In the Matter of West Electronics Inc. Appeal of United States of America, by the United States Air Force

to create designed not structuring was would company which

new, reorganized long term.” for in existence

continue contrary to is not Lackawanna Erie

our result.8

V. be why CJI should basis no

findWe of either liability by operation of

relieved Accordingly, case law.

statutory or affirmed. court will be district Matter WEST

In the INC.

ELECTRONICS

Appeal STATES of UNITED

America, by the UNITED FORCE. AIR

STATES

No. 87-5782. Appeals, Court States

United

Third Circuit. 5,May 1988.

Argued 1988.

Decided company elect continue reorganized could agree Lacka- that Erie Judge does not 8. Becker Indeed, company. in 1983 operating in both distinguishable. He notes that as an wanna is conducted proceeding was continued directors recommended Erie board existence, cases the 77 of statutory vote although framework —section under the shareholder’s Act, “only re- with Bankruptcy deferred, deals which at the recommendation was on the Lackawanna, organization.” Erie decided there Erie time Lackawanna Moreover, be- he (emphasis original). actually liquidation would no assurance distinguishable in the cases are lieves that disposition of place. Thus ultimate take "underlying the case. realities" of terms of significant- Judge strike Becker Erie does not regard in both Atty., progress payments pending Tren- on the contract Dorothy Donnelly, Asst. U.S. ton, N.J., Dwight (argued), Ap- of West’s financial At G. Rabuse review status. Div., Staff, Dept, pellate U.S. of Jus- that time had not made its first deliv- Civil D.C., contract, tice, appellant. though Washington, eries under it asserts delivery late November its first (argued), Ferguson Michael Zin- Kathryn passed inspection. 60 units final West indi- dler, Zindler, Lawrenceville, Markowitz and suspension progress cates that the Electronics, N.J., appellee West Inc. payments compelled it to deliver some of another power units to customer will- HIGGINBOTHAM, Before ing pay immediately. to cash GREENBERG, STAPLETON Judges. Circuit government’s review revealed what irregularities in

it considered to be serious OPINION OF THE COURT accounting procedures. West’s Overall the contracting officer concluded GREENBERG, Judge. Circuit delinquency delivering of West’s appeal the court on This matter before units, power supply the failure of its ac- of the district court entered from order counting systems, delinquency paying its 8, in a case September costs attributable to the contract and the presents question of whether the auto unliquidated progress payments excess stay provisions of 11 U.S.C. matic progress, to work in the contract should be government should lifted so be suspended. may terminate a contract entered into with 9, government December 1986 the On sought contractor relief a defense before served an administrative notice on West Chapter Bankruptcy under Code. why it to show cause the contract germane disposition to the of this The facts responded appeal dispute not in and thus our should not be terminated. West 19, by legal precepts plenary. explaining and is on December review is Adams, 1099, impact availability the limited United States v. (3d Cir.1985), denied, 18, inspectors. cert. 474 U.S. ment On December 906, 971, 106 275, 336, 236, S.Ct. 88 L.Ed.2d seized West’s the Internal Revenue Service below, $779,449.40. For the reasons stated satisfy to a lien of assets we hold that the automatic should peti- filed a On December 1986 West have been lifted so that the contract could Chapter under 11 of the tion for relief terminated. be Bankruptcy Code and became a debtor possession. At that time it obtained an temporari- order from the ly restraining the Internal Revenue Service In 1986 the United States entered into a seizing removing property from its or Electronics, contract with West hearing a con- premises. subsequent At a supply which West was to a substantial permitted sent order was entered which power AIM-9 number of missile launcher regain premises. of its West to supply units to the Air Force. While West course, stay provisions of Of the automatic expected very profitable, this contract to be triggered when the 362 were ability perform it contends that its petition was filed. impaired by government’s failure to Nevertheless, inspectors make available. January moved in the On 1987 West time time West did from receive bankruptcy compelling court for an order progress payments under the contract. pay- progress to make February On comput- West suffered a ments on the contract. In October 1986 destroyed 1987 the filed cross-motion er malfunction which its account- records, permitting it to terminate ing seeking which it does not an order misfortune lifting either the court government. On Novem- attribute appropri- suspended stay or in some other 1986 the automatic ber addition, surprising It is therefore not that on the ate manner. party originally ques- to us neither it to abso- permitting take sought an jurisdiction. our in tioned Nevertheless parts and work possession of the lute possibly nature of the bankruptcy tentative to the contract. progress identifiable judge’s order which denied the mo- bankruptcy judge denied both The premature motion as and the con- judge concluded premature. The tions as ceivably interlocutory character of an order pay- compel progress that he should denying stay jurisdic- relief from a raised the applied for had first ments West until which problems we cannot tional overlook. the terms of in accordance with payments View, Inc., Beauty re 841 See In White judge also The indicated (3d Cir.1988). F.2d 524 default capacity to cure the had the approach finality in general The opportunity to bank given the and should be forth in In ruptcy Meyertech matters was set re judge fur- perform. it could establish (3d 410, F.2d 414 exigent p., cir- 831 Cir. no Cor that there were ther ruled 1987), indicated that: in which we defense arising from national cumstances stay. lifting cases, of bankruptcy considerations In the of context was en- reflecting this decision An order is less a final order than definition of ap- 9, government April 1987. The finality tered crystalline. Analysis of these district the district court. The pealed litigation proceedings differs from opinion a memorandum dated judge in In ordinary bankruptcy civil matter. judge’s 20, bankruptcy 1987 affirmed the consistently matters we have considered contract, reasoned that order. He and less finality pragmatic in a more by West executory, could be assumed while matters and technical than sense represented that because West concept, purposes appellate and that cure capacity and intention to had the viewed functional- jurisdiction, should be default, had not bankruptcy Oil, Inc., court 689 F.2d ly. Marin Matter of 8, district September Cir.1982), Amatex, 1987 the (3d erred. On 755 F.2d In re reflecting this deci- (3d Cir.1985). entered an order judge appealed from government has sion. The Minerals, v. Inc. In C.A. Universal that order. (3d Cir.1981), Co., F.2d 98 Hughes & finding finality

we enunciated ‘nothing re II bankruptcy matters when Also, court to do.’ district mains cases, bankruptcy happens often in As Cohn, 420 Corp. v. Broadcasting Cox sig- presented preliminarily with we are L.Ed.2d 328 95 S.Ct. U.S. jurisdictional question. Under nificant 158(a) jur- district courts U.S.C. § number have been a substantial judg- There appeals from to hear final isdiction finality of orders and, dealing with ments, leave cases and decrees orders stays. to lift denying motions granting or court, decrees interlocutory orders and Cir.1983), (3d Comer, 716 F.2d In re ap- In bankruptcy judges. The courts stay lifting a block- an order held that appeals from we jurisdiction over peal have property was of a debtor’s orders, ing foreclosure decisions, and de- judgments, final question was litigation on the final because under 28 U.S.C. judges district crees of subject to property completed and appealed 158(d). Here the par- Thus the court. a state foreclosure in judge's bankruptcy order from the controversy was ended. ticular matter leave and the district court without district however, indicated, that it at 172. We Id. ruled on the judge apparently case re- denying that an order conceivable finality of was any as to the making statement might stay be inter- Thus, automatic lief from the reviewing. it is he order In In n. 11. re Ameri- locutory. at 174 Id. and district parties obvious Industries, fi- Mariner can judge treated Cir.1984), broadly 429, (9th nal. denying By filing petition Chapter held that an order relief from the stay automatic is final. In re See also West became (9th Cir.1985). Kemble, change in its status either did or did Leimer, (8th 724 F.2d 744 Cir. not entitle the to relief rea- 1984), Further, the court held that an from a son of 41 U.S.C. 15. the circum- a district court jus- court to stances which the believed terminating from a final order when the order denied a tified the contract for conve- stay creditor relief from the automatic nience existed when the filed doing conclusively stay. in so established that its motion to lift the this is not property application the creditor was not the owner of a case which an for relief adversely it claimed to the debtor's from the prejudice which was denied without pointed that from incomplete, estate. The court out record was dis- perspective covery ongoing required of the creditor there was or the court nothing bankruptcy further for the court to further research on the issue before it. do. Id. at 745. The was denied relief because in the bankruptcy court’s view it was not study From our of the cases we are entitled to it when filed its motion. In in an satisfied that some instances order regard these circumstances we the bank- denying stay may relief from the automatic ruptcy rejected having govern- court as may appealable not be final and thus not be legal positions. Accordingly, we right According as of to the district court. jurisdiction hold that the district court had ly, interlocutory if the order is affirmed on in this matter as an a from final appeal, subsequent appeal a to the court of 158(a) order under 28 U.S.C. and we have § appeals permitted will not then be under 28 158(d). jurisdiction under 28 U.S.C. § 158(d). Further, recognize U.S.C. we § bankruptcy denied Ill government’s application stay to lift the prejudice, suggesting without thus that its We hold that the order was not final. district court should have lifted the and allowed to terminate Nevertheless on the unusual here facts regard In this we will as pragmatic ap- we are convinced that the deciding sume without that the proach requires Meyertech that we hold 362(a) by 11 was barred U.S.C. from ter § bankruptcy judge’s that the order was final minating obtaining the contract without an jurisdiction. and that we thus have 362(d). pursuant to 11 U.S.C. See § government’s asserted bases for relief are 541(a)(1); Computer 11 U.S.C. § Act, Nonassignment 41 U.S.C. Communications, Inc., 824 F.2d 728- West possession bars as debtor in § (9th Cir.1987); Group In re Minoco assuming from its Ltd., (9th Companies, F.2d Cir. consent and that as a matter of contract 1986). Further, acknowledge general we in regulation govern- and administrative that under 11 365 West as a U.S.C. debt- § right ment has the to terminate the con- possession executory inor could assume an tract for its convenience. 48 C.F.R. See approval. contract with court But 11 U.S. 52.249-1, 217.7104(a); seq.; et 48 C.F.R. § § 365(c)(1)provides C. that: § govern- 48 C.F.R. 252.217-7120. If the § (c) permit- ment is correct West should not be The trustee includes [which capable possession may ted to cure its default even if it is debtor in not assume 1] Thus, doing any executory if consequence so. ... contract ... ... (1)(A) reject applicable party, law oth court’s decision was to excuses a debtor, government's legal positions pas- er than the to such contract ... sage performance accepting of time would not have made them from from ... an entity more than the or the debtor tenable. debtor (1st Cir.1984). 1107; Sales, Inc., 1. See 11 U.S.C. In re Pioneer Ford § West, posses- 365(c)(1) as a debtor (B) party does C. such ... possession § sion, assume contract. cannot assumption.... to such not consent 15 should argues that § provides Thus, non-bankruptcy law if assign- to foreclose an not be construed to consent would from debtor to a ment of a contract to a contract of the West assignment they since are such i.e., "other than someone party, third argument closely related entities. West’s then possession,” debtor or the debtor however, for 11 U.S.C. point, misses the cannot possession, West, as the debtor i.e., 365(c)(1) hypothetical creates a test — limit- provision This that contract. assume law, could the applicable applicable contracts is assumption of ing entity “an performance ment refuse prohibition legal to a subject any contract debtor the debtor or the other than re Pioneer assignment. against See [Emphasis possession.” added]. Cir.1984); (1st Sales, Inc., 729 F.2d Ford 41 U.S.C. inquiry is not whether relevant Airways, re In Braniff assignment from preclude an 15 would Cir.1983). (5th to West as West as a debtor United Title 41 of the Section would foreclose but whether it possession, govern- a law Code is by States defense assignment West to another pro- It assignment. consent to contractor. part: in relevant vides chosen meaning of the words The literal any or ... contract [government] No analysis clearly requires by Congress by therein, transferred shall be and just interest articulated we and conclusion ... is Congress such contract party to whom that it is are what we confident any by including such party, and think that any other intended. We given to possession” in of the debtor in the annulment “or the cause words transfer shall 365(c)(1)Congress anticipated an transferred, far as U.S.C. so § contract ... and want- like the one here made argument are concerned. United States that judgment to reflect its ed section Thompson in v. noted As this court assumption and as- of the in the context Revenue, Internal Comm’r of contracts, a solvent executory signment of Cir.1953): (3d pos- in an insolvent contractor and was statute It has been held ma- through bankruptcy are going session government the meant to secure rele- entities.2 While terially distinct and services personal attention supports very sparse, it is vant case law pun- contractor; render him liable to to interplay between understanding of the our duty; neglect or for fraud ishment 365(c)(1) 15. and 41 § U.S.C. § parties acquiring prevent and to Bankers, Inc., Mortgage In re Adana See interests_ speculative mere [Id. (Bankr.N.D.Ga.1980); see also 12 B.R. 977 Orga 76]. Peer Pennsylvania Review (Bankr.M.D.Pa. nization, Inc., 50 B.R. a con- assignment of We conclude that 1985). military production of calling tract was, therefore, Congress in- what equipment precisely is in which the as- a situation prohibited prevent when confronted tended to entitled to not possession was 15. in U.S.C. signments § govern- without accept to contract assume the not force could and the of a ment’s and services” consent “personal attention In that unwilling give that consent. there- It its consent. party third did not situation, the debtor under 11 U.S. necessarily follows fore herein, persuaded 1986 amend- that the 365(c)(1) Con- we amended § 2. 11 U.S.C. original Congress’ intent merely clarified wording ment given 1986. gress its current and event, that, be no doubt any there 99-554, can 100 Stat. Pub.L. See present meaning argu- of the section previously about the section While the ambiguous point form. decided ably on somewhat legally cognizable interest in the have a it was an abuse of discretion contract and UNITED STATES of America stay. decline to lift the for the court to v. need address

view of our conclusion we not DRISCOLL, Appellant. A. John that it has the government's contention contract and adminis- right as a matter of No. 87-5917. regulation trative to terminate Appeals, United States Court of for its convenience. Third Circuit. 12(6) IV Submitted Under Third Circuit Rule July 11, 1988. judgment of reverse the the dis- We will Decided 1988. trict court and will remand with instruc- stay imposed pursuant lift tions to it relates to the

11 U.S.C. 362 as

ment and this contract. HIGGINBOTHAM, Jr.,

A. LEON Judge, concurring part

Circuit

dissenting part. join parts Judge Greenberg’s in all

thoughtful opinion except as to Part III dpI that a believe “solvent pos-

contractor and an insolvent debtor in through going bankruptcy,”

session purposes entities for different Non-Assignment Clause. The inter-

pretation Adana notwithstand-

ing, provision really I think that that meant having

to avoid the U.S. con-

tractually wholly separate to a bound enti-

ty assignment that received an from the contracting party.

actual I do not believe it enacted when Section 15 of Title

Congress considered the issue of whether a should be viewed as a

party different than the debtor. government may right well have the

to terminate the contract issue on other

grounds, but am not convinced that 41 appropriate is vehicle for rights

the severance of West Electronics’ Maffett, Jr., Maffett,

Richard F. Socha & Pa., Harrisburg, appellant. notes He See ibid. ly that of CJI. different from assets, in- majority the railroad’s cases the agrees the result Judge Becker assets, trans- substantially cluding rail were all however, IV, majority in Part reaches previ- primary debtor’s Conrail ferred to wrongly that Erie Lackwanna he believes Although Erie’s exist. ceased to ous business plan forth in the the reasons set decided liquidation, it expeditious includ- called opinion. portion of this provision the creditors which ed a

Case Details

Case Name: In the Matter of West Electronics Inc. Appeal of United States of America, by the United States Air Force

Court Name: Court of Appeals for the Third Circuit

Date Published: Jul 19, 1988

Citation: 852 F.2d 79

Docket Number: 87-5782

Court Abbreviation: 3rd Cir.