FILED AUG 20 2013 SUSAN M SPRAUL, CLERK 1 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP Nos. NV-12-1346-KiCoD ) NV-12-1347-KiCoD 6 COMMUNITY BANCORP, ) (Related appeals) ) 7 Debtor. ) Bk. No. 10-20038 ) 8 WILMINGTON TRUST COMPANY; ) HOLDCO ADVISORS, L.P., ) 9 ) Appellants, ) 10 ) v. ) M E M O R A N D U M1 11 ) YVETTE WEINSTEIN, Chapter 7 ) 12 Trustee; FEDERAL DEPOSIT ) INSURANCE CORPORATION, as ) 13 Receiver of Community Bank of ) Nevada; PACIFIC COAST BANKERS ) 14 BANK, ) ) 15 Appellees. ) ______________________________) 16 Argued and Submitted on July 19, 2013, 17 at Las Vegas, Nevada 18 Filed - August 20, 2013 19 Appeal from the United States Bankruptcy Court for the District of Nevada 20 Honorable Bruce A. Markell, Bankruptcy Judge, Presiding 21 Appearances: Christopher Celentino, Esq. of Foley & Lardner LLP 22 argued for appellant, Wilmington Trust Company; Seth B. McCormick, Esq. of Brown Legal Advisors, 23 LLC argued for appellant, HoldCo Advisors, L.P.; Jeffrey Eric Schmitt, Esq. argued for appellee, 24 FDIC Receiver; and Elizabeth E. Stephens, Esq. of Sullivan Hill Lewin Rez & Engel argued for 25 appellee, Yvette Weinstein, Chapter 7 trustee. 26 27 1 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have 28 (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1. 1 Before: KIRSCHER, COLLINS2 and DUNN, Bankruptcy Judges. 2 Appellants, Wilmington Trust Company, as Indenture Trustee 3 ("Wilmington"), and HoldCo Advisors, L.P. ("Holdco"), as manager 4 for Financials Restructuring Partners, Ltd. and Financials 5 Restructuring Partners III, Ltd. (collectively, "Appellants"), 6 appeal an order from the bankruptcy court approving the chapter 73 7 trustee's motion to approve a settlement with appellee, the 8 Federal Deposit Insurance Corporation, as Receiver ("FDIC-R"), for 9 certain tax refunds. We AFFIRM. 10 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 11 A. The chapter 7 filing 12 Community Bancorp, Inc. ("Debtor" or "holding company"), a 13 Nevada corporation, filed a chapter 7 bankruptcy case on May 28, 14 2010. Yvette Weinstein was appointed as trustee ("Trustee"). 15 Immediately upon her appointment, she employed Larry L. Bertsch, a 16 certified public accountant and former chapter 7 panel trustee 17 ("CPA"), to assist her with the case, as well as attorneys. She 18 also sought under Rule 2004 to examine Debtor's attorneys. 19 Debtor was the holding company for two failed banks — 20 Community Bank of Nevada, a bank chartered by the State of Nevada 21 ("CBON"), and Community Bank of Arizona, a bank chartered by the 22 State of Arizona ("CBOA")(collectively, the "Banks"). Debtor is 23 the parent corporation; the Banks are its subsidiaries. Prior to 24 25 2 Hon. Daniel P. Collins, Bankruptcy Judge for the District 26 of Arizona, sitting by designation. 27 3 Unless specified otherwise, all chapter, code and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 28 the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
-2- 1 the petition date, the Nevada Department of Business & Industry, 2 Financial Institutions Division, closed CBON, and the Arizona 3 Department of Financial Institutions closed CBOA. The FDIC-R was 4 appointed receiver, succeeding to "all rights, titles, powers, and 5 privileges" of those institutions. See 12 U.S.C. 6 § 1821(d)(2)(A)(I). Wilmington, as Indenture Trustee, is Debtor's 7 largest undisputed, unsecured creditor with a claim for $50 8 million in bonds, which were issued by Debtor pursuant to an 9 Indenture, and represents the individual holders of those trust 10 preferred securities. Holdco represents a similar group of 11 individuals holding Debtor-issued trust preferred securities. 12 Prior to the petition date, Debtor routinely filed 13 consolidated tax returns on its own behalf and on behalf of its 14 subsidiaries, including the Banks, which is a common practice 15 amongst parent and subsidiary corporations that can provide 16 substantial tax-saving benefits. In its Schedule B, Debtor listed 17 potential tax refunds of approximately $27 million ("Tax 18 Refunds"). An approximate $12 million refund was estimated for 19 NOL (net operating loss) carrybacks from tax year 2008, and an 20 approximate $15 million refund was estimated for NOL carrybacks 21 from tax year 2009. In its Schedule F, Debtor listed the FDIC-R 22 as holding two unsecured, unliquidated and disputed claims of 23 $780,000,000 and $25,500,000; Wilmington was listed as holding an 24 unsecured, contingent and liquidated claim for $50,000,000, which 25 Debtor described as "Subordinate Debt." Holdco was not listed as 26 a creditor but is affiliated with U.S. Bank, who filed a proof of 27 claim in this case. 28 On August 18, 2010, the FDIC-R filed an emergency motion for
-3- 1 relief from stay seeking to file the necessary federal tax return 2 on behalf of the Banks to obtain the scheduled Tax Refunds. 3 However, before the matter was decided, on September 2, 2010, 4 Trustee and the FDIC-R filed a stipulation agreeing to file a 5 consolidated return on behalf of Debtor and the Banks. Trustee 6 believed that the Tax Refunds, at least in part, belonged to 7 Debtor and were property of the estate; the FDIC-R contended that 8 all, or substantially all, of the Tax Refunds belonged to it and 9 were not property of Debtor's estate. The parties agreed to 10 disagree on the ownership issue, but, in the meantime, agreed that 11 it was in the best interest of all parties to file the 12 consolidated return by the September 15, 2010 deadline or lose the 13 $27 million in Tax Refunds forever. Further, a consolidated 14 return was expected to result in a larger refund. Any monies 15 received were to be placed into an escrow account while ownership 16 of the Tax Refunds was determined. 17 The parties' stipulation was approved, and the consolidated 18 return resulted in a tax refund of $15,172,962.00. The remaining 19 $12 million refund was subject to an earlier tax return filed by 20 the FDIC-R and was still pending with the IRS.4 21 B. The settlement motion for the Tax Refunds 22 In October 2010, Trustee filed a motion to approve settlement 23 of the Tax Refunds ("Settlement Motion"). In support, Trustee 24 offered a copy of the Settlement Agreement, her declaration and a 25 declaration from her CPA. Trustee contended that she and her 26 professionals had engaged in lengthy settlement negotiations with 27 4 The FDIC-R has since received the remaining $12 million 28 refund.
-4- 1 the FDIC-R, its tax advisors and attorneys, including discussions 2 of the accountants' different analyses of what portions of the Tax 3 Refunds belonged to the estate. Trustee's CPA concluded, based on 4 prior tax returns, the "Agreement to Join in the Filing of 5 Consolidated Federal and State Income Tax Returns" executed by 6 Debtor and the Banks (the "TFA") prior to the bankruptcy, and the 7 consolidated tax return, which included Debtor's losses and 8 enhanced the refund by $3.1 million, that $3.1 million of the Tax 9 Refunds should be allocated to the estate. Under an alternative 10 theory, the CPA concluded that the estate should receive about 11 $8 million of the Tax Refunds. Although the FDIC-R conceded that 12 it could understand the CPA's $3.1 million analysis in Debtor's 13 favor, it did not concede the validity of that analysis. The 14 FDIC-R claimed it owned the Tax Refunds because the Banks had 15 suffered sufficient losses over the carryback period entitling it 16 to the entire refund. 17 To settle the matter, the parties agreed the estate would 18 receive $3 million of the Tax Refunds, and the FDIC-R would 19 receive $24 million. The FDIC-R agreed to waive any claim to the 20 $3 million received by the estate and was responsible for any fees 21 incurred with future IRS audits respecting the consolidated tax 22 return. The parties were still negotiating their dispute over the 23 estate's other major asset — its director and officer insurance 24 policies ("D & O Policies"). Despite settling the Tax Refunds 25 issue, the FDIC-R was not waiving any claims to the D & O Policies 26 or any other assets Trustee recovered. 27 To satisfy her burden under Martin v. Kane (In re A & C 28 Props.), 784 F.2d 1377, 1381 (9th Cir. 1986)("A & C"), Trustee
-5- 1 asserted that three of the four factors favored settlement. As 2 for the probability of success in litigation, Trustee conceded 3 that while she could recover additional portions of the Tax 4 Refunds if she were to litigate the issue, she believed the risk 5 factor involved in litigation indicated that the settlement was 6 fair and reasonable and in the best interest of creditors and the 7 estate. Because of the FDIC-R's position that the estate should 8 receive no portion of the Tax Refunds, litigation would be 9 necessary, which would only incur further expenses and fees. 10 Collection was not an issue because the Tax Refunds had been 11 received and were being held in escrow. As for the complexity of 12 the litigation and the expense, inconvenience and delay associated 13 with it, Trustee contended that litigation would consume much time 14 and expense for the estate — scant case law existed, and 15 potentially numerous witnesses, exhibits and documents would be 16 necessary for trial, drawing out the case and adding to its 17 expense, inconvenience to witnesses and resultant delay. The 18 estate would also incur significant administrative expenses. 19 Therefore, $3 million in hand was superior to expensive litigation 20 that offered no guarantee of a favorable outcome. Finally, 21 Trustee contended that settlement was in the paramount interest of 22 creditors, because successful litigation was not guaranteed and 23 could result in no benefit for the estate. Trustee also believed 24 that creditor Pacific Coast Banker's Bank ("PCBB") would support 25 the settlement.5 Accordingly, contended Trustee, the settlement 26 was fair and equitable and in the best interest of creditors. 27 5 PCBB did file a limited objection to the Settlement Motion, 28 but later withdrew it.
-6- 1 Trustee's CPA also opined that settlement was in the best interest 2 of creditors and the estate. A hearing was set for November 22, 3 2010. 4 In support of its objection to the Settlement Motion, Holdco 5 offered copies of various unpublished, out-of-district decisions 6 it contended supported Debtor's rights to the Tax Refunds and a 7 copy of the TFA. In short, Holdco opposed Trustee surrendering 8 the most valuable asset of the estate at too much of a discount, 9 receiving only approximately 11% of the Tax Refunds. Holdco 10 argued that Trustee had failed to show any support for her 11 contention that she would have a low probability of success in 12 litigation, offering only a conclusory statement to that effect. 13 In Holdco's opinion, Trustee's position was strong, as courts 14 across the nation were holding that when a tax sharing agreement 15 exists between a bank subsidiary and the bank holding company, 16 then that agreement controls the ownership rights to the tax 17 refund. Citing W. Dealer Mgmt., Inc. v. England (In re Bob 18 Richards Chrysler-Plymouth Corp.), 473 F.2d 262, 265 (9th Cir. 19 1973), Holdco argued that while Bob Richards held that a tax 20 refund attributable to the business losses of a subsidiary in a 21 consolidated group is owned by the subsidiary, even though it was 22 received by the agent parent, the Ninth Circuit further held that 23 parties within a consolidated group were free to draft a 24 "differing agreement" with respect to the ultimate disposition of 25 tax refunds. Here, argued Holdco, the language of the TFA created 26 a debtor-creditor relationship, as opposed to a principle-agent 27 relationship, and thus Debtor as the parent holding company owned 28 the Tax Refunds.
-7- 1 Second, as for the complexity, expense, inconvenience and 2 delay associated with litigation, Holdco argued that Trustee's 3 conclusory statements regarding the expense of litigation failed 4 to satisfy her burden. According to Holdco, based on its 5 involvement in similar tax refund ownership cases against the 6 FDIC-R, the case most likely did not involve a factual inquiry 7 beyond the controlling documents, namely, the TFA, it could be 8 decided on summary judgment, and ample case law in Trustee's favor 9 existed. 10 Finally, Holdco argued that Trustee's proposed settlement 11 amounted to creditors receiving a $24 million haircut. Holdco 12 contended that Trustee had failed to give any deference to the 13 paramount interest of Debtor's unsecured creditors whose rights 14 would be so drastically affected by it. The settlement preferred 15 the FDIC-R's contingent, disputed claim by paying it nearly 16 100 cents on the dollar, while leaving the remaining creditors 17 with crumbs. 18 Wilmington also objected to the Settlement Motion, asserting 19 that Trustee had failed to establish the settlement was fair and 20 equitable. First, the Settlement Motion did not provide adequate 21 information about the negotiation process, or provide the legal 22 basis for the FDIC-R's ownership claim over the Tax Refunds or 23 Trustee's decision to settle such claims. Further, the proposed 24 settlement was not a global settlement resolving the FDIC-R's and 25 Trustee's competing claims to the D & O Policies or any other 26 assets Trustee may collect. Third, it provided little benefit to 27 creditors, giving a windfall to the FDIC-R and leaving nothing 28 meaningful for the estate. Fourth, recent case law and the
-8- 1 language in the TFA supported the estate's ownership claim — it 2 created a debtor-creditor relationship between the parties, not a 3 trust. As a result, argued Wilmington, Bob Richards was 4 inapplicable, the Tax Refunds were property of the estate, and the 5 FDIC-R merely held an unsecured claim. Accordingly, in 6 Wilmington's opinion, the potential for success in litigation 7 seemed high, or at least high enough to give Trustee leverage to 8 negotiate a better settlement. Finally, Wilmington argued that 9 Trustee had failed to demonstrate that litigation with the FDIC-R 10 would be overly complex or expensive, contending that the facts 11 and issues were not necessarily numerous or complicated. 12 In its reply to the objections, the FDIC-R contended that it 13 had reached a settlement with Trustee after fifteen months of 14 investigation and negotiation, and that only two creditors had 15 objected to the Settlement Motion among fifteen creditors who had 16 filed proofs of claim — PCBB, which would likely withdraw its 17 limited objection, and Wilmington. The FDIC-R contended that 18 Holdco lacked standing to object. 19 In short, the FDIC-R argued that the settlement satisfied the 20 "lowest point in the range of reasonableness" under Rule 9019, and 21 that the objecting creditors' arguments relied exclusively on the 22 TFA, which the FDIC-R contended was unenforceable under 12 U.S.C. 23 § 1823(e) because the TFA was never approved by CBON's board of 24 directors. Even if it were approved, argued the FDIC-R, extensive 25 case law favored its position and many other cases involved 26 similar 90%/10% settlement ratios in favor of the FDIC-R. The TFA 27 at issue, in the FDIC-R's opinion, addressed only the "filing" of 28 consolidated federal tax returns and tax payments, not the
-9- 1 "ownership" of refunds, so it was not the "differing agreement" 2 exception carved out in Bob Richards. Thus, Trustee's probability 3 of success in litigation was low because the refunds were from 4 taxes paid by CBON, and therefore belonged to the FDIC-R under Bob 5 Richards. Accordingly, argued the FDIC-R, Trustee reasonably 6 determined that the risks, delays and expense of litigation were 7 not justified. Finally, the FDIC-R contended that litigation over 8 the ownership of the Tax Refunds would be extremely complicated, 9 time consuming and expensive, which supported approval of the 10 Settlement Motion. Numerous depositions and other discovery would 11 be necessary to determine the parties' intent regarding the TFA 12 and how the parties treated and booked tax refunds in the past. 13 In her reply and supporting declaration, Trustee contended 14 that even though all parties knew about the tax refund issue over 15 a year ago, Holdco and Wilmington never contacted her or her 16 attorneys prior to her filing the Settlement Motion, and neither 17 had taken any formal discovery with regard to how or why the 18 settlement was reached. Trustee said she was aware of the tax 19 refund issue from the start, and that she and her professionals 20 spent considerable time analyzing it. Overall, she believed 21 settlement was justified in light of the risk of litigation, and 22 the vastly different positions articulated by the FDIC-R and the 23 objectors only highlighted the case's complexity. Favorable cases 24 cited by the objecting creditors were unpublished and not Ninth 25 Circuit cases. In any event, the issue turned on the 26 interpretation of the TFA, and Trustee disagreed with their 27 position that it created a debtor-creditor relationship. She and 28 her CPA believed that more likely the Banks owned the Tax Refunds;
-10- 1 Debtor was merely holding the funds as agent. Further, because 2 litigation could result in no benefit to the estate, Trustee 3 argued that the settlement, which she based on the advice from her 4 professionals and her own business judgment, was in the best 5 interest of creditors. Attached to Trustee's reply was a copy of 6 minutes from one of Debtor's board meetings held just prior to the 7 bankruptcy filing. There, chairman Ed Jamison noted that Debtor 8 was entitled to $200,000 to $2 million of the $27 million refund. 9 On November 21, 2011, one day prior to the hearing on the 10 Settlement Motion, Holdco and Wilmington filed lengthy replies to 11 the replies of the FDIC-R and Trustee. Both contended that 12 Trustee had still not met her burden under A & C. Holdco 13 contended that it was "exceptionally confident" that, given 45-60 14 days, it could submit to Trustee an offer to purchase the estate's 15 rights to the Tax Refunds for a lump sum of cash "far in excess of 16 the $3 million" Trustee would receive under the settlement. 17 The bankruptcy court held a hearing on the Settlement Motion 18 on November 22, 2011. Because the objecting creditors had not 19 been given a copy of the most recent TFA from 2007, which 20 Trustee's counsel argued was identical to the 2003 version they 21 had been provided, the court denied the Settlement Motion without 22 prejudice so that creditors could have an opportunity to review 23 the 2007 TFA, a document it considered to be "essential and 24 critical" to the issue. 25 C. Wilmington's motion to compel mediation and motion to prosecute 26 27 On February 27, 2012, Wilmington filed a motion to compel 28 mediation, contending that it had been trying since November 2011
-11- 1 to facilitate settlement discussions regarding the Tax Refunds and 2 the D & O Policies with Trustee, to no avail. It now sought a 3 court-imposed mediation in hopes that a better settlement could be 4 reached amongst the parties. A hearing was set for March 27, 5 2012. 6 Trustee and the FDIC-R opposed the motion. The FDIC-R noted 7 that three months had passed since Wilmington received a copy of 8 the 2007 TFA, yet it had still not conducted any of the discovery 9 it requested or claimed was necessary before the court considered 10 the settlement. Trustee confirmed this contention, and further 11 noted that Holdco had yet to make an offer to purchase the 12 estate's rights and/or claims to the Tax Refunds as promised, 13 which Trustee would "seriously" consider. Trustee believed that 14 mediation would not be beneficial. Trustee further believed the 15 motion was premature and should be considered only after she filed 16 her renewed settlement motion, which she was filing momentarily. 17 Wilmington then moved for an order authorizing it to 18 prosecute an adversary proceeding against the FDIC-R to determine 19 ownership of the Tax Refunds. A hearing was set for April 24, 20 2012. 21 D. Trustee's renewed settlement motion 22 Trustee filed her renewed motion to approve settlement of the 23 Tax Refunds on March 14, 2012 ("Renewed Settlement Motion"). In 24 support, she offered her declaration and a declaration from her 25 CPA. The terms were the same, but Trustee provided more 26 information about how the settlement was reached. Trustee 27 reiterated that she knew of the tax refund issue once she was 28 assigned to the case, and that after analyzing the relevant case
-12- 1 law, it became clear to her that this was an unsettled and complex 2 issue. Although the objecting creditors had taken a contrary 3 position, Trustee still believed that the FDIC-R had the better 4 case for ownership of the Tax Refunds. The differences in the 5 parties' positions indicated that litigation posed a substantial 6 risk; she could end up with zero recovery. Trustee further noted 7 that even Debtor's chairman had concluded Debtor was entitled to 8 only $200,000 to $2 million of the Tax Refunds. Accordingly, upon 9 the advice of her professionals and her own business judgment, 10 Trustee believed that the settlement was fair and in the best 11 interest of creditors. The FDIC-R filed its brief in support of 12 the Renewed Settlement Motion on March 14, 2012. The Renewed 13 Settlement Motion was set for hearing on April 24, 2012. 14 On March 27, 2012, the bankruptcy court held a hearing on 15 Wilmington's motion to compel mediation. On the court's own 16 motion, it continued the hearing on that motion, along with 17 Wilmington's motion to prosecute and Trustee's Renewed Settlement 18 Motion, so it could hear all three matters concurrently. All 19 three motions were continued to April 24, 2012, and again to 20 June 12, 2012. 21 E. Supplemental briefing on the Renewed Settlement Motion and the continued hearing 22 23 The FDIC-R filed its supplemental brief in support of the 24 Renewed Settlement Motion, contending that certain recent 25 developments further supported settlement. Despite Holdco's offer 26 to buy the claim within 45-60 days for more than $3 million, after 27 four months Holdco had proposed only a contingency arrangement 28 with Trustee that guaranteed no money to the estate, which Trustee
-13- 1 rejected. Wilmington had made a similar offer, also rejected by 2 Trustee. Next, the law firm representing Holdco had recently 3 represented a chapter 7 Trustee and successfully obtained approval 4 of a tax refund settlement with the FDIC that split the refund 90% 5 to the FDIC and 10% to the trustee. In re Tamalpais Bank, case 6 no. 10-13707, dkt. no. 70 (Bankr. N.D. Cal. Apr. 13, 2012) 7 (settlement approved where trustee received $950,000 of a 8 $10.35 million tax refund, with the FDIC getting the remainder). 9 Third, the FDIC-R had now filed its proof of claim for 10 approximately $47 million.6 Finally, the FDIC-R asserted, for the 11 first time, that Wilmington and Holdco's opposition should be 12 given less weight because their claims were subordinate to the 13 claims of the FDIC-R and PCBB and unlikely to receive a 14 distribution from the estate, even if Debtor were adjudicated 15 owner of the Tax Refunds. 16 Trustee filed her supplemental brief and declarations in 17 support of the Renewed Settlement Motion on May 11, 2012, which 18 attempted to "beef up" her prior pleadings. As for the 19 probability of success in litigation, Trustee asserted several 20 reasons why settlement was preferable to litigation. First, she 21 argued that the TFA did not determine "ownership" of the Tax 22 Refunds, and the record reflected that the Banks suffered 23 sufficient losses entitling them to the entire refund. Therefore, 24 under Bob Richards, the FDIC-R likely owned the Tax Refunds. 25 Trustee was further persuaded by additional facts for why the 26 Banks were entitled to the Tax Refunds including, inter alia, the 27 6 This was far less than the approximate $800 million Debtor 28 had listed owing the FDIC-R in its Schedule F.
-14- 1 Banks had carried the refunds on their books and Debtor had not, 2 and Debtor's corporate minutes provided that the refunds were 3 owned by the Banks. Therefore, in Trustee's opinion, the FDIC-R 4 would more likely prevail on this issue if litigated. Further, 5 Trustee contended that, in her best business judgment, settlement 6 was preferable to the risk and uncertainty of litigation; a 7 $3 million "bird in the hand" was superior to wading "into the 8 murky waters of what [was] at best an evolving area of the law." 9 It was clear to her that the FDIC-R would vigorously contest the 10 estate's claims of ownership, and she predicted that litigation 11 would take approximately two to three years, including an 12 inevitable appeal, which would burden the estate with substantial 13 legal fees and no guarantee of success. Finally, Trustee 14 contended that the settlement was reasonable, appropriate under 15 the circumstances, and in the best interest of the estate and the 16 creditor body as a whole. She agreed with the FDIC-R that 17 Wilmington and Holdco were likely "far out of the money" with 18 their subordinated claims and that their arguments should be given 19 minimal weight. Trustee asserted that she had always assumed 20 these two creditors held subordinated claims, which perhaps 21 explained why they were not involved in the case until after she 22 filed the Settlement Motion. Nonetheless, to take their position 23 and gamble with other people's money was unfair and not a proper 24 exercise of her business judgment. 25 In its supplemental objection to the Renewed Settlement 26 Motion, Holdco contended that the settlement still failed to 27 satisfy A & C and was not fair and equitable to creditors. Holdco 28 disputed the FDIC-R's and Trustee's latest position that its claim
-15- 1 was subordinated and out of the money. Holdco argued that for 2 Trustee to take this position only showed her ignorance of the 3 nature of its claims and exposed that she was proceeding with a 4 settlement without knowing all of the facts and circumstances. 5 Finally, Holdco noted a recent decision, Siegel v. FDIC 6 (In re Indymac Bancorp, Inc.), 2012 WL 1037481 (Bankr. C.D. Cal. 7 Mar. 29, 2012), another case it contended favored Trustee, in 8 which Judge Bluebond rejected each of the arguments the FDIC-R had 9 asserted here and determined that the tax refunds at issue were 10 property of the estate. Attached to Holdco's brief was a copy of 11 the Indymac decision, a tentative ruling from the Southern 12 District of California, In re Imperial Capital Bancorp, Inc. 13 (09-19431), and the Indenture agreement dated September 21, 2006. 14 Wilmington filed its supplemental objection to the Renewed 15 Settlement Motion, reiterating its prior arguments and contending 16 that the proposed settlement still did not satisfy A & C. 17 Wilmington argued that Trustee had failed to offer any factual or 18 legal basis for her conclusory statements that the TFA did not 19 create a debtor-creditor relationship, and that Debtor was holding 20 the Tax Refunds as "agent" for the Banks. Wilmington also 21 speculated that because Trustee was not settling the issue of the 22 D & O Policies, she could end up depleting the $3 million she 23 would receive from the settlement litigating that unresolved issue 24 with the FDIC-R. Wilmington disputed that its claim was 25 subordinated and out of the money. In a separate response to the 26 FDIC-R's supplemental brief in support of the Renewed Settlement 27 Motion, Wilmington provided a more detailed analysis as to why its 28 claim was not subordinate to, but rather was in pari passu with,
-16- 1 the FDIC-R's. 2 Trustee filed a reply brief and declaration in support of the 3 Renewed Settlement Motion on June 5, 2012. She had assumed the 4 claims of Wilmington and Holdco were subordinated from the 5 beginning of the case, particularly in light of their silence, 6 which is why she focused more on the FDIC-R and PCBB, the active 7 creditors in the case. However, she now conceded that perhaps 8 they may not be subordinated. In any event, argued Trustee, while 9 the objecting creditors were lamenting that the estate's claim to 10 the Tax Refunds was worth more than what Trustee was receiving, 11 neither of them had offered to buy the claim or guarantee the 12 estate a recovery, which implied that maybe the issue of the 13 estate's ownership of the Tax Refunds was not such a "slam dunk" 14 as they had argued. The recent Imperial and Indymac cases, which 15 Trustee noted were unpublished and not binding, only represented 16 yet more examples of the shifting and uncertain legal landscape on 17 which she had to make decisions here. Regarding her conclusion on 18 the TFA, Trustee determined that the parties had not made a 19 "differing agreement" as to "ownership" of the Tax Refunds, so 20 Bob Richards controlled, and the language of the TFA favored the 21 FDIC-R. Wilmington and Holdco were wrong in asserting that 22 Bob Richards did not apply if any tax agreement existed between 23 the parties, even if it was silent as to ownership of tax refunds. 24 The FDIC-R filed a reply to the supplemental objections to 25 the Renewed Settlement Motion on June 5, 2012, to which Trustee 26 filed a response on June 6, 2012. In short, Trustee argued that 27 the settlement was a reasonable exercise of her business judgment. 28 Each party had vigorously advocated its position describing
-17- 1 different but reasonable outcomes, but each depended heavily on 2 factual and legal determinations not yet made in this case, that 3 would only be made after years of litigation effort and expense. 4 The parties' briefs clearly showed that reasonable minds could 5 differ and only illustrated the shifting and uncertain backdrop 6 against which she negotiated the Settlement Agreement. 7 Holdco filed a second supplemental objection to the Renewed 8 Settlement Motion and offered a copy of the district court's 9 recent decision in Indymac, which adopted Judge Bluebond's 10 proposed findings and conclusions. Holdco argued that this 11 further demonstrated Trustee's high probability of success in 12 litigation over the ownership of the Tax Refunds, and that handing 13 over 90% of the Tax Refunds to the FDIC-R was not reasonable or a 14 fair and equitable settlement. Holdco further opposed the 15 settlement as unreasonable because Trustee had now admitted that 16 she failed to conclude on her own that Holdco's claim was 17 subordinate to the FDIC-R's; she had merely accepted the FDIC-R's 18 wrongful assertion. 19 The FDIC-R filed a response to Holdco's second supplemental 20 objection on June 11, 2012, still contesting Holdco's standing and 21 ability to object to the settlement.7 22 F. The bankruptcy court's decision to approve the Renewed Settlement Motion 23 24 The bankruptcy court held a hearing on the Renewed Settlement 25 26 7 Appellees also contest Holdco's standing in its appeal. However, Wilmington, whose standing appellees do not contest, has 27 also appealed the Settlement Order and has raised essentially the same arguments as Holdco. Therefore, we do not reach the issue of 28 Holdco's standing.
-18- 1 Motion on June 12, 2012. Counsel for the FDIC-R began by noting 2 that no settlements of this nature involving the FDIC-R had been 3 denied despite the "modern trend" in the case law, to which the 4 court responded: 5 But that has less to do, much less to do, with the nature of the legal issues involved and much more to do with the 6 nature of the standard for approval of a settlement. I mean, the trustee comes in with incredible deference 7 due to her with respect to these matters, and it's difficult. . . . 8 It's very difficult to prove because that's the issue on 9 a 9019 motion that she didn't follow her discretion. . . . [B]ut the question is whether or not those typical 10 standards have been met here. 11 It has very little in one sense to do — I mean, once you decide that the state of the law is not uniform, you 12 basically have to move on. 13 I mean, you can argue the individual points, but to argue them only kind of reinforces the point that she's 14 exercising her discretion appropriately in an area in which there is no one true answer. 15 So I'm not real sure that it makes a lot of sense or we 16 gain a lot by arguing who's right and who's wrong about Bob Richards. The fact that we're having the argument at 17 all is a point in favor of the trustee. 18 Hr'g Tr. (June 12, 2012) 16:20-25; 17:3-17. Counsel for Holdco 19 and Wilmington then presented their arguments. Holdco argued that 20 Trustee had entered into a settlement without knowing all of the 21 facts and had simply accepted without challenge the FDIC-R's 22 self-serving versions of them, which prompted the following 23 colloquy: 24 THE COURT: I mean, how do you know that? Did anyone take the trustee's deposition? 25 COUNSEL: No, your Honor. 26 THE COURT: I mean --- all we know is what she has 27 provided by the way of multiple declarations, correct? 28 COUNSEL: Yes, your Honor. Well, and in the pleadings
-19- 1 itself, the trustee defers to the FDIC's subordination arguments as opposed to raising it itself [sic]. 2 THE COURT: Well, I mean, I do the same thing. For 3 example, if I were to do what you suggest, I would rely on Judge Nakagawa's reasoning, not my own, and that's the 4 same thing. I'm just incorporating someone else's reasoning. That's not necessarily nefarious. 5 6 Id. at 49:9-23. Upon counsel's argument that Bob Richards "has 7 been struck down as being controlling in a number of cases" the 8 court stated: 9 THE COURT: Well, no. I mean, it's still controlling because it's still Ninth Circuit. What they (other 10 recent cases) find is that the prepetition contractual arrangements take it outside of the general equitable 11 holding that the person who generated the losses that led to the refund should get the refund. 12 COUNSEL: Yes, your Honor. 13 14 Id. at 50:16-24. After hearing further argument from the parties, 15 the bankruptcy court entered its oral ruling approving the Renewed 16 Settlement Motion. In applying the A & C factors, the court 17 determined that the settlement was fair, equitable and reasonable. 18 The bankruptcy court entered an order approving the Renewed 19 Settlement Motion on June 20, 2012 ("Settlement Order"). The 20 motion to compel mediation and motion to prosecute were denied as 21 moot. Both Wilmington and Holdco timely appealed the Settlement 22 Order. Neither Appellant sought a stay of the challenged order 23 during the pendency of this appeal. 24 II. JURISDICTION 25 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 26 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158, 27 subject to the jurisdictional issue below. 28
-20- 1 III. ISSUES 2 Are these appeals moot? If not, did the bankruptcy court 3 abuse its discretion in entering the Settlement Order? 4 IV. STANDARDS OF REVIEW 5 We review de novo issues of mootness. Foster v. Carson, 6 347 F.3d 742, 745 (9th Cir. 2004). 7 We review the bankruptcy court's decision to approve a 8 settlement for an abuse of discretion. In re A & C Props., 9 784 F.2d at 1380. The court abuses its discretion if it applied 10 the wrong legal standard or its findings were illogical, 11 implausible or without support in the record. TrafficSchool.com, 12 Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011). 13 Because the bankruptcy court identified and applied the 14 correct legal standard, the only question left on appeal is 15 whether its determinations that the settlement was fair and 16 equitable and in the best interest of the estate were clearly 17 erroneous. To that end, we note that "when a trial judge’s 18 finding is based on his decision to credit the testimony of one of 19 two or more witnesses, each of whom has told a coherent and 20 facially plausible story that is not contradicted by extrinsic 21 evidence, that finding, if not internally inconsistent, can 22 virtually never be clear error.” Anderson v. City of Bessemer 23 City, N.C., 470 U.S. 564, 575 (1985)(citations omitted). We may 24 affirm on any ground supported by the record. Shanks v. Dressel, 25 540 F.3d 1082, 1086 (9th Cir. 2008). 26 /// 27 /// 28 ///
-21- 1 V. DISCUSSION 2 A. The appeals may be moot. 3 1. Parties' contentions 4 The FDIC-R moved to dismiss these appeals as constitutionally 5 and equitably moot. Trustee joined in that motion. Wilmington 6 opposed it. 7 In a January 2, 2013 order, the motions panel denied the 8 motion to dismiss without prejudice, leaving the matter for the 9 merits panel to consider, and ordered supplemental briefing on the 10 following two issues: (1) explaining exactly how the FDIC-R works, 11 what its assets are; and (2) explaining how much money the FDIC-R 12 paid to the FDIC and whether that was reimbursement for money the 13 FDIC had already paid out on insured funds. 14 In its supplemental brief, the FDIC-R explained how it and 15 the FDIC in its corporate capacity ("FDIC-C") are separate legal 16 entities having separate functions. Specifically, the FDIC is a 17 corporation that carries out its statutory duties in two distinct 18 capacities: in its corporate capacity and in its capacity as 19 receiver for a failed depository institution. Much like Title 11, 20 Title 12 provides a priority payment scheme for the payment of 21 claims made against the FDIC-R. The FDIC-R is obligated to pay 22 all valid claims against the insured depository institution in 23 accordance with the limitations of the FDI Act. The FDIC-C's 24 subrogated claim against the FDIC-R, which the FDIC-C obtained 25 once it made insurance payments to CBON's depositors upon that 26 bank's failure, had second priority of payment, junior only to the 27 FDIC-R's administrative expenses. 28 The FDIC-R explained that it had distributed the $24 million
-22- 1 it received in settlement proceeds by declaring and paying a 2 4% distribution from its cash balance to the FDIC-C and the 3 seventy-seven depositors on November 1, 2012. The money paid 4 consisted of funds generated from the liquidation of CBON's 5 assets, the FDIC-R's portion of the settlement proceeds, and other 6 miscellaneous receipts. From this distribution, the FDIC-C 7 received $56,118,542.96, and the seventy-seven depositors 8 collectively received $189,999.62. The FDIC-R asserted that this 9 distribution represented a comprehensive change in circumstances 10 that would be extremely difficult and inequitable to unwind. 11 As for its assets, the FDIC-R claimed that it held 12 $383,560,000 in assets and $991,768,000 in liabilities, which 13 included the FDIC-C's subrogated claim of $980,306,536 and 14 seventy-seven uninsured depositors' claims collectively totaling 15 $3,320,353. Nonetheless, the FDIC-R asserted that the Panel 16 lacked jurisdiction under 12 U.S.C. § 1821(d)(13)(D)8 to order it 17 to pay back the settlement funds to Debtor's estate. 18 Wilmington contended that the FDIC had not paid "third 19 parties," but rather paid itself with more than 99.7% of the 20 settlement funds received. As both transferee and transferor of 21 the distribution, argued Wilmington, the FDIC had full knowledge 22 8 Title 12 U.S.C. § 1821(d)(13)(D) provides: 23 Except as otherwise provided in this subsection, no court 24 shall have jurisdiction over — (I) any claim or action for payment from, or any action 25 seeking a determination of rights with respect to, the assets of any depository institution for which the 26 Corporation has been appointed receiver, including assets which the Corporation may acquire from itself as 27 such receiver; or (ii) any claim relating to any act or omission of such 28 institution or the Corporation as receiver.
-23- 1 of the appeal and the potential for a disgorgement or repayment 2 order. As such, it could not contrive self-serving facts to 3 achieve the equitable protection of the mootness doctrine. In 4 short, argued Wilmington, regardless of who the FDIC paid, because 5 the FDIC is a party to the appeal and the court could fashion 6 effective relief through a disgorgement order, mootness did not 7 apply. Wilmington further argued that the FDIC-R held sufficient 8 cash and other investments, giving it the ability to repay the 9 $24 million to Debtor's estate. 10 2. Analysis 11 As the party advocating mootness, the FDIC-R bears a heavy 12 burden of establishing that we cannot provide any effective relief 13 to Appellants. United States v. Gould (In re Gould), 401 B.R. 14 415, 421 (9th Cir. BAP 2009), aff'd on other grounds, Gould v. 15 United States, 603 F.3d 1100 (9th Cir. 2010), cert. denied, 16 131 S.Ct. 557 (2010)(citing Suter v. Goedert, 504 F.3d 982, 986 17 (9th Cir. 2007)). 18 Constitutional mootness is derived from Article III of the 19 U.S. Constitution, which provides that the exercise of judicial 20 power depends on the existence of a case or controversy. DeFunis 21 v. Odegaard, 416 U.S. 312, 316 (1974); Clear Channel Outdoor, Inc. 22 v. Knupfer (In re PW, LLC), 391 B.R. 25, 33 (9th Cir. BAP 2008). 23 The mootness doctrine applies when events occur during the 24 pendency of the appeal that make it impossible for the appellate 25 court to grant effective relief. Id. The determining issue is 26 "whether there exists a 'present controversy as to which effective 27 relief can be granted.'" Vill. of Gambell v. Babbitt, 999 F.2d 28 403, 406 (9th Cir. 1993)(quoting Nw. Envtl. v. Gordon, 849 F.2d
-24- 1 1241, 1244 (9th Cir. 1988)). If no effective relief is possible, 2 we must dismiss for lack of jurisdiction. United States v. 3 Arkison (In re Cascade Rds., Inc.), 34 F.3d 756, 759 (9th Cir. 4 1994). 5 We conclude that these appeals are not constitutionally moot 6 because it is possible to grant relief to Appellants by reversing 7 or modifying the Settlement Order and ordering the FDIC-R to 8 disgorge its portion of the settlement proceeds. Although the 9 FDIC-R has distributed the $24 million proceeds to the FDIC-C and 10 seventy-seven depositors, the FDIC-R has sufficient assets to 11 satisfy a disgorgement order were one issued, whether or not we 12 agree that the FDIC-C is a separate legal entity and not a party 13 to this appeal. We are not persuaded by the FDIC-R's argument 14 that we are deprived of jurisdiction to order disgorgement of the 15 settlement funds under 12 U.S.C. § 1821(d)(13)(D). That statute 16 divests courts of subject matter jurisdiction over claims 17 presented to the FDIC until the claimant has exhausted all 18 administrative remedies. Henderson v. Bank of New Eng., 986 F.2d 19 319, 320-21 (9th Cir.), cert. denied, 510 U.S. 995 (1993); Freeman 20 v. FDIC, 56 F.3d 1394, 1398-1400 (D.C. Cir. 1995). We fail to see 21 how that statute is applicable here. 22 Equitable mootness, on the other hand, is not so clear. It 23 applies when an appellant has "'failed and neglected diligently to 24 pursue their available remedies to obtain a stay'" and changes in 25 circumstances "'render it inequitable to consider the merits of 26 the appeal.'" Darby v. Zimmerman (In re Popp), 323 B.R. 260, 271 27 (9th Cir. BAP 2005)(quoting Focus Media, Inc. v. Nat’l Broad. Co. 28 (In re Focus Media, Inc.), 378 F.3d 916, 923 (9th Cir. 2004)).
-25- 1 See also Motor Vehicle Cas. Co. v. Thorpe Insulation Co. 2 (In re Thorpe Insulation Co.), 677 F.3d 869, 880 (9th Cir. 2012). 3 For a case to be equitably moot, "[t]he question is whether the 4 case 'presents transactions that are so complex or difficult to 5 unwind that the doctrine of equitable mootness would apply.'" Id. 6 (quoting Lowenschuss v. Selnick (In re Lowenschuss), 170 F.3d 923, 7 933 (9th Cir. 1999)). "Ultimately, the decision whether or not to 8 unscramble the eggs turns on what is practical and equitable." 9 Baker & Drake, Inc. v. Public Serv. Comm'n of Nev. (In re Baker & 10 Drake, Inc.), 35 F.3d 1348, 1352 (citations omitted). 11 It is undisputed that Appellants did not seek a stay of the 12 Settlement Order. In Platinum Capital Inc. v. Sylmar Plaza, L.P. 13 (In re Sylmar Plaza, L.P.), 314 F.3d 1070, 1074 (9th Cir. 2002), 14 the Ninth Circuit held that even if debtor's plan had been 15 substantially consummated, the creditor's appeal was not equitably 16 moot for failing to seek a stay because its claim was strictly for 17 monetary damages and debtor was solvent. However, more recently 18 in In re Thorpe Insulation Co., the Ninth Circuit implemented a 19 two-step process for determining whether an appeal is equitably 20 moot: 21 We will look first at whether a stay was sought, for absent that a party has not fully pursued its rights. If 22 a stay was sought and not gained, we then will look to whether substantial consummation of the plan has 23 occurred. Next, we will look to the effect a remedy may have on third parties not before the court. Finally, we 24 will look at whether the bankruptcy court can fashion effective and equitable relief without completely 25 knocking the props out from under the plan and thereby creating an uncontrollable situation for the bankruptcy 26 court. 27 677 F.3d at 881. Thus, Thorpe implies that if a party fails to 28 seek a stay of the challenged order or judgment on appeal, then
-26- 1 the court does not even get to step two. In other words, failure 2 to seek a stay may alone be enough to render these appeals 3 equitably moot. See also Stokes v. Gardner, 2012 WL 1944552, at 4 *1 (9th Cir. May 30, 2012)(citing Thorpe and holding that failure 5 to seek a stay may, "by itself," render a party's claim equitably 6 moot). 7 Clearly, an inconsistency exists between Sylmar and Thorpe, 8 and, one that could determine the ultimate outcome here. However, 9 without addressing this inconsistency and deciding whether these 10 appeals are equitably moot, we instead turn to the merits. 11 B. The bankruptcy court did not abuse its discretion when it approved the Renewed Settlement Motion. 12 13 The impetus for this appeal originates in Appellants' clear 14 dissatisfaction with the amount Trustee received from the Tax 15 Refunds. They believe $3 million is too low, based on their 16 interpretation of the TFA and how trustees in similarly situated 17 cases have faired in bankruptcy courts across the country as of 18 late. Based on the record before us, however, we conclude that 19 the bankruptcy court properly exercised its discretion in 20 approving the settlement. 21 1. Governing law 22 Rule 9019(a) authorizes the bankruptcy court to approve a 23 settlement on motion by the trustee and after notice and a 24 hearing. As the party proposing the compromise, the trustee bears 25 the burden in proving that the settlement is fair and equitable 26 and should be approved. In re A & C Props., 784 F.2d at 1382. 27 The bankruptcy court must conduct an inquiry into all 28 "factors relevant to a full and fair assessment of the wisdom of
-27- 1 the proposed compromise." Protective Comm. for Indep. 2 Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 3 424 (1968). That is, the bankruptcy court must find that the 4 settlement is fair and equitable in order to approve it. 5 In re A & C Props., 784 F.2d at 1381. In conducting this inquiry, 6 the bankruptcy court must consider the following factors: (a) the 7 probability of success in the litigation; (b) the difficulties, if 8 any, to be encountered in the matter of collection; (c) the 9 complexity of the litigation involved, and the expense, 10 inconvenience and delay necessarily attending it; and (d) the 11 paramount interest of the creditors and a proper deference to 12 their reasonable views in the premises. Id. 13 The bankruptcy court has considerable discretion in 14 evaluating a proposed settlement because it "is uniquely situated 15 to consider the equities and reasonableness [of it] . . . ." 16 United States v. Alaska Nat'l Bank (In re Walsh Constr., Inc.), 17 669 F.2d 1325, 1328 (9th Cir. 1982). "[A]s long as the bankruptcy 18 court amply considered the various factors that determined the 19 reasonableness of the compromise, the court's decision must be 20 affirmed." In re A & C Props., 784 F.2d at 1381. 21 2. Appellants' contentions 22 Wilmington complains, generally, that the bankruptcy court 23 failed to set forth adequate findings to support approval of the 24 settlement. Wilmington further argues that the record does not 25 contain facts to support the bankruptcy court's decision to 26 approve the settlement. Finally, Wilmington argues that the 27 bankruptcy court abused its discretion by approving a settlement 28 that was not fair and equitable or in the best interest of the
-28- 1 estate and creditors. Holdco asserts similar arguments. We 2 address the parties' arguments in turn. 3 3. Analysis 4 a. Probability of success in litigation 5 The bankruptcy court found that the probability of Trustee's 6 success in litigation was uncertain, and therefore this factor 7 favored settlement: 8 What I have before me are several declarations which have been argued at length of the trustee and of the trustee's 9 CPA, various other documents as has been mentioned, over 1,000 pages of various documents. 10 And to go through these factors . . . the probability of 11 success in litigation . . . one sparrow does not a spring make. One case or one series of cases does not absolute 12 precedent make. 13 From my understanding and my reading and my research, the issues that are involved here with respect to the ability 14 to monetize and to collect a tax refund in this circumstance is both fact dependent. But even if all of 15 the facts were agreed upon, the law is certainly in flux. 16 I'll grant the trend may be in favor of holding companies versus FDIC, but, again, trends don't make the type of 17 decisions that would make a trustee's decision improper. Rather, it's simply the background against which this 18 trustee has to assess it, and, you know, trustees can even settle things for which they think there's a 19 probability of success. 20 Hr'g Tr. (June 12, 2012) 60:3-23. 21 Contrary to Appellants' contentions, we conclude that the 22 bankruptcy court set forth sufficient findings for this factor and 23 that the record contained facts to support such findings. 24 Trustee stated in her supplemental declarations of March 14, 25 May 11 and June 5, (1) she was aware of the tax refund issue from 26 the start of the case, (2) that the case law on this issue was 27 unsettled, (3) that the TFA did not determine for certain whether 28 Debtor owned the Tax Refunds as the objecting creditors had
-29- 1 asserted, (4) that the FDIC-R would likely prevail under 2 Bob Richards, (5) that the Banks had suffered sufficient losses 3 entitling them to the refunds, and (6) that the parties' vastly 4 different positions on the issue only illustrated the shifting and 5 uncertain backdrop against which she negotiated the settlement. 6 She also noted that Appellants never made her any better offers as 7 promised. Therefore, based upon her business judgment, Trustee 8 determined that settlement was favored over the risk and 9 uncertainty of litigation. 10 The bankruptcy court considered Trustee's declarations and 11 conducted its own reading and research on the matter at hand. In 12 deferring to Trustee's business judgment, the court noted that 13 case law on this issue was not settled, that this case was 14 factually dependent, not turning only on the TFA but also other 15 facts, and that it would not be improper for a trustee to consider 16 these things when deciding that settlement may be the better 17 option. The court further noted at the hearing that the parties' 18 extensive and contrary arguments only reinforced "the point that 19 [Trustee was] exercising her discretion appropriately in an area 20 in which there is no one true answer." The court also found that 21 Trustee was aware of and had considered the tax refund issue prior 22 to entering into the settlement, and that she had involved not 23 only the FDIC-R and its professionals in those negotiations, but 24 also her CPA and attorneys. 25 We reject Wilmington's argument that the bankruptcy court 26 erred in deferring to Trustee's business judgment because she 27 entered into the settlement before conducting her own diligent 28 investigation about the relevant issues, and because she had
-30- 1 merely accepted the FDIC-R's position as to ownership of the 2 refunds, ignoring or not investigating the cases ruling in favor 3 of debtor holding companies. First, as the bankruptcy court 4 elicited from Appellants, no one had deposed Trustee to establish 5 her alleged lack of diligence. Second, Trustee's declaratory 6 testimony was to the contrary. Finally, even if she agreed with 7 and adopted the FDIC-R's position or reasoning as to ownership of 8 the Tax Refunds, we agree with the bankruptcy court that this was 9 not necessarily nefarious. 10 We also reject Appellants' argument that the bankruptcy court 11 erred by not analyzing the terms of the TFA and recent case law 12 when ruling on the estate's probability of success in litigation. 13 In other words, Appellants wanted the bankruptcy court to 14 determine that their interpretation of the TFA prevailed over that 15 of Trustee's and that Debtor was entitled to the Tax Refunds. The 16 bankruptcy court is not required to conduct such an analysis when 17 reviewing a settlement under Rule 9019. When assessing a 18 compromise, courts need not rule upon disputed facts and questions 19 of law, but rather need only canvass the issues. Burton v. Ulrich 20 (In re Schmitt), 215 B.R. 417, 423 (9th Cir. BAP 1997). As the 21 bankruptcy court correctly noted, a mini-trial on the merits is 22 not required. Id. See also In re Walsh Constr., Inc., 669 F.2d 23 at 1328 (in approving a compromise agreement, “[t]he bankruptcy 24 court need not conduct an exhaustive investigation into the 25 validity of the asserted claim”); In re Hydronic Enter., Inc., 26 58 B.R. 363, 366 (Bankr. D.R.I. 1986)(rather than conducting a 27 detailed evaluation of the underlying merits, the bankruptcy 28 court's function is "to examine the proposed settlement to
-31- 1 determine if it falls below the lowest point in the range of 2 reasonableness."). Nonetheless, it appears the bankruptcy court 3 did consider the TFA to an extent, as evidenced by its statement: 4 "I'm aware of the fact that although each side is convinced that 5 it's right, and its precedence [sic] are clear and unwavering, I'm 6 also convinced that each side is reading entirely different pieces 7 of paper." Hr'g Tr. at 61:6-9. 8 Appellants also take issue with the bankruptcy court's 9 finding that the range of recovery for Trustee was from $0 to $27 10 million, contending that the CPA's testimony established Debtor 11 was entitled to at least $3.1 million. The CPA determined that 12 because Debtor's losses included in the consolidated tax return 13 resulted in a $3.1 million increase in the refund, the estate was 14 entitled to at least $3.1 million. He also determined that the 15 estate may be entitled to $8 million. The FDIC-R acknowledged the 16 CPA's theory but did not accept it. Trustee opined that if she 17 pursued litigation the estate could end up with nothing. On this 18 issue, the bankruptcy court stated: 19 [Trustee] looked at and negotiated with the FDIC over their claim. She looked to and had involved in those 20 negotiations not only her CPA, but her lawyers. 21 It is a fair inference although an inference based on the declarations, but a fair inference that much if not all 22 of the issues that we have discussed and have been briefed today were on the mind at the time. 23 Ultimately, the A & C Properties factors comes down to 24 whether or not the settlement is within the range of reasonableness, and I hold that it is. 25 I think, actually, the range here is not 8- to 26 27,000,000. It's not 3- to 8,000,000. I think it's zero to 27,000,000. The trustee clearly states in the 27 declaration that it's possible to get zero. They have 3,000,000 in hand. . . . 28
-32- 1 One could endlessly pick at the decisions made by the trustee as to why 3 and not 3.1, why not 3.5. Well, 2 that's just the type of analysis I think that A & C and 9019 are intended to deflect in the sense that a 3 settlement and compromise under 9019 is not a mini-trial in the sense that we're trying to flesh out and decide 4 all the issues. 5 It's, rather, the trustee asking the Court to find that a settlement that she has negotiated is within the range 6 of reasonableness as shaped by the A & C Properties factors. 7 8 Hr'g Tr. at 64:1-14, 16-24. 9 In Trustee's declaration dated March 14, 2012, she stated 10 that she relied on her CPA's belief that the estate could recover 11 nothing if she litigated the ownership issue against the FDIC-R. 12 The CPA stated the same in his March 14 declaration. Although 13 Mr. Bertsch is a CPA, he is also a former chapter 7 trustee. 14 Regardless, it was not improper for Trustee to rely on his 15 professional opinion. With this evidence before it, we cannot 16 conclude the bankruptcy court clearly erred in deciding that the 17 recovery range was from $0 to $27 million. 18 b. The difficulties of collection 19 The bankruptcy court agreed with the parties that no 20 difficulties existed in the matter of collection, so this factor 21 disfavored settlement. This finding is not disputed. 22 c. The complexity of the litigation involved, and the expense, inconvenience and delay necessarily 23 attending it 24 The bankruptcy court found that litigation was certain and 25 would be complex. Therefore, this factor also favored settlement: 26 . . . I think it would be complex litigation. 27 . . . I have more than one bank-holding company case. I'm aware of the fact that although each side is 28 convinced that it's right, and its [precedents] are clear
-33- 1 and unwavering, I'm also convinced that each side is reading entirely different pieces of paper. 2 There is always good advocacy involved here. But when, 3 in fact, it's pared down, there's going to be a lot of significant fighting, and I factor out and don't consider 4 the subordination issue. . . . . 5 But the basic issue in terms of the ownership and 6 enjoyment of the tax refund would be - although it does come down to a tax-filing agreement in many respects, 7 there are also many other factors that would be involved. 8 And I think the 1,000 pages at least up to now indicates that these parties would, in fact, litigate it, and I 9 think that that is something that the trustee could take into account very easily in terms of adopting a position 10 that would take a settlement now. 11 Hr'g Tr. at 61:3-4, 5-13, 17-25. 12 We conclude that the bankruptcy court articulated sufficient 13 findings for this factor and that the record supports its 14 findings. Trustee opined that litigation over ownership of the 15 Tax Refunds was inevitable and would consume much time and expense 16 for the estate, because of the scant case law on the matter and 17 the potential need for numerous witnesses, exhibits and documents 18 for trial. She further predicted that litigating the matter would 19 take two to three years, including the inevitable appeal, which 20 would burden the estate with substantial legal fees and no 21 guarantee of success. 22 The bankruptcy court found that litigation was inevitable and 23 would be complex, involving a significant amount of fighting 24 between the parties. This is certainly a reasonable inference, 25 considering that settling this matter took three hearings, 26 multiple motions, dozens of pleadings, and over one thousand pages 27 of documents. And, here we are with the appeal. Although 28 Appellants had argued that the matter could be decided on summary
-34- 1 judgment, the bankruptcy court apparently disagreed. While 2 acknowledging that the TFA was a key factor, the court found that 3 many other factors would be involved. Granted, the court did not 4 provide a laundry list of what these factors were, about which 5 Appellants complain, but, as noted above, Trustee set forth what 6 factors she thought would be at issue. As such, the record 7 supports the bankruptcy court's finding. 8 Wilmington contends that the bankruptcy court erred by not 9 considering its offer to prosecute the ownership claim on a 10 contingency fee basis when analyzing this factor. True, the 11 bankruptcy court did not articulate anything on the record about 12 Wilmington's offer. However, Trustee did, noting that neither 13 Appellant had made her an offer any better than the $3 million 14 offered by the FDIC-R. It would be a reasonable inference that 15 the bankruptcy court did not mention or consider Wilmington's 16 offer because it was not worth considering or mentioning. 17 Wilmington's offer could have placed the estate in a worse 18 position, ultimately recovering nothing. 19 d. The paramount interest of the creditors and a proper deference to their reasonable views in the 20 premises 21 Finally, the bankruptcy court found that the settlement was 22 in the paramount interest of creditors and that Trustee had given 23 proper deference to their views: 24 Based on my view of the record, I think the trustee has been continually educated in this process, but, 25 certainly, at the time of the entry into the settlement agreement in October knew about the other creditors, may 26 not have known as much as she knows now. 27 I'm not even sure the creditors themselves know as much then as they do now about their own claims, but the point 28 being is that she had enough knowledge of the creditor
-35- 1 body to give proper deference to their reasonable views. 2 Much has been made from the fact that they were never 3 contacted. I think there's been a lot of communication since then which has justified what she has done. 4 . . . . 5 A lot has been made about the trustee's business judgment in terms of adopting the settlement. And, in particular, 6 I look at her declaration of March 14th supplemented by the May 11th. 7 And, again, looking into what she knew at the time she 8 entered into this, I think there is some deference due to her judgment. 9 Her declaration never says she exercises her business 10 judgment. She simply says it's a fair settlement, and it's good for the estate. I think that that 11 determination is due deference. 12 Hr'g Tr. at 62:5-17; 63:6-16. 13 We conclude that the bankruptcy court set forth sufficient 14 findings for this factor and that the record supports its 15 findings. Trustee believed that settlement was in the paramount 16 interest of creditors, because successful litigation was not 17 guaranteed and could result in no benefit to the estate. She 18 opined that the settlement was reasonable, appropriate under the 19 circumstances, and in the best interest of the estate and the 20 creditor body as a whole. PCBB, the only other creditor to 21 surface, also supported the settlement. 22 The bankruptcy court, factoring out the subordination issue, 23 found that Trustee was cognizant of the creditor body from the 24 start, but that she had gained further knowledge about them over 25 the course of the case to give proper deference to their 26 reasonable views. Moreover, any initial lack of communication 27 between her and Appellants had been cured during the settlement 28 approval process.
-36- 1 Holdco argues that the bankruptcy court failed to give proper 2 deference to the views of the objecting creditors because it 3 simply assumed that their claims were subordinated. Wilmington 4 makes a similar argument. Although the court did comment that 5 "people who are out of the money want to take larger risks to 6 recover" (Hr'g Tr. at 62:24-25), a fair reading of the record 7 indicates that the court never made any such assumption. In fact, 8 the court explicitly stated that it was factoring out and not 9 considering the subordination issue.9 Further, while creditors' 10 objections to a compromise must be afforded due deference, such 11 objections are not controlling. In re A & C Props., 784 F.2d at 12 1382. 13 Although the settlement may be at the low end of the 14 spectrum, in reviewing each of the factors examined by the 15 bankruptcy court, we conclude that it did not clearly err in this 16 regard. The court made sufficient factual findings to support its 17 conclusion that the Settlement Agreement was fair, equitable, 18 within the range of reasonableness and should be approved.10 19 VI. CONCLUSION 20 For the foregoing reasons, we AFFIRM. 21 9 22 We note that Debtor's Schedule F identified Wilmington's claim as a "Subordinate Debt." Thus, even if the court had made 23 such an assumption, it (and Trustee and the FDIC-R) may not have been wrong. 24 10 Although not raised by the parties, we make two further 25 observations supporting the bankruptcy court's decision to approve the settlement. The FDIC-R had agreed to bear the risk of future 26 audits regarding the $12 million tax refund pending with the IRS, potentially not receiving any of it, while Trustee received 27 $3 million for the estate without risk. Further, if Debtor's board of directors had not in fact approved the TFA's, but were 28 required to do so to be enforceable, then Bob Richards would apply and Trustee's legal position would have faced serious challenge.
-37-