Corporate Assets, Inc. v. Paloian

• Decision Date: 17 May 2004
• Docket Number: No. 02-3088.,02-3088.
• Parties: CORPORATE ASSETS, INC., Appellant, v. Gus A. PALOIAN, Chapter 7 Trustee of GGSI Liquidation, Inc., et al., Trustee-Appellee, and Goss International Corporation, Intervenor-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

368 F.3d 761

CORPORATE ASSETS, INC., Appellant, v. Gus A. PALOIAN, Chapter 7 Trustee of GGSI Liquidation, Inc., et al., Trustee-Appellee, and Goss International Corporation, Intervenor-Appellee.

No. 02-3088.

United States Court of Appeals, Seventh Circuit.

Argued May 13, 2003.

Decided May 17, 2004.

Peter J. Roberts (argued), Shaw, Gussis, Fishman, Glantz, Wolfson & Towbin, Chicago, IL, for Appellant.

Gus A. Paloian, Seyfarth Shaw, Chicago, IL, pro se.

Terry John Malik (argued), Winston & Strawn, Chicago, IL, for Intervenor-Appellee.

Gus A. Paloian, Seyfarth Shaw, Chicago, IL, for Debtor-Appellee.

Before ROVNER, DIANE P. WOOD, and EVANS, Circuit Judges.

ROVNER, Circuit Judge.

At an auction sanctioned by the bankruptcy court, Corporate Assets, Inc. ("CAI") submitted the high bid for assets belonging to the debtors, but its apparent victory proved short-lived. A higher, "upset" bid tendered to the debtors after the close of the auction convinced the debtors, with the bankruptcy court's approval, to reopen the bidding. CAI won the second auction with a bid $352,500 higher than its original bid. CAI appealed the bankruptcy court's decisions to reopen the bidding and to confirm the sale to CAI at the higher price established by the second auction. The district court affirmed. In re GGSI Liquidation, Inc., 280 B.R. 425 (N.D.Ill.2002). CAI has now appealed to this court, contending that the bankruptcy court abused its discretion in allowing a second auction and in refusing to confirm the results of the first auction. We also affirm.

I.

On September 10, 2001, debtors Goss Holdings, Inc. and Goss Graphic Systems, Inc.¹ (collectively, "Goss") filed voluntary chapter 11 bankruptcy petitions (later consolidated) with the bankruptcy court. Shortly thereafter, the debtors sought approval from the court to sell by auction certain personal property (including newspaper printing press manufacturing equipment, furniture, and fixtures) located at Goss's manufacturing facility in Cedar Rapids, Iowa (the "Cedar Rapids assets" or the "assets").

On December 20, 2001, the bankruptcy court entered an order approving specific bidding procedures for the auction and sale of the Cedar Rapids assets. R. 4 Tab 3 & Ex. A. Pursuant to these rules, each interested party was to submit a written bid to Goss in advance of the auction along with an executed copy of an asset purchase agreement that Goss had prepared, financial data demonstrating that it had the financial ability to consummate the asset purchase, and a deposit. Id. Ex. A at 2-3. Goss was in turn empowered to review these submissions and determine whether each bidder was "qualified" in the sense of having submitted the requisite materials and having demonstrated its bona fides and ability to make good on its offer. Id. Ex. A at 1-2. Goss was then to conduct an auction among qualified bidders on January 21, 2002, at which time those bidders would have the opportunity to increase the amounts of their bids. Id. Ex. A at 4. Upon conclusion of the auction, Goss, in consultation with its pre- and post-petition lenders and the committee of its unsecured creditors, was to ascertain the highest and best offer and present that bid to the bankruptcy court for approval at a sale hearing scheduled for January 23, 2002. Id. Ex. A at 4-5. However, Goss's recommendation that the court approve a particular offer was not to be taken as an acceptance of that offer; only the court's approval of an offer was to be so construed. Id. Ex. A at 5. A modifications provision included in the approved procedures also gave Goss substantial discretion to reject any bid and/or to impose additional conditions and terms on the sale of its property prior to the sale hearing:

Modifications

Goss may (a) determine, with the agreement of representatives of the [pre- and post-petition] Lenders and the Committee [of unsecured creditors], which Qualified Bid(s), if any, is the highest or otherwise best offer; and (b) reject at any time before entry of an order of the Bankruptcy Court approving a Qualified Bid, any bid that is (i) inadequate or insufficient, (ii) not in conformity with the requirements of the Bankruptcy Code, the bidding procedures, or the terms and conditions of sale, or (iii) contrary to the best interests of Goss, its estate[], and its creditors. At or before the Sale Hearing, Goss may impose such other terms and conditions as it may determine to be in the best interests of Goss' estate, its creditors and other parties in interest.

Id. Ex. A at 6.

Included in the draft purchase agreement that bidders were to execute in advance of the auction was a term concerning the removal of the Cedar Rapids assets from Goss's property. R. 4 Tab 3 Ex. B. at 5-6, § 5.1. That provision required the purchaser to remove the bulk of the assets from the property on or before June 1, 2002. Id. However, noting that Goss was attempting to sell the property, the agreement reserved to Goss the right to require removal of the assets prior to June 1 in the event that the property was sold. Id. A number of interested bidders expressed concern to Goss about that reservation, and some submitted written bids conditioned on deletion of that language from the purchase agreement. R. 4 Tab 4 at 9.

After becoming aware of the concerns that prospective bidders had about the early-removal provision, Goss decided that it would delete that provision from the asset purchase agreement. By this time Goss had, in fact, contracted to sell the Cedar Rapids facility to a third party. Goss arranged to sublease the property from the new owner until June 1 at a cost of $115,000, so that the eventual purchaser of the Cedar Rapids assets would not be forced to remove them from the property before that date. R. 4 Tab 9 at 13. In the week prior to the auction, Goss advised some, but not all, of the bidders on the assets that the purchase was no longer subject to the early-removal term (see R. 4 Tab 6 at 18-19, 24-25; R. 4 Tab 9 at 22-23); the rest were informed of the change at the time of the auction (see R. 4 Tab 4 at 8-10). Goss would later advise the bankruptcy court that once it informed (some of) the prospective bidders that the Cedar Rapids assets would not have to be removed prior to June 1, the bid amounts on the assets jumped from a high of approximately $1.6 million to $2.2 million. R. 4 Tab 9 at 13.

The auction proceeded as scheduled on Monday, January 21, 2002. After the amounts of the written bids that Goss had received were announced at the start of the auction, qualified bidders were given the opportunity to increase their bids. Before opening the floor to further bids, however, Goss's attorney solicited questions from the bidders. One of the bidders asked, "Will this be final today, or will someone be able to go to the court date three days from now and up our bid?" R. 4 Tab 4 at 15. Goss's attorney responded as follows:

Well, the Court's order provides that today is the day for the auction, and when we close the auction it will be final.

I cannot obviously state that someone can't walk into court on Wednesday [the day scheduled for the sale hearing] and offer 10 million dollars for the stuff and have the Court say that it's not going to accept their bid; but under the procedures, today is the day for the auction.

The debtors anticipate that when they close the auction today, they will take the lead bidder who has provided all of the necessary information and deposits to be a qualified bidder and will present that to the Court to approve.

So I guess I can't give you 100 percent assurances that someone can't walk into court on Wednesday and try to outbid whoever wins today, but I think that is a very slim possibility.

Id. at 15-16.

Of the written bids that had been submitted to Goss in advance of the auction, CAI's was the highest, in the amount of $2.25 million. When the bidding was reopened at the auction, none of the other bidders topped that bid. Several did increase their bids, but only in an apparent effort to secure second place behind CAI's high bid. Myron Bolling Auctioneers ("MBA") ultimately secured the second-place slot, with a bid of $2.075 million. At the close of bidding, Goss's counsel indicated that the final bids of the four qualified bidders would be submitted to the bankruptcy court at the sale hearing scheduled for January 23 and that Goss would expect to close on the sale on the following day. Id. at 29-30, 33-34. Goss's attorney also advised the bidders that if any of them wished to object to the sale process, they must file their objections no later than 4:00 p.m. on the day prior to the sale hearing. Id. at 33. The auction was then declared closed. Id. at 34.

The next day, January 22, MBA's representative, Myron Bolling ("Bolling") contacted Goss and indicated that MBA wished to increase its bid to $2.45 million, an amount $200,000 or just under nine percent greater than CAI's high bid. MBA had not known prior to the auction that Goss had decided to remove from the purchase agreement the language permitting Goss to require removal of the Cedar Rapids assets prior to June 1. See R. 4 Tab 6 at 18-19, 24-25; see also R. 4 Tab 4 at 10 (after Goss's counsel announces removal of that sale condition, Bolling asks him to clarify when assets would have to be removed). Evidently, during the auction, Bolling and another MBA representative were able to communicate this information to some, but not all, of the members of the MBA bidding group who were not present at the auction. R. 4 Tab 6 at 25; R. 4 Tab 9 at 14-15, 21. Following the auction, when everyone in the MBA group became aware of the change, they decided to increase MBA's bid.

Presented with the higher offer from MBA, Goss, with the concurrence of its lenders and the committee of unsecured creditors, decided that it would ask the bankruptcy court to continue the sale hearing scheduled for January 23 so that it could conduct a second auction....