James Gretter v. Gretter Autoland, Inc.

United States Court of Appeals
For the Eighth Circuit
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No. 16-3490
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In re: Gretter Autoland, Inc.
lllllllllllllllllllllDebtor
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James M. Gretter
lllllllllllllllllllllAppellant
v.
Gretter Autoland, Inc.; General Motors Company; Ford Motor Company; Edwards
Auto Plaza, Inc.
lllllllllllllllllllllAppellees
Robert Schlegel
lllllllllllllllllllllTrustee
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Appeal from United States District Court
for the Southern District of Iowa - Davenport
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Submitted: June 5, 2017
Filed: July 25, 2017
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Before WOLLMAN, ARNOLD, and GRUENDER, Circuit Judges.
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ARNOLD, Circuit Judge.
James Gretter (whom we refer to as "James" to avoid confusion with the
debtors here) appeals the order of the district court1 dismissing his appeal from a
bankruptcy court decision denying the debtors' motions to assume and assign certain
car-dealership agreements. We dismiss the appeal as moot.
This case has a complex factual history. Debtors Gretter Autoland, Inc., Gretter
Ford Mercury, Inc., and Gretter Chevrolet Company filed for Chapter 11 bankruptcy
protection because their car dealerships were experiencing financial woes. The
debtors (who remained in possession) later sought the bankruptcy court's approval of
a sale of the dealerships as going concerns to Edwards Auto Plaza, Inc. The debtors
and Edwards then entered into a purchase agreement governing the sale of the
dealerships and other assets, including the Ford and GM dealership agreements.
Edwards's performance was conditioned on Ford's and GM's consent to the
assignment of the dealership agreements and the bankruptcy court's approval of the
sale. Edwards paid a $75,000 deposit, which was returnable if closing did not occur
by a certain date. The agreement also required Edwards to enter into separate
contracts to purchase two pieces of real property where the dealerships operated.
GM and Ford objected to the sale on the grounds that they had a contractual
right to approve the assignment of the dealership agreements, which neither would
do under the circumstances. The bankruptcy court sustained the objections, ruling that
the dealership agreements could not be assigned without the manufacturers' consent.
The bankruptcy court also reminded the debtors that they could transfer the
dealerships only if they satisfied the requirements of 11 U.S.C. § 365, which governs
1
The Honorable Stephanie M. Rose, United States District Judge for the
Southern District of Iowa.
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the assumption and assignment of executory contracts. Section 365 requires, as
relevant, that debtors in possession cure defaults of an agreement they want to assume
and assign and give "adequate assurance of future performance under" it. See 11
U.S.C. § 365(b)(1)(A), (C). (We note that, by its terms, § 365 mentions trustees and
not debtors in possession, but 11 U.S.C. § 1107(a) bestows on debtors in possession
much of the same powers as the trustee, including the powers specified in § 365. See
In re Wireless Data, Inc., 547 F.3d 484, 488 (2d Cir. 2008) (per curiam)).
The debtors and Edwards responded by amending the purchase agreement to
eliminate the condition governing Ford's and GM's approval of the assignments. They
also added a condition that the bankruptcy court strike language in its previous order
recognizing the manufacturers' rights to approve assignments on the ground that Ford
and GM had no right to object to the assignment under Iowa law. Edwards also
advised the court that it wished to complete the sale as soon as possible because the
debtors could not continue operating much longer, and the deal would likely collapse
if they ceased doing business.
Meanwhile, the debtors took the court's cue and filed motions to assume and
assign the dealership agreements under § 365. The bankruptcy court, however, denied
the motions, finding that the debtors had not satisfied § 365: They were in default of
the dealership agreements because they had co-mingled the dealerships into a dual
facility, which neither manufacturer allowed; and Edwards had not given adequate
assurance of future performance because it intended to continue operating the dual
facility. The court also declined to strike language from its previous order governing
Ford's and GM's rights to approve assignments. On the same day that it denied the
motions, the bankruptcy court granted permission for one of the debtors' secured
creditors to begin foreclosing on inventory. After hearing that Edwards intended to
revoke its purchase offer, the U.S. trustee moved to convert the case to Chapter 7. The
bankruptcy court then authorized the foreclosure of the real property where the
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dealerships operated, at which point the owners of both parcels of real estate, one of
whom was James, conveyed the properties to the mortgagees in lieu of foreclosure.
Almost two weeks after the bankruptcy court denied the motions to assume and
assign, James entered an appearance in the case, moved for reconsideration of the
denial of the motions, and objected to Chapter 7 conversion. He had just recently
bought some notes that the debtors had executed on which he stood as surety, thus
becoming a creditor to the debtors, which he asserts gave him standing to participate
in the bankruptcy proceeding. The debtors joined James's motion to reconsider, but
everyone else opposed it, including Edwards, which had withdrawn support for the
motions because it was no longer interested in purchasing the defunct dealerships.
The bankruptcy court denied James's motion to reconsider and converted the case to
Chapter 7 after James withdrew his objection.
James appealed the denial of the debtors' motions to assume and assign and the
denial of his motion to reconsider that decision to the district court, arguing that the
bankruptcy court had erroneously concluded that the debtors were in default of the
dealership agreements and that Edwards did not provide adequate assurance of future
performance. Edwards, later joined by GM, responded by filing a motion to dismiss
the appeal as equitably moot, which the district court granted. James appeals from
that order.
We need not address the parties' dispute about the nature and shape of the so-
called equitable mootness doctrine because we conclude that the case is moot in the
ordinary sense. A case becomes moot when the court can no longer grant any
effectual relief to a prevailing party due to a change in circumstances.
Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 669 (2016). If nothing of practical
consequence turns on the outcome of an appeal, then the appeal is moot. In re Smith,
921 F.2d 136, 138–39 (8th Cir. 1990).
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We agree with the appellees that the case is moot because no court, in reversing
the bankruptcy court's order denying the motions to assume and assign, would order
the sale to Edwards to proceed. First, GM and the Chapter 7 trustee have stipulated
that the GM dealership agreement, which by its terms was set to expire in October
2015, has terminated. Even if, because of Iowa law, the GM dealership agreement has
not been terminated, as James argues, it appears that the Chapter 7 trustee has rejected
both dealership agreements by not assuming them within 60 days after conversion to
Chapter 7, and James provides no convincing argument or authority showing
otherwise. See 11 U.S.C. § 365(d)(1). Second, the parties to the sales agreement—the
debtors and Edwards—are no longer pursuing the sale. Edwards has said repeatedly
that it no longer wishes to consummate the transaction. The debtors have returned
Edwards's deposit without objection, and neither they nor the Chapter 7 trustee
appealed the bankruptcy court order denying the motions to assume and assign or the
district court's order dismissing James's appeal. Neither party to the purchase
agreement shows any interest in it being resuscitated.
Although James intimated before the district court that he wanted an order
requiring the purchase agreement to proceed, he has not told us that he seeks that
relief. Instead, he maintains that the presence of potential breach-of-contract claims
saves this case from mootness. See In re Kmart Corp., 434 F.3d 536, 538 (7th Cir.
2006). In Kmart, a bankruptcy court allowed a debtor to assume a contract, and when
the other party to the contract terminated it soon afterward, the debtor sued the other
party in state court for breach of contract. Meanwhile, the other party appealed the
bankruptcy court's ruling allowing the assumption, but the debtor argued that the
other party had mooted the appeal by terminating the contract. The Seventh Circuit
held that a controversy remained because the debtor wanted damages for breach of
contract, and that claim would be tenable only if the debtor had properly assumed the
contract. In other words, the outcome of the ancillary state proceeding depended on
the outcome of the appeal at issue. The court concluded the discussion by noting, "As
long as the [state] litigation is pending, and there is a risk that [the other party] may
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be called on to pay damages for breach of a contract that, it contends, was not
properly assumed in bankruptcy, there is a live controversy in the federal forum." Id.
at 540.
Kmart is not apposite because there are no contract claims currently pending,
and we have detected no indication that the Chapter 7 trustee, whom James
acknowledges would have to bring any such claim on behalf of the debtors, is
considering doing so. In fact, all signs are to the contrary: The Chapter 7 trustee has
not joined in either of James's appeals, has rejected the dealership contracts on which
any breach-of-contract claims against Ford or GM would have been based, and did
not object to returning Edwards's deposit. In short, we think that speculation that the
estate might assert contract claims against Edwards, Ford, or GM cannot rescue this
case from mootness.
James also argues that potential contract claims against the estate by Edwards,
Ford, or GM saves this case from mootness, relying on Cinicola v. Scharffenberger,
248 F.3d 110, 116–19 (3d Cir. 2001). There, a group of physicians appealed a
bankruptcy court order allowing the Chapter 7 trustee to assume and assign the
physicians' employment contracts. The physicians resigned from their employment
following the entry of this order, but the assignee informed them that it would enforce
the non-compete provisions in the employment contracts. The assignee and the
Chapter 7 trustee argued that the physicians' appeal was moot, but the court
disagreed. The court explained that, because the covenants not to compete may have
survived the physicians' resignation and the assignee intended to enforce them, there
was a live case or controversy given that the assignee could not enforce the covenants
if the assignment was vacated. Further, since the only alternative to assumption would
be rejection of the physicians' contracts, and rejection constitutes a breach of contract,
the physicians might well have a claim for damages.
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Here, we do not have a potentially surviving provision of the contracts
governing the parties' behavior as the non-compete agreements in Cinicola did.
Neither Ford nor GM has indicated a desire to assert any claims against the debtors,
nor does James indicate what they might be; the manufacturers seem intent on ending
this matter for good. Edwards, moreover, has not been relying on a theory that the
debtors breached the purchase agreement; rather, Edwards terminated that agreement
because certain conditions precedent did not occur. We therefore conclude that the
contract claims against the estate that James hypothesizes are too speculative for
Article III purposes, and so nothing of practical consequence turns on the outcome
of this appeal. See Smith, 921 F.2d at 138–39.
James finally maintains that, should we decide to dismiss the appeal as moot,
we should vacate the bankruptcy court's order denying the motions to assume and
assign. Courts disposing of cases that become moot while on appeal not uncommonly
vacate the order being appealed to clear the path for relitigation of the issues between
the parties and eliminate a judgment. Robinson v. Pfizer, Inc., 855 F.3d 893, 898 (8th
Cir. 2017). On the other hand, vacatur is a remedy informed by equitable
considerations, and courts are reluctant to order one if the losing party fails to protect
its rights when post-order events will likely moot an appeal. See Cmty. Stabilization
Project v. Martinez, 31 F. App'x 340, 342 (8th Cir. 2002) (per curiam).
In re W. Pac. Airlines, Inc., 181 F.3d 1191, 1198 (10th Cir. 1999) is
particularly instructive. There, the court refused to vacate a bankruptcy court order
that became moot on appeal when the appealing party failed to seek a stay of the
order and other parties had taken significant steps in reliance on it. We find the
decision persuasive and conclude that vacatur would be inequitable here given that
James failed to seek a stay pending appeal and that several people have since taken
steps in reliance on the bankruptcy court's order. For example, a third party has
purchased one of the parcels of real property where the dealerships had operated and
has opened a new business there; a secured creditor has foreclosed on inventory; the
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bankruptcy has been converted to Chapter 7; and the dealerships have closed. We
decline to grant vacatur in these circumstances.
We dismiss the appeal and deny all pending motions for an award of costs and
attorney's fees.
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