Opinion ID: 4777078
Heading Depth: 2
Heading Rank: 6

Heading: The Settlement Stipulation and ICSP’s

Text: Objection In January 2016, the Trustee and the United States reached a comprehensive proposed settlement of all of the claims between the United States and the Debtors (the “Settlement Stipulation”). Among other things, the Settlement Stipulation provided that: (1) the United States would release the full amount of the Tax Refund to the Trustee, and the United States would waive its setoff rights against the Debtors; (2) the USPOC would be allowed as filed and the United States would have a non-priority general unsecured claim of 9 approximately $222 million (the claim was later reduced to approximately $170 million per the amended USPOC); and (3) the Debtors would dismiss, with prejudice, most of their pending litigation against the United States, including the litigation of the REAs. The Settlement Stipulation said nothing about subrogation rights. Paragraph 4 of the Settlement Stipulation contained the United States’ waiver of its setoff rights, including any right to set off the Tax Refund. The “Effective Date” of the waiver was defined as the “first business day after the Bankruptcy Court enters an order approving this Stipulation.” A289. Paragraph 4 stated that the United States shall be deemed to expressly waive any setoff rights arising out of the [USPOC] that they may have or ever had pursuant to 11 U.S.C. § 553, and shall be estopped from claiming any such setoff rights it may have or ever had pursuant to 11 U.S.C. § 553, against any of the Debtors in and to the Tax Refund. Id. ICSP filed an objection to the Settlement Stipulation, arguing that it should not “be construed to release or impair rights or claims belonging to ICSP, based upon ICSP’s existing rights as subrogee.” A529 (emphasis in original). ICSP proposed “that the Stipulation be approved without prejudice to ICSP’s subrogation rights, if any, and that any payment of the Tax Refund be held” in escrow pending adjudication of 10 ICSP’s rights. A538 (emphasis added). In March 2016, the Bankruptcy Court held a hearing on the proposed settlement and then referred all relevant parties, including the Trustee, the United States, ICSP, and BMO (the first lien creditor), to mediation.