Official Comm. of Unsecured Creditors v. Bouchard Transp. Co. (In re Bouchard Transp. Co.)

639 B.R. 697

IN RE BOUCHARD TRANSPORTATION CO., INC., Debtor.

The Official Committee of Unsecured Creditors, Appellant,

v.Bouchard Transportation Co., Inc., and Hartree Partners, LP, Appellees.

Civil Action No. H-21-2844

Bankruptcy Case No. 20-34682

United States District Court, S.D. Texas, Houston Division.

Signed May 31, 2022

Andrew C. Lawrence, George W. Hicks, Jr., Kirkland & Ellis LLP, Washington, DC, Matthew Dudley Cavenaugh, Jackson Walker, Houston, TX, for Debtor.

Andrew Devore, Pro Hac Vice, Ropes & Gray LLP, Boston, MA, Daniel G. Egan, Gregg M. Galardi, Pro Hac Vice, Matthew Roose, Ropes & Gray LLP, New York, NY, for Appellant.

Andrew J. Ehrlich, Brian Hermann, Maia Usui, William Clareman, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, Benjamin W. Kadden, Coleman L. Torrans, Lugenbuhl Wheaton et al, New Orleans, LA, for Appellees.

MEMORANDUM AND OPINION

Lee H. Rosenthal, Chief United States District Judge

The Official Committee of Unsecured Creditors (the "Committee") appeals the bankruptcy court's order granting Hartree Partners, LP's claim for a $3.3 million breakup fee and $885,506.98 for expense reimbursements after Hartree acted as a "stalking-horse bidder" in an auction of the bankrupt debtors' assets. The Committee seeks reversal and an order directing Hartree to disgorge the breakup fee and expense reimbursement. Based on the briefs, the oral argument, the record, and the applicable case law, the court affirms the bankruptcy court's order and dismisses the appeal.

The reasons are set out below.

I. Background

The Bouchard Transportation Company and its subsidiaries (the "Debtors") are one of the nation's largest independently owned ocean-going petroleum barge companies. After financial setbacks, including COVID, "the Debtors' operations had ground to a halt," and the Debtors "lacked the liquidity and human capital necessary to perform repairs on their fleet, obtain or reobtain required regulatory and other certifications, and otherwise place vessels back in service." (App'x 473). In September 2020, the Debtors filed Chapter 11 cases in the bankruptcy court. (Id. ).

The bankruptcy proceedings got off to a rocky start. To finance the Chapter 11 cases and restart the business, the Debtors entered into a $60 million postpetition debtor-in-possession financing facility with Hartree, to be paid back with interest and fees. (App'x 35, 77). The Debtors quickly defaulted on the facility. Concerned with the Debtors' conduct and situation, the bankruptcy court removed Morton S. Bouchard, III, from his roles as the Debtors' CEO and director and appointed Matthew Ray of Portage Point Partners, LLC, as the Chief Restructuring Officer. (App'x 333). The Debtors then entered into a second debtor-in-possession financing facility for $90 million with JMB Capital Partners Lending, (App'x 346), and used part of that funding to pay off the outstanding principal, interest, expenses, and fees relating to the Hartree facility. (App'x 445). The JMB facility was secured by 31 of the Debtors' vessels. (App'x 439–40; Docket Entry No. 32, at 13).

Despite the additional funding, the Debtors' "initial efforts to rehabilitate the business failed." (Docket Entry No. 32, at 9). The Debtors determined that the only viable option to repay their outstanding debt obligations and to fund their working capital needs was to sell their vessels in an auction. (App'x 473, 642). The Debtors, with the assistance of their financial advisor, Jefferies LLC, contacted 165 potential bidders to assess interest in purchasing some or all of the vessels. (App'x 474). Of those bidders, seven submitted proposals for purchasing the vessels—six for specific assets, and three for substantially all of the assets. (Id. ). The Debtors then sought approval from the bankruptcy court to sell the vessels through an auction and proposed bidding procedures for that auction. (App'x 473).

The bankruptcy court approved the Debtors' proposed bidding procedures. (App'x 546). No party objected to the Debtors' proposals or the bankruptcy court's order approving them. The bid procedures allowed the Debtors to select a "stalking-horse bidder"—a bidder who agrees, before the auction, to bid on the Debtors' assets for a determined price, thereby setting a "floor" at the auction for the sale amount. (App'x 564). The bid procedures allowed the Debtors to offer bid protections to the stalking-horse bidder, including a "breakup fee"—a fee paid to the stalking-horse bidder if its bid is not selected at the auction—and "expense reimbursements" to repay the stalking-horse bidder for its "reasonable and documented out-of-pocket fees and expenses." (Id. ). The procedures provided that "the total Bid Protections offered" could "not exceed 3.0% of the cash purchase price contemplated by such Stalking Horse Agreement" and capped the "total Expense Reimbursement" at an amount "to be agreed upon by the Debtors and the applicable Stalking Horse Bidder[.]" (Id. ).

The court's order set deadlines that allowed time to designate and select a stalking-horse bidder, and that allowed interested parties an opportunity to object to the bidder and to any bid protections before the auction. The deadlines were:

• June 25, 2021: deadline to submit stalking-horse bids;

• July 7, 2021: deadline to designate stalking-horse bidders (if any);

• "Three (3) business days following service of the applicable Stalking Horse Notice": deadline to object to the designation of any stalking-horse bidder or grant of bid protections;

• July 16, 2021, at 5:00 p.m.: deadline for qualified bid submissions;

• July 19, 2021, at 10:00 a.m.: Auction Day One (if applicable);

• July 20, 2021, at 10:00 a.m.: Auction Day Two (if applicable); and

• July 21, 2021, at 4:00 p.m.: Sale Objection Deadline.

(App'x 560).

The court's order stated that "[n]o later than one business day after selecting a Stalking Horse Bidder, the debtors shall file with the Court and serve a notice ... identifying the Stalking Horse Bidder, the material terms of the Stalking Horse Bid ... and the amount and terms of any Bid Protections offered to the Stalking Horse Bidder." (App'x 564). The order also provided that "[a]ny objection to the designation of the Stalking Horse Bidder or to the Bid protections set forth in the Stalking Horse Notice and Stalking Horse Agreement ... shall be filed no later than the date that is three (3) business days after the date of service of the applicable Stalking Horse Notice. If a timely Stalking Horse Objection is filed, the proposed designation of the Stalking Horse Bidder and Bid Protections ... shall not be deemed approved unless approved by separate order of the Court." (Id. ).

A. Selection of the Stalking-Horse Bidder

In the weeks leading up to the auction, the Debtors failed to secure significant interest in the purchase of the vessels. By the June 25, 2021, deadline for bidders to submit stalking-horse bids, no bidder had emerged. Richard Morgner, the managing director and joint global head of debt advisory and restructuring at Jefferies, was concerned about having a "naked auction"—an auction without a floor price set by the stalking-horse bidder—because he did not "know[ ] what the opening bid would be," given the lack of interest in purchasing the vessels. (App'x 784). On July 7, 2021, the Debtors, with the Committee's consent, extended the stalking-horse deadline to July 11, 2021, and continued to search for a bidder. (App'x 588). No other deadlines were extended.

On July 9, 2021, Morgner contacted Scott Levy, a partner at Hartree, to see if Hartree had any interest in serving as a stalking-horse bidder. (App'x 899). Levy "quickly engaged" with the Debtors, beginning the due diligence process and "socializing the idea" of "being the stalking horse bidder" with Hartree's board and senior management. (Id. ). On July 12, 2021, Levy informed Morgner that Hartree would be interested in making a cash bid as a stalking-horse buyer for the 31 vessels that served as collateral for the JMB Capital financing facility. (Id. ).

To allow time for negotiations with Hartree over possible bid terms, the Debtors, with the Committee's consent, extended the stalking-horse bidder designation deadline to July 16, 2021, and extended the qualified bid deadline to July 18, 2021.

(App'x 592). The auction date was unchanged.

Hartree initially offered to bid $105 million for the vessels. (App'x 792). In negotiations over the next five days, Hartree increased its bid to $107 million, then to $108 million, and finally to $110 million. (Id. ). The Debtors tried to get Hartree to increase its bid further, but Hartree held firm at $110 million. (Id. ). Hartree also insisted on receiving bid protections, including a 3% breakup fee and a $1.5 million expense reimbursement. (App'x 792–93). The Debtors tried to negotiate a lower amount, asking for a 2% breakup fee and a $1 million expense reimbursement, but Hartree refused to reduce these bid protections. (App'x 793).

In the week leading up to the auction, the Debtors' board of directors met with financial and legal advisors five times to discuss options related to the vessel sales. The board minutes note that the board entertained Hartree's stalking-horse bid and a separate bid from Centerline Logistics Corporation. No other bidders had emerged. Centerline submitted a bid to purchase all the vessels secured by the JMB Capital facility and 19 additional vessels secured by the Debtors' prepetition revolving-credit facility with Wells Fargo Bank, N.A. (the "Wells Fargo collateral"). (App'x 734). Hartree's bid was only for the vessels secured by the JMB Capital facility. Centerline conditioned its bid on the Debtors granting Centerline exclusivity and cancelling the auction. (Id. ). Hartree's offer had no similar conditions.

By July 16, 2021, the board still had not decided whether to proceed with the auction and accept Hartree's stalking-horse bid, or to cancel the auction and accept Centerline's bid. The...