983 F.2d 336 (1st Cir. 1993), 92-1081, In re WPRV-TV

Docket Nº:92-1081, 92-1229.
Citation:983 F.2d 336
Party Name:In re WPRV-TV, INC., Debtor, Ponce Federal Bank, F.S.B., Appellant. In the Matter of WPRV-TV, INC., Debtor, Puerto Rico Family Channel, Inc., Appellant.
Case Date:January 06, 1993
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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Page 336

983 F.2d 336 (1st Cir. 1993)

In re WPRV-TV, INC., Debtor,

Ponce Federal Bank, F.S.B., Appellant.

In the Matter of WPRV-TV, INC., Debtor,

Puerto Rico Family Channel, Inc., Appellant.

Nos. 92-1081, 92-1229.

United States Court of Appeals, First Circuit

January 6, 1993

Heard Nov. 4, 1992.

Page 337

Charles A. Cuprill-Hernandez, Ponce, PR, for appellant Ponce Federal Bank, F.S.B.

Carlos A. Piovanetti Rivera, Hato Rey, PR, for appellant Puerto Rico Family Channel, Inc.

Orlando Fernandez, with whom Edgardo Munoz, John Garcia, and Garcia & Fernandez, Hato Rey, PR, were on brief for trustee.

Before TORRUELLA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and STAHL, Circuit Judge.

STAHL, Circuit Judge.

In these consolidated appeals, each appellant, Ponce Federal Bank, F.S.B. ("Ponce") and Puerto Rico Family Channel, Inc. ("PRFC"), claims a legal entitlement to purchase debtor in bankruptcy WPRV-TV, Inc. ("WPRV" or "debtor"). After much legal wrangling, the district court 1 denied both suitors. With the exception of one issue, we affirm the district court's rulings. 2

I.

PRIOR PROCEEDINGS

On December 3, 1987, WPRV, a television station operating on channel 13 in Puerto Rico, filed a Chapter 11 voluntary petition for reorganization in the United States Bankruptcy Court for the Eastern District of Oklahoma. 3 On April 4, 1988, Ponce filed a proof of claim for the principal amount of $4,952,071. Ponce's claim was based on funds advanced under five promissory notes which were guaranteed by real estate and chattel mortgages on much of debtor's estate. 4 By June 1989, with prospects for reorganization at a nadir, and pressure from creditors and lienholders mounting, the Oklahoma bankruptcy judge, sua sponte, converted the case to one under Chapter 7. The case was then transferred to the District of Puerto Rico because the majority of the assets relevant to the case were present there. Contemporaneous with the transfer, Evangelina Vives was appointed operating and liquidating trustee of debtor's assets. Pursuant to 11 U.S.C. § 721, Vives was given authority to operate the station until July 31, 1989. This authority was subsequently extended and continues through the present time, although at this juncture it appears the station is off the air. The trustee assumed the administrative responsibilities of WPRV, maintaining it in operation ostensibly to preserve its Federal Communications Commission ("FCC") transmission license and thus its value as a going concern. 5

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On August 8, 1991, the trustee filed an "informative motion" reporting that all efforts to sell WPRV through a direct, private sale had failed and that all prospective offers had been withdrawn. Accordingly, she indicated her intent to sell the station at public auction. To that end, on September 10, 1991, the trustee filed a notice of intent to sell WPRV as a going concern at an auction to be held on September 30, 1991. The notice also indicated that a hearing to confirm the auction sale would occur on October 11, 1991.

Responding to the notice of the auction sale and the accompanying bidding instructions, Ponce delivered its sealed bid to the trustee, along with the required $150,000 deposit, on September 25, 1991, the deadline for such submissions. The bid totalled $4.85 million, consisting of Ponce's allegedly secured debt of $4.8 million, plus $50,000 cash. In addition to Ponce, two other bidders, neither of whom had submitted a prior written bid or deposit--both of which were required by the bidding instructions--appeared at the September 30, 1991, auction and bid $1.095 million and $4.055 million, respectively.

Despite the fact that Ponce was the apparent high bidder, the trustee did not immediately recommend sale of the station to it. Rather, the trustee announced that she would continue accepting offers until the date of the confirmation hearing. On October 4, 1991, Ponce challenged her action by filing a "Motion Requesting Order To Show Cause Why The Option (sic) Held On September 30, 1991, Should Not Be Adjudicated To Ponce Federal Bank And To Set Aside All Other Bids Received Contrary To Bidding Instructions."

On October 11, 1991, Bankruptcy Judge Lamoutte, prior to conducting the scheduled hearing and ruling on Ponce's motion, recused himself based on information received in a sealed motion filed by the trustee the previous day. 6 The case was then, as noted previously, transferred to the district court, which eventually rescheduled the confirmation hearing to November 12, 1991. Prior to that hearing, however, on October 24, 1991, the trustee filed a motion for authority to sell certain property of the estate free and clear of liens, with the existing liens attaching immediately to the proceeds of the sale in order to protect the equipment and property interests of the lienholders. See 11 U.S.C.A. § 363(f)(3), (5) (West 1979 & Supp.1992). Simultaneously, the trustee filed a notice of private sale, recommending a sale to PRFC, whose representative, Gonzalez Chacon, had already tendered a $100,000 earnest deposit towards the total proposed sale price of $4.835 million. 7 The notice of sale itemized

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the total price into four categories: real property ($2 million); equipment subject to Ponce's liens ($280,500); all other estate-owned equipment ($300,000); and going concern value ($2.25 million).

At the November 12, 1991, hearing, Ponce 8 objected to the PRFC sale for a number of reasons, including the fact that it still believed that it was entitled to purchase the station as a result of its--and no one else's--compliance with the auction procedures. Ponce stated, however, that it would not object to the PRFC sale provided that it was made for all of the debtor's estate and not on an itemized basis. Finally, Ponce stated that if the itemized sale were to proceed, it would bid $2 million of its claimed secured debt for the equipment subject to its lien which had been itemized on the notice of private sale at a value of only $280,000. A PRFC representative testified that if Ponce were allowed to purchase the equipment at issue, which included transmission towers vital to the station's operation, it would withdraw its bid entirely. The trustee testified that the proposed sale did not include all of the assets encumbered by Ponce liens, and that a large part of the Ponce collateral was not being sold. Finally, the trustee urged acceptance of the PRFC bid because--by bringing in over four million dollars in cash--the bid would realize the biggest benefit to the estate and creditors as a whole. In contrast, the Ponce bid included just over two thousand dollars in cash, with the rest represented by its credit claim, the actual value of which the trustee disputed. See supra note 4.

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