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. e du/thir dc ir c uit_1998/76Filed 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. 95-01860Argued 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 Dist rict Judge for the District of New Jersey, sitting by designation.

2OPINION OF THE COURT

NYGAARD, Circuit Judge.

Appellants, Krebs Chrysler-Plymouth, Inc. and Chrys ler Corporation, challenge a bankruptcy court's order d enying their motions to reconsider, alter, or amend its pr ior decisions. Those decisions approved the rejection o f a buysell agreement between debtor Valley Motors, Inc. a nd Krebs and the subsequent assumption and auction sal e of the underlying franchises. In response to Chrysler' s appeal, General Motors Acceptance Corporation has filed a m otion to dismiss for lack of standing. We will grant GMAC 's motion and also dismiss Krebs's appeal as moot purs uant to 11 U.S.C. S 363(m) for failing to obtain a stay pending appeal.

I.

Valley Motors, Inc. operates an automobile dealersh ip in the Pittsburgh, Pennsylvania area and is a party to three sales and service franchise agreements. In one of t hese, Chrysler allows Valley to sell and service Jeep and Eagle automobiles. Valley executed a buy-sell agreement t o sell its interest in the Jeep-Eagle franchise to Krebs f or $295,000. Half of that amount was paid upon the exe cution of the buy-sell agreement, and the second half was due upon the occurrence of two events: Chrysler's appro val of the transfer as Jeep-Eagle franchisor and the favor able resolution of any protests filed under state law by Krebs's competitors. Although Chrysler approved the transfe r to Krebs, several competing auto dealerships protested it. When Valley filed its Chapter 11 petition, those pr otests 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, whi ch authorizes a trustee to assume or reject executory contracts. 11 U.S.C. S 365. The protesting dealersh ips objected to the motion. Valley then amended its mot ion to

3further assert that assumption was in the best inte rest of

the bankruptcy estate and satisfied the requirement s of the business judgment rule. Chrysler "conditionally obj ected" to the assumption, alleging that Valley had previously defaulted under the Jeep-Eagle franchise, and it sh ould pay

over two million dollars in lost-volume sales and d amages to Chrysler's intangible assets and provide adequat e assurances of Krebs's future performance under the franchise. Another auto dealer, Ronald Charapp, als o objected, because he had made an offer to purchase all of Valley's franchises, inventory and lease obligation s 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 motio n to assume the buy-sell agreement, but before a deci sion, Valley moved to withdraw its amended motion, arguin g that Charapp's, not Krebs's, offer would be in the best interest of the estate. The next day, the bankruptcy court g ranted Valley's motion to withdraw its amended motion. The day after that, Valley moved to reject the buy-sell agr eement pursuant to section 365. Valley then filed a second motion to sell all its franchises (including the Jeep-Eagl e franchise), parts, shop materials, and fixed and miscellaneous assets to Charapp for $425,000. The m otion 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. Ch rysler and Krebs objected to all three motions. Charapp al so expressed his reservations about the suggested sale because he had learned that Valley's Dodge franchis e was soon to expire, and that Dodge was unwilling to ext end the

term.

The bankruptcy court granted Valley's motions to re ject the buy-sell agreement and to assume and sell the t hree 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-E agle

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

order affirming the sale. Krebs has not paid the ba lance of

the bid and has refused to close on the sale.

Krebs instead moved for reconsideration of the orde rs granting Valley's three motions. Chrysler moved for

reconsideration of the order to assume and the orde r to sell the franchises, but not the order to reject the buy -sell agreement. In response, Valley moved to compel Kreb s to close on the ordered sale. The bankruptcy court den ied Krebs's motions. It found that the buy-sell agreeme nt was executory, that the business judgment test was appl icable, and that Valley satisfied it. Accordingly, it uphel d its order permitting Valley to reject the agreement under sec tion 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 d ue from the auction sale. The bankruptcy court ruled that, at most, Krebs had an unsecured claim because Valley's rejec tion operated as a prepetition breach of the buy-sell ag reement.

Chrysler's arguments largely paralleled Krebs's, ex cept Chrysler also wanted the bankruptcy court to requir e Valley to comply with section 365(b)(1)(A)-(C) and (f)(2), which require debtors who have defaulted on executory con tracts to cure the breaches or provide adequate assurance of future performance before assuming them. Valley opp osed this motion, claiming that its breaches under the f ranchises were nonmonetary obligations excusing the statutory obligation to cure or assure performance. The bankr uptcy court deferred its decision on Chrysler's motion be cause it did not have an adequate record and has yet to sche dule an evidentiary hearing on Chrysler's motion.

Finally, the bankruptcy court granted Valley's moti on to compel Krebs to close on the ordered sale. It rejec ted 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, w here 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 aff irmed the bankruptcy court's decision and adopted its opinion . Now,

5however, 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 jurisdicti on over Krebs's appeal under 28 U.S.C. S 158(a). We exercis e jurisdiction under 28 U.S.C. S 158(d) over final de cisions 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 Chrys ler is not a "person aggrieved" and therefore does not hav e standing to appeal the bankruptcy court's orders. T o support its argument, GMAC points out that, notwithstanding the outcome on the merits, Krebs wi ll be the owner of the Jeep-Eagle franchise; Chrysler wil l not be directly and pecuniarily affected. Chrysler argues that it is a person aggrieved and has standing despite its fai lure to comply with the Federal Rules of Bankruptcy Procedu re.

A. Jurisdiction

Chrysler is in an unusual procedural position becau se it appeals from the district court's affirmance of a b ankruptcy court order it never appealed from. A party may "ap peal from a final judgment, order, or decree of a bankru ptcy 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. More over, the "[f]ailure of an appellant to take any step oth er than the timely filing of a notice of appeal does not affect the validity of the appeal, but is ground only for such action a s the district court . . . deems appropriate." Id. By imp lication, Chrysler's failure to file a notice of appeal to th e district court from the bankruptcy court does affect the val idity of its appeal to the Court of Appeals. See Shareholder s 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 appe llate review."); In re Colon, 941 F.2d 242, 245-46 (3d Ci r. 1991)

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

jurisdiction of the appeal").

Rule 8002 gives persons aggrieved by a bankruptcy o rder ten days to file a notice of appeal. Fed. R. Bankr. P. 8002(a). However, that rule also provides for an ex tension

in certain circumstances:

"Effect of Motion on Time for Appeal. If any party makes a timely motion of a type specified immediat ely below, the time for appeal for all parties runs fro m the entry of the order disposing of the last such moti on outstanding. This provision applies to a tim ely motion: (1) to amend or make additional findings of fact under Rule 7052, whether or not granting the motio n would alter the judgment; [or] (2) to alter or ame nd the judgment under Rule 9023 . . . . A notice of appeal filed after announcement or entry of the jud gment, order, or decree but before disposition of a ny 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 outstandin g. Appellate review of an order disposing of an y of the above motions requires the party, in complia nce with Rule 8001, to amend a previously filed notic e of appeal."

Fed. R. Bankr. P. 8002(b). Because the bankruptcy c ourt 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 no t found its appeal here on that motion. Finally, while Kreb s has appealed the denial of its motion to reconsider, Ch rysler did not appeal that decision, either. Hence, the distri ct court did not have jurisdiction to hear an appeal from Ch rysler. 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 partie s had first appealed a bankruptcy court order to the dist rict court. See Travelers Ins. Co. v. H.K. Porter Co., 4 5 F.3d 737,

7740-41 (3d Cir. 1995) (order granting motion to vac ate

withdrawals and defaults of claims); In re Dykes, 1 0 F.3d 184, 186 (3d Cir. 1993) (order confirming Chapter 1 3 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 tr ustee); In re Fondiller, 707 F.2d 441, 441 (9th Cir. 1983) (or der authorizing employment of special counsel for bankr uptcy trustee). Chrysler cites only one case that even ar guably supports its position regarding our jurisdiction ov er its appeal. In In re Colonial Broad. Corp., 758 F.2d 79 4 (1st Cir. 1985), the bankruptcy court issued an order ac cepting Joaquin Villamil's offer to buy the debtor's assets . The debtor, the committee of debtor's equity security h olders, 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 ac cepting

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

Puerto Rico. The district court dismissed the debto r's appeal for failure to prosecute. Although the equit y security holders and Woods filed separate appeals, the equit y security holders "appeared in Woods' appeal by both filing a statement of intent to join and fully support Woo ds' position and then filing their own brief." Id. at 7 98. 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 le ave to appeal an interlocutory order, the district court d enied leave to appeal because a subsequent bankruptcy cou rt order confirming the sale on different terms mooted the order accepting the bid. All three previous appella nts appealed to the Court of Appeals for the First Circ uit, including the debtor whose appeal had been dismisse d.

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 jurisdic tion over the appeal of the debtor, ACBC. ACBC's appea l . . . was dismissed by the district court for failure to prosecute. No notice of appeal was filed within the thi rty-day period allowed for appeals. Fed. R. App. P. 4(a). The

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

jurisdictional," and ACBC's failure to compl y with these requirements leave this court without jurisd iction."

Id. at 799 (citation omitted). The Court continued, "Nor can we consider ACBC a proper party to appeal the distr ict court's denial of the Woods appeal since, unlike th e Equity Security Holders, ACBC did not either file an appea rance or join in that action." Id. Chrysler now cites this s tatement for the proposition that it can appeal to this Cour t without first appealing from the bankruptcy court because i t

submitted a brief to the district court.

We reject this argument. First, the sentence in Col onial Broadcasting upon which Chrysler relies is dicta, i n light of the Court's previous determination that the debtor' s appeal should be dismissed as untimely. Here, although Chr ysler has timely appealed from the district court's decis ion, it failed to appeal from the bankruptcy court. Second, to allow a party like Chrysler to appear before a court of a ppeals without first appealing to the district court, even if that party somehow participated in the district court proceedings, would nullify bankruptcy rules 8001 an d 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 desi rable or contemplated result. This, however, does not mean t hat a non-party can never appeal a bankruptcy court order . The "person aggrieved" rule covers that situation. If a n 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 affe cted by a bankruptcy court order that "diminishes their prope rty, 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 aggri eved' is normally a question of fact to be determined by the district

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

at 188. Because the facts were undisputed in Travel ers and Dykes, we could reach the standing issues. Here, ho wever, the parties dispute whether Valley's obligations to Chrysler are recoverable under the cure provisions of sectio n 365(b) or are excusable nonmonetary obligations. This prec ise dispute prompted the bankruptcy court to delay ruli ng on Chrysler's motion to reconsider, and it has not rul ed or even scheduled an evidentiary hearing on that motio n. Hence, for now there is simply no record support fo r Chrysler's argument that it is a person aggrieved.

Moreover, we doubt that Chrysler is a "person aggri eved," even under its version of the facts. In its respons e to GMAC's motion to dismiss its appeal, Chrysler alleg ed that it suffered damages because Valley had breached its franchises (although it was going to waive its reme dies if Krebs acquired the franchises through the buy-sell agreement). Admittedly then, Chrysler's only pecuni ary interest is whether it will receive a cure for thos e defaults under section 365. Although the bankruptcy court ha s yet to rule on that issue, Chrysler has not shown how i ts

interest will be affected whether the franchises ar e transferred to Krebs under the buy-sell agreement o r via the auction sale. Even if the franchises were assig ned 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 th em before it could perform under the buy-sell agreemen t. 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 n ot a person aggrieved and does not have standing to purs ue this appeal.

C.

We acknowledge that we have occasionally allowed no nparties to appeal district court decisions in nonba nkruptcy contexts, but those cases are either inapposite or distinguishable. In Delaware Valley Citizens Counci l for Clean Air v. Davis, 932 F.2d 256 (3d Cir. 1991), ci tizens

10groups appealed the dismissal of one of the four co unts in

their complaint. We allowed the EPA to join them, s tating

"we believe that the EPA has a sufficient stake in the outcome of this case to join the Citizens' appeal a s a partyappellant because Pennsylvania could use the judgme nt to collaterally estop the EPA in [a related] administr ative appeal." Id. at 263 n.6. Here, Chrysler does not ar gue 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 harassm ent suit by a female attorney against her former law firm, w e allowed the firm's insurance carrier, Vigilant, sta nding. In doing so, we established the following rule:

"Generally, it is true that those who were n ot 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 fa vor 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 b y 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 wh o owns their franchises. This interest is embodied in the" veto" power it has over a proposed transfer of the Jeep-E agle franchise. However, the transfer under the buy-sell agreement and the auction sale ordered by the bankr uptcy court were both to Krebs--a Chrysler approved assig nee. Therefore, the interest in approving subsequent own ers of Chrysler-product franchises has been satisfied. Chr ysler's equity argument fails. The third element is similar to the person aggrieved test, analyzed above.

11Thus, even under these nonbankruptcy cases, Chrysle r

cannot appeal. In sum, not only has Chrysler attemp ted to circumvent proper procedure, but the bankruptcy cou rt's order has had no direct bearing on its pecuniary in terests. The order has not diminished its property, increase d its burdens or impaired its rights. Those alleged effec ts have already occurred by virtue of Valley's past breache s of the sales and service franchises, and the bankruptcy co urt has yet to decide whether it will order Valley to cure those defaults under section 365. Therefore, we will dism iss 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 vali dity of the Jeep-Eagle franchise sale without first procuri ng 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 3 63(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 su bsection." 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 f ranchises or whether the mootness provision in section 363 al so 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.

12In describing the scope of the bankruptcy estate, s ection

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) an d (c)(2) of this section, all legal or equitable interes ts of the debtor in property as of the commencement of the

case.

11 U.S.C. S 541(a)(1) (emphasis added). To determin e 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 Mod ular Structures, Inc., 27 F.3d 72, 77 (3d Cir. 1994) (co llecting cases). Here, the franchises allowed Valley to sell vehicles in Pennsylvania. The Pennsylvania Board of Vehicles Ac t, Pa. Stat. Ann. tit. 63, S 818.1 et seq. defines a franc hise as:

"The written agreement between any new vehic le manufacturer or distributor and any new vehi cle 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 enactme nt of this definition, the Pennsylvania Supreme Court had opin ed

that:

"[i]n its simplest terms, a franchise is a l icense from the owner of a trademark or trade name permi tting another to sell a product or service under t he name or mark. More broadly stated, the franchise has evolved into an elaborate agreement by which the fra nchisee undertakes to conduct a business or sell a p roduct or service in accordance with methods and proce dures prescribed by the franchisor, and the franch isor

13undertakes to assist the franchisee through

advertising, promotion and other advisory se rvices."

Atlantic Richfield Co. v. Razumic, 390 A.2d 736, 74 0 (Pa. 1978) (quoting Piercing Pagoda, Inc. v. Hoffner, 35 1 A.2d 207, 211 (Pa. 1976)). Furthermore, the "cornerstone of a franchise system must be the trademark or trade nam e of a product. It is this uniformity of product and con trol of its quality and distribution which causes the public to turn to franchise stores for the product." Atlantic Richfie ld, 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 C ir. 1964)). Under Pennsylvania law, "[t]he ownership of a trade-mark has, in general, been considered as a ri ght of property." Appeal of Laughman, 18 A. 415, 416 ( Pa. 1889).

Trademarks are property, and franchises are license s to use such property. Thus, under Pennsylvania law, th ese franchises are interests in property, and as such a re property of the estate under section 541. Cf.5 Coll ier on Bankruptcy P 541.06[5] (Lawrence P. King et al. eds ., 15th ed. rev. 1997) ("The debtor's estate includes any i nterest under an executory contract to purchase goods eithe r from or by the debtor."). They are also covered by secti on 363, although the procedure for their transfer is deline ated by section 365. Therefore, section 363(m) governs the sale of the franchises here, notwithstanding that section 3 65 applies to the particular mechanics of conveyance.

A case cited by Krebs for the opposite result actua lly supports our conclusion. Recognizing the operation of both section 363 and 365 in the transfer of executory co ntracts, the Court of Appeals for the Ninth Circuit stated t hat before a sale of an executory contract may be concluded un der 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 Circu it precedent, unassumed executory contracts are not pa rt of the bankruptcy estate. Id. Thus, Qintex supports ou r conclusion that section 363 governs the "sales" of contracts here. Section 365 provides some limitations and con ditions to assignments; none of which negates the applicabi lity of section 363 to the sale, at auction, of the franchi ses.

14Nor is our decision in In re Joshua Slocum Ltd., 92 2 F.2d

1081 (3d Cir. 1990), to the contrary. In Slocum, th e debtor, a lessee of retail space in a shopping center, requ ested and received authorization from the bankruptcy court to assume and assign its lease to a third party. The bankruptcy court approved the assignment but amende d the assigned lease to delete an average sales requi rement clause. The district court affirmed without opinion , and

thus denied the lessor's motion to dismiss for moot ness. On appeal, the appellee again moved to dismiss the app eal as moot, citing section 363(m).

Although we found that the appeal was not moot, Slo cum does not control our decision here. There, the Trus tee 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 th e Lease under section 363, and the parties conceded that se ction 363(m) did not apply in cases where the Trustee mer ely assigns a lease under section 365. Id. at 1085. Unl ike Slocum, the bankruptcy judge in this case authorize d both an assumption under section 365 and a subsequent sa le under section 363. The bankruptcy court also conduc ted an auction for purposes of selling the franchises u nder the rules implementing section 363, which state that "a ll sales not in the ordinary course of business may be by pr ivate 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 re asons, Slocum does not foreclose our conclusion that the s ale 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 a n authorization under subsection (b) or (c) of this section of a sale or lease of property does not affe ct the validity

of a sale or lease under such authorization to an entity that purchased or leased such property in go od faith,

15whether or not such entity knew of the pende ncy of the

appeal, unless such authorization and such s ale or lease were stayed pending appeal."

11 U.S.C. S 363(m). We earlier identified two possi ble constructions of this subsection, without adopting either. See Pittsburgh Food & Beverage, Inc. v. Ranallo, 11 2 F.3d 645, 648-49 (3d Cir. 1997). One construction, follo wed 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, 1 1th, and D.C. Circuits); see also In re Onouli-Kona Land Co. , 846 F.2d 1170, 1173 (9th Cir. 1988) (following per se r ule with one exception: appeals not moot where property is s old to a creditor who is a party to the appeal and the sal e 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), whi ch governs the validity of debts or liens granted to a good fa ith

creditor:

"The reversal or modification on appeal of a n authorization under this section to obtain c redit or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of a ny debt so incurred, or any priority or lien so granted , to an entity that extended such credit in good faith, whe ther or not such entity knew of the pendency of the appe al, 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 Pit tsburgh 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 in asmuch as section 364(e) provides for the consequences of the

reversal or modification of an order under 3 64(d) when the order has not been stayed pending appeal , it is impossible to conclude that section 364(e) i n itself

16requires that an appeal be dismissed if a st ay is not

obtained. After all, neither Swedeland nor a nyone else can explain how there can be a "reversal or modification" of an order, if the appeal fro m the order

has been dismissed.

Yet this exercise in logic is not dispositiv e of the mootness issue for even though section 364(e ) standing alone does not require dismissal of an appea l when a stay is not granted, it might establish circ umstances which under law other than section 364(e) re quire dismissal of the appeal. Thus in our conside ration of the mootness argument we cannot limit our in quiry 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 partia l, relief. Id. at 560-61. Regarding a fully disbursed loan, ho wever, the appeal was moot because the district court coul d 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) t hrough the prism of Swedeland's construction of section 36 4(e), section 363(m) would not moot every appeal not accompanied by a stay. It does, however, restrict t he results of a reversal or modification of a bankruptcy court 's order authorizing a sale or lease, if reversal or modific ation would affect the validity of the sale or lease. That is p recisely the situation here. Accordingly, there are two prerequi sites for section 363(m) "statutory" mootness: (1) the underl ying 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 sa le or lease.

C.

Since the first prerequisite is present, we must se e whether a remedy can be fashioned that will not aff ect the validity of the sale. In doing so, we must look to the remedies requested by the appellants. See Pittsburg h Food

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

rejection of the buy-sell agreement was improper be cause that contract was not executory, and alternatively, if it was, it did not satisfy the business judgment test. Kreb s wants us to reverse the bankruptcy court's order allowing Valley to reject the buy-sell agreement. Naturally, this w ould have an impact on the validity of the auction sale of th e JeepEagle franchise, because reversing the rejection wo uld necessarily require reversing the subsequent assump tion and assignment of the underlying franchises. Clearl y, 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 a mount 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 affec ting 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 p urchase price. . . . a central element of a purchase . . . challeng[es] the validity of the sale itself.").

Krebs argues that the relief it requests will not a ffect any third parties, and were we to order a refund, it wo uld only come from GMAC, a creditor, not from innocent third parties who may have already spent the proceeds. Se ction 363(m), however, contains no exception for sales to creditors, or other parties to the bankruptcy proce edings, or to deep-pocketed financing companies like GMAC. Moreover, as we and other courts have recognized, s ection 363(m) was created to promote the policy of thefina lity of bankruptcy court orders, and to prevent harmful eff ects on the bidding process resulting from the bidders' kno wledge 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. Unde r that doctrine, a debtor's demand must arise from th e same, integrated transaction as the claim against it. See In re Flagstaff Realty Assocs., 60 F.3d 1031, 1035 (3d Ci r. 1995). Here, Valley's demand for the auction price derives from the auction sale, while Krebs's claim arises from the b uy-sell agreement. The auction sale and the buy-sell agreem ent are

18not a single integrated transaction. Rather, they a re

separate transactions that merely seek to accomplis h the

same result: the transfer of the franchises to Kreb s.

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 pendi ng appeal, the sale has since been closed, and the relief it s eeks would impact the validity of that sale.

IV. Conclusion

We hereby dismiss Chrysler's appeal from the distri ct court because it did not properly appeal from the bankruptcy court and does not have standing as a pe rson aggrieved by the bankruptcy court's decision. We al so dismiss Krebs's appeal as moot for failure to stay the

franchise sale. This cause is remanded to the distr ict court so that it may dismiss Krebs's appeal from the bank ruptcy

court's order.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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