In Re Ambac Financial Group, Inc.
457 B.R. 299
Bankr. S.D.N.Y.2011Background
- Ambac filed for chapter 11; settlement to resolve Securities Litigation and Derivative Actions; Derivative Plaintiffs objected but not timely served; hearings held Sept. 8–9, 2011; court considered Iridium factors to approve settlement; Debtor and Creditors' Committee supported settlement; releases and D&O insurance provisions tied to settlement approval; Stern v. Marshall argued but deemed non-dispositive of settlement approval; court overruled objections and approved Amended Order.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether procedural objections void the settlement approval. | Derivative Plaintiffs lacked notice. | Notice cured; objections waived. | Procedural objections overruled. |
| Whether the settlement should be approved under Iridium factors. | Derivatives lack merit; settlement undervalues estate. | Debtor, Committee, and insurers support settlement; avoids lengthy litigation. | Settlement approved under Iridium factors. |
| Whether derivative claims belong to the estate and Debtor has standing to settle. | Derivative Plaintiffs have standing to pursue derivative claims. | Debtor has sole authority to prosecute or settle derivative claims; derivative standing unlikely. | Debtor has authority to pursue/settle; objections overruled. |
| Whether Stern v. Marshall requires abstention from settling derivative claims. | Stern mandates abstention. | Stern does not apply to in-rem administration of estate assets. | Stern not controlling; abstention not required. |
Key Cases Cited
- In re Citigroup Inc. Shareholder Derivative Litigation, 964 A.2d 106 (Del. Ch. 2009) (Delaware law governing director liability and bad faith showing in derivative suits)
- Smart World Technologies, LLC v. Juno Online Servs., Inc., 423 F.3d 166 (2d Cir. 2005) (limits on standing and evaluation of settlement value under 9019)
- In re Iridium Operating LLC, 478 F.3d 452 (2d Cir. 2007) (Iridium factors for approving settlements in bankruptcy)
- Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (Supreme Court 1968) (apprise court of facts for intelligent settlement decision; compare terms with likely rewards)
- Ashford Hotels, Ltd., 226 B.R. 797 (Bankr.S.D.N.Y. 1998) (court may approve settlements without mini-trial)
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (limitations of bankruptcy court jurisdiction; not applicable to settlement approval of estate assets)