Opinion ID: 78363
Heading Depth: 2
Heading Rank: 1

Heading: Approval of the Settlement Agreement and Assumption of the Saal Purchase Contract

Text: Elizabeth first contends that the district court erred in affirming the bankruptcy court's conclusion that the Saal purchase contract may be assumed under 11 U.S.C. § 365. Elizabeth argues that the settlement agreement between Saal and the Trustee substantially modifies the pre-bankruptcy purchase contract, triggering her rights under 11 U.S.C. § 363 as a non-debtor co-owner of the hotel. Thus, as an initial matter, we must determine whether the settlement agreement constitutes a modification of the pre-bankruptcy purchase contract between Saal and the state divorce court receiver. Elizabeth argues that the settlement agreement's references to modifications compel the conclusion that the settlement agreement modifies the Saal purchase contract. Saal and the Trustee contest this characterization, arguing that they did not intend for the settlement agreement to modify the pre-bankruptcy purchase contract and that the term modifications merely refers to new obligations undertaken by Saal and the Trustee to effectuate the purchase contract, in its original form, in the context of Denis's bankruptcy. Principles governing general contract law apply to interpret settlement agreements. Resnick v. Uccello Immobilien GMBH, Inc., 227 F.3d 1347, 1350 (11th Cir.2000). The `interpretation of private contracts is ordinarily a question of state law.' Chem. Bank v. First Trust of N.Y. ( In re Se. Banking Corp. ), 156 F.3d 1114, 1121 (11th Cir.1998) (quoting Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 60 n. 4, 115 S.Ct. 1212, 1217 n. 4, 131 L.Ed.2d 76 (1995)); see also Resnick, 227 F.3d at 1350 n. 4 (Because this settlement agreement is between two private parties, federal common law does not apply.); Hayes v. Nat'l Serv. Indus., 196 F.3d 1252, 1253 (11th Cir.1999) (applying state law to construction and enforceability of settlement agreement arising under Title VII). [T]he substantive law of the forum state governs issues of state law that arise in bankruptcy proceedings. Menchise v. Akerman Senterfitt, 532 F.3d 1146, 1150 (11th Cir.2008) (citing Colwell v. Royal Int'l Trading Corp. ( In re Colwell ), 196 F.3d 1225, 1226 (11th Cir.1999)). Therefore, we apply the law of Florida, the forum state, to determine the meaning of the settlement agreement. [1] Under Florida law, [t]he basic rule of contract interpretation is that the intention of the parties is to be determined from a consideration of the whole agreement. Calderon v. J.B. Nurseries, Inc., 933 So.2d 553, 556 (Fla.Dist.Ct.App.2006); see also Grimsley v. Inverrary Resort Hotel, Ltd., 748 So.2d 299, 301 (Fla.Dist.Ct.App.1999); Dorson v. Dorson, 393 So.2d 632, 633 (Fla. Dist.Ct.App.1981). Considering the settlement agreement as a whole, we conclude that Saal and the Trustee intended for the agreement to settle their dispute over the validity of the pre-bankruptcy purchase contract between Saal and the divorce court receiver and to aid in the administration of the bankruptcy estate. We do not read the settlement agreement to modify the terms of the pre-bankruptcy contract between Saal and the divorce court receiver for the purchase of the hotel. Having determined that the settlement agreement does not modify the Saal purchase contract, [2] we next must decide whether the district court correctly concluded that the bankruptcy court did not abuse its discretion by approving the settlement agreement. As both the bankruptcy court and the district court noted, when making the decision to assume or reject the Saal purchase contract, the Trustee faced the prospect of a potentially massive claim against the estate for rejection damages. [3] A good deal of uncertainty surrounded Saal's potential claim because the claim hinged on the legal effect of the discharge of the divorce court receiver on the enforceability of the Saal purchase contract, an issue on which neither the bankruptcy court nor the parties could locate a single Florida case. Rather than litigate their dispute over this arcane [4] and uncertain legal issue, Saal and the Trustee decided to execute a settlement agreement. Bankruptcy Rule 9019(a) provides that [o]n motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement. In this circuit, a bankruptcy court evaluating a proposed settlement must consider: (a) The probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises. In re Justice Oaks II, Ltd., 898 F.2d 1544, 1549 (11th Cir.1990) (quoting Martin v. Kane ( In re A & C Prop. ), 784 F.2d 1377, 1381 (9th Cir.1986)). [5] Courts consider these factors to determine the fairness, reasonableness and adequacy of a proposed settlement agreement. In re A & C Prop., 784 F.2d at 1381. Although the bankruptcy court did not explicitly consider all four of the Justice Oaks factors in its order approving the settlement agreement, we conclude that the bankruptcy court did not abuse its discretion by approving the settlement agreement. The bankruptcy court implicitly considered the first Justice Oaks factorthe probability of success in the potential litigation over Saal's claim for rejection damageswhen it determined that the Saal purchase contract survived the divorce court's discharge of the receiver. Furthermore, the bankruptcy court concluded that Saal had a credible claim for both rejection and consequential damages that could significantly diminish the recovery of the unsecured creditors of Denis's estate. The bankruptcy court implicitly concluded that Saal had a strong probability of success in the potential litigation over his claim for rejection damages. We agree with the bankruptcy court's evaluation of Saal's probability of success, and we conclude that the first Justice Oaks factor supports the bankruptcy court's decision to approve the settlement agreement. The bankruptcy court did not consider the second and third Justice Oaks factorscollection difficulties for the Trustee and the complexity, expense, inconvenience, and delay of the potential litigation over Saal's claim for rejection damages in any meaningful way. The second factor is irrelevant in the instant case because collection difficulties for the Trustee are not an issue. With regard to the third factor, we conclude that Saal and the Trustee faced the possibility of costly and protracted litigation over Saal's claim for rejection damages, which supports the bankruptcy court's decision to approve the settlement agreement. The bankruptcy court explicitly evaluated the fourth Justice Oaks factorthe paramount interests of the creditors. Because the settlement agreement provides for payment in full of all the claims of all the creditors, we conclude that the bankruptcy court correctly found that approval of the settlement agreement is in the best interests of the creditors. Because all three relevant Justice Oaks factors support the bankruptcy court's decision to approve the settlement agreement, we agree with the district court's finding that the bankruptcy court did not abuse its discretion in approving the settlement agreement between Saal and the Trustee.