Trans World Airlines, Inc., In re, 93-7721

• Decision Date: 10 March 1994
• Docket Number: No. 93-7721,93-7721
• Citation: 18 F.3d 208
• Parties: -1498, Bankr. L. Rep. P 75,758 In re TRANS WORLD AIRLINES, INCORPORATED, Debtors. UNITED STATES of America v. TRANS WORLD AIRLINES, INCORPORATED, Thomas E. Ross, Trustee, The Official Unsecured Creditors' Committee of Trans World Airlines, Inc., Appellee. Trans World Airlines, Inc., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 208

18 F.3d 208

73 A.F.T.R.2d 94-1498, Bankr. L. Rep. P 75,758

In re TRANS WORLD AIRLINES, INCORPORATED, Debtors UNITED STATES of America v. TRANS WORLD AIRLINES, INCORPORATED, Thomas E. Ross, Trustee The Official Unsecured Creditors' Committee of Trans World Airlines, Inc., Appellee Trans World Airlines, Inc., Appellant.

No. 93-7721.

United States Court of Appeals Third Circuit.

Argued Jan. 20, 1994.

Decided March 10, 1994.

William H. Sudell, Jr., S. David Peress, Morris, Nichols, Arsht & Tunnell, Wilmington, DE, David S. Kurtz, Richard M. Cieri, Jane A. Rue (argued), Jones, Day, Reavis & Pogue, New York City, for appellant.

Frank W. Hunger, Asst. Atty. Gen., Richard G. Andrews, U.S. Atty., J. Christopher Kohn, Sandra Spooner, Ruth A. Harvey, Samuel R. Maizel (argued), U.S. Dept. of Justice, Civil Div., Washington, DC, for appellee U.S.

James E. Spiotto, Barbara C. Klabacha, Jeffrey T. Veber, Chapman and Cutler, Chicago, IL, Laura Davis Jones, Young, Conaway, Stargatt & Taylor, Wilmington, DE, for appellee Official Unsecured Creditors' Committee of Trans World Airlines, Inc.

Before: SCIRICA, LEWIS, AND GARTH Circuit Judges.

OPINION OF THE COURT

GARTH, Circuit Judge.

The appellant, Trans World Airlines, Inc. ("TWA"), appeals from the October 19, 1993 order of the district court granting the Government a stay pending appeal of the September 30, 1993 order of Bankruptcy Court Judge Balick. ¹ In her September 30, 1993 order, Judge Balick: (1) denied the Government relief from the automatic stay imposed by 11 U.S.C. Sec. 362 to set off an $8.36 million judgment owed to TWA by one federal agency against monies TWA owes to two other federal agencies, and (2) directed the immediate disbursement to TWA of the $8.36 million deposited by the Government in the bankruptcy court's registry account. Because the district court's order staying Judge Balick's September 30, 1993 order pending appeal was itself neither an order granting, dissolving or modifying injunction nor a final order, we lack appellate jurisdiction under either 28 U.S.C. Sec. 1292(a)(1) or 28 U.S.C. Sec. 158(d). We, therefore, dismiss TWA's appeal.

I.

TWA filed a voluntary petition for Chapter 11 reorganization on January 31, 1992, putting into immediate effect the automatic stay of 11 U.S.C. Sec. 362. ² As of the date of its Chapter 11 filing, TWA owed a total of approximately $20 million to the Internal Revenue Service (IRS) for prepetition income tax and employment tax liabilities and to the Environmental Protection Agency (EPA) for environmental response costs incurred as a result of prepetition releases of hazardous substances at a Superfund site in Kansas. These claims of the IRS and the EPA were not disallowed by the bankruptcy court.

At the time of its Chapter 11 filing, TWA was a party to an action brought by several airlines against the General Services Administration (GSA) and the United States of America, challenging the legality of GSA's post-payment audits of airline transportation bills. On August 12, 1992, more than six months after TWA filed its voluntary petition, the District Court for the District of Columbia ruled against the GSA in Alaska Airlines, Inc. v. Austin, 801 F.Supp. 760 (D.D.C.1992), aff'd in relevant part, 8 F.3d 791 (Fed.Cir.1993). The Alaska Airlines court ordered the GSA to return to TWA and the other plaintiff airlines all monies improperly withheld by the GSA because of faulty agency post-payment audits of airline services provided by the airlines to federal employees. 801 F.Supp. at 771. The amount GSA owed to TWA was approximately $8.14 million, plus interest.

The Government was unable to obtain a stay pending appeal of the August 12, 1992 order of the Alaska Airlines court. However, the Federal Circuit granted the Government's motion that the GSA deposit the monies it owed TWA into the registry of the bankruptcy court, rather than paying that amount directly to TWA's Trustee. Federal Circuit Judge Rich's April 12, 1993 order to that effect allowed the Government to pursue its setoff defense against TWA by providing that the Alaska Airlines judgment could be distributed to TWA only by order of the bankruptcy court. Pursuant to that order, the GSA deposited $8.36 million into the registry of the Bankruptcy Court for the District of Delaware on May 13, 1993. On that same day, the Government moved before Bankruptcy Court Judge Balick for relief from the automatic stay imposed by 11 U.S.C. Sec. 362, and for an order directing the return to the Government of the $8.36 million in deposited funds as an interagency setoff against the $20 million pre-petition claims of the EPA and the IRS. TWA filed a cross motion seeking payment of the $8.36 million to TWA. ³

On September 30, 1993, Bankruptcy Court Judge Balick denied the Government's motion for an interagency setoff and granted TWA's cross-motion, directing the immediate release of the Alaska Airlines monies to TWA. Judge Balick's order was premised on the theory that there is no mutuality for setoff purposes between the government agencies (IRS and EPA) that are unsecured creditors of TWA's estate and the government agency (GSA) that is a debtor to TWA's estate. As an independent ground for rejecting the Government's motion for setoff, Judge Balick concluded that setoff would be highly inequitable because GSA had wrongfully withheld the $8.36 million from TWA. The Government's timely appeal of Judge Balick's September 30, 1993 order denying its setoff is now pending before the district court. ⁴

After filing its notice of appeal, the Government moved for an automatic ten-day stay of Judge Balick's order directing the release of the $8.36 million to TWA, pursuant to Bankruptcy Rule 7062, which makes Fed.R.Civ.P. 62(a) applicable in adversary proceedings. ⁵ At a hearing before Judge Balick on October 6, 1993, the Government also requested an emergency stay pending appeal, either as a matter of right under Rule 62(d) or, alternatively, as a matter of discretion pursuant to Bankruptcy Rule 8005. ⁶ Characterizing the September 30, 1993 order as a "mandatory injunction," TWA argued that Bankruptcy Rule 7062, and therefore the ten-day stay of Rule 62(a), did not apply to this order. TWA also contended that a discretionary stay pursuant to Bankruptcy Rule 8005 was inappropriate because the Government could not satisfy the requirements for such a stay.

Bankruptcy Court Judge Balick agreed with TWA that the Government was not entitled to a discretionary stay under Bankruptcy Rule 8005 because the Government had failed to meet its burden of showing: (1) the likelihood of success on the merits; (2) irreparable harm to the Government; (3) no substantial harm to TWA, and (4) that the public interest weighed against paying the money over to TWA. In a ruling on October 6, 1993, Judge Balick also agreed with TWA's position that the portion of the September 30, 1993 order "directing the clerk to release the funds immediately to TWA" was "a mandatory injunction." [App. at 87.] Judge Balick nonetheless found that Rule 62(a) was applicable. As she explained:

[Bankruptcy Rule] 7062(a), which brings into play 62(a) of the Federal Rules of Civil Procedure poses a more difficult question. In effect the Court by virtue of having the motions for relief from stay and a cross motion for the payment of the funds and the necessary orders has what amounts to dual orders and one is a question of preserving the issue of whether the government is entitled to set off and the other is a mandatory injunction directing the clerk of the court to release the funds immediately to TWA, which is in accordance with the original order of the district court for the circuit.

I'm going to find that the 7062(a) injunction is in effect for the ten-day period subsequent to the entry of the court's order of September 30.

[App. 86-87.] The Government's request for a Rule 62(d) stay as of right pending appeal was never discussed by Judge Balick.

The Government then moved in the District Court for the District of Delaware for a Rule 62(d) stay of the September 30, 1993 order of Bankruptcy Court Judge Balick. Alternatively, the Government argued for a discretionary stay pursuant to Bankruptcy Rule 8005. The district court in its opinion and order of October 19, 1993, never reached the question of whether the Government was entitled to a discretionary stay under Bankruptcy Rule 8005. Ruling that the September 30, 1993 order of Judge Balick was a money judgment, and not a mandatory injunction, the district court held that the Government was entitled to a stay as a matter of right under Rule 62(d). The district court thus concluded that a party appealing a money judgment is entitled to an automatic stay pending appeal upon posting a supersedeas bond, and that the United States, pursuant to Rule 62(e), was entitled to a stay as of right without posting a supersedeas bond. ⁷

II.

Issues relating to stays pending appeal in bankruptcy cases are governed by Bankruptcy Rules 7062 and 8005. Bankruptcy Rule 7062 provides that Fed.R.Civ.P. 62 is applicable in adversary proceedings, and Bankruptcy Rule 9014 makes Rule 62 applicable to contested matters, ⁸ such as the Government's motion for relief from the automatic stay and TWA's cross motion for disbursement of funds from the registry account which resulted in the September 30, 1992 order of Bankruptcy Court Judge Balick. Bankruptcy Rule 8005 enables the bankruptcy court and the district court to tailor relief to the unique circumstances of the case, "[n]otwithstanding Rule 7062," by making any "appropriate order during the pendency of an appeal on such terms as will protect the rights of all parties in interest."

We are asked in this appeal to determine whether the district court erred in granting the Government a stay pending appeal pursuant to Rule 62(d) without ever considering the discretionary stay provision of Bankruptcy Rule 8005. Specifically,...