A New York Bankruptcy Court Correctly Refused to Overturn the Approval of a $2.5 Million Settlement
A New York bankruptcy court correctly refused to overturn the approval of a $2.5 million settlement in the bankruptcy of a founder of defunct hedge fund Platinum Partners, the Second Circuit ruled Thursday, finding that the approved deal was superior to an alternative offer.
Two-Judge Panel Supports District Judge’s Decision
In a 63-page opinion, a two-judge panel said U.S. District Judge Kenneth Karas got it right when he rejected Richard and Marisa Stadtmauer’s appeal of the U.S. Bankruptcy Court’s acceptance of the settlement rather than the one they proposed. The panel explained that the Stadtmauers didn’t have any secured or priority claims against Platinum co-founder Mark Nordlicht that overruled the settlement and that the district judge didn’t err in choosing the best offer.
No Abuse of Discretion by the Bankruptcy Court
“The bankruptcy court did not abuse its discretion in concluding that the Stadtmauers’ asserted liens were in bona fide dispute and therefore did not bar the trustee from settling the Stadtmauers’ asserted claims pursuant to Bankruptcy Code,” the panel wrote.
Background on the Stadtmauers’ Lawsuit
According to the opinion, before Nordlicht entered Chapter 7 bankruptcy in 2020, the Stadtmauers filed a lawsuit in a New York state court accusing Nordlicht of hiding his assets in shell companies to avoid paying back his debts, and they asked the state court to award them valid liens on two of the founder’s real estate holdings. They argued that the state court did so and said that if they prevailed on their fraudulent conveyance claims in state court, those liens guaranteed them secured property rights to enforce that the bankruptcy trustee’s authority could not settle.
Court’s Rejection of Stadtmauers’ Argument
However, the panel didn’t buy their argument. Firstly, it pointed out that the state court never granted them valid judicial liens because “the validity of the liens is in dispute.”
Settlement Approval Not a Final Disposition
“As the bankruptcy court repeatedly emphasized, the approval of the settlement at the sale hearing was not a final disposition of the claims against the estate,” the panel added. “Accordingly, the Stadtmauers’ assertion that their lien secures their claims and gives them priority over the unsecured creditors is, indeed, ‘yet [to be] fully resolved.'”
Fraudulent Conveyance and Alter-Ego Claims Considered “General”
Even if the liens are valid, the opinion said the Stadtmauers’ fraudulent conveyance and alter-ego claims — which allege the founder’s fraud against the Stadtmauers and all of his creditors and business partners — are “general,” not “personal,” and therefore the claims are still the property of the bankruptcy estate that can be settled.
District Court’s Decision on the Better Offer
Additionally, the opinion said the district court correctly decided that the trustee chose the better offer to settle compared to the Stadtmauers’ offer.
Trustee’s Acceptance of a Counteroffer
The trustee ultimately accepted a counteroffer from the state court defendants for $2.5 million, plus another $2.5 million in indemnification if the Stadtmauers succeeded in asserting their liens.
Comparison of Settlement Offers
Compared to the Stadtmauers’ offer of $2 million and dropping liens they had asserted against the estate, the opinion concluded that the approved settlement “was superior because under its terms, [Mark Nordlicht’s mother] Barbara Nordlicht (1) indemnified the $2.5 million payment and (2) would reimburse the estate for any legal fees incurred from defending against the Stadtmauers’ asserted legal claims.”
Conclusion on Bankruptcy Court’s Discretion
“The bankruptcy court did not abuse its discretion in finding that the settlement’s future benefits outweighed the possibility that the Stadtmauers may succeed in their litigation,” the panel added.
Mark Nordlicht’s Conviction and Sentencing
Mark Nordlicht was convicted in July 2019, along with former co-chief investment officer David Levy, of a purported $70 million fraud on the bondholders of the Platinum portfolio company Black Elk Energy, an oil and gas company. Nordlicht avoided imprisonment in January when U.S. District Judge Brian Cogan sentenced him to two years of probation, with six months of the time to be served in home confinement, and ordered him to pay a $5,000 fine.
Judges Involved in the Second Circuit Ruling
U.S. Circuit Judges Debra Ann Livingston and Robert D. Sack sat on the panel for the Second Circuit. U.S. Circuit Judge Rosemary S. Pooler was originally on the panel but died in August 2023.
Responses from Legal Counsel
Counsel for the Stadtmauers declined to comment Thursday.
Counsel for Nordlicht did not immediately respond to a request for comment., and counsel for the other appellees declined to comment Thursday.
Legal Representation in the Case
The Stadtmauers are represented by Nathaniel J. Kritzer of Steptoe LLP.
The Chapter 7 trustee is represented by Salvatore LaMonica and Jacqulyn S. Loftin of LaMonica Herbst & Maniscalco LLP.
Nordlicht is represented by Scott Krinsky of Backenroth Frankel & Krinsky LLP.
The other appellees are represented by Michael Levine of Levine & Associates PC and Sari E. Kolatch of Cohen Tauber Spievack & Wagner PC.
Case Information
The case is In re: Mark A. Nordlicht, case number 22-1223, in the U.S. Court of Appeals for the Second Circuit.
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