Opinion ID: 4538956
Heading Depth: 2
Heading Rank: 3

Heading: Approval of the 2015 Settlement

Text: Finally, Cohen argues that the Bankruptcy Court abused its discretion in approving the 2015 Settlement. He does not challenge the agreement’s underlying merits; rather, he takes issue with its provision for payment to Class Counsel. 15 The 2015 Settlement provided that Class Plaintiffs would loan Body Armor $20 million on an interest-free, non-recourse basis to permit it to exit Chapter 11. Of this $20 million loan, $1.5 million would be paid to Class Counsel as an administrative expense. The Bankruptcy Court approved the 15 As mentioned above, although the 2015 Settlement was based, in part, on Brooks’s criminal restitution awards, which were abated by his death, other elements of the 2015 Settlement, including Class Plaintiffs’ loan, became effective and occurred in November 2015, coinciding with the Bankruptcy Court’s confirmation of Body Armor’s plan. 27 2015 Settlement, over Cohen’s objections, under Federal Rule of Bankruptcy Procedure 9019, concluding that the settlement was “reasonable, fair and in the best interests of the Debtors, their estates and their stakeholders.” J.A. 1. The Court referenced the payment to Class Counsel when explaining its approval of the 2015 Settlement, stating: “I don’t believe in this circumstance the Court need go through a substantial contribution analysis. But were I to do that I believe that the evidence in front of the Court certainly would support a finding here of substantial contribution of this estate.” J.A. 641–42. Settlements are preferred in bankruptcy. Myers v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir. 1996). Although approval of a settlement is “within the sound discretion of the bankruptcy court,” the agreement must be “fair, reasonable, and in the best interest of the estate.” In re Key3Media Grp., Inc., 336 B.R. 87, 92 (Bankr. D. Del. 2005). We review a bankruptcy court’s approval of a settlement for abuse of discretion. Will v. Nw. Univ. (In re Nutraquest, Inc.), 434 F.3d 639, 644 (3d Cir. 2006). Cohen argues that because Class Counsel failed to submit records as required under Delaware Local Rules and our Circuit’s precedent, it was “impossible” for the Bankruptcy Court to approve the fee award and, accordingly, the 2015 Settlement. Appellants’ Br. 37. However, the Bankruptcy Court considered the payment to Class Counsel as part of its approval of the 2015 Settlement negotiated between Body Armor and various claimants. Indeed, the cases Cohen cites in support of his argument that comprehensive records were required involved independent applications for fees, rather than fees negotiated as part of a settlement. See Appellants’ Br. 36–37 (citing In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833, 844 n.11 (3d Cir. 1994), then citing In re Meade Land & Dev. Co., 527 F.2d 280, 283 (3d Cir. 1975), superseded by statute 28 on other grounds, Bankruptcy Reform Act of 1978, Pub. L. No. 103-394, 107 Stat. 4106, as recognized in In re Busy Beaver, 19 F.3d at 849 n.20). Furthermore, we agree with the District Court that there is “no authority to establish that a fee application was required under the very unique circumstances of this case”—that is, “where [the] debtor’s litigation opponent”—Class Plaintiffs— “financed the debtor’s chapter 11 exit with a loan made on terms extremely favorable to the debtor and all of its constituencies, with the full support of all of the debtor’s constituencies.” In re SS Body Armor I, Inc., 2019 WL 2344038, at . Class Counsel’s fee, as explained above, was paid out of Class Plaintiffs’ loan to Body Armor. The Bankruptcy Court emphasized that the agreement was a “good deal” for Body Armor, and that it “avoid[ed] significant” and costly future litigation by settling several outstanding claims. J.A. 639. Thus, the Court did not abuse its discretion in approving the 2015 Settlement or the payment to Class Counsel.