Court Opinion

ID: 223613
Source: CourtListenerOpinion
Date Created: 2011-08-19 15:14:27+00
Date Added: 2024-06-11T09:07:03.021854
License: Public Domain

United States Bankruptcy Appellate Panel
                           FOR THE EIGHTH CIRCUIT
                                _______________

                                    No. 11-6013
                                 ________________

In re:                                    *
                                          *
In re: Petters Company, Inc.; Petters     *
Group Worldwide, LLC; PC Funding,         *
LLC; Thousand Lakes, LLC; SPF             *
Funding, LLC; PL Ltd, Inc.; Edge One      *
LLC; MGC Finance, Inc.; PAC               *
Funding, LLC; Palm Beach Finance          *
Holdings, Inc.,                           *
                                          *
         Debtors.                         *
                                          *     Appeal from the United States
Interlachen Harriet Investments Ltd.,     *     Bankruptcy Court for the
                                          *     District of Minnesota
         Objector - Appellant,            *
                                          *
v.                                        *
                                          *
Douglas Arthur Kelley, as Chapter 11      *
Trustee for Petters Company, Inc.,        *
Petters Group Worldwide, LLC, and         *
PAC Funding, LLC and as Court             *
Appointed Receiver for Thomas Petters,    *
Inc. and Petters Aircraft Leasing, LLC;   *
John R. Stoebner, as Chapter 7 trustee    *
of the Jointly Administered Bankruptcy    *
Cases Captioned In re: Polaroid Corp.,    *
et al., Case No. 08-46617; Petters        *
Aviation, LLC; Elite Landings, LLC;       *
Asset Based Resource Group, LLC,          *
                                          *
         Movants - Appellees.             *
                                        _____

                              Submitted: July 27, 2011
                               Filed: August 19, 2011
                                       _____

Before SCHERMER, VENTERS, and NAIL, Bankruptcy Judges.
                              _____

VENTERS, Bankruptcy Judge.

      Interlachen Harriet Investments Ltd., appeals the bankruptcy court’s approval
of a multi-million dollar, global settlement (“Settlement”) in one of the largest Ponzi
scheme bankruptcies in American history.1 The Settlement has been substantially
consummated, and the appeal has been rendered largely moot. Nevertheless, to the
extent relief could be fashioned at this juncture, no such relief is warranted. The
bankruptcy court properly exercised its discretion to approve the settlement.
Therefore, we affirm the order of the bankruptcy court approving the Settlement.2

      We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(b).

                           I. STANDARD OF REVIEW
       A bankruptcy court’s approval of a settlement agreement may be set aside only
for an abuse of discretion.3 An abuse of discretion occurs if the court bases its ruling

      1
        At the time the Petters Company, Inc., case was filed it was the largest; it
has since been eclipsed by the Bernard Madoff investment case currently pending
in the Bankruptcy Court for the Southern District of New York.
      2
        The Honorable Gregory F. Kishel, United States Bankruptcy Court for the
District of Minnesota.
      3
        See Tri-State Financial, LLC v. Lovald, 525 F.3d 649, 654 (8th Cir. 2008)
(quoting In re Martin, 212 B.R. 316, 319 (B.A.P. 8th Cir. 1997).
                                           2
on an erroneous view of the law or on a clearly erroneous assessment of the evidence.4
It is not necessary that a settlement be the best result possible; a bankruptcy court need
only determine “that the settlement does not fall below the lowest point in the range
of reasonableness.”5 In sum, a bankruptcy court abuses its discretion to approve a
settlement only if “no reasonable man could agree with the decision to approve [the]
settlement.”6

                                II. BACKGROUND
       The following facts have been gleaned from the pleadings. Notably, Interlachen
has not disputed any of the facts set forth in the Appellees’ pleadings; its dispute lies
in the sufficiency, weight, and interpretation of those facts.

A.     Context
       As noted, this appeal arises out of the multi-billion-dollar Ponzi scheme
perpetrated by Thomas Petters. Over many years, Petters used various wholly owned,
special purpose entities, including Petters Company, Inc. (“PCI”), Petters Group
Worldwide, LLC (“PGW”), and PAC Funding, LLC (“PAC Funding”), to carry out
a fraudulent investment scheme. PCI obtained capital for the Petters enterprises on
its own account and by using the special purpose entities to obtain billions of dollars
of funding. Petters and his entities led investor-lenders to believe that their loans were
being used to purchase electronics and other merchandise from wholesalers to be
resold to “big box” retailers. The loans were purportedly secured by purchase orders.

      4
       See In re Racing Servs., 332 B.R. 581, 584 (B.A.P. 8th Cir. 2005) (citing
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d
359 (1990)).
      5
          Tri-State Fin., LLC v. Lovald, 525 F.3d 649, 654 (8th Cir. 2008).
      6
        Kenton Cty. Bondholders Comm. v. Delta Air Lines, Inc., (In re Delta
Airlines, Inc.), 374 B.R. 516, 522 (S.D. N.Y. 2007) (quoting standard iterated in
Washington v. Sherwin Real Estate, Inc., 694 F.2d 1081, 1087 (7th Cir. 1982)).
                                            3
But the merchandise and inventory supposedly being bought with the investors’ funds
were nonexistent, and the purchase orders and related documents that were supposed
to serve as security were fabricated. As in the prototypical Ponzi scheme, investors
were not repaid with earnings from their investments, but instead with funds Petters
obtained from other investors. In addition, Petters used investor funds to purchase the
well-known Polaroid camera brand in 2005.

       On or about September 24, 2008, the FBI and other federal agencies executed
search warrants at multiple locations and seized records of Petters, PCI, PGW and
other Petters entities. On October 3, 2008, Petters was arrested. He was charged with
and found guilty of numerous federal criminal offenses and was sentenced to 50 years
in prison.

B.    The Federal Receivership and the Bankruptcies
      On October 2, 2008, the United States Government filed a complaint pursuant
to 18 U.S.C. § 1345 and sought an asset freeze and receivership for the benefit of the
victims of the Petters fraud. On October 6, 2008, Judge Ann D. Montgomery of the
United States District Court for the District of Minnesota, in United States v. Thomas
Joseph Petters, et al., Civil Case No. 08-05248, appointed Douglas A. Kelley as the
receiver for Petters, PCI and PGW, as well as entities 100% owned or controlled by
them.

      PCI, PGW, and PAC Funding were all receivership entities at one time. The
receivership court specifically granted Kelley authority to file bankruptcy petitions for
any of the receivership entities in order to protect and preserve their assets. In
October 2008 Kelley filed Chapter 11 bankruptcy petitions for PCI, PGW, PAC
Funding, and several other Petters entities.7 These cases have been consolidated for

      7
       PC Funding, LLC, Case No. 08-45326; Thousand Lakes, LLC, Case No.
08-45327; SPF Funding, LLC, Case No. 08-45328; PL Ltd., Inc., Case No.
08-45329; Edge One LLC, Case No. 08-45330, MGC Finance, Inc, Case No.
                                           4
purposes of joint administration under In re Petters Company, Inc., et al., Case No.
08-45257 (collectively, “PCI Bankruptcy Cases”), and Kelley was appointed as the
trustee in all of these cases. An Official Committee of Unsecured Creditors (“PCI
Creditors Committee”) was also appointed and has been actively involved in the PCI
Bankruptcy Cases. The PCI Bankruptcy Cases are pending before Judge Kishel of the
United States Bankruptcy Court for the District of Minnesota.

      Judge Kishel also presides over the related bankruptcy cases of PBE
Corporation and PBE Consumer Electronics, LLC, formerly known as Polaroid
Corporation and Polaroid Consumer Electronics, LLC. The Polaroid Bankruptcy
Cases were commenced in December 2008 and operated as Chapter 11
debtors-in-possession. They were jointly administered under In re Polaroid
Corporation, et al., Case No. 08-46617, and in April 2009, substantially all of
Polaroid’s assets were sold pursuant to 11 U.S.C. § 363, generating approximately $87
million for the Polaroid Bankruptcy Estates.8 The Polaroid Bankruptcy Cases were
voluntarily converted to Chapter 7 on September 1, 2009. John R. Stoebner was
appointed as the Chapter 7 trustee of the Polaroid Bankruptcy Estates.

       Two other Petters entities relevant to this appeal are Petters Aviation, LLC and
its wholly-owned subsidiary, Elite Landings, LLC. These entities were initially
excluded from the Receivership, but they ultimately filed voluntary petitions for relief
under Chapter 11 of the Bankruptcy Code. Judge Robert J. Kressel of the United
States Bankruptcy Court for the District of Minnesota presides over these cases; they
are captioned In re Petters Aviation, LLC, No. 08-45136 and In re Elite Landings,
LLC, Case No. 08-45210 (“Aviation Bankruptcy Cases”).

08-45331; and Palm Beach Finance Holdings, Inc., Case No. 08-45392. These
debtors are not parties to the Settlement.
      8
        See In re Polaroid Corp., 611 F.3d 438 (8th Cir. 2010) (describing sale and
rejecting challenge to it).
                                           5
C.    ABRG and Acorn
      Appellee Asset Based Resource Group, LLC (“ABRG”), successor-servicer to
Acorn Capital Group, LLC (“Acorn”), is one of the larger creditors in the
Receivership and of the Petters Bankruptcy Estates. The settlement at issue in this
appeal focuses in large part on resolving the many and complex disputes between
ABRG and various Petters entities.

       Beginning in the early 2000s, Acorn originated numerous loans to several
Petters entities, including PCI, PAC Funding, Petters Aviation, and PAL. From 2001
to 2008, Acorn invested approximately $2.7 billion in various Petters entities.
Measured by cash invested minus cash repaid to Acorn, Acorn lost approximately
$138 million as a result of investments in PAC Funding and PCI.

       Many of the loans Acorn made to the Petters entities were assigned directly or
indirectly to various third parties, including Stewardship Credit Arbitrage Fund, LLC,
Putnam Green LLC, ACG II, LLC (“Onshore Funds”) and three Bermuda-based
entities (“Offshore Funds”). After discovery of the Petters fraud, both the Onshore
Funds and Offshore Funds began to wind up their respective affairs, and liquidation
proceedings were commenced for the Offshore Funds in the Supreme Court of
Bermuda, Commercial Court.

D.     Acorn – Polaroid Litigation
      Acorn has asserted claims of $290,500,725.10 against the Polaroid Bankruptcy
Estates, allegedly secured by senior liens against substantially all of the Polaroid
Bankruptcy Estates’ assets, including accounts, inventory, and certain North American
trademarks.

      Acorn argued prior to the settlement that its secured claims arose out of certain
loans made by Acorn to PAC Funding, an obligation of Polaroid to replenish a
blocked account, and Polaroid’s guaranty of all obligations owed by PAC Funding to

                                          6
Acorn. Notably, Acorn’s claims against the Polaroid Bankruptcy Estates compete
against those asserted by Kelley on behalf of PCI and PGW and PAC Funding. Some
of PCI’s most valuable assets are: (1) the approximately $28 million in secured claims
it has asserted against the Polaroid Bankruptcy Estates, (2) non-priority, general
unsecured claims of approximately $11.4 million it has asserted against the Polaroid
Bankruptcy Estates for various inter-company notes, and (3) the over-$180 million
claim Petters Capital, LLC has asserted against the Polaroid Bankruptcy Estates.
Asset (3) is valuable because PCI anticipates being the only material creditor of
Petters Capital, holding in excess of 95% of the claims against the Petters Capital
estate.

       In February 2009 Polaroid commenced an adversary proceeding against Acorn,
alleging that approximately $3.9 million in transfers made by Polaroid to Acorn were
preferential and fraudulent transfers avoidable pursuant to Bankruptcy Code sections
544, 547, and 548 and Minn. Stat. § 513.41, et seq. (“Polaroid Adversary Proceeding”).
The Polaroid Adversary Proceeding has been vigorously litigated, with both parties
engaging in extensive discovery. As of the date of the hearing on the Settlement, the
Polaroid Bankruptcy Estates had incurred more than $1 million in fees and expenses.
Cross-motions for summary judgment were pending at the time the parties pursued
(and ultimately consummated) settlement discussions.

E.    PCI /PAC Funding – Acorn Litigation
      On October 10, 2010, Kelley also commenced an adversary proceeding against
Acorn, alleging that over $2.7 billion of the transfers made by PCI, PGW, and PAC
Funding to Acorn were preferential or fraudulent transfers avoidable under the
Bankruptcy Code and Minnesota law (“Petters Adversary”). As of the date of the
Settlement, the Petters Adversary had not progressed beyond the filing of the
Complaint. The Complaint also seeks disallowance of Acorn’s claims – exceeding
$312 million – against PCI and PAC Funding.

                                          7
F.     Interlachen’s Involvement with PCI.
       Appellant Interlachen was one of the last entities to invest in the Petters
enterprises before the fraud was exposed. In April 2008 – at a time when PCI and other
Petters entities were in default on numerous notes, were entering into numerous
forbearance agreements, and the Ponzi scheme was collapsing – Interlachen entered
into a short-term, high-interest loan with PCI and Petters for $60 million. As of the
petition date, $71,540,984 was due on the loan. Interlachen was not repaid any
principal and has asserted a claim of more than $60 million against the PCI Estate.

G.     The Settlement.
       After extensive discovery and thorough briefing in the Polaroid Adversary
Proceeding, Kelley, the Polaroid Trustee, Acorn, the Receiver, Petters Aviation and
Elite negotiated a settlement over the course of several months. The Settlement has
several key components, including:

      1.     The Polaroid Trustee’s payment of $11,500,000 to Acorn in settlement
             and release of all claims and liens asserted by Acorn against the Polaroid,
             Bankruptcy Estates, including alleged secured claims totaling
             $290,500,725;

      2.     The Polaroid Trustee’s payment of $3,000,000 on behalf of Acorn to PCI
             and PGW to resolve avoidance claims against Acorn, including an
             approximately $3.9 million preference claim;

      3.     The reduction of Acorn’s claims against PCI and PAC Funding from in
             excess of $312 million to a non-priority, unsecured claim in the amount
             of $141,290,116, representing Acorn’s Ponzi scheme losses (money paid
             into the Ponzi scheme less money repaid);

      4.     The Petters and Polaroid Trustees’ separate release of Acorn, and Acorn’s
             release of the Petters and Polaroid Trustees;

      5.     Petters Aviation and Elite Landing’s allowance of certain claims,
             including two Acorn claims, a non-priority unsecured PGW claim of

                                           8
             $647,225.62, and PCI’s full non-priority, unsecured claim for
             $4,214,333.33.

       The Settlement effectively resolves all disputes between Acorn and the other
parties, thereby resolving numerous adversary proceedings pending in four different
bankruptcy cases. In addition to the bankruptcy court’s approval of the Settlement in
the PCI Bankruptcy Case, the Settlement was contingent on: (1) the approval of the
bankruptcy court (Kressel, J.) in the Polaroid Bankruptcy Cases; (2) the approval of the
District Court in the Receivership Proceedings; (3) the bankruptcy court’s confirmation
of the Third Modified Joint Plan of Liquidation (“Aviation/Elite Plan”) in the Aviation
Bankruptcy Cases; and (4) approval by the Bermuda court presiding over the wind-up
and liquidation of the Offshore Funds. Judge Kressel, the District Court, and the
Bermuda court have all approved of the settlement. The Aviation/Elite Plan was
confirmed on March 10, 2011, and became effective on March 25, 2011.

      On January 18, 2011, Kelley filed a motion under Fed. R. Bankr. P. 9019 for
approval of the Settlement. Interlachen was the only party to object. The Polaroid
Trustee also filed a motion for approval of the Settlement in the Polaroid Bankruptcy
Cases. On February 8, 2011, the bankruptcy court held a joint hearing on both
Motions. After a lengthy hearing, the bankruptcy court orally approved the Settlement
and explained its reasoning from the bench.

      On February 9, 2011, the bankruptcy court entered an order approving the
Settlement, citing its oral findings and conclusions. Interlachen timely appealed, and
on March 14, 2011, Interlachen filed an Emergency Motion for a Stay with this Panel.
We denied the Motion as procedurally and substantively deficient.

H.   ABRG’s Motion to Dimiss
     On July 1, 2011, Appellee ABRG (Acorn’s successor-servicer in interest) filed
a motion to dismiss on the grounds that this appeal has been rendered moot

                                           9
(constitutionally and equitably) by the performance of many aspects of the Settlement
since it was approved by the bankruptcy court, including:

      1.    Trustee Stoebner (of the Polaroid Bankruptcy Estates) has transferred
            $11,500,000 to Acorn;

      2.    Trustee Kelley has transferred $2,376,900 to Acorn on behalf of Petters
            Aircraft Leasing, LLC;

      3.    Stoebner has transferred $3 million to PAC Funding, of which $2,918,430
            has been distributed to PCI and $81,570 has been distributed to PGW;

      4.    The Aviation/Elite Plan has become effective.

      5.    Payments from Petters Aviation to Class 11 convenience class claims and
            to Class 10 unsecured creditors have commenced.

      6.    Petters Aviation has transferred $4,721,703.13 to Acorn.

      7.    The following adversary proceedings pending in the United States
            Bankruptcy Court for the District of Minnesota have been dismissed with
            prejudice and closed pursuant to court-approved stipulations:

            a.     Stoebner v. Acorn Capital Group, Adversary Proceeding No.
                   09-04031;

            b.     Petters Aviation, LLC v. Douglas A. Kelley, Receiver for Thomas
                   J. Petters, individually, and for Thomas Petters, Inc., Adversary
                   Proceeding No. 10-04327;

            c.     Petters Aviation, LLC v. Acorn Capital Group, LLC and Asset
                   Based Resource Group, LLC, Adversary Proceeding No. 10-04333;
            d.     Petters Aviation, LLC v. Douglas A. Kelley, Chapter 11 Trustee for
                   Petters Group Worldwide, LLC, Adversary Proceeding No.
                   10-04349;

            e.     Petters Aviation, LLC v. Douglas A. Kelley, Chapter 11 Trustee for
                   Petters Company, Inc., Adversary Proceeding No. 10-04350; and

                                         10
             f.    Douglas A. Kelley v. Acorn Capital Group, LLC, et al., Adversary
                   Proceeding No. 10-04441;

       After receiving Interlachen’s response, we entered an order on July 21, 2011,
stating that we would take ABRG’s motion with the merits of the appeal.

                                 III. DISCUSSION

A.    ABRG’s Motion to Dismiss is moot.

       We first dispose of ABRG’s motion to dismiss. While it has considerable merit,9
the motion is moot in light of our ruling below that the bankruptcy court did not abuse
its discretion in approving the Settlement. It will therefore be denied.
B.     The bankruptcy court did not abuse its discretion in approving the
       Settlement.

      Interlachen’s numerous objections to the Settlement can be distilled into two
categories: those that assign error to the sufficiency of the record underlying the
bankruptcy court’s conclusion that the Settlement is reasonable, and those directed at
the substance of the bankruptcy court’s determination that the Agreement is

      9
         As noted above, the Settlement spans multiple estates and proceedings in
four separate courts. Interlachen’s appeal, if successful, would negatively impact
numerous non-parties, including recipients of distributions from the Aviation/Elite
Plan, recipients of distributions from the PAL estate, creditors and other parties in
interest to the Polaroid estates, parties with an interest in the Bermuda liquidation,
and all parties that received a release as part of the Settlement. Although it might
be possible to undo some aspects of the Settlement, it would certainly be
impractical and inequitable to undo them all. “[A]n appellate court may dismiss an
appeal from a bankruptcy court as moot ‘even though effective relief could
conceivably be fashioned, [when] implementation of that relief would be
inequitable.’” In re Michaels, 286 B.R. 684, 690 (B.A.P. 8th Cir. 2002)(quoting In
re Continental Airlines, 91 F.3d 553, 559 (3rd Cir. 1996)).
                                          11
reasonable. Although these are, in essence, two sides of the same analytical coin, for
clarity we discuss each separately.

      1.     The record upon which the bankruptcy court based its approval of
             the Settlement was sufficient.

      Interlachen argues that the bankruptcy court erred in approving the settlement
without sufficient evidence that it was in the best interests of the estate. We disagree.10

      The sufficiency of a record underlying a decision to approve a settlement
depends on the circumstances of each case. While an evidentiary hearing might be
necessary in some cases, it isn’t in others.11 The critical inquiry on appeal is not the
quantum of evidence adduced at a hearing on a settlement, but rather whether a
bankruptcy court apprises itself “of all facts necessary for an intelligent and objective

      10
         Interlachen’s argument is also internally inconsistent. On one hand,
Interlachen argues that the bankruptcy erred by approving the Settlement without
conducting an evidentiary hearing on the reasonableness of the settlement. (Br. at
13). On the other hand, Interlachen states in a footnote that the purview of the
bankruptcy court in evaluating the Settlement should have been limited to the
record as it existed before the hearing. (Br. at 16 n.12). Interlachen’s latter
suggestion would render the hearing on a settlement a mere formality, which we
decline to do.
      11
         Compare In re Y-Knot Const., Inc., 369 B.R. 405 (B.A.P. 8th Cir. 2007)
(reversing approval of settlement where proponent of settlement did not offer any
documentary or testimonial evidence in support of settlement), with Depositer v.
Mary M. Holloway Found., 36 F.3d 582, 586 (7th Cir. 1994) (holding that an
evidentiary hearing is not required under Rule 9019 and rejecting challenge to
sufficiency of the evidence).
                                            12
opinion of the probabilities of ultimate success should the claim be litigated,”12 In this
case, the bankruptcy court did that.

        In addition to Judge Kishel’s extensive familiarity with the issues and dynamics
of this highly complex case – a difficult-to-quantify yet significant factor13 – the record
upon which the bankruptcy court approved the Settlement included: a) the Settlement,
describing in detail the parties’ (primarily Acorn/ABRG’s and the Trustee’s)
competing claims; b) the Trustee’s verified motion, further detailing the positions of
and relationships between the parties and the alleged benefits of the Settlement to the
PCI estate; c) the statements of the attorneys for the Trustees, the PCI Creditors
Committee, and ABRG, explaining in detail the background, reasoning, and benefits
of the Settlement;14 d) the lengthy dockets from the various Petters bankruptcy cases
before Judge Kishel, which reflect the complexity and costliness, in time as well as

      12
         Protective Committee for Independent Stockholders of TMT Trailer Ferry,
Inc. v. Anderson, 390 U.S. 414, 424, 88 S.Ct. 1157, 1163, 20 L.Ed.2d 1 (1968).
      13
         The experience and knowledge of the bankruptcy court reviewing a
settlement is specifically recognized by some courts as a factor in assessing a
settlement. See, e.g., In re Iridium Operating LLC 478 F.3d 452, 462 (2nd Cir.
2007). Cf., In re Zahn Farms, 206 B.R. 643, 644-45 (B.A.P. 2d Cir. 1997) (noting
importance of bankruptcy court’s familiarity with a proceeding in determining the
necessity of a stay pending appeal).
      14
         Contrary to Interlachen's contention, these parties' statements were not
limited to conclusory, self-serving statements. Our review of the lengthy transcript
of the hearing revealed numerous references to facts (to which Interlachen did not
object) supporting the Settlement, and pointed exchanges with the bankruptcy
court clarifying aspects of the Settlement. Of particular note is the bankruptcy
court's exchange with counsel for ABRG regarding the fact that the amount of
ABRG's allowed unsecured claim under the Settlement was calculated by reference
to an analysis undertaken by a (presumably) objective third party, Pricewaterhouse
Coopers. (Tr. at 38-40). Additionally, as officers of the court, the statements of
counsel – whose testimony would have been germane – are entitled to additional
weight.
                                            13
money, of matters involving ABRG; and e) the cross motions for summary judgment
filed in the in the Acorn-Polaroid litigation, which Interlachen has acknowledged, is
part of the record.15

       It is also notable that Interlachen did not offer any evidence to demonstrate that
the settlement was unreasonable.

      The fact that the bankruptcy court’s oral ruling did not segregate or specifically
enumerate the evidence before it does not undermine its ultimate conclusion that the
Settlement is in the best interest of the estate. Therefore we find that the record, taken
as a whole, supports approval of the Settlement.

      2.       The Settlement satisfies the Flight Transportation / Drexel Factors.

       As noted above, to be approved, a settlement need not be perfect, it must merely
“not fall below the lowest point in the range of reasonableness.” The reasonableness
of a settlement is determined by reference to what are known as the Flight
Transportation or Drexel (or Drexel Loomis) factors. Although these refer to
different cases,16 the factors are the same; Flight Transportation simply quotes
Drexel.17 Under Flight Transportation, a bankruptcy court evaluating a proposed
settlement must consider “all of the factors bearing on the fairness of the settlement

      15
          Brief of Appellant at 5 n.6. The motions and the over 1000 pages of
exhibits attached thereto provide a basis on which the bankruptcy court could
evaluate the potential further cost of the litigation and the respective merits of the
parties' positions.
      16
        Drexel Burnham Lambert Corp. v. Flight Transp. Corp. (In re Flight
Transp. Sec. Litigation), 730 F.2d 1128 (8th Cir. 1984) (Flight Transportation);
Drexel v. Loomis, 35 F.2d 800 (8th Cir 1929)).
      17
           Flight Transportation, 730 F.2d at 1135 (quoting Loomis, 35 F.2d at 806).
                                           14
including: ‘(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.’ ”18 These findings are reviewed for clear error. And based on the record,
the bankruptcy court’s determination that these factors weigh in favor of approving the
settlement was not clearly erroneous.

               a.    Likelihood of Success
       Interlachen maintains that the bankruptcy court erred in finding that the
Trustee’s likelihood of success in the Petters Adversary was low enough to justify the
Settlement, but it offers little more than emphatic language to support its argument.
In contrast, the bankruptcy court evaluated the relative strength of the parties’ positions
based on its familiarity with ABRG’s defenses in the Polaroid–Acorn litigation, on an
understanding of the unsettled nature of the law implicated by the adversary (see
section c. below), and extensive input from the Trustee and PCI Creditors Committee.
The bankruptcy court also properly considered the skill and tenacity ABRG had
demonstrated in advancing its interests in the bankruptcy case and in other litigation
with the Trustee. Based on all of theses factors, the bankruptcy court’s determination
that the Trustee’s likelihood of success (or lack thereof) in the Petters Adversary
warranted approval of the settlement.

              b. Difficulty of Collection
        The Trustee, the PCI Creditors Committee and ABRG all represented to the
bankruptcy court that ABRG’s financial condition would make it difficult to collect
any judgment that the Trustee might obtain against it. Interlachen has not disputed this
assertion – in its brief or at oral argument. Rather, it sidesteps the issue by arguing that
if the Trustee obtained a judgment against ABRG, the disallowance of Acorn/ABRG’s

       18
            Id.
                                             15
claim against the PCI estate under 11 U.S.C. § 502(d) is tantamount to a recovery and
therefore reduces the collection risk associated with the litigation.19
       Although the operation of § 502(d) under these circumstances might provide the
PCI estate with a benefit in the form of a reduction of the claims pool, that benefit is
difficult to quantify without knowing the size of the estate and the size of the claims
pool, whereas the value of a worthless judgment is quantifiable: It’s zero minus the
costs of litigation. Considered in conjunction with the complexity of the litigation and
the immediate, concrete benefits that will inure to the PCI bankruptcy estate as a result
of the settlement, we cannot say that the bankruptcy court committed clear error in not
finding that § 502(d) offset the collection risk associate with the litigation.

               c.     Complexity of the Litigation
       Interlachen largely glosses over this factor, arguing that the cost and complexity
of the litigation “alone” does not support approval of the Settlement, and that § 502(d)
offers a straightforward approach to the Petters Adversary. But, as discussed above,
§ 502(d) does not significantly strengthen the Trustee’s hand against ABRG. And the
complexity of the litigation is not the only factor supporting the bankruptcy court’s
approval of the settlement; all of the Flight Transportation factors weigh in favor of
its approval. Nonetheless, the bankruptcy court did not err in finding that pursuing the
Petters Adversary would be exceedingly complex and costly and that this complexity
supports approval of the adversary.

       Aside from the noted and obvious complexity of pursuing the recovery of $2.7
billion from an entity that had already demonstrated its tenacity in defending a roughly

       19
           Section 502(d) provides in pertinent part: “[T]he court shall disallow any
claim of any entity from which property is recoverable under section . . .550 . . . of
this title or that is a transferee of a transfer avoidable under section . . . 547, 548 . .
.of this title, unless such entity or transferee has paid the amount, or turned over
any such property, for which such entity or transferee is liable under section . . .
550 . . . of this title.” 11 U.S.C. 502(d) (West 2010).
                                             16
$3.9 million preference action against it, the uncertainty surrounding at least two issues
in the Petters Adversary – the proper measure of fraudulent transfer avoidance and
recovery in a Ponzi scheme and the fact-intensive inquiry necessary to determine a
defendant’s good faith – pose particular challenges to the litigation.20 “The unsettled
nature of the law… is certainly one factor the Court must take into account in
determining whether the settlement should be approved.”21 And the bankruptcy court
took due note of this factor.

             d.      Paramount Interest of Creditors and Proper Deference to their
                     Reasonable View in the Premises
       Interlachen argues vehemently that the Settlement favors ABRG to the detriment
of other creditors, but Interlachen wholly fails to address the significant and telling
fact that, despite notice to over 100 creditors, Interlachen was the only creditor to
object, and the PCI Creditors Committee endorsed the Settlement, noting at length at
the hearing that it did so only after a thorough consideration and extensive analysis:
       When we initially heard about the terms of the proposed settlement,
       Your Honor, I would characterize our response as somewhat hostile, to
       be honest. We were resistant to the settlement and we had quite a lot of
       questions for the trustee and for Acorn and from that point on we
       commenced our due diligence process and we spoke to the trustee and
       counsel for the trustee. We spoke to counsel for Acorn. We obtained
       financial information relating to Acorn from Price Waterhouse and
       reviewed that financial information showing Acorn's investments that it
       made in to PCI and PAC Funding and also the payments that Acorn

      20
         See In re Bayou Group, LLC, 439 B.R. 284 (S.D. N.Y. 2010) (discussing
status of fraudulent transfer law as applied to the recovery of fraudulent transfers in
Ponzi schemes). See also Clarence L. Pozza, Jr., A Review of Recent Investor
Issues in the Madoff, Stanford and Forte Ponzi Scheme Cases, 10 J. Bus. & Sec. L.
113 (2010); Jeff Sonn, Ponzie Schemes– Picking Up the Pieces from a Fallen
House of Cards, 755 PLI/Corp 443 (2009).
      21
       In re Racing Services, Inc., 332 B.R. 581, 584 (B.A.P. 8th Cir. 2005)
(Federman, J. concurring).
                                           17
      received and the timing thereof. We reviewed the deposition transcripts
      and the pleadings related to the Acorn litigation and finally, Your Honor,
      we reviewed and commented on drafts of settlement documents.

      As we investigated the settlement and learned more about it, our
      questions, many of them were answered and we came to believe that this
      settlement, and I will use the words of Mr. Lodoen (the Trustee’s
      counsel), while we're not thrilled about this settlement, we believe that
      it is within the range of reasonableness, which is why we have not filed
      an objection.22

       The bankruptcy court’s approval of the Settlement gave proper deference to
these views.

     In sum, the bankruptcy court’s finding that the Settlement satisfied the Flight
Transportation factors is not clearly erroneous.

       On a final note, we cannot ignore the fact that two other federal judges – Judge
Montgomery of the United States District Court for the District of Minnesota and
Judge Kressel of the Bankruptcy Court for the District of Minnesota – have placed
their imprimatur on this settlement. Admittedly, the Flight Transportation factors do
not take into account other courts’ opinions of a settlement (which would be a non
sequitur under normal circumstances), and these courts weren’t evaluating the
settlement from the perspective of the PCI bankruptcy estate. But they also weren’t
evaluating the Settlement from Acorn’s or ABRG’s perspective, which undermines
Interlachen’s contention that the Settlement is grossly biased in favor of Acorn and
ABRG. These approvals of the Settlement make it extremely difficult, if not
impossible, to conclude the Settlement fell below the lowest point in the range of
reasonableness.

      22
           Tr. at 45-46.
                                          18
                                 CONCLUSION
     For the reasons stated above, the order of the bankruptcy court approving the
Global Settlement is hereby affirmed.

                                       19