In re Palmer Equip., LLC

• Decision Date: 27 October 2020
• Docket Number: Bankruptcy No. 19-24265
• Citation: 623 B.R. 804
• Parties: IN RE: PALMER EQUIPMENT, LLC, Debtor.
• Court: U.S. Bankruptcy Court — District of Utah

623 B.R. 804

IN RE: PALMER EQUIPMENT, LLC, Debtor.

Bankruptcy No. 19-24265

United States Bankruptcy Court, D. Utah.

Signed October 27, 2020

Brian D. Johnson, Ogden, UT, Roger A. Kraft, Midvale, UT, for Debtor.

Mark C. Rose, McKay, Burton & Thurman, P.C., Salt Lake City, UT, for Trustee Stephen W. Rupp.

Mary Margaret Hunt, GreenbergTraurig, Salt Lake City, UT, for Trustee Michael F. Thomson.

Michael F. Thomson, Pro Se.

David P. Billings, Douglas J. Payne, Fabian VanCott, Salt Lake City, UT, for Creditor Committee Official Committee of Unsecured Creditors.

MEMORANDUM DECISION ON MOTION TO VACATE ORDER APPROVING SETTLEMENT AND DISTRIBUTION OF FUNDS

WILLIAM T. THURMAN, U.S. Bankruptcy Judge

BACKGROUND

This case is before the court on what TRC Ranch, LLC has called "Trial Brief in Support of Motion to Amend Ruling, or More Precisely, Motion to Reconsider." The Court will refer to this as the Motion to Reconsider. In this motion, it argues that it was not given notice of a sale of farm equipment by the Debtor or a settlement agreement and motion to distribute the proceeds from sale when the parties to the sale and settlement knew that TRC Ranch, LLC had claimed a property interest in the equipment. It further asks the Court to vacate the sale and order approving settlement. A verbal ruling on the motion was given on September 30, 2020. This memorandum decision is essentially what was stated on the record.

NOTICE AND JURISDICTION

The jurisdiction of this Court is properly invoked under 28 U.S.C. § 1334 and has been expressly consented to by the parties. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A) and (M), and this Court may enter a final order. Venue is proper under the provisions of 28 U.S.C. § 1408. Notice of the hearing is found to be proper in all respects.

FINDINGS OF FACT

Mr. Russell Powell ("Powell"), the agent of TRC Ranch, LLC ("TRC") originally made a motion pro se and subsequently as required by our local rules, obtained counsel for his company by Mr. Ted Cundick. Mr. Cundick filed a "Reply in Support of the Motion to Amend, or More Precisely, a Motion to Reconsider." This Reply and Motion to Reconsider is what the Parties and the Court considered in the evidentiary hearing held on September 22, 2020. The Court notes that the motion to reconsider is most likely misnamed. The Court assumes this is, in reality, a motion for relief pursuant to F.R.C.P. 60(b). However, as the parties sometimes refer to it as the Motion to Reconsider, and to avoid some confusion as to what is being addressed, the Court may refer to it also as a motion to reconsider. After taking evidence and hearing argument from all parties, the Court makes the following findings.

Palmer Equipment, LLC ("Palmer Equipment") filed for chapter 11 on June 11, 2019 through its agent, Mr. Ryan Palmer ("Palmer").¹ TRC claimed a property interest in certain equipment that was left in the hands of the Debtor, either through consignment, security interest, or sale.² The allegedly consigned equipment was also subject to a security interest claimed by Alta Bank (f/k/a People's Intermountain Bank d/b/a Lewiston State Bank). TRC was the obligor under that security agreement. The Court did not receive legal briefs on the nature of TRC's property interest and reserves judgment on exactly what type of property interest TRC has or had in the equipment, and only determines that TRC has a plausible property claim to the equipment.

TRC is not and was not listed on any of the schedules or creditor matrix but was made aware of the Chapter 11 Bankruptcy through its agent, Mr. Powell. The Court heard the testimony of Ms. Cynthia Johnson ("Johnson"), the loan officer for Lewiston State Bank who was assigned to TRC's account and dealt closely with Powell whom the court finds credible. Through conversations via text messages and phone calls between Palmer and Powell and between Johnson and Powell as early as June 27, 2019, Mr. Powell and TRC were put on actual notice of the Chapter 11 case.³

This Court authorized Palmer Equipment to use cash collateral on July 31, 2019 and in that order, the Court expressly reserved judgment on the rights to certain pieces of equipment listed therein, but noted that TRC may have had an interest as either consignor or secured party to the 4 pieces of farm equipment, the proceeds of which are in dispute today.⁴

In the order authorizing use of cash collateral,⁵ the Court ordered the Debtor to hold on to that equipment pending further order of the Court. Following a hearing on November 7, 2019, the Debtor sold those items.⁶ Subsequent to the sale, the Debtor, Enhanced Capital Utah Rural Fund, LLC ("Enhanced"), and Alta Bank entered into an agreement for the disposition of the sales proceeds totaling $76,500.⁷ Enhanced asserts a blanket security interest in all equipment of the Debtor while Alta Bank asserts a specific security interest in the equipment at issue here. The Debtor filed a motion which represented that only Alta Bank, Enhanced, and the Debtor had an interest in the equipment and scheduled a hearing for settlement of their disputed interests in the sales proceeds on February 6, 2020.⁸ The motion was noticed out to the creditors who were on the matrix that day as well. It is undisputed that TRC was not on the matrix and never received formal written notice of that motion or the hearing. The hearing was held February 12, 2020 and the order approving the settlement for disposition of the equipment was entered February 13, 2020. Pursuant to the settlement of the $76,500 in proceeds, Alta Bank and Enhanced each received $32,610.10 and the Debtor retained $11,279.80 for improvements to the equipment. Those funds were turned over to the Debtor's attorneys. Also on February 12, the Court granted the U.S. Trustee's motion to convert the case to one under chapter 7. An order to that effect was entered on February 19, 2020.⁹

The testimony of Mr. Powell at the hearing on the motion shows that the Debtor did attempt to notify TRC of the conversion of the case to chapter 7 via one single text message, which was sent but not received due to Powell's location in a mountainous region of Oregon and the interreference with cellular service at that location. TRC had no knowledge of any kind of the settlement and distribution of proceeds or of the Chapter 7 conversion at that point, but it filed Proof of Claim #56 on April 30, 2020 when it did become aware of the conversion.

To summarize the foregoing, Mr. Powell, and by extension TRC, had actual notice of the Chapter 11 case, but did not have actual or formal written notice of either the settlement or conversion of the case to a chapter 7. There is a disagreement among Alta Bank, Enhanced, the Debtor (and now chapter 7 Trustee), and TRC as to whether the notice of the existence of the Chapter 11 bankruptcy that TRC received was adequate to foreclose its rights as to the specific disposition of the sales proceeds of the property that was sold by the Debtor or that further notice by them to TRC was required.

CONCLUSIONS OF LAW

MOOTNESS

As a preliminary matter, the Court would like to discuss Enhanced's position that, even if all allegations of TRC are true and correct, the motion will be mooted by analogy to 11 U.S.C. § 363(m). That provision of the code provides:

The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.

Enhanced contends that the motion to reconsider is moot, citing In re C.W. Min Co.¹⁰ That case discusses relevant public policies in the finality of bankruptcy sales orders. The 10^th Circuit in that case deemed several claims by various parties, who sought to unwind the sale, to be moot under 11 U.S.C. § 363(m).

That decision is distinguishable from the present situation. First, textually speaking, the section applies to unwinding sales on appeal , not in a situation where the sale is being left undisturbed and not in motions for relief from an order under Rule 60(b). Further, the C.W. Mining case states that:

although the appellants bear no burden to produce evidence or argument, the appellants will not overcome a motion to dismiss for § 363(m) mootness simply because the trustee fails to disprove every possible legal remedy imaginable. Instead, the appellants must at least identify an available remedy that will not affect the sale's validity.¹¹

This language is pertinent because TRC has identified renegotiation or litigation as its remedy of choice if the Motion for Reconsider is granted, specifically stating it does not wish to unwind the sale. Even looking beyond the text, the policy rationale stated in the case seeks to protect purchasers in good faith, such that a purchaser from a bankruptcy estate may know that its interests in the purchased property is sound and will not be disturbed. " Section 363(m)'s protection is vital to ‘encourag[ing] buyers to purchase the debtor's property’ and thus ‘insur[ing] that adequate sources of financing remain available.’ "¹²

The remedies requested do not affect the validity of the sale because the bona fide purchaser of the equipment will not be disturbed in its ownership. The buyer of the equipment is not before the Court. The relief sought here is to void the settlement agreement and order and determining exactly to whom the proceeds should go, rather than the amount of proceeds. Indeed, Alta Bank also identified in its trial brief a potential source for shifting funds: the $11,279.80 which was retained by the Debtor. Accordingly, there are at least two courses of action that have been identified by the parties which do not disturb the sale whatsoever and the motion is...