In Re Revel AC, Inc.
2015 U.S. App. LEXIS 17192
3rd Cir.2015Background
- Revel opened a $2.4 billion Atlantic City casino in 2012 and leased space to IDEA Boardwalk, LLC to operate two nightclubs and a beach club; IDEA contributed $16 million toward build-out.
- Revel entered bankruptcy in 2014 and sought to sell the Casino under 11 U.S.C. § 363 free and clear of interests, including leases.
- IDEA sued and sought a declaratory judgment and injunctive relief asserting its rights under 11 U.S.C. § 365(h) to remain in possession despite any rejection.
- Revel negotiated a stalking-horse/backup sale (Polo North / Brookfield); Bankruptcy Court approved sale free and clear based on finding a bona fide dispute under § 363(f)(4) and that § 363 could extinguish possessory rights under § 365(h).
- IDEA moved for a stay pending appeal (to prevent § 363(m) from mooting review); the Bankruptcy Court and District Court denied the stay.
- The Third Circuit reversed the District Court and granted a limited stay of the Sale Order as to extinguishment of IDEA’s lease, holding IDEA showed likely success on the merits and irreparable harm and that Revel failed to prove sufficient countervailing harm.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a stay pending appeal should issue to prevent § 363(m) from mooting IDEA's appeal | IDEA: sale free and clear would moot appeal under § 363(m); needs stay to preserve appellate review | Revel: sale should proceed; denying a stay will not cause irreparable harm to IDEA because its business already closed and rejection damages suffice | Court: Stay granted as to extinguishment of IDEA's lease because IDEA showed sufficient likelihood of success and irreparable harm; balance of harms favored IDEA |
| Whether § 363(f) can extinguish a lessee’s possessory rights under § 365(h) | IDEA: § 365(h) protects possessory rights even if debtor sells under § 363; sale cannot wipe out those rights | Revel: § 365(h) applies to rejection, not sales; follow Qualitech (Seventh Circuit) that § 363 can cut off possessory rights if § 363(f) satisfied | Court: Did not adopt a categorical rule here; focused on whether § 363(f)(4) (bona fide dispute) was satisfied and found IDEA’s lease validity was not credibly disputed, so § 363(f) could not be invoked to extinguish IDEA’s rights |
| Whether a bona fide dispute existed under § 363(f)(4) about the validity of IDEA’s lease | IDEA: its complaint sought § 365(h) protections and did not meaningfully put lease validity in bona fide dispute; the lease on its face is a true lease | Revel: IDEA’s declaratory actions and Revel’s denials create an actual controversy such that a bona fide dispute exists | Court: A mere declaratory action or denial is insufficient; bona fide dispute requires an objective factual or legal basis to doubt lease validity — Revel presented no such evidence, so § 363(f)(4) was not satisfied |
| Whether the District Court’s denial of a stay was appealable | IDEA: denial effectively final because § 363(m) would moot any appeal absent a stay | Revel: argues lack of appellate jurisdiction | Court: Denial was appealable under 28 U.S.C. § 158(d)(1) because practical finality (risk of mootness) justified review |
Key Cases Cited
- Precision Indus., Inc. v. Qualitech Steel S.B.Q., L.L.C., 327 F.3d 537 (7th Cir. 2003) (argues § 363 sales can extinguish possessory rights under some circumstances)
- Nken v. Holder, 556 U.S. 418 (2009) (articulates stay factors and that likelihood of success and irreparable harm are most critical)
- Hilton v. Braunskill, 481 U.S. 770 (1987) (sets four-factor stay/preliminary injunction framework)
- Singer Mgmt. Consultants, Inc. v. Milgram, 650 F.3d 223 (3d Cir. 2011) (standard for ‘‘reasonable chance or probability’’ of success on the merits in stay context)
- In re Trans World Airlines, Inc., 18 F.3d 208 (3d Cir. 1994) (practical finality in bankruptcy appeals; appeals of stay orders may be reviewable when denial would moot substantive appeal)