Polk 33 Lending, LLC v. THL Corp. Fin. (In re Aerogroup Int'l, Inc.)
| Decision Date | 14 February 2020 |
| Docket Number | C.A. No. 19-648 (MN),Bankr. No. 17-11962 (CSS) |
| Parties | IN RE: AEROGROUP INTERNATIONAL, INC., et al., Debtors. POLK 33 Lending, LLC, Appellant, v. THL CORPORATE FINANCE, INC., Appellee. |
| Court | U.S. District Court — District of Delaware |
(Jointly Administered)
This appeal arises in the Chapter 11 cases of Aerogroup International, Inc. and certain affiliates ("Debtors"). Appellant Poke 33 Lending, LLC ("Polk 33") has appealed from the Bankruptcy Court's March 26, 2019 decision, Polk 33 Lending, LLC v. THL Corporate Finance, Inc. (In re Aerogroup Int'l, Inc.), 601 B.R. 571 (Bankr. D. Del. 2019) ("Allocation Decision"),1 in which the Honorable Kevin J. Carey,2 inter alia, allocated proceeds from the Debtors' 11 U.S.C. § 363 asset sale among two lenders with competing secured claims - Polk 33, and appellee THL Corporate Finance, Inc. ("THL"), in its capacity as administrative agent to the Debtors' prepetition term loan lenders. The Allocation Decision adjudicated the lenders' dispute over the allocation of sale proceeds consistent with the Bankruptcy Court's prior denial of Polk 33's summary judgmentmotion, in which Polk 33 asserted that THL's "final" credit bid on certain assets at the auction established the secured amount of THL's claim. In re Aerogroup Int'l, Inc., 2018 WL 3155250, *3-*4 (Bankr. D. Del. June 25, 2018). The Bankruptcy Court denied summary judgment, citing a "dispute over the material fact of whether THL's credit bid was a 'final bid" and rejecting Polk 33's argument "that the secured portion of THL's claim is determined by its Credit Bid rather than the market price for the collateral." Id. at *4-*5. The Allocation Decision, entered after a two-day evidentiary hearing, determined that THL's credit bid was not a final offer and allocated the sale proceeds in accordance with the parties' agreements and a detailed determination of the value of the individual assets underlying each lender's claim. See Aerogroup, 601 B.R. at 589.
Pending before the Court is Appellant's Request for Order Certifying Order for Direct Appeal to the Court of Appeals for the Third Circuit (D.I. 12) ("Certification Motion"), which seeks certification under 28 U.S.C. § 158(d)(2)(A). The Certification Motion is fully briefed. (D.I. 12, 15, 19). Because Polk 33 has provided no justification for bypassing this Court's intermediate review, the Certification Motion is denied.
Prior to filing the chapter 11 cases, the Debtors were a leading manufacturer and retailer of women's footwear. On September 15, 2017 ("the Petition Date"), the Debtors commenced the chapter 11 cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code.
The Debtors' outstanding debt is held in a "split lien" collateral structure by THL, as administrative agent for the Debtors' prepetition term loan lenders, and Polk 33, as the provider of debtor-in-possession ("DIP") financing. Pursuant to the final order approving the DIP facility (B.D.I. 14) ("the Final DIP Order") on November 2, 2017, Polk 33 holds a first lien on all "DIPPriority Collateral," which includes the Debtors' inventory and working capital, and the proceeds therefrom, and THL holds a lien on all "Term Priority Defined Collateral," which includes the Debtors' intellectual property and all proceeds therefrom.
On February 15-16, 2018, the Debtors auctioned substantially all of their assets ("the Auction"). Approximately midway through the Auction, THL submitted a credit bid ("the THL Credit Bid") for the Debtors' intellectual property, which was THL's Term Priority Defined Collateral under the Final DIP Order. THL asserts that the Credit Bid was not a final bid but, rather, the minimum incremental bid required under the bidding procedures at the time. Aerogroup, 601 B.R. at 580-81. (B.D.I. 654, Transcript of Feb. 15-16, 2018 Hearing, 140:10-11). THL never suggested that the bid reflected THL's view of the value of the collateral nor did THL or any other party in interest assert that it was a final bid. Id. at 589 () (citing Handy Decl. ¶¶ 7-8); see also Cleary Decl. ¶ 8 (B.D.I. 956-2). The Debtors asked THL to refrain from bidding for a period of time while bidders seeking to acquire the entire business built momentum. Id. at 580-81. Ultimately, the Debtors selected Alden as having made the highest and best bid at the Auction.
On March 6, 2018, the sale to Alden closed, and the proceeds from the sale ("the Sale Proceeds") were deposited in escrow. On April 24, 2018, THL filed its Allocation Motion (B.D.I. 803) with the Bankruptcy Court seeking a determination of the value of THL's and Polk 33's secured claims for purposes of determining how the Sale Proceeds should be allocated between THL's and Polk 33's respective first lien collateral pools. Polk 33 objected to the Allocation Motion. (B.D.I. 844). On June 8, 2018, Polk 33 filed a motion for summary judgmentin connection with THL's Allocation Motion, arguing that THL's "final" credit bid at the auction set the value of its secured claim (B.D.I. 919) ("Summary Judgment Motion").
On June 25, 2018, the Bankruptcy Court issued the Summary Judgment Decision denying Polk 33's Summary Judgment Motion. Aerogroup, 2018 WL 3155250, at *5. In the Summary Judgment Decision, the Bankruptcy Court framed the issue as: "[r]elying on the Third Circuit's decisions in Submicron3 and Philadelphia Newspapers,4 Polk argues that THL's 'final' Credit Bid established the secured amount of THL's claim." Id. at *3. The Bankruptcy Court held there was "a dispute over the material fact of whether THL's credit bid was a 'final' bid." Id.
Regarding Polk 33's analysis of SubMicron and Philadelphia Newspapers, the Bankruptcy Court remarked: Id. at *4. In analyzing the language Polk 33 cited from those decisions, the Bankruptcy Court held:
Polk's argument relies on language plucked out of cases without context and fails to recognize the basic premise: an auction allows the marketplace to determine the value of the collateral, which, in turn, determines the value of the secured portion of claim. In other words, the highest bid—no matter who makes it—sets the asset's value.
On June 29, 2018 and July 13, 2018, the Bankruptcy Court held an evidentiary hearing on several matters, including THL's Allocation Motion. On March 26, 2019, the Bankruptcy Court issued its Allocation Decision, in which, among other things, the Bankruptcy Court allocated$16.8 million of the Sale Proceeds to the THL's Term Priority Defined Collateral and $7.45 million to Polk 33's DIP Priority Collateral. Aerogroup, 601 B.R. at 598-99. As a factual matter, the Bankruptcy Court held that the Debtors had asked THL to stop credit bidding so as not to interfere with the active bidding of other cash bidders and that THL had "temporarily refrain[ed] from bidding, but reserved its right to resume credit bidding if other bidders did not bid amounts satisfactory to THL." Id. at 581. "[T]he evidence show[ed] that THL's credit bid was not a final offer." Id. at 589-90. On April 8, 2019, Polk 33 appealed the Allocation Decision. (D.I. 1). Aside from this appeal, all issues related to the allocation and distribution of the Sale Proceeds have been resolved. (See B.D.I. 1203 (May 30, 2019 Hearing Transcript at 9:7)).
Pursuant to 28 U.S.C. § 158(a), district courts have mandatory jurisdiction to hear appeals "from final judgments, orders and decrees" and discretionary jurisdiction over appeals "from other interlocutory orders and decrees." 28 U.S.C. § 158(a)(1), (3). Motions for direct appeal to the court of appeals are governed by 28 U.S.C. § 158(d)(2), which provides that a district court may certify a final order for immediate appeal to the court of appeals. In accordance with section 158(d)(2)(A) and (B), certification is mandatory if the Court determines that any of the following exist:
28 U.S.C. § 158(d)(2)(A). Subsection 158(d)(2)(B) provides that certification to the Third Circuit Court of Appeals is mandatory if the Court determines that circumstances specified in (i), (ii), or (iii) of subparagraph (A) exists. 28 U.S.C. § 158(d)(2)(B); In re Tribune Co., 477 B.R. 465, 470 (Bankr. D. Del. 2012) ( § 158(d)(2)(B)). "While the section contains three subparts, there are actually four disjunctive criteria as subpart (i) sets forth two separate benchmarks for certification." In re Millennium Lab Holdings, II, LLC, 543 B.R 703, 708 (Bankr. D. Del. Jan. 12, 2016).
Polk 33 requests certification of direct appeal of the following narrow legal issue: whether a secured lender's bid at a § 363 auction sets the value of the secured lender's collateral at the amount of the credit bid, if that bid is withdrawn. (D.I. 14 at 1). Polk 33 does not seek certification on the basis that there is no controlling decision of the court of appeals or the Supreme Court under the first prong of § 158(d)(2)(A)(i). Polk 33 seeks certification for immediate review of the Allocation Decision on the bases that (1) the Allocation Decision "involves a question of law requiring resolution of conflicting decisions" pursuant to 28...
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