DeepRock Venture Partners LP et al v. Beach et al

Filing 26

MEMORANDUM OPINION AND ORDER: Before the Court is Appellant DeepRock Venture Partners, L.P.'s ("DeepRock") appeal of the bankruptcy court's grant of the Trustee's Motion to Approve Settlement of Adversary Proceedings [ECF No. 1 ]. The judgment of the bankruptcy court is AFFIRMED. (Ordered by Chief Judge Barbara M.G. Lynn on 4/4/2017) (aaa)

IN THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT
OF TEXAS DALLAS DIVISION
DEEPROCK VENTURE PARTNERS LP,

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Appellant,
v.
GARY M. BEACH, et al.,
Appellees.

No. 3:16-cv-1552-M

MEMORANDUM OPINION AND ORDER
Before the Court is Appellant DeepRock Venture Partners, L.P.’s (“DeepRock”) appeal
of the bankruptcy court’s grant of the Trustee’s Motion to Approve Settlement of Adversary
Proceedings [ECF No. 1]. DeepRock filed its Brief on October 7, 2016 [ECF No. 17]. Gentry
Beach, individually and as co-trustee of the Beach 2010 Trust, and Diane G. Reed, Chapter 7
Trustee of the estate of Gary M. Beach (“Debtor”), filed Appellees’ Briefs on December 14,
2016 [ECF Nos. 21, 23]. For the reasons stated below, the decision of the bankruptcy court is
AFFIRMED.
1. Factual and Procedural Background1
This bankruptcy appeal arises from an adversary proceeding filed on December 2, 2011,
by the Chapter 7 Trustee, Diane G. Reed, and DeepRock, in the bankruptcy case of Debtor Gary
M. Beach (the “Adversary Proceeding”). The Amended Complaint in the Adversary Proceeding
alleges that Debtor Gary Beach and his son, Gentry Beach, fraudulently transferred assets from a
family trust (the “1991 Trust”) to shield those assets from the Debtor’s creditors in bankruptcy.

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Unless otherwise noted, background information is taken from the Amended Complaint filed in the Adversary
Proceeding. R. 1853–98.

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Debtor initially filed for bankruptcy in December of 2011. DeepRock was and currently
is the primary creditor in Debtor’s bankruptcy; according to the Trustee, DeepRock’s liquidated
claim against the Debtor represents over 93% of the allowed unsecured claims in this case. R.
390. DeepRock’s claims in the bankruptcy stem from a partnership agreement between Debtor
and DeepRock. In 2005, prior to bankruptcy, DeepRock and Debtor had entered into a
partnership, Playa Oil & Gas, LP (“Playa”), to drill for oil on properties supposedly controlled
by Debtor and his son, Gentry Beach. DeepRock provided millions of dollars in capital to Playa
and Debtor served as Playa’s CEO and managed the partnership. Playa’s drilling activities were
largely unprofitable, and in 2008, Debtor filed suit against DeepRock, seeking to take control of
Playa’s remaining assets. DeepRock counterclaimed. In February 2011, a jury rendered a
verdict against Debtor on all of his claims, and damages on DeepRock’s counterclaims against
Debtor and Debtor’s company, Beach Capital, for breach of fiduciary duty and breach of
contract. Judgment in the Playa litigation was entered on August 29, 2011.
Trustee and DeepRock allege that before and during the Playa litigation, Debtor and
Gentry Beach, took “steps to liquidate the assets of a management trust established by Debtor’s
father and stepmother, Tommie Beach and Jenny Beach, to dispossess other family members of
their rights under the trust, and . . . to ensure that the Debtor’s creditors could not pursue his
interest in trust assets.” R. 1857. The management trust in question, the 1991 Trust, provided
that upon the first to die of Tommie and Jenny Beach, the survivor would become the sole
trustee, with Gentry Beach and Jenny Beach’s niece serving as successor co-trustees. After
Jenny Beach died in 2010, Debtor and Gentry Beach allegedly took advantage of Tommie
Beach’s dementia and mental incapacity to fraudulently gain access to assets of the 1991 Trust,
then containing $1.72 million, to have a new will executed for Tommie Beach that removed

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Jenny Beach’s relatives as beneficiaries of 1991 Trust, to have warranty deeds allegedly
executed by Tommie Beach that transferred property to the 1991 Trust and Debtor, and to
liquidate securities held in the 1991 Trust. In September of 2010, while suffering from profound
dementia, Tommie Beach purportedly created the 2010 Trust for the benefit of Debtor and
Gentry Beach. The beneficial owners and trustees of the 2010 Trust are Debtor, who owns a
55% interest in the 2010 Trust, and Gentry Beach, who owns a 45% interest. Unlike the 1991
Trust, the 2010 Trust documents contain a spendthrift provision that protects Debtor’s interest in
the 2010 Trust from creditors. Assets from the 1991 Trust were then transferred into the 2010
Trust for the Debtor’s and Gentry Beach’s benefit. Debtor allegedly spent funds from the 2010
Trust and Gentry Beach received distributions from trust assets in a claimed violation of the
2010 Trust document, which he then transferred back to Debtor. Trustee and DeepRock claimed
that the Debtor forged Tommie Beach’s signature to create and fund the 2010 Trust, and
maintain that the 2010 Trust was self-settled and merely an alter ego of the Debtor, and that
assets of the 2010 Trust are thus not protected by the spendthrift provision.
The Amended Complaint further asserts that after receiving an adverse judgment in the
Playa litigation, Debtor created a Nevada limited liability company, Beach Petroleum LLC,
which is owned by the 2010 Trust. The Amended Complaint alleges that Debtor received
thousands of dollars of payments from Beach Petroleum, and Black Horse Resources, LLC,
although Beach Petroleum was not engaging in any actual business. In April 2011, Beach
Petroleum entered into an agreement (the “Participation Agreement”) with Black Horse
Resources, which was managed by Debtor’s brother-in-law. R. 1458–61. Under the
Participation Agreement, Black Horse agreed to pay all land, lease, geophysical, seismic,
drilling, completion, production, and operating costs of all activities relating to a plot of land in

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Louisiana, subject to receiving 100% of the net revenue attributable to all oil, gas, and mineral
production on the land, until Black Horse recouped its costs. R. 1458–59. The Participation
Agreement provided for a monthly $15,000 payment to the 2010 Trust as compensation for
services provided by Debtor. R. 1459. In September 2014, the Participation Agreement was
amended to delete the $15,000 fee, in exchange for Beach Petroleum receiving Black Horse’s
interest in Pecos Permian Partners, LLC, which were subsequently sold for $375,000 and the
proceeds deposited in the 2010 Trust. R. 1541; 1208–09.
Around August 19, 2015, the Participation Agreement was terminated and Beach
Petroleum entered into an agreement with Black Horse and TP Panther Dome, LLC (the “2015
Agreement”). R. 1766–93. Under the 2015 Agreement, in exchange for $175,000 paid to Beach
Petroleum, TP Panther Dome had the choice to select one of three options for future oil and gas
production activities, one of which was an option to not engage in production. R. 1771–73.
Separately, TP Panther Dome assigned a 1.75% overriding royalty interest to Beach Petroleum.
R. 1795.
In October 2011, Debtor and Gentry Beach, in their capacities as trustees of the 2010
Trust, distributed the entire balance of the trust account, $928,223.83, to a Texas real estate
escrow company. Just days before filing for bankruptcy, Debtor and Gentry Beach purchased,
in cash, a home in Dallas, using $867,500 of the escrowed funds. On December 2, 2011, one
business day before a contempt hearing in the Playa litigation on Debtor’s failure to satisfy the
judgment in favor of DeepRock, Debtor filed for bankruptcy protection.
On April 20, 2015, the Trustee and DeepRock filed the Amended Complaint in the
Adversary Proceeding, primarily seeking to avoid and recover the value of all fraudulent
transfers by the Debtor of assets transferred from the 1991 Trust to the 2010 Trust, and certain

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transfers to Gentry Beach from the 1991 Trust and the 2010 Trust. The Trustee and DeepRock
also sought other remedies associated with recovery of the fraudulent transfers, including costs,
the imposition of a constructive trust on certain assets of the 2010 Trust, and a declaratory
judgment that the 2010 Trust was settled by the Debtor and Gentry Beach themselves, and not
by Tommie Beach, that the 1991 Trust and the 2010 Trust are alter egos of the Debtor, and that
the Debtor’s bankruptcy estate includes the Debtor’s interest in all assets that presently make up
the corpus of the 2010 Trust.
On December 21, 2015, the parties attended mediation pursuant to the bankruptcy
court’s order. R. 56–57; 1176–78; 3159. No agreement was reached at mediation, but in
additional conversations after DeepRock’s representatives left, the Trustee, Gary Beach, and
Gentry Beach, reached an agreement to settle the Adversary Proceeding. R. 998–99; 1177–78;
1754–55. An initial term sheet was drawn up that same evening, which was further refined and
incorporated into a Settlement Agreement dated January 19, 2016. R. 1754–55; 392–408.
Among other things, the Settlement Agreement provided that in exchange for mutual releases
between the Trustee and Defendants and dismissal of the Adversary Proceeding with prejudice,
Defendants would pay the Trustee $1,000,000.00 in cash, Debtor would waive his discharge in
bankruptcy pursuant to 11 U.S.C. § 722(a)(11), without any admissions of fault or wrongdoing,
and Defendants would provide information to the Trustee regarding the whereabouts of certain
assets and financial information of Beach Capital, Beach Petroleum, and another family trust.
R. 392–408. The Settlement Agreement further provided that should the Trustee find that the
2010 Trust’s interest in Beach Petroleum have more than nominal value, the parties would
engage in good faith discussions as to how to distribute that value.2 R. 395. After reviewing

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Specifically, the Settlement Agreement provided:
Defendants shall provide to the Trustee with respect to Beach Petroleum LLC (“Beach Petroleum”),

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Beach Petroleum’s operations and financial condition, the Trustee concluded that due to
depressed oil prices, the lack of ongoing operations or income by Beach Petroleum, and its
inability to explore efficiently due to the cost of exploration, Beach Petroleum lacked value apart
from what was in Beach Petroleum’s bank account, which was $21,000. R. 1005–08.
Following additional negotiations between the Trustee and Defendants, an additional settlement
payment of $15,000 was agreed to be added to the $1,000,000.00 payment as a fair allocation
for the current value of Beach Petroleum. R. 1008. On February 11, 2016, an Addendum to the
Settlement Agreement was executed, amending the Settlement Agreement to reflect that
Defendants’ total payment to the Trustee would be $1,015,000.00, to be paid from the proceeds
of the house purchased pre-bankruptcy by Defendants with proceeds of the 2010 Trust. R. 405–
08.
On February 11, 2016, the Trustee filed the Motion to Approve Settlement of Adversary
Proceeding (the “Settlement Motion”). R. 383. On March 30, 2016, DeepRock objected to the
Settlement Motion. R. 414. The bankruptcy court held hearings on the Settlement Motion on
May 12 and May 24, 2016. Both Gentry Beach and the Trustee testified in support of the
Settlement Motion. R. 995–1065; 1085–1263. At the end of the hearing on May 24, 2016, the
bankruptcy court informed the parties that she would issue a bench ruling on the Settlement
Motion the following day. R. 1327.
On May 25, 2016, just before the bankruptcy court issued its bench ruling, counsel for

historical bank statements, tax returns and other information regarding financial transactions from
the time of formation of Beach Petroleum through the date of this Settlement Agreement. If the
Trustee determines that the Beach Trust’s interest in Beach Petroleum is of nominal or minimal
value, then such interest shall be transferred to Gentry Beach. If the Trustee determines that the
Beach Trust’s interest in Beach Petroleum has more than nominal or minimal value, then the Parties
shall have good faith discourses as to said value and how to distribute same.
R. 395.

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DeepRock informed the bankruptcy court that DeepRock had made an offer to purchase from
the Trustee the Trustee’s claim in the Adversary Proceeding for $275,000.3 R. 1333.
DeepRock’s counsel asked the bankruptcy court to defer issuing its bench ruling on the
Settlement Motion to let the Trustee consider DeepRock’s offer. R. 1333. The bankruptcy court
declined DeepRock’s late request, overruled DeepRock’s objection to the proposed settlement,
and granted the Settlement Motion. R. 1335–38. The bankruptcy court invited DeepRock to
later submit a motion on its effort to purchase the Trustee’s claim from the Trustee, but it never
did so. DeepRock appeals.
2. Basis of Appellate Jurisdiction
This Court has jurisdiction to hear this appeal under 28 U.S.C. § 158. The bankruptcy
court’s Order granting the Trustee’s Motion to Approve Settlement of Adversary Proceedings
qualifies as a “final order” from which the district court can hear an appeal. “[A]n order which
ends a discrete judicial unit in the larger case concludes a bankruptcy proceeding and is a final
judgment . . . .” England v. FDIC, 975 F.2d 1168, 1171 (5th Cir. 1992). “Finality in bankruptcy
cases is contingent upon the conclusion of an adversarial proceeding within the bankruptcy case,
rather than the conclusion of the entire litigation.” Id.

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DeepRock’s attorney raised the offer orally during the hearing before the bankruptcy court:
MR. O’BRIEN: [O]n the trip home last night, . . . I took into account the events of yesterday and
Your Court’s points, and all of these things, and I discussed them with my client. And this morning,
we communicated to [Trustee’s counsel] Mr. Elmquist a bid on behalf of DeepRock the material
terms of which . . . [is] a cash bid in an amount that would exceed the payout to both the trustee and
the other two creditors under the existing proposal. So under the existing proposal, Mr. Beach pays
a million and fifteen thousand, and seven sixty-five essentially goes to DeepRock. I had discussed
with Mr. Elmquist before, and he had indicated that the trustee would recommend a bid where
DeepRock was essentially given a setoff in that amount so long as the net amount was larger than
the difference between DeepRock’s seven sixty-five and a million fifteen. That number is $250,000.
And so this morning, we bid and gave to the trustee that we would pay cash $275,000.
R. 1332–33.

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3. Legal Standard
a. Standard of Review
This Court applies the same general standard of review that the Fifth Circuit applies in
reviewing a bankruptcy court’s findings of fact and conclusions of law. In re SI Restructuring,
Inc., 542 F.3d 131, 134 (5th Cir. 2008). Under this standard, “a bankruptcy court’s findings of
fact are reviewed for clear error, and its conclusions of law are reviewed de novo.” Id. This
Court “may affirm for any reason supported by the record, even if not [explicitly] relied on by
the [bankruptcy] court.” United States v. Gonzalez, 592 F.3d 675, 681 (5th Cir. 2009).
A bankruptcy court's “findings of fact, whether based on oral or documentary evidence,
shall not be set aside unless clearly erroneous.” Fed. R. Bankr. P. 8013. A finding is clearly
erroneous and reversible only if, based on the entire evidence, the reviewing court is left “with
the definite and firm conviction that a mistake has been made.” In re Dennis, 330 F.3d 696, 701
(5th Cir. 2003) (citation omitted). When reviewing a bankruptcy court’s approval of a
compromise settlement, an appellate court reviews for abuse of discretion. In re Bodenheimer,
Jones, Szwak, & Winchell LLP, 592 F.3d 664, 668 (5th Cir. 2009). A bankruptcy court does not
abuse its discretion unless its ruling is based on an erroneous review of the law or on a clearly
erroneous assessment of the evidence.” In re Yorkshire, LLC, 540 F.3d 328, 331 (5th Cir. 2008)
(quoting Chaves v. M/V Medina Star, 47 F.3d 153, 156 (5th Cir. 1995)).
b. Settlement
A bankruptcy court may approve a compromise or settlement on motion by the trustee,
after notice and a hearing pursuant to Bankruptcy Rule 9019(a). Fed. R. Bankr. P. 9019(a); In re
Age Refining, Inc., 801 F.3d 530, 540 (5th Cir. 2015); Con. Gen. Life Ins. Co. v. United Cos.
Fin. Corp. (In re Foster Mortgage Corp.), 68 F.3d 914, 917 (5th Cir. 1995). For a bankruptcy

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court to approve a settlement agreement, it must be “fair and equitable and in the best interest of
the estate.” In re Foster Mortgage Corp., 68 F.3d at 917.
In the Fifth Circuit, to determine whether a settlement is fair and equitable, the
bankruptcy court must apply the three-part test set out in In re Jackson Brewing Co., 624 F.2d
599, 609 (5th Cir. 1980), with a focus on comparing “the terms of the compromise with the
likely rewards of litigation.” Id. at 602. The bankruptcy court must evaluate: (1) the probability
of success in litigating the claim subject to settlement, with due consideration for the uncertainty
in fact and law; (2) the complexity and likely duration of litigation and any attendant expense,
inconvenience, and delay; and (3) all other factors bearing on the wisdom of the compromise.
Id. The “other factors” are known as the Foster Mortgage factors, and include (i) “the best
interests of the creditors, ‘with proper deference to their reasonable views’”; and (ii) “‘the extent
to which the settlement is truly the product of arms-length bargaining, and not of fraud or
collusion.’” In re Age Refining, Inc., 801 F.3d at 540 (quoting In re Cajun Elec. Power Coop.,
Inc., 119 F.3d 349, 356 (5th Cir. 1997)); In re Foster Mortgage Corp., 68 F.3d at 917–18.
4. Discussion
Here, the Court reviews the bankruptcy court’s approval of the settlement agreement for
abuse of discretion. In re Bodenheimer, 592 F.3d at 668. DeepRock argues on appeal that (1)
the bankruptcy court erred in its assessment of the value of Beach Petroleum; (2) the bankruptcy
court erroneously excluded evidence regarding oil and gas drilling results achieved by Beach
Petroleum; (3) the Settlement Agreement disposes of the bankruptcy estate by transferring all
assets remaining after settlement to Gentry Beach; (4) the bankruptcy court improperly rejected
the views of DeepRock, the majority creditor, in approving the settlement; (5) the bankruptcy
court improperly rejected DeepRock’s offer to purchase the Trustee’s claims in the Adversary

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Proceeding; and (6) the bankruptcy court made improper assumptions regarding DeepRock’s
motives in objecting to the Settlement Agreement.
a. The Bankruptcy Court Did Not Abuse Its Discretion in Approving the
Settlement Agreement
In her ruling, Judge Jernigan noted that although the preponderance of the evidence
standard applied, she found that the evidence “was clear and convincing that [the Settlement
Agreement] is a fair, equitable, and reasonable settlement that is in the best interest of creditors.”
R. 1339. This Court finds that the bankruptcy court’s approval of the Settlement Motion is
supported by the record, which clearly establishes that the bankruptcy court considered the
three-part test for approving a motion to compromise as set out in Jackson Brewing.
i. Probability of Success in Litigation
As to Jackson Brewing’s first factor, Judge Jernigan evaluated the probability of success
in litigating the claim subject to settlement, stating that she “believe[d] the evidence was that
there is a high degree of probability of success on the trustee getting exactly what she negotiated
for, but a high degree of uncertainty that she would get one dime more.” R. 1347. In making
this assessment, Judge Jernigan considered how the Trustee calculated the $1,015,000.00
payment in the Settlement Agreement. R. 1343–44. The bankruptcy court agreed with the
Trustee’s assessment that punitive damages would be hard to prove by clear and convincing
evidence, which would be the standard applied. R. 1347. Judge Jernigan noted that standing
and estoppel arguments had been asserted to dismiss the litigation, which, if successfully, would
lead to dismissal of the litigation, and highlighted the complexity of the case, noting that the
lengthy timeline and numerous factual allegations made it “somewhat uncertain whether any
fraud took place on the debtor’s creditors.” R. 1340; 1342.
The Court finds that the bankruptcy court did not abuse its discretion in assessing the
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likelihood of success in litigation. In considering this first factor, “it is unnecessary to conduct a
mini-trial to determine the probable outcome of any claims waived in the settlement.” In re
Cajun Elec. Power Co-op., Inc., 119 F.3d 349, 356 (5th Cir. 1997). The judge need only apprise
herself “of the relevant facts and law so that [she] can make an informed and intelligent
decision.” Id. (internal quotation marks omitted) (quoting La Salle Nat’l Bank v. Holland (In re
Am. Reserve Corp.), 841 F.2d 159, 163 (7th Cir. 1987)). Judge Jernigan’s findings on the first
factor are supported by the record, which reflects that in bringing the Adversary Proceeding, the
Trustee sought “everything that Gary Beach was entitled to under the terms of the 1991 trust had
those assets never been transferred from that trust,” but not “to recover any part of the trust that
Gentry Beach had a legal right to.” R. 3263; 945–47. Evidence in the record presented by the
Trustee indicated that $1.702 million was transferred from the 1991 Trust to the 2010 Trust.
R. 1752. Under the terms of the 1991 Trust trustee agreement, Debtor was entitled to the lesser
of $250,000 or 26.1% of the trust corpus, plus 55% of the remainder. R. 1752. The Trustee
calculated that Gary Beach would have been entitled to $658,100 under the terms of the 1991
Trust had those assets not been transferred. R. 1752–53. The record further indicates that the
settlement amount of $1,015,000.00 closely approximates the full amount of actual damages—
$658,100—the Trustee hoped to recover at trial, plus an additional $340,000 in attorneys’ fees.
R. 660; 947–956.
Concerning the value of Beach Petroleum, the Settlement Agreement provided that
Defendants would provide information regarding Beach Petroleum, and “[i]f the Trustee
determines that the [2010 Trust’s] interest in Beach Petroleum has more than nominal or minimal
value, then the Parties [to the Settlement Agreement] shall have good faith discussions as to said
value and how to distribute same.” R. 395. The Trustee testified that she determined that Beach

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Petroleum had more than minimal value, but only with respect to the $21,000 balance in Beach
Petroleum’s bank account, from which she negotiated $15,000.00 to be added to the settlement
amount. R. 1005–08. In reviewing the Settlement Agreement, the bankruptcy court
acknowledged that although Beach Petroleum had earned approximately several hundred
thousand dollars between 2011 and 2015, the evidence before the bankruptcy court indicated that
the Beach Petroleum properties currently “have speculative value, especially during this current
environment of depressed energy prices and low production of property.” R. 1344.
DeepRock argues that the bankruptcy court erred by accepting the Trustee’s valuation of
Beach Petroleum, and that the real value is substantially higher than the $15,000 provided for in
the Settlement Agreement and Addendum. However, the Court concludes that the bankruptcy
court did not abuse its discretion in its assessment of the value of Beach Petroleum in the context
of the fairness of the Settlement Agreement, and that Judge Jernigan properly apprised herself of
the relevant facts and law to make an informed and intelligent decision regarding the Trustee’s
valuation of Beach Petroleum. In re Cajun Elec., 119 F.3d at 356.
DeepRock argues that the bankruptcy court lacked competent evidence to evaluate the
value of Beach Petroleum, and that in making this determination the bankruptcy court
improperly excluded evidence related to the value of Beach Petroleum. DeepRock claims that
the bankruptcy court abused its discretion by approving the Settlement Motion based upon the
“insufficient evidence” before it. ECF No. 17 at 46. DeepRock argues that, under the terms of
the Settlement Agreement, Gentry Beach stands to benefit from Beach Petroleum being
undervalued and, therefore, he is a biased witness. Id. at 42–43. DeepRock further maintains
that “nothing in the Trustee’s conduct reflects a reasonable effort to ascertain the true value of
assets of the estate,” and that the Trustee “took no steps to ascertain the true value of the

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business.” Id. at 41–42.
On appeal, the Court gives deference to the bankruptcy court’s first-hand determinations
of witness credibility, and does not weigh evidence anew. In re Perry, 345 F.3d 303, 309 (5th
Cir. 2003). There was sufficient evidence from which the bankruptcy court could conclude that,
other than the $21,000 account balance, Beach Petroleum had minimal or nominal value. Both
the Trustee and Gentry Beach testified to the value of Beach Petroleum. Gentry Beach testified
that Beach Petroleum’s interest in oil and gas properties had only nominal value. R. 1194; 1197–
98. Specifically, he stated that the overriding royalty interest assigned to Beach Petroleum from
TP Panther Dome was on “raw acreage” and that he did not believe they had received any
royalty payments. R. 1184. On questioning by the bankruptcy court, Gentry Beach stated that
“nothing has been paid out” on the overriding royalty interest, and that it was not foreseeable that
any wells would be drilled. R. 1258–59. He further testified that, as to the 2015 Agreement with
TP Panther Dome and Black Horse, there was “almost no activity” in the Gulf Coast due to
operating costs, “[t]here is no production history from them at all,” and “[t]here’s no wells being
drilled there.” R. 1261–62. The Trustee testified that based on her review of the facts and
documents, no meaningful revenues were being produced by Beach Petroleum properties. R.
1055. The Trustee further testified regarding the sale of Beach Petroleum’s interest in Pecos
Permian Partners, LLC, and her conclusion that $375,000 received in that sale had been spent on
improving Debtor’s house or spent by Debtor on living expenses. R. 1052. Bank statements for
Beach Petroleum were admitted into evidence, including a statement showing a $21,000 account
balance in December 2015, from which the Trustee negotiated for the additional $15,000 for
settlement. R. 1353–1456.
The Court will not reweigh evidence that was before the bankruptcy court. The

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bankruptcy court expressly acknowledged the possibility that the Trustee could have
undervalued Beach Petroleum, but the bankruptcy court weighed the evidence in context and
found it to be a credible estimate, and thus approved the Settlement Motion.4 This Court
concludes that evidence in the record supports the bankruptcy court’s findings, and therefore it
will not set them aside. See In re Perry, 345 F.3d at 309; In re Inspirations Imports, Inc., No.
3:13-cv-4331, 2014 WL 1410243, at *2 (N.D. Tex. Apr. 3, 2014) (“The bankruptcy judge’s
‘unique perspective to evaluate the witnesses and to consider the entire context of the evidence
must be respected.’” (quoting In re Johnson Sw., Inc., 205 B.R. 823, 827 (N.D. Tex. 1997)).
DeepRock also argues that the bankruptcy court improperly excluded public record
evidence concerning the value of wells associated with Beach Petroleum. ECF No. 17 at 30. In
the Fifth Circuit, trial courts “are given broad discretion in rulings on the admissibility of
evidence,” and evidentiary rulings are reversed only when the court has “clearly abused this
discretion and ‘a substantial right of [a] party is affected.’” Weiser-Brown Operating Co. v. St.
Paul Surplus Lines Ins. Co., 801 F.3d 512, 527 (5th Cir. 2015) (quoting Rock v. Huffco Gas &
Oil Co., Inc., 922 F.2d 272, 277 (5th Cir. 1991)). At the hearing on the Settlement Motion,
DeepRock’s counsel sought to admit a printout of well reports from the State of Louisiana’s
website on the grounds that the printouts were public records. R. 1119. Counsel for Gentry
Beach objected. R. 1119. The bankruptcy court sustained the objection on the grounds that the
printouts were not authenticated. R. 1119. The Court is unconvinced that DeepRock has
demonstrated that, even if that decision was erroneous, a substantial right was affected by the

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The bankruptcy court stated:
The [T]rustee, true, does not have a formal valuation for Beach Petroleum. She has not studied
laboriously. But I think she and her counsel have looked at this enough to do more than a mere
back-of-the-envelope guestimate here with regard to ranges of recovery for Beach Petroleum. They
have, I think, seen that the bird in a hand is—of $1 million plus is likely a fair and equitable
compromise when faced with years of expensive and uncertain litigation.
R. 1348.

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exclusion of the evidence. The Trustee testified that she had not personally accessed her well
reports from that website or performed that analysis. R. 1119–20. However, her testimony as
that public state records were consulted by her staff and her counsel in evaluating Beach
Petroleum’s value.5
On review of the record, the Court concludes that the bankruptcy court did not abuse its
discretion in finding the Proposed Settlement reasonable, considering the plethora of legal and
factual issues which could impede success at trial and generate additional expense on appeal.
ii. Complexity and Likely Duration and Expense of Litigation
Concerning the complexity, duration, and expense of litigation, Judge Jernigan
concluded that, without settlement, the case would require a multi-week jury trial, considerable
delay before it could be heard in the district court, and hundreds of thousands of dollars in
attorney and expert witness fees. R. 1347. She also noted the Trustee’s belief that “legal fees
will be higher than the punitive damages which DeepRock wants, and higher than any potential
value of Beach Petroleum given depressed prices, which is speculative.” R. 1347. Judge
Jernigan noted that the case had an “interesting” timeline, which made the litigation “extremely
complex and very nuanced.” R. 1340. Judge Jernigan’s findings on the second factor are wellsupported by the record, which confirms that this case is factually complex, involving activities
spanning multiple years, numerous transfers between various accounts and trusts, and
allegations of forgery and mental incapacity.

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The Trustee testified:
[M]y counsel and the people in my office who have some ability to do reviews of State records, and
oil and gas records, did, in fact, look into that to see whether there was any value in these properties.
And we determined that these properties have only speculative value because they’re not currently
producing any revenue.
R. 1059

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iii. Other Factors Bearing on the Wisdom of the Settlement
The bankruptcy court also considered the third factor of the Jackson Brewing test, the socalled Foster Mortgage factors bearing on the wisdom of the settlement. As to whether the
proposed settlement was the product of arm’s length bargaining, and not of fraud and collusion,
the bankruptcy court noted that the parties had “fought very hard,” and had engaged in a full day
of mediation before the Trustee and Defendants decided to settle. R. 1349.
Judge Jernigan also considered whether the proposed settlement was in the best interest
of the creditors. The bankruptcy court must especially scrutinize a proposed settlement “when
the settlement is between insiders and an overwhelming majority of creditors in interest oppose
such settlement of claims.” In re Foster Mortgage, 68 F.3d at 919. However, there is “no per se
rule allowing a majority of creditors in interest to veto a settlement.” Id.
Judge Jernigan recognized that DeepRock “hold[s] 92 or 93 percent of the unsecured
creditor pool,” but also noted that the creditors who did not object to settlement represent
approximately $230,000 worth of claims. 6 R. 1348. DeepRock’s opposition to the settlement,
Judge Jernigan found, was unreasonable, stating that she did “not understand how any rational
economically motivated creditor could oppose [the] settlement.” R. 1349.
On appeal, DeepRock argues that the bankruptcy court improperly disregarded its views
as the majority creditor and made improper assumptions regarding its motives in opposing the
settlement. DeepRock argues that the Debtor mounted no defense in the Adversary Proceeding,
that DeepRock will assume the costs of further prosecution of this Adversary Proceeding, that

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The bankruptcy court also noted that DeepRock had recently amended its proof of claim:
DeepRock originally filed a proof of claim in this case in the amount of $822,713.20, plus known
amounts, . . . on April 16th, 2012. DeepRock amended its proof of claim on May 9th, 2016, just
three days before a hearing on this matter began, and now is asserting $2,508,699.82 as the amount
the debtor owes to it.
R. 1336.

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the Trustee failed to maximize the value of the estate, and that the structure of the Settlement
Agreement unfairly prejudices DeepRock.
In considering whether to approve a motion to compromise, the bankruptcy court must
consider the “paramount interest of creditors with proper deference to their reasonable views.”
In re Foster Mortgage, 68 F.3d at 917. A bankruptcy court should only approve a settlement
when it is fair and equitable and in the best interests of the estate. Id. Here, the Court concludes
that the bankruptcy court did not abuse its discretion in overruling DeepRock’s objections and
approving the Settlement Agreement. Apart from DeepRock’s objections, the Jackson Brewing
factors all support the bankruptcy court’s approval of the settlement. DeepRock’s views were
taken into account by the bankruptcy court as one of the Foster Mortgage factors, as were the
views of other creditors. R. 1348. The bankruptcy court noted the existence of these “other
parties in interest who are looking at what appears to be a roughly 30 percent recovery after five
years.” R. 1348. Furthermore, there were compelling reasons in favor of settlement, including
the Trustee’s damages recovery plus attorney’s fees, in addition to the Debtor waiving his
discharge in bankruptcy, which the bankruptcy court noted, permits DeepRock to “otherwise
pursue collection efforts on its claim or claims that remain unpaid after distribution in the
bankruptcy case.” R. 1345.
The bankruptcy court did not erroneously apply the law or erroneously assess the
evidence in deciding to overrule DeepRock’s objections to the Settlement Agreement, and
therefore, the bankruptcy court did not abuse its discretion. See In re Yorkshire, 540 F.3d at
331.
DeepRock further argues that the bankruptcy court improperly rejected DeepRock’s
offer to purchase the Trustee’s claims in the Adversary Proceeding. DeepRock claims that the

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bankruptcy court’s decision was legal error, and for support points to In re Moore, 608 F.3d 253
(5th Cir. 2010). Moore concerned a creditor who objected to a proposed settlement and had
immediately made an offer to purchase the bankruptcy trustee’s claims; in these circumstances,
the Fifth Circuit held, the bankruptcy court should hold an auction to determine the true value of
the claims. Id. at 265.
In denying DeepRock’s request to defer from ruling until the Trustee had considered its
$275,000 offer to buy the Trustee’s claims in the Adversary Proceeding, Judge Jernigan
expressed concern at the lateness of the offer, noting that the Settlement Motion had been
pending for several months at the time she issued her ruling, the parties had attended two
hearings on the Settlement Motion, and she had ordered the parties to provide briefing on
whether the facts of Moore applied in this case. R. 1334. Judge Jernigan stated that she had
“raised that issue” by ordering briefing on Moore, and “there was no bid”; accordingly, she
proceeded to give her bench ruling approving the settlement. R. 1334. Judge Jernigan expressly
stated any party could file post-hearing motions on DeepRock’s offer, but the offer would not
prevent her from issuing her ruling on the Settlement Motion. R. 1334–35. No party did so.
The Court concludes that DeepRock had ample opportunity to make an offer to the
Trustee and the bankruptcy court did not commit legal error by denying its request to defer its
ruling for such to be concluded. DeepRock’s position is distinguishable from that in Moore. In
Moore, the creditor first learned of the proposed settlement after the trustee moved for the
bankruptcy court’s approval, and “contacted the trustee and offered immediately to pay $50,000
for the claims.” In re Moore, 608 F.3d at 257 (emphasis added). Here, DeepRock did not make
an “offer” until several months after the Settlement Motion was filed and the settlement hearings
concluded. Unlike in Moore, the terms of the offer presented to the bankruptcy court were not

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detailed or formal. There is no written offer in the record. Having ordered briefing on Moore,
the bankruptcy court effectively invited the parties to make timely bids so she would consider an
auction, but DeepRock waited until moments before Judge Jernigan issued her ruling to describe
an undocumented offer. The Fifth Circuit in Moore stated that a creditor’s offer “obligated the
bankruptcy court to consider whether an auction and § 363 sale were appropriate,” but
“‘[w]hether to impose formal sale procedures is ultimately a matter of discretion’ that we leave
to bankruptcy courts.” Id. at 265 (quoting Goodwin v. Mickey Thompson Entm’t Grp. Inc., 292
B.R. 415 (9th Cir. BAP 2003)). Here, Judge Jernigan exercised her discretion to prevent
DeepRock’s eleventh-hour potential offer from deferring her ruling on the Settlement Motion,
and invited DeepRock to file a post-hearing motion on a purchase offer. DeepRock filed no
such motion, and provides no reason for failing to do so.
5. Conclusion
For the foregoing reasons, the judgment of the bankruptcy court is AFFIRMED.
SO ORDERED.
April 4, 2017.

_________________________________
BARBARA M. G. LYNN
CHIEF JUDGE

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