Dewey & LeBoeuf LLP and The Liquidating Trustee of The Dewey & LeBoeuf Liq

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK 	NOT FOR PUBLICATION
In re:
DEWEY & LEBOEUF LLP,
Debtor.
Case No. 12-12321 (MG)
MEMORANDUM OPINION AND ORDER GRANTING DEBTOR’S APPLICATION TO
(A) RETAIN ADAM A. WESCHLER & SON, INC. AS AUCTIONEER AND (B) SELL
ARTWORK PURSUANT TO PRIVATE AUCTIONS FREE AND CLEAR OF LIENS
CLAIMS OR ENCUMBRANCES
Pending before the Court is the Debtor’s Application to (A) Retain Adam A. Weschler &
Son, Inc. as Auctioneer and (B) Sell Artwork pursuant to Private Auctions Free and Clear of
Liens Claims or Encumbrances. (ECF Doc. # 534.) The application (the “Application”) seeks
approval, pursuant to section 327 and 328, Rule 2014, and Local Rule 2014-1, to retain Adam A.
Weschler (“Weschler”) as auctioneer and, pursuant to section 105 and 363 and Rule 6004, to
grant the Debtor the authority to sell, via private auction, its artwork free and clear of liens,
claims or encumbrances. In support of the Application, Debtor submits the Declaration of
Jonathan A. Mitchell (the “Mitchel Declaration”) and the Declaration of Thomas M. Weschler
(the “Weschler Declaration”). (ECF Doc. # 534, Ex. 4 and 5, respectively.) There are no
objections to either aspect of the Application. For the reasons discussed below, the Application
is GRANTED.
I. 	BACKGROUND
On August 28, 2012, the Debtor filed a motion seeking approval of procedures to sell
certain de minimis assets, which the Court granted by an order dated September 21, 2012 (“De
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 1 of 11

2
Minimis Asset Order,” ECF Doc. #499). The Debtor now seeks to retain an experienced
auctioneer to assist the Debtor in selling its art collection.
The Debtor’s collection consists of artwork both owned and leased by the Firm (the
“Artwork”). The lessors of the artwork are various lease financing companies (“Lessors”). The
Artwork is currently stored in one of two locations, either (i) the Firm’s office on the tenth floor
of 1301 Avenue of the Americas, New York, New York where approximately 470 pieces are
held, or (ii) a storage facility in Washington, D.C. where approximately 400 pieces are held.1
Debtor listed the Artwork as having a book value of approximately $2.3 million, however the
Debtor believes the book value will differ from the sale value.2
A. Auctioneer Retention
The Debtor, in consultation with the Lessors, Creditors Committee and its Secured
Lenders, believes retaining an experienced auctioneer to market and sell the Artwork is in the
best interest of the estate, especially being that it has no experience selling art. After soliciting
and evaluating the proposals from several auction houses and analyzing offers from third party
purchasers, the Debtor has concluded that Weschler provided the most advantageous terms and
has the experience and expertise to maximize the value of the art. Debtor further asserts that the
Artwork is currently generating no revenue and is burdening the estate with storage costs.
1. 	Services and Compensation
Weschler, which is located in Washington, D.C., is allegedly one of the country’s leading
auctioneers and appraisers with over 120 years of experience. Weschler typically holds at least
six capital collection estate auctions each season, featuring European and American furniture and
1 	The Debtor expressed some uncertainty about the accuracy of its records regarding the Artwork. One of
the responsibilities of the auctioneer will be to inventory and catalog all of the Debtor’s Artwork.
2 	While the Debtor does not say whether they believe the sale value will be higher or lower than the book
value, the implication seems to be lower.
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 2 of 11

3
decorations, paintings, prints, drawings and sculptures, jeweler, and decorative arts. Weschler
also holds weekly metro auctions with offerings including lesser-valued items such as
reproduction furniture, period pieces, rugs, artwork, silver, collectibles, books and general
household goods.
Debtor proposes that Weschler be entitled to sell the Artwork in one of three different
auction types: (i) a capital collection auction for high-end Artwork with auction values of at
least $2,000, which is anticipated to be held during the first quarter of 2013; (ii) a single-owner
auction fo r middle-range Artwork with auction values of $500 to $2,000, which is anticipated
t o be held during the fourth quarter of 2012; and (iii) metro auctions for Artwork with price
points less than $500, to be held on a weekly basis. However, ultimately, the type of sale used
will be in Wechsler’s sole discretion. Debtor’s Application ¶ 14. The Debtor will enter into two
separate agreements with Weschler—one for “Capital Collection” and “Single-Owner” auctions
and another for “Metro Auctions.”
In conjunction with the sales, Weschler has agreed to:
a. 	rem o v i ng , inventorying and cataloguing the A rt wo rk ;
b. 	supervising the inspection of the Artwork and conducting the sales at
open auctions;
c. 	engaging in advertising (including brochures and websites) to sell the
A rt wo rk ;
d. providing the Debtor with reporting and reconciliation of all accounting
information regarding the sales in a form reasonably acceptable t o the Debtor;
and
e. p roviding such other related services deemed necessary or p rud ent by the
Debtor and Weschler under the circumstances.
f. obtain, with the assistance of the Debtor, any necessary permits or licenses
necessary to conduct the sales
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 3 of 11

4
Under the compensation arrangement, the Debtor will not be required to pay Weschler
any compensation, other than nominal fees for insurance, advertising, and shipping, until after
the Artwork is sold. For Capital Collections and Single Owner Auctions, Weschler will receive
a (i) 10% commission for sales up to $99,999; (ii) 8% commission for sales between $100,000 -
$299,999; (iii) 6% commission for sales between $300,000 – $499,999; and 4% commission for
sales over $500,000. For Metro Auctions, Weschler will charge a flat 15% commission based on
the final bid price. Weschler will maintain possession, and continue to liquidate, unsold Artwork
at no expense. Under the terms, Weschler is also be permitted to charge purchasers a “Buyer
Premium” of 15% for the Metro Auction and between 18% - 20% for the other auctions
(depending on whether the customer pays in cash or credit), as well as fees charged to the buyer,
such as shipping and handling costs. The Buyer Premium, also referred to in the contract as the
“additional commission,” WILL NOT be considered proceeds for the purpose of calculating the
commissions. Weschler Dec. ¶ 9.
Within thirty-five calendar days following the completion of an auction, Weschler will
provide the Debtor with a written accounting (“Auction Report”) of the proceeds and include a
statement of the balance owed to Weschler in connection with the sale.
The Debtor also requests that Weschler be exempt from filing formal applications to the
Court for compensation approval. Instead, Debtor proposes that Weschler file, within 30
calendar days post receiving an Auction Report, a summary (the “Summary”) of proceeds
realized from the sale of the Artwork (including the Artwork sold, the gross sale price,
commissions owed to Weschler and miscellaneous expenses owed to Weschler) and serve a
notice of the summary on all parties that received notice of the retention application.
Furthermore, parties in interest shall have the right to object to Weschler’s compensation as long
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 4 of 11

5
as they do so within seven calendar days of the Debtor filing the Summary. If an objection to the
Summary is filed and not resolved by the parties, then the Debtor will schedule a hearing before
the Court to request approval of the commissions that are subject to the objection.
Debtor asserts that the retention and terms stated above are in the best interest of the
estate. Debtor cites several other bankruptcy cases in this courthouse for the proposition that
auctioneers have been retained as exclusive liquidators of designated assets, but only cites to the
cases generally, instead of pointing to specific orders or language to show similar relief has been
granted. See Debtor’s Application ¶ 27.
d. 	Disinterestedness of Professionals
Debtor asserts, to the best of its knowledge, Weschler and its employees are disinterested
persons, as that term is defined in section 101(14), as modified by section 1107(b), and as
required under section 327(a). Weschler asserts that it holds no adverse interest to the Debtor, its
creditors or any other party in interest, or its respective attorneys and other professionals, except
as set forth in the Weschler Declaration. The Weschler Declaration states that Weschler and its
affiliates have provided services, may currently provide services, and likely will continue to
provide services to parties in interest of this case merely due to the Debtor’s size and the scope of
its dealings. Weschler Decl. ¶ 4. However, the Weschler Declaration asserts that Weschler
researched its client databases and performed reasonable due diligence to determine whether it
had any relationships with the Debtor’s secured creditors, top 100 unsecured creditors, and
known pending litigation parties, and determined no relationships required disclosure.
B. Selling Art by Private Sale Free and Clear of All Liens, Claims, and
Encumbrances
Debtor seeks approval to sell the Artwork, pursuant to section 363(b) and (f) and Rule
6004, free and clear of all liens, claims, encumbrances, and other interests.
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 5 of 11

6
1. 	Private Sale
The Debtor argues that its decision to sell Artwork through private sales is within its
reasonable business judgment because (i) the art is no longer needed; (ii) it has become
unnecessary and burdensome to store; and (iii) the Debtor anticipates vacating its New York
office. The Lessors have agreed to permit the Debtor to sell leased Artwork, which the Debtor
asserts will save the estate costs associated with separating, storing, and shipping the Artwork.3
Moreover, the Debtor believes a private sale is preferable over a public auction because it would
avoid the expense of filing a motion to approve bidding procedures and further appear in court.
Debtors also note that even though the art will be sold privately, there will still be an auction
conducted by Weschler, which will help to maximize the sale prices. Weschler will also bear the
costs of preparing and inspecting the Artwork, advertising and conducting the auctions, and
storing and further liquidating unsold art.
2. 	Sale Free and Clear of Liens, Claims, Encumbrances and Other Interests
The leased Artwork is owned by the Lessors. The Secured Lenders hold a first priority
priming lien in the artwork owned by the Debtor. 	The Lessors have consented to the sale free
and clear of encumbrances because the Lessors will receive the net proceeds. The Secured
Lenders have consented to the sale free and clear of encumbrances as long as their security
interest attaches to the net proceeds of the sales. Debtors assert that all of the 363(f)
requirements are satisfied because of the Lessors’ and Secured Lenders’ treatment, and because
any other entity with a lien on the Artwork received notice of the Application, did not object, and
will also be able to claim a security interest in the net proceeds. Moreover, the Debtor maintains
that it has satisfied the notice requirements of Rule 6004(c) by serving notice of the application
on all parties.
3 	The proceeds of the leased art will go to the Lessor after Weschler’s commission is taken.
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 6 of 11

7
II. 	DISCUSSION
A. Auctioneer Retention
Section 327(a) of the Bankruptcy Code provides that
“[e]xcept as otherwise provided in this section, the trustee, with the
court’s approval, may employ one or more attorneys, accountants,
appraisers, auctioneers, or other professional persons, that do not
hold or represent an interest adverse to the estate, and that are
disinterested persons, to represent or assist the trustee in carrying
out the trustee’s duties under this title.”
Bankruptcy Rule 2014 regulates the application that must be filed to receive an order
approving employment under sections 327, 1103, or 1114 of the Bankruptcy Code. Local Rule
2014-1 adds information that should be included as well. The application must include
 	Specific grounds for employment;
 	Specific facts giving rise to the need for employment;
 	Name of the party to be employed;
 	Reasons for the selection of that professional;
 	Professional services will be rendered;
 	Compensation arrangements which have been made with the professional;
 	Qualifications of person to be employed;
 	Connections between the professional to be employed and the parties in interest
attorneys and accountants in the case, and the UST and its personnel;
 	Specific facts detailing why the terms and conditions of employment are
reasonable including retainer, hourly fee, or contingent fee arrangement.
Section 328 of the Bankruptcy Code provides that, upon court approval, professionals
may be employed on “any reasonable terms and conditions,” including compensation
arrangements. Absent approval of compensation under section 328, the court awards a
professional employed under section 327 “reasonable compensation for actual, necessary
services rendered by [the professional] . . . , based on the nature, the extent, and the value of such
services, the time spent on such services, and the cost of comparable services other than in a case
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 7 of 11

8
under this title,” as well as “reimbursement for actual, necessary expenses.” 11 U.S.C. § 330(a);
see also In re Airspect Air, Inc., 385 F.3d 915 (6th Cir. 2004).
Bankruptcy Local Rules 2014-1 requires that the retention of a professional, pursuant to
section 327 or 328, “shall state the specific facts showing the reasonableness of the terms and
conditions of the employment, including the terms of any retainer, hourly fee, or contingent fee
arrangement.”
B. Selling Assets by Private Sale Free and Clear of All Liens, Claims, and
Encumbrances
The United States Bankruptcy Court for the Southern District of New York has
established amended guidelines for the conduct of asset sales under 11 U.S.C. § 363(b). The
Guidelines establish the necessary components of a trustee’s application to conduct asset sales,
stating that the Debtor’s application must include a Sales Procedures Order, a Sale Order,
Bidding Procedures, and a Sale Motion, along with additional detailed certain information
suggested or required within each of the sections. A debtor applying for this Court’s approval of
asset sales must comply with General Order M-383.
General Order M-383 (the “Guidelines”) adopts a number of guidelines for the conduct
of Asset Sales under Bankruptcy Code section 363. Importantly, the Guidelines require
disclosure of certain “Extraordinary Provisions,” and dictate that those provisions “ordinarily
will not be approved without good cause shown for such . . . Provisions, or compelling
circumstances, and reasonable notice.” Provisions that the Guidelines consider to be
“Extraordinary” include provisions that contemplate a private sale, as opposed to an auction.
The Guidelines require that these provisions be disclosed conspicuously in a separate section of
the sale motion, and that the motion must provide substantial justification in order for the Court
to approve them.
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 8 of 11

9
Section 363(b)(1) of the Bankruptcy Code provides that debtors “may use, sell, or lease,
other than in the ordinary course of business, property of the estate.” 11 U.S.C. § 363(b)(1). In
approving a sale conducted pursuant to section 363(b)(1), courts consider whether the debtor
exercised sound business judgment. See In re Chateaugay Corp., 973 F.2d 141, 144–45 (2d Cir.
1992) (finding that section 363(b) was applicable because sound business judgment supported
the sale of assets); Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d
1063, 1072 (2d Cir. 1983) (holding that the application of section 363(b) must be supported by
“some articulated business justification, other than appeasement of major creditors” and that “a
judge determining a § 363(b) application [must] expressly find from the evidence presented
before him at the hearing a good business reason to grant such an application”); In re Global
Crossing Ltd., 295 B.R. 726, 743 (Bankr. S.D.N.Y. 2003) (citing Lionel Corp., 722 F.3d at 1071)
(emphasizing the business judgment standard).
Although the determination of what constitutes a sufficient business reason depends on
the facts and circumstances of each case, a debtor often satisfies the business judgment standard
if “the directors of a corporation acted on an informed basis, in good faith and in the honest
belief that the action taken was in the best interests of the company.” In re Integrated Res., Inc.,
147 B.R. 650, 656 (Bankr. S.D.N.Y. 1992) (quoting Smith v. Van Gorkom, 488 A.2d 858, 872
(Del. 1985). Courts should not generally interfere with business decisions absent a showing of
“bad faith, self-interest, or gross-negligence.” Integrated Res., 147 B.R. at 656.
Section 363(f) of the Bankruptcy Code permits a debtor to sell property, under section
363(b) or (c), free and clear of any interest in such property of an entity other than the estate. See
11 U.S.C. § 363(f). However, a sale free and clear of liens may be approved only if at least one
of the following five conditions are met: (1) applicable non-bankruptcy law permits sale of such
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 9 of 11

10
property free and clear of such interest; (2) such entity consents; (3) such interest is a lien and the
price at which such property is to be sold is greater than the aggregate value of all liens on such
property; (4) such interest is in bona fide dispute; or (5) such entity could be compelled to accept
a monetary satisfaction of such interest. Id.; see also In re Elliot, 94 B.R. 343, 345 (E.D. Pa.
1988) (noting that § 363(f) is written in the disjunctive, authorizing a trustee or debtor-in-
possession to sell property of the estate free and clear of all liens “if any of the five conditions of
§ 363(f) are met”). Under 363(f)(2), at least with regards to de minimis assets, “a lienholder who
receives notice of a sale but does not object within the prescribed time period is deemed to
consent to the proposed sale, and assets thereafter may be sold free and clear of liens.” In re
Borders Group, Inc., 453 B.R. 477, 484 (Bankr. S.D.N.Y. 2011).
C. The Debtor Established a Good Business Reason to Sell the Artwork in the
Manner Proposed
The Debtor has persuasively argued that the Artwork should be sold to curb
administrative costs related to storage, especially being that the Art provides no benefit to the
estate. It is also clear that the Debtor needs professional help with the sale process. The
evidence establishes that Weschler is an experienced disinterested auctioneer. Sliding scale
commissions payable from the proceeds to the Debtor will compensate Wechsler. But, in
addition, a “Buyer’s Premium” a/k/a the “Additional Commission” of 15% for the Metro
Auction and between 18% - 20%, will also be payable by the buyers; this additional
compensation is substantial and will reduce the net recovery by the Debtor, but a Buyer’s
Premium is consistent with business practice for sales of artwork.
With regards to the private sale, General Order M-383 states that a moving party must
show good cause for the Court to approve “Extraordinary Provisions. The General Order lists
“Private Sale/No Competitive Bidding” as an extraordinary provision requiring the movant to
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 10 of 11

11
show why the proposed form sale will maximize the sale price. Here, Debtor asserts that the
private auction will maximize the sale price because of the costs and delay associated with
seeking court approval for bidding procedures relating to the sizeable art collection. Moreover,
the Debtor believes that a public sale would be more costly because it would have to hire a
professional to clean, organize, inspect, advertise, and auction the Artwork, which Weschler is
agreeing to do for no extra charge. The Court finds that the Debtor has established a good
business reason to proceed with the sales of the Artwork in the manner proposed. Additionally,
the Debtor has satisfied this Court’s Guidelines for the Extraordinary provisions permitting the
asset sales through private sales.
Section 363(f) is satisfied here because the Secured Lenders and the Lessors have
consented to the sales free and clear of all liens, claims, and encumbrances; additionally,
pursuant to 363(f)(5), all liens will attach to the sales proceeds.
CONCLUSION
For the foregoing reasons, the Debtor’s Application to retain Adam A. Wechsler & Son,
Inc. as Auctioneer, and to sell artwork in the manner described above free and clear of liens,
claims or encumbrances is GRANTED.
IT IS SO ORDERED.
Dated: 	November 1, 2012
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
12-12321-mg Doc 608 Filed 11/01/12 Entered 11/01/12 15:55:36 Main Document
Pg 11 of 11