Treinish v. Topco Associates, Inc. (In re AWF Liquidation Corp.)

208 B.R. 399, 1997 Bankr. LEXIS 693, 30 Bankr. Ct. Dec. (CRR) 1083
CourtUnited States Bankruptcy Court, N.D. Ohio
DecidedMay 13, 1997
DocketBankruptcy No. 94-15131; Adversary No. 96-1423
StatusPublished
Cited by3 cases

This text of 208 B.R. 399 (Treinish v. Topco Associates, Inc. (In re AWF Liquidation Corp.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Ohio primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Treinish v. Topco Associates, Inc. (In re AWF Liquidation Corp.), 208 B.R. 399, 1997 Bankr. LEXIS 693, 30 Bankr. Ct. Dec. (CRR) 1083 (Ohio 1997).

Opinion

MEMORANDUM OF OPINION AND ORDER

RANDOLPH BAXTER, Bankruptcy Judge.

This matter came on for hearing upon the Motion of Alan J. Treinish (the Trustee) to [400]*400compromise a certain controversy. Pursuant to Rule 2002, notice of the hearing was duly made.

On December 6, 1994, an involuntary petition for relief under Chapter 7 of the Bankruptcy Code [11 U.S.C. § 701, et seq.] was filed against AWF Liquidation Corp., a.k.a. A & W Foods, Inc. (the Debtor). Relief was granted respecting the involuntary petition, and the Trustee was duly appointed. Subsequently, the Trustee filed the present adversary proceeding against TOPCO Associates, Inc. (TOPCO) and Frosty Acres, a.k.a. F.A.B., Inc. (Frosty Acres) alleging, inter alia, a preferential transfer, breach of contract, and fraudulent transfer. Responsive pleadings were filed timely by both parties defendant challenging each of the several complaint allegations, while asserting their respective affirmative claims.

Among the several allegations, the Trustee’s case was primarily focused on two payments: (1) a payment made by the Debtor in the amount of $250,000.00 made on October 20, 1994 and (2) a transfer of funds for Frosty Acres to TOPCO of $560,593.39. During the discovery process, a new value set-off of approximately $154,025.13 was demonstrated to the Trustee’s satisfaction respecting the $250,000.00 transfer made by the Debtor. Regarding the $560,000.00 transfer from Frosty Acres to TOPCO, the Trustee’s investigation revealed to his satisfaction that those funds were held by Frosty Acres on behalf of the Debtor in the form of rebates. It was further determined by the Trustee that such rebates were normally paid to a cooperative member such as the Debtor at the end of the year or could be retained by the cooperative as security for a member’s line of credit. Following a series of negotiations between these parties, while assessing the relative strengths and weaknesses of their respective litigative postures. TOPCO and Frosty Acres offered to settle the lawsuit for $425,000.00. Upon consideration of the offer including the relative strength and weaknesses of his litigative posture, the Trustee asserts that the offer is fair, equitable and is in the best interest of the Debtor’s estate. Consequently, the subject Motion to Compromise was filed.

Of numerous factors to be considered by the Court in resolving this matter, the principal factor is whether the proposed compromise, if approved, is in the best interest of the Debtor’s bankruptcy estate. As noted above, no abbreviated notice of the hearing on the motion was requested or ordered. Each claimant of the estate was duly noticed, and no objection was filed by any of the claimants. Clearly, it is the estate’s claimants, particularly the unsecured claimants, who are reposed with the greatest economic risk if the proposed compromise is not in the best interest of the Debtor’s estate. Yet, herein, armed with apparent knowledge of such risk, each of the Debtor’s claimants has consented to approval of the proposed compromise by reason of their lack of objection.

The objectant Glenn C. Pollack a non-creditor of the estate, contends the compromise is not in the best interest of the Debt- or’s estate. As the objecting party, Pollack must support his objection by a preponderance of the evidence standard in order to be sustained. Rule 9019, Bankr.R., provides that the bankruptcy court may approve a compromise or settlement upon motion of the trustee and after notice and a hearing. Rule 9019 further provides that notice shall be given to creditors, the U.S. Trustee, the debtor and to any indenture trustees as provided under Rule 2002, in addition to any other entity the Court may direct. In re The Leslie Fay Cos., Inc., 168 B.R. 294 (Bankr.S.D.N.Y.1994). As presented, the motion fully comports with the procedural requirements of Rule 9019, Bankr.R..

A bankruptcy court may approve a compromise or settlement after a hearing to determine what is fair and equitable and in the best interests of the bankruptcy estate after considering the terms of the compromise compared with the probable complexity, expense, duration and outcome of litigation. Depoister v. Mary M. Holloway Foundation, 36 F.3d 582 (7th Cir.1994). Where an agreement provides tangible benefits to the estate in return for sacrifice of uncertain claims against its secured creditor, a bankruptcy [401]*401court does not err in approving the settlement. In re Bond, 16 F.3d 408 (4th Cir. 1994). Furthermore, a right to prior notification of a hearing regarding settlement of a bankruptcy claim does not, in itself, confer the status of a “party in interest” on a debtor or some individual creditor who is not part of the settlement. In re Thompson, 965 F.2d 1136 (1st Cir.1992).

From the U.S. Supreme Court’s decision in TMT Trailer Ferry, Inc. v. C. Gordon Anderson, 390 U.S. 414, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968), it is incumbent upon this Court to provide an educated estimate regarding the complexity, expense, likely duration of litigation, possible difficulties in collecting, and any other factors which are relevant to a full and fair assessment of the propriety of the proposed compromise. See, also, Drexel Burnham Lambert, Inc. v. Flight Trans. Corp., 730 F.2d 1128 (8th Cir. 1984).

Among the enumerated duties of a ease trustee is the duty to:

§ 704 (1) collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest, [11 U.S.C. § 704(1) ] (Emphasis added.)

In order to effectuate this particular duty, the trustee serves as a fiduciary for those who hold a stake in the debtor’s bankruptcy estate and, as such, is mandated to conduct his or her administration in their best interest.

Due regard has been accorded the aforementioned factors which the Court must consider in determining whether or not to approve a proposed compromise. Although the Complaint seeks recoveries and damages totaling $6,926,911.77 on the fraudulent transfer, preference, turnover, and breach of contract counts, the proposed compromise would settle all of the counts for $425,000.00. In considering the propriety of the offer, the Trustee acknowledged what were apparently strong affirmative defenses asserted by TOP-CO and Frosty Acres regarding the preference, turnover and fraudulent transfer counts. Specifically, he noted and considered certain statutory exceptions to an avoidable preferential transfer which were asserted under 11 U.S.C. § 547(c)(1), (2), (3) and (4), as well as an asserted basis for nonrecovery under 11 U.S.C. § 550(b). Other asserted affirmative defenses included, the Statute of Frauds, release, mutual mistake, set-off, accord and satisfaction,

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Bluebook (online)
208 B.R. 399, 1997 Bankr. LEXIS 693, 30 Bankr. Ct. Dec. (CRR) 1083, Counsel Stack Legal Research, https://law.counselstack.com/opinion/treinish-v-topco-associates-inc-in-re-awf-liquidation-corp-ohnb-1997.