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finding that suit would be in the best interest of the estate "because its successful prosecution is consistent with maximization of the value of the estate"
Summary of this case from In re Dewey & LeBoeuf LLPOpinion
Case No. 08-14139 (AJG).
May 7, 2009
Before the Court is the joint motion of April 9, 2009, of HydroGen L.L.C. (the "Debtor") and the Official Committee of Unsecured Creditors (the "Committee") for approval of settlement (the "Settlement") pursuant to Federal Rule of Bankruptcy Procedure 9019 (the "Motion").
The Court finds that the Settlement is fair and equitable and in the best interests of the estate under the framework of factors set forth by the Supreme Court in Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 88 S.Ct. 1157 (1968) and subsequently used by the Second Circuit Court of Appeals. See In re Iridium Operating LLC, 478 F.3d 452, 462 (2d Cir. 2007). Specifically, the Settlement rises above the "lowest point in the range of reasonableness," as is the requisite standard in the Second Circuit. See In re W.T. Grant Co., 699 F.2d 599, 608 (2d Cir. 1983) (quoting Newman v. Stein, 464 F.2d 689, 693 (2d Cir. 1972), cert. denied sub nom. Benson v. Newman, 409 U.S. 1039, 93 S.Ct. 521 (1972)).
As part of the Settlement, Debtor and the Committee also request that the Court approve the Debtor's assignment of any and all estate claims and causes of action, as defined in the Settlement and subject to certain limitations set forth therein (the "Assignment"), to the Committee. An objection was filed by Leo Blomen ("Blomen") to the Assignment on May 4, 2009, and that objection was also a limited objection to that aspect of the Settlement. Blomen did not object to or otherwise take a position on the other aspects of the Settlement.
In the Second Circuit, "[a] creditors' committee may acquire standing to pursue the debtor's claims if (1) the committee has the consent of the debtor in possession or trustee, and (2) the court finds that suit by the committee is (a) in the best interest of the bankruptcy estate, and (b) is `necessary and beneficial' to the fair and efficient resolution of the bankruptcy proceedings." In re Commodore International Ltd., 262 F.3d 96, 100 (2d Cir. 2001).
As a threshold matter, courts in the Second Circuit require the claims to be "colorable." See In re Adelphia Communications Corp., 330 B.R. 364, 376 (Bankr. S.D.N.Y. 2005) (footnote omitted) (citing In re STN Enterprises, 779 F.2d 901, 905 (2d Cir. 1985)). "Caselaw construing requirements for `colorable' claims has made it clear that the required showing is a relatively easy one to make. In STN, the Second Circuit eschewed extensive merits review, requiring instead `a colorable claim . . . for relief that on appropriate proof would support a recovery.'" Adelphia, 330 B.R. at 376 (footnote omitted) (quoting STN, 779 F.2d at 905 (emphasis added in Adelphia)). Courts in this district have noted that authorization for assignment "should be denied only if the claims are `facially defective'" and that "in determining whether there is a colorable claim, the court must engage in an inquiry that is `much the same as that undertaken when a defendant moves to dismiss a case for failure to state a claim.'" See Adelphia, 330 B.R. at 376 (footnotes omitted) (quoting In re America's Hobby Center, 223 B.R. 275, 288 (Bankr. S.D.N.Y. 1998); In re KDI Holdings, Inc., 277 B.R. 493, 508 (Bankr. S.D.N.Y. 1999) (quoting America's Hobby Center, 223 B.R. at 282)). Having reviewed the causes of action set forth in the Committee's complaint, the Court finds that the causes of action meet the applicable standard for colorable claims.
The Court also finds that the Committee has standing to pursue Debtor's claims under Commodore. First, the Committee has the consent of Debtor. Second, the Court finds that the suit is in the best interest of the estate because its successful prosecution is consistent with maximization of the value of the estate. See Adelphia, 330 B.R. at 383 (footnote omitted). Third, the Court finds that the suit is necessary and beneficial to the fair and efficient resolution of the bankruptcy proceedings. The suit by the Committee is necessary because Debtor is conflicted from bringing the suit itself, see In re Valley Media, Inc., 2003 WL 21956410, *3 (Bankr. D. Del. 2003) and is beneficial because if the Committee did not have standing to sue, potentially valuable estate causes of action would be wasted.
Lastly, courts have approved substitution of parties nunc pro tunc under similar circumstances. See KDI, 277 B.R. at 504; see also In re Levine, 2007 WL 2048670, *3 (Bankr. S.D.N.Y. 2007) (citing, inter alia, STN, 779 F.2d 901; Commodore, 262 F.3d 96); see also Valley Media, 2003 WL 21956410, *3 (concluding that " nunc pro tunc relief is in the best interests of preserving the assets of the estate" while noting that dismissing the complaint of the committee would "surely be followed by a new adversary complaint against [the] [d]efendants with the only real difference being the possibility of different counsel for the plaintiff"). Such is the case here, especially considering that there were potential constraints on the suit pertaining to a director and officer insurance policy. Accordingly, the Assignment is approved nunc pro tunc to April 1, 2009, and the Committee's standing is granted nunc pro tunc as of that date.
Accordingly, for the foregoing reasons, it is hereby
ORDERED, the Assignment is approved nunc pro tunc to April 1, 2009; and it is hereby further
ORDERED, the Committee's standing is granted nunc pro tunc to April 1, 2009; and it is hereby further
ORDERED, the Motion is granted.