Opinion ID: 2998711
Heading Depth: 2
Heading Rank: 6

Heading: Challenge to the Settlement

Text: Next, Segal challenges the district court’s approval of the settlement, contending that the Trustee engaged in a fire sale with Fireman’s Fund rather than obtaining fair value through commercially reasonable means.8 Under RICO, 8 As discussed above, the forfeiture of NNNG and NNIB extinguished all of Segal’s interests in North Sun and IFG, which should foreclose his ability to challenge the settlement. See United States v. Pelullo, 178 F.3d 196, 202 (3d Cir. 1999). However, as the parties agreed that Segal could attempt to reduce his $30 million liability by the settlement amount (in subsequent proceedings) and thus the amount of money received from the settlement (continued...) No. 05-1511 19 specifically 18 U.S.C. § 1963(e), a trustee may be appointed “to protect the interest of the United States in the property ordered forfeited.” Section 1963(f) further grants the Attorney General the discretion to “direct the disposition of the property by sale or any other commercially feasible means, making due provision for the rights of any innocent persons.” Given that § 1963 authorizes this trust arrangement and grants the Attorney General (through an appointed trustee) discretion to dispose of forfeited assets, the Trustee’s actions should be reviewed for abuse of that discretion. See Restatement (Third) of Trusts § 50(1) (2001); see also William F. Fratcher, Scott on Trusts § 187 (4th ed. 1988) (“To the extent to which the trustee has discretion, the court will not control his exercise of it as long as he does not exceed the limits of the discretion conferred upon him . . . the court will not permit him to abuse the discretion.”); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111 (1989) (“Trust principles make a deferential standard of review appropriate when a trustee exercises discretionary power.”). Segal challenges both the Trustee’s decision to conduct settlement negotiations exclusively with Fireman’s Fund and the commercial reasonableness of the settlement itself. The Trustee did not abuse his discretion in either regard. First, the Trustee engaged in appropriate and reasonable negotiations. Fireman’s Fund provided all of the underwriting support for IFG and, without Fireman’s Fund, IFG would collapse. Fireman’s Fund had a complete right to leave the partnership and did not have to accept any substitutes for North Sun. Fireman’s Fund also had loaned millions of dollars to Segal and his companies, with the 8 (...continued) impacted Segal, we will address his arguments about the settlement’s reasonableness. 20 No. 05-1511 ownership interest in North Sun as collateral, and these loans were in default. To put it mildly, Fireman’s Fund was in the driver’s seat concerning IFG’s future. When Fireman’s Fund approached the Trustee with the settlement proposal, the Trustee had to deal with the reality of the situation. While he could solicit other bidders, Fireman’s Fund had made it clear it would leave the partnership before allowing another company to step into North Sun’s shoes. Likewise, Fireman’s Fund made it clear it would leave if a deal were not consummated quickly. The Trustee, therefore, referred the few companies who contacted him about IFG to Fireman’s Fund and continued his own court-authorized negotiations with Fireman’s Fund. Since any potential suitor would have to meet the approval of Fireman’s Fund, this made complete sense. While Segal argues this inhibited the ability to find the genuine or true market price for IFG, Fireman’s Fund was in control of setting the sale price based on its contractual power. Second, the deal produced a commercially reason- able result. Segal challenges the result on the grounds that IFG was sold for basically the cash on hand and that a previous valuation had established a substantially higher value for the company. Both of these contentions are incorrect. The settlement negotiated by the parties and approved by the court basically released $6.9 million in claims that Fireman’s Fund held against various Near North companies and Segal personally. Segal asserts that IFG Re had assets of $13 million, so a liquidation would have netted his company $6.5 million, only slightly less than the amount released. Segal argues that, if he could receive almost the same amount simply from liquidation, the sale price should be much higher. Segal ignores several crucial facts. First, Fireman’s Fund could have ended its support for IFG, liquidated the company for its half, and then pursued its No. 05-1511 21 legal remedies to collect on the defaulted loans. In the best case scenario for Segal, Segal and North Sun would be engaged in pricey litigation for several years over these loans; in the worst case, Fireman’s Fund would get its half of the company and control over North Sun, which was pledged as part of the loans, while Segal and the Trustee would get nothing. Second, the relevant insurance laws required $2 to $3 million dollars to be reserved for several months during any liquidation in order to satisfy any liabilities. Segal simply could not have obtained $6.5 million at the time of the settlement by ending the partnership. Any winding down period would tie up substantial assets for at least a few years, as well as incur administrative and legal costs. Segal’s argument based on a prior valuation of the company is also flawed. Segal argues that a valuation prepared before his conviction properly set the value of IFG and that no subsequent valuation was performed to show a proper value. Obviously, the major problem with any argument that the pre-conviction valuation set the proper price is that it did not and could not take into account the massively changed circumstances confronting IFG. Segal had been convicted. North Sun was no longer supplying any of its bargained for services. Fireman’s Fund threatened to end all underwriting support for IFG. All of these circumstances would adversely affect a valuation. Moreover, attempting to value IFG during the settlement negotiations would have been useless. As noted, Fireman’s Fund had the power to end IFG by withdrawing its support and had repeatedly expressed that it would do so. Fireman’s Fund was the only entity that could set a value because it was the only possible bidder. Given Fireman’s Fund’s control over the process, the settlement negotiated by the Trustee, Fireman’s Fund, 22 No. 05-1511 and the government was admirable. Fireman’s Fund received a going concern in IFG, while the Trustee and Segal obtained nearly $7 million in relief on claims against them. This was a fair and commercially reasonable deal.