Liberty Towers Realty, LLC v. Richmond Liberty, LLC

569 B.R. 534

LIBERTY TOWERS REALTY, LLC; Liberty Towers Realty I, LLC; NCC Capital, LLC, Appellants,

v.RICHMOND LIBERTY, LLC; WF Liberty LLC, Appellees.

17–CV–573 (ARR)

United States District Court, E.D. New York.

Signed June 20, 2017

Pincus David Carlebach, Law Offices of David Carlebach, Esq., New York, NY, Aryeh Fried, N.C. Caller P.C., Brooklyn, NY, for Appellants.

Lori A. Schwartz, Robinson Brog Leinwand Greene Genovese & Gluck, Abraham J. Backenroth, Backenroth Frankel & Krinsky, LLP, New York, NY, for Appellees.

OPINION & ORDER

ROSS, United States District Judge:

Debtors Liberty Towers Realty, LLC ("LTR"), and Liberty Towers Realty I, LLC ("LTR I"; collectively "Liberty Towers" or the "debtor"), together with their junior secured creditor, NCC Capital, LLC ("NCC"), appeal the decision of the Honorable Elizabeth S. Strong, United States Bankruptcy Judge, to approve a settlement agreement Liberty Towers signed but has since repudiated. Because I find that the bankruptcy court did not abuse its discretion in approving the settlement, the appeal is dismissed.

BACKGROUND

The court assumes the parties' familiarity with the underlying facts and summarizes the relevant background briefly.¹ LTR and LTR I are each single asset real estate debtors whose sole assets are adjacent vacant lots on Staten Island (collectively, the "Properties"). Appellee WF Liberty LLC ("WF") holds mortgages on the Properties and is the senior lienholder in each case. Appellant NCC holds a junior lien on one of the Properties. Appellee Richmond Liberty, LLC ("Richmond") holds an interest in the Properties by virtue of a contract of sale with WF, whereby WF agreed to sell the Properties to Richmond for $8,500,000 if WF obtained them after foreclosure.

WF initiated foreclosure proceedings against Liberty Towers when the latter defaulted on its mortgages. On January 24, 2011, WF obtained a judgment of foreclosure and sale on LTR's property. On July 7, 2014, WF obtained a judgment of foreclosure and sale on LTR I's property.

LTR and LTR I filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code on October 15, 2014. According to its petition, WF had a $15,000,000 claim against LTR, of which $8,000,000 was secured by the Properties, and NCC held a $1,000,000 claim fully secured by a subordinate lien on the Properties. Record at 83.²

On January 12, 2015, WF moved for the bankruptcy court to lift the automatic stay to enable it to proceed with the foreclosure auction. Record at 125. With its motion, WF presented an appraisal showing the properties to be worth far less than the value of its mortgage. Id. at 118, 142–43, 335. The court granted WF relief from the automatic stay on April 28, 2015. On July 16, 2015, WF Liberty was the winning bidder at the foreclosure sale, and Richmond's purchase right became fixed on that date.

LTR and its guarantors brought a motion to vacate the foreclosure sale. On September 3, 2015, the state court issued an order giving Liberty Towers the opportunity to redeem the Properties by making a payment to WF via electronic funds of $12,500,000 on or before September 24, 2015, later extended to October 13, 2015. On October 12, 2015, LTR attempted to transfer certain real property or membership interests to WF in an effort to redeem the mortgage. The parties dispute whether such an effort constituted a valid redemption. However, it is undisputed that LTR did not transfer $12,500,000 to WF by electronic funds, as required by the literal terms of the state court order.

After many years of litigation, encompassing nine bankruptcy cases and several state court proceedings, the parties entered into a global settlement agreement on June 2, 2016. The settlement agreement was signed by Liberty Towers, Richmond, WF, and nonparty guarantors of Liberty Towers's debts. Settlement Agreement, Record at 1043–58. NCC took no part in the bankruptcy proceedings prior to this settlement and did not sign the Settlement Agreement.

Pursuant to the Settlement Agreement, Richmond would obtain clear and marketable title to the Properties. Id. ¶ 3. In exchange, Richmond would pay $10,500,000 to WF, reduced by up to $50,000 for administrative expenses related to the bankruptcy cases and up to $50,000 for other creditors of Liberty Towers. Id. Liberty Towers agreed not to pursue any claim to the Properties, and waived any rights it held by virtue of the attempted redemption. Id. ¶ 6. Finally, the parties agreed to discontinue all litigation amongst themselves and executed global releases. Id. ¶¶ 7–8.

Other important provisions of the Settlement Agreement include the following:

Upon the execution of this Agreement, Richmond, through its counsel, shall promptly prepare and file a motion under Bankruptcy Rule 9019 seeking Bankruptcy Court approval of the terms and conditions of this Agreement. Upon entry of a "Final Order" ... by the Bankruptcy Court approving the terms and conditions of this Agreement, this Agreement shall become binding upon all Parties. In the event the Bankruptcy Court does not approve this Agreement, this Agreement shall be null and void and of no force and effect and the rights of all Parties are specifically reserved as if this Agreement had not been entered into.

Id. ¶ 2. The Settlement Agreement is governed by New York law. Id. ¶ 10.

Richmond subsequently moved for bankruptcy court approval of the Settlement Agreement. On July 22, 2016, the bankruptcy court held a hearing on the motion to approve the Settlement Agreement. At this hearing, Liberty Towers withdrew its support for the Settlement Agreement. The court held numerous hearings on the motion over the next six months, and by order dated January 11, 2017, the bankruptcy court approved the settlement, finding it to be in the best interests of the creditors and estate. Liberty Towers and NCC timely appealed this decision.

STANDARD OF REVIEW

On appeal, a district court reviews a bankruptcy court's conclusions of law de novo. Asbestosis Claimants v. U.S. Lines Reorganization Tr. (In re U.S. Lines, Inc.) , 318 F.3d 432, 435 (2d Cir. 2003). Findings of facts made by a bankruptcy court may not be set aside unless clearly erroneous. Sumpter v. DPH Holdings Corp. (In re DPH Holdings Corp.) , 468 B.R. 603, 611 (S.D.N.Y. 2012). "Mixed questions of law and fact are reviewed de novo . Matters left to the court's discretion are reviewed for abuse of discretion." In re Hirsch , 339 B.R. 18, 24 (E.D.N.Y. 2006) (citing Babitt v. Vebeliunas (In re Vebeliunas) , 332 F.3d 85, 90 (2d Cir. 2003) ; DG Creditor Corp. v. Dabah (In re DG Acquisition Corp.) , 151 F.3d 75, 79 (2d Cir. 1998) ). Abuse of discretion occurs when a bankruptcy court rests its decision " ‘on an error of law (such as application of the wrong legal principle) or a clearly erroneous factual finding’ " or where its decision, " ‘though not necessarily the product of a legal error or a clearly erroneous factual finding, cannot be located within the range of permissible decisions.’ " Schwartz v. Aquatic Dev. Grp., Inc. (In re Aquatic Dev. Grp., Inc.) , 352 F.3d 671, 678 (2d Cir. 2003) (quoting Zervos v. Verizon N.Y., Inc. , 252 F.3d 163, 169 (2d Cir. 2001) ). "A bankruptcy court's decision to approve a settlement is reviewed extremely deferentially." In re Schneider , No. 14-CV-1166 (JMA), 2015 WL 1412364, at *3 (E.D.N.Y. Mar. 26, 2015) (citing Cousins v. Pereira (In re Cousins) , No. 09 Civ. 1190 (RJS), 2010 WL 5298172, at *3 (S.D.N.Y. Dec. 22, 2010) ).

DISCUSSION

A. Governing Law

"Settlements and compromises are favored in bankruptcy as they minimize costly litigation and further parties' interests in expediting the administration of the bankruptcy estate." Ad Hoc Comm. of Equity Holders of Republic Airways Holdings Inc. v. Republic Airways Holdings Inc. (In re Republic Airways Holdings Inc.) , No. 16-cv-3315 (KBF), 2016 WL 2621990, at *12 (S.D.N.Y. May 6, 2016) (alteration omitted) (quoting In re Dewey & LeBoeuf LLP , 478 B.R. 627, 640 (Bankr. S.D.N.Y. 2012) ). Federal Rule of Bankruptcy Procedure 9019 (" Rule 9019") provides the bankruptcy court authority to approve a settlement upon motion and after notice and a hearing. Fed. R. Bankr. P. 9019(a). In the Second Circuit, "[b]efore pre-plan settlements can take effect, ... they must be approved by the bankruptcy court pursuant to Bankruptcy Rule 9019."

Motorola, Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating LLC) , 478 F.3d 452, 455 (2d Cir. 2007).³ "The purpose and effect of seeking court approval of a compromise under Rule 9019 is to bind the bankruptcy estate to the terms of any bargain struck by a ... debtor-in-possession that affects the bankruptcy estate." In re Lexington Jewelers Exch. Inc. , No. 08-10042-WCH, 2013 WL 2338243, at *5 n.12 (Bankr. D. Mass. May 29, 2013) (quoting In re OptInRealBig.com, LLC , 345 B.R. 277, 291 (Bankr. D. Colo. 2006) ).

When presented with the question of whether to approve a proposed settlement, the bankruptcy court must make an "informed and independent judgment as to whether a proposed compromise is fair and equitable" after apprising itself "of all facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should the claim be litigated." Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson , 390 U.S. 414, 424, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968). "However, a court should not conduct a ‘mini-trial’ on the merits." Schneider , 2015 WL 1412364, at *5 (quoting Smart World Techs., LLC v. Juno Online Servs., Inc. (In re Smart World Techs., LLC) , 423 F.3d 166, 177 (2d Cir. 2005) ). "[A] bankruptcy judge need not decide the numerous questions of law and fact raised by the settlement, but rather, should ‘canvass the issues and see whether the settlement falls below the lowest point in the range of reasonableness.’ " Bildirici v. Kittay (In re E. 44th Realty, LLC) , No. 05 BR. 16167, 2008 WL 217103, at *8 (S.D.N.Y. Jan. 23, 2008) (quot...