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Magnesium Corporation of America v. Buchwald

United States District Court, S.D. New York

July 18, 2017

Magnesium Corporation of America Debtor,
v.
Lee E. Buchwald, Appellee. The Renco Group, Inc. & Ira Leon Rennert, Appellants,

          MEMORANDUM & ORDER

          ALISON J. NATHAN United States District Judge

         In this bankruptcy case, Appellee Lee E. Buchwald, as Trustee for the Renco bankruptcy estate, has moved to dismiss the appeal filed by the Renco Group, Inc. & Ira Leon Rennert (collectively, the "Renco Appellants") challenging the Bankruptcy Court's decision to approve the Trustee's sale of a litigation interest. Because the Renco Appellants failed to obtain a stay of the sale, the Court grants the motion except as to the question of whether there was a good faith purchaser. And because the Bankruptcy Court did not err in concluding that there was a good faith purchaser, the Court dismisses the appeal.

         I. Background[1]

         This case has a long procedural history, which the Court only briefly outlines here.

         On August 2, 2001, Debtors Magnesium Corporation of America ("MagCorp") and Renco Metals, Inc., wholly owned subsidiaries of The Renco Group, Inc., filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Bank. Ct. Dkt. No. 1; Mot. At 5 (DktNo. 16); Opp. at 4 (DktNo. 20); Buchwald v. Renco Grp., 539 B.R. 31, 35 (S.D.N.Y. 2015). In 2003, the Bankruptcy Court converted the case to Chapter 7 and appointed Appellee Buchwald as Trustee. Bank. Ct. Dkt Nos. 400, 419.

         In 2003, the Trustee initiated an adversary proceeding against the Renco Group and others. The Trustee alleged that, while the debtors were insolvent, they illegally and fraudulently arranged a $150 million note offering to finance certain dividends and stock redemptions. In re Magnesium Corp. of Am., No. 13-cv-7948 (AJN) (S.D.N.Y.) (Dkt No. 36). The case was withdrawn from the Bankruptcy Court and assigned to the undersigned on December 12, 2013.

         The case proceeded to trial in February 2015. The jury returned a multimillion dollar verdict in the Trustee's favor on claims of fraudulent conveyance, aiding and abetting fraudulent conveyance, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and unjust enrichment. See Buchwald, 539 B.R. at 35. After subsequent litigation over the prejudgment interest rate that should apply, a judgment was entered in the amount of $183, 698, 246.58 (plus post-judgment interest) against the Renco Group and $29, 500, 847.12 (plus post-judgment interest) against Ira Rennert. In re Magnesium Corp. of Am., No. 13-cv-7948 (AJN) (S.D.N.Y.) (Dkt No. 425). The Renco Group and Rennert filed appeals, and the Trustee filed a cross-appeal on the issue of prejudgment interest. In re Magnesium Corp. of Am., No. 13-cv-7948 (AJN) (S.D.N.Y.) (Dkt Nos. 424, 426).

         In March 2016, while the appeals were pending, the Trustee decided to sell a partial interest in this judgment. Mot. at 8. On July 18, 2016, after a hearing, the Bankruptcy Court approved the Trustee's notice of auction and proposed bidding procedures. Bank. Ct. Dkt No. 724. Accordingly, an auction was held on August 11, 2016. 8/23/16 Tr. at 27 (Dkt No. 16-2). The Renco Appellants sought to participate as bidders in the auction, but the Trustee denied them access on the ground that they had submitted an unqualified bid. Id. at 28, 30-31, 94. During the auction, two bids were submitted. Id. at 38. Bidder AEM won the auction, agreeing to pay $26.2 million for the right to collect the first $50 million of the approximately $213 million judgment, should the $213 judgment be affirmed on appeal. 8/23/16 Tr. at 7-8, 18; 9/7/16 Tr. at 8(Dkt No. 16-1).

         On August 23, 2016, the Bankruptcy Court held a sale hearing regarding whether to approve this sale. 8/23/16 Tr. at 7; see 11 U.S.C. § 363(b) (noting that the trustee "may use, sell, or lease . . . property of the estate" only "after notice and a hearing"). Present at the hearing were the three largest creditors of the bankruptcy estate: the Renco Appellants, the Environmental Protection Agency, and an ad hoc consortium of Renco Metals noteholders ("Noteholders"). 8/23/16 Tr. at 3-4. Together, the Noteholders hold approximately 75% of the unsecured notes issued by the debtors in this case. 8/23/16 Tr. at 3; 9/7/16 Tr. at 10. At the hearing, the Trustee justified the sale on the ground that it would introduce immediate liquidity into the bankruptcy estate and that it hedged against the risk that the $213 million judgment would be reversed on appeal because, even if the judgment were reversed, the $26.2 million sale price would still be available for distribution to the creditors. 8/23/16 Tr. at 18, 22, 28, 40-42. As the Trustee explained, while he obtained a "tremendous victory against the Renco Group and Ira Rennert" during the trial before the undersigned, "all litigation is fraught with peril and unpredictability, " so "he made a business decision to . . . monetize a portion of the net proceeds" potentially recoverable from the debtors. Dkt No. 16-3 at 2. The Renco Appellants and Noteholders objected to the sale, arguing, among other things, that was no need to introduce liquidity into the bankruptcy estate, that the sale removed approximately $25 million from the creditors if the judgment was affirmed on appeal, and that there was no evidence that AEM was a good faith purchaser. 8/23/16 Tr. at 9, 41-42, 56-59, 70, 73. After hearing oral argument, the Bankruptcy Court approved the sale and entered a sale order. 8/23/16 Tr. at 92. It also explicitly found that AEM was a good faith purchaser. 8/23/16 Tr. at 94-96. The Bankruptcy Court denied the Noteholders' request to stay the sale pending appeal. 8/23/16 Tr. at 103; 9/7/16 Tr. at 7. The Renco Appellants did not request a stay. See id.; see also Mot. at 2.

         The Renco Appellants and Noteholders appealed the Bankruptcy Court's approval of the sale to this Court. The Renco Appellants filed an appeal on August 30, 2016 in case number 16-cv-6822. The Noteholders filed an appeal the next day in case number 16-cv-6844. On September 1, 2017, the Noteholders filed an emergency motion to stay the sale order pending appeal. In re Magnesium Corp. of Am., No. 16-cv-6844 (S.D.N.Y. (DktNo. 4). The cases were originally assigned to the Honorable Denise L. Cote, who held oral argument on the emergency motion on September 7, 2016. 9/7/16 Tr. at 4. After hearing argument, Judge Cote denied the motion to stay the sale order. 9/7/16 Tr. at 46; Dkt No. 10. Accordingly, the sale of the Renco litigation interest to AEM closed on September 8, 2016. Dkt No. 17-2; Mot. at 9.

         On September 21, 2016, the case was reassigned from Judge Cote to the undersigned as related to the earlier case that resulted in the approximately $213 million verdict. The Trustee filed a motion to dismiss the appeal. Dkt No. 15. A few weeks later, the Noteholder Appellants voluntarily dismissed their appeal. In re Magnesium Corp. of Am., No. 16-cv-6844 (S.D.N.Y. (Dkt Nos. 19, 20). The Renco Appellants remained in the case and filed an opposition to the Trustee's motion to dismiss. Dkt No. 20.

         On March 8, 2017, the Second Circuit Court of Appeals affirmed this Court's judgment that followed the jury trial against the Renco Group in the related case. See Matter of Magnesium Corp. of Am. Nos. 15-2691-bk, 2017 WL 946729, at *4 (2d Cir. Mar. 8, 2017).

         Accordingly, the approximately $213 million verdict against the Renco ...


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