In re Daily Gazette Co.

584 B.R. 540

IN RE: DAILY GAZETTE COMPANY, Daily Gazette Holding Company, LLC, Charleston Newspapers Holdings, L.P., Daily Gazette Publishing Company, LLC, Charleston Newspapers, and G–M Properties, Inc., Debtors.

LEAD CASE NO. 2:18–bk–20028 Joint Administration

United States Bankruptcy Court, S.D. West Virginia.

Signed March 30, 2018

Brian A. Audette, Perkins Coie LLP, Chicago, IL, Joe M. Supple, Point Pleasant, WV, for Debtors.

MEMORANDUM OPINION AND ORDER

JUDGE FRANK W. VOLK

Pending is the above-listed Joint Debtors' Motion to Authorize Disbursement of Net Sale Proceeds ("Motion to Authorize") [Dckt. 152], along with a Joint Objection by MediaNews Group, Inc. and Charleston Publishing Company ("Joint Objection") [Dckt. 170].

The Court heard the matter in the afternoon on Wednesday, March 28, 2018. Inasmuch as the Joint Objection had been filed the day prior to the hearing on the Motion to Authorize, the Court provided the Joint Debtors and United Bank an opportunity to respond to the Joint Objection by noon on Thursday, March 29, 2018, with any reply from MediaNews Group, Inc. and Charleston Publishing Company (together, "MediaNews") by 5:00 p.m. on Thursday, March 29, 2018. The Court advised the parties to expect its written opinion no later than 9:00 a.m. on Friday, March 30, 2018, prior to the closing that date on the sale transactions. Having received the aforementioned responses and reply the matter is ready for adjudication.

This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). The Court is vested with jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334.

I.

On January 30, 2018, the Joint Debtors petitioned for relief under Chapter 11 of the Bankruptcy Code ("Petition Date"). On February 1, 2018, the Court entered the Interim Order (I) Authorizing Debtors to Obtain Postpetition Financing with Priority Over Certain Administrative Expenses and Secured by Liens on Property of the Estate Pursuant to 11 U.S.C. § 364, (II) Authorizing Debtors to Use Cash Collateral and Other Collateral and Granting Adequate Protection Pursuant to 11 U.S.C. §§ 361 and 363, (III) Modifying the Automatic Stay, (IV) Scheduling a Final Hearing, and (V) Granting Related Relief (the "Interim Order") [Dckt. 39]. The Final Order was entered on March 12, 2018 [Dckt. 140].

Pursuant to the Interim and Final Orders, the Joint Debtors agreed that: (1) the principal amount owed to United Bank as of the Petition Date is $15,659,437.09 and that United Bank is entitled to certain additional interest, fees, charges and costs of collection, including attorney fees ("Pre–Petition Indebtedness"); (2) the Pre–Petition Indebtedness is secured by substantially all of the Joint Debtors' tangible and intangible personal property and all of the Joint Debtors' real property ("Pre–Petition Liens"); (3) they have no valid claims against United Bank; and (4) the Pre–Petition Liens constitute valid, binding, enforceable, non-avoidable, and properly perfected liens on all pre-petition collateral and remain senior in priority over all other liens thereon.

Additionally, the Joint Debtors were authorized to use cash collateral pursuant to the terms of a budget ("Initial Budget") through March 2018. As adequate protection for the Joint Debtors' use of cash collateral, the Interim and Final Orders provided that United Bank would have a continuing lien and security interest on all post-petition assets of the Joint Debtors to the same extent, type and priority as United Bank has in the pre-petition collateral.

Creditors were allotted 45 days from the date that United Bank filed its proof of claim to object to the extent, validity, priority or perfection of United Bank's liens. On February 6, 2018, United Bank filed its secured proof of claim in the amount of $16,505,381.73. Pursuant to the Interim and Final Orders, objections to United Bank's lien were due by March 23, 2018. No objections were filed.

On February 1, 2018, the Court entered the Order Approving and Authorizing Bidding Procedures in Connection with the Sale of Substantially all the Debtors' Assets ("Bidding Procedure Order") [Dckt. 63]. The Bidding Procedure Order approved, inter alia , a break-up fee of $400,000 for the benefit of the Stalking Horse Bidder (an entity that ultimately did not participate in the auction), set forth the procedures for bidding, and set the auction and hearing to approve the sale dates. On February 13, 2018, the Court entered an Order Authorizing the Employment and Retention of Dirks Van Essen & Murray as Broker for the Debtors which, among other things, approved Dirks Van Essen's compensation consisting of: (1) a commission at the time of a closing of 1.3% of the gross purchase price; and (2) reimbursement of all reasonable expenses for travel (the "Dirks Van Essen Compensation") [Dckt. 86].

On March 8, 2018, the Joint Debtors named HD Media as the successful bidder with the gross purchase price of $11,487,243. After a hearing, and having received no objections to any matter taken up to that point, the Court entered the Order Authorizing the Sale of Substantially all of the Debtors' Assets Free and Clear of all Liens, Claims, Encumbrances, and Other Interests ("Sale Order") on March 12, 2018 [Dckt. 141]. Foremost, the Sale Order sanctioned the HD Media Asset Purchase Agreement and authorized the Joint Debtors to perform pursuant thereto.

On March 16, 2018, the Joint Debtors filed the instant Motion to Authorize. The filing provided that all of the Joint Debtors' cash on hand and all of the expected sale proceeds were part and parcel of United Bank's collateral, with the exception of dozens of vehicles that have a collective value of $41,275.25. The Joint Debtors additionally stated in the Motion to Authorize that retained funds in the amount of $1,345,818 ("Holdback") will be set aside for the winding down of their affairs, including the payment of administrative claims. In addition to the Holdback, Joint Debtors are also required to pay: (1) a break-up fee with the Stalking Horse Bidder; (2) certain key employee compensation; (3) compensation to Dirks Van Essen for brokerage services; and (4) other closing costs. After those amounts, tallying approximately $700,000, have been paid, the residue will consist of the Net Sale Proceeds. Joint Debtors are requesting authorization upon closing to disburse the Net Sale Proceeds to United Bank and to pay Dirks Van Essen.

As noted, over ten days after the Motion to Authorize was filed, and one day prior to the hearing thereon, MediaNews filed its Objection on March 27, 2018. MediaNews contends that the proposed disbursement violates (1) the principles of the Bankruptcy Code and the Supreme Court's holding in Czyzewski v. Jevic Holding Corp. , ––– U.S. ––––, 137 S.Ct. 973, 978, 197 L.Ed.2d 398 (2017), and (2) the requirements under 11 U.S.C. § 363(b) for a sale, including the business judgment standard.

Yesterday afternoon, on March 29, 2018, the Joint Debtors filed their Response [Dckt. 172]. In the Response, the Joint Debtors acknowledge that the Sale did not generate enough money to make a distribution to general unsecured creditors. They counter, however, that these Chapter 11 cases and the sale have benefited the community, employees, contract counter-parties, vendors, and the news-reading public. The Joint Debtors further note that the Motion to Authorize seeks only the authorization to disburse the Net Sale Proceeds, not to conclude the case, inasmuch as other matters are extant.

Later that same afternoon, United Bank also filed its Response [Dckt. 173], in which it asserts the sale was a collaborative effort that resulted in the preservation of a going concern, with resultant benefits accruing to others beyond itself. United Bank also insists that MediaNews had the opportunity to object to the Sale Motion but sat idle, meaning that authorization is now a final order immune from challenge.

MediaNews filed its Reply on March 29, 2018 [Dckt. 174]. The Reply reiterates the Jevic contentions and maintains, in seeming contrast to its opening brief, that it does not object to the sale or closing. It claims the objection is directed toward essentially all of the Net Sale Proceeds being paid to United Bank.

Given the equivocal nature of MediaNews' position, a portion of the discussion that follows must addresses the integrity and permissibility of the sale.

II.

A. United Bank's Lien

Before reaching MediaNews' two challenges, a brief discussion is warranted respecting United Bank's lien.¹ As noted, the Interim and Final Orders prescribed a March 23, 2018, deadline for objection to United Bank's Proof of Claim. No objections were filed and leave was not sought to tender a late objection. There is thus no basis at this juncture to conclude that United Bank holds anything other than a properly perfected security interest in the entirety of the Net Sale Proceeds.

B. The Asserted Noncompliance with the Code and the Putative Impact of Jevic

MediaNews asserts that the Joint Debtors have violated a basic Chapter 11 tenet by proposing a distribution to, essentially, a lone secured creditor. It invokes Jevic in aid of that contention.

The point of a Chapter 11 reorganization is the "negotiat[ion of] a plan that will govern the distribution of valuable assets from the debtor's estate and often keep[s] the business operating as a going concern." Jevic , 137 S.Ct. at 978. Although somewhat atypical, a section 363 sale is simply "a less common way of effecting a bankruptcy." Elliott v. General Motors LLC (In Matter of Motors Liquidation Company) , 829 F.3d 135, 145 (2d Cir. 2016) (citing Committee of Equity Security Holders v. Lionel Corp. (In re Lionel Corp.) , 722 F.2d 1063, 1066–70 (2d Cir. 1983) ). In a Chapter 11 sale context, the debtor, in lieu of a plan, simply "sells its primary assets to a successor corporation, which immediately takes over the business." Id.

In Jevic , the bankruptcy court had approved dismissal as part of a settlement scheme that...