In re Alaska Fishing Adventure, LLC

• Decision Date: 11 December 2018
• Docket Number: Case No. 16-00327-GS
• Citation: 594 B.R. 883
• Parties: IN RE: ALASKA FISHING ADVENTURE, LLC, Debtor.
• Court: U.S. Bankruptcy Court — District of Alaska

594 B.R. 883

IN RE: ALASKA FISHING ADVENTURE, LLC, Debtor.

Case No. 16-00327-GS

United States Bankruptcy Court, D. Alaska.

Signed December 11, 2018

Erik LeRoy, Erik LeRoy, P.C., Anchorage, AK, for Debtor.

William D. Artus, Anchorage, AK, for Trustee.

MEMORANDUM DECISION RE: MOTION TO SELL REMAINING ESTATE ASSETS

GARY SPRAKER, United States Bankruptcy Judge

The chapter 7 trustee has filed a motion to sell the remaining assets in the debtor's chapter 7 estate, chief among them litigation claims against part owner Brad Giroux and his wife, Jessica. Competing purchase offers have been submitted by Brad Giroux's father, Robert Giroux, and Brad's former business partner in the debtor, Philip Johnston and his wife, Rebekah. The trustee has requested that this court approve the sale of the remaining assets to Robert Giroux. For the reasons stated below, this court will grant the trustee's request.

I. BACKGROUND

The lengthy history among the parties is well established in this case and will not be repeated in detail here. Only the following facts are relevant to this decision.

Brad Giroux and Philip Johnston were partners in the debtor that operated a fishing lodge in Portage Creek, Alaska. Giroux owned 60% of the business, while Johnston owned the remaining 40% interest.¹ Their business relationship soured as Johnston came to believe Giroux was mismanaging the business.² The Johnstons sued Brad and Jessica Giroux for various business-related infractions.³ The Johnstons obtained a state court judgment against them.⁴ Philip Johnston was awarded financial control over the debtor in the state court action,⁵ and opted to place the debtor into bankruptcy. The debtor commenced this chapter 7 case on October 27, 2016. The chapter 7 trustee promptly issued a notice of asset case and deadline to file proofs of claim.⁶

After the trustee issued his notice of asset case, the Johnstons filed three proofs of claim: Philip filed a claim for compensation ($42,550); Rebekah filed a claim for wages ($18,200) and money loaned ($62,720.13); and Philip filed a third claim of $190,000 representing his 40% interest in the debtor. The Johnstons withdrew all three of their proofs of claim on May 2, 2017, and are no longer creditors of the estate though Philip continues to hold his membership interest in the debtor.⁷

Brad's father, Robert Giroux, also filed a proof of claim for money loaned to the debtor in the unsecured amount of $227,437.82. Brad also filed multiple proofs of claim: $75,738 for "employment relationship and related rights," approximately $13,000 of which he asserted as a priority wage claim; $49,374.24 for "reimbursement of expenses and rights to repayment"; and a claim for 60% of any funds remaining in the estate after all creditors are paid.

On November 23, 2016, the chapter 7 trustee moved to sell certain assets of the debtor, including the fishing lodge and all lodge-related personal and intellectual property, to Peter von Jess (the Lodge Sale).⁸ In order to maintain the lodge as a going concern, the Lodge Sale provided for payment of select general unsecured creditors: (1) customers who had placed deposits for the 2017 season; (2) employees with outstanding wage claims; and (3) Branch Air Services, a supplier. No objections to the Lodge Sale were raised, and the court issued its order approving that sale on December 23, 2016.⁹ The Lodge Sale was followed by a separate notice of distribution to pay § 507(a)(7) priority claims of the debtor's customers.¹⁰ No objections were raised, and those distributions were made.

On June 20, 2017, the chapter 7 trustee filed a second motion to sell assets of the debtor, this time a note receivable and other miscellaneous property, to buyer Polar Services LLC.¹¹ As with the Lodge Sale, no oppositions were filed, and the court entered its order approving the second sale on July 20, 2017.¹²

Finally, on May 15, 2018, the chapter 7 trustee filed his motion to sell the remaining assets of the debtor's estate (Motion) to Robert Giroux, the debtor's largest unsecured creditor.¹³ After payment of the claims related to the Lodge Sale, only a few unsecured claimants remained other than Robert and Brad Giroux. Excluding the Girouxes, the remaining unsecured debts total $13,445.¹⁴ Robert's purchase offer provides no money to the estate. Instead, he offers to subordinate his substantial unsecured claim to the remaining unsecured claimants, with Brad Giroux to withdraw his proofs of claim upon approval of the sale. Based on the funds remaining in the estate ($55,924), after payment of anticipated administrative and priority claims, all general unsecured creditors would receive 100% of their claims.¹⁵ Robert Giroux would receive any remaining funds.

The Johnstons objected to the proposed sale.¹⁶ They have since submitted a counter-offer to purchase the assets.¹⁷ They modified their offer, and filed a "notice of final offer" on October 24, 2018 (Final Offer).¹⁸ Pursuant to the Final Offer, the Johnstons would pay $18,445 to purchase the estate's remaining assets. The Johnstons propose to pay $5,000 to the estate, and $13,445 directly to the debtor's remaining unsecured creditors outside of bankruptcy, excluding Robert and Brad Giroux. They also condition their offer upon the chapter 7 trustee filing objections to Brad Giroux's proofs of claim. The Johnstons surmise that upon receipt of the direct payments from them, the paid unsecured creditors would withdraw their claims. The Johnstons argue that Robert Giroux would receive a higher monetary distribution under their proposal than under his own.

The court held a hearing on the Motion on October 15, 2018. The trustee gave testimony under oath, noting his concern that the Johnstons' offer could ultimately have a negative impact on the estate, by mandating objections to Brad Giroux's proofs of claim which would generate additional administrative expenses for the estate. He added that under the Johnstons' offer, there may be nothing filed with the court evidencing the Johnstons' direct payments to the remaining non-Giroux unsecured creditors, which could complicate the final accounting for the case. He also testified that he has served as a chapter 7 trustee for approximately 37 years. After hearing the chapter 7 trustee's testimony and the arguments of the parties, the court set deadlines for supplemental briefing, and took the matter under submission. Supplemental briefs were filed by Robert Giroux, the chapter 7 trustee, the Johnstons and Brad Giroux.¹⁹

II. ANALYSIS

The trustee seeks to sell property of the estate under § 363(b). Proposed sales are reviewed to determine whether they are within the best interests of the estate resulting from a fair and reasonable price, are supported by a valid business judgment and proposed in good faith.²⁰ Sales to an insider are subject to heightened scrutiny.²¹ Here, both potential buyers are insiders that have ownership interests either directly or indirectly by virtue of a familial relationship with an owner.²² In this instance, there is an obvious business justification for the sale as the trustee must liquidate the remaining assets of the estate. There has been no challenge to the trustee's good faith in seeking to sell the litigation claims. It is the price that is at issue.

In this instance the proposed sale involves the estate's causes of action against Brad Giroux, the majority member and his wife, Jessica. In reality, a sale of the litigation claims to Robert Giroux will terminate those claims. For this reason, the court must consider the proposed sale offers not only under § 363(b), but also as a settlement of such claims under Fed. R. Bankr. P. 9019.²³ To evaluate settlements, bankruptcy courts are to consider

(a) the probability of success in the litigation;

(b) the difficulties, if any to be encountered in the matter of collection;

(c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; [and]

(d) the paramount interest of the creditors and a proper deference to their reasonable views in the premise.²⁴

The trustee advises that he will not pursue any claims against Brad "because the risks involved in any litigation and the difficulty in collecting any judgment that may be entered against him."²⁵ The trustee's view of the claims is not meaningfully controverted, although the Johnstons are willing to pursue the estate's causes of action against Brad and Jessica Giroux for their own benefits and purposes. While the first three A & C factors focus upon the claims, they are not materially at issue here as there have been no objections to the sale of the litigation claims, only to whom the claims should be sold. Regardless of the ultimate purchaser, the claims will be removed from the estate. The trustee will not be concerned with pursuing or collecting upon the estate's causes of action against Brad and Jessica Giroux.

The court considers the possible delay resulting from the claims to potentially be an issue, though not in the traditional sense. Ordinarily, settlement of claims is favored as it permits a trustee to avoid the cost and delay of further litigation. The estate's sale will achieve this goal. But the Johnstons' offer requires additional litigation that would be unnecessary if the Giroux offer is approved: the pursuit of objections to Brad Giroux's proofs of claim. The estate is otherwise administered and ready for final distribution.

The offers, therefore, primarily implicate the best interests of the estate and the paramount interests of the creditors.²⁶ Under either proposal, the non-Giroux general unsecured creditors will receive payment in full. Under the Johnstons' offer, the estate would receive an additional $5,000, and be able to distribute the balance of the proceeds from the sale of the lodge to the Girouxes' allowed claims. At the time he filed his supplement, the trustee's counsel estimated the funds net of administrative expenses and priority...