497 B.R. 753
Bankr. E.D. Pa.2013Background
- Chapter 7 trustee Seitz seeks to sell the debtor's Foremost Building free and clear of liens, approving a Ciena settlement that carves out a 506(c) claim and pays normal closing costs and undisputed liens.
- Trustee seeks to terminate five leaseholds held by Peter DeFeo and International Artist Studio (IAS) and to evict the tenants, with opposing positions from the debtor, DeFeo, and Creek Road Funding LLC.
- City of Philadelphia supports sale and an escrow for disputed city tax claims; Creek Road opposes but its interest is found to be in bona fide dispute.
- The Foremost Building is the sole asset; liens and claims include Ciena (secured), City of Philadelphia (tax claims), and various unsecured claims; post-conversion, the case proceeded under chapter 7 with ongoing administration.
- Two appraisals (Lukens & Wolf valuing around $3.8–$4.0 million; RMS valuing roughly $6.3 million) and a potential January 2013 offer for $4.377 million informed the sale analysis; ultimately a cash offer of $4.0 million from Harvey was proposed and considered.
- The court approves the sale and approves the trustee's settlement with Ciena, including a carve-out, and finds bona fide disputes regarding the leasehold interests of DeFeo/IAS, permitting sale free and clear of those interests with the amount at issue preserved.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether sale of the Foremost Building can be approved free and clear of Creek Road's interest | Trustee contends Creek Road's security interest is in bona fide dispute. | Creek Road argues its interest is valid and should attach to sale proceeds. | Yes; Creek Road's interest is in bona fide dispute; sale free and clear with funds ($217,000) preserved pending resolution. |
| Whether the $4.0 million Harvey cash bid is fair and within the trustee's business judgment | Trustee/creditors contend marketing and process support the price and market realities; RMS overstates value. | Debtor/DeFeo argue RMS value is higher and trustee should have pursued higher price. | Yes; sale price within the trustee's business judgment and market realities, given marketing, exposure, and contingencies. |
| Whether the trustee may carve out a 506(c) recovery and make interim distributions to Ciena | Trustee seeks 506(c) carve-out for administrative costs and interim distributions to Ciena. | Creek Road/other creditors may be adversely affected; need careful limits. | Yes; 506(c) carve-out approved and interim distribution limited to $2.8 million, with overall administration preserved. |
| Whether the trustee can sell free and clear of DeFeo/IAS leasehold interests | Trustee seeks to divest leaseholds; DeFeo/IAS dispute validity. | DeFeo/IAS contend leases are not in default and should survive; potential 365(h) protections. | Yes; sale free and clear of DeFeo/IAS leaseholds; bona fide disputes exist as to validity; lessees to vacate absent other protections. |
Key Cases Cited
- In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143 (3d Cir.1986) (trustee sale judgments and market value factors in bankruptcy contexts)
- In re Trans World Airlines, Inc., 322 F.3d 283 (3d Cir.2003) (broad view of "interests in property" beyond mere liens)
- In re Pearl Mar Partnership, 29 F.3d 633 (9th Cir.1994) (illustrates recovery of ancillary expenses against proceeds)
- In re K.C. Machine & Tool Co., 816 F.2d 238 (6th Cir.1987) (principles on distribution of proceeds when property is encumbered)