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Arlington Lf, LLC v. Arlingtonhospitality, Inc., et al

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ARGUED SEPTEMBER 29, 2010

Before BAUER, WOOD, and WILLIAMS, Circuit Judges.

This is a bankruptcy case with a complicated factual and procedural background, but one that boils down to a simple question: who breached the parties’ post-petition financing agreement? Arlington Hospitality, Inc. and its subsidiaries (“Arlington”), operators of the AmeriHost hotel chain, filed for Chapter 11 bankruptcy in August 2005. Arlington needed funds in order to meet its obligations during the pendency of the bankruptcy proceeding, and to that end entered into a post-petition financing agreement on the eve of the bankruptcy filing with Arlington LF, LLC (“LF”), a single-purpose entity that had been created for that purpose. LF lent Arlington $3.53 million under the agreement, but shortly thereafter, relations between the parties soured. LF began to have misgivings about its role as a post-petition lender and signaled that it did not wish to make further loans, while Arlington did not pay certain fees associated with the loan. Shortly thereafter, Arlington’s assets were successfully sold in the bankruptcy proceeding, and Arlington repaid LF the full $3.53 million it had borrowed, with interest. LF, believing it was still owed the additional fees Arlington had not paid, filed a motion in the bankruptcy court to recover them, along with additional default interest. Arlington, believing it had met all of its obligations and owed nothing more to LF, opposed the request. The bankruptcy court held a trial on the matter and ruled in Arlington’s favor, concluding that LF had breached the agreement. The district court reversed and remanded, and the bankruptcy court ruled for LF on the second go-round. The district court again reversed, this time on a different basis, with instructions to the bankruptcy court to rule in Arlington’s favor. LF appeals to us. We conclude that LF repudiated the parties’ agreement, and is not entitled to any additional fees or costs. We affirm.

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