Opinion ID: 1515959
Heading Depth: 1
Heading Rank: 3

Heading: Fair and Reasonable

Text: Finally, we address the ACE Companies' and BMC's argument that the superior court erred in concluding that the proposed agreement is fair and reasonable. First, the ACE Companies and BMC argue that the court failed to apply the controlling multi-factored standard for fairness and reasonableness. They assert that our order dated September 13, 2004, specifically directed the superior court to apply the multi-factored tests set forth in Matter of Boston & Providence Rail Road Corp., 673 F.2d 11 (1st Cir.1982), and In re Estate of Indian Motorcycle Manufacturing, Inc., 299 B.R. 8 (D.Mass.2003), vacated in part on other grounds by 452 F.3d 25 (1st Cir.2006), when considering the fairness of the proposed agreement on remand. Second, they argue that proper application of the multi-factored test demonstrates that the proposed agreement is neither fair nor reasonable as a matter of law. As the ACE Companies and BMC correctly point out, we issued an order on September 13, 2004, vacating the superior court's April 29, 2004 order in which it determined that the proposed agreement was lawful and consistent with the goals and purpose of RSA chapter 402-C. In our order, we directed the court to consider on remand whether it had an independent obligation to assess the fairness of the agreement with the AFIA Cedents. We cited Matter of Boston & Providence R.R. Corp. for the proposition that, in a reorganization proceeding, a bankruptcy court must act independently, out of its own initiative, for the benefit of all creditors when assessing the fairness of a compromise with creditors. Matter of Boston & Providence R.R. Corp., 673 F.2d at 13. We also cited Indian Motorcycle, which lists factors for a bankruptcy court in a Chapter 7 proceeding to consider when assessing whether a compromise with creditors is fair. In re Estate of Indian Motorcycle Mfg., Inc., 299 B.R. at 20. These factors include: (1) the probability of success in the litigation being compromised; (2) the difficulties, if any, to be encountered in the matter of collection; (3) the complexities of the litigation involved, and the expense, inconvenience, and delay attending it; and (4) the paramount interest of the creditors and a proper deference to their reasonable views. Id. On remand, the superior court recognized that it had an independent obligation to assess the fairness of the agreement with the AFIA Cedents. Thereafter, the court held an evidentiary hearing to determine whether the terms of the agreement are fair and reasonable. Evidence presented at the five-day hearing addressed the circumstances and terms of the agreement and compromise with AFIA Cedents. After considering all of the evidence presented at the hearing, the court concluded that the proposed agreement was fair and reasonable. The court reviewed the agreement with the paramount interest of creditors in mind, and found that ACE's rights as a claimant and creditor and its rights to setoff under RSA 402-C:34 are unimpaired by the pending agreement and thus the agreement is not unfair to ACE. The court found the testimony of the JPL team members to be highly credible, and gave due deference to the business judgment of Mr. Bengelsdorf, Mr. Rosen and Mr. Hughes that it was necessary to negotiate an agreement with the AFIA Cedents to assure that the largest single asset of the estate was not lost. See id. at 21 (The court may give substantial deference to the business judgment of a bankruptcy trustee when deciding whether to approve a settlement.). Further, the court found that [u]nder the agreement the Liquidator stands to collect a portion of reinsurances otherwise at risk, for purposes of providing a direct and substantial benefit to Class II claimants, which comprise ninety (90) percent of all claimants. The superior court did not precisely apply the multi-factor test outlined above. Indeed, a precise application of the Indian Motorcycle factors is difficult in this case because of the complex reinsurance obligations at issue. However, the court's order demonstrates consideration of the relevant factors, given the complexities of this case, and we concur with the court's decision that the agreement was fair and reasonable. First, the evidence demonstrates that the AFIA Cedents would not have filed claims against the Home estate without a financial incentive. Second, the AFIA Cedents' claims are significant, totaling approximately $231 million. The substantial dollar amount of these claims suggests that it is reasonable to assume that collection proceedings would be lengthy, complex, and difficult. Most importantly, as the superior court properly concluded, the agreement benefits the Class II claimants to Home's estate since it increases the likelihood that their claims will be paid. Based upon the foregoing, we conclude that the superior court correctly ruled that the proposed agreement was fair and reasonable. Affirmed.