Samoset Associates, In re

• Citation: 654 F.2d 247
• Decision Date: 28 July 1981
• Docket Number: 81-1089,Nos. 81-1054,s. 81-1054
• Parties: In re SAMOSET ASSOCIATES, Debtor. Appeal of TREADWAY INNS CORPORATION. In re SAMOSET ASSOCIATES, Debtor. Appeal of BUILDERS INVESTMENT GROUP.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 247

654 F.2d 247

8 Bankr.Ct.Dec. 245

In re SAMOSET ASSOCIATES, Debtor.

Appeal of TREADWAY INNS CORPORATION.

In re SAMOSET ASSOCIATES, Debtor.

Appeal of BUILDERS INVESTMENT GROUP.

Nos. 81-1054, 81-1089.

United States Court of Appeals, First Circuit.

Argued June 5, 1981.

Decided July 28, 1981.

Alan L. Lefkowitz, with whom James D. McGinley, Dexter L. Kenfield, and Gaston Snow & Ely Bartlett, Boston, Mass., were on brief, for Treadway Inns Corp.

Robert Robinson, Boston, Mass., with whom Widett, Slater & Goldman, Boston, Mass., Thomas F. Brown, New Haven, Conn., Daniel G. McKay, and Eaton, Peabody, Bradford & Veague, Bangor, Me., were on brief, for Builders Investment Group.

Before COFFIN, Chief Judge, ALDRICH and BREYER, Circuit Judges.

COFFIN, Chief Judge.

These are cross appeals from a December 23, 1980 order of the district court affirming an October 5, 1979 order of the bankruptcy court. The order precludes appellant Treadway Inns Corporation (Treadway) from suing in another court appellee Builders Investment Group (BIG) on a three-way contract involving Treadway, BIG and Samoset Associates (Samoset), the bankrupt developer of a Maine coastal resort hotel. Treadway seeks in its appeal to set aside the bar to suing BIG; BIG asserts in its cross-appeal that the district court had no appellate jurisdiction to review the October 5 order.

These appeals are part of the harvest of a seven year period of travail surrounding the building and launching of the Samoset resort in Rockport and Rockland, Maine, whose core was a once-popular summer hotel that had suffered from changing times. Samoset originally agreed, in separate contracts dated January 15, 1973, to retain Treadway as the manager of the resort complex and to operate under the Treadway franchise. Six months later BIG became Samoset's major creditor, lending $2,700,000 to the enterprise. The underlying dispute is whether certain contractual undertakings involving Samoset, BIG and Treadway in 1973 and 1974 (the Tripartite and Recognition Agreements), insofar as they referred to the earlier Franchise Agreement between Treadway and Samoset, survived the bankruptcy court's settlement order, which transferred to BIG the assets of the hotel and all managerial functions, and terminated any role on the part of Treadway. Treadway claims that the bankruptcy court lacked jurisdiction to bar its suit against BIG because (1) BIG, by signing the Tripartite Agreement and the amended or Recognition Agreement, whether "wittingly or not", bound itself directly to Treadway and the subsequent bankruptcy of Samoset and negotiations between the Trustee and BIG resulting in the settlement order had no effect on the earlier free-standing BIG-Treadway undertakings; and (2) even if the bankruptcy court at one time had jurisdiction to determine Treadway's rights against BIG, it lost such jurisdiction when the assets were conveyed to BIG.

Critical to our understanding of this controversy is an acquaintance with the two agreements Samoset entered into with Treadway. While one of them, the Management Agreement, plays no role in these appeals, ¹ the other is to this drama as is the prince's father to "Hamlet"; it is the stimulus of this litigation, yet offstage during most of the action. Both Agreements provided for a twenty-five year duration. The Management Agreement covered Treadway's obligations to provide such services as credit card, affiliation reservation, sales promotion, food, personnel hiring, training and supervision, accounting, and budgeting, and its right to make alterations and improvements.

The Franchise Agreement provided that the franchisee accept the agreement "subject to the Management Agreement", use the marks, signs, etc. of Treadway; that Treadway conduct national and chain-wide promotions, for a monthly fee of .5 percent of room sales; that additional monthly fees be paid in amounts equal to 3 percent of room sales and 1 percent of food and beverage sales; and that Treadway have the following rights:

to inspect at any time;

to have access to all records;

to select the auditor;

to determine operational standards and procedures;

to determine all matters requiring uniformity (such as decoration, decor, the frequency of painting and repairing, the specifications and lay-out of furnishings, standards for food products, employees and advertising);

to require use of the food, supplies and equipment of Treadway-approved suppliers;

to approve all furniture and fixtures proposed to be installed;

to proscribe affiliation with any other hotel group;

to approve types, limits, and providers of insurance coverage;

to approve any transfer of the Inn or equipment, or controlling interest in the corporation owning the Inn or any public financing.

On June 18, 1973, in connection with advancing $2,700,000 to Samoset, BIG signed the Tripartite Agreement, along with Samoset and Treadway. This provided for assignment of Samoset's interest to BIG in the event of default, in which case BIG would have the responsibility of advancing working capital and franchise payments to Treadway, and the right to assign its interest in the Franchise and Management Agreements to any financially responsible nominee who assumed those obligations. On September 11, 1974, in connection with BIG's advancing $72,000 more for the hotel's start-up and opening costs, the three parties amended the first Tripartite Agreement by executing a similar Recognition Agreement. BIG's obligation to advance working capital and franchise fees was made conditional not only on Samoset's default but on whether it "succeeds to Franchisee's interests under the Franchise and Management Agreements".

On November 10, 1975 after Samoset had defaulted and BIG had commenced proceedings to foreclose on its mortgage, Samoset petitioned in the bankruptcy court for Chapter XII relief. On July 12, 1977 the bankruptcy judge entered an order constituting Samoset a debtor-in-possession, and requiring Treadway and Samoset to continue their relationship under the Management Agreement, with certain changes. The order suspended BIG's obligation under the Tripartite Agreement (it "being a conditional assignment by (Samoset) to BIG of (Samoset's) rights under the Management Agreement"), and ordered that any controversies thereafter arising among Samoset, BIG, and Treadway regarding operations under this order or the effect on their liability of provisions of the Tripartite Agreement as amended be submitted to it for summary adjudication. It enjoined any other court action relating to the Agreement without prior approval of the bankruptcy court.

Straight bankruptcy proceedings ensued. On March 1, 1978 the bankruptcy court determined that the Chapter XII petition had not been filed in good faith and on March 8, 1978 appointed a Trustee. The Trustee did not assume either the Management or Franchise Agreement within sixty days. Instead, he negotiated a settlement and on June 15, 1978 sought authority to compromise, giving notice to all parties and filing a Stipulation. This latter document set forth the Trustee's proposed undertaking to allow BIG's claim at a reduced amount, to terminate all stays of foreclosure, and to convey his interest to BIG subject to payment of certain liens and other encumbrances. BIG's reciprocal undertaking was to pay to the estate an additional $200,000 and to satisfy certain listed lien claims.

The fifth and last section of the Stipulation concerned Treadway. The Trustee and BIG agreed that (1) Treadway should continue to operate the hotel until the date of closing; (2) "although the so-called Management and Franchise Agreements have been rejected by reason of the failure of the Trustee to assume the same (and thereby terminated by operation of law), Treadway should continue to compensate itself out of the operating funds in its hands in full compensation for its management and franchise services. It is understood that BIG is not assuming any Treadway contracts."; (3) "as of closing BIG will assume the managerial functions It is expressly understood that as of the day of closing any role or function of Treadway shall be terminated"; (4) funds in the amount of some $51,000 would be maintained "to preserve the estate against claims of Treadway emanating from the rejection of executory contracts."

On July 17, 1978, at a hearing on this application, all parties were represented by counsel and no objections were voiced. On July 20 the bankruptcy judge issued his order approving the compromise, finding it fair, reasonable, and in the best interest of the estate, and ordering that, as of the date of closing, August 15, 1978,

"BIG shall assume all managerial functions and as of said date any role or function of Treadway Inns Corporation with respect to such management shall be terminated."

At this point in the litigation, procedural motions proliferated in a kind of metastasis. Although Treadway's "first motion" to exempt contractual litigation between it and BIG from the July 20, 1978 order was denied as being without merit, Treadway did not pursue its appeal. Instead, it renewed its efforts in three subsequent motions. Finally, a year later, on August 23, 1979, the bankruptcy judge issued his memorandum of decision which is the basis of his final order of October 5.

In that memorandum, he stated that the compromise order, approved on July 20, 1978, terminated Treadway's management rights and obligations as of the date of closing, but did not purport to adjudicate other rights of Treadway against either the Trustee or BIG, leaving Treadway free to pursue any such rights in the bankruptcy court. The bankruptcy judge acknowledged that third-party controversies not involving the bankrupt or the property of the estate are not within the jurisdiction of the bankruptcy court but held that (a) the rights and obligations of BIG and Treadway arising out of the operation of the hotel during the bankruptcy...