The Roman Catholic Diocese of Rockville Centre, Ne and Parishes, As Additional Debtors
MEMORANDUM OPINION GRANTING THE DEBTOR‘S MOTION FOR ENTRY OF AN ORDER PURSUANT TO SECTIONS 363 AND 105(A) OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 9019 (A) APPROVING THE SETTLEMENT AGREEMENTS, RELEASE AND BUYBACK WITH CERTAIN INSURERS AND OTHER PARTIES, AND (B) GRANTING RELATED RELIEF
JONES DAY
Attorneys for the Debtor and Debtor-in-Possession
250 Vesey Street
New York, New York 10281
By: Corinne Ball, Esq.
Todd Geremia, Esq.
Benjamin Rosenblum, Esq.
Andrew Butler, Esq.
PACHULSKI STANG ZIEHL & JONES LLP
Attorneys the Official Committee of Unsecured Creditors
780 Third Avenue
34th Floor
New York, New York 10017
By: James I. Stang, Esq.
Brittany M. Michael, Esq.
Karen B. Dine, Esq.
PARKER, HUDSON, RAINER & DOBBS LLP
Attorneys for Interstate Fire and Casualty Company, National Surety Corporation, and Fireman‘s Fund Insurance Company
303 Peachtree Street, Suite 3600
Atlanta, Georgia 30308
By: Harris B. Winsberg, Esq.
Matthew M. Weiss, Esq,
Matthew G. Roberts, Esq.
Two N. Riverside Plaza, Suite 1850
Chicago, Illinois 60606
By: Todd C. Jacobs, Esq.
John E. Bucheit, Esq.
WHITE AND WILLIAMS LLP
Attorneys for Interstate Fire and Casualty Company, National Surety Corporation and Fireman‘s Fund Insurance Company
810 Seventh Avenue, Suite 500
New York, New York 10019
By: Siobhain P. Minarovich, Esq.
DUANE MORRIS LLP
Attorneys for London Market Insurers
865 S. Figueroa Street, Suite 3100
Los Angeles, California 90017
By: Russell W. Roten, Esq.
Jeff D. Kahane, Esq.
Andrew Mina, Esq.
Betty Luu, Esq.
CLYDE & CO US LLP
Attorneys for London Market Insurers
30 S. Wacker Drive, Suite 2600
Chicago, Illinois 60606
By: Catalina J. Sugayan, Esq.
James J. Moffitt, Esq.
UNITED STATES TRUSTEE
Attorney for the United States Trustee for Region 2
One Bowling Green
New York, New York 10004
By: Greg M. Zipes, Esq.
MARTIN GLENN
CHIEF UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the motion (Motion, ECF Doc. # 3358) of the Roman Catholic Diocese of Rockville Centre, New York (the Debtor or the Diocese) that seeks entry of an order (i) approving
Certain Underwriters at Lloyds and London Market Companies (London Insurers); (B) Interstate Fire & Casualty Company, National Surety Corporation, and Fireman‘s Fund Insurance Company (сollectively, Interstate); (C) Evanston Insurance Company, as successor to Associated International Insurance Company (Evanston); and (D) Lexington Insurance Company (Lexington) and AIU Insurance Company (AIU) (collectively with the London Insurers, Interstate, and Evanston, the Settling Insurers), and (ii) granting related relief, pursuant to
In support of the Motion, the Debtor filed the declaration of Jonathan Terrell (the Terrell Decl., ECF Doc. # 3359)—the founder and President of KCIC, a consulting firm that provides certain litigation and strategic consulting services to corporations and their legal counsel.
On November 8, 2024, the U.S. Trustee (UST) filed an objection to the Motion (the UST Objection, ECF Doc. # 3379), arguing that the Court deny the Motion or, at a minimum, adjourn the Motion to the hearing on confirmation. (See UST Objection at 22 ([T]he hearing on
the Motion should be adjourned to the time of confirmation to resolve overall issues relating to the insurance companies.); id. at 39 (requesting that the Court sustain the UST Objection and deny the Motion).)
In response, the Debtor filed a reply (the Debtor Reply, ECF Doc. # 3398) on November 13, 2024, that includes, as Exhibit A, a comparison of relevant terms of various sale orders and, as Exhibits B and C, clean and redline copies of thе proposed Sale Order, reflecting revisions the Debtor made. As support for the Debtor Reply, the Debtor also filed the declaration of Ann V. Kramer, a partner at Reed Smith LLP which serves as special insurance counsel for the Debtor (the Kramer Declaration, ECF Doc. # 3399).
Other replies and joinders, as applicable, were also filed: (i) the joinder and reservation of rights of the official committee of unsecured creditors (the Committee and its joinder, the Committee Joinder, ECF Doc. # 3394) to the Motion; (ii) reply and joinder of Interstate (the Interstate Reply & Joinder, ECF Doc. # 3400) to the UST Objection and Debtor Reply, respectively; and (iii) the joinder of the London Insurers to the Debtor Reply (the
For the reasons discussed, the Court GRANTS the Motion and APPROVES the Debtor‘s entry into the Settlement Agreements and related relief. A separate Order will be entered.
I. BACKGROUND
A. Relevant Case History
On October 1, 2020 (the Petition Date), the Debtor filed a voluntary petition for relief under
B. The Debtor‘s Insurance Policies
The Debtor submits that it worked to identify and preserve insurance policies in effect when abuse allegedly occurred, including primary and excess insurance policies. (Motion ¶ 2.) In the period leading up to the effective date of the Child Victims Act (the CVA), the Debtor states that it expended substantial effort to pull together insurance policies and secondary evidence of insurance coverage from the late 1950s to the present. (Id.) A timeline of the Debtor‘s insurance coverage can be broken down into three periods: (i) the Royal years (Inception–1976); (ii) the London Program years (1976–1986); and the Ecclesia years (1986–Present). (Id. ¶ 6.)
1. The Royal Policies
From its creation until 1976, the Debtor purchased both primary and excess or umbrella insurance coverage (as relevant, the Royal Primary Policies and the Royal Umbrella Policies) from Royal Indemnity Insurance and Royal Globe Insurance Company (collectively now known as Arrowood, Royal and its affiliates). (Id. ¶ 7.) The Royal Policies cover both the Debtor and other insureds. (Id.)
On November 8, 2023, an insolvency proceeding was commenced against Arrowood as the successor to Royal in Delaware, and an injunction against the commencement or continuance of an action against Arrowood or an insured claiming coverage by Arrowood was entered. (Id. ¶ 8.) On January 5, 2024, a petition for an ancillary proceeding was filed in New York by the Superintendent of the Financial Services Department, which is responsible as a guarantor of New York insureds to the lesser of coverage limits per claim or $1 million per claim per policy period. (Id.) The Superintendent also sought a further injunction against actions insured by Arrowood for an additional 180 days upon order of the court approving the ancillary proceeding. (Id.) On September 27, 2024, the New York Supreme Court entered its Decision and Order on the
Verified Petition and Order to Show Cause, granting the relief sought by the Superintendent (Ancillary Liquidation Decision and Order). (Id.) Presently, the bar date for submitting claims to the Arrowood liquidation proceeding in Delaware is January 15, 2025. (Id.)
2. The London Policies
From 1976 until 1986, the Debtor purchased insurance coverage (the London Policies) from a syndicate of insurers known as the London Insurers, with additional excess insurance coverage provided by various other insurers, including Interstate, Evanston, and Lexington, (collectively with the London Insurers, the London Program). (Id. ¶ 9.) All of the London Program Policies cover the Debtor аs well as other insured parties, and the insurance policy proceeds are shared between all co-insureds. (Id.) The first-excess-layer London Policies provide insurance coverage above a $100,000 per occurrence Self-Insured
3. The Ecclesia Policies
Ecclesia Assurance Company (Ecclesia) is the sole provider of insurance for the Debtor and certain other co-insured parties fоr alleged sexual abuse that occurred after August 31, 1986. (Id. ¶ 13.) Ecclesia, a licensed insurer and reinsurer incorporated in New York in 2003, is a captive property and casualty insurance company that provides insurance to the Debtor and is a separate corporation wholly owned by the Debtor. (Id.)
C. The Insurance Coverage Adversary Proceeding
On the Petition Date, the Debtor commenced an adversary proceeding against certain of the Debtor‘s insurers seeking, among other things, a declaratory judgment with respect to the Debtor‘s rights and the insurers’ obligations under certain insurance policies for the benefit of the abuse survivors. (Id. ¶ 14.) The Committee sought to intervene in the adversary proceeding, which the Court ultimately approved (Adv. Pro. No. 20-01227, ECF Doc. # 38). (Id. ¶ 15.) Subsequently however, several motions to withdraw the reference to the Bankruptcy Court were filed, all of which were grаnted. (Id. ¶ 17.) As a result, the adversary proceeding is now pending as four separate proceedings in District Court—Case No. 20-CV-11011 (JLR) (the Royal action), Case No. 21-CV-71 (JPC) (the LMI/Lexington action), Case No. 21-CV-7706 (AKH) (the Allianz action), and Case No. 21-CV-9304 (JLR) (the Evanston action)—where insurers have raised certain defenses to coverage. (Id.)
The Debtor indicates that it brought claims for declaratory judgment and breach of contract and sought insurance coverage for the abuse claims that had been brought against it under the CVA and Adult Survivors Act. (Id. ¶ 18.) Specifically, the Debtor sought coverage for all sums that the Debtor and other insureds would be legally obligated to pay through judgments and settlements because of personal injury, including settlements or judgments based on claims and lawsuits alleging sexual and physical abuse. (Id.) The Debtor has also sought payment of its defense costs and еxpenses. (Id.)
The Settling Insurers, disputing coverage, sought declaratory judgments seeking to eliminate or limit their obligations to the Debtor for the abuse claims and asserted numerous legal and policy interpretation defenses to the Debtor‘s claims. (Id. ¶ 19.) Moreover, the Settling Insurers also asserted a late-notice defense, claiming that the Debtor should have
provided notice to the Settling Insurers whenever the Debtor learned of an alleged act of abuse. (Id.)
The Debtor indicates that, in certain instances, its insurance policy documentation is incomplete due to the passage of time. (Id.) Moreover, resolution of issues, the Debtor submits, is a fact-intensive exercise and can only be resolved on a claim-by-claim basis. (Id.) In addition, there is also a dispute over the existence, timing, and extent of obligations of carriers in the Lоndon Program regarding the reimbursement of defense costs and expenses. (Id.)
D. Mediation Efforts and the Plan Process
The Debtor engaged in mediation during the pendency of its chapter 11 case. On
Instead of ruling on the Debtor‘s motion to dismiss, the Court continued the motion and issued an order on May 28, 2024, appointing the Hon. Shelley C. Chapman (Ret.) and Paul A. Finn, Esq. to serve as co-mediators. (Id. ¶ 25.) This time, mediation proved fruitful. On September 18, 2024, the Debtor and the Committee notified the Court that, along with certain insurers, the terms of a global resolution were reached. (Id. ¶ 26.)
E. The Settlement Agreements
Pursuant to the proposed Settlement Agreements, the Debtor‘s third-party insurers (other than Arrowood) will contribute, in the aggregate, over $85 million to a settlement trust for the benefit of abuse survivors. (Id. ¶ 27.) Together with other contributions, the settlement pool for claimants is more than $320 million. (Debtor Reply ¶ 1.) The Settlement Agreements also resolve the insurance adversary cases against all insurers, other than Arrowood, and remove such insurers as potential objectors to the Debtor‘s proposed chapter 11 plan of reorganization. (Id. ¶ 27.) A summary of the monetary terms of the Settlements is as follows:
| Summary of the Settlement Agreements | |
|---|---|
| Allianz Purchase Price | $59 million |
| LMI Purchase Price | $25 million |
| Evanston Purchase Price | $1 million |
| Lexington Purchase Price | $525,000 |
| Assets Purchased | Purchased Property, as defined in each Settlement Agreement, which includes: (i) historical insurance policies, as listed in each Settlement Agreement, and (ii) certain extra-contractual claims, as defined in each Settlement Agreement. |
(Id. ¶ 28.) The Debtor clarifies that Purchased Property extends solely to the extra-contractual claims of the parties signing the Settlement Agreements and related releases. (Debtor Reply ¶ 17; see id., Ex. B at 3, n.4.)
The Plan, the Debtor makes clear, is not conditioned on the [S]ettlement
F. The Motion
Thе Debtor asserts that the proposed sale of its insurance policies to the Settling Insurers free and clear is an exercise of the Debtor‘s business judgment and should be approved. In support, the Debtor states that the Settling Insurers will pay significant consideration in exchange for the policies, an amount arrived at through court-ordered mediation that was conducted in good faith and at arm‘s-length. (Motion ¶ 33.) The sale, which has the support of the Committee, will resolve the insurance coverage actions while providing funds to immediately pay creditors. (Id.) Additionally, the Debtor submits that it satisfies the requirements to sell the insurance policies free and clear of the interests of additional insureds, any claims of claimholders, or any other interests any party may assert. (Id. ¶ 37.)
The Debtor further requests that the Court approve the Settling Insurer Supplemental Injunction as it is an integral part of the Debtor‘s resolution with the Settling Insurers. (Id. ¶ 39.) Failure to do so, the Debtor asserts, would prevent the realization of a sizeable amount of sale proceeds for distributions to claimants. (Id.) Similarly, the Debtor also argues that the Court should approve a litigation bar on the pursuit of claims, arising from or related in any way to an Abuse Claim or any of the Settling Insurer policies, against the Settling Insurers. (Id. ¶ 40.) Such a bar would ensure the fair and equitable treatment of all Claims and is a necessary component of the sale, the Settlement, and the Debtor‘s reorganization. (Id.) Again, however, the effectiveness of those terms is conditioned on confirmation of the Plan.
The Debtor also argues that certain injunctions in favor of the Settling Insurers—the channeling injunction and the gatekeeper injunction—represent what thе Debtor believes is a sound exercise of its business judgment. (Id. ¶ 41.) As for the Settling Insurers themselves,
the Debtor argues that they are good-faith purchasers entitled to the full protections of
Aside from satisfying the applicable and relevant provisions of
G. The UST Objection
The UST opposes the Motion primarily on four grounds. First, the UST asserts that the proposed Sale Order predetermines issues that should more appropriately be addressed at plan confirmation and is, therefore, a sub rosa plan. (UST Objection 20–23.) Such issues include the imposition of nonconsensual non-debtor third-pаrty releases and injunctions through, among other things, the release of the Additional Debtors who have not yet filed for bankruptcy (but intend to do so) and the free and clear sale of the Purchased Property. (See id. at 20.)
Second, the Debtor, the UST contends, is seeking to sell property that is not property of the estate, without the authorization of those holding an interest in such
the definition of Purchased Property, which the UST notes is defined to include Extra-Contractual Claims that the Court has already suggested does not constitute estate property. (Id. (citing Disclosure Statement Order at 16–17).)
Third, thе UST contends that the Plan and Sale Order contain impermissible nonconsensual release and injunction provisions in violation of the Supreme Court‘s ruling in Harrington v. Purdue Pharma, L.P., 144 S. Ct. 2071 (2024), and applicable state law and fall outside the scope of
The UST further argues that any relief granted in the Sale Order must be limited to what the Debtor would be entitled to under
known or unknown and all persons and Entities receiving notice (or deemed to have received notice . . . ); and (iv) the channeling and gatekeeper injunctions. (Id. at 30–35.)
Fourth, the Sale Order, the UST argues, contains a bar order that extends beyond the authority granted to this Court pursuant to
In addition to the foregoing, the UST also notes several other deficiencies, all of which it believes should lead to a denial of the Motion and the rеlief sought. These deficiencies include, among other things, (i) a finding of good faith under
As a final point, the UST contends that the Motion seeks relief that lacks any statutory basis and falls outside of the parameters of the Plan. (Id.) As support, the UST highlights the disconnect between the Plan and Motion regarding ‘direct action claims,’ which the Plan is silent on but, as defined in the Settlement Agreements, appear to materially alter the rights of survivors with respect to these claims. (Id.) Such alleged inconsistencies, the UST argues,
beget confusion for those voting on the Plan. (Id.) Additionally, the UST notes that the Sale Order only contains a condition precedent for the Plan to be confirmed as opposed to also going effective. (Id. at 39.) As the Settlement Agreements are also effective on the date the Sale Order becomes a final order, the releases contained therein could be final prior to confirmation. (Id.)
H. The Debtor Reply
The Debtor requests that the Court overrule the UST Objection. At the outset, the Debtor rejects the UST‘s contention that the Sale Order is a sub rosa plan as it does not seek to dispose of all the Debtor‘s аssets, dictate the terms of the reorganization, or circumvent creditor‘s plan rights. (Debtor Reply ¶¶ 1, 3.) Moreover, the effectiveness of the Settlement Agreements is conditioned on the Court‘s confirmation of the Plan. (Id. ¶ 1.)
The Debtor further maintains that the injunction provisions in the Settlement Agreement are appropriate and are consistent with precedent; bankruptcy courts routinely approve sale orders containing similar injunctive protections for purchasers, including the supplemental injunctive provision. (Id. ¶¶ 2, 9–10, 12 (citing to the sale orders in General Motors and Chrysler as examples).) Indeed, the Debtor asserts that the UST‘s attempts at extending the Supreme Court‘s Purdue ruling, which addressed third-party releases solely in the plan confirmation context, to sale orders is an overreach. (Id. ¶¶ 2, 11.)
In addition to the foregoing, the Debtor believes that the enjoined claims directly affect the res of the Debtor‘s estate. (Id. ¶ 14.) Accordingly, the Debtor asserts that the Sale Order‘s injunction is properly tailored and does not enjoin direct claims of creditors against non-debtor insurers for the insurer‘s own alleged misconduct in compliance with the Second Circuit‘s ruling in Johns-Manville Corp. v. Chubb Indemnity Insurance Co. (In re Johns-Manville Corp.), 517 F.3d 62 (2d Cir. 2008). (Id.) Consistent with the Disclosure Statement, the Debtor indicates that
it has revised the proposed Sale Order to make clear that (i) the Settling Insurer Supplemental Injunction does not extend beyond the Court‘s jurisdiction and (ii) Purchased Property covers only the extra-contractual claims of the parties signing the Settlement Agreements and related releases. (Id. ¶¶ 15–17.) The Debtor acknowledges
Finally, the Debtor argues that the UST‘s miscellaneous cоmplaints all lack merit and misconstrue the language of the Plan and Settlement Agreements.4 (Id. ¶¶ 19–31.) With respect to the UST‘s assertion that injunctions may only be sought via an adversary proceeding, the Debtor notes that courts have rejected this argument. (Id. ¶ 26.) Moreover, the Debtor clarifies that direct action claims are claims against insurance proceeds and, in any event, the Disclosure Statement has made clear to claimants the scope of the relevant injunctions in favor of the Settling Insurers in exchange for $85 million to fund the Trust. (Id. ¶¶ 28–29.) The UST‘s contention that Plan proponents are attempting to manipulate the voting process by separating the sale from the Plan is also meritless. (Id. ¶ 30.)
I. Interstate Reply & Joinder5
Interstate, focusing solely on its Settlement Agreement (the Interstate Agreement), argues that the UST Objection should be overruled since it advance[es] a fundamentally incorrect interpretation of the Interstate Agreement and the law applicable to it. (Interstate Reply & Joinder ¶ 10.)
First, Interstate rejects the UST‘s contention that the Interstate Agreement provides for the sale of claims owned by third parties—rather, it provides for the sale of Extra-Contractual Claims of the Diocese Bound Parties only.6 (Id. ¶ 11.) Second, Interstate further maintains that Purdue does not bar the approval of the Settling Insurer Supplemental Injunction since Purdue was determined within the context of plan confirmation and, therefore, does not apply to sale orders. (Id. ¶¶ 14–15.) Third, an adversary proceeding is not necessary here since the Settling Insurer Supplemental Injunction fits within the statutory injunction exception and may be issued in the Sale Order. (Id. ¶ 19.)
II. LEGAL STANDARD
A. Sale of a Debtor‘s Assets Outside the Ordinary Course
Although
Courts have made clear that a debtor‘s business judgment is entitled to great deference. See In re Borders Grp., Inc., 453 B.R. 477, 483 (Bankr. S.D.N.Y. 2011) (Indeed, the trustee or DIP is entitled to great judicial deference in deciding which bid to accept as the best and highest bid on the sale of the Debtor‘s assets.) (citation and internal quotation marks omitted). Once a debtor articulates a sound business justification, there is a presumption that in making a business decision the [decision maker] acted on an informed basis, in good faith and in the honest belief that the action was in the best interests of the company. Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650, 656 (S.D.N.Y. 1992), appeal dismissed, 3 F.3d 49 (2d Cir. 1993) (citation omitted). Courts should not generally interfere with business decisions absent a showing of ‘bad faith, self-interest, or gross negligence.’ Borders, 453 B.R. at 482 (quoting Integrated Res., 147 B.R. at 656).
A determination that there are sufficient business reasons to justify a particular sale depends on the facts and circumstances of each particular case. See Lionel, 722 F.2d at 1071–72. However, courts may consider, where relevant, factors such as: (1) the proportionate value of the asset to the estate as a whole; (2) the amount of time elapsed since the filing; (3) the likelihood of
proposing and confirming a plan in the near future; (4) the effect of the proposed sale on any reorganization; (5) the sale price to be obtained with reference to any appraisals of the property; (6) alternative uses of the property; and (7) whether the asset is increasing or decreasing in value. Id. at 1071.
B. Sale Free and Clear
The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if—
(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.
C. Protections to Good Faith Purchasers Under Section 363(m)
The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such аuthorization and such sale or lease were stayed pending appeal.
It has been held that [g]ood faith of a purchaser is shown by the integrity of his conduct during the course of the sale proceedings . . . . A purchaser‘s good faith is lost by ‘fraud, collusion between the purchaser and other bidders or the trustee, or an attempt to take grossly unfair advantage of other bidders.’ Licensing by Paola, Inc. v. Sinatra (In re Gucci), 126 F.3d 380, 390 (2d Cir. 1997) (quoting In re Rock Indus. Mach. Corp., 572 F.2d 1195, 1198 (7th Cir. 1978)).
D. Rule 9019 of the Federal Rules of Bankruptcy Procedure
On motion by the trustеe and after notice and a hearing, the court may approve a compromise or settlement. Notice shall be given to creditors, the United States Trustee, the debtor, and indenture trustees as provided in
Rule 2002 and to any other entity as the court may direct.
While settlements or compromises are favored in bankruptcy and, in fact, encouraged, a court must first determine that the proposed settlement is fair and equitable and in the best interests of the estate. In re Chemtura Corp., 439 B.R. 561, 595 (Bankr. S.D.N.Y. 2010); In re Drexel Burnham Lambert Grp., Inc., 134 B.R. 493, 496 (Bankr. S.D.N.Y. 1991) (internal quotation marks omitted) (citing Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424 (1968)); see also In re Lehman Bros. Holdings, 435 B.R. 122, 134 (S.D.N.Y. 2010).
The Second Circuit has set forth seven interrelated factors (the Iridium Factors) to be considered by a court in deciding whether to approve a compromise or settlement:
- [T]he balance between the litigation‘s possibility of success and the settlement‘s future benefits;
- the likelihood of complex and protractеd litigation, with its attendant expense, inconvenience, and delay, including the difficulty in collecting on the judgment;
- the paramount interests of the creditors, including each affected class‘s relative benefits and the degree to which creditors either do not object to or affirmatively support the proposed settlement;
- whether other parties in interest support the settlement;
- the competency and experience of counsel supporting, and [t]he experience and knowledge of the bankruptcy court judge reviewing, the settlement;
- the nature and breadth of releases to be obtained by officers and directors; and
- the extent to which the settlement is the product of arm‘s length bargaining.
Motorola, Inc. v. Off. Comm. Of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452, 462 (2d Cir. 2007) (citations omitted).
A court need not conduct an independent investigation into the reasonableness of the settlement but must only canvass the issues and see whether the settlement falls below the lowest point in the range of reasonableness. Chemtura, 439 B.R. at 594 (internal quotation marks omitted) (quoting In re W.T. Grant Co., 699 F.2d 599, 608 (2d Cir. 1983)).
In passing upon a proposed settlement, the bankruptcy court does not substitute its judgment for that of the trustee. Depo v. Chase Lincoln First Bank, N.A., 77 B.R. 381, 384 (N.D.N.Y. 1987), aff‘d sub nom. Depo v. Lincoln Bank, 863 F.2d 45 (2d Cir. 1988) (citations omitted). Nonetheless, while the ‘approval of a settlement rests in the Court‘s sound discretion, the debtor‘s business judgment should not be ignored.’ JPMorgan Chase Bank, N.A. v. Charter Commc‘ns. Operating, LLC (In re Charter Commc‘ns.), 419 B.R. 221, 252 (Bankr. S.D.N.Y. 2009) (quoting In re Stone Barn Manhattan LLC, 405 B.R. 68, 75 (Bankr. S.D.N.Y 2009)). In addition, the court may give weight to the informed judgments of the trustee or debtor-in-possession and their counsel that a compromise is fair and equitable. In re Kerner, 599 B.R. 751, 756 (Bankr. S.D.N.Y. 2019) (quoting Drexel Burnham, 134 B.R. at 505).
III. DISCUSSION
A. The Proposed Sale is Within the Debtor‘s Business Judgment
The Debtor has sufficiently established that the requirements of
Motion ¶ 33; Kramer Declaration ¶ 4 (indicating that the $85.525 million was arrived at through bankruptcy court-ordered mediation).) Notably, funds from the settlement amount will be
The Debtor entered chapter 11 over four years ago and, at times, the fate of its case was uncertain. The global resolution embodied in the Settlement puts plan confirmation within reach and supports a finding that the proposed sale represents a sound exercise of the Debtor‘s business judgment.
B. Buyback of Insurance Policies is Entitled to Free and Clear Protection
C. The Settling Insurers are Entitled to Protections Under Section 363(m)
The Settling Insurers are good faith purchasers entitled to the protections of
D. The Iridium Factors Weigh in Favor of Approval
The Debtor submits that its entry into the Settlement Agreements, as products of good faith and arm‘s-length negotiations, are well within the range of reasonableness. (See Terrell Declaration ¶¶ 30–33.) The Court agrees and finds that each of the relevant Iridium Factors weigh in favor of approval.7
1. Balance Between the Litigation‘s Possibility of Success and the Settlement‘s Future Benefits
The Settlement Agreements’ future benefits are clear and evident—they provide an immediate and certain resolution while avoiding further delay of distributions to creditors. In the pending insurance coverage actions, the Settling Insurers
litigation. (Id.) In light of this, the Debtor believes that reaching a resolution through litigation will take years. (Id.)
The Settlement Agreements would preclude all of this, avoiding a reduction in funds available for distribution, while also resulting in the transfer of $85.525 million to the Trust for prompt distribution to creditors. Accordingly, the Court concludes that the first Iridium Factor weighs in favor of approval.
2. The Likelihood of Complex and Protracted Litigation
Protracted and complex litigation is likely absent the Debtor‘s entry into the Settlement Agreements. The Debtor indicates that the cases against the Settling Insurers, which have been pending for four years, are far from trial ready. (Id. ¶ 52.) Recovery for indemnity would also require resolution of the underlying CVA cases by either settlement or judgment, which would add significant delays. The Debtor states that, even if the claims are resolved and the coverage actions decided by the District Court, the Debtor anticipates years of appeals and millions of dollars in additional fees. (Id.) Moreover, without the Settlement, the Settling Insurers are likely to object to the Debtor‘s chapter 11 plan that would lead to further increased cost and delay to the detriment of all parties. Accordingly, the second Iridium Factor also weighs in favor of approval.
3. Paramount Interests of Creditors
The paramount interests of creditors are served here. The Committee, which has worked closely with state court counsel representing a super-majority of abuse survivors, supports the Settlement. Moreover, the Debtor believes that claimants overwhelmingly support the Settlement whose proceeds, the Debtor notes, will ultimately benefit them. (Id. ¶ 54.) Thus, the Court finds that the third Iridium Factor weighs in favor of approval as well.
4. Support of Other Parties in Interest
The Settlement and the Debtor‘s entry into the Settlement Agreements embodying the same has the support of substantially all major stakeholders in this chapter 11 case. Specifically, the Debtor, its parishes, the Committee, and all the Debtor‘s solvent third-party insurers are in favor of the Debtor entering into the Settlement Agreement. Therefore, the fourth Iridium Factor supports approval.
5. Competency and Experience of Counsel
Each of the Debtor, the Additional Debtors, the Committee, and the Settling Insurers are advised by both restructuring counsel and separate, specialized insurance counsel. The competency of counsel has not been questioned by any party, and the Court has no reason to think otherwise. Accordingly, the Court concludes that the sixth Iridium Factor weighs in favor of approval.
6. Product of Arm‘s-Length Bargaining
Finally, as already discussed, the Settlement Agreements are the product of extensive, arm‘s-length negotiations and follow multiple rounds of mediation with experienced mediators. The Court is satisfied that this Iridium Factor is met.
The UST has asserted that the Court cannot approve the Motion as the Sale Order constitutes a sub rosa plan. Generally, a trustee is prohibited from the use, sale or lease of estate property undеr
rights afforded to creditors in the [C]hapter 11 process, such as the right to vote on a proposed plan of reorganization in the manner they see fit.’ In re Genesis Glob. Holdco, LLC, 660 B.R. 439, 486 (Bankr. S.D.N.Y. 2024) (quoting In re Tower Auto. Inc., 241 F.R.D. 162, 166 (S.D.N.Y. 2006)).
In determining whether a settlement agreement is a sub rosa plan, courts will consider a number of factors, including whether (1) the agreement has the practical effect of dictating the debtor‘s reorganization; (2) the agreement infringes creditor voting rights on the debtor‘s reorganization; (3) the agreement disposes of large assets belonging to the debtor; and (4) the agreement forced creditors to waive their claims against the debtor. Id. (quoting Topwater Exclusive Fund III, LLC v. SageCrest II, LLC (In re SageCrest II, LLC), 2011 WL 134893, at *11–12 (D. Conn. Jan. 14, 2011)).
Here, the Settlement Agreements to which the Sale Order pertains, while integral to the Plan, are only one of several components that comprise the Plan. As a means of implementation, the Plan contemplates the formation of the Trust on the Effective Date that will be funded with approximately $320 million in contributions for the purpose of addressing and paying nearly all Abuse Claims. Only $85.525 million of the $320 million will come from the Settling Insurers. The Settlement Agreements do not dictate plan distributions, dispose of all the Debtor‘s assets or circumvent voting. Indeed, a condition precedent to the effectiveness of the Settlement Agreements is confirmation of the plan, which itself is dependent on claimants voting to accept the Plan. The Settlement Agreements in this instance are a stеp towards possible confirmation of a plan of reorganization and not an evasion of the plan confirmation process. Iridium, 478 B.R. at 467 (finding that a settlement agreement is not a sub rosa plan where a proper business justification for the settlement exists).
In light of the foregoing, the Court concludes that the Sale Order is not a sub rosa plan and OVERRULES the UST Objection in this respect.
F. An Adversary Proceeding is Not Required
The UST argues that the Court lacks authority to approve the Sale Order since the Sale Order purports to enjoin[] creditors from asserting claims by incorporating the Supplemental Plan Injunction. (UST Objection at 36–37.)
Therefore, the Court is unpersuaded. The UST Objection in this respect is also OVERRULED.8
IV. CONCLUSION
For the reasons discussed, the Motion is GRANTED. The Debtor‘s entry into the Settlement Agreements is APPROVED.
IT IS SO ORDERED.
Dated: November 18, 2024 New York, New York
MARTIN GLENN Chief United States Bankruptcy Judge