United States Court of Appeals

For the First Circuit

Nos. 05-1526, 05-1588

IN RE NEW SEABURY COMPANY LIMITED PARTNERSHIP,

Debtor,

NEW SEABURY COMPANY LIMITED PARTNERSHIP,

Appellant, Cross-Appellee,

v.

NEW SEABURY PROPERTIES, LLC,

Appellee, Cross-Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Douglas P. Woodlock, U.S. District Judge]

Before

 Torruella, Circuit Judge,

Campbell, Senior Circuit Judge,

and Lipez, Circuit Judge.

John J. Monaghan with whom Lynne B. Xerras, Diane N. Rallis,

Esme B. Caramello and Holland & Knight, LLP were on brief for

appellant, New Seabury Company Limited Partnership.

Daniel E. Rosenfeld with whom David M. Glynn, Robert N.

Michaelson and Kirkpatrick & Lockhart LLP were on brief for

appellee, New Seabury Properties, LLC.

June 7, 2006
-2-

CAMPBELL, Senior Circuit Judge. The parties in this case have

brought what are effectively cross-appeals from an order of

dismissal entered by the United States District Court for the

District of Massachusetts on March 23, 2005 ("2005 District

Order"), affirming the July 20, 2004 decision of the United States

Bankruptcy Court on second remand from the district court.

The dispute is between New Seabury Company Limited Partnership

(the "Debtor") and New Seabury Properties, LLC ("NSP") over the

Debtor's claim to a share of funds in the Debtor's general

operating account ("Operating Account") following the Debtor's

declaration of bankruptcy and the entry of a Stipulation between

the parties allowing the Debtor to retain the real estate brokerage

segment of the business while turning over its other assets to NSP.

Procedural Background and Facts

The Debtor filed a Chapter 11 petition on March 31, 1997

pursuant to 11 U.S.C. §§ 1101 et seq. It owned and operated a

2000-acre planned resort community in Mashpee, Massachusetts, known

as "New Seabury Resort." The Debtor's business was made up of

three interrelated divisions: the Recreation Division, the Hotel

Division, and the Real Estate Division. The funds relative to the

divisions were commingled in the Debtor's single operating account.

The functions of the three divisions were as follows:
-3-

The Recreation Division maintained and operated two golf

courses and a golf club house, a tennis facility, a beach club, and

a swimming pool facility. 

The Hotel Division managed and maintained a hotel facility

using Debtor and third-party-owned property for short term rental

by guests of the New Seabury Resort. 

The Real Estate Division operated a real estate brokerage (the

"Brokerage"). The Brokerage operated one real estate company, New

Seabury Real Estate, that sold Debtor and non-Debtor property on

the New Seabury Resort and another real estate company, Sound

Realty, that brokered short-term and long-term rentals of property

for private individuals within New Seabury Resort. Commissions

provided the Brokerage's primary source of revenue. The Brokerage

was never a member of the Multiple Listing Service ("MLS") and, as

the exclusive broker, sold most of the property in New Seabury.

MLS brokers not related to the Brokerage sold a small percentage of

the property; the Brokerage and unrelated MLS brokers would share

some sales.

During the bankruptcy proceedings, the Debtor and NSP offered

competing plans for reorganization of the Debtor. On May 15, 1998,

the bankruptcy court entered an Order and Preliminary Decision

stating that the Debtor's plan was not confirmable, but NSP's was.

For two days leading up to the confirmation hearing on May 29,

1998, the Debtor and NSP engaged in negotiations to resolve the
-4-

differences between their competing plans. Ultimately, on May 29,

the parties executed a stipulation (the "Stipulation"), pursuant to

which the Debtor withdrew its own plan for reorganization. 

The Stipulation noted that NSP's plan, to which the Debtor now

consented, provided for NSP to acquire substantially all of the

Debtors' assets. So as to resolve the parties' controversy,

however, the Debtor and NSP stipulated that "certain assets of the

Debtor will not be acquired by NSP and will be retained by the

Debtor free and clear of all liens, encumbrances, claims and

interest." Thus, paragraph 9 of the Stipulation provided that

"[t]he real estate brokerage segment of the Debtor's business,

including all licenses and permits required to operate that segment

of the business, shall be retained by the Debtor." Paragraph 10 of

the Stipulation went on to state that the parties would execute on

the plan's effective date (the "Effective Date") an agreement

containing "the following provisions, and failing the execution of

such agreement the provisions as set forth herein shall constitute

such agreement."

Clauses a, b, and c of paragraph 10 then provided that the

Debtor, A + C Great Island, Inc., and Christopher Burden would

retain a non-exclusive license to use the requested trade name "New

Seabury" in connection with real estate brokerage operations

conducted by one or more of them for as long as Burden or his

family maintained a majority ownership interest or were involved in
-5-

daily operations. The license would include the right to use the

New Seabury name in marketing materials. Additionally, the

Brokerage operations were to have access to all resort amenities,

including related pictures and information, in its marketing and

other material for viewing and touring, with specified free

membership rights to be granted to Christopher and Nancy Burden in

the New Seabury Club. Non-exclusive signage rights were also

granted to the Brokerage operations relating to real estate service

operations in NSP's post-confirmation New Seabury related property,

with various limitations spelled out as to the form and location of

the signage, its acceptability to the Debtor and NSP, and changes

desired by NSP.

Paragraph 11 of the Stipulation also contained details and

limitations relative to the retained Brokerage operation. The

Debtor would retain certain specified real property on which real

estate service operations are conducted, including the main New

Seabury real estate office and adjacent parking facilities, and

certain other parcels. On and for a two-year period following the

Effective Date, the Debtor was to allow NSP use of three desks on

one of these parcels rent-free, along with certain spelled-out

rights to install phone lines and place its own reasonable office

equipment. Properties to be retained by the Debtor were to be free

and clear of all liens, encumbrances, claims and interests with
-6-

additional conditions specified as to a particular note held by

Burden and a mortgage on one parcel.

Paragraph 12 of the Stipulation provided for execution by the

parties of a limited non-competition agreement prohibiting NSP and

its assignees, successors, and assigns from engaging in real estate

brokerage within New Seabury, except as to its own properties, and

the Debtor, A + C Great Island and Burden from engaging in resort

operations within the boundaries of the New Seabury development and

within a three-mile radius. Nothing, however, was to prohibit NSP

from employing a broker of its choice to market its properties.

Paragraph 13 specified that "except as provided herein and

except as to the obligations of NSP under the NSP Plan," all

parties "shall be deemed to have remised, released and forever

discharged against the other any and all debts, demands,

obligations, avoidance actions, causes of action and any other"

claims, through the Effective Date of the NSP plan.

The remaining paragraphs of the Stipulation dealt with the

discharge of debts, providing, inter alia, that NSP did not release

its debts against the Debtor and that Burden released certain of

his debts.

Nothing was said in the Stipulation as to retention or

ownership of monies held in the Debtor's operating account. In

particular, there was no reference to the disposition of any sums

therein derived from real estate brokerage activities.
-7-

At a hearing, the bankruptcy court confirmed NSP's plan and

entered a formal order on June 15, 1998 (the "Confirmation Date").

After the Confirmation Date, the Debtor continued to operate the

Brokerage.

During the preparation of the documents to close the

transaction transferring the bulk of the Debtor's assets to NSP, a

dispute arose regarding whether the Debtor was entitled to receive

and retain the net cash the Brokerage had generated through the

Effective Date of NSP's plan (the "Disputed Funds"). As noted,

revenue from the Brokerage operations was commingled with that from

the Debtor's two other divisions in a single Operating Account.

In order to complete the closing, the documents specifically

excluded the Disputed Funds pending resolution of the parties'

rights (the specific language is quoted below). The parties

executed the final closing documents on September 17, 1998 (the

"Closing"), which was also the Effective Date of the reorganization

plan. The bill of sale provided that the Debtor agreed to sell all

of the Debtor's rights and title but specifically excluded: 

(i) any assets being retained by New Seabury Company

Limited Partnership pursuant to the Stipulation Relating

to Competing Plans of Reorganization, Objections to

Confirmation, Motion for Reconsideration and Motion for

Plan Partnership, entered into on May 29, 1998 (the

"Stipulation"); (ii) telephone number (508) 477-9400

pending a further determination of the Debtor's right to

retain that number; and (iii) property, assets and

rights, generated by or associated with the Seller's Real

Estate Brokerage Operations (the "Brokerage Operations")

including net cash generated by the Brokerage Operations

from January 1, 1998 through September 16, 1998 in the
-8-

amount of $553,762.00, as estimated by the Seller which

amount shall remain in the Debtor's account in its

entirety until such time as the Court adjudicates the

rights of the Seller and NSP thereto, or until further

agreement of the parties, and any Purchased Assets

described on Schedules "B," "C," "D" and "E" hereto).

After the Closing, the Debtor retained the desks, computers,

fixtures, independent contractor agreements, marketing materials,

furniture and other equipment at the Brokerage. Pursuant to the

Stipulation, the Debtor retained the real property in which the

Brokerage conducts business.

NSP moved for an order to compel the Debtor to transfer the

Disputed Funds. The Debtor resisted, contending that the Disputed

Funds were an asset of the Brokerage which, under the terms of the

Stipulation, it was entitled to retain. It insisted that

brokerage-related revenues kept in the Operating Account went to

the Debtor by implication under paragraph 9 of the Stipulation,

which allowed the Debtor to retain "the real estate brokerage

segment of the Debtor's business." NSP responded that the

Stipulation made no reference to retention by the Debtor of any

portion of the Operating Account, hence the Disputed Funds belonged

to NSP. 

A. The Bankruptcy Court's First Order

The bankruptcy court agreed that the language of paragraph 9

did not permit the Debtor to retain any portion of the Operating

Account, hence the Disputed Funds became the property of NSP. In

its March 11, 1999 Order on the case, the bankruptcy court analyzed
-9-

paragraph 9 of the Stipulation and the Bill of Sale and concluded

that the two documents could not "be read to transfer or permit the

Debtor to retain any portion of the General Operating Account."

Paragraph 9 of the Stipulation reads:

The real estate brokerage segment of the Debtor's

business, including all licenses and permits required to

operate that segment of the business, shall be retained

by the Debtor.

The pertinent part of the subsequent Bill of Sale reads:

[T]he Purchased Assets conveyed to New Seabury

Properties, LLC shall specifically exclude (i) any assets

being retained by New Seabury Company Limited Partnership

pursuant to the Stipulation Relating to Competing Plans

of Reorganization, Objections to Confirmation, Motion for

Reconsideration and Motion for Plan Modification between

New Seabury Properties, LLC and New Seabury Company

Limited Partnership, entered into on May 29, 1998 (ii)

telephone number (508) 477-9400 pending a further

determination of the Debtor's right to retain that number

and (iii) property, assets and rights, generated by or

associated with the Debtor's Real Estate Brokerage

Operations including net cash generated by the Brokerage

Operations from January 1, 1998 through September 16,

1998 in the amount of $553,762, as estimated by the

Seller which amount shall remain in the Debtor's account

in its entirety until such time as the Court adjudicates

the rights of the Seller and NSP thereto, or until

further agreement of the parties . . . .

The bankruptcy court wrote:

3. The Bill of Sale dated September 5,

1998 . . . provides in pertinent part as follows:

[T]he Purchased Assets conveyed to New Seabury

Properties, LLC shall specifically

exclude . . . (iii) property, assets and

rights, generated by or associated with the

Debtor's Real Estate Brokerage Operations from

January 1, 1998 through September 16, 1998 in

the amount of $553,762, as estimated by the

Seller which amount shall remain the Debtor's
Neither party contends that the Stipulation (or other 1

relevant contract document, if any) is ambiguous. We see no

occasion, therefore, to pass on that possibility, and do not do so.

-10-

account in its entirety until such time as the

Court adjudicates the rights of the Seller and

NSP thereto, or until further agreement of the

parties . . .

4. Paragraph 9 [of the Stipulation] [supra] . . . cannot

be read to transfer or to permit the Debtor to retain any

portion of the General Operating Account.

The bankruptcy court found that "[b]ased on the language of the May

29th Stipulation and the Bill of Sale, the Disputed Funds are

property of NSP and NSP is entitled to possession thereof." The

Debtor appealed to the district court from the bankruptcy court's

Order.

B. The District Court's First Order on Appeal

The district court, in its October 21, 1999 Memorandum &

Order, concurred with the bankruptcy court that the contract

documents were unambiguous but read the contract language as 1

mandating a different outcome from that reached by the bankruptcy

judge. Analogizing the situation to the construction of wills, the

district court noted that 

[c]ourts have consistently concluded that a business

cannot be considered separately from the funds used to

run it . . . . I see no reason to come to a contrary

conclusion in respect of the brokerage operations here.

Its cash assets were part of the business and, as in any

business, are necessary to keep it operating.

The district judge looked to the language in paragraph 9 of the

Stipulation providing for retention of the Brokerage segment of the
-11-

business, including all licenses and the permits required to

operate that segment, and found that the list was "an inclusive,

rather than exclusive matter." He stated that it was "improbable

that the licenses and permits were the only assets" retained by the

Debtor and that the "term brokerage operations itself indicates

that at least those assets essential to running the operations

should be retained" by the Debtor. He held that the cash assets of

the Brokerage were part of the business and were necessary to keep

the business operating, but specifically did not "reach the issue

as to whether any of the funds in the [Operating] [A]ccount were

truly attributable to the [Brokerage]." The district court's Order

remanded the case and directed the bankruptcy court "to determine

the amount of cash in the general operating account which is

attributable to the brokerage operations." 

C. The Bankruptcy Court's Order on the First Remand

On remand, the bankruptcy court conducted a three-day trial.

It concluded first that the calculations of the amount in the fund

were to begin on January 1, 1998. Determination of the amount to

which each of the parties was entitled required consideration of

three elements: the total amount of Disputed Funds; the

application of real estate credits given to parties who bought real

estate through the Brokerage; and the application of certain other

costs, which are discussed below.
-12-

In a pretrial stipulation in the bankruptcy court, entered

into prior to the hearing on remand, the parties had agreed that

the maximum amount of the Disputed Funds that the Debtor could

recover was the net revenue that the Brokerage earned from January

1, 1998 until September 18, 1998, or $479,457, and that the amount

inclusive of the Credits and Charges would be $55,670.

The Debtor offered parties that purchased real estate through

the Brokerage a "credit" (the "Credit" or the "Credits"). The

purchasers of the property could apply the Credit towards the

initiation fee required of new members to join the New Seabury

Country Club (the "Club"). The Recreation Division ran the Club.

Membership in the Club enabled a member to use its facilities,

including the golf courses. The amount of the Credit was a

percentage of the commission and could be applied towards the

initiation fee for as long as the homeowner remained a property

owner at New Seabury Resort. Credits exercised during the relevant

period totaled $298,866.

The "real estate carrying costs" (the "Charges") were costs

associated with unsold property of the Debtor such as landscaping

costs, depreciation and condo fees. The unsold properties

themselves were placed under control of the Hotel Division and used

as short term rentals. The parties agreed in the pretrial

stipulation that for the period of January 1, 1998 to September 17,

1998, the Charges totaled $124,921.
-13-

The Debtor historically maintained consolidated financial

statements for all of its revenue producing entities, including New

Seabury Real Estate, Sound Realty, and the Club. When homeowners

utilized the Credits and joined the Club, the Debtor recorded the

total amount of the initiation fee, including the Credit, as income

to the Resort Division. The Debtor recorded the amount of the

Credit as an expense to the Real Estate Division at the time of its

exercise. The Charges were also treated as an expense of the

Brokerage. The bankruptcy court held that, treating the Brokerage

as a separate entity, the historic treatment of the Credits and

Charges was inappropriate to its determination. It adopted

testimony from expert witnesses as to applicable accounting

principles and concluded that "the Recreation Division would have

recorded both the income and expense of the Credit and, in essence,

recorded the transaction as a reduced price sale," and that the

Charges were "properly attributable to the Hotel Division for the

Charges bore no relationship to the Brokerage." The bankruptcy

court ultimately concluded that the Debtor was entitled to the

entire $479,457 of the Disputed Funds.

A second appeal to the district court followed.

D. The District Court's Second Order and Remand

In its March 5, 2004 Memorandum & Order, the district court

reaffirmed its earlier ruling that cash in the Operating Account

attributable to the Brokerage operation formed a part of the
-14-

Brokerage segment of Debtor's business which the Debtor was allowed

to retain under the Stipulation. However, it was unsatisfied with

the accounting rationale accepted by the bankruptcy court based

upon a methodology not historically followed in the Debtor's own

consolidated financial statements. Accordingly, it remanded for

recalculation of the sums applicable to the brokerage segment, the

recalculation to be based on the original accounting methodology,

see supra. The court suggested this would lead the parties to the

$55,970 figure earlier stipulated to in the bankruptcy court or to

$83,846, the net income of the Real Estate Division reflected in

earlier accounting statements. 

In once again grappling with the case, the district court also

noted its own dissatisfaction with its earlier rationale for

concluding that cash traceable to real estate brokerage operations

should be treated as a part of the retained assets to which the

Debtor was entitled. The district court wrote:

Further reflection has persuaded me that this case law

[i.e., that resting on testamentary dispositions of

businesses] is not fully sufficient to support my earlier

conclusion. Wills involve different modes of

construction than arm's-length commercial transactions,

let alone settlements in bankruptcy proceedings, because

the relationships between the parties, the ultimate goals

of the instruments, and the interpretive goals of the

court differ . . . . In sum, courts are likely to

construe a bequest generously, because the testator

manifestly sought to give something of value to a worthy

beneficiary, and because any verbal missteps in the will

are neither the beneficiary's fault, nor errors against

which the beneficiary could have protected

himself . . . . A Chapter 11 bankrupt cannot fairly

claim the benefits of this analogy; it is, after all, not
-15-

a deserving child inheriting the family business, but

rather an insolvent permitted to remain in business for

the benefit of creditors. Nevertheless, the bankruptcy

court should treat the writings surrounding a

reorganization with an eye toward the equities of

reorganization.

The district court went on to affirm its conclusion that the term

"business" in the Stipulation necessarily included cash by

reference to other modes of analysis, including contract

interpretation, but noted that it was essentially performing a

"functional analysis of the parties' arrangement."

While it acknowledged that the relevant documents did not

explicitly mention cash as among the assets to be retained by the

Debtor and that "[a] reading of the Stipulation that excludes cash

might be consistent with the absence of a negotiated cash valuation

method, and the bankruptcy context in which the primary goal is to

pay back the Debtor's creditors," the district court nonetheless

concluded that "the loss should lie with NSP, because it was in a

better position to protect its interests by writing more detailed

contractual language, and because its theory of the limits of a

'business' does not lead to a coherent resolution." The court

additionally noted that:

[t]he general rubrics for construction of analogous

writings do not provide a full answer to the question.

Nor does general business practice. A business may be

conveyed in a variety of states -- all assets, all assets

except cash, all nonliquid assets, goodwill and

intellectual and real property only, goodwill only, and

so on -- and therefore the answer must necessarily turn

on the degree that any default position has been refined.

In this context, the Debtor draws a simple and coherent
-16-

line: a 'business' includes all its assets unless stated

otherwise. NSP, having asserted that the line actually

falls somewhere inside the set of business assets, must

provide a logical place in which to draw it, but has not

done so.

On the issue of the proper way to account for the cash it

found Debtor was entitled to retain, the district court noted that

while historically, the Debtor had recorded the initiation fee at

the country club as income to the Recreation Division, it had

recorded the amount of the credit as a loss to the Real Estate

division. In August 1998, after the Stipulation had been executed

and the plan had been confirmed, the Debtor's principal,

Christopher Burden, told his accountant to "rework the figures for

the Real Estate Operations." The new accounting treated initiation

fee credits as losses to the Recreation Division, not the Real

Estate Division. The effect of this new accounting system was to

increase the net income of the Real Estate Division on the

consolidated financial statements. 

The district court concluded that, under its new analysis

based on the parties' intent to form a contract, it was only

permissible for NSP to be found to have assented to the terms of

the bargain it could reasonably foresee. The district court

observed that NSP could not have foreseen the Debtor's change in

accounting methodology: "It is one thing for a court to hold NSP

to the reasonably foreseeable consequences of its ill-defined

bargain with the Debtor; it is quite another for the court to hold
-17-

NSP to terms that could not possibly have been on the table." The

district court thus vacated the bankruptcy court's calculation of

the cash attributable to the Debtor and remanded for a

recalculation under the original accounting methodology.

The district court concluded:

If by March 22, 2004, the parties are unable to agree

upon a stipulated figure, I will remand to the Bankruptcy

Court to determine the amount of cash attributable to the

brokerage, using, January 1, 1998 as a start date, but

applying the accounting methodologies employed by the

Debtor on the date the Plan was confirmed. [footnote 13]

The parties shall file a status report by no later than

March 24, 2004 regarding the issues to be resolved. In

all other respects, the decision of the Bankruptcy Court

is AFFIRMED.

In the cited footnote, the district court stated:

I assume that the parties or the Bankruptcy Court will

naturally gravitate towards either the $55,670 figure in

the parties' joint pretrial stipulation, or $83,846, the

net income of the Real Estate Division reflected on

Debtor's financial statements, which treated both the

real estate credits and the carrying costs as losses to

the Real Estate Division. However, the parties and, if

necessary, the Bankruptcy Court are free to determine

the appropriate number under the former methodology

based on an independent review of the financial data.

If the parties are unable to agree, the Bankruptcy Court

may, but need not, receive new evidence beyond what has

already been presented to it.

The parties' status report indicated that:

In light of footnote 13 of the Memorandum and Order, NSP

offered to stipulate to the $55,670 figure in the

parties' join pretrial stipulation. Debtor responded

that there was no figure within the range described in

footnote 13 of the Memorandum and Order to which it would

stipulate. Debtor did not provide a figure to which it

was willing to stipulate.

E. The Bankruptcy Court's Order on Second Remand
-18-

On remand, the bankruptcy court, "mechanically applying the

accounting principles historically used by Debtor," held that the

Debtor was entitled to $55,670 of the Disputed Funds. The district

court affirmed that order, and both parties appealed to this court.

Discussion

NSP in its cross-appeal argues that the district court erred

in reversing the bankruptcy court's initial ruling that the Debtor

was not entitled to any portion of the Operating Account, hence

could receive no part of the Disputed Funds. Understandably, the

Debtor sees no virtue in the initial bankruptcy court's rejection

of its claim to funds in the Operating Account, and asks us to

uphold its retention of $479,457 as found by the bankruptcy court

on the first remand. The Debtor urges that the district court

later erred both in altering its own analysis after the first

remand to limit recovery to the Debtor's historic accounting

principles and in suggesting the much lower range of totals from

which the bankruptcy court was to choose. 

NSP responds that if we find the Debtor is owed some portion

of the cash in the operating account, it should be the lowest

possible amount. 

While the issue is somewhat close, we incline towards the

bankruptcy court's original finding denying to the Debtor retention

of any of the funds in the Operating Account. The plain language

of the Stipulation and the fact that this transaction occurred in
-19-

the context of a bankruptcy, not a traditional commercial sale,

among other reasons, support this conclusion. Accordingly, we hold

that the Debtor is not entitled to receive any portion of the

Disputed Funds.

A. Standard of Review

The bankruptcy and district courts' rulings regarding the

Debtor's entitlement under the Stipulation to the funds in the

Operating Account are matters of law reviewed de novo, and any

findings of fact made by the bankruptcy court are reviewed for

clear error. In re LaRoche, 969 F.2d 1299, 1301 (1st Cir. 1992).

This Court "'cede[s] no special deference to the district court's

initial review'" in examining a bankruptcy court's decision on

appeal. In re Merrimac Paper Co. v. Harrison, 420 F.3d 53, 58 (1st

Cir. 2005) (quoting In re Bank of New Engl. Corp., 364 F.3d 355,

361 (1st Cir. 2004)). Rather, we review directly the bankruptcy

court's determination. Id.

B. Why the Debtor may not Retain Cash from the Operating Account

Preliminary to the issue of how much money might have been due

the Debtor is whether the Debtor is due any money at all. As

noted, NSP now argues that the district court erred both in its

1999 order when, using testamentary bequest analysis, it reversed

the bankruptcy court's initial conclusion that the contract

documents between the parties could not be read to leave any money

from the operating account in the hands of the Debtor, and again in
-20-

2004 when it reaffirmed its theory underlying its 1999 Order but

applied a "functional" analysis which concluded that NSP was more

capable of looking out for its interests than was the Debtor and

thus was required to bear the loss. NSP argues that the district

court's approach ignores the standard principles of contract

interpretation. 

The Debtor, of course, agrees with the district court's

reversal of the bankruptcy court's original ruling but not with its

revised order regarding accounting. For the reasons explained

below, we agree with the bankruptcy court that, under the language

of the Stipulation and accompanying documents, the Debtor is not

entitled to any of the cash in the Operating Account.

A plan of reorganization is a binding contract between the

debtor and the creditors and is subject to the general rules of

contract construction and interpretation. See In re Sergi, 233

B.R. 586, 589 (1st Cir. 1999). Likewise, stipulations entered into

between parties are treated as contractual and are subject to the

principles of contract interpretation. Gomez v. Rodriguez, 344

F.3d 103, 121 (1st Cir. 2003); TI Fed'l Credit Union v. DelBonis,

72 F.3d 921, 928 (1st Cir. 1995).

There were four documents related to the ownership of the

funds in the Operating Account: NSP's plan, the Stipulation, the

Confirmation Order, and the Bill of Sale. As set forth in NSP's

plan as affirmed in the Confirmation Order,
-21-

On the Effective Date the Debtor shall close the Sale

Event by conveying to NSP all of the Debtor's right,

title and interest in and to the Purchased Assets

(exclusive of the Assets to be left with the Debtor under

the Stipulation).

NSP's plan also provided that "[N]SP shall have the right not to

take title to any Asset . . . ." The language in the plan and

Confirmation Order indicates that any right the Debtor has to any

assets would be determined by reference to the Stipulation.

In support of the initial ruling of the bankruptcy court

rejecting the Debtor's claim to cash, NSP argues that the

Stipulation itself makes no provision for the Debtor to retain any

portion of the Operating Account. It is true, as the Debtor

emphasizes, that paragraph 9 of the Stipulation reads:

9. The real estate brokerage segment of the Debtor's

business, including all licenses and permits required to

operate that segment of the business, shall be retained

by the Debtor.

However, the paragraphs immediately following describe in

considerable detail what assets within the real estate brokerage

segment, beyond licenses and permits required to operate that

segment, are to be retained by the Debtor -- and nowhere, either in

paragraph 9 itself or thereafter, is reference made to any cash in

the Operating Account. Paragraphs 10 and 11 read as follows:

10. NSP and the Debtor shall, on the Effective Date of

the NSP Plan, execute an agreement in a form reasonably

acceptable to NSP and the Debtor, binding on each

parties' successors and assigns, containing the following

provisions, and failing the execution of such agreement

the provisions as set forth herein shall constitute such

agreement:
-22-

a. The Debtor, A&C Great Island, Inc., and

Christopher Burden shall have and retain, or receive for

nominal consideration, a non-exclusive license to use the

registered trade name "New Seabury" in connection with

real estate brokerage operations conducted by one or more

of them, which license shall continue for as long as

Christopher Burden or any member of his family maintain

a majority ownership interest in or is involved in daily

operations of such business. The license shall include

a license to use the New Seabury name in marketing

material.

b. The brokerage operations will have access to all

resort amenities and may include pictures and information

regarding the resort amenities in its marketing and other

material for viewing and touring. Christopher and Nancy

Burden will be afforded full membership rights in the New

Seabury Club at no cost for as long as Mr. Burden has a

majority ownership interest in or participates in daily

operations of the brokerage operations, or for as long as

either Mr. Burden or Mrs. Burden reside at New Seabury.

c. The brokerage operations will have the nonexclusive right to place reasonable temporary signage

(e.g. open house signs) and permanent signage relating to

real estate service operations on NSP's post-confirmation

New Seabury related property. The permanent signage

shall be where presently located and shall be in its

present form, or in a form reasonably acceptable to the

Debtor and NSP, provided however, that NSP may change the

permanent signage so long as such signage is of equal

visibility.

11. Real property on which the real estate service

operations are conducted, including and limited to, the

main New Seabury real estate office and the adjacent

parking facilities, the Popponessett Real Estate Parcel

as identified in the Debtor's Plan and the parcel at the

Mashpee Rotary on Routes 28 and 151 referred to as the

Sound Realty Parcel shall be retained by the Debtor. The

Debtor shall, on and for a two-year period following the

Effective Date, afford NSP use of three desks at the

Sound Realty location rent-free. NSP may, at its sole

option and expense, install its own phone lines and place

its own reasonable office equipment, including a

facsimile and copy machine in the Sound Realty property

for as long as it has the right to utilize that property.

Except as provided herein, the properties retained by the
-23-

Debtor shall be free and clear of all liens,

encumbrances, claims and interests. NSP shall have no

obligation to the Debtor, Burden, or any affiliates with

respect to the Sound Realty Parcel, the New Seabury Real

Estate Office, or the Popponessett Real Estate Parcel,

including, without limitation, the note held by

Christopher Burden in the original principal, except for

the existing mortgage lien on the Popponnessett Real

Estate Parcel, which mortgage will be paid in accordance

with the NSP plan.

As noted, the Stipulation makes no reference to the retention

by Debtor of any portion of the cash held in the Debtor's Operating

Account. The Real Estate Division maintained no bank account of

its own. All the cash attributable to the three operating

divisions was held in the Debtor's single operating account, where

they were commingled. One would expect, if the parties to the

Stipulation had intended the Debtor to retain up to $500,000 from

the commingled operating account, that they would have said so.

Especially would this be expected in a Stipulation settling a

bankruptcy which specifies in detail the other real estate

Brokerage assets of significance that were to be retained by the

Debtor. The need to specify a considerable sum of cash, if it was

to be retained, would have seemed especially obvious in this

context not only because sums allocable to the real estate

Brokerage were commingled with cash from elsewhere, but because a

complicated system of credits and charges relative to real estate

commissions, implicating all three divisions, made it difficult to

ascertain what net sums were fairly attributable to the Brokerage

segment of the business. Historically, some of the credits and
-24-

charges were treated so as to greatly reduce the sums allocated to

the real estate division on the Debtor's consolidated accounts,

although in the hearing held after the first remand, the bankruptcy

judge was persuaded by accounting experts that a methodology more

favorable to Debtor was correct.

In order to allow the Debtor to retain any of the Disputed

Funds, a court would have to resolve accounting issues that are

less than clear and read language into the Stipulation that does

not appear (language suggesting that the Debtor was entitled to

some of the funds, or giving a means of calculating the funds to

which the Debtor was entitled). Courts will not read language into

a contract where it does not appear. See Accusoft Corp. v. Palo,

237 F.3d 31, 41-42 (1st Cir. 2001) (citing Mathewson Corp. v.

Allied Marine Indus., Inc., 827 F.2d 850, 855 (1st Cir. 1987)).

The Debtor argues that the phrase "the real estate brokerage

segment of the Debtor's business," which paragraph 9 allows the

Debtor to retain, implies retention of monies belonging to that

aspect of the business. Had the Brokerage segment been more

clearly an independent business entity with, for example, its own

bank account, it would perhaps be more plausible to infer inclusion

of the latter among the retained assets. But the Brokerage

"segment" mentioned in paragraph 9 was just that--a segment of the

larger business; precisely what assets comprised that "segment" for

purposes of this bankruptcy sale was not self-evident but required
The district court was persuaded by the "simple and coherent 2

line" drawn by the Debtor, to the effect that "a 'business'

includes all its assets unless stated otherwise." See supra. It

is notable, however, that what was to be retained here was not the

Debtor's "business," as such, but rather the real estate brokerage

"segment" of the Debtor's business. It is thus largely irrelevant

that had Debtor's entire business been sold or retained, its cash

assets might be deemed to be included as part thereof.

-25-

the considerable clarification provided in the latter part of the

Stipulation, which describes in detail the various elements to be

retained. 

2

Debtor would have it that paragraphs 10 and 11 merely

enumerate additional assets to be retained by the Debtor.

According to the Debtor, NSP's interpretation does not give

adequate meaning to the language of paragraph 9. Debtor argues

that paragraph 9 becomes superfluous if paragraphs 10 and 11 are

read to specify the assets to be retained by the Debtor, thus

violating a common tenet of contract construction: "'every word

and phrase of an instrument is if possible to be given meaning, and

none is to be rejected as surplusage if any other course is

rationally possible.'" FDIC v. Singh, 977 F.2d 18, 22 (1st Cir.

1992) (quoting Tupper v. Hancock, 65 N.E.2d 441, 443 (Mass. 1946)).

However, paragraph 9 is not rendered meaningless by NSP's

interpretation. Paragraph 9 can be read as an introductory,

generalized characterization of the portion of the business the

Debtor was to retain, which assets (beyond the licenses and permits

expressly referenced in paragraph 9) were then more precisely
-26-

explicated in the following paragraphs, especially paragraphs 10

and 11. 

We do not agree that the items listed in paragraphs 10 and 11

of the Stipulation can be written off merely as assets that the

Debtor received in addition to the "real estate brokerage segment."

To the contrary, most of the items later described within

paragraphs 10 and 11 would also fit under the general rubric of

"the real estate brokerage segment of the Debtor's business." The

subsequent specific descriptions in paragraphs 10 and 11 were

needed so as to explicate the parties' understanding of exactly

what items and rights were to be retained by the Debtor. In

arguing the items in paragraph 10 and 11 are mere additions, the

Debtor asserts the enumerated real estate parcels in paragraph 11

were not previously used exclusively by the Brokerage division.

They had, however, been used in some part by that division. To

show the parties' present agreement as to the precise status and

use of the parcels, as well as the extent to which they would form

a part of the retained segment, it was necessary, as was done, to

provide the specifics in paragraph 11. Much the same is true of

the cash now in dispute. It is not enough that some of the

unmentioned cash in the Operating Account may have derived from

past real estate brokerage operations. To show an intention to

include that cash as part of the retained real estate brokerage

segment, that intention needed to be stated -- and given the
-27-

accounting uncertainties, the amount of the cash to be retained

needed to be declared -- just as all the other items were listed

and specified in paragraphs 10 and 11. 

In the circumstances, we think it cannot be inferred simply

from the general language in paragraph 9 that the parties meant the

Debtor to retain any particular amount of the commingled cash. In

a bankruptcy transaction such as this, it would not be at all

unreasonable for the parties to have understood that Debtor would

receive the right to continue to operate the Brokerage segment

without being entitled to retain the cash previously generated by

brokerage operations. NSP needed cash assets to perform its

obligations to pay off the bankrupt's indebtedness. The Debtor

might be thought to benefit sufficiently from the right to operate

the real estate segment without receiving all or part of the cash

attributable to past operations of that part of the business.

Without more specific reference, it is impossible to determine that

the parties necessarily meant to permit the Debtor to retain some

portion of the Operating Account funds.

As already suggested, some of the current difficulty stems

from the fact that "the real estate brokerage segment of the

Debtor's business" was not a wholly independent business with its

own bank accounts. Precisely what assets were meant to be included

within the contours of that phrase were not self-explanatory,

making it necessary for the parties to have described with some
-28-

reasonable degree of clarity, the particular items intended to be

retained. That description appears principally in paragraphs 10,

11 et seq.

In this respect, a further aspect of the Stipulation should be

mentioned. This is the wording at the start of paragraph 10, which

declares that NSP and the Debtor shall, on the effective date of

the NSP plan, execute a binding agreement containing the following

provisions -- provisions which themselves shall constitute such

agreement if none is executed. This indication that paragraphs 10,

11 and beyond are to be a separate agreement reinforces the notion

that they are to spell out the essential details of the real estate

brokerage segment earlier said to be retained. And, indeed,

paragraph 10 goes on to specify just such details, delineating

items such as the right of the Debtor, A+C Great Island, Inc., and

Burden to have and retain a non-exclusive license to use the

registered "New Seabury" trade name and marketing materials "in

connection with real estate brokerage operations conducted by one

or more of them," access to resort amenities and signage, and even

maintenance of membership in the New Seabury Club for Christopher

Burden and his wife. Given the extent of the detail in paragraphs

10 and 11, the omission therefrom of any reference to the cash in

the operating account is highly significant. The parties would

scarcely have overlooked mention of inclusion of a substantial

share of the commingled cash from the operating account, and the
-29-

amount thereof, had this, too, been part of their completed

bargain, especially where it would be unclear simply from the

general language in paragraph 9 how much of an uncertain amount of

cash Debtor was to retain, if it was to retain any at all.

In addition to the lack of specific reference to the cash

associated with the Brokerage segment and absence of any declared

method to account for such cash, NSP also relies for a supplemental

argument on the maxim expressio unius est exclusio alterius, which

mandates that when parties list specific items in a document, any

document not so listed is excluded. Lohnes v. Level 3 Commc'n,

Inc., 272 F.3d 49, 61 (1st Cir. 2001). The absence of any

reference to cash when other items were delineated in paragraphs 10

and 11 indicates, according to NSP, that the cash was not intended

to be retained by the Debtor. The Debtor replies that the use of

the word "including" in paragraph 9 does not preclude the Debtor

from retaining the cash. See St. Paul Mercury Ins. Co. v.

Lexington Ins. Co., 78 F.3d 202, 206 (5th Cir. 1996) ("[W]e are not

convinced that the rule of expressio unius est exclusio alterius

applies in the instant case as the challenged list of provisions in

St. Paul's contract is prefaced by the word 'including,' which is

generally given an expansive reading, even without the additional

if not redundant language of 'without limitation.'"). NSP notes,

however, that unlike in the cases relied upon by the Debtor, the

word "including" in paragraph 9 is in a separate paragraph from the
-30-

language in paragraphs 10 and 11, thereby limiting the relevance of

those cases in the instant situation. Paragraph 9 can be read as

an introductory paragraph referring to the licenses and permits and

then leading into the specifics of paragraphs 10 and 11 regarding

the shared property that would be retained by Debtor. 

The Debtor argues that its position is supported by a review

of the associated transaction documents. In the first exhibit to

the Bill of Sale, Schedule A, the assets to be transferred from the

Debtor to NSP upon the Closing are described as "all properties,

assets and rights of [Debtor] not associated with or generated by

the Real Estate Brokerage Operations." The Debtor claims that cash

is one such asset "generated by" the Brokerage Division. Further,

Debtor argues that if it were to retain only a limited set of

assets of the Brokerage Division, rather than the entirety of the

"real estate brokerage segment," then Schedule F, which sets forth

a list of assets that were to be transferred to NSP despite being

located in the real estate Brokerage segment's offices, would have

been unnecessary. Moreover, the list of enumerated items in

Schedule F including "5 Wastebaskets," "1 Casio Calculator," and "1

Lamp" further suggests that NSP was cognizant of the need to

distinguish specific items from the all-encompassing (and thus

cash-including language) of the "real estate brokerage segment"

language in paragraph 9. 
-31-

The Debtor's arguments are not supported by the full language

and context of the Bill of Sale. The sentence cited by the Debtor

includes a parenthetical specifically noting that the distribution

of the cash will be resolved by the court. The complete language

in Schedule A provides that "in addition to any assets being

retained by [the Debtor] pursuant to the [Stipulation] . . . the

Purchased Assets shall not include any personalty located in the

real property to be retained by [the Debtor] under the Stipulation

unless set forth on Schedule F hereto . . ." (emphasis added). The

Bill of Sale recognized that the Debtor would retain only the

assets listed in the Stipulation and therefore specified in the

Schedule that the Debtor could retain the inconsequential property

inside the offices as well.

The Debtor's Schedule F argument likewise seems limited by the

fact that Schedule A provides for the retention by the Debtor of

the real estate office in which the real estate business is

conducted, so that it would have been important for NSP to identify

any objects it wished to take from that property. Such

specification does not necessarily imply that the parties assumed

that larger assets, like the cash, were included in the paragraph

9 reference to the "real estate brokerage segment."

In its reversal of the bankruptcy court's ruling that the

Debtor was not entitled to the cash, the district court noted the

traditional commercial practice of a seller's retaining the cash
-32-

associated with the business it sells. It further observed,

however, that the instant case is complicated by the fact that it

is not a simple commercial transaction but a bankruptcy proceeding.

"The interpretation of a stipulated amendment to a bankruptcy

reorganization plan must . . . recognize certain concerns lurking

in the background: that creditors be paid; that the debtor be

rehabilitated; and that neither the debtor nor any creditor receive

a windfall." Here, NSP assumed the cost of nearly $8 million to

satisfy the Debtor's creditors. It is not unreasonable to read the

Stipulation and associated documentation to be maximizing the total

transfer of cash assets to NSP while still allowing the Debtor to

maintain the real estate Brokerage for future use. As the district

court noted, "a 'segment of . . . business' can be a valuable and

coherent asset if limited to goodwill, real property, equipment,

and intellectual property needed to operate the business, even

without cash." Additionally, "[a] reading of the Stipulation that

excludes cash might be consistent with the absence of a negotiated

cash valuation method, and the bankruptcy context in which the

primary goal is to pay back the Debtor's creditors." The district

court observed that the Debtor has been able to operate the

Brokerage for several years without the use of the Disputed Funds.

Christopher Burden put an undisclosed amount of his personal

capital into the business.
-33-

The district court ultimately concluded that NSP should bear

the loss because it was in a better position to protect its assets

in the drafting of the Stipulation. We are unable to accept that

rationale. Both parties were represented by attorneys. If

retention of the cash was an item of importance to the Debtor, it

is not unreasonable to believe that it would have sought to

negotiate a reference thereto in the Stipulation. We see no

unfairness in holding against the Debtor in the absence of such a

reference, such absence being indicative that the parties formed no

such agreement. While doubtless the bankrupt party was in a weaker

negotiating position, that cannot justify rewriting the parties'

agreement for presumed equitable reasons.

We believe the bankruptcy court's initial conclusion (and the

district court's acknowledgment of the reasoning underlying it) was

correct. The plain language of the Stipulation and associated

documentation does not support a conclusion that the Disputed Funds

or some portion of them were intended to be retained by the Debtor.

The funds were in the Operating Account, and the Stipulation

provided neither express reference to the cash nor any reference to

a method of accounting for the Brokerage's share of the cash. By

contrast, paragraph 11 itemizes the real property to be retained by

the Debtor which had not been exclusive property of the Brokerage

division. The bankruptcy court's conclusion that the Debtor was

not entitled to retain the cash is in keeping with the plain
-34-

language of the contract documents and also acknowledges the unique

posture of the bankruptcy proceeding which sets this case apart

from a traditional commercial transaction.

Remanded with directions to affirm the initial judgment of the

bankruptcy court and to vacate the contrary judgments of the

district court.