Chapter 7; Settlement agreement approval; Bard v Sicherman (In re Bard) (Unpub 6th Cir); Whether appellant’s offer to purchase the estate’s assets would have served the interest of the main creditor; Accusations of bad faith; Memorandum of Understanding (MOU)

[This appeal was from the ED-MI.] The court held that the bankruptcy court did not err by approving a settlement agreement between the trustee of debtor-TAJ Graphics’ bankruptcy estate, the debtor’s owner (appellee-Kattula), and parties related to Kattula. The court concluded that the trustee’s ability to establish ownership rights in the claims at issue was “uncertain, diminishing the value of litigating as opposed to settling.” Appellant-Prime Financial, an unsecured creditor, made two loans to another entity owned by Kattula, K&B Capital, which were guaranteed by TAJ. TAJ previously filed a Chapter 11 bankruptcy, and a plan agreed to by the parties was confirmed. TAJ later filed a second Chapter 11 bankruptcy, which was converted to a Chapter 7. Prime Financial’s proof of claim stated that it had not been paid under the first bankruptcy. TAJ argued to the contrary. The bankruptcy court ruled that K&B’s payments to Prime Financial were payments on its own debt and not on TAJ’s debt to Prime Financial, and that Prime Financial still had $1,356,044.45 claim against TAJ. The TAJ bankruptcy estate held five disputed assets, including a 2006 assignment purporting to assign rights to an MOU. The Chapter 7 trustee moved for approval of a settlement under which “Kattula agreed to waive certain claims against the bankruptcy estate and pay $50,000 into the estate. Kattula would then take ownership of the estate’s interest in the five disputed assets.” Prime Financial objected. The IRS supported the settlement, and the bankruptcy court approved it. Applying the four-part test in Bard, and giving deference to the trustee’s decision to settle, the court held that “it was reasonable for the bankruptcy court to conclude that the uncertainty of the estate’s success in litigation greatly diminished the potential value of the estate’s assets.” The bankruptcy court also properly considered the difficulties arising from an attempt to collect funds, and reviewing the situation the trustee faced, reasonably “concluded that settlement was preferrable to yet more costly and lengthy litigation.” Further, considering the IRS’s claim, the court held that it was unlikely that rejecting the settlement would result in Prime Financial receiving any distribution. It also held that the bankruptcy court did not err by rejecting Prime Financial’s offer to purchase the estate’s assets as “not serving the interest of the main creditor[,]” the IRS, and found no error in the trustee’s evaluation of estate assets. Finally, it rejected Prime Financial’s “conclusory accusations of bad faith at Kattula, the trustee, and the IRS.” Thus, it affirmed the district court’s order affirming the bankruptcy court’s settlement order.