Waypoint Leasing Holdings Ltd. - Adversary Proceeding
MEMORANDUM DECISION GRANTING DEFENDANT‘S MOTION TO DISMISS THE FIRST AMENDED ADVERSARY COMPLAINT WITH PREJUDICE
A P P E A R A N C E S:
200 Park Avenue
New York, New York 10166
G. Alexander Bongartz, Esq.
Of Counsel
-and-
71 S. Wacker Drive, Suite 4500
Chicago, Illinois 60606
Chris L. Dickerson, Esq.
Mark D. Pollack, Esq.
Nathan S. Gimpel, Esq.
Michael C. Whalen, Esq.
Of Counsel
Attorneys for Plaintiff Macquarie Rotorcraft Leasing Holdings Limited
MANATT, PHELPS & PHILLIPS, LLP
7 Times Square
New York, New York 10036
Andrew L. Morrison, Esq.
Samantha J. Katze, Esq.
Vincent C. Papa, Esq.
Of Counsel
Attorneys for Defendant LCI Helicopters (Ireland) Limited
STUART M. BERNSTEIN
United States Bankruptcy Judge
This dispute between two non-debtors arises from the
Macquarie commenced this adversary proceeding seeking damages against LCI in its capacity as assignee of the Debtors and in its own right. (See First Amended Adversary Complaint, dated May 14, 2019 (”AC“) (ECF Doc. # 7).1 LCI moved to dismiss the AC with prejudice. While Macquarie has opposed LCI‘s motion, it has not addressed the request for dismissal with prejudice or asked for leave to replead any dismissed claims. Furthermore, the AC represents Macquarie‘s second attempt to plead viable claims.2 Accordingly, the AC is dismissed with prejudice for the reasons that follow.
BACKGROUND3
A. The Waypoint Bankruptcy and Sale Process
At all relevant times, Waypoint was engaged in the business of owning and leasing helicopters. The Debtors filed their chapter 11 petitions on November 25, 2018. (¶ 10.) Prior to the bankruptcy filing, the Debtors engaged in an out-of-court marketing process to sell substantially all of their assets.4 (¶ 11.) LCI was involved in the early stages of the marketing process and signed a non-disclosure agreement (“NDA“) on August 29, 2018 which enabled LCI to acquire confidential information from Waypoint relevant to the proposed sale. (¶¶ 11, 12.)5
The NDA imposed two limitations on LCI that figure into this dispute. The first limited LCI‘s use of the confidential information “solely for the purpose of evaluating and participating in discussions with the Company . . . .” (¶ 12; NDA § 2.) The second precluded contact with certain designated persons, including any “creditor . . . or other commercial counterparty of the Company or any subsidiary of the Company regarding the Company or its business [or] assets.” (¶ 25; NDA § 4.) The NDA carved out contact and communications that “may occur in the ordinary course of [LCI‘s] business” on matters unrelated to LCI‘s possible transaction with Waypoint, (NDA § 4), and provided that nothing in the NDA “impair[ed]” LCI‘s “ability to conduct . . . business with any third parties in the ordinary course” so long as LCI did not “disclose or refer to” its potential transaction with Waypoint or confidential information obtained pursuant to the NDA. (NDA § 2(a).)
On December 7, 2018, Macquarie entered into a Stock and Asset Purchase Agreement (“Macquarie APA“) with the Debtors to buy substantially all of Waypoint‘s assets, including the WAC 9 Assets, for $650 million. (¶ 15; ECF Main Doc. # 64, Ex. C).) Three days later, the Debtors
The bidding procedures attached as Exhibit 1 to the Bidding Procedures Order (the ”Bidding Procedures“) set up a process for third-party bidding and credit bidding. Because third parties and/or the secured parties could bid on a WAC-by-WAC basis, Macquarie had to allocate its $650 million bid among the eight WACs. (See Bidding Procedures p. 2.) After the deadline for third-party bids, the secured parties could credit bid in one of two prescribed forms. Macquarie was entitled to a breakup fee in the sum of $19.5 million plus an expense reimbursement of up to $3 million under the Macquarie APA, unless, inter alia, a transaction was effected through a credit bid. (Bidding Procedures Order ¶¶ 8, 10.) In addition, if Lombard made a credit bid for the WAC 9 Assets in the full amount of its claim, Macquarie could not submit a matching bid. (Id. ¶ 4.)
The Bidding Procedures also modified the “no contact” provisions in the NDAs that the secured creditors and prospective bidders, including Lombard and LCI, had signed. The secured parties could engage in discussions and negotiations with an entity to manage the assets upon the consummation of a successful credit bid (“Alternative Asset Manager“) and were released from any restriction on “engaging in discussions or negotiations” under their agreements with the Debtors, retroactive to December 12, 2018, ”provided, that the Debtors, WAC Lenders, WAC Facility Agent, and Credit Bidco shall, prior to any disclosure to any such Alternative Asset Manager of any confidential information, agree (with each such party acting reasonably and in good faith) on the scope of information to be provided to such Alternative Asset Managers (taking into account commercial sensitivities and antitrust and other applicable law).” (Bidding Procedures p. 5.)
B. The Auction and Sale Hearing
No third party submitted a bid, leaving only Macquarie and the secured lenders as potential purchasers. Lombard submitted a credit bid for the WAC 9 Assets in the amount of 100% of its claim. (¶ 23.) The gravamen of the Plaintiff‘s claims is that Lombard entered into a secret deal with LCI in violation of the NDA and the Bidding Procedures to sell it the WAC 9 Assets following the consummation of the credit bid. (¶ 20.) In Macquarie‘s view, Lombard‘s bid was actually a joint, collusive bid by Lombard and LCI that deprived the Debtors of the opportunity to get a higher and better bid, prevented Macquarie from acquiring the WAC 9 Assets
Evidence submitted by Lombard in support of the approval of its credit bid provided some evidentiary support for Macquarie‘s position. In response to Macquarie‘s limited objection, Lombard filed the affidavit of Ms. Jacqueline McDermott on February 11, 2019. It disclosed that Lombard was “discussing with its servicer a subsequent transaction pursuant to which the [WAC 9 Assets] would be recapitalized and sold to the servicer.” (¶ 28.)
At the hearing the next day, Macquarie‘s counsel framed the issue succinctly: “what they‘re seeking to do is eliminate the breakup fee.” (Transcript of Feb. 12, 2019 Hr‘g (“Tr.“), at 166:16-17 (ECF Main Doc. # 537) (cited in ¶¶ 29-31).) He did not object to the receipt of Ms. McDermott‘s affidavit as her direct testimony, (Tr. 163:14-22), and then subjected her to a vigorous cross-examination regarding Lombard‘s negotiations with servicers to sell the WAC 9 Assets following the consummation of the credit bid. She testified that from the beginning of Lombard‘s negotiations with Macquarie as the Debtors’ proposed stalking horse bidder, Lombard made it clear that if Macquarie wanted to acquire the WAC 9 Assets, “they needed to pay par plus accrued interest.” (Tr. 186:14-20.) Lombard was a lender, not a helicopter leasing company, (Tr. 194:24-195:5), and intended to sell the WAC 9 Assets at some point in the future. (Tr. 189:2-11; 194:3-5.) Lombard had some preliminary discussions with potential servicers, but the servicers did not have necessary information about the aircraft or the leases, Lombard did not disclose any confidential information about the aircraft or the leases, it had no agreement to sell the assets, and any sale discussions were premature. (Tr. 187:4-23; 188:22-189:1; 189:12-23; 192:20-194:23.)
Mr. Matthew Neimann of Houlihan Lokey, the Debtor‘s financial advisor, also took the stand and was cross-examined by Macquarie‘s counsel. He testified that Houlihan Lokey never consented to Lombard sharing information regarding anything other than servicing. (Tr. 225:15-23; see ¶ 30.)
After all parties rested, (Tr. 226:8-16), the Court heard closing arguments. Macquarie‘s counsel maintained that Lombard had violated the confidentiality and “no contact” provisions of its own non-disclosure agreement (“Lombard NDA“) and had entered into a collusive bidding agreement with LCI.6 These actions deprived Macquarie of its break-up fee and precluded a finding that Lombard had acted in good faith under
The Court rejected Macquarie‘s belated request for discovery. The possible violation of the NDA and collusive bidding had been raised by Macquarie in its objection to the sale of the WAC 9 Assets to Lombard. (See
The Court ruled from the bench at the conclusion of the hearing. (Tr. 250:8-253:3.) It first ruled that Lombard, not Lombard and/or LCI, was the credit bidder for the WAC 9 Assets and Macquarie was not entitled to a break-up fee based on Lombard‘s successful credit bid. (Tr. 250:8-16.) The Court also concluded that there was no evidence that Lombard had shared any confidential information with any servicers, including LCI. (Tr. 250:24-251:9.)
The “no-contact” provision of the Lombard NDA was a different story. The evidence showed that Lombard had discussed the possibility of a future sale of the WAC 9 Assets with LCI. However, the Court discounted this possible “technical violation” of the Lombard NDA because it did not affect the bidding process. (Tr. 251:9-12.) Furthermore, Lombard did not act in bad faith when it started to look around for a subsequent purchaser. Lombard was a lender that intended to liquidate its collateral and get paid back. It did not want to incur the costs of insuring the aircraft and paying a servicer. (Tr. 251:12-21.)
The final ruling concerned Macquarie‘s objection to the scope of the release that the Debtors were giving to Lombard because Macquarie would be acquiring certain of the Debtors’ claims under the Macquarie APA. The Court observed that the release was consistent with the Bidding Procedures Order except that it now was more limited because it excepted claims based on willful misconduct and gross negligence. (Tr. 251:21-252:1.) If Macquarie wanted to sue Lombard as the Debtors’ successor arguing that Lombard had engaged in the type of conduct carved out of the release, it was free to do so:
And you can make the argument, Mr. Edelman [Macquarie‘s counsel], that if you‘ve gotten that claim and somebody knowing violated, I guess, a provision restricting the use of confidential information, they engaged in willful misconduct but that‘s for another day.
(Tr. 252:2-6.)
The Court signed the order approving the sale of the WAC 9 Assets to Lombard pursuant to their credit bid the next day. (Order (I) (A) Approving Purchase Agreement Among Debtors and Successful Credit Bidder, (B) Authorizing Sale of Certain of Debtors’ Assets Free and Clear of Liens, Claims, Encumbrances, and Other Interests, and (C) Granting Related Relief, and (II) Authorizing Debtors to Take Certain Actions With Respect to Related Intercompany Claims in Connection Therewith, dated Feb. 13, 2019 (”Lombard Sale Order“) (ECF Main Doc. # 441).) The Lombard Sale Order included findings that Lombard‘s credit bid complied with the Bidding Procedures Order and it was the successful bidder for the WAC 9 Assets (Lombard Sale Order ¶ G), that Lombard was a good faith purchaser under
Macquarie asserts, upon information and belief, that LCI subsequently purchased the equity of the WAC 9 Assets from Lombard on March 7, 2019. (¶¶ 35-36.) According to section 3.01 of the Amended and Restated Equity and PPN Purchase Agreement attached to and approved by the Lombard Sale Order, the purchase price for the WAC 9 Assets as of the expected closing date of February 15, 2019, was $60,464,373.77 plus €33,588,431.00, corresponding to the amounts owed by the Debtors to Lombard on the U.S. Dollar tranche and Euro tranche, respectively, under the parties’ credit agreement. (Lombard Sale Order, Ex. A, § 3.01.) The Court takes judicial notice that as of the close on February 15, 2019, the Euro was equal to $1.1292. Accordingly, the amount of Lombard‘s credit bid and the purchase price for the WAC 9 Assets was $98,392,430.06, rounded up to $98.4 million.
The Court signed the order approving the sale of certain other assets to Macquarie on February 14, 2019. (Order (I) Approving Purchase Agreement Among Debtors and Macquarie, (II) Authorizing Sale of Certain of Debtors’ Assets Free and Clear of Liens, Claims, Encumbrances, and Other Interests, (III) Authorizing Assumption and Assignment of Certain Executory Contracts and Unexpired Leases in Connection Therewith, and (IV) Granting Related Relief, dated Feb. 14, 2019 (”Macquarie Sale Order“) (ECF Main Doc. # 444).) The Macquarie Sale Order provides, among other things, that any damages flowing from violations of the Bidding Procedures or Bidding Procedures Order “arising from intentional misconduct” are preserved, and upon the closing, were assigned to Macquarie pursuant to the terms of the Macquarie APA. (Macquarie Sale Order ¶ 42.)
B. This Adversary Proceeding
Macquarie‘s AC asserts three claims. Count I, asserted in its capacity as assignee of the Debtors, alleges that LCI breached the confidentiality and “no contact” provisions in its NDA with the Debtors through its improper contact with Lombard regarding the sale of the WAC 9 Assets and injured the Debtors “by depriving the Debtors of obtaining potential competing cash bids for the WAC 9 assets and the additional value that such bids may have realized.” (¶ 43.) Count II, asserted in Macquarie‘s own right, contends that LCI tortiously interfered with its business relationship with the Debtors under the Macquarie APA, and but for LCI‘s interference, Macquarie would have purchased the WAC 9 Assets or earned a break-up fee. (¶¶ 46, 49, 51.) Count III, asserted both in Macquarie‘s own right and in its capacity as assignee of the Debtors, alleges that LCI colluded with Lombard to control the sale price of the WAC 9 Assets in violation of
LCI‘s Memorandum of Law in Support of LCI Helicopters (Ireland) Limited‘s Motion to Dismiss, dated May 3, 2019 (”Motion to Dismiss“) (ECF Doc. # 6) and Reply Memorandum of Law in Further Support of LCI Helicopters (Ireland) Limited‘s Motion to Dismiss, dated May 17,
Macquarie asserts in opposition that the claims in the AC were not actually decided at the February 12 hearing, but rather, were expressly preserved by the Court. (Macquarie Rotorcraft Leasing Holdings Limited‘s Objection to LCI Helicopters (Ireland) Limited‘s Motion to Dismiss, dated June 7, 2019 (”Objection“), pp. 17-18 (ECF Doc. # 10).) Moreover, collateral estoppel should not apply because Macquarie did not have a “full and fair opportunity to litigate” in that proceeding. (Id. pp. 19-20.) Macquarie asserts that the Court should not consider the numerous facts outside the AC raised by LCI in its Motion to Dismiss and Suppl. Motion to Dismiss. (Id. pp. 11-13.) Macquarie also argues that its claims are adequately pleaded in the AC and are not subject to a heightened pleading standard, that it has both direct and derivative standing under the Macquarie Sale Order to assert a claim under
DISCUSSION
A. Jurisdiction
The claims asserted by Macquarie, though based in part on the pre-petition NDA, arise out of the sale of the WAC 9 Assets in this Court pursuant to the Bidding Procedures Order and the Macquarie Sale Order. Accordingly, Macquarie‘s claims arise in Waypoint‘s chapter 11 cases or, in the case of Count III, under the Bankruptcy Code, and this Court has subject matter jurisdiction under
B. Standards Governing the Motion
In order to survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.‘” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). While the Court must accept all
In ruling on a motion to dismiss under
To consider such an integral document, there must be no dispute about “the authenticity or accuracy of the document” or “the relevance of the document.” DiFolco v. MSNBC Cable L.L.C., 622 F.3d at 111 (quoting Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir. 2006)). The AC attaches the NDA and incorporates by reference and/or relies upon numerous pleadings and orders from the Waypoint bankruptcy cases, including the Bidding Procedures Motion, the Bidding Procedures Order, the Bidding Procedures, the testimony at the February 12, 2019 hearing memorialized in the transcript, and the Macquarie Sale Order. The Court may consider these documents in connection with the Motion. In addition, the AC discusses at length Lombard‘s acquisition of the WAC 9 Assets but ignores the Lombard Sale Order. The authenticity and relevance of the Lombard Sale Order is not open to question. It was executed by the Court, filed on the docket and memorializes the Court‘s findings that form the basis of LCI‘s collateral estoppel defense. Accordingly, I will also consider the Lombard Sale Order.
C. Count I: Breach of the NDA
Macquarie brings Count I as assignee of the Debtors alleging a breach of the NDA and stands in the Debtors’ shoes. The NDA is governed by New York law, (NDA § 10), and under New York law, a claim for breach of contract must allege “(1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of contract by the defendant, and (4) damages.” Eternity Glob. Master Fund Ltd. v. Morgan Guar. Tr. Co. of N.Y., 375 F.3d 168, 177 (2d Cir. 2004) (quoting Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996)). “Without a clear demonstration of damages, there can be no claim for breach of contract.” Milan Music, Inc. v. Emmel Commc‘ns Booking, Inc., 829 N.Y.S.2d 485, 486 (N.Y. App. Div. 2007). A complaint that fails to demonstrate how an alleged breach caused damage to the plaintiff is “fatally deficient.” Gordon v. Dino De Laurentiis Corp., 529 N.Y.S.2d 777, 779 (N.Y. App. Div. 1988); see also Int‘l Bus. Machines Corp. v. Dale, No. 7:11-CV-951 (VB), 2011 WL 4012399, at *4 (S.D.N.Y. Sept. 9, 2011) (“The fatal aspect of defendant‘s counterclaim is her inability to show damages.“). Allegations of damages must consist of more than “boilerplate,” and “the pleadings must set forth facts showing the damage upon which the action is based.” Gordon v. Dino De Laurentiis Corp., 529 N.Y.S.2d at 779.
Macquarie asserts that LCI breached the NDA by contacting Lombard
Assuming that LCI breached the NDA, the suggestion that the Debtors were damaged defies common sense. The WAC 9 Debtors owed Lombard approximately $98.4 million secured by the WAC 9 Assets. Secured creditors typically make credit bids to protect their collateral from a sale at a depressed price. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639, 644 n.2 (2012). In this case, Lombard credit bid the full amount of the debt. To suggest that it would not have made a credit bid but for LCI‘s prompting to prevent a sale at a depressed price belies the Supreme Court‘s observation in RadLAX and ignores the entire purpose of the right to credit bid codified in
The AC does not allege that Macquarie‘s cash bid for the WAC 9 Assets was higher, a critical piece of information in determining if the Debtor was damaged, or that Macquarie intended to pay anything more which, in any event, seemed unlikely. Ms. McDermott testified that Macquarie could have purchased Lombard‘s claim for par plus interest, i.e., the amount of Lombard‘s credit bid. Had it done so, it could have made its own credit bid. Curious about Macquarie‘s bid, the Court asked Macquarie‘s counsel at oral argument what portion of its $650 million bid it had allocated to the purchase of the WAC 9 Assets. Counsel did not know but eventually informed me that Macquarie had allocated 13.2%, or $85.8 million. (ECF Doc. # 13.) In other words, Lombard outbid Macquarie by roughly $13 million to prevent a sale to Macquarie at a depressed price, precisely what
It is equally implausible that a third party would have stepped in and made an offer higher and better than Lombard‘s credit bid. First, the deadline for third-party bids had expired before Lombard made its credit bid and the Debtors had not received any third-party bids. Second, even if a third party could still bid, its bid would have had to exceed Lombard‘s credit bid by at least $22.5 million. A third party purchase of the WAC 9 Assets would have triggered the Debtors’ obligation to pay Macquarie a $19.5 million break-up fee plus as much as $3 million as an expense reimbursement. Thus, a third party would have had to bid at least $121 million for the WAC 9 Assets in order for its bid to be higher and better than Lombard‘s credit bid. The suggestion that there were “potential competing cash bids for the WAC 9 assets” in an amount necessary to benefit the Debtors’ estates, especially when a third party could have presumably purchased Lombard‘s secured claim for $98.4 million, exceeds the bounds of wishful thinking.
Accordingly, Count I is dismissed with prejudice.
D. Count II: Tortious Interference with Business Relations
Macquarie, suing in its own right, alleges in Count II that LCI tortiously interfered with its business relations with the Debtors under the Macquarie APA and the various documents governing the bidding. In essence, the collusion between Lombard and LCI prevented Macquarie
To state a claim for tortious interference with business relations under New York law,8 “four conditions must be met: (1) the plaintiff had business relations with a third party; (2) the defendant interfered with those business relations; (3) the defendant acted for a wrongful purpose or used dishonest, unfair, or improper means; and (4) the defendant‘s acts injured the relationship.” Catskill Dev., L.L.C. v. Park Place Entm‘t Corp., 547 F.3d 115, 132 (2d Cir. 2008).
Where the plaintiff and defendant are competitors, the plaintiff faces a high bar. “The existence of competition may often be relevant, since it provides an obvious motive for defendant‘s interference other than a desire to injure the plaintiff; competition, by definition, interferes with someone else‘s economic relations.” Carvel Corp. v. Noonan, 818 N.E.2d 1100, 1104 (N.Y. 2004). If the defendant is a competitor, but “there has been no breach of an existing contract, but only interference with prospective contract rights,” the plaintiff must show that the defendant‘s conduct was not “lawful,” in other words, that it amounted to “a crime or an independent tort.” Id. at 1103. Such “‘[w]rongful means’ include physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure; they do not, however, include persuasion alone although it is knowingly directed at interference with the contract.” Id. at 1104 (citation omitted). “When a defendant has acted with a permissible purpose, such as ‘normal economic self-interest,’ wrongful means have not been shown, even if the defendant was ‘indifferent to the [plaintiff‘s] fate.‘” 16 Casa Duse, LLC v. Merkin, 791 F.3d 247, 262 (2d Cir. 2015) (quoting Carvel, 818 N.E.2d at 1103). Thus, a competitor that interferes with the plaintiff‘s prospective business relations through persuasion to advance its own economic interests does not use the wrongful means necessary to sustain the claim. NBT Bancorp Inc. v. Fleet/Norstar Fin. Grp., Inc., 664 N.E.2d 492, 497 (N.Y. 1996); Guard-Life Corp. v. S. Parker Hardware Mfg. Corp., 406 N.E.2d 445, 449 (N.Y. 1980); Krinos Foods, Inc. v. Vintage Food Corp., 818 N.Y.S.2d 67, 68 (N.Y. App. Div. 2006).
Macquarie expected to earn a break-up fee and an expense reimbursement if a third party outbid it. It contends that the collusive bidding arrangement did just that.
According to the AC, LCI “acted with malice by dishonestly, unfairly, and improperly breaching its obligations under the NDA” and “by dishonestly, unfairly, and improperly circumventing the Court-ordered bidding procedures,” (¶ 48), and that “LCI‘s conduct targeted Macquarie, its relationship with Debtor, and its anticipated purchase of the WAC9 assets.” (¶ 49.) These alleged breaches prevented Macquarie from “fully and fairly participating in the WAC9 asset sale process, deprived Plaintiff of the benefit of completing the acquisition of said assets under the
When the AC is stripped of its conclusory allegations, the insufficiency of Count II is laid bare. Macquarie acknowledges that LCI is engaged in the business of leasing aircraft, (¶ 9), and hence, was Macquarie‘s competitor. If LCI induced Lombard to sell it the WAC 9 Assets for its own economic benefit it did not use wrongful means. Macquarie does not allege that LCI engaged in “physical violence, fraud or misrepresentation, civil suits [or] criminal prosecutions.” Carvel Corp. v. Noonan, 818 N.E.2d at 1104. Accordingly, Count II is legally insufficient and is dismissed with prejudice.
E. Count III: Violation of Bankruptcy Code § 363(n)
While
Macquarie lacks standing to assert a claim under
Nor can Macquarie challenge the “intrinsic fairness” of the Lombard sale in its own right based on the same allegations of collusion between LCI and Lombard. In objecting to the proposed sale to Lombard, Macquarie argued that Lombard and LCI had colluded. As a result, Lombard was not entitled to a finding that it acted in good faith and Macquarie was entitled to a break-up fee and expense reimbursement. Following an evidentiary hearing at which Macquarie availed itself of the opportunity to cross-examine Ms. McDermott and Mr. Neimann, the Court found that “[a] fair and reasonable opportunity to object to, and be heard with respect to, the Sale Motion and the Sale Transaction has been given to all Persons entitled to notice pursuant to the Bidding Procedures Order,” (Lombard Sale Order ¶ D), “the Debtors conducted a fair and open sale process[,] the sale process and the Bidding Procedures were non-collusive, duly noticed, and provided a full, fair, and reasonable opportunity for any entity to make an offer to purchase the [WAC 9 Assets],” (id. ¶ H), the agreements governing the sale “were negotiated, proposed, and entered into by the Debtors and [Lombard] in good faith, without collusion, and from arms‘-length bargaining positions,” Lombard “is a ‘good faith purchaser’ within the meaning of
Macquarie‘s challenge to the “intrinsic fairness” of the sale is based on the same allegations it pressed at the Lombard sale hearing, constitutes an impermissible collateral attack on the Lombard Sale Order and is barred by the doctrine of collateral estoppel.10 Federal
The issue of whether Lombard acted in good faith or colluded with LCI was raised by Macquarie, litigated at length during the February 12 sale hearing and decided against Macquarie. Macquarie objected to the sale of the WAC 9 Assets to Lombard based, inter alia, on the breach of the Lombard NDA, contending that Macquarie was entitled to a break-up fee because the Lombard credit bid was actually a joint venture with LCI. It cross-examined Ms. McDermott at length on this point. As noted, the Court found, among other things, that Lombard acted in “good faith” and “without collusion,” the purchase price “was not controlled by any agreement among potential bidders,” and Lombard had not “engaged in any conduct that would cause or permit the Purchase Agreement to be avoided or costs and damages to be imposed under
GAF Holdings, LLC v. Rinaldi (In re Farmland Indus., Inc.), 408 B.R. 497 (B.A.P. 8th Cir. 2009), aff‘d on other grounds, 639 F.3d 402 (8th Cir. 2011), is directly on point. There, the plaintiff (GAF) had been disqualified as a bidder at an earlier bankruptcy auction. The bankruptcy court approved the sale to a third party, Coffeyville Resources. The order approving the sale included findings that Coffeyville made the highest and best offer, the sale procedures had been properly followed, GAF was not a qualified bidder, the consideration was fair and reasonable and the transaction was negotiated in good faith and without collusion. GAF did not object to or appeal the sale order. Id. at 501.
GAF subsequently learned that Coffeyville had offered the debtor‘s executive vice president a lucrative position if it acquired the debtor‘s assets and thereupon filed a motion under
Three years later, GAF commenced an adversary proceeding alleging misconduct on the part of various individuals and entities connected with the sale and seeking damages based on claims sounding in intentional interference with business expectancy and conspiracy. Id. The defendants moved to dismiss on a variety of grounds,
The Bankruptcy Appellate Panel affirmed on several grounds, including collateral estoppel. In order for the bankruptcy court to have entered a judgment for GAF, it would have been necessary to review issues it had already decided and overrule its prior findings. Id. at 506. GAF had the right to oppose the prior sale order, had unsuccessfully litigated its grievances through its
Macquarie‘s
Finally, Macquarie argues that it did not have a “full and fair opportunity” to litigate in that proceeding because it did not have time to conduct discovery or develop a full record. (Objection pp. 19-20.) The argument lacks merit. At the time of the Bidding Procedures Order in December 2018, Macquarie still believed that it would acquire the WAC 9 Assets because Lombard was not in the business of leasing helicopters and would not necessarily interpose a 100% credit bid. (¶¶ 21, 22.) On January 23, 2019, however, three weeks before the sale hearing, the Debtors announced that they had received a 100% credit bid from Lombard for the WAC 9 Assets. (Notice and Identities of Successful Credit Bidders, dated Jan. 23, 2019, ¶ 7(b) (ECF Main Doc. # 297); see ¶ 24.) Two weeks later, and one week before the sale hearing, Macquarie filed the Macquarie WAC 9 Sale Objection. It asserted, inter alia, that its right to a break-up fee was not affected if a lender and a third party had formed a joint venture to purchase the assets, (Macquarie WAC 9 Sale Objection ¶¶ 2, 4 (first bullet point)), and had “raised these concerns to both representatives
Macquarie received Ms. McDermott‘s declaration a day before the hearing confirming contact with a servicer and discussions about a possible future sale. Macquarie did not ask for expedited discovery to take her deposition before the hearing or a continuance prior to the hearing. Macquarie accepted her declaration as her direct testimony and cross-examined Ms. McDermott at length about the contacts with LCI. It was only after all sides rested and during closing arguments at which the Court expressed some skepticism about the evidence supporting Macquarie‘s objection that Macquarie‘s counsel suggested that some discovery and a delay might be in order. The Court denied the request for the reasons already stated. Furthermore, sales in bankruptcy often happen on an expedited basis, but expedition does not deprive a sale order of its collateral estoppel effect. Official Committee of Unsecured Creditors v. CIBC Wood Gundy Ventures, Inc. (In re Temtechco, Inc.), No. 95-00596, 1998 WL 887256, at *16 (Bankr. D. Del. Dec. 18, 1998) (ruling that collateral estoppel and res judicata barred relitigation of issues that were tried and decided at an expedited sale hearing that occurred three weeks after the chapter 11 petition date).
In this case, Macquarie was a party to the February 12 sale hearing and had a full and fair opportunity to litigate its objections to the sale of the WAC 9 Assets to Lombard based on its alleged collusion with LCI. The Court overruled those objections and found that Lombard was a good faith purchaser that did not impermissibly collude with LCI. Although aggrieved by the result — it lost its $19.5 million break-up fee and an expense reimbursement possibly worth $3 million — Macquarie never appealed from the Lombard Sale Order which is final. Macquarie‘s AC raises the same collusion issues that were rejected by the Court and memorialized in the Lombard Sale Order, and as such, Macquarie‘s Count III claims asserted as assignee and in its own right are also barred by collateral estoppel.
Accordingly, Count III is dismissed with prejudice.
The Court has considered Macquarie‘s remaining arguments and concludes that they lack merit. Settle order.
Dated: New York, New York
September 10, 2019
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Judge
Notes
The trustee may avoid a sale under this section if the sale price was controlled by an agreement among potential bidders at such sale, or may recover from a party to such agreement any amount by which the value of the property sold exceeds the price at which such sale was consummated, and may recover any costs, attorneys’ fees, or expenses incurred in avoiding such sale or recovering such amount. In addition to any recovery under the preceding sentence, the court may grant judgment for punitive damages in favor of the estate and against any such party that entered into such an agreement in willful disregard of this subsection.