Dye v. Sachs (In re Flashcom, Inc.)

Citation:
9th Cir. BAP No. CC-13-1311-KuDaKi (October 1, 2014)
Tag(s):
Ruling:
Bankruptcy courts have equitable authority to modify or vacate compromise stipulations if the factual circumstances warrant the same; however, the bankruptcy court may do so only to the extent no intervening rights have vested in reliance thereon. The 9th Cir. Bankruptcy Appellate Panel affirmed the bankruptcy court's ruling that under state law the buy out option of the settlement constituted an unenforceable penalty. However, the Bankruptcy Appellate Panel vacated and remanded the bankruptcy court's ruling that excluded a portion of the prejudgment interest.
Procedural context:
Chapter 11 liquidating trustee, Carolyn A. Dye ("Dye") appealed the bankruptcy court's order denying, in part, the Trustee's motion for entry of stipulated judgment.
Facts:
Andra and Brad Sachses originally formed and solely owned the Chapter 11 debtor Flashcom, Inc. ("Flashcom") in 1998. In 1999 Andra and Brad sold shares of Flashcom's preferred stock to various venture capital companies. Approximately one year later, Andra and Flashcom agreed that would redeem Andra's shares for $9 million; and, Flashcom paid Andra on February 23, 2000. Flashcom filed Chapter 11 in December 2000. The confirmed liquidating Chapter 11 plan appointed Dye as the liquidating trustee. Dye filed an adversary seeking to avoid the $9 million transfer to Andra. Andra and Dye entered into a settlement that among other claims related to Andra appeared to resolve the litigation between Andra and Dye. The settlement included two stipulated judgments. The first judgment declared the $9 million transferred to Andrea was avoidable pursuant to 11 U.S.C. Sec. 547 and the second judgment provided joint and several liability pursuant to 11 U.S.C. Sec. 550. However, both stipulated judgments were subject to a "buyout option" that included a two complex paragraphs detailing a time in which Andra could pay a reduced amount in lieu of entry of the stipulated judgment for $9 million. Andra did not timely remit payment in accordance with either paragraph; therefore, Dye filed a motion to enter the stipulated judgment in the amount of $9 million. Andra asserted that the provisions regarding the stipulated judgment for $9 million is unenforceable. Andra further asserted that Dye did not demand payment when it became due and after service of the motion, Andra offered to pay the amount due in full immediately. Dye refused the offer to pay based on the position that Andra was now liable for the full $9 million.
Judge(s):
Honorable Kurtz, Davis, and Kirscher

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