In re Managed Storage Int'l, Inc.

601 B.R. 261
CourtUnited States Bankruptcy Court, D. Delaware
DecidedApril 17, 2019
DocketCase No. 09-10368 (MFW) Jointly Administered
StatusPublished
Cited by2 cases

This text of 601 B.R. 261 (In re Managed Storage Int'l, Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Managed Storage Int'l, Inc., 601 B.R. 261 (Del. 2019).

Opinion

Mary F. Walrath, United States Bankruptcy Judge *264Before the Court is a matter remanded from the District Court on the appeal of this Court's decision dated November 26, 2012, dismissing the chapter 7 trustee's complaint to avoid and recover preferential transfers of $ 5,444,541.11 against Avnet, Inc. ("Avnet"). In the November 26 decision, this Court held that the Trustee was bound by the terms of a stipulation executed by the Debtors which released Avnet from liability on avoidance actions (the "Stipulation"). The District Court directed the Court on remand to assess the Stipulation in accordance with the Third Circuit's opinion in In re Martin, 91 F.3d 389, 393 (3d Cir. 1996). For the reasons discussed below, the Court finds that the application of the Martin factors supports approval of the Stipulation.

I. BACKGROUND

Managed Storage International, Inc., and its related affiliates ("the Debtors") filed petitions for relief under chapter 11 on February 4, 2009. Pre-petition, Avnet had sold products to the Debtors on an unsecured basis. By the end of October 2008, however, the Debtors had exceeded their $ 4 million credit limit with Avnet. As a result, the Debtors and Avnet entered into a purchase money security interest ("PMSI") on October 28, 2008, pursuant to which Avnet fulfilled two purchase orders for the Debtors totaling $ 542,375.76. Thereafter, the Debtors' and Avnet's business dealings continued on an unsecured basis until around December 17, 2008, when Avnet again insisted on selling its products to the Debtors on a secured basis pursuant to a PMSI. As of the petition date, Avnet asserted a secured claim of $ 1,322,473.60 and an unsecured claim of $ 298,699.86.

On the Petition Date, the Debtors filed a motion to approve the sale of all their assets (the "Sale Motion") to Laurus Master Fund, Ltd. ("Laurus"). (D.I. 15, 16.) On March 24, 2009, Avnet filed an objection to the Sale Motion seeking to clarify the treatment of Avnet's PMSI collateral. As a result, the Debtors, the Committee of Unsecured Creditors, and Avnet entered into a stipulation on April 1, 2009 (the "PMSI Stipulation"), which provided that "[t]he Debtors agree that they will maintain any and all funds they receive from accounts receivable that are subject to the December PMSI in a segregated account." (Joint Ex. 11.)

Notwithstanding the PMSI Stipulation, the Debtors did not segregate the funds related to Avnet's collateral. On February 24, 2010, Avnet filed a Motion to Compel Laurus to turn over $ 1,312,980.63 of PMSI funds that Laurus had received from the Debtors. (D.I. 371.) After negotiations, Avnet filed the Stipulation executed by the Debtors, Avnet, and Laurus on May 19, 2010, under certification of counsel, and the Court approved it. (D.I. 399.) The Stipulation provided that Laurus would pay Avnet $ 975,000 and that Laurus and the Debtors would release Avnet from any and all claims in exchange for Avnet releasing the Debtors and Laurus from any liability for claims relating to Avnet's PMSI collateral, *265except Avnet's unsecured claim for $ 298,699.86. (Id. )

On November 3, 2010, the Court converted the Debtors' cases to chapter 7. The chapter 7 trustee (the "Trustee") subsequently filed a complaint against Avnet seeking to avoid and recover $ 5,444,541.11 as an alleged preference. The Court dismissed the Trustee's complaint on November 26, 2012, finding that the Trustee was bound by the Stipulation which had released that claim. See In re Managed Storage Int'l, Inc., No. 09-10368 MFW, 2012 WL 5921723, at *1 (Bankr. D. Del. Nov. 26, 2012). The Trustee appealed. On January 16, 2015, the District Court reversed and remanded with instructions to review whether notice of the Stipulation was provided to creditors and to assess the Stipulation under the Third Circuit's Martin standard. Burtch v. Avnet, Inc., 527 B.R. 150, 157 (D. Del. 2015).

The Court held a hearing on March 18, 2015, and instructed Avnet's counsel to serve the 9019 settlement motion on all creditors in accordance with Local Rule 2002-1(b). (Hr'g Tr. 34:22, D.I. 674.) No objection was filed by any creditor as a result of that notice. The Trustee did object and, after discovery was conducted, the Court held a hearing on July 31, 2018. (D.I. 741.) The parties presented argument on the Martin factors, including what the possible recovery would have been had the Debtor pursued an avoidance action as opposed to entering into the Stipulation. The parties bolstered their arguments with deposition testimony, payment histories, and other exhibits to demonstrate that their positions had evidentiary support. On August 14, 2018, the parties submitted Proposed Findings of Fact and Conclusions of Law. (D.I. 743, 744-1.) The matter is now ripe for decision.

II. JURISDICTION

The Court has subject matter jurisdiction over this core proceeding. 28 U.S.C. §§ 1334 & 157(b)(2)(A), (F). The Court has jurisdiction to approve a settlement even in instances where it would not have jurisdiction over the underlying claim being settled. In re Washington Mut., Inc., 461 B.R. 200, 216 (Bankr. D. Del. 2011), vacated in part on other grounds, No. 08-12229 MFW, 2012 WL 1563880 (Bankr. D. Del. Feb. 24, 2012).

III. DISCUSSION

A. Standard for Approval of a Settlement

Federal Rule of Bankruptcy Procedure 9019(a) allows the Court to approve a compromise or settlement after notice and a hearing. The process of approval "requires a bankruptcy judge to assess and balance the value of the claim that is being compromised against the value to the estate of the acceptance of the compromise proposal." Martin, 91 F.3d at 393. Courts rely on four factors in making this determination: "(1) the probability of success in litigation; (2) the likely difficulties in collection; (3) the complexity of the litigation and the expense, inconvenience, and delay involved; (4) and the paramount interest of the creditors." Id. The Court is not called upon to decide the merits of the underlying litigation nor determine whether the settlement was the best possible compromise. In re Summit Metals, Inc.

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Bluebook (online)
601 B.R. 261, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-managed-storage-intl-inc-deb-2019.