Opinion
Case No. 94-24421-B
October 2, 1995
Tom C. Smith, Esquire, Virginia Beach, VA, of Counsel for the debtor
Frank J. Santoro, Esquire, Ann B. Brogan, Esquire, Marcus, Santoro Kozak, Portsmouth, VA, of Counsel for Edward G. Grant, trustee
C. Jay Robbins, IV, Esquire, Nunnally Robbins, Norfolk, VA, of Counsel for Formosa, Inc. and Yu-Sun Lu
Charles E. Sizemore, Jr., Esquire, Norfolk, VA, of Counsel for Grace Food
MEMORANDUM OPINION AND ORDER
This matter is before the court on the motion of Yu-Sun Lu ("Lu") and Formosa, Inc. ("Formosa") filed September 18, 1995, to reconsider a bench ruling of August 31, 1995, that denied their motion to direct the chapter 7 trustee to sell the debtor's business assets to them. For the reasons set forth herein, the motion to reconsider will be denied.
Formosa and Lu are creditors of the debtor.
An order incorporating the ruling was signed on September 20, 1995 and entered on the docket on September 21, 1995.
Under Local Rule 109(L) and Fed.R.Civ.P. 78, the court has the authority to rule upon motions without holding a hearing. After reviewing the motion, its supporting memorandum, and the trustee's memorandum in opposition, the court concludes that the relevant facts and legal authorities are adequately set forth in the motion papers and that oral argument would not assist the decisional process. Accordingly, the court dispenses with oral argument.
This case was originally commenced under chapter 11 of the Bankruptcy Code on September 22, 1994, but was converted to chapter 7 on June 15, 1995. Edward G. Grant was appointed as the chapter 7 trustee. On July 20, 1995, Formosa, Lu and Grace Food Distribution of Virginia, Inc. ("Grace Food") filed a "Motion for Entry of an Order Directing the Sale of the Assets of the Debtor" which in effect sought to compel the chapter 7 trustee to accept Grace Food's offer to purchase the inventory, accounts receivable, equipment, furniture and motor vehicles of the debtor for $20,000.00. The trustee, believing the assets were likely worth more, did not wish to accept Grace Food's offer and advised the court that he intended, with court authorization, to sell the assets at public auction.
At the hearing on August 31, 1995, the court denied the motion on the ground (1) that in a chapter 7 case it is the trustee who under § 704(1) of the Bankruptcy Code is charged with the responsibility to "collect and reduce to money the property of the estate;" and (2) that great deference would be given to the trustee's exercise of sound business judgment in determining how best to fulfill his statutory obligation.
The motion for reconsideration misconstrues the basis for the court's ruling. The court did not, as suggested by the motion to reconsider, hold that it was without authority to direct the trustee in a particular course of action. The court assumes that, upon a proper showing of benefit to the estate or other compelling circumstances, it could direct a trustee to accept an advantageous offer to purchase assets of the estate. See, In re Moore, 110 B.R. 924 (Bankr. C.D. Calif 1990) (Bankruptcy court has authority to direct trustee to administer asset). It would be a rare and exceptional set of circumstances, however, that would justify the court in doing so. See, In re Robinson, 74 B.R. 646 (E.D.Mo. 1987) (Trustee has exclusive right to sell property of chapter 7 bankruptcy estate, and debtor did not have right to sell over trustee's objection even if bankruptcy court determined sales price was fair and reasonable); In re Wilson, 94 B.R. 886, 888 (Bankr.E.D.Va. 1989) (Trustee's disposition of estate property is reviewable only for the purpose of determining whether the decision was made in an arbitrary or capricious manner; court should affirm a trustee's determination which reflects a business judgment made in good faith, upon a reasonable basis and within the scope of trustee's authority under the Bankruptcy Code).
When asked at the hearing if the movants could cite the court to any case where a bankruptcy court had ordered the trustee, over his objection, to sell to a particular buyer at a price set by that buyer, the movants were unable to cite a single such case. The memorandum filed in support of the motion to reconsider likewise cites to no such case; indeed, the only legal authority cited is a generalized reference to § 105 of the Bankruptcy Code, which grants a bankruptcy court broad authority to "issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title."
The decision in In re Moore, supra, sets forth what this court believes to be the correct rule. In that case, a bank, which was the defendant in a lender liability suit by the debtor that was pending when the bankruptcy case was commenced, offered the chapter 7 trustee $5,000.00 to purchase the debtor's various causes of action against it and its officers. The trustee, after initially ignoring the offer, advised the bank that the offer was not acceptable and then filed a no asset report. The court began its analysis by noting that the trustee "`is accountable for all property received . . . and has the duty to maximize the value of the estate. . . ." 110 B.R. at 927 (emphasis in original). The court then went on to hold:
The test involved is a balancing of the principle of discretion which the business judgment rule allows trustees in the management and distribution of estate property, and the duty imposed on trustees to maximize the value of the estate pursuant to the Code. . . . Although a trustee is not compelled to accept any offer to purchase, solely because "some recovery is better than none at all," a trustee is required to take appropriate action to liquidate the assets of the estate. The choice of which type of action (whether it be acceptance of the offer, a counteroffer, negotiation, open bidding, or bringing a formal motion for abandonment) belongs to the trustee within the sound exercise of the trustee's business judgment so long as the trustee fulfills his statutory duties.
110 B.R. at 928 (emphasis in original). Accordingly, the court denied without prejudice the bank's motion to compel the trustee to accept its current offer but directed the trustee to notice for hearing either a motion to sell the asset or a motion to abandon it.
Unlike the situation presented in Moore, this is not a case where the trustee refused an offer to sell and then simply filed a no asset report. The trustee, in the exercise of his business judgment, has refused the offer and instead seeks to sell by open bidding. There is not the slightest indication that the trustee is not moving expeditiously to liquidate the assets of the estate or is acting from any improper motive. The trustee has applied for and obtained from this court an order appointing an auctioneer to conduct a public auction of the debtor's assets. From time to time, there may arise truly unusual circumstances — where, for example, the assets to be sold are highly perishable —under which a quick private sale at a take-it-or-leave-it price would be preferable to an auction several weeks later. More often, however, one would expect a properly-advertised and well-conducted auction to yield a higher return for creditors. While obviously neither the court nor the trustee can guarantee that such will be the case, the trustee's judgment that an auction is more likely to bring a higher price is supported by common sense, and the creditors other than Lu and Formosa are more likely to have confidence that the best price was achieved where the sale is by public auction rather than pursuant to a possibly-sweetheart private sale.
Indeed, a trustee who fails to act expeditiously to liquidate assets of the bankruptcy estate is liable for damages to creditors who suffer loss as a result. Yadkin Valley Bank Trust Co. v. McGee (In re Hutchinson), 5 F.3d 750 (4th Cir. 1993).
For the foregoing reasons, the court concludes that its original ruling was correct and that no sufficient reason has been advanced to justify altering or amending the order of September 20, 1995 incorporating that ruling. Accordingly, it is
ORDERED:
1. The motion to reconsider, which the court treats as a motion under F.R.Bankr.P. 9023 to alter or amend the order of September 20, 1995, is DENIED.
2. The clerk will mail copies of this order to counsel for the debtor, counsel for the chapter 7 trustee, counsel for Yu-Sun Lu and Formosa, Inc., counsel for Grace Food Distribution of Virginia, Inc., and the United States Trustee.