Berman v. Smith
OPINION AND ORDER Closing Case. The Clerk of Court shall CLOSE this case. All pending motions are DENIED as MOOT. Signed by Judge Robin S. Rosenbaum on 4/30/2014. (ar2)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 13-81150-CIV-ROSENBAUM
MARGARET J. SMITH,
ILENE ISADORA GOLDSCHMIDT,
OPINION AND ORDER
This matter is before the Court upon the Brief of Appellant Sylvia Berman [ECF No. 12].
The Court has considered the brief, all supporting and opposing filings, and the record in this case.
For the reasons set forth below, the Court vacates and remands the Bankruptcy Court’s Order
Approving Stipulation to Compromise Controversy Between Trustee and APW Holdings, LLC; and
Granting Bar Order for a determination about whether settlement credit should be awarded to
nonsettling creditors whose claims are enjoined by the Bar Order.
Ilene Isadora Goldschmidt and her mother are co-owners and co-managers of APW Holdings,
LLC (“APW”), a Florida company that owns and operates retail stores in airports across the United
States. ECF No. 12 at 3. Goldschmidt was previously married to Lance Berman until their divorce
in 2012. Id.
On October 25, 2007, Lance Berman’s mother, Appellant Sylvia Berman, deposited
$245,000.00 into her son and daughter-in-law’s joint account, and the couple signed a promissory
note in exchange for this sum. Id. at 3-4. Sylvia Berman raised the money by taking out a mortgage
on her residence. Id. The couple represented to Sylvia Berman that the money was needed for APW’s
business purposes, but the promissory note was neither signed nor guaranteed by APW. Id. This
differed from at least two previous instances in which Sylvia Berman had made loans directly to
APW, and those loans were evidenced by written promissory notes from APW and written
guarantees from Goldschmidt’s mother. ECF No. 17 at 7. Nevertheless, within days of Sylvia
Berman’s deposit of the funds into the couple’s joint account, $245,000.00 was transferred from the
joint account to an APW account. ECF No. 12 at 4. Goldschmidt and Lance Berman then made
monthly mortgage payments to Sylvia Berman’s mortgagee from their joint account, using funds
provided by APW. Id.
But the couple ceased making these mortgage payments during the pendency of their divorce
proceedings. Id. Sylvia Berman thereafter filed a one-count Complaint in Florida state court for
breach of the promissory note, and final judgment was entered in her favor in the amount of
$265,000.00 on February 11, 2011. Id. After collection of this judgment presumably proved
unsuccessful, on January 20, 2012, Sylvia Berman filed supplementary proceedings against APW
and others to collect on the judgment pursuant to § 56.29, Fla. Stat.1 Id. at 4-5. Sylvia Berman’s
Section 56.29, Fla. Stat., allows a judgment creditor to open proceedings that are
“supplementary to execution,” such as avoiding any transfer of personal property that is made by a
judgment debtor to “delay, hinder or defraud creditors.” Fla Stat. § 56.29(1), (6)(a); see also
Jackson-Platts v. Gen. Elec. Capital Corp., 727 F.3d 1127, 1135-36 (11th Cir. 2013).
Complaint brought counts against APW for unjust enrichment, fraudulent transfer, and money lent,
among others. Id.
Goldschmidt filed a voluntary petition for Chapter 7 bankruptcy on February 24, 2012. In re
Ilene Isadora Goldschmidt, No. 12-14430, ECF No. 1 (Bankr. S.D. Fla. Feb. 24, 2012). Sylvia
Berman moved the Bankruptcy Court to determine the extent of the automatic stay and whether it
would affect her state-court proceeding against APW. Goldschmidt, No. 12-14430, ECF No. 20
(Bankr. S.D. Fla. Mar. 30, 2012). The Bankruptcy Court determined that the counts against APW
for unjust enrichment and money lent were not subject to the automatic stay because they were
“independent, direct claims asserted against a nondebtor, APW . . . . [and] do not seek relief against
Debtor or Debtor’s estate.” Goldschmidt, No. 12-14430, ECF No. 48 (Bankr. S.D. Fla. May 12,
2012). But the Bankruptcy Court noted that the Order was “without prejudice, and the Trustee shall
be permitted to seek a later determination that such claims seek recovery against assets of the estate.”
Subsequent to the Bankruptcy Court’s determination about the extent of the automatic stay,
the state court dismissed Sylvia Berman’s supplementary proceeding. ECF No. 12 at 6. Sylvia
Berman thereafter filed a new, independent action against APW, asserting claims of unjust
enrichment, money lent, and promissory estoppel. See Goldschmidt, No. 12-14430, ECF No. 118
at 16-20 (Bankr. S.D. Fla. Dec. 19, 2012).
After the filing of this new action against APW, Appellee Margaret J. Smith, the Trustee in
bankruptcy for Goldschmidt, engaged in settlement discussions with APW relating to the Trustee’s
potential claims against APW. ECF No. 17 at 5. On January 17, 2013, the Trustee moved the
Bankruptcy Court to approve a Settlement Agreement between the Trustee and APW that provided
for APW’s payment of $175,000.00 to the Trustee, subject to entry of a bar order that would
permanently enjoin Sylvia Berman from asserting any claims against APW or the Debtor related to
the $245,000.00 loan, the Final Judgment against Debtor in favor of Sylvia Berman, or Sylvia
Berman’s Complaint against APW. Goldschmidt, No. 12-14430, ECF No. 121 at 19-20 (Bankr. S.D.
Fla. Jan. 17, 2013). The Trustee testified that she was settling three distinct claims against APW: the
value of Goldschmidt’s equity interest in APW, Goldschmidt’s transfer of her Internal Revenue
Service (“IRS”) tax refund to APW in 2009, and Goldschmidt and Lance Berman’s transfer of the
$245,000.00 loan to APW in 2007. ECF No. 4 at 27:18-28:4.
After an evidentiary hearing, on August 29, 2013, the Bankruptcy Court entered its Order
Approving Stipulation to Compromise Controversy Between Trustee and APW Holdings, LLC; and
Granting Bar Order. Goldschmidt, No. 12-14430, ECF No. 204 (Bankr. S.D. Fla. Aug. 29, 2013).
Sylvia Berman now appeals the Bankruptcy Court’s approval of the Settlement Agreement and entry
of the Bar Order to this Court. ECF No. 1.
Federal courts are courts of limited jurisdiction. Federated Mut. Ins. Co. v. McKinnon
Motors, LLC, 329 F.3d 805, 807 (11th Cir. 2003). With regard to appeals from bankruptcy courts,
district courts enjoy jurisdiction over only three types of orders: (1) final orders, as described in 28
U.S.C. § 158(a)(1); (2) interlocutory appeals issued under 11 U.S.C. § 1121(d), as described in 28
U.S.C. § 158(a)(2); and, (3) with leave of the court, other interlocutory orders, as described in 28
U.S.C. § 158(a)(3) and Fed. R. Bankr. Pro. 8001(b). Tobkin v. Calderin, 2012 WL 3609867, at *1
(S.D. Fla. Aug. 22, 2012). As this Court has explained, district courts have jurisdiction to hear
appeals “from final judgments, orders, and decrees.” Id. at *1-*2; 28 U.S.C. § 158(a)(1).
“[A] final order in a bankruptcy proceeding is one that ends the litigation on the merits and
leaves nothing for the court to do but execute its judgment.” In re Culton, 111 F.3d 92, 93 (11th Cir.
1997) (citing In re Tidewater Group, Inc., 734 F.2d 794, 795-96 (11th Cir. 1984)). While a
bankruptcy-court order that denies approval of a settlement agreement does not resolve the litigation
and is not a final order, see In re Tidewater Group, Inc., 734 F.2d 794, 796 (11th Cir. 1984), an order
that affirms a settlement agreement does resolve the litigation and leaves nothing more for the
bankruptcy court to do. In re Martin, 490 F.3d 1272, 1275 (11th Cir. 2007) (quoting In re Charter
Co., 778 F.2d 617, 621 (11th Cir. 1985)). Orders approving settlement agreements are therefore final
STANDARD OF REVIEW
Bankruptcy courts are governed by the Federal Rules of Bankruptcy Procedure. Under Rule
8013, Fed. R. Bankr. P., a district court reviews the factual findings of a bankruptcy court for clear
error. As for the conclusions of law of the bankruptcy court and the application of the law to the
particular facts of the case, a district court must conduct a de novo review. See In re Feingold, 474
B.R. 293, 294 (S.D. Fla. 2012) (citing In re Globe Mfg. Corp., 567 F.3d 1291, 1296 (11th Cir. 2009);
In re Club Assocs., 951 F.2d 1223, 1228-29 (11th Cir.1992)) (“The Court reviews the Bankruptcy
Court’s factual findings for clear error and its legal conclusions de novo”).
In addition, “approval of a settlement in a bankruptcy proceeding is within the sound
discretion of the Court, and will not be disturbed or modified on appeal unless approval or
disapproval is an abuse of discretion.” In re Arrow Air, Inc., 85 B.R. 886, 891 (Bankr. S.D. Fla.
1988) (collecting cases).
Sylvia Berman challenges on this appeal both the Trustee’s standing to settle the claim for
the transfer of $245,000.00 to APW and the Bankruptcy Court’s entry of the Bar Order enjoining the
continued prosecution of her claims against APW in state court.
A. The Trustee’s Settlement of the Claim Against APW
Sylvia Berman first argues that the Trustee lacked standing to settle the fraudulent-transfer
claim for the transfer of the $245,000.00 loan monies to APW, which, according to Sylvia Berman,
are not property of the bankruptcy estate. See ECF No. 12 at 8-14.
Section 548 of the Bankruptcy Code provides,
The trustee may avoid any transfer . . . of an interest of the debtor in
property, or any obligation . . . incurred by the debtor, that was made
or incurred on or within 2 years before the date of the filing of the
petition, if the debtor voluntarily or involuntarily–
(A) made such transfer or incurred such obligation with actual
intent to hinder, delay, or defraud any [creditor] . . . .
11 U.S.C. § 548(a). Notwithstanding § 548’s limitation on avoidable claims to those incurred up to
two years before the date of the bankruptcy filing, § 544(b) provides, with respect to those claims
that are allowable unsecured claims,
the trustee may avoid any transfer of an interest of the debtor in
property or any obligation incurred by the debtor that is voidable
under applicable law by a creditor holding an [allowable] unsecured
claim . . .
11 U.S.C. §544(b). Thus, under § 544, “a trustee in bankruptcy may ‘step into the shoes’ of an
unsecured creditor and void a transfer of an interest in the debtor’s property that the unsecured
creditor would have the power to void under federal or state law.” In re Int’l Pharmacy & Disc. II,
Inc., 158 F. App’x 256, 259 (11th Cir. 2005) (citing In re Graham, 747 F.2d 1383, 1386-87 (11th
Cir.1984)). “The purpose of § 544 is to arm the trustee with sufficient powers to gather in the
property of the estate.” In re Halabi, 184 F.3d 1335, 1337 (11th Cir. 1999). “A trustee acting under
section 544 acts as a representative of creditors, and any property recovered is returned to the estate
for the eventual benefit of all creditors.” In re Van Diepen, P.A., 236 F. App’x 498, 502 (11th Cir.
2007) (quoting In re Zwirn, 362 B.R. 536, 540-41 (S.D. Fla. 2007)).
Both parties agree that the claim at issue—the allegedly fraudulent transfer of $245,000.00
from Goldschmidt and Lance Berman’s joint account to APW in 2007—is an allowable unsecured
claim and, thus, governed by § 544(b). Sylvia Berman argues that the Trustee lacks standing to assert
such a claim because, according to Berman, under Florida law, the claim extinguished four years
after it arose, or in 2011.
The Florida Uniform Fraudulent Transfer Act, Fla. Stat. §§ 726.101 et seq. (“FUFTA”),
(1) A transfer made or obligation incurred by a debtor is fraudulent
as to a creditor, whether the creditor’s claim arose before or after the
transfer was made or the obligation was incurred, if the debtor made
the transfer or incurred the obligation:
(a) With actual intent to hinder, delay, or defraud any creditor
of the debtor; or
(b) Without receiving a reasonably equivalent value in
exchange for the transfer or obligation, and the debtor:
1. Was engaged or was about to engage in a business
or a transaction for which the remaining assets of the
debtor were unreasonably small in relation to the
business or transaction; or
2. Intended to incur, or believed or reasonably should
have believed that he or she would incur, debts
beyond his or her ability to pay as they became due.
Fla. Stat. § 726.105. Under the FUFTA, a creditor may bring an action to obtain “[a]voidance of the
[fraudulent] transfer or obligation to the extent necessary to satisfy the creditor’s claim.” Fla. Stat.
§ 726.108(1)(a). But any cause of action with respect to a fraudulent transfer or obligation is
“extinguished unless action is brought . . . within 4 years after the transfer was made or the
obligation was incurred.” Fla. Stat. § 762.110. Notwithstanding the four-year limitation period, a
cause of action under § 726.105(1)(a) may still be brought “within 1 year after the transfer or
obligation was or could reasonably have been discovered by the claimant.” Fla. Stat. § 726.110(1).
According to Sylvia Berman, any claim for fraudulent transfer with respect to the transfer of the
$245,000.00 loan to APW is extinguished because that transfer occurred in October 2007, more than
four years prior to the filing of the bankruptcy petition.
The Trustee, meanwhile, argues that, because the IRS is a creditor, 26 U.S.C. § 6502, and
not Florida law, is the relevant “applicable law” under § 544(b). That statute provides that a “tax may
be collected by levy or by a proceeding in court [by the IRS], but only if the levy is made or the
proceeding begun . . . within 10 years after the assessment of the tax.” 26 U.S.C. § 6502(a)(1). The
Trustee asserts that, because claims of the United States are generally not subject to state statutes that
place time limits on enforcement of those claims, the Trustee can step into the shoes of the IRS and
apply the ten-year statute of limitations to the claim. See United States v. Summerlin, 310 U.S. 414,
416 (1940) (collecting cases) (“It is well settled that the United States is not bound by state statutes
of limitation or subject to the defense of laches in enforcing its rights.”). Sylvia Berman disputes the
Trustee’s ability to apply this ten-year statute of limitations on a number of grounds. See ECF No.
20 at 1-4.
But the Court need not reach the issue of the limitations period applicable to the IRS under
the Tax Code in order to find the instant fraudulent transfer voidable under § 544(b). Section 544(b)
allows the Trustee to avoid transfers that are “voidable under applicable law by a creditor holding
an unsecured claim.” As with Sylvia Berman’s own claim for fraudulent transfer against APW, any
claim by the IRS for fraudulent transfer with respect to the transfer of the $245,000.00 loan to APW
could be brought under § 726.105, Fla. Stat., since transfers under that section are fraudulent “as to
[both] present and future creditors.”2 Fla. Stat. § 726.105. Though Sylvia Berman cites In re Global
Technovations Inc., 694 F.3d 705 (6th Cir. 2012), for the notion that the IRS could only have a
fraudulent-transfer claim if it became a creditor “before the transfer was made and the obligation was
incurred,” that case discussed § 726.106, Fla. Stat., which applies to “present creditors” only. Id. at
712. Section 726.105, meanwhile, explicitly applies to both present and future creditors, so the IRS
is not barred from asserting a fraudulent-transfer claim under § 762.105 merely because it became
a creditor after the transfer at issue.
Though causes of action for transfers under § 726.105(1)(b) are extinguished four years after
the occurrence of the transfer, causes of action under § 726.105(1)(a) brought four years after the
transfer may still be valid if brought within a year that the “transfer could reasonably have been
discovered by the claimant.”3 Fla. Stat. § 726.110. The IRS can only reasonably have discovered the
The IRS’s first claim against Goldschmidt arose on November 17, 2008. See Claims 3-
The count for fraudulent transfer in Sylvia Berman’s original supplementary proceeding
alleges claims under both §§ 726.105(1)(a) and (b), though without expressly citing the provisions
under which the claims are brought. See Goldschmidt, No. 12-14430, ECF No. 118 at 4-5, ¶¶ 17, 22
(Bankr. S.D. Fla. Dec. 19, 2012) (“The transfer of such funds to APW, an insider, was without any
consideration or reasonably equivalent value . . . . the aforesaid asset transfers were performed with
the intent to hinder or defraud the Plaintiff, an existing creditor.”).
transfer of the $245,000.00 loan to APW after it made an appearance in the underlying bankruptcy
proceeding. The IRS first filed its claims in the bankruptcy proceeding on June 29, 2012, and the
Settlement Agreement that purports to resolve the fraudulent transfer of the $245,000.00 to APW
was first presented to the Bankruptcy Court on January 17, 2013—less than six months after the
filing of the IRS’s claim. Goldschmidt, No. 12-14430, ECF No. 121 at 19-20 (Bankr. S.D. Fla. Jan.
17, 2013). Thus, any potential claims asserted by the IRS, and resolved by the Settlement Agreement,
were brought within one year of the point in time in which the IRS could reasonably have discovered
the transfer. Thus, the IRS’s claim for fraudulent transfer was not extinguished under Florida law
at the time of the Settlement Agreement. Because the IRS’s claim is allowable under Florida law,
the Court does not address whether 26 U.S.C. § 6502 may also form an independent basis for the
Sylvia Berman next argues that the Trustee can assert no fraudulent-transfer claim against
APW with respect to the transfer of the $245,000.00 because Goldschmidt’s joint account was the
mere conduit of a loan that Sylvia Berman intended to give directly to APW. ECF No. 12 at 12-14.
In support, Sylvia Berman points to In re Chase & Sanborn Corp., 813 F.2d 1177 (11th Cir. 1987),
that held that “where a transfer to a noncreditor is challenged as fraudulent, more is necessary to
establish the debtor’s control over the funds than the simple fact that a third party placed the funds
in an account of the debtor with no express restrictions on their use. In determining whether the
debtor had control of funds transferred to a noncreditor, the court must look beyond the particular
transfers in question to the entire circumstance of the transactions.” Id. at 1181-82.
The standard elucidated in Chase & Sanborn and subsequently developed in other Eleventh
Circuit precedent has come to be known as the “control” or “mere conduit” test. See In re Harwell,
628 F.3d 1312, 1322 (11th Cir. 2010). Ordinarily, when a transfer is avoided under § 544 or § 548,
the trustee can recover the property transferred only from the “initial transferee of the transfer” or
“any immediate or mediate transferee of such initial transferee.” 11 U.S.C. § 550(a). But the
Eleventh Circuit has “carved out an equitable exception to the literal statutory language of ‘initial
transferee’ . . . for initial recipients who are ‘mere conduits’ with no control over the fraudulentlytransferred funds.” Harwell, 628 F.3d at 1322 (citing Chase & Sanborn Corp., 813 F.2d at 1178-80).
“[T]ransferees who want to come within the equitable exception to §§ 548 and 550 of the
Bankruptcy Code ‘must establish (1) that they did not have control over the assets received, i.e., that
they merely served as a conduit for the assets that were under the actual control of the debtortransferor[,] and (2) that they acted in good faith and as an innocent participant in the fraudulent
transfer.’” Perlman v. Bank of Am., N.A., No. 12-13436, 2014 WL 1259462, at *2 (11th Cir. Mar.
28, 2014) (quoting Harwell, 628 F.3d at 1323). “This two-pronged test entails ‘a flexible, pragmatic,
equitable approach of looking beyond the particular transfer in question to the circumstances of the
transaction in its entirety.’” Perlman, 2014 WL 1259462, at *2 (quoting Harwell, 628 F.3d at 1322).
Significantly, the “mere conduit” theory is an affirmative defense that “is available to persons
or entities who are initial recipients of fraudulent transfers. . . . [and] must be affirmatively proved
by the one seeking to obtain its protection.” Perlman, 2014 WL 1259462, at *2. Here, the initial
transferee of the allegedly fraudulent transfer is APW, and Sylvia Berman cannot assert an
affirmative defense that is available only to APW—the opposing party in the state-court action that
Sylvia Berman hopes to pursue. Furthermore, because the mere-conduit defense is available only to
the initial transferee, the only way that Goldschmidt and Lance Berman’s joint account could be
considered a “mere conduit,” as Sylvia Berman argues, would be if the initial transfer of $245,000.00
from Sylvia Berman to her son and daughter-in-law were itself the allegedly fraudulent transfer.
Presumably, Sylvia Berman does not intend to argue that the loan she seeks to recover was itself
Moreover, the Perlman Court noted that, while neither the Eleventh Circuit nor Florida state
courts have determined whether the “mere conduit” defense is available under the FUFTA, other
circuit courts of appeal that have considered the issue have concluded that “the transferee’s knowing
participation [in the transferor’s fraudulent scheme] is irrelevant under the [Act].” Perlman, 2014
WL 1259462, at *2 & n.2 (citing Boyer v. Crown Stock Dist., Inc., 587 F.3d 787, 792 (7th Cir.
2009); Frank Sawyer Trust of May 1992 v. Comm’r of Internal Revenue, 712 F.3d 597, 606-07 (1st
Cir. 2007); Warfield v. Byron, 436 F.3d 551, 557-59 (5th Cir. 2006)). Accordingly, Sylvia Berman’s
argument that the mere-conduit test prevents the Trustee from asserting a claim over the transfer to
APW is unavailing.4
B. The Bar Order
Sylvia Berman next argues that the Bar Order that enjoined her from pursuing her state-court
action against APW should be vacated. ECF No. 12 at 15-22. The Bankruptcy Code and the Federal
Rules of Civil Procedure provide “ample authority” for a bankruptcy court to enter settlement bar
orders. Matter of Munford, Inc., 97 F.3d 449, 455 (11th Cir. 1996). As the Eleventh Circuit has
Several justifications for entering bar orders in bankruptcy cases
exist. First, public policy strongly favors pretrial settlement in all
types of litigation because such cases, depending on their complexity,
Because the Court denies the mere-conduit argument on other grounds, the Court does
not address the Trustee’s assertion that Sylvia Berman is judicially estopped from making any mereconduit argument. See ECF No. 17 at 20-22.
“can occupy a court’s docket for years on end, depleting the resources
of parties and the taxpayers while rendering meaningful relief
increasingly elusive.” U.S. Oil & Gas v. Wolfson, 967 F.2d 489, 493
(11th Cir. 1992). Second, litigation costs are particularly burdensome
on a bankrupt estate given the financial instability of the estate. Third,
“bar orders play an integral role in facilitating settlement.” U.S. Oil
& Gas, 967 F.2d at 494. This is because “[d]efendants buy little peace
through settlement unless they are assured that they will be protected
against codefendants’ efforts to shift their losses through cross-claims
for indemnity, contribution, and other causes related to the underlying
litigation.” U.S. Oil & Gas Litigation, 967 F.2d at 494.
Sylvia Berman argues that her common-law claims against APW are “truly independent
claims” from those resolved by the Settlement Agreement and, thus, should not be subject to the Bar
Order. ECF No. 12 at 15-17. The Eleventh Circuit has expressly declined to address the issue of a
bar order’s reach over “truly independent claims.” AAL High Yield Bond Fund v. Deloitte & Touche
LLP, 361 F.3d 1305, 1312 (11th Cir. 2004) (citing In re U.S. Oil & Gas Litig., 967 F.2d 489, 496
n.5 (11th Cir. 1992)). With respect to class-action lawsuits, at least, the Eleventh Circuit has
nevertheless “question[ed] whether truly independent claims that a settlement bar order cannot
extinguish will ever remain in a class action lawsuit.” U.S. Oil & Gas Litig., 967 F.2d at 496 n.5.
But “[i]f the cross-claims that the district court seeks to extinguish through the entry of a bar
order arise out of the same facts as those underlying the litigation, then the district court may
exercise its discretion to bar such claims in reaching a fair and equitable settlement.” Id at 496. Here,
the common-law claims for unjust enrichment, money lent, and promissory estoppel asserted by
Sylvia Berman in her state-court Complaint are all based on the same facts and arise from the same
transaction as the statutory fraudulent-transfer claim that formed the basis of the Trustee’s avoidance
powers. See Goldschmidt, No. 12-14430, ECF No. 118 at 18-20, ¶¶ 12, 15, 23 (Bankr. S.D. Fla. Dec.
19, 2012) (“The circumstances are such that it would be inequitable for APW HOLDINGS, LLC to
retain the benefit of having received $245,000.00 from SYLVIA R. BERMAN without paying the
value thereof to Plaintiff. . . . Defendant, APW owes Plaintiff the unpaid principal balance of
$231,378.86 plus interest from October 1, 2010 for money lent by the Plaintiff to the Defendant on
October 30, 2007. . . . Plaintiff relied to her detriment on the promises of repayment [of the loan] by
Ilene in her representative capacity as member and manager of APW.”). Accordingly, Sylvia
Berman’s common-law claims are not truly independent, and the Bar Order should not be vacated
because it enjoins these claims.
Sylvia Berman next argues that the Bar Order is neither fair nor equitable under applicable
Eleventh Circuit precedent. ECF No. 12 at 17-20. The factors that a bankruptcy court must consider
when deciding whether to approve a settlement agreement include the following:
(a) The probability of success in the litigation; (b) the difficulties, if
any, to be encountered in the matter of collection; (c) the complexity
of the litigation involved, and the expense, inconvenience and delay
necessarily attending it; (d) the paramount interest of the creditors and
a proper deference to their reasonable views in the premises.
In re Justice Oaks II, Ltd., 898 F.2d 1544, 1549 (11th Cir. 1990) (quoting Martin v. Kane (In re A
& C Properties), 784 F.2d 1377, 1381 (9th Cir. 1986)).
When deciding whether to enter a bar order, a bankruptcy court must “make a reasoned
determination that the bar order is fair and equitable” and, in making such a determination, consider
“the interrelatedness of the claims that the bar order precludes, the likelihood of nonsettling
defendants to prevail on the barred claim, the complexity of the litigation, and the likelihood of
depletion of the resources of the settling defendants.” Munford, 97 F.3d at 455 (citing U.S. Oil & Gas
Litig., 967 F.2d at 493-96).
During the evidentiary hearing on whether to approve the Settlement Agreement and Bar
Order, the Bankruptcy Court conducted a two-step approach to approve the Settlement Agreement.
The Bankruptcy Court first determined that the Settlement Agreement, absent the Bar Order, fell
within the range of reasonableness under the Justice Oaks factors. ECF No. 4 at 160:21-164:25.
Sylvia Berman agreed that the Settlement Agreement without the Bar Order falls within the range
of reasonableness. Id. at 157:19-158:8. The Bankruptcy Court then determined that the Bar Order
is fair and equitable under the factors elucidated in Munford. Id. at 165:1-167:11.
Sylvia Berman argues that the Bankruptcy Court’s reasoning under these Justice Oaks and
Munford factors was flawed. For example, Berman argues that, when analyzing the “interrelatedness
of the claims that the bar order precludes,” the Bankruptcy Court considered the interrelatedness of
Berman’s state-law claims with “her original claim on the promissory note executed by the Debtor”
when, instead, the Bankruptcy Court should have considered the interrelatedness of her claim with
the Trustee’s claim to avoid the fraudulent transfer to APW. ECF No. 12 at 21. But this Court has
already found Berman’s state-law claims to be based on the same facts and transaction as the
Trustee’s fraudulent-transfer claim. See supra. Thus, any alleged failure of the Bankruptcy Court to
expressly consider the interrelatedness of Berman’s state-law claims with the Trustee’s fraudulenttransfer claim does not warrant vacatur because those two claims are, in fact, interrelated.
Sylvia Berman also suggests that the Bankruptcy Court overstepped its limited jurisdiction
by concluding that Berman’s state-court claims had little or no likelihood of success. ECF No. 12
at 21. But Munford requires the Bankruptcy Court to consider “the likelihood of nonsettling
defendants to prevail on the barred claim.” Munford, 97 F.3d at 455. The Bankruptcy Court therefore
did not err by determining Berman’s likelihood of success on her state-court claims as required under
Berman also contends that the Bankruptcy Court failed to explicitly declare that the Bar
Order was “fair and equitable.” ECF No. 20 at 18. But the Munford factors are factors courts use to
“make a reasoned determination that [a] bar order is fair and equitable,” and the Bankruptcy Court
expressly considered these factors. Munford, 97 F.3d at 455. The terms “fair and equitable” are not
magic words, and the Bankruptcy Court’s reasoning that the Bar Order was fair and equitable under
Munford does not fail simply because the Bankruptcy Court never expressly used the words “fair and
equitable” in the context of the Bar Order.
Finally, Berman argues that the Bankruptcy Court failed to take into account the “paramount
interests of the creditors” and give “proper deference to their reasonable view in the premises” when
it approved the Settlement Agreement. Specifically, Berman argues that the Settlement Agreement
is inequitable because the $175,000.00 that APW must pay the Trustee under the Settlement
Agreement will be used to partially repay the IRS’s priority unsecured claims that total $316,287.29,
so none of the settlement money will reach Sylvia Berman or any other creditor. Thus, the
nonsettling creditors enjoined by the Bar Order are to receive no compensation from the Settlement
Berman points to AAL High Yield Bond Fund v. Deloitte & Touche LLP, 361 F.3d 1305 (11th
Cir. 2004), in which the Eleventh Circuit vacated and remanded a bar order because, among other
reasons, “the district court made no findings of fact, and expressed no rationale or authority for
barring claims without a settlement credit or ‘set off.’” Id. at 1312. As Berman notes, the Eleventh
Circuit has, on other occasions, approved bar orders that provide judgment credit to the nonsettling
parties subject to the bar order. See In re HealthSouth Corp. Sec. Litig., 572 F.3d 854, 861-62 (11th
Cir. 2009); Munford, 97 F.3d at 455-56; see also In re RDM Sports Group, Inc., 277 B.R. 415, 420
(Bankr. N.D. Ga. 2002) (parties agreed that a judgment credit to nonsettling defendants was required
for entry of bar order)
A judgment credit serves as “very significant compensation” to a nonsettling defendant and
“provides adequate compensation . . . for the extinguishment of . . . potential claim[s].” HealthSouth
Corp. Sec. Litig., 572 F.3d at 861-62. “By ensuring that, at the end of the day, the non-settling
defendants are not held responsible for any damages for which the settling defendants are proven
liable, the judgment credit adequately compensates the non-settling defendants for their indemnity
and contribution claims, as well as for any other claims where the harm to the non-settling
defendants is based on their liability to the plaintiffs.” Gerber v. MTC Elec. Technologies Co., Ltd.,
329 F.3d 297, 306 (2d Cir. 2003) (citing In re Masters Mates & Pilots Pension Plan & IRAP Litig.,
957 F.2d 1020, 1032 (2d Cir. 1992)).
When approving the Settlement Agreement, the Bankruptcy Court here noted that collection
from Goldschmidt would be “very difficult,” implying that even without the Settlement Agreement
it would be unlikely that the Bankruptcy Estate would be able to repay any non-IRS creditors. ECF
No. 4 at 163:22-:25. But in neither the evidentiary hearing nor the August 29, 2013, Order did the
Bankruptcy Court discuss the issue of whether a settlement credit to the nonsettling creditors would
be appropriate in light of the Bar Order. Accordingly, the August 29, 2013, Order must be vacated
and remanded to the Bankruptcy Court for a determination about whether any settlement credit in
favor of nonsettling creditors whose claims are barred by the Bar Order is appropriate.
For the foregoing reasons, the Bankruptcy Court’s Order Approving Stipulation to
Compromise Controversy Between Trustee and APW Holdings, LLC; and Granting Bar Order is
VACATED and REMANDED for a determination about whether settlement credit should be
awarded to nonsettling creditors whose claims are enjoined by the Bar Order. The Clerk of Court
shall CLOSE this case. All pending motions are DENIED as MOOT.
DONE and ORDERED in Fort Lauderdale, Florida, this 30th day of April 2014.
ROBIN S. ROSENBAUM
UNITED STATES DISTRICT JUDGE
Counsel of Record
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