[00:00:00] Speaker 03:
Summit Investment Management versus Connelly, case number 221297.

[00:00:08] Speaker 03:
Counsel, you may proceed.

[00:00:15] Speaker 04:
May I please the court?

[00:00:17] Speaker 04:
Mr. Johnson, Mr. Connelly.

[00:00:19] Speaker 04:
My name is Chad Cabe, and I represent the appellants in this matter.

[00:00:22] Speaker 04:
The appellants are Summit Investment Management, LLC,

[00:00:25] Speaker 04:
SBN EDGE LLC, and SBN FCCG LLC.

[00:00:30] Speaker 04:
And I'll try to reserve three to five minutes for rebuttal if I may.

[00:00:35] Speaker 04:
By and through this appeal, Your Honors, we're requesting the court reverse and or vacate the orders granting the settlement, granting approval of the settlement agreements between the trustee, summit management, and footlocker.

[00:00:49] Speaker 04:
At its essence, this appeal, from my basis, is about basic notions of fairness,

[00:00:56] Speaker 04:
and due process, and the integrity of the judicial process.

[00:01:01] Speaker 04:
Parties need to be able to rely on the orders enforcing agreements and the court orders adopting them.

[00:01:08] Speaker 04:
And I will say in this case, Your Honors, we don't believe that occurred.

[00:01:13] Speaker 04:
Now, from a background standpoint, the entire case is complex.

[00:01:17] Speaker 04:
But from a people's standpoint, it's fairly straightforward.

[00:01:22] Speaker 04:
We have a debtor that filed a Chapter 11 bankruptcy

[00:01:24] Speaker 04:
The finding of the bankruptcy court was the precipitating factor for the bankruptcy filing was the Oklahoma District Court litigation.

[00:01:32] Speaker 04:
We have a debtor that was converted to Chapter 7, and Mr. Conley was then appointed as Chapter 7 trustee.

[00:01:39] Speaker 04:
Again, a note, the precipitating factor for the bankruptcy filing was the Oklahoma litigation.

[00:01:47] Speaker 04:
The relevant parties to the bankruptcy court and the district court action are Stratford Holdings, Footlocker,

[00:01:52] Speaker 04:
the appellants, my clients, as well as the Hall of State Trust.

[00:01:56] Speaker 04:
Otherwise, and importantly, there are only two other claims that were filed in the bankruptcy estate.

[00:02:03] Speaker 04:
There was a claim by the United States trustee for administrative fees in the Chapter 11 case, and a marginal claim with regard to attorney's fees in a prior litigation.

[00:02:12] Speaker 04:
But otherwise, the parties were the parties from Oklahoma.

[00:02:17] Speaker 04:
Now, as the court knows, there were proofs of claims filed.

[00:02:19] Speaker 04:
And the proof of claims filed from Stratford were in the amount of approximately $20 million.

[00:02:23] Speaker 04:
Footlocker, $21 million.

[00:02:25] Speaker 04:
Hall of State, $1.2 million.

[00:02:28] Speaker 04:
Those proofs of claims garnered claim objections.

[00:02:31] Speaker 04:
And the claim objections is really what set this off.

[00:02:34] Speaker 04:
The claim objections were objections to the bankruptcy court being able to handle these matters because these matters were non-core and were circle-in-circle related claims.

[00:02:48] Speaker 04:
In fact, the parties, Stratford and Footlocker, filed two motions for abstention.

[00:02:53] Speaker 04:
Those abstention motions said that the bankruptcy court did not have jurisdiction over these non-court claims and requested that the court abstain.

[00:03:02] Speaker 04:
Those two abstention motions were followed by three motions for relief from stay filed by Stratford, Footlocker, and the Hall of State, saying exactly the same thing, requesting the court grant relief from stay

[00:03:14] Speaker 04:
to move forward in the Oklahoma District Court based on comedy with the District Court, the fact that the District Court had been handling these matters for four to five years, and based on the fact that the Bankruptcy Court didn't have jurisdiction.

[00:03:29] Speaker 04:
And so that was request by the party, which was ultimately granted by the Bankruptcy Court, and what the Bankruptcy Court termed a pivotal ruling.

[00:03:38] Speaker 04:
And that pivotal ruling granted relief from stay for

[00:03:41] Speaker 04:
the Oklahoma District Court to move forward deciding all of the debtors' claims, debtors' claims against and by other parties, including the appellants as well as Stratford and Footlocker.

[00:03:52] Speaker 04:
And that continued in the Oklahoma District Court until the trustee Stratford and Footlocker filed settlement motions.

[00:03:59] Speaker 04:
Those settlement motions were filed in the guise of 1919 settlement motions.

[00:04:04] Speaker 04:
And the settlement standard, fair and reasonable, and the trustee's business judgment is one of the reasons why those settlements were filed in the bankruptcy court rather than litigated in the district court.

[00:04:15] Speaker 04:
And the bankruptcy court was fine, was accepting of these settlements, notwithstanding the fact that it granted relief from state for exactly the Oklahoma district court to do this job.

[00:04:27] Speaker 04:
And I know, and we noted in our briefing, that the bankruptcy court was frustrated.

[00:04:31] Speaker 04:
And I understand it's a long litigation.

[00:04:33] Speaker 04:
But the bankruptcy court note is growing increasingly frustrated with the nature of what's remaining in the delay.

[00:04:39] Speaker 04:
The bankruptcy court also said, I'm really close to the point of considering vacating my order on granting relief from stay to move it here so we can resolve it here.

[00:04:47] Speaker 04:
And quite frankly, Your Honors, that's exactly what he did.

[00:04:50] Speaker 04:
He brought the matter from Oklahoma back under the guise of a 1919 settlement agreement.

[00:04:55] Speaker 04:
And really, that's the crux of our appeal.

[00:04:58] Speaker 04:
Our appeal, we list numerous issues of what we believe to be error, but in the end,

[00:05:03] Speaker 04:
It's about whether the bankruptcy court had jurisdiction to bring this matter back to the bankruptcy court.

[00:05:09] Speaker 04:
And secondarily, whether the bankruptcy court had jurisdiction to decide what we believe to be circular and circular related claims.

[00:05:17] Speaker 04:
And we don't believe that bankruptcy court had that jurisdiction.

[00:05:20] Speaker 04:
And those are the arguments that I'd like to concentrate on today.

[00:05:23] Speaker 04:
Obviously, I'd be happy to answer any questions with regard to our other arguments.

[00:05:26] Speaker 04:
But I do think that those are the seminal arguments before you today.

[00:05:30] Speaker 04:
We believe it was air to allow Stratford and Footlocker to settle with the trustee and liquidate their claims in the bankruptcy court.

[00:05:38] Speaker 04:
And I want to note for the record that when I was preparing for this argument, I was remiss in not listing a case in our table of cases.

[00:05:47] Speaker 04:
It's a case that was dealt with by Chief Judge Bremer, Henry Thompson, in footnote eight of his opinion.

[00:05:53] Speaker 04:
So Mr. Johnson is aware of it and they've responded to it.

[00:05:56] Speaker 04:
I do think it's appropriate, and I'd be happy to file any kind of supplemental briefing the court would like.

[00:06:01] Speaker 03:
If you'd like to file a 28-J letter to save some of your argument time, that would be fine.

[00:06:06] Speaker 04:
Very good.

[00:06:07] Speaker 04:
I will.

[00:06:07] Speaker 04:
And I'll just go to the high points.

[00:06:09] Speaker 04:
In its most condensed version, Judge Cain dealt with a very similar issue.

[00:06:14] Speaker 04:
And he said, once a bankruptcy judge grants relief from the automatic state for litigation to proceed in another court, it is an abuse of discretion for the bankruptcy court to contravene its prior order

[00:06:25] Speaker 04:
based on the interest of quicker administration of the bankruptcy case.

[00:06:32] Speaker 00:
Well, can I just stop you there?

[00:06:33] Speaker 00:
Certainly.

[00:06:33] Speaker 00:
So is that the standard of review you're asking us to apply here, abuse of discretion?

[00:06:39] Speaker 00:
And isn't that a very forgiving standard?

[00:06:42] Speaker 00:
It is.

[00:06:43] Speaker 00:
How do we understand how this possibly could be an abuse of discretion?

[00:06:48] Speaker 04:
Well, so if you go to the fair and reasonable standards under 1990, that is what the case law says.

[00:06:54] Speaker 04:
standard of review is we're obviously saying that the court didn't have jurisdiction to enter orders after the release from state.

[00:07:02] Speaker 04:
So that is a different standard.

[00:07:04] Speaker 04:
I think that's a standard that you can look at from that perspective.

[00:07:08] Speaker 00:
Well, then I guess I'm right.

[00:07:11] Speaker 00:
What are you arguing?

[00:07:13] Speaker 04:
I'm arguing that the court did not have jurisdiction so this court can look at this anew.

[00:07:19] Speaker 04:
De novo.

[00:07:20] Speaker 03:
De novo.

[00:07:21] Speaker 03:
Correct.

[00:07:22] Speaker 03:
And you're arguing subject matter jurisdiction.

[00:07:24] Speaker 03:
Subject matter jurisdiction with regard to the CERCLA claims as well as just... Where has Congress stated that the automatic stay provisions affect the Bankruptcy Court's jurisdiction?

[00:07:36] Speaker 04:
I'm sorry, could you say that one more time?

[00:07:37] Speaker 03:
Where has Congress said that the automatic stay provisions affect the Bankruptcy Court's jurisdiction?

[00:07:45] Speaker 04:
Well, I don't know that... I see it in Congress other than 28 U.S.C.

[00:07:48] Speaker 04:
Section 1334 grants the jurisdiction of the Bankruptcy Court title

[00:07:53] Speaker 04:
under and related to proceedings.

[00:07:56] Speaker 04:
And to the extent that the Bankruptcy Court granted relief from stay for these matters to be handled in the Oklahoma District Court, I don't think jurisdiction exists under 28 U.S.C.

[00:08:06] Speaker 04:
Section 33.

[00:08:07] Speaker 03:
How did the court give up jurisdiction?

[00:08:09] Speaker 03:
It has jurisdiction under the statutes.

[00:08:13] Speaker 03:
Is there anything in the statutes that say that once there's an automatic stay, it lacks jurisdiction?

[00:08:20] Speaker 04:
Not only under the 28 U.S.C.

[00:08:23] Speaker 04:
1334 jurisdiction, but under the case law, Your Honor.

[00:08:26] Speaker 04:
I believe that the case law interpreting that provision as well as other provisions does say that the bankruptcy court loots jurisdiction as to the matter it granted relief from stay on.

[00:08:36] Speaker 03:
What's your best case?

[00:08:38] Speaker 04:
For relief from stay?

[00:08:40] Speaker 03:
No, for no subject matter jurisdiction.

[00:08:43] Speaker 04:
I think the statute in of itself, Your Honor.

[00:08:46] Speaker 03:
Well, you just said case law.

[00:08:47] Speaker 03:
I don't see anything in the statute that deprives the bankruptcy court of jurisdiction, whether there's an automatic stay or not.

[00:08:55] Speaker 03:
And then you said that the case law supports you.

[00:08:57] Speaker 03:
So what's your best case?

[00:08:59] Speaker 04:
Your Honor, the Thompson case that I cited to the court right now, I think, addresses the issue from a 60,000-foot level, which is once the bankruptcy court grants relief from stay,

[00:09:12] Speaker 04:
It no longer has jurisdiction or, alternatively, should not exercise any discretion that it did have.

[00:09:17] Speaker 03:
Well, that's a different question.

[00:09:19] Speaker 03:
There's a question of whether a court has power to act, and then there's a question of whether it has discretion to act.

[00:09:26] Speaker 03:
Which one are you arguing?

[00:09:27] Speaker 04:
Well, primarily, I'm arguing that there was no jurisdiction.

[00:09:32] Speaker 04:
To the extent you disagree with that, I'm also suggesting, Your Honors, that the bankruptcy court shouldn't have exercised jurisdiction after it did what it did.

[00:09:40] Speaker 04:
And I think that's the case law that I'm pointing to that talks about the idea that once you grant relief from stay, it's really in the other court's jurisdiction to handle and resolve those matters.

[00:09:51] Speaker 03:
Could I just ask you, there's a lot of detail here.

[00:09:55] Speaker 03:
Sure.

[00:09:55] Speaker 03:
One question I've had has to do with the Footlocker stipulation.

[00:09:59] Speaker 03:
Yes, sir.

[00:10:01] Speaker 03:
And that is that this is this argument that the parties have made about whether

[00:10:09] Speaker 03:
the stipulation that footlockers should be allowed its damages and costs from the Oklahoma case, whether that's appropriate under Section 502E2.

[00:10:19] Speaker 03:
Are you with me so far?

[00:10:21] Speaker 03:
I am.

[00:10:22] Speaker 03:
Good.

[00:10:23] Speaker 03:
Because it was allowed in the future only when it's fixed in the Oklahoma case.

[00:10:29] Speaker 03:
Correct.

[00:10:32] Speaker 03:
Why isn't that a claim that would be fixed in the future rather than the present?

[00:10:39] Speaker 04:
Well, I think that's exactly what happened was the bankruptcy court didn't disallow that claim under 502E1B when it should have disallowed that claim.

[00:10:48] Speaker 04:
And because it didn't disallow that claim, then it allowed the trustee to allow a default judgment against the debtor.

[00:10:56] Speaker 04:
And then it said, come back to bankruptcy court.

[00:10:59] Speaker 04:
I'll allow a default judgment against the debtor.

[00:11:01] Speaker 04:
And then you file that in the Oklahoma District Court.

[00:11:05] Speaker 04:
And then the Oklahoma District Court determines that.

[00:11:07] Speaker 04:
So we have it going from bankruptcy court to Oklahoma court to bankruptcy court to the Oklahoma court.

[00:11:13] Speaker 04:
We don't think that should have been approved.

[00:11:14] Speaker 03:
And it was the... Could you tie that argument to the statute and tell me why it doesn't comply with the statute?

[00:11:21] Speaker 04:
Well, I think all claims under 502E1B should be disallowed until later on.

[00:11:26] Speaker 04:
And instead, in this case, the 502E1B claim was not disallowed.

[00:11:31] Speaker 04:
Instead, it was allowed against the estate.

[00:11:34] Speaker 04:
It just was allowed

[00:11:35] Speaker 04:
to go further in the Oklahoma District Court for liquidation purposes.

[00:11:41] Speaker 03:
I understood you to be making an argument about contingency.

[00:11:45] Speaker 03:
Am I understanding that correctly?

[00:11:48] Speaker 03:
Certainly.

[00:11:48] Speaker 04:
It's a contingent, unliquidated, disputed claim, Your Honor, and something that should have been decided by the Oklahoma District Court.

[00:11:55] Speaker 04:
And that's my point, is that when relief from state is granted to do that, that's exactly what should happen.

[00:12:01] Speaker 04:
Your Honor, I note that I only have three minutes left.

[00:12:04] Speaker 01:
I'm happy to answer first.

[00:12:07] Speaker 01:
But counsel, counsel, may I interrupt for a moment?

[00:12:08] Speaker 01:
Certainly, Your Honor.

[00:12:10] Speaker 01:
You mentioned several times that CERCLA was involved in the Oklahoma court.

[00:12:19] Speaker 01:
Is that correct?

[00:12:20] Speaker 04:
Yes, that is correct, Your Honor.

[00:12:21] Speaker 04:
There is CERCLA contribution.

[00:12:24] Speaker 01:
And it's my understanding that the bankruptcy court never considered circular claims and did not adjudicate those claims.

[00:12:35] Speaker 01:
It was the other claims that were adjudicated by the bankruptcy court.

[00:12:40] Speaker 01:
Is that correct?

[00:12:41] Speaker 04:
Your Honor, I would respectfully disagree, and here's why.

[00:12:46] Speaker 04:
We have a piece of property that's worth $415,000, the contaminated property in Oklahoma.

[00:12:52] Speaker 04:
I'm not sure if I'm supposed to be looking there or over there.

[00:12:55] Speaker 04:
Apologies.

[00:12:55] Speaker 04:
I'll look here.

[00:12:56] Speaker 04:
And so under the measure of damages under Oklahoma, the value of damages to the property is the value of the property, $415,000.

[00:13:07] Speaker 04:
So we have claims worth $21 million, $20 million, and then ultimately a $6.5 million claim.

[00:13:13] Speaker 04:
What else are we dealing with if the measure of damages against the property is $415,000?

[00:13:18] Speaker 04:
Well, it's the indemnification circular claims, the contribution claims.

[00:13:23] Speaker 04:
And so, Your Honor,

[00:13:25] Speaker 04:
I understand your question, but I disagree that the bankruptcy court was only dealing with, and the district court was only dealing with contract claims.

[00:13:33] Speaker 04:
They were dealing with circular claims as well.

[00:13:35] Speaker 04:
I hope that answers your question.

[00:13:37] Speaker 04:
And I'm going to reserve the rest, if I may, or if you have another question.

[00:13:41] Speaker 03:
Well, just to follow up, can you explain your position that the bankruptcy court actually determined circular claims?

[00:13:49] Speaker 03:
It seemed to me it was determining the indemnification issue.

[00:13:54] Speaker 03:
between Footlocker and Fogg, but the Circle claims themselves were still up for grabs in the Oklahoma case.

[00:14:02] Speaker 04:
And how I would answer that question is, Your Honor, again, going back to this, my example of the $415,000 property value for this property, the measure of damages is $415,000, and yet we have a $6.5 million claims.

[00:14:17] Speaker 04:
So what are we deciding?

[00:14:18] Speaker 04:
What is the bankruptcy court deciding?

[00:14:19] Speaker 04:
Well, they're not just deciding contract claims, because those contract claims, quote unquote,

[00:14:24] Speaker 04:
included remediation costs.

[00:14:26] Speaker 04:
And the Bankruptcy Court found that.

[00:14:27] Speaker 04:
And so to the extent that we're talking about CERCLA remediation contribution claims, then I do believe the Bankruptcy Court decided CERCLA-related claims.

[00:14:37] Speaker 04:
And I will just, if that's OK, I'll reserve the 30 seconds I have left.

[00:14:40] Speaker 04:
You can do that.

[00:14:41] Speaker 04:
Thank you.

[00:14:45] Speaker 02:
Good morning, Your Honors, and may it please the Court.

[00:14:48] Speaker 02:
Andrew Johnson on behalf of Tom H. Connolly

[00:14:52] Speaker 02:
in his capacity as Chapter 7 trustee for the bankruptcy case of Fodcap Retail Investors LLC.

[00:15:01] Speaker 02:
Mr. Connolly is with me at the council's table today.

[00:15:06] Speaker 02:
The factual and procedural route that brought this dispute to the court is certainly complex.

[00:15:16] Speaker 02:
With respect, however, to what the bankruptcy court did, it was simply to approve three settlements requested or proposed by the bankruptcy trustee.

[00:15:29] Speaker 02:
The bankruptcy court, in oral ruling in which it approved the settlements at issue,

[00:15:38] Speaker 02:
made exhaustive, detailed findings of fact and conclusions.

[00:15:43] Speaker 02:
The transcript from that ruling spans 76 pages.

[00:15:48] Speaker 02:
In the appeal to the U.S.

[00:15:49] Speaker 02:
District Court, Judge Brimmer affirmed bankruptcy court's approval of the settlements at issue.

[00:15:57] Speaker 02:
Judge Brimmer's opinion is 40-some pages.

[00:16:00] Speaker 02:
And Mr. Connolly, the appellee, believes that Judge Bremmer's ruling was well-reasoned and should be affirmed.

[00:16:10] Speaker 02:
With respect to the precise issues before the court,

[00:16:13] Speaker 02:
Jurisdiction for an Article I court, which a bankruptcy court is, is determined by the statutes that Congress has passed.

[00:16:22] Speaker 02:
That is 28 U.S.C.

[00:16:24] Speaker 02:
1334 and 28 U.S.C.

[00:16:26] Speaker 02:
157.

[00:16:27] Speaker 02:
It is in those statutes that Congress gave district courts and the bankruptcy court the power to, among other things, determine the allowance or disallowance of claims.

[00:16:44] Speaker 02:
That is precisely what the bankruptcy court did with these settlements.

[00:16:50] Speaker 02:
These settlements deal with the allowance and the disallowance of claims.

[00:16:56] Speaker 02:
A case cited in the appellee's response brief, in Ray Junk, identifies the distinction between adjudicating claims and approving a settlement of those claims.

[00:17:07] Speaker 02:
The two are not the same thing.

[00:17:09] Speaker 02:
What the bankruptcy court did in approving these settlements

[00:17:13] Speaker 02:
was only that, to approve the settlements.

[00:17:17] Speaker 02:
In the bankruptcy court's order, the written order, in the bankruptcy court's oral ruling, and in the actual settlement agreements at issue, there is prophylactic language, as the bankruptcy court described it, to prevent any preclusive effect from the approval of these settlements in the Oklahoma litigation.

[00:17:41] Speaker 02:
In fact, the agreements and the court's order contemplate that the Oklahoma litigation will in fact continue and the claims to the extent that they need to be adjudicated will be resolved in that forum.

[00:17:56] Speaker 03:
Counsel, didn't the order granting relief from the stay contemplate that the issues addressed in the stipulations should be determined in the Oklahoma case?

[00:18:07] Speaker 02:
Your Honor,

[00:18:09] Speaker 02:
My answer to that is in 28 USC 1334, there is concurrent jurisdiction for certain matters.

[00:18:16] Speaker 02:
The allowance of claims, I believe, is a matter that arises in or arises under the bankruptcy code or in a Chapter 11 case.

[00:18:26] Speaker 02:
And so there is concurrent jurisdiction.

[00:18:28] Speaker 02:
The claims that exist in the Oklahoma court certainly have some impact on the allowance of claims in the bankruptcy case.

[00:18:38] Speaker 02:
But they are not exactly the same thing.

[00:18:41] Speaker 02:
And what the Bankruptcy Court did was allow, through the settlement agreement, a claim for Stratford Holdings LLC in the amount of $6.5 million.

[00:18:51] Speaker 02:
But without impacting or precluding the claims as they would go forward in the Oklahoma US District Court case, Your Honor.

[00:19:01] Speaker 02:
With respect to relief from stay, that is simply a green light for non-bankruptcy forums to continue litigation that may have existed prior to the initiation of a bankruptcy case.

[00:19:17] Speaker 02:
There isn't anything in the order granting relief from stay that would require the trustee to litigate to a conclusion in the Oklahoma court.

[00:19:28] Speaker 02:
There isn't anything in the order granting relief from stay that would prohibit the trustee from settling and seeking approval of those settlements in the bankruptcy court.

[00:19:40] Speaker 03:
Counsel, could you address the question that I raised with Mr. Cavy, and that is this disagreement between the parties about whether the footlocker stipulation

[00:19:56] Speaker 03:
violated Section 502E1 because the claim was contingent at the time of its allowance.

[00:20:07] Speaker 03:
I need some help from both of you on that.

[00:20:09] Speaker 02:
So could you address that issue?

[00:20:12] Speaker 02:
Yes, Your Honor.

[00:20:13] Speaker 02:
As the Court is noting, Section 502E1

[00:20:17] Speaker 02:
prevents the allowance or requires the disallowance of contingent claims for contribution that at the time of the allowance were not yet fixed.

[00:20:27] Speaker 02:
I believe that the settlement agreement with Footlocker, just like the settlement agreement that the bankruptcy court approved for Appellants Summit Investment Management and SBN FCCG LLC, provides for allowance at a future date, but for the present,

[00:20:45] Speaker 02:
The allowance amount is zero.

[00:20:48] Speaker 02:
That is effectively disallowance.

[00:20:51] Speaker 02:
Allowance at zero is no different from the trustee's perspective, and I think as well from the language of 502E, Your Honor.

[00:21:03] Speaker 03:
With respect.

[00:21:05] Speaker 03:
Is that the rationale that the district court gave?

[00:21:10] Speaker 03:
That was one part of the opinion I didn't find exhaustive.

[00:21:15] Speaker 03:
But are you in agreement with that analysis?

[00:21:18] Speaker 02:
Your Honor, I believe that the district court's analysis is correct.

[00:21:21] Speaker 02:
And I think if the court were to look at, it's in the record, it's the trustees proposed corrected interim distribution.

[00:21:31] Speaker 02:
What the court would see is that Footlocker would receive nothing.

[00:21:35] Speaker 02:
That is effectively disallowance, Your Honor.

[00:21:37] Speaker 02:
But yes, I believe that the district court accurately reached an accurate conclusion.

[00:21:47] Speaker 03:
With respect, Your Honors, to what it is that the bankruptcy... I'm sorry, I interrupt again, but I realize I've got a follow-up that's related, and it has to do with the fog caps entry of judgment in favor of Footlocker in the Oklahoma proceeding.

[00:22:12] Speaker 03:
My question there is, did

[00:22:15] Speaker 03:
Did the bankruptcy court really even need to approve that?

[00:22:18] Speaker 03:
I mean, couldn't FOG have done that on its own in the Oklahoma litigation without having it be approved as part of the settlement agreement?

[00:22:28] Speaker 02:
Your Honor, I think that is accurate.

[00:22:30] Speaker 02:
And I think the bankruptcy court reached the same conclusion, because the evidence presented to the bankruptcy court was that there was no reasonable basis to dispute the liability.

[00:22:40] Speaker 02:
So I think what the bankruptcy court did

[00:22:43] Speaker 02:
What the bankruptcy court concluded was that there was simply no defense to be made, period.

[00:22:50] Speaker 02:
And whether it was approved as a settlement or the trustee simply did not respond because there was no good faith response that could be made, the result would be the same.

[00:23:00] Speaker 02:
But I believe as part of a settlement, it is appropriate to provide notice that that would occur to the parties in this case.

[00:23:09] Speaker 02:
So from that perspective, yes, it is appropriate, I think, for the bankruptcy court to approve it.

[00:23:16] Speaker 03:
I guess my question is whether it was necessary.

[00:23:19] Speaker 03:
I understand your argument, but I take it that the answer is it wasn't necessary.

[00:23:25] Speaker 02:
It was not necessary.

[00:23:29] Speaker 02:
With respect to the issue of jurisdiction, which the appellants have identified as a de novo review,

[00:23:37] Speaker 02:
This court, of course, has to identify whether subject matter jurisdiction existed.

[00:23:43] Speaker 02:
But I would like to point out again to the court that that issue was not raised with the Bankruptcy Court.

[00:23:48] Speaker 02:
There was no dispute, there was no objection about the Bankruptcy Court's jurisdiction to approve or consider the settlements at issue.

[00:23:59] Speaker 02:
I would note as well

[00:24:00] Speaker 00:
Well, counsel, I just have to stop you there.

[00:24:03] Speaker 00:
We have to look at jurisdiction no matter whether it was raised.

[00:24:07] Speaker 00:
Isn't that correct?

[00:24:08] Speaker 02:
That is absolutely correct, Your Honor.

[00:24:11] Speaker 02:
I am pointing it out only for the purpose of identifying that the issues that the appellants raised, that is their preference, that the Oklahoma litigation continue and that the trustee continue to litigate was made.

[00:24:26] Speaker 02:
It was simply not identified as a jurisdictional issue.

[00:24:30] Speaker 02:
The same thing is true, Your Honors, with respect to the alleged adjudication of circular claims.

[00:24:37] Speaker 02:
Again, what the bankruptcy court did was approve settlements that relate to the allowance or disallowance of claims in the bankruptcy case.

[00:24:47] Speaker 02:
The prophylactic language

[00:24:49] Speaker 02:
in the agreements, the prophylactic language in the order, and as the bankruptcy court noted in its extensive oral ruling, prevented any preclusive effect or impact on the Oklahoma litigation.

[00:25:04] Speaker 02:
What the bankruptcy court considered in terms of the first factor that bankruptcy courts consider the probable success on the merits was solely under contract-related theories that Footlocker and Stratford had against the debtor.

[00:25:23] Speaker 02:
Those were the lease agreement, the purchase and sale agreement, and the assumption agreement.

[00:25:30] Speaker 02:
Any time that it's mentioned in the bankruptcy court's oral ruling was to identify it as not terribly helpful information because it did not relate to the theory of liability or the theory of damages on which the trustee was proposing the settlement.

[00:25:48] Speaker 03:
Could you respond to Mr. Cady's argument about

[00:25:54] Speaker 03:
I asked him about the circular claims and he responded in part by referring to the value of the property, $415,000.

[00:26:04] Speaker 03:
Could you respond to that argument?

[00:26:06] Speaker 02:
Yes, Your Honor.

[00:26:07] Speaker 02:
I would like to refer to the Bankruptcy Court's oral ruling because I think the Bankruptcy Court was very thorough in this regard.

[00:26:15] Speaker 02:
It looked at the relevant agreements between the debtor and either Stratford or Footlocker.

[00:26:23] Speaker 02:
It identified the relevant provisions which the Bankruptcy Court paraphrased as, in essence, binding the debtor to the lease agreement with Stratford and requiring that the debtor indemnify Footlocker.

[00:26:38] Speaker 02:
They have nothing to do with CERCLA, Your Honor.

[00:26:41] Speaker 02:
Those were purely contract claims, and the damages that the trustee identified were solely related to past costs.

[00:26:51] Speaker 02:
So those potential damages, irrespective of what evidence there may be in the record about the value of the property, are independent.

[00:27:02] Speaker 02:
That is, the contract damages

[00:27:04] Speaker 02:
are not tied to the value of the property any more than the obligations that the debtor had under those relevant agreements are tied to the value of the property.

[00:27:18] Speaker 02:
As a final point, Your Honor, not raised in argument, but the appellants have asserted that their individual rights were impaired in the approval of this settlement agreement.

[00:27:31] Speaker 02:
The trustee believes that the Bankruptcy Court and the U.S.

[00:27:34] Speaker 02:
District Court accurately identified that the only issue

[00:27:40] Speaker 02:
was whether the claims would be allowed in the bankruptcy case.

[00:27:44] Speaker 02:
And the cases that the trustee cited identify that creditors do not have individual rights as it relates to the amount of allowance or disallowance of claims in the bankruptcy case.

[00:27:59] Speaker 02:
So Your Honors, the appellee, Mr. Connolly, would request that this court affirm the district court and the bankruptcy court.

[00:28:07] Speaker 03:
Thank you, Your Honors.

[00:28:08] Speaker 03:
Thank you.

[00:28:09] Speaker 03:
Counsel, before you sit down.

[00:28:10] Speaker 03:
Judge Kelly, do you have anything further?

[00:28:12] Speaker 03:
No, thank you.

[00:28:16] Speaker 03:
Thank you, counsel.

[00:28:17] Speaker 03:
Thank you.

[00:28:25] Speaker 04:
Good morning again.

[00:28:26] Speaker 04:
I know I have very limited time, but I did want to respond with regard to what I believe Mr. Johnson, as well as bankruptcy and district court, considered to be big issues with this prophylactic language.

[00:28:38] Speaker 04:
But I would suggest to you that the prophylactic language, that nothing in the bankruptcy will impact Oklahoma District Court, is illusory.

[00:28:45] Speaker 04:
And we see that because we already see that the default judgment that the court was asking about previously has been entered by the bankruptcy court or allowed the trustee to enter it into the Oklahoma District Court.

[00:28:57] Speaker 04:
To suggest that the Oklahoma District Court is not going to be impacted by these bankruptcy proceedings and these settlement agreements is

[00:29:06] Speaker 04:
quite frankly, just a little bit far-fetched for me, because it already has been.

[00:29:11] Speaker 03:
Do you contest the bankruptcy course determination?

[00:29:16] Speaker 03:
I think the words were a very high probability that FOG is liable, the photographer indemnity.

[00:29:23] Speaker 04:
Yes, we do.

[00:29:24] Speaker 04:
And another reason why this should have been decided in Oklahoma.

[00:29:28] Speaker 04:
Let me give you an example, if I might, very shortly.

[00:29:31] Speaker 04:
To the extent that

[00:29:33] Speaker 04:
This property is worth $415,000, which the testimony is such.

[00:29:37] Speaker 04:
What if, for instance, hypothetical, what if the district court comes back and says, you know what, BonCap is only liable for a million or a million and a half of that.

[00:29:48] Speaker 04:
Well, what's the impact on the estate?

[00:29:50] Speaker 04:
Well, it's significant because Stratford's already been paid $2.3 million.

[00:29:56] Speaker 04:
My client has an estimated claim at zero that's subject to reconsideration under 11 U.S.C.

[00:30:01] Speaker 04:
Section 502J

[00:30:02] Speaker 04:
2008 of the Federal Rules of Bankruptcy procedure.

[00:30:05] Speaker 04:
So my client is in the money at that point.

[00:30:08] Speaker 04:
So it's a significant issue with regard to my client's ability to collect from the estate.

[00:30:17] Speaker 03:
Thank you, counsel.

[00:30:17] Speaker 04:
Thank you, your honor.

[00:30:18] Speaker 04:
Thank you, your honor.

[00:30:20] Speaker 04:
Thank you, your honor.

[00:30:22] Speaker 03:
Thank you to counsel on both sides.

[00:30:26] Speaker 03:
We appreciate your arguments this morning.

[00:30:28] Speaker 03:
The case will be submitted, and counsel are now excused.