931 F.3d 730
8th Cir.2019Background
- Allens, Inc. (debtor) conducted a § 363 sale of substantially all assets in Feb 2014; bankruptcy court approved sale to Sager Creek and sale closed. No direct appeal was taken.
- R. Ray Fulmer II was later appointed Chapter 7 trustee and sued >20 parties (creditors, committee members, financial advisors, Sager Creek affiliates) alleging collusion, nondisclosure of a side agreement, bid manipulation, and loss of estate assets (avoidance claims, real estate).
- Fulmer pleaded causes including breach of fiduciary duty, fraudulent transfer, conversion, tort interference, deceptive trade practices, and equitable rescission/reformation; defendants moved to dismiss under Rule 12(b).
- Bankruptcy court dismissed the amended complaint, denied leave to amend as futile, and held claims were barred as collateral attacks on the § 363 sale or failed as a matter of law (no fraud on the court, no Rule 60(b) relief). BAP affirmed; this Court also affirms.
- Court concluded Fulmer’s claims would require contradicting the sale order’s findings that Sager Creek submitted the highest/otherwise best bid and that the auction was competitive and in good faith.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Fulmer’s claims are an impermissible collateral attack on a § 363 sale | Fulmer: allegations of undisclosed side deal and bid manipulation do not seek title reversal but seek damages and redress for wrongs; not a collateral attack | Defs: sale order is final and binding against the world; claims attacking the sale’s integrity are barred under Regions Bank and related precedent | Held: Claims are barred as collateral attacks because they would undermine the sale order’s central findings |
| Whether alleged misconduct amounted to fraud on the court permitting vacation of the sale order | Fulmer: nondisclosure of scheme to court and parties equates to fraud on the court | Defs: fraud-on-the-court standard requires egregious conduct directed to the court (e.g., bribery, fabricated evidence); nondisclosure of side deal insufficient | Held: Complaint fails to plausibly allege fraud on the court; nondisclosure alone is inadequate |
| Whether Rule 60(b)(4) makes the sale order void (e.g., under Jevic) | Fulmer: sale violated priority rules akin to Jevic and thus is void | Defs: Jevic addressed structured dismissals, not routine § 363 sales; even priority deviations do not render final sale orders void post-closure | Held: Jevic does not render the sale order void here; Rule 60(b)(4) relief unavailable |
| Whether leave to amend should have been granted to add a due-process / voidness claim | Fulmer: nondisclosure deprived creditors of notice and hearing, so amendment would state a due-process / voidness claim | Defs: Notice of auction and sale hearing was provided to thousands; terms were on the record and objections permitted; proposed amendment would be futile and attack the sale | Held: Denial of leave to amend was proper because proposed claims would be futile and barred by finality/fraud-on-the-court standards |
Key Cases Cited
- Regions Bank v. J.R. Oil Co., 387 F.3d 721 (8th Cir.) (sale under § 363 is in rem and protected from collateral attacks)
- In re Met-L-Wood Corp., 861 F.2d 1012 (7th Cir.) (characterizing suits that effectively attack § 363 sales as collateral attacks)
- In re Trism, Inc., 328 F.3d 1003 (8th Cir.) (appeal affects sale validity only where challenged provision is integral to sale)
- Brown Media Corp. v. K&L Gates, LLP, 854 F.3d 150 (2d Cir.) (claims that do not threaten sale finality may proceed)
- Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (U.S. 1944) (court may vacate judgment for fraud on the court, but standard is narrow)
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (U.S.) (final bankruptcy orders ordinarily cannot be collaterally attacked as void)
- Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (U.S.) (structured dismissals that violate priority rules are unauthorized)