A & F Enterprises, Inc. v. IHOP Franchising LLC
742 F.3d 763
7th Cir.2014Background
- Ali Alforookh operates IHOP franchises in WI, IL, and MO through entities including A & F Enterprises, Inc. II, which are in Chapter 11 bankruptcy.
- Debtors’ primary assets are 17 IHOP franchise agreements plus related building and equipment leases.
- Dispute centers on the deadline to assume contracts: § 365(d)(4) imposes a 120-day limit for nonresidential leases, while § 365(d)(2) provides a longer period for executory contracts like franchises.
- A&F did not timely assume the building leases or seek extensions; IHOP contends leases were rejected and cross-defaults caused franchise/equipment leases to expire.
- A&F argues the leases and franchise agreements are inseparably linked, so § 365(d)(2) should apply to the whole arrangement.
- Bankruptcy court and district court orders deemed the leases rejected and franchise agreements expired; A&F appealed and obtained an emergency stay, with issue now whether to continue stay pending merits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 365(d)(4) controls or an inseparable-franchise arrangement should use § 365(d)(2). | A&F: longer § 365(d)(2) applies to whole arrangement. | IHOP: § 365(d)(4) text controls; no franchise exception. | Unclear text; stay decision hinges on balance of harms rather than sole merits. |
| Whether a stay pending appeal is warranted given potential irreparable harm to A&F and public interests. | A&F risks irreparable loss of franchises and reorganization prospects. | IHOP argues reputational harm and potential public-impact concerns are less severe than termination of franchise rights. | Court grants stay, finding greater irreparable harm to A&F and favorable balance for stay. |
Key Cases Cited
- In re Forty-Eight Insulations, Inc., 115 F.3d 1294 (7th Cir.1997) (stay standard mirrors preliminary-injunction standard; avoid costs of error)
- Stuller, Inc. v. Steak N Shake Enters., Inc., 695 F.3d 676 (7th Cir.2012) (sliding-scale approach to stay/preliminary relief)
- Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380 (7th Cir.1984) (irreparable harm considerations in stay analysis)
- Sunbeam Prods., Inc. v. Chicago American Mfg., LLC, 686 F.3d 372 (7th Cir.2012) (warned against equitable exceptions to clear bankruptcy provisions)
- In re FPSDA I, LLC, 450 B.R. 392 (Bankr.E.D.N.Y.2011) (franchise-bound leases and applicable § 365(d)(4))