61 B.R. 272 (N.D.Ga. 1985), C84, Big Shanty Land Corp. v. Comer Properties, Inc.
|Docket Nº:||Civ. A. Nos. C84-2436A, C85-1888A, C85-1957A and C85-2166A.|
|Citation:||61 B.R. 272|
|Party Name:||BIG SHANTY LAND CORPORATION, et al., Appellants, v. COMER PROPERTIES, INC., et al., Appellees.|
|Case Date:||October 04, 1985|
|Court:||United States District Courts, 11th Circuit, Northern District of Georgia|
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Gus H. Small, Zusmann, Small, Stamps & White, Atlanta, Ga., for Big shanty.
Robert Hicks, Charles Campbell Hicks, Maloof & Campbell, Atlanta, Ga., for Crow Land.
James E. Massey, Hurt, Richardson, Garner, Todd & Cadenhead, Atlanta, Ga., for Crow-Childress-Mobley.
Alfred S. Lurey, Stephen R. Beckham, Kilpatrick & Cody, Atlanta, Ga., for Stricklin.
Grant Stein, Alston & Bird, Atlanta, Ga., for Comer Properties.
James C. Bussart, Fraser & Bussart, Atlanta, Ga., for Rufus Guthrie.
SHOOB, District Judge.
This Chapter 11 bankruptcy case presents the rare spectacle of a solvent debtor whose sole asset, a valuable tract of undeveloped real estate, is the object of a fierce bidding war. Presently before the Court are consolidated appeals involving three orders of the Bankruptcy Court. Although the Court will not reverse the appealed orders, it seriously doubts that the Bankruptcy Court should continue acting as a referee in the parties' dispute.
The following is a truncated version of the complicated factual background underlying this case but should suffice for present purposes. On July 29, 1983, Richard E. Thomasson 1 ("Thomasson"), an attorney, real estate broker, and restaurateur, purchased from New Shanty Joint Venture ("New Shanty") a 250 acre tract of undeveloped land located in Cobb County, Georgia. To finance the purchase, Thomasson executed and delivered to New Shanty a purchase money note of approximately five and three-quarter million dollars and a security deed. Prior to closing on the property, New Shanty released from the security deed 40 acres of the tract but retained its security interest in the remaining 210 acres. Helen C. Burt and Frank Burt, Jr., possessed a first priority security deed in the 210-acre tract, which secured a debt of approximately three hundred thousand dollars. 2
In the spring and summer of 1984, Thomasson was experiencing serious financial difficulty. Not only was Thomasson involved in a hotly disputed divorce proceeding, but he was also required to make a substantial payment on the New Shanty deed on July 29, 1984. On May 31, 1984, Thomasson formed appellant Big Shanty Land Corporation ("Debtor"). Thomasson is debtor's sole shareholder, president, and chief executive officer, and the 210-acre tract is debtor's sole asset. Because Thomasson was unable to make the payment due on the New Shanty deed, he caused debtor to file the instant Chapter 11 bankruptcy on August 8, 1984.
As the Bankruptcy Court noted, the 210-acre tract is located in a rapidly developing area. As a result, the Bankruptcy Court was quickly inundated with potential buyers. The bidding contest finally narrowed to the rival factions represented in the instant appeals. Appellee Stricklin & Company ("Stricklin") made an offer, which, it alleges, Thomasson accepted on September 27, 1984. 3 Stricklin further alleges that Thomasson reneged on this agreement and accepted a bid submitted by Appellant Crow Land Development, Inc. ("Crow").
Obviously, the stakes are high in this case, and, consequently, the parties have litigated with uncommon tenacity. Indeed, there has been much jockeying for position 4 and the record is voluminous. The Court will address each order on appeal in turn, highlighting additional background information when necessary.
The October 29, 1984 Order
By order dated October 29, 1984, the Bankruptcy Court denied debtor's motion to sell its sole asset pursuant to 11 U.S.C. § 363(b). Arguing that this was error, Crow filed an appeal and motion for leave to appeal. 5 Appellees offer three arguments in opposition to Crow's appeal: (1)
that Crow lacks standing to challenge the October 29, 1984 order; (2) that the order is interlocutory and that leave to appeal should not be granted; and (3) that the Bankruptcy Court properly denied debtor's motion to sell under § 363(b).
The Court concludes that Crow lacks standing to appeal the October 29, 1984 order. For this reason alone, the Court must dismiss this appeal and deny Crow's motion for leave to appeal. The relevant standard is the "person aggrieved" test, which is designed to limit the number of appeals arising out of bankruptcy cases. In re Fondiller, 707 F.2d 441 (9th Cir.1983). "This need springs from the nature of bankruptcy litigation which almost always involves the interests of persons who are not formally parties to the litigation." Id. at 443. A litigant qualifies as a person aggrieved if the order in question diminishes his property, increases his burdens, or impairs his rights. Id. at 442-43. "Whether an appellant is a 'person aggrieved' is a question of fact for the district court." In re Ernst, Inc., 2 B.R. 757, 760 (S.D.N.Y.1980).
In the instant case, Crow's claim to standing is predicated upon its contract with debtor. The denial of debtor's § 363(b) motion had "no direct and immediate impact" on whatever interest Crow may have had, however. See Fondiller, 707 F.2d at 443. The Bankruptcy Court did not reject the contract, but rather subjected it to the safeguards provided by Chapter 11.
Similarly, the fact that the October 29, 1984 order did not reject Crow's contract with debtor demonstrates that the order is interlocutory and thus not appealable as a matter of right. In re Tidewater Group, Inc., 734 F.2d 794, 795-96 (11th Cir.1984). The order did not resolve the parties' rights or obligations under the contract but "merely [left] the question open for future adjudication." In re Merle's Inc., 481 F.2d 1016, 1018 (9th Cir.1973). 6
In addition, even if Crow had standing to challenge the denial of debtor's § 363(b) motion, the Court would deny its motion for leave to appeal. The "abuse of discretion" standard of review controls appeals from orders involving motions to sell pursuant to § 363(b), In re Lionel Corp., 722 F.2d 1063, 1071 (2d Cir.1983); therefore, the October 29, 1984 order is a "weak candidate for interlocutory review." Providers Benefit Life Insurance Co. v. Tidewater Group, Inc., 22 B.R. 500, 506 (N.D.Ga.1982),appeal dismissed, 734 F.2d 794 (11th Cir.1984).
Furthermore, there is no indication that the Bankruptcy Court erred in denying debtor's § 363(b) motion. Crow argues that
Judge Robinson's decision that a debtor cannot sell all of its assets under 363(b) is contrary to all reported case law on the subject.... [T]here are certain circumstances under which the debtor may sell all of its assets under 363(b).
Brief of Appellant Crow Land Development, Inc., at 12. Contrary to Crow's assertion, however, there is nothing in the order of the record to indicate that the Bankruptcy Court thought the proposed sale was barred. Rather, the Bankruptcy Court held that the sale of debtor's sole
asset under § 363(b) was unwise in the instant case. 7 Although § 363(b) accords bankruptcy judges broad discretion with respect to sales of a debtor's assets, it must be remembered that § 363(b) sales that, in effect, render nugatory the procedural safeguards provided by Chapter 11 are the exception rather than the rule. Thus, a debtor seeking approval for such a sale bears the burden of articulating a sound business justification for departing from the normal procedure. See Lionel, 722 F.2d at 1070-72. Clear jurisdiction exists where the value of debtor's estate will be impaired unless its assets are sold quickly. E.g., In re Equity Funding Corporation of America, 492 F.2d 793 (9th Cir.) (per curiam), cert. denied, 419 U.S. 964 (1974). Absent clear justification, however, it would seem unwise to second-guess a bankruptcy court's refusal to approve a sale of substantial assets under § 363(b). See In re Coughlin, 27 B.R. 632, 635 (B.A.P. 1st Cir.1983) ("In considering the exercise of the bankruptcy court's discretion, the reviewing court does not conduct a balancing test; if there is sound reason for the decision ... it does not matter that there are also sound reasons for the opposite result.") (quoting In re Boston & Maine Corp., 618 F.2d 137, 141 (1st Cir.1980)).
Crow contends the fact that the sale would have realized sufficient income to satisfy all claims against the estate constitutes a sound business justification. 8 This argument has some merit. Because the contemplated sale would have resolved the outstanding claims and caused a swift end to the case, the Bankruptcy Court could have properly approved the sale. 9 But, in the Court's view, the failure to do so was not an abuse of discretion.
The Bankruptcy Court was faced with a rapidly changing scenario. At least three parties had expressed interest in the 210-acre tract. Under these circumstances, it was eminently sensible for the Bankruptcy Court to require disclosure in order to facilitate an informed decision by the creditors. Moreover, as was the case in Lionel, the value of debtor's property was secure; in fact, it was conceivable that, during the course of the plan procedure, the 210-acre tract could have increased in value as a result of continued bidding.
In sum, the Court will dismiss Crow's appeal of the October 29, 1984 order and will deny its motion for leave to appeal.
The January 25, 1985 Order
On January 25, 1985, the Bankruptcy Court entered an order denying confirmation of debtor's proposed plan on the ground that it had not been submitted in good faith as required by 11 U.S.C. § 1129(a)(3); the order also barred the...
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