WPRV-TV, Inc., In re

Decision Date04 November 1992
Docket NumberINC,92-1229,Nos. 92-1081,WPRV-T,s. 92-1081
Citation983 F.2d 336
Parties28 Collier Bankr.Cas.2d 367, Bankr. L. Rep. P 75,064 In re, Debtor, Ponce Federal Bank, F.S.B., Appellant. In the Matter of, Debtor, Puerto Rico Family Channel, Inc., Appellant. . Heard
CourtU.S. Court of Appeals — First Circuit

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

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 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.

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).

Following the hearing, the district court orally confirmed the sale to PRFC, overruled Ponce's objection to same, and denied Ponce's show cause motion addressed to the conduct of the auction. The judgment from which Ponce now appeals was entered December 18, 1991. 143 B.R. 315 As relevant events continued to occur after the confirmation, we defer discussion of Ponce's appeal until a more complete background picture has been sketched.

Shortly after the district court's approval of the sale to PRFC, a multifaceted dispute developed between the trustee and PRFC, grounded on disagreements as to the terms of the sale, the trustee's inability to determine the identity of PRFC's principals, and PRFC's apparent inability to demonstrate satisfactorily its financial ability. Armed with these concerns, and following several failed closing attempts, the trustee notified PRFC's attorney by letter dated December 13, 1991, that she was cancelling the negotiations and forfeiting PRFC's $100,000 deposit. Initially, both actions were purported to be taken pursuant to provisions of the auction bidding instructions requiring closing within thirty days of confirmation, which had taken place November 12, 1991.

The trustee claimed that prior to the time that PRFC made its purchase offer, the parties agreed that the terms of the APA and auction bidding instructions would control the sale. The parties had also agreed on certain changes to be made in the APA relative to deposit, down payment, and payment of operational expenses between the time of closing and FCC license transfer. After the confirmation, however, the trustee claimed that PRFC's attorney began attacking previously agreed-upon APA provisions.

Also troubling the trustee was the controversy concerning the identity of the parties with whom she was dealing. According to the trustee, Gonzalez Chacon and Rivera Saez indicated that PRFC had been incorporated, but during negotiations, the trustee learned that it was not. Moreover, while attorney Carlos Piovanetti apparently represented PRFC, one partner, Rivera Saez, claimed that Piovanetti did not represent him.

Finally, the trustee indicated that some of the proof of Gonzalez Chacon's financial worthiness had come from documents in the name of his son, Norman Gonzalez Rivera, which Gonzalez Chacon had represented as his own.

On December 20, 1991, responding to the trustee's actions, Gonzalez Chacon, on behalf of PRFC, filed a motion seeking return of the deposit and an order directing the trustee to negotiate with PRFC under court supervision. 9 Evidentiary hearings were held on January 21 and 27, 1992, following which the court entered an order vacating its prior confirmation of the PRFC sale, upholding the trustee's decision to forfeit the deposit, and allowing the trustee to resume her efforts to sell the station. PRFC appeals from that order.

II. DISCUSSION
A. PRFC Appeal

In setting aside the PRFC sale, the district court endorsed the trustee's position, and found and ruled that PRFC had accepted the APA and bidding instructions prior to the trustee's recommendation of the sale, and had raised no objections to their terms until...

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