### ORD ERED PU BLISHED

U NIT E D ST A T E S BA NK RU PT CYA PPE L L A T E PA N E L

OF T HE NINT H CIRCU IT In re: O PEN MEDIC IN E IN S TITU TE, IN C .,

Deb to r. BA PN o . N C -21-1233-FBS Bk. N o . 20-51678 SPA R K FA C TO R

DESIGN, IN C .; W O R K IN G DIRT R2, LLC,

A p pellants, v. FR E D S. HJELMESET, Chapter 7 Trustee,

A p pellee. In re: A N DR EA S M. KO GELN IK , Deb to r. BA PN o . N C -21-1234-FBS Bk. N o . 21-50203 SPA R K FA C TO R

DESIGN, IN C .; W O R K IN G DIRT R2, LLC,

A p pellants, v. A N DR EA S M. KO GELN IK , A p pellee. OPINION

A ppeal fro m the U nited States Bankruptcy C o urt fo r the N o rthern Distric t o f C alifo rnia S t ephen L. Jo hnso n, Bankruptcy Judge, Presiding

A P PEA RA N C E S: Gary M. K aplan o f Farella Braun &Martel LLP argued fo r appellants; Gregg S. K leiner o f Rinc o n Law, LLP argued fo r appellee Fred S. Hjelm eset; 

# FIL ED

MAY26 2022
SUSAN M . SPRAUL, CLERK U. S. B KCY

. APP. PANEL O F T HE NI NT H C I RCUI TMatthew G. Kleiner o f Go rdo n R ees Scully Mansukhani, LLP argued fo r

appellee A ndreas M. K o gelnik. Befo r e: FA R IS, BRA N D, and SPRA K ER , Bankruptcy Judges. O pinio n b y Judge Faris C o nc u rrenc e b y Judge Spraker FA R IS, Bankruptcy Judge: INT ROD U CT I ON This appeal arises out o f “b usiness divo rc e” litigatio n am o ng O pen Medic ine Institute, Inc . (“O MI”), its fo under and fo rm er princ ipal, Dr. Andreas M. K o gelnik, and its current princ ipals and c redito r s, Spark Fac to r Design, Inc . (“Spark Fac to r”) and W o rking Dirt R2, LLC(“W o rking Dirt”). A fter O MI filed a chapter 7 1 petitio n and Dr. K o gelnik filed a
chapter 11 petitio n, the b ankruptcy c o urt appro ved a settlem ent b etween Dr. K o gelnik and O MI’s chapter 7 trustee, Fred S. Hjelm eset (“Trustee”). Spark Fac t o r and W o rking Dirt appeal, arguing that the b ankruptcy c o urt failed to pro perly evaluate the settlem ent as a sale o f estate assets and erred in determ ining that the c o m pro m ise was fair and equitab le. While the Trustee c o uld have b etter suppo rted his analysis o f the
c laim s and settlem ent, the b ankruptcy c o u rt did no t ab use its disc retio n in relying o n his b usiness judgm ent. Furtherm o re, it did no t need to treat any po rtio n o f the c o m pro m ise as a sale o r fo rc e the Trustee to ac c ept the appellants’ alternative pro po sal. W e A FFIRM. W e pub lish to c larify that b ankruptcy c o urts dono talways need to exam ine a c o m pro m ise as a sale

1 Unless specifi ed other wi se, all chapterand secti on r efer ences ar e to the Bankr uptcy Code, 11 U.S

. C. §§ 101-1532, and all “Rule” r efer ences ar e to the Feder al Rules of Bankr uptcy Pr ocedur e.under § 363. FA CT S

A . Prepetition ev e nts In o r aro und 2008, Dr. Ko gelnik fo rm ed O MI, a m edic al research
c o m p any, and b ec am e its C E Oand so le shareho lder. A ppellant Spark Fac to r and Valley C o m m unity Fund, Inc . (“VC FI”) ac qu ired the m ajo rity stake in O MI in 2019. Spark Facto r’s C EOand prim a ry shareho lder is Ab r ahamFarag, and his b ro ther is the C EO, sec retary, and treasurer o f VC FI. Mr. Farag’s wife is the m anaging m emb er o f appellant W o rking Dirt. Beginning in Dec emb er 2019, O MI b o rro wed a to tal o f $2.3 m illio n fro mSpark Fac to r. It alsob o rro wed $2.5 m illio n fro mW o rking Dirt. Dr. K o gelnik perso nally guaranteed the lo a ns. In early 2020, Laura Gingher, Spark Facto r’s o peratio ns m anager, b ec am e O MI’s C FO, and later its C EO, sec retary, treasurer, and b o ard
m emb er; Mr. Farag b ec am e the c hairm an o f O MI’s b o ard. They effec tively to o k c o ntro l o f O MI’s o p eratio ns. In June 2020, Spark Fac to rac quired additio nal sto c k in O MI to inc rease its equity share toninety-three perc ent. By the petitio n date, Dr. K o gelnik o wned o nly a five-perc ent interest in O M I. Sho rtly after Spark Fac to r ac quired its c o ntro lling stake in O MI, Dr. K o gelnik left his po s itio ns as C EOand direc to r o f O M I. He c laim ed that Mr. Farag and Ms. Gingher im pro perly fo rc ed himo ut; c o nversely, Spark Fac to r and W o rking Dirt asserted that the b o ard fo rc ed him to resign due 3to his gro s s m ism anagem ent o f O M I, m isappro priatio n o f its assets, and

dec eptio n o f lenders, investo rs, and o thers fo r his perso nal b enefit. Befo re Spark Fac to rand W o rking Dirt b ec am e invo lved in its b usiness, O MI executed a lease fo r real pro perties in Mo untain View, C alifo rnia. The lease required a security depo sit o f o ver $2.3 m illio n. O n Septemb er 9, 2020, Ms. Gingher executed an assignm ent o f O MI’s lease to Spark Fac t o r, which inc luded O MI’s interest in the rem aining $1.9 m illio n
security depo sit. Spark Fac to r c laim ed that the lease was in default and distressed, b ut the Trustee c o ntended that Spark Fac to r extended the lease and sub let the pro perties (inc luding to O MI) at a pro fit. O MI filed three state c o urt c o m plaints against Dr. K o gelnik and o ther entities, inc luding his c o m p a nies O p en Medic ine C linic, Inc . (“O MC I”) and Basis Diagno stic s, Inc . (“Basis”). Essentially, OMI alleged that Dr. K o gelnik b reached his fiduc iary duties to O MI and appro priated O MI’s m o ney,
reso urc es, servic es, and intellec tual pro perty to b enefit his o ther
c o m p anies. The parties refer to the c laim s arising fro mthese lawsuits as the “State C o urt Litigatio n C laim s.” B. T he bankruptcy petitions In N o vemb er 2020, O MI filed a chapter 7 b ankruptcy petitio n. The Trustee was appo inted to adm inister the estate. Dr. K o gelnik filed a $1.35
m illio n pro o f o f c laimb ased o n prepetitio n lo ans. The Trustee asserted that OMI had vario us litigatio n c laim s against the o ffic ers, direc t o rs, and insiders o f O MI, inc luding Mr. Farag, his wife 4and b ro ther, Ms. Gingher, Spark Fac to r, W o rking Dirt, and VC FI. (The

parties refer to this gro up as the “Targeted Parties.” 2 ). He c laim ed that the Targeted Parties b reached their fiduc iary duties toO M I b y engaging in
c o nduc t that b enefitted them selves to the detrim ent o f O MI (the so -c alled “BO FD C laim s”). He alsoc laim ed to o wn the so -c alled “C auses o f A c tio n”: “rights o f set-o ff, rec o upm ent rights, o ffsets, alter ego, veil pierc ing, sub stantive c o nso lidatio n, suc c esso r liab ility, and o ther c laim s ” against unspec ified parties. The parties referred to the BO FD C laim s and the C auses o f A c tio n to gether as the “Litigatio n C laim s.” Meanwhile, Dr. K o gelnik filed his o wn chapter 11 petitio n. The Trustee filed an unliquidated pro o f o f c laimasserting that Dr. K o gelnik
m ay have b reached his fiduc iary duties to O MI and c a used financ ial injury to O MI. A dditio nally, Spark Fac to r and W o rking Dirt filed c o m plaints against Dr. K o gelnik under §§ 523 and 727. C. T he T rus tee’s m otion to c om prom is e The Trustee and Dr. Ko gelnik eventually agreed to reso lve the disputes b etween O MI’s estate and Dr. Ko gelnik. In Septemb er 2021, the Trustee filed a m o tio n to appro ve a settlem ent agreem ent with Dr. K o gelnik, Basis, and O MC I (the “K o gelnik Parties”). In sum m ary, the settlem ent agreem ent pro vided that the Trustee
wo uld: (1) settle the BO FD C laim s, the C auses o f A c t io n, and the State

2 The r ecor d does not make clear whether Dr . Kogelni k and hi s enti ti es ar e among the Tar geted Par ti es. Howev er, counsel forthe Tr ustee r epr esented at or al ar gument that the Tar geted Par ti es do not i nclude Dr . Kogelni k and hi s enti ti es. 5C o urt Litigatio n C laim s that the Trustee held against the K o gelnik Parties;

(2) sell to Basis the estate’s rights and interests in the Litigation C laim s against the Targeted Parties; and (3) withdraw his pro o f o f c laimin Dr. K o gelnik’s b ankruptcy c ase. In exchange, the K o gelnik Parties agreed that: (1) Basis wo uld pay the Trustee $200,000; (2) Basis wo uld pursue, at its
o wn expense, the litigatio n o f the Litigatio n C laim s in an adversary pro c eeding against the Targeted Parties and deliver to the Trustee fifty-five perc ent o f the net rec o very o n tho se c laim s; and (3) Dr. K o gelnik wo uld sub o rdinate his c laimin O MI’s b a nkruptc y c ase to all allo wed c laim s o f
no n-insiders. The Trustee argued that the pro po s ed c o m pro m ise c o m po rted with the fo ur fac to rs laid o ut in Ma rtin v. K a ne (In re A &C

Prop erties) , 784 F.2d 1377, 1381 (9th C ir. 1986): (1) the prob ab ility o f suc c ess in the litigatio n, (2) the diffic ulty, if any, to b e enc o untered in c o llec tio n, (3) the c o m plexity
o f the litigatio n invo lved and the expense, inc o nvenienc e, and delay
nec essarily attending it, and (4) the param o unt interest o f c r edito rs and pro per deferenc e to their reaso nab le views. First, the Trustee stated that the estate had fairly lo w chanc es o f
suc c ess in litigatio n against the K o gelnik Parties. He estim a ted that he “has an appro xim ately 50% chanc e o f prevailing o n the m erits,” that “[t]he
o utc o m e o f a trial . . . against the [K o gelnik Parties] is unc ertain, at b est,” and that “it is no t at all c lear if the estate wo uld prevail in litigatio n against Dr. K o gelnik under c laim s that he b reached his fiduc iary duty to [O MI] 6and that he wo uld no t b e ab le to shield him self fro mthese c laim s under a

b usiness judgm ent defense availab le to fo rm er o ffic ers and direc to rs.” Sec o nd, the Trustee expec ted signific ant diffic ulties in c o llec tio n, b ec ause it was doub tful that Dr. K o gelnik had m eaningful assets to pay any judgm ent. The Trustee adm itted that he “has no texpressly investigated the estate’s ab ility to c o llec t a judgm ent” fro mthe K o gelnik Parties b ut stated that it was unclear if there wo uld b e any distrib utio ns availab le to unsecu red c redito rs. He c o nc luded that litigatio n wo uld likely b e tim e-c o nsum ing and expensive, so “the inevitab le delay in ob taining a final, no n-appealab le judgm ent, the risk o f appeal, the risk that the assets o f the [K o gelnik Parties] c o uld b e c o nsum ed in litigatio n appear tob e sub stantial and a judgm ent unc o llec tib le.” Third, the Trustee stated that litigation against the K o gelnik Parties
wo uld b e very expensive. He estim ated that the reso lutio n m ight delay the b ankruptcy pro c eedings b y o ver three years. He represented that “the settlem ent . . . direc tly b rings a greater b enefit to the b a nkruptc y estate than po tential litigatio n against the [K o gelnik Parties].” Fo urth, the Trustee argued that the settlem ent was in the b est interests o f O MI’s c redito rs b ec ause it wo uld result in the im m ediate realizatio n o f $200,000 fo r the estate, plus fifty-five perc ent o f any rec o very against the Targeted Parties. A dditio nally, the sub o rdinatio n o f Dr. K o gelnik’s c laimwo uld reduc e the po o l o f allo wed unsecured c laim s b y $1.35 m illio n and inc rease the po t ential distrib utio n to o ther c redito rs. 7Finally, the Trustee addressed the sale tothe K o gelnik Parties o f the

Litigatio n C laim s against the Targeted Parties. He stated that he was
exerc ising his b usiness judgm ent to present the sale as a private sale no t subjec t to o verb id. He represented that the K o gelnik Parties were o f the
o pinio n that the Litigatio n C laim s were wo rth b etween $10 m illio n and $20
m illio n and that the prob ab ility o f suc c ess at trial was b etween sixty and eighty perc ent. He stated that he fo u nd tho se estim ates reaso nab le. W ith regard to o verb id pro c edures, the Trustee stated that he would
no t c o nsider an o verb id fro many o f the Targeted Parties, b ec ause they lac ked inc entive to pro secute the Litigatio n C laim s against them selves. Ho wever, if the b a nkruptc y c o urt allo w ed a Targeted Party to o verb id, he requested that the c o urt o rder that “the o verb id must b e no less than (a) $200,000 in c ash and (b ) $2,970,000 in additional c ash fo r a to tal o f $3,170,000,” whic

h allegedly represented the m inim umam o unt that the Trustee c o uld rec o ver under the pro po s ed c o m pro m ise. Spark Fac to r and W o rking Dirt o bj ec ted to the Trustee’s pro po sed
c o m p ro m ise in relevant part b ec ause: (1) the c o m pro m ise o f c laim s was a sale that required analysis under § 363; (2) the Trustee erroneo usly analyzed the A &C

Properties fac t o rs; (3) Spark Fac to rand W o rking Dirt had o ffered $300,000 tothe Trustee plus 100 perc ent o f rec o very against the K o gelnik Parties in the State C o urt Litigatio n C laim s, which was superio r to the pro po sed agreem ent with the K o gelnik Parties; (4) the m o tio n was unfair b ec ause the c o m p ro m ise did no t allo w fo ro verb id, o r, alternatively, 8they wo uld have to pay o ver $3 m illio n to o verb id; and (5) the K o gelnik

Parties’ litigatio n c o sts wo u ld exc eed $1 m illio n, which wo uld dec rease the
am o u nt o f m o ney availab le to Dr. K o gelnik’s c redito rs. Spark Fac to r and W o rking Dirt spent a large po rtio n o f their o bjec tio n explaining Dr. K o gelnik’s m alfeasanc e. They attached the dec laratio ns o f Mr. Farag and o thers. Mr. Farag’s lengthy dec laratio n referenc ed m any exhib its b u t failed to attach exhib its Atho ugh L. D . D r. K og elnik’s m otion to c om prom is e Bec ause Dr. K o gelnik was also in b ankruptcy, the c o m pro m ise required appro val in b o th O MI’s and Dr. Ko gelnik’s c ases. Dr. K o gelnik filed his o wn applic atio n to appro ve c o m pro m ise that m irro red the Trustee’s m o tio n. His po ints were sim ilar to the Trustee’s argum ents
c o nc erning the A &C

Properties fac to rs b ut analyzed the pro po sed
c o m p ro m ise fro m his estate’s perspec tive. First, with regard to likeliho o d o f suc c ess, he estim ated that he had a sixty perc ent chanc e o f prevailing o n his pro o f o f c laimfiled in O MI’s b ankruptcy c ase, altho ugh he ac kno wledged so m e risk. W ith regard to the Trustee’s c laimfiled in his c ase, he said that he had m o re than a fiftyperc ent chanc e o f suc c ess. Sec o nd, he argued that the O MI estate had little tono c ash assets. Therefo re, even if he prevailed, O MI likely c o uld no t pay his c laim

. Finally, as to the param o unt interests o f the c redito rs, Dr. K o gelnik argued that the withdrawal o f the Trustee’s c laimin his b ankruptcy c ase 9wo uld inc rease the po tential distrib utio n to c redito r s b y reduc ing the

o verall am o unt o f c redito rs’ c laim s and avo iding litigatio n expenses. He argued that the sub o rdinatio n o f his c laimagainst the O MI estate had little prac tic al effec t o n his c redito rs b ec ause the O MI estate did no t have signific ant assets with which to pay c laim s . A s to the K o gelnik Parties’ purchase o f the Litigatio n C laim s, Dr. K o gelnik said that, sinc e Basis was funding the purchase, paym ent o f the purchase pric e wo uld no t negatively im pac t his b ankruptcy estate. He estim ated that the Litigatio n C laim s were valued b etween $10 m illio n and $20 m illio n. He also estim ated that his prob ab ility o f suc c ess at trial was b etween 60 and 80 perc ent. Therefo re, he c o nc luded that the purchase o f the Litigatio n C laim s was reasonab le fro mthe perspec tive o f his estate. Spark Fac to r and W o rking Dirt o bj ec ted to Dr. K o gelnik’s m o tio n, b ut the objec tio n was a verb atimrec itatio n o f their o bjec tio n to the Trustee’s
m o tio n. In o ther wo rds, they discussed the effec to f the transac tio n o n the O MI estate b u t did no t discu ss its effec t o n Dr. K o gelnik’s estate. E . T he ev identiary objec tions A m o ng o ther evidentiary o bjec tio ns, the Trustee objec ted to the dec laratio n o f Mr. Farag. Exhib its Athro ugh L were no t attached to the dec laratio n o r o therwise pro vided to the c o urt and the Trustee, so the statem ents relying o n tho se exhib its lac ked fo undatio n. He also argued that Mr. Farag lac ked perso nal kno w ledge to suppo rt o ther allegatio ns in the dec laratio n. 10Two days later, and five days b efo re the hearing, Spark Fac to r and

W o rking Dirt filed Exhib its Athro ugh L in the b ankruptcy c o urt. F. T he bankruptcy c ourt’s ruling A fter ho lding a hearing, the b ankruptcy c o urt issued written dec isio ns granting b o th m o t io ns. It dec lined to delve into the fac tual quagm ire o f the c o m peting allegatio ns, ho lding that Spark Fac to rand W o rking Dirt were no t entitled to a “m ini-trial” o n the m erits o f the underlying c laim s. The b ankruptcy c o urt agreed in part with the Trustee’s evidentiary
objec tio ns to Mr. Farag’s dec laratio n. It sustained his objec t io ns to c ertain paragraphs fo r lac k o f fo u ndatio n o r b ased o n the b est evidenc e rule; Spark Fac to r and W o rking Dirt do no t challenge the o ther evidentiary rulings o n appeal. Turning to the Trustee’s m o tio n, the b ankruptcy c o urt held that the Trustee had estab lished b o th that the sale under § 363 was pro per and that the c o m p ro m ise satisfied the A &C Properties fac to rs. A s to the likeliho o d o f suc c ess o n the m erits, the c o urt no ted that the Trustee had determ ined that the o utc o m e against Dr. K o gelnik was a c o in flip. It stated that Trustee had shown that he “has c o nduc ted signific ant
research into O MI and the c o nduc t o f the relevant parties, and I see no
reaso n to do ub t his judgm ent.” It who lly rejec ted Spark Fac to r’s and W o rking Dirt’s argum ents to the c o ntrary. Sec o nd, the b a nkruptc y c o urt held that, while the Trustee did no t 11present “o verwhelm ing evidenc e” o f the diffic ulty o f c o llec tio n, he did

sho w that there were “serio us do ub ts” ab o ut whether O MI c o uld rec o ver anything against Dr. K o gelnik. It held that the Trustee adequately explained why he tho ught it wo uld b e diffic ult to c o llec t against either the K o gelnik Parties o r the Targeted Parties: nam ely, the estate did no t have adequate reso u rc es tofund litigatio n, while Basis did. It ackno wledged that the Trustee did no t investigate the likeliho o d o f c o llec ting against Dr. K o gelnik b ut held that the Trustee had c arried his b urden no netheless. Third, the b a nkruptc y c o urt agreed with the Trustee’s representatio n that litigating against the K o gelnik Parties wo uld b e expensive and tim ec o nsum ing. It did no t c redit Spark Fac to r’s and W o r king Dirt’s argum ent that the c laim s against Dr. K o gelnik were no t c o m plex; the vo lum ino us do c um ents filed in o ppo s itio n to the m o tio ns c o ntradic ted that argum ent. Fo urth, the c o urt fo und that the param o u nt interests o f c redito rs favo red the c o m pro m ise. It rec o gnized that Spark Fac to r and W o rking Dirt
o ffered an alternate c o m pro m ise that inc luded m o r e m o ney upfro nt. N evertheless, it stated that Spark Fac to rand W o rking Dirt have little inc entive to vigo ro usly pursue the Litigatio n C laim s against them selves. It also said that the difficulty o f c o llec tio n against the K o gelnik Parties m ade
rec o very “at b est speculative, and perhaps even illuso ry.” It no ted that Dr. K o gelnik’s sub o rdinatio n o f his c laim s m eant that all unsecu red
c redito rs wo uld rec eive m o re fro mthe estate distrib utio ns. A s such, it was “entirely within the Trustee’s reaso nab le b usiness judgm ent to rejec t 12$100,000 in c ash no w fo r the po ssib ility o f a signific a ntly higher rec o very

fro m[the K o gelnik Parties’] pro secu t io n o f the Litigatio n C laim s against the Targeted Parties, and a greater distrib utio n to no n-insider unsec ured
c redito rs.” The b ankruptcy c o urt alsorejec t ed Spark Fac to r’s and W o rking Dirt’s argum ent that the c laim s the Trustee so ught to sell to the K o gelnik Parties
were wo rthless. It no ted a “sharp disagreem ent ab o ut who s e c o nduc t dro ve O MI into b a nkruptc y” and “dec line[d] to turn this c o m pro m ise
m o tio n into a m ini-trial o n the m erits o f the Litigatio n C laim s.” The b ankruptcy c o urt next c o nsidered the sale o f the Litigatio n C laim s to the K o gelnik Parties under § 363. The c o urt stated that, o ut o f an ab undanc e o f c autio n, it wo uld apply heightened sc r utiny to the sale due to Dr. K o gelnik’s fo rm er status as an insider o f O MI. It first c o nc luded that the sale had a valid b usiness justific a tio n. N ext, it held that the sale was pro p o sed in go o d faith. It said that it had discretio n to fo rego o verb id pro c edures that are unlikely to result in b etter o ffers. It dec lined to indulge a ”speculative” po ssib ility and deferred to the Trustee’s b usiness judgm ent. Turning to Dr. K o gelnik’s m o tio n, 3 the b ankruptcy c o urt held that

3 The bankr uptcy cour t stated that i t was unclearwhether S par k Factor and Wor king Di r t had ev en obj ected to Dr . Kogelni k’s moti on because they had mer ely dupli cated v erbati m thei r r esponse to the Tr ustee’s moti on and di d not addr ess the compr omi se fr om the per s pecti v e of Dr . Kogelni k’s estate. Nev er theless, i t exami ned the A & C Properties factor s as they appli ed to Dr . Kogelni k’s moti on. 13Dr. K o gelnik had also satisfied the A &C Properties fac to rs. First, it stated that Dr. K o gelnik tho ught he was m o re likely than no t to prevail o n his
c laim s against O MI b ut ac kno wledged the inherent unc ertainty. The c o urt held that Dr. K o gelnik’s po sitio n was reaso nab le. Sec o nd, the b a nkruptc y c o urt held that Dr. K o gelnik was no t likely to b e ab le to c o llec tm u ch o f his c laimagainst O MI, as O M I’s estate did no t have c ash o n hand o r the reso urc es to c o nvert the Litigatio n C laim s to c ash. Third, the b a nkruptc y c o urt held that O MI’s c laim s against himwere highly fac tual in nature, which nec essarily m eant signific ant c o st and delay fo r very c o m plex litigatio n. Finally, the c o urt held that the c o m pro m ise served the param o unt interests o f the c redito rs b ec ause the c o m pro m ise inc luded the withdrawal
o f c laim s against the estate that wo u ld drain estate assets. Even if the sale analysis were applic ab le, the sale was pro per, b ec ause Basis c o uld fund the Litigatio n C laim s witho ut dim inishing Dr. K o gelnik’s estate. The b ankruptcy c o urt thus granted b o th m o tio ns. Spark Fac to r and W o rking Dirt tim ely appealed. JU RISD ICT ION The b ankruptcy c o urt had jurisdic tio n under 28 U .S.C . §§ 1334 and 157(b )(1) and (2)(A ). W e have jurisdic tio n under 28 U .S.C . § 158. ISSU E Whether the b a nkruptcy c o urt erred in appro ving the c o m pro m ise agreem ent b etween the Trustee and the K o gelnik Parties. 14ST A ND A RD OF RE V I E W

“The b ankruptcy c o urt’s dec isio n to appro ve a c o m p ro m ise is reviewed fo r ab use o f disc retio n.” Go o dwin v. M ickey Tho m pso n Ent. Grp. (In re M ickey Tho m pso n Ent. Grp.) , 292 B.R . 415, 420 (9th C ir. BA P 2003). Sim ilarly, “[w]e review an o rder appro ving a § 363 sale fo ran ab use o f disc retio n.” K

a llm a n &Co . v. Go ttlieb (In re Lewis) , 515 B.R . 591, 594 (9th C ir. BA P 2014). A dditio nally, “we review a b a nkruptc y c o u rt’s evidentiary rulings fo r ab use o f disc retio n, and then o nly reverse if any erro r wo u ld have b een prejudic ial to the appellant.” V a n Z a ndt v. M bunda (In re M bunda ) , 484 B.R

. 344, 351 (9th C ir. BA P 2012), a ff’d , 604 F. A pp’x 552 (9th C ir. 2015). To determ ine whether the b ankruptcy c o u rt has ab used its disc retio n,
we c o nduc t a two -step inquiry: (1) we review de no vo whether the b ankruptcy c o urt “identified the c o rrec tlegal rule to apply to the relief requested” and (2) if it did, we c o nsider whether the b ankruptcy c o urt’s applic atio n o f the legal standard was illo gic al, im plausib le, o r witho ut suppo rt in inferenc es that m ay b e drawn fro mthe fac t s in the rec o rd. United S ta tes v. Hinkso n , 585 F.3d 1247, 1262 (9th Cir. 2009) (en b anc ). D ISCU SSION A . T he bankruptcy c ourt properly identified the A & C Prope rtie s fac tors to ev aluate the fairnes s and reas onablenes s of the c om prom is e. The b ankruptcy c o urt pro perly exam ined the c o m pro m ise under

15Rule 9019 and the A &C Properties fac to rs. Ru le 9019(a) pro vides that, “[o ]n
m o tio n b y the trustee and after no tic e and a hearing, the c o u rt m ay appro ve a c o m pro m ise o r settlem ent.” Rule 9019(a). “The b ankruptcy c o urt has great latitude in appro ving c o m p ro m ise agreem ents.” W

o o dso n v. F irem a n’s F und Ins. Co . ( In re W o o dso n) , 839 F.2d 610, 620 (9th C ir. 1988). The N inth C irc uit has direc ted:

It is c lear that there m u st b e m o r e than a m ere go o d faith nego tiatio n o f a settlem ent b y the trustee in o rder fo r the b ankruptcy c o urt to affirma c o m pro m ise agreem ent. The c o u rt m ust alsofind that the c o m pro m ise is fair and equitab le. In determ ining the fairness, reaso nab leness and adequacy o f a pro po sed settlem ent agreem ent, the c o urt must c o nsider: (a) The prob ab ility o f suc c ess in the litigatio n; (b ) the diffic ulties, if any, to b e enc o untered in the m atter o f c o llec t io n; (c ) the c o m plexity o f the litigatio n invo lved, and the expense, inc o nvenienc e and delay nec essarily attending it; (d) the param o unt interest o f the c redito rs and a pro per deferenc e to their reaso nab le views in the prem ises. In re A &C

Props. , 784 F.2d at 1381 (citatio ns o m itted). “Each fac to r need
no t b e treated in a vacuum; rather, the fac to r s sho uld b e c o nsidered as a who le to determ ine whether the settlem ent c o m pares favo rab ly with the expec ted rewards o f litigatio n.” Grief & Co . v. S hapiro(In re W

. F unding Inc.) , 550 B.R . 841, 851 (9th C ir. BA P 2016), a ff’d , 705 F. A p p’x 600 (9th C ir. 2017). U ltim a tely, “[t]he trustee, as the party pro po sing the c o m pro m ise, has the b urden o f persuading the b ankruptcy c o urt that the c o m pro m ise is fair and 16equitab le and sho uld b e appro ved.” In re A &C Props. , 784 F.2d at 1381. The law favo rs c o m pro m ise, “and as long as the b a nkruptc y c o urt
am ply c o nsidered the vario us fac to rs that determ ined the reaso nab leness o f the c o m p ro m ise, the c o urt’s dec isio n m ust b e affirm ed. Thus, on review,
we m ust determ ine whether the settlem ent entered into b y the trustee was
reaso nab le, given the partic ular c irc um stanc es o f the c ase.” Id. (c itatio ns
o m itted). Even if the b ankruptcy c o urt o nly m a de general findings suppo rting the c o m pro m ise, “where the rec o rd suppo rts appro val o f the
c o m p ro m ise, the b ankruptcy c o urt sho uld b e affirm ed.” Id. at 1383. Mo reo ver, “[w]hen assessing a c o m pro m ise, c o urts need no t rule upo n disputed fac ts and questio ns o f law, b ut rather o nly c a nvass the issues. Am ini trial o n the m erits is no trequired.” Burto n v. Ulrich (In re S chm itt) , 215 B.R . 417, 423 (9th C ir. BA P1997) (c itatio ns o m itted). “If the
c o u rt were required to do m o re than c a nvass the issue, there wou ld b e no po int in c o m pro m ising; the parties m ight as well go ahead and try the
c ase.” S uter v. Go edert

, 396 B.R . 535, 548 (D. N ev. 2008) (c leaned up). B. T he bankruptcy c ourt did not need to ev aluate the c om prom is e as a s ale of es tate as s ets under § 363. Spark Fac to r and W o rking Dirt argue that the b ankruptcy c o urt erred b y failing to pro p erly c o nsider the standards o f § 363 when appro ving the
c o m p ro m ise. W e disagree. W e ho ld that the b ankruptcy c o urt pro perly analyzed the c o m pro m ise as a who le under Rule 9019 and did no t need to evaluate the transfer o f the Litigatio n C laim s separately under § 363.
17In M ickey Tho m pso n , we held that, in so m e c irc um s tanc es, a

settlem ent agreem ent transferring estate assets must b e evaluated b o th as a
c o m p ro m ise under Rule 9019 and a sale under § 363. 292 B.R. at 421. Ho wever, the M ickey Tho m pso n rule is no t as b r o ad as Spark Fac to r and W o rking Dirt urge. M ickey Tho m pso n applied the § 363 sale analysis toa settlem ent o f litigatio n c laim s b ec a use the c laim s ran in o nly o ne direc tio n: [T]his settlem ent is in essenc e a sale o f po tential c laim s to the Settling Parties. While the A greem ent purpo rts to ac t as a m utual release o f c laim s, no party has identified any c laim s which the Settling Parties c o uld assert against the estate o r Trustee. The rec o r d do es no t c o ntain any evidenc e that a release o f c laim s b y the Settling Parties has value. Id. The N inth C irc uit has exam ined o ur reaso ning in M ickey Tho m pso n and agreed that it is no talways nec essary fo r a b ankruptcy c o urt to treat a
c o m p ro m ise o f c laim s as a sale under § 363. In Adeli v. Ba rclay (In re Berk eley D ela wa re Co urt, LLC) , 834 F.3d 1036 (9th C ir. 2016), the deb to rappealed the dism issal o f his appeal fo r failure to seek a stay under § 363(m ). He urged that a settlem ent agreem ent b etween the c hapter 7 trustee and a c redito r that invo lved the c o m pro m ise o f po tential c laim s was no t a sale that im plic ated § 363. The N inth C irc uit disagreed, ho lding that it was within the b ankruptcy c o urt’s disc retio n to apply § 363:

W e agree with the BA P in M i ckey Tho m pso n and with o ur sister c ircuits, and ho ld that abankruptcy c ourt has the dis c retion to apply § 363 proc eduresto a s ale of c laim s 18purs uant to a s ettlem ent approv ed under Rule 9019 . . . . W e

see no go o d reaso n why a trustee and the b ankruptcy c o u rt c anno tutilize the pro c edures o f § 363 in c ertain settlem ents in o rder to ensure m axim um value fo r the estate. Id. at 1040 (em phasis added). W e have relied o n Berkeley D ela wa re Co urtfo r the pro po s itio n that the b ankruptcy c o urt has disc retio n to apply § 363 to the c o m p ro m ise o f c laim s. S ee Iso m v. H o pk ins (In re Iso m ) , BA P N o . ID-19- 1198-BGL, 2020 WL 1950905, at *9 (9th Cir. BA P A pr. 22, 2020) (“Whether to im po se fo rm al sale pro c edures, ho wever, is ultim ately a m a t ter o f disc retio n that depends o n the dynam ic s o f the particular situatio n. . . . [T]he c o urt need no t im plem ent b idding pro c edures and an auc tio n if the
c ase do es no t c all fo r it.”), a ff’d , 836 F. A p p’x 562 (9th C ir. 2020); AlbertS herida n v. Fo r d Mo to r Credit Co . (In re Albert-S herida n) , BA P N o . C C -19- 1000-STaL, 2019 WL 7372668, at *6 (9th Cir. BA P Dec . 18, 2019) (no ting the b ankruptcy c o urt’s disc retio n per B erkeley D ela wa re Co urt ), appea l dism issed
a s m o o t sub no m , Albert v. Fo rd Mo to r Credit Co . (In re Albert) , C ase N o . 20- 60005 (9th C ir. Jan. 11, 2021); S terling v. Green (In re Esterlina V i neya rds & W inery, LLC) , BA PN o . N C -16-1428-TaBS, 2018 WL 1354331, at *4 (9th Cir. BA P Mar. 13, 2018) (same), a ff’d , 781 F. A pp’x 680 (9th C ir. 2019). Unlike in M ickey Tho m pso n , in the present c ase, the Trustee and the K o gelnik Parties had c laim s against each o ther; the transfer o f the Litigatio n C laim s was o nly o ne elem ent o f an integrated transac tio n settling all o f tho se c laim s. Bec ause this settlem ent reso lved m u tual c laim s, it was no t a o ne-way sale requiring sc rutiny under § 363. S e e F uchs v. 19S nyder Tr. Enters. (In re W o rldpo int Intera ctive, Inc.) , 335 F. A pp’x 669, 670 (9th C ir. 2009) (“W e are no t persuaded b y [appellant’s] c o ntentio n that the settlem ent am o unted to an asset sale under [M ickey Tho m pso n ], b ec ause b o th parties to the settlem ent here released c laim s.”); In re Iso m , 2020 WL 1950905, at *10 (“[U ]nlike M ickey Tho m pso n , there were ac tual ‘c o m pro m ise’ aspec ts to the settlem ent agreem ent; it was no t m erely a sale o f an estate asset tothe settling party disguised as a c o m pro m ise”); Mo rris v. D a vis (In re Mo rris) , BA P N o . SC -15-1222-FJuKi, 2016 WL 1254357, at *7 (9th Cir. BA P Mar. 29, 2016) (“[B]o th parties released c laim s, rendering the settlem ent a
m utual c o m pro m ise, rather than a sale. A c c o rdingly, the c o urt did no t need to analyze the pro po sed settlem ent under § 363.”). In o ther wo rds, M ickey Tho m p so n ’s requirem ent that the b ankruptcy c o urt exam ine a c o m pro m ise as a sale o r c o nduc t an auc tio n is inapplic ab le to this c ase. Further, the purpo s e o f the M ickey Tho m p so n rule is to m axim ize estate assets b y requiring trustees and b ankruptcy c o urts to c o nsider “whether there is a m o re attrac tive so lutio n than that which the trustee has nego tiated.” In re M ickey Tho m pso n Ent. Grp. , 292 B.R . at 421. This m eans that: When c o nfro nted with a m o tio n to appro ve a settlem ent under Rule 9019(a), a b ankruptcy c o urt is ob liged to c o nsider, as part o f the “fair and equitab le” analysis, whether any pro perty o f the estate that wo uld b e dispo sed o f in c o nnec tio n with the settlem ent m ight draw a higher pric e thro ugh a c o m petitive pro c ess and b e the pro per subjec to f a sec tio n 363 sale. Whether to im po se fo r m al sale pro c edures is ultim ately a 20m atter o f disc retio n that depends upo n the dynam ic s o f the

particular situatio n. Id . at 421-22. In this c ase, Spark Fac to r and W o rking Dirt did m ake an alternative pro po sal, the Trustee c o nsidered and rejec ted it, and the c o urt agreed that it was inferio r to the pro po sed c o m pro m ise. This fulfilled the purpo se o f the M i ckey Tho m pso n rule. Spark Fac to r and W o rking Dirt rely heavily o n o u r unpub lished dec isio n in Mo s esia n v. K a va nagh (In re Go lden Em pire Air Re scue, Inc.) , BA P N o . EC -07-1086-JuMkPa, 2007 WL 7540946 (9th C ir. BA P O c t. 25, 2007). In that c ase, we held that the b ankruptcy c o urt needed to evaluate a pro po sed settlem ent b etween two b ankruptcy estates and a c redito r as b o th a
c o m p ro m ise under Rule 9019 and a sale under § 363. However, the pro po sed c o m pro m ise invo lved o nly the trustees’ sale o f the estates’ c auses
o f ac tio n to the c redito r fo r c ash and a perc entage o f the rec o very. Id. at *2. The pro po sed agreem ent was a o ne-way sale; the c redito r did no t relinquish any o f his rights against the estates. Id. at *5 (“[Settling c redito r] is alsono t giving up any po r tio n o f its c laimagainst the estates. Thus, this aspec t o f the c o m p r o m ise invo lves a sale sub jec t to § 363(b ).”). G o lden Em pire Air Rescues is inappo s ite and do es no t affec t o ur c o nc lusio n here. Therefo re, the b a nkruptc y c o urt did no t need to analyze whether the
c o m p ro m ise transac tio n c o m po rted with § 363. 4

4 Ev en i f the § 363 analysi s was r equi r ed for appr ov al of the compr omi s e, we would di scer n no abuse of di scr eti on. “To sati sfy § 363, the sale must be pr oposed i n good fai th and for a pr oper pur pose and r eali ze opti mal v a lue . . . for the estate under 21C. T he bankruptcy c ourt did not abus e its dis c retion in g ranting the T rus tee’s m otion. The b ankruptcy c o urt determ ined that the c o m pro m ise was fair and equitab le to O MI’s estate, largely relying o n the Trustee’s b usiness judgm ent. A ltho ugh the Trustee’s analysis should have b een m o re tho ro ugh, we c anno t say that he failed to m inim ally c a rry his b u rden. W e defer to the b ankruptcy c o urt’s findings. 1. Probability of s u c c es s The b ankruptcy c o urt agreed with the Trustee’s assessment that the prob ab ility o f suc c ess was lo w. The Trustee stated in his declaratio n that he had a fifty-perc ent chanc e o f suc c ess against the K o gelnik Parties and that the o utc o m e “is unc ertain, at b est.” He explained that, as to Dr. K o gelnik, it
was unc lear whether O M I’s estate c o u ld prevail, given that Dr. K o gelnik had viab le defenses. The c o u rt desc rib ed the o dds o f suc c ess as a “c o in flip.” This finding was adequately suppo rted b y the rec o rd. Spark Fac to r and W o rking Dirt argue that the Trustee did no t pro vide an adequate fac tual b asis fo rsuch an assessm ent and the c o urt

the ci r cumstances.” Delannoy v. Woodlawn Colonial, L.P. (In re Delannoy) , 833 F. App’x 116, 119 (9th Ci r . 2020) (cleaned up). The bankruptcy cour t found that the Tr ustee had a v ali d business pur pose and had pr oposed the sale in good fai th. It also found that, underthe ci r cumstances, the sale of the Liti gati on Clai ms to the Kogelni k Par ti es would ensur e opti mal v a lue to OMI’s estate. Although ther e was no for mal aucti on, the cour t di d consi der the alter n ati ve tr ansacti on that S par k Factor and Wor king Di r t pr oposed and agr eed that the settlement wi th Dr . Kogelni k was mor e v a luable than the alter nati v e offer ed by S par k Factor and Wor ki ng Di r t. The cour t’s findings wer e not clear ly er r oneous. 22erred b y igno ring their evidenc e as to the valuatio n o f O M I’s estate’s

c laim s. But the b ankruptcy c o urt was no t required to c o nsider evidenc e and m ake fac tual findings as tothe nature and value o f each c laim ; it needed o nly to “c anvass the issues.” In re S chm itt, 215 B.R

. at 423. In any event, the Trustee stated that he had investigated the c laim s, and it was no t
erro r fo r the c o urt to rely o n his assessm ent. 5 Spark Fac to r and W o rking Dirt again m ake m uch o f o ur dec isio n in Go lden Em pire Air Rescue . In that c ase, we reversed the b ankruptcy c o urt’s appro val o f a c o m pro m ise and held, am o ng o ther things, that the b ankruptcy c o urt had no tpro perly evaluated the A &C Properties fac to rs. Unlike in this c ase, ho w ever, we no ted that “[t]he rec o rd c o ntains no evidenc e regarding the [trustee’s c laim s] o ra discussio n o f the A &C Properties fac to rs in relatio n to tho se c laim s . . . .” 2007 WL 7540946 at *6. W ith regard to the first fac to r, we faulted the settling parties fo r “rest[ing] upo n the c o nc luso r y statem ents in their dec laratio ns . . . rather than sub m it[ting] any evidenc e[,]” failing to identify the c laim s at issue o r weighing the likeliho o d o f rec o very, failing to engage in a c o st-b enefit analysis, and o ffering “no evaluatio n at all . . . .” Id.

5 S par k Factor and Wor ki ng Di r t also ar gue that the bankr uptcy cour t er r ed in ev aluating the v a l ue to the estate of Dr . Kogelni k’s agr eement to subor dinate hi s clai m in OMI’s bankr uptcy case, because it i s “essenti ally v alueless.” But as the bankruptcy cour t poi nted out, pr oofs of clai m ar e pr esumed v ali d, and nei ther S p ar k Factor nor Wor king Di r t ev er obj ected to the clai m. See Garner v. Shier (In re Garner) , 246 B.R. 617, 620-21 (9th Ci r . BAP 2000) (“[A] pr oof of clai m executed and fi led in accor dance wi th the Feder al Rules of Bankr uptcy Pr ocedur e consti tutes pr i ma faci e ev i dence of the v ali di ty and amount of the clai m .”). 23C o nversely, in this c ase, the Trustee stated in his declaratio n that he

had evaluated the c laim s and was unc ertain o f his suc c ess o n the m erits if he were to pursue O MI’s c laim s against the K o gelnik Parties. The Trustee expressed his c o nc ern o ver the c hanc es o f suc c ess in pursuing the estate’s
c laim s against b o th Dr. K o gelnik and the Targeted Parties and tho ught it was safer tosettle with the K o gelnik Parties and sell the c laim s against the Targeted Parties. The Trustee c o uld and sho uld have o ffered a m o re
reaso ned analysis fo r his evaluatio n and, m o re b ro adly, fo r his o verall dec isio n to c o m pro m ise. N evertheless, given the unc ertainties desc r ib ed ab o ve, it was no t erro r fo r the b ankruptcy c o u rt to ac c ept his assessm ent witho ut undertaking a m ini-trial o n the m erits o f the underlying c laim s. 2. D iffic u lty of c ollec tion The b ankruptcy c o urt c o nsidered the Trustee’s difficulty o f c o llec ting
o n O M I’s pro o f o f c laimfro mDr. K o gelnik o rany judgm ent fro mthe Targeted Parties. The c o urt stated that the Trustee had “seriou s do ub ts” ab o ut c o llec ting against the K o gelnik Parties. Spark Fac to r and W o rking Dirt argue o n appeal that this was erro rb ec ause it was b ased c o m pletely o n the Trustee’s c o njec ture. W e disagree; it was no terro r to rely o n the Trustee’s b usiness judgm ent. In analyzing O MI’s c laim s against the K o gelnik Parties, the Trustee adm itted that he did no t expressly investigate the likeliho o d o f c o llec ting against themo r their assets. N evertheless, he c o nc luded that, “[g]iven the
c o s t o f litigatio n with the [K o gelnik Parties] . . . , the inevitab le delay in 24ob taining a final, no n-appealab le judgm ent, the risk o f appeal, the risk that

the assets o f the Buyer c o uld b e c o nsum ed in litigatio n appear to b e sub stantial and a judgm ent po ssib ly unc o llec tab le.” The Trustee’s admissio n that he failed to c o nduc t any investigatio n into the assets o f o r likeliho o d o f c o llec tio n against the K o gelnik Parties is particu larly tro ub ling. A b ald assertio n that a judgm ent is unc o llec tab le
m akes it hard fo r a c o urt to assess whether a c o m pro m ise is really fair and equitab le to the estate. W e no te, ho w ever, that Spark Fac to r and W o rking Dirt did no t o ffer any evidenc e to c o ntradic t the Trustee’s o pinio n. Spark Fac to r’s and W o rking Dirt’s c o ntinued relianc e o n G o lden Em pire Air Rescue is unavailing; in that c ase, the settling parties presented “no evidenc e” regarding c o llec ting any judgm ent and “no analysis” o f assets likely to b e rec o vered. S ee2007 WL 7540946, at *6. C o nversely, the Trustee here presented his dec laratio n explaining his reaso ning, inc luding the diffic ulty in ac tually c o llec ting any judgm ent, and the b ankruptcy c o urt did no t err in deferring to the Trustee’s assessment. Further, a settlem ent c an satisfy the A &C Properties test even if the evidenc e suppo r ting o ne o r m o re o f the fo u r fac to rs is relatively weak. A ll fo ur fac t o r s must b e c o nsidered as a who le, and no t individually in a
vacuum, to asc ertain whether the settlem ent is a go o d deal c o m pared to litigatio n. S ee In re W

. F unding Inc. , 550 B.R

. at 851. Thus, even though the Trustee o ffered little o rno info rm atio n ab o ut the c o llec tab ility o f a judgm ent, the c o urt did no t err in appro ving the settlem ent b a sed o n the 25o ther fac to rs.

3. D iffic u lty of c ontinuinglitig ation Spark Fac to r and W o rking Dirt did no t assign any erro rto the third fac t o r, the litigatio n invo lved and the attendant expense, inc o nvenienc e, and delay. W e disc ern no erro r with the b ankruptcy c o u rt’s findings. 6 4. Bes t interes ts of the c reditors Finally, the b a nkruptc y c o urt c o nsidered the b est interests o f the
c redito rs. Spark Fac t o r and W o rking Dirt argue that they o ffered a superio r
c o m p ro m ise. The b ankruptcy c o urt did no t err when it ruled, witho ut
c o nduc ting a m ini-trial, that the entire c o m p ro m ise was in the b est interests
o f the c r edito rs. It held that Spark Fac to r’s and W o rking Dirt’s o ffer to purchase the Litigatio n C laim s was no t superio r in the lo ng run, b ec ause they had no inc entive to vigo ro usly litigate the c laim s against them selves, and O MI’s estate would likely rec o ver no thing o ther than the initial c ash paym ent. It agreed with the Trustee’s assessment that the extra $100,000
o ffered b y Spark Fac to r and W o rking Dirt (and full rec o very o n the State C o urt Litigatio n C laim s) paled in c o m p ariso n to the po ssib le rec o very under the c o m pro m ise. It alsorejec ted Spark Fac to r’s and W o rking Dirt’s

6 Ev en i f we wer e to fur ther r ev i ew thi s factor, we would find no abuse of di scr eti on. The Tr ustee explained why li ti gati on would be complex, expensi ve, and dr a wn out. The bankr uptcy cour t cr edi ted hi s esti mate that li ti gati on costs would be substanti a l and that the estate had no funds on hand. It found that the li ti gati on would also be ti me-consuming, complex, and fact-intensi v e, as ev i denced by the v oluminous exhibi ts fi led by S par k Factor and Wor ki ng Di r t. The bankr uptcy cour t’s findings wer e suppor ted by the r ecor d, and we deferto them. 26argum ent that their interests o utweighed the interests o f the o ther

c redito rs. W e agree with the c o urt’s reasoning. It did no t ab u se its disc retio n when it determ ined that the interests o f all the c redito r s – no t just Spark Fac to r and W o rking Dirt – wo uld b e b etter served b y the po t ential fo r a signific antly larger rec o very in the future

. Spark Fac to rand W o rking Dirt again c ite Go lden Em pire Air Rescue, b ut, unlike in the present c ases, in that
c ase “the interests o f the c redito rs . . . was no t discussed” and the b ankruptcy c o urt ab used its disc retio n b ec ause “[t]he trustees failed to present any evidenc e to sub stantiate their argum ent that the c o m p ro m ise was in the b est interests o f the estates.” 2007 WL 7540946, at *6. A dditio nally, the b ankruptcy c o urt did no t need to defer to the wishes o f the objec ting c redito rs sim p ly b ec ause they held the m a j o rity o f
c laim s in the two b ankruptcy c ases. S ee D a vis v. Ja ck so n (In re Tra nsco n. Energy Co rp.) , 764 F.2d 1296, 1299 (9th Cir. 1985) (In evaluating the b est interests o f the c redito rs, “[i]t is well settled that the b a nkruptc y c o urt and the trustee sho u ld c arefully c o nsider the wishes o f a m ajo rity o f the
c redito rs, b ut that tho se wishes are no t b inding.”); see a lso In re V a z quez, 325 B.R . 30, 37 (Bankr. S.D. Fla. 2005) (“Suc h a ‘veto po wer’ [o ver a
c o m p ro m ise] wo uld run c o unter to the very idea that the c o urt’s task is to independently assess the pro po sed c o m pro m ise. ‘Pro per deferenc e to [the
c redito r’s] reaso nab le views’ is no t the sam e as saying that the c o urt must defer to the c r edito r sim ply b ec a use the o nly c redito r (o r a m a jo rity o f 27c redito rs) do es no t think the settlem ent is fair.”). Spark Fac to r and W o rking

Dirt do no t o ffer any autho rity to the c o ntrary. Even Go l den Em pire Air R escueinstruc ts that the relative size o f a c redito r ’s c laimis no t determ inative: “A ltho ugh [settling c redito r] has large c laim s in b o th estates, its suppo rt c anno t predo m inate o ver the interests o f the c redito rs as a who le.” 2007 WL 7540946, at *6. Spark Fac to r and W o rking Dirt argue that the b ankruptcy c o urt igno red the b est interests o f the c redito r s when it refused to let them
o verb id. It is true that the Trustee requested a private sale o f the Litigatio n C laim s that prec luded any o verb ids and, if the c o urt allo wed o verb ids, pro po sed o nero us term s fo r o verb idders. But the b ankruptcy c o urt has disc retio n to r efuse to allo w o verb ids. 7A s we no ted in M ickey Tho m pso n , “[w]hether to im po se fo rm al sale pro c edures is ultim ately a m atter o f disc retio n that depends upo n the dynam ic s o f the partic ular situatio n.” 292 B.R . at 422. The b ankruptcy c o urt’s dec isio n no t to perm it fo rm al o verb ids,

7The ov erbi d pr ocedur es pr oposed by the Tr ustee ar e questi onable. They wer e bui lt on the Tr ustee’s esti mate of the potenti al v alue of the Kogelni k Par ti es’ settlement to the OMI estate. But, as we hav e noted, the Tr ustee’s analysi s of that settlement was less than i deal. Fur ther, the di ffi culty of for mulating an ov erbi d pr ocedur e i llustr ates why M ickey Thompson does not apply to settlements of mutual clai ms. Valuing di ffer ent potenti al settlements of such claims i s often a matter of infor med j udgment r ather than mathemati cal calculati on and r equi r es one to compar e apples wi th or anges. It does not make sense to r equi r e an aucti on wher e bi ds cannot be r eadi ly compar ed. In any ev ent, the bankr uptcy cour t di d not appr ov e any ov erb i d pr ocedur e and di d compar e the competing pr oposals car efully. We find no er r or . 28b ut instead toc o m pare the two pro p o sed settlem ents, was no t erro r . 8

D . T he bankruptcy c ourt did not abus e its dis c retion in g ranting D r. K og elnik’s m otion. Dr. K o gelnik filed his o wn m o tio n to appro ve c o m p ro m ise. Spark Fac to r and W o rking Dirt sub m itted a c arb o n c o p y o f their o bjec tio ns to the Trustee’s m o tio n in the O MI c ase. 9 In so do ing, they igno r ed the fac t that the transac t io n had to b e evaluated fro mtwo different perspec tives in the two different c ases. They pro vided the b ankruptcy c o urt with no reaso n to rejec t the c o m pro m ise in Dr. K o gelnik’s c ase, and we find no ne o n appeal. The fo urth A &C

Properties fac to r is the so le gro und fo r appeal in Dr. K o gelnik’s b ankruptcy c ase. Spark Fac to r and W o r king Dirt argue that any o f Basis’ m o ney used to purchase the Litigatio n C laim s o r to litigate tho se c laim s wo uld reduc e the m o ney that c o uld b e paid o ut to c redito rs. They po int to statem ents indic ating the Basis wo uld fund Dr. K o gelnik’s plan m ade b y Dr. K o gelnik after they had appealed to this Panel. Ho wever, we will no t c o nsider events and evidenc e that were no t b efo re the

8 S par k Factor and Wor ki ng Di r t agai n ci te Golden Empire Air Rescue for the pr oposi ti on that the cour t was r equi r ed to set up for mal bi dding pr ocedur es when another enti ty i s inter ested in bi dding. Howev er, in that case, we held that the bankr uptcy cour t er red by fai ling to “r ecogni ze that the compr omi se inv olv ed the sale of estate pr oper ty, whi ch had a v alue that could be maxi mi z ed by ov erbi d.” 2007 WL 7540946, at *7. We hav e explai ned abov e why thi s case di d not i mpli cate a § 363 sale.

9 S par k Factor and Wor ki ng Di r t ar gue that thei r obj ecti on addr essed the par amount inter ests of Dr . Kogelni k’s cr edi tor s, when they stated that they di d not want Dr

. Kogelni k to waste assets li ti gati n g cases with low chances of success. 29b ankruptcy c o urt in the first instanc e. 1 0 S e e Oya m a v. S heeha n (In re S h eeha n) ,

253 F.3d 507, 512 n.5 (9th Cir. 2001) (“Evidenc e that was no t b efo re the lo wer c o urt will no t generally b e c o nsidered o n appeal.”). Further, the fac t that Basis was willing tofund Dr. K o gelnik’s plan do es no t im ply that Basis
c o u ld b e fo rc ed to pay Dr. K o gelnik’s c redito rs. In o rder to c o llec t fro m Basis, Spark Fac to r and W o rking Dirt wo uld have to prevail o n a theo ry o f alter ego , pierc ing the c o rpo r ate veil, o r the like. They m ade no such c ase to the b ankruptcy c o urt. A lternatively, Spark Fac to r and W o rking Dirt argue that the b ankruptcy c o urt wro ngly igno r ed their evidenc e that the Litigatio n C laim s were valueless. But as we stated ab o ve, the b ankruptcy c o urt o nly needed to c anvass the issues and was satisfied that the claim s c o uld po t entially realize signific ant value fo rDr. K o gelnik’s estate. Spark Fac to r and W o rking Dirt argue that their interests as the
m ajo rity c redito r s sho uld supersede that o f the o ther c redito rs in Dr. K o gelnik's b ankruptcy c a se. A s the b ankruptcy c o urt c o rrec t ly no ted, the c o m p ro m ise will b enefit all c redito rs, and it need no t disregard the interests o f c redito rs ho lding sm aller c laim s. S ee In re Tra nsco n. Energy

1 0 S par k Factor , Wor ki n g Di r t, and Dr . Kogelni k fi led moti ons for j u di ci a l noti ce. Dr . Kogelni k opposed S par k Factor ’s and Wor ki ng Di r t’s moti on. We GRANT S par k Factor ’s and Wor ki ng Di rt’s r equest to take j udi ci a l noti ce of the clai ms r egi s ter but DENY the balance of thei r moti on because they ask us to r ev i ew status confer ence statements fi led after the cour t i s sued the or der s on appeal. We GRANT Dr . Kogelni k’s moti on and take j udi ci al noti c e of S par k Factor ’s and Wor ki n g Di r t’s obj ecti on to the Tr u stee’s moti on to appr ov e compr omi se fi led inthe OMI bankr uptcy case. 30Co rp. , 764 F.2d at 1299.

E

. T he bankruptcy c ourt did not err in exc luding portions of M r. Farag’ s dec laration. Spark Fac to r and W o rking Dirt argue that the c o urt erred in striking po rtio ns o f Mr. Farag’s dec laratio n. W e disagree. Federal Rule o f Evidenc e 602 pro vides that “[a] witness m ay testify to
a m a tter o nly if evidenc e is intro duc ed suffic ient to suppo rt a finding that the witness has perso nal kno wledge o f the m atter.” Fed. R . Evid. 602. A dditio nally, the b est evidenc e rule pro vides that the o riginal o f a “writing,
rec o r ding, o r pho to graph” generally is required to pro ve the c o ntents thereo f. Fed. R

. Evid. 1002. Exhib its Athro ugh L were no t attached to Mr. Farag’s dec laratio n, and he did no t explain their ab senc e. The b ankruptcy c o urt thus pro perly
exc luded the statem ents in his dec laratio n that o nly referenc ed the m issing exhib its o r relied o n do c um ents that were no t sub m itted. S ee Groppi v. Ba rha m , 157 F. A p p’x 10, 11-12 (9th C ir. 2005) (“The distric t c o u rt did no t ab use its disc retio n in applying the b est evidenc e rule to exc lude [the] dec laratio n b ec ause [appellant] failed to pro vide the rec o rds upo n which the dec laratio n was b ased and failed o therwise to explain their ab senc e.”). Spark Fac to r and W o rking Dirt do no t c o ntest the applic ab le law. Instead, they argue that they eventually filed the m issing exhib its. But they did soeight days after they filed their o bjec tio n, two days after the Trustee filed his reply b r ief and objec tio n to the dec laratio n, and five days b efo re 31the hearing o n the m o tio ns, and they did no t o ffer any explanatio n fo r the

late filing. The b ankruptcy c o urt was no t ob ligated to c o nsider the late-filed exhib its, particu larly when the deadline to file an objec t io n under the lo c al rules had lo ng passed and the Trustee had already filed his reply b rief. S ee Bankr. Lo c al Rule 9014-1(c )(1) (“A ny objec tio n shall b e filed and served . . . at least 14 days prio r to the ac tual scheduled hearing date.”); M ira nda v. S

. Pa c. Tra nsp. Co . , 710 F.2d 516, 521 (9th Cir. 1983) (“Distric t c o urts have b ro ad disc retio n in interpreting and applying their lo c al rules.”). 1 1 Furtherm o re, even if the b ankruptcy c o urt ab used its disc r etio n, such
erro r was harm less. By Spark Fac to r’s and W o rking Dirt’s o wn adm issio n, the exc luded exhib its and statem ents “detailed m isc o nduc t b y K o gelnik suppo rting the O M I Estate C laim s . . . .” The b ankruptcy c o urt was no t required to ho ld a “m ini-trial” o n the m erits o f the parties’ c laim s, so the inc lusio n o f tho se exhib its and statem ents wo uld no t have m a de any differenc e. The c o urt’s refusal toc o nsider evidenc e o f the m erits o f the underlying c laim s do es no t change o ur ruling here. CONCL U SION The b ankruptcy c o urt did no t ab use its disc retio n in appro ving the

1 1 S par k Factor and Wor ki ng Di r t ar gue that the bankr u ptcy cour t er r ed by faulting them for not fi ling the exhibi ts, when they had actually fi led the exhibi ts, albei t unti mely. Thi s i s a di stincti on wi thout a di ffer ence, as the cour t pr oper ly exer ci s ed i ts di scr eti on to i gnor e the late-fi led exhibi ts. Fur ther mor e, they ar gue that the Tr ustee should hav e sought an extensi on of ti me to r ev i ew the exhibi ts, but he was not obli gated to do so to accommodate S par k Factor ’s and Wor ki ng Di r t’s tar diness. 32c o m p ro m ise b etween the Trustee and the K o gelnik Parties. W e A FFIRM.

C o nc urrenc e b egins o n next page.

33SPRA K ER

, Bankruptcy Judge, c o nc urring: I c o nc u rwith the m ajo rity as to the Rule 9019 analysis and the result
reached. I write separately to express my reservatio ns as tothe applic atio n
o f § 363. In sho rt, I b elieve that the b ankruptcy c o urt was required to
c o nsider the transfer of O MI’s c laim s against the Targeted Parties as a sale under § 363. The c o urt did so, and I see noerro r in its analysis given the
c o ntext o f the pro po sed transac tio n as a who le. The Trustee so u ght c o urt appro val o f a transac tio n with insiders that invo lved m ultiple piec es. The pro po sed transac tio n invo lved the settlem ent and release o f m utual c laim s against so m e o f the parties (O M I and the K o gelnik Parties) invo king Rule 9019 and the A & C Properties analysis previo usly discussed. But the transactio n also required the Trustee to“sell and assign toBasis the estate’s rights, title and interest in and tothe Litigatio n C laim s against the Targeted Parties.” This c o m po nent did no t invo lve m utual releases am o ngst the parties. R ather, it represents the sale
o f an estate asset that must b e analyzed under § 363. S i m a nto b v. C l a im s Pro secuto r, LLC

(In re La hija ni), 325 B.R

. 282, 287 (9th C ir. BA P 2005); see a lso In re Go lden Em pire Air Rescue, Inc. , 2007 WL 7540946 at *4. A s explained b y the m ajo rity, o ur prio r dec isio n in M ickey Tho m pso n go verns this situatio n. There, a chapter 7 trustee rejec ted an o ffer to purchase the estate’s litigatio n c laim in favo r o f the previo usly no t ic ed settlem ent with the deb to r and o ther entities. The panel rec o gnized the pro po sed settlem ent was “in essenc e a sale o f po tential c laim s to the 1Settling Parties,” b ec ause tho ugh the agreem ent with the trustee inc luded

m utual releases, there was noevidenc e that the settling parties had any
c laim s against the estate such that their release had any value. 292 B.R . at 421. Given a trustee’s duty tom axim ize the rec o very fo r the estate, we
rec o gnized the nexus b etween settlem ents reviewed under Rule 9019 and the sale o f estate assets under § 363:

In sho rt, o n this rec o rd we spec ific a lly rejec t the argum ent advanc ed b y Settling Parties and Trustee that the pro c edures no rm ally c o ntem plated b y sec tio n 363 m o tio ns do no t apply in the c o ntext o f the review o f settlem ents under R ule 9019(a) where the result o f the transac tio n wo uld b e to dispo se o f pro perty o f the estate. R ather, sec tio n 363 and R u les 6004 and 9019(a) m ay o verlap when pro perty o f the estate wo uld b e dispo sed o f b y way o f a settlem ent. Id .; see a lso In re Berk

eley D el. C t., LLC

, 834 F.3d at 1040 (“[A ] c o m pro m ise o f
a c laim o f the estate is in essenc e a sale o f that c laimto the defendant.” (c leaned up)). The m ajo rity has distinguished M ickey Tho m pso n b a sed o n the existenc e o f m utual c laim s b etween O MI o n the o ne hand, and Dr. K o gelnik and his entities o n the o ther. They explain that where the estate seeks to reso lve its dispute with the target o f tho se c laim s, the b ankruptcy c o urt has the disc retio n to evaluate the settlem ent under § 363, as well as R

ule 9019. In re Berk

eley D el. C t., LLC

, 834 F.3d at 1040;In re Albert-S herida n, 2 019 W L 7372668 at *6; In re EsterlinaV ineya rds &W

inery ,
22018 WL 1354331 at *4. Based o n the m utuality o f c laim s b etween the estate and the K o gelnik Parties, the m ajo rity c o nc ludes that M ickey Tho m p so n do es
no t require any analysis under § 363 though the c o urt had the disc r etio n to apply a § 363 analysis. This is the sole po int o f m y disagreem ent with the
m ajo rity. The estate so ught m o re than the m utual reso lutio n o f c laim s b etween the estate and the K o gelnik entities. It also so ld its third-party
c laim s to Basis. This aspect o f the transac tio n triggered § 363 and the
c o nc o m itant analysis. In re M ickey Tho m pso n Ent. Grp. , 292 B.R . at 421; In re La hija ni, 325 B.R . at 287; see a lso In re Iso m , 2020 WL 1950905 at *9-10 (ho lding that c ircu m stanc es o f a transac tio n invo lving b o th a settlem ent and a sale did no t require an auc tio n under § 363). That the Trustee inc luded the sale o f its c laim s against o ther n on-s ettlingparties as part o f the estate’s o verall agreem ent with the K o gelnik Parties did no tnegate the applic atio n o f § 363. A dm ittedly, the analysis o f the sale o f an estate asset within a larger settlem ent c a n b e equal parts art and scienc e. The c o urt’s evaluatio n ultim ately depends o n the c o ntext o f the spec ificc ase. M ickey Tho m pso n
rec o gnized the c o urt’s disc retio n in such situatio ns where a sale analysis is im plic ated within a settlem ent:

When c o nfro nted with a m o tio n to appro ve a settlem ent under Rule 9019(a), a b ankruptcy c o urt is ob liged to c o nsider, as part o f the “fair and equitab le” analysis, whether any pro perty o f the estate that wo u ld b e dispo s ed o f in c o nnec tio n with
3the settlem ent m ight draw a higher pric e thro ugh a c o m petitive pro c ess and b e the pro per subjec to f a sec tio n 363 sale. Whether to im po se fo rm a l sale pro c edures is ultim ately a m atter o f disc retio n that depends upo n the dynam ic s o f the partic ular situatio n. In re M ickey Tho m pso n Ent. Grp. , 292 B.R . at 421-22. The particular dynam ic s
o f the K o gelnik transac tio n entitled the c o urt to c o nsider the relatio nship b etween the sale and the settlem ent when evaluating it under § 363. S ee genera lly In re Iso m , 2020 WL 1950905 at *9-10. The b ankruptcy c o urt did just that. The Trustee was tasked toadm inister c o m peting litigatio n c laim s largely so unding in b reach o f fiduc iary duty against a gro u p o f c urrent and fo rm er insiders. The very nature o f these c laim s ham pers any exac t ing valuatio n o r c o m pariso n and realistic ally lim ited the universe o f po tential purchasers tothe targeted insiders. Maxim izing the return fo r the estate in this instanc e required the Trustee topro m ptly evaluate the c o m peting sets
o f litigatio n c laim s and determ ine the m o st appro priate m anner to adm inister tho se c laim s. The Trustee explained that after initially reviewing the pano ply o f issues invo lving O MI, Dr. K o gelnik, his related parties, and the Targeted Parties, he b elieved that the $200,000 in c ash, the sub o rdinatio n o f Dr. K o gelnik’s c laim, and the right to c o llec t 55% o f any
rec o very against the Tar geted Parties was superio r to the c o untero ffer fro m the Targeted Parties topay $300,000 and provide 100% o f any rec o very
4fro mthe sam e c laim s plus any rec o very fro mDr. K o gelnik.

The Trustee, and the c o urt, understandab ly disc o unted the Targeted Parties’ chanc es fo r rec o very fro mc laim s against them selves and no ted that the c laim s against Dr. K o gelnik, who rem ained in chapter 11, were unlikely to generate a m eaningful return. The c o urt ac c epted the Trustee’s evaluatio n that the K o gelnik Parties’ pro secutio n o f c laim s against the Targeted Parties was m o re valuab le to the estate and presented the
o ppo rtunity fo r a larger return. Given that the Targeted Parties and Dr. K o gelnik were realistic ally the o nly po tential purchasers, and the signific ant disparity in the Trustee’s valuation o f the c laim s depending o n which gro up purchased them, the c o urt pro perly c o nsidered the sale o f the
c laim s, exerc ised its disc retio n, and dec lined to require o verb ids. In re Iso m , 2020 WL 1950905 at *9 (“[T]he co urt need no t im plem ent b idding pro c edures and an auc tio n if the c ase do es no t c all fo r it.” (c iting In re EsterlinaV

ineya rds &W

inery , 2018 WL 1354331 at *4)). I fully agree with the m ajo rity that m o re detail suppo rting the Trustee’s c o nc luso ry valuatio n o f the settlem ent wo uld have b een helpful. In this instanc e, ho wever, the Trustee m ade a c o nsidered cho ic e to ac c ept the settlem ent pac kage that ensured the pro secutio n o f c laim s against the Targeted Parties which he valued as m o r e m eaningful than what the Targeted Parties o ffered. The Trustee suffic iently explained why the K o gelnik Parties’ o ffer no t o nly was fair and equitab le b ut also wo uld
m axim ize the return to the estate. While the Targeted Parties disagree as to 5the Trustee’s valuation o f the litigatio n c laim s, inc luding tho se asserted

against them, they have no t estab lished erro r.

6