FILED MAR 13 2018 1 NOT FOR PUBLICATION 2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. NC-16-1428-TaBS ) 6 ESTERLINA VINEYARDS & WINERY, ) Bk. No. 15-10841 LLC, ) 7 ) Debtor. ) 8 ______________________________) ) 9 CRAIG STERLING; ERIC ) STERLING, ) 10 ) Appellants, ) 11 ) v. ) MEMORANDUM* 12 ) LINDA S. GREEN, Chapter 7 ) 13 Trustee; BANK OF THE WEST, ) ) 14 Appellees. ) ______________________________) 15 Argued and Submitted on January 25, 2018 16 at San Francisco, California 17 Filed – March 13, 2018 18 Appeal from the United States Bankruptcy Court for the Northern District of California 19 Honorable Alan Jaroslovsky, Bankruptcy Judge, Presiding 20 21 Appearances: Shane J. Moses of McNutt Law Group LLP for appellants; John H. MacConaghy of MacConaghy & 22 Barnier, PLC for appellee Linda S. Green, Chapter 7 Trustee; Bret R. Rossi of Kronick, 23 Moskovitz, Tiedemann & Girard for appellee Bank of the West 24 25 Before: TAYLOR, BRAND, and SPRAKER, Bankruptcy Judges. 26 * 27 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 28 have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8024-1(c)(2). 1 INTRODUCTION 2 Debtor Esterlina Vineyards & Winery, LLC received several 3 secured loans from Bank of the West (“BOTW”); its principals, 4 brothers Craig and Eric Sterling, personally guaranteed these 5 obligations. When Esterlina defaulted, BOTW initiated non- 6 judicial foreclosure proceedings and sought to recover on the 7 Sterling guaranties through a state court action. 8 Esterlina responded with a chapter 111 petition and lender 9 liability affirmative defenses to the BOTW claims. The 10 Sterlings similarly asserted lender liability causes in a cross- 11 complaint in the state court action. 12 The chapter 11 case never accomplished a reorganization; 13 instead, Esterlina liquidated the majority of its assets and 14 then converted its case to chapter 7. Thus, the chapter 7 15 Trustee took over a case with virtually no unliquidated assets. 16 But Esterlina’s alleged lender liability claims remained in the 17 estate, and the Trustee negotiated and the bankruptcy court 18 approved a sale and settlement with BOTW notwithstanding an 19 objection and counteroffer by the Sterlings. 20 The Sterlings appeal; they argue that the trustee failed to 21 provide evidence supporting her proposed transactions and that 22 they matched the BOTW offer and sweetened the deal with an offer 23 to share litigation proceeds. We agree that this argument is 24 facially attractive; but after reviewing the record, we 25 26 1 Unless otherwise indicated, all chapter and section 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. All “Rule” references are to the Federal Rules of Bankruptcy 28 Procedure.
2 1 determine that the bankruptcy court had a sufficient basis for 2 its decision and did not abuse its discretion in approving the 3 trustee’s original proposal. Accordingly, we AFFIRM. 4 FACTS 5 Esterlina’s bankruptcy and early proceedings. Esterlina 6 filed its chapter 11 petition the day before BOTW's scheduled 7 foreclosure. BOTW actively participated in the case; it filed 8 three proofs of secured claims asserting liens on the virtual 9 entirety of Esterlina's assets. Esterlina objected to all three 10 claims on the alleged basis that BOTW: “obtained the 11 [Esterlina's] consent to the various loan documents through 12 fraud, deceit or misrepresentation.” Put simply, it sought 13 disallowance of BOTW’s claims based on alleged lender liability 14 counterclaims. 15 Esterlina disposes of substantially all of its assets. 16 While the claim objection process simmered away, Esterlina 17 finalized a sale, free and clear of specified interests, of its 18 interest in real property and equipment for $5,118,855. The 19 majority of these proceeds were deposited into a blocked 20 account, pending further order of the bankruptcy court. Shortly 21 thereafter, the bankruptcy court approved the sale of the 22 majority of the estate’s remaining assets through a $325,000 23 BOTW credit bid. Only Esterlina's interest in its bank 24 accounts, its alleged claims against BOTW, and negligible other 25 personal property remained unliquidated. 26 The bankruptcy court converted Esterlina’s bankruptcy case 27 to chapter 7; Esterlina withdrew its objection to the BOTW 28 claims.
3 1 But the move toward peace in the Esterlina bankruptcy did 2 not carry over to the state court guaranty action. After the 3 Esterlina conversion, the Sterlings filed a cross-complaint, 4 asserting lender liability causes of action on their own behalf 5 against BOTW. 6 In September 2016, the bankruptcy case was reassigned from 7 Judge Thomas E. Carlson to Judge Alan Jaroslovsky. 8 The chapter 7 trustee’s sale and compromise motion and the 9 present appeal. Chapter 7 trustee Linda Green had few assets to 10 liquidate and promptly negotiated a compromise of controversy 11 and a sale of Esterlina's remaining assets to BOTW. The 12 agreement provided that: BOTW would pay the estate $25,000; the 13 Trustee would release to BOTW the funds in the blocked account; 14 the Trustee would sell to BOTW all remaining assets, including 15 the alleged lender liability claims; and the parties would 16 exchange general mutual releases. 17 The Sterlings opposed. First, they questioned the benefit 18 of the sale and settlement to the estate or creditors and argued 19 that $25,000 would not pay all administrative claims or any 20 unsecured claims. Second, they provided a counter-offer and 21 proposed to match the $25,000, waive their claims against the 22 estate, and share 25% of any lender liability action recoveries 23 with the estate. In connection with the litigation sharing 24 agreement, they made clear that the minimum paid would be 25 $25,000 and that it would be paid even if there was a 26 settlement. Finally, they asserted that the Trustee had not 27 submitted any evidence to support the motion. 28 The day before the hearing, BOTW’s counsel filed a
4 1 declaration in response to the Sterlings’ opposition. He 2 represented that the superior court had granted BOTW’s motion 3 for judgment on the pleadings on the Sterlings’ amended cross- 4 complaint against BOTW. That same day, the Sterlings’ counsel 5 filed a declaration stating that he had prepared and was 6 planning to file a second amended cross-complaint. 7 The bankruptcy court heard the matter and expressed some 8 tentative views; it also noted that “it would be a good idea for 9 me to chat with Judge Carlson and take another look at the 10 pleadings.” Hr’g Tr. (Nov. 18, 2016) 16:17-18. The bankruptcy 11 judge concluded the hearing by stating that he would “think 12 about” the matter, “[l]ook over the file again,” and then “have 13 a written decision for you within ten days.” Id. at 17:21-23. 14 And ten days later, the bankruptcy court entered a 15 memorandum decision overruling the Sterlings’ objection and 16 granting the Trustee’s motion. The decision started by noting 17 that the undersigned judge had “reviewed the entire record of 18 this case in detail” and had “consulted with Judge Carlson 19 . . . .” November 28, 2016 Memorandum on Trustee’s Motion to 20 Approve Compromise (“Mem. Dec.”) at 1 n.1. The bankruptcy court 21 then weighed the offers: 22 The Sterlings correctly argue that the proceeds of the Trustee’s compromise won’t go very far, not even 23 covering the estate’s estimated administrative expenses. Instead, they propose to purchase the 24 estate’s claim against the Bank for $25,000.00 now, plus 25% of their actual recovery from the Bank but no 25 less than an additional $25,000.00. They argue that their offer is superior to that of the Bank. The 26 court does not agree. 27 Id. at 2. The bankruptcy court then explained why: 28 The Sterlings’ offer is most likely to result in only
5 1 increased administrative expenses, not any sort of recovery for creditors. Lender liability claims are 2 difficult to successfully prosecute and the court sees nothing in this case which would make such claims 3 unusually strong. It would also be highly unusual for such claims not to have been waived by now, as waivers 4 are invariably contained in agreements to extend, refinance or forebear which have usually been made 5 long before a bankruptcy filing on the eve of foreclosure. Tellingly, the attorney handling the 6 litigation in state court declined [chapter 7 Trustee] Green’s request to represent the estate on a 7 contingency basis. The most likely result of accepting the Sterlings’ offer is that the Sterlings 8 litigate against the Bank in state court for a time before all their arguments are rejected; the 9 bankruptcy estate becomes subject to even more administrative expenses, and the second $25,000.00 10 becomes uncollectible either because the Sterlings have become insolvent or because the estate has no 11 means to engage in collection litigation. 12 Id. Finally, the bankruptcy court remarked: 13 The court does not believe that Green is looking for a quick and easy settlement at the expense of the 14 creditors of the estate; she and her counsel are known for aggressively pursuing meritorious claims on behalf 15 of bankruptcy estates. The court agrees with their analysis in this case that the bankruptcy estate has 16 no claims against the Bank which warrant rejection of the Bank’s nominal settlement offer, and that the 17 Sterlings’ offer is in fact of lesser benefit to the estate. 18 Id. 19 The bankruptcy court entered a separate order approving the 20 compromise and sale of property (the “Order”). 21 The Sterlings timely appealed; they also obtained a stay of 22 the Order, conditioned on their posting a bond. 23 JURISDICTION 24 The bankruptcy court had jurisdiction under 28 U.S.C. 25 §§ 1334 and 157(b)(2)(A) and (O). We have jurisdiction under 26 28 U.S.C. § 158. 27 ISSUES 28 Do the Sterlings have appellate standing?
6 1 Did the bankruptcy court abuse its discretion in approving 2 the Order? 3 STANDARDS OF REVIEW 4 We consider appellate standing de novo. Motor Vehicle Cas. 5 Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.), 6 677 F.3d 869, 879 (9th Cir. 2012). 7 We review the bankruptcy court’s approval of a settlement 8 for an abuse of discretion. Martin v. Kane (In re A & C 9 Props.), 784 F.2d 1377, 1380 (9th Cir. 1986). We also review 10 § 363 sale orders for an abuse of discretion. Fitzgerald v. 11 Ninn Worx Sr, Inc. (In re Fitzgerald), 428 B.R. 872, 880 (9th 12 Cir. BAP 2010). 13 A bankruptcy court abuses its discretion if it applies the 14 wrong legal standard, misapplies the correct legal standard, or 15 makes factual findings that are illogical, implausible, or 16 without support in inferences that may be drawn from the facts 17 in the record. See TrafficSchool.com, Inc. v. Edriver Inc., 18 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v. 19 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)). 20 DISCUSSION 21 A. The Sterlings have appellate standing. 22 As a preliminary matter, the Trustee argues that the 23 Sterlings lack standing to appeal from the Order. 24 To have standing to appeal from a bankruptcy court order, 25 an individual must show that she or he is a “person aggrieved.” 26 Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442 (9th 27 Cir. 1983). For instance, a “hopelessly insolvent debtor does 28 not have standing to appeal orders affecting the” estate’s size
7 1 because “[s]uch an order would not diminish the debtor’s 2 property, increase his burdens, or detrimentally affect his [or 3 her] rights.” Id. So, in the context “of a sale or other 4 disposition of estate assets, creditors have standing to appeal, 5 but disappointed prospective bidders who are not creditors 6 usually do not have standing to appeal.” Simantob v. Claims 7 Prosecutor, LLC (In re Lahijani), 325 B.R. 282, 290 n.13 (9th 8 Cir. BAP 2005). 9 Here, the Trustee tries to blend the two scenarios. 10 First, she asserts that the Sterlings lack appellate 11 standing because they are simply disappointed non-buyers of a 12 bankruptcy estate asset. But the Trustee acknowledges that the 13 Sterlings would later file timely proofs of claims and that 14 Esterlina scheduled Craig Sterling as an unsecured creditor. So 15 the Sterlings are more than just disappointed non-buyers; they 16 are creditors of the estate. 17 Second, the Trustee argues that this appeal will not impact 18 the Sterlings' claims as unsecured creditors will not be paid in 19 this administratively insolvent case no matter how this appeal 20 is resolved. While this is likely true, we agree with the 21 bankruptcy court that it is not conclusively established. At 22 the hearing, the bankruptcy court acknowledged that there was a 23 possibility – “very, very, very, very unlikely, but not 24 impossible” — that the Sterlings’s offer would recover some 25 funds for unsecured creditors. Hr’g Tr. at 17:19. Accordingly, 26 we cannot conclude with absolute certainty that unsecured 27 creditors would be out of the money under the Sterlings' 28 proposal. Nor, for that matter, did the Trustee cite any law
8 1 establishing that unsecured creditors in an out-of-the-money 2 case lack appellate standing. 3 The Sterlings thus have standing to appeal as unsecured 4 creditors. 5 B. The bankruptcy court did not abuse its discretion in approving the settlement and approving the sale. 6 7 Rule 9019 provides that, “[o]n motion by the trustee and 8 after notice and a hearing, the court may approve a compromise 9 or settlement.” Fed. R. Bankr. P. 9019(a). “The bankruptcy 10 court has great latitude in approving compromise agreements.” 11 Woodson v. Fireman’s Fund Ins. Co. (In re Woodson), 839 F.2d 12 610, 620 (9th Cir. 1998). That discretion, however, “is not 13 unlimited.” Id. The bankruptcy court “may approve a compromise 14 only if it is ‘fair and equitable.’” Id. (quoting In re A & C 15 Properties, Inc., 784 F.2d at 1381). 16 The “purpose of a compromise agreement is to allow the 17 trustee and the creditors to avoid the expenses and burdens 18 associated with litigating sharply contested and dubious 19 claims.” In re A & C Properties, 784 F.2d at 1380–81. The law 20 “favors compromise and not litigation for its own sake . . . .” 21 Id. at 1381. 22 Because “the disposition by way of ‘compromise’ of a claim 23 that is an asset of the estate is the equivalent of a sale of 24 the intangible property represented by the claim,” a Rule 9019 25 compromise can “simultaneously implicate the ‘sale’ provisions 26 under section 363 as implemented by Rule 6004 and the 27 ‘compromise’ procedure of Rule 9019(a).” Goodwin v. Mickey 28 Thompson Entm’t Grp., Inc. (In re Mickey Thompson Entm’t Grp.,
9 1 Inc.), 292 B.R. 415, 421 (9th Cir. BAP 2003). The “bankruptcy 2 court has the discretion to apply § 363 procedures to a sale of 3 claims pursuant to a settlement approved under Rule 9019.” 4 Adeli v. Barclay (In re Berkeley Delaware Court, LLC), 834 F.3d 5 1036, 1040 (9th Cir. 2016). As the Ninth Circuit reasoned: “We 6 see no good reason why a trustee and the bankruptcy court cannot 7 utilize the procedures of § 363 in certain settlements in order 8 to ensure maximum value for the estate.” Id. 9 1. The bankruptcy court did not err by not holding an auction. 10 11 The Sterlings argue that the bankruptcy court erred by not 12 requiring an auction and encouraging overbidding. We disagree. 13 The “price achieved by an auction is ordinarily assumed to 14 approximate market value when there is competition by an 15 appropriate number of bidders.” In re Fitzgerald, 428 B.R. at 16 883 (citing In re Lahijani, 325 B.R. at 289)). The Sterlings’ 17 argument, thus, has some facial appeal given that the Trustee's 18 proposal involved a sale of the lender liability claims. They 19 further support their argument with reference to the Panel’s 20 Mickey Thompson decision where the Panel held that a bankruptcy 21 court may consider applying § 363 sale procedures to a Rule 9019 22 settlement. 292 B.R. at 421. And in In re Berkeley Delaware 23 Court, LLC, the Ninth Circuit agreed and also held that the 24 bankruptcy court may use § 363 procedures in the context of a 25 Rule 9019 settlement. 834 F.3d at 1040. So, an auction could 26 also be required if this was viewed solely as a settlement of a 27 claim. 28 But an auction and bidding procedures were neither required
10 1 nor requested here. The only potential bidders were BOTW and 2 the Sterlings; neither of whom requested an auction nor 3 suggested that they were willing to overbid in the documents 4 they filed or the arguments they made before the bankruptcy 5 court. They stood on their offer and counter-offer. As a 6 result of this silence before the bankruptcy court, the 7 Sterlings waived the issue on appeal. Mano-Y&M, Ltd. v. Field 8 (In re Mortg. Store, Inc.), 773 F.3d 990, 998 (9th Cir. 2014) 9 (“In general, a federal appellate court does not consider an 10 issue not passed upon below.” (quotation marks and citation 11 omitted)). And, in any event, the bankruptcy court did not 12 abuse its discretion by not forcing the parties to bid against 13 each other where neither party requested this opportunity. 14 2. The bankruptcy court did not err when it found that BOTW’s offer was superior. 15 16 The above, however, does not mean that the BOTW and 17 Sterlings’ offers are incommensurable. In the § 363(b) context, 18 the bankruptcy court is obliged to “assure that optimal value is 19 realized by the estate under the circumstances.” In re 20 Lahijani, 325 B.R. at 288. Thus, the bankruptcy court 21 considered the relative economic value of the two offers; it 22 concluded that BOTW’s offer was superior and that the Sterlings’ 23 offer was “in fact of lesser benefit to the estate.” Mem. Dec. 24 at 2:21. This was not an abuse of discretion. 25 On appeal, the Sterlings argue that their offer was more 26 valuable than BOTW’s offer because they offered to match BOTW's 27 $25,000 cash offer and then proffered a percentage of any 28 successful claim. So long as the probability of recovery is not
11 1 zero, they claim, the present value calculation would yield some 2 value. We disagree with their conclusion. 3 We start by reviewing the two offers. BOTW offered $25,000 4 and a general release, which would include its almost $2,000,000 5 deficiency claim. The Sterlings offered $25,000, waiver of 6 their claims against the estate, and “if the State Court Action 7 is resolved in [the Sterlings’] favor through a dispositive 8 ruling or settlement, they will pay the bankruptcy estate 25% of 9 any actual recovery, and no less than $25,000.” Although the 10 Sterlings asserted they had claims against the estate, they 11 never told the bankruptcy court how much those claims were 12 worth; so they failed to monetize their releases’ value, 13 complicating value comparisons.2 14 The Sterlings argue that BOTW’s waiver of its unsecured 15 claim created no value for the estate because, under BOTW’s 16 offer, unsecured creditors would see no recovery. If the 17 Trustee was only concerned with recovery for unsecured 18 creditors, we would agree. But a chapter 7 trustee must also 19 consider the interests of the bankruptcy estate. This includes 20 administrative claimants — here, chapter 11 priority claims. 21 Considering the administrative claimants’ interests, the 22 Trustee’s acceptance of BOTW’s offer minimized the risk of 23 further dilution of those claims; the estate would not fund the 24 lender liability litigation and other administration would 25 terminate with prompt case closure because BOTW provided and 26 27 2 The Sterlings eventually, in February 2017, each filed a 28 claim for $1,974,129.51.
12 1 received a general release. As the bankruptcy court explained 2 in its memorandum decision, it viewed the Sterlings’ offer as 3 having significant potential disadvantages because it would 4 “most likely” lead to “increased administrative expenses, not 5 any sort of recovery for creditors.” Mem. Dec. at 2:6-7.3 The 6 BOTW offer also avoided the risk of adverse claims against the 7 estate arising from continued litigation. 8 Comparing the two offers requires more than just comparing 9 BOTW’s “$25,000” to the Sterlings’ “$25,000 plus the net present 10 value of the Sterlings’ additional, minimum $25,000 if they 11 prevail in the litigation.” The Trustee had to consider the 12 immediate value of BOTW’s specific release of a substantial 13 deficiency claim and the impact of an ability to promptly close 14 the case. The Trustee also had to consider the possibility that 15 the Sterlings’ offer, although it had the potential for an 16 upside, carried the risk of a significant downside including the 17 risk of increased administrative expense.4 After accounting for 18 19 3 The Trustee’s counsel explained that the Trustee was concerned about the estate’s exposure to malicious prosecution 20 liability if the Sterlings pursued the claims on the estate’s 21 behalf and then lost, which the Trustee’s counsel thought was a fairly likely result. As the Trustee’s counsel put it at the 22 hearing: “I don’t think it’s [$25,000] versus [$25,000]; I think it’s a clean [$25,000] from the bank versus [$25,000] from the 23 Debtor’s principals, and we might have to be giving some of that 24 [$25,000] back to the bank if the bank prevails in an attorney’s fees claim.” Hr’g Tr. at 6:7-11. 25 4 And the Trustee was open to balancing this potential 26 risk — at the hearing, the Trustee’s counsel stated: “[I]f [the 27 Sterlings] came in and said, here’s a cashier’s check for a hundred thousand dollars, you know, I wouldn’t be able to stand 28 (continued...)
13 1 these factors, the Trustee concluded and the bankruptcy court 2 found that the Sterlings’ offer was not superior; it was not a 3 true overbid. On this record, we are not prepared to conclude 4 that this was clearly erroneous. 5 3. The A & C Properties factors support approval of the compromise. 6 7 When deciding whether a compromise is fair and reasonable, 8 a bankruptcy court should consider: 9 (a) The probability of success in the litigation; (b) the difficulties, if any, to be encountered in the 10 matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience 11 and delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to 12 their reasonable views in the premises. 13 In re A & C Properties, 784 F.2d at 1381 (quoting In re Flight 14 Transp. Corp. Secs. Litig., 730 F.2d 1128, 1135 (8th Cir. 15 1984)). The trustee has the burden to persuade the bankruptcy 16 court that the compromise is fair and equitable. Id. We must 17 affirm the bankruptcy court’s decision if it “amply considered 18 the various factors that determine[] the reasonableness of the 19 compromise . . . .” Id. 20 Although the bankruptcy court issued a memorandum decision, 21 4 22 (...continued) up here.” Hr’g Tr. at 7:23-25. The bankruptcy court asked if 23 $30,000 would be enough. Id. at 8:5-6. Trustee’s counsel said 24 “I think still, because of this potential claim that the bank may have to get that money back, I don’t think the estate is 25 going to net out a better result. I think it’s got to be significantly more than that before it’s worth the risk.” Id. 26 at 8:7-11. Despite this colloquy (i.e., the Trustee’s counsel 27 suggesting that the Trustee might accept a larger counter- offer), the Sterlings did not raise their offer or request an 28 auction.
14 1 it did not individually parse the four factors and make explicit 2 findings on each. But it was not obliged to, and “where the 3 record supports approval of the compromise, the bankruptcy court 4 should be affirmed.” Id. at 1383. 5 We start with the Sterlings’ argument that the bankruptcy 6 court lacked a sufficient evidentiary record to approve the 7 settlement because the Trustee did not include any declarations 8 or affidavits with the moving papers. The Trustee argues that 9 the Sterlings waived this point by not timely objecting to the 10 motion; BOTW contends that the bankruptcy court stated that it 11 reviewed the entire record. 12 Each is correct in some respect. The Trustee did not 13 provide the bankruptcy court with declarations or affidavits — 14 and we, make no mistake, find this troubling. But the 15 bankruptcy court, after the hearing, considered the entirety of 16 the case’s history, including BOTW’s proofs of claims and 17 Esterlina's objection to the claims, in which it asserted the 18 lender liability counterclaims. And although the Sterlings 19 filed their opposition just days before the hearing, the 20 bankruptcy court considered the opposition, and the Trustee did 21 not ask the bankruptcy court to strike it as filed late. 22 So we consider the record that the bankruptcy court had 23 before it when it made its decision. As bankruptcy cases go, 24 the case was not in its infancy — it was over a year old and 25 contained over a hundred docket entries. During the chapter 11 26 phase, the bankruptcy court approved the sale of substantially 27 all of Esterlina's assets and received testimony about the value 28 of Esterlina's property. The bankruptcy court also, as it was
15 1 entitled to, relied on the parties’ representations; the 2 bankruptcy court knew that the Trustee unsuccessfully sought 3 contingency fee counsel to pursue the lender liability claims. 4 But more to the point, the Sterlings never asked the bankruptcy 5 court to hold an evidentiary hearing; they never isolated any 6 disputed material facts. With that in mind, we turn to the 7 individual factors. 8 The probability of success in the litigation. At the 9 hearing, the bankruptcy court explained: “I’ve already formed 10 the opinion, quite frankly, that [the Sterlings’] claims against 11 the bank are weak . . . .” Hr’g Tr. at 17:12-14. In its 12 memorandum decision, the bankruptcy court expounded further: “It 13 would also be highly unusual for such [lender liability] claims 14 not to have been waived by now, as waivers are invariably 15 contained in agreements to extend, refinance or forebear which 16 have usually been made long before a bankruptcy filing on the 17 eve of foreclosure.” Mem. Dec. at 2:8-11. Finally, the 18 bankruptcy court found: “The court agrees with [the trustee and 19 her counsel’s] analysis in this case that the bankruptcy estate 20 has no claims against [BOTW] which warrant rejection of [BOTW’s] 21 nominal settlement offer . . . .” Id. at 2:19-21. 22 The Sterlings do not question this on appeal. Further, the 23 bankruptcy court had uncontroverted evidence that the state 24 court had granted BOTW’s motion for judgment on the pleadings on 25 the Sterlings’ cross-complaint asserting lender liability causes 26 of action albeit without prejudice. 27 This factor favors the Trustee’s settlement. 28
16 1 The difficulties, if any, to be encountered in the matter 2 of collection. The bankruptcy court did not explicitly consider 3 this factor when considering BOTW’s offer. Nor does it 4 particularly favor compromise; there would likely not be much 5 difficulty in collecting from BOTW, a bank. On the other hand, 6 the bankruptcy court expressly noted that, if the estate 7 accepted the Sterlings’ offer, dwindling estate assets could 8 negatively affect attempts to collect from the Sterlings. 9 The complexity of the litigation involved, and the expense, 10 inconvenience and delay necessarily attending it. The 11 bankruptcy court touched on this factor in two respects. First, 12 drawing upon a decade plus of judicial experience, the 13 bankruptcy court observed that “[l]ender liability claims are 14 difficult to successfully prosecute and the court sees nothing 15 in this case which would make them unusually strong.” Mem. Dec. 16 at 2:7-8. And as noted above, the bankruptcy court had evidence 17 that the state court had entirely disposed of the Sterlings’ 18 cross-complaint alleging similar causes of action; the 19 litigation would be complex, drawn-out, and expensive. Second, 20 the bankruptcy court remarked: “Tellingly, the attorney handling 21 the litigation in state court declined [the chapter 7 trustee’s] 22 request to represent the estate on a contingency basis.” Id. at 23 2:11-12. So it would cost the estate to pursue the claims. 24 Further, the Sterlings do not distinctly and specifically 25 address these points in their opening appellate brief; they thus 26 waived them on appeal. Padgett v. Wright, 587 F.3d 983, 986 n.2 27 (9th Cir. 2009) (per curiam) (appellate courts “will not 28 ordinarily consider matters on appeal that are not specifically
17 1 and distinctly raised and argued in appellant’s opening brief”). 2 3 On this record, then, the bankruptcy court could conclude 4 that this factor favors the settlement. 5 The paramount interest of the creditors and a proper 6 deference to their reasonable views. 7 As the Ninth Circuit explained, “while creditors’ 8 objections to a compromise must be afforded due deference, such 9 objections are not controlling, and while the court must 10 preserve the rights of the creditors, it must also weigh certain 11 factors to determine whether the compromise is in the best 12 interest of the bankrupt estate.” In re A & C Properties, 13 784 F.2d at 1382 (citations omitted). Unsecured creditors have 14 a voice but not a veto. 15 And, as the above makes clear, “recovery for unsecured 16 creditors” is not the relevant standard. The trustee must 17 consider whether the compromise is in the best interests of the 18 bankruptcy estate. In this particular case, the Trustee had to 19 consider the interests of both chapter 11 administrative 20 claimants and unsecured creditors. And the Trustee 21 appropriately considered the potentially negative impact of the 22 Sterlings' proposal on the priority administrative claims from 23 the chapter 11 phase of the case. Thus, although there may be 24 no recovery for unsecured creditors, we are strongly persuaded 25 that the trustee was not acting only for her own benefit. Cf. 26 In re KVN Corp., 514 B.R. 1 (9th Cir. BAP 2014). 27 In short, the bankruptcy court considered the Sterlings’ 28 objection. But it concluded that BOTW’s compromise was in the
18 1 bankruptcy estate’s best interest even if it did not result in a 2 recovery for unsecured creditors. Given the circumstances of 3 this case, this was not clearly erroneous. 4 In sum, the first, third, and fourth A & C Properties 5 factors weighed in favor of the Trustee’s compromise — and the 6 Sterlings on appeal do not even question the bankruptcy court’s 7 findings on the first and third factors; the second factor was 8 neutral. And no one factor is dispositive; the “factors should 9 be considered as a whole to determine whether the settlement 10 compares favorably with the expected rewards of litigation.” 11 Greif & Co. v. Shapiro (In re Western Funding Inc.), 550 B.R. 12 841, 851 (9th Cir. BAP 2016). Accordingly, the bankruptcy court 13 did not abuse its discretion in approving the settlement. 14 CONCLUSION 15 Based on the foregoing, we AFFIRM. 16 17 18 19 20 21 22 23 24 25 26 27 28