PPUC Pennsylvania Public Utility Commission v. Gangi ( 2017 )

United States Court of Appeals
For the First Circuit
No. 16-1048
PPUC PENNSYLVANIA PUBLIC UTILITY COMMISSION; QUALITY SPEAKS,
LLC; AMERICAN REGISTRY FOR INTERNET NUMBERS, LTD.; GLOBAL NAPS,
INC.,
Plaintiffs,
CARL F. JENKINS,
Receiver, Appellee,
v.
FRANK T. GANGI,
Defendant, Appellant,
VERIZON NEW ENGLAND, INC., d/b/a Verizon Massachusetts;
MASSACHUSETTS DEPARTMENT OF TELECOMMUNICATIONS & ENERGY; PAUL B.
VASINGTON, in his capacity as Commissioner; JAMES CONNELLY, in
his capacity as Commissioner; W. ROBERT KEATING, in his capacity
as Commissioner; DEIRDRE K. MANNING, in her capacity as
Commissioner; EUGENE J. SULLIVAN, JR., in his capacity as
Commissioner; FERROUS MINER HOLDINGS, LTD.; GLOBAL NAPS
NETWORKS, INC.; GLOBAL NAPS NEW HAMPSHIRE, INC.; GLOBAL NAPS
REALTY, INC.; 1120 HANCOCK STREET, INC.; CHESAPEAKE INVESTMENT
SERVICES, INC.; REYNWOOD COMMUNICATIONS, INC.
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
Before
Torruella, Lynch, Kayatta,
Circuit Judges.
Donald H.C. Libbey, with whom Donald H.C. Libbey PC, Steven
J. Marullo, and Law Office of Steven J. Marullo were on brief for
appellee.
Eric Charles Osterberg, with whom Osterberg LLC, Andrew Good,
and Good Schneider Cormier & Fried were on brief for appellant.
October 17, 2017
LYNCH, Circuit Judge. Frank Gangi ("Gangi") appeals
from the district court's December 30, 2015 order approving a sale
of his assets and the assets of entities owned by him, recommended
by the receiver, Carl Jenkins ("Jenkins"), whom the court appointed
to sell those assets for the benefit of Gangi's creditors. Gangi,
on appeal, primarily argues that the assets were sold to a
fiduciary of the receivership estate, and the sale was prohibited
as a result. In the alternative, Gangi argues that the sale was
improper and unfair.
Jenkins counters that this appeal should not be heard on
the merits because it is equitably moot, and that, in any event,
the assets were not sold to a fiduciary and the sale was
appropriate. The district court rejected Gangi's contentions as
without merit; agreed with the receiver's contentions; and
concluded that the sale was fair, reasonable, and in the best
interest of the receivership. The court also described the
different categories of assets and found that the allocations as
to purchase price were fair and reasonable. We hold this appeal
is not equitably moot, and affirm the sale order because there was
no abuse of discretion.
I. Background
The litigation that has resulted in the receivership and
this apparently final order of sale is in its fifteenth year. It
began in 2002, when Global Naps, Inc. ("GNAPs") sued Verizon New
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England, Inc. ("Verizon"). See Global Naps, Inc. v. Verizon New
Eng., Inc., 603 F.3d 71, 79 (1st Cir. 2010). Verizon
counterclaimed, and won a $58 million judgment. Id. at 79-80. We
bypass here a description of the business relationships, which are
amply described in that opinion and other opinions. On remand,
the district court found that Gangi, the owner of GNAPs, was
jointly and severally liable for the $58 million judgment because
GNAPs was merely an alter ego for Gangi. Id. at 81.
In 2010, the district court placed the assets of many
entities owned by Gangi into receivership and appointed Jenkins
receiver. The district court empowered Jenkins to "take any
actions to identify, safeguard and preserve the assets of the
Judgment Debtors, to make all business decisions over the assets
and operations of Judgment Debtors, and to implement, satisfy and
enforce" the receivership order. Over the years, the receiver did
just that. The district court judge here had approved prior sales
of assets by the receiver and had extensive experience with this
case at the time this sale occurred.
Pursuant to these duties, on March 28, 2013, Jenkins
entered into an exclusive agreement with Hilco IP Services LLC
("Hilco") to market internet protocol addresses ("IP addresses")
owned by the estate.1 Hilco's marketing agreement did not extend
1 "An Internet Protocol address, or ‘IP address,’ is a
unique number corresponding to a particular computer accessing the
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to any other receivership assets. Between the engagement of Hilco
and the sale at issue, Jenkins accepted only two offers to purchase
blocks of IP addresses. Both sales were through Hilco. In one
of these sales, Jenkins sold 65,536 IP addresses to Mid-Continent
Communications for $376,832.
On March 10, 2015, the district court made it clear that
the receivership should be brought to an end through prompt
disposition of the remaining assets. In an order, it stated: "In
the spirit of bringing this case to an end, the receiver shall
file a status report within 30 days of this order giving a
preliminary accounting . . . . In that report, the receiver shall
also propose a timeline for filing his final accounting."
On December 3, 2015, Jenkins filed a motion requesting
an order approving a sale of the remaining receivership assets to
Northeast Technology Solutions, LLC ("Northeast") for $525,000.
The property included, "five (5) lots of vacant land located in
Las Vegas, NV"; "several domain names registered to GNAPs
entities"; "telephone number blocks"; and four blocks of IP
addresses, for a total of 114,688 addresses. For reasons having
to do with the resolution of other litigation, the price had to be
allocated to its different components. The receiver, by agreement
internet.” Doe v. Gonzales, 500 F. Supp. 2d 379, 387 n.8 (S.D.N.Y.
2007). The estate included the registration rights to thousands
of IP addresses.
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of the parties to the sale, allocated $50,000 of the purchase price
to the real property in Las Vegas, $275,000 to a block of 65,536
IP addresses, and $200,000 collectively to the remaining IP
addresses, domain names, and telephone numbers.
A footnote to Jenkins's motion for an order approving
the sale stated: "Northeast has a relationship with HilcoGlobal,
and any fee otherwise due to HilcoGlobal under any agreement with
the Receiver has been waived." The receiver also posted the motion
and information about the sale on his website.
Gangi filed an opposition to the sale order, making
arguments that the price was too low and the sale was prohibited
because "Hilco acted as the exclusive marketing agent with respect
to the very assets at issue." But he did not contest the accuracy
of the receiver's representations. Jenkins filed an extensive
point-by-point reply justifying the sale price as to each of the
categories of assets sold. He elaborated on the relationship
between Northeast and Hilco, stating, "Northeast's relationship
with Hilco is one of an associated entity that purchases various
assets for later marketing and sale by Hilco."
The district court entered an order approving the sale
on December 30, 2015. The court found that the sale of the
estate's remaining assets would "allow for the orderly wind-up of
the Receivership" and that "[t]he wind-up and completion of the
Receivership as soon as possible is in the best interest of all
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parties involved in the Receivership." The order found that the
sale was "in the best interest of the Receivership." It rejected
Gangi's objections, finding them to have no merit on the record
before it, and found that the terms and conditions of the asset
purchase agreement, including the sale price, were "fair and
reasonable under the circumstances." Gangi appealed.
II. Equitable Mootness
Despite Jenkins's arguments, we believe the appeal is
not equitably moot. Equitable mootness is "rooted in the 'court's
discretion in matters of remedy and judicial administration' not
to determine a case on its merits." In re Pub. Serv. Co. of N.H.,
963 F.2d 469, 471 (1st Cir. 1992) (quoting In re AOV Indus., Inc.,
792 F.2d 1140, 1147 (D.C. Cir. 1986)). We have said that equitable
mootness is appropriate where, in the absence of a stay, a sale
has progressed so far that relief would be impracticable. Id. at
473.
Jenkins argues the appeal is equitably moot because the
sale would be difficult to unwind. In In re Public Service Co.
of New Hampshire, the court looked to the following three factors
to determine whether an appeal was equitably moot: (1) whether the
appellant "pursue[d] with diligence all available remedies to
obtain a stay of execution of the objectionable order," id. at 473
(citation omitted); (2) whether the challenged plan proceeded "to
a point well beyond any practicable appellate annulment," id. at
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473-74; and (3) whether providing relief would harm innocent third
parties, id. at 475.
Gangi failed to appeal the denial of a stay, so the
diligence factor weighs against him in the analysis. The other
two factors weigh strongly against Jenkins. Jenkins shows that
the sale was complex, required regulatory approval, involved
disparate assets, and took months to close. These challenges do
not mean that the sale has moved beyond practicable annulment.
Jenkins does not state that Northeast no longer has the assets in
question. Jenkins also fails to show that relief would result in
any harm to innocent third parties.
Jenkins relies heavily on In re Stadium Management
Corp., 895 F.2d 845 (1st Cir. 1990), to argue that an appeal is
moot where a bulk sale of assets has been completed. That case
pertains only to statutory mootness under 11 U.S.C. § 363(m), which
does not apply here.
III. Approval of Sale
We review the order approving the sale for an abuse of
discretion. Fleet Nat'l Bank v. H&D Entm't, Inc., 96 F.3d 532,
540 (1st Cir. 1996) (citation omitted). Any subsidiary findings
of fact are reviewed for clear error, and holdings of law are
reviewed de novo. Id. There was no abuse of discretion, and
Gangi's arguments to the contrary are without merit.
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A. The Fiduciary Argument
It is true that "a full-fledged fiduciary, such as a
trustee or court-appointed receiver . . . may not normally sell
estate property to himself even if the terms are fair." Id. But
Gangi presented no evidence that Hilco, a mere sales agent, was a
fiduciary, or that Northeast, through Hilco, was a fiduciary, and
there is no reason to think they were. The district court
implicitly rejected Gangi's argument that Hilco was a fiduciary,
and it was correct to do so.
Hilco, contrary to Gangi's argument, is not a "full-
fledged fiduciary," and so is not subject to automatic
disqualification from purchasing receivership assets. "The
central reason for disqualifying the fiduciary as a buyer is that
there is no one else who can similarly protect the estate's
interest." Id. at 541. Here, it was Jenkins who had control over
the receivership assets and protected the estate's interests.
A blanket prohibition applies to fiduciaries because,
"the main assurance that the estate will be maximized is the zeal
of the seller to secure the best price, and that zeal is likely to
be tempered if the seller is selling to himself." Id. at 540.
Jenkins is the seller here, not Hilco. Hilco's relationship did
not create a risk that Jenkins's "zeal . . . to secure the best
price" would be "tempered." Id. To the extent Gangi asserts that
Jenkins is self-dealing by selling to his own agent, that argument
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goes nowhere on these facts. There is no evidence that Jenkins,
the receiver, had a stake in the transaction.
Gangi attempts to rely on Martin v. Feilen, 965 F.2d 660
(8th Cir. 1992), but that case is factually distinguishable. The
court there found that accountants were fiduciaries to a retirement
plan where "they recommended transactions, structured deals, and
provided investment advice to such an extent that they exercised
effective control over the [plan's] assets." Id. at 669 (emphasis
added). Hilco did not have effective control over the estate's
IP addresses; it was merely responsible for marketing them. Gangi
argues that Hilco negotiated deals with potential buyers and
"secured the offer for at least one of the prior sales." That is
what Hilco had been hired to do -- find buyers for the property.
In Fleet National Bank, we highlighted the dangers of
extending the "circle of automatic disqualification" too far. 96
F.3d at 541. Disqualification of too many buyers risks harming
the estate by disqualifying a would-be highest bidder. Id. This
danger is especially pronounced where, as here, "the universe of
serious buyers is likely to be small." Id. Finding buyers for
the IP addresses was difficult, and Jenkins had only accepted two
offers over almost two years.
B. Propriety of Selling to Northeast
"[J]udgments as to disqualification of a non-fiduciary
purchaser should be made on a case by case basis, taking account
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of all of the surrounding circumstances." Id. at 540. The
district court has "wide discretion in judging whether a receiver's
sale is fair in terms and result and serves the best interests of
the estate." Id. The district court took the circumstances of
the sale into account, including Hilco's relationship with
Northeast (disclosed by the receiver), the purchase price for each
of the assets, and the importance of quickly winding up the
receivership.
Gangi is incorrect that this sale was improper under
Fleet National Bank; that case undercuts his argument. A receiver
there sold a radio station to an accounting firm that had performed
accounting services related to those radio stations.2 Id. at 535-
36. The accounting firm had been "merely hired by the fiduciary
to perform a discrete and narrow function unrelated to the sale,"
and the sale was approved. Id. at 541. Under Fleet National
Bank's fact-specific analysis, the sale here was appropriate given
the difficulty finding other buyers, the need to quickly wind-up
the receivership, Gangi's obstinacy, and the lack of evidence that
Hilco abused its position as marketing agent.
2 Gangi claims the accounting firm in Fleet National Bank
was "uninvolved with the assets to be sold," but this is incorrect.
The accounting firm provided accounting services related to the
radio stations, but the services they provided were unrelated to
the sale of the radio stations. Id. at 535.
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As the district court held, "[t]he wind-up and
completion of the Receivership as soon as possible is in the best
interest of all parties involved in the receivership." The
receivership began in 2010 and both this Court and the district
court have made findings that Gangi has obstructed it throughout.
This Court found the receivership has been, "hampered by Gangi,
who, among other stratagems seemingly designed to conceal or
protect his assets, apparently had transferred ownership of his
$400,000 Porsche to a ten-year-old child." Global Naps, Inc. v.
Verizon New Eng., Inc., 706 F.3d 8, 11 (1st Cir. 2013). The
district court noted, in response to Verizon's request for
sanctions, that Gangi's behavior throughout this litigation had
been troubling and may warrant sanctions. The district court
chose not to pursue sanctions because, "[t]he interests of justice
strongly favor resolution, not additional litigation about
sanctions." This transaction liquidated the last of the
receivership assets, allowing Jenkins to provide a final
accounting.
C. Fairness of the Sale
Gangi argues we should unwind the sale, asserting
Jenkins did not produce evidence indicating the sale price was
fair, but Gangi provided no reliable evidence and did not contest
the receiver's factual representations. The only evidence Gangi
provided on whether the sale of real property was undervalued was
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an out-of-date assessment from 2000, when the parcels of land in
Las Vegas were more valuable than they were in 2015. Jenkins, in
fact, provided a more current assessment of the value of the
property, showing that Gangi's evidence was outdated. The real
estate market in that location had collapsed, as the receiver
noted. As to the IP addresses, Gangi gestured toward the higher
per-address price in the prior sale to Mid-Continent in August of
2015, but that does not indicate the sale price to Northeast was
unreasonably low under the circumstances. Gangi did not provide
any evidence related to the value of the phone numbers or domain
names.
The district court did have information relevant to the
sale. It knew the price the receiver had previously attained for
IP addresses, the length of the receivership, and the importance
of completing the receivership. In addition, the district court
was familiar with Jenkins. Jenkins had been receiver for five
years when this sale was approved, and the district court had
already approved several sales Jenkins had arranged. Gangi
appears to have been the only party who believed sale property was
undervalued. The creditors to whom the sale proceeds would
eventually go offered no objection that the amount realized was
too low.
In the absence of reliable evidence indicating that the
sale was unfair, the district court relied on the business judgment
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of the receiver who had worked with it for five years, over Gangi's
unsupported objections. This was not an abuse of discretion,
particularly given Gangi's truculence and dishonesty throughout
these proceedings.3
Gangi argues Jenkins was required to prove that the sale
was fair because the fiduciary bears the burden of proving the
fairness of a sale. In re Access Cardiosys., Inc., 404 B.R. 593,
691 (Bankr. D. Mass. 2009). The burden in that case only applies
if a fiduciary is selling to himself. This burden does not apply
here because Jenkins did not sell to himself and Hilco was not a
fiduciary, nor was Northeast.
D. Required Disclosure and Good Faith
The district court has an obligation to "carefully
monitor the sale process and assure that there is full disclosure
and good faith." Fleet Nat'l Bank v. H & D Entm't, Inc., 926 F.
Supp. 226, 245 (D. Mass. 1996).4 The court did so here. The
relationship between Hilco and Northeast was sufficiently
3 Gangi argues the sale order was improper because the
district court failed to make specific factual findings. He does
not cite any relevant case law or, in the absence of case law
support, develop an analysis indicating such findings were
required, so his argument is waived. United States v. Zannino,
895 F.2d 1, 17 (1st Cir. 1990). He relies on Thermo Electron
Corp. v. Schiavone Constr. Co., 915 F.2d 770 (1st Cir. 1990), which
concerns Fed. R. Civ. P. 52(a) and is inapplicable.
4 Gangi also perfunctorily argued that there should have
been a hearing prior to the sale order. This argument was not
developed, so it is waived. Zannino, 895 F.2d at 17.
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disclosed by the receiver before the court approved the sale.
Jenkins made it clear that Northeast was an affiliate of Hilco,
and explained Northeast's purpose.
The details of the sale were disclosed. Gangi has not
cited any case law indicating that the district court was required
to elicit more evidence from the parties about the prudence of the
sale before approving it.
We affirm. Costs are awarded to Jenkins.
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