In re Witt

473 B.R. 284, 2012 WL 2336243, 2012 Bankr. LEXIS 2851
United States Bankruptcy Court, N.D. Indiana·Decided May 10, 2012·No. No. 11-10609·Published·Cited by 1 cases

Opinion

DECISION ON MOTION TO APPROVE SETTLEMENT

ROBERT E. GRANT, Chief Judge.

When the debtor filed his petition for relief under Chapter 7 of the United States Bankruptcy Code he was the owner of property that had previously been used as a gas station in Portland, Indiana. The underground tanks on the property had leaked and, as a consequence, the debtor was involved in litigation with a previous owner, Jay Petroleum, over the responsibility for cleaning up the property and remediating the environmental damage. Both the contaminated property and the claims against Jay Petroleum became property of the bankruptcy estate when the debtor filed bankruptcy. 11 U.S.C. § 541(a).

The trustee has negotiated a settlement of the environmental litigation. Under the terms of the settlement, Jay Petroleum will be responsible for cleaning up the property to the extent that the Indiana Department of Environmental Management issues a no further action letter. In return for access to the property, Jay Petroleum will pay the estate a lump sum of $20,000, together with additional payments of $500 per month and $12,000 per year until the cleanup has been completed. The trustee has filed a motion to approve the settlement and access agreement. Both the debtor and its environmental expert and co-plaintiff in the state court litigation, HydroTech, (who refer to themselves as the Environmental Plaintiffs) have objected and the matter is before the court following trial of the issues raised by the trustee’s motion and those objections.

While private parties may settle their disputes on any terms which may be mutually satisfactory, that is not the case [288] in bankruptcy proceedings. In re Chicago Rapid Transit, 196 F.2d 484, 490 (7th Cir. 1952). Where a settlement affects the assets of a bankruptcy estate or their distribution, the settlement must be approved by the bankruptcy court. Doing so is a matter committed to the court’s discretion. In re Doctors Hospital of Hyde Park, Inc., 474 F.3d 421, 426 (7th Cir.2007). The court should canvas the issues, familiarize itself with the attendant facts and circumstances, and “make a[n] ‘informed and independent judgment’ about the settlement,” In re American Reserve Corp., 841 F.2d 159, 162 (7th Cir.1987), deciding “whether [it] is in the best interests of the estate.” Matter of Energy Cooperative, Inc., 886 F.2d 921, 927 (7th Cir.1989). As the proponent of the settlement, the trustee bears the burden of proving that it is. In re Bell & Beckwith, 93 B.R. 569, 574 (Bankr.N.D.Ohio 1988).

In undertaking its review, the court does not substitute its own judgment for that of the trustee.1 In re Martin, 212 B.R. 316, 319 (8th Cir. BAP 1988). Instead, it should determine whether the trustee adequately investigated the matter and made an informed decision when choosing between the available alternatives, see, In re Del Grosso, 106 B.R. 165, 168-69 (Bankr.N.D.Ill.1989); if so, the court should then decide whether the settlement’s terms “fall within the reasonable range of litigation possibilities.” Energy Co-op., 886 F.2d at 929 (quoting In re New York, N.H. & H.R. Co., 632 F.2d 955 (2nd Cir.1980)). If they do, the settlement should be approved. Only if the proposed settlement falls below the lowest point in the range of those possibilities should the court withhold its approval. Energy Coop., 886 F.2d at 929 (quoting In re W.T. Grant, Co., 699 F.2d 599, 608 (2nd Cir. 1983)).

The debtor and HydroTech do not mention this standard or attempt to apply it in their opposition to the trustee’s motion. Their argument is that, rather than settling, the trustee should simply abandon both the real estate and the associated environmental claims. So, instead of focusing upon what the trustee is getting for the compromise, and whether that consideration falls below the low end in the reasonable range of litigation possibilities, they advocate for a result in which the estate would get nothing. Under the proposed settlement, the estate will have money in its coffers and property that currently has a negative value because of its environmental contamination would be cleaned up, perhaps becoming marketable. The objectors’ preferred alternative is that the trustee should simply abandon everything and be left with nothing at all. In choosing between these alternatives&emdash;mon-ey in the bank versus an empty sack&emdash;it is relatively easy to see where the best interests of the bankruptcy estate lie.

The objectors’ arguments regarding abandonment take several different forms. All of them overlook the Supreme Court’s decision in Midlantic Nat. Bank v. New Jersey Dept. of Environmental Protection, 474 U.S. 494, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986). There the Coui-t held that a bankruptcy trustee’s ability to abandon environmentally contaminated property is not [289] unrestricted; instead, if it has the resources to do so, the trustee has some type of obligation to protect the public from the dangers the property presents, even if doing so yields no benefit to the estate. Midlantic Nat. Bank, 474 U.S. at 497-500, 507, 106 S.Ct. at 757-758, 762. See also, Matter of Environmental Waste Control, Inc., 125 B.R. 546, 550 (N.D.Ind.1991). In light of these limitations, the trustee’s decision to settle the environmental litigation in a way that not only provides for the clean-up of the contaminated property but also contributes money to the bankruptcy estate is completely consistent with the obligations imposed by Midlantic.

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In re Witt, 473 B.R. 284, 2012 WL 2336243, 2012 Bankr. LEXIS 2851 (Ind. 2012).

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