After Contentious Post-Auction Negotiations, Winning Bidder Seeks to Enforce Winning Bid, Borders Group Seeks to Replace it With New Bid

As we previously noted (earlier post here), Borders Group, Inc. held an auction in mid-September for its intellectual property assets.  While most of the IP assets were acquired by Barnes & Noble, Inc., licenses to Borders' marks in some foreign countries were to be acquired by several other bidders.  One of those winning bidders was Popular Holdings Limited, which submitted a winning bid of $100,000 for a license to use Borders' marks in Singapore.  That acquisition is the only IP sale transaction which has not yet closed and the disputes between the parties have now been disclosed in a series of court filings.

Yesterday afternoon, Popular Holdings Limited filed a motion asking the bankruptcy court to compel Borders Group to "comply with the results of the September 14, 2011 auction, in which the Debtors designated Popular the winning bidder for the purchase of the right to license the Debtors’ marks in the territory of Singapore (the “Singapore License”) and to transfer the Singapore License to Popular."  Later in the day, Borders Group responded by filing a motion which seeks court authority to license its trademarks in Singapore to a new bidder, Berjaya Books SDN BHD, instead of Popular pursuant to a new bid made by Berjaya after the close of the auction in the amount of $200,000.  Berjaya was a participant in the auction and was successful in acquiring a license to Borders' marks in Malaysia.

According to the pleadings, the following series of events during the negotiations following the close of the auction appear to have led the parties to this point:

• September 14, 2011: Borders conducts the IP asset auction and selects Popular as the winning bidder for the Singapore License.  Popular submits a $54,972 deposit on its $100,000 bid.
• Approx. Sept. 15-26: Borders, Barnes & Noble, and Popular attempted to negotiate the form of the license agreement but failed to reach an agreement on the form.
• September 26, 2011: "A few hours prior to the final hearing to approve the IP sale," counsel to Popular sent a letter purporting to terminate its bid and demanding return of its deposit.
• September 26, 2011: Counsel to Borders responded to the termination letter asserting that the bid was "irrevocable and binding" and refusing to return the deposit.
• September 26, 2011: Separately, Hilco Streambank (Borders' sale advisor) sent an email to Popular's principals seeking a call to discuss the repudiation of their bid and advising them that, "absent an immediate resolution of this matter," Borders would solicit other bidders and apply the Popular deposit to its damages.
• September 27, 2011: Popular withdrew its request to terminate its bid and "continued negotiations with the Debtors and B&N regarding the terms of an agreement with B&N" (according to Popular's court filings).
• September 27, 2011: Receiving no response to its email, Hilco Streambank begins soliciting interest in the Singapore License from other potential bidders, including Berjaya (according to Borders' court filings).
• September 27, 2011: The bankruptcy court entered the final IP sale order.
• September 30, 2011: Borders closed all of the IP sales except for the Singapore License sale to Popular.  September 30th was identified in the court's bidding procedures order as the closing deadline.
• October 4, 2011: Berjaya responded to Hilco Streambank's solicitation with an expression of interest in acquiring the Singapore License, subject to additional due diligence.
• October 4, 2011: Hilco Streambank again emails Popular's principals requesting information regarding their intent to close the Singapore transaction and advising them that other parties have expressed interest in the marks.
• October 4/5, 2011: Popular's CFO responded to Hilco Streambank's email expressing the intent to close the transaction and expressing "surprise" at the latest email from Hilco Streambank because its counsel and counsel to Borders and B&N had been "liaising closely . . . to wrap up the Border's [sic] bid."
• October 5, 2011: Email communications between the parties continue with Hilco Streambank suggesting that Popular execute the license agreement and wire the remaining purchase price and Popular's counsel responding that court approval is required.
• October 12, 2011: Popular and Barnes & Noble executed the Singapore License and Borders filed a motion seeking approval of the sale to Popular with the bankruptcy court.
• October 14, 2011: Berjaya offered Borders (through Hilco Streambank) $200,000 for the Singapore License and Borders communicated the receipt of the new offer to Popular.
• October 18, 2011: Popular responded to Borders stating that it "expected the Debtors to follow through with their contractual obligations and continue to seek approval of the transaction with Popular" because "(i) the Debtors designated Popular the Winning Bidder at the Auction, which was closed, (ii) the Debtors, B&N, and Popular had negotiated and agreed upon a form of agreement transferring the Singapore License to Popular and a form of proposed order, and (iii) the Debtors had already proceeded with filing the Popular Sale Motion."
• October 20, 2011: Borders informed Popular that it intended to seek court approval of the sale to Berjaya instead of continuing with the sale to Popular.

In its motion, Popular asserts that "Borders spent weeks stringing Popular along, even at one point insisting that Popular proceed with this transaction when Popular briefly indicated its desire to withdraw, forcing Popular to accede to the terms of a license and proposed order Popular was not comfortable with—and now want to simply drop Popular to pursue another transaction."  Popular asserts that the bankruptcy court should not allow Borders to go forward with the Berjaya transaction and asserts that "[n]umerous courts have observed the importance of the finality of bids in bankruptcy auctions and have refused to confirm sales where the debtor sought to re-open the bidding after an auction’s conclusion solely to chase a few extra dollars."  In support of that assertion, Popular cites In re Bigler, LP, 443 B.R. 101, 117 (Bankr. S.D. Tex. 2010) and In re Cloverleaf Enters., Inc., 2011 WL 873145, at *2 (Bankr. D. Md. Mar. 11, 2011).  Popular also notes that Berjaya is not "a stranger to this case" and, in fact, submitted "a combined bid on the right to license the Debtors’ marks in Singapore and Malaysia, which the Debtors rejected as inferior to the two standalone bids for Singapore and Malaysia."  Finally, Popular argues that the small difference in purchase price ($100,000) cannot provide a justification for the change, because "Popular has expended significant funds in negotiating the terms of the agreement and in preparing to operate a business in Singapore using the Singapore License," which would result in ""great expense and detriment" to Popular if the sale to it does not close.

By contrast, Borders points to the court's bidding procedures order in support of its assertion that it is "under no obligation to close a transaction to Popular, who has bid half of what Berjaya is willing to pay."  Specifically, Borders references the following provisions of the court-approved bidding procedures:

• "Closing Deadline: The Bidding Procedures required that all bids include a statement 'acknowledging that the Debtors must close the Sale on or before September 30, 2011 (with time being of the essence) . . .' (Bidding Procedures at 6)."
• "Fiduciary Out: The Bidding Procedures expressly preserved the Debtors' fiduciary obligations: 'no term or provision of the [applicable purchase agreement or license] shall prevent, amend, alter or reduce the Debtors' ability to exercise their fiduciary duties under applicable law.' (Bidding Procedures at 10)."
• "Modifications: The Bidding Procedures expressly authorized the Debtors to modify the Bidding Procedures without further court approval. (Bidding Procedures at 10)."
• "Declaration of Winning Bidder(s): The Bidding Procedures provided that the Debtors, in consultation with the Committee, would select the Winning Bidder, but such acceptance was 'conditioned on approval of the Bankruptcy Court at the Sale Hearing.' (Bidding Procedures at 9)."
• "Deposit: All bidders were required to provide the Debtors with a deposit.  The Bidding Procedures provided that such deposit would constitute liquidated damages in the event that the winning bidder 'fails to consummate the Sale because of a breach or failure to perform on the part of such Winning Bidder.' (Bidding Procedures at 5)."

The bankruptcy court has set a hearing on the dispute for November 3, 2011 at 10:00 a.m. The deadline for objections is October 31, 2011 at 4:00 p.m.