December 8, 2008
NANCY ROONEY, PLAINTIFF-RESPONDENT,
BIAGGIO, INC., THOMAS J. FABIANI AND THOMAS M. FABIANI, DEFENDANTS-RESPONDENTS.
ANTHONY G. PALMA, CREDITOR-APPELLANT.
ALFRED T. GIULIANO, RECEIVER-RESPONDENT.
On appeal from the Superior Court of New Jersey, Chancery Division, Burlington County, C-86-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued Telephonically November 10, 2008
Before Judges Winkelstein, Fuentes and Gilroy.
Appellant, Anthony Palma, is a former creditor of Biaggio, a spa and beauty salon in Marlton. He appeals from an order of the Chancery Division dated December 18, 2007, that permitted Alfred Giuliano, the court appointed receiver, to sell Biaggio at a private sale to four individuals for the sum of $400,000. One of the individuals was plaintiff Nancy Rooney, a former shareholder and employee of Biaggio. Palma makes a number of arguments on appeal, primarily seeking to have the sale set aside. We reject his arguments as without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). Consequently, we affirm. We add only the following.
Biaggio was owned by Biaggio, Inc., in which defendant Thomas J. Fabiani and his son, Thomas M. Fabiani, were shareholders. On December 12, 2006, pursuant to the terms of a stock purchase agreement, Rooney purchased 250 shares of stock in Biaggio, Inc. for $200,000 from Thomas J. Fabiani. She also signed an employment contract to work at the salon. Rooney subsequently filed suit against the corporation and the Fabianis, claiming they breached the stock purchase agreement and employment contract.
Rooney and defendants settled their claim, and on June 11, 2007, the court entered an order, requiring that "defendants" repurchase the Biaggio stock from Rooney for $200,000, plus accrued interest. Following a motion from Thomas J. Fabiani to vacate the settlement and appoint a receiver, and a cross-motion from Rooney to enforce the settlement, the court vacated the settlement as to Thomas J. Fabiani only, and ordered that Biaggio, Inc. and Thomas M. Fabiani repurchase the stock from Rooney for $220,000. On August 29, 2007, the court appointed Giuliano as statutory receiver pursuant to N.J.S.A. 14A:14-1 to-21.
Following his appointment, Giuliano learned that Biaggio's books and records were "incomplete and in disarray." The approximately sixty Biaggio employees had not been paid, and the landlord had filed an eviction proceeding against the business. Consequently, the receiver moved for authorization from the court to sell Biaggio at a private sale free of encumberances. N.J.S.A. 14A:14-7. The proposed buyers were Nancy Rooney, Lisa Verdecchio, Andy Enders, and Kim Carusillo (the Rooney Group).
Palma, an unsecured creditor, objected to the sale. Following a hearing at which Giuliano and Palma testified, on December 18, 2007, the court granted Giuliano's motion to sell Biaggio to the Rooney Group. The Rooney Group has owned and operated Biaggio since the sale was consummated.
On January 31, 2008, Palma filed a notice of appeal from the court's December 18, 2007 order.*fn1 Palma did not, either prior or subsequent to filing his appeal, seek a stay of the sale of the business. On appeal, Palma makes a number of arguments in which he primarily claims that the business should have been sold at public sale, and he should have been given an opportunity to bid.
A receiver has the power to "sell, assign, convey or otherwise dispose of all or any part of the property of the corporation," N.J.S.A. 14A:14-5(c), upon "such terms as the court may approve." N.J.S.A. 14A:14-7. The receiver must demonstrate to the court that "the sale of such property may be reasonably expected to benefit general creditors of the corporation without adversely affecting the interests of the holders of the encumbrances." Ibid.
The circumstances of this case justified the private sale of Biaggio. When the receivership began, the landlord was in the process of evicting the business. Biaggio could not cover payroll; and it was in danger of losing its employees, its most valuable assets. Because the business would dissolve with the departure of its employees, Giuliano believed an immediate sale was necessary. He testified that if the sale were delayed a few weeks, he would have nothing left to sell, as Biaggio would not have enough funds to pay its rent or its employees. Giuliano sought the court's authorization to sell Biaggio for the benefit of its creditors, as the purchase price of the salon would be distributed to them. These facts justified the court's authorization of the sale of Biaggio to the Rooney Group.
Palma asserts that he should have been given an opportunity to submit a bid to purchase the property at a private sale. That argument is meritless. He was given ample opportunity to submit a bid at private sale but simply refused to do so.
We also conclude that because Palma failed to seek a stay of the sale of the business, he is equitably estopped from seeking to set aside the sale in this appeal. The statutory provisions permitting the court to authorize receivers to sell property, N.J.S.A. 14A:14-5(c) and N.J.S.A. 14A:14-7, are analogous to the Federal Bankruptcy Code's provisions that permit a trustee, pursuant to court order, to sell property of an estate free and clear of interests of others. 11 U.S.C.A. § 363(b); 11 U.S.C.A. § 363(f). The bankruptcy code further provides that:
The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.
[11 U.S.C.A. § 363(m).]
"When an order confirming a sale to a good faith purchaser is entered and a stay of that sale is not obtained, the sale becomes final and cannot be reversed on appeal." Int'l Union v. Morse Tool Inc., 85 B.R. 666, 667-68 (Bankr. D. Mass. 1988); see, e.g., In re Andy Frain Servs., Inc., 798 F.2d 1113, 1125 (7th Cir. 1986); In re Sax, 796 F.2d 994, 998 (7th Cir. 1986); In re Lake Placid Co., 78 B.R. 131, 134 (Bankr. W.D. Va. 1987); In re Youngstown Steel Tank Co., 27 B.R. 596, 598 (Bankr. W.D. Pa. 1983). Although New Jersey statutes do not require a stay pending appeal as does 11 U.S.C. § 363(m), under the circumstances presented here, principles of equity preclude Palma from prevailing on his claim to set aside the sale. He did not seek a stay of the trial court's December 18, 2007, order authorizing the sale. Instead, a month later, he filed a notice of appeal. In the absence of a stay of the sale, the Rooney Group purchased the business and has operated Biaggio for approximately one year. Purchasers under N.J.S.A. 14A:14-5(c) and N.J.S.A. 14A:14-7 should be able to rely on court orders when purchasing a business. A lack of finality would have a chilling effect on the ability of a receiver to sell an ongoing business. That would in turn, as here, place at risk the employees, as well as the future of the business itself.