Court Opinion

ID: 2975829
Source: CourtListenerOpinion
Date Created: 2015-09-22 17:40:55.649436+00
Date Added: 2024-06-11T15:34:51.568056
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                                      Pursuant to Sixth Circuit Rule 206
                                              File Name: 07a0395p.06

                        UNITED STATES COURT OF APPEALS
                                         FOR THE SIXTH CIRCUIT
                                           _________________

                                                      X
                               Plaintiff-Appellant, -
 AL PERRY ENTERPRISES, INC.,
                                                       -
                                                       -
                                                       -
                                                          No. 06-6505
         v.
                                                       ,
                                                        >
 APPALACHIAN FUELS, LLC,                               -
                              Defendant-Appellee. -
                                                      N
                       Appeal from the United States District Court
                     for the Eastern District of Kentucky at Ashland.
                    No. 05-00149—David L. Bunning, District Judge.
                                             Argued: July 18, 2007
                                  Decided and Filed: September 27, 2007
             Before: MARTIN and McKEAGUE, Circuit Judges; GREER, District Judge.*
                                              _________________
                                                    COUNSEL
ARGUED: Stephen L. Fink, BARNES & THORNBURG, Fort Wayne, Indiana, for Appellant.
Donald M. Snemis, ICE MILLER LLP, Indianapolis, Indiana, for Appellee. ON BRIEF: Stephen
L. Fink, BARNES & THORNBURG, Fort Wayne, Indiana, for Appellant. Donald M. Snemis, ICE
MILLER LLP, Indianapolis, Indiana, for Appellee.
                                              _________________
                                                  OPINION
                                              _________________
        GREER, District Judge. This case arises from a bankruptcy court approved sale of the assets
and assumption of the executory contracts of Bowie Resources Limited (“Bowie”) pursuant to
11 U.S.C. §§ 363 and 365. The sale was made pursuant to an Asset Purchase Agreement (the
“purchase agreement”) between Bowie and Appalachian Fuels, LLC (“Appalachian Fuels”). The
plaintiff, Al Perry Enterprises, Inc. (“Perry”), originally filed this diversity breach of contract action
in the United States District Court for the Southern District of Indiana alleging breach of an
agreement by Bowie to pay certain commissions to Perry, an obligation which Perry alleged had
been assumed by Appalachian Fuels as a result of the purchase agreement. The case was transferred
to the United States District Court for the Eastern District of Kentucky and the district court granted
Appalachian Fuels’ motion for summary judgment.

         *
          The Honorable J. Ronnie Greer, United States District Judge for the Eastern District of Tennessee, sitting by
designation.

                                                          1
No. 06-6505                 Al Perry Enterprises v. Appalachian Fuels                                  Page 2

       Perry appeals the district court’s grant of summary judgment and argues that the district court
erred by finding that Appalachian Fuels did not assume the obligation to pay commissions to Perry
pursuant to the purchase agreement. For the reasons set forth below, we AFFIRM.
                                           I. BACKGROUND
       Perry, pursuant to contract, acted as a sales agent for Bowie in securing coal supply
contracts. As sales agent, Perry was paid a commission on sales of coal pursuant to these contracts.
One such contract was with the Tennessee Valley Authority (TVA). A dispute arose between Bowie
and Perry regarding Bowie’s obligation to pay commissions     to Perry in connection with the TVA
contract. As a result, Perry filed suit against Bowie1 in the United States District Court for the
Southern District of Indiana. The case was resolved by the entry of an agreed judgment (the “agreed
judgment”) which required Bowie to continue paying commissions to Perry in connection with its
sale of coal to TVA. The agreed judgment also required Bowie, should it enter bankruptcy
proceedings, to assume its contractual obligations to Perry under the agreed judgment.
        Bowie and several related entities later commenced voluntary Chapter 11 bankruptcy cases
in the Bankruptcy Court for the Eastern District of Kentucky at Ashland. Bowie operated as a
debtor in possession until October 2003, and paid commissions to Perry until July 2003. On
September 12, 2003, the bankruptcy court entered an order establishing auction procedures for the
sale of Bowie’s assets and the assumption and assignment of executory contracts and unexpired
leases.
        Bowie initially entered into an asset purchase agreement with JJM Energy, LLC (“JJM”)
for substantially all of Bowie’s assets and the assumption and assignment of executory contracts and
unexpired leases, including the TVA contract. In accordance with the bankruptcy court’s established
auction procedures, a notice of the proposed sale and the opportunity to bid was prepared providing
for the debtor to conduct an auction at the offices of its counsel. Bowie filed a statement of cure
amounts, and shortly thereafter a supplemental statement of cure amounts, indicating a cure amount
for the TVA contract of zero dollars. Perry filed an objection to the cure amount arguing that it
was entitled to past and future commissions under the agreed judgment. Perry further objected to
the proposed sale stating: “[Buyer] apparently is of the position that the TVA Contract may be
assumed and assigned without paying commissions due to Perry. Perry objects to this.” (Objection
of Perry at 6). The sale to JJM was not consummated and the objection of Perry was continued by
the bankruptcy court to be “re-noticed for hearing . . ., if necessary.” No further action was ever
taken on Perry’s objection.
        In October 2003, however, a sale of substantially all of the assets of Bowie to the defendant-
appellee, Appalachian Fuels, was proposed. Notice of the proposed sale and the purchase agreement
was provided to the creditors of Bowie, including Perry. The purchase agreement was in all material
respects identical to that previously proposed between Bowie and JJM. Included in the assets to
be purchased by Appalachian Fuels were certain executory contracts, including the TVA contract
for the purchase and sale of coal. All assets were to be delivered “free and clear of all Liens except

        1
         There were several Bowie related entities involved in the transaction and named as defendants. For the
purpose of our opinion, all Bowie related entities will be referred to as “Bowie.”
No. 06-6505                    Al Perry Enterprises v. Appalachian Fuels                                         Page 3

Permitted Liens,2 pursuant to section 363 and 365 of the Bankruptcy Code . . .” The purchase
agreement provides, in relevant part:
                                     2.3      Assumed Liabilities.3
                                         (a)    At the Closing the Buyer will assume
                  only the following Liabilities and obligations of the Seller which
                  relate to the Business, and which are not paid or discharged at or
                  before Closing (the “Assumed Liabilities”):
                                                 (i)    All Liabilities for and
                  obligations of the Seller relating to the Purchase Assets or the
                  Business arising after the Closing Date, including all Liabilities and
                  obligations arising in connection with the Executory Contracts . . . .
                                          (b)     The Buyer is assuming only the
                  Assumed Liabilities and is not assuming any other liability or
                  obligation of whatever nature, whether presently in existence or
                  arising hereafter. All such liabilities and obligations shall be retained
                  by and remain liabilities and obligations of the Seller.
Perry made no objection to the sale of Bowie’s assets, and the bankruptcy court entered a final order
authorizing the sale of assets, including the TVA contract, “free and clear of all liens, claims and
encumbrances,” with the exception of permitted liens. The order provides, in part:
                                  Upon the closing of the Sale, Buyer shall take title to
                  and possession of the Purchased Assets and Assumed Contracts
                  subject to the Permitted Liens. With the exception of the Permitted
                  Liens, the transfer of title to the Purchased Assets and Assumed
                  Contracts shall be free and clear of any and all liens, claims, interests
                  and encumbrances, including without limitation: . . . (b) any demands
                  or claims of creditors of, or claimants against, Bowie; . . .
The purchase agreement also provides that Appalachian Fuels will assume none of Bowie’s debts
not expressly set forth in the purchase agreement.
        When Perry received no further commission payments from Appalachian Fuels, Perry filed
the instant breach of contract action claiming that Appalachian had assumed the commission
obligations previously owed to Bowie in connection with the TVA contract as a result of the agreed
judgment between Bowie and Perry. Cross motions for summary judgment were filed by the parties
and the matter was referred to the Bankruptcy Court for the Eastern District of Kentucky, the same
bankruptcy court which had presided over Bowie’s bankruptcy proceedings. The bankruptcy court
issued proposed findings of fact and conclusions of law and a judgment to the district court,
recommending that Perry’s motion be denied and that Appalachian Fuel’s motion be granted. The

         2
            The purchase agreement defines “permitted liens” as “any Lien (a) which is assumed or consented to by the
Buyer herein (including without limitation, Liens included in the Assumed Liabilities), (b) created by the Buyer, (c) in
favor of lessors of any Purchased Asset, or (d) easements rights-of-way, restrictions or minor defects or irregularities
in title incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements,
licenses or restrictions on the use of the Real Property or minor imperfections in title thereto.”
         3
             Also included in the purchase agreement was a section entitled “2.7 Excluded Liabilities”. The obligation of
Bowie to pay commissions to Perry is not specifically listed in that section. Section 2.7 does, however, generally exclude
all liabilities “except for those specifically assumed pursuant to section 2.3 . . .”
No. 06-6505               Al Perry Enterprises v. Appalachian Fuels                            Page 4

district court entered a memorandum opinion and order adopting the bankruptcy court’s
recommendation.
                                         II. DISCUSSION
       The court of appeals reviews de novo an order granting summary judgment. Johnson v.
Karnes, 398 F.3d 868, 873 (6th Cir. 2005). Summary judgment is proper “if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving party is entitled to
a judgment as a matter of law.” Fed. R. Civ. P. 56(c). The court must view the evidence in the light
most favorable to the non-moving party and draw all reasonable inferences in its favor. Id.
       Perry asserts that this is a simple case of contract interpretation and that the asset purchase
agreement must necessarily be interpreted to find that Appalachian Fuels voluntarily assumed
Bowie’s liability to pay sales commissions under the agreed judgment and Appalachian Fuels is,
therefore, indebted to Perry for all commissions for sales of coal under the TVA contract. Perry
argues that the commissions owed to Perry “relat[e] to” and arise “in connection with” the TVA
contract, relying on § 2.3(a)(i) of the purchase agreement approved by the bankruptcy court.
        Among the “Executory Contracts,” listed in schedule 2.1(f) of the purchase agreement is the
contract for the purchase and sale of coal between Bowie and the TVA. Perry submits that because
Bowie’s obligations to pay commissions to it pursuant to the agreed judgment was dependent upon
the TVA contract, the assumption of the TVA contract by Appalachian Fuels necessarily means that
Appalachian Fuels assumed the obligation to pay commissions to Perry. This circuit has not
previously considered the effect of a bankruptcy court’s approval of the sale of a bankrupt party’s
assets “free and clear of all liens, claims and encumbrances.” We now hold that the effect of the
bankruptcy court’s order was to extinguish Perry’s claim unless it was expressly assumed by
Appalachian Fuels as part of the purchase agreement.
        The bankruptcy court, in its conclusions of law, cited the case of Car-Tec, Inc. v. Venture
Industries, Inc. (In re AutoStyle Plastics, Inc.), 227 B.R. 797 (Bankr. W.D. Mich. 1998), as a case
with similar facts and applied the bankruptcy court’s reasoning in that case to the present one. Car-
Tec, Inc. (“Car-Tec”) was the exclusive sales agent for AutoStyle Plastics, Inc. (“AutoStyle”) for
automobile components sold almost exclusively to General Motors (“GM”). Under their agreement,
AutoStyle would pay to Car-Tec commissions, even after the contract’s termination, related to the
sale of components for which Car-Tec had obtained purchase orders. When it began to have severe
financial difficulties, AutoStyle announced that it would be ceasing operations and negotiated the
lease of its equipment and the sale of substantially all of its operating assets to Venture Industries,
Inc. (“Venture”), another manufacturer of automotive components. Upon the execution of an
agreement between AutoStyle and Venture, which specifically provided that it was subject to
bankruptcy court approval, GM cancelled all of its purchase orders with AutoStyle and placed new
purchase orders with Venture for all the components previously supplied by AutoStyle. Car-Tec had
previously negotiated and put in place these purchase orders and argued it should continue to be paid
commissions.
        AutoStyle immediately filed for bankruptcy and sought court approval of its agreement with
Venture. Like the bankruptcy court in the present case, the bankruptcy court entered an order
approving the sale of the assets of AutoStyle “free and clear of all liens, encumbrances, claims,
security interests and obligations, except such restrictions and obligations as Venture has expressly
agreed to under the terms of the [lease] agreement.” Id. at 799. Like Perry, Car-Tec argued that
Venture had assumed the contract between Car-Tec and AutoStyle and that it should continue to
receive commissions for the sale of those products for which it had obtained purchase agreements
with GM. The court recognized that the work performed by Car-Tec for AutoStyle was complete
No. 06-6505                     Al Perry Enterprises v. Appalachian Fuels                                             Page 5

and that Car-Tec’s “right to payment [was] an interest in the property sold by AutoStyle to Venture.”
Id. at 800. Also like Perry, Car-Tec did not file a proof of claim for prospective commissions and
did not object to the asset sale. The bankruptcy court held that because Car-Tec’s claim was “based
on an agreement with AutoStyle, it [was] a pre-petition obligation that should have been brought
forward during the bankruptcy . . .” Id.
        The bankruptcy court found that Car-Tec could have filed a claim even for the sales that had
not yet been consummated at the time of the bankruptcy since 11 U.S.C. § 101(5)(A)’s definition
of “claim” includes a “right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured . . .” Id. at 800. 11 U.S.C. § 101(5)(A). The
Car-Tec court held that when Car-Tec discovered that AutoStyle, Venture and GM were negotiating
a deal to transfer the programs in which it had been involved, it should have taken steps to
safeguard its position by participating in the negotiations, objecting to the sale, appealing the court’s
order or even filing suit against GM. Instead, like Perry, Car-Tec filed suit against the purchaser
of Venture’s assets.
         In the instant case, Perry had notice that its right to receive commissions was about to be
extinguished by virtue of the asset purchase by Appalachian Fuels and had knowledge that the sale
would be free and clear of all liens and claims except for those expressly assumed by the purchaser
of Bowie’s assets. Nevertheless, Perry chose not to file an objection to the sale of the assets and,
but for the sale of assets, Perry would have no claim against Appalachian Fuels. As stated by the
district court, to the extent that Perry assumed its interest in the commissions4 was protected by the
asset purchase agreement language, “[i]t made this assumption at its peril.”
        While not controlling, we find the bankruptcy court’s holding in Car-Tec to be persuasive
and we adopt its holding. The bankruptcy court has clear power to approve the sale of debtors’
assets free and clear of any interest or claims that could be brought against the bankrupt estate
during bankruptcy pursuant to 11 U.S.C. § 363(f). Perry’s claim for commissions for work it had
completed prior to the bankruptcy constitutes a pre-petition obligation which satisfies the definition
of “claim” in 11 U.S.C. § 101(5)(A) as “a right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured.” Perry’s failure to make its claim in the bankruptcy court,
therefore, bars its claim unless Appalachian Fuels expressly assumed the obligation of Bowie to pay
commissions to Perry.
        Perry explicitly acknowledges that the bankruptcy court sale of Bowie’s assets “free and
clear” of claims bars Perry’s claim against Appalachian Fuels for commissions, (Brief of Appellant
at 16), and therefore argues, not surprisingly, that Appalachian Fuels “explicitly assumed, by clear
and unambiguous language” Bowie’s obligation to pay commissions on coal sales made under the
TVA contract. Perry specifically argues that Appalachian Fuels assumed all liabilities “relating to”
or “arising in connection with” the TVA contract and that Perry’s claims for commissions on coal
sold pursuant to the TVA contract is a liability “relating to” and “arising in connection with” the
TVA contract. We disagree.

         4
            Perry’s contention that it believed it was protected by the language of the asset purchase agreement is
somewhat incredible given that the earlier asset purchase agreement with JJM contained identical language, and, with
respect to that agreement, Perry acknowledged that the buyer was “of the position that the TVA contract may be assumed
and assigned without paying commissions” to Perry. Simply put, Perry’s filing of an objection to the proposed sale of
assets to JJM in an effort to protect its right to receive further commissions is inconsistent with its argument that identical
language in the Appalachian Fuels purchase agreement expressly provided for an assumption by Appalachian Fuels of
the obligation to pay commissions, obviating the need for Perry to file its claim in the bankruptcy court.
No. 06-6505               Al Perry Enterprises v. Appalachian Fuels                             Page 6

        Bowie’s obligation to pay commissions on coal sales is not explicitly mentioned anywhere
in the purchase agreement or the bankruptcy court order approving the sale of assets. The obligation
to pay commissions to Perry is “related to” and “arising in connection with” the separate contract
between Bowie and Perry and not from any obligation created by the TVA contract itself. A copy
of the TVA contract is not part of the record in this case and we are not privy to its exact terms. The
parties agree, however, that the TVA contract provided Bowie with the right to be TVA’s exclusive
coal supplier. Presumably, the TVA contract likely also contained the terms and conditions under
which coal would be supplied, the type and quality of coal to be supplied, the delivery schedule for
the coal, the price to be paid for the coal, the terms of the agreement and the like. These obligations,
arising from the express terms of the TVA contract itself, are obligations which “relat[e] to” and
“arise in connection with” the TVA contract. Appalachian Fuels clearly assumed Bowie’s
obligations under the terms of the TVA contract; however, no language, and certainly no “clear and
unambiguous language”, in the purchase agreement constitutes an assumption of the obligation of
Bowie “relating to” and “arising in connection with” a totally separate contract on a totally different
subject matter.
         Adoption of the interpretation of the purchase agreement argued by Perry would result in the
assumption of a myriad of obligations by the buyer of an executory contract even though those
obligations were not created by the executory contract and were not expressly referred to in an asset
purchase agreement or an order of the bankruptcy court. As Perry concedes, its interpretation of the
language of the purchase agreement would require Appalachian Fuels to assume various “ancillary
liabilities”, such as federal and state permits, rail contracts and third party vendor agreements, which
are only tangentially related to the previous owner’s operation under the contract. Such a reading
of the purchase agreement would lead to potentially absurd results and would have a detrimental
effect on the ability of a bankruptcy court to manage bankruptcy estates so as to maximize their
value. We, therefore, decline to find an assumption of such obligations by the purchaser of a
bankrupt estate’s assets absent an express assumption of the obligations. We find no express
assumption here.
                                        III. CONCLUSION
       For the foregoing reasons, we AFFIRM the decision of the district court.