255 Butler Assocs. v. 255 Butler, LLC

• Docket Number: Index No. 511560/2015,Motion Seq. No. 40
• Decision Date: 05 September 2023
• Parties: 255 BUTLER ASSOCIATES LLC, Plaintiff, v. 255 BUTLER, LLC, Defendant.
• Court: New York Supreme Court

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2023 NY Slip Op 33053(U)

255 BUTLER ASSOCIATES LLC, Plaintiff, v. 255 BUTLER, LLC, Defendant.

Index No. 511560/2015, Motion Seq. No. 40

Supreme Court, Kings County

September 5, 2023

Unpublished Opinion

Dated September 1, 2023

PRESENT-: HON. LEON RUCHELSMAN

DECISION AND ORDER

LEON RUCHELSMAN, JUDGE

The plaintiff has filed a motion seeking the right to engage in credit bidding at a pending sheriff sale. The defendant has opposed the motion. Papers were submitted, by the parties and after reviewing all the arguments this court now makes the following determination.

Credit bidding is a judicially created right where a lienholder need not bid at a judicially sanctioned sale of assets with actual cash, but rather with credit on the debt. As the court observed in In re Nunez, 630 B.R. 870 [United States Bankruptcy Court, Southern District of Florida, Miami Division 2021] citing earlier authority "this Court has long recognized the principle that no useful purpose could be served in requiring a bondholder or a mortgagor to pay cash to a court officer conducting a judicial sale when he would be entitled to immediately have it paid back to him under the decree authorizing the sale" (id).

In the context of a sheriff sale credit bidding has been utilized (see, Ekstein v. Polito Associates LLC 2022 WL 783000 [S.D.N.Y. 2022]). Indeed, in a very early New York case of credit bidding the court explained that "it seems to me very clear, that in the mode of conducting the sale under Evertson's execution, and particularly in not exacting the money on bids made by Evertson or his agent, no blame is imputable to the sheriff. It would be unreasonable, and injurious to debtors, as well as creditors, to insist, that the creditor on the execution should advance money on his bid, when the sole object of the sale, is to put money in his pocket, by paying a debt due to him" (see, Nichols v. Ketcham, 19 Johns. 84 [Supreme Court of New York 1821]) .. Further, cases, in. other jurisdictions merely confirm this intuitive expedient. Thus, in Titan Loan Investment Fund, L.P, v. Marion Hotel Partners, LLC, 891 N.E.2d .74. [Court, of Appeals of Indiana 2008] the: court explained that "where the judgment creditor bids the judgment instead of cash, such a credit bid is 'as effective as payment in actual money would have been...inasmuch as there is no reason for going through the empty form and idle ceremony of handing the money over...and then receiving it back.. (id). Again, in Jackson v. Halls, 314 P.3d 1065, 2013 UT App 254 [Court of Appeals of Utah 2013] the court explained that "allowing the executing creditor to pay its winning bid by credit is merely a convenience to avoid the 'useless ceremony' of payment to the sheriff by the very party which is entitled to receive the proceeds of the sale...'The fact that the judgment creditor does not tender the cash to the sheriff ... is irrelevant and in no way alters the character of the transaction as a sale of property purchased with cash.,.' Moreover, payment of the full bid amount by such a credit is predicated on the successful bidder being 'solely entitled to whatever sums may have been bid for the property'" (id). Again, in Holden v. Crib, 561 S.E.2d 634, 349 S.C. 132 [Court of Appeals of South Carolina 2002] the court explained that "if the successful bidder is the judgment holder and is solely entitled to whatever sums may have been bid for the property, it would be senseless to require the bidder to pay cash. The following question was put to a predecessor of this court one hundred sixty years ago: '|W]hy do so senseless and nugatory an act as to make the plaintiff in execution pay the amount of his bid by which he purchased the defendant's property ... ?' The answer supplied by the court was 'it would seem to: be a self-evident proposition, that if the [bidder] was entitled to the money, he might legally refuse to pay it to the sheriff' Cobb v. Pressly, 27 S.C.L. (2 McMu1.) 416, 418 (1842)" (id).

Lastly, in Rcd'AX Gateway Hotel LLC v. Amalgamated Bank, 566 U.S. 639, 132 S.Ct. 2065 [2012] the Supreme Court affirmed lower court rulings denying the debtors the right to engage in a cramdown plan without permitting the creditors the right to credit bid the assets at a bankruptcy auction. The cramdown plan proposed the debtors selling their assets at an auction and using the proceeds to pay the creditor bank without permitting the bank to credit bid and offset the purchase price with the debt owed. While that case rested upon statutory interpretations of the Bankruptcy Code not relevant in this context the court noted that "the pros and cons of credit-bidding are for the consideration of Congress, not the courts" (id). Indeed, absent legislative prohibitions on credit-bidding, courts have created and endorsed its common sense utility as noted above.

Thus, "credit bidding is a fact of life, an economic reality, a generally accepted mechanism by which the lender's right to receive the value of its collateral is preserved and protected" (Pacific Lumber and Philadelphia Newspapers: The Eradication of a Carefully Constructed Statutory Regime Through Misinterpretation of Section 1129(B) (2) (A) of the Bankruptcy Code, by Jason Brookner, American Bankruptcy Law Journal, [Spring 2011]) .

This does not mean to that credit bidding is not without its critics. Thus, in Matter of Homestead Partners Ltd., 197 B.R. 706 [Northern District of Georgia 1996] the court noted in a footnote that allowing the creditor Condor "to credit bid its entire claim would undermine substantially the premise upon which the auction finds justification" (id). The court reasoned that the auction "gains its impetus from a desire to introduce competition, and specifically, a need for some objective reference by which to determine whether old equity is paying market value for its proposed acquisition. Allowing Condor to credit bid would countermand this value-assessing function, since the old shareholders would bid with cash money while their main competitor spent a currency of ho consequence" (id) . The court concluded that "to prevent such a contravention of the purpose behind this auction, the Court will require Condor to bid on the same terms as- the former shareholders, in cash or its equivalent" (id) . Further, in In re. Philadelphia Newspapers, LLC, 2009 WL 3242292 [Eastern District of Pennsylvania 2009] (reversed in part by In re Philadelphia Newspapers, LLC, 418 B.R. 548 [Eastern. District of Pennsylvania 2009]) the court recited arguments presented by debtors against credit bidding. The court noted that "the Debtors argue that as a matter of policy the Lenders should otherwise be precluded the right to credit bid. The Debtors argue that investing the Lenders with the right to credit bid will chill competitive bidding. In this ragard the Debtors argue that other bidders will be disincentivized from spending the time and money to engage in the sale process if the Lenders can submit a credit bid, because the Lenders' claim vastly exceeds the fair market value of the assets in question, such that the Lenders have the absolute ability to control the outcome of any auction by simply bidding to the limit of their claim" (id).

However, these criticisms, to the extent they still exist in the bankruptcy context after RadLAX Gateway Hotel LLC v. Amalgamated Bank (supra) are unpersuasive and are surely the minority view. First, it is inaccurate to assert a credit bid does not exactly match the same results of a cash bid. As some commentators have observed "the value of the secured creditor's credit has a discrete and easily identified cash value. Forbidding credit bidding on the ground that credit is not cash is tantamount to prohibiting cash bidders from bidding with two fifty-dollar bills in lieu of a single, hundred-dollar note (see, Credit Bidding and the Design of Bankruptcy Auctions, by Vincent Buccola and Ashley Keller, George Mason Law Review [Fall 2010]). Further, concerning the argument credit bidding chills competition "there is nothing about the argument specific to credit bidding. Instead, the argument rests on the notion that bidders with deep pockets may deter bidders with limited resources. For instance, if a would-be bidder knows that Warren Buffett plans to attend an auction, she is also surely aware that Buffett can top her reservation price for any or all of the assets on the block. Yet nobody proposes to ban wealthy cash bidders from participating in a bankruptcy auction" (id).

There are situations, not applicable here, where a court can prohibit credit bidding. For example, where there is a need to obtain money for a bankruptcy estate (see. In re Biebart Bancroft, 1993 WL 21423 [Eastern District of Louisiana 1993]) or where the validity of the lien is in dispute (In re McMullan, 196 B.R. 818 [Western District of Arkansas 1996], affirmed, 162 F.3d 1164 [8th Cir. 19981).

Therefore, a survey of credit bidding demonstrates that there is no real basis to forbid its practice.

The defendant argues that credit budding should be disallowed in this case for two reasons. First, the facts surrounding the plaintiff's obtaining the judgement would chill other parties from bidding. Second, the plaintiff is an 'insider'...