In re American Freight System, Inc., 90-4025-S

• Decision Date: 02 April 1991
• Docket Number: 88-41050-11.,No. 90-4025-S,90-4025-S
• Parties: In re AMERICAN FREIGHT SYSTEM, INC., Debtor. ROADRUNNER FREIGHT SYSTEMS, INC., Appellant, v. AMERICAN FREIGHT SYSTEM, INC., Appellee.
• Court: U.S. District Court — District of Kansas

126 B.R. 800 (1991)

In re AMERICAN FREIGHT SYSTEM, INC., Debtor.

ROADRUNNER FREIGHT SYSTEMS, INC., Appellant, v. AMERICAN FREIGHT SYSTEM, INC., Appellee.

Nos. 90-4025-S, 88-41050-11.

United States District Court, D. Kansas.

April 2, 1991.

K. Thor Lundgren, Kristine H. Cleary, Michael, Best & Friedrich, Milwaukee, Wis., Charles R. Hay, Goodell, Stratton, Edmonds & Palmer, Topeka, Kan., for appellant.

Michael J. O'Rourke, Robert J. Labate, Nancy Alquist, Michael J. Collins, Winston & Strawn, Chicago, Ill., Norman E. Beal, Kent E. Whittaker, Hillix, Brewer, Hoffhaus, Whittaker & Horner, Kansas City, Mo., for debtor.

MEMORANDUM AND ORDER

SAFFELS, District Judge.

This matter is before the court on appeal by Roadrunner Freight Systems, Inc. ("appellant") from a Judgment (R. Doc. 11), and Memorandum of Decision (R. Doc. 12), entered on January 17, 1990 (as amended on January 31, 1990) (R. Doc. 15), by the United States Bankruptcy Court for this District in which the bankruptcy court granted the motion of the debtor, American Freight System, Inc. ("debtor"), to set aside a March 10, 1989 sale order (R. Doc. 7), authorizing the debtor to sell to appellant certain real property located near Milwaukee, Wisconsin.¹ Appellant filed its notice of appeal on January 26, 1991. (R. Doc. 13). Because the court finds that oral argument would not be of material assistance in resolving this appeal, appellant's motion for oral argument will be denied. D.Kan. 710(a)(7).

Appellant presents two issues in this appeal. First, did the bankruptcy court err in granting debtor's motion to set aside the March 10, 1989 order approving the sale of a parcel of real property in Milwaukee, Wisconsin from debtor to appellant (hereinafter referred to as the "sale order")? Second, did the bankruptcy court, upon granting debtor's motion to set aside the sale order, err in not ordering a valuation hearing to determine the appropriate amount of abatement, if any, of the purchase price?

The court finds that it has jurisdiction over this appeal pursuant to 28 U.S.C. § 158. The standards of review on appeal to this court from a decision of the bankruptcy court are well-settled. The district court functions as an appellate court and is authorized to affirm, reverse, or modify the bankruptcy court's ruling or to remand the case for further proceedings. Fed.R.Bankr.P. 8013. The district court may examine the bankruptcy court's conclusions of law de novo. In re Mullet, 817 F.2d 677, 679 (10th Cir.1987). The bankruptcy court's findings of fact must be upheld unless they are clearly erroneous. In re Heape, 886 F.2d 280, 282 (10th Cir. 1989). Appellate review of a bankruptcy court's order granting relief under Rule 60(b) of the Federal Rules of Civil Procedure is limited to whether the bankruptcy court abused its discretion. See, e.g., Greenwood Explorations, Ltd. v. Merit Gas & Oil Corp., Inc., 837 F.2d 423, 426 (10th Cir.1988) (stating that a Rule 60(b) motion "is left almost entirely up to the discretion of the trial court").

In its January 17, 1990, memorandum of decision, the bankruptcy court stated the facts underlying this appeal, which appear to be essentially undisputed, as follows:

The debtor, a less than full load trucking concern, offered in excess of forty properties for sale in this proceeding. The debtor owned a property in Cudahy, Wisconsin, hereinafter referred to as the Milwaukee property, consisting of a 69 door terminal on 24 acres of land. Debtor advertised the property as a 69 door terminal on 24 acres with an adjacent property consisting of 12 acres. The debtor was in error concerning the existence of two tracts; there is only one 24 acre tract. The debtor intended to advertise and sell separately the truck termination with the acreage appurtenant thereto which is fenced as one tract and the other vacant acreage consisting of 12 to 14 acres.

Debtor received two bids for the Milwaukee property, one from Overnite Transportation, Inc., and one from Roadrunner Freight Systems, Inc. The Overnite bid was a package bid on three separate terminals for 1.9 million dollars. There is no evidence of which the Court is aware of what property in Milwaukee Overnite believed it was bidding on, i.e., the terminal sitting on 11 or 24 acres of land, or the terminal sitting on 24 acres of land and an additional 12 acre tract. It is known that whatever Milwaukee land was included comprised a $900,000.00 component of the overall bid which was not severable.

Roadrunner had an appraisal made, the Klein appraisal, which disclosed that the property owned by debtor was one 24 acre tract. This appraisal was not part of the Roadrunner bid nor was it shared during the time pertinent to this decision. The Klein appraisal basically valued the terminal facility and the 9 to 11 fenced acres it allegedly sits on and separated it from the remaining acreage, said to be 14, giving the terminal a value of $1,150,000.00. Though the remaining acreage was given a value of $100,000.00, this value appears to be a volunteered afterthought and not part of what was sought by Roadrunner. Roadrunner submitted its bid to the debtor and, orally and in a letter accompanying its bid documents, advised the debtor that it had discovered that the debtor owned only one tract of ground in Milwaukee and that it was bidding on that tract. Roadrunner attached as an exhibit to its bid a legal description of the tract which, though it does not specifically recite the exact acreage, gives sufficient measurements to mathematically arrive at the full 24 acre figure.

The debtor, though acknowledging to Roadrunner that it in fact did own only a single tract in the Milwaukee area, nevertheless noticed the prospective sale to Roadrunner otherwise. The debtor sent notice of the prospective sale to the official creditors\' committee and other interest parties, including Roadrunner and Overnite, advising that it proposed a sale to Roadrunner of the Milwaukee property for $925,000.00 which was 70% of the appraised value of $1,330,000. The debtor attached a summary of its own appraisal, the Dandurand appraisal, to the notice of proposed sale. That summary states that the terminal facility, situated on 11 acres, was worth $1,330,000.00 and that the remaining 14 acres were worth $345,000.00. Though the full formal bid of Roadrunner was referred to in the notice, it was not included. It was available for inspection and, had it been viewed, would have disclosed reference to a street address for the property and to an attached legal description. The legal description does not specifically set forth the acreage but, as previously indicated, the acreage can be extrapolated from the measurements contained therein. The creditor\'s committee and its counsel received the notice of proposed sale. If the underlying documents were reviewed, the legal description was not given any particular attention. The committee did object to a proposed sale for less sic that 60% of appraised value on the same calendar as was the instant proposed sale. That objection was sustained.

In re American Freight System, Inc., No. 88-41050-11, slip op. at 1-4 (Bankr.D.Kan., unpublished, January 17, 1990).

In stating its legal conclusions in ruling upon debtor's motion to set aside the sale order, the bankruptcy court found that, unlike the private sale contract situation, the protection of the rights of the debtor's unsecured creditors was of "paramount importance." Id., at 4 (citing Procter and Gamble Manufacturing Co. v. Metcalf, 173 F.2d 207 (9th Cir.1949)). After citing the language of Rule 60(b) of the Federal Rules of Civil Procedure, the bankruptcy court recognized that mere inadequacy of price was insufficient to set aside a confirmed sale. Id., at 5 (citing Mason v. Ashback, 383 F.2d 779 (10th Cir.1967). The bankruptcy court then stated that, in order to set aside a sale, "compelling equities must outweigh the interest in finality." Id. (citing In re Transcontinental Energy, 683 F.2d 326 (9th Cir.1982); Matter of Chung King, Inc., 753 F.2d 547 (7th Cir. 1985)). The bankruptcy court then concluded: "in this Circuit, though inadequacy of price alone is insufficient to set aside a sale, inadequacy of price coupled with lack of notice or other unfairness or impropriety may cumulatively be sufficient to set aside a sale." Id. (citing Mason).

The bankruptcy court then stated its reasoning as follows:

In this case, the creditors, Roadrunner and the court received a notice of proposed sale which recited that the property was being sold for 70% of appraised value of $1,330,000.00. A correct summary of the appraisal was included with the notice and valued the terminal portion of the property at $1,330,000.00, leading the court and creditors to believe that only the terminal portion of the property owned by the debtor in Milwaukee was being sold to Roadrunner. Roadrunner was not deceived by the notice since it was aware of the exact terms of its bid and the conversation and other correspondence it had with the debtor. Unfortunately, neither the creditors nor the Court were aware of this oral and written correspondence between Roadrunner and the debtor and neither the debtor nor Roadrunner called these significant errors to their attention. The property covered by the order of sale allowed, unbeknownst to the Court or the creditors, a sale of 24 acres of property with an appraised value of $1,675,000.00 to be sold at 55% of value rather than 11 acres of property with an appraised value of $1,330,000.00 to be sold at 70% of value. The Court concludes that the inadequacy of price may be sufficient in this case to require setting aside of the sale, and that the inadequacy coupled with the misleading if not erroneous notice sent to creditors and Roadrunner is sufficient under the law of this circuit to cause the sale to be set aside. The Court is convinced after reviewing the facts of this case that it would not have allowed this sale to

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