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6-07.VYLENE [impl. covenant to negotiate franchise renewal].doc

Before:  PREGERSON and T.G. NELSON, Circuit Judges, and EZRA, [FN**] District Judge.

FN** Honorable David A. Ezra, United States District Judge for the District of Hawaii, sitting by designation.

T.G. NELSON, Circuit Judge:

OVERVIEW

Chapter 7 debtor Vylene Enterprise, Inc., the operator of a restaurant under a franchise granted by defendant Naugles, Inc., appeals the district court's order declining to adopt the bankruptcy court's proposed findings of fact and conclusions of law.

We have jurisdiction under 28 U.S.C. §  1291.   For the reasons stated herein, we vacate the district court's order and reinstate the bankruptcy court's findings of fact, conclusions of law, and judgment.

FACTS AND PROCEDURAL HISTORY

In 1975, Vylene, the franchisee, and Naugles, the franchisor, entered into a ten-year franchise agreement which authorized Vylene to take over the operation of an existing Naugles restaurant located in Long Beach, California.   Under the terms of the franchise agreement, Vylene was granted the option to extend the franchise upon the expiration of the initial ten-year term, for an additional eight years, "on terms and conditions to be negotiated."

In 1983, Vylene became increasingly delinquent in paying its franchise fees and rent.   Shortly thereafter, Vylene filed a voluntary Chapter 11 proceeding in bankruptcy court.   In July 1985, the bankruptcy court approved a stipulation which, among other things, authorized Vylene to assume the franchise agreement upon payment to Naugles of $38,121 representing unpaid pre- petition rent and royalties, less unpaid rebates.   In August 1985, Naugles filed a creditor's claim against Vylene's estate.

Also in August 1985, Vylene paid the pre-petition arrearages under the Order and

Seg. 6, item 7 (2007)

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