17-2037-bk Liberty Towers Realty, LLC v. Richmond Liberty LLC

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED

BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY

MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRON IC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY

OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated Term of the United States Court of Appeals for the Second Circuit, held at the 1 Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York on the 2
31 st day of May, two thousand eighteen. 3

4 Present: ROSEMARY S. POOLER, 5 RICHARD C. WESLEY, 6 RAYMOND J. LOHIER, 7 Circuit Judges

. 8

_____________________________________________________ 9

10 LIBERTY TOWERS REALTY, LLC, 11 LIBERTY TOWERS REALTY I, LLC, 12

13 Debtors-Plaintiffs-Appellants

, 14

15
v. 17-2037-bk 16

17 RICHMOND LIBERTY LLC, 18 WF LIBERTY LLC, 19

20 Defendants-Appellees

. 1 21

_____________________________________________________ 22

23 Appearing for Appellants: Vincent J. Rolda n, Ballon Stoll Bader & Nadler, P.C. (David 24 Carlebach, Law Offices of David Carlebach, on the brief ), New 25 York, N.Y. 26

27 Appearing for Appellees: Lori Schwartz, Robinson Br og Leinwand Greene Genovese & 28 Gluck, P.C., New York, N.Y. for Richmond Liberty LLC 29

30

1 The Clerk of Court is respectfully inst ructed to amend the caption as above.2 Scott Krinsky, Backenroth, Frankel & Krinsky, LLP, New York, 1

N.Y. for WF Liberty LLC 2

3 Appeal from the United States District Court for the Eastern District of New York (Ross, J. ). 4

5 ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED, 6
AND DECREED that the order of said Dist rict Court be and it hereby is AFFIRMED

. 7

8 Appellants Liberty Towers Realty, LLC and Li berty Towers Realty I, LLC (collectively, 9 “LTR”) appeal from the June 20, 2017 order of th e United States District Court for the Eastern 10 District of New York (Ross, J. ) affirming the January 13, 2017 order of the United States 11 Bankruptcy Court for the Eastern District of New York (Stong, Bankr. J. ) approving the 12 settlement agreement between LTR, Richmond Libe rty, and WF Liberty over the objections of 13

LTR 2 and NCC Capital. We assume the parties’ fa miliarity with the underlying facts, procedural 14 history, and specification of issues for review. 15

16 “We...apply the same standard of review employ ed by the district court to the decision of 17 the bankruptcy court. Accordingly, we review th e bankruptcy court’s findi ngs of fact for clear 18 error and its legal dete rminations de novo.” In re Anderson , 884 F.3d 382, 387 (2d Cir. 2018). 19

20 LTR first argues that Richmond Liberty improp erly moved for approva l of the settlement 21 in LTR’s bankruptcy proceedings. We disagree. Fed. R. Bankr. P. 9019(a) provides that “[o]n 22 motion by the trustee and after notice and a hear ing, the court may approve a compromise or 23 settlement.” Appellants argue that th is rule is clear on its face that only a trustee or debtor-in24 possession, which may serve as a trustee in a Chapter 11 case, see 11 U.S.C. § 1107(a), can bring 25 a Rule 9019 motion. To support their view, they rely primarily on our opinion in In re Smart 26 World Technologies, LLC , 423 F.3d 166 (2d Cir. 2005). 27

28
It is true that Smart World reaffirmed the general principle that only a trustee or a debtor29 in-possession can bring a Section 9019 motion in a Chapter 11 proceeding, reasoning that a 30 debtor-in-possession has control over the bankruptc y proceedings, including the right to bring 31
suit on behalf of the estate. Id. at 174-75. However, we rec ognized that “under certain 32 circumstances, settlement of an estate’s claim could be approved over th e objections of a debtor33 in-possession” if, for example, a Rule 9019 motion is brought by a party with derivative 34 standing. Id. at 175-77. As relevant here, “derivative standing may be appropriate where the 35 debtor-in-possession consents.” Id. at 176 n.15; see also In re Commodore Int’l , 262 F.3d 96, 36 100 (2d Cir. 2001) (holding creditors’ committee can sue on behalf of consenting debtor-in37 possession upon obtaining bankruptcy court ap proval). LTR consented when it executed a 38 settlement agreement explicitly providing that Richmond Liberty would file a Rule 9019 motion 39 seeking bankruptcy court approval of the settlem ent agreement. In the unique situation here 40 where Richmond Liberty is a debtor in its own bankruptcy proceeding that was apparently being 41 considered in conjunction with LTR’s and to whic h the settlement also pertained, it was entirely 42 appropriate for Richmond Libe rty to have sought approval. See In re Refco , 505 F.3d 109, 116 43 n.9 (2d Cir. 2007) (holding that a party to a settlement with a debtor has party-in-interest 44 standing in that debtor’s bankruptcy proceedings). 45

2 This is not a typographical error: LTR obj ected to its own settlement agreement.3 Next, LTR argues in its brief th at it should have been allowe d to rescind its support for 1 the settlement agreement before the bankruptcy court approved it. At oral argument, however, 2 LTR’s counsel conceded that debtors may not unila terally rescind settleme nt agreements. In any 3 event, we agree with the district court and with a number of bankruptcy courts that “the parties to 4 a settlement agreement may not unilaterally repu diate it after approval of it has been sought 5 pursuant to Rule 9019.” In re Seminole Wa lls & Ceilings Corp. , 388 B.R. 386, 392 (M.D. Fla. 6 2008) (collecting cases); Liberty Towers Realty, LLC v. Richmond Liberty, LLC , 569 B.R. 534, 7 542 (E.D.N.Y. 2017). Allowing a party to withdr aw from a settlement pending court approval 8 would deter parties from entering into settlements in the first place, would permit parties to abuse 9 the bankruptcy process, and would run contrary to generally applicable contract and settlement 10 principles in this Circuit. Seminole Walls , 288 B.R. at 395; In re Turner , 274 B.R. 675, 681 11 (Bankr. W.D. Pa. 2002); United States v. Bank of New York , 14 F.3d 756, 759 (2d Cir. 1994) 12 (“When a party makes a deliberate, strategic choi ce to settle, she cannot be relieved of such a 13 choice merely because her assessment of the co nsequences was incorrect.”); 15B Am. Jur. 2d 14 Compromise and Settlement § 9 (“[A] party’s cha nge of heart regarding a settlement is not a 15 valid basis upon which a court may refuse appr oval.”). A debtor-in-possession who comes across 16
a better offer or otherwise thi nks the settlement is no longer in compliance with its fiduciary 17 duties to creditors may argue against court approv al of the settlement, but it may not withdraw 18 unilaterally. See In re Martin , 91 F.3d 389, 395 (3d Cir. 1996). 19

20
We have considered the remainder of LTR ’s arguments and find them to be without 21 merit. Accordingly, the order of the district court hereby is AFFIRMED. 22

23

24
FOR THE COURT: 25 Catherine O’Hagan Wolfe, Clerk 26

27