Source: https://law.justia.com/cases/federal/appellate-courts/F3/90/1472/593903/
Timestamp: 2019-11-21 19:04:36
Document Index: 378359192

Matched Legal Cases: ['§ 157', '§ 157', '§ 157', '§ 157', '§ 157', '§ 541', '§ 541', '§ 45']

In Re Vylene Enterprises, Inc., Debtor.vylene Enterprises, Inc., Plaintiff-appellant, v. Naugles, Inc., Defendant-appellee, 90 F.3d 1472 (9th Cir. 1996) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1996 › In Re Vylene Enterprises, Inc., Debtor.vylene Enterprises, Inc., Plaintiff-appellant, v. Naugles, In...
In Re Vylene Enterprises, Inc., Debtor.vylene Enterprises, Inc., Plaintiff-appellant, v. Naugles, Inc., Defendant-appellee, 90 F.3d 1472 (9th Cir. 1996)
U.S. Court of Appeals for the Ninth Circuit - 90 F.3d 1472 (9th Cir. 1996) Argued and Submitted March 8, 1996. Submission Vacated April 3, 1996. Resubmitted May 1, 1996. Decided July 29, 1996. As Amended on Denial of Rehearing andRehearing En Banc Sept. 12, 1996. *
The bankruptcy judge held that Naugles' counterclaims and motion for preliminary injunction concerned the continued use of property by the debtor, and thus the case was a core proceeding within the literal language of 28 U.S.C. § 157(b) (2) (M). In ruling on the merits of Naugles' motion for preliminary injunction, the bankruptcy judge found that the failure of the parties to negotiate in good faith for a renewal of the franchise agreement resulted in the failure of a condition precedent to the expiration of the agreement. Thus, the bankruptcy judge held that the franchise agreement was still in effect and Vylene's continued use of the trademark was proper.
Naugles appealed the bankruptcy court's denial of its motions for preliminary injunction and for relief from the stay. The district court reversed, holding that the bankruptcy judge had misinterpreted the right of first refusal clause in the franchise agreement and that Vylene had no right to renew under the agreement. In re Vylene Enterprises, Inc., CV 86-72881 JSL, Order Reversing and Remanding to Bankruptcy Court (C.D. Cal. June 25, 1987), appeal dismissed sub nom., Naugles Inc. v. Vylene Enterprises, Inc., 891 F.2d 295 (9th Cir. 1989). Vylene appealed the district court's order to this court. The appeal, however, was dismissed as moot, and the bankruptcy court order denying a preliminary injunction and the district court order reversing and remanding were vacated. The appeal became moot because the bankruptcy court had granted Naugles' renewed motion for relief from the automatic stay and allowed Naugles to take possession of the franchise premises due to Vylene's failure to pay franchise fees and rent pursuant to the court's provisional order. Further, Vylene's Chapter 11 proceeding had been converted into a Chapter 7 case based on Vylene's failure to comply with the financial reporting requirements imposed upon a debtor in possession.
Title 28 of the U.S.C., § 157(b) (1) states: "Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11 ... and may enter appropriate orders and judgments, subject to review under section 158 of this title." Section 157(b) (2) sets forth a nonexclusive list of proceedings Congress deemed to be core proceedings:
Additionally, under § 157, if a proceeding is not a core proceeding, but is related to a case under title 11, the bankruptcy judge may hear the case, as an adjunct of the district court, and submit proposed findings of fact and conclusions of law to the district court, with any final order or judgment to be entered by the district court after a de novo review of any matter to which a party has properly objected. 28 U.S.C. § 157(c) (1).
Because the issue here is whether the bankruptcy court had jurisdiction to enter a final judgment on the adversary proceedings, we conduct a de novo review. In re Castlerock Prop., 781 F.2d 159, 161 (9th Cir. 1986).
A bankruptcy court lacks jurisdiction "to make final determinations in matters that could have been brought in a district court or a state court." In re Thomas, 765 F.2d 926, 929 (9th Cir. 1985). Nevertheless, § 157(b) (2) (M) specifically provides that "orders approving the use or lease of property, including the use of cash collateral," are core proceedings.
Title 11 U.S.C. § 541(a) (1) defines property of the estate as follows: " [A]ll legal or equitable interest of the debtor in property as of commencement of the case." The franchise agreement and the rights conferred therein are clearly assets of the bankruptcy estate. See In re Tudor Motor Assoc., 102 B.R. 936, 948 (D.N.J. 1989) (holding that the "franchisee's contractual rights in a Franchise Agreement are generally considered property of the estate, except where said agreements have been effectively terminated prior to a debtor's filing."); cf. Steffan v. Malakoff, 99 B.R. 27, 29 (E.D. Cal. 1989) (stating that debtor's pre-petition option contract is property of the estate as contemplated in 11 U.S.C. § 541(a) (1)).
Ablett v. Clauson, 43 Cal. 2d 280, 272 P.2d 753, 756 (1954), quoting, 1 Williston, On Contracts (Rev. Ed.1936) 131, § 45. The Ablett court went on to state that "an option agreement which leaves an essential term to future agreement is not enforceable." Id. See Okun v. Morton, 203 Cal. App. 3d 805, 250 Cal. Rptr. 220 (1988) (acknowledging that the defense of uncertainty has validity if the uncertainty or incompleteness of the contract prevents the court from ascertaining what to enforce).
However, Vylene's payment of the $38,121 in August cured its default, and gave Vylene the right to assume the franchise agreement until the contract expired in December 1995. The franchise agreement clearly stated that the franchisee had the right, upon giving timely notice, to extend the franchise agreement "on terms and conditions to be negotiated within said sixty (60) days." Thus, although the terms of the renewal provision did not give Vylene a guaranteed right to renew on a determinable basis, the provision obligated Naugles to negotiate in good faith concerning the terms and conditions of a renewal. See Dayton Time Lock Service, Inc. v. Silent Watchman Corp., 52 Cal. App. 3d 1, 124 Cal. Rptr. 678 (1975) (holding that the implied covenant of good faith and fair dealing applies with equal vigor to franchise agreements).
It is undisputed that neither the bankruptcy court nor the district court found that Vylene had exclusive territory under the franchise agreement. In Eichman v. Fotomat Corp., 880 F.2d 149, 164 (9th Cir. 1989), we held, " [W]here there is no express grant of an exclusive territory in a contract or franchise agreement, none will be impliedly read into the contract." Notwithstanding, under California law, all contracts have an implied covenant of good faith and fair dealing. Harm v. Frasher, 181 Cal. App. 2d 405, 417, 5 Cal. Rptr. 367 (1960).
In this case, the bankruptcy court determined that Naugles breached the covenant of good faith and fair dealing by constructing a competing restaurant within a mile and a half from Vylene's restaurant. In Scheck v. Burger King Corp., 756 F. Supp. 543 (S.D. Fla. 1991), the court held, on facts similar to those present in this case, that the franchisee, although not entitled to an exclusive territory, was still entitled to expect that the franchisor would "not act to destroy the right of the franchisee to enjoy the fruits of the contract." Id. at 549.