Opinion
CIVIL ACTION NO. 00-3501
July 16, 2001
ORDER AND REASONS
Before the Court is JFP Drilling Company, Inc.'s Appeal of the Bankruptcy Court's Order Approving Sale of Immovable Property by Searex Energy Services, Inc. to Central Progressive Bank, Free and Clear of All Liens, Mortgages, Claims, Privileges, and Encumbrances and for Authority to Enter into Lease. For the following reasons, JFP's Appeal is DISMISSED AS MOOT.
A. BACKGROUND
The instant controversy arises out of two mortgages issued to Debtors Searex Energy Services, Inc. and Searex, Inc. (collectively "Searex") for the same property. On or about July 17, 1998, Searex executed a Collateral Mortgage Note and Promissory Note in the amount of $665,000.00, bearing 10.250% interest per annum, in favor of Appellee Central Progressive Bank of Amite ("CPB"). The promissory note was secured by Searex's real estate and all improvements located at 29092 Krentel Road, Lacombe, LA, including an office building (collectively, the "Collateral"). On October 25 and November 15, 1999 Searex executed promissory notes in favor of Appellant JFP Drilling Company, Inc. ("JFP") in exchange for a $700,000 loan. .} IFP concedes that CPB held the first mortgage on the Collateral.
See JFP App. Br. 2.
In mid-January of 2000, Searex filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. On August 31, 2000 CPB and Searex filed with the Bankruptcy Court a Joint Motion to Approve Sale of Immovable Property by Searex Energy Services, Inc. to Central Progressive Bank, Free and Clear of All Liens, Mortgages, Claims, Privileges, and Encumbrances and for Authority to Enter into Lease ("Sale Motion"). CPB and Searex sought court approval of a credit sale of the Collateral by Searex to CPB, free and clear of all claims and interest, for $697,112.82 plus attorneys fees, costs, and expenses. The Sale Motion also provided that CPB would lease the office building back to Searex for six months at $2500 per month. Were the sale approved, Searex would be relieved of all past and future indebtedness to CPB.
JFP opposed the Sale Motion, and a hearing was held before the Bankruptcy Court on September 20, 2000. At the hearing, CPB's expert witness testified that the Collateral would sell for approximately $715,000 at a distress sale, or, following one to two years of marketing, could sell for approximately $950,000. JEP presented no evidence to contradict CPB's estimates and expressly declined to outbid CPB for the Collateral. The Bankruptcy Court granted the Sale Motion.
Id. 6.
On October 6, 2000, JFP moved to stay and for reconsideration of the Sale Order. A hearing on the motions was scheduled for October 25, 2000. On October 16, 2000, however, Searex and CPB executed an Act of Sale transferring the Collateral to CPB. Following the October 25 hearing, the Bankruptcy Court denied TFP's Motion for Reconsideration but granted the Motion to Stay pending appeal, conditioned upon the posting of a $33,000 bond. JFP declined to post the bond.
On October 31, 2000, the Bankruptcy Court granted Searex's motion to convert the proceedings from Chapter 11 to Chapter 7.
On November 27, 2000, JFP filed the instant appeal contesting the propriety of the Sale Order. The parties filed their briefs pursuant to Bankruptcy Rule 8009, and the appeal was submitted as of January 17, 2001. However, near the time of the submission date, counsel for CPB informed the Court via telephone that the parties had reached an agreement to file supplemental briefs in order to apprize the Court of potentially relevant events scheduled to occur subsequent to the submission date. CPB filed a supplemental brief on April 3, 2001, and JFP filed two supplemental briefs on April 10 and June 21, 2001.
According to the supplemental briefs, CPB entered into a cash sale of the Collateral with RSB 1, L.L.C. ("RSB"), for $710,000.00 on March 12, 2001. On March 16, 2001, RSB executed a Multiple Indebtedness Mortgage, Assignment of Rents and Security agreement in favor of AmSouth Bank. JFP does not dispute the occurrence of the subsequent sale or mortgage but points out that RSB's organizer, manager, and sole member, Richard S. Blossman, Jr., was also the chairman and CEO of CPB at that time.
B. LAW AND ANALYSIS 1. Jurisdiction
This Court has jurisdiction over JFP's Appeal pursuant to 28 U.S.C. § 158 (a)(1)because the Sale Order, docketed on September 28, 2000, is a final order of the United States Bankruptcy Court for the Eastern District of Louisiana.
2. Issues Presented and Standard of Review
JFP argues that the Bankruptcy Court erred in granting the Sale Motion and in holding that CPB was not adequately protected by equity in the immovable property made the subject of the Sale Order. CPB argues that JFP's appeal is moot because CPB and Searex have already consummated the sale and/or because CPB and RSB have already consummated a subsequent sale. Searex has not filed a brief in the instant appeal.
This Court reviews the Bankruptcy Court's findings of fact under the clearly erroneous standard, see Matter of Consolidated Baneshares. Inc., 785 F.2d 1249, 1252 (5th Cir. 1986), and its conclusions of law de novo.Id. (citing Richmond Leasing Co. v. Capital Bank. N.A., 762 F.2d 1303, 1308 (5th Cir. 1985).
3. Whether the Appeal is Moot
Before the Court may consider TFP's grounds for appeal, it must first determine whether the entire appeal has been rendered moot by consummation of the sales between Searex and CPB and/or between CPB and RSB.
Stated generally, 11 U.S.C. § 363 provides that the trustee "may use, sell, or lease" "property of the estate" under certain circumstances. However, § 363(m) "provides that a purchaser or lessee of property of the estate is protected from the effects of a reversal on appeal of the authorization to sell or lease as long as the purchaser acted in good faith and the appellant failed to obtain a stay of the sale." 1 COLLIER BANKRUPTCY MANUAL ¶ 363.11, at p. 363-37 (3d ed. revised 2000). The effect of § 363(m) is to "moot the appeal by removing the remedy in sales/leases to good faith purchasers/lessees." In re Sullivan Cent. Plaza. I. Ltd., 914 F.2d 731, 734 n. 9 (5th Cir. 1990); see also In re Gilchrist, 891 F.2d 559 (5th Cir. 1990) (affirming district court's dismissal of appeal as moot pursuant to § 363(m)).
"The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal."
The Court agrees with CPB that JFP's appeal is moot pursuant to § 363(m).
First, JFP admittedly did not post the relatively small supersedeas bond required by the Bankruptcy Court as a condition of the stay. Cf In re Bleaufontaine. Inc., 634 F.2d 1383, 1389-90 (5th Cir. Unit B 1981) ("The bankruptcy court properly conditioned its grant of a stay of the sale order upon the posting of a supersedeas bond."). Thus, JEP failed to obtain a stay of both the first and second sale.
Second, JEP has failed to demonstrate that CPB is anything but a good faith purchaser of the Collateral. Though the Bankruptcy Code does not define "good faith," see 1 COLLIER BANKRUPTCY MANUAL ¶ 363.11, at p. 363-38 (3d ed. revised 2000), courts have generally held that the term "encompasses fair value, and further speaks to the integrity of the transaction", whereas "[t]ypical bad faith' or misconduct, would include collusion between the seller and buyer, or any attempt to take unfair advantage of other potential purchasers." In re 240 North Brand Partners. Ltd., 200 B.R. 653 (B.A.P. 9th Cir. 1996) (quoting In re Wilde Horse Enters, Inc., 136 B.R. 830, 842 (Bankr. C.D. Cal. 1991)); see alsoIn re Ewell, 958 F.2d 276, 281 (9th Cir. 1992) ("courts generally have followed traditional equitable principles in holding that a good faith purchaser is one who buys `in good faith' and `for value'", whereas, "[t]ypically, lack of good faith is shown by `fraud, collusion between the purchaser and other bidders or the trustee, or an attempt to take grossly unfair advantage of other bidders'") (citations omitted). JFP has presented no evidence of fraud or collusion, and CPB's mere status as a secured creditor does not suggest otherwise. See, e.g., In re Youngstown Steel Tank Co., 27 B.R. 596, 599 (W.D. Pa. 1983) (finding secured creditor to be good faith purchaser under § 363(m)). Without reaching the merits of whether this sale package represents the "highest and best value" Searex could have received for the Collateral, the Court finds nothing so shocking or facially inadequate about the sale terms as to indicate lack of good faith. To the contrary, CPB unquestionably provided Searex with value for its property, including the discharge of approximately $700,000 in pre-existing debt, the release from its obligation to make future, sizeable interest payments, and (presumably) the opportunity to retain its place of business. Had the Bankruptcy Court agreed with JFP and required one to two years of advertising prior to the sale, Searex certainly would have incurred additional debt with no guarantee of a higher sale price. Moreover, in granting the Sale Motion, the Bankruptcy Court implicitly found the sale to provide value to Searex.
JFP's sole support for its bad faith argument is that CPB "was fully aware that the highest and best value was not conferred on Debtors and their respective estates pursuant to the terms of the Joint Motion." JFP App. Br. 12. By arguing that CPB was not in good faith because it knew the purchase price was inadequate JFP implicitly asks the Court to reach the merits of its underlying appellate argument. However, the "good faith" test enunciated by courts such as the Ninth Circuit (quoted above) questions whether the property has been purchased "for value" or, alternatively, "for fair value", not whether "the highest and best value was, conferred on Debtors."
For all of these reasons, the Court finds JFP's appeal moot.
4. JEP's Claims
Because the Court finds the instant appeal moot, it does not reach the merits of JFP's claims.
C. CONCLUSION
For the reasons set forth above, IT IS ORDERED that JFP Drilling Company, Inc.'s Appeal is DISMISSED A'S MOOT.