FILED JUN 08 2016 1 ORDERED PUBLISHED 2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NV-15-1238-DFB ) 6 WESTERN FUNDING INCORPORATED; ) Bk. No. 2:13-bk-17588-LED WESTERN FUNDING INC. OF NEVADA; ) 7 GLOBAL TRACK GPS, LLC, ) ) 8 Debtors. ) ________________________________) 9 ) GREIF & CO., ) 10 ) Appellant, ) 11 v. ) O P I N I O N ) 12 BRIAN D. SHAPIRO, Trustee of ) WFI Liquidating Trust; GUERIN ) 13 SENTER; AMERICAN EXPRESS TRAVEL ) RELATED SERVICES COMPANY, INC.; ) 14 AMERICAN EXPRESS CENTURION BANK,) ) 15 Appellees. ) ________________________________) 16 17 Argued and Submitted on May 19, 2016, at Las Vegas, Nevada 18 Filed - June 8, 2016 19 Appeal from the United States Bankruptcy Court 20 for the District of Nevada 21 Honorable Laurel E. Davis, Bankruptcy Judge, Presiding 22 Appearances: Louis Edward Humphrey, III, of Humphrey Lopez PLLC 23 argued for appellant Greif & Co.; Robert E. Atkinson, of Atkinson Law Associates, Ltd., argued 24 for appellee Brian D. Shapiro, Trustee of WFI Liquidating Trust. 25 26 Before: DUNN, FARIS and BARASH,1 Bankruptcy Judges. 27 28 1 Hon. Martin R. Barash, United States Bankruptcy Judge for the Central District of California, sitting by designation. 1 DUNN, Bankruptcy Judge: 2 3 The WFI Liquidating Trust, with Brian D. Shapiro as its 4 trustee (“Liquidating Trustee”), was established upon 5 confirmation of the chapter 112 plan of the jointly administered 6 debtors Western Funding Incorporated (“WFI”), Western Funding 7 Inc. of Nevada and Global Track GPS, LLC (collectively 8 “Debtors”). The confirmed plan empowered the Liquidating Trustee 9 to litigate and settle claims belonging to the chapter 11 10 bankruptcy estates, provided that bankruptcy court approval be 11 sought and obtained to settle any claims over $50,000. The 12 Liquidating Trustee commenced litigation against American Express 13 Travel Related Services Company, Inc. and American Express 14 Centurion Bank (collectively “Amex”) to avoid and recover over 15 $2 million in allegedly fraudulent prepetition transfers made by 16 WFI. Subsequently, the Liquidating Trustee requested the 17 bankruptcy court’s approval of his agreement to settle the claims 18 against Amex for $331,476.53. 19 Greif & Co. (“Greif”), a beneficiary of the WFI Liquidating 20 Trust, objected to the proposed settlement. Greif argued that 21 the settlement amount was unacceptably small, and the Liquidating 22 Trustee had undervalued the claims in his own complaint. 23 Ultimately, the bankruptcy court approved the settlement. Greif 24 25 2 Unless otherwise indicated, all chapter and section 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 27 All “Rule” references are to the Federal Rules of Bankruptcy Procedure. All “Civil Rule” references are to the Federal Rules 28 of Civil Procedure.
2 1 appeals; we AFFIRM. 2 I. FACTUAL BACKGROUND 3 A. Events leading up to and including confirmation 4 WFI was a servicer of subprime auto loans. In 2010, Harbor 5 Structured Finance LLC, a Delaware entity controlled by Frederick 6 and Katherine Cooper, acquired WFI. The Coopers were appointed 7 to management positions in WFI. They established Amex credit 8 card accounts for themselves and other employees. Although WFI 9 was not the holder of any of the Amex cards, the Coopers 10 routinely caused WFI to pay the balances on the cards. In WFI’s 11 accounting records, the Coopers designated many, but not all, of 12 the charges on their Amex cards as business expenses. 13 In 2013, WFI filed a chapter 11 petition, and the case was 14 administratively consolidated with the chapter 11 cases of the 15 two other Debtors. On March 31, 2014, the bankruptcy court 16 approved a joint plan of liquidation (the “Plan”) for the 17 Debtors. The Plan provided for the dissolution of the Debtors 18 and the vesting of all property of the Debtors’ bankruptcy 19 estates in the WFI Liquidating Trust (“Trust”) to be administered 20 by the Liquidating Trustee. This vesting specifically included 21 any claims or causes of action held by any of the Debtors’ 22 estates. Creditors of the Debtors’ estates became beneficiaries 23 of the Trust. The Plan gave the Liquidating Trustee the 24 “exclusive right, authority, and discretion to determine and to 25 initiate, file, prosecute, enforce, abandon, settle, compromise, 26 release, withdraw, or litigate” any claim “and to decline to do 27 any of the foregoing without the consent or approval of any third 28 party or further notice to or action, order, or approval” of the
3 1 bankruptcy court. The Plan also permitted the Liquidating 2 Trustee to “sell and/or assign” claims to a third party to be 3 pursued for the assignee’s “own benefit.” The only stated 4 limitation on the Liquidating Trustee’s settlement authority was 5 that bankruptcy court approval would be required to settle any 6 claim seeking to recover more than $50,000. Neither the 7 procedure for requesting such approval nor the criteria for 8 granting it were specified. The Trust was to be administered 9 according to a WFI Liquidating Trust Agreement (“Trust 10 Agreement”), which authorized the Liquidating Trustee, among 11 other things, to settle actions in his “good faith judgment.” 12 B. The adversary proceeding and the settlement 13 Several months later, the Liquidating Trustee filed an 14 adversary proceeding complaint against Amex, seeking to recover 15 allegedly fraudulent transfers. The transfers at issue were the 16 payments made by WFI to Amex on the Coopers’ credit card 17 accounts. In the complaint, the Liquidating Trustee alleged that 18 the “overwhelming majority” of the credit card charges were for 19 personal expenses of the Coopers and other employees. Because 20 the charges were for personal rather than business expenses, the 21 Liquidating Trustee alleged that WFI did not receive reasonably 22 equivalent value in exchange for paying them. In the two years 23 preceding WFI’s bankruptcy filing, the charges totaled over 24 $2 million. The complaint asserted the following theories of 25 avoidance and recovery:3 26 3 27 The complaint also included a claim for recovery of preferential transfers, in the event Amex was determined to be a 28 (continued...)
4 1 1. The transfers were avoidable under § 548(a)(1)(B)(ii) 2 because the transfers were made at a time when WFI either was 3 insolvent or was about to engage in transactions leaving it with 4 unreasonably small capital (“Insolvency” theory). 5 2. Some of the transfers were avoidable under 6 § 548(a)(1)(B)(ii)(IV) because they were “made under an 7 employment contract for the benefit of an insider, outside the 8 ordinary course of business” (“Employment Contract” theory). 9 Amex contacted the Liquidating Trustee to initiate 10 settlement negotiations on December 8, 2014, approximately two 11 weeks after the complaint was filed. Five months later, the 12 parties reached a settlement, and the Liquidating Trustee filed a 13 motion with the bankruptcy court seeking approval of the 14 settlement (“Settlement Motion”). Amex agreed to pay $331,476.53 15 to the Trust in exchange for dismissal of the adversary 16 proceeding and a mutual release of claims, and Amex would be 17 entitled to an allowed general unsecured claim under the Plan in 18 the amount of the settlement payment. 19 The Liquidating Trustee took the position that, because he 20 derived his authority not from the Bankruptcy Code but from the 21 terms of the confirmed Plan and the Trust Agreement, he was not a 22 “trustee” as that term is used in the Code and Rules. Thus, he 23 argued that standards governing settlement motions by bankruptcy 24 trustees were not applicable. The Liquidating Trustee argued he 25 was entitled to “greater deference in approval of settlements” 26 27 3 (...continued) 28 prepetition creditor of WFI.
5 1 based on the Plan and Trust Agreement, but he contended that the 2 Settlement Motion should be approved regardless of whether the 3 bankruptcy court accepted that argument. 4 In the Settlement Motion and an accompanying declaration, 5 the Liquidating Trustee went on to analyze the settlement under 6 the factors enumerated in Martin v. Kane (In re A & C 7 Properties), 784 F.2d 1377, 1381 (9th Cir. 1986) (the “A & C 8 Factors”). The Liquidating Trustee recognized the claims 9 asserted in the complaint were susceptible to factual dispute. 10 In particular, though the Liquidating Trustee believed certain of 11 the charges in question were “easily identified” as personal, he 12 acknowledged that others were subject to dispute as to whether 13 they were legitimate business expenses that may have provided 14 value to WFI. Likewise, the Liquidating Trustee believed that 15 WFI was undeniably insolvent at the petition date and that the 16 evidence “strongly supported” a finding of insolvency at least 17 nine months earlier. Yet he recognized the difficulty in proving 18 that, as he suspected, the insolvency period had begun much 19 earlier still. He concluded: 20 In my business judgment, compromise results in a fair and reasonable recovery for the estate, factoring in 21 the overall recovery, my estimate for success in the resolved matter, and the significant costs and delay 22 necessarily associated with litigating in an effort to obtain greater recovery. 23 . . . Furthermore, the compromise represents an 24 immediate recovery for the Liquidating Trust that will allow for payment of a large portion of the outstanding 25 administrative expenses, which in turn maximizes the probability that future recoveries will allow for 26 meaningful distribution to general unsecured creditors, and makes additional funds available for payment of 27 cost[s] and expenses in pursuit of other causes of action. 28
6 1 . . . Accordingly, I assert that the compromise is in the best interest of the bankruptcy estate’s creditors. 2 3 C. The dispute over the Settlement Motion 4 Two creditors, Greif and Guerin Senter, expressed views on 5 the settlement. Mr. Senter supported and joined in the 6 Settlement Motion, but Greif vigorously opposed it. Greif 7 complained that the proposed settlement would pay subordinated 8 administrative claims, including Mr. Senter’s claim, but other 9 creditors would likely receive nothing. Greif wanted the 10 Liquidating Trustee “to present the relevant facts and legal 11 analysis surrounding the claims asserted [in the complaint] (and 12 an explanation of why some theories were left out)” to allow the 13 bankruptcy court to evaluate the Settlement Motion. Greif 14 presented its own analysis of the Insolvency and the Employment 15 Contract claims, along with an additional theory of recovery 16 under § 548(a)(1)(A), which the Liquidating Trustee did not 17 assert (“Fraudulent Intent” theory). 18 Concerning the Insolvency theory, Greif believed WFI likely 19 became insolvent in August 2010 and was rendered “even more 20 leveraged” after a March 2012 transaction. Greif argued that 21 these facts supported greater recovery. As to the Employment 22 Contract theory, Greif noted that insolvency is not an element 23 and questioned the lack of discussion of this theory in the 24 Settlement Motion. Regarding both theories, Greif demanded 25 additional details concerning the methodology by which the 26 parties arrived at the settlement amount, as well as information 27 concerning the expected difficulty and expense of prevailing in 28 litigation. Finally, Greif asked the bankruptcy court to require
7 1 the Liquidating Trustee to justify his decision not to pursue a 2 Fraudulent Intent claim. 3 The Liquidating Trustee filed a reply to Greif’s objection 4 in which he provided some of the additional information Greif 5 requested. He explained that the settlement amount was based on 6 calculations using two “estimates in compromise” between himself 7 and Amex. First, the parties had divided the universe of 8 questioned credit card charges into two categories, which the 9 Liquidating Trustee called “Type 1” and “Type 2” charges. Type 1 10 charges were those that the Coopers had not designated as 11 business expenses. Type 2 charges were those that were 12 designated as business expenses, though the Liquidating Trustee 13 disputed the accuracy of that designation. For purposes of 14 calculating the settlement amount, the parties agreed to treat 15 all Type 1 charges and exactly half of the Type 2 charges as 16 having provided no value to WFI. Second, the parties agreed, 17 again as an “estimate in compromise,” that WFI “would probably be 18 found to be ‘insolvent’ . . . from January 2013 onward.” The 19 Liquidating Trustee emphasized that the parties had disagreed 20 during negotiations as to the correct insolvency date and had 21 chosen January 2013 “in the interest of settling the matter.” 22 The settlement amount was calculated by adding together all of 23 the Type 1 charges and half of the Type 2 charges incurred 24 beginning in January 2013. 25 The Liquidating Trustee disagreed as well with Greif’s 26 argument that he had undervalued other theories of recovery. 27 Discussing each of Greif’s suggested theories, the Liquidating 28 Trustee concluded that they did not significantly alter the
8 1 reasonableness of the settlement. Regarding the Employment 2 Contract theory, the Liquidating Trustee explained that the only 3 transfers arguably avoidable under this theory were relatively 4 small and had little effect on the value of the claims as a 5 whole. 6 Concerning the likelihood of success in the litigation, the 7 Liquidating Trustee noted that the Coopers had a strong incentive 8 to testify in favor of Amex, because their own interests would be 9 served by asserting a legitimate business purpose for the 10 disputed charges. The Liquidating Trustee estimated the costs of 11 litigation at $125,000, including the cost of hiring insolvency 12 experts, but he noted that this was a “very rough” estimate, as 13 “costs for the case could spiral out of control . . . without any 14 guarantee of recovery[.]” Already having paid the unsubordinated 15 administrative claims, the Liquidating Trustee pointed out that 16 the settlement would allow the subordinated administrative claims 17 to be paid in full, with some funds remaining. This, he 18 reasoned, was in the best interests of the unsecured creditor 19 body as a whole, notwithstanding Greif’s objection. 20 Finally, in response to Greif’s argument that he should have 21 asserted a Fraudulent Intent claim, the Liquidating Trustee 22 explained that he believed such a claim was unsupportable. “If 23 there was any nefarious motive to [WFI]’s payment of the Coopers’ 24 expenses, it is far more likely to have been the Coopers’ greed 25 than [WFI]’s desire to dodge creditors.” With no evidence that 26 WFI made any transfers with the intent to hinder, delay or 27 defraud creditors, the Liquidating Trustee argued he could not 28 have prevailed on the Fraudulent Intent theory.
9 1 One day before the initially scheduled hearing on the 2 Settlement Motion, Greif filed a supplemental objection, 3 including 597 pages of attachments. Greif focused primarily on 4 its disagreement with the Liquidating Trustee’s positions on the 5 Fraudulent Intent and Employment Contract theories. Greif argued 6 the facts supported a finding of multiple “badges of fraud” in 7 support of a Fraudulent Intent claim. Regarding the Employment 8 Contract theory, Greif cited scholarly commentary arguing that 9 any payments to an insider having an employment contract were 10 avoidable, whether or not the payments were made pursuant to that 11 contract. Regardless of whether the court accepted this view, 12 Greif argued that expense reimbursement provisions in the 13 Coopers’ contracts sufficed to bring all Type 1 and Type 2 14 charges within the scope of the Employment Contract theory. 15 Otherwise, the supplemental objection further elaborated Greif’s 16 arguments that the Liquidating Trustee’s insolvency analysis was 17 flawed. 18 The Liquidating Trustee submitted a reply with 161 pages of 19 exhibits. He now provided his own analysis of the “badges of 20 fraud,” repeating his position that the Coopers’ apparent intent 21 to misuse WFI’s funds did not equate to the requisite intent by 22 WFI to hinder, delay or defraud creditors. Considering a list of 23 badges of fraud identified both by the Ninth Circuit and in the 24 Uniform Fraudulent Transfer Act,4 the Liquidating Trustee 25 26 4 The Trustee acknowledged that the Uniform Fraudulent 27 Transfer Act was not directly applicable, because his claims sounded under § 548, which does not depend on state law, as 28 (continued...)
10 1 explained his conclusion that the facts did not support an 2 avoidance claim based on Fraudulent Intent. He maintained that 3 Greif overestimated the value of the Employment Contract theory, 4 both because Greif’s preferred interpretation of the statute was 5 unlikely to be adopted by any court, and because he foresaw 6 significant factual obstacles to recovery on that theory. 7 Likewise, the Liquidating Trustee stood by his insolvency 8 analysis as previously articulated. 9 On the same day the Liquidating Trustee filed his reply to 10 the supplemental objection, Greif filed a motion asking the court 11 to compel the Liquidating Trustee to assert a Fraudulent Intent 12 claim or, in the alternative, to grant Greif derivative standing 13 to pursue such a claim “on behalf of the estate.” This motion 14 repeated and elaborated at substantial length on Greif’s previous 15 analysis of this subject. Because the hearing on the Settlement 16 Motion was now only a week away, Greif filed a separate request 17 that its new motion be consolidated with and considered 18 simultaneously with the Settlement Motion. The Liquidating 19 Trustee opposed this request, and the bankruptcy court denied it 20 prior to the Settlement Motion hearing. 21 D. The hearing on the Settlement Motion 22 After hearing oral argument from Greif and the Liquidating 23 Trustee, the bankruptcy court announced its findings and 24 conclusions on the record. The bankruptcy court agreed with the 25 Liquidating Trustee that the A & C Factors were not applicable to 26 27 4 (...continued) 28 opposed to § 544, which does.
11 1 “this post-confirmation determination.” Applying Nevada law, the 2 bankruptcy court concluded that the “good faith judgment” 3 language in the Trust Agreement imposed a business judgment 4 standard on the Liquidating Trustee. The court found that the 5 proposed settlement was “the product of the liquidating trustee’s 6 good faith and informed decision reached after an extensive 7 analysis of all legal and factual issues.” The court noted that 8 the Liquidating Trustee’s analysis of the issues supported a 9 determination that victory against Amex was “less clear cut than 10 Greif appears to argue.” 11 As requested by the Liquidating Trustee, the bankruptcy 12 court went on to make findings concerning the A & C Factors, 13 which the court enumerated as follows: “A, the probability of 14 success in the litigation; B, the difficulties [i]f any to be 15 encountered in the [matter] of collection; C, the complexity of 16 the litigation and the expense, inconvenience and delay 17 necessarily attending it; D, the paramount interest of the 18 creditors and proper deference to their reasonable views in the 19 premises.” Hr’g Tr. (July 6, 2015) at 31:13-19. The bankruptcy 20 court found that, although collection was not a concern, the 21 Liquidating Trustee had established that the A & C Factors 22 overall weighed in favor of the settlement. The court was 23 persuaded by the Liquidating Trustee’s argument that “the 24 complexity of these issues will require substantial expense and 25 delay without a corresponding increase of the probability that 26 [he] will prevail to the extent Greif argues.” 27 Having denied the request for expedited consideration of 28 Greif’s derivative standing motion, the bankruptcy court
12 1 nevertheless reviewed that motion and took into consideration 2 Greif’s discussion of “causes of action that were and were not 3 brought by the liquidating trustee.” Still, the bankruptcy court 4 expressly declined to decide the derivative standing motion, 5 opining that it would not be “procedurally proper” to do so under 6 the circumstances. The court granted the Settlement Motion, but 7 the order approving the settlement included a provision delaying 8 its effectiveness for two weeks to give Greif a further 9 opportunity to offer to purchase the claims against Amex. After 10 the two-week period expired, the Liquidating Trustee reported 11 that Greif had made no offer, and the order became effective. 12 This timely appeal followed. 13 II. JURISDICTION 14 The bankruptcy court had jurisdiction under 28 U.S.C. 15 §§ 1334 and 157(b)(2)(O). We have jurisdiction under 28 U.S.C. 16 § 158. 17 III. ISSUE 18 Whether the bankruptcy court abused its discretion in 19 granting the Settlement Motion. 20 IV. STANDARDS OF REVIEW 21 We review a bankruptcy court’s decision to approve a motion 22 to settle and compromise for abuse of discretion. Goodwin v. 23 Mickey Thompson Entm’t Grp., Inc. (In re Mickey Thompson Entm’t 24 Grp., Inc.), 292 B.R. 415, 420 (9th Cir. BAP 2003). A bankruptcy 25 court abuses its discretion only if it fails to apply the correct 26 legal standard or applies it in a way that is illogical, 27 implausible or unsupported by the record. United States v. 28 Inouye, ___ F.3d ___, ___, 2016 WL 2641109 at *3 (9th Cir.
13 1 May 31, 2016); United States v. Hinkson, 585 F.3d 1247, 1262 (9th 2 Cir. 2009) (en banc). We may affirm the decision of the 3 bankruptcy court on any basis supported by the record. See Hooks 4 v. Kitsap Tenant Support Servs., Inc., 816 F.3d 550, 554 (9th 5 Cir. 2016); Shanks v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 6 2008). 7 In general, a chapter 11 plan is interpreted as a contract, 8 and we review its interpretation de novo. Dolven v. Bartleson 9 (In re Bartleson), 253 B.R. 75, 78-79 (9th Cir. BAP 2000). 10 11 V. DISCUSSION 12 A. The proper standard 13 The threshold question in this appeal is what standard(s) 14 the bankruptcy court was required to apply in deciding the 15 Settlement Motion. Applying Nevada law to interpret the Plan and 16 Trust Agreement, the court concluded that a business judgment 17 standard was appropriate. Greif argues that the proper standard 18 is the “fair and equitable” standard that ordinarily governs 19 settlement motions by bankruptcy trustees. 20 We agree with the bankruptcy court that the standards 21 governing motions by bankruptcy trustees appointed under the 22 Bankruptcy Code are not necessarily applicable to the trustee of 23 a liquidating trust established under the terms of a confirmed 24 chapter 11 plan. Notwithstanding his title, the Liquidating 25 Trustee is not a “trustee” under § 323(a). Rather, he is a 26 “representative” under § 1123(b)(3)(B), empowered by the terms of 27 the Plan to prosecute and settle claims previously belonging to 28 the Debtors’ estates. Granted, a § 1123(b)(3)(B) representative
14 1 is “the functional equivalent of a trustee” in some regards. 2 Beck v. Fort James Corp. (In re Crown Vantage, Inc.), 421 F.3d 3 963, 973 (9th Cir. 2005) (liquidating trustee is equivalent of 4 trustee for purposes of Barton doctrine). It does not follow, 5 however, that his powers and duties are identical to those of a 6 trustee under the Bankruptcy Code. 7 Greif asks us to hold that postconfirmation settlements 8 negotiated by liquidating trustees are subject to the same 9 standards as settlements negotiated by bankruptcy trustees or 10 debtors in possession. We decline to impose such an across-the- 11 board requirement. “[T]he hallmark of chapter 11 is a 12 flexibility in which the content of plans is primarily up to the 13 genius of the drafter.” The Alary Corp. v. Sims (In re 14 Associated Vintage Grp., Inc.), 283 B.R. 549, 560 (9th Cir. BAP 15 2002). The confirmed Plan exhibited that flexibility by 16 permitting the Liquidating Trustee to settle claims under $50,000 17 without bankruptcy court oversight, while requiring approval for 18 settlement of larger claims. The provision allowing settlement 19 of smaller claims without approval is not implicated here, and 20 Greif does not attack it directly. Instead, we understand Greif 21 to argue that, where a plan requires bankruptcy court approval of 22 a settlement, that approval must be sought under the “fair and 23 equitable” standard. We see no reason to read this standard into 24 the Plan where the drafters have omitted it. Greif’s concern 25 about the ability of a “target insider” to exploit the 26 availability of less searching review of settlements by 27 “liquidat[ing] inside of a Chapter 11 rather than a Chapter 7” is 28 unpersuasive. Apart from the fact that no insider is a party to
15 1 the claims at issue here, creditors desiring greater control over 2 settlements may lobby for it through the ordinary voting and 3 confirmation process. 4 Unfortunately, though the Plan makes no reference to the 5 “fair and equitable” standard, neither does it expressly provide 6 for any other standard by which to evaluate those settlements 7 requiring approval. To fill the gap, the bankruptcy court turned 8 to paragraph 5.1 of the Trust Agreement, requiring the 9 Liquidating Trustee to exercise “good faith judgment, in the best 10 interests of the Liquidating Trust Beneficiaries and to maximize 11 net recoveries and distributions[.]” The bankruptcy court 12 analogized this to the “business judgment” standard under Nevada 13 law and concluded it was satisfied. Rather than decide whether 14 this interpretation was correct, we simply conclude that the 15 applicable standard under the Plan was something less exacting 16 than the A & C Properties standard.5 Because the bankruptcy 17 court made findings and conclusions based upon consideration of 18 the A & C Factors, and because we may affirm on any basis 19 supported by the record, we review these findings and 20 conclusions. If we conclude the court’s determination under this 21 standard was not an abuse of discretion, it follows necessarily 22 that the lesser standard of the Plan and Trust Agreement was 23 satisfied as well. 24 25 5 We note that the A & C Properties standard itself includes 26 a requirement of good faith on the part of the trustee. In re 27 A & C Props., 784 F.2d at 1381 (“It is clear that there must be more than a mere good faith negotiation . . . .” (emphasis 28 added)). The Liquidating Trustee’s good faith is not questioned.
16 1 B. The A & C Factors 2 “Basic” to the process of approving compromises by 3 bankruptcy trustees “is the need to compare the terms of the 4 compromise with the likely rewards of litigation.” Protective 5 Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. 6 Anderson, 390 U.S. 414, 424-25 (1968), quoted in In re A & C 7 Props., 784 F.2d at 1382. Approval of a settlement requires “a 8 sufficient factual foundation which establishes that it is fair 9 and equitable,” but “where the record supports approval of the 10 compromise, the bankruptcy court should be affirmed.” 784 F.2d 11 at 1383. 12 In assessing whether a settlement is fair and equitable, 13 bankruptcy courts must consider the following factors: 14 (a) The probability of success in the litigation; (b) the difficulties, if any, to be encountered in the 15 matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and 16 delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to 17 their reasonable views in the premises. 18 Id. at 1381. Each factor need not be treated in a vacuum; 19 rather, the factors should be considered as a whole to determine 20 whether the settlement compares favorably with the expected 21 rewards of litigation. See, e.g., In re Pac. Gas & Elec. Co., 22 304 B.R. 395 (Bankr. N.D. Cal. 2004) (“factors as a whole” 23 favored settlement); In re WCI Cable, Inc., 282 B.R. 457, 472-73 24 (Bankr. D. Or. 2002) (approving settlement despite high 25 probability of success where litigation costs “extremely high”). 26 The bankruptcy court stated at the Settlement Motion hearing 27 that it had considered all the filings related to the Settlement 28 Motion, including Greif’s opposition and Mr. Senter’s support of
17 1 the settlement, along with the Liquidating Trustee’s and Greif’s 2 oral arguments. The court correctly identified the applicable 3 factors and found that continuing to litigate would “require 4 substantial expense and delay without a corresponding increase of 5 the probability that the liquidating trustee will prevail to the 6 extent Greif argues.” This statement reveals that the bankruptcy 7 court predicated its findings on (i) its assessment of the 8 probability of success should the Liquidating Trustee try the 9 case; (ii) the “substantial” anticipated expenses and delays 10 involved in litigation; and (iii) its evaluation of Greif’s views 11 on the subject.6 12 On appeal, Greif devotes much of its argument to the merits 13 of the claims the Liquidating Trustee proposed to settle, 14 including the hypothetical Fraudulent Intent claim.7 Greif 15 criticizes the Liquidating Trustee’s legal and factual analysis 16 of his claims and suggests the calculation of the settlement 17 amount was based on false premises. Having presented its own 18 detailed analysis of the claims, Greif now argues that the 19 bankruptcy court erred by failing to “assess the actual merits of 20 the parties’ legal and factual positions.” 21 A trustee seeking approval of a settlement is not required 22 to prove it would have been impossible to obtain a superior 23 24 6 The bankruptcy court noted there was no reason to expect 25 difficulty in collecting on a judgment against Amex. 26 7 Though no Fraudulent Intent claim was asserted in the 27 complaint, it is undisputed that any potential Fraudulent Intent claim would be extinguished by the mutual release contained in 28 the settlement agreement.
18 1 result by trying the case. If this were required, the settlement 2 approval process would degenerate into a trial of the underlying 3 claims, which would defeat the purpose of settling. Burton v. 4 Ulrich (In re Schmitt), 215 B.R. 417, 423 (9th Cir. BAP 1997) 5 (court should “canvass the issues” rather than conduct “mini 6 trial” of underlying claims). It would also frustrate 7 negotiations, because it would prevent the trustee from making 8 any material concessions in the interest of compromise. The 9 settlement amount was the product of negotiation and compromise 10 and was not presented as a conclusive determination of the merits 11 of the claims being settled. 12 We make these observations to clarify the scope of our 13 review in this appeal. We are not called upon to decide the 14 merits of the claims asserted in the adversary proceeding, nor 15 must we decide whether the Liquidating Trustee’s factual and 16 legal analysis of the claims was correct in every particular. It 17 is the bankruptcy court’s findings and conclusions, not the 18 Liquidating Trustee’s analysis of his claims, that we review for 19 abuse of discretion. With these principles in mind, we address 20 Greif’s arguments regarding areas in which the record purportedly 21 fails to support the bankruptcy court’s decision. 22 1. The Employment Contract theory 23 The Liquidating Trustee admitted that this theory played 24 little role in the settlement calculations. He explained that he 25 considered it a “backstop” to the more important Insolvency 26 claims. Greif argues that, on the contrary, virtually every 27 transfer within the two-year reach-back period was avoidable on 28 this theory. Greif presented a detailed explanation of how it
19 1 would have gone about arguing this claim. Then, effectively 2 deeming its own position to be irrefutable, Greif faulted the 3 Liquidating Trustee for not adopting that position in his 4 settlement negotiations. Now, Greif argues that the bankruptcy 5 court abused its discretion because it did not “earnestly assess” 6 the contending views on the subject. 7 As explained above, we are not called upon to decide whether 8 the claim ultimately would or should have been decided in the way 9 Greif asserts. The fact that the Liquidating Trustee did not 10 negotiate the claim in the way Greif would have liked also is not 11 dispositive. It is possible that, if the Liquidating Trustee had 12 adopted Greif’s position at trial, he would have prevailed. It 13 is possible he could have obtained a greater settlement by 14 presenting this argument during negotiations. But based on the 15 record, neither of these outcomes was so likely as to preclude a 16 finding that the settlement was fair and equitable.8 17 Because the claim does not depend on a showing of insolvency 18 or other financial distress, Greif also argues that the expense 19 of litigating it is substantially less onerous compared to the 20 Insolvency claims. Unfortunately, there is no reason to suppose 21 Amex would have been willing to pay to settle the other claims 22 while leaving the Employment Contract claim unresolved. Unless 23 24 8 Among other things, the Employment Contract Theory was 25 vulnerable to the argument that the questioned transfers were made in the ordinary course of business, and that they provided 26 value to WFI because they offset WFI’s obligations to the 27 Coopers. Greif argues that these defenses could be overcome, but again, victory was not so assured as to deprive the court of a 28 basis on which to conclude the settlement was fair and equitable.
20 1 the Liquidating Trustee had been willing to forgo the other 2 claims and hang his entire case on § 548(a)(1)(B)(ii)(IV) - a 3 risky proposition given the Liquidating Trustee’s doubts about 4 the claim’s value - this strategy would not necessarily have 5 helped avoid costs. In short, Greif has not shown that the 6 bankruptcy court so overestimated the expense of litigation as to 7 render its decision an abuse of discretion. 8 2. The Insolvency theory 9 According to Greif, the “linchpin” of the settlement was the 10 “agreed upon insolvency date of January 1, 2013.” Greif implies 11 this “agreed upon” date resulted in an inappropriately low 12 settlement amount, and the bankruptcy court abused its discretion 13 by allowing the Liquidating Trustee to accept it. 14 This argument mischaracterizes the nature of the settlement. 15 Parties to a settlement need not (and generally do not) “agree” 16 on the objectively correct resolution of the facts in dispute. 17 The Liquidating Trustee made clear that he argued during 18 negotiations that WFI had become insolvent before January 1, 19 2013, while Amex argued for a later date. The parties simply 20 settled on that date in the interest of compromise. The question 21 before the bankruptcy court was not whether the estimated date 22 was correct, but whether the settlement based on that estimate 23 was fair in light of the A & C Factors. We are not persuaded 24 that the estimate was so obviously wrong as to undermine the 25 overall fairness of the settlement. 26 Otherwise, Greif argues that the bankruptcy court should 27 have required the Liquidating Trustee to hire an insolvency 28 expert to explore the issue more fully before settling.
21 1 Recognizing that this was one of the expenses the Liquidating 2 Trustee hoped to avoid by settling, Greif argues that the 3 Liquidating Trustee at least should have provided specific 4 evidence of how much it would cost to hire an expert. It is true 5 that the bankruptcy court must have an adequate record on which 6 to base its decision, and specific information about the 7 projected costs of an insolvency investigation might have been 8 useful. Nevertheless, we conclude that the record before the 9 bankruptcy court was adequate. As the court recognized, the 10 heated disagreement between Greif and the Liquidating Trustee, 11 concerning the insolvency issue among others, demonstrated that 12 resolution of the claims would not be easy or inexpensive. 13 C. Derivative standing 14 The bankruptcy court denied Greif’s request to expedite 15 consideration of its motion for derivative standing. In the 16 order granting the Settlement Motion, however, the bankruptcy 17 court allowed Greif additional time to make an offer to purchase 18 the Trust’s claims against Amex. During the hearing, the 19 Liquidating Trustee’s counsel indicated he would entertain an 20 all-cash offer from Greif, but not a credit bid as Greif 21 apparently had suggested in previous discussions. Greif argues 22 that the bankruptcy court should have required the Liquidating 23 Trustee to entertain other offers, such as a credit bid, or 24 should have granted the derivative standing motion. 25 Though the bankruptcy court did not decide the derivative 26 standing motion, it expressed its doubt that such a motion was 27 cognizable: “[W]e’re looking at post-confirmation powers granted 28 to a liquidating trustee. We’re way beyond a case pending under
22 1 Chapter 11. . . . So I think we have a limited number of options 2 available[.]”9 Hr’g Tr. (July 6, 2015) at 16:15-20. The denial 3 of Greif’s request for expedited consideration of the derivative 4 standing motion is not on appeal, and we need not consider 5 whether such a motion could have been granted. 6 We have held, however, that a trustee must consider offers 7 from creditors to purchase claims the trustee wishes to settle. 8 This is because settlement of a claim that is property of the 9 estate is equivalent to a sale of that claim to the defendant. 10 In re Mickey Thompson Entm’t Grp., Inc., 292 B.R. at 421. Where 11 an interested party offers to purchase a claim in exchange for a 12 sum certain plus a percentage of net proceeds, the trustee must 13 take the percentage into account in determining whether the bid 14 is superior to an all-cash offer from the defendant. Simantob v. 15 Claims Prosecutor, LLC (In re Lahijani), 325 B.R. 282, 288-90 16 (9th Cir. BAP 2005). The trustee should not reject out of hand 17 all offers that include a non-cash component. Id. 18 In contrast to Lahijani, however, there is no indication in 19 the record that Greif made any offer to purchase the claims, 20 either before or after the Liquidating Trustee expressed his 21 unwillingness to entertain non-cash offers. Certainly, there is 22 nothing to suggest Greif made an offer consisting of a sum 23 24 9 The “limited number of options” to which the bankruptcy 25 court referred included the Plan provision allowing the Liquidating Trustee to “sell and/or assign” claims to be pursued 26 by the purchaser or assignee “for its own benefit.” The 27 Liquidating Trustee argues this provision permits only outright sale, not derivative standing, but the bankruptcy court did not 28 decide the question, and neither do we.
23 1 certain plus a percentage of proceeds or that Greif had any 2 intention of doing so if given the opportunity. The Liquidating 3 Trustee rejected Greif’s suggestion of making a credit bid for 4 the claims. Considering the difficulties inherent in determining 5 the value of a credit bid by an unsecured creditor beneficiary of 6 an insolvent liquidating trust, we conclude that the Liquidating 7 Trustee was not obligated to entertain this novel suggestion. 8 VI. CONCLUSION 9 Based upon the foregoing, we conclude that the bankruptcy 10 court did not abuse its discretion in granting the Settlement 11 Motion. We AFFIRM. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28