Court Opinion

ID: 5123724
Source: CourtListenerOpinion
Date Created: 2021-11-05 16:00:59.379851+00
Date Added: 2024-06-11T08:22:35.657130
License: Public Domain

USCA11 Case: 21-11364      Date Filed: 11/05/2021   Page: 1 of 10

                                            [DO NOT PUBLISH]
                             In the
         United States Court of Appeals
                  For the Eleventh Circuit

                   ____________________

                          No. 21-11364
                    Non-Argument Calendar
                   ____________________

In Re: CENTRO GROUP, LLC
 PROHCM HOLDINGS, INC.,
                                                        Debtors.
___________________________________________________
JOSEPH MARKLAND,
                                              Plaintiff-Appellant,
versus
MELISSA DAVIS, CPA,
as Liquidating Trustee of the bankruptcy estates of Centro Group,
LLC and ProHCM Holdings, Inc.,
CREDITORS COMMITTEE,
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2                        Opinion of the Court                    21-11364

LEYVA CAPITAL, LLC,
GIRALDO LEYVA, JR.,
                                                 Defendants-Appellees.
                      ____________________

            Appeal from the United States District Court
                for the Southern District of Florida
              D.C. Docket No. 1:20-cv-20610-KMW,
                     Bkcy No. 18-bk-23155-AJC
                     ____________________

Before WILSON, JORDAN, and BRANCH, Circuit Judges.
PER CURIAM:
        Appellant Joseph Markland 1 appeals the district court’s affir-
mance of the bankruptcy court’s order. Markland argues that the
bankruptcy court failed to apply the correct legal framework when
assessing whether to approve a provision of a settlement agree-
ment enjoining claims against third parties related to or arising out
of the bankruptcy action. Appellees, several parties in favor of the
settlement agreement, respond that the bankruptcy court’s order
is factually and legally correct. Because the bankruptcy court did

1Counsel represented Markland at both the bankruptcy and the district court
proceedings. He files this appeal pro se.
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21-11364                   Opinion of the Court                           3

not abuse its discretion in approving the settlement agreement, we
affirm.
                                     I.
         On April 25, 2018, ProHCM Holdings, Inc. (ProHCM) and
Centro Group, LLC (Centro) entered into a merger agreement.2
Both companies provided businesses with payroll and human re-
source management services. Centro specifically processed payroll
for its clients by withdrawing money from its clients’ bank accounts
and disbursing funds to its clients’ employees and taxing authori-
ties.
        After completion of the merger, ProHCM discovered
through a whistleblower that Centro had been misappropriating
client funds. An investigation revealed that Centro officers and di-
rectors had misappropriated money from its clients’ escrow ac-
counts which held payroll taxes resulting in over 1.7 million dollars
in tax liability—excluding penalties and interest. The Centro offic-
ers and directors responsible for the misappropriation of its clients’
funds likely included the former CEO of Centro, Christopher
Green, as well as former Centro directors Giraldo Leyva, Jr., Jeffrey
Hicks, Michael Moran, and Richard Kahle. Markland, CEO of Pro-
HCM pre-merger, subsequently replaced Green as the CEO of

2 Centro   became the operating entity and a wholly owned subsidiary of Pro-
HCM.
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4                         Opinion of the Court                     21-11364

both companies shortly before the companies were forced to file
for Chapter 11 bankruptcy on October 23, 2018.
         During the bankruptcy proceedings, the trustee assigned to
the case appointed a committee of creditors (the Committee) hold-
ing unsecured claims. Centro and ProHCM initially reached an
agreement to address the allocation of their respective assets and
liabilities, and the bankruptcy court approved the agreement.
Thereafter, Centro and ProHCM determined that they could assert
claims against several third parties. Following that determination,
Centro, ProHCM, and the Committee reached a proposed settle-
ment with the third parties, including the Centro officers and direc-
tors likely responsible for the misappropriation of clients’ funds.
       As part of the proposed settlement, the parties agreed to a
provision—known as a Bar Order—that released third parties from
any claims directly or indirectly related to Centro’s and ProHCM’s
respective bankruptcies. Markland, now former CEO of ProHCM
and the largest holder of the company’s preferred shares, under-
standably objected to the Bar Order. The basis of his objection was
that the Bar Order would prevent him from asserting claims
against potentially culpable third parties. 3 Markland was the only
party to object to the proposed settlement.
      The bankruptcy court ultimately approved the proposed set-
tlement containing the Bar Order over Markland’s objections in an

3It should be noted that Markland has never filed a lawsuit against any of the
third parties.
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21-11364                  Opinion of the Court                              5

amended and supplemental order.4 In doing so, the bankruptcy
court applied the factors from In re Munford, 97 F.3d 449 (11th Cir.
1996) to specifically assess whether to approve the provision con-
taining the Bar Order.
       Markland appealed to the district court, primarily arguing
that the bankruptcy court erred in applying the Munford factors
because it should have instead applied the factors from In re Seaside
Engineering & Surveying, Inc., 780 F.3d 1070 (11th Cir. 2015). Af-
ter briefing from the parties, the district court affirmed the bank-
ruptcy court’s order, finding that the Munford factors as opposed
to the Seaside factors applied to the set of facts giving rise to the
Bar Order. Markland timely appealed.
                                    II.
       This court sits as a second court of review when a bank-
ruptcy court decision is appealed. In re Daughtrey, 896 F.3d 1255,
1273 (11th Cir. 2018). The bankruptcy court’s legal conclusions are
reviewed de novo and its factual findings for clear error. Id. We
review discretionary determinations, including the approval of set-
tlement agreements, for an abuse of discretion. Id. Under this def-
erential standard, we “must affirm unless we find that the lower

4 The bankruptcy court initially filed a short order approving the settlement.
Shortly after, however, the bankruptcy court issued an amended and supple-
mental order approving the settlement which included more specifics regard-
ing the Bar Order purposed by Centro, ProHCM, and the Committee barring
claims against third parties.
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6                      Opinion of the Court               21-11364

court has made a clear error of judgment, or has applied the wrong
legal standard.” In re Walker, 532 F.3d 1304, 1308 (11th Cir. 2008)
(per curiam) (alteration adopted).
                               III.
        The issue on appeal is whether the bankruptcy court abused
its discretion when it determined that the assessment of whether
to approve the Bar Order is controlled by the Munford factors as
opposed to the Seaside factors. Markland argues that both the
bankruptcy court and the district court erred because the Seaside
factors apply to the Bar Order since Centro and ProHCM filed
Chapter 11 bankruptcies as reorganizations. Appellees respond
that neither court erred because Munford applies where a bar order
is essential to a litigation agreement whereas Seaside applies where
a bar order is presented as part of a plan of reorganization.
       In Munford and Seaside, we described the factors a bank-
ruptcy court should assess when evaluating the appropriateness of
a bar order in two different scenarios: one in which a bar order was
essential for a litigation settlement agreement and the other in
which a bar order was an integral part of a reorganization plan.
Munford, 97 F.3d at 455; Seaside, 780 F.3d at 1077. In Munford, a
company filed for Chapter 11 bankruptcy after an unsuccessful lev-
eraged buy-out. Munford, 97 F.3d at 452. The parties eventually
reached a settlement agreement, which contained a bar order per-
manently enjoining the non-settling defendants from pursuing
claims against a third party. Id. The bankruptcy court entered an
order approving the settlement agreement and bar order, which
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21-11364                Opinion of the Court                          7

the district court affirmed. Id. On appeal, the non-settling defend-
ants attacked the bankruptcy court’s authority to approve the bar
order. Id. at 452–53. This court found that bankruptcy courts can
“enter bar orders where such orders are integral to settlement in
an adversary proceeding.” Id. at 455. We also provided that certain
factors should be assessed to reasonably determine whether a bar
order is fair and equitable, including: (1) “the interrelatedness of the
claims that the bar order precludes”; (2) “the likelihood of the non-
settling defendants to prevail on the barred claim”; (3) “the com-
plexity of the litigation”; and (4) “and the likelihood of depletion of
the resources of the settling defendants.” Id. This court concluded
that the bar order was necessary because at least one of the parties
“would not have entered into the settlement agreement” without
it, and as such, it was “integral” to the settlement. Id.
        Nearly twenty years later in Seaside, an engineering firm
filed for Chapter 11 bankruptcy and submitted a reorganization
plan which proposed that the firm reorganize and continue opera-
tions under a new name. Seaside, 780 F.3d at 1075. The plan also
included a bar order that prohibited lawsuits against the company
(pre- or post-reorganization) and the company’s officers related to
or arising out of the bankruptcy. Id. The bankruptcy court ap-
proved the settlement containing the bar order. Id. One interested
party, a creditor, appealed the approval of the bar order. The dis-
trict court affirmed, and the creditor further appealed. Id. at 1075–
76.
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8                      Opinion of the Court                 21-11364

        We explained that Seaside is factually distinguishable from
Munford because the cases considered non-comparable bar orders.
Id. at 1076–77. We upheld the bar order in Munford because it was
integral to reaching a settlement agreement between the parties.
Id. at 1066. Different from the settlement context in Mumford, the
bar order at issue in Seaside was upheld because it was deemed
necessary for the reorganized entity to succeed. Id. at 1077 (“In-
stead of the settlement context in Munford, here the releases pre-
vent claims against non-debtors that would undermine the opera-
tions of, and doom the possibility of success for, the reorganized
entity”). We looked to other circuits for guidance regarding treat-
ment of bar orders in reorganization plans and adopted a seven-
factor test used by the Fourth and Sixth Circuits to assess whether
such a bar order is appropriate. Id. Seaside, 780 F.3d at 1077 (citing
In re Dow Corning Corp., 280 F.3d 648, 658 (6th Cir. 2002) (listing
the seven factors)). After reviewing the bankruptcy court’s appli-
cation of these seven factors, this court held that the bankruptcy
court did not abuse its discretion in approving the bar order. Id. at
1079–81.
       Markland correctly pointed out that both Centro and Pro-
HCM filed bankruptcy as Chapter 11 reorganization cases. This,
however, is non-determinative of which legal standard applies
when assessing bar orders since bankruptcies filed under Chapter
11 are frequently referred to as “reorganization” bankruptcies.
Both Munford and Seaside, for instance, arose out of bankruptcies
filed under Chapter 11 yet yielded different results. Instead, the
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21-11364                 Opinion of the Court                            9

context and facts underlying the bar order under review determine
whether Munford or Seaside factors apply.
       The Munford factors apply to bar orders assessed in the set-
tlement context. Such a bar order is appropriate where the parties
would not have entered into a settlement agreement without it,
and thus it is “integral” to the settlement. The Seaside factors apply
to bar orders that are specifically within the reorganization context
which is evidenced by this court looking to other circuits to assess
“unusual cases in which such an order is necessary for the success
of the reorganization.” Id. at 1078–1079. This is also further
demonstrated by the language within the Seaside factors them-
selves which reference “reorganization” and the “Plan” several
times.
       The record demonstrates that this case is more like Munford
than Seaside because the Bar Order under review was integral to
settlement. Although reorganization may have been on the table
at some point, the purpose of the Bar Order differs from the factual
context under Seaside because neither ProHCM nor Centro sought
to reorganize and continue operations. As such, the purpose of the
Bar Order is not to ensure success for a reorganized entity by elim-
inating liability against third parties but is instead to facilitate a set-
tlement agreement. Because Munford controls and Markland did
not preserve the argument of whether the bankruptcy court
properly applied the Munford factors, the analysis stops here.
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10                    Opinion of the Court                21-11364

       The bankruptcy court did not abuse its discretion because it
correctly applied the Munford factors as opposed to the factors
prescribed by Seaside.
      AFFIRMED.