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In re VCR I, L.L.C.

United States Court of Appeals, Fifth Circuit

May 1, 2019

In the Matter of: VCR I, L.L.C. Debtor
v.
VCR I, L.L.C., Appellee GLUCKSTADT HOLDINGS, L.L.C., Appellant

          Appeal from the United States District Court for the Southern District of Mississippi

          Before STEWART, Chief Judge, and DAVIS and ELROD, Circuit Judges.

          W. EUGENE DAVIS, CIRCUIT JUDGE

         Gluckstadt Holdings, L.L.C. ("Gluckstadt") appeals the district court's judgment affirming the bankruptcy court's decision to grant the Chapter 7 Trustee's motion to approve auction and for authority to sell certain real property of the bankruptcy estate of VCR I, L.L.C. ("VCR"). The Trustee has filed a motion to dismiss the appeal as moot. For the reasons set forth below, we DENY the Trustee's motion to dismiss and AFFIRM the district court's judgment.

         I. Background

         On June 21, 2012, VCR filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. The bankruptcy court later converted the case to a Chapter 7 bankruptcy proceeding and appointed a Trustee. On November 4, 2016, the Trustee filed a motion to approve auction and for authority to sell certain real property of the bankruptcy estate, free and clear of liens, interest, encumbrances, and claims ("Motion"), pursuant to 11 U.S.C. § 363 of the Bankruptcy Code.[1] In the Motion, the Trustee requested authority from the bankruptcy court to conduct a public auction for the sale of four tracts of land located in Madison County, Mississippi.

         With respect to the fourth tract, the Trustee acknowledged that, while the case was pending as a Chapter 11 proceeding, Gluckstadt and the Debtor (VCR) entered into an "Agreed Order" in which the Debtor agreed to sell the fourth tract of land to Gluckstadt for $612, 500.00. Although the Order provided that the Debtor "shall file and notice a motion for authority to sell the real property, free and clear of all liens, claims and interest, to [Gluckstadt], for $612, 500.00, as soon as possible," the Trustee explained that no motion for authority to sell the fourth tract to Gluckstadt had ever been filed and that he had not supported Gluckstadt's proposed purchase of the property "without an open bid process." The Trustee stated that "[t]he opening bid for Tract No. 4 shall be for $612, 500.00 to Gluckstadt," but that he was "under no obligation to sell to [Gluckstadt] unless the Opening Bid of [Gluckstadt] [was] the highest and best bid." The Trustee requested authority to sell the property to the highest bidder, which sale would be "fair and reasonable" and "in the best interest of the bankruptcy estate."

         Gluckstadt objected to the Motion, asserting that the Motion constituted a breach of the Agreed Order. Gluckstadt argued that the Agreed Order constituted a settlement agreement that was "fair and equitable to the Debtor" and bound the Trustee to file a motion for authority to sell the property to Gluckstadt for $612, 500.00, subject only to the objection of creditors not participating in the settlement. Gluckstadt contended that the Agreed Order did not contemplate the auction process.

         After conducting a trial, the bankruptcy court overruled Gluckstadt's objection and granted the Motion. Gluckstadt timely appealed that decision to the district court, which affirmed the bankruptcy court's judgment. Gluckstadt then timely appealed to this court. We have jurisdiction over this appeal under 28 U.S.C. § 158(d)(1). Gluckstadt's motions for stay of the auction and sale pending appeal were denied by the bankruptcy and district courts, as well as this court.[2]

         II. Standard of Review

         This court reviews "the decision of a district court sitting as an appellate court in a bankruptcy case by applying the same standards of review to the bankruptcy court's findings of fact and conclusions of law as applied by the district court."[3] "Acting as a second review court," this court reviews a bankruptcy court's legal conclusions de novo and its findings of fact for clear error.[4]

         III. Discussion

         Gluckstadt asserts that the Agreed Order constituted a binding settlement agreement with VCR requiring the Trustee, as the successor-in-interest to VCR, to file a motion to sell the fourth tract of land to Gluckstadt for $612, 500.00, "subject to objections of creditors not participating in the settlement/agreed order," but not subject to objections of the Trustee. Gluckstadt asserts that the Trustee breached the Agreed Order by requesting authority to conduct a public auction of the property and to sell to the highest and best bidder, and that the bankruptcy court (and district court on appeal) erred in finding otherwise.

         As noted by the bankruptcy court, in In re Moore, we discussed the rules that apply to the sale of a debtor's property in a bankruptcy proceeding and the trustee's duties with respect to such a sale.[5] Specifically, "[s]ection 363 of the Bankruptcy Code governs the sale, use, or lease of property of the estate, allowing the trustee to sell 'property of the estate,' other than in the ordinary course of business[.]"[6] A sale under § 363 "requires notice and a hearing and is subject to court approval and must be supported by an articulated business justification, good business judgment, or sound business reasons."[7] "A trustee has a duty to maximize the value of the estate," and he "must demonstrate that the proposed sale price is the highest and best offer, though a ...


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