IN RE MAXKO PETROLEUM, LLC

• Decision Date: 12 March 2010
• Docket Number: 08-01862-JKO.,Bankruptcy No. 08-14652-BKC-JKO. Adversary No. 08-01833-JKO
• Citation: 425 B.R. 852
• Court: U.S. Bankruptcy Court — Southern District of Florida
• Parties: In re MAXKO PETROLEUM, LLC, Debtor. Sonya L. Salkin, Chapter 7 Trustee, Plaintiff, v. Palm Beach International, Inc., and Aabhash Pradhan, Defendants. Sonya L. Salkin, Chapter 7 Trustee, Plaintiff, v. Henri Hage, Defendant.

425 B.R. 852

In re MAXKO PETROLEUM, LLC, Debtor.

Sonya L. Salkin, Chapter 7 Trustee, Plaintiff, v. Palm Beach International, Inc., and Aabhash Pradhan, Defendants.

Sonya L. Salkin, Chapter 7 Trustee, Plaintiff, v. Henri Hage, Defendant.

Bankruptcy No. 08-14652-BKC-JKO. Adversary Nos. 08-01833-JKO, 08-01862-JKO.

United States Bankruptcy Court, S.D. Florida, Fort Lauderdale Division.

March 12, 2010.

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Kenneth B. Robinson, Esq., Mark S. Roher, Esq., Fort Lauderdale, FL, for Plaintiff.

Manuel R. Lopez, Coral Gables, FL, Bart A. Houston, Ft. Lauderdale, FL, for Defendants.

Findings of Fact and Conclusions of Law

JOHN K. OLSON, Bankruptcy Judge.

These adversary proceedings came before me for a consolidated trial on October 7th and 8th of 2009. Plaintiff Sonya Salkin, as Chapter 7 Trustee for Maxko Petroleum, LLC (hereinafter, "Plaintiff Salkin") filed separate proceedings against Defendants Palm Beach International, Inc. ("PBI") and its principal Aabhash Pradhan (collectively with PBI, the "PBI Defendants") and Henri Hage ("Defendant Hage"), but the gravamen of the Plaintiff's claims are virtually identical. Plaintiff Salkin alleges that these Defendants, who were the respective high bidder and back-up bidder at a September 16, 2008 court-ordered auction, breached their purchase and sale contracts executed at the conclusion of the auction by failing to post required additional deposit monies and close on the transactions. As a result, Plaintiff Salkin is seeking damages against the PBI Defendants and Defendant Hage in amounts exceeding $1.2 million, plus interest.

Although the factual circumstances underlying the PBI Defendants' and Defendant Hage's involvement in the auction are different, and the PBI Defendants have alleged that Hage colluded with the Debtor to drive up the bid price at the auction, both the PBI Defendants and Defendant Hage asserted other defenses and affirmative claims against Plaintiff Salkin which made a consolidated trial appropriate. Specifically, the Defendants allege that the Debtor and the court-approved auction company misrepresented the nature of the assets being sold at auction. Additionally, the Defendants have also alleged that even if they are found liable for breaching their respective purchase and sale contracts, the damages for which they are liable are capped at $100,000 as liquidated damages.

Having considered the operative pleadings filed by the parties in both Adversary Proceedings, the testimony of the various witnesses presented live, through deposition and videotape, and having admitted Joint Exhibits 1 through 89 (with the exceptions noted on the record), I now enter these Findings of Fact and Conclusions of Law. A separate final judgment will be entered pursuant to Fed. R. Bankr.P. 7054 and 9021 in favor of Plaintiff Sonya Salkin, as Chapter 7 Trustee, and against Defendants Palm Beach International, Inc. and Aabhash Pradhan¹ in Adversary Proceeding 08-01833-JKO, and against Defendant Henri Hage in Adversary Proceeding 08-01862-JKO.

Findings of Fact

1. Maxko's Chapter 11 Filing

These Adversary Proceedings emanate from the bankruptcy case of Maxko Petroleum, LLC ("Maxko" or the "Debtor"), which filed a Voluntary Petition for Relief under Chapter 11 of the United States Bankruptcy Code on April 16, 2008. Maxko was a Florida limited liability company whose member interests were owned by Theodora Maxakoulis, but whose business was actually directed by her son William ("Bill") Maxakoulis. Prior to filing bankruptcy, Maxko was the owner of property and improvements in Sunrise, Florida, on which was operated a Chevron gas station, convenience store and pizza restaurant.

One of the main points of contention in these Proceedings arises from the existence of an entity called Sunrise Chevron, Inc. ("Sunrise Chevron"), which was owned by members of the Maxakoulis family, including Bill Maxakoulis. Sunrise Chevron was the entity which operated the gas station, as distinct from Maxko, which owned the real property, improvements, and fixtures thereon.

Testimony established that the Maxakoulis family's division of operation/ownership is common in the industry.² However, for purposes of this Chapter 11 case, it was agreed and ordered that the income and operations of both Maxko and Sunrise Chevron would be treated as one. Ex. 2 at 4.

The Trustee's sale of the property was most directly precipitated by the inability of Maxko to deliver the court-ordered adequate protection payments to Regions Bank to forestall Regions' foreclosure of the property. Ex. 2 at ¶ 7. Due to Maxko's inability to make these payments, I entered the Final Cash Collateral Order, which includes the following language:

That in the event the Debtor has not entered into a binding purchase and sale contract, providing for a deposit of not less than 10%, on or before July 15, 2008, the Debtor shall file with the Court a motion to sell by auction the Debtor's real and personal property (including the business operations conducted by Sunrise Chevron, Inc. at such real property), with such auction to have a minimum reserve price of $4 million, which reserve may be increased by mutual agreement of the Debtor and Regions, and to be conducted by a mutually agreeable auctioneer to be approved by the Court.

Ex. 2 at ¶ 16 (emphasis added).

2. The Auction Sale Process

Because Maxko was unable to meet the requirements of a private sale, on July 31, 2008, it filed its Debtor's Motion for Order (I) Establishing Bidding Procedures; (I) Approving Form of Purchase Agreement; (II) Approving Form and Manner of Notices; (IV) Scheduling Auction and Final Approval of Sale; and (V) Authorizing Sale of Real and Personal Property Pursuant to 11 U.S.C. § 363 and 365 (the "Bidding Procedures Motion"). Ex. 39. Paragraphs 6 and 7 of the Bidding Procedures Motion recited as follows:

The Debtor is a Florida limited liability company that owns and operates a Chevron gas station located at 10300 West Commercial Blvd., Sunrise, Florida (the "Real Property").

The Debtor also operates a car wash, sandwich shop/bakery and convenience store on the Real Property through an affiliated entity named Sunrise Chevron, Inc., although the Debtor does not collect any rental income from such entity.

The Debtor also collects rental income from a third party pizza delivery business which operates on the Real Property.

Ex. 3 at 2 (emphasis added). The Bidding Procedures Motion further recited at paragraph 12:

Accordingly, in order to obtain maximum value for the Real Property, the personal property located thereon and the business operations conducted by Sunrise Chevron, Inc. at the Real Property (collectively the "Property"), the Debtor and Regions have selected a mutually agreeable auctioneer and are seeking this Court's approval of same contemporaneous with the filing of this motion.

Ex. 3 at 3 (emphasis added).

While counsel for Regions Bank was responsible for the first draft of the motion, Attorney Lasky (counsel to Maxko as Debtor in Possession) testified that the filed Bidding Procedures Motion and other Court pleadings relating to the sale was the product of collaborative efforts by both Regions Bank's counsel and her. Lasky Tr. 159:1-160:4. These pleadings demonstrate that the existence and role of Sunrise Chevron was clearly noted for the Court as well as any interested parties.

On August 15, 2008, I entered an Order (I) Establishing Bidding Procedures; (II) Approving Form of Purchase Agreement; (III) Approving Form and Manner of Notices; (IV) Scheduling Auction and Final Approval of Sale (the "Bid Procedures Order"). Ex. 4. That form of Purchase Contract, which was eventually executed by both sets of Defendants, contained the following provision:

DAMAGES FOR PURCHASER'S BREACH. In the event of default by PURCHASER in the consummation of the purchase of PROPERTY in accordance with the terms of this CONTRACT, the deposit and interest accrued thereon shall be forfeited to SELLER. In addition, SELLER reserves the right to pursue any and all legal remedies available at law or equity including the right to maintain an action for specific performance or to have PROPERTY resold at the risk and expense of PURCHASER.

Ex. 4 at 10 (emphasis added). But the Bid Procedures Order contained the following provision, leading to the dispute over whether the Defendants' liability is limited to a forfeit of their deposits:

Following the Final Sale Hearing approving the Sale to the Successful Bidder, if such Successful Bidder fails to consummate the sale because of a breach or failure to perform on the part of such Successful Bidder, any and all of the deposit(s) of the successful Bidder shall be forfeited and retained by the Debtor as an agreed upon liquidated damages and shall not deemed a penalty and the Backup Bid, as disclosed at the Final Sale Hearing, will be deemed to be accepted and the Debtor will be authorized, but not required, to consummate the Sale with the Backup Bidder submitting such bid without further order of the Bankruptcy Court.

Ex. 4 at ¶ 2(i) (emphasis added). It is this provision upon which Defendants rely in claiming that Plaintiff Salkin is limited to recovery, if at all, of only the $100,000 initial deposit. For the reasons which are set forth more fully below, I disagree and holds that Plaintiff Salkin may recover the full extent of damages incurred by the estate.

While it was obtaining authority to conduct an auction sale, Maxko simultaneously obtained Court authority to retain the auction company, GoIndustry DoveBid, to conduct the auction. GoIndustry began advertising for the auction by sending out a flyer which identified that the property ("Modern Convenience Store, Gas Station and Car Wash on 2.20 +/Acres") was being sold pursuant to bankruptcy court order and further provided:

PROPERTY CONDITION: The

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