Dunes Hotel Assoc v. S C Hyatt Corp ( 1998 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: DUNES HOTEL ASSOCIATES,
Debtor.
DUNES HOTEL ASSOCIATES,
Plaintiff-Appellant, No. 97-1943
v.
S. C. HYATT CORPORATION; HYATT
CORPORATION,
Defendants-Appellees.
In Re: DUNES HOTEL ASSOCIATES,
Debtor.
DUNES HOTEL ASSOCIATES,
Plaintiff-Appellant, No. 97-2482
v.
S. C. HYATT CORPORATION; HYATT
CORPORATION,
Defendants-Appellees.
Appeals from the United States District Court
for the District of South Carolina, at Charleston.
David C. Norton, District Judge.
(CA-96-543-2-18, BK-94-75715-JW, AP-95-8042)
Argued: May 8, 1998
Decided: July 22, 1998
Before MURNAGHAN, NIEMEYER, and MICHAEL,
Circuit Judges.
_________________________________________________________________
Dismissed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: John Joseph Dawson, STREICH LANG, P.A., Phoenix,
Arizona, for Appellant. Claude D. Montgomery, PHILLIPS, LYTLE,
HITCHCOCK, BLAINE & HUBER, L.L.P., New York, New York,
for Appellees. ON BRIEF: John R. Clemency, John A. Harris,
STREICH LANG, P.A., Phoenix, Arizona; Julio E. Mendoza, Jr.,
NEXSEN, PRUET, JACOBS & POLLARD, L.L.P., Columbia, South
Carolina, for Appellant. Michael M. Beal, MCNAIR LAW FIRM,
P.A., Columbia, South Carolina, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Demonstrating a remarkable persistence, if not an equally remark-
able understanding of civil procedure, Dunes Hotel Associates
(Dunes) has four times noted an appeal to the Fourth Circuit of the
same interlocutory decision. Today we dismiss appeals Nos. 97-1943
and 97-2482.
Dunes owns real estate on Hilton Head Island, South Carolina,
which is occupied by an elaborate hotel worth more than $50 million.
The hotel has been leased by Dunes to S.C. Hyatt Corporation (Hyatt)
for a term renewable until the year 2016. In 1986, Dunes used the real
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estate as security for a $50 million loan from Aetna Life Insurance
Company (Aetna). Of that sum, $23.6 million passed through Dunes
to its two partners, who are both corporations wholly owned by Gen-
eral Electric Pension Trust.
When the proceeds of the lease to Hyatt were insufficient to pay
the amount owed to Aetna, Dunes filed for Chapter 11 bankruptcy.
Dunes initiated an adversary proceeding in which it sought as debtor
in possession, see 11 U.S.C. § 1107(a), to avoid the Hyatt lease pursu-
ant to 11 U.S.C. § 544(a), on the basis that the lease had never been
formally recorded. Dunes proposed in the alternative to reject the
lease under 11 U.S.C. § 365(a), characterizing it as an executory man-
agement contract. Unencumbered by the lease, the value of the prop-
erty would increase dramatically because current market conditions
would allow Dunes to obtain a new tenant at a much more favorable
rate.
Although Hyatt had not yet filed an answer, but had merely sought
12(b)(6) dismissal, the bankruptcy court granted summary judgment
in Hyatt's favor, holding that Dunes could neither avoid nor reject the
lease. See Dunes Hotel Assoc. v. Hyatt Corp. (In re Dunes Hotel
Assoc.), 194 B.R. 967 (Bankr. D.S.C. 1995). On appeal, the district
court affirmed the bankruptcy court's avoidance decision but reversed
the bankruptcy rejection decision and remanded to the bankruptcy
court. See Dunes Hotel Assoc. v. Hyatt Corp., No. 2:96-543-18
(D.S.C. July 26, 1996). Dunes appealed to the Fourth Circuit the dis-
trict court's avoidance decision (No. 96-2251), and Hyatt likewise
appealed the rejection remand (No. 96-2283), but we dismissed the
appeals as interlocutory because the remanded rejection claim had not
yet been finally resolved. See Dunes Hotel Assoc. v. Hyatt Corp.,
Nos. 96-2251 & 96-2283 (4th Cir. Feb. 5, 1997) (order dismissing
appeal and cross-appeal).
Meanwhile, Hyatt filed an Answer in the remanded bankruptcy
court adversary proceeding. In that Answer, Hyatt asserted a counter-
claim against Dunes, seeking dismissal of the bankruptcy petition
itself and damages on the basis that Dunes had proceeded in bad faith.
In adjudicating the remanded rejection claim, the bankruptcy court
held that the agreement between Dunes and Hyatt was a real property
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lease. See Dunes Hotel Assoc. v. Hyatt Corp. (In re Dunes Hotel
Assoc.), 212 B.R. 110 (Bankr. D.S.C. 1997). Dunes noted an appeal
of that decision to the district court.
Dunes also filed a motion "requesting relief" from the district
court's earlier affirmance of the bankruptcy court's avoidance deci-
sion. The district court denied Dunes's motion. See Dunes Hotel
Assoc. v. Hyatt Corp. (In re Dunes Hotel Assoc.), No. 2:96-543-18
(D.S.C. May 1, 1997) (order denying request for relief). Dunes again
noted an appeal to the Fourth Circuit (No. 97-1774). At this time the
rejection claim was still pending in bankruptcy court and Dunes's
appeal of the lease determination was still pending before the district
court. For that reason we later dismissed this second appeal as inter-
locutory. See Dunes Hotel Assoc. v. S.C. Hyatt Corp. (In re Dunes
Hotel Assoc.), No. 97-1774 (4th Cir. Dec. 22, 1997) (order dismissing
appeal No. 97-1774 and deferring action on later appeals).
Dunes then voluntarily dismissed with prejudice both its rejection
claim in the bankruptcy court and its appeal of the lease determina-
tion. But the bankruptcy court "preserved for independent adjudica-
tion in this adversary proceeding" Hyatt's counterclaim. Dunes Hotel
Assoc. v. Hyatt Corp. (In re Dunes Hotel Assoc.), Ch. 11 Case No.
94-75715, Adv. No. 95-08042 (Bankr. D.S.C. July 9, 1997) (order).
Dunes thereafter filed its third appeal to the Fourth Circuit (No. 97-
1943), which Hyatt opposes as interlocutory.
On September 26, 1997, the bankruptcy court dismissed Dunes's
underlying Chapter 11 petition as having been filed in bad faith. See
In re Dunes Hotel Assoc., No. 94-75715 (Bankr. D.S.C. Sept. 26,
1997) (order dismissing petition). This was not an adjudication of the
counterclaim, which still remained "preserved" in the adversary pro-
ceeding. Rather, the bankruptcy court granted a motion by Hyatt to
dismiss the petition, opining, "It is an abuse of bankruptcy for Dunes,
a solvent debtor, to use the Bankruptcy Code as a litigation tool to
break a profitable lease because that lease is not as profitable as
Dunes would like or to assert alleged breaches which have been prop-
erly referred to arbitration." Id., slip op. at 39-40. Dunes has appealed
that dismissal to the district court, where it remains.
Dunes then filed a fourth notice of appeal from the district court's
avoidance decision (No. 97-2482), which Hyatt again opposes as
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interlocutory. Appeals Nos. 97-1943 and 97-2482 have been consoli-
dated in the present case.
Both appeals are at present interlocutory. Hyatt's counterclaim,
whether it be meritorious or frivolous, has not been disposed of and
remains "preserved for independent adjudication." Typically, an order
that does not dispose of a counterclaim is not a final order. See Fed.
R. Civ. P. 54(b); see also Catlin v. United States, 324 U.S. 229, 233
(1945) (holding that a final order is one that "ends the litigation on
the merits and leaves nothing for the court to do but execute the judg-
ment"). Such is the case even where the counterclaim has been sev-
ered from the disputed claims, so long as it remains viable and
unadjudicated. See Heimann v. Snead, 133 F.3d 767, 769 (10th Cir.
1998) (per curiam).
The dismissal of the underlying petition does not render the district
court's avoidance decision final for purposes of the instant appeal.
The dismissal is presently on appeal before the district court. Should
the dismissal be reversed, the adversary proceeding will continue and
the counterclaim will have to be addressed therein.
Because appeals Nos. 97-1943 and 97-2482 are interlocutory, they
are not appealable to the Court of Appeals, see 28 U.S.C. § 158(d),
unless they have been certified by the district court, see 28 U.S.C.
§ 1292(b); Fed. R. Civ. P. 54(b), or fall within some exception, such
as the collateral order doctrine, see Cohen v. Beneficial Indus. Loan
Corp., 337 U.S. 541, 545-47 (1949), or the provisions of 28 U.S.C.
§ 1292(a). The appeals have not been so certified, and no such excep-
tion is applicable here. Although we might exercise our pragmatic
bankruptcy jurisdiction to hear the two appeals, see Committee of
Dalkon Shield Claimants v. A.H. Robins Co., 828 F.2d 239, 241 (4th
Cir. 1987) (explaining that "considerations unique to bankruptcy
appeals require that courts consider `finality in a more pragmatic and
less technical way in bankruptcy cases than in other situations'")
(quoting In re Amatex Corp., 755 F.2d 1034, 1039 (3d Cir. 1985)),
we should not do so because the district court's decision regarding the
dismissal of the underlying bankruptcy petition, and our subsequent
review of that decision, may moot the appeal of the avoidance deci-
sion, see Spacek v. Thomen (In re Universal Farming Indus.), 873
F.2d 1334, 1335 (9th Cir. 1989). This appeal is not yet moot because
5
the dismissal of the petition has been appealed, and the petition may
be reinstated. See In re James Wilson Assoc., 965 F.2d 160, 167 (7th
Cir. 1992). But the fact that an interlocutory appeal presents a live
controversy does not mean that it would be practical or even useful
for us to exercise "pragmatic" jurisdiction over that appeal.
We hold that a resolution of the avoidance decision appeal would
be premature. Dunes will surely get a chance to present its arguments,
but not while a live counterclaim remains unresolved in the adversary
proceeding. If the petition is reinstated and the bankruptcy court dis-
poses of the remaining counterclaim, Dunes will then be faced with
a final order which it may appeal to the district court and, if there
unsuccessful, thereafter to us.
We note further that the dismissal of the bankruptcy petition is a
final judgment, and all interlocutory orders merge into that judgment;
that is, Dunes in appealing the dismissal may appeal any interlocutory
orders that underlie it as well. The dismissal of the bankruptcy peti-
tion was in fact based in large part on Dunes's persistent efforts to
avoid the lease despite the bankruptcy court's conclusion that it could
not do so. If the district court should affirm the dismissal, reaffirming
its earlier decision that Dunes could not avoid the lease, then we will
address the avoidance decision when the district court's affirmance is
appealed to us.
Accordingly, appeals No. 97-1943 and 97-2482 are dismissed as
interlocutory. The request for sanctions, however, is denied.
DISMISSED
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