The Debtor filed a chapter 11 bankruptcy petition on the eve of a pending damages hearing. After this Court granted relief from stay, a Denver District Court entered a $22.8 million award against the Debtor for his breach of fiduciary duty as a result of certain pre-petition actions. During the state court litigation, the Debtor was jailed for contempt and was subject to harsh discovery sanctions as a result of his misconduct. This Court later converted the case from chapter 11 to chapter 7, finding that the case was filed in bad faith and a chapter 7 trustee was appointed.
The Trustee negotiated a settlement with the judgment creditors, inter alia, which reduces the claim to an allowed $19 million unsecured claim in exchange for dismissing the appeal of the damages award in state court. The Trustee submitted a joint motion for approval with the judgment creditors on the grounds that the settlement agreement was the best result for the estate, citing the need to end the ongoing litigation to achieve the most efficient administration of the estate.
This Court held a 3-day hearing, where each side presented expert witness testimony and heard testimony on the Kopexa factors, which govern the approval of a settlement agreement. The only creditor to object to the settlement agreement was the Debtor’s state court attorney. The Court granted the motion to approve the settlement as it was reasonable and fulfilled the Kopexa factors. The Court found that on the balance of probabilities the underlying appeal would not succeed, the ongoing litigation costs were burdensome to the estate, and reducing the damages to $19 million while ending the litigation was in the best interest of the creditors.