Piazza v. Afek et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
RICHARDSON FOODS, INC., et al.,
Debtor.
NOT FOR PUBLICATION
Chapter 7
Case No. 20-11203 (JPM)
(Jointly Administered)
In re:
RICHARDSON BRANDS COMPANY,
Debtor.
Case No. 21-10439 (JPM)
DEBORAH J. PIAZZA, AS CHAPTER 7 TRUSTEE
OF RICHARDSON FOODS, INC. AND
RICHARDSON BRANDS COMPANY,
Plaintiff,
-against-
KOBI AFEK, FOUNDERS EQUITY I, LP, JOHN
TEEGER, WARREN HABER, PRAIRIE STREET
CAPITAL, INC., DOGE CAPITAL, LLC, RANDALL
TALCOTT, ROSES CONFECTIONS, L.P., ROSES
HOLDINGS LIMITED, ROSES RE HOLDINGS, LLC,
WEBSTER BUSINESS CREDIT CORPORATION,
Defendants.
Adv. Pro. No. 22-01103 (JPM)
MEMORANDUM OPINION AND ORDER GRANTING
TRUSTEE’S MOTION TO APPROVE SETTLEMENT
A P P E A R A N C E S:
TARTER KRINSKY & DROGIN LLP
Counsel for Plaintiff Deborah J. Piazza, as Chapter 7
Trustee of Richardson Foods, Inc. and Richardson Brands
Company
1350 Broadway, 11th Floor
New York, NY 10018
212-216-8000
By: Alex Spizz, Esq.
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By: Scott S. Markowitz
ANDERSON KILL P.C.
Counsel for Defendant Kobi Afeki
1251 Avenue of the Americas, 42nd Floor
New York, NY 10020
212-278-1000
By: Sheldon Eisenberger, Esq.
By: Difie Osborne, Esq.
REITLER KAILAS & ROSENBLATT LLP
Counsel for Defendants Founders Equity I, LP, John
Teeger and Warren Haber
885 Third Avenue, 20th Floor
New York, NY 10022
212-209-3099
By: Leo Kailas, Esq.
By: Jack McKay
DUNNINGTON, BARTHOLOW & MILLER, LLP
Counsel for Defendants Prairie Street Capital, Inc.
230 Park Avenue, 21st Floor
New York, NY 10169
212-682-8811
By: Luke McGrath
WHITE AND WILLIAMS LLP
Counsel for Defendants Doge Capital LLC and Randall
Talcott
7 Times Square, Suite 2900
New York, NY 10036
212-868-4837
By: Christopher F. Graham, Esq.
POLSINELLI PC
Counsel for Defendants Roses Confections, L.P., Roses
Holdings Limited and Roses RE Holdings, LLC
By: Adam Greene, Esq.
THOMPSON COBURN HAHN & HESSEN LLP
Counsel for Defendant Webster Business Credit Corporation
488 Madison Avenue, 15th Floor
New York, NY 10022
212-478-7244
By: Stephen Grable, Esq.
By: Joshua Ian Divack, Esq.
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JOHN P. MASTANDO III
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the Chapter 7 Trustee’s Motion Pursuant to Fed. R. Bankr.
P. 9019(a) for Approval of Stipulation of Partial Settlement of Adversary Proceeding, Docket
No. 28 (the “9019 Motion”). The 9019 Motion seeks the Court’s approval of that certain
Stipulation of Settlement between (i) Deborah J. Piazza, as Chapter 7 Trustee of the Debtors, (ii)
Kobi Afek, (iii) Founders Equity I, LP, (iv) John Teeger, (v) Warren Haber, (vi) Roses
Confections, L.P., (vii) Roses Holdings Limited, (viii) Roses RE Holdings, LLC, and (ix) Webster
Business Credit Corporation, dated as of November 29, 2022, annexed to the 9019 Motion as
Exhibit A (the “Settlement Agreement,” and the parties thereto, the “Settling Parties”).
Defendants Doge Capital, LLC (“Doge”) and Randall Talcott (“Talcott”) together filed an
objection to the 9019 Motion. (See Objection of Non-Settling Defendants to Partial Settlement
Agreement and Reservation of Rights with Respect to Counterclaims and Cross-Claims, Docket
No. 32 (the “Doge Objection”)). Defendant Prairie Street Capital, Inc. (“Prairie”) also filed an
objection (see Objections of Non-Settling Defendants to Partial Settlement Agreement and
Reservation of Rights with Respect to Counterclaims and Cross-Claims, Docket No. 33 (the
“Prairie Objection”)), supported by the Declaration of Michael Barry, Docket No. 34 (the
“Barry Declaration”). Plaintiff Deborah J. Piazza, as Chapter 7 Trustee (the “Trustee”), filed a
reply to these objections. (See Chapter 7 Trustee’s Reply to Objections to Chapter 7 Trustee’s
Motion Pursuant to Fed. R. Bankr. P. 9019(a) for Approval of Stipulation of Partial Settlement
of Adversary Proceeding, Docket No. 35 (the “Trustee Reply”).) Defendants Founders Equity I,
LP (“Founders”), John Teeger (“Teeger”) and Warren Haber (“Haber”) filed a response in
support of the 9019 Motion. 9See Defendant Founders’, Teeger’s and Haber’s Response to Non-
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Settling Defendants’ Objections, Docket No. 38 (the “Founders Response”).) Defendant Kobi
Afek (“Afek”) also filed a response in support of the 9019 Motion. (See Defendant Kobi Afek’s
Reply to Objections by Defendants Doge Capital LLC, Randall Talcott, and Prairie Street
Capital, Inc., to the Debtors’ November 30, 2022 Motion to Approve the Settlement, Docket No.
39 (the “Afek Response”).) The Court held a hearing on the 9019 Motion on December 21, 2022
(the “Hearing”). The Court has considered: (i) the 9019 Motion; (ii) the Doge Objection; (iii) the
Prairie Objection; (iv) the Barry Declaration; (v) the Trustee Reply; (vi) the Founders Response;
(vii) the Afek Response; (viii) the arguments from the Hearing; and (ix) all other relevant
material in the record. As set forth below, the Court finds that the Trustee has established that the
Settlement Agreement is fair, equitable and in the best interest of the estates, and is well within
the range of reasonableness. Accordingly, the Court will grant the 9019 Motion.
I. 	BACKGROUND
To briefly summarize the relevant facts, certain creditors filed an involuntary chapter 7
bankruptcy petition against debtor Richardson Foods, Inc. (“RFI”) on May 15, 2020, with the
order for relief granted on July 1, 2020. (9019 Motion ¶ 3.) The Trustee investigated RFI and
concluded that it was a holding company whose sole asset was its 100% equity interest in
Richardson Brands Company (“RBC”). (9019 Motion ¶ 3.) The Trustee put RBC into voluntary
chapter 7 bankruptcy on March 8, 2021. (9019 Motion ¶ 8.) The RBC case was ordered jointly
administered with the RFI case, without substantive consolidation. (9019 Motion ¶ 8; In re
Richardson Foods, Inc., No. 10-11203, Order Authorizing Joint Administration of the Debtors’
Chapter 7 Cases, Docket No. 49.)
RBC had been an operating entity that manufactured candy products for over 120 years
and, more recently, also produced a popular seasoning product called “Gravy Master.” (9019
Motion ¶ 2.) RBC was struggling by the late 2010s, and on March 9, 2020, it surrendered its
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assets to Webster Business Credit Corporation (“Webster”), to whom RBC was indebted under a
secured credit facility. (9019 Motion ¶¶ 9-13.) Webster subsequently conducted a private sale
under Article 9 of the UCC and sold RBC’s assets to Roses Confections, L.P., Roses Holdings
Limited, Roses RE Holdings, LLC (together, “Roses”) for $3.4 million and a portion of certain
accounts receivable collected by Roses. (9019 Motion ¶¶ 9-15.) $2.5 million of the sale proceeds
were used to partially pay off RBC’s credit facility with Webster—the rest of the facility was
paid off from cash collateral previously provided by Founders, Prairie, Teeger and Haber. (9019
Motion ¶¶ 13-15.) Proceeds of the sale were also distributed to Founders ($442,732), Prairie
($228,717), Teeger ($110,274) and Haber ($110,274) in pro rata partial repayment of their cash
collateral. (9019 Motion ¶¶ 13-15.) Amounts from the accounts receivable were to be paid to
Doge and Talcott, who have received $696,517 and $77,390 to date, respectively. (9019 Motion
¶ 12, 15; see Doge Objection Ex. D.) In total, Doge, Talcott and Prairie collectively received
slightly over $1 million from the sale proceeds—more than any other creditor besides Webster.
The Trustee commenced this adversary proceeding to pursue claims arising from the sale
of RBC’s assets and distribution of proceeds. (9019 Motion ¶ 17; see also Complaint, Docket
No. 1 (the “Complaint”).) The Trustee asserted (i) breach of fiduciary duty claims against Afek,
Teeger and Webster; (ii) preference claims against Founders, Teeger and Haber; (iii) fraudulent
conveyance claims against Founders, Prairie, Teeger, Haber, Doge, Talcott and Roses; and (iv)
successor liability claims against Roses. (Complaint ¶¶ 66-288.)
The parties agreed to try to mediate their dispute before the Honorable Jil Mazer-Marino.
(9019 Motion ¶ 26.) After several days of mediation, the Trustee, Afek, Founders, Teeger,
Haber, Roses, and Webster agreed to a settlement, the terms of which are memorialized in the
Settlement Agreement. (See 9019 Motion ¶¶ 26-27.)
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The key terms of the Settlement Agreement are as follows:
(i) 	Afek, Teeger and Founders shall pay the Trustee $250,000.
(ii) 	Roses shall pay the Trustee $125,000.
(iii) 	Webster shall pay the Trustee $25,000.
(iv) 	All claims among the Settling Parties shall be mutually released.1
(v) 	The Settling Parties shall waive the claims against the bankruptcy estates,
including Afek’s $100,000 claim.
(vi) 	Roses shall pay up to $10,000 of Trustee’s counsel’s expenses to
investigate certain of the debtors’ claims against Nassau Candy
Distributors Inc., which claims will belong to Roses.
(See 9019 Motion ¶¶ 34-38.)
Doge, Talcott and Prairie (together, the “Non-Settling Defendants”) did not reach a
settlement. In the Doge Objection and the Prairie Objection, the Non-Settling Defendants argue
that there are certain defects with the Settlement Agreement such that the Court must not
approve it. In the Founders Response and the Afek Response, Founders, Teeger, Haber and Afek
offer their support for the Settlement Agreement and contest certain of the Non-Settling
Defendants’ assertions.
II. 	LEGAL STANDARD
Bankruptcy Rule 9019 provides that “[o]n motion by the Trustee and after notice and a
hearing, the court may approve a compromise or settlement.” The decision to approve a
settlement rests within the Court’s sound discretion. In re Remsen Partners, Ltd., 294 B.R. 557,
565 (Bankr. S.D.N.Y. 2003). The Court must determine that a settlement is fair, equitable and in
the best interests of the estate before it may approve the settlement. In re Adelphia Commc’ns
1 This release is only among the Settling Parties. The Settlement Agreement does not purport to release claims held
by Doge, Talcott or Prairie, and includes a parenthetical expressly stating that that these defendants are excluded
from the release. (See Settlement Agreement ¶ 7.)
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Corp., 368 B.R. 140, 225 (Bankr. S.D.N.Y. 2007). Courts in the Second Circuit balance the
following seven interrelated factors to evaluate whether a settlement is fair and equitable:
(i) 	the balance between the litigation’s possibility of success and the
settlement’s future benefits;
(ii) 	the likelihood of complex and protracted litigation, “with its attendant
expense, inconvenience, and delay,” including the difficulty in collecting
on the judgment;
(iii) 	“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”;
(iv) 	whether other parties in interest support the settlement;
(v) 	the “competency and experience of counsel” supporting, and “[t]he
experience and knowledge of the bankruptcy court judge” reviewing, the
settlement;
(vi) 	“the nature and breadth of releases to be obtained by officers and
directors”; and
(vii) 	“the extent to which the settlement is the product of arms’ length
bargaining.”
In re Iridium, 478 F.3d 452, 462 (2nd Cir. 2007); see, e.g., In re MatlinPatterson Glob.
Opportunities Partners II L.P., 644 B.R. 418, 428-34 (Bankr. S.D.N.Y. 2022) (applying Iridium
factors and granting motion to approve settlement). “Not all factors must point in the same
direction, and not all factors must be given the same weight.” In re Motors Liquidation Co., 555
B.R. 355, 367 (Bankr. S.D.N.Y. 2016). In addition to these factors, the Court must be sensitive to
whether the proposed settlement would “unduly prejudice” a non-settling creditor or other party.
MatlinPatterson Glob. Opportunities Partners II L.P., 644 B.R. at 426.
When reviewing a settlement, the Court is to “canvas the issues” being settled to
determine whether the settlement falls “below the lowest point in the range of reasonableness,”
but it is not required to conduct a “mini-trial” on the issues. Remsen Partners, Ltd., 294 B.R. at
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565 (citations omitted). That said, the Court may not simply rubberstamp the recommendation of
the trustee, but must make an “independent, full and fair assessment of the wisdom of the
proposed compromise.” Id.
III. 	DISCUSSION
The Court will analyze the Iridium factors as applied to the present case.
The first Iridium factor considers the balance between the litigation’s possibility of
success and settlement’s future benefits. The Trustee asserts that the $400,000 settlement amount
is fair in light of the defenses asserted and the legal and factual issues that would need to be
litigated in this adversary proceeding. (9019 Motion ¶ 50.) The Trustee also notes that the
Trustee does not have the resources to pay for discovery and experts to prosecute this adversary
proceeding to trial. (9019 Motion ¶ 50.) The Non-Settling Defendants assert that the Trustee’s
claims have a high probability of success and that the Trustee is settling for too little (Prairie
Objection 8-10.) The Court finds that the success of litigation is uncertain in light of the various
defenses available (see 9019 Motion ¶¶ 28-31), as well as the legal and factual issues that would
need to be litigated (for example, determining the fair value of the RBC assets sold during the
uncertainty of the early COVID-19 pandemic). See, e.g., In re K.G. IM, LLC, 620 B.R. 469, 484-
85 (Bankr. S.D.N.Y. 2020) (holding first factor weighed in favor of settlement where debtor’s
likelihood of success in litigation was “far from certain” because of factual and legal issues). The
Settlement Agreement will provide a reasonable recovery for RBC’s creditors. Further, it will
allow the Trustee to continue litigating the claims asserted against the Non-Settling Defendants,
which could potentially enhance recovery such that RFI creditors receive a distribution. (9019
Motion ¶¶ 39, 52; Trustee Reply ¶ 32.) The Court thus finds that the $400,000 payable under the
Settlement Agreement is a reasonable recovery, and, considering litigation risks and other related
issues, this factor weighs in favor of approving the Settlement Agreement.
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The second factor to consider is the likelihood of complex and protracted litigation,
which includes expense, inconvenience and delay and difficulty in collecting on the judgment.
The Trustee asserts that without the Settlement Agreement, costly and protracted litigation is
certain. (9019 Motion ¶ 51.) The Non-Settling Defendants argue that there is “no dispute”
regarding the “bad acts” of certain defendants or regarding Webster’s alleged breach of certain
contractual obligations to Prairie, so complex litigation is unlikely. (Prairie Objection 11-12.) As
previously described, there are numerous legal and factual issues that would need to be litigated
in this adversary proceeding (including through expert testimony). Prairie’s assertion that there is
“no dispute” regarding the “bad acts” of insiders is not supported by the record. Indeed, during
the Hearing, the parties argued over an array of factual issues that would need to be litigated in
this matter. The Court finds that, absent the Settlement Agreement, complex, expensive and
protracted litigation is likely, and thus this factor weighs in favor of approving the Settlement
Agreement. See, e.g., In re Ben-Artzi, No. 21-10470 (MG), 2021 WL 5871718, at *8 (Bankr.
S.D.N.Y. Dec. 10, 2021) (holding that second factor weighed in favor of settlement where
litigation would be costly and cause delay and the trustee had no funds to continue litigation).
The third factor to consider is the paramount interests of the creditors. The Trustee asserts
that the Settlement Agreement serves the paramount interests of creditors because it provides
money that the estate can distribute to creditors and will provide funding for the Trustee to
continue pursuing claims against the Non-Settling Defendants. (9019 Motion ¶ 52.) The Non-
Settling Defendants argue that the Settlement Agreement does not serve the paramount interests
of the creditors because it benefits certain creditors over others, namely RBC creditors over RFI
creditors (the Non-Settling Defendants themselves being RFI creditors). (Prairie Objection 11-
15.) However, the Court finds that the Settlement Agreement will provide some recovery to RBC
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creditors and allow the Trustee to continue to pursue claims against the Non-Settling Defendants,
which may lead to recovery at the RFI level. See, e.g., In re 305 East 61st St. Group LLC, No.
19-11911 (SHL), 2022 WL 16749111, at *3 (Bankr. S.D.N.Y. Nov. 7, 2022) (finding that third
factor weighed in favor of settlement where unsecured creditors would benefit and protracted
litigation would dissipate estate). Thus, the Court finds that this factor weighs in favor of
approving the Settlement Agreement.
The fourth factor to consider is the support of parties in interest. The only opposition to
the Settlement Agreement has come from the Non-Settling Defendants. (Trustee Reply ¶ 8.) No
parties-in-interest unrelated to this adversary proceeding have endorsed or opposed the
Settlement Agreement. The Court finds that overall this factor weighs in favor of the Settlement
Agreement.
The fifth factor to consider is the competency and experience of the counsel supporting
the settlement. Both sides are represented by competent and experienced counsel. (9019 Motion
¶ 54.) The Court finds that this factor weighs in favor of approving the Settlement Agreement.
The sixth factor considers the nature and breadth of director and officer releases. The
Settlement Agreement provides mutual releases among the Settling Parties. (9019 Motion ¶ 38.)
The Non-Settling Defendants argue that these releases are overly broad and will unfairly bar
them from pursuing claims they have against Afek and Roses. (Prairie Objection 19-20.) The
Trustee responds that the Settlement Agreement does not in fact affect the rights of the Non-
Settling Defendants, and they will be free to pursue their claims. (Trustee Reply ¶ 10.) The Court
agrees with the Trustee that the Settlement Agreement would not affect the Non-Settling
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Defendants’ rights to pursue their own claims.2 The Court therefore finds that this factor weighs
in favor of approving the Settlement Agreement.
The seventh factor examines the extent to which the settlement is the product of arms’
length bargaining. The Trustee argues that the Settlement Agreement is the product of arms’
length bargaining. (9019 Motion ¶ 55.) The Non-Settling Defendants argue that the provision
that requires Trustee’s counsel to investigate a legal claim for the benefit of Roses creates an
impermissible conflict that taints the entire settlement. (Prairie Objection 20; Doge Objection ¶
29.) The Trustee responds that there is no conflict because Trustee’s counsel will only be
conducting discovery at Roses’ expense to determine the validity of a pre-petition claim.
(Trustee Reply ¶ 41.) The Court finds that the settlement was negotiated at arms’ length, and the
Court does not believe that the Trustee’s arrangement with Roses presents any conflict that taints
the Settlement Agreement. The Court thus finds that this factor weighs in favor of approving the
Settlement Agreement.
In addition, Prairie argues that the Settlement Agreement unduly prejudices its ability to
pursue claims against the Settling Parties. (Prairie’s Objection 7-8.) As discussed above, this is
not the case.3
The Non-Settling Defendants raise certain other alleged factual disputes, but, as set forth
above, the Court is not required to conduct a “mini-trial” on all issues. None of the issues raised
would impact the overall reasonableness of the settlement.
IV. 	CONCLUSION
2 See fn. 1, supra.
3 Doge and Talcott also object to the Settlement Agreement on the grounds that the Trustee is failing to represent the
interests of RFI creditors and is ignoring various assets allegedly owned by RFI. (See generally Doge Objection.)
The Trustee states that RFI does not have any undiscovered assets and points out that RFI can only receive
distributions once RBC creditors are paid in full. (Trustee Reply ¶¶ 14-37.) Since RFI creditors are not able to
receive distributions from proceeds of RBC’s assets until RBC’s creditors are paid off in full, the Non-Settling
Defendants’ complaints here are without merit.
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Based on the forgoing analysis, the Court finds that the Settlement Agreement is a fair
and equitable compromise that falls well within the range of reasonableness and is in the best
interests of the bankruptcy estates. Accordingly, the Court approves the Settlement Agreement.
The 9019 Motion is GRANTED. The parties shall submit a proposed order consistent with the
rulings set forth herein.
IT IS SO ORDERED.
Dated: 	January 05, 2023
New York, New York
/S/ John P. Mastando III
HONORABLE JOHN P. MASTANDO III
UNITED STATES BANKRUPTCY JUDGE
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