United States District Court, S.D. New York
MEMORANDUM & ORDER
J. NATHAN United States District Judge
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.
case has a long procedural history, which the Court only
briefly outlines here.
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.
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case was withdrawn from the Bankruptcy Court and assigned to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.
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).
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.
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.
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.
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.
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).
the approximately $213 million verdict against the Renco