International Trade Admin. v. Rensselaer Polytechnic Institute

CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)
Citation936 F.2d 744
Docket NumberD,No. 649,649
Parties, 24 Collier Bankr.Cas.2d 2123, 68 Ed. Law Rep. 294, Bankr. L. Rep. P 74,072 INTERNATIONAL TRADE ADMINISTRATION, and Home & City Savings Bank, Plaintiffs, Home & City Savings Bank, Plaintiff-Appellant, v. RENSSELAER POLYTECHNIC INSTITUTE, Defendant-Appellee. ocket 90-5049.
Decision Date26 June 1991

Richard L. Weisz, Albany, N.Y. (Paul I. Perlman, Hodgson, Russ, Andrews, Woods & Goodyear, of counsel), for plaintiff-appellant.

Joseph Zagraniczny, Syracuse, N.Y. (Jonathan B. Fellows, Bond, Schoeneck & King, of counsel), Miriam M. Netter, Esq., Troy, N.Y. (Pattison, Sampson, Ginsberg & Griffin, of counsel), for defendant-appellee.

Before VAN GRAAFEILAND and WALKER, Circuit Judges, and DEARIE, District Judge. *

WALKER, Circuit Judge:

Home & City Savings Bank (the "Bank") appeals from an order of the United States District Court for the Northern District of New York (Hon. Con G. Cholakis, Judge ) affirming an order of the United States Bankruptcy Court for the Northern District

of New York (Hon. Justin J. Mahoney, Bankruptcy Judge ) which denied a motion by the trustee in bankruptcy of the debtor corporation for an extension of time within which to assume or reject an unexpired lease of nonresidential real property under 11 U.S.C. Sec. 365(d)(4). The Bank raises three issues in this appeal: (1) whether the Bank, which held a mortgage on the debtor's leasehold interest, has standing to appeal; (2) whether 11 U.S.C. Sec. 365(d)(4) applies to this case; and (3) if it does apply, whether the lessor has waived its rights to reclaim the property or should be equitably estopped from doing so. We agree with the district court's finding that the Bank has standing. However, we find that Sec. 365(d)(4) does not apply to the lease in this case. We therefore reverse without reaching the equitable estoppel and waiver issues.

BACKGROUND

On May 26, 1983, Pacamor Bearings, Inc. ("Pacamor") entered into a ground lease for vacant property belonging to Rensselaer Polytechnic Institute ("RPI"). Pacamor planned to construct a ball-bearing manufacturing facility on the land, located in RPI's Technology Park in North Greenbush, New York. RPI hoped to further its own educational objectives by having a manufacturing plant nearby. In December, 1984, Pacamor assigned all of its right, title and interest in the lease to Kubar Bearings, Inc. ("Kubar" or the "debtor"). RPI consented to the assignment.

The ground lease is for a 99 year term and calls for a base rent of $97,830 for the entire term, to be paid in three installments within the first three years of the lease. The lease sets out additional financial obligations for the tenant, which are termed "rent." Specifically, the tenant must pay "all taxes, assessments, water and sewer rents, rates and charges, vault license fees or rentals, levies, license and permit fees and all other governmental impositions and charges" as well as utility charges, or otherwise be in default. The lessor retains the right to approve leasehold improvements and assignments. Upon expiration or earlier termination of the lease, all improvements which the tenant constructs on the land become the property of the landlord.

The Bank lent $3 million to Kubar to finance the construction and equipping of the manufacturing facility on the leased property. Kubar's leasehold interest secured $2 million of the Bank's $3 million dollar loan. By separate agreement with the Bank, RPI agreed to give the Bank notice of any default by Kubar under the lease. In June 1986, after receiving notice of Kubar's default for nonpayment of the third and final installment of base rent, the Bank cured the default by tendering the full balance of $90,560.43 due to RPI.

On October 7, 1986, Kubar and Pacamor jointly filed for reorganization under Chapter 11 of the United States Bankruptcy Code. The debtor remained in Chapter 11 for three years until it converted to Chapter 7 on November 13, 1989.

On January 10, 1990, the trustee in bankruptcy, more than three years after the debtor had filed for Chapter 11, petitioned the United States Bankruptcy Court for the Northern District of New York for an extension of time in which to assume or reject the ground lease under the terms of 11 U.S.C. Sec. 365(d)(4) of the Bankruptcy Code. This provision normally allows only 60 days after a Chapter 11 filing in which to assume or reject a lease. On February 27, 1990, the bankruptcy court denied the motion. The trustee did not appeal the bankruptcy court's decision. However, the Bank and the International Trade Agency of the United States Department of Commerce, which had guaranteed a portion of the Bank's loan, did appeal to the district court. The district court affirmed. The Bank alone filed this appeal from the district court's decision and order.

DISCUSSION

1. Standing

RPI argues that the Bank lacks standing to appeal since it was not a party to the bankruptcy proceedings and since the trustee in bankruptcy, who brought this action in the bankruptcy court, has not appealed.

We must initially consider whether the issue of standing is properly before us. For the first time at oral argument, the Bank contended that we are precluded from considering the standing question because RPI failed to raise lack of standing as an alternate ground for affirmance by way of cross-appeal. We disagree. It is " 'an inveterate and certain' " rule that a party need not cross-appeal in order to assert an alternate ground based on the record to support a district court decree. Massachusetts Mutual Life Ins. Co. v. Ludwig, 426 U.S. 479, 480, 96 S.Ct. 2158, 2159, 48 L.Ed.2d 784 (1976) (per curiam) (quoting Morley Co. v. Maryland Cas. Co., 300 U.S. 185, 191, 57 S.Ct. 325, 328, 81 L.Ed. 593 (1937)); see also Dandridge v. Williams, 397 U.S. 471, 475-76 n. 6, 90 S.Ct. 1153, 1156-57 n. 6, 25 L.Ed.2d 491 (1970); University Club v. City of New York, 842 F.2d 37, 39 (2d Cir.1988); In re Application for Appointment of Independent Counsel, 766 F.2d 70, 75 (2d Cir.), cert. denied, 474 U.S. 1020, 106 S.Ct. 569, 88 L.Ed.2d 554 (1985). We therefore turn to the question of whether the Bank has standing.

Under the terms of Sec. 365(d)(4) of the Bankruptcy Code, only the trustee in bankruptcy can move to assume or reject a lease. Thus at the bankruptcy court's hearing on the trustee's motion for an extension of time to assume or reject, the Bank did not appear as a party, stating instead that it was "supporting" the trustee's application. RPI argues that because the Bank was not a party and did not formally intervene at the bankruptcy hearing under Fed.R.Bankr. 2018 which governs permissive intervention, it now lacks standing to appeal. RPI, however, misinterprets the standing inquiry.

In contrast to the former Bankruptcy Act of 1938, the Bankruptcy Code of 1978, 11 U.S.C. Sec. 101 et seq., does not contain an express statutory directive on who has standing to appeal from a bankruptcy court's order. Given this lack of statutory authority, the Second Circuit has adopted the general rule, loosely modeled on the former Bankruptcy Act, that in order to have standing to appeal from a bankruptcy court ruling, an appellant must be a "person aggrieved"--a person "directly and adversely affected pecuniarily by" the challenged order of the bankruptcy court. In re Cosmopolitan Aviation Corp., 763 F.2d 507, 513 (2d Cir.), cert. denied 474 U.S. 1032, 106 S.Ct. 593, 88 L.Ed.2d 573 (1985) (citations omitted); see also In re Fondiller, 707 F.2d 441, 442 (9th Cir.1983); In re Goodwin's Discount Furniture, Inc., 16 B.R. 885 (Bankr.App. 1st Cir.1982); In re E.C. Ernst. Inc., 2 B.R. 757, 760 (S.D.N.Y.1980); cf. 11 U.S.C. Sec. 1109(b) (granting right to be heard in chapter 11 cases to creditors).

In the instant case, the Bank holds a $2 million secured interest in the disputed lease. Without any doubt, it would be "directly and adversely affected pecuniarily" by our affirmance of the challenged bankruptcy order. In re Cosmopolitan Aviation Corp., 763 F.2d at 513. We therefore find that the Bank qualifies as a "person aggrieved" and has standing to bring this appeal.

We reject RPI's argument that the Bank nonetheless lacks standing because it failed to intervene in the bankruptcy court pursuant to Bankr.R. 2018. That rule, governing permissive intervention, does not limit the rights of a "person aggrieved" to be heard. Rather, it provides a formal mechanism that expands the right to be heard to a wider class than those who qualify under the "person aggrieved" standard. See Fed.R.Bankr. 2018(a) (allowing permissive intervention to "any interested party," not just "person aggrieved"); cf. In re Marin Motor Oil, Inc., 689 F.2d 445, 454 (3rd Cir.1982) (creditors have right to be heard under 11 U.S.C. Sec. 1109(b), applicable only to chapter 11 cases; need not intervene formally), cert. denied 459 U.S. 1206, 103 S.Ct. 1196, 75 L.Ed.2d 440 (1983). Although RPI points to two cases which held that parties who failed to intervene formally in bankruptcy proceedings were barred from later appealing the bankruptcy ruling, those cases do not alter the general rule that a "person aggrieved" has standing to appeal whether or not they sought intervention. Rather, in determining standing in In re Central Ice Cream Co., 62 B.R. 357 (N.D.Ill.1986), the court considered the debtor corporation shareholder's failure to intervene only after it made its initial determination that the shareholder was not a person aggrieved. In Cotton v. Bank of New York, 87 B.R. 272, 274 (W.D.N.Y.1988), the other case RPI relies upon, the court made no determination as to whether the appellant shareholder was a party aggrieved. Therefore, we find, in keeping with the general rule of In re Cosmopolitan Aviation Corp., 763 F.2d at 507, that "persons aggrieved" have a general right to appeal and need not formally intervene to...

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