RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 1 of 12 UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MONTANA O R D E R

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1 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 1 of 12 UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MONTANA In re BLACK BULL GOLF CLUB, INC, Case No Debtor. In re BLACK BULL RUN DEVELOPMENT, LLC, Case No Debtor. O R D E R th At Butte in said District this 20 day of January, In the above-referenced Chapter 7 bankruptcies, after due notice, a hearing was held January 11 and 12, 2011, in Billings on the Trustees Motions for Order (A) Approving the Sale of Real and Personal Property Free and Clear of Liens, Claims, Interests and Encumbrances, and (B) Approving Bid Procedures and Authorizing the Trustees to Solicit Higher and Better Offers Pursuant to Proposed Notice of Sale filed December 23, 2010, at docket entry no. 97 in Black Bull Golf Club, Inc. and at docket entry no. 184 in Black Bull Run Development, Inc., as amended pursuant to the Notice of First and Second Amendments to Asset Purchase Agreement filed January 10, 2011, at docket entry no. 231 in Black Bull Run Development. Pursuant to a 1

2 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 2 of 12 Stipulation Regarding Allocation of Sale Proceeds Between Bankruptcy Estates filed December 23, 2010, in each of the respective bankruptcies, the Trustees agreed that $70, of the proposed purchase price of $8,100,000 shall be allocated to the bankruptcy estate of Black Bull Golf Club. In addition, Black Bull Golf Club will receive.8642% of such additional purchase price in excess of $8.1 million. The Chapter 7 Trustee of the Black Bull Golf Club, Inc. bankruptcy estate, Darcy M Crum of Great Falls, Montana, appeared at the hearing as did the Chapter 7 Trustee of the Black Bull Run Development, LLC bankruptcy estate, Joseph V. Womack of Billings, Montana. Secured Creditor OneWest Bank, FSB was represented at the hearing by Gregory G. Murphy of Billings, Montana; CLB Black Bull Run, LP was represented at the hearing by Dennis J. Wickham of San Diego, California and Gary S. Deschenes of Great Falls, Montana; and various members of Black Bull Golf Club and/or owners of lots in Black Bull Run Development were represented at the hearing by James J. Screnar of Bozeman, Montana. Mark Luthman, Steve Barrett, Jeff Woolson, Lynne Scalia and Joseph Womack testified. The Trustees Exhibits A through DD were admitted into evidence. In the their pending Motions, the Trustees seek orders: a. authorizing and approving the sale of the Property of the BBR estate and the Golf Club estate free and clear of all liens, claims, encumbrances and other interests in the Property (the Sale ); i. pursuant to the Asset Purchase Agreement (the Asset Purchase Agreement ) by and between the Trustees and Robert Schumacher (such person or his designee, the Stalking Horse Bidder ); or ii. pursuant to Section 363 of title 11 of the United States Code (the Bankruptcy Code ) [11 U.S.C. 363], to a qualified bidder who makes the highest and best offer for the Property at an auction (the 2

3 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 3 of 12 "Auction") pursuant to the Bid Procedures as the same may be approved by the Court (a Successful Bidder, which term, to the extent required, shall include the Stalking Horse Bidder); b. approving the Bid Procedures; c. approving and authorizing the payment to OneWest Bank out of escrow of the net proceeds of the sale of the Property (other than the proceeds of the sale of the assets of the Golf Club estate), after funding of reserves for senior lien claims, a reserve of $700,000 for the possible need to refund the sale price allocated to the Liquor License if such Liquor License cannot be successfully transferred, and a reserve for the fees and expenses of the Trustee per the existing agreement between OneWest Bank and the Trustee; d. approving the form and manner of notice of the proposed sale and Bid Procedures, substantially in the form of the Trustee s proposed Notice of Sale attached as Exhibit B to the Motion; e. ruling that any objections to the sale of the Property, or the sale of the Property free and clear of all liens, claims, encumbrances and other interests in the Property that are not resolved at the Bid Procedures Hearing are to be considered and ruled upon by the Court at the Sale Hearing. f. scheduling a hearing at which the Auction is to be conducted, the results of the Auction is to be approved or disapproved by the Court and any objections not resolved at the Bid Procedures Hearing or that require an evidentiary hearing are to be ruled upon by the Court (the "Sale Hearing"). FACTUAL BACKGROUND On March 22, 2009, Black Bull Golf Club commenced a Chapter 11 case in this Court. On March 26, 2010, Black Bull Run Development filed a petition for relief under Chapter 11 commencing a Chapter 11 case in this Court. Black Bull Run Development is owned 60% by CLB Black Bull Run LP and 40% by BBR Bozeman Corporation. On June 16, 2010, this Court entered orders converting both the Black Bull Golf Club bankruptcy and the Black Bull Run Development bankruptcy to cases under Chapter 7 of the Bankruptcy Code. Darcy M. Crum and Joseph V. Womack were appointed as trustees in the respective cases. 3

4 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 4 of 12 The Trustees have investigated the assets and property of the Debtors, consulted certain of the creditors and formulated a liquidation strategy in an effort to maximize the value of the Debtors assets for the benefit of the creditors and the estates. To that end, the Trustees have entered into an Asset Purchase Agreement with Robert Schumacher wherein Schumacher agrees to be a stalking horse bidder and, if no other successful bidder emerge, to purchase Debtors real property, improvements, fixtures, equipment and Liquor License on the terms and conditions contained in the Asset Purchase Agreement, as amended pursuant to the Notice of First and Second Amendments to Asset Purchase Agreement filed January 10, The property of Black Bull Run Development is encumbered by a valid mortgage lien and security interest in favor OneWest Bank in the original principal amount of $52,500,000. Pursuant to OneWest Bank s proof of claim, it was owed $30,622, on Black Bull Run Development s petition date. OneWest Bank had an appraisal of Black Bull Run Development s property done in approximately May of The appraised value of Black Bull Run Development s property at that time was $17 million. Based on said appraisal, OneWest Bank asserts that $17 million of its claim is secured, while the balance of $13,622, is unsecured. CLB CLB Black Bull Run LP ( CLB ) is the holder of an unsecured claim against the Debtors in the sum of $1,967, and the holder, by assignment, of a judgment lien on Black Bull Run Development s property in favor of J.R. Simplot Company. J.R. Simplot Company obtained a judgment against Black Bull Run Development on November 24, J.R. Simplot Company filed a proof of claim on August 25, 2010, asserting a total claim of $20, as of Black Bull Run Development s petition date. On that same date, CLB filed a proof of claim for the same debt. CLB s proof of claim does not contain any proof that the claim was actually 4

5 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 5 of 12 assigned from J.R. Simplot Company to CLB, but all parties apparently agree that CLB has 1 acquired J.R. Simplot Company s judgment lien. The Court has not received any objection to the Motion filed in the Black Bull Golf Club bankruptcy. The Trustee s Motion in the Black Bull Run Development bankruptcy was originally opposed by Leachman Angus Ranch, Jay Leachman and CLB. However, the objections of Leachman Angus Ranch and Jay Leachman were resolved by a stipulation filed January 9, 2011, and approved January 10, Thirty-one individuals who are members in the Black Bull Golf Club and/or owners of lots in Black Bull Run Development, along with Gallatin County, Montana and the Gallatin County Treasurer filed pleadings indicating they do not oppose the Trustees motions to sell. CLB opposes the Motion filed in the Black Bull Run Development bankruptcy on arguing the Trustee s proposed sale is not authorized under 11 U.S.C. 365(f) and arguing the Trustee s proposed bid procedures will chill the auction and will not maximize the value for the bankruptcy estate. CLB s first objection is premised on the Ninth Circuit Bankruptcy Appellate Panel s interpretation of 363(f) in Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), th 391 B.R. 25 (9 Cir. BAP 2008). In PW, the subject property sold for less than the total amount of all secured claims. Under such factual situation, the bankruptcy court held, and the BAP agreed, that 363(f)(3) could not be used to approve the sale. To utilize 363(f)(3), the sales price of the property must exceed the aggregate amount of all claims held by creditors who hold 1 In a response filed January 10, 2011, OneWest Bank contends that Richard Bloch, who is a guarantor of the OneWest Bank loan to Black Bull Run Development, negotiated the purchase J.R. Simplot Company s judgment lien. OneWest Bank asserts that Bloch purchased the judgment lien through CLB on January 4, 2011, for $7,000. 5

6 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 6 of 12 a lien or security interest in the property being sold. PW, 391 B.R. at 41. The BAP in PW then turned to an analysis of 363(f)(5). To reach its decision, the BAP in PW framed the issue under 363(f)(5) as (1) [whether] a proceeding exists or could be brought, in which (2) the nondebtor could be compelled to accept a money satisfaction of (3) its interest. Id. The BAP first concluded that the term interest appearing in 363(f)(5) included liens. Section 363(f)(5) is clearly applicable to CLB s judgment lien. Next, the BAP explored whether a lienholder could be compelled to accept satisfaction of its lien for less than full payment. In discussing such component of 363(f)(5),the BAP explained that [a]lthough it is tautological that liens securing payment obligations can be satisfied by paying the money owed, it does not necessarily follow that such liens can be satisfied by paying any sum, however large or small. Id. at 42. (Emphasis in original) This Court finds that where a trustee proposes full payment of a claim, such as the Trustee proposes to CLB in this case, that the second and third components of 363(f)(5) are satisfied. Notwithstanding the foregoing, CLB maintains that this Court cannot approve the Trustee s proposed sale unless all lienholders claims are paid in full. This Court disagrees. First, this Court does not read 363(f)(5) as requiring an affirmative consent from any entity who may claim an interest in a debtor s property. Rather, under the facts of this case, the Court deems an entity s lack of objection under 363(f)(5) an implied consent to the Trustee s proposed sale free and clear of liens. OneWest Bank, thirty-one individuals who are members in the Black Bull Golf Club and/or owners of lots in Black Bull Run Development, Gallatin County, Montana and the 6

7 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 7 of 12 Gallatin County Treasurer consent to the Trustee s proposed sale. Furthermore, in a Notice of Disputed and Undisputed Real Property Liens and Anticipated Treatment filed January 4, 2011, the Trustee disputes many of the claims asserted by entities who claim an interest in the property belonging to Black Bull Run Development. Specifically, the Trustee disputes the following claims: No. 28. No. 29. No. 30. No. 33. Judgment lien of Alternative Staffing, Inc., dba LC Staffing Judgment lien of J.R. Simplot Company Judgment lien of Career Concepts Corp. Construction lien of Marsh Concrete Construction, Inc. No. 34 and No. 35. Construction liens of Express Employment Professionals No. 36. No. 40. POC No. 2. POC No. 27. Construction lien of Rasmussen Concrete Contractors, Inc. Lien for Impact Fees for Gallatin County Road and Fire Impact Flying Horse Communication, Inc. Robyn L. Erlenbush In addition to the above-disputed claims, the Trustee also disputes Gary Eichorn/Eichorn Construction s construction lien. However, the Trustee agrees to hold sufficient proceeds in reserve to pay the lien of Gary Eichorn/Eichorn Construction plus interest and attorneys fees pending resolution of the dispute regarding the asserted lien. Section 363(f)(4), permits a trustee to sell property without a creditor s consent, provided 2 the creditor s interest in the subject property is in bona fide dispute. The purpose of 363(f)(4) 2 11 U.S.C. 363(f)(4), reads: 7

8 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 8 of 12 is to permit property of the estate to be sold free and clear of interests that are disputed by the representative of the estate so that liquidation of the estate's assets need not be delayed while th such disputes are being litigated. Moldo v. Clark (In re Clark), 266 B.R. 163, 171 (9 Cir. BAP 2001). CLB allegedly purchased J.R. Simplot Company s judgment lien and CLB objects to the Trustee s proposed sale. In order to remove CLB s pending objection, the Trustee and OneWest Bank have agreed that J.R. Simplot Company s judgment lien will be paid in full from the sale proceeds. Finally, in his January 4, 2011, Notice, the Trustee asserts that the following liens are undisputed and will be paid in full from the sale proceeds: No. 27. No. 37. No. 38. No. 39. No. 42. No. 43. No. 44. Construction lien of Schlauch-Bottcher Construction, Inc. Construction lien of Trapper Peak Construction, Inc. Construction lien of Don Kirby Electric, Inc. Construction lien of Liberty Electric, Inc. Construction lien of Cashman Nursery Construction lien of SIME Construction Construction lien of Allied Engineering Services, Inc. The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if * * * (4) such interest is in bona fide dispute[.] 8

9 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 9 of 12 No. 45. Construction lien of JTL Group, Inc. With the exception of the J.R. Simplot Company s judgment lien, the Trustee either disputes the subject claims or proposes to pay the asserted claims in full. Given the foregoing and because the only objection to the proposed sale is by CLB and because the Trustee proposes to satisfy the J.R. Simplot Company judgment lien in full, the Court finds that the BAP s ruling in PW does not preclude approval of the Trustee s proposed sale in this case. Lastly, CLB argues that the Trustee s proposed bid procedures will chill bidding procedures and will not maximize the value of the property to the Black Bull Run Development bankruptcy estate. The Trustee filed an application to employ CB Richard Ellis, Inc., which application the Court approved on September 20, CLB agrees that CB Richard Ellis, Inc. is qualified to conduct an auction of Black Bull Run Development s real property. However, CLB argues that the Trustee s proposed marketing period it too short. After careful consideration of the testimony at the hearing, the Court disagrees. COLLIER ON BANKRUPTCY and In re Canyon Partnership, 55 B.R. 520, 524 (Bankr. S.D.Cal. 1985), instruct that where it appears from a review of all the facts and circumstances that a sale is in the best interest of the estate, a court will not disturb the trustee s business judgment regarding the terms of the proposed sale absent some compelling reason to do so. OneWest Bank has agreed that under the Trustees proposed sale, it will grant the bankruptcy estate of Black Bull Run Development a cash carve-out for the benefit of the bankruptcy estate. Under a sale free and clear of liens, where the bankruptcy estate receives some benefit from the sale of Black Bull Run Development s real property, OneWest Bank can move forward without having to go through State court foreclosure proceedings. Such procedure eliminates any 9

10 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 10 of 12 rights of redemption that may be available under Montana law. However, the Court agrees with the Trustees and OneWest that any right of redemption is a right in theory only because the amount owed for unpaid real estate taxes, to OneWest Bank, and to construction lien claimants far exceeds the value of Black Bull Run Development s real property. The uncontested evidence in this case shows that the Trustees can best maximize the value of the Debtors assets by completing a sale of the Debtors property prior to commencement of the 2011 golf season. The evidence also shows that a sale by the Trustee, with the consent of OneWest Bank, is most likely the only way the bankruptcy estate of Black Bull Run Development will see any benefit. Furthermore, the uncontested evidence shows that delaying the proposed sale to afford C.B. Richard Ellis additional time to market Black Bull Run Development s real property will not produce any measurable benefit to the bankruptcy estate or its creditors. For the reasons discussed above and based upon the evidence presented at hearing, IT IS ORDERED that the Stipulation Regarding Allocation of Sale Proceeds Between Bankruptcy Estates filed December 23, 2010, at docket entry no. 185, is approved; and the Trustee s of the bankruptcy estates of Black Bull Golf Club, Inc. and Black Bull Run Development, Inc. shall henceforth be bound by the terms and conditions of the approved Stipulation. IT IS FURTHER ORDERED: 1. The Trustee s Motions are granted in their entirety except to the extent expressly set forth herein. 2. No other or further notice of the Bid Procedures Hearing and the matters heard and considered by the Court therein need be given. 10

11 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 11 of The Court hereby approves in its entirety, subject to higher and better offers, the Asset Purchase Agreement, as amended by the First and Second Amendments between the Stalking Horse Bidder, Robert Schumacher, and the Trustees. 4. The Notice of Sale and the Bid Procedures are hereby approved in their entirety, and the Trustees are authorized and directed to offer the Property for sale subject to higher and better offers pursuant to such Notice of Sale and Bid Procedures. 5. The Black Bull Run Development Trustee is authorized to pay to OneWest Bank out of the escrow for the sale of the Property, the net proceeds of the sale of the Property (other than the proceeds of the sale of the assets of the Golf Club Estate), after funding of reserves for senior lien claims and the claim of J.R. Simplot Company, a reserve of $700,000 for the possible need to refund the sale price allocated to the Liquor License if such Liquor License cannot be successfully transferred, and a reserve for the fees and expenses of the Trustee per the existing agreement between OneWest Bank and the Trustee. 6. A hearing in accordance with the Bid Procedures contained in the Notice of Sale will be held Tuesday, February 22, 2011, at 09:00 a.m., or as soon thereafter as the parties can be TH TH heard, in the 5 FLOOR COURTROOM, FEDERAL BUILDING, 316 NORTH 26, BILLINGS, MONTANA. At such hearing, the Court will consider approving the remaining relief requested in the Trustee s Motions, including the sale of the Property to a Successful Bidder or Back-Up Bidder as determined at the Auction, and including resolution of any objections to the sale of the Property free and clear of liens, claims and Interests, to the extent not resolved by this Order. 7. The Court retains jurisdiction to interpret, implement and enforce the terms and 11

12 RBK Doc#: 248 Filed: 01/20/11 Entered: 01/20/11 15:19:23 Page 12 of 12 provisions of this Order, including any ancillary agreements executed pursuant hereto. 12