A & C Properties, In re
| Decision Date | 13 May 1986 |
| Docket Number | No. 84-6071,84-6071 |
| Citation | 784 F.2d 1377 |
| Parties | 20 Fed. R. Evid. Serv. 643 In re A & C PROPERTIES, Debtors. William W. MARTIN, et al., Plaintiffs, Superseded by Gilbert Robinson, Plaintiff in Intervention, v. William E. KANE, Barbara Kelly, K & K Properties, Inc., and Investors Replacement, Inc., Defendants. William W. MARTIN, et al., Objectors-Plaintiffs-Appellants, v. Gilbert ROBINSON, Trustee in Bankruptcy, Plaintiff in Intervention, Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Stephen W. Holohan, Noble, Campbell & Uhler, Los Angeles, Cal., for objectors-plaintiffs-appellants.
David A. Gill, Danning, Gill, Gould, Joseph & Diamond, Los Angeles, Cal., for plaintiff in intervention, appellee.
Appeal from the United States District Court for the Central District of California on Appeal from the United States Bankruptcy Court for the Central District of California.
Before BARNES, GOODWIN and BOOCHEVER, Circuit Judges.
William W. Martin ("Martin"), Robert E. Mosher ("Mosher"), and the Legal Action Committee for Marlin Investments ("LAC"), appeal from the district court affirmance of the bankruptcy court order compromising the bankruptcy controversy and approving a settlement agreement entered into between the bankruptcy trustee and the debtors. We have jurisdiction under 28 U.S.C. Sec. 1291 and we affirm.
This appeal arises from a lengthy and complex proceeding before the bankruptcy court. For purposes of explanation, we must review the factual background leading to the filing of the petition for bankruptcy by the debtors in this action.
Between 1969 and 1975 Mosher and Martin invested in some or all of eighteen joint ventures (hereinafter "the A & C Entities" or "A & C"), each of which consisted of one or more limited partnerships, organized and sold by general partner, Barry Marlin ("Marlin"). The limited partnerships were usually offered as tax-sheltered investments. The A & C Entities owned various rental properties, leasehold interests and promissory notes receivable, some of which were subject to liabilities.
On January 1, 1976, K & K Properties, Inc. ("K & K"), a newly-formed Delaware corporation organized and controlled by William Kane ("Kane") and Barbara Kelly ("Kelly"), assumed the management of the A & C properties. The assets and liabilities of the A & C Entities were transferred to K & K in exchange for eighty percent of the K & K stock. Kane and Kelly retained the remaining twenty percent. Marlin remained a general partner and manager of the A & C Entities. 1
On August 19, 1976, the A & C Entities filed for protection under Chapter XI of the Bankruptcy Act. Numerous disputes arose between the appellants and other investor-creditors, the A & C Entities, K & K, and Kane and Kelly, involving the rights of the various parties in connection with the transaction in which K & K acquired the assets of the A & C Entities. The Legal Action Committee for Marlin Investments ("LAC") was formed by Mosher and Martin to represent the interests of some of the A & C Entities investor-creditors.
The bankruptcy court approved a compromise on December 21, 1977, ("1977 Compromise") which was negotiated by the parties to this appeal, and actively participated in by appellants. The 1977 Compromise provided for the resolution of disputes which arose from the 1976 agreement in which K & K acquired the assets of the A & C Entities in exchange for stock. Its terms provided (a) for the distribution of some of the K & K stock owned by Kane and Kelly to K & K and (b) for the previously established Voting Trust 2 to exercise its previously established voting rights. In addition, A & C Entities released K & K and Kane and Kelly individually, for any claims or liabilities arising from any association between the parties. As a result of this compromise, certain investor-creditors, including the appellants, sued K & K for breach of contract and fraud.
In an effort to settle and satisfy the claims of the investor-creditors, several plans of arrangement were negotiated and filed with the bankruptcy court. Pursuant to the terms of the 1977 Compromise, to solicit votes of the K & K shares held by the A & C Entities, in order to approve a plan of arrangement for the settlement and satisfaction of the creditors' claims, a K & K Prospectus and proxy solicitation were prepared on August 29, 1978. This Prospectus and proxy solicitation, along with a registration statement, were filed with the SEC in 1980. The Prospectus was prepared by K & K, and included an explanation of the transactions which had occurred, the status of the bankruptcy proceedings, and a financial statement which purported to represent the value of K & K's assets.
During the pendency of the bankruptcy proceedings, in March of 1978, K & K authorized the establishment of an Employee Stock Ownership Trust ("ESOT"). Appellants allege that the provisions of this ESOT, coupled with the valuation of the K & K shares, were inequitable to the investor-creditors.
On February 20, 1979, Martin filed a complaint, designated "Adversary Proceeding B," for declaratory relief in the bankruptcy court, on behalf of himself and all other creditors, against K & K, Kane and Kelly. On June 4, 1979, Martin filed an amended complaint, designated as "Adversary Proceeding D," which requested relief, based upon allegations of fraud and violations of federal securities laws. The bankruptcy court eventually dismissed this action with prejudice on October 18, 1983. Appellants Martin, Mosher and the LAC had filed other similar litigation dealing with the same matters which were the subject of the Adversary Proceeding D.
After numerous attempts to implement and approve a plan of arrangement had failed, the bankruptcy judge filed an order on September 10, 1979, adjudicating the debtors (A & C Properties, et al.) bankrupt under Article X of the Bankruptcy Act, and appointed Gilbert Robinson ("Robinson") as trustee to supervise the liquidation and distribution of the assets of K & K to its shareholders. Various plans of arrangement were filed in an effort to liquidate the assets of K & K and distribute the proceeds to the shareholders. Robinson became engaged in litigation in both state and bankruptcy courts. He attacked the Voting Trust and sought to gain control of K & K Properties through voting the stock of K & K owned by the A & C Entities.
The bankruptcy court, upon Robinson's unopposed motion, entered an order on July 8, 1981, authorizing him to vote the shares of the A & C Entities (which shares constituted a majority of the total outstanding shares in K & K), and to elect individuals to the board of directors. These persons all of whom were approved by the Bankruptcy Court, were "independent directors" proposed by Robinson.
On January 6, 1982, Robinson entered into a settlement agreement with K & K, Kane, Kelly, and Kane and Kelly Associates to provide for the distribution of the K & K assets to the shareholders. The trustee filed an application with the bankruptcy court to compromise the controversy, a notice of this application was signed by the bankruptcy court on January 26, 1982, and mailed to the creditors on February 4, 1982. On June 18, 1982, after numerous hearings on the matter, the bankruptcy court approved the trustee's application to compromise. The court on April 18, 1983, entered its order compromising the controversy, thereby adopting the terms of the settlement agreement, and it entered its findings of fact and conclusions of law to support its order. Appellants filed timely appeals to the district court from the findings and orders of the bankruptcy court. The district court entered its order on June 22, 1984, summarily affirming the bankruptcy court in all respects, finding that the bankruptcy court had committed no error of law and had not committed an abuse of discretion. The appellants filed a timely appeal to this court from the district court's affirmance of the bankruptcy court. Both the district court and this court have jurisdiction to review the decision of the bankruptcy court under 28 U.S.C. Secs. 1293 and 1334. 3
The sole issue raised on appeal is whether the district court erred in affirming the bankruptcy court's approval and implementation of a 1982 settlement agreement between the bankruptcy trustee and the debtors where the agreement was objected to by certain creditors.
In an appeal from the district court's affirmance of a decision of the bankruptcy court, our role is essentially the same as that of the district court, and we are, in essence, reviewing the final order of the bankruptcy court. In re Global Western Development Corp., 759 F.2d 724, 726 (9th Cir.1985) (per curiam).
We review the bankruptcy court's findings of fact under the "clearly erroneous" standard and its conclusions of law de novo. In re Global Western, 759 F.2d at 726. However, the bankruptcy court's order approving the trustee's application to compromise the controversy is reviewed for an abuse of discretion. In re Transcontinental Energy Corp., 764 F.2d 1296, 1298-99 (9th Cir.1985); Matter of Walsh Construction, Inc., 669 F.2d 1325, 1328 (9th Cir.1982); In re Blair, 538 F.2d 849, 851 (9th Cir.1976).
A. Validity of the Compromise
Under Section 27 of the Bankruptcy Act, 11 U.S.C. Sec. 50 (1976) (repealed 1978), 4 a trustee " 'may, with the approval of the court, compromise any controversy arising in the administration of the estate upon such terms as he may deem for the best interest of the estate.' " In re Transcontinental, 764 F.2d at 1298 (citation omitted), Matter of Walsh, 669 F.2d at 1328. The purpose of a compromise agreement is to allow the trustee and the creditors to avoid the expenses and burdens associated with litigating sharply contested and dubious claims. Matter of Walsh, 669 F.2d at...
To continue reading
Request your trial
-
In re Oakhurst Lodge, Inc.
...to the standards governing chapter 11 plan modification, Rule 9019 operates under more discretionary standards articulated in In re A & C Properties. See In re A & C Props., 784 F.2d 1377, 1381 (9th Cir. 1986). Under these standards, the court may approve such a settlement if it was negotia......
-
In re Allegheny Intern., Inc.
...to their reasonable views. . . ." See also In re American Reserve Corp., 841 F.2d 159, 161 (7th Cir. 1987); In re A & C Properties, 784 F.2d 1377, 1382 (9th Cir.1986), cert. denied, 479 U.S. 854, 107 S.Ct. 189, 93 L.Ed.2d 122 (1986); In re Energy Cooperative, 886 F.2d 921, 927 (7th Cir.1989......
-
In re Dow Corning Corp.
...coverage was being compromised. 1. Standard for Approving Settlements Compromises are favored by the law. Martin v. Kane (In re A & C Properties), 784 F.2d 1377, 1381 (9th Cir.1986). They are also a normal part of the reorganization process. Protective Comm. for Independent Stockholders of ......
-
Cini v. Viscomi (In re Cini)
...Nigel's account and the “Disputed Funds” account both should now be $0. Addressing the four factors from Martin v. Kane (In re A & C Properties), 784 F.2d 1377, 1380–81 (9th Cir.)cert. denied sub nom. Martin v. Robinson, 479 U.S. 854, 107 S.Ct. 189, 93 L.Ed.2d 122 (1986), to evaluate in det......
-
Mediating With A Litigation Committee Or Trust
...the best interests of the estate." In re Energy Coop., 886 F.2d 921, 927 (7th Cir. 1989); see also Martin v. Kane (A & C Properties), 784 F.2d 1377, 1380 (9th Cir. 1986), cert. den. sub nom, Martin v. Robinson, 479 U.S. 854 (1986). The seminal case in this area is Drexel v. Loomis, whic......