In re: Hechinger Investment Company of Delaware v. BANKBOSTON RETAIL FINANCE, INC., individually

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-2112
IN RE: HECHINGER INVESTMENT COMPANY OF DELAWARE,
Debtor,
HECHINGER LITIGATION TRUST,
not individually, but solely as indenture
trustee a/k/a HSBC Bank USA,
Appellant,
v.
BANKBOSTON RETAIL FINANCE, INC.,
individually and as agent for lenders under Credit Agreement dated as of
September 26, 1991, Credit Agreement dated as of December 31, 1998,
and Amended and Restated Credit Agreement dated March 18, 1999;
GENERAL ELECTRIC CAPITAL CORPORATION,
Intervenor-Defendant in District Court
Hechinger Liquidation Trust,
Appellant
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 00-CV-973)
District Judge: Honorable Sue L. Robinson
Argued June 30, 2005
Before: FUENTES, SMITH and VAN ANTWERPEN, Circuit Judges.
(Filed: July 29, 2005 )

-- 1 of 8 --

2
Mark Minuti, Esq.
Michael Bonkowski, Esq.
Saul Ewing LLP
222 Delaware Avenue, Suite 1200
Wilmington, DE 19899
David M. Friedman, Esq.
David E. Ross, Esq. (Argued)
Howard W. Schub, Esq.
Andrew K. Glenn, Esq.
Ian D. Katz, Esq.
Marvin Peguese, Esq.
Kasowitz, Benson, Torres & Friedman LLP
1633 Broadway
New York, NY 10019
Counsel for Appellant Hechinger Litigation Trust
Teresa K. D. Currier, Esq.
Peter J. Duhig, Esq.
Klett Rooney Lieber & Schorling
1000 West Street, Suite 1410
Wilmington, DE 19801
Paul S. Samson, Esq. (Argued)
Jeffrey D. Ganz, Esq.
Craig J. Ziady, Esq.
Riemer & Braunstein LLP
Three Center Plaza
Boston, MA 02108
Counsel for Appellee Fleet Retail Finance, Inc.
Clay J. Pierce, Esq.
Salans
Rockefeller Center
620 Fifth Avenue
New York, NY 10020
Michael Kip Maly, Esq. (Argued)
Winston & Strawn LLP
101 California Street

-- 2 of 8 --

3
San Franscisco, CA 94111
Stephen M. Miller, Esq.
Carl N. Kunz, III, Esq.
Morris, James, Hitchens & Williams LLP
P.O. Box 2306
PNC Bank Center
222 Delaware Avenue, 10th Floor
Wilmington, DE 19801
Counsel for Appellee General Electric Capital Corporation
_____
OPINION OF THE COURT
VAN ANTWERPEN, Circuit Judge.
Appellant Hechinger Litigation Trust appeals from the March 31, 2004 judgment of
the District Court entering judgment in favor of Appellees BankBoston Retail Finance, Inc.
and General Electric Capital Corporation. The District Court had jurisdiction pursuant to 28
U.S.C. §§ 157(b)(2) and § 1334(b). We have jurisdiction pursuant to 28 U.S.C. § 1291 and
will affirm.
I.
Because we write only for the parties who are familiar with the factual and procedural
background of this lawsuit, we need not recite the history of this case at length. In the
proceedings below, pursuant to the governing indenture’s negative pledge clause and the
purchase money exception to that clause, the District Court instructed the parties to submit
evidence addressing whether the assets and liabilities of Builders Square exceeded some
$153 million of debt that Hechinger assumed during the 1997 merger between Hechinger and

-- 3 of 8 --

4
Builders Square (the “transaction”). The District Court then held a three-day bench trial to
determine the fair market value of Builders Square. Through experts, the parties presented
retrospective valuations created for purposes of the trial. The parties also presented
contemporaneous evidence of the valuation of Builders Square dating to 1997. Specifically,
Appellant claimed Builders Square assets and liabilities had a fair market value of $10
million, evidenced, they claimed, by the cash paid to acquire Builders Square at the start of
the 1997 transaction. Appellees, in turn, presented evidence of Hechinger’s 1997 valuation
of Builders Square assets and liabilities pursuant to GAAP purchase accounting rules. That
valuation led Hechingers to conclude that Builders Square had a fair market value of $260
million. This purchase accounting valuation was confirmed by an outside accounting firm,
KPMG. Appellant did not argue before the District Court or this Court that either the
Hechinger valuation or the KPMG audit were improper or otherwise in error, and Appellees
independently presented evidence that the 1997 transaction was negotiated at arm’s length,
conducted in good faith, and employed sufficient due diligence. Upon reviewing the parties’
evidence, the District Court, on the basis of Appellee’s 1997 valuation evidence, determined
that the value of Builders Square in 1997 was greater than $153 million. It accordingly
determined that the 1997 transaction had not breached the negative pledge clause and
dismissed all claims against Appellees in an opinion dated March 28, 2004 and judgment
dated March 31, 2004. This appeal followed.
II.

-- 4 of 8 --

5
This Court exercises plenary review over a district court’s selection of a valuation
standard. See, e.g., Amerada Hess Corp. v. C.I.R., 517 F.2d 75, 82 (3d Cir. 1985). Once a
standard is applied, a valuation is a question of fact that this Court reviews only for clear
error. See id. Clear error, in turn, exists “only if [a finding] is completely devoid of a
credible evidentiary basis . . . .” Shire U.S., Inc. v. Barr Labs., Inc., 329 F.3d 348, 352 (3d
Cir. 2003). As long as a district court's evidentiary determination is “plausible in light of the
record,” we may not reverse, even if convinced that we “would have weighed the evidence
differently.” Anderson v. City of Bessemer, 470 U.S. 564, 574 (1985). See also Interfaith
Comm. Org. v. Honeywell Intern., Inc., 399 F.3d 248, 254 (3d Cir. 2005), cert. denied, ___
S. Ct. ___, 2005 (summarizing clear error review).
With these standards in mind, we have reviewed the District Court’s March 28, 2004
opinion dismissing Appellant’s claims. We find no error of law or fact for substantially those
reasons set forth in the District Court’s opinion. As the District Court correctly concluded,
the fundamental question in this case is whether or not the debt assumed by Hechinger during
the 1997 transaction caused a breach of the 1992 indenture. Dispositive to this question of
breach, as the District Court also correctly concluded, is the fact that, under the indenture’s
purchase money exception to the negative pledge clause, breach was an impossibility absent
a finding that the assets and liabilities of Builders Square at the time of the transaction were
less than $153 million. The analysis, then, collapses to two fairly straightforward inquires:
(1) did the District Court make a finding of fact with respect to the valuation of Builders

-- 5 of 8 --

6
Square; and (2), if so, was that finding clearly erroneous?
At oral argument, the parties invited us to decide that the District Court had not made
a finding as to the Builders Square valuation. Based on our review of the District Court’s
thorough opinion, we decline such invitation. At a minimum, paragraphs 17, 21 and 30 of
that opinion accurately summarize and reflect not only the indenture’s governing language
– the negative pledge clause and the purchase money exception – but also the parties’
voluminous contemporary and retrospective valuation evidence. Paragraph 30 then sets forth
multiple summary statements about the cumulative valuation and breach evidence as it
existed in 1997, specifically that there was (1) “uncontroverted” evidence of “professional
advice and opinions with respect to compliance with the terms of the Negative Pledge”
(emphasis added); (ii) that “[i]t is uncontroverted that post-merger, Hechinger valued
Builders Square’s net assets and liabilities at $260 million under GAAP fair market value
standards for purchase accounting”; (iii) that “[i]t is also uncontroverted that an independent
audit confirmed the post-merger valuation”; and (iv) that there was “the absence of a
showing of fraud or bad faith” with respect to both Hechinger’s valuation and KPMG’s
independent audit of that valuation. We believe that these articulations plainly satisfy the
requirements for findings of fact. As the Supreme Court has stated, a district court’s findings
need only be “sufficient to indicate the factual basis for the ultimate conclusion.” Kelley v.
Everglades Drainage Dist., 319 U.S. 415, 422 (1943) (per curiam). And as this Court has
stated, findings of fact will be deemed sufficient provided they “allow us to ascertain what

-- 6 of 8 --

7
evidence the District Judge accepted as credible or what he rejected . . . and to provide a
basis for review of the District Judge's finding[s] . . . .” Chalfant v. Wilmington Institute, 574
F.2d 739, 751 (3d Cir. 1978) (Garth, J. and Van Dusen, J., dissenting) (internal quotation
omitted). We are satisfied here that the District Court’s factual summary in its opinion is
sufficiently comprehensive to satisfy these standards.
We therefore turn to the question of whether the District Court’s valuation
determination was clear error. It was not. “‘Fair market value is the price at which the
property would change hands between a willing buyer and a willing seller, neither being
under any compulsion to buy or to sell and both having reasonable knowledge of relevant
facts.’” Amerada Hess Corp., 517 F.2d at 83 (quoting United States v. Cartwright, 411 U.S.
546, 551 (1973)) (internal quotation omitted). We have reviewed the evidentiary record and,
in light of this definition, we find no error in the District Court affording great weight to the
contemporaneous 1997 valuation made by Hechinger. This valuation was confirmed by an
outside auditor and was further corroborated by independent contemporaneous evidence in
the record. This included the fact that (1) Hechinger and its counsel made multiple
representations to Appellees’ predecessors that the 1997 transaction had not breached the
indenture’s negative pledge clause; (2) Hechinger found the valuation sufficiently reliable
to submit it to the United States Securities and Exchange Commission for use in public
filings; and (3) the Liquidation Trustee for Appellant, who was also both the former head of
financial planning at Hechinger and its Chief Financial Officer, testified that he himself did

-- 7 of 8 --

8
not know of a breach of the negative pledge clause by Hechinger at any time, including
during the 1997 transaction.
Similarly, we find no error in the District Court’s decision to remain unpersuaded by
Appellant’s claim that “$10 million in cash” constituted the fair market value of Builders
Square in 1997. Our review of the record shows that Appellant’s purported $10 million
valuation omits other non-cash consideration made in conjunction at the time, including (1)
a thirty percent ownership in the company that would arise from the 1997 transaction, in the
form of a warrant; (2) a subtentant in approximately 100 sites where a rental obligation
would otherwise arise; and (3) a $10.7 million promissory note. While the value of these
additional consideration components is not clear, they cast significant doubt upon
Appellant’s asserted valuation. For all of these reasons, we conclude that the District Court’s
valuation finding was manifestly correct, and therefore not clearly erroneous.
We have considered the remaining issues raised by the parties and conclude that no
discussion is necessary in light of the District Court’s valuation finding and its conclusion
that the indenture was not breached.
III
For the foregoing reasons, we will affirm the March 31, 2004 judgment of the District
Court.

-- 8 of 8 --