In Re: Rickel Home

Opinions of the United

2000 Decisions States Court of Appeals

for the Third Circuit

4-6-2000

In Re: Rickel Home

Precedential or Non-Precedential:

Docket 98-7181

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Filed April 6, 2000

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 98-7181

IN RE: RICKEL HOME CENTERS, INC.,

Debtor

L.R.S.C. CO.,

Appellant

v.

RICKEL HOME CENTERS, INC.; STAPLES, INC.

On Appeal from the United States District Court

for the District of Delaware

(D.C. Civ. No. 96-cv-00026)

District Judge: Hon. Joseph J. Farnan, Jr.

Argued September 7, 1999

Before: SLOVITER and ROTH, Circuit Judges, and

POGUE, Judge, United States Court of International Trade*

(Filed: April 6, 2000)

Robert E. Gerber

Fried, Frank, Harris, Shriver

& Jacobson

New York, NY 10004

_________________________________________________________________

* Hon. Donald C. Pogue, Judge, sitting by designation.

Brendan L. Shannon

Young, Conaway, Stargatt & Taylor

Wilmington, DE 19899-0391

Attorneys for Rickel Home

Centers, Inc.

Barry W. Frost (Argued)

David A. Martin

Teich, Groh & Frost

Trenton, NJ 08619

Allan R. Plapinger

L.R.S.C. Co.

Lawrenceville, NJ 08648-4099

Attorneys for L.R.S.C. Co.

Norman L. Pernick

Saul, Ewing, Remick & Saul

Wilmington, DE 19899

Patrick Dinardo (Argued)

Gayle P. Ehrlich

Maria Carroll Furlong

Sullivan & Worcester

Boston, MA 02109

Attorneys for Staples, Inc.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

L.R.S.C. Co. ("LRSC") appeals an order of the United

States District Court for the District of Delaware that

authorized the assignment of its lease with debtor Rickel

Home Centers, Inc. to Staples, Inc., both of which are

appellees, and that struck from that lease a provision

limiting the tenant's use of the premises to a "Channel

Home Center." The principal issue on appeal is whether

LRSC's failure to obtain a stay of the order has rendered its

appeal moot. If not, we must consider LRSC's various

challenges on their merits.

2

I.

LRSC is the landlord of a shopping center in Lawrence

Township, New Jersey (the "Lawrence center"). The

Lawrence center contains a variety of tenants including,

inter alia, stores that sell furniture, music and electronics

items, clothing, shoes, and auto parts, as well as

restaurants and banks. The center also contains three

anchor stores. One is a Burlington Coat Factory. Another is

an Acme supermarket. The third was formerly operated by

Rickel, the debtor, as a home improvement store. Rickel is

the successor in interest to Channel Companies, Inc.

(Channel), which had a lease from LRSC for premises

covering approximately 38,000 square feet of retail space

("the Lease"). The Lawrence center premises had been used

as a home improvement store since 1976 in accordance

with a use provision contained in Article 10 of the Lease,

which provides:

Use

ART. 10. Tenant may use the Premises as a Channel

Home Center similar in operation to a majority of the

Channel Home Centers then in operation in New

Jersey, and except as provided herein, for no other

purpose. . . . Notwithstanding anything to the contrary

contained in this Article 10, provided Tenant has

complied with the provisions of Article 15B hereof

[which effectively requires the landlord's consent], any

non-"Successor" or non-"Affiliate" (as defined in Article

15A) assignee or sublessee of Tenant may use and

operate the Premises for any lawful retail purpose,

subject to the restrictions contained in Article 15B

hereof.

Addendum to Appellant's Br. at 1.

Article 10 references Article 15 of the Lease, which

provides, inter alia, (1) that the tenant may assign or

sublease any portion of the premises to a successor entity

-- one resulting from the consolidation, merger, or transfer

of substantially all of the tenant's assets -- without

providing notice to or obtaining the consent of LRSC, and

(2) that LRSC may terminate the Lease upon an assignment

or sublease of more than 80 percent of the premises by the

3

tenant to any non-successor entity:1 The original term of

the Lease was for fifteen years with three five-year options

to renew. One option was exercised by Channel on January

29, 1991. Its successor Rickel sought to renew for another

five years on January 29, 1996 although the Lease was

apparently in default at that time. However, on January 10,

1996 Rickel had filed a voluntary petition for relief under

Chapter 11 of the Bankruptcy Code. It remained in

possession and continued its retail operations as debtor-in-

possession.

_________________________________________________________________

1. The relevant language is as follows:

"Assigning, Mortgaging, Subletting

ART. 15A. Tenant shall have the right, without Landlords [sic]

consent and without any requirement to notify Landlord as provided

in B below, to (A) assign its interest as tenant under this Lease

or

sublet any portion of the Demised Premises at any time or times to

(i) a successor person, firm or corporation resulting from

consolidation, merger or from transfer of substantially all of

Tenant's

assets, (herein referred to as "Successor") . . . .

B.1. Tenant may assign this Lease, or sublet or underlet part or

or [sic] all of the Demised Premises.

2. Notwithstanding the foregoing, Tenant shall notify Landlord

at least thirty (30) days prior to the effective date of any

assignment [or subletting of more than 80 percent of the

premises] of this Lease to any non-Affiliate or non-Successor

. . . . Landlord shall then have the option of terminating this

Lease . . . .

3. Notwithstanding the provisions of subsection 1 above,

Tenant shall notify Landlord . . . of any subletting to any

non-Affiliate or non-Successor of less than eighty (80%)

percent of the Demised Premises . . . . Landlord shall then

have the option of taking back the portion(s) of the Premises

proposed to be sublet . . . .

4. Any assignment . . . pursuant to the provisions of

subsections B1, 2 or 3 above, shall prohibit the use of the

Premises by such assignee or sublessee for any use which

is on the date of execution of this Lease or at the time of

such assignment or sublease the principal use of any tenant

located in the Shopping Center. . . .

Addendum to Appellant's Br. at 2-4.

4

On December 10, 1996, LRSC filed a motion in the

Bankruptcy Court seeking an order (1) compelling Rickel to

assume or reject the Lease prior to the March 6, 1997

deadline established by the court for the assumption or

rejection of non-residential real property leases and (2)

declaring void Rickel's prior exercise of its option to renew

the Lease for another term. The parties subsequently

entered into a stipulation in which Rickel agreed tofile a

motion to assume or reject the Lease on or before February

18, 1997 and LRSC agreed that Rickel had effectively

exercised its option to extend the Lease until January 31,

2002. Rickel did move to assume the Lease on February 18,

1997. The Bankruptcy Court granted that motion and

directed Rickel to pay almost $18,000 to cure its default.

After settling the dispute with LRSC, Rickel continued to

operate as debtor-in-possession and attempted to

reorganize its operations. It subsequently concluded that it

would be unable successfully to reorganize and determined

to wind up its operations and liquidate its retail store

inventories and remaining assets. On October 24, 1997, the

Bankruptcy Court entered an order granting Rickel's

motion to liquidate its inventory and sell its furniture,

fixtures, equipment, and other personal property (FF&E).

The inventory was subsequently sold in a bulk sale.

Thereafter, the leases to which Rickel was a party were its

most substantial remaining assets.

Rickel hired a broker to market the leases and received

numerous offers. Among them was one from Staples to

purchase a package of forty-one leases, including the

Lawrence center Lease, for $35.5 million. The offer allowed

the purchaser to assign its rights to any nominee, although

Rickel and Staples anticipated that any such nominee

would be a Staples affiliate and would operate a Staples

office superstore on the premises. Staples planned to

occupy 24,000 of the 38,000 square feet of the Lawrence

center premises as a Staples store and to sublet the

balance.

On February 12, 1998, Rickel sought court approval for

its proposed transaction with Staples. Specifically, Rickel

moved for an order authorizing it "to sell 41 of its leases

[including the Lawrence Lease] to Staples (or its nominee)

5

. . . ."2 Rickel also sought to invalidate various provisions

contained in some or all of the leases, including terms

"providing in substance that the premises may be used only

for a `Rickel' or `Channel' store[,] . .. . only for a `Home

Center' store or for the sale of goods typically sold therein[,

or terms] . . . . conditioning assignment on landlord

consent . . . ."3

LRSC objected, arguing, inter alia, that these lease

provisions were integral to the bargain it had struck with

Rickel and also that by seeking to excise or waive these

terms Rickel was attempting to renege on the parties' prior

stipulation allowing Rickel to assume the Lease and extend

it for another term. On February 26, 1998, the District

Court withdrew the reference to the Bankruptcy Court and

held hearings relating to the proposed transaction on

February 26, March 3, and March 4, 1998.

On March 6, 1998, the court granted Rickel's motion.

The court determined that due to changes in the home

improvement industry "the market for [home improvement

centers] is either non-existent or in dire straits, [and that]

such use restrictions would make it impossible . . . to

assign the Lawrence Lease . . . ." In re Rickel Home Centers,

Inc., 240 B.R. 826, 832 (D. Del. 1998). The court based this

finding on the proffer of testimony by Joseph Nusim,

president and chief executive officer of Rickel, that the four

home center chains that formerly operated in New Jersey

were out of business or no longer operating in that state, a

pattern apparently typical in the home center industry.

Supp. App. at 128-29. Nusim's proffered testimony would

have described the negative impact of large-scale home

improvement centers like Home Depot on smaller home

improvement centers like Rickel. Supp. App. at 129-30. The

court also noted that LRSC did not contest this proffer and

that LRSC's intended use for the Lawrence center premises,

which involved dividing the premises into a series of smaller

stores catering to specific home improvement needs,

_________________________________________________________________

2. See Motion for an Order Authorizing Debtor to Assume (Where

Applicable) & Sell & Assign Nonresidential Real Property Leases at 2

(Docket # 1275) (hereafter "Motion to Sell & Assign").

3. Id. at 15.

6

actually supported Rickel's claim that there were no

potential buyers who could comply with the use restriction.

The District Court therefore held that the Article 10 use

provision amounted to a de-facto prohibition on assignment

and permanently excised the use provision from the Lease.

The court also determined that the leases in the Staples

transaction constituted 96 percent of Rickel's assets and

that, as a result, Staples qualified as a "successor" under

Article 15A of the Lease. This holding relieved Rickel of the

need to notify LRSC of or obtain its consent to the

assignment to Staples. The court did not excise the

assignment provisions from the Lease and, in fact, held

that "once the leases have been assigned to Staples . . .

Staples will be subjected to all the provisions of the leases

for purposes of their subletting efforts." In re Rickel, 240

B.R. at 837.

Purporting to act under sections 363, 365(a) and 365(f) of

the Bankruptcy Code, the District Court granted Rickel's

request to "sell 41 of its leases to Staples . . . and to

assume (where applicable) and assign the selected leases

that Staples desires to have assigned to it . . . ." Id. at 828.

Furthermore, the court determined that Staples and its

nominee would receive the protection of section 363(m) of

the Bankruptcy Code, which protects good faith purchasers

or lessees of property of the bankruptcy estate from the

effects of a reversal or modification on appeal of the

authorization to sell or lease the property, if the appellant

fails to obtain a stay. The court specifically found that

Staples was a good faith purchaser under this section, see

District Court Order at 4 (Addendum to Appellant's Br. at

19), a finding that LRSC does not contest. The court finally

held that it would retain jurisdiction over certain

subsequent disputes. The court did not specify the period

for which it would retain jurisdiction, but the current term

of the Lease expires on January 31, 2002.4

_________________________________________________________________

4. Although LRSC agreed to extend the Lease through January 31, 2002

when it settled its dispute with Rickel, it contends in its brief that the

Lease has "in excess of eight years to run . . . ." Appellant's Br. at 24.

LRSC did not explain this discrepancy but we assume LRSC included

five years from the remaining option to renew the Lease.

7

LRSC appealed but did not attempt to obtain a stay of

the District Court's order. On appeal, it challenges several

aspects of the District Court's order of March 6, 1998: it

objects to the excision of the use provision, contends that

the court erred by "altering the assignment provisions" of

the Lease, Appellant's Br. at 18, challenges the court's

decision to authorize a sale of the leases under section 363

of the Bankruptcy Code and to permit Staples to invoke the

protections of the section 363(m) stay provision, and

challenges the court's decision to retain jurisdiction to

resolve disputes between it and Staples. In addition, LRSC

challenges the procedure by which the court resolved

factual disputes, arguing that the District Court erred in

allowing the assignment of the Lease without direct

testimony but based only upon proffers of evidence. 5

Of course, Staples and Rickel defend the District Court's

decision. They argue, inter alia, that the court properly

excised the use provision, that it did not alter or excise the

Article 15 assignment provision,6 and that, regardless of the

appropriateness of the procedure adopted by the District

_________________________________________________________________

5. Under the procedure adopted by the District Court, Staples and Rickel

were permitted to present evidence by proffer or by live witness

testimony pertinent to the transfer of all 41 leases. Individual landlords

were then permitted to respond "with an objection specific to their

property," App. at 45, and could present evidence in support of that

objection by proffer or by witness testimony, App. at 45-46. Each

landlord, however, was limited to 15 minutes in which to present its

objection. App. at 44, 46. It is not clear whether the 15 minute limit

applied only to the objecting landlords or to the initial presentation by

Staples and Rickel as well. Although the court apparently required each

witness whose testimony was proffered to be present during the proffer,

LRSC contends that it was denied the opportunity to cross-examine

these potential witnesses. In lieu of cross-examination, the court

permitted the attorneys for each side to ask questions of opposing

counsel. App. at 58-61.

6. The District Court specifically found that"the assignment and

subletting provisions are not facially unreasonable. Therefore, once

Staples assumes the Lawrence Lease, Staples will be required to abide

by these provisions." In re Rickel, 240 B.R. at 837. In response to our

questioning at oral argument, counsel for Staples conceded that Staples

would be bound by these provisions with respect to any attempt to

assign the Lease or sublet the remaining 14,000 square feet.

8

Court, Rickel failed to proffer any evidence that created a

dispute with respect to any material issue of fact.

Additionally, Appellees argue that this appeal is mooted by

section 363(m) of the Code and that, in the alternative, the

appeal is equitably moot because events occurring after the

District Court's decision prevent our granting effective

relief. In their joint brief, Staples and Rickel assert that the

transaction between them closed on or about April 1, 1998,

that Staples has been in possession of the Lawrence center

premises for almost seven months [now approximately

twenty-four months], that a Staples store opened for

business on August 1, 1998, and that Staples has spent

over $900,000 in leasehold improvements to the premises.

They append to the joint brief a photograph of the Staples

storefront. LRSC has contested our ability to take notice of

these facts, but it did not contest their accuracy either in

its brief or at argument.

II.

Because this is an appeal from a district court exercising

original jurisdiction in bankruptcy, our jurisdiction stems

from 28 U.S.C. S 1291 rather than 28 U.S.C.S 158(d). See

In re Marvel Entertainment Group, Inc., 140 F.3d 463, 470

(3d Cir. 1998). We exercise plenary review over the District

Court's legal conclusions but will reverse findings of fact

only if clearly erroneous. See id.

III.

We begin by briefly discussing the pertinent Bankruptcy

Code sections.

A.

111 U.S.C. S 363

Section 363 permits the trustee, after notice and a

hearing, to use, sell, or lease property of the estate outside

of the ordinary course of business. 11 U.S.C. S 363(b)(1).

For our purposes, Rickel, as debtor-in-possession, had the

authority to exercise the same powers as the trustee. 11

9

U.S.C. S 1107(a); 11 U.S.C. S 1108; see also In re C&S Grain

Co., Inc., 47 F.3d 233, 237 n.2 (7th Cir. 1995). 7 "Property of

the estate" includes, inter alia, "all legal or equitable

interests of the debtor in property as of the commencement

of the case." 11 U.S.C. S 541(a)(1). As the legislative history

makes clear, "[t]he scope of this paragraph is broad. It

includes all kinds of property, including tangible or

intangible property, causes of action . . . . [and] also

includes `title' to property, which is an interest, just as are

a possessory interest, or leasehold interest, for example."

H.R. Rep. No. 95-595, at 367 (1977), reprinted in 1978

U.S.C.C.A.N. 5963, 6323; S. Rep. No. 95-989, at 82 (1978),

reprinted in 1978 U.S.C.C.A.N. 5785, 5868. Whether the

debtor has an interest in property under section 541 is

determined according to state law. See Krebs Chrysler-

Plymouth, Inc. v. Valley Motors, Inc., 141 F.3d 490, 497 (3d

Cir. 1998).

Significantly, section 363(m) also provides that:

[t]he reversal or modification on appeal of an

authorization under subsection (b) . . . of a sale or

lease of property does not affect the validity of a sale or

lease under such authorization to an entity that

purchased or leased such property in good faith,

whether or not such entity knew of the pendency of the

appeal, unless such authorization and such sale or

lease were stayed pending appeal.

11 U.S.C. S 363(m).

We have referred to section 363(m) as a "statutory

mootness" provision. See Krebs, 141 F.3d at 497. In

construing section 363(m), we have rejected a per se rule

"mooting appeals absent a stay of the sale or lease at

issue," id. at 498, and instead require that two conditions

be met before an appeal becomes moot under section

363(m): (1) the underlying sale or lease must not have been

stayed pending appeal, and (2) reversing or modifying the

authorization to sell or lease would affect the validity of the

sale or lease, see id. at 499; see also In re Lloyd, 37 F.3d

_________________________________________________________________

7. For that reason, we will use the terms trustee and debtor-in-

possession interchangeably throughout this opinion.

10

271, 273 (7th Cir. 1994) (although S 363(m) prevented court

from annulling sale of land, appeal not moot where trustee

had not disbursed sale proceeds and debtor asserted right

to recover from proceeds).

B.

111 U.S.C. S 365

Section 365 enables the trustee to maximize the value of

the debtor's estate by assuming executory contracts and

unexpired leases that benefit the estate and rejecting those

that do not. 11 U.S.C. S 365(a); see also Stewart Title Guar.

Co. v. Old Republic Nat'l Title Ins. Co., 83 F.3d 735, 741

(5th Cir. 1996) (section 365 "allows a trustee to relieve the

bankruptcy estate of burdensome agreements which have

not been completely performed"); see generally 2 Norton

Bankruptcy Law & Practice 2d S 39:1 (William L. Norton,

Jr. ed., 1997) [hereafter "Norton"].

Because executory contracts and unexpired leases

involve a continuing relationship between the debtor and

other parties, section 365 "gives special treatment to rights

and liabilities flowing from these contracts and leases." Id.

S 39:1, at 39-6. If there has been a default in an executory

contract or unexpired lease, the trustee may not assume it

until the trustee: (1) cures or provides adequate assurance

that it will promptly cure the default; (2) compensates or

provides adequate assurance of prompt future

compensation for actual pecuniary loss resulting from the

default; and (3) provides adequate assurance of future

performance under the contract or lease. 11 U.S.C.

S 365(b)(1)(A), (B), (C). Once the trustee satisfies these

requirements it may assume the contract or lease, but it

must do so in its entirety. See Stewart Title Guar. Co., 83

F.3d at 741.

The Code, however, prevents enforcement of so-called

ipso facto clauses that trigger a default upon a bankruptcy

filing or upon "events or conditions that are likely to occur

or exist around the time that a case is commenced." 3

Collier on Bankruptcy P 365.05[4] (Lawrence P. King ed.,

15th ed. 1999). To that end, the requirements of section

11

365(b)(1) do not apply to defaults triggered by provisions

relating to the insolvency or financial condition of the

debtor, the commencement of a Chapter 11 case, or the

appointment of a trustee in the case or a custodian before

the case. 11 U.S.C. S 365(b)(2); see also 11 U.S.C.

S 365(e)(1) (contract or lease may not be terminated or

modified after commencement of case notwithstanding ipso

facto clause, or applicable law, permitting such

termination).

Shopping center landlords, even more than other non-

debtor parties to executory contracts and unexpired leases,

receive "extraordinary protection" under the Code. Collier,

supra, P 365.02, at 365-17; see also In re Goldblatt Bros.

Inc., 766 F.2d 1136, 1140 (7th Cir. 1985) (referring to

"special protections available to shopping center

landlords"). The right to assume a defaulted lease of real

property in a shopping center, as with any executory

contract or unexpired lease, is conditioned upon the

trustee's provision of adequate assurance of future

performance.

Section 365(b)(3), however, imposes a heightened

standard for "adequate assurance of future performance" in

shopping center leases. That standard requires adequate

assurance:

(A) of the source of rent and other consideration due

under such lease, and in the case of an

assignment, that the financial condition and

operating performance of the proposed assignee

. . . shall be similar to [that of] the debtor. . . .;

(B) that any percentage rent due . . . will not decline

substantially;

(C) that assumption or assignment of such lease is

subject to all the provisions thereof, including (but

not limited to) provisions such as a radius,

location, use, or exclusivity provision, and will not

breach any such provision contained in any other

[agreement] relating to such shopping center; and

(D) that assumption or assignment . . . will not

disrupt any tenant mix or balance . . . .

12

11 U.S.C. S 365(b)(3).8

Having assumed an executory contract or unexpired

lease, the trustee may elect to assign it. The Code generally

favors free assignability as a means to maximize the value

of the debtor's estate and, to that end, allows the trustee to

assign notwithstanding a provision in the contract or lease,

or applicable law, prohibiting, restricting, or conditioning

assignment. 11 U.S.C. S 365(f)(1); see also In re

Headquarters Dodge, Inc., 13 F.3d 674, 682 (3d Cir. 1994)

(S 365(f)(1) prevents anti-alienation and other clauses from

defeating trustee's "ability to realize the full value of the

debtor's assets"). Likewise, the Code prohibits the

termination or modification of executory contracts or

unexpired leases notwithstanding lease or contract

provisions or applicable law that permit termination or

modification because of assignment of the lease. 11 U.S.C.

S 365(f)(3).

The trustee may assign an executory contract or

unexpired lease only if (A) it assumes the contract or lease

in accordance with section 365 and (B) there is adequate

assurance of future performance by the assignee. 11 U.S.C.

S 365(f)(2). This assurance is necessary to protect the rights

of the non-debtor party to the contract or lease, because

assignment relieves the trustee and the estate from liability

_________________________________________________________________

8. The pre-1984 definition of adequate assurance of future performance

with respect to leased property in shopping centers included, inter alia,

assurance that the assumption or assignment would not "breach

substantially" any radius, location, use, or exclusivity provision in any

other lease, financing agreement, or master agreement and would not

"disrupt substantially" any tenant mix or balance. 11 U.S.C.

S 365(b)(3)(C), (D) (1982) (amended 1984).

The 1984 amendments to the Bankruptcy Code, effective with respect

to cases filed 90 days after July 10, 1984, imposed "a more restrictive

view . . . in connection with radius, location, or use clauses in shopping

center leases." Norton S 39:46, at 39-133. The amendments made

assumption and assignment of shopping center leases expressly subject

to all provisions of the lease being assigned, including use clauses, 11

U.S.C. S 365(b)(3)(C), and also deleted the"substantiality" standard from

S 365(b)(3)(C), which requires adherence to other agreements affecting

shopping centers, and from S 365(b)(3)(D), which requires that

assumption or assignment not disrupt any tenant mix or balance.

13

arising from a post-assignment breach. 11 U.S.C.S 365(k);

Wainer v. A.J. Equities, Ltd., 984 F.2d 679, 683 (5th Cir.

1993) (per curiam). Where the leased premises are in a

shopping center, the assignee must meet the heightened

definition of adequate assurance of future performance in

section 365(b)(3) to ensure that "[t]he essential terms of a

debtor's lease in a shopping center [are] not . . . changed in

order to facilitate assignment." Norton, supra, S 39:46, at

39-133.

IV.

We consider at the outset the contention of the Appellees

that this appeal is now moot because the completed

transaction is protected from reversal or modification under

section 363(m) unless it was stayed pending appeal. LRSC

argues that it was not required to obtain a stay under

section 363(m), and relies primarily on our decision in In re

Joshua Slocum, Ltd., 922 F.2d 1081(3d Cir. 1991). Rickel

and Staples, citing our later decision in Krebs , 141 F.3d

490, respond that Slocum is inapplicable and, in the

alternative, that even if section 363(m) were inapplicable,

this appeal is nonetheless barred by the doctrine of

equitable mootness. We address these issues first, as only

if we find that this appeal is not moot will we reach the

merits of LRSC's appeal. Id. at 1084-85.

A.

LRSC's argument that the appeal is not moot

notwithstanding its failure to obtain a stay stems from its

contention that section 363(m) is inapplicable, that the

transaction between Rickel and Staples was the assignment

of a lease, and that the District Court erred in

characterizing the assignment as a sale. Unlike section 363,

which applies to the use, sale or lease of property, section

365, which applies to the assignment of a lease, does not

contain a statutory mootness provision. LRSC thus states,

"[s]ince Congress did not provide for the sale of executory

contracts or unexpired leases [in section 365], . . . the

transaction between the Debtor and Staples is, in fact, an

assignment of a lease and not a sale [under section 363]."

14

Appellant's Br. at 22. Although LRSC does not elaborate

much beyond this, its argument has some facial

plausibility. However, ultimately it is not persuasive.

This court's most recent consideration of this issue was

in connection with an executory contract in Krebs Chrysler-

Plymouth, Inc. v. Valley Motors, Inc., 141 F.3d 490 (3d Cir.

1998). Unexpired leases, like executory contracts, are

included in the definition of "property of the estate" under

section 541. See id. at 497 (franchise agreement was

executory contract and property of the estate); In re Arizona

Appetito's Stores, Inc., 893 F.2d 216, 218 (9th Cir. 1990)

(leasehold interest is property of the estate if debtor is

lessee at time petition is filed). Section 363(b)(1) authorizes

the sale of such property outside the ordinary course of the

debtor's business. Arguably, then, executory contracts and

unexpired leases may be sold pursuant to section 363 and

the mootness provision of 363(m) would apply to such

sales.

However, section 365, which lacks a mootness provision,

contains specific rules governing the procedure for

assuming, rejecting, and assigning executory contracts and

unexpired leases and provides explicit protections for non-

debtor parties to those contracts, especially shopping center

landlords. LRSC proposes that we hold that only section

365 governs the transfer of executory contracts and

unexpired leases. Cf. Comco Assocs. & SPA 77K L.P. v.

Faraldi Food Indus. Ltd., 170 B.R. 765, 770 (E.D.N.Y. 1994)

(holding lease assignment moot but recognizing that"the

Code has distinct provisions for sales and leases on the one

hand and assignments on the other"). Indeed, LRSC argues

that our decision in Slocum mandates a holding that

section 363(m) does not apply to this case. That argument

fails to take into account the effect of our subsequent

decision in Krebs regarding the scope of section 363(m) and

the effect of the failure to obtain a stay.

In Slocum, the bankruptcy court had authorized the

trustee for the debtor lessee to assume a lease for retail

space, excise an average sales clause allowing either the

lessee or the landlord to terminate the lease if the lessee's

average yearly sales fell below a set amount, and assign the

lease pursuant to section 365. The bankruptcy court

15

viewed the average sales clause as a disguised anti-

assignment provision. The district court affirmed, and the

landlord appealed. This court reversed, holding that the

bankruptcy court had erred in ruling that the landlord's

property was not a shopping center, and that, in light of the

shopping center provisions of the Code, the bankruptcy

court lacked the authority to excise the average sales

clause from the lease.9

Before reaching this issue, we had to consider the

trustee's motion to dismiss the appeal. The trustee argued

that the "principle of finality embodied inS 363(m) . . .

should be applied to assignments under S 365." Slocum,

922 F.2d at 1085. Significantly, the trustee invoked

underlying principles of finality rather than the statute, as

he conceded that section 363(m) "does not apply to

assignments of leases under S 365." Id. Both the majority

and the dissent in Slocum declined to extend section 363(m)

to cover the transaction at issue there.10 The majority noted

that only sections 363(m) and 364(e) of the Code specifically

require a stay pending appeal, and stated "[w]hile S 363(m)

contains a provision requiring a stay, the section that

applies in this case, S 365, does not." Id. The majority held

_________________________________________________________________

9. The majority recognized that the 1984 amendments applied to the

case before it. See Slocum, 922 F.2d at 1086 (discussing 1984

amendments). The debtor had filed for Chapter 11 in November of 1988,

see id. at 1083, and the 1984 amendments were effective with respect to

cases filed 90 days after July 10, 1984, see supra note 8. In analyzing

this issue, however, the Slocum majority quoted the pre-1984 version of

section 365(b)(3) that was no longer in force. See id. at 1086 n.3. Its

subsequent discussion appeared to follow therefrom. For example, the

majority stated that "Congress did not envision literal compliance with

all lease provisions; insubstantial disruptions in, inter alia, tenant

mix,

and insubstantial breaches in other leases or agreements were

contemplated and allowed." Id. at 1090 (citing 11 U.S.C. S 365(b)(3)(C),

(D)); see supra note 8 (discussing how Congress removed the

"substantiality standard" from these sections in 1984). We do not

suggest that this affected the result reached in that case.

10. The dissent, the author of this opinion, relied on "well-established

rules of justiciability" and "the particular need for finality in

bankruptcy"

to find "the appeal of a completed lease assignment to a non-party moot

unless the appellant has sought a stay pending appeal." Slocum, 922

F.2d at 1093 (Sloviter, J., dissenting).

16

that "under the facts of this case [the landlord] was under

no obligation to obtain a stay." Id.

The Slocum majority also rejected the argument that the

appeal was equitably moot. The majority regarded the

landlord's appeal as from the order excising the average

sales clause, as to which effective relief was still possible,

rather than from the assignment of the lease, which had

already taken place in the absence of a stay. See id. at

1086 & n.2. Of relevance to the issue before us, the

majority stated, "[i]f we started our analysis with the

assignment, and not with excisement of [the average sales

clause], we would probably reach the same result[as the

dissent]." Id. at 1086 n.2.

We addressed the issue of mootness under section

363(m) again in Krebs. The debtor, Valley Motors, Inc.

("Valley"), an automobile dealer, had entered into a pre-

petition buy-sell agreement for its interest in a Jeep-Eagle

franchise with Krebs, another automobile dealer. Krebs had

paid the first half of the purchase price due under the buy-

sell agreement, Chrysler had approval of the transfer, and

the parties awaited resolution of protests by competing

dealers when Valley filed for Chapter 11 bankruptcy. After

motions and orders not relevant here, Valley filed three

motions: one to reject the buy-sell agreement with Krebs,

the second to sell all its franchises and other assets to a

third dealer, and the third to assume its three franchise

agreements. The assumption was a prerequisite to the sale

Valley sought in the second motion. The bankruptcy court

granted Valley's motion to reject the buy-sell agreement,

overruled the objection of Krebs and Chrysler to the three

motions, permitted the third dealer to withdraw its offer to

purchase Valley's assets, and held an auction of the three

franchises. Krebs purchased the franchises but refused to

close on the sale. The bankruptcy court ordered it to do so,

and Krebs appealed.

In the portion of our opinion of relevance here, we held

that Krebs's appeal was moot under section 363(m). We

focused on the undisputed status of the underlying

franchises as executory contracts. Id. at 496. We disagreed

with Krebs's contention "that the franchises were assumed

and assigned under section 365, which exclusively governs

17

the rejection, assumption, and assignment of executory

contracts." Id. at 497. We framed the issue as: "whether

section 365 [which does not have a statutory mootness

provision] is the exclusive provision governing the sale of

the franchises or whether the mootness provision in section

363 also covers this situation. In other words, . . . whether

assignments of the franchises under section 365 are also

sales of estate property subject to section 363(m)." Id. at

497.

After noting that section 363(b) permits the trustee to

"use, sell, or lease . . . property of the estate," id.; 11 U.S.C.

S 363(b), which includes "all legal or equitable interests of

the debtor in property as of the commencement of the case,"

id.; 11 U.S.C. S 541(a)(1), we determined that under

Pennsylvania law the franchise agreements "are interests in

property, and as such are property of the estate under

section 541." Krebs, 141 F.3d at 498. We continued,

"[t]herefore, section 363(m) governs the sale of the

franchises here, notwithstanding that section 365 applies to

the particular mechanics of conveyance."11 Id. However, we

eschewed any per se rule that the failure to obtain a stay

of a sale authorized under section 363(b) automatically

mooted an appeal and held instead that section 363(m)

would moot an appeal only when reversal or modification of

the authorization would affect the validity of the sale or

lease. See id. at 499.

Krebs distinguished Slocum on the ground that the

trustee in Slocum never attempted to sell the lease under

section 363, the bankruptcy court never purported to

authorize a section 363 sale, and the parties "conceded that

section 363(m) did not apply in cases where the Trustee

merely assigns a lease under section 365." Id. at 498. Here,

we are faced with the precise facts that Krebs noted were

significant by their absence in Slocum. Rickel specifically

_________________________________________________________________

11. Although the Krebs court did not explain the latter phrase, it appears

that it viewed section 365 as establishing the requirements for

assumption and assignment of executory contracts and unexpired

leases, such as the provision of adequate assurance of future

performance, and that it sought to ensure those requirements could not

be circumvented by the parties' characterization of the transaction as a

sale rather than an assignment.

18

requested authorization to sell the 41 Staples leases, see

Motion to Sell & Assign at 8, and the District Court

explicitly authorized a sale of the leases pursuant to section

363, despite LRSC's contention that section 363 was

inapplicable to this transaction. Although LRSC argues that

the District Court erred in characterizing the transaction as

a "sale" under section 363(m), it does not argue that sales

are not subject to the protection from reversal absent a

stay.

A determination of section 363(m) mootness in the case

before us necessarily follows from our holding and analysis

in Krebs. Rickel's unexpired lease is treated in the

Bankruptcy Code the same as the executory contracts in

Krebs. Both executory contracts and unexpired leases, for

example, are included in the definition of "property of the

estate" contained in section 541.12 Furthermore, executory

contracts and unexpired leases are equally subject to the

requirements for assumption, rejection, and assignment

established by section 365.

We are aware that "[t]he application of CodeS 363 . . . to

executory contracts is not without controversy." Lee R.

Bogdanoff, The Purchase and Sale of Assets in

Reorganization Cases -- of Interest and Principal, of

Principles and Interests, 47 Bus. Law. 1367, 1425 n.215

(1992) (referencing the split in authority regarding whether

a lessor is entitled to adequate protection under section

363(e)). But, given our holding in Krebs that "section

_________________________________________________________________

12. As discussed supra, section 541 defines "property of the estate" to

include, inter alia, "all legal or equitable interests of the debtor in

property [defined by state law] as of the commencement of the case." The

parties do not dispute that a leasehold interest is a property interest

under New Jersey law. Furthermore, section 541 excludes from its

definition of "property of the estate" those interests of the debtor as

lessee of nonresidential real property that have"terminated at the

expiration of the stated term of such lease before the commencement of

the case" and those interests that have "terminated . . . during the

case."

11 U.S.C. S 541(b)(2). These exclusions imply that leasehold interests of

nonresidential real property, like the interest at issue here, are

property

of the estate when they do not terminate before or during the

bankruptcy case. LRSC does not argue that the Lawrence Center Lease

falls within either of these exclusions.

19

363(m) governs the sale of the franchises," whereas "section

365 applies to the particular mechanics of conveyance,"

Krebs, 141 F.3d at 498, we would be creating an

unwarranted distinction between executory contracts and

unexpired leases (whether or not the lease is in a shopping

center) if we were to accept LRSC's argument.

The result reached by Krebs, and that we reach here, is

supported by decisions from other courts of appeals that

treated assignments of leasehold interests as sales of

property under section 363 and applied section 363(m) to

such assignments. For example, in In re Adamson Co. Inc.,

159 F.3d 896 (4th Cir. 1998), the debtor asked the Court of

Appeals for the Fourth Circuit to dismiss for mootness the

landlord's appeal of an order authorizing a sale of most of

the debtor's assets, including the lease to its manufacturing

plant. The landlord argued that it was not required to

obtain a stay because section 365 rather than section 363

governed the assignment of the debtor's unexpired lease.

The court rejected this argument, stating that "[i]t is

elementary that a leasehold is personal property and

possibly of value to the debtor's estate, thus the assignment

of a lease . . . is a sale of property to whichS 363(m)

applies." Id. at 898 (emphasis added).

Likewise, in In re Exennium, Inc., 715 F.2d 1401 (9th Cir.

1983), the court reversed the order of the Bankruptcy

Appellate Panel voiding the sale of real estate leases and

personal property. The Court of Appeals held that an

appeal from an order "permitting the assumption and

assignment of leases" was moot under section 363(m). Id. at

1404.13 Although, unlike this case, the assignments of

_________________________________________________________________

13. The district court in Comco, 170 B.R. 765 (E.D.N.Y. 1994), also

dismissed as moot the landlord's appeal of the assignment of the

debtor's shopping center lease and its remaining assets but differed in

its approach. The court declined to extend section 363(m) to assignments

when the assignment is inextricably linked to a section 363 sale, which

it believed was the view adopted in In Re Stadium Management, 895 F.2d

845 (1st Cir. 1990). The Comco court stated,"[b]esides stretching the

plain language of S 363, this approach does not account for those

situations where there is an assignment without a sale." Comco, 170

B.R. at 770. The court also believed that the Exennium court failed to

20

leases in both Adamson and Exennium were in conjunction

with the sale of all or almost all of the debtors' remaining

assets, Rickel had already disposed of all or almost all of its

remaining assets at the time of the transaction with

Staples. The District Court emphasized that the transfer of

the unexpired leases to Staples involved 96 percent of

Rickel's remaining assets. LRSC proffered no evidence

countering Rickel's proffer supporting this finding, and even

now has not suggested that there is contrary evidence that

it could provide.

These cases reflect the policies of section 363(m)"not

only [to afford] finality to the judgment of the bankruptcy

court, but particularly to give finality to those orders and

judgments upon which third parties rely." In re Abbots

Dairies of Pa., Inc., 788 F.2d 143, 147 (3d Cir. 1986)

(internal quotations omitted). The strength of these policies

is reflected in numerous other decisions of the courts of

appeals rejecting as moot an appeal from an order

authorizing a sale of estate property under section 363

when the transaction has been completed. See, e.g., In re

Sax, 796 F.2d 994, 997-98 (7th Cir. 1986) (sale of yacht

moot despite argument that yacht was not property of the

estate because "[s]ection 363(m) does not say that the sale

must be proper under S 363(b)"); In re Stadium

Management, Inc., 895 F.2d 845, 849 (1st Cir. 1990)

(assignment of sublease as part of sale of stadium moot,

citing Sax with approval); see also Pittsburgh Food &

Beverage, Inc. v. Ranallo, 112 F.3d 645, 650-51 (3d Cir.

1997) (holding that, at least where assets were"colorably

within [the court's] jurisdiction," an appeal from a sale of

assets was moot despite argument that court lacked

jurisdiction over the assets); In re Gilchrist , 891 F.2d 559,

_________________________________________________________________

recognize that although an assignment is a "species of sale, . . . the

Code

has distinct provisions for sales . . . and assignments." Id. at 770.

Instead, the Comco court, expressing concern that the assignees would

not receive exactly what the bankruptcy court ordered if the assignment

were invalidated or the terms of the assignment changed, dismissed the

appeal as moot because "[t]his Court cannot now change the terms of

that transaction without throwing into question the validity of the entire

transaction." Id.

21

561 (5th Cir. 1990) (appeal moot despite argument that

bankruptcy court had no jurisdiction to authorize sale).

The policies undergirding section 363(m) are also

reflected in our cases recognizing "the broader

interpretation of mootness applied in bankruptcy cases,

often referred to as `equitable mootness.' " In re Continental

Airlines, 91 F.3d 553, 558 (3d Cir. 1996) (en banc)

(citations omitted). This doctrine holds that "[a]n appeal

should . . . be dismissed as moot when, even though

effective relief could conceivably be fashioned,

implementation of that relief would be inequitable." Id. at

559 (quoting In re Chateaugay Corp., 988 F.2d 322, 325 (2d

Cir. 1993)); see also In re Cantwell, 639 F.2d 1050, 1054

(3d Cir. 1981) (appeal from order dissolving stay of debtor's

discharge moot where subsequent order granting discharge

had not been appealed); Markstein v. Massey Assocs., Ltd.,

763 F.2d 1325, 1327 (11th Cir. 1985) (court was powerless

to rescind foreclosure sale on debtor's property where

debtor failed to obtain stay of order permitting foreclosure).14

These mootness principles further the need for finality of

bankruptcy transactions involving third parties and

recognize that "in addition to those situations covered

under 11 U.S.C. S 363(m) and S 364(e), a myriad of

circumstances can occur that would necessitate the grant

of a stay pending appeal in order to preserve a party's

position." In re Highway Truck Drivers & Helpers Local 107,

888 F.2d 293, 298 (3d Cir. 1989) (appeal from grant of

relief from automatic stay moot where state supreme court

order relieved debtor from liability to appellants).

Concededly, the shopping center provisions of section

365(b)(3) of the Code applied to the assignment of the

Lease, and the provisions of the Lease (with the exception

of the excision of the use restriction in Article 10) continue

to apply. For example, at oral argument, Staples conceded

_________________________________________________________________

14. Although we reference the principles underlying equitable mootness,

we do not base our holding on that doctrine which has been used most

frequently in cases where the reorganization has been substantially

consummated. See, e.g., In re Continental Airlines, 91 F.3d 553 (3d Cir.

1996). In light of our precedent in Krebs applying section 363(m), we

need not consider whether equitable mootness could also be relied on as

the basis for our holding.

22

that it could not assign or sublet to an entity that would

violate another tenant's exclusive use or disrupt the tenant

mix in the Lawrence center.

Given the policies underlying section 363(m) and the

series of cases that emphasize the importance of securing

a stay, we are perplexed by LRSC's failure even to request

a stay. Although there was a suggestion from LRSC at oral

argument that the bond required for a stay would have

been costly, it acknowledged it made no attempt to seek

permission for a lower bond. Moreover, it failed to seek a

stay limited to the Lawrence center lease, which might have

substantially reduced the cost of a bond. In short, LRSC

did nothing other than appeal and failed to take steps that

might have minimized the dislocation a reversal of the

assignment would cause the parties at this time.

B.

As we noted in Krebs, "section 363(m) would not moot

every appeal not accompanied by a stay." Krebs, 141 F.3d

at 499. That section only "restrict[s] the results of a reversal

or modification of a bankruptcy court's order authorizing a

sale or lease, if reversal or modification would affect the

validity of the sale or lease." Id. Krebs relied for its analysis

on our earlier opinion in In re Swedeland Dev. Group, Inc.,

16 F.3d 552, 559-63 (3d Cir. 1994) (en banc), where we

examined language in section 364(e) of the Code similar to

section 363(m) about the effect of the appellant's failure to

secure a stay pending an appeal of an authorization to

obtain credit or incur debt or of a grant of priority or a

loan. We reasoned in Swedeland that because section

364(e) limits the consequences of the reversal or

modification of an order entered under section 364, it is not

section 364(e) itself that requires that the appeal be

dismissed. Id. at 559. Instead, the appeal would be moot if

the relief sought would adversely affect "the validity of the

debt incurred . . ." Id. at 560.

Applying that reasoning here, we note that once the

District Court granted Rickel authorization to assume the

Lease and assign it to Staples, the parties completed the

transaction. Staples, relying on that authorization, took

23

possession and expended substantial funds to renovate and

redesign the property to fit its business. Any revocation of

the authorization would necessarily adversely affect the

validity of the assignment. The same is true as to LRSC's

challenge to the District Court's use of evidentiary proffers,

as those proffers underlay the court's order on appeal.

We must consider whether the same is true of the portion

of the District Court's order that excised Article 10 from the

Lease. That decision was based on the District Court's

conclusion that compliance with the use limitation to

establish only a home improvement center was not feasible

as such a market was non-existent. Patently, reversal of the

excision of the use provision as to Staples would adversely

affect the validity of the transfer to it, as it has now been

established as an office supply center, not a home

improvement center.

It is not clear that LRSC argues that the court erred by

striking the use clause with respect to subsequent

assignments or subleases by Staples, rather than arguing

that no assignment at all should have been permitted

without the use provision. See, e.g., Appellant's Br. at 9

("LRSC objects to the . . . assignment made with the

requested deletions . . . ."). In any event, the record

demonstrates that a reversal of the District Court's decision

to permanently strike the use restriction from the Lease

would affect the validity of the assignment to Staples.

Unlike Slocum, where we reversed the bankruptcy court's

order excising an average sales clause from a lease after

finding that the record did not support the trustee's claim

that a reversal would overturn the assignment, and

effectively rescind the lease, see Slocum, 922 F.2d at 1086

n.2,15 Staples argued here that the District Court should

excise the use provision "not just for the purpose of the

_________________________________________________________________

15. This discussion occurred in the Slocum majority's analysis of

equitable mootness, in which the majority responded to the dissent's

argument that its decision would overturn a consummated transaction.

922 F.2d at 1086 n.2. The majority disagreed that its holding would have

so drastic an effect. By contrast, our inquiry under section 363(m) asks

not whether reversal or modification on appeal would rescind the sale

but whether such a decision would "affect the validity of the sale."

Krebs,

141 F.3d at 499; Pittsburgh Food & Beverage, 112 F.3d at 651.

24

assignment to Staples, but permanently, because it

destroys the value of the leasehold to say it can only be

used for a typical Channel Home Improvement Center when

. . . [such a store] doesn't exist anymore." Supp. App. at

134. The District Court accepted this argument based on

proffered testimony by Rickel's CEO that home

improvement centers similar to Rickel had been driven out

of business or were struggling and that Rickel's efforts to

market its leases had generated no interest whatever from

such an entity. Supp. App. at 130. The court further noted

that LRSC had proffered no evidence to rebut Staples's

claim. See In re Rickel, 240 B.R. at 831. We thus need not

decide whether the court erred in striking the use

provision, because this record is sufficient for us to

conclude that applying that provision to future assignments

by Staples would seriously affect the validity of the

transaction. Cf. In re Stadium Management, 895 F.2d at

849 (absent a stay, appeal is moot even though appellate

court would decide issues differently).

Common sense also leads us to conclude that reversal of

the District Court's decision to excise the use provision

would affect the validity of the transaction between Rickel

and Staples. As a result of that transaction, Staples

received a lease that it could assign or sublease in

accordance with various other lease provisions. 16 Were

Staples limited to assigning or subleasing to a Channel

Home Center or to an entity "similar in nature" to a

Channel Home Center, the value of the Lease would be

seriously affected and this would "impact the validity of the

sale." Krebs, 141 F.3d at 499. We have held appeals moot

under section 363(m) where appellant sought lesser forms

of relief, using similar analysis. See, e.g., Pittsburgh Food &

Beverage, 112 F.3d at 649-50 (relief that would

demonstrate sale was flawed, including finding that trustee

and purchaser knew bankruptcy court lacked authority to

_________________________________________________________________

16. Indeed, Article 15B.4. of the Lease, which the District Court did not

excise, requires any assignment or sublease to any non-"Successor" or

non-"Affiliate," as defined in the Lease, to prohibit the use of the

premises "for any use which is on the date of execution of this Lease or

at the time of such assignment or sublease the principal use of any

tenant located in Shopping Center." Addendum to Appellant's Br. at 4.

25

sell assets and finding that sale price was inadequate,

would affect the validity of the sale).

As discussed above, supra note 8, we must recognize the

Bankruptcy Code's requirement that the assumption and

assignment of a shopping center lease be subject to all

provisions of the lease being assigned, including use

clauses. See 11 U.S.C. S 365(b)(3)(C). Nevertheless, because

reversal of the District Court's decision to excise the use

provision would affect the validity of the transaction

between Rickel and Staples, LRSC's appeal on this point,

absent a stay, is moot.

C.

There remains only to consider the provision of the

District Court's order whereby it retained jurisdiction to

resolve disputes involving the Lease, which LRSC requests

us to reverse. We cannot conclude that this issue is moot

because reversal or modification of that order would not

affect the validity of the assignment to Staples.

Nonetheless, we believe this issue is not ripe for review.

In its order, the court purported to retain jurisdiction to

"construe and determine any disputes under this Order or

under the Agreement [between Rickel and Staples]."

Addendum to Appellant's Br. at 29. In its opinion, the court

explained that "should any landlord attempt to enforce a

lease provision in an unreasonable manner, Staples is free

to return to this Court for the appropriate relief. Likewise,

if Staples attempts to unreasonably disregard any

reasonable provision in its efforts to sublet the property,

such that the landlord believes Staples is violatingS 365 of

the Bankruptcy Code, the landlord may also return to this

Court for the appropriate relief." In re Rickel, 240 B.R. at

837. These statements suggest that the court envisioned a

wide variety of future disputes between Staples and LRSC

as falling within its retained jurisdiction.

LRSC interprets the court to have retained jurisdiction

over lease disputes between it and Staples that would have

no impact on the bankruptcy estate and invokes the rule

that "[s]uits between purchasers of property from the estate

and third parties are . . . not encompassed within the

26

bankruptcy jurisdiction of the district courts." Collier,

supra, P 3.01[4][c], at 3-30 n.91; see also In re Hall's Motor

Transit Co., 889 F.2d 520, 522 (3d Cir. 1989) ("The

bankruptcy court's jurisdiction does not follow the property,

but rather, it lapses when the property leaves the debtor's

estate."). Staples and Rickel, by contrast, argue that the

court merely retained jurisdiction to interpret and enforce

its own order.

As neither party is now seeking to invoke the court's

jurisdiction with respect to a particular dispute, a ruling on

the court's jurisdiction in the future would "constitute

nothing more than an advisory opinion based on a

hypothetical scenario." 15 James Wm. Moore et al., Moore's

Federal Practice S 101.75, at 101-152 (Matthew Bender 3d

ed. 1999). The ripeness doctrine "prevent[s] the courts,

through avoidance of premature adjudication, from

entangling themselves in abstract disagreements . . . ."

Abbott Lab. v. Gardner, 387 U.S. 136, 148 (1967); In re

Drexel Burnham Lambert Group, Inc., 995 F.2d 1138, 1146

(2d Cir. 1993). Whether an issue is ripe for review depends

on the "fitness of the issues for judicial decision and the

hardship to the parties of withholding court consideration."

Pacific Gas & Elec. Co. v. State Energy Resources

Conservation & Dev. Comm'n., 461 U.S. 190, 201 (1983);

Pic-A-State PA, Inc. v. Reno, 76 F.3d 1294, 1298 (3d Cir.

1996).

Absent an actual dispute, any opinion we might render

on the appropriateness of district court jurisdiction would

be "an exercise in futility." Step-Saver Data Sys., Inc. v.

Wyse Tech., 912 F.2d 643, 648 (3d Cir. 1990). Indeed, no

dispute may arise, and we are confident that none of the

parties will create one to test the issue. Accordingly, this

issue is not fit for review at this time and the parties have

not shown that they will be subject to hardship if this court

withholds consideration at this time. In any event, if a

dispute arises, it is the District Court that should

determine in the first instance the propriety of its exercise

of jurisdiction in that situation.

V.

For the foregoing reasons, we will dismiss LRSC's appeal

of the District Court's order authorizing the Staples

27

transaction and excising the use provision as moot

pursuant to section 363(m) of the Bankruptcy Code

because reversal or modification of that order would affect

the validity of the assignment. The only portion of LRSC's

appeal that is not moot is its appeal of the District Court's

order retaining jurisdiction over future disputes. That issue,

however, is not ripe for review. We will therefore dismiss

that portion of LRSC's appeal as well.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

28