UNPUBLISHED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Dismissed by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.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 remarkable 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 General 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 pursuant 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 management contract. Unencumbered by the lease, the value of the property 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 district 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 counterclaim 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 decision. 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 interlocutory. 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 determination. But the bankruptcy court "preserved for independent adjudication 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 proceeding. 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 properly 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 consolidated 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 judgment"). Such is the case even where the counterclaim has been severed 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 exception 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 decision, see Spacek v. Thomen (In re Universal Farming Indus.), 873

F.2d 1334, 1335 (9th Cir. 1989). This appeal is not yet moot because

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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 disposes 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 petition 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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