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In re PBBPC, Inc.

United States Bankruptcy Appellate Panel of the First Circuit

January 17, 2013

In re PBBPC, INC., f/k/a Biopure Corporation, Debtor.
v.
OPK BIOTECH, LLC, Appellee MASSACHUSETTS DEPARTMENT OF UNEMPLOYMENT ASSISTANCE, Appellant,

Appeal from the United States Bankruptcy Court for the District of Massachusetts. Bankruptcy Case No. 09-16725-FJB. (Hon. Frank J. Bailey, U.S. Bankruptcy Judge).

Daniel J. Hammond, Esq., and Douglas S. Martland, Esq., on brief for Appellant.

Douglas B. Rosner, Esq., and Gregory O. Kaden, Esq., on brief for Appellee.

Before Haines, Deasy, and Tester, United States Bankruptcy Appellate Panel Judges.

OPINION

Page 861

Deasy, U.S. Bankruptcy Appellate Panel Judge.

The Massachusetts Department of Unemployment Assistance (the " DUA" )[1] appeals from the bankruptcy court order (the " Order" ) enforcing the sale of the debtor's assets free and clear of any interest in said assets, including the DUA's right to tax the purchaser at the debtor's unemployment contribution rate. For the reasons set forth below, the Order is AFFIRMED.

BACKGROUND

I. The Sale

The debtor, PBBPC, Inc., formerly known as Biopure Corporation (the " Debtor" ), filed a petition for chapter 11 relief on July 16, 2009. At that time, the Debtor had limited operations and only five employees. On the petition date, the Debtor filed a motion seeking approval of bid procedures and ultimately the sale of substantially all of its operating assets[2] to OPK Biotech, LLC (" OPK" ), free and clear of liens, claims, charges, security interests, restrictions, and encumbrances of any kind

Page 862

or nature, pursuant to § 363(f).[3] The Debtor served the court approved notices and orders related to the auction and sale (the " Sale Notices" ) on, inter alia, the attorney general for the Commonwealth of Massachusetts at One Ashburton Place, Boston, Massachusetts.[4]

On August 20, 2009, the bankruptcy court entered an order approving the sale to OPK (the " Sale Order" ). The Sale Order provided, among other things, that: (1) the transfer to OPK would be free and clear of all encumbrances, including any claims pursuant to any successor or successor-in-interest liability theory; (2) OPK would not be deemed a successor of the Debtor; and (3) OPK would not have any liability for any obligation of the Debtor or any claim against the Debtor related to the purchased assets by reason of the transfer of such assets.

In the Sale Order, the bankruptcy court found that OPK would not have purchased the Debtor's assets unless the transfer was " free and clear of all [e]ncumbrances of any kind or nature" including, but not limited to, successor liabilities for unemployment related claims including " claims that might arise under . . . state unemployment compensation laws or any other similar state laws." Additionally, the Sale Order provided that, except as otherwise specifically set forth in the Asset Purchase Agreement, OPK neither assumed nor was obligated to pay or otherwise discharge any debts, obligations, or liabilities of the Debtor arising pursuant to the Debtor's ownership or operation of its facilities before the purchase.

OPK closed on the purchase of the Debtor's operating assets on September 9, 2009, and commenced operations in Massachusetts on October 1, 2009. Prior to the closing, the Debtor had terminated all but one of its remaining employees. Because the Debtor had laid off nearly all of its employees at the end of 2008, its experience rating was very high, which resulted in an unemployment contribution rate of 12.27 percent.[5]

II. The DUA Proceedings

Following the closing, OPK advised the DUA of its acquisition of the Debtor's assets. The DUA, in turn, notified OPK that it was considered a " successor employer" within the meaning of the Massachusetts unemployment insurance statute,[6]

Page 863

that the Debtor's account had been transferred to it, and that OPK's contribution rate for 2009 and 2010 was 12.27 percent. The DUA further advised OPK that as a successor employer, it was " liable for any past or future benefit charges attributable to the predecessor[']s account." The record reflects that the DUA continued to impose a 12.27 percent contribution rate for 2011. OPK filed an administrative appeal, challenging the DUA's imposition of successor status on the grounds that OPK and the Debtor lacked substantially common ownership, interest, or control, which might give rise to a successor relationship under the Massachusetts unemployment insurance statute. The DUA refused to change its determination. Consequently, in March 2011, OPK moved the bankruptcy court to enforce the Sale Order (the " Motion to Enforce" ), and the parties agreed to postpone further administrative proceedings pending the bankruptcy court's disposition of the motion.

III. The Bankruptcy Court Proceedings

In the Motion to Enforce, OPK sought an order: (1) declaring that the sale to OPK was free and clear of the Debtor's experience rate and contribution rate as those terms are defined in state law; (2) requiring the DUA to refund to OPK overpayments resulting from the attribution of the Debtor's experience rate; and (3) compelling the DUA to assign to OPK a 2.89 percent contribution rate as an employer newly subject to Mass. Gen. Laws ch. 151A, § 14, retroactive to the sale date and without regard to the Debtor's pre-sale ratings.

In support of its request, OPK advanced five core arguments. First, OPK asserted that because the Debtor served the Sale Notices on the attorney general of the Commonwealth of Massachusetts, and neither the Commonwealth nor the DUA objected, the DUA irrevocably waived its right to object to the sale itself or the terms of the Sale Order. Second, OPK contended that § 363(m) protected the Sale Order from attack and reconsideration. Third, OPK asserted that, even assuming the Sale Order was subject to attack, the proper vehicle would have been a motion to reconsider or modify the order. Fourth, OPK argued that the bankruptcy court should enforce the Sale Order because at least four of the five disjunctive requirements for a sale free and clear under § 363(f) were satisfied. Lastly, OPK asserted that even if the DUA had timely objected to the Sale Notices, § 363(f) and the underlying policies of the Bankruptcy Code preempted the successor liability provision in the Commonwealth's unemployment compensation statute.

In its opposition to the Motion to Enforce, the DUA maintained that the Debtor's service of the Sale Notices did not conform to MLBR App. 4(f), and that the DUA had not otherwise received notice of the Sale Notices. Because notice was allegedly inadequate, the DUA argued that it was permitted to challenge the Sale Notices and the Sale Order. Second, the DUA claimed that OPK did not meet the conditions for a sale free and clear under § 363(f) because: (1) its lack of objection did not constitute consent, in the absence of proper notice; and (2) a money satisfaction was not possible. Third, the DUA argued, " while prohibiting the transfer of the Debtor's experience account to OPK [might] enhance the payment to creditors, such enhancement would come at the expense

Page 864

of all other Massachusetts employers." Fourth, and most significantly for purposes of this appeal, the DUA asserted that the Debtor's experience rating was not an interest within the meaning of § 363(f) and, therefore, the bankruptcy court lacked authority to protect OPK from taxation on the basis of the Debtor's experience rating. For this proposition, the DUA relied heavily on Michigan Employment Sec. Comm'n v. Wolverine Radio Co., Inc. (In re Wolverine Radio Co., Inc.),930 F.2d 1132, 1145-49 (6th Cir. 1991). Lastly, the DUA ...


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