In re City of Stockton
486 B.R. 194
Bankr. E.D. Cal.2013Background
- Stockton seeks a ruling that Rule 9019 does not apply in Chapter 9, arguing optionality under § 904.
- Capital market creditors contend Rule 9019 must be followed for any compromise, seeking court approval.
- Judge Klein holds Rule 9019 applies in Chapter 9 only if the debtor consents under § 904; otherwise not mandatory.
- § 904 limits court interference with debtor property/revenues absent consent or plan provision.
- Settlement of a damages suit for $55,000 is at issue and may later affect plan confirmation standards.
- Court notes that consent to Rule 9019 can be given via a Rule 9019 motion or plan provision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule 9019 is mandatory in Chapter 9 | Stockton: Rule 9019 not mandatory in Chapter 9. | Creditors: Rule 9019 must be followed for settlements. | Rule 9019 is not mandatory; optional if debtor does not consent under § 904. |
| Effect of § 904 on court approval of settlements | N/A | Rule 9019 approval would interfere with property/revenues absent consent. | § 904 prohibits court interference unless the debtor consents. |
| Role of consent to judicial review in Chapter 9 settlements | Consent not required to avoid Rule 9019 review. | Consent is necessary for any court review; consent can be explicit or plan-based. | Consent under § 904 permits court review; absence of consent avoids mandatory 9019 review. |
| Relation of settlements to plan confirmation and cramdown | Settlement history could influence confirmation only if reviewed. | Evidence of settlements may affect § 1129(a)/(b) issues at confirmation. | Evidence of untoward settlements could be probative of plan-confirmation issues. |
| How a debtor may obtain Rule 9019 review if desired | N/A | Debtor may consent via filing Rule 9019 or include review in the plan. | debtor may consent to judicial interference under § 904 by motion or plan provision. |
Key Cases Cited
- Martin v. Kane (In re A & C Props.), 784 F.2d 1377 (9th Cir. 1986) (established 'fair and equitable' settlement doctrine in bankruptcy)
- TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (U.S. 1968) (settlement doctrine in reorganizations; equitable treatment)
- Midlantic National Bank v. New Jersey Dept. of Environmental Protection, 474 U.S. 494 (U.S. 1986) (duality of codified doctrine and common law settlement norms)
- Kelly v. Robinson, 479 U.S. 36 (U.S. 1986) (preservation of settled doctrines in bankruptcy reforms)
- Ashton v. Cameron County Water Improvement Dist. No. 1, 298 U.S. 513 (U.S. 1936) (constitutional limits on federal interference with municipalities)
- United States v. Bekins, 304 U.S. 27 (U.S. 1938) (constitutional framing of noninterference in municipal property)
- Stockton II (In re City of Stockton, Ca.), 478 B.R. 8 (Bankr. E.D. Cal. 2012) (chapter 9 § 904/quasi-sovereign interface; consent and control)