Goldstein Dev. Corp. v. Berlin & Denmar Distribs., Inc.
| Decision Date | 31 July 2013 |
| Docket Number | 13 Civ. 2310 (LGS) |
| Court | U.S. District Court — Southern District of New York |
| Parties | GOLDSTEIN DEVELOPMENT CORP., Interested Party / Appellant, v. BERLIN & DENMAR DISTRIBUTORS, INC., Debtor / Appellee. |
Goldstein Development Corp. ("Goldstein") appeals from the February 25, 2013 decision and order (the "Order") of the Bankruptcy Court for the Southern District of New York, granting in part and denying in part Goldstein's July 4, 2012 motion seeking the return of its deposit of $94,000, made in connection with Goldstein's highest bid submitted to purchase certain properties of the Appellee and Debtor Berlin & Denmar Distributors, Inc. ("Berlin" or the "Debtor"), in an auction held before the Bankruptcy Court. After full briefing, an evidentiary hearing and oral argument, Judge Stuart M. Bernstein ordered Goldstein to forfeit $50,000 of its $94,000 deposit, the return of which Goldstein now seeks on appeal. For the reasons stated below, the Bankruptcy Court's Order is affirmed in all respects.
Before the bankruptcy, Berlin operated a food distribution business from cooperative units located at the Hunts Point Cooperative Market ("Hunts Point"), a desirable location for food distribution in the Bronx, New York. On October 21, 2010, Berlin filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On January 9, 2012, Judge Bernsteinentered an order approving the "Disclosure Statement" regarding the Second Amended Plan of Liquidation (the "Plan"). The centerpiece of the Plan was the sale of the Debtor's shares in four cooperative units located at Hunts Point, of which the shares of three units are at issue here (the "Coop Shares").
The Plan and the Disclosure Statement set forth procedures pursuant to which prospective buyers could bid on the Coop Shares (the "Bidding Procedures.") The Bidding Procedures defined a "Qualified Competing Bidder" as "a party which the Debtor reasonably believes to be financially able and interested in consummating a purchase of the Property" and that submits an offer of purchase. (Plan § 6.9 (d)). Each Qualified Competing Bidder was required to pay the Debtor $50,000, defined in the Bidding Procedures as the "Deposit." (Plan §6.9(c), (g)). The Bidding Procedures further provided that if any Qualified Competing Bidder became the "Purchaser," the Deposit would be deemed non-refundable and "shall be forfeited to the Debtor if such Purchaser fails to close for any reason whatsoever." (Plan § 6.9(i)). Under the terms of the Plan, the "Purchaser" was defined as a "successful purchaser of any of the units of the Debtor's Property which is being sold pursuant to this Plan." (Plan § 1.57). The Bidding Procedures further provided that "a Qualifying Competing Bid must not be contingent upon either financing or the conduct or results of any due diligence investigation." (Plan § 6.9(l)).
On March 5, 2012, Goldstein faxed the Debtor an offer to pay $700,000 for the Coop Shares. Berlin responded by email stating that "[i]n order to close on the sale, the buyer must complete the sublease application. . . ." (March 6, 2012 email, Ex. B to Berlin's Objection to Goldstein's Motion). The sublease application was attached to the email for Goldstein to complete. The application included a pre-printed representation by the applicant that it operated a business in the food industry.
Judge Bernstein conducted the auction on March 7, 2012. Of the bidders, Goldstein made the highest bid of $940,000, which was accepted. At the conclusion of the auction, Goldstein paid a 10% deposit of $94,000 to Berlin's counsel, which exceeded the $50,000 Deposit required from a Qualified Competing Bidder under the Bidding Procedures. On March 22, 2012, Judge Bernstein confirmed the sale of the Coop Shares to Goldstein in an order (the "Auction Order"), which incorporates the Plan, including the Bidding Procedures. The Auction Order confirmed that Goldstein offered the highest and best price and was deemed to be the "Purchaser" of the Coop Shares. (Auction Order at 2).
On the same day, March 22, 2012, Hunts Point sent an email to Berlin (which it immediately forwarded to Goldstein) expressing "serious concerns and questions" concerning Goldstein's purchase of the Coop Shares, including that Goldstein was not engaged in the food distribution business, a requirement for becoming a shareholder; and that Goldstein's intended sublease of the units to another entity was prohibited. Hunts Point offered to discuss the issues with Goldstein, but no discussions occurred. On April 28, 2012, Goldstein informed Berlin that it could not correct the deficiencies to be able to complete the transaction and sought a refund of the $94,000 deposit.
On November 20, 2012, Judge Bernstein heard counsel's arguments on Goldstein's application for the return of its deposit. On January 24, 2013, he held an evidentiary hearing at which Goldstein called two witnesses and the Bankruptcy Court received exhibits. After the testimony, the Bankruptcy Court again heard argument and then issued an oral opinion, including findings of fact and conclusions of law.
Judge Bernstein relied on the terms defined in the Plan and Bidding Procedures to reach his decision. The Bidding Procedures provided that a Qualified Competing Bidder that became the Purchaser would forfeit the deposit if it "fail[ed] to close for any reason whatsoever." (Plan § 6.9(i)). Judge Bernstein found that Goldstein was a Qualified Competing Bidder as defined in the Bidding Procedures because the Debtor reasonably believed that Goldstein was financially able and interested in consummating the purchase. The Judge rejected Goldstein's argument that, because it did not satisfy Hunts Point's requirements, Goldstein was not a Qualified Competing Bidder, as those requirements were not part of the definition of that term.
Judge Bernstein also rejected the argument that Berlin had wrongfully induced Goldstein to bid. The Judge did not credit Goldstein's witness, who testified that a "Mr. Norman," whom the witness believed to be the chief executive of Berlin, called Goldstein's subtenant about the availability of the Hunts Point coop units, and then arranged for the witness to pay $5,000 cash in exchange for the assurance that Goldstein would be the successful bidder for the Coop Shares. Judge Bernstein noted that this fact was never raised prior to or at the time of the auction or in any of Goldstein's papers.
Judge Bernstein found, and the uncontroverted testimony showed, that Goldstein had not done any due diligence before bidding, and in particular had not read or heeded the preprinted representation on the shareholder application form that the applicant operated a business in the food industry.
While Judge Bernstein relied on the definitions of "Qualified Competing Bidder" and "Purchaser" to determine that Goldstein must forfeit the Deposit, he relied on the definition of the term "Deposit" to limit the forfeiture to $50,000 rather than Goldstein's entire $94,000 payment. The Bankruptcy Court reasoned that, because "Deposit" was defined as the $50,000that a Qualified Competing Bidder was required to pay, only that amount was subject to forfeiture.
Finally, the Bankruptcy Court cited the general rule of the importance of enforcing the finality of bankruptcy sales and strictly enforcing the terms of a sale against a buyer, including when a defaulting purchaser will lose its deposit, citing Target Two Associates, L.P., No. 04 Civ. 8657, 2006 WL 3068668, at *6 (S.D.N.Y. 2006), aff'd, 282 F. App'x 914 (2d Cir. 2008). Judge Bernstein found that equitable considerations that might warrant a different result are not present here. (Transcript of Jan. 24, 2012 hearing at 79).
Judge Bernstein granted Goldstein's application in part, to the extent that he required Berlin to return $44,000 of Goldstein's $94,000 deposit. Goldstein now appeals from this decision and seeks the return of the entirety of its $94,000 deposit.
Final orders of the bankruptcy court may be appealed to the district court as of right. 28 U.S.C. § 158(a)(1). The district court "independently review[s] the factual determinations and legal conclusions of the bankruptcy court." Theatre Row Phase II Associates v. H & I Inc., 443 B.R. 592, 596 (S.D.N.Y. 2011) (quoting Jackson v. Novak (In re Jackson), 593 F.3d 171, 176 (2d Cir. 2010)). A district court "may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree." Fed. R. Bankr. P. 8013. On appeal, the legal conclusions of the bankruptcy court are reviewed de novo, but the findings of fact are reversed only when they are "clearly erroneous." In re Worldcom, Inc., 339 B.R. 836, 840 (S.D.N.Y. 2006).
The record below provides ample support for Judge Bernstein's factual finding that Goldstein failed to close on this transaction because it failed to conduct appropriate due diligence and his legal conclusion that Goldstein should forfeit its Deposit. The Bankruptcy Court's decision is based on the straightforward application of its factual findings to the terms of the Plan and the Bidding Procedures. Appellant takes issue with both that court's factual findings and legal conclusions, which are addressed in turn below.
Appellant argues that it was not a "qualified purchaser" because it did not meet the conditions to be able to close the transaction. "Qualified purchaser," however, is not a defined term in the Plan or the Bidding Procedures, which instead defines the terms "Purchaser" and ...
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