trustee’s motion to compromise and settle …

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

IN RE: ) ) ITT EDUCATIONAL SERVICES, INC., et al.,1 ) Case No. 16-07207-JMC-7A ) Debtors. ) Jointly Administered

TRUSTEE’S MOTION TO COMPROMISE AND SETTLE ADVERSARY PROCEEDING NO. 17-50101

Deborah J. Caruso, the chapter 7 trustee (the “Trustee”)2 in the above-captioned cases, by

counsel, respectfully submits this motion (the “Motion”), pursuant to sections 105(a) and 363 of

title 11 of the United States Code (the “Bankruptcy Code”) and rule 9019 of the Federal Rules of

Bankruptcy Procedure (the “Bankruptcy Rules”), for entry of a final order, substantially in the

form attached hereto as Exhibit A (the “Proposed Order”), (a) approving the terms of a proposed

settlement (the “Settlement”) by and between the Trustee, not individually but solely in her

capacity as Chapter 7 trustee for, and acting for and on behalf of the Debtors, and each of the

Debtors’ respective bankruptcy estates, on the one hand, and Student CU Connect CUSO, LLC

(the “CUSO”), The Rochdale Group, Inc. (“Rochdale”), and Elements Financial Federal Credit

Union (formerly known as Eli Lilly Federal Credit Union), Bellco Credit Union, Credit Union of

America, Directions Credit Union, Veridian Credit Union, Workers Credit Union and

CommunityAmerica Credit Union (together, the “Participating Credit Unions”) (the CUSO,

Rochdale and the Participating Credit Unions, together, the “CUSO Parties”), on the other hand, 1 The debtors in these cases, along with the last four digits of their respective federal tax identification numbers, are ITT Educational Services, Inc. [1311]; ESI Service Corp. [2117]; and Daniel Webster College, Inc. [5980]. 2 Capitalized terms used but not defined herein have the meanings given to them in the Settlement Agreement (as defined herein).

Case 16-07207-JMC-7A Doc 3391 Filed 05/07/19 EOD 05/07/19 14:19:34 Pg 1 of 23

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which is embodied in that certain settlement agreement (the “Settlement Agreement”), a copy of

which is attached as Exhibit 1 to the Proposed Order, and (b) granting related relief. In support

of the Motion, the Trustee respectfully avers as follows:

Jurisdiction

1. The Court has jurisdiction over the Motion pursuant to 28 U.S.C. §§ 157 and

1334.

2. This is a core proceeding within the meaning of 28 U.S.C. §157 (b)(2).

3. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

4. The statutory bases for the relief requested herein are sections 105(a) and

363(b)(1) of the Bankruptcy Code and Bankruptcy Rule 9019.

Background

5. On September 16, 2016 (the “Petition Date”), each of the Debtors filed a

voluntary petition for relief under chapter 7 of the Bankruptcy Code. The Trustee was appointed

interim trustee in each of the Debtors’ bankruptcy cases on the Petition Date pursuant to section

701(a)(1) of the Bankruptcy Code. The Trustee became the case trustee in each of the Debtors’

bankruptcy cases following the conclusion of the first meeting of creditors on November 1, 2016,

pursuant to section 702(d) of the Bankruptcy Code.

6. On October 4, 2016, the Court entered its Order Granting Motion for Joint

Administration of Chapter 7 Cases [Docs 221-222], directing the Debtors’ bankruptcy cases to

be jointly administered for procedural purposes only.

7. Prior to the Petition Date, the Debtors as a whole were engaged in the for-profit

enterprise of providing post-secondary degree programs in 137 campus locations in thirty-nine

states and through online services.


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8. ITT was a publicly-held company that, as of June 30, 2016, employed over 8,000

employees. ITT offered master, bachelor, and associate degree programs to approximately

40,000 students at its campus locations and online programs to students located in all fifty states

and the District of Columbia. All of ITT’s campus locations were authorized by applicable

education authorities of the states in which they operated and were accredited by an accrediting

commission recognized at the time by the U.S. Department of Education.

9. Webster College was founded in 1965 in Nashua, New Hampshire, as the New

England Aeronautical Institute (the “NEAI”). In 1978, the NEAI was merged with its junior-

college division to form Webster College, a private institution with a focus on business

education.

10. The CUSO is a credit union service organization, formed by the independent and

separately owned and managed not-for-profit Participating Credit Unions, and administered by

Rochdale. The CUSO was formed in order to take part in a student loan program (the

“Program”), pursuant to which private, non-governmentally guaranteed student loans (the

“Loans”) were made to certain of the students enrolled in certain of the Debtors’ schools (the

“CUSO Borrowers”), to help them to fund their tuition and fees at those schools.

11. On or about February 20, 2009, the CUSO, ITT and others entered into various

agreements (as have been amended from time to time, the “Program Agreements”), through

which they specified the terms and conditions of the Program and of their respective roles in

connection therewith. Pursuant to the Program Agreements, the CUSO is now the owner of the

Loans.

12. Among the Program Agreements is the Risk Sharing Agreement between ITT and

the CUSO, dated as of February 20, 2009 (as has been amended from time to time, the “RSA”),


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pursuant to which, inter alia, ITT guaranteed to the CUSO the repayment of a portion of the

amount due and owing on non-performing Loans, once the amount charged off under the

Program Agreements in respect of non-performing Loans exceeded a certain threshold.

13. The CUSO asserts that that threshold amount has been exceeded, triggering ITT’s

guaranty obligations to the CUSO under the RSA. Pursuant to certain other Program

Agreements, ITT agreed to secure a portion of its guaranty obligations to the CUSO under the

RSA, and, accordingly, ITT deposited funds into Account No. XXXXX8776 (the “Collateral

Account”), a deposit account maintained with JPMorgan Chase Bank, NA (“Chase”), which has

a current balance of approximately $8.8 million.

14. On April 4, 2013, the CUSO issued to Chase and ITT a notice that the CUSO has

exclusive control over the Collateral Account. The Trustee has disputed the CUSO’s exclusive

control over the Collateral Account.

15. Certain governmental entities commenced investigations into the practices of

Debtors and Debtors’ former management and/or formally alleged that the Debtors and Debtors’

former management engaged in misconduct, including without limitation consumer fraud, in

connection with, among other things, the Program.

16. In September 2016, the Debtors closed their campuses and, on the Petition Date,

each of the Debtors filed a voluntary petition for relief under Chapter 7 of Title 11 of the United

States Code in the United States Bankruptcy Court for the Southern District of Indiana (the

“Bankruptcy Court”), which petitions are being jointly administered by the Bankruptcy Court

under Case No. 16-07207-JMC-7A (the “Bankruptcy Case”).

17. The CUSO asserts that ITT is indebted to the CUSO, and the CUSO has a claim

against the Debtors, for certain of the losses the CUSO has incurred, and will incur, in


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connection with the Program (the “CUSO’s Claim”), in the amount of $159,248,725.66, plus the

CUSO’s attorneys’ fees and costs. The CUSO’s Claim is substantially greater than the amount

of the funds in the Collateral Account, which constitutes the CUSO’s sole collateral for the

CUSO’s Claim.

18. On November 10, 2016, the CUSO moved for relief from the automatic

bankruptcy stay [ECF 608], seeking (inter alia) the release and payment to the CUSO of all

funds in the Collateral Account (the “Stay Relief Motion”), which Stay Relief Motion the

Trustee opposed.

19. On January 3, 2017, a class action adversary proceeding against the Debtors in the

Bankruptcy Case was filed on behalf of a class (the “Student Class”), putatively consisting of all

students, including the CUSO Borrowers, who were at any time enrolled in any of the

educational programs offered by the Debtors between January 1, 2006 and September 16, 2016

(the “Students”), in which proceeding the Student Class alleges, among other things, that the

Debtors engaged in misconduct, including without limitation consumer fraud, in connection with

the Program, and disputes the validity of the Loans.

20. On January 24, 2017, the CUSO filed proofs of claim (the “CUSO Proofs of

Claim”) against each of the Debtors for the CUSO’s claimed losses (claim numbers 359 (DWC),

436 (ESI) and 1775 (ITT)), which the CUSO asserts were calculated based upon accrued, and

then-current estimates of future, amounts owed by ITT to the CUSO.

21. On March 29, 2017, the CUSO voluntarily withdrew the Stay Relief Motion

without prejudice [ECF 1492].

22. On March 30, 2017, the Trustee filed a complaint in the Bankruptcy Case [Adv.

Pro. ECF 1] (the “Complaint”), thereby commencing Adversary Proceeding No. 17-50101 (the


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“Adversary Proceeding”), in which the Trustee alleged various claims against the CUSO Parties

and, as alleged in the Complaint, sought, inter alia, to: (a) avoid the Debtors’ obligations under

the RSA, including, without limitation, the CUSO’s claim to recover approximately $157 million

in payments allegedly due by the Debtors thereunder as of the Petition Date; (b) avoid and

recover from the CUSO Parties (as initial and/or subsequent transferees) approximately $42.6

million in payments that the Debtors’ former management caused the Debtors to make under the

RSA from 2011 through 2016; (c) avoid all liens, pledges and encumbrances that the Debtors’

former management caused the Debtors to grant to the CUSO pursuant to that certain “Security

Agreement,” dated as of February 20, 2009, between the CUSO and the Debtors; (d) avoid the

CUSO’s alleged lien with respect to the moneys deposited into the Collateral Account; (e) avoid

and recover from the CUSO Parties (as initial and/or subsequent transferees) approximately $7

million in payments that the Debtors’ former management caused the Debtors to make to the

CUSO Parties between November 2014 and June 2015 purportedly in lieu of posting additional

collateral under the RSA and/or Security Agreement; (f) avoid the Debtors’ obligations under

that certain “Financing Program Agreement,” dated as of February 20, 2009, between the CUSO

Parties and the Debtors; (g) avoid and recover approximately $8.764 million in funds that the

Debtors’ former management caused the Debtors to make available to the CUSO Parties under

the Financing Program Agreement to generate additional CUSO Loans; (h) avoid and recover all

payments that the Debtors’ former management caused the Debtors to make to Rochdale,

directly or indirectly (as an initial and/or subsequent transferee) in connection with the

conception, implementation and/or administration of the Program, including, without limitation,

any and all payments made to Rochdale, directly or indirectly, pursuant to that certain

“Management Services Agreement,” dated as of February 20, 2009 between the CUSO and


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Rochdale; (i) avoid and recover any other obligations that the Debtors’ former management

caused the Debtors to incur and/or transfers that the Debtors’ former management caused the

Debtors to make to any of the CUSO Parties, directly or indirectly (as initial and/or subsequent

transferees), in connection with the Program, including, without limitation, all membership fees

that the Debtors paid to one or more of the CUSO Parties, directly or indirectly (as initial and/or

subsequent transferees) on behalf of ITT’s students; and (b) recover all damages allegedly

sustained by the Debtors by reason of the CUSO Parties’ aiding and abetting of the Debtors’

former management’s breaches of fiduciary duty and/or fraud in connection with the conception,

implementation and continuation of the Program that contributed to the Debtors’ closure and

bankruptcy, including any liability the Debtors may have on account of the massive amount of

student loans for which the U.S. Department of Education, the Debtors’ former students or others

are seeking, or may seek, to hold the Debtors liable.

23. The CUSO Parties deny any fault, wrongdoing and liability in connection with

any claim alleged in the Complaint, and on May 31, 2017, moved to dismiss all counts in the

Complaint as to all of the CUSO Parties [ECF 20-24] (the “Motions To Dismiss”), which

Motions To Dismiss the Trustee opposed.

24. On January 3, 2018, the Trustee filed with the Bankruptcy Court, among other

things, a motion seeking class certification of the Student Class, and on January 25, 2018, the

Bankruptcy Court entered an order that, among other things, certified the Student Class.

25. The Trustee and the CUSO Parties have engaged in settlement discussions

regarding resolution of the Parties’ issues, claims and disputes, including without limitation any

and all issues, claims and disputes contained in, arising out of, relating to and/or in connection

with the Program, the Loans, the Program Agreements (including without limitation the RSA),


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the Collateral Account, the CUSO’s Claim, all arguments, assertions and allegations in the Stay

Relief Motion, the CUSO Proofs of Claim, the Complaint (including without limitation

allegations of transfers), the Adversary Proceeding and the Motions To Dismiss, and all

arguments, assertions and allegations made or invoked by or on behalf of the Students regarding

and in connection with the Loans and the Program (the “Disputes”).

26. The CUSO asserts that it has certain understandings with certain governmental

entities, pursuant to which, without objection from the Trustee, (a) in accordance with

procedures agreed upon by the CUSO with, and approved by, those governmental entities, (i) the

CUSO will be required to discontinue the collection of all outstanding Loans (with more than a

zero balance), both active and charged off, (ii) the CUSO will be required to make reasonable

efforts to return, to reverse or otherwise effectively to reject any payment on the Loans that it

may receive after the date of such discontinuance, and (iii) the consumer reporting agencies to

which the CUSO and the servicer of those Loans have reported information about those Loans

will be directed to delete the consumer trade lines associated with those Loans (the “Credit

Report Deletions”), and (b) the CUSO will apply to the Internal Revenue Service (the “IRS”) for

a ruling or other guidance, for all CUSO Borrowers of Loans as to which collection will be

discontinued, to the effect that the CUSO is not required to issue Form 1099’s to those CUSO

Borrowers (the “IRS Ruling”).

27. The CUSO and the Trustee have agreed that $127,844,857 (which constitutes a

15% reduction of the adjusted amount claimed by the CUSO) is a fair and reasonable amount to

be allowed as a general unsecured claim in resolution of the CUSO’s Claim, accounting for the

facts and circumstances (including without limitation the amounts owed by ITT to, and the

amounts collected by, the CUSO) both before and after the Petition Date.


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28. The Parties’ entry into this Settlement Agreement is premised on the

understanding that the CUSO will discontinue collection of the Loans, will direct the Credit

Report Deletions, and will apply to the IRS for the IRS Ruling.

29. Certain governmental entities have advised the Parties that they have determined

that the discontinuance of collection of the Loans, the direction of the Credit Report Deletions,

and the application to the IRS for the IRS Ruling, are all in the public interest.

30. The Trustee and the CUSO Parties agree that the proper and orderly

implementation of the process of discontinuance of collection of the Loans, and the application

to the IRS, will be burdensome, time consuming and costly.

31. Absent a settlement, resolution of the Disputes likely will involve the Debtors and

the CUSO Parties in complex, protracted and expensive litigation.

32. The Trustee and the CUSO Parties, having considered the facts and circumstances

relating to the Disputes, desire to avoid the burden, risks and expenses attendant to further

litigation of the Disputes, and to settle and to resolve, fully and finally, the Disputes, and to that

end, they have engaged in arms’ length settlement negotiations, have exchanged materials and

information, and have determined that the terms and conditions of the settlement as provided in

the proposed Settlement Agreement are desirable, fair, reasonable, adequate and within the range

of reasonable settlements.

33. As more specifically spelled out in the proposed Settlement Agreement, it

generally provides that:

a. The Settlement Agreement will not become effective until all of the following

conditions precedent have occurred: (i) all of the Parties have executed the Settlement Agreement; (ii) the Trustee and the CUSO Parties have agreed upon the language of the Motion, and the Motion has been served and filed in accordance with the Bankruptcy Code, Rules, S.D.Ind. B-2002-1(c) and the Order


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Establishing Certain Notice, Case Management and Administrative Procedures and Approve Proposed Form 309D (the “Case Management Procedures”) entered by the Bankruptcy Court on October 4, 2016 [Doc 220], including: (I) by serving the Motion on the Core Group, the Request for Notice List, and the Appearance List (all as defined in the Case Management Procedures), (II) by serving a Notice of Trustee’s Motion To Compromise and Settle Adversary Proceeding No. 17-50101 (substantially in the form annexed to the Settlement Agreement as Exhibit D) (the “Approval Motion Notice”) on all CUSO Borrowers, all Students who have opted out of the Student Class, and all creditors who have filed claims in the Bankruptcy Case, with the exception of those claims that have been disallowed as of the date of service of the Motion, (III) by serving the Motion on the Legal Services Center of Harvard Law School and Jenner & Block LLP, as class counsel for the Student Class, and (IV) by posting the Approval Motion Notice on the Rust Omni website for the Bankruptcy Case (https://omnimgt.com/ITT) and the website maintained by class counsel for the Student Class (https://predatorystudentlending.org/cases/itt/); (iii) the Bankruptcy Court has entered an order approving the Settlement Agreement substantially in the form of the Proposed Order, which order has become final and not appealable; and (iv) the CUSO’s above-referenced understandings with certain governmental entities, as referenced in the Settlement Agreement, have become effective, and the CUSO Parties have received releases, acceptable to the CUSO Parties, from those governmental entities.

b. Within 5 days after the Effective Date of the Settlement Agreement, the Trustee and the CUSO will deliver a joint letter to Chase that, among other things, directs Chase to pay $7,521,625.00 from the Collateral Account to the Trustee; to pay the balance of the funds in the Collateral Account to the CUSO; and, thereafter, to close the Collateral Account.

c. Within 5 days after the Effective Date, the Trustee will file with the Bankruptcy Court a joint stipulation dismissing the Adversary Proceeding with prejudice.

d. The CUSO will have an allowed general unsecured claim in the amount of $127,844,857 (which constitutes a 15% reduction of the amount claimed by the CUSO, as adjusted) against each of the Debtors in the Bankruptcy Case, which claim will not be subject to challenge or objection and will receive treatment pari passu with all other allowed general unsecured claims.

e. The Trustee will not attempt, directly or indirectly, to service, to enforce or to collect the Loans, and irrevocably delegates to the CUSO, and waives and relinquishes, any right, authority or power, if any, she may have with respect to the Loans and the servicing and collection of the Loans. The Trustee acknowledges that the CUSO has the full right, authority and power to discontinue the collection of all outstanding Loans and to direct the Credit Report Deletions, and consents to the CUSO doing so.


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f. Except for the rights, claims, duties and obligations created by the Settlement Agreement, the Trustee, in her capacity as defined above and also including without limitation on behalf of each of the Debtors, and the Debtors’ professionals, agents, affiliates and creditors (e.g., the Students) (the “Debtor-Releasing Parties”), releases and discharges the CUSO Parties and their respective professionals, agents and affiliates, from any and all manner of actual, potential or alleged claims, litigations, actions, causes of action, defenses, rights of setoff, demands, suits, arbitrations, debts, obligations, damages (compensatory, punitive or otherwise), liabilities, losses, costs, expenses, attorneys’ fees, controversies, accounts and liens of every kind or nature whatsoever, whether asserted or unasserted, known or unknown, suspected or unsuspected, fixed or contingent, statutory, common law, in contract, tort or otherwise, secured or unsecured, accrued or unaccrued, direct, derivative, or brought in any other capacity, that the Debtor-Releasing Parties ever had, may now or may hereafter have, arising from the beginning of time to the Effective Date, against any or all of the released parties that arise out of, relate to or are in connection with the Disputes.

g. Except for the rights, clams duties and obligations created by the Settlement Agreement, and except for the CUSO’s rights as set forth in (d) above, the CUSO Parties, on behalf of themselves and their respective professionals, agents and affiliates, release and discharge the Trustee, the Debtors, and the Debtors’ professionals, agents, affiliates and creditors (e.g., the Students), from any and all manner of actual, potential or alleged claims, litigations, actions, causes of action, defenses, rights of setoff, demands, suits, arbitrations, debts, obligations, damages (compensatory, punitive or otherwise), liabilities, losses, costs, expenses, attorneys’ fees, controversies, accounts and liens of every kind or nature whatsoever, whether asserted or unasserted, known or unknown, suspected or unsuspected, fixed or contingent, statutory, common law, in contract, tort or otherwise, secured or unsecured, accrued or unaccrued, direct, derivative, or brought in any other capacity, that the releasing parties ever had, may now or may hereafter have, arising from the beginning of time to the Effective Date, against any or all of the released parties that arise out of, relate to or are in connection with the Disputes.

h. The Trustee will take all reasonable steps to secure from the Bankruptcy Court a final and non-appealable order permanently enjoining all Debtor-Releasing Parties from (i) commencing, conducting or continuing, directly or indirectly, any litigation, suit, arbitration, action or other proceeding against any of the CUSO Parties arising out of, relating to or in connection with the Loans or the Program, and (ii) enforcing (including without limitation by setoff, subrogation or recoupment), levying, attaching, collecting or otherwise recovering, directly or indirectly, any judgment, award, decree or order against any of the CUSO Parties that arises out of, relates to or is in connection with the Loans or the Program.


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Relief Requested

34. The Trustee requests entry of the final order, pursuant to sections 105(a) and 363

of the Bankruptcy Code and Bankruptcy Rule 9019, (a) approving the terms of the Settlement,

and (b) authorizing the Trustee to enter into the Settlement Agreement.

Basis for Relief

35. A court may authorize a trustee to enter into a settlement so long as it is a sound

exercise of the trustee’s business judgment. See 11 U.S.C. § 363(b); In re UAL Corp., 443 F.3d

565, 571 (7th Cir. 2006) (use under section 363 of the Bankruptcy Code must “[make] good

business sense”); In re Schipper, 933 F.2d 513, 515 (7th Cir. 1991) (section 363 sale involves

exercise of fiduciary duties and requires an “articulated business justification”); see also In re

Olde Prairie Block Owners, LLC, 448 B.R. 482, 492 (Bankr. N.D. Ill.) (same), aff’d, 460 B.R.

500 (N.D. Ill. 2011). Moreover, when applying the “business judgment” standard to a use of

estate property under section 363, a trustee’s judgment is “entitled to great judicial deference as

long as a sound business reason is given.” See In re Efoora, Inc., 472 B.R. 481, 488 (Bankr.

N.D. Ill. 2012).

36. Similarly, Bankruptcy Rule 9019(a) permits a bankruptcy court to approve a

trustee’s “compromise or settlement” after notice and a hearing, if such settlement is “fair and

equitable . . . and in the best interests of the bankruptcy estate.” Depoister v. Mary M. Holloway

Found., 36 F.3d 582, 586 (7th Cir. 1994); see also In re Energy Co-op., Inc., 886 F.2d 921, 927

(7th Cir. 1989) (“The benchmark for determining the propriety of a bankruptcy settlement is

whether the settlement is in the best interests of the estate.”); In re Smith, No. 02-16450-JKC-7A,

2008 WL 4276171, at *2 (Bankr. S.D. Ind. Sept. 10, 2008) (same). Settlements should be

approved unless “the settlement ‘falls below the lowest point in the range of reasonableness.’”

In re Commercial Loan Corp., 316 B.R. 690, 698 (Bankr. N.D. Ill. 2004) (quoting Energy Co-


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op., 886 F.2d at 929); In re Doctors Hosp. of Hyde Park, Inc., 474 F.3d 421, 426 (7th Cir. 2007);

see also In re Artra Grp., Inc., 300 B.R. 699, 702 (Bankr. N.D. Ill. 2003). Settlements and

compromises are favored in bankruptcy because they expedite case administration and reduce

unnecessary administrative costs. Fogel v. Zell, 221 F.3d 955, 960 (7th Cir. 2000). In

determining whether a compromise is in the best interests of the estate, the Court must compare

“the settlement’s terms with the litigation’s probable costs and probable benefits.” In re Am.

Reserve Corp., 841 F.2d 159, 161 (7th Cir. 1987); see also Doctors Hosp., 474 F.3d at 426

(“Among the factors the court considers are the litigation’s probability of success, complexity,

expense, inconvenience, and delay, including the possibility that disapproving the settlement will

cause wasting of assets.”) (internal quotation marks and citations omitted); Commercial Loan,

316 B.R. at 697 (holding that relevant factors a bankruptcy court should consider in approving a

settlement include “the litigation’s probability of success, its complexity, and its ‘attendant

expense, inconvenience and delay’” (quoting Am. Reserve Corp., 841 F.2d at 161)).

37. Here, the Trustee believes entry into the Settlement Agreement is in the best

interest of the Debtors’ estates and represents a sound exercise of her business judgment. The

various disputes between the Debtors, on the one hand, and the CUSO Parties, on the other, are

complex, and the outcome of the Adversary Proceeding is uncertain. Resolution of the

Adversary Proceeding, if litigated, has the potential to, and likely will, prove costly and time-

consuming to all Parties, and absent resolution of the issues covered by the Settlement

Agreements, costs associated therewith will continue to accrue. Entry into the Settlement

Agreement will resolve such issues consensually, bringing the Trustee and the Debtors another

step closer to resolution of the Debtors’ chapter 7 cases.


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38. For the foregoing reasons, the Trustee has determined, in the exercise of her

sound business judgment, that the Settlement Agreement is fair, equitable, in the best interest of

the Debtors’ estates, and well within the range of reasonableness for approval under Bankruptcy

Rule 9019(a). Accordingly, the Trustee respectfully submits that the Court should approve the

Settlement and the Trustee’s entry into the Settlement Agreement.

Notice

39. Pursuant to the Notice and the Case Management Procedures, the Trustee will

serve a copy of the Motion on the following (as defined in the Case Management Procedures):

(a) the Core Group; (b) the Request for Notice List; (c) the Appearance List; and (d) the Legal

Services Center of Harvard Law School and Jenner & Block LLP, as class counsel for the

Student Class.

40. Furthermore, the Trustee shall serve the Notice of Trustee’s Motion to

Compromise and Settle Adversary Proceeding No. 17-50101 (the “Approval Motion Notice”)

(Exhibit B hereto) to all CUSO Borrowers, all Students who have opted out of the Student Class,

and all creditors who have filed claims in the Bankruptcy Case, with the exception of those

claims that have been disallowed as of the date of service of the Motion. In addition, the Trustee

shall post the Approval Motion Notice on the Rust Omni website for the Bankruptcy Case

(https://omnimgt.com/ITT) and the website maintained by class counsel for the Student Class

(https://predatorystudentlending.org/cases/itt/).

NOTICE IS GIVEN, that pursuant to the Case Management Procedures, any objection to this motion must be in writing and filed with the Bankruptcy Clerk by no later than 4:00 p.m. (prevailing Eastern Time) on June 5, 2019. Those not required or not permitted to file electronically must deliver any objection by U.S. mail, courier, overnight/express mail or in person at:

116 U.S. Courthouse 46 East Ohio Street Indianapolis, IN 46204


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The objecting party must also serve a copy of the written objection upon the Trustee’s counsel, at Counsel for Trustee Deborah J. Caruso, Rubin & Levin, P.C., 135 N. Pennsylvania Street, Suite 1400, Indianapolis, IN 46204. If an objection is NOT timely filed, the requested relief may be granted without a hearing.

NOTICE IS FURTHER GIVEN that in the event an objection to this motion is timely filed, a hearing on this motion and such objection will be conducted on June 12, 2019 at 1:30 p.m. (prevailing Eastern time), in Room 325 of the United States Courthouse, 46 East Ohio Street, Indianapolis, IN 46204.

[Remainder of Page Intentionally Left Blank]


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WHEREFORE, the Trustee respectfully requests entry of the final order, substantially in

the form attached hereto as Exhibit A, granting the relief requested herein and granting such

other relief as is just and proper.

Dated: May 7, 2019

Indianapolis, Indiana Respectfully submitted,

/s/ Jeff J. Marwil Jeff J. Marwil (admitted pro hac vice) PROSKAUER ROSE LLP 70 West Madison, Suite 3800 Chicago, Illinois 60602-4342 Telephone: (312) 962-3550 Facsimile: (312) 962-3551

–and–

Timothy Q. Karcher (admitted pro hac vice) Steven H. Holinstat PROSKAUER ROSE LLP Eleven Times Square New York, New York 10036 Telephone: (212) 969-3000 Facsimile: (212) 969-2900

/s/ Deborah J. Caruso Deborah J. Caruso (Atty. No. 4273-49) John C. Hoard (Atty. No. 8024-49) James E. Rossow Jr. (Atty. No. 21063-29) Meredith R. Theisen (Atty. No. 28804-49) RUBIN & LEVIN, P.C. 135 N. Pennsylvania Street, Suite 1400 Indianapolis, Indiana 46204 Telephone: (317) 634-0300 Facsimile: (317) 263-9411 Co-counsel to the Trustee

Co-counsel to the Trustee


CERTIFICATE OF SERVICE

I hereby certify that on May 7, 2019, a copy of the foregoing Trustee’s Motion to Compromise and Settle Adversary Proceeding No. 17-50101 was filed electronically. Pursuant to Section IV.C.3(a) of the Case Management Procedures, notice of this filing will be sent to the following parties through the Court’s Electronic Case Filing System. Parties may access this filing through the Court’s system. John Joseph Allman [email protected], [email protected] Richard Allyn [email protected] Robert N Amkraut [email protected] Scott S. Anders [email protected], [email protected] Manuel German Arreaza [email protected] Todd Allan Atkinson [email protected] Darren Azman [email protected] Kay Dee Baird [email protected], [email protected];[email protected] Michael I. Baird [email protected], [email protected] Christopher E. Baker [email protected], [email protected] James David Ballinger [email protected], [email protected] Joseph E. Bant [email protected] William J. Barrett [email protected], [email protected] Ashley Flynn Bartram [email protected] Alex M Beeman [email protected], [email protected] Thomas M Beeman [email protected] Richard James Bernard [email protected] Thomas Berndt [email protected], [email protected] John J Berry [email protected], [email protected] Lauren Beslow [email protected] Brandon Craig Bickle [email protected] Michael Blumenthal [email protected] David J. Bodle [email protected], [email protected] Robert A. Breidenbach [email protected] Wendy D Brewer [email protected], [email protected] Kayla D. Britton [email protected], [email protected] Robert Bernard Bruner [email protected] Jason R Burke [email protected], [email protected] Erin Busch [email protected] John Cannizzaro [email protected], [email protected] Kevin M. Capuzzi [email protected], [email protected];[email protected] James E. Carlberg [email protected], [email protected];[email protected] Steven Dean Carpenter [email protected] Deborah Caruso [email protected], [email protected];[email protected];[email protected] Deborah J. Caruso [email protected], [email protected]


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Joshua W. Casselman [email protected], [email protected];[email protected] Ben T. Caughey [email protected] Sonia A. Chae [email protected] John Andrew Chanin [email protected], [email protected] Courtney Elaine Chilcote [email protected], [email protected];[email protected] Dale C Christensen [email protected] Eboney Delane Cobb [email protected] Tiffany Cobb [email protected] Michael Edward Collins [email protected] Michael Anthony Collyard [email protected], [email protected] Eileen Connor [email protected] Lawrence D. Coppel [email protected] Heather M. Crockett [email protected], [email protected] J Russell Cunningham [email protected], [email protected] Erica Dausch [email protected] Melissa J. DeGroff [email protected], [email protected] Dustin R. DeNeal [email protected], [email protected] Laura A DuVall [email protected], [email protected] Stephen Emedi [email protected] Annette England [email protected] Charles Anthony Ercole [email protected], [email protected] Carolyn Meredith Fast [email protected] Elaine Victoria Fenna [email protected] Andrew W Ferich [email protected] Scott Patrick Fisher [email protected], [email protected] John David Folds [email protected], [email protected] Jennifer N Fountain [email protected], [email protected] Sarah Lynn Fowler [email protected], [email protected] Robert W. Fuller [email protected] Carlos Galliani [email protected] Jonathan William Garlough [email protected], [email protected];[email protected] Lisa Giandomenico [email protected] Lea Pauley Goff [email protected], [email protected] Barry S. Gold [email protected] John C Goodchild [email protected] Douglas Gooding [email protected] John Andrew Goodridge [email protected], [email protected];[email protected] Michael Wayne Grant [email protected] Richard Grayson Grant [email protected], [email protected] Alan Mark Grochal [email protected] Elizabeth N. Hahn [email protected], [email protected] Gregory Forrest Hahn [email protected], [email protected] Julian Ari Hammond [email protected], [email protected] Wallace M Handler [email protected], [email protected]


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William J. Hanlon [email protected] Adam Craig Harris [email protected] Brian Hauck [email protected] Jeffrey M. Hawkinson [email protected], [email protected] Michael J. Hebenstreit [email protected], [email protected];[email protected];[email protected] Amanda Marie Hendren [email protected] Claude Michael Higgins [email protected] Michael W. Hile [email protected], [email protected] Sean M Hirschten [email protected] Robert M. Hirsh [email protected] John C. Hoard [email protected], [email protected];[email protected];[email protected] Curt Derek Hochbein [email protected], [email protected];[email protected];[email protected];[email protected] Jeffrey A Hokanson [email protected], [email protected] Steven Howard Holinstat [email protected] Diana Hooley [email protected] Thomas Ross Hooper [email protected] George Wade Hopper [email protected], [email protected] Andrew E. Houha [email protected] Andrew W. Hull [email protected], [email protected] James C Jacobsen [email protected], [email protected] Christine K. Jacobson [email protected], [email protected] Jay Jaffe [email protected], [email protected] David Januszewski [email protected] Benjamin F Johns [email protected], [email protected] Russell Ray Johnson [email protected] Kenneth C. Jones [email protected] Anthony R. Jost [email protected], [email protected] David J. Jurkiewicz [email protected], [email protected];[email protected];[email protected] Timothy Q. Karcher [email protected] Steven Joseph Kasyjanski [email protected], [email protected] Alan Katz [email protected] Richard B. Kaufman [email protected] Carly Kessler [email protected] John M. Ketcham [email protected], [email protected] Taejin Kim [email protected] Edward M King [email protected], [email protected];[email protected] Roy F. Kiplinger [email protected], [email protected] Jackson Taylor Kirklin [email protected], [email protected];[email protected] James A. Knauer [email protected], [email protected] Kevin Dale Koons [email protected] Harris J. Koroglu [email protected], [email protected]


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Lawrence Joel Kotler [email protected] Robert R Kracht [email protected] Andrew L. Kraemer [email protected], [email protected] David R. Krebs [email protected], [email protected] Jerrold Scott Kulback [email protected] Jay R LaBarge [email protected] Darryl S Laddin [email protected] Michael J. Langlois [email protected], [email protected] Vilda Samuel Laurin [email protected] Jordan A Lavinsky [email protected] Todd Evan Leatherman [email protected] David S Lefere [email protected], [email protected] Anthony Darrell Lehman [email protected] Martha R. Lehman [email protected], [email protected];[email protected];[email protected] Gary H Leibowitz [email protected], [email protected];[email protected] Donald D Levenhagen [email protected] Elizabeth Marie Little [email protected] Edward J LoBello [email protected] Melinda Hoover MacAnally [email protected], [email protected];[email protected] Christopher John Madaio [email protected] John A. Majors [email protected], [email protected] Steven A. Malcoun [email protected] Jonathan Marshall [email protected] Thomas Marvin Martin [email protected] Jeff J. Marwil [email protected], [email protected];[email protected];[email protected] Richard J Mason [email protected] C. Ed Massey [email protected], [email protected] Ann Wilkinson Matthews [email protected] Rachel Jaffe Mauceri [email protected] Michael Wesley McBride [email protected], [email protected] Michael K. McCrory [email protected], [email protected] Maureen Elin McOwen [email protected] Harley K Means [email protected], [email protected];[email protected] Toby Merrill [email protected], [email protected] Robert W. Miller [email protected] Sherry Millman [email protected] Jason Milstone [email protected] Thomas E Mixdorf [email protected], [email protected] Evgeny Grigori Mogilevsky [email protected], [email protected];[email protected] James P Moloy [email protected], [email protected];[email protected]


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Ronald J. Moore [email protected] Hal F Morris [email protected] Michael David Morris [email protected] Kevin Alonzo Morrissey [email protected], [email protected];[email protected];[email protected] Whitney L Mosby [email protected], [email protected] C Daniel Motsinger [email protected], [email protected];[email protected];[email protected] Lee Duck Moylan [email protected], [email protected] Joseph L. Mulvey [email protected], [email protected] Abraham Murphy [email protected] Justin Scott Murray [email protected] Alissa M. Nann [email protected], [email protected] Henry Seiji Newman [email protected] Kevin M. Newman [email protected], [email protected] Cassandra A. Nielsen [email protected], [email protected],[email protected];[email protected] Ryan Charles Nixon [email protected] Isaac Nutovic [email protected] Michael O'Donnell [email protected] Gregory Ostendorf [email protected], [email protected] Weston Erick Overturf [email protected], [email protected];[email protected] Pamela A. Paige [email protected], [email protected] Kenneth Pasquale [email protected] Eric Pendergraft [email protected], [email protected];[email protected] Danielle Ann Pham [email protected] Anthony Pirraglia [email protected] Jack A Raisner [email protected], [email protected];[email protected] Jonathan Hjalmer Reischl [email protected] Michael Rella [email protected] Caroline Ellona Richardson [email protected], [email protected] James Leigh Richmond [email protected] Mai Lan Gabrielle Rodgers [email protected], [email protected] John M. Rogers [email protected], [email protected];[email protected];[email protected] Melissa M. Root [email protected], [email protected] David A. Rosenthal [email protected] James E Rossow [email protected], [email protected];[email protected] Rene Sara Roupinian [email protected], [email protected];[email protected];[email protected];[email protected];[email protected] Victoria Fay Roytenberg [email protected], [email protected] Steven Eric Runyan [email protected]


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Craig Damon Rust [email protected], [email protected] Karl T Ryan [email protected], [email protected] Joseph Michael Sanders [email protected] Thomas C Scherer [email protected], [email protected] James R. Schrier [email protected], [email protected];[email protected] Ronald James Schutz [email protected] H. Jeffrey Schwartz [email protected] Courtney Michelle Scott [email protected] Joseph E Shickich [email protected], [email protected] Randall R Shouse [email protected], [email protected] William E Smith [email protected], [email protected] Lauren C. Sorrell [email protected], [email protected];[email protected];[email protected];[email protected] Berry Dan Spears [email protected] Catherine L. Steege [email protected], [email protected];[email protected] LaChelle D Stepp [email protected], [email protected] Jason V Stitt [email protected] Sharon Stolte [email protected] Jesse Ellsworth Summers [email protected], [email protected] Matthew G. Summers [email protected], [email protected] Jonathan David Sundheimer [email protected] Nathan L Swehla [email protected] Nancy K. Swift [email protected], [email protected] Andrew W.J. Tarr [email protected], [email protected] Eric Jay Taube [email protected], [email protected];[email protected] Meredith R. Theisen [email protected], [email protected];[email protected] Meredith R. Theisen [email protected], [email protected];[email protected] Jessica L Titler [email protected] David Tocco [email protected], [email protected] Todd Christian Toral [email protected], [email protected] Ronald M. Tucker [email protected], [email protected],[email protected] Christopher Turner [email protected], [email protected] U.S. Trustee [email protected] Michael Ungar [email protected] Lauren Valkenaar [email protected] Sally E Veghte [email protected], [email protected] Rachel Claire Verbeke [email protected] Aimee Vidaurri [email protected] Amy L VonDielingen [email protected] Amy E Vulpio [email protected] Carolyn Graff Wade [email protected] Christopher D Wagner [email protected]


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Louis Hanner Watson [email protected] Jeffrey R. Waxman [email protected], [email protected];[email protected] Christine M.H. Wellons [email protected] Philip A. Whistler [email protected], [email protected] Bradley Winston [email protected], [email protected] Brandon Michael Wise [email protected] Cathleen Dianne Wyatt [email protected], [email protected] James T Young [email protected], [email protected];[email protected] James E. Zoccola [email protected]

I further certify that on May 7, 2019, pursuant to Section IV.C.3(c) of the Case Management Procedures, a copy of the foregoing Trustee’s Motion to Compromise and Settle Adversary Proceeding No. 17-50101 was emailed to the following: Arlington ISD/Richardson ISD: Eboney Cobb at [email protected] CEC Red Run, LLC: Alan M. Grochal at [email protected] SWRE Deal V Building, LLC: Paul Weiser at [email protected] Tarrant County/Dallas County: Elizabeth Weller at [email protected] Northwest Natural Gas Company: Ashlee Minty at [email protected] Solar Drive Business, LLC: Chris W. Halling at [email protected] Market-Turk Company: Jordan A. Lavinsky at [email protected] Taxing Authority for Harris County, Texas: John P. Dillman at [email protected] Texas Comptroller of Public Accounts: Rachel Obaldo at [email protected] Clear Creek Independent School District: Carl O. Sandin at [email protected] Synchrony Bank: Recovery Management Systems Corporation at [email protected] Bexar County: Don Stecker at [email protected] SWRE Deal V Building, LLC: Nancy K. Swift at [email protected] TN Dept. of Revenue: Michael Willey at [email protected] Florida Department of Education: Benman D. Szeto at [email protected] Last Second Media, Inc.: T. Todd Egland at [email protected] Hung Duong: Kevin Schwin at [email protected] Travis County: Kay D. Brock at [email protected] Able Building Maintenance: Scott D. Fink at [email protected] Marathon Ventures, LLC: Daniel M. Karger at [email protected] Oklahoma County Treasurer: Tammy Jones at [email protected] JM Partners LLC: John Marshall at [email protected] /s/ Deborah J. Caruso Deborah J. Caruso G:\WP80\TRUSTEE\Caruso\ITT Educational - 86723901\Drafts\CUSO settlement motion - final.docx


Exhibit A

PROPOSED FINAL APPROVAL ORDER

Case 16-07207-JMC-7A Doc 3391-1 Filed 05/07/19 EOD 05/07/19 14:19:34 Pg 1 of 62

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF INDIANA

INDIANAPOLIS DIVISION IN RE: ) ) ITT EDUCATIONAL SERVICES, INC., et al.,1 ) Case No. 16-07207-JMC-7A ) Debtors. ) Jointly Administered

ORDER GRANTING TRUSTEE’S MOTION TO

COMPROMISE AND SETTLE ADVERSARY PROCEEDING NO. 17-50101

Upon the motion (the “Motion”) [Doc No ___] of Deborah J. Caruso, not individually but

solely in her capacity as Chapter 7 trustee in the above-captioned case for the bankruptcy estates of

the Debtors, and acting for and on behalf of the Debtors and each of the Debtors’ respective

bankruptcy estates (the “Trustee”), for entry of an Order (a) approving the proposed settlement

agreement by and between the Trustee, on the one hand, and Student CU Connect CUSO, LLC (the

“CUSO”), The Rochdale Group, Inc., Elements Financial Federal Credit Union (formerly known as

1 The debtors in these cases, along with the last four digits of their respective federal tax identification numbers, are ITT Educational Services, Inc. [1311]; ESI Service Corp. [2117]; and Daniel Webster College, Inc. [5980] (the “Debtors”).


Eli Lilly Federal Credit Union), Bellco Credit Union, Credit Union of America, Directions Credit

Union, Veridian Credit Union, Workers Credit Union and CommunityAmerica Credit Union

(together with the CUSO, the “CUSO Parties”), on the other hand (the “Settlement Agreement,” a

copy of which is annexed hereto as Exhibit 1), and (b) granting certain other relief, as more fully set

forth herein;

The Court, having considered the Motion, being otherwise duly advised in the

circumstances, and after due deliberation and consideration of the record in the above-captioned

Chapter 7 case (the “Chapter 7 Case”) and in Adversary Proceeding No. 17-50101 (the “Adversary

Proceeding”), and of the hearing on the Motion, determines that the Motion should be, and hereby

is, GRANTED.

Accordingly, IT IS HEREBY ORDERED as follows:

1. The Motion is granted in its entirety.

2. The Trustee is authorized and directed to take all actions required under the

Settlement Agreement and all such actions are hereby approved.

3. Pursuant to the standards set forth under Rule 9019 of the Federal Rules of

Bankruptcy Procedure, the Court finds that the proposed Settlement Agreement is fair, reasonable,

adequate and within the range of reasonable settlements.

4. The CUSO’s claim against the Debtors, in the amount of $150,083,040, subject to

adjustment [Proofs of Claim numbers 359 (DWC), 436 (ESI) and 1775 (ITT)], is hereby allowed in

the reduced amount of $127,844,857 as a prepetition, general, unsecured claim no longer subject to

objection or challenge, and shall receive treatment pari passu with all other allowed general unsecured

claims. The Trustee’s claims agent promptly shall revise the claims registers to reflect the

modification of the CUSO’s proofs of claims and the amount and allowance of the CUSO’s claim as

provided herein. Any distribution in respect of this claim shall be made to “Foley & Lardner LLP,


as counsel for Student CU Connect CUSO, LLC,” and shall be delivered in immediately payable

funds to Foley & Lardner LLP, 90 Park Avenue, New York, New York 10016, Attention: Susan J.

Schwartz, Esq.

5. Within five (5) days after the Effective Date of the Settlement Agreement (as defined

therein), the Trustee shall file, in the Chapter 7 Case and the Adversary Proceeding, a notice of the

occurrence and date of the Effective Date.

6. Within five (5) days after the Effective Date, the Trustee and the CUSO Parties shall

file a stipulation dismissing the Adversary Proceeding with prejudice.

7. As of the Effective Date, the Trustee, each of the Debtors and each of the Debtors’

respective bankruptcy estates and past, present or future, direct or indirect, affiliates, divisions,

subsidiaries, general partners, limited partners, equity holders, shareholders, creditors (including

without limitation all students who were enrolled in any of the educational programs offered by the

Debtors between January 1, 2006 and September 16, 2016 (the “Students”), officers, directors,

trustees, members, employees, agents, independent contractors, servants, attorneys, accountants,

representatives, administrators, professional advisors and insurers, and the predecessors, successors,

heirs, executors, administrators and assigns thereof, each solely in his, her or its capacity as such, will

be permanently enjoined from (a) commencing, conducting or continuing, directly or indirectly, any

litigation, suit, arbitration, action or other proceeding against any of the CUSO Parties that arises out

of, relates to or is in connection with the private, non-governmentally guaranteed student loans (the

“Loans”) issued pursuant to the student loan program formed by the CUSO and ITT (the

“Program”), or the Program, and (b) enforcing (including without limitation by setoff, subrogation

or recoupment), levying, attaching, collecting or otherwise recovering, directly or indirectly, any

judgment, award, decree or order against any of the CUSO Parties that arises out of, relates to or is

in connection with the Loans or the Program.


8. Notwithstanding Rule 6004(h) of the Federal Rules of Bankruptcy Procedure, the

terms and conditions of this Order will be effective immediately and enforceable upon entry of this

Order.

9. The Trustee has effectuated service of the Motion, in accordance with the

Bankruptcy Code, Rules, S.D.Ind. B-2002-1(c) and the Order Establishing Certain Notice, Case

Management and Administrative Procedures and Approve Proposed Form 309D (the “Case

Management Procedures”) entered by the Bankruptcy Court on October 4, 2016, on all parties in

interest in the Chapter 7 Case, through actual service and publication, (a) by serving the Motion on

the Core Group, the Request for Notice List, and the Appearance List (all as defined in the Case

Management Procedures), (b) by serving a Notice of Trustee’s Motion To Compromise and Settle

Adversary Proceeding No. 17-50101 (the “Approval Motion Notice”) on all Students to whom

Loans were made pursuant to the Program (the “CUSO Borrowers”), all Students who have opted

out of the class of Students certified by this Court on January 25, 2018 (the “Student Class”), and all

creditors who have filed claims in the Chapter 7 Case, with the exception of those claims that had

been disallowed as of the date of service of the Motion, (c) by serving the Motion on the Legal

Services Center of Harvard Law School and Jenner & Block LLP, as class counsel for the Student

Class, and (d) by posting the Approval Motion Notice on the Rust Omni website for the Chapter 7

Case (https://omnimgt.com/ITT) and the website maintained by class counsel for the Student Class


10. The Trustee shall effectuate service of this Order, in accordance with the Bankruptcy

Code, Rules, S.D.Ind. B-2002-1(c) and the Case Management Procedures, (a) by serving this Order

on the Core Group, the Request for Notice List, and the Appearance List, (b) by serving a Notice of

Order Granting Trustee’s Motion To Compromise and Settle Adversary Proceeding No. 17-50101

(substantially in the form annexed hereto as Exhibit 2) (the “Approval Order Notice”) on all CUSO


https://omnimgt.com/ITT

https://predatorystudentlending.org/cases/itt/

Borrowers, all Students who have opted out of the Student Class, and all creditors who have filed

claims in the Chapter 7 Case, with the exception of those claims that have been disallowed as of the

date of service of the Approval Order Notice, (c) by serving this Order on the Legal Services Center

of Harvard Law School and Jenner & Block LLP, as class counsel for the Student Class, and (d) by

posting a copy of this Order on the Rust Omni website for the Chapter 7 Case

(https://omnimgt.com/ITT) and the website maintained by class counsel for the Student Class


11. The Court finds and determines that, under the facts and circumstances of the

Chapter 7 Case, the service as described in Paragraphs 9 and 10 hereof constitutes good and

sufficient notice to all parties in interest in the Chapter 7 Case of the Settlement Agreement, the

Motion, this Order, the resulting effects to their rights (if any), and an opportunity to be heard, and

is deemed sufficient to satisfy the condition precedent in the Settlement Agreement for service of

the Motion and this Order.

12. This Court shall retain jurisdiction to interpret and to construe, and to implement

and to enforce the terms of, the Settlement Agreement and this Order.

###




Exhibit 1

SETTLEMENT AGREEMENT


Exhibit 2

APPROVAL ORDER NOTICE




NOTICE OF ORDER GRANTING TRUSTEE’S MOTION TO COMPROMISE AND SETTLE ADVERSARY PROCEEDING NO. 17-50101

PLEASE TAKE NOTICE that on June ___, 2019, the Court entered an Order Granting Trustee’s Motion To Compromise and Settle Adversary Proceeding No. 17-50101 (the “Order”) [Doc ___]. The Order approves, pursuant to 11 U.S.C. §§ 105(a) and 363 and Rule 9019 of the Federal Rules of Bankruptcy Procedure, the terms of a proposed settlement by and between Deborah J. Caruso, the chapter 7 trustee in this case (the “Trustee”), not individually but solely in her capacity as Chapter 7 trustee for, and acting for and on behalf of, the Debtors, and each of the Debtors’ respective bankruptcy estates, on the one hand, and Student CU Connect CUSO, LLC, The Rochdale Group, Inc., Elements Financial Federal Credit Union (formerly known as Eli Lilly Federal Credit Union), Bellco Credit Union, Credit Union of America, Directions Credit Union, Veridian Credit Union, Workers Credit Union and CommunityAmerica Credit Union, on the other hand, which settlement is embodied in a certain settlement agreement (the “Settlement Agreement”), a copy of which was attached to the Trustee’s Motion To Compromise and Settle Adversary Proceeding No. 17-50101 (the “Motion”). A copy of the Order and the Motion, which includes the Settlement Agreement, may be accessed through the case website at: https://omnimgt.com/ITT and the website maintained by class counsel for the Student Class at: https://predatorystudentlending.org/cases/itt/. Dated: June ___, 2019

Indianapolis, Indiana

/s/ Jeff J. Marwil

Respectfully submitted,

/s/ Deborah J. Caruso

Jeff J. Marwil (admitted pro hac vice) PROSKAUER ROSE LLP 70 West Madison, Suite 3800 Chicago, Illinois 60602-4342 Telephone: (312) 962-3550 Facsimile: (312) 962-3551

Deborah J. Caruso (Atty. No. 4273-49) John C. Hoard (Atty. No. 8024-49) James E. Rossow Jr. (Atty. No. 21063-29) Meredith R. Theisen (Atty. No. 28804-49) RUBIN & LEVIN, P.C. 135 N. Pennsylvania Street, Suite 1400 Indianapolis, Indiana 46204





–and– Timothy Q. Karcher (admitted pro hac vice) Steven H. Holinstat PROSKAUER ROSE LLP Eleven Times Square New York, New York 10036 Telephone: (212) 969-3000 Facsimile: (212) 969-2900

Telephone: (317) 634-0300 Facsimile: (317) 263-9411




Exhibit B

NOTICE OF TRUSTEE’S MOTION TO COMPROMISE AND SETTLE ADVERSARY PROCEEDING NO. 17-50101




NOTICE OF TRUSTEE’S MOTION TO COMPROMISE AND SETTLE ADVERSARY PROCEEDING NO. 17-50101

PLEASE TAKE NOTICE that on _________, 2019, Deborah J. Caruso, the chapter 7 trustee in this case (the “Trustee”), filed the Trustee’s Motion To Compromise and Settle Adversary Proceeding No. 17-50101 (the “Motion”) [Doc ___]. The Motion requests entry of an order, pursuant to 11 U.S.C. §§ 105(a) and 363 and Rule 9019 of the Federal Rules of Bankruptcy Procedure, approving the terms of a proposed settlement by and between the Trustee, not individually but solely in her capacity as Chapter 7 trustee for, and acting for and on behalf of, the Debtors, and each of the Debtors’ respective bankruptcy estates, on the one hand, and Student CU Connect CUSO, LLC, The Rochdale Group, Inc., Elements Financial Federal Credit Union (formerly known as Eli Lilly Federal Credit Union), Bellco Credit Union, Credit Union of America, Directions Credit Union, Veridian Credit Union, Workers Credit Union and CommunityAmerica Credit Union, on the other hand, which settlement is embodied in a certain settlement agreement, a copy of which is attached to the Motion (the “Settlement Agreement”).2 A copy of the Motion, which includes the Settlement Agreement, may be accessed through the case website at: https://omnimgt.com/ITT, and through the website maintained by class counsel for the Student Class at: https://predatorystudentlending.org/cases/itt/. The Settlement Agreement generally provides as follows:

a. The Settlement Agreement will not become effective until all of the following conditions precedent have occurred: (i) all of the Parties have executed the Settlement Agreement; (ii) the Trustee and the CUSO Parties have agreed upon the language of the Motion, and the Motion has been served and filed in accordance with the Bankruptcy Code, Rules, S.D.Ind. B-2002-1(c) and the Case Management Procedures, including: (I) by serving the Motion on the Core Group, the Request for Notice List, and the Appearance List (all as defined in the Case Management Procedures), (II) by serving this notice on all CUSO Borrowers, all Students who have opted out of the Student Class, and all creditors who have filed claims in the Bankruptcy Case, with the exception of those claims that have been


2 Capitalized terms used but not otherwise defined herein shall have the meanings used in the Settlement Agreement.




2

disallowed as of the date of service of the Motion, (III) by serving the Motion on the Legal Services Center of Harvard Law School and Jenner & Block LLP, as class counsel for the Student Class, and (IV) by posting this notice on the Rust Omni website for the Bankruptcy Case (https://omnimgt.com/ITT) and the website maintained by class counsel for the Student Class (https://predatorystudentlending.org/cases/itt/); (iii) the Bankruptcy Court has entered an order approving the Settlement Agreement substantially in the form of the proposed order, which order has become final and not appealable; and (iv) the CUSO’s understandings with certain governmental entities, as referenced in the Settlement Agreement, have become effective, and the CUSO Parties have received releases, acceptable to the CUSO Parties, from those governmental entities.

b. Within 5 days after the Effective Date of the Settlement Agreement, the Trustee and the CUSO will deliver a joint letter to Chase that, among other things, directs Chase to pay $7,521,625.00 from the Collateral Account to the Trustee; to pay the balance of the funds in the Collateral Account to the CUSO; and, thereafter, to close the Collateral Account.

c. Within 5 days after the Effective Date, the Trustee will file with the Bankruptcy Court a joint stipulation dismissing the Adversary Proceeding with prejudice.

d. The CUSO will have an allowed general unsecured claim in the amount of $127,844,857 (which constitutes a 15% reduction of the amount claimed by the CUSO, as adjusted) against each of the Debtors in the Bankruptcy Case, which claim will not be subject to challenge or objection and will receive treatment pari passu with all other allowed general unsecured claims.

e. The Trustee will not attempt, directly or indirectly, to service, to enforce or to collect the Loans, and irrevocably delegates to the CUSO, and waives and relinquishes, any right, authority or power, if any, she may have with respect to the Loans and the servicing and collection of the Loans. The Trustee acknowledges that the CUSO has the full right, authority and power to discontinue the collection of all outstanding Loans and to direct the Credit Report Deletions, and consents to the CUSO doing so.

f. Except for the rights, claims, duties and obligations created by the Settlement Agreement, the Trustee, in her capacity as defined above and also including without limitation on behalf of each of the Debtors, and the Debtors’ professionals, agents, affiliates and creditors (e.g., the Students) (the “Debtor-Releasing Parties”), releases and discharges the CUSO Parties and their respective professionals, agents and affiliates, from any and all manner of actual, potential or alleged claims, litigations, actions, causes of action, defenses, rights of setoff, demands, suits, arbitrations, debts, obligations, damages (compensatory, punitive or otherwise), liabilities, losses, costs, expenses, attorneys’ fees, controversies, accounts and liens of every kind or nature whatsoever, whether asserted or unasserted, known or unknown, suspected or unsuspected, fixed or contingent,




3

statutory, common law, in contract, tort or otherwise, secured or unsecured, accrued or unaccrued, direct, derivative, or brought in any other capacity, that the Debtor-Releasing Parties ever had, may now or may hereafter have, arising from the beginning of time to the Effective Date, against any or all of the released parties that arise out of, relate to or are in connection with the Disputes.

g. Except for the rights, clams duties and obligations created by the Settlement Agreement, and except for the CUSO’s rights as set forth in (d) above, the CUSO Parties, on behalf of themselves and their respective professionals, agents and affiliates, release and discharge the Trustee, the Debtors, and the Debtors’ professionals, agents, affiliates and creditors (e.g., the Students), from any and all manner of actual, potential or alleged claims, litigations, actions, causes of action, defenses, rights of setoff, demands, suits, arbitrations, debts, obligations, damages (compensatory, punitive or otherwise), liabilities, losses, costs, expenses, attorneys’ fees, controversies, accounts and liens of every kind or nature whatsoever, whether asserted or unasserted, known or unknown, suspected or unsuspected, fixed or contingent, statutory, common law, in contract, tort or otherwise, secured or unsecured, accrued or unaccrued, direct, derivative, or brought in any other capacity, that the releasing parties ever had, may now or may hereafter have, arising from the beginning of time to the Effective Date, against any or all of the released parties that arise out of, relate to or are in connection with the Disputes.

h. The Trustee will take all reasonable steps to secure from the Bankruptcy Court a final and non-appealable order permanently enjoining all Debtor-Releasing Parties from (i) commencing, conducting or continuing, directly or indirectly, any litigation, suit, arbitration, action or other proceeding against any of the CUSO Parties arising out of, relating to or in connection with the Loans or the Program, and (ii) enforcing (including without limitation by setoff, subrogation or recoupment), levying, attaching, collecting or otherwise recovering, directly or indirectly, any judgment, award, decree or order against any of the CUSO Parties that arises out of, relates to or is in connection with the Loans or the Program.

NOTICE IS GIVEN that, pursuant to the Order Establishing Certain Notice, Case Management and Administrative Procedures and Approve Proposed Form 309D (the “Case Management Procedures”) [Doc 220], any objection to the Motion must be in writing and filed with the Bankruptcy Clerk by no later than 4:00 p.m. (prevailing Eastern time) on June 5, 2019. Those not required or not permitted to file electronically must deliver any objection by U.S. mail, courier, overnight/express mail or in person at:

116 U.S. Courthouse 46 East Ohio Street Indianapolis, IN 46204

The objecting party must also serve a copy of the written objection upon the Trustee’s counsel, at Counsel for Trustee Deborah J. Caruso, Rubin & Levin, P.C., 135 N. Pennsylvania Street, Suite


4

1400, Indianapolis, IN 46204. If an objection is NOT timely filed, the requested relief may be granted without a hearing.

NOTICE IS FURTHER GIVEN that in the event an objection to the Motion is timely filed, a hearing will be conducted on June 12, 2019 at 1:30 p.m. (prevailing Eastern time), in Room 325 of the United States Courthouse, 46 East Ohio Street, Indianapolis, IN 46204.

Dated: ___, 2019 Indianapolis, Indiana

/s/ Jeff J. Marwil

Respectfully submitted, /s/ Deborah J. Caruso

Jeff J. Marwil (admitted pro hac vice) PROSKAUER ROSE LLP 70 West Madison, Suite 3800 Chicago, Illinois 60602-4342 Telephone: (312) 962-3550 Facsimile: (312) 962-3551 –and–

Timothy Q. Karcher (admitted pro hac vice) Steven H. Holinstat PROSKAUER ROSE LLP Eleven Times Square New York, New York 10036 Telephone: (212) 969-3000 Facsimile: (212) 969-2900

Deborah J. Caruso (Atty. No. 4273-49) John C. Hoard (Atty. No. 8024-49) James E. Rossow Jr. (Atty. No. 21063-29) Meredith R. Theisen (Atty. No. 28804-49) RUBIN & LEVIN, P.C. 135 N. Pennsylvania Street, Suite 1400 Indianapolis, Indiana 46204 Telephone: (317) 634-0300 Facsimile: (317) 263-9411




trustee’s motion to compromise and settle …

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