Court Opinion

ID: 4450532
Source: CourtListenerOpinion
Date Created: 2019-10-25 20:00:30.302939+00
Date Added: 2024-06-11T14:23:11.038476
License: Public Domain

FILED
                                 NOT FOR PUBLICATION
                                                                            OCT 25 2019
                       UNITED STATES COURT OF APPEALS                    MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                                 FOR THE NINTH CIRCUIT

In re: ESTERLINA VINEYARDS &                         No.   18-60015
WINERY, LLC,
                                                     BAP No. 16-1428
               Debtor,

------------------------------                       MEMORANDUM*

CRAIG STERLING; ERIC STERLING,

               Appellants,

 v.

LINDA S. GREEN, Chapter 7 Trustee;
BANK OF THE WEST,

               Appellees.

                           Appeal from the Ninth Circuit
                             Bankruptcy Appellate Panel
              Taylor, Brand, and Spraker, Bankruptcy Judges, Presiding

                                 Submitted October 23, 2019**
                                   San Francisco, California

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Before: THOMAS, Chief Judge, and HAWKINS and BADE, Circuit Judges.

      Craig and Eric Sterling, creditors and principals of Esterlina Vineyards &

Winery, LLC (“Esterlina”), appeal the Bankruptcy Appellate Panel’s (“BAP”)

decision affirming the bankruptcy court’s approval of a compromise (“the

Compromise”) between Esterlina’s bankruptcy trustee and Bank of the West.

Because the parties are familiar with the facts, we need not recount them here. We

have jurisdiction pursuant to 28 U.S.C. § 158, and we affirm.

      We review a bankruptcy court’s approval of a compromise for abuse of

discretion. Debbie Reynolds Hotel & Casino, Inc. v. Calstar Corp., (In re Debbie

Reynolds Hotel & Casino, Inc.), 255 F.3d 1061, 1065 (9th Cir. 2001). We review a

bankruptcy court’s factual findings for clear error. Adeli v. Barclay (In re Berkeley

Del. Court, LLC), 834 F.3d 1036, 1039 (9th Cir. 2016).

      The BAP properly concluded that the bankruptcy court did not abuse its

discretion in approving the Compromise. To approve a compromise under Federal

Rule of Bankruptcy Procedure 9019, the bankruptcy court must determine that it is

“fair and equitable.” See Protective Comm. for Indep. Stockholders of TMT Trailer

Ferry, Inc. v. Anderson, 390 U.S. 414, 424 (1968). The Ninth Circuit instructs that

in making that determination, the following factors must be considered:

                                          2
              [1] The probability of success in the litigation; [2] the
              difficulties, if any, to be encountered in the matter of
              collection; [3] the complexity of the litigation involved,
              and the expense, inconvenience and delay necessarily
              attending it; [4] the paramount interest of the creditors
              and a proper deference to their reasonable views in the
              premises.

Martin v. Kane (In re A & C Props.), 784 F.2d 1377, 1381 (9th Cir. 1986) (citation

omitted). “[A]s long as the bankruptcy court amply considered the various factors

that determined the reasonableness of the compromise, the court’s decision must be

affirmed.” Id.

       Here, the bankruptcy court directly addressed the interests of creditors both

at the hearing on the Compromise, and in its memorandum decision.1 The court

determined that despite the Compromise not ensuring recovery for unsecured

creditors, it was in the best interest of the estate (and other creditors like

administrative claimants) because of the high costs of pursuing the claims, the

complexity of lender liability litigation, the refusal of the Sterlings’ state court

counsel to pursue the claims on a contingency basis, delay in pursuing the

litigation, and the low probability of success. The record before the bankruptcy

       1
         The court’s consideration of creditors’ interests differentiates this case
from Galloway v. Ford (In re Galloway), BAP No. AZ-13-1085-PaKiTa, 2014 WL
4212621, at *10 (B.A.P. 9th Cir. Aug. 27, 2014), where both the trustee and court
failed to address the impact of the compromise on unsecured creditors, and no
creditor weighed in.
                                             3
court was sufficient to support its conclusions.2 Further, the bankruptcy court’s

factual finding that the Sterlings’ offer was not an overbid was not clearly

erroneous.

      Contrary to the Sterlings’ assertions, a bankruptcy court is not required to

reject a proposed compromise solely because it does not benefit unsecured

creditors.3 A & C Props., 784 F.2d at 1382 (“[W]hile creditors’ objections to a

compromise must be afforded due deference, such objections are not

controlling[.]”). And “while the court must preserve the rights of the creditors, it

must also weigh certain factors to determine whether the compromise is in the best

interest of the bankrupt estate.” Id.

      We deny the Sterlings’ request to exercise our equitable powers to

supplement the record on appeal to consider facts uncovered in the state court

action after the bankruptcy proceedings ended. See Lowry v. Barnhart, 329 F.3d

      2
         That record included, among other things, a twenty-four minute hearing on
the sale, the trustee’s motion in support of the sale and the Compromise agreement,
the Sterlings’ opposition motion, the loan documentation with the releases and
waivers signed by the Sterlings, information about the underlying state court
claims, and over 200 docket entries from the bankruptcy proceedings.
      3
         In re KVN Corp., Inc., 514 B.R. 1 (B.A.P. 9th Cir. 2014) is not to the
contrary. That case dealt with a sale of unencumbered assets through a carve-out
agreement, a type of sale subject to “heightened scrutiny.” Id. at 7. No such sale is
at issue here.
                                           4
1019, 1024 (9th Cir. 2003) (limiting supplementation of the record to

“extraordinary cases”).

      AFFIRMED.

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