Pinnacle Restaurant at Big Sky, LLC v. CH SP Acquisitions, LLC
862 F.3d 1148
| 9th Cir. | 2017Background
- Spanish Peaks Holdings (SPH) owned a large Montana resort encumbered by a senior mortgage; two long-term, low-rent commercial leases (Pinnacle and Opticom) were junior to that mortgage.
- SPH and related entities filed Chapter 7; the Chapter 7 trustee negotiated a sale of substantially all property by auction with a minimum bid and contemplated a sale "free and clear" of third‑party interests.
- CH SP won the auction with a bid conditioned on acquiring the property free and clear of the leases. Pinnacle and Opticom objected, claiming rights to retain possession under 11 U.S.C. § 365(h).
- The bankruptcy court approved the sale, later held an evidentiary hearing, found facts supporting termination of the leasehold interests under applicable law, and concluded the sale was free and clear of the leases.
- The district court affirmed; the Ninth Circuit reviewed de novo whether § 363 or § 365 governed and affirmed the sale free and clear of the leases.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a trustee may sell estate property free and clear of unexpired leases under 11 U.S.C. § 363 when the trustee has not "rejected" the leases | Pinnacle/Opticom: § 365(h) protects lessees from losing possession; a § 363 sale cannot override § 365 protections | CH SP/Trustee: § 363 authorizes free‑and‑clear sales; § 365(h) governs only when the trustee rejects a lease | Court: § 363 and § 365 are harmonious; where leases are not rejected, § 363 governs sales and may extinguish junior leaseholds under § 363(f)(1) if nonbankruptcy law permits |
| Whether § 363(f)(1) applies when state nonbankruptcy law (foreclosure rule) would terminate junior leases | Pinnacle/Opticom: sale should not be allowed to defeat § 365(h) rights simply by invoking § 363 | CH SP/Trustee: § 363(f)(1) permits sales free and clear if applicable nonbankruptcy law allows such a sale (e.g., foreclosure rule) | Court: § 363(f)(1) applies; Montana law treats foreclosure as terminating junior leases, so sale could be free and clear |
| Whether the trustee’s failure to assume/reject leases was deemed a rejection triggering § 365(h) protections | Pinnacle/Opticom: argue protections under § 365(h) arise because sale effectively ousted their possession | CH SP/Trustee: leases were not "rejected" under the Code; statutory deemed‑rejection provisions do not apply here | Court: leases were not rejected (no statutory deemed rejection); § 365(h) was not triggered |
| Whether lessees were entitled to adequate protection under § 363(e) before sale | Pinnacle/Opticom: they were entitled to adequate protection and could have sought continued possession or other relief | CH SP/Trustee: sale proceeded; lessees did not timely request adequate protection prior to sale | Court: § 363(e) provides mandatory protection if requested; lessees did not seek protection in time, and the issue is distinct from whether § 363(f)(1) authorized the sale |
Key Cases Cited
- Precision Indus., Inc. v. Qualitech Steel SBQ, LLC, 327 F.3d 537 (7th Cir. 2003) (held §§ 363 and 365 are not in conflict; § 363 permits free‑and‑clear sales while § 365 governs rejection)
- Ruby Valley Nat’l Bank v. Wells Fargo Del. Tr. Co., 317 P.3d 174 (Mont. 2014) (Montana law: foreclosure sale terminates junior leases)
- Williard v. Campbell, 11 P.2d 782 (Mont. 1932) (state rule that sale/foreclosure may terminate subordinate leasehold)
- Simpson v. Burkart (In re Simpson), 557 F.3d 1010 (9th Cir. 2009) (standard: de novo review for statutory interpretation in bankruptcy appeals)