Adams Apple, Inc., In re

• Decision Date: 14 October 1987
• Docket Number: Nos. 86-3716,s. 86-3716
• Citation: 829 F.2d 1484
• Parties: 17 Collier Bankr.Cas.2d 1132, 9 Fed.R.Serv.3d 602, Bankr. L. Rep. P 71,995 In re ADAMS APPLE, INC., Debtor. Robert C. BURCHINAL, Donald G. Ott, Meton G. Raine, Karen O. Raine, John Ruud, Richard H. Mason, Phyllis Mason, Richard Floren, Rachel Floren, Kenneth R. Irwin, Sharon Irwin, Richard J. Willsey and Cheri Ann Willsey, Plaintiffs- Appellants, v. CENTRAL WASHINGTON BANK, Defendant-Appellee. BANK OF CALIFORNIA, Plaintiff-Appellant, v. CENTRAL WASHINGTON BANK, Defendant-Appellee. to 86-3719, 86-3739 to 86-3742.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1484

829 F.2d 1484

17 Collier Bankr.Cas.2d 1132, 9 Fed.R.Serv.3d 602,

Bankr. L. Rep. P 71,995

In re ADAMS APPLE, INC., Debtor.

Robert C. BURCHINAL, Donald G. Ott, Meton G. Raine, Karen O.

Raine, John Ruud, Richard H. Mason, Phyllis Mason, Richard

Floren, Rachel Floren, Kenneth R. Irwin, Sharon Irwin, Richard J. Willsey and Cheri Ann Willsey, Plaintiffs- Appellants, v. CENTRAL WASHINGTON BANK, Defendant-Appellee.

BANK OF CALIFORNIA, Plaintiff-Appellant, v. CENTRAL WASHINGTON BANK, Defendant-Appellee.

Nos. 86-3716 to 86-3719, 86-3739 to 86-3742.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 5, 1987.

Decided Oct. 14, 1987.

Susan E. Anderson, Seattle, Wash., for plaintiffs-appellants.

Allan Galbraith, Wenatchee, Wash., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Washington.

Before WALLACE, FLETCHER and BRUNETTI, Circuit Judges.

FLETCHER, Circuit Judge:

Appellants, creditors in consolidated bankruptcy cases, appeal the district court's affirmance of a bankruptcy court's authorization without creditor approval of a financing arrangement that includes a cross-collateralization provision. We dismiss the appeal as moot under 11 U.S.C. Sec. 364(e).

BACKGROUND

Robert Stirling, and three of his wholly-owned corporations engaged in apple growing and marketing (the debtors), filed separate petitions for relief under Chapter 11 of the Bankruptcy Code on June 10 and June 14, 1983. At issue is an interim financing agreement providing that Central Washington Bank (CWB) would advance $450,000 and an optional additional $325,000 to provide funds to the debtors to produce crops in 1983, and to preserve the horticultural quality of the debtor's orchards. In exchange, CWB would receive a security interest ahead of other creditors in the 1983 crop as collateral for the loan. The first lien security interest would secure CWB's pre-petition loan of $450,000 as well as post-petition advances. ¹

CWB's pre-petition loan was made in 1982 and extended in 1983. The borrower was Mad River Fruit Company, Inc., ² a corporation wholly-owned by Stirling. About March 1, 1983, the debtors executed promissory notes to guarantee the debt about March 1, 1983. They granted a security interest in crops to secure the notes, and financing statements were filed on April 4, 1983. Soon thereafter, when priority disputes arose, the debtors began discussing other financing arrangements with CWB, as well as two other potential lenders, Bank of California, and Dovex. Several arrangements were rejected by the debtors or withdrawn by the potential lenders. The arrangement at issue, which required the debtors to file Chapter 11 proceedings to clarify CWB's rights, was then proposed.

The bankruptcy court held three hearings to consider the plan. Other creditors, the appellants here, objected to the cross-collateralization clause. ³ At the first hearing, Stirling testified that without the loan, his 1983 crops would fail and he could lose his orchards. He stated further that CWB would provide financing only if the contract included a cross-collateralization clause, and that he could not otherwise secure financing. He acknowledged that he had refused Bank of California's offers, but these offers were not renewed after his testimony, despite the bankruptcy judge's call for alternative arrangements. No other arrangements were suggested by the creditors. After a tentative oral ruling on June 15, 1983, and the court's consideration of a Motion for Reconsideration, the bankruptcy court issued its final authorization on July 14, 1983.

CWB began its post-petition financing before final authorization. It paid the debtors $48,000 before the first hearing, and an additional $200,000 before July 14. It ultimately lent the debtors a total of $450,000 post-petition.

Bank of California filed a motion for a stay pending appeal on July 14, 1983. The bankruptcy court denied the motion that day, but reversed itself and ordered a stay on August 19, 1983. However, a notice of appeal to the district court had been filed before August 19. The district court found that the bankruptcy court properly exercised

its authority in authorizing the loan. This appeal followed.

JURISDICTION

Jurisdiction is conferred by 28 U.S.C. Sec. 158(d) if the order from which the appeal is taken is final. We apply a flexible standard of finality in reviewing orders in bankruptcy cases. See In re Exennium, Inc., 715 F.2d 1401, 1402-03 (9th Cir.1983) (bankruptcy court order for sale of four real estate leases deemed final). Under In re Mason, 709 F.2d 1313, 1317 (9th Cir.1983), an order is final if it is distinct and conclusive of the substantive rights of individuals. This case considers whether a bankruptcy court may authorize a lender to contract with a debtor to subordinate the claims of other creditors to property of the debtor. Because the order disposes of property rights of individuals, it is final.

TIMELINESS OF APPEAL

The district court's order was entered on January 30, 1986, and notices of appeal were filed on March 26, 28, and 31, 1986. Under Fed.R.App.P. 4(a)(1), a notice of appeal is timely ordinarily if filed within 30 days, or within 60 days of a court's final judgment if the United States is a party to the action. The Small Business Administration was a party to one of the appeals. The parties assume that if their actions were consolidated, the 60-day requirement is appropriate because the United States is a party to one of the actions. Because the timeliness of filing a notice of appeal is jurisdictional, the panel has an obligation to raise sua sponte the issue of whether consolidation of cases including one in which the United States is a party permits parties in the other cases to file an appeal within 60 days. In addition, a question arose concerning whether the actions were actually consolidated.

The Federal Circuit has held that for purposes of Fed.R.App.P. 4(a)(3), which provides that any party to an action may file an appeal within 14 days of a filing by another party, the 14-day time limit applies to parties in any of the cases within the consolidated action. Jackson Jordan, Inc. v. Plasser American Corp., 725 F.2d 1373 (Fed.Cir.1984). Under Jackson Jordan, the appeals were timely filed under either Rule 4(a)(1) or Rule 4(a)(3). Other courts have held that a trial court's decision reaching the merits of only some of the cases within a consolidated action was not final, and therefore not appealable absent certification. See, e.g., Ivanov-McPhee v. Washington National Insur. Co., 719 F.2d 927 (7th Cir.1983); but see Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 735, 96 S.Ct. 1854, 1880, 48 L.Ed.2d 301 (1976) (Marshall, J., dissenting); McKenzie v. United States, 678 F.2d 571, 574 (5th Cir.1982). We therefore hold that the notices of appeal were timely filed if the cases were consolidated.

The district court did not formally consolidate the cases, but in an order dated Dec. 8, 1983, referred to them as "these consolidated cases." An order issued on May 15, 1986, acknowledged that the court and the parties always treated the cases as consolidated. The district court filed a single opinion resolving the merits of the cases. Because consolidation is within the broad discretion of the district court, In re Air Crash Disaster at Florida Everglades, 549 F.2d 1006, 1013-14 (5th Cir.1977), the cases involved common issues of law as well as fact, Fed.R.Civ.P. 42(a), and trial courts may consolidate cases sua sponte, 9 C. Wright & A. Miller, Federal Practice and Procedure: Civil Sec. 2383 at n. 37, we find that the cases were consolidated and the notices of appeal timely filed.

MOOTNESS

CWB argues that appellants' claim is moot under 11 U.S.C. Sec. 364(e). ⁴ An appellate court may not reverse the authorization to obtain credit or incur debts under section 364 if the authorization was not In interpreting a statute, we look first to the language itself. Landreth Timber Company v. Landreth, 471 U.S. 681, 685, 105 S.Ct. 2297, 2301, 85 L.Ed.2d 692 (1985). Under the plain language of the statute, section 364(e) applies if the cross-collateral lien is within the purview of section 364. Section 364 authorizes a bankruptcy court to permit the use of a variety of financing devices. Cross-collateralization clauses are not expressly included in the list. The plain language does not indicate whether Congress intended to include a device that permits a creditor to promote his pre-petition debt over other debt of equal priority.

                stayed pending appeal unless the lender did not act in good faith.  11 U.S.C. Sec. 364(e). 5   Appellant maintains that (1) section 364(e) does not apply to a lien to secure a pre-petition loan, and even if section 364(e) does apply, then (2) the bankruptcy court did stay its authorization, and (3) CWB acted in bad faith.  These defenses are not meritorious
                

We do find guidance, however, from Congress's overall policy in passing section 364. See United States v. American Trucking Associations, 310 U.S. 534, 542, 60 S.Ct. 1059, 1063, 84 L.Ed. 1345 (1940) (primary purpose in construing a statute is to give effect to Congressional intent). Section 364 was designed to provide a debtor a means to obtain credit after filing bankruptcy. As such, cross-collateralization clauses appear to be covered by section 364 and in turn subject to section 364(e).

Appellants argue, however, that post-petition liens on pre-petition debt were not the sort Congress intended to protect through section 364(e) and that therefore we should look beyond the general purpose of section 364. They cite Matter of EDC Holding Company, 676 F.2d 945, 947 (7th Cir.1982), which stated that the purpose of section 364(e) was to overcome a good faith lender's reluctance to extend financing in a bankruptcy context by permitting reliance on a bankruptcy judge's authorization. Cf. Algeran, Inc. v....