2002 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

3-8-2002

In Re: RFE Ind Inc

Precedential or Non-Precedential:

Docket 0-2184

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2002

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2002 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"In Re: RFE Ind Inc" (2002). 2002 Decisions. Paper 157.

http://digitalcommons.law.villanova.edu/thirdcircuit_2002/157
PRECEDENTIAL 

 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 Appeals 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 judgment of the 

district court affirming the order of the bankruptcy 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 Division, 

which processes and refines metals, to Anton Noll, Inc. 

(Anton). Anton agreed to make an up-front payment of 

approximately $400,000 and to pay "royalties" to RFE for 

three years. RFE expected the royalty payments to be, 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 of 

allegations of "fraud or gross mismanagement of the affairs 

of the Debtor by current management." On February 13, 

1998, Anton agreed to sell the MFE assets to Fry's and 

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

Sparfven) for at least $950,000. After the sale, Anton failed 

to remit any royalty to RFE, so Gibbons sued Anton,

Sparfven and Fry's for breach of contract and certain state 

torts. After discovery, Gibbons and Fry's agreed to a 

settlement of the estate's claims against Fry's (the 

Settlement). The estate's claims against Anton and Sparfven 

are unaffected by the Settlement. 

Meanwhile, because RFE was successful in challenging 

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 parties 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, developing 

some doubts about whether RFE had actually waived its 

right to object to the Settlement, the bankruptcy court 

asked the parties to file supplemental briefs on that issue. 

After another hearing, the bankruptcy court vacated its 

prior order and entered an order denying approval of the 

Settlement. On July 18, 2000, the district court entered 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 provides: 

"Notwithstanding the entry of this order, this Court shall 

 3 
retain jurisdiction of the pending adversary proceeding 

captioned John J. Gibbons, Trustee v. Anton Noll, Inc., Fry's 

Metals, Inc. v. Sparfven & Company., Inc. et al, adversary 

proceeding number 99-2331 to enforce and consummate a 

previously agreed-upon settlement between some of the 

parties thereto." Fry's argues that the Dismissal Order 

specifically limited the jurisdiction of the bankruptcy court 

to the enforcement and consummation of the Settlement. 

Hence, Fry's argues that the bankruptcy court had no 

jurisdiction to review the merits of the Settlement. Here, we 

review whether a bankruptcy court has subject-matter 

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 jurisdiction of 

the bankruptcy court to the enforcement and 

consummation of the Settlement. In this connection,

Federal Rule of Bankruptcy Procedure 9019(a) provides 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 jurisdiction 

includes the power to disapprove a settlement. Allowing 

dismissal orders to narrow the authority of the bankruptcy 

court in the circumstances presented here would deny the 

bankruptcy court power to consider such matters as 

possible collusion between trustees and third-parties. 

Hence, in the interest of preserving a meaningful level 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 apply in 

approving or in disapproving a settlement is a matter we 

will discuss below. 

B. 

Gibbons, the Trustee, and Fry's entered into a settlement 

of the estate's claims against Fry's. Because RFE did not 

participate in the Settlement, Fry's argues that RFE had no 

standing to object to the Settlement. We review the issue of 

standing de novo. 

 4 
In order for a settlement to be approved by the 

bankruptcy court, Federal Rule of Bankruptcy Procedure 

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. Bankr. 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 case, the 

party most clearly adversely affected by the Settlement (and 

perhaps, since there are no creditors, the only party 

adversely affected by the Settlement) is RFE. Therefore, RFE 

has standing to object to the Settlement even though 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 Dismissal 

Order the language about the bankruptcy court's retention 

of jurisdiction over the Settlement. Thus, Fry's argues that 

RFE, by agreeing to this restrictive language, waived its 

right to object to the Settlement or should be equitably 

estopped from objecting to the Settlement. The issues of 

waiver and estoppel are reviewed de novo, although the 

bankruptcy court's findings of fact are accepted unless 

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. Dispoz-OPlastics, Inc., 172 F.3d 275, 282 (3d Cir. 1999) (internal 

quotations and citations omitted). Fry's argues that RFE 

waived its rights to object to the Settlement when RFE 

proposed the language in the Dismissal Order that provided 

for the retention of what could be construed as limited 

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, RFE had no 

idea what the Settlement entailed. RFE therefore could not 

 5 
have intentionally relinquished a known right when it did 

not know what it was relinquishing. 

Fry's also argues that RFE should be equitably estopped 

from objecting to the Settlement. "Parties claiming equitable 

estoppel must establish that (1) a representation of fact was 

made to them, (2) upon which they had a right to rely, and 

(3) the denial of the represented fact by the party making 

the representation would result in injury to the relying 

party." Wheeling-Pittsburgh Steel Corp. v. McCune, 836 F.2d 

153, 162-163 (3d Cir. 1987). Fry's claims that, when RFE 

proposed the language in the Dismissal Order, RFE 

represented that it would not object to the Settlement. If 

Fry's had known that RFE would object to the Settlement, 

Fry's now claims that it would not have agreed to the 

dismissal of the bankruptcy case. Thus, Fry's seek to estop 

RFE from objecting to the Settlement. Fry's argument is 

unpersuasive. First, even if the bankruptcy case had not 

been dismissed, RFE would still have been able to make 

objections at a hearing on the Settlement. More 

importantly, RFE could not (and likely did not) make the 

representation that Fry's alleges that it made. As previously 

noted, the Dismissal Order gave the bankruptcy court 

apparently limited jurisdiction to "enforce and 

consummate" the Settlement. But because the power of the 

bankruptcy court cannot be narrowed by the Dismissal 

Order, that order can only be read to permit the 

enforcement of a properly approved Settlement. Proper 

approval of a settlement requires that the Debtor have an 

opportunity to make any objections to the settlement. RFE 

had not had any opportunity to make such objections to 

the Settlement. Further, the language in the Dismissal 

Order does not plainly state that RFE was waiving any such 

opportunity. Therefore, RFE's proposal of the language 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 objecting to the 

Settlement. 

D. 

Turning to the merits, Fry's urges this Court to approve 

the Settlement in light of In re Martin, 91 F.3d 389, 393 (3d 

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

court for an analysis of the settlement under the Martin 

factors. We review de novo whether the bankruptcy court 

should have analyzed the Settlement under the Martin 

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 litigation, (2) 

the likely difficulties in collection, (3) the complexity of the 

litigation involved, and the expense, inconvenience and 

delay necessarily attending it; and (4) the paramount 

interest of the creditors. See id. 

Here, the bankruptcy court did not make any findings of 

fact on these four issues. Rather, it disapproved the 

Settlement on the grounds that RFE had not waived its 

objection to it, and the bankruptcy case no longer existed. 

However, these grounds are insufficient under Martin and 

cannot support the approval or the disapproval of a

settlement. For example, the failure to waive objections to 

the Settlement goes to the question of standing or the 

existence of affirmative defenses, not to the reasonableness 

of the Settlement. Similarly, the dismissal of the 

bankruptcy case goes to the question of the jurisdiction of 

the bankruptcy court, not to whether the Settlement should 

be approved or disapproved. We agree with Fry's that the 

bankruptcy court should have examined the Settlement 

under the Martin framework. Here, the bankruptcy court 

retained jurisdiction over an unresolved matter of RFE's 

bankruptcy case--the approval or disapproval of the

Settlement. Because the bankruptcy case is still ongoing as 

to that matter, the bankruptcy court must examine the 

Settlement using the Martin analysis. Hence, we remand 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 & Weiner, P.C., 

204 B.R. 450, 455 (E.D. Pa. 1997). Because the situation 

has changed drastically since Gibbons first negotiated the 

Settlement, the bankruptcy court should examine the

Martin factors in light of the present circumstances. For 

example, since there are no creditors involved, the fourth 

 7 
factor in Martin test will need to be modified. Substituting 

the paramount interest of the shareholders of RFE for 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 obligations. 

The judgment of the former Trustee, Gibbons, is also 

entitled to less deference since RFE is no longer in 

bankruptcy. 

III. 

For the foregoing reasons, we will reverse the judgment of 

the District Court and remand for further proceedings. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

 8