Ray Realty Fulton, Inc.

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Case 1-09-41225-jbr Doc51 Filed 08/21/09 Entered 08/21/09 15:18:19

UNITED STATES BANKRUPTCY COURT
FASTERN DISTRICT OF NEW YORK

Inre: Case No.: 1-09-41225-dem

RAY REALTY FULTON, INC., Chapter 11

DECISION ON SCOPE OF BREAK UP FEE ON
DEBTOR'S BIDDING PROCEDURES MOTION

Appearances:

Barton Nachamie, Esq.

Jill L. Makower, Esq.

Todtman, Nachamie, Spizz & Johns, P.C.
Attomeys for Kwang Hee Lee

425 Park Avenue

New Y ork, New Y ork 10022

J. Ted Donovan, Esq.

Goldberg Weprin Finkel Goldstein LLP
Attomeys for Debtor

1501 Broadway, 22nd Floor
New Y ork, New Y ork 10036

Steven J. Cohen, Esq.
Wachtel & Masyr, LLP
Attomeys for the Jackson Group LLC

119 East 59th Street
New Y ork, New Y ork 10022

DENNIS E. MILTON
United States Bankruptcy Judge
INTRODUCTION
The matter is before the Court on the motion of the debtor dated July 24, 2009

seeking an Order approving Bidding Procedures and the Break Up Fee and Fixing Notice with

respect to the sale of debtor's assets (the “Bidding Procedures Motion”). Counsel for creditor
Kwang Hee Lee submitted an Opposition and a Supplemental Opposition to the Bidding
Procedures Motion. At the hearing on the Bidding Procedures Motion on August 20, 2009,
counsel agreed that the following two issues issues remained for the Court's determination:
(a). 	Whether a Break Up Fee is warranted in this case, and, if so,
in what amount; and
(b). 	Whether payment of the Break Up Fee should be borne
by the debtor's estate.
As set forth below, the Court finds a Break Up Fee is warranted in this case; fixes
the amount of the Break Up Fee at 3.5% of the $6.5 million purchase price, or $227,500.00; and
determines that the payment of the Break Up Fee shall be borne by the debtor as an
administrative expense.
1. The Break Up Fee is warranted in this case.
It is well settled that a Break Up Fee should constitute a fair and reasonable
percentage of the proposed purchase price and should be reasonably related to the risk effort and
expenses of the prospective purchaser. 	In re Integrated Resources, Inc., 47 B.R. 650, 662
(S.D.N.Y.1992). In the August 14, 2009 Statement of the Jackson Group LLC (the “Jackson
Group”), the purchaser under the Agreement of Purchase and Sale dated July 2009, a
representative of the Jackson Group described in some detail the due diligence which the
Jackson Group has conducted and the legal services performed at the request of the Jackson
Group. The representative further stated that the Break Up Fee was a material part of the
negotiations between the Jackson Group and the debtor. Statement of the Jackson Group at 2-3.
2
Case 1-09-41225-jbr Doc 51 Filed 08/21/09 Entered 08/21/09 15:18:19

In determining the reasonable amount for a Break Up Fee, the Court in In re
Integrated Resources, Inc. observed:
A break-up fee should constitute a fair and reasonable
percentage of the proposed purchase price, and should
be reasonably related to the risk, effort and expenses
of the prospective purchaser.
147 B.R. at 662. 	The proposed Break Up fee in this case, 3.5% of the $6.5 million purchase
price, or $227,500.00, constitutes a component of what induced the Jackson Group to submit a
bid that will serve as a minimum floor bid on which the debtor, its creditors, and other bidders
may rely. 	The Court finds that the Break Up Fee in this amount is reasonable and appropriate
and represents the best method for maximizing value for the benefit of the debtor's estate.
2. The Break Up Fee Is An Administrative Expense of the Debtor's Estate
The creditor Lee is a 50% owner of the real property which the debtor seeks to
sell to the Jackson Group for the sum of $6,500,000.00, subject to higher and better offers. Lee
has a right of first refusal pursuant to section 363(i) of the Bankruptcy Code. Section 363(i)
provides that “[b]efore the consummation of a sale of property” to which it applies, the co-owner
of such property “may purchase such property at the price at which such sale is to be
consummated.” 11 U.S.C. § 363(i). Lee has further argued that Lee cannot be subjected to
payment of the Break Up Fee because such an assessment would deprive him of his statutory
rights under Section 363(i) of the Bankruptcy Code. The Court finds that the Break Up Fee in
this case is not a cost of sale, as the debtor contends, but an administrative expenses payable by
the debtor's estate; it is an actual and necessary cost and expense of preserving the Debtor's
estate within the meaning of Sections
-3-
Case 1-09-41225-jbr Doc 51 Filed 08/21/09 Entered 08/21/09 15:18:19

503(b) and 507(a)(2) of the Bankruptcy Code. See, e.g. In re Chrysler LLC, 2009 WL 1360869
(Bankr. S.D.N.Y. 2009); In re Fortunoff Fine Jewelry and Silverware, LLC, 2008 WL 618983
(Bankr. S.D.N.Y. 2008). 	The Court anticipates that the debtor shall take this determination into
account when revising the terms and conditions of the Agreement and the Bid Procedures Order.
Dated: Brooklyn, New York
August 21, 2009
S/Dennis E. Milton
DENNIS E. MILTON
United States Bankruptcy Judge
-4-
Case 1-09-41225-jbr Doc 51 Filed 08/21/09 Entered 08/21/09 15:18:19

Case 1-09-41225-jbr Doc51 Filed 08/21/09 Entered 08/21/09 15:18:19