In re Heissinger Resources Ltd.
| Decision Date | 24 November 1986 |
| Docket Number | No. 85-3191.,85-3191. |
| Citation | 67 BR 378 |
| Parties | In re HEISSINGER RESOURCES LTD. Robert M. MAGILL, Trustee, Plaintiff, v. SPRINGFIELD MARINE BANK; the First National Bank of Springfield; Sledge Drilling Co.; Harris Mud & Chemical, Inc.; M & M Pump & Supply, Inc.; Franz K. Fleischli III, as representative of interest holders in oil wells, Defendants. |
| Court | U.S. District Court — Central District of Illinois |
Eric L. Grenzebach and Donald Craven, Springfield, Ill., and Richard A. Stockenberg, St. Louis, Mo., for plaintiff.
John Squires, Franz K. Fleischli, III, Sorling, Northrup, Hanna, Cullin & Cochran, Stephen A. Tagge, of counsel, Springfield, Ill., for defendants.
The law favors compromise.
Did the bankruptcy judge abuse his discretion in approving the settlement?
The short answer: No.
Here, we review the bankruptcy court's approval of a settlement proposed by the trustee in bankruptcy of Heissinger Resources, Ltd. (Heissinger), a company which operated oil wells in Clay and Brown Counties in Illinois.
Heissinger filed a petition in bankruptcy under Chapter 7 of the U.S. Bankruptcy Code on April 5, 1983. Both here and in the bankruptcy court, appellants claim to have interests in the oil wells and equipment that are separate from the property of the debtor.1 Appellants claim that as parties to participation and operating agreements with the debtor, they acquired working interests in one or more of the oil wells covered by the trustee's complaint. Under the agreements, debtor was to operate the wells, sell appellants' shares, and forward their share of proceeds.
Appellee First National Bank of Springfield, which filed a proof of claim for $202,000, claims a secured interest in the debtor's equipment and accounts receivable with respect to debtor's wells. Appellee Springfield Marine Bank, which filed a proof of claim for $100,495.68, claims a secured interest in wells and undeveloped drilling sites in Clay County.
On November 14, 1984, the trustee filed an adversary proceeding seeking an order approving a settlement of these claims, and authorizing certain other actions. Franz K. Fleischli III, representing interest holders, filed an answer objecting to the complaint and appellants also filed objections. The bankruptcy court conducted hearings on those objections to the complaint but heard no evidence. On December 21, 1984, the bankruptcy court entered an order approving the agreement and authorizing the requested actions by the trustee.
The appellants filed notice of appeal challenging specific portions of the order.
The trustee's complaint — in relevant part — outlined a tentative agreement "to settle or partially settle" the claims of Springfield Marine Bank and First National Bank. The agreement provided that during the pendency of the proceeding, 50% of the net proceeds of debtor's well operations were to be paid to the interest holders of such wells, and the remaining 50% to the banks. The complaint further stated that negotiations were conducted by the representatives of the banks and interest owners of the wells, and that the settlement was regarded as favorable by the trustee, his attorney, the interest holders (represented by attorney Franz Fleischli), and attorneys representing each of the banks.2 In addition, the trustee in his complaint sought to (a) sell undeveloped drilling sites, (b) continue to operate productive wells, (c) sell trustee's interest in or effect plugging of unproductive wells, and (d) sell machinery and equipment not in productive use.
Appellants challenge four provisions of the Bankruptcy Court's December 21 order. Those provisions authorize the trustee to: (1) continue to operate productive wells in consultation with the banks and Fleischli, as representative of the interest owners of the wells; (2) to sell well machinery and equipment not in productive use free and clear of all liens and encumbrances, with the liens and encumbrances of the First National Bank to attach to the proceeds of sale subject to the reasonable costs of administration; (3) to sell his right, title and interest in unproductive wells or such wells as the trustee shall deem appropriate in consultation with the banks and Fleischli; and (4) to pay from the gross proceeds of oil production, after paying operational and administrative expenses, the balance, to be divided with 50% to go to Fleischli (as representative of the interest owners) and 50% to the banks. According to the order, payments in accordance with the schedule are to continue until the amounts claimed by the banks and their respective proofs of claim (after deduction for proceeds pursuant to authorized sales) are retired.
In this appeal, appellants claim that the bankruptcy judge erred by failing to make findings of fact and conclusions of law. They also argue that the bankruptcy court abused its discretion in approving the settlement because there was no finding that the banks' interests attached to all of the wells and equipment. In addition, they complain that there was no finding that the banks' interests have priority. Further, they claim that only the banks and the attorney for the trustee approved the settlement agreement and that a conflict of interest existed between one of the banks and the attorney for the trustee. Appellants maintain the settlement agreement is not fair and equitable, and finally, that there was no finding that appellants' interests in the wells, proceeds, or equipment was subject to the debts of the debtor or administration expenses. They also contend that the bankruptcy court treated the proceeding as a reorganization rather than a liquidation.
The central issues before this Court reduce to these: (1) was the bankruptcy court required to make findings of fact and conclusions of law? And (2) did the bankruptcy judge abuse his discretion in approving the settlement?
First, we consider whether specific findings were required. Appellants claim that Bankruptcy Rule 7052, which incorporates Fed.R.Civ.P. 52, requires the bankruptcy judge to make specific findings of fact and conclusions of law. Appellees, on the other hand, maintain that Rule 52 does not apply because there was no trial upon the facts without a jury since appellants offered no evidence. Assuming that it does apply, they argue that oral findings and conclusions are sufficient.
We think it is unnecessary for this court to delineate the record that must be made in this liquidation bankruptcy compromise proceeding. See In re Blair, 538 F.2d 849 (9th Cir.1976) (per curiam). While standards have been set as to the required factual basis for court approval of settlements involving reorganizations, we note the different purposes of liquidation and reorganization proceedings and the role of a settlement in each. As explained by the Court in In re Blair, 538 F.2d at 852:
The success or failure of a reorganization may hinge upon the very compromise at issue. A liquidation bankruptcy is a terminal affair. The bankrupt\'s financial affairs are beyond repair. Liquidation is to be accomplished as rapidly as possible consistent with obtaining the best possible realization upon the available assets and without undue waste by needless or fruitless litigation.
In re Blair, 538 F.2d 849 at 852.
In reorganization cases, the bankruptcy court is required to give the reviewing court some basis for distinguishing between "well-reasoned conclusions arrived at after a comprehensive consideration of all relevant factors," rather than "mere boiler-plate approval phrased in appropriate language but unsupported by evaluation of the facts or analysis of the law." Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 434, 88 S.Ct. 1157, 1168, 20 L.Ed. 1 (1967). The requirement that adequate information be set forth in sufficient detail to enable approval of a settlement parallels the same requirement applicable to district court consideration of settlements in class action or derivative actions pursuant to Rules 23 and 23.1 of the Federal Rules of Civil Procedure. In re Lion Capital Group, 49 B.R. 163, 176 (Bankr.S.D.N.Y., 1985); see also In the matter of Carla Leather, Inc., 44 B.R. 457, 466 (Bankr.S.D.N.Y., 1984). Its purpose, of course, is to insure that the lower court did indeed give fair consideration to each party's claim.
In light of this purpose, if the record contained "adequate facts to support the decision of the trial court to approve the proposed compromise, a reviewing court would be properly reluctant to attack that action solely because the Court failed adequately to set forth its reasons for the evidence on which they were based." In re Flight Transportation Corporation Securities Litigation, 730 F.2d 1128, 1136 (8th Cir.1984) (quoting Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 at 437, 88 S.Ct. 1157 at 1169-70). Although no specific standards are required in liquidation proceedings, and we adopt none, we believe that here the record supports the bankruptcy court's decision even under the standards set for reorganization.
While specific findings of fact by a bankruptcy judge and a clear outline of his analysis in approving the settlement are helpful, we decline to impose such a high standard. Mandating that a bankruptcy judge write a full opinion on the merits of every settlement would only serve to slow the entire process and waste scarce judicial resources. Settlement is intended to conserve such resources, and is therefore encouraged. All that is required is an indication that the Court fairly considered the merits of the compromise, and did not abuse his discretion in approving it.
Here, although the bankruptcy judge did not explicitly state his reasons for approving the settlement, his statements throughout the hearing indicate that he had...
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