550 B.R. 595
S.D. Fla.2015Background
- Appellants Brophy and Lewis appeal two Bankruptcy Court orders: Settlement Order approving a D&O policy settlement and Bar Order barring further Securities Class Action claims; Trustee Salkin seeks affirmance.
- The D&O Policy is a $3 million, wasting-asset policy; National Union has already spent about $1.25 million defending claims.
- Jiangbo’s audit committee resigned in 2011 after management obstructed investigations; assets largely offshore, with only the D&O policy recoverable in the US.
- Securities Class Action against Jiangbo and certain executives was pending; Sung was the only D&O insured who defended, Frazer LLP and Sung were dismissed from claims.
- Settlement discussions began with mediation on January 31, 2014; Amended settlement increased trustee’s recovery to $900,000 conditioned on a Bar Order; Bar Order was approved by the Bankruptcy Court on November 20, 2014.
- Court denied Appellants’ motion for relief from stay as moot after issuance of the Orders.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bar order is appropriate under Munford factors | Brophy/Lewis: claims are independent and not interrelated | Salkin: claims are interrelated under Munford | Bar order appropriate; interrelatedness shown |
| Whether Appellants are likely to succeed on the merits if barred | Securities claims likely would prevail | Claims unlikely to succeed; defaults and limited cooperation | Appellants unlikely to succeed; settlement upheld |
| Whether Bankruptcy Court had authority to issue the Bar Order | No authority to bar non-debtor claims | Court has authority under settled law | Court had authority; no abuse of discretion |
| Whether the Settlement and Bar Orders are fair and equitable | Bar Order is unfair and inequitable as to Securities Plaintiffs | Orders are fair, equitable, and in estate’s best interests | Bar Order and Settlement fair and equitable |
Key Cases Cited
- In re Justice Oaks II, Ltd., 898 F.2d 1544 (11th Cir. 1990) (settlement fairness standards; bar orders may be appropriate under Munford)
- Munford, Inc., 97 F.3d 449 (11th Cir. 1996) (Munford factors for bar orders: interrelatedness, strength of claims, complexity, depletion of resources)
- U.S. Oil & Gas v. Wolfson, 967 F.2d 489 (11th Cir. 1992) (bar orders favored when claims arise from same facts; encourages settlements)
- In re HealthSouth Corp. Sec. Litig., 572 F.3d 854 (11th Cir. 2009) (FAA of interrelatedness; cross-claim concepts in bar orders)