Allen v. Absher (In Re Allen)

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT May 27, 2015
Elisabeth A. Shumaker
Clerk of Court
In re: DONALD HARRY ALLEN,
Debtor.
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DONALD HARRY ALLEN, No. 14-1242
(D.C. No. 1:13-CV-01470-WJM)
Appellant, (D. Colo.)
v.
KAREN ABSHER, Receiver;
DELANGHE/BUYSSE, LLC;
ROBERTSON B. COHEN, as Chapter 7
Trustee,
Appellees.
ORDER AND JUDGMENT*
Before BRISCOE, Chief Judge, LUCERO and MATHESON, Circuit Judges.
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Appellant Donald Harry Allen, appearing pro se, is the debtor in a Chapter 7
bankruptcy proceeding. He appeals the district court’s order affirming the
bankruptcy court’s order approving the sale of his stock in two oil companies to his
creditor, Appellee DeLanghe/Buysse, LLC (“DL/B”). We have jurisdiction under
28 U.S.C. § 158(d)(1) and affirm.
I. BACKGROUND
We briefly summarize the facts and procedural background, which are
thoroughly discussed in the district court’s order. Mr. Allen was the sole owner and
chief executive officer of American Energy Resource Corporation (“AERC”) and
H&M Petroleum Corporation (“H&M”), which jointly operated oil leases. TCA
Global Credit Master Fund, LP (“TCA Global”), a secured creditor of AERC and
H&M, succeeded in asking a Colorado state court to place AERC and H&M into
receivership in January 2012. The state court appointed Appellee Karen Absher as
receiver. She had served as the companies’ outside accountant. In April 2012,
AERC and H&M filed for Chapter 11 bankruptcy. The bankruptcy court found it
was in the companies’ best interest to have Ms. Absher serve as trustee for AERC’s
and H&M’s bankruptcy estate.
Mr. Allen then obtained loans from DL/B to pay off the TCA Global loan.
The loans were secured by all of Mr. Allen’s remaining shares in AERC and H&M,
as well as his oil production rights from these companies and all of his real and
personal property. Under the term sheet for the loan (the “Term Sheet”), DL/B
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acquired 20 percent of Mr. Allen’s stock in AERC and H&M and agreed it would
“not take steps to dilute [Mr.] Allen’s ownership interest in AERC or H&M.” R.
Vol. 1, at 240. The Term Sheet also stated that “[o]nce [Mr.] Allen regains control of
AERC and HM, he shall remain in day-to-day control of the companies,” and “shall
be entitled to draw his salary.” Id. at 240-41.
Mr. Allen paid off the TCA Global loan but never regained control of AERC
and H&M. He failed to make the payments due DL/B and filed a Chapter 7
liquidation proceeding in July 2012. Appellee Robertson B. Cohen was appointed as
trustee (the “Trustee”) for Mr. Allen’s bankruptcy estate. Mr. Allen’s remaining
stock holdings in AERC and H&M were the largest assets in his estate.
In January 2013, Trustee Cohen moved under 11 U.S.C. §§ 363(b) and (f) to
sell to DL/B Mr. Allen’s remaining stock in AERC and H&M for $664,566.38, free
and clear of all liens, in satisfaction of Mr. Allen’s debt to DL/B. Section 363(b)
authorizes a trustee to use, sell, or lease property of the bankruptcy estate outside of
the ordinary course of business, and § 363(f) permits the assets to be sold free and
clear of all liens if certain conditions are met.
Mr. Allen objected, asserting the proposed sale price was inadequate. The
bankruptcy court ruled that Mr. Allen’s valuation allegations gave him sufficient
economic interest to have standing to challenge the sale. The bankruptcy court
conducted a two-day hearing, at which Mr. Allen appeared pro se. The Trustee
presented evidence from an expert in forensic accounting and business valuation;
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from Ms. Absher and her husband, who is also an accountant; and from an oil and gas
attorney. Mr. Allen testified as well. Almost all testimony concerned the valuation
of the stock. Mr. Allen very briefly asserted during the hearing that DL/B had
prevented him from paying the loan by intervening in the state court receivership to
retain Ms. Absher in control of the companies, but he presented no supporting
evidence for this assertion. He also asserted that Ms. Absher had conspired with his
brother, the companies’ office manager, in mismanaging AERC and H&M, which
resulted in the receivership.
The bankruptcy court approved the sale as an appropriate exercise of the
Trustee’s business judgment. It described the Trustee’s efforts to market the stock,
which included hiring an attorney who sought offers from seven potential purchasers
and found no buyer other than DL/B. The bankruptcy court also detailed the
evidence supporting the Trustee’s valuation of Mr. Allen’s stock and concluded the
Trustee had fulfilled his duty to maximize the value obtained from the stock sale. It
noted that Mr. Allen believed AERC and H&M to be worth many millions based on
potential oil production, but the forensic accountant had testified the stock had no
value. The accountant had considered the companies’ revenue potential, lack of any
recent income, and significant debt. Finally, the court stated that neither the Trustee
nor DL/B had testified about negotiations between them. There was thus no
evidentiary basis to determine whether DL/B was a good faith purchaser for purposes
of 11 U.S.C. § 363(m), which provides that the validity of a sale to a good faith
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purchaser cannot be disturbed on appeal unless the order authorizing sale has been
stayed.
On appeal to the district court, Mr. Allen argued, now with counsel, that the
bankruptcy court had erred in failing to find that DL/B was a good faith purchaser
before approving the stock sale. The district court affirmed. After a detailed
analysis, it concluded that courts within the Tenth Circuit have not required an
explicit finding of good faith to approve a sale under § 363(b), but have held so only
when § 363(m) is at issue, which it is not in this case. The district court concluded
the bankruptcy court’s finding of no bad faith was not clearly erroneous. Mr. Allen
appeals.
II. DISCUSSION
A. Standard of Review and Legal Background
“In reviewing a bankruptcy court decision under 28 U.S.C. § 158(a) and (d),
the district court and the court of appeals apply the same standards of review that
govern appellate review in other cases.” In re Hodes, 402 F.3d 1005, 1008 (10th Cir.
2005). “Thus, we review de novo the legal decisions of the bankruptcy and district
courts . . . [and] review the bankruptcy court’s factual findings for clear error.”
Yellow Cab Co-op. Ass’n v. Metro Taxi, Inc. (In re Yellow Cab Co-op. Ass’n),
132 F.3d 591, 596-97 (10th Cir. 1997) (citations and internal quotation marks
omitted). We construe Mr. Allen’s pro se filings liberally, but we do not construct
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arguments or otherwise advocate on his behalf. See Yang v. Archuleta, 525 F.3d 925,
927 n.1 (10th Cir. 2008).
The “business judgment” test applies to determine whether a sale under
§ 363(b) should be approved. See, e.g., In re Castre, Inc., 312 B.R. 426, 428
(Bankr. D. Colo. 2004) (citing Equity Sec. Holders v. Lionel Corp. (In re Lionel
Corp.), 722 F.2d 1063 (2d Cir. 1983), as “the most cited authority [for] the proper
standard for the [c]ourt’s use in considering a proposed motion to sell”). Under this
standard, the Trustee seeking approval of the sale must show sound business reasons
for the sale. Id. In making this determination, courts consider evidence of “[a]ny
improper or bad motive,” whether “[t]he price is fair and the negotiations or bidding
occurred at arm’s length,” and whether the trustee followed “[a]dequate procedures,
including proper exposure to the market and accurate and reasonable notice to all
parties in interest.” Id.
B. Analysis
Reading Mr. Allen’s brief generously, he appears to argue the business
judgment test generally was not met, in particular because (1) the bankruptcy court
overlooked evidence of bad faith, and (2) DL/B violated provisions in the Term
Sheet.
The primary issue Mr. Allen presented to the bankruptcy court was the value
of the stock in his bankruptcy estate. We have reviewed the record and conclude it
supports the bankruptcy court’s findings regarding the value of the stock, as well as
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its findings the Trustee followed adequate procedures in conducting the sale,
including proper exposure to the market and reasonable notice. He makes two
specific arguments here.
First, Mr. Allen argues the bankruptcy court ignored evidence of bad faith or
improper motive in approving the sale of stock, including conclusory allegations that
DL/B, Ms. Absher, and the Trustee acted in bad faith or with an improper motive.
He further argues the bankruptcy court failed to consider his allegations that
Ms. Absher had mismanaged AERC and H&M operations. We reject these
arguments because Mr. Allen failed to support his allegations in the bankruptcy
court. He presented no evidence of bad faith, collusion, misconduct, or fraud, nor
evidence the sale was not an arm’s-length transaction.
Second, Mr. Allen asserts he presented evidence of bad faith and improper
motive based on his allegations that DL/B violated its promises in the Term Sheet (1)
not to dilute his ownership in AERC and H&M, (2) that he would remain in control
of its operations, and (3) that he was entitled to his salary. He asserts DL/B
prevented him from regaining control of AERC and H&M by intervening in the state
receivership, which forced him into bankruptcy. He claims he was unable to make
the loan payments due on the DL/B loans because of misconduct, fraud, and
collusion among DL/B, Ms. Absher, and the Trustee. But Mr. Allen again did not
provide evidence that DL/B breached the Term Sheet, prevented him from repaying
the loan or from regaining control of AERC and H&M, or inappropriately colluded
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with the Trustee or Ms. Absher. The Term Sheet itself is not evidence of a breach or
of bad faith.
* * * *
The record supports the court’s finding that the sale was within the Trustee’s
sound business judgment.
III. CONCLUSION
We conclude the bankruptcy court did not err in approving the stock sale under
§§ 363(b) and (f). We affirm the district court’s order affirming the § 363(b) sale of
assets for substantially the same reasons stated in its thorough and sound order dated
May 21, 2014. We deny Mr. Allen’s motion to supplement his reply brief because
“[i]ssues not raised in the opening brief are deemed abandoned or waived.” Coleman
v. B-G Maint. Mgmt. of Colo., Inc., 108 F.3d 1199, 1205 (10th Cir. 1997). We also
deny Mr. Allen’s remaining pending motions1 because they raise issues not presented
1
Namely, Mr. Allen’s motions (1) to remove or replace Ms. Absher as
AERC’s and H&M’s receiver based on her misconduct, perjury, fraud and
incompetence; (2) to prosecute Ms. Absher for conspiracy, collusion, perjury and
fraud; (3) for a temporary restraining order against the Appellees and their agents;
(4) to prosecute Dennis J. Bartlett, Esq., DL/B’s counsel, and/or the Appellees for
Perjury; (5) to request sanctions and to file a formal complaint against the Trustee
and his counsel, Maria Flora, for dereliction and neglect of duty; (6) to file sanctions
against G. David Miller and Ms. Absher, under 42 U.S.C. § 1983; (7) to request a
Court Appointed Audit regarding his assets, and AERC’s and H&M’s assets; and
(8) his motion for leave to file out-of-time replies to DL/B’s and the Trustee’s
responses to his motions.
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in his opening brief, issues over which we lack jurisdiction, or issues that are
otherwise wholly without merit. We deny Ms. Absher’s motion for sanctions.
ENTERED FOR THE COURT
Scott M. Matheson, Jr.
Circuit Judge
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