Pursuit Holdings (NY) LLC

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
PURSUIT HOLDINGS (NY), LLC,
Debtor.
NOT FOR PUBLICATION
Case No. 18-12738 (MG)
Chapter 7
MEMORANDUM OPINION AND ORDER GRANTING MOTION FOR AN ORDER
APPROVING THE SETTLEMENT AGREEMENT
A P P E A R A N C E S:
OSBORN LAW PC
Attorneys for Pursuit Holdings (NY), LLC
43 W. 43rd Street
Suite 131
New York, NY 10036
By: 	Daniel Osborn, Esq.
TARTER KRINSKY & DROGIN LLP
Attorneys for the Chapter 7 Trustee
1350 Broadway, 11th Floor
New York, NY 10018
By: 	Scott S. Markowitz, Esq.
Michael Brownstein, Esq.
BERRY LAW PLLC
Attorneys for Michael Knopf, Norma Knopf, and Delphi Capital Management, LLC
745 Fifth Avenue, 5th Floor
New York, NY 10151
By: 	Eric W. Berry, Esq.
DUFFY AMEDEO LLC
Attorneys for Michael Knopf, Norma Knopf, and Delphi Capital Management, LLC
275 Seventh Avenue, 7th Floor
New York, NY 10001
By: 	Todd E. Duffy, Esq.
ROBINSON BROG LEINWAND GREENE GENOVESE & GLUCK P.C.
Attorneys for Orange Clockwork Trust
875 Third Avenue
New York, NY 10022-0123
By: 	Robert M. Sasloff, Esq.
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 1 of 22

2
MICHAEL HAYDEN SANFORD
Pro Se
23 McKinley Road
Montauk, NY 11954
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the motion of the Chapter 7 Trustee, Deborah J. Piazza (the
“Trustee”), seeking approval under Rule 9019 of the Federal Rules of Bankruptcy Procedure of a
settlement between the Trustee of the estate of Pursuit Holdings (NY), LLC (“Pursuit” or the
“Debtor”) and Michael I. Knopf, Norma Knopf and Delphi Capital Management LLC
(collectively, the “Knopfs”). (“Motion,” ECF Doc. # 45.) The settlement agreement dated
January 7, 2019 (the “Agreement,” ECF Doc. # 45 at 21–33) is annexed to the Motion as Exhibit
A. (Motion at 1.) Objections to approval of the Agreement were filed by Pursuit’s attorney (ECF
Doc. # 51) and by Michael Hayden Sanford (“Sanford”), who owns 100% of Pursuit’s
membership interests. (ECF Doc. # 53.) A limited response, since resolved, was filed by the Tax
Lien Trust. (ECF Doc. # 52.) The Knopfs’ counsel filed a declaration in support of the settlement
approval. (ECF Doc. # 54.) The Trustee filed a reply (“Reply,” ECF Doc. # 55). The
Agreement, if approved, will bring $200,000 into the estate, making a distribution to unsecured
creditors possible. More importantly, it will end nearly 10 years of bitter litigation between
Pursuit and the Knopfs. The Agreement will leave Sanford and the Knopfs free to continue their
legal battles, which they appear intent on doing.
For the reasons explained below, the Motion to approve the Agreement is GRANTED.
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 2 of 22

3
I. 	INTRODUCTION
The history of litigation underlying the Debtor’s bankruptcy filing—principally between
the Knopfs, Pursuit, and Sanford—is lengthy and ongoing. In addition to this bankruptcy case,
initially filed on September 12, 2018 as a case under Chapter 11, but converted on November 19,
2018 to a case under Chapter 7, the dispute has included at least two state court actions and three
federal district actions.1 While the bankruptcy automatic stay prevented the state and federal
district court actions from continuing against Pursuit, the most recent state trial court decision
resulted in a judgment entered on March 6, 2019 in favor of the Knopfs and against Sanford
(against whom the automatic stay does not apply) in the amount of $10,362,402.99. See
Judgement at 1–2, Knopf v. Sanford, Index No. 652743/2018 (N.Y. Sup. Ct. Mar. 6, 2019), Doc.
No. 177. The February 4, 2019 Decision and Order of New York Supreme Court Justice Gerald
Lebovits, which ordered the entry of the judgment against Sanford, includes a blistering recitation
of misconduct by Sanford aimed at the Knopfs. See Decision and Order, 6–12, Knopf v. Sanford,
Index No. 652743/2018, (N.Y. Sup. Ct. Feb. 4, 2019), Doc. No. 164 (hereinafter, the “February 4
Decision and Order”). The judgment against Sanford is based on alter ego and veil-piercing
theories. Id. at 12. Before Pursuit’s chapter 11 case was filed, Justice Lebovits imposed joint and
several liability on Pursuit and Sanford. While this judgment was entered against Sanford alone
after the Trustee reached the settlement with the Knopfs, it says legions about the wisdom of the
Trustee (and her appropriate exercise of business judgment) in negotiating the settlement.
1 	Salient pieces of the litigation history will be further discussed below, but for context, a few of the most
recent decisions from the various actions arising from the dispute between the litigants include: Knopf v. Phillips,
No. 16-CV-6601 (DLC), 2018 WL 4080347, at *1–2 (S.D.N.Y. Aug. 27, 2018); Knopf v. Esposito, No. 17-CV-5833
(DLC), 2018 WL 3579104, at *1–6 (S.D.N.Y. July 25, 2018); Knopf v. Meister, Seelig & Fein LLP, 721 F. App’x
96, (Mem.)–98 (2d Cir. 2018); Knopf v. Sanford, No. 113227/2009, 2018 WL 1769299 (N.Y. Sup., N.Y. Cty. Feb.
9, 2018); Knopf v. Sanford, 150 A.D.3d 608, 608, 55 N.Y.S.3d 214, 214 (N.Y. App. Div. 2017).
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 3 of 22

4
In the ongoing dispute, the first state court action, alone, resulted in five appeals heard and
decided by the Appellate Division, First Department, and three federal district court actions, each
of which produced multiple opinions by the district court and one or more trips to the Second
Circuit. In short, the ongoing litigation can be described as a “blood feud.” (Trustee’s Reply at
2.). The crux of the disputes primarily arises out of two real estate loans made by the Knopfs to
Pursuit for the purchase of several properties including the Condominium Units (defined below)
in New York City. Sanford caused Pursuit to use funds borrowed from the Knopfs to purchase
these properties. The Knopfs allege that Sanford and Pursuit breached the loan agreements and
committed fraud related to the properties by failing to grant the Knopfs mortgages on the
properties after they were acquired.
The Knopfs obtained summary judgment on their breach of contract claims against Pursuit
and Sanford in 2014. See Knopf v. Sanford, 123 A.D.3d 521, 521 (N.Y. App. Div. 2014).
Approximately three years later, on February 22, 2018, the New York Supreme Court entered a
money judgment in the action, awarding the Knopfs damages of $9,867,832.61 (“Judgment”)
against Pursuit. See Knopf v. Sanford, No. 113227/09, 2018 WL 1769299, at *35–44 (N.Y. Sup.
Ct. Feb. 9, 2018). The Judgment was recorded and constitutes a judicial lien against Pursuit’s
Condominium Units. (Agreement at 22.) Later that year, Pursuit filed its bankruptcy petition.
The Agreement proposed by the Trustee’s Motion would put to rest any further litigation
between the Knopfs and the Debtor and would satisfy the Knopfs’ outstanding Judgment against
the Debtor. However, to be clear, it would not end the litigation between the Knopfs and Sanford
in his individual capacity; they seem poised to continue litigating vigorously.
The objections by Pursuit’s attorney and by Sanford are clearly aimed to keep the Debtor
in the continuing litigation with the Knopfs, no doubt in the hope of the Debtor funding all or
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 4 of 22

5
most of the ongoing battle. But neither Pursuit’s attorney nor Sanford can substitute their
(clouded and conflicted) judgment for the experience, good sense and sound business judgment of
the Trustee and her experienced counsel. This Court has the duty of canvassing the issues and
approving a settlement agreement where it finds that the agreement does not fall below the lowest
point in a range of reasonableness and would be in the best interest of creditors of the estate. For
the reasons more fully detailed below, the Court approves the proposed Agreement, resolving a
decade of litigation between the Debtor and the Knopfs.
I. 	BACKGROUND
A. 	General
On September 12, 2018, the Debtor filed a voluntary petition for relief under Chapter 11
of the Bankruptcy Code. (ECF Doc. # 1.) On November 19, 2018, the Court entered an order
converting the Debtor’s Chapter 11 bankruptcy case to a Chapter 7 case. (ECF Doc. # 33.)
Deborah J. Piazza was appointed as the interim Chapter 7 trustee of the Debtor’s estate and is now
the permanent Trustee of the Debtor’s estate and continues to serve in such capacity. (Motion ¶
9.)
The Debtor is the fee owner of three separate condominium units known as Unit #1, Unit
#2 and Unit #4 at 10 Bedford Street, New York, New York (the “Condominium Units”). (Id. ¶
10.) The Condominium Units are now subject to a judicial lien created by the Judgment against
the Debtor in favor of the Knopfs in the amount of $9,867,832.61. (Agreement at 22.) The
Agreement would provide the Knopfs’ with a quitclaim deed to the Condominium Units in
exchange for $200,000.00 and an agreement that the Knopfs would not receive further
distributions from the Debtor’s estate, despite their Judgment against the Debtor.
Pursuit is a Delaware limited-liability company; Sanford owns 100% of its membership
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 5 of 22

6
interests. In the state court actions between the Knopfs, Pursuit and Sanford—which are more
fully discussed below—the state court determined that the Pursuit’s affairs were intermingled
with Sanford’s to the degree that Sanford should be held personally liable for the previous
judgment debt owed to the Knopfs. February 4 Decision and Order at 12. That Decision and
Order provides the following helpful description of the parties:
The District Court found, based on the relevant facts and applicable law,
that Sanford repeatedly conceded on the record that Pursuit’s assets are
the same as his; that Pursuit 	is a disregarded 	entity for tax reporting
purposes; 	that 	Sanford used 	Pursuit's bank 	accounts to pay his own
litigation expenses; that Sanford and Pursuit operated as a single entity and
that he continued to treat Pursuit as interchangeable with himself; that
Sanford used Pursuit's corporate form to shield himself from personal
liability in connection with the loans borrowed in the acquisition of the
real-estate properties; and that he refused to give the Knopfs any mortgage
interests in the properties, even though the underlying agreements obligated
him to do so. These findings resemble the assertions the Knopfs make
against Sanford in this proceeding.
February 4 Decision and Order at 10-11 (internal citations omitted).2
B. 	Overview of Litigation Between Debtor and the Knopfs
1. 	State Court Judgment Against Pursuit in the Amount of $9,867,832.61
In 2009, the Knopfs commenced a lawsuit in the Supreme Court of the State of New York,
County of New York. The Knopfs moved for summary judgment but the trial court denied the
motion; the Knopfs appealed. The Appellate Division, First Department, reversed and awarded
partial summary judgment to the Knopfs against Pursuit for breach of contract. See Knopf et al. v.
Sanford, et al., 123 A.D. 3d 521, 521 (N.Y. App. Div. 2014). The decision did not quantify the
amount of damages, and the case was remanded to the trial court. Id.
2 	The reference to the District Court in the February 4 Decision and Order is to the Opinion and Order of
Judge Denise Cote of the U.S. District Court for the Southern District of New York in Knopf v. Phillips, 2017 WL
6561163, at *11–13 (S.D.N.Y. Feb. 1, 2018.)
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 6 of 22

7
The trial court referred the matter of damages for hearing and recommendation to retired
Supreme Court Justice, Judicial Hearing Officer Ira Gammerman (hereinafter “JHO” or “JHO
Gammerman”). After a 5-day hearing and extensive briefing, the JHO recommends “[T]he
amount due from Mr. Sanford individually totals $10,937,850, and of that amount, Sanford and
Pursuit are jointly liable for the $8,336,488 . . . .” (JHO Hearing Transcript, ECF Doc. # 60-5, at
12:17–20.)
The Knopfs moved to confirm the JHO’s report and recommendation in the New York
State Supreme Court. Justice Lebovits upheld the damages recommended with respect to Pursuit.
See Knopf v. Sanford, No. 113227/09, 2018 WL 1769299, at *35–44 (N.Y. Sup. Ct. Feb. 9, 2018).
Justice Lebovits found that “JHO Gammerman calculated interest on the two loans properly.” Id.
at *41. Justice Lebovits also confirmed JHO Gammerman’s recommendation of the damages
Pursuit owed to the Knopfs, but he denied JHO Gammerman’s recommendation with respect to
damages against Sanford personally, concluding that JHO Gammerman had exceeded the scope
of the referral. Id. at *43. Justice Lebovits’ decision specifically states:
ORDERED that judgment be entered for plaintiffs and against Pursuit
Holdings LLC in the amount of $8,336,488, with interest from February 8,
2016 at the statutory rate until entry of judgment, as calculated by the Clerk,
together with costs and disbursements, as taxed by the Clerk[.]
Id. A judgment was subsequently entered on February 22, 2018 in favor of the Knopfs against
Pursuit in the amount of $9,867,832.61 (the amount previously defined as the Judgment). (See
Motion ¶ 14.)
2. 	The Knopfs Veil Piercing Action
In 2018, the Knopfs filed an additional state court action against Pursuit and Sanford.
Knopf v. Sanford, No. 652743/2018 (N.Y. Sup., N.Y. Cty. Feb. 4, 2018). The Knopfs sought an
order and judgment holding Sanford personally liable for the Judgment debt in the prior state
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 7 of 22

8
court action. Id. Justice Lebovits’ February 4 Decision and Order found that Sanford should be
held personally liable for Pursuit’s judgment debt owed to the Knopfs based on an alter-ego or
veil-piercing theory. Id. As already stated, a Judgment against Sanford for $10,363,402.99 was
entered on March 6, 2019. See Judgement at 1–2, Knopf v. Sanford, Index No. 652743/2018
(N.Y. Sup. Ct. Mar. 6, 2019), Doc. No. 177.
3. 	Additional Federal Court Litigation
The Knopfs also commenced three actions in the United States District Court for the
Southern District of New York against Pursuit, Sanford, the lawyers that represented Pursuit and
Sanford in the state court actions, and the buyer of the Condominium Units. The first action,
against Meister, Seelig & Fein and Pursuit, was dismissed. The dismissal of the case was
affirmed by the Second Circuit. In the remaining two Southern District actions, the Esposito and
Phillips actions, Judge Denise Cote dismissed both cases, and also entered substantial sanctions
against the Knopfs and their counsel. See Knopf v. Esposito, 2017 WL 6210851 (S.D.N.Y. Dec.
7, 2017) (dismissing Knopfs’ sole federal claim against defendants and declining to exercise
supplemental jurisdiction over state law claims); see also Knopf v. Esposito, 2018 WL 1226023
(S.D.N.Y. Mar. 5, 2018) (granting, in part, sanctions against the Knopfs and their counsel); see
also Knopf v. Phillips, 2018 WL 1320267, at *3 (dismissing case with prejudice); see also
February 4 Decision and Order at 10–11 (providing a helpful summary of the District Court
actions). The Knopfs have appealed these two cases to the Second Circuit, but the appeal is
stayed because of the automatic stay in the Pursuit bankruptcy. Both the Esposito and Phillips
cases arose from alleged misconduct by Sanford in causing an Appellate Division, First
Department Court Attorney to commit misconduct. Sanford believes the results of the two federal
court actions somehow show that he is blameless of any of the misconduct the Knopfs allege that
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 8 of 22

9
Sanford engaged in. All three actions are briefly described below. Judge Cote’s decision
imposing sanctions on the Knopfs and their counsel shows that their federal court litigation
conduct was improper.3 But Justice Lebovits’ February 4 Decision and Order, discussed above,
shows that Sanford’s state court conduct was improper. While the Court briefly describes the
three cases, they are not relevant to the issues decided by the Court on the pending Motion.
a) 	The Esposito Action
The complaint in Esposito named several attorneys and Sanford as defendants. Complaint
at 1, Knopf v. Esposito, Case No. 1:17-CV-05833-DLC (S.D.N.Y. Aug. 2, 2017), ECF Doc. # 1.
The Knopfs alleged that Sanford conspired, in violation of 42 U.S.C. § 1983, with three attorney
defendants and others to obtain “an ex parte advisory opinion” from a court attorney employed by
the Appellate Division, First Department. They also alleged claims of fraud and deceit, fraudulent
conveyance, and violation of New York Judiciary Law § 487 arising out of these same events.
See Knopf v. Esposito, No. 17-CV-5833 (DLC), 2017 WL 6210851, at *1 (S.D.N.Y. Dec. 7,
2017). The defendants moved to dismiss the first amended complaint, and the defendants’
motions to dismiss were granted. Id.
b) 	The Phillips Action
On August 22, 2016, the Knopfs filed their complaint commencing the Phillips action.
3 	The Knopfs’ counsel surreptitiously videotaped Sanford’s deposition and lied repeatedly about doing so.
For this and other misconduct, Judge Cote imposed sanctions under 42 U.S.C. § 1988 and 28 U.S.C. § 1927, jointly
and severally, against the Knopfs and their counsel for bad faith, vexatious, and duplicative litigation. Knopf v.
Esposito, 2018 WL 1226023, at *8. Judge Cote also granted attorneys’ fees and sanctions against the Knopfs’
counsel individually under the Court’s inherent power for his “bad faith, harassing conduct throughout this
litigation.” Id. at *7. Judge Cote also sanctioned the Knopfs and their counsel for allegations that Sanford’s
employee Esposito contrived to get a First Department Court Attorney (who was Esposito’s wife) to provide an ex
parte opinion that enabled Sanford to close the sale of the Condominium Units and avoid escrowing the $3 million
sale proceeds. Judge Cote vacated this sanction award with respect to Esposito and reduced the sanctions jointly and
severally against the Knopfs and their counsel in favor of Dorsey & Whitney after an investigation by the New York
Office of Court Administration determined that Esposito’s wife had indeed improperly provided an ex parte opinion.
Knopf v. Esposito, 2018 WL 3579104. Justice Lebovits’s February 4 Decision and Order sheds additional light on
this unsavory episode. February 4 Decision and Order at 7–12.
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 9 of 22

10
Complaint at 1, Knopf v. Phillips, No. 1:16-CV-06601-DLC-SN (S.D.N.Y. Aug. 22, 2016), ECF
Doc. # 1. The complaint named Michael Phillips and Pursuit as defendants. Id. Phillips
purchased three Condominium Units from Pursuit for $3 million dollars. The sale proceeds were
originally deposited in escrow, as ordered by a single Justice of the Appellate Division, First
Department, and then released from escrow after the Court Attorney (Esposito’s wife) provided
an ex parte advisory opinion that the order requiring that the funds be deposited in escrow was
vacated when the First Department denied a preliminary injunction. Although he was not named
in the complaint, Sanford appeared and requested to be added to the case as a defendant. Knopf v.
Phillips, No. 16-CV-00601 (DLC), 2018 WL 1320267, at *1 (S.D.N.Y. Feb. 1, 2018). The
District Court dismissed the action against all defendants.
c) 	The Meister, Seelig & Fein Action
The Knopfs brought a federal diversity action against the Debtor and its past attorneys,
Meister, Seelig & Fein LLP (“MSF”). See Knopf v. Meister, Seelig & Fein, LLP, No. 15-CV-
5090 (DLC), 2016 WL 1166368, at *1 (S.D.N.Y. Mar. 22, 2016). Pursuit retained MSF to defend
it in the Knopfs’ 2009 state court action. Id. As payment for MSF’s legal services, MSF and
Sanford entered into an amended engagement agreement whereby Sanford, on behalf of Pursuit
and other entities owned by Sanford, agreed to mortgage another property owned by Pursuit
Holdings at 44 East 67th Street, Unit PHC (“PHC”) in favor of MSF. Knopf v. Meister, Seelig &
Fein LLP, 721 F. App’x 96, 97 (2d Cir. 2018). Pursuit then executed a promissory note for
MSF’s payment and a mortgage against PHC in favor of MSF securing the note. Id. The Knopfs
argued that the mortgage and promissory note constituted actual and constructive fraudulent
conveyances. Id. The District Court dismissed the constructive fraudulent conveyance claim on
summary judgment and the Second Circuit affirmed the dismissal. Id. at 98. The District Court
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 10 of 22

11
also dismissed the Knopfs’ actual fraudulent conveyance claim on a Rule 12(b)(6) motion, and
the Second Circuit affirmed the dismissal. Id.
C. 	Trustee’s Proposed Settlement with Knopfs
If the January 7, 2019 settlement is approved, the Agreement would result, inter alia, in
the following: (i) the Knopfs would pay the Trustee $200,000.00 in cash, (ii) the Knopfs would
waive the multi-million dollar Judgment they hold against the Debtor’s estate in exchange for the
Trustee providing them quitclaim deeds to the Properties, (iii) the Agreement would resolve
possible future disputes between the Knopfs and the Debtor’s estate, (iv) the settlement payment
would result in a certain recovery for the Debtor’s unsecured creditors, and (v) the Agreement
would preserve other parties’ rights with respect to the pending state and federal court litigation.
(Motion ¶ 1.)
The salient terms of the Agreement are summarized as follows: 4
a. 	Within two (2) business days from the execution of the Agreement, the
Knopfs shall pay the estate the sum of $200,000.00 (the “Settlement
Payments”) and the Settlement Payments shall become property of the
Debtor’s bankruptcy estate upon the approval of the Agreement by the
Court (the “Effective Date”).
b. 	Within three (3) business days of the Effective Date, the Trustee shall
execute and deliver quitclaim deeds for each of the Condominium Units
to Delphi Capital Management LLC.
c. 	On the Effective Date, the Knopfs 	shall have waived 	any further
distributions from the bankruptcy estate except for the deeds for the
Condominium Units and the Trustee shall withdraw the notice of appeal of
the Judgment.
d. 	Mutual releases are exchanged between the Knopfs and the Trustee
releasing all claims except that if the Knopfs prosecute a third-party action
which results in the return of any real or personal property to the Debtor's
estate, the Knopfs legal and equitable rights to submit a claim for the
distribution for all or a 	portion of such return of 	property shall be
preserved.
4 	Undefined capitalized terms are defined in the Agreement.
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 11 of 22

12
e. 	To the extent necessary, the Knopfs shall be granted relief from automatic
stay imposed by section 362 to permit the continuation of the State Court
Action, the Veil Piercing Action, the Phillips Action, the Esposito Action,
the Third Party Discovery5 and any third-party claims (i.e. claims against
entity other than the Debtor that may be jointly liable or liable as
accessories for the damages underlying the Judgment). 	The relief from
stay is limited such that in the event a judgment is obtained, the Knopfs
are required to notify the Trustee and at that point the Trustee and the
Knopfs will attempt in good faith to determine whether further relief from
stay is warranted and seek approval of the Court of any resolution of those
issues at such times.
f. 	The settlement only involves the Knopfs and the Debtor and does not
involve the Debtor’s co-defendants in the State Court Action. The Knopfs
and any other parties in the State Court Action retain any rights and can
continue to prosecute and/or defend the State Court Action. 	Only the
claims between the Knopfs, on the one hand, and the Debtor and its estate,
on the other, are resolved by this settlement.
(Motion ¶ 24.)
The settlement, if approved, will enable the Trustee to satisfy what she believes to be the
outstanding administrative expense claims of the Chapter 11 and Chapter 7 cases. (Motion ¶ 34.)
The bar date was March 1, 2019. The Claims Register shows that filed claims , excluding claims
filed by the Knopfs and Sanford, are approximately $330,000. Although at this point the Trustee
represents that she cannot determine the amount of allowed claims based upon the Debtor’s
schedules, she anticipates that there can be a meaningful distribution to the general unsecured
creditors. (Id.) Importantly, the settlement enables the unsecured creditors to recover a
meaningful distribution in a case where, absent vacatur of the Judgment or a reversal of the
Judgment on appeal, there would be no recovery for unsecured creditors. (Id.) Finally, the
5 	The Agreement defines Third Party Discovery as follows: “following entry of Judgment, the Knopfs served
deposition and/or document subpoenas upon Michael Hayden Sanford, Nathaniel H. Akerman, Dorsey & Whitney,
LLP, James M. McGuire and JPMorgan Chase Bank for the purpose of obtaining discovery relating to potential
claims against parties the Knopfs may allege to be jointly liable or liable as accessories for the damages underlying
the Judgment and intend to serve additional subpoenas for that purpose (the “Third Party Discovery”).” (Agreement
at 22.)
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 12 of 22

13
settlement resolves millions of dollars of claims asserted by the Knopfs as embodied in the
Judgment.
D. 	Objections to the Settlement
Pursuit’s lawyer filed an opposition to the Trustee’s Motion (ECF Doc. # 51). Sanford
filed a declaration in opposition. (ECF Doc. # 53.) Both oppositions assert, inter alia, that the
Trustee is violating her fiduciary duty to the estate by seeking to settle through the Agreement
rather than continuing to pursue litigation with the Knopfs.
There are no other objections to the settlement. A limited response was filed by the
NYCTL 2017-A Trust and the Bank of New York Mellon, as Collateral Agent and Custodian for
the NYCTL 2017-A Trust (collectively, the “Tax Lien Trust”). (ECF Doc. # 52.) The Tax Lien
Trust does not object to the settlement or to the transfer of the Condominium Units from the
Debtor’s Estate to Delphi Capital Management. (Id.) Rather, the limited reply requests that, to
the extent that the Tax Liens are not paid prior to or at the time of the transfer of the
Condominium Units, the Tax Liens will remain as liens against the Condominium Units and, to
the extent not otherwise paid by the Trustee, will survive this Chapter 7 Bankruptcy. (Id.)
II. 	LEGAL STANDARD
Bankruptcy Rule 9019 governs this Court’s approval of compromises. There is a strong
policy favoring settlements and compromises in bankruptcy cases as they minimize costly
litigation and further parties’ interests in expediting the administration of the bankruptcy estate.
See Myers v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir. 1996). Indeed, the general rule is
that Courts should approve settlements unless they “fall below the lowest point in the range of
reasonableness.” Cosoff v. Rodmon (In re W.T. Grant Co.), 699 F.2d 599, 608 (2d Cir. 1983); In
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 13 of 22

14
re Chemtura Corp., 439 B.R. 561, 54 (Bankr. S.D.N.Y. 2010) (quoting In re W.T. Grant, Co.,
699 F.2d 599, 608 (2d Cir. 1983)).
Rule 9019(a) provides authority to approve a compromise upon the motion of the trustee.
Specifically, Rule 9019 provides:
On motion by the trustee and after notice and a hearing, the court may
approve a compromise or settlement. Notice shall be given to creditors, the
United States trustee, the debtor, and indenture trustees as provided in Rule
2002 and to any other entity as the court may direct.
FED. R. BANKR. P. 9019.
To approve a compromise under Rule 9019, the Court must determine that the settlement
is fair, equitable, and in the best interests of the estate. See In re Drexel Burnham Lambert Grp.,
Inc., 134 B.R. 493, 496 (Bankr. S.D.N.Y. 1991) (citing Protective Comm. for Indep.
Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424 (1968)); see also
Topwater Exclusive Fund III, LLC v. SageCrest II, LLC (In re SageCrest II, LLC), Nos. 3:10-cv-
978 (SRU), 3:10-cv-979 (SRU), 2011 WL 134893, at *8–9 (D. Conn. Jan. 14, 2011); Cousins v.
Pereira (In re Cousins), No. 09 Civ. 1190 (RJS), 2010 WL 5298172, at *3 (S.D.N.Y. Dec. 22,
2010); In re Chemtura Corp., 439 B.R. 593–94; In re Lehman Bros. Holdings, Inc., 435 B.R.
122, 134 (S.D.N.Y. 2010). In making its determination, the Court must independently evaluate
the settlement’s reasonableness rather than simply deferring to the debtor or debtor in
possession’s judgment. See Chemtura, 439 B.R. at 594; In re Rosenberg, 419 B.R. 532, 536
(Bankr. E.D.N.Y. 2009). However, in making an independent evaluation of the reasonableness
of the settlement, the court is not required to conduct a trial of the underlying claims and may
take into consideration the opinions the bankruptcy counsel, trustees, and other parties in interest.
See Chemtura, 439 B.R. at 594; In re Rosenberg, 419 B.R. at 536.
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 14 of 22

15
The Second Circuit explained the examination required as follows:
In undertaking an examination of the settlement, we emphasize that
this responsibility of the bankruptcy judge, and ours upon review, is not to
decide the numerous questions of law and fact raised by appellants but
rather to canvass the issues and see whether the settlement “fall[s]
below the lowest point in the range of reasonableness,” Newman v.
Stein, 464 F.2d 689, 693 (2d Cir.), cert. denied, sub nom. Benson v.
Newman, 409 U.S. 1039 (1972).
Cosoff v. Rodman (In re W.T. Grant Co.), 699 F.2d 599, 608 (2d Cir. 1983); see also Anaconda-
Ericsson, Inc. v. Hessen (In re Teltronics Services, lnc.), 762 F.2d 185, 189 (2d Cir. 1985); In
re Lion Capital Group, 49 B.R. 163, 175 (Bankr. S.D.N.Y. 1985); In re Carla Leather, Inc.,
44 B.R. 457, 465 (Bankr. S.D.N.Y. 1984).
While neither Rule 9019 nor any section of the Bankruptcy Code set forth explicit factors
for courts to consider in settlement approval decisions, it is well-established that courts routinely
apply a set of factors outlined by the Second Circuit. Utilizing the Supreme Court’s TMT Trailer
Ferry framework, the Second Circuit in Motorola, Inc. v. Official Comm. of Unsecured Creditors
(In re Iridium Operating LLC), 478 F.3d 452, 462 (2d Cir. 2007) outlined a test for evaluating
whether to approve a settlement. The court instructed that seven non-exclusive factors should be
considered to the extent applicable in the circumstances:
(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; (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.”
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 15 of 22

16
Id. (internal citations omitted) (hereinafter, “Iridium Factors”).
When assessing these factors, the Court need not determine that all factors weigh in favor
of approval nor must it find that the proposed compromise is even the best agreement that could
have been achieved in the circumstances. In re Adelphia Commc’ns Corp., 327 B.R. 143, 159–
60. Rather, the Court is to determine whether the “settlement as a whole is fair and equitable,”
In re Lee Way Holding Co., 120 B.R. 881, 890 (Bankr. S.D. Ohio 1990), and falls “within the
reasonable range of litigation possibilities.” In re Telesphere Commc’ns, Inc., 179 B.R. 544, 553
(Bankr. N.D. Ill. 1994) (citation omitted).
III. 	DISCUSSION
A. 	Iridium Analysis
The Court has considered the Iridium Factors to the extent applicable in the
circumstances. These factors weigh in favor of granting the Motion.
1. 	The balance between the litigation’s possibility of success and the settlement's
future benefits
This factor weighs heavily in favor of the Agreement. There is no doubt that the
Agreement will benefit the estate by producing a recovery for the estate’s unsecured creditors—
without the settlement, the Trustee and her counsel believe there would be no recovery for
creditors. Additionally, the Trustee notes that if the settlement is not approved, she would have
to either (1) move under CPLR 5015 for relief from the Judgment against the estate or (2) perfect
an appeal from the existing Judgment and succeed on the appeal. (Motion ¶ 37.) The Trustee
believes that her chances of success in appealing the Judgment are unlikely. (Id.) After
reviewing the lengthy state and federal court history of the Debtor and the Knopfs discussed
above, this Court agrees that the settlement’s future benefits outweigh the litigation’s possibility
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 16 of 22

17
of success, if continued. This factor, therefore, weighs in favor of the Court’s acceptance of the
Agreement.
2. 	The likelihood of complex and protracted litigation, with its attendant
expense, inconvenience, and delay, including the difficulty in collecting on the
judgment
The prospect of complex and protracted litigation is considered an especially important
factor in the context of bankruptcy. O’Connell v. Packles (In re Hilsen), 404 B.R. 58, 75 (Bankr.
E.D.N.Y. 2009). The Hilsen court explained that, while the likelihood of complex and protected
litigation factor is “always a factor in considering the merits of a settlement, it is of particular
consequence in the bankruptcy context, where the prompt administration of a bankruptcy estate,
for the benefit of the debtor and creditors alike, is among a trustee’s central objectives.” Id. The
Trustee believes that continuing the litigation as requested by the Debtor and Sanford would
likely take more than a year. (Motion ¶ 40.) Since the litigation between the Knopfs and
Sanford has already spanned a decade with no end in sight, it is indeed foreseeable that many
years of additional litigation lay ahead. The Trustee believes that, even if litigation were
continued by perfecting a notice of appeal of the Judgment, the likelihood of the payoff from that
litigation would be uncertain at best. (Id.) The Trustee believes that any successes that would
result from continued litigation would only modestly offset the existing Judgment, at best. At
worst, continuing litigation could prevent the unsecured creditors from obtaining a payout. (Id.)
Because the unsecured creditors would receive a certain payout under the Agreement, this factor
weighs in favor of the Court accepting the Agreement.
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 17 of 22

18
3. 	The paramount interests of the creditors, including each affected class’s relative
benefits and the degree to which creditors either do not object or affirmatively
support the proposed settlement
The paramount interest of creditors is served by the Agreement. As noted at the outset of
this decision, no creditors have objected to this settlement. The only individual who has objected
to the substance of the settlement is Sanford. Moreover, as noted in reference to the above
factor, the unsecured creditors would receive a certain payout under the Agreement. Since
unsecured creditors are better off under the agreement and secured creditors are not affected, this
factor weighs in favor of the Court’s approval of the Agreement.
4. 	Whether other parties in interest support the settlement
This bankruptcy case is little more than a two-party dispute which ended up in
Bankruptcy Court after a decade of state court litigation. Sanford, who owns 100% of the
membership interests in Pursuit, objects to this proposed settlement. Obviously, the Knopfs, the
estate’s largest creditor, and the parties to the settlement are in favor of approval of the
settlement. (Motion ¶ 42.) Additionally, the Trustee has submitted that she believes the
settlement will work in favor of all non-insider unsecured creditors. (Motion ¶ 42.)
5. 	The competency and experience of counsel supporting the settlement
The Trustee is represented by competent bankruptcy counsel who carefully analyzed the
merits of the claims versus the risks and defenses. Tarter Krinsky & Drogin LLP (“TKD”) has
handled numerous Chapter 7 trustee representations (and Chapter 11 cases on behalf of debtors
in possession and creditors committees). A significant portion of TKD’s day to day work relates
to the prosecution of various causes of action for the benefit of unsecured creditors in an estate.
Both the Trustee and TKD spent considerable time conducting due diligence in weighing the
likelihood of success in litigation against the benefits under the Agreement. (Motion ¶ 44.)
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 18 of 22

19
Additionally, Trustee’s counsel reviewed all of the hundreds of pages of documents submitted to
the Trustee and this Court by Sanford. (Motion ¶ 8.)
6. 	The nature and breadth of releases to be obtained by officers and directors
The Agreement includes customary releases and waivers of claims that were or could
have been asserted by the Debtor and its estate against the Knopfs, and vice versa. The mutual
releases between the parties are tailored to release only the estate’s claims. (Motion ¶ 45.)
Sanford is the only director, officer, or member of the Debtor. He maintains his right to pursue
any individual claims against the Knopfs. This factor is therefore not entirely relevant to the
Agreement, but it would also favor approving the Agreement.
7. 	The extent to which the settlement is the product of arm’s length bargaining
The Agreement is the product of arm’s length bargaining between the Trustee’s counsel
and counsel to the Knopfs. (Motion ¶ 46.) Pursuit’s counsel argued at the hearing that the
Trustee may not have given Pursuit’s arguments in favor of continued litigation sufficient
consideration. However, upon further questioning, Pursuit’s counsel admitted that it would be
fair to say that the Trustee considered all of the arguments in favor of continuing litigation and
nonetheless found that the Agreement was the best course of action for the estate. (“Hearing
Tr.,” ECF Doc. # 65, at 39:13–21) Thus, there is no evidence refuting the Trustee’s
representations that she, her counsel, and the Knopfs’ counsel reached the Agreement through
arm’s length, proper negotiations. No evidence suggests that the Trustee or her counsel failed to
give due consideration to arguments in favor of continuing litigation on behalf of the Debtor. As
a result, this factor weighs in favor of the Agreement.
In sum, the Iridium Factors weigh heavily in favor of approving the Agreement. The
Court has sufficiently canvassed the issues and considered each factor. The Court concludes on
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 19 of 22

20
the basis of the Iridium Factors that the Trustee’s Motion to approve the Agreement should be
granted.
B. 	Trustee’s Business Judgment
As noted above, the Court may give consideration to the informed judgments of the
Trustee and Trustee’s counsel. In Vaughn v. Drexel Burnham Lambert Group, Inc. (In re
Drexel Burnham Lambert Group, Inc.), 134 B.R. at 505, the court observed:
Further, the court need not conduct a wholly independent investigation in
formulating its opinion as to the reasonableness of a settlement. 	We may
give weight 	to the 	informed judgments of the 	trustee 	or 	debtor-in-
possession and their counsel that a compromise is fair and equitable, see,
In re Carla Leather. Inc., 44 B.R. 457 (Bankr. S.D.N.Y. 1984), aff’d, 50
B.R. 764 (S.D.N.Y. 1985), and consider the competency and experience
of counsel who support the compromise. 	See, In re Texaco, 84 B.R. 893
(Bankr. S.D.N.Y 1988); In re International Distribution Centers. Inc., 103
B.R. 420 (S.D.N.Y. 1989). And indeed, a court may approve a settlement
even if it believes that the trustee or debtor-in-possession ultimately would
be successful at trial. ln re Teltronics Services, Inc., 46 B.R. 426 (E.D.N.Y
1984), aff’d, 762 F.2d 185 (2d Cir. 1985). Finally, we must consider the
principle that “the law favors compromise.” 	In re Blair, supra, 538 F.2d
at 851.
Pursuit’s counsel argues that the Trustee should continue litigation on behalf of the
Debtor. However, the law provides that the Trustee has “a substantial degree of prosecutorial
discretion” when determining whether to bring a cause of action or not. In re V. Sa vino Oil &
Heating Co., Inc., 91 B.R. 655, 656 (Bankr. E.D.N.Y. 1988); see also In re Smit h, 400 B.R.
370 (Bankr. E.D.N.Y. 2009) (denying motion to reopen bankruptcy case to pursue an
adversary proceeding against Chapter 7 trustee for malpractice, breach of fiduciary duty and
negligence where the trustee had exercised his business judgment in declining to go forward
with claims); In re Consol. I ndus. Corp., 330 B.R. 712, 715 (Bankr. N.D. Ind. 2005) (stating
that a “bankruptcy trustee is not required to prosecute every cause of action belonging to the
bankruptcy estate. 	Instead, the trustee is given a substantial degree of discretion in deciding
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 20 of 22

21
how best to administer the estate committed to his care and his actions are measured by a
business judgment standard.”) (internal citations omitted). Moreover, courts “will not entertain
objections to the trustee’s management of the debtor’s estate where the trustee’s conduct
involves [her] good faith business judgment, is made on a reasonable basis, and is within the
scope of the trustee’s authority under the Code.” In re Belmo nte, 524 B.R. 17, 29 (Bankr.
E.D.N.Y. 2015) (quoting In re Taub, 441 B.R. 211, 216 (Bankr. E.D.N.Y. 2010)).
Pursuit’s arguments that the Trustee in any way abused her discretion in recommending
the proposed settlement agreement are baseless. In addition to all of the representations in the
Trustee’s Motion and the arguments of the Trustee’s counsel at the hearing, the Trustee and her
counsel reviewed all of the voluminous documents they received from both Pursuit and Sanford.
(See Reply ¶ 8 stating “Sanford provided hundreds of pages of documents to the Trustee’s
counsel and all were reviewed”; see also “Trustee’s Affirmation,” ECF Doc. # 49, passim;
Hearing Tr. at 39–40.)6 The Court, therefore, has no valid reason to question the Trustee’s
affirmations under oath or her business judgment on the issue of whether she reached the
proposed settlement in good faith, in an arm’s length negotiation, and based upon a thorough
consideration of all facts and alternatives.
IV. 	CONCLUSION
For these reasons, the Court grants the Trustee’s Motion to approve the Agreement. The
Iridium Factors weigh in favor of the settlement, and these factors, alone, provide a sufficient
6 	During the hearing, the Court asked “Is it fair to say colloquially . . . You took your best shot. You laid out
to [the Trustee] and her counsel all of the reasons why you believed that the trustee should litigate rather than settle.
Is that a fair statement?” (Tr. 39:13-20.) Debtor’s counsel responded “yes,” and when the Court further inquired
that the result was that the “trustee wasn’t persuaded,” Mr. Osborne asserted that his concern was essentially that the
Trustee had not given the settlement “her best effort.” (Tr. 40:1-7.) The basis of that claim was not only
unsubstantiated by facts, but also is legally irrelevant where the Court is entitled to give weight to the business
judgment of the Trustee.
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 21 of 22

22
basis for the Court to approve the settlement. The arguments by Pursuit and Sanford that the
Trustee failed to exercise appropriate business judgment are unpersuasive.
IT IS SO ORDERED.
Dated: 	March 12, 2019
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
18-12738-mg Doc 67 Filed 03/12/19 Entered 03/12/19 08:18:19 Main Document
Pg 22 of 22