*1 of Unsecured Committee The Official regarding Texas knowledge lack of Creditors, Appellant experi- of recent and lack Code Insurance claims, find we no adjusting insurance ence v. in the district of discretion abuse Osherow, Chapter Randolph N. testimony. Arnold’s to exclude decision Trustee, Appellee. district we find 'Accordingly, No. 14-50046. in exclud- discretion did not abuse granted properly certain evidence
ing Appeals, States Court United on Weiser- of law a matter judgment as Circuit. Fifth claim. bad-faith Brown’s 541 16, 2015. Sept.
V. reasons, AFFIRM we foregoing
For the respects. all
the district REFINING, AGE
In the Matter of
INCORPORATED, Debtor of Unsecured Committee Official
Creditors, Appellant
v. Moeller, Chapter 11 Trustee for
Eric J. Incorporated, Refining,
Age
Appellee Age Refining, Matter of
In the
Incorporated, Debtor of Unsecured Official
Creditors, Appellant
v. Liq Capital Corporation; Randolph
uidating Trustee Osherow, Appellees
N. Age Refining,
In the Matter of
Incorporated, Debtor *2 Brook, Richards Gragg, Steven
David S. (ar- Wilson, Attorney Esq., Friend Natalie Banack, Incorporated, & gued), Langley TX, Liquidating Antonio, Appellee San Osherow. Randolph N. Trustee *3 HIGGINBOTHAM, JOLLY, and Before OWEN, Judges. Circuit HIGGINBOTHAM, E. PATRICK Circuit.Judge: of Unsecured Official “Committee”) a (the appeals Creditors af- judgment court district consolidated judg- court firming several a approved ments. The settlement, a denied motion Rule claim, objection an denied a value secured claim, Chap- and approved allowed to an affirm. plan. We ter cramdown Background I. (“AGE”), and Inc. owned Refining, AGE An- refinery in San operated a petroleum jet into oil processed crude tonio. AGE and military bases to local fuel for sale airlines, purchase of financing the certain facility ar- through credit primarily oil Bank Morgan Chase with J.P. rangements (“JP Capi- Appellee Chase Morgan”)1 and (“Chase”). se- position was Chase’s tal pur- assets certain AGE cured liens (the security agreement “Chase to a suant Colvard, (argued), Esq. Michael Gene first-priority Security with Agreement”) Antonio, TX, P.C., Drought, & San Martin (the “Refinery”) refinery in the AGE liens Appellant. for personal and AGE related real some first-priority Morgan held Gerber, property. Norton JP Esq. (argued), Toby L. cash, invento- TX, security in AGE’s L.L.P., Dallas, interests US, Fulbright Rose (the “Working Capital Peirce, ry, and accounts Norton Rose Ful- Arthur Steve a subor- Assets”), held Antonio, TX, in which Chase also L.L.P., US, San bright had four AGE security interest. dinate Capital Corporation. Chase Appellee Appellee record, Morgan” distinguish from Morgan use “JP JP 1. In the lower Capital. Bank.” as “Chase We referred to sometimes (1) significant unencumbered assets: ap- the letters of credit comprising JP Mor- proximately 14.52 acres of real gan’s vacant pre-petition claim. These unfunded (the property adjacent to the Refinery pre-petition letters of credit were ultimate- (2) “Adjacent Real Property”); a tank ly retired or paid, otherwise satisfying JP (the Elmendorf, farm in Texas Morgan’s “Elmendorf pre-petition claim in full. (3) Farm”); Tank interests in executory 3, 2010, On March the bankruptcy court contracts unexpired leases under a entered an order permitting AGE to ob storage and agreement service with tain (“DIP”) “debtor-in-possession” financ Redfish Bay terminal in San Patricio ing through new, post-petition credit fa (the County, Assets”); Texas Bay “Redfish cility arrangement with JP Morgan. The (4) proceeds from-pending avoidance DIP Financing Facility was agreement against claims AGE former officers and AGE, among JP Morgan, Chase, (the directors Litigation”). “Gonzales Al- it provided also authority for AGE to use *4 though Chase held no lien in general the the cash collateral of Morgan JP as first- proceeds from Litigation, the Gonzales it priority lienholder and as Chase second- did a assert lien in one underlying compo- priority under Bankruptcy Code section nent of the Litigation: Gonzales an AGE 363.3 Morgan JP renewed its first-priority account receivable from one of the defen- liens in the Working Capital Assets and (the in dants Receivables”), “ATI case received new first-priority liens in AGE’s valued at about million. later $1.7 unencumbered Adjacent assets —the Real agreed to its lien in release the ATI Re- Property, the Farm, Elmendorf Tank part ceivables as of AGE’s settlement of Bay Redfish Assets—in exchange for the Gonzales Litigation 12, on December post-petition financing. AGE stipulated to the validity and AGE voluntary filed a petition commenc- amount of Chase’s Morgan’s and JP se- ing Chapter 11 proceedings 8, on February pre-petition and, cured acting claims as 2010. Chase filed a properly pre- secured 'debtor-in-possession, decided early in the petition claim against of AGE about $40.2 case to substantially sell all its assets a million; JP Morgan properly filed a se- or, sale under section 363 alternatively, pre-petition cured claim of about mil- $35 through a liquidating plan. The bankrupt- lion. Various unsecured also creditors cy court approved the procedures sale on claims, filed represented collectively by the 8, 2010, March but AGE unexpected faced Committee. delays in restarting operations, adverse Morgan’s
JP pre-petition claim conditions, consti- domestic economic mismanage- tuted' unfunded ment, letters of credit extended and a explosion massive and fire at to AGE trade creditors to (the secure Refinery 5, AGE the May on “Truck supply purchases.2 Fire”). crude The bankruptcy Rack These difficulties forced de- court authorized post-petition payment lay of process. the sale The Truck Rack critical assets, vendors from other estate gave Fire rise to an insurance claim to thereby paying during trade creditors ad- which Chase’s lien in Refinery at- ministration without requiring funding of tached as casualty policy proceeds. 2. An unfunded letter of credit of line 11 U.S.C. 363. All section references borrower, credit that a lender has issued to a herein are to title 11 of the United States enabling funds, borrower draw but (the Code”). “Bankruptcy Code upon which the borrower has not drawn
funds. claim, $118,915 Morgan, to JP on the these difficulties light Financing Fa- DIP of the partial payment Chase, and the Morgan, JP motion
joint NuStar closed The sale to cility balance. appoint- Committee, 19, 2011. “Trustee”) April on (the to serve as Eric Moeller ed AGE, effective for 11 Trustee Chapter 28, 2011, the Refin- pursuant to April On 6, 2010. July Order, Trustee and NuStar ery Sale an estimated valuation
jointly prepared NuStar. Sale A. Assets, permitting Capital Working from escrow million of about $5 the release had renewed the Trustee By April Trustee, million in es- leaving $3 Energy chose- NuStar efforts sale Working crow, to finalization subject for (“NuStar”) designated purchaser Adjustment. Capital Working Capi- Refinery (including Property, Assets), Adjacent Real NuStar and Following tal the sale to The sale Tank Farm. the Elmendorf of the escrowed part release of subsequent Bay $12,653,111 Redfish not include the funds, did Trustee held NuStar approved trans- May Assets. The Trustee cash. On purchase Morgan, reducing to NuStar base million to JP sale ferred- $7 million, plati- million for DIP Fi- outstanding balance price $41 hand,4 working capital “net million and nancing Facility and a to about $5 num Ad- Capital Trustee with a cash balance Working leaving This adjustment.” *5 to partial payment finalization of million. The post-closing justment was a about $5.6 outstanding bal- Assets. the Working Capital reduced Chase had value the claim about pre-petition that because the record ance Chase’s It from appears only could estimate million. parties $4.2 relevant the Working Assets Capital the value of the Bay Sale. B. The Redfish NuStar, ulti- the of the sale close the Meanwhile, sought have been ei- Trustee price permis- could the purchase mate sepa- Bay million Redfish Assets less than the sion to the greater $41 or sell ther 20, 2011, terms, the Refinery rately. May By its the price. base On the sale of the Redfish place that NuStar court authorized directed Order Sale Midstream Ser- Bay to TexStar in and transfer Assets million escrow about $8 Bay million. The vices for Redfish closing. million $6.5 to the Trustee at. about $37 upon the Trustee clos- directed million, subtracting ex- Sale Order after Of that $37 remaining eliminate the ing to reduce or Refinery directed the Sale Order penses, Facility sale Financing DIP balance from million to transfer the Trustee $36 Bay sale on The Redfish closed pre-peti- proceeds.5 Chase, payment of partial in interim, partial pay- refining. the catalyst in It submits used as 4. Platinum is plati- Facility] Financing the due the record of the [DIP unclear from whether ments security agree- was covered Morgan] entirely appropriate on hand in be- num [JP are Working Capital Assets. Our for the (i) ments precondi- payments were a such cause coverage. depend holding not on such does Morgan] and [JP to the consents of (ii) Bay] ... Sale [Redfish [Chase] provided, Bay 5. The Redfish Sale Order ade- might be able to not the Trustee part, follows: (cid:127)pertinent Morgan] quately protect [JP the liens of partial payments of Mor- [JP [I]nterim collateral, and proceeds of its cash pro- may from the gan's] claims be made (iii) economic sense it would’ make little contemporane- ceeds of the transaction proceeds in retain the for Trustee to [c]losing. ously The Trustee with the 20, 2011, May Farm). and the Trustee as directed Tank Although the parties stipu- paid the DIP Financing Facility virtually lated to a fair market value of the Adja- full, leaving the remainder of the sale cent Real Property of million, about $1.9 proceeds to the AGE estate.6 parties dispute what portion of the remaining represents million pro- $39.1 Working C. The Capital Adjustment. (encum- ceeds from sale of Refinery weeks.later, 10, 2011, Three on June lien) by bered Chase’s versus the Elmen- Trustee and NuStar finalized Working (unencumbered Tank dorf Farm Capital Adjustment, agreeing to value the Chase). The argues appeal on Working Capital Assets at about mil- $4.8 that the Elmendorf Tank Farm represents lion. The million remaining in $3 escrow between million and $1.3 million of $4 was released to the Trustee NuStar price and, therefore, base pro- transferred an additional million to $2.8 ceeds from the sale of the Refinery total told, All Trustee. the Trustee re- million.8 $38.1 $35.4 purchase ceived a final price of about $48 million the sale to NuStar: the $41 D. Chase’s Claim Post-Petition In- (for base price million Refinery, terest. Adjacent Property, Real and the Elmen- Farm, dorf Tank collectively), plus $2.2 August On Chase filed a post- (for hand), platinum million plus petition claim for payment of principal, (for Working million Capital As- interest, and other charges pursuant sets).7 506(b).9 section Chase asserted it was ov- The Trustee did ersecured10 and allocate entitled to post-petition $41 price million base among pursuant interest various un- to the terms of the (the derlying collateral Refinery, Adja- Security Agreement,11 provid- cent Property, Real and the Elmendorf post-petition ed for interest to accrue at *6 escrow continue $1.3 to incur substan- $4 to million Elmendorf Tank ongoing "nega- Farm,
tial interest accruals and $35.4 we are left with $384 million to carry” respect tive with to the [DIP Fi- million to Refinery. allocate to the nancing Facility]. 506(b) 9. 11 U.S.C. provides: credit, posted 6. NuStar had back-up letters of along segregation with the Trustee’s of cash To the extent allowed secured collateral, any outstanding to cover letters of claim property is secured the value of attributable Financing credit to the DIP Facil- which, any recovery after greater ... ity. Although Morgan JP was still owed cer- claim, than the of amount such there fees, unpaid tain accrued but letter of credit shall be allowed to the ... interest hojder appear fees those to have totaled less than claim, fees, any on such reasonable $10,000. costs, charges provided or for-under the agreement ... under such claim $37,146,000.02 initially paid NuStar arose. $8,118,562.84 escrow, placed Trustee and $45,264,562.86 totaling Working before the A creditor is where “oversecured" the val- Capital Adjustment. All escrowed funds were ue of its secured collateral exceeds the Trustee, ultimately released to the and NuStar amount of its claim. secured $2,783,083.63, paid an additional for an ad- $48,047,646.49. justed purchase price total of Laymon, (5th 11. See In re view, 1992) ("[W]hen In the begin Committee’s if we Cir. with an oversecured creditor's price contract, $41 million base $1.9 subtract claim arises from a the contract Adjacent Property million for the provides interest.”). Real post-petition the rate of million pay the rate, to permission ed Applying rate.12 the default pre-petition balance Chase’s post- principal million” “up to sought $6 Chase The creditor cash on hand. claim from An oversecured interest. petition by its order its granted permission interest on post-petition to is entitled claim for inter- million that such preserved $6 extent Chase’s “to the only claim address amount of but did not principal interest post-petition to est, added when Objec- value of exceed the to or Claim claim, not the Motion Value [does] ar- Accordingly, Chase tion. the collateral.”13 of its liens value the combined gued that Agreement. E. The NuStar, the to the sale from proceeds Assets, Capital Working from
proceeds subsequently and Chase The Trustee Truck from the proceeds the insurance post- of Chase’s a settlement negotiated ex- Fire, ATI Receivables and the Rack the terms claim. Under petition claim pre-petition of its the amount ceeded al- Agreement, the Trustee As an alternative million. by up $40,212,048.63 $6 to retain lowed Chase ex- filed an administrative remedy, Chase satisfaction made payment estate seek- against the AGE claim pense agreed to claim and Chase pre-petition adequately for failure ing $14.7 claims, its alter- including .million waive additional that the in the liens event protect Chase’s claim. million administrative native $14.7 underse- found Chase an al- receive exchange, Chase would million, cured. claim of post-petition $5 lowed post-peti- secured an allowed comprising 3, 2011, chal- the Committee August On $3,615,000 allowed and an claim of in a mo- status oversecured lenged Chase’s $1,385,000. claim of post-petition unsecured collateral secured value Chase’s tion to agreed “[i]mmedi- further Trustee includ- The Committee section 506. under $200,000.00 the sum ately pay [Chase] setting the value of order proposed ed a portion [Chase’s of a payment as a ob- million and $39 collateral Chase’s under post-petition secured claim allowed post-petition claim for jected to Chase’s Trustee Agreement].” The the Settlement alternative diminution and its interest joint approve motion to filed a and Chase disputed the Although the Trustee claim. under Federal the Settlement value of to which the extent absolute (“Rule”) Bankruptcy Procedure Rule exceeded secured collateral Chase’s 9019(a) 13, 2011. September claim, Trus- pre-petition of its amount value that the collateral dispute tee did Hearings. F. Consolidated *7 pre-petition of the the amount exceeded held consolidated bankruptcy court matter, making The claim as a relative thus (the 28, 2011 27 and hearings on October request- The Trustee oversecured. Chase 1054, Tex. v. Timbers Sav. Ass’n 13. United Corp., F.3d In re Southland. 160 12. See of 365, Assocs., Ltd., Cir.1998) (5th (discussing post-peti- 484 U.S. Inwood Forest 1059-60 626, (1988); 372, under section at a default rate tion interest L.Ed.2d 740 S.Ct. holding instance, interest 506(b) that “a default 506(a)-(b). and if For 11 U.S.C. see allowed, higher generally unless 'the million, rate it $4 were oversecured Chase produce inequitable ... re- rate would post-petition claim of to a would entitled be ” (alteration (quoting In re original) sult’ 506, though the even $4 under section million 75)). Laymon, at Committee The provided up to Security Agreement equity default rate not contest does post-petition interest. $6 million here, address it. therefore we do and Hearings”), regarding “Consolidated the Committee’s unsecured claims voted to re- Agreement, the Settlement Motion to Val- ject confirmation. The class comprising ue, Objection. and the Claim During the claim, Chase’s allowed secured which the Hearings, Consolidated Committee Third Plan characterized as impaired, cast exhibits, produced numerous evidence of deciding vote favor of confirmation. stipulations, testimony and witness in sup- Following receipt ballots, port position of its as to each of the con- Trustee filed a “final” plan amended solidated matters. Counsel for the Com- (the reorganization Plan”) “Fourth on De- mittee cross-examined witnesses for the 9, 2011, cember incorporating what 1, Trustee and for Chase. On November Trustee’s attorney described to the bank- 2011, objections, over Committee’s ruptcy court as “some inconsequential and court issued an oral ruling ap- changes” beneficial to the Third Plan. proving Agreement. the Settlement In its changes Those included a rewording of the oral ruling, the bankruptcy court consid- section of the Third Plan pertaining to the ered the Agreement, Settlement the Mo- $200,000 payment initial due Chase under Value, tion to Objection and the Claim “in- Agreement Settlement (changes un- tertwined [such that] resolution one derlined): resolve[d] others.” Consistent with view, approving addition to Under the terms of the [Settlement Settlement Agreement the bankruptcy Agreement], [Chase’s] Posfi-Petition denied also the Motion to and Value Claim is Allowed capped Objection. the Claim The bankruptcy $5,000,000.00 ... was to paid [Chase] be court memorialized its oral in three ruling $200,000.00 $5,000,000.00 of that follow- separate orders —one to pertaining ing entry of the order approving the Agreement, Settlement one to the Motion Agreement] [Settlement prior Value, Objection. one to the Claim plan. Notwithstand- confirmation of The appealed Committee ing the obligation to make such pay- approval Agree- ment, the Trustee has not made such ment, denial Value, of the Motion to payment and will not make pay- such and its Objection. denial the Claim prior ment Notwith- confirmation. standing such [Chase’s] modification of G. Reorganization. The Plan of right to payment, [Chase] has voted in The Trustee filed an plan of amended the Plan.... favor of reorganization (the on November Plan”), “Third conducted a incorporating hear- the terms of ing on the regarding plan record confir- stating $200,000 mation on December payment initial 2011. The bank- due Chase had paid. ruptcy been objected found Chase’s claim to be 1129(a)(10)14 the Third Plan impaired and the Trustee called under section for a vote with a deadline of December confirmed the cramdown-style Fourth 2011. The class of claims comprising the Plan over objection.15 the Committee’s *8 1129(a)(10) ("The 14. 11 ¶ U.S.C. court shall 15. See 7 Bankruptcy on Collier 1129.03 (16th 2015) ("The plan only a [Bankruptcy] confirm if ... a ed. [in case Code where] an- ticipates reorganizations pro- that all impaired class of claims is will plan, under the at participants.... ceed with assent the of all least class impaired one of claims that is may [Confirmation be desirable when one or plan accepted under plan. the has the accept more plan.... classes refuse the To 538 II. Review bankruptcy the Standard of appealed
The Committee the Plan. confirmation court’s appeals a court reviews “When court, sitting the of a district as decision Appeal. H. The court, it applies the same appellate the court consolidated Com- The district review the bankruptcy standards of the regarding appeals mittee’s findings of fact conclusions of court’s and Value, Motion the the Agreement, court.”17 applied law as the district the Plan. In a memo- Objection, and Claim court,” we “re Acting as a “second review 3, January dated judgment and randum bankruptcy findings of the court’s view[] affirmed the 2014, district court bank- the standard, clearly fact under erroneous .the Although fronts. the court on all ruptcy bankruptcy conclusions of court’s ostensibly eight sepa- asserted may law “benefit Although de novo.”18 we appeal, the district arguments rate analysis from district court’s arguments to two cen- distilled those court persuasive presented, issues amount First, district con- tral issues. weight, any, if to be accorded district bankruptcy that court acted cluded entirely subject conclusions court’s that determining its discretion within properly our Our review is discretion.”19 Agreement was fair and the Settlement the actions focused on second, the And district court equitable. court.20 Village Camp In re under concluded L.P.,16 I, “pro- that the Fourth Plan Bowie Analysis III. ‘impairment’ requisite for the neces- vided ostensibly in a give desig Chase a vote” cramdown The Committee sary to 1129(a)(10) nates issues on eight appeal. under section Of those confirmation (b). issues, appeals eight challenge all but The Committee the district two district a “second judgment. Acting actions.21 re proponent plan, such a must thus with ‘the definite firm conviction confirm ” (quoting In proceed under the nonconsensual confirma- mistake has been committed.’ re 1129(b).... 696, Dennis, (5th Cir.2003))). provisions of section F.3d 701 330 argot bankruptcy practice, when colorful met, 1129(b) requirements designates following of section are The Committee be ‘crammed confirmation can down’ issues: class.”). dissenting throat of the Both courts focused on [Issue One:] lower 9019], [Rule settlement standards under (Bankr.N.D.Tex.2011), B.R. 16. 454 702 aff'd, ignoring issues standards determin- Cir.2013). (5th 239 710 F.3d claim; (i) ing: value of Chase secured and/or, (iii) (ii) objections burden on claims 671, (5th Crager, re Cir. 17. In 691 F.3d 676 to establish the value of its collater- 2012) (internal omitted). quotation marks al.; Court erred when [Issue Two:] District P’ship, In re T-H Ltd. New Orleans ; ignoring designated Plan issues.... (5th 1997). F.3d Cir. Error in determination that [Issue Three:] equitable the Chase Settlement was fair Inc., CPDC, (5th 19. In re 337 F.3d the estate and in the best interest of and/or Cir.2003) (alterations quotation and internal Bankruptcy Court abused dis- omitted). marks approving cretion when the Chase Settle- ...; (5th Perry, re 20. See In ment. Cir.2003) ("[W]e clearly Court was [Issue Four:] determine The District must whether upholding supports when determinations evidence court's in error oversecured....; only findings and Chase was set them aside if we are left
UOCO 05 Chapter view court in a 11 bankruptcy- The Committee designates two issues case, we do not review the findings or implicating bankruptcy court actions re- rather, conclusions of the district viewable here. (1) We court— therefore consider: we findings review the and conclusions of whether the bankruptcy court abused its court.22 As an initial mat discretion in approving the Settlement ter, we conclude that the issues the Com (2) Agreement; whether the bank- designates mittee challenging exclusively ruptcy court erred denying the Motion district court require actions do not our to Value and the Objection Claim concur- consideration, and we do not address those rent with approval its of the Settlement issues. Agreement. We have discretion to consid- er the district court’s analysis of these two Further, although the Committee chal- issues, but we are not by bound its conclu- lenges eligibility Chase’s to vote an sions.25 impaired creditor vis-a-vis the district court’s affirming decision the bankruptcy approval Plan, the Fourth no- A.
where in the Committee’s voluminous We consider first the bankruptcy court’s briefing does it designate an issue or raise approval of the Agreement. argument substantial regarding an erro- The Committee claims in essence neous conclusion of law or finding of fact not, fact, was part oversecured, on the bankruptcy court. We do not address this challenge, therefore as the should Com- approved mittee has waived it.23 have Even assuming Agree- it, Committee did not waive ment. this Our task challenge is to review the bankrupt- arguably foreclosed our cy decision in court’s decision for an abuse of discre- L.P,24 In re Village I, at Camp Bowie tion.26 [Issue Five:] District Court clearly was argument erro- portion an analyzes sup findings....; neous ports those (citing contentions.” 16 Charles [Issue Six:] The District clearly Court was Miller, Wright, Alan Arthur R. Edward H. erroneous in review of confirmation issues Cooper Gressman, Eugene & Federal Practice focusing solely on Chase’s status as an im- 3947, (1977))). & Procedure at 421 Issues creditor....; paired argued not raised or appellant's in the brief [Issue Seven:] clearly District Court may be considered waived and thus will not by upholding erred determinations that the Id.; see, be noticed or e.g., entertained. Unit Plan was fair equitable....; 325, Whitfield, ed (5th States v. 590 F.3d 346 Eight:] [Issue clearly District Court Cir.2009). by determining erred that Chase im- was paired. ... 239, (5th Cir.2013) ("[Sec- 24. 710 F.3d 245 Appellant's Brief at 3-7. 1129(a)(10) tion] distinguish does not between discretionary and economically driven im- re T-H New Orleans P’ship, Ltd. 116 pairment. [A]ny ... alteration of a creditor’s at 796. F.3d minor, rights, no matter how constitutes im- (internal pairment.” quotation marks omit- 23. Federal Appellate Rule of Procedure ted)). 28(a)(5) requires appellant’s brief to in clude "a presented statement of the issues for CPDC, Inc., (5th In re 337 Mortg. review.” In re F.3d Corp., Tex. Servs. Cir.2003). (5th Cir.1985) ("Rule F.2d [28(a)(5)] has been construed as a mandate appellant Bodenheimer, Jones, brief of the Szwak, contain a In re state & Win review, presented L.L.P., ment of the issues (5th Cir.2009). chell
540 the Mortgage regard With to may approve ter factors.
A litiga on motion probability or settlement Trustee’s of success compromise hearing and a and after notice tion, the trustee that “the bankruptcy the court found 9019,27 do but it should so Rule pursuant to would position of the Committee’s success equi fair and settlement is “only when the '[ultimately] appeal,” predic on an rest the es interest of and in the best table bankruptcy tion that from the stemmed 28 determining a settle whether tate.” In that overse “feel[ing] Chase [was] equitable, apply we the is fair and ment to regard complexity the cured.” With Brewing set out Jackson three-part test likely litigation, the bank and duration of terms of comparing “the a focus on with appeal would ruptcy “[a]n court found likely rewards of compromise with costly, seriously delay be and would bankruptcy A court must litigation.”29 regard with resolution of case.” And [the] (1) of success in probability evaluate: bearing on the wisdom to other factors subject settlement, litigating the claim bankruptcy Agreement, uncertainty for the due consideration with Agree court found that the Settlement (2) law; the complexity in fact and and closing full ment would and fair “speed litigation any and attend likely duration of estate, and a distribution to credi [the] inconvenience, delay; and expense, ant that, tors;” “[e]onsidering liti the costs of (3) bearing factors on all other gation, the unsecured creditors [would] These “oth compromise.30 of the wisdom more probably receive [the Mortgage er” so-called Foster factors—the they receive if the Agreement] than would (i) “the interests of factors—include: best prevailed appeal;” [Committee] creditors, proper deference to ‘with “ creditors unsecured “[distribution (ii) ”; views’ ‘the their reasonable certainly than if this be sooner [would] truly is extent to settlement litigated;” matter that the Set [were] arms-length bargaining, product ”31 Agreement tlement “limit[ed] [Chase’s] of fraud or collusion.’ payment
claim for the allow[ed] .... pending expenses pursue administrative 1. claims, orderly liquidation for an allowfed] the bank persuaded We are estate, provide[d] potential for a ruptcy requisite court undertook the anal recovery creditors.”32 unsecured ysis in of the settle comparing terms that, bankruptcy court also noted likely litigation. ment with the rewards of filed, it [initially] case was “[w]hen [the] bankruptcy findings court made show recovery appeared that there would be no three-part ing consideration all for Brewing along test with Fós the unsecured creditors.” Jackson Inc., 27. Fed. 9019(a). Cajun Coop., re 119 31. Elec. Power R. Bankr.P. (5th Cir.1997) (quoting F.3d In re 917-18). Mortg., Foster 68 F.3d at Mortg. Corp., 28. See In Foster 68 F.3d re . (5th Cir.1995) Although court did not ex- pressly whether consider the Settlement Co., Brewing In re Jackson “truly product was of arms- (5th Cir.1980) (internal quotation marks length bargaining,” a close look at the record omitted). fraud indicates that neither nor collusion and, event, likely any here the Committee 30. Id. does not raise the court's omis- briefing. in its sion that factor million pre-petition plus claim its $6 million post-petition interest claim.35 *11 In evaluating a Rule 9019 settle ment, bankruptcy a court need not “con The Committee asserts that at the time a duct mini-trial to determine probable the of the Consolidated Hearings the Working any outcome of claims waived the settlem Capital were subject Assets to JP Mor- Rather, ent.”33 bankruptcy court gan’s first-priority lien such that Chase’s “apprise must [itself] relevant facts second-priority lien should have been as- and law so that can make an [it] informed signed no value. The argu- Committee’s and intelligent decision.”34 Given the rec ment must rely on an assumption that the ord and structure of the Agree Trustee erred in paying not down DIP the. ment, bankruptcy implicitly Financing Facility balance prior findings made regarding the value of Bay Redfish sale. Recall that JP Morgan Chase’s various secured collateral relative held first-priority liens in Working to the amount pre- of Chase’s post- Capital Assets and the Bay Redfish Assets petition persuaded claims. We are from pursuant the DIP to Financing Facility, the record that bankruptcy court ade while held a Chase lien in subordinate quately apprised itself to make in Working Capital Assets but no lien in the intelligent formed and decision approv Redfish Bay Assets. In the Committee’s ing the and did so. view, had the Trustee used proceeds from the Working Capital parties Assets to dispute pay the value of Chase’s down the Financing DIP Facility various secured collateral. The balance record re- earlier, Morgan’s flects that the JP lien in had Redfish before Bay ($35.4 it estimated Assets would have Refinery effectively values been million), extinguished, minimized, or at least Working Capital $38.1 As- and a ($4.8 million), greater sets proceeds proceeds insurance share of the from the ($0 from the Bay Truck Rack Redfish Fire sale—now to $6.6 unencumbered— million), ($1.7 and the ATI would Receivables have been diverted gen- AGE’s into million). urges The Trustee eral these for the coffers unsecured creditors to support values essence, con- share. the Committee chal- that, clusion if proceed the matter were to lenges the Trustee’s decision instead litigation, ultimately Chase could have pay JP Morgan proceeds out of the from by preponderance demonstrated a sale, Bay effectively Redfish which ex- evidence a combined secured tinguished val- Morgan’s collateral JP lien in the Work- million, ue of at least representing ing Capital Assets and proceeds left the Cajun 33. In re Coop., decision, Elec. Power 119 intelligent F.3d make an informed and and set out reasons for his decision. The judge may make either or oral find- written Id..; Corp., see In re Am. Reserve F.2d 841 ings; important, long is not form as the so 159, (7th Cir.1987) ("Since a findings reviewing show court that judge normally will gov- familiar be with the discretion.”). judge properly exercised his erning law and surrounding the factual issues settlement, setting ap- out his reasons for P’ship, 35.See In re T-H New Orleans Ltd. proving the unduly settlement should not be 790, (5th Cir.1997) ("The F.3d creditor bankruptcy judge burdensome. A need prove ... bears the ultimate burden to hold a mini-trial or write an extensive opinion preponderance of evidence its entitlement to every time he approves disapproves or a set- interest....”). postpetition tlement. The judge only apprise need himself of the relevant facts and law so that he can ac- ATI Receivables and the the Fire claim Chase, to the exclusion thereof to ultimately claims those cording to what creditors. unsecured claim Rack Fire The Truck garnered. per- fails to argument The Committee’s for $2.35 settled on November First, the bank- two reasons. suade for its lien to release agreed million had the Trustee explained, ruptcy part full as in the ATI Receivables funds needed certain to retain discretion Litiga- of the Gonzales settlement AGE’s alive, ongoing pay estate keep “to The Commit- on December claims, possi- administrative expenses, the focus misconstrues due tee’s assertion might have been ble refunds *12 [Refinery].” bankruptcy the of the consider inquiry. the sale our We with connection to obligation Agree- no was under Settlement approval The Trustee Facility prior Financing DIP it the down the before pay on the record ment based Second, the Bay sale. determination, to the Rédfish oc- time it made reasoning is confounded Committee’s At that curred on November in the rec- reflected of events timing the it time, court had before bankruptcy the Financing DIP Trustee'paid The ord. Rack for the Truck value an estimated Bay the Redfish Facility pursuant in full million; and of between Fire claim $0 20, 2011, effectively May Order on Sale Receivables, an estimated and for the ATI Morgan’s first-priority JP extinguishing million. value of $1.7 Assets and Working Capital in the lien short, support for provides In the record priority. to first lien elevating Chase’s estate Trustee’s conclusion Adjustment, which Working Capital The litigat- in of failure probability some faced from the proceeds the release caused claim such post-petition ing Chase’s Trustee, to the Assets Working Capital fair posed a Agreement the Settlement later, three weeks on until would not occur favorable, alternative. equitable, Thus, as of the Redfish June did not bankruptcy hold that sale, paid not have We Trustee could Bay in the Set- Financing approving DIP abuse its discretion the balance down from the proceeds compromise Facility using Agreement tlement —a if—in his fiduciary Assets even Working Capital discharge of his Trustee made The tim- to do so. discretion —he wished duty. for the Trustee did not allow
ing of events Working proceeds from to use the B. DIP Fi- down the pay Assets to Capital to the Red- Facility prior balance nancing turn next to the Committee’s We bankruptcy court Bay The fish sale. was bankruptcy court that the contention assigned reasonably have therefore could 506(a) 502(b) and sections required under million estimated value the entire $4.8 post- the value of Chase’s to determine Capital Assets to Chase Working through litigation continued claim petition assessing value secured collateral Objection and denying the Claim before litiga- of success probability Trustee’s arises question This to Value. the Motion tion. bankruptcy context. The in a narrow n hearings on the court held asserts further The Committee Value, the Motion Agreement, Agree that, at the time of adduced Objection. Claim should hearing, ment each testimony regarding Truck Rack evidence assigned have values It developed matter. fully.36 petition, record and shall allow such claim in such After Hearings, the Consolidated amount.”40
bankruptcy court ruled on each matter court denied the Com- separately. The Committee does not now objection mittee’s approved the Settle- seek a right fully adduce evidence be ment without making a section heard a ruling objec and receive on its 502(b) determination. The Committee ar- tions. It rather findings seeks detailed gues that in doing so the bankruptcy court pertaining to each ruling. individual As defied the plain statute’s command. We these arguments questions raise of statuto agree that the bankruptcy court erred. construction, ry we review de novo.37 502(b), Under section the Committee had a
right to have the bankruptcy court “deter- mine the of’ amount Chase’s allowed claim approved before it the Settlement Agree- The Committee’s argument first ment. particular case, this however, focuses whether the bankruptcy court provide did the Com- had an obligation to “determine” the al mittee, as objecting party interest, *13 lowed of amount Chase’s claim under sec with notice and a hearing regarding its 502(b) in response Objec to the Claim objection, allowing it to develop the record tion. Chase filed a claim for post-petition fully. The bankruptcy court then explicit- 506(b), interest under section pro which ly concluded that the Settlement Agree- vides, the extent that “[t]o an allowed se ment was “in the best interest of the es- cured by claim is property secured tate.”41 It is that bare the bankruptcy value of which ... greater is than the court could not have simultaneously ap- claim, amount such of there shall be al proved the Settlement Agreement and lowed to the holder of such claim[ ] inter granted the substantive relief the Commit- 502(a), est such claim.”38 Section in tee sought. Implicit in the bankruptcy turn, properly deems a filed claim allowed court’s approval of the Settlement Agree- unless a in party objects.39 interest The ment a rejection is of the Committee’s 502(b) objected. Committee Section pro position that, determination while —a vides “if ... objection that to a claim is compliant statute, with the persuades us made, court, after notice a hear that the complained error of was harmless. ing, shall determine the amount such Having carefully record, reviewed the in of in claim lawful currency of the United this template case—albeit not a for future States of the date of the filing of the like cases—we need not remand.42 36. The acknowledged 502(b) argu- added). § at oral (emphasis 40. Id. Section ment nothing that 502(b) remains to be provides said. exceptions, for several none transcripts Hearings of the Consolidated com- 502(b)(l)-(9). apply § of which here. See id. prise than more seven hundred pages of wit- testimony, pertain ness Co., most of which 41. See Brewing In re Jackson 624 F.2d question appeal essential issue on (5th Cir.1980) (internal quotation —wheth- er Chase was oversecured. omitted). marks I, L.P., Camp In re Vill. at Bowie 710 F.3d 42. Fed. R. (providing Bankr.P. 9005 that (5th Cir.2013) (citing Matthews v. rule, harmless-error Federal Rule Pro- Civil Co., Inc., Remington Arms 61, “applies cedure in cases under (5th Cir.2011)). Code”); (“Unless justice see Fed.R.Civ.P. 61 otherwise, requires ground no error ... is 506(b). § 38. 11 U.S.C. vacating, modifying, ... or otherwise disturb- 502(a). Id. ing judgment a order.... [T]he court must bankrupt- that the urges The Committee was to “determine” the cy required argu second The Committee’s secured collater- absolute value of Chase’s contrast,
ment, on whether the focuses 506(a) in response section al under “de obligation to had an disagree. to Value. Whereas Motion We secured col value of Chase’s termine” 502(b) pertains to a determination section 506(a) response under section lateral claim, any allowed amount of section of the Value, pur filed which was Motion to 506(a) applies only involving in situations post-peti Rule 3012. As Chase’s suant to creditor’s collat- the valuation a secured on Chase necessarily depends tion claim 502(b), to section And contrast eral. oversecured, implicates section it being mandatory Congress lan- where used 506(a), a secured cred provides that require guage—“shall determine”—to the ex “to allowed claim is secured court, itor’s part on the of the action interest 506(a) of such creditor’s of the value language. tent no such section contains 506(a) that, is property only [otherwise] ... a provides ... in such Section if goes claim.”43 That section court undertakes determine an unsecured collateral, val- “[s]uch value shall be the value secured explain “[s]uch on to light be ue shall determined light purpose determined But of the valuation.”46 nowhere purpose conjunction any and in with ... valuation read the of section 506 to language do we credi plan affecting ... a such hearing on plain A require “determination.” read- 506(a), section Alongside interest.”44 tor’s 506(a) makes ing of section in context clear provides may “[t]he Rule 3012 provision that “determine” under value claim [secured] determine the *14 mandatory.47 rather permissive than any of in interest and party ... on motion 506(b) hearing on to the holder of after a notice entitles an oversecured Section entity any claim other as post-petition the secured creditor to interest the ex- “security cushion.”48 may direct.”45 tent of creditor’s the court 2001); Corp., re disregard all errors that do not In Envirocon Int’l 218 B.R. and defects 978, (M.D.Fla.1998) (“[T]he permissive any party’s rights.”). substantial 980 affect aspect of Rule lies ... in the court’s 3012 we hold that the error was harm- Because (citing deny re discretion the motion.” less, we need not consider Committee's Linkous, 890, (W.D.Va.1992))); 141 B.R. 894 argument subsidiary under Rule 7052 that the Herrick, 96-82441, 96-8250, In re Nos. 1997 bankruptcy ruling court's oral Claim 33475213, (Bankr.C.D.Ill. 12, May WL at *4 Objection allow for ade- was insufficient to 1997) ("Rule permissive, not manda 3012 is appellate quate review. See Fed. R. Bankr.P. 98, tory.”); Wolf, In re 162 B.R. 106-07 (providing Rule of 7052 that Federal Civil (Bankr.D.N.J.1993) (same); Washington In re "applies adversary proceed- 52 Procedure Co., 198, (Bankr.M.D.Tenn. Mfg. 128 B.R. 204 (”[T]he ings”); Fed.R.Civ.P. 52 must 1991) (same). specially and its conclu- find the facts state separately.”). law sions of Enters., Inc., 48. United States Pair 489 v. Ron 506(a)(1). § U.S.C. 43. 11 241, 1026, 235, U.S. S.Ct. 103 L.Ed.2d 109 (1989) ("Recovery postpetition 290 of interest added). (emphasis 44. Id. unqualified.”); Sav. Ass’n Tex. see United of Assocs., Ltd., 484 v. Timbers Inwood Forest added). (emphasis Fed. R. Bankr.P. 3012 372-73, 108 S.Ct. L.Ed.2d U.S. (1988). Supreme has The Court referred 506(a)(1) added). (emphasis U.S.C. 46. 11 by value of secured to the amount which the Hudson, agree. re creditor's claim courts See In collateral exceeds a secured Lower (Bankr.W.D.Mich. “security cushion.” that creditor’s Id. 260 B.R. 432-33 as S012, together Rule “read with section court did not err in deny- 506,” anticipates that some secured cred- ing the Motion to Value simultaneously itors’ for post-petition claims interest will its approval with of the Agree- requests by draw parties other for the ment.
bankruptcy court to “determine” the value underlying purpose collateral. rv. requests, course, of these is to establish We AFFIRM the district court’s consoli-
the extent of the creditor’s security cush- dated judgment affirming the bankruptcy ion corresponding post- entitlement to court’s orders approving the end, petition interest. To Rule 3012 Agreement, denying the provides Objection, Claim may “[t]he court determine denying the Motion by value of a claim to Value. secured a lien on property in which the has an estate inter-
est on motion any party interest and OWEN, Circuit Judge, dissenting: after hearing on notice to the holder of I agree with most panel’s majority claim any entity secured other However, opinion. I respectfully submit may the court direct.”50 We read the that the bankruptcy court’s error in failing permissive language of “may Rule 3012— to determine whether Capital Corp. determine” —to a bankruptcy afford (“Chase”) was in fact oversecured was not discretion “to decline to make a ruling on harmless. The Official Committee of value if [it] determines ruling [such] to be (the Unsecured “Committee”) Creditors unnecessary.”51 We see no conflict be- contends that Chase inwas fact underse- tween Rule 3012’s permissive language cured and therefore that Chase will be 506(a)’s that, provision Section where overpaid under the terms of the Settle- court considers collateral val- ment $5,000,000. more than necessary, uation value must “be deter- The Committee further contends that any in light mined purpose of the valua- litigation costs future to resolve whether tion.” Chase was oversecured would be substan- We affirmed above the Trustee’s conclu- tially $5,000,000. less than There is a sion that the estate’s best interests were reasonable probability that the costs of *15 better by served Agree- litigation further not approach would by ment than continued litigation to deter- $5,000,000. I therefore cannot say that mine the absolute value of Chase’s secured bankruptcy court’s error was harmless that, collateral. We also held purposes for or conclude that approval of the Settle- 502(b), of section although the bankruptcy Agreement ment equitable was fair and or court did not adequately determine the in the best interests of estate. claim, amount Chase’s allowed its error was harmless. We hold Chase now that contends if that the Settlement bankruptcy court did not abuse the discre- is not approved, Chase will re- tion afforded it Rule 3012 in a declining assert against million claim request Trustee, Committee’s to undertake a arguing that there was a diminu- precise “more determination of value.”52 tion of the value of Chase’s collateral. ¶ (16th 49. 9 Collier Bankruptcy ¶ on 3012.01 See 9 Bankruptcy Collier on 3012.01 ed.2015). (16th ed.2015). added). 3012(emphasis Fed. R. Bankr.P. 52. See id. Fifth Circuit was position.”3 The that the tee’s asserts However, the Committee deciding whether increased sub- no basis collateral “left with of Chase’s value $25,000,000) ‘findings’ on (by approximately court’s this stantially bankruptcy bankruptcy pendency not; during the in- clearly or erroneous issue were that Chase’s diminution proceedings deed, meaningful no basis for we have by the been denied have claim should explained The court at all.”4 review having considered as or bankruptcy remand the case proper “the solution is assessing the Settlement in no value of the issue.5 factual determination” for a evidence appears be There Agreement. case, bankruptcy present In the the Committee’s supporting in the record explana- inadequate provided court has did not de- collateral that Chase’s position determinations, and no mean- contend value, does not for its Chase in cline contends appeal. Chase appeal. in this The can occur ingful otherwise review argu- waived'its any only that the Committee not discuss evi- court did bankruptcy claim. the diminution regarding ment testimony supporting or dence collater- of Chase’s “feel[ing]” value erred bankruptcy court Because overse- court discuss bankruptcy if was Chase al. did to determine Nor failing 502(b), there 11 U.S.C. under of its conclusion support cured evidence fact, I remand would issues are material litigation, the “[c]onsidering costs find- court for to the this case probably creditors receive unsecured will ings. they than would in this settlement more two-day prevailed upon held committee a if the receive
The numerous exhibits hearing and admitted appeal.” collat- the value of Chase’s on the issue a determination Remanding for factual any specific discussing eral, and without likely does not secured on Chase’s status it particular, stat- evidence testimony or parties to third carry the risk of harm “fe[ltj” though was that it Chase only ed might litigation that other- to this party re- Fifth Circuit has oversecured. litigation after accompany further wise when determinations for factual manded substantially been plan has reorganization are not findings factual the lower explained re- As consummated. this us to review enough to enable “explicit bankruptcy litiga- particular garding this them.”1 distri- only change in the estate tion: “The Baptist Founda- Missionary In In re Committee seeks bution America, trustee tion of and a larger distribution smaller amount disagreed on the and a creditor this distribution Committee. estate’s secured was the creditor scenario, partic- under the plan liquidating in time.2 points capital at different *16 case, ‘overturning the this ular facts of specific did not make functionally mean no more Plan’ would fact; only that that it stated findings from money than re-allocation support the trus- does “the evidence Safety 3. at 760. Highway Pro Id. v. Governor’s 1. Ratliff (5th Cir.1986). gram, F.2d at 761. Id. Lubbock, Bank, (In Tex. v. Nat’l 2. Wilson First Am., Inc.), Missionary Baptist Found. re Id. Cir.1986). (5th 759-60 parties other in interest.”6 reasons,
For these I would reverse and
remand this proceeding to the bankruptcy
court. America,
UNITED STATES of
Plaintiff-Appellee,
v. PRIETO,
Ruben Defendant-Appellant.
No. 14-50653.
United States Court of Appeals,
Fifth Circuit.
Sept. *17 Comm, (5th Cir.2013). Appx. Unsecured Creditors v. Official (In Inc.), Moeller Refining, re AGE 537 Fed.