In re Farmland Industries, Inc.

• Decision Date: 27 July 2009
• Docket Number: BAP No. 07-6046.
• Citation: 408 B.R. 497
• Parties: In re FARMLAND INDUSTRIES, INC., Debtor. GAF Holdings, LLC, Plaintiff-Appellant, v. Philip Rinaldi; Stanley Riemann; Robert Terry; Pegasus Partners II, L.P.; Pegasus Investors II, L.P.; Pegasus Capital Partners, L.P.; J.P. Morgan Trust Company, National Association, in its capacity as Trustee of the FI Liquidating Trust, Defendants-Appellees. Black Diamond Capital Management, L.L.C., Defendant.
• Court: U.S. Bankruptcy Appellate Panel, Eighth Circuit

408 B.R. 497

In re FARMLAND INDUSTRIES, INC., Debtor GAF Holdings, LLC, Plaintiff-Appellant, v. Philip Rinaldi; Stanley Riemann; Robert Terry; Pegasus Partners II, L.P.; Pegasus Investors II, L.P.; Pegasus Capital Partners, L.P.; J.P. Morgan Trust Company, National Association, in its capacity as Trustee of the FI Liquidating Trust, Defendants-Appellees Black Diamond Capital Management, L.L.C., Defendant.

BAP No. 07-6046.

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted: July 22, 2009.

Filed: July 27, 2009.

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Norman Anthony Abood, Toledo, Ohio, for appellant.

Thomas R. Califano, New York City, for appellee Pegasus.

Stephen Phillip Dees, Kansas City, MO, for appellee Terry.

David Barry Goroff, Chicago, IL, for appellee J.P. Morgan Trust Company.

Lawrence A. Rouse, Kansas City, MO, for appellee Stanley Riemann.

Before KRESSEL, Chief Judge, SCHERMER and MAHONEY¹, Bankruptcy Judges.

KRESSEL, Chief Judge.

GAF Holdings, LLC appeals the bankruptcy court's² order dismissing with prejudice its complaint against Philip Rinaldi; Stanley Riemann; Robert Terry; Pegasus Partners II, L.P.; Pegasus Investors II, L.P.; Pegasus Capital Partners, L.P.³; and J.P. Morgan Trust Company, National Association in its capacity as Trustee of the FI Liquidating Trust. We affirm.

BACKGROUND

GAF was incorporated in 1999 in order to purchase a refinery in Coffeyville, Kansas from Farmland Industries, Inc. For a variety of reasons, GAF was unable to obtain the necessary financing.⁴ Farmland filed a chapter 11 petition on May 31, 2002.

Farmland decided to try again to sell the Coffeyville assets, including the adjoining coke-gasification fertilizer complex. The bankruptcy court approved procedures for the sale of the Coffeyville assets. GAF did not object to the bidding procedures. GAF submitted a bid, but Farmland determined GAF was not a qualified bidder, a determination which GAF did not contest. Coffeyville Resources, LLC, an entity which was formed by Pegasus for the purpose of purchasing the Coffeyville assets, was the only qualified bidder and entered into a purchase agreement with Farmland. At the time, Philip L. Rinaldi was an executive of Pegasus. He was also a director of Coffeyville Resources, LLC and its chief executive officer. Stanley A. Riemann was the president of the Fertilizer & Petroleum Group of Farmland Industries, Inc. Robert Terry was the CEO of Farmland Industries, Inc. Black Diamond Capital Management, L.L.C. provided financing for Coffeyville Resources, LLC's purchase of the Coffeyville assets from Farmland.

On November 14, 2003, the bankruptcy court entered an order approving the sale of the Coffeyville assets to Coffeyville Resources, LLC. In the November 14, 2003 sale order, the bankruptcy court found: 1) Coffeyville Resources, LLC's bid was the highest and best offer received for the Coffeyville assets; 2) the sale and auction procedures had been properly followed; 3) the debtor appropriately exercised reasonable business judgment in accepting Coffeyville Resources, LLC's bid; 4) GAF did not satisfy the auction and sale bidding procedure requirements and was not a qualified bidder; 5) Coffeyville Resources, LLC's bid was the only qualifying bid; 6) the debtor made a prudent business decision not to hold an auction in light of the deficiencies in the bid submissions; 7) the sale consideration to be realized by the debtor's estate pursuant to the agreement was fair and reasonable; 8) the sale agreement and the transactions contemplated by it were negotiated and undertaken at arm's length, without collusion, and in good faith; and 9) the purchase price under the sale agreement was fair and reasonable and was for sufficient value. GAF did not object to, or appeal, the sale order.

On December 19, 2003, the bankruptcy court entered its order confirming Farmland's plan. Pursuant to the plan, Farmland transferred certain assets to a liquidating trust to liquidate and distribute proceeds to certain creditors of and interest holders in Farmland. J.P. Morgan Trust Company, National Association is the liquidating trustee of the Farmland Industries, Inc. Liquidating Trust.

GAF learned that Coffeyville Resources, LLC had offered Stan Riemann, the executive vice president of the debtor, a lucrative position with their company if they were successful in acquiring the Coffeyville assets. On February 2, 2004, GAF filed a motion pursuant to Federal Rule of Civil Procedure 60(b) and Federal Rule of Bankruptcy Procedure 9024 to set aside the sale order as the product of collusion among Riemann, Terry, and the purchaser. After discovery and a hearing, the bankruptcy court denied the motion. The bankruptcy court considered GAF's contention regarding both the conflict of interest and its allegation that the price of the Coffeyville assets had been artificially deflated due to an alleged "insider scheme to freeze GAF and all other bidders out of the bidding process, by-pass the auction, and guarantee CRLLC's receipt of the assets." The bankruptcy court denied GAF's motion on February 17, 2004.

The bankruptcy court issued a memorandum opinion on February 19, 2004, in which it made the following findings in support of its order denying GAF's motion 1) "Riemann ... never denied GAF or any other party an opportunity to conduct due diligence"; 2) "Terry ... removed Riemann from decision-making authority in negotiations with Pegasus"; 3) "it was necessary to involve Riemann to some extent in the negotiations with Pegasus because Riemann was the senior executive in charge of the Coffeyville assets and he had the knowledge that was necessary to effectively communicate with bidders and to provide the lead members of the negotiation team with commercial information"; 4) "Terry and Riemann took no action to prevent GAF or others from speaking with third parties with ties to the Coffeyville assets"; 5) the Official Committee of Unsecured Creditors and the Official Committee of Bondholders "reviewed the asset sale and purchase agreement, referred it to their financial advisors, and concluded that the deal was in the best interests of the estate"; 6) "The ultimate deal reached with Pegasus was conducted at arms-length and with intense negotiations"; and 7) "no evidence exists to prove that the Debtor steered the sale to Pegasus on the condition that Riemann be employed by Pegasus." GAF did not appeal the February 17, 2004 order.

On February 20, 2004, the court authorized an amendment to the asset purchase agreement order. The February 20, 2004 order reaffirmed the November 14, 2003 sale order and its findings, including that the assets were purchased in good faith, and provided that absent a stay pending appeal, the sale would be entitled to the protection of 11 U.S.C. § 363(m). GAF did not appeal the February 20, 2004 order.

On March 2, 2007, GAF filed its complaint in this proceeding alleging misconduct on the part of Rinaldi, Riemann, Terry, and Pegasus in connection with the 2004 sale of the refinery and fertilizer complex in Coffeyville, Kansas to Coffeyville Resources, LLC. In the complaint, GAF sought damages against Rinaldi, Riemann, Terry and Pegasus for intentional interference with business expectancy and conspiracy.⁵ GAF also named the liquidating trustee as a defendant in the complaint, but sought no damages or other relief against it. Instead GAF sought to force the liquidating trustee to assert any interest the liquidating trust might have in any proceeds of the litigation.

Each of the remaining defendants filed a motion to dismiss the complaint for various and varying reasons. The liquidating trustee sought dismissal for lack of subject matter jurisdiction. The bankruptcy court dismissed the complaint with prejudice as an impermissible collateral attack on the prior orders approving the sale and for failing to state a claim upon which relief can be granted. GAF Holdings, LLC v. Rinaldi (In re Farmland Industries, Inc.), 376 B.R. 718 (Bankr.W.D.Mo.2007). Alternatively, it held that GAF lacked standing. The bankruptcy court denied the liquidating trustee's motion to dismiss for lack of subject matter jurisdiction as moot.

GAF appealed the bankruptcy court order dismissing its complaint. At oral argument, we raised the issue of subject matter jurisdiction and granted the parties additional time to brief the issue. We then held that the bankruptcy court lacked subject matter jurisdiction over GAF's state law-based tort claims against non-debtor third parties. GAF Holdings, LLC v. Rinaldi (In re Farmland Industries, Inc.), 378 B.R. 829 (8th Cir. BAP 2007). Accordingly we remanded and instructed the bankruptcy court to dismiss the complaint for lack of subject matter jurisdiction. The defendants all appealed our decision to the Eighth Circuit Court of Appeals. The Eighth Circuit held that the bankruptcy court had subject matter jurisdiction because GAF's claims are "related to" the bankruptcy of Farmland Industries, Inc. within the meaning of 28 U.S.C. § 157(c)(1), and remanded to us to determine whether the bankruptcy court properly dismissed GAF's complaint. GAF Holdings, LLC v. Rinaldi (In re Farmland Industries, Inc.), 567 F.3d 1010 (8th Cir.2009).

STANDARD OF REVIEW

We review the bankruptcy court's grant of a motion to dismiss de novo. Schaaf v. Residential Funding Corp., 517 F.3d 544, 549 (8th Cir.2008). The applicability of collateral estoppel is a question of law which we also review de novo. United States v. Brekke, 97 F.3d 1043, 1046-47 (8th Cir.1996); Osborne v. Stage (In re Stage), 321 B.R. 486, 491 (8th Cir. BAP 2005).

DISCUSSION

I. Dismissal pursuant to Rule 12(b)(6) was proper because the complaint fails to state a claim upon which relief can be granted.

Federal Rule of Civil Procedure 8(a)(2), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7008, requires pleadings that state a...