Wheeling & Lake Erie Ry. Co. v. Keach ( 2020 )

United States Court of Appeals
For the First Circuit
No. 19-1894
IN RE MONTREAL, MAINE & ATLANTIC RAILWAY, LTD.,
Debtor.
̶̶̶̶̶̶̶̶̶̶̶̶̶̶̶̶̶̶̶
WHEELING & LAKE ERIE RAILWAY COMPANY,
Appellant,
v.
ROBERT J. KEACH, in his capacity as Estate Representative for
MONTREAL, MAINE & ATLANTIC RAILWAY, LTD.,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Jon D. Levy, U.S. District Judge]
[Hon. Peter G. Cary, U.S. Bankruptcy Judge]
Before
Howard, Chief Judge,
Selya and Lynch, Circuit Judges.
George J. Marcus and Daniel L. Rosenthal, with whom
Marcus|Clegg was on brief, for appellant.
Adam R. Prescott, with whom Robert J. Keach, Letson B.
Douglass, and Bernstein, Shur, Sawyer & Nelson, P.A. were on brief,
for appellee.
April 9, 2020
SELYA, Circuit Judge. On the surface, this appeal poses
intricate questions concerning such esoteric areas of the law as
secured transactions, carriage of goods, and corporate
reorganization. Digging deeper, though, the appeal turns on
abecedarian principles relating to the allocation of the burden of
proof and the deference due to the finder of fact. After
application of these principles in light of the record and the
decisions of the courts below, we affirm the entry of judgment in
favor of appellee Robert J. Keach, the estate representative of
Montreal, Maine & Atlantic Railway, Ltd. (MMA), and against
creditor-appellant Wheeling & Lake Erie Railway Company
(Wheeling).
I. BACKGROUND
This case is a by-product of litigation spawned by the
tragic derailment of an MMA freight train carrying crude oil in
Lac-Mégantic, Québec. The derailment, coupled with MMA's
subsequent bankruptcy filings (both in the United States and in
Canada), has led to protracted dueling between Wheeling and Keach.1
See, e.g., Keach v. Wheeling & Lake Erie Ry. Co. (In re Montreal,
Me. & Atl. Ry., Ltd.), 888 F.3d 1 (1st Cir. 2018); Wheeling & Lake
1 Keach served as the Chapter 11 trustee for MMA's bankruptcy
proceeding until the effective date of the plan of liquidation,
see 11 U.S.C. § 1163, at which point he became the representative
of the estate. For ease in exposition, we refer to him throughout
as the estate representative.
- 3 -
Erie Ry. Co. v. Keach (In re Montreal, Me. & Atl. Ry., Ltd.), 799
F.3d 1 (1st Cir. 2015). We assume the reader's familiarity with
these two prior opinions and rehearse only the discrete set of
facts needed to place this appeal into a workable perspective.
In June of 2009, Wheeling extended a $6 million line of
credit to MMA, evidenced by a promissory note. In connection with
this note, MMA executed and delivered a security agreement to
Wheeling. The security agreement gave Wheeling an enforceable
security interest in MMA's "Accounts and other rights to payment
(including Payment Intangibles)," which extended to any non-tort
claims accrued by MMA.2 Wheeling perfected its security interest
by filing a UCC-1 financing statement with the Delaware Secretary
of State.
Four years later, Western Petroleum Company and certain
corporate affiliates (collectively, the Shipper) arranged for the
transport of seventy-two tank cars of crude oil with Canadian
Pacific Railway Company (Canadian Pacific). Pursuant to the
through bill of lading, Canadian Pacific and its American affiliate
transported the oil from its point of origin in New Town, North
2 Under the Maine Uniform Commercial Code, which governs the
interpretation of the security agreement, commercial tort claims
are excluded from the definition of payment intangibles. See Me.
Stat. tit. 11, § 9-1102(61) (defining payment intangible as "a
general intangible under which the account debtor's principal
obligation is a monetary obligation"); id. § 9-1102(42) (defining
general intangible as including "things in action" but not
"commercial tort claims").
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Dakota, to Québec, Canada, and transferred the shipment to MMA for
carriage to its final destination in New Brunswick, Canada.
A noted Scottish poet famously wrote that "[t]he best-
laid schemes o' [m]ice an' [m]en [g]ang aft a-gley." Robert Burns,
To a Mouse (1785). So it was here: the shipment never reached
its destination. On July 6, 2013, the MMA freight train carrying
the oil derailed in Lac-Mégantic, Québec, sparking massive
explosions that destroyed part of the town and killed nearly fifty
people.
The derailment triggered a frenzy of litigation in U.S.
and Canadian courts against MMA, the Shipper, and others involved
in arranging and transporting the crude oil shipment. Several
victims of the explosions, or family members on their behalf,
sought damages for personal injury or wrongful death in state court
in Illinois. A group of victims filed a class action lawsuit in
Québec on behalf of all residents, property owners, and business
owners in Lac-Mégantic affected by the derailment. The government
of Québec began administrative proceedings to recover for
environmental damage and clean-up costs.
In August of 2013 — one month after the derailment — MMA
filed a voluntary petition for protection under Chapter 11 of the
Bankruptcy Code, see 11 U.S.C. § 301, as well as an ancillary
insolvency proceeding in Québec. Soon thereafter, Wheeling
instituted an adversary proceeding in the bankruptcy court against
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MMA and the estate representative, seeking to protect its rights
under the security agreement. Pertinently, Wheeling sought a
declaratory judgment regarding the existence and priority of its
security interest in certain property of the MMA estate (the
estate).
Recognizing the possibility that the estate would face
significant liability arising out of the derailment, the estate
representative began pursuing litigation against several entities
involved in the crude oil shipment with the aim of establishing a
fund for the derailment victims. As relevant here, the estate
representative commenced an adversary proceeding against the
Shipper in January of 2014. His complaint alleged that the Shipper
negligently mislabeled the crude oil as less volatile than it
actually was, causing MMA not to take the necessary precautions
for handling a hazardous shipment. The complaint did not allege
any contract or regulatory claims against the Shipper. In order
to facilitate settlement discussions, the parties agreed that the
Shipper would not assert counterclaims against the estate (but the
Shipper reserved the right to do so if those discussions failed).
After extensive negotiations, the Shipper and the estate
representative reached a settlement. The Shipper agreed to pay
$110 million to the monitor in the Canadian bankruptcy case (for
the ultimate benefit of the derailment victims), and the Shipper
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and the estate representative agreed to release all claims and
counterclaims against each other arising out of the derailment.
There were other terms as well. For one thing, the
Shipper committed to assigning to the estate representative its
Carmack Amendment claims against the non-MMA carriers involved in
transporting the crude oil.3 For another thing, the settlement
was to become effective only upon the confirmation of the proposed
plans in both the U.S. and Canadian bankruptcy proceedings
(including the entry of orders barring all persons and entities
from pursuing derailment-related claims against the Shipper).
Striving to achieve global closure, the estate representative
executed similar settlement agreements around the same time with
many other entities.
When the estate representative presented the settlement
agreements and his plan of liquidation to the bankruptcy court for
approval and confirmation, Wheeling objected. It complained that
the estate representative had agreed to release non-tort claims
that the estate possessed against the Shipper as part of the
3
The Carmack Amendment imposes liability on any rail carrier
that receives or delivers a shipment for damage that occurs to the
property during the rail route, regardless of which carrier caused
the damage. See 49 U.S.C. § 11706(a). The purpose of the Carmack
Amendment "is to relieve cargo owners 'of the burden of searching
out a particular negligent carrier from among the often numerous
carriers handling an interstate shipment of goods.'" Kawasaki
Kisen Kaisha Ltd. v. Regal-Beloit Corp., 561 U.S. 89, 98 (2010)
(quoting Reider v. Thompson, 339 U.S. 113, 119 (1950)).
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settlement — even though the estate representative had not asserted
any such claims in the adversary proceeding — and that those
released non-tort claims constituted a part of Wheeling's
collateral. Wheeling posited that the bankruptcy court's approval
of the settlement and confirmation of the plan would deprive it of
compensation for the estate representative's use of its collateral
to secure the settlement with the Shipper, despite the fact that
the plan classified its secured claim as unimpaired.
Notwithstanding Wheeling's objection, the bankruptcy
court approved the settlement agreements and confirmed the estate
representative's plan of liquidation. See id. §§ 1129, 1173. To
address Wheeling's plaint, Paragraph 84 of the confirmation order
stated that neither the order nor the settlement agreements
"limit[ed] or affect[ed] Wheeling's ability to contend, and the
[estate representative's] ability to contest, that Wheeling's
security interest, if any, attaches to the Settlement Payments
(whether as original collateral, proceeds, products or
otherwise)." The confirmation order contained the injunctions
against the prosecution of derailment-related claims necessary to
render the settlement agreements effective.
While the estate representative was resolving the main
bankruptcy proceeding, he was simultaneously engaged in litigation
with Wheeling. After addressing other matters not relevant here,
the adversary proceeding between Wheeling and the estate
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representative reduced to the same issue that prompted Wheeling's
objection to confirmation of the plan of liquidation: whether it
was entitled to compensation for the release of non-tort claims
that the estate possessed against the Shipper. In May of 2018,
the bankruptcy court held a two-day bench trial relative to this
issue. Wheeling and the estate representative agreed that the
following stipulation should become part of the trial record:
1. The derailment of the freight train
carrying crude oil on July 6, 2013, in Lac-
Mégantic, Quebec (the "Derailment") caused MMA
to suffer economic damages as a result of the
loss in value of its business, and other
economic damages, in an amount no less than
$25,000,000.
2. Assuming (without admitting) that such
claims existed, the Estate Representative
would have incurred legal fees and costs in an
amount no less than $825,000 but not greater
than an amount that would cause the net
economic damages referred to above, after
deducting legal fees and costs, to be less
than $10,000,000, had he pursued civil breach
of contract claims directly against the
shipper of the crude oil transported on the
freight train involved in the Derailment,
including attorneys' fees, litigation costs,
expert fees, and the cost of defending against
any and all counterclaims.
In a bench decision, the bankruptcy court ruled in favor
of the estate representative on two alternative grounds. First,
the court held that the estate representative did not use
Wheeling's collateral when he agreed to a release as part of the
settlement agreement because the estate did not have any cognizable
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non-tort claims against the Shipper. Second, the court found that,
even if the estate possessed such claims, Wheeling had not carried
its burden of proving their value.
Wheeling appealed to the district court. That court
determined that the estate did have non-tort claims against the
Shipper (which the estate representative released as part of the
settlement) but that the bankruptcy court was correct in concluding
that Wheeling had not proven that those claims had any value. See
Wheeling & Lake Erie Ry. Co. v. Keach, 606 B.R. 1, 12, 14-15
(D. Me. 2019). This timely appeal ensued.
II. ANALYSIS
Appeals in bankruptcy cases proceed by means of a two-
tiered framework. See Privitera v. Curran (In re Curran), 855
F.3d 19, 24 (1st Cir. 2017). The losing party in the bankruptcy
court may take a first-tier appeal either to the district court or
to the bankruptcy appellate panel. See 28 U.S.C. § 158(a)-(b);
In re Curran, 855 F.3d at 24. Whichever route is taken, a second
tier of appellate review is available in the court of appeals.
See 28 U.S.C. § 158(d)(1); In re Curran, 855 F.3d at 24. At that
stage, we accord no particular deference to determinations made by
the first-tier appellate tribunal but, rather, focus exclusively
on the bankruptcy court's determinations. See In re Curran, 855
F.3d at 24. In the course of that endeavor, we review the
bankruptcy court's findings of fact for clear error and its legal
- 10 -
conclusions de novo. See Berliner v. Pappalardo (In re Puffer),
674 F.3d 78, 81 (1st Cir. 2012). Under the clear error standard,
we defer to the bankruptcy court's factual findings "unless, on
the whole of the record, we form a strong, unyielding belief that
a mistake has been made." Gannett v. Carp (In re Carp), 340 F.3d
15, 22 (1st Cir. 2003) (quoting Cumpiano v. Banco Santander P.R.,
902 F.2d 148, 152 (1st Cir. 1990)).
A. Framing the Issue.
Wheeling challenges both of the grounds supporting the
bankruptcy court's entry of judgment in favor of the estate
representative. According to Wheeling, the bankruptcy court erred
in concluding that the estate representative did not use its
collateral when he agreed to the release as part of the settlement
with the Shipper. In its view, the estate possessed contract and
regulatory claims against the Shipper based on indemnification
obligations under both the through bill of lading issued by
Canadian Pacific and the uniform bill of lading applicable to rail
shipments pursuant to 49 C.F.R. § 1035.1. Given the estate
representative's use of these non-tort claims to secure a
settlement of significant value to the estate, Wheeling's thesis
runs, the court erred as well in finding that Wheeling failed to
prove the value of these claims.
The parties wrangle over a host of complex legal issues
in the course of expounding their respective views on the merits
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of the bankruptcy court's ukase. Many of these issues raise
questions of first impression in this circuit — questions about
matters ranging from the carriage of goods to secured transactions.
We are mindful, however, that "courts should not rush to decide
unsettled issues when the exigencies of a particular case do not
require such definitive measures." In re Curran, 855 F.3d at 22.
Because we discern no clear error in the bankruptcy court's finding
that Wheeling failed to carry its burden of proving the value of
the non-tort claims, we need not resolve the rest of the complex
legal issues raised by the parties. We explain briefly why we are
able to skirt those questions.
The parties' debate over whether the estate possessed
cognizable non-tort claims against the Shipper reduces to the
following question of law: can a connecting carrier sue a shipper
to enforce the terms of either a through bill of lading issued by
the originating carrier or the uniform bill of lading for rail
shipments under federal law? Relying largely on the Supreme
Court's decision in Southern Pacific Transportation Co. v.
Commercial Metals Co., 456 U.S. 336 (1982), Wheeling contends that
a connecting carrier has a contractual relationship with a shipper
governed by the terms of the through bill of lading. See id. at
342 (stating that bill of lading's "terms and conditions bind the
shipper and all connecting carriers" (citing Tex. & Pac. Ry. Co.
v. Leatherwood, 250 U.S. 478, 481 (1919))). The estate
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representative responds that the Supreme Court has characterized
connecting carriers as "mere agents" of the originating carrier
with no independent contractual rights vis-à-vis the shipper.
E.g., Mo., Kan. & Tex. Ry. Co. of Tex. v. Ward, 244 U.S. 383, 387-
88 (1917).
We need not answer this arcane and unsettled question
about the relationship between a shipper and a connecting carrier.
In order to prevail in this appeal, Wheeling must show that the
bankruptcy court erred in finding both that the estate did not
possess any non-tort claims against the Shipper and that Wheeling
failed to prove the value of those claims. See 11 U.S.C.
§ 506(a)(1) ("An allowed claim of a creditor secured by a lien on
property in which the estate has an interest . . . is a secured
claim to the extent of the value of such creditor's interest in
the estate's interest in such property . . . ."). Since we uphold
the bankruptcy court's finding on the latter question, determining
whether the estate possessed any non-tort claims against the
Shipper would be wholly gratuitous. We therefore assume — solely
for purposes of this appeal — that the estate did possess such
non-tort claims and that those claims constituted a part of
Wheeling's collateral.
Next, the parties vehemently disagree about the source
of Wheeling's entitlement to compensation for the estate
representative's use of the non-tort claims. Wheeling asserts
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that this entitlement arises from the Bankruptcy Code's guarantee
of adequate protection to compensate an entity with an interest in
property that is used by the trustee. See id. § 363(e). The
estate representative counters that adequate protection is
available only before plan confirmation and that Wheeling's
entitlement to compensation derives instead from Paragraph 84 of
the confirmation order (which protected Wheeling's right to assert
that its security interest attached to the Shipper's settlement
payment).
The parties' agreement on certain aspects of the
valuation inquiry absolves us of any need to explore this shadowy
corner of bankruptcy law. Whatever the source of Wheeling's
entitlement to compensation, the parties concur that Wheeling bore
the burden of proof before the bankruptcy court to demonstrate the
value of the non-tort claims (or at least that the claims were
worth more than the amount of Wheeling's secured claim). What is
more, they agree that 11 U.S.C. § 506(a)(1) supplies the applicable
standard for valuing those claims. In light of our conclusion
that the bankruptcy court did not clearly err in finding that
Wheeling failed to carry this burden, choosing between the two
possible sources of Wheeling's entitlement to compensation
(adequate protection and plan confirmation) would be an empty
exercise.
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The short of it is that we assume, without deciding,
that the estate possessed cognizable non-tort claims against the
Shipper, which constituted a part of Wheeling's collateral. We
also assume, again without deciding, that the estate
representative released those non-tort claims as part of the
settlement with the Shipper.
These assumptions tee up the work that remains. To merit
compensation for the estate representative's use of its
collateral, Wheeling bore the burden of demonstrating the value of
the released claims pursuant to section 506(a)(1). The bankruptcy
court found that Wheeling had failed to carry this burden, and we
now shift the lens of our inquiry to Wheeling's challenge to that
finding.
B. Valuation of Collateral.
The bankruptcy court formulated two reasons for its
holding that Wheeling did not carry its burden of demonstrating
the value of the non-tort claims: Wheeling had neither adduced
"evidence identifying specific settlement value" of the claims nor
proven that they "had any positive net value" in relation to
Carmack Amendment counterclaims that the Shipper held against the
estate. Wheeling attacks this two-pronged holding, arguing that
both of its branches resulted from a series of legal errors. To
begin, it contends that the bankruptcy court should not have
required a showing that the non-tort claims were more valuable
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than the Shipper's hypothetical counterclaims. Relatedly, it
assigns error to the bankruptcy court's consideration of what it
views as expert testimony proffered by the estate representative.
It also assails the court's imposition of a tracing requirement,
which took into account that the Shipper's settlement payment was
earmarked for compensation for derailment victims.
Taking these arguments as a group, Wheeling says, in
effect, that the bankruptcy court impermissibly constructed an
insurmountable set of obstacles, which hamstrung its ability to
prove its entitlement to compensation for the estate
representative's use of the non-tort claims. But as previously
noted, Wheeling concedes that it had the burden of attributing
some value to the non-tort claims under section 506(a)(1). We
therefore start our analysis with the question of whether Wheeling
carried this burden. If it did not, the propriety of the
additional requirements that the bankruptcy court imposed becomes
a matter of purely academic interest (and, thus, poses questions
that we need not decide).
Section 506(a)(1) directs a bankruptcy court to
determine the value of property in which a creditor has a secured
interest "in light of the . . . disposition or use of such
property." Id. § 506(a)(1). The secured creditor must demonstrate
this value by a preponderance of the evidence. See Prudential
Ins. Co. of Am. v. SW Bos. Hotel Venture, LLC (In re SW Bos. Hotel
- 16 -
Venture, LLC), 748 F.3d 393, 408-09 (1st Cir. 2014). We assume,
for argument's sake, that the estate representative used some of
Wheeling's collateral when he released the non-tort claims as part
of the settlement with the Shipper. Hence, Wheeling bore the
burden of showing the settlement value of the non-tort claims,
that is, their value as a bargaining chip to secure a settlement
with the Shipper. We further assume — again for argument's sake
— that neither the valuation attributed to the non-tort claims by
the settling parties nor the value of the consideration that the
estate representative actually received in exchange for their
release was conclusive on the question of their settlement value.
In other words, we assume (favorably to Wheeling) that Wheeling
could have satisfied its burden by offering evidence of the claims'
settlement value, independent of the actual settlement that the
parties reached.4
As we read the record, the bankruptcy court applied this
valuation standard when it concluded that Wheeling "failed to
establish evidence identifying specific settlement value" of the
4 By defining Wheeling's burden of proof in this
straightforward manner, we honor its argument that it is entitled
to compensation for the estate representative's use of the non-
tort claims "however one might assess or value what the Estate got
in exchange" — an argument that relates to its belief that this is
a matter of adequate protection and not a matter of plan
confirmation. We use the term "settlement value" only to make
clear that, as the parties agree, Wheeling had to show the value
of the claims as a bargaining chip in the settlement with the
Shipper, not, say, their value on the open market.
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non-tort claims. The court appears to have reached this conclusion
based on Wheeling's failure to present any probative evidence at
all, not on the estate representative's testimony either that the
Shipper held valuable counterclaims against the estate or that the
settling parties did not attribute any specific value to the non-
tort claims.5 Because the court applied Wheeling's proposed
valuation standard in fashioning this finding, we review the
finding (that Wheeling failed to present sufficient evidence to
carry its burden of showing the settlement value of the non-tort
claims) for clear error. See id. at 404 (reviewing finding as to
when secured creditor became oversecured under section 506 for
clear error); cf. United States v. One Star Class Sloop Sailboat
Built in 1930 with Hull No. 721, Named "Flash II", 546 F.3d 26, 35
(1st Cir. 2008) (same for finding as to fair market value for civil
forfeiture).
Wheeling's challenge to this finding centers on the
stipulation that the parties submitted to the bankruptcy court.
According to the stipulation, the derailment caused MMA to suffer
at least $25 million in economic damages, and the amount of MMA's
5 When the district court denied Wheeling's motion to stay
the judgment of the bankruptcy court, it too treated the bankruptcy
court's first rationale for ruling against Wheeling on the
valuation issue as reliant on a failure of proof, not on any aspect
of the estate representative's testimony. See Wheeling & Lake
Erie Ry. Co. v. Keach, No. 1:18-cv-00262-JDL, 2018 WL 4696457, at
*2 (D. Me. Oct. 1, 2018).
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"net economic damages" (economic damages minus legal fees and
costs) for the non-tort claims was at least $10 million. Wheeling
contends that the bankruptcy court clearly erred in rejecting this
stipulation as alone sufficient to prove that the value of the
non-tort claims was not less than this $10 million figure, which
is higher than the amount of Wheeling's secured claim.6
This contention relies on the erroneous premise that the
value of a claim is the amount of damages suffered by the claimant,
net of prosecution costs. Valuing a claim, at least for settlement
purposes, is not so simple. See Polis v. Getaways, Inc. (In re
Polis), 217 F.3d 899, 903 (7th Cir. 2000) ("A claim for $X is not
worth $X." (emphasis in original)); cf. Limone v. United States,
579 F.3d 79, 104 (1st Cir. 2009) ("[I]t is unrealistic to assume
that settlement values . . . equate to actual damages."). At its
most elementary, the settlement value of a claim is the amount
that the claimant would recover if he prevails in litigating the
claim multiplied by the probability of recovery. See In re Polis,
217 F.3d at 902. In turn, the probability of recovery depends on
a gallimaufry of factors, such as the strength of the claimant's
evidence, the viability of any defenses, and the ability of the
defendant to satisfy a judgment. See United States v. Safety Car
6 On the day that MMA filed its Chapter 11 petition, Wheeling
had advanced it the full $6 million available under the line of
credit. Various post-petition collections have reduced the
outstanding principal balance to $3,421,443.33.
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Heating & Lighting Co., 297 U.S. 88, 100 (1936) (explaining that
value of patent infringement claim was uncertain because "[t]he
patent might be adjudged invalid" or "[t]he infringer might become
insolvent"). Many other considerations, including the cost of
litigation, the staying power of the parties, their relative desire
to avoid litigation, and their bargaining leverage, also may inform
the settlement value of a claim. See Ernst & Young v. Depositors
Econ. Prot. Corp., 45 F.3d 530, 540 (1st Cir. 1995). As such,
even a claim alleging a substantial figure for damages may have no
settlement value at all if the cost, difficulty, or uncertainty of
litigation makes it not worthwhile to pursue.
The stipulation's damages estimate of at least $25
million measures only the estate representative's potential
recovery if he successfully litigated the non-tort claims against
the Shipper; it does not take into account the cost of litigation
or the odds that the estate representative actually would have
recovered this sum (or any sum, for that matter) had he litigated
the non-tort claims instead of settling them. In the highly
ramified circumstances of this case, such a recovery was far from
certain. For instance, the Shipper faced the real possibility of
significant tort liability to victims of the derailment because of
its apparent mislabeling of the crude oil. If, in the absence of
a global settlement, both the estate representative and the
derailment victims had successfully pursued their respective
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claims, the Shipper may well have had insufficient assets to
satisfy all the monetary judgments.
The stipulation's second figure — its "net economic
damages" estimate of at least $10 million — added nothing of
consequence to Wheeling's attempt to carry its burden of proof.
Importantly, the stipulation does not say that this figure is an
estimate of the estate representative's expected recovery. Thus,
although this figure factors in the costs that the estate
representative would have incurred had he litigated the non-tort
claims, it still fails to account for the likelihood (or lack of
likelihood) that the estate representative would have secured such
a recovery. Wheeling offered no evidence that would have allowed
the bankruptcy court either to assess this likelihood or to gauge
any of the relevant factors other than the estate's potential
recovery that may have affected the settlement value of the non-
tort claims. Given this paucity of proof, we conclude that the
bankruptcy court did not clearly err in holding that Wheeling
failed to carry its burden of offering some probative evidence,
over and beyond the stipulation, showing the settlement value of
the non-tort claims.
Wheeling resists this conclusion. In defense of its
reliance on the "net economic damages" figure, it points out that
a plaintiff's potential recovery serves as the "value" of a claim
in other contexts. For example, courts use a version of this
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metric to determine whether a claim meets the amount-in-
controversy requirement for federal diversity jurisdiction, see,
e.g., Barrett v. Lombardi, 239 F.3d 23, 30-31 (1st Cir. 2001), and
to calculate damages when attorney malpractice results in the loss
of a claim, see, e.g., Black v. Shultz, 530 F.3d 702, 709-10 (8th
Cir. 2008). But as Wheeling concedes, it bore the burden of
valuing the non-tort claims in the idiosyncratic context of the
settlement between the estate representative and the Shipper. The
measures used to "value" claims in other (inapposite) contexts
furnish little guidance as to whether the bankruptcy court clearly
erred in rejecting the estate representative's potential recovery
as the settlement value of the non-tort claims.
Wheeling has another weapon in its armamentarium. It
strives to persuade us that the non-tort claims must have
significant value because the estate representative released them
in exchange for the Shipper's payment of $110 million, the
discharge of Carmack Amendment counterclaims against MMA, and the
assignment of Carmack Amendment claims against other carriers to
the estate. We are not convinced.
Wheeling's argument vastly oversimplifies the exchange
and completely ignores the other items of value that the Shipper
received as part of the settlement. For one thing, the estate
representative released not just the hypothetical non-tort claims
but also the negligence claim that he had asserted against the
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Shipper in the adversary proceeding complaint — a claim that
presumably had some value for settlement purposes. For another
thing, the settlement only became effective upon confirmation of
the plans in both the U.S. and Canadian bankruptcy proceedings,
including the entry of orders barring all derailment-related
claims against the Shipper. Such orders obviously were of
significant value to the Shipper. After all, multiple derailment
victims already had sued the Shipper, and the Shipper's mislabeling
of the crude oil appears likely to have contributed to the carnage
engendered by the derailment.
Last — but surely not least — the Shipper secured peace
of mind knowing that it would not face further liability arising
out of the derailment. A defendant seeking such a global
settlement would naturally seek to obtain a release of all claims,
not just the ones that seem to have apparent value. Almost always,
a main goal of a global settlement is to leave no loose ends.
To say more on this point would be supererogatory. The
bottom line is that because the Shipper received much more than
just the release of the non-tort claims in the settlement, we
cannot fault the bankruptcy court for declining to find that the
fact of the settlement alone comprised sufficient evidence of the
value of those claims.
We add a coda. Even if the settlement proved that the
non-tort claims had some value — and it did not — Wheeling still
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would have had to demonstrate what that value was (or at least
that the value exceeded the amount of its secured claim). That
the settlement agreement included the release of these claims does
not, without more, tell us anything about their specific value.
To show the required value, Wheeling offered nothing more than the
stipulation of "net economic damages." But for the reasons
previously discussed, the bankruptcy court did not clearly err in
rejecting this stipulation as sufficient proof of the settlement
value of the non-tort claims.
Finally, Wheeling makes a policy argument. It submits
that an affirmance of the bankruptcy court's valuation finding
will encourage estate representatives to use the difficult-to-
value collateral of secured creditors for the benefit of unsecured
creditors without paying any compensation for such use. This
concern, though, is overblown. Our affirmance of the bankruptcy
court's finding is not based on the failure of the estate
representative and the Shipper to allocate a specific value to the
non-tort claims as part of the settlement; instead, it is based on
Wheeling's failure to carry its burden of proof.
And although a cause of action may be a difficult asset
to value, we do not agree with Wheeling's suggestion that it had
no means, other than the stipulation of "net economic damages,"
for showing the settlement value of the non-tort claims. For
instance, an expert witness could have analyzed the range of
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factors that may have affected the settlement value of the non-
tort claims and given expert opinion testimony as to that value
before the bankruptcy court. That Wheeling instead chose to rely
on a plainly insufficient stipulation of "net economic damages"
does not mean that valuing the non-tort claims was impossible.
To sum up, the principal evidence that Wheeling
presented to the bankruptcy court to satisfy its burden of
demonstrating the settlement value of the estate's non-tort claims
against the Shipper was the parties' stipulation that the amount
of MMA's "net economic damages" (economic damages minus
prosecution costs) was no less than $10 million. Because the
settlement value of a claim may depend on other factors, though,
the bankruptcy court's finding that Wheeling did not carry its
burden of proof was not clearly erroneous. This finding, in turn,
is sufficient to permit the resolution of this appeal, and we take
no position on whether Wheeling's entitlement to compensation
depended on its ability either to make an additional showing that
the non-tort claims had positive net value in relation to the
Shipper's Carmack Amendment counterclaims or to trace its
collateral to identifiable proceeds. So, too, we have no occasion
to decide whether the bankruptcy court properly considered the
estate representative's testimony about those counterclaims.
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III. CONCLUSION
We need go no further. The phrase "burden of proof" is
not merely a rhetorical flourish. It signifies that the party to
whom the burden is assigned must offer evidence, either direct or
circumstantial, sufficient to persuade the factfinder of some fact
or proposition to a certain quantum of proof (here, a preponderance
of the evidence). The factfinder's judgment as to whether that
party has offered evidence adequate to carry this burden should
not readily be disturbed. This is such a case: giving due
deference to the factfinder's resolution of the burden-of-proof
issue, the judgment of the district court must be
Affirmed.
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