In Re Korf Technologies, Inc., Debtor.korf Technologies, Inc., Plaintiff, v. Korf Transport Gmbh, Defendant-appellant,p. Wayne Sigmon, Trustee in Bankruptcy for Korftechnologies, Inc., Trustee-appellee,andlone Star Steel Company, Georgetown Industries, Inc., Re Korf Technologies, Inc., Debtor.korf Technologies, Inc., Plaintiff,andp. Wayne Sigmon, Trustee in Bankruptcy for Korftechnologies, Inc., Trustee-appellant, v. Korf Transport Gmbh, Defendant-appellee,andlone Star Steel Company, Georgetown Industries, Inc., Defendants, 881 F.2d 1069 (4th Cir. 1989)

Annotate this Case
US Court of Appeals for the Fourth Circuit - 881 F.2d 1069 (4th Cir. 1989)

Argued Feb. 6, 1989. Decided Aug. 1, 1989

James Carlos Smith, (Rayburn, Moon & Smith, P.A. on brief) for appellants. P. Wayne Sigmon (Alala, Drum, Kersh, Soloman & Sigmon on brief) for appellee.

Before WILKINSON, Circuit Judge, HAYNSWORTH and BUTZNER, Senior Circuit Judges.


This is a factually convoluted case, but the essential question on appeal is the bankruptcy court's approval of an agreement to settle litigation in Texas. The trustee in bankruptcy participated in the negotiation of the settlement agreement and had moved for approval of the agreement. The bankruptcy judge recognized that approval of the agreement turned upon its reasonableness. After a careful review of the facts and all relevant considerations, he concluded that the agreement was reasonable and approved it.

There is little we can add to the analysis of the bankruptcy judge.

In 1981, Korf Technologies, Inc., a wholly owned subsidiary of Georgetown Industries, agreed to provide steel production technology to Lone Star Steel. Lone Star found the technology unsatisfactory in performance and demanded a return of the $5.7 million it had paid to Korf Technologies. Despite the adverse claim of Lone Star and the fact that Korf Technologies was otherwise in a money losing situation, Georgetown had its subsidiary pay it a dividend of $2.25 million.

In December 1983, Georgetown sold all of its Korf Technologies stock to Korf Transport, GmbH, for $550,000.

Almost a year later, Lone Star began a civil action in Texas against Korf Technologies by alleging a breach of warranty and claiming $14.8 million in damages and loss of profits.

Approximately a year later, in December 1985, Korf Technologies filed a voluntary petition in bankruptcy under Chapter 11. That proceeding in the Western District of North Carolina was later converted to a bankruptcy proceeding under Chapter 7, and P. Wayne Sigmon was appointed bankruptcy trustee.

In March 1986, Lone Star amended its complaint in the Texas litigation to join Georgetown and Korf Transport, the former and present parents of Korf Technologies. Korf Transport was later dismissed as a defendant.

In June 1987, a jury trial began in the Texas litigation by Lone Star against Georgetown and Korf Industries.

After a week of trial, however, the parties reached a settlement agreement. Under the agreement,

(1) Georgetown paid $2.4 million to Lone Star;

(2) Georgetown paid $61,000 to Korf Technologies' bankrupt estate;

(3) Lone Star agreed to assign to Georgetown all of its claims against Korf Technologies and any judgment it might obtain in the Texas litigation against Korf Technologies;

(4) The bankruptcy trustee agreed not to object to any proven claim by Lone Star as long as it was subordinated to all other claims to the extent of the $61,000 to be paid by Georgetown;

(5) Georgetown would be released by the trustee in bankruptcy from all other claims by Korf Technologies.

In approving the proposed settlement agreement, the bankruptcy judge authorized Korf Transport to lend financial assistance to the trustee in bankruptcy in defending what remained of the Texas litigation. The trustee accepted such an offer of assistance, and Korf Transport employed a Texas lawyer to represent the trustee in bankruptcy.

The Texas lawyer repeatedly requested a transcript of the June 1987 trial. His requests were unrewarded, and he did nothing else in the Texas litigation until a status conference was called in June 1988. The lawyer then requested a continuance, but his request was denied and a judgment of $13,409,600 was entered against Korf Technologies in favor of Lone Star.

That judgment, pursuant to the settlement agreement, was assigned by Lone Star to Georgetown.

Korf Transport sought to appeal the order of the district court affirming the bankruptcy court's approval of the settlement agreement. We think that Korf Transport has standing to appeal. Before the settlement was consummated, Korf Transport had 97% of the undisputed claims against the bankrupt estate. After the settlement and a claim by Georgetown based upon the Texas judgment, its share of such claims was reduced to 2%. That suffices to give it standing to litigate. See In re El San Juan Hotel, 809 F.2d 151, 154 (1st Cir. 1987); Fondiller v. Robertson, 707 F.2d 441, 442-43 (9th Cir. 1983); cf. 1 Collier on Bankruptcy para. 3.03 (15th ed. 1988).

Nor is the case moot. If approval of the settlement agreement is reversed, the trustee in bankruptcy may proceed with his claim against Georgetown for a refund of the $2.25 million dividend.

On the merits, we affirm for the reasons stated by the bankruptcy judge. He adequately canvassed all of the considerations bearing upon the question of reasonableness. There is no apparent defect in his review of the proposed settlement.

In this appeal, we are not called upon to consider whether or not the claim filed by Georgetown based upon the Texas judgment is an allowable claim in the bankruptcy proceeding. That claim has not been allowed by the bankruptcy judge, and our affirmance of the approval of the settlement agreement will not foreclose any objection to that claim that may be offered by any interested party.