In re Trism, Inc., 02-6012 WM.

Citation282 B.R. 662
Decision Date13 September 2002
Docket NumberNo. 02-6012 WM.,02-6012 WM.
PartiesIn re TRISM, INC., et al., Debtors. ReGen Capital III, Inc., Appellant, v. Official Committee of Unsecured Creditors, Appellee.
CourtBankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Eighth Circuit

Michael L. Wild, argued, Wilmington, DE (Christopher, P. Simon, on brief, Wilmington, DE), for appellant.

Nicholas A. Franke, argued, St. Louis, MO (Daniel D. Doyle, St. Louis, MO, Scott J. Goldstein, Kansas City, MO, Lisa A. Epps, Kansas City, MO, on brief), for appellee.

Before KRESSEL, SCHERMER and DREHER, Bankruptcy Judges.

SCHERMER, Bankruptcy Judge.

ReGen Capital III, Inc. ("ReGen") appeals the bankruptcy court order approving a stipulation between ReGen and Trism, Inc. and its affiliated debtors ("Missouri Debtors") and sustaining the objection of the Official Committee of Unsecured Creditors ("Committee") to such stipulation. We have jurisdiction over this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below, we reverse and remand.

ISSUE

The issue on appeal is whether the bankruptcy court erred in approving a compromise pursuant to Federal Rule of Bankruptcy Procedure 9019 while sustaining an objection to such compromise. We conclude that the bankruptcy court erred in sustaining an objection to the compromise yet approving it. We remand for approval or disapproval of the compromise after analysis of its reasonableness under the four-prong test set forth in In re Flight Transp. Corp. Sec. Litig., 730 F.2d 1128, 1135-36 (8th Cir.1984), cert denied sub nom. Reavis & McGrath v. Antinore, 469 U.S. 1207, 105 S.Ct. 1169, 84 L.Ed.2d 320 (1985).

BACKGROUND

On September 16, 1999, ten of the Missouri Debtors (the "Delaware Debtors") filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy Court"). On November 16, 1999, AT & T filed an unsecured proof of claim in the amount of $703,689.05. ReGen is the assignee of the AT & T claim. On December 9, 1999, the Delaware Bankruptcy Court entered its order confirming the Delaware Debtors' Second Amended Plan of Reorganization which provided that non-priority unsecured claims, including the ReGen claim, were unimpaired by the Plan.

The Delaware Debtors failed to make payments on account of the ReGen claim as required by the confirmed plan. On December 13, 2000, ReGen filed a motion to compel such payments. The motion to compel and the Delaware Debtors' objection thereto were settled pursuant to a stipulation and order approved by the Delaware Bankruptcy Court on March 20, 2001. Pursuant to the stipulation and order, the Delaware Debtors were required to make payments to ReGen. In the event the Delaware Debtors failed to make a required payment when due, the Delaware Debtors authorized ReGen to confess judgment against the Delaware Debtors for the unpaid amount of the debt plus interest and attorneys' fees.

The Delaware Debtors made the first payment due under the stipulation but failed to make any subsequent payments. On May 2, 2001, ReGen commenced proceedings in the Superior Court of the State of Delaware in and for New Castle County (the "Delaware State Court") for a judgment in accordance with the stipulation as a result of the Delaware Debtors' failure to make the required payments. On June 1, 2001, the Delaware State Court entered judgment (the "Judgment") in favor of ReGen and against the Delaware Debtors. Upon entry of the Judgment, ReGen registered the Judgment in those jurisdictions where assets of the Delaware Debtors were located, resulting in the creation of liens on such assets.

In addition to obtaining the Judgment, ReGen filed a motion to compel compliance with the stipulation and order ("Motion to Compel") with the Delaware Bankruptcy Court. On October 4, 2001, the Delaware Bankruptcy Court entered an order granting the motion and directing the Delaware Debtors to pay ReGen all amounts due under the stipulation and order within three business days and to pay ReGen's attorneys' fees and costs associated with the motion. The Delaware Debtors failed to make such payment.

On November 13, 2001, ReGen filed a motion to hold the Delaware Debtors in contempt (the "Contempt Motion"). While such motion was pending before the Delaware Bankruptcy Court, the Missouri Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of Missouri (the "Missouri Bankruptcy Court") on December 18, 2001. The same day the Delaware Debtors filed a motion ("Rule 1014 Motion") with the Delaware Bankruptcy Court under Federal Rule of Bankruptcy Procedure 1014(b) seeking a determination that the bankruptcy proceedings should proceed in the Missouri Bankruptcy Court. ReGen objected to such motion. A hearing on the Contempt Motion and the Rule 1014 Motion was scheduled before the Delaware Bankruptcy Court on January 4, 2002.

Notwithstanding the motions pending in the Delaware Bankruptcy Court, the Missouri Debtors and ReGen entered into a stipulation (the "Stipulation") subject to the approval of the Missouri Bankruptcy Court pursuant to which the parties stipulated, inter alia, that ReGen holds an allowed claim in the amount of $434,954.59 plus interest and attorneys' fees (the "Allowed Claim"); that the Missouri Debtors acknowledge that the Allowed Claim is secured by valid liens on certain property; that upon the Stipulation becoming final and non-appealable, ReGen shall be entitled to payment of the full amount of the Allowed Claim from the proceeds of the anticipated sale of the Missouri Debtors' assets to the extent of the value of its valid liens; that the Stipulation shall be served on all creditors and parties in interest and any creditor or party in interest who fails to object to the Stipulation or whose objection is overruled shall be bound by the terms of the Stipulation; that ReGen shall withdraw its objection to the Rule 1014 Motion; that ReGen shall withdraw the Contempt Motion; that ReGen shall support the Missouri Debtors' efforts to seek approval of and consummate a sale of assets as soon as possible; and that upon the approval of the Stipulation on a final and non-appealable basis, the Missouri Debtors and their successors and assigns on the one hand and ReGen and its successors and assigns on the other hand each fully releases and discharges the other from and against any claim, right, or cause of action arising in, arising out of, or related to the Delaware bankruptcy case or the Missouri bankruptcy case that arose or accrued prior to the date of the Stipulation.

At the January 4, 2002, hearing before the Delaware Bankruptcy Court, counsel for the Debtors and for ReGen announced the terms of the Stipulation on the record. Counsel for the Committee participated in that hearing by telephone.

On January 7, 2002, the Missouri Debtors filed a motion with the Missouri Bankruptcy Court pursuant to Federal Rule of Bankruptcy Procedure 9019 (the "Rule 9019 Motion") seeking approval of the Stipulation. A hearing on the Rule 9019 Motion was set for January 30, 2002. The Missouri Debtors also filed a motion to sell substantially all of their assets (the "Sale Motion") which was set for hearing on January 30, 2002.

On January 28, 2002, the Committee filed an objection to the Rule 9019 Motion wherein the Committee attempted to reserve its right to object to ReGen's claim for interest and attorneys' fees and to object to the validity of ReGen's liens.

On January 30, 2002, the Missouri Bankruptcy Court held a hearing on the Rule 9019 Motion and on the Sale Motion. The Missouri Bankruptcy Court orally approved the Stipulation and sustained the Committee's objection to the Rule 9019 Motion. The Missouri Bankruptcy Court approved the Sale Motion later that same day. The Missouri Bankruptcy Court subsequently entered an order approving the Stipulation and sustaining the Committee's objection to the extent the Stipulation attempts to bind the Committee. The order expressly provides that "neither the [Rule 9019 Motion] nor the Stipulation are binding on the Committee. Nothing in this Order shall restrict the Committee's ability to object to the allowance, extent and priority of ReGen's alleged judgment liens (the `Liens'), including the avoidability of the Liens, on certain of Debtors' real property." ReGen appeals this order.

STANDARD OF REVIEW

A decision to approve or disapprove a proposed settlement under Bankruptcy Rule 9019 is within the discretion of the bankruptcy judge. In re Flight Transp. Corp. Sec. Litig., 730 F.2d 1128, 1135-36 (8th Cir.1984), cert denied sub nom. Reavis & McGrath v. Antinore, 469 U.S. 1207, 105 S.Ct. 1169, 84 L.Ed.2d 320 (1985); TCF Banking & Sav. v. Leonard (In re Erickson), 82 B.R. 97, 99 (D.Minn.1987). Consequently, we review the Missouri Bankruptcy Court's order for an abuse of discretion. Erickson, 82 B.R. at 99. An abuse of discretion occurs if the court bases its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 2461, 110 L.Ed.2d 359 (1990).

DISCUSSION

In exercising its discretion to approve a proposed settlement under Bankruptcy Rule 9019, a court must weigh four factors bearing on the reasonableness of the settlement: (1) the likelihood of success in the litigation; (2) the difficulties, if any, in collection matters; (3) the complexity of the litigation and the attendant expense, inconvenience, and delay; and (4) the paramount interest of the creditors and a proper deference to their reasonable views. Flight Transp., 730 F.2d at 1135; Erickson, 82 B.R. at 99. Once the bankruptcy court has determined and weighed such factors, it must either approve or refuse to...

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