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UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF IOWA




In Re:

NATURAL PORK PRODUCTION II,
LLP,

Debtor and Debtor in Possession.

PO Box 468
Harlan, IA 51537

EIN: 03-0480873


_____________________________________


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Case No.: 12-02872-als11

Chapter 11

Hon. Anita L. Shodeen

DEBTOR’S MOTION FOR ORDER
AUTHORIZING SALE OF REAL
ESTATE FREE AND CLEAR OF
LIENS, CLAIMS AND
ENCUMBRANCES
(BRAYTON RESIDENCE)

No Hearing Set

COMES NOW NATURAL PORK PRODUCTION II, LLP (“NPPII”), the Debtor and

Debtor in Possession herein, by and through its duly-employed General Reorganization Counsel,

Jeffrey D. Goetz, Esq., of the law firm of Bradshaw, Fowler, Proctor & Fairgrave, P.C., and

hereby respectfully files the instant Motion for Order Authorizing Sale of Real Estate Free and

Clear of Liens, Claims and Encumbrances (Brayton Residence), and would show this Honorable

Court as follows:

1.

On September 11, 2012 (“Petition Date”) NPPII, a Limited Liability Partnership

organized on July 12, 2002, and duly authorized to do business in the State of Iowa, filed its

voluntary petition under Chapter 11 of the Bankruptcy Code, which case is now pending before

this Court, and in which the Debtor is duly operating as a Debtor in Possession, pursuant to

Bankruptcy Code Sections 1107 and 1108. There is no motion or application pending for the

appointment of a Trustee or Examiner.

2.

NPPII is the successor in interest to Natural Pork Production II, L.C. and is the

parent, predecessor in interest, sole member and sole equity interest holder of that certain

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wholly-owed subsidiary, Brayton, LLC, which is a debtor and debtor in possession in an

affiliated case now pending before this Court at Case No. 12-03749-als11.

3.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and

1334. Venue in this district is proper pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core

proceeding pursuant to 28 U.S.C. § 157(b)(2). The statutory predicates for relief sought herein

include Code §§ 105(a), 363, 365 and Rules 2002, 6004, 6006 and 9006 of the Federal Rules of

Bankruptcy Procedures (the “Bankruptcy Rules”).

4.

NPPII holds title to a single family residence on approximately 1.6 acres in

Audubon County, Iowa, and commonly referred to as 3257 Goldfinch Place, and legally

described as Lot 1 of Parcel A of the Northeast Quarter of the Southeast Quarter of Section 22,

Township 78 North, Range 36, West of the Fifth P.M., Audubon County, Iowa, as designated by

survey recorded as Instrument #02-0913, in the Office of the Audubon County Recorder

(“Brayton Residence”).

5.

The Brayton Residence is contiguous with and substantially integrated with the

operations at the Brayton Facility. Brayton, LLC holds title to improved real estate and

buildings, with equipment and fixtures, specifically designed for a 5,600 sow Farrow-to-Wean

pig production operation in Brayton, Iowa, and located at 3293 Goldfinch Place (“Brayton

Facility”). Prior to Brayton, LLC’s organization, and its acquisition of the Brayton Facility on

September 4, 2008, the Brayton Facility was constructed and owned by NPPII.

6.

Filed contemporaneously with the instant motion, Brayton LLC has filed a motion

to sell the Brayton Facility to Newell Pig II, LLP (“Newell”) for $5,170,000.00, pursuant to a

Lease, Notice of Exercise of Option and Asset Purchase Agreement. In connection with Brayton,

LLC’s proposed sale of the Brayton Facility to Newell, Newell wishes to purchase the Brayton

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Residence from NPPII for $30,000 (the “Purchase Price”).

7.

The Brayton Residence is encumbered by a disputed mortgage, lien and security

interest granted in January, 2012 to the Inter Creditor Committee (“ICC”), in its capacity as

Collateral Agent for the Settlement and Intercreditor Agreement Parties (“SIA Parties”). The

rights, if any, of the ICC in the disputed mortgage, lien and security interest is the subject of a

pending adversary proceeding in the NPPII bankruptcy case, entitled “Natural Pork Production

II, LLP v. IC Committee”, Adversary Proceeding No. 13-30016.

8.

On or about December 31, 2008, NPPII entered into a month-to-month Dwelling

Unit Rental Agreement of the Brayton Residence with Brian Peterson (“Peterson”). A copy of

said Lease is attached hereto as Exhibit “A” and is incorporated by reference herein.

9.

The Debtor and Newell intend to enter into and execute a Residential Purchase

Agreement (“RPA”) to memorialize the terms and conditions of the proposed sale transaction of

the Brayton Residence, a true and exact copy of which is attached hereto as Exhibit “B” and is

incorporated by reference herein.

Relief Requested

10.

The Debtor is seeking Court approval of a sale of the Brayton Residence to

Newell for the Purchase Price, pursuant to the RPA, free and clear of all liens, claims,

encumbrances and interests. Debtor believes that a sale to Newell pursuant to the RPA is in the

best interest of Debtor’s estate and its creditors.

11.

Section 363 of the Bankruptcy Code governs the Debtor’s ability to sell property

of the estate outside of the ordinary course of business. Although this Section does not set forth

a standard for determining when it is appropriate to authorize such a sale, courts have uniformly

held that such a sale should be approved when it is justified by a sound business purpose. See In

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re Lionel Corp., 722 F.2d 1063, 1070-71 (2d. Cir. 1983); Chrysler Group LLC v. South Holland

Dodge, Inc., 862 F. Supp. 2d 661, 668 (E.D. Michigan 2012); In re Dewey & LeBoeuf LLP, No.

12–12321 (MG), 2012 WL 5386276, at *5 (Bankr. S.D. N.Y. Nov. 1, 2012); In re Nicole Energy

Services, Inc., 385 B.R. 201, 230 (Bankr. S.D. Ohio 2008). The burden of establishing a rational

business justification lies with the debtor. Nicole Energy, 385 B.R. at 230 (citing Lionel, 722

F.2d at 1070-71). However, once the debtor makes such a showing, a presumption will attach

that the decision was made on an informed basis, in good faith and in the honest belief that the

action was in the best interest of the company. See, e.g., In re Brook Valley VII, Joint Venture,

496 F.3d 892, 900 (8th Cir. 2007).

12.

Applying Bankruptcy Code Section 363, courts accord Debtors substantial

deference in formulating procedures for selling assets. See, e.g., In re Boston Generating, LLC,

440 B.R. 302, 329-330 (S.D. N.Y. 2010) (noting that the requirements for Section 363 sales are

reviewed according to the deferential “business judgment” standard); In re Adelphia

Communications Corp., No. 02–41729 (REG), 2003 WL 22316543, at *30 (Bankr. S.D.N.Y.

Mar. 4, 2003) (applying the “business judgment” standard presumption of validity and noting

that courts are “loath to interfere with corporate decisions absent showings of bad faith, self

interest, or gross negligence.”)

13. Here, the RPA supporting the Purchase Price is supported by ample business

justification and is reasonable and appropriate under the circumstances of this case.

The Proposed Transaction Satisfies All Applicable Legal Standards

14.

Section 363(b)(1) of the Bankruptcy Code provides, in relevant part, that a debtor

“after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business,

property of the estate.” See also Bankruptcy Rule 6004(f)(1) (“All sales not in the ordinary

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course of business may be by private sale or by public auction”). This Section generally permits

a debtor to sell property of the estate outside of the ordinary course of its business where the

proposed sale is a sound exercise of the debtor’s business judgment and when such sale is

proposed in good faith. See In re Lionel Corp., 722 F.2d 1063, 1070 (2d Cir. 1983); In re Nicole

Energy Services, Inc., 385 B.R. 201, 210 (S.D. Ohio 2008) (“Under the law of this [Sixth]

Circuit, the Court may approve a sale of all of a debtor’s assets under § 363(b) ‘when a sound

business purpose dictates such action.’”) (quoting Stephens Industries, Inc. v. McClung, 789 F.2d

386, 390 (6th Cir. 1986)).

15.

In the instant case, the proposed sale pursuant to the RPA constitutes a sound

exercise of Debtor’s business judgment and has been proposed in good faith. A sale of the

Brayton Residence will aid in minimizing the expenses of Debtor’s estate, resulting in greater

distribution to creditors.

16.

Debtor believes this Motion and the transaction contemplated thereby is in the

best interests of the bankruptcy estate and in the best interests of all other interested parties in

this Chapter 11 case.

17.

Debtor submits that the factors described above, which support an expeditious

sale of the Brayton Residence, are consistent with the traditional rationale for authorizing a sale

outside of a Chapter 11 plan. See also In re Boston Generating, LLC, 440 B.R. 302, 321 (S.D.

N.Y. 2010); Lionel, 722 F.2d at 1070.

Sale Free and Clear of Liens

18.

Section 363(f) of the Bankruptcy Code authorizes a debtor to use, sell or lease

property of the estate outside of the ordinary course of business, free and clear of any interest in

such property. This Motion proposes the sale of the Brayton Residence free and clear of all

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interests, liens, claims and encumbrances, including existing or asserted rights of first refusal,

contractual restrictions on transferability or other similar protective rights. Any such interests,

liens, claims and encumbrances would attach to the proceeds from the sale of the Brayton

Residence (the “Sale Proceeds”) ultimately attributable to the property against or in which such

interest, lien, claim or encumbrances is asserted.

19.

Under Section 363(f)(2) of the Bankruptcy Code, a sale free and clear of all

interests, liens, claims and encumbrances is permissible if all parties asserting liens on or other

interests in the property consent. The Debtor is providing proper notice of this Motion to

creditors who assert a security interest in the Brayton Residence, including but not limited to the

Audubon County Treasurer, the ICC, and all parties to executory contracts and unexpired leases.

Provided that no creditors or interested parties object to this Motion and the proposed sale

transaction, Section 363(f)(2) will be satisfied. See, e.g., In re Motors Liquidation Co., 430 B.R.

65, 72) (in a Chapter 11 case, noting that “secured lenders” approved a transaction under §

363(b) of the Bankruptcy Code and related transactions).

20.

Under Section 363(f)(4) of the Bankruptcy Code, a sale free and clear of all

interests, liens, claims and encumbrances is permissible if the interest of any entity is in bona

fide dispute. Under Section 363(f)(5) of the Bankruptcy Code, a sale free and clear of all

interests, liens, claims and encumbrances is permissible if any party asserting an interest in the

assets could be compelled to accept money satisfaction of such interest in a legal or equitable

proceeding. The Debtor submits that to the extent the ICC asserts security interests in the

Brayton Residence and does not consent under Section 363(f), a sale free and clear of its

interests will still be permissible because, as to the ICC, its interests, or the amount of its

interests, are in fact the subject of a bona fide dispute, and it could be compelled to accept a

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money satisfaction of its interests in a legal equitable proceeding.

A Proposed Sale Does Not Establish Any Sub Rosa Plan of Reorganization

21.

A sale of assets may not be approved where such sale, rather than merely

changing the composition of the debtor’s assets, either restructures the rights of creditors or

predetermines the rights of creditors under any future plan of reorganization. See In re Braniff

Airways, Inc., 700 F.2d 935, 939-40 (5th Cir. 1983); In re Iridium Operating LLC, 478 F.3d 452,

465-66 (2nd Cir. 2007); In re Continental Air Lines, Inc., 780 F.2d 1223, 1227-28 (5th Cir. 1986).

22.

In Braniff, the Fifth Circuit held that an agreement between the debtor and its

creditors established a sub rosa plan of reorganization because, among other things, the

agreement: (i) required that any future plan of reorganization allocate certain assets only to

employees, shareholders or unsecured creditors of the debtor; (ii) required the secured creditors

to vote a portion of their deficiency claim in favor of any future plan of reorganization approved

by a majority of the unsecured creditors’ committee; and (iii) provided for the release of claims

by all parties against the debtors, its secured creditors and its officers and directors. Braniff, 700

F.2d at 939-40.

23.

Unlike Braniff, the sale transaction contemplated by this Motion will not

restructure the rights of the Debtor’s creditors or predetermine the rights of such creditors under

any future plan of reorganization.

24.

Furthermore, the Debtor has articulated sound business justifications for selling

the Brayton Residence now, rather than as part of a plan. A Bankruptcy Code § 363 sale motion

should be approved if it is based on good business reasoning. In re Lionel Corp., 722 F.2d at

1070; In re Equity Management Systems, 149 B.R. 120 (Bankr. S.D. Iowa 1993) (Court

considered some of the following factors: whether all parties in interest received reasonable

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notice; whether the purchase price is fair and reasonable; whether there is a sound business

reason for the sale; and whether the proposed sale unfairly benefits insiders or proprietary

purchasers, or unfairly favors a creditor or class). All such factors have been met here.

25.

The Purchase Price is a fair offer for the Brayton Residence at this time. Given

the current economic climate, Debtor believes it would be imprudent to ignore such an attractive

offer now when the value of the Brayton Residence could be adversely affected or deteriorate in

the coming months prior to plan confirmation. Basically, the Debtor is taking the conservative

approach that a “bird in hand is worth two in the bush”.

Sale Price and Terms were Negotiated at Arm’s Length and in Good Faith

26.

The Purchase Price and sale terms were negotiated, have been, and are undertaken

by Debtor and Newell at arm’s length, without collusion and in good faith within the meaning of

Bankruptcy Code § 363(m), and Debtor accordingly requests that the Court determine that the

entire sale process has been conducted in good faith within the meaning of Bankruptcy Code §

363(m) and that Brayton and Newell are entitled to the protections of Bankruptcy Code §

363(m). See In re Brook Valley IV., 347 B.R. 662, 676 (B.A.P. 8th Cir. 2006).

27.

In the Debtor’s view, the proposed sale of the Brayton Residence represents

substantial value to Debtor’s estate inasmuch as it provides favorable terms for the disposition of

the Brayton Residence at a price that represents fair and reasonable consideration having a

certain value. See id. at 869. See also Mellon Bank, N.A., v. Metro Communications, Inc., 945

F.2d 635 (3d. Cir. 1991) (reasonably equivalent value under the Bankruptcy Code).

///

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Reduction or Elimination of 14-Day Stay Under Bankruptcy Rules 6004(h) and 6006(d)

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28.

Time is of the essence in approving and closing the sale and any unnecessary

delay in closing the sale could result in the collapse of the sale. Accordingly, this Court should

waive the 14-day period staying any order to sell the property of the estate imposed by

Bankruptcy Rules 6004(h) and 6006(d).

CONCLUSION



Based upon the authorities and facts detailed above, Debtor submits that the Court should

approve the Motion pursuant to the Residential Purchase Agreement. Such relief is warranted

because Debtor has shown that the sale of the Brayton Residence is in the best interests of the

Debtor, its estate and creditors, and because the decision to sell the Brayton Residence was

reached in the exercise of Debtor’s sound business judgment, after careful deliberation of its

consequences and possible alternatives.



WHEREFORE, the Debtor respectfully requests that the Court hear this Motion and (a)

enter an Order authorizing the Debtor’s sale of the Brayton Residence to Newell, free and clear

of all liens, encumbrances, claims and interests; (b) find that the sale be effective immediately

and that the stay provisions of Bankruptcy Rules 6004(h) and 6006(d) do not apply; and

(c) provide such other relief as is just and proper under the circumstances.

Date: August 8, 2013




















































































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Respectfully submitted,







/s/ Jeffrey D. Goetz
Jeffrey D. Goetz, Esq., IS #9999366
Bradshaw Fowler Proctor & Fairgrave, P.C.
801 Grand Avenue, Suite 3700
Des Moines, IA 50309-8004
515/246-5817
515/246-5808 FAX
[email protected]

General Reorganization Counsel
for Natural Pork Production II, LLP
Debtor and Debtor in Possession





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CERTIFICATE OF SERVICE





This document was served electronically on parties who receive electronic notice through CM/ECF as



listed on CM/ECF’s notice of electronic filing. /s/


Barbara Warner



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