Opinion ID: 1378988
Heading Depth: 4
Heading Rank: 1

Heading: Bankruptcy Court Approval

Text: Even if TSF and NCC had reached an agreement during TSE's bankruptcy proceedings, such agreement would be unenforceable. It is a recognized principle of bankruptcy law that a bankruptcy court is required to approve any compromise or settlement proposed in the course of a Chapter 11 reorganization before such compromise or settlement can be deemed effective. See, e.g., Fed. R. Bank. P. 9019(a) (On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement.); Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968) (citation omitted) (The fact that courts do not ordinarily scrutinize the merits of compromises involved in suits between individual litigants cannot affect the duty of a bankruptcy court to determine that a proposed compromise forming part of a reorganization plan is fair and equitable.); Reynolds v. Comm'r of Internal Revenue, 861 F.2d 469, 473 (6th Cir.1988) (citation omitted) (In bankruptcy proceedings, as distinguished from ordinary civil cases, any compromise between the debtor and his creditors must be approved by the court as fair and equitable.). That is, a settlement or compromise in bankruptcy is not enforceable in advance of bankruptcy court approval. See, e.g., Levey v. Sys. Div., Inc., (In re Teknek, LLC), 563 F.3d 639, 651 (7th Cir. 2009) (recognizing a settlement agreement was null and void when the bankruptcy court lacked jurisdiction to approve the agreement, because the trustee is required to get the bankruptcy court's approval before settling claims); In re Tarrant, 349 B.R. 870, 893 (Bankr.N.D.Ala. 2006); In re Degenaars, 261 B.R. 316, 319 (Bankr.M.D.Fla.2001). Likewise, a settlement agreement made in bankruptcy has no effect when the parties to the agreement fail to comply with Fed. R. Bank. P. 9019, which requires notice to creditors and court approval. [3] See, e.g., Travelers Ins. Co. v. Am. AgCredit Corp. (In re Blehm Land & Cattle Co.), 859 F.2d 137, 141 (10th Cir.1988); Wheeling Structural Steel Co. v. Moss, 62 F.2d 37, 39-40 (4th Cir.1932); Billingham v. Wynn & Wynn, P.C. (In re Rothwell), 159 B.R. 374, 379 (Bankr.D.Mass.1993) (finding a settlement agreement unenforceable with no effect where the parties failed to comply with Rule 9019); In re Masters, Inc., 149 B.R. at 292; Bramham v. Nev. First Thrift (In re Bramham), 38 B.R. 459, 465 (Bankr.D.Nev.1984) (citation omitted) (Absent compliance with the[] requirements of notice, hearing, and court approval, a purported settlement or compromise is unenforceable.). In this case, no effective agreement was achieved because the bankruptcy court declined to approve the settlement proposed by the parties. At the hearing on July 27, 2004, on NCC's motion to approve the settlement agreement, the bankruptcy court noted the parties disagreed as to whether a meeting of the minds occurred on June 21, 2004. The bankruptcy court then denied approval of the settlement agreement, finding the court did not have jurisdiction to force TSF, a third party not directly involved in the bankruptcy, to consummate a deal. NCC did not appeal the bankruptcy court's decisiona decision which would have been reviewed for an abuse of discretion. See New Concept Hous., Inc. v. Poindexter (In re New Concept Housing, Inc.), 951 F.2d 932, 939 (8th Cir.1991) (citation omitted) (A bankruptcy court's approval [or denial] of a settlement will not be set aside unless there is plain error or abuse of discretion.). Instead, NCC filed an independent lawsuit in district court, attempting to enforce the terms of the settlement agreement. NCC effectively attempted to circumvent the requirement of bankruptcy court approval. A bankruptcy court is ordinarily in the best position, as the trial court and as the ongoing supervisory court for the bankruptcy proceeding, to determine whether a compromise is in the best interest of the estate and `fair and equitable.' Sandoz v. Bennett (In re Emerald Oil Co.), 807 F.2d 1234, 1239 (5th Cir.1987) (quoting Anderson, 390 U.S. at 424, 88 S.Ct. 1157). We are not in such a favored position here to decide the best interests of the estate or any of the other parties. The agreement at issue here involved a debtor in bankruptcy and two creditors. The alleged agreement impacted various aspects of the bankruptcy, as it involved TSF purchasing NCC's and Interstate's claims against the estate, and the agreement discussed various classes from which the claims would be purchased. Under the circumstances presented here, the district court could not enforce an independent agreement, because the agreement was not independentit was inherently intertwined with the bankruptcy proceeding. Quite simply, a settlement reached between a debtor in bankruptcy and a creditor is not effective under Fed. R. Bank. P. 9019 absent bankruptcy court approval. See, e.g., In re Cincinnati Microwave, Inc., 210 B.R. 130, 133 (Bankr.S.D.Ohio 1997). The district court erred in treating the alleged settlement agreement as independent from the bankruptcy, and in holding the agreement was an enforceable, binding contract.