MAGDELINE D. COLEMAN, Bankruptcy Judge.
On January 22, 2019, the Court entered an order (the "Sale Order")
There are a number of events in the Debtor's bankruptcy case that culminated in the entry of the Sale Order. Those events were relevant to the Court's decision in entering the Sale Order, and therefore are summarized here.
The Debtor filed a voluntary bankruptcy petition under chapter 13 of the Bankruptcy Code, 11 U.S.C. §101 et. seq. (the "Bankruptcy Code") on September 11, 2015.
On March 20, 2017, the Court held an evidentiary hearing on the US. Trustee Conversion Motion. At that hearing, Mrs. Antunes testified that after the Debtor's case was converted to chapter 11, she had received certain of the Debtor's payroll checks from Manchester Construction Co., Inc., an entity owned and operated by the Debtor's son, and certain rent checks for properties the Debtor owned, but had not deposited them into the Debtor's debtor-in-possession bank account at TD Bank, N.A. (the "DIP Account").
On May 8, 2017, approximately six (6) weeks after the deadline for doing so, the Debtor filed the Certificate of Compliance, certifying that the Debtor "complied with the March 21, 2017 Order by depositing all issued, but not deposited, payroll checks for Manuel Antunes and all received, but not deposited, rent checks, as of March 21, 2017."
On May 8, 2017, the Debtor filed an amended Schedule C, identifying the property he was claiming as exempt pursuant to §522(b)(3) of the Bankruptcy Code and applicable nonbankruptcy law (the "Amended Exemptions").
On December 11, 2017, the Chapter 7 Trustee filed a motion seeking approval of a proposed settlement of the Exemption Objection (the "Exemption Settlement").
On June 22, 2017, the U.S. Trustee filed an adversary complaint against the Debtor to object to his discharge pursuant to §727 of the Bankruptcy Code (the "Discharge Adversary").
On April 20, 2018, the Chapter 7 Trustee filed an adversary complaint (the "Estate Assets Adversary Complaint")
On April 20, 2018, the Chapter 7 Trustee also filed a motion for approval of the sale of the Pineville Property on an "as-is, where-is" basis to the Debtor's neighbor, Michael C. Meister or his Assignee (the "Purchaser") for a purchase price of $450,000.00, subject to continued marketing and higher and better offers (the "Original Offer"). The Purchaser's Original Offer waived all inspection contingencies with the exception of an inspection of an on-site water system (the "On Lot Sewage Inspection"), the failure of which constituted grounds for the Purchaser to terminate the Agreement of Sale.
On June 12, 2018, however, the Chapter 7 Trustee filed a revised sale motion with respect to the Pineville Property (the "Revised Sale Motion").
On July 6, 2018, the Antunes filed a response to the Revised Sale Motion (the "Antunes Response").
On August 15, 2018, after multiple continuances, the Court held a hearing on the Revised Sale Motion. At that hearing, counsel for the Chapter 7 Trustee and counsel for the Antunes advised the Court that they had reached a tentative settlement regarding the Revised Sale Motion and the Estate Assets Adversary Complaint, which included an increased offer of $120,000.00 from the Antunes for the Pineville Property.
On September 27, 2018, the Chapter 7 Trustee filed an expedited motion seeking approval of the proposed settlement with the Antunes (the "Sale Settlement Motion").
On October 10, 2018, the Court held an expedited heating on the Sale Settlement Motion. At that hearing, the Court expressed concern regarding Mrs. Antunes' good faith and ability to purchase the Pineville Property given that, just one day prior to the hearing, Mrs. Antunes had filed a motion before Judge FitzSimon seeking authority to file a chapter 13 bankruptcy petition.
On October 11, 2018, at the continued hearing on the Sale Settlement Motion, the parties were not able to satisfactorily verify for the Court that all pre-conversion paychecks of the Debtor were deposited in the DIP Account in compliance with the Conversion Order. Counsel for the Antunes advised that, contrary to the express representation in the Certificate of Compliance, no pre-conversion rent checks were deposited in the DIP Account because Mrs. Antunes was allegedly mistaken when testifying at the March 21, 2017 hearing that rent checks were collected but not deposited.
On October 17, 2018, counsel for the Antunes produced to the Court for an in-camera review (i) DIP Account Statements for the months of February 2017 through the account's closure in February 2018, and (ii) Personal Account Statements from the time it was opened in May 2017 through July 2017. The Court's review of the Bank Account Statements, rather than dispel the Court's concerns regarding the Antunes' apparent retention and use of estate funds after the Conversion Order was entered, instead only broadened the scope of the Court's concern. The DIP Account Statements reflected that, after the Conversion Order was entered, the Debtor and/or Mrs. Antunes made certain deposits in various amounts, most of which came in the approximately three weeks after the Conversion Order was entered, in a total amount of $16,187.96. The DIP Account Statements did not indicate whether these deposits were in the form of cash or check, however, and did not otherwise indicate to what the deposits related. Having been given no explanation of the entries in the Bank Account Statements from the Antunes, the Court was left with insufficient information to confirm that all pre-conversion paychecks of the Debtor were deposited in the DIP Account.
More concerning, however, was the DIP Account Statements' revelation that the Antunes continued to use funds in the DIP Account after conversion of the Debtor's case to Chapter 7 to make thousands of dollars of purchases for their personal use. For example, in the month following conversion, the Antunes deposited over $16,000.00 in the DIP Account, but amassed over $12,000.00 in charges, resulting in a net increase in the DIP Account of only approximately $3,500.00. The nature of the larger charges is not indicated by the DIP Account Statements, but smaller charges reflect the Antunes' use of the DIP Account after conversion for purchases at, for example, Babies R Us, Prime Hoagies, Smoothie King, and Diva Nails Spa. In the following months, the Antunes continued to drain the DIP Account of funds to pay personal expenses at Acme, the Hair Cuttery, and Walmart, among others. On May 8, 2017, the same date that the Debtor filed the Certificate of Compliance with respect to the Conversion Order, the Antunes transferred $200.00 from the DIP Account to fund the opening of their personal account.
On October 26, 2018, the Court held a telephonic conference call to advise the parties that, as a result of its review of the DIP Account Statements and continued concerns regarding the Antunes' use of estate property, it was denying the portion of the Sale Settlement Motion providing for the sale of the Pineville Property to Mrs. Antunes and/or the Debtor.
On December 14, 2018 and January 22, 2019, the Court continued the hearing on the Revised Sale Motion, and specifically consideration of the proposed sale of the Pineville Property to Purchaser pursuant to the Revised Offer. At that hearing, the Chapter 7 Trustee advised that an addendum to the Revised Offer had resulted in an increased proposed sale price of $120,000.00 (the "Final Offer"). Both the Chapter 7 Trustee and the Debtor elicited testimony regarding the sale process and the proposed sale to the Purchaser.
The Chapter 7 Trustee called as a witness Richard Astrella ("ML Astrella"), the real estate broker retained to list and sell the Pineville Property. Mr. Astrella testified regarding the listing, pricing history, and sale process for the Pineville Property. Specifically, the Pineville Property was listed on the Trend multiple listing system from June 2017 through the date of the hearing, as well as on Mr. Astrella's firm's website, which distributed the property listing to approximately sixty other real estate websites.
The initial listing price for the property was $699,000.00, which was subsequently lowered to $625,000.00.
Mr. Astrella testified that he continued to market the property and received multiple inquiries regarding the property from developers, with whom he did not share the Engineer's report or otherwise discuss it.
On cross-examination, Mr. Astrella testified that at some point in time the sale sign at the Pineville Property either fell or was taken down, although he could not recall when that might have happened.
The Chapter 7 Trustee testified that he believed that the Final Offer of $120,000.00 was the highest and best offer for the Pineville Property based on the amount of time it was on the market, the fact that only two offers were made for the property during that time, and the Engineer's report concluding that the property had limited utility.
On cross examination the Chapter 7 Trustee confirmed he was aware that at some point the sale Sign at the property had fallen or was taken down, but was not aware of whether the Sign was ever put back up.
The Debtor called Mrs. Antunes as a Witness, who testified only regarding the sale sign at the Pineville Property, which is located adjacent to her home. She testified that there initially had been a large sale Sign posted on the property, but at some point Mr. Astrella made her aware that it was no longer up and inquired whether she had taken it down.
The Debtor also testified at the hearing, largely related to his belief regarding the purported value of the Pineville Property.
At the conclusion of the hearing, the Court found that the Chapter 7 Trustee had exercised sound business judgment in accepting the Purchaser's Final Offer of $120,000.00. The Court found that the marketing of the Pineville Property online and through Mr. Astrella's contacts was sufficient. The Court further found that the value of the Pineville Property was established by what a willing buyer would pay a willing seller, and the Final Offer represented the only offer for the Pineville Property, other than the Antunes' offer. The Court rejected the Antunes' argument that the Chapter 7 Trustee did not exercise proper business judgment because the property was worth significantly more than the Purchaser's Final Offer. The Court observed that there had not been any offer exceeding the Purchaser's Final Offer, and the Antunes had not offered more than the Final Offer, despite their position that the property was worth $450,000.00.
Section 363 of the Bankruptcy Code allows the Chapter 7 Trustee "after notice and a hearing [to] use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. §363(b)(1). In order for the proposed sale to be proper, the Chapter 7 Trustee must "satisfy [his] fiduciary duty to the debtor, creditors and equity holders, [by articulating some] business justification for using, selling, or leasing the property outside the ordinary course of business." Sheehan v. Dobin, 2011 US. Dist. LEXIS 46004, at *6-7 (D.N.J. Apr. 28, 2011) (quoting In re Continental Air Lines, Inc., 780 F.2d 1223, 1226 (5th Cir.1986)).
The standard under §363(b) is well-settled — a debtor may sell assets outside the ordinary course of business when it has demonstrated that the sale of such assets represents the sound exercise of business judgment. In re Elpida Memory, Inc., 2012 Bankr. LEXIS 5367, at *17 (Bankr. D. Del. Nov. 16, 2012). In determining whether a sale satisfies this standard, the courts in this Circuit require that a sale satisfy four considerations: (1) a sound business purpose exists for the sale; (2) the sale price is fair; (3) the debtor has provided adequate and reasonable notice; and (4) the purchaser has acted in good faith. Id. Moreover, great judicial deference is given to the Chapter 7 Trustee's exercise of his business judgment. Sheehan, 2011 US. Dist. LEXIS 46004, at *6-7 (Citing In re Gulf States Steel, 285 B.R. 497, 516 (Bankr. N.D. Ala.2002)). The Court should accept the Chapter 7 Trustee's business judgment, unless there is evidence of bad faith. In re Shubh Hotels Pittsburgh, LLC, 439 B.R. 637, 639 (Bankr. W.D. Pa. 2010). In reviewing the Chapter 7 Trustee's exercise of his business judgment, the Court looks at Whether the proposed transaction (1) represents a business decision, (2) is made with disinterestedness, (3) is made with due care, (4) is made in good faith, and (5) does not constitute an abuse of discretion or waste of assets. Id. (citing In re Adelphia Communications Corp., 2004 Bankr. LEXIS 971 (Bankr. S.D.N.Y. June 22, 2004)).
It is evident to the Court that the proposed sale of the Pineville Property to the Purchaser for the Final Offer of $120,000.00 meets the standards for approval under §363(b). The Chapter 7 Trustee established that there was a fulsome marketing of the property for nearly one and a half years on multiple listing sites. Although the Chapter 7 Trustee's broker testified that he received multiple inquiries regarding the property, almost none resulted in an offer to purchase it. Rather, aside from the rescinded offer the Chapter 7 Trustee received in June 2017 for $525,000.00, the only non-insider to make an offer was the Purchaser. Furthermore, when the Purchaser's due diligence resulted in the failed On Lot Sewage Inspection, even his Original Offer was rescinded as permitted under the applicable Agreement of Sale. In the context of a property that was marketed for nearly 18 months without any competing offers other than the Antunes' fatally flawed offer, and in the face of the Engineer's report concluding that the property was not suitable for development, it was a sound exercise of the Chapter 7 Trustee's business judgment to accept the Final Offer of $120,000.00, rather than incur more expense and delay trying to find a buyer willing to make a better offer, a search that for 18 months had failed to bear any fruit. Under the less-than-optimal circumstances that existed with respect to the Pineville Property, the Court finds that the sale to the Purchaser represents a sound, disinterested business decision made with due care and in good faith, and it does not constitute an abuse of discretion or waste of estate assets. The Court also finds that the Final Offer of $120,000.00 is fair under the circumstances, and the Purchaser is a good faith purchaser.
Although the Antunes attempt to paint the Chapter 7 Trustee's failure to commission his own engineering report regarding the development of the property as a lack of proper business judgment, the Court does not agree. The Chapter 7 Trustee marketed the property for 18 months, with no buyers other than the Purchaser coming forward. The market had clearly told the Chapter 7 Trustee that there was little interest in the Pineville Property, and certainly not at the price which the Chapter 7 Trustee hoped to get. In those circumstances, it was a legitimate exercise of the Chapter 7 Trustee's business judgment to take "the bird in the hand" in the form of the Final Offer from the Purchaser, rather than incur the further expense and delay of another engineer's report and the possibility of losing even the Final Offer from the Purchaser.
The fact that the Purchaser had previously retained the Engineer for services on other projects does not taint the Chapter 7 Trustee's business judgment, as any firm the Purchaser retained to perform the On Lot Sewage Inspection would not have been retained as a neutral party owing duties to the Chapter 7 Trustee as well as the Purchaser. As such, any perceived conflict the Engineer had would have existed with respect to any professional retained. The Chapter 7 Trustee has significant experience in bankruptcy and testified that he has sold many properties as a bankruptcy trustee. The Court believes he is sophisticated and experienced enough to evaluate the Engineer's report with the understanding that it was prepared by a professional retained by the Purchaser, without dismissing the report's conclusion out of hand as biased and stilted to result in a reduced purchase price.
Nor does the Court attribute any merit to the Antunes' argument that the Pineville Property was not properly marketed because the sale Sign physically located at the property was not visible for some period of time. Mr. Astrella testified that the property was listed on hundreds of websites for 18 months, as well as marketed to his contacts. The prospective purchasers who inquired about the property evidently were not hindered by the possible lack of a sale Sign at the property in learning it was for sale and Whom they should contact to inquire and arrange site visits. In the day and age of the internet and multiple site listings, the Court finds that, to the extent the physical "for sale" Sign was not visible at the Pineville Property for any period of time, this did not diminish the fulsome marketing of the property for sale or the market's reaction to the property.
Finally, the Court gives little weight to the Debtor's testimony that the Pineville Property is worth $460,000.00. His testimony in this respect was based on vague and unsubstantiated statements regarding the value of other properties in the area of the Pineville Property. Moreover, even the Debtor admitted that these "comparables" did not possess the uniquely disadvantageous characteristic of being unsuitable for development. The Debtor's testimony regarding value was unconvincing, and does not substitute for the clear evidence of value presented by the lack of interested purchasers for the property after 18 months of marketing.
For the reasons stated herein and on the record, the Court grants the Chapter 7 Trustee's Revised Sale Motion and approves the sale of the Pineville Property to the Purchaser for the Final Offer of $120,000.00. The Sale Order has been entered.
