USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 97-1381
IN RE:

HEALTHCO INTERNATIONAL, INC.,

Debtor,
________

HICKS, MUSE & CO., INC., et al.,

Appellants,

v.

WILLIAM A. BRANDT, JR., TRUSTEE,

Appellee.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nathaniel M. Gorton, U.S. District Judge]

___________________

____________________

Before

Stahl, Circuit Judge,

_____________

Godbold* and Cyr, Senior Circuit Judges.

_____________________

____________________

David L. Evans,
______________

with whom Harold B. Murphy, Daniel J. Lyne,

_________________ _______________

Ethan Jeffery, Hanify & King, Mike McKool, Jr., Jeffrey A. Carter
______________ _____________ ________________ _________________
McKool Smith were on brief for appellants
____________
David C. Cohn, with
_____________

whom David B. Madoff and Cohn & Kelakos

_______________
________________

were on brief for appellee.

____________________

February 12, 1998

____________________

____________________

*Of the Eleventh Circuit, sitting by designation.

appeal

CYR, Senior Circuit Judge.

CYR, Senior Circuit Judge.
____________________

The question presented on

is whether the bankruptcy court

abused its discretion by

approving a settlement between the chapter 7 trustee for Healthco

International, Inc. and a consortium of banks

which

financed

prepetition

leveraged

("the Bank Group")

buy-out

("LBO")

of

Healthco by appellants Hicks Muse & Co., Inc. and its coinvestors

(collectively:

"Hicks Muse").

We affirm.

I
I

BACKGROUND
BACKGROUND
__________

Appellant Hicks Muse

million term

from the

loan and a

Bank Group,

financed the 1991 LBO

$65 million

secured by liens

revolving credit

on all

with a $50

facility

Healthco assets.

Healthco filed its chapter 11 petition in June 1993 and continued

to operate

interim

as a

trustee

debtor-in-possession.

was

appointed

and

Three

the

months later

reorganization

an

was

converted to a chapter 7 liquidation.

By

appointed

the

time

the chapter

approximately

already

were

subject

to

undergoing

bankruptcy

schedules the Healthco

were later

one

assigned

month

later,

liquidation

court

trustee

by

approval.

assets were valued

a liquidation

value

("Trustee") was

Healthco's

the interim

In

the

assets

trustee,

chapter

11

at $149 million,

but

between $33

and

$66

automatic stay,

see
___

million.

After

Bankruptcy Code

obtaining relief

362, 11 U.S.C.

from the

362, the Bank

Group proceeded

to

liquidate its Healthco

collateral, having agreed

to provide

the

Trustee with "full, complete, and detailed accounting[s]" of

the liquidation

on a monthly basis.

Trustee lodged several

bankruptcy

forthcoming

court, that

or

were

Over the ensuing

complaints, with the

the promised

deficient.

year the

Bank Group and

accountings

Eventually

the

the

had not

been

Bank

Group

submitted

a thirty-page accounting

provided

the

Trustee

with

pursuant to court

thirty

cartons

of

raw

order and

invoices

generated during the collateral liquidation process.

After declining to incur "the

. . . go[ing] through the[se]

incredible cost . . . of

records item by item," the Trustee

commenced an adversary proceeding against Hicks Muse and the Bank

Group, asserting two principal claims.

First, since the LBO had

left

claimed

Healthco insolvent,

million lien

obtained by the

constituted

fraudulent

U.S.C.

had

the

544(b).

unreasonable"

that

Bank Group on the

voidable fraudulent

transfer claim").

liquidated

Trustee

transfer

the

$115

Healthco assets

(hereinafter: "the

See Bankruptcy Code

___

544(b), 11

Second, the Trustee claimed that the Bank Group

its

Healthco

manner, see

collateral

Mass. Gen.

in

Laws Ann.

"commercially

ch. 106,

9-

___

504(3) ("UCC"), which yielded only $50-60 million on

an

estimated value

million (hereinafter:

The Trustee

(per chapter

11

assets with

schedules) exceeding

$149

"the UCC claim").

subsequently proposed to dismiss

fraudulent transfer claim

and the UCC claim, see

___

both the

Fed. R. Bankr.

P. 9019(a);1 see also Fed. R. Bankr. P. 9014 (contested matters),

see also Fed. R. Bankr. P. 9014 (contested matters),
___ ____

in return
in return

for the Bank

for the Bank

estate $9
estate $9

million in cash,
million in cash,

priority
priority

claims against the

claims against the

claim estimated
claim estimated

LBO-related
LBO-related

parties,
parties,

at $35
at $35

claims the
claims the

including
including

proceeding.2
proceeding.

Group's agreement
Group's agreement

to pay the
to pay the

waive roughly $1 million

waive roughly $1 million

chapter 7
chapter 7

estate and
estate and

million, and assign

million, and assign

Bank
Bank

Group
Group

nonsettling
nonsettling

might
might

defendants
defendants

in allowed
in allowed

a deficiency
a deficiency

to the
to the

have
have

in
in

chapter 7
chapter 7

Trustee any
Trustee any

against
against

the
the

third
third

adversary
adversary

The Trustee in turn agreed not to oppose the $50-60

million secured

claim asserted

by

the Bank

Group against

the

Healthco collateral.

Several codefendants, including Hicks Muse,

objected to the settlement.

At the hearing before the bankruptcy court, the Trustee

contended

the

that the proposed

"best interests"

of

$45 million settlement

the

Malkemus (In re Thompson),

________ _______________

chapter 7

estate,

965 F.2d 1136,

would serve

see Kowal
___ _____

1141 n.5,

v.

1145 (1st

Cir. 1992), for two reasons.

First, the Trustee pointed out that

the $45

return the chapter 7

million offer would

percent of

the

the $50 million estimated maximum

estate ninety

litigated value of

fraudulent transfer claim, without litigation risk.

Second,

____________________

1Bankruptcy Rule 9019(a) provides: "On motion by the trustee

1Bankruptcy Rule 9019(a) provides: "On motion by the trustee
and
and

after
after

notice
notice

and
and

a
a

compromise or settlement."

hearing,
hearing,

the
the

court
court

may
may

approve
approve

a
a

compromise or settlement."

2Initially the Trustee

2Initially the Trustee
its deficiency
its deficiency
disapproved
disapproved
fiduciary
fiduciary

claim to
claim to

the Trustee,
the Trustee,

the assignment
the assignment
obligation
obligation

to
to

nonetheless concluded that

nonetheless concluded that
claim would be
claim would be

proposed that the Bank

proposed that the Bank
but the
but the

as inconsistent
as inconsistent
unsecured
unsecured

bankruptcy court
bankruptcy court

with the
with the

creditors.
creditors.

an outright waiver of
an outright waiver of

permissible.
permissible.

bankruptcy court ruling in the

bankruptcy court ruling in the

As appellants do
As appellants do

Group assign
Group assign

Trustee's
Trustee's
The
The

court
court

the deficiency
the deficiency

not challenge the

not challenge the

latter respect, we do not address

latter respect, we do not address

it.
it.

the Trustee noted several factors

central to his assessment that

the UCC claim, fully litigated, could generate only minimal value

for

the

chapter 7

bankruptcy

court

estate.

approved

See
___

the

infra
_____

proposed

Section

II.B.1.

settlement

with

The

one

pertinent modification.3

On
On

Muse
Muse

intermediate appeal
intermediate appeal

to
to

the district
the district

court, Hicks
court, Hicks

challenged the bankruptcy court finding that the settlement

challenged the bankruptcy court finding that the settlement

between the
between the

Trustee and
Trustee and

"good faith."
"good faith."

immaterial under
immaterial under

The
The

the Bank Group

the Bank Group

district court ruled

district court ruled

had been
had been

the "good
the "good

the "best interests" standard

the "best interests" standard

Bankruptcy Rule 9019,

Bankruptcy Rule 9019,

negotiated in
negotiated in

and opined that a finding

and opined that a finding

faith" test
faith" test

applicable under
applicable under

of "good faith"
of "good faith"

might
might

be misperceived
be misperceived

by state
by state

courts as
courts as

a basis
a basis

for barring
for barring

Hicks Muse from pursuing its state-law contribution claim against

Hicks Muse from pursuing its state-law contribution claim against

the Bank Group.

the Bank Group.

In all other respects the bankruptcy court order

In all other respects the bankruptcy court order

was affirmed by the district court.

was affirmed by the district court.

II
II

DISCUSSION
DISCUSSION
__________

A.
A.

Appellate Jurisdiction
Appellate Jurisdiction
______________________

The

Hicks

Trustee contends that

the appeal is

moot because

Muse knowingly disregarded his warning that the settlement

would be

consummated

____________________

promptly

absent a

timeous

stay

of

the

3The court expressly refrained from determining the validity

3The court expressly refrained from determining the validity
vel non of
vel non of
___ ___

the Bank Group's purported assignment

the Bank Group's purported assignment

of its causes
of its causes
post-settlement
post-settlement

to the Trustee
to the Trustee

of action against
of action against

nonsettling codefendants.
nonsettling codefendants.

procedural
procedural

in
in

developments
developments

this
this

For
For

adversary
adversary

proceeding, see In re Healthco Int'l, Inc., 208 B.R. 288 (Bankr.

proceeding, see In re Healthco Int'l, Inc., 208 B.R. 288 (Bankr.
___________________________
D. Mass.
D. Mass.

1997); In re Healthco, 203 B.R.

1997); In re Healthco, 203 B.R.
_______________

515 (Bankr. D.
515 (Bankr. D.

Mass.
Mass.

1996); In re Healthco, 201 B.R. 19 (Bankr. D. Mass. 1996); In re

1996); In re Healthco, 201 B.R. 19 (Bankr. D. Mass. 1996); In re
_______________
_____
Healthco, 195 B.R. 971 (Bankr. D. Mass. 1996).
Healthco, 195 B.R. 971 (Bankr. D. Mass. 1996).
________

bankruptcy court order

sought no stay,

the

the Bank Group promptly disbursed

Trustee, from

defray

approving the settlement.

which $2.5

professional

fees.

adversary proceeding against

million

has since

Thereafter,

all

the Bank Group were

As Hicks Muse

$9 million to

been used

claims

in

to

the

dismissed with

prejudice.

1.
1.

Equitable Mootness
Equitable Mootness
__________________

The

"equitable"

jurisdiction

"equitable

and

"pragmatic"

mootness"

doctrine

limitations

over bankruptcy appeals.

upon

imports

our

both

appellate

See Institut Pasteur v.

___ _________________

Cambridge Biotech Corp. (In re Cambridge Biotech Corp.), 104 F.3d

_______________________ _____________________________

489, 492

n.5 (1st Cir.), cert.

_____

denied, 117 S.
______

Ct. 2511 (1997);

Rochman v. Northeast Utils. Serv. Group (In re Public Serv. Co.

_______
_____________________________ _______________________

of N.H.), 963 F.2d 469, 471 (1st Cir. 1992).

_______

The

unwarranted

equitable

or

mootness

repeated

failure

developments to evolve in reliance

test

to

inquires

request

whether

stay

enabled

on the bankruptcy court order

to the degree that their remediation has become impracticable

impossible.

Muse

Id. at
___

472.

neither repeatedly

In

the instant

ignored

approving the Bank

Group settlement.

that

ignored

interlocutory appeals

several

or

case, however, Hicks

its right,

delayed utilizing its opportunities, to

appellants

an

nor

significantly

seek a stay of the order

Cf. id.
___ ___

at 472-73 (noting

opportunities

from orders denying stays

to

take

during sixteen-

month period following confirmation of reorganization plan).

Nor

has the Trustee met the "pragmatic" mootness test,

which

order

contemplates proof

has

been

appellate

relief

appellant

may

that the

implemented

is

have

no

to

longer

sought

challenged

the

degree

practicable

stay

with

all

bankruptcy court

that

even

due

meaningful

though

the

diligence.

Instead,

the

Trustee

reorganization

relies either

provisions

Code

1127(b), 11

after

"substantial

upon

not applicable

U.S.C.

1127(b)

more

finely focused

here,

see Bankruptcy
___

(barring plan modification

consummation"),

or

inapposite

settlement

provisions pursuant to which lawsuits in nonbankruptcy courts had

already

been

distributions

bankruptcy

dismissal

dismissed

had been

court

with

with

made

prejudice,

to parties

jurisdiction.

prejudice

occurred

or

substantial

no longer

amenable to

Here,

of

course,

the

in

the

instant

adversary

proceeding and there has been no showing that any portion

settlement

proceeds

disbursed

to the

employed by

the Trustee,

ease.

In re The Gibbons-Grable Co.,

______________________________

See
___

could not be

Trustee,

or

recovered with

141

only

of the

to persons

relative

B.R. 614,

617

(Bankr. N.D.

Ohio 1992)

compensation

under Bankruptcy Code

subject to

(noting that

interim disbursements

sections 330 and

reconsideration); see also

___ ____

of

331 remain

In re Spillane,
______________

884 F.2d

equitable mootness doctrine

does not

642, 644 (1st Cir. 1989).

Accordingly, the

bar the present appeal.

2.
2.

Section 363(m) Mootness

Section 363(m) Mootness
_______________________

The

Trustee further contends that the appeal is mooted

by section 363(m), which states:

The reversal
authorization
_____________
sale
____

or modification on appeal of an
under [

or lease
__ _____

does not

of property
__ ________

affect the

lease under such

_____
that
____

363(b)

or (c)]

[of the

validity of

estate]

a sale
____

authorization to an
__ __

purchased or
_________ __

leased
______

of a
__ _

or
__

entity
______

such property
____ ________

in

good faith, whether

or not such entity

knew

of the

the appeal, unless

such

pendency of

authorization

and such

sale
____

or lease
__ _____

were

stayed pending appeal.

Bankruptcy Code

363(m), 11

U.S.C.

363(m)

(emphasis added).

The Trustee argues that section 363(m) applies because the claims

which were settled with the

the estate,"

Bank Group constituted "property

see Bankruptcy Code

___

and therefore the settlement

541(a), 11 U.S.C.

of

541(a),

was the functional equivalent

of a

"sale . . . of property" of the estate under section 363(m).

The

Trustee s contention is fraught with problems.

First,

employed in

Bank, 891
____

nature

at odds

section 363(m).

F.2d 17,

Bankruptcy Code,

plain

it is

language of

22 n.2,

effects a

23 (1st

the statute

definitive determination by

[t]ransfer

the unambiguous

See Laracuente v.
___ __________

"our inquiry .

a settlement resolves

with

. .

language

Chase Manhattan
_______________

Cir. 1989)

ends where,

is unambiguous").

(in construing

as here,

the

By

its very

adversarial claims prior

_____

to their

the court.

of [ the title .

In

contrast, a

. . ] [to]

"sale"

property for

[a] consideration .

1979).

Black s Law Dictionary 1200 (5th ed.

The bankruptcy court below simply

negotiated

claims

. . .

by

the

against

adversaries

the

Bank

whereby

Group

in

endorsed a settlement

the

return

Trustee abandoned

for

prescribed

consideration.

Second,

the interpretation urged by the Trustee is not

in step

which

with the

sought to

estate"

from

proceedings,

promptly

legislative policy

encourage

entities

by

optimum bids

not otherwise

ensuring

become final

animating section

that

absent a

Furniture Warehouse, Inc.

_________________________

the

the bankruptcy

timeous

stay.

such

sales

See Mark Bell

___ __________

v. D.M. Reid Assocs. (In re Mark Bell

_________________ ________________

Willemain
_________

v.

1019,

(defining

"good

assets for

to

approving

F.2d

faith

privy

"property of

orders

Furniture Warehouse, Inc.), 992

___________________________

Kivitz,
______

for

363(m),

764

F.2d

purchaser" as

value, in good

7,

1023

" one

(1st Cir.

(4th

who

Cir.

Greylock Glen Corp. v.

____________________

Sav. Bank, 656 F.2d 1, 4 (1st Cir. 1981).

_________

1985)

purchases the

faith, and without notice

claims ") (citation omitted);

1993);

of adverse

Community
_________

By contrast, the Bank

Group in no sense qualified as an outside bidder eligible for the

extraordinary "finality"

guaranties afforded by

section 363(m).

Instead, as the defendant directly targeted by the Trustee in the

subject adversary proceeding, not only was the Bank Group the one

"bidder" at

all concerned

asserted against it

to abandon

the

about resolving

by the Trustee, but it

its settlement bargain

extraordinary "finality"

the disputed

lacked any incentive

with the Trustee

guaranties

claims

even absent

envisioned in

section

363(m).

Finally,

the authorities

inapposite or inconclusive at best.

Communications, Inc.,
_____________________

Telesphere
__________

suggests

179

B.R. 544

no broad

cited

by

the

Trustee

are

See, e.g., In re Telesphere

___ ____ ________________

(Bankr.

N.D.

functional equivalence

Ill. 1994).

between a

property sale or

lease and a settlement, but

simply that courts

may consult section 363 for guidance in identifying standards for

________

such

basic procedures

(citing

Code

11 U.S.C.

provision

bankruptcy

as

"hearing,"

363(b)), particularly since

directly

court,

"notice" and

compare

governs

Fed.

id. at
___

no substantive

settlement approvals

R.

Bankr.

9019

552

by

the

(prescribing

_______

procedural guidance for settlements), with Fed. R. Bankr. P. 6004

____

(prescribing distinct

that

matter,

363(m),

procedural rules

Telesphere did
__________

let alone

not

endorse its

so

for

363

much as

wholesale

sales).

mention

For

section

importation into

the

settlement arena.4
____________________

4Nevertheless,
may cut the

there lurks a concern, not raised here, which

other way.

Prior

to the Bankruptcy Code,

property belonging to the estate

70(f), 11 U.S.C.
to

Bankruptcy

Lawrence
(15th

ed. 1995).

Bankruptcy

Rule

Bankruptcy

Act

carried forward in
Corp.,
_____

198 B.R.

were governed by Bankruptcy Act

110 (repealed), and settlements were subject

Act

P. King,

sales of

27,

11 U.S.C.

50 (repealed).

See 9
___

Collier on Bankruptcy
______________________

9019.RH,

Former

919, predecessor

9019,

Bankruptcy Rule
was

the

procedural

27, whose substantive

the Bankruptcy Code.
214, 244-47

(Bankr.

at 9019-12

counterpart

to

to

provisions have not been

See In re Dow Corning

___ __________________
E.D. Mich.

1996); In re
______

Sparks, 190 B.R. 842, 843-44

______

(Bankr. N.D. Ill. 1996).

the legislative history relating to the repeal

Moreover,

of Bankruptcy Act

27 affords no insight to the intent behind this discontinuity.

Although

Bankruptcy

bankruptcy court

Rule

to approve

9019

purports

settlements, it

enlarge, or modify any substantive right

___________
28

U.S.C.

source

2075 (emphasis added).

to

empower

may not

the

abridge,

[enacted in the Code].

Thus, absent some clear Code

for the substantive power to approve settlements, one may

question

whether Congress envisioned section 363 as that source,

but see Martin v.

___ ___ ______

Kane (In re A & C Properties),

____ ______________________

784 F.2d 1377,

1381 n.4 (9th Cir. 1986) (suggesting, in dicta, that Congress may
have intended

the general equitable powers prescribed

105 to subsume the specific

27),

or

whether the

power

in Code

powers described in Bankruptcy Act

to

approve settlements

is

simply

inherent to the judicial forum.

As in any other case,
be,

whether we

appeal.

possess

we must consider, sua sponte if

___ ______
subject

matter

jurisdiction

over

need

an

See Lopez v. Unanue Casal (In re Unanue Casal), 998 F.2d

___ _____
____________ __________________

28, 30 (1st

Cir. 1993).

jurisdictional

Nonetheless, we

questions if it

may bypass problematic

appears that the

10

appeal must in

B.
B.

The UCC Claim Settlement5

The UCC Claim Settlement
________________________

Hicks Muse
Hicks Muse

its discretion in
its discretion in

maintains that the bankruptcy

maintains that the bankruptcy

approving the UCC

approving the UCC

court abused
court abused

claim settlement absent

claim settlement absent

an
an

adequate factual foundation for determining the value

adequate factual foundation for determining the value

of the UCC
of the UCC

claim because
claim because

cartons of
cartons of

invoices
invoices

the Trustee never

the Trustee never

generated by
generated by

liquidation.

See

the
the

supra

reviewed the thirty

reviewed the thirty

Bank
Bank

Section

Group
Group

during
during

I; see

also,

its
its

collateral
collateral

e.g.,

In

re

liquidation.

See
___

Goldstein,
Goldstein,
_________

131
131

supra
_____

B.R.
B.R.

Section

367,
367,

I; see
___

371
371

also,
____

(Bankr.
(Bankr.

S.D.
S.D.

e.g.,
____

In re
______

Ohio
Ohio

1991)
1991)

(disapproving settlement because trustee made no "thorough review

(disapproving settlement because trustee made no "thorough review

of the
of the

underlying documents
underlying documents

[a trust
[a trust

and will]
and will]

and applicable
and applicable

law").
law").

The
The

bankruptcy
bankruptcy

" assess[] and

" assess[] and

court
court

balance the
balance the

essentially
essentially

value of
value of

is
is

expected
expected

the claim[s]
the claim[s]

. .
. .

to
to

. being
. being

compromised against the value . . . of the compromise proposal. "

compromised against the value . . . of the compromise proposal. "

Jeffrey v.
Jeffrey v.
_______

omitted).
omitted).

Desmond, 70 F.3d
Desmond, 70 F.3d
_______

It may
It may

probability of
probability of

183, 185 (1st Cir.

183, 185 (1st Cir.

consider,
consider,

success were the

success were the

among
among

other
other

1995) (citation
1995) (citation

factors:
factors:

claim to be litigated
claim to be litigated

(1)
(1)

the
the

given
given

the
the

legal
legal

and
and

inconvenience
inconvenience

against
against

evidentiary
evidentiary

obstacles
obstacles

and delay entailed

and delay entailed

the more
the more

definitive,
definitive,

and
and

the
the

expense,
expense,

in its litigation
in its litigation

concrete and
concrete and

measured
measured

immediate
immediate

benefits
benefits

____________________

all events fail on the merits.

492.

See Institut Pasteur, 104 F.3d at

___ ________________

As this is such a case, we proceed to the merits.

5Bankruptcy court orders endorsing settlements are

for manifest

abuse of

discretion.

F.3d 183,

185 (1st Cir.

1995).

judge . .

. is not to

trustee,

and

See
___

Jeffrey v.
_______

Moreover,

judgment

is

Desmond, 70
_______

"[t]he [bankruptcy]

substitute her judgment

the trustee's

reviewed

to

for that of
be accorded

the

some

deference."

Hill v. Burdick (In re Moorhead Corp.), 208 B.R. 87,

____
_______ ____________________

89

1st

(B.A.P.

bankruptcy.

Cir.

1997).

Compromises

9 Collier on Bankruptcy
_____________________

11

are

favored

9019.01, at 9019-2.

in

attending the
attending the

proposed settlement, see

proposed settlement, see
___

Kowal, 965 F.2d

Kowal, 965 F.2d
_____

at 1141
at 1141

n.5, 1145 (so-called "best interests" standard); (2) a reasonable

n.5, 1145 (so-called "best interests" standard); (2) a reasonable

accommodation
accommodation

settlement;
settlement;

of the
of the

and
and

creditors'
creditors'

(3)
(3)

the
the

experience
experience

fiduciary proposing the settlement.

fiduciary proposing the settlement.

In re Texaco, Inc., 84
In re Texaco, Inc., 84
____________________

views
views

B.R.
B.R.

regarding the
regarding the

and
and

proposed
proposed

competence
competence

of
of

the
the

See Jeffrey, 70 F.3d at 185;

See Jeffrey, 70 F.3d at 185;
___ _______

893, 902
893, 902

(Bankr. S.D.N.Y.
(Bankr. S.D.N.Y.

1988)
1988)

(citing Protective Committee for Indep. Stockholders of TMT

(citing Protective Committee for Indep. Stockholders of TMT
_________________________________________________________

Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968)).

Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968)).
___________________
________

12

1.
1.

"Best Interests"
"Best Interests"
______________

The Trustee identified several reasons for settling the

UCC claim for

formidable
formidable

minimal value.6

burden in
burden in

First, the estate

First, the estate

attempting to
attempting to

Group liquidated its collateral in a

Group liquidated its collateral in a

manner.
manner.

to
to

Second,
Second,

demonstrate
demonstrate

would face
would face

that the
that the

a
a

Bank
Bank

"commercially unreasonable"
"commercially unreasonable"

Hicks makes too much of

Hicks makes too much of

the Trustee's decision

the Trustee's decision

forego a costly and time-consuming lapidarian review of every

forego a costly and time-consuming lapidarian review of every

invoice generated
invoice generated

since
since

during the collateral

during the collateral

Hicks makes
Hicks makes

reflect any relevant

no suggestion
no suggestion

that
that

liquidation, especially
liquidation, especially

the individual
the individual

information other than the

invoices
invoices

price obtained.

reflect any relevant

Ordinarily a UCC
Ordinarily a UCC

a low price,
a low price,

information other than the

9-504(3) claimant must show

9-504(3) claimant must show

price obtained.

something besides
something besides

as by demonstrating that the collateral liquidation

as by demonstrating that the collateral liquidation

was not conducted in a commercially reasonable manner.

was not conducted in a commercially reasonable manner.
_________

See Mass.
See Mass.
___

Gen. Laws
Gen. Laws

F.3d 425,
F.3d 425,

Ann. ch. 106,

Ann. ch. 106,

9-507(2); RTC
9-507(2); RTC
___

v. Carr, 13
v. Carr, 13
____

429-30 (1st Cir.

429-30 (1st Cir.

1993) (citing Chartrand v. Newton Trust Co., 5

1993) (citing Chartrand v. Newton Trust Co., 5
_________
_________________

N.E.2d
N.E.2d

(Mass.
(Mass.

421, 423
421, 423

Valley, N.A., 733 F.2d

Valley, N.A., 733 F.2d
____________

1936));
1936));

Nadler
Nadler
______

182, 184 (1st

182, 184 (1st

v.
v.

BayBank Merrimack
BayBank Merrimack
__________________

Cir. 1984).
Cir. 1984).

extraordinary circumstances not present here,

extraordinary circumstances not present here,

Thus,
Thus,

absent
absent

mere evidence that

mere evidence that

the Healthco collateral might have returned more than $50 million
the Healthco collateral might have returned more than $50 million

in some exquisitely
in some exquisitely

substantial
substantial

orchestrated liquidation did not

orchestrated liquidation did not

burdens and
burdens and

risks
risks

which
which

the
the

Trustee
Trustee

offset the
offset the

would
would

have
have

encountered in litigating the UCC claim.

encountered in litigating the UCC claim.

Furthermore,
Furthermore,

the insistence
the insistence

by
by

Hicks
Hicks

Muse that
Muse that

the
the

____________________

6On
basis

the other hand, Hicks Muse offered no solid evidentiary

for second-guessing

the

Trustee's

settlement recoveries would amount to

assessment

the

90% of the total allegedly

due the estate on the fraudulent transfer claim.

13

that

Trustee review every

Trustee review every

the
the

Bank Group
Bank Group

Trustee or
Trustee or

invoice in the thirty

invoice in the thirty

is predicated
is predicated

on the
on the

cartons delivered by
cartons delivered by

mistaken notion
mistaken notion

the bankruptcy court was obliged

the bankruptcy court was obliged

that the
that the

to fix the value of

to fix the value of

the UCC claim with near mathematical precision before it could be

the UCC claim with near mathematical precision before it could be

settled.
settled.

.
.

See Kowal, 965 F.2d at 1145 ("[A] chapter 7 trustee . .

See Kowal, 965 F.2d at 1145 ("[A] chapter 7 trustee . .
___ _____

realistically
realistically

cannot
cannot

be
be

required
required

to
to

demonstrate
demonstrate

satisfaction of every
satisfaction of every

individual creditor and the debtor,

individual creditor and the debtor,

any compelling degree

any compelling degree

of certitude, that the

of certitude, that the

to
to

the chapter
the chapter

7
7

estate and
estate and

the
the

value of
value of

to
to

the
the

or to
or to

settlement benefit
settlement benefit

the
the

settled claim
settled claim

comprise
comprise

a matched set.").
a matched set.").

Among other practical considerations

Among other practical considerations

overlooked under this

overlooked under this

approach is the reality that

approach is the reality that

many, if not
many, if not

most, claims settled

most, claims settled

in bankruptcy proceedings are

in bankruptcy proceedings are

not amenable
not amenable

either to ready or exact valuation in the abstract.

either to ready or exact valuation in the abstract.

In re Energy
In re Energy
____________

Coop., 886 F.2d

Coop., 886 F.2d
_____

921, 929 (7th Cir. 1989)

921, 929 (7th Cir. 1989)

determination of the values in

determination of the values in

(" [A]n exact judicial

(" [A]n exact judicial

issue would defeat the purpose of

issue would defeat the purpose of

compromising
compromising

the claim. ")

the claim. ")

(citation omitted);
(citation omitted);

Holding Co.,
Holding Co.,
___________

120 B.R. 881,

120 B.R. 881,

897 (Bankr. S.D. Ohio

897 (Bankr. S.D. Ohio

that settling party

that settling party

need only have

need only have

In re Lee Way
In re Lee Way
_______________

1990) (noting
1990) (noting

"[f]amiliarity with a
"[f]amiliarity with a

case,
case,

its factual patterns, legal theories, and evidence," and need not
its factual patterns, legal theories, and evidence," and need not

be
be

"so familiar
"so familiar

with the
with the

case as to
case as to

Thus, "th[e] responsibility

Thus, "th[e] responsibility

review,
review,

raised by
raised by

whether the settlement

whether the settlement

range of
range of

numerous questions of law and fact

numerous questions of law and fact

rather to canvass
rather to canvass

'fall[s] below
'fall[s] below

reasonableness. "
reasonableness. "

for trial").
for trial").

of the bankruptcy judge, and ours on

of the bankruptcy judge, and ours on

is not to decide the

is not to decide the

appellants but
appellants but

be prepared
be prepared

Cosoff
Cosoff
______

the issues
the issues

the lowest
the lowest

and see
and see

point in
point in

the
the

v. Rodman (In re W.T. Grant

v. Rodman (In re W.T. Grant
______ _________________

Co.), 699 F.2d 599, 608 (2d Cir. 1983) (citation omitted); see In
Co.), 699 F.2d 599, 608 (2d Cir. 1983) (citation omitted); see In
___
___ __

14

re Energy Coop., 886 F.2d at 929.7

re Energy Coop., 886 F.2d at 929.
_______________

The
The

evidence on
evidence on

suspect as well.
suspect as well.

sale-price
sale-price

insufficiency was
insufficiency was

The original complaint valued the UCC

The original complaint valued the UCC

highly
highly

claim at
claim at

$99 million or more (i.e., $149 million minimum asset value, less
$99 million or more (i.e., $149 million minimum asset value, less
____

$50 million
$50 million

quite
quite

in sale
in sale

reasonably
reasonably

pleading typical of
pleading typical of

proceedings.
proceedings.

proceeds generated to
proceeds generated to

attributed
attributed

its
its

date).
date).

The Trustee
The Trustee

overestimation to
overestimation to

aggressive
aggressive

plaintiffs generally at early stages

plaintiffs generally at early stages

Moreover, it
Moreover, it

is often
is often

a practical
a practical

in the
in the

necessity for
necessity for

fiduciaries and
fiduciaries and

claimants in
claimants in

bankruptcy proceedings
bankruptcy proceedings

the inflated asset

the inflated asset

values listed in the debtor's

values listed in the debtor's

main
main

their
their

source
source

for
for

opportunity
opportunity

to conduct
to conduct

(discovery)
(discovery)

&
&

complaints
complaints

7015
7015

valuation
valuation

discovery, see
discovery, see
___

(permitting
(permitting

estimates
estimates

Fed. R.
Fed. R.

post-discovery
post-discovery

in adversary proceedings).
in adversary proceedings).

to utilize
to utilize

schedules as a
schedules as a

prior
prior

to
to

Bankr.
Bankr.

P. 7026
P. 7026

amendments
amendments

any
any

to
to

See Associates Commercial

See Associates Commercial
___ _____________________

Corp. v. A & A Transp., Inc. (In re A & A Transp., Inc.), 10 B.R.

Corp. v. A & A Transp., Inc. (In re A & A Transp., Inc.), 10 B.R.
_____
___________________ _________________________

867,
867,

the
the

868-69 (Bankr. D. Mass. 1981) ("[A]lthough the Debtor signs

868-69 (Bankr. D. Mass. 1981) ("[A]lthough the Debtor signs

schedules under
schedules under

reasonable
reasonable

oath, the
oath, the

estimates, and
estimates, and

values listed
values listed

very often
very often

the
the

therein are
therein are

only
only

person charged
person charged

with
with

preparing
preparing

the schedules
the schedules

value of
value of

certain types of
certain types of

early on, in
early on, in

has little
has little

or no
or no

knowledge about
knowledge about

property listed
property listed

therein.").
therein.").

fact, the Trustee uncovered evidence

fact, the Trustee uncovered evidence

the
the

Fairly
Fairly

that the $149

that the $149

million valuation estimate was grossly excessive.

million valuation estimate was grossly excessive.

____________________

7We

reject

necessarily
evidence

the

contention

considered the

did not

compel

UCC
a

that
claim

the

bankruptcy

valueless.

finding that

$45

court

Since

the

million was

the

minimum needed to settle the fraudulent transfer claim, see supra

___ _____
note 6, some unidentified portion

of the settlement sum may have

reflected a reasonable discounting of the UCC claim.

15

At
At

a
a

hearing
hearing

conducted
conducted

proceedings, Healthco
proceedings, Healthco

personnel
personnel

liquidation
liquidation

between $33
between $33

value at
value at

accurately presaged the

accurately presaged the

sale proceeds.
sale proceeds.

during
during

pegged
pegged

the
the

and 66
and 66

$50-60 million
$50-60 million

the
the

chapter
chapter

likely
likely

million,
million,

11
11

collateral
collateral

which quite
which quite

ultimately generated
ultimately generated

in
in

See In re Tennessee Chem. Co., 143 B.R. 468, 475

See In re Tennessee Chem. Co., 143 B.R. 468, 475
___ _________________________

(Bankr. E.D. Tenn. 1992) ("[T]he usual assumption [is] that going
(Bankr. E.D. Tenn. 1992) ("[T]he usual assumption [is] that going

concern
concern

value is
value is

salvage
salvage

value.").
value.").

greater
greater

than
than

Furthermore,
Furthermore,

forced
forced

for
for

sale,
sale,

some
some

liquidation,
liquidation,

time
time

Healthco
Healthco

or
or

had
had

utilized a deficient inventory control system which may well have

utilized a deficient inventory control system which may well have

caused gross overstatements in its 1993 inventories.

caused gross overstatements in its 1993 inventories.

Yet more importantly, however, Healthco was the largest

Yet more importantly, however, Healthco was the largest

distributor
distributor

of
of

dental
dental

extensive worldwide
extensive worldwide

necessity
necessity

market
market

that
that

depressed prices.
depressed prices.

were
were

in
in

serious
serious

offers from third

offers from third

Mgt., Inc.

markets.
markets.

its
its

reasonably
reasonably

supplies
supplies

Its
Its

in
in

the
the

United
United

huge
huge

market share
market share

inventories virtually
inventories virtually

could
could

be
be

Moreover,
Moreover,

dispute and
dispute and

parties.
parties.

(In re Omni

expected
expected

to
to

be
be

to
to

See, e.g., Brown

See, e.g., Brown
___ ____ _____

with
with

and
and

"dumped"
"dumped"

cause
cause

many Healthco
many Healthco

unlikely
unlikely

States,
States,

the
the

on the
on the

significantly
significantly

accounts receivable
accounts receivable

attract substantial
attract substantial

v. Riley & Power

v. Riley & Power
______________

Mech. Contractors, Inc.), 114

B.R. 518,

Mgt., Inc.
__________

522
522

(In re Omni Mech. Contractors, Inc.), 114

___________________________________

(Bankr. E.D. Tenn. 1990) ("The

(Bankr. E.D. Tenn. 1990) ("The

B.R. 518,

value of accounts receivable

value of accounts receivable

may be discounted for uncollectible and disputed debts.").

may be discounted for uncollectible and disputed debts.").

Hicks
Hicks

Musecitesnorecordevidencewhichwouldunderminetheseconsiderations.8
Musecitesnorecordevidencewhichwouldunderminetheseconsiderations.

____________________

8As the
these

Healthco collateral liquidation was

exceptional in

important respects, the Trustee supportably concluded that

the decision by the Bank

appraisal

prior

unreasonable,

or at

to

Group not to obtain a liquidation-value

its

the very

collateral
least that

trial could have found it excusable.

16

liquidation
the trier of

was

not

fact at

Finally, the
Finally, the

the sale proceeds

the sale proceeds

been
been

low,
low,

it
it

Trustee reasonably concluded that even if

Trustee reasonably concluded that even if

obtained by the Bank Group were

obtained by the Bank Group were

was
was

demonstrated that the

demonstrated that the

most
most

unlikely
unlikely

that
that

it
it

shown to have
shown to have

could
could

collateral liquidation had been

collateral liquidation had been

have
have

been
been

conducted
conducted

in a commercially unreasonable manner, given that it had begun in

in a commercially unreasonable manner, given that it had begun in

1993 on terms
1993 on terms
__ _____

Although close
Although close

rule
rule

out
out

a
a

and conditions approved

and conditions approved
___ __________ ________

bankruptcy court
bankruptcy court

claim
claim

that
that

the
the

by the bankruptcy
by the bankruptcy
__ ___ __________

oversight
oversight

Bank
Bank

Group
Group

did not
did not

court.
court.
_____

necessarily
necessarily

unilaterally
unilaterally

and
and

"unreasonably" exceeded
"unreasonably" exceeded

of
of

the
the

collateral
collateral

evidence that
evidence that

or disregarded the terms

or disregarded the terms

liquidation,
liquidation,

the Bank Group

the Bank Group

Hicks
Hicks

did so.
did so.

Muse
Muse

and conditions
and conditions

cites
cites

Accordingly,
Accordingly,

no
no

record
record

we conclude
we conclude

that the "best interests" factor favored the settlement.

that the "best interests" factor favored the settlement.

2.
2.

Creditor Views
Creditor Views
______________

The

the

unsecured creditors

proposed settlement,

individual unsecured

as did

creditors.

committee strongly

the

supported

overwhelming majority

See Lee Way Holding Co.,

___ ____________________

of

120

B.R. at 904 (noting importance of creditors committee support for

settlement).

The only objections came from some noncreditors and

nonsettling creditors

proceeding.

who

were codefendants

in

the

adversary

Hicks Muse counters that creditors committee support

for the original

the settlement

court approval.

any

creditor

modifications

settlement proposal must be

discounted because

underwent modification before

gaining bankruptcy

Be that as

withdrew

its

it may, there is no indication

consent

based on

the

de
__

that

minimis
_______

subsequently made by the bankruptcy court, none of

whichdetracted from the overall reasonableness of the compromise.

17

3.
3.

The Trustee's Competence and Experience

The Trustee's Competence and Experience
_______________________________________

Other

than by

implication,

through

reliance on

the

Trustee's reasonable decision not to review the thirty cartons of

individual

not

invoices, see supra

___ _____

questioned

experience.

further

the

Absent

Section II.B.1., Hicks

Trustee's

such

professional

challenge,

support for the settlement.

See
___

this

Muse has

competence

factor

or

provided

Hill v. Burdick (In re

____
_______ _____

Moorhead Corp.), 208 B.R. 87, 89 (B.A.P. 1st Cir. 1997).

______________

We

demonstrated a

therefore

conclude

manifest abuse

court.

C.
C.

Other Settlement Terms

Other Settlement Terms
______________________

that

Hicks

of discretion

Muse

by the

has

not

bankruptcy

1.
1.

Assignment Clause
Assignment Clause
_________________

Next,

which deferred

certain

causes

Hicks Muse

contests

of

action

against

Hicks

Trustee.

Hicks Muse contends

power to

but to

modification

any determination regarding the enforceability of

including

choice

a settlement

Muse, which

strike this

the

Bank

nonsettling

defendants,

Group assigned

that the bankruptcy court

modification because

approve the assignment.

See Caplin v.
___ ______

Grace Trust Co. of N.Y., 406 U.S. 416, 434

________________________

trustee lacked standing to sue in behalf

to

the

had no

it lacked

the

Marine Midland
______________

(1972) (holding that

of individual creditors

of estate); Williams v. California First Bank, 859 F.2d 664, 666________

_____________________

67

(9th

Cir. 1988)

(applying Caplin
______

ban even

though creditor

purportedly assigned its claim to trustee).

We need

not address the

Caplin question on
______

which the

18

Hicks

Muse

contention

agreement wherein the

is

predicated.

Unlike

settlement

estate abandons an enforceable

right, the

assignment by the Bank Group conferred a benefit upon the chapter

estate.

As

discretion

in

the

bankruptcy court

determining

settlement served the

that the

acted

well

benefit

"best interests" of

within

its

conferred

by the

the chapter 7

estate

without regard to whether the Trustee realized additional benefit

from the subject assignment, nothing more was required.9

2.
2.

Potential Contribution Claims

Potential Contribution Claims
_____________________________

Finally,

finding that

the

Hicks

Trustee

settlement

in "good

immaterial

to the Rule

standard and worries

should

Hicks Muse

normally bars

Muse

and

faith."

faults

the Bank

the

Group

It characterizes

9019(a) "best

seek

contribution,

nonsettling defendants

negotiated

the

interests of

that the Bank Group may

later

bankruptcy

court

the

finding as

the estate

misuse the finding

since

from asserting

state

law

claims for

____________________

9Hicks Muse cites

the bankruptcy

no apposite authority

for its view

that

court had to determine the enforceability vel non

___ ___

of the assignment before approving the settlement agreement under

Rule

9019(a),

remained unripe

particularly

since

for adjudication

the

Caplin-Williams
______ ________

unless and

until the

issue

Trustee

were to assert an assigned claim against Hicks Muse.

Furthermore, though we need not resolve the matter, it seems

unlikely
The

that

Bank Group

assert

Hicks Muse

could demonstrate

(and its

putative assignee)

cognizable injury.
would have

had to

in the adversary proceeding, see Fed. R. Bankr. P. 7013

___

whatever LBO-related
Whereas

the Trustee

claims

it

held

notes that

he

elected not

derivative claim against

proceeding.

Hicks Muse

against

at trial

Hicks
to assert

in the

Muse.

any

adversary

See Mai Systs. Corp. v. C.U. Techs., Inc. (In re Mai

___ ________________
_________________ _________

Systs. Corp.),
_____________

178 B.R.

50,

55

(Bankr.

D. Del.

1995)

(res
___

judicata normally bars subsequent litigation of claim which could

________
have

been litigated

in earlier

contested

proceeding).

19

matter or

adversary

contribution

against codefendants

plaintiff in "good

231B,

faith."

settled

with

the

Laws Ann. ch.

4 (Contribution Among Tortfeasors Act).

Muse concern

attempted to accommodate the

by amending the

settlement order so as

Hicks

to reserve

question whether the bankruptcy court's "good faith" finding

would be entitled

law

have

See, e.g., Mass. Gen.

___ ____

The district court

the

who

to preclusive effect in any

contribution action.

Although

we concur

subsequent state-

in the

district

court's

action,

we

determination that

think

Hicks

Muse

the interpretation

was

entitled

feared by

to

Hicks Muse

is

precluded by the settlement order.

The

"best

interests" standard

9019 contemplates a determination by

whether the

proposed settlement

See, e.g.,
___ ____

In re Kuhns, 101 B.R.

____________

1989)

terms,

by the

was negotiated

in good

243, 246-47 (Bankr.

bankruptcy court

without mentioning

Bankruptcy Rule

the bankruptcy court as

(disapproving "bad faith" settlement).

faith" finding

general

under

to

faith.

D. Mont.

Although the "good

below was

contribution,

expressed in

elsewhere the

court explicitly provided that the legal effect of the settlement

order

on

contribution

"[n]onbankruptcy law."

claims

was

to

be

governed

by

Moreover,

bankruptcy

there is

court possessed

finding

preempting

parties

in these

future

considerable question

the

power to

contribution

circumstances.

Corp. (In re Zale Corp.), 62 F.3d

_____ ___________________

make

a "good

claims by

Compare,
_______

whether the

nonsettling

e.g., Feld
____ ____

746, 752-54 (5th

faith"

v. Zale
____

Cir. 1995)

20

(holding

that

bankruptcy

court

approving

settlement

lacked

jurisdiction to resolve claims

v. Munford, Inc.
_____________

Cir.

1996)

between nondebtors), with Munford

____ _______

(In re Munford, Inc.), 97 F.3d 449,

____________________

(holding

that

Bankruptcy Code

105

455 (11th

may empower

bankruptcy court to bar future contribution claims by nonsettling

defendants).

In all events,

extraordinary equitable relief

supra
_____

Section

enforceability of

II.C.1

since the Trustee did

not request

under Bankruptcy Code

(bankruptcy

settlement terms

court

need

which pose

not

105, cf.
___

determine

no detriment

chapter 7 estate), we need not resolve this question.

to

Absent any

clear indication that future contribution claims were foreclosed,

we

conclude that

the bankruptcy

court

discussed "good

faith"

simply as another factor in its "best interests" analysis, see In

___ __

re Kuhns, 101
________

B.R. at 246-47, rather than with a view to barring

or otherwise affecting future contribution claims.

Accordingly,

should Hicks

Muse subsequently

state-law contribution claim against the

governed by

law

were

the applicable state

to

comport

with

the

the

Bank

Rule

contention

that the

Muse

relitigating

the

settlement

between

Trustee and

negotiated

in

equivalence

good

between

Bank Group, it is to be

If the

"good

Bankruptcy

from

9019,

law.

Group

applicable state

faith"

standard

might

prevail on

settlement order collaterally

the

faith.

factual issue

As

Bankruptcy

nonbankruptcy contribution

law

assert a

the

as

may

to

Rule

9019

regarding

the

be

and

its

estops Hicks

whether the

Bankruptcy

there

under

no

Group was

necessary

applicable

governing

"good

21

faith" standard, we venture no opinion.

Affirmed.
Affirmed.
________

22