Rega Properties, Ltd., In re

• Decision Date: 01 February 1990
• Docket Number: No. 88-4217,88-4217
• Citation: 894 F.2d 1136
• Parties: In re REGA PROPERTIES, LTD., Debtor. J. Reed DUNKLEY, Plaintiff-Appellant, v. REGA PROPERTIES, LTD., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1136

894 F.2d 1136

In re REGA PROPERTIES, LTD., Debtor J. Reed DUNKLEY, Plaintiff-Appellant, v. REGA PROPERTIES, LTD., Defendant-Appellee.

No. 88-4217.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 4, 1989.

Decided Feb. 1, 1990.

Joseph A. Esposito, Esposito, Tombari and George, Spokane, Wash., for plaintiff-appellant.

Robert J. McKanna, Spokane, Wash., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Washington.

Before NORRIS, THOMPSON and O'SCANNLAIN, Circuit Judges.

O'SCANNLAIN, Circuit Judge:

We consider the questions of whether a bankruptcy court order denying a motion to dismiss a petition in bankruptcy is an appealable "final order" and what is the appropriate measure of damages resulting from a rejected executory contract.

I

In February 1981, Rega Properties, Ltd. ("Rega") contracted to purchase land in the Spokane Valley from Tanglewood Enterprises, Inc., a Canadian corporation owned solely by Dunkley and his wife. Dunkley dissolved Tanglewood in 1984 and succeeded to all its rights, claims, and liabilities.

The contract required Rega to make annual payments to Dunkley. As the payments were made, certain selected properties were severed and deeded to Rega. Rega's payments entitled it to receive free and clear, eleven, ten-acre parcels of land; 340 acres remained untransferred under the contract.

In November 1982, Dunkley borrowed $157,000 from Pacific Securities Company ("Pacific"). The loan was secured by a deed of trust which Dunkley executed in favor of Pacific on the properties still covered by Dunkley's contract of sale to Rega. Dunkley used the loan proceeds for purposes unrelated to this appeal. Subsequently, Dunkley defaulted on his obligation to Pacific and thereafter Pacific obtained a judgment foreclosing its deed of trust on the 340 acres.

When Rega filed for protection under Chapter 11 in June 1985, the bankruptcy court authorized Rega to reject its real estate contract with Dunkley in accordance with 11 U.S.C. Sec. 365. Dunkley subsequently moved to dismiss Rega's bankruptcy petition for cause under 11 U.S.C. Sec. 1112(b), alleging that Rega had filed in bad faith. The bankruptcy court denied Dunkley's motion to dismiss and resolved his claim by authorizing the return of the remaining land to Dunkley with damages representing the difference between Dunkley's claim and the value of the property.

The district court affirmed the bankruptcy court's order denying Dunkley's motion to dismiss and determining the measure of damages. Dunkley now appeals from the district court's judgment.

II

Under 28 U.S.C. Sec. 158(d), ¹ the courts of appeals have jurisdiction over appeals only from final decisions, judgments, orders, and decrees entered by a district court from a bankruptcy appeal. Zolg v. Kelly (In re Kelly), 841 F.2d 908, 911 (9th Cir.1988); King v. Stanton (In re Stanton), 766 F.2d 1283, 1285 (9th Cir.1985). ² Unlike the district courts, the courts of appeals may not grant leave to hear interlocutory bankruptcy appeals. "Interlocutory orders are not appealable as of right. They may be reviewed at the discretion of the district courts ... but they are not appealable to the court of appeals under 28 U.S.C. Sec. 158(d)." Pizza of Hawaii, Inc. v. Shakey's, Inc. (In re Pizza of Hawaii, Inc.), 761 F.2d 1374, 1378 (9th Cir.1985) (citations omitted).

In this case, the bankruptcy court denied Dunkley's motion to dismiss Rega's bankruptcy action for bad faith under section 1112(b), ³ and the district court affirmed. Therefore, the jurisdictional question before us is whether the district court's order affirming the bankruptcy court's decision denying Dunkley's motion to dismiss is a final, appealable order under section 158(d).

This court has adopted a pragmatic approach to deciding whether a bankruptcy court's order is final, "recognizing that 'certain proceedings in a bankruptcy case are so distinct and conclusive either to the rights of individual parties or the ultimate outcome of the case that final decisions as to them should be appealable as of right.' " United States v. Technical Knockout Graphics, Inc. (In re Technical Knockout Graphics, Inc.), 833 F.2d 797, 800 (9th Cir.1987) (quoting Mason v. Integrity Ins. Co. (In re Mason), 709 F.2d 1313, 1317 (9th Cir.1983)).

This court uses a test that " 'emphasizes the need for immediate review, rather than whether the order is technically interlocutory, in determining what is appealable as a final judgment in bankruptcy proceedings.' " Farber v. 405 N. Bedford Dr. Corp. (In re 405 N. Bedford Dr. Corp.), 778 F.2d 1374, 1377 (9th Cir.1985) (quoting White v. White (In re White), 727 F.2d 884, 885 (9th Cir.1984)). Orders that cause irreparable harm to the losing party are immediately appealable, In re Mason, 709 F.2d at 1316, so long as the orders finally determine the discrete issues to which they are addressed. Four Seas Center Ltd. v. Davres, Inc. (In re Four Seas Center, Ltd.), 754 F.2d 1416, 1418 (9th Cir.1985). But when " 'further proceedings in the bankruptcy court will affect the scope of the order, the order is not subject to review in this court under [section 158].' " In re 405 N. Bedford Dr. Corp., 778 F.2d at 1377 (quoting Four Seas, 754 F.2d at 1418).

In a recent bankruptcy case, the Bankruptcy Appellate Panel ("BAP") for the Ninth Circuit determined that the bankruptcy court's order denying a motion to dismiss for bad faith, in that particular case, was a final, appealable order. Canadian Commercial Bank v. Hotel Hollywood (In re Hotel Hollywood), 95 B.R. 130, 132 (Bankr. 9th Cir.1988) ("We are of the view that the orders appealed from, given the circumstances of this case, affect the rights of the parties with a degree of finality sufficient to warrant appellate review."). While the BAP considered the bankruptcy court's orders in In re Hotel Hollywood to be final and thus appealable, we nonetheless determine that in this case the bankruptcy court's order denying Dunkley's motion to dismiss for bad faith is not a final, appealable order.

We believe that this case is controlled by our decision in In re 405 N. Bedford Dr. Corp., which held that a denial of a motion to dismiss under section 1112(b) for cause was not final under this circuit's finality test and therefore this court did not have jurisdiction. ⁴ In In re 405 N. Bedford Dr. Corp., as in this case, creditors brought a motion in bankruptcy court to dismiss the debtor's petition under section 1112(b) for bad faith. The bankruptcy court had denied the creditor's motion to dismiss and the district court affirmed.

Dunkley argues that he will suffer irreparable harm if he cannot immediately appeal and that he has no other avenues available to protect his interest. But, as this court noted in In re 405 N. Bedford Dr. Corp., there are adequate protections provided under the Bankruptcy Code. "Although the beneficiaries will have to continue their participation in the reorganization process, their interests will be protected while they participate." 778 F.2d at 1377; see, e.g., 11 U.S.C. Secs. 361, 363(e) (creditor's right to adequate protection).

Furthermore, in In re 405 N. Bedford Dr. Corp., this court noted strong policy reasons for not considering the denial of a motion to dismiss a final order:

[C]lassifying the denial of a motion to dismiss for bad faith filing as a final order would have an undesirable impact on the reorganization process. Creditors would be forced to appeal the bad faith filing issue to this court immediately or forego appealing the issue to this court entirely.... If an immediate appeal to this court is permitted, the bankruptcy court is then faced with the difficult choice of whether to proceed with the reorganization process knowing that the appeal of bad faith filing issue may render further reorganization proceedings unnecessary, or stay the reorganization pending our decision. If the reorganization process is stayed and we affirm the denial of the motion to dismiss, then the reorganization process is unnecessarily delayed.

778 F.2d at 1379.

We conclude that Dunkley's situation does not present irreparable harm or special hardship. Accordingly, under this court's finality analysis, the bankruptcy court's order denying Dunkley's motion to dismiss for bad faith filing is not a final order, and thus this court does not have jurisdiction over Dunkley's appeal of that portion of the district court's order which affirmed such denial.

III

Dunkley argues that the district court erred in affirming the bankruptcy court's determination of the measure of damages. The bankruptcy court deducted the value of the property from the contract price. We have jurisdiction under section 158(d) to review the bankruptcy court's determination of measure of damages because it is a final decision disposing of Dunkley's claim.

Both Dunkley and Rega argue that Washington law should determine the measurement of damages resulting from the rejected executory contract. The bankruptcy court apparently used a federal measure of damages. Although the district court affirmed the bankruptcy court's use of the federal measure of damages, it noted that the application of either the federal or state law would lead to the same result. We now consider whether state or federal law applies.

A.

The rejection of a contract under bankruptcy law "constitutes a breach of such a contract." 11 U.S.C. Sec. 365. Although the rejection of the real estate contract between Rega and Dunkley results from the application of the Bankruptcy Code--specifically section 365--the measurement of damages appears to be determined by applying state law as long as it is not inconsistent with federal bankruptcy policy.

The Supreme Court in Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979), stated that "[p]roperty interests are created and defined by state law. Unless some federal...