In re Premier Automotive Services, Inc.

• Decision Date: 15 June 2007
• Docket Number: No. 06-2207.,No. 06-2208.,06-2207.,06-2208.
• Parties: In re PREMIER AUTOMOTIVE SERVICES, INCORPORATED, Debtor. Maryland Port Administration, Movant-Appellee, v. Premier Automotive Services, Incorporated, Respondent-Appellant. Premier Automotive Services, Incorporated, Plaintiff-Appellant, v. Robert L. Flanagan, Secretary, Department of Transportation, State of Maryland, and Chairman, Maryland Port Commission; F. Brooks Royster, III, Executive Director, Maryland Port Administration, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

492 F.3d 274

In re PREMIER AUTOMOTIVE SERVICES, INCORPORATED, Debtor.

Maryland Port Administration, Movant-Appellee, v. Premier Automotive Services, Incorporated, Respondent-Appellant.

Premier Automotive Services, Incorporated, Plaintiff-Appellant, v. Robert L. Flanagan, Secretary, Department of Transportation, State of Maryland, and Chairman, Maryland Port Commission; F. Brooks Royster, III, Executive Director, Maryland Port Administration, Defendants-Appellees.

No. 06-2207.

No. 06-2208.

United States Court of Appeals, Fourth Circuit.

Argued: March 14, 2007.

Decided: June 15, 2007.

ARGUED:

Charles Samuel Fax, Rifkin, Livingston, Levitan & Silver, L.L.C., Greenbelt, Maryland, for Appellant. Philip P. Whaling, Office of the Attorney General, Maryland Port Authority, Baltimore, Maryland, for Appellees.

ON BRIEF:

Douglas F. Gansler, Attorney General of Maryland, Baltimore, Maryland, for Appellees.

Before WILKINSON, GREGORY, and DUNCAN, Circuit Judges.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Judge GREGORY and Judge DUNCAN joined.

OPINION

WILKINSON, Circuit Judge.

These consolidated cases demonstrate, unfortunately, how the good and useful ends of the bankruptcy process can be badly abused. The Chapter 11 petition filed by the debtor, Premier Automotive Services, pressed a variety of claims intended, not for the legitimate purposes of bankruptcy, but to invoke the automatic stay and other bankruptcy code protections in order to forestall eviction on an obviously expired lease. The bankruptcy court dismissed the petition, finding that Premier had filed it in bad faith, solely "to prevent the State from evicting the debtor from [the State's] property," and as a "means to the end of tying up the State in endless, fruitless litigation." The district court affirmed, noting that while Premier's constitutional claims "abound in legal creativity, they generally lack legal merit." We agree with both courts and affirm the judgment.

I.

This dispute arises out of a commercial lease of approximately six and one half acres of land ("Lot 90") owned by the Maryland Port Administration ("MPA") and located on Dundalk Marine Terminal on the Baltimore waterfront. Debtor-Plaintiff Premier Automotive Services ("Premier") is an import-export motor vehicle company which processes trucks, as well as heavy military, agricultural, and construction equipment through Dundalk Marine Terminal. Premier has been operating on Lot 90 for over forty years under a variety of leases and is the current possessor of Lot 90. At the beginning of its occupancy, Premier constructed a 27,500 square-foot building on Lot 90 which contains an office, body shop, paint shop, and washline.

Defendant MPA is an agency of the State of Maryland which oversees and operates port facilities. Md.Code Ann., Transp. 6-102(f) (LexisNexis 2003). MPA's purpose is to increase the waterborne commerce of Maryland ports, and, by doing so, to benefit Maryland residents. Id. § 6-102(c)(1). In this, the agency is granted statutory authority to lease port facilities to private parties like Premier. Id. § 6-204(i).

Premier Automotive Services' most recent lease for Lot 90 was executed in July 1992 and expired on June 30, 2002. Before the July 1992 lease expired, MPA met with Premier to discuss lease renewal, and tendered to Premier a five-year lease. Premier objected to a vehicle throughput requirement, which required Premier to guarantee that it would move 1700 vehicles per acre per year through Lot 90, and the lease was never executed. Premier did not, however, quit the premises after the old lease expired. Instead, Premier remained in possession of Lot 90 as a holdover tenant on a month-to-month basis.

In February 2004, following a year and a half of unsuccessful negotiations over a long-term lease, MPA offered Premier a month-to-month lease. The February 2004 lease did not contain a throughput requirement. Premier again rejected MPA's proposal, deeming the month-to-month lease unacceptable because it would not provide long-term stability.

In April of 2004, after further lease negotiations, MPA offered Premier a three-year lease with two one-year renewal options. In response to Premier's throughput objection, MPA informed Premier that it had "committed every vehicle tenant at the Dundalk Marine Terminal and other facilities to a throughput that makes the most efficient and effective use of our limited terminal land." In MPA's view, the 1,700 vehicle per acre per year requirement allocated to Premier was "more than achievable since the [acreage] used to calculate the guarantee is less than 50% of [Lot 90]." MPA requested that Premier execute the lease by April 15.

On April 30, 2004, MPA wrote to Premier expressing frustration over the parties' failure to come to terms on a new lease. The April 30 letter informed Premier that the Maryland Port Administration was extending the signing deadline for the April 2004 lease until May 15, 2004, but noted that the lease must be signed by that date. The parties, however, failed once again to reach agreement.

On January 4, 2005, MPA entered into a five-year lease with Pasha Automotive Services ("Pasha") for acreage on the Dundalk Marine Terminal, and, on June 15, 2005, Lot 90 was designated for Pasha. Pasha committed to a minimum throughput of 1,700 vehicles per acre (on each of Lot 90's 6.54 acres) and also agreed to a relocation clause, which gave MPA the discretion to move Pasha to another location on the Dundalk Marine Terminal at MPA's expense.

In March 2005, the Maryland Department of Transportation advised Premier that MPA had entered into a long term lease with another tenant — Pasha — for Lot 90. And, on March 29, 2005, MPA sent Premier a letter which terminated Premier's month-to-month tenancy effective May 1, 2005. MPA subsequently offered Premier a 60-day extension (until June 30, 2005) in exchange for Premier waiving any objection the company had to vacating Lot 90. Premier declined the offer.

On April 29, 2005, Premier filed a Chapter 11 bankruptcy petition in federal bankruptcy court in the District of Maryland. Premier invoked the automatic stay provisions of 11 U.S.C. § 362(a) (2000), and alleged, in a related adversary proceeding, a variety of constitutional violations against MPA, then-Secretary of the Maryland Department of Transportation Robert L. Flanagan, and MPA Executive Director F. Brooks Royster, III. The bankruptcy court held two evidentiary hearings, and then granted MPA's motion for summary judgment in the adversary action, ordered the automatic stay lifted, and dismissed Premier's Chapter 11 petition. More specifically, the bankruptcy court held that Premier had filed the bankruptcy petition in bad faith — "for the sole purpose of halting and/or delaying [Premier's] ultimate eviction from the Terminal by MPA." The court also dismissed the petition on the grounds that an expired lease was not "property of the estate" under 11 U.S.C. § 541(b): A "bankruptcy court has no authority to resuscitate a lease of real property that expired by its own terms prepetition," the court wrote. Premier appealed to federal district court.

While the bankruptcy proceedings were pending, Premier filed a complaint with the Federal Maritime Commission ("FMC") based upon the same facts underlying the bankruptcy case. Premier alleged a number of violations of the Federal Shipping Act. See 46 App. U.S.C. § 1709(d)(1), (3), (4) (now codified at 46 U.S.C. §§ 41102(c), 41106(2)-(3)). The Administrative Law Judge dismissed the petition on sovereign immunity grounds. Premier appealed that decision to the FMC, where it remains pending. Following dismissal of its FMC petition, Premier filed its second action in federal district court seeking injunctive relief pending final judgment on the FMC appeal pursuant to 46 U.S.C.App. § 1710(h)(2).

The district court consolidated the bankruptcy appeal and the FMC complaint. The district court then affirmed the bankruptcy court's grant of summary judgment against Premier finding that "Premier's constitutional claims are unsupportable." The court then concluded that, because these unsupportable claims "were the only `property' of the bankruptcy estate" claimed by Premier, the petition must be dismissed and the automatic stay lifted. Finally, the district court dismissed Premier's Shipping Act complaint for injunctive relief based in part on its conclusion that Premier "clear[ly]" could not "demonstrat[e] its entitlement to an injunction." Premier now appeals.

II.

We must determine as an initial matter whether the bankruptcy court properly dismissed Premier's Chapter 11 petition as a bad faith filing and an abuse of the bankruptcy process. "We review the bankruptcy court's ultimate finding that the filing was not in good faith as one of fact subject to the clearly erroneous standard." Carolin Corp. v. Miller, 886 F.2d 693, 702 (4th Cir.1989).

A.

The right to file a Chapter 11 bankruptcy petition is conditioned upon the debtor's good faith — the absence of which is cause for summary dismissal. Id. at 698; Mich. Nat'l Bank v. Charfoos (In re Charfoos), 979 F.2d 390, 392 (6th Cir. 1992). Indeed, the ability of a bankruptcy court to conduct a threshold inquiry into the good faith of a petitioner is "indispensable to proper accomplishment of the basic purposes of Chapter 11 protection." Carolin, 886 F.2d at 698. As this court has explained, "a good faith requirement `prevents abuse of the bankruptcy process by debtors whose overriding motive is to delay creditors without benefitting them in any way or to achieve reprehensible purposes.'" Id. (quoting In re Little Creek Dev. Co., 779 F.2d 1068, 1072 (5th Cir. 1986)). The good faith standard also "`protects the jurisdictional integrity of the bankruptcy courts by rendering their powerful equitable weapons (i.e., avoidance of liens, discharge of debts, marshaling and turnover of assets) available only to those...