In re W. Biomass Energy LLC

• Decision Date: 06 August 2013
• Docket Number: Case No. 12-21085
• Parties: In re WESTERN BIOMASS ENERGY LLC Debtor.
• Court: U.S. Bankruptcy Court — District of Wyoming

In re WESTERN BIOMASS ENERGY LLC Debtor.

Case No. 12-21085

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF WYOMING

DATED: August 6, 2013

Chapter 7

OPINION ON OBJECTION TO SALE AND MOTION FOR ENTRY OF AN

ORDER DENYING CONFIRMATION OF THE SALE OF SUBSTANTIALLY

ALL OF DEBTOR'S ASSETS FREE AND CLEAR OF LIENS, CLAIMS AND

INTERESTS AND SETTING ASIDE SALE

On July 30, 2013, this matter came before the court for an evidentiary hearing on the Objection to Sale and Motion for Entry of an Order Denying Confirmation of the Sale of Substantially All of Debtor's Assets Free and Clear of Liens, Claims and Interests and Setting Aside Sale ("Objection") filed by Security National Bank of Omaha ("Security Bank"); the response and joinder filed by the Official Unsecured Creditors' Committee ("OUCC") and the responses filed by Western Biomass Energy LLC ("Debtor"), GeoSynFuels, LLC ("GeoSyn"), and Great American Group, LLC ("Great American"). Also present at the hearing was American Process, Inc. ("API"). The parties were represented as stated on the record. At the conclusion of the two-day evidentiary hearing, the court took the matter under advisement.¹

Jurisdiction

The court has jurisdiction over this adversary proceeding under 28 U.S.C. §§ 157 and 1334. This is a core proceeding within the definition of 28 U.S.C. § 157(b)(2)(A) and (N).

Findings of Facts

Western Biomass is a demonstration/research and development ethanol plant located in Upton, Wyoming. It filed its chapter 11 petition and schedules on October 31, 2012. On February 26, 2013, Debtor filed an Application to Employ Great American Group, LLC as Financial Consultant and Liquidator. The court granted the application. The Committee filed a request to have the court reconsider its order, to give the Committee time to review. The Committee subsequently withdrew its motion for reconsideration on March 5, 2013.

Debtor filed its Motion for Approval of Auction Sale of Personal Property ("Auction Motion") on April 5, 2013. Finding that no objections to the Auction Motion were filed, the court approved the motion with its "Amended Order Authorizing and Approving Auction Sale of Substantially All of the Debtor's Assets Free and Clear of Liens, Claims and Interests." ("Auction Order"). Thereafter, Great American marketed and sold the assets by an on-line auction on June 11 and 12, 2013 to GeoSyn for the sale price of $525,000.00.²

Security Bank filed its Objection requesting that the Court refuse to confirm the sale alleging that the sale should be set-aside due to a grossly inadequate price and irregularities in the sale process.

The responses that were filed include:

(1) Debtor

Debtor joins Security Bank's objection. Subsequent to the conclusion of, but prior to confirmation of the on-line auction, Debtor received an offer to purchase the assets from API for the purchase price of $1,218,750.00. Debtor seeks the court's approval (1) of the sale of the assets to API; and, (2) of the settlement between Security Bank and Debtor providing for a "carve-out" in the amount of $325,000.00 from the API sale proceeds for the benefit of the estate to pay the estate's administrative costs of attorneys' fees and provide for a "meaningful distribution to unsecured creditors." Debtor argues that it has a fiduciary duty to maximize the value of the bankruptcy estate.

(2) OUCC

The OUCC joins Security Bank's and Debtor's objections, incorporating their arguments. OUCC further argues that, bankruptcy courts are courts of equity. The only ability for unsecured creditors to receive a distribution is upon the court's denial of confirmation of the on-line auction to GeoSyn and approval of a sale that will provide a "carve-out" for the estate's administrative expenses and distribution to unsecured creditors.

(3) GeoSyn

GeoSyn was the "winning" bidder for the estate's assets during the on-line auction. GeoSyn argues that the on-line sale should be confirmed asserting: (1) Security Bank's objection is untimely and procedurally defective; (2) the purchase price represents the market value and not grossly inadequate; and, (3) the sale procedures were followed as outlined in the Auction Motion.

(4) Great American

Great American was retained by the Debtor, without objection by any party and with this court's approval to expeditiously sell Debtor's assets. Great American does not take a position regarding whether the auction results should be confirmed, but objects to any finding that Great American did not conduct the auction according to the Auction Order, historical practices and industry standards.

(5) API

API presented an offer subsequent to the auction to purchase all the estate's assets for the amount of $1,218,750.00. This offer provides for the "carve-out" settlement between Security Bank and Debtor to pay the bankruptcy estate's administrative fees and provide a distribution to unsecured creditors. GeoSyn objected to API's participation at the evidentiary hearing for lack of standing. The court took GeoSyn's objection under advisement.

Discussion

The issue before the court is whether to confirm the on-line auction of Debtor's assets conducted by Great American and purchased by GeoSyn. The Seventh Court of Appeals stated,

"Under §363, the trustee or debtor in possession is the seller and the bankruptcy court gets involved only through the requirement of notice and a hearing. The statute fails to define the court's role clearly, but the practice is that the bankruptcy judge, following the hearing, issues an order authorizing the sale (if he decides the property should indeed be sold) and after the sale is made the judge issues a second order, confirming the sale. The confirmation order is appealable as a final order.³

In this case, the court approved the Auction Motion for "substantially all of the debtor's assets." No motion for approval of the actual sale to GeoSyn has been filed with this court. Usually this motion comes from the Debtor after the sale is completed. However, the Bank filed its objection to the confirmation of the sale before the Debtor filed any confirmation motion. Therefore, the court will determine whether the on-line auction shall be confirmed.

The purpose of § 363 bankruptcy auction is to attain the highest and best offer for the assets sold and serve the best interests of the estate and its creditors. To maximize the proceeds available to creditors, a bankruptcy court may exercise its broad discretion to reopen an auction or hold a second auction to consider an upset bid.

The Tenth Circuit holds that a judicial sale will not be denied confirmation or setaside for mere inadequacy in price unless the price is so grossly inadequate as to shock the conscience of the court and is coupled with slight additional circumstances indicating unfairness.

(1) Inadequacy of price.

GeoSyn was the highest bidder for all of the bankruptcy estate's assets submitting a bid for the amount of $525,000.00. The testimony received by the court, indicates that the Upton ethanol plant was a state-of-the-art facility, constructed with the best and highest quality equipment and components. Troy Guiness, Midwest Renewable Energy, LLC's general manager, testified about the Debtor's plant, stating, "It is a 'beautiful plant,' 'crisp,' 'clean,' 'well engineered,' and 'very well put together..'" Mr. Guiness is familiar with the plant, both historically and recently, adding: "rocket ship technology went into that plant."

Todd Filsinger, a qualified appraiser,...