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In re Band B Construction, LLC

United States District Court, Third Circuit

May 31, 2013

In re Band B Construction, LLC, Chapter 7 Debtor,
DANIEL STRAFFI, ESQ., Appellee. Bankruptcy Action. BOND SAFEGUARD INS., CO., Appellant, No. 11-40535



MICHAEL A. SHIPP, District Judge.

I. Introduction

Bond Safeguard Insurance Co. ("Bond Safeguard" or "Appellant") appeals an Order Approving the Trustee's Settlement (the "Settlement Order, " ECF No.1-I) entered on July 17, 2012. The Settlement Order memorialized a hearing before the Bankruptcy Court on April 2, 2012. (Settlement Hearing Trans., ECF No.3.) The Settlement Order approved a settlement between Daniel E. Straffi (the "Trustee") and the Ocean County Utilities Authority ("OCUA"). After careful consideration, and for the reasons set forth below, the Settlement Order is AFFIRMED in part and MODIFIED so that a statutory trust is immediately imposed upon the Settlement Funds, and the Settlement Order is further REVERSED in part and REMAJ'IDED so that the Bankruptcy Court may determine to what extent, if any, Appellant's equitable subrogation rights have accrued.

II. Jurisdiction and Standard of Review

United States District Courts have jurisdiction to review appeals "from final judgments, orders, and decrees... of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title." 28 U.S.C. ยง 158(a)(3). The District Court sits "as an appellate tribunal, appl[ying] a clearly erroneous standard to review the bankruptcy court's factual findings and a de novo standard to review its conclusions of law." In re Blatstein, 260 B.R. 698, 705 (E.D. Pa. 2001) (citing In re Siciliano, 13 F.3d 748, 750 (3d Cir. 1994). The Court is required to "break down mixed questions of law and fact, applying the appropriate standard to each component." Meridian Bank v. Alten, 958 F.2d 1226, 1229 (3d Cir. 1992).

A factual finding "is clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). Stated differently, "[a] bankruptcy court's ultimate determination of fact' will not be set aside unless that determination is completely devoid of minimum evidentiary support displaying some hue of credibility or bears no rational relationship to the supportive evidentiary data." In re Dr. R. C. Samanta Roy Institute of Sci. Tech. Inc., 465 F.Appx. 93, 96 (3d Cir. 2011) (internal quotation marks and citation omitted).

If it is alleged that the bankruptcy court abused its discretionary authority, "the district court may only determine... [whether] the [lower] court's decision rests upon a clearly erroneous finding of fact, an errant conclusion of law, or an improper application of law to fact." Blatstein, 260 B.R. at 705 (second alteration in original) (citing In re Top Grade Sausage, 227 F.3d 123, 125 (3d Cir. 2000); quoting Int'l Union, UAWv. Mack Trucks, Inc., 820 F.2d 91, 95 (3d Cir. 1987)).

The instant matter involves a settlement agreement. As an initial matter, compromises are generally favored and encouraged in bankruptcy proceedings. In re Martin, 91 F.3d 389, 393 (3d Cir. 1996). In order to approve a settlement agreement the Court need only conclude that the compromise is fair, reasonable and in the best interest of the estate. Jd. The authority to approve settlement rests within the discretion of the Court. Jd.

III. Background

Debtor, Band B Construction LLC, contracted to perform work for OCUA. (Appellant Br. 1.) Bond Safeguard executed performance and payment bonds in connection with that contract. ( Id. ) Debtor filed for Chapter 7 relief on or about October 21, 2011, and a trustee was subsequently appointed. (Id.)

Bond Safeguard alleges that it was advised by OCUA that $600, 000 remains in the OCUA contract, but the lowest bid to complete the OCUA Contract is $1, 000, 000. (Jd. at 2.) Bond Safeguard is expected, according to its brief, to cover the difference. (Id.)

The settlement challenged herein called for OCUA to reject the contract and in exchange OCUA would pay the Trustee $5, 645.27 in retainage and $61, 680 for work performed by the Debtor (collectively, the "Settlement Funds"). (Id.) Bond Safeguard objected to the proposed settlement. This objection was overruled and following a hearing, the Bankruptcy Court approved the proposed settlement via the aforementioned Settlement Order. (Jd. at 3.) Bond Safeguard appeals the entry of the Settlement Order. (Id.) Bond Safeguard argues ...

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