Third Circuit disposition — 073280np-pdf

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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Nos. 07-3280, 07-3281,
07-3479 & 07-3480
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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

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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

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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

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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.”

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We have jurisdiction under 28 U.S.C. § 158(d)(1); we believe, and the parties do not1
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).
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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 will1
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.

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