In re Simply Essentials, LLC

Citation640 B.R. 922
Decision Date05 April 2022
Docket NumberBankruptcy No. 20-00305
CourtUnited States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Northern District of Iowa

Dan Childers, Wesley B. Huisinga, Shuttleworth & Ingersoll, P.L.C., Cedar Rapids, IA, for Trustee.

Larry S. Eide, Mason City, IA, Trustee, Pro Se.

Terry Gibson, Des Moines, IA, Riley C. Walter, Wanger Jones Helsley, Fresno, CA, for Debtor.


Thad J. Collins, Chief Bankruptcy Judge

This matter came before the Court by evidentiary hearing on January 26, 2022. Trustee, Larry Eide, filed a Motion to Compromise under Rule 9019(b) and a Motion to Sell Property Free and Clear of Liens under 11 U.S.C. § 363(f). He appeared at the hearing with his counsel, Dan Childers and Wes Huisinga. ARKK Food Company, Inc. ("ARKK") joined the Trustee's Motions and made the offer to purchase and to have its claim compromised as part of that offer. ARKK appeared at the hearing with its counsel Kristina Stanger, Leslie Behaunek, Daniel Desatnik, and Todd Ohlms. Pitman Farms ("Pitman") objected to both Motions and argued that Pitman's own competing offer should be accepted instead. Pitman appeared with its counsel, Eric Lam. The Petitioning Creditors, who originally filed this bankruptcy as an involuntary case, and Prairie's Best Farm, Inc., appeared through counsel Austin Peiffer. The Petitioning Creditors fully support the Trustee's Motions. Terry Gibson appeared for Debtor Simply Essentials ("Debtor"), taking no position on the matter. These Motions present core proceedings under 28 U.S.C. § 157(b)(2). At the conclusion of evidence, the parties argued the case and informed the Court no further briefing was necessary. Within days, Pitman filed a Motion for Extension of Time to Submit and Consider Revised Offer. The matter was set for hearing in early February but was resolved before the hearing.


Trustee presented evidence in a full-day evidentiary hearing in support of his Motions to Compromise and Motion to Sell Causes of Action (Chapter 5 avoidance actions) free and clear of liens. ARKK also presented evidence in support of Trustee's Motions. ARKK and other creditors and interested parties—other than Pitman—argued in favor of approval of the Motions. Pitman argued against the Motions asserting: (1) the causes of action Trustee was attempting to sell are not property of the estate that Trustee has authority to sell, and (2) Trustee has failed his burden of proof to sustain his Motions because Trustee has a better offer from Pitman that he should accept instead in the best interest of the estate. For the reasons that follow, the Court grants the Motions of the Trustee and approves the settlement.


Trustee moved the Court to approve a compromise with ARKK and to approve the Sale of Trustee's avoidance actions against Pitman to ARKK. ARKK's offer consisted of the following: (1) reducing its claim against the bankruptcy estate from $23.4 million to $2.5 million; and (2) receiving all the funds recovered on Trustee's avoidance actions up to $600,000, followed by payment of ARKK's fees and expenses in litigating the claims, and afterward 15% of the recovery for the estate from all avoidance actions beyond $600,000.

Pitman made a competing offer to buy the same claims for $1 million in cash with no other conditions. Trustee received the offers in a bit of a herky jerky fashion: (1) ARKK offer; (2) Pitman offer; (3) Pitman amended offer; and (4) an ARKK offer adding the first $600,000 from recovery of the avoidance actions just before the hearing.

Trustee carefully analyzed these competing offers—even though they were essentially apples and oranges. Trustee is one of the most experienced Chapter 7 trustees and bankruptcy lawyers in Iowa. He enjoys an excellent reputation.

Trustee testified at length. He noted the estate did not have sufficient funds to pursue these Chapter 5 avoidance actions (i.e., §§ 544–550) against Pitman. Trustee believes those causes of action appear to have merit and could provide a very large recovery to the estate. Trustee thus seeks to sell the actions for a reasonable price to realize as much as possible for the creditors and interested parties.

Trustee explained the two competing offers he had and how he analyzed them with the assistance of his experienced counsel and the input of other parties. He acknowledged that comparison of the offers was made difficult by the vast differences in their structure. Trustee concluded, however, that after weighing all the variables and difficulties of the analysis, accepting the ARKK offer was in the best interest of the estate and its creditors.

Pitman presented through its counsel a thoughtful and extensive cross-examination of the Trustee. Trustee provided candid responses and conceded that Pitman made many good points in favor of its offer and against that of ARKK. Trustee acknowledged that $1 million was a good offer that was hard to turn down. Trustee acknowledged that it was possible that the estate could ultimately receive less than $1 million in total recovery under ARKK's proposal. He noted it would take more than $5 million in recovery by ARKK from Pitman for the estate to receive more than $1 million in recovery. Trustee did note, however, that he believed there was a substantial likelihood of recovering more than $1 million for the estate under ARKK's proposal—possibly even far in excess of $1 million. Trustee essentially noted that both offers were good, but that he still believed ARKK's would be in the best interest of the estate.

ARKK, too, elicited testimony from Trustee favorable to its offer. ARKK also provided testimony from its CEO to establish the merits of the causes of action and the underlying facts that would establish a recovery for the estate under ARKK's offer that could far exceed Pitman's offer.

After all the evidence, the Court asked the Trustee whether anything that was presented at the hearing had changed his mind. He said "no." The Court then asked the other parties—particularly the Petitioning Creditors—the same question. They, too, responded with a "no." Thus, everyone taking a position at the hearing, other than Pitman, fully supported the Trustee's Motion.

The Court then pressed Pitman's counsel for some additional explanation to support its position. Pitman's counsel noted that it had always taken the position—in its briefing and objections to Trustee's Motions—that there was a threshold legal issue that fully supported Pitman: whether the causes of action were property of the estate salable by Trustee under § 363. Pitman argued the causes of action were not property of the estate and thus no sale was legally allowed.

The Court expressed skepticism about Pitman's "property of the estate" argument. ARKK and counsel for the Trustee responded with similar skepticism. The Court noted it would nevertheless take the matter under advisement to review that issue and the others raised.


The matter before the Court is Trustee's Motions to Approve Settlement and a Sale under § 363 of estate property (causes of action) as part of that settlement. There are only two issues left to be resolved: (1) whether the causes of action are property of the estate that can be sold under § 363 ; and (2) if so, whether Trustee has satisfied the standards for approving the settlement—which includes the sale.

I. Are Trustee's Causes of Action Property of the Estate that Trustee Can Sell?

Pitman has argued throughout that the issues before the Court depend on a legal question: Are Chapter 5 causes of action property of the estate the Trustee can sell?

After the close of evidence, the Court heard argument on all factual and legal issues. Frankly, the Court was skeptical, if not somewhat dismissive, of Pitman's "property of the estate" argument. The Court and other parties all expressed this attitude by asking: What are these causes of action if not property of the estate?

The Court now concedes that its questioning, and perhaps even its tone, with Pitman's counsel was misplaced. The "property of the estate" issue Pitman raises is far from fanciful or frivolous. There is much caselaw discussing the issue. Some of that caselaw is favorable to Pitman's argument.

The following cases have addressed the issue in some detail: Nelson v. Ramette (In re Nelson ), 274 B.R. 789 (B.A.P. 8th Cir. 2002) ; In re Brown, 953 F.3d 617 (9th Cir. 2020) ; In re Wyman, 626 B.R. 480 (Bankr. S.D. Ohio 2021) ; In re EPD Inv. Co., LLC, No. 2:10-BK-62208-ER, 2020 WL 6937351 (Bankr. C.D. Cal. Oct. 29, 2020) ; Callahan v. Roanoke Cnty. (In re Townside Constr., Inc. ), 582 B.R. 407 (Bankr. W.D. Va. 2018) ; In re Porrett, 547 B.R. 362 (Bankr. D. Idaho 2016) ; Official Comm. of Unsecured Creditors v. UMB Bank (In re Residential Capital, LLC ), 497 B.R. 403 (Bankr. S.D.N.Y. 2013) ; Collins v. Fed. Land Bank of Omaha, 421 N.W.2d 136 (Iowa 1988). They engage in a great deal of analysis—much of it addressing different subsections of 11 U.S.C. § 541(a). A law review note addressing this issue does a nice job capturing the many differing points of view. Brendan Gage, Is There a Statutory Basis for Selling Avoidance Actions?, 22 J. BANKR. L. & PRAC . 3 Art. 1 (2013).

One recent case tries to encompass most, if not all, of the various arguments. In re Murray Metallurgical Coal Holdings, LLC, 623 B.R. 444, 504–19 (Bankr. S.D. Ohio 2021). The Court there carefully analyzed the competing arguments before concluding that Chapter 5 causes of action are, in fact, property of the estate that can be sold. This Court adopts the excellent rationale and conclusion of Murray Metallurgical.

The plain meaning of the Bankruptcy Code also supports this position. Section 541(a)(7) provides that property of the estate includes "any interest in property that the estate acquires after the commencement of the case." The Court noted this section responding to Pitman's...

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