Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


2-5-2002

In Re: Beck
Precedential or Non-Precedential:

Docket 1-2522




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Recommended Citation
"In Re: Beck" (2002). 2002 Decisions. Paper 104.
http://digitalcommons.law.villanova.edu/thirdcircuit_2002/104


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                                             NOT PRECEDENTIAL

         UNITED STATES COURT OF APPEALS
             FOR THE THIRD CIRCUIT


                  NO. 01-2522



             IN RE: JAMES JOSEPH BECK,

                                Debtor

             GLORIA M. SATRIALE, ESQ.

                       v.

         FIRST KEYSTONE MORTGAGE, INC.;
               S. GREGORY SOUDER

GLORIA M. SATRIALE, ESQ.; OFFICE OF U.S. TRUSTEE;
         FREDERIC J. BAKER, U.S. TRUSTEE,

                                Trustees

                                First Keystone Mortgage, Inc.
                                Appellant



On Appeal From the United States District Court
   For the Eastern District of Pennsylvania
      (D.C. Civil Action No. 00-cv-04988 )
   District Judge: Honorable John P. Fullam


             Argued January 23, 2002
         BEFORE:    NYGAARD and STAPLETON, Circuit Judges,
                     and CAPUTO, District Judge*


                       (Filed February 5, 2002)


                            Sam L. Warshawer, Jr. (Argued)
                            Lisa Lambert
                            Venzie, Phillips & Warshawer
                            2032 Chancellor Street
                            Philadelphia, PA 19103

                               Attorney for Appellee

                            Jay G. Ochroch (Argued)
                            Prince Altee Thomas
                            Fox, Rothschild, O'Brien & Frankel
                            2000 Market Street, Tenth Floor
                            Philadelphia, PA 19103

                               Attorney for Appellant



                   MEMORANDUM OPINION OF THE COURT



STAPLETON, Circuit Judge:

         This is an appeal from an order affirming a Bankruptcy Court's
judgment in
favor of the appellee, Gloria M. Satriale, the trustee of James Joseph
Beck's ("Beck" or
____________________________________

* Honorable A. Richard Caputo, United States District Judge for the
Middle District of
    Pennsylvania, sitting by designation.
the "debtor") bankruptcy estate.
         The trustee commenced an adversary proceeding in the bankruptcy
case
seeking a judgment for monies owed under a settlement agreement entered in
connection
with previous litigation. Under that agreement dated November 23, 1992
and executed
on November 30, 1992 (the "Settlement Agreement"), S. Gregory Souder
agreed to pay
Beck $150,000 up front and deliver to Beck a note evidencing an obligation
to pay five
annual payments of $85,000 in exchange for 49.33% of stock in First
Keystone Mortgage,
Inc. and certain promises and forbearances. First Keystone guaranteed
Souder's payment
on the note.
         Under the terms of the Settlement Agreement, Beck resigned from
the
Board of Directors of First Keystone, returned all copies of certain
business documents
related to First Keystone, and agreed with certain exceptions that "prior
to May 31, 1993,
neither he nor any business, company, or entity with which he is
affiliated [would]
employ or engage in any business relationship with any person, business,
company or
entity who is an employee, agent, or affiliate of [First Keystone]."
         Souder paid Beck $150,000 upon execution of the agreement. On
January
2, 1994, Souder paid Beck the first $85,000 installment. On November 2,
1994, Souder
and Beck entered into an agreement whereby Souder advanced Beck $15,000 to
be
credited to the annual payments due on the note. On January 1, 1995,
Souder paid the
second $85,000 installment on the note.
         A little over two weeks later, on January 17, 1995, Beck filed
for a
voluntary petition for bankruptcy. The bankruptcy judge subsequently
converted Beck's
chapter 11 action to a case under chapter 7 and appointed Satriale as the
trustee of Beck's
estate.
         The Bankruptcy Court found that immediately following the
consummation
of the Settlement Agreement, Beck operated his own mortgage brokerage
business.
However, in early 1995, after that business failed and after filing for
bankruptcy, Beck
again became affiliated with Souder and First Keystone. At first the
affiliation was styled
as a consulting relationship, but grew to a joint venture between First
Keystone and a
business called Mortgage Network. That relationship soured by June of
1997 and Beck
again parted company with Souder and First Keystone.
         On January 2, 1996, rather than directly paying Beck, Souder
deposited
$70,000 in an escrow account which represented the third installment on
the note minus
the $15,000 advance paid to Beck in 1994. A year later, on January 9,
1997, Souder
deposited the fourth $85,000 installment into the escrow account.
         On December 2, 1997, Satriale demanded the past due balance on
the note.
One week later, on advice of counsel, Souder withdrew the funds of the
escrow account.
Souder did not make payment on the fifth installment. The parties agree
that the unpaid
balance on the note is $240,000 (the three remaining $85,000 installments
minus the
$15,000 advance).
         In the adversary proceeding, First Keystone contended that the
settlement
agreement was an executory contract at the time Beck filed for bankruptcy.
Under   365
of the bankruptcy code, the bankruptcy trustee may accept or reject any
executory
contract within 60 days after the order for relief. See 11 U.S.C.
365(d)(1). If the
trustee does not accept an executory contract within that period, the
trustee is deemed to
have rejected the contract. See 

argued that because
the trustee failed
to accept the settlement agreement within 60 days after the order for
relief, the Settlement
Agreement should be deemed rejected and, thus, unenforceable.
Alternatively, First
Keystone argued that Beck breached the Settlement Agreement in June 1997,
thus
excusing the failure to pay the remaining installments.
         Following an evidentiary hearing, the bankruptcy court rejected
First
Keystone's defenses and entered judgment in favor of the trustee for
$240,000 plus pre-
judgment interest and attorneys fees. The District Court affirmed.
                       STANDARD OF REVIEW
         "While factual findings are reviewed only for clear error, our
review of the
trial court's choice and interpretation of legal precepts and its
application of those
precepts to the historical facts is plenary." Travellers Int'l v. Trans
World Airlines, Inc.
(In re Trans World Airlines, Inc.), 

, 193 (3d Cir. 1998)
(citations omitted);
see also Enterprise Energy Corp. v. United States (In re Columbia Gas Sys.
Inc.), 

, 237 (3d Cir. 1995). Because "we are in as good a position to review
the bankruptcy
court's decision as the district court," we may review the opinion of the
bankruptcy court
directly. See Sharon Steel Corp. v. National Fuel Gas Distrib. Corp., 

, 39 (3d
Cir. 1989).
                            DISCUSSION
I. Executory Contract
         This Court has defined an executory contract as "a contract under
which the
obligation of both the bankrupt and the other party to the contract are so
far unperformed
that the failure of either to complete performance would constitute a
material breach
excusing performance of the other." Sharon Steel 

.
"Thus, unless
both parties have unperformed obligations that would constitute a material
breach if not
performed, the contract is not executory under   365." In re Columbia Gas
Sys. 

. A breach is material when it justifies a suspension of
performance. See
Farnsworth on Contracts   8.16, at 495 (2d ed. 1998). "The time for
testing whether there
are material unperformed obligations on both sides is when the bankruptcy
petition is
filed." In re Columbia Gas Sys. 

.
         Souder clearly had unperformed obligations at the time that Beck
filed his
bankruptcy petition. Souder had yet to make three $85,000 payments to
Beck (minus the
$15,000 advance). What is at issue is whether Beck had outstanding
obligations to
Souder or First Keystone.
         The parties agree that any continuing obligation of Beck's would
arise
under paragraph VII of the Settlement Agreement. That paragraph states in
full:
         VII. Covenants
               1. Beck hereby covenants and agrees that prior to May
         31, 1993, neither he nor any business, company or entity with
         which he is affiliated shall employ or engage in any business
         relationship with any person, business, company or entity who
         is an employee, agent or affiliate of [First Keystone] as of the
         Effective Date of this Agreement set forth at Paragraph II,
         except as follows:

                   (A) Beck may approach Jackie Coe and Brian
         McGovern to discuss possible employment. However, no
         such approach may occur until at least five (5) days after the
         date of Closing and only after (10) days prior written notice to
         [First Keystone].
          (B) Beck may also approach John Schwarzenbach
and Jean Bodalski to discuss possible employment. However,
no such approach may occur until at least thirty (30) days after
the date of Closing and only after ten (10) days prior written
notice to [First Keystone]. Notwithstanding any such contact,
Mr. Schwarzenbach and Ms. Badalski may not be employed
by Beck or any business, company or entity with which he is
affiliated prior to January 1, 1993.

          (C) Beck may also approach either Kate
McCartney or Katie Craft, but not both, to discuss possible
employment. However, no such approach may occur until at
least thirty (30) days after the date of Closing and only after
ten (10) days prior written notice to [First Keystone].
Notwithstanding any such contact, neither Kate McCartney or
Katie Craft shall be employed by Beck or any business,
company or entity with which he is affiliated prior to January
1, 1993.

          (D) Beck may approach the Clark Summit, PA,
Allentown, PA and Delaware [First Keystone] branch offices
to discuss possible employment or affiliation. However, no
such approach may occur until at least thirty (30) days after
the date of Closing and only after ten (10) days prior written
notice to [First Keystone]. Notwithstanding any such contact
or new agency agreement, the aforesaid branches may not
affiliate with Beck or any business, company or entity with
which he is affiliated prior to January 1, 1993.

          (E) If any of the aforesaid persons or branches shall
leave their affiliation with [First Keystone], Beck shall secure
written assurances from each that they have not retained
originals or copies of any [First Keystone] books, records,
ledgers, forms, lists, financial statements, tax returns,
schedules and/or any other materials or documents of any
nature which were obtained or generated by or on behalf of
[First Keystone] and such written assurances shall be
delivered to [First Keystone] within ten (10) days after the
[First Keystone] affiliation ends.

          (F) It is acknowledged and agreed by the Parties
that any violation or breach of the terms set forth in this
Paragraph VII. shall subject the breaching Party to a judgment
for the payment of damages together with an award of
attorneys' fees and costs of suit in amounts to be determined
by the Honorable Leonard Sugerman, Judge of the Court of
Common Pleas of Chester County or another Judge of that
Court if Judge Sugerman is not available. It is further
acknowledged and agreed by the Parties that the restrictions
imposed by the terms set forth in this Paragraph VII. are of
particular importance for the protection of the existing and
future interests of [First Keystone] and that in the even of a
breach, a claim for damages will not constitute a full,
adequate remedy for [First Keystone]. It is, therefore,
         covenanted and agreed that, in addition to any other remedies
         and damages available, [First Keystone] shall be entitled to
         injunctive relief including, but not limited to, (a) an Order
         prohibiting Beck and any business, company or entity with
         which he is affiliated, for a period of one (1) year from the
         date of said Order, from employing or engaging in any
         business relationship with any person, business, company or
         entity who is an employee, agent or affiliate of [First
         Keystone]; (b) an Order prohibiting Beck and any business,
         company or entity with which he is affiliated, for a period of
         one (1) year from the date of said Order, from directly or
         indirectly engaging in the mortgage banking business within
         twenty five (25) miles of the principal office of [First
         Keystone] (83 Chestnut Road, Paoli, Pennsylvania 19301),
         which shall mean to include that neither Beck nor any
         business, company or entity with which he is affiliated shall
         establish an office or solicit loans within the said twenty five
         (25) mile radius; and (c) forfeiture by Beck of entitlement to
         any remaining payments due under and pursuant to the terms
         set forth in Paragraph VI. B. of this Agreement.

Appendix 59-62.
         First Keystone contends that under subparagraph VII.1.(E) Beck
had a duty
to provide an "Employee Solicitation Notice" and a "Business Record
Statement" for
each former First Keystone employee associating with Beck during the
payment period
whether hired before or after May 31, 1993. We find this position
inconsistent with the
unambiguous terms of the Settlement Agreement.
         The Settlement Agreement contains no provision that can be read
to extend
Beck's employee solicitation notice and business records obligations
throughout the
payment period. The only time period mentioned at all in Paragraph VII is
the May 31,
1993 date in Paragraph VII.1. The first sentence of paragraph VII.1.
states that Beck
"covenants and agrees that prior to May 31, 1993, neither he nor" any
business with
which he is affiliated will tamper with any employee of First Keystone.
That sentence
sets out a general rule that Beck may not recruit First Keystone employees
before May 31,
1993. Subparagraphs (A) though (E) set out exceptions to that general
rule and the
conditions placed upon those exceptions. The first four subparagraphs set
out certain
employees whom Beck may approach to discuss employment before May 31,
1993.
Subparagraph (E) refers back to the previous four paragraphs. It states,
"If any of the
aforesaid persons or branches shall leave their affiliation with [First
Keystone], Beck
shall secure written assurances from each . . . ." Those requirements
relate to the
individuals listed in subparagraphs VI.1(A)-(D), and Beck's obligation
under
subparagraph (E), like his obligation under all of paragraph VII. ended on
May 31, 1993
(or at the latest June 10, 1993--ten days after May 31, 1993).
         The Bankruptcy Court and the District Court correctly found that
there were
no unperformed obligations of Beck at the time he filed for bankruptcy
and, accordingly,
that the Settlement Agreement was not an executory contract at that time.
II. Breach of Contract
         Because Beck had no continuing obligations under the Settlement
Agreement after June 10, 1993, he could not have breached the agreement in
June 1997.
                            CONCLUSION

         The judgment of the District Court will be affirmed.
________________________________


TO THE CLERK:


        Please file the foregoing Memorandum Opinion.



                              /s/ Walter K. Stapleton
                                              Circuit Judge