John Q. Hammons Fall 2006, LLC v. United States Bankruptcy Court for the District of Kansas - Kansas City
16-37
10th Cir. BAPDec 28, 2017Background
- Debtors: the Revocable Trust of John Q. Hammons (the Trust) and 71 affiliates that own or operate hotels; the Trust had entered a 2005 right-of-first-refusal (ROFR) in favor of JD Holdings covering certain hotels.
- JD Holdings sued the Trust and Affiliates in Delaware chancery court in 2012 alleging breach of the ROFR; the Delaware court entered a status-quo order in 2015 restricting transfers outside the ordinary course.
- The Debtors filed Chapter 11 petitions in June–July 2016. JD Holdings moved to dismiss/abstain/lift stay arguing (among other things) the Trust was ineligible to be a debtor and the Affiliates lacked authority to file.
- Debtors filed a separate motion to reject the ROFR under § 365, arguing rejection was an exercise of business judgment; JD Holdings objected but expressly conceded it would not contest the business-judgment exercise.
- The bankruptcy court held it had jurisdiction to decide the rejection motion despite pending challenges to eligibility/authority, granted rejection, and entered the Rejection Order. JD Holdings appealed.
- The Bankruptcy Appellate Panel limited review to the Rejection Order, held eligibility/authority issues were not before it, and affirmed rejection as undisputedly within the Debtors’ business judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court had jurisdiction to decide the rejection motion while eligibility to be a debtor under § 109(a) was contested | JD Holdings: the Trust must be proven a business trust eligible under § 109(a) before the court may allow rejection because eligibility is an essential element | Debtors: eligibility is not a jurisdictional prerequisite and the court may decide other matters first | Court: jurisdiction existed; eligibility is not jurisdictional and court could resolve rejection motion |
| Whether the bankruptcy court could consider the rejection motion while the Affiliates’ authority under state law to file was contested | JD Holdings: lack of corporate/authority to file deprives the court of jurisdiction and mandates dismissal | Debtors: authority-to-file is a merits/threshold issue, not a jurisdictional bar to deciding other motions | Court: authority-to-file limitation is not jurisdictional for purposes of resolving the rejection motion; court could proceed |
| Whether rejection of the ROFR was a proper exercise of business judgment under § 365 | JD Holdings conceded it would not contest the Debtors’ exercise of business judgment on rejection | Debtors: rejection was an exercise of sound business judgment and benefited the estate | Court: rejection was within Debtors’ business judgment; affirmed Rejection Order |
| Whether the appellate panel should consider dismissal/bad-faith filing arguments raised in the Dismissal Motion | JD Holdings sought dismissal and argued those issues should be resolved first | Debtors: rejection motion ripe and properly decided regardless of dismissal motion | Court: those dismissal issues were not decided below in the Rejection Order and are not before this appeal; the panel limited review accordingly |
Key Cases Cited
- In re Hamilton Creek Metropolitan Dist., 143 F.3d 1381 (10th Cir. 1998) (eligibility under § 109 is not jurisdictional and court may decide merits while eligibility is contested)
- Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998) (court must not assume jurisdiction and proceed to merits contrary to jurisdictional principles)
- Price v. Gurney, 324 U.S. 100 (1945) (case filed by parties without corporate authority may require dismissal; courts lack power to validate unauthorized filers)
- Arbaugh v. Y & H Corp., 546 U.S. 500 (2006) (distinguishes jurisdictional limitations from merits-related prerequisites; focus on whether Congress clearly intended a rule to be jurisdictional)
- Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428 (2011) (clarifies test for whether a statutory limitation is jurisdictional and emphasizes Congress’s intent)