United States District Court, N.D. Illinois
January 27, 2004.
In re: UAL CORPORATION, et al., Debtors; HSBC BANK USA, Appellant,
UAL CORPORATION, et al. Appellees
The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
UAL Corporation and multiple other debtors filed voluntary petitions
under Chapter 11 of the Bankruptcy Code to effectuate a reorganization.
HSBC Bank USA appealed to this Court from the denial of a Precautionary
Motion for Relief from the automatic bankruptcy stay entered concerning
certain indenture and bond agreements. Now before the Court is UAL's
Motion to Dismiss HSBC's Appeal for Lack of Jurisdiction. For the
following reasons, the motion is granted.
On or about August 1, 1997, the California Statewide Development
Authority ("CSDA") issued approximately $158,845,000 in CSDA Special
Facilities Lease Revenue Bonds, 1997 Series A, on behalf of UAL. The
proceeds of these bonds were to be used to finance the cost of various
improvement projects at UAL's facilities at San Francisco International
"SFO Projects"). Interest on these bonds is payable on April 1 and
October 1 of each year.
The proceeds of these bonds were deposited into several accounts. One
of these accounts, known as the "Construction Fund," was established with
the Chase Trust Company of California, pursuant to an Indenture of
Mortgage and Deed of Trust. HSBC, which has replaced Chase Trust Company
of California, is now trustee of the Construction Fund.
On December 9, 2002, UAL filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code; and it continues to operate its
business as debtors-in-possession. On March 21, 2003, before the April
2003 interest payment on the bonds, UAL filed an adversary complaint
against HSBC, This complaint (the "Recharacterization Litigation") seeks,
among other things, a declaration that certain agreements relating to the
bonds, including the Indenture, constitute a disguised financing
agreement. UAL sought this declaration from the bankruptcy court to
clarify that UAL was not obligated to pay the interest and principal
payments under certain agreements relating to the bonds, which are
alleged to be disguised as bonds but are actually unsecured pre-petition
debt dischargeable in bankruptcy. HSBC, to the contrary, contends that
these agreements are unexpired leases that must be assumed or rejected in
connection with the bankruptcy.
UAL also filed a motion for a temporary restraining order and a
preliminary injunction, seeking to enjoin HSBC from enforcing any of the
remedies under the various agreements relating to the bonds if UAL failed
to make payments, UAL was concerned that, even though the Bankruptcy Code
prohibited debtors from making interest payments on un-secured
pre-petition debt, the nonpayment could nonetheless be improperly
characterized as a default under some agreements relating to the
Indenture governing UAL's use and occupation of certain facilities at
San Francisco International Airport. On March 31, 2003, the
bankruptcy court entered an order, pursuant to the automatic stay
provision of 11 U.S.C. § 362, enjoining HSBC from taking any action
against UAL in connection with the bond agreements on account of any
nonpayment by UAL on the bonds.
HSBC then filed the motion for relief from the automatic stay, which
Chief Bankruptcy Judge Wedoff denied without prejudice. In ruling on
HSBC's motion, Chief Judge Wedoff stated:
The questions appear to me to be sufficiently
complex that I am not comfortable in issuing a
ruling right now that United has no interest in
the funds that ought to be protected by the
automatic stay pending a determination on more
fuller consideration or more full consideration of
what the various factors are that bear on the
HSBC contends that even if United has a property interest in the
Construction Fund monies, the bankruptcy court was still obligated to
grant HSBC relief from the automatic stay under Section 362(d)(2).
The Bankruptcy Code provides an automatic stay to prevent pre-petition
creditors from taking any action to collect on their debts.
11 U.S.C. § 362; In re Vitreous Steel Prods. Co., 911 F.2d 1223, 1231
(7th Cir. 1990). However, relief from the stay shall be given if the
property at issue in the stay "is not necessary to an effective
reorganization" of the debtor. 11 U.S.C. § 362(d)(2)(B). The code
permits creditors to use a summary procedure to lift or otherwise modify
the stay under certain conditions. The bankruptcy court is required to
make a preliminary ruling within thirty days of the stay, and a final
hearing must take place within thirty days after the conclusion of the
preliminary hearing. 11 U.S.C. § 362(e); In re Vitreous, 911
F.2d at 1232,
Even without a formal termination of the case, a
bankruptcy court's order is final and appealable
if it (1) resolves all contested issues on the
merits and leaves only the distribution of the
estate assets to be completed; (2) ultimately
determines a creditor's position in the bankruptcy
proceeding, even though the administration of the
debtor's estate continues; or (3) marks the
conclusion of what, but for the bankruptcy, would
be the equivalent of a stand-alone suit by or
against the trustee.
BA Leasing Parties v. UAL Corp., 2003 WL 22176068, at * 4
(N.D. Ill. Sept. 15, 2003) ("BA Leasing") (internal citations
and quotations omitted).
HSBC argues throughout its brief that the Seventh Circuit, in In re
Boomgarden, 780 F.2d 657 (7th Cir. 1985), stated that decisions of
the bankruptcy courts granting or denying relief from an automatic stay
under § 362(d) are final and appealable. HSBC's position is based on
the reference in the Boomgarden opinion to In re American
Mariner Indus., 734 F.2d 426, 429 (9th Cir. 1984), which concluded
that the denial of relief from an automatic stay was final and
appealable, but only after a full hearing by the bankruptcy court on the
issues regarding the automatic stay.
However, the Boomgarden court only held "that the bankruptcy
court's lifting of the automatic stay . . . was a final decision
for the purposes of appellate review." In re Boomgarden, 780
F.2d at 660 (emphasis added). By lifting an automatic stay, the
bankruptcy court allowed the secured party to sell the debtor's property.
Under those circumstances, the bankruptcy court's ruling "end[ed] the
litigation on the merits," thus, meeting the Seventh Circuit's test for
finality, as stated in BA Leasing, 2003 WL 22176068, at * 4.
In this case, many important contested issues on the merits remain
unresolved. The Bankruptcy Court must decide the rights of the parties to
the monies in the Construction Fund. If
UAL has rights to those funds, the Bankruptcy Court must decide
whether those funds are necessary to UAL's reorganization. In addition,
HSBC has also raised several defenses based on its position that the
Construction Fund constitutes a financial accommodation and a cash
collateral that UAL cannot post a proper security to cover. Also, it
cannot be said that HSBC's position in the bankruptcy litigation has been
ultimately determined or that the equivalent of a stand-alone suit filed
by HSBC has been concluded. Therefore, the Bankruptcy Court's order is
not final and appealable.
Under 11 U.S.C § 158(a)(3), district courts may, in their own
discretion, grant parties leave to appeal non-final orders under
exceptional circumstances. Courts in the Seventh Circuit apply the
standards set forth in 28 U.S.C. § 1292(b) in determining whether to
exercise their discretion under § 158(a)(3). BA Leasing,
2003 WL 22176068, at * 5. Section 1292(b) provides for appellate review
of final orders when "the order involves a controlling question of law as
to which there is substantial ground for difference of opinion and that
immediate appeal from the order may materially advance the ultimate
termination of the litigation." "Generally speaking, leave to appeal an
interlocutory order will not be granted absent exceptional
circumstances." BA Leasing, 2003 WL 22176068, at * 5 (internal
Here, HSBC has not identified that any exceptional circumstances exist
warranting this appeal. HSBC is not in danger of suffering an irreparable
harm; it currently controls the monies in the Construction Fund, which
are bearing interest. See BA Leasing, 2003 WL 22176068, at * 5.
In addition, hearing an appeal now would waste judicial resources. The
bankruptcy court and all interested parties would be prevented from
resolving the Recharacterization Litigation based on a full consideration
of the merits. Therefore, leave to file an "interlocutory" appeal is
For the foregoing reasons, UAL's Motion to Dismiss HSBC's Appeal for
Lack of Jurisdiction is Granted.
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