Ambrose Richardson, III v. ( 2012 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 11-2112
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In Re: SUMMIT METALS, INC.,
Debtor
AMBROSE M. RICHARDSON, III,
Appellant
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On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 1-09-cv-00256)
District Judge: Honorable Sue L. Robinson
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Submitted Pursuant to Third Circuit LAR 34.1(a)
January 24, 2012
Before: FISHER and GREENAWAY, JR., Circuit Judges, and JONES, * District Judge.
(Filed: April 17, 2012)
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OPINION OF THE COURT
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JONES, District Judge.
On May 3, 2011, Ambrose M. Richardson, III (“Appellant” or “Richardson”) filed
a Notice of Appeal with this Court challenging the District Court of Delaware’s order
*
The Honorable John E. Jones, III, District Judge for the United States District
Court for the Middle District of Pennsylvania, sitting by designation.
denying his appeal from the United States Bankruptcy Court for the District of Delaware.
For the reasons set forth below, we shall affirm the order of the District Court. Also
pending before this Court are three separate motions to supplement the record with
additional appendices 1 and a motion to file supplemental briefing. We shall deny the
motions to supplement, and the motion to file supplemental briefing, as our decision
renders them moot.
I. Factual Background
Since the findings of fact contain a detailed factual recitation, and because we
write primarily for the parties, we shall only provide a few relevant facts as necessary
throughout our analysis.
II. Procedural History
Richardson filed a Notice of Appeal with the District Court appealing the order of
the Bankruptcy Court entered March 4, 2009, which granted the Chapter 11 Trustee’s
(“Appellee” or “Trustee”) Motion pursuant to Section 105(a) of the Bankruptcy Code and
Bankruptcy Rule 9019, and approved a settlement between Francis A. Monaco, Jr., the
Chapter 11 Liquidating Trustee, and Richard E. Gray (“Gray”). Although the original
claim against Gray sought an amount in excess of $40 million, the Bankruptcy Court
ultimately approved a $100,000 settlement of the remaining claims against him. On
1
The three filings include: (1) a Motion Pursuant to FRAP 10(e) filed on
September 21, 2011; (2) Appellant’s Second Motion Pursuant to FRAP 10(e) filed on
November 4, 2011; and (3) Appellant’s Third Motion Pursuant to FRAP 10(e) filed on
January 24, 2012.
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March 23, 2011, the District Court issued a memorandum and order denying the appeal
and affirming the March 4, 2009 oral opinion of the Bankruptcy Court.
III. Jurisdiction and Standard of Review
The District Court exercised jurisdiction over Richardson’s bankruptcy appeal
pursuant to 28 U.S.C. § 158(a). We have appellate jurisdiction over Richardson’s appeal
from the District Court’s final decision pursuant 28 U.S.C. § 1291.
We review findings of fact made by the bankruptcy court for clear error, and
review questions of law de novo. See Lebron v. Mechem Fin. Inc., 27 F.3d 937, 942 (3d
Cir. 1994). Although we review de novo whether the Bankruptcy Court should have
analyzed a settlement under the factors enunciated in In re Martin, 91 F.3d 389 (3d Cir.
1996), we review whether the approval of that settlement was proper by applying the
abuse of discretion standard. See In re RFE Indus. Inc., 283 F.3d 159, 165 (3d Cir. 2002)
(“We review de novo whether the bankruptcy court should have analyzed the Settlement
under the Martin analysis.”); Will v. Nw. Univ. (In re Nutraquest, Inc.), 434 F.3d 639,
644 (3d Cir. 2006) (“We review the District Court’s approval of the settlement for an
abuse of discretion.”).
IV. Discussion
Appellant raises a number of arguments in opposition to the District Court’s order
affirming the settlement approved by the Bankruptcy Court. However, we ultimately find
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it necessary to address only the contention we find most compelling in determining
whether to uphold the decision of the District Court.
Appellant claims that, in approving the Gray settlement, the Bankruptcy Court
failed to properly consider the factors enunciated by this Court in In re Martin for
evaluating a settlement between an estate and an adverse party: “(1) the probability of
success in litigation; (2) the likely difficulties in collection; (3) the complexity of the
litigation involved, and the expense, inconvenience and delay necessarily attending it;
and (4) the paramount interest of the creditors.” 91 F.3d at 393. Richardson contends the
decision of the Bankruptcy Court was so perfunctory that it is questionable whether an
analysis was conducted. He also argues that the Bankruptcy Court failed to make any
separate findings, and that it blended its discussion of the four factors to such an extent
that its decision as to any one of them standing alone could not be distinguished from the
other factors.
The Bankruptcy Court stated the following concerning the Martin factors in its
oral ruling from the bench at the conclusion of the March 4, 2009 hearing:
In reviewing the factors to be applied under Martin, it seems to me really
the complexity and likelihood of success and collectability factors are all
tied closely together. And there is just so much uncertainty in the pursuit of
the collection of this judgment. I can certainly understand the Liquidating
Trustee’s business decision that it serves no further purpose or no further
good purpose to expend any more estate funds in pursuit of this collection,
even if funds were available. Approving the settlement brings the matter,
as has been testified, one step closer to conclusion, meaning the Chapter 11,
and the completion of responsibilities under the plan.
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Richardson also challenges the Bankruptcy Court’s finding that “this proposed
settlement falls above the lowest point in the range of reasonableness and I am prepared
to approve it,” on the grounds that the court neglected to establish a “range of
reasonableness.” For example, Appellant argues that notwithstanding the $5.4 million
Gray received from the sale of Rich Realty, the settlement provided creditors with less
than two percent of the funds allegedly available. Richardson maintains that additional
money could have been discovered if not for the Trustee’s failure to conduct an adequate
investigation into the funds controlled, or that were once controlled, by Gray.
In response, Appellee correctly notes that the standard of review for a compromise
entered under Bankruptcy Rule 9019 is an abuse of discretion standard. See In re
Nutraquest, Inc., 434 F.3d at 644. As we noted in Nutraquest, “for us to find an abuse of
discretion the District Court’s decision must rest on a clearly erroneous finding of fact, an
errant conclusion of law or an improper application of law to fact.” Id. at 645 (internal
quotation marks omitted).
Concerning the Martin factors, Appellee claims that the Bankruptcy Court’s oral
opinion exhibits a thorough and thoughtful analysis of the settlement and related issues,
including an analysis of the Martin factors, the testimony of the Liquidating Trustee, and
the objections lodged by Richardson. As to the first factor, Appellee emphasizes the
Bankruptcy Court’s finding that the Trustee lacked sufficient funds, without expending
money designated for the unsecured creditors, to pursue the Rich Realty claims.
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Regarding the second factor, the Trustee asserts that he contracted with a private
investigation firm to search for unencumbered assets that Gray possessed. Concerning
the third factor, the Trustee contends that he exercised his business judgment in
concluding that the uncertainty surrounding collection of the remaining funds justified his
decision to abandon the same. Finally, as to the fourth factor, the Trustee highlights the
Bankruptcy Court’s finding that “in Bankruptcy Court, the exercise is about maximizing
value for the creditors. And . . . it often involves an exercise of risk/reward of cost
benefit, and here I am convinced that the Liquidating Trustee has made the appropriate
cost benefit analysis.”
Given the deferential standard of review afforded a bankruptcy court’s approval of
a settlement pursuant to Bankruptcy Rule 9019, we find that the Bankruptcy Court did
not abuse its discretion in approving the settlement and that the explanation provided,
though abbreviated, was not deficient given the Bankruptcy Court’s extensive familiarity
with the case over the decade that the case languished on its docket. While we realize
that Appellant may have desired a more thorough discussion of the Martin factors as they
relate to the Bankruptcy Court’s approval of the settlement, the fact remains that the
Bankruptcy Court addressed each of the factors after the issues surrounding acceptance of
the settlement were fully briefed and argued by the parties. See In re Martin, 91 F.3d at
393 (noting “it is an unusual case in which there is not some litigation that is settled
between the representative of the estate and an adverse party”).
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Here, as to the first factor, the Bankruptcy Court recognized that the Trustee
lacked sufficient funds to pursue the estate’s claims against Rich Realty in remarking that
such an endeavor “it seems to me would be, based on the record that was made, a
completely speculative undertaking.” The Bankruptcy Court also noted that the Trustee
had likely expended more time and money than was required in attempting to find an
attorney or law firm to represent the creditors, on a contingency fee basis, in pursuit of
this speculative claim. Accordingly, it appears that the Bankruptcy Court did not abuse
its discretion in concluding that the probability of success in litigating such claims was
low.
Similarly, with regard to the second factor, the Bankruptcy Court determined that
the difficulties in attempting to collect these claims far exceeded the purported benefit
from the same. In analyzing the third element, the expense, inconvenience, and delay
associated with collection of the claims, the court stated “there is just so much
uncertainty in the pursuit of the collection of this judgment” and “I can certainly
understand the Liquidating Trustee’s business decision that it serves no further purpose or
no further good purpose to expend any more estate funds in pursuit of this collection,
even if funds were available.” See In re Nutraquest, 434 F.3d at 646 (“The balancing of
the complexity and delay of litigation with the benefits of settlement is related to the
likelihood of success in that litigation.”).
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Concerning the fourth element, the paramount interest of the creditors, the
Bankruptcy Court concluded that despite some creditors’ objections to the settlement, and
an indication some were willing to wait longer for the slightest chance of a more
substantial recovery, “the exercise is all about maximizing value for creditors.” As noted
above, the District Court highlighted that “in Bankruptcy Court, the exercise is all about
maximizing value for the creditors. And . . . it often involves an exercise of risk/reward
of cost benefit, and here I am convinced that the Liquidating Trustee has made the
appropriate cost benefit analysis that further pursuit, especially in light of the possibility
of receiving $100,000.” Thus, we find that in approving the settlement the court, given
its thorough knowledge of the chronology of the case, held the paramount interest of the
creditors as its ultimate goal in reaching this decision. Moreover, we find that to remand
the case to the Bankruptcy Court would prove needlessly futile and would result in a
waste of judicial resources, as the four Martin factors clearly played a prominent role in
the court’s discussion. While a remand might cause the Bankruptcy Court to more
explicitly tailor its analysis to the Martin factors, we are confident that the outcome
would remain unchanged.
Finally, as our decision does not involve consideration of the documents Appellant
seeks to introduce into the record through the three pending motions to supplement, we
shall deny the motions to supplement as moot. We shall also deny as moot Appellee’s
Conditional Motion Pursuant to Rule 27 of the Federal Rules of Appellate Procedure to
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Permit Supplemental Briefing related to the motions to supplement. In addition, we note
that to the extent Appellant seeks to introduce reports, correspondence from Gray to the
Trustee’s counsel, a letter agreement between Gray and the Trustee regarding the scope
of the Trustee’s “due diligence,” or other exhibits that existed prior to the Bankruptcy
Court’s ruling, such materials would have been more appropriately introduced in the first
instance in front of the Bankruptcy Court. At this stage of the appellate process, it is not
our task to consider evidence that was apparently not before the Bankruptcy Court. See
In re Capital Cities/ABC, Inc.’s Application for Access to Sealed Transcripts, 913 F.2d
89, 96 (3d Cir. 1990) (“This Court has said on numerous occasion that it cannot consider
material on appeal that is outside of the district court record. . . . In Sewak v. INS, 900
F.2d 667, 673 (3d Cir. 1990), we stated that ‘as an appellate court we do not take
testimony, hear evidence or determine disputed facts in the first instance. Instead, we
rely upon a record developed in those fora that do take evidence and find facts.’”).
V. Conclusion
For the reasons stated above, we shall affirm the order of the District Court.
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