Ullrich v. Welt (In re Nica Holdings, Inc.)

• Citation: 810 F.3d 781
• Decision Date: 17 December 2015
• Docket Number: No. 14–14685.,14–14685.
• Parties: In re NICA HOLDINGS, INC., Debtor. Peter Ullrich, Plaintiff–Appellant, v. Kenneth A. Welt, Leslie S. Osborne, Defendants–Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

810 F.3d 781

In re NICA HOLDINGS, INC., Debtor.

Peter Ullrich, Plaintiff–Appellant,

v.Kenneth A. Welt, Leslie S. Osborne, Defendants–Appellees.

No. 14–14685.

United States Court of Appeals, Eleventh Circuit.

Dec. 17, 2015.

Irwin R. Gilbert, Kelley Kronenberg, Robert M. Weinberger, W Palm Beach, FL, Bryan J. Yarnell, Gilbert Yarnell, Palm Beach Gardens, FL, for Plaintiff–Appellant.

Drew M. Dillworth, Kristopher Erick Pearson, Fordharrison, LLP, Melbourne, FL, James Harris Fierberg, Akerman, LLP, Miami, FL, for Defendants–Appellees.

Before ED CARNES, Chief Judge, MARTIN, Circuit Judge, and WALTER,^* District Judge.

MARTIN, Circuit Judge:

This case originated in the U.S. Bankruptcy Court. Peter Ullrich was a substantial investor in a farm that raised tilapia in Nicaragua. The fish farm failed, and we consider claims arising out of a fight for the limited assets that remain from that enterprise.

I. BACKGROUND

A. THE FAILED ABC

Nica Holdings, Inc. ("Nica") is now the debtor in the underlying bankruptcy, but it once had valuable assets. Nica held stock in Mares Nica Noruegos S.A. ("Nicanor"), the company that ran the Nicaraguan fish farm, and it owned several parcels of land associated with that operation. Mr. Ullrich and a Norwegian firm called Biotec Holdings ("Biotec") owned the remaining shares of Nicanor.

By 2007, Nica faced financial problems. As a result, Nica executed what is known as an Assignment for the Benefit of Creditors (ABC) on July 12, 2007. An ABC is a creature of state law (here Florida), which serves as an alternative to bankruptcy. To establish an ABC, one irrevocably assigns their assets to another, then the assignee in turn disposes of those assets in accordance with state law. Kenneth Welt was the assignee for Nica's ABC. He hired Tina Talarchyk of the law firm of Squire Sanders LLP¹ to assist him with the ABC liquidation.

Exactly what happened next is hotly disputed, but at least the following seems to be uncontested. During the ABC, Mr. Ullrich and Biotec independently expressed interest in acquiring control over Nicanor by purchasing its stock from Nica. Mr. Welt, as Nica's ABC assignee, executed a separate sales contract with and accepted a separate deposit from each of the aspiring buyers. Then, without court authorization, he paid himself and other ABC expenses with these deposits. Eventually, Mr. Welt did get court approval for the stock sale to Mr. Ullrich, but Biotec blocked that sale on the basis of certain corporate stock restrictions. The sale to Mr. Ullrich was never consummated. As a result of continuing uncertainty over Nicanor's future ownership, investors stopped investing and the fish farm closed operation. This rendered the Nicanor stock, Nica's primary asset in the ABC, worthless.

Someone—and there's no shortage of finger-pointing—prevented Nica's effective liquidation. Mr. Ullrich blamed Mr. Welt in a civil suit brought in state court ("the Adversary Proceeding") and separately sought his removal as Nica's ABC assignee. Mr. Welt, in turn, filed a malpractice suit against Ms. Talarchyk and Squire Sanders in state court ("the Malpractice Claim"). These two lawsuits are the only things of value Nica has left.

B. THE CHAPTER 7 BANKRUPTCY

After this rush to the courthouse was underway, Mr. Welt purported to file a voluntary Chapter 7 bankruptcy petition on Nica's behalf on September 24, 2012. He claimed that bankruptcy was "the most expeditious and effective means of administering the remaining assets of Nica" namely the litigation. Leslie Osborne was appointed trustee ("the Trustee") of Nica's bankrupt estate.

Mr. Ullrich opposed the bankruptcy from the beginning. He claimed (and continues to claim) that Mr. Welt filed the bankruptcy merely to block his removal as ABC assignee and to insulate himself from personal liability. Mr. Ullrich moved to dismiss the bankruptcy petition on October 8, 2012, claiming that Mr. Welt lacked the authority to put Nica into bankruptcy. His motion to dismiss was denied, as was his motion to take an interlocutory appeal from that denial.

C. THE ADVERSARY PROCEEDING

Mr. Ullrich's Adversary Proceeding against Mr. Welt was taken over by the Trustee and settled. First, Mr. Welt removed Mr. Ullrich's state court action to the Bankruptcy Court. Next, the Trustee claimed the Adversary Proceeding as an asset of the estate and intervened as sole plaintiff. Finally, the Trustee moved to settle it ("the Adversary Settlement").

For our purposes, we consider the following terms of the Adversary Settlement: In exchange for (1) control over the Malpractice Claim litigation and recovery, (2) the subordination of Mr. Welt's administrative claims against Nica, and (3) Mr. Welt's partially reimbursable funding of the Malpractice Claim litigation, Mr. Welt would receive a bar order granting him complete personal immunity from pre-petition liability.² Effectively, the Adversary Settlement shut down the Adversary Proceeding against Mr. Welt in favor of pursuing the Malpractice Claim against Ms. Talarchyk and Squire Sanders.

Mr. Ullrich believes this was an improper maneuver that harmed the estate. He objected to the Adversary Settlement, advancing many of the same arguments he raises now. Several days later, he also filed what he called a competing settlement offer under 11 U.S.C. § 363(b)(1) ("the Competing Settlement Offer"). In the Competing Settlement Offer, Mr. Ullrich offered to (1) litigate the Adversary Proceeding, including paying (partially reimbursable) fees, and (2) litigate the Malpractice Claim jointly with the Trustee (but not on behalf of Mr. Welt), in exchange for (1) barring Mr. Welt's administrative claims, (2) giving Mr. Ullrich priority recovery on some claims, and (3) entering a bar order in Mr. Ullrich's favor. Effectively, the Competing Settlement Offer contemplated pursuing both lawsuits but giving Mr. Ullrich some control over them and some additional reward from them.

D. THE SETTLEMENT HEARING AND APPROVAL

On July 15, 2013, the Bankruptcy Court held a hearing on the Adversary Settlement and Mr. Ullrich's objections to it. The court ruled, with little analysis, that the Trustee accepted the Adversary Settlement through "the exercise of business judgment," which "should be upheld." Specifically, the Bankruptcy Court reasoned that the Adversary Settlement was "in the best interest of the estate and of the creditors generally." The agreement also subordinated Mr. Welt's administrative claims and did not release him from liability in his capacity as ABC assignee. The Bankruptcy Court did not discuss the Competing Settlement Offer. Two weeks later, the court issued a summary order granting the Trustee's motion to proceed with the Adversary Settlement and entered a bar order in favor of Mr. Welt personally. Nica's creditors got no payout as a result of the Adversary Settlement. The Adversary Proceeding was later dismissed with prejudice.

Mr. Ullrich appealed the Bankruptcy Court's ruling to the District Court. He argued that the Bankruptcy Court erred by failing to treat the Adversary Settlement as an asset sale under 11 U.S.C. § 363 —which would require review of competing bids—and by failing to treat the Competing Settlement Offer as a competing bid. The District Court rejected Mr. Ullrich's arguments, and affirmed the ruling of the Bankruptcy Court. It found that the Bankruptcy Court had evaluated the Adversary Settlement according to the proper factors, even though it had not explicitly discussed the application of each. Mr. Ullrich timely filed this appeal.

E. THE MALPRACTICE CLAIM SETTLEMENT

Shortly before the District Court affirmed the Bankruptcy Court's approval of the Adversary Settlement, the Trustee separately moved the Bankruptcy Court to settle the Malpractice Claim ("the Malpractice Settlement").³ Once again relying on his "business judgment," the Trustee proposed a settlement that would impact the estate as follows: (1) Squire Sanders would pay $210,000 to the estate; (2) the estate would keep Mr. Welt's $50,000 contribution toward fees (pursuant to the Adversary Settlement); and (3) Squire Sanders would waive any claims it had against the estate. Mr. Ullrich quickly moved to stay the Malpractice Settlement and "all proceedings in this Court" due to his concern about equitable mootness if things went forward. The Bankruptcy Court denied his motion for a stay.

Mr. Ullrich then objected to the Malpractice Settlement, arguing that the lawsuit was being prematurely settled as well as undervalued, and that the settlement would net little or nothing for Nica's creditors. He also renewed his request for a stay. Once again, when the Bankruptcy Court held a hearing on the Malpractice Settlement, Mr. Ullrich orally moved for a stay. The Bankruptcy Court did not stay the proceedings and it approved the Malpractice Settlement.

Mr. Ullrich persisted. After being told in the written order following the hearing that his oral motion was premature, Mr. Ullrich filed another motion for stay pending appeal. This time the Trustee opposed it, arguing that Mr. Ullrich was actually too late, because the parties already consummated the Malpractice Settlement "[i]mmediately following the Court's oral ruling." After a hearing, the Bankruptcy Court denied Mr. Ullrich's motion for a stay. Squire Sanders has paid the estate and the estate has retained Mr. Welt's fee contribution under the terms of the Malpractice Settlement, but none of the creditors has been paid anything.

II. STANDARD OF REVIEW

In bankruptcy appeals, we act as a second court of review, independently examining the decisions of the Bankruptcy Court and applying the same standards as the District Court. Brown v. Gore (In re Brown), 742 F.3d 1309, 1315 (11th Cir.2014). When the District Court affirms a Bankruptcy Court's order, as here, we consider the Bankruptcy Court's decision directly, reviewing factfindings for clear error and legal conclusions de novo. Id. Questions concerning a court's subject matter jurisdiction...