In re Bridge Information Systems, Inc.

• Citation: 325 B.R. 824
• Decision Date: 23 May 2005
• Docket Number: No. 01-41593-293.,01-41593-293.
• Parties: In re BRIDGE INFORMATION SYSTEMS, INC., et. al., Reorganized Debtors, Scott A. Peltz, Plan Administrator, Movant.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Eastern District of Missouri

325 B.R. 824

In re BRIDGE INFORMATION SYSTEMS, INC., et. al., Reorganized Debtors,

Scott A. Peltz, Plan Administrator, Movant.

No. 01-41593-293.

United States Bankruptcy Court, E.D. Missouri, Eastern Division.

May 23, 2005.

COPYRIGHT MATERIAL OMITTED

Benjamin S. Kaminetzky, Thomas A. Tormey, David, Polk & Wardwell, New York, NY.

David B. Goroff, Bruce W. Doughty, Geoffrey S. Goodman, Derek L. Wright, Foley & Lardner, Chicago, IL.

Steven N. Cousins, David L. Going, Susan K. Olsen, Armstrong Teasdale, LLP, St. Louis, MO.

Paul B. Lackey, Lack Hershman, Dallas, TX.

John J. Hall, Lewis, Rice et al., St. Louis, MO.

MEMORANDUM OPINION

DAVID P. MCDONALD, Bankruptcy Judge.

This case is before the Court on the motion of the Plan Administrator for Bridge's estate (the "Plan Administrator") to compromise his claims with Welsh Carson under Bankr. R. 9019. There is no dispute that the proposed compromise is in the best interest of Bridge's estate. The only question is whether the proposed settlement binds non-parties to the proposed agreement, Highland Capital Management and its related entities (collectively "Highland"), who have asserted state law claims against Welsh Carson. The Court finds that because Bridge was the entity that was directly injured by Welsh Carson's alleged wrongdoing contained in the state law claims, those claims belong to Bridge's estate. Accordingly, the Court will grant Plan Administrator's Rule 9019 motion to compromise his claims with Welsh Carson.

JURISDICTION AND VENUE

This Court has jurisdiction over the parties and subject matter of this proceeding under 28 U.S.C. §§ 1334, 151, and 157 and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), which the Court may hear and determine. Venue is proper in this District under 28 U.S.C. § 1409(a).

FACTUAL AND PROCEDURAL BACKGROUND

After reviewing the record in the light most favor to Highland and accepting all of Highland's factual allegations as true, the Court finds that following facts.¹ Highland was a member of a lender group that provided pre-petition credit to Bridge. Highland possesses a $65,000,000.00 unsecured claim against Bridge's estate.

The Welsh Carson Partners are a related group of limited partnerships (collectively "Welsh Carson"). Welsh Carson purchased a controlling interest in Bridge in 1995 and then caused Bridge to acquire Savvis in April, 1999. Welsh Carson caused Bridge to transfer 56% of Bridge's interest in Savvis to the individual Welsh Carson partnerships in two separate transactions that occurred in September, 1999 and February, 2000.

Bridge defaulted on the loan covenant with the lender group in September, 2000. At that point, a number of the general partners of the individual Welsh Carson partnerships (collectively the "General Partners"), who were also the officers and directors of Bridge, attempted to renegotiate Bridge's debt with the lender group in an effort to stave off the necessity of seeking relief under Chapter 11. The General Partners represented to Highland that they had identified a purchaser for Bridge's assets. The General Partners additionally stated to Highland that the potential buyer demanded that the members of the lender group accept a payment of 17 cents on each dollar of debt. The General Partners further told Highland that if it refused to consent to this proposal, they would cause Bridge to file a petition for relief under Chapter 11 and Highland would receive nothing.

Highland initially consented to the General Partners' offer to sell Bridge's assets and accept a payout of 17 cents per dollar of debt. The General Partners, however, were not able to secure a purchaser for Bridge's assets. Highland then commenced an involuntary proceeding in this Court against Bridge on February 1, 2001. Bridge responded by filing a voluntary petition for relief on February 15, 2001. The Court then dismissed Highland's involuntary petition as moot on March 28, 2001.

Welsh Carson caused Bridge to transfer $20,000,000.00 in cash to Savvis in two different separate transactions in January, 2001 (collectively the "Pre-Petition Transfers") even though Savvis owed Bridge $30,000,000.00 at the time of the two transfers. The Pre-Petition Transfers occurred during the interim between the date the General Partners represented to Highland that they had found a buyer for Bridge's assets and Highland filing the involuntary petition against Bridge. Additionally, Welsh Carson caused Bridge to make the Pre-Petition Transfers to Savvis at a time when Welsh Carson and the General Partners controlled both companies.

Highland commenced an action against Welsh Carson, the General Partners and Savvis in Texas State Court on August 28, 2002 (the "State Court Action"). The basis of Highland's State Court Action was that Welsh Carson and the General Partners misrepresented to Highland that they had a buyer for Bridge. Highland contended that Welsh Carson knew that there was no potential buyer for Bridge when it made the representation and that if Highland had known that fact, it would have filed an involuntary petition before Welsh Carson could have caused Bridge to make the Pre-Petition Transfers.

Highland asserted eight counts in the State Court Action. Counts I and II were fraudulent misrepresentation and negligent misrepresentation claims. Count III was a tortious interference claim. Counts IV an V were conspiracy to commit tortious interference and fraud claims. Counts VI and VII were aiding and abetting fraud and tortious interference counts. For simplicity, the Court will refer to Counts I through VII as the "Tort Claims". Count VIII contained a veil piercing claim, asserting that Bridge was simply the alto ego of Welsh Carson and the General Partners. The Court will refer to Count VIII as the "Veil Piercing Claim".

Savvis, with the consent of Welsh Carson and the General Partners, removed the State Court Action to the United States District Court for the Northern District of Texas (the "Texas District Court"). Savvis further requested that the Texas District Court transfer venue to this Court because the claims in the State Court Action belonged to Bridge's estate. Highland responded to the motion to transfer venue by filing a motion to remand the State Court Action back to Texas State Court. The Texas District Court granted Savvis' motion to transfer venue to this Court and denied Highland's motion on June 25, 2003.

While the parties' respective motions were pending in the Texas District Court, Welsh Carson and the General Partners filed a declaratory judgment action in this Court on May 8, 2003 (the "Declaratory Judgment Action"). The Declaratory Judgment Action sought a declaration that because the injury Highland complained of in the State Court Action was simply derivative of Bridge's direct injury, the causes of action contained in the State Court Action belonged only to Plan Administrator. Welsh Carson and the General Partners also requested that this Court enjoin Highland from prosecuting the State Court Action.

After the Texas District Court transferred the State Court Action here, Highland filed a motion to dismiss, abstain or transfer the State Court Action back to the Texas District Court. The Court denied Highland's motion on September 24, 2003.

The parties then agreed to consolidate the State Court Action and the Declaratory Judgment Action into one single adversary proceeding (the "Consolidated Adversary"). The Court also realigned the parties in the Consolidated Adversary. Specifically, Highland and Plan Administrator were designated as the plaintiffs and Welsh Carson and the General Partners were designated as the defendants. Additionally, Highland's complaint in the State Court Action became the complaint in the Consolidated Adversary.

There are several matters pending between Plan Administrator and Welsh Carson, including the claims in the Consolidated Adversary and Plan Administrator's $40,000,000.00 preference action against Welsh Carson. Plan Administrator has filed a motion pursuant to Bankr.R. 9019 to compromise all the claims between him and Welsh Carson, including the causes of action contained in the Consolidated Adversary.

No party has objected to the substance of Plan Administrator's proposed settlement with Welsh Carson. Highland, however, has objected to Plan Administrator's motion to compromise to the extent that it attempts to compromise Highland's causes of action contained in the Consolidated Adversary. For the reasons discussed below, the Court will grant Plan Administrator's motion to compromise all of the claims against Welsh Carson, including the claims Highland attempts to assert in the Consolidated Adversary.

DISCUSSION

A. Introduction

A court should approve a debtor-in-possession's motion to compromise a dispute under Bankr.R. 9019 if the compromise is in the best interest of the estate. In re Trism, Inc., 282 B.R. 662, 668 (8th Cir. BAP 2002).

Here, there is no dispute that Plan Administrator's proposed compromise with Welsh Carson is in the best interest of Bridge's estate. The unsecured creditors' committee filed a response to Plan Administrator's Rule 9019 motion in support of the proposed compromise. Also, Plan Administrator submitted his own affidavit in support of his motion, which outlines his experience in litigating large preference claims and his opinion that the proposed settlement was in the best interest of Bridge's estate. Given this record, the Court finds that Plan Administrator has established that the proposed settlement is in the best interest of Bridge's estate.

Highland is the only entity that has objected to Plan Administrator's proposed settlement with Welsh Carson. Highland does not contend that proposed settlement is not in the best interest of Bridge's estate. Rather, Highland only disputes whether the proposed settlement can...