FILED
NOV 8 2022
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-22-1026-TSG
TBH19, LLC,
Debtor. Bk. No. 2:19-bk-23823-VZ
HAR-BD, LLC; HAR, LLC; HARVEY
BOOKSTEIN,
Appellants,
v. MEMORANDUM*
SAM S. LESLIE, Chapter 7 Trustee;
GLORYA KAUFMAN, Individually and
as Special Trustee of the Glorya Kaufman
Trust, Dated 3-13-92,
Appellees.
Appeal from the United States Bankruptcy Court
for the Central District of California
Vincent Zurzolo, Bankruptcy Judge, Presiding
Before: TAYLOR, SPRAKER, and GAN, Bankruptcy Judges.
INTRODUCTION
Appellants HAR-BD, LLC, HAR, LLC, and Harvey Bookstein
(“Appellants”) appeal from the bankruptcy court’s order approving the
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
chapter 71 Trustee’s settlement with another creditor, Glorya Kaufman,
individually and as trustee of her trust (the “Kaufman Settlement”). The
Kaufman Settlement provided for mutual dismissals and releases in state
court litigation and allowed Ms. Kaufman an approximately $17.7 million
claim (the “Kaufman Claim”). This allowed claim includes amounts related
to Debtor’s obligation to indemnify her for payments on a guaranty of
Debtor’s debt to DBD Credit Funding (“DBD”).
Before approval of the Kaufman Settlement, the Trustee settled with
and paid DBD (the “DBD Settlement”). This settlement limited, but did not
eliminate, Ms. Kaufman’s guarantor obligation, and she continued
litigation with DBD seeking to entirely avoid her obligations. She has not
been successful. After the bankruptcy court approved the Kaufman
Settlement and after the parties submitted their appellate briefing, the state
court referee issued a decision in DBD’s favor.
Appellants objected to the Kaufman Settlement, argued their view
should be provided deference, and offered to litigate the claim objection to
the Kaufman Claim. They did not raise § 502(e) but rather argued that,
while the indemnity amount could be estimated under § 502(c), it should
not be estimated until the conclusion of the Kaufman-DBD trial.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code,
11 U.S.C. §§ 101–1532, and all “Rule” references are to the Federal
Rules of Bankruptcy Procedure.
2
On appeal, Appellants argue for the first time that the Kaufman
Claim should have been disallowed under § 502(e)(1)(B). They further
argue that the bankruptcy court erred by failing to properly analyze the
factors required to approve a Rule 9019 motion, including the role of
§ 502(e) in the analysis, and that the bankruptcy court failed to
appropriately consider their offer to litigate the claim objection.
We find that Appellants failed to raise the § 502(e) issue in
bankruptcy court and waived the issue. Further, if we consider the issue as
a matter of law, we find that § 502(e) did not apply because the Estate no
longer had a co-obligation with Ms. Kaufman to DBD. We also find that the
bankruptcy court sufficiently considered the required factors and did not
abuse its discretion in approving the Kaufman Settlement. Finally, the
Trustee was not required to accept an offer to litigate the claim objection
without certainty that the Estate would receive benefits at least as
beneficial as those under the Kaufman Settlement.
Accordingly, we find no reversible error and AFFIRM.
FACTS2
A. The Underlying Parties and Agreements
Debtor TBH19, LLC, owned extraordinary real property located in
Beverly Hills, California (the “Property”). In 2015, it borrowed $40 million
2
We exercise our discretion to take judicial notice of documents electronically
filed in the docket. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),
293 B.R. 227,
233 n.9 (9th Cir. BAP 2003).
3
from DBD, secured by a senior lien on the Property. Debtor also obtained
secured borrowing from Appellant HAR-BD, LLC.
Glorya Kaufman guarantied repayment of the DBD loan in a
transaction that included a Reimbursement and Indemnity Agreement and
a Subordination and Intercreditor Agreement (the “Guaranty
Transaction”). The Reimbursement and Indemnity Agreement required
Debtor to pay Ms. Kaufman an annual 3% guaranty fee on the total
outstanding amount of the DBD loan. In that agreement, Debtor also
broadly agreed to indemnify Ms. Kaufman for amounts paid to DBD and
expenses incurred in connection with the DBD guaranty. The Intercreditor
Agreement provided Ms. Kaufman with the right, but not the obligation, to
purchase the DBD loan if Debtor defaulted. And, eventually, Debtor did.
B. State Court Litigation
Litigation in state court then commenced: (1) DBD sued Ms.
Kaufman; (2) Ms. Kaufman answered and cross-complained against DBD,
the Debtor, and its owner; (3) the Debtor and others sued Appellants, Ms.
Kaufman, DBD, and others; and (4) DBD cross-complained against Debtor,
Har-BD, Ms. Kaufman, and others. The state court determined that the
cases were related and ordered the parties to trial before a judicial referee.
C. The Bankruptcy
After the filing of the state court cases, Debtor filed a chapter 11
bankruptcy petition.
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1. Ms. Kaufman’s Claim
Ms. Kaufman filed an approximately $72,927,668.00 proof of claim,
comprised of: (1) at least $4,777,059.50 in accrued and unpaid guaranty
fees; (2) at least $66,148,017.00 based on Debtor’s indemnification
obligations; and (3) at least $2,002,591.50 based on her contractual right to
reimbursement of costs and fees, including attorney’s fees in the
bankruptcy case and the state court cases.
Debtor objected to the claim. In part, it argued that the claim should
be disallowed under § 502(e)(1)(B). The bankruptcy court held its decision
on the claim objection in abeyance pending resolution of the state court
proceedings.
2. Conversion, Settlement with DBD, and Sale of the Property
The bankruptcy court later converted Debtor’s case to chapter 7, and
the chapter 7 trustee then settled with DBD. As relevant here, DBD agreed
that the Estate could retain a portion of the Property sale proceeds as a
carveout for payment of administrative expenses and unsecured claims if a
prompt sale occurred; the maximum carve-out was 6.25% of the first $60
million of sale proceeds. The bankruptcy court later approved sale of the
Property for $63.1 million, and the Estate received a sale carveout of $3.75
million. From the proceeds over $60 million, the Trustee paid sale related
costs. After such payments, the Trustee holds an additional $560,775.62 in
escrow (“Escrow Proceeds”).
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3. The Kaufman Settlement
Subsequently, the Trustee and Ms. Kaufman reached the Kaufman
Settlement. The settlement allowed the Kaufman Claim as a general
unsecured claim for $17,778,861.52, divided as follows: (1) guaranty fees of
$4,777,059.50; (2) estimated indemnification of $10,999,210.52; and (3)
attorney’s fees and costs reimbursement of $2,002,591.50. She retained
secured status as to the Escrow Proceeds subject to senior liens but agreed,
as had the other lien holders, to allow the Estate to receive a 6.25% carve
out of the $560,775, or $35,048.47 (“Escrow Carveout”). The settlement
ended all pending litigation between Ms. Kaufman and the Estate with the
parties bearing their own costs; the parties exchanged mutual releases; and
Ms. Kaufman agreed not to object to administrative expenses.
The Trustee brought his Rule 9019 Motion (“9019 Motion”) to
approve the Kaufman Settlement and argued that the settlement was in the
best interest of the creditors and the Estate under the factors set forth in
Martin v. Kane (In re A & C Properties),
784 F.2d 1377, 1381 (9th Cir. 1986), as
follows:
(1) Probability of success in the litigation: The Trustee asserted that
the Estate’s causes of action were speculative because the
relevant documents were enforceable, Ms. Kaufman had not
breached any duty under them, and establishing that she
damaged Debtor would be difficult.
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(2) Difficulties in the matter of collection: The Trustee
acknowledged that this factor did not support settlement.
(3) Complexity of the litigation: The Trustee noted that the
litigation against Ms. Kaufman would be expensive and time-
consuming and would require extensive discovery, retention of
experts, and numerous witnesses. He estimated that the trial
and appeal would take at least two additional years and cost
the Estate several hundred thousand dollars in fees and
expenses.
(4) The paramount interest of creditors: The Trustee argued that
settlement would preserve assets of the Estate to distribute to
creditors by eliminating further litigation costs. Further, the
Trustee argued that the reduction of Ms. Kaufman’s claim
increased other creditors’ pro rata share of Estate assets.
Appellants opposed the 9019 Motion, arguing that the Kaufman
Settlement failed to provide the Estate with any valuable consideration.
Rather, they posited the Trustee received the benefit of Ms. Kaufman’s
agreement not to object to his fees while they had to share distribution on
account of an inflated claim. They argued that the primary component of
the Kaufman Claim, the indemnification obligation, was contingent due to
the ongoing state court litigation between Ms. Kaufman and DBD;
Ms. Kaufman might successfully eliminate any liability on her guaranty.
And they opined that because she did not promptly pay her obligation as a
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guarantor, the Estate’s indemnification obligations to her should be
capped.
Finally, Appellants offered to assume the risk and burden of
“litigating the validity and amount of Kaufman’s disputed contingent
claim.” This offer did not include assumption of state court litigation costs
and risks.
In the Trustee’s reply, he focused on the A & C Properties factors and
explained the settlement’s benefits as including: (1) an $11 million discount
on Ms. Kaufman’s claim; (2) dismissal of Ms. Kaufman’s state court claims
against the Estate, (3) general releases, (4) the $35,048.47 carveout, and (5) a
steep reduction in ongoing administrative expenses. The Trustee further
noted that Appellants were not the only remaining unsecured creditor.
The Trustee, however, offered: “If the HAR Parties want to provide
the Estate with a better offer, which will need to include general releases,
the $35,048.47 carveout, the Estate’s removal from the State Court Action,
and the purchase of the Kaufman Claim (all aspects), then certainly the
Trustee will consider it.”
At the hearing on the 9019 Motion, Appellants first argued for delay
given that trial in the DBD-Kaufman state court litigation was imminent.
Appellants acknowledged the claim might still be contingent after trial if
an appeal followed but posited that § 502(c) would permit the bankruptcy
court to estimate the contingent claim against the background of a state
court decision. They also floated an unworkable interpleader proposal.
8
Finally, they argued that their status as principal creditors required
deference to their views, but they otherwise failed to address the A & C
Properties factors.
After argument, the bankruptcy court granted the motion. It found
that the Trustee’s declaration addressed all A & C Properties factors, and,
thus, he carried his burden. It also found in particular that the controversy
was complex and unusual; Appellants’ opposition was not supported by
any evidence placing the Trustee’s admissible evidence in material dispute;
and Appellants were impermissibly attempting to substitute their
judgment for the Trustee’s.
Appellants timely appealed.
4. The State Court Statement of Decision
After briefing in this appeal, the Panel received the state court
referee’s Statement of Decision in the DBD-Kaufman litigation. The referee
found Ms. Kaufman liable for DBD’s outstanding loan balance, which it
calculated at $10,854,319.18, plus attorney’s fees and costs to be determined
thereafter.
JURISDICTION
The bankruptcy court had jurisdiction under
28 U.S.C. §§ 1334 and
157(b)(1). We have jurisdiction under
28 U.S.C. § 158(a)(1).
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ISSUES
(1) Whether Appellants waived a § 502(e) argument and, if not,
whether the statute precluded the bankruptcy court’s approval of the
Kaufman Settlement;
(2) Whether the bankruptcy court sufficiently analyzed the factors
required for settlement approval; and
(3) Whether the bankruptcy court erred in approving the settlement
despite Appellants’ offer to litigate the claim objection.
STANDARD OF REVIEW
The parties, as well as this Panel, agree that the standard of review
for the approval of a settlement is abuse of discretion. In re A & C Properties,
784 F.2d at 1380.
“To determine whether the bankruptcy court has abused its
discretion, we conduct a two-step inquiry: (1) we review de novo whether
the bankruptcy court ‘identified the correct legal rule to apply to the relief
requested’ and (2) if it did, we consider whether the bankruptcy court’s
application of the legal standard was illogical, implausible, or without
support in inferences that may be drawn from the facts in the record.”
Spark Factor Design, Inc. v. Hjelmeset (In re Open Med. Inst., Inc.),
639 B.R. 169,
180 (9th Cir. BAP 2022) (citing United States v. Hinkson,
585 F.3d 1247, 1262
(9th Cir. 2009)). If a court “bases its ruling upon an erroneous view of the
law or a clearly erroneous assessment of the evidence,” abuse of discretion
10
exists. United States v. Levoy (In re Levoy),
182 B.R. 827, 831 (9th Cir. BAP
1995).
DISCUSSION
A. Section 502(e)
Appellants first argue that § 502(e) barred approval of the settlement.
The Trustee responds that Appellants waived the § 502(e) issue by failing
to raise it before the bankruptcy court and that, even if considered on
appeal, the bankruptcy court properly approved the settlement.
1. Appellants waived their § 502(e) argument by failing to make it
in the bankruptcy court.
A claim is disallowable under § 502(e)(1)(B) only if: (1) the claim is for
reimbursement or contribution; (2) the party asserting the claim is liable
with the debtor on the claim of a creditor; and (3) the claim is contingent at
the time of allowance or disallowance. In Dant & Russell, Inc v. Burlington
Northern Railroad Co. (In re Dant & Russell, Inc.),
951 F.2d 246, 248 (9th Cir.
1991), the Ninth Circuit explained the purpose of the section and its
relationship to § 502(c):
The co-liability requirement—that the claimant be “liable with” the
debtor on the claim of a third party “creditor”—illuminates the
central purpose of § 502(e)(1)(B). The contingency requirement does
not explain the purpose of this section. Section 502(c) permits the
estimation of contingent or unliquidated claims so that delay in the
administration of the estate may be avoided. Accordingly,
§ 502(e)(1)(B) was drafted to “preven[t] competition between a
creditor and his guarantor for the limited proceeds in the estate.”
11
Id. (quoting S. REP. NO. 95–989, at 65 (1978)).
While Appellants argued before the bankruptcy court that the
Kaufman Claim was a contingent reimbursement claim, they did not argue
that the settlement should be disallowed because Ms. Kaufman and the
Debtor were both liable on DBD’s claim. Appellants’ brief claims that “the
precise issue governed by section 502(e) was argued to the Bankruptcy
Court,” namely that “it was premature for the Court to approve a
settlement allowing the Kaufman claim precisely because it was a
contingent reimbursement claim.” Not so. Contingency and
reimbursement are not sufficient, in isolation, for § 502(e) disallowance.
Appellants waived this argument.
2. The Panel, nonetheless, will address the merits under the
exception for matters of law.
Appellate courts generally do not consider arguments made for the
first time on appeal but have discretion to do so in the case of exceptional
circumstances. El Paso Tex. v. Am. W. Airlines, Inc. (In re Am. W. Airlines),
Inc.,
217 F.3d 1161, 1165 (9th Cir. 2000). An applicable exception exists
when “the issue presented is a pure question of law and the opposing party
will suffer no prejudice as a result of the failure to raise the issue in the trial
court.” Momox-Caselis v. Donohue,
987 F.3d 835, 841–42 (9th Cir. 2021). An
issue of law exists when the argument is one of statutory construction or
application and when the issue does not depend on the record, or the
record is fully developed. In re Am. W. Airlines, Inc.,
217 F.3d at 1165.
12
Whether § 502(e) requires disallowance of the Kaufman Claim is a
question of law, and the relevant evidentiary record against which the
question is decided is fully developed. Further, the Trustee had an
opportunity to make his legal arguments and suffers no prejudice from the
consideration of the § 502(e) issue. Indeed, the Trustee’s argument that
§ 502(e)(1)(B) did not apply is well taken.
3. Because co-liability for the claim did not exist at the time of the
settlement, § 502(e) does not require disallowance of Ms. Kaufman’s
claim or reversal of the bankruptcy court’s settlement approval.
a. The Trustee did not have a duty to raise the § 502(e) issue.
Appellants argue that, under Protective Committee for Independent
Stockholders of TMT Trailer Ferry, Inc. v. Anderson,
390 U.S. 414, 424 (1968),
the Trustee failed to satisfy an affirmative duty to disclose “all facts
necessary for an intelligent and objective opinion” by not informing the
bankruptcy court of a possible § 502(e) issue. The Panel disagrees. The
Trustee did not have a duty to identify an unsupportable § 502(e) objection
to his own settlement. And this is particularly true because, among other
things, he was settling the Estate’s already pending § 502(e) objection.
Rather, Appellants should have done so, and at oral argument they so
conceded.
b. Co-liability.
Section 502(e)(1)(B) does not apply under these facts. First, the
guaranty fees and the attorney’s fees never involved a co-liable party—
13
these were fees Debtor owed to Ms. Kaufman directly. Second, under the
reasoning of In re Dant & Russell, Inc.,
951 F.2d at 248, once the Estate
settled with DBD and paid DBD, Ms. Kaufman, the guarantor, was no
longer “liable with” the Debtor on this claim. DBD’s claims against the
Estate were eliminated.
True, the Estate would remain obligated to indemnify Ms. Kaufman
for amounts she eventually pays to DBD, but this was and is, as the
Appellants conceded before the bankruptcy court, a contingent claim
capable of estimation and allowance. The Ninth Circuit has made clear that
co-liability is a requirement and represents the central purpose of
§ 502(e)(1)(B), not the contingency requirement. In the absence of co-
liability, § 502(e) disallowance fails.
B. Rule 9019 Approval under the A & C Properties Factors
We begin with the fundamental principal that “[t]he law favors
compromise” in order “to allow the trustee and the creditors to avoid the
expenses and burdens associated with litigating sharply contested and
dubious claims.” In re A & C Properties, 784 F.2d at 1380–81. “[A]s long as
the bankruptcy court amply considered the various factors that determined
the reasonableness of the compromise, the court’s decision must be
affirmed.” Id. at 1381.
In conducting the A & C Properties analysis, the court “determin[es]
the fairness, reasonableness and adequacy of a proposed settlement
agreement” through mandatory consideration of four factors: “(a) The
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probability of success in the litigation; (b) the difficulties, if any, to be
encountered in the matter of collection; (c) the complexity of the litigation
involved, and the expense, inconvenience and delay necessarily attending
it; (d) the paramount interest of the creditors and a proper deference to
their reasonable views in the premises.” Id. As to the final factor, the Ninth
Circuit stated that the objections of creditors, while entitled to due
deference, “are not controlling” in weighing the factors and determining
the deciding issue—“whether the compromise is in the best interest of the
bankrupt estate.” Id. at 1382.
We further note that when engaging in this analysis, bankruptcy
courts need not conduct a “mini trial on the merits,” but need only
“canvass the issues.” In re Open Med. Inst., Inc., 639 B.R. at 181. Therefore,
the court need not explicitly check off each A & C Properties factor. Instead,
it must make general findings supporting the settlement in connection with
a record that supports settlement approval. The question is “whether the
settlement falls below the lowest point in the range of reasonableness.” In
re Pac. Gas & Elec. Co.,
304 B.R. 395, 417 (Bankr. N.D. Cal. 2004) (cleaned
up).
1. The bankruptcy court’s application of the A & C Properties
factors was sufficient.
The bankruptcy court expressly recognized A & C Properties as the
proper standard and made clear that it applied those factors in approving
the Kaufman Settlement. It emphasized that the Ninth Circuit requires it to
15
consider “each and every factor” from A & C Properties in deciding a Rule
9019 motion. The bankruptcy court’s awareness that the application of each
factor was mandatory creates an inference that it weighed each of the
factors as required. Additionally, the bankruptcy court explained that the
Trustee’s motion contained admissible evidence on each of the four factors,
further demonstrating that it considered each factor.
Moreover, Appellants did not address or refute the Trustee’s A & C
Properties arguments as to complexity or likelihood of success in their
opposition to the 9019 Motion or at the hearing. Instead, they argued for a
deference that is not entitled to controlling weight.
Here, the bankruptcy court’s generalized analysis is not a basis for
reversible error as the record supports the court’s holding.
2. The record supports the bankruptcy court’s approval of the
settlement.
Under the A & C Properties factors, the Kaufman Settlement was
within the range of reasonableness such that it was fair and equitable.
a. Probability of success. This factor favored approval of the
settlement. As described in the 9019 Motion and the Trustee’s
accompanying declaration, the Trustee’s defenses to Ms. Kaufman’s
contract related claims were uncertain while the Trustee’s affirmative
claims against Ms. Kaufman were speculative. The Trustee, thus, addressed
the probability of success of the state court litigation.
16
Appellants argue particularly that the Trustee did not address the
probability of success of an objection to the claim under § 502(e); but this
was reasonable. First, Appellants failed to raise a § 502(e) objection,
providing no reason for the Trustee to do so. And, as already noted, the
DBD Settlement rendered the statute inapplicable. Second, as the A & C
Properties analysis does not require a mini-trial on the merits, the Trustee
did not need to preemptively address every possible basis for a claim
objection.
b. Difficulty in collection. This factor was not of particular concern
to either side. The Panel agrees; it is neutral.
c. Complexity, expense, inconvenience, and delay in the litigation
involved. The record demonstrates that this factor strongly favored
approval of the settlement. This factor holds particular weight in
liquidations where the goal is “obtaining the best possible realization upon
the available assets and without undue waste by needless or fruitless
litigation.” Port O’Call Inv. Co. v. Blair (In re Blair),
538 F.2d 849, 852 (9th Cir.
1976). This case involves multiple agreements and many parties joined in
an interconnected web of relationships. The Trustee estimated that the
litigation would take at least two years and cost several hundred thousand
dollars. Appellants offered no contrary evidence. Regarding this factor, the
bankruptcy court found at the hearing that this case was complex and
unusual given the underlying business history and the litigation involved.
The bankruptcy court was in the best position to determine the complexity
17
of the litigation after having the case in front of it since 2019. The record
evidences a particularly litigious case and supports the court’s finding.
Appellants again argue that the Trustee did not address the
complexity of the § 502(e) objection. As discussed in the context of the first
factor, the Trustee was not obligated to do so; it represented only a small
part of the settlement; and was not the decisive factor as argued by
Appellants.
d. Paramount interest of the creditors and deference to their
reasonable views. Appellants argue that the bankruptcy court provided no
deference to their desire to litigate the Kaufman Claim even though they
were “the estate’s largest creditor.” Appellants also argue that their
interests in the proportion of the distribution conflicted with the Trustee’s
interest in fixing the claims register and closing the case, and the
bankruptcy court was required but failed to address that conflict.
Case law makes clear that the opposing creditors’ position is entitled
to deference but is not controlling.
The Trustee’s judgment in settling Ms. Kaufman’s contingent claim
was within the range of reasonableness. The Estate, and therefore creditors,
received several benefits from the compromise that served as sufficient
consideration: (1) Ms. Kaufman’s acquiescence to the Escrow Carveout;
(2) release from all claims by Ms. Kaufman in state court; (3) a reduction in
existing attorney’s fees claims and elimination of future claims; (4) a
18
significant reduction in administrative fees; and (5) a discount in the
indemnification portion of the Kaufman Claim.
The record demonstrates that the settlement was reasonable. The
reduction in administrative expenses by avoiding litigation was significant.
And the Statement of Decision in the DBD-Kaufman litigation also
supports the reasonableness of the Trustee’s settlement. It requires
Ms. Kaufman to pay DBD a principal amount nearly identical to the
indemnity payment under the Kaufman Settlement, but it leaves that
amount open to payment of fees and costs that the Kaufman Settlement
eliminates.
In sum, it was not an abuse of discretion for the bankruptcy court to
determine that the Kaufman Settlement’s benefits outweighed the
Appellants’ hope for a better outcome through continued litigation.
C. Appellants’ Offer to Litigate the Claim Objection Does Not Require
Reversal.
Appellants’ final argument, which they characterized at oral
argument as the bankruptcy court’s fundamental error, is that the
bankruptcy court allegedly erred under Simantob v. Claims Prosecutor, LLC
(In re Lahijani),
325 B.R. 282, 292 (9th Cir. BAP 2005), by failing to permit
them to bear the risk of litigating the claim objection.
The Lahijani Court stated: “A creditor’s willingness to bear the risk
and expense on behalf of the estate for litigating to recover property that
would be property of the estate and that would not otherwise deleteriously
19
affect the administration of the estate is a matter that the bankruptcy court
is obliged to consider when weighing a compromise that would eliminate
the recovery action.” In re Lahijani,
325 B.R. at 292. In that case, the
appellants offered to purchase fraudulent transfer and turnover causes of
action for a fixed amount of money plus a percentage of recovery.
However, the trustee refused to consider their offer. On appeal, the Panel
stated that the bankruptcy court must consider such an offer to litigate
when the trustee seeks to compromise a recovery action.
In re Lahijani’s analysis is best viewed as limited to cases involving
elimination of recovery actions through sales to the defendant. But even
assuming it applies more broadly, the bankruptcy court here did not err by
approving the settlement despite Appellants’ offer to litigate the claim
objection, because their offer did not provide a sufficiently definite and
concrete benefit to the Estate. The Trustee made clear that he would
entertain an offer that met certain definite requirements that insulated the
Estate from the negative consequences of a loss of the Kaufman Settlement;
appellants made no such offer. As they admitted at oral argument, they did
not offer to make the Estate whole by neutralizing the Estate from either
the need to litigate the affirmative claims and defend against the Kaufman
claims, the potential loss of the Escrow carveout, or the impact of a loss due
to a litigation defeat in the state court or a determination that the Kaufman
claim was greater than provided in the settlement. The offer was thus of
20
insufficient economic substance to make the failure to require its
acceptance a basis for reversal.
CONCLUSION
Based on the foregoing, we AFFIRM.
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