In re: Esterlina Vineyards & Winery, LLC ( 2018 )

FILED
MAR 13 2018
1 NOT FOR PUBLICATION
2 SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
4
5 In re: ) BAP No. NC-16-1428-TaBS
)
6 ESTERLINA VINEYARDS & WINERY, ) Bk. No. 15-10841
LLC, )
7 )
Debtor. )
8 ______________________________)
)
9 CRAIG STERLING; ERIC )
STERLING, )
10 )
Appellants, )
11 )
v. ) MEMORANDUM*
12 )
LINDA S. GREEN, Chapter 7 )
13 Trustee; BANK OF THE WEST, )
)
14 Appellees. )
______________________________)
15
Argued and Submitted on January 25, 2018
16 at San Francisco, California
17 Filed – March 13, 2018
18 Appeal from the United States Bankruptcy Court
for the Northern District of California
19
Honorable Alan Jaroslovsky, Bankruptcy Judge, Presiding
20
21 Appearances: Shane J. Moses of McNutt Law Group LLP for
appellants; John H. MacConaghy of MacConaghy &
22 Barnier, PLC for appellee Linda S. Green,
Chapter 7 Trustee; Bret R. Rossi of Kronick,
23 Moskovitz, Tiedemann & Girard for appellee Bank
of the West
24
25 Before: TAYLOR, BRAND, and SPRAKER, Bankruptcy Judges.
26
*
27 This disposition is not appropriate for publication.
Although it may be cited for whatever persuasive value it may
28 have (see Fed. R. App. P. 32.1), it has no precedential value.
See 9th Cir. BAP Rule 8024-1(c)(2).
1 INTRODUCTION
2 Debtor Esterlina Vineyards & Winery, LLC received several
3 secured loans from Bank of the West (“BOTW”); its principals,
4 brothers Craig and Eric Sterling, personally guaranteed these
5 obligations. When Esterlina defaulted, BOTW initiated non-
6 judicial foreclosure proceedings and sought to recover on the
7 Sterling guaranties through a state court action.
8 Esterlina responded with a chapter 111 petition and lender
9 liability affirmative defenses to the BOTW claims. The
10 Sterlings similarly asserted lender liability causes in a cross-
11 complaint in the state court action.
12 The chapter 11 case never accomplished a reorganization;
13 instead, Esterlina liquidated the majority of its assets and
14 then converted its case to chapter 7. Thus, the chapter 7
15 Trustee took over a case with virtually no unliquidated assets.
16 But Esterlina’s alleged lender liability claims remained in the
17 estate, and the Trustee negotiated and the bankruptcy court
18 approved a sale and settlement with BOTW notwithstanding an
19 objection and counteroffer by the Sterlings.
20 The Sterlings appeal; they argue that the trustee failed to
21 provide evidence supporting her proposed transactions and that
22 they matched the BOTW offer and sweetened the deal with an offer
23 to share litigation proceeds. We agree that this argument is
24 facially attractive; but after reviewing the record, we
25
26 1
Unless otherwise indicated, all chapter and section
27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
All “Rule” references are to the Federal Rules of Bankruptcy
28 Procedure.
2
1 determine that the bankruptcy court had a sufficient basis for
2 its decision and did not abuse its discretion in approving the
3 trustee’s original proposal. Accordingly, we AFFIRM.
4 FACTS
5 Esterlina’s bankruptcy and early proceedings. Esterlina
6 filed its chapter 11 petition the day before BOTW's scheduled
7 foreclosure. BOTW actively participated in the case; it filed
8 three proofs of secured claims asserting liens on the virtual
9 entirety of Esterlina's assets. Esterlina objected to all three
10 claims on the alleged basis that BOTW: “obtained the
11 [Esterlina's] consent to the various loan documents through
12 fraud, deceit or misrepresentation.” Put simply, it sought
13 disallowance of BOTW’s claims based on alleged lender liability
14 counterclaims.
15 Esterlina disposes of substantially all of its assets.
16 While the claim objection process simmered away, Esterlina
17 finalized a sale, free and clear of specified interests, of its
18 interest in real property and equipment for $5,118,855. The
19 majority of these proceeds were deposited into a blocked
20 account, pending further order of the bankruptcy court. Shortly
21 thereafter, the bankruptcy court approved the sale of the
22 majority of the estate’s remaining assets through a $325,000
23 BOTW credit bid. Only Esterlina's interest in its bank
24 accounts, its alleged claims against BOTW, and negligible other
25 personal property remained unliquidated.
26 The bankruptcy court converted Esterlina’s bankruptcy case
27 to chapter 7; Esterlina withdrew its objection to the BOTW
28 claims.
3
1 But the move toward peace in the Esterlina bankruptcy did
2 not carry over to the state court guaranty action. After the
3 Esterlina conversion, the Sterlings filed a cross-complaint,
4 asserting lender liability causes of action on their own behalf
5 against BOTW.
6 In September 2016, the bankruptcy case was reassigned from
7 Judge Thomas E. Carlson to Judge Alan Jaroslovsky.
8 The chapter 7 trustee’s sale and compromise motion and the
9 present appeal. Chapter 7 trustee Linda Green had few assets to
10 liquidate and promptly negotiated a compromise of controversy
11 and a sale of Esterlina's remaining assets to BOTW. The
12 agreement provided that: BOTW would pay the estate $25,000; the
13 Trustee would release to BOTW the funds in the blocked account;
14 the Trustee would sell to BOTW all remaining assets, including
15 the alleged lender liability claims; and the parties would
16 exchange general mutual releases.
17 The Sterlings opposed. First, they questioned the benefit
18 of the sale and settlement to the estate or creditors and argued
19 that $25,000 would not pay all administrative claims or any
20 unsecured claims. Second, they provided a counter-offer and
21 proposed to match the $25,000, waive their claims against the
22 estate, and share 25% of any lender liability action recoveries
23 with the estate. In connection with the litigation sharing
24 agreement, they made clear that the minimum paid would be
25 $25,000 and that it would be paid even if there was a
26 settlement. Finally, they asserted that the Trustee had not
27 submitted any evidence to support the motion.
28 The day before the hearing, BOTW’s counsel filed a
4
1 declaration in response to the Sterlings’ opposition. He
2 represented that the superior court had granted BOTW’s motion
3 for judgment on the pleadings on the Sterlings’ amended cross-
4 complaint against BOTW. That same day, the Sterlings’ counsel
5 filed a declaration stating that he had prepared and was
6 planning to file a second amended cross-complaint.
7 The bankruptcy court heard the matter and expressed some
8 tentative views; it also noted that “it would be a good idea for
9 me to chat with Judge Carlson and take another look at the
10 pleadings.” Hr’g Tr. (Nov. 18, 2016) 16:17-18. The bankruptcy
11 judge concluded the hearing by stating that he would “think
12 about” the matter, “[l]ook over the file again,” and then “have
13 a written decision for you within ten days.” Id. at 17:21-23.
14 And ten days later, the bankruptcy court entered a
15 memorandum decision overruling the Sterlings’ objection and
16 granting the Trustee’s motion. The decision started by noting
17 that the undersigned judge had “reviewed the entire record of
18 this case in detail” and had “consulted with Judge Carlson
19 . . . .” November 28, 2016 Memorandum on Trustee’s Motion to
20 Approve Compromise (“Mem. Dec.”) at 1 n.1. The bankruptcy court
21 then weighed the offers:
22 The Sterlings correctly argue that the proceeds of the
Trustee’s compromise won’t go very far, not even
23 covering the estate’s estimated administrative
expenses. Instead, they propose to purchase the
24 estate’s claim against the Bank for $25,000.00 now,
plus 25% of their actual recovery from the Bank but no
25 less than an additional $25,000.00. They argue that
their offer is superior to that of the Bank. The
26 court does not agree.
27 Id. at 2. The bankruptcy court then explained why:
28 The Sterlings’ offer is most likely to result in only
5
1 increased administrative expenses, not any sort of
recovery for creditors. Lender liability claims are
2 difficult to successfully prosecute and the court sees
nothing in this case which would make such claims
3 unusually strong. It would also be highly unusual for
such claims not to have been waived by now, as waivers
4 are invariably contained in agreements to extend,
refinance or forebear which have usually been made
5 long before a bankruptcy filing on the eve of
foreclosure. Tellingly, the attorney handling the
6 litigation in state court declined [chapter 7 Trustee]
Green’s request to represent the estate on a
7 contingency basis. The most likely result of
accepting the Sterlings’ offer is that the Sterlings
8 litigate against the Bank in state court for a time
before all their arguments are rejected; the
9 bankruptcy estate becomes subject to even more
administrative expenses, and the second $25,000.00
10 becomes uncollectible either because the Sterlings
have become insolvent or because the estate has no
11 means to engage in collection litigation.
12 Id. Finally, the bankruptcy court remarked:
13 The court does not believe that Green is looking for a
quick and easy settlement at the expense of the
14 creditors of the estate; she and her counsel are known
for aggressively pursuing meritorious claims on behalf
15 of bankruptcy estates. The court agrees with their
analysis in this case that the bankruptcy estate has
16 no claims against the Bank which warrant rejection of
the Bank’s nominal settlement offer, and that the
17 Sterlings’ offer is in fact of lesser benefit to the
estate.
18 Id.
19 The bankruptcy court entered a separate order approving the
20 compromise and sale of property (the “Order”).
21 The Sterlings timely appealed; they also obtained a stay of
22 the Order, conditioned on their posting a bond.
23 JURISDICTION
24 The bankruptcy court had jurisdiction under 28 U.S.C.
25 §§ 1334 and 157(b)(2)(A) and (O). We have jurisdiction under
26 28 U.S.C. § 158.
27 ISSUES
28 Do the Sterlings have appellate standing?
6
1 Did the bankruptcy court abuse its discretion in approving
2 the Order?
3 STANDARDS OF REVIEW
4 We consider appellate standing de novo. Motor Vehicle Cas.
5 Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.),
6 677 F.3d 869, 879 (9th Cir. 2012).
7 We review the bankruptcy court’s approval of a settlement
8 for an abuse of discretion. Martin v. Kane (In re A & C
9 Props.), 784 F.2d 1377, 1380 (9th Cir. 1986). We also review
10 § 363 sale orders for an abuse of discretion. Fitzgerald v.
11 Ninn Worx Sr, Inc. (In re Fitzgerald), 428 B.R. 872, 880 (9th
12 Cir. BAP 2010).
13 A bankruptcy court abuses its discretion if it applies the
14 wrong legal standard, misapplies the correct legal standard, or
15 makes factual findings that are illogical, implausible, or
16 without support in inferences that may be drawn from the facts
17 in the record. See TrafficSchool.com, Inc. v. Edriver Inc.,
18 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v.
19 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).
20 DISCUSSION
21 A. The Sterlings have appellate standing.
22 As a preliminary matter, the Trustee argues that the
23 Sterlings lack standing to appeal from the Order.
24 To have standing to appeal from a bankruptcy court order,
25 an individual must show that she or he is a “person aggrieved.”
26 Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442 (9th
27 Cir. 1983). For instance, a “hopelessly insolvent debtor does
28 not have standing to appeal orders affecting the” estate’s size
7
1 because “[s]uch an order would not diminish the debtor’s
2 property, increase his burdens, or detrimentally affect his [or
3 her] rights.” Id. So, in the context “of a sale or other
4 disposition of estate assets, creditors have standing to appeal,
5 but disappointed prospective bidders who are not creditors
6 usually do not have standing to appeal.” Simantob v. Claims
7 Prosecutor, LLC (In re Lahijani), 325 B.R. 282, 290 n.13 (9th
8 Cir. BAP 2005).
9 Here, the Trustee tries to blend the two scenarios.
10 First, she asserts that the Sterlings lack appellate
11 standing because they are simply disappointed non-buyers of a
12 bankruptcy estate asset. But the Trustee acknowledges that the
13 Sterlings would later file timely proofs of claims and that
14 Esterlina scheduled Craig Sterling as an unsecured creditor. So
15 the Sterlings are more than just disappointed non-buyers; they
16 are creditors of the estate.
17 Second, the Trustee argues that this appeal will not impact
18 the Sterlings' claims as unsecured creditors will not be paid in
19 this administratively insolvent case no matter how this appeal
20 is resolved. While this is likely true, we agree with the
21 bankruptcy court that it is not conclusively established. At
22 the hearing, the bankruptcy court acknowledged that there was a
23 possibility – “very, very, very, very unlikely, but not
24 impossible” — that the Sterlings’s offer would recover some
25 funds for unsecured creditors. Hr’g Tr. at 17:19. Accordingly,
26 we cannot conclude with absolute certainty that unsecured
27 creditors would be out of the money under the Sterlings'
28 proposal. Nor, for that matter, did the Trustee cite any law
8
1 establishing that unsecured creditors in an out-of-the-money
2 case lack appellate standing.
3 The Sterlings thus have standing to appeal as unsecured
4 creditors.
5 B. The bankruptcy court did not abuse its discretion in
approving the settlement and approving the sale.
6
7 Rule 9019 provides that, “[o]n motion by the trustee and
8 after notice and a hearing, the court may approve a compromise
9 or settlement.” Fed. R. Bankr. P. 9019(a). “The bankruptcy
10 court has great latitude in approving compromise agreements.”
11 Woodson v. Fireman’s Fund Ins. Co. (In re Woodson), 839 F.2d
12 610, 620 (9th Cir. 1998). That discretion, however, “is not
13 unlimited.” Id. The bankruptcy court “may approve a compromise
14 only if it is ‘fair and equitable.’” Id. (quoting In re A & C
15 Properties, Inc., 784 F.2d at 1381).
16 The “purpose of a compromise agreement is to allow the
17 trustee and the creditors to avoid the expenses and burdens
18 associated with litigating sharply contested and dubious
19 claims.” In re A & C Properties, 784 F.2d at 1380–81. The law
20 “favors compromise and not litigation for its own sake . . . .”
21 Id. at 1381.
22 Because “the disposition by way of ‘compromise’ of a claim
23 that is an asset of the estate is the equivalent of a sale of
24 the intangible property represented by the claim,” a Rule 9019
25 compromise can “simultaneously implicate the ‘sale’ provisions
26 under section 363 as implemented by Rule 6004 and the
27 ‘compromise’ procedure of Rule 9019(a).” Goodwin v. Mickey
28 Thompson Entm’t Grp., Inc. (In re Mickey Thompson Entm’t Grp.,
9
1 Inc.), 292 B.R. 415, 421 (9th Cir. BAP 2003). The “bankruptcy
2 court has the discretion to apply § 363 procedures to a sale of
3 claims pursuant to a settlement approved under Rule 9019.”
4 Adeli v. Barclay (In re Berkeley Delaware Court, LLC), 834 F.3d
5 1036, 1040 (9th Cir. 2016). As the Ninth Circuit reasoned: “We
6 see no good reason why a trustee and the bankruptcy court cannot
7 utilize the procedures of § 363 in certain settlements in order
8 to ensure maximum value for the estate.” Id.
9 1. The bankruptcy court did not err by not holding an
auction.
10
11 The Sterlings argue that the bankruptcy court erred by not
12 requiring an auction and encouraging overbidding. We disagree.
13 The “price achieved by an auction is ordinarily assumed to
14 approximate market value when there is competition by an
15 appropriate number of bidders.” In re Fitzgerald, 428 B.R. at
16 883 (citing In re Lahijani, 325 B.R. at 289)). The Sterlings’
17 argument, thus, has some facial appeal given that the Trustee's
18 proposal involved a sale of the lender liability claims. They
19 further support their argument with reference to the Panel’s
20 Mickey Thompson decision where the Panel held that a bankruptcy
21 court may consider applying § 363 sale procedures to a Rule 9019
22 settlement. 292 B.R. at 421. And in In re Berkeley Delaware
23 Court, LLC, the Ninth Circuit agreed and also held that the
24 bankruptcy court may use § 363 procedures in the context of a
25 Rule 9019 settlement. 834 F.3d at 1040. So, an auction could
26 also be required if this was viewed solely as a settlement of a
27 claim.
28 But an auction and bidding procedures were neither required
10
1 nor requested here. The only potential bidders were BOTW and
2 the Sterlings; neither of whom requested an auction nor
3 suggested that they were willing to overbid in the documents
4 they filed or the arguments they made before the bankruptcy
5 court. They stood on their offer and counter-offer. As a
6 result of this silence before the bankruptcy court, the
7 Sterlings waived the issue on appeal. Mano-Y&M, Ltd. v. Field
8 (In re Mortg. Store, Inc.), 773 F.3d 990, 998 (9th Cir. 2014)
9 (“In general, a federal appellate court does not consider an
10 issue not passed upon below.” (quotation marks and citation
11 omitted)). And, in any event, the bankruptcy court did not
12 abuse its discretion by not forcing the parties to bid against
13 each other where neither party requested this opportunity.
14 2. The bankruptcy court did not err when it found that
BOTW’s offer was superior.
15
16 The above, however, does not mean that the BOTW and
17 Sterlings’ offers are incommensurable. In the § 363(b) context,
18 the bankruptcy court is obliged to “assure that optimal value is
19 realized by the estate under the circumstances.” In re
20 Lahijani, 325 B.R. at 288. Thus, the bankruptcy court
21 considered the relative economic value of the two offers; it
22 concluded that BOTW’s offer was superior and that the Sterlings’
23 offer was “in fact of lesser benefit to the estate.” Mem. Dec.
24 at 2:21. This was not an abuse of discretion.
25 On appeal, the Sterlings argue that their offer was more
26 valuable than BOTW’s offer because they offered to match BOTW's
27 $25,000 cash offer and then proffered a percentage of any
28 successful claim. So long as the probability of recovery is not
11
1 zero, they claim, the present value calculation would yield some
2 value. We disagree with their conclusion.
3 We start by reviewing the two offers. BOTW offered $25,000
4 and a general release, which would include its almost $2,000,000
5 deficiency claim. The Sterlings offered $25,000, waiver of
6 their claims against the estate, and “if the State Court Action
7 is resolved in [the Sterlings’] favor through a dispositive
8 ruling or settlement, they will pay the bankruptcy estate 25% of
9 any actual recovery, and no less than $25,000.” Although the
10 Sterlings asserted they had claims against the estate, they
11 never told the bankruptcy court how much those claims were
12 worth; so they failed to monetize their releases’ value,
13 complicating value comparisons.2
14 The Sterlings argue that BOTW’s waiver of its unsecured
15 claim created no value for the estate because, under BOTW’s
16 offer, unsecured creditors would see no recovery. If the
17 Trustee was only concerned with recovery for unsecured
18 creditors, we would agree. But a chapter 7 trustee must also
19 consider the interests of the bankruptcy estate. This includes
20 administrative claimants — here, chapter 11 priority claims.
21 Considering the administrative claimants’ interests, the
22 Trustee’s acceptance of BOTW’s offer minimized the risk of
23 further dilution of those claims; the estate would not fund the
24 lender liability litigation and other administration would
25 terminate with prompt case closure because BOTW provided and
26
27 2
The Sterlings eventually, in February 2017, each filed a
28 claim for $1,974,129.51.
12
1 received a general release. As the bankruptcy court explained
2 in its memorandum decision, it viewed the Sterlings’ offer as
3 having significant potential disadvantages because it would
4 “most likely” lead to “increased administrative expenses, not
5 any sort of recovery for creditors.” Mem. Dec. at 2:6-7.3 The
6 BOTW offer also avoided the risk of adverse claims against the
7 estate arising from continued litigation.
8 Comparing the two offers requires more than just comparing
9 BOTW’s “$25,000” to the Sterlings’ “$25,000 plus the net present
10 value of the Sterlings’ additional, minimum $25,000 if they
11 prevail in the litigation.” The Trustee had to consider the
12 immediate value of BOTW’s specific release of a substantial
13 deficiency claim and the impact of an ability to promptly close
14 the case. The Trustee also had to consider the possibility that
15 the Sterlings’ offer, although it had the potential for an
16 upside, carried the risk of a significant downside including the
17 risk of increased administrative expense.4 After accounting for
18
19 3
The Trustee’s counsel explained that the Trustee was
concerned about the estate’s exposure to malicious prosecution
20
liability if the Sterlings pursued the claims on the estate’s
21 behalf and then lost, which the Trustee’s counsel thought was a
fairly likely result. As the Trustee’s counsel put it at the
22 hearing: “I don’t think it’s [$25,000] versus [$25,000]; I think
it’s a clean [$25,000] from the bank versus [$25,000] from the
23
Debtor’s principals, and we might have to be giving some of that
24 [$25,000] back to the bank if the bank prevails in an attorney’s
fees claim.” Hr’g Tr. at 6:7-11.
25
4
And the Trustee was open to balancing this potential
26 risk — at the hearing, the Trustee’s counsel stated: “[I]f [the
27 Sterlings] came in and said, here’s a cashier’s check for a
hundred thousand dollars, you know, I wouldn’t be able to stand
28 (continued...)
13
1 these factors, the Trustee concluded and the bankruptcy court
2 found that the Sterlings’ offer was not superior; it was not a
3 true overbid. On this record, we are not prepared to conclude
4 that this was clearly erroneous.
5 3. The A & C Properties factors support approval of the
compromise.
6
7 When deciding whether a compromise is fair and reasonable,
8 a bankruptcy court should consider:
9 (a) The probability of success in the litigation;
(b) the difficulties, if any, to be encountered in the
10 matter of collection; (c) the complexity of the
litigation involved, and the expense, inconvenience
11 and delay necessarily attending it; (d) the paramount
interest of the creditors and a proper deference to
12 their reasonable views in the premises.
13 In re A & C Properties, 784 F.2d at 1381 (quoting In re Flight
14 Transp. Corp. Secs. Litig., 730 F.2d 1128, 1135 (8th Cir.
15 1984)). The trustee has the burden to persuade the bankruptcy
16 court that the compromise is fair and equitable. Id. We must
17 affirm the bankruptcy court’s decision if it “amply considered
18 the various factors that determine[] the reasonableness of the
19 compromise . . . .” Id.
20 Although the bankruptcy court issued a memorandum decision,
21
4
22 (...continued)
up here.” Hr’g Tr. at 7:23-25. The bankruptcy court asked if
23 $30,000 would be enough. Id. at 8:5-6. Trustee’s counsel said
24 “I think still, because of this potential claim that the bank
may have to get that money back, I don’t think the estate is
25 going to net out a better result. I think it’s got to be
significantly more than that before it’s worth the risk.” Id.
26 at 8:7-11. Despite this colloquy (i.e., the Trustee’s counsel
27 suggesting that the Trustee might accept a larger counter-
offer), the Sterlings did not raise their offer or request an
28 auction.
14
1 it did not individually parse the four factors and make explicit
2 findings on each. But it was not obliged to, and “where the
3 record supports approval of the compromise, the bankruptcy court
4 should be affirmed.” Id. at 1383.
5 We start with the Sterlings’ argument that the bankruptcy
6 court lacked a sufficient evidentiary record to approve the
7 settlement because the Trustee did not include any declarations
8 or affidavits with the moving papers. The Trustee argues that
9 the Sterlings waived this point by not timely objecting to the
10 motion; BOTW contends that the bankruptcy court stated that it
11 reviewed the entire record.
12 Each is correct in some respect. The Trustee did not
13 provide the bankruptcy court with declarations or affidavits —
14 and we, make no mistake, find this troubling. But the
15 bankruptcy court, after the hearing, considered the entirety of
16 the case’s history, including BOTW’s proofs of claims and
17 Esterlina's objection to the claims, in which it asserted the
18 lender liability counterclaims. And although the Sterlings
19 filed their opposition just days before the hearing, the
20 bankruptcy court considered the opposition, and the Trustee did
21 not ask the bankruptcy court to strike it as filed late.
22 So we consider the record that the bankruptcy court had
23 before it when it made its decision. As bankruptcy cases go,
24 the case was not in its infancy — it was over a year old and
25 contained over a hundred docket entries. During the chapter 11
26 phase, the bankruptcy court approved the sale of substantially
27 all of Esterlina's assets and received testimony about the value
28 of Esterlina's property. The bankruptcy court also, as it was
15
1 entitled to, relied on the parties’ representations; the
2 bankruptcy court knew that the Trustee unsuccessfully sought
3 contingency fee counsel to pursue the lender liability claims.
4 But more to the point, the Sterlings never asked the bankruptcy
5 court to hold an evidentiary hearing; they never isolated any
6 disputed material facts. With that in mind, we turn to the
7 individual factors.
8 The probability of success in the litigation. At the
9 hearing, the bankruptcy court explained: “I’ve already formed
10 the opinion, quite frankly, that [the Sterlings’] claims against
11 the bank are weak . . . .” Hr’g Tr. at 17:12-14. In its
12 memorandum decision, the bankruptcy court expounded further: “It
13 would also be highly unusual for such [lender liability] claims
14 not to have been waived by now, as waivers are invariably
15 contained in agreements to extend, refinance or forebear which
16 have usually been made long before a bankruptcy filing on the
17 eve of foreclosure.” Mem. Dec. at 2:8-11. Finally, the
18 bankruptcy court found: “The court agrees with [the trustee and
19 her counsel’s] analysis in this case that the bankruptcy estate
20 has no claims against [BOTW] which warrant rejection of [BOTW’s]
21 nominal settlement offer . . . .” Id. at 2:19-21.
22 The Sterlings do not question this on appeal. Further, the
23 bankruptcy court had uncontroverted evidence that the state
24 court had granted BOTW’s motion for judgment on the pleadings on
25 the Sterlings’ cross-complaint asserting lender liability causes
26 of action albeit without prejudice.
27 This factor favors the Trustee’s settlement.
28
16
1 The difficulties, if any, to be encountered in the matter
2 of collection. The bankruptcy court did not explicitly consider
3 this factor when considering BOTW’s offer. Nor does it
4 particularly favor compromise; there would likely not be much
5 difficulty in collecting from BOTW, a bank. On the other hand,
6 the bankruptcy court expressly noted that, if the estate
7 accepted the Sterlings’ offer, dwindling estate assets could
8 negatively affect attempts to collect from the Sterlings.
9 The complexity of the litigation involved, and the expense,
10 inconvenience and delay necessarily attending it. The
11 bankruptcy court touched on this factor in two respects. First,
12 drawing upon a decade plus of judicial experience, the
13 bankruptcy court observed that “[l]ender liability claims are
14 difficult to successfully prosecute and the court sees nothing
15 in this case which would make them unusually strong.” Mem. Dec.
16 at 2:7-8. And as noted above, the bankruptcy court had evidence
17 that the state court had entirely disposed of the Sterlings’
18 cross-complaint alleging similar causes of action; the
19 litigation would be complex, drawn-out, and expensive. Second,
20 the bankruptcy court remarked: “Tellingly, the attorney handling
21 the litigation in state court declined [the chapter 7 trustee’s]
22 request to represent the estate on a contingency basis.” Id. at
23 2:11-12. So it would cost the estate to pursue the claims.
24 Further, the Sterlings do not distinctly and specifically
25 address these points in their opening appellate brief; they thus
26 waived them on appeal. Padgett v. Wright, 587 F.3d 983, 986 n.2
27 (9th Cir. 2009) (per curiam) (appellate courts “will not
28 ordinarily consider matters on appeal that are not specifically
17
1 and distinctly raised and argued in appellant’s opening brief”).
2
3 On this record, then, the bankruptcy court could conclude
4 that this factor favors the settlement.
5 The paramount interest of the creditors and a proper
6 deference to their reasonable views.
7 As the Ninth Circuit explained, “while creditors’
8 objections to a compromise must be afforded due deference, such
9 objections are not controlling, and while the court must
10 preserve the rights of the creditors, it must also weigh certain
11 factors to determine whether the compromise is in the best
12 interest of the bankrupt estate.” In re A & C Properties,
13 784 F.2d at 1382 (citations omitted). Unsecured creditors have
14 a voice but not a veto.
15 And, as the above makes clear, “recovery for unsecured
16 creditors” is not the relevant standard. The trustee must
17 consider whether the compromise is in the best interests of the
18 bankruptcy estate. In this particular case, the Trustee had to
19 consider the interests of both chapter 11 administrative
20 claimants and unsecured creditors. And the Trustee
21 appropriately considered the potentially negative impact of the
22 Sterlings' proposal on the priority administrative claims from
23 the chapter 11 phase of the case. Thus, although there may be
24 no recovery for unsecured creditors, we are strongly persuaded
25 that the trustee was not acting only for her own benefit. Cf.
26 In re KVN Corp., 514 B.R. 1 (9th Cir. BAP 2014).
27 In short, the bankruptcy court considered the Sterlings’
28 objection. But it concluded that BOTW’s compromise was in the
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1 bankruptcy estate’s best interest even if it did not result in a
2 recovery for unsecured creditors. Given the circumstances of
3 this case, this was not clearly erroneous.
4 In sum, the first, third, and fourth A & C Properties
5 factors weighed in favor of the Trustee’s compromise — and the
6 Sterlings on appeal do not even question the bankruptcy court’s
7 findings on the first and third factors; the second factor was
8 neutral. And no one factor is dispositive; the “factors should
9 be considered as a whole to determine whether the settlement
10 compares favorably with the expected rewards of litigation.”
11 Greif & Co. v. Shapiro (In re Western Funding Inc.), 550 B.R.
12 841, 851 (9th Cir. BAP 2016). Accordingly, the bankruptcy court
13 did not abuse its discretion in approving the settlement.
14 CONCLUSION
15 Based on the foregoing, we AFFIRM.
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