THIS MATTER is before the Court on Appellant KK-PB Financial LLC's ("Appellant") appeal of three separate orders from the Bankruptcy Court below. See Case No. 9:19-cv-80343, DE 1; Case No. 9:19-cv-80351, DE 1; Case No. 9:19-cv-80363, DE 1.
Appellant filed four bankruptcy appeals between March 12, 2019 and March 15, 2019, all of which arise out of the same bankruptcy proceeding, S.D. Fla. Bankruptcy Case No. 18-19441-BKC-EPK. These appeals were initially assigned to three different District Court judges, but they have all since been transferred to the undersigned, pursuant to Local Rule 3.8 and Section 2.15.00 of the Court's Internal Operating Procedures based on the lower-numbered case, 19-80342-RLR. See Case No. 9:19-cv-80342, DE 3; Case No. 9:19-cv-80343, DE 7; Case No. 9:19-cv-80351, DE 10; Case No. 9:19-cv-80363, DE 5. The orders on appeal are as follows:
District Bankruptcy Order Title Bankruptcy Abbreviated Court Case Docket Title Number Entry 9:19-cv-80342 Order Estimating the Claim of KK-PB 603 "Estimation Financial, LLC and Denying Ability to Credit Order" Bid 9:19-cv-80343 Order (I) Granting Expedited Motion Seeking 619 "Private Sale Approval of Procedures for Amended Sale Procedures Process and (II) Scheduling Final Hearing to Order" Consider Approval of Sale of Assets Free and Clear of Liens, Claims and Encumbrances 9:19-cv-80351 Order Approving Sale of Assets to LR U.S. 651 "Sale Order" Hotels Holding, LLC Free and Clear of All Liens, Claims, and Encumbrances 9:19-cv-80363 Order Denying Motion to Stay Orders Pending 668 "Deny Stay Appeal Order"
On March 13, Appellant moved to stay the Bankruptcy Court's Sale Order, pending appeal. Case No. 19-cv-80351, Appellant's Mot. to Stay, DE 6. Appellant supplemented its Motion the same day. See Case No. 19-cv-80351, DE 9. On March 14, this Court denied the Emergency Motion to Stay. Order, Case No. 19-cv-80351, DE 13. Appellant immediately appealed to the Court of Appeals for the Eleventh Circuit. See Case No. 19-cv-80351, DE 14. The Bankruptcy Court also denied the Motion to Stay filed in that court on March 14. See Deny Stay Order, Bankr. DE 668. On appeal from this Court, the Eleventh Circuit denied Appellant's Emergency Motion to Stay a few days later, on March 18. See Court of Appeals Case No. 19-10962-F.
Appellant next requested expedited briefing in three of its four appeals. See Case No. 9:19-cv-80342, DE 7-2; Case No. 9:19-cv-80343, DE 9-2; Case No. 9:19-cv-80351, DE 16-2. Appellee joined in requesting the expedited briefing of the appeal of the Sale Order and provided the Court with a recommended briefing schedule. See Case No. 19-80351, DE 18. Appellant filed a reply to put forth its own briefing schedule. See Case No. 19-80351. DE 19. The Court considered these requests and expedited the briefing on the appeals of the
In addition to providing the parties with an expedited briefing schedule, the Court scheduled oral argument on the three appeals, as requested by Appellant. See Appellant's Reply, DE 19, 4; Order Setting Hearing, DE 22; see also Order Regarding Hearing, DE 32.
Following the Court's briefing schedule, Appellant filed its Designation of the Record and Statement of Issues on March 22. DE 21. Appellee filed its own Designation of the Record and Statement of Issues on March 27. DE 23. Appellant timely filed its initial brief on March 29, see DE 30, and Appellee filed its response brief a day ahead of schedule on April 4, see DE 33. The Court then heard oral arguments on the appeals on April 5,
The Court has considered the parties' briefing outlined above, the parties' oral arguments, the record, and is otherwise fully advised in the premises. For all of the reasons set forth below, the Court AFFIRMS the Bankruptcy Court's Private Sale Procedures Order, Sale Order, and Deny Stay Order.
II. FACTS
The three appeals addressed by this Order arise out of the voluntary bankruptcy of the Debtor-Appellee, 160 Royal Palm LLC (hereinafter, "Debtor"). See Bankr. DE 1. The Debtor owns the Palm House Hotel (the "Hotel"), which is a "partially-constructed hotel/condominium" located in Palm Beach, Florida. Appellant's App'x, A0071.
Debtor voluntarily filed for bankruptcy on August 2, 2019. A001-A0070. Beginning in October of that year, Debtor began to market the property for sale. See A0071. These marketing efforts included the retention of Cushman & Wakefield U.S., Inc., as the Debtor's exclusive real estate broker to "facilitate the sale of the Real Property and to seek and solicit potential purchasers." See Application to Employ Cushman & Wakefield, Bankr. DE 19; see also Order Approving Employment of Cushman & Wakefield, Debtor's App'x, DA001.
On October 1, 2018, Debtor sought approval to sell the Hotel through a public auction, with a stalking horse bidder, RREF II Palm House LLC. See Mot. to Approve Procedures, A0071. The stalking horse bid was for thirty-two million dollars. See id. The Bankruptcy Court granted Debtor's Motion and approved of the procedures on October 16, 2018. Bankr. Order, A0203 (amended at A0216, A0231, A0235, and A0237). Under this initial sale procedure, the bid deadline was set for November 9, 2018, with an auction and sale hearing set for November 16, 2018. See id.
The public sale process was interrupted by litigation between Appellant KKPB, the Debtor, and other creditors of the Debtor, namely, certain EB-5 investors.
Meanwhile, on November 6, 2018, the Bankruptcy Court approved the Debtor's first motion to approve a settlement agreement with the Town of Palm Beach (the "Town"). See Order Approving Settlement, DA043. The Town is one of the Debtor's creditors and asserts a secured claim in excess of four million dollars. See DA292; DA319. The Town's claims against Debtor continue to accrue daily. Deny Stay Order, Bankr. DE 668, 8. The Debtor negotiated a conditional settlement with the Town for $ 250,000, which required the execution of certain conditions, including payment by December 31, 2018 and sale to a qualified buyer. See Town Settlement. Mot., DA003. The parties later amended the settlement agreement to allow Debtor to make payment by April 30, 2019. Amended Mot., DA150. The Bankruptcy Court granted the Debtor's Amended Motion to Approve the Town Settlement on February 6, 2019. See Order Approving Amendments, DA206. In addition to settling the Town's four million dollar claim for $ 250,000, the Settlement extends development approvals for the Hotel through April 30, 2019, "provided that a qualified buyer purchases the Property and undertakes certain actions by that date." Debtor's Brief, DE 33, 11.
On February 26, 2019, the Debtor moved to approve a new sale procedure, A0240-338, which is the subject of the appealed Private Sale Procedures and Sale Orders. In its Motion, Debtor sought the Bankruptcy Court's approval of a private sale to a new bidder, LR U.S. Hotels Holdings, LLC (the "Buyer" or "LR"). A0240-338. The Motion set forth the terms of the asset purchase agreement ("APA"), which among other things, required the Debtor to withdraw the previous motion to approve public sales procedures and to sell the Hotel to LR in a private sale, subject only to overbids by RREF, the stalking horse bidder. Id. In exchange, LR would pay $ 39.6 million for the Hotel, $ 7.6 million more than the $ 32 million stalking horse bid from RREF. Id. The Bankruptcy Court held a hearing on the Motion to Approve the Private Sale on February 28; 2/28/19 Hr'g. Tr., DE 26; granted Debtor's motion and approved the private sale procedures on March 1, 2019; Bankr. DE 619; and finally approved the sale of the hotel to LR free and clear of all liens, claims and encumbrances on March 12, 2019; Bankr. DE 651. Appellant then proceeded to appeal the Bankruptcy Court's Orders as outlined above.
III. LEGAL STANDARD
District courts have jurisdiction to hear appeals from "final judgments, orders, and decrees" of a bankruptcy court.
"Where a matter is committed to the discretion of the bankruptcy court, the district court must affirm unless it finds that the bankruptcy court abused its discretion."
IV. DISCUSSION
Appellant argues that the Bankruptcy Court abused its discretion in allowing Debtor to withdraw the public auction procedures first approved of in the fall, in permitting a private sale to LR, and in approving the sale to LR. Appellant also asserts that it had standing to object in the Bankruptcy Court below and has standing to appeal to this Court. Debtor responds that as a threshold matter, Appellant does not have standing to pursue appeals of the Private Sale Procedures Order or Sale Order. In addition, Debtor maintains that Appellant has failed to establish that the Bankruptcy Court abused its discretion in any regard. The Court first addresses the parties' arguments regarding the validity of the Bankruptcy Court's Orders.
A. The Withdrawal of Public Sale Procedure and Approval of Private Sale Procedure
"A Chapter 11 debtor in possession has the power of a trustee to use or lease property of the estate under § 363(b)." In re SW Boston Hotel Venture, LLC , No. 10-14535-JNF,
The trustee or debtor-in-possession's "management of the procedural details surrounding bidding and sale are 'ultimately a matter of discretion that depends upon the dynamics of the particular situation.' " In re Phillips , Case No. 2:12-cv-585-FTM-29,
Appellant argues that the Bankruptcy Court abused its discretion in permitting
As noted above, the Debtor had broad discretion to determine the appropriate procedures for marketing and selling the bankruptcy estate's sole asset, the Hotel property. See In re Phillips ,
Appellant insists that the Bankruptcy Court's withdrawal of the public auction procedures and approval of the private sale procedure occurred far too quickly. Appellant Br., DE 30, 20-22. Appellant further suggests that the Bankruptcy Court was "wrong to find that the Private Sale Procedures was a mere continuation of the withdrawn public bid process."
Appellant also argues that it was an abuse of discretion to eliminate other potential bidders from the sale process, including KKPB. Appellant Br., DE 30, 21; Appellant Reply, DE 35, 13-20. Again, this determination was subject to the Debtor's business judgment. As Appellant acknowledged at the April 5th hearing, private sales are not unheard of in bankruptcy proceedings, and are in fact expressly contemplated by the bankruptcy rules. See
Appellant cites In re Financial News Network Inc. in support of its assertion that the Bankruptcy Court should have extended the bidding process as the Bankruptcy Court did in Financial News . Appellant Br., DE 30, 16;
Thus, the Court finds the Bankruptcy Court did not abuse its discretion in granting the Debtor's motions to withdraw the public sale procedures and approve the private sale procedure.
B. Approval of the Sale of the Hotel to LR
Having found no error in the Bankruptcy Court's approval of the private
1. Did the Debtor provide an adequate business justification for the sale to LR?
Yes. As explained above, Debtor has taken the "bird in hard" approach in accepting the LR offer. The LR offer presents a stable and certain offer, that exceeds the stalking horse bid by $ 7.6 million. The LR offer was also attractive to the Debtor, because it would allow the Debtor to take advantage of a valuable settlement offer with the Town. While the KKPB offer ostensibly could provide the estate with an additional million dollars, and indemnify the Debtor against the Town's potential claims, the Court credits the Debtor's concerns about the uncertainty of that offer. Indeed, the Debtor sought a settlement and sale with KKPB once in the past, which fell through, because KKPB defaulted.
Appellant vigorously argued at oral argument on April 5 that the Debtor should have accepted its higher bid. However, the Court notes that while a debtor has a duty to "maximize the return to a bankruptcy estate," which "often does require [the] recommendation of the highest monetary bid, overemphasis of this usual outcome overlooks a fundamental truism, i.e., a 'highest' bid is not always the 'highest and best' bid. The inclusion of 'best' in that conjunction is not mere surplusage." In re Bakalis ,
Appellant also alleges that Debtor only rejected KKPB's higher offer out of personal animus towards KKPB's owner, Mr. Straub. The Debtor provides a number of explanations for its rejection of the KKPB offer, including, among other things, Mr. Straub's litigiousness. See Appellee Br., DE 33, 33-35. Significantly, the Bankruptcy Court "credit[ed] all of [the Debtor's manager,] Mr. Glickstein's testimony on this issue, which was thorough and credible." Sale Order, Bankr. DE 651, 6. The Bankruptcy Court went on:
Among other things, Mr. Glickstein testified that the potential for about a $ 1 million increase in the overall sale price was not worth the risk that KK-PB, and its principal, Mr. Glenn Straub, would take action that would greatly increase the costs to the estate. Mr. Glickstein pointed to specific experience with Mr. Straub in this very case to support [his] view that the potential increase in recovery was fair outweighed by the risk of additional litigation. Mr. Glickstein stressed the strength of the purchaser identified in the sale motion....
While Appellant objects to the Bankruptcy Court's findings of fact, see DE 35, 19, this
The Debtor's duty is to maximize value to the creditors, and that maximization includes considerations such as finality, stability, and expeditious resolution of the bankruptcy proceeding. The LR offer, although 2.5% lower than the KKPB offer, provided that finality and stability. When asked by the Court at oral argument, Appellant could provide no other reasons why the KKPB offer constituted the highest and best offer other than the purported one-million-dollar additional benefit to the estate. Thus, to force the Debtor to forego the LR offer and subject itself to a public auction would require this Court to inappropriately use its own business judgment in place of the Debtor's, which this Court will not do.
2. Has the Debtor provided adequate and reasonable notice of the sale to interested parties?
Yes. Based on the history of this case outlined above, all interested parties were well aware that the Hotel would be sold as quickly as possible. Although interested parties were only informed on February 26, 2019 that Debtor sought to sell the property through private sale to LR, the parties have been aware for months that Debtor was actively engaged in attempting to sell the property. Accordingly, the Court finds that the Bankruptcy Court's findings of fact on this point were not clearly erroneous and finds no infirmity with the legal conclusions drawn from those facts.
3. Was the sale price fair and reasonable?
Yes. As stated above, the stalking horse bid was for $ 32 million. The LR offer was for $ 39.6 million, an increase of $ 7.6 million, or nearly 24%. The $ 40.6 million offer from KKPB did not represent the "highest and best offer" in the Debtor's business judgment, for all of the reasons discussed above. Accordingly, the Court finds that the Bankruptcy Court's findings of fact on this point were not clearly erroneous and finds no infirmity with the legal conclusions drawn from those facts.
4. Is the purchaser proceeding in good faith?
Yes. Appellant has presented no evidence to suggest LR is not acting in good faith. The Bankruptcy Court made the same conclusion, after hearing the proposed testimony of LR's officer. See also Sale Order, Bankr., DE 651, 9. Here too, the Court finds that the Bankruptcy Court's findings of fact on this point were not clearly erroneous and finds no infirmity with the legal conclusions drawn from those facts.
For all of the reasons stated above, the Court AFFIRMS the Bankruptcy Court's Private Sale Procedures Order, Bankr. DE 619, and Sale Order, DE 651.
C. Denial of Stay
Finally, the Court also notes that Appellant separately appealed the Bankruptcy Court's Deny Stay Order, Bankr., DE 668. In its brief however, Appellant stated that "the Appellant does not raise any issues with respect to the denial of the emergency stay." DE 30, 1, n. 2. Accordingly, to the extent Appellant has abandoned its appeal
In the alternative, this Court has already considered Appellant's Emergency Motion to Stay Orders Pending Appeal in the District Court, DE 6. For all of the reasons stated in the Court's Order Denying the Motion to Stay, the Bankruptcy Court's Stay Denial should also be affirmed.
V. CONCLUSION
For all of the aforementioned reasons, the Court has concluded that the Bankruptcy Court's Orders should be affirmed. Because the Court has concluded that the Bankruptcy Court's Orders should be affirmed, this Court need not reach the parties' arguments regarding Appellant's standing.
1. The following Orders of the Bankruptcy Court are AFFIRMED:
District Bankruptcy Order Title Bankruptcy Abbreviated Court Case Docket Title Number Entry 9:19-cv-80343 Order (I) Granting Expedited Motion Seeking 619 "Private Sale Approval of Procedures for Amended Sale Procedures Process and (II) Scheduling Final Hearing to Order" Consider Approval of Sale of Assets Free and Clear of Liens, Claims and Encumbrances 9:19-cv-80351 Order Approving Sale of Assets to LR U.S. 651 "Sale Order" Hotels Holding, LLC Free and Clear of All Liens, Claims, and Encumbrances 9:19-cv-80363 Order Denying Motion to Stay Orders Pending 668 "Deny Stay Appeal Order"
2. Because all appeals have been resolved in this case, the Clerk of the Court is directed to CLOSE THIS CASE for statistical purposes.
DONE AND ORDERED in Chambers, West Palm Beach, Florida, this 10th day of April, 2019.
Notes
The Court indicated in a footnote of its Omnibus Order that it would address the request to expedite briefing of the Estimation Order Appeal by separate order. At oral argument on the appeals, the Court inquired of the parties what their preferred briefing schedule would be for the Estimation Order Appeal, and the parties agreed that expedited briefing was at this time, not necessary (although Appellant noted that it might request expedited briefing in the future). Accordingly, that request to expedite is now denied as moot, and the same will be reflected in the docket of Case No. 9:19-cv-80342.
Accordingly, for the purposes of this Order, citations to docket entries refer to the record in Case No. 19-cv-80351. The Court will clearly identify when record citations are to a different District Court docket or to the Bankruptcy Court's docket.
As noted in the Court's Order Setting the Hearing, it was necessary to hold oral argument before Appellant had filed its reply brief, because the Court anticipated being in trial for the foreseeable future. See Order Setting Hearing, DE 22.
The following facts are not in dispute. See Appellant Br., 9. The Court relies on the parties' appendices to their briefs and the Bankruptcy Court's docket.
All references to the Appellant's Appendix, found at DE 30-1, are hereinafter made using A####.
All references to the Appellee-Debtor's Appendix, found at DE 33-1, are hereinafter made using DA####.
"The EB-5 investors are dozens of foreign investors who claim that tens of millions of dollars they sent to the United States were funneled through the hotel project and allegedly fraudulently misappropriated by persons then in control of the debtor and those in conspiracy with them." Deny Stay Order, Bankr. DE 668, 7. See also Li v. Walsh, Case No. 9:16-cv-81871-KAM (S.D. Fla., filed 11/14/2016).
The hearing on the motions was ultimately continued until January 8, 2019, lasted four days, and resulted in the Estimation Order that is subject to appeal in District Court Case No. 19-cv-80342. See Estimation Order, Bankr. DE 603.
As the debtor-in-possession in a Chapter 11 bankruptcy proceeding, Debtor "has the same rights and duties as a trustee." Int'l Yacht & Tennis, Inc. v. Wasserman ,
Appellant contests how much of a delay its bid would have caused. See Appellant Reply, DE 35, 15. Although the date of KKPB's proposed auction is in dispute, there is no dispute that Appellant requested some extension of the auction. See 3/8/19 Bankr. Hr'g. Tr., A0515.
Appellant contends that the KKPB bid would provide at least $ 1 million more than the LR offer at $ 39.6 million.