In the Matter of Asarco v. Elliott Mgmt.

• Court: U.S. Court of Appeals — Fifth Circuit
• Writing for the Court: CARL E. STEWART, Circuit Judge:
• Citation: In the Matter of Asarco v. Elliott Mgmt., 650 F.3d 593, 66 Collier Bankr.Cas.2d 1, 55 Bankr.Ct.Dec. 79 (5th Cir. 2011)
• Decision Date: 16 August 2011
• Docket Number: No. 10–40930.,10–40930.
• Parties: In the Matter of ASARCO, L.L.C., Debtor.ASARCO, Incorporated; Americas Mining Corporation; ASARCO, L.L.C., Appellants,v.Elliott Management; The Baupost Group, Appellees.

650 F.3d 593

66 Collier Bankr.Cas.2d 1

55 Bankr.Ct.Dec. 79

In the Matter of ASARCO, L.L.C., Debtor.ASARCO, Incorporated; Americas Mining Corporation; ASARCO, L.L.C., Appellants,

v.Elliott Management; The Baupost Group, Appellees.

No. 10–40930.

United States Court of Appeals, Fifth Circuit.

Aug. 16, 2011.

Dion W. Hayes, Tennille Jo Checkovich (argued), Karen Elizabeth Sieg, McGuireWoods, L.L.P., Richmond, VA, Charles A. Beckham, Jr., Haynes & Boone, L.L.P., Houston, TX, Douglas L. Grundmeyer, Douglas R. Holmes, Jonathan C. McCall, Chaffe McCall, L.L.P., New Orleans, LA, Patrick L. Hayden, McGuireWoods, L.L.P., New York City, NY, Robert Jay Moore, Milbank, Tweed, Hadley & McCloy, L.L.P., Los Angeles, CA, for Appellants.Eric Jay Taube (argued), Hohmann, Taube & Summers, L.L.P., Austin, TX, for Appellees.Appeal from the United States District Court for the Southern District of Texas.Before SMITH and STEWART, Circuit Judges.^*

CARL E. STEWART, Circuit Judge:

The bankruptcy court in this case issued an order that authorized the debtor, ASARCO LLC (“ASARCO”), to reimburse qualified bidders for expenses incurred in connection with the sale of a substantial asset of the debtor's estate. The bankruptcy court determined that such reimbursements were proper under the business judgment standard in section 363(b) of the Bankruptcy Code.¹ ASARCO's parent companies, Americas Mining Corporation (“AMC”) and ASARCO Incorporated (collectively, the “Parent”), appealed the order to the district court. The district court found no error and affirmed. Subsequently, the district court confirmed the Parent's bankruptcy reorganization plan, pursuant to which the Parent regained control of ASARCO. The Parent and ASARCO (collectively, “Appellants”) now appeal the bankruptcy court's reimbursement order. We affirm.

I. BACKGROUND

The adversary action and bankruptcy proceedings underlying the order appealed from were lengthy and protracted over five years, much of it before the same district judge. We recount here only the proceedings relevant to this appeal.

1. ASARCO's Fraud Action

ASARCO is a mining conglomerate that was purchased by Grupo Mexico, S.A.B. de C.V. in 1999. ASARCO's assets at the time included a controlling number of shares in Southern Peru Copper Company (“SCC”). Grupo Mexico transferred the SCC shares to a holding company it created as a wholly-owned subsidiary of ASARCO, and it created AMC as its own wholly-owned subsidiary. After financial troubles beset ASARCO, Grupo Mexico decided to sell the SCC shares in 2003 by transferring them to AMC. ASARCO was unable to escape its financial difficulties, however, and in 2005 it filed for Chapter 11 bankruptcy.

While its bankruptcy proceeding was pending, ASARCO brought an adversary action in the district court against AMC. ASARCO, proceeding in its capacity as debtor-in-possession, alleged that AMC wrongfully caused ASARCO to transfer the SCC shares. The district court conducted a four-week bench trial in 2008 and ultimately found AMC liable for actual fraudulent transfer, aiding and abetting a breach of fiduciary duty, and conspiracy.² In April 2009, the district court awarded damages and entered final judgment. The final judgment (“SCC Judgment”) ordered AMC to transfer approximately 260 million shares of SCC common stock to ASARCO and pay nearly $1.4 billion in damages for past dividends and interest.³

2. ASARCO's Bankruptcy Proceeding

In the bankruptcy proceeding, ASARCO and the Parent submitted competing plans of reorganization under Chapter 11. ASARCO's plan proposed to be partially funded with the SCC Judgment, which was the most substantial asset of the debtor's estate. Given the difficulty of valuing the SCC Judgment, ASARCO decided to sell the asset via a two-part bid solicitation process, subject to a topping auction. Such a process, ASARCO believed, would maximize the value of the SCC Judgment. ASARCO engaged the services of its financial advisor, Barclays Capital Inc., to help identify potential bidders for all or a portion of the SCC Judgment.

In July 2009, while Barclays was conducting the first phase of the bid solicitation process, ASARCO moved the bankruptcy court for the order at the heart of this dispute. ASARCO requested authorization to reimburse certain expenses incurred by bidders selected to proceed to the second phase of the bid process. In its motion, ASARCO explained that after consulting with its advisors, it had decided to invite a select group of bidders to proceed to the second phase of the process. During the second phase, the bidders would have the opportunity to conduct additional due diligence relating to the SCC Judgment. That due diligence would entail highly sophisticated legal analysis—and thus substantial legal costs—and ASARCO believed it necessary to provide bidders with an incentive to undertake this investment. ASARCO thus sought authorization under section 363 of the Bankruptcy Code to reimburse qualified bidders for their due diligence expenses.

On July 29, 2009, after a hearing, the bankruptcy court issued an order granting ASARCO's motion (the “Reimbursement Order”). The bankruptcy court concluded that ASARCO had demonstrated a “compelling and sound business justification” for the authorization requested. The Parent appealed the Reimbursement Order to the district court and moved for a stay pending appeal. The Order was stayed from August 11, 2009. By the time the district court resolved the appeal a year later, the parties' positions had materially changed due to the debtor's reorganization.

The district court, adopting the bankruptcy court's recommendation, confirmed the Parent's plan of reorganization in November 2009.⁴ Pursuant to that plan, the Parent regained control of ASARCO. The plan also provided for the Parent's release from the SCC Judgment upon the plan's effective date. The Parent's plan took effect on December 9, 2009. Shortly thereafter, the Parent filed a Rule 60(b) motion in the district court for relief from the SCC Judgment, to which ASARCO agreed.⁵ In January 2010, the district court entered an order relieving the Parent of any obligations under the SCC Judgment.

After the Parent's plan became effective, Elliott Management and the Baupost Group (the “Intervenors”) moved to intervene in the Parent's appeal of the Reimbursement Order. The Intervenors are beneficiaries of the Reimbursement Order that hold claims for due diligence expenses and fees incurred before the Order was stayed. The district court granted the Intervenors' motion. ⁶ In August 2010, after a hearing, the district court affirmed the bankruptcy court's Reimbursement Order.⁷ This appeal followed.

II. DISCUSSION

A. Jurisdiction

Appellants first argue that we lack jurisdiction due to the district court's own lack of jurisdiction over the Reimbursement Order, which Appellants contend is not a final, appealable order of the bankruptcy court. Although this alleged jurisdictional defect was not raised in the district court, we are “obligated to examine the basis for our jurisdiction.” In re Cortez, 457 F.3d 448, 453 (5th Cir.2006). Whether the district court possessed jurisdiction is a question of law we review de novo. Beitel v. OCA, Inc. ( In re OCA, Inc.), 551 F.3d 359, 366 (5th Cir.2008).

Under 28 U.S.C. § 158(a), district courts have jurisdiction “to hear appeals from final judgments, orders, and decrees” of the bankruptcy court, as well as interlocutory orders and decrees to which the district court has granted leave to appeal. We in turn have jurisdiction to hear “appeals from all final decisions, judgments, orders, and decrees” in bankruptcy matters entered under § 158(a). Id. § 158(d)(1). Because the district court did not grant leave to appeal in this case, its jurisdiction—as well as our own—depends on the finality of the bankruptcy order appealed from.

Appellants contend that the Reimbursement Order is not a final order because it does not determine any party's rights to reimbursement. In support of their argument they cite the Second Circuit's decision in In re Integrated Resources, Inc., 3 F.3d 49 (2d Cir.1993). The parties in Integrated Resources disputed the bankruptcy court's approval of a “break-up fee” provision that specified a possible range for the break-up fee, but made the exact amount of the fee contingent on future events. The Second Circuit dismissed the appeal for lack of jurisdiction after concluding that the bankruptcy court's order was not final. Id. at 51. The court concluded that the bankruptcy court's order was interlocutory because there existed an ongoing dispute on the exact amount of the break-up fee. In reaching this conclusion, the Second Circuit emphasized that in bankruptcy appeals it “appl [ies] the same standards of finality that ... apply to an appeal under 28 U.S.C. § 1291.” Id. at 53 (quoting In re Fugazy Express, 982 F.2d 769, 775–76 (2d Cir.1992)).

But Integrated Resources is of limited persuasiveness as this court has explicitly rejected the Second Circuit's “rigid rule of finality” in bankruptcy appeals. See Bartee v. Tara Colony Homeowners Assoc. (In re Bartee), 212 F.3d 277, 282 n. 6 (5th Cir.2000) (“Two circuit courts of appeal favor a rigid rule of finality. Such a rule is undesirable primarily because it is fraught with unintended inefficiencies ... and other appellate pitfalls.” (citing Maiorino v. Branford Savings Bank, 691 F.2d 89 (2d Cir.1982))). In this court, unlike the Second Circuit, finality under § 158(d) is not coterminous with finality under § 1291: “ ‘Finality’ ... under § 158(d) is considered more liberally or flexibly than ‘finality’ under § 1291,” and in bankruptcy appeals we apply “the less stringent standard of § 158(d).” Id. at 282. See also Internal Revenue Serv. v. Orr (In re Orr), 180 F.3d 656, 659 (5th Cir.1999) (“There is ... a lower threshold for meeting the ‘final judgments, orders, and decrees' appealability standard under 28 U.S.C. § 158(a) than there...