IDEA Boardwalk, LLC v. Revel AC, Inc. (In re Revel AC, Inc.)
525 B.R. 12
D.N.J.2015Background
- Revel Casino (Debtors) filed Chapter 11 and sought to sell virtually all assets. The Bankruptcy Court approved a sale to Polo North "free and clear" under 11 U.S.C. § 363(f), and expressly stated the sale would extinguish possessory rights asserted under § 365(h).
- Four appellant groups challenged the Sale Order: IDEA Boardwalk (nightlife operator), several "Amenity Tenants" (restaurants/retail), ACR Energy (power plant operator) — collectively the "365(h) Appellants" — and IGT (secured seller of gaming machines).
- The 365(h) Appellants argued alternatively that (1) § 365(h) prevents a § 363(f) sale from extinguishing their possessory leasehold rights; (2) even if § 363(f) can apply, the Debtors did not meet any § 363(f) statutory ground (esp. § 363(f)(4) bona fide dispute); and (3) the sale lacked adequate protection under § 363(e). IGT raised secured‑creditor protection concerns.
- At the sale hearing the Bankruptcy Court relied on Precision Industries v. Qualitech (7th Cir.) reasoning that § 363(f) can permit a free‑and‑clear sale despite § 365(h), and found sufficient record support to conclude bona fide disputes existed under § 363(f)(4); it also preserved lien/distribution disputes for post‑closing resolution.
- Appellants moved in district court for a partial stay pending appeal. The district court applied the four‑factor preliminary‑injunction/stay test (likelihood of success, irreparable harm, injury to others, public interest) and denied the motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a § 363(f) sale can extinguish possessory rights created by § 365(h) | § 365(h) gives tenants a statutory right to remain in possession after rejection; that right cannot be nullified by a § 363(f) "free and clear" sale | § 365(h) and § 363(f) address different events and can be reconciled; Qualitech supports that § 363(f) can extinguish such interests if one of § 363(f)'s conditions is met | Court found no clear likelihood of success; law is unsettled and the issue is in equipoise but the Bankruptcy Court’s approach is supportable; no stay granted |
| Whether bona fide disputes exist under § 363(f)(4) concerning whether agreements are leases | Appellants: record shows they hold leases; no bona fide dispute exists about lease status | Debtors: the bankruptcy record and proffers show objective bases to dispute whether certain agreements are true leases (interconnected contracts, partner‑like arrangements) | Court affirmed that the Bankruptcy Court’s factual finding of bona fide disputes was not clearly erroneous; appellants failed to show likelihood of success |
| Whether appellants were entitled to "adequate protection" under § 363(e) (possession vs. money) | Appellants: adequate protection requires preservation of possession (not merely money or unsecured claims) | Debtors: adequate protection can be satisfied by preservation of claim rights and lien priorities; awarding possession would upend creditor priorities and is not necessary here | Court found no clear error in Bankruptcy Court’s view that appellants’ interests were adequately protected (claims/lien processes preserved); appellants did not show likelihood of success |
| Whether IGT (secured creditor) would suffer irreparable harm absent a stay | IGT: sale could impair its rights in equipment/priority | Debtors: Sale Order preserves proceeds in segregated account and preserves IGT’s ability to litigate lien priority; monetary loss alone is not irreparable | Court held IGT cannot show irreparable harm or public‑interest support for a stay; motion denied |
Key Cases Cited
- Precision Indus., Inc. v. Qualitech Steel SBQ, LLC, 327 F.3d 537 (7th Cir. 2003) (section 363(f) sales can, under circumstances, extinguish possessory rights even when § 365(h) provides possessory options)
- In re W.R. Grace & Co., 475 B.R. 34 (D. Del. 2012) (discussion of standards for stays pending appeal and equitable mootness in bankruptcy sales)
- Dishi & Sons v. Bay Condos LLC, 510 B.R. 696 (S.D.N.Y. 2014) (interpreting interaction of §§ 365(h) and 363(f) and supporting treatment of § 363(f) as able to extinguish appurtenant lessee rights if § 363(f) conditions met)
- In re Crumbs Bake Shop, Inc., 522 B.R. 766 (Bankr. D.N.J. 2014) (contrast decision addressing § 365 protections in sales of IP and related analysis)
- Nordhoff Invs., Inc. v. Zenith Elecs. Corp., 258 F.3d 180 (3d Cir. 2001) (public‑policy interest in finality of bankruptcy orders relevant to stay analysis)
- Hilton v. Braunskill, 481 U.S. 770 (1987) (articulating factors for stay pending appeal / injunctive relief)