Wilmington Trust Company, et al. v. Yvette Weinstein, et al. (In re Community Bancorp)

No. 10–20038 (B.A.P. 9th Cir. Aug. 20, 2013) (not for publication)
Affirming the order of the bankruptcy court (“BC”), the Bankruptcy Appellate Panel of the Ninth Circuit held that a settlement between the trustee and the Federal Deposit Insurance Corporation (“FDIC”) over the ownership of tax refunds met the “lowest point in the range of reasonableness” pursuant to Federal Rule of Bankruptcy Procedure 9019. While perhaps at the “low end” of the reasonableness spectrum, the BC amply considered the various factors in determining whether to approve the settlement.
Procedural context:
The BC concluded that the trustee’s proposed settlement with the FDIC was fair and equitable and satisfied Rule 9019. The unsettled caselaw on the issue of ownership over the tax refunds made the probability of success in the litigation unknown, if not unlikely. The facts also supported a finding that litigation would be time-consuming, costly, and complex. Finally, the trustee, using her business judgment, concluded that the settlement was in the paramount interest of creditors, because successful litigation was not guaranteed and could result in no benefit to the estate. After the BC approved the settlement, two creditors appealed.
The debtor was a holding company for two failed banks. The banks were the subsidiaries of the parent-debtor. The banks were closed and the FDIC was appointed as receiver. Prepetition, the debtor routinely filed consolidated tax returns on its behalf and on behalf of its bank-subsidiaries. The debtor had routinely filed tax returns on behalf of its bank-subsidiaries pursuant to an agreement between the entities. Postpetition, the FDIC filed the debtor’s tax returns to claim several millions in net operating loss carrybacks and refunds for prior tax years. The FDIC claimed ownership of the tax returns by virtue of 12 U.S.C. § 1821(d), favorable case law, and on the grounds that the debtor’s agreement did not address ownership of tax refunds. Wilmington and Holdco, two of the debtor’s largest unsecured creditors, contested these arguments. However, rather than litigate the ownership question, the trustee moved for an order approving a settlement with the FDIC.
Kirscher, Collins and Dunn, Bankruptcy Judges

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