
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 96-1395                    PETITIONING CREDITORS OF MELON PRODUCE, INC.,                                     Appellants,                                          v.                         JOSEPH BRAUNSTEIN, TRUSTEE, ET AL.,                                      Appellees.                                 ____________________          No. 96-1406                                 MELON PRODUCE, INC.,                                Plaintiff - Appellant,                                          v.                                    PETER KARGER,                                Defendant - Appellee.                                 ____________________                    APPEALS FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                   [Hon. Edward F. Harrington, U.S. District Judge]                                               ___________________                                 ____________________                                        Before                                Selya, Circuit Judge,                                       _____________                           Campbell, Senior Circuit Judge,                                     ____________________                          and Boyle,* Senior District Judge.                                      _____________________                                _____________________                                        ____________________          *  Of the District of Rhode Island, sitting by designation.               Richard  L. Blumenthal,  with  whom Peter  L. Zimmerman  and               ______________________              ___________________          Silverman & Kudisch, P.C. were on brief for appellants.          _________________________               Alan M. Spiro, with  whom Andrew D. Cummings and  Friedman &               _____________             __________________      __________          Atherton were on brief for appellee Peter Karger.          ________                                 ____________________                                     May 8, 1997                                 ____________________                                         -2-                    BOYLE,  Senior  District  Judge.   In  this  action,  a                    BOYLE,  Senior  District  Judge.                            _______________________          Bankruptcy  Court  decision  allowed  the unsecured  claim  of  a          creditor  who   had  obtained  a  preferential   transfer.    The          petitioning  unsecured creditors appealed  to the  District Court          the Bankruptcy Court's ruling that the unsecured creditor's claim          should  neither  be  denied  nor  equitably  subordinated.    The          District  Court  dismissed the  petitioning  unsecured creditor's          appeal  for  failure to  prosecute.    The petitioning  unsecured          creditors now claim  that the District Court  erred in dismissing          their appeal.  We affirm the Bankruptcy Court's determination.                                    I.  BACKGROUND                                    I.  BACKGROUND                    In August  1984, Karger, the unsecured creditor, loaned          $632,000 to  A. Pellegrino  & Son,  Inc.  ("Pellegrino").   Melon          Produce,  Inc.  ("Melon  Produce")  was  incorporated  to  secure          Karger's  loans to Pellegrino, then in a proceeding under Chapter          11  of the Bankruptcy Code.  Karger was Melon Produce's president          and  sole shareholder.   The  Bankruptcy Court  approved Karger's          loans, the  transfer of three shares of  stock in the New England          Produce Center ("NEPC") and leasehold interests in three  bays at          NEPC from Pellegrino to Melon Produce for the purpose of securing          Karger's  loans, and Melon  Produce gave a  guaranty and security          interest  to Karger which included all "instruments" and "all . .          .  rights . . .  to the  payment of  money" including  a security          interest  in "all such  assets hereinafter acquired."   The three                                         -3-          bays and the shares  of stock were  not included in the  security          interests identified.   On February 27, 1987,  Melon Produce sold          its three bays and shares of NEPC stock and paid Karger, its only          secured creditor, $430,022.39 from the proceeds.                    Within a year of the payment to  Karger, an involuntary          proceeding  against   Melon  Produce  under  Chapter   7  of  the          Bankruptcy Code was initiated  by three unsecured creditors.   On          March  22, 1990,  Joseph Braunstein,  the  Chapter 7  Trustee for          Melon Produce  ("Trustee"), brought  an action against  Karger in          the  Bankruptcy  Court.   The  complaint  alleged a  preferential          transfer  and a  fraudulent transfer  of property  of the  estate          under  the  Bankruptcy  Code  and  a  fraudulent  transfer  under          Massachusetts state law.                     The proceeding was transferred  to the District  Court.          On January  8, 1991,  the District  Court  granted the  Trustee's          motion for entry of final judgment  as to Count I, the preference          claim,  and the  Trustee's motion  for assessment  of prejudgment          interest.   The  District  Court entered  final  judgment on  the          merits,  awarding damages on Count I in the amount of $430,022.39          plus  pre-judgment interest  in the  amount of  $29,838.39.   All          other  counts were dismissed.   On September 29,  1992, the final          judgment  was  upheld upon  appeal by  this Court.   In  re Melon                                                               ____________          Produce, Inc., 976 F.2d 71 (1st Cir. 1992).          _____________                    The  Trustee  and Karger  agreed  to  a Stipulation  of          Settlement on  June  18, 1993.   The  Trustee had  filed a  post-          judgment motion  to require  Karger to satisfy  the indebtedness,                                         -4-          and sought the appointment  of a Special Master for  the purposes          of  taking  possession of  and selling  shares  of stock  held by          Karger  in two  unrelated  corporations.   The  Trustee also  had          brought an action seeking to set aside as a fraudulent conveyance          the interest  of  Karger's wife,  Susan Karger,  in certain  real          property held by her and Karger as tenants-by-the-entirety.                      The  stipulation stated  that Karger  had  asserted and          represented  that  he  was  unable  financially  to  satisfy  the          judgment  in full.   In  support of  this assertion,  Karger made          certain   financial   disclosures  to   the   Trustee,  including          submitting to a deposition  by the Trustee and producing  his tax          returns and other work papers for review by the Trustee.   Karger          offered  to pay  the  sum of  $400,000,  in satisfaction  of  the          judgment and his and his  wife's obligations and indebtedness  to          the Trustee.   Due to  the uncertainty with  respect to  Karger's          financial  situation  and the  question  of  Karger's ability  to          satisfy the judgment,  and given the uncertainty with  respect to          the valuation  of Karger's  stock in the  unrelated corporations,          the Trustee  agreed to  seek  the approval  of Karger's  $400,000          offer from the Bankruptcy Court according to the following terms:                      If  the  Settlement  Amount is  paid  [by                      Karger] on or before the Settlement Date,                      the  Trustee shall accept such payment in                      satisfaction of Karger's obligations, and                      the  Trustee shall mark  the judgment and                      any  execution  therefor 'satisfied'  and                      return same  to Karger.  . . .  If Karger                      pays   the   Settlement  Amount   by  the                      Settlement  Date,  the Trustee  shall not                      object  to  the  allowance   of  Karger's                      unsecured   claim   in   the  amount   of                      $400,000. . . . If this settlement is not                                         -5-                      approved by the Bankruptcy Court or if an                      appeal is  taken from an  order approving                      this settlement and the order  is stayed,                      then at the  sole option of  the Trustee,                      the Trustee may  declare the  Stipulation                      and    settlement    null    and    void.                      Thereafter,  the  Trustee may  pursue his                      rights   and  remedies   against  Karger,                      including,  but  not   limited  to,   the                      appointment of the Special Master to sell                      the [corporate]  stock of Karger  and the                      fraudulent   conveyance  action   against                      Peter and Susan Karger.                      The petitioning unsecured creditors filed  an objection          to the  Trustee's motion  to approve the  settlement stipulation,          seeking the  denial of the Trustee's application  for approval of          the  stipulation,   or,   in  the   alternative,  the   equitable          subordination of  Karger's unsecured claim  to the claims  of the          other  unsecured creditors.   On  July 22,  1993,  the Bankruptcy          Court  heard  the  motion  and  approved  the  settlement.    The          unsecured  creditors argued  that  the settlement  should not  be          approved because  the settlement provided that  the Trustee would          not object to Karger's unsecured claim of $400,000 and Karger was          to pay  less than the full amount of the preference judgment. The          trustee  advised the  Bankruptcy Court  that he  did not  wish to          pursue   equitable  subordination  of   Karger's  $400,000  claim          because, having succeeded on  the issue of preferential transfer,          he  did  not want  to  go  through ".  .  .  another war."    The          Bankruptcy Court  stated  that 11  U.S.C.    502(d)  permits  the          petitioning unsecured creditors to object to the allowance of the          claim stating that "[y]ou  could press that [claim  for equitable          subordination] even if the trustee rolls over and plays dead" and                                         -6-          that they, the  objecting unsecured creditors,  "can come in  and          ask for  equitable subordination."   The  context of  the court's          statement is  clear that  objections to Karger's  unsecured claim          could  be made  later "and we'll  have a  hearing on  that."  The          petitioning  unsecured creditors  did  not appeal  the Bankruptcy          Court's order  approving the settlement.   On September  2, 1993,          Karger paid the $400,000 settlement to the Trustee.                    The  petitioning  unsecured  creditors  then  filed  an          objection to Karger's claim in Bankruptcy Court.  On November 26,          1993,  the petitioning  unsecured  creditors filed  a Motion  for          Summary  Judgment  in  Bankruptcy  Court,  arguing that  Karger's          unsecured  claim should be denied pursuant to 11 U.S.C.   502(d),          or,  in the alternative, that  Karger's claim should be equitably          subordinated pursuant  to  11 U.S.C.     510(c).   The  creditors          argued that the claim should be disallowed because Section 502(d)          states that "the  court shall  disallow any claim  of any  entity          from which  property is recoverable  . . . unless  such entity or          transferee has paid the amount, or turned over any such property,          for  which such entity or  transferee is liable."   The unsecured          creditors  argued  that   Karger's  unsecured  claim   should  be          disallowed   because  the  full amount  of  the judgment  against          Karger was in fact not paid.  11 U.S.C.   502(d).                    The unsecured creditors also argued that Karger's claim          should be  subordinated to their  unsecured claims.   This action          would increase the dividend to the unsecured creditors other than                                         -7-          Karger.  Section 510(c) authorizes the Bankruptcy Court to  apply          equitable subordination principles to claims.                    On December  28, 1993, the Bankruptcy  Court denied the          Motion  for  Summary  Judgment  and  entered  an  order  allowing          Karger's unsecured  claim in the amount  of $400,000.  See  In re                                                                 ___  _____          Melon Produce,  162 B.R. 386  (Bankr. D. Mass. 1993).   The Court          _____________          found that  the petitioning  unsecured creditors' Section  502(d)          argument  failed on  the grounds  that Karger  had paid  the full          amount of  the $400,000  settlement, that the  Bankruptcy Court's          order  approving  the  settlement  stipulation had  adjusted  the          amount of  the preference downward,  and that "to  rule otherwise          would deprive the settlement  of its essential vitality."   As to          the petitioning unsecured creditors' Section 510(c) argument, the          Court found that "[t]he claims are primarily  derivative from the          same  facts set forth in the Trustee's complaint seeking to avoid          a  fraudulent transfer.  While the Trustee did not seek equitable          subordination of  Karger's claim . . . he might well have done so          based  upon the  facts of the  matter, and res  judicata bars all          available  grounds for  recovery,  regardless of  whether or  not          asserted."   The Bankruptcy Court  cited this court's  opinion in          Bezanson v.  Bayside Enterprises,  Inc. (In re  Medomak Canning),          ________     ___________________________________________________          922  F.2d 895 (1st Cir.  1990), and concluded  that "the previous          settlement  precludes the [petitioning  unsecured creditors] from          raising the issues of equitable subordination at this time."                      The  petitioning unsecured  creditors then  appealed to          the District Court from the denial of Summary Judgment.  On April                                         -8-          7,  1994,  the District  Court  affirmed  the Bankruptcy  Court's          ruling on the issues relating to the effect of the failure to pay          the full amount of the judgment against Karger  and  "remanded to          the  Bankruptcy  Court  the  issue of  whether  [the  petitioning          unsecured  creditors] should  be  allowed to  object to  Karger's          claim on equitable subordination grounds."                    On  July  5,  1995,   the  Bankruptcy  Court  issued  a          Memorandum  Decision,  in which  it  ruled  that the  petitioning          unsecured  creditors  were  precluded   by  the  settlement  from          objecting to  Karger's unsecured  claim.   In  its Decision,  the          Bankruptcy  Court  resolved  the  uncertainties  created  by  its          utterance of July 22, 1993 and its published decision of December          28, 1993.   The Court  stated that its  initial pronouncement  on          July 22, 1993, which stated  that 11 U.S.C.   502(a) permits  the          petitioning unsecured creditors to object to the allowance of the          claim and that the petitioning unsecured  creditors could ask for          a hearing  on the  equitable subordination issue,  was in  error.          With  the  benefit  of  the motions  for  summary  judgment,  the          Bankruptcy  Court  had come  to  the opposite  conclusion  in its          published decision of December  28, 1993.  In that  decision, the          Bankruptcy Court  held the  petitioning unsecured creditors  were          precluded from raising [the equitable subordination] issue, based          primarily  upon this court's  opinion in  In re  Medomak Canning.                                                    ______________________          The Bankruptcy Court now  upheld the December 28, 1993  decision,          holding that In re  Medomak Canning was controlling and  that the                       ______________________          petitioning unsecured  creditors were not entitled  to pursue the                                         -9-          equitable  subordination issue  further.   The  court then  cited          Grella v.  Salem Five Cent Savings Bank, 42 F.3d 26, 30 (1st Cir.          ______     ____________________________          1994), without discussion.                    On  July 14, 1995,  the petitioning unsecured creditors          again  appealed  their  equitable  subordination  claim  to   the          District  Court.  The Bankruptcy Court gave notice to the parties          of the appeal timetable on July 17, 1995.  On  September 5, 1995,          the record for the  case on appeal was assembled  and transmitted          to the District Court.  Although the District Court did not issue          a notice to the parties of the entry of the appeal on the docket,          the petitioning  unsecured  creditors had  actual  knowledge  for          several months of the docketing of the appeal.  Since the  filing          of  the  appeal, the  petitioning  unsecured  creditors had  been          monitoring the status of the proceeding on  the Court's computer-          operated Pacer System.                    The petitioning  unsecured creditors  did not  file and          serve  a brief within fifteen days  after the entry of the appeal          on  the District  Court docket,  as required  by Bankruptcy  Rule          8009.  On February 27, 1996,  the District Court entered an order          dismissing the  appeal for the petitioning  creditors' failure to          prosecute the  appeal.  The petitioning  unsecured creditors then          filed a notice of this appeal to this Court.                                   II.  DISCUSSION                                   II.  DISCUSSION                                         -10-                    Although this  appeal initially  presents the  issue of          whether  actual as opposed to  record notice triggers  the 15 day          period for the filing and service of an  appellant's brief in the          District  Court, we choose to  forego that issue  and address the          substantive  underlying issues.   While it  is true  that federal          courts  of appeal generally do not  rule on issues not decided in          the district court, we  do have discretion to address  issues not          reached  by the district  court when the  question is essentially          legal and the record is complete.  U.S. v. L.I. Kin-Hong, No. 97-                                             ____    _____________          1084,  slip op.  at  31  (1st  Cir.  Mar.  20,  1997)  (citations          omitted).  Here,  the substantive underlying issues  are legal in          nature and the record  is complete.  Furthermore, this  cause has          already involved  the  attention  of this  court  on  an  earlier          occasion.   We address  the substantive underlying  issues in the          hope  that this litigation may sooner, rather than later, come to          a conclusion.                    A.  Disallowance of Claim                    A.  Disallowance of Claim                    The petitioning unsecured creditors argue that Karger's          claim  should  be disallowed,  as  Karger  received a  judicially          determined preferential transfer and has not paid the  amount for          which he is liable because of the preferential transfer.  Section          502(d) of the Bankruptcy Code governs the disallowance of claims.          It reads as follows:                    (d)  Notwithstanding  subsections (a)  and  (b) of               this section, the court shall disallow any claim of any               entity from which property is recoverable under section               542,  543, 550,  or 553  of  this title  or  that is  a                                         -11-               transferee   of  a  transfer  avoidable  under  section               522(f), 522(h), 544, 545,  547, 548, 549, or 724(a)  of               this title,  unless such entity or  transferee has paid               the amount, or turned over any such property, for which               such  entity  or  transferee  is liable  under  section               522(i), 542, 543, 550, or 553 of this title.            In  1992, this  court held  that Karger  was the  recipient of  a          voidable transfer.  See In re Melon Produce, 976 F.2d at 76.                              ___ ___________________                    The  remaining  issue,  therefore, is  to  determine if          Karger, as transferee,  has paid over the amount for  which he is          liable under  11 U.S.C.    550.  Petitioning  unsecured creditors          argue that Karger did not comply with the requirements of Section          502(d) because  he did not pay the full amount of the judgment of          $459,860.78 plus  interest but  rather settled the  claim against          him by means of a payment of a lesser sum, $400,000.                    The legal  query presented  appears to be  unique since          the  parties have not cited nor have we found any authority which          specifically addresses  the precise issue presented  here.  Thus,          we are left to  the task of ascertaining the  legislative purpose          and intent, if possible, from  the language employed by Congress.          As we have stated previously, "'the task of interpretation begins          with  the text of the statute itself, and statutory language must          be accorded its  ordinary meaning.'"  In Re: Juraj J. Bajgar, 104                                                ______________________          F.3d  495, 497 (1st Cir. 1997), quoting Telematics Int'l, Inc. v.                                                  ______________________          NEMLC Leasing Corp., 967 F.2d 703, 706 (1st Cir. 1992).  Wherever          ___________________          possible, statutes  should be construed in  a commonsense manner,          avoiding absurd  or counterintuitive  results.  U.S.  v. Carroll,                                                          ____     _______          105 F.3d 740, 744 (1st Cir. 1997) (citations omitted).                                           -12-                    The language  of Section 502(d) of  the Bankruptcy Code          is not complex.  A  proof of claim must be disallowed  unless the          preference recipient  pays the amount  for which  he is  "liable"          under  11 U.S.C.    550.   See 11  U.S.C.    502(d); Max Sugarman                                                               ____________          Funeral  Home, Inc. v. A.D.B. Investors, 926 F.2d 1248, 1257 (1st          ___________________    ________________          Cir. 1991).   Once  the preference  recipient  complies with  the          payment or  turnover order of the bankruptcy court, it may file a          proof of claim.  See Sugarman,  926 F.2d at 1257; see also  In re                           ___ ________                     ________  _____          First Intern. Services Corp.,  37 B.R. 856, 860 (Bankr.  D. Conn.          ____________________________          1984)  ("Pursuant to  11 U.S.C. 502(d),  claims of  creditors who          have  received  void or  voidable  transfers  must be  disallowed          unless the creditor surrenders  the money or property transferred          during the preference period.").                    The key phrase in this inquiry is "the amount . . . for          which  such entity  or transferee  is liable  . .  ."   11 U.S.C.            502(d).  The difficulty  with application of the  term "liable"          namely  is that there are two court actions which determined that          the preference recipient is liable,  the judgment of the District          Court  and  the  Order  of  the  Bankruptcy  Court  approving the          settlement of the preference claim.                    The  unsecured  creditors  argue that  the  legislative          history  of  Section 502(d)  is relevant  to  this inquiry.   The          ambiguity  is  not  clarified  by reference  to  the  legislative          history.  In  part, that  history states: "Subsection  (d) . .  .          requires  disallowance of a claim  of a transferee  of a voidable          transfer in  toto if the  transferee had not  paid the amount  or                   ________                                         -13-          turned over the property received as required under the  sections          under which  the transferee's liability  arises."  H.R.  Rep. No.          95-595, at 354 (1977), reprinted in 1978 U.S.C.C.A.N.  5787, 6310          (emphasis added).  The petitioning unsecured creditors argue that          the inclusion  of  the words  "in toto"  indicates that  Congress          intended that a creditor  must relinquish the original preference          amount, precluding any judicial adjustment of  this figure.  They          also cite a  North Dakota Supreme Court case as  support for this          proposition that  a creditor  must surrender all  sums previously                                                       ___          transferred.  See  North Dakota Public  Service Com'n v.  Central                        ___  __________________________________     _______          Sales  Grain, Inc.,  371 N.W.2d  767, 780  (N.D. 1985)  (emphasis          __________________          added).                    This opinion considered  a state insolvency  proceeding          brought against a grain warehouseman.   The court concluded  that          the claim of a creditor should be denied because the creditor had          received a vaculator machine1 as a  preferential transfer and had          not  returned it.  The creditor  claimed that he had "since" paid          for  the machine (apparently after  the record was  closed in the          proceedings  below).   The court stated  that the  creditor could          bring an appropriate motion for  relief after its mandate issued.          Although there is an  obvious difference between the return  of a                                        ____________________          1   Although the term  'vaculator' is used  sometimes to describe          surgical devices for the removal of fluid from the human body and          the  like, in  this  context a  'vaculator  machine' describes  a          system used to extract  grain from containers and transfer  it to          other storage facilities.  See Bunge Corp. v. American Commercial                                     ___ ___________    ___________________          Barge Line Co., 630  F.2d 1236, 1241 (7th Cir.  1980); Mercantile          ______________                                         __________          National  Bank of Chicago v.  Quest, 303 F.  Supp. 926, 928 (N.D.          _________________________     _____          Ind. 1969).                                           -14-          tangible piece of  machinery which Section  502(d) would seem  to          require (although we  do not  now determine that  issue) and  the          payment of all or part of a monetary sum, there is nothing in the          court's opinion  which supports the contention  that an unsecured          creditor  may file  a  claim only  if  the judgment  against  the          creditor for a preferential transfer of money is paid in full.                    The legislative history thus  becomes pertinent to  our          analysis, even  if it does not  pinpoint a specific result.   The          unsecured creditors place emphasis  upon the use of the  term "in          toto" in the  House of Representatives  historical record.   What          the unsecured creditors have overlooked is the fact that the term          "in  toto" refers to  the unsecured claim  of the recipient  of a          preferential  transfer and not, as they would have it, the amount          for which  the  transferee is  liable.   Thus,  this  legislative          history does not clarify the purpose of Congress.                    We  must ask,  how  would Congress  have answered  this          question?  Guided by the actual language used, we may look to the          practical  effect of  the arguments made.   See Dames  & Moore v.                                                      ___ ______________          Regan, 453 U.S.  654, 673-74 (1981);  Chapman v. Houston  Welfare          _____                                 _______    ________________          Rights Org.,  441 U.S. 600, 616 (1979).  There is guidance in the          ___________          cogent language used by  the Bankruptcy Court that to  accept the          unsecured   creditors'   contentions   would  rob   post-judgment          settlements of  their  "essential vitality."    See In  re  Melon                                                          ___ _____________          Produce, 162  B.R. at  388.   It is an  unfortunate axiom  that a          _______          judgment  does  not always  guarantee  collection.   Indeed,  the          easiest  judgment to  obtain is  usually one  that will  never be                                         -15-          paid.  The  circumstances of the  settlement with Karger  suggest          that  collection of the full amount could have been an impossible          task and  could have involved  the estate  in lengthy,  expensive          litigation to the detriment of the unsecured creditors.                     Thus a  construction of the statute  which requires the          last penny to be paid could cause the unsecured  creditors to, in          effect, submit  to an all-or-nothing situation.   The petitioning          unsecured  creditors' argument would preclude half or any part of          the loaf from being satisfactory, thereby preventing the bankrupt          estate from  being at  least  partially nourished.   The  purpose          ought to be  to encourage  the collection of  the largest  amount          possible  to provide  a  dividend or  a  better dividend  to  the          unsecured creditors.                    Experience  suggests that  few unsecured  creditors can          expect satisfaction  of their claims  in whole or  in substantial          part.  More  than two decades ago it was  reported that unsecured          creditors  in business bankruptcies  receive an average  of 8% of          the  amounts  proved  and  allowed, while  general  creditors  in          personal bankruptcies  receive an average of 7%  of their allowed          claims.  See David Stanley & Marjorie Girth, Bankruptcy: Problem,                   ___                                 ____________________          Process, Reform 130  (1971).   There is nothing  to signify  that          _______________          there  has been any recent  substantial improvement in the extent          of  the recoveries  of unsecured  creditors.   The Administrative          Office  of the U.S. Courts  reports a higher  average dividend in          Chapter  11 reorganization cases - 32% - but that figure includes          both the  amounts  actually paid  and  the amounts  that  debtors                                         -16-          promised  to pay after the  reorganization case was  closed.  See                                                                        ___          Admin. Office of  the U.S. Cts., Tables  of Bankruptcy Statistics          A-32 (1978).  However, the latter may be merely paper obligations          which may be  discounted again  in a recurrence  of the  debtor's          financial difficulties.  See id.   Despite the lack of any recent                                   ___ ___          empirical  studies, certainly it is safe to expect that in almost          every bankruptcy unsecured creditors are likely to receive only a          small percentage of their legitimate claims.                    The  estate is  protected against  manipulation because          settlements must  be approved  by  the Bankruptcy  Court after  a          consideration of  the circumstances of the  settlement.  Approval          is a  discretionary  function  and  may be  reviewed  for  abuse.          Hence, a small settlement which results in a substantial dividend          to the preferential transferee is not likely to pass muster.                    Finally,  this result  is consistent  with the  overall          purpose of  Section 502, which  was not  "to punish, but  to give          creditors  an option  to keep  their transfers  (and hope  for no          action  by the trustee) or to surrender their transfers and their          advantages and  share equally with other creditors."   Tidwell v.                                                                 _______          Atlanta Gas  Light Co. (In re Georgia  Steel, Inc.), 38 B.R. 829,          ___________________________________________________          839 (Bankr. M.D. Ga. 1984).    Karger chose the latter option and          paid $400,000 to the Trustee.  If faced with the option of paying          the full amount  of the judgment in order to file his claim as an          unsecured  creditor  (apart  from  whether  or  not  he  had  the          wherewithal to do so), the result might well  have been a lengthy          and only partially  successful or even an unsuccessful  effort to                                         -17-          obtain  satisfaction of  the  judgment  in  full.   The  expenses          incurred to collect the  judgment in full or  in part could  have          diminished the return to the  estate to less than $400,000.   The          practical  effect of  the position  advocated by  the petitioning          unsecured creditors compels us to conclude that  Congress did not          intend that unsecured creditors be denied their claims, if having          received a preferential transfer, they do  not satisfy a judgment          arising  out of  the  transfer in  full and  with  interest.   We          believe that Congress intended some play in the joints and that a          court-approved  settlement  of  such  a  judgment  satisfies  the          requirement that  the preferential  transferee has paid  that for          which  he  is liable.   We  therefore  agree with  the Bankruptcy          Court.  We  hold that  pursuant to Section  550(a)(1) Karger  was          liable  for the sum of $400,000 and therefore his unsecured claim          was properly allowed.                      B.  Equitable Subordination                    B.  Equitable Subordination                    The ultimate  ruling of  the Bankruptcy Court  was that          the  unsecured creditors  were  barred  by  the approval  of  the          settlement between Karger and the Trustee.  Bankruptcy Court Rule          9019 requires notice to interested parties prior to approval of a          settlement.   See 11 U.S.C. Part IX,  Rule 9019(a).  The rule was                        ___          complied  with  since  the petitioning  unsecured  creditors  had          notice  of and  did in  fact appear  and object  to  the proposed          settlement.   The  unsecured creditors  vigorously pressed  their          argument that Karger's unsecured  claim should be subordinated to                                         -18-          their  unsecured  claims.    The Bankruptcy  Court  approved  the          settlement which included a provision that "the Trustee shall not          object to the allowance of Karger's unsecured claim in the amount          of  $400,000."  The unsecured  creditors did not  appeal from the          approval  of the  settlement  agreement between  the Trustee  and          Karger.     Although  the   Bankruptcy  Judge  stated   that  the          petitioning unsecured creditors could ask for  a later hearing on          the equitable subordination issue, this statement was in error.                    Counsel should not take such a prediction by a judge as          gospel, but should act  diligently to protect the record  and his          or her client's right to appeal.  See Morrissey v. Nat'l Maritime                                            ___ _________    ______________          Union of America, 544 F.2d 19, 32 (2d Cir. 1976) ("While  counsel          ________________          seeks to  excuse [the failure to  make an offer of  proof] on the          basis of  the judge's statement on  the telephone . .  . this did          not  relieve counsel  of  his  duty  to  protect  the  record.").          Counsel must not rely upon the judge to make the case  for him or          her.   As observed in Marshak  v. Tonetti, "[j]udges from time to                                _______     _______          time will make mistakes.  Parties should not sit idly by, failing          to  point out  relevant authority  and then  hope for  redress on          appeal."  Marshak  v. Tonetti, 813  F.2d 13, 17 (1st  Cir. 1987).                    _______     _______          If the equitable subordination issue was to be considered at all,          it  should have  been addressed  at the  time of  the settlement.          Otherwise,  there  is  no  reason  for  a settlement,  since  the          settling parties are  neither protected from further  unfavorable          consequences  nor  allowed  to enjoy  the  safe  harbor of  their          settlement arrangement.                                         -19-                    Furthermore,  the  principles of  res  judicata dictate          that the petitioning unsecured  creditors should not be permitted          to  bring this issue  on appeal.   "Under  res judicata,  a final          judgment  on the  merits of  an action  precludes the  parties or          their  privies from relitigating  issues that were  or could have          been raised in  that action."  Allen v. McCurry,  449 U.S. 90, 94                                         _____    _______          (1980),  citing Cromwell  v.  County of  Sac,  94 U.S.  351,  352                          ________      ______________          (1876); see also Montana  v. United States, 440 U.S.  147 (1979).                  ________ _______     _____________          In this  case, the fate  of the petitioning  unsecured creditors'          equitable subordination  claim is affected by the  fact that they          were in privity with the Trustee.                    In  In re  Medomak  Canning, this  court discussed  the                        _______________________          standard  by   which  the  relationship  between   a  trustee  in          bankruptcy  and a  creditor should  be evaluated.   A  trustee in          bankruptcy is a fiduciary  representing the estate and creditors.          In re Medomak  Canning, 922 F.2d  at 901, citing  In re Thu  Viet          ______________________                            _______________          Dinh,  80 B.R. 819, 822 (Bankr.  S.D.Miss. 1987).  Privity may be          ____          established   by   identification   of  interests,   even   where          representation  of  those interests  is  not authorized.    In re                                                                      _____          Medomak  Canning, 922 F.2d at 901, citing Meza v. General Battery          ________________                          ____    _______________          Corp., 908 F.2d 1262, 1267 (5th Cir. 1990).          _____                    Since the petitioning unsecured creditors had notice of          the hearing  on  the approval  of the  settlement agreement,  and          since they participated and argued the issue, and since the issue          they now  press was considered although  incorrectly passed over,          their  failure to  appeal thereafter  is  fatal to  their present                                         -20-          appeal.  The finality of court-approved settlements such as  this          one is  important, especially to the  efficient administration of          the estate and to reassure settling parties that the trustee will          not  relitigate the settled claims.   See In  re Medomak Canning,                                                ___ ______________________          922 F.2d at 901.                     The Trustee is ordinarily the appropriate party to seek          equitable  subordination on  behalf of  the estate  and unsecured          creditors.  In re Medomak Canning, 922 F.2d at 902.  As unsecured                      _____________________          creditors, appellants could not  in these circumstances evade the          responsibility of looking to the Trustee in the first instance as          their fiduciary and representative to vindicate  their interests,          including   even    their   interest   in    pursuing   equitable          subordination.   Id.   In  this case,  the Trustee  chose  not to                           __          petition the court for  equitable subordination of Karger's claim          and  that choice was approved  by the Bankruptcy  Court.  Because          the Trustee  was acting for the  petitioning unsecured creditors,          they  are  bound  by  the  Trustee's  actions.    The  principles          enunciated  in  In   re  Medomak  Canning,  922   F.2d  895,  are                          _________________________          controlling.    Therefore, the  petitioning  unsecured creditors'          equitable subordination claim is barred  by the principles of res          judicata.                                   III.  CONCLUSION                                   III.  CONCLUSION                                         -21-                    We  affirm  the District  Court's  judgment  as to  the          disallowance  of   Karger's  claim  and  the   dismissal  of  the          petitioning unsecured creditors' appeal by the District Court.                    Affirmed.                      ________                                         -22-
