acceptance Corporation has filed a motion to dismiss for lack of standing. We will grant GMAC's motion and also dismiss Krebs's appeal as moot pursuant to 11 U.S.C. § 363(m) for failing to obtain a stay pending appeal.
Valley Motors, Inc. operates an automobile dealership in the Pittsburgh, Pennsylvania area and is a party to three sales and service franchise agreements. In one of these, Chrysler allows Valley to sell and service Jeep and Eagle automobiles. Valley executed a buy-sell agreement to sell its interest in the Jeep-Eagle franchise to Krebs for $295,000. Half of that amount was paid upon the execution of the buy-sell agreement, and the second half was due upon the occurrence of two events: Chrysler's approval of the transfer as Jeep-Eagle franchisor and the favorable resolution of any protests filed under state law by Krebs's competitors. Although Chrysler approved the transfer to Krebs, several competing auto dealerships protested it. When Valley filed its Chapter 11 petition, those protests became subject to the automatic stay and remain unresolved.
Valley moved to assume the buy-sell agreement with Krebs under section 365 of the Bankruptcy Code, which authorizes a trustee to assume or reject executory contracts. 11 U.S.C. § 365. The protesting dealerships objected to the motion. Valley then amended its motion to further assert that assumption was in the best interest of the bankruptcy estate and satisfied the requirements of the business judgment rule. Chrysler "conditionally objected" to the assumption, alleging that Valley had previously defaulted under the Jeep-Eagle franchise, and it should pay over two million dollars in lost-volume sales and damages to Chrysler's intangible assets and provide adequate assurances of Krebs's future performance under the franchise. Another auto dealer, Ronald Charapp, also objected, because he had made an offer to purchase all of Valley's franchises, inventory and lease obligations for $425,000. Charapp suggested the bankruptcy court conduct a hearing to entertain other offers on the sale of Valley's assets.
On the same day as the hearing on the amended motion to assume the buy-sell agreement, but before a decision, Valley moved to withdraw its amended motion, arguing that Charapp's, not Krebs's, offer would be in the best interest of the estate. The next day, the bankruptcy court granted Valley's motion to withdraw its amended motion. The day after that, Valley moved to reject the buy-sell agreement pursuant to section 365. Valley then filed a second motion to sell all its franchises (including the Jeep-Eagle franchise), parts, shop materials, and fixed and miscellaneous assets to Charapp for $425,000. The motion stated that the sale was conditioned upon Chrysler's and the other franchisors' approval. Valley then filed a third motion to assume the three franchise agreements. Chrysler and Krebs objected to all three motions. Charapp also expressed his reservations about the suggested sale because he had learned that Valley's Dodge franchise was soon to expire, and that Dodge was unwilling to extend the term.
The bankruptcy court granted Valley's motions to reject the buy-sell agreement and to assume and sell the three sales and service franchises. During the hearing on Valley's motion to sell, however, the court allowed Charapp to withdraw his offer and then held an auction on the three franchises "as is, where is." Krebs won the bidding on all three and paid ten percent of the purchase price to Valley on the day of the hearing. The price for the Jeep-Eagle franchise was $230,000. The bankruptcy court entered an order affirming the sale. Krebs has not paid the balance of the bid and has refused to close on the sale.
Krebs instead moved for reconsideration of the orders granting Valley's three motions. Chrysler moved for reconsideration of the order to assume and the order to sell the franchises, but not the order to reject the buy-sell agreement. In response, Valley moved to compel Krebs to close on the ordered sale. The bankruptcy court denied Krebs's motions. It found that the buy-sell agreement was executory, that the business judgment test was applicable, and that Valley satisfied it. Accordingly, it upheld its order permitting Valley to reject the agreement under section 365. The bankruptcy court also found that Krebs did not have an equitable interest in the first $147,500 payment as either a set-off or recoupment against the amount due from the auction sale. The bankruptcy court ruled that, at most, Krebs had an unsecured claim because Valley's rejection operated as a prepetition breach of the buy-sell agreement.
Chrysler's arguments largely paralleled Krebs's, except Chrysler also wanted the bankruptcy court to require Valley to comply with section 365(b)(1)(A)-(C) and (f)(2), which require debtors who have defaulted on executory contracts to cure the breaches or provide adequate assurance of future performance before assuming them. Valley opposed this motion, claiming that its breaches under the franchises were non-monetary obligations excusing the statutory obligation to cure or assure performance. The bankruptcy court deferred its decision on Chrysler's motion because it did not have an adequate record and has yet to schedule an evidentiary hearing on Chrysler's motion.
Finally, the bankruptcy court granted Valley's motion to compel Krebs to close on the ordered sale. It rejected Krebs's argument that the closings were conditioned on approval from the respective franchisors. The court held that the sale was not conditional; it was "as is, where is."
Only Krebs appealed the bankruptcy court's order to the district court, although Chrysler filed a brief and argued in support of Krebs's position. The district court affirmed the bankruptcy court's decision and adopted its opinion. Now, however, both Krebs and Chrysler have filed notices of appeal.
The bankruptcy court had jurisdiction by virtue of 28 U.S.C. § 157, and the district court had jurisdiction over Krebs's appeal under 28 U.S.C. § 158(a). We exercise jurisdiction under 28 U.S.C. § 158(d) over final decisions of district courts entered under section 158(a).
GMAC, a secured creditor, moved to dismiss Chrysler's appeal for lack of standing. GMAC argues that Chrysler is not a "person aggrieved" and therefore does not have standing to appeal the bankruptcy court's orders. To support its argument, GMAC points out that, notwithstanding the outcome on the merits, Krebs will be the owner of the Jeep-Eagle franchise; Chrysler will not be directly and pecuniarily affected. Chrysler argues that it is a person aggrieved and has standing despite its failure to comply with the Federal Rules of Bankruptcy Procedure.
Chrysler is in an unusual procedural position because it appeals from the district court's affirmance of a bankruptcy court order it never appealed from. A party may "appeal from a final judgment, order, or decree of a bankruptcy judge to a district court" as of right "by filing a notice of appeal with the [bankruptcy court] clerk within the time allowed by Rule 8002." Fed. R. Bankr. P. 8001. Moreover, the "[f]ailure of an appellant to take any step other than the timely filing of a notice of appeal does not affect the validity of the appeal, but is ground only for such action as the district court . . . deems appropriate." Id. By implication, Chrysler's failure to file a notice of appeal to the district court from the bankruptcy court does affect the validity of its appeal to the Court of Appeals. See Shareholders v. Sound Radio, Inc., 109 F.3d 873, 879 (3d Cir. 1997) ("The failure to file a timely notice of appeal [from the bankruptcy court] creates a jurisdictional defect barring appellate review."); In re Colon, 941 F.2d 242, 245-46 (3d Cir. 1991) ("a late filing is insufficient to vest the district court with jurisdiction of the appeal").
Rule 8002 gives persons aggrieved by a bankruptcy order ten days to file a notice of appeal. Fed. R. Bankr. P. 8002(a). However, that rule also provides for an extension in certain circumstances:
"Effect of Motion on Time for Appeal. If any party makes a timely motion of a type specified immediately below, the time for appeal for all parties runs from the entry of the order disposing of the last such motion outstanding. This provision applies to a timely motion: (1) to amend or make additional findings of fact under Rule 7052, whether or not granting the motion would alter the judgment; [or] (2) to alter or amend the judgment under Rule 9023 . . . . A notice of appeal filed after announcement or entry of the judgment, order, or decree but before Disposition of any of the above motions is ineffective to appeal from the judgment, order, or decree, or part thereof, specified in the notice of appeal, until the entry of the order disposing of the last such motion outstanding. Appellate review of an order disposing of any of the above motions requires the party, in compliance with Rule 8001, to amend a previously filed notice of appeal."
Fed. R. Bankr. P. 8002(b). Because the bankruptcy court hasn't ruled on Chrysler's motion to alter or amend, neither Krebs nor Chrysler can appeal the underlying orders at this time. Also, the bankruptcy court has not ruled on Chrysler's motion to reconsider, so Chrysler may not found its appeal here on that motion. Finally, while Krebs has appealed the denial of its motion to reconsider, Chrysler did not appeal that decision, either. Hence, the district court did not have jurisdiction to hear an appeal from ...