Bankruptcy Case No. 94-33056.United States Bankruptcy Court, D. New Jersey.
November 6, 2008
Gary S. Jacobson, Esquire, HEROLD AND HAINES, P.A., Warren, New Jersey, Attorney for Debtor.
Joseph Cerra, Esquire, FORMAN, HOLT, ELIADES RAVIN, LLC, Paramus, New Jersey, Attorney for Robert Ameen.
Daniel E. Straffi, Esquire, STRAFFI STRAFFI, Toms River, New Jersey, Attorney for Chapter 7 Trustee, Daniel E. Straffi.
OPINION DEBTOR’S MOTION TO RECONSIDER ORDER APPROVING SETTLEMENT
KATHRYN FERGUSON, Bankruptcy Judge
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On October 27, 2008, the Court took oral argument on the Debtor’s motion to reconsider this Court’s September 5, 2008 order approving a settlement. After considering the parties’ papers and oral argument, the Court will deny the motion.
On June 25, 2008, the Chapter 7 Trustee filed a Notice of Settlement of Controversy. The Trustee proposed to settle litigation that was pending in the New York State Supreme Court (“New York lawsuit”). Pursuant to the terms of the settlement, the Trustee would accept a one time cash payment of $100,000 from defendant Robert Ameen in full and final settlement of all claims asserted in the New York lawsuit against Robert Ameen and Toughy Realty Corp. In addition, Robert Ameen would waive any and all claims he has against the bankruptcy estate. The Debtor filed an objection to the settlement and the Court held a hearing on August 25, 2008. The Court entered an order approving the settlement on September 5, 2008, and this timely motion for reconsideration followed.
The Debtor’s motion for reconsideration did not address the standards for such a motion, but they are well established in this Circuit. A motion for reconsideration under Local Rule 9013-1(h) and Fed.R.Civ.P. 59(e) “must rely on one of three major grounds: 1) an intervening change in controlling law; 2) the availability of new evidence [not available previously]; or 3) the need to correct clear error or prevent manifest injustice.”North River Ins. Co. v. Cigna Reinsurance Co., 52 F.3d 1194 (3d Cir. 1995). In her reply brief, the Debtor asserted that she was relying on the need to correct a clear error of law as well to prevent manifest injustice.
To understand the settlement, it is necessary to understand the history of this bankruptcy case. The Debtor filed a Chapter 7 bankruptcy petition in 1994. That petition did not list as an asset the Debtor’s alleged ownership interest in Toughy Realty Corp. which is the basis for the New York
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lawsuit. As a result, the case was administered as a no asset case, no distribution to creditors was made, and the Debtor received her discharge. In 2003, the Debtor filed the New York lawsuit against her brother, Robert Ameen, claiming that since 1983 she has been a 50% owner of Toughy Realty. In the New York lawsuit, Robert Ameen asserted that Carole Ameen should be estopped from claiming an ownership interest in Toughy Realty because she failed to list it as an asset in her bankruptcy petition. Subsequently, Carole Ameen moved to reopen her bankruptcy case to allow this asset to be administered. The case was reopened and a trustee was appointed. Since then the Trustee has been pursuing the litigation through special counsel but little progress has been made. Robert Ameen made a motion before this Court for a ruling that the Debtor was judicially estopped from asserting an interest in Toughy Realty. The Court denied the motion on the ground that judicial estoppel is an equitable doctrine that is invoked by a court in its discretion, and that discretion should be exercised by the judge in New York. See,McNemar v. The Disney Store, 91 F.3d 610 (3d Cir. 1996).
A hearing on the Trustee’s proposed settlement with Robert Ameen was held on August 25, 2008. Arguments for and against the settlement were presented by the Trustee, Robert Ameen, and the Debtor. After considering the arguments, the Court approved the settlement and read an oral opinion into the record. The Court analyzed the proposed settlement under the standards articulated by the Third Circuit Court of Appeals in Myers v. Martin(In re Martin), 91 F.3d 389, 393 (3d Cir. 1996). The four Martin factors are: (1) the probability of success in litigation; (2) the estimate of the complexity of the litigation expense, inconvenience and delay necessarily attending it; (3) the likely difficulties in collecting on any judgment; and (4) the paramount interest of creditors. Id. at 393. The Court noted that the record was silent as to the difficulties of collection, but that the
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remaining three factors “all tilt overwhelmingly in favor of the settlement.”
In support of her motion for reconsideration, the Debtor argues that this Court committed clear legal error by “finding that the Trustee’s prosecution of the Kings County Action is likely to be dismissed on grounds of judicial estoppel”. Debtor Reply Brief
at 13. The Debtor asserts that dismissal on those grounds would be contrary to the ruling of two federal Circuit Courts of Appeal See, Biesek v. Soo Line RR Co., 440 F.3d 410 (7th Cir. 2006);Kane v. Caillouet, 535 F.3d 380 (5th Cir. 2008). The most obvious problem with that argument is that those cases are not binding authority for the state court judge in the New York action. The judge in the New York lawsuit may or may not find the analysis in those cases persuasive and be inclined to rule the same way; however, the Trustee, in exercising his business judgment to accept this settlement, concluded that an adverse ruling was not a risk he was willing to take. In other words, a settlement of $100,000 that paid all administrative expenses and the only filed claim in full was better than incurring additional litigation expenses despite the possibility of the case being dismissed. This Court finds no reason to disregard the Trustee’s judgment on that issue. As this Court stated in its ruling on the original motion, had this Court been the proper tribunal to decide the judicial estoppel issue then the Trustee would be in an unfortunate position, because the law in the Third Circuit is well settled that a trustee steps into the shoes of the debtor and is subject to all the same defenses that the debtor would be.Official Committee of Unsecured Creditors v. RK Lafferty, 267 F.3d 360 (3d Cir. 2001).
Another factor influencing this Court’s decision to approve the Trustee’s proposed settlement is that although the Debtor viewed her counter-offer as the equivalent of the settlement that was being advanced, it was not. The Debtor is not currently the plaintiff in the New York lawsuit — the Trustee is. The Debtor cannot offer to “settle” the litigation with the Trustee, all she can do is
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propose to buy the litigation from the estate. This Court could not turn the Debtor’s objection to the sale into an auction of an estate asset without violating the due process rights of creditors who would be entitled to notice[1] . See, Bankr. R. 2002. In a recent case, the bankruptcy judge cautioned against transforming an objection to a settlement into something it is not. In re McDermott, 2008 WL 877964, 4 (Bankr. D.N.J. 2008). “In so doing, the court changes the essential terms of the proposed settlement and violates the purpose and spirit of Federal Rule of Bankruptcy Procedure 9019 or decides issues not necessary. . . .”ReGen Capital III, Inc. v. Oficial Comm. of Unsecured Creditors(In re Trism, Inc.), 282 B.R. 662, 667 (B.A.P. 8th Cir. 2002) “Instead, the court’s limited role is to determine whether the settlement should be approved or disapproved as proposed.”McDermott at 4. That is precisely what this Court did: it applied the Martin factors to the settlement that was proposed and found that they overwhelmingly favored approving the settlement. Nothing that has been raised in this motion for reconsideration persuades the Court that its previous analysis was incorrect. In approving a settlement, a court does not have to be convinced that the settlement is the best possible compromise. In re TSIC,Inc., 393 B.R. 71 (Bankr. D. Del. 2008); Nellis v. Shugrue, 165 B.R. 115 (S.D.N.Y. 1994). Rather, the court must only conclude that “the compromise is fair, reasonable, and in the best interest of the estate.” In re Louise’s, Inc., 211 B.R. 798, 801
(D. Del. 1997).
The manifest injustice the Debtor alleges “is the Trustee’s breach of his fiduciary duty to the Debtor, to protect her interest in the assets of a solvent or nearly solvent estate, once she has satisfied
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the interest of creditors in her once undisclosed asset.” Debtor Reply Brief at 13. The manifest injustice argument is not compelling for two reasons. First, as this Court stated at the hearing on the settlement, the Debtor has not convinced the Court that the risk to her interest is real. Given this Court’s dubious view of the potential success of the litigation coupled with the fact that the Debtor would be in worse position than the Trustee to defend against a judicial estoppel claim, the Court simply does not think that this litigation has the enormous upside potential the Debtor does. Second, the Debtor’s conviction that the New York lawsuit is so valuable casts an even harsher light on the Debtor’s failure to list her alleged ownership interest in Toughy on her bankruptcy petition. As a result, her claims of manifest injustice ring more than a bit hollow. The Debtor asserts that she would be satisfying the interests of creditors by paying the one claim that is on file. That assertion ignores all of her creditors that did not file a proof of claim because this was a no asset case in 1994. The Bankruptcy Code provides that a debtor can file a proof of claim on behalf of a creditor if the creditor does not do so. 11 U.S.C. § 501(b). The Debtor did not avail herself of this tool in an attempt to truly satisfy the interest of creditors.
For the foregoing reason, the Court is denying the motion for reconsideration. A standard order of denial will be entered.