Opinion
Civ. No. 03-1082 (DRD), Bankruptcy Case No. 02-38465 (DHS).
April 23, 2003
Richard L. Zucker, Esq., Lasser Hochman, L.L.C., Roseland, NJ, Attorney for Appellant Levin Properties L.P.
Nancy Isaacson, Esq., Michele Coleman Huresky, Esq., Goldstein, Lem Isaacson, P.C., Springfield, NJ, Attorneys for Debtor/Appellee Lens Lab of Paramus, Inc.
OPINION
Appellant Levin Properties ("Levin") has appealed from certain portions of a January 31, 2003 order of the Bankruptcy Court, and Debtor/Appellant Lens Lab of Paramus, Inc. ("Lens Lab") has moved to dismiss Levin's appeal on the grounds that the challenged portions of the order are all interlocutory and are therefore not appealable as a matter of right under 28 U.S.C. § 158(a). Lens Lab also argues that leave to appeal from the challenged portions of the order (also available under § 158 (a)) should not be granted. For the reasons stated below, Lens Lab's motion to dismiss the appeal will be granted in part and denied in part.
BACKGROUND
Lens Lab has, since 1998, operated an eyeglass services business on premises (the "Premises") located in Paramus, New Jersey, and owned by Levin. The Premises are subject to a lease between Eyeglass Services Industries, Inc. ("ESI") as tenant and Levin as landlord. Lens Lab occupies the Premises under a sublease between it and ESI. On August 20, 2001, Levin purportedly terminated its lease agreement with ESI and the tenancy created by that agreement, citing grounds including non-payment of rent, an improper (according to Levin) sublease to Lens Lab, and the operation of a business on the premises under an unapproved name. On August 27, 2001 Levin sued in New Jersey Superior Court seeking, among other things, possession of the Premises. Following discovery, Levin filed a motion for partial summary judgment on the issue of possession. On August 1, 2002, the day before the return date of the motion, Lens Lab filed a bankruptcy petition pursuant to 11 U.S.C. § 301.
While recognizing that the bankruptcy Petition stayed all proceedings as to Lens Lab, the state court nevertheless proceeded to decide the motion for partial summary judgment with respect to ESI, declaring that Levin had properly terminated its lease. The state court's judgment is embodied in an August 2, 2002 advisory opinion and in an August 30, 2002 order. The state court did not order any relief directly affecting Lens Lab. Lens Lab remains in possession of the Premises, has continued to pay rent post-Petition, and continues to operate a business on the premises.
On October 7, 2002 Levin moved before the Bankruptcy Court for immediate possession of the Premises on two grounds: (1) that its August 2001 termination of ESI's lease had effectively terminated ESI's and therefore Lens Lab's rights to possession and (2) that, even assuming that the termination had not been effective, Lens Lab had failed to assume its sublease with ESI within 60 days of its bankruptcy petition, so that the sublease was deemed rejected under 11 U.S.C. § 365.
On November 27, 2002, Lens Lab cross moved for an order declaring that Levin violated the automatic stay, that the state court order purporting to determine ESI's and Levin's rights to the Premises was void ab initio, and that the debtor assumed its sublease. Lens Lab also cross moved for sanctions against Levin.
On January, 31, 2003, the Bankruptcy Court issued the order that is, in part, challenged on the present appeal. Paragraph 1 of the order denied Levin's motion for immediate possession without prejudice. Paragraph 2 declared that the state court's August 2, 2002 advisory opinion and August 30, 2002 order were void ab initio. Paragraph 3 stated that the "Debtor's interest in the premises leased by ESI from Levin and subleased by Debtor . . . is property of the estate pursuant to 11 U.S.C. § 541 and subject to protection by 11 U.S.C. § 362(a)" (imposing the automatic stay); paragraph 3 also noted that Levin reserved its right to seek a determination that ESI's lease had been terminated in August of 2001. It is these three paragraphs of the January 31 order that Levin has appealed. The order also postponed the determination whether sanctions against Levin were appropriate for violation of the stay; it required Lens Lab to file a motion either for approval of a new sublease with ESI or for a determination that ESI had waived automatic rejection of the existing sublease; and it required Lens Lab to file an adversary proceeding to determine the "nature, extent, and validity" of its interest in the Premises.
Lens Lab has since initiated the adversary proceeding, and it has filed the required motion for approval of a new sublease with ESI. That motion was granted, over Levin's objection, on February 4, 2003.
DISCUSSION
Pursuant to 28 U.S.C.A. § 158(a), district courts have jurisdiction to hear appeals from final judgments or orders of bankruptcy courts. Appeals from interlocutory orders of a bankruptcy court may be heard with leave of the court. As the following discussion demonstrates, the Bankruptcy Court's denial of Levin's motion for immediate possession (in ¶ 1 of its January 31 order) is a non-appealable interlocutory order, and it does not possess that attributes that would justify leave to appeal. On the other hand, paragraph 2 of the January 31 order, in which the Bankruptcy Court declared the August 2 and August 30 state court orders void ab initio, is a final orders for the purposes of § 158, as is paragraph 3, the Bankruptcy Court's declaration that Lens Lab's interest in the Premises is property of the estate for the purposes of the automatic stay.
I. Standards
A. Finality
Ordinarily in civil litigation only those orders that dispose of all issues as to all parties to the case are considered final. In re Prof'l Ins. Mgmt., 285 F.3d 268, 279 (3d Cir. 2002) (citing In re Meyertech Corp., 831 F.2d 410, 414 (3d Cir. 1987). The Court of Appeals has however prescribed a more relaxed approach to finality in bankruptcy cases, balancing a practical approach with the "traditional antipathy toward piecemeal appeals," Prof'l Ins. Mgmt., 285 F.3d at 279:
We interpret finality pragmatically in bankruptcy cases because these proceedings often are protracted and involve numerous parties with different claims. To delay resolution of discrete claims until after final approval of a reorganization plan, for example, would waste time and resources, particularly if the appeal resulted in reversal of a bankruptcy court order necessitating re-appraisal of the entire plan.In re White Beauty View, 841 F.2d 524, 526 (3d Cir. 1988).
In Meyertech the Court of Appeals provided factors guiding the determination whether a bankruptcy court order is final for the purposes of § 158(a):
Our jurisdiction is properly invoked by balancing a general reluctance to expand traditional interpretations regarding finality and a desire to effectuate a practical termination of the matter before us. Factors to evaluate in this weighing process are the impact upon the assets of the bankrupt estate, the necessity for further fact-finding on remand, the preclusive effects of our decision on the merits on further litigation, and whether the interest of judicial economy would be furthered.Meyertech, 831 F.2d at 414. Significantly for the present discussion, the finality determination also involves the application of traditional concepts of finality to discrete disputes within a larger bankruptcy case: a decision is less likely to be deemed final if it does not conclude a particular adversary proceeding — or at least represent a final resolution of the particular issue on which appeal is sought. See White Beauty, 841 F.2d at 526 (noting that "the general antipathy toward piecemeal appeals still prevails in individual adversary actions" and that "in assessing the finality of a bankruptcy court order adjudicating a specific adversary proceeding, we apply the same concepts of appealability as those used in general civil litigation"); United States v. Nicolet, Inc., 857 F.2d 202, 206-207 (3d Cir. 1988) ("We caution, as we have on other occasions, that even in bankruptcy appeals the concept of finality is not open-ended. Orders that do not fully adjudicate a specific adversary proceeding or that require further factual development are governed by the ordinary finality precepts of routine civil litigation."); 1 Collier on Bankruptcy ¶ 5.07 (Alan N. Resnick Henry J. Sommer eds., 15th ed. rev. 2003) ("In sum, for a bankruptcy court order to be final within the meaning of § 158(d), the order need not resolve all the issues raised by the bankruptcy; but it must completely resolve all of the issues pertaining to a discrete claim, including issues as to proper relief." (quoting In re Integrated Res., Inc., 3 F.3d 49, 53 (2d Cir. 1993))); Prof'l Ins. Mgmt., 285 F.3d at 282 (deeming an order appealable where "no effect or impact [of the decision appealed] would change as a result" of the Bankruptcy Court's future disposition of remaining disputes between the parties); but see F/S Airlease II, Inc. v. Simon, 844 F.2d 99, 104-105 (3d Cir. 1988) (noting that a district court's remand of a portion of a bankruptcy court's order on appeal did not prevent the Court of Appeals from hearing appeal on a discrete issue decided below).
B. Leave to Appeal
Section 158 does not provide standards for granting leave to appeal. But courts have looked for guidance to the standards for interlocutory appeals set forth in 28 U.S.C. § 1292(b). See, e.g., In re Bertoli, 58 B.R. 992, 995 (D.N.J. 1986), aff'd, 812 F.2d 136 (3d Cir. 1987). Section 1292 provides,
When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals . . . may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after the entry of the order. . . .28 U.S.C. § 1292(b).
II. The Denial of Levin's Motion for Immediate Possession
C. Finality
Paragraph 1 of the January 31 order, in which the Bankruptcy Court denied without prejudice Levin's motion for immediate possession, is by its terms not a final disposition of — or even an attempt to address — the merits of Levin's claim to possession; accordingly, it is in no sense a final and appealable order under § 158. The Bankruptcy Court has deferred to the adversary proceeding any determination of the validity of Levin's purported termination of ESI's lease. Although it advanced arguments on the merits of Levin's motion, Lens Lab argued in its papers that an adversary proceeding is the appropriate means to determine rights to the Premises, and the Bankruptcy Court agreed. Because Levin's motion was dismissed without prejudice, Levin may presumably offer the identical arguments in support of its claim to possession once the record has been developed to the satisfaction of the Bankruptcy Court in the adversary proceeding. Because the Bankruptcy Court's order contemplates, indeed prescribes, that the issues surrounding rights to the Premises will be revisited, it does not represent a final resolution of even one discrete dispute, and it cannot be considered final even according to the flexible notions of finality that prevail in bankruptcy cases.
This discussion should not be construed as expressing any opinion on issues that may arise in connection with the adversary proceeding, such as abstention or the participation of ESI. For present purposes the only important consideration is that the Bankruptcy Court has postponed any decision on the merits of Levin's motion.
Given the practical and functional nature of the finality analysis, the fact that the Bankruptcy Court postponed its consideration of Levin's position to a separate proceeding within the bankruptcy case, effectively folding the consideration of Levin's motion into the anticipated adversary proceeding, is not a compelling factor in the finality analysis.
It is questionable that the application of Meyertech's finality criteria is even necessary where the challenged order does not decide even one identifiable legal issue. But in any event the application of these criteria predictably confirms that the Bankruptcy Court's denial of Levin's motion is interlocutory. Most notably, the Bankruptcy Court's order has no final or irremediable effect on the ultimate fate of the Premises. Affirmance would, and reversal might, require remand to the bankruptcy court: even a reversal of the Bankruptcy Court's decision to postpone consideration of the merits of Levin's motion would not necessarily lead immediately to a final determination of rights to the premises, as an analysis of the merits might very well yield the conclusion that additional factual development is required. Similarly the preclusive effect of a decision on appeal is uncertain: an affirmance of the Bankruptcy Court's decision would of course have no preclusive effect on future proceedings on the merits of Levin's claims, and reversal might result in remand for further factual development. Finally, the interests of judicial economy would not be served by appeal. The chance that a final determination of rights to the Premises (in Levin's favor) could be made on appeal (sparing the Bankruptcy Court what would apparently be a relatively simple adversary proceeding) is at least offset by the risk of duplicative appeals.
Impact on the assets of the estate is the most important of the four factors. See Meyertech, 831 F.2d at 414.
Levin notes that one prong of its claim for possession (based on Lens Lab's alleged failure to assume its sublease in a timely fashion) will not be addressed in the adversary proceeding, and Levin suggests that the Bankruptcy Court's order thus represents a final determination of at least one issue affecting possession of the Premises. For several reasons, Levin's argument on this point does not, however, undermine the conclusion that the order denying its motion was interlocutory. First, the fact that the assumption issue is not to be contested in the adversary proceeding does not imply that it was decided on the merits by the Bankruptcy Court. The Bankruptcy Court could, and apparently did, postpone consideration of the issue without requiring that it be determined in the adversary proceeding. Second, even if the Bankruptcy Court had resolved the assumption issue against Levin, the fact that Levin could yet obtain possession of the Premises on another theory in later proceedings would prevent any such decision from being regarded as final for the purposes of appeal. Finally, and most significantly, Levin's claim that it is entitled to possession because of Lens Lab's failure to assume its sublease was rendered moot when Lens Lab and ESI entered into a new sublease with the approval of the Bankruptcy Court (over Levin's objection). If ESI's lease with Levin was never validly terminated, Levin was at no point entitled to possession of the premises as against ESI, and ESI could presumably enter into a new sublease with Lens Lab, entitling Lens Lab to continued possession of the premises.
B. Leave to Appeal
The order denying Levin's motion for possession is similarly not one for which leave to appeal is warranted. The Bankruptcy Court did not purport to decide the merits of Levin's claim. Instead, it made an essentially procedural determination that Lens Lab should be permitted to develop the facts surrounding the termination in an adversary proceeding. This decision is ultimately an exercise of the Bankruptcy Court's authority to manage the progress of the case. Because Levin has identified no controlling question of law the resolution of which might require a different approach to deciding rights to possession of the premises, no interlocutory appeal is warranted.
III. The Voiding of the State Court Determinations of Rights to the Premises and the Determination that Lens Lab's Interest in the Premises is Property of the Estate
A. Finality
The remaining provisions of the Bankruptcy Court order that Levin challenges on appeal (paragraphs 2 and 3 of the January 31 order) are final decisions on the issues they address. The Bankruptcy Court declared the state court's determination of rights to the Premises was void ab initio, and it determined that Lens Lab's interest in the Premises is property of the estate for the purposes of the automatic stay. These two decisions by the Bankruptcy Court are of course related: the state court's decisions were void because they violated the stay, and they violated the stay because Lens Lab's interest in the Premises was property of the estate and because the state court actions represented an "act to obtain possession of property of the estate or of property from the estate." 11 U.S.C. § 362(a)(3).
These determinations are final orders for the purposes of this Court's appellate jurisdiction. The Bankruptcy Court's decision that the August state court orders violated the automatic stay and were therefore void ab initio conclusively deprives Levin of the benefit of the state court adjudication of the validity of the lease termination, and it requires Levin to relitigate that validity of the ESI lease. The Bankruptcy Court's decision that Lens Lab's interest in the Premises is property of the estate and protected by the automatic stay is also final in the sense that it conclusively brings Lens Lab's interest within the scope of the stay. In this sense it is roughly analogous to decisions denying relief from the automatic stay, which are frequently, though not categorically, appealable.See, e.g., In re Cont'l Airlines, Inc., et al., 932 F.2d 282, 285 (3d Cir. 1991) (noting that an order denying relief from the automatic stay is generally appealable); In re Swedeland Dev. Group, Inc., 16 F.3d 552, 559 (3d Cir. 1994) (citing John Hancock Mut. Life Ins. Co. v. Route 37 Bus. Park Assocs., 987 F.2d 154, 157 (3d Cir. 1993); In re West Elecs. Inc., 852 F.2d 79, 82 (3d Cir. 1988)); In re Eagle Enters., Inc., 265 B.R. 671, 677 (E.D. Pa. 2001) (noting that "denials of relief from an automatic stay are not considered final appealable decisions per se" but also noting that "a decision that the moving party was not entitled to relief on the merits is considered a final, appealable decision.").
Paragraph 2 of the Bankruptcy Court order could be read to imply a determination that Levin violated the stay by seeking the state court adjudication with respect to ESI. To the extent that paragraph 2 thereby provides a basis for sanctions, it is not a final order — because the Bankruptcy Court has yet to impose any sanctions.
Levin suggests that in concluding that Lens Lab's interest was property of the estate for the purposes of the automatic stay the Bankruptcy Court decided that Levin's termination of ESI's lease was ineffective. But the Bankruptcy Court's order expressly reserves such a decision; and the legal position articulated by the Bankruptcy Court in connection with its decision is one that would permit it to classify Lens Lab's interest as property of the estate for the purposes of the stay (and stay violations) without deciding whether ESI actually held a valid lease. The Bankruptcy Court cited In re Atlantic Business and Community Corp., 901 F.2d 325 (3d Cir. 1990), for the proposition that a mere possessory interest in property (in that case under a tenancy at sufferance that was purportedly terminated post-petition) is sufficient to be afforded the protection of the automatic stay. The Bankruptcy Court thus applied a legal standard under which it could grant Lens Lab's motion without determining whether ESI's lease was validly terminated: the Bankruptcy Court determined that Lens Lab's interest was property of the estate for the purposes of the stay, and that the state court's actions were void as violations of the stay; but it did not thereby arrive at a final disposition with respect to the Premises.
It might reasonably be argued that mere possession unconnected to any colorable claim of a right to such possession would not be covered by the automatic stay. Cf. In re St. Clair, 251 B.R. 660 (D.N.J. 2000). But even given such an assumption, it would be possible to conclude that Lens Lab had a protected interest without deciding it had a valid sublease. The fact that Lens Lab was engaged in a non-frivolous dispute over the validity of Levin's termination of the ESI lease might be enough to bring its interest within the scope of the stay.
In United States v. Pelullo, 178 F.3d 196, 200-201 (3d Cir. 1999), the Court of Appeals stated flatly in dicta that "lifting the automatic stay and a denial of relief from the stay are appealable"; but it cited United States v. Nicolet, Inc., 857 F.2d 202 (3d Cir. 1988), which stated only that denials of stay relief may be appealable.
In addition, an examination of the recommended factors governing the finality analysis favors the conclusion that paragraphs 2 and 3 of the January 31 order are appealable. First, their effect on the assets of the estate is considerable. The voiding of the state court adjudication of ESI's rights to the Premises clears the way for the adversary proceeding: if the state court determinations are not void as violations of the automatic stay, then the Rooker-Feldman doctrine presumably deprives the Bankruptcy Court of jurisdiction to re-examine the validity of ESI's lease, which was addressed by the state court.See In re Wilson, 116 F.3d 87, 89 (3d Cir. 1997). Without the Bankruptcy Court's January 31 order voiding them, the state court decisions control the disposition of the Premises. Second, additional fact finding after the resolution of this appeal is possible but not inevitable. An affirmance would of course be followed by further proceedings regarding rights to the Premises; a reversal might require fact finding on remand. Third, the preclusive effect of any decision on the merits is potentially very far reaching. If reversal ultimately permits the state court decisions to stand, then the fate of the Premises will be controlled by the state court's ruling that Levin validly terminated ESI's lease. Fourth, the ends of judicial economy are at least potentially served by an appeal of these orders at this time. A determination (either immediately on appeal or on remand) that the state court orders were not void would effectively decide rights to the Premises and eliminate the need to relitigate the issues that the state court decisions purported to resolve.
If, for instance, it is decided that the Bankruptcy Court applied too generous a standard in affording Lens Lab's interest the protection of the stay, fact finding might be required to establish whether Lens Lab's interest was sufficiently weighty to be protected under a less favorable standard.
B. Leave to Appeal
Substantially because of considerations already discussed with respect to finality, leave to appeal is also warranted with respect to the Bankruptcy Court's decision to void the state court judgment — and with respect to its decision that Lens Lab's interest in the premises is property of the estate protected by the automatic stay. A determination whether Lens Lab's interest in the Premises is subject to the stay would remove any need to relitigate rights to the Premises. An appeal thus holds out the possibility of substantially hastening the termination the litigation.