RECENT BANKRUPTCY DEVELOPMENTS

Rule 9019 Compromise and Settlements

In re Iridium Operating LLC, 478 F.3d 452 (2nd Cir. Mar. 5, 2007) (Where a

secured lender's lien was in dispute and the lender's settlement of the litigation challenging the lien provided for a distribution to unsecured creditors before administrative claimants, the Second Circuit vacated the settlement approval order and remanded to the bankruptcy court for a clarification of the reason for the parties' deviation from the absolute priority rule. The priority scheme of the Bankruptcy Code should be the most important factor in determining whether a proposed settlement is fair and equitable under Federal Rule of Bankruptcy Procedure 9019, and approval of the settlement without a review of the priority issue was insufficient.)

In re Doctors Hosp., Inc., 474 F.3d 421 (7th Cir. Jan. 12, 2007) (Bankruptcy court did not abuse its discretion in approving settlement of adversary proceeding against former insider of debtor for multiple fraud-based claims. The settlement was in the best interests of the estate because the value of the settlement outweighed the probable costs and benefits of litigating.)

In re NutraQuest, Inc., 434 F.3d 639 (3rd Cir. Jan 20, 2006) (When considering a proposed settlement pursuant to Bankruptcy Rule 9019(a), factors for a court to consider are the same for claims against the debtor as for claims by the debtor: "(1) the probability of success in litigation; (2) the likely difficulties in collection;

(3) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (4) the paramount interest of the creditors.")

In re The Bennett Funding Group, Inc., 439 F.3d 155 (2d Cir. Feb. 24, 2006) (Appeal filed more than ten days after entry of the Bankruptcy Court order was untimely pursuant to Bankruptcy Rule 8002. Bankruptcy Court order approving settlement pursuant to Bankruptcy Rule 9019 was "final order" subject to appeal, despite its nonconformity with the form originally proposed for the order and despite the condition contained in the order that the District Court approve and enter a final order of judgment.)