Superior Acquisitions, Inc.

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
SUPERIOR ACQUISITIONS, INC., 	No. 10-13730
Debtor(s).
______________________________________/
Memorandum on Motion for Approval of Compromise
_________________
At the time it filed its Chapter 11 petition , Chapter 11 debtor Superior Acquisitions, Inc., had
a state court action pending against Donica,LLC, Matt Riveras, Willis Bruns, the City of Lakeport,
and others entitled Superior Acquisitions,Inc. v. City of Lakeport, et al, Lake County Superior Court
Case No. CV405485. Among other things, this action seeks to obtain title and ownership to certain
real property commonly known as 802-898 Lakeport Blvd., Lakeport, CA and to recover certain
damages from the City of Lakeport for refusing to honor an expired letter of intent to sell the subject
real property to the Debtor. Although it had a duty to disclose this lawsuit in its schedules, the debtor
failed to do so. It also did not mention the lawsuit in its proposed disclosure statement.
Linda Green is the Chapter 11 trustee, appointed for cause due to other misdeeds by the debtor.
Green learned of the lawsuit when she was contacted by attorneys for some of the defendants. Green
has moved the court for approval of a compromise of the state court lawsuit for $10,000.00. 	Barry
Johnson, president and CEO of the debtor, has objected. He admits that he failed to schedule the
lawsuit, but argues that the settlement amount is unreasonably small. In his opinion, the lawsuit has a
value in excess of $1 million. 	An attorney who is owed money by the debtor has also objected on the
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Entered on Docket
May 26, 2011
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 10-13730 Doc# 272 Filed: 05/26/11 Entered: 05/26/11 12:51:09 Page 1 of
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same grounds.
A successful outcome of the litigation is extremely problematical. There is no contract
between the debtor and the city, only an “agreement to agree.” Continued prosecution is also risky for
the estate, as there is significant exposure to attorneys’ fees which would be administrative expenses in
this Chapter 11 case. Moreover, success might depend on the testimony of Johnson himself, and he
has not demonstrated the necessary credibility to the court.
While success in litigation against a municipality usually results in a collectible judgment, that
may be an unwarranted assumption in this case. Lake County is severely depressed, and the ability of
the City of Lakeport to satisfy a seven-figure damages claim is not something the court can assume, in
the unlikely event that the lawsuit was successful.
The court also notes that a motion for summary judgment has been filed in the state court
action. It appears that the motion has a good chance of being granted based on the lack of a binding
agreement alone. In addition, the motion contains several other grounds which appear to have merit.
Johnson’s objection is easily disregarded, as the court’s mandate is to give primary
consideration to the creditors and not the equity interests of the debtor. The court takes the attorney’s
objection more seriously, but still reaches the conclusion that the proposed settlement is in the best
interest of creditors. The alternative is probably no recovery at all and creation of administrative
expense claims having priority over the general claims of creditors.
An auction will be held to see if Johnson or anyone else wants to bid more for the right to
pursue the lawsuit, so long as the bankruptcy estate is held harmless from claims arising from the
continued litigation. With that sole condition, the objections will be overruled and the compromise
approved. An appropriate order will be entered.
Dated: May 26, 2011
SAlan Jaroslovsky
U.S. Bankruptcy Judge
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Case: 10-13730 Doc# 272 Filed: 05/26/11 Entered: 05/26/11 12:51:09 Page 2 of
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