BENJAMIN P. HURSH, Bankruptcy Judge.
At Butte in said District this 30
In this Chapter 11
Debtor filed a voluntary Chapter 11 bankruptcy petition on October 14, 2016. Prior to filing the petition, Debtor and Deep River entered into a Purchase and Sale Agreement dated September 30, 2016, that provided for the sale of substantially all of Debtor's assets to Deep River. Debtor terminated the Purchase and Sale Agreement after Deep River failed to deposit $600,000 with an escrow agent by October 12, 2016. ECF No. 433-2.
Shortly after terminating the Purchase and Sale Agreement, Debtor filed a motion seeking approval of its proposed sale and bidding procedures and proposed to sell substantially all of the Debtor's business assets and assume certain contracts and obligations in a sale to be conducted pursuant to §§ 105, 363 and 365. ECF No. 100. In that motion, Debtor represented that it had entered into a new Purchase and Sale Agreement with Deep River and FAC, who were jointly referred to in the motion as the "Buyer" and the "Stalking Horse Bidder." Id. Following a hearing, the Court approved Debtor's proposed sale and bidding procedures and scheduled a sale hearing for January 2017. ECF Nos. 137 and 138.
At the bidding procedures hearing, Debtor reported to the Court that two bidders were identified and approved to participate in the auction of Debtor's assets: FAC and Murex Petroleum Corporation ("Murex"). ECF No. 191. An auction was held. FAC was the successful bidder at the auction with a bid of $4,000,000. Id. Debtor filed a proposed sale order, ECF No. 192, and the next day filed a redlined and clean amended proposed sale order. ECF No. 194. At the hearing on approval of the sale, Debtor's counsel explained that FAC and Murex had provided Debtor with acceptable proof of their financial ability to perform. The financial information provided by Deep River was not acceptable, prompting Debtor to ask for additional proof from Deep River of its financial ability to complete the sale. When the additional requested financial information was not forthcoming, Debtor disqualified Deep River as a bidder. Following the hearing, the Court entered the Sale Order.
The Sale Order includes specific findings that Movants rely on in their Motion:
ECF No. 199, ¶¶ H-L.
As set forth in the Sale Order, the Court found that that the purchase and sale agreement submitted in connection with the Sale Motion, was negotiated and entered by the Debtor and FAC at arm's length without collusion or fraud, and in good faith within the meaning of § 363(m) of the Bankruptcy Code. Sale Order ¶ N. The Court also found that the assets would vest in FAC all right, title, and interest of the Debtor to the Purchased Assets free and clear of liens, claims and interests. Sale Order ¶ R. The Court further found that FAC would not have entered the Purchase and Sale Agreement, or completed the transaction if the sale were not "free and clear" under § 363(f). Sale Order ¶ S. Finally, the Court found that the standards set forth in § 363(f)(l)-(5) of the Bankruptcy Code had been satisfied. Sale Order ¶ T (collectively, Sale Order ¶¶ H-L, N, R, S, and T are referred to as the "Findings").
Paragraph 5 of the Sale Order ordered, adjudged and decreed that the transfer of assets was free and clear, consistent with paragraphs R, S, and T. The Sale Order enjoined a litany of persons and entities from asserting, prosecuting or otherwise pursuing such "Interests" against FAC and its officers, directors, its affiliates, agents, advisors, representatives, officers, successors and assigns. Sale Order ¶ 9. Finally, the Sale Order provided:
Sale Order ¶ 10 (collectively, ¶¶ 5, 9 and 10 are referred to as the "Conclusions"). Deep River did not appeal or otherwise attack the Sale Order. On February 20, 2017, Debtor filed a notice that it had completed the closing of the sale to FAC pursuant to the Asset Purchase Sale Agreement ("Sale Agreement") and the Court's Order of January 20, 2017. Debtor's Chapter 11 Plan was confirmed on November 30, 2017.
On August 14, 2017, FAC filed a complaint against Deep River in the United States District Court for the Southern District of Texas, Houston Division ("Texas Litigation"). FAC alleged that Deep River breached provisions of an Amended Joint Bid Agreement dated November 3, 2016 ("Bid Agreement").
FAC contends this Court has the jurisdiction to interpret and enforce its own orders, and that FAC is asking this Court to interpret and enforce the Sale order. Deep River counters that this Court lacks jurisdiction to decide its Counterclaims because the Counterclaims do not impact the Sale Order and are independent claims between two private parties. FAC is not, as Deep River suggests, asking that this Court resolve the Counterclaims. Rather, in deciding the Motion, this Court is tasked with deciding whether the Counterclaims are an attack on the Sale Order. This Court has jurisdiction to make such a determination.
A bankruptcy court has jurisdiction over "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). Matters involving a court's construction of its own orders arise under title 11. The Court of Appeals for the Ninth Circuit explained:
Beneficial Trust Deeds v. Franklin (In re Franklin), 802 F.2d 324, 326-27 (9th Cir. 1986). "[I]t is well recognized that a bankruptcy court has the power to interpret and enforce its own orders." In re Wilshire Courtyard, 729 F.3d 1279, 1289 (9th Cir. 2013). See also, Travelers Indemnity Company v. Bailey, 557 U.S. 137, 151, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009). Finally, the jurisdiction is core because it involves an order issued in a core proceeding under 28 U.S.C. § 157(b)(2)(N). HHI FormTech, LLC v. Magna Powertrain USA, Inc. (In re FormTech Indus., LLC), 439 B.R. 352, 357, 358 (Bankr. D.Del. 2010) citing In re Trans World Airlines, Inc., 278 B.R. 42, 49 n. 16 (Bankr. D.Del. 2002) ("Core proceedings under § 157(b)(2)(N) are those which arise from, concern, or have some impact on `orders approving the sale of property' . . . ."). Consideration of whether Deep River's Counterclaims are barred by the Sales Order is a core matter over which this Court has jurisdiction.
Movants request this Court employ its contempt power and find that the Counterclaims violate specific language in the Sale Order. More specifically, pursuant to §§ 105 and 363(f) and 28 U.S.C. §§ 157 and 1334, Movants request an order:
To prevail on their request, Movants must establish by "clear and convincing evidence that the contemnors violated a specific and definite order of the court." In re Dyer, 322 F.3d 1178, 1189 (9
In an effort to show that Deep River violated the Sale Order, Movants direct the Court to specific language in the Sale Order, which they characterize as follows:
Motion at 2, citing Sale Order ¶¶ N, R-T, 5, 10.
Movants reason that the Deep River Counterclaims are interests under § 363(f), that the sale was free and clear of "interests" under § 363(f), and that holders of interests were "forever barred, estopped and permanently enjoined from asserting, prosecuting or otherwise pursuing such interests." Motion ¶ 7. Movants assert that FAC was expressly exculpated from "any claims Deep River could assert relating to the sale of the Debtor's assets[.]" Motion at 2. Finally, Movants refer to the Sale Order's good faith finding for purposes of § 363(m), (Motion ¶ 5) and argued at the hearing that this finding could not be reconciled with the Counterclaims.
Pursuant to §§ 363(f) and 1107, a debtor in possession is authorized to "sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate" if any of the conditions listed thereunder are satisfied. § 363(f) (emphasis added). Movants' Motion is premised on their contention that the Counterclaims are "interests" for the purposes of § 363(f). Movant's cite 3 Collier on Bankruptcy ¶ 363.06[1] (Alan N. Resnick & Henry J. Sommer eds., 16
Trans World and Leckie adopt a broad definition of "interest" in their construction and application of § 363(f). "In Leckie, the Fourth Circuit held that, irrespective of whether the purchasers of the debtors' assets were successors in interest, under § 363(f), the Bankruptcy Court could properly extinguish all successor liability claims against the purchasers arising under the Coal Act by entering an order transferring the debtors' assets free and clear of those claims." Trans World, 322 F.3d at 289. Similarly, in Trans World, the Third Circuit concluded that § 363(f) extinguished successor liability to the acquirer of debtor's assets for a series of employee related claims that alleged various forms of discrimination finding that such claims "arise from the property being sold." Trans World, 322 F.3d at 289, 290.
Unlike the claims in Leckie and Trans World, the Counterclaims are not successor liability claims that Deep River initially had against the Debtor, and now seeks to enforce against Movants, or the assets acquired by Movants. Instead, Deep River's Counterclaims are independent claims based on the Bid Agreement. The Bid Agreement was executed post-petition by Deep River and FAC. To conclude that the Counterclaims must be "connected to, or arise from, the property being sold" sufficient for constituting an interest under § 363(f) merely because FAC ultimately acquired the assets, ignores the successor liability component of the Trans World and Leckie analysis. The rationale urged by Movants under these circumstances stretches the definition of "interests" far beyond the holdings of the cases on which they rely. The Counterclaims do not flow from the ownership of the property by FAC sufficient to conclude that they are "interests" under § 363(f).
Notably, neither FAC's claims against Deep River nor the Counterclaims against FAC are dependent on FAC's ownership of the property, or the outcome of the Sale. Movants allege that "Defendants are jointly and severally liable for the remittance of the $100,000.00 advance as outlined in the [Amended Joint Bid] Agreement." Ex. C ¶ 13. If FAC and Deep River were not the successful bidder, the Bid Agreement would terminate. Ex. B ¶ 13 4.1[a](iv). Despite termination of the Bid Agreement, Deep River, and each of its equity holders, would remain jointly and severally liable to reimburse and promptly pay $100,000 to FAC for its advance to Deep River for Deep River's transaction expenses. Ex. B ¶ 4.1(d). FAC and Deep River's claims against each other were not dependent upon the outcome of the Sale, (i.e., FAC's successful acquisition of the assets). The claims asserted in the Texas Litigation would exist even if Murex, or another bidder, had acquired the assets. Thus, it is difficult to conclude that the Counterclaims are "connected to, or arise from, the property being sold," as urged by Movants.
Movants argue that this case is factually analogous to GAF Holdings, LLC v. Rinaldi (In re Farmland Indus., Inc.), 376 B.R. 718 (Bankr. W.D. Mo. 2007). In Farmland, the court dismissed GAF's complaint "for two reasons: (1) it is an impermissible collateral attack on the orders of this Court approving the procedures, validity, and finality of the sale of the Coffeyville Assets to CRLLC, and (2) it fails to state a claim upon which relief can be granted because the complaint is devoid of facts establishing essential elements of GAF's state-law claim for tortious interference with its business expectancy." Id. at 732. In Farmland, GAF claimed, "that the Defendants conspired to prevent GAF from participating in an auction of the Coffeyville Assets and misled the Court in their efforts to obtain approval of the sale to Coffeyville Resources, LLC, thereby preventing GAF and the Farmland bankruptcy estate from realizing the true value of the refinery, which GAF estimates is close to $1 billion." Id. at 721. Further, the "`very gist' of GAF's complaint was that the sale was improper and the result of a conspiracy, allegations that clearly conflict with the Court's findings of good faith." Id. at 727.
Deep River's Counterclaims do not allege that the Sale was improper, the result of a conspiracy, or that the Sale failed to maximize the value of the assets. The Counterclaims are premised upon Deep River's contractual relationship with FAC, and allege that FAC breached the Bid Agreement. Deep River also asserts two additional tortious interference claims. These later tort claims, might at some future point collide with, and be tantamount to a collateral attack on the Sale Order such that Farmland might be analogous, but the record does not reflect that has occurred to date. At the hearing, Deep River's counsel repeatedly argued that Deep River was not challenging the Sale or sales process, and that it had no interest in upending the Sale. Given this argument, and the Court's own review of the Counterclaims, the record does not support concluding that the claims in this case mirror the claims in Farmland. Thus, the Court does not find it persuasive. This Court cannot conclude that the Counterclaims are "interests" under even the broadest interpretation of that term. The Counterclaims are not "interests" from which Movants were protected under § 363(f) and the Sale Order.
The evidence presented to the Court does not establish that the Counterclaims directly conflict with the Findings or Conclusions in the Sale Order. Relevant to the Court's inquiry are the Sale Order, the Verified Complaint, the Counterclaims, and the Bid Agreement. The Motion references various Findings and Conclusions, but having considered those cited by Movants in conjunction with the Verified Complaint (Ex. C), Counterclaims (Ex. D) and Bid Agreement (Ex. B), the Court cannot conclude that Deep River violated a specific and definite order of the court. Consideration of the Sale Order's specific language, not Movant's characterization of the Sale Order, supports this conclusion.
"Debtor conducted the sale process (including the auction) without collusion and FAC as the Step-in Bidder pursuant to the Sale and Bidding Procedures Order, assumed sole ownership and control of all beneficial rights and obligations under the terms of the Purchase and Sale Agreement." Sale Order ¶J. This does not conflict with the Counterclaims. And, Deep River affirmatively stated at the hearing that it is not alleging Debtor colluded, or that the Sale was the result of collusive efforts.
Next, "the purchase and sale agreement submitted in connection with the Sale Motion, was negotiated and entered by the Debtor and FAC at arm's length without collusion or fraud, and in good faith within the meaning of section 363(m)." Sale Order ¶ N. Again, the Counterclaims are not inconsistent with this finding. Deep River does not claim that Debtor and FAC entered the purchase and sale agreement as a result of collusion, fraud or bad faith. The Counterclaims do not directly implicate the Debtor. Instead, the Counterclaims allege FAC breached a contract with Deep River, and committed various torts under Texas law.
According to Movants:
Motion at 2, citing Sale Order ¶¶ N, R-T, 5, 10. Later, the Motion states:
. . . . . the Court expressly ordered that the Sale of the Purchased Assets to FAC was free and clear of any claims by any person acting by, through or on behalf of Deep River that FAC was not duly and properly the sole beneficiary of all rights under the original Purchase and Sale Agreement as the Step-in Bidder under the terms of the Sale and Bidding Procedures Order.
While Movants do not specifically argue that § 363(m) affords them any sort of relief, they do argue in ¶ 5 of their Motion that FAC was "a `good faith purchaser' under § 363(m) of the Bankruptcy Code and [is] `entitled to all of the protections afforded thereby.'" While § 363(m) is implicated by the facts of this case, given Movants' reference to § 363(m), the Court will, for purposes of completeness, address that section. Section 363(m) protects the interests of good faith purchasers who buy property pursuant to a sale authorized under § 363(b) or (c), when a party in interest has failed to stay the sale pending appeal. See Onouli-Kona Land Co. v. Estate of Richards (In re Onouli-Kona Land Co.), 846 F.2d 1170, 1171 (9th Cir.1988). The scope and breadth of § 363(m) protections is not limitless. "The protection applies only if the court, upon reversing or modifying the order authorizing the sale, would affect the validity of the sale." 3 Collier on Bankruptcy ¶ 363.11 (Alan N. Resnick & Henry J. Sommer eds., 16
Clear Channel Outdoor Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25, 35-36 (9th Cir. BAP 2008). Movants' argument that this Court's finding of good faith for purposes of § 363(m) precludes any claim by Deep River against FAC is not compelling. Section 363(m) serves the limited purpose of protecting a good faith purchaser when there is a risk of reversal or modification of the sale following appeal. There is no risk of reversal or modification on appeal in this case. At this point in the Texas Litigation, with the record before this Court, this Court cannot conclude that its good faith finding for purposes of § 363(m), precludes or otherwise supports enjoining Deep River from pursuing its Counterclaims or concluding that it has acted contemptuously.
Since the Texas Litigation is in its infancy, the record presented to the Court is limited. As the Texas Litigation evolves, the Counterclaims, particularly the tortious interference claims might in fact more closely resemble the claims in Farmland, or amount to a collateral attack on the Sale Order. However, to reach that conclusion now, this Court would have to speculate or make assumptions regarding the Texas Litigation, and it is unwilling to do so. For the reasons, outlined above, this Court cannot conclude that Movants established by clear and convincing evidence that Deep River's Counterclaims violate the Sale Order such that a finding of contempt is supported, or imposition of sanctions could be justified at this time. A separate Order consistent with this Memorandum Opinion will be entered.
Id., 322 F.3d at 290.
Sale Order ¶ S(v)(x).
