Fisker? I Hardly Knew Her! The End of Credit Bidding?

I. Fisker Background and Sale Procedure

Intending to become a leading manufacturer of high-end plug-in hybrid electric vehicles, Fisker Automotive Holdings, Inc. was founded in 2007. In April of 2010, Fisker entered into a loan agreement with the United States Department of Energy ("DOE") under which it borrowed $168 million. In June of 2011, DOE froze Fisker's credit line.1 In October 2013, DOE auctioned off the Fisker loan, ultimately selling it to Hybrid Tech Holdings, LLC ("Hybrid") for $25 million. When Fisker filed its Chapter 11 petition on November 22, 2013 in Delaware, Hybrid had "for all practicable purposes, succeeded to DOE's position as the Debtors' senior secured lender."2

A. The Bankruptcy Court's Ruling

On the Petition Date, Fisker filed a motion to approve a private sale to Hybrid of substantially all of Fisker's assets in exchange for a credit bid of $75 million and other consideration.3 The Committee of Unsecured Creditors opposed the sale motion, instead supporting an auction involving another potential buyer, Wanxiang America Corp ("Wanxiang"). The Committee argued that the bankruptcy court should prohibit or limit Hybrid from credit bidding. The bankruptcy court found that if Hybrid was permitted to credit bid more than $25 million at an auction, "Wanxiang will not participate—and there will be no auction."4 Additionally, Fisker and the Committee stipulated that there was at least some dispute whether Hybrid's liens unavoidably encumbered all of the assets subject to the sale.5

On January 17, 2014, Judge Gross entered his Credit Bid Opinion. After noting that "it is beyond peradventure that a secured creditor is entitled to credit bid its allowed claim," he held that Hybrid would be permitted to credit bid for Fisker's assets, but only to the extent of $25 million. The court invoked the "for-cause" exception to a secured creditor's credit bid right:

(k) At a sale under subsection (b) of this section of property that is subject to a lien that secures an allowed claim, unless the court for cause orders otherwise the holder of such claim may bid at such sale, and, if the holder of such claim purchase such property, such holder may offset such claim against the purchase price of such property.6

The bankruptcy court found cause to limit Hybrid's credit bid right because there would be no competitive bidding in the absence of a cap: "Thus, the 'for cause' basis upon which the Court is limiting Hybrid's credit bid is that bidding will not only be chilled without the cap; bidding will be frozen."7 Judge Gross did not overtly state that Hybrid's discounted purchase of the DOE loan contributed to his finding of "cause," but he did make a specific finding that Hybrid paid $25 million for its claim.8

B. The District Court's Rulings.

Hybrid immediately sought appellate review of the Credit Bid Opinion. It filed a motion for leave to take an interlocutory appeal pursuant to Fed. Bankr. P. 80039 and a motion for direct appeal to the United States Court of Appeals for the Third Circuit pursuant to Fed. Bankr. P. 8001(f).10 These filings gave the district court two separate occasions to weigh in on the credit bid issue and the "for-cause" exception invoked by Judge Gross.

On February 7, 2014, the district court denied Hybrid's motion for leave to take an interlocutory appeal.11 It held that the Credit Bid Opinion was not a final order because the bankruptcy court could change its mind (i.e., "the Bankruptcy Court could decide after the auction that Hybrid's credit bid should not have been capped"), and that Hybrid was not left without a remedy because it was free to bid cash in excess of the cap ("Hybrid has not offered any reason why it could not ... credit bid up to $25 million at an auction ... and supplement with cash any additional amount that it seeks to bid").12 Further, the district court held that interlocutory appeal was not warranted because there was no "substantial grounds for difference of opinion" as to whether cause existed to cap the credit bid. Specifically, the district court held that the cause...