Source: https://1pdf.net/state-bar-no-ca-52099_586900d9e12e892a123adbc9
Timestamp: 2020-07-03 17:15:38
Document Index: 422428059

Matched Legal Cases: ['§ 105', '§ 1107', '§ 1108', '§ 157', '§ 157', '§ 1334', '§ 1408', '§ 1409', '§ 425', '§ 1011', '§ 1016', '§ 157', '§ 157', '§ 425']

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Wine USA, Inc., .... "Bankruptcy Code") and Rule 9019(a) of the Federal Rules of .... under section 1011 of the California Insurance Code in June 2003,.
THEODORE B. STOLMAN (State Bar No. CA 52099) [email protected] WHITMAN L. HOLT (State Bar No. CA 238198) [email protected] STUTMAN, TREISTER & GLATT, P.C. 1901 Avenue of the Stars, 12th Floor Los Angeles, CA 90067 Telephone: (310) 228-5600 Facsimile: (310) 228-5788
ROBERT W. JONES (State Bar No. TX 10951200) [email protected] BRENT R. MCILWAIN (State Bar No. TX 24013140) [email protected] PATTON BOGGS LLP 2001 Ross Avenue, Suite 3000 Dallas, TX 75201-8001 Telephone: (214) 758-1500 Facsimile: (214) 758-1550
Reorganization Counsel for Debtor and Debtor in Possession
FREMONT GENERAL CORPORATION, a Nevada corporation,
17 Debtor. 18 Tax I.D. 95-2815260 19 20 21 22 23 24 25 26 27 28
Debtor's Mailing Address: 2727 East Imperial Highway Brea, California 92821
CASE NO. 8:08-bk-13421-ES CHAPTER 11 NOTICE OF MOTION AND MOTION FOR ORDER APPROVING STIPULATION BETWEEN THE DEBTOR, FREMONT REORGANIZING CORPORATION, FREMONT COMPENSATION INSURANCE GROUP, INC., AND CALIFORNIA INSURANCE COMMISSIONER STEVE POIZNER (AS STATUTORY LIQUIDATOR OF FREMONT INDEMNITY COMPANY AND STATUTORY CONSERVATOR OF FREMONT LIFE INSURANCE COMPANY) SETTLING CLAIMS AMONG THE PARTIES; MEMORANDUM OF POINTS AND AUTHORITIES; DECLARATION OF DONALD E. ROYER IN SUPPORT THEREOF
Hearing May 14, 2009 10:30 a.m. Courtroom 5A 411 West Fourth St. Santa Ana, California
MEMORANDUM OF POINTS AND AUTHORITIES ............................4
I. STATUS OF THE CASE AND JURISDICTION ..........................4
II. FACTUAL BACKGROUND ..........................................4
The Debtor's Corporate Structure And PrePetition Operations. ..................................4
Litigation Between The Fremont Entities And The Commissioner. .........................................6
The Commissioner's Four Proofs Of Claim And The Debtor's Pending Objections Thereto. .................10
Summary Of The Stipulation. ..........................12
7 8 9 10 11 III. ARGUMENT ..................................................15 12 A.
Applicable Legal Standards. ..........................15
The Stipulation Is Reasonable, Fair, And Equitable; It Should Be Approved By The Court. .......18
IV. CONCLUSION .................................................21
DECLARATION OF DONALD E. ROYER .................................22
Anaconda-Ericsson Inc. v. Hessen (In re Teltronics Servs., Inc.), 762 F.2d 185 (2d Cir. 1985) .............................. 17
Century Glove, Inc. v. First Am. Bank, 860 F.2d 94 (3d Cir. 1988) ............................... 20 In re Coram Healthcare Corp., 315 B.R. 321 (Bankr. D. Del. 2004) ....................... 17
In re Flight Trans. Corp. Sec. Litig., 730 F.2d 1128 (8th Cir. 1984) ............................ 17 Fremont Indem. Co. v. Fremont Gen. Corp., 148 Cal. App. 4th 97 (2007) ............................... 7 Fremont Indem. Co. v. Fremont Gen. Corp., 2007 Cal. App. Unpub. LEXIS 1645 (Feb. 28, 2007) .......... 7
Key3Media Group, Inc. v. Pulver.com, Inc. (In re Key3Media Group, Inc.), 336 B.R. 87 (Bankr. D. Del. 2005), aff'd, 2006 U.S. Dist. LEXIS 72049 (D. Del. Oct. 2, 2006) ....................... 15 Kowal v. Malkemus (In re Thompson), 965 F.2d 1136 (1st Cir. 1992) ............................ 20 In re Lee Way Holding Co., 120 B.R. 881 (Bankr. S.D. Ohio 1990) ..................... 17
Martin v. Kane (In re A & C Props.), 784 F.2d 1377 (9th Cir. 1986), cert. denied, 479 U.S. 854 (1986) .................... 16, 17 Nellis v. Shugrue, 165 B.R. 115 (S.D.N.Y. 1994) ............................. 17 Newman v. Stein, 464 F.2d 689 (2d Cir. 1972), cert. denied sub nom. Benson v. Newman, 409 U.S. 1039 (1972) .................. 17
Official Comm. of Unsecured Creditors v. James Talcott, Inc. (In re Int'l Distrib. Ctrs., Inc.), 103 B.R. 420 (S.D.N.Y. 1989) ............................. 17
Russian Standard Vodka (USA), Inc. v. Allied Domecq Spirits & Wine USA, Inc., 523 F. Supp. 2d 376 (S.D.N.Y. 2007) ...................... 16 U.S. Bancorp Mortgage Co. v. Bonner Mall P'ship, 513 U.S. 18 (1994) ....................................... 16 United States v. Alaska Nat'l Bank (In re Walsh Constr., Inc.), 669 F.2d 1325 (9th Cir. 1982) ............................ 16 Woodson v. Fireman's Fund Ins. Co. (In re Woodson), 839 F.2d 610 (9th Cir. 1988) ............................. 15 STATUTES AND RULES 11 U.S.C. § 105(a) ........................................ passim 11 U.S.C. § 1107(a) ............................................ 4 11 U.S.C. § 1108 ............................................... 4 28 U.S.C. § 157 ................................................ 4 28 U.S.C. § 157(b) ............................................. 4 28 U.S.C. § 1334 ............................................... 4 28 U.S.C. § 1408 ............................................... 4 28 U.S.C. § 1409 ............................................... 4 Cal. Civ. Proc. Code § 425.16 ................................. 10 Cal. Ins. Code § 1011 .......................................... 5 Cal. Ins. Code § 1016 .......................................... 5 Fed. R. Bankr. P. 9019(a) ................................. passim Fed. R. Bankr. P. 9027(c) ..................................... 10 Local Bankruptcy Rule 9013-1 ................................... 2 Local Bankruptcy Rule 9013-1(o) ................................ 2
TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE ERITHE A. SMITH;
THE OFFICE OF THE UNITED STATES TRUSTEE; THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS; THE OFFICIAL COMMITTEE OF EQUITY HOLDERS; AND
PLEASE TAKE NOTICE that Fremont General Corporation, the
debtor and debtor in possession in the above-captioned chapter 11
case (the "Debtor"), hereby moves (the "Motion") pursuant to
section 105(a) of title 11 of the United States Code (the
"Bankruptcy Code") and Rule 9019(a) of the Federal Rules of
Bankruptcy Procedure (the "Bankruptcy Rules") for an order
approving the Stipulation and Agreement Regarding the Global and
Integrated Settlement and Release of Claims and Disputes (the
"Stipulation") entered into between the Debtor, Fremont
Reorganizing Corporation, f/k/a Fremont Investment & Loan ("FRC"),
and Fremont Compensation Insurance Group, Inc. ("FCIG")
(collectively, the "Fremont Entities"), on the one hand, and
California Insurance Commissioner Steve Poizner (the
"Commissioner"), the statutory liquidator of Fremont Indemnity
Company in Liquidation ("Indemnity") and the statutory conservator
of Fremont Life Insurance Company in Conservation ("Life" and
together with the Commissioner and Indemnity, the "Insurance
Entities"), on the other hand.
executed Stipulation is attached as Exhibit "A" to the accompanying
Declaration of Donald E. Royer (the "Royer Declaration").
As set forth in the accompanying Memorandum of Points and
Authorities and the Royer Declaration, the Stipulation was
negotiated in good faith and is reasonable, fair, and equitable.
Approval of the Stipulation provides immediate benefits to the
Debtor's estate and all its stakeholders, while also avoiding the
potential for future complex litigation.
Stipulation, the Debtor has resolved what are, by far, the largest
claims asserted against its chapter 11 bankruptcy estate on terms
that the Debtor believes are eminently reasonable.
The Motion is based on and supported by these moving
papers, the following Memorandum of Points and Authorities, the
Royer Declaration, the pleadings and records on file herein, and
all such other evidence or argument as may be submitted to the
Court at or before any hearing on this Motion. PLEASE TAKE FURTHER NOTICE that, notwithstanding the
availability of so-called "negative notice" procedures under Local
Bankruptcy Rule 9013-1(o)(1), the Debtor has set this Motion for
hearing on May 14, 2009 at 10:30 a.m., or as soon thereafter as
counsel may be heard, before the United States Bankruptcy Court for
the Central District of California (the "Court") in Courtroom 5A
located at the Ronald Reagan Federal Building and United States
Courthouse, 411 West Fourth Street, Santa Ana, California.
PLEASE TAKE FURTHER NOTICE that Local Bankruptcy Rule
9013-1(f) requires that any objection, joinder, or response to the
Motion must be in writing; must be accompanied by supporting
evidence; must comply with Local Bankruptcy Rule 9013-1; must be
filed with the Court no later than 14 days before the hearing on
the Motion; and must be served on counsel to the Debtor at the
addresses set forth in the caption of this pleading.
Bankruptcy Rule 9013-1(h) provides that if you do not timely file
and serve an objection or response to the Motion, the Court may
find that you have consented to the relief requested herein.
WHEREFORE, the Debtor respectfully requests that the
Court enter an order approving the Stipulation and granting such
other and further relief that may be appropriate.
/s/Whitman L. Holt THEODORE B. STOLMAN WHITMAN L. HOLT STUTMAN, TREISTER & GLATT PROFESSIONAL CORPORATION
8 -and9 10 11 12
ROBERT W. JONES BRENT R. MCILWAIN PATTON BOGGS LLP Reorganization Counsel for Debtor and Debtor in Possession
STATUS OF THE CASE AND JURISDICTION
On June 18, 2008 (the "Petition Date"), the Debtor
commenced this case by filing a voluntary petition under chapter 11
1107(a) and 1108, the Debtor continues to operate and manage its
business as a debtor in possession.
Pursuant to Bankruptcy Code sections
This Court has jurisdiction over the Motion pursuant to 28 U.S.C. §§ 157 and 1334.
Venue is proper pursuant to 28 U.S.C.
defined in 28 U.S.C. § 157(b).
relief sought herein are section 105(a) of the Bankruptcy Code and
Bankruptcy Rule 9019(a).
This is a "core" proceeding as that term is
The statutory predicates for the
The Debtor's Corporate Structure And Pre-Petition Operations.
Fremont General Corporation, the Debtor, is a financial
services holding company and a publicly held Nevada corporation
with approximately 78 million shares of outstanding common stock
(excluding certain restricted shares).
business operations were generally conducted through two
intermediate holding companies – one for the "banking side" and one
for the "insurance side."
The Debtor's pre-petition
On the banking side, the Debtor owns 100% of the common
stock of Fremont General Credit Corporation, which in turn owns
100% of the common stock of FRC.
commercial and residential real estate financing on a nationwide
estate market, however, FRC began to experience significant losses
FRC historically engaged in
With the deterioration in the “subprime” residential real
and was subjected to numerous regulatory demands by the FDIC and
the California Department of Financial Institutions.
to those regulatory demands, FRC's deposits and principal banking
assets were sold to or assumed by CapitalSource, Inc. or its
designee in a transaction approved by this Court after the Petition
Date (the "CapitalSource Transaction").
Transaction closed on or about July 25, 2008, and FRC subsequently
surrendered its banking charter to the state of California and
changed its name from Fremont Investment & Loan to Fremont
The CapitalSource
Reorganizing Corporation.
Transaction, seizure of FRC by the FDIC was avoided and significant
value was preserved for all stakeholders.
As a result of the CapitalSource
On the insurance side, the Debtor owns 100% of the common
stock of FCIG.
FCIG in turn owns 100% of bare title to the common
stock of Indemnity and 100% of bare title to the common stock of
under section 1011 of the California Insurance Code in June 2003,
which proceeding was subsequently converted into a state
"liquidation" proceeding under section 1016 of the California
Insurance Code in July 2003.
the Commissioner obtained all the powers of the directors, officers
and managers of Indemnity, as well as sole control over all of
Indemnity's property.
proceeding in June 2008.
or statutory liquidator, the Commissioner fulfills a role very
broadly analogous to that of a bankruptcy trustee under the
Indemnity was placed into a state "conservation" proceeding
In connection with those proceedings,
Life was placed into a state "conservation" In his capacity as statutory conservator
Litigation Between The Fremont Entities And The Commissioner. Acting as liquidator of Indemnity, the Commissioner filed
three pre-petition actions against the Debtor, FRC, and/or FCIG.
The NOL I Action.
The litigation styled Fremont Indemnity Company v.
Fremont General Corporation, et al., Los Angeles Superior Court
Case No. BC316472, is generally referred to as the "NOL I Action."
On June 2, 2004, the Commissioner, acting as statutory liquidator of Indemnity, filed a complaint against the Debtor and
its wholly owned subsidiary FCIG, asserting eleven causes of action
based principally on the Debtor’s alleged misappropriation of
Indemnity’s net operating losses (“NOLs”) in the consolidated group
for federal income tax purposes of which the Debtor is the common
parent (the "Consolidated Group").
In the NOL I Action, the Commissioner seeks a judicial
declaration that the Debtor’s receipt of the benefit of the NOLs
ordering the Debtor to: (1) file an amended consolidated federal
income tax return for 2002 to abstain from taking a worthless stock
deduction for Indemnity’s stock and (2) restore the NOLs that were
allegedly misappropriated from Indemnity.
additionally seeks compensatory damages in excess of $400 million,
punitive damages, pre-judgment interest, and costs of suit.
The Commissioner further seeks an injunction
On or around July 16, 2004, the Commissioner amended his
NOL I Action complaint to add a fraud cause of action based upon
the Debtor’s alleged misrepresentations and concealments which
allegedly induced Indemnity and the Commissioner to enter into a
July 2, 2002 letter agreement that, inter alia, specifically
acknowledged the Debtor’s rights in the NOLs generated by
agreed to make contributions to Indemnity, the sum of which could
total up to $92.75 million.
In exchange for this letter agreement, the Debtor
The Debtor demurred to the First Amended Complaint.
January 25, 2005, with respect to every cause of action except the
fraud cause of action, the state trial court sustained the demurrer
the state trial court sustained the demurrer with leave to amend.
With respect to the fraud cause of action,
After the filing of two amended complaints and two
further demurrers, on January 3, 2006, the state trial court
entered a Judgment of Dismissal of the NOL I Action.
On or about January 26, 2006, the Commissioner appealed.
After full briefing, a California appellate court reversed the
trial court’s dismissal and permitted most of the Commissioner's
claims to survive demurrer.
That appellate ruling resulted in two
lengthy written decisions.
See Fremont Indem. Co. v. Fremont Gen.
Corp., 148 Cal. App. 4th 97 (2007); Fremont Indem. Co. v. Fremont
Gen. Corp., 2007 Cal. App. Unpub. LEXIS 1645 (Feb. 28, 2007).
On May 2, 2007, the NOL I Action was remanded.
Commissioner then filed a Fourth Amended Complaint against the
Debtor and FCIG, which essentially consolidated his First and Third
including motions to compel.
the operative NOL I complaint in February 2008 to assert the same
causes of action against FRC (replacing a fictitiously named
defendant), apparently on the theory that Indemnity's NOLs were
utilized to shelter income generated by FRC's subprime lending.
The parties engaged in some written discovery, The Commissioner subsequently amended
The state court invited summary judgment motions, but the
NOL I Action was automatically stayed as against the Debtor by the
commencement of the Debtor's bankruptcy proceeding on the Petition
Fremont Entities pursuant to a voluntary agreement.
The case has also remained stayed as to the non-debtor
The NOL II Action.
Case No. BC320766, is generally referred to as the "NOL II Action."
On August 27, 2004, the Commissioner filed a complaint
against the Debtor and its wholly owned subsidiary FCIG for twelve
causes of action based principally on (1) the Debtor’s alleged
misappropriation of Comstock Insurance Company’s (“Comstock”) NOLs
and (2) the Debtor’s alleged diversion of assets from Comstock and
Fremont Reinsurance Co. Ltd. (Bermuda) ("FreRe"), a former
subsidiary of Indemnity.
The Commissioner seeks a judicial declaration that the
Debtor’s receipt of the benefit of the Comstock NOLs was improper,
and further seeks an injunction, compensatory damages, punitive
damages, pre-judgment interest, and costs of suit.
The NOL II Action generally followed the same procedural
route described above for the NOL I Action.
It too was stayed as
against the Debtor upon the commencement of the Debtor's bankruptcy
proceeding and has remained stayed as to the non-debtor defendants
pursuant to a voluntary agreement.
The litigation styled Insurance Commissioner of the State
The Artwork Action.
of California v. Fremont General Corporation, et al., Adv. Proc.
08-ap-01258-ES (Bankr. C.D. Cal.) is generally referred to as the
"Artwork Action."
The Debtor believes it owns all of the Fremont Fine Arts
Collection (the “Art Collection”).
Toward the start of 2008, the
Debtor made arrangements to auction some of the Art Collection
through Christie’s.
Debtor’s ownership of the Art Collection, and on April 3, 2008, the
Commissioner applied ex parte for an order enjoining the Christie’s
In March 2008, the Commissioner questioned the
The Debtor opposed the Commissioner’s ex parte
liquidation denied the ex parte application and ordered the
Christie’s auction to proceed.
auction proceeds were placed into an escrow account.
The California state court supervising Indemnity's
Pursuant to that court’s order, the
On May 19, 2008, the Commissioner filed his Artwork
Action Adversary Complaint in state court.
defendants the Debtor, FRC, Nicole Maury (the Debtor's former art
curator), James McIntyre (a former officer and director of the
Debtor and Indemnity), Louis Rampino (another former officer and
director of the Debtor and Indemnity), and Thea Stuedli (the
Debtor's current CFO).
following five causes of action, all of which stem from the
parties' dispute about who owns the Art Collection: (1) conversion;
(2) possession of personal property; (3) quiet title; (4)
accounting; and (5) breach of fiduciary duty.
That complaint named as
The Adversary Complaint asserts the
In response to the Adversary Complaint, the Debtor filed
a motion to strike certain of the "findings" contained therein,
which motion remains pending due to the automatic stay.
Maury and Stuedli filed a special motion to strike the allegations
against them pursuant to California's "anti-SLAPP" laws.
CIV. PROC. CODE § 425.16.
following a hearing on July 10, 2008.
Maury and Stuedli's motion was denied
On July 11, 2008, the Debtor effected removal of the
Artwork Action by filing a copy of its notice of removal in the
McIntyre, and Rampino filed answers to the Commissioner's Adversary
Complaint in this Court.
Artwork Action on August 8, 2008.
See FED. R. BANKR. P. 9027(c).
Following removal, FRC,
The Commissioner then moved to remand the After briefing and a hearing,
this Court denied the remand motion and scheduled further events in
the Artwork Action adversary proceeding, including a pre-trial
conference in August 2009.
and Stuedli answered the Adversary Complaint.
On October 3, 2008, the Debtor, Maury,
The Commissioner's Four Proofs Of Claim And The Debtor's Pending Objections Thereto.
On September 4, 2008, this Court entered the Stipulated
Order Regarding the Claims Bar Date [Docket No. 200], thereby
establishing November 10, 2008 as the general claims bar date
pursuant to Bankruptcy Rule 3003(c)(3).
On November 6, 2008, the Commissioner served four proofs
of claim on the Debtor's counsel (collectively, the "Proofs of
Claim"1).
The Court treated those Proofs of Claim as filed on
Due to the length of their various exhibits, the Debtor believes it would be wasteful to file complete copies of each of the Proofs of Claim with this Motion. The Debtor has, however, included a collection of the face page and narrative riders for each of the Proofs of Claim as a single Exhibit "B" to the Royer Declaration so that the Court and other parties in interest can appreciate the magnitude and nature of the disputes being resolved by the Stipulation. The Debtor will make complete copies of any of the four Proofs of Claim, or any other document referenced herein, available upon request.
November 7, 2008, and assigned them numbers 671, 672, 674, and 760
on the Court's claims register.
copies of each of the four Proofs of Claim were treated as filed on
November 12, 2008 and assigned numbers 788, 797, 820, and 824 on
the Court's claims register (collectively, the "Duplicate Claims").
The Proofs of Claim can generally be described as follows:
• POC #1:
Subsequently, purely duplicate
This claim, alleged to be "[i]n excess of
$455,967,297.00," is based upon the tax aspects of the NOL I and
NOL II cases.
Specifically, by this claim, the Commissioner seeks
damages based upon alleged breaches of state insurance statutes
supposedly resulting from the Debtor's prior use of NOLs generated
by Indemnity and Comstock.
• POC #2:
This claim, alleged to be [i]n excess of
$29,790,413," is based upon the Commissioner's non-tax-related
allegations in the NOL II Action.
revolves around very fact-intensive issues arising from
transactions involving FreRe and Comstock.
• POC #3:
More specifically, this claim
This claim is a purportedly "secured" claim in
excess of $4.2 million.
completely with the Artwork Action.
• POC #4:
The substance of this claim overlaps
This unliquidated claim asserts alleged rights
to damages for breach of fiduciary duty and indemnification for
taxes, interest, penalties, and/or fines relating to the Debtor's
filing of federal income tax returns for the Consolidated Group in
taxable years 2003 through 2007.
Claim, this longstanding dispute was not the subject of any pending
state court litigation, and it also raises issues of federal income
tax law regarding whether Indemnity remains a member of the
Unlike the other three Proofs of
In the aggregate, the Commissioner's four Proofs of Claim
seek over 485 million dollars from the Debtor's estate.
asserted amount makes the Commissioner the Debtor's largest
potential creditor by far.
legal bases behind all of the four Proofs of Claim, however,
believes that it ultimately has no liability of any kind to the
Commissioner, and is willing to litigate with the Commissioner over
the merits of each of the Proofs of Claim.
The Debtor disputes the factual and
Toward that end, the Debtor has filed substantive
objections to POC #1, POC #3 (as to the alleged "secured" status),
and POC #4 (collectively, the "Objections").
452 & 461-462.)
lengthy motion for summary judgment, which motion was supported by
substantial evidence that was required to be filed under seal.
(See Docket Nos. 463 & 521.)
the Objections for hearing on the merits on March 12, 2009.
(See Docket Nos. 451,
The Debtor's objection to POC #1 was joined with a
The Debtor initially set all three of
The Commissioner responded to the Objections by filing an
ex parte motion for a continuance and longer briefing schedule,
which motion the Court granted.
(See Docket Nos. 496-497 & 499.)
Summary Of The Stipulation.2 The overarching purpose of the Stipulation is to provide,
with one exception,3 for a full and global resolution of all
Nothing in this summary shall be construed in any way to limit or alter any of the provisions of the Stipulation, or to guide in the interpretation of the Stipulation in any other proceeding. This summary is provided merely as a convenience to the Court and parties in interest evaluating the Stipulation.
That one exception is the so-called "Rampino litigation" that the Commissioner brought against former Indemnity officers and directors in California state court. None of the Fremont
disputes between the Fremont Entities and the Insurance Entities,
including, but not limited to, all four Proofs of Claim, the NOL I
Action, the NOL II Action, the Artwork Action and all other claims.
More specifically, the Commissioner has agreed to the
final disallowance and expungement of all the Proofs of Claim and
the Duplicate Claims (see § III.C), to dismiss all pending
litigation against the Fremont Entities (see § III.G), and to give
broad releases of any other claims against the Fremont Entities
(see § III.H.1).
In exchange for the settlements and releases contained in
the Stipulation, the Fremont Entities have agreed to the following:
• The Debtor will allow the Commissioner to retain
$4,100,000.00 of the funds in the disputed Artwork Action escrow
account (to be allocated between Indemnity and Life at the
Commissioner's discretion), with the Debtor retaining the balance
of the funds in escrow (approximately $300,000) and retaining the
unsold artwork, which is estimated to have a value of one to two
million dollars (see § III.E).
• The Debtor will agree to the Commissioner having an
allowed general unsecured non-priority claim against the Debtor's
estate in the amount of $5,000,000.00 (see § III.D).
• FRC will pay Indemnity the sum of $5,000,000.00 (see § III.F). • FCIG will transfer the record title to its equity interests in Indemnity and Life to one of the Insurance Entities or
Entities are parties to that action, but the officers and directors could potentially assert indemnification claims back against the Debtor based upon the outcome of that case.
an affiliate, thereby removing those entities completely from the
Consolidated Group (see §§ III.A.2(b), III.A.2(c) & III.B).
• The Fremont Entities will reasonably cooperate with the
Commissioner in resolving certain tax issues regarding Indemnity's
status vis-a-vis the Consolidated Group (see § III.A).
• The Fremont Entities will provide reciprocal and mutual
releases to the Insurance Entities, subject to preservation of
certain "Fremont Preserved Claims" against various parties and
entities, including officers and directors (see § III.H.2).
• In the event that Indemnity has to return any funds
paid by FRC, Indemnity will be provided with limited revival rights
that allow the Commissioner to assert further claims against any or
all of the Fremont Entities (see § IV.E).
The Stipulation is not effective until approved by this
Court and the relevant state courts – the three courts shall
continue to retain jurisdiction (based upon litigation posture)
over the parties for purposes of the Stipulation (see §§ IV.A &
V.K).
approval of the Stipulation (see § IV.C.2).
have negotiated certain provisions intended to avoid the need for
future litigation related to the Stipulation (see §§ V.I & V.J).
The parties have agreed to stay all litigation pending Moreover, the parties
The Stipulation is the product of very extended, good
faith, and arm's length negotiations between the Debtor, FRC, FCIG,
the detailed review and input of both official committees.
Debtor believes the settlement embodied in the Stipulation fairly
resolves significant and massive claims without the cost and delay
attendant to litigating the disputes, and is reasonable under the
The Stipulation has further benefited from
The Debtor submits, therefore, that consummation of
the Stipulation is in the best interests of the Debtor's estate,
creditors, shareholders, and all parties concerned.
Applicable Legal Standards. Section 105(a) of the Bankruptcy Code provides in
relevant part that "[t]he court may issue any order, process, or
judgment that is necessary or appropriate to carry out the
provisions of this title."
Rule 9019(a) in turn states: On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement. Notice 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(a). The U.S. Court of Appeals for the Ninth Circuit has long
recognized that "[t]he bankruptcy court has great latitude in
approving compromise agreements."
Co. (In re Woodson), 839 F.2d 610, 620 (9th Cir. 1988).
"[p]ursuant to Bankruptcy Rule 9019(a), the authority to approve a
compromise settlement is within the sound discretion of the
court must determine whether the compromise is fair, reasonable,
and in the best interest of the estate."
Pulver.com, Inc. (In re Key3Media Group, Inc.), 336 B.R. 87, 92
(Bankr. D. Del. 2005) (citations omitted), aff'd, 2006 U.S. Dist.
LEXIS 72049 (D. Del. Oct. 2, 2006).
Woodson v. Fireman's Fund Ins. Indeed,
In exercising this discretion, the bankruptcy
Key3Media Group, Inc. v.
"The federal courts have a well-established policy of
encouraging settlement to promote judicial economy and limit the
waste of judicial resources."
v. Allied Domecq Spirits & Wine USA, Inc., 523 F. Supp. 2d 376, 384
(S.D.N.Y. 2007); see also, e.g., U.S. Bancorp Mortgage Co. v.
Bonner Mall P'ship, 513 U.S. 18, 27-28 (1994) (discussing the
general utility of settlement vis-à-vis judicial economy).
force of this established federal policy is particularly acute in
the bankruptcy context, where "[t]he purpose of a compromise
agreement is to allow the trustee and the creditors to avoid the
Russian Standard Vodka (USA), Inc.
expenses and burdens associated with litigating sharply contested
and dubious claims."
1377, 1380-81 (9th Cir. 1986), cert. denied, 479 U.S. 854 (1986).
Accordingly, in approving a proposed agreement, the Court need not
conduct an exhaustive investigation of the claims sought to be
Walsh Constr., Inc.), 669 F.2d 1325, 1328 (9th Cir. 1982).
it is sufficient that the Court find that the proposed settlement
was negotiated in good faith and is reasonable, fair, and
equitable. See In re A & C Props., 784 F.2d at 1381.
Martin v. Kane (In re A & C Props.), 784 F.2d
See, e.g., United States v. Alaska Nat'l Bank (In re
The Ninth Circuit has further identified the following
factors for consideration in determining whether a proposed
settlement agreement is reasonable, fair, and equitable:
the difficulties, if any, to be encountered in the matter of collection;
the complexity of the litigation involved, and the expense, inconvenience, and delay necessarily attending it;
the paramount interest of the creditors and a proper deference to their reasonable views in the premises.
See id. (quoting In re Flight Trans. Corp. Sec. Litig., 730 F.2d
1128, 1135 (8th Cir. 1984)). Consideration of these factors does not require the Court
to determine whether the settlement presented is the best one that
115, 123 (S.D.N.Y. 1994) (stating that the task of a bankruptcy
judge is not to determine whether settlement was the best that
See, e.g., Nellis v. Shugrue, 165 B.R.
could be obtained); In re Coram Healthcare Corp., 315 B.R. 321, 330
(Bankr. D. Del. 2004) ("[T]he court does not have to be convinced
that the settlement is the best possible compromise.").
the Court need only canvass the issues to determine whether the
proposed settlement falls "below the lowest point in the zone of
(emphasis added), cert. denied sub nom. Benson v. Newman, 409 U.S.
1039 (1972); see also, e.g., Anaconda-Ericsson Inc. v. Hessen (In
re Teltronics Servs., Inc.), 762 F.2d 185, 189 (2d Cir. 1985).
Newman v. Stein, 464 F.2d 689, 698 (2d Cir. 1972)
Although the Court should give weight to the reasonable
views of all parties in interest during the 9019 process,
"objections do not rule.
are favored in bankruptcy."
881, 891 (Bankr. S.D. Ohio 1990).
great deference to the recommendations of the estate's
representative when considering negotiated agreements.
Official Comm. of Unsecured Creditors v. James Talcott, Inc. (In re
Int'l Distrib. Ctrs., Inc.), 103 B.R. 420, 423 (S.D.N.Y. 1989).
It is well established that compromises In re Lee Way Holding Co., 120 B.R.
In fact, courts generally accord
The Stipulation Is Reasonable, Fair, And Equitable; It Should Be Approved By The Court.
The Stipulation is equitable and appropriate.
it should be approved by this Court pursuant to Bankruptcy Rule
9019(a) for a number of reasons.
First, the Stipulation provides for the resolution of
nearly half a billion dollars of claims for consideration totaling
approximately $14.1 million from all of the Fremont Entities.
Indeed, specifically with respect to the Debtor, the direct impact
on its estate is only $9.1 million ($4.1 million by virtue of the
Debtor waiving its claim to ownership of a portion of the artwork
escrow and $5 million by virtue of the Commissioner's allowed
resolution of the largest claims asserted in this bankruptcy case,
one well above the "lowest point in the range of reasonableness."
There can be no real question that this is a favorable
Second, the Stipulation eliminates the need for what
would likely be very difficult, complicated, time-consuming, and
all of the pending and potential litigations would ultimately
prevail if those matters actually proceeded to trial, the Debtor
also acknowledges the uncertainty inherent in any litigation.
uncertainty is only exacerbated here by the "first impression"
nature of many of the Commissioner's unprecedented theories of
California insurance and federal income tax law.
Although the Debtor believes its position in
Apart from this indeterminacy about the ultimate result
lies the burdens associated with the process of pursuing the
pending litigation with the Commissioner to finality.
Commissioner could conceivably challenge this Court's jurisdiction
over some or all of his Proofs of Claim, which could require
lengthy and complicated briefing.
taken the position that certain of his claims cannot be resolved
without substantial discovery.
position, the discovery process would unquestionably be lengthy and
to be joined in some or all of the disputes.
outcome on the merits, it is reasonable to expect that either the
Fremont Entities or the Commissioner would appeal any adverse
Moreover, the Commissioner has
If a court were to agree with this
In addition, third parties (such as the IRS) may need Regardless of the
ruling on any of the Proofs of Claim or in the underlying state
complicated issues of law, necessitating lengthy briefing and
disposition of all the Commissioner's claims on the merits (even
assuming the Fremont Entities prevailed on all scores) could take
many years and cost several million dollars.
eliminates the need for those additional costs and uncertainty.
Such appeals would raise difficult and
It is not unrealistic to expect that a full
Third, the Stipulation resolves one of the major
contingencies overshadowing all aspects of this bankruptcy case,
including the plan process and the Debtor's ability to make
meaningful distributions to its stakeholders.
Commissioner's claims against FRC would likely impair the Debtor's
ability to obtain any meaningful dividends from FRC, leaving value
trapped at FRC until the Commissioner's claims were finally
the Debtor would probably need to provide for pro rata reserves of
nearly $500 million for the Commissioner's claims as it made
distributions from its bankruptcy estate, thereby substantially
Moreover, absent an estimation or similar proceeding,
diluting its other creditors.
Indeed, until the Commissioner's
claims were resolved, it would remain highly uncertain whether
there is even a penny of value in this case for equity (if allowed
in full, the Commissioner's Proofs of Claim would likely deplete
the value of this estate, even ignoring potential administrative
expenses and priority claims).
pall of uncertainty that had been hanging over this case, thereby
helping move matters toward an equitable resolution.
the progress of this chapter 11 case, the Stipulation furthers an
Thus, the Stipulation resolves a
interest of utmost federal concern.
See, e.g., Kowal v. Malkemus
(In re Thompson), 965 F.2d 1136, 1145 (1st Cir. 1992) (noting "the
important policy favoring efficient bankruptcy administration");
Century Glove, Inc. v. First Am. Bank, 860 F.2d 94, 98 (3d Cir.
1988) (emphasizing how "issues central to the progress of the
bankruptcy petition, those likely to affect the distribution of the
debtor's assets, or the relationship among the creditors, should be
resolved quickly" (citation and quotation marks omitted)).
Fourth, the Stipulation is the product of very lengthy
arm's length negotiations between the Commissioner's counsel and
the Fremont Entities' various counsel.
the final Stipulation took well over a month, and involved numerous
difficult legal and factual issues that had to be researched,
drafted, discussed, and resolved.
that certain issues carried the potential to "blow up" this
agreement, but the different professionals on both the Fremont side
and the Commissioner's side worked hard to reach a consensual
reviewed and approved by both the Creditors Committee and the
Indeed, the negotiation of
At several points, it appeared
Moreover, the Stipulation has been
estate's stakeholders have considered and blessed the proposed
resolution of the Commissioner's litigation and claims.
Accordingly, the official representatives of the
In sum, the Stipulation is a fair and equitable
resolution of its subject matter.
benefits to the Debtor's estate and case.
The Stipulation provides myriad It should be approved.
For the reasons and based on the authorities set forth above, the Debtor respectfully requests that the Court enter an
order approving the Stipulation and granting such other and further
16 -and17 18 19 20
DECLARATION OF DONALD E. ROYER
I, Donald E. Royer, declare as follows:
I am over eighteen years of age and I have personal
knowledge of each of the facts stated in this declaration.
called as a witness, I could and would testify as to the matters
set forth below based upon my personal knowledge.
I submit this declaration in support of the Motion
for Order Approving Stipulation Between the Debtor, Fremont
Reorganizing Corp., Fremont Compensation Insurance Group, and
California Insurance Commissioner Steve Poizner (as Statutory
Liquidator of Fremont Indemnity Co. and Statutory Conservator of
Fremont Life Insurance Co.) Settling Claims Among the Parties (the
"Motion"1) filed by Fremont General Corporation, debtor and debtor
in possession in the above-captioned chapter 11 case (the
"Debtor").
Counsel for the Debtor.
business and operations, particularly with respect to matters
involving litigation pending against the Debtor and matters arising
in this chapter 11 bankruptcy case.
I am an Executive Vice President of and the General I have been employed in that capacity
As a result, I am familiar with the Debtor's
I am familiar with that certain Stipulation and
Agreement Regarding the Global and Integrated Settlement and
Release of Claims and Disputes (the "Stipulation") entered into
between the Debtor, Fremont Reorganizing Corporation, f/k/a Fremont
All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Motion and the accompanying Memorandum of Points and Authorities.
Investment & Loan ("FRC"), and Fremont Compensation Insurance
Group, Inc. ("FCIG") (collectively, the "Fremont Entities"), on the
one hand, and California Insurance Commissioner Steve Poizner (the
executed Stipulation is attached hereto as Exhibit "A."
The Stipulation is intended to resolve, on a
complete and global basis, the various litigation claims that the
Commissioner has asserted or could assert against the Fremont
Entities, including the so-called "NOL I Action," the "NOL II
Action," and the "Artwork Action."
pending against the Debtor in California state court for a number
already has required substantial investments of time and expense in
connection with the Debtor's defense of that litigation.
The two NOL cases have been
The Artwork Action is of more recent vintage, but
The Stipulation also resolves the four proofs of
claim filed by the Commissioner in this bankruptcy case.
been provided with copies of those proofs of claim, which I
understand were treated by the Court as filed on November 7, 2008,
and were assigned numbers 671, 672, 674, and 760 on the Court's
claims register (collectively, the "Proofs of Claim").
their significant size, it would be unreasonable to include the
entirety of all four Proofs of Claim with this filing, but attached
hereto as Exhibit "B" is a true and correct collection of the face
page and narrative rider accompanying each of the Proofs of Claim,
which were accessed using the publicly available ECF/PACER system.
The Proofs of Claim collectively assert claims against the Debtor's
estate in excess of $485,000,000.
The Stipulation is the result of extended, good
faith, and arm's length negotiations between the Fremont Entities'
various counsel and the Commissioner.
comprehensive resolution of the subject disputes and provides
guidance for the resolution of any further disputes that may arise
between the respective parties.
In my business judgment, the
resolution of these disputes through the Stipulation is
unquestionably in the best interests of the Debtor's estate and its
terms easily surpass the lowest point in the zone of
The process of negotiating the interwoven terms of
the final Stipulation required significant effort on the part of
the Fremont Entities' management and various professionals.
myriad disputes between the Fremont Entities and the Commissioner
involved numerous difficult legal and factual issues that had to be
researched, drafted, discussed, and resolved.
was spent working on the Stipulation, and the final agreement
represents a collection of various compromises about extremely
difficult issues by both sides.
Although I believe that all the claims asserted by
the Commissioner against the Fremont Entities would ultimately fail
on the merits, I also recognize that there is uncertainty about the
The Stipulation resolves that uncertainty. 10.
Due to the complex and contested nature of the
Commissioner's various claims, my experience as in-house counsel
In re: Fremont General Corp., Debtor(s).
CASE NUMBER 8:08-bk-13421-ES
.NOTE: When using this form to indicate service of a proposed order, DO NOT list any person or entity in Category I. Proposed orders do not generate an NEF because only orders that have been entered are placed on the CM/ECF docket.
PROOF OF SERVICE OF DOCUMENT I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is: 1901 Avenue of the Stars, 12th Floor, Los Angeles, CA 90067.
The foregoing document described NOTICE OF MOTION AND MOTION FOR ORDER APPROVING STIPULATION BETWEEN THE DEBTOR, FREMONT REORGANIZING CORPORATION, FREMONT COMPENSATION INSURANCE GROUP, INC., AND CALIFORNIA INSURANCE COMMISSIONER STEVE POIZNER (AS STATUTORY LIQUIDATOR OF FREMONT INDEMNITY COMPANY AND STATUTORY CONSERVATOR OF FREMONT LIFE INSURANCE COMPANY) SETTLING CLAIMS AMONG THE PARTIES; MEMORANDUM OF POINTS AND AUTHORITIES; DECLARATION OF DONALD E. ROYER IN SUPPORT THEREOF will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in the manner indicated below: I. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (“NEF”) – Pursuant to controlling General Order(s) and Local Bankruptcy Rule(s) (“LBR”), the foregoing document will be served by the court via NEF and hyperlink to the document. On April 23, 2009, I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following person(s) are on the Electronic Mail Notice List to receive NEF transmission at the email address(es) indicated below: See following page. Service information continued on attached page II. SERVED BY U.S. MAIL OR OVERNIGHT MAIL(indicate method for each person or entity served): On April 23, 2009, I served the following person(s) and/or entity(ies) at the last known address(es) in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States Mail, first class, postage prepaid, and/or with an overnight mail service addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed. See following page.
04/23/2009 Date
Melissa Altamirano Type Name
486037v1
SERVICE BY THE COURT VIA NOTICE OF ELECTRONIC FILING (“NEF”) Kristen N Beall
Dustin P Branch Frank Cadigan
Jesse S Finlayson
Jean M. Healey
Lewis R Landau Kerri A Lyman
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