Rapid City attorney David Ganje: Nobody gets the war they want. The Alex Jones bankruptcy case is a perfect example
(Editor’s note: the Alex Jones bankruptcy came as a result of a lawsuit filed against him by the relatives of the victims of the mass shooting at Connecticut’s Sandy Hook Elementary School, seen above, in 2012.)
Alex Jones is in a bankruptcy case. He is still fighting. He is now challenging a bankruptcy trustee’s sale of a number of his principal assets.
The property, the Infowars website and related assets, was sold within the bankruptcy case under a bankruptcy trustee’s auction sale. A “liquidation sale” is the parlance of bankruptcy for a sale of property in a bankruptcy proceeding. A Chapter 7 bankruptcy case involves the trustee selling the debtor’s assets to pay creditors at least in part for claims the creditors hold against the chapter 7 debtor.
The trustee’s sale was held. The results were a loss to Jones in a manner of speaking. Jones’ preferred bidder lost.
The losing bidder under the trustee’s analysis was a company called First United American Companies. This company runs a website in Jones’ name that sells nutritional supplements. While First United was indeed the highest dollar bidder, the bid lost.
The trustee reported the second highest dollar offer as the recommended best bid subject to court approval. After the bidding auction was finished, Jones, on behalf of himself and First United, immediately sued the trustee and others.
Among other arguments, Jones alleges the bid process violated the bankruptcy judge’s rules for an approved auction sale by allowing multiple parties for a single bid, used a misleading auction process, and disregarded the highest cash offer as the trustee’s recommended best bid.
The winning bid per the trustee was the joint bid by a company affiliated with the publication known as The Onion. The joint bid also included a group of bidders who are judgment creditors under a large defamation money judgment against Jones. The defamation money judgment is on appeal, but the bankruptcy judge has preliminarily approved the defamation judgment as a claim in the bankruptcy case. The higher-dollar-amount First United bid was delegated by the trustee as a backup bid only.
This stuff almost makes the law interesting.
There are two offers here: 1. First United submitted a $3.5 million cash sealed bid, and 2. The second bidder, at $1.75 million in cash (plus some other stuff I will describe), was submitted by the Onion-affiliated company and the judgment creditors as one bid.
The Onion is a satirical media company and newspaper. Importantly, this second bid offered a legal waiver, which is a release of the judgment creditor’s right to receive payments from the bankruptcy estate. These payments are the customary payouts a trustee makes to creditors at the end of a case.
The second bid additionally requires that the judgment creditors receive certain not-clearly-defined future revenues from the post-sale operation of the assets sold.
If the second bidder is successful with the waiver of the judgment creditors’ right to the end-of-case payments, then the waiver would arguably result in an increase in the amount of money other unrelated creditors of Jones would receive. Jones, on the other hand, alleges that the second “winning” bid includes a mathematical formula for a final number which cannot be determined.
The judge stated in a recent preliminary hearing that all parties should be concerned about the sale results, and that he is concerned about the fairness of the process and about the issue of transparency in the process of the sale. He will hold a hearing on the matter in the next several weeks.
At issue under the recently filed complaint by Jones is whether the trustee exceeded his discretion in his conduct of the sale and in his choice for the recommended best bid.
Jones’ trustee in a pre-sale motion had requested broad authority to conduct the sale. This is not unique. As a former bankruptcy trustee and a currently practicing attorney, I appreciate the need for giving a trustee latitude in the conduct of an asset sale.
The trustee in the Jones case requested and received guidance by way of a written pre-sale order granted by the judge. Under this guidance, the trustee was allowed to change his game plan as the sale process proceeded if he did not violate the Bankruptcy Code or violate the guidance set out by the judge in the order. Certain material terms of the order stated the trustee may provide reasonable accommodation to any potential bidder regarding the terms, conditions, and deadlines for submitting bids.
And importantly, the order further stated that the trustee’s right is reserved, in his reasonable business judgment, to modify or waive any procedures or requirements with respect to qualified bidders. The guidance also stated the trustee could announce at the auction modified or additional procedures for such an auction in any manner that will best promote the goals of the bidding process.
The order directed that the trustee should work to achieve the highest or otherwise best offer. Therein lies the rub. The highest bid may not translate to the highest value or the best offer. If it were that simple, then no discretion or judgment need be given to a trustee. The ability to accept a better offer that is not dollar-wise higher than the highest dollar bid is one of the reasons the business judgment test exists.
The order setting up the sale in the Jones case contains some uncertainty which may play a role here. The order includes two conflicting terms: The order states each bid must clearly set forth the purchase price to be paid, including cash and non-cash components, if any; and the judge’s order separately states that the purchase price should be a specific amount in U.S. dollars (not a range).
Will an imperfect sale scenario hold up under the independent analysis which the judge must give this sale? We shall see how the judge determines the application of bankruptcy law and policy to the facts of this pending sale.
David Ganje of Rapid City is an attorney who practices commercial, natural resources, and environmental law. His website is lexenergy.net
Photo: public domain, wikimedia commons
