CORUS HARDWARE CORP

1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
In re: 	:
:
ANTONIO A. FERNANDEZ, 	: 	Case No. 04-10585 (GAC)
MARTHA BERTRAN, 	:
:
Debtors 	: 	Chapter 11
___________________________________:
:
In re: 	:
:
LASER REALTY, INC., 	: 	Case No. 04-12634 (GAC)
:
Debtor 	: 	Chapter 7
___________________________________:
:
In re: 	:
:
CORUS HARDWARE, CORP., 	: 	Case No. 07-00067 (GAC)
:
Debtor 	: 	Chapter 11
___________________________________:
:
In re: 	:
:
LASER REALTY, INC., 	:
:
Plaintiff 	:
:
v. 	: 	Adv. No. 06-00189 (GAC)
:
ANTONIO FERNANDEZ, ET AL., 	:
:
Defendants 	:
___________________________________:
DECISION AND ORDER
BACKGROUND
On 	October 	31, 	2008, 	a 	settlement 	agreement 	(“Settlement
Agreement”) was filed between the captioned debtors, the Chapter 7
trustee 	for 	the 	estate 	of 	Laser 	Realty, 	Inc. 	(“Laser”),
Case:07-00067-ESL11 Doc#:468 Filed:03/31/09 Entered:03/31/09 10:01:42 Desc: Main
Document Page 1 of 10

2
International 	Steel 	and 	Tube, 	S.A. 	(“IST”), 	Florida 	Tube
Corporation (“FTC”) and Citibank, N.A. (“Citibank”). 	The captioned
corporate 	debtors, 	IST 	and 	FTC 	are 	all 	related 	corporations 	and
were all operated by the individual debtors, Antonio A. Fernandez
and Martha Bertran (the “Fernandez debtors”).
In 	essence, 	the 	agreement 	proposes 	monetary 	compensation 	to
Citibank, 	in 	exchange 	for 	settlement 	of 	all 	of 	the 	protracted
litigation between the parties. 	Citibank had sought conversion of
the 	bankruptcy 	case 	of 	the 	Fernandez 	debtors 	to 	Chapter 	7.
Citibank 	has 	an 	unsecured 	claim 	against 	Laser 	in 	the 	amount 	of
$11,164,539.56, 	which 	was 	objected 	to 	by 	the 	Chapter 	7 	trustee,
Noreen Wiscovich Rentas (“NWR”). 	Citibank also has a claim against
Corus 	Hardware, 	Corp. 	(“Corus”) 	of 	$11,164,539.56, 	of 	which
$4,050,342.00 was claimed as secured. 	Citibank had also sought the
conversion 	of 	Corus’ 	Chapter 	11 	proceeding 	to 	Chapter 	7 	and 	had
objected 	to 	the 	disclosure 	statement. 	Various 	other 	contested
matters 	have 	existed 	between 	Citibank 	and 	the 	Fernandez 	debtors,
which are not detailed in the Settlement Agreement.
In 	the 	adversary 	proceeding, 	NWR 	had 	objected 	to 	the
dischargeability of debts, sought avoidance of alleged transfers of
property 	and 	recovery 	of 	fraudulent 	conveyances. 	IST 	is 	a
defendant in this litigation.
In 	the 	Settlement 	Agreement, 	Citibank 	has 	agreed 	to 	accept
$7,000,000, 	to 	release 	Laser 	and 	all 	co-borrowers 	and 	guarantors
Case:07-00067-ESL11 Doc#:468 Filed:03/31/09 Entered:03/31/09 10:01:42 Desc: Main
Document Page 2 of 10

3
(i.e. 	the 	Fernandez 	debtors, 	Corus, 	FTC 	and 	IST) 	from 	all
liabilities 	related 	to 	its 	claims. 	Citibank 	is 	also 	withdrawing
its motions to convert and will affirmatively vote for confirmation
of 	the 	plans 	of 	reorganization 	in 	the 	bankruptcy 	cases 	of 	the
Fernandez debtors and Corus.
The terms of the payment to Citibank are immediate payment of
$3,500,000.00 by all captioned debtors, FTC and/or IST, which will
reduce the claims against all estates by this amount. 	Laser will
also 	make 	a 	partial 	distribution 	to 	Citibank 	in 	the 	amount 	of
$500,000.00. 	This distribution, and a prior payment of $94,637.02
to Citibank, will be applied against the final dividend payable to
Citibank. 	The 	remaining 	balance 	to 	complete 	the 	$7,000,000.00
payment, will be paid by the Fernandez debtors, Corus, FTC and/or
IST 	in 	sixty 	equal 	monthly 	installments 	of 	$25,000.00, 	plus
interest 	at 	the 	prevailing 	prime 	rate. 	The 	Settlement 	Agreement
provides 	that 	in 	the 	event 	of 	default 	in 	the 	payment 	of 	two
installments, 	Citibank’s 	claim 	against 	the 	Fernandez 	debtors 	and
Corus will revert to the original amount claimed of $11,751,856.59,
less payments received, and will be considered non-dischargeable as
to 	the 	Fernandez 	debtors. 	Laser 	is 	also 	to 	receive 	$150,000.00,
from 	the 	Fernandez 	debtors, 	Corus 	and/or 	IST 	in 	exchange 	for
settlement of all claims and disputes.
The Court entered an order granting the Settlement Agreement
unless 	an 	objection 	was 	filed 	within 	twenty 	days. 	American
Case:07-00067-ESL11 Doc#:468 Filed:03/31/09 Entered:03/31/09 10:01:42 Desc: Main
Document Page 3 of 10

4
Acquisition, 	L.L.C. 	(“American”), 	an 	unsecured 	creditor 	of 	the
Fernandez 	debtors, 	claiming 	to 	be 	owed 	$7,850,869.50, 	filed 	an
objection, 	alleging 	that 	the 	payment 	of 	$3,500,000.00, 	and 	the
subsequent 	installments, 	are 	prejudicial 	to 	the 	unsecured
creditors, if the funds are paid from the bankruptcy estate of the
Fernandez 	debtors 	and 	are 	greater 	than 	the 	distribution 	to 	other
unsecured 	creditors. 	American 	also 	contends 	that 	the
nondischargeability provisions, in the event of default, are unfair
and adversely discriminate against other unsecured creditors, since
Citibank’s claim would not otherwise be nondischargeable.
Citibank, 	NWR 	and 	the 	Fernandez 	debtors 	replied 	to 	the
objection 	in 	separate 	motions. 	Citibank 	contends 	that 	the
$3,500,000.00 	payment 	is 	being 	made 	by 	IST, 	FT 	and/or 	Corus 	and
that 	the 	installment 	payments 	will 	be 	made 	by 	IST 	or 	Corus, 	less
the 	distributions 	from 	the 	liquidation 	of 	Laser. 	Citibank 	also
represents that if payments are made by the Fernandez debtors, they
will be limited or made in pari passu with the payments received by
other creditors in the same class. 	Citibank indicates that it has
conceded to a significant reduction of its claim, which inures to
the 	benefit 	of 	the 	other 	unsecured 	creditors. 	Citibank 	contends
that 	the 	nondischargeability 	provision 	must 	be 	considered 	in 	the
context of the complete Settlement Agreement and is only triggered
in the event of default. 	If the payments are made, the Fernandez
debtors will be released from the obligation to pay payment of any
Case:07-00067-ESL11 Doc#:468 Filed:03/31/09 Entered:03/31/09 10:01:42 Desc: Main
Document Page 4 of 10

5
balance of the original debt.
NWR 	also 	represents 	that 	from 	the 	estate 	of 	Laser, 	Citibank
will receive the same percentage of its allowed claim, like every
other 	general 	unsecured 	creditor. 	NWR 	also 	points 	to 	the
significant 	reduction 	in 	Citibank’s 	claim, 	the 	benefit 	of 	the
injection 	of 	$150,000.00 	into 	Laser’s 	estate 	and 	the 	otherwise
prolonged and expensive litigation costs.
The Fernandez debtors, who control Corus and IST, state that
the initial payment and the installments will be made by Corus and
IST 	and 	that 	if 	payments 	are 	made 	by 	them, 	they 	will 	not 	exceed
dividends to be received by other claimants in the same class. 	The
Fernandez 	debtors 	argue 	in 	favor 	of 	adoption 	of 	the
nondischargeability 	provision, 	because 	of 	the 	benefit 	they 	will
receive in being released from the balance of the original debt if
the payments are made.
At 	a 	hearing 	held 	on 	December 	11, 	2008, 	the 	Court 	granted
American ten days to supplement its objection and granted General
Electric 	Capital 	Corporation 	(“GECC”) 	until 	January 	4, 	2009 	to
submit 	its 	position. 	The 	Court 	then 	took 	the 	matter 	under
advisement. 	American 	filed 	a 	submittal 	of 	citation 	after 	the
hearing.
On 	December 	24, 	2008, 	GECC, 	a 	creditor 	claiming 	to 	be 	owed
$2,537,663.00, filed an objection to the proposed agreement. 	GECC
argues that the Settlement Agreement does not indicate the amounts
Case:07-00067-ESL11 Doc#:468 Filed:03/31/09 Entered:03/31/09 10:01:42 Desc: Main
Document Page 5 of 10

6
that will be paid by each of the debtors and the other parties and
thus, GECC is unable to evaluate whether the Settlement Agreement
is reasonable, fair or equitable and in the best interests of the
creditors 	of 	each 	estate. 	GECC 	objects 	to 	all 	parties 	being
jointly and severally liable for the entirety of the $7,000,000.00
obligation to Citibank. 	GECC notes that there is an objection to
Citibank’s claim in the bankruptcy case of the individual debtors
and 	that, 	if 	granted, 	the 	indebtedness 	to 	Citibank 	would 	be
eliminated. 	GECC 	contends 	that 	in 	the 	event 	of 	default, 	Corus
becomes 	liable 	for 	the 	entire 	debt, 	which 	would 	have 	a 	disparate
and 	inequitable 	impact 	on 	its 	creditors 	and 	that 	Citibank 	could
receive 	substantially 	more 	than 	its 	pro 	rata 	share 	of 	the 	Corus
estate. 	GECC 	also 	objects 	to 	payment 	of 	interest 	on 	Citibank’s
unsecured claim, since no interest payments are being provided to
similarly 	situated 	creditors 	of 	the 	estates. 	GECC 	opposes 	the
nondischargeability 	provisions 	as 	to 	the 	Fernandez 	debtors 	and
contends 	that 	the 	Settlement 	Agreement 	is 	inequitable 	since 	it
provides 	for 	interim 	distribution 	to 	Citibank 	without 	also
providing 	for 	interim 	distribution 	to 	other 	unsecured 	creditors.
GECC 	supplemented 	its 	objection 	to 	assert 	that 	it 	opposes 	any
contemplated 	source 	of 	payment 	from 	assets 	not 	identified 	on 	the
schedules and liabilities of any of the debtors, including a life
insurance policy issued on the life of Antonio A. Fernandez.
NWR and Citibank replied to GECC’s objection. 	NWR argues that
Case:07-00067-ESL11 Doc#:468 Filed:03/31/09 Entered:03/31/09 10:01:42 Desc: Main
Document Page 6 of 10

7
the 	Settlement 	Agreement 	does 	not 	provide 	for 	joint 	and 	several
liability. 	Citibank reiterates the sources of payment, as argued
in its reply to American’s objection, discusses the life insurance
policy and argues that the standards for approval of the Settlement
Agreement have been met.
DISCUSSION
In 	deciding 	whether 	to 	approve 	a 	proposed 	settlement, 	the
Court 	begins 	with 	the 	principle 	that 	compromises 	are 	favored 	in
bankruptcy and are to be encouraged. 	In re Healthco Int’l, Inc.,
136 	F.3rd 	45, 	n. 	5 	(1st 	Cir. 	1998). 	The 	four 	factors 	to 	be
considered in deciding whether to approve a compromise are:
(I) 	the 	probability 	of 	success 	in 	the 	litigation 	being
compromised; 	(ii) 	the 	difficulties, 	if 	any, 	to 	be
encountered 	in 	the 	matter 	of 	collection; 	(iii) 	the
complexity of the litigation involved, and the expense,
inconvenience 	and 	delay 	attending 	it; 	and 	(iv) 	the
paramount 	interest 	of 	the 	creditors 	and 	a 	proper
deference to their reasonable views in the premise.
In 	re 	Indian 	Motorcycle 	Co., 	Inc., 	289 	B.R. 	269, 	283 	(B.A.P. 	1st
Cir. 	2003)(citing 	Jeffrey 	v. 	Desmond, 	70 	F.3d 	183, 	185 	(1st 	Cir.
1995)). 	“In other words, therefore, a compromise will be approved
when it is both ‘fair and equitable’ and in the best interests of
the estate.” 	10 Collier on Bankruptcy ¶ 9019.02 (15th ed. rev.).
The 	Court 	concludes 	that 	the 	uncertainty 	of 	the 	litigation
between 	the 	debtors 	and 	Citibank 	weighs 	heavily 	in 	favor 	of 	the
approval of the Settlement Agreement. 	The Court is familiar with
all 	of 	the 	contested 	matters 	between 	these 	parties 	and 	concludes
Case:07-00067-ESL11 Doc#:468 Filed:03/31/09 Entered:03/31/09 10:01:42 Desc: Main
Document Page 7 of 10

8
that it is highly unlikely that the debtors would prevail in their
objections 	to 	Citibank’s 	claims 	and 	achieve 	the 	result 	of
eliminating 	Citibank’s 	claims 	and 	status 	as 	a 	creditor. 	The
parties have engaged in extensive litigation in numerous contested
matters, 	which 	has 	come 	at 	great 	expense 	and 	has 	caused 	years 	of
delay. 	Given 	the 	history 	of 	these 	cases 	and 	a 	cursory 	review 	of
the 	ample 	dockets, 	it 	would 	be 	unrealistic 	to 	conclude 	that 	the
disputes 	between 	the 	debtors 	and 	Citibank 	could 	be 	expeditiously
and inexpensively resolved, with the debtors prevailing in all of
the 	litigation. 	The 	Court 	also 	notes 	that 	at 	one 	point, 	the
bankruptcy cases of the Fernandez debtors and that of Corus, were
on the verge of conversion to Chapter 7. 	The Court concludes that
the debtors, Citibank, NWR and IST reached an informed agreement,
after diligent investigation, that it would be prudent to eliminate
the inherent risks, delays and expense of prolonged litigation in
uncertain causes.
The 	Court 	also 	concludes 	that 	the 	interest 	of 	the 	creditors
and a proper deference to their views weighs in favor of approval
of 	the 	stipulation. 	Citibank 	is 	a 	large, 	if 	not 	the 	largest,
creditor in all of the cases. 	And of the many creditors in these
cases, only two have voiced objection. 	Notwithstanding, the Court
recognizes that both American and GECC have substantial claims and
are among the numerous creditors with multi-million dollar claims
against 	these 	estates. 	The 	Court 	has 	duly 	considered 	the
Case:07-00067-ESL11 Doc#:468 Filed:03/31/09 Entered:03/31/09 10:01:42 Desc: Main
Document Page 8 of 10

9
objections of American and GECC and with all due respect to their
concerns 	that 	Citibank 	is 	receiving 	preferred 	treatment, 	to 	the
extent that it will receive interim distribution, interest and the
possible 	nondischargeability 	of 	its 	debt 	as 	to 	the 	Fernandez
debtors 	(in 	the 	event 	of 	default), 	the 	Court 	concludes 	that 	this
preferred treatment is adequately balanced by Citibank agreeing to
accept 	$7,000,000.00 	in 	exchange 	for 	its 	$11,751,856.59 	claim,
which will greatly benefit all unsecured creditors. 	Foregoing the
continued 	litigation 	expense 	will 	also 	benefit 	the 	unsecured
creditors. 	Moreover, with this resolution, the Court anticipates
the 	expeditious 	conclusion 	of 	these 	bankruptcy 	cases 	and 	the
attendant distribution to all other creditors.
The 	Court 	will 	not 	consider 	the 	specifics 	of 	the 	source 	of
funds. 	The 	payments 	will 	largely 	be 	made 	by 	a 	third 	party, 	IST,
who 	would 	not 	otherwise 	be 	subject 	to 	the 	jurisdiction 	of 	this
Court, except as a defendant in the adversary proceeding in Laser.
It 	is 	sufficient 	that 	the 	parties 	have 	represented 	that 	no
bankruptcy 	estate 	will 	be 	required 	to 	provide 	Citibank 	with 	more
than its pro rata share of estate assets. 	The Court concludes that
the Settlement Agreement does not provide for the joint and several
liability 	of 	all 	debtors 	for 	the 	entire 	debt 	to 	Citibank. 	Thus,
the Court concludes that approval of the Settlement Agreement, as
modified by the subsequent representations of the parties, is fair
and equitable and in the best interest of these estates.
Case:07-00067-ESL11 Doc#:468 Filed:03/31/09 Entered:03/31/09 10:01:42 Desc: Main
Document Page 9 of 10

10
ORDER
WHEREFORE 	IT 	IS 	ORDERED 	that 	the 	Settlement 	Agreement 	is
APPROVED, 	as 	modified 	by 	the 	subsequent 	representations 	of
Citibank, 	the 	captioned 	debtors 	and 	NWR, 	to 	the 	effect 	that 	no
bankruptcy 	estate 	will 	be 	required 	to 	provide 	Citibank 	with 	more
than 	its 	pro 	rata 	share 	of 	estate 	assets. 	The 	objections 	by
American and GECC are DENIED.
SO ORDERED.
San Juan, Puerto Rico, this 31st day of March, 2009.
BY THE COURT:
s/ Gerardo A. Carlo
_______________________
GERARDO A. CARLO
U.S. Bankruptcy Judge
Case:07-00067-ESL11 Doc#:468 Filed:03/31/09 Entered:03/31/09 10:01:42 Desc: Main
Document Page 10 of 10