Legal Q&A: Will The Court Approve Teresa Giudice’s Proposed Agreement to Settle Her $13.5 Million Bankruptcy Case?

Deal her in. The Real Housewives of New Jersey star Teresa Giudice allegedly settled her $13.5 million bankruptcy at the beginning of October.

Court documents filed on November 1, show that she has come to a tentative deal with her trustee but a judge will make a final decision on December 6. The bankruptcy trustee wrote in the court documents “a settlement was reached” during mediation on October 5. Does this mean that the yogi’s legal woes are coming to an end? 

According to documents, Teresa has agreed to honor any outstanding pre-petition claims from creditors; she will receive 55% of the net proceeds of the Kridel claim; the rest of the funds will be distributed to her creditors pursuant to the bankruptcy code; and the trustee has to approve any settlement of the Kridel suit and be kept advised of all significant developments and status of the case.

The Kridel asset should have belonged to the bankruptcy estate and not her. What Teresa’s lawyers may be assuming is that because of the malpractice case, the attorneys representing James Kridel will just settle but that means her attorneys will get less of the pot and they still have to win. Teresa brought the malpractice case against James Kridel on the eve of when she was going to prison to perhaps dodge responsibility.

From sprinkle cookies to “Strippergate,” I caution readers to remember there is a distinct possibility that Teresa will be unsuccessful in the suit against her former bankruptcy lawyer James Kridel for malpractice. What is 55% of zero? Teresa blamed her lawyer, her accountants, and most recently, Jacqueline Laurita for her stint in jail. “You set me up,” she told Jacqueline on Part 1 on the RHONJ Reunion. “In my gut it was you, or you and Caroline [Manzo]. You guys were behind everything — calling the government …” A whole coterie of people apparently sent Teresa to prison. “We didn’t cause her to go to prison. She filed false papers with the bankruptcy court,” James Kridel stated. 

Additionally, once a settlement is reached between parties, they must seek approval of the settlement by the bankruptcy court. The court will approve settlement only when the settlement is fair and equitable and in the best interest of the bankruptcy estate. That is the standard by which the court will view any agreement between Teresa, the trustee, and creditors.

CLICK: ‘RHONJ’ James Kridel Responds To Teresa Giudice’s Handshake Deal To Settle With Creditors [EXCLUSIVE]

A source told me, “Her attorneys seem to think they will get a recovery but that isn’t dispositive of the issue. They’ll have to prove their case.” Remember, people can object to the proposed settlement reached in October. Any creditor could object. Maybe a creditor didn’t even get notice. The judge might not approve it.

Read Teresa Giudice’s Proposed Bankruptcy Settlement Entered on 11-1-2016 below:

[scribd id=330507623 key=key-4seBBBuYgZlW7JVeC5LS mode=scroll]

Settlements are legally binding contracts. Parties to a bankruptcy settlement can fashion their own remedies by weighing the merits and factors at stake in the lawsuit. Settlement agreements must be approved by the bankruptcy court, which examines whether the settlement agreement being entered into is fair to the debtor’s estate, its creditors, and other parties in interest. 

Essential to the bankruptcy court’s process of evaluating proposed settlements is the need to compare the terms of the compromise with the likely rewards of litigation if the parties could not reach a resolution. Stated another way, if the trustee has a decent shot of winning in court and collecting all the money owed to creditors, a judge might not approve the proposed settlement.

Yet compromises are favored in bankruptcy. Public policy favors settlements. One of the goals of Congress in devising the Bankruptcy Code was to encourage parties in a distress situation to work out a deal among themselves. See, In Re Mirant Corp., 334 B.R. 800, 811 (Bankr. N.D. Tex. 2005). Debtors can expedite the bankruptcy process by compromising and settling with creditors. Trustees can also negotiate terms with creditors and settle claims on behalf of the estate.

Settlements contribute to the efficient administration of the estate because they are privately negotiated and encourage parties to frame their own remedies. The trustee – in making the deal appear appropriate – may tell the bankruptcy court that settlement is preferred because the claims of estate ownership and causes of action against Teresa are legally questionable. Think of it this way: if the claims asserted by the trustee were found not to be property of the bankruptcy estate, the bankruptcy estate would receive nothing. Therefore, a settlement is favored.

Also, the trustee may allege that protracted litigation would deplete the resources of the bankruptcy estate. In some instances, a compromise agreement allows the trustee and the creditors to avoid the expenses and burdens associated with litigating contested and dubious claims. As such, the trustee would argue that settlement is desired.

The bankruptcy court must canvas the issues and consider the best interests of the estate. The court may evaluate the following factors before approving the proposed settlement:

• the probability of success in the litigation in comparison to the present and future benefits offered by the settlement;
• the complexity of the litigation, the attendant expense, inconvenience and delay;
• the paramount interest of creditors with proper deference to their reasonable view of the settlement; and
• the extent to which the settlement is the product of arms-length (ensuring that all parties in the deal are acting in their own self interest, are on equal footing, and are not subject to any pressure or duress) bargaining.

Litigants must be aware of the very real possibility that a bankruptcy court may reject their mutually agreed-upon settlement terms. Reaching a settlement with a trustee does not necessarily mean an end to litigation.  To get court approval, the settling party may have to prove some elements of his/her case. Also, if the settlement is not ultimately approved then the settling party must continue litigating with the trustee.

Courts look to the fairness of the settlement to the other persons, i.e., the parties/ creditors who did not settle. The court does not have to be convinced that the settlement is the best possible compromise. Rather, the court must conclude that the settlement is within the reasonable range of litigation possibilities.

The objecting party may want to persuade the trustee, court, and other creditors that continued litigation would yield a benefit to creditors – one that is substantial enough to outweigh any benefit from the proposed settlement.

The 2016 presidential candidates fought to the finish line. Teresa’s marathon campaign to clear her name and get back into viewer’s good graces – if that is indeed possible – might be helped if her bankruptcy case is resolved. On December 6, we will find out whether the court believes that the settlement reached in Teresa’s case is reasonable. The bankruptcy court is charged with an affirmative obligation to appraise itself of all facts necessary to evaluate the settlement and make an informed and independent judgment as to whether the compromise is fair and equitable. A decision to approve a particular compromise or settlement is within the sound discretion of the bankruptcy court.

Grab your gavel, join the conversation, and tell us whether you think the court should approve the deal.

 

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