Matter of Dunes Casino Hotel
| Decision Date | 21 August 1986 |
| Docket Number | Civ. A. No. 85-5491(SSB). |
| Citation | 63 BR 939 |
| Parties | In the Matter of DUNES CASINO HOTEL, A New Jersey Partnership, Debtor. |
| Court | U.S. District Court — District of New Jersey |
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Crummy, Del Deo, Dolan, Griffinger & Vecchione by Frank J. Vecchione, Donald H. Steckroth, Newark, N.J., for debtor.
Davis, Reberkenny & Abramowitz, P.A. by Arthur J. Abramowitz, Cherry Hill, N.J., for GNAC Corp.
Ravin, Sarasohn, Cook, Baumgarten & Fisch by Jonathan I. Rabinowitz, West Orange, N.J., for Unsecured Creditors' Committee of Dunes Casino Hotel, debtor and debtor-in-possession.
This is the bankruptcy matter involving the Dunes Casino Hotel (hereinafter "Dunes"). Presently before the court are two motions by GNAC Corporation, an interested party in the bankruptcy proceeding. First, GNAC is appealing a September 26, 1985 order of the Honorable Rosemary Gambardella, U.S. Bankruptcy Judge, which denied GNAC's motions to: (1) modify the automatic stay of 11 U.S.C. § 362(a); (2) declare terminated the real estate agreement signed between the debtor, Dunes, & GNAC prior to the filing of the debtor's Chapter 11 bankruptcy petition; and (3) shorten the debtor's time to accept or reject the aforementioned agreement. GNAC's second motion seeks to have this court withdraw the reference to the bankruptcy court of a motion made before that court in October 1985. This court heard oral argument on GNAC's motions on February 21, 1986.
On August 31, 1983, GNAC & Jack Bona, Inc. ("Bona") entered into a "Real Estate Option Agreement" (the "Agreement") for the purchase by Bona of certain GNAC-owned real property in Atlantic City, New Jersey. Under the Agreement, Bona obtained the exclusive right and option to purchase the property subject to the conditions set forth in the Agreement.
The Agreement provided Bona with an initial term of ninety days from the execution of the Agreement within which to exercise his purchase option. Bona had the right to extend the term of the option for one additional twelve-month term and six additional one-month terms reaching to May, 1985, provided that Bona gave GNAC written notice of the extension and paid additional monetary consideration. In the event the buyer exercised the option, the Agreement required that "unless otherwise agreed upon in writing between the parties," closing had to occur no later than sixty days from the date the buyer exercised the option. Agreement at ¶ 4. The contract did not contain an explicit "time is of the essence" provision.
On January 9, 1984, Bona assigned all of its rights under the Agreement to Dunes. Dunes continued to extend the life of its purchase option until May 29, 1985, at which time it notified GNAC of its exercise of the option and set the closing date of July 26, 1985. See September Opinion at 11. GNAC acknowledged receipt of Dunes' option notice on June 7, 1985 and in its reply letter to Dunes declared that "time is hereby made of the essence" with regard to the closing date. Id. at 13-14.
On June 24, 1985 Dunes commenced an action in the Superior Court of New Jersey, Chancery Division, Atlantic County, seeking specific performance of the Agreement. The debtor also filed a lis pendens on the property. Dunes asserts that it filed this state action because GNAC had transferred its interest in the property to its wholly-owned subsidiary, GNOC Corporation, in contravention of the Agreement.
On July 26, 1985 GNAC tendered deeds and title closing documents to Dunes and demanded that Dunes perform under the Agreement by delivering the balance of the purchase price. September Opinion at 16. Dunes did not tender the purchase price, however, and contends that it refused to do so because GNAC failed to produce documentation that the premises were not subject to the requirements of the New Jersey Environmental Clean-Up Responsibility Act, N.J.S.A. 13:1(K)-6 et seq., and that GNAC removed certain fixtures from the premises in violation of the Agreement. Id. GNAC disputes Dunes' contention and argues that Dunes failed to close on July 26, 1985 simply because it did not have the funds available to pay the purchase price. The bankruptcy court agreed that this was one of the reasons closing did not occur. The court noted the affidavit of Jack Bona in which Bona stated that at the time the present motion was filed he was still trying to raise the necessary funds. Id.
On July 26, 1985, GNAC sent a letter to Dunes in which it gave the debtor notice that it considered Dunes in default of the Agreement due to its failure to close on that date. GNAC "declared that the agreement is terminated." Id., at 17-18. That same day GNAC filed an action in the Superior Court of New Jersey, Chancery Division, Atlantic County, seeking a declaratory judgment that Dunes was in breach of the Agreement, that GNAC had not breached the Agreement, and that the Agreement was terminated. GNAC also sought the removal of the lis pendens on its property.
In its defense, Dunes relies on Paragraph 16 of the Agreement which provides the buyer with fifteen days in which to "cure" a default before the Agreement is terminated. On August 9, 1985, one day before the end of this "cure" period, Dunes filed its Chapter 11 petition.
On August 21, 1985 GNAC moved in the bankruptcy court to vacate the automatic stay with respect to the state court litigation or, in the alternative, for the bankruptcy court to assert jurisdiction over the Agreement and require Dunes to affirm or reject the Agreement within sixty days of the filing date of the petition. The bankruptcy court held a hearing on September 20, 1985 and rendered a decision of September 26, 1985. The court held the following: (1) GNAC was not entitled to vacation or modification of the automatic stay; (2) the Agreement was executory, and under 11 U.S.C. § 365 Dunes has a "reasonable" time to assume or reject the Agreement; and (3) Dunes was not required to assume or reject the Agreement within any particular time period because the court could not decide what a "reasonable" period was. See September Opinion at 19-61. Subsequent to that decision, GNAC filed the instant appeal and a new motion before the bankruptcy court on October 18, 1985, which it now seeks to have withdrawn to this court.
In general, when the district court reviews a decision by the bankruptcy court on a question of law, it applies a plenary standard of review. On the other hand, it cannot overturn the bankruptcy court's findings of fact unless they were "clearly erroneous." Bankruptcy Rule 8013; In Re Morrissey, 717 F.2d 100, 104 (3d Cir.1983). Relevant to the present case, the interpretation of a "wholly unambiguous" commercial contract is a question of law and thus subject to plenary review, but findings based on ambiguous contract language are questions of fact. Matter of Barclay Industries, Inc., 736 F.2d 75, 78 n. 3, (3d Cir.1984), quoting Landtect Corp. v. State Mutual Life Assurance Co., 605 F.2d 75, 79 (3d Cir.1979) (citation omitted). To be "unambiguous" a contract "must be capable of only one reasonable meaning." Matter of Barclay Industries, Inc., supra, 736 F.2d at 79. The court will follow this standard in its consideration of GNAC's appeal.
Under 11 U.S.C. § 362(a)(1), a party that files a Chapter 11 bankruptcy petition is entitled automatically to a stay of the commencement or continuation of any judicial proceedings against it. But the court can vacate a stay:
11 U.S.C. § 362(d) (emphasis added). GNAC sought relief from the stay in bankruptcy court in order to continue with its state court action against Dunes. As the party requesting such relief, GNAC has the burden of proof on the issue of the debtor's equity while the party opposing such relief, Dunes, has the burden of proof on all other issues. 11 U.S.C. § 362(g); Nazareth National Bank v. Trina-Dee, Inc., 731 F.2d 170 (3d Cir.1984).
The court will first address GNAC's argument that there is sufficient "cause" to modify the stay under Section 362(d)(1). The bankruptcy court correctly noted that a "finding of a lack of good faith" by the debtor in filing a Chapter 11 petition may be sufficient cause to vacate or modify a stay. September Opinion at 24-25; Furness v. Lilienfield, 35 B.R. 1006, 1009-10 (Bankr.D.Md.1983). The burden of proving good faith is on the debtor. 11 U.S.C. § 362(g)(2); Matter of Century City, Inc., 8 B.R. 25, 30 (Bankr.D. N.J.1980).
The bankruptcy court determined that "in the absence of circumstances indicative of bad faith, I cannot find that the Chapter 11 petition was filed in bad faith." September Opinion at 32. This language seems to indicate an inappropriate placing upon GNAC of the burden of proving bad faith, rather than requiring Dunes to prove good faith. Whether or not this was the intent of the bankruptcy court, however, this court need only concern itself with the issue of whether the factual finding of "good faith" by the bankruptcy court was "clearly erroneous."
The filing of a Chapter 11 petition is intended to give business debtors a "remedy for relief from financial distress" and to help "preserve the going concern value of the debtor's business for the mutual benefit of the debtor and his creditors." Matter of Levinsky, 23 B.R. 210, 215 (Bankr.E. D.N.Y.1982), quoting, In re Diversified Leasing Services, Ltd., 4 B.C.D. 309, 312 (Bankr.E.D.Tenn.1978). It is perfectly legitimate for a business to file a Chapter 11 petition to "preserve its assets" from an impending loss if those...
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