2009 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-2-2009

In Re: SA Holding Co

Precedential or Non-Precedential: Non-Precedential

Docket No. 07-3280

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Recommended Citation

"In Re: SA Holding Co " (2009). 2009 Decisions. Paper 724.

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 NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

Nos. 07-3280, 07-3281,

07-3479 & 07-3480

_____________

IN RE: S.A . HOLDING CO., L.L.C.;

DELILAH’S DEN OF S.A., INC;

86 BROAD ST. CORP.,

Debtors

S.A. Holding Co., L.L.C.;

Delilah's Den of S.A., INC.;

86 Broad St. Corp.,

Appellants at 07-3280 & 07-3281

City of South Amboy,

Appellant at 07-3479 & 07-3480

On Appeal from the United States District Court

for the District of New Jersey

D.C. Civil Action Nos. 07-cv-0944,

07-cv-2295 & 07-cv-2524

(Honorable Faith S. Hochberg)

Submitted Pursuant to Third Circuit LAR 34.1(a)

April 20, 2009

Before: SCIRICA, Chief Judge, SLOVITER and FISHER, Circuit Judges.

(Filed: September 2, 2009)

OPINION OF THE COURT
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SCIRICA, Chief Judge.

S.A. Holding Co., L.L.C., Delilah’s Den of S.A., Inc., and 86 Broad St. Corp.

(collectively here, “debtors”), and the City of South Amboy, New Jersey (“the City”) have

been engaged in litigation for over a decade in both state and federal court regarding

debtors’ operation of a sexually oriented business on their property in South Amboy. 

Before us is one installment of this litigation. As we write primarily for the parties, we

need not recount in full the factual and procedural history of this case. In 1998, debtors

and the City entered into a Settlement Agreement to resolve the suits on this matter then

pending between them; in 2001 the parties amended this agreement. The dispute before

us centers around the terms of this Amended Settlement Agreement (“the Agreement”)

and the parties’ performance of their respective obligations thereunder. The Agreement

provides, in relevant part:

1. [Debtors] abandon the otherwise permitted “go-go” bar use, the

nightclub use, all sexually oriented business uses, . . . and all other related uses at

the Premises in exchange for a 24 month extension of the current sexually oriented

business use at the Premises. The aforesaid uses at the Premises shall forever

cease, are deemed abandoned and are unlawful uses at the premises, except for the

current extended use, which, at the conclusion of the 24 month extension shall

likewise cease, be deemed abandoned and an unlawful use at the Premises. . . . 

. . . .

3. The subject property will be designated as a redevelopment area and

subject to a redevelopment plan.

In 2003, the City filed suit against debtors in the Superior Court of New Jersey

seeking to compel closure of debtors’ business, which had continued to operate beyond

the 24-month window provided in the Agreement. Debtors contended they were not
3

required to close because the City had failed to perform its obligations under the

Agreement. While this litigation was proceeding in the state-court system, debtors filed

voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the

United States Bankruptcy Court for the District of New Jersey. With the consent of

debtors and the City, the Bankruptcy Court issued an order (“the Abstention Order”)

stating, inter alia, that it would “abstain from hearing . . . those issues that were before the

State Court . . . prior to the Petition Date,” and preliminarily enjoining the City “from

shutting down the Debtors’ business pending entry of a final non-appealable order from

the trial or appellate court(s) of competent jurisdiction resolving all issues between the

parties in the Litigation.” The Abstention Order also provided that, “[n]otwithstanding

the foregoing, nothing herein shall be deemed to prohibit [the City] from moving before

the Bankruptcy Court at any time, after notice and a hearing to the Debtors and all parties

in interest, and for good cause shown, to modify, vacate or dissolve the injunction issued

pursuant to this Order.” 

Two months after entry of the Abstention Order, debtors filed a motion with the

Bankruptcy Court to reject the Agreement under 11 U.S.C. § 365(a), which provides “the

trustee, subject to the court’s approval, may assume or reject any executory contract or

unexpired lease of the debtor.” According to debtors, the Agreement remained executory

at the time of their bankruptcy filing because the City had failed to implement a

redevelopment plan that placed their property in a high-density residential zone, which
4

debtors claim the parties contemplated as part of the “redevelopment plan” promised in

the Agreement. The Bankruptcy Court denied debtors’ motion, finding that “the City did

not have any substantially unperformed obligations under the Agreement at the time of

the bankruptcy filing; consequently, the Agreement is not executory and subject to

rejection.” Namely, the court found “[t]he Agreement between the Debtors and the City

is simple, straightforward and unambiguous on its face. Nothing contained therein lends

support to the Debtors’ contention that the Agreement remained an executory contract at

the time the petition was filed because the City failed to perform by granting the Debtors

‘enhanced development rights’ when it established and placed the Debtors’ real property

in a redevelopment zone.” 

The City then moved to compel debtors to close their business in accordance with

the terms of the Agreement. The Bankruptcy Court construed this as a motion to modify

the Abstention Order, as that order permits. The court granted the motion, noting that it

“regard[ed] the contract as not being executory, having been fully performed by the City,

and, therefore, the debtor having substantial number of years long past its obligation to

cease certain types of operations[,] . . . it’s time” to close debtors’ business. 

Debtors appealed both the Bankruptcy Court’s denial of their motion to reject the

Agreement under 11 U.S.C. § 365(a) and its order compelling closure of debtors’

business. The District Court denied both of these appeals. The court found that, to the

extent the City might have been obligated under the Agreement to place debtors’ property
5

in a high-density residential zone, its failure to do so would not “constitute[] a material

breach of the Amended Settlement Agreement” such that the Agreement could be deemed

executory as a result of it. The court noted that, “for purposes of [its] analysis as to

whether the Amended Settlement Agreement is an executory contract, . . . there was not a

‘reasonable expectation’ of [placement in a high-density residential zone],” and that “[a]

simple real estate assessment could determine the difference, if any, in monetary value

between the Property as currently zoned, and the value of the Property had the City placed

it in a high density redevelopment zone, if the fact-finder later decides that the parol

evidence [proffered by the parties] so alters the express contractual language of the

Amended Settlement Agreement.” The court also found that the Bankruptcy Court did

not abuse its discretion in modifying the Abstention Order and granting the City’s motion

to compel closure of debtors’ business, as it did so “in accordance with the procedures set

forth in the Abstention Order.” Accordingly, the District Court ordered debtors’ business

to be closed, and remanded to the Bankruptcy Court the following issues: “(1) whether it

or the state court shall decide on the merits the actual terms of the Amended Settlement

Agreement, and the related question of what weight, if any, to give to the proffered parol

evidence; (2) whether the City has failed to fully perform its obligations pursuant to the

Amended Settlement Agreement; (3) what, if any, relief shall be awarded to Debtors; and

(4) whether there should be any offsets to any damages award as a result of the continued

operation of Delilah’s Den for nearly 4 years beyond the Consent Closure Date.”
 We have jurisdiction under 28 U.S.C. § 158(d)(1); we believe, and the parties do not 1

dispute, that the District Court’s remand of certain issues to the Bankruptcy Court does

not undermine our jurisdiction in this case. See Buncher Co. v. Official Comm. of

Unsecured Creditors of GenFarm Ltd. P’ship IV, 229 F.3d 245, 249–50 (3d Cir. 2000). 

6

Debtors appeal both the District Court’s determination that the Agreement is

non-executory and its approval of the Bankruptcy Court’s order compelling closure of

debtors’ business. The City cross-appeals the District Court’s remand, contending the

court should have found that the City has fully performed under the Agreement and that

consideration of parol evidence would be unnecessary and improper in making this

determination. Substantially for the reasons set forth by the District Court, we will 1

affirm the denial of debtors’ motion to reject the Agreement and the grant of the City’s

motion to compel closure of debtors’ business. With respect to the parties’ potential

entitlement to monetary relief under the Agreement, we will remand to the Bankruptcy

Court for further proceedings consistent with the opinion of the District Court.