In re Plassein Intern. Corp.
| Decision Date | 17 October 2007 |
| Docket Number | No. 03-11489 (KG).,03-11489 (KG). |
| Citation | 377 B.R. 126 |
| Parties | In re PLASSEIN INTERNATIONAL CORPORATION, et al., (n/k/a PL Liquidation Corp.), Debtors. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Kerri K. Mumford, Adam G. Landis, Landis Rath & Cobb LLP, Richard H. Cross, Jr., Cross & Simon, LLC, Wilmington, DE, for Debtors.
The Court has been asked to resolve a dispute involving the interpretation of a settlement agreement which the Court previously approved. The decision will determine the funds available for distribution to creditors.
Plassein International Corp. and affiliated companies ("Debtors" or "Estate")3 filed these cases in May 2003. In connection with the filing, Debtors filed a motion to sell substantially all of their assets to Exopack-Ontario, Inc. ("Exopack"). Fleet Capital Corporation, as agent for a group of lenders ("Fleet")4 agreed to finance the Debtors during their Chapter 11 proceedings to effectuate the sale to Exopack.5 Consummating a sale with Exopack was difficult and highly contentious, with numerous revisions to the Purchase and Sale Agreement ("APA"), resulting in a substantial reduction in the purchase price from approximately $60,000,000 to approximately $20,000,000. Ultimately, in September 2003, the Court entered an Order approving the sale to Exopack and authorizing the Debtors to pay all of the proceeds of the sale to Fleet. [Docket No. 635]. In October 2003, the cases were converted to cases under Chapter 7, and the Court appointed an interim trustee. [Docket No. 729]. The Estate was administratively insolvent. Fleet was asserting a priority administrative claim in the approximate amount of $16,000,000, and there were unpaid Chapter 11 professional fees aggregating almost $3,000,000. [Affidavit of William A. Brandt, Jr., Trustee, dated July 24, 2007] ("Trustee Affidavit"), ¶ 2. [Docket No. 1632]
In December 2003, the creditors elected William A. Brandt, Jr., as Trustee. His election was disputed, and the Court resolved the disputed election by Order, dated February 4, 2004, confirming the election [Docket No. 915]. The Trustee inherited a bitter dispute among Fleet, the Estate and the Estate's professionals over the amount of Chapter 11 professional fees and whether the proceeds of the sale paid to Fleet could be surcharged for the professional fees. [Trustee Affidavit ¶ 3]. In addition, the purchaser, Exopack, was making claims ("the Exopack Claim") under the APA for alleged breaches of various representations and warranties and was asserting a claim to certain proceeds of the sale that were held in escrow and additional claims for damages above the holdback against the Estate and Fleet. [Docket No. 1028; Trustee Affidavit ¶ 2].
Upon his appointment, the Trustee assumed the obligation to pursue the Section 506(c) claim against Fleet and to resolve the professional fees disputes. Ultimately, the Trustee, through mediation, resolved the objections to fees and the Section 506(c) claim relating to those fees. Through the Trustee's efforts, a compromise was reached whereby the professionals agreed to certain reductions in their fees and Fleet agreed to pay those fees from the proceeds of the sale. [Trustee Affidavit ¶ 3]. The Trustee then addressed the Exopack Claim, and negotiated a compromise among the Estate, Exopack and Fleet whereby Exopack released certain claims against Fleet, and the Estate and Fleet released certain of the holdback funds to Exopack. When Exopack refused to honor its obligations under the settlement terms to pay certain taxes, the Trustee commenced an adversary proceeding.6 The parties settled the adversary proceeding with Exopack paying the Trustee the amount due for taxes, thereby enabling the Trustee to pay all outstanding taxes. Fleet compensated the Trustee in the sum of $50,000 for his expenses in obtaining the recovery from Exopack.
Having resolved the unpaid professional fees issues and the Exopack Claim, the Trustee then entered into discussions with Fleet to resolve the Trustee's potential claims against Fleet, including a claim that Fleet's liens could be avoided as fraudulent conveyances. Those negotiations ultimately resulted in the settlement agreement that is the subject matter of the present dispute. See infra, at pp. 130-32.
On January 23, 2007, the Trustee filed a motion seeking authority to make an interim distribution to creditors other than Fleet ("Interim Distribution Motion") [D.I. 1557], which proposed to pay the expenses of administration and to make an interim distribution to unsecured creditors. On February 21, 2007, Fleet filed an objection to the Interim Distribution Motion ("Objection") [D.I. 1573]. In addition, Fleet filed a Motion to Compel Trustee to Perform Under the Settlement Agreement ("Motion to Compel") [D.I. 1574]. On March 14, 2007, the Trustee and the Agent entered into a Consent Order, partially resolving the Motion to Compel, pursuant to which the Trustee paid Fleet $1 million and Fleet adjourned the Motion to Compel. [D.I. 1595].
At the time the cases were converted, several contested matters and adversary proceedings were pending against Fleet. On March 3, 2005, all of the pending matters were settled pursuant to a settlement agreement between the Trustee and Fleet ("Settlement Agreement") which the Court approved. [D.I. 1132]. The Settlement Agreement provided that Fleet waive its priority administrative claim, waive any secured claim, and the Estate agreed to grant Fleet an allowed unsecured claim of $23,675,045.65. Fleet further agreed to pay the Estate the sum of $3,100,000 and waive any right to any distribution as an unsecured creditor from the $3,100,0007 paid, plus waive any right to a distribution from the first $1.1 million of preference recoveries. [Settlement Agreement ¶ 4(b)]. In exchange and after it received the $1.1 million, the Estate agreed to pay Fleet any net recoveries up to $3,100,000,8 and then share equally any subsequent net recoveries above $3.1 million.
The relevant provisions of the Settlement Agreement are as follows:
Scope of Settlement. [T]his [Settlement] Agreement is intended to globally settle with prejudice any and all claims (pre-petition and post-petition) the Trustee and the Debtors' estates have or may have.... Without limiting the generality of the foregoing, this [Settlement] Agreement will completely resolve and be deemed as a settlement with prejudice of ... claims for ... the liquidation, collection and disbursement of other estate assets, No further claims can be asserted, whether direct or indirect, against any or all of Agent, Lenders and Heller, their respective professionals and advisors, or against any proceeds received by any of them from any Plassein entity, and/or any representative thereof.9
Settlement Payment. Lenders shall pay to the Trustee the amount of Three Million and 00/100 Dollars ($3,000,000.00) and Heller shall pay to the Trustee the amount of One Hundred Thousand and 00/100 Dollars ($100,000.00) in cash upon approval of the Agreement by the Court by a final order (together, the "Settlement Payment").
Distribution of Estate Property. Distribution of property of the Debtors' estates by the Trustee shall be as follows:
a. the Settlement Payment plus any amounts to be retained by the Debtors' estates described in Paragraphs 4.b, 4.c, 4.d, 4.e and 13.d below shall be used to pay allowed administrative claims of the Debtors' estates and creditors other than the Lenders and Heller in the order of priority pursuant to Bankruptcy Code § 726 or other order of the Court that is not inconsistent herewith;
b. up to One Million One Hundred Thousand and 00/100 Dollars ($1,100,000.00) of gross preference recoveries pursuant to Bankruptcy Code §§ 547 and 550 shall be distributed to creditors of the Debtors' estates other than Lenders and Heller in the order of priority pursuant to Bankruptcy Code § 726 or other order of this Court that is not inconsistent herewith. Gross preference recoveries in excess of $1,100,000.00 shall be distributed to the Lenders pursuant to 4(c) below;
c. subject to 4(a) and above, the Agent on behalf of the Lenders shall receive the sum of Three Million One Hundred Thousand and 00/100 Dollars ($3,100,000.00) of net recoveries from any source. Recoveries by the Trustee in excess of the amount payable to the Lenders in accordance with the sub-section (c) shall be distributed to creditors of the Debtors' estates and to the Lenders as provided below;
d. after the Lenders have received the sum of Three Million One Hundred Thousand and 00/100 Dollars ($3,100,000.00) (and subject to 4(b) above), except as provided in paragraph 4(g) hereof, all further net recoveries (funds available for distribution to creditors pursuant to Bankruptcy Code § 726(a)(2)) shall be divided and distributed by the Trustee 50% to the Lenders and the remaining 50% to the creditors of the Debtors' estates other than Lenders and Heller, or in accordance with other order of the Court that is not inconsistent herewith; and
e. once allowed claims of unsecured creditors of the Debtors, other than the Lenders' and Heller, are paid in full, including, without limitation, the allowed claims of the Senior Sub-Debt and Junior Sub-Debt, as defined below, the balance of any funds available for distribution pursuant to Bankruptcy Code § 726(a)(2) shall be paid to the Lenders. Conversely, once the Lenders' Allowed Unsecured Claim, and Heller Unsecured Claim, both as defined below, are paid in full, any funds available for distribution pursuant to Bankruptcy Code § 726(a)(2) shall be distributed to allowed claims of the other unsecured creditors until paid in full, and then to equity.
Fleet paid $3.1 million to the Trustee, constituting the full Settlement Payment. As a result of the...
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