Frontier Properties, Inc., In re

Citation979 F.2d 1358
Decision Date18 November 1992
Docket NumberNo. 91-55502,91-55502
Parties27 Collier Bankr.Cas.2d 1515, 23 Bankr.Ct.Dec. 1137, Bankr. L. Rep. P 75,024 In re FRONTIER PROPERTIES, INC., Lewis W. Shurtleff, Inc., Debtors. Thomas D. ELLIOTT, Trustee, Appellant, v. FOUR SEASONS PROPERTIES, a Utah limited partnership; Zions First National Bank, Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Kevin J. Hoyt, Estes & Hoyt, San Diego, Cal., for appellant.

Candace M. Carroll, Sullivan, Hill, Lewin & Markham, San Diego, Cal., for appellees.

Appeal from the United States District Court for the Southern District of California.

Before: BOOCHEVER, NORRIS, and NOONAN, Circuit Judges.

BOOCHEVER, Circuit Judge:

Thomas Elliott is the trustee for Chapter 11 debtors Frontier Properties, Inc. ("Frontier") and Lewis W. Shurtleff, Inc. He appeals the district court's ruling that he waived his right to appeal whether a land sale contract between Frontier and creditor Four Seasons Properties, Inc. ("Four Seasons") was assumable and whether he actually assumed it. He also appeals the district court's affirmance of the bankruptcy court's ruling that the interest awarded to Four Seasons as part of the judgment in its state court breach of contract action was entitled to administrative priority status. While we hold that the trustee did not waive his right to appeal the assumption issue, we conclude that the contract was validly assumed. We also find that the district court correctly categorized the interest awarded in the state court action as an administrative priority.

BACKGROUND

In November 1979 Frontier contracted to buy from Four Seasons an apartment complex in Salt Lake City, Utah. Frontier paid Four Seasons $100,000 at the close of escrow and took possession of the property. Several months later, Frontier paid an additional deferred down payment of $400,000. The balance of the $2.1 million purchase price was represented by a promissory note providing for monthly payments of principal and interest until October 30, 1984, when the entire outstanding amount became In August 1981 Frontier filed a Chapter 11 bankruptcy petition. With Frontier in default on its monthly installment payments, Four Seasons sought relief from the automatic stay so that it could foreclose. Alternatively, Four Seasons sought an order requiring Frontier to cure its defaults and elect either to assume or reject the contract. This proceeding resulted in a stipulated relief from the stay, which the bankruptcy judge then entered as an order. The stipulation gave the trustee 60 days to assume or reject the land contract. If he decided to assume, he would have 6 months to market the property. If the trustee sold the property, he could cure the defaults using the sales proceeds, but if he failed, the stay would be lifted and Four Seasons could foreclose. On January 14, 1982, counsel for Four Seasons wrote to counsel for the trustee asking that he recognize the quickly increasing deficiency owed to Four Seasons under the contract, which the trustee would have to cure if he assumed, and the diminishing possibility of realizing any equity for the estate.

                due.   Four Seasons was to convey title by warranty deed to Frontier upon full payment.   The contract also provided that upon a default in payments, Four Seasons could elect to treat the contract as a note and mortgage, pass title to the buyer subject thereto, and immediately foreclose and seek a deficiency judgment in accordance with the laws of Utah
                

On January 22, 1982, the day on which the assumption period was to expire, the trustee sent a letter to Four Seasons stating that he assumed the contract. The trustee subsequently collected all rents on the property and sought to sell it, but rejected at least two offers that were acceptable to Four Seasons. Although the stipulation gave the trustee 6 months to market the property, he was in fact permitted to market it for almost a year.

In October 1982 Four Seasons received a notice of default from one of the underlying lienholders on the property and, as permitted by the stipulation, immediately filed a complaint in Utah state court seeking foreclosure before the underlying lienholders could foreclose. The trustee then filed a motion for authority to reject the contract, claiming that the contract had never been assumed and thus his rejection constituted a rejection as of immediately prior to the date of filing the petition. See 11 U.S.C. § 365(g)(1) (1988). The bankruptcy court issued an order on June 16, 1983, stating that the trustee had validly assumed the contract, that his motion to reject the contract constituted a rejection governed by 11 U.S.C. § 365(g)(2)(A), and that Four Seasons' damages, if any, would be entitled to administrative priority status. The trustee's motion for reconsideration of that decision was denied. Meanwhile, the property was sold at a Trustee's Sale in February 1983.

On April 11, 1985, a Utah state court held that the trustee had assumed the contract and entered a deficiency judgment for Four Seasons in the amount of $245,132.45 plus $51,069.25 in interest through March 27, 1984, for a total of $296,201.70. The court also awarded interest on the total judgment at the rate of 12% per annum from the date of entry of judgment, as well as costs and attorneys' fees. The trustee appealed the decision, but the Utah Supreme Court affirmed.

On July 8, 1988, the trustee filed his Chapter 11 liquidation plan. Four Seasons and its assignee, Zions First National Bank, objected to the plan because it failed to give administrative priority to the interest and attorneys' fees awarded by the Utah court. On July 7, 1989, the bankruptcy court issued a Notice of Intended Decision granting administrative priority to Four Seasons' interest claim. The bankruptcy court adopted the Utah state court's findings as to the damages caused by the trustee's breach, and affirmed the 1983 ruling that the trustee had validly assumed the contract.

The trustee then appealed to the district court, which affirmed the bankruptcy court's decision on the interest issue and held that the trustee had waived the assumption issues. The trustee timely filed this appeal on November 16, 1990. We

have jurisdiction under 28 U.S.C. § 158(d) and 28 U.S.C. § 1291.

DISCUSSION
I. Standard of Review

We review conclusions of law of the bankruptcy court and the district court de novo. In re Dewalt, 961 F.2d 848, 850 (9th Cir.1992); In re Professional Inv. Properties of Am., 955 F.2d 623, 626 (9th Cir.1992); In re Worcester, 811 F.2d 1224, 1229-30 (9th Cir.1987). The issues before this court--waiver, assumption, and the administrative priority of interest on a post-petition claim--are issues of law and are therefore reviewed de novo. 1

II. Jurisdiction

The district court held that the trustee waived his right to appeal the issue of whether the trustee had assumed the land sale contract by not appealing the bankruptcy court's order of June 23, 1983. That order stated that the trustee had validly assumed the contract and that Four Seasons had administrative priority status for any damages that might subsequently be proved in its state court claim. The district court found that the 1983 order was "final in nature," and thus the trustee's failure to file a timely appeal constituted a waiver of his right to appeal. The trustee argues that the bankruptcy court's 1983 order was interlocutory rather than final and that he made a timely appeal of the assumption issue after the bankruptcy court issued its final order in 1989. We agree with the trustee.

Jurisdiction over an appeal from an order of a bankruptcy court is governed by 28 U.S.C. § 158. That section vests jurisdiction in the district court to hear appeals from "final judgments, orders, and decrees, and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges." 28 U.S.C. § 158(a) (1988). Thus only "final" rulings of the bankruptcy court may be appealed as of right. The final judgment rule was designed to prevent piecemeal litigation, conserve judicial energy, and eliminate delays caused by interlocutory appeals. Catlin v. United States, 324 U.S. 229, 233-34, 65 S.Ct. 631, 634, 89 L.Ed. 911 (1945). " 'The case is not to be sent up in fragments....' " Id. at 234, 65 S.Ct. at 634 (quoting Luxton v. North River Bridge Co., 147 U.S. 337, 341, 13 S.Ct. 356, 358, 37 L.Ed. 194 (1893)).

A final decision is one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Catlin, 324 U.S. at 233, 65 S.Ct. at 633; see 9 James W. Moore et al., Moore's Federal Practice p 110.08 (2nd ed. 1990) (final judgment "disposes of the entire litigation ... or ... disposes of a complete claim for relief or all the claims of a party"). The bankruptcy court's 1983 order did not end the litigation on the merits, but rather left key issues of liability and damages for further determination. Although the court determined that there was potential liability on the part of the trustee, the actual amount of damages, if any, was left to the future determination of the Utah state court. Because damages had not yet been determined, the 1983 order does not meet the definition of a final order. See Sun Shipbuilding & Dry Dock Co. v. Benefits Review Bd., 535 F.2d 758, 760 (3d Cir.1976) ("It is a well-established rule of appellate jurisdiction ... that where liability has been decided but the extent of damage remains undetermined, there is no final order."); cf. Catlin, 324 U.S. at 233, 65 S.Ct. at 634 (final decision in condemnation proceedings is one which adjudicates all rights, "including ... just compensation"); 9 Moore et al., p 110.08 ("In the simple model of an action for money, a final judgment Moreover, the actual allowance of damages as an administrative expense priority depended on a subsequent final order of the bankruptcy court. Thus the 1983...

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