By: Gregory A. Melnick
St. John's Law Student
American Bankruptcy Institute Law Review Staff
Recently in Cadle Co. v. Mims (In re Moore),[1] the Fifth Circuit addressed the issue of whether a proposed settlement of estate claims is functionally equivalent to a sale that triggers section 363.[2] The Cadle Company (“Cadle”) was a major creditor of James Moore (“the Debtor”).[3] Prior to bankruptcy, the Cadle sued the Debtor, his wife, and two companies that allegedly were alter egos of the Debtor asserting both fraudulent conveyance and veil-piercing claims.[4] Although the causes of action passed to the trustee upon the bankruptcy filing, Cadle continued to fund the action, and eventually offered to purchase it from the trustee.[5] While Cadle and the trustee were negotiating, the trustee agreed to settle the claims for $37,500.[6] Cadle objected to the settlement and offered to pay $50,000 for the claims.[7] The bankruptcy court approved the settlement, holding that the claims could not be sold as a matter of law.[8] The Fifth Circuit reversed, holding that a proposed settlement triggers section 363's sale provisions.[9]
