In re Tidewater Group, Inc., Bankruptcy No. 79-02972A

• Citation: 13 BR 764
• Decision Date: 27 August 1981
• Docket Number: Adv. No. 79-0028A.,Bankruptcy No. 79-02972A
• Parties: In re TIDEWATER GROUP, INC., Debtor. PROVIDERS BENEFIT LIFE INSURANCE COMPANY, Plaintiff and Third-Party Plaintiff, v. TIDEWATER GROUP, INC., Debtor-in-Possession, and Stacey W. Cotton, Examiner, Defendants, and American Centennial Life Insurance Company, Third-Party Defendant.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia

13 B.R. 764 (1981)

In re TIDEWATER GROUP, INC., Debtor PROVIDERS BENEFIT LIFE INSURANCE COMPANY, Plaintiff and Third-Party Plaintiff, v. TIDEWATER GROUP, INC., Debtor-in-Possession, and Stacey W. Cotton, Examiner, Defendants and American Centennial Life Insurance Company, Third-Party Defendant.

Bankruptcy No. 79-02972A, Adv. No. 79-0028A.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

August 27, 1981.

William F. Welch, Neely, Player, Hamilton & Hines, Atlanta, Ga., for providers.

Frank W. Scroggins, Hicks & Scroggins, Atlanta, Ga., for Tidewater.

John L. Taylor, Jr., McDaniel, Chorey & Taylor, Atlanta, Ga., for American Centennial.

Stacey W. Cotton, Cotton, White & Palmer, Atlanta, Ga., for Examiner.

ORDER

W. HOMER DRAKE, Jr., Bankruptcy Judge.

This proceeding comes before the Court on the above-referenced debtor's application seeking approval of the settlement agreement entered into with Providers Benefit Life Insurance Company (hereinafter "Providers"). That settlement agreement was the result of the following facts:

1.

On or about October 30, 1979, Providers and Tidewater Group, Inc. (hereinafter "Tidewater") entered into an agreement for the purchase by Providers of 100% of the issued and outstanding capital stock of American Centennial Life Insurance Company (hereinafter "American Centennial"). The sale was confirmed by the Order of this Court dated November 1, 1979. The purchase price contained in the contract of sale was $700,000 subject to adjustment based on the deficiency in the capital and surplus account.

2.

Pursuant to the sales contract, Providers deposited $75,000 into the escrow account of Cotton, Katz, White & Palmer.

3.

On or about November 21, 1979, Providers filed a complaint against Tidewater seeking inter alia the return of the funds held in escrow. Tidewater denied the allegations in Providers' complaint and counterclaimed for damages arising from the failure of Providers to complete the confirmed sale.

4.

At some point prior to August 27, 1980, an oral agreement was reached between the attorneys for Providers and the attorneys for Tidewater. That agreement proposed to settle the aforementioned litigation on terms reduced to writing. The Order of the Court dated February 10, 1981 held that this oral agreement was sufficiently definite to be binding on the parties and that it was subject only to the approval of the Court as to its enforceability. 8 B.R. 930 (Bkrtcy.)

5.

On November 24, 1980, the Circuit Court for the City of Baltimore, Maryland, entered an order authorizing the receiver of ACLIC, the State Insurance Commissioner of Maryland (hereinafter "Commissioner"), to enter into an indemnification agreement with Tidewater. That agreement obligated the Commissioner to indemnify Tidewater for losses up to $40,000, plus accrued interest on the $75,000 now held in escrow, in order that Tidewater may pursue its claim against Providers rather than settle.

6.

Because of this indemnity agreement, Tidewater now takes the position that the settlement is not in the best interest of creditors.

Bankruptcy Rule 919 reads in relevant part that:

"(a) Compromise. On application by the trustee or receiver and after hearing on notice to the creditors as provided in Rule 203(a) and to such other persons as the court may designate, the court may approve a compromise or settlement."

The determination of whether to approve an application to compromise is a matter within the sound discretion of the bankruptcy judge. Drexel v. Loomas, 35 F.2d 800 (8th Cir. 1929); Scott v. Jones, 118 F.2d 30, 32 (10th Cir. 1941). The bankruptcy judge should exercise this discretion based on the best interest of the creditors with regard to the acceptance or rejection of a compromise. Drexel, supra, at 806. Drexel sets forth four criteria to be examined by the judge in the exercise of his discretion. They are:

"(1) the probability of success in the litigation;

(2) the difficulties, if any, to be encountered in the matter of collection;

(3) the complexity of the litigation involved, and the expense and inconvenience in delay necessarily attending it; and

(4) the paramount interest of the creditors . . . "

See also River City v. Herpel (In the Matter of Jackson Brewing Company), 624 F.2d 599 (5th Cir. 1980).

The Court has undertaken a...