640 B.R. 922
Bankr. D. Iowa2022Background
- Chapter 7 trustee filed motions to approve a compromise with ARKK Food Co. and to sell the trustee’s Chapter 5 avoidance causes of action so ARKK could prosecute them.
- ARKK’s deal involved reducing its claim against the estate and receiving priority recovery up to a threshold, then sharing recoveries beyond that threshold; Pitman submitted a competing unconditional cash offer for the claims.
- Trustee (an experienced Chapter 7 trustee) evaluated both offers, concluded ARKK’s structured proposal was in the estate’s best interest, and recommended accepting ARKK’s offer.
- Pitman objected on two principal grounds: (1) the avoidance causes of action are not property of the estate and thus not salable; and (2) the trustee abused his discretion by rejecting Pitman’s higher immediate cash offer.
- At a full evidentiary hearing most parties (creditors and petitioning creditors) supported the trustee; the Court found the trustee credible and approved the compromise and sale. The Court entered its order on April 5, 2022.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Chapter 5 avoidance causes of action "property of the estate" salable under § 363? | Trustee/ARKK: Yes — causes of action (including inchoate or contingent prepetition claims) are property of the estate and may be sold. | Pitman: No — Chapter 5 actions lie within the trustee’s exclusive powers and are not salable estate property. | Court: Held they are property of the estate and salable; adopted the reasoning of recent authority permitting sale. |
| Was the proposed compromise and sale to ARKK fair, reasonable, and in the estate’s best interest? | Trustee/ARKK: Yes — trustee reasonably weighed tradeoffs, deference due to trustee’s judgment, ARKK’s prosecution likely to yield greater recovery. | Pitman: No — Pitman’s unconditional cash offer was superior and trustee erred in rejecting it. | Court: Held the settlement/sale is within the range of reasonableness, deferred to trustee’s judgment, and approved the compromise and § 363 sale. |
Key Cases Cited
- Segal v. Rochelle, 382 U.S. 375 (Sup. Ct.) (the term “property” in bankruptcy is construed generously to include contingent or novel interests)
- United States v. Nordic Village, 503 U.S. 30 (Sup. Ct.) (a right to recover is a claim and thus may be property of the estate)
- United States v. Whiting Pools, Inc., 462 U.S. 198 (Sup. Ct.) (discussing the breadth of interests included in property of the estate)
- Matter of Yonikus, 974 F.2d 901 (7th Cir.) (Bankruptcy Code’s definition of property of the estate covers legal and equitable interests)