In re High Tech Packaging, Inc.

• Decision Date: 31 October 2008
• Docket Number: No. 08-32520.,08-32520.
• Citation: 397 B.R. 369
• Parties: In re HIGH TECH PACKAGING, INC., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

Page 369

397 B.R. 369

In re HIGH TECH PACKAGING, INC., Debtor.

No. 08-32520.

United States Bankruptcy Court, N.D. Ohio.

October 31, 2008.

High Tech Packaging, Inc., Toledo, OH, pro se.

Krista A. Jackson, Lynn M. Brimer, Strobl & Sharp, P.C., Bloomfield Hills, MI, for Petitioning Creditor.

Kurt J. Lindower, Hunter & Schank, Thomas J. Schank, Toledo, OH, for Trustee.

DECISION AND ORDER

RICHARD L. SPEER, Bankruptcy Judge.

Before this Court is the Motion of the Trustee for Authority and Notice of Intent to Compromise. (Doc. No. 60). Against this Motion, High Tech Properties, Inc. and Robert F. Hadley Jr., creditors of the Debtor and guarantors of obligations owing by the Debtor, filed a Limited Objection to the Trustee's Motion to Compromise. (Doc. No. 63). A Response to this Objection was then filed by the Trustee (Doc. No. 76), and Creditors, Accord Financial, Inc., (Doc. No. 75), and I.B.C., Inc. (Doc. No. 74). On October 29, 2008, a Hearing was held on this matter. At the conclusion of the Hearing, the Court took the matter under advisement so as to afford the opportunity to further consider the issues raised by the Parties. The Court has now had this opportunity, and finds, for the reasons explained herein, that the Trustee's Motion should be Granted.

FACTS

The circumstances underlying the Trustee's Motion to Compromise are as follows:

On May 15, 2008, an involuntary petition under Chapter 7 of the United States Bankruptcy Code was filed against the Debtor, High Tech Packaging, Inc. (Doc. No. 1).

On June 9, 2008, this Court adjudicated High Tech Packaging a debtor. (Doc. No. 8). John N. Graham was thereafter appointed the Chapter 7 bankruptcy trustee.

On June 23, 2008, Chrysler Motors LLC, filed a Motion for Relief from Stay and an Ex Parte Motion for an Expedited Hearing. (Doc. No. 16 & 17). These Motions were based upon the Debtor's possession of certain parts owned by Chrysler which the Debtor had failed to package and ship under an agreement with Chrysler.

The Debtor listed as an asset an accounts receivable claim against Chrysler Motors in the amount of $1,900,000.00. Based upon an earlier extension of credit, Accord Financial, Inc. asserted a secured claim in this account receivable.

On February 28, 2008, I.B.C., Inc., the landlord for the Debtor's business, filed an action in state court seeking unpaid rents and damages in the amount of $220,237.75. Asserting a lien over all property in the leased premises, I.B.C. filed a motion in the state-court case to "Deposit Chrysler's Funds with the Lucas County Clerk of Courts to Secure Payment of Judgment." By way of this Motion, I.B.C. sought to secure payment of the amount of monies owed by the Debtor under their lease agreement. This Motion was filed 12 days after the involuntary petition had been filed against the Debtor. An order was subsequently entered wherein $221,000.00 of the funds owed by Chrysler to the Debtor were deposited in an escrow account to secure payment to I.B.C. Chrysler, in turn, was allowed to gain access to its property.

On July 25, 2008, an adversary proceeding was commenced by the Trustee to remove to this Court the litigation pending in the above state-court action. (Doc. No. 39).

DISCUSSION

Claims held by a debtor are property of the estate, subject to administration by the bankruptcy trustee. Demczyk v. The Mutual Life Ins. Co. of New York (In re Graham Square, Inc.), 126 F.3d 823, 831 (6th Cir.1997). Where a claim held by a debtor is not liquidated or is disputed, litigation may be necessary to resolve the claim. Litigation, however, can be costly and impose a burden on the estate. The law, thus, encourages settlements. See, e.g., Williams v. First Nat'l Bank, 216 U.S. 582, 595, 30 S.Ct. 441, 54 L.Ed. 625 (1910) ("Compromises of disputed claims are favored by the courts. . . .").

To facilitate settlements in bankruptcy, Bankruptcy Rule 9019 authorizes a trustee to compromise a claim, providing:

(a) Compromise

On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement. Notice shall be given to creditors, the United States trustee, the debtor, and indenture trustees as provided in Rule 2002 and to any other entity as the court may direct.

As the determination of whether the compromise of a claim held by the estate directly involves the administration of estate property, a motion brought under Bankruptcy Rule 9019 is a core proceeding over which this Court has jurisdiction to enter final orders and judgments. 28 U.S.C. § 157.

The overall question, underlying a court's approval of a Rule 9019(a) motion to compromise, is whether the agreement is both fair and equitable, and in the best interest of the estate. Olson v. Anderson (In re Anderson), 377 B.R. 865, 868 (6th Cir. BAP 2007); In re Bell & Beckwith, 93 B.R. 569, 574 (Bankr.N.D.Ohio 1988). In making this determination, the Supreme Court has instructed that the bankruptcy court is charged with an affirmative obligation to apprise itself "of all facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should the claim be litigated." 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). The Court then further explained that "the judge should form an educated estimate of the complexity, expense, and likely duration of such litigation, the possible difficulties of collecting on any judgment which might be obtained, and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise." Id.

These directives from the Supreme Court have been interpreted to mean that the following considerations are to be evaluated when assessing a motion to compromise: (a) The probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views. In re Fishell, 47 F.3d 1168, 1995 WL 66622 (6th Cir.1995); Bard v. Sicherman (In re Bard), 49 Fed.Appx. 528, 530 (6th Cir.2002). The trustee has the burden to establish that a motion to compromise is appropriate with respect to these considerations. In re Del Grosso, 106 B.R. 165, 168 (Bankr.N.D.I11.1989).

Regarding the Trustee's burden, the facts in this case show that the settlement reached by the Trustee confers a significant benefit to the estate. Of primary importance, in the absence of a settlement, the Trustee, to recover on the Debtor's accounts receivable, would have been required to pursue the estate's claim against Chrysler, a course which was likely to consume significant resources given possible defenses and offsets available to Chrysler. Instead, the compromise expeditiously resolved the matter with Chrysler, with the estate gaining the following benefits:

Chrysler paid on its account receivable the amount of $1,103.682.00. Chrysler assigned the right to the $221,000.00 escrow account to the Trustee.

Chrysler released any claims against the estate, presumptively resolving the Motion for Relief from Stay filed by Chrysler.

Chrysler agreed not to make any claim in this bankruptcy case.

The settlement made explicit that the estate would receive the full benefits of all sums already paid by Chrysler.

Similarly, litigation between Accord, I.B.C. and the Trustee would have been necessary to resolve the proper disposition of the funds paid by Chrysler as well as to those funds held in escrow. The settlement put forth by the Trustee again eliminates the need to pursue such potentially costly and lengthy litigation, providing importantly a tangible benefit to the estate.

First, regarding I.B.C, the terms of the Trustee's proposed settlement provide that any secured claim held I.B.C. on account of a landlord's lien would be reduced by the sums and assets received ($142,000.00) and converted to or stipulated as an unsecured claim. As a result, the Trustee was given immediate access to, and subsequently was able to sell certain packaging inventory that was held by I.B.C. under its putative landlord's lien. The estate also received the value of other assets held by I.B.C., totaling $17,000.00, saving the estate potential costs for removal and storage. In addition, the terms of the settlement eliminated the need for further litigation in the state-court case removed to this Court.

Finally, regarding potential litigation with Accord, the settlement provided that Accord would release its secured claims against the sum paid by Chrysler, $1,103,682.00, as well as its claim for $221,000.00 against the escrow account claim by I.B.C, in exchange for a $1,003,682 distribution, thereby allowing the estate to retain...