In re Clements Mfg. Liquidation Co., LLC, Case No. 09–65895

• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
• Writing for the Court: Thomas J. Tucker, United States Bankruptcy Judge
• Citation: 581 B.R. 218
• Parties: IN RE: CLEMENTS MANUFACTURING LIQUIDATION COMPANY, LLC, Debtor.
• Docket Number: Case No. 09–65895
• Decision Date: 26 January 2018

581 B.R. 218

IN RE: CLEMENTS MANUFACTURING LIQUIDATION COMPANY, LLC, Debtor.

Case No. 09–65895

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed January 26, 2018

581 B.R. 219

Richardo I. Kilpatrick, Bonita Sue Hoffman, Kilpatrick & Associates, P.C., Auburn Hills, MI, for Charles L. Wells, II, Chapter 7 Trustee.

Brian M. Saxe, Rossman Saxe, P.C., Troy, MI, Lawrence J. Murphy, The Miller Law Firm, P.C., Rochester, MI, for Harold Zaima and the Zaima Entities.

Mark V. Heusel, Doron Yitzchaki, Dickinson Wright PLLC, Ann Arbor, MI, for THB America, LLC and Tianhai Electric North America, Inc.

Timothy P. Dugan, Matthew C. Herstein, Deneweth, Dugan & Parfitt, P.C., Troy, MI, for David Crawford.

Anthony P. Polce, Polce & Associates, PC, Plymouth, MI, for Odyssey Electronics, Inc.

Michael D. Lieberman, Farmington Hills, MI, for Debtor.

OPINION REGARDING THE CHAPTER 7 TRUSTEE'S SECOND SETTLEMENT MOTION

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

This case is before the Court on the Chapter 7 Trustee's motion entitled "Motion to Compromise and Settle Adversary Case Nos. 10–01623–TJT and 10–07341–TJT" (Docket # 115, the "Motion"). In the Motion, the Trustee seeks the Court's approval of the Trustee's proposed settlement relating to two pending adversary proceedings (Adv. Nos. 10–6123 and 10–7341). The proposed settlement agreement is between the Trustee and several parties that this opinion will refer to as the "Zaima Entities," namely, Harold Zaima, Zaima Family LLC, Sakoma, LLC, and Kensa de Honduras S. De R.L.

Several creditors objected to the Motion. Objections were filed jointly by THB America, LLC ("THB") and Tianhai Electric North America, Inc. ("TENA"),¹ and by two other creditors—Odyssey Electronics, Inc.² and David Crawford.³ The Trustee filed a reply in support of the Motion.⁴ The Court then held a hearing, and ordered certain further proceedings,⁵ including the filing of a written, competing settlement offer by THB and TENA (these two parties, collectively, are sometimes referred to in this opinion as the "TENA Entities"). THB and TENA then filed their competing settlement offer (the "TENA Settlement Offer"), and a statement in support of it.⁶

581 B.R. 220

The Court then held a status conference regarding the Motion and the TENA Settlement Offer. At that time, the Trustee informed the Court that he had rejected the TENA Settlement Offer, and still wanted the Court to grant the Trustee's Motion and approve the proposed settlement with the Zaima Entities. The Court allowed the Trustee and the Zaima Entities to file written responses to the statement THB and TENA had filed in support of the TENA Settlement Offer.⁷ After those responses were filed,⁸ and the Court took the Motion under advisement.

The Court has carefully considered everything filed by the parties regarding the Trustee's Motion and the TENA Settlement Offer, as well as the oral arguments of the parties. For the reasons stated in this opinion, the Court will conditionally deny the Trustee's Motion. The Court's ruling finds the TENA Settlement Offer to be a better offer, and gives preference to it over the Trustee's proposed settlement. The Court will allow THB and TENA 14 days to renew the TENA Settlement Offer. If they do so, the Court will deny the Trustee's Motion. But if the TENA Settlement Offer is not renewed, the Court will grant the Trustee's Motion and approve the Trustee's proposed settlement, with certain revisions described below.

II. Jurisdiction

This Court has subject matter jurisdiction over the case and this contested matter under 28 U.S.C. §§ 1334(b), 157(a) and (b)(1), and Local Rule 83.50(a) (E.D. Mich.). A motion to approve a settlement agreement is a "core proceeding" under 28 U.S.C. §§ 157(b)(2)(A) and 157(b)(2)(O). See In re High Tech Packaging, Inc. , 397 B.R. 369, 371 (Bankr. N.D. Ohio 2008) ; In re Parkview Hosp.–Osteopathic Med. Ctr., 211 B.R. 603, 607 (Bankr. N.D. Ohio 1997) ; In re Dow Corning Corp. , 192 B.R. 415, 421 (Bankr. E.D. Mich. 1996) ; In re Frye , 216 B.R. 166, 170 (Bankr. E.D. Va. 1997).

This contested matter also is "core" because it falls within the definition of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within this category in § 1334(b) are deemed to be core proceedings. See Allard v. Coenen (In re Trans–Industries, Inc. ), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009). This matter is a proceeding "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only in bankruptcy cases." Id.

III. Standards for approval or disapproval of a settlement agreement

In its opinion in a prior case, In re McInerney , 499 B.R. 574, 581–83 (Bankr. E.D. Mich. 2013), this Court stated the standards and factors relevant to deciding whether to approve a proposed settlement. The Court reiterates what it said in the McInerney case about this subject, and will apply that to the Trustee's Motion in this case:

"Settlements and compromises are favored in bankruptcy as they minimize costly litigation and further parties' interests in expediting the administration of the bankruptcy estate." HSBC Bank USA, N.A. v. Fane (In re MF Global Inc. ), 466 B.R. 244, 247 (Bankr. S.D.N.Y. 2012) (citing Myers v. Martin (In re Martin ), 91 F.3d 389, 393 (3d Cir. 1996) ); see also Protective Comm. For Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson , 390 U.S. 414, 424, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968) (citation omitted) (Bankruptcy Act)

581 B.R. 221

("Compromises are ‘a normal part of the process of reorganization.’ In administering reorganization proceedings in an economical and practical manner it will often be wise to arrange the settlement of claims as to which there are substantial and reasonable doubts."); In re Dewey & LeBoeuf LLP, 478 B.R. 627, 640 (Bankr. S.D.N.Y. 2012) (citing MF Global Inc. , 466 B.R. at 247 ; Motorola, Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating LLC ), 478 F.3d 452, 455 (2d Cir.2007) ("stating that settlements are important in bankruptcy because they ‘help clear a path for the efficient administration of the bankrupt estate’ "); and10 Collier on Bankruptcy ¶ 9019.01 at 9019–2 ("highlighting that ‘compromises are favored in bankruptcy’ ") ); Buckeye Check Cashing, Inc. v. Meadows (In re Meadows ), 396 B.R. 485, 499 (6th Cir. BAP 2008) (citing In re Cormier , 382 B.R. 377, 400–01 (Bankr. W.D. Mich. 2008) )("Settlements in bankruptcy cases are favored by law."); In re West Pointe Properties, L.P. , 249 B.R. 273, 282 (Bankr. E.D. Tenn. 2000) (quoting In re Edwards , 228 B.R. 552, 568–69 (Bankr. E.D. Pa. 1998) )(" ‘[I]t is well accepted that compromises are favored in bankruptcy in order to minimize the cost of litigation to the estate and expedite its administration, and that the approval of a compromise is within the sound discretion of the bankruptcy judge.’ ").

"At the same time, however, it is essential that every important determination in reorganization proceedings receive the ‘informed, independent judgment’ of the bankruptcy court." TMT Trailer , 390 U.S. at 424, 88 S.Ct. 1157 (citation omitted).

In Olson v. Anderson (In re Anderson ), 377 B.R. 865, 870–71 (6th Cir. BAP 2007), abrogated on other grounds by Schwab v. Reilly , 560 U.S. 770, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010) (footnotes and citations omitted), the court described in detail the "[s]tandard for approval or disapproval of a settlement agreement":

Rule 9019 of the Federal Rules of Bankruptcy Procedure provides: "On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement." The rule offers no guidance as to the criteria to be used in evaluating whether a settlement should be approved, but courts uniformly have drawn from the language of the Supreme Court's decision in TMT Trailer Ferry in establishing a "fair and equitable" threshold for settlement approval. See Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson , 390 U.S. 414, 424, 88 S.Ct. 1157, 1163, 20 L.Ed.2d 1 (1968). Although the TMT Trailer Ferry case was decided under the Bankruptcy Act, "its principles have been broadly held applicable to settlements under the Bankruptcy Code." 2 Norton Bankr.L. & Prac. 2d § 41:10 (2007). Many Rule 9019 opinions have relied on TMT Trailer Ferry "both for the substantive requirement that settlement represent a fair compromise of disputed issues, and for the requirement that such settlement be preceded by adequate inquiry." Id.

The Sixth Circuit Court of Appeals has held that "the bankruptcy court is charged with an affirmative obligation to apprise itself of the underlying facts and to make an independent judgment as to whether the compromise is fair and equitable." Reynolds v. Comm'r , 861 F.2d 469, 473 (6th Cir.1988) (emphasis added). The court must weigh the conflict ing interests of all relevant parties, "considering such factors as the probability of success on the merits, the complexity and expense of litigation, and the reasonable views of creditors."

581...