Dein Host, Inc., In re, 87-1541

• Decision Date: 06 October 1987
• Docket Number: No. 87-1541,87-1541
• Citation: 835 F.2d 402
• Parties: , Bankr. L. Rep. P 72,134 In re DEIN HOST, INC., Debtor. Joseph D. PIGNATO, Plaintiff, Appellant. v. DEIN HOST, INC., Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 402

835 F.2d 402

17 Bankr.Ct.Dec. 64, Bankr. L. Rep. P 72,134

In re DEIN HOST, INC., Debtor Joseph D. PIGNATO, Plaintiff, Appellant. v. DEIN HOST, INC., Defendant, Appellee.

No. 87-1541.

United States Court of Appeals, First Circuit.

Heard Oct. 6, 1987.

Decided Dec. 21, 1987.

R. Timothy Phoenix with whom Robert A. Shaines and Shaines & McEachern Professional Ass'n, Portsmouth, N.H., were on brief, for plaintiff, appellant.

Daniel W. Sklar with whom Marc W. McDonald and Sheehan, Phinney, Bass & Green, Professional Ass'n, Manchester, N.H., were on brief, for defendant, appellee.

Before BOWNES, Circuit Judge, TIMBERS, ^* Senior Circuit Judge, and SELYA, Circuit Judge.

SELYA, Circuit Judge.

A bit of doggerel popular in colonial times, provenance unknown, went somewhat along the following lines:

The man in the wilderness asked of me,

"How many strawberries grow in the sea?"

I answered him as I thought good,

"As many as red herrings grow in the wood."

The verse springs readily to mind in connection with this appeal. What appeared at first blush to be a juridical jujube--a delicately flavored bankruptcy issue of novel impression--has faded into the unreachable distance, untasted, because appellant lacks the right to pluck it.

I. BACKGROUND

In 1986, Dein Host, Inc. (DHI), debtor-appellee, filed a voluntary petition for a chapter 11 reorganization in the federal bankruptcy court for the District of New Hampshire. Prior thereto, the debtor was party to a lease with Aries Realty, Ltd. (Aries) whereby DHI rented the premises at which it operated a restaurant business. Holding title to the real estate and collecting the rent comprised Aries' sole business. The lease began in June 1984 and ran for some 23 years. The tenant paid all property-related expenses and a fixed monthly rental, said to be substantially below market.

DHI and Aries had more than a landlord-tenant relationship. Appellant Joseph D. Pignato was a director of both corporations. Pignato owned 49% of DHI and 50% of Aries. Marsha Jespersen was also a director and 49% shareholder of DHI, and its president. Her ally, Cecil Moulton, owned the remaining 2%. Marsha Jespersen, like appellant, was a 50% shareholder of Aries. She was also its president and a director. Her husband, Marshall, though owning no interest in the debtor, was an officer and director of that corporation, and had been the manager of its victualling business. He was also an officer of Aries.

DHI's affairs were plagued by dissension and business reverses. The company was dealt a crippling blow in early 1986 when a fire occurred, damaging the building. The restaurant shut down and DHI stopped making monthly rental payments soon thereafter. A substantial arrearage accrued. On August 15 of that year, DHI sought the protection of the bankruptcy court. By the fall, Aries, too, was the target of an involuntary bankruptcy petition, sponsored by Marshall Jespersen, claiming to be a creditor.

On October 17, 1986, exactly sixty-two days after filing for bankruptcy and without first securing any extension of time from the court, the debtor moved for leave to assume the lease. Pignato objected, principally on the ground that the indenture had terminated by operation of law. The objection centered about section 365 of the Bankruptcy Code, and in particular, the paradigm constructed therein for a bankrupt's assumption of an unexpired nonresidential lease. See 11 U.S.C. Sec. 365(d)(4) (Supp. III 1985). We briefly survey this legal landscape.

Section 365(a) provides in material part that, with certain limitations, "the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." Arguably, one of those limitations is set out in Sec. 365(d)(4), which cautions that,

if the trustee does not assume or reject an unexpired lease of nonresidential real property under which the debtor is the lessee within 60 days after the date of the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such lease is deemed rejected, and the trustee shall immediately surrender such nonresidential real property to the lessor. ¹

The factual predicate upon which Pignato's objection rested was straightforward. DHI acknowledged that no overt act of affirmation had taken place within the sixty day period, and that its motion for assumption had not been docketed during that span. In seeking to resuscitate the lease, the debtor avouched that it had been "implicitly assumed" within the sixty day window by discussions between, and the subjective expectations of, Mr. and Mrs. Jespersen. ² Debtor's position reduced to the notion that Marsha Jespersen, as president of DHI and Aries, spoke for both lessor and lessee, and that her decision to assume the lease within the sixty day period, without any external manifestation of it, was all that was required by the statute. Alternatively, the debtor claimed that Mrs. Jespersen, as the chief executive officer of Aries, could--and did--waive technical noncompliance with 11 U.S.C. Sec. 365(d)(4).

Pignato was little impressed. He maintained before the bankruptcy court that Sec. 365(d)(4) comprised a strict mandate requiring formal application to the court within the sixty day interval. At least, he urged, there must be some definite, overt manifestation of an intention to assume before the statutory time has lapsed. He pointed out that no contemporaneous memorandum had been prepared, no corporate meetings convened, no documents executed.

The bankruptcy court, in an ore tenus bench decision, granted appellee's motion. It rejected the idea that a formal motion had to be filed, and judicial action taken, within sixty days of the bankruptcy filing. From that starting point, the court reasoned that any essential notice requirement had been met because the president of the lessee informed herself, as president of the lessor, of DHI's intention so to assume within the sixty days. The implicit assumption, the bankruptcy judge thought, was evident since Marsha Jespersen was president of both corporations. In such extraordinary circumstances, "a mere expression of intent by the debtor in possession would be sufficient," the purpose of the statute was served, and therefore no formal notification of assumption of the lease within the period was necessary. Pignato appealed the bankruptcy judge's order to the United States District Court for the District of New Hampshire, which affirmed. This appeal followed.

II. APPELLATE STANDING

The parties have briefed and argued this case in terms of the subtle nuances of 11 U.S.C. Sec. 365(d)(4) and the action, if any, required to animate that statute. The issues that they limn are novel and important ones. Compare, e.g., In re Treat Fitness Center, Inc., 60 B.R. 878 (9th Cir. BAP 1986) (request for court approval of nonresidential lease assumption must be made within the sixty day period) with In re Ro-An Food Enterprises, Ltd., 41 B.R. 416 (E.D.N.Y.1984) (so long as decision to assume has been unequivocally made and communicated as between the parties within sixty days, request for court approval may come later). See generally In re Southwest Aircraft Services, Inc., 831 F.2d 848 (9th Cir.1987) (discussing meaning and purpose of Sec. 365(d)(4) and analyzing legislative history). Yet, fascinating as the drawing of such fine lines may be, we are duty bound first to undertake a preliminary inquiry as to appellant's standing to prosecute this appeal. As has long been recognized, federal courts must satisfy themselves as to a party's standing, whether or not such an issue has been raised by any of the litigants. See Orr v. Orr, 440 U.S. 268, 271, 99 S.Ct. 1102, 1107, 59 L.Ed.2d 306 (1979); Juidice v. Vail, 430 U.S. 327, 331, 97 S.Ct. 1211, 1215, 51 L.Ed.2d 376 (1977); Theriault v. Brennan, 641 F.2d 28, 31 (1st Cir.1981). ³

Earlier this year, we announced a rule of appellate standing in bankruptcy cases, see In re El San Juan Hotel, 809 F.2d 151, 154-55 (1st Cir.1987), which limited the right of review to "those persons whose rights or interests are 'directly and adversely affected pecuniarily' by the order or decree of the bankruptcy court." Id. at 154 (quoting In re Fondiller, 707 F.2d 441, 442-43 (9th Cir.1983)). We explained that, for a litigant to qualify under this rubric, the disputed order must "diminish[ ] his property, increase[ ] his burdens, or impair[ ] his rights." San Juan Hotel, 809 F.2d at 154 (footnote omitted). ⁴ Applying this standard to the instant proceeding, it seems plain that Pignato lacks standing to pursue the appeal.

Before plunging too deeply into the requisite analysis, it is important to note that Pignato does not and cannot object to the transaction because of any asserted interest as a creditor or beneficial owner of DHI. He tells us flatly that he presses his claim "by virtue of his status as a shareholder and director of lessor, Aries." Appellant's Brief at 5. Pignato's contention remains as phrased in his written objection to the motion for leave to assume, that perpetuation of the rental arrangement "is a detriment to Aries." The objection sets forth no factual basis why assumption of the lease would be harmful to, or not in the best interests of, DHI or its creditors; indeed, the cheap rental rate and the corresponding disadvantage to Aries would seem to make the lease's continued existence something of a bonanza for the debtor. ⁵ So, Pignato's objection rests strictly and solely upon his ties with Aries.

The challenged order has but a single attribute: it allows the debtor to assume the lease. Pignato claims that DHI should not be permitted to obtain this benefit. The lease, he says, has lapsed--and Aries will be harmed if the assumption is allowed. Assuming that to be so, the "wrong" does not affect Pignato directly; it affects Aries. It harms Pignato, if at all, only derivatively. It is Aries'...