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* SWE & C Liquidating Trust v. Saudi Arabian Oil Co. (In re Stone & Webster, Inc.), 373 B.R. 353 (Bankr. D. Del. Aug. 2007) (Walsh, J.)
Read your asset purchase agreement: Are you assuming liabilities without buying any rights? The purchaser of the debtor's assets under a section 363 sale sought to intervene in an adversary proceeding commenced by the liquidating trust against the defendant for breach of a construction contract with the debtor. The defendant's alleged breach ultimately triggered the debtor's liability on a guaranty to the construction project financier (a Saudi Arabian bank). The court had previously denied the bank's motion to intervene, finding that the bank could not establish that it held any rights in the debtor's causes of action against the defendant. The court applied the same logic to the purchaser's motion to intervene. Like the bank, the purchaser could not establish that it purchased any rights to the debtor's causes of action arising out of the construction project. Even though the purchaser explicitly assumed the debtor's guaranty to the bank through the APA,17 the plain terms of the APA effectively severed the debtor's guaranty liability from the debtor's causes of action against the defendant. In fact, the court found that these causes of action had been listed as excluded assets in the APA. Equally unavailing to the court was the purchaser's theory of unjust enrichment. Said the court, any enrichment to the debtor by way of the APA was not unjust but, rather, bargained for and agreed upon by the debtor and the purchaser. The court also rejected the purchaser's subrogation argument -- i.e., the purchaser argued that its rights were subrogated to the bank's -- because the purchaser, like the bank, could not establish that the bank held any rights in the construction project or the debtor's causes of action arising therefrom. In all events, the court concluded that the purchaser held no rights in the construction contract, and so had no grounds to intervene in the adversary proceeding.
* Sterling Vision, Inc. v. Sterling Optical Corp. (In re Sterling Optical Corp.), 371 B.R. 680 (Bankr. S.D.N.Y. July 2007) (Glenn, J.)
The surplus from a rejected executory contract was an equitable right transferred through the 363 sale. Resolving a dispute between the purchaser and a pre-petition lender, the court held that a pre-petition financing arrangement granted the lender a security interest in the debtor's accounts. That arrangement provided that the lender would hold the funds received on the debtor's accounts and return any excess to the debtor, so long as the debtor remained current on its loan. Once the debtor rejected the contract with the lender, applicable state law entitled the lender to recover its actual damages. The instant dispute arose because the funds held by the lender under the arrangement exceeded the amount actually lent to the debtor, creating a "surplus." While the court noted that the debtor could no longer assert its contractual rights per the rejection, it nevertheless had an equitable right to prevent the lender's unjust enrichment. Because that equitable right had been transferred to the purchaser under the section 363 sale order, the court held that the purchaser had standing to recover this surplus.
17 In a previous order, the court interpreted the asset purchase agreement and concluded that the purchaser expressly assumed the guaranty. Even though the enforcement of that order had been stayed pending the purchaser's appeal, the court found that the interpretation of the APA was still straightforward.
