In re Atlanta Packaging Products, Inc.
| Citation | 99 BR 124 |
| Decision Date | 18 August 1988 |
| Docket Number | Bankruptcy No. 87-00603,Adv. No. 87-0200A. |
| Parties | In re ATLANTA PACKAGING PRODUCTS, INC., Debtor. CELLO BAG COMPANY, INC., Plaintiff, v. CHAMPION INTERNATIONAL CORPORATION and David W. Cranshaw, Trustee, Defendants. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia |
Benjamin J. Abney, Tip Carroll, Abney, Tate and Mallernee, Atlanta, Ga., for plaintiff.
Jesse H. Austin, III, Powell Goldstein, Frazer & Murphy, Atlanta, Ga., for defendants.
This is a dispute between Cello Bag Company, Inc. ("Cello"), a disappointed potential purchaser of the debtor's assets, and Champion International Corp. ("Champion"), a creditor with a security interest in some of the debtor's assets. Cello alleges that it had a contract with Champion to purchase the debtor's assets before the debtor's involuntary Chapter 7 case was filed. Cello unsuccessfully sought to stop a sale by the Chapter 7 Trustee to a party who offered more money to buy more assets through a Court-approved sale. The Court approved the sale proposed by the Trustee over Cello's objections. Cello now seeks to recover the amount of money received by the Trustee from the sale over and above the lower price Cello offered to Champion.
Cello's complaint alleges a breach of contract. There are no allegations in the complaint of fraud or collusion, and there is no allegation of any impropriety in the bankruptcy proceeding. Simply put, Cello argues that the filing of the involuntary bankruptcy proceeding and the appointment of a trustee should not have affected its alleged contract with Champion to purchase the debtor's assets at a price much lower than the price obtained by the Trustee, and Cello argues that it, not the creditors, should have benefitted from the Trustee's ability to secure a sale of the debtor's assets at a substantially higher price than Cello ever offered to pay.
The defendant Champion filed a motion for summary judgment. By previous order dated September 27, 1987, the Honorable A. David Kahn dismissed counts II, III and IV of the Complaint seeking specific performance, injunctive relief and declaratory relief as moot, since the assets were sold and were no longer property of the debtor's estate.1 All that remains are Cello's claims against Champion for damages for the breach of an alleged contract between Champion and Cello whereby Cello alleges Champion agreed to sell Cello some of the debtor's assets for $1,725,000.00. The Trustee is holding approximately $2.2 million of the proceeds from the sale, and Cello appears to be seeking as damages approximately $800,000.00 which it claims is the amount realized by the Trustee in excess of Cello's offer to Champion.
The parties do not dispute many of the facts giving rise to this action. The debtor, Atlanta Packaging Products, Inc. ("Atlanta Packaging"), was formed in September, 1984 by certain investors who purchased Atlanta Packaging's assets from St. Regis Corporation ("St. Regis"). St. Regis sold assets to Atlanta Packaging for cash plus a $3,200,000.00 promissory note due in September of 1985. To secure the note, St. Regis received a security interest in Atlanta Packaging's assets, including its accounts receivable, inventory, machinery and equipment. St. Regis' security interest in Atlanta Packaging's accounts receivables, machinery, and equipment was subordinate to the security position of Citicorp Industrial Credit, Inc. ("Citicorp").
St. Regis was later merged into defendant Champion and thus Champion is the successor in interest to St. Regis' claim and security position. Atlanta Packaging failed to pay the obligation owed to Champion when it became due in September, 1985. In the last few months of 1985 and throughout most of 1986, Atlanta Packaging attempted to sell its assets to a third party that would operate the business and assume some or all of Atlanta Packaging's liabilities.
Atlanta Packaging surrendered its assets to Champion on December 4, 1986 in order for Champion to dispose of the assets to pay the debts owed to Champion and Citicorp. After December 4, 1986, Champion attempted to dispose of Atlanta Packaging's assets. The parties agree that while Champion took possession of the debtor's assets, Champion never had legal title to the assets.
The plaintiff, Cello, became interested in purchasing Atlanta Packaging's assets in December of 1986. On January 19, 1987, Cello sent a letter of intent addressed to the "Board of Directors Atlanta Packaging Products, Inc. c/o Champion International Corp. (Debtor-in-Possession)" offering to purchase certain assets of Atlanta Packaging for $1,350,000.00. The letter of intent included several conditions. On or about January 21, 1987, representatives and attorneys of Champion and Cello met in New York to discuss Cello's offer. The parties agree that no purchase price was agreed upon at this meeting. On January 26, 1987, unsecured creditors filed an involuntary Chapter 7 bankruptcy petition against Atlanta Packaging in this Court.
The parties agree that Jim Ball of Cello and John O'Brien of Champion had one or more telephone conversations on or about January 27, 1987, but the parties dispute what was said in these conversations and the legal significance of the conversations. Mr. O'Brien testified on deposition that he and Mr. Ball agreed to a price of $1,725,000.00 in a telephone conversation on January 26 or 27, 1987, but that he informed Mr. Ball that an involuntary Chapter 7 proceeding had been filed against Atlanta Packaging and that Mr. O'Brien was not sure whether Champion could continue to market the assets. Cello has submitted an affidavit by Mr. Ball in which he states that the parties reached an agreement in the January 27, 1987 telephone conversations, that Mr. O'Brien did not advise him of the bankruptcy filing until the next day, January 28, 1987, and that Mr. O'Brien stated that the deal was still on as long as Champion had control of the assets.
On January 30, 1987, Mr. Ball sent Mr. O'Brien a letter stating that pursuant to their telephone conversation of January 27, 1987, he was confirming the agreement to buy Atlanta Packaging's assets for $1,725,000.00. The second paragraph of the January 30, 1987 letter states "this agreement is subject to your continuing to have authority and power to sell said assets and consistent with the terms and conditions previously discussed, including acceptable financing". Mr. Ball requested that Mr. O'Brien return a signed copy of the letter if it set forth the agreement of the parties so that the parties could "proceed toward execution of a purchase agreement". Mr. O'Brien did not sign or return a copy of Mr. Ball's January 30, 1987 letter.
On February 4, 1987, Mr. O'Brien of Champion wrote a letter to Mr. Ball at Cello in response to Mr. Ball's January 30, 1987 letter. Mr. O'Brien states in the February 4, 1987 letter that his understanding of the items discussed on January 27, 1987 was that the sale of the assets for $1,725,000.00 was subject to certain contingencies, which included (with emphasis added):
On February 19, 1987, the Court entered an order for relief in the involuntary bankruptcy case and appointed David Cranshaw as Trustee ("Trustee"). On February 24, 1987, counsel for Cello sent a letter to counsel for Champion with a proposed offer to purchase the debtor's assets from the Trustee. The letter requested that counsel for Champion review the offer and then contact counsel for Cello. Paragraph (5) of the offer is entitled "Agreement of Champion", and it provides as follows (with emphasis added):
by its signature below, Champion agrees that the purchase price to be paid by Buyer for the Purchased Assets is a fair and reasonable price and upon acceptance by the Trustee and approval of the Bankruptcy Court, Champion agrees to accept the proceeds of the sale, less any administrative expenses approved by the Bankruptcy Court with respect to the Purchased Assets, in full satisfaction of that portion of its claim against APP the debtor secured by the Purchased Assets.
Cello never sent this offer to the Trustee, and this agreement was never signed by Champion.
On March 4, 1987, counsel for Cello wrote the Trustee a letter enclosing a list of property Cello desired to purchase and stating (with emphasis added) "again, I need to emphasize the need to act quickly if you want to preserve Cello's bid".
On April 14, 1987, the Honorable A. David Kahn entered an order permitting Champion to continue discussions with potential purchasers concerning the sale of the debtor's assets, with the Trustee's ultimate approval and subject to order and notice to creditors. On that same day, the Honorable A. David Kahn also entered an order and notice to all creditors and other parties in interest that the Trustee had filed a motion requesting authority to proceed with a sale of the debtor's assets free and clear of all liens and other interests, with valid liens to attach to the proceeds of the sale. The order and notice indicated that the Trustee would provide separate notice to creditors of the specific sale terms proposed. The notice further provided that in the event there was an objection to the relief requested by the Trustee, a hearing would be...
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