THE PHOENIX FUND LLC

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IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF PUERTO RICO
IN RE:
THE PHOENIX FUND LLC,
Debtor.
CASE NO. 26-00712-ESL11
Chapter 11
FILED & ENTERED ON 9/14/2026
OPINION AND ORDER
On February 23, 2026, The Phoenix Fund LLC (the “Estate” or the “Fund”) filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Dkt. #1. On July 10,
2026, Driven P.S.C. (“Driven” or the “Receiver”), as the entity authorized to act as debtor-in-
possession and representative of the bankruptcy estate of the Fund (Dkt. #33), and United Surety
and Indemnity Company (“USIC”), filed an Urgent Joint Motion of the Receiver and USIC for
Release and Use of Cash Collateral Bond (the “USIC Motion”). Dkt. #301. The USIC Motion
concerned approximately $5,596,885.00 in cash collateral held by USIC (the “USIC Collateral”)
in connection with the Tax Credit Financial Guarantee Bond No. 23241588 and the Financial
Guarantee Bond No. 24246289.
On July 10, 2026, the Bankruptcy Court entered an order (the “Interim Order”) granting
the USIC Motion and authorizing USIC to release the full amount of the USIC Collateral held by
USIC in Treasury Bills and held in account JX-57670 (the “USIC Collateral Account”) in UBS
Financial Services. Dkt. #305, p. 3. However, the court granted parties in interest twenty-one
(21) days from entry of the Interim Order to file objections to the continued use of the USIC
Collateral and scheduled a final in-person hearing in connection with the USIC Motion for
August 12, 2026. Id. at 5. On July 31, 2026, Dorado Health Group (“DHG”) and FCS Advisors,
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LLC d/b/a Brevet Capital Advisors (“Brevet”) filed objections to the Interim Order. Dkt. ##344,
345, respectively.
After the Receiver, USIC, DHG, and Brevet filed various briefs, on August 21, the court
rescheduled the in-person hearing on the USIC Motion for September 3, 2026, before the
undersigned. The hearing was rescheduled following the reassignment of this contested matter
pursuant to the recusal order entered by Hon. Judge Enrique S. Lamoutte. Dkt. ##349, 410. Then,
on August 24, 2026, the Receiver, USIC, and DHG (collectively, the “Movants”) filed a Joint
Motion for Approval of a Settlement Agreement (the “Settlement Agreement”) regarding the
USIC Cash Collateral pursuant to Fed. R. Bankr. P. 9019 (the “9019 Motion”). Dkt. #420. In
response, on September 1, 2026, Brevet filed an objection to the 9019 Motion (the “Objection”)
opposing the approval of the proposed Settlement Agreement. Dkt. #456. In turn, on September
2, 2026, the Receiver filed a reply to the Objection (the “Reply”). Dkt. #459. At the in-person
hearing held on September 3, 2026, the parties presented their arguments in open court.
Now pending before the court is the 9019 Motion, the Objection, and the Reply. Having
considered the 9019 Motion, the Objection, the Reply, the relevant pleadings and exhibits of
record, the oral arguments, and the applicable law, the court finds that the Movants have not
carried their burden of demonstrating that the proposed Settlement Agreement should be
approved under Fed. R. Bankr. P. 9019. Accordingly, and for the reasons stated below, the 9019
Motion is denied, the Objection is granted, and the Reply is denied as moot.
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I. 	JURISDICTION
This court has jurisdiction over the subject matter and the parties pursuant to 28 U.S.C.
§§ 1334 and 157(a), L. Civ. R. 83K(a), and the General Order of Referral of Title 11 Proceedings
to the United States Bankruptcy Court for the District of Puerto Rico, dated July 19, 1984
(Torruella, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).
II. 	RELEVANT BACKGROUND
a. 	The Receiver’s Position
In its 9019 Motion, the Receiver stated that while it maintains that the Estate has strong
legal grounds to recover the USIC Collateral if the matter were to be fully litigated, it
acknowledges that its investigation uncovered three (3) different pledge agreements relating to
the USIC Collateral transaction, which contain inconsistent designations of the pledgor. Dkt.
#420, p. 3. One identifies the Fund as pledgor, another identifies DHG as pledgor, and the most
recent one lists the Fund as pledgor within the agreement itself but lists both the Fund and DHG
in the signature block. Id. The Receiver argued that protracted litigation could require substantial
additional legal expense, and, most importantly, that the inconsistencies associated with the
pledge agreements create material litigation uncertainty where an adverse ruling could result in
the Estate receiving none of the USIC Collateral. Id. Therefore, the Receiver concluded that, in
its best business judgment, the proposed Settlement Agreement eliminates that binary litigation
risk; provides the Estate with approximately $2,625,000.00 in immediate liquidity, which the
Receiver argued is critical at this stage because the Estate currently lacks sufficient funds to
continue paying the expenses required to administer the Estate; and resolves the current dispute
with DHG and USIC. Id. at 3-4. Lastly, as discussed in detail below, the Receiver argued that the
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Settlement Agreement complies with the applicable legal standard under Fed. R. Bankr. P. 9019,
as established by the First Circuit Court of Appeals. Dkt. #459, p. 2.
b. 	The Movants’ Proposed Settlement Agreement
As of August 24, 2026, the USIC Collateral totals approximately $5,596,885.00. Id. at 6.
The Movants proposed that, subject to court approval, the funds would be distributed as follows:
$350,000.00 to Brevet as an adequate protection payment; $2,623,442.50 to the Estate; and
$2,623,442.50 to DHG. Id. at 6-7. The Movants stated that the Estate’s $2,623,442.50 recovery
is to be used only for specified purposes associated with administering and liquidating the Estate.
Id. at 7. Permitted expenditures are to include approved Receiver and professional fees, U.S.
Trustee fees, costs associated with Fed. R. Bankr. P. 2004 examinations, payments under a
confirmed Chapter 11 plan, and other reasonable and necessary administrative expenses
approved by the court. Id. The Movants emphasized that the professional fees paid from these
funds remain subject to the court’s fee-approval process. Id. Additionally, the Movants clarified
that the proposed Settlement Agreement does not resolve Brevet’s objections or determine
Brevet’s lien rights, and that the proposed $350,000.00 adequate protection payment does not
constitute an admission concerning the validity, priority, perfection, enforceability, or extent of
Brevet’s asserted interests. Id. at 7, 12.
c. 	Brevet’s Position
In its Objection, Brevet, the Estate’s largest secured creditor, argued that the proposed
Settlement Agreement fails because it is not fair, reasonable, or in the best interests of the Estate
or the Estate’s creditors under Fed. R. Bankr. P. 9019. Dkt. #456, p. 7. Brevet contended that
approval of the Settlement Agreement before determining the validity and extent of its security
interest would improperly prejudice a non-settling secured creditor and circumvent the
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adjudicatory process required to determine competing interests in estate property. Id. at 23-24.
Brevet further criticized the Settlement Agreement for assigning DHG exactly fifty percent
(50%) of the USIC Collateral without any evidentiary or economic analysis supporting that
allocation. Id. at 28. Brevet claimed that there is no evidence that DHG contributed half of the
USIC Collateral, owns half of it, or possesses a contractual or beneficial right to fifty percent of
the proceeds, let alone the entire amount. Id. As such, Brevet characterized the fifty/fifty division
as an expedient compromise based merely on the existence of a dispute rather than a reasoned
valuation of the parties’ respective claims and litigation risks. Id. Lastly, as an alternative, Brevet
proposed that the entire USIC Collateral be transferred into the Estate while expressly remaining
subject to the competing rights and liens of Brevet, DHG, and any other affected parties. Id. at
19-20.
III. 	LEGAL STANDARD
Fed. R. Bankr. P. 9019 provides that, upon motion and after notice and a hearing, a
bankruptcy court may approve a compromise or settlement. Fed. R. Bankr. P. 9019(a). However,
approval is not automatic merely because the parties to the compromise have agreed to its terms.
The proponents of the settlement bear the burden of persuading the court that the proposal is
reasonable and in the best interest of the bankruptcy estate. See In re C.P. del Caribe, Inc., 140
B.R. 320, 325-26 (Bankr. D.P.R. 1992). In evaluating a proposed settlement, the First Circuit
Court of Appeals instructs that the bankruptcy court must independently assess and balance the
value of the claims being compromised against the value to the estate of accepting the proposed
compromise. Jeffrey v. Desmond, 70 F.3d 183, 185 (1st Cir. 1995). In doing so, the bankruptcy
court must consider the following four (4) relevant factors:
1. 	The probability of success in the litigation being compromised;
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2. 	The difficulties, if any, to be encountered in collection;
3. 	The complexity of the litigation involved, and the expense, inconvenience, and delay
attending it; and
4. 	The paramount interest of creditors and a proper deference to their reasonable views in
the premise.
Id. “The court’s consideration of these factors should demonstrate whether the compromise is
fair and equitable, and whether the claim the debtor is giving up is outweighed by the advantage
of the debtor’s estate.” Id. It is not for the bankruptcy court to consider and decide the multiple
questions raised but rather it must independently canvass the issues and determine whether the
proposed compromise falls below the lowest point in the range of reasonableness. ARS Brook,
LLC v. Jalbert (In re ServiSense.com, Inc.), 382 F.3d 68, 71-72 (1st Cir. 2004); City Sanitation,
LLC v. Allied Waste Servs. of Mass., LLC (In re American Cartage, Inc.), 656 F.3d 82, 88–89
(1st Cir. 2011). Therefore, a settlement agreement need not represent the best result theoretically
obtainable through litigation. Rather, the proposed compromise need only fall within the range of
reasonableness and satisfy the court that it is fair and equitable and serves the best interests of the
bankruptcy estate and its creditors. See ServiSense, 382 F.3d at 71-72; Jeremiah v. Richardson,
148 F.3d 17, 23 (1st Cir. 1998); Hicks, Muse & Co. v. Brandt (In re Healthco Int’l, Inc.), 136
F.3d 45, 51 (1st Cir. 1998); Cosoff v. Rodman (In re W.T. Grant Co.), 699 F.2d 599, 608 (2d Cir.
1983).
IV. 	DISCUSSION AND FINDINGS
a. 	Probability of Success in the Litigation
The first factor weighs against the approval of the proposed Settlement Agreement on the
present record. The court recognizes that the current ownership dispute is not frivolous and that
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the existence of multiple pledge agreements containing inconsistent descriptions of the pledgor
creates litigation risk; and further, that DHG has asserted both legal and equitable theories of
ownership. However, the relevant question is not simply whether litigation risk exists. The
question presently before the court is narrower: whether uncertainty concerning DHG’s potential
interest provides a sufficiently demonstrated basis for transferring approximately one-half of the
disputed collateral to DHG. Here, the proposed settlement gives DHG essentially one-half of the
net collateral, approximately $2.623 million, yet the 9019 Motion does not identify an
evidentiary or economic methodology demonstrating why fifty percent reasonably reflects the
value of DHG’s asserted rights or the litigation risk faced by the Estate. There is no showing, for
example, that DHG contributed fifty percent of the USIC Collateral, owns fifty percent of the
collateral under an identified contractual formula, or possesses a claim whose risk-adjusted value
approximates $2.623 million.
That concern is heightened by positions previously taken by the Receiver. Prior to filing
the 9019 Motion, the Receiver argued that approximately $6 million had been transferred from
the Fund’s own operating account; that the transaction documents reflected the Fund’s
ownership; that DHG had no perfected security interest; that a Side Letter executed on October
8, 2025, characterized DHG’s relationship with the Fund as debtor-creditor rather than
ownership of identifiable property (Dkt. #383, p. 3); and that DHG had not established that the
Fund merely acted as a conduit for DHG’s property. Those positions do not preclude the
Receiver from settling and, in general, parties have every right to reassess risk as a case
develops. But when the Receiver moves from asserting that DHG possesses no enforceable
interest, to proposing that DHG receive approximately half of a $5.6 million fund, the court
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requires a meaningful evidentiary or economic explanation for that substantial concession. On
the present record, that bridge has not been suitably built.
Accordingly, while a genuine dispute may justify compromise, the mere existence of a
dispute does not, standing alone, establish that an equal division of the disputed property is
reasonable. Particularly where the Receiver simultaneously maintains that its legal position is
strong, the court requires a more developed explanation connecting the identified litigation risk
with the economic consideration being surrendered. As such, the court finds that the Movants
have not demonstrated that the proposed approximately fifty-percent allocation to DHG reflects a
sufficiently supported assessment of the probability of success and the value of the claims being
compromised.
b. 	Difficulty in Collection
The second factor weighs materially against approval of the proposed Settlement
Agreement. There is effectively no collection risk associated with the disputed fund. The USIC
Collateral is not alleged to have disappeared, been dissipated, or become subject to meaningful
collection risk. Rather, the approximately $5,596,885.00 fund is identifiable, held by USIC, and
awaits disposition according to the rights of the interested parties and orders of this court. The
Receiver principally identifies litigation delay, discovery, possible appeals, and potential
evidentiary proceedings as risks affecting its ability to obtain the funds. Those concerns are
relevant primarily to the third factor, as explained below. However, they do not establish a
material risk that a favorable determination regarding ownership of the USIC Collateral could
not ultimately be collected. If the Estate prevails on ownership, the asset is available. That
distinguishes this dispute from compromises in which collection uncertainty itself justifies a
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substantial discount. Therefore, the court finds that the second factor does not support
surrendering approximately $2.623 million of the disputed collateral to eliminate collection risk.
c. 	Complexity, Expense, Inconvenience, and Delay
The third factor affords some support to compromising in principle but does not justify
this compromise on the present record. The court accepts the Receiver’s representation that
litigating competing ownership claims involving three potentially inconsistent pledge
agreements, the financing arrangements, the tax-credit proceeds, and the parties’ course of
dealing could require discovery, evidentiary hearings, and possibly appellate review. The court
further recognizes the Receiver’s legitimate interest in avoiding unnecessary depletion of estate
assets through prolonged litigation, especially considering the estate’s genuine and significant
liquidity problem. All those concerns deserve substantial weight. Nevertheless, the First Circuit
has established that litigation expense, standing alone, does not automatically validate any
compromise selected by a fiduciary.
In ServiSense, the litigation expense was found certain to exceed the amount being
compromised, making settlement economically straightforward. See ServiSense, 382 F.3d at 75-
76. Here, by contrast, the present record does not demonstrate that the anticipated costs,
inconvenience, or delay associated with determining DHG’s interest reasonably approximate the
more than $2.6 million that the proposed Settlement Agreement would permanently transfer to
DHG. The Movants have not presented an estimate of expected litigation costs approaching that
amount, nor have they demonstrated that adjudication would necessarily require litigation of a
scope so disproportionate to the value at issue that relinquishing nearly half of the collateral
constitutes a reasonable economic alternative. Moreover, the record suggests the dispute is
centered substantially upon documentary evidence already possessed by, or available to, the
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parties, including the General Agreement of Indemnity (Dkt. #301, Exhibit G), the three pledge
agreements (Dkt. #301, Exhibit K; Dkt. #403, Exhibits E-1, E-2), authorization documents, the
Side Letter Agreement (Dkt. #301, Exhibit K), funding records, and the parties’ subsequent
course of conduct.
Therefore, the court gives appropriate weight to the possibility of further discovery and
delay but finds that this factor does not outweigh the deficiency in the economic justification for
the proposed fifty/fifty distribution. Nor may the Estate’s need for immediate liquidity, standing
alone, substitute for the substantive showing required under Fed. R. Bankr. P. 9019. The court
acknowledges that administrative efficiency is certainly relevant, but expedition alone cannot
supply an otherwise missing basis for finding a settlement fair, equitable, and in the best interests
of the Estate.
d. 	Paramount Interests of Creditors and Brevet’s Objection
The fourth factor is the factor that concerns the court the most. Brevet contends that the
entirety of the USIC Collateral is subject to its prepetition security interest or constitutes
proceeds of collateral subject to that interest. Those rights are expressly left unresolved by the
proposed Settlement Agreement. However, at the same time, the Settlement Agreement proposes
to immediately distribute approximately $2.623 million of the disputed collateral to DHG and to
authorize expenditure of the Estate’s approximately $2.623 million share for specified
administrative expenses; and to do so before either DHG’s asserted ownership or Brevet’s
asserted lien rights have been adjudicated. Thus, although the proposed Settlement Agreement
purports to reserve Brevet’s rights, implementation of the Settlement Agreement would
materially alter the location, possession, and availability of the property against which those
rights are asserted. After all, a reservation of rights is clearly of limited practical value if the
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property allegedly securing those rights is first transferred to a non-estate third party or
consumed through administrative expenditures.
Crucially, the court does not decide today whether Brevet is correct in its assertion of its
potential interest in the USIC Collateral. Under Bankruptcy Code Section 363(p)(2), Brevet
ultimately bears the burden of establishing the validity, priority, or extent of the interest it
asserts. 11 U.S.C. § 363(p)(2). But on the other hand, the court may not disregard the asserted
interest when evaluating the economic consequences of this settlement. The Bankruptcy Code
requires adequate protection when estate action threatens diminution of an entity’s interest in
property, and section 363 expressly protects entities asserting interests in cash collateral. 11
U.S.C. §§ 361, 363(e). Here, the Settlement Agreement’s proposed $350,000.00 adequate
protection payment does not, on the present record, sufficiently mitigate that concern.
This concern is further heightened by the Settlement Agreement’s proposed use of the
Estate Distribution. The Settlement Agreement expressly contemplates the use of that
distribution for administrative expenses while the claims of Brevet and other creditors remain
unresolved. The Receiver emphasized, correctly, that the Estate urgently requires liquidity and
argued that the proposed $2.623 million payment would permit the Receiver to continue
administering the case and pursuing a Chapter 11 liquidation plan. The court does not minimize
that need. Further, the court maintains that payment of properly allowed administrative expenses
is authorized by the Bankruptcy Code and is an ordinary and necessary aspect of bankruptcy
administration. Nothing in this Opinion and Order suggests otherwise. But administrative
liquidity is not itself a substitute for the Fed. R. Bankr. P. 9019 analysis and the Estate’s need to
fund these expenses does not independently establish that transferring approximately $2.623
million of disputed property to DHG is fair or in the paramount interests of creditors.
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Additionally, the court finds persuasive Brevet’s contention that a less prejudicial
mechanism appears available: preservation of the USIC Collateral, or transfer of the funds into
an appropriately controlled Estate account subject to existing asserted interests, while the
competing ownership and lien rights are adjudicated or resolved. Importantly, today the court is
not mandating a particular mechanism for doing so. The court simply notes that the existence of
an alternative capable of preserving the value and availability of the collateral while allowing
interested parties to litigate or consensually resolve their competing claims materially reduces the
force of the Movants’ contention that the proposed fifty percent allocation is necessary. For all
these reasons, the fourth factor regarding the paramount interests of creditors and the reasonable
objection of a creditor asserting a substantial secured interest in the very property proposed to be
distributed weighs against approval.
e. 	Adequate Factual Foundation for the Fifty-Percent Allocation
Independent of the four individual factors addressed above, the court further concludes
that the record lacks a sufficient factual foundation for the central economic term of the proposed
Settlement Agreement. The court is presented with a disputed fund of approximately
$5,596,885.00 and three potentially inconsistent pledge agreements. From that dispute, the
Settlement Agreement proceeds to an essentially equal division between DHG and the Estate
after payment of the proposed $350,000.00 adequate protection amount to Brevet. What is
missing is the analytical bridge between those two points. Fed. R. Bankr. P. 9019 does not
require mathematical precision in valuing litigation and settlements necessarily incorporate
uncertainty. But the court must be able to discern why the consideration being surrendered bears
a reasonable relationship to the claims, defenses, litigation risks, and expected benefits being
compromised. Here, the record does not sufficiently explain why the appropriate litigation-risk
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discount is approximately fifty percent. The court therefore cannot find, on the record presently
before it, that the proposed distribution to DHG falls within an adequately demonstrated range of
reasonableness or that it constitutes a fair and equitable disposition in the best interests of the
Estate and its creditors.
f. 	Scope of Findings
The court emphasizes the limited scope of this ruling. Denial of the 9019 Motion and
granting of the Objection do not constitute a determination that:
(a) the Estate is the sole owner of the USIC Collateral;
(b) DHG possesses no legal, equitable, contractual, restitutionary, or other interest in the
USIC Collateral;
(c) Brevet holds a valid, perfected, enforceable, or first-priority security interest in all or
any portion of the USIC Collateral;
(d) any particular pledge agreement controls as a matter of law;
(e) any party is precluded from presenting evidence concerning the intent of the parties to
the relevant agreements; or
(f) any party has waived claims, defenses, objections, or other rights concerning the USIC
Collateral.
All these matters remain expressly reserved for adjudication upon an appropriate evidentiary
record, through such contested matter or adversary proceeding as may be required, or for
resolution through a subsequent consensual arrangement acceptable to all affected parties and
approved by the court where necessary.
Today, the court instead finds only that, under the proposed Settlement Agreement and
present record, the Movants have not demonstrated that paying approximately $2.623 million to
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DHG, while paying Brevet $350,000.00 and leaving Brevet’s asserted lien unresolved, falls
within the range of reasonableness required by Fed. R. Bankr. P. 9019. The absence of collection
risk, the substantial amount being surrendered, the lack of an articulated basis for the equal
division, the unresolved secured creditor issues, and the potential effect on the Estate and the
creditor body’s recoveries, collectively outweigh the benefits of immediate liquidity and
avoidance of litigation.
V. 	CONCLUSION
For the foregoing reasons, the Joint Motion for Approval of a Settlement Agreement
regarding the USIC Cash Collateral pursuant to Fed. R. Bankr. P. 9019 filed at Dkt. #420 is
hereby denied and Brevet’s Objection at Dkt. #456 is hereby granted to the extent set forth in this
Opinion and Order.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 14th day of September 2026.
María de los Ángeles González
United States Bankruptcy Judge
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