In re: Telephone Warehouse Inc v. Ltcw Trust, Successor To the

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-1616
IN RE: TELEPHONE WAREHOUSE INC.,
Debtor
NEXTEL RETAIL STORES INC.
v.
LTCW TRUST, SUCCESSOR TO THE DEBTORS
U.S. TRUSTEE,
Trustee
LTCW Trust, Successor to Let's Talk Cellular & Wireless, Inc.,
Telephone Warehouse, Inc., Cellular Warehouse, Inc., Cellular USA,
National Cellular Incorporated, and Sosebee Enterprises, Inc.,
as debtors and debtors in possession,
Appellant
Appeal from the United States District Court
for the District of Delaware
(D.C. Civil No. 02-cv-01251)
District Judge: Honorable Joseph J. Farnan, Jr.
Argued January 26, 2005
Before: SCIRICA, Chief Judge, RENDELL and FISHER, Circuit Judges.
(Filed February 15, 2005)

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Glenn M. Kurtz [ARGUED]
White & Case
1155 Avenue of the Americas
New York, NY 10036
Jeffrey M. Schlerf
The Bayard Firm
222 Delaware Avenue
P.O. Box 25130, 9th Floor
Wilmington, DE 19899
John K. Cunningham
Scott A. Griffin
White & Case
200 South Biscayne Boulevard
Suite 4900
Miami, FL 33131
Counsel for Appellant
Curtis J. Crowther
Young, Conaway, Stargatt & Taylor
1000 West Street, P.O. Box 391
17th Floor, Brandywine Building
Wilmington, DE 19801
Fordham E. Huffman [ARGUED]
Jones Day
P.O. Box 165017
Columbus, OH 43216-5017
Mary E. Tait
Jones Day
325 John H. McConnell Boulevard
Suite 600
Columbus, OH 43215-2673
Counsel for Appellee

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OPINION OF THE COURT
RENDELL, Circuit Judge.
Appellant LTCW Trust (“Trust”), successor to the Debtors in the underlying
bankruptcy proceeding, appeals the District Court’s reversal of the Bankruptcy Court’s
grant of summary judgment to the Trust. The Trust’s principal argument is that the
District Court erred in ruling that the Bankruptcy Court could use its equitable power to
avoid a contractual deadline on Appellee Nextel’s right to exclude certain short-term
leases from a sale of substantially all the Debtors’ assets and demand the release of
escrow funds where Nextel was late in providing notice of which leases it wanted to
exclude from the sale and in making the demand on the escrow agent. The Trust
characterizes the disputed contract provision as an “option” that must be strictly enforced,
whereas Nextel characterizes enforcement of the provision as effecting an inequitable
“forfeiture.”
The District Court had jurisdiction to hear an appeal from the Bankruptcy Court
pursuant to 28 U.S.C. § 158(a). We have jurisdiction over this appeal pursuant to 28
U.S.C. § 158(d). Because we conclude on the facts in this case that the Bankruptcy Court
cannot use its equitable power to avoid a clearly enforceable contractual term, we will
vacate the District Court’s order and remand to the Bankruptcy Court for further
proceedings.

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I.
As we write solely for the parties, and the facts are known to them, we will discuss
only those facts pertinent to this appeal. This matter arises from the sale by the Debtors
of substantially all of their assets to Nextel. To transact the sale, the parties executed an
Asset Purchase Agreement, an Escrow Agreement, a Letter Agreement (dated February 1,
2001), and an Amendment to the Letter Agreement (dated April 27, 2001). Under the
terms of the Asset Purchase Agreement and the Escrow Agreement, $3.2 million (10%)
of the $32 million purchase price for the Debtors’ assets was to be retained in escrow
with the Bank of New York (“escrow agent”) after closing to secure the Debtors’ post-
closing obligations. Under the terms of the Escrow Agreement, Nextel was required to
give written notice to the escrow agent “not later than ninety (90) days” from the closing
date if it sought disbursement from the retained funds.
The retained escrow funds were intended to secure the Debtors’ obligation under
the Letter Agreement to assign certain short-term leases to Nextel with extensions or
renewals of at least one year. The Letter Agreement, as modified by the April 27, 2001
Amendment, provided:
1. If Seller is unable to assign a Short-Term Lease to Purchaser on or
before the date which is 90 days after the Closing Date together with an
extension or renewal of the lease term of at least one year (but no more than
three years) from the expiration date set forth in such Short-Term Lease with
an Acceptable Modification, as defined in paragraph 3 below, then Purchaser
may elect in writing (the “Notice”) within ten ninety days from the Closing
Date to treat such Short-Term Lease as an Excluded Asset under the
Agreement (an “Excluded Lease”) and to recover from the Indemnity Escrow

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Funds an amount equal to $125,000 for such Excluded Lease (the “Lease
Agreement”), in accordance with the terms of Article VIII of the Agreement
and the Escrow Agreement.
2. If Purchaser elects to treat a Short-Term Lease as an Excluded Lease
and receive a Lease Adjustment, Purchaser covenants and agrees that, for a
period of one year from the Closing Date, Purchaser and its Affiliates shall not
own, lease, or operate (directly or indirectly) any retail or commercial facility
at or within the shopping center or mall in which such Excluded Lease is
located
(Letter Agreement, app. at 117a; Amendment to Letter Agreement, app. at 122a (strike-
through indicates omission, double-underline indicates addition).) In short, under the
Letter Agreement, if the Debtors were not able to assign a short-term lease with an
extension or renewal to Nextel by ninety days after the closing date, Nextel could notify
the Trust that it wished to exclude the lease from the sale and recover $125,000 per lease
from the retained escrow funds, but Nextel would then be barred from opening a facility
in the same shopping complex for a year. Under another provision of the Letter
Agreement, Nextel could recover from the escrow funds any rent increases of greater than
10% for the leases the Debtors were successful in assigning.
According to the affidavit of Rand S. Bailin, then Director of Strategic Planning in
charge of negotiating the transaction between Nextel and the Debtors, at closing on May
1, 2001, Bailin informed a representative of the Trust that Nextel intended to make an
immediate demand on the escrow agent for a disbursement of funds for certain leases
Nextel wished to exclude from the asset purchase. As the Debtors desired “the
opportunity to continue negotiating with the landlords in order to try to arrange lease

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extensions that would be acceptable to Nextel” and “the Parties were in the process of
ongoing negotiations at that time concerning the extensions of certain of the Short-Term
Leases,” Bailin “agreed to wait to make a demand until a final refund amount could be
determined.” (Bailin Aff. ¶ 10, at 134a.)
By July 30, 2001, the Debtors had not obtained the desired extensions of the short-
term leases. According to Bailin, the representative for the Trust telephoned him and
“requested that [they] negotiate a further amendment to the agreements so that [the
Debtors] would have additional time to negotiate extensions of the remaining Short-Term
Leases.” (Bailin Aff. ¶ 13, at 134a.) They “discussed the best way to give the Debtors
additional time to perform. In the end, the decision was made to give notice to the
Escrow Agent of a demand for disbursement in an indefinite amount. Nextel agreed to
allow the Debtors to continue negotiations with the lessors, in an attempt to complete
their performance under the Asset Purchase Agreement.” (Id.) Nextel has not argued
that, in this conversation or otherwise, the Letter Agreement was ever modified, nor has it
contended that any assurances were ever given upon which a claim of promissory
estoppel could be based.
Nextel gave a general notice of a desire to draw on the escrow on July 31, 2001. It
did not state that it desired to exclude any leases from the transaction. On August 23,
2001, the Trust made a demand on the escrow agent for a disbursement of the remaining
escrow funds, claiming that Nextel gave its notice a day late, i.e., on the 91st day after

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closing. The next day, Nextel made a demand on the escrow agent for a disbursement of
$1,625,000, corresponding to the non-assignment of thirteen (13) leases, and $77,858,
corresponding to rent increases of greater than 10% in leases that were assigned. The
Trust filed an action against the escrow agent to compel disbursement, and Nextel
intervened and opposed the disbursement, claiming it was entitled to $2.2 million of the
funds for the short-term leases as to which extensions had not been obtained.
Before the Bankruptcy Court, Nextel argued that the Court could use its equitable
power to disregard the fact that Nextel provided notice one day late as the escrow was
meant to secure the Debtors’ obligation and the forfeiture the day’s delay would work on
Nextel would be inequitable given the circumstances. The Bankruptcy Court, however,
concluded that even as a court of equity it did not have the power “to ignore the parties’
contractual agreements,” and “under the strict terms of the escrow agreement,” the escrow
agent was obligated to disburse the funds to the Trust. (Oral Dec. of Bankr. Ct., app. at
720a.) The obligation to pay funds to Nextel rather than to the Trustee would only arise if
leases had been excluded.
Nextel appealed this ruling to the District Court. Under a plenary standard of
review, the District Court concluded that the Bankruptcy Court could exercise its
equitable power “to avoid working an unfair forfeiture on Nextel.” The District Court
found that: (1) Nextel had substantially performed its obligations under the agreements
and continually cooperated with the Trust by granting it additional time; (2) there was no

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evidence that the one day delay worked any prejudice on the Trust; and (3) the
circumstances of the case indicated that Nextel worked cooperatively and in good faith in
providing several extensions. Therefore, “strict compliance with the terms of the Escrow
Agreement was not necessarily required, and . . . the Bankruptcy Court should have
considered the application of equitable principles to avoid effectuating a forfeiture on
Nextel.” (Dist. Ct. Op., app. at 21a.)
II.
“Although this Court’s jurisdiction is over the decision of the District Court, 28
U.S.C. § 158(d), ‘review of the District Court’s decision effectively amounts to review of
the bankruptcy court’s opinion in the first instance.’” In re Integrated Telecom Express,
Inc., 384 F.3d 108, 118 (3d Cir. 2004) (quoting In re Hechinger Inv. Co. of Del., 298 F.3d
219, 224 (3d Cir. 2002)). Therefore, “[i]n undertaking our review, we stand in the shoes
of the district court, applying a clearly erroneous standard to the bankruptcy court’s
findings of fact and a plenary standard to that court’s legal conclusions.” In re Krystal
Cadillac Oldsmobile GMC Truck, Inc., 142 F.3d 631, 635 (3d Cir. 1998).
III.
As noted above, the principal issue on appeal is the District Court’s conclusion that
the Bankruptcy Court could use its equitable power to avoid the effect of Nextel’s late
notice to the escrow agent and its late notice that leases were intended to be excluded.
We agree with the Bankruptcy Court’s initial conclusion on this matter, i.e., that even as a

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court of equity, on the facts of this case, it was without power “to ignore the parties’
contractual agreements.” The clear terms of the parties’ agreement, specifically, the
Letter Agreement, as modified by the April 27, 2001 Amendment, required Nextel to
exclude leases within ninety days from the closing date. The parties agree that this term
was not amended, despite some discussion on July 30, 2001 regarding another extension
of time.
Although the District Court held, and Nextel argues, that the Bankruptcy Court can
use its equitable power to avoid effecting a forfeiture on Nextel and grant a windfall to
the Trust for leases it did not satisfactorily extend, we believe that there is no room for
equity to interfere with the unambiguous and enforceable terms to which the parties have
agreed to be bound. See In re 1616 Reminc Ltd. Partnership, 13 B.R. 948, 951 (Bankr. D.
Va. 1981) (“[T]he parties are bound as to those matters which they, by mutual agreement,
express in the terms and conditions of a written agreement entered into freely by them.
To allow [the defendant] to receive the funds in the escrow account under a forfeiture
theory ‘would result in effectively nullifying the specific agreement of the parties.’”)
(quoting Melfi v. Goodman, 388 P.2d 50, 52 (N.M. 1963)). Without passing upon
Nextel’s characterization of the situation as a “forfeiture” (as to which no evidence was
offered in the Bankruptcy Court) or the Trust’s construction of the term as an “option,”
we conclude that, as a matter of contract law, the parties have pointed to nothing that
would justify a modification of their agreement, and the Bankruptcy Court’s equitable

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1In light of our ruling, we need not address the Trust’s argument that the District Court
erred in denying it leave to supplement the record to clarify alleged misstatements of fact
by Nextel regarding the amount of escrow funds to which it is entitled.
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power cannot be invoked to avoid the agreement’s otherwise enforceable terms.1
IV.
Accordingly, we will VACATE the District Court’s order reversing the
Bankruptcy Court’s grant of summary judgment to the Trust, and we will REMAND to
the Bankruptcy Court for proceedings consistent with this opinion.

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