Buy Buy Baby Bidding Blunders: Addressing NDA Damages Following Chapter 11 Asset Sales
A recent decision from the US District Court for the Southern District of New York (the “Court”) illustrates how an asset purchaser in a bankruptcy proceeding may still be subject to litigation connected to its participation in those proceedings despite the significant protections offered to good faith purchasers under § 363 of the Bankruptcy Code.
The case of Go Global Retail LLC v. Dream On Me, Inc., Case No. 23-cv-7987 is an outgrowth of the bankruptcy proceedings of Bed Bath & Beyond (“BBB”). During its bankruptcy, BBB offered for sale the assets of one of its subsidiaries, Buy Buy Baby (“BBBY”).
The parties in the Go Global case considered making a joint bid on the BBBY assets. To that end, they entered a nondisclosure agreement (“NDA”) to share information with each other, including trade secrets of the plaintiff, Go Global Retail (“Go Global”), which held itself out as a brand investment platform frequently engaged in the acquisition of distressed retail assets. Go Global was in need of financing and the defendant, Dream On Me (“Dream On”), was capable of providing it. A key provision of the NDA foreclosed either party from bidding on BBBY’s assets without the other.
Despite the NDA provision requiring joint bidding, Dream On made a solo bid for BBBY’s assets and was declared the winning bidder at auction. Following approval of the sale to Dream On by the bankruptcy court, Go Global sued Dream On alleging that Dream On had violated the NDA, using Go Global’s trade secrets to formulate and propose the winning bid for the BBBY assets.
Dream On moved to dismiss the lawsuit, asserting that the claims alleged by Go Global were barred under the doctrine of res judicata and an injunction incorporated into the bankruptcy sale order that foreclosed claims against Dream On “in connection with or related to the Transaction.” With respect to res judicata, the Court held that the doctrine did not apply because Go Global’s lawsuit would not disrupt the confirmed reorganization plan in BBB’s bankruptcy case—a lower bankruptcy standard for applying the doctrine than is typically seen in civil suits.
Addressing the injunction provisions in the BBB bankruptcy plan, the Court held that the injunction was “geared toward the core bankruptcy concepts of selling assets free and clear of prior claims and ensuring finality of the sale order” and that reading it any more broadly would implicate due process concerns. The Court acknowledged that Go Global could have raised its concerns regarding the alleged use of its trade secrets during the bankruptcy case – but did not.
Further, the Court concluded that the claims asserted by Go Global were independent from the bankruptcy proceedings themselves—that an alleged breach of the NDA did not implicate the protections afforded to asset purchasers under § 363 of the Bankruptcy Code, which grants broad protections to good faith purchasers from having their acquisitions unwound following entry of an order approving a sale.
The opinion in Go Global offers insight into how, despite the significant benefits afforded to asset purchasers in bankruptcy proceedings, plan confirmation and sale orders cannot completely inoculate a successful bidder in bankruptcy proceedings against claims arising out of independent facts and agreements tangentially related to the sale itself. Bidders should be mindful of the limits of § 363 protections and, if they require additional protections, seek to have them incorporated into the sale order or plan.