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In re Nickels Midway Pier

March 17, 2008

IN RE: NICKELS MIDWAY PIER, LLC DEBTOR.
NICKELS MIDWAY PIER, LLC APPELLANT / CROSS-APPELLEE,
v.
WILD WAVES, LLC APPELLEE / CROSS-APPELLANT.



The opinion of the court was delivered by: Irenas, Senior District Judge

BANKRUPTCY No. 03-49462(GMB)

OPINION

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 March 6, 2007. For the reasons that follow, the Court will affirm the Bankruptcy Court's order.

I.

The background facts of this case have been recited in previous opinions of this Court,*fn1 and various opinions of the Bankruptcy Court. The following facts are relevant to the present appeals.

Nickels is the owner and lessor of an amusement complex pier (the "Pier") in Wildwood, New Jersey. In May, 1999, Wild Waves entered into a written lease with Nickels, whereby the parties agreed that Wild Waves would rent 70% of the Pier for the purposes of constructing and operating a water park, and operating the pre-existing Dungeon and Castle attraction (the "Castle"). The Lease sets rent at $250,000.00 per year and also requires Wild Waves to pay Nickels an amount equal to one-third of the real estate taxes on the entire Pier.*fn2

In order to finance the construction of the water park, Wild Waves obtained a $2.8 million construction loan and a $200,000 revolving credit line from Sun Bank, both secured by a second mortgage on the entire Pier. In connection with that transaction, Nickels and Wild Waves entered into a Lease Amendment on September 29, 1999, which reads in relevant part:

In consideration of Landlord permitting Tenant to encumber Landlord's entire premises in order to obtain financing for the construction of the water park and improvements, Tenant agrees to pay and Landlord agrees to accept the sum of $400,000.00 as additional collateral to be paid as follows: (a) $200,000.00 on or before July 30, 2000; and (b) $200,000.00 on or before July 30, 2001. The sums will be held by Nickels Midway Pier, L.L.C. for the purpose of curing any of Tenant's defaults under the loan documents to be executed with Sun Bank. The sums will be held until the aforementioned second mortgage matures in approximately five years. In the event the permitted second mortgage is paid off before its maturity date, the $400,000.00 or balance thereof will be used for rental payments as they become due.

N.A. 784-85.*fn3

On January 16, 2002,*fn4 the Castle was destroyed by a fire. Nickels, which carried fired insurance on the Castle in accordance with the Lease terms, collected the insurance proceeds.*fn5 The Castle has not been rebuilt, but Wild Waves continues to occupy the entire leasehold property, including the Castle footprint space.

Nickels filed its voluntary Chapter 11 petition on December 8, 2003. The parties spent the next several years litigating various issues in state court and the Bankruptcy Court, and pursuing appeals to this Court and the Third Circuit.*fn6 In May, 2006, Nickels filed with the Bankruptcy Court the "Motion for Entry of an Order Directing [Wild Waves] to Make Payments of Rent and Real Estate Taxes Pursuant to the [Lease]," which is the subject of the instant appeals. Specifically, Nickels sought to compel Wild Waves' payment of rent and real estate tax payments for the years 2004 through 2006, as well as payment of the $400,000 security deposit plus interest. N.A. 063.

Wild Waves opposed the motion.*fn7 With respect to rent, Wild Waves asserted that it was entitled to a rent reduction due to the destruction of the Castle. With respect to the security deposit, Wild Waves asserted that it should not be compelled to pay the deposit because (1) the Amendment resulted from economic duress; and (2) Nickels had constructively evicted Wild Waves by failing to replace the Castle.

At a hearing on the Motion on July 13, 2006, the Bankruptcy Court carefully considered the language of the Lease. Finding that the "four corners of [the Lease] do not address" what adjustments, if any, should be made to the rent due under the Lease as a result of the Castle's destruction, the Bankruptcy Court concluded that a plenary hearing should be held to present evidence of "both parties' understanding and intention when the agreement was drafted." N.A. 347. With respect to the security deposit issues, the court held that Wild Waves was not constructively evicted as a matter of law, but it could present evidence of economic duress at the plenary hearing.

An evidentiary hearing was held on October 31, and December 7, 2006. The Bankruptcy Court made findings of fact and conclusions of law in an oral opinion on January 4, 2007. The court held that Wild Waves' evidence of "business and financial pressure" was insufficient to meet the applicable legal standard for economic duress. N.A. 1139-43.

The Bankruptcy Court also concluded that Wild Waves was entitled to a rent abatement, finding that the parties intended that upon the destruction of the Castle, rent would be reduced pro rata based on projected revenues from the Castle. N.A. 1150-53.

On March 6, 2007, the Bankruptcy Court entered an order directing that the $400,000 security deposit shall continue to be held in escrow*fn8 and that the rent for 2006 and the years following "shall be abated from the $250,000 payments recited in the Lease to $87,500." N.A. 1174. The court also ordered Wild Waves to "pay abated taxes in the amount of 19.2% of the total real estate taxes on the Nickels Midway Pier." Id. The parties timely appealed.

II.

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 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.

III.

A.

Nickels asserts that the Bankruptcy Court committed four errors. The Court will ...


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