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Media Alerts - In re: Revel AC Inc. - Third Circuit
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October 5, 2015
  In re: Revel AC Inc. - Third Circuit
Headline: Third Circuit Grants Stay Pending Appeal, Preserving IDEA's Lease Agreement in Revel's Sale of its Casino

Area of Law: Bankruptcy, Appellate Procedure

Issues Presented: Whether a putative leaseholder is entitled to a stay pending its appeal of a Bankruptcy Court order allowing Revel to sell its casino free and clear of IDEA's lease under §363(f)(4).

Brief Summary: Appellant, IDEA, appealed the district court's denial of a stay to prevent Revel AC, appellee, from selling its casino free and clear of IDEA's lease. The Third Circuit reviewed the appeal de novo as to the irreparable harm factor, instead of applying abuse of discretion because the case involved a purely legal determination. The court analyzed the appeal by balancing the four stay factors using a "sliding-scale" approach. The Third Circuit first found that IDEA would suffer irreparable harm if the stay was not granted. The court noted that the harm IDEA would suffer was greater than the speculative harm Revel would suffer if the stay was granted. Additionally, the court balanced the public interest and its analysis tilted toward Revel. Finally, the court determined that IDEA was assured to succeed on the merits because Revel had provided no factual or legal basis that it did not have a lease with IDEA. The Third Circuit reversed the district court and stayed the portion of the sale order that allowed Revel to sell the casino free and clear of IDEA's lease.

Extended Summary: Appellant, IDEA, operated a night club within the Revel AC Casino in Atlantic City. Revel AC declared bankruptcy and decided to sell the casino; however, Revel intended to sell the casino free and clear of the lease it had with IDEA. IDEA filed two declaratory actions with the Bankruptcy Court which were denied. Additionally, IDEA requested a stay pending appeal from the District Court which was also denied. IDEA appealed to the Third Circuit, and the court reviewed the appeal de novo, as to the irreparable harm factor, because the case involved a purely legal determination. The Court also found the denial of a stay to be appealable as a final order because letting the sale proceed would moot IDEA's claim entirely.

The court used a four-factor stay analysis to determine whether the District Court erred in denying the stay. The test analyzes (1) whether the stay applicant has made a strong showing that [it] is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies. The Third Circuit noted that if the movant does not meet the requirements of the first two factors then it is unnecessary to analyze the second two factors and the stay should be denied. If it does meet the first two factors, then the court will balance the relative harms and consider all four factors under a sliding scale approach, balancing the harms to the parties and the public and requiring a stronger showing of success on the merits where the party seeking the stay faces less harm and a lesser showing if the harm is greater.

The Third Circuit began its four-factor stay analysis with the last two factors, balancing the harms to Revel and IDEA, as well as the public interest. The Third Circuit found that IDEA would not only lose its multi-million dollar investment, but also the opportunity to operate its once profitable business. Thus, IDEA showed sufficient irreparable harm to it should a stay be denied. Revel argued on appeal that granting the stay would potentially jeopardize the entire sale of the casino to Polo North, not only substantially harming Revel, but also harming the public interest since a failure to sell would result in 4,000 jobs lost. The court found that the potential harm a stay would cause to Revel was at best speculative. Thus, the court stated that the balance of harms tilted, at least moderately, in favor of IDEA. The court next looked to balance the harms and benefits to the public interest. It compared the potential loss of 4,000 jobs in Atlantic City to the interest in properly applying the Bankruptcy Code and protecting the rights of tenants in commercial properties. Ultimately, the court found that the public interest balancing test slightly favored Revel.

After balancing all the harms, the court next looked to see if IDEA had made a strong showing of the likelihood of success on the merits. The Third Circuit only addressed one of IDEA's three arguments, whether the Bankruptcy and District Courts erred in holding that Revel met one of § 363(f)'s statutorily enumerated conditions to sell its assets free and clear. Revel denied that IDEA had a lease and argued there was a bona fide dispute under § 363(f)(4) because IDEA had filed declaratory judgment actions. The Third Circuit disagreed, finding that the mere filing of a declaratory judgment action does not create a bona fide dispute under § 363(f)(4). The court further noted that Revel did not present any factual or legal basis to deny that IDEA had a lease. Thus IDEA's success on the merits was assured which tilted the entire balancing scale ultimately in favor of granting the stay. The Third Circuit reversed the district court and stayed only the part of the sale order that allowed Revel to sell the casino free and clear of IDEA's lease.

Judge Shwartz filed a dissenting opinion.

To read the full opinion, please visit http://www2.ca3.uscourts.gov/opinarch/151253p.pdf

Panel (if known): Ambro, Shwartz, and Krause, Circuit Judges

Argument Date: February 6, 2015

Date of Issued Opinion: September 30, 2015

Docket Number: No. 15-1253

Decided: Reversed the District Court and stayed the portion of the sale order that allowed Revel to sell the casino free and clear of IDEA's lease.

Case Alert Author: Sarah Kiewlicz

Counsel: Jeffrey A. Cooper, Esquire, Jonathan I. Rabinowitz, Esquire, Barry J. Roy, Esquire, counsel for appellant IDEA; Michael Viscount, Jr., Esquire, John H. Strock, Esquire, Jason N. Zakia, Esquire, John K. Cunningham, Esquire, counsel for appellees Revel AC; Stuart J. Moskovitz, Esquire, counsel for appellee Polo North; Richard W. Riley, Esquire,
Sommer L. Ross, Esquire, counsel for appellees Wells Fargo

Author of Opinion: Circuit Judge Ambro

Circuit: Third Circuit

Case Alert Supervisor: Professor Susan L. DeJarnatt

    Posted By: Susan DeJarnatt @ 10/05/2015 10:41 AM     3rd Circuit  

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