Court Opinion

ID: 4212328
Source: CourtListenerOpinion
Date Created: 2017-10-17 21:00:22.571121+00
Date Added: 2024-06-11T14:41:22.655182
License: Public Domain

United States Court of Appeals
                     For the First Circuit
No. 16-1048

   PPUC PENNSYLVANIA PUBLIC UTILITY COMMISSION; QUALITY SPEAKS,
 LLC; AMERICAN REGISTRY FOR INTERNET NUMBERS, LTD.; GLOBAL NAPS,
                               INC.,

                           Plaintiffs,

                        CARL F. JENKINS,

                       Receiver, Appellee,

                               v.

                         FRANK T. GANGI,

                      Defendant, Appellant,

     VERIZON NEW ENGLAND, INC., d/b/a Verizon Massachusetts;
MASSACHUSETTS DEPARTMENT OF TELECOMMUNICATIONS & ENERGY; PAUL B.
 VASINGTON, in his capacity as Commissioner; JAMES CONNELLY, in
his capacity as Commissioner; W. ROBERT KEATING, in his capacity
     as Commissioner; DEIRDRE K. MANNING, in her capacity as
    Commissioner; EUGENE J. SULLIVAN, JR., in his capacity as
     Commissioner; FERROUS MINER HOLDINGS, LTD.; GLOBAL NAPS
  NETWORKS, INC.; GLOBAL NAPS NEW HAMPSHIRE, INC.; GLOBAL NAPS
 REALTY, INC.; 1120 HANCOCK STREET, INC.; CHESAPEAKE INVESTMENT
          SERVICES, INC.; REYNWOOD COMMUNICATIONS, INC.

                           Defendants.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS
            [Hon. Rya W. Zobel, U.S. District Judge]

                             Before

                   Torruella, Lynch, Kayatta,
                         Circuit Judges.
     Donald H.C. Libbey, with whom Donald H.C. Libbey PC, Steven
J. Marullo, and Law Office of Steven J. Marullo were on brief for
appellee.
     Eric Charles Osterberg, with whom Osterberg LLC, Andrew Good,
and Good Schneider Cormier & Fried were on brief for appellant.

                        October 17, 2017
            LYNCH, Circuit Judge.                Frank Gangi ("Gangi") appeals

from the district court's December 30, 2015 order approving a sale

of his assets and the assets of entities owned by him, recommended

by the receiver, Carl Jenkins ("Jenkins"), whom the court appointed

to sell those assets for the benefit of Gangi's creditors.                        Gangi,

on    appeal,   primarily       argues   that     the   assets   were      sold    to    a

fiduciary of the receivership estate, and the sale was prohibited

as a result.     In the alternative, Gangi argues that the sale was

improper and unfair.

            Jenkins counters that this appeal should not be heard on

the merits because it is equitably moot, and that, in any event,

the    assets   were    not     sold    to   a    fiduciary    and   the    sale     was

appropriate.     The district court rejected Gangi's contentions as

without    merit;      agreed    with    the      receiver's     contentions;        and

concluded that the sale was fair, reasonable, and in the best

interest of the receivership.                    The court also described the

different categories of assets and found that the allocations as

to purchase price were fair and reasonable.                   We hold this appeal

is not equitably moot, and affirm the sale order because there was

no abuse of discretion.

                                  I. Background

            The litigation that has resulted in the receivership and

this apparently final order of sale is in its fifteenth year.                           It

began in 2002, when Global Naps, Inc. ("GNAPs") sued Verizon New
                                         - 3 -
England, Inc. ("Verizon").         See Global Naps, Inc. v. Verizon New

Eng.,       Inc.,   603 F.3d 71,   79    (1st   Cir.   2010).      Verizon

counterclaimed, and won a $58 million judgment.            Id. at 79-80.    We

bypass here a description of the business relationships, which are

amply described in that opinion and other opinions.                 On remand,

the district court found that Gangi, the owner of GNAPs, was

jointly and severally liable for the $58 million judgment because

GNAPs was merely an alter ego for Gangi.            Id. at 81.

              In 2010, the district court placed the assets of many

entities owned by Gangi into receivership and appointed Jenkins

receiver.       The district court empowered Jenkins to "take any

actions to identify, safeguard and preserve the assets of the

Judgment Debtors, to make all business decisions over the assets

and operations of Judgment Debtors, and to implement, satisfy and

enforce" the receivership order.            Over the years, the receiver did

just that.      The district court judge here had approved prior sales

of assets by the receiver and had extensive experience with this

case at the time this sale occurred.

              Pursuant to these duties, on March 28, 2013, Jenkins

entered into an exclusive agreement with Hilco IP Services LLC

("Hilco") to market internet protocol addresses ("IP addresses")

owned by the estate.1        Hilco's marketing agreement did not extend

        1 "An Internet Protocol address, or ‘IP address,’ is a
unique number corresponding to a particular computer accessing the
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to any other receivership assets.        Between the engagement of Hilco

and the sale at issue, Jenkins accepted only two offers to purchase

blocks of IP addresses.       Both sales were through Hilco.              In one

of these sales, Jenkins sold 65,536 IP addresses to Mid-Continent

Communications for $376,832.

             On March 10, 2015, the district court made it clear that

the receivership should be brought to an end through prompt

disposition of the remaining assets.         In an order, it stated: "In

the spirit of bringing this case to an end, the receiver shall

file a status report within 30 days of this order giving a

preliminary accounting . . . .        In that report, the receiver shall

also propose a timeline for filing his final accounting."

             On December 3, 2015, Jenkins filed a motion requesting

an order approving a sale of the remaining receivership assets to

Northeast Technology Solutions, LLC ("Northeast") for $525,000.

The property included, "five (5) lots of vacant land located in

Las   Vegas,    NV";   "several   domain     names      registered   to    GNAPs

entities";     "telephone   number    blocks";    and    four   blocks    of   IP

addresses, for a total of 114,688 addresses.              For reasons having

to do with the resolution of other litigation, the price had to be

allocated to its different components.           The receiver, by agreement

internet.” Doe v. Gonzales, 500 F. Supp. 2d 379, 387 n.8 (S.D.N.Y.
2007). The estate included the registration rights to thousands
of IP addresses.
                                     - 5 -
of the parties to the sale, allocated $50,000 of the purchase price

to the real property in Las Vegas, $275,000 to a block of 65,536

IP   addresses,   and   $200,000   collectively   to   the   remaining   IP

addresses, domain names, and telephone numbers.

           A footnote to Jenkins's motion for an order approving

the sale stated: "Northeast has a relationship with HilcoGlobal,

and any fee otherwise due to HilcoGlobal under any agreement with

the Receiver has been waived."      The receiver also posted the motion

and information about the sale on his website.

           Gangi filed an opposition to the sale order, making

arguments that the price was too low and the sale was prohibited

because "Hilco acted as the exclusive marketing agent with respect

to the very assets at issue."      But he did not contest the accuracy

of the receiver's representations.         Jenkins filed an extensive

point-by-point reply justifying the sale price as to each of the

categories of assets sold.         He elaborated on the relationship

between Northeast and Hilco, stating, "Northeast's relationship

with Hilco is one of an associated entity that purchases various

assets for later marketing and sale by Hilco."

           The district court entered an order approving the sale

on December 30, 2015.        The court found that the sale of the

estate's remaining assets would "allow for the orderly wind-up of

the Receivership" and that "[t]he wind-up and completion of the

Receivership as soon as possible is in the best interest of all
                                   - 6 -
parties involved in the Receivership."      The order found that the

sale was "in the best interest of the Receivership."       It rejected

Gangi's objections, finding them to have no merit on the record

before it, and found that the terms and conditions of the asset

purchase agreement, including the sale price, were "fair and

reasonable under the circumstances."     Gangi appealed.

                      II. Equitable Mootness

          Despite Jenkins's arguments, we believe the appeal is

not equitably moot.   Equitable mootness is "rooted in the 'court's

discretion in matters of remedy and judicial administration' not

to determine a case on its merits."    In re Pub. Serv. Co. of N.H.,

963 F.2d 469, 471 (1st Cir. 1992) (quoting In re AOV Indus., Inc.,

792 F.2d 1140, 1147 (D.C. Cir. 1986)).    We have said that equitable

mootness is appropriate where, in the absence of a stay, a sale

has progressed so far that relief would be impracticable.      Id. at

473.

          Jenkins argues the appeal is equitably moot because the

sale would be difficult to unwind.       In In re Public Service Co.

of New Hampshire, the court looked to the following three factors

to determine whether an appeal was equitably moot: (1) whether the

appellant "pursue[d] with diligence all available remedies to

obtain a stay of execution of the objectionable order," id. at 473

(citation omitted); (2) whether the challenged plan proceeded "to

a point well beyond any practicable appellate annulment," id. at
                               - 7 -
473-74; and (3) whether providing relief would harm innocent third

parties, id. at 475.

             Gangi failed to appeal the denial of a stay, so the

diligence factor weighs against him in the analysis.                    The other

two factors weigh strongly against Jenkins.                 Jenkins shows that

the   sale   was   complex,     required   regulatory       approval,    involved

disparate assets, and took months to close.                 These challenges do

not mean that the sale has moved beyond practicable annulment.

Jenkins does not state that Northeast no longer has the assets in

question.     Jenkins also fails to show that relief would result in

any harm to innocent third parties.

             Jenkins   relies    heavily     on   In   re   Stadium   Management

Corp., 895 F.2d 845 (1st Cir. 1990), to argue that an appeal is

moot where a bulk sale of assets has been completed.                    That case

pertains only to statutory mootness under 11 U.S.C. § 363(m), which

does not apply here.

                          III. Approval of Sale

             We review the order approving the sale for an abuse of

discretion.     Fleet Nat'l Bank v. H&D Entm't, Inc., 96 F.3d 532,

540 (1st Cir. 1996) (citation omitted).                Any subsidiary findings

of fact are reviewed for clear error, and holdings of law are

reviewed de novo.       Id.      There was no abuse of discretion, and

Gangi's arguments to the contrary are without merit.

                                     - 8 -
A.   The Fiduciary Argument

             It is true that "a full-fledged fiduciary, such as a

trustee or court-appointed receiver . . . may not normally sell

estate property to himself even if the terms are fair."            Id.   But

Gangi presented no evidence that Hilco, a mere sales agent, was a

fiduciary, or that Northeast, through Hilco, was a fiduciary, and

there is no reason to think they were.                The district court

implicitly rejected Gangi's argument that Hilco was a fiduciary,

and it was correct to do so.

             Hilco, contrary to Gangi's argument, is not a "full-

fledged   fiduciary,"      and   so    is   not    subject    to   automatic

disqualification    from    purchasing      receivership     assets.     "The

central reason for disqualifying the fiduciary as a buyer is that

there is no one else who can similarly protect the estate's

interest."    Id. at 541.    Here, it was Jenkins who had control over

the receivership assets and protected the estate's interests.

             A blanket prohibition applies to fiduciaries because,

"the main assurance that the estate will be maximized is the zeal

of the seller to secure the best price, and that zeal is likely to

be tempered if the seller is selling to himself."               Id. at 540.

Jenkins is the seller here, not Hilco.            Hilco's relationship did

not create a risk that Jenkins's "zeal . . . to secure the best

price" would be "tempered."      Id.    To the extent Gangi asserts that

Jenkins is self-dealing by selling to his own agent, that argument
                                  - 9 -
goes nowhere on these facts.     There is no evidence that Jenkins,

the receiver, had a stake in the transaction.

          Gangi attempts to rely on Martin v. Feilen, 965 F.2d 660

(8th Cir. 1992), but that case is factually distinguishable.      The

court there found that accountants were fiduciaries to a retirement

plan where "they recommended transactions, structured deals, and

provided investment advice to such an extent that they exercised

effective control over the [plan's] assets."     Id. at 669 (emphasis

added).   Hilco did not have effective control over the estate's

IP addresses; it was merely responsible for marketing them.      Gangi

argues that Hilco negotiated deals with potential buyers and

"secured the offer for at least one of the prior sales."      That is

what Hilco had been hired to do -- find buyers for the property.

          In Fleet National Bank, we highlighted the dangers of

extending the "circle of automatic disqualification" too far. 96
F.3d at 541.   Disqualification of too many buyers risks harming

the estate by disqualifying a would-be highest bidder.     Id.    This

danger is especially pronounced where, as here, "the universe of

serious buyers is likely to be small."     Id.    Finding buyers for

the IP addresses was difficult, and Jenkins had only accepted two

offers over almost two years.

B.   Propriety of Selling to Northeast

          "[J]udgments as to disqualification of a non-fiduciary

purchaser should be made on a case by case basis, taking account
                                - 10 -
of all of the surrounding circumstances."            Id. at 540.    The

district court has "wide discretion in judging whether a receiver's

sale is fair in terms and result and serves the best interests of

the estate."     Id.   The district court took the circumstances of

the   sale   into   account,   including   Hilco's   relationship   with

Northeast (disclosed by the receiver), the purchase price for each

of the assets, and the importance of quickly winding up the

receivership.

             Gangi is incorrect that this sale was improper under

Fleet National Bank; that case undercuts his argument.       A receiver

there sold a radio station to an accounting firm that had performed

accounting services related to those radio stations.2       Id. at 535-

36.   The accounting firm had been "merely hired by the fiduciary

to perform a discrete and narrow function unrelated to the sale,"

and the sale was approved.       Id. at 541.     Under Fleet National

Bank's fact-specific analysis, the sale here was appropriate given

the difficulty finding other buyers, the need to quickly wind-up

the receivership, Gangi's obstinacy, and the lack of evidence that

Hilco abused its position as marketing agent.

      2   Gangi claims the accounting firm in Fleet National Bank
was "uninvolved with the assets to be sold," but this is incorrect.
The accounting firm provided accounting services related to the
radio stations, but the services they provided were unrelated to
the sale of the radio stations. Id. at 535.
                                 - 11 -
           As   the       district    court     held,     "[t]he     wind-up          and

completion of the Receivership as soon as possible is in the best

interest of all parties involved in the receivership."                               The

receivership began in 2010 and both this Court and the district

court have made findings that Gangi has obstructed it throughout.

This Court found the receivership has been, "hampered by Gangi,

who, among other stratagems seemingly designed to conceal or

protect his assets, apparently had transferred ownership of his

$400,000 Porsche to a ten-year-old child."                Global Naps, Inc. v.

Verizon New Eng., Inc., 706 F.3d 8, 11 (1st Cir. 2013).                              The

district   court    noted,     in    response    to     Verizon's    request         for

sanctions, that Gangi's behavior throughout this litigation had

been troubling and may warrant sanctions.                    The district court

chose not to pursue sanctions because, "[t]he interests of justice

strongly   favor      resolution,     not      additional       litigation          about

sanctions."        This    transaction      liquidated       the    last       of     the

receivership    assets,       allowing      Jenkins     to      provide    a        final

accounting.

C.   Fairness of the Sale

           Gangi    argues     we    should    unwind     the    sale,     asserting

Jenkins did not produce evidence indicating the sale price was

fair, but Gangi provided no reliable evidence and did not contest

the receiver's factual representations.               The only evidence Gangi

provided on whether the sale of real property was undervalued was
                                      - 12 -
an out-of-date assessment from 2000, when the parcels of land in

Las Vegas were more valuable than they were in 2015.          Jenkins, in

fact, provided a more current assessment of the value of the

property, showing that Gangi's evidence was outdated.               The real

estate market in that location had collapsed, as the receiver

noted.     As to the IP addresses, Gangi gestured toward the higher

per-address price in the prior sale to Mid-Continent in August of

2015, but that does not indicate the sale price to Northeast was

unreasonably low under the circumstances.         Gangi did not provide

any evidence related to the value of the phone numbers or domain

names.

            The district court did have information relevant to the

sale.    It knew the price the receiver had previously attained for

IP addresses, the length of the receivership, and the importance

of completing the receivership.         In addition, the district court

was familiar with Jenkins.        Jenkins had been receiver for five

years when this sale was approved, and the district court had

already    approved   several   sales   Jenkins   had   arranged.      Gangi

appears to have been the only party who believed sale property was

undervalued.      The creditors to whom the sale proceeds would

eventually go offered no objection that the amount realized was

too low.

            In the absence of reliable evidence indicating that the

sale was unfair, the district court relied on the business judgment
                                  - 13 -
of the receiver who had worked with it for five years, over Gangi's

unsupported objections.      This was not an abuse of discretion,

particularly given Gangi's truculence and dishonesty throughout

these proceedings.3

          Gangi argues Jenkins was required to prove that the sale

was fair because the fiduciary bears the burden of proving the

fairness of a sale.   In re Access Cardiosys., Inc., 404 B.R. 593,

691 (Bankr. D. Mass. 2009).        The burden in that case only applies

if a fiduciary is selling to himself.            This burden does not apply

here because Jenkins did not sell to himself and Hilco was not a

fiduciary, nor was Northeast.

D.   Required Disclosure and Good Faith

          The   district   court     has    an   obligation    to   "carefully

monitor the sale process and assure that there is full disclosure

and good faith."   Fleet Nat'l Bank v. H & D Entm't, Inc., 926 F.

Supp. 226, 245 (D. Mass. 1996).4            The court did so here.        The

relationship    between    Hilco     and    Northeast    was    sufficiently

     3    Gangi argues the sale order was improper because the
district court failed to make specific factual findings. He does
not cite any relevant case law or, in the absence of case law
support, develop an analysis indicating such findings were
required, so his argument is waived. United States v. Zannino,
895 F.2d 1, 17 (1st Cir. 1990).      He relies on Thermo Electron
Corp. v. Schiavone Constr. Co., 915 F.2d 770 (1st Cir. 1990), which
concerns Fed. R. Civ. P. 52(a) and is inapplicable.
     4    Gangi also perfunctorily argued that there should have
been a hearing prior to the sale order. This argument was not
developed, so it is waived. Zannino, 895 F.2d at 17.
                                   - 14 -
disclosed by the receiver before the court approved the sale.

Jenkins made it clear that Northeast was an affiliate of Hilco,

and explained Northeast's purpose.

          The details of the sale were disclosed.      Gangi has not

cited any case law indicating that the district court was required

to elicit more evidence from the parties about the prudence of the

sale before approving it.

          We affirm.   Costs are awarded to Jenkins.

                              - 15 -