The opinion of the court was delivered by: Honorable Joseph E. Irenas
BANKRUPTCY No. 03-49462(GMB)
IRENAS, Senior District Judge
This matter comes before the Court on the appeal of Debtor Nickels Midway Pier, LLC ("Nickels") and cross-appeal of Wild Waves, LLC ("Wild Waves"), from the Bankruptcy Court's order of September 28, 2006. For the reasons that follow, the Court will affirm in part, and vacate and remand in part, the Bankruptcy Court's order.
The background facts of this case have been recited in a previous opinion of this Court, see Nickels Midway Pier, LLC v. Wild Waves, LLC, 341 B.R. 486 (D.N.J. 2006), and various opinions of the Bankruptcy Court. The following facts are relevant to the present appeals.
In the previous appeal, Nickels, 341 B.R. at 495-96, this Court held that Nickels, the owner and lessor of the Pier at issue, had entered into two independent, but related, agreements with Wild Waves, which leased 70% of the Pier. The first agreement was a written and fully executed Lease for a term of approximately sixteen years, terminating on December 31, 2014. The second agreement was an Oral Contract for Sale, whereby Nickels promised to sell the Pier to Wild Waves for $5.5 million in 2003.
This Court further explained that the Bankruptcy Court below had conflated the Lease and the Oral Contract for Sale, treating them as one contract, as opposed to two divisible aspects of a contract to be analyzed independently. Thus, this Court reversed the Bankruptcy Court's ruling that the contract was subject to rejection pursuant to 11 U.S.C. § 365(a), and remanded the case so that the Bankruptcy Court could "separately analyze the legal consequences of the rejection of each aspect of the parties' agreement." 341 B.R. at 500.*fn1
On remand, the Bankruptcy Court re-listed for decision Nickels' Motion to Reject. In response, Nickels filed a motion with the Bankruptcy Court seeking a determination of "pre-petition defaults and termination of business lease and oral contract of sale by Wild Waves." (hereafter, "Termination Motion") (App. at NA 243) Apparently recognizing the deviation from its prior course, Nickels explained,
[w]hile the initial impulse of Nickels is to seek to reject the Business Lease and/or Oral Contract of Sale, it would be imprudent for Nickels to do so without first having this Court determine: (i) whether there were pre-petition breaches under the Business Lease and/or Oral Contract of Sale and who caused such breaches and; (ii) whether such breaches resulted in the termination of the Business Lease and/or the Oral Contract of Sale.*fn2
(Id.) According to Nickels, Wild Waves breached both the Lease and the Oral Contract for Sale, which caused the agreements to terminate pre-petition. Nickels further reasons that because the agreements were terminated pre-petition, they are not part of its bankruptcy estate, and therefore not subject to rejection.
Ruling on the Termination Motion, the Bankruptcy Court concluded that "breaches do not constitute termination;" neither agreement was terminated pre-petition; both agreements were executory as of the petition date; and Nickels must now decide whether it is in its sound business judgment to reject the agreements under § 365. The Bankruptcy Court also held that the proceeding was not subject to mandatory abstention pursuant to 28 U.S.C. § 1334(c)(2) because a Motion to Reject was a core proceeding.
The parties' cross-appeals are currently before this Court.
The District Court has jurisdiction to hear appeals from final judgments, orders and decrees of the Bankruptcy Court in cases and proceedings referred pursuant to 28 U.S.C. § 157(a) to the Bankruptcy Court. 28 U.S.C. § 158(a). The Bankruptcy Court exercised jurisdiction over this case pursuant to § 157(a) and thus, under § 158(a), this Court has jurisdiction over the appeals of the parties from the final order of the Bankruptcy Court.
The District Court reviews de novo the legal determinations of the Bankruptcy Court. In re Fairfield Exec. Assoc., 161 B.R. 595, 599 (Bankr. D.N.J. 1993). The Bankruptcy Court's factual determinations will be left undisturbed on appeal unless they are clearly erroneous. Fed. R. Bankr. P. 8013.
As stated above, Nickels asserts that the Lease and the Oral Contract for Sale were terminated pre-petition and therefore cannot be rejected.*fn3 The Bankruptcy Court correctly held, and the parties do not dispute, that the termination issue is governed by New Jersey law. See In re Triangle Laboratories, Inc., 663 F.2d 463, 471 (3d ...