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. e du/thir dc ir c uit_2002/157PRECEDENTIAL

Filed March 8, 2002

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 00-2184

IN RE: RFE INDUSTRIES, INC.

FRY'S METALS, INC.;

CAMERON & MITTLEMAN

v.

JOHN J. GIBBONS, Trustee for the Estate of RFE Industries, Inc.; ANTON NOLL, INC.; WESTBURY ALLOYS
, INC.; SPARFVEN & COMPANY, INC.; MICHAEL SPARFVEN

Fry's Metals, Inc., Appellant

On Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 00-cv-01868) District Judge: Hon. William H. Walls

Argued November 1, 2001

Before: SLOVITER, NYGAARD, and CUDAHY,* Circuit Judges

(Filed: March 8, 2002)

___________________________________________________ ______________ * Hon. Richard D. Cudahy, United States Court of Ap peals for the Seventh Circuit, sitting by designation.Jonathan I. Rabinowitz (ARGUED)

Henry M. Karwowski Rabinowitz, Trenk, Lubetkin & Tully, P.C. West Orange, N.J. 07052-3303

Attorneys for Appellant, Fry's Metals, Inc.

Lawrence K. Lesnick
(ARGUED) Ravin Greenberg P.C. Roseland, N.J. 07068

Attorney for Appellee, RFE Industries, Inc.

OPINION OF THE COURT

Cudahy, Circuit Judge.

Fry's Metals, Inc. (Fry's) appeals from the judgmen t of the district court affirming the order of the bankruptc y court, which denied approval of a settlement between Fry's and

the former Trustee of RFE. We vacate and remand.

I.

On August 19, 1997, RFE Industries, Inc. (Debtor or RFE) voluntarily filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. On September 8, 1997, RFE received authorization to sell its MFE Di vision, which processes and refines metals, to Anton Noll, Inc. (Anton). Anton agreed to make an up-front payment o f approximately $400,000 and to pay "royalties" to RF E for three years. RFE expected the royalty payments to b e, at a minimum, about $360,000 per year.

On November 10, 1997, John J. Gibbons was appointed as Chapter 11 Trustee for Debtor's estate because o f allegations of "fraud or gross mismanagement of the affairs of the Debtor by current management." On February 1 3, 1998, Anton agreed to sell the MFE assets to Fry's and

2Westbury Alloys, Inc. (now Sparfven & Company, Inc. or

Sparfven) for at least $950,000. After the sale, An ton failed to remit any royalty to RFE, so Gibbons sued Anton, Sparfven and Fry's for breach of contract and certa in state torts. After discovery, Gibbons and Fry's agreed to a settlement of the estate's claims against Fry's (th e Settlement). The estate's claims against Anton and Sparfven are unaffected by the Settlement.

Meanwhile, because RFE was successful in challengin g some claims by its creditors and in settling other claims, RFE was able to pay all its creditors in full. Thus , Gibbons and RFE moved to dismiss the bankruptcy case. Fry's then objected, however, that the Settlement had not yet been approved by the bankruptcy court. To satisfy Fry's objections, the Dismissal Order stipulated that the bankruptcy court would retain limited jurisdiction to "enforce and consummate a previously agreed-upon settlement between some of the parties thereto."

Notice of the Settlement was then sent to all parti es and a hearing date was set. At the hearing, Gibbons and Fry's moved for approval of the Settlement. RFE objected. The bankruptcy court initially approved the Settlement, holding that RFE had waived any objections to it. Later, de veloping some doubts about whether RFE had actually waived i ts right to object to the Settlement, the bankruptcy c ourt asked the parties to file supplemental briefs on th at issue. After another hearing, the bankruptcy court vacated its prior order and entered an order denying approval o f the Settlement. On July 18, 2000, the district court en tered an order affirming the bankruptcy court's order. Fry's appeals.

II.

This Court has jurisdiction under 28 U.S.C. S 1291. This Court exercises plenary review of a district court' s decision in a bankruptcy matter. In re Gi Nam, 273 F.3d 281, 285 (3d Cir. 2001).

A.

The Dismissal Order of RFE's bankruptcy case provid es: "Notwithstanding the entry of this order, this Cour t shall

3retain jurisdiction of the pending adversary procee ding

captioned John J. Gibbons, Trustee v. Anton Noll, I nc., Fry's Metals, Inc. v. Sparfven & Company., Inc. et al, ad versary proceeding number 99-2331 to enforce and consummate a previously agreed-upon settlement between some of t he parties thereto." Fry's argues that the Dismissal O rder specifically limited the jurisdiction of the bankru ptcy court
to the enforcement and consummation of the Settleme nt. Hence, Fry's argues that the bankruptcy court had n o jurisdiction to review the merits of the Settlement . Here, we review whether a bankruptcy court has subject-matte r jurisdiction de novo.

All parties agree that the bankruptcy court has jurisdiction over the Settlement despite the case's being dismissed. Fry's merely seeks to narrow the jurisdi ction of the bankruptcy court to the enforcement and consummation of the Settlement. In this connection, Federal Rule of Bankruptcy Procedure 9019(a) provid es that "[o]n motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement." Fed. R. Bankr. P. 9019 (1993) (emphasis added). We note particularly that the Bankruptcy Code uses the word "may" and not "must." Thus, the bankruptcy court's jurisd iction includes the power to disapprove a settlement. Allo wing dismissal orders to narrow the authority of the ban kruptcy court in the circumstances presented here would den y the bankruptcy court power to consider such matters as possible collusion between trustees and third-parti es. Hence, in the interest of preserving a meaningful l evel of review, we hold that the bankruptcy court had power to disapprove (as well as to approve) the Settlement. The standard of review that the bankruptcy court must a pply in approving or in disapproving a settlement is a matt er we will discuss below.

B.

Gibbons, the Trustee, and Fry's entered into a sett lement of the estate's claims against Fry's. Because RFE d id not participate in the Settlement, Fry's argues that RF E had no standing to object to the Settlement. We review the issue of standing de novo.

4In order for a settlement to be approved by the

bankruptcy court, Federal Rule of Bankruptcy Proced ure 9019(a) provides that "[n]otice [of the settlement] shall be given to creditors, the United States trustee, the debtor, and indenture trustees as provided in Rule 2002 and to any other entity as the court may direct." Fed. R. Bank r. P. 9019 (1993) (emphasis added). It is implicit in the debtor's being given notice in this fashion that the debtor may object to a proposed settlement. Further, in this c ase, the party most clearly adversely affected by the Settle ment (and perhaps, since there are no creditors, the only pa rty adversely affected by the Settlement) is RFE. There fore, RFE has standing to object to the Settlement even thoug h it was not a party to the Settlement.

C.

Gibbons and RFE moved to dismiss RFE's bankruptcy case because RFE's creditors had been paid in full. Due to Fry's objections, RFE included in its proposed Dism issal Order the language about the bankruptcy court's ret ention of jurisdiction over the Settlement. Thus, Fry's ar gues that RFE, by agreeing to this restrictive language, waiv ed its right to object to the Settlement or should be equi tably estopped from objecting to the Settlement. The issu es of waiver and estoppel are reviewed de novo, although the bankruptcy court's findings of fact are accepted un less clearly erroneous. See In re New Valley Corp. , 89 F.3d 143, 148 (3d Cir. 1996).

Waiver is the "intentional relinquishment or abandonment of a known right." United States v. Dis poz-OPlastics, Inc., 172 F.3d 275, 282 (3d Cir. 1999) (i nternal quotations and citations omitted). Fry's argues tha t RFE waived its rights to object to the Settlement when RFE proposed the language in the Dismissal Order that p rovided
for the retention of what could be construed as lim ited jurisdiction by the bankruptcy court. However, the bankruptcy court found that RFE had not waived its rights. Because the language of the Settlement had not been disclosed to third parties, including the Debtor, R FE had no
idea what the Settlement entailed. RFE therefore co uld not

5have intentionally relinquished a known right when it did

not know what it was relinquishing.

Fry's also argues that RFE should be equitably esto pped from objecting to the Settlement. "Parties claiming equitable estoppel must establish that (1) a representation o f fact was made to them, (2) upon which they had a right to re ly, and (3) the denial of the represented fact by the party making the representation would result in injury to the re lying party." Wheeling-Pittsburgh Steel Corp. v. McCune, 836 F.2d 153, 162-163 (3d Cir. 1987). Fry's claims that, whe n RFE proposed the language in the Dismissal Order, RFE represented that it would not object to the Settlem ent. If Fry's had known that RFE would object to the Settle ment, Fry's now claims that it would not have agreed to t he dismissal of the bankruptcy case. Thus, Fry's seek to estop RFE from objecting to the Settlement. Fry's argumen t is unpersuasive. First, even if the bankruptcy case ha d not been dismissed, RFE would still have been able to m ake objections at a hearing on the Settlement. More importantly, RFE could not (and likely did not) mak e the representation that Fry's alleges that it made. As previously noted, the Dismissal Order gave the bankruptcy cour t apparently limited jurisdiction to "enforce and consummate" the Settlement. But because the power o f the bankruptcy court cannot be narrowed by the Dismissa l Order, that order can only be read to permit the enforcement of a properly approved Settlement. Prop er approval of a settlement requires that the Debtor h ave an opportunity to make any objections to the settlemen t. RFE had not had any opportunity to make such objections to the Settlement. Further, the language in the Dismis sal Order does not plainly state that RFE was waiving a ny such opportunity. Therefore, RFE's proposal of the langu age in the Dismissal Order was not a representation by RFE that it would not object to the Settlement.

Thus, we hold that RFE had not waived its right to object to the Settlement and is not estopped from objectin g to the

Settlement.

D.

Turning to the merits, Fry's urges this Court to ap prove the Settlement in light of In re Martin, 91 F.3d 38 9, 393 (3d

6Cir. 1996), or, in the alternative, remand to the b ankruptcy

court for an analysis of the settlement under the M artin factors. We review de novo whether the bankruptcy c ourt should have analyzed the Settlement under the Marti n analysis

In Martin, we held that a bankruptcy court should examine four factors in deciding whether to approve or disapprove a settlement. See Martin, 91 F.3d at 393 . These factors are: (1) the probability of success in liti gation, (2) the likely difficulties in collection, (3) the comp lexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (4) the paramou nt
interest of the creditors. See id.

Here, the bankruptcy court did not make any finding s of fact on these four issues. Rather, it disapproved t he Settlement on the grounds that RFE had not waived i ts objection to it, and the bankruptcy case no longer existed. However, these grounds are insufficient under Marti n and cannot support the approval or the disapproval of a settlement. For example, the failure to waive objec tions to the Settlement goes to the question of standing or the existence of affirmative defenses, not to the reaso nableness of the Settlement. Similarly, the dismissal of the bankruptcy case goes to the question of the jurisdi ction of the bankruptcy court, not to whether the Settlement should be approved or disapproved. We agree with Fry's tha t the bankruptcy court should have examined the Settlemen t under the Martin framework. Here, the bankruptcy co urt retained jurisdiction over an unresolved matter of RFE's bankruptcy case--the approval or disapproval of the Settlement. Because the bankruptcy case is still on going as to that matter, the bankruptcy court must examine t he Settlement using the Martin analysis. Hence, we rem and for an examination of the "fairness, reasonableness and adequacy" of the Settlement in light of the factors listed in Martin. In re Glickman, Berkovitz, Levinson & Weine r, P.C., 204 B.R. 450, 455 (E.D. Pa. 1997). Because the situ ation has changed drastically since Gibbons first negotia ted the Settlement, the bankruptcy court should examine the Martin factors in light of the present circumstance s. For example, since there are no creditors involved, the fourth

7factor in Martin test will need to be modified. Sub stituting

the paramount interest of the shareholders of RFE f or the paramount interest of the creditors appears to be consistent with the purpose of the Martin test--to maximize the recovery of those to whom the company has oblig ations. The judgment of the former Trustee, Gibbons, is als o entitled to less deference since RFE is no longer i n bankruptcy.

III.

For the foregoing reasons, we will reverse the judg ment of the District Court and remand for further proceedin gs.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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