In Re A&F Enterprises, Inc., II Has Something In Common With The Little Sisters Of The Poor

The power of an appellate court in the federal system to stay the orders of lower courts or to enjoin conduct that lower courts have refused to enjoin, so as to preserve the appellate court's jurisdiction to review those orders on ultimate appeal, is clearly established yet infrequently invoked. In addition to other potential sources, the power derives from the All Writs Act, 28 U.S.C. § 1651, which gives all federal courts the authority to "issue all writs necessary or appropriate in aid of their respective jurisdictions."

Recently, attention was given to this power when the Supreme Court granted an injunction to the Little Sisters of the Poor. The Sisters had filed suit against the Secretary of Health and Human Services, seeking a determination that the Government cannot compel them to offer contraceptive insurance coverage to employees of their hospitals, as is generally required under the Affordable Care Act. When the district court in Denver denied the Sisters a preliminary injunction, they sought an injunction from the Tenth Circuit, which denied it (Appeal No. 13-1540, Dec. 31, 2013). But, on further application to the Supreme Court, first Justice Sotomayor and then the entire Court granted the requested relief. (No. 13A691, Jan. 24, 2014).

On February 7, 2014, the Seventh Circuit used this same power to stay orders of the bankruptcy court in Chicago, after both the bankruptcy judge and the district judge assigned to the appeal of the orders had denied stays pending appeal. In re A&F Enterprises, Inc., II (No 13-3192).

The substantive issue is one that only a bankruptcy lawyer could love. Given that the Bankruptcy Code gives a Chapter 11 debtor until confirmation of its plan to decide whether to assume or reject its executory contracts, including its franchise agreements, 11 U.S.C. § 365(d)(2), but only 120 days after filing the case to assume or reject unexpired leases of nonresidential real property, 11 U.S.C. § 365(d)(4), how long does the debtor get when its franchise agreements and leases (seventeen of them in three states for this IHOP franchisee) are so tightly joined by cross-default provisions that losing the leases terminates the franchise agreements? Both the bankruptcy judge who deemed the leases rejected when the debtor took no action to assume or reject them within the 120-day period and held the franchise agreements expired under the cross-default provisions, and the district judge to whom the debtor appealed, thought...