2010 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit

1-15-2010 

# In re: Reli ant E ne rgy C h annel

P r e c e de n t i al or N on-P r e c e de n t i al : P r e c e de n t i al D ocke t N o . 09-2074

F o l low thi s a nd a dd it ion al work s at : http://d i git alc ommon s .l a w . vi l l a no va . e du/thir dc ir c uit_2010

Thi s de c i sion i s br ou ght t o you for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i l l a no va U nive r sity S choo l of L a

w Di git al Reposit or y

. It h as be e n a c c ept e d for inclusion in 2010 D e c i sion s b y a n author i z e d a dmini s tr at or of V i l l a no va U nive r sity S choo l of L a

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. F or mor e inform at ion, p le as e c on t a ct Be n j amin
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" In r e: Re l i a n t E ne rgy C h a nne l " (2010). 2010 D e cisio n s . P ape r 1963. http://d i git alc ommon s .l a

w . vi l l a no va . e du/thir dc ir c uit_2010/1963P RE CE DE NT I AL
UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT

_____________ N o. 09- 2074

In re : R E L IA N T E N E R G Y C H A N N E L V IE W L P , e t a l.,
D e b t o r K E L S O N C H A N N E L V IE W L L C , f/k /a Ke l s o n En e r g yI V, LL C,
A ppel l ant

O n A p p ea l from the U n it ed S tat es D istri ct C o u rt

fo r th e D istri ct of

D elaw are ( D

. C

. C i v. N o. 08- 00409) H onor abl e J os eph J

. Far nan, J r . , D i s t r i ctJ udge

A r gued N ovember 3, 2009

B E FO R E : SC I R I C A , C hi ef J udge, and J O R D A N and

G R E E N B E R G , C i r cui tJ udges ( Fi l ed: J anuary15, 2010)2 A ndr ew K

. G l enn ( ar gued) K as ow i t z, B ens on, T or r es & Fr i edman 1633 B r oadw ay 21s tFl oor N ew Y or k, N Y 10019 G ar van F. M cD ani el B if f e ra to G e n til o tti 800 N or t h K i ng St r eet P. O

. B ox 2165 W i l m i ngt on, D E 19801
A t t or ney s forA ppel l ant

C o ryD . K a n d e stin R ober tJ

. St earn, J r . ( ar gued) R i char ds , L ayt on & Fi nger O n e R o d n eyS q u are 920 N or t h K i ng St r eet W i l m i ngt on, D E 19899
A t t or ney s forA ppel l ees

OPI NI ON O F THE COURT

G R E E N B E R G , C i r cui tJ udge.Th e a c tu a l p u r c h a s e rw as For t i s t ar ’ s aff i l i at e G I M C hannel vi ew 1 C orpor at i on L L C , but for eas e of r efe r ence w e w i l l r efe r t o t he p u rch ase r as F o rt ist ar. 3

I

. I NT RO DUC T I ON
T hi s m at t ercomes on be for e thi s C our ton appea l f r om an or derof the D i s t r i ct C our tent er ed on M ar ch 31, 2009, aff i r m i ng M ar ch 18, 2008 and Jun e 9, 2008 or der s of the Ba n k ru p t c y Cou r t i n p r o c e e d i n g s a r i s i n g f r o m th e s al e of a m aj oras s etof t h e D ebt or s ’ es t at e i n t hi s bankrupt cy pr ocee di n g . T he B ankrupt cyC our tdeni ed the r eques tof an u n s u c c e s s f

u l b i d d e rfo rt h e a s s e t , Kel s o n Cha n n e l v i e w LLC (“ K e lso n ” ), f

o r d isb u rse m e n t o f

a d m in istra tiv e e x p e n se s in t he form of a br eak- up fee fr o m t he es t at e i n t he M ar ch 18, 2008 or der , and then i n t he J une 9, 2 0 0 8 o r derappr oved the s al e of the as s ett o For t i s tar, L L C

. K el s on appea l ed butt he 1 D istric t C o u rt a f

f irm e d th e o rd e rs o f th e B a n k ru p tc y C o u rt. In re R e lia n t E n e rg yC h a n n e lv iew L P , 4 0 3 B .R . 3 0 8 (D . D e l. 2 0 0 9 ). W e w ill a f

f irm th e o r d e r o f

th e D istric t C o u rt a n d , in e f f e c t, th e o rd e r o f

th e B a n k ru p tc yC o u rt o f M a rc h 1 8 , 2 0 0 8

.

I I

. BA CK GR OUND
T he D ebt or s i n t he C hapt er 11 pr ocee di ngs, R eli ant E ner gyC hannel vi ew L P and R el i antE ner gySer vi ces C h a n n e lv iew L L C (to g e th e r, th e “ D e b to r s ” ) , d e c id e d to se llI n i t s br i ef K el s on cha rac ter i zes t he s al e as bei ng of 2 “s ubs t ant i al l yal l of the D ebt or s ’ as s et s . ” A ppel l ant ’ s br

. at2. 4 t heirl a rg e st as set , a po w er pl ant i n C han nelvi ew , T exas. 2 W i t h t he as s i s t ance of cons ul t ant s w i t h expe rt i s e i n t he ene r gy i ndus t r y , t he D ebt or s contact ed 115 pot ent i al l yi nt er es t ed pur chas er s . T hi s su b st ant i al eff or tw as frui t ful for38 p o ten tial b id d e rs e x e c u ted c o n f id e n tiality a g re e m e n ts w ith r es pectt o a pos s i bl e pur chas e, and 24 w ent fu rt herand co n d uct ed due di l i gence on t he pur chas e. U l t i m at el y12, i ncludi ng F ort i st ar, m ade b i ds for t he pl ant. M anyof the bids, h o w e v e r, w e re c o n tin g e n t o n th e b id d e r o b ta in in g f in a n c in g , a diffi cultun dert ak in g i n the t hen prevai l i ng bu si ness envi r onm ent

. K el s on, how ever , s ubm it t ed a c om pl et e bi d of $468 m i l l i on notcont i ngenton financ i ng and w as s el ect ed as t he w inn ing bi dder

. C ons equent l y , K el s on ent er ed i nt o an A s s etPur chas e A g r eement( “A PA ”) w i t h t he D ebt or s fort he p o w e r p lan t.
I n a s m u c h a s t h e D e b t o r s w e r e i n b a n k ru p t c y, cons um m at i on of the A PA r equi r ed the B ankrupt cyC our t’ s ap p rov al. C o n seq u en tl y , the A P A p rov ided tha t th e D eb tors im m ed iat elyw o u ld se ek a n o rde r fro m the B an k rup tcyC o u rt al l o w ing the s al e. M or eover , t he D ebt or s agr eed thatt hey w oul d s eek an orde rappr ovi ng cert ai n “bi d pr ot ect i ons and pr ocedur es ” for K el s on’ s benef i t i f t he C our t det er m i ned t hat t here shou l d be an auct i on for t he pl ant befo re i t s sa le. T hese pr opos ed bi d pr ot ect i ons and pr ocedur es pr ovi ded that D ebt or s co u ld n otacc epta compet i ng bi d unl es s i texce eded K e lso n’s bid by $5 m i l l i on . F urtherm ore, t he proposed b id p ro tec tio n s a n d p ro c e d u re s p ro v id e d th a t if a c o m p e tin g b idT he obj ect or ’ s cl ai m ed s t atus as an equi t y hol der w as di s put ed 3 a tt h e t i m e b u tw e a r e n o t c o n c e r n e d w i t h t h a td i s p u t e . We emphasi ze, how ever , t hatnotal l of the i nt er es t ed part i es su p p o rte d th e o rig in a l p ro p o se d sa le, an d th e B a n k ru p tcy C o u rt, w e thi nk qui t e appr opr i at el y , act ed w i t h caut i on i n cons i der i ng th is v e ry su b s ta n tia l m a tte r. 5 w as acc ept ed, K el s on w oul d b e en ti t l ed t o a $15 mi l l i on br e a k

- u p f

e e , a b o u t t h r e e p e r c e n t o f i t s b i d , a s w el l as r ei m bu rsem entforexpens es i ti ncurr ed i n t he s al e pr oces s up t o $2 m i l l i on. T he pr act i ce of pay i ng a break -up fe e t o an i ni t i al bi dderforas s et s has devel oped in b an krupt cyand other c o n tex ts to c o m p e n sa te th e b id d e r f o r m e m o ri a li z in g its i nt er es ti n acqui r i ng t he as s et , an i nt er es tw hi ch so m eti m es , as w e w i l l expl ai n bel ow , can be us efu l to the as s et ’ s s el l ereven if th e b id is n o t a c c e p te d

. A s t he A PA r equi r ed, t he D ebt or s r eques t ed thatt he B ankrupt cyC our tauthor i ze the s al e of the p lant to K el s on w ith o u t con d u cti n g an au cti o n . In th at m o tio n , th e D eb tors asser t ed thatt he K el son b i d “rep re sent s the h i gh estand best offe ravai l abl e fort he D ebt or s ’ as s et s and t h at fur t her m arket i ng of the asset s w i l l no tres ulti n a h i gh er purchase p ric e .” A p p . at 1 9 8 . T h e B a n k ru p tcy C o u r t d e la y e d its d e c isio n o n th is m o tio n w h e n o n e o f th e D e b to rs’ e q u ity hol der s obj ect ed t o t he fa s tpace of the tr ansac t i on. 3 U lti m a te ly , h o w e v e r, th e C o u rt w o u ld n o t ap p ro v e th e sa le to K e lso n w ith o u t an a u c tio n f o r th e p lan t. W hen the C our tdel ay ed the appr oval of th e s al e, t he D eb tor s , w i t h t he s uppor tof thei rC r edi t or s , as ked the C o u rt6 t o author i ze the bi d pr ot ect i on m eas ur es t hatw e have des cr i bed. H ow ever , For t i s t ar , w hi ch pr evi ous l yhad s ubm i t t ed a l os i ng cont i ngentbi d, obj ect ed to thi s r eques tand a ss e rte d th a t itw a s w ill in g to e n ter a “ h ig h e r a n d b e tter” b id atan auc t i on, butt he $1 5 m il li o n br eak- up fee al ong w i t h t he $2 m i l l i on r ei m bur s ement forexpens es w oul d be a det err ent t o i tdoi ng s o. T he B ankrupt cyC our t he l d a hea r i ng t o cons i der authori zat i on of the bid prot ect i on s atw hich, am on g o t hers, W i l l i am H ar di e, t he cons ul t antt o the D eb t or s i n char ge of s hoppi ng t he as s et s , and A ndr ew J ohannens en, a n o ffi cerof t he D eb tors, t es t i fi ed. H ar di e des cr i bed the pr oces s t he D eb tors had fol l ow ed i n s eeki ng a buy erand expl ai ned that t he D e btor s droppe d F ort i st ar fr om con si derat i on as a p u rch ase r w h en it lost i ts finan cing

. A t th at po int, the D eb tors a n d th e ir c re d ito rs d e c id e d to sig n th e A P A w ith K e lso n a s its cons um m at i on w oul d r es ul ti n t he ful l compe n sati o n of al l t he D ebt or s ’ cr edi t or s , and K el s on’ s bi d w as fora fai rpr i ce a nd w a s f in a n c e d f u lly.
H ar di e thoughtt hatbyr eas on of al l t he w o rk t hathad been done i n s eeki ng bi dder s t her e w as no need f oran aucti on as t he D ebt or s al r eadyhad obtai ned the bes tpr i ce f ort he pl ant

. M or eover , H ar di e expl ai ned t h at in vi ew of the adv an tages of the K el s on bi d t he D ebt or s w er e w i l l i ng t o s eek t he bid prot ect i ons K el s on s oughtand he be l i eved thatK el s on w o u ld n o t hav e a g ree d to m ak e it s b id u n le s s th e D eb tors agr eed t o s eek the bi d pr ot ect i ons . Fi nal l y , H ar di e thought th a t th e K e ls o n A P A b e n e f itt e d th e D e b to r’s e sta te b e c a u se it e stabl i shed a f

l oo r pr i ce and t erm s for the sal e of the asset s. O n cr os s - exami nat i on H ar di e ac know l edged, how ever , t hatO f c o u rse , the tex t o f

th e A P A a n d n o t H a rd ie’ s o p in io n o f its 4 m eani ng governs i t s cons t ruct i on and i nt erp ret at i on and the p a rties ’ o b lig a tio n s u n d e r it. 7 K el s on w oul d be bound byi t s offe reven i f the C our tr ej ect ed th e b id p ro tec tio n s , th o u g h h e su g g e ste d th a t K e lso n w o u ld fi nd a w ayt o avoi d i t s comm i t m enti f it des i r ed t o do s o. 4 J ohannens en’ s t es t i m onyw as s i m i l art o t hatof H ar di e. T h e B a n k ru p tcy C o u r t n e v e rth e les s d e c lin e d to ap p rov e the s al e of the pl antw i t houtan auc t i on and, i n a ru lin g f ro m th e b e n c h , sa id th a t in d e c id in g w h e th e r to appr ove the bi d pr ot ect i ons i thad t o cons i derw hethert hey w o u ld en h an ce o r ch il l bidd ing

. In p arti cu lar, the C o u rt bel i eved thati tw as r equi r ed t o deci de w hethert he pr opos ed pr ot ect i ons w oul d benef i tt he es t at e: It’s h a rd g e n e r a llyto c o n sid e r h o w b id pr ot ect i ons orbr eak- up fee s pr otectt he es t at e. I ’ ve hear d t he ar gum ent s and have appr oved t hem i n t he ca s e w her e t h e . . . par t i es have convi nced me t hat it is t he onl yw ayt o getot her bi dder s , anybi ddert o t he t abl e. B utI ’ m not convi nced i n t hi s cas e thatt hati s the cas e. T here are ot herbi dder s , atl eas tone other bi dder

. A n d I have i n t he pas tdeni ed br eak- up fee s in ci r cumst ance s w her e anotherpar t yhadK el s on ar gues t hatt hi s last s ent ence cr eat ed a pe rs e rul e that 5 br eak- up fee s ar e notavai l abl e w hen t her e i s another bi dder , but w e do not bel i eve thatt he B ankrupt cyC our tw as appl y i ng any su c h ru le. R a th e r, w e u n d e rsta n d th e e x p e rie n c e d C o u rt m e re ly t o be s ay i ng t hat as a fa ctual m at t erbr eak- up fee s oft en ar e not neede d w hen ther e ar e bi dder s foran as s etot hert han the i ni t i al b idd er. 8 appea r ed and ex p res s ed an i nt ent i on t o bi d at t he auc t i on. 5
A pp. at589.
U l t i m at el y t he B ankrupt cy C our t ent er ed i t s M ar ch 18, 2 0 0 8 or derappr ovi ng t he $5 mi l l i on “overbi d” r equi r ement w hich r equ ire d thatbids com peti ng w i t h K el son’s bi d m ust exce ed i tby$5 m i l l ion

. In addi t i on, t he C our tappr oved the r ei m bur s ement t o K el s on for expens es i t i ncurr ed in the t r ans acti o n up t o $2 m i l l i on. Fi nal l y , how ever , i n t he pr ovi s i on of i t s or derati s s ue on thi s appea l , t he C our tr efus ed to a u th o ri z e p a ym e n t o f th e $ 1 5 m illio n b re a k -u p f e e . K el s o n d id notpar t i ci pat e i n t he s ubs equentauct i on, and, i n fac t , ar gued t hat i t s offe r w as no l onger av ai l abl e. For t i s t ar , how ever , s ubm i t t ed the w i nni ng , n o w ful l yfi nance d bi d, w hi ch t opped K el s on’ s bi d by $32 m i l l i on. I n acc or dance w i t h t he B ankrupt cyC our t ’ s deci s i on, t he D ebt or s di d notpayT h ere w as a n ag ree m en t th at K elso n ’s ex p en ses w ere 6 $1, 210, 257. 9 K el s on the $ 1 5 m i l l i on br eak- up fee , al t hough t heydi d pay K el son fo r i t s expen ses. 6
A ft ert he B ank rup t cyC our tent er ed an or deron J une 9, 2008, appr o v ing the s al e t o For t i s t ar , K el s on appea l ed t o t he D i s t r i ctC our tfr om t he or derdeny i ng t he paym entof the $15 m il lio n b rea k -up fe e, arg u ing that the B an k rup tcyC o u rt abus ed i t s di s cr et i on by deny i ng K el s on’ s r eques tfort he fe e. K el s on al s o ar gued thati tw as a stalki ng- hor s e bi dderent i t l ed t o a br eak- up fee as a mat t ero f fundam ent al fai r nes s and c o n ten d e d th a t th e D e b to rs w e re e st o p p e d f ro m o p p o sin g its appea l beca us e theys uppor ted it s r eques tfort he br eak- up fee in the B an k rup tcy C o u rt

. T h e D istri ct C o u rt rejected K elso n ’s argu m en t s and af

fi r m ed the M ar ch 18, 2008 and J une 9, 2008 o rd e rs o f th e B a n k ru p tcy C o u r t a n d th u s th e D istric t C o u rt d id notal l ow t he paym entof the br eak- up fee

. K el s on t hen fi l ed th is a p p e a l o f

th e D is tr ic t C o u rt’s o rd e r to th e e x ten t th a t it aff i r m ed the B ankrupt cyC our t ’ s or derof M ar ch 18, 2008.

I I I

. J UR I SDI CTI ON AN D STA ND AR D O F REVI EW
T he B ankrupt cyC ourt had i ni t i al j ur i s di ct i on overt he m at t ernow befor e us as i tconce r n ed t he admi ni s t r at i on of the es t a t e . 2 8 U. S. C. § 1 5 7 ( b )

. Th e Di s t r i c tCou r thad ju ri s d ic tio n to re v ie w K e ls o n ’s a p p e a l u n d e r 2 8 U .S .C . §I n t hei rbr i ef D ebt or s cont end t hat K el s on di d notappea l t o t he 7 D i s t r i ctC our tfr om t he J une 9, 2008 or derappr ovi ng t he s al e. N evert hel es s , as w e have i ndi cat ed, t he D i s t r i ctC our taff i r m ed bot h t he M ar ch 18, 2008 and J une 9, 2008 or der s . T he di s put ed s cope of t he D i s t r i ct C our t ’ s pur el y appel l at e j ur i s di ct i on, how ever , i s nots i gni fi cantt o us beca us e K el s on as ks onl yt hat we “ i s s u e a n o r d e rg r a n t i n g [ i t ] f u l l p a yme n t ” o f

t h e b r e a k- up fe e, ap p ell an t’ s b r. at 33 , a m att er o v er w h ich th e D istri ct C o u rt had j ur i s di ct i on and on w hi ch i t rul ed, and over w hi ch w e now have j ur i s di ct i on. A ccor di ngl y , w e do notaddr es s anyot her i s s ue. T her e ar e no di s put es of w hatm aybe cha r act er i zed a s t he 8 hi s t or i cal fac t s i n t hi s cas e. 10 158( a) , and w e have j ur i s di ct i on t o rev i ew t he D i s t r i ct

7 C o u rt ’s fina l dec isi o n u n d er 2 8 U

. S

. C

. § 1 5 8 (d)(1 ).
W e exe r ci s e pl enary rev iew overt he dec i s i on of the D i s t r i ctC our ts i t t i ng as an appe l l at e courti n t hi s bankrupt cy pr ocee di ng and cons equent l yw e r evi ew t he rul i ng of the B an k rup tcyC o u rt

. S ee L o w en sch u ss v . R eso rt s Int’l , Inc

. (In r e R e s o r t s I n t ’ l , I n c . ) , 1 8 1 F

. 3 d 5 0 5 , 5 0 9 ( 3 d C i r . 1 9 9 9 )

. We r evi ew t he B ankru pt cyC our t ’ s l egal det er m i nat i ons de novo, i t s fac tual det er m i nat ion s forcl earerr or , and i t s deci s i on deny i ng t he br eak- up fee on an ab us e of di s cr et i on s t andar d. Se e I nt e r fa c e G r ou p- N e va da , I nc . v. Tr a ns W or l d Ai r l i nes, I nc. ( I n r e Tra ns W or l d A i r li n es, Inc. ) , 145 F. 3d 124, 131 ( 3d C ir

. 1 9 9 8 ). 811 I V. DI S CU S S I ON
A

. T h e O ’B ri en S tand ard In C alpin e C o rp. v. O ’B ri en E n v ’t E n erg y , Inc

. (In re O ’ B r i en Env’tE ner gy , I nc. ) , 181 F. 3d 527 ( 3 d C i r . 1999) (“O ’B r i en”) , w e s etfor t h t he contr ol l i ng l egal pr i nci pl es appl i cabl e on t hi s appea l

. I n O ’ B r i en, t he debt or , aft er cons i der i ng bi ds fr om s everal i nt er es t ed buy er s forcert ai n of its a ss e ts, e n ter e d in to a n a ss e t p u rc h a se a g re e m e n t w ith C al pine C orporat i on , w hich c o n d i t i on ed it s bi d o n the part i es’ abi l i t yt o s ecur e B ankrupt cyC our tap p rov al of a $2 mi l l i on break-up fe e. T he d ebtor , supp ort ed b ym anyof it s cr edit ors, so u g h t ap p ro v a l f

o r th e f e e f ro m th e B a n k ru p tcy C o u rt. N e v e rth e les s, th e C o u rt d e n ied th e a p p lica tio n , sta tin g th a t a br eak- up fee w oul d complicat e oreven c hi l l t he bi ddi ng p ro c e ss . H o w e v e r, th e C o u rt g a v e C a lp in e p e rm iss io n to renew i t s appli cat i on aft er an aucti on for t he sal e of the asset s.

N ot w i t hs t andi ng C al pi ne’ s i ns i s t ence t hati tw oul d not m ak e a n o ff

er w ith o u t th e a s su ran ce o f a p rov isi o n fo r a b rea k -up fe e, i t did e n ter th e b id d ing p roc ess. A fter a d if f e re n t b id d e r m a d e th e b e st o f f e r, C a lp in e re n e w e d its requestfor a break-up fe e, bu tt he C ou rtden i ed the r equ est aft eran evi dent i aryhear i ng. C al p ine appeal ed and, aft ert he D istric t C o u rt a f

f irm e d , C a lp in e a p p e a led to o u r C o u rt. C al p i n e a r g u e d t o u s t h a t i t was s e e k i n g t h e f e e under

“ a p p l i c a b l e c a s e l a w , ” b u tw e r e j e c t e d t h i s c o n t e n t i o n . We h e l d t h a tc o u r t s d o n o th a v e t h e a u t h o r i t y t o c r e a t e n e w w a ys t o author i ze t he pay m ent of fees fr om a bankrupt cyes t at e, and12 th e m e th o d s o f

re c o v e rin g f

e e s f ro m a n e st a te a re lim ited to th e p ro c e d u re s e s ta b lis h e d b yth e B a n k ru p tc yC o d e . W e concl uded thata bi dderm us ts eek a br eak- up fee under11 U .S .C . § 5 0 3 (b ) , w h ich , so f a r a s g e rm a n e h e re , p e rm its paym entof pos t

- pet i t i on admi ni str at i ve expe ns es fort he “ac tual , nece s s arycos t s and expe ns es of pr ese rvi ng t he es t at e. ” W e al s o hel d t h at th ere w as no “compel l i ng j us t i fi cat i on fort r eat i ng an appl i cat i on for a b rea k- up fee and expens es under§ 5 0 3 (b) di ffe r ent l yfr om ot herappl i cat i ons f o r a d m in is tr a tiv e e x p e n s e s u n d e r t h e s a m e p ro v is io n .” O ’B ri e n , 1 8 1 F .3 d a t 5 3 5

. T her efor e, w e i ndi cat ed t hat i n cons i der i ng r eques t s for br eak- up fee s , w e w oul d appl yt he gene r al s t andar d u sed for al l admi ni s t r at i ve expe ns es— “the a l l ow abi l i t yof br eak- up fee s , l i ke thatof otheradmini s t r at i ve expe ns es , depends upon the req u esti n g p arty ’s ab il ity to sho w that the f e e s w e re actual l ynece s s aryt o pr es er ve the val ue of the est at e. ” I d. Foc u sing s peci fi cal l yon br eak- up fee s , w e not ed thati tw as per m i s s i bl e t o offe ra b reak- up fee and r ei m bur s ement for expens es t o ind u ce a n i ni t i al bi d, pr ovi ded the al l ow ance of t he fee doe s notgi ve an a dvant age t o a fa vor ed pur chas erover otherbidders byi ncreasi ng t he co stof ac qu i si t i on . W e al so i ndi cat ed thata br eak- up fee i s not“nec es s aryt o pr es er ve the val ue of the es t at e” w hen the bi dderw oul d have bi d even w i t houtt he br eak- up fee

. I d. ( ci ti n g B ruce A

. M ar kel l , T he C ase A g ains t B re a k u p F ee s in B an k rup tcy , 6 6 A m . B an k r. L .J . 3 4 9 , 3 5 9 (1 9 9 2 ))

. Ap p l y i n g t h i s s t a n d a r d t o t h e f a c t s i n O’ Br i e n , we found thatC al pi ne w oul d have made i t s bi d ev en w i t houtt he as s ur ance of a br eak- up fe e, a s i ti ndeed di d. For t hi s r eas on,In i t s bri ef K el son ar gu es t hat t he “A P A w as necessary to 9 p re se rv e th e v a lu e o f

th e e sta te, a s it e n a b led th e D e b to rs to re so lv e a d isp u te w it h th e p re -p e tit io n se c u re d len d e rs w ith r es pectt o t he us e of c as h col l at er al

. ” A ppel l ant ’ s br

. at19. W hi l e w e do notdoub t thata s al e t o K el s on w oul d have res olved the cash coll at eral dis pu t e i nasm uch as al l t he D ebtor s’ cr edi t or s w er e t o be pai d i n ful l fr om t he sal e proc eeds , t he i s s ue befo re us i s quit e differ ent fr om t he n eed to placat e t he D ebtor s’ cr edi t or s , as w e ar e con ce rne d w i t h w hethert he $15 mi l l i on br eak -up fee w as nece s s aryt o pr es er ve the val ue of the es t at e, a mat t err el at i ng t o K el s on’ s bi d r ather t han t o t he cons equenc es o f a s a le o f th e p lant su ch as th e sa ti sfa cti o n o f th e D eb tor’s c r e di t or s . A s w e e xp l a i n b e l ow, K e l s on e nt e r e d i nt o the A PA 13 among ot her s , w e found thatan aw ar d of a br eak- up fee w as n o t n e c e s s a r y t o p r e s e r v e t h e v a l u e o f t h e e s t a t e a n d we aff i r m ed the or derof t h e D i s t r i ctC our tand thus t he or derof th e B a n k ru p tc yC o u rt d e n y in g a llo w a n c e o f th e f e e . B

. A pp l i cat i on of O ’B ri en T o T his C ase U nderO ’ B r i en, w e mustdeci de w hetheran aw ar d of a br eak- up fee w as nece s s aryt o pr eserve the val ue of the D ebt or s ’ es t at e. I n t hi s r egar d , w e r ecogni ze thati tcoul d be a rg u e d th a t in e ith e r o r b o th o f tw o w a y s a b re a k -u p f e e c o u ld h a v e p re se rv e d th e v a lu e o f th e e sta te. F irst, th e o p p o rtu n ity t o obt ai n a br eak- up fee coul d have i nduced K el s on to m ake i t s bi d befor e the B ankrupt cyC our tor dere d the auct i on, and s econd, t he pr ovi s i on fora br eak-up fee m ayhave be en n ec essa ryto ind u ce K e lso n to ad h ere to it s b id af ter th e C o u rt or der ed the conduc t i ng of the auc t i on. 9w ith o u t th e a ss u ra n c e th a t itw o u ld re c e iv e a b re a k -u p f e e if it w a s u n a b le to a c q u ire th e p lan t. In th is c a se , K e lso n w a s c o m p e n sa te d f u llyf o r its f irst-b id 10 expens es w hen the B ankrupt cyC our taw ar ded i t $1, 210, 257 for t hatpurpos e. 14

1. W as a b rea k- up fee neede d t o i nduce the fi r s tbi d?
K el s on’ s bi d undoubt edl ypr ovi ded a be nefi tt o t he est at e byes t abl i s hi ng a mi ni m um pr i ce a nd a compl et e s etof offer term s and, i n fac t , t he B ankrupt cyC our tr equi r ed that anycompet i ng bid ex cee d K el s on’ s bi d byatl eas t$5 m i l l i on. In d e e d , it is p lau sib le to b e liev e th a t an in iti a l b id , o rd in a rily o r p e rh a p s e v e n a lw a ys , w ill p ro v id e a b e n e f it t o a n e sta te beca us e i tw i l l es t abl i s h a fl oorpr i ce f ort he as s et s t o be s ol d. B u t w e h av e to d ec ide a d if f e re n t q u esti o n , i. e., w as a n aw ard of a br eak- up fee neces saryt o pr oduce thi s benef i tand pr es er ve the val ue of the es t at e?
W e re c o g n iz e th a t th e f irst b id d e r in a b a n k ru p tcy sa le nece s s ar i l yt akes a ri sk atl eas tt o t he ext entof i nves t i ng t he t i m e, m o n eyand ene r gyneede d t o pr oduce i t s bi d. 10 N evert hel es s , w hi l e w e under s t and thatt he fi r s tbi dderm aybe m o tiv a ted in p a rt to su b m it i ts b id b y t h e p o ss ib ili tyth a t it w i l l r ece i ve a br eak- u p fe e, i tdoes notfol l ow fr om t hat m ot i vat i on that the bi dderw i l l w i t hdr aw i t s bi d, pas s up on th e o p p o rtu n ityto a c q u ire th e a ss e t to b e so ld , an d n u lli f y it s w o rk in p rep aring it s b id if a c o u rt , w h en o rde ri n g that there b e a n a u c tio n o f

a ss e ts, d e c lin e s to a u th o riz e a b re a k -u p f e e to15 be pai d t o t he i ni t i al bi dder

. Sur el yO ’ B r i en m ak es t hatcl ear beca us e eve n t ho ugh C al pi ne had made i t s bi d cont i ngenton t he aw ard o f a br eak- up fee , i tcompet ed att he auc t i on aft er th e B a n k ru p tc yC o u rt re je c te d th e re q u e s t f

o r a b re a k -u p f

e e . H er e, h o w ever , K el s on ar gues t hatt he pr ovi s i on of a br eak- up fee w as nece s s aryt o ent i ce i tt o bi d, b u t t he fa ct s do nots uppor tt hi s arg u m en t

. W e ar e s at i s fi ed thati ti s cl ear bey ond doubtt hatK el so n d id notcondi t i on i t s bi d on t he p re se n c e o f

a p ro v isio n f

o r a b re a k -u p f

e e , alth o u g h it d id c o n d iti o n th e b id o n th e D e b to rs’ p ro m ise to se e k a u th o rityto payi ts uch a f

ee. T hus , s ect ion 8. 1( d) of the A PA pr ovi ded th a t “S e llers sh a ll .

. . f il e a b id d in g p ro c e d u re s m o tio n w ith t he B ankrupt cyC our t

. . . s eeki ng t he entr yof an or der a p p ro v in g th e b id p ro tec tio n s.” A p p . at 2 8 8 (e m p h a sis added)

. T hes e bi d pr ot ect i ons i ncl ud ed the bre ak- up fee

. A c c o rd in g ly , the re is n o e sc a p e f ro m th e f

a c t th a t K e lso n d id m a k e its b id w ith o u t th e a ss u r a n c e o f a b re a k -u p f e e , an d th is f a c t d e stro y s K e lso n ’s a rg u m e n t th a t th e f e e w a s n e e d e d toIn its b rie f K e lso n a ss e rts th a t “th e D e b to rs im p ro p e rlyc laim 11 t h at th ey onl yhad an obl i gat i on t o fi l e a mot i on s eeki ng appr oval of the B i d Pr ot ect i ons and the B r eak- U p Fee. A ccor di ng t o t he D ebt or s , t hi s m eans t hatt he B r eak- up Fee w as al w ay s ‘ unnece s s ary , ’ t hus m aki ng t hi s contr actual o b li gat i on i l l us or y . ” A p p ell an t’ s br

. at5. K el s on ar gues t hatunderN ew Y or k l aw w hi ch contr ol s t he i nt erp ret at i on of the A PA “a c o n tr a c t c a n n o t b e in te rp re te d to c re a te a n illu s o ry o b lig a tio n .” Id. W e re

ject th is argu m en t bec au se th ere w as n o thing il luso ry aboutt he D ebt or s ’ obl i gat i on t o s ee k author i t yfora br eak- up fee as t heydi d. K elso n k n ew ors houl d have know n t hatt he D ebt or s coul d ur ge the B ankrupt cyC our tt o al l ow t he fe e but t hey coul d not comm and i tt o do s o. T hus , K el s on’ s cont ent i on i n it s br i ef thatt he “D ebt or s w er e r equi r ed t o obt ai n appr oval [of] t he B r eak- U p Fee, as a condi t i on t o K el s on’ s bi d, ” i d. at25 ( emphasi s added) , i s pl ai nl yw r ong. 16 i nduce it to b i d. R ather , t he mer e pos s i bi l i t yof the paym ent 11 of a br eak- up fee w as s uffi ci entfort hatpurpos e.

2

. W as a br eak

- u p f e e n e e d e d t o pr es er ve K el s on’ s bi d?
T he r ecor d s ugges t s t hatal t hough an assura nce of a b rea k -up fe e m a y n o t hav e b ee n n ee d ed to ind u ce K elso n ’s bi d, i tnevert hel ess co u ld ha ve bee n us eful t o as s ur e that K e lso n a d h e re d to its b id ra th e r th a n a b a n d o n in g its a ttem p t to p u rch ase the p lant in the ev en t th at t h e B an k rup tcyC o u rt re q u ire d a n a u c tio n f

o r its sa le. A b r e a k -u p f e e c e rta in ly pr ovi des a bene fi tt o an es t at e if a bi dderr emai ns comm i t t ed t o a pur chas e, t hough, as w e have expl ai ned, w e s ee no r eas on17 t o bel i eve thatbi dder s w ho al r eadyhave m ade a ful l and c o m p lete b id n e c e ss a rilyw ill a b a n d o n th e ir e f f o rts to o b tain an as s etw i t houtan as s ur ance of a br eak- u p fe e. In thi s cas e, t he B ankrupt cyC our tbel i eved thatt he pr ovi s i on fort h e fe e w oul d det erot herpos s i bl e pur chas er s fr om bi ddi ng fort he pl antand w oul d out w ei gh anypos s i bl e bene fi tachi eved f or t he est ate b y keep i ng K el son co m m i t t ed to t he p urchase th ro u g h th e p ro v is io n f

o r t h e b re a k -u p f

e e . C l ear l y , t he B ankrupt cyC our tw as fa ced w i t h a di ffi cul tchoi ce. I f the C our tdeni ed the br eak- up fee , t hen K elso n m igh t aba n d o n the p u rch a s e , as itsu p p o sed lyd id. I f anothers ui t abl e bi d had notm at er i al i zed a nd K el s on had w a lk e d a w a yp e rm a n e n tlyf ro m th e p u rc h a se , the e s ta te w o u ld have be en ha rm ed sever el ybyt he deni al of a br eak- up fee

. T o avoi d t hi s r es ul t , t he C our tcoul d h av e g rant ed a br eak- up fe e to s ec u re K elso n ’s ex ist ing b id. N ev e rth eless, th e C o u rt deci ded thata $15 mi l l i on br eak- up fee w as n o tnece s s aryfor t he pr ot ect i on of the estate

. T hi s deci s i on, w hi ch w e vi ew fr om t he C our t ’ s per s pect i ve on M ar ch 18, 2008, w as j us t i fi ed by( 1) For t i s t ar ’ s as s er t i on t hati tpl anned t o cont inue bi ddi ng, ( 2) t he bi ndi ng l anguage of the A PA , and ( 3) t he l ogi cal bel i ef t hatK el s on w oul d not ab andon a ful l ynegot i at ed agr eement i f n o o t h e r b i d d e r ma t e r i a l i z e d

. Th o u g h we d o n o t d e c i d e t he cas e on t he basi s of our know l edge of w hathappene d aft ert he C our td eni ed the fe e, as w e dec i de the ca s e on the bas i s of the r ecor d as of M arc h 18, 2008, w hen the or derfr om w hi ch K el s on appea l ed t o t he D i s t r i ctC ou rt w as ent er ed, t her e i s no es cape fr o m the factt hatt he B ankrupt cyC our t ’ s deci s i on w as sh o w n to b e c o r re c t w h e n F o rtista r p lac e d a su b sta n tially h ig h e r b id f

o r t h e a s s e ts

.18 3. C oncl us i on W e c a n n o t sa yth a t th e B a n k ru p tcy C o u rt a b u se d its di s cr et i on i n i t s appl icati on of the O ’ B r i en s t andar d. T hough t he al l ow ance of a br eak- up fee m i gh t h ave be nefi t t ed the e sta te, K e lso n m a d e its b id b e f o re th e a u c tio n k n o w in g th a t it m i ghtnotr ece i ve a br eak-u p fee, and a r etr oact i ve gr antof a br eak- up fee coul d nothave i nduced a bi d t hatK el s on al r eady had made. T hough, as w e have m ade c l ear , t he es t at e mi ght h av e b en ef

itted if o n M arc h 1 8 , 2 0 0 8 , the B an k rup tcyC o u rt had pr ovi ded fora br eak- up fe e to s ecur e K el s on’ s adher ence t o i t s ear l i erbi d, t he C our t found thatt he pot ent i al har m t o t he es t at e that a br eak- up fee w oul d caus e bydet err i ng ot her b id d e rs f ro m e n ter in g th e b id p r o c e ss o u tw e ig h e d th a t b e n e f it. W e ca nnots ayt hatt he B ankrupt cyC o ur tabus ed i t s di s cr et i on in re a c h in g its re s u lt. C

. A p p lica tio n o f

th e B u sin e ss Ju d g m e n t R u le I ns t ead of

O ’ B r i en K el s on bases a s ubs t ant i al por t i on of i t s ar gum enton th e c irc u m sta n c e th a t n o n e o f th e D e b to rs’ c re d ito rs o r e q u ity hol der s obj ect ed t o i t s r eques tfora br eak- up fee

. K el s on poi nt s outt hatt he bus i nes s jud g m ent rul e w oul d have be en appl i ed t o t he D ebt or s ’ deci s i on t o s u p p o rtt he aw ar d of a b r e a k

- u p f

e e i f t h e D e b t o r s h a d n o tb e e n i n b a n k ru p t c y . We agr e e t ha tt he Bank rup t c yCour ts ho ul d n otl i gh t l ydi s m i ss s uch a c ons ens us among t he cr edi t or s , butw e are notw i l l i ng to co n clud e th a t th e p rese n ce o f u n an im ityam o n g cre d it o rs s houl d r equi re the C our tt o deci de the mat t ert hr ough t he app l i c a t i o n o f

t h e b u s i n e s s j u d g me n tru l e . Cl e a r l y , s e c t i on 5 0 3 (b ) d o e s n o t g iv e th e B a n k ru p tcy C o u r t th e a u th o ritytoR ece nt l y i n M cK enna v. Phi l adel phi a, 582 F. 3d 447, 459 n. 13 12 (3d C i r. 20 09 ), i n con si deri ng an ap pli cat i on for at t orney ’s fees, w e poi nt ed out t hat “i t s houl d not be over l ooked t hat t he aw ardi ng of an at t orney ’s fee i s a j ud i ci al act i on and , regar dles s o f th e p a r ti e s’ in d if

f e re n c e to it, a c o u rt n e e d n o t len d its i m pr i m aturt o an i nappr opr i at e or der m er el y beca us e t her e w as no obj ect i on t o i t s entr y . ” T h e s ame pr i nci pl e appl i es t o a r eques t for admi ni s t r at i ve expe ns es i n t he form of a br eak- up fee u n d er se cti o n 5 0 3 (b). W e has t e n t o n o t e t h a to u rc o mme n ti n O’ Br i e n a b o u tt he 13 app l i cabil i t yof the bu si ness j ud gm ent rule i n a b ank rupt cycase w as l i m i t ed t o t he ci r cumst ance of a pa r t ys eeki ng an al t ernat i ve t o s ect i on 5 0 3 (b) a s a bas i s foraw ar di ng expens es fr om t he bankrupt cyes t at e. W e coul d nothave me an t t hen, and do not m ean now , t hat t he bus i nes s j udgm entrul e i s i r r el evantw hen a corpor at e governance di s put e ar i s es i n a bankruptcyset t i ng. In d e e d , m o r e re c e n tly , in a n a d v e rsa rya c tio n b ro u g h t in connec t i on w i t h a bankrupt cyand i n w hi ch a pl ai nt i ff chal l enged the ac t i ons of corpor at e fi duci ar i es , w e r ecogni zed 19 a wa r d f e e s s o l e l yb e c a u s e t h e r e i s n o o b j e c t i o n t o t h e m f

r o m a party - i n- i nt er es t

. T hats ect i on r equi r es t hatforfee s t o be aw ar ded they m us tbe partof “the ac tual , nece s s arycos t s and expens es o f p rese r vi ng t he es t at e, ” and doe s nots ugges tt hat th a t s ta n d a rd is m e t m e re lyb e c a u se th e re is n o o b jec tio n to t he appl i cat ion fort he fe es . Fur t her m or e, t he r ol e of the 12 bus ines s judgmentrul e i s of l i m i t ed us e on thi s appea l beca us e i n O ’ B r i en w e s t at ed that“w e conc l ude thatt he bus i nes s j udgm ent rule sh oul d notbe appl i ed as s uch i n t he bankrupt cycont ext

. ” 181 F. 3d at535. 13t hat the p l ai nti ff w as r equ i red to “plead aroun d the busi ness j udgm entrul e. ” I n r e Tow erA i r , Inc

. , 416 F. 3d 229, 238 ( 3d C ir

. 2 0 0 5 ). I n i t s br i ef K el s on el evat es i t s fundament al fai r nes s ar gum ent 14 to th e le v e l o f

b e in g a “ d o c tr in e .”

20 I n d e c l i n i n g t o a p p l yt h e b u s i n e s s j u d g me n tru l e we have notover l oo k ed K el s on’ s cont ent i on t hatw e s houl d not c o n sid e r O ’B rie n ’s r e

jec tio n o f

th e b u sin e ss ju d g m e n t ru le to be contr ol l i ng i n t hi s cas e fort he D ebt o r s ar e s ol ventand the

“ s o le a f f e c te d s h a re h o ld e r h a s c o n s e n te d to th e f e e .” A ppell an t’ s br

. at14- 15 n. 2. W e r ej ectt he cont ent i on t hat O ’ B r i e n s h o u l d n o ta p p l yb e c a u s e , i n p r o v i d i n g t he ci r cumst ance s i n w hi ch a co u rtm ayaw ar d fee s , s ect i on 503( b) does notm ak e a d i s t i nct i on dependi ng on t he s ol vency o f th e d e b to r. W e c a n n o t re w rite th a t se c tio n to a c c o m m o d a te K el s on. D

. K el s on’ s “Fundament al Fai r nes s ” and E st oppel A rg u m e n ts
I n t h e Di s t r i c tCo u r t , K e l s on a r g u e d f o rt h e f i r s tt i me t hati tw as ent i t l ed t o a br eak- up fee as a m att er of “fund a me n t a l f

a i r n e s s , ” whi c h Kel s o n i n t e rp r e t s a s a t yp e of u n ju st e n ric h m e n t c la im

. B u t K e lso n d id n o t ra ise th is c laim 14 i n t h e Bank ru p t c yCo u r t , a n d we wi l l n o tc o n s i d e rn e w c l a i ms forthe fi r s tt i m e on appe al

. Si ngl et on v. W ul ff, 428 U

. S. 106, 120, 96 S. C t. 2 8 6 8 , 2 877 ( 1976)

. W e ar e aw ar e thatK el s on ar gues t hati tdi d r ai s e i t s br eak- up fee cl ai m i n B ankrupt cy C our tand tha ti ti s s i m pl yas s er t i ng a di ffe r entbas i s fort he21 s ame cl ai m . See Y ee v. C i t yof Escondido , 5 03 U

. S. 519, 534- 37, 112 S. C t

. 1522, 1532- 33 ( 1 9 9 2 ) (pe r m i t t i ng new a rg u m e n t in su p p o rt o f

sa m e c laim ). B u t w e d isa g re e w ith its v iew o f th e re c o rd f

o r a b re a k -u p f

e e u n d e r se c tio n 5 0 3 (b ) is cl earl ya st atutorycl aim , and a clai m for a break-up fe e as a m at t erof “f

undament al fai r nes s ” i s a cl ai m thatcan be p r e d i c a t e d o n l y o n t h e c o m m o n l a w o ra p r i n c i p l e o f e q u i t y. T hes e s t atuto r yand comm on l aw orequi t abl e cl ai m s , t hough s eeki ng t he s ame r el i ef, are di s cr et e, r athert han bei ng di ffe rentar gum ent s advanc i ng t he s ame cl ai m . See B &T M as onr yC ons t r . C o. v. Pub. S er . M ut

. I ns . C o. , 382 F. 3d 36, 4 0

– 4 1 (1 s t C ir . 2 0 0 4 ) ( s a m e d is tin c tio n a d d re s s e d ).
K el s on al s o ar gues t hatt he D ebt or s ar e est opped fr om o p p o sing it s ap p ea l bec au se th eysu p p o rt ed th e re q u e st fo r a br eak- up fee i n B ankrupt cyC our t

. B utdebt or s - i n -pos s es s i on have a fi duci arydut yt o m axi m i ze the val ue of the es t at e, O ffi ci al C om m . of U ns ecur ed C r edi t or s of C yber geni cs C orp. v . C h inery , 3 3 0 F

. 3 d 5 4 8 , 5 7 3 (3d C ir

. 2 0 0 3 ), a n d the D eb tors her e ar gue convi nci ngl yt hati f theyadher ed t o theirear l i er p o sitio n in th e f

a c e o f th e c h a n g e d c irc u m sta n c e s th e yw o u ld h a r m th e e s t a t e a n d v i o l a t e t h e i r f i d u c i a r yd u t y . Ov e r a l l , we a re sa tisf ied th a t th e D e b to rs’ o p p o sitio n to K e lso n ’s a p p e a l is n o t u n c o n s c i o n a b l e , d o e s n o t u n d e r mi n e t h e i n t e g r i t y o f t he j u d i c i a l s y s t e m, a n d i s n o tma d e i n b a d f a i t h

. T h e r e f

o r e , we r e j e c t Kel s o n ’ s e s t o p p e l a r g u me n t s . I n a n ye v e n t , e v e n i f we d isr eg ard ed the D eb tor’s arg u m en ts an d en tert aine d K elso n ’s a p p e a l o n a n e x p a rte b a s is , w e w o u ld re a c h th e sa m e re su lt t hatw e r eac h t oday

. See s upr a not e 12.22 V. CO NC L US I ON
T he B ankrupt cyC our tdi d notabus e i t s di s cr et i on w hen i tconcl uded thatan aw ard o f a br eak- up fee w as not n e c e s s a r y t o p r e s e r v e t h e v a l u e o f t h e e s t a t e a n d a c c o r d i n g l y, w e w il l affi r m t he D i s t r i ctC our t ’ s or derof M ar ch 31, 2009, to the ext entt hati taff i r m ed the or derof the B ankrupt cy C our tof M arc h 18, 2008, deny i ng author i zat i on t o payt he b re a k -u p f

e e .