U.S. Bankruptcy Judge Kevin Huennekens approved a settlement between the successor trustee of the Land American Financial Group’s Liquidation Trust and the company’s former trustee, who had been caught stealing millions from LandAmerica’s winddown fund.
Successor Trustee Benjamin Ackerly began his motion for approval of the settlement by stating, “The successor trustee has concluded that continued pursuit of litigation he filed against [Bruce] Matson seeking discretionary relief is not in the best interest of the trust or its beneficiaries in light of the results of an investigation into the collectability of any judgment the trust might obtain. Simply put, the time and expense likely to be incurred in pursuing a judgment and collection against these claims, and defending them against unspecified claims Matson has threatened to pursue against the successor trustee and his professionals, may lead to a diminished recovery for beneficiaries and an attenuated payout period. Accordingly, the successor trustee seeks approval of his entry into a settlement agreement with Matson that will result in the dismissal of the pending litigation and the exchange of releases between the parties and permit the successor trustee to make a meaningful distribution to creditors in the near term.”
Matson served as the trustee of the LandAmerica bankruptcy trust following the U.S. Bankruptcy Court for the Eastern District of Virginia’ s entry of a final decree in the LandAmerica bankruptcy case on Dec. 22, 2015, through Nov. 25, 2019.
The court reopened the bankruptcy case on Oct. 31, 2019, and appointed Ackerly as successor trustee on Nov. 25, 2019. Ackerly was specifically tasked with investigating transactions during the Matson wind-down period and to collect any funds he determined were distributed inconsistent with the liquidation trust agreement (LTA).
Following Ackerly’s appointment, Matson delivered $2,882,447.28 to the trust in November 2019. Ackerly and Matson later reached four interim agreements, pursuant to which Matson repaid the trust an additional $1,580,374. The parties agree that through these payments, Matson provided full payments to the trust of criminal restitution.
Ackerly also demanded Matson repay compensation he believes was improvidently paid to Matson by the trust and that Matson reimburse the trust for fees, expenses and costs incurred by Ackerly in carrying out his investigative and other duties. Matson disputed these claims.
The court approved a joint motion to appoint a judicial mediator and appointed Chief Judge of the Bankruptcy Court for the Eastern District of Virginia Frank Santoro as the mediator. The parties conducted an in-person mediation session in November 2021 but were unsuccessful in resolving their dispute. Later in November 2021, Matson was sentenced and incarcerated, preventing further in-person mediation sessions.
Ackerly filed a complaint against Matson on Jan. 12, 2022, seeking to recover, as discretionary remedies for alleged breaches of fiduciary duties, the fees, expenses and costs incurred by Ackerly in carrying out his duties and compensation paid to Matson during the wind-down period.
The parties resumed the mediation and Matson advised that he not only disputed the claims, but planned to assert claims against the trustee and his professionals. Ackerly denied that Matson had any such claims against him or his professionals.
Santoro investigated the collectability of any judgment Ackerly might obtain against Matson through the adversary position. After completing his investigation, Santoro recommended to Ackerly that pursuing the adversary proceeding would not be economically advantageous to the trust. He concluded that the effort, risk, costs and delay that likely would be attendant in seeking a judgment, attempting to collect the judgment and defending against any claims Matson might pursue, would not likely improve the outcome for beneficiaries of the trust. Instead, it might substantially diminish or deplete available trust funds.
The parties then proposed the settlement agreement, which would dismiss the adversary proceeding with prejudice, and require the exchange of mutual releases by the parties.
The motion to approve the agreement states, “The successor trustee’s desire to enter into the proposed settlement agreement is driven by the economics of the situation. The successor trustee had the unusual benefit of the judicial mediator’s recommendation, formed through his investigation into the collectability of any judgment the successor trustee might obtain for the trust against Matson, before incurring the full costs of proceeding with the adversary proceeding. The successor trustee believes, after additional diligence and substantial analysis, and in reliance on the recommendation of the judicial mediator, that entering into the settlement agreement is a reasonable and economic resolution of the disputes with Matson under the circumstances and respectfully requests that the court approve of the settlement agreement. The successor trustee believes the terms of the proposed settlement agreement are fair and equitable, are in the best interests of the beneficiaries of the trust, and are consistent with his duties under the appointment order and the LTA.
“In addition, the settlement agreement provides that Matson will release the trust, the successor trustee and all of his professionals from all claims he may have arising out of or relating to the trust, which the successor trustee believes will inure to the benefit of the beneficiaries of the trust by the avoidance of attorney’s fees, costs and expenses he otherwise might incur by having to defend those parties with trust funds,” the motion continues. “While the successor trustee disputes that Matson has any legitimate claims against the trust, the successor trustee or any of his professionals, the settlement agreement will spare the trust from the costs that likely would result from defending such claims. The releases set forth in the settlement agreement also will help bring closure to the successor trustee’s investigation and permit the successor trustee to proceed with making a final distribution to beneficiaries of the trust of substantial amounts already recovered by the successor trustee from Matson.”