Dunkin' Donuts Franchising LLC v. CDDC Acquisition Co. (In re FPSDA I, LLC)

• Decision Date: 01 March 2012
• Docket Number: No. 11–MC–282 (ADS).,11–MC–282 (ADS).
• Citation: 470 B.R. 257
• Parties: In re FPSDA I, LLC, et al., Debtors. Dunkin' Donuts Franchising LLC, Dunkin' Donuts Franchised Restaurants LLC, Baskin–Robbins Franchising LLC, Baskin–Robbins Franchised Shops LLC, and DB Real Estate Assets I LLC, Petitioners, v. CDDC Acquisition Company LLC, Middle Country Road Donuts LLC, Mountain Road Donuts LLC, and Benfield Donuts, LLC, Respondents.
• Court: U.S. District Court — Eastern District of New York

470 B.R. 257

In re FPSDA I, LLC, et al., Debtors.Dunkin' Donuts Franchising LLC, Dunkin' Donuts Franchised Restaurants LLC, Baskin–Robbins Franchising LLC, Baskin–Robbins Franchised Shops LLC, and DB Real Estate Assets I LLC, Petitioners,

v.CDDC Acquisition Company LLC, Middle Country Road Donuts LLC, Mountain Road Donuts LLC, and Benfield Donuts, LLC, Respondents.

No. 11–MC–282 (ADS).

United States District Court, E.D. New York.

March 1, 2012.

O'Rourke & Degen by Ronald D. Degen, Esq., of Counsel, New York, NY, Attorneys for the Petitioners.

Ruskin Moscou Faltischek, P.C. by Michael S. Amato, Esq., of Counsel, Uniondale, NY, Attorneys for the Respondents.

MEMORANDUM OF DECISION AND ORDER

SPATT, District Judge.

The Petitioners, Dunkin' Donuts Franchising LLC and Dunkin' Donuts Franchised Restaurants LLC (collectively “Dunkin' Donuts” or “Dunkin”), Baskin–Robbins Franchising LLC and Baskin–Robbins Franchised Shops LLC (collectively “Baskin–Robbins”), and DB Real Estate Assets I LLC (“DB Realty”), (collectively, “Dunkin' Brands”), seek leave to file an interlocutory appeal from a decision of the Bankruptcy Court (Dorothy D.T. Eisenberg, J.), granting the Debtors' motion making a determination that the provisions of 11 U.S.C. § 365(d)(4) are inapplicable to the Petitioners' lease agreements with the Debtors. In the alternative, the Petitioners request a finding that the decision is a final order. For the reasons that follow, the Court finds that the bankruptcy decision was not a final order and denies leave to file an interlocutory appeal.

I. BACKGROUND

The Debtors–Respondents operate franchises of Dunkin' Donuts and/or Baskin–Robbins stores. Six of the stores are in Maryland and six are in New York. Dunkin' Donuts and Baskin Robbins (collectively “Franchisors”) are the franchisors of the Debtors' stores. Four of the Debtors, CDDC Acquisition Company, LLC, Middle Country Road Donuts, LLC, Mountain Road Donuts, LLC, and Benfield Donuts, LLC, have a lease agreement with DB Realty (the “Dunkin' Leases”), a subsidiary of Dunkin' Donuts, which was entered into at the same time as, and in conjunction with, their franchise agreement. No one disputes that DB Realty would not have signed the Dunkin' Leases with the Debtors, if the Debtors had not simultaneously signed a franchise agreement with the Franchisors which allowed them to operate a Dunkin' Donuts and/or Baskin–Robbins franchise on the premises.

Moreover, the lease agreements expressly provide that if the franchise agreement is terminated for any reason, the landlord shall have the right to terminate the lease. In addition, the lease agreements provide that the premises may only be used for operation of a Dunkin' Donuts and/or Baskin–Robbins store in accordance with the terms and conditions of the franchise agreements. In sum, the Dunkin' Leases and the franchise agreements are part of a single transaction, and both parties acknowledged this for purposes of the previous motion and order in the Bankruptcy Court that is presently on review.

The Petitioners claim that the debt of the Debtors is significant, including unpaid royalty and advertising fees under the franchise agreements, as well as pre-petition unpaid rent and miscellaneous charges under the lease agreements. Furthermore, according to the Petitioners, the Debtors continue to operate at a loss, and each month the amount of the loss increases as their debts continue to grow.

Section 365(d)(2) of the Bankruptcy Code provides that debtors may have until plan confirmation to determine whether they will assume or reject executory contracts. See 11 U.S.C. § 365(d)(2). However, there is a carve-out in subsection (d)(4) of this statute, in which debtors have only 120 days, or 210 days with the court's permission, to decide whether to assume or reject nonresidential real property leases. Here, the Bankruptcy Court provided the Debtors with the maximum 210 days to determine whether they wanted to assume or reject the Dunkin' Leases. However, when the 210 day time limit was near expiration, the Debtors filed a motion seeking either (1) a determination that the Dunkin' Leases need not be assumed or rejected within the 210 day period; or (2) authorization to assume the leases without having to cure defaults under the franchise agreements. The rationale underlying their argument was that the lease and franchise agreements are part of a single transaction and thus, both agreements should be subject to the longer time period for assumption or rejection as provided for executory contracts in § 365(d)(2).

In light of the Debtors' position, United States Bankruptcy Judge Dorothy T. Eisenberg extended the time to assume or reject the Dunkin' leases beyond the 210 days, until March 29, 2011, so that she could make a final decision as to the issue. On March 22, 2011, Judge Eisenberg issued a Memorandum Decision and Order addressing the Debtors' contentions. First, she found that each lease and corresponding franchise agreement were “economically interrelated and interdependent” so that they “constituted an integrated transaction and should be treated as a single controlling agreement.” In re FPSDA I, LLC, 450 B.R. 392, 397 (Bankr.E.D.N.Y.2011). Second, Judge Eisenberg noted that when creditors such as Dunkin' Brands have the dual role of franchisor and landlord, applying the relief stated in § 365(d)(4) would provide the creditor with superior power to determine the course and outcome of the debtor's bankruptcy case then what was intended. Thus, the Bankruptcy Court found that “some additional time for Debtors to determine whether to assume or reject the Dunkin' Brands Leases and franchise agreements is appropriate.” Id. at 401. Accordingly, the Court held that § 365(d)(4) was inapplicable to the Dunkin' Brands Leases.

The question that is the subject of the requested interlocutory appeal is whether 11 U.S.C. § 365(d)(4) is applicable to a non-residential lease, where that lease and a corresponding executory franchise agreement are part of a single transaction. The Petitioners request a reversal of the Bankruptcy Court's Order and for a directive to the Bankruptcy Court to act in conformity with the holding of this Court.

II. DISCUSSION

A. Whether the Order From the Bankruptcy Court is Final

As an initial matter, the Petitioners note that they consider the Bankruptcy Court's March 22, 2011 Order to be final, so that permission to appeal is not needed because it may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1) and Fed. R. Bankr.P. 8001. In support of this contention, the Petitioners state that an order is final if it disposes of “discrete disputes within the larger case.” In re Saco Local Dev. Corp., 711 F.2d 441, 444 (1st Cir.1983); see Shimer v. Fugazy (In re Fugazy Express), 982 F.2d 769, 776 (2d Cir.1992) (stating that the order “must completely resolve all of the issues pertaining to a discrete claim, including issues as to the proper relief.”). Accordingly, the Petitioners claim that the Bankruptcy Court's decision disposes of the entire issues of: (1) when the Dunkin' Leases must be assumed or rejected; and (2) that whatever decisions the Debtors make with respect to a Dunkin' Lease must be rendered with respect to the corresponding franchise agreement.

The Petitioners mainly rely on cases which have found that a bankruptcy order determining whether an agreement is an executory contract or whether or not it is a lease or other agreement is a final order. See In re Ravenswood Apartments, Ltd., 338 B.R. 307, 309 (6th Cir. BAP 2006). As will be explained in further detail below, part of the Bankruptcy Court's analysis was undoubtedly categorizing the lease agreement as either part of a single overarching executory contract, or rather, an independent lease that was merely related to a corresponding franchise agreement. However, although this analysis was presumably undertaken, it was only the premise for the significant question of what time period is applicable when interrelated executory and lease agreements are subject to assumption or rejection.

Thus, the conclusion of the Bankruptcy Court now subject to this interlocutory appeal is not the categorization of the lease agreement but the timeline under which the Debtors can make their determination to assume or reject the Dunkin' Leases. The Court agrees with the Respondents that this determination does not completely resolve all issues with respect to the Dunkin' Leases because it merely extended the time to assume or reject the leases. See In re Calpine Corp., 356 B.R. 585, 596 (Bankr.S.D.N.Y.2007) ( “The bankruptcy court's Extension Order and denial of the Trustee's request to move for summary judgment in the adversary proceeding are not final orders as they are clearly interlocutory and do not involve a ‘final determination’ of the controversy”).

Accordingly, the Bankruptcy Court's March 17 Order was not a “final order” within the meaning of 28 U.S.C. § 158(a)(1), and the Court will proceed to assess whether an interlocutory appeal is permissible in the instant case.

B. Legal Standard to Grant an Interlocutory Appeal from a Bankruptcy Court Order

“Under Section 158(a)(3), a district court has discretionary appellate jurisdiction over an interlocutory order of a bankruptcy court.” In re Kassover, 343 F.3d 91, 94 (2d Cir.2003); see In re Cutter, No. 05 Civ. 5527, 2006 WL 2482674, at *3 (E.D.N.Y. Aug. 29, 2006) (stating that, while neither § 158 nor the Bankruptcy Rules “provides guidelines for determining whether a district court should grant leave to appeal, ... most district courts in the Second Circuit have applied the analogous standard for certifying an interlocutory appeal from a district court order, set forth in 28 U.S.C. § 1292(b)”) (citations omitted). “In determining whether to grant leave to appeal an interlocutory order from the bankruptcy court, the Court will apply the standard set forth in 28 U.S.C. § 1292(b), which is...