Opinion
Case Nos. 02-32215, 02-30820.
March 25, 2005
FOR F. TAIT CARSON: CRAIG J. DONALDSON, ESQ. Greenback, Tennessee
FOR MOUNTAIN MARKETING PROFESSIONALS, INC.: EDWARD J. SHULTZ, ESQ. Knoxville, Tennessee
FOR MAURICE K. GUINN, CHAPTER 7 TRUSTEE: E. JEROME MELSON, ESQ. Knoxville, Tennessee
MEMORANDUM OPINION
THE COURT: This contested matter is before the court on the Motion to Compromise filed jointly on January 21, 2005, by Maurice K. Guinn, Trustee of the Chapter 7 bankruptcy estate of F. Tait Carson, and the Chapter 11 Debtor, Mountain Marketing Professionals, Inc., seeking authority, pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure, to compromise and settle various claims against Bluegreen Vacations Unlimited, Inc., Bluegreen Corporation, and Justin Alex Hodges. The Objection of F. Tait Carson to Motion to Compromise was filed by F. Tait Carson in opposition to the Motion to Compromise on February 7, 2005. No other creditor or party in interest in either case objects to the proposed compromise.
At the conclusion of the evidentiary hearing on the Motion to Compromise held on March 23, 2005, I reserved decision until this afternoon. The record before me consists of five exhibits introduced into evidence, along with the testimony of four witnesses, the Trustee, Mr. Guinn, two attorneys, Thomas M. Leveille and Jerry K. Galyon, and Mr. Carson.
This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).
Mountain Marketing Professionals, Inc., who I will hereafter refer to as Mountain Marketing, filed the Voluntary Petition commencing its case under Chapter 11 of the Bankruptcy Code on February 15, 2002, and it has continued to operate as a debtor-in-possession since that date. Thereafter, on April 24, 2002, Mr. Carson, the sole shareholder and president of Mountain Marketing, filed the Voluntary Petition commencing his case under Chapter 11 of the Bankruptcy Code. The court approved Mr. Guinn's appointment as Chapter 11 Trustee on February 7, 2003, and he continued in the capacity as Chapter 7 Trustee after the case was converted on October 21, 2004.
The Trustee and Mountain Marketing seek to compromise various prepetition claims existing between the two Debtors and Bluegreen Vacations Unlimited, Inc., Bluegreen Corporation, and Justin Alex Hodges stemming from a business relationship gone sour. On December 8, 2000, Bluegreen Vacations Unlimited, Inc., who I will hereafter refer to as Bluegreen, and Mountain Marketing entered into an Off-Site Premises Contact Agreement whereby Mountain Marketing agreed to market and promote timeshares owned by Bluegreen. In exchange, Bluegreen agreed to pay a minimum marketing fee of $175.00 for each qualified prospect completing a scheduled tour, less a reduction for gift and premium costs.
The next year, on December 18, 2001, Mountain Marketing, through Mr. Carson, and Bluegreen executed a Letter of Intent relative to Bluegreen's purchase of Mountain Marketing's assets. Included within the terms of the Letter of Intent was the proposed assignment and transfer of leases for thirteen off-site personal contact locations, all billboard advertising contracts, and an advertising contract with the Best Read Guide magazine. The proposed purchase price was based upon a schedule whereby Mountain Marketing would receive gradually decreasing amounts from $20.00 to $5.00 per net qualified tour from the locations to be transferred.
Nevertheless, this sale of assets never came to fruition, the Off-Site Premises Contact Agreement was terminated on January 18, 2002, and the business relationship between the parties deteriorated, culminating in Bluegreen filing a complaint in the Chancery Court for Sevier County, Tennessee, on February 8, 2002, styled Bluegreen Vacations Unlimited, Inc. v. Mountain Marketing Professionals, Inc., F. Tait Carson, individually, and Other as Yet Unidentified and/or Unnamed Civil Co-Conspirators, Case No. 02-2-084. In this complaint, Bluegreen alleges that Mr. Carson breached the December 18, 2001 Letter of Intent and engaged in conduct to damage its business reputation by conspiring with others to interfere with Bluegreen's business relationships with customers and intimidate its employees. The complaint further avers that Mr. Carson and his unnamed associates attempted to bribe Bluegreen's employees and attempted to obtain trade secrets by falsely claiming to be Bluegreen employees themselves. For such civil conspiracy, tortious interference with business relationships, trespass, breach of contract, defamation, injurious falsehood, diversion of trade secrets, nuisance, and violations of the Tennessee Consumer Protection Act, Bluegreen asked for injunctive relief, compensatory damages, punitive damages, treble damages, and attorney's fees in an amount expected to exceed $5,000,000.00. It also filed a similar action in Florida. Both actions were stayed, however, with respect to Mountain Marketing, when it commenced its Chapter 11 case on February 15, 2002.
Mr. Carson then filed his own complaint in the Circuit Court for Sevier County, Tennessee, on April 2, 2002, initiating Carson v. Justin Alex Hodges, Bluegreen Vacations Unlimited, Inc., and Bluegreen Corporation, Case No. 2002-0234-I. Bluegreen Corporation is alleged to be the parent corporation of Bluegreen. This complaint avers, first, that Bluegreen breached the December 8, 2000 Off-Site Premises Contact Agreement by soliciting Mountain Marketing's employees and off-site premises contact landlords, in violation of the Agreement's non-compete provision. It also alleges that Bluegreen, through its Sevier County representative and sales manager, Justin Alex Hodges, conspired with employees of Fairfield Resorts to take over Mountain Marketing and put Mr. Carson personally out of business in Sevier County. Finally, Mr. Carson's complaint states that he was forced to enter into the Letter of Intent by Bluegreen, who then gained access to and used to his detriment key personnel and locations information, causing Mr. Carson to default on notes. For these causes of action, including fraud, deceit, common law and statutory procurement of breach of contract, intentional interference with business relationships, conspiracy, and violations of the Tennessee Consumer Protection Act, Mr. Carson seeks damages in the amount of $10,000,000.00. Additionally, approximately three weeks after he filed this lawsuit in the Sevier County Circuit Court, Mr. Carson filed his bankruptcy case.
In its bankruptcy proceeding, Mountain Marketing filed an adversary proceeding against Bluegreen Vacations Unlimited, Inc., Bluegreen Corporation, and Mr. Hodges, on May 29, 2002. These defendants filed an answer and counter-claim on August 19, 2002, and thereafter, on October 9, 2002, filed, first, a motion for abstention, which was granted by the court's order entered on October 30, 2002, and, second, a motion for relief from the automatic stay in order to proceed with the lawsuit pending in the Sevier County Chancery Court, which was granted on November 1, 2002. Additionally, on June 11, 2002, Mr. Carson filed two unsecured claims in Mountain Marketing's bankruptcy case for "unpaid compensation for services performed between August 1, 1999, and February 15, 2002," in the amounts of $600,000.00 and $1,500,000.00, respectively, and on June 17, 2002, Bluegreen filed unsecured claims in both bankruptcy cases in the amount of $5,000,000.00, attaching the same documents relied upon in its Chancery Court lawsuit.
With respect to the Chancery Court lawsuit, Mountain Marketing filed an answer, counter-complaint, and third-party complaint on December 20, 2002, denying all allegations of wrongdoing and averring that the Letter of Intent was not binding and enforceable. In that pleading, Mountain Marketing makes similar allegations as those set forth by Mr. Carson in his Circuit Court complaint, alleging that Bluegreen breached the Off-Site Premises Contact Agreement by soliciting Mountain Marketing's employees and landlords, that Bluegreen intentionally interfered with Mountain Marketing's business relationships in Sevier County by inducing its landlords, employees, and vendors to breach contracts with Mountain Marketing, and that Bluegreen and Mr. Hodges conspired to destroy its business. Mountain Marketing's counter-complaint and third-party complaint also avers that Bluegreen breached the Off-Site Premises Contact Agreement by failing to pay for qualified prospects because it improperly reported tours as "NT" for tours not taken or "NQ" meaning not qualified in that the customer did not meet the qualifications for Bluegreen to make a presentation, when, in fact, tours should have been offered. The counter-complaint additionally alleges that the Letter of Intent was not binding and enforceable because it was based upon Bluegreen's fraud and bad faith. For these breaches of contract, intentional interference with business relationships, common law and statutory inducement of breach of contract, civil conspiracy, fraud, breach of covenant of good faith, Tennessee Consumer Protection Act, and Uniform Trade Secrets Act causes of action, Mountain Marketing prays for damages from Bluegreen, Bluegreen Corporation, and Mr. Hodges in the amount of $12,731,179.28 plus treble damages, punitive damages, and attorney's fees.
The two actions were consolidated for a jury trial in the Sevier County Chancery Court, and the Chancellor appointed a special master on January 13, 2003. On April 29, 2003, Bluegreen, Bluegreen Corporation, and Mr. Hodges filed an answer to Mountain Marketing's counter-complaint and third-party complaint, denying all allegations of wrongdoing and raising, as affirmative defenses, estoppel, waiver, unclean hands, set off, Mountain Marketing's breach of contract, and bad faith.
Since that time, both sides have amended their complaints, added new counts, including an additional allegation that Bluegreen breached the Off-Site Premises Contact Agreement by not paying for qualified tours from December 2001 through January 2002, and requested additional relief. A mediation between the parties was held on June 2, 2004, and although it produced a couple of settlement offers, the lawsuits were not resolved. Accordingly, in December 2004, the Special Master scheduled a total of twenty-one days for evidentiary hearings before the jury trial is scheduled. On January 6, 2005, prior to the first day of hearings scheduled by the Special Master for January 10, 2005, the Trustee reached an agreement with Bluegreen and subsequently filed the Motion to Compromise.
The settlement before the court is summarized as follows. In exchange for dismissing, with prejudice, both Bluegreen's actions against Mountain Marketing and Mr. Carson and Mr. Carson's action against Bluegreen, Bluegreen Corporation, and Mr. Hodges, as well as all counter-complaints and third-party actions between these parties, Bluegreen will pay to the Trustee $700,000.00. Additionally, Bluegreen will withdraw its claims filed in both bankruptcy cases. Mr. Guinn testified that he anticipates payment in full, plus interest, to all of Mr. Carson's creditors as a result of the settlement, but that the actual allocation of the settlement proceeds between the Carson and Mountain Marketing estates have not yet been determined and will, in any event, be subject to court approval after a hearing on notice to all creditors.
The Trustee and Mountain Marketing ask the court to approve the compromise, arguing that it is in the best interests of both bankruptcy estates, especially in light of the existing and ongoing expenses and risks associated with continuing litigation of the consolidated lawsuit in the Sevier County Chancery Court, which is complex and hotly contested by all parties. Mr. Carson, the sole party objecting to the Motion to Compromise, argues that the Trustee has failed to consider the residuary interest he and Mountain Marketing would retain following the conclusions of their bankruptcy cases and avers that, if the litigation is prosecuted to its conclusion, they have the potential to realize funds above and beyond the amounts owed to their creditors.
"Compromises are `a normal part of the process of reorganization.'" Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 88 S. Ct. 1157, 1163 (1968). "It is well accepted that compromises are favored in bankruptcy in order to minimize the cost of litigation to the estate and expedite its administration[.]" In re Edwards, 228 B.R. 552, 568-69; see also In re West Pointe Properties, L.P., 249 B.R. 273, 282.
Rule 9019 of the Federal Rules of Bankruptcy Procedure allows me to approve the Motion to Compromise, after notice and a hearing, as long as it is "fair and equitable." Anderson, 88 S. Ct. at 1163; West Pointe Properties, 249 B.R. at 281. In making this determination, however, I may not merely "rubber stamp or rely on the trustee's word that the compromise is reasonable." West Pointe Properties, 249 B.R. at 281 (quoting the Sixth Circuit's decision Reynolds v. Commissioner, 861 F.2d 469, 473). Instead, the focus is not deciding the questions of fact and law raised, but canvassing the issues to see whether the offer "fall[s] below the lowest point in the range of reasonableness[.]" Cosoff v. Rodman (In re W.T. Grant Company), 699 F.2d 599, 608. Nevertheless, while I have the discretion to approve or disapprove a compromise, the Trustee's judgment "deserves some deference" as long as there is a legitimate business justification for his actions. West Pointe Properties, 249 B.R. at 281; see also In re Coram Healthcare Corporation, 315 B.R. 321, 330. It is the Trustee's burden of persuasion that the proposed compromise meets these standards. In re Victoria Alloys, Inc., 261 B.R. 918, 920.
Equitable considerations are paramount in deciding whether to approve a compromise, and "[t]he benchmark for determining the propriety of a bankruptcy settlement is whether the settlement is in the best interests of the estate." In re Lee Way Holding Company, 120 B.R. 881, 890. In order to make an "informed and independent judgment" regarding the fairness and equity of a proposed compromise, I am required to examine the facts necessary to give an "objective opinion of the probabilities of ultimate success should the claim be litigated[, which includes an examination of] the complexity, expense, and likely duration of such litigation . . . and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise." Anderson, 88 S. Ct. at 1163.
This does not, however, require me to hold a "mini trial on the merits," but instead, requires me to review only those "issues which are subject to the settlement." Committee of Unsecured Creditors v. Interstate Cigar Distribution, Inc. (In re Interstate Cigar Company, Inc.), 240 B.R. 816, 822. Moreover, "[t]he more complex and novel the subject litigation is, the less thorough a factual record is necessary to obtain approval of a settlement which will substantially benefit the bankruptcy estate." Lee Way Holding Company, 120 B.R. at 890.
Furthermore, although I do consider the reasonable views of creditors, objections do not rule, and an objection "will not prevent approval of the compromise where it is evident that the litigation would be unsuccessful and costly." West Pointe Properties, 249 B.R. at 282.
The Sixth Circuit has held that "the court is obligated to weigh all conflicting interests in deciding whether the compromise is `fair and equitable,' 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. Therefore, the basic factors I must examine with respect to the pending state court lawsuits and the proposed compromise are (1) the probability of success on the merits in the state court; (2) the complexity, expense, and likely duration of the consolidated lawsuits if they proceeded to trial; (3) possible difficulties in collecting a judgment against Bluegreen; and (4) any other factors that I deem relevant, including the interests of creditors.
With respect to the first factor, likelihood of success on the merits, the Trustee and Mountain Marketing are not required to conclusively establish that Mr. Carson and Mountain Marketing would either succeed or fail at a trial on the merits in the Sevier County Chancery Court. As stated by the Fifth Circuit,
Obviously, it would not be a settlement if to obtain approval the Trustee would have to demonstrate that he could not succeed had the . . . claim been pressed. All that he must do is establish to the reasonable satisfaction of the [court] that, all things considered, it is prudent to eliminate the risks of litigation to achieve specific certainty though admittedly it might be considerably less (or more) than were the case fought to the bitter end.
Florida Trailer Equipment Company v. Deal, 284 F.2d 567, 573.
Mr. Carson argues that, if allowed to proceed with the state court lawsuits, he is very likely to succeed at trial. The Trustee, however, disagrees with Mr. Carson's optimism for success on the merits before a jury. At trial, Mr. Guinn testified that based upon the "hotly disputed" facts and problems with proof, including the large number of documents and the multiple witnesses that would be necessary to make Mr. Carson's case, he believes that the likelihood of success on the merits as well as the potential for recovery are extremely uncertain as to both the contractual and tort claims. Mr. Guinn does acknowledge that, if proved, the breach of contract issues concerning the Off-Site Premises Contact Agreement alone could yield sums exceeding the $700,000.00 amount, once prejudgment interest and attorney's fees are included. However, he reiterated that any recovery on either the breach of contract issues or the tort issues depends upon how the disputed facts are presented to and resolved by the jury.
Mr. Guinn testified that while he has reviewed all of the pleadings in the two state court lawsuits, has attended and participated in several meetings among the various parties and their attorneys, and participated in the day-long June 2, 2004 mediation, he has not attended discovery depositions or hearings in the state court lawsuit, nor has he independently researched the facts and/or areas of law raised therein. To that end, Mr. Guinn deferred to Mr. Leveille, Mountain Marketing's attorney in the state court lawsuits.
Mr. Leveille testified that he has primarily focused upon the contract issues and has been in the process of preparing a motion for partial summary judgment as to his counter-complaint against Bluegreen for breach of the Off-Site Premises Contact Agreement with respect to the "NQ" and "NT" customers that were improperly disqualified and should have been paid for by Bluegreen. The motion, requesting a judgment in the amount of $731,000.00 plus prejudgment interest and reasonable attorney's fees, is supported by records obtained from Bluegreen concerning the "NQ" and "NT" customers. Based upon his personal review of these more than 2,000 documents, Mr. Leveille divided them into three categories: (1) those that Mountain Marketing should win based upon the face of the documents themselves; (2) those that it would not recover based upon the face of the documents; and (3) those that could go either way. With respect to the "can win" group, consisting of approximately 200 to 300 customers, Mr. Leveille testified his belief that Mountain Marketing should recover approximately $52,000.00. With respect to the third group, the "gray" category which was the largest, he optimistically hoped to prevail as to 50% of them, which could result in an additional recovery of approximately $330,000.00.
Mr. Leveille testified that he also believes that Mountain Marketing's likelihood of success on the merits with respect to Bluegreen's failure to pay for qualified tours in December 2001 through January 2002 is good. This aspect is based upon paragraph 12 of the Off-Site Premises Contact Agreement, which provides that in the event of termination, Mountain Marketing would still be entitled to compensation for qualified customers that had scheduled a tour. At trial, Mr. Leveille recalled attending the deposition of Mr. Hodges, who admitted that Bluegreen cut checks to Mountain Marketing for tours, totaling approximately $52,300.00, but he was instructed to send them to his superior, Mr. Teclaw, in Indianapolis. The second breach of contract issue asserted by Mr. Carson involves paragraph 9 of the Off-Site Premises Contact Agreement. This paragraph prohibits the solicitation by Bluegreen or Mountain Marketing of the others' employees or contract locations. Mr. Carson contends that Bluegreen solicited some 42 of his employees, 13 contract stands, advertising, and billboard space. Again, this is disputed by Bluegreen and Mr. Leveille testified as to witness problems in establishing this aspect of Mountain Marketing's claim.
With respect to the tort issues, Mr. Leveille was less enthusiastic, stating that he believed he could prove the claims but "it would take a lot of work," since most of the evidence was circumstantial, there was "a lot of smoke" and "mud to be slung," and a final determination depended upon how it was presented to and accepted by the jury. In his final assessment of the likelihood of success, Mr. Leveille stated that, taking all of the components of the lawsuits, together with the problems and complexities therein, he believes Mountain Marketing will obtain a judgment against Bluegreen. Although he could understandably not give a concrete amount for that judgment, Mr. Leveille testified that his reasonable estimates were $385,000.00 at the low end and $5,000,00.00 for what he termed "a home run" at the high end, not inclusive of prejudgment interest or attorney's fees.
In his testimony, Mr. Carson painted a rosier view of the probability of success on the merits. He testified that after reviewing the 2,000 or so documents produced by Bluegreen with respect to the "NQ" and "NT" disqualifications, he determined that all of them were, in fact, qualified customers, which would result in a judgment for $675,000.00. He also felt extremely confident that Mountain Marketing would prevail on the unpaid tours issue, resulting in a judgment of approximately $52,000.00. Finally, Mr. Carson seemed extremely sure that the facts would prove his tort issues, although he did not speculate as to an amount of the final judgment.
With respect to this factor, I am depending most heavily upon the testimony provided by Mr. Leveille, Mountain Marketing's attorney, who is the most objective witness with the ability to gauge the possible outcome at trial. Mr. Leveille testified that he feels fairly confident that Mountain Marketing can recover the $52,300.00 for qualified but unpaid tours, plus approximately $385,000.00 for improperly recorded "NT" and "NQ" customers, totaling $437,300.00, which is more than $260,000.00 less than the $700,000.00 settlement amount. Although he did not expressly say so, it was obvious that Mr. Leveille is much less confident about recovering a judgment on the tort claims in light of the level to which Bluegreen disputes the facts, the witness issues encountered, and the uncertainty of what a jury will decide.
The second factor, complexity, expense, and likely duration of trial, is tied into the first factor concerning the likelihood of success on the merits, requiring me to examine the same facts and issues in a different light. Collectively, these lawsuits involve the following issues under Tennessee law: violation of the Tennessee Consumer Protection Act, violation of the Uniform Trade Secrets Act, civil conspiracy, fraud, tortuous interference with business, breach of contract, defamation, trespass, diversion of trade secrets, nuisance, and injurious falsehood, together with the affirmative defenses and damages available under each of these causes of action. While these legal issues may not be novel or complex to attorneys, I venture to guess that many jurors will likely find them quite novel and complex. Additionally, the nature of the facts that will be relied upon to prove the foregoing legal issues are extremely complex and vigorously disputed on both sides. Both Mr. Guinn and Mr. Leveille acknowledge proof problems, as well as the need for additional discovery, a tremendous amount of documentary proof, and the involvement of a countless number of witnesses. Mr. Leveille also testified that there have been allegations of witness tampering and intimidation, and that the testimony of witnesses is sometimes conflicting with some witnesses contradicting their prior statements.
I must also consider the expense involved if the settlement is not approved. Over the course of the three years since Bluegreen filed its complaint, these parties have incurred a substantial amount of attorney's fees, much of which remains unpaid. At trial, Mr. Carson testified that he has paid Mr. Leveille's firm approximately $50,000.00 and currently owes approximately $73,000.00 in connection with its representation of Mountain Marketing in these lawsuits. Mr. Carson also testified that he owes attorney's fees of approximately $75,000.00 to Mr. Donaldson's firm for representing him in the state court litigation and approximately $20,000.00 is owed to Mr. Shultz's firm as administrative expenses arising out of Mountain Marketing's bankruptcy case. Moreover, Mr. Leveille testified that the mediator had not been paid his $3,000.00 fee, for which Mountain Marketing was responsible for half, and there were outstanding court reporter bills to date totaling approximately $3,000.00.
Mr. Leveille echoed Mr. Carson's testimony that his firm is currently owed roughly $73,000.00, although he thought his firm had been paid approximately $30,000.00. Mr. Leveille also acknowledged that he represented Mountain Marketing in a similar type lawsuit against Fairfield Resorts in the United States District Court, and that the tort claims therein related to those being litigated in these lawsuits, namely the intentional interference with business relationships and civil conspiracy causes of action. As in the lawsuits at issue here, Fairfield Resorts has denied any allegations of wrongdoing, and although Mr. Leveille testified that he believes the contract issues could settle, he expects the tort issues to be "hotly contested." When questioned as to the status of that lawsuit, Mr. Leveille stated that some discovery had been completed, and Rule 26(a)(1) disclosures had been made, but that a trial was not scheduled until later this year, in late summer or early fall.
During his testimony, Mr. Guinn expressed his concern with the mounting attorney's fees and expenses, in light of Mr. Carson's inability to pay them, stating that he would not want his firm to take on that risk if Mountain Marketing's and Mr. Carson's present attorneys could not or did not proceed. Mr. Leveille testified that because of the large outstanding bills owed to his firm, they had been negotiating a new fee arrangement, but that nothing had been finalized, and unless a new agreement was reached, he questioned whether his firm could continue with its representation of Mountain Marketing after seeing through the motion for partial summary judgment. Mr. Carson's attorneys are likewise in a similar situation. Mr. Donaldson's associate, Mr. Galyon, testified that he and Mr. Donaldson were committed to seeing Mr. Carson through his legal battles; however, he acknowledged that they expect to be paid for their services. Mr. Galyon testified that they have reached a tentative fee arrangement with Mr. Carson for payment at the conclusion of the case, but that, as of the trial date, there is no formal fee arrangement.
Mr. Carson testified that he has, at his disposal, $30,000.00 loaned him by a brother to pay his attorney's fees and the commitment of his mother and another brother to loan him an additional $60,000.00 to cover the outstanding expenses owed, and prosecute these lawsuits to their conclusion. He also testified that he is developing a new partnership which he hopes will be profitable in 90 days, but he did not testify as to any particulars with respect to this new business venture, nor has he consulted with the Trustee about it. Otherwise, however, Mr. Carson offered no evidence as to his ability to pay any present or future costs associated with the state court litigation.
While the parties did not attempt to establish the amount of future attorney's fees and expenses that might be required if the litigation is prosecuted to its conclusion, the court can easily anticipate that they would be in the hundreds of thousands of dollar range, given the fact that at least twenty-one days of hearings will be required before the Special Master after which a jury trial of another ten days will be required. Then comes the appellate review. Both the Carson and Mountain Marketing estates are administratively insolvent, and the parties cannot, therefore, look to the estates to fund the litigation expenses.
Assuming that Mr. Carson, in fact, now has access to $90,000.00 to pay on his outstanding fees and expenses, the $172,500.00, more or less, he presently owes, not counting fees incurred at the trial held earlier this week, substantially exceeds that $90,000.00. Additionally, Mr. Carson on February 10, 2005, filed a Motion for Authority to Pay Claims and to Dismiss Case whereby he sought court approval authorizing him to pay the administrative and unsecured claims in his individual case after which the case would be dismissed thus allowing him to proceed with the state court litigation unencumbered by his bankruptcy. This Motion was withdrawn when Mr. Carson was unable to come up with the $190,000.00 necessary to allow him to, in effect, "buy out" the Chapter 7 Trustee.
An additional factor is the likely duration of a trial, which, based upon the proof presented, and which, as I have already discussed, will be lengthy. As discussed, the Special Master originally scheduled twenty-one days for his pretrial hearing, but Mr. Leveille testified that additional days would likely have been needed, even focusing primarily upon the breach of contract issues. Following the Special Master's hearing and report, along with any objections thereto, the Chancellor is to preside over the jury trial of these lawsuits, which Mr. Leveille conservatively estimated would take a minimum of ten days. In the event of an adverse outcome, Mr. Guinn testified that Bluegreen's attorneys have indicated their client's intention to fully exhaust all appeals, and clearly Mr. Carson has exhibited the same intention on his part. When all is said and done, Mr. Guinn conservatively estimated that it will take three to four more years to resolve these lawsuits if they are to proceed in state court.
These factors weigh heavily in favor of approving the settlement. First, these lawsuits have been pending, in some form or fashion, for more than three years. All of the parties vigorously contest the facts and events upon which the lawsuits are grounded, and it is obvious that all parties are committed to exhausting all appeals necessary. The likelihood of success on the merits is speculative, at best, a fact that was evident from Mr. Leveille's testimony. Even with respect to the breach of contract issues for which Mr. Leveille felt quite confident, the damages thereon totaled more than $260,000.00 less than the settlement amount. Moreover, it is also clear that Mr. Carson is emotionally invested in these lawsuits, which, as one would expect, clouds his objectivity and judgment concerning his ability to prevail in the state court before a jury, which is always uncertain. The court finds Mr. Leveille, notwithstanding his role as an advocate for Mountain Marketing and Mr. Carson, to be far more objective and candid.
Mediation has previously proved unsuccessful, and substantial litigation is forthcoming. As I have stated, the Special Master set aside twenty-one days for his hearings prior to trial, and Mr. Leveille testified as to the possible necessity for additional days. He also testified that the actual trial should take at least ten days. The potential for a positive result at trial is questionable, and the potential for an adverse ruling is tangible. In addition, to state that the parties' relationship is acrimonious is to understate their feelings towards each other, and there is nothing in the record to indicate that these tendencies would not continue through the course of any future litigation. Finally, based upon the complexities involved, the parties stand to incur substantially more expense if the lawsuits continue to be litigated in the Chancery Court. At the present, Mr. Carson has no concrete income to ensure that his attorneys will be paid. Thus, these factors weigh in favor of approving the compromise.
The court must also examine any possible difficulties in collecting a judgment against Bluegreen or Hodges, if obtained. With respect to this factor, Mr. Guinn testified that he did not know Mr. Hodges' financial status, nor did he investigate Bluegreen's financial status, stock prices, 2004 sales, or company value. Stating that collection of the judgment was not his driving force behind the compromise, Mr. Guinn nevertheless stated that he would not have filed the Motion to Compromise if he did not believe that Bluegreen was able to and would pay the $700,000.00 settlement. He also pointed out that even though Bluegreen could pay that amount at this time, there was no certainty that such funds would be available in 2008 or 2009 assuming that when the litigation finally ended he and Mountain Marketing had obtained a judgment. On the other side, Mr. Carson testified that Bluegreen is not only a multi-billion dollar company, but also the world's second largest timeshare developer, from which he could perceive no difficulty in collecting a judgment.
I agree with Mr. Guinn's assessment with respect to this factor. Although he offered no concrete evidence to support his testimony as to Bluegreen's financial status, assuming Mr. Carson's estimations are correct, and Bluegreen is currently a multi-billion dollar company, there is no certainty that it will remain so. As Mr. Guinn correctly pointed out, WorldCom was very recently a multi-billion dollar company, as were Enron and Adelphia. Collectibility of a judgment at some later date is, by its nature, uncertain, since there is always the possibility that something can happen to hinder collection. Finally, there are additional costs associated with collecting a judgment which are not incurred through settlement.
Finally, based upon the Supreme Court's instructions in Anderson, I must also look to any other factors I deem relevant relating to the proposed compromise, including the reasonable views of creditors. None of Mr. Carson's creditors objected to the Motion to Compromise, and Mr. Carson was the only creditor of Mountain Marketing to object. It was clear from his testimony that he feels passionate about and has committed his life to pursuing these lawsuits. He testified that he recently moved to Maryville to better assist his attorneys in this litigation, and I understand that he has invested a great amount of time, energy, and money into it. Nevertheless, as I have noted, Mr. Carson has no semblance of objectivity where Bluegreen is concerned, and this lack of objectivity has totally clouded his judgment with respect to this settlement.
On the other hand, the Trustee, Mr. Guinn, has a fiduciary duty requiring his objectivity with respect to Mr. Carson's bankruptcy estate and simply seeks to best serve the unsecured creditors. As Trustee, he is required to represent the interests of the unsecured creditors, and I must afford some deference to his decision. Mr. Guinn has been a member of the trustee panel for fifteen years, and he has served as trustee in hundreds of Chapter 7 cases. He is well aware of his duties and responsibilities as trustee, recognizing at trial that his duty is to maximize the estate to benefit creditors, and although he does not owe a fiduciary duty to Mr. Carson, he must not act in any detrimental way towards Mr. Carson. Along those lines, Mr. Guinn testified that this is the largest single settlement offer that he has received during his fifteen years of service as a Chapter 7 trustee, and it should enable him to pay Mr. Carson's creditors in full, plus interest. Mr. Guinn also testified that he truly believes that he is acting not only in the creditors' best interests, but that this settlement is also in Mr. Carson's best interest.
Furthermore, even though perhaps not an entirely objective witness because, as I have stated, he is an advocate for Mountain Marketing, it is obvious that Mr. Leveille possessed more objectivity with respect to the actual likelihood of success and potential for recovery than did Mr. Carson.
One aspect of the state court litigation that was not explored at the trial earlier this week is Bluegreen's ongoing claims against Mr. Carson and Mountain Marketing. Nothing in the record before me suggests that Bluegreen will not continue to prosecute these claims if the state court litigation goes forward. The meritorious nature of Bluegreen's claim would presumably also be decided by the jury thus adding another level of uncertainty to the outcome of any trial.
The compromise with Bluegreen allows the Trustee and Mountain Marketing to settle the state court lawsuits, in exchange for $700,000.00, which will then benefit the creditors in both bankruptcy cases. Taking into account the amount of the settlement, in light of the complexities involved, the substantial time and expense to be saved, and the interests of creditors, I find that this compromise is fair and equitable and is in the best interests of the Debtors' respective bankruptcy estates. Accordingly, the compromise between the Trustee, Mountain Marketing, and Bluegreen set forth in the Motion to Compromise shall be approved.
This Memorandum constitutes findings of fact and conclusions of law as required by Rule 52(a) of the Federal Rules of Civil Procedure, made applicable to this contested matter by Rule 7052 of the Federal Rules of Bankruptcy Procedure. I will not request that the court reporter transcribe my opinion. If it is transcribed at the request of any party, the original will be delivered to me for such corrections and additions I might make. The Memorandum will then be filed with copies, of course, served on counsel. I will see that an order consistent with the Memorandum is entered this afternoon.
ORDER
This contested matter came on for hearing on March 23, 2005, on the Joint Motion to Compromise filed on January 21, 2005, by Maurice K. Guinn, the Chapter 7 Trustee for the bankruptcy estate of F. Tait Carson, and the Chapter 11 Debtor, Mountain Marketing Professionals, Inc., and on the Objection of F. Tait Carson to Motion to Compromise filed by F. Tait Carson on February 7, 2005.
For the reasons stated in the memorandum dictated orally from the bench on March 25, 2005, containing findings of fact and conclusions of law as required by Rule 52(a) of the Federal Rules of Civil Procedure, made applicable to this contested matter by Rule 9014 of the Federal Rules of Bankruptcy Procedure, the court directs that the Objection of F. Tait Carson to Motion to Compromise is OVERRULED and the Motion to Compromise is GRANTED. Maurice K. Guinn, Trustee, and Mountain Marketing Professionals, Inc., are authorized to compromise all claims of their respective bankruptcy estates against Bluegreen Vacations Unlimited, Inc., Bluegreen Corporation, and Justin Alex Hodges under the terms set forth in the Motion to Compromise.
SO ORDERED.