NOT PRECEDENTIAL
`
`
`UNITED STATES COURT OF APPEALS
`FOR THE THIRD CIRCUIT
`_____________
`
`No. 21-2344
`_____________________________
`
`In re: PAZZO PAZZO INC; and BERLEY ASSOCIATES LTD., Debtors
`
`SPEEDWELL VENTURES LLC;
`
`v.
`
`BERLEY ASSOCIATES LTD, and PAZZO PAZZO INC;,
` Appellants
`v.
`
`62-74 SPEEDWELL AVE. LLC
`
`v.
`
`STEWART TITLE GUARANTY CO.
`______________
`
`On Appeal from the United States District Court
`for the District of New Jersey
`(D.C. No. 2:18-cv-15361)
`District Judge: Honorable Esther Salas
`______________
`
`Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
`September 22, 2022
`______________
`
`Before: AMBRO, RESTREPO and FUENTES, Circuit Judges
`
`(Filed: December 15, 2022)
`______________
`
`
`
`
`
`
`UNITED STATES COURT OF APPEALS
`FOR THE THIRD CIRCUIT
`_____________
`
`No. 21-2344
`_____________________________
`
`In re: PAZZO PAZZO INC; and BERLEY ASSOCIATES LTD., Debtors
`
`SPEEDWELL VENTURES LLC;
`
`v.
`
`BERLEY ASSOCIATES LTD, and PAZZO PAZZO INC;,
` Appellants
`v.
`
`62-74 SPEEDWELL AVE. LLC
`
`v.
`
`STEWART TITLE GUARANTY CO.
`______________
`
`On Appeal from the United States District Court
`for the District of New Jersey
`(D.C. No. 2:18-cv-15361)
`District Judge: Honorable Esther Salas
`______________
`
`Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
`September 22, 2022
`______________
`
`Before: AMBRO, RESTREPO and FUENTES, Circuit Judges
`
`(Filed: December 15, 2022)
`______________
`
`
`
`
`
`OPINION*
`______________
`
`
`RESTREPO, Circuit Judge
`
`
`
`Appellants Pazzo Pazzo, Inc. (“Pazzo”) and Berley Associates, Ltd. (“Berley”)
`
`(collectively “Debtors”) appeal the District Court’s order affirming the Bankruptcy Court’s
`
`judgment for Appellees Speedwell Ventures, L.L.C. (“Speedwell”) and 62-74 Speedwell
`
`Ave. LLC (“62-74 Speedwell”). The Bankruptcy Court ruled Pazzo’s lease and Berley’s
`
`option to repurchase the Property were validly terminated, and the termination of the option
`
`was not a “transfer” under the Bankruptcy Code. Because we agree with these rulings, we
`
`will affirm the District Court.
`
`I.
`
`Facts and Procedural History
`
`Berley owned a parcel of land and building in New Jersey known as 62-74
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`Speedwell Avenue (the “Property”). Berley leased the Property to Pazzo, who operated a
`
`restaurant on the Property for over twenty years. Following financial difficulties, Berley
`
`filed for Chapter 11 bankruptcy in 2012, resulting in a confirmed plan reorganization.
`
`Berley’s reorganization plan called for a sale of the Property to a secured creditor,
`
`who ultimately assigned its rights to Speedwell. The plan provided that Pazzo sign a new
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`ten-year lease, which granted Berley the option to repurchase the Property. The option
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`rights had to be exercised before the end of the ten-year lease or thirty days after
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`termination of the lease and Pazzo’s tenancy, whichever occurred first. The lease stipulated
`
`
`* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
`constitute binding precedent.
`
`
`
`2
`
`
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`that Speedwell could terminate the lease “not less than ten (10) days” after it gave Debtors
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`a termination notice. After the ten days had passed, Speedwell could serve Debtors an
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`option notice, demanding that Debtors exercise their option rights within the next thirty
`
`days.
`
`From April 2017 to August 2017, Speedwell issued four notices to Debtors: the
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`April notice warning of the possible termination of the lease and service of the option
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`notice; the June 9 notice serving as both the termination notice for “abandonment, vacation,
`
`or desertion,” and the option notice demanding Debtors exercise their right to repurchase
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`within thirty days; and the August 1 and 16, 2017 notices informing Debtors their option
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`rights had lapsed and that Speedwell was filing to discharge the option in the County
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`Clerk’s office. Debtors met each of these notices with “radio silence.”1 On August 18,
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`2017, Speedwell filed the discharge, and sold the Property to 62-74 Speedwell on February
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`16, 2018.
`
`On February 23 and 28, 2018, Debtors filed Chapter 11 petitions and listed both the
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`lease and option to repurchase the Property in their asset schedules. Following a bench
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`trial, the Bankruptcy Court ruled the lease had been terminated for abandonment and
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`vacation on or before June 9, 2017, and the option to repurchase was terminated as of
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`August 1, 2017. The Court also found the termination of the lease and option were not
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`“transfers” under § 548(a)(1)(B) of the Bankruptcy Code and therefore could not be
`
`
`1 The “one exception” to this “radio silence” was a June 2017 meeting between Mr.
`Lawrence Berger, counsel for Debtors, and Mr. Jack Zakim, an escrow agent for
`Speedwell. Despite Mr. Berger stating he “would fight” for the Property, no promises were
`made that Debtors would satisfy their unpaid bills on the Property.
`
`
`
`3
`
`
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`recoverable as fraudulent conveyances. Debtors appealed this decision to the District
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`Court, which affirmed.
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`In their reply brief to the District Court, Debtors argued for the first time that
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`Speedwell’s June 9 option notice was invalid because the same document also served as
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`the notice of lease termination. Under the terms of the lease, Speedwell could serve the
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`option notice only after the lease had been terminated, which could occur - at the earliest -
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`ten days after the notice of lease termination was issued. Debtors claimed the option notice
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`was premature and therefore invalid under the terms of the lease. The District Court
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`deemed this argument waived and did not address the merits. Debtors timely appealed to
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`this Court.
`
`II.
`
`Jurisdiction and Standard of Review
`
`The Bankruptcy Court had original jurisdiction under 28 U.S.C. §§ 157(b) and
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`1334(b), and the District Court exercised appellate jurisdiction under 28 U.S.C. § 158(a).
`
`We have jurisdiction under 28 U.S.C. §§ 158(d) and 1291.
`
`“Because the district court sat as an appellate court reviewing an order of the
`
`bankruptcy court, our review of its determinations is plenary.” In re Trans World Airlines,
`
`Inc., 145 F.3d 124, 130 (3d Cir. 1998) (internal quotation marks omitted). “In reviewing
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`the bankruptcy court’s determinations, we exercise the same standard of review as the
`
`district court.” Id. Thus, “we review the bankruptcy court’s legal determinations de novo,
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`its factual findings for clear error and its exercise of discretion for abuse thereof.” Id. at
`
`131.
`
`
`
`
`
`
`
`4
`
`
`
`III. Discussion
`
`We will affirm the Bankruptcy Court’s ruling that the lease and option to repurchase
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`were validly terminated. The District Court acted within its discretion in deeming the
`
`challenge to the validity of the option notice waived, but we conclude that, even if
`
`addressed on its merits, the argument does not warrant relief. Lastly, we agree with the
`
`Bankruptcy Court that the termination of the repurchase option did not constitute a
`
`“transfer” under the Bankruptcy Code.
`
`a. Termination of the lease and repurchase option.
`
`The Bankruptcy Court ruled the lease was terminated for abandonment and vacation
`
`no later than June 9, 2017, and the repurchase option was terminated as of August 1, 2017;
`
`the District Court affirmed these findings. Debtors claim this decision is unsupported by
`
`fact and law. We disagree.
`
`Under the terms of the lease, Speedwell could terminate for “abandonment, vacation
`
`or desertion” of the Property. The Bankruptcy Court properly defined abandonment as an
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`“act accompanied by an intent to abandon,” and vacation as “depriv[ing the premises] of
`
`contents of ‘substantial’ value.” Liqui-Box Corp. v. Estate of Elkman, 570 A.2d 472, 476–
`
`77 (N.J. Super. App. Div. 1990).2
`
`The Bankruptcy Court did not err in finding the totality of the circumstances
`
`established Debtors’ intention to abandon the Property. United States v. Green, 201 F.3d
`
`
`2 Because there is no dispute that New Jersey law governs in this case, we do not question
`its application. Transportes Ferreos de Venezuela II CA v. NKK Corp., 239 F.3d 555, 560
`(3d Cir. 2001).
`
`
`
`5
`
`
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`251, 256 (3d Cir. 2000) (endorsing totality of the circumstances approach to discern intent
`
`because “it must be inferred from all facts and circumstances[,]…including subsequent
`
`conduct”). Debtors’ “radio silence” following all four of Speedwell’s notices warning of
`
`the lease and repurchase option’s termination indicated their intent to abandon the Property.
`
`This silence in conjunction with the pre-June 2017 conditions of the Property—unpaid
`
`taxes and utility bills, lapsed liquor and food licenses, nonexistent employment force,
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`multiple maintenance issues, suspended website, and no security system—provided ample
`
`grounds for the finding that Debtors intended to vacate the premises. The removal of all
`
`inventory and liquor, resulting in a “cessation of business” with “no employees or
`
`customers,” effectively “deprived [the Property] of contents of ‘substantial’ value.” Liqui-
`
`Box Corp., 570 A.2d at 477. Given these circumstances, the ruling that the lease was
`
`terminated for abandonment and vacation is proper.3
`
`The Bankruptcy Court relied on this evidence to find the June 9 notice served as a
`
`valid notice of the repurchase option, which enabled its finding that the option was
`
`terminated as of August 1, 2017. The Court found it relevant, and we agree, that Debtors
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`“knew Speedwell considered the lease and the option to be terminated” but yet “said
`
`nothing.” The absence of response or action by Debtors for months, making no claim of
`
`any right to the Property until filing their bankruptcy petitions in February 2018 supports
`
`the Court’s finding that the repurchase option was validly terminated.
`
`
`3 As for termination of Pazzo’s tenancy, the Court found that “once the lease was
`terminated so was the tenancy” because New Jersey law does not require a judgment of
`possession to terminate a tenancy for abandonment. See N.J.S.A. § 2A:18-55.
`
`
`
`6
`
`
`
`b. Validity of option notice.
`
`Debtors challenged this finding for the first time in their reply brief to the District
`
`Court, arguing that deeming the option validly terminated is inconsistent with the lease’s
`
`requirement that Speedwell wait at least ten days from the lease’s termination before
`
`serving the option notice. Debtors raise this argument again on appeal to this Court. They
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`claim that, if the lease was terminated on or before June 9, 2017, the earliest Speedwell
`
`could have issued the option notice was June 19, 2017. Debtors claim the allegedly
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`premature option notice of June 9, 2017 rendered the termination of the repurchase option
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`invalid.
`
`Initially, the District Court did not abuse its discretion in finding this meritless
`
`argument waived. In re Trans World Airlines, 145 F.3d at 132–33 (reviewing for abuse of
`
`discretion district court holding that argument was waived on appeal). Ruling that Debtors
`
`waived the argument by raising it for the first time in their reply brief was consistent with
`
`governing law. See Issa v. Sch. Dist. of Lancaster, 847 F.3d 121, 139 n.8 (3d Cir. 2017)
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`(noting argument could be considered waived for being raised in reply brief).
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`Regardless, this argument does not merit relief. Under New Jersey’s “adaptabl[e]”
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`equity principles, Debtors’ failure to prove that Speedwell’s “slight[ly]” premature option
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`notice caused them prejudice is fatal to their claim. Sosanie v. Pernetti Holding Corp., 279
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`A.2d 904, 907–08 (N.J. Ch. Div. 1971). Fairness dictates that the absence of allegations
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`of hardship or prejudice by Debtors renders the termination of the repurchase option valid.
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`See Brick Plaza, Inc. v. Humble Oil & Ref. Co., 526 A.2d 1139, 1140 (N.J. App. Div. 1987)
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`(“equity…intervened to mitigate” against strict adherence to contractual language when
`
`
`
`7
`
`
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`tenant’s slight delay in giving notice caused landlord no prejudice). Debtors maintained
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`“radio silence” after receiving Speedwell’s June 9 notice and made no attempt to exercise
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`their option rights or lay claim to the Property prior to filing their bankruptcy petitions in
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`February 2018. Because Debtors were not “disadvantaged” by Speedwell’s failure to
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`strictly adhere to the lease’s contractual language, “no discernable purpose” is served by
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`invalidating the option’s termination. Goodyear Tire & Rubber Co. v. Kin Properties, Inc.,
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`647 A.2d 478, 481, 484 (N.J. App. Div. 1994). We affirm the finding that the option was
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`terminated as a result of the June 9 notice.4
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`c. Termination of option is not a “transfer” under bankruptcy code.
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`Lastly, Debtors claim the District Court erred in finding the termination of the
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`option was not a “transfer” under § 548(a)(1)(B) of the Bankruptcy Code. This finding
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`precluded Debtors from seeking recovery of the repurchase option as a fraudulent
`
`conveyance. No error occurred.
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`We review de novo the question of whether the termination of the option constitutes
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`a “transfer” under the Code. Section 548 allows a debtor to avoid a transfer of a property
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`interest occurring within two years before the filing of a bankruptcy petition in the event
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`of actual or constructive fraud, but the provision “aims to make available to creditors” these
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`interests. In re Fruehauf Trailer Corp., 444 F.3d 203, 210 (3d Cir. 2006).
`
`
`4 New Jersey’s “common sense” doctrine of de minimis non curat lex, or it is too small a
`thing to take notice of, likewise supports our finding. Schlichtman v. New Jersey Highway
`Auth., 579 A.2d 1275, 1279 (N.J. Super. Ct. Law. Div. 1990) (citing Moffet v. Ayres, 3
`N.J.L. 655 (N.J. 1810). No “injustice has been done” to Debtors as a result of Speedwell’s
`noncompliance, let alone “trifling or immaterial damage[.]” Id. at 1280.
`
`
`
`8
`
`
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`Leaving aside the issue of fraud, the District Court correctly found the option to
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`repurchase the Property to be a future contingent interest protected under the Bankruptcy
`
`Code.5 In so doing, the Court concluded that Debtors’ failure to convert this contingent
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`interest into actual ownership did not amount to “dispos[ing] of or part[ing] with” their
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`protected interest in the Property. See § 548(a)(1)(B). Simply put, Debtors did not transfer
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`their option rights to Speedwell but rather “failed to pursue a business opportunity” by
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`allowing their interest in potential ownership to lapse. Debtors made no prepetition
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`attempts to exercise their option rights, which meant any interest in the Property no longer
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`existed when they filed for bankruptcy. We do not endeavor to “threaten the rule that the
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`[debtor’s] estate can take only what the debtor possessed before filing.” Mission Prod.
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`Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652, 1663 (2019). Here, Debtors did not
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`possess the option they failed to pursue, and the termination of the option did not constitute
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`a “transfer” under the Bankruptcy Code’s § 548(a)(1)(B). 6
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`IV. Conclusion
`
`For the reasons outlined above, we will affirm the order of the District Court.
`
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`5 See Bright v. Forest Hill Park Dev. Co., 31 A.2d 190, 198 (N.J. Ch. 1943) (holding option
`to purchase as future interest, not present ownership); In re Majestic Star Casino, LLC, 716
`F.3d 736, 750 (3d Cir. 2013) (“Congress has generally left the determination of property
`rights in the assets of a bankrupt’s estate to state law.”) (finding future interests protected
`under Bankruptcy Code).
`
` This conclusion also supports the Code’s “stringent” limit on allowing debtors to use §
`548(a) “to unwind pre-bankruptcy transfers.” Mission Prod. Holdings, 139 S. Ct. at 1663.
`
` 6
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`
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`9
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