In re Dalen
| Decision Date | 12 March 2001 |
| Docket Number | No. 99-10424.,99-10424. |
| Citation | 259 BR 586 |
| Parties | In the Matter of Mark DALEN, Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
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Alexander Jurezenko, Cleveland, Ohio, for Mark Dalen.
Marshall A. Yee, Lansing, Michigan, for Michelle Dalen.
John Potter, Grand Rapids, Michigan, for Dorothy L. Dalen.
H. Nathan Resnick, West Bloomfield, Michigan, for Metropolitan Plant & Flower, Inc.
Stephen B. Grow, Grand Rapids, Michigan, for Thomas Richardson, Chapter 7 Trustee.
On June 22, 2000, the court denied the motion of Thomas Richardson, the Chapter 7 trustee ("Trustee"), to approve a settlement he had reached with Metropolitan Plant & Flower, Inc. ("Metropolitan"). The court did not deny the motion because it believed that Trustee had exercised poor judgment in negotiating the settlement. Rather, the court withheld approval because the court exercised its own judgment and concluded that the estate's interests would be better served by Trustee continuing to pursue the issue which was in dispute with Metropolitan.
Metropolitan filed a motion pursuant to Fed.R.Bankr.P. 9023 to reconsider the court's decision to deny approval of the settlement. For the reasons stated in this opinion, the court concludes that it did not properly evaluate Trustee's motion to approve the proposed settlement. The court should have limited its review of the settlement to simply whether Trustee had complied with his fiduciary obligations to the estate in reaching the settlement that he did. Therefore, Metropolitan's motion is granted.
Metropolitan holds a judgment against Mark Dalen ("Dalen") in the approximate amount of $1.9 million dollars. In November 1999, Metropolitan and Dalen reached a settlement (the "November 1999 Dalen/Metropolitan Judgment Settlement") which provided that the judgment would be reduced to zero if Dalen made an initial payment of $150,000 and a second payment of $240,200 by December 31, 1999. Dalen made the first payment. However, he did not have the financial resources to make the second.
On December 30, 1999, the day before the second payment to Metropolitan was due, Dalen filed for relief under Chapter 13 of the Bankruptcy Code.1 By filing, Dalen hoped to get an extension of time within which to pay Metropolitan the settlement amount. In addition, he intended to enlist the bankruptcy court's assistance in funding the remaining installment due Metropolitan.
On February 9, 2000, Dalen filed an adversary proceeding on behalf of the estate against his estranged spouse, Michelle Dalen. Dalen alleged that various transfers of property which he had previously made to Michelle Dalen were avoidable as fraudulent conveyances. On February 14, 2000, Dalen filed a motion in that adversary proceeding for temporary injunctive relief whereby Dalen sought to compel Michelle Dalen to immediately turn over at least $240,200.00 to the estate so that the remaining settlement payment to Metropolitan could be made. Dalen asserted in his motion that such injunctive relief was necessary because Section 108(b) permitted the estate only until February 27, 2000 (i.e., 60 days from the date of the bankruptcy petition) to perform its remaining obligations under the settlement agreement with Metropolitan.
On February 17, 2000, Dalen's case was converted from a Chapter 13 to a Chapter 7 proceeding and Trustee assumed responsibility for the adversary proceeding against Michelle Dalen. The court scheduled a status conference for February 25, 2000. The court required Metropolitan to attend this status conference in addition to the named parties because it was the terms of Dalen's pre-petition settlement with Metropolitan which was at the root of the injunctive relief requested in conjunction with that adversary proceeding.
The parties agreed at the status conference that the estate's rights under Section 108(b) would be extended to March 24, 2000, at which time the court would hold a hearing to determine whether the estate would be granted a further extension of these rights. The parties also agreed that the court would decide at that time whether the estate's performance under the November 1999 Dalen/Metropolitan Judgment Settlement could be extended under Trustee's alternative theory that the settlement agreement was an executory contract which Trustee could assume at a later date if an extension were granted pursuant to Section 365(d)(1). The court directed Trustee to file a motion formally requesting an extension of time under these two theories by no later than March 2, 2000, and the court required both parties to file briefs by no later than March 17, 2000.
Trustee filed the requisite motion on February 28, 2000 (the "Section 108(b)/Section 365(d)(1) motion")2 and both Metropolitan and Trustee filed their briefs on March 17, 2000. The court reviewed these briefs and conducted its own research in preparation for the March 24, 2000 hearing. Unless Metropolitan could persuade it otherwise during oral argument, the court was prepared to rule at the March 24, 2000 hearing that the November 1999 Dalen/Metropolitan Judgment Settlement was an executory contract and that Trustee could have additional time to assume or reject that contract. However, shortly before the March 24, 2000 hearing, Trustee and Metropolitan requested that the hearing be adjourned. The court granted the request and rescheduled the hearing for April 14, 2000.
The parties did appear at the April 14, 2000 hearing. The court was again prepared to rule in favor of Trustee unless some compelling argument to the contrary was made during oral argument. However, the parties this time advised the court that they had reached a settlement which needed only to be noticed to creditors and approved by the court. The parties placed the settlement on the record and indicated that the settlement would be noticed to parties in interest with an opportunity to object. The court tentatively set May 15, 2000 as the date when the court would consider the settlement which Trustee and Metropolitan had reached. The court also adjourned Trustee's Section 108(b)/Section 365(d)(1) motion to this date to cover the contingency that the settlement might not be approved.
The settlement agreement was not noticed to parties in interest as planned because Trustee did not file his motion to approve the settlement until May 8, 2000. Therefore, the court rescheduled the hearing date concerning the settlement for June 22, 2000. The court also rescheduled Trustee's Section 108(b)/Section 365(d)(1) motion for that date.
Metropolitan and Trustee appeared at the June 22, 2000 hearing. Mark Dalen and Michelle Dalen also appeared. Dorothy Dalen, Debtor's first wife, completed all of the appearances.
The Court first heard arguments concerning Trustee's motion to approve the settlement with Metropolitan. The settlement provided that Metropolitan would have an allowed claim in the amount of $1,913,497.24, together with post-judgment interest through the bankruptcy petition date, and that $375,000.00 of the claim would be treated as secured.3 The settlement further provided that the balance of Metropolitan's allowed claim, that being approximately $1,525,000.00, would be subordinated to all other creditors' claims against the estate. However, Metropolitan's remaining claim would still be superior to any residual interest which Dalen himself might have in the estate.
The clear benefit of this settlement to the estate was that it eliminated the risk that the court would deny Trustee's Section 108(b)/Section 365(d)(1) motion, thereby resurrecting Metropolitan's $1.9 million dollar judgment against Debtor with the attendant argument that it was fully secured.4 The cost to the estate was that it required Trustee to disburse $375,000 to Metropolitan before any distribution could be made to other creditors whereas only $240,200 would have to be paid to Metropolitan if Metropolitan could eventually be compelled to accept the terms of the November 1999 Dalen/Metropolitan Judgment Settlement.
Dorothy Dalen and Mark Dalen were the only persons who objected to the settlement Trustee had reached with Metropolitan. Trustee was able to resolve Dorothy Dalen's objection prior to the hearing. Metropolitan challenged Mark Dalen's objection because it was not timely (Mark Dalen's objection was made orally at the June 22, 2000 hearing) and because he lacked standing. The court allowed Mark Dalen to proceed notwithstanding Metropolitan's challenges but ultimately overruled his objections to the proposed settlement.5
The court nonetheless denied Trustee's motion to approve his settlement with Metropolitan because the court had independently concluded that the settlement was not in the best interests of Dalen's creditors. The court also granted Trustee's Section 108(b)/365(d)(1) motion and gave the Trustee additional time to assume or reject the November 1999 Dalen/Metropolitan Judgment Settlement pursuant to Section 365.
The court supplemented its June 22, 2000 oral decision with a written opinion on August 25, 2000. The court also issued on that day its written order denying approval of the Trustee's proposed settlement with Metropolitan and granting Trustee's Section 108(b)/Section 365(d)(1) motion. It is the court's August 25, 2000 order denying approval of the proposed settlement which Metropolitan has asked the court to reconsider.6
OPINIONMetropolitan has offered its own reasons as to why the court erred in denying approval of its settlement with Trustee. However, the court has not found any of these reasons particularly persuasive. The gist of Metropolitan's argument is that the court did not follow...
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