United States District Court, D. Delaware
In re HOMEBANC MORTGAGE CORP., et al. Debtors.
BEAR STEARNS & CO., INC., BEAR STEARNS INTERNATIONAL LIMITED, AND STRATEGIC MORTGAGE OPPORTUNITIES REIT, INC. Appellees. GEORGE L. MILLER, TRUSTEE FOR THE ESTATE OF HOMEBANC CORP., Appellant, BAP No. 17-24 Civil Action No. 17-797-RGA
T. Carroll, Barry M. Klayman, COZEN O'CONNOR, Wilmington,
DE; Steven M. Coren (argued), David M. DeVito, KAUFMAN, COREN
& RESS, P.C., Philadelphia, PA. Attorneys for Appellant.
William P. Bowden, Karen B. Skomorucha Owens, ASHBY &
GEDDES, P.A., Wilmington, DE; Andrew W. Stern (argued), James
O. Heyworth, Francesca E. Brody, SIDLEY AUSTIN LLP, New York,
NY. Attorneys for Appellees.
ANDREWS, U.S. DISTRICT JUDGE.
an appeal from the Bankruptcy Court's June 14, 2017 final
judgment. (D.I. 30-2 at A512). The appeal is fully briefed.
(D.I. 29; D.I. 31; D.I. 34). I held oral argument on June 22,
2018. (D.I. 40 ("Tr.")). After oral argument, I
ordered the parties to produce letter briefs. (D.I. 38; D.I.
39). For the reasons set forth below, the Bankruptcy
Court's judgment is AFFIRMED.
parties' dispute arises in connection with an auction of
securities owned by HomeBanc Corporation
("HomeBanc"), which was conducted by Appellees
Bear, Stearns & Co., Inc., Bear Stearns International
Limited, and Strategic Mortgage Opportunities REIT, Inc.
(collectively, "Bear"). Between October 2005 and
August 2007, Bear lent money to HomeBanc in a number of repo
transactions made pursuant to a Global Master Repurchase
Agreement ("GMRA"). Each individual transaction made
pursuant to the GMRA was accompanied by a confirmation which
identified the purchase date, the purchase price, the
repurchase date, and the pricing rate. Between 2005 and 2007,
HomeBanc obtained approximately $200 million from Bear
through numerous repo transactions.
litigation involves nine Securities at Issue
("SAI"), which Bear obtained in three sets of
transactions that took place in June 2006, June 2007, and
July 2007. Each of the SAI was transferred to Bear along with
other securities, and the confirmation corresponding to each
of the SAI showed a purchase price of zero and open
repurchase dates. HomeBanc's repos became due on August
7, 2007, at which point Bear offered to extend the repos if
HomeBanc reduced its outstanding debt by making a payment of
approximately $27 million. HomeBanc did not make the payment.
On August 9, 2007, Bear issued formal notices of default.
That night, HomeBanc filed chapter 11 bankruptcy petitions.
The bankruptcy was later converted to a chapter 7 proceeding.
morning of August 10, 2007, Bear distributed auction
solicitations, also known as bid lists, for the securities on
repo under the GMRA, including the nine SAL The bid lists
were sent to approximately 200 investors, with bids due on
August 14, 2007. In addition to soliciting outside bids, the
Bear repo finance desk solicited bids from the Bear mortgage
trading desk. To ensure that Bear affiliates were not at an
advantage, any bids from an affiliate were required to be
submitted 30 minutes prior to the close of the auction. The
repo finance desk received only two bids, an all or nothing
bid of $60.5 million from the Bear mortgage trading desk, and
a bid of $2.19 million by Tricadia Capital for two individual
securities, neither of which is among the nine SAL The
securities were sold to the Bear mortgage trading desk.
Bankruptcy Court granted summary judgment in Bear's
favor, holding that the SAI were subject to "repurchase
agreements" under the Bankruptcy Code. In re
HomeBanc Mortg. Corp., 2013 WL 211180 (Bankr. D. Del.
Jan. 18, 2013) (D.I. 30-1 at A313-64). More specifically, the
Bankruptcy Court found that the repo transactions qualified
as "repurchase agreements" under 11 U.S.C. §
101(47)(A)(i), having been transferred "against the
transfer of funds." (Id. atA333). The
Bankruptcy Court alternatively held that even if the
transactions did not qualify under § 101(47)(A)(i), they
qualified under § 101(47)(A)(v), the catchall provision.
(Id. at A334). Having established that the
transactions were "repurchase agreements" under the
Bankruptcy Code, the Bankruptcy Court found that Bear's
exercise of its contractual right to sell the SAI was
entitled to the safe harbor protection of § 559 of the
Bankruptcy Code. (Id. at A316). The Bankruptcy
Court then considered whether Bear's auction of the SAI
complied with the terms of GMRA. (Id. at A358).
Because the GMRA gave discretion to the non-defaulting party,
the Bankruptcy Court concluded that the only real question
was whether the timing and manner of the auction was in good
faith, given the prevailing market conditions.
(Id.). The Bankruptcy Court held that there existed
no disputed fact as to whether the auction was in good faith
and in accordance with industry practice, and granted summary
judgment for Bear. (Id.).
appeal, I affirmed in part and reversed in part. In re
HomeBanc Mortg. Corp., 2014 WL 1268677 (D. Del. Mar. 27,
2014) (D.I. 30-1 at A365-77). In relevant part, I held that
the SAI were not transferred "against the transfer of
funds," and therefore did not meet the definition of
"repurchase agreements" in § 101(47)(A)(i).
(D.I. 30-1 at A372). Rather, I held that the SAI were
"credit enhancements," which qualified as
"repurchase agreements" under § 101(47)(A)(v),
the catchall provision. (Id. at A373). I remanded
the case for the Bankruptcy Court to determine "whether
the auction complied with the GMRA." (Id. at
A376). In doing so, I affirmed that the GMRA gave Bear
"a certain amount of discretion in what to do with the
disputed securities once HomeBanc had declared
bankruptcy," cabined by good faith and rationality.
(Id. at A373-75).
remand, after a six-day trial, the Bankruptcy Court found
that Bear's "auction of [HomeBanc] repurchase
agreement collateral in August 2007 was rational, in good
faith and in compliance with the [GMRA]." (Id.
at A376; D.I. 30-2 at A47l).
Chapter 7 trustee of HomeBanc, George L. Miller (the
"Trustee"), appealed the Bankruptcy Court's
decision on June 21, 2017. (D.I. 1).
Court has jurisdiction to hear an appeal from a final
judgment of the Bankruptcy Court pursuant to 28 U.S.C. §
158(a)(1). In undertaking a review of the issues on appeal,
the Court applies a clearly erroneous standard to the
Bankruptcy Court's findings of fact and a plenary
standard to its legal conclusions. See Am. Flint Glass
Workers Union v. Anchor Resolution Corp.,197 F.3d 76,
80 (3d Cir. 1999). With mixed questions of law and fact, the
Court must accept the Bankruptcy Court's finding of
"historical or narrative facts unless clearly erroneous,
but exercise[s] 'plenary review of the trial court's
choice and interpretation of legal precepts and its
application of those precepts to the historical
facts.'" Mellon Bank, N.A. v. Metro
Commc'ns, Inc.,945 F.2d 635, 642 (3d Cir. 1991)
(citing Universal Minerals, Inc. v. C.A. Hughes &
Co.,669 F.2d 98, 101-02 (3d Cir. 1981)). In other
words, this Court reviews a decision of the Bankruptcy Court
just the ...