Joseph Markland v. Melissa Davis, CPA
21-11364
| 11th Cir. | Nov 5, 2021Background
- ProHCM and Centro merged in April 2018; post-merger investigation revealed Centro officers/directors misappropriated client payroll/tax funds, creating >$1.7M tax liability.
- Both companies filed Chapter 11 bankruptcies in October 2018; Joseph Markland (former ProHCM CEO and largest preferred shareholder) objected to a proposed settlement.
- The settlement with several third parties included a Bar Order releasing third-party claims related to the bankruptcies; Markland was the sole objector because the Bar Order would bar his potential claims.
- The bankruptcy court approved the settlement applying the Munford factors; the district court affirmed, finding Munford (not Seaside) controlled.
- On appeal, this court reviewed de novo the legal issues and for abuse of discretion the bankruptcy court’s approval of the settlement and Bar Order, and affirmed the lower courts.
Issues
| Issue | Plaintiff's Argument (Markland) | Defendant's Argument (Appellees) | Held |
|---|---|---|---|
| Which legal test governs review of the Bar Order (Munford vs. Seaside)? | Seaside factors apply because the cases are Chapter 11 reorganizations. | Munford applies where the Bar Order is integral to a litigation settlement; Seaside applies only when a Bar Order is part of a reorganization plan necessary for success. | Munford applies because the Bar Order was integral to a settlement, not to preserving a reorganized debtor’s operations. |
| Did the bankruptcy court abuse its discretion in approving the settlement Bar Order? | The court improperly used Munford; approval was erroneous. | The bankruptcy court correctly applied Munford and did not abuse its discretion. | No abuse of discretion; the bankruptcy court properly applied Munford and approved the settlement. |
Key Cases Cited
- In re Munford, 97 F.3d 449 (11th Cir. 1996) (establishes factors for approving bar orders integral to litigation settlements)
- In re Seaside Eng'g & Surveying, Inc., 780 F.3d 1070 (11th Cir. 2015) (adopts multi-factor test for bar orders tied to reorganization plans necessary for a debtor’s success)
- In re Dow Corning Corp., 280 F.3d 648 (6th Cir. 2002) (source of the seven-factor test for releases in reorganization plans)
- In re Walker, 532 F.3d 1304 (11th Cir. 2008) (standard: affirm unless lower court made clear error or applied wrong legal standard)