In re McInerney

• Decision Date: 24 December 2014
• Docket Number: No. 11–58953.,11–58953.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan
• Parties: In re Michael E. McINERNEY, Debtor.

528 B.R. 684

In re Michael E. McINERNEY, Debtor.

No. 11–58953.

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

Signed Dec. 24, 2014.

528 B.R. 686

Elias Xenos Birmingham, MI, for Debtor.

Anthony J. Kochis, Troy, MI, for Chapter 7 Trustee.

Robert A. Puerach, Northville, MI, for Bush Seyferth & Page, PLLC.

S. Thomas Padgett, Farmington Hills, MI, for James Dales and Stephen Wheeler.

Mark H. Shapiro, Southfield, MI, for Alan T. Ackerman, Ackerman & Ackerman, P.C., Ackerman and Ackerman, P.C. Profit Sharing Trust.

OPINION REGARDING THE CHAPTER 7 TRUSTEE'S MOTION FOR APPROVAL OF SETTLEMENT WITH THE ACKERMAN DEFENDANTS

THOMAS J. TUCKER, Bankruptcy Judge.

I. Introduction

The dispute now before the Court in this case requires consideration of Michigan law concerning the amount of a fee to be paid, on the basis of quantum meruit, to an attorney who did substantial work on a commercial lawsuit on a contingent-fee basis, but who was terminated and replaced by successor counsel who later settled the case.

This case is before the Court on the Chapter 7 Trustee's motion entitled “Chapter 7 Trustee's Motion Pursuant to Fed. R. Bankr.P. 9019 Authorizing and Approving Settlement Agreement By and Between Chapter 7 Trustee and Ackerman Defendants”¹ The Motion seeks to compromise various claims that the Chapter 7 Trustee has asserted in Adversary Proceeding No. 13–5292, against Alan T. Ackerman; Ackerman & Ackerman, P.C.; and Ackerman and Ackerman, P.C. Profit Sharing Trust, etc. (the “Ackerman Defendants”). Three creditors holding non-priority unsecured claims have objected to the Motion. The objecting creditors are Bush Seyferth & Paige, PLLC (the “Bush Seyferth firm”); James Dales; and Stephen Wheeler.

The Court held a hearing on the Motion on November 19, 2014, and took it under advisement. For the reasons stated in this opinion, the Court will deny the Motion.

II. Discussion

The Court previously issued two written opinions in this bankruptcy case regarding other proposed settlements. The Court will begin by adopting, as part of this opinion, what it stated in its first settlement opinion, regarding subject matter jurisdiction; core vs. non-core proceeding; and standards governing motions to approve a settlement.

A. Jurisdiction and core proceeding

As the Court stated in the first settlement opinion,

This Court has subject matter jurisdiction over the case and this contested

528 B.R. 687

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 (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.

In re McInerney, 499 B.R. 574, 580–81 (Bankr.E.D.Mich.2013).

B. Standards governing settlement motions

As the Court also stated in its first settlement opinion,

“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) (“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’ ”); and 10 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

528 B.R. 688

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 conflicting 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.”Bauer v. Commerce Union Bank, 859 F.2d 438, 441 (6th Cir.1988) (citation omitted). “A bankruptcy judge need not conduct a mini-trial or write an extensive opinion every time he approves or disapproves a settlement. The judge need only be apprised of the relevant facts and law so that he can make an informed and intelligent decision and set out the reasons for that decision.” Fishell v. Soltow (In re Fishell ), 47 F.3d 1168, 1995 WL 66622, at *3 (6th Cir. Feb. 16, 1995) (unpublished table decision) (quoting LaSalle Nat'l Bank v. Holland (In re Am. Reserve Corp. ), 841 F.2d 159, 163 (7th Cir.1987) ); see also TMT Trailer Ferry, 390 U.S. at 437, 88 S.Ct. 1157, 20 L.Ed.2d 1 (holding that bankruptcy court must have the facts in order to make an informed and independent decision).

Although published Sixth Circuit case law on Rule 9019 settlements is relatively sparse, in unpublished decisions the Court of Appeals and Bankruptcy Appellate Panel have consistently reaffirmed their adherence to the “fair and equitable” standard. See Lyndon Prop. Ins. Co. v. Katz, 196 Fed.Appx. 383, 387 (6th Cir.2006) ; Bard v. Sicherman (In re Bard ), 49 Fed.Appx. 528, 530 (6th Cir.2002) ; In re Fishell, 47 F.3d 1168, 1995

...