By order of the Bank ruptcy Appe llate Panel, the prec edential effec t of t his de c isi on is l im ite d to thec as e an d p ar tie s p ur su an t to 6th C i r
. B A P L B R 8 0 1 3 -1 (b). S

ee a l s o 6 th C i r
. B

A P L B R 8 0 1 0 -1 (c)).
F ile Nam e: 08b0006n.06 BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT

I n re: STARDUST YACHTS, L L C, ) ) Debtor. ) No. 07-8014

_____________________________________ ) ) MI CHAEL

BERNA RD and ) ACTON ENTE RPR I SES, I NC., ) ) Ap pe lla nts , )

) v. ) ) G& G L L C, ) ) Appellee

. ) )

Appea l from the United States B ankruptc y Court for the E astern D istrict of Kentuc ky , L ondon Division.

No. 06-60792. Argued: Novembe r 14, 2007
Dec ided and F iled: April 9, 2008
B e fo re : A UG , RH OD ES, and WHI PPL E, B ank

ru ptc y Ap pe llate Pane l Judg e s.

____________________ CO UN SEL ARG UED: John O. Mo rg an, Jr., L e xing ton , Ke ntu c ky , for Ap pe lla nts

. Do ug la s L . L

utz, F RO ST BROWN TODD L L C, Cincinnati, Ohio, for Appellee

. O N B RI E F: J o h n O. Morg an, Jr., Chr isa nd re a Turn e r I ng ra m, L e xing ton , K e ntu c ky , f or Ap pe lla nts . D ou g la s L . L

utz, F RO ST BROWN TODD L L C, Cincinnati, Ohio, Marc E. Albert, Kather ine M. Sutcliffe B ecke r, STI NSON, MORRI SON HECKER L L P, W ashing ton, D.C., for Appe llee.- 2- ____________________ OP IN ION

____________________ MARY ANN WHI PPL E, Ban k ruptcy Appellate Pane l J udg e. Micha el B erna rd and A cton Enterpr ises, I nc. (“ Appellant”) appea l an orde r of t h e b ankruptcy court g rantingG& G L L C’s (“ G& G” ) m oti on

fo r or de r a llo c a tin g pr oc e e ds fr om a n a uc tio n s a le of

the a sse ts o f S tard

us t Y a c hts , L L C (“De btor”). T he orde r disbursed the sa le proc eeds in a n 88.89/11.11 ratio of re al to persona l proper ty , rathe r than a

78/22 ratio that the Appe llant asserts wa s ag ree d to prior to the auc tion.

I. ISSU ES ON AP P EAL
The issues ra ised by

this appea l are whether

the bankr uptcy court c ommitt ed re versible e rror by : (1) not holding a

n evidentiar

y hear ing r eg ardingwhether an a greement on the allocation of proce eds of the a

uction exis ted; (2) finding that there was no a g ree ment reg ardingthe allocation of proce eds fr om the auction of th e De btor’s asse ts; and (3) findingthat the Appellant did not detrimentally

rely on an agree ment to allocate pr ocee ds of the auc tion.
II. JU RI SDI CT ION AND STANDARD OF RE VI EW
Th e B ank ru ptc y Ap pe llate Pane l of the Sixth Cir c uit ha s jur isd ic tio n to dec ide thi s a pp e a l. The United States District Court for the Easter n District of Ke ntucky

has authorized appe als to the Panel and a

final orde r of the ba

nkruptcy court may

be appe aled a s of right. 28 U.S.C. § 158(a) (1). F o r p u r p o s e s o f a

p p e a l, a f in a l o r d e r “ e n d s th e li ti g a ti o n o n th e me r it s an d le av e s n o th in g for the court to do but execute the judg ment.” Midland Asphalt Cor p. v. United States , 489 U.S. 794, 798, 109 S. Ct . 1494, 1497 (1989) ( citations omitt ed).
The bankruptc y court’s conclusions of law ar e re viewed de novo. Riverv iew Trenton R.R. Co. v. DSC, Ltd. (I

n re DSC, Ltd.) , 486 F.3d 9 4 0 (6 t h Cir. 2007). “Unde r a de novo standard of revie w, the re viewingcourt de cides an issue independe ntly of, and w ithout defere nce to, the tr ial court’s de termination.” Menninge r v. Acc redited HomeLenders ( In re M orgeson) , 371 B.R. 798, 800 (B

. A

. P. 6 th

Ci r . 2 0 0 7 )

. T h e c o u rt’ s f in d in g s o f

f a c t a r e r e v ie w e d

un d e r th e c le ar ly

e r r o n e o us standard. In re DSC, Ltd. , 4 8 6 F. 3 d at 9 4 4

. “A fi n d i n g o f f

ac ti s cl ea rl y

erro n eo u s ‘w h en al th o u gh- 3-

there is evidence to support it, the reviewingcourt on the e ntire evide nce is lef t with the def

inite and firm conviction that a mistake has bee n committed.’” Id. (quot i n g An d erson v. Ci ty of B essemer City , 470 U.S. 564, 573, 105 S. C t. 1504 (1985)).
III . F AC TS
Stard u s t Y a c hts, L L C (“De btor”) bor rowe d money

from Citiz ens National Ba nk (“Citizens”) wi th a ba lanc e ow e d o f a

pp ro ximate ly

$4 97 ,0 00 . T he loa

n w a s se c ur e d by a fi rs t pri or ity lie n o n a ll of th e Deb to r’s pers on al pro pert y . Th e Deb to r als o bo rro wed app rox im ate ly $3 mi ll io n fro m G &G L L C (“G& G”)

. This loa

n was secur ed by a first priority lien in favor of

G& G on all of the D ebtor’s
rea l property , and a se cond priority lien on the Debtor ’s per sonal proper ty

. Th e De bto r f

ile d a pe tit ion fo r re lie f un de r c ha pte r 1 1 o f t

he B ank ru ptc y Cod e and

qu ic kly filed a motion to authorize and schedule an a uction to sell substantially all of its assets. The bankruptc y

court g rante d the motion and issued a Sale Auc tion Procedure s Order that est ab l i s hed the bidding pr ocedur es. The a uction was scheduled for Marc h 7, 2007, at the off ices of D ebtor’s
c ouns e l.
Pr ior to t he a uc tio n, Citi zen s and

G& G dis c us se d th e a llo c a tio n o f p ro c e e ds of the sa le betwee n rea l and per sonal proper ty in the event that a

bid was ac cepte d by

the Debtor , and appr oved by the bankr

uptcy court, for all of the De btor’s prope rty . Evidencingthese discu s s i o n s i s a letter from G& G’s counse l to counsel for Citizens date d M ar ch 2 , 2007, which “c onfirms [their] ag ree ment” that “. . . in the event a bid is acc epted by the Debtor a nd approve d for a ll of the Debtor’ s proper ty , the proce eds will be allocate d as follows: 22% repr esents the value of th e D ebtor’s Personal Proper

ty , i n which [Cit izens] has a more senior lien than G& G, and 78% repr esents the value of the Debtor ’s Real Proper

ty , in which [G&G] has a lien.” (J.A. at 197.) I n closing the letter, G& G’s counse l reque sted t h at co u n sel for Citizens sign in the spac e provide d to indicate her ag ree ment and re turn a c opy . Counsel for Citiz ens did not sign or return the letter.
On Marc h 6, 2007, counsel for G& G pre pare d and sent a subsequent unsig ned letter that “cla rifi[es] [hi s] M arc h 2, 2007, letter on [the] agr eeme nt relate d to the sale of a ssets.” (J.A. at 276.) The “ ag ree ment” as to the allocation of proce eds rea ds the same as that in the Mar ch 2, 2007, letter

.B o t h M i chael B ernard, M anagi ng M em b er of A ct o n E nt e rp rise s, I n c . , and A ct o n E nt erpri ses , Inc. are 1 ap p el l ant s. H o wever, be cause A ct o n act ed t hrough B ernard, we ref er t o t he A p p el l ant i n t he si ngul ar.
N ot h i n g i n t h e r ec or d ot h er t h an t h e Appel l an t ’ s br i ef r ev ea l s t h e ac t u al pr i ce pa i d f or t h e as s i g n men t

. I n dee d, 2 t he ass i gnm ent it sel f

si m p l y st at es “[ f

]or va l ue recei ved

. ” (J.A. at 2 6 2

. ) In any event , t he am o unt pa i d f o r t he ass i gnm ent i s i r r el eva nt t o our deci s i on he r e.

- 4- On c e a g a in, the le tte r re qu e ste d th a t c ouns e l f or Citi zen s in dic a te a g re e me nt b y signin g the le tte r i n the spac e provide d and re turning a copy . Ag ain, counse l for Citiz ens did not sign or return the letter.

On Marc h 7, 2007, prior to the time of the a uction, the Appellant enter ed into an Assignme nt 1 of Secur ed Claims, Notes, Security Ag ree ment, an d Gu ara

nties (“Assig nment”) w ith Ci tiz ens throug h its Ex ecutive V ice- President, Charles Fa rr is. The Assig nment contains a de tailed descr iption of the rig hts and interests that wer e transfe rre d. Howeve r, it makes no re fer ence to the
a uc tio n o r a

n a g re e me nt w ithG& G r e g ard inga llo c a tio n o f s a le s proc eeds. Th e Ap pe lla nt a sse rt s that he pa id $ 30 0, 00 0 f

or the no te s. 2

I n addition to being a secur ed cre ditor with a lien on the per sonal proper ty of the De btor by virtue of the Assignme nt, the Appellant was previously g rante d a super priority lien in the amount of $1 20 ,0 00 on

the De bto r’ s e qu ipm e nt a nd inv e nto ry to se c ur e po st- pe tit ion fi na nc ing pr ov ide d to the De bto r. Pur su ant to the Sa le Au c tio n Pro c e dure s O rd e r, the Ap pe lla nt h a d th e ri g ht t o c re dit

bid his su pe r p ri or ity

loa n o f $ 12 0, 00 0, and

the A ssi g nme nt o f C iti zen s’ c la im o f a pp ro xima te ly $505,000 for a

total cre dit bid of $625,000.

The a uction took place a s scheduled on Marc h 7, 2007. Counsel for the Debtor c onducted the auc tion in three phase s: (1) re al prope rty only ; (2) persona l pr operty only ; a nd lastly (3) r eal a

nd persona l property

toge ther. In the first round, G& G submitted the highe st bid, a cre dit bid of $2 milli on. Biddingwas then c losed. In the sec ond round, the Appellant made the hig hest bid for the persona l property

of $250,000. Severa l bidde rs then asked to a djourn the bidding to dete rmine if any competingbidder would top the Appe llant’s bid. The bidding was a djourned a nd when the bidde rs returne d they advised that they would make no further bids. Acc ording to the Appellant , h e t h en advised that he had more “cre dit to bid” and was told by Debtor’ s counsel that it was unne cessa ryT he A pp el l ant al s o m ade t hi s as s er t i on i n h i s O bjec t i on t o R eport of Sal e. H owever , i n i t s r es po ns e t o t hat 3 ob j ect i on, t he D ebt or a s s er t ed t hat t hi s di d not occur . A ccor di ng t o t he D ebt or, t he onl y t i me t he A pp el l ant i ndi cat ed h is d e sire to c re d it b id hig h e r w a s a fter the third ro u n d o f t h e a u c tio n ha d b e g u n .

I n t he A pp el l ant ’ s r es po ns e t o G & G ’ s mo t i on f or a n order al l ocat i ng s al e pr oceeds , he s t at es t hat “ un ders i gn ed 4

cou n s el f or [ Appel l an t ] , w h o l i t er al l y c ame i n t o t h e mat t er f i v e mi n u t es bef

or e t h e s al e, as k ed W

. T h omas B u n ch h ow the a g g re g a te sa le p ro c e e d s w o u ld b e a llo c a te d , an d M r. B u n c h sta te d he d id no t kn o w .” (J .A . at 1 9 3 .)

- 5- to b id h ig he r. Se c on d r ound bid din g wa s th e n c los e d. In th e thi rd ro un d, G& G m a de the highe st 3 bid for both re al and pe rsonal prope rty toge ther wi th an over

bid of $10,000 for a

total bid of $2,260,000.

At that point, either counsel for the Appellant, or Micha el B erna rd himself, aske d how the pr oc e e ds of

sa le wo uld

be a llo c a te d b e tw e e n th e re a l a nd pe rs on a l pr op e rt

y . T he Ap pe lla

nt a sse rt s that it wa s h is c ouns e l, who wa s n e w t o th e c a se , w ho ma de th e in quir y . G& G d oe s n ot s tate 4

un e qu ivo c a lly

wh o a sk e d th e qu e sti on , o nly that it wa s so me on e on

be ha lf of Ap pe lla

nts , a nd e xac tly who is irrele vant. Reg ardle ss of who aske d the question, the re sponse was a ppar en t l y that the allocation had not be en dete rmined. Appa rently no one, includingth e Ap p el lant, disputed that statement. There is no rec ording or transc ript of the auc tion in the recor d to verify either ve rsion of
e ve nts

.
Th e Ap pe lla

nt the n re qu e ste d that the se c on d pha se of bid din g be re -o pe ne d to pe rm it h im to cre dit bid highe r on the personal proper ty

. Counsel for the Debtor the n contac ted G& G’s counse l to participate in discussions as to whether this should be permitted. The Appe llant expl ained that he “be lieved it was in the best interest of the debtor and its c reditors to r e-ope n the bidding f or the
rea l estate sepa

rate ly and the pe rsonal proper

ty separ ately

to affor d both G&Gand [Appellant] the ri g ht t o in c re a se the ir

bids, sin c e the ir

pr e vio us bid s h a d n ot r e a c he d th e ir re sp e c tiv e c re dit

bid allowanc es.” (J .A. at 183.) The bidding w as not re- opened to a llow the reque sted deviation fr om the pre -auc tion announceme nt as to proce dure. The third round bidding w as continued a nd G& G’s bid was ac cepte d as the hig hest bid for the D ebtor’s total a ssets in the amount of $2,260,000.

The da y afte r the a

uction, the Debtor filed a Report of Sale desc ribing in detail the auc tion p r o c e s s an d

s e e k i n g a

p p r o v a l f o r t h e s a l e o f

a s s e t s t o G & G f

o r $ 2 , 2 6 0 , 0 0 0

. O nth a ts am e d ay, G& G’s counse l rec eived an email from c ounsel for Citizens which rea d, in pertinent par t, “[y ]ou areA p p ell an t ha s no t ap p ea l ed t he o rd er c o nfi rm i ng t he sale o f assets. 5

- 6- corr ect that I

was not authorized and did not si gn t h e l et t er ag ree ment y ou sent to me reg arding allocation and y ou are corr ect that Citi zens has sol d both of t heir notes to [ Appellant].” (J.A. at 255.)

On Marc h 9, 2007, the Appellant filed an objection to the sale on the g rounds that he wa s not permitted to bid up to the full amount of his cre dit bid for th e De b t o r’ s persona l property

. He 5

a sse rt e d, the re fo re , th e sa le did no t r e su lt i n th e ma ximumbe ne fi t to the ba nk rup tc y e state and

its
cre ditors. Also on March 9, 2007, G& G fil ed a motion for an orde r allocating the a uction proce eds in a 88.89/11.11 ratio of r eal to per sonal proper ty , a ratio that was derive d from the biddingat the
a uc tio n. Th e App ell ant re sp on de d th a t a 78 /22 ra tio wo uld be mor e a

pp ro pr iate . A c c or din g to Appellant, he pur chase d and took a ssignment of the c laims of Citi zens based upon stateme nts from counsel for

G& G and Citiz en s t h at the allocation would be 78/22, an allocation that was derive d from appr aisals obtained of eac h asset ty

pe whe n the Debtor

obtained its loan from G& G. In support of his position, t he Appe llant attache d the M arc h 2, 2007, letter fr om G&G ’s counse l to counsel for Citi zens.

I n response to the Appellant’s r equest that the pr ocee ds be alloca ted i n a 78/22 ratio of rea l to per s o n a l p r o p e rty , G & G a s s e rte d th a t w h il e c o un s e l f o r G & G an d Ci ti ze n s a g r e e d th at such a n allocation would be appropr iate, their clients never ag ree d. In support of t his asser tion, G&G note d that the Marc h 2, 2007, letter wa s not signed by counsel for

Citi z en s , and attac hed the Ma rch 8, 20 07 , em ail of co un sel for Ci ti z ens st ati ng th at s h e w as n otaut ho ri z ed t o s ign t he l ett er. G &G fu rt he r r e lie d u

po n its a sse rt ion that the Ap pe lla nt ha d a sk e d at th e a

uc tio n h owthe pr oc e e ds wo uld be alloca ted. Acc ording to G &G , the Appellant would not ha ve asked this question if he believed there was a

n ag ree ment in place. F inally , G& G urg ed the ba nkruptcy court to allocate the proc eeds in the ratio of the bids a ctually rec eived, 88.89 to 11.11.
The Appe llant then filed two motions to suppl ement the r ecor d reg ardingG& G’s mot ion for order allocating t h e s al es proce eds. With t he first motion, the Appellant submitted a copy of the Marc h 6, 2007, letter fr om G&G ’s counse l to counsel for Cit i z en s . W ith the second motion, the- 7-

Appellant submitted an af fidavit of Charle s Fa

rris (“ Fa rris”) , the Execut i v e Vi ce -P resident of Citi zen s. F arr is’ s a ff

ida vit re a ds in p e rt ine nt p art

a s f oll ow s:

1. Iam Executive Vice -President of Citizens . . . . 2. Iwa s th e lo an off

ice r in c ha

rg e of the matte r o f t

wo un pa id promissory

notes owed by

[Debtor] t o [C itiz ens] . . . .

. . . 4. [C itiz ens’ c ounsel] . . . dis cussed with counse l for . . . G& G . . . the proposed a

uction sale of the debtor’s assets, and howto allocate a ny a g g re g a te purc ha se pr ic e if on e bid de r pur c ha se d both the re a l e state and per sonal proper

ty of the de btor in a combined bid.
5. I believed that [C itiz ens’ counsel], c ounsel for G& G and de btor’s counsel c oncurr ed that the be st way to allocate a

ny combined purc ha se pr ic e wo uld

be ba se d on exist ing a

pp ra isa ls o f t

he re a l e state and per sonal proper

ty , equatingto ap p rox imately 78%/22%, respe ctively . There wer e some de tails to be resolved, possibly about car ve-outs and/or taxes that Icannot r eca ll, but which had no ef fec t on the allocation perce ntag es, to my understanding

. I never hear d any differ ent numbers. It was my understandingt h at the allocation and te rm s w e re su

bje c t to the c ourt ’s app rova l. I c on ve y e d a ll this to [Appellant] in the prese nce of bank counsel during neg otiations of the sa le of Citi zen s’

. . . n ote s, e tc . a nd be fo re the sa le of

Citi zen ’s no te s, etc. wa s consummated.

(J.A. at 290-91.)

Th e ba nk ru ptc y c ourt he ld a he ari ng on G& G’ s mot ion fo r an or de r a llo c a ting the s ale proce eds, and the Appellant’s motions to supplement the re cord. O n Marc h 27, 2007, the bankr uptcy
co u rt en t er edan o rd er al l o ca t i n g t h e p ro ce ed s fr o mt h e au ct i o ns al e. T h e c o urt fo un d t h e f o l l o wi n g: On March 7, 20 07 , th e De bto r c on du c te d a n a uc tio n f or the sa le of

its a sse ts p ur su ant t o a

Sa le Procedur es Orde r. At that auction, the Appellant had the rig ht to credit bid his super priority loan of $120,000 and Citizens’ assignme nt of its approximate $505,000 position secur ed by the Debtor ’s persona l property . Prior to the auction and the assig nment of Citiz ens’ c laim, G&Gand Citi z ens
wer e attemptingto neg otiate an ag ree ment on the allocation of sales proce eds betwee n the rea l and- 8-

persona l pr operty at 78% and 22%, respe ctively

. Those neg otiations “ wer e memorialized i n two proposed letter

ag ree ments

. . . neither of which was signe d by counsel for Citiz ens B ank.” ( J .A. at 293.) The bankruptc y court found that there was no binding ag ree ment on the allocation of proce eds as evide nced by

the Marc h 8, 2007, email sent by counsel for Citiz ens in which she stated she wa s
no t a uth or ize d to sig n th e le tte rs . The bankruptcy court further found that the Appellant’s a ssertion that he de trimentally relied
on oral repr esentations as to the ag ree ment to allocate the sales proc eeds on a 78/22 ratio basis wer e undermined by

his conduct both at and a fter the auction. Specif ically , the cour

t noted that during the third round of bidding“[Appellant] said, “Ihave a question, Mr. Bunc h, how do y ou allocate the
rea l and per sonal proper

ty sale price when y ou acc ept the ag g reg ate bid. [Appellant] w ould not have inquired as to alloca

tion of the proce eds h ad h e believe d that there was a n ag ree ment to which he
was a benef iciary .” (J .A. at 295.) Additionally , the court noted t he fact t hat t he Appellant asked for the sec ond round bidding to be re-opene d undermined his asser tion that he detr imentally relied on an agree ment betwee n Citi zens and G& G.
Finally , the bankr

uptcy court found that the Appellant’s asser tions in hi s Objection to Report of Sale unde rmined his argument. The objection was filed two day s afte r t he auction and re quested that the auc tion be re- opened to a llow him to bi d his entire cr edit bid. The bankruptcy court found that th e Ap pe lla

nt’ s st a te me nts in the ob

je c tio n that “th e pr op os e d limit e d r e -b idd ingpr oc e ss w ill
a lso e lim inate the dif

fi c ult y of a l l o c a t i n g t h e a g g re g a te purc ha se pr ic e be tw e e n G & G a nd [Ap pe lla nt]
a s se c ur e d c re dit or s o n d if fe re nt c oll a te ra l” and

that “ a pp ro va l of

the Ma rc h 7 Au c tio n w ou ld
un fa ir ly re du c e the pe rc e nta g e a llo c a tio n th a t [Ap pe lla nt] r e c e ive s f

ro m th e a g g re g a te sa le pr oc e e ds , a proble m not contemplated in the Sales Proce dure O rder , the Notice of Auction, or by

oral
announce ment prior to the Auc tion” reve aled that the A p p ellant was una war e of a n ag ree ment
re g ard inga llo c a tio n. (J.A . at 29 6. ) F ina lly , th e c ourt fo un d th a t:
[Appellant] was not even awar e of an agr eeme nt two day s afte r t he purc hase of the claim an ( sic) the auction. Second, his c laims of detrimental re liance only appea rs (s ic ) in his Ob

je c tio n, Mo tio n to Sup ple me nt and Se c on d Mo tio n to S up ple me nt. These w ere all filed af

ter G& G filed its Motion in which G& G stated that it had tried to rea ch an a g ree ment with Cit izens but had failed to do so.T he b ankruptcy co urt ’ s o rder ad d i t i o nal l y set fort h in d et ai l how t he real pro p ert y and pe rs o nal pro p ert y were 6 t o be di s t r i but ed. H owever , t he A pp el l ant i s appeal i ng onl y t he al l ocat i on of t he procee ds i n a 88. 89 / 11

. 11 r at i o of r eal to p e rs o n a l p ro p e rty.

- 9- Second, the Obje ction to Report of Sale revea ls that [Appellant] fully believed that the allocation was to (sic) ba sed on the biddi ng price s made at the Auction. Otherw ise, [Appellant] would not have objec ted to the Report of Sale based on the inj us t i c e o f n o t b e i n g g i v e n t h e o p p o rtun i ty t o b i d th e f u l l am o un t o f h i s c r e ditbid which would have elevated the per centa ges al l o tted to his portion of the sales proce eds. (J.A. at 296.)

The c ourt then sustained G& G’s motion for order allocating sales proce eds and or dere d that the proceeds be disbursed under a “88.89%/11.11% allocation scheme with a S ales Price for the Re al Property of $2,008,914.00 and f

or Persona l Property of $251,086.00.” (J.A. at 297.) P ursuant to the b an kr u p tc y c o u rt’ s o r d e r , th e Ap p e ll an t s h a ll r e c e iv e $ 1 2 0 , 0 0 0 f o r it s s u p e r p r io r it y li e nan d an
a d d i t i o n a l $ 6 0 , 0 1 0

. 1 3 f

r o mt h e d i s t r i b u t i o no f

p r o c e e d s f

o r th e p e r s o n a l p r o p e rty. 6
This timely

appea l of the bankr

uptcy court’s or der a llocating the sale pr ocee ds followed.

IV . D ISC USS ION
The Appe llant makes a numbe r of a rguments as t o why

he believe s the bankruptc y court
err ed. He asser

ts that the bankruptcy

court e rre d in fin d i n g t h at t here was no bindingag ree ment
re g ard ingthe a llo c a tio n o f s a le s p ro c e e ds be c a us e it f a ile d to “ c on sid e r t

hat G & G w a s th e pa

rt y repr esentingit would recei v e o nly 78 perc ent of the a

uction proce eds” a

nd “the of

fer was ne ver withdrawn by

G& G bef ore the sale.” (Appe llant’s Br . at 15.) He contends that the ba nkruptcy court also err ed bec ause the order fails to mention discussions between Citiz ens and t he Appe llant, focuses solely on the alleg ed discussions betwee n G& G and Citiz ens, and “ ref used to ac knowledg e the A f f i d av i to f C h ar l e s B

. F ar

r i s , E x e c u t i v e V i c e - P r e s i d e n t o f [ C i t i z e n s ]

. ” ( Ap p e l l an t ’ s B r . a t1 6

. ) In support of his position, t he Appe llant points t o the cour t’s attribution of the question at the auc tion reg ardinghow the proc eeds w ould be allocat ed t o h i m , despite the fa ct that the auc tion was not
rec orded, a

nd that the cour

t was not prese nt. He also argues t hat t he bankr uptcy court should have- 10-

conclude d that a contr act implied in f act exis ted betwee n the par ties to allocate the auction proc eeds in a 78 /22 ratio . F ur

the r, the Ap pe lla

nt a rgues th at he rel ie d o n th e a lle g e d a g re e me nt t o h is detriment. B eca

use he pur chase d the C itiz ens’ notes for $300,000 and is only rec eiving $60,010.13 rathe r than 22% of

the sales pr ocee ds, the transa ction is not y ielding the return he expected.
Finally , while nothing in the r ecor d befor e us indicate s that the App el l ant requested an
e vid ent iar y

he ari ngon

thi s matte r, he argue s th a t an e vid e nti ary he ari ngsh ou ld h ave be e n h e ld t o deter mine whether

an ag ree ment exis ted. Howeve r, he did not reque st a n evidentiar

y hear ing a

nd
never raised the issue with the bankruptc y court. The ref ore, be cause the issue is being raised f or the first time on appea l, it has been waived a nd we will not consider it. R.D.F. Dev s., Inc. v . Sysco Corp. ( In re R.D .F. Dev

s., Inc.) , 239 B.R. 336, 340 (B .A.P. 6th Cir. 1999) (“A ppellate c ourts ordinarily

do
no t c on sid e r i ssu e s r a ise d f or the fi rs t ti me on

a pp e a l and an a rgume nt i s wai ve d th a t is no t f ir st prese nted to the bankr

uptcy court.” ) (c itations and internal quotations omitted).

A. There W

as No Binding Agreement Be tween Citizens and G& G on the Allocation of Sale Proce eds

“An e nforc eable ag ree ment exis ts when the parties ex chang e a valid offe r and a cce ptance .” Cali-Ken Pe troleum Co., I nc. v. M iller , 8 1 5 F. S u

p p . 2 1 6 , 2 1 7 (W

. D. Ky

. 1 9 9 3 ) ( ci t i n g W hitaker v. As so c iate d Cr e dit

Se rv s. , 946 F.2d 1222, 1226 (6th Cir. 1991) ). A valid offe r and ac cepta nce r equire “a mutual manif

estation of assent, a meeting of the m inds as t o the t erms of the contra ct.” W hitaker , 9 4 6 F

. 2 d a t 1 2 2 6

. A p arty s e e k in g to e n f o r c e an a g r e e me n t h a s th e p r im a f a c ie b ur den of
e sta bli sh ingits e xiste nc e , wh ic h c an be me t by pr ov idi ngc op ie s o f t

he wr itt e n a

nd signe d a g re e me nt. Louisvill e Pe terbilt, Inc. v. Cox , 132 S.W . 3d 850, 857 (Ky

. 2 0 0 4). Unde r Ke ntucky law, “where the alleg ed expressed c ontrac t is oral, the evide nce to support it must be clea r and c onvincing .” Indus. Equip. Co. v. Eme rson Elec. Co. , 554 F.2d 276, 288 ( 6th Cir. 1977).

I n this case, the a

bsenc e o f a binding agree ment, either written or ora l, is shown by the unsigne d letters. The Marc h 2, 2007, letter reg arding the di scussions was never signed by counsel for Citiz ens. The Ma

rch 6, 2007, le tter was n o t s i gn ed by counsel for

either pa rty . Counsel for Citi zens has clea

rly stated that she did not have authorit y to sign the a g ree ment on behalf of her client. Fur

thermore , the Marc h 2 and 7 letter s do not rise to the level of clear and convinc ing- 11-

evidenc e that G& G and Citiz ens had entere d into an oral a g ree ment g iven that G& G’s counse l sp e c if ic a lly re qu e ste d in the le tte rs that couns e l for Citi zen s si g n in

the sp a c e pr ov ide d to ind ic a te ag ree ment with the terms set for th in the l etter. There is no evidence of a “ mutual manifestation of
ass en t , ” an d, there fore , no evidenc e of a binding c ontrac t. The bankr uptcy court’s f inding that Citi zens and G& G did not have a binding a g ree ment was not cle arly err oneous.

L ikewise, the ba

nkruptcy court did not err

in failing to find that there w as a c ontrac t impli ed in fac t. “A contr act implied in fac t is a true contr act, shown by evidenc e of fac ts a nd circ umstances from which a

meetingof minds conce rning the mutual promises may be re as o n ably

deduce d.” Pe rk ins v . D au

gh e rty , 7 2 2 S

. W

. 2 d

9 0 7 , 9 0 9 ( Ky . Ap p . 1 9 8 7 ) ( ci t i n g Thompson v. Hunter’s Ex ’r , 26 9 S. W.2 d 2 66 (K

y . 1 95 4) ). Suc h a

c on tr a c t r e qu ir e s a

n a c tua l a g re e me nt o r m e e tin g of the min ds , even though not e x pressly stated. Kellum v. Broning’s Adm’r , 21 S.W .2d 459, 466 (Ky . 1929). To establish a contr act implied in fact, “the fac ts and circ umstances must be suff icient to clea

rly and convincing ly

manifest or pr ove a mutual a ssent of minds to enter into the contra ct s o u gh t to be implied or established.” Id. Whil e such a contra ct may be esta blished by

circ umstantial evidence , such evidenc e must still e stablish the essential elements of a c ontrac t. BD T Pr od s. , I nc . v . Le x ma rk Int’l, Inc

. , 274 F. Supp. 2d 880, 886 (E.D. Ky . 2003). “It must be clear and ce rtain that there was in fac t an ag ree ment, positively definite a

nd mutually

understood.” Finn v. F i n n ’s Adm’r , 244 S.W .2d 435, 437 (Ky . 1951). In order to establish a contra ct implied in fact a nd meet the ne cessa

ry quantu m o f proof, all essential par ts of the contra ct must be ag ree d to with nothing left to future discussions. W ith refe renc e to Kentuc ky law, the Co u rt o f Appeals for the Six th Circuit has
e xpla ine d:

I f there was in fa ct any essential par

t of the contra ct upon which the mind s o f t he par

ties had not met, or upon which the re w as not an a g re e me nt, e ve n th ou g h the ne g oti a tio ns e vid e nc e d a c omp le te willingness, or

even a n announce d deter

mination, to agr ee in the futur e up on

su c h is su e s a s mi g ht s ub se qu e ntl y ari se , it mus t st ill follow that a va lid and binding c ontrac t was not made. . . .

Nat’l Bank of Ky. v. Louisville Trust Co. , 67 F.2d 97, 102 ( 6th Cir. 1933).- 12-

The Appe llant argues that C harle s Fa rris’s affidavit and counsel for G &G ’s Marc h 2, 2007, le tte r e sta bli sh that the re wa s an a g re e me nt. Con tr ary to t he Ap pe lla

nt’ s p os iti on , h ow e ve r, the re is
no e vid e nc e of

a “ c le ar a nd c e rt a in” a g re e me nt t hat w a s “ po sit ive ly de fi nit e and

mut ua lly understood.” N or is there evidenc e that all elements of the “agree ment” we re unde rstood. The Marc h 2, 2007, letter wa s never signe d by

counsel for

Citi zens, t h e M ar ch 6 , 2007, letter wa s not signe d by counsel for

G& G or Citi zens, a

nd counsel for

Citi zens never ha d authorization from her clien t to sig n th e le tte rs . In a dd iti on , Ch arl e s F arr is’ a ff ida vit ind ic a te s o nly

that c o unsel

for the pa rt ie s, no t th e pa

rt ie s th e mse lve s, c on c ur

re d th a t th e be st w ay

to a llo c a te the purc ha se pr ic e wo uld be based on exis ting appra isals of the proper ty , that some details wer e y et to be re solved, and that he under stood that the allocation was subject to the court’s a pproval. More over, the assig nment of Citi zen s’ c la ims and

no te s to the Ap pe lla

nt m ake s n o me nti on

of an a llo c a tio n a g re e me nt. Whil e there is, without a doubt, evidence of neg otiations with an ag ree ment in mind, the bankruptcy court’s finding that there was no a g ree ment, express or implied in fact, wa s not clear ly err oneous.

B. The Rec ord Does Not Support a Finding of Detrimental Reliance

Under Kentucky

law, detr imental relianc e, or promissory estoppel as it is commonly called,
re qu ir e s:
(1 ) a

pr omi se ; ( 2) wh ic h th e pr omi so r s ho uld re a so na bly e xpe c t to induce a ction or for

bear ance of a de finite and substantial cha rac ter on the par t of the promisee ; (3) which does i n d u ce such ac tion or forbe ara nce; a nd (4) injusti ce can be avoided only by enfor ceme nt of th e p r o mi se. W

her e the reis n o e v ide nc e of a pr om ise , p ro mi sso ry estoppel cannot beestablished

. Abney v. Amge n, Inc. , 443 F.3d

5 40, 549 (6th Cir. 2006) (interna l citation omitt ed) ( emphasis adde d.)

There is no evidenc e in the re cord to support a finding that there was a promise to the Appellant, an d

th e r e f o r e , h e c an n o t e s ta

b li s hp r o mi s s o r

y e s to p p e l. T h e Ap p e ll an t p r e s e n te d no
e vid e nc e tha

t G & G m a de a

pr omi se to h im r e g ard inga llo c a tio n. In f a c t, C ha rl e s Farris ’ af

fi davit states th a t t

h e r e w e r e d e ta il s in

th e p r o p o s e d

a g r e e me n t b e tw e e nG & G an d Ci ti ze n s y e t t o be resolved a nd that the allocation and the terms wer e subject to c ourt approva l. Importantly , acc ording- 13-

to his affidavit, he c onvey ed this information to the Appellant duringthe neg otiation of the sale of Citi zen s’ no te s.
Additionally , the Appellant ha s prese nted no evidenc e to show that an “injustice ca n be avoided only

by enfor ceme nt of the promise.” The b an k ru ptcy court found that the Appellant’s actions during the auction belie his argument that he detrimentally relied on a

ny ag ree ment reg arding the allocation of sale proce eds. Howe ver, the parties dispute what actually occur red at the auction and, abse nt a transc ript of t hose proceeding s, the bankruptcy court could not proper ly make suc h a fi nd ing . T he e rr or

in m akin g fi nd ing s a

bo ut wh a t ha

pp e ne d at th e a

uc tio n is ha

rm le ss. Re g ard le ss of what happene d at the auction, the court’s finding reg arding Appellant’s actions af ter the a uction
are deter minative. He f

ile d h i s Objection to Report of Sale two da y s after the auc tion seekingan order for a new a uction so he could bid his entire c redit bid. In his brief, he s tated “.

. . the proposed limit ed re -bidding proce ss will also elimi nate the dif ficulty of allocating the a g g reg ate p u r c h a s e price betwee n G& G and [Appellant] as secur ed cr editors on diffe rent c ollatera l. Approva l of the Mar ch 7 Au ct i o n would unfairly reduc e the pe rce ntag e allocation that [ Appellant] rece ives from the ag g reg ate sa le proc eeds, a problem not contemplate d in t h e S ales Proce dure O rder , the Notice of Auction, or by

oral announce ment prior to the auction.” (J.A. at 187.) Certa inly , if the Appe llant believed that there w as an a g ree ment in place with G& G reg arding the allocation, he would not have made these asser

tions in hi s objection t o the s ale. These asse rtions reve al that eve n two day s after the auc tion, the Appellant believe d the allocation would ulti mately be base d on the bidding pr ices made at the auction. As a result, the bankruptc y court’s conclusion that the Appellan t d i dn ot de tr ime nta lly

re ly on the a lle g e d a g re e me nt be tw e e n G & G a nd Citi zen s w a s n ot c le arl y

e rr on e ou s.

V. CO NC LU SION

For the fore g oing r easons, the or der of the bankr uptcy court is AF FI RMED.