B. Charles Ames, et al v. Mary Ann Rabin

Filing 26

Opinion and Order signed by Judge James S. Gwin on 4/28/11 granting the Respondent Mary Ann Rabin's 14 Motion to approve terms of settlement agreement. Consistent with it's earlier oral ruling, the Court grants the motion to approve the settlement agreement, overrules any objections, and approves the settlement agreement. (S,HR)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
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B. CHARLES AMES, OUTSIDE
DIRECTOR OF INKSTOP, INC., et al.
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Movants,
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vs.
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MARY ANN RABIN, TRUSTEE
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Respondent,
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NORMAN ESIASON, NY OUTSIDE
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DIRECTOR OF INKSTOP, INC., et al.,
:
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Movants,
:
:
vs.
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MARY ANN RABIN, TRUSTEE
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Respondent.
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:
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CASE NO. 1:10-CV-02595;
1:10-CV-02596
OPINION & ORDER
[Resolving Doc. Nos. 14, 20; 7, 13]

JAMES S. GWIN, UNITED STATES DISTRICT JUDGE:
Before the Court is a motion filed by Mary Ann Rabin, Trustee for the estate of InkStop, Inc.
(“InkStop”), for Court approval of the terms of a proposed settlement agreement, entered into by and
among the InkStop directors and officers,1/ Terrence Fergus, Sewanee Partners III LP, and Twin City

1/

These Defendant directors and officers are Dirk Kettlewell, Dawn Kettlewell, Mark Race, John Bulgarella,
Dale Fuller, B. Charles Ames, James Hummer, Norbert Lewandowski, Richard Ames, Michael Clegg, James Mastrian,
Michael Shaughnessy, Norman Esiason, W illiam Heinzerling, Harvey Sanders, Christoper Eastman, Buford Ortale,
(continued...)

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Case No. 1:10-CV-02595; 1:10-CV-02596
Gwin, J.
Fire Insurance. [Doc. 14; Doc. 18; Doc. 7; Doc. 11.]
The settlement agreement is intended to resolve the adversary proceedings withdrawn to this
Court, originally filed by the Trustee of the estate against the Defendant directors and officers,
Sewanee Partners, and Twin City as part of the InkStop bankruptcy proceedings. In those actions,
the Trustee asserts a number of claims against the Defendants under both state and federal law,
generally alleging that the InkStop directors and officers negligently pursued an aggressive and
unsustainable business model, mismanaged InkStop, and otherwise perpetrated fraud.

The

settlement agreement includes the following important terms: (1) that Twin City Insurance will make
a $4.5 million payment to the Trustee for the estate out of a director’s and officer’s insurance policy;
(2) the Trustee will release all claims, except as indicated in the agreement, against the Defendants;
(3) the Defendants will release any claims that could have been brought against the Trustee in the
current Adversary Proceeding; (4) the Trustee releases Twin City from any claims arising out of this
Adversary Proceeding and specifically noting that this settlement will not affect the right to payment
for a claim brought by any person other “than the Trustee, InkStop, or by the bankruptcy estate of
InkStop”; (5) after distribution of proceeds, that Twin City will have no further obligation to make
payment related to the current Adversary Proceedings or the District Court Actions; and (6) the
agreement specifically notes that the releases are only limited to those explicitly set forth in the
agreement, naming some related lawsuits that are not affected. [Doc. 18; Doc. 12.]
Federal Rule of Bankruptcy Procedure 9019(a) governs the procedure required to approve
a Trustee’s motion for settlement. The Federal Rules of Bankruptcy Procedure specifically grant a

1/

(...continued)
James Thomas Gahan, and Thomas Grievas.

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Case No. 1:10-CV-02595; 1:10-CV-02596
Gwin, J.
trustee the authority to seek a compromise or settlement of claims available to the debtor or debtors,
upon motion and after notice and a hearing. In re Bard, 49 F. App’x 528, 530 (6th Cir. 2002). The
Sixth Circuit Court of Appeals has held that “the [court] is charged with an affirmative obligation
to apprise itself of the underlying facts and to make an independent judgment as to whether the
compromise is fair and equitable.” Reynolds v. Comm'r, 861 F.2d 469, 473 (6th Cir. 1988). In
determining if a settlement is fair, the court must weigh the conflicting interests of all relevant
parties, “considering such factors as the probability of success on the merits, the complexity and
expense of litigation, and the reasonable views of creditors.” Bauer v. Commerce Union Bank, 859
F.2d 438, 441 (6th Cir. 1988); Lyndon Property Ins. Co. v. Katz, 196 F. App’x 383, 387 (6th Cir.
2006). See, e.g., In re Moran, 2008 WL 1766874, at *4-5 (6th Cir. B.A.P., Apr. 18, 2008) (applying
“fair and equitable” standard). The Court should also consider and weigh the opinion of the
bankruptcy trustee. See Bauer, 859 F.2d at 441.
Skoda Minotti & Co. (“Skoda”), a non-party to this adversary proceeding and a creditor to
InkStop, files notice of objection with the Court. [Doc. 20; Doc. 13.] Skoda is an outside
accounting firm that sold auditing services to InkStop. [Doc. 20; Doc. 13.] Specifically, Skoda
objects to Paragraphs Six and Seven of the settlement. [Doc. 20; Doc. 13.]

With regard to

Paragraph Six, Skoda objects on the grounds that a lawsuit currently pending between it and
directors and officers of InkStop is not included in the list of cases that the settlement agreement says
are not affected by the settlement. With regard to Paragraph Seven, Skoda objects that the release
of Twin City from making any additional payment related to the Adversary Proceedings or the
District Court Actions might potentially effect its own right to contribution from joint tortfeasors,
should it be sued in relation to the InkStop bankruptcy at some point in the future.
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Case No. 1:10-CV-02595; 1:10-CV-02596
Gwin, J.
The Court overrules both of these objections and finds that the settlement agreement is fair
and equitable.2/ Relevant to Skoda’s objections, the Court finds that the objection to Paragraph Six
is without basis because the agreement specifically provides that “[n]othing herein shall be construed
to release any claims other than those specified [in the releases].” [Doc. 18; Doc. 12.] Skoda is not
a party to this settlement and is not affected by the releases; moreover, any inclusion of Skoda’s
lawsuit would be redundant. Second, the Court also finds that the objection to Paragraph Seven is
is not persuasive. Any concern that Skoda may have about losing the ability to collect money from
joint tortfeasors through contribution is an objection to Ohio state law, and not the settlement
agreement. Indeed, Skoda is left in no worse a position now than if the case had proceeded to the
merits and reached a judgment. See In re SemCrude, L.P., 2010 WL 4814377, at *4-7 (Bkrtcy. D.
Del., Nov. 19, 2010) (rejecting similar objection by an outside accounting firm); In re High Tech
Packaging, Inc., 397 B.R. 369, 373 (Bkrtcy. N.D. Ohio 2008) (rejecting similar claim regarding
contribution made by guarantors of particular debts).
More generally, the Court finds that this settlement is fair and equitable and is in the best
interests of the estate. Although the claims brought by the Trustee are plausible, the Trustee faces
the risk that these claims could be dismissed on the pending motions to dismiss, on summary
judgment, or that the claims may fail at trial. In these events, the Trustee would recover no money
for the estate, all the while incurring great expense prosecuting the action. Moreover, the director’s
and officer’s policy with Twin City has a declining balance, with over $3 million having already
been spent out of a $10 million policy before even reaching discovery. Even if the Trustee secures
a judgment on the merits, there could be difficulty collecting a judgment given the financial state of
2/

As a preliminary matter, the Court first finds that proper notice was given of this settlement.

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Case No. 1:10-CV-02595; 1:10-CV-02596
Gwin, J.
the Defendants and the declining balance of the insurance policy. Finally, the Court heavily weighs
the Trustee’s determination that this settlement is in the best interest of the estate and the fact that
no creditor has objected to the settlement on the grounds that it is not in the estate’s best interest.
Accordingly, and consistent with its earlier oral ruling, the Court GRANTS the motions to
approve the settlement agreement, OVERRULES any objections, and APPROVES the settlement
agreement.

IT IS SO ORDERED.
s/
James S. Gwin
JAMES S. GWIN
UNITED STATES DISTRICT JUDGE

Dated: April 28, 2011

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