11-22820-rdd

Doc 401

Filed 08/14/12

Entered 08/14/12 17:20:13 Pg 1 of 7

Main Document

LEVENE, NEALE, BENDER, YOO & BRILL L.L.P. 10250 Constellation Boulevard, Suite 1700 Los Angeles, California 90067 Telephone: (310) 229-1234 Facsimile: (310) 229-1244 Daniel H. Reiss, Esq. (pro hac vice pending) Gwendolen D. Long, Esq. (NY Bar No. 276443) UNITED STATES BANKRUPTCY COURT SOUTHEN DISTRICT OF NEW YORK ---------------------------------------------------------------x In re: : : THE CHRISTIAN BROTHERS INSTITUTE, : et al., : Debtor. : ---------------------------------------------------------------x

Chapter 11 Case No: 11-22820 (RDD) (Jointly Administered)

OBJECTION BY AFFORDABLE JEWISH EDUCATION PROJECT TO APPROVAL OF SALE OF THE PROPERTY LOCATED AT 173 STRATTON ROAD, NEW ROCHELLE, NEW YORK AND VACANT LAND ACROSS THEREFROM TO IONA PREPARATORY SCHOOL TO: THE HONORABLE ROBERT D. DRAIN UNITED STATES BANKRUPTCY JUDGE Affordable Jewish Education Project (AJEP), hereby objects to the approval of the proposed sale of certain real property by the Debtor to Iona Preparatory School (Iona Prep) as follows: A. Requested Relief. For the reasons set forth below, AJEP respectfully requests that the Court enter an order: 1. Declaring AJEPs bid at the auction sale held on August 8, 2012 with respect to

the herein below described Real Property to be the highest and best bid; or, alternatively 2. Reconvening and reopening the auction at such time as the economic value of the

bid of Iona Prep has been determined by this Court, at which time AJEP and Iona Prep can continue to bid on the Real Property in accordance with the bid procedures approved by this Court; or, alternatively, 3. Denying the sale of the Real Property to Iona Prep; or, alternatively,

11-22820-rdd

Doc 401

Filed 08/14/12

Entered 08/14/12 17:20:13 Pg 2 of 7

Main Document

4. 363(m). B.

Deeming Iona Prep not to be a good faith purchaser for purposes of 11 U.S.C.

Statement of Facts.1 By way of the Debtor's Motion for Orders Pursuant to Sections 105(a) and 363 of the

Bankruptcy Code and Bankruptcy Rule 6004 Approving (I) Sale Procedures and Notice of the Auction Relating Thereto, (II) Sale of Real Estate to Iona Preparatory School or a Party Making a Higher and Better Offer Free and Clear of Liens, Claims, Interests and Encumbrances, (III) Approving the Stalking Horse Purchase Agreement, and (IV) Granting Related Relief [Docket No. 233] filed by the Debtor on January 30, 2012 (the Sale Motion), the Debtor requested approval of certain bid procedures and the sale of certain real property (the Real Property) to Iona Prep, subject to overbids. The Real Property is commonly known, and described in documents in this proceeding as, collectively, (i) those certain plots, pieces or parcels of land known as and by the street address of 173 Stratton Road, New Rochelle, New York and designated as Section 7, Block 3001 and Lot 320 of the Westchester County Tax Map (the 173 Premises), and (ii) all those certain plots, pieces or parcels of vacant land, located on the north side of Stratton Road and designated as Section 7, Block 3064 and Lot 1 of the Westchester County Tax Map (the Vacant Premises). AJEP hereby requests that the Court take judicial notice of the proposed purchase agreement representing Iona Preps bid for the Real Property, which was annexed to the Sale Motion as Exhibit E (the Iona Prep Bid). Section 24 of the Iona Prep Bid provides for the continued occupancy of certain members of the Edmund Rice Christian Brothers North America Province on the 173 Premises as follows: 24. Possession. Purchaser acknowledges that a certain number of members (the Brothers) of the Edmund Rice Christian Brothers North America Province (the Province) currently maintain a religious community (the Community) in the residence structure on a portion of the 173 Premises
1

See concurrently filed Declaration of Daniel H. Reiss in support hereof.

11-22820-rdd

Doc 401

Filed 08/14/12

Entered 08/14/12 17:20:13 Pg 3 of 7

Main Document

and Purchaser agrees to accept title to the Premises subject to the Brothers right to continue to live in Community on the 173 Premises, at no cost or expense, for a period not to exceed one (1) year after the Closing. It is understood by the parties hereto that within six (6) months of the Closing, Purchaser shall engage in discussions with the Brothers to discuss the future of the Community as it relates to the 173 Premises. This provision shall survive the Closing. Based on the Sale Motion, the Court approved, and then upon request of certain parties, revised certain bidding procedures with respect to the sale of the Real Property. These revised bid procedures (the Bid Procedures), annexed as Exhibit A to the concurrently filed Declaration of Daniel H. Reiss (the Reiss Declaration), were approved by the Courts order entered July 19, 2012 [Docket No. 356]. Among other things, the Bid Procedures provided that, if one or more Qualified Bids were received, an auction would be held at the offices of counsel for the Debtor on August 8, 2012 at 10:00 a.m. (the Auction). A bid deadline of July 31, 20122 was established and other requirements were set forth in order for a party to become a Qualified Bidder and be eligible to participate in the Auction, including a good faith deposit of $625,000. On July 30, 2012, AJEP delivered its bid for the Real Property to counsel for the Debtor and the Official Committee of Unsecured Creditors appointed in the Debtors Chapter 11 case (the Committee) as required by the Bid Procedures (the AJEP Bid). The AJEP Bid was timely and included all information required by the Bid Procedures. As part of the AJEP Bid, AJEP submitted its Purchase Agreement, which is annexed to the Reiss Declaration as Exhibit B, with a cash purchase price of $6,250,000 for the Real Property (the AJEP Purchase Agreement). Attached as Exhibit C to the Reiss Declaration is a redline copy of AJEPs Purchase Agreement compared to the Iona Prep Bid. The AJEP Purchase Agreement included provisions for both the Brothers and Iona Grammar School to remain on the Real Property through and including June 30, 2013, without payment of rent, although certain expenses relating to utilities, insurance and other expenses incidental to the occupancy would be covered by the occupants. See AJEP Purchase Agreement,

Bid Procedures, pg. 3, 5.

11-22820-rdd

Doc 401

Filed 08/14/12

Entered 08/14/12 17:20:13 Pg 4 of 7

Main Document

24. At all relevant times, however, AJEP was prepared to discuss such appropriate arrangements to accommodate the reasonable needs and requests of the Brothers and Iona Grammar School. AJEPs intentions in this regard were communicated to Debtors counsel by AJEPs counsel. On August 3, 2012, AJEP was informed by and through its counsel, that the Debtor had accepted the AJEP Bid as a Qualified Bid under the Bid Procedures, and that the Auction would take place as scheduled. The AJEP Bid was prepared and submitted in reliance on the assumption that bids would have to comply with the terms of the Bid Procedures at the Auction, including the requirement that bids at the Auction would have to be made in increments of no less than $50,000.3 C. The Auction. Certain principals of AJEP appeared at the Auction along with its counsel. The Auction commenced by Iona Prep making a bid of $6,300,000, meeting the $50,000 minimum incremental bid requirement over and above AJEPs qualifying bid. The parties proceeded to bid in increments of $50,000 (although AJEP at one point increased its all-cash bid to $7.6 million after a $7.2 million bid by Iona Prep). At one point in the Auction, AJEP bid $8 million. However, rather than bid $8,050,000, Iona Prep violated the Bid Procedures and merely matched AJEPs bid at $8,000,000, failing to comply with the requirement that the bid increments be at least $50,000. Iona Prep went further and radically modified the above-quoted paragraph 24 from the Iona Prep Bid, and stated the Brothers could remain on the 173 Premises in perpetuity, rather than vacating the 173 Premises after one year as originally provided. AJEP stated on the record at the Auction its position that Iona Preps matching bid was not permitted by the Bid Procedures. Nonetheless, AJEP entered an increased bid at $8,050,000, which again, was matched but not exceeded - by Iona Prep.

Bid Procedures, pg. 4, 6(vii).

11-22820-rdd

Doc 401

Filed 08/14/12

Entered 08/14/12 17:20:13 Pg 5 of 7

Main Document

After conferring, AJEP made a bid of $8.1 million plus an additional $150,000 to be made available for relocation costs of the Brothers after June 30, 2013, the date provided in paragraph 24 of the AJEP Purchase Agreement when the Brothers would be required to vacate the 173 Premises. This increased AJEPs bid to $8,250,000. Importantly, Iona Prep did not continue to bid rather, it took the position that its $8,050,000 bid plus the unilateral amendment of paragraph 24 of the Iona Purchase Agreement regarding the Brothers occupancy was the highest and best bid. At this point in the Auction, AJEPs cash bid exceeded Iona Preps highest cash bid by $200,000.00. At no time during (or after) the Auction did Iona Prep or the Debtor quantify the economic value of Iona Preps bid, making it impossible for AJEP to continue to participate in the bidding. The Debtor concluded the Auction and asserted that the Iona Preps final bid was the highest and best offer, without any record or facts adduced at the Auction establishing the economic value of Iona Preps bid or the grounds to conclude that Iona Preps bid was the highest and best. AJEP stated its objection to the Iona Prep bid on the record, and in particular, that Iona Preps prior two bids were non-conforming and therefore violated the Bid Procedures. In response to AJEPs statements to the Debtor and the Committee at the Auction that the Auction was not conducted fairly and in accordance with the Bid Procedures, the Debtor and the Committee agreed to immediately refund AJEPs good faith deposit and released AJEP of any obligation under the Bid Procedures to remain as the Next Highest Bidder.4 D. AJEP Acted in Good Faith and in Conformity With the Bid Procedures. AJEP, in good faith, carefully crafted its bid to take into consideration the need for occupancy of the 173 Premises by the Brothers after a closing,5 and further provided a generous allocation of $150,000 for the relocation costs of the Brothers after the Brothers occupancy period ended. Further, AJEPs bid agreed to allow for Iona Grammar to remain on the premises

4 5

Bid Procedures, 6(ix). See AJEP Purchase Agreement, 24.

11-22820-rdd

Doc 401

Filed 08/14/12

Entered 08/14/12 17:20:13 Pg 6 of 7

Main Document

for a full academic year after the closing.6 Therefore in addition to having made the highest cash bid at the Auction - AJEP thoughtfully sought to address the interests of all constituents in the AJEP Bid. E. The Failure of Either Iona Prep or the Debtor to Follow the Bidding Procedures and to Quantify the Purported Winning Bid of Iona Prep Caused the Auction to be Inherently Unfair. As set forth above, due to violation of the Bidding Procedures and the failure of either Iona Prep or the Debtor to quantify the bid of Iona Prep for which the Debtor now seeks approval caused the Auction process to be a flawed and unfair process. Once the amount of Iona Preps bid could no longer be quantified by any party at the Auction, AJEP was forced to be boxing with shadows. It was impossible for AJEP to meaningfully participate outside of mere speculation regarding how it could craft a winning bid. Therefore, the relief requested herein is reasonable and beneficial to the estate in that reopening the Auction can bring a higher and better sales price for the benefit of the estate and its creditors. F. AJEP has Standing to Seek the Relief Requested. AJEP has standing to seek the relief requested due to the flawed and inherently unfair manner in which the Auction was conducted, as well as to request that this Court deny a finding that Iona Prep was a good faith purchaser under 11 U.S.C. 363(m). See In re Colony Hill Assocs., 111 F.3d 269, 274 276 (2d Cir. 1997) (Potential bidder at bankruptcy sale, who was not allowed to submit bid at sale hearing because it had not submitted timely initial bid as required by bidding procedures, had appellate standing to challenge sale on basis that buyers actions destroyed intrinsic fairness of sale.) Iona Preps conduct at the Auction, including its blatant refusal to act in accordance with the Bid Procedures and its playing of a hoped for trump card with respect to the perpetual occupancy by the Brothers, demonstrates a lack of good faith conduct at the auction. Id. at 276

Id.

11-22820-rdd

Doc 401

Filed 08/14/12

Entered 08/14/12 17:20:13 Pg 7 of 7

Main Document

(an attempt to take grossly unfair advantage of other bidders at an auction is grounds for denial of a good faith finding under 11 U.S.C. 363(m)) (citations omitted). G. Conclusion.

For the foregoing reasons, AJEP requests that the Court enter an order: 1. Declaring AJEPs bid of $8,250,000 at the auction sale held on August 8, 2012

with respect to the Real Property to be the highest and best bid; or, alternatively 2. Reconvening and reopening the auction at such time as the value of the bid of

Iona Prep is determined by this Court, at which time AJEP and Iona Prep can continue to bid on the Real Property in accordance with the Bid Procedures; or, alternatively, 3. 363(m); and 4. Such other relief as the Court deems appropriate. Deeming Iona Prep not to be a good faith purchaser for purposes of 11 U.S.C.

Dated: Los Angeles, California August 14, 2012

LEVENE, NEALE, BENDER, YOO & BRILL L.L.P. Attorneys for Affordable Jewish Education Project By: /s/ Gwendolen D. Long_______________ Daniel H. Reiss, Esq. (pro hac vice pending) Gwendolen D. Long, Esq. (NY Bar No. GL4705) 10250 Constellation Blvd, Suite 1700 Los Angeles, CA 90067 (310) 229-1234