In Re: Rickel Home ( 2000 )

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit
4-6-2000
In Re: Rickel Home
Precedential or Non-Precedential:
Docket 98-7181
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"In Re: Rickel Home" (2000). 2000 Decisions. Paper 73.
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Filed April 6, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 98-7181
IN RE: RICKEL HOME CENTERS, INC.,
Debtor
L.R.S.C. CO.,
Appellant
v.
RICKEL HOME CENTERS, INC.; STAPLES, INC.
On Appeal from the United States District Court
for the District of Delaware
(D.C. Civ. No. 96-cv-00026)
District Judge: Hon. Joseph J. Farnan, Jr.
Argued September 7, 1999
Before: SLOVITER and ROTH, Circuit Judges, and
POGUE, Judge, United States Court of International Trade*
(Filed: April 6, 2000)
Robert E. Gerber
Fried, Frank, Harris, Shriver
& Jacobson
New York, NY 10004
_________________________________________________________________
* Hon. Donald C. Pogue, Judge, sitting by designation.
Brendan L. Shannon
Young, Conaway, Stargatt & Taylor
Wilmington, DE 19899-0391
Attorneys for Rickel Home
Centers, Inc.
Barry W. Frost (Argued)
David A. Martin
Teich, Groh & Frost
Trenton, NJ 08619
Allan R. Plapinger
L.R.S.C. Co.
Lawrenceville, NJ 08648-4099
Attorneys for L.R.S.C. Co.
Norman L. Pernick
Saul, Ewing, Remick & Saul
Wilmington, DE 19899
Patrick Dinardo (Argued)
Gayle P. Ehrlich
Maria Carroll Furlong
Sullivan & Worcester
Boston, MA 02109
Attorneys for Staples, Inc.
OPINION OF THE COURT
SLOVITER, Circuit Judge.
L.R.S.C. Co. ("LRSC") appeals an order of the United
States District Court for the District of Delaware that
authorized the assignment of its lease with debtor Rickel
Home Centers, Inc. to Staples, Inc., both of which are
appellees, and that struck from that lease a provision
limiting the tenant's use of the premises to a "Channel
Home Center." The principal issue on appeal is whether
LRSC's failure to obtain a stay of the order has rendered its
appeal moot. If not, we must consider LRSC's various
challenges on their merits.
2
I.
LRSC is the landlord of a shopping center in Lawrence
Township, New Jersey (the "Lawrence center"). The
Lawrence center contains a variety of tenants including,
inter alia, stores that sell furniture, music and electronics
items, clothing, shoes, and auto parts, as well as
restaurants and banks. The center also contains three
anchor stores. One is a Burlington Coat Factory. Another is
an Acme supermarket. The third was formerly operated by
Rickel, the debtor, as a home improvement store. Rickel is
the successor in interest to Channel Companies, Inc.
(Channel), which had a lease from LRSC for premises
covering approximately 38,000 square feet of retail space
("the Lease"). The Lawrence center premises had been used
as a home improvement store since 1976 in accordance
with a use provision contained in Article 10 of the Lease,
which provides:
Use
ART. 10. Tenant may use the Premises as a Channel
Home Center similar in operation to a majority of the
Channel Home Centers then in operation in New
Jersey, and except as provided herein, for no other
purpose. . . . Notwithstanding anything to the contrary
contained in this Article 10, provided Tenant has
complied with the provisions of Article 15B hereof
[which effectively requires the landlord's consent], any
non-"Successor" or non-"Affiliate" (as defined in Article
15A) assignee or sublessee of Tenant may use and
operate the Premises for any lawful retail purpose,
subject to the restrictions contained in Article 15B
hereof.
Addendum to Appellant's Br. at 1.
Article 10 references Article 15 of the Lease, which
provides, inter alia, (1) that the tenant may assign or
sublease any portion of the premises to a successor entity
-- one resulting from the consolidation, merger, or transfer
of substantially all of the tenant's assets -- without
providing notice to or obtaining the consent of LRSC, and
(2) that LRSC may terminate the Lease upon an assignment
or sublease of more than 80 percent of the premises by the
3
tenant to any non-successor entity:1 The original term of
the Lease was for fifteen years with three five-year options
to renew. One option was exercised by Channel on January
29, 1991. Its successor Rickel sought to renew for another
five years on January 29, 1996 although the Lease was
apparently in default at that time. However, on January 10,
1996 Rickel had filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code. It remained in
possession and continued its retail operations as debtor-in-
possession.
_________________________________________________________________
1. The relevant language is as follows:
"Assigning, Mortgaging, Subletting
ART. 15A. Tenant shall have the right, without Landlords [sic]
consent and without any requirement to notify Landlord as provided
in B below, to (A) assign its interest as tenant under this Lease
or
sublet any portion of the Demised Premises at any time or times to
(i) a successor person, firm or corporation resulting from
consolidation, merger or from transfer of substantially all of
Tenant's
assets, (herein referred to as "Successor") . . . .
B.1. Tenant may assign this Lease, or sublet or underlet part or
or [sic] all of the Demised Premises.
2. Notwithstanding the foregoing, Tenant shall notify Landlord
at least thirty (30) days prior to the effective date of any
assignment [or subletting of more than 80 percent of the
premises] of this Lease to any non-Affiliate or non-Successor
. . . . Landlord shall then have the option of terminating this
Lease . . . .
3. Notwithstanding the provisions of subsection 1 above,
Tenant shall notify Landlord . . . of any subletting to any
non-Affiliate or non-Successor of less than eighty (80%)
percent of the Demised Premises . . . . Landlord shall then
have the option of taking back the portion(s) of the Premises
proposed to be sublet . . . .
4. Any assignment . . . pursuant to the provisions of
subsections B1, 2 or 3 above, shall prohibit the use of the
Premises by such assignee or sublessee for any use which
is on the date of execution of this Lease or at the time of
such assignment or sublease the principal use of any tenant
located in the Shopping Center. . . .
Addendum to Appellant's Br. at 2-4.
4
On December 10, 1996, LRSC filed a motion in the
Bankruptcy Court seeking an order (1) compelling Rickel to
assume or reject the Lease prior to the March 6, 1997
deadline established by the court for the assumption or
rejection of non-residential real property leases and (2)
declaring void Rickel's prior exercise of its option to renew
the Lease for another term. The parties subsequently
entered into a stipulation in which Rickel agreed tofile a
motion to assume or reject the Lease on or before February
18, 1997 and LRSC agreed that Rickel had effectively
exercised its option to extend the Lease until January 31,
2002. Rickel did move to assume the Lease on February 18,
1997. The Bankruptcy Court granted that motion and
directed Rickel to pay almost $18,000 to cure its default.
After settling the dispute with LRSC, Rickel continued to
operate as debtor-in-possession and attempted to
reorganize its operations. It subsequently concluded that it
would be unable successfully to reorganize and determined
to wind up its operations and liquidate its retail store
inventories and remaining assets. On October 24, 1997, the
Bankruptcy Court entered an order granting Rickel's
motion to liquidate its inventory and sell its furniture,
fixtures, equipment, and other personal property (FF&E).
The inventory was subsequently sold in a bulk sale.
Thereafter, the leases to which Rickel was a party were its
most substantial remaining assets.
Rickel hired a broker to market the leases and received
numerous offers. Among them was one from Staples to
purchase a package of forty-one leases, including the
Lawrence center Lease, for $35.5 million. The offer allowed
the purchaser to assign its rights to any nominee, although
Rickel and Staples anticipated that any such nominee
would be a Staples affiliate and would operate a Staples
office superstore on the premises. Staples planned to
occupy 24,000 of the 38,000 square feet of the Lawrence
center premises as a Staples store and to sublet the
balance.
On February 12, 1998, Rickel sought court approval for
its proposed transaction with Staples. Specifically, Rickel
moved for an order authorizing it "to sell 41 of its leases
[including the Lawrence Lease] to Staples (or its nominee)
5
. . . ."2 Rickel also sought to invalidate various provisions
contained in some or all of the leases, including terms
"providing in substance that the premises may be used only
for a ``Rickel' or ``Channel' store[,] . .. . only for a ``Home
Center' store or for the sale of goods typically sold therein[,
or terms] . . . . conditioning assignment on landlord
consent . . . ."3
LRSC objected, arguing, inter alia, that these lease
provisions were integral to the bargain it had struck with
Rickel and also that by seeking to excise or waive these
terms Rickel was attempting to renege on the parties' prior
stipulation allowing Rickel to assume the Lease and extend
it for another term. On February 26, 1998, the District
Court withdrew the reference to the Bankruptcy Court and
held hearings relating to the proposed transaction on
February 26, March 3, and March 4, 1998.
On March 6, 1998, the court granted Rickel's motion.
The court determined that due to changes in the home
improvement industry "the market for [home improvement
centers] is either non-existent or in dire straits, [and that]
such use restrictions would make it impossible . . . to
assign the Lawrence Lease . . . ." In re Rickel Home Centers,
Inc., 240 B.R. 826, 832 (D. Del. 1998). The court based this
finding on the proffer of testimony by Joseph Nusim,
president and chief executive officer of Rickel, that the four
home center chains that formerly operated in New Jersey
were out of business or no longer operating in that state, a
pattern apparently typical in the home center industry.
Supp. App. at 128-29. Nusim's proffered testimony would
have described the negative impact of large-scale home
improvement centers like Home Depot on smaller home
improvement centers like Rickel. Supp. App. at 129-30. The
court also noted that LRSC did not contest this proffer and
that LRSC's intended use for the Lawrence center premises,
which involved dividing the premises into a series of smaller
stores catering to specific home improvement needs,
_________________________________________________________________
2. See Motion for an Order Authorizing Debtor to Assume (Where
Applicable) & Sell & Assign Nonresidential Real Property Leases at 2
(Docket # 1275) (hereafter "Motion to Sell & Assign").
3. Id. at 15.
6
actually supported Rickel's claim that there were no
potential buyers who could comply with the use restriction.
The District Court therefore held that the Article 10 use
provision amounted to a de-facto prohibition on assignment
and permanently excised the use provision from the Lease.
The court also determined that the leases in the Staples
transaction constituted 96 percent of Rickel's assets and
that, as a result, Staples qualified as a "successor" under
Article 15A of the Lease. This holding relieved Rickel of the
need to notify LRSC of or obtain its consent to the
assignment to Staples. The court did not excise the
assignment provisions from the Lease and, in fact, held
that "once the leases have been assigned to Staples . . .
Staples will be subjected to all the provisions of the leases
for purposes of their subletting efforts." In re Rickel, 240
B.R. at 837.
Purporting to act under sections 363, 365(a) and 365(f) of
the Bankruptcy Code, the District Court granted Rickel's
request to "sell 41 of its leases to Staples . . . and to
assume (where applicable) and assign the selected leases
that Staples desires to have assigned to it . . . ." Id. at 828.
Furthermore, the court determined that Staples and its
nominee would receive the protection of section 363(m) of
the Bankruptcy Code, which protects good faith purchasers
or lessees of property of the bankruptcy estate from the
effects of a reversal or modification on appeal of the
authorization to sell or lease the property, if the appellant
fails to obtain a stay. The court specifically found that
Staples was a good faith purchaser under this section, see
District Court Order at 4 (Addendum to Appellant's Br. at
19), a finding that LRSC does not contest. The court finally
held that it would retain jurisdiction over certain
subsequent disputes. The court did not specify the period
for which it would retain jurisdiction, but the current term
of the Lease expires on January 31, 2002.4
_________________________________________________________________
4. Although LRSC agreed to extend the Lease through January 31, 2002
when it settled its dispute with Rickel, it contends in its brief that the
Lease has "in excess of eight years to run . . . ." Appellant's Br. at 24.
LRSC did not explain this discrepancy but we assume LRSC included
five years from the remaining option to renew the Lease.
7
LRSC appealed but did not attempt to obtain a stay of
the District Court's order. On appeal, it challenges several
aspects of the District Court's order of March 6, 1998: it
objects to the excision of the use provision, contends that
the court erred by "altering the assignment provisions" of
the Lease, Appellant's Br. at 18, challenges the court's
decision to authorize a sale of the leases under section 363
of the Bankruptcy Code and to permit Staples to invoke the
protections of the section 363(m) stay provision, and
challenges the court's decision to retain jurisdiction to
resolve disputes between it and Staples. In addition, LRSC
challenges the procedure by which the court resolved
factual disputes, arguing that the District Court erred in
allowing the assignment of the Lease without direct
testimony but based only upon proffers of evidence. 5
Of course, Staples and Rickel defend the District Court's
decision. They argue, inter alia, that the court properly
excised the use provision, that it did not alter or excise the
Article 15 assignment provision,6 and that, regardless of the
appropriateness of the procedure adopted by the District
_________________________________________________________________
5. Under the procedure adopted by the District Court, Staples and Rickel
were permitted to present evidence by proffer or by live witness
testimony pertinent to the transfer of all 41 leases. Individual landlords
were then permitted to respond "with an objection specific to their
property," App. at 45, and could present evidence in support of that
objection by proffer or by witness testimony, App. at 45-46. Each
landlord, however, was limited to 15 minutes in which to present its
objection. App. at 44, 46. It is not clear whether the 15 minute limit
applied only to the objecting landlords or to the initial presentation by
Staples and Rickel as well. Although the court apparently required each
witness whose testimony was proffered to be present during the proffer,
LRSC contends that it was denied the opportunity to cross-examine
these potential witnesses. In lieu of cross-examination, the court
permitted the attorneys for each side to ask questions of opposing
counsel. App. at 58-61.
6. The District Court specifically found that"the assignment and
subletting provisions are not facially unreasonable. Therefore, once
Staples assumes the Lawrence Lease, Staples will be required to abide
by these provisions." In re Rickel, 240 B.R. at 837. In response to our
questioning at oral argument, counsel for Staples conceded that Staples
would be bound by these provisions with respect to any attempt to
assign the Lease or sublet the remaining 14,000 square feet.
8
Court, Rickel failed to proffer any evidence that created a
dispute with respect to any material issue of fact.
Additionally, Appellees argue that this appeal is mooted by
section 363(m) of the Code and that, in the alternative, the
appeal is equitably moot because events occurring after the
District Court's decision prevent our granting effective
relief. In their joint brief, Staples and Rickel assert that the
transaction between them closed on or about April 1, 1998,
that Staples has been in possession of the Lawrence center
premises for almost seven months [now approximately
twenty-four months], that a Staples store opened for
business on August 1, 1998, and that Staples has spent
over $900,000 in leasehold improvements to the premises.
They append to the joint brief a photograph of the Staples
storefront. LRSC has contested our ability to take notice of
these facts, but it did not contest their accuracy either in
its brief or at argument.
II.
Because this is an appeal from a district court exercising
original jurisdiction in bankruptcy, our jurisdiction stems
from 28 U.S.C. S 1291 rather than 28 U.S.C.S 158(d). See
In re Marvel Entertainment Group, Inc., 140 F.3d 463, 470
(3d Cir. 1998). We exercise plenary review over the District
Court's legal conclusions but will reverse findings of fact
only if clearly erroneous. See id.
III.
We begin by briefly discussing the pertinent Bankruptcy
Code sections.
A.
111 U.S.C. S 363
Section 363 permits the trustee, after notice and a
hearing, to use, sell, or lease property of the estate outside
of the ordinary course of business. 11 U.S.C. S 363(b)(1).
For our purposes, Rickel, as debtor-in-possession, had the
authority to exercise the same powers as the trustee. 11
9
U.S.C. S 1107(a); 11 U.S.C. S 1108; see also In re C&S Grain
Co., Inc., 47 F.3d 233, 237 n.2 (7th Cir. 1995). 7 "Property of
the estate" includes, inter alia, "all legal or equitable
interests of the debtor in property as of the commencement
of the case." 11 U.S.C. S 541(a)(1). As the legislative history
makes clear, "[t]he scope of this paragraph is broad. It
includes all kinds of property, including tangible or
intangible property, causes of action . . . . [and] also
includes ``title' to property, which is an interest, just as are
a possessory interest, or leasehold interest, for example."
H.R. Rep. No. 95-595, at 367 (1977), reprinted in 1978
U.S.C.C.A.N. 5963, 6323; S. Rep. No. 95-989, at 82 (1978),
reprinted in 1978 U.S.C.C.A.N. 5785, 5868. Whether the
debtor has an interest in property under section 541 is
determined according to state law. See Krebs Chrysler-
Plymouth, Inc. v. Valley Motors, Inc., 141 F.3d 490, 497 (3d
Cir. 1998).
Significantly, section 363(m) also provides that:
[t]he reversal or modification on appeal of an
authorization under subsection (b) . . . of a sale or
lease of property does not affect the validity of a sale or
lease under such authorization to an entity that
purchased or leased such property in good faith,
whether or not such entity knew of the pendency of the
appeal, unless such authorization and such sale or
lease were stayed pending appeal.
11 U.S.C. S 363(m).
We have referred to section 363(m) as a "statutory
mootness" provision. See Krebs, 141 F.3d at 497. In
construing section 363(m), we have rejected a per se rule
"mooting appeals absent a stay of the sale or lease at
issue," id. at 498, and instead require that two conditions
be met before an appeal becomes moot under section
363(m): (1) the underlying sale or lease must not have been
stayed pending appeal, and (2) reversing or modifying the
authorization to sell or lease would affect the validity of the
sale or lease, see id. at 499; see also In re Lloyd, 37 F.3d
_________________________________________________________________
7. For that reason, we will use the terms trustee and debtor-in-
possession interchangeably throughout this opinion.
10
271, 273 (7th Cir. 1994) (although S 363(m) prevented court
from annulling sale of land, appeal not moot where trustee
had not disbursed sale proceeds and debtor asserted right
to recover from proceeds).
B.
111 U.S.C. S 365
Section 365 enables the trustee to maximize the value of
the debtor's estate by assuming executory contracts and
unexpired leases that benefit the estate and rejecting those
that do not. 11 U.S.C. S 365(a); see also Stewart Title Guar.
Co. v. Old Republic Nat'l Title Ins. Co., 83 F.3d 735, 741
(5th Cir. 1996) (section 365 "allows a trustee to relieve the
bankruptcy estate of burdensome agreements which have
not been completely performed"); see generally 2 Norton
Bankruptcy Law & Practice 2d S 39:1 (William L. Norton,
Jr. ed., 1997) [hereafter "Norton"].
Because executory contracts and unexpired leases
involve a continuing relationship between the debtor and
other parties, section 365 "gives special treatment to rights
and liabilities flowing from these contracts and leases." Id.
S 39:1, at 39-6. If there has been a default in an executory
contract or unexpired lease, the trustee may not assume it
until the trustee: (1) cures or provides adequate assurance
that it will promptly cure the default; (2) compensates or
provides adequate assurance of prompt future
compensation for actual pecuniary loss resulting from the
default; and (3) provides adequate assurance of future
performance under the contract or lease. 11 U.S.C.
S 365(b)(1)(A), (B), (C). Once the trustee satisfies these
requirements it may assume the contract or lease, but it
must do so in its entirety. See Stewart Title Guar. Co., 83
F.3d at 741.
The Code, however, prevents enforcement of so-called
ipso facto clauses that trigger a default upon a bankruptcy
filing or upon "events or conditions that are likely to occur
or exist around the time that a case is commenced." 3
Collier on Bankruptcy P 365.05[4] (Lawrence P. King ed.,
15th ed. 1999). To that end, the requirements of section
11
365(b)(1) do not apply to defaults triggered by provisions
relating to the insolvency or financial condition of the
debtor, the commencement of a Chapter 11 case, or the
appointment of a trustee in the case or a custodian before
the case. 11 U.S.C. S 365(b)(2); see also 11 U.S.C.
S 365(e)(1) (contract or lease may not be terminated or
modified after commencement of case notwithstanding ipso
facto clause, or applicable law, permitting such
termination).
Shopping center landlords, even more than other non-
debtor parties to executory contracts and unexpired leases,
receive "extraordinary protection" under the Code. Collier,
supra, P 365.02, at 365-17; see also In re Goldblatt Bros.
Inc., 766 F.2d 1136, 1140 (7th Cir. 1985) (referring to
"special protections available to shopping center
landlords"). The right to assume a defaulted lease of real
property in a shopping center, as with any executory
contract or unexpired lease, is conditioned upon the
trustee's provision of adequate assurance of future
performance.
Section 365(b)(3), however, imposes a heightened
standard for "adequate assurance of future performance" in
shopping center leases. That standard requires adequate
assurance:
(A) of the source of rent and other consideration due
under such lease, and in the case of an
assignment, that the financial condition and
operating performance of the proposed assignee
. . . shall be similar to [that of] the debtor. . . .;
(B) that any percentage rent due . . . will not decline
substantially;
(C) that assumption or assignment of such lease is
subject to all the provisions thereof, including (but
not limited to) provisions such as a radius,
location, use, or exclusivity provision, and will not
breach any such provision contained in any other
[agreement] relating to such shopping center; and
(D) that assumption or assignment . . . will not
disrupt any tenant mix or balance . . . .
12
11 U.S.C. S 365(b)(3).8
Having assumed an executory contract or unexpired
lease, the trustee may elect to assign it. The Code generally
favors free assignability as a means to maximize the value
of the debtor's estate and, to that end, allows the trustee to
assign notwithstanding a provision in the contract or lease,
or applicable law, prohibiting, restricting, or conditioning
assignment. 11 U.S.C. S 365(f)(1); see also In re
Headquarters Dodge, Inc., 13 F.3d 674, 682 (3d Cir. 1994)
(S 365(f)(1) prevents anti-alienation and other clauses from
defeating trustee's "ability to realize the full value of the
debtor's assets"). Likewise, the Code prohibits the
termination or modification of executory contracts or
unexpired leases notwithstanding lease or contract
provisions or applicable law that permit termination or
modification because of assignment of the lease. 11 U.S.C.
S 365(f)(3).
The trustee may assign an executory contract or
unexpired lease only if (A) it assumes the contract or lease
in accordance with section 365 and (B) there is adequate
assurance of future performance by the assignee. 11 U.S.C.
S 365(f)(2). This assurance is necessary to protect the rights
of the non-debtor party to the contract or lease, because
assignment relieves the trustee and the estate from liability
_________________________________________________________________
8. The pre-1984 definition of adequate assurance of future performance
with respect to leased property in shopping centers included, inter alia,
assurance that the assumption or assignment would not "breach
substantially" any radius, location, use, or exclusivity provision in any
other lease, financing agreement, or master agreement and would not
"disrupt substantially" any tenant mix or balance. 11 U.S.C.
S 365(b)(3)(C), (D) (1982) (amended 1984).
The 1984 amendments to the Bankruptcy Code, effective with respect
to cases filed 90 days after July 10, 1984, imposed "a more restrictive
view . . . in connection with radius, location, or use clauses in shopping
center leases." Norton S 39:46, at 39-133. The amendments made
assumption and assignment of shopping center leases expressly subject
to all provisions of the lease being assigned, including use clauses, 11
U.S.C. S 365(b)(3)(C), and also deleted the"substantiality" standard from
S 365(b)(3)(C), which requires adherence to other agreements affecting
shopping centers, and from S 365(b)(3)(D), which requires that
assumption or assignment not disrupt any tenant mix or balance.
13
arising from a post-assignment breach. 11 U.S.C.S 365(k);
Wainer v. A.J. Equities, Ltd., 984 F.2d 679, 683 (5th Cir.
1993) (per curiam). Where the leased premises are in a
shopping center, the assignee must meet the heightened
definition of adequate assurance of future performance in
section 365(b)(3) to ensure that "[t]he essential terms of a
debtor's lease in a shopping center [are] not . . . changed in
order to facilitate assignment." Norton, supra, S 39:46, at
39-133.
IV.
We consider at the outset the contention of the Appellees
that this appeal is now moot because the completed
transaction is protected from reversal or modification under
section 363(m) unless it was stayed pending appeal. LRSC
argues that it was not required to obtain a stay under
section 363(m), and relies primarily on our decision in In re
Joshua Slocum, Ltd., 922 F.2d 1081(3d Cir. 1991). Rickel
and Staples, citing our later decision in Krebs , 141 F.3d
490, respond that Slocum is inapplicable and, in the
alternative, that even if section 363(m) were inapplicable,
this appeal is nonetheless barred by the doctrine of
equitable mootness. We address these issues first, as only
if we find that this appeal is not moot will we reach the
merits of LRSC's appeal. Id. at 1084-85.
A.
LRSC's argument that the appeal is not moot
notwithstanding its failure to obtain a stay stems from its
contention that section 363(m) is inapplicable, that the
transaction between Rickel and Staples was the assignment
of a lease, and that the District Court erred in
characterizing the assignment as a sale. Unlike section 363,
which applies to the use, sale or lease of property, section
365, which applies to the assignment of a lease, does not
contain a statutory mootness provision. LRSC thus states,
"[s]ince Congress did not provide for the sale of executory
contracts or unexpired leases [in section 365], . . . the
transaction between the Debtor and Staples is, in fact, an
assignment of a lease and not a sale [under section 363]."
14
Appellant's Br. at 22. Although LRSC does not elaborate
much beyond this, its argument has some facial
plausibility. However, ultimately it is not persuasive.
This court's most recent consideration of this issue was
in connection with an executory contract in Krebs Chrysler-
Plymouth, Inc. v. Valley Motors, Inc., 141 F.3d 490 (3d Cir.
1998). Unexpired leases, like executory contracts, are
included in the definition of "property of the estate" under
section 541. See id. at 497 (franchise agreement was
executory contract and property of the estate); In re Arizona
Appetito's Stores, Inc., 893 F.2d 216, 218 (9th Cir. 1990)
(leasehold interest is property of the estate if debtor is
lessee at time petition is filed). Section 363(b)(1) authorizes
the sale of such property outside the ordinary course of the
debtor's business. Arguably, then, executory contracts and
unexpired leases may be sold pursuant to section 363 and
the mootness provision of 363(m) would apply to such
sales.
However, section 365, which lacks a mootness provision,
contains specific rules governing the procedure for
assuming, rejecting, and assigning executory contracts and
unexpired leases and provides explicit protections for non-
debtor parties to those contracts, especially shopping center
landlords. LRSC proposes that we hold that only section
365 governs the transfer of executory contracts and
unexpired leases. Cf. Comco Assocs. & SPA 77K L.P. v.
Faraldi Food Indus. Ltd., 170 B.R. 765, 770 (E.D.N.Y. 1994)
(holding lease assignment moot but recognizing that"the
Code has distinct provisions for sales and leases on the one
hand and assignments on the other"). Indeed, LRSC argues
that our decision in Slocum mandates a holding that
section 363(m) does not apply to this case. That argument
fails to take into account the effect of our subsequent
decision in Krebs regarding the scope of section 363(m) and
the effect of the failure to obtain a stay.
In Slocum, the bankruptcy court had authorized the
trustee for the debtor lessee to assume a lease for retail
space, excise an average sales clause allowing either the
lessee or the landlord to terminate the lease if the lessee's
average yearly sales fell below a set amount, and assign the
lease pursuant to section 365. The bankruptcy court
15
viewed the average sales clause as a disguised anti-
assignment provision. The district court affirmed, and the
landlord appealed. This court reversed, holding that the
bankruptcy court had erred in ruling that the landlord's
property was not a shopping center, and that, in light of the
shopping center provisions of the Code, the bankruptcy
court lacked the authority to excise the average sales
clause from the lease.9
Before reaching this issue, we had to consider the
trustee's motion to dismiss the appeal. The trustee argued
that the "principle of finality embodied inS 363(m) . . .
should be applied to assignments under S 365." Slocum,
922 F.2d at 1085. Significantly, the trustee invoked
underlying principles of finality rather than the statute, as
he conceded that section 363(m) "does not apply to
assignments of leases under S 365." Id. Both the majority
and the dissent in Slocum declined to extend section 363(m)
to cover the transaction at issue there.10 The majority noted
that only sections 363(m) and 364(e) of the Code specifically
require a stay pending appeal, and stated "[w]hile S 363(m)
contains a provision requiring a stay, the section that
applies in this case, S 365, does not." Id. The majority held
_________________________________________________________________
9. The majority recognized that the 1984 amendments applied to the
case before it. See Slocum, 922 F.2d at 1086 (discussing 1984
amendments). The debtor had filed for Chapter 11 in November of 1988,
see id. at 1083, and the 1984 amendments were effective with respect to
cases filed 90 days after July 10, 1984, see supra note 8. In analyzing
this issue, however, the Slocum majority quoted the pre-1984 version of
section 365(b)(3) that was no longer in force. See id. at 1086 n.3. Its
subsequent discussion appeared to follow therefrom. For example, the
majority stated that "Congress did not envision literal compliance with
all lease provisions; insubstantial disruptions in, inter alia, tenant
mix,
and insubstantial breaches in other leases or agreements were
contemplated and allowed." Id. at 1090 (citing 11 U.S.C. S 365(b)(3)(C),
(D)); see supra note 8 (discussing how Congress removed the
"substantiality standard" from these sections in 1984). We do not
suggest that this affected the result reached in that case.
10. The dissent, the author of this opinion, relied on "well-established
rules of justiciability" and "the particular need for finality in
bankruptcy"
to find "the appeal of a completed lease assignment to a non-party moot
unless the appellant has sought a stay pending appeal." Slocum, 922
F.2d at 1093 (Sloviter, J., dissenting).
16
that "under the facts of this case [the landlord] was under
no obligation to obtain a stay." Id.
The Slocum majority also rejected the argument that the
appeal was equitably moot. The majority regarded the
landlord's appeal as from the order excising the average
sales clause, as to which effective relief was still possible,
rather than from the assignment of the lease, which had
already taken place in the absence of a stay. See id. at
1086 & n.2. Of relevance to the issue before us, the
majority stated, "[i]f we started our analysis with the
assignment, and not with excisement of [the average sales
clause], we would probably reach the same result[as the
dissent]." Id. at 1086 n.2.
We addressed the issue of mootness under section
363(m) again in Krebs. The debtor, Valley Motors, Inc.
("Valley"), an automobile dealer, had entered into a pre-
petition buy-sell agreement for its interest in a Jeep-Eagle
franchise with Krebs, another automobile dealer. Krebs had
paid the first half of the purchase price due under the buy-
sell agreement, Chrysler had approval of the transfer, and
the parties awaited resolution of protests by competing
dealers when Valley filed for Chapter 11 bankruptcy. After
motions and orders not relevant here, Valley filed three
motions: one to reject the buy-sell agreement with Krebs,
the second to sell all its franchises and other assets to a
third dealer, and the third to assume its three franchise
agreements. The assumption was a prerequisite to the sale
Valley sought in the second motion. The bankruptcy court
granted Valley's motion to reject the buy-sell agreement,
overruled the objection of Krebs and Chrysler to the three
motions, permitted the third dealer to withdraw its offer to
purchase Valley's assets, and held an auction of the three
franchises. Krebs purchased the franchises but refused to
close on the sale. The bankruptcy court ordered it to do so,
and Krebs appealed.
In the portion of our opinion of relevance here, we held
that Krebs's appeal was moot under section 363(m). We
focused on the undisputed status of the underlying
franchises as executory contracts. Id. at 496. We disagreed
with Krebs's contention "that the franchises were assumed
and assigned under section 365, which exclusively governs
17
the rejection, assumption, and assignment of executory
contracts." Id. at 497. We framed the issue as: "whether
section 365 [which does not have a statutory mootness
provision] is the exclusive provision governing the sale of
the franchises or whether the mootness provision in section
363 also covers this situation. In other words, . . . whether
assignments of the franchises under section 365 are also
sales of estate property subject to section 363(m)." Id. at
497.
After noting that section 363(b) permits the trustee to
"use, sell, or lease . . . property of the estate," id.; 11 U.S.C.
S 363(b), which includes "all legal or equitable interests of
the debtor in property as of the commencement of the case,"
id.; 11 U.S.C. S 541(a)(1), we determined that under
Pennsylvania law the franchise agreements "are interests in
property, and as such are property of the estate under
section 541." Krebs, 141 F.3d at 498. We continued,
"[t]herefore, section 363(m) governs the sale of the
franchises here, notwithstanding that section 365 applies to
the particular mechanics of conveyance."11 Id. However, we
eschewed any per se rule that the failure to obtain a stay
of a sale authorized under section 363(b) automatically
mooted an appeal and held instead that section 363(m)
would moot an appeal only when reversal or modification of
the authorization would affect the validity of the sale or
lease. See id. at 499.
Krebs distinguished Slocum on the ground that the
trustee in Slocum never attempted to sell the lease under
section 363, the bankruptcy court never purported to
authorize a section 363 sale, and the parties "conceded that
section 363(m) did not apply in cases where the Trustee
merely assigns a lease under section 365." Id. at 498. Here,
we are faced with the precise facts that Krebs noted were
significant by their absence in Slocum. Rickel specifically
_________________________________________________________________
11. Although the Krebs court did not explain the latter phrase, it appears
that it viewed section 365 as establishing the requirements for
assumption and assignment of executory contracts and unexpired
leases, such as the provision of adequate assurance of future
performance, and that it sought to ensure those requirements could not
be circumvented by the parties' characterization of the transaction as a
sale rather than an assignment.
18
requested authorization to sell the 41 Staples leases, see
Motion to Sell & Assign at 8, and the District Court
explicitly authorized a sale of the leases pursuant to section
363, despite LRSC's contention that section 363 was
inapplicable to this transaction. Although LRSC argues that
the District Court erred in characterizing the transaction as
a "sale" under section 363(m), it does not argue that sales
are not subject to the protection from reversal absent a
stay.
A determination of section 363(m) mootness in the case
before us necessarily follows from our holding and analysis
in Krebs. Rickel's unexpired lease is treated in the
Bankruptcy Code the same as the executory contracts in
Krebs. Both executory contracts and unexpired leases, for
example, are included in the definition of "property of the
estate" contained in section 541.12 Furthermore, executory
contracts and unexpired leases are equally subject to the
requirements for assumption, rejection, and assignment
established by section 365.
We are aware that "[t]he application of CodeS 363 . . . to
executory contracts is not without controversy." Lee R.
Bogdanoff, The Purchase and Sale of Assets in
Reorganization Cases -- of Interest and Principal, of
Principles and Interests, 47 Bus. Law. 1367, 1425 n.215
(1992) (referencing the split in authority regarding whether
a lessor is entitled to adequate protection under section
363(e)). But, given our holding in Krebs that "section
_________________________________________________________________
12. As discussed supra, section 541 defines "property of the estate" to
include, inter alia, "all legal or equitable interests of the debtor in
property [defined by state law] as of the commencement of the case." The
parties do not dispute that a leasehold interest is a property interest
under New Jersey law. Furthermore, section 541 excludes from its
definition of "property of the estate" those interests of the debtor as
lessee of nonresidential real property that have"terminated at the
expiration of the stated term of such lease before the commencement of
the case" and those interests that have "terminated . . . during the
case."
11 U.S.C. S 541(b)(2). These exclusions imply that leasehold interests of
nonresidential real property, like the interest at issue here, are
property
of the estate when they do not terminate before or during the
bankruptcy case. LRSC does not argue that the Lawrence Center Lease
falls within either of these exclusions.
19
363(m) governs the sale of the franchises," whereas "section
365 applies to the particular mechanics of conveyance,"
Krebs, 141 F.3d at 498, we would be creating an
unwarranted distinction between executory contracts and
unexpired leases (whether or not the lease is in a shopping
center) if we were to accept LRSC's argument.
The result reached by Krebs, and that we reach here, is
supported by decisions from other courts of appeals that
treated assignments of leasehold interests as sales of
property under section 363 and applied section 363(m) to
such assignments. For example, in In re Adamson Co. Inc.,
159 F.3d 896 (4th Cir. 1998), the debtor asked the Court of
Appeals for the Fourth Circuit to dismiss for mootness the
landlord's appeal of an order authorizing a sale of most of
the debtor's assets, including the lease to its manufacturing
plant. The landlord argued that it was not required to
obtain a stay because section 365 rather than section 363
governed the assignment of the debtor's unexpired lease.
The court rejected this argument, stating that "[i]t is
elementary that a leasehold is personal property and
possibly of value to the debtor's estate, thus the assignment
of a lease . . . is a sale of property to whichS 363(m)
applies." Id. at 898 (emphasis added).
Likewise, in In re Exennium, Inc., 715 F.2d 1401 (9th Cir.
1983), the court reversed the order of the Bankruptcy
Appellate Panel voiding the sale of real estate leases and
personal property. The Court of Appeals held that an
appeal from an order "permitting the assumption and
assignment of leases" was moot under section 363(m). Id. at
1404.13 Although, unlike this case, the assignments of
_________________________________________________________________
13. The district court in Comco, 170 B.R. 765 (E.D.N.Y. 1994), also
dismissed as moot the landlord's appeal of the assignment of the
debtor's shopping center lease and its remaining assets but differed in
its approach. The court declined to extend section 363(m) to assignments
when the assignment is inextricably linked to a section 363 sale, which
it believed was the view adopted in In Re Stadium Management, 895 F.2d
845 (1st Cir. 1990). The Comco court stated,"[b]esides stretching the
plain language of S 363, this approach does not account for those
situations where there is an assignment without a sale." Comco, 170
B.R. at 770. The court also believed that the Exennium court failed to
20
leases in both Adamson and Exennium were in conjunction
with the sale of all or almost all of the debtors' remaining
assets, Rickel had already disposed of all or almost all of its
remaining assets at the time of the transaction with
Staples. The District Court emphasized that the transfer of
the unexpired leases to Staples involved 96 percent of
Rickel's remaining assets. LRSC proffered no evidence
countering Rickel's proffer supporting this finding, and even
now has not suggested that there is contrary evidence that
it could provide.
These cases reflect the policies of section 363(m)"not
only [to afford] finality to the judgment of the bankruptcy
court, but particularly to give finality to those orders and
judgments upon which third parties rely." In re Abbots
Dairies of Pa., Inc., 788 F.2d 143, 147 (3d Cir. 1986)
(internal quotations omitted). The strength of these policies
is reflected in numerous other decisions of the courts of
appeals rejecting as moot an appeal from an order
authorizing a sale of estate property under section 363
when the transaction has been completed. See, e.g., In re
Sax, 796 F.2d 994, 997-98 (7th Cir. 1986) (sale of yacht
moot despite argument that yacht was not property of the
estate because "[s]ection 363(m) does not say that the sale
must be proper under S 363(b)"); In re Stadium
Management, Inc., 895 F.2d 845, 849 (1st Cir. 1990)
(assignment of sublease as part of sale of stadium moot,
citing Sax with approval); see also Pittsburgh Food &
Beverage, Inc. v. Ranallo, 112 F.3d 645, 650-51 (3d Cir.
1997) (holding that, at least where assets were"colorably
within [the court's] jurisdiction," an appeal from a sale of
assets was moot despite argument that court lacked
jurisdiction over the assets); In re Gilchrist , 891 F.2d 559,
_________________________________________________________________
recognize that although an assignment is a "species of sale, . . . the
Code
has distinct provisions for sales . . . and assignments." Id. at 770.
Instead, the Comco court, expressing concern that the assignees would
not receive exactly what the bankruptcy court ordered if the assignment
were invalidated or the terms of the assignment changed, dismissed the
appeal as moot because "[t]his Court cannot now change the terms of
that transaction without throwing into question the validity of the entire
transaction." Id.
21
561 (5th Cir. 1990) (appeal moot despite argument that
bankruptcy court had no jurisdiction to authorize sale).
The policies undergirding section 363(m) are also
reflected in our cases recognizing "the broader
interpretation of mootness applied in bankruptcy cases,
often referred to as ``equitable mootness.' " In re Continental
Airlines, 91 F.3d 553, 558 (3d Cir. 1996) (en banc)
(citations omitted). This doctrine holds that "[a]n appeal
should . . . be dismissed as moot when, even though
effective relief could conceivably be fashioned,
implementation of that relief would be inequitable." Id. at
559 (quoting In re Chateaugay Corp., 988 F.2d 322, 325 (2d
Cir. 1993)); see also In re Cantwell, 639 F.2d 1050, 1054
(3d Cir. 1981) (appeal from order dissolving stay of debtor's
discharge moot where subsequent order granting discharge
had not been appealed); Markstein v. Massey Assocs., Ltd.,
763 F.2d 1325, 1327 (11th Cir. 1985) (court was powerless
to rescind foreclosure sale on debtor's property where
debtor failed to obtain stay of order permitting foreclosure).14
These mootness principles further the need for finality of
bankruptcy transactions involving third parties and
recognize that "in addition to those situations covered
under 11 U.S.C. S 363(m) and S 364(e), a myriad of
circumstances can occur that would necessitate the grant
of a stay pending appeal in order to preserve a party's
position." In re Highway Truck Drivers & Helpers Local 107,
888 F.2d 293, 298 (3d Cir. 1989) (appeal from grant of
relief from automatic stay moot where state supreme court
order relieved debtor from liability to appellants).
Concededly, the shopping center provisions of section
365(b)(3) of the Code applied to the assignment of the
Lease, and the provisions of the Lease (with the exception
of the excision of the use restriction in Article 10) continue
to apply. For example, at oral argument, Staples conceded
_________________________________________________________________
14. Although we reference the principles underlying equitable mootness,
we do not base our holding on that doctrine which has been used most
frequently in cases where the reorganization has been substantially
consummated. See, e.g., In re Continental Airlines, 91 F.3d 553 (3d Cir.
1996). In light of our precedent in Krebs applying section 363(m), we
need not consider whether equitable mootness could also be relied on as
the basis for our holding.
22
that it could not assign or sublet to an entity that would
violate another tenant's exclusive use or disrupt the tenant
mix in the Lawrence center.
Given the policies underlying section 363(m) and the
series of cases that emphasize the importance of securing
a stay, we are perplexed by LRSC's failure even to request
a stay. Although there was a suggestion from LRSC at oral
argument that the bond required for a stay would have
been costly, it acknowledged it made no attempt to seek
permission for a lower bond. Moreover, it failed to seek a
stay limited to the Lawrence center lease, which might have
substantially reduced the cost of a bond. In short, LRSC
did nothing other than appeal and failed to take steps that
might have minimized the dislocation a reversal of the
assignment would cause the parties at this time.
B.
As we noted in Krebs, "section 363(m) would not moot
every appeal not accompanied by a stay." Krebs, 141 F.3d
at 499. That section only "restrict[s] the results of a reversal
or modification of a bankruptcy court's order authorizing a
sale or lease, if reversal or modification would affect the
validity of the sale or lease." Id. Krebs relied for its analysis
on our earlier opinion in In re Swedeland Dev. Group, Inc.,
16 F.3d 552, 559-63 (3d Cir. 1994) (en banc), where we
examined language in section 364(e) of the Code similar to
section 363(m) about the effect of the appellant's failure to
secure a stay pending an appeal of an authorization to
obtain credit or incur debt or of a grant of priority or a
loan. We reasoned in Swedeland that because section
364(e) limits the consequences of the reversal or
modification of an order entered under section 364, it is not
section 364(e) itself that requires that the appeal be
dismissed. Id. at 559. Instead, the appeal would be moot if
the relief sought would adversely affect "the validity of the
debt incurred . . ." Id. at 560.
Applying that reasoning here, we note that once the
District Court granted Rickel authorization to assume the
Lease and assign it to Staples, the parties completed the
transaction. Staples, relying on that authorization, took
23
possession and expended substantial funds to renovate and
redesign the property to fit its business. Any revocation of
the authorization would necessarily adversely affect the
validity of the assignment. The same is true as to LRSC's
challenge to the District Court's use of evidentiary proffers,
as those proffers underlay the court's order on appeal.
We must consider whether the same is true of the portion
of the District Court's order that excised Article 10 from the
Lease. That decision was based on the District Court's
conclusion that compliance with the use limitation to
establish only a home improvement center was not feasible
as such a market was non-existent. Patently, reversal of the
excision of the use provision as to Staples would adversely
affect the validity of the transfer to it, as it has now been
established as an office supply center, not a home
improvement center.
It is not clear that LRSC argues that the court erred by
striking the use clause with respect to subsequent
assignments or subleases by Staples, rather than arguing
that no assignment at all should have been permitted
without the use provision. See, e.g., Appellant's Br. at 9
("LRSC objects to the . . . assignment made with the
requested deletions . . . ."). In any event, the record
demonstrates that a reversal of the District Court's decision
to permanently strike the use restriction from the Lease
would affect the validity of the assignment to Staples.
Unlike Slocum, where we reversed the bankruptcy court's
order excising an average sales clause from a lease after
finding that the record did not support the trustee's claim
that a reversal would overturn the assignment, and
effectively rescind the lease, see Slocum, 922 F.2d at 1086
n.2,15 Staples argued here that the District Court should
excise the use provision "not just for the purpose of the
_________________________________________________________________
15. This discussion occurred in the Slocum majority's analysis of
equitable mootness, in which the majority responded to the dissent's
argument that its decision would overturn a consummated transaction.
922 F.2d at 1086 n.2. The majority disagreed that its holding would have
so drastic an effect. By contrast, our inquiry under section 363(m) asks
not whether reversal or modification on appeal would rescind the sale
but whether such a decision would "affect the validity of the sale."
Krebs,
141 F.3d at 499; Pittsburgh Food & Beverage, 112 F.3d at 651.
24
assignment to Staples, but permanently, because it
destroys the value of the leasehold to say it can only be
used for a typical Channel Home Improvement Center when
. . . [such a store] doesn't exist anymore." Supp. App. at
134. The District Court accepted this argument based on
proffered testimony by Rickel's CEO that home
improvement centers similar to Rickel had been driven out
of business or were struggling and that Rickel's efforts to
market its leases had generated no interest whatever from
such an entity. Supp. App. at 130. The court further noted
that LRSC had proffered no evidence to rebut Staples's
claim. See In re Rickel, 240 B.R. at 831. We thus need not
decide whether the court erred in striking the use
provision, because this record is sufficient for us to
conclude that applying that provision to future assignments
by Staples would seriously affect the validity of the
transaction. Cf. In re Stadium Management, 895 F.2d at
849 (absent a stay, appeal is moot even though appellate
court would decide issues differently).
Common sense also leads us to conclude that reversal of
the District Court's decision to excise the use provision
would affect the validity of the transaction between Rickel
and Staples. As a result of that transaction, Staples
received a lease that it could assign or sublease in
accordance with various other lease provisions. 16 Were
Staples limited to assigning or subleasing to a Channel
Home Center or to an entity "similar in nature" to a
Channel Home Center, the value of the Lease would be
seriously affected and this would "impact the validity of the
sale." Krebs, 141 F.3d at 499. We have held appeals moot
under section 363(m) where appellant sought lesser forms
of relief, using similar analysis. See, e.g., Pittsburgh Food &
Beverage, 112 F.3d at 649-50 (relief that would
demonstrate sale was flawed, including finding that trustee
and purchaser knew bankruptcy court lacked authority to
_________________________________________________________________
16. Indeed, Article 15B.4. of the Lease, which the District Court did not
excise, requires any assignment or sublease to any non-"Successor" or
non-"Affiliate," as defined in the Lease, to prohibit the use of the
premises "for any use which is on the date of execution of this Lease or
at the time of such assignment or sublease the principal use of any
tenant located in Shopping Center." Addendum to Appellant's Br. at 4.
25
sell assets and finding that sale price was inadequate,
would affect the validity of the sale).
As discussed above, supra note 8, we must recognize the
Bankruptcy Code's requirement that the assumption and
assignment of a shopping center lease be subject to all
provisions of the lease being assigned, including use
clauses. See 11 U.S.C. S 365(b)(3)(C). Nevertheless, because
reversal of the District Court's decision to excise the use
provision would affect the validity of the transaction
between Rickel and Staples, LRSC's appeal on this point,
absent a stay, is moot.
C.
There remains only to consider the provision of the
District Court's order whereby it retained jurisdiction to
resolve disputes involving the Lease, which LRSC requests
us to reverse. We cannot conclude that this issue is moot
because reversal or modification of that order would not
affect the validity of the assignment to Staples.
Nonetheless, we believe this issue is not ripe for review.
In its order, the court purported to retain jurisdiction to
"construe and determine any disputes under this Order or
under the Agreement [between Rickel and Staples]."
Addendum to Appellant's Br. at 29. In its opinion, the court
explained that "should any landlord attempt to enforce a
lease provision in an unreasonable manner, Staples is free
to return to this Court for the appropriate relief. Likewise,
if Staples attempts to unreasonably disregard any
reasonable provision in its efforts to sublet the property,
such that the landlord believes Staples is violatingS 365 of
the Bankruptcy Code, the landlord may also return to this
Court for the appropriate relief." In re Rickel, 240 B.R. at
837. These statements suggest that the court envisioned a
wide variety of future disputes between Staples and LRSC
as falling within its retained jurisdiction.
LRSC interprets the court to have retained jurisdiction
over lease disputes between it and Staples that would have
no impact on the bankruptcy estate and invokes the rule
that "[s]uits between purchasers of property from the estate
and third parties are . . . not encompassed within the
26
bankruptcy jurisdiction of the district courts." Collier,
supra, P 3.01[4][c], at 3-30 n.91; see also In re Hall's Motor
Transit Co., 889 F.2d 520, 522 (3d Cir. 1989) ("The
bankruptcy court's jurisdiction does not follow the property,
but rather, it lapses when the property leaves the debtor's
estate."). Staples and Rickel, by contrast, argue that the
court merely retained jurisdiction to interpret and enforce
its own order.
As neither party is now seeking to invoke the court's
jurisdiction with respect to a particular dispute, a ruling on
the court's jurisdiction in the future would "constitute
nothing more than an advisory opinion based on a
hypothetical scenario." 15 James Wm. Moore et al., Moore's
Federal Practice S 101.75, at 101-152 (Matthew Bender 3d
ed. 1999). The ripeness doctrine "prevent[s] the courts,
through avoidance of premature adjudication, from
entangling themselves in abstract disagreements . . . ."
Abbott Lab. v. Gardner, 387 U.S. 136, 148 (1967); In re
Drexel Burnham Lambert Group, Inc., 995 F.2d 1138, 1146
(2d Cir. 1993). Whether an issue is ripe for review depends
on the "fitness of the issues for judicial decision and the
hardship to the parties of withholding court consideration."
Pacific Gas & Elec. Co. v. State Energy Resources
Conservation & Dev. Comm'n., 461 U.S. 190, 201 (1983);
Pic-A-State PA, Inc. v. Reno, 76 F.3d 1294, 1298 (3d Cir.
1996).
Absent an actual dispute, any opinion we might render
on the appropriateness of district court jurisdiction would
be "an exercise in futility." Step-Saver Data Sys., Inc. v.
Wyse Tech., 912 F.2d 643, 648 (3d Cir. 1990). Indeed, no
dispute may arise, and we are confident that none of the
parties will create one to test the issue. Accordingly, this
issue is not fit for review at this time and the parties have
not shown that they will be subject to hardship if this court
withholds consideration at this time. In any event, if a
dispute arises, it is the District Court that should
determine in the first instance the propriety of its exercise
of jurisdiction in that situation.
V.
For the foregoing reasons, we will dismiss LRSC's appeal
of the District Court's order authorizing the Staples
27
transaction and excising the use provision as moot
pursuant to section 363(m) of the Bankruptcy Code
because reversal or modification of that order would affect
the validity of the assignment. The only portion of LRSC's
appeal that is not moot is its appeal of the District Court's
order retaining jurisdiction over future disputes. That issue,
however, is not ripe for review. We will therefore dismiss
that portion of LRSC's appeal as well.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
28