The Franchise Memorandum

In In re Wagstaff Minnesota, Inc., 2011 U.S. Dist. LEXIS 124889 (D. Minn. Oct. 26, 2011), the United States District Court in Minnesota denied an appellee’s request to authorize an appeal of a Bankruptcy Court’s decision directly to the Eighth Circuit Court of Appeals. The normal appeal process for decisions from a bankruptcy court is to appeal first to either a bankruptcy appellate panel for the particular circuit or to the U.S. District Court for the particular district, then to the applicable circuit court of appeals, and then to the U.S. Supreme Court. Under certain circumstances, however, a bankruptcy court’s decision can be appealed directly to the court of appeals. A direct appeal to the court of appeals may be authorized if (i) the appeal involves a question of law about which there is no controlling decision from the circuit or the U.S. Supreme Court, (ii) the appeal involves a question of law requiring resolution of conflicting decisions, or (iii) an immediate appeal may materially advance the progress of the case or proceeding in which the appeal is taken.

The bankruptcy court decision at issue held that the franchisee/debtor could assume the favorable provisions, and reject the unfavorable provisions, of certain post-termination “Reinstatement Contracts” between the franchisor and the franchisee/debtor. The franchisor, KFC Corporation, appealed that decision to the district court. The franchisee/debtor, relying on the “materially advancing the progress of the case” standard, sought a direct appeal to the Eighth Circuit on the grounds that (1) the losing party at the district court would be likely to appeal to the Eighth Circuit in any event, (2) there was $50 million at stake on the outcome of the appeal, and (3) the pendency of the appeal added uncertainty to the process of developing a plan of reorganization under Chapter 11. Ultimately, the district court declined to certify a direct appeal to the Eighth Circuit because the grounds asserted for certification did not satisfy those statutory requirements. The district court found it to be significant that the parties had not agreed that a direct appeal was warranted, and that there were no conflicting decisions that provided a basis for a direct appeal.