Going, Going, Gone: Third Circuit Confirms Auction Outcome Can Be Strong Evidence of Fair Value
Going, going, gone. Most people might associate those words with fine art, not bankruptcy. But in In re 388 Route 22 Readington Holdings, LLC, the question arose: is value reflected by an active, non-collusive auction, while not dispositive, strong evidence of fair value under section 363(b) of the Bankruptcy Code? The United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”) answered this question affirmatively, the United States District Court for the District of New Jersey (the “District Court”) agreed, and so too did the United States Court of Appeals for the Third Circuit (the “Third Circuit”) in a recent unpublished decision No. 20-2629, 2021 WL 4811409 (3d Cir. Oct. 15, 2021).
Factual Background and Procedural History
The story goes like this. The debtor, 388 Route 22 Readington Holdings, LLC (the “Debtor”), owned a parcel of real property. In 2011, a creditor obtained a foreclosure judgement (“Creditor”) against the Debtor and the Debtor filed for chapter 11 to avoid foreclosure. The Debtor and Creditor agreed to a payment plan, but that plan was short-lived. In 2018, the Debtor again filed for chapter 11, and the Court converted the case to a chapter 7 liquidation, allowing the Creditor to foreclose on the Debtor’s property. The Creditor stayed foreclosure until September 2019, requiring the chapter 7 trustee (“Trustee”) to sell the Debtor’s property by that time.
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Weil, Gotshal & Manges LLP by Martha Martir and Justin Armstrong. Published January 7, 2021.