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Facts: After declaring bankruptcy, the Debtor entered into an agreement to sell all the inventory remaining in its stores and its intellectual property via an auction. Two entities (the "Joint Venture") were the stalking horse bidders. Prior to the auction, a document was discovered challenging the Debtors' rights to sell the intellectual property. The Joint Venture revoked its original bid and entered a lower bid as the stalking horse pursuant to a revised agreement. The creditors committee had an objection to the revised stalking horse bid. After the auction, in which the Joint Venture was the winning bidder, the creditors' committee and the Joint Venture settled the committee's objection; the committee moved to have the settlement approved under § 105(a) and Bankruptcy Rule 9019(a). The UST objected to the settlement on a number of bases.
Issues: (1) Does the settlement violate the absolute priority rule of the Bankruptcy Code?Rules: (1) "[T]he absolute priority rule is violated when a senior class' portion of its share of estate property is allocated to a junior class over the objection of an intervening creditor class..." (2)
The court is "satisfied that the Committee has the right pursuant to Bankruptcy Rule 9019 and Bankruptcy Code Section 105(a) to request approval of the Settlement."
Holding: The settlement is approved.
Reasoning: (1) Since the UST has offered no evidence that the funds to be paid in the settlement constitute property of the estate - or were even intended for the Debtor's estate - and, because the Joint Venture is a third-party creditor paying another creditor, and because no creditor objects to the settlement, it does not violate the absolute priority rule.(2) Because the committee has standing to pursue approval of the settlement, and since the settlement is in the best interests of the estate and its creditors, it is approved. The committee does not owe a fiduciary duty to the debtors' estate as a whole, and the court believed that the settlement is above the lowest point in the range of reasonableness since it assured that the sale would proceed and, in light of the fact that there was no other alternative that would have resulted in a better deal for the Debtors, it benefitted the estate and the estate's creditors.
d. Executory Contracts and Unexpired Leases
ReGen Capital I, Inc. v. Halperin (In re U.S. Wireless Data, Inc.), 2008 WL 4724366 (2d Cir. Oct. 29, 2008)
Facts: AT&T was a counterparty to an executory contract with U.S. Wireless Data, Inc. (the "Debtor") when the Debtor filed for chapter 11. In its bankruptcy, the Debtor proposed to sell its assets, which included the assumption and assignment of certain executory contracts, one of which was the contract with AT&T. A bar date was set by the bankruptcy court with regard to cure claims to the extent counterparties disagreed with the Debtor's estimate of the cure amounts it had to pay to assume the executory contracts. AT&T received notice of the bar date but did not file a cure claim. The bankruptcy court approved the sale of the assets and AT&T was paid the cure amount as calculated by the Debtor. Later, AT&T assigned its unsecured claim against the Debtor to ReGen Capital I ("ReGen"), who filed a proof of claim (the "ReGen Claim") against the Debtor as an unsecured creditor based on amounts it contends remained owing to AT&T for the assumption of the executory contract. After the plan of reorganization was confirmed (to which ReGen did not object), the liquidation trustee objected to the ReGen Claim. The bankruptcy court held that the ReGen
