IN RE: GREEN RIVER CABLE, INC. CASE NO. 94-50568

UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE:

GREEN RIVER CABLE, INC. CASE NO. 94-50568

DEBTOR

MEMORANDUM OPINION

This matter is before the court on the motion of Telemedia Communications, Inc. for a new hearing or to alter, amend, or set aside an order entered on February 17, 1995, in which the court decreed the debtor in possession does not have to refund to Telemedia an earnest money deposit of $90,000.

The order of February 17, 1995 was entered in conformity with findings of fact and conclusions of law made by the court on the same date. The court adopts its prior findings of fact and conclusions of law with such modifications and clarifications as hereinafter may be made.

1. The motion of Telemedia to alter, amend, or set aside the order of February 17, 1995, or in the alternative for a new hearing, renews the contention that Rule 7001 of the Federal Rules of Bankruptcy Procedure directs that the relief sought by the debtor must be requested by complaint rather than by motion, because this is a proceeding to "recover" money or property. "Recover" means to "get back" or to "regain." The debtor in possession is not attempting to get back or regain money. As previously pointed out by the court the debtor in possession already has control over the money in question. The nuance that the money is in the possession of the attorney for the debtor as escrow agent, but nevertheless as agent of the debtor in possession and subject to the direction of the debtor in possession, does not persuade the court that it erred in holding that in the factual circumstances here presented the relief sought by the debtor, forfeiture of the earnest money deposit, may be requested by motion.

2. The motion to alter, amend or set aside the order of February 17, 1995 was heard by the court on April 2, 1995. As previously pointed out by the court the rules of discovery apply in a contested matter. Rule 9014, Federal Rules of Bankruptcy Procedure. There is no indication in the record that Telemedia conducted any discovery in the 60-day interim between these hearing dates. Moreover, insofar as the court can determine, there is nothing to discover from witnesses other than officers or agents of Telemedia.

3. It is true the Letter Agreement dated June 9, 1994, as accepted by Telemedia on June 27, 1994, provides -

In this bankruptcy case the debtor has filed schedules of its assets and liabilities and a statement of its financial affairs, disclosing that its assets were being foreclosed on by National City Bank in an action in the Pulaski Circuit Court.

The order of this court entered on September 29, 1994, approving the sale to Telemedia provided that the "assets are sold free and clear of all liens and encumbrances" and that any such liens and claims shall attach to the proceeds of the sale in the same order of priority as to the assets themselves. This is far more protection than would have been provided by the "customary representations" in the Asset Purchase Agreement referred to in the Letter Agreement dated June 9, 1994. Surely a debtor in a chapter 11 bankruptcy filed to forestall a foreclosure action was not expected to make representations concerning the absence of litigation. The schedules to the bankruptcy petition contain detailed representations concerning the assets and liabilities and income of the debtor. A representative of Telemedia had inspected the assets and books and records of the debtor. Upon completion of the sale the corporate debtor would have been out of business and judgment proof. Under these circumstances, the court believes the reason Telemedia did not insist on a definitive Asset Purchase Agreement before the court approved the sale, which was well after the expiration of thirty days from the date Telemedia accepted the Letter Agreement, is obvious. An agreement containing the "customary representations" might have been important in a private sale; it is of little importance in this judicial sale where the court order protects Telemedia from all claims of all creditors of the debtor.

4. The Letter Agreement of June 9, 1994 was attached to the notice of sale brought on for hearing before the court. The Letter Agreement provided that the earnest money deposit of $90,000 would be placed in a debtor in possession escrow account. The court and the creditors were never made aware of the Escrow Agreement dated June 27, 1994. To the extent that the Escrow Agreement would have authorized refund of the earnest money deposit without court involvement the court would not have approved such an agreement. The court does not perceive how Telemedia can be permitted to rely on an Escrow Agreement that undercuts the terms of the Letter Agreement of June 9, 1994, as approved by the court in authorizing the sale of the assets of the debtor to Telemedia. Once approved by the court, the offer could not be withdrawn without approval of the court.

5. Apparently there was never a meeting of the minds of the parties with respect to the Escrow Agreement. The Letter Agreement of June 9, 1994 does not incorporate the Escrow Agreement; the Letter Agreement makes no reference to the Escrow Agreement. The interlineations made by Mr. Hamilton merely conform the Escrow Agreement to the provisions of the order approving the sale to Telemedia. Paragraph 5 of the order of September 29, 1994 requires the debtor in possession to hold the proceeds of the sale pending further orders of the court. The Escrow Agreement as drafted by Telemedia did not conform to this requirement because, as previously noted, once approved by the court the offer could not be withdrawn and the escrowed funds returned to the buyer without approval of the court. The Escrow Agreement is superfluous.

6. Even if for some conceivable reason the Escrow Agreement in its original form, as drafted by Telemedia, were binding on the debtor in possession, Telemedia did not withdraw its offer under the Letter Agreement in the formal manner required by paragraph 9 of the Escrow Agreement. The affidavit that the buyer had withdrawn its offer was never delivered to the debtor in possession personally or by registered or certified mail. As a matter of fact, the address to which any notice is to be given is not specified in the Escrow Agreement.

For the reasons herein given, the motion of Telemedia to alter, amend, or set aside the order of February 17, 1995 or in the alternative for a new hearing shall be overruled.

Dated:

By the court -

Chief Judge

Copies to:

John T. Hamilton

Jerry D. Truitt

Alan G. Fishel