Matter of Transcontinental Energy Corp.
| Decision Date | 13 December 1979 |
| Docket Number | Bankruptcy No. BK-LV 77-730. |
| Citation | 1 BR 460 |
| Parties | In the Matter of TRANSCONTINENTAL ENERGY CORPORATION, a Nevada Corporation, f/k/a Oil Producers & Refiners, Inc., f/k/a Transcontinental Power Company, Bankrupt. |
| Court | U.S. Bankruptcy Court — District of Nevada |
Roger Wesley, of Cotten, Day & Doyle, Washington, D.C., for applicants, Owen E. Jackson, et al., and Scholefield, Bellanca & Co.
Ronald Gene Self, Arvin, Cal., for applicants, George L. Naron, Riley Barnes, Riley K. Barnes, III, Rodger Barnes, Dr. S.H. Montgomery, Dusty Rhodes, and Wesley J. Reimer.
Joseph L. Golden, of O'Melveny & Myers, Los Angeles, Cal., and William L. McGimsey, of Albright, McGimsey & Stoddard, Las Vegas, Nev., for purchaser, Pacific Energy Resources.
Robert Clive Jones, of Jones & Holt, Las Vegas, Nev., for Trustee, Robert N. Broadbent.
Peter N. Reynolds, of Johnson, Pilkington & Reynolds, Las Vegas, Nev., for the Bankrupt, Transcontinental Energy Corp.
Patrick C. Clary, of Perry & Clary, Las Vegas, Nev., and James H. Mitchell, Jr., of Mitchell & Pierce, Los Angeles, Cal., for various creditors of the Bankrupt.
On December 28, 1978, following numerous continuances in favor of potential opposing bidders, this Court approved the public sale of certain limited partnership interests of the Bankrupt to an entity known as Pacific Energy Resources. These four limited partnerships hold varying leasehold rights in oil-producing properties in the state of California. Mr. Roger C. Wesley, Esq., counsel for several claimants in the above-entitled proceeding and Mr. Ronald G. Self, Esq., representing a number of minority shareholders in the Bankrupt, now seek to have this sale set aside on the basis of alleged irregularities in the Trustee's handling of the sale, including his general "mislement"1 by the buyer and the Bankrupt's president. Pursuant to this Application, a full evidentiary hearing was held in May, 1979, followed by the filing of points and authorities and oral argument on behalf of all of the interested parties. Thereafter, the Court was petitioned on two separate occasions to reopen the above hearing to receive further evidence on behalf of the applicants. Further, a motion has been made for the Court to reconsider its exclusion of a deposition introduced at the hearing. Upon its review of the taped record of the sale and of relevant legal authorities, the Court declines to hear the belated evidence now proffered, or to alter its exclusionary ruling, and finds that the sale was properly conducted under the United States Bankruptcy Act and the rules of law and equity attendant thereto. The sale will not be set aside.
In making this determination, the Court notes as its starting point the widely-respected proposition that the need for stability in judicial sales will normally preclude their being set aside, except where a clear and convincing showing of fraud, unfairness, misrepresentation, or unjust imposition in the execution of the sale creates an equitable imperative which would justify a revocation of judicial sanction. Proctor & Gamble Mfg. Co. v. Metcalf, 173 F.2d 207, 209 (9th Cir. 1949); In re Marathon Foundry & Mach. Co., 239 F.2d 122 (7th Cir. 1955), cert. denied sub nom. Dyner v. Schwartz, 353 U.S. 912, 77 S.Ct. 669, 1 L.Ed.2d 665 (1957). Cf. 4B Collier on Bankruptcy ¶ 70.9817, at 1180-94 (14th ed. 1975) (distinguishing the reasons for denying the confirmation of a sale and the grounds for setting aside such a sale after confirmation). Inadequacy of a confirmed sale price will not, of itself, be grounds for setting aside that sale. Rather, such an insufficiency must either be openly accompanied by evidence of fraud or unfairness, or be "so great as in itself to raise a presumption of fraud or to shock the conscience of the court." In re Burr Mfg. & Supply Co., 217 F. 16, 21 (2d Cir. 1914). See also Smith v. Juhan, 311 F.2d 670 (10th Cir. 1962); Dyar v. Stewart, 123 F.2d 278 (5th Cir. 1941). Cf. Turner v. Dewco Services, Inc., 87 Nev. 14, 479 P.2d 462 (1971); Brunzell v. Woodbury, 85 Nev. 29, 449 P.2d 158 (1969); Golden v. Tomiyasu, 79 Nev. 503, 387 P.2d 989 (1963) ().
Pursuant to their obligation of proof, the Applicants have evoked a tantalizing scenario of deceitful collusion between Pacific Energy Resources and Edward Dewey, the President of Transcontinental Energy Corporation. Mr. Richard Young, the moving force within the Pacific Energy organization, has been associated with Mr. Dewey, as a stockholder of the Bankrupt, for some period of time. Messrs. Dewey and Young have, at times, been on the same and opposing sides of the multiple shareholder disputes which have brought Transcontinental Energy Corporation into these proceedings. About one year prior to the sale now in question, Mr. Dewey employed Mr. Young to manage the operations of the Harrison Oil Well, one of the properties subject to the sale now in question. This employment was without this Court's authorization, though no evidence exists that the hiring was motivated by anything other than the operating needs of Transcontinental Energy Corporation, then a Debtor under Chapter XI of the Bankruptcy Act. Nevertheless, it is the contention of the Applicants that through this employment Mr. Young was able to garner information which gave him a superior bargaining position over the other prospective bidders with respect to at least the Harrison limited partnership interest. Additionally, it is maintained that, following their earlier reconciliations, Mr. Dewey used his influence on behalf of Mr. Young to discourage other possible buyers from entering the bidding contest sponsored by the Trustee. In return for this and other favors, Mr. Young is said to have invested, with his wife, in one of Mr. Dewey's other business ventures. By this conspiracy, the Applicants assert, Mr. Young was rendered the only bidder capable of intelligently setting a price not in excess of the open market value of the various interests. Other potential bidders were thus allegedly left in the unenviable position of making blind offers without the insight of Mr. Young or the cooperation of Mr. Dewey.
Throughout this affair, the Applicants claim that the Trustee was kept from a knowledge of the true value of the partnership interests by the connivance of the above principals. Therefore, at the time of this Court's sale, the Trustee could not dispute the fairness of Mr. Young's bid, even though it was set at only a third of the value of the property as appraised by witnesses for the applicants. Hence, the latter claimants contend that because of this chicanery, the ignorance of the Trustee, and an "overabundance sic of impatience" on the part of this Court, Mr. Young and his associates will be able to obtain an unfair windfall at the expense of the Bankrupt's estate and its creditors, unless this sale is now declared void.
If a Pygmalionic wish alone could render truth of Counsel's pleadings, this Court would not hesitate in the least to exercise its equitable powers to nullify the Trustee's sale. This hideous Galatea has found no life, however, despite the lengthy invocations of its creators. Unsubstantiated hypotheses and groundless innuendoes, no matter how sinister their appearance, are not adequate substitutes for the sort of clear and convincing exhibition of fact required to set aside a confirmed sale by a trustee in bankruptcy.
In the case at bar, for example, the Applicants have only shown the existence of an opportunity for the sort of collusion charged. Nowhere can this Court find substantial proof, however, that Mr. Young capitalized upon this opportunity to the detriment of the Bankrupt's estate or in any unlawful or unfair way.
In this regard, the evidence adduced at hearing does not show, in any conclusive fashion, that Mr. Young ever purposefully made misrepresentations as to his relationship or intentions with respect to the Bankrupt, the subject properties, or the limited partnership interests sought by Pacific Energy Resources. Moreover, the few misstatements which are rightfully attributed to him do not appear to have, in any way, lowered the bids made by his competitors. If anything, for example, the bidding only became more serious after his mention of claimed royalty interests in the Harrison Well.
Also, the Court finds no proof whatsoever that Mr. Young knowingly falsified production figures on the Harrison Well while acting as its manager or even that he had possession of information not immediately made public through his periodic reports. The reporting errors cited by the Applicants throughout their investigation were shown at hearing to have represented little more than the usual type of clerical mistakes common in the oil industry and elsewhere. None of these appears to have been the result of a conscious attempt by Mr. Young to denigrate the production capacities of the Harrison site. In a similar vein, testimony elicited by both sides demonstrated clearly that Mr. Young's management did not result in any lessening of the Harrison Well's public sale value, but, if anything, raised that value prior to the time of the present sale. Monthly production figures for the Harrison Well appear to have more than doubled following the assumption of management duties by Mr. Young.
Perhaps the weakest portion of the Applicants' presentation is with respect to their claim of an actual understanding between Richard Young and Edward Dewey to prevent other potential buyers from gaining information about the limited partnerships and from making acceptable bids on those interests. That these men had a long-standing association cannot be doubted. Still, that association has apparently not always been a pleasant one. Although the...
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