Court Opinion

ID: 9411232
Source: CourtListenerOpinion
Date Created: 2023-07-26 00:00:54.429844+00
Date Added: 2024-06-11T17:21:05.553661
License: Public Domain

Case: 22-20321      Document: 00516833740         Page: 1     Date Filed: 07/25/2023

            United States Court of Appeals
                 for the Fifth Circuit                            United States Court of Appeals
                                                                           Fifth Circuit
                                 ____________                            FILED
                                                                     July 25, 2023
                                  No. 22-20321
                                                                    Lyle W. Cayce
                                 ____________                            Clerk

   In the Matter of Bouchard Transportation Company,
   Incorporated,

                                                                                Debtor.

   The Official Committee of Unsecured Creditors,

                                                                           Appellant,

                                       versus

   Bouchard Transportation Company, Incorporated;
   Hartree Partners, L.P.,

                                                                            Appellees.
                   ______________________________

                   Appeal from the United States District Court
                       for the Southern District of Texas
                            USDC No. 4:21-CV-2844
                   ______________________________
   Before Higginbotham, Smith, and Engelhardt, Circuit Judges.
   Jerry E. Smith, Circuit Judge:
          Bouchard Transportation Company and its affiliates (collectively
   “Bouchard”)—debtors in bankruptcy—prepared to sell some of their assets
   at an auction. Fearing the auction would go poorly, Bouchard solicited a
   “stalking horse bidder” to start the auction and set a floor price. In exchange,
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                                    No. 22-20321

   Bouchard agreed to pay the stalking horse bidder a $3.3 million break-up fee
   and to reimburse expenses up to $1.5 million. The question is whether those
   payments were a permissible use of estate funds.
          As the bankruptcy and district courts found, the stalking horse pay-
   ments were lawful under both applicable provisions of the Bankruptcy
   Code—they provided an actual benefit to the estate and were issued in the
   reasonable exercise of business judgment. We accordingly affirm.

                                          I.
                                         A.
          Bouchard, one of the largest petroleum shipping companies in the
   United States, filed for Chapter 11 bankruptcy in 2020. The United States
   Trustee for the Southern District of Texas created the Official Committee of
   Unsecured Creditors (the “Committee”) to represent the interests of the
   unsecured creditors. See 11 U.S.C. § 1102(a)(1).
          During the bankruptcy, Bouchard went through two rounds of post-
   petition financing. It first opened a credit facility with Hartree Partners, LP
   (“Hartree”), but quickly defaulted. It then secured a second round of post-
   petition financing with JMB Capital Partners Lending, LLC (“JMB”).
   JMB’s loan was secured by a variety of liens on Bouchard’s shipping vessels.
   Using its new funds, Bouchard paid off the outstanding principal, interest,
   expenses, and fees owed to Hartree. But it still owed around $95 million to
   JMB (notwithstanding its prepetition debts).
          After efforts to jump-start the business failed, Bouchard decided to
   sell some major assets. The court approved an auction, subject to a number
   of rules. Importantly, the court’s bid-procedures order pre-authorized Bou-
   chard to select a “stalking horse bidder.” A stalking horse bidder is an initial
   bidder whose purchase offer is often negotiated in advance to guarantee a
   minimum sale price. Because the first bidder in an auction incurs significant

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   expense (including the cost of due diligence), a stalking horse bidder often
   haggles for bid protections, such as reimbursement for expenses or a “break-
   up fee” if it does not win the auction.1 The bankruptcy court expressly
   authorized Bouchard to select a stalking horse bidder and to offer that bidder
   a break-up fee and expense reimbursement.
          The selection of a stalking horse bidder was subject to several limita-
   tions. Any break-up fee could not exceed 3% of the purchase price, and any
   expense reimbursement was subject to a cap. If a stalking horse bidder was
   selected, Bouchard was required to notify the court and disclose the material
   terms of the deal. And other parties were permitted to object to the stalking
   horse agreement within three days of the notice. The auction was set for
   July 19, 2021, but the court required that a stalking horse bidder (if any) be
   selected by July 7.
          Bouchard, however, struggled to generate interest in its vessels. It
   discussed the possibility of a stalking horse bidder with prospective pur-
   chasers, but no agreement was reached by July 7. With the consent of the
   court, the deadline to select a stalking horse bidder was pushed back to July
   11. Yet no agreements materialized. The deadline was delayed again to July
   16. Still again, it was pushed back to 11:59 p.m. on July 18, just fifteen hours
   before the start of the auction.
          Finally, after days of negotiations, Bouchard had two sale offers for its
   vessels: one from Hartree and one from Centerline Logistics (“Centerline”).
   The board met twice on July 18 to consider the options. Centerline’s pro-
   posal was initially attractive, but the board had concerns that Centerline

          _____________________

          1
             See David M. Holliday, Annotation, Right to Recover Break-Up Fee Arising from
   Sale of Bankruptcy Estate Property, 39 A.L.R. Fed. 2d 219 (2009).

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   would not be able to secure the financing necessary for the transaction.
   Centerline’s bid was also not a stalking horse bid; Centerline wanted Bou-
   chard to cancel the auction and accept its deal outright, which concerned the
   board. So Bouchard rejected their proposal.
          That left Hartree’s proposal. Hartree offered $110 million for 29 of
   the 31 vessels that secured JMB’s financing facility. But it demanded a break-
   up fee of 3% of the purchase price ($3.3 million) and a maximum expense
   reimbursement of $1.5 million. Those fees would be paid even if Hartree did
   not submit the winning bid. Lastly, the proposal required any competitor to
   bid at least $500,000 more than Hartree’s offer (plus the value of the bid
   protections) to be successful.
          After discussion, the board agreed to move forward with an auction
   with Hartree’s offer as a stalking horse bid. Around 11 p.m. on July 18, the
   Bouchard notified the court that Hartree had been selected as a stalking horse
   bidder. It also disclosed that Hartree had been promised $4.8 million in bid
   protections as part of the purchase agreement. The Committee was informed
   of the negotiations and agreement with Hartree, but it filed no objections
   before the auction.
          The auction started the next day. Shortly before it commenced, Bou-
   chard learned that JMB also intended to bid on the vessels. After Hartree
   submitted its opening bid, Bouchard announced that a second bid would need
   to be a minimum of $115.3 million—Hartree’s bid was $110 million, $4.8
   million was owed in bid protections, and the minimum bid increment was
   $500,000. Then, JMB stated that it would bid exactly $115.3 million. Har-
   tree declined to overbid, and JMB won the auction.2

          _____________________
          2
            In accordance with the court’s bid procedures order, Bouchard orally designated
   Hartree as the backup bidder in case closing negotiations between Bouchard and JMB fell

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          The Committee objected to the break-up fee and expense reimburse-
   ment three days later. It contended that the payments were administrative
   expenses under 11 U.S.C. § 503(b) and that Bouchard had failed to satisfy the
   statute’s strict necessity standard. Bouchard countered that the fees were
   governed by 11 U.S.C. § 363(b), which allows payments related to an asset
   sale if they are spent in the reasonable exercise of business judgment.

                                            B.
          The bankruptcy court eventually approved the sale of the assets to
   JMB, but it withheld judgment on the legality of Hartree’s bid protections.
   A few weeks after the auction, the bankruptcy court held a hearing to decide
   whether it was lawful for Bouchard to designate Hartree as the stalking horse
   bidder and to give Hartree bid protections. The hearing lasted for five hours,
   and the court heard testimony from three witnesses: (1) Richard Morgner, a
   director at Bouchard’s investment bank; (2) Patrick Bartels, the independent
   director of Bouchard; and (3) Scott Levy, a partner at Hartree.
          After the hearing, the bankruptcy court gave an oral ruling that the
   break-up fee and expense reimbursement were permitted, but it capped the
   expense reimbursement at $1 million (instead of the $1.5 million that Hartree
   had requested). It reasoned that, regardless of whether 11 U.S.C. § 503(b) or
   § 363(b) applied, the payments to Hartree were lawful. The court thus
   ordered payment to Hartree on August 23, 2021.3

                                            C.
          The Committee appealed the Hartree order, and the district court

          _____________________
   through. But the Committee disputes that on appeal.
          3
             Notably, the court approved Bouchard’s Chapter 11 reorganization plan three
   days later, on August 26, 2021.

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   affirmed. Official Comm. of Unsecured Creditors v. Bouchard Transp. Co. (In re
   Bouchard Transp. Co.), 639 B.R. 697, 702 (S.D. Tex. 2022). As a threshold
   matter, the court acknowledged that whether the bid protections were lawful
   was a mixed question of law and fact. Id. at 707. But it concluded that it did
   not matter whether the court employed de novo or deferential review. Under
   either level of review, the bankruptcy court was correct to allow the fees. Id.
          Like the bankruptcy court, the district court also declined to decide
   whether 11 U.S.C. § 503(b) or § 363(b) applied, as it found the payment law-
   ful under either provision. Id. at 712. If the administrative expense standard
   applied, the payment was necessary to secure a benefit to the estate—
   namely, to procure a valuable bid in the asset sale and to force JMB to bid
   higher than it otherwise would have. Id. at 718. If the business judgment rule
   applied, then Bouchard prevailed for similar reasons. Bouchard reasonably
   compensated Hartree in exchange for Hartree’s serving as the stalking horse
   bidder. Id. at 721.
          The Committee appeals again.

                                           II.
          In a bankruptcy appeal, we review the findings and conclusions of the
   bankruptcy court, not the district court. See Official Comm. of Unsecured
   Creditors v. Moeller (In re Age Refining, Inc.), 801 F.3d 530, 538 (5th Cir. 2015).
   We generally review the bankruptcy court’s conclusions of law de novo and
   its factual findings for clear error. Id. But the parties contest what level of
   review applies to the bankruptcy court’s order permitting the break-up fee
   and expense reimbursement.
          Whether the payments meet the statutory standard—either § 503(b)

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   or § 363(b)—is a quintessential “mixed” question of law and fact.4 When
   reviewing a mixed question, we often choose the standard of review that best
   reflects which “judicial actor is better positioned” to make the decision.
   Miller v. Fenton, 474 U.S. 104, 114 (1985). That is, if the issue involves the
   interpretation of legal rules—a skill firmly within the bailiwick of an appellate
   court—we consider the issue de novo. See U.S. Bank Nat’l Ass’n ex rel.
   CWCapital Asset Mgmt. LLC v. Vill. at Lakeridge, LLC, 138 S. Ct. 960, 967
   (2018). But if a dispute would “immerse [the court] in case-specific factual
   issues—compelling [it] to marshal and weigh evidence, make credibility
   judgments, and otherwise address . . . multifarious, fleeting, special, narrow
   facts that utterly resist generalization,” we should defer to the court that did
   the factfinding. Id. (internal quotation marks and citation omitted).
           The question in this case is firmly in the latter category. Whether the
   break-up fee and expense reimbursement provided an “actual” benefit to
   Bouchard under § 503(b), or whether the payments were a reasonable exer-
   cise of business judgment under § 363(b), are the kind of fact-intensive
   questions best directed to the bankruptcy court.5 Indeed, the bankruptcy
   court ordered the payment to Hartree only after reviewing considerable rec-
   ord evidence and hearing five hours of witness testimony. Because the issues

           _____________________
           4
            See Pullman–Standard v. Swint, 456 U.S. 273, 289 n.19 (1982) (noting that mixed
   questions ask whether “the facts satisfy the statutory standard, or to put it another way,
   whether the rule of law as applied to the established facts is or is not violated”).
           5
            The § 503(b) analysis is comparable to the mixed question in Lakeridge, 138 S. Ct.
   at 967–68. There, the Court reviewed for clear error whether a transaction was conducted
   at “arm’s length.” Id. at 969. Under § 503(b), we ask a similarly fact-bound question:
   whether a payment provided an “actual” and “necessary” benefit to a debtor in bank-
   ruptcy. Likewise, in ASARCO, Inc. v. Elliott Mgmt. (In re ASARCO, L.L.C.), 650 F.3d 593,
   603 (5th Cir. 2011), we applied clear-error review when we evaluated the propriety of
   reimbursements under § 363(b)’s business judgment rule.

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   are “primarily . . . factual,” we review for clear error. Trendsetter HR L.L.C.
   v. Zurich Am. Ins. Co. (In re Trendsetter HR L.L.C.), 949 F.3d 905, 910 (5th
   Cir. 2020) (omission in original) (quoting Lakeridge, 138 S. Ct. at 967). We
   will affirm if the bankruptcy court’s determinations are “plausible in light of
   the record.” Id. (quotation omitted).

                                                III.
           Having settled the standard of review, we now decide whether the
   contested payments were lawful.

                                                A.
           In a Chapter 11 bankruptcy, fees related to the sale of assets are subject
   to court approval. 2 William L. Norton III, Norton Bank-
   ruptcy Law and Practice 3d § 44:28, Westlaw (database updated
   July 2023). That includes “the payment of bidding incentives to prospective
   purchasers,” such as the break-up fee and expense reimbursement at issue
   here. Id. But there is a split of authority on what substantive standard a judge
   should use to decide whether such payments are permissible.
           Some courts6—including the Third Circuit—use 11 U.S.C. § 503(b),
   under which estate funds can be used for “administrative expenses” if they
   are “the actual, necessary costs and expenses of preserving the estate.” Id.
   § 503(b)(1)(A). “[T]o qualify as an ‘actual and necessary cost’ . . . a claim
   against the estate must have arisen post-petition and as a result of actions
   taken by the [debtor-in-possession] that benefitted the estate.”7

           _____________________
           6
              See, e.g., Calpine Corp. v. O’Brien Env’t Energy, Inc. (In re O’Brien Env’t Energy,
   Inc.), 181 F.3d 527, 532 (3d Cir. 1999); In re Reliant Energy Channelview LP, 594 F.3d 200,
   206 (3d Cir. 2010).
           7
               Nabors Offshore Corp. v. Whistler Energy II, L.L.C. (In re Whistler Energy II),

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           Other courts have instead relied on 11 U.S.C. § 363(b)(1), which
   governs the sale of estate property outside the ordinary course of business.8
   Section 363(b) incorporates the “business judgment standard” from corpor-
   ate law. ASARCO, 650 F.3d at 601. A debtor-in-possession may sell its estate
   assets while satisfying its fiduciary duties if it gives “some articulated busi-
   ness justification for using, selling, or leasing the property.” Id. (quotation
   omitted). That standard is less exacting and gives the debtor more discretion
   to sell assets (and pay fees) based on merely “sound business reasons.” See
   Cadle Co. v. Mims (In re Moore), 608 F.3d 253, 263 (5th Cir. 2010).
           Unfortunately, ASARCO—our leading precedent on the issue—gives
   mixed signals about which provision applies to these facts. ASARCO also
   dealt with an asset sale in bankruptcy, but the debtor held a two-phase bidding
   process. After the first round, the debtor asked the court whether it could
   reimburse certain bidders for due diligence expenses they would incur in the
   next round of bidding. 650 F.3d at 597–98. The court held that § 363(b) was
   the governing provision because the debtor sought prospective authorization
   to reimburse bidders during an asset sale. Id. at 602. But it reasoned that
   § 503(b) would apply to entities that had already “incurred administrative
   expenses and wish to request payment from the estate.” Id. at 601.
           This case is somewhere between the two situations that ASARCO
   described. On the one hand, this case is also an asset sale, and the debtor

           _____________________
   931 F.3d 432, 441 (5th Cir. 2019) (quoting Total Minatome Corp. v. Jack/Wade Drilling, Inc.
   (In re Jack/Wade Drilling, Inc.), 258 F.3d 385, 387 (5th Cir. 2001)) (first alteration in
   original).
           8
            See, e.g., ASARCO, 650 F.3d at 602; see also Official Comm. of Subordinated
   Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650, 657 (S.D.N.Y.
   1992) (not citing § 363(b) but applying the business judgment rule to a break-up fee
   arrangement).

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   sought court approval to reimburse a bidder before the auction began. That
   is similar to the facts of ASARCO and suggests that we should apply § 363(b).
   On the other hand, the court did not evaluate the specific request for a break-
   up fee and reimbursement until the after the auction when Hartree—a third
   party—had already expended resources. Per ASARCO, § 503(b) should
   apply to a backward-looking request for reimbursement.
          Because of that uncertainty, both the bankruptcy court and the district
   court found that the fees were lawful under either § 503(b) or § 363(b). We
   elect to do the same. This case does not require us to specify which provision
   of the bankruptcy code governs on these unique facts. Under either standard,
   the stalking horse payment was legal.

                                           B.
          We start with the more stringent provision: § 503(b). As the “claim-
   ant seeking administrative expenses,” Hartree has the burden of proving that
   the break-up fee and expense reimbursement arose (1) “post-petition and as
   a result of actions taken by” Bouchard. Whistler Energy II, 931 F.3d at 441
   (quoting Jack/Wade Drilling, 258 F.3d at 387). Hartree must also prove that
   the fees were (2) “actual” and (3) “necessary costs and expenses of preserv-
   ing the estate.” Id. (quoting § 503(b)(1)(A)). Hartree can satisfy each of
   those requirements.

                                           1.
          As a threshold matter, there was a postpetition agreement between
   Hartree and Bouchard. That is not a demanding requirement—all that the
   statute requires is that the expenses were incurred “as a result of actions
   taken” by the debtor, and that those actions occurred after bankruptcy. Id.
   (quoting Jack/Wade Drilling, 258 F.3d at 387). Bouchard signed a purchase
   agreement with Hartree, stipulating that Hartree would receive a break-up
   fee and reimbursement even if it was not the winning bidder at auction. And

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   it is undisputed that the agreement was reached after Bouchard had filed for
   bankruptcy.
          The Committee insists that the Hartree asset purchase agreement was
   not enforceable until the bankruptcy court approved it, and therefore it was
   not a valid postpetition transaction. But the Committee reads the “post-
   petition agreement” requirement too strictly. The focus of the requirement
   is not so much on the agreement, but on its postpetition nature. The reason
   that a § 503(b) administrative expense must arise from a postpetition agree-
   ment is that claims for administrative expenses get priority over most other
   unsecured claims. See Whistler Energy II, 931 F.3d at 441–42 (citing 11 U.S.C.
   § 507(a)(2)). That priority encourages third parties to service the debtors’
   estate that would otherwise not do so out of fear that they might not get paid.
   But that incentive “is not required . . . when the relevant obligation pre-dates
   the bankruptcy.” Id. at 442.
          Therefore, an agreement for services in bankruptcy is enforceable
   even if the “post-petition business relationship [is] not . . . clearly defined.”
   Id. at 442. For example, in Whistler Energy II, we upheld the payment of fees
   under § 503(b) where the debtor requested specific services and a counter-
   party voluntary performed them, even though there was no formal written
   agreement. Id. at 442–43. Here we have much more than that. Bouchard
   not only asked Hartree to serve as a stalking horse bidder (a role it dutifully
   fulfilled), but the parties signed a purchase agreement to that effect.
          And although the associated fees were dependent on court approval,
   that does not affect the postpetition nature of the transaction. Indeed,
   § 503(b) implicitly contemplates that debtors will incur postpetition adminis-
   trative expenses before they seek court authorization.9 It is unsurprising,
          _____________________
          9
              “An entity may timely file a request for payment of an administrative expense,

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   then, that the Third Circuit assumed that a valid postpetition transaction
   existed where a contract for break-up fees was contingent on approval by the
   court. Calpine, 181 F.3d at 529, 533.
           That is the situation here. Hartree made a deal with a debtor in bank-
   ruptcy, carried out its half of the bargain, and now it wants its expenses paid.
   That is a postpetition transaction covered by § 503(b).

                                                2.
           Furthermore, the break-up fee and expense reimbursement provided
   numerous benefits to the estate. First, by securing Hartree’s participation as
   the stalking horse bidder, it helped Bouchard avoid a “naked” auction.
   When an auction begins with no known bidder, the debtor risks receiving no
   offers or being forced to sell its assets below market value. As Bouchard’s
   investment banker testified, that concern animated the decision to negotiate
   with Hartree. With just hours to go before the sale, there was a real risk of a
   naked auction. By getting Hartree to set a floor price, Bouchard secured
   value for the estate.
           The Committee responds that the risk of a naked auction was over-
   blown. After all, at the same auction, Bouchard sold a different set of vessels
   to satisfy a pre-petition debt to Wells Fargo and did not use a stalking horse
   bidder.     Those vessels—known as the “Wells Fargo collateral”—still
   fetched millions. Yet the Wells Fargo auction proves how dangerous a naked
   auction can be. Although the Wells Fargo collateral eventually sold, it went
   for approximately $30 million less than was needed to clear the associated
   debt. Bouchard wanted to avoid a similar scenario in the sale of the larger
   share of its vessels, so it spent a comparatively small amount of its money to
           _____________________
   . . . [and] [a]fter notice and a hearing, there shall be allowed administrative expenses.” 11
   U.S.C. § 503(a)–(b) (emphasis added).

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   guarantee a minimum auction price.
             The Committee says that the benefit of an initial bidder proves too
   much. The very definition of a stalking horse bid is one that sets the floor
   price at an action. If avoiding a naked auction is a per se “benefit” to the
   estate, then it will always be permissible to pay break-up fees to a stalking
   horse bidder. But we need not hold that avoiding a “naked” auction is bene-
   ficial in every case and at any price. For example, the O’Brien court held that
   offering break-up fees was unnecessary to avoid a naked auction where the
   bidders had other market incentives to come forward. See 181 F.3d at 537.
             If there were such evidence here, the analysis would be different. But
   Bouchard produced evidence that it reached out to over 150 potential bid-
   ders, and yet, on the eve of the auction, it had no assurance that anyone would
   bid on its assets.10 Because the risk of a poor auction was real, it benefited
   from Hartree’s generous stalking horse bid.
             Still, the Committee insists that if the Hartree bid had been successful,
   it would have been bad for the estate. Although it was a substantial cash
   infusion, it would not have been enough to pay all of Bouchard’s postpetition
   debts. And because of the nearly $5 million in bid protections, the estate
   would have been left with an outstanding administrative expense claim that
   it could not pay. On top of that, the unsecured creditors would receive no
   relief.
             Yet the Committee ignores the fact that, in the absence of the Hartree
   bid, Bouchard faced the prospect of no viable bidders for most of its vessels.
   Although the Hartree purchase agreement cost the estate $5 million, that
             _____________________
             10
              And the only alternative to an auction—the Centerline purchase offer—lacked
   the requisite financing. The board understandably felt that its best option was proceeding
   with the auction with Hartree as the stalking horse bidder.

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   cost is comparable to an insurance policy, under which avoiding a larger risk
   justifies small premiums. If Bouchard had received no bidders, it would have
   been far worse for the estate, resulting in paltry recovery for secured creditors
   and even less for unsecured creditors.
          Second, the bid protections forced JMB to pay more for Bouchard’s
   vessels than it otherwise would have. To win the auction, JMB had to bid
   $115.3 million, which added at least $500,000 in value to the estate, over and
   above Hartree’s offer. Bouchard also maintains that selling the assets at that
   amount was essential to paying off its postpetition debts and confirming its
   Chapter 11 reorganization plan.
          The Committee, however, contends that the bid benefited only JMB
   and certain senior creditors while providing no recovery for other creditors.
   But a benefit is still a benefit even if it helps only secured creditors. Although
   the Committee’s loyalty to its interest group is understandable, the fact that
   JMB’s bid helped mainly priority creditors is not a reason to reject the
   administrative expenses. Unsecured creditors are in the back of the line, and
   sometimes that comes with downsides.
          And again, we are not comparing JMB’s bid to a perfect bid that made
   both the debtors and creditors completely whole. We are comparing JMB’s
   bid to the alternatives: Hartree’s stalking horse bid, or no bid for the vessels.
   The Committee itself contends that the former option was flawed, and JMB’s
   bid was assuredly an improvement on that deal. It was $5.3 million more than
   Hartree’s offer, which, once the $3.3 million break-up fee and $1 million
   capped expense reimbursement were subtracted, left $1 million for the estate
   above what Hartree would have provided.
          Indeed, if no bidder had come forward for Bouchard’s vessels, it may

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   have doomed Bouchard’s chances of a Chapter 11 reorganization plan. 11
   Bouchard did not have the money to repay its nearly $100 million in post-
   petition debts, so a Chapter 11 failure might have kicked the case into Chap-
   ter 7 and forced a complete liquidation. See Koerner v. Colonial Bank (In re
   Koerner), 800 F.2d 1358, 1360, 1368 (5th Cir. 1986); see also 11 U.S.C.
   § 1112(b)(4)(M).

                                               3.
           The last requirement of § 503(b) is that the administrative expenses
   were “necessary” to secure the claimed benefit. Hartree demonstrated that
   as well.
           For starters, Hartree would not have served as the stalking horse bid-
   der were it not for the break-up fee and expense reimbursement. The Com-
   mittee speculates that Hartree could not have been induced by the break-up
   fee because it was contingent on court approval. The evidence in the record,
   however, suggests that Hartree fully expected it would get court approval.
   Indeed, the bankruptcy court had already pre-authorized a stalking horse
   bidder within the limitations in the Hartree purchase agreement.
           The Committee points out that the Third Circuit held in O’Brien that
   break-up fees were unnecessary because the parties submitted bids with the
   full knowledge that the court might not approve a break-up fee. O’Brien,
   181 F.3d at 537. But there, the court had already declined a break-up fee
   before the auction. Id. at 529. The bidders only hoped that the court would
   change its mind after the auction.

           _____________________
           11
             The Committee avers that the Hartree stalking horse bid also did not provide
   enough money to avoid Chapter 7 conversion. But again, it would have been substantially
   worse for both the estate and creditors if Bouchard received less money at the auction than
   Hartree offered.

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          Here, Hartree had not been previously denied fees. To the contrary,
   the court’s bid procedures order explicitly contemplated break-up fees and
   reimbursement at the rate Hartree had requested. Furthermore, in O’Brien,
   there were strong incentives for the bidders to bid on the assets in the absence
   of a break-up fee. Id. at 537; see also Reliant Energy, 594 F.3d at 206–07
   (conducting a similar analysis on similar facts). The Committee has not iden-
   tified comparable incentives here. That makes it considerably more likely
   that the break-up fees incentivized Hartree.
          The Committee’s more persuasive suggestion is that, even if the
   break-up fee induced Hartree to bid in the first place, it did not induce JMB
   to top that bid. The Committee claims that “JMB had every incentive to
   submit a bid in the precise amount it submitted regardless of whether the
   Hartree Bid was submitted.” That is because certain maritime lienholders
   and administrative expense claimants would get paid out before JMB. So in
   order for Bouchard to cover those payments plus its $95 million obligation to
   JMB, it needed a minimum of $115.3 million at the auction, regardless of what
   Hartree initially bid.
          It does appear from the record that Bouchard needed at least $115.3
   million to pay senior lienholders, professional fees, and its postpetition finan-
   cers. The document prepared for Bouchard’s board by Kirkland & Ellis
   suggests as much, and Morgner (Bouchard’s investment banker) testified to
   it in bankruptcy court. If Bouchard got less than $115.3 million, the senior
   lienholders and professionals would be paid first and JMB would not recover
   the full amount that Bouchard owed. On the other hand, $115.3 million was
   the exact amount needed to outbid Hartree and not one penny more. That
   suggests that JMB bid that number because it was trying to beat Hartree.
          Both of those interpretations of the evidence are at least plausible. On
   clear-error review, there is no reason to reverse the bankruptcy court’s fac-

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                                         No. 22-20321

   tual finding. If anything, Bouchard and Hartree’s theory is slightly more per-
   suasive. Bouchard had no indication that JMB was going to bid on its vessels
   until Hartree was designated as the stalking horse bidder. And the agreement
   with Hartree added a $5 million administrative expense claim to the balance
   sheet that reduced JMB’s recovery. Companies tend not to spend an extra
   $5 million if they do not have to.12 Thus, Morgner testified that JMB likely
   would not have bid as highly if it were not for the Hartree stalking horse bid.
   The bankruptcy court reasonably credited that testimony.
           Considering the totality of the evidence, it is “plausible” both that
   Hartree’s stalking horse bid created a benefit for the estate and that Hartree
   would not have served as the stalking horse bidder without the prospect of
   fees. It is also plausible that JMB only bid $115.3 million because it was forced
   to beat out Hartree. Therefore, the break-up fee and the expense reimburse-
   ment were “necessary” administrative expenses under § 503(b).

                                              C.
           Even if we were to apply § 363(b) instead of § 503(b), the result would
   be the same. Section 363(b) incorporates the business judgment rule, familiar
   to corporate law. ASARCO, 650 F.3d at 601. If the break-up fee and expense
   reimbursement were “necessary” to provide a benefit to the estate, then they
   easily satisfy a deferential reasonableness standard.
           The Committee’s primary rejoinder is that, even if the agreement was
   substantively reasonable, Bouchard failed appropriately to consider the con-

           _____________________
           12
              Indeed, although JMB might not have recovered the full amount of its loan if it
   bid less than $115.3, any shortfall would have given JMB a deficiency claim against the
   estate for the difference. In that event, JMB would own the collateral outright and might
   still recoup all the money after Bouchard liquidated its other assets and paid off the
   deficiency claim.

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   sequences of the Hartree purchase agreement. Given Bouchard’s perilous
   financial straits, committing almost $5 million to Hartree was no small deci-
   sion. And Hartree demanded that Bouchard reject certain charter agree-
   ments that would have cost Bouchard more money that it did not have. Based
   on the meeting minutes, it is unclear whether the board ever discussed those
   shortcomings specifically.
           The individuals who were involved in the transaction, however, did
   not allege that the Hartree agreement was flawless. Instead, they testified to
   the bankruptcy court that they faced multiple flawed options. Bouchard
   could proceed with a “naked” auction and risk that a bidder would severely
   undervalue its vessels. It could accept the Centerline deal, even though the
   board had reason to doubt Centerline could finance the transaction and Cen-
   terline insisted that Bouchard cancel the auction and accept the deal on the
   spot. Or it could accept Hartree’s stalking horse bid, paying more fees and
   reimbursement costs but guaranteeing a floor price at the auction. Given that
   trilemma, the stalking horse arrangement was the lesser of multiple evils.
           Nor can the Committee seriously contend that Bouchard’s leaders
   violated their fiduciary duty to inform themselves adequately and make a con-
   sidered decision.13 The process of finalizing the Hartree deal began on
   July 16, when Bouchard’s board first met to discuss the prospect of Hartree
   as a stalking horse bidder. According to the minutes, the board thoroughly
   discussed “the advantages and disadvantages of designating Hartree as the
   stalking horse bidder” at that time. Bouchard met again on July 17 to discuss
   the plan. Meanwhile, Bouchard and Hartree exchanged nine drafts of the
           _____________________
           13
             See Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984) (“[D]irectors have a duty to
   inform themselves, prior to making a business decision, of all material information
   reasonably available to them.”), overruled on other grounds, Brehm v. Eisner, 746 A.2d 244,
   254 (Del. 2000).

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   Hartree purchase agreement. Then, on July 18, the board considered a
   24-page presentation on the bid. Only after two meetings on July 18 did
   Bouchard approve Hartree as the stalking horse bidder.
           True, as the Committee points out, the July 18 meetings lasted just
   forty minutes total. But because of the impending auction deadline, every-
   thing had to move quickly. To quote the district court, there is “no basis to
   conclude that the board did not thoroughly review the presentation and make
   a well-reasoned, careful decision to designate Hartree as the stalking-horse
   bidder.” Bouchard Transp., 639 B.R. at 721.14 In signing the Hartree purchase
   agreement, Bouchard acted well within the bounds of reasonable business
   judgment. Section 363(b) does not require more.
                                              IV.
           Bouchard’s payment to the stalking horse bidder is justified under
   either the stringent administrative-expense standard or the more relaxed
   business judgment rule. We AFFIRM the district court’s judgment affirm-
   ing the bankruptcy court’s order that Bouchard pay Hartree a break-up fee
   and a capped expense reimbursement.

           _____________________
           14
              There are also no allegations of self-dealing and the like, which might render a
   business judgment a breach of fiduciary duty.

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