ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY - NEWARK, D.C. Civil No. 85-3959.
Before: GIBBONS, WEIS, and SLOVITER, Circuit Judges.
The Briarcliff, a limited partnership debtor in reorganization under Chapter 12 of the Bankruptcy Act of 1898, 11 U.S.C. §§ 1-151362 (1982 & Supp. III 1986), appeals from an order of the district court, which affirmed an order of the bankruptcy court denying its motion to compel the Federal Deposit Insurance Corporation (FDIC) to pay over to it $2,041,981. This amount represented part of the proceeds of a real estate sale. The bankruptcy court and the district court held that under the terms of a contract between the Briarcliff and the FDIC the latter was entitled to the $2,041,982. We affirm.
Prior to filing its petition for a real property arrangement under Chapter 12 of the Bankruptcy Act of 1898, the Briarcliff owned a 30-story luxury rental apartment building in Cliffside Park, new Jersey. A first mortgage on that building was held by the FDIC in the principal amount of $13,450,000. In 1977 the mortgage fell into default, and the Briarcliff filed its Chapter 12 petition. Appellant's Appendix at 156-57, P4. Negotiations between the Briarcliff and the FDIC concerning a mutually acceptable arrangement followed, during which it became apparent that it would be necessary to convert the rental apartment building into a condominium or cooperative. Ultimately, 250 Gorge Road Realty Corporation (Gorge) was designated to purchase the building and convert it to cooperative ownership. On September 1, 1982, two contracts were entered into reflecting the arrangements between the Briarcliff, the FDIC and Gorge. By then the Briarcliff owed the FDIC $13,450,000 in principal and $5,897,740 in interest secured by the FDIC mortgage -- a total of $19,347,740.
One agreement between the Briarcliff and the FDIC is designated the Settlement Agreement. Appellant's Appendix at 77-114. In it the FDIC agrees that its mortgage could be satisfied in one of three manners:
On or before the date fixed for CLOSING, the Briarcliff shall either (a) pay and satisfy to the FDIC the full SETTLEMENT in the manner set forth in Article 1 of this Agreement; or (b) pay and satisfy the principal of the MORTGAGE and all interest accrued thereon; or (c) cause the FDIC to be vested with good and marketable title to the PREMISES free and clear of all liens and encumbrances.
Article 13 of Settlement Agreement, reprinted in Appellant's Appendix at 98-100. The SETTLEMENT referred to, defined in Article 1 of the Agreement, obliged the FDIC to accept at CLOSING $20,300,000, payable in various forms and over time, in full settlement of its MORTGAGE.*fn1 Thus, the SETTLEMENT figure exceeded the amount due to the FDIC as of September 1, 1982, by $952,260. The Settlement Agreement also provides:
During the term of the within Agreement, all net operating cash flow of the PREMISES shall be paid and delivered to the FDIC and said sums as well as all other sums and monies paid or required by the provisions of this Agreement to be paid to the FDIC shall (except to the extent that any sums shall, pursuant to the requirements of the FDIC, be received in satisfaction of other specifically designated items), be paid to the FDIC in reduction of the interest accrued on the MORTGAGE until such time as all of the said interest shall have been fully paid and satisfied and thereafter in reduction of principal. Notwithstanding the foregoing, the FDIC may elect to treat any sums received by it as having been received in repayment or reimbursement to the FDIC for any expenses and disbursements incurred or made by the FDIC to preserve, protect or defend the MORTGAGE . . . until all such expenses and disbursements have been paid to it in full.
Article 14 of Settlement Agreement, reprinted in Appellant's Appendix at 101. In Article 15 the Settlement Agreement specified how the payments made pursuant to Article 14 would be accounted for at closing:
In the event of conveyance of title to the PREMISES to the FDIC or in the event of the payment of the SETTLEMENT pursuant to Paragraph 1 hereof, or in the event of any other termination of this Agreement (other than by reason of payment and satisfaction in full of the MORTGAGE and all interest accrued thereon), all balances in all Reserve accounts created hereunder, after deduction therefrom of amounts necessary to satisfy then presently outstanding invoices properly chargeable to such Reserve accounts (adjusted as of the date of conveyance of title or payment of the principal amount of the MORTGAGE, or the termination of this Agreement) shall be paid to the FDIC; provided, however, that the balance of sums in the tax Reserve account shall be adjusted as of the date of conveyance of title to the FDIC or the date of payment of principal and interest due on the MORTGAGE to the FDIC or the date of payment of the SETTLEMENT or the date of termination of this Agreement (as the case may be) and shall be distributed as follows:
(i) In the event that title to the PREMISES shall be conveyed to the FDIC, or that the SETTLEMENT shall be paid to the FDIC, or that this Agreement shall be otherwise terminated, the balance of such ...