107 F.3d 558 (8th Cir. 1997), 95-4211, In re Food Barn Stores
|Citation:||107 F.3d 558|
|Party Name:||In re FOOD BARN STORES, INC., Debtor. FOUR B. CORPORATION, Creditor--Appellant, v. FOOD BARN STORES, INC., Debtor--Appellee.|
|Case Date:||February 20, 1997|
|Court:||United States Courts of Appeals, Court of Appeals for the Eighth Circuit|
Submitted Sept. 12, 1996.
[Copyrighted Material Omitted]
Paul M. Hoffman, Kansas City, MO, argued, for creditor-appellant.
Thomas C. Walsh, Kansas City, MO, argued (Laurence M. Frazen and Cynthia L. Dillard, on the brief), for debtor-appellee.
Before RICHARD S. ARNOLD, Chief Judge, FLOYD R. GIBSON, and ROSS, Circuit Judges.
FLOYD R. GIBSON, Circuit Judge.
In this appeal, Four B. Corporation ("Four B") challenges the district court's 1 affirmance of a bankruptcy court 2 order requiring Four B to pay $2.1 million to secure assignment of a debtor's real property lease. Utilizing a number of legal theories, Four B submits that the bankruptcy court should have permitted it to tender only $1.5 million for the contract. After careful contemplation of Four B's contentions, we affirm.
Food Barn Stores, Inc. ("Food Barn"), the debtor, owned and managed supermarkets in Missouri and Kansas. On January 5, 1993, Food Barn filed a voluntary petition for bankruptcy reorganization under Title Eleven of the United States Bankruptcy Code. For several months thereafter, the company continued to operate its business as a debtor-in-possession pursuant to 11 U.S.C. §§ 1107-1108 (1994). 3 On April 8, 1993, Food Barn entered into a Purchase Agreement with Four B; the agreement, which by its terms was subject to bankruptcy court approval, provided that Four B would tender $1.5 million to purchase the lease and certain equipment, fixtures, and inventory for the Food Barn store at a shopping center in Olathe,
Kansas. 4 The Purchase Agreement also contained two "bid protection" features. Specifically, the contract granted Four B the right to match any rival offers for the property, and it precluded Food Barn from recommending an alternate party's proposal unless the competing bidder agreed to reimburse Four B no less than $10,000 for its "actual" legal and accounting expenses.
In order to effectuate the contract, Food Barn filed with the bankruptcy court a motion seeking authorization for the transaction. At a subsequent hearing on that request, Food Barn informed the judge that Schnuck Markets, Inc. ("Schnuck"), the proprietor of yet another chain of grocery stores, had offered $1.6 million for the lease. Nonetheless, because Food Barn desired immediate consummation of the deal, it expressed a willingness to honor the original Purchase Agreement with Four B. Various interested parties then made arguments for or against assignment of the lease to Schnuck rather than Four B. 5 For instance, citing 11 U.S.C. § 365(b)(3)(D) (1994), which essentially prohibits a bankruptcy court from approving a lease assignment that will "disrupt any tenant mix or balance in [a] shopping center," and professing its understanding that Schnuck did not intend to operate a supermarket on the property, Equitable exhorted the court to deny Schnuck's attempt to obtain the lease. The representative of the Unsecured Creditors Committee, on the other hand, emphasized the importance of maximizing the estate's assets and implored the court to approve Schnuck's more lucrative bid. After some deliberation, the court orally declared its preliminary inclination to authorize the original deal between Food Barn and Four B. Within seconds, though, Schnuck announced that it was raising its offer to $2.1 million. The bankruptcy judge at that time granted Food Barn's request for a recess, stating, "Yeah, I think we all better have a recess for a half a million dollars."
When the hearing reconvened, Food Barn proposed that the court compel Schnuck to extend its best and final offer, which Four B would then be allowed to equal. Four B, relying in part upon the tenant mix protections in § 365(b)(3)(D), remonstrated that it was inappropriate for the court to consider any of Schnuck's submissions, but the bankruptcy judge accepted Food Barn's first suggestion to oblige Schnuck to submit its best and final bid. Schnuck verified that $2.1 million was its final offer, and Four B then volunteered to proceed under one of the two following courses of action: (1) it would match the offer with a right to appeal the bankruptcy court's insistence that Four B pay any amount in excess of the original $1.5 million purchase price; or (2) it would match without reservation Schnuck's initial bid of $1.6 million. The judge selected the first option, and he subsequently approved the sale to Four B for $2.1 million. In accord with the court's order, Four B placed $600,000 of the purchase price into an escrow account pending resolution of this appeal.
The district court affirmed the bankruptcy court's ratification of the sale for $2.1 million, and the matter is now before us for disposition. For reversal, Four B contends the bankruptcy judge committed error by (1) considering Schnuck's proposals despite the fact that the tenant mix provisions of § 365(b)(3)(D) would have prevented assignment of the lease to that company, (2) allowing additional bids after the court had orally accepted Four B's original $1.5 million offer, and (3) refusing to honor Four B's right to match Schnuck's initial $1.6 million submission. We consider each of these arguments seriatim.
A. Standard of Review
As a second court of review in bankruptcy proceedings, we apply the same standards used by the district court. See Jones Truck
Lines, Inc. v. Foster's Truck & Equip. Sales, Inc. (In re Jones Truck Lines, Inc.), 63 F.3d 685, 686 (8th Cir.1995). We examine the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Id. Furthermore, we will reverse on matters committed to the bankruptcy court's discretion only if the court abused its discretion. See id.
B. Schnuck's Ineligibility under § 365(b)(3)(D)
Section 365 of the Code allows the trustee, 6 within a prescribed time period and subject to statutory limitations as well as bankruptcy court approval, to assume "any executory contract or unexpired lease of the debtor." 11 U.S.C. § 365(a); see also Cameron v. Pfaff Plumbing & Heating, Inc., 966 F.2d 414, 415 (8th Cir.1992). In addition, the statute authorizes the trustee to assign most types of contracts the trustee has elected to assume. See 11 U.S.C. § 365(f). Before the court will sanction an assignment, however, the trustee must provide "adequate assurance" that the assignee will satisfactorily perform under the contract. See id. § 365(f)(2)(B).
In general, the Code is conspicuously silent on what suffices as "adequate assurance of future performance." Nonetheless, as applied to one discrete class of unexpired leases, Congress has supplied quite explicit guidelines for determining when the trustee has met this standard. See id. § 365(b)(3). Namely, when the trustee seeks to assume or assign a lease of real property in a shopping center, the trustee must furnish, inter alia, adequate assurance "that assumption or assignment of such lease will not disrupt any tenant mix or balance in such shopping center." Id. § 365(b)(3)(D). This legislative directive to protect the tenant mix in shopping centers forms the basis for one of Four B's grounds for reversal.
Four B emphasizes there is a strong inference that Schnuck, which owns a grocery store across the street from the site at issue, did not intend to open another supermarket in the location vacated by Food Barn. At the hearing in bankruptcy court, Schnuck was evasive about its designs with regard to the property, but it conceded that it would be disinclined to operate the premises as a grocery store. See Transcript of Hr'g at 142 ("Our interest in consolidating volume would be to acquire the property and sublease or lease the space to another retail use, a non-food retail use."). Echoing the protestations originally advanced by Equitable, Four B contends that Schnuck was not qualified to bid on the lease because its acquisition of the property would have necessarily disrupted the tenant mix in the Olathe shopping center. According to Four B, it naturally follows that the bankruptcy court committed error when it considered any of Schnuck's offers. 7
We disagree. To begin with, we reject any intimation that a bankruptcy court should prequalify bidders before conducting a sale of the estate's property. Adoption of this custom would, in our view, needlessly divert the court's time and resources to matters that are true issues only in the most speculative sense. See In re Joshua Slocum, Ltd., 99 B.R. 261, 264 (Bankr.E.D.Pa.1989). 8
Moreover, we are persuaded that a prequalification requirement would have an adverse effect on the bidding process. Because a premature adjudicative evaluation of an individual bidder's eligibility would almost certainly require that person to hire an attorney and prepare for a hearing without any assurance that his will be the triumphant offer, it seems obvious that prequalification would deter some individuals who might otherwise be likely to participate in the bidding. 9 See id. ("[R]equiring ... a pre-bidding qualification hearing would put a damper upon free and open participation by all retailers ready and willing to engage in the bidding-process."). Indeed, even in the relatively distinct context of § 365, we have located numerous cases in which courts solicited competing offers before assessing the eventual assignee's ability to satisfactorily perform under the relevant lease. See In re Casual Male Corp., 120 B.R. 256, 259...
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