Isack Rosenberg

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
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In re: 	Case No. 	09-46326-CEC
ISACK ROSENBERG, 	Chapter 11
Debtor.
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DECISION
Appearances:
Leo Fox
630 Third Avenue
18th Floor
New York, NY 10017
Attorney for Debtor
Robert J.E. Edwards
Polsinelli Shughart PC
7 Penn Plaza
Suite 600
New York, NY 10001
Attorneys for RCG Longview II, L.P.,
RCGLV Maspeth LLC and Galster
Funding, L.L.C.
Joseph C. Savino
Lazer, Aptheker, Rosella & Yedid, P.C.
225 Old Country Road
Melville, NY 11747
Attorneys for Capital One, N.A.
William Curtin
Office of the United States Trustee
271 Cadman Plaza East
Suite 4529
Brooklyn, NY 11201
Wayne M. Greenwald
475 Park Avenue South - 26th Floor
New York, NY 10016
Attorney for Abraham Rosenberg
CARLA E. CRAIG
Chief United States Bankruptcy Judge
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This matter comes before the Court on the application of Isack Rosenberg,
Debtor-in-Possession (the “Debtor”) for approval of a settlement with Capital One, N.A. pursuant
to Bankruptcy Rule 9019. 	For the reasons set forth below, this settlement is approved.
Jurisdiction
This Court has jurisdiction over this core proceeding under 28 U.S.C. §§ 1334(b) and
157(b)(2)(A) and (O), and the Eastern District of New York standing order of reference dated
August 28, 1986. 	This decision constitutes the Court’s findings of fact and conclusions of law to
the extent required by Federal Rule of Bankruptcy Procedure 7052.
Background
The following relevant facts are not in dispute.
The Debtor, an individual, commenced this chapter 11 case on July 28, 2009. 	The
Debtor’s assets consist primarily of ownership interests in a number of businesses, including
Certified Lumber Corporation and Boro Park Home Center, lumber and hardware businesses, as
well as other entities engaged in the development of real estate. 	One such entity is McCaren Park
Mews, LLC (“McCaren”), of which the Debtor owns 50%. 	McCaren owns an unfinished
condominium project in Williamsburg, Brooklyn (the “McCaren Project”). 	Capital One, N.A.
(“Capital One”) holds a mortgage and security interest on McCaren’s assets, securing debt in the
approximate amount of $50 million (the “McCaren Debt”). 	The Debtor and Yitzchok Schwartz,
the owner of the other half of the equity interest in McCaren, each have guaranteed the McCaren
Debt.
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Other creditors of the Debtor include RCGLV Maspeth LLC, RCG Longview II, L.P., and
Galster Funding, LLC (collectively, “RCG”), which individually or collectively hold a security
interest in the Debtor’s ownership interest in various entities, including McCaren.
Prior to the filing of this chapter 11 case, Capital One commenced an action in state court to
foreclose its mortgage on McCaren’s assets and to recover on the guarantees. 	This action was
removed by the Debtor to the District Court, and subsequently referred to this Court on September
3, 2009. 	In the adversary proceeding, the Debtor and McCaren asserted counterclaims against
Capital One, including a claim that Capital One had agreed to grant the Debtor a right of first
refusal to match a bona fide offer of any prospective purchaser in the event Capital One should
offer to sell the McCaren Debt to a third party. 	Capital One stated at the hearing on this motion
that it has been actively seeking to sell the McCaren Debt and has received at least one offer. 	The
Debtor also sought injunctive relief and sought to hold Capital One in contempt for violating the
automatic stay by refusing to honor this alleged right of first refusal, as well as damages for Capital
One’s failure to fund the completion of the McCaren Project.
On August 27, 2009, RCG filed a motion to appoint an examiner or, in the alternative, for
conversion or dismissal of the Debtor’s bankruptcy case. 	Thereafter, on November 5, 2009, after
the withdrawal of the Debtor’s objections, the Court ordered the appointment of an examiner.
On September 11, 2009, Capital One filed a motion seeking the appointment of a chapter
11 trustee in this case. 	A trial was scheduled on all of the issues raised by Capital One’s motion
for the appointment of a chapter 11 trustee and the Debtor’s and McCaren’s motions for contempt,
for injunctive relief, and to enforce the Debtor’s claimed right of first refusal.
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The Settlement
A few days prior to the scheduled trial, the Debtor, McCaren and Capital One reported to
the Court that they had settled the issues raised by Capital One’s motion and the adversary
proceeding, and shortly thereafter the Debtor filed a motion for approval of the settlement pursuant
to Bankruptcy Rule 9019. 	The settlement agreement dated as of October 22, 2009 (“Settlement
Agreement”), signed by McCaren, the Debtor and Mr. Schwartz, as well as Capital One, provides
that the Debtor has the right to arrange for a third party to purchase the McCaren Debt, at a
discount, no later than December 21, 2009.1
1 The amount of the discount has been disclosed to the Court, and to RCG, and will be disclosed to any party
in interest who agrees to keep the information confidential, but has been redacted from the electronically filed copy of
the Settlement Agreement at Capital One’s request pursuant to § 107(b) of the Bankruptcy Code.
If this right is not exercised, the Settlement
Agreement provides that Capital One shall have the right thereafter to sell the McCaren Debt
without interference. 	In the event that the right is not timely exercised, and in the event that the
Debtor does not obtain a temporary certificate of occupancy for the McCaren Project by December
21, 2009, the Debtor consents to the appointment of a chapter 11 trustee limited to the operation
and disposition of the real property owned by McCaren. 	At the hearing on this motion, the parties
agreed that this would be effectuated by filing a bankruptcy petition for McCaren, and causing
McCaren to consent to the appointment of a chapter 11 trustee. 	The Debtor and McCaren do not
release their counterclaims against Capital One unless the right to purchase the McCaren Debt is
successfully exercised.
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Legal Standard for Approval of Settlements
A bankruptcy court may approve a compromise and settlement pursuant to Federal Rule of
Bankruptcy Procedure 9019 if it “is fair, reasonable and adequately based on the facts and
circumstances before the court.” 	In re Hibbard Brown & Co., 217 B.R. 41, 45 (Bankr. S.D.N.Y.
1998). 	“As a general matter, settlements or compromises are favored in bankruptcy and, in fact,
encouraged,” In re Adelphia Commc’ns Corp., 368 B.R. 140, 226 (Bankr. S.D.N.Y. 2007),
“because they minimize the costs of litigation and further the parties’ interest in expediting the
administration of a bankruptcy estate” 	Inv. Exch. Group, LLC v. Colo. Capital Bank (In re 1031
Tax Group, LLC), Case No. 07-11448, Adv. Pro. No. 07-1710, 2007 WL 2455176, at *3 (Bankr.
S.D.N.Y. August 23, 2007).
In determining whether a proposed settlement should be approved, a court must determine
whether the settlement is in the best interests of the estate and whether it is “fair and equitable.”
Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414,
424 (1968). 	The court’s responsibility is to “canvass the issues and see whether the settlement
‘fall[s] below the lowest point in the range of reasonableness.’” 	Cosoff v. Rodman (In re W.T.
Grant Co.), 699 F.2d 599, 608 (2d Cir. 1983) (alteration in original) (quoting Newman v. Stein,
464 F.2d 689, 693 (2d Cir. 1972)).
The court may give weight to the opinion of the debtor in possession, the parties, and their
attorneys that the settlement is fair and equitable. 	See In re Stone Barn Manhattan LLC, 405 B.R.
68, 75 (Bankr. S.D.N.Y. 2009); Adelphia, 368 B.R. at 226 (“[T]he court is permitted to rely upon
‘opinions of the trustee, the parties, and their attorneys.’” (quoting Official Comm. of Unsecured
Creditors of Int’l Distribution Ctrs., Inc. v. James Talcott, Inc. (In re Int’l Distribution Ctrs., Inc.),
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103 B.R. 420, 423 (S.D.N.Y. 1989))). 	See also Smart World Techs., LLC v. Juno Online Servs.,
Inc. (In re Smart World Techs., LLC), 423 F.3d 166, 174 n. 10 (2d Cir. 2005) (noting that § 1107
allows the term “debtor in possession” to be substituted for “trustee” when applying the
Bankruptcy Code and the Bankruptcy Rules).
It is not necessary for the bankruptcy court to rule on disputed issues of fact and law or to
conduct a “mini trial” on the merits of the underlying litigation. 	Adelphia, 368 B.R. at 225; In re
Ashford Hotels, Ltd., 226 B.R. 797, 802 (Bankr. S.D.N.Y. 1998); In re Purofied Down Prods.
Corp., 150 B.R. 519, 522 (S.D.N.Y. 1993). 	At the same time, a court may not simply defer to a
debtor in possession’s judgment, but must independently evaluate the reasonableness of the
settlement. 	See TMT Trailer Ferry, 390 U.S. at 424; Kayo v. Fitzgerald, 91 Fed. Appx. 714, 716
(2d Cir. 2004); Ashford Hotels, 226 B.R. at 803; Purofied Down Prods., 150 B.R. at 523.
The Second Circuit summarized the factors that a court must consider when deciding
whether a settlement falls above or below the lowest point in the range of reasonableness as
follows:
(1) the balance between the litigation’s possibility of success and the
settlement’s future benefits;
(2) the likelihood of complex and protracted litigation, “with its
attendant 	expense, 	inconvenience, 	and 	delay,” 	including 	the
difficulty in collecting on the judgment;
(3) “the paramount interests of the creditors,” including each
affected class’s relative benefits “and the degree to which creditors
either do not object to or affirmatively support the proposed
settlement”;
(4) whether other parties in interest support the settlement;
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(5) the “competency and experience of counsel” supporting, and
“[t]he experience and knowledge of the bankruptcy court judge”
reviewing, the settlement;
(6) “the nature and breadth of releases to be obtained by officers and
directors”; and
(7) “the extent to which the settlement is the product of arm’s length
bargaining.”
Motorola, Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d
452, 462 (2d Cir. 2007) (alteration in original) (quoting In re WorldCom, Inc., 347 B.R. 123, 137
(Bankr. S.D.N.Y. 2006)).
The Objections
RCG argues that the Settlement Agreement constitutes an impermissible attempt to obtain
approval of any financial or other transaction which the Debtor or its affiliates might enter into in
order to exercise the right to acquire the McCaren Debt, without compliance with the requirements
of §§ 363 and 364 of the Bankruptcy Code. 	RCG also argues that insufficient information is
provided to permit the Court to assess the likelihood that the Debtor and McCaren will be able to
exercise the right to arrange for the discounted purchase of the McCaren Debt by a third party, and
that without such information, it is not possible to assess the benefits of the Settlement Agreement
so as to determine whether it falls above the “lowest point in the range of reasonableness.” 	W.T.
Grant Co., 699 F.2d at 608. 	In other words, RCG argues, absent an evaluation of the likelihood
that Capital One will be taken out under the Settlement Agreement, with the resulting reduction in
the secured debt on the McCaren Project, it is impossible to determine whether the detriment to the
estate outweighs any potential benefit of the Settlement Agreement.
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The Debtor and Capital One have addressed the first objection by stipulating on the record
that a separate motion will be made for approval of any financing or other transaction that the
Debtor or any of the entities in which he has an interest proposes to enter into an order to exercise
the right under the Settlement Agreement. 	Based on that stipulation, the objection that the
Settlement Agreement is an impermissible circumvention of §§ 363 and 364 is overruled.
As to the second objection, RCG does not dispute that the estate will be benefitted by the
Settlement Agreement if the right to acquire the McCaren Debt is exercised, because the Debtors’
obligation on the McCaren Debt will be significantly reduced. 	However, RCG argues,
insufficient information is provided about the likelihood that the right granted under the Settlement
Agreement will be exercised, so that it is impossible to determine whether this potential benefit
outweighs the detriment to the estate resulting from the Settlement Agreement. 	This objection
falls under the first three Iridium factors.
The Debtor declined to offer any testimony by the Debtor concerning how he, Schwartz
and McCaren plan to take advantage of the opportunity presented by the Settlement Agreement.
Nevertheless, the Debtor argues, a sufficient showing has been made that the settlement satisfies
the applicable standard for approval. 	This is so, the Debtor argues, because the Debtor, under the
Settlement Agreement, is obtaining, in effect, the very same right of first refusal sought in the
pending litigation with Capital One, and giving up very little in return.
Although the right to arrange for the purchase of the McCaren Debt granted under the
Settlement Agreement is limited in duration (it must be exercised by December 21, 2009) this is
consistent with the nature of a right of first refusal. 	“[A] right of first refusal is a ‘restriction on
the power of one party to sell without first making an offer of purchase to the other party upon the
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happening of a contingency.’” 	Space Imaging Europe, Ltd. v. Space Imaging L.P., 38 F. Supp.2d
326, 333 (S.D.N.Y. 1999) (quoting LIN Broad. Corp. v. Metromedia, Inc., 544 N.Y.S.2d 316, 319
(N.Y. 1989)). 	This right ‘“bind[s] the party who desires to sell not to sell without first giving the
other party the opportunity to purchase the property at the price specified.’” Id. (quoting LIN
Broad., 544 N.Y.S.2d at 319). 	A party wishing to exercise a right of first refusal must be prepared
to close in the same time frame as the competing offeror. 	See Sel-Leb Mktg., Inc. v. Dial Corp.,
No. 01 CIV 9250, 2002 WL 1974056, at *5 (S.D.N.Y. Aug. 27, 2002) (holder of the right of first
refusal must seek to purchase the property on the same terms as the third party’s offer).
Capital One has stated that it has a buyer who is ready, willing and able to purchase the
McCaren Debt, and this is not disputed by RCG. 	Generally, the owner’s acceptance of a third
party’s offer “triggers the right of first refusal and compels the right of first refusal holder to decide
whether it desires to enter into a contract of sale with the owner on the same terms the owner is
willing to accept from the third party.” 	Id. (citing 3 Corbin on Contracts § 11.3, at 470 (rev. ed.
1996)). 	Given this fact, the time frame provided under the Settlement Agreement is not
substantially different than the time within which the Debtor would be required to close on the
transaction if this Court had granted, or Capital One conceded, the right of first refusal which the
Debtor and McCaren seek to enforce in their counterclaims against Capital One. 	As such, the first
Iridium factor, examining the balance between the litigation’s possibility of success against the
settlement’s benefits, weighs in favor of approval of the Settlement Agreement because it provides
the Debtor, and the estate, with the same result as if the Debtor successfully litigated the
counterclaim that the Debtor and McCaren are entitled to a right of first refusal.
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The principal concession being made by the Debtor under the Settlement Agreement is the
consent to the appointment of a trustee for McCaren in the event the option to acquire the McCaren
Debt is not successfully exercised. 	This aspect of the Settlement Agreement invokes the second
and third Iridium factors, which examine the likelihood of the litigation’s success compared to the
benefits of the Settlement Agreement, and the interests of the Debtor’s creditors. 	Separate and
apart from any potential benefit to the estate arising from the exercise of the right to acquire the
McCaren Debt at a discount, Capital One’s settlement of its motion for the appointment of a
chapter 11 trustee represents a significant benefit, in that the estate avoids the substantial litigation
costs and delay that would be involved in litigating the motion, pursuant to which Capital One
seeks a chapter 11 trustee, not just for McCaren, but for the Debtor. 	This Court notes that Capital
One’s motion was heavily contested, involved many discovery disputes and pretrial conferences,
and an evidentiary hearing on the issues would have possibly involved the presentation of 26
witnesses. 	(See Transcript of conference held on Oct. 7, 2009 at 16.) 	On the other hand, the
appointment of a trustee for McCaren does not necessarily represent a detriment to the estate. 	It is
undisputed that there is little, if any, equity in the McCaren Project. 	Furthermore, the
appointment of a trustee for McCaren would not prevent the Debtor or the Debtor’s creditors from
seeking to reorganize McCaren, either in cooperation with the trustee or by filing a separate plan
for McCaren.
This Court also rejects RCG’s argument that the benefit of the Settlement Agreement may
be outweighed by the detriment that will be suffered by the estate from the Debtor’s the waiver of
the remaining counterclaims against Capital One. 	If the right under the Settlement Agreement is
exercised, the resulting immediate reduction of the McCaren Debt, for which the estate is fully
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liable, will benefit the estate more than its share in any potential recovery on the counterclaims
against Capital One, with attendant uncertainty, delay and litigation costs. 	Furthermore, the
Settlement Agreement specifically provides that the counterclaims against Capital One are waived
only in the event the Debtor successfully exercises the right of first refusal. 	Therefore, if the
Debtor is unsuccessful in obtaining a purchaser for the McCaren Debt, the estate’s interest in any
recovery from the counterclaims, and in the 50% ownership of McCaren, is preserved. 	Therefore,
the second and third Iridium factors also weigh in favor of approval of the Settlement Agreement.
Thus, even if no conclusion can be drawn about the likelihood that the right to acquire the
McCaren Debt granted under the Settlement Agreement will be exercised, the other benefits
conferred by the Settlement Agreement are sufficient to justify its approval under Bankruptcy Rule
9019. 	In sum, the Settlement Agreement provides the Debtor with the principal relief sought in
the adversary proceeding, preserves the counterclaim against Capital One in the event the Debtor
is unsuccessful in exercising the right to acquire the McCaren Debt granted under the Settlement
Agreement, and, even if a trustee is appointed for McCaren, does not forfeit the estate’s interest
McCaren or the ability to propose a plan of reorganization for McCaren. 	Therefore, this Court
concludes that the Settlement Agreement does not “fall below the lowest point in the range of
reasonableness.” 	W.T. Grant, 699 F.2d at 608.
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Conclusion
For the foregoing reasons, the Settlement Agreement is approved. 	A separate order is
being entered herewith.
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Carla E. Craig
United States Bankruptcy Judge
Dated: Brooklyn, New York
November 18, 2009
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