Premier Concrete LLC

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
PREMIER CONCRETE, LLC, 	No. 11-10-11154 JA
Debtor.
MEMORANDUM OPINION
This matter is before the Court on the Debtor’s Motion to Sell Unencumbered Vehicles,
filed April 8, 2010 (Docket 41). Bank of Albuquerque objected. The Court held an
evidentiary hearing on the motion and objection on April 29, 2010. Counsel appeared as noted
on the record. Having heard and considered the evidence, and argument of counsel, the Court
denies approval of the proposed sale.
BACKGROUND
Premier Concrete Inc. (“Premier” or “Debtor”) conducted business as a specialty
contractor for the concrete portion of commercial and residential projects. Premier has ceased
operations, and has filed a motion to convert its chapter 11 case to a case under chapter 7.
Bank of Albuquerque (the “Bank”) has also filed a motion to convert this case to chapter 7.
The Bank is Premier’s largest creditor, with a claim scheduled in the amount of $1,900,000.
The Debtor scheduled the Bank has holding a secured claim in the amount of $712,312.05 and
an unsecured claim in the amount of $1,187,687.95. See Schedule D (Docket No. 32).
Premier Concrete’s total scheduled indebtedness is $2,218,073.84. See the Schedules.
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Premier’s records reflect unpaid post-petition wages to its employees in the amount of
approximately $26,407.30, exclusive of payroll taxes and other items.1 Premier seeks court
approval for the sale of 22 vehicles and 15 trailers for the total sales price of $75,000 to Danny
McCallister, Danny’s Used Cars, for the purpose of paying post-petition wages and post-
petition professional fees prior to conversion of this case to chapter 7.2 A bulk sale of the
vehicles and trailers is not within the Debtor’s ordinary course of business. None of the
vehicles or trailers has any lien holder identified on the titles. The Court granted Bank of
Albuquerque a lien against the vehicles and trailers in an amount not to exceed $38,759.57 as
adequate protection for use of $38,759.57 of cash collateral to pay pre-petition wages.
Bank of Albuquerque (“Bank”) objected to the proposed sale on three grounds: 	1) the
vehicles and trailers have a value substantially in excess of Premier’s proposed sale prices for
the property; 2) the payroll for which Premier proposes to pay from a portion of the sale
proceeds was not actually earned; and 3) the Bank should be given a lien on the entire proceeds
from the sale because of authorized use of cash collateral and a post-petition decrease in the
Bank’s collateral position.
The Court finds that the Debtor has failed to sustain its burden to show that the
proposed sale of the vehicles and trailers in bulk for $75,000 is a reasonable exercise of the
Debtor’s business judgment. Because the Court finds that the sale cannot be approved for this
reason, it need not address the other grounds for the Bank’s objection to the sale.
1 See Exhibit 11
2 At the preliminary hearing on Bank of Albuquerque’s motion to convert, the Court suggested that the Debtor
consider selling vehicles unencumbered by any perfected liens, other than a replacement lien granted at a cash
collateral hearing, so rank and file employees could be paid post-petition wages prior to conversion of the case to
chapter 7; such sale to be subject to court approval.
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FACTS
The principal of the Debtor, Kevin Chavez, made a concerted effort to sell the vehicles
and trailers within a short time so the Debtor could pay post-petition wages and professional
fees prior to conversion of this chapter 11 case to chapter 7. Many of the vehicles have
condition problems. Most of the 22 vehicles the Debtor seeks to sell have over 100,000 miles.
Four or five of the vehicles will not start, including three or four that have blown
transmissions.
Employees of the Debtor made as many as sixty telephone calls to competitors in the
concrete business in an attempt to locate buyers for the vehicles and trailers. Those efforts
yielded only a couple lowball, unreasonable offers. Mr. Chavez then contacted Randy
Eastburg, “the only person I know in the [automobile] industry.” Mr. Eastburg put Mr. Chavez
in contact with Danny McCallister. Mr. McCallister came to Premier and inspected the
vehicles and trailers. He McCallister made an offer to buy all the vehicles and trailers in
question for $75,000. Mr. Chavez did not talk to anyone in the business of selling vehicles
other than Mr. Eastburg and Mr. McCallister, and accepted the first and only offer he received
to buy vehicles and trailers in bulk. Mr. Chavez did not tell Mr. McCallister how much he
needed for the vehicles and trailers to cover payroll, the Bank’s replacement lien, and post-
petition professional fees. Mr. Chavez candidly admitted he was desperate to sell the vehicles
and trailers quickly to take care of employees who live pay check to pay check, and that if he
had more time to sell the vehicles and trailers Premier may get a higher price, perhaps $80,000
to $100,000. However, on a quick sale basis Mr. Chavez believes $75,000 is a fair price.
The Bank’s expert, C.L. Bentley, estimated the vehicles and trailers would sell for
approximately $168,000 “as is, where is” at a properly advertised and conducted auction,
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yielding approximately $150,000 to the seller after deducting a 10% sale commission. Mr.
Bentley also estimated the vehicles and trailers to be worth between $120,000 and $170,000 at
a quick sale, less costs of sale. The Court finds Mr. Bentley’s valuation to be problematic.
The Bank sent Mr. Bentley a list of the vehicles and trailers that included a Bank suggested
value for each item. Of the values the Bank suggested, Mr. Bentley accepted all but three of
them as his pre-inspection estimates of value, although he made further adjustments after
inspecting the vehicles and trailers. Mr. Bentley used a “comparable” sales approach for his
valuation, based on sales within the past three years, but regarded certain sales of different
makes and models, or different model years, to be comparable. Mr. Bentley made no effort to
start the vehicles since he did not ask for and was not provided keys when he inspected them.
DISCUSSION
Pursuant to 11 U.S.C Section 363(b)(1), a debtor in possession may sell property of the
estate “other than in the ordinary course of business” after notice and a hearing. A bulk sale of
22 vehicles and 15 trailers was not within the Debtor’s ordinary course of business.
In determining whether to approve a sale outside the ordinary course of business under
11 U.S.C Section 363(b)(1) courts generally apply a business judgment test. E.g. In re
General Motors Corp., 407 B.R. 463, 493-94 (Bankr. S.D.N.Y. 2009); In re Derivium Capital,
LLC, 380 B.R. 392, 404 (Bankr. D.S.C.2007); In re Psychrometric Systems, Inc., 367 B.R.
670, 674 (Bankr.D.Colo.2007). Non-exclusive factors used by courts in considering whether
to grant a motion to sell (as first established In re Lionel, 722 F.2d 1063, 1071-72 (2nd Cir.
1983), which articulated the “business judgment” test) include: 1) whether there was any
improper or bad motive involved; 2) whether the price is fair and reasonable and whether the
transaction occurred at an arm’s length; and 3) whether there were adequate sales procedures,
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including proper exposure to the market and fair and reasonable notice to all parties in interest.
E.g. In re Castre, 312 B.R. 426, 428 (Bankr.D.Colo. 2004); In re Medical Software Solutions
286 B.R. 431, 440-441 (Bankr.D.Utah 2002). See also In re Allison, 39 B.R. 300, 303 (Bankr.
D.N.M. 1984 (“reasonable and adequate notice must be given to all interested parties,” the
proposed sale or lease must be “economically reasonable” and that objecting parties will not
be able to defeat a plan of reorganization).
Here, the Debtor has not sustained its burden to show that the proposed sale of the vehicles
and trailers in bulk for $75,000 is a reasonable exercise of the Debtor’s business judgment. In
making this determination, the Court does not rely on Mr. Brentley’s opinion of value and does
not question the Debtor’s good faith. The Debtor, in good faith, located a buyer for the assets
for the commendable purpose of paying employees post-petition wages so payment would not
be delayed after conversion of this case to chapter 7. However, accomplishing this worthwhile
purpose does not by itself justify the proposed sale of the assets.
The Debtor is not experienced in the sale of vehicles and trailers in bulk, and did not
adequately expose the assets to the marketplace. The Debtor conducted no advertising. The
Debtor made no reasonable investigation to ascertain the value of the assets. The Debtor’s
president spoke with the only person he knows in the business of buying vehicles in bulk, who
referred the Debtor to a single buyer. The Debtor accepted the first and only offer made from
that prospective buyer to purchase the assets out of a sense of urgency to complete a sale in a
short period prior to conversion of this case to chapter 7. This is not sufficient to support a
finding that the Debtor exercised reasonable business judgment in accepting the purchase offer.
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The Court, therefore, concludes that the Debtor’s Motion to Sell Unencumbered Vehicles
should be denied. An appropriate order consistent with this Memorandum Opinion will be
entered.
____________________________
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Entered on Docket Date: May 3, 2010
Copies to:
Chris W Pierce
Hunt & Davis, P.C.
P.O. Box 30088
Albuquerque, NM 87190-0088
Attorneys for Debtor in Possession
William R. Keleher
Jason C. Bousliman
MODRALL, SPERLING, ROEHL, HARRIS
& SISK, P.A.
Post Office Box 2168
Albuquerque, New Mexico 87103-2168
Attorneys for Bank of Albuquerque, N.A.
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