[1]     

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term 1996

, [5]     

Argued: January 6, 1997

, [6]      IN RE: COLONY HILL ASSOCIATES, NEW YORK LIMITED PARTNERSHIP, AND BLYDENBURGH PROPERTIES, INC., " />

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In Re Colony Hill Associates, 111 F.3D 269 (2d Cir. 04/09/1997)

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term 1996

No. 1294

Docket No. 96-5117

111 F.3d 269, 1997.C02.0000128 <http://www.versuslaw.com>

Argued: January 6, 1997

IN RE: COLONY HILL ASSOCIATES, NEW YORK LIMITED PARTNERSHIP, AND BLYDENBURGH PROPERTIES, INC.,

Before: NEWMAN, Chief Judge, FEINBERG and McLAUGHLIN, Circuit Judges.

[8]    

Decided: April 9, 1997

[9]    

Debtors.

KABRO ASSOCIATES OF WEST ISLIP, LLC,

Plaintiff-Appellant, v.

COLONY HILL ASSOCIATES, a New York Limited Partnership, and BLYDENBURGH PROPERTIES, INC.,

Debtors-Appellees,

THE GREATER NEW YORK SAVINGS BANK and REPUBLIC NATIONAL BANK,

Creditor-Appellees,

and

THE HOLIDAY ORGANIZATION, INC.,

Appellee.

Appeal from order of the United States District Court for the Eastern District of New York, Seybert, J., denying a motion by appellant Kabro Associates of West Islip, LLC for a stay of a bankruptcy sale and dismissing Kabro's appeal. The Second Circuit, Feinberg, J., held that (1) Kabro had standing to challenge whether appellee The Holiday Organization was a good faith purchaser under 11 U.S.C. Section(s) 363(m), and (2) the bankruptcy judge did not commit error in holding that Holiday purchased the property in good faith under that section. Affirmed.

FEINBERG, Circuit Judge:

In an order dated July 29, 1996, the United States Bankruptcy Court for the Eastern District of New York, Robert J. Hall, Bankruptcy Judge, confirmed a sale to The Holiday Organization, Inc. (Holiday) of certain property of debtor Colony Hill Associates (Colony). Appellant Kabro Associates of West Islip, LLC (Kabro), a New York corporation engaged in real estate development in the tri-state area, appealed from this order to the United States District Court for the Eastern District of New York, Joanna Seybert, J. In a judgment entered September 23, 1996, Judge Seybert (1) denied Kabro's motion to stay the sale to Holiday pending appeal from the bankruptcy court's confirmation order, and (2) dismissed such appeal. Kabro now appeals from that order. For reasons set forth below, we affirm.

I. Facts and Prior Proceedings

Colony, a New York limited partnership, operated as a Chapter 11 debtor-in-possession under the Bankruptcy Code from February 1991 through July 25, 1996, when its Plan of Reorganization (the Plan) was confirmed. During that period, Colony's primary assets included, among other things, the Marriot WindWatch Golf Course and some residential property (collectively the Property), both located near Colony's Marriot WindWatch Hotel, in Hauppauge, New York.

In June 1996, after five years of protracted proceedings, the bankruptcy court entered an order (the Notice) approving notice and bidding procedures with respect to sale of the Property. The Notice indicated that Colony had executed a contract to sell the Property to Gale & Wentworth, Inc. and Praedium Recovery Fund, L.P. (collectively G&W) for $7.5 million, "subject to higher and better offers" to be presented at a sale hearing on July 25. All bidders were required to submit initial bids to Colony in writing by 5:00 P.M. on or before July 15. An initial bid would be deemed "qualified" only if (1) it was irrevocable, not subject to any conditions and accompanied by a certified check for at least 15%, and (2) the bidder offered at least $8.15 million, demonstrated financial capability to complete the transaction and had a favorable reputation in the industry for undertaking similar projects. The bankruptcy judge required Colony to (1) mail the Notice to "the holders of claims and interests and all parties who have requested notices in this case or who may otherwise be entitled to notice pursuant to Federal Rule of Bankruptcy Procedure 2002" on or before June 28, and (2) publish the Notice at least once in the New York Times on or before July 10. Under the Plan, only secured creditors -- the Greater New York Savings Bank (Greater NY) and Republic National Bank (Republic) -- would benefit from an increase in the price at which the Property was sold.

As of the July 15 initial bid deadline, Colony had received only one qualified bid -- from Holiday for $8.1 million. *fn1 However, on July 24, appellant Kabro filed an "emergency request" in the bankruptcy court for permission to submit a bid of $10 million at the sale hearing the next day, even though it had admittedly not submitted a timely initial bid. As justification for its noncompliance, Kabro claimed that notice of the sale had been insufficient, explaining that it had learned of the sale -- but not of the initial bid requirement -- only from a Newsday article dated June 14, 1996. Thereafter, instead of making a written inquiry regarding the sale, Kabro allegedly left phone messages for Colony expressing its desire to submit a bid. However, one of Colony's general partners and its counsel stated on the record in the bankruptcy court that they received no such messages. Kabro also asserted that it discussed with Republic and G&W its interest in purchasing the Property. Although these discussions allegedly took place before the July 15 deadline for initial bids, Kabro nevertheless maintains that it was not informed of this deadline until a meeting with G&W on July 17.At the sale hearing on July 25, the bankruptcy court heard argument regarding whether it should allow Kabro to bid on the Property. Holiday opposed Kabro's motion, arguing that Kabro was not qualified to bid because it had not submitted an initial bid. The two secured creditors and G&W, on the other hand, initially stated either that they were amenable, upon certain conditions, to Kabro's participation in the auction, or that they favored a brief adjournment to further evaluate Kabro's bid. However, after Holiday increased its bid to $9.6 million and agreed to close on the purchase notwithstanding an appeal by Kabro, Republic opposed Kabro's participation in the bidding.

The bankruptcy court refused to adjourn the hearing and denied Kabro's motion to submit a bid, finding that notice of the sale had been adequate and that Kabro should not be excused for failing to submit an initial bid by July 15. The court designated Holiday the successful bidder, stating in an order dated July 25, 1996, that Holiday had made the "highest and best offer." The bankruptcy court also denied Kabro's motion for a stay of the sale pending appeal.

On appeal to the district court, Kabro argued that notice of the sale was inadequate and that the bankruptcy court (1) erred in refusing to allow Kabro to bid, and (2) abused its discretion by refusing to adjourn the hearing briefly to enable Colony and the creditors to properly evaluate Kabro's bid. Kabro also moved in the district court to stay the sale of the Property during the appeal. At a hearing in August 1996, Judge Seybert denied Kabro's motion for a stay and dismissed Kabro's appeal. Her oral rulings were incorporated into a judgment entered September 23.

On September 25, Kabro filed a notice of appeal and moved in this court for a stay of the sale pending appeal. That same day, the Clerk's Office granted Kabro an interim stay pending disposition of its motion. However, on October 8, 1996, during oral argument of Kabro's motion, Holiday informed a panel of this court that less than an hour before issuance of the interim stay, Holiday had closed on the sale of the Property. In an order dated October 8, that panel denied Kabro's motion for a stay. Thereafter, on Kabro's motion, we expedited the appeal.

II. Scope of Review and Standing A.

Kabro asks us to set aside approval of the sale to Holiday, arguing that (1) by refusing to allow Kabro to bid, when faced with a bid by Holiday that was "grossly disproportionate" to the value of the Property, the bankruptcy court breached its duty to obtain the highest and best offer, (2) the bankruptcy court erred by refusing to adjourn the sale hearing to enable Colony and the secured creditors to fully examine Kabro's bid, (3) notice of the sale was inadequate, (4) the sale resulted from collusive bidding between Holiday and the creditors, and (5) Holiday was not a good faith purchaser. Holiday counters that Kabro's appeal is moot under 11 U.S.C. Section(s) 363(m) because Kabro failed to obtain a stay of the sale.

Section 363(m) provides, in relevant part, that:

The reversal or modification on appeal of an authorization . . . of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.

Id. (emphasis added). We recently explained that this language "preclud[es] this Court from reviewing . . . issues, other than the good faith of the purchaser, if the sale has closed . . ." before the appeal is heard, even when an "appellant's challenge might raise [other] meritorious arguments." Licensing by Paolo, Inc. v. Sinatra (In re Paolo Gucci)


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