United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

_______________

No. 11-6013

________________

In re: *

*

In re: Petters Company, Inc.; Petters *

Group Worldwide, LLC; PC Funding, *

LLC; Thousand Lakes, LLC; SPF *

Funding, LLC; PL Ltd, Inc.; Edge One *

LLC; MGC Finance, Inc.; PAC *

Funding, LLC; Palm Beach Finance *

Holdings, Inc., *

*

Debtors. *

* Appeal from the United States

Interlachen Harriet Investments Ltd., * Bankruptcy Court for the 

* District of Minnesota

Objector - Appellant, *

*

v. *

*

Douglas Arthur Kelley, as Chapter 11 *

Trustee for Petters Company, Inc., *

Petters Group Worldwide, LLC, and *

PAC Funding, LLC and as Court *

Appointed Receiver for Thomas Petters, *

Inc. and Petters Aircraft Leasing, LLC; *

John R. Stoebner, as Chapter 7 trustee *

of the Jointly Administered Bankruptcy *

Cases Captioned In re: Polaroid Corp., *

et al., Case No. 08-46617; Petters *

Aviation, LLC; Elite Landings, LLC; *

Asset Based Resource Group, LLC, *

*

Movants - Appellees. *
1

 At the time the Petters Company, Inc., case was filed it was the largest; it

has since been eclipsed by the Bernard Madoff investment case currently pending

in the Bankruptcy Court for the Southern District of New York.

2

 The Honorable Gregory F. Kishel, United States Bankruptcy Court for the

District of Minnesota.

3

 See Tri-State Financial, LLC v. Lovald, 525 F.3d 649, 654 (8th Cir. 2008)

(quoting In re Martin, 212 B.R. 316, 319 (B.A.P. 8th Cir. 1997).

2

_____

Submitted: July 27, 2011

Filed: August 19, 2011

_____

Before SCHERMER, VENTERS, and NAIL, Bankruptcy Judges.

_____

VENTERS, Bankruptcy Judge.

Interlachen Harriet Investments Ltd., appeals the bankruptcy court’s approval

of a multi-million dollar, global settlement (“Settlement”) in one of the largest Ponzi

scheme bankruptcies in American history.1

 The Settlement has been substantially

consummated, and the appeal has been rendered largely moot. Nevertheless, to the

extent relief could be fashioned at this juncture, no such relief is warranted. The

bankruptcy court properly exercised its discretion to approve the settlement.

Therefore, we affirm the order of the bankruptcy court approving the Settlement.2

 

We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(b). 

I. STANDARD OF REVIEW

A bankruptcy court’s approval of a settlement agreement may be set aside only

for an abuse of discretion.3

 An abuse of discretion occurs if the court bases its ruling
4 See In re Racing Servs., 332 B.R. 581, 584 (B.A.P. 8th Cir. 2005) (citing

Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d

359 (1990)).

5 Tri-State Fin., LLC v. Lovald, 525 F.3d 649, 654 (8th Cir. 2008).

6

 Kenton Cty. Bondholders Comm. v. Delta Air Lines, Inc., (In re Delta

Airlines, Inc.), 374 B.R. 516, 522 (S.D. N.Y. 2007) (quoting standard iterated in

Washington v. Sherwin Real Estate, Inc., 694 F.2d 1081, 1087 (7th Cir. 1982)).

3

on an erroneous view of the law or on a clearly erroneous assessment of the evidence.4

It is not necessary that a settlement be the best result possible; a bankruptcy court need

only determine “that the settlement does not fall below the lowest point in the range

of reasonableness.”5

 In sum, a bankruptcy court abuses its discretion to approve a

settlement only if “no reasonable man could agree with the decision to approve [the]

settlement.”6

II. BACKGROUND

The following facts have been gleaned from the pleadings. Notably, Interlachen

has not disputed any of the facts set forth in the Appellees’ pleadings; its dispute lies

in the sufficiency, weight, and interpretation of those facts.

A. Context

As noted, this appeal arises out of the multi-billion-dollar Ponzi scheme

perpetrated by Thomas Petters. Over many years, Petters used various wholly owned,

special purpose entities, including Petters Company, Inc. (“PCI”), Petters Group

Worldwide, LLC (“PGW”), and PAC Funding, LLC (“PAC Funding”), to carry out

a fraudulent investment scheme. PCI obtained capital for the Petters enterprises on

its own account and by using the special purpose entities to obtain billions of dollars

of funding. Petters and his entities led investor-lenders to believe that their loans were

being used to purchase electronics and other merchandise from wholesalers to be

resold to “big box” retailers. The loans were purportedly secured by purchase orders.
7

 PC Funding, LLC, Case No. 08-45326; Thousand Lakes, LLC, Case No.

08-45327; SPF Funding, LLC, Case No. 08-45328; PL Ltd., Inc., Case No.

08-45329; Edge One LLC, Case No. 08-45330, MGC Finance, Inc, Case No.

4

But the merchandise and inventory supposedly being bought with the investors’ funds

were nonexistent, and the purchase orders and related documents that were supposed

to serve as security were fabricated. As in the prototypical Ponzi scheme, investors

were not repaid with earnings from their investments, but instead with funds Petters

obtained from other investors. In addition, Petters used investor funds to purchase the

well-known Polaroid camera brand in 2005.

On or about September 24, 2008, the FBI and other federal agencies executed

search warrants at multiple locations and seized records of Petters, PCI, PGW and

other Petters entities. On October 3, 2008, Petters was arrested. He was charged with

and found guilty of numerous federal criminal offenses and was sentenced to 50 years

in prison.

B. The Federal Receivership and the Bankruptcies

On October 2, 2008, the United States Government filed a complaint pursuant

to 18 U.S.C. § 1345 and sought an asset freeze and receivership for the benefit of the

victims of the Petters fraud. On October 6, 2008, Judge Ann D. Montgomery of the

United States District Court for the District of Minnesota, in United States v. Thomas

Joseph Petters, et al., Civil Case No. 08-05248, appointed Douglas A. Kelley as the

receiver for Petters, PCI and PGW, as well as entities 100% owned or controlled by

them. 

PCI, PGW, and PAC Funding were all receivership entities at one time. The

receivership court specifically granted Kelley authority to file bankruptcy petitions for

any of the receivership entities in order to protect and preserve their assets. In

October 2008 Kelley filed Chapter 11 bankruptcy petitions for PCI, PGW, PAC

Funding, and several other Petters entities.7

 These cases have been consolidated for
08-45331; and Palm Beach Finance Holdings, Inc., Case No. 08-45392. These

debtors are not parties to the Settlement.

8 See In re Polaroid Corp., 611 F.3d 438 (8th Cir. 2010) (describing sale and

rejecting challenge to it).

5

purposes of joint administration under In re Petters Company, Inc., et al., Case No.

08-45257 (collectively, “PCI Bankruptcy Cases”), and Kelley was appointed as the

trustee in all of these cases. An Official Committee of Unsecured Creditors (“PCI

Creditors Committee”) was also appointed and has been actively involved in the PCI

Bankruptcy Cases. The PCI Bankruptcy Cases are pending before Judge Kishel of the

United States Bankruptcy Court for the District of Minnesota. 

Judge Kishel also presides over the related bankruptcy cases of PBE

Corporation and PBE Consumer Electronics, LLC, formerly known as Polaroid

Corporation and Polaroid Consumer Electronics, LLC. The Polaroid Bankruptcy

Cases were commenced in December 2008 and operated as Chapter 11

debtors-in-possession. They were jointly administered under In re Polaroid

Corporation, et al., Case No. 08-46617, and in April 2009, substantially all of

Polaroid’s assets were sold pursuant to 11 U.S.C. § 363, generating approximately $87

million for the Polaroid Bankruptcy Estates.8

 The Polaroid Bankruptcy Cases were

voluntarily converted to Chapter 7 on September 1, 2009. John R. Stoebner was

appointed as the Chapter 7 trustee of the Polaroid Bankruptcy Estates.

Two other Petters entities relevant to this appeal are Petters Aviation, LLC and

its wholly-owned subsidiary, Elite Landings, LLC. These entities were initially

excluded from the Receivership, but they ultimately filed voluntary petitions for relief

under Chapter 11 of the Bankruptcy Code. Judge Robert J. Kressel of the United

States Bankruptcy Court for the District of Minnesota presides over these cases; they

are captioned In re Petters Aviation, LLC, No. 08-45136 and In re Elite Landings,

LLC, Case No. 08-45210 (“Aviation Bankruptcy Cases”). 
6

C. ABRG and Acorn

Appellee Asset Based Resource Group, LLC (“ABRG”), successor-servicer to

Acorn Capital Group, LLC (“Acorn”), is one of the larger creditors in the

Receivership and of the Petters Bankruptcy Estates. The settlement at issue in this

appeal focuses in large part on resolving the many and complex disputes between

ABRG and various Petters entities. 

Beginning in the early 2000s, Acorn originated numerous loans to several

Petters entities, including PCI, PAC Funding, Petters Aviation, and PAL. From 2001

to 2008, Acorn invested approximately $2.7 billion in various Petters entities.

Measured by cash invested minus cash repaid to Acorn, Acorn lost approximately

$138 million as a result of investments in PAC Funding and PCI. 

Many of the loans Acorn made to the Petters entities were assigned directly or

indirectly to various third parties, including Stewardship Credit Arbitrage Fund, LLC,

Putnam Green LLC, ACG II, LLC (“Onshore Funds”) and three Bermuda-based

entities (“Offshore Funds”). After discovery of the Petters fraud, both the Onshore

Funds and Offshore Funds began to wind up their respective affairs, and liquidation

proceedings were commenced for the Offshore Funds in the Supreme Court of

Bermuda, Commercial Court. 

D. Acorn – Polaroid Litigation

Acorn has asserted claims of $290,500,725.10 against the Polaroid Bankruptcy

Estates, allegedly secured by senior liens against substantially all of the Polaroid

Bankruptcy Estates’ assets, including accounts, inventory, and certain North American

trademarks. 

Acorn argued prior to the settlement that its secured claims arose out of certain

loans made by Acorn to PAC Funding, an obligation of Polaroid to replenish a

blocked account, and Polaroid’s guaranty of all obligations owed by PAC Funding to
7

Acorn. Notably, Acorn’s claims against the Polaroid Bankruptcy Estates compete

against those asserted by Kelley on behalf of PCI and PGW and PAC Funding. Some

of PCI’s most valuable assets are: (1) the approximately $28 million in secured claims

it has asserted against the Polaroid Bankruptcy Estates, (2) non-priority, general

unsecured claims of approximately $11.4 million it has asserted against the Polaroid

Bankruptcy Estates for various inter-company notes, and (3) the over-$180 million

claim Petters Capital, LLC has asserted against the Polaroid Bankruptcy Estates.

Asset (3) is valuable because PCI anticipates being the only material creditor of

Petters Capital, holding in excess of 95% of the claims against the Petters Capital

estate.

In February 2009 Polaroid commenced an adversary proceeding against Acorn,

alleging that approximately $3.9 million in transfers made by Polaroid to Acorn were

preferential and fraudulent transfers avoidable pursuant to Bankruptcy Code sections

544, 547, and 548 and Minn. Stat. § 513.41, et seq. (“Polaroid Adversary Proceeding”).

The Polaroid Adversary Proceeding has been vigorously litigated, with both parties

engaging in extensive discovery. As of the date of the hearing on the Settlement, the

Polaroid Bankruptcy Estates had incurred more than $1 million in fees and expenses.

Cross-motions for summary judgment were pending at the time the parties pursued

(and ultimately consummated) settlement discussions.

E. PCI /PAC Funding – Acorn Litigation

On October 10, 2010, Kelley also commenced an adversary proceeding against

Acorn, alleging that over $2.7 billion of the transfers made by PCI, PGW, and PAC

Funding to Acorn were preferential or fraudulent transfers avoidable under the

Bankruptcy Code and Minnesota law (“Petters Adversary”). As of the date of the

Settlement, the Petters Adversary had not progressed beyond the filing of the

Complaint. The Complaint also seeks disallowance of Acorn’s claims – exceeding

$312 million – against PCI and PAC Funding.
8

F. Interlachen’s Involvement with PCI.

Appellant Interlachen was one of the last entities to invest in the Petters

enterprises before the fraud was exposed. In April 2008 – at a time when PCI and other

Petters entities were in default on numerous notes, were entering into numerous

forbearance agreements, and the Ponzi scheme was collapsing – Interlachen entered

into a short-term, high-interest loan with PCI and Petters for $60 million. As of the

petition date, $71,540,984 was due on the loan. Interlachen was not repaid any

principal and has asserted a claim of more than $60 million against the PCI Estate.

G. The Settlement.

After extensive discovery and thorough briefing in the Polaroid Adversary

Proceeding, Kelley, the Polaroid Trustee, Acorn, the Receiver, Petters Aviation and

Elite negotiated a settlement over the course of several months. The Settlement has

several key components, including:

1. The Polaroid Trustee’s payment of $11,500,000 to Acorn in settlement

and release of all claims and liens asserted by Acorn against the Polaroid,

Bankruptcy Estates, including alleged secured claims totaling

$290,500,725;

2. The Polaroid Trustee’s payment of $3,000,000 on behalf of Acorn to PCI

and PGW to resolve avoidance claims against Acorn, including an

approximately $3.9 million preference claim;

3. The reduction of Acorn’s claims against PCI and PAC Funding from in

excess of $312 million to a non-priority, unsecured claim in the amount

of $141,290,116, representing Acorn’s Ponzi scheme losses (money paid

into the Ponzi scheme less money repaid);

4. The Petters and Polaroid Trustees’ separate release of Acorn, and Acorn’s

release of the Petters and Polaroid Trustees;

5. Petters Aviation and Elite Landing’s allowance of certain claims,

including two Acorn claims, a non-priority unsecured PGW claim of
9

$647,225.62, and PCI’s full non-priority, unsecured claim for

$4,214,333.33.

The Settlement effectively resolves all disputes between Acorn and the other

parties, thereby resolving numerous adversary proceedings pending in four different

bankruptcy cases. In addition to the bankruptcy court’s approval of the Settlement in

the PCI Bankruptcy Case, the Settlement was contingent on: (1) the approval of the

bankruptcy court (Kressel, J.) in the Polaroid Bankruptcy Cases; (2) the approval of the

District Court in the Receivership Proceedings; (3) the bankruptcy court’s confirmation

of the Third Modified Joint Plan of Liquidation (“Aviation/Elite Plan”) in the Aviation

Bankruptcy Cases; and (4) approval by the Bermuda court presiding over the wind-up

and liquidation of the Offshore Funds. Judge Kressel, the District Court, and the

Bermuda court have all approved of the settlement. The Aviation/Elite Plan was

confirmed on March 10, 2011, and became effective on March 25, 2011.

On January 18, 2011, Kelley filed a motion under Fed. R. Bankr. P. 9019 for

approval of the Settlement. Interlachen was the only party to object. The Polaroid

Trustee also filed a motion for approval of the Settlement in the Polaroid Bankruptcy

Cases. On February 8, 2011, the bankruptcy court held a joint hearing on both

Motions. After a lengthy hearing, the bankruptcy court orally approved the Settlement

and explained its reasoning from the bench. 

On February 9, 2011, the bankruptcy court entered an order approving the

Settlement, citing its oral findings and conclusions. Interlachen timely appealed, and

on March 14, 2011, Interlachen filed an Emergency Motion for a Stay with this Panel.

We denied the Motion as procedurally and substantively deficient.

H. ABRG’s Motion to Dimiss

On July 1, 2011, Appellee ABRG (Acorn’s successor-servicer in interest) filed

a motion to dismiss on the grounds that this appeal has been rendered moot
10

(constitutionally and equitably) by the performance of many aspects of the Settlement

since it was approved by the bankruptcy court, including:

1. Trustee Stoebner (of the Polaroid Bankruptcy Estates) has transferred

$11,500,000 to Acorn;

2. Trustee Kelley has transferred $2,376,900 to Acorn on behalf of Petters

Aircraft Leasing, LLC;

3. Stoebner has transferred $3 million to PAC Funding, of which $2,918,430

has been distributed to PCI and $81,570 has been distributed to PGW; 

4. The Aviation/Elite Plan has become effective.

5. Payments from Petters Aviation to Class 11 convenience class claims and

to Class 10 unsecured creditors have commenced. 

6. Petters Aviation has transferred $4,721,703.13 to Acorn. 

7. The following adversary proceedings pending in the United States

Bankruptcy Court for the District of Minnesota have been dismissed with

prejudice and closed pursuant to court-approved stipulations:

a. Stoebner v. Acorn Capital Group, Adversary Proceeding No.

09-04031;

b. Petters Aviation, LLC v. Douglas A. Kelley, Receiver for Thomas

J. Petters, individually, and for Thomas Petters, Inc., Adversary

Proceeding No. 10-04327;

c. Petters Aviation, LLC v. Acorn Capital Group, LLC and Asset

Based Resource Group, LLC, Adversary Proceeding No. 10-04333;

d. Petters Aviation, LLC v. Douglas A. Kelley, Chapter 11 Trustee for

Petters Group Worldwide, LLC, Adversary Proceeding No.

10-04349; 

e. Petters Aviation, LLC v. Douglas A. Kelley, Chapter 11 Trustee for

Petters Company, Inc., Adversary Proceeding No. 10-04350; and
9

 As noted above, the Settlement spans multiple estates and proceedings in

four separate courts. Interlachen’s appeal, if successful, would negatively impact

numerous non-parties, including recipients of distributions from the Aviation/Elite

Plan, recipients of distributions from the PAL estate, creditors and other parties in

interest to the Polaroid estates, parties with an interest in the Bermuda liquidation,

and all parties that received a release as part of the Settlement. Although it might

be possible to undo some aspects of the Settlement, it would certainly be

impractical and inequitable to undo them all. “[A]n appellate court may dismiss an

appeal from a bankruptcy court as moot ‘even though effective relief could

conceivably be fashioned, [when] implementation of that relief would be

inequitable.’” In re Michaels, 286 B.R. 684, 690 (B.A.P. 8th Cir. 2002)(quoting In

re Continental Airlines, 91 F.3d 553, 559 (3rd Cir. 1996)). 

11

f. Douglas A. Kelley v. Acorn Capital Group, LLC, et al., Adversary

Proceeding No. 10-04441; 

After receiving Interlachen’s response, we entered an order on July 21, 2011,

stating that we would take ABRG’s motion with the merits of the appeal. 

III. DISCUSSION

A. ABRG’s Motion to Dismiss is moot.

We first dispose of ABRG’s motion to dismiss. While it has considerable merit,9

the motion is moot in light of our ruling below that the bankruptcy court did not abuse

its discretion in approving the Settlement. It will therefore be denied.

B. The bankruptcy court did not abuse its discretion in approving the 

Settlement.

Interlachen’s numerous objections to the Settlement can be distilled into two

categories: those that assign error to the sufficiency of the record underlying the

bankruptcy court’s conclusion that the Settlement is reasonable, and those directed at

the substance of the bankruptcy court’s determination that the Agreement is
10 Interlachen’s argument is also internally inconsistent. On one hand,

Interlachen argues that the bankruptcy erred by approving the Settlement without

conducting an evidentiary hearing on the reasonableness of the settlement. (Br. at

13). On the other hand, Interlachen states in a footnote that the purview of the

bankruptcy court in evaluating the Settlement should have been limited to the

record as it existed before the hearing. (Br. at 16 n.12). Interlachen’s latter

suggestion would render the hearing on a settlement a mere formality, which we

decline to do.

11 Compare In re Y-Knot Const., Inc., 369 B.R. 405 (B.A.P. 8th Cir. 2007)

(reversing approval of settlement where proponent of settlement did not offer any

documentary or testimonial evidence in support of settlement), with Depositer v.

Mary M. Holloway Found., 36 F.3d 582, 586 (7th Cir. 1994) (holding that an

evidentiary hearing is not required under Rule 9019 and rejecting challenge to

sufficiency of the evidence).

12

reasonable. Although these are, in essence, two sides of the same analytical coin, for

clarity we discuss each separately.

1. The record upon which the bankruptcy court based its approval of

the Settlement was sufficient.

Interlachen argues that the bankruptcy court erred in approving the settlement

without sufficient evidence that it was in the best interests of the estate. We disagree.10

The sufficiency of a record underlying a decision to approve a settlement

depends on the circumstances of each case. While an evidentiary hearing might be

necessary in some cases, it isn’t in others.11 The critical inquiry on appeal is not the

quantum of evidence adduced at a hearing on a settlement, but rather whether a

bankruptcy court apprises itself “of all facts necessary for an intelligent and objective
12 Protective Committee for Independent Stockholders of TMT Trailer Ferry,

Inc. v. Anderson, 390 U.S. 414, 424, 88 S.Ct. 1157, 1163, 20 L.Ed.2d 1 (1968). 

13 The experience and knowledge of the bankruptcy court reviewing a 

settlement is specifically recognized by some courts as a factor in assessing a

settlement. See, e.g., In re Iridium Operating LLC 478 F.3d 452, 462 (2nd Cir.

2007). Cf., In re Zahn Farms, 206 B.R. 643, 644-45 (B.A.P. 2d Cir. 1997) (noting

importance of bankruptcy court’s familiarity with a proceeding in determining the

necessity of a stay pending appeal).

14 Contrary to Interlachen's contention, these parties' statements were not

limited to conclusory, self-serving statements. Our review of the lengthy transcript

of the hearing revealed numerous references to facts (to which Interlachen did not

object) supporting the Settlement, and pointed exchanges with the bankruptcy

court clarifying aspects of the Settlement. Of particular note is the bankruptcy

court's exchange with counsel for ABRG regarding the fact that the amount of

ABRG's allowed unsecured claim under the Settlement was calculated by reference

to an analysis undertaken by a (presumably) objective third party, Pricewaterhouse

Coopers. (Tr. at 38-40). Additionally, as officers of the court, the statements of

counsel – whose testimony would have been germane – are entitled to additional

weight.

13

opinion of the probabilities of ultimate success should the claim be litigated,”12 In this

case, the bankruptcy court did that.

In addition to Judge Kishel’s extensive familiarity with the issues and dynamics

of this highly complex case – a difficult-to-quantify yet significant factor13 – the record

upon which the bankruptcy court approved the Settlement included: a) the Settlement,

describing in detail the parties’ (primarily Acorn/ABRG’s and the Trustee’s)

competing claims; b) the Trustee’s verified motion, further detailing the positions of

and relationships between the parties and the alleged benefits of the Settlement to the

PCI estate; c) the statements of the attorneys for the Trustees, the PCI Creditors

Committee, and ABRG, explaining in detail the background, reasoning, and benefits

of the Settlement;14 d) the lengthy dockets from the various Petters bankruptcy cases

before Judge Kishel, which reflect the complexity and costliness, in time as well as
15 Brief of Appellant at 5 n.6. The motions and the over 1000 pages of

exhibits attached thereto provide a basis on which the bankruptcy court could

evaluate the potential further cost of the litigation and the respective merits of the

parties' positions.

16 Drexel Burnham Lambert Corp. v. Flight Transp. Corp. (In re Flight

Transp. Sec. Litigation), 730 F.2d 1128 (8th Cir. 1984) (Flight Transportation);

Drexel v. Loomis, 35 F.2d 800 (8th Cir 1929)).

17 Flight Transportation, 730 F.2d at 1135 (quoting Loomis, 35 F.2d at 806).

14

money, of matters involving ABRG; and e) the cross motions for summary judgment

filed in the in the Acorn-Polaroid litigation, which Interlachen has acknowledged, is

part of the record.15 

It is also notable that Interlachen did not offer any evidence to demonstrate that

the settlement was unreasonable.

The fact that the bankruptcy court’s oral ruling did not segregate or specifically

enumerate the evidence before it does not undermine its ultimate conclusion that the

Settlement is in the best interest of the estate. Therefore we find that the record, taken

as a whole, supports approval of the Settlement.

2. The Settlement satisfies the Flight Transportation / Drexel Factors. 

As noted above, to be approved, a settlement need not be perfect, it must merely

“not fall below the lowest point in the range of reasonableness.” The reasonableness

of a settlement is determined by reference to what are known as the Flight

Transportation or Drexel (or Drexel Loomis) factors. Although these refer to

different cases,16 the factors are the same; Flight Transportation simply quotes

Drexel.

17 Under Flight Transportation, a bankruptcy court evaluating a proposed

settlement must consider “all of the factors bearing on the fairness of the settlement
18 Id.

15

including: ‘(a) the probability of success in the litigation; (b) the difficulties, if any, to

be encountered in the matter of collection; (c) the complexity of the litigation involved,

and the expense, inconvenience and delay necessarily attending it; (d) the paramount

interest of the creditors and a proper deference to their reasonable views in the

premises.’ ”18 These findings are reviewed for clear error. And based on the record,

the bankruptcy court’s determination that these factors weigh in favor of approving the

settlement was not clearly erroneous. 

a. Likelihood of Success

Interlachen maintains that the bankruptcy court erred in finding that the

Trustee’s likelihood of success in the Petters Adversary was low enough to justify the

Settlement, but it offers little more than emphatic language to support its argument.

In contrast, the bankruptcy court evaluated the relative strength of the parties’ positions

based on its familiarity with ABRG’s defenses in the Polaroid–Acorn litigation, on an

understanding of the unsettled nature of the law implicated by the adversary (see

section c. below), and extensive input from the Trustee and PCI Creditors Committee.

The bankruptcy court also properly considered the skill and tenacity ABRG had

demonstrated in advancing its interests in the bankruptcy case and in other litigation

with the Trustee. Based on all of theses factors, the bankruptcy court’s determination

that the Trustee’s likelihood of success (or lack thereof) in the Petters Adversary

warranted approval of the settlement.

b. Difficulty of Collection

The Trustee, the PCI Creditors Committee and ABRG all represented to the

bankruptcy court that ABRG’s financial condition would make it difficult to collect

any judgment that the Trustee might obtain against it. Interlachen has not disputed this

assertion – in its brief or at oral argument. Rather, it sidesteps the issue by arguing that

if the Trustee obtained a judgment against ABRG, the disallowance of Acorn/ABRG’s
19 Section 502(d) provides in pertinent part: “[T]he court shall disallow any

claim of any entity from which property is recoverable under section . . .550 . . . of

this title or that is a transferee of a transfer avoidable under section . . . 547, 548 . .

.of this title, unless such entity or transferee has paid the amount, or turned over

any such property, for which such entity or transferee is liable under section . . .

550 . . . of this title.” 11 U.S.C. 502(d) (West 2010).

16

claim against the PCI estate under 11 U.S.C. § 502(d) is tantamount to a recovery and

therefore reduces the collection risk associated with the litigation.19 

Although the operation of § 502(d) under these circumstances might provide the

PCI estate with a benefit in the form of a reduction of the claims pool, that benefit is

difficult to quantify without knowing the size of the estate and the size of the claims

pool, whereas the value of a worthless judgment is quantifiable: It’s zero minus the

costs of litigation. Considered in conjunction with the complexity of the litigation and

the immediate, concrete benefits that will inure to the PCI bankruptcy estate as a result

of the settlement, we cannot say that the bankruptcy court committed clear error in not

finding that § 502(d) offset the collection risk associate with the litigation.

c. Complexity of the Litigation

Interlachen largely glosses over this factor, arguing that the cost and complexity

of the litigation “alone” does not support approval of the Settlement, and that § 502(d)

offers a straightforward approach to the Petters Adversary. But, as discussed above,

§ 502(d) does not significantly strengthen the Trustee’s hand against ABRG. And the

complexity of the litigation is not the only factor supporting the bankruptcy court’s

approval of the settlement; all of the Flight Transportation factors weigh in favor of

its approval. Nonetheless, the bankruptcy court did not err in finding that pursuing the

Petters Adversary would be exceedingly complex and costly and that this complexity

supports approval of the adversary.

Aside from the noted and obvious complexity of pursuing the recovery of $2.7

billion from an entity that had already demonstrated its tenacity in defending a roughly
20 See In re Bayou Group, LLC, 439 B.R. 284 (S.D. N.Y. 2010) (discussing

status of fraudulent transfer law as applied to the recovery of fraudulent transfers in

Ponzi schemes). See also Clarence L. Pozza, Jr., A Review of Recent Investor

Issues in the Madoff, Stanford and Forte Ponzi Scheme Cases, 10 J. Bus. & Sec. L.

113 (2010); Jeff Sonn, Ponzie Schemes– Picking Up the Pieces from a Fallen

House of Cards, 755 PLI/Corp 443 (2009).

21 In re Racing Services, Inc., 332 B.R. 581, 584 (B.A.P. 8th Cir. 2005)

(Federman, J. concurring).

17

$3.9 million preference action against it, the uncertainty surrounding at least two issues

in the Petters Adversary – the proper measure of fraudulent transfer avoidance and

recovery in a Ponzi scheme and the fact-intensive inquiry necessary to determine a

defendant’s good faith – pose particular challenges to the litigation.20 “The unsettled

nature of the law... is certainly one factor the Court must take into account in

determining whether the settlement should be approved.”21 And the bankruptcy court

took due note of this factor. 

d. Paramount Interest of Creditors and Proper Deference to their

Reasonable View in the Premises

Interlachen argues vehemently that the Settlement favors ABRG to the detriment

of other creditors, but Interlachen wholly fails to address the significant and telling

fact that, despite notice to over 100 creditors, Interlachen was the only creditor to

object, and the PCI Creditors Committee endorsed the Settlement, noting at length at

the hearing that it did so only after a thorough consideration and extensive analysis: 

When we initially heard about the terms of the proposed settlement,

Your Honor, I would characterize our response as somewhat hostile, to

be honest. We were resistant to the settlement and we had quite a lot of

questions for the trustee and for Acorn and from that point on we

commenced our due diligence process and we spoke to the trustee and

counsel for the trustee. We spoke to counsel for Acorn. We obtained

financial information relating to Acorn from Price Waterhouse and

reviewed that financial information showing Acorn's investments that it

made in to PCI and PAC Funding and also the payments that Acorn
22 Tr. at 45-46.

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received and the timing thereof. We reviewed the deposition transcripts

and the pleadings related to the Acorn litigation and finally, Your Honor,

we reviewed and commented on drafts of settlement documents.

As we investigated the settlement and learned more about it, our

questions, many of them were answered and we came to believe that this

settlement, and I will use the words of Mr. Lodoen (the Trustee’s

counsel), while we're not thrilled about this settlement, we believe that

it is within the range of reasonableness, which is why we have not filed

an objection.22

The bankruptcy court’s approval of the Settlement gave proper deference to

these views.

In sum, the bankruptcy court’s finding that the Settlement satisfied the Flight

Transportation factors is not clearly erroneous.

On a final note, we cannot ignore the fact that two other federal judges – Judge

Montgomery of the United States District Court for the District of Minnesota and

Judge Kressel of the Bankruptcy Court for the District of Minnesota – have placed

their imprimatur on this settlement. Admittedly, the Flight Transportation factors do

not take into account other courts’ opinions of a settlement (which would be a non

sequitur under normal circumstances), and these courts weren’t evaluating the

settlement from the perspective of the PCI bankruptcy estate. But they also weren’t

evaluating the Settlement from Acorn’s or ABRG’s perspective, which undermines

Interlachen’s contention that the Settlement is grossly biased in favor of Acorn and

ABRG. These approvals of the Settlement make it extremely difficult, if not

impossible, to conclude the Settlement fell below the lowest point in the range of

reasonableness.
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CONCLUSION

For the reasons stated above, the order of the bankruptcy court approving the

Global Settlement is hereby affirmed.