Carroll, In re, TRI-GROWTH

• Decision Date: 23 May 1990
• Docket Number: TRI-GROWTH,No. 89-55088,89-55088
• Citation: 903 F.2d 1266
• Parties: 23 Collier Bankr.Cas.2d 854, 20 Bankr.Ct.Dec. 915, Bankr. L. Rep. P 73,384 In re Richard J. CARROLL, dba R.J. Carroll Co., fdba R.J. Carroll & Associates, Debtor. Richard J. CARROLL, and Budget Motels of America, Inc., Plaintiffs-Appellants, v.CENTRE CITY, LTD., a California limited partnership, Dallas G. Wilborn and R.W. Unander, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1266

903 F.2d 1266

23 Collier Bankr.Cas.2d 854, 20 Bankr.Ct.Dec. 915,

Bankr. L. Rep. P 73,384

In re Richard J. CARROLL, dba R.J. Carroll Co., fdba R.J.

Carroll & Associates, Debtor.

Richard J. CARROLL, and Budget Motels of America, Inc., Plaintiffs-Appellants, v. TRI-GROWTH CENTRE CITY, LTD., a California limited

partnership, Dallas G. Wilborn and R.W. Unander,

Defendants-Appellees.

No. 89-55088.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 12, 1990.

Decided May 23, 1990.

Margaret M. Mann, Luce, Forward, Hamilton & Scripps, and Nathan E. Jones, San Diego, Cal., for plaintiffs-appellants.

Everett G. Barry, Jr., Melissa A. Blackburn, Mulvaney & Kahan, San Diego, Cal., for defendants-appellees.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel.

Before BROWNING, NOONAN, and FERNANDEZ, Circuit Judges.

FERNANDEZ, Circuit Judge:

Richard J. Carroll, dba R.J. Carroll Co., fdba R.J. Carroll & Associates ("Carroll"), a debtor in Chapter 11 proceedings, appeals from the Bankruptcy Appellate Panel's ("BAP") affirmance of the bankruptcy court's order denying Carroll's request for a temporary restraining order enjoining the termination of a management agreement between Carroll and Tri-Growth Centre City, Ltd. ("Tri-Growth"). We reverse.

BACKGROUND FACTS

On June 26, 1984, Dallas G. Wilborn, R.W. Unander, and Richard J. Carroll formed Tri-Growth for the purpose of constructing a motel complex ("Downtown Budget Motel") in San Diego, California. Carroll served as the managing general partner for Tri-Growth and received the entire 15% profit interest available to general partners. R.J. Carroll Co. ¹ was retained as the manager of daily operations at the Motel.

On May 7, 1986, Carroll filed a Chapter 11 reorganization petition. Carroll retained control of the assets of the estate as a debtor-in-possession.

As a result of Carroll's bankruptcy filing, though, the bank which had offered permanent financing for the Downtown Budget Motel project revoked its financing arrangement with Tri-Growth. Carroll and the other general partners made several unsuccessful attempts on behalf of Tri-Growth to find replacement financing. Tri-Growth was finally able to obtain a loan through another bank. However, a condition of that loan was that Carroll step down as the managing general partner and take only a limited partnership interest in Tri-Growth. Thus, Carroll and Tri-Growth agreed that Carroll would resign as the managing general partner, that Carroll's partnership interest would be recharacterized as a limited partnership interest, and that Carroll and Budget Motels of America, Inc. ("Budget Motels") ² would enter into a management agreement with Tri-Growth to manage the Downtown Budget Motel. Carroll then petitioned the bankruptcy court for authorization to enter into the management agreement and to recharacterize his ownership interest in Tri-Growth.

On November 30, 1986, the bankruptcy court, after a hearing, authorized Carroll to enter into the agreements outlined above. On December 1, 1986, Carroll, Budget Motels and Tri-Growth entered into a management On August 13, 1987, Tri-Growth notified Carroll that it intended to terminate the agreement in 90 days. ³ The termination was to become effective November 13, 1987. Tri-Growth never petitioned the bankruptcy court for relief from the stay so that it could terminate the agreement.

agreement. Under the terms of the agreement, Carroll was to manage the Downtown Budget Motel in return for 8% of the motel's gross receipts. Also, paragraph 7.01 of the management agreement provided that either party could terminate the agreement for cause upon 90 days written notice.

On November 6, 1987, five days before the effective date of the termination, Carroll sought a temporary restraining order ("TRO") and preliminary injunction to prevent the termination of its management agreement with Tri-Growth. Carroll asserted that the termination of the agreement was a violation of the automatic stay and that Carroll was entitled to injunctive relief.

On November 17, 1987, the bankruptcy court denied the TRO request without a hearing, finding that Carroll had failed to present evidence that he would be irreparably harmed if an injunction did not issue. Carroll subsequently appealed the bankruptcy court's order by a notice of appeal filed November 27, 1987. Tri-Growth challenged the BAP's jurisdiction to hear the appeal since Carroll had not filed a motion for leave to appeal. On December 16, 1988, the BAP found that the Panel had jurisdiction to hear the case, but affirmed the bankruptcy court's denial of Carroll's request for a TRO. Carroll filed a timely appeal to this court.

STANDARD OF REVIEW AND JURISDICTION

The BAP's jurisdiction is contested. We have jurisdiction pursuant to 28 U.S.C. Secs. 158(d) and 1291.

The court of appeals applies the same standard as the BAP in reviewing the bankruptcy court's decision. In re Herbert, 806 F.2d 889, 891 (9th Cir.1986). The bankruptcy court's findings of fact are reviewed for clear error, and the court's conclusions of law are reviewed de novo. Wien Air Alaska, Inc. v. Bachner, 865 F.2d 1106, 1108 (9th Cir.1989).

DISCUSSION

A. BAP Jurisdiction

Tri-Growth contends that the BAP did not have jurisdiction to review the bankruptcy court's denial of the TRO. We disagree.

It is true that ordinarily appellate courts do not have jurisdiction to review the denial of a TRO. Miller v. Lehman, 736 F.2d 1268, 1269 (9th Cir.1984). However, we have recognized an exception to this rule in cases where " 'denial of all relief was implied in the trial judge's denial of a temporary restraining order.' " Id., quoting, Kimball v. Commandant Twelfth Naval Dist., 423 F.2d 88, 90 (9th Cir.1970). See also 11 C. Wright & A. Miller, Federal Practice and Procedure, Civil Sec. 2962 at 619 (1973) ("label attached to an order by the trial court is not decisive with regard to whether" the court's order is reviewable).

In this case, the bankruptcy court denied the TRO in strong language which even suggested that no stay existed. It left no doubt that it was completely resolving the issue of whether Tri-Growth was precluded from terminating the management agreement. Therefore, we find that the BAP had jurisdiction to review the bankruptcy court's order.

B. Appeal Is Not Moot

Tri-Growth contends that this appeal should be dismissed as moot since the agreement terminated by its own terms on November 13, 1987, because Carroll failed to seek a stay pending appeal. We acknowledge that "an appeal will be dismissed

                as moot when events occur which prevent the appellate court from granting any effective relief, even if the dispute is decided in favor of the appellant."    In re Combined Metals Reduction Co., 557 F.2d 179, 187 (9th Cir.1977).  However, Carroll did not limit his suit to injunctive relief, but also sought money damages for Tri-Growth's violation of the stay.  Moreover, the assertion of mootness begs the question before us.  This is not a case where a foreclosure or sale has gone forward because the stay was lifted.  We have nothing before us to suggest that the management agreement has been properly terminated, or for that matter, terminated at all.  Carroll is, at least, still entitled to any damages that he can establish as a result of Tri-Growth's violation of the stay.  We therefore find that the issue is not moot
                

C. Termination of Agreement was Violation of Stay

The BAP found "that the automatic stay [did] not apply to stay the termination of the management agreement because application of the stay would be in conflict with the bankruptcy court order approving the management agreement which provided for termination upon ninety days notice." The BAP did not reach the question of whether the management agreement was property of the estate since the court indicated that regardless of how the management agreement was categorized, Tri-Growth had an unconditional right to terminate the agreement. These determinations were erroneous.

1. "Property of the Estate"

The automatic stay enjoins the enforcement of "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. Sec. 362(a)(3). Property of the estate includes "[a]ny interest in property that the estate acquires after the commencement of the case." 11 U.S.C. Sec. 541(a)(7). Commentaries indicate that "[a]n example of the application of section 541(a)(7) would be if the trustee entered into a contract after commencement of the case. The estate's interest in such a contract would, pursuant to section 541(a)(7), be property of the estate." 4 Collier on Bankruptcy p 541.20, 541-105 (15th ed. 1990). See also 2 W. Norton, Bankruptcy Law and Practice Sec. 29.13 (1986).

Carroll argues that the management agreement was property of the estate because it provided the estate with 8% of the profits from the Downtown Budget Motel in exchange for Carroll's and Budget Motel's management of the Motel. We find Carroll's argument persuasive. ⁴

The management agreement flows out of and was given in consideration for the estate's 15% interest in the general partnership of Tri-Growth. At the time of the filing of Carroll's reorganization petition, the estate had a management agreement with and a 15% general partnership interest in Tri-Growth, and had loaned the partnership $125,000. Thus, the estate had a substantial interest in Tri-Growth. When Carroll declared bankruptcy and Tri-Growth subsequently lost its financing for the project, the estate stood to lose a significant amount of money. The only financing that could be procured was conditioned on the recharacterization of Carroll's 15% managing general partnership interest. Carroll agreed to exchange his general partnership interest in consideration of a limited partnership interest and a management agreement that guaranteed him 8% of the motel's gross...