734 F.2d 1200 (7th Cir. 1984), 83-2457, Moody v. Amoco Oil Co.

Docket Nº:83-2457.
Citation:734 F.2d 1200
Party Name:Gerald W. MOODY, and Jermoo's Incorporated, Debtors-in-Possession, Plaintiffs- Appellants, v. AMOCO OIL COMPANY, Defendant-Appellee.
Case Date:May 14, 1984
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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734 F.2d 1200 (7th Cir. 1984)

Gerald W. MOODY, and Jermoo's Incorporated,

Debtors-in-Possession, Plaintiffs- Appellants,


AMOCO OIL COMPANY, Defendant-Appellee.

No. 83-2457.

United States Court of Appeals, Seventh Circuit

May 14, 1984

Argued Dec. 5, 1983.

Rehearing and Rehearing En Banc Denied July 3, 1984.

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David G. Walsh, Walsh, Walsh, Sweeney & Whitney, S.C., Madison, Wis., for debtors-in-possession, plaintiffs-appellants.

Gregory E. Scallon, Stafford, Rosenbaum, Rieser & Hansen, Madison, Wis., for defendant-appellee.

Before BAUER and FLAUM, Circuit Judges and EVANS, District Judge. [*]

FLAUM, Circuit Judge.

This appeal raises a number of issues arising under the interim bankruptcy rule (interim rule) adopted by the district courts of this circuit, the Bankruptcy Reform Act of 1978 (codified at 11 U.S.C. and scattered sections of the United States Code), and the Petroleum Marketing Practices Act of 1978 (PMPA), 15 U.S.C. Secs. 2801-2806 (1982). The appeal involves an adversary proceeding arising out of debtors' reorganization cases filed under chapter 11 of the Bankruptcy Code. The bankruptcy court held both that debtors could not assume certain allegedly executory contracts and that debtors were not entitled to preliminary injunctive relief under the PMPA, Matter of Moody, 31 B.R. 216 (Bkrtcy.W.D.Wis.1983). The district court affirmed the bankruptcy court's order and remanded the case to the bankruptcy court for entry of final judgment. Because we hold that debtors' claim for relief under the PMPA is a "related proceeding" within the meaning of the interim rule, we reverse that portion of the district court's opinion remanding the PMPA claim to the bankruptcy court. We also reverse the district court's holding that debtors may not assume the jobbership contract. We affirm the remainder of the district court's opinion.

I. Facts

Appellants Gerald W. Moody and his solely-owned business Jermoo's, Inc., ("debtors") conduct retail petroleum dealerships ("the dealerships") at three separate locations in Wisconsin. Appellee Amoco Oil Company ("Amoco") is the supplier and franchisor for each location. Debtors also conduct wholesale petroleum operations as an Amoco jobber ("the jobbership"). Because

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the dealerships and the jobbership are subject to separate agreements between the parties, we will discuss them separately.

  1. The Dealerships

    Debtors' dealerships are located in Oakdale, Mauston, and Tomah, Wisconsin. 1 Each dealership is separate and subject to a separate set of lease and contract agreements. 2 There are no cross-default provisions among the dealership contracts. Debtor Moody has been an Amoco dealer since 1958. He has won numerous awards from Amoco. Until the course of events giving rise to this appeal, he had never been cited for any violation of any dealership agreements.

    Debtors allege that on January 26, 1983, their bank accelerated a loan to debtors and seized the balance in their checking account as a setoff. The bank subsequently dishonored all checks submitted for payment. 3

    On January 27, 1983, Amoco was notified that certain checks given to it by debtors for payment for fuel had been dishonored. The same day, Amoco verbally notified debtors of the dishonored checks. Amoco told debtors that unless the checks were cured by the next day, Amoco would pump dry the fuel tanks at Oakdale and Mauston and would provide no further gasoline to debtors until the checks were cured. Amoco testified that this was standard practice and pursuant to written agreement between the parties. 4 Amoco also mailed to debtors a demand that debtors cure the dishonored checks within five days. The five-day cure notice was addressed to Mr. Moody, Jermoo's Inc., at Mauston. That notice listed five checks as dishonored. The return receipt completed by Amoco refers to the addressee as "jobber." The five-day cure notice did not specify which check pertained to which dealership or jobbership.

    Debtors state that on January 27, they executed chapter 11 petitions in bankruptcy and instructed their counsel to file them the next day.

    On January 28, debtors' counsel contacted Amoco. The parties agreed that Amoco would not pump its tanks dry and would continue to supply gasoline to debtors while debtors attempted to put together a settlement proposal. Debtors state that they told Amoco that they would file under chapter 11 that day unless Amoco agreed not to pump the tanks. Debtors state that Amoco agreed to maintain "the status quo." Debtors allege that, acting on the advice of their counsel, they waited to cure the checks because of the standstill agreement. Amoco states that the standstill agreement pertained only to Amoco continuing to supply gasoline; there was no standstill agreement as to the cure period for the dishonored checks.

    On January 29, 1983, debtors received the five-day cure notice from Amoco.

    On January 31, debtors' counsel met with Amoco to attempt to settle all disputes between the parties. On February 2, Amoco notified debtors' counsel that the settlement proposal was unacceptable. On February

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    3, debtors received a cure notice from Amoco, by certified mail (dated February 2), listing two dishonored checks from the Oakdale dealership and demanding cure within five days.

    Also on February 3, Amoco sent by certified mail two separate termination notices to debtors. The first pertained to Oakdale. It stated that two dishonored checks had been received and that the five-day grace period for cure had expired. The notice further provided that "additional N.S.F. checks have been received and at this time constitute further contract violations. Please consider this our notice to cancel [the Oakdale dealership] per Paragraph 15h of said lease. Said cancellation is to become effective ninety-days from the date of this letter." The letter included a summary statement of the PMPA, as required under the PMPA. The notice as to Mauston was identical, but it identified two other checks as dishonored. It was addressed to Mr. Moody at "Hwy. 82 & I-90/94" in Mauston.

    Paragraph 15h of each lease provides that Amoco may terminate the lease because of:

    [a]ny other reasonably convincing evidence of financial distress of Lessee, such as, without limitation, ... the giving of one or more Non Sufficient Fund checks which remain dishonored after five days from the postmark date ... of notice from Lessor to cure the dishonor, and the like.

    The leases also provide that "[t]he postmark date shall be the date of any notice sent by certified mail." Finally, the leases state that any notice sent to the lessee shall be sent to the address as shown in the lease. The Mauston lease shows Moody's address as 105 Murphy Drive in Mauston.

    Sometime on February 4, 1983, debtors received the Oakdale and Mauston termination notices. The return receipt shows a postmark date of February 4 as the date received. Debtors filed their chapter 11 petition on February 4.

    Moody testified that debtors could not have cured the checks during the five-day cure period, but that debtors have been ready, willing, and able to cure since the commencement of the instant adversary proceeding. 5

  2. The Jobbership

    By certified letter dated August 3, 1982, Amoco notified debtors that it elected to terminate and nonrenew the jobbership effective November 3, 1982. Amoco gave as its reason more than $230,000 in arrearages in the jobbership account that had existed since September 1981. Amoco later withdrew the termination notice and extended the deadline for payment of the arrearages into 1983. By certified letter dated February 1, 1983, Amoco issued a new notice of termination as to the jobbership, to be effective May 6, 1983. Debtors received the notice on February 3, 1983. The notice provided that the debtors had fifteen days from the postmark date of the letter to cure the default. Debtors did not cure the arrearages within the fifteen days and have not cured to date.

  3. Procedural History

    Debtors commenced this adversary proceeding in bankruptcy court on April 14, 1983. They argued that they could assume the dealership and jobbership contracts under section 365 of the Bankruptcy Code and that the terminations of the dealerships and jobbership were wrongful and ineffective under the PMPA. 6

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    A full-day evidentiary hearing was held before the bankruptcy court on May 18, 1983. 7 On June 2, 1983, the bankruptcy court entered a Memorandum Decision and Order for Judgment in favor of Amoco. The court held that the contracts could not be assumed because the contracts had been terminated prior to debtors' filing their chapter 11 petitions. The court found no basis to equitably estop Amoco to terminate the contracts. The court also found that debtors were not entitled to injunctive relief under the PMPA. Debtors had failed to show any serious question as to "fair grounds" for litigation as required under section 2805 of the PMPA. The bankruptcy court did not enter final judgment on its decision.

    On June 3, 1983, debtors filed with the district court a motion for withdrawal of the reference from the bankruptcy court pursuant to the interim rule. Debtors also filed, either additionally or alternatively, a notice of appeal and motion for stay pending appeal.

    The district court held an initial hearing. The court denied as untimely the motion for withdrawal of the reference. The court held an additional evidentiary hearing and invited the parties to supplement the record through affidavits.

    On July 29, 1983, the district court affirmed the bankruptcy...

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