Trustee Can Reject A Settlement Before Entry Of A Rule 9019 Order—But Other Parties Can’t? (In re Law Enforcement)

Once a bankruptcy trustee reaches a settlement and files a Rule 9019 motion for approval:

the trustee can unilaterally withdraw from the settlement at any time before court approval (or, at least, may ask the court to reject it) and may even have a fiduciary duty to do so in certain circumstances; but
by contrast, the other parties to that same settlement cannot unilaterally withdraw and are bound by whatever Rule 9019 ruling the bankruptcy court may make.

That’s according to In re Law Enforcement Officers Security Union, Case No. 24-70277, Western Pennsylvania Bankruptcy Court (decided December 17, 2025; Doc. 121).

Motion to Enforce

–Facts

The In re Law Enforcement opinion deals with a Motion to Enforce Settlement. Such Motion represents:

Debtor files a voluntary Chapter 7 Petition, and Chapter 7 Trustee is appointed;
among Debtor’s assets are various preference, insider transaction and fraudulent conveyance Claims;
the Bankruptcy Court grants the Chapter 7 Trustee’s Motion for Mediation and to Appoint a Mediator;
a mediation among the Chapter 7 Trustee, Debtor and multiple non-debtor parties results in an agreement to settle all Claims for a payment of $140,000.00 to Debtor’s bankruptcy estate;
Chapter 7 Trustee files a Rule 9019 motion to approve the settlement; and
the Court schedules a hearing on the Rule 9019 Motion but then continues it for a month—twice—and without receiving input from the non-Debtor parties.

–Requests

So, the non-Debtor parties file their “Motion to Enforce Settlement” (Doc. 118), asking the Bankruptcy Court to:

“compel the Trustee to honor” obligations under the settlement, including the obligation to use best efforts toward obtaining Court approval;
“find that the Settlement, which resulted from a Court-ordered mediation, is a binding agreement under Pennsylvania law”; and
“deny any future requests for continuance .”

–Arguments

Supporting arguments include:

the settlement terms are unambiguous and are a binding contract under Pennsylvania law;
bankruptcy court values include a reluctance to disturb settlements, which are strongly encouraged—especially when achieved through mediation;
settlement agreements are to be construed according to traditional principles of contract law; and
the settlement provides that it may be terminated only by the mutual agreement among the parties.

The Motion to Enforce adds:

it would be inequitable to allow a party to an enforceable settlement agreement, after an approval hearing is scheduled, to revoke it before the hearing occurs;
the settlement terms do not allow for revocation or repudiation by any of the parties thereto;
the Chapter 7 Trustee has apprised the Court of the settlement and of an intent to be bound by it and has not rescinded such support;
the Chapter 7 Trustee’s should be bound by the settlement’s requirement to use “reasonable best efforts…to obtain Bankruptcy Court approval” thereof and to pursue its implementation and consummation; and
a hearing on the Rule 9019 Motion should not be subject to further delay;

The Motion to Enforce expresses concern that:

more than two months will have passed between the original hearing date on the Rule 9019 Motion and the continued hearing;
the non-Debtor parties have justifiably relied on the settlement; and
the non-Debtor parties will be prejudiced by undue delays from further continuances, which would:
- undermine the finality and certainty that the settlement is intended to provide; and
- frustrate the purpose of the court-ordered mediation.

Ruling

The Bankruptcy Court denies the Motion to Enforce. Here is a summary of its rationale.

–Plain Language of the Bankruptcy Code.

11 U.S.C. § 363(b)(1) says that that a trustee “may use, sell, or lease” estate assets, “other than in the ordinary course of business,” only “after notice and a hearing.” It does not say “after negotiation,” “after mediation,” or “after execution of an agreement.” It says “after notice and a hearing.” And courts are not free to revise that sequence.

Estate causes of action are property of the estate, and a trustee’s agreement to settle such claims is a disposition of that property falling squarely within the § 363(b)(1) court approval requirement.

Additionally, the Third Circuit holds that a bankruptcy trustee cannot be compelled to consummate a settlement absent bankruptcy court approval.

–Plain Language of the Settlement

The settlement agreement specifically conditions its effectiveness and performance on entry of a final court order approving it.

Such conditions, whether they be precedent or subsequent, mean what they say—until satisfied, no enforceable obligation arises. Courts do not enforce contracts that the parties themselves have declared non-operative

–Lack of Ripeness

The Motion to Enforce is not ripe.

Ripeness is a justiciability doctrine designed to prevent the courts, through premature adjudication, from entangling themselves in abstract disagreements. Ripeness becomes an issue when a case is anchored in future events that may not occur as anticipated, or at all.

Enforceability of a settlement that is expressly conditioned on court approval is, by definition, contingent on an event that has not occurred.

Until the Court rules on the pending Rule 9019 motion, there is no present controversy over enforcement. There is only a request that the Court skip a statutory step—which the Court may not do.

–A Non-Estate Party may NOT Withdraw from a Settlement While a Rule 9019 Motion Thereon is Pending

One case cited in the Motion addresses a distinct and narrow question:

whether a non-estate party may withdraw from or revoke a settlement agreement with a Chapter 7 Trustee that has been presented by the Trustee for court approval.

Such case correctly holds that, once the Chapter 7 trustee agrees upon a settlement (subject only to bankruptcy court approval), the non-estate party may not unilaterally withdraw from that settlement while the approval process is pending.

–An Estate Party (Trustee or DIP) CAN Withdraw from a Settlement While a Rule 9019 Motion Thereon is Pending

A bankruptcy trustee (which, presumably, includes a debtor in possession) is a fiduciary of the estate and its creditors, and fiduciary duties are continuing.

The filing of a Rule 9019 motion does not freeze the trustee’s judgment in time:

if, after execution of a proposed settlement, the trustee obtains additional information, whether from third parties or further investigation, bearing on whether the compromise remains in the best interests of the estate, the trustee has both the authority and the duty to advise the Court; and
Rule 9019 presupposes informed judicial review, not ritualized approval.

Conclusion

So . . . here it is, according to the Western Pennsylvania Bankruptcy Court:

once an estate party (trustee or DIP) enters into a settlement agreement and presents that settlement to the bankruptcy court for approval under Rule 9019, the estate party can withdraw from that agreement—or, at least, may ask the court to reject it—and may even have a fiduciary duty to do so in certain circumstances; but
a non-estate party may not withdraw from a settlement with an estate party, after entering into that settlement, and is bound by whatever Rule 9019 ruling the court may make; but
- a non-estate party can also ask the court to reject the settlement, but the grounds for doing so would need, presumably, to be compelling.

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