2009 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 9-2-2009 

# In Re: SA H olding C o P r e c e de nt i al or N on-P r e c e de nt i al : N on-P r e c e de nt i al D ocke t N o . 07-3280

F o llow thi s and a dd it ion al work s at : http://d i git alc ommon s .l a w . vi ll anova . e du/thir dc ir c uit_2009

Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. It h as be e n a c c ept e d for inclusion in 2009 D e c i sion s b y an author i z e d a dmini s tr at or of V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. F or mor e inform at ion, p le as e c ont a ct Be n j amin . C arl s on@l a

w . vi ll anova . e du . Re c omme nde d C it at ion " In Re: SA H o ld in g C o " (2009). 2009 D e cisio n s . P ape r 724. http://d i git alc ommon s .l a

w . vi ll anova . e du/thir dc ir c uit_2009/724NOT P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT



### _____________ Nos . 07- 3280, 07- 3281, 07- 3479 

### & 07- 3480



### _____________ IN R E : S .A . H O L D IN G C O ., L .L .C .; DEL I LAH’ S DEN OF S . A. , I NC; 8 6 B R O A D S T . C O R P .,

D e b t o r s S .A . H o ld in g C o ., L .L .C .; D e lila h ' s D e n o f

S .A ., IN C .; 8 6 B ro a d S t. C o rp ., A ppel l ant s at07- 3280 & 07- 3281 C i t y o f S o u t h A m b o y, A ppel l antat07- 3479 & 07- 3480 O n A p p ea l from the U n it ed S tat es D istri ct C o u rt

fort he D i s t r i ctof N ew J er s ey D . C . C i vi l A ct i on N os . 07- cv- 0944, 07- cv- 2295 & 07- cv- 2524 ( H onor abl e Fai t h S. H ochber g) Subm i tt ed Pur s uantt o T hi r d C i r cui tL A R 34. 1( a)

A pr i l 20, 2009 B e f o re : S C IR IC A , C hi ef

Judge , S L O V IT E R a n d F IS H E R , C i r cui tJudges . ( Fi l ed: Sept ember2, 2009) OPI NI ON O F THE COURT2

S C IR IC A , C hi ef

Judge . S. A . H ol di ng C o. , L . L . C . , D el i l ah’ s D en of S. A . , I nc. , and 86 B r oad St . C orp. ( col l ect i vel yher e, “debt or s ”) , and the C i t yof Sout h A m boy , N ew J er s ey( “the C i t y ”) have been e ngaged i n l i t i gat i on forovera dec ade i n bot h s t at e and f eder al cour tr egar di ng d e b to rs ’ o p e ra tio n o f

a s e x u a lly o ri e n te d b u s in e s s o n th e irp ro p e rt yin S o u th A m b o y . Be f o r e u s i s o n e i n s t a l l me n to f t h i s l i t i g a t i o n . As we wr i t e p r i ma r i l yf o rt h e p a r t i e s , we n ee d n o t r ec o u n t i n fu ll the f ac tual an d p roc ed u ral hist o ryo f th is case . In 1 9 9 8 , d eb tors and the C i t yent er ed i nt o a Set t l ementA gr eementt o r es ol ve the s ui t s on t hi s m at t ert hen p en d ing b etw ee n them ; i n 2 0 0 1 the p arti es a m en d ed this ag ree m en t. T h e d ispu te be fo re us cent er s ar ound t he t erm s of thi s A m ended Sett l ementA gr eement( “the A gr eement ”) and the part i es ’ per form ance of thei rr es pect i ve obl i gat i ons t her eunder . T he A gr eement p ro v id e s, in re lev a n t p a rt:

1. [D ebt or s ] abandon the otherw i s e perm i t t ed “go- go” barus e, t he ni ght cl ub us e, al l s exual l yor i ent ed bus i nes s us es , . . . and al l ot herr el at ed us es at t he Pr emi s es i n excha nge fora 24 mont h ext ens i on of the curr ents exual l yor i ent ed bus i nes s us e att he Pr emi s es . T he af or es ai d us es att he Pr emi s es s hal l for ever cea s e, ar e dee m ed aba ndoned and a r e unl aw ful us es att he pr emi s es , exce ptfort he c u rre n t ex ten d e d u se , w h ich , at th e c o n c lu sio n o f th e 2 4 m o n th e x ten sio n sh a ll lik e w is e c e a s e , b e d e e m e d a b a n d o n e d a n d a n u n la w f u l u s e a t th e P re m is e s . . . .

. . . . 3. T he s ubj ectpr oper t yw i l l be des i gnat ed as a r edeve l opm entar ea a nd s ubj ectt o a r edeve l opm entpl an. I n 2003, t he C i t yfi l ed s ui tagai ns tdebt or s i n t he Super i orC our tof N ew J er s ey s eeki ng t o compel cl os ur e of de bt or s ’ bus i nes s , w hi ch had c ont i nued t o oper at e bey ond t he 24- m ont h w i ndow pr ovi ded i n t he A gr eement . D ebt or s cont ended theyw er e not3

r equi r ed t o cl os e bec aus e the C i t yhad fa i l ed t o per form i t s obl i gat i ons undert he A gr eement . W hi l e thi s l i t i gat i on w as pr ocee di ng i n t he s t at e- cour ts y s t em, debt or s fi l ed vol unt arypet i t i ons forr el i ef unde rC hapt er11 of Ti t l e 11 of the U ni t ed St at es C ode i n t he U ni t ed St at es B ankrupt cyC our tfort he D i s t r i ctof N ew J er s ey . W i t h t he cons entof debt or s and the C i t y , t he B ankrupt cyC our ti s s ued an or der( “the A bs t ent i on O r der ”) s t at i ng, i nt eral i a, t hati tw oul d “abs t ai n fr om hear i ng . . . t hos e i s s ues t hatw er e bef or e the St at e C our t. . . pr i ort o t he Pet i t i on D at e, ” and pr el i m i nar i l yenj oi ni ng t he C i t y“fr om s hut t i ng dow n t he D ebt or s ’ bus i nes s pendi ng entr yof a f i nal non- appea l abl e or derfr om t he tr i al orappel l at e court ( s ) of compet entj ur i s di ct i on r es ol vi ng al l i s s ues betw een the par t i es i n t he Li t i gat i on. ” The A bs t ent i on O r deral s o pr ovi ded that , “[n] ot w i t hs t andi ng the f o reg o ing , n o thing h ere in sh all b e d ee m ed to p roh ibit[th e C ity ] fro m m o v ing b ef o re t he B ankrupt cyC our tatanyt i m e, aft ernot i ce a nd a hea r i ng t o t he D ebt or s and al l par t i es i n i nt er es t , and forgood caus e s how n, t o m odi fy , vaca t e ordi s s ol ve the i nj unct i on i s s ued pur s uantt o t hi s O r der . ” T w o m ont hs aft erentr yof the A bs t ent i on O r der , debt or s fi l ed a mot i on w i t h t he B ankrupt cyC our tt o r ej ectt he A gr eementunder11 U . S. C . § 365( a) , w hi ch pr ovi des “the t rus t ee, s ubj ectt o t he court ’ s appr oval , m ayas s um e orr ej ectanyexec ut or ycontr actor u n ex p ir ed lease o f th e d eb tor. ” A cc o rdin g to d eb tors, the A g ree m en t r em aine d ex ec u tory a t th e tim e o f

th e ir b a n k ru p tcy filin g b e c a u se th e C ityh a d f a iled to im p lem e n t a r edeve l opm entpl an thatpl ace d t hei rpr oper t yi n a hi gh- dens i t yr es i dent i al zone, w hi ch4

d e b to rs c laim th e p a rties c o n tem p late d a s p a rt o f th e “ re d e v e lo p m e n t p lan ” p ro m ise d in th e A g re e m e n t. T h e B a n k ru p tcy C o u rt d e n ied d e b to rs’ m o tio n , fin d in g th a t “th e C ityd id nothave a nys ubs t ant i al l yunper form ed obl i gat i ons undert he A gr eementatt he t i m e of th e b a n k ru p tcy filin g ; co n se q u e n tly , the A g re e m e n t is n o t ex e c u to rya n d su b jec t to re jec tio n .” N a m e ly , the c o u rt f o u n d “ [ t]h e A g re e m e n t b e tw e e n th e D e b to rs a n d th e C ity i s s i m pl e, s t r ai ght forw ar d and unambi guous on i t s fac e. N ot hi ng cont ai ned ther ei n l ends s uppor tt o t he D ebt or s ’ cont ent i on t hatt he A gr eementr emai ned an e xecut or ycontr actat the tim e the p eti ti o n w as f il ed b ec au se th e C ityfa il ed to p erf o rm b yg ran ti n g the D eb tors ‘e n h a n c e d d e v e lo p m e n t rig h ts’ w h e n it es tab lish e d a n d p lac e d th e D e b to rs’ re a l p ro p e rty i n a r edeve l opm entzone. ” T h e C ityth e n m o v e d to c o m p e l d e b to rs to c lo se th e ir b u sin e ss in a c c o rd a n c e w ith t he t erm s of the A gr eement . T he B ankrupt cyC our tcons t rued thi s as a mot i on t o m odi fy th e A b ste n tio n O rd e r, as th a t o rd e r p e rm its. T h e c o u rt g ra n ted th e m o tio n , n o tin g th a t it

“ r e g a r d [ e d ] t h e c o n t r a c ta s n o tb e i n g e x e c u t o r y, h a v i n g b e e n f u l l y p e r f o r m e d b y t h e C i t y, a n d , the re f

o re , the d e b to r h a v in g su b sta n tial n u m b e r o f y e a rs lo n g p a st its o b lig a tio n to c e a s e c e rt a in typ e s o f

o p e ra tio n s [ ,] . . . i t’ s tim e ” to c lo s e d e b to rs ’ b u s in e s s . D ebt or s appea l ed both t he B ankrupt cyC our t ’ s deni al of thei rm ot i on t o r ej ectt he A greem ent unde r 11 U . S . C . § 3 65 (a) and i t s ordercom pell i ng cl osure of d ebtor s’ bus i nes s . T he D i s t r i ctC our tdeni ed both of thes e appe al s . T he courtfound that , t o t he e x ten t th e C itym ig h t h a v e b e e n o b lig a ted u n d e r th e A g re e m e n t to p lac e d e b to rs’ p ro p e rty5

i n a hi gh- dens i t yr es i dent i al zone, i t s fai l ur e t o do s o w oul d not“cons t i tut e[] a mat er i al br eac h of the A m ended Sett l ementA gr eement ” s uch thatt he A gr eementcoul d be dee m ed e x e c u to rya s a re su lt o f

it. T h e c o u rt n o ted th a t, “f o r p u rp o se s o f

[ its] a n a ly sis a s to w h e th e r th e A m e n d e d S e ttl e m e n t A g re e m e n t is a n e x e c u to ryc o n tra c t, . . . th e re w a s n o t a

‘ r eas onabl e expe ct at i on’ of [pl ace m enti n a hi gh- dens i t yr es i dent i al zone] , ” and that“[a ] s i m pl e r eal es t at e as s es s m entcoul d det erm i ne the di ffe r ence , i f any , i n m onet aryval ue betw een the Pr oper t yas curr ent l yzoned, and the val ue of the Pr oper t yhad the C i t ypl ace d i ti n a hi gh dens i t yr edeve l opm entzone, i f the fa ct - fi nderl at erdeci des t hatt he par ol evi dence [pr offe r ed byt he part i es ] s o al t er s t he expr es s contr actual l anguage of the A m e n d e d S e ttl e m e n t A g re e m e n t.” T h e c o u rt a lso f o u n d th a t th e B a n k ru p tcy C o u rt d id notabus e i t s di s cr et i on i n m odi fy i ng t he A bs t ent i on O r derand gr ant i ng t he C i t y ’ s m ot i on t o compel cl os ur e of de bt or s ’ bus i nes s , as i tdi d s o “i n acc or dance w i t h t he pr ocedur es s et forth in the A bst enti on O rder . ” A ccordi ng l y , t he D i stri ctC ou rtordered deb t ors’ bu si ness to b e c lo se d , an d re m a n d e d to th e B a n k ru p tcy C o u rt th e f o llo w in g iss u e s: “ (1 ) w h e th e r it ort he s t at e courts hal l deci de on the mer i t s t he ac tual t erm s of the A m ended Sett l ement A gr eement , and the r el at ed ques t i on of w hatw ei ght , i f any , t o gi ve t o t he pr offe r ed par ol evi dence ; ( 2) w hethert he C i t yhas fai l ed t o ful l yper form i t s obl i gat i ons pur s uantt o t he A m ended Sett l ementA gr eement ; ( 3) w hat , i f any , r el i ef s hal l be aw ar ded t o D ebt or s ; and ( 4) w hethert her e s houl d be anyoffs et s t o anydamages aw ar d as a r es ul tof the cont i nued o p e ra tio n o f

D e lila h ’s D e n f

o r n e a rl y4 y e a rs b e y o n d th e C o n s e n t C lo s u re D a te .”W e have j ur i s di ct i on under28 U . S. C . § 158( d) ( 1) ; w e bel i eve, and the part i es do not 1 di s put e, t hatt he D i s t r i ctC our t ’ s r emand of cert ai n i s s ues t o t he B ankrupt cyC our tdoes n o t u n d e rm in e o u r j u ri s d ic tio n in th is c a s e . See B uncherC o. v. O f f i ci alC om m . of U n sec u redC red ito rs o

f G en Fa rm L td. P ’ship IV , 2 2 9 F .3 d 2 4 5 , 2 4 9

– 5 0 (3 d C ir . 2 0 0 0 ). 6 D e b to rs a p p e a l b o th th e D istric t C o u rt’s d e ter m in a tio n th a t th e A g re e m e n t is non- exec ut or yand i t s appr oval of the B ankrupt cyC our t ’ s or dercompel l i ng cl os ur e of debt or s ’ bus i nes s . T he C i t ycr os s - appea l s t he D i s t r i ctC our t ’ s r emand, cont endi ng t he cour ts houl d have f

ound t hatt he C i t yhas ful l yper form ed undert he A gr eementand that c o n sid e ra tio n o f

p a ro l ev id e n c e w o u ld b e u n n e c e ss a rya n d im p ro p e r in m a k in g th is d e ter m in a tio n . S u b sta n tiallyf o r th e re a so n s s e t f

o rth b yth e D istric t C o u rt, w e w ill 1 af firm the d en ial o f d eb tors’ m o ti o n to rejec t th e A g ree m en t and the g ran t of the C ity ’s m ot i on t o compel cl os ur e of de bt or s ’ bus i nes s . W i t h r es pectt o t he part i es ’ pot ent i al ent i t l ementt o m onet aryr el i ef unde rt he A gr eement , w e w i l l r emand t o t he B ankrupt cy C o u rt f o r f u rth e r p ro c e e d in g s c o n sis ten t w ith th e o p in io n o f th e D istric t C o u rt.