                                                           FILED
                                                           MAR 13 2012
 1
                                                        SUSAN M SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
 2                                                        OF THE NINTH CIRCUIT


 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No.   AZ-11-1334-JuPaD
                                   )
 6   REALIA, INC.,                 )        Bk. No.   2:05-15022
                                   )
 7                  Debtor.        )        Adv. No. 2:10-00962
     ______________________________)
 8   NORTH AMERICAN SERVICE        )
     HOLDINGS, INC.                )        M E M O R A N D U M*
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )
11                                 )
     ERIC M. BLACK, L.L.C.,        )
12                                 )
                    Appellee.      )
13   ______________________________)
14               Argued and Submitted on February 24, 2012
                            at Phoenix, Arizona
15
                             Filed - March 13, 2012
16
               Appeal from the United States Bankruptcy Court
17                       for the District of Arizona
18     Honorable Redfield T. Baum, Sr., Bankruptcy Judge, Presiding
                    ____________________________
19
     Appearances:     Robert C. Warnicke, Esq. of Gordon Silver argued
20                    for appellant North American Service Holdings,
                      Inc.; William E. Manning, Esq. of Saul Ewing LLP
21                    argued for appellee Eric M. Black, L.L.C.
                      ______________________________
22
     Before:   JURY, PAPPAS, and DUNN, Bankruptcy Judges.
23
24
25
26        *
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8013-1.

                                      -1-
 1            This appeal raises the question whether, as a matter of
 2   law, appellant, North American Service Holdings, Inc. (“NASH”),
 3   retained an option to purchase real property after the
 4   chapter 71 trustee sold the property in a § 363(f) sale to
 5   appellee, Eric M. Black, Inc. (“EMB”).2     Having conducted an
 6   independent and de novo review of the record, we conclude that
 7   it did not and AFFIRM.
 8                                   I. FACTS
 9   A.       Prepetition Events
10            Realia, a Delaware corporation, was in the business of
11   buying, developing and managing real estate.     On July 31, 2003,
12   Realia acquired three properties from The Artesia Companies,
13   Inc. (“TAC”).     One of those properties — which was the subject
14   of this appeal — was located in Visalia, California.     Realia
15   paid $431,010.40 for the property and, of that amount,
16   $346,650.33 was in the form of an assumption by Realia of debt
17   owed by TAC to Volley Properties, LLC (“Volley Properties”).
18   The obligation to Volley Properties was secured by a first deed
19   of trust on the property.     It is unclear whether the property
20
21        1
            Unless otherwise indicated, all chapter and section
22   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
     “Rule” references are to the Federal Rules of Bankruptcy
23   Procedure and “Civil Rule” references are to the Federal Rules of
     Civil Procedure.
24
          2
            To add to the complex procedural background of this case,
25   the appellee, Eric M. Black, L.L.C., was not the purchaser of the
26   property at the bankruptcy sale. It appears from the record that
     at the summary judgment hearing on this matter, the court treated
27   Eric M. Black, L.L.C. and Eric Black, Inc. as affiliates and for
     purposes of this appeal we do the same. We collectively refer to
28   both entities as “EMB.”

                                       -2-
 1   had other liens against it at the time of the sale.
 2        After acquiring the Visalia property, Realia entered into a
 3   commercial lease dated August 1, 2003 with the prior owner TAC.
 4   TAC was in the construction materials business and used a
 5   portion of the property as its office.   Realia entered into a
 6   separate lease agreement dated August 1, 2003 with Artesia, Inc.
 7   (“Artesia”) for the balance of the property.   The business of
 8   Artesia is not apparent from the record.   Both leases were for a
 9   term effective August 1, 2003 and ending July 31, 2013.
10   These leases were allegedly preliminary agreements, as
11   negotiations between Realia and its lessees, TAC and Artesia,
12   were ongoing.
13        Later, Realia and TAC as to one lease, and Realia and
14   Artesia as to the other, entered into further agreements, dated
15   November 1, 2003, but made effective August 1, 2003.   Similar to
16   the previous leases, the initial term of these leases were also
17   effective August 1, 2003 and ended on July 31, 2013.   The leases
18   further provided that the lessee could renew the lease for ten-
19   year periods from July 31, 2013 through July 31, 2043.    Further,
20   unlike the previous leases, paragraph 2 of the new agreements
21   shows that Realia, as landlord, granted TAC and Artesia the
22   option to purchase the Visalia property.   The agreements
23   credited a portion of the rental payments and other payments
24   towards the purchase price.   Evidently, there were further
25   amendments to the leases on December 1, 2003 and again on
26   January 31, 2004.   The January 31, 2004 version of the leases
27   modified the monthly credit accumulations towards the purchase
28   price under the option.   For purposes of this appeal, these

                                    -3-
 1   later agreements are largely ignored, with the focus being on
 2   the November 1, 2003 agreements.
 3             On January 31, 2004, TAC assigned its interest in its lease
 4   to Artesia.
 5             On September 9, 2004, an entity named Valley Pacific
 6   Petroleum Services, Inc. (“VP”) obtained a default judgment
 7   against Realia for $373,352.62 and recorded a lien against the
 8   Visalia property.       The amount of the judgment supposedly
 9   reflected amounts owed by TAC to VP for fuel and the like.         VP
10   alleged that Realia was the successor corporation to TAC.
11             In connection with this allegation, VP maintained that
12   Realia’s secured creditor, Kraft Americas Holding, Inc.
13   (“KAHI”), a Delaware corporation, controlled Realia.       KAHI held
14   a security interest on all assets of Realia which, besides the
15   real property, included equipment and machinery.3       KAHI was also
16   a shareholder of TAC, but allegedly sold all its shares on
17   May 2, 2002, which would have been prior to the sale of the
18   property to debtor.       In addition, an individual by the name of
19   Rune Kraft (“Kraft”), who had been a director of TAC, allegedly
20   resigned on May 1, 2002.       Kraft was also involved with KAHI and
21   was       chairman, director and an officer of NASH.4
22
           3
23          It appears any KAHI secured position on the Visalia real
     property would have been junior to Volley Properties’ lien.
24
           4
            From what we can tell, Kraft is the link among the various
25   entities involved in this appeal. It appears that he owned KAHI
26   which in turn was the 100% shareholder of TAC. He was also a
     director of TAC. TAC sold the Visalia property to Realia and
27   then TAC and Realia entered into the purported lease containing
     the option. TAC then assigned its interest in the lease to
28                                                      (continued...)

                                        -4-
 1   B.   Bankruptcy Events
 2        It is not entirely clear from the record why Realia filed
 3   it chapter 11 petition on August 16, 2005.   Less than ten days
 4   after the filing, VP moved to dismiss or convert the case.
 5   Debtor contested the dismissal or conversion, alleging that VP
 6   was not a creditor in its case.    The hearing on the motion to
 7   dismiss or convert was continued from time to time, but
 8   eventually the bankruptcy court converted debtor’s case to one
 9   under chapter 7 on December 13, 2005.   Roger W. Brown was
10   appointed the chapter 7 trustee.
11        Debtor’s Schedule A listed its 100% ownership interest in
12   five pieces of real property, including the office building in
13   Visalia, with a total value of $914,000.   Debtor also listed
14   personal property as 100% stock ownership in Concreteworks,
15   Inc., $193,000 in accounts receivable, $476,000 in machinery and
16   equipment, and the leases (presumably the ones relating to the
17   Visalia property) valued at $406,000.   Debtor’s Schedule D
18   showed KAHI with a security interest in all debtor’s assets in
19   an amount over $1 million and Volley Properties as being secured
20   by the Visalia property in the amount of $301,000.   Debtor
21   listed the leases on the Visalia property in Schedule G and no
22   unsecured creditors in Schedule F.
23        Upon conversion of the case, debtor provided the trustee
24   with information about its properties, including the lease
25
26        4
           (...continued)
27   Artesia and Artesia assigned its interest in the lease to NASH.
     Kraft controlled NASH, and there are allegations in the record
28   that he also had controlled Realia.

                                    -5-
 1   agreements related to the Visalia property.    According to the
 2   record, the trustee was given the version of the leases which
 3   did not contain the option provisions.
 4                       The Sale Under Section 363(f)
 5           In July 2006, the trustee moved to sell the Visalia
 6   property free and clear of all claims and interests under
 7   § 363(f).    The trustee’s application showed that the buyer was
 8   EMB, the purchase price was $425,000, and the property was
 9   severely overencumbered.5    The application further showed that
10   the property was subject to two leases, which would not be
11   affected by the sale:    “Commercial Lease Agreement with The
12   Artesia Companies, Inc. as tenant, effective August 1, 2003 and
13   ending July 31, 2013, and Commercial Lease Agreement with
14   Artesia, Inc. as tenant, effective August 1, 2003 and ending
15   July 31, 2013.”    The sale was subject to overbid.
16           Attached to the application was a letter of intent setting
17   forth the basic terms of the purchase.    The letter of intent
18   stated that “Buyer has conducted all due diligence and is
19   satisfied with the subject property in its entirety.”    The
20   letter also reflected that “Buyer is aware that the property is
21   subject to two existing leases . . . .”    No leases were attached
22
23
         5
            The trustee’s amended application showed that Volley
24   Properties’ lien was for $355,000. There were also numerous tax
     liens and judgment liens filed against the property with VP’s
25   judgment lien greater than $320,000. At the sale hearing, the
26   trustee explained that certain tax liens would be paid from the
     proceeds and that debtor owned other properties that could
27   partially satisfy some of the liens. This offer of proof
     apparently satisfied the court as a basis for authorizing the
28   sale free and clear.

                                      -6-
 1   to the application contained in the record.
 2           On August 2, 2006, the bankruptcy court heard the sale
 3   motion and presided over the auction.    In the transcript of that
 4   hearing, trustee’s counsel stated that the trustee intended to
 5   assume and assign the leases,6 with all the terms of the leases
 6   applicable to the purchaser.    Hr’g Tr. August 2, 2006 at 7:9-14.
 7   However, the record indicates that the trustee had obtained only
 8   the version of the leases between debtor and its lessees which
 9   did not contain the option.    Moreover, there was no further
10   discussion regarding whether the trustee met the requirements
11   for assumption under § 365, and there are no documents in the
12   record — other than one line in the sale order — that show an
13   assignment ever occurred.
14           Kraft, the principal of KAHI, was at the hearing and
15   represented by counsel.    Interested in overbidding EMB’s price,
16   Kraft’s counsel brought up the issue of the option in the
17   November 1, 2003 leases.    Mr. Black stated that he had recently
18   heard about the option to purchase and asked the court for any
19   such provision to be set aside.    He further stated that he was
20   interested in purchasing the property with or without the
21   leases, but without the option.    Hr’g Tr. August 2, 2006 at
22   14:8-12.    After further discussion, the court stated:   “Well, as
23   I understand the current status of this, that the leases will be
24   assigned whatever right, title, and interest the estate has; and
25   then it will be between the buyer and the tenants to decide
26   legally where that leaves them, assuming somebody closes on the
27
28       6
             Assumption was not mentioned in the sale application.

                                      -7-
 1   property.”    Id. at 14:13-17.   EMB and KAHI then bid on the
 2   property, with EMB’s final bid in the amount of $465,000 and
 3   KAHI’s “back-up” bid for $455,000.
 4           The court approved the sale by order entered on August 9,
 5   2006.    The order stated:
 6           IT IS FURTHER HEREBY ORDERED that the Trustee shall
             assign to Buyer any interest the Estate may have in
 7           the two(2) commercial leases described as follows: a.
             Commercial Lease Agreement with The Artesia Companies,
 8           Inc. as tenant, effective August 1, 2003 and ending
             July 31, 2013; and Commercial Lease Agreement with
 9           Artesia, Inc. as tenant, effective August 1, 2003 and
             ending July 31, 2013.
10
11                     The Trustee’s Adversary Proceeding
12           After the entry of the sale order and prior to the closing
13   of the sale, the issue whether EMB was bound by the option in
14   the November 1, 2003 leases persisted.     Apparently, KAHI
15   contacted the trustee, claiming that TAC and Artesia had a
16   purported option to purchase the property until October 1, 2010,
17   for the purchase price of $439,630 less certain credits.      As a
18   result, on November 8, 2006, the trustee commenced an adversary
19   proceeding in the bankruptcy court against KAHI; TAC; Artesia;
20   and others, seeking to avoid the unrecorded real estate option
21   under § 544.    The trustee alleged that there were no documents
22   evidencing the option or any other purported interest, claim, or
23   contract right of the defendants in the property that were
24   recorded as of the petition date.      The bankruptcy court granted
25   a default judgment against all defendants in February 2007.
26           In apparent reliance on the default judgment and the leases
27   with no option given by the trustee to it, EMB closed its
28   purchase of the Visalia property on February 28, 2007.

                                      -8-
 1                     The Assignment Of The Leases To NASH
 2   On March 31, 2007, Artesia assigned the two commercial leases to
 3   NASH for $806,378.65.     According to the assignment, NASH assumed
 4   all the obligations under the leases.
 5                            The Unlawful Detainer
 6            After the closing, EMB received no rent from TAC or
 7   Artesia.     Consequently, on April 25, 2007, EMB filed an action
 8   for unlawful detainer against TAC and Artesia.     The California
 9   state court granted the requested relief by order dated May 9,
10   2007.     After judgment was entered, NASH appeared in state court
11   to seek relief from that judgment, as assignee under the leases
12   dated November 1, 2003 between Realia and TAC and Realia and
13   Artesia.     The state court denied NASH’s requested relief.7    It
14   was at this time that Mr. Black supposedly saw the leases that
15   contained the option for the first time.
16                 The Motion To Set Aside The Default Judgment
17            On May 22, 2008, Artesia moved to set aside the default
18   judgment in the trustee’s § 544 adversary proceeding, contending
19   that it had not been properly served.     The bankruptcy court
20   denied the motion in a written Minute Entry Order filed on
21   July 30, 2008.     The court found that Artesia had been properly
22   served; Artesia had not acted timely with its motion to set
23   aside the default; and Artesia had no meritorious defense to the
24   trustee’s adversary complaint.     The order denying Artesia’s
25   motion was entered August 11, 2008.
26
27
          7
            Neither Artesia nor NASH occupied the property at the time
28   of this appeal.

                                       -9-
 1        Artesia appealed that order to the district court.     The
 2   district court reversed the bankruptcy court’s decision, finding
 3   that Artesia had not been properly served and therefore the
 4   bankruptcy court did not have personal jurisdiction over
 5   Artesia.   The matter was remanded to the bankruptcy court.   On
 6   April 16, 2009, the trustee dismissed his complaint in the § 544
 7   adversary proceeding.
 8                     The Delaware State Court Action
 9        On September 20, 2007, NASH sued EMB in the Delaware
10   Chancery Court to enforce the option to purchase the property
11   referenced in the lease dated November 1, 2003 between Realia
12   and Artesia.   More than two years later, on November 18, 2009,
13   the Delaware Chancery Court stayed its proceeding for six months
14   so that EMB could seek clarification of the bankruptcy court’s
15   sale order and whether that sale assigned the leases with the
16   option.
17                  The Closing And Reopening Of The Case
18        On June 9, 2008, debtor’s chapter 7 case was closed.     EMB
19   moved to reopen the bankruptcy case, and the bankruptcy court
20   granted the motion to reopen on March 11, 2010.
21                        EMB’s Adversary Complaint
22        On June 1, 2010, EMB filed a complaint against NASH in the
23   bankruptcy court seeking declaratory relief.     In Count I, EMB
24   sought a declaration that the August 2003 leases were the only
25   leases assigned to EMB in the sale order and that any option to
26   purchase contained in the November 1, 2003 leases was
27   unenforceable as against EMB.   In Count II, EMB sought a
28   declaration that the option to purchase contained in the

                                     -10-
 1   November 1, 2003 leases was not enforceable against EMB as a
 2   bona fide purchaser without notice of the option to purchase.
 3              NASH’S Motion To Dismiss The Adversary Complaint
 4        On July 2, 2010, NASH moved to dismiss the complaint under
 5   Civil Rule 12(b)(1) and (3).    NASH maintained that the
 6   bankruptcy court did not have jurisdiction over the matter
 7   because NASH had never appeared in the bankruptcy court and the
 8   dispute was between two parties to a lease.      NASH asserted that
 9   the dispute was governed purely by state law.      NASH further
10   argued that the commercial lease agreements contained provisions
11   that if a dispute arose under the agreement, Delaware law
12   applied.
13        EMB responded, arguing that NASH waived any objection to
14   personal jurisdiction because it did not object to the Delaware
15   court’s imposition of the stay of the state court proceeding.
16   EMB also maintained that the bankruptcy court had subject matter
17   jurisdiction under its “related to” jurisdiction because the
18   dispute over what was assigned by the trustee arose out of the
19   sale approved by the bankruptcy court.
20        At an August 12, 2010 hearing, the bankruptcy court granted
21   NASH’s motion to dismiss in part.       The court dismissed Count II
22   of the complaint, finding that Count I was the proper procedural
23   vehicle to request the court to consider whether there should be
24   a clarification of the sale order.
25                     EMB’S Motion For Summary Judgment
26        On March 15, 2011, EMB moved for summary judgment, arguing
27   that the undisputed facts showed that the only leases assigned
28   to EMB by the court’s sale order were the August 1, 2003 leases.

                                      -11-
 1   EMB provided a statement of uncontroverted facts in support.
 2        NASH responded to the motion, arguing that several other
 3   documents were “effective” August 1, 2003 besides the two leases
 4   referred to by EMB.    NASH further maintained that the bankruptcy
 5   court made clear at the August 2, 2006 sale hearing, that any
 6   buyer would take the property subject to whatever right, title,
 7   and interest the estate had in the leases.   NASH asserted that
 8   it was irrelevant what EMB or the trustee knew or did not know.
 9   Rather, NASH’s position was that the narrow issue before the
10   court was what interest did the estate have in the leases at the
11   time the sale was approved.    In addition, NASH maintained that
12   the trustee’s § 544 complaint, filed four months prior to the
13   actual closing of the sale, put EMB on notice of the existence
14   of the additional documents.   Therefore, according to NASH, EMB
15   should have known about the lease incentives and option at the
16   time of the closing.   NASH provided a statement of controverted
17   facts and separate statement of facts in support.
18        On April 26, 2011, NASH filed a cross motion for summary
19   judgment.   In that motion, NASH requested the court to find, as
20   a matter of law, that the lease agreements effective August 1,
21   2003 and ending July 31, 2013, referenced on page 2 of the sale
22   order, included, among other documents, the subsequent lease
23   agreements dated November 1, 2003, December 1, 2003, and
24   January 31, 2004.
25        On June 1, 2011, the bankruptcy court heard argument from
26   the parties on the summary judgment motions and took the matter
27   under advisement.   On June 14, 2011, the bankruptcy court ruled
28   that the leases were never assumed by the trustee in connection

                                     -12-
 1   with the sale of the Visalia property or at any other time.     The
 2   court further found that leases not assumed by the chapter 7
 3   trustee are “deemed rejected” under § 365(d)(1).    The court
 4   therefore concluded that Artesia did not retain its rights under
 5   the option to purchase because of the rejection of its leases.
 6   The court further reasoned that the option was not an executory
 7   contract under the holding of Unsecured Creditors’ Comm. of
 8   Robert L. Helms Constr. & Dev. Co., Inc. v. Southmark Corp.
 9   (In re Robert L. Helms Constr. & Dev. Co., Inc.), 139 F.3d 702
10   (9th Cir. 1998).   In the end, the court granted EMB’s motion for
11   summary judgment and denied NASH’s cross motion for summary
12   judgment.
13        On July 6, 2011, the court entered the Final Declaratory
14   Judgment in favor of EMB.     That judgment provides that EMB took
15   the property “free and clear of any option agreement . . .
16   contained in those certain leases dated November 1, 2003.”
17   NASH timely appealed the bankruptcy court’s decision to grant
18   summary judgment in favor of EMB.
19                           II.    JURISDICTION
20        As a threshold matter, we must determine whether the
21   bankruptcy court had jurisdiction to issue a final judgment and
22   whether we, in turn, have jurisdiction to review the judgment on
23   appeal.   See Krasnoff v. Marshack (In re Gen. Carriers Corp.),
24   258 B.R. 181, 188–89 (9th Cir. BAP 2001).     Generally, disputes
25   between purchasers of a debtor’s assets and third parties are
26   not within the bankruptcy court’s jurisdiction.    Miller v.
27   Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 789 (11th
28   Cir. 1990); In re Hall’s Motor Transit Co., 889 F.2d 520, 522-23

                                      -13-
 1   (3d Cir. 1989).    However, a bankruptcy court has ancillary
 2   jurisdiction to interpret its own orders after the closing of a
 3   case.    See generally Battle Ground Plaza, LLC v. Ray (In re
 4   Ray), 624 F.3d 1124, 1130 (9th Cir. 2010) (Ancillary
 5   jurisdiction enables a court to vindicate its authority and
 6   effectuate its decrees).     Ancillary jurisdiction should only be
 7   used “when necessary to resolve bankruptcy issues, not to
 8   adjudicate state law claims that can be adjudicated in state
 9   court.”    In re Ray, 624 F.3d at 1136.
10           Here, the parties have different interpretations of the
11   sale order based on statements the judge made during the sale
12   hearing; namely, whether the sale included the assignment of the
13   leases with or without the option.       Because this aspect of the
14   parties’ dispute could arise only in a bankruptcy proceeding, we
15   conclude that the bankruptcy court properly exercised its
16   ancillary jurisdiction over the matter.        See also Travelers
17   Indem. Co. v. Bailey, 557 U.S. 137, 129 S.Ct. 2195, 2205 (2009)
18   (“[T]he Bankruptcy Court plainly had jurisdiction to interpret
19   and enforce its own prior orders.”).         Therefore, we have
20   jurisdiction under 28 U.S.C. § 158.
21                                 III.   ISSUE
22           Whether the bankruptcy court erred in granting summary
23   judgment in favor of EMB.
24                          IV.   STANDARD OF REVIEW
25           We review de novo the bankruptcy court’s grant of a motion
26   for summary judgment.    Ilko v. Cal. St. Bd. of Equalization
27   (In re Ilko), 651 F.3d 1049, 1055 (9th Cir. 2011).         De novo
28   means review is independent, with no deference given to the

                                       -14-
 1   trial court’s conclusion.     See First Ave. W. Bldg., LLC v. James
 2   (In re Onecast Media, Inc.), 439 F.3d 558, 561 (9th Cir. 2006).
 3   We may affirm the bankruptcy court’s decision on any ground
 4   supported by the record.     Shanks v. Dressel, 540 F.3d 1082, 1086
 5   (9th Cir. 2008).
 6                                V.   DISCUSSION
 7            In reviewing the bankruptcy court’s decision on a motion
 8   for summary judgment, we apply the same standards as the
 9   bankruptcy court.      Summary judgment is properly granted when no
10   genuine and disputed issues of material fact remain, and, when
11   viewing the evidence most favorably to the non-moving party, the
12   movant is entitled to prevail as a matter of law.     Civil
13   Rule 56, incorporated by Rule 7056; Celotex Corp. v. Catrett,
14   477 U.S. 317, 322-23 (1986).      Material facts which would
15   preclude entry of summary judgment are those which, under
16   applicable substantive law, could affect the outcome of the
17   case.     The substantive law will identify which facts are
18   material.     Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
19   (1986).
20   A.       Section 365
21            The bankruptcy court found that the chapter 7 trustee had
22   not assumed any version of the leases and, furthermore, the
23   leases were deemed rejected under § 365(d)(1).     NASH contends
24   that the bankruptcy court ruled on these issues without the
25   benefit of briefing on the applicability of § 365.8     On appeal,
26
          8
27          In the underlying summary judgment motion and cross
     motion, the parties did not mention § 365 at all. Rather, their
28                                                      (continued...)

                                        -15-
 1   NASH does not challenge the bankruptcy court’s decision with
 2   respect to the assumption issue, but contends the court erred by
 3   concluding that the leases were rejected as a matter of law
 4   under § 365(d)(1).
 5        We need not decide whether NASH had sufficient notice that
 6   in ruling on the summary judgment motion the bankruptcy court
 7   intended to consider the assumption or rejection issues, or
 8   whether if the court sua sponte ruled on these issues, it erred
 9   in so doing.   We have independently reviewed the record and have
10   considered not only the arguments NASH made to the bankruptcy
11   court, but also the arguments and the evidence on which it
12   relies as set forth in its brief and in oral argument to this
13   Panel.   Having considered such arguments and evidence, our
14   analysis regarding § 365 differs from that employed by the
15   bankruptcy court because we address the threshold question
16   whether the leases containing the option were true leases
17   falling within the scope of § 365.      See City of S.F. Mkt. Corp.
18   v. Walsh (In re Moreggia & Sons, Inc.), 852 F.2d 1179, 1182 (9th
19   Cir. 1988) (only true leases fall within the scope of § 365).
20   We conclude that they are not.    Our review is based on
21   uncontroverted facts in the record on summary judgment — the
22   lease documents.
23        In analyzing whether a lease is a true lease falling within
24   the scope of § 365, the Ninth Circuit in In re Moreggia & Sons,
25
          8
26         (...continued)
     arguments and statements of undisputed facts centered on the
27   parties’ and the court’s statements at the hearing and on what
     the trustee or EMB knew, or should have known, regarding the
28   sale.

                                      -16-
 1   Inc. observed that “not every interest that might qualify as a
 2   lease under state law is subject to the automatic rejection
 3   provision of § 365.”      852 F.2d at 1182.   Thus, because state law
 4   was not dispositive on the “true lease” question, the court
 5   instructed that the “appropriate focus” was on the “economic
 6   realities of [the] particular situation.”      Id. at 1082.
 7   Therefore, even assuming that the leases containing the option
 8   were “true leases” under Delaware law,9 we turn our focus to the
 9   “economic realities” of those agreements.
10            Here, we believe that under In re Moreggia & Sons, Inc.,
11   the purported leases with the option do not fall within the
12   scope of § 365 because they lack the requisite landlord/tenant
13   relationship and the debtor, Realia, had de minimis executory
14   burdens.      We considered the following provisions:
15            •   The rent payable for each renewal term (which span as
16   long as forty years) remained the same.
17            •   With each rental payment, the tenant obtained a “credit”
18   towards the purchase price of the property.
19            •   The tenant had sole discretion to make all necessary
20   repairs and maintenance to the building.      The landlord agreed to
21   reimburse the tenant for all repairs and maintenance within ten
22   days of the tenant making such a request.
23            •   The tenant had the right without the landlord’s consent
24   to remodel, redecorate, and make additions.      However, the
25   landlord also was required to reimburse the tenant within ten
26
27
          9
            Each of the leases provided that they should be construed
28   under Delaware law.

                                        -17-
 1   days of tenant making a request.
 2        •     The tenant paid all charges for utilities, including
 3   electricity, gas, water, waste, alarm and any other utilities,
 4   but then again was entitled to reimbursement from the landlord.
 5        •     The tenant also paid all charges for parking lot paving
 6   and resurfacing, and again the landlord was required to
 7   reimburse the tenant within ten days of tenant making such a
 8   request.
 9        •     Paragraph 15 of the lease provides that the tenant was
10   responsible for managing the building and for collecting all
11   rental payments on behalf the landlord, and was also responsible
12   for paying Volley Properties, the first trust deed holder on the
13   property.
14        •     When the option was exercised, the purchase price varied
15   not only by the rental credit, but also by the amounts not
16   “reimbursed” by the landlord, i.e., for the utilities,
17   improvements, etc.
18        •     The leases gave the tenant the “right” to skip rent for
19   up to three consecutive months at its discretion.
20        •     The landlord was prohibited from encumbering the
21   property, and tenant had the right to demand the release of any
22   such encumbrance.
23        •     Default of the landlord under the lease gave the tenant
24   the right to add twelve percent interest to the amounts not
25   reimbursed.
26        •     Finally, at some point in time prior to the end of the
27   renewed term ending in 2043, the credits would have more than
28   paid the full option purchase price, leaving not even one dollar

                                      -18-
 1   due at the end.
 2        Taken together, these provisions do not indicate a
 3   landlord/tenant relationship.    Although the tenant was required
 4   to pay rent, there was no increase in rent for as long as forty
 5   years.   Thus, the landlord-debtor did not receive any return on
 6   its investment nor did the rent appear to be based on the market
 7   value of the property in the future.    Moreover, the allocation
 8   of responsibilities between the landlord and tenant shows that
 9   the tenant was not only in possession of the property, but also
10   in control.   The tenant was given “sole discretion” to make
11   repair and renovation decisions about the property, paid all
12   utilities and taxes, managed the property, collected rent
13   (presumably its own), and paid the first trust deed holder on
14   the property.   Although the tenant could seek “reimbursement”
15   for certain items, if those amounts were not paid by the
16   landlord, they would be credited towards the purchase price.
17   Furthermore, the landlord was penalized for not making the
18   reimbursements with an interest rate of 12%.    Finally, the
19   landlord could not encumber its own property.   In short, under
20   these leases, the tenant had far more than permission to use the
21   property in exchange for rent.    See Int’l Trade Adm. v.
22   Rensselaer Polytechnic Inst., 936 F.2d 744 (2nd Cir. 1990)
23   (noting that the legislative history of § 502(b) indicates that
24   “the fact that the lessee assumes and discharges substantially
25   all the risks and obligations ordinarily attributed to the
26   outright ownership of the property is more indicative of a
27
28

                                      -19-
 1   financing transaction than of a true lease . . . .”).10
 2         Moreover, the terms of the leases show that the landlord-
 3   debtor had essentially no ongoing executory burdens.    The
 4   landlord was required to reimburse the tenant for certain
 5   expenses and provide financing in the event the tenant exercised
 6   the option.   However, these responsibilities were conditional
 7   and essentially under the control of the tenant.
 8         For these reasons, we conclude that the purported leases
 9   were not “true leases.”11    Based on the terms of the leases that
10   contain the option clauses, there is no dispute concerning
11   material facts.     We thus conclude that the leases containing the
12   option were not unexpired non-residential leases within the
13   scope of § 365.12    Given our conclusion, § 365(h)(2) is
14
          10
15          Another unusual feature of the lease agreements
     highlighted at the hearing on this matter was that the tenants
16   were not required to be in possession nor did it matter that they
     had defaulted at the time they wished to exercise the option.
17
          11
            The arrangement appears to be a   land sale contract with
18
     TAC as the buyer. However, it is also    possible that TAC and
19   Realia were one and the same and there   really was never a bona
     fide “sale” between those parties. In    any event, we need not
20   give a label to the transaction.
21        12
            Even if the leases with the option were subject to § 365,
     the trustee’s purported assignment of those leases vis-a-vis the
22
     estate was ineffective. Under § 365(f)(2), the trustee was
23   required to assume the leases before assigning them. Section
     363(f)(2) provides that a trustee may assign an executory
24   contract or unexpired lease only if the trustee first assumes
     such contract or lease in accordance with provisions of § 365 and
25   provides adequate assurance of future performance by the assignee
26   of such contract or lease. (Emphasis added.) It is undisputed
     that the trustee did not assume any version of the leases and it
27   is only through assumption that the debtor’s estate would have
     been bound to accept the obligations and the benefits under the
28                                                      (continued...)

                                      -20-
 1   inapplicable.
 2   B.      Section 363
 3           Accordingly, our focus shifts to the legal effect of the
 4   sale.        Keeping in mind that the sale order is a final order, we
 5   first construe the sale order and then consider whether NASH’s
 6   interest in the leases containing the option was extinguished
 7   through the sale free and clear.
 8           1.      Construction Of The Sale Order
 9           “When construing an agreed or negotiated form of order,
10   such as the Sale Order in this case, we approach the task as an
11   exercise of contract interpretation rather than the routine
12   enforcement of a prior court order.”       In re Trico Marine Servs.,
13   Inc., 450 B.R. 474, 482 (Bankr. D. Del. 2011); see City of
14   Covington v. Covington Landing Ltd. P’ship, 71 F.3d 1221, 1227
15   (6th Cir. 1995) (“An agreed order, like a consent decree, is in
16   the nature of a contract, and the interpretation of its terms
17
18           12
            (...continued)
19   leases. See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 531–32
     (1984). Without assumption, the estate was not bound to accept
20   the obligations and benefits under the leases. Thus, as a
     matter of law, the trustee’s purported assignment of the leases
21   to EMB (regardless of which version) was legally ineffective to
     transfer the obligations and rights under the leases to EMB. See
22
     New Falls Corp. v. Boyajian (In re Boyajian), 367 B.R. 138, 145
23   (9th Cir. BAP 2007), aff’d, 565 F3d 1088 (9th Cir. 2009) (“Stated
     as a basic principle, an assignee merely steps into the shoes of
24   his assignor. The question of what rights and remedies pass with
     a given assignment depends on the interest of the parties.”).
25   Moreover, we observe that there is no document in the record
26   evidencing an assignment whereby EMB agreed to step into the
     shoes of debtor with respect to the leases containing the option.
27   In reality, as further explained below, the record shows that EMB
     did not bargain for or intend to purchase the property subject to
28   the leases containing the option.

                                         -21-
 1   presents a question of contract interpretation.”); Rifken v.
 2   CapitalSource Fin., LLC (In re Felt Mfg. Co., Inc.), 402 B.R.
 3   502, 511 (Bankr. D.N.H. 2009) (“The terms of court orders, plans
 4   of reorganization, and stipulations between parties are
 5   typically examined under principles of contract
 6   interpretation.”).   “At bottom, the goal is to determine the
 7   rights, duties, and reasonable expectations of the parties, as
 8   disclosed to and blessed by the Court.   The paramount goal of
 9   contract interpretation is to determine the intent of the
10   parties.”   Trico Marine, 450 B.R. at 482 (citing Am. Eagle
11   Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 587 (3d Cir.
12   2009)).
13        The sale order plainly stated:
14        IT IS FURTHER HEREBY ORDERED that the Trustee shall
          assign to Buyer any interest the Estate may have in
15        the two(2) commercial leases described as follows: a.
          Commercial Lease Agreement with The Artesia Companies,
16        Inc. as tenant, effective August 1, 2003 and ending
          July 31, 2013; and Commercial Lease Agreement with
17        Artesia, Inc. as tenant, effective August 1, 2003 and
          ending July 31, 2013.
18
19   NASH attempts to create an ambiguity in the wording of the order
20   by arguing that several other documents were “effective”
21   August 1, 2003, besides the two leases referred to by EMB.    NASH
22   further maintains that the bankruptcy court made clear at the
23   August 2, 2006 sale hearing, that any buyer would take the
24   property subject to whatever right, title, and interest that the
25   estate had in the leases.   In other words, it was an “as is”
26   sale, subject to later surprises.
27        We are not persuaded by NASH’s arguments.    Where a contract
28   is ambiguous, “the interpreting court must look beyond the

                                    -22-
 1   language of the contract to ascertain the parties’ intentions.”
 2   Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d
 3   1228, 1232 (Del. 1997); Restatement (Second) of Contracts
 4   § 202(1)(1979) (“Words and other conduct are interpreted in the
 5   light of all the circumstances, and if the principal purpose of
 6   the parties is ascertainable it is given great weight”).
 7        The evidentiary record shows that the trustee and EMB
 8   negotiated for the sale of the property subject to the two
 9   leases without the option.   This is evident because there was no
10   mention of the leases with the option in the record until the
11   actual sale hearing.   The bankruptcy court observed:   “[A] fair
12   reading of the transcript is that the trustee did not have the
13   complete set of documents then [at the sale hearing] that is now
14   before this court . . . .”   Hr’g Tr. June 1, 2011 at 24:21-
15   25;25:1.   It follows that the trustee’s application to sell the
16   property and the attached letter of intent could have only been
17   referencing the leases without the option when those pleadings
18   were submitted to the court.
19        Mr. Black’s statements at the hearing are consistent with
20   our conclusion because he stated that he would purchase the
21   property with or without the leases, but without the option.
22   The trustee’s adversary proceeding filed subsequent to the sale
23   hearing also demonstrates that the parties to the sale — EMB and
24   the trustee on behalf of the estate — did not negotiate or
25   intend the sale of the property subject to the leases with the
26   option.    As the bankruptcy court observed, “there probably
27   wouldn’t have been a closing without [the trustee’s] action.”
28   Hr’g Tr. June 1, 2011 at 26:1.    Finally, what is telling in this

                                      -23-
 1   matter is that at no time during the sale hearing did NASH’s
 2   principal, Mr. Kraft, produce the leases with the option.
 3        Given this background, we cannot construe the sale order as
 4   being ambiguous when the reasonable intentions and expectations
 5   of the parties show otherwise.    Accordingly, we conclude that,
 6   as a matter of law, the sale order is a final order which did
 7   not include the leases with the option.
 8        2.     NASH’s Interest In the Option Was Extinguished By The
                 Sale
 9
10        Alternatively, we conclude that the option did not survive
11   the sale.   Section 363(f) authorizes a chapter 7 trustee to sell
12   property free and clear of any “interest” in such property.    We
13   have construed the term “interest” to have an expansive scope.
14   Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R.
15   25, 41-2 (9th Cir. BAP 2008) (citing United States v.
16   Knox–Schillinger (In re Trans World Airlines, Inc.), 322 F.3d
17   283 (3d Cir. 2003) (finding that travel vouchers issued in
18   connection with settlement of a discrimination action and
19   discrimination claims made by the EEOC were “interests” subject
20   to § 363(f)(5)); see also P.K.R. Convalescent Ctrs., Inc. v. Va.
21   (In re P.K.R. Convalescent Ctrs., Inc.), 189 B.R. 90, 94 (Bankr.
22   E.D. Va. 1995) (statutory right to recapture depreciation on
23   sale of health facility an interest within meaning of
24   § 363(f)(5)).   Moreover, courts have noted that the purpose of
25   the “free and clear” language is to allow the debtor to obtain a
26   maximum recovery on its assets in the marketplace.   See In re
27   Med. Software Solutions, 286 B.R. 431 (Bankr. D. Utah 2002)
28   (citing WBO P’ship v. Va. Dep’t of Med. Assistance Serv. (In re

                                      -24-
 1   WBO P’ship), 189 B.R. 97, 108 (Bankr. E.D.Va. 1995)).
 2        We decide, as a matter of law, that NASH’s interest in the
 3   option was an interest included within the scope of § 363(f).
 4   NASH does not complain that it did not have proper notice of the
 5   sale, nor can it when its principal was at the sale hearing.
 6   Further, NASH’s continued silence left the bankruptcy court
 7   unaware that NASH might exploit the situation to undermine the
 8   intended goal of the bankruptcy sale to dispose of Realia’s
 9   property free and clear of any interests.    Therefore, we
10   conclude that the property was sold free and clear of NASH’s
11   interest in the option.
12                             VI.   CONCLUSION
13        For the reasons stated, we AFFIRM.
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