West Electronics Inc., Matter of

• Decision Date: 19 July 1988
• Docket Number: No. 87-5782,87-5782
• Citation: 852 F.2d 79
• Parties: , 18 Bankr.Ct.Dec. 287, Bankr. L. Rep. P 72,351, 34 Cont.Cas.Fed. (CCH) 75,526 In the Matter of WEST ELECTRONICS INC. Appeal of UNITED STATES of America, by the UNITED STATES AIR FORCE.
• Court: U.S. Court of Appeals — Third Circuit

Page 79

852 F.2d 79

57 USLW 2059, 18 Bankr.Ct.Dec. 287, Bankr.

L. Rep. P 72,351,

34 Cont.Cas.Fed. (CCH) 75,526

In the Matter of WEST ELECTRONICS INC.

Appeal of UNITED STATES of America, by the UNITED STATES AIR FORCE.

No. 87-5782.

United States Court of Appeals,

Third Circuit.

Argued May 5, 1988.

Decided July 19, 1988.

Dorothy Donnelly, Asst. U.S. Atty., Trenton, N.J., Dwight G. Rabuse (argued), Appellate Staff, Civil Div., U.S. Dept. of Justice, Washington, D.C., for appellant.

Kathryn Ferguson (argued), Michael Zindler, Markowitz and Zindler, Lawrenceville, N.J., for appellee West Electronics, Inc.

Before HIGGINBOTHAM, STAPLETON and GREENBERG, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

This matter before the court on appeal from an order of the district court entered September 8, 1987 in a bankruptcy case presents the question of whether the automatic stay provisions of 11 U.S.C. Sec. 362 should be lifted so that the government may terminate a contract entered into with a defense contractor before it sought relief under Chapter 11 of the Bankruptcy Code. The facts germane to the disposition of this appeal are not in dispute and thus our review is of legal precepts and is plenary. United States v. Adams, 759 F.2d 1099, 1106 (3d Cir.1985), cert. denied, 474 U.S. 906, 971, 106 S.Ct. 275, 336, 88 L.Ed.2d 236, 321 (1985). For the reasons stated below, we hold that the automatic stay should have been lifted so that the contract could be terminated.

I

In 1986 the United States entered into a contract with West Electronics, Inc., under which West was to supply a substantial number of AIM-9 missile launcher power supply units to the Air Force. While West expected this contract to be very profitable, it contends that its ability to perform was impaired by the government's failure to make inspectors available. Nevertheless, West did from time to time receive progress payments under the contract.

In October 1986 West suffered a computer malfunction which destroyed its accounting records, a misfortune which it does not attribute to the government. On November 14, 1986 the government suspended progress payments on the contract pending a review of West's financial status. At that time West had not made its first deliveries under the contract, though it asserts that in late November its first delivery of 60 units passed final inspection. West indicates that the suspension of the progress payments compelled it to deliver some of the power units to another customer willing to pay cash immediately.

The government's review revealed what it considered to be serious irregularities in West's accounting procedures. Overall the contracting officer concluded that because of West's delinquency in delivering the power supply units, the failure of its accounting systems, its delinquency in paying costs attributable to the contract and the excess of unliquidated progress payments to work in progress, the contract should be suspended.

On December 9, 1986 the government served an administrative notice on West requiring it to show cause why the contract should not be terminated. West responded on December 19, 1986 by explaining the impact of the limited availability of government inspectors. On December 18, 1986 the Internal Revenue Service seized West's assets to satisfy a lien of $779,449.40.

On December 19, 1986 West filed a petition for relief under Chapter 11 of the Bankruptcy Code and became a debtor in possession. At that time it obtained an order from the bankruptcy court temporarily restraining the Internal Revenue Service from seizing or removing property from its premises. At a subsequent hearing a consent order was entered which permitted West to regain possession of its premises. Of course, the automatic stay provisions of 11 U.S.C. Sec. 362 were triggered when the petition was filed.

On January 9, 1987 West moved in the bankruptcy court for an order compelling the government to make progress payments on the contract. On February 5, 1987 the government filed a cross-motion seeking an order permitting it to terminate the contract either by the court lifting the automatic stay or in some other appropriate manner. In addition, the government sought an order permitting it to take absolute possession of the parts and work in progress identifiable to the contract.

The bankruptcy judge denied both motions as premature. The judge concluded that he should not compel progress payments until West had first applied for the payments in accordance with the terms of the contract. The judge also indicated that West had the capacity to cure the default and should be given the opportunity to establish it could perform. The judge further ruled that there were no exigent circumstances arising from national defense considerations requiring lifting of the stay. An order reflecting this decision was entered April 9, 1987. The government appealed to the district court. The district judge in a memorandum opinion dated July 20, 1987 affirmed the bankruptcy judge's order. He reasoned that the contract, while executory, could be assumed by West and that because West represented that it had the capacity and intention to cure the default, the bankruptcy court had not erred. On September 8, 1987 the district judge entered an order reflecting this decision. The government has appealed from that order.

II

As happens often in bankruptcy cases, we are preliminarily presented with a significant jurisdictional question. Under 28 U.S.C. Sec. 158(a) the district courts have jurisdiction to hear appeals from final judgments, orders and decrees and, with leave of court, interlocutory orders and decrees of bankruptcy judges. The courts of appeal have jurisdiction over appeals from final decisions, judgments, orders, and decrees of district judges under 28 U.S.C. Sec. 158(d). Here the government appealed from the bankruptcy judge's order to the district court without leave and the district judge apparently ruled on the case without making any statement as to the finality of the order he was reviewing. Thus, it is obvious that the parties and the district judge treated the bankruptcy order as final.

It is therefore not surprising that on the appeal to us neither party originally questioned our jurisdiction. Nevertheless the possibly tentative nature of the bankruptcy judge's order which denied the government's motion as premature and the conceivably interlocutory character of an order denying relief from a stay raised jurisdictional problems which we cannot overlook. See In re White Beauty View, Inc., 841 F.2d 524 (3d Cir.1988).

The general approach to finality in bankruptcy matters was set forth in In re Meyertech Corp., 831 F.2d 410, 414 (3d Cir.1987), in which we indicated that:

In the context of bankruptcy cases, the definition of a final order is less than crystalline. Analysis of finality in these proceedings differs from litigation in an ordinary civil matter. In bankruptcy matters we have consistently considered finality in a more pragmatic and less technical sense than in other matters and the concept, for purposes of appellate jurisdiction, should be viewed functionally. Matter of Marin Oil, Inc., 689 F.2d 445 (3d Cir.1982), In re Amatex, 755 F.2d 1034 (3d Cir.1985).

In Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98 (3d Cir.1981), we enunciated a finding of finality in bankruptcy matters when 'nothing remains for the district court to do.' Also, Cox Broadcasting Corp. v. Cohn, 420 U.S. 469, 95 S.Ct. 1029, 43 L.Ed.2d 328 (1975).

There have been a substantial number of cases dealing with the finality of orders granting or denying motions to lift stays. In In re Comer, 716 F.2d 168 (3d Cir.1983), we held that an order lifting a stay blocking foreclosure of a debtor's property was final because litigation on the question was completed and the property was subject to foreclosure in a state court. Thus the particular matter in controversy was ended. Id. at 172. We indicated, however, that it was conceivable that an order denying relief from the automatic stay might be interlocutory. Id. at 174 n. 11. In In re American Mariner Industries, Inc., 734 F.2d 426, 429, (9th Cir.1984), the court broadly held that an order denying relief from the automatic stay is final. See also In re Kemble, 776 F.2d 802, 805 (9th Cir.1985). In In re Leimer, 724 F.2d 744 (8th Cir.1984), the court held that an appeal from a bankruptcy court to a district court was from a final order when the order denied a creditor relief from the automatic stay and in so doing conclusively established that the creditor was not the owner of property which it claimed adversely to the debtor's estate. The court pointed out that from the perspective of the creditor there was nothing further for the bankruptcy court to do. Id. at 745.

From our study of the cases we are satisfied that in some instances an order denying relief from the automatic stay may not be final and thus may not be appealable as of right to the district court. Accordingly, if the order is affirmed on interlocutory appeal, a subsequent appeal to the court of appeals will not then be permitted under 28 U.S.C. Sec. 158(d). Further, we recognize that the bankruptcy court denied the government's application to lift the stay without prejudice, thus suggesting that its order was not final.

Nevertheless on the unusual facts here we are convinced that the pragmatic approach of Meyertech requires that we hold that the bankruptcy judge's order was final and that we thus have jurisdiction. The government's asserted bases for relief are that the Nonassignment Act, 41 U.S.C. Sec. 15, bars West as a debtor in possession from assuming the contract without its consent and that as a matter of contract and administrative regulation the government has the right to terminate the contract for its convenience. See 48 C.F.R. Sec. 52.249-1, et seq.; 48 C.F.R. Sec. 217.7104(a); 48 C.F.R. Sec. 252.217-7120....