IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 13-50335

In the Matter of: ADOBE TRUCKING, INCORPORATED,

 Debtor

------------------------------------------------------

ADOBE TRUCKING, INCORPORATED; 

ADOBE DRILLING SERVICES, LIMITED,

Appellants 

v.

PNC BANK, NATIONAL ASSOCIATION, PAUL FRANK, VICE

PRESIDENT; M&I BUSINESS CREDIT, LLC, CT CORP SYSTEM,

SERVICE AGENT; LAND HOLDING, LLC; PAUL FRANK,

Appellees

Appeals from the United States District Court for 

the Western District of Texas

USDC No. 7:12-CV-031

Before BARKSDALE, PRADO, and HAYNES, Circuit Judges. 

PER CURIAM:*

Adobe Trucking, Inc. (ATI) filed for Chapter 11 bankruptcy on 23 

November 2010, after which this adversary proceeding was removed from state 

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not 

be published and is not precedent except under the limited circumstances set forth in 5TH 

CIR. R. 47.5.4.

United States Court of Appeals

Fifth Circuit

FILED

January 8, 2014

Lyle W. Cayce

Clerk

 

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court. The bankruptcy court ruled in favor of PNC Bank (PNC). ATI and

Adobe Drilling Services, Ltd. (ADS) (collectively, Appellants) appealed to the 

district court, which affirmed. 

Appellants claim: the bankruptcy court erred in ruling (1) there was a 

consummated foreclosure sale; (2) the parties’ agreement was not manifestly 

unreasonable; (3) PNC’s actions regarding the sale were commercially 

reasonable; (4) there was no fraudulent transfer; and (5) PNC owed no

fiduciary duty to Appellants. (Concerning several issues, they assert also that 

the bankruptcy court failed to comply with Federal Rule of Civil Procedure 

52(a)(1) (requiring court acting as trier of fact to state fact-findings and legal 

conclusions separately)). AFFIRMED, essentially for the reasons stated by the 

bankruptcy and district courts. 

I.

In December 2006, Appellants entered into a revolving credit and 

security agreement (the agreement) for a $37.5 million, five-year revolvingcredit facility with various financial institutions, including PNC, which would 

serve as the lead bank and agent for all the lenders. The agreement provided 

New York law would govern, and that, inter alia, upon Appellants’ default, 

PNC could exercise the right to foreclosure of the security interests granted. 

In that regard, PNC could take possession of the collateral and sell it without 

judicial process. Further, the collateral could be sold “at any time or place, in 

one or more sales, at such price or prices, and upon such terms, either for cash, 

credit or future delivery” as PNC could elect, regardless of whether it possessed

the collateral. 

The same day the parties entered into the agreement, PNC obtained 

landlord waiver agreements from Adobe Oilfield Services (AOS), Adobe 

Ironworks (AI), and Mesquite Bean (Mesquite) (sister entities with control over 

the premises on which collateral was located). Despite Appellants’ failure to 

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abide by the terms of the agreement, the parties amended it on two occasions:

in March 2007, increasing the available credit to $43 million; and, that July, 

increasing it to $47.5 million.

Shortly after the second amendment, Appellants’ capital expenditures 

for the 2007 fiscal year exceeded the specified limit. Appellants continued to 

default in other ways; for instance, they failed to achieve the minimum rigfleet inventory utilization rate. On several occasions, PNC gave Appellants 

notice of default under the agreement. 

During the first half of 2008, oil prices steadily rose to a high of $145 per 

barrel, leading to a high demand for drilling rigs. By January 2009, however,

the prices had dropped to a low of $35 per barrel. As a result, by the fall of 

2008, Appellants elected to suspend most drilling operations.

As of early December 2008, with Appellants still in default under the 

agreement, PNC (and the other lenders) chose to exercise their default 

remedies. On 23 December 2008, PNC provided Appellants with its first 

written request that Appellants immediately relinquish possession and control 

of the collateral, and that they provide a list of locations of all their assets. 

Appellants neither acknowledged nor complied with this request. By 31 

December 2008, PNC provided Appellants with a foreclosure notice, stating the 

public foreclosure sale of the collateral would occur at 11:00 a.m. on 16 January 

2009.

PNC subsequently provided Appellants with multiple written requests 

for possession of the collateral, to no avail. For example, in a 14 January 2009 

letter from PNC to Appellants, they were requested, inter alia, to “cooperate 

with PNC to make the collateral available . . . and to provide information 

regarding [its] location and status”. Appellants responded by asserting PNC 

was given possession of eight rigs during a December 2008 meeting, but PNC 

claims it never received possession. Appellants also offered to move the rigs to 

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a location of PNC’s choice for 80% costs (an offer PNC rejected) and otherwise

declined to cooperate. 

On 6 January 2009, PNC placed a notice of sale in The Dallas Morning 

News, the Odessa American, and the Midland Reporter-Telegram (and on their 

respective websites). The notice provided: PNC would conduct a public sale to 

the highest qualified bidder for the collateral; the date, time, and place at 

which the sale would occur; PNC reserved the right to credit bid and purchase 

the collateral; and a detailed description of the collateral. 

Although not in possession of the collateral, PNC foreclosed on 16 

January 2009 as scheduled. Fifty minutes before foreclosure, AOS and AI filed 

a state-court action against Appellants and PNC, claiming liens on the 

collateral. Two bids were made at the foreclosure sale: a $1 million opening 

bid, and PNC’s winning $41 million credit bid. One hour after the sale, 

Appellants filed a cross-claim against PNC. That same day, PNC transferred 

all of its interest in the collateral to an affiliate, with PNC authorized to take 

possession of the collateral. PNC advised AOS, AI, and Mesquite of its intent 

to remove the collateral from their premises, but all responses suggested they

would not permit removal. 

In March 2009, after finding PNC was continually and wrongfully 

refused access to the collateral, a state court enjoined AOS, AI, and Mesquite 

from interfering with, or preventing, PNC from removing the collateral. After 

it was removed, PNC held an auction—through another entity—on 29-30 April 

2009, attended by hundreds of bidders. Although the collateral had been 

prepared for auction, most of it could not be sold. The auction netted only 

approximately $10 million. 

After ATI filed for bankruptcy on 23 November 2010, this adversary 

proceeding was removed from state court. Appellants raised several issues 

before the bankruptcy court, including whether: the agreement was manifestly 

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unreasonable; the foreclosure sale was commercially reasonable under the 

proceeds and procedures tests; there was a fraudulent transfer for less than 

reasonably equivalent value; there were damages for the loss of any surplus; 

there was a breach of a fiduciary duty or misappropriation of fiduciary 

property; there was a contract for, charge, or receipt of usurious interest; and 

there was fraud, conversion, or theft. In re Adobe Trucking, Inc., No. 10-70353, 

2011 WL 6258233, at *10-14 (Bankr. W.D. Tex. 15 Dec. 2011). 

In its opinion, the bankruptcy court first set out the secured parties’ 

rights to dispose of collateral after default under Article 9 of the Uniform 

Commercial Code and New York law. Id. at *4. The court noted the term 

“commercially reasonable” lacks a uniform definition, but explained the 

purpose of the U.C.C.’s provisions requiring a commercially reasonable sale is 

“to produce the highest price possible for the collateral” (although price is not

the sole factor). Id. Ultimately, “the inquiry into commercial reasonableness 

is a fact-intensive one that requires an examination of all circumstances of the 

liquidation”, with the secured party carrying the burden of proof as to the 

commercial reasonableness for each aspect of the disposition. Id. at *5

(citations omitted). 

The bankruptcy court noted New York courts have adopted both the 

proceeds and procedures tests to evaluate the commercial reasonableness of a 

sale. Id. at *8. Under the former, such reasonableness is based solely on the 

difference between the price received at the foreclosure sale and the price the 

collateral previously sold for, or whatever the court determines is the 

collateral’s fair-market value. Id. at *5. Under the latter, the focus is “on how 

the sale was conducted and the efforts made by the creditor to achieve the best 

price”. Id. at *7.

The bankruptcy court also considered the effect of credit agreements on 

a sale’s commercial reasonableness. Id. at *9-10. Along this line, although 

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parties may not waive the requirement of a commercially-reasonable 

disposition of collateral, U.C.C. § 9-603 expressly permits “parties [to] 

determine by agreement the standards measuring the fulfillment of the rights 

of a debtor . . . and the duties of a secured party”, as long as those “standards 

are not manifestly unreasonable”. Id. at *9 (quoting N.Y. U.C.C. § 9-603) 

(internal quotation marks omitted). If a credit agreement exists between 

parties, the agreement is not manifestly unreasonable, and a subsequent 

foreclosure sale is conducted in accordance with that agreement, then the

foreclosure sale is likely commercially reasonable. See id. at *9-10.

When considering whether the agreement was manifestly unreasonable, 

the bankruptcy court explained that the U.C.C.’s restrictions on parties’

abilities “to define what is commercially reasonable”, are meant “to prohibit 

agreements [that relieve] secured creditors ‘from virtually all responsibility 

with respect to the collateral’”. Id. at *9 (quoting Orix Credit Alliance, Inc. v. 

East End Dev. Corp., 688 N.Y.S.2d 191, 192 (2d Dep’t 1999)). The bankruptcy 

court found: “The . . . [a]greement provided reasonable standards for the 

foreclosure process, but did not purport to waive the rights of [Appellants] 

under the [U.C.C.]”. Id. at *10. Thus, the agreement was ruled not manifestly 

unreasonable. Id. at *14. 

Next, considering the commercial reasonableness under the proceeds 

test, the bankruptcy court noted that “[p]roperty offered at a foreclosure sale 

frequently produces a price substantially less than market value” and that 

New York courts consistently decline to “disturb a foreclosure sale . . . except 

. . . where the price alone is so inadequate as to shock the court’s conscience”. 

Id. at *11 (citations omitted). Upon considering the evidence presented during 

the five-day trial, the bankruptcy court accepted the $33.85 million value 

advanced by PNC, but also suggested, that, even if it accepted Appellants’ 

estimated value, the $41 million credit bid would still be 67% of the alleged 

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value of the collateral. Id. at *11, *14. Therefore, the sale was ruled

commercially reasonable under the proceeds test. Id. 

When considering whether the sale was commercially reasonable under 

the procedures test, the bankruptcy court discussed three claims by 

Appellants: (1) PNC did not prepare the collateral for sale, nor did PNC give 

prospective buyers an opportunity to inspect it; (2) a higher price could have 

been obtained if PNC had delayed the sale or sold the collateral in a different 

manner; and (3) only two prospective buyers attended the sale. Id. at *12-13. 

The bankruptcy court noted that Appellants, in violation of the 

agreement, prevented PNC from taking possession of the collateral prior to the 

sale. Id. at *12. Moreover, under the agreement, Appellants agreed it would 

be commercially reasonable “to fail to incur expenses reasonably deemed 

significant by [PNC] to prepare [the collateral] for disposition”, and that PNC 

was authorized to sell the collateral, in the event of default, with or without 

possession of the collateral at the time or place of the sale. Id. at *12-13

(internal quotation marks omitted). Additionally, New York law permits 

secured parties to dispose of collateral “in its present condition or following any 

commercially reasonable preparation or processing”. Id. at *12 (citing N.Y. 

U.C.C. § 9-610). The bankruptcy court also found that “[w]here a debtor denies

the secured party access to the collateral, it cannot complain about the 

commercial reasonableness of not making the collateral available”. Id. at *13

(citing Cantrade Private Bank Lausanne Ltd. v. Torresy, 876 F. Supp. 564, 569 

(S.D.N.Y. 1995)). 

As to Appellants’ final claims regarding the commercial reasonableness 

of the sale under the procedures test, the bankruptcy court determined PNC 

was under no obligation to delay it, because the agreement tracked New York 

law (permitting the sale of collateral at public or private sale, at any time or 

place). Id. And, finally, the bankruptcy court determined: “The fact that a 

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disposition of collateral draws only one or a small number of bids does not, 

without more, render a sale unreasonable”. Id. (citing Bankers Trust Co. v. 

J.V. Dowler & Co., Inc., 390 N.E.2d 766, 770 (N.Y. 1979)). Thus, the sale was 

ruled commercially reasonable under the procedures test. Id. at *14. 

Based on the foregoing rulings, the bankruptcy court concluded, “[f]or 

similar reasons”, there was: no fraudulent transfer for less than reasonably 

equivalent value; no damages for loss of any surplus; no fiduciary duty and,

therefore, no breach of fiduciary duty nor any misappropriation of fiduciary 

property; no contract for, charge, or receipt of usurious interest; and, no fraud, 

conversion, or theft. Id. 

Appellants appealed to district court, making essentially the same 

claims as are presented to this court. See Adobe Drilling Servs., Ltd. v. PNC 

Bank, N.A., No. MO-12-CA-31, mem. op. (W.D. Tex. 11 Mar. 2013). Appellants

claimed the sale was not commercially reasonable under the proceeds test 

because the collateral was worth approximately $81 million, rather than PNC’s

$41 million credit bid and ultimate sale price. Id. at *8.

The district court explained the $81 million valuation was based on an 

appraisal from 2008 and so had to be discounted. Id. at *8-9. The district court 

ruled that, even if the bankruptcy court had determined the collateral was 

worth $81 million, the $41 million credit bid and sale price would still have 

been reasonable because it exceeded 50% of the $81 million, an amount that 

did not “shock the court’s conscience”. Id. at *9 (citing, inter alia, DeRosa v. 

Chase Manhattan Mortg. Corp., 782 N.Y.S.2d 5, 9-10 (1st Dep’t 2009) 

(upholding sale for 45% of market value)). Therefore, the district court ruled 

the bankruptcy court did not err in finding the foreclosure sale was 

commercially reasonable under the proceeds test. Id. at *9-10.

Next, the district court considered Appellants’ contention that the 

bankruptcy court erred in holding the foreclosure sale was commercially 

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reasonable under the procedures test. Id. at *10. The district court determined

the bankruptcy court, despite Appellants’ claims, concluded PNC’s alleged 

failure to prepare the collateral for sale was excused by Appellants’ denying 

PNC access to it. Id. at *10. Moreover, as the bankruptcy court had noted, 

neither the agreement nor New York law required PNC to prepare the 

collateral before foreclosure. Id. The district court explained that, under New 

York law, the fact a greater selling price could have been obtained at a different 

time or by using different methods was not dispositive on whether a sale was

commercially reasonable. Id. at *11.

According to the district court, the bankruptcy court found that: under 

the agreement, the collateral could be sold at either a public or private sale and

at any time or place, and could be advertised in publications or media of 

general circulation; and, New York law does not require a seller to advertise a 

foreclosure sale in any specific type of media or for a specific amount of time.

Id. The district court ruled that, because the sale complied with the agreement

and New York law, the bankruptcy court did not err in holding the sale was 

commercially reasonable under the procedures test. Id. 

The district court also considered Appellants’ claim that the bankruptcy 

court erred in finding the agreement was not manifestly unreasonable. Id. at 

*12-13. Appellants took issue with two subsections: § 11.1(a), permitting PNC 

to sell the collateral without its possession, at one or more private or public 

sales, at any time or place, and at such price(s) and upon such terms for cash, 

credit, or future delivery as PNC may elect; and § 11.1(b), allowing certain 

actions in connection with the sale that would not be considered commercially 

reasonable if the parties had not agreed otherwise. Id. at *12. Accordingly, 

Appellants claimed they essentially waived their right to a commercially 

reasonable sale through these two subsections. Id. The district court 

concluded the bankruptcy court disagreed because “[i]t held that[,] to be 

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‘manifestly unreasonable,’ a credit agreement must relieve creditors ‘from 

virtually all responsibility with respect to the collateral’”. Id. at *12-13 

(quoting East End Dev. Corp., 688 N.Y.S.2d at 192 (citation omitted)).

Furthermore, although the specified subsections gave PNC broad authority 

and allowed certain actions regarding the sale that otherwise would have been

unreasonable, neither subsection waived the requirement of a commercially 

reasonable disposition of the collateral entirely. Id. at *13. Thus, the district 

court ruled the bankruptcy court did not err in holding the agreement was not 

manifestly unreasonable. Id.

The final issues raised by Appellants and considered by the district court 

were whether the bankruptcy court failed to make sufficient findings of fact 

and conclusions of law to support ruling that there was no fraudulent transfer 

for less than reasonably equivalent value and that PNC did not owe a fiduciary 

duty to Appellants. Id. Noting the bankruptcy court issued a 24-page opinion 

containing findings of facts and conclusions of law, id. at *14, the district court 

ruled: the bankruptcy court’s holding that there was no fraudulent transfer 

for less than reasonably equivalent value was supported by its determining the 

sale was commercially reasonable, id.; and the rulings were sufficient as to 

Appellants’ fiduciary claims because, under New York law, the relationship 

between a debtor and creditor is not fiduciary in nature, id. at *14-15 (citing 

Schroeder v. Capital One Fin. Corp., 665 F. Supp. 2d 219, 225 (E.D.N.Y. 2009)); 

and, therefore, the bankruptcy court’s findings of fact and conclusions of law 

were sufficient for appellate review. Id. at *15. 

II.

This court reviews “the decision of a district court, sitting as an appellate 

court, 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”. In re 

TransTexas Gas Corp., 597 F.3d 298, 304 (5th Cir. 2010) (citation and internal 

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quotation marks omitted). The bankruptcy court’s findings of fact are reviewed 

for clear error; its conclusions of law, de novo. In re Morrison, 555 F.3d 473, 

480 (5th Cir. 2009) (citation omitted). “[S]trict application of the clearlyerroneous rule is particularly important where, as here, the district court has 

affirmed the bankruptcy judge’s findings”. Orix Credit Alliance, Inc. v. Harvey 

(In re Lamar Haddox Contractor, Inc.), 40 F.3d 118, 120 (5th Cir. 1994) 

(citation and internal quotation marks omitted). A factual finding is clearly 

erroneous when, “although there is evidence to support it, the reviewing court 

is left with the definite and firm conviction that a mistake has been 

committed”. Id. (citation and internal quotation marks omitted). In addition, 

“[t]he bankruptcy judge’s opportunity to make first-hand credibility 

determinations entitles its assessment of the evidence to deference”. In re 

Perry, 345 F.3d 303, 309 (5th Cir. 2003) (citation omitted). 

A court acting as the trier of fact “must find the facts specially and state 

its conclusions of law separately”. Fed. R. Civ. P. 52(a)(1). Nevertheless, 

findings “are not a jurisdictional requirement of appeal. Furthermore, cursory 

findings and conclusions or even the complete lack of findings and conclusions 

does not necessarily require [reversal] if a full understanding of the issues on 

appeal can nevertheless be determined by the appellate court”. In re Tex. 

Extrusion Corp., 836 F.2d 217, 221 (5th Cir. 1988) (citations omitted).

III.

After reviewing the record and the briefs, and essentially for the reasons 

stated by the bankruptcy and district courts in their well-reasoned opinions, 

the judgment is AFFIRMED. 

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