1998 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-10-1998

Krebs Chrysler v. Valley Mtr Inc

Precedential or Non-Precedential:

Docket 96-3702

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Recommended Citation

"Krebs Chrysler v. Valley Mtr Inc" (1998). 1998 Decisions. Paper 76.

http://digitalcommons.law.villanova.edu/thirdcircuit_1998/76
Filed April 10, 1998 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

Nos. 96-3702 and 96-3757 

KREBS CHRYSLER-PLYMOUTH, INC. 

 Appellant in 96-3702 

v. 

VALLEY MOTORS, INC., d/b/a REA MOTORS; OFFICE 

OF THE U.S. TRUSTEE; RONALD J. CHARAPP; 

AMERICAN AUTO SALES INC., t/d/b/a Wilkinsburg 

Rambler, Inc.; CHRYSLER CORPORATION; GENERAL 

MOTORS ACCEPTANCE CORPORATION; BENKE 

MOTORS, INC.; VERONA MOTOR SALES, INC., 

STEPHEN I. GOLDRING 

KREBS CHRYSLER-PLYMOUTH, INC. 

v. 

VALLEY MOTORS, INC., d/b/a REA MOTORS; OFFICE 

OF THE U.S. TRUSTEE; RONALD J. CHARAPP; 

AMERICAN AUTO SALES INC., t/d/b/a Wilkinsburg 

Rambler, Inc.; CHRYSLER CORPORATION; GENERAL 

MOTORS ACCEPTANCE CORPORATION; BENKE 

MOTORS, INC.; VERONA MOTOR SALES, INC., 

STEPHEN I. GOLDRING 

 CHRYSLER 

 CORPORATION, 

 Appellant in 96-3757 

ON APPEAL FROM THE 

UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF PENNSYLVANIA 

D.C. Civ. No. 95-01860 
Argued Thursday, December 11, 1997 

Before: NYGAARD and ALITO, Circuit Judges, and 

DEBEVOISE, District Judge* 

(Opinion Filed April 10, 1998) 

Thomas E. Reilly 

Davis & Reilly 

437 Grant Street 

1124 Frick Building 

Pittsburgh, PA 15219 

Attorney for Krebs ChryslerPlymouth, Inc. 

James F.B. Daniels 

 (argued) 

1102 Grand Avenue 

Suite 1500 

Kansas City, MO 64106 

Attorney for Chrysler Corporation 

and Krebs Chrysler-Plymouth, Inc. 

David E. Tungate (argued) 

Eckert, Seamans, Cherin & Mellott 

600 Grant Street 

42nd Floor 

Pittsburgh, PA 15219 

Attorney for General Motors 

Acceptance Corporation 

_________________________________________________________________________ 

* The Honorable Dickinson R. Debevoise, Senior District Judge for the 

District of New Jersey, sitting by designation. 

 2 
OPINION OF THE COURT 

NYGAARD, Circuit Judge. 

Appellants, Krebs Chrysler-Plymouth, Inc. and Chrysler 

Corporation, challenge a bankruptcy court's order denying 

their motions to reconsider, alter, or amend its prior 

decisions. Those decisions approved the rejection of a buysell agreement between debtor Valley Motors, Inc. and 

Krebs and the subsequent assumption and auction sale of 

the underlying franchises. In response to Chrysler's appeal, 

General Motors Acceptance Corporation has filed a motion 

to dismiss for lack of standing. We will grant GMAC's 

motion and also dismiss Krebs's appeal as moot pursuant 

to 11 U.S.C. S 363(m) for failing to obtain a stay pending 

appeal. 

I. 

Valley Motors, Inc. operates an automobile dealership in 

the Pittsburgh, Pennsylvania area and is a party to three 

sales and service franchise agreements. In one of these, 

Chrysler allows Valley to sell and service Jeep and Eagle 

automobiles. Valley executed a buy-sell agreement to sell 

its interest in the Jeep-Eagle franchise to Krebs for 

$295,000. Half of that amount was paid upon the execution 

of the buy-sell agreement, and the second half was due 

upon the occurrence of two events: Chrysler's approval of 

the transfer as Jeep-Eagle franchisor and the favorable 

resolution of any protests filed under state law by Krebs's 

competitors. Although Chrysler approved the transfer to 

Krebs, several competing auto dealerships protested it. 

When Valley filed its Chapter 11 petition, those protests 

became subject to the automatic stay and remain 

unresolved. 

Valley moved to assume the buy-sell agreement with 

Krebs under section 365 of the Bankruptcy Code, which 

authorizes a trustee to assume or reject executory 

contracts. 11 U.S.C. S 365. The protesting dealerships 

objected to the motion. Valley then amended its motion to 

 3 
further assert that assumption was in the best interest of 

the bankruptcy estate and satisfied the requirements of the 

business judgment rule. Chrysler "conditionally objected" to 

the assumption, alleging that Valley had previously

defaulted under the Jeep-Eagle franchise, and it should pay 

over two million dollars in lost-volume sales and damages 

to Chrysler's intangible assets and provide adequate 

assurances of Krebs's future performance under the 

franchise. Another auto dealer, Ronald Charapp, also 

objected, because he had made an offer to purchase all of 

Valley's franchises, inventory and lease obligations for 

$425,000. Charapp suggested the bankruptcy court 

conduct a hearing to entertain other offers on the sale of 

Valley's assets. 

On the same day as the hearing on the amended motion 

to assume the buy-sell agreement, but before a decision, 

Valley moved to withdraw its amended motion, arguing that 

Charapp's, not Krebs's, offer would be in the best interest 

of the estate. The next day, the bankruptcy court granted 

Valley's motion to withdraw its amended motion. The day 

after that, Valley moved to reject the buy-sell agreement 

pursuant to section 365. Valley then filed a second motion 

to sell all its franchises (including the Jeep-Eagle 

franchise), parts, shop materials, and fixed and 

miscellaneous assets to Charapp for $425,000. The motion 

stated that the sale was conditioned upon Chrysler's and 

the other franchisors' approval. Valley then filed a third 

motion to assume the three franchise agreements. Chrysler 

and Krebs objected to all three motions. Charapp also 

expressed his reservations about the suggested sale

because he had learned that Valley's Dodge franchise was 

soon to expire, and that Dodge was unwilling to extend the 

term. 

The bankruptcy court granted Valley's motions to reject 

the buy-sell agreement and to assume and sell the three 

sales and service franchises. During the hearing on Valley's 

motion to sell, however, the court allowed Charapp to 

withdraw his offer and then held an auction on the three 

franchises "as is, where is." Krebs won the bidding on all 

three and paid ten percent of the purchase price to Valley 

on the day of the hearing. The price for the Jeep-Eagle 

 4 
franchise was $230,000. The bankruptcy court entered an 

order affirming the sale. Krebs has not paid the balance of 

the bid and has refused to close on the sale. 

Krebs instead moved for reconsideration of the orders 

granting Valley's three motions. Chrysler moved for

reconsideration of the order to assume and the order to sell 

the franchises, but not the order to reject the buy-sell 

agreement. In response, Valley moved to compel Krebs to 

close on the ordered sale. The bankruptcy court denied 

Krebs's motions. It found that the buy-sell agreement was 

executory, that the business judgment test was applicable, 

and that Valley satisfied it. Accordingly, it upheld its order 

permitting Valley to reject the agreement under section 365. 

The bankruptcy court also found that Krebs did not have 

an equitable interest in the first $147,500 payment as 

either a set-off or recoupment against the amount due from 

the auction sale. The bankruptcy court ruled that, at most, 

Krebs had an unsecured claim because Valley's rejection 

operated as a prepetition breach of the buy-sell agreement. 

Chrysler's arguments largely paralleled Krebs's, except 

Chrysler also wanted the bankruptcy court to require Valley 

to comply with section 365(b)(1)(A)-(C) and (f)(2), which 

require debtors who have defaulted on executory contracts 

to cure the breaches or provide adequate assurance of 

future performance before assuming them. Valley opposed 

this motion, claiming that its breaches under the franchises 

were nonmonetary obligations excusing the statutory

obligation to cure or assure performance. The bankruptcy 

court deferred its decision on Chrysler's motion because it 

did not have an adequate record and has yet to schedule an 

evidentiary hearing on Chrysler's motion. 

Finally, the bankruptcy court granted Valley's motion to 

compel Krebs to close on the ordered sale. It rejected 

Krebs's argument that the closings were conditioned on 

approval from the respective franchisors. The court held 

that the sale was not conditional; it was "as is, where is." 

Only Krebs appealed the bankruptcy court's order to the 

district court, although Chrysler filed a brief and argued in 

support of Krebs's position. The district court affirmed the 

bankruptcy court's decision and adopted its opinion. Now, 

 5 
however, both Krebs and Chrysler have filed notices of 

appeal. 

The bankruptcy court had jurisdiction by virtue of 28 

U.S.C. S 157, and the district court had jurisdiction over 

Krebs's appeal under 28 U.S.C. S 158(a). We exercise 

jurisdiction under 28 U.S.C. S 158(d) over final decisions of 

district courts entered under section 158(a). 

II. Chrysler's Appeal 

GMAC, a secured creditor, moved to dismiss Chrysler's 

appeal for lack of standing. GMAC argues that Chrysler is 

not a "person aggrieved" and therefore does not have 

standing to appeal the bankruptcy court's orders. To 

support its argument, GMAC points out that, 

notwithstanding the outcome on the merits, Krebs will be 

the owner of the Jeep-Eagle franchise; Chrysler will not be 

directly and pecuniarily affected. Chrysler argues that it is 

a person aggrieved and has standing despite its failure to 

comply with the Federal Rules of Bankruptcy Procedure. 

A. Jurisdiction 

Chrysler is in an unusual procedural position because it 

appeals from the district court's affirmance of a bankruptcy 

court order it never appealed from. A party may "appeal 

from a final judgment, order, or decree of a bankruptcy 

judge to a district court" as of right "by filing a notice of 

appeal with the [bankruptcy court] clerk within the time 

allowed by Rule 8002." Fed. R. Bankr. P. 8001. Moreover, 

the "[f]ailure of an appellant to take any step other than the 

timely filing of a notice of appeal does not affect the validity 

of the appeal, but is ground only for such action as the 

district court . . . deems appropriate." Id. By implication, 

Chrysler's failure to file a notice of appeal to the district 

court from the bankruptcy court does affect the validity of 

its appeal to the Court of Appeals. See Shareholders v. 

Sound Radio, Inc., 109 F.3d 873, 879 (3d Cir. 1997) ("The 

failure to file a timely notice of appeal [from the bankruptcy 

court] creates a jurisdictional defect barring appellate 

review."); In re Colon, 941 F.2d 242, 245-46 (3d Cir. 1991) 

 6 
("a late filing is insufficient to vest the district court with 

jurisdiction of the appeal"). 

Rule 8002 gives persons aggrieved by a bankruptcy order 

ten days to file a notice of appeal. Fed. R. Bankr. P. 

8002(a). However, that rule also provides for an extension 

in certain circumstances: 

 "Effect of Motion on Time for Appeal. If any party makes 

 a timely motion of a type specified immediately below, 

 the time for appeal for all parties runs from the entry 

 of the order disposing of the last such motion 

 outstanding. This provision applies to a timely motion: 

 (1) to amend or make additional findings of fact under 

 Rule 7052, whether or not granting the motion would 

 alter the judgment; [or] (2) to alter or amend the 

 judgment under Rule 9023 . . . . A notice of appeal 

 filed after announcement or entry of the judgment, 

 order, or decree but before disposition of any of the 

 above motions is ineffective to appeal from the 

 judgment, order, or decree, or part thereof, specified in 

 the notice of appeal, until the entry of the order 

 disposing of the last such motion outstanding. 

 Appellate review of an order disposing of any of the 

 above motions requires the party, in compliance with 

 Rule 8001, to amend a previously filed notice of 

 appeal." 

Fed. R. Bankr. P. 8002(b). Because the bankruptcy court 

hasn't ruled on Chrysler's motion to alter or amend, neither 

Krebs nor Chrysler can appeal the underlying orders at this 

time. Also, the bankruptcy court has not ruled on 

Chrysler's motion to reconsider, so Chrysler may not found 

its appeal here on that motion. Finally, while Krebs has 

appealed the denial of its motion to reconsider, Chrysler did 

not appeal that decision, either. Hence, the district court 

did not have jurisdiction to hear an appeal from Chrysler. 

It follows that we lack jurisdiction over Chrysler's appeal 

from the district court order emanating from Krebs's 

appeal. 

In the cases cited by Chrysler and GMAC, the parties had 

first appealed a bankruptcy court order to the district 

court. See Travelers Ins. Co. v. H.K. Porter Co., 45 F.3d 737, 

 7 
740-41 (3d Cir. 1995) (order granting motion to vacate 

withdrawals and defaults of claims); In re Dykes, 10 F.3d 

184, 186 (3d Cir. 1993) (order confirming Chapter 13 plan); 

In re El San Juan Hotel, 809 F.2d 151, 152-53 (1st Cir. 

1987) (order granting U.S. leave to sue a former trustee); In 

re Fondiller, 707 F.2d 441, 441 (9th Cir. 1983) (order 

authorizing employment of special counsel for bankruptcy 

trustee). Chrysler cites only one case that even arguably 

supports its position regarding our jurisdiction over its 

appeal. In In re Colonial Broad. Corp., 758 F.2d 794 (1st 

Cir. 1985), the bankruptcy court issued an order accepting 

Joaquin Villamil's offer to buy the debtor's assets. The 

debtor, the committee of debtor's equity security holders, 

and Charles Woods (a potential buyer who submitted a 

higher, but belated bid) all filed motions for 

reconsideration. After the bankruptcy court denied these 

motions, all three appealed the underlying order accepting 

the Villamil bid to the U.S. District Court for the District of 

Puerto Rico. The district court dismissed the debtor's 

appeal for failure to prosecute. Although the equity security 

holders and Woods filed separate appeals, the equity 

security holders "appeared in Woods' appeal by both filing 

a statement of intent to join and fully support Woods' 

position and then filing their own brief." Id. at 798. The 

district court dismissed the remaining two appeals because 

it held that the bankruptcy court's order accepting the 

Villamil bid was interlocutory, and not appealable.

Considering the notices of appeal as motions for leave to 

appeal an interlocutory order, the district court denied 

leave to appeal because a subsequent bankruptcy court 

order confirming the sale on different terms mooted the 

order accepting the bid. All three previous appellants 

appealed to the Court of Appeals for the First Circuit, 

including the debtor whose appeal had been dismissed. 

The Court of Appeals first addressed the debtor's 

untimely appeal from the district court's dismissal: 

 "We begin by noting that we have no jurisdiction over 

 the appeal of the debtor, ACBC. ACBC's appeal . . . was 

 dismissed by the district court for failure to prosecute. 

 No notice of appeal was filed within the thirty-day 

 period allowed for appeals. Fed. R. App. P. 4(a). The 

 8 
 requirements of Rule 4(a) are "mandatory and

 jurisdictional," and ACBC's failure to comply with these 

 requirements leave this court without jurisdiction." 

Id. at 799 (citation omitted). The Court continued, "Nor can 

we consider ACBC a proper party to appeal the district 

court's denial of the Woods appeal since, unlike the Equity 

Security Holders, ACBC did not either file an appearance or 

join in that action." Id. Chrysler now cites this statement 

for the proposition that it can appeal to this Court without 

first appealing from the bankruptcy court because it 

submitted a brief to the district court. 

We reject this argument. First, the sentence in Colonial 

Broadcasting upon which Chrysler relies is dicta, in light of 

the Court's previous determination that the debtor's appeal 

should be dismissed as untimely. Here, although Chrysler 

has timely appealed from the district court's decision, it 

failed to appeal from the bankruptcy court. Second, to allow 

a party like Chrysler to appear before a court of appeals 

without first appealing to the district court, even if that 

party somehow participated in the district court 

proceedings, would nullify bankruptcy rules 8001 and 

8002. Following Chrysler's logic, if a party at the

bankruptcy court level could convince an appellant at the 

district court level to name it as an appellee, it would be 

able to bypass district court review--hardly a desirable or 

contemplated result. This, however, does not mean that a 

non-party can never appeal a bankruptcy court order. The 

"person aggrieved" rule covers that situation. If an 

aggrieved party files a timely appeal from both the

bankruptcy court and the district court, the court of 

appeals will have jurisdiction over its claim. 

B. Standing as a Person Aggrieved 

The "person aggrieved" rule states that only those whose 

pecuniary interests are directly and adversely affected by a 

bankruptcy court order that "diminishes their property, 

increases their burdens, or impairs their rights," may 

appeal. Travelers, 45 F.3d at 741-42 (quoting Dykes, 10 

F.3d at 187). "[W]hether someone is a `person aggrieved' is 

normally a question of fact to be determined by the district 

 9 
court." Travelers, 45 F.3d at 742; see also Dykes, 10 F.3d 

at 188. Because the facts were undisputed in Travelers and 

Dykes, we could reach the standing issues. Here, however, 

the parties dispute whether Valley's obligations to Chrysler 

are recoverable under the cure provisions of section 365(b) 

or are excusable nonmonetary obligations. This precise 

dispute prompted the bankruptcy court to delay ruling on 

Chrysler's motion to reconsider, and it has not ruled or 

even scheduled an evidentiary hearing on that motion. 

Hence, for now there is simply no record support for 

Chrysler's argument that it is a person aggrieved. 

Moreover, we doubt that Chrysler is a "person aggrieved," 

even under its version of the facts. In its response to 

GMAC's motion to dismiss its appeal, Chrysler alleged that 

it suffered damages because Valley had breached its

franchises (although it was going to waive its remedies if 

Krebs acquired the franchises through the buy-sell 

agreement). Admittedly then, Chrysler's only pecuniary 

interest is whether it will receive a cure for those defaults 

under section 365. Although the bankruptcy court has yet 

to rule on that issue, Chrysler has not shown how its 

interest will be affected whether the franchises are 

transferred to Krebs under the buy-sell agreement or via 

the auction sale. Even if the franchises were assigned 

pursuant to the buy-sell agreement, no one disputes that 

the underlying franchises were executory contracts, and 

there is nothing to relieve Valley from assuming them 

before it could perform under the buy-sell agreement. 

Furthermore, the bankruptcy court has yet to decide

whether Chrysler is entitled to cure or assurances under 

section 365 because it has not ruled on Chrysler's motion 

to reconsider or amend. Hence, Chrysler is simply not a 

person aggrieved and does not have standing to pursue this 

appeal. 

C. 

We acknowledge that we have occasionally allowed nonparties to appeal district court decisions in nonbankruptcy 

contexts, but those cases are either inapposite or 

distinguishable. In Delaware Valley Citizens Council for 

Clean Air v. Davis, 932 F.2d 256 (3d Cir. 1991), citizens 

 10 
groups appealed the dismissal of one of the four counts in 

their complaint. We allowed the EPA to join them, stating 

"we believe that the EPA has a sufficient stake in the 

outcome of this case to join the Citizens' appeal as a partyappellant because Pennsylvania could use the judgment to 

collaterally estop the EPA in [a related] administrative 

appeal." Id. at 263 n.6. Here, Chrysler does not argue that 

our decision in this case will have any preclusive effect 

upon it in any other proceeding. 

In Caplan v. Fellheimer Eichen Braverman & Kaskey, 68 

F.3d 828 (3d Cir. 1995), involving a sexual harassment suit 

by a female attorney against her former law firm, we 

allowed the firm's insurance carrier, Vigilant, standing. In 

doing so, we established the following rule: 

 "Generally, it is true that those who were not parties 

 before the district court may not appeal an order of the 

 district court. We have, however, recognized that a 

 non-party may bring an appeal in a situation where 

 three conditions are met: 1) the equities favor the 

 appeal; 2) the non-party has participated in some way 

 in the proceedings before the district court; and 3) the 

 non-party has a stake in the outcome of the district 

 court proceedings, which is discernable from the 

 record." 

Id. at 836. 

Here, Chrysler participated in the district court by filing 

a brief and arguing in support of Krebs's position, albeit 

over GMAC's objection. Thus, the second requirement is 

satisfied. Regarding the first, we see no equities favoring 

Chrysler. Certainly, Chrysler has an interest in who owns 

their franchises. This interest is embodied in the"veto" 

power it has over a proposed transfer of the Jeep-Eagle 

franchise. However, the transfer under the buy-sell

agreement and the auction sale ordered by the bankruptcy 

court were both to Krebs--a Chrysler approved assignee. 

Therefore, the interest in approving subsequent owners of 

Chrysler-product franchises has been satisfied. Chrysler's 

equity argument fails. The third element is similar to the 

person aggrieved test, analyzed above. 

 11 
Thus, even under these nonbankruptcy cases, Chrysler 

cannot appeal. In sum, not only has Chrysler attempted to 

circumvent proper procedure, but the bankruptcy court's 

order has had no direct bearing on its pecuniary interests. 

The order has not diminished its property, increased its 

burdens or impaired its rights. Those alleged effects have 

already occurred by virtue of Valley's past breaches of the 

sales and service franchises, and the bankruptcy court has 

yet to decide whether it will order Valley to cure those 

defaults under section 365. Therefore, we will dismiss 

Chrysler's appeal. 

III. Mootness 

GMAC argues that Krebs's appeal is moot under 11 

U.S.C. S 363(m) because Krebs is attacking the validity of 

the Jeep-Eagle franchise sale without first procuring a stay. 

We agree and will dismiss Krebs's appeal as well. 

A. 

Before we begin our analysis of section 363(m) and its 

application here, we must examine whether section 363(m) 

applies to the sale of the franchises. Krebs argues that the 

franchises were assumed and assigned under section 365, 

which exclusively governs the rejection, assumption, and 

assignment of executory contracts. We disagree. 

Section 363(b) provides that "[t]he trustee, after notice 

and a hearing, may use, sell, or lease, other than in the 

ordinary course of business, property of the estate." 

(emphasis added.) Section 365(f)(1) provides that "the 

trustee may assign . . . [executory] contract[s] or

[unexpired] lease[s] under paragraph (2) of this subsection." 

Section 363 includes a statutory mootness provision, while 

section 365 does not. The issue is whether section 365 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, our inquiry is whether 

assignments of the franchises under section 365 are also 

sales of estate property subject to section 363(m). We 

conclude that they are. 

 12 
In describing the scope of the bankruptcy estate, section 

541 casts a wide net: 

 (a) The commencement of a case under section 301, 

 302, or 303 of this title creates an estate. Such estate 

 is comprised of all the following property, wherever 

 located and by whomever held: 

 (1) Except as provided in subsections (b) and (c)(2) of 

 this section, 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) (emphasis added). To determine if the 

franchises are property under section 541, we look to state 

law. See Butner v. United States, 440 U.S. 48, 54, 99 S. Ct. 

914, 917 (1979) ("Congress has generally left the 

determination of property rights in the assets of a

bankrupt's estate to state law."); accord In re Modular 

Structures, Inc., 27 F.3d 72, 77 (3d Cir. 1994) (collecting 

cases). Here, the franchises allowed Valley to sell vehicles in 

Pennsylvania. The Pennsylvania Board of Vehicles Act, Pa. 

Stat. Ann. tit. 63, S 818.1 et seq. defines a franchise as: 

 "The written agreement between any new vehicle 

 manufacturer or distributor and any new vehicle dealer 

 or between any new vehicle manufacturer and 

 distributor which purports to fix the legal rights and 

 liabilities of the parties to such agreement, and 

 pursuant to which the dealer or distributor purchases 

 and resells the franchise product or leases or rents the 

 dealership or distributorship premises." 

Pa. Stat. Ann. tit. 63, S 818.2. Before the enactment of this 

definition, the Pennsylvania Supreme Court had opined 

that: 

 "[i]n its simplest terms, a franchise is a license from 

 the owner of a trademark or trade name permitting 

 another to sell a product or service under the name or 

 mark. More broadly stated, the franchise has evolved 

 into an elaborate agreement by which the franchisee 

 undertakes to conduct a business or sell a product or 

 service in accordance with methods and procedures 

 prescribed by the franchisor, and the franchisor 

 13 
 undertakes to assist the franchisee through 

 advertising, promotion and other advisory services." 

Atlantic Richfield Co. v. Razumic, 390 A.2d 736, 740 (Pa. 

1978) (quoting Piercing Pagoda, Inc. v. Hoffner, 351 A.2d 

207, 211 (Pa. 1976)). Furthermore, the "cornerstone of a 

franchise system must be the trademark or trade name of 

a product. It is this uniformity of product and control of its 

quality and distribution which causes the public to turn to 

franchise stores for the product." Atlantic Richfield, 390 

A.2d at 740 (quoting Susser v. Carvel Corp., 206 F. Supp. 

636, 640 (S.D.N.Y. 1962), aff'd, 332 F.2d 505 (2d Cir. 

1964)). Under Pennsylvania law, "[t]he ownership of a 

trade-mark has, in general, been considered as a right of 

property." Appeal of Laughman, 18 A. 415, 416 ( Pa. 1889). 

Trademarks are property, and franchises are licenses to 

use such property. Thus, under Pennsylvania law, these 

franchises are interests in property, and as such are 

property of the estate under section 541. Cf.5 Collier on 

Bankruptcy P 541.06[5] (Lawrence P. King et al. eds., 15th 

ed. rev. 1997) ("The debtor's estate includes any interest 

under an executory contract to purchase goods either from 

or by the debtor."). They are also covered by section 363, 

although the procedure for their transfer is delineated by 

section 365. Therefore, section 363(m) governs the sale of 

the franchises here, notwithstanding that section 365 

applies to the particular mechanics of conveyance. 

A case cited by Krebs for the opposite result actually 

supports our conclusion. Recognizing the operation of both 

section 363 and 365 in the transfer of executory contracts, 

the Court of Appeals for the Ninth Circuit stated that before 

a sale of an executory contract may be concluded under 

section 363, it must be assumed under section 365. See In 

re Qintex Entertainment, Inc., 950 F.2d 1492, 1495 (9th Cir. 

1991). This was necessary because under Ninth Circuit 

precedent, unassumed executory contracts are not part of 

the bankruptcy estate. Id. Thus, Qintex supports our 

conclusion that section 363 governs the "sales" of contracts 

here. Section 365 provides some limitations and conditions 

to assignments; none of which negates the applicability of 

section 363 to the sale, at auction, of the franchises. 

 14 
Nor is our decision in In re Joshua Slocum Ltd., 922 F.2d 

1081 (3d Cir. 1990), to the contrary. In Slocum, the debtor, 

a lessee of retail space in a shopping center, requested and 

received authorization from the bankruptcy court to

assume and assign its lease to a third party. The 

bankruptcy court approved the assignment but amended 

the assigned lease to delete an average sales requirement 

clause. The district court affirmed without opinion, and 

thus denied the lessor's motion to dismiss for mootness. On 

appeal, the appellee again moved to dismiss the appeal as 

moot, citing section 363(m). 

Although we found that the appeal was not moot, Slocum 

does not control our decision here. There, the Trustee 

requested and received "authorization to assume and

assign the Lease pursuant to 11 U.S.C. S 365." Id. at 1084. 

However, the Trustee never attempted to sell the the Lease 

under section 363, 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 1085. Unlike 

Slocum, the bankruptcy judge in this case authorized both 

an assumption under section 365 and a subsequent sale 

under section 363. The bankruptcy court also conducted 

an auction for purposes of selling the franchises under the 

rules implementing section 363, which state that "all sales 

not in the ordinary course of business may be by private 

sale or by public auction." Fed. R. Bankr. P. 6004(f)(1). 

There is no parallel provision under section 365 or its 

companion, Fed. R. Bankr. P. 6006. For all these reasons, 

Slocum does not foreclose our conclusion that the sale of 

the franchises is covered by section 363(m). 

B. 

Section 363 allows the sale or lease of property of the 

estate, not in the ordinary course of business, but imposes 

a limit on appellate review: 

 "The reversal or modification on appeal of an 

 authorization under subsection (b) or (c) of this section 

 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, 

 15 
 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 earlier identified two possible 

constructions of this subsection, without adopting either. 

See Pittsburgh Food & Beverage, Inc. v. Ranallo, 112 F.3d 

645, 648-49 (3d Cir. 1997). One construction, followed by 

a majority of courts of appeals, is a per se rule, mooting 

appeals absent a stay of the sale or lease at issue. See id. 

at 649-51 (citing cases of the 1st, 2d, 5th, 7th, 11th, and 

D.C. Circuits); see also In re Onouli-Kona Land Co., 846 

F.2d 1170, 1173 (9th Cir. 1988) (following per se rule with 

one exception: appeals not moot where property is sold to 

a creditor who is a party to the appeal and the sale is 

subject to a statutory right of redemption). 

A second formulation comes from how we construed a 

parallel provision in the Code, section 364(e), which governs 

the validity of debts or liens granted to a good faith 

creditor: 

 "The reversal or modification on appeal of an 

 authorization under this section to obtain credit or 

 incur debt, or of a grant under this section of a priority 

 or a lien, does not affect the validity of any debt so 

 incurred, or any priority or lien so granted, to an entity 

 that extended such credit in good faith, whether or not 

 such entity knew of the pendency of the appeal, unless 

 such authorization and the incurring of such debt, or 

 the granting of such priority or lien, were stayed 

 pending appeal." 

11 U.S.C. S 364(e). See In re Swedeland Dev. Group, Inc., 16 

F.3d 552 (3d Cir. 1994) (en banc) (discussed in Pittsburgh 

Food, 112 F.3d at 648). 

In construing section 364(e), we refused to adopt a per se 

rule: 

 "[T]here is no escape from the logic that inasmuch as 

 section 364(e) provides for the consequences of the 

 reversal or modification of an order under 364(d) when 

 the order has not been stayed pending appeal, it is 

 impossible to conclude that section 364(e) in itself 

 16 
 requires that an appeal be dismissed if a stay is not 

 obtained. After all, neither Swedeland nor anyone else 

 can explain how there can be a "reversal or 

 modification" of an order, if the appeal from the order 

 has been dismissed. 

 Yet this exercise in logic is not dispositive of the 

 mootness issue for even though section 364(e) standing 

 alone does not require dismissal of an appeal when a 

 stay is not granted, it might establish circumstances 

 which under law other than section 364(e) require 

 dismissal of the appeal. Thus in our consideration of 

 the mootness argument we cannot limit our inquiry to 

 an examination of section 364(e)." 

Id. at 559 (emphasis added). In Swedeland, we held that an 

appeal from a section 364(d) order regarding a loan in 

which a portion of the funds had not been disbursed was 

not moot under general mootness principles because it was 

possible to fashion some meaningful, if only partial, relief. 

Id. at 560-61. Regarding a fully disbursed loan, however, 

the appeal was moot because the district court could not 

fashion any effective relief that would not violate section 

364(e). Id. at 562-63. 

We reject the per se rule. Viewing section 363(m) through 

the prism of Swedeland's construction of section 364(e), 

section 363(m) would not moot every appeal not 

accompanied by a stay. It does, however, restrict 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. That is precisely the 

situation here. Accordingly, there are two prerequisites for 

section 363(m) "statutory" mootness: (1) the underlying sale 

or lease was not stayed pending the appeal, and (2) the 

court, if reversing or modifying the authorization to sell or 

lease, would be affecting the validity of such a sale or lease. 

C. 

Since the first prerequisite is present, we must see 

whether a remedy can be fashioned that will not affect the 

validity of the sale. In doing so, we must look to the 

remedies requested by the appellants. See Pittsburgh Food 

 17 
& Beverage, 112 F.3d at 649-50. Krebs argues that the 

rejection of the buy-sell agreement was improper because 

that contract was not executory, and alternatively, if it was, 

it did not satisfy the business judgment test. Krebs wants 

us to reverse the bankruptcy court's order allowing Valley 

to reject the buy-sell agreement. Naturally, this would have 

an impact on the validity of the auction sale of the JeepEagle franchise, because reversing the rejection would 

necessarily require reversing the subsequent assumption 

and assignment of the underlying franchises. Clearly, this 

remedy is not permitted by section 363(m). 

Krebs also argues that at the very least, it should get 

some form of recoupment, credit or refund for the amount 

it paid under the first installment of the buy-sell

agreement. Under Pittsburgh Food, however, a refund would 

be an attack on the sale price, impermissibly affecting the 

validity of the sale. See Pittsburgh Food, 112 F.2d at 649, 

650; see also In re The Charter Co., 829 F.2d 1054, 1056 

(11th Cir. 1987) ("[A] refund of a portion of the purchase 

price. . . . a central element of a purchase . . . challeng[es] 

the validity of the sale itself."). 

Krebs argues that the relief it requests will not affect any 

third parties, and were we to order a refund, it would only 

come from GMAC, a creditor, not from innocent third

parties who may have already spent the proceeds. Section 

363(m), however, contains no exception for sales to

creditors, or other parties to the bankruptcy proceedings, or 

to deep-pocketed financing companies like GMAC. 

Moreover, as we and other courts have recognized, section 

363(m) was created to promote the policy of thefinality of 

bankruptcy court orders, and to prevent harmful effects on 

the bidding process resulting from the bidders' knowledge 

that the highest bid may not end up being the final sale 

price. Pittsburgh Food, 112 F.3d at 647-48. 

We also reject Krebs's request for recoupment. Under 

that doctrine, a debtor's demand must arise from the same, 

integrated transaction as the claim against it. See In re 

Flagstaff Realty Assocs., 60 F.3d 1031, 1035 (3d Cir. 1995). 

Here, Valley's demand for the auction price derives from the 

auction sale, while Krebs's claim arises from the buy-sell 

agreement. The auction sale and the buy-sell agreement are 

 18 
not a single integrated transaction. Rather, they are 

separate transactions that merely seek to accomplish the 

same result: the transfer of the franchises to Krebs. 

Everything Krebs seeks affects the validity of the sale. 

Thus, under section 363(m), Krebs's appeal is moot 

because it did not receive a stay of the sale pending appeal, 

the sale has since been closed, and the relief it seeks would 

impact the validity of that sale. 

IV. Conclusion 

We hereby dismiss Chrysler's appeal from the district 

court because it did not properly appeal from the 

bankruptcy court and does not have standing as a person 

aggrieved by the bankruptcy court's decision. We also 

dismiss Krebs's appeal as moot for failure to stay the 

franchise sale. This cause is remanded to the district court 

so that it may dismiss Krebs's appeal from the bankruptcy 

court's order. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

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