Harrelson Utilities, Inc.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
HARRELSON UTILITIES, INC., 	CHAPTER 11
CASE NO. 09-02815-8-RDD
DEBTOR.
ORDER APPROVING JOINT MOTION
TO APPROVE SETTLEMENT AND COMPROMISE
Pending before the Court is the Joint Motion to Approve Settlement and Compromise
filed by First Financial Credit Inc. (“FFCI”) and Ferguson Enterprises, Inc. of Virginia
(“Ferguson,” hereinafter referred to with FFCI as the “Parties”) filed on October 1, 2010 (the
“Motion”) and the Objection to the Joint Motion To Approve Settlement filed by Harrelson
Utilities, Inc. (the “Debtor”) on October 6, 2010 (the “Objection”). 	The Court conducted a
hearing on November 10, 2010 in Wilson, North Carolina to consider the Motion and the
Objection.
Pursuant to 11 U.S.C. §§ 105, 502, and 541 and Bankruptcy Rule 9019, the Parties
request that the Court enter an order approving the settlement and compromise of certain claims,
SO ORDERED.
SIGNED this 22 day of November, 2010.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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as well as, directing disbursement of certain funds.
In addition to the settlement of claims and disbursement of funds, the Parties also have
agreed to dismiss the appeal pending before the United States District Court for the Eastern
District of North Carolina, Western Division, and captioned as Ferguson Enterprises, Inc. of
Virginia v. Harrelson Utilities Inc., Case No. 5:09-cv-00426-FL.1 Ferguson shall execute and
file with the appropriate Register of Deeds cancellation of its Claim of Lien and Claim of Lien
Upon Funds as to certain projects specifically identified in the Motion and the $10,000.00 bond
posted by Ferguson with the Clerk of Court shall be cancelled and released.
The Parties further agreed that except as specifically described in the Motion, Ferguson
and FFCI fully and completely release each other as to all matters in connection with the funds
related to the properties addressed in the Motion. FFCI shall retain its liens and lien rights to the
extent that they are not modified by the terms of the agreement.
Lastly, the Parties request that the Court vacate the Order Determining that the Automatic
Stay was Violated, Denying Request for Sanctions, and Dismissing Motions for Relief from the
Automatic Stay docketed on July 30, 2009 (the “Lien Order”) in the Bankruptcy Court appealed
by Ferguson in the Ferguson Enterprises, Inc. of Virginia v. Harrelson Utilities Inc., District
Court Case No. 5:09-cv-00426-FL.
The Debtor, though not a party to the settlement agreement between the Parties, objected
to the Motion on the basis that (1) the Motion was not properly served on creditors; (2) the
Parties have failed to file a notice of motion; and (3) vacatur of the Lien Motion is inappropriate
1 This appeal has been consolidated with the pending appeal in Ferguson Enterprises, Inc.
of Virginia v. Mammoth Grading, Inc., Case. No. 5:10-cv-0316-H. Pursuant to Order
Confirming [Chapter 11] Plan, docketed by this Court on April 16, 2010, FFCI assumed the
responsibility for the appeal and the Debtor agreed to substitute FFCI as the real party in interest.
FFCI obtained the complete authority and discretion to dismiss, settle, and pursue all appeal
rights and any funds received were to be credited against FFCI’s class 12 claim.
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in this circumstance as it affects not just the settling parties, but other creditors and parties-in-
interest involved in this bankruptcy proceeding.
The request to vacate the Lien Order as part of the proposed settlement appears to be an
attempt to nullify a public act of government by way of a settlement agreement.
The Supreme Court considered the appropriateness of vacating an order as a result of a
settlement in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership. 513 U.S. 18 (1994). 	In
U.S. Bancorp, the parties reached a settlement while an appeal was pending before the circuit
court. Id. A creditor requested that the Supreme Court vacate the judgment of the Court of
Appeals, arguing that the judgment was moot because of the settlement. Id. The Supreme Court
stated that:
[W]hen federal courts contemplate equitable relief, [a holding of a court] must
also take account of the public interest. ‘Judicial precedents are presumptively
correct and valuable to the legal community as a whole. They are not merely the
property of private litigants and should stand unless a court concludes that the
public interest would be served by a vacatur.’
Id. at 26 (citing Izumi Seimitsu Kogyo Kabushiki Kaisha v. U.S. Philips Corp., 510 U.S.
24 (1993) (STEVENS, J., dissenting). The Court stated that “mootness by reason of settlement
does not justify vacatur of a judgment under review” but went on to recognize that in certain
circumstances vacatur may be appropriate. Id. at 29. 	In exceptional circumstances and where
equity justifies it, vacatur may be appropriate. Id. However, “exceptional circumstances do not
include the mere fact that the settlement agreement provides for vacatur – which neither
diminishes the voluntariness of the abandonment of review nor alters any of the policy
considerations” suggested by the Court. U.S. Bancorp, 513 U.S. at 29.
Prior to the Supreme Court’s decision in U.S. Bancorp., the Tenth Circuit in Oklahoma
Radio Assoc. v. Fed. Depositor Insurance Corp. v. Magnolia Broad. Co., Inc. - as third-party
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defendant and appellant, 3 F.3d 1436 (10th Cir. 1993) considered vacatur of a previously entered
opinion of the court as a condition of settlement. In the Oklahoma Radio case, the parties reached
a settlement of their disputes and, as part of that settlement, moved to vacate and expunge a prior
opinion of the court. In refusing to vacate its previous opinion, the court stated:
[t]he furthering of settlement of controversies is important and desirable, but there
are significant countervailing considerations which [the court] must also weigh. A
policy of permitting litigants to use the settlement process as a means of obtaining
the 	withdrawal 	of 	unfavorable 	precedents 	is 	fraught 	with 	the 	potential 	for
abuse…[w]hen the parties’ bargain calls for judicial action,…the benefits of
settlement to the parties are not the only desiderata...[t]he precedent, a public act of
a public official, is not the parties’ property….Moreover, the reasoning in the
published opinion may be helpful to other courts to the extent that it is persuasive.
Id. at 1444 (internal citations and quotations omitted). See also Mahogany Run Condo.
Assoc., Inc. v. ICG Realty Mgmt. Corp. (In re Icon Investment Trust No. 1), 2004 Bankr. LEXIS
183 *10, Case No. 399-00013 (Bankr. D.V.I. 2004) (recognizing that although settlements are
favored and parties are free to sign waivers or releases as they deem appropriate, the parties “are
not free to agree to nullify a memorandum opinion and order of the court which set honorable
precedent without appellate judicial review and determination.”) (Emphasis in original).
Here, the Parties failed to present any argument or evidence to the Court that it should
vacate the Lien Order based on equity or any exceptional circumstances. Counsel for Ferguson
argued that no harm would be done by vacating the Lien Order in this bankruptcy proceeding, as
a similar order was docketed in Mammoth Grading, Inc., Case No. 09-01286-8-SWH which is
also on appeal. 	However, the order docketed July 31, 2009, in Mammoth Grading, Inc.
references the holding in the Harrelson Lien Order. Since the Lien Order and the order entered in
Mammoth Grading, Inc. are so related, vacating the Lien Order might deprive the parties in the
Mammoth Grading, Inc. appeal from having the issues on appeal fully considered to the same
extent as if the Lien Order had not been vacated.
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The Lien Order in Harrelson held that the filing by subcontractors of a notice of claim of
mechanic’s and materialmen’s liens on funds due to a debtor who is their contractor, violated the
automatic stay of §362(a)(4) and is not excepted under §362(b)(3). 	This decision has created
much consternation in the construction industry in North Carolina, when prior to the entry of the
Lien Order in Harrelson, the filing of a notice of claim of mechanic’s and materialmen’s lien had
generally been considered by the North Carolina construction industry to be an exception to the
automatic stay pursuant to §362(b)(3). 	Just because a decision of this court is controversial or
causes consternation, does not constitute an exceptional circumstance that would justify vacatur.
Therefore, the Court declines to vacate the Lien Order as part of the settlement between the
Parties.2
Therefore, it further appearing that the Joint Motion for Approval of Compromise and
Settlement as described in the Motion and with the subsequent deletion of the vacatur of the Lien
Order provision on the record should be granted.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED:
1. 	That 	the 	Joint 	Motion 	to 	Approve 	Settlement 	and 	Compromise 	is
ALLOWED except to the extent that the Motion seeks vacatur of the
Lien Order, which provision has by agreement of the parties been
removed from the settlement agreement;
2. 	That counsel for Centex Homes is hereby ordered to distribute the
$76,411.83 that is held in escrow, pursuant to earlier order of this Court,
and all accrued interest on said sum, as follows: $38,205.92, plus 50% of
2 After a brief recess in light of this Court’s concern about the vacatur provision in light of higher court
precedent, counsel for Ferguson consulted with his client and counsel for FFCI. Counsel for Ferguson
informed the Court that his client was willing to move forward with the proposed settlement without the
vacatur provision. Counsel for FFCI consented to the proposed modification to the terms of the agreement.
Counsel for the Debtor did not object to the deletion of the vacatur provision.
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any accrued interest, to Ferguson Enterprises, Inc. of Virginia; and
$38,205.91, plus 50% of any accrued interest, to Financial Federal Credit
Inc.;
3. 	That 	counsel 	for 	1st 	AB, 	Inc. 	is 	hereby 	ordered 	to distribute 	the
$115,379.24 held in escrow, pursuant to earlier order of this Court, and
all accrued interest on said sum, as follows: $57,689.62, plus 50% of any
accrued 	interest, 	to 	Ferguson 	Enterprises, 	Inc. 	of 	Virginia; 	and
$57,689.62, plus 50% of any accrued interest, to Financial Federal Credit
Inc.;
4. 	That the Debtor’s account receivable in connection with the Schiefflin
Industrial Park project in the amount of $42,736.19 is hereby jointly
assigned to Financial Federal Credit Inc. and Ferguson Enterprises, Inc. of
Virginia, and Peak City Partners, LLC, the owner of the Schiefflin
Industrial Park project, is authorized and directed to pay $21,368.10
directly to Ferguson Enterprises, Inc. of Virginia, plus 50% of any
accrued interest on said $42,736.19 amount, and to pay to Financial
Federal Credit Inc. $21,368.09 plus 50% of any accrued interest on said
$42,736.19 amount;
5. 	As and when Ferguson Enterprises, Inc, of Virginia and Financial Federal
Credit Inc. receive funds as set forth in paragraphs 2 through 4 above,
both parties shall notify counsel for the Debtor of the same, and their
respective unsecured claims shall be reduced accordingly;
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6. 	Ferguson Enterprises, Inc. of Virginia is hereby authorized to cancel the
$10,000.00 appeal bond that it has posted with the Clerk of Court, and to
have said funds returned by said Clerk of Court to Ferguson Enterprises,
Inc. of Virginia;
7. 	Subject to Financial Federal Credit Inc. and Ferguson Enterprises, Inc. of
Virginia each receiving the amounts set forth in paragraphs 2 through 4
above, Financial Federal Credit Inc. and Ferguson Enterprises, Inc. of
Virginia shall be deemed to have mutually released each other of and from
any and all claims related to or concerning the Appeal and the Bond Off
Amounts;
8. 	Except as to the accounts receivable giving rise to the amounts set forth
above, with respect to which the parties have settled their differences as
hereinabove recognized and approved, the lien of Financial Federal
Credit Inc. on the Debtor’s assets, including its accounts receivable, shall
remain intact;
9. 	Except as specifically provided above, the Confirmation Order shall not
be 	deemed 	modified 	in 	any 	respect 	and 	shall 	otherwise 	remain
controlling; and,
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10. 	The Parties shall dismiss with prejudice the appeal pending before the
United States District Court for the Eastern District of North Carolina,
Western Division and captioned as Ferguson Enterprises, Inc. of Virginia
v. Harrelson Utilities Inc., Case No. 5:09-cv-00426-FL.
SO ORDERED.
END OF DOCUMENT
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