Stratesec, Inc.

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
STRATESEC, INC.,
Debtor.
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Case No. 04-00696
(Chapter 11)
MEMORANDUM DECISION RE DIRECTING TRUSTEE TO
SHOW CAUSE, IF ANY HE HAS, WHY THE COURT OUGHT
NOT DENY HIS MOTION TO AMEND ORDER APPROVING SETTLEMENT
This decision addresses the Expedited Motion to Amend
Order Approving Trustee’s Settlement With Louis B. Friedman,
As Trustee of the E.S. Bankest, L.C. Liquidating Trust and
McGladrey & Pullen, LLP (Docket Entry (“DE”) No. 233) filed by
Stephen H. Marcus, the chapter 11 trustee in this case. The
motion seeks ths court’s entry of a Bar Order submitted with
the motion. The Settlement Agreement granted releases of
claims against certain entities (the “released parties”). The
Bar Order would enjoin “all persons” from pursuit against
those released parties of contribution or indemnity claims
“arising out of or related to the claims or allegations
asserted by, or which could have been asserted by [Marcus],”
The decision below is signed as a decision of
the court.
Signed: July 29, 2007.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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1 Paragraph 3.1 of the Settlement Agreement required the
filing of a motion with the “Bankruptcy Court” (defined to
mean the United States Bankruptcy Court for the Southern
District of Florida) to approve the Settlement Agreement,
along with a proposed Bar Order; it did not call for the
filing of the proposed Bar Order with the motion to approve
the Settlement Agreement by the “Stratesec Court” (defined to
mean this court).
2
and would deem such contribution or indemnity claims
extinguished. I have three major difficulties with the
motion.
First, the Settlement Agreement does not appear to have
required the trustee to seek a Bar Order from this court. The
trustee asserts:
The Court-approved Settlement Agreement provided for
and contemplated the attachment of a proposed “Bar
Order” referenced in Paragraph 3.1. However, the
proposed Bar Order was inadvertently omitted when
the 9019 Motion was filed with the Court.
(Mot. ¶ 4.) True, Paragraph 3.1 of the Settlement Agreement
referred to a Bar Order (which was supposed to be but was not
attached to the copy of the Settlement Agreement filed with
the court), but that Bar Order was to be submitted for
consideration not by this court but by the United States
Bankruptcy Court for the Southern District of Florida before
which certain litigation was pending that was also the subject
of the Settlement Agreement.1 Moreover, the so-called 9019
Motion (the motion filed in this court to seek approval of the
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2 That the Settlement Agreement contemplated that the Bar
Order would be entered by the United States Bankruptcy Court
for the Southern District of Florida (the “Bankruptcy Court”)
instead of this court (the “Stratesec Court”) is made evident
by other provisions of the Settlement Agreement, and by the
motion to approve the Settlement Agreement.
Paragraph 1.1 of the Settlement Agreement called for the
Settlement Payment to occur after:
(i) the Bankruptcy Court’s approval of this
Settlement Agreement and entry of [the] Bar Order .
. ., and (ii) the Stratesec Court’s approval of this
Settlement Agreement . . . .
(Emphasis added.)
Paragraph 3.2 of the Settlement Agreement stated:
In the event that the Stratesec Court does not
approve this Settlement Agreement, or the Bankruptcy
Court does not enter the Bar Order in the form
attached hereto as Exhibit D, or if the Bankruptcy
Court enters the Bar Order but . . . the Bar Order
is . . . reversed, then this Agreement shall be
canceled and terminated . . . .
(Emphasis added.)
Finally, the motion to approve the Settlement Agreement
noted that under the Settlement Agreement “[t]he Florida Court
will enter a Bar Order in the form attached hereto as Exhibit
B,” but it did not indicate that under the Settlement
Agreement this court was to enter a Bar Order.
3
Settlement Agreement) itself attached as Exhibit B the
proposed Bar Order which, as required by Paragraph 3.1, was
captioned for entry by the United States Bankruptcy Court for
the Southern District of Florida (and not by this court).2
Because the proposed Bar Order referred to in Paragraph 3.1 to
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3 Beyond the requirement of commencing an adversary
proceeding, the trustee would be required in such an adversary
proceeding to establish that subject matter jurisdiction
exists to entertain a request for such injunctive relief. It
is doubtful that granting the requested Bar Order--enjoining
third parties (identified as only “all persons”) from pursuing
claims for contribution or indemnification from the released
parties--would have an impact on the administration of the
bankruptcy estate. Without any such impact on the estate,
this court would likely lack subject matter jurisdiction.
4
which the trustee alludes was to be filed only with the United
States Bankruptcy Court for the Southern District of Florida,
he has not established a need under the Settlement Agreement
for him to request this court to issue a Bar Order.
Second, the proposed issuance of a Bar Order raises
fundamental procedural issues. With exceptions of no
applicability here, Federal Rule of Bankruptcy Procedure
7001(7) requires that a proceeding seeking an injunction be
brought as an adversary proceeding.3 This court has made
clear on numerous occasions that counsel ought not include as
part of an order provisions this court plainly has no
authority to grant. Without an adversary proceeding having
been commenced, a Bar Order, if issued, would not be worth the
paper it is written on.
Third, the proposed Bar Order raises substantive issues
regarding the Court’s authority to issue the Bar Order.
First, Marcus has not shown that the releases under the
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4 Because the Bar Order would enjoin “all persons,” and
does not identify their contribution and indemnification
claims, the court would have to examine the laws of all the
states (indeed, of all the world) to ascertain the effect of a
release of claims against the released parties on any possible
contribution and indemnification claims of other entities.
This reinforces the earlier point that an adversary proceeding
is required for obtaining injunctive relief. In an adversary
proceeding the plaintiff would have to identify the defendants
in order for them to be sued for injunctive relief. In turn,
that would facilitate an identification of the nonbankruptcy
law governing the effect of the release on the contribution
and indemnification claims.
5
Settlement Agreement in favor of the released parties provides
a basis for ruling that all contribution and indemnification
claims against them have been extinguished.4 Second, even if
the releases under the Settlement Agreement bar those third
parties from suing the released parties, there is no showing
of an imminent threat that those third parties will sue the
released parties, as required to establish a need for an
injunction. See City of Los Angeles v. Lyons, 461 U.S. 95,
105 (1983) (party seeking an injunction against police abuse
must show “real and immediate threat of again being illegally
choked”); Shapiro v. Cadman Towers, Inc., 51 F.3d 328, 332 (2d
Cir. 1995) (“actual and imminent” injury required); JSG
Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75, 80 (2d Cir.
1990). Finally, if nonbankruptcy law does bar assertion
against the released parties of contribution and
indemnification claims, there has been no showing why the
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6	O:\Judge Temp Docs\Stratesec Memorandum Decision re OTSC re Motion to Amend Order Approving Settlement v3.wpd
ability to raise that bar as a defense ought not be an
adequate remedy at law, thus precluding injunctive relief.
See Cadman Towers, 51 F.3d at 332.
Accordingly, an order follows requiring Marcus to
supplement his motion to show cause, if any he has, why this
court ought not deny his motion in light of the foregoing.
[Signed and dated above.]
Copies to: Katherine Sutcliffe Becker, Esq.; Office of U.S.
Trustee.
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