Hicks, Muse & Co. v. Brandt

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, D.

Ethan Jeffery, Hanify & King, Mike McKool, Jr., Jeffrey A. Carter and

McKool Smith were on brief for appellants

David C. Cohn, with whom David B. Madoff and Cohn & Kelakos LLP

were on brief for appellee.

February 12, 1998

*Of the Eleventh Circuit, sitting by designation.

CYR, Senior Circuit Judge. The question presented on
CYR, Senior Circuit Judge.

appeal 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 ("the Bank Group")

which financed a prepetition leveraged 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 financed the 1991 LBO with a $50

million term loan and a $65 million revolving credit facility

from the Bank Group, secured by liens on all Healthco assets.

Healthco filed its chapter 11 petition in June 1993 and continued

to operate as a debtor-in-possession. Three months later an

interim trustee was appointed and the reorganization was

converted to a chapter 7 liquidation.

By the time the chapter 7 trustee ("Trustee") was

appointed approximately one month later, Healthco's assets

already were undergoing liquidation by the interim trustee,

subject to bankruptcy court approval. In the chapter 11

schedules the Healthco assets were valued at $149 million, but

were later assigned a liquidation value between $33 and $66

million.

After obtaining relief from the automatic stay, see

Bankruptcy Code 362, 11 U.S.C. 362, the Bank Group proceeded

to liquidate its Healthco collateral, having agreed to provide

2

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

the liquidation on a monthly basis. Over the ensuing year the

Trustee lodged several complaints, with the Bank Group and the

bankruptcy court, that the promised accountings had not been

forthcoming or were deficient. Eventually the Bank Group

submitted a thirty-page accounting pursuant to court order and

provided the Trustee with thirty cartons of raw invoices

generated during the collateral liquidation process.

After declining to incur "the incredible cost . . . of

. . . go[ing] through the[se] 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 Healthco insolvent, the Trustee claimed that the $115

million lien obtained by the Bank Group on the Healthco assets

constituted a voidable fraudulent transfer (hereinafter: "the

fraudulent transfer claim"). See Bankruptcy Code 544(b), 11

U.S.C. 544(b). Second, the Trustee claimed that the Bank Group

had liquidated its Healthco collateral in a "commercially

unreasonable" manner, see Mass. Gen. Laws Ann. ch. 106, 9-

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

an estimated value (per chapter 11 schedules) exceeding $149

million (hereinafter: "the UCC claim").

The Trustee subsequently proposed to dismiss both the

fraudulent transfer claim and the UCC claim, see Fed. R. Bankr.

3

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

in return for the Bank Group's agreement to pay the chapter 7
in return for the Bank Group's agreement to pay the chapter 7

estate $9 million in cash, waive roughly $1 million in allowed
estate $9 million in cash, waive roughly $1 million in allowed

priority claims against the chapter 7 estate and a deficiency
priority claims against the chapter 7 estate and a deficiency

claim estimated at $35 million, and assign to the Trustee any
claim estimated at $35 million, and assign to the Trustee any

LBO-related claims the Bank Group might have against third
LBO-related claims the Bank Group might have against third

parties, including nonsettling defendants in the adversary
parties, including nonsettling defendants in the adversary

proceeding.2 The Trustee in turn agreed not to oppose the $50-60
proceeding.

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 that the proposed $45 million settlement would serve

the "best interests" of the chapter 7 estate, see Kowal v.

Malkemus (In re Thompson), 965 F.2d 1136, 1141 n.5, 1145 (1st

Cir. 1992), for two reasons. First, the Trustee pointed out that

the $45 million offer would return the chapter 7 estate ninety

percent of the $50 million estimated maximum litigated value of

the 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 after notice and a hearing, the court may approve a
and after notice and a hearing, the court may approve a
compromise or settlement."
compromise or settlement."

2Initially the Trustee proposed that the Bank Group assign
2Initially the Trustee proposed that the Bank Group assign
its deficiency claim to the Trustee, but the bankruptcy court
its deficiency claim to the Trustee, but the bankruptcy court
disapproved the assignment as inconsistent with the Trustee's
disapproved the assignment as inconsistent with the Trustee's
fiduciary obligation to unsecured creditors. The court
fiduciary obligation to unsecured creditors. The court
nonetheless concluded that an outright waiver of the deficiency
nonetheless concluded that an outright waiver of the deficiency
claim would be permissible. As appellants do not challenge the
claim would be permissible. As appellants do not challenge the
bankruptcy court ruling in the latter respect, we do not address
bankruptcy court ruling in the latter respect, we do not address
it.
it.

4

the Trustee noted several factors central to his assessment that

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

for the chapter 7 estate. See infra Section II.B.1. The

bankruptcy court approved the proposed settlement with one

pertinent modification.3

On intermediate appeal to the district court, Hicks
On intermediate appeal to the district court, Hicks

Muse challenged the bankruptcy court finding that the settlement
Muse challenged the bankruptcy court finding that the settlement

between the Trustee and the Bank Group had been negotiated in
between the Trustee and the Bank Group had been negotiated in

"good faith." The district court ruled the "good faith" test
"good faith." The district court ruled the "good faith" test

immaterial under the "best interests" standard applicable under
immaterial under the "best interests" standard applicable under

Bankruptcy Rule 9019, and opined that a finding of "good faith"
Bankruptcy Rule 9019, and opined that a finding of "good faith"

might be misperceived by state courts as a basis for barring
might be misperceived by state courts as a basis 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. In all other respects the bankruptcy court order
the Bank Group. 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. Appellate Jurisdiction
A. Appellate Jurisdiction

The Trustee contends that the appeal is moot because

Hicks 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 the Bank Group's purported assignment to the Trustee
vel non of the Bank Group's purported assignment to the Trustee

of its causes of action against nonsettling codefendants. For
of its causes of action against nonsettling codefendants. For
post-settlement procedural developments in this adversary
post-settlement procedural developments in this 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. 1997); In re Healthco, 203 B.R. 515 (Bankr. D. Mass.
D. Mass. 1997); In re Healthco, 203 B.R. 515 (Bankr. D. 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).

5

bankruptcy court order approving the settlement. As Hicks Muse

sought no stay, the Bank Group promptly disbursed $9 million to

the Trustee, from which $2.5 million has since been used to

defray professional fees. Thereafter, all claims in the

adversary proceeding against the Bank Group were dismissed with

prejudice.

1. Equitable Mootness
1. Equitable Mootness

The "equitable mootness" doctrine imports both

"equitable" and "pragmatic" limitations upon our appellate

jurisdiction over bankruptcy appeals. 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 equitable mootness test inquires whether an

unwarranted or repeated failure to request a stay enabled

developments to evolve in reliance on the bankruptcy court order

to the degree that their remediation has become impracticable or

impossible. Id. at 472. In the instant case, however, Hicks

Muse neither repeatedly ignored its right, nor significantly

delayed utilizing its opportunities, to seek a stay of the order

approving the Bank Group settlement. Cf. id. at 472-73 (noting

that appellants ignored several opportunities to take

interlocutory appeals from orders denying stays during sixteen-

month period following confirmation of reorganization plan).

Nor has the Trustee met the "pragmatic" mootness test,

6

which contemplates proof that the challenged bankruptcy court

order has been implemented to the degree that meaningful

appellate relief is no longer practicable even though the

appellant may have sought a stay with all due diligence.

Instead, the Trustee relies either upon more finely focused

reorganization provisions not applicable here, see Bankruptcy

Code 1127(b), 11 U.S.C. 1127(b) (barring plan modification

after "substantial consummation"), or inapposite settlement

provisions pursuant to which lawsuits in nonbankruptcy courts had

already been dismissed with prejudice, or substantial

distributions had been made to parties no longer amenable to

bankruptcy court jurisdiction. Here, of course, the only

dismissal with prejudice occurred in the instant adversary

proceeding and there has been no showing that any portion of the

settlement proceeds disbursed to the Trustee, or to persons

employed by the Trustee, could not be recovered with relative

ease. See In re The Gibbons-Grable Co., 141 B.R. 614, 617

(Bankr. N.D. Ohio 1992) (noting that interim disbursements of

compensation under Bankruptcy Code sections 330 and 331 remain

subject to reconsideration); see also In re Spillane, 884 F.2d

642, 644 (1st Cir. 1989).

Accordingly, the equitable mootness doctrine does not

bar the present appeal.

2. Section 363(m) Mootness
2. Section 363(m) Mootness

The Trustee further contends that the appeal is mooted

by section 363(m), which states:

7

The reversal or modification on appeal of an
authorization under [ 363(b) or (c)] of a

sale or lease of property [of the estate]

does not affect the validity of a sale or

lease under such authorization to an entity

that purchased or leased such property in

good faith, whether or not such entity knew
of the pendency of the appeal, unless such
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 Bank Group constituted "property of

the estate," see Bankruptcy Code 541(a), 11 U.S.C. 541(a),

and therefore the settlement 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, it is at odds with the unambiguous language

employed in section 363(m). See Laracuente v. Chase Manhattan

Bank, 891 F.2d 17, 22 n.2, 23 (1st Cir. 1989) (in construing

Bankruptcy Code, "our inquiry . . . ends where, as here, the

plain language of the statute is unambiguous"). By its very

nature a settlement resolves adversarial claims prior to their

definitive determination by the court. In contrast, a "sale"

effects a [t]ransfer of [ the title . . . ] [to] property for

[a] consideration . . . . Black s Law Dictionary 1200 (5th ed.

1979). The bankruptcy court below simply endorsed a settlement

negotiated by the adversaries whereby the Trustee abandoned

claims against the Bank Group in return for a prescribed

consideration.

Second, the interpretation urged by the Trustee is not

8

in step with the legislative policy animating section 363(m),

which sought to encourage optimum bids for "property of the

estate" from entities not otherwise privy to the bankruptcy

proceedings, by ensuring that orders approving such sales

promptly become final absent a timeous stay. See Mark Bell

Furniture Warehouse, Inc. v. D.M. Reid Assocs. (In re Mark Bell

Furniture Warehouse, Inc.), 992 F.2d 7, 8 (1st Cir. 1993);

Willemain v. Kivitz, 764 F.2d 1019, 1023 (4th Cir. 1985)

(defining "good faith purchaser" as " one who purchases the

assets for value, in good faith, and without notice of adverse

claims ") (citation omitted); Greylock Glen Corp. v. Community

Sav. Bank, 656 F.2d 1, 4 (1st Cir. 1981). 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 about resolving the disputed claims

asserted against it by the Trustee, but it lacked any incentive

to abandon its settlement bargain with the Trustee even absent

the extraordinary "finality" guaranties envisioned in section

363(m).

Finally, the authorities cited by the Trustee are

inapposite or inconclusive at best. See, e.g., In re Telesphere

Communications, Inc., 179 B.R. 544 (Bankr. N.D. Ill. 1994).

Telesphere suggests no broad functional equivalence between a

property sale or lease and a settlement, but simply that courts

9

may consult section 363 for guidance in identifying standards for

such basic procedures as "notice" and "hearing," id. at 552

(citing 11 U.S.C. 363(b)), particularly since no substantive

Code provision directly governs settlement approvals by the

bankruptcy court, compare Fed. R. Bankr. 9019 (prescribing

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

(prescribing distinct procedural rules for 363 sales). For

that matter, Telesphere did not so much as mention section

363(m), let alone endorse its wholesale importation into the

settlement arena.4

4Nevertheless, there lurks a concern, not raised here, which
may cut the other way. Prior to the Bankruptcy Code, sales of
property belonging to the estate were governed by Bankruptcy Act
70(f), 11 U.S.C. 110 (repealed), and settlements were subject
to Bankruptcy Act 27, 11 U.S.C. 50 (repealed). See 9

Lawrence P. King, Collier on Bankruptcy 9019.RH, at 9019-12

(15th ed. 1995). Former Bankruptcy Rule 919, predecessor to
Bankruptcy Rule 9019, was the procedural counterpart to
Bankruptcy Act 27, whose substantive provisions have not been
carried forward in the Bankruptcy Code. See In re Dow Corning

Corp., 198 B.R. 214, 244-47 (Bankr. E.D. Mich. 1996); In re

Sparks, 190 B.R. 842, 843-44 (Bankr. N.D. Ill. 1996). Moreover,

the legislative history relating to the repeal of Bankruptcy Act
27 affords no insight to the intent behind this discontinuity.
Although Bankruptcy Rule 9019 purports to empower the
bankruptcy court to approve settlements, it may not abridge,
enlarge, or modify any substantive right [enacted in the Code].

28 U.S.C. 2075 (emphasis added). Thus, absent some clear Code
source 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 in Code
105 to subsume the specific powers described in Bankruptcy Act
27), or whether the power to approve settlements is simply
inherent to the judicial forum.
As in any other case, we must consider, sua sponte if need

be, whether we possess subject matter jurisdiction over an
appeal. See Lopez v. Unanue Casal (In re Unanue Casal), 998 F.2d

28, 30 (1st Cir. 1993). Nonetheless, we may bypass problematic
jurisdictional questions if it appears that the appeal must in

10

B. The UCC Claim Settlement5
B. The UCC Claim Settlement

Hicks Muse maintains that the bankruptcy court abused
Hicks Muse maintains that the bankruptcy court abused

its discretion in approving the UCC claim settlement absent an
its discretion in approving the UCC claim settlement absent an

adequate factual foundation for determining the value of the UCC
adequate factual foundation for determining the value of the UCC

claim because the Trustee never reviewed the thirty cartons of
claim because the Trustee never reviewed the thirty cartons of

invoices generated by the Bank Group during its collateral
invoices generated by the Bank Group during its collateral

liquidation. See supra Section I; see also, e.g., In re
liquidation. See supra Section I; see also, e.g., In re

Goldstein, 131 B.R. 367, 371 (Bankr. S.D. Ohio 1991)
Goldstein, 131 B.R. 367, 371 (Bankr. S.D. Ohio 1991)

(disapproving settlement because trustee made no "thorough review
(disapproving settlement because trustee made no "thorough review

of the underlying documents [a trust and will] and applicable
of the underlying documents [a trust and will] and applicable

law").
law").

The bankruptcy court essentially is expected to
The bankruptcy court essentially is expected to

" assess[] and balance the value of the claim[s] . . . being
" assess[] and balance the value of the claim[s] . . . being

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

Jeffrey v. Desmond, 70 F.3d 183, 185 (1st Cir. 1995) (citation
Jeffrey v. Desmond, 70 F.3d 183, 185 (1st Cir. 1995) (citation

omitted). It may consider, among other factors: (1) the
omitted). It may consider, among other factors: (1) the

probability of success were the claim to be litigated given
probability of success were the claim to be litigated given

the legal and evidentiary obstacles and the expense,
the legal and evidentiary obstacles and the expense,

inconvenience and delay entailed in its litigation measured
inconvenience and delay entailed in its litigation measured

against the more definitive, concrete and immediate benefits
against the more definitive, concrete and immediate benefits

all events fail on the merits. See Institut Pasteur, 104 F.3d at

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

5Bankruptcy court orders endorsing settlements are reviewed
for manifest abuse of discretion. See Jeffrey v. Desmond, 70

F.3d 183, 185 (1st Cir. 1995). Moreover, "[t]he [bankruptcy]
judge . . . is not to substitute her judgment for that of the
trustee, and the trustee's judgment is to be accorded some
deference." Hill v. Burdick (In re Moorhead Corp.), 208 B.R. 87,

89 (B.A.P. 1st Cir. 1997). Compromises are favored in
bankruptcy. 9 Collier on Bankruptcy 9019.01, at 9019-2.

11

attending the proposed settlement, see Kowal, 965 F.2d at 1141
attending the proposed settlement, see Kowal, 965 F.2d 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 of the creditors' views regarding the proposed
accommodation of the creditors' views regarding the proposed

settlement; and (3) the experience and competence of the
settlement; and (3) the experience and competence of the

fiduciary proposing the settlement. See Jeffrey, 70 F.3d at 185;
fiduciary proposing the settlement. See Jeffrey, 70 F.3d at 185;

In re Texaco, Inc., 84 B.R. 893, 902 (Bankr. S.D.N.Y. 1988)
In re Texaco, Inc., 84 B.R. 893, 902 (Bankr. S.D.N.Y. 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. "Best Interests"
1. "Best Interests"

The Trustee identified several reasons for settling the

UCC claim for minimal value.6 First, the estate would face a
First, the estate would face a

formidable burden in attempting to demonstrate that the Bank
formidable burden in attempting to demonstrate that the Bank

Group liquidated its collateral in a "commercially unreasonable"
Group liquidated its collateral in a "commercially unreasonable"

manner. Second, Hicks makes too much of the Trustee's decision
manner. Second, Hicks makes too much of the Trustee's decision

to forego a costly and time-consuming lapidarian review of every
to forego a costly and time-consuming lapidarian review of every

invoice generated during the collateral liquidation, especially
invoice generated during the collateral liquidation, especially

since Hicks makes no suggestion that the individual invoices
since Hicks makes no suggestion that the individual invoices

reflect any relevant information other than the price obtained.
reflect any relevant information other than the price obtained.

Ordinarily a UCC 9-504(3) claimant must show something besides
Ordinarily a UCC 9-504(3) claimant must show something besides

a low price, as by demonstrating that the collateral liquidation
a low price, as by demonstrating that the collateral liquidation

was not conducted in a commercially reasonable manner. See Mass.
was not conducted in a commercially reasonable manner. See Mass.

Gen. Laws Ann. ch. 106, 9-507(2); RTC v. Carr, 13 F.3d 425,
Gen. Laws Ann. ch. 106, 9-507(2); RTC v. Carr, 13 F.3d 425,

429-30 (1st Cir. 1993) (citing Chartrand v. Newton Trust Co., 5
429-30 (1st Cir. 1993) (citing Chartrand v. Newton Trust Co., 5

N.E.2d 421, 423 (Mass. 1936)); Nadler v. BayBank Merrimack
N.E.2d 421, 423 (Mass. 1936)); Nadler v. BayBank Merrimack

Valley, N.A., 733 F.2d 182, 184 (1st Cir. 1984). Thus, absent
Valley, N.A., 733 F.2d 182, 184 (1st Cir. 1984). Thus, absent

extraordinary circumstances not present here, mere evidence that
extraordinary circumstances not present here, 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 orchestrated liquidation did not offset the
in some exquisitely orchestrated liquidation did not offset the

substantial burdens and risks which the Trustee would have
substantial burdens and risks which the Trustee would have

encountered in litigating the UCC claim.
encountered in litigating the UCC claim.

Furthermore, the insistence by Hicks Muse that the
Furthermore, the insistence by Hicks Muse that the

6On the other hand, Hicks Muse offered no solid evidentiary
basis for second-guessing the Trustee's assessment that the
settlement recoveries would amount to 90% of the total allegedly
due the estate on the fraudulent transfer claim.

13

Trustee review every invoice in the thirty cartons delivered by
Trustee review every invoice in the thirty cartons delivered by

the Bank Group is predicated on the mistaken notion that the
the Bank Group is predicated on the mistaken notion that the

Trustee or the bankruptcy court was obliged to fix the value of
Trustee or the bankruptcy court was obliged 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. See Kowal, 965 F.2d at 1145 ("[A] chapter 7 trustee . .
settled. See Kowal, 965 F.2d at 1145 ("[A] chapter 7 trustee . .

. realistically cannot be required to demonstrate to the
. realistically cannot be required to demonstrate to the

satisfaction of every individual creditor and the debtor, or to
satisfaction of every individual creditor and the debtor, or to

any compelling degree of certitude, that the settlement benefit
any compelling degree of certitude, that the settlement benefit

to the chapter 7 estate and the value of the settled claim
to the chapter 7 estate and the value of the settled claim

comprise a matched set."). Among other practical considerations
comprise a matched set."). Among other practical considerations

overlooked under this approach is the reality that many, if not
overlooked under this approach is the reality that many, if not

most, claims settled in bankruptcy proceedings are not amenable
most, claims settled in bankruptcy proceedings are not amenable

either to ready or exact valuation in the abstract. In re Energy
either to ready or exact valuation in the abstract. In re Energy

Coop., 886 F.2d 921, 929 (7th Cir. 1989) (" [A]n exact judicial
Coop., 886 F.2d 921, 929 (7th Cir. 1989) (" [A]n exact judicial

determination of the values in issue would defeat the purpose of
determination of the values in issue would defeat the purpose of

compromising the claim. ") (citation omitted); In re Lee Way
compromising the claim. ") (citation omitted); In re Lee Way

Holding Co., 120 B.R. 881, 897 (Bankr. S.D. Ohio 1990) (noting
Holding Co., 120 B.R. 881, 897 (Bankr. S.D. Ohio 1990) (noting

that settling party need only have "[f]amiliarity with a case,
that settling party need only have "[f]amiliarity with a case,

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

be "so familiar with the case as to be prepared for trial").
be "so familiar with the case as to be prepared for trial").

Thus, "th[e] responsibility of the bankruptcy judge, and ours on
Thus, "th[e] responsibility of the bankruptcy judge, and ours on

review, is not to decide the numerous questions of law and fact
review, is not to decide the numerous questions of law and fact

raised by appellants but rather to canvass the issues and see
raised by appellants but rather to canvass the issues and see

whether the settlement 'fall[s] below the lowest point in the
whether the settlement 'fall[s] below the lowest point in the

range of reasonableness. " Cosoff v. Rodman (In re W.T. Grant
range of reasonableness. " Cosoff 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 evidence on sale-price insufficiency was highly
The evidence on sale-price insufficiency was highly

suspect as well. The original complaint valued the UCC claim at
suspect as well. The original complaint valued the UCC 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 in sale proceeds generated to date). The Trustee
$50 million in sale proceeds generated to date). The Trustee

quite reasonably attributed its overestimation to aggressive
quite reasonably attributed its overestimation to aggressive

pleading typical of plaintiffs generally at early stages in the
pleading typical of plaintiffs generally at early stages in the

proceedings. Moreover, it is often a practical necessity for
proceedings. Moreover, it is often a practical necessity for

fiduciaries and claimants in bankruptcy proceedings to utilize
fiduciaries and claimants in bankruptcy proceedings to utilize

the inflated asset values listed in the debtor's schedules as a
the inflated asset values listed in the debtor's schedules as a

main source for their valuation estimates prior to any
main source for their valuation estimates prior to any

opportunity to conduct discovery, see Fed. R. Bankr. P. 7026
opportunity to conduct discovery, see Fed. R. Bankr. P. 7026

(discovery) & 7015 (permitting post-discovery amendments to
(discovery) & 7015 (permitting post-discovery amendments to

complaints in adversary proceedings). See Associates Commercial
complaints in adversary proceedings). 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, 868-69 (Bankr. D. Mass. 1981) ("[A]lthough the Debtor signs
867, 868-69 (Bankr. D. Mass. 1981) ("[A]lthough the Debtor signs

the schedules under oath, the values listed therein are only
the schedules under oath, the values listed therein are only

reasonable estimates, and very often the person charged with
reasonable estimates, and very often the person charged with

preparing the schedules has little or no knowledge about the
preparing the schedules has little or no knowledge about the

value of certain types of property listed therein."). Fairly
value of certain types of property listed therein."). Fairly

early on, in fact, the Trustee uncovered evidence that the $149
early on, in fact, the Trustee uncovered evidence that the $149

million valuation estimate was grossly excessive.
million valuation estimate was grossly excessive.

7We reject the contention that the bankruptcy court
necessarily considered the UCC claim valueless. Since the
evidence did not compel a finding that $45 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 a hearing conducted during the chapter 11
At a hearing conducted during the chapter 11

proceedings, Healthco personnel pegged the likely collateral
proceedings, Healthco personnel pegged the likely collateral

liquidation value at between $33 and 66 million, which quite
liquidation value at between $33 and 66 million, which quite

accurately presaged the $50-60 million ultimately generated in
accurately presaged the $50-60 million ultimately generated in

sale proceeds. See In re Tennessee Chem. Co., 143 B.R. 468, 475
sale proceeds. 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 value is greater than forced sale, liquidation, or
concern value is greater than forced sale, liquidation, or

salvage value."). Furthermore, for some time Healthco had
salvage value."). Furthermore, for some time Healthco 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 of dental supplies in the United States, with
distributor of dental supplies in the United States, with

extensive worldwide markets. Its huge market share and the
extensive worldwide markets. Its huge market share and the

necessity that its inventories virtually be "dumped" on the
necessity that its inventories virtually be "dumped" on the

market reasonably could be expected to cause significantly
market reasonably could be expected to cause significantly

depressed prices. Moreover, many Healthco accounts receivable
depressed prices. Moreover, many Healthco accounts receivable

were in serious dispute and unlikely to attract substantial
were in serious dispute and unlikely to attract substantial

offers from third parties. See, e.g., Brown v. Riley & Power
offers from third parties. See, e.g., Brown v. Riley & Power

Mgt., Inc. (In re Omni Mech. Contractors, Inc.), 114 B.R. 518,
Mgt., Inc. (In re Omni Mech. Contractors, Inc.), 114 B.R. 518,

522 (Bankr. E.D. Tenn. 1990) ("The value of accounts receivable
522 (Bankr. E.D. Tenn. 1990) ("The value of accounts receivable

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

Musecitesnorecordevidencewhichwouldunderminetheseconsiderations.8
Musecitesnorecordevidencewhichwouldunderminetheseconsiderations.

8As the Healthco collateral liquidation was exceptional in
these important respects, the Trustee supportably concluded that
the decision by the Bank Group not to obtain a liquidation-value
appraisal prior to its collateral liquidation was not
unreasonable, or at the very least that the trier of fact at
trial could have found it excusable.

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Finally, the Trustee reasonably concluded that even if
Finally, the Trustee reasonably concluded that even if

the sale proceeds obtained by the Bank Group were shown to have
the sale proceeds obtained by the Bank Group were shown to have

been low, it was most unlikely that it could have been
been low, it was most unlikely that it could have been

demonstrated that the collateral liquidation had been conducted
demonstrated that the collateral liquidation had been 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 and conditions approved by the bankruptcy court.
1993 on terms and conditions approved by the bankruptcy court.

Although close bankruptcy court oversight did not necessarily
Although close bankruptcy court oversight did not necessarily

rule out a claim that the Bank Group unilaterally and
rule out a claim that the Bank Group unilaterally and

"unreasonably" exceeded or disregarded the terms and conditions
"unreasonably" exceeded or disregarded the terms and conditions

of the collateral liquidation, Hicks Muse cites no record
of the collateral liquidation, Hicks Muse cites no record

evidence that the Bank Group did so. Accordingly, we conclude
evidence that the Bank Group did so. Accordingly, we conclude

that the "best interests" factor favored the settlement.
that the "best interests" factor favored the settlement.

2. Creditor Views
2. Creditor Views

The unsecured creditors committee strongly supported

the proposed settlement, as did the overwhelming majority of

individual unsecured creditors. See Lee Way Holding Co., 120

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

settlement). The only objections came from some noncreditors and

nonsettling creditors who were codefendants in the adversary

proceeding. Hicks Muse counters that creditors committee support

for the original settlement proposal must be discounted because

the settlement underwent modification before gaining bankruptcy

court approval. Be that as it may, there is no indication that

any creditor withdrew its consent based on the de minimis

modifications subsequently made by the bankruptcy court, none of

whichdetracted from the overall reasonableness of the compromise.

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3. The Trustee's Competence and Experience
3. 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 invoices, see supra Section II.B.1., Hicks Muse has

not questioned the Trustee's professional competence or

experience. Absent such a challenge, this factor provided

further support for the settlement. See Hill v. Burdick (In re

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

We therefore conclude that Hicks Muse has not

demonstrated a manifest abuse of discretion by the bankruptcy

court.

C. Other Settlement Terms
C. Other Settlement Terms

1. Assignment Clause
1. Assignment Clause

Next, Hicks Muse contests a settlement modification

which deferred any determination regarding the enforceability of

certain causes of action against nonsettling defendants,

including Hicks Muse, which the Bank Group assigned to the

Trustee. Hicks Muse contends that the bankruptcy court had no

choice but to strike this modification because it lacked the

power to approve the assignment. See Caplin v. Marine Midland

Grace Trust Co. of N.Y., 406 U.S. 416, 434 (1972) (holding that

trustee lacked standing to sue in behalf 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

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Hicks Muse contention is predicated. Unlike a settlement

agreement wherein the estate abandons an enforceable right, the

assignment by the Bank Group conferred a benefit upon the chapter

7 estate. As the bankruptcy court acted well within its

discretion in determining that the benefit conferred by the

settlement served the "best interests" of the chapter 7 estate

without regard to whether the Trustee realized additional benefit

from the subject assignment, nothing more was required.9

2. Potential Contribution Claims
2. Potential Contribution Claims

Finally, Hicks Muse faults the bankruptcy court

finding that the Trustee and the Bank Group negotiated the

settlement in "good faith." It characterizes the finding as

immaterial to the Rule 9019(a) "best interests of the estate

standard and worries that the Bank Group may misuse the finding

should Hicks Muse later seek contribution, since state law

normally bars nonsettling defendants from asserting claims for

9Hicks Muse cites no apposite authority for its view that
the bankruptcy court had to determine the enforceability vel non

of the assignment before approving the settlement agreement under
Rule 9019(a), particularly since the Caplin-Williams issue

remained unripe for adjudication unless and until the Trustee
were to assert an assigned claim against Hicks Muse.
Furthermore, though we need not resolve the matter, it seems
unlikely that Hicks Muse could demonstrate cognizable injury.
The Bank Group (and its putative assignee) would have had to
assert in the adversary proceeding, see Fed. R. Bankr. P. 7013

whatever LBO-related claims it held against Hicks Muse.
Whereas the Trustee notes that he elected not to assert any
derivative claim against Hicks Muse at trial in the adversary
proceeding. 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 matter or adversary
proceeding).

19

contribution against codefendants who have settled with the

plaintiff in "good faith." See, e.g., Mass. Gen. Laws Ann. ch.

231B, 4 (Contribution Among Tortfeasors Act).

The district court attempted to accommodate the Hicks

Muse concern by amending the settlement order so as to reserve

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

would be entitled to preclusive effect in any subsequent state-

law contribution action. Although we concur in the district

court's action, we think Hicks Muse was entitled to a

determination that the interpretation feared by Hicks Muse is

precluded by the settlement order.

The "best interests" standard under Bankruptcy Rule

9019 contemplates a determination by the bankruptcy court as to

whether the proposed settlement was negotiated in good faith.

See, e.g., In re Kuhns, 101 B.R. 243, 246-47 (Bankr. D. Mont.

1989) (disapproving "bad faith" settlement). Although the "good

faith" finding by the bankruptcy court below was expressed in

general terms, without mentioning contribution, elsewhere the

court explicitly provided that the legal effect of the settlement

order on contribution claims was to be governed by

"[n]onbankruptcy law."

Moreover, there is considerable question whether the

bankruptcy court possessed the power to make a "good faith"

finding preempting future contribution claims by nonsettling

parties in these circumstances. Compare, e.g., Feld v. Zale

Corp. (In re Zale Corp.), 62 F.3d 746, 752-54 (5th Cir. 1995)

20

(holding that bankruptcy court approving settlement lacked

jurisdiction to resolve claims between nondebtors), with Munford

v. Munford, Inc. (In re Munford, Inc.), 97 F.3d 449, 455 (11th

Cir. 1996) (holding that Bankruptcy Code 105 may empower

bankruptcy court to bar future contribution claims by nonsettling

defendants). In all events, since the Trustee did not request

extraordinary equitable relief under Bankruptcy Code 105, cf.

supra Section II.C.1 (bankruptcy court need not determine

enforceability of settlement terms which pose no detriment to

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

state-law contribution claim against the Bank Group, it is to be

governed by the applicable state law. If the applicable state

law were to comport with the "good faith" standard under

Bankruptcy Rule 9019, the Bank Group might prevail on its

contention that the settlement order collaterally estops Hicks

Muse from relitigating the factual issue as to whether the

settlement between the Trustee and the Bankruptcy Group was

negotiated in good faith. As there may be no necessary

equivalence between Bankruptcy Rule 9019 and applicable

nonbankruptcy contribution law regarding the governing "good

21

faith" standard, we venture no opinion.

Affirmed.
Affirmed.

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