Opinion
Case No. 4:04 CV 2195.
February 21, 2006
MEMORANDUM OPINION AND ORDER
The above captioned appeal arises from two orders of the United States Bankruptcy Court Northern District of Ohio (J. Kay Woods) (the "Bankruptcy Court") — one granting Appellee, Hasler Inc. ("Hasler") relief from the automatic stay placed on a sales contract, the other denying the motions of Appellant, Intelligent Mailing Solutions, Inc. ("IMS" or "Debtor") to enforce the same automatic stay and for an expedited hearing. I. BACKGROUND
Unless otherwise noted, the facts are derived solely from the Bankruptcy Court's Docket and Memorandum Opinion. See (Dkt. #1, attachment 2 ("Bankruptcy Docket") and attachment 3 ("Memorandum Opinion")).
IMS is in the business of selling, installing, and servicing electronic mailing systems, postage meters, and other mail-room equipment for customers throughout Northeast Ohio and parts of Pennsylvania and Michigan. Hasler is a manufacturer and distributor of electronic mailing systems, postage meters, and other mail-room equipment. On July 1, 1997, Hasler and IMS entered into a contract (the "Dealer Sales Agreement") whereby IMS became a Hasler dealer. As a Hasler dealer, IMS sold, installed and serviced Hasler's products. The Dealer Sales Agreement established the terms of IMS's rights and obligations as an authorized Hasler dealer, including the duration of the contract and the procedure for terminating such contract.
The Dealer Sales Agreement stipulated that the contract would automatically renew for an additional one year terms if neither party gave at least 90 days notice prior to the July 1st anniversary date of its intention not to renew. The Dealer Sales Agreement automatically renewed for subsequent one year terms through the year ending June 30, 2003.
On March 18, 2003, one hundred and five (105) days prior to the July 1st anniversary date, Hasler informed IMS via letter that it wished to extend the term of the contract from July 1, 2003 to December 31, 2003. Hasler and IMS, thus, continued to work together after the July 1st anniversary date. Then, in a letter dated October 22, 2003, Hasler informed IMS it intended to extend the term of the contract from December 31, 2003 to March 31, 2004 and thereafter cease business relations. In a subsequent letter dated February 26, 2004, Hasler reconfirmed that its and IMS's business relations would cease and listed April 1, 2004 as the effective date of the transition from IMS to a new dealer.
On March 29, 2004 (the "Petition Date"), IMS filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. IMS remains in possession of its assets and operates its business as a debtor-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
Unless otherwise noted, all statutory section references are to Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code").
On April 14, 2004, Hasler filed a motion for relief from the automatic stay ("Relief from Stay Motion") placed on IMS pursuant to section 362 of the Bankruptcy Code. See (Bankr. Dkt. #23). On April 26, IMS filed a response as well as a motion to assume the Dealer Sales Agreement. See (Bankr. Dkt. #31; Bankr. Dkt. #32). On May 12, 2004, the Bankruptcy Court conducted a hearing on the Relief from Stay Motion. See (Transcript of May 12, 2004 Hearing ("Transcript")). During the hearing, IMS argued to the Bankruptcy Court that it intended to assume the Dealer Sales Agreement in its bankruptcy case. See (Id.). The Bankruptcy Court determined that there was a "threshold question" as to whether IMS had a right to assume a contract containing a provision providing for termination upon 90 days' notice. (Id). The Bankruptcy Court then ordered the parties to brief the identified legal issue and postponed holding an evidentiary hearing on the matter until resolution of the briefed legal issue. See (Transcript at 11). The parties filed their respective briefs on May 21, 2004. See (Bankr. Dkt. #70).
On June 28, 2004, IMS began an Adversary Proceeding against Hasler. See (Adversary Proceeding No. 04-4121). After instituting the Adversary Proceeding, IMS filed a Supplemental Objection to the Relief from Stay Motion, arguing that Hasler's Relief from Stay Motion should be denied pending resolution of the Adversary Proceeding. See (Bankr. Dkt. #84). Subsequently, on July 12, 2004, IMS filed a Motion to Enforce the Automatic Stay ("Motion to Enforce the Stay"). See (Bankr. Dkt. #87). IMS also filed a Motion for an Expedited Hearing on the Motion to Enforce the Stay ("Motion for Expedited Hearing"). See (Bankr. Dkt. #88).
On August 2, 2004 the Bankruptcy Court issued a memorandum opinion finding that the Dealer Sales Agreement had terminated on its own terms and that modification of the automatic stay was not necessary to terminate the contract. The Bankruptcy Court specifically determined that Hasler's letter dated March 18, 2003 served as proper notice — more than 90 days — of its intent not to renew the Dealer Sales Agreement. The Bankruptcy Court also determined that Hasler's letter dated October 22, 2003 extended the contract until March 31, 2004 after which the contract would terminate. The Bankruptcy Court, thus, concluded the Dealer Sales Agreement terminated according to its own terms on March 31, 2004, before IMS moved to assume the contract on April 26. Accordingly, at the time Hasler made its motion to assume, there was no contract for it to assume or reject.
The Bankruptcy Court granted Hasler's Relief from Stay Motion, noting, however, that its finding rendered Hasler's Relief from Stay Motion unnecessary. The Bankruptcy Court also denied IMS's Motion to Enforce the Stay because, due to the specific termination date, the contract was not property of the estate at the time of filing. Finally, the Bankruptcy Court further found that resolution of this threshold legal issue — termination of the Dealer Sales Agreement — obviated the need to hold an evidentiary hearing on the matter and, therefore, also denied IMS's Motion for an Expedited Hearing.
IMS appeals the two orders the Bankruptcy Court (1) granting Hasler's Motion for Relief from the Automatic Stay and (2) denying IMS's Motion to Enforce the Stay and Motion for Expedited Hearing.
II. ISSUES BEFORE THE COURT
The Court must first determine the precise issues being appealed.
Bankruptcy Rules 8006 and 8010 address the proper presentation of issues and arguments on appeal. Rule 8006 requires that "the appellant file with the clerk and serve on the appellee a designation of the items to be included in the record on appeal and a statement of the issues to be presented." BANKR. R.P. 8006. Rule 8010 requires that the appellant's opening brief contain inter alia "a statement of the issues presented" and an argument containing "the contentions of the appellant with respect to the issues presented, and the reasons therefor, with citations to the authorities, statutes and parts of the record relied on." BANKR. R.P. 8010(a)(1).
In accordance with these rules IMS listed the following issues in its Rule 8006 statement:
(1) Whether the Bankruptcy Court erred in denying IMS's Motion to Enforce the Stay.
(2) Whether the Bankruptcy Court erred in granting Hasler's Relief from Stay Motion.
(3) Whether the Bankruptcy Court erred in failing to allow IMS to present evidence in opposition to Hasler's Relief from Stay Motion.
(4) Whether the Bankruptcy Court erred in determining that Hasler properly terminated the Dealer Sales Agreement before the bankruptcy petition date.See (Designation of Items to Be Included In the Record On Appeal and Statement Of Issues To Be presented On Appeal Pursuant To Bankruptcy Rule 8006 ("Rule 8006 Designation")). In it's opening brief, pursuant to Rule 8010, IMS listed the following issues:
(5) Whether the Bankruptcy Court erred in finding that Hasler properly terminated the Dealer Sales Agreement.
(6)(a) Whether the Bankruptcy Court abused its discretion in failing to conduct an evidentiary hearing.
(6)(b) Whether the Bankruptcy Court abused its discretion in failing to hold in abeyance determination of the Relief from Stay Motion pending resolution of the Adversary Proceeding.
(7) Whether the Bankruptcy Court erred in stating that resolution of the Relief from Stay Motion and Motion to Enforce the Stay may impact resolution of the Adversary Proceeding.See (Appellant's Brief at 4). Additionally, IMS's opening brief, in the body of its argument, presents a final issue:
The presented issues in IMS's opening brief are enumerated (1), (2), and (3). See (Appellant's Brief at 4). For the convenience of analysis, the Court shall refer to them as issues (5), (6) and (7), respectively.
The second issue listed among the presented issues in IMS's opening brief combines two issues. In order to facilitate analysis of the issues before the Court, the substance of the second listed issue (presently designated, for purposes of this opinion, as issue (6)) is divided into parts (a) and (b).
(8) Whether IMS is collaterally estopped from arguing in the Adversary Proceeding that Hasler's purported pre-petition termination of the Dealer Sales Agreement was invalid.See (Appellant's Brief at 6, 16-17).
Hasler argues that issues 6(b), (7) and (8) are issues not preserved for appeal because they were not included in IMS's Rule 8006 statement, and also because they are raised for the first time in IMS's opening brief.
No decisions within the Sixth Circuit have addressed the wavier of issues regarding Rule 8006, but the Fifth Circuit has adopted a strict rule that "[e]ven if an issue is argued in the bankruptcy court and ruled on by that court, it is not preserved for appeal under Bankruptcy Rule 8006 unless the appellant includes the issue in its statement of issues on appeal."Zimmerman v. Jenkins (In re GGM, P.C.), 165 F.3d 1026, 1031-32 (5th Cir. 1999); see Energrey Enter., Inc. v. Oak Creek Energy Systems, Inc., 119 B.R. In re Pine Mountain, Ltd, 80 B.R. 171 (9th Cir.BAP 1987). But see In re Cohoes Indus. Terminal, Inc., 90 B.R. 67, 70 (S.D.N.Y. 1988) (considering issue although appellant failed to raise same issue in his Rule 8006 statement).
The Eleventh Circuit, however, applies a more flexible rule: "An issue that is not listed pursuant to [Rule 8006] and is not inferable from the issues that are listed is deemed waived and will not be considered on appeal." Snap-On Tools, Inc. v. Freeman (In re Freeman), 956 F.2d 252, 255 (11th Cir. 1992). And the Third Circuit, when considering the failure to specify an issue in a Rule 8006 statement, addressed both compliance with Rule 8006 as well as compliance with the briefing requirements of Rule 8010.See In re Trans World Airlines, Inc., 145 F.3d 124, 132 (3d Cir. 1998) (finding that in addition to failing to specify the issue in a Rule 8006 statement appellant failed to comply with Rule 8010 by making scant references to the issue within the opening brief and by failing to specify whether the bankruptcy court had discussed the issue to any extent). Cf. Joelson v. Brown (In re: Brown Family Farms), 872 F.2d 139, 141-42 (6th Cir. 1988) ("[U]nder Bankruptcy Rules 8001 and 8010, the district court could, within its discretion, deem [an issue] waived if it believed that the issues as presented and argued in the [appellate] brief did not effectively contest the [underlying determinations of the bankruptcy court].").
The Court is more inclined to adopt the flexible rule applied within the Eleventh Circuit. "Thus, as long as an issue is inferable, then Rule 8006 `is not intended to bind either party to the appeal as to the issues that are to be presented.'" In re Bracewell, 322 B.R. 698, 701-02 (M.D. Ga. 2005) (quoting In re Cohoes, 90 B.R. at 70). Circumstances useful in determining whether an issue not listed in a Rule 8006 statement is inferable include: whether the issue was raised in the bankruptcy court (because an appellate court generally will not consider issues not adjudicated below); whether the issue requires the court to make any independent factual findings; and whether the issue presents unfair surprise to the other litigant. See id. at 702.
The Court finds that issues 6(b), (7) and (8) are not issues properly before this Court. First, issues 6(b), (7) and (8) are not specified in IMS's Rule 8006 statement. Second, the argument devoted to these issues in IMS's opening brief bears little relevance to the underlying bankruptcy decision, which fails to address these issues. See id; Matter of Glen Properties, 168 B.R. 537 (D.N.J. 1993) (finding passing remark by debtor during oral argument in bankruptcy court regarding estoppel was not sufficient to preserve issue for appellate review, where estoppel point was not argued or ruled on by bankruptcy court).
The underlying opinion did not address issue (6)(b) — whether the Bankruptcy Court abused its discretion in failing to hold in abeyance determination of the stay motion pending resolution of the adversary proceeding. Issue (6)(b) is essentially an alternative argument made by IMS in a belated supplemental objection to Hasler's Motion for Relief from Stay. Other than listing issue (6)(b) as a heading, IMS makes no argument regarding the issue. Instead, arguments presented under the issue (6)(b) heading regard the propriety of holding an evidentiary hearing. Thus, as issue (6)(b) is not listed in the Rule 8006 statement and the body of IMS's brief presents no arguments supporting the issue, and, further, since the Bankruptcy Court below did not address the issue, the Court finds issue (6)(b) is not an issue properly before the Court.
The underlying opinion also fails to address issues (7) and (8). Issues (7) and (8) — whether the Bankruptcy Court erred in stating that resolution of the Stay Motion and Motion to Enforce may impact resolution of the Adversary Proceeding and whether IMS is collaterally estopped from arguing in the Adversary Proceeding that Hasler's purported pre-petition termination of the Dealer Sales Agreement was invalid — were not before the Bankruptcy Court as a part of the proceedings from which IMS appeals. Instead, they were raised in a discreet adversary proceeding filed by IMS on June 28, 2004 (the "Adversary Proceeding"). The two orders from which IMS appeals make no rulings on the Adversary Proceeding and contain no rulings or determinations as to the status of the Adversary Proceeding or the impact of the Bankruptcy Court's orders on the Adversary Proceeding. Thus, issues (7) and (8) are not justiciable issues that can be raised on appeal because they fail to appeal a "judgment, order or decree of a bankruptcy judge." See FED. R. BANKR. P. 8001. Even if issues (7) and (8) could be considered properly appealed issues, IMS has failed to designate pleadings from the Adversary Proceedings as items to be included in the record for this appeal. It is not the duty of the Court to develop IMS's arguments for it, find the legal authority to support those arguments, or guess as to the contents of the record. See Morrissey v. Stuteville (In re Morrissey), 349 F.3d 1187, 1189 (9th Cir. 2003). Finally, any determination by the Court regarding the Adversary Proceeding is simply beyond the scope of the Court's review of the Bankruptcy Court's decision, and therefore, highly inappropriate. See Kaplan v. First Options of Chicago Inc., 189 B.R. 882, 889 n. 9 (E.D. Pa. 1995).
The last paragraph of the Bankruptcy Court's memorandum opinion states: "Debtor filed an adversary proceeding . . . against three parties, including Hasler, on June 28, 2004. Resolution of these motions may impact, but this order does not directly address, Debtor's adversary proceeding." IMS argues this "ruling" by the Bankruptcy Court is in error. This statement, however, is not a ruling but is dictum and explicitly emphasizes that issues in the adversary proceeding are not issues presently before the Bankruptcy Court.
The proper issues before the Court are Issues (1) through (6)(a). Listed issues (1) through (6)(a) address, essentially two points of alleged error:
(I) Whether the Bankruptcy Court erred in determining that Hasler properly terminated the Dealer Sales Agreement, see Issues (1), (2), (4), and (5); and
(II) Whether the Bankruptcy Court erred in failing to conduct an evidentiary hearing, see Issues (1), (2), (3), and (6)(a).
Both these points of error are addressed in IMS's Rule 8006 statement, are discussed and ruled on by the Bankruptcy Court in the underlying opinion, and are fully briefed and argued in IMS's opening brief. See Bracewell, 322 B.R. at 702. Consequently, these two points of error are properly appealable issues before the Court, and the Court shall address them accordingly.
Hasler makes an additional argument that IMS has waived its arguments regarding issues (1) and (2) — whether the Bankruptcy Court erred in denying the motion of IMS to enforce the automatic stay and whether the Bankruptcy Court erred in granting the motion of Hasler for relief from the automatic stay — because IMS's opening brief fails to brief these issues. See BANKR. R.P. 8010; In re RBGSC Inv. Corp., 253 B.R. 369, 374 (E.D. Pa. 2000) (quoting Trans World, 145 F.3d at 132) ("`[A] district court may, in its discretion, deem an argument waived if it is not presented in accordance with Rule 8010.'"). The Court finds that issues (1) and (2) encompass issues (3), (4), (5) and (6)(a). Therefore, to the extent issues (1) and (2) address the arguments made in support of the two identified, properly appealed points of error, issues (1) and (2) are not waived.
III. STANDARD OF REVIEW
A district court reviews the a bankruptcy court's conclusions of law de novo and upholds its findings of fact unless they are clearly erroneous. See In re 255 Park Plaza Assocs. Ltd. P'ship, 100 F.3d 1214, 1216 (6th Cir. 1996). A bankruptcy court's findings of fact are not clearly erroneous unless there is the "most cogent evidence of mistake of justice." In re Baker Getty Fin. Servs., 106 F.3d 1255, 1259 (6th Cir. 1997).
IV. LAW AND ANALYSIS
The Bankruptcy Court's memorandum opinion identifies and addresses the threshold legal issue of "whether a debtor has the right to assume a contract that is set to terminate according to its terms." The Bankruptcy Court determined that, based on the language in the March 18, 2003 letter, the Dealer Sales Agreement was not automatically renewed at the end of June 2003. Next, the Bankruptcy Court determined that if there was any contract binding on the parties at the time of IMS's filing of bankruptcy, based on the October 22, 2003 letter, such a contract only extended until March 31, 2004. IMS argued to the Bankruptcy Court that the contract nonetheless remained an executory contract, which it had an absolute right to assume pursuant to section 365(a) of the Bankruptcy Code. See 11 U.S.C. § 365(a) (A debtor, "subject to the court's approval, may assume or reject any executory contract or unexpired lease."). The Bankruptcy Court, therefore, evaluated whether the Dealer Sales Agreement was an executory contract, and concluded there existed no material unperformed obligations on either side of the contract and that, therefore, the Dealer Sales Agreement was not an executory contract. See Chattanooga Memorial park v. Still (In re Jolly), 547 F.2d 349, 446 (6th Cir. 1978). The Bankruptcy Court, thus, determined that IMS could not assume or reject the Dealer Sales Agreement pursuant to section 365(a) because it was not an executory contract on the Petition Date. See In re Level Propane Gases, Inc., 297 B.R. 503, 507 (Bankr. N.D. Ohio 2003).
The Court finds that the Bankruptcy Court's analysis is both thorough and correct. Indeed, IMS, in this appeal, does not challenge the Bankruptcy Court's analysis of the threshold legal issue. Instead, IMS contends the Bankruptcy Court erred in designating as the threshold issue: "whether a debtor has the right to assume a contract that is set to terminate according to its terms." IMS asserts this was not the pertinent issue before the Bankruptcy Court and argues that the initial question before the Bankruptcy Court was whether Hasler had cause to terminate the Dealer Sales Agreement. IMS contends that the Bankruptcy Court erred by failing to address IMS's allegations that Hasler acted in bad faith in terminating the Dealer Sales Agreement and also erred by failing to hear evidence regarding these bad faith allegations. The Court disagrees.
First, the Court finds that the Bankruptcy Court satisfied the Bankruptcy Code requirements for granting a hearing. The Bankruptcy Code provides that a court shall grant relief from an automatic stay "after notice and a hearing." See 11 U.S.C. § 362(d). The Bankruptcy Code defines "after notice and a hearing" as "after such notice is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances." 11 U.S.C. § 102(1)(A) (emphasis added). Thus, the Bankruptcy Code does not require a full blown evidentiary hearing. It is sufficient that the parties be afforded a full opportunity to present their objections and their arguments to the bankruptcy court. See Vonderache v. Polaniecki, 276 B.R. 856 (S.D. Ohio 2001) (finding a status conference to be sufficient for purposes of a hearing on a motion under § 363(b) to sell property of a debtor's estate).
Moreover, the Bankruptcy Code emphasizes the "particular circumstances" surrounding a hearing. In this case, the particular circumstances concern a hearing, held by the Bankruptcy Court during which the Bankruptcy Court determined that a threshold legal issue existed, resolution of which would likely obviate the need for a full evidentiary hearing. See (Transcript). Considering these "particular circumstances" and the numerous pleadings filed by IMS in support of the stay and in seeking to assume the contract, the Bankruptcy Court adequately satisfied the Bankruptcy Code requirements for notice and a hearing. See 11. U.S.C. § 102(1)(A); Vonderache 276 B.R. at 856. Under the particular circumstances before the Bankruptcy Court, no full evidentiary hearing was necessary.
Second, IMS argues that the Bankruptcy Court ignored the issue of whether Hasler had cause to terminate the Dealer Sales Agreement, specifically, whether Hasler acted in bad faith. The Bankruptcy Court, however, in considering the threshold issue of whether the Dealer Sales Agreement was terminated had no cause to examine issues of bad faith because termination of the Dealer Sales Agreement was clear from the face of the contract. It is well established under applicable Ohio law that where a contract is clear and unambiguous, its interpretation is a matter of law and there is no issue of fact to be determined. Alexander v. Buckeye Pipe Line Co., 374 N.E. 2d 146, 150, 53 Ohio St. 2d 241, 246 (1978). Only where a term cannot be determined from the four corners of a contract, are factual determinations of intent, reasonableness, or bad faith necessary to supply the missing term. Davis v. Loopco Industries, Inc., 609 N.E. 2d 144, 145, 66 Ohio St. 3d 64, 66 (1993); Inland Refuse Transfer Co. v. Browning-Ferris Industries of Ohio, Inc., 474 N.E. 2d 271, 272, 15 Ohio St. 3d 321, 322 (1984).
The terms of the Dealer Sales Agreement are clear and unambiguous. The contract provided for termination upon 90 days' notice. Hasler gave sufficient notice. Accordingly, there is no need to go beyond the four corners of the agreement to determine the appropriateness of Hasler's termination. More importantly, the clarity of this provision precludes this Court and the Bankruptcy Court from doing so. See Davis, 609 N.E. 2d at 145.
V. CONCLUSION
For the foregoing reasons, the Court concludes that the Bankruptcy Court did not err in determining that Hasler terminated the Dealer Sales Agreement, nor did the Bankruptcy Court err in failing to conduct a full evidentiary hearing. Accordingly, IMS has failed to identify a legally cognizable error committed by the Bankruptcy Court. The Bankruptcy Court's judgment, therefore, is AFFIRMED.
IT IS SO ORDERED.