In Re Joshua Slocum Ltd D/B/A Js Acquisition Corporation. Appeal of George Denney, Party in Interest

day’s and is on or her work completed his way home. In re JOSHUA SLOCUM LTD JS d/b/a Acquisition Corporation. believe, I would not reach majority, tragedy had oc- if this same result DENNEY, George Appeal of waiting on the McMillan was curred as Party In Interest. to take for a commuter bus public sidewalk No. 90-1072. majority does not and Yet the her home.1 Appeals, between articulate a distinction States Court of

cannot United before us that makes and the one Third Circuit. situation applicable standard— sense in terms of July Argued 1990. employ- of the business “on the authorized Decided Dec. sure, employer both To er.” be Rehearing from In Banc deriving Rehearing an indirect benefit cases is can activity; employees be Denied employee’s Jan. employer they unless to their of no value work stations each and from their

get to Nevertheless, employee is no

day. “on the authorized business

more or less stop case than in the bus employer”

this case.

There be situations by this the standard selected

application of matter. will be a debatable

insurer situations, may appropriately a court

those ambiguities rule that should

apply the applica- Its against the insurer.

resolved clear, however. on these facts seems

tion tragedy, McMillan

At the time business, not on the business

on her own Therefore, I reverse would employer.

her and re- of the district court judgment judgment to enter

mand with an instruction Life Assurance TWA and State Mutual

Company of America. Board, A.2d 1239 peal compensa 62 Pa.Cmwlth. Pennsylvania’s workmen’s

1. Under employee situation, (1981) (”[T]he statute, that an law is clear would in such a McMillan tion returning going from injured to or while engaged who is work, in the furtherance be neither circumstances, special is not en- premises as that absent employer’s nor on its business employ- furthering of his gaged the business prong concept employed in the second er.”). Ap- Compensation v. Workmen’s test. Serafin OPINION OF THE COURT HIGGINBOTHAM, JR., A. LEON Judge. Chief case, power This concerns the bankruptcy court to excise a from a center lease. On Novem- 21, (the Date”), “Filing ber Joshua Slocum, Ltd., Pennsylvania corporation (the “Debtor”), voluntary petition filed a chapter for relief under 11 of the United bankruptcy States Code with the court. 16, 1989, February bankruptcy On (the appointed Melvin Lashner “Trustee”) to act as trustee the case pursuant Appellant to 11 U.S.C. (“Denney”) George Denney contends that bankruptcy entering court erred in its excising paragraph orders 20 of the lease question, authorizing and then the as- sumption of that objections. over his without He also maintains that the district court affirming bankruptcy erred court’s agree decision. We with the the district therefore will reverse court’s summary affirmance of the judgment. I. AND FACTS HISTORY PROCEDURAL Debtor, Slocum, Ltd., Joshua d/b/a Corporation, began its rela- Acquisition JS. Landlord, George Denney, in tionship with signed ten May when Debtor of 1983 Denney space at the year lease for retail Denney Freeport, Maine. The Block Block, buildings three which consisted of stores, developed in containing seven phases commencing 1982 and com- two .in phase was under- pleted in 1983. first (argued), Jacob A. George J. Marcus Haan, manufacturer and by taken Cole Atwood, Scribner, Manheimer, Pierce, Al- shoes, and women’s retailer of fine men’s Portland, Me., len, Lancaster, for & Smith Denney is President. Cole of which appellant. building and renovated a purchased Haan Maine, and Freeport, on Main Street (argued), Lashner & Robert F. Salvin purchase gave Denney option Pa., Lashner, appellee. Philadelphia, the stock of Cole building in the event that by person. third acquired HIGGINBOTHAM, Judge, Haan was Before Chief capital of Cole Haan was ALITO, When the stock and SLOYITER Circuit Nike, George exer- by purchased Judges. option purchase cised his the Cole Haan By application court. to the building. February court dated (the “Application”), requested the Trustee thereafter, Shortly Denney purchased authorization to assign assume and immediately building adjoining the Cole pursuant Lease to 11 U.S.C. building Haan building separat- and a third March Denney filed objec- written building by courtyard. ed from the second tions and a opposi- memorandum of law in plans develop Architectural the two new application tion buildings in a manner consistent with the court. building Cole Haan as a common scheme

were commissioned Denney present- (the By opinion “opinion”) and order both Freeport, ed planning to the Maine board (the order”), dated March “interim approval. 99 B.R. granted requested the relief buildings comprising Denney Application The in the Block front part on Main Street and are of the authorized the Trustee to assume and as- shopping downtown in Freeport. sign Collections, district European Lease to (the The district consists of a number “assignee”). Inc.

of streets lined with stores. In addition to court entered another April Order on buildings, the Landlord’s three the Denney (the order”), setting “final fully forth courtyard Block has a located between two rights obligations parties. of the buildings parking of its and a lot behind opinion order, In the and the final the bank- George Denney park- stores. owns the ruptcy court held unenforceable and ex- ing primarily lot which is for the use of cised 20 of (“para- the Lease Block, patrons of the although ac- graph 20”), provides that “in the cording open to local ordinance it is also to event gross that Tenant’s sales for the first (thus, public it per- can be used all (6) lease-years six of the term of this Lease shop sons who in the along stores Main average do not Seven Hundred Eleven Street, Freeport). Forty Thousand Two Hundred Five and ($711,245.00) 00/100 Dollars per lease-year lease, signed in along

Debtor’s either Landlord or Tenant elect to the leases of some or all of the other Den- terminate this Lease.” tenants, ney Block average contains an sales clause. This clause allows for Debtor approved The court assignment if, or Landlord to terminate the lease after the lease without Europe- 20 to years, six average yearly Debtor’s sales European Collections. Collection has $711,245. are below option A similar also begun occupancy operation of a store year existed after the third of the lease. George Denney’s premises in Freeport, point, At party power either held Denney’s Maine. appeals consolidated fol- to terminate the lease if the tenant’s aver- lowed. age yearly $602,750. sales were below 31, 1989, May On the Trustee filed a The lease also a percentage contains rent motion to George Denney’s dismiss appeal years currently clause. For the remaining By as moot. Order dated December lease, in the requires this clause the tenant 1989 the district court affirmed without pay to additional rent in the amount of four opinion opinion percent gross $1,175,- sales excess of final order and denied Trustee’s motion to Otherwise, the base rent due in the 22, 1990, January dismiss. On Denney ap- years $3,917.88 final five per of the lease is pealed the district court order. require month. The leases also the tenants provide Landlord with financial informa- II. DISCUSSION concerning tion their business so that these provisions implemented. can be A. Mootness Slocum, voluntary

Joshua Ltd. filed a Before we can turn to our discus petition chapter for relief under 11 of the sion of the merits we must address the Bankruptcy United States Code with threshold issue of appel- whether we have stay discharge. discharge appel- this court jurisdiction. Appellee asks late appeal as moot due to the dismiss this sought stayed granted lants to be dur- landlord-appellant, George Denney’s failure ing pendency appeal. of the The order appeal. stay pending Trustee to obtain granting discharge ap- had not been principle finality argues that the embod- pealed. The sole issue before the court 363(m) Code ied dissolving was the district court’s order assignments applied to under should be noted, stay. Judge if As Sloviter “even we Further, of that same statute. vacate that order—the relief re- assignments, Trustee maintains that such quests change will not the fact that the —it assignees, faith should not good if made to discharge, appellants sought the act to de- subject appeal. invalidation on We Hence, lay granted_ pro- has been argument inapposite to find the Trustee’s priety stay discharge is moot.” presented. Denney has not the situation inapposite 639 F.2d at 1054. Cantwell challenged of the lease to Cantwell, present situation. unlike Accordingly, the is- European Collections. hand, discharge the matter at of bank- assignment of the before us is not the sue i.e., ruptcy, occurring during the event asserts, the Trustee but rather as pendency appeal, ap- not been had bankruptcy court had the au- whether the pealed. grant stay This Court’s of a of paragraph of that thority to excise 20 discharge empty that would have been an moot request lease. The to dismiss as Therefore, gesture. the court could not denied, because we find that under must be provide relief that effective in instance. no this case was under the facts of stay. a obligation to obtain Drivers, Similarly, in Highway Truck provisions the only note that two of We during pendency appeal, the of the the 363(m) Code, 11 Bankruptcy U.S.C. §§ Supreme state Court relieved the debtor of 364(e), party that a seek specifically require liability. Supreme all The state Court’s stay pending appeal.1 Appellee concedes a decision was not before this court. Be- 363(m) Bankruptcy does that of the Code § stay requested, cause no had been no relief assignments under apply to of leases granted. “To could be hold otherwise interpret the moot- decline to 365. We § nullify would allow the district court to would, in principles way in such a that ness retroactively validly a entered state court effect, par- a third situation where create thereby emasculating the funda- judgment, i.e., required stay, to seek a the ties are and comi- mental doctrines of federalism assignment leases under of While § Drivers, ty.” Truck 888 F.2d at Highway 363(m) provision requiring contains § present in concern is 299. No such case, applies in this stay, the section that judice. case sub 365, does not. § Highway In Truck both Cantwell beyond willing go to We have been Drivers, occurring during the the event and dismiss an statutory framework a decision of a pendency appeal of moot, where, penden appeal during the as imply only that an inter- court. We do not prevent events occurred cy appeal, vening appeal. will moot an judicial decree granting from effec ing appellate However, Highway in nor neither Cantwell Cantwell, See, 639 e.g., relief. In re tive intervening court Drivers was the Truck (3d Cir.1981); Highway In re F.2d 1050 Court, by this thus decision reviewable (3d Cir.1989). Drivers, 888 F.2d 293 Truck appellant obtain ef- neither case could the Cantwell, appealed an or the creditors relief in this forum. that dissolved a fective district court der faith, 363(m) good whether provides: or leased such § 1. 11 U.S.C. pending entity of the such knew of or not appeal an on The reversal or modification appeal, and such (c) unless such authorization (b) or under subsection authorization appeal. stayed pending sale or lease were property does of a sale or lease of this section 364(e) validity of debts Section concerns validity lease under sale or not affect 364(e). entity purchased § liens. 11 U.S.C. See authorization to an such hand, In the matter at there capital has been no by assuming assigning exec- intervening rights event that altered the of utory leases and contracts. See U.S.C. the Trustee Denney. vis-a-vis The action Ordinarily to obtain the Trustee claims to have mooted this permission court’s assign lease debt- case, i.e., assignment only provide or need assurance that appealed from, not the action and not the assignee perform will under the lease’s upon action we base our decision. 365(f)(2)(B). terms. See U.S.C. How- excisement of 20 is the ac- ever, Congress again in 1978 presently us, tion before and the Trustee placed additional assign- restrictions on presented has argument no to the effect ment of center leases in order to that that during issue has been mooted protect rights of the lessors and the pendency appeal. Thus, effective other S.Rep. center’s tenants. Nos. See granted relief can be this case.2 98-70, (1983). Cong. 98th 1st Sess. Con- instance, In this we find no event gress recognized that unlike the usual situ- during has pendency occurred ation where a lease assignment affects appeal Denney’s moot, appeal render nor lessor, shop- of a precluded are we from granting effective ping center to an party outside can relief. We find appellate that we have significant have a impact detrimental jurisdiction hear the ap- merits this others, particular, the center’s other ten- peal. Accordingly, what has been done can However, ants. Id. Code undone, necessary, if we can and will “shopping does not define center.” Rath- the bankruptcy reverse decision er, proper definition of this term “is hold unenforceable and to excise case-by-case left to interpretation.” In re n 20of the Lease. Brothers, Inc., Goldblatt 766 F.2d (7th Cir.1985). Shopping B. Center George Denney, Bankruptcy The imposes Code landlord of the Den- height- ney Block, ened on the wishes to assumption advantage restrictions take of assignment shopping heightened leases for these centers. in restrictions order to 365(b)(3).3 See 11 A assignment U.S.C. debtor in a block of the lease to Euro- bankruptcy proceeding can working pean Thus, raise Collections. appellant Denney essentially agreement 2. While we in proposition” be a inadequate support difficult analysis, dissent’s well-reasoned we differ as to for the dissent’s conclusion that our decision appropriate starting point inquiry. If undeniably will rescinding have the effect of analysis we assignment, started our with the lease. paragraph and not with excisement of we probably would reach the same result. How- Bankruptcy provision That Code addresses ex- ever, accept proposition we do that the ecutory unexpired pro- contracts and leases and assignment action at in this case is the issue part: vides relevant in Indeed, the lease. states that the (3) (1) purposes For the of this scope of is limited review to "whether the Bank- section, adequate per- assurance of future ruptcy authority Court has Paragraph to excise formance of a lease of real in a Denney 20 of the lease and whether the Block is shopping adequate center includes assur- shopping Appellant's a center." at Brief ance—(cid:127) we, opinion, Nor do in this "a overturn trans- (A) of the source of rent and other consid- consummated," long action that has since been lease; due under eration such ("dis. dissenting opinion op.”) at or "annul (B) any percentage that rent due under a entity transaction involves an over substantially; such lease will not decline jurisdiction.” which we op. do not have Dis. at (C) assumption assignment that or of such willingness 1095. We differ with the dissent's substantially any provi- lease will not breach draw factual concerning conclusions the effect sion, radius, location, decision, when, such as a use or light exclu- bankrupt- of this in lease, provision, cy sivity any financing in court's other decision to excise nei- agreement, bankruptcy agreement relating ther the opportunity or master nor district court had center; shopping question. to consider such The (D) par- assumption court’s observation that "[t]he of such apparently agreed accomplishing ties all disrupt substantially any lease will not tenant such a volume of sales in this would shopping time-frame mix or balance in such center. Denney “shop- comprise contends that the Block is and concluded the stores did not meaning ping shopping center” within the center. 365(b)(3). agree. We

U.S.C. § court utilized the determining correct criteria for what con However, agreed court a “shopping stitutes center.” The court’s Trustee, appellee, and found that physical focus on the attributes of the Den “shopping Block was not a center” Block, however, i.e., ney the fact that it 365(b)(3). meaning within the of 11 U.S.C. § typical was located on a “Main St.” in a Bankrupt The court looked to Collier district, downtown is not a factor laid out addressing question cy and two cases dispositive Code, as in Col particular arrangement of whether a treatise, or lier’s either of the above cited “shopping center” for stores constitutes any cases. Nor is there intrinsic sense to 365(b)(3). purposes of re See In Gold court’s conclusion that the Bros., Inc., 1136, 1140-41 blatt 766 F.2d Denney Block’s location makes it fall out (7th Cir.1985); Stores, Inc., In re 905 Int’l purview side the “shop of the definition of (E.D.Mo.1985). 57 B.R. 788-89 Both ping center.” The noted that “a appellate affirm bank of these decisions shopping brings center configu to mind a ruptcy court determinations that the re free-standing ration of stores which are not spective premises question were not or detached in the sense that appear stores “shopping centers.” typical shopping ‘Main St.’ downtown Goldblatt, although the court found district. shopping Such a downtown dis ownership contiguous par- common usually many trict is considered in commu cels, presence of an “anchor tenant” nities, (emphasis origi as the alternative (Goldblatt) joint parking off ad- street nal) center,’ i.e., archetypal ‘shopping to the jacent significant all stores was decid- large shopping enclosed mall.” Bank ing arrangement at whether issue was 218). ruptcy Opinion (Appendix Court center, shopping those were factors not While it is true that the mall is the arche persuaded determinative. court was center,” typal “shopping shopping all cen typical other indicia of absence of necessarily ters do not take the form of centers, i.e., a master fixed shopping malls. during open, hours all which the stores are only Location is one element in the joint advertising, common areas group determination a of of whether stores particularly whether the stores were devel- properly “shopping can a be described as oped shopping to be a center. 766 F.2d See However, significant center.” more at 1141. Collier, following criteria sketched in Int’l, court, in finding In 905 that the and 905 Int’l: Goldblatt arrangement at in that a issue case was not (a) leases; A combination of center,” “shopping impressed was (b) landlord; by single All leases held a interdepen- “the absence of contractual (c) engaged All in the tenants commer- among dence tenants.” 57 B.R. at 788. goods; cial retail distribution of case, Goldblatt, like also sets out That (d) presence parking The of a common determining objective several criteria area; arrangement “shopping whether an is a (e) purposeful development The of the center.” In addition to contractual interde- center; premises shopping as a pendence, these include the exist- factors (f) lease; The existence of a master clauses, percentage ence of rent anchor (g) during of fixed hours The existence clauses, joint to trash tenant contribution open; all stores are needs, contiguous group- and maintenance (h) joint advertising; of The existence stores, mix, a tenant and restrictive ing of pointed (j) interdependence of the Relying on the indicia Contractual clauses. Goldblatt, by restrictive found that one tenants as evidenced court leases; four, satisfied, joint advertising, provisions use their (k) percentage pro- The rent ley variety goods including existence of sells a of cloth- leases; linens,

visions in the ing, paper wall Jones New York clothing, sells men’s and women’s Benne- (l) right The of the tenants to terminate wear, sports ton sells Class Perfume sells leases if the tenant termi- their anchor lease; perfume Magic and Christmas sells Christ- nates its plot mas decorations ornaments. The (m) participation by tenants Joint plan Denney presented for Block was trash removal and other mainte- Freeport planning board as common nance; scheme. (n) mix; The existence of a tenant (o) contiguity The of the stores. The court that found there parking was no common because customers We think bankrupt do not that the shops of stores other than those in the cy gave adequate all court consideration to Denney parking Block use also lot located gave of the factors described above and directly parking behind it. That common weight testimony undue to the Denney available at Block is not obviat- Denney shopping Block does not look like a by according ed the fact that to local ordi- Appendix center. See public nance the must also have access to placed it what termed Hence, Denney that lot. Block satis- physical configuration” Denney “the fies, exception joint advertising, with the analysis, Block at the center of its id. at see the existence of a master lease and the physical find 219-20: “we that the charac right of a tenant to terminate the lease if preclude teristics of the Block its ” so, the anchor tenant does all of the criteria ‘shopping characterization as a center.’ determining “shop- what constitutes a Id. at 218. We are not that the convinced center,” ping impor- and all of the “most physical configuration by tant” characteristics listed Collier. Be- Indeed, plays prominent such a role. Col cause the court did not ade- important lier notes “the most charac quately consider each of the factors enu- teristic will be combination leases held reading merated above its of the Act was by landlord, single leased to commercial overly restrictive. goods, pres retail distributors of parking ence of a common area.” 2 Collier provisions of Section 365 are intend- ¶ Except for con 365.04[3]. remedy problems ed to three “serious above, tiguity of stores criterion listed shopping caused centers and their solvent appearance premises their location by tenants the administration of the bank- within a downtown district has (state- ruptcy Cong.Rec. code.” 130 S8891 not been cited as a factor in the determina Hatch, ment the Hon. Orrin G. a rank- group tion of whether stores is a ing majority member Senate Com- “shopping All center.” stores of Judiciary mittee on the and Senate con- Block, Denney except to the extent that feree), reprinted Cong. in 1984 U.S.Code areas, they separated by common are Congress & Admin.News wished contiguous. hardship to alleviate the caused landlord Moreover, George Denney is the resulting vacancy par- sole and tenant from Denney operation landlord of all the stores tial of space the debtor’s provide shopping Block. Those stores share and center. 365 Section also insures support for the maintenance of common that landlord will continue to receive all payments Finally, areas. The stores are retail distributors due under the lease. goods subject substantially guarantees of similar statute to the landlord and re- percentage maining leases which include both rent tenants that the mix tenant will provisions and for the substantially disrupted. clauses benefit of not be Each of type problems other tenants that restrict by these serious was faced Den- goods may ney that a tenant There remaining shops sell. is a and the after Joshua Slocum, Denney bankrupt. mix of tenants at Block. Cole Ltd. went We conclude footwear, primarily Haan in light sells Laura Ash- of the harms 365 Section 365(a)), remedy, application average intended to and after held that sales criteria, denying Denney paragraph relevant and clause in of all 20 of that lease unen- protections his tenants the of Section 365 forceable because it is not material or eco- congressional nomically significant would not further the will. to the landlord and/or landlord’s other tenants. The Additionally, legislative history granted court Trustee’s motion to assume briefly Reform Act of 1978 assign the lease and deleted the aver- “shopping of a cen- addresses the definition age Appellant, George sales clause. Den- ter.” ney authority takes issue with the court’s shopping carefully A center is often a to excise 20 of his leasehold planned enterprise, though it con- Slocum, with Joshua Ltd. -We shall defer tenants, individual sists numerous the issue of whether that clause was mate- unit, planned single center is as a often However, rial until later in our discussion. financing subject to a master lease or question we now turn our attention to the agreement. agreements, Under these authority to de- may mix in a center the tenant lete important as the actu- be as lessor Slocum, Paragraph 20 of Joshua- Ltd.’s promised payments, al rental because Denney provides lease at the Block as fol- higher patron- will attract certain mixes lows: center, thus, age of the stores sales”): higher Paragraph (“average rental for the landlord from per- to a subject

those stores that are Option to Terminate. In the event centage gross receipts agree- rental gross that Tenant’s sales for the first ment. (3) lease-years three of the term of this average Lease do not at lease Six Hun- 95-595, Cong., H.R.Rep. No. 95th 1st Sess. Fifty dred Thousand Seven Hundred (1977), reprinted in 1978 U.S.Code ($602,750.00)per 009/100 Dollars lease- (emphasis Cong. & Admin.News year, may either added). Landlord or Tenant Lease; elect to terminate this and in the Denney Block fits We think that gross event that Tenant’s sales for the Congress’ conceptualization within (6) lease-years first of the term of six the term “of- shopping center. The use of average Hundred this lease do not Seven quoted passage indicates ten” the above Forty Hundred Eleven Thousand Two that the existence of a master lease should ($711,- Dollars Five Dollars 00/100 analy- in this court’s not be determinative 245.00)per lease-year, either Landlord or “single sis. We also note that a unit” as Tenant elect to terminate this does not have to be an described above made, election if at Lease. Such must be as the enclosed mall all, party by notice to the other written it, properly would have but rather could (30) days thirty received within from the relatively of as a cluster of three conceived ac- receipt date of Landlord of the buildings Denney contiguous as described in Para- countant’s statement Block. hereinabove; 4(b) graph and termination Block is a We conclude (90) ninety days shall effective become meaning “shopping center” within the receipt after of such notice.... 365(b)(3) entitled 11 U.S.C. and should be Appendix at 15-16'. special protections. its to The court viewed this aver- Bankruptcy Court’s Power Ex- C. cleverly disguised age provision sales as 20 the Lease Paragraph cise clause. The court stated: anti-assignment by court, novel raised Perhaps in consider the most issue The Trustee, enforceability of the this motion is the ing the motion of the Melvin Lash which, Slocum, provision if en- Debtor, “minimum Joshua sales” ner to allow the forced, Denney to probably allow assign its store lease would Ltd. to assume July, If (see the Lease in Denney Block 11 terminate U.S.C. 1090 enforced, provision assignments non-shop- were with tions and

this EC of lease incorporate However, ping the Debtor’s sales center having to cases.5 as discussed 20,- 1989, above, through February “shopping record Block is a cen- thus, 365(f) obviously apply. value of the Lease would ter” and does not § $77,000 pay nominal. EC’s offer for court does have assignment an right to obtain waiving provi some latitude in contractual expressly predicated on its Lessee authorizing sions when a trustee to assume receiving right utilize the Debtor’s assign unexpired an lease. Section Freeport former store for at least the 365(b)(2)6 permits face its the court to remaining years four of the lease. It is ignore ipso so-called and forfeiture facto whether, certainly questionable clauses. of Nanuet, See In re TSWStores open could short time before EC Inc., (Bankr.S.D.N.Y. B.R. July, it could attain a store and 1983); Corp., In re Radio 19 B.R. 537 U.L. volume, when combined with the sales (Bankr.S.D.N.Y.1982). However, record, interrupted sales suffi- Debtor’s authority the strict en waive required cient to meet that as the mini- provisions in forcement of lease the context lease-years mum in the six first shopping center cases like this one is Debtor’s lease. qualified 365(b)(3) by further § Appendix (Bankruptcy Opin- Bankruptcy at 227 Court tightly Code.7 Even under the ion). premise Working “adequate from the that Den- drawn definition of assurance” center,” ney “shopping shopping context, Block is not a in the Congress center heightened court held that the compliance did not envision literal with all protection provisions; disruptions accorded to non-debtor contrac- lease insubstantial 365(b)(3)4 in, rights alia, mix, tual under of the Bank- tenant inter and insubstantial § ruptcy apply Code does not and turned agreements its breaches other leases or 365(f) dealing assump- contemplated attention to were allowed.8 U.S.C. lease, supra any pecuniary 4. See note 3. contract or actual default; party resulting loss to such from such provision provides part: 5. That in relevant (f)(1) (c) Except provided as subsection (C)provides adequate assurance of future section, notwithstanding provision this in an performance under such contract or lease. executory debtor, unexpired contract or lease of the (2) (1) Paragraph of this subsection does law, applicable prohibits, or apply to a default that is a breach of a restricts, assignment or conditions the of such provision relating to— lease, may assign contract or trustee such (A) insolvency or financial condition of (2) contract or lease under of this any closing debtor case; time before the subsection. (2) may assign executory trustee an con- (B) the commencement of a under case this unexpired tract or lease of the debtor title; or if— (C) appointment taking possession of or (A) the trustee assumes such contract or by a trustee in a case under this title or a provisions lease in accordance with the of this custodian before such commencement. section; and 365(b)(1), (2). U.S.C. (B) adequate perform- assurance of future assignee ance of such contract or lease supra language 7. See note 3 for the of this provided, whether or not there has been a provision. default in such contract or lease. Executory unexpired contracts leases. authority 8. The court’s to waive strict enforce (b)(1) provision has non-shopping If there been default in an exec- ment of lease in the utory or, unexpired permit contract or lease of debt- center cases will deviations which ex permitted the trustee not assume such contract ceed those center cases. unless, Radio, assumption or at the time of U.L. 19 B.R. 544. See also In re Ltd., Inc., (Bankr.S.D.N.Y. such contract or the trustee— Peterson’s 31 B.R. 524 cures, (A) 1983) (a provides, adequate change permit assurance in use was authorized to cure, promptly high that the trustee will de- of a so-called class tobacco such fault; shop assignee cigars); to an who sold discounted (B) compensates, (Bankr. provides adequate Originals, or as- In re Avenue 32 B.R. 648 Fifth S.D.N.Y.1983) (a promptly assumption assign surance that the trustee will com- lease pensate, party high-class boutique selling clothing a other than the debtor to such ment from a 365(b)(3)(C),(D); see also Radio centers in legislative U.L. is reflected histo- § 544; 537, Stores, B.R. Corp., 19 TSW 34 ry regarding 365(b)(3),which states: § B.R. 299. A shopping center is often carefully a case, however, In this planned enterprise, though it con- authority court did not have the to excise tenants, sists of numerous individual paragraph shopping 20 of the center lease planned unit, single center is as a often which addresses landlord and/or ten- subject to a financing master lease or option dependent upon ant’s to terminate agreement. agreements, Under these average generated by sales the tenant. mix shopping tenant in a center We note that even if the Block important be as to the lessor as the actu- center, shopping were not a promised payments, al rental because authority paragraph to excise 20 of higher certain mixes will patron- attract questionable. paragraph the lease is That center, age of the stores in the and thus conjunction paragraph must be read higher a rental for the landlord from percent rent clause of lease subject those stores that per- to a provides requiring a formula Joshua centage gross receipts agree- rental Slocum, pay percentage Ltd. to Thus, ment. in order to assure a land- specified any lease as amount excess bargained exchange, lord of his for gross designated sales threshold for court would have to consider such (See given lease-year Appendix pp. factors as the nature of the business to 3-4). together These two clauses taken by be conducted the trustee his as- clearly bargained indicate that a for ele- signee, whether complies that business tenant, ment in this contract was that Josh- requirements any master Slocum, Ltd., average ua a certain volume agreement, whether the kind of business specified paragraph of sales as 20 of the proposed generate gross will sales in an accurately lease that the Landlord could so percentage amount such that rent expected calculate the minimum total rent specified in substantially lease pursuant paragraph of the lease. alone, standing paragraph provided same as would Even 20 is an what have been bargained debtor, essential for element of this and whether the business agreement governs it occu- because proposed to be conducted would result in pancy. We also note that 20 of agree- breach of other causes master statutory meaning within the lease falls relating, example ments to tenant consideration due”9 under the of “other mix and location. lease, and without this clause the trustee Cong., H.R.Rep. No. 95th 1st Session give adequate could not assurance as to its 348-49, reprinted Cong. in 1978 U.S.Code performance. future 5963, 6305; & Admin.News S.R. see also Congress suggested has that the 95-989, Rep. reprinted No. in id. at contracting party’s rights modification of a Rather, lightly. is not to be taken bank excising ruptcy authorizing assumptions Congressional court undermined both unexpired leases must policy statutory requirement and the under rights be sensitive to the of the non-debtor 365(b)(3)(A) give the trustee ade- (here, contracting party George Denney) quate “other consideration assurance of policy requiring and the that the non-debtor We find unexpired due” under an lease. the full benefit of his or her bar receive have the that the court did not 537; gain. Corp., 19 B.R. See U.L. Radio authority paragraph 20 of the to excise of Nanuet, 34 B.R. 299. Con TSW Stores gress’ solicitous attitudes toward lease. 365(b)(3)(A), p. supra, for both sexes to Diane von 9. See 11 U.S.C. accessories

Furstenberg, designer offering women’s cloth- accessories, ing approved). 1092 Materiality

D. expectations parties. commercial of the average provision This sales is also reflec- Appellant takes issue with the tive of the economic terms of the lease bankruptcy para court’s conclusion that agreement governing occupancy. How- issue, graph 20 of the lease at allowing for ever, importantly, materiality most the termination of the lease either the significance economic paragraph 20 turn landlord, debtor-tenant, Denney or right on the fundamental to remain in or Slocum, Ltd., Joshua if certain minimum relationship. end a contractual realized, figure sales were not was not enforceable. bankruptcy Central to the average provision We find that the sales view court’s was the notion that unless the paragraph merely 20 was not inserted as landlord establishes that a leasehold is in a escape an hatch in the event that the loca- center,” “shopping such a restrictive clause unprofitable protection tion became for the is enforceable if the landlord is able to rather, particular of the tenant. But that establish that such terms are material and import clause is of financial to the landlord jeopardize position the economic of the insuring in occupancy by high volume landlord and/or the ten landlord’s- other sales, businesses, increasing viable thus court, bankruptcy working ants. The from percentage the rent received under the rent premise Denney that the Block is anot clause. paragraph The combination of center,” “shopping looked to case law inter 20 acts as a minimum in- preting 365 of the Code and guarantee come for the landlord. Certain- concepts “materiality distilled and ly nothing could be as material or economi- significance.” economic Those cases state cally significant to landlords as some mini- that [bankruptcy] “the court does retain positive mal assurance that there will be a determining some discretion in that lease return on their investments. The clause is provisions may ... still be refused enforce significant also as landlord well as the bankruptcy ment in a context other tenants because customers will be there no is substantial economic detriment per- attracted stores where business is shown, to the landlord which en conclude, booming. ceived as We there- preclude forcement would the bankruptcy fore, paragraph 20 is a material and eco- realizing estate from the intrinsic value of nomically significant clause the lease- Grocer, Inc., its assets.” In re Mr. 77 B.R. hold at issue. (Bankr.D.N.H.1987); see also In Inc., (Bankr. Hifi, re Tech 49 B.R. III. CONCLUSION D.Mass.1985). conclusion, having satisfied ourselves Again, disagreement we note our that appellate jurisdiction, we have we hold premise court’s Block, Denney contiguous group- that the “shopping Block is center” stores, ing subject heightened to the meaning 365(b)(3). within the of 11 U.S.C. § assumption assign- restrictions on the although We find ment of leases of real court was correct its reliance on those 365(b)(3). centers. See U.S.C. We context, legal precepts in this it was incor- find that the district court erred in affirm- facts, finding rect in that on these para- ing approval graph addressing right 20 of the assignment of the leasehold at issue with- parties to terminate the leasehold is clause, average out sales economically significant.” not “material or European Collections. logic That conclusion flies in the face of authority para- court did not simple have to excise average common sense. The graph provision governing a material provision sales of the lease is material in goes occupancy under very the sense that it to the terms the lease. essence contract, i.e., Therefore, bargained judgment we will vacate the ex- clause, change. This intended to the district court and remand to the district benefit tenant, the landlord nego- proceedings both and the court for further consistent length tiated at arms opinion. to accommodate the with this

1093 SLOVITER, Vac, Ltd., Judge, dissenting. (5th Cir.1980) Circuit 630 F.2d 245 (mootness 805, found under Rule predeces- majority’s plau- I would not reach the 363(m)). sor to agree section I with the sible view of the I merits because believe majority that we should not stretch the appeal I recognize that is moot. that language 363(m) of section so far. How- may a such determination let stand trial ever, I think well-established justi- rules of errors, byproduct but that inevitable ciability found in the cases of this court dismissing appeal of an order an as moot others, along particular need compulsion does not relieve us of the to finality bankruptcy, require that we longer restrain ourselves there is when no find the appeal completed of a assign- lease Moreover, a case to decide. this case the ment to a non-party moot appel- unless the majority’s ignore decision to the mootness sought has stay pending appeal. lant appeal overturns a transaction that long involving has since been consummated long This court has held in non-bankrupt- Thus, non-party, good-faith purchaser. cy challenges contexts that to transactions requirement that we refrain de- from approval consummated after the of a dis- ciding appeal this because of mootness is trict court if are moot has not policy places also the it better because sought stay of the transaction. In Brill consequences party on the that could have Enter., (3d v. General Indus. 234 F.2d 465 prevented by moving stay this situation to Cir.1956), plaintiff sought shareholders to during pendency the transaction of this enjoin corporation’s the sale of a assets on appeal. ground that the sale would violate the antitrust laws. The district court refused I am concerned that the decision of the grant injunction, to the sale was then majority proceed un to merits will consummated, plaintiffs appealed. We finality dermine the appeal held that was moot because assignments, which lower the value of sought by plaintiffs order was thereby “[n]o debtors’ estates and reduce the existing pending maintain the status their satisfy amount available to creditors. De appeal.” Id. at 469. the act errors, clining “[W]here to correct lower court when sought per- to be restrained has been result, against weighed this is less onerous. formed, appellate deny courts will re- Sax, (7th In re 796 F.2d 997-98 Cf. ground view on the of mootness.” Id. Cir.1986) (“At juncture, this it matters not [by whether authorization bank case, Our decision in a In re ruptcy or was correct incorrect. court] Cantwell, (3d Cir.1981), 639 F.2d 1050 re- proper procedures point is that the must be proposition lied on Brill for the challenge followed to an authoriza “where, pending appeal, an act or event tion....”). performed sought enjoined to be has been 363(m) occurred, provides appeal good-faith Section or has an from the denial purchasers protected injunction from the reversal will be dismissed as appeal of a sale or lease of moot.” Id. at 1054. We held that because stay pending appeal. sought stay 11 unless there is the creditors who 363(m) (1988). Although bankrupt’s discharge appeal the as- failed U.S.C. signment discharge, appeal of leases is covered section an from the district language dissolving stay 365 rather than and thus the court’s order was moot. 363(m), stated, governs only “[generally, appeal “au- of section which We will be [363(b) (c) thorization under of a sale or dismissed as moot when events occur dur- ] inapplicable, ing pendency appeal pre- property,” lease of is some 363(m) appellate granting any circuits have used section to hold vent the court from 1053; assignment of a lease moot as effective relief.” Id. at see also In that the Drivers, See, 888 F.2d 293 e.g., Manage- Highway well. In re re Truck Stadium (1st Cir.1990); (3d Cir.) (appeal grant relief Corp., F.2d 845 from from ment (9th Cir.1983); Exennium, supreme stay automatic mooted when state re 715 F.2d liability from Ass’n v. Lee- court order relieved debtor see also American Grain denied, Paragraph 20.” appellants), respect 490 U.S. to the excision of cert. (1989). added). Reply (emphasis 104 L.Ed.2d 185 Brief at 9 S.Ct. Thus, misleading “Den- majority apparently seeks to distin- it is to state that The assignment ney challenged Driv- has not the of guish Highway and Truck Cantwell on, alia, ground Maj.Op. in at The excision the that this the lease.” 1085. ers inter integral part the lease did not was an of the authorization. assignment case the of appeal. bankruptcy during pendency of the court concluded that with- occur the precise excising paragraph the Although at the out 20 “the value of Maj.Op. See 1085. obviously nominal,” assignment of the lease to Lease would be and date of the pay appen- European is not in the that Collection’soffer to European Collections dix, subsequent expressly clearly right to the the to obtain the lease “was it occurred Therefore, predicated receiving right bankruptcy decision. on its the to uti- court’s remaining for the technical distinc- lize the ... store for at least the there is no basis lease,” make, majority years seeks to and the four which it would be tion the unlikely to be to do if it had to meet Highway rationale of and Truck able Cantwell assign- paragraph the lease the of 20 based on the applies whether terms Drivers during period poor App. the brief sales record. at 227. ment occurred be- debtor’s bankruptcy court’s order and the tween the Moreover, practicalities the of the situa- court, ap- appeal during the district the to why paragraph tion make clear the issue court, during peal the district or this to 20 cannot be divorced from that of the appeal. assignment Paragraph lease. however, argues, provides gross that the that if the majority annual sales for $711,245, years average assignment of the lease “is not the action first six do not landlord, alia, upon appellant Denny, not the action the appealed from and inter Maj.Op. light at In which bases decision.” could terminate the lease. its] [it years majority poor during characterizes the issue sales the debtor its 1086. The narrowly power operation, as the the the court found that before us paragraph “a in bankruptcy court to excise 20 of new tenant the Debtor’s store would $400,000 compelled generate the lease. to about gross by July, sales 1989” to meet the Denney appeals is The order from which requirement paragraph App. at 213. affirming the court’s order the district continued, parties apparently It all “[t]he bankruptcy court’s final order titled “Order agreed accomplishing that such a volume Authorizing Application to As- Trustee’s of sales this time-frame would be a diffi- Lease,” Assign granted which sume any proposition for new store.” Id. cult assign to the trustee’s motion assume Although para- Although majority the excision of the asserts the lease. principal objection appeal require this us to reach graph appellant’s 20 is does order, appeal assignment, Maj.Op. the at to the court’s his issue of the Indeed, undeniably limited. in his initial brief 1086 n. its decision will have is not so fundamentally changing case “concerns the effect of the appellant states that this lease,” assumption assignment assignment thereby of a terms of the effec- tively rescinding assignee and he contends that Court it. The relied on entering authorizing just “erred its orders excision of as it assumption assignment assignment of a certain relied lease Denney’s Appel- general. Regardless appel- objections.” lease over of whether the response appel- challenges power 4. In lant authorize the lant’s Brief at strong argument appeal challenges assign- that the lee’s moot, appellant, apparent recognition it excluded ment because obligation argument, of the force of that retracted had to seek by arguing stay pending appeal prevent Den- the sub- somewhat “[e]ven if non-party on the bank- ny’s appeal respect is moot with to the stantial reliance of a ruptcy final order. assignment of the it is not moot with ground majority Kahihikolo, Another on which the court lift- distinguish seeks to Cantwell as well as stay ed an automatic and thereby permitted Highway Truck Drivers is that those repossess a creditor to the debtor’s automo- cases we were unable to bile, review inter- though even approved court had vening permitted court decisions that plan the debtor’s Chapter under 13 under moot, appeals actions rendered the which the creditor repaid would have been provide and thus we “could not effective in full. The appealed trustee lifting Majority Op. relief.” This rea- stay, the automatic but did not seek stay soning fails to account for our decision on court’s decision. The court Brill, in mootness a case where we had appeals of appeal ruled the moot because direct of review the district court decision creditor, the bankruptcy after the permitted which the consummated sales decision, sold the automobile. 807 F.2d at transaction that appeal. any mooted the 1541-42. event, I believe that High- Cantwell and Drivers, In Highway Truck we observed way analogs Truck are Drivers closer “[tjhere are in decisions other circuits this majority acknowledges case than the in which events not identified as requiring only way provide because we can relief a stay in the Code occurred here is to annul a transaction which in- while the stay automatic had been lifted entity volves an over which we not do have thereby rendering pending appeal jurisdiction. cases, majority The cites no moot.” 888 Among F.2d at 297. the cases none, and I have found in a which consum- we cited was Central States Pension non-party mated sale or to a Transp., Inc., Fund v. Central 841 F.2d 92 purchaser appeal. has been vitiated on (4th 1988), appeal Cir. an reorga of a where Moreover, majority’s in position is plan nization was held to be moot because position stark contrast to the this court has plan had been substantially implement necessity prevent taken stays on the of ed require and thus reversal “would undo mootness. We stated in Highway Truck ing financial involving transactions third that “in addition to Drivers those situa parties, participants litigation.” not in this 363(m) tions covered under 11 U.S.C. § Id. at court declined to do so when 364(e), myriad a of circumstances can implemen could have halted grant occur that would necessitate the aof by tation of the court decision stay pending appeal preserve in order to obtaining stay. party’s position.” 888 F.2d at 298. Those by means situations no limited to cases finality The need for of transactions in- intervening in which we could not review volving parties under- which general principle court decisions. It is a lay premise these decisions is also the be- obtained, stay when a law that is not 363(m). hind section That section “reflects prevailing party may judgment treat the salutary policy affording finality court as final. at district Id. 297-98. judgments approving sales in Drivers, In Highway Truck 888 F.2d at by protecting good purchasers, faith quoted length we from In re Kahi parties rely innocent third who on the final- (11th hikolo, Cir.1987) 807 F.2d 1542 ity bankruptcy judgments making curiam), (per which turn cited American finality their offers and bids.... Ass’n, (5th 630 F.2d 247 Grain Cir. reliability judicial sales enhance the 1980), that, proposition for the bankruptcy.” value of the assets sold in Management Corp., In re 895 Stadium stay, in the of a action of a absence impli- policy F.2d at 847. “This concern is character which cannot be reversed cated not when is sold to appeals may taken in court party option a lease or third but also when reliance on the lower court’s decree. As result, granted party to a third in reliance on an appeals may the court of be- powerless grant order of a court.” American come the relief re- Ass’n, quested by appellant. 630 F.2d at 248. Grain Moreover, York, general long predates Partnership rule Ltd. v. Bank New 363(m) (11th Cir.1988), predecessor, F.2d 1547 the court and its both section stated, Circuit, Eleventh like other Algeran, Rule As the court noted “[t]he circuits, recognized continuing has via Corp., 759 F.2d Inc. v. Advance Ross bility applicability of the mootness (9th Cir.1985), rule that failure “[t]he standard in situations than transfers other stay pending appeal to obtain a renders 363(b) (c).” by a trustee under Id. at originate in the Bank- issue moot did not (citations omitted). The found Rather, judicial ruptcy Rules. it is a doc- appeal liqui from the confirmation of a developed general trine from the plan though dation was moot even rule that the occurrence of events which governed by transaction was not section granting prevent appellate an court from 363(m). part relied in Miami Center moot, appeal effective relief renders Assoc., Massey Markstein v. 763 F.2d 1325 finality in particular need for orders (11th Cir.1985), where the court held that it regarding stays bankruptcy.” on the could rescind foreclosure sale European There is no contention that permitted property, debtor’s which was af good purchaser was not a faith Collections bankruptcy ter the court lifted an automat though purchased And it in this case. stay property ic because debtor purchased prop lease rather than or leased stay. did not The sale did obtain (which erty put would have it within sec 363(m), come under section but the court 363(m)), policy tion the same concerns are the “rule of nevertheless invoked law” that equally applicable assignments to lease powerless “a court is to rescind the sale on property. Assignment leases of to sales or 1327; appeal.” Id. at also In re see Sun is, all, simply purchase of a lease after Ranches, Inc., Valley 823 F.2d 1374- property, right of a to lease albeit not that (9th Cir.1987) (to general rule that European paid of the debtor. Collections stay pend “the debtor’s failure to obtain a right consideration for that substantial ing appeal appeal renders an moot after thepfinality reliance on sold,” are assets ... the court “carved out permit assignment. decision exception property a narrow ... where real premises It then moved into the and estab party is sold to a creditor who is a to the business, creating lished its the same re appeal”). pur if it or liance interest as had leased case, appellants op- In this had the property directly the land chased the from portunity stay pursuant to seek a to Bank- lord. thereby ruptcy Rule 8005 and halt may policy considerations have Similar European justi- transaction that Collections holding led to the decisions of those courts fiably final. The believed was court’s deci- 363(m) predecessor applicable its section today permit appellant sion will land- assignments. to lease See Stadium effectively European lord to evict Collec- (holding Management, 895 F.2d 848-49 occupied tions from the it has now stay appeal moot absence of after trust- for several months reliance on bank- ee, court, approval sold ruptcy court’s final order. The decision 363(b) pursuant debtor’s stadium to section signal purchasers will send a to future assigned the land debtor’s pur- assets from estates that their debtors’ 365); pursuant underneath it to section In long they chases be revoked after Exennium, (9th 715 F.2d re approval by receive Cir.1983)(assignment of lease could not be they placed and after have substantial re- voided because had not obtained finality approval. liance on the of that Ass’n, stay); see also American Grain lowering That can have the effect of 630 F.2d at 247-48. the value the debtors’ estate. See Sta- general principle appeals 847; Management, 895 F.2d at dium In re Sax, (7th Cir.1986). stay broadly moot in the absence of a 796 F.2d It applied effectively expands juris- orders other than this court’s also limits, beyond previous because of leases. Miami Center diction its today remedy the court fashions formerly power- ourselves

we considered I compel. Because believe the ma-

less

jority’s decision to overlook the mootness derogation

of the issue it reaches is prior precedent and is not consistent

our policy considerations that have

informed the Code and cases elsewhere, respectfully

here I dissent. BROWN,

Regina Administratrix Prosequendum

Administratrix Ad

the Estate of Debbie Evans

v. GRABOWSKI,

Detective Felix individual

ly police and as a officer of the Roselle Department, Jersey;

Police New Patrol Schwartz, individually

man William police

and as a officer of the Roselle Jersey; Department,

Police New Chief Trolan, individually and as

Vincent F. Department, of the Roselle Police

Chief Jersey; Depart

New Roselle Police

ment; Borough and The of Roselle. GRABOWSKI,

Appeal of Felix William

Schwartz, Trolan, F. and the Vincent Roselle, Appellants

Borough of in 89-

5487. BROWN,

Appeal Regina

Appellant in 89-5532. 89-5487,

Nos. 89-5532. Appeals,

United States Court

Third Circuit.

Argued Jan. 1990.

Decided Dec.

Rehearing Rehearing In Banc Denied

Jan.

Case Details

Case Name: In Re Joshua Slocum Ltd D/B/A Js Acquisition Corporation. Appeal of George Denney, Party in Interest

Court Name: Court of Appeals for the Third Circuit

Date Published: Jan 28, 1991

Citation: 922 F.2d 1081

Docket Number: 90-1072

Court Abbreviation: 3rd Cir.