EDWARD ELLINGTON, Bankruptcy Judge.
On February 20, 2008, VCR I, LLC borrowed $984,450.96 from BankPlus.
Mark S. Bounds Realty Partners, Inc. (Bounds Realty) sued VCR I, LLC in the Circuit Court of Madison County, Mississippi. On January 9, 2012, the circuit court entered summary judgment in favor of Bounds Realty. The circuit court awarded $235,000.00 plus interest and attorney's fees (Judgment) to Bounds Realty for unpaid real estate commissions. The Judgment was duly enrolled in the judgment roll of Madison County, Mississippi, on January 10, 2012.
On May 2, 2012, the Mississippi Transportation Commission
When Bounds Realty was unable to collect its judgment against VCR I, LLC, Bounds Realty filed a Notice of Sheriff's Sale on May 22, 2012. A sheriff's sale of all of VCR I, LLC's property was scheduled for June 21, 2012, between the hours of 11:00 A.M. and 4:00 P.M.
Minutes before the commencement of the sheriff's sale on June 21, 2012,
Once the petition was filed, the automatic stay pursuant to 11 U.S.C. § 362
Gluckstadt Holdings, LLC (GH) appeared at the sheriff's sale on June 22, 2012. GH's bid of 2.5 million dollars for all forty-four (44) acres was the only bid received, and it was accepted by Bounds Realty.
In the bankruptcy case, BankPlus filed a Motion for Relief from Automatic Stay (Dkt. #21) on July 11, 2012, seeking to have the automatic stay lifted as to the forty-four (44) acres. Bounds Realty filed a Joinder in Motion for Relief from Automatic Stay (Dkt. #31) on July 18, 2012.
On July 13, 2012, Bounds Realty filed a Motion to Dismiss (Dkt. #26). The thrust of Bounds Realty argument was that the DIP's bankruptcy case should be dismissed because it was a single asset case, and therefore, was a bad faith filing.
The MTC filed a Motion to Lift Automatic Stay and Abandonment from Bankruptcy Estate (Dkt. #67) on August 20, 2012. The MTC sought to have the stay lifted so that it could proceed with the ED Action as to the 12.97 acres.
A trial was set for January 22, 2013, on both BankPlus and MTC's stay motions and the motion to dismiss. GH appeared at the trial on the stay motions and the motion to dismiss. GH again expressed its interest in purchasing part of the DIP's property. GH negotiated with the DIP, BankPlus and the MTC, and the parties agreed to settle all of the matters set for hearing. As part of the settlement, the DIP agreed to sell part of its property to GH (Disputed Property). The settlement was dictated into the record, and orders were subsequently submitted memorializing the settlement.
The Agreed Order (Dkt. #159) (Order) was entered on MTC's stay motion on March 1, 2013. In the MTC's Order, the parties agreed to cooperate with the MTC in the ED Action in state court.
Also on March 1, 2013, the Agreed Order (Dkt. #158) (MTD Order) on the motion to dismiss was entered. The MTD Order memorialized the terms of the settlement reached by the parties on January 22, 2013. While the MTD Order covers many items, the provision which is in controversy is found on page 2, paragraph d, of the MTD Order:
Agreed Order, Case No. 1202009EE, Dkt. #158, pp. 2-4, Mar. 1, 2013.
Basically, in the MTD Order, the DIP agreed to sell 7.65 acres to GH for $612,500.00, and to enter into a restrictive covenant on an additional 5.91 acres adjacent to the Disputed Property. The restrictive covenant would prohibit a motor fuel sales facility and/or a convenience store from being built on the 5.91 acres and would run for a period of 35 years. The MTD Order states that the DIP would file a motion to sell the Disputed Property (with restrictive covenant) and would notice the motion out to all creditors. All parties agree that the DIP never filed a motion to sell the 7.65 acres to GH.
Based on the MTC's appraisal of the 12.99 acres, the MTC paid $2,011,700.00
On October 18, 2013, an Order Granting United States Trustee's Second Motion to Convert (Dkt. #195) was entered. The DIP's case was converted to a Chapter 7, and the DIP ceased to exist.
GH filed a Motion to Compel Compliance with Agreed Order (Dkt. #242) on January 17, 2014. GH sought to have the Court compel the Trustee to comply with the MTD Order and to file a motion to sell the 7.65 acres to GH for $612,500.00. The parties entered into several scheduling orders, but the Trustee and GH eventually reached an agreement with regard to the motion to compel. An Order Granting in (sic) Motion to Compel in Part (Dkt. #509) was entered on April 7, 2016. In the order, the parties agreed that the Trustee would file a motion to sell the Debtor's real property pursuant to § 363 and that the sale motion would be noticed out as required by the Federal Rules of Bankruptcy Procedure. This motion would include the 7.65 acres (Disputed Property) to which GH asserted an interest and claim. The parties reserved their rights, claims, and defenses of any kind.
In the ED Action, on April 30, 2015, a jury in Madison County, Mississippi, found that the Debtor would "be damaged by the acquisition of their property for public use, in the sum of $3,100,303."
On November 4, 2016, the Trustee's Motion to Approve Auction and for Authority to Sell Assets Free and Clear of Liens, Interest, Encumbrances and Claims — Real Property (Dkt. #546) (Sale Motion) was filed. In the Sale Motion, the Trustee requested that the Court authorize a sale to the highest bidder of four (4) separate tracts of property owned by the Debtor. The Disputed Property is included in the sale as Tract 4.
In the Sale Motion, the Trustee acknowledges the agreement made in the MTD Order and quotes the language in paragraph d of the MTD Order. The Sale Motion states that the opening bid for Tract 4 (Disputed Property) would be $612,500.00. The Sale Motion further states that the Trustee "is under no obligation to sell to GH unless the Opening Bid of GH is the highest and best bid. Nothing prevents GH from increasing its bid and participating in the auction process."
On November 28, 2106, GH filed its Response and Objection of Gluckstadt Holdings, LLC to Trustee's Motion to Approve Auction and for Authority to Sell Assets Free and Clear of Liens, Interest, Encumbrances and Claims — Real Property (Dkt. #558) (Objection). GH filed the only response or objection to the Sale Motion. In its Objection, GH alleges that the Trustee is bound by the terms in the MTD Order, and therefore, the Trustee cannot auction the Disputed Property to the highest bidder. GH argues that since the Trustee is bound by the MTD Order, the only avenue available to the Trustee is for the Trustee to sell the Disputed Property to GH for $612,500.00 and to maintain the restrictive covenant on the adjacent property.
The Sale Motion and Objection were tried on April 26, 2017.
This Court has jurisdiction of the subject matter and of the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(1) and (2)(A), (N), and (O).
The Trustee alleges that GH does not hold a pre-petition claim against the Debtor and is not a creditor of the Debtor. The Trustee alleges that GH is simply a prospective purchaser of property of the estate, and therefore, GH does not have standing to object to the sale.
This Court has previously held that a prospective purchaser does not have standing to object to a sale motion. In re Condere Corp., 228 B.R. 615, 624 (Bankr. S.D. Miss. 1998). In this situation, however, the only way to determine whether GH potentially has a post-Chapter 11 and pre-Chapter 7 claim against the Debtor is for the Court to determine whether the MTD Order binds the Trustee to sell the Disputed Property to GH. Therefore, for the sole purpose of ruling on the Sale Motion, the Court will presume that GH has a claim against the estate and has standing to object to the Sale Motion.
The settlement reached by the parties in 2013 contemplates the Debtor selling property of the bankruptcy estate to GH. The sale of a debtor's assets outside the ordinary course of business is governed by § 363(b). Section 363(b)(1) provides that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate."
The Cadle Co. v. Mims (In re Moore), 608 F.3d 253, 263 (5th Cir. 2010).
The parties do not dispute that a motion to sell property of the estate must be noticed out to all creditors and subsequently approved by the Court. The dispute in this case arises as to what the Trustee is required to notice out. GH asserts that the Trustee is bound by the terms of the MTD Order and that all the Trustee can notice out is a sale of the Disputed Property to GH for $612,500.00 (with restrictive covenant). The Trustee asserts that he has noticed out GH's offer of $612,500.00 (with restrictive covenant), but he may conduct an auction of all of the estate's property and is not bound to sell the Disputed Property only to GH for $612,500.00 (with restrictive covenant).
The facts of the case of In re Black, 2:11-CV-258, 2015 WL 363495 (S.D. Tex. Jan. 27, 2015), aff'd sub nom. In re BNP Petroleum Corp., 642 Fed. Appx. 429 (5th Cir. 2016), are analogous to the case at bar. In Black, the trustee negotiated a settlement with Black. The Black settlement agreement specifically stated that it was "`subject to final approval from the Bankruptcy Court.'"
Before the Black settlement was approved by the bankruptcy court, the trustee negotiated and accepted a settlement from a different party. The trustee noticed out both settlement agreements, but expressed his preference for the second settlement. The bankruptcy court approved the second settlement, and Black appealed. The district court and the Fifth Circuit (in an unpublished opinion) affirmed the bankruptcy court.
Citing the Fifth Circuit case of In re Moore,
In the case at bar, the Court finds that when the Trustee filed the Sale Motion, the Trustee complied with what was required to be done pursuant to the MTD Order. The MTD Order stated that "[t]he Debtor shall file and notice a motion for authority to sell the real property, free and clear of all liens, claims and interests, to GH, for $612,500.00."
In GH's Objection, GH prays that the Court will "deny the Motion, but authorize the sale of the 7.65 acres, upon the terms and conditions of the Agreed Order so that Gluckstadt Holdings will receive title to the 7.65 acres pursuant to the terms of the Agreed Order for the consideration already stated, approved and paid."
The MTD Order clearly states that a motion to sell the property would be filed and noticed out. When the parties dictated their settlement into the record on January 22, 2013, the Court made it abundantly clear that any sale of estate property would have to be noticed out to all creditors:
Mr. Geno: I'll be glad to, Your Honor, but I think everyone understands that. Transcript of Motions Hearing Before Honorable Edward Ellington, Case No. 1202009EE, Dkt. #284, p. 9, Mar. 4, 2014.
Similar to the Black case, there is no language in the MTD Order which precludes the Trustee from accepting other offers or bids on the Disputed Property. But regardless of whether the MTD Order contained restrictive language, no agreement by a debtor or trustee to sell property of the bankruptcy estate "[can] bind the [Court]."
Even if the Court accepted GH's position and found that the MTD Order bound the Trustee to sell the Disputed Property to GH for $612,500.00 (with restrictive covenant), the Fifth Circuit has clearly held that "[a] sale of assets under § 363 . . . is subject to court approval and must be supported by an articulated business justification, good business judgment, or sound business reasons." In re Moore, 608 F.3d at 263.
In evaluating GH's offer to purchase the Disputed Property, the MTD Order
In sum, the Court is not bound to approve the offer of GH for the Disputed Property, and the Court declines to find that approving such an offer would meet the standards under § 363(b). The Court finds that the Trustee has noticed out a sale of the Disputed Property to GH for $612,500.00 (with restrictive covenant), and thus, the Trustee has complied with the MTD Order. Since nothing prohibits the Trustee from soliciting other offers on the Disputed Property, the Trustee may auction the Disputed Property and accept other bids. Therefore, the Objection of GH to the Sale Motion is not well taken and should be overruled.
The Trustee asks the Court to grant him permission to auction the forty-four (44) acres owned by the bankruptcy estate. "[F]or the . . . trustee to satisfy its fiduciary duty to the debtor, creditors and equity holders, there must be some articulated business justification for using, selling, or leasing the property outside the ordinary course of business. . . .Whether the proffered business justification is sufficient depends on the case."
At trial, the Trustee testified that after speaking with several developers in Madison County, he estimated that the forty-four (44) acres had a fair market value of somewhere around four (4) dollars a square foot.
As for the Disputed Property, the Trustee testified that the MTD Order states that the purchase price was below fair market value. By his calculations, the Trustee estimated that the GH offer would equal between $1.70 to $1.75 a square foot, plus GH would be getting a restrictive covenant on another tract of land for thirty-five (35) years.
"`[Considering] all salient factors pertaining to the proceeding and . . . to further the diverse interests of the debtor, creditors and equity holders, alike,'"
GH argues that the MTD Order bound the Trustee to sell the Disputed Property to it for $612,500.00 (with restrictive covenant), and that therefore, the Court is bound to approve the sale to GH for $612,500.00 (with restrictive covenant). If the Court adopted GH's position, the approval process under Federal Rule of Bankruptcy Procedure 6004(a) would be meaningless. Moore, 608 F.3d at 266.
The Court finds that the Trustee has complied with the MTD Order and noticed out GH's offer to purchase the Disputed Property for $612,500.00 (with restrictive covenant). The Court further finds that the Trustee is not bound to sell the Disputed Property to GH for $612,500.00 (with restrictive covenant). Therefore, the Objection of GH should be overruled.
The Sale Motion requests permission from the Court to auction the Debtor's real property free and clear of liens to the highest bidder, with the opening bid on Tract 4 (Disputed Property) to be GH's offer of $612,500.00 (with restrictive covenant). The Court finds that the Trustee has articulated a sound business justification for conducting the auction of the Disputed Property and the other property of the estate. Therefore, the Court should grant the Sale Motion.
To the extent the Court has not addressed any of the parties' other arguments or positions, it has considered them and determined that they would not alter the result.
A separate order consistent with this Opinion will be entered in accordance with Rule 9014 of the Federal Rules of Bankruptcy Procedure.
