In re Buckhead America Corp.

• Citation: 180 BR 83
• Decision Date: 07 April 1995
• Docket Number: Bankruptcy No. 91-978 to 91-986. Civ. A. No. 94-259-SLR.
• Parties: In re BUCKHEAD AMERICA CORPORATION, et al., Debtors. GLENSTONE LODGE, INC., Respondent-Appellant, v. BUCKHEAD AMERICA CORPORATION, Movant-Appellee.
• Court: U.S. District Court — District of Delaware

180 B.R. 83 (1995)

In re BUCKHEAD AMERICA CORPORATION, et al., Debtors GLENSTONE LODGE, INC., Respondent-Appellant, v. BUCKHEAD AMERICA CORPORATION, Movant-Appellee.

Bankruptcy Nos. 91-978 to 91-986. Civ. A. No. 94-259-SLR.

United States District Court, D. Delaware.

April 7, 1995.

Francis A. Monaco, Jr., Walsh & Monzack, Wilmington, DE, and Steven M. Pesner, P.C., David M. Zensky and Evan A. Showell, Akin, Gump, Strauss, Hauer & Feld, L.L.P., New York City, for respondent-appellant.

James L. Patton and David W. O'Connor, Young, Conaway, Stargatt & Taylor, Wilmington, DE, for movant-appellee; Carole L. Fern, Kevin S. Miller and Gerard R. Luckman, Berlack, Israels & Lieberman, New York City, of counsel.

MEMORANDUM OPINION

SUE L. ROBINSON, District Judge.

This case comes before the court upon an appeal from an order of the Bankruptcy Court for the District of Delaware (the "bankruptcy court") granting appellee debtor Buckhead America Corporation's motion to dismiss appellant creditor's claim for creditor Glenstone Lodge, Inc.'s failure timely to respond to debtor's motion to assume and assign.

I. JURISDICTION

Appellant contends that this court has jurisdiction to hear this case pursuant to 28 U.S.C. § 158. (D.I. 6) Appellee does not dispute the existence of subject matter jurisdiction. "The Court, however, must make its own assessment to determine whether appellate jurisdiction exists." In re Columbia Gas Sys., 146 B.R. 106 (D.Del.1992), aff'd, 50 F.3d 233 (3d Cir.1995).

Section 158(a) of Title 28 of the United States Code provides in pertinent part as follows:

The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees, and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title. . . .

28 U.S.C. § 158(a). "In bankruptcy cases, the courts accord `finality' a somewhat flexible pragmatic definition." In re Columbia Gas Sys., 146 B.R. at 110 (citing In re Taylor, 913 F.2d 102, 104 (3d Cir.1990)). Relevant factors a court must evaluate are the following:

The impact upon the assets of the bankrupt estate, the necessity for further fact-finding on remand, the preclusive effects of our decision on the merits on further litigation, and whether the interest of judicial economy would be furthered.

In re Market Square Inn, Inc., 978 F.2d 116, 120 (3d Cir.1992) (quoting In re Meyertech Corp., 831 F.2d 410, 414 (3d Cir.1987)). The most important of the above factors is the impact upon the assets of the bankrupt estate. Id.

In the case at bar, the court finds that the bankruptcy court's dismissal of appellant's claim had a significant impact on the bankrupt estate. Accordingly, this court finds that the bankruptcy court's action constituted a final order for purposes of § 158 and that this court has jurisdiction over the appeal.

II. BACKGROUND

On September 27, 1991, appellee Buckhead America Corporation ("Buckhead"), the owners and franchisors of hotels under the "Days Inn" name, filed a voluntary Chapter 11 petition. Buckhead's reorganization included the sale of most of Days Inns' assets to Days Inn Acquisition Corp. ("DIAC"), an affiliate of Hospitality Franchise Systems, Inc. (D.I. 7 at 2, 8) These assets included more than 1,000 franchise agreements with Days Inn operators.

Appellant Glenstone Lodge, Inc. ("Glenstone"), a Days Inn franchisee, operates a Days Inn hotel in Gatlinburg, Tennessee. Glenstone alleges that by virtue of its franchise agreement with Buckhead dated January 7, 1991 (the "Franchise Agreement"), Glenstone acquired a right of first refusal to develop and operate a Days Inn in the neighboring town of Pigeon Forge, Tennessee. (D.I. 6 at 4) Glenstone further alleges that, subsequent to the filing of the Chapter 11 petition, it learned that Buckhead had breached the Franchise Agreement by granting the Pigeon Forge franchise to another party without affording Glenstone an opportunity to exercise its right of first refusal. (Id.) It is this claim that Glenstone seeks to preserve by the present appeal.¹

On December 5, 1991, Buckhead filed a "Motion for Order Pursuant to Section 365 of the Bankruptcy Code Authorizing Assumption and Assignment of Franchise Agreements in Connection with Joint Motion for Order Approving the Proposed Sale to DIAC" (the "motion to assume"), in which it sought the bankruptcy court's approval of its assumption of 1,322 franchise agreements, including Glenstone's. Assumption was a prerequisite to Buckhead's selling its rights under these agreements to DIAC. (D.I. 6 at 5) In the motion to assume, Buckhead denied knowledge of any defaults under the franchise agreements and stated that any party alleging otherwise and failing to respond or object to the motion to assume by December 16, 1991, would be barred from raising its claim. (D.I. 1368 at A0025) Because Bankruptcy Rule 2002 requires the giving of 20 days' notice, Buckhead concurrently filed a "Motion to Shorten Time for Notice and Response" pursuant to 11 U.S.C. §§ 102 and 105 (the "motion to shorten time"), which the bankruptcy court granted the same day. (D.I. 6 at 5-6) Although other franchisees did timely file responses or objections to the motion to assume, Glenstone did not. (D.I. 1368 at H1414-H1415) On December 20, 1991, the bankruptcy court held a hearing on the motion to assume, at the conclusion of which the court granted the motion "to the extent not previously approved, . . . in all respects, except to the extent modified by or inconsistent with the provisions of this Order the "assumption order"." (D.I. 6 at 8)

On December 23, 1991, the bankruptcy court issued an order fixing February 28, 1992 as the general bar date for the filing of proofs of claim (the "bar date order"). (D.I. 6 at 6) Glenstone filed a proof of claim on February 27, 1992. On January 31, 1994, Buckhead moved for an order disallowing Glenstone's claim on the ground that it was untimely filed, in that Glenstone had failed to respond or object to the motion to assume. (D.I. 1368 at A0001-A0143) The bankruptcy court heard argument on this motion on April 5, 1994, and on April 14, 1994, granted the motion to disallow (the "April 14 order"). This appeal followed.

III. STANDARD OF REVIEW

The findings of fact of the bankruptcy court are reversible only if clearly erroneous. Bankruptcy Rule 8013; In re Delaware & H.R. Co., 124 B.R. 169, 178 (D.Del.1991) (citing In re Spada, 903 F.2d 971, 975 (3d Cir. 1990)). "Thus, a reviewing court will affirm the bankruptcy court's findings unless `on the entire evidence the court is left with the definite and firm conviction that a mistake has been committed.'" In re Delaware & H.R. Co., 124 B.R. at 178 (citing United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 541, 92 L.Ed. 746 (1948)). Conclusions of law are freely reviewable de novo. In re Abbotts Dairies, 788 F.2d 143, 1447 (3d Cir.1986). When findings of fact are based on an incorrect legal standard, those findings are subject to plenary review on appeal. First American Bank v. Century Glove, Inc., 81 B.R. 274 (D.Del. 1988), aff'd, in part, Century Glove, Inc. v. First American Bank, 860 F.2d 94 (3d Cir. 1988).

IV. DISCUSSION

The first question presented on appeal is whether the bankruptcy court erred in holding Glenstone's claim barred for Glenstone's failure to respond or object to Buckhead's December 5 motion to assume. This requires the court to review the papers filed with respect to the alleged bar date. As summarized above, the motion to assume states, in relevant part, that:

Any party who alleges any breaches . . . or any other claims arising out of or relating to a particular Designated Franchise Agreement . . . must file a written response or objection to this motion by December 16, 1991, failing which such party will be barred from raising any claims against the Debtors or DIAC related to or arising under any Designated Franchise Agreement which claims relate to a time or arose prior to the closing of the sale.

(D.I. 1 at A0025)

In its motion to shorten time, Buckhead moved specifically that the time required be shortened so that "a hearing on the assumption motion can be held on December 20, 1991, . . . and written objections, if any, can be filed and served on or before December 16, 1991," and "prayed for the entry of an Order shortening, as set forth above, the time for notice and responses to its" assumption motion. The bankruptcy court "so ordered" this relief on December 5.

Glenstone argues that between December 5 and December 20, when the hearing on the motion to assume was held, counsel to the franchisees' committee reached agreement with Buckhead and DIAC that "the bar date for franchisees would be extended beyond December 16, 1991 and that the assumption Order would not operate as a bar on further claims against the debtor."² Consequently, at the December 20 hearing, the bankruptcy court was informed that the committee had been

able to get the debtor and the purchaser to address other concerns that the committee had raised concerning the effect of the order approving the sale would have on claims of franchisees against the debtor, the recognition of written side agreements between the debtor and franchisee and the treatment of default under franchise agreements, which originally would have been barred following the entry of this order.

(D.I. 1 at D0586-0587) (emphasis added).

Thereafter, according to Glenstone,

in accordance with the agreement between the Franchisees\' Committee, debtors and purchaser, this Court (a) granted the assumption Order at the close of the December 20, 1991 hearing and (b) issued the bar date order on the very next business day, December 23, 1991.

(Id. at C0304-0305) (emphasis added).

Glenstone contends that one finding and three decretals in the assumption order embody the...