Fulmer v. Fifth Third Equip. Fin. Co. (In re Veg Liquidation, Inc.)
| Decision Date | 26 July 2019 |
| Docket Number | No. 18-1786,18-1786 |
| Citation | 931 F.3d 730 |
| Parties | IN RE: VEG LIQUIDATION, INC., formerly known as Allens, Inc.; All Veg, LLC, Debtors. R. Ray Fulmer, II, Appellant, v. Fifth Third Equipment Finance Company; Ryder Integrated Logistics, Inc.; International Paper Company; URS Real Estate, LP ; Ball Metal Food Container, LLC; Syngenta Seeds, Inc.; Teneo Securities, LLC ; Andrew Torgove; Lazard Middle Market LLC; Lazard Freres & Co. LLC; Alvarez & Marsal, North America, LLC; Alvarez & Marsal Private Equity Performance Improvement, LLC; Jonathan Hickman; Sager Creek Vegetable Company, formerly known as Sager Creek Acquisition Corp., now known as 412, Inc.; 1903 Onshore Funding, LLC; Cortland Capital Market Services, LLC; Sankaty Credit Opportunities, IV, L.P. ; Sankaty Credit Opportunities, IV, L.P. (Caymanian), correctly named as, Sankaty Credit Opportunities, (Offshore Master) IV; Sankaty Middle Market Opportunities Fund, L.P. ; Sankaty Middle Market Opportunities Fund, L.P. (Caymanian), correctly named as, Sankaty Middle Market Opportunities Fund, (Offshore Master), L.P.; Does 1-100; Alvarez & Marsal Holdings, LLC; 412, Inc., formerly known as Sager Creek Vegetable Company, formerly known as Sager Creek Acquisition Corp. ; Sankaty Credit Opportunities, (Offshore Master) IV; Sankaty Middle Market Opportunities Fund, (Offshore Master), L.P., Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Whitney A. Davis, LAW OFFICES OF WHITNEY A. DAVIS, Fort Worth, TX, Roland Ray Fulmer, II, LEDBETTER & COGBILL, Fort Smith, AR, James E. Smith, Heather G. Zachary, WILLIAMS & ANDERSON, Little Rock, AR, for Appellant.
Lloyd A. Lim, REED & SMITH, Houston, TX, Kathryn A. Stocks, JONES & JACKSON, Fort Smith, AR, for Appellee Fifth Third Equipment Finance Company.
John T. Carroll, III, Barry M. Klayman, COZEN & O'CONNOR, Wilmington, DE, Geoffrey B. Treece, QUATTLEBAUM & GROOMS, Little Rock, AR, for Appellee Ryder Integrated Logistics, Inc.
Bruce Buechler, LOWENSTEIN & SANDLER, Roseland, NJ, Joseph F. Kolb, J. KOLB, Little Rock, AR, for Appellee International Paper Company.
James F. Dowden, Little Rock, AR, Sean Christopher Kulka, Richard A. Mitchell, Scott Ernest Taylor, ARNALL & GOLDEN, Atlanta, GA, for Appellee URS Real Estate, LP.
Amanda L. Brown, Marcella L. Lape, Felicia Gerber Perlman, Charles F. Smith, SKADDEN & ARPS, Chicago, IL, Andrew R. Turner, Attorney, CONNER & WINTERS, Tulsa, OK, for Appellee Ball Metal Food Container, LLC.
David H. Conaway, Frederick M. Thurman, Jr., SHUMAKER & LOOP, Charlotte, NC, Jay B. Williams, WILLIAMS LAW FIRM, Gentry, AR, for Appellee Syngenta Seeds, Inc.
Michael G. Smith, DOVER & DIXON, Little Rock, AR, for Appellee Teneo Securities, LLC.
Woodson William Bassett, III, James M. Graves, BASSETT LAW FIRM, Fayetteville, AR, Elliot A. Bromagen, Matthew A. Clemente, SIDLEY & AUSTIN, Chicago, IL, Gordon Dwyer Todd, SIDLEY & AUSTIN, Washington, DC, for Appellees Andrew Torgove, Lazard Middle Market LLC, Alvarez & Marsal, North America, LLC, Alvarez & Marsal Private Equity Performance Improvement, LLC, Jonathan Hickman, Alvarez & Marsal Holdings, LLC.
Jason N. Bramlett, FRIDAY & ELDREDGE, Little Rock, AR, Michael T. Mervis, Scott K. Rutsky, PROSKAUER & ROSE, New York, NY, for Appellees Sager Creek Vegetable Company, 1903 Onshore Funding, LLC, Sankaty Credit Opportunities, IV, L.P. Sankaty Credit Opportunities, IV, L.P. (Caymanian), Sankaty Middle Market Opportunities Fund, L.P., Sankaty Middle Market Opportunities Fund, L.P. (Caymanian)
Jason N. Bramlett, FRIDAY & ELDREDGE, Little Rock, AR, Barbra R. Parlin, HOLLAND & KNIGHT, New York, NY, for Appellee Cortland Capital Market Services, LLC.
Jason N. Bramlett, FRIDAY & ELDREDGE, Little Rock, AR, Michael T. Mervis, PROSKAUER & ROSE, New York, NY, for Appellee 412, Inc.
Michael T. Mervis, PROSKAUER & ROSE, New York, NY, for Appellees Sankaty Credit Opportunities, (Offshore Master) IV, Sankaty Middle Market Opportunities Fund, (Offshore Master), L.P.
Before SMITH, Chief Judge, COLLOTON and ERICKSON, Circuit Judges.
R. Ray Fulmer, II, a Chapter 7 bankruptcy trustee, sued a number of parties involved in the sale of a bankruptcy estate’s assets under 11 U.S.C. § 363. The bankruptcy court1 dismissed Fulmer’s claims on the ground that they were either impermissible collateral attacks on an earlier order approving the sale or without merit. The court also denied Fulmer leave to file a second amended complaint. The Bankruptcy Appellate Panel affirmed. Fulmer appeals to this court, and we affirm.
The dispute arises from bankruptcy proceedings for Allens, Inc., an Arkansas food canning enterprise. After encountering financial difficulties, Allens filed for Chapter 11 bankruptcy in October 2013. The bankruptcy court authorized bidding procedures for the sale of substantially all of Allens’s assets. Allens then moved to sell the assets under 11 U.S.C. § 363(b) and (f), which authorize the sale of a bankruptcy debtor’s assets when certain conditions are met.
Allens identified Seneca Foods Corporation as the "Stalking Horse" purchaser—that is, the potential purchaser whose opening bid would set the floor at the auction—and prepared a "stalking horse asset purchase agreement" between Allens and Seneca Foods. The bankruptcy court granted the motion for sale after notice and a hearing. Allens then served a "Notice of Bid Procedures, Sale Hearing and Objection Deadlines" for the auction on more than 5,000 creditors and parties in interest through a noticing agent.
The auction occurred between February 3 and 6, 2014. At the auction, a marketing firm retained by Allens estimated the net value of each bid submitted. The marketing firm ultimately valued Seneca’s opening bid at approximately $117 million, whereas the unadjusted price in the stalking horse asset purchase agreement had been $148 million. Sager Creek Acquisition Corp., an entity formed by a group of second lienholders, also submitted a bid, which the marketing firm valued at $160 million. Allens ultimately deemed Sager Creek the successful bidder for the estate’s assets, but the final asset purchase agreement reflected a sale price of just under $125 million. After a hearing, the bankruptcy court issued a detailed order approving the sale to Sager Creek. No appeals were taken, and the sale closed on February 28, 2014.
Within a few months, the bankruptcy court converted the proceeding to a Chapter 7 bankruptcy and appointed Fulmer as trustee of the bankruptcy estate. Fulmer brought this action in February 2016, and filed a first amended complaint in April 2016.
In his amended complaint, Fulmer names more than twenty defendants allegedly connected in various ways to the sale of the Allens assets. He groups them into three categories: the "Committee Defendants," who were members of the unsecured creditors committee in the Chapter 11 proceeding; the "Fiduciary Defendants," who were retained by Allens to serve as financial advisors in the proceeding; and the "Sager Creek Defendants," who held interests in Allens as second lienholders. The amended complaint asserts fourteen causes of action, all arising from the defendants’ alleged conduct in connection with the sale proceedings. The defendants moved to dismiss the complaint for failure to state a claim. See Fed. R. Bankr. P. 7012(b).
The bankruptcy court dismissed the complaint and denied as futile Fulmer’s request for leave to file a second amended complaint. The court determined that Fulmer did not plead a plausible claim of fraud on the court, collusion among bidders under 11 U.S.C. § 363(n), or for post-judgment relief from the sale order under Federal Rule of Civil Procedure 60(b). The court concluded that the trustee’s other claims were barred by the finality of the order approving the asset sale under § 363, and that the proposed amended complaint would be futile. The Bankruptcy Appellate Panel (BAP) affirmed.
In an appeal from a decision of the BAP, we are a second reviewing court. We review de novo both the bankruptcy court’s grant of a motion to dismiss for failure to state a claim, and the court’s denial of leave to amend that rests on a legal conclusion of futility. In re Archdiocese of Saint Paul & Minneapolis , 888 F.3d 944, 950 (8th Cir. 2018) ; In re Senior Cottages of Am., LLC , 482 F.3d 997, 1001 (8th Cir. 2007).
The first issue on appeal is whether Fulmer’s claims constitute an impermissible collateral attack on an asset sale in bankruptcy that was consummated under 11 U.S.C. § 363. To evaluate this contention, it is necessary to review Fulmer’s allegations in the first amended complaint.
As Fulmer tells it, the Committee Defendants and the Sager Creek Defendants—all of them creditors of Allens—were at risk of receiving less than full repayment as bankruptcy loomed in 2013. The Sager Creek Defendants’ loans were only partially secured, and Seneca’s stalking horse bid, if successful, would have relegated $30 million of those defendants’ claims to unsecured creditor status. The Committee Defendants, for their part, held at least $72 million in unsecured claims for accounts receivable. The Committee Defendants had also received more than $18 million from Allens in the ninety days preceding the bankruptcy, such that a trustee potentially could avoid those transfers under 11 U.S.C. § 547(b).
Fulmer alleges that before the initial bankruptcy filing, one of the Committee Defendants, Ball Metal Food Container Corp., executed an undisclosed agreement with the Sager Creek Defendants. The agreement, according to Fulmer, provided that Ball would receive a lucrative contract with a new entity formed by the Sager Creek Defendants (i.e. , Sager Creek Acquisition Corp.) if that entity was the successful bidder in a § 363 sale for Allens’s assets. Ball ultimately had one of the largest claims as a member of the unsecured creditors’ committee in the Chapter 11 proceedings.
Fulmer then claims that the Fiduciary Defendants, who...
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