United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

 

No. 02-6058 WM

 

In re: *

*

Farmland Industries, Inc., d/b/a *

Livestock Services Division, d/b/a *

Farmland Livestock Services, d/b/a *

Honor Pet Products Co., d/b/a Premier *

Farmtech, d/b/a Marco Polo Salame *

Company, d/b/a Souza’s Sausage *

Company, *

*

Debtor. *

*

American Plant Food Corp., * Appeal from the United States

* Bankruptcy Court for the 

Interested Party-Appellant, * Western District of Missouri 

*

v. *

*

United Agri Products, Inc., d/b/a *

UAP-Midsouth, *

*

Movant-Appellee, *

 *

Farmland Industries, Inc., *

*

Debtor - Appellee. *

 

Submitted: February 5, 2003 

Filed: February 27, 2003

 
1

The Honorable Jerry W. Venters, United States Bankruptcy Judge for the

Western District of Missouri.

2

Before KRESSEL, Chief Judge, SCHERMER and DREHER, Bankruptcy Judges

SCHERMER, Bankruptcy Judge

American Plant Food Corporation (“American”) appeals the bankruptcy court1

orders reopening bidding for the purchase of certain debtor assets and approving a

compromise and settlement governing procedures for the final auction. We have

jurisdiction over this appeal. See 28 U.S.C. § 158(b). For the reasons set forth below,

we affirm.

ISSUES

The first issue on appeal is whether the bankruptcy court order reopening

bidding and the order approving a compromise establishing procedures for the final

auction are interlocutory. We conclude that the orders are interlocutory; however, we

choose to exercise our discretion to review the interlocutory orders.

The second issue on appeal is whether the bankruptcy court abused its

discretion in reopening the bidding and approving the compromise. Included within

this issue is whether the bankruptcy court erred when it found that the holder of a

right of first refusal had not received notice of the proposed sale. We conclude that

the bankruptcy court did not err in finding that the holder of the right of first refusal

had not received notice of the sale nor did it abuse its discretion in reopening the

bidding or in approving the compromise.
2

 UAP and ConAgra are related companies.

3

BACKGROUND

On August 16, 2002, Farmland Industries, Inc. (“Debtor”) filed a motion to

establish bid procedures and to approve the sale of a fertilizer warehouse to ConAgra

Trade Group, Inc. (“ConAgra”) pursuant to 11 U.S.C. § 363. On August 29, 2002,

the bankruptcy court approved auction and bid procedures, pursuant to which the

Debtor was to solicit additional bids and conduct an auction on September 9, 2002,

if necessary. The court scheduled a hearing for September 10, 2002, to determine

whether to approve a sale pursuant to the highest bid. Various parties submitted bids

and the Debtor conducted an auction on September 9, 2002. American submitted the

highest bid at the auction.

United Agri Products, Inc. d/b/a UAP-MidSouth (“UAP”) appeared at the

September 10 hearing and asserted a right of first refusal with respect to the fertilizer

warehouse. UAP had not previously submitted a bid nor participated in the auction.

The right of first refusal required written notice to UAP of any proposed transfer at

least 40 days prior to the transfer. 

The issue of whether UAP had received notice of the proposed sale arose at the

hearing. The Debtor had not served a copy of the motion or notice of the sale or bid

procedures on UAP. At the Court’s invitation, UAP submitted an affidavit of its

officer stating that UAP did not have notice of the sale. In response to the UAP

affidavit, the Debtor submitted the affidavit of its employee stating that he had

contact with Mr. Moses W. Vernon, Jr. in connection with the sale negotiations with

ConAgra and that he believed Mr. Vernon was fully authorized to enter contracts on

behalf of UAP.2
4

The court concluded that UAP had not received notice of the proposed sale.

On September 17, 2002, it issued its order reopening the bidding, scheduling an

auction in court on September 24, 2002, and authorizing American to submit higher

bids and UAP to match any such bids at such final auction.

At the September 24 hearing, all parties except American reached a settlement

pursuant to which UAP agreed to waive its right of first refusal, ConAgra agreed to

waive its right to a break-up fee, and American, UAP, and Equalizer, Inc. would be

allowed to participate in a reopened auction. The court concluded that the settlement

was reasonable and entered its order dated September 25, 2002, approving the

settlement pursuant to Federal Rule of Bankruptcy Procedure 9019 and scheduling

a judicial auction for October 22, 2002.

On October 4, 2002, American filed its appeal of the September 17 order

reopening the bidding and the September 25 order approving the compromise. On

October 21, 2002, we entered an order staying the September 17 and the September

25 orders. No final auction has yet occurred.

STANDARD OF REVIEW

We review the bankruptcy court’s findings of fact for clear error and its

conclusions of law de novo. Fed. R. Bankr. P. 8013; Four B. Corp. v. Food Barn

Stores, Inc. (In re Food Barn, Inc.), 107 F.3d 558, 561-62 (8th Cir. 1997); Brink v.

Payless Cashways, Inc. (In re Payless Cashways, Inc.), 281 B.R. 648, 651-52 (B.A.P.

8th Cir. 2002). We review the bankruptcy court’s decision to reopen the bidding and

its decision to approve the compromise for an abuse of discretion. Food Barn, 107

F.3d at 558; In re Flight Transp. Corp. Sec. Litig., 730 F.2d 1128, 1135 (8th Cir.

1984). 
5

DISCUSSION

A. Interlocutory Nature of Orders

To determine whether an order is final, we must consider the extent to which

the order leaves the bankruptcy court with nothing to do but execute the order; the

extent to which delay in obtaining review would prevent the aggrieved party from

obtaining effective relief; and the extent to which a later reversal would require

recommencement of the entire proceedings. Lewis v. United States, Farmers Home

Admin., 992 F.2d 767, 772 (8th Cir. 2002); Coleman Enters., Inc. v. QAI, Inc. (In re

Coleman Enters., Inc.), 275 B.R. 533, 538 (B.A.P. 8th Cir. 2002); Bryan v. Land (In

re Land), 215 B.R. 398, 402 (B.A.P. 8th Cir. 1997). The orders at issue schedule a

judicial auction. The bankruptcy court must conduct the auction, approve or

disapprove a sale to the highest bidder at the auction, and address any other issues

which may arise in connection with such auction. The bankruptcy court has not

effectively resolved the controversy and its remaining tasks are more than mechanical

or ministerial. With respect to the second factor, any delay is minimal. Had the final

auction been conducted as scheduled, it would have occurred on October 22, 2002,

less than three weeks after American filed this appeal. Furthermore, once the auction

is completed, any party can appeal the sale and obtain an effective and timely

resolution. Finally, a later reversal after completion of the continued auction would

not require extensive relitigation. If the orders reopening the bidding were reversed

on appeal, American would be able to pursue the same relief it is seeking now and the

sale process would not have to be repeated. On the other hand, if the orders are

upheld on this appeal, the continued auction will still have to occur, and its results

might ultimately be appealed, resulting in piecemeal litigation and repeated appeals.

Based on these factors, we conclude that the orders are interlocutory.
6

This court has discretion to consider interlocutory appeals. 28 U.S.C. § 158(a)

and (b); Lewis, 992 F.2d at 771; Coleman, 275 B.R. at 538. We choose to exercise

that discretion and therefore turn to the merits of the orders.

B. UAP Did Not Receive Notice of the Sale.

The bankruptcy court was faced with the issue of UAP’s right of first refusal

when UAP appeared at the hearing and asserted such right for the first time. The

court conducted a factual inquiry into whether UAP had received notice of the

proposed sale as required by the right of first refusal. The evidence that UAP had not

received a copy of the motion or notice was undisputed. The issue of actual notice

was raised and the court gave UAP twenty-four hours to submit an affidavit. The

Debtor also submitted an unsolicited affidavit on the subject. Evidence supports the

conclusion that UAP was not given notice of the proposed sale as required by the

terms of the right of first refusal. Therefore the bankruptcy court’s finding must be

upheld.

C. The Reopened Bidding Process.

A bankruptcy court has considerable discretion in approving assets sales and

is granted ample latitude to strike a balance between fairness, finality, integrity, and

maximization of assets. Wintz v. Am. Freightways, Inc. (In re Wintz Cos.), 219 F.3d

807, 812 (8th Cir. 2000); Four B. Corp. v. Food Barn Stores, Inc. (In re Food Barn,

Inc.), 107 F.3d 558, 565-66 (8th Cir. 1997). The court must consider the bidders’

reasonable expectations to encourage confidence in the process. Finality and

regularity are important because they encourage interested parties to sincerely extend

their best and highest offers. On the other hand, the court must be mindful of the

interests of unsecured creditors and the goal of maximizing the value of the

bankruptcy estate. Food Barn, 107 F.3d at 565-66. Prior to entry of an order

confirming a sale, the court has broad discretion to conduct sales in the manner it
7

deems most appropriate. Brink v. Payless Cashways, Inc. (In re Payless Cashways,

Inc.), 281 B.R. 648, 652 (B.A.P. 8th Cir. 2002).

Here, the bankruptcy court carefully considered the countervailing interests of

the bidders, including the expectations of American, and those of the Debtor and the

creditors in maximizing price. American’s legally relevant interest is its expectations

surrounding the September 9 auction. American knew that after the auction the

Debtor must present the highest bid to the court for approval on September 10. The

bid procedures order and notice of sale which were served on American explicitly

stated that a hearing would be conducted after the auction to determine “whether to

approve the Wining Bid accepted by Seller as the highest or best bid at the Auction.”

Appellant’s Appendix, p. 37. American thus knew that the sale could not be final

until approved by the bankruptcy court. Therefore its justifiable expectations as a

purchaser could not have crystalized to the point of certainty prior to the entry of an

order approving the sale. To the extent auction procedures make it clear that a

hearing and court approval is required before a sale can be consummated, a bidder is

hard pressed to assert crystalized expectations of certainty. Here no such order has

been entered and no reasonable expectations have been thwarted.

The court addressed the interests of the creditors in maximizing estate value by

continuing the auction to provide the possibility of greater recovery as a result of the

sale of this asset. The court also addressed the interests of fairness, integrity, and

finality of the process, which are designed to maximize value, by deciding to preside

over the continued auction and approve the results at the time of the auction. This

minimizes the risk of any change of events between the time the auction is conducted

and the time it is approved by the court which could potentially thwart expectations.

We reiterate, however, that it is unlikely that reasonable expectations of certainty

could ever exist prior to a hearing where court approval is required.
8

The court was also cognizant of the interests of UAP, the holder of the right of

first refusal. The bankruptcy court struck a reasoned balance, honoring UAP’s right

of first refusal while granting American the right to increase its bid in light of this

new development. The court did not abuse its discretion and its decision must be

affirmed.

D. Approval of the Compromise.

At the scheduled hearing on the continued auction, all parties except American

agreed to modify the procedures for the final auction. UAP agreed to waive its right

of first refusal. ConAgra agreed to waive its break-up fee. Equalizer, Inc., a

participant in the original auction, was allowed to participate. The end result is

designed to be a judicial auction with full participation, promoting the interests of

fairness and finality and maximizing recovery for the estate. American is unhappy

because the price of the fertilizer warehouse may increase as a result of the continued

auction, resulting in American either paying more than its existing bid or deciding not

to increase its bid to exceed another bidder’s higher offer. American’s unhappiness

is not sufficient legal ground to reject the compromise. As discussed above,

American’s expectations regarding the sale had not sufficiently crystalized to render

additional bidding unjust. 

In evaluating a compromise under Federal Rule of Bankruptcy Procedure 9019,

the proper considerations are the probability of success in litigation; the difficulties,

if any, in collection matters; the complexity, expense, inconvenience, and delay

necessarily attending the litigation; and the paramount interests of the creditors and

a proper deference to their reasonable views. In re Flight Transp. Corp. Sec. Litig.,

730 F.2d 1128, 1135 (8th Cir. 1984). Here, the bankruptcy court properly considered

the risks attendant with litigation, the probabilities of success, the need for an

expeditious sale, and the paramount interests of the Debtor and the creditors in

maximizing value. The bankruptcy court did not abuse its discretion in approving the
9

compromise which itself furthered the goals underlying bankruptcy sales: fairness,

finality, integrity, and maximization of assets. Accordingly, we must conclude that

the bankruptcy court did not abuse its discretion in approving the compromise.

CONCLUSION

The bankruptcy court did not err in finding that UAP had not received

sufficient notice of the proposed sale as required by the right of first refusal. The

bankruptcy court did not abuse its discretion in continuing the auction nor in

approving the compromise regarding terms to govern the continued auction.

Accordingly, we AFFIRM the court’s order of September 17, 2002, continuing the

auction and its order of September 25, 2002, approving the compromise.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL, 

EIGHTH CIRCUIT