Opinion
Case No. 01-42217 (REG), Chapter 11
March 28, 2002
Martin J. Bienenstock, Weil, Gotshal Manges LLP, New York, NY, for Debtors.
James S. Carr, Kelley Drye Warren LLP, New York, NY, for Appellants.
OPINION AND ORDER
Movants in this case are lessors seeking leave to appeal an order of the Honorable Robert E. Gerber, Bankruptcy Judge of the united State Bankruptcy Court for the Southern District of New York, extending the time within which Debtors may assume or reject unexpired leases of non-residential real property. For the reasons set forth below, leave to appeal is denied.
On August 20, 2001 ("petition date"), the Debtors, Ames Department Stores, Inc., et al., filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. § 101 et seq ("Bankruptcy Code"). The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.
As of the petition date, the Debtors were parties to more than 535 unexpired leases of nonresidential real property, approximately 477 of which related to retail stores operated by the Debtors and owned by approximately 303 lessors. On the petition date, the Debtors filed a motion seeking an order, pursuant to § 365(d)(4) of the Bankruptcy Code, extending the Debtors' time to decide whether to assume or reject their leases until an order is entered confirming a plan of reorganization. The order sought was without prejudice to the right of each lessor to apply for the prompt assumption or rejection by the Debtor of its lease. Additionally, the order provided that if a lessor did request an order compelling the Debtors to assume or reject a lease prior to confirmation, the burden of persuasion would remain with the Debtors. Each of the movants filed an objection to the relief sought.
On October 3, 2001, the Bankruptcy Court held a hearing on the motion and granted Debtors' request, subject to the conditions discussed below. On December 5, 2001, the Bankruptcy Court signed an order which provided, inter alia, that the extension would be granted as requested, provided that such extension is without prejudice to the right of any objecting lessor to file an application with the Bankruptcy Court for a reduction of such time, with the Debtors retaining the burdens of proof and persuasion. The order also permitted the objecting lessors to request an evidentiary hearing for an order shortening the extension, with the burdens or proof and persuasion remaining with the Debtors.
On December 14, 2001, the movant lessors filed a motion for leave to appeal the order.
Discussion
The lessors claim that the Bankruptcy Court's order was a "final order" and thus the Court has jurisdiction to hear an appeal. See 28 U.S.C. § 158 (a) ("[T]he 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 other interlocutory orders and decrees of bankruptcy judges . . . ."). However, the order extending time under 11 U.S.C. § 365 (d)(4) is not a final order, but instead is an interlocutory order as it made no final substantive ruling with respect to any lessor's or debtor's rights." Net Realty Holding Trust v. R.H. Macy Co., Inc., et al., 92 Civ. 3799, 1992 WL 322288, at *1 (S.D.N.Y. October 28, 1992). See Escondido Mission Village L.P. v. Best Products Co., Inc., et al., 137 B.R. 114, 115 (S.D.N.Y. 1992). See also In re Child World, Inc., 146 B.R. 89, 89 (S.D.N.Y. 1992) (accepting parties' position that such an appeal is interlocutory). Accordingly, the order is deemed an interlocutory order and the Court must determine if it should grant leave to appeal.
While the Bankruptcy Code and Bankruptcy Rules do not provide a standard for evaluating a motion for leave to appeal an interlocutory order such as this one, district courts have relied upon the factors listed in 28 U.S.C. § 1292 (b), which governs appeals from interlocutory orders of the district courts to the courts of appeals. See In re Bogdanovich, 00 Civ. 2264, 00 Civ. 2266, 2000 WL 1804133, at * 8 (S.D.N.Y. Dec. 8, 2000). Under section 1292(b), leave to appeal an interlocutory order may be granted when the underlying order (i) "involves a controlling question of law," (ii) "as to which there is substantial ground for difference of opinion," and (iii) "an immediate appeal from the order may materially advance the ultimate termination of the litigation." 28 U.S.C. § 1292 (b). In addition, the appeal must present "exceptional circumstances" warranting review. In re Alexander, 248 B.R. 478, 483 (S.D.N.Y. 2000). See Macy Co., 1992 WL 322288, at *1.
Other district courts in this circuit have permitted appeal of interlocutory orders based on the collateral order doctrine. See In re Alexander, 248 B.R. 478, 482 (S.D.N.Y. 2000). Under the collateral order doctrine, appeal is permitted only if the decision conclusively determines the disputed question, resolves an important issue completely separate from the merits of the actions, and would be effectively unreviewable on appeal from a final judgment. Coopers Lybrand v. Livesay, 437 U.S. 463, 684-69 (1978). For the same reasons listed in this order, the Court finds that the collateral order doctrine does not favor granting leave to appeal.
An order involves a controlling question of law if "either (1) reversal of the bankruptcy court's order would terminate the action, or (2) determination of the issue on appeal would materially affect the outcome of the litigation." North Fork Bank v. Abelson, 207 B.R. 382, 389-90 (E.D.N.Y. 1997) (citing Klinghoffer v. S.N.C. Achille Lauro, 921 F.2d 21, 24 (2d Cir. 1990)). This is not a case where the reversal of the order would terminate the proceeding below. See Abelson, 207 B.R. at 390 (finding a controlling question of law where reversing the order of the Bankruptcy Court would strip the Bankruptcy Court of subject matter jurisdiction). Rather, the order merely provides procedural relief to the Debtors. The substantive rights of the lessors are not affected because the order still permits them to apply for a reduction of the extension, and the burden to show cause would remain with the Debtors. Thus, the issue does not materially affect the outcome of the litigation. For this same reason, an immediate appeal from the order" would not "materially advance the ultimate termination of the litigation." 28 U.S.C. § 1292 (b).
Furthermore, there is no substantial ground for difference of opinion on the legal issue. For there to be "substantial grounds for difference of opinion," there must be more than a strong disagreement between the adversary parties. Abelson, 207 B.R. at 390. Lessors argue that there is dispute amongst the district courts as to whether the Bankruptcy Court, as a matter of law, can extend the 365(d)(4) deadline to the confirmation date. In support of this position, they cite Macy Co., 1992 WL 322288, in which such an extension was overturned, and In re Child World, 147 B.R. 854 (S.D.N.Y. 1992), in which this type of extension was affirmed. However, while the outcomes of these cases differ, the underlying legal concerns are similar. In Macy Co., the court took issue with open-ended extensions because they harmed the lessors' interests. The underlying bankruptcy order provided that "any lessor may request, for cause, that such [extension] be reduced, and the burden of persuasion on the issue shall remain with the Debtors." In Re R.H. Macy Co., Inc., et al., No. 92 B 40477, slip op. at 2 (Bankr. S.D.N.Y. March 24, 1992) (emphasis added). Thus, while the burden of persuasion was with the Debtor, the lessor still had to provide some reason as to why the extension should be reduced. Unlike the situation here, where the lessor need only file a request, the order in Macy Co. imposed a burden on the lessor.
In In re Child World, Judge Broderick cited Macy Co. and agreed that "[i]ndefinite or open-ended extensions of time for debtors to assume or reject leases . . . are potentially burdensome . . . and . . . may be shortened where a landlord creditor would in fact be unduly burdened." In re Child World, 147 B.R. 854, 854 (S.D.N.Y. 1992) (reconsidering prior District Court order). In that case, however, the underlying order merely required the lessor to come forward; it did not require the lessor to show cause. In re Child World, 146 B.R. 89, 92 (S.D.N.Y. 1992) (initial District Court order) ("[T]he . . . extension had for all practical purposes, only an administrative rather than a substantive effect."). Thus, while the specifics of the underlying orders differed, these cases treated the legal issue quite similarly; both were concerned with protecting the interests of the lessor. Here, the order does protect the interests of the lessors by giving them the ability to seek a reduction in the extension without imposing on them the burden of showing cause. As noted by the Bankruptcy Court, "the landlord doesn't have to show cause for relief from the [extension] Order. The landlord has to file a piece of paper that would require the Debtor to show case for an extension." (Mot. For Leave to Appeal, Ex. C at 31.)
In the hearing transcript, the Bankruptcy Court also discussed the differences between Macy Co. and In re Child World, 146 B.R. 89 (S.D.N.Y. 1992), a ruling prior to the one cited by the Lessors. The Bankruptcy Court similarly concluded that the circumstances in Macy Co. were significantly different from those here.
Even if a party fails to establish that a controlling question of law is at issue over which there is a substantial ground for difference of opinion, leave to appeal may be granted if the proceeding involves an "exceptional circumstance" justifying immediate review. See Escondido Mission Village L.P., 137 B.R. at 117. No such exceptional circumstances exist here. The transcript of the proceedings confirms that this is not a case where the Bankruptcy Judge failed to weigh certain factors properly, see Escondido, 137 B.R. at 117, or a case where the landlord's interests were compromised, see Macy Co., 1992 WL 3222888.
The landlords argue that their interests are compromised because the Bankruptcy Court's order provided that they could not seek a new hearing until "after the passage of a reasonable period of time." However, this provision, which the Court added to the order submitted by the parties, was no more than a practical reminder that the Court was unlikely to change a recently considered ruling until sufficient time had passed to justify the expectation that there would be some change of circumstances. If the landlords make a motion for a hearing before the Bankruptcy Court and it is denied because a reasonable time has not passed, this may well present the exceptional circumstances that would justify an interlocutory appeal.
In sum, this Court in Macy Co. granted an interlocutory appeal because the order appealed from placed an undue burden on the landlords if they sought a modification of the order extending to confirmation the debtor's time to assume or reject its leases. Thus, without an interlocutory appeal the landlords in Macy Co. would have had no way to vindicate their rights. Here, on the other hand, where the Bankruptcy Court found that there were factors present that justified an extension of the Debtor's time to assume or reject its leases, it was far more practical for the Bankruptcy Court to say to the Landlords that, rather than fix some arbitrary date for the extension, it would grant the landlords the right to come back at any reasonable time and request a hearing on the issue with the burden being on the Debtor to justify a further extension.
Judge Broderick's observation in In re Child World, Inc., 147 B.R. 854, 855 (S.D.N.Y. 1992) is apt here:
[A]ppellants' position would appear to require the Bankruptcy Court in all cases to maintain a revolving calendar of interim extensions which would have to be updated repeatedly in a lengthy Chapter 11 proceeding even if the landlords involved did not request an earlier election by the debtor concerning the leases. The creation of a mandatory administrative squirrel cage should not be mandated on a per se basis by means of this appeal, markedly bereft of any individualized — even unproven — claims of individualized prejudice to any of the appellants.
For the foregoing reasons leave to appeal from the Bankruptcy Court's order is denied.
SO ORDERED.