In re: Western Funding Incorporated Western Funding Inc. of Nevada Global Track Gps, LLC
NV-15-1238-DFB
| 9th Cir. BAP | Jun 8, 2016Background
- WFI and related entities confirmed a chapter 11 plan that vested estate claims in a WFI Liquidating Trust; Brian D. Shapiro was appointed Liquidating Trustee with authority to prosecute and settle claims, subject to bankruptcy‑court approval for settlements over $50,000.
- Liquidating Trustee sued American Express to avoid/recover > $2 million in alleged fraudulent/prepetition transfers (payments on Coopers’ Amex cards), asserting insolvency‑based avoidance and an insider/employment‑contract theory; no § 548(a)(1)(A) (actual fraudulent intent) claim was pled.
- Amex negotiated a settlement paying $331,476.53 to the Trust in exchange for dismissal and mutual releases; the Trustee treated the settlement as based on compromise assumptions (treating certain charges as non‑business and assuming insolvency beginning Jan 2013).
- Creditor Greif objected, arguing the settlement undervalued claims (including that employment‑contract and fraudulent‑intent theories were stronger) and sought either denial of approval or derivative standing to pursue omitted theories.
- Bankruptcy court applied a business‑judgment/good‑faith standard derived from the Plan/Trust Agreement (and alternatively reviewed A & C Properties factors), found the settlement was the product of informed, good‑faith judgment and that the A & C factors supported approval, and granted the Settlement Motion; this appeal followed.
Issues
| Issue | Greif's Argument | Liquidating Trustee/Amex Argument | Held |
|---|---|---|---|
| Proper standard for approving post‑confirmation settlement by a liquidating‑trust trustee | Plan should be governed by the "fair and equitable" (A & C) standard used for bankruptcy trustees | Plan/Trust Agreement governs; a less exacting business‑judgment/good‑faith standard applies to post‑confirmation liquidating trustees | Court affirmed that a plan‑based, less demanding standard can apply; it nonetheless reviewed A & C factors and affirmed approval |
| Was the $331,476 settlement fair given the merits (insolvency date, employment‑contract theory, possible fraudulent‑intent claim)? | Settlement understates value; employment‑contract and actual fraud theories would yield greater recovery; insolvency began earlier than Jan 2013 | Settlement was a compromise based on disputed facts (insolvency date, classification of charges); litigation would be costly and protracted with uncertain better recovery | Court held trustee’s reasonable assessment of probability, costs, and complexity supported settlement; no abuse of discretion |
| Did the trustee have to hire experts or develop a more detailed record before settling (insolvency analysis)? | Trustee should have retained insolvency expert and provided concrete cost estimates | Trustee reasonably balanced expected expert costs against uncertain incremental recovery; record was sufficient for court review | Court found the record adequate and trustee’s cost/benefit judgment reasonable |
| Was trustee required to entertain Greif’s purchase/credit‑bid proposal or grant derivative standing to let Greif pursue claims? | Trustee should have considered credit‑bid or granted derivative standing/allowed creditor to buy claims | Trustee invited cash offers; Greif made no binding cash or percentage‑of‑proceeds offer; credit‑bid valuation by unsecured creditor was novel and not required | Court noted trustee must consider bona fide purchase offers but Greif made none; denial of expedited derivative relief and approval after offering purchase window was not abused |
Key Cases Cited
- In re A & C Properties, 784 F.2d 1377 (9th Cir. 1986) (sets factors for evaluating trustee settlements)
- Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (U.S. 1968) (compromise approval requires comparing settlement to likely litigation rewards)
- Beck v. Fort James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963 (9th Cir. 2005) (liquidating trustee can be functionally equivalent to a trustee for certain purposes)
- United States v. Hinkson, 585 F.3d 1247 (9th Cir. 2009) (standard for abuse of discretion review)