Mountain States Rosen LLC Chapter 11 Asset Sale

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July 21, 2020 Get Citation Alerts Download PDF Add Note

Mountain States Rosen LLC

United States Bankruptcy Court, D. Wyoming

• Citations: None known
• Docket Number: 20-20111

• Precedential Status: Unknown Status

• Opinion

• Authorities (10)

• Cited By (0)

• Summaries (0)

• Similar Cases (3.2K)

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Trial Court Document

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF WYOMING

In re: Case No. 20-20111
Chapter 11
MOUNTAIN STATES ROSEN, LLC

Debtor

MEMORANDUM OPINION FOR APPROVAL OF
(A) ASSET PURCHASE AGREEMENT AND AUTHORIZING THE SALE OF
SUBSTANTIALLY ALL OF THE DEBTOR’S ASSETS;
(B) AUTHORIZING THE SALE OF ASSETS FREE AND CLEAR OF ALL LIENS, CLAIMS,
RIGHTS, ENCUMBRANCES AND OTHER INTERESTS PURSUANT TO BANKRUPTCY
CODE SECTIONS 363(b), 363(f) AND 363(m);
(C) ASSUMING AND ASSIGNING CERTAIN EXECUTORY CONTRACTS AND
UNEXPIRED LEASES PURSUANT TO BANKRUPTCY CODE SECTION 365; AND
(D) GRANTING RELATED RELIEF

This matter is before the court on the above-captioned motion filed by Debtor Mountain
States Rosen, LLC., to liquidate Debtor’s assets.1 An evidentiary hearing was held July 17, 2020,
with closing arguments by telephone conference on July 20, 2020. At the conclusion of the closing
arguments, the court took the matter under advisement. The court reviewed the docket, testimony
and documentary evidence and approves the Motion.
Jurisdiction
This court has jurisdiction of the matter under 28 U.S.C. §§ 1334 and 157. This is a core
proceeding pursuant to 28 U.S.C. §§ 157 (b)(2)(A), (M) and (O). Venue is proper subject to 28 U.S.C.
§§ 1408 and 1409.2
Background
Debtor determined that reorganization was not viable and proceeded toward liquidating its
assets. The auction was conducted on July 9, 2020, in accordance with the approved Bid
Procedures. The auction resulted in the determination Swift Beef Company, a Delaware
Corporation (Swift), was the highest and best offer for the assets, for the cash purchase price of
 
1 The court is aware a Chapter 11 debtor is a debtor in possession. However, for simplicity sake, Mountain
States Rosen is referred to as “Debtor” in this Memorandum.
2 All future references to “Code,” “Section,” and “§” are to the Bankruptcy Code, Title 11 of the United States
Code, unless otherwise indicated. All future references to “Bankruptcy Rule” or “Rule” are to the Federal
Rules of Bankruptcy Procedure.
 
$14,250,000.3 The back-up bidder, Greeley Fab LLC (FAB) objects to Debtor’s determination
Swift’s offer was the highest and best offer.
FAB is a Wyoming limited liability company formed March 4, 2020. Frank Moore is listed
as its organizer and registered agent. He is also a co-owner and manager. FAB is an insider of
Debtor under Section 101(31), due to the connection with Mr. Moore. Mr. Moore testified he is and
has been the chairman of Debtor’s board, since 2008. He is vice chairman of the Mountain States
Coop, the organization that owns 87 percent of Debtor. Mr. Moore owns six percent. Mr. Moore
testified the purpose FAB was formed was to purchase Debtor prior to it filing for bankruptcy.
However, Debtor claims due to an unfunded pension liability, it filed for bankruptcy protection.
The Official Unsecured Creditors’ Committee and CoBank, ACB, Debtor’s largest secured
creditor support the sale of Debtor’s assets to Swift. The International Brotherhood of Teamsters
(Teamsters) is the only other creditor supporting the FAB offer.
Discussion
Section 363(b) provides: “the trustee, after notice and a hearing, may use, sell, or lease, other
than in the ordinary course of business, property of the estate.” To approve a sale of substantially all
of Debtor's assets outside the ordinary course of business, the Debtor must show: (1) that a sound
business reason exists for the sale; (2) there has been adequate and reasonable notice to interested
parties, including full disclosure of the sale terms and the Debtor's relationship with the buyer; (3)
that the sale price is fair and reasonable; and (4) that the proposed buyer is proceeding in good faith.4
The court needs to find the evidence establishes a good business reason to grant an application to sell
substantially all of Debtor's assets outside the confines of a confirmed plan.5
Herein, Debtor proffered testimony supporting all of the elements. Upon cross-examination,
none of the parties challenged these elements nor that there was good business reason to sell the
assets. Instead, the issue before this court is whether JBS’ sale offer is the “highest and best” offer
when it does not assume the PPP loan6 nor does it plan to continue operations of the facility as a
lamb processing plant.7 Per the bidding procedures, Debtor had discretion to determine the highest
and best bid:
Upon completion of the Auction, the Debtor in Its Authorized Discretion, upon
consultation with CoBank and the Committee, shall announce to the Qualified
 
3 Swift Beef Company is owned by JBS S.A., a Delaware corporation.
4 In re Med. Software Sols., 286 B.R. 431, 439–40 (Bankr. D. Utah 2002).
5 Id. 6 The PPP Loan is the Paycheck Protection Plan Loan, provided under the Coronavirus Aid, Relief and
Economic Security Act (CARES), Public Law 116-136 (March 27, 2020).
7 In re Family Christian, LLC, 533 B.R. 600, 627 (Bankr. W.D. Mich. 2015) (“a debtor must demonstrate that
the proposed purchase price is not only the highest offer, but the highest and best offer.”).
Bidders which Bid or Bids represent the highest and best offer(s) for the Assets and
is/are in the best interest of the Debtor’s estate and its creditors (the “Winning Bid”).
“In determining whether to approve a proposed sale under section 363, courts generally apply
standards that, although stated various ways, represent essentially a business judgment test.”8 Under
the business judgment standard, the court examines the sale’s process and procedure and gives
deference to Debtor’s choice of the winning bid.9
FAB argues the value of the PPP loan assumption should be the full value of the loan at
$3.95 million instead of $1.25 million. It also asserts Debtor should have added a value based on its
intent to continue lamb processing operations and the impact to the industry if Swift converts the
plant to a beef facility.
Section 5(c) of the bid procedures explains: “The Debtor in Its Authorized Discretion,10 upon
consultation with CoBank and the Committee, shall have the exclusive right to value any Overbid
Increment that includes Non-Cash Consideration.” Debtor, after consultation with these entities
announced at the outset of the auction it was valuing the assumption of the PPP loan at $1.25
million. Debtor counsel explained to the parties it had determined the value using a 40% risk of
repayment. The $1.44 million value was then reduced to $1.25 to arrive at a cash equivalent—cash
in hand at sale versus potential cash in hand down the line if forgiven. Debtor did not divulge in
greater detail, under the concept of attorney-client work product privilege and the risk of admissions
being used against them in subsequent litigation, the entities’ discussion arriving at the $1.25 million
value. FAB as the stalking horse bidder, was intimately involved in negotiating the bid procedures
and knew it intended to assume the PPP loan, so it also knew such assumption was subject to
valuation under Section 5(c).
 
8 3 Collier on Bankruptcy P 363.02 (16th 2020); see also Allen v. Absher (In re Allen), 607 F. App’x 840, 843 (10th
Cir. 2015) (“The ‘business judgment’ test applies to determine whether a sale under § 363(b) should be
approved.”).
9 In re Castre, Inc., 312 B.R. 426, 429 (Bankr. D. Colo. 2004).
10 Debtor’s “Authorized Discretion” is defined in the Bid Procedures as,
Any action or decision to be made by the Debtor in “Its Authorized Discretion” shall be made as
follows: (i) it shall made by r2 as the Court-approved disinterested financial advisor for the Debtor in
compliance with the Debtor’s fiduciary duties to the estate and its creditors after consultation with the
Debtor, the Committee and CoBank; (ii) r2 shall exercise reasonable business judgment in compliance
with the Debtor’s fiduciary duties to the estate and its creditors; and (iii) in compliance with the
Debtor’s fiduciary duties, r2 shall consider the interests of Debtor’s estate and its creditors to maximize
the value of bankruptcy estate and the recoveries to creditors. r2 shall share with the Debtor’s
management, the Committee and CoBank its analysis regarding the exercise of its business judgment
in taking any such action or making any such determinations or decisions. In fulfilling its duties in
connection with these Bid Procedures, and subject to the requirements for Qualified Bids herein, r2
may receive and consider bids for any particular asset or grouping of assets that may be presented by
any potential bidder. Doc. 174, p. 24 of 29.
A debtor’s business judgment enjoys “great judicial deference,” but this discretion is not
without limit.11 Deference to a debtor's decision as to a successful bidder of its assets is appropriate,
and the court should honor that decision it is proven the debtor abused its discretion.12 “It is only in
the context of a strong and unusual case to the contrary in which a bankruptcy court should approve
a sale to a party which the DIP does not deem the highest and/or best bidder in an auction sale.”13
“A debtor's business decision should be approved by the court unless it is shown to be so manifestly
unreasonable that it could not be based upon sound business judgment, but only on bad faith, or
whim or caprice.”14
Regardless of a debtor’s discretion, debtors, in conducting the sale process, have a fiduciary
duty to maximize the value of their estates.15 The fiduciary duty does not require Debtor to
mechanically accept a bid with the highest dollar amount.16 Debtors are permitted, and in fact are
encouraged, to evaluate other factors such as contingencies, conditions, timing, or other
uncertainties in an offer that may render it less appealing.17 No parties presented evidence there was
concern over either bidders’ financial ability to complete the deal or other material contingencies.18
It appears from the approved bid procedures the drafting parties attributed no value to the
loan assumption. Debtor received an offer from FAB for the aggregate purchase price of
$10,000,000, plus assumption of certain liabilities, including the PPP Loan from Converse County
Bank of Douglas, Wyoming, in the principal amount of $3,595,000—the stalking horse bid. To be a
qualified bid, a party had to submit an offer in $100,000 increments beginning at no less than $10.1
million. Had FAB believed there was measurable value to the assumption or going concern value,
they could have insisted and demanded a qualified bid be more than $13,595,000 at a minimum.
 
11 In re Broadmoor Place Investments, L.P., 994 F.2d 744, 746 (10th Cir. 1993); In re Diplomat Const., Inc., 481 B.R.
215, 220–21 (Bankr. N.D. Ga. 2012) (“Even though the [debtor’s] discretion is not without limit, the Court
should not step in and assume a role and responsibility properly placed in the hands of the Trustee under
these facts.”; In re Bakalis, 220 B.R. 525, 532 (Bankr. E.D.N.Y. 1998).
12 In re After Six, Inc., 154 B.R. 876, 881 (Bankr. E.D. Pa. 1993).
13 In re After Six, Inc., 154 B.R. at 882.
14 In re 160 Royal Palm, LLC, 600 B.R. 119, 126 (S.D. Fla.), aff'd, 785 F. App’x 829 (11th Cir. 2019) (quoting In
re SW Boston Hotel Venture, LLC, No. 10-14535-JNF, 2010 WL 3396863, at *3 (Bankr. D. Mass. Aug. 27,
2010)).
15 In re Family Christian, LLC, 533 B.R. 600, 621 (Bankr. W.D. Mich. 2015).
16 In re Family Christian, LLC, 533 B.R. at 622.
17 Id. See also In re 160 Royal Palm, LLC, 600 B.R. at 130 (“The Debtor's duty is to maximize value to the
creditors, and that maximization includes considerations such as finality, stability, and expeditious
resolution of the bankruptcy proceeding.”).
18 See In re Bakalis, 220 B.R. 525, 533 (Bankr. E.D.N.Y. 1998) (accepting a lower monetary bid when lower bid
could close sooner with reserved cash on hand and obtain quick regulatory approval.). The court recognizes
the forgiveness of the loan is still a contingency, but the closing of the sale is not dependent on its
forgiveness.
The first time the parties were made aware of any value placed on the loan assumption was
at the auction by an announcement prior to bidding. At that time, Swift registered its objection, and
it was an ongoing objection throughout the auction. The auction continued without objection from
FAB until the fourth round. Now, FAB asks the court to have a separate evidentiary hearing to
determine the appropriate value to attribute to the loan forgiveness. The court finds this unnecessary
as FAB’s course of conduct until the last round of bidding indicated the value Debtor assigned to the
loan assumption was reasonable. FAB explains it was following the bid procedures during the
auction and instead chose to object to the provided value before the court. However, FAB was in a
unique position as it had the ability to assert values related to the PPP and going-concern value as
part of its initial offer. It chose not to do so and did not attribute any value to the assumption in its
stalking horse bid. It did not challenge the value Debtor assigned to the assumption, despite Swift’s
ongoing objection. Only at the end of the auction and having been outbid three times did it assert the
value of the assumption was 100%.
Mr. Moore testified the loan “is very much in question” and there really is no means to
accurately measure the value as everything is “up in the air.” The court agrees, and as such, does not
believe there is any better information available to any party to make a more accurate determination.
More troubling to the court is there was no evidence presented that FAB’s loan assumption would
relieve Debtor from the obligation between Debtor and the SBA. FAB did not identify any efforts
made to receive approval to assume the loan and release Debtor. The assumption of the PPP loan is
essentially worthless if the court cannot point to any evidence the assumption of the loan would
release the estate from liability. While the court does not question FAB’s intent to assume the loan
and pursue the necessary release, the court is entirely without evidence as to the SBA requirements
to assume a loan and if it is even a possibility in these circumstances, regardless of FAB’s intent.
The court is also concerned the assumption of the loan could make loan forgiveness less
possible as it is uncertain whether the formula for forgiveness would be based on Debtor or the
assuming party. The potential inability is a material contingency that could result in less recovery to
the estate. While the risk of repayment exists with the Swift offer, there is more money offered to
absorb such risk. The court does not find Debtor abused its discretion in arriving at a $1.25 million
value to the loan assumption and will not substitute its own or another party’s judgment.
Second, FAB argues maintaining the facility as an on-going operation should be a factor the
court must consider in determining the best bid. Neither as part of the bid procedures nor the auction
process did FAB assert Debtor should give value to its intent to continue operating the facility but
now claims it was a mistake for Debtor not to do so. Courts found it appropriate to give value to
factors such as continual employment. A court may “appropriately award a bid to a lower bidder,
when that lower bidder had other factors, including even an element as lacking in direct economic
impact as ‘societal needs,’ in its favor.”19 The court agrees the overriding Chapter 11 objective is to
preserve a business as a going concern and prevent a debtor from going into liquidation with a loss
of jobs.20 However, this case was a liquidation case from the outset.21 Debtor continued to operate
the facility as a going-concern with the benefit of the PPP loan to help achieve a higher liquidation
value.22
The FAB Purchase Agreement specifically addressed the non-assumption of the current
collective bargaining agreement or retention of current employees,
“In particular, but without limitation, Buyer [FAB] shall not assume any
liabilities of Seller under, and Buyer shall not be deemed a successor company to
Seller in connection with, any Employee Plan, collective bargaining agreement or
other employment related arrangement to which the present or former employees . . .
are or were entitled . . . Buyer shall have no obligation to employ any of Seller’s
employees. . . .23

The FAB Purchase Agreement established FAB has no future liability to Debtor’s current
employees. Additionally, the Teamster’s collective bargaining agreement is set to expire the end of
July. Aside from the alleged WARN penalties from Debtor not having provided timely notice,
employees are not guaranteed jobs either way. Moreover, when FAB negotiated the stalking horse
bid and procedures, it gave no value to this factor, nor did it do so during the auction process, so the
court is not now able to override Debtor’s discretion on this basis.
The court also declines to attribute value for the impact to the industry on the same grounds.
Mr. Moore testified as to the lack of capacity and the impact on the industry if this facility is
changed to beef operations. As the operating manager of FAB and Debtor’s chairman, Mr. Moore
was privy to this knowledge at the time FAB determined its stalking horse bid. Had this been of such
measurable value to be included in the bid, FAB should have insisted so at that stage. To do so now
is insufficient to overcome the deference given to Debtor’s decisions. While FAB’s offer proposes to
 
19 In re After Six, Inc., 154 B.R. 876, 882 (Bankr. E.D. Pa. 1993) (the court declined to accept the lower bid
despite a commitment to maintain the employees because the court did not have a basis to exercise its
discretion to the contrary of the debtor in possession. The court could not conclude the “prospects of
Genesco's employment of the Debtor's former employees is so clear that it necessarily outweighs the rather
clear economic factors to the contrary.
20 See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 528 (1984).
21 In re After Six, Inc., 154 B.R. at 882 (“This case is clearly a liquidating Chapter 11 case and that factor justifies
some greater deference to the Committee's viewpoints than were it a reorganization case.”).
22 In re Glob. Serv. Grp., LLC, 316 B.R. 451, 460 (Bankr. S.D.N.Y. 2004) ([C]hapter 11 is based on the accepted
notion that a business is worth more to everyone alive than dead.”).
23 MSR/Greeley FAB Purchase Agreement, Doc. 131-1, p. 5-6 of 48.
save jobs” and assume a potentially forgivable loan, the court does not find these factors create a
value to the estate that would allow it to override Debtor’s discretion.
The court is sympathetic to contributing to both the unemployment situation during such
troubling times and potentially further suppressing the lamb market. However, the evidence creates
questions as to the benefit of the going-concern operation. Mr. Moore testified FAB intends to
operate the processing facility. Ideally, FAB wants to continue the employment of workers, retain
services of vendors and the infrastructure of the processing facility for the region for the greater
good. However, beyond the testimony he wanted to continue the business of the processing facility,
there was no evidence that the facility could operate at full capacity or any type of prepared business
plan. Mr. Frank stated historically there are not enough lambs to run at capacity year-round, as the
largest percentage are born within four-five months, going to market within six months with Easter
and Christmas being the strongest time for market demand. There was made mention of the
difficulty of getting stock to market, during this Covid-19 time, but no indication FAB being
awarded the winning bid would resolve this issue. Most importantly, this is not the continued
operation of Debtor, but the operation of the facility under new owners. Thomas M. Kim, Debtor’s
financial advisor, from r’ advisors llc, testified it was an impossible task to analyze the going concern
value of FAB, as it is not the Debtor. The court finds this is not a factor carrying weight to disregard
the Debtor’s discretion for approval of the Swift bid.
Considering the above FAB has not shown Debtor’s determination Swift is the highest and
best offer, to be so manifestly unreasonable that it could not be based upon sound business
judgment. There is no evidence of bad faith, nor that the decision was made on a whim or with
caprice. The court will not overrule Debtor’s discretion in determining Swift was the highest and
best offer.
The separate sale order based on this ruling will be entered.

BY THE COURT
Ohidstean sl ain.
7/21/2020
Honorable Cathleen D. Parker
United States Bankruptcy Court
District of Wyoming
Service to:
Brad Hunsicker
Jodi Shea/Bryan Glover/Steven Lovett
*4 Swift counters that while it may not employ current employees in their current capacity, jobs are available
through Swift and will be made available to retrofit and operate the facility.
Page 7 of 8

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