FILED APR 9 2025 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. WW-24-1129-LSG J S KALAMA, LLC, Debtor. Bk. No. 3:20-bk-41495-MJH J S KALAMA, LLC, Appellant, v. MEMORANDUM ∗ WILSON OIL, dba Wilcox + Flegel; RUSSELL D. GARRETT, Attorney, Trustee; VIRGIL GENE LIVINGSTON; SANDRA WILSON; UST- UNITED STATES TRUSTEE, SEATTLE, Appellees.

Appeal from the United States Bankruptcy Court for the Western District of Washington Mary Jo Heston, Bankruptcy Judge, Presiding

Before: LAFFERTY, SPRAKER, and GAN, Bankruptcy Judges.

INTRODUCTION

J S Kalama, LLC (“Debtor”) appeals the bankruptcy court’s order of

distribution of estate funds to Wilson Oil, dba Wilcox + Flegel (“W+F”).

∗ This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 After a chapter 11 1 trustee was appointed in Debtor’s case, the trustee

negotiated a $7 million sale of Debtor’s commercial property to W+F. The

trustee anticipated, correctly, that the sale proceeds would satisfy all claims

against the estate in full. As part of the estate’s sale agreement with W+F,

the trustee promised to sue Debtor’s former tenant (an entity wholly

owned by Debtor’s owner and manager) based on the estate’s claim for,

among other things, past-due rent. The trustee further promised to assign

any recovery to W+F, effectively reducing the purchase price by the

amount of recovery on the rent claim. The court approved this

arrangement in connection with its order approving the sale.

After the sale, certain matters involving the estate, W+F, and the prior

tenant of the property remained unresolved, including the estate’s claim

for past-due rent against the former tenant and for disposition of certain

items of personal property. The parties reached an agreement resolving

these issues.

As relevant here, part of the agreement required that certain funds

that had been promised to W+F would be distributed as estate funds to

W+F in connection with the trustee’s final report if certain conditions were

met, including the availability of funds after payment to the estate’s

creditors and approval of the distribution by the bankruptcy court. Debtor

1Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532, and “Rule” references are to the Federal Rules of Bankruptcy Procedure. 2 initially objected to approval of the settlement agreement, but later

consented to entry of an order approving the agreement.

When the trustee was prepared to make a final report and close the

case, W+F sought distribution from the estate in accordance with the court-

approved settlement agreement. Debtor objected. As Debtor saw it: (i) the

trustee was statutorily obligated to pay any surplus to Debtor; (ii) the

settlement agreement could not compel Debtor to distribute its funds to

W+F; and (iii) the court lacked subject matter jurisdiction over the dispute.

The bankruptcy court disagreed, holding that it had subject matter

jurisdiction and that distribution of funds from the estate to W+F was

appropriate under the settlement agreement.

We AFFIRM.

FACTS 2

A. Prepetition events. In August 2009, Debtor purchased the real property located at 522

Hendrickson Road, Kalama, Washington 98625 (the “Kalama Property”)

for $3.5 million. From the purchase of the Kalama Property until its

eventual sale through bankruptcy, Somarakis, Inc. (“Somarakis”) occupied

the Kalama Property as Debtor’s tenant, and Debtor’s only source of

income was the rents and charges it received from Somarakis.

2 We have taken judicial notice of the bankruptcy court docket and various documents filed through the electronic docketing system. See O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.),

(9th Cir. 1989); Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),

, 233 n.9 (9th Cir. BAP 2003). 3 During the course of Somarakis’ tenancy, the Kalama Property had

manufacturing equipment installed on the property, which was used for

Somarakis’ business of manufacturing and repairing liquid ring vacuum

pumps and compressors. Somarakis is wholly owned by John Somarakis;

Mr. Somarakis also is Debtor’s manager and owns 99.75% of Debtor.

Debtor and Somarakis financially struggled for years. Somarakis

failed to make all rent payments owed to Debtor under its lease agreement

and, as a result, Debtor and Somarakis defaulted on mortgage and

property tax payments. Facing notices of default and a downturn in

Somarakis’ business, Debtor decided to seek bankruptcy protection.

B. Debtor’s bankruptcy filing and the motion to sell the Kalama Property. In June 2020, Debtor filed its chapter 11 petition as a single asset real

estate debtor. Other than a claim for rents owed by Somarakis and minimal

cash in a bank account, Debtor’s only scheduled asset was the Kalama

Property, which Debtor valued at $5.5 million. After a failed attempt at

confirming a chapter 11 plan, Debtor stipulated to appointment of a

chapter 11 trustee (the “Trustee”).

The Trustee then moved to reject Debtor’s lease with Somarakis and

ultimately evicted Somarakis from the Kalama Property. Post-eviction,

several fixtures and personal property assets remained on the Kalama

Property (the “Equipment”).

4 In November 2022, the Trustee moved to sell the Kalama Property to

W+F for $7 million (the “Sale Motion”), an amount that would be sufficient

to satisfy all the claims against the estate in full. In connection with the Sale

Motion, the Trustee submitted for approval the estate’s sale agreement

with W+F (the “Sale Agreement”). As relevant to this appeal, the Sale

Agreement provided that the Trustee would initiate an adversary

proceeding against Somarakis, among others, to: (i) adjudicate the

“removal and characterization of” the Equipment; and (ii) assert claims for

unpaid rent, taxes, and other costs owed to the estate. The Sale Agreement

also required the Trustee to assign its rights in the adversary proceeding to

W+F. In other words, the Sale Agreement obligated the Trustee to dispose

of estate assets.

Finally, the Sale Agreement provided that the sum of $500,000 would

be held back from the purchase price to reimburse W+F for any costs

associated with removal of the Equipment (the “Holdback Funds”), subject

to approval by the bankruptcy court, and that any balance thereafter would

be released to the estate. 3

3 This provision allowed W+F to recover attorneys’ fees and costs incurred in connection with the removal of the Equipment, subject to approval by the bankruptcy court. W+F eventually filed an application for approval of its attorneys’ fees and costs before the bankruptcy court, which the bankruptcy court approved as an administrative expense of the estate. 5 Debtor, Somarakis, and Mr. Somarakis all filed separate objections to

the Sale Motion. 4 Notably, although Mr. Somarakis acknowledged in his

objection that the sale proceeds would leave a surplus after payment to

creditors, neither Debtor, Somarakis, nor Mr. Somarakis argued in their

separately filed objections that the offset provided to W+F in the Sale

Agreement (i.e., the assignment of the estate’s claims for unpaid rent)

would potentially invade any surplus that would otherwise be paid to

Debtor. In December 2022, the bankruptcy court entered an order

approving the sale of the Kalama Property (the “Sale Order”).

C. The settlement agreement. Soon after filing the Sale Motion, and in accordance with the Sale

Agreement, the Trustee commenced an adversary proceeding against

Somarakis and other defendants to ascertain the ownership of the

Equipment (the “Ownership Claims”) and collect past-due rents and

charges from Somarakis (the “Rents Claim”).

Subsequently, the Trustee, Somarakis, Mr. Somarakis, W+F, and

certain other entities with interests in the Equipment reached agreements

resolving the adversary proceeding. The Trustee thereafter filed a motion

for approval of the agreements (the “Settlement Motion”).

4 The objecting parties mostly made arguments that are not relevant to this appeal, such as Debtor requesting that the bankruptcy court allow Debtor to obtain financing and propose a chapter 11 plan instead of selling the Kalama Property and Somarakis disputing the ownership of the Equipment. 6 Among the several settlement agreements submitted for approval via

the Settlement Motion was an agreement between the Trustee, Somarakis,

Mr. Somarakis, and W+F (the “Settlement Agreement”). The Settlement

Agreement accomplished resolution of both the Ownership Claims and the

Rents Claim and, in accordance with the Sale Agreement, confirmed the

assignment of the estate’s rights in the adversary proceeding to W+F.

First, the Settlement Agreement resolved the Ownership Claims by

providing that some of the Equipment on the Kalama Property was owned

by Somarakis (the “Somarakis Property”), and then setting mutually

agreeable procedures to auction the Somarakis Property. Settlement

Agreement, ¶ 7. The parties agreed that the $500,000 in Holdback Funds

would be utilized to fund the auction. If the auction generated proceeds

(the “Auction Proceeds”), the parties further agreed that the Auction

Proceeds would be distributed as follows: (i) first, to pay costs of the

auction not already satisfied from the Holdback Funds; (ii) second, to the

estate to replenish any Holdback Funds used to fund the auction; and

(iii) third, to W+F pursuant to the parties’ agreement resolving the Rents

Claim, as discussed below.

To resolve the Rents Claim, the parties agreed to the following:

In complete satisfaction of the Assigned Claims, the Settling Parties agree that W+F will receive $475,000 (the “Claims Settlement Amount”), which, until paid in full, shall be paid by the earliest available of: (a) [the Auction Proceeds, using the disbursement scheme described above] and (b) funds

7 transferred to W+F, pursuant to a stipulation executed by the Parties and the Estate, from surplus funds in the Bankruptcy Case pursuant to an order of disbursement (the "Disbursement Stipulation"), in substantially the same form as Exhibit B, attached hereto. However, nothing contained herein shall be interpreted to create a liability of the Estate or the Trustee to pay the Claims Settlement Amount. The Disbursement Stipulation shall only be paid by the Trustee if it is approved by the Bankruptcy Court as part of the Trustee's final report and accounting, and, if approved, only to the extent that there are funds remaining in the possession of the Trustee for the Estate that are to be turned over to the post-bankruptcy Debtor. Settlement Agreement, ¶ 9.

Finally, the Settlement Agreement provided that the entire agreement

was subject to approval by the bankruptcy court, and that the parties

“agree to submit to the exclusive jurisdiction and venue of the Bankruptcy

Court with respect to any claims arising from or relating to this Settlement

Agreement or the subject matter of this Settlement Agreement.” Settlement

Agreement, ¶¶ 13, 17.

Debtor objected to the Settlement Motion. Among other objections,

Debtor argued that the court should not approve payment of the $475,000

Claims Settlement Amount to W+F because that amount should instead be

paid to Debtor as surplus.

The bankruptcy court held a hearing on the Settlement Motion. At

the hearing, the parties represented to the court that they were negotiating

the terms of an order that would be agreeable to all parties. Debtor

8 appeared at the hearing and informed the bankruptcy court that it would

be withdrawing its objection pending review of the new proposed order.

The bankruptcy court allowed the parties to submit either a stipulated

order or, if there was a dispute, competing orders.

On May 15, 2023, the bankruptcy court entered an order approving

the Settlement Agreement (the “Settlement Order”). Nothing in the record

indicates that Debtor or any other party objected to the form of order prior

to its entry.

The Settlement Order slightly modified the Settlement Agreement.

Among other modifications, the Settlement Order provided that, instead of

allowing for distribution of Auction Proceeds to W+F after replenishment

of the Holdback Funds, the liquidator would disburse any remaining

Auction Proceeds pursuant to a written agreement between W+F,

Somarakis, and Mr. Somarakis. If the parties failed to agree on the

distribution of the Auction Proceeds, the liquidator would deposit the

proceeds into an escrow account.

The Settlement Order did not modify the Settlement Agreement’s

alternative method of satisfying the Claims Settlement Amount, i.e., by

seeking court authorization to pay the Claims Settlement Amount via

distribution from the estate in connection with the Trustee’s final report

and accounting.

The auction did not produce sufficient proceeds to pay W+F any part

of its Claims Settlement Amount.

9 D. The dispute over distribution of estate funds. Eventually, the Trustee determined that the estate would have funds

remaining after distribution to all creditors. As a result, in June 2024, the

Trustee filed a motion regarding distribution of potential surplus proceeds.

Soon thereafter, W+F filed a motion to be included in the Trustee’s

final distribution in accordance with the approved Settlement Agreement

(the “Motion for Inclusion”). W+F essentially argued that all parties,

including Debtor, consented to W+F receiving a distribution of $475,000

from any remaining surplus if W+F was not satisfied in full from the

Auction Proceeds.

Debtor objected to the Motion for Inclusion. In its opposition, Debtor

argued, among other things, that the estate was not required to make a

distribution to W+F and that the bankruptcy court lacked jurisdiction to

resolve the dispute. In a separate filed response to the Trustee’s motion for

distribution, Debtor also argued that any distribution of funds to W+F

would violate the distribution scheme under § 726(a).

The court held a hearing on the Motion for Inclusion, at which time it

approved the distribution of $475,000 to W+F prior to any distribution of

surplus to Debtor. The court reasoned that Debtor had withdrawn its

objection to the Settlement Agreement, and that W+F had relied on the

provisions in the Settlement Agreement regarding the funding of its Claims

Settlement Amount. The court further noted that the provisions were part

10 of the overall agreement with the estate and were important to effectuate

matters that were beneficial to the estate.

Subsequently, the court entered an order granting the Motion for

Inclusion and allowing distribution of $475,000 to W+F (the “Distribution

Order”). Debtor timely appealed. 5

JURISDICTION

As further discussed below, the bankruptcy court had jurisdiction

under

and 157(b)(2)(A) and (O). We have jurisdiction

over the bankruptcy court’s determination under

.

ISSUES

1. Did the bankruptcy court have jurisdiction to enter the

Distribution Order?

2. Did the bankruptcy court err in holding that W+F was entitled to

distribution from the estate?

3. Did the Distribution Order violate the priority scheme set forth in

§ 726(a)?

5 After Debtor appealed the Distribution Order, the Trustee filed a motion for approval of a structured dismissal of Debtor’s case (the “Structured Dismissal Motion”). Debtor responded to the Structured Dismissal Motion by noting that it does not oppose a structured dismissal, but that any order dismissing the case should be stayed until resolution of this appeal. Debtor also filed a motion for a stay pending appeal. The court subsequently entered two orders approving a structured dismissal but staying any distribution to W+F and the dismissal of Debtor’s case until resolution of this appeal. 11 STANDARDS OF REVIEW

Questions regarding jurisdiction are reviewed de novo. Durkin v.

Benedor Corp. (In re G.I. Indus. Inc.),

, 1279–80 (9th Cir. 2000).

Interpretation of a settlement agreement is a question of law that we also

review de novo. See Renwick v. Bennett (In re Bennett),

(9th Cir. 2002). De novo review means that we review the matter anew, as

if the bankruptcy court had not previously decided it. Francis v. Wallace (In

re Francis),

(9th Cir. BAP 2014).

Otherwise, “[w]e review a bankruptcy court’s findings of fact for

clear error and review de novo its conclusions of law.” Leavitt v. Alexander

(In re Alexander),

(9th Cir. BAP 2012).

DISCUSSION

On appeal, Debtor contends that: (i) the bankruptcy court lacked

subject matter jurisdiction to enter the Distribution Order; (ii) the

Settlement Agreement did not obligate the Trustee or the estate to

distribute funds to W+F; (iii) Debtor cannot be bound by the Settlement

Agreement; and (iv) the Distribution Order violates the priority scheme set

forth in § 726(a). 6

As we discuss in section A, we believe functions as crucial as

determining whether an entity has a right to distribution of estate funds,

6 We note that the Trustee did not seek approval of a distribution under § 726(a); rather, the Trustee requested approval of a structured dismissal in a chapter 11 case. As we discuss below, such structured dismissals must approximate the distribution scheme set forth in § 726(a). 12 deciding the order of such distributions by a representative of the estate,

and interpreting and applying prior final orders disposing of estate assets

necessarily invoke the core jurisdiction of bankruptcy courts. Thus, we

hold that the court had subject matter jurisdiction over this dispute. As we

discuss in section B, we disagree with Debtor’s interpretation of the

Settlement Agreement and conclude that the estate was obligated to

disburse $475,000 to W+F in accordance with the Settlement Agreement

approved by the bankruptcy court.

Finally, as we discuss in section C, even if the distribution to W+F

violates the Code’s priority scheme, Debtor’s consent to the Settlement

Agreement allowed for an alteration of the order of priorities.

A. The bankruptcy court has subject matter jurisdiction over distribution of estate funds. “Subject matter jurisdiction defines the court’s authority to hear a

given type of case; it represents the extent to which a court can rule on the

conduct of persons or the status of things.” Carlsbad Tech., Inc. v. HIF Bio,

Inc.,

(2009) (cleaned up). “Like all federal courts, the

jurisdiction of the bankruptcy courts is created and limited by statute.”

Wilshire Courtyard v. Cal. Franchise Tax Bd. (In re Wilshire Courtyard),

(9th Cir. 2013) (citing Celotex Corp. v. Edwards,

(1995)).

That statute is

, through which Congress granted

bankruptcy courts, by referral from district courts, “original and exclusive

13 jurisdiction of all cases under title 11,”

(a), and “original

but not exclusive jurisdiction of all civil proceedings arising under title 11,

or arising in or related to cases under title 11.”

(b).

Prior to delving into the court’s jurisdiction, it is important to

delineate exactly what the bankruptcy court adjudicated. Debtor contends

that the dispute before the bankruptcy court was “a civil matter between

two non–parties to the case over a private agreement,” referring to W+F

and Somarakis as the two “non-parties” before the court.

However, this is a mischaracterization of the matter before the

bankruptcy court. The bankruptcy court did not adjudicate any dispute

between W+F and Somarakis. Neither W+F nor Somarakis sought a

determination from the bankruptcy court regarding their obligations vis-à-

vis each other under the Settlement Agreement.

The actual issue before the bankruptcy court was whether W+F was

entitled to receive a distribution from the estate 7 and, if so, if the Code

7 As further discussed below, Debtor asserts that the disputed funds are not property of the estate, but instead belong to Debtor by operation of § 726(a)(6). However, during the pendency of the bankruptcy case and prior to its closure, the Trustee represents the estate and controls its assets, including funds in estate accounts. §§ 323, 349, 1106. That Debtor may have an interest in the funds once all other required entities are paid gives Debtor standing to present arguments with respect to the funds, but such a future interest does not transform the funds from property of the estate to Debtor’s property prior to final distribution of the funds and closure of this case, neither of which has occurred. Thus, we properly frame the issue before us as one involving disbursement of funds from the estate, and not from Debtor. In any event, as we conclude in sections B and C, pursuant to the Settlement Agreement, Debtor consented to distribution of the estate funds to W+F ahead of 14 allowed for such distribution ahead of Debtor. That dispute did not even

involve Somarakis. Rather, among other alleged creditors who claimed an

interest in the funds and who are not relevant to the instant appeal, the

dispute was between W+F, which asserted a right to distribution pursuant

to its agreement with, among others, the estate, and Debtor, which asserted

a right to distribution under the Code, namely, § 726(a)(6).

Given that the issue before the court was a determination regarding

the order of distribution of funds, i.e., a core function of bankruptcy courts,

it is difficult to conceive of any reason why the court would lack subject

matter jurisdiction over the Distribution Order. And while it is true that

part of the court’s analysis hinged on interpreting whether an agreement

involving nondebtor parties (as well as the estate) altered the statutory

order of distribution, as discussed below, that interpretation did not divest

the court of subject matter jurisdiction over distribution of estate funds.

While Debtor may argue that the court’s interpretation was wrong, or

otherwise violated the Code, these issues are separate from the issue of

whether the court had subject matter jurisdiction to determine them in the

first place. As discussed below, we believe the court not only had “related

to” jurisdiction, as disputed by Debtor, but also “arising in” jurisdiction.

Debtor, and thus the subject $475,000 is not property of Debtor either before or after closure of this case. 15 1. The bankruptcy court had “arising in” jurisdiction over this dispute. As articulated in

(b), bankruptcy courts may exercise

jurisdiction over matters that (i) “arise under” the Code (i.e., where the

Code provides the rule of decision); (ii) “arise in” a bankruptcy case (i.e.,

the proceeding would not exist outside of the bankruptcy case); or (iii) are

“related to” a bankruptcy case (i.e., the outcome of the proceeding could

conceivably have an effect on administration of the estate). In re Wilshire

Courtyard,

.

“A matter ‘arises under’ the Bankruptcy Code if its existence depends

on a substantive provision of bankruptcy law, that is, if it involves a cause

of action created or determined by a statutory provision of the Bankruptcy

Code.” Battle Ground Plaza, LLC v. Ray (In re Ray),

(9th

Cir. 2010) (citations omitted). A proceeding “arises in” a case under the

Code “if it is an administrative matter unique to the bankruptcy process

that has no independent existence outside of bankruptcy and could not be

brought in another forum, but whose cause of action is not expressly

rooted in the Bankruptcy Code.”

(citation omitted).

Although the overarching dispute in this case arose from a statutory

function of the court, i.e., distribution of property of the estate under

§ 726(a), resolution of this matter, as illuminated below, depends on

application of both bankruptcy and state law. Thus, the matter does not

solely “arise under” the Code.

16 However, a dispute of this nature – regarding which entities are

entitled to distribution from the estate and in which order – can only arise

in a bankruptcy case. As noted above,

(a) grants

“exclusive” jurisdiction to bankruptcy courts over bankruptcy “cases.” The

term “case” refers to the bankruptcy petition itself, In re Combustion Eng’g,

Inc.,

, 225 n.38 (3d Cir. 2004), as amended, and is “the basis for

taking control of all pertinent interests in property, dealing with that

property, determining entitlements to distributions, the procedures for

administering the mechanism, and discharging the debtor.” Menk v.

LaPaglia (In re Menk),

(9th Cir. BAP 1999) (emphasis

added).

Logically, distribution of estate assets depends on the existence of an

estate in the first place, i.e., the filing of a bankruptcy petition. Such

distribution would not exist anywhere outside of bankruptcy. The

bankruptcy court, and no other court, is tasked with presiding over this

distribution in accordance with the Code. 8 Consequently, a dispute that

arises regarding the propriety of distribution of estate assets is an

“administrative matter unique to the bankruptcy process that has no

8Confusingly, Debtor argues in its brief before the Panel that, “[a]lthough the [Distribution Order] affects the amount of Surplus Funds left in the estate, that is only because it was the bankruptcy court that made the order.” Appellant’s Brief, p. 24. Of course, the bankruptcy court entered the Distribution Order because it was the only court that could do so. 17 independent existence outside of bankruptcy and could not be brought in

another forum.” In re Ray,

.

It is true that part of the resolution of this matter rests on interpreting

the Settlement Agreement under state law. However, the application of

nonbankruptcy law, standing alone, does not eject a matter from the core

jurisdiction of the bankruptcy court. For instance, the Ninth Circuit has

found “arising in” jurisdiction where the debtor sued the trustee and third

parties in state court, asserting state law causes of action, regarding a

settlement agreement approved by the bankruptcy court. Harris v. Wittman

(In re Harris),

(9th Cir. 2009). Despite the fact that the

debtor asserted state law causes of action, the Ninth Circuit held that the

action could not exist outside of bankruptcy because it involved the

trustee’s conduct in administering the estate.

Similarly, here, notwithstanding the application of Washington law

to interpret the Settlement Agreement, a dispute regarding distribution of

estate funds could not exist independent of the bankruptcy case. In

addition, as in Harris, the mere fact that third parties, such as Somarakis,

are signatories to the Settlement Agreement does not divest the court of

subject matter jurisdiction.

Ultimately, the bankruptcy court adjudicated whether to direct an

estate representative to distribute estate funds pursuant to an agreement to

which the estate was a party and which the court approved. It would

18 stretch the limits of credulity to hold that such a matter was outside the

core subject matter jurisdiction of the bankruptcy court.

2. The bankruptcy court had “related to” jurisdiction over this dispute. Debtor appears to focus its jurisdictional argument on whether the

bankruptcy court had “related to” jurisdiction. Although we hold that the

court had “arising in” jurisdiction, we further conclude that, at a minimum,

the court had “related to” jurisdiction over this dispute.

An action is “related to” a bankruptcy case if the outcome of the

proceeding could conceivably alter the debtor’s rights, liabilities, options or

freedom of action (either positively or negatively) in such a way as to

impact the administration of the bankruptcy estate. Fietz v. Great W. Sav. (In

re Fietz),

, 457 (9th Cir. 1988) (adopting Pacor, Inc. v. Higgins,

(3d Cir. 1984)). “Congress intended to grant

comprehensive jurisdiction to the bankruptcy courts so that they might

deal efficiently and expeditiously with all matters connected with the

bankruptcy estate.” Celotex Corp. v. Edwards,

(1995).

As noted above, Debtor mischaracterizes the matter before the

bankruptcy court. As Debtor explains it, the dispute involves: (i) two

nondebtor entities (Somarakis and W+F); (ii) over a “private agreement”;

(iii) with no conceivable impact on Debtor’s bankruptcy case.

In fact, the opposite is true. The dispute involves (i) Debtor, the

estate, and a party asserting it has a right to distribution from estate funds;

19 (ii) over an agreement approved by the bankruptcy court that resolved,

among other things, disputes over estate assets and obligations; (iii) with

an impact on the estate that is clear simply by reference to the fact that final

distribution of estate assets is impossible without resolution of this dispute.

To the extent Debtor argues the instant matter is divorced from the

estate’s involvement with the Sale Agreement and the Settlement

Agreement, and assuming that’s relevant to analyze whether a bankruptcy

court has jurisdiction over disbursement of estate funds, a brief recounting

of the trajectory of Debtor’s case reflects the level of entanglement between

the instant dispute and the estate’s previous dealings with W+F.

Notwithstanding Debtor’s valuation of the Kalama Property at $5.5

million, the Trustee negotiated a sale and settlement with W+F for $7

million, an amount that funded payment of all creditors of the estate in full.

In exchange for W+F’s transfer of the funds that would pay all claims

against the estate, the estate undertook certain obligations beyond simply

transferring the Kalama Property to W+F.

As more fully discussed below, one of those obligations was to satisfy

the Claims Settlement Amount in connection with the Trustee’s final

distribution of assets if certain conditions were met, including approval by

the bankruptcy court. The Claims Settlement Amount cannot be severed

from the overall deal reached between the estate and W+F. The Claims

20 Settlement Amount was meant to settle the Rents Claims, 9 which the

Trustee first agreed to transfer to W+F as part of the Sale Agreement. As a

result, the Claims Settlement Amount appears to be in furtherance of

W+F’s and the estate’s overall bargain, starting with the sale of the Kalama

Property, continuing through the settlement and resulting auction, and, if

other methods of satisfaction proved unsuccessful, ending with

distribution of the Claims Settlement Amount. Given that the Settlement

Agreement contemplated both the estate’s and the court’s continuing

involvement with enforcement of the Settlement Agreement through the

closure of Debtor’s case, the impact on estate administration is especially

evident.

As a result, even if the court lacked “arising in” jurisdiction, 10 the

court had “related to” jurisdiction.

9 As Debtor points out, the Claims Settlement Amount was originally intended to satisfy the Rents Claim owed by Somarakis to W+F, after the estate transferred its interest in the claim to W+F. Despite this, the court approved the Settlement Agreement, including the clause regarding W+F’s ability to receive a distribution from the estate, under the applicable standards. See Rule 9019. The Settlement Order approving the Settlement Agreement was never appealed and, as a result, is a final order to which the parties are bound. See Thomas v. Bible,

(9th Cir. 1993) (a “court is generally precluded from reconsidering an issue that has already been decided by the same court”). It is too late for Debtor to criticize the prudence of the Trustee’s business judgment in agreeing to the terms contained in the Settlement Agreement. 10 At certain points in Debtor’s brief, Debtor also asserts that the court did not

have the “power” to enter the Distribution Order. “Subject matter jurisdiction and power are separate prerequisites to the court’s capacity to act. Subject matter jurisdiction is the court’s authority to entertain an action between the parties before it. Power. . . is the scope and forms of relief the court may order in an action in which it has jurisdiction.” Am. Hardwoods, Inc. v. Deutsche Credit Corp. (In re Am. Hardwoods, Inc.), 21 B. The estate was obligated to pay the Claims Settlement Amount to W+F if certain conditions were met. Turning to the merits of the matter before us, Debtor next argues that

the estate did not have an obligation to pay the Claims Settlement Amount.

In support of this argument, Debtor references the following clause from

the Settlement Agreement:

In complete satisfaction of the Assigned Claims, the Settling Parties agree that W+F will receive $475,000 (the “Claims Settlement Amount”), which, until paid in full, shall be paid by the earliest available of: (a) the W+F Turning Center Payment and (b) funds transferred to W+F, pursuant to a stipulation executed by the Parties and the Estate, from surplus funds in the Bankruptcy Case pursuant to an order of disbursement (the "Disbursement Stipulation"), in substantially the same form as Exhibit B, attached hereto. However, nothing contained herein shall be interpreted to create a liability of the Estate or the Trustee to pay the Claims Settlement Amount. The Disbursement Stipulation shall only be paid by the Trustee if it is approved by the Bankruptcy Court as part of the Trustee's final report and accounting, and, if approved, only to the extent that there are funds remaining in the possession of the Trustee for the Estate that are to be turned over to the post-bankruptcy Debtor.

(9th Cir. 1989). To the extent Debtor argues that the bankruptcy court did not have the power to enter a final order on the Motion for Inclusion, our conclusion that the court had “core,” “arising in” jurisdiction defeats the argument. Courts may enter final orders on core matters. See Stern v. Marshall,

(2011). Even if this matter is not “core,” parties may consent, even impliedly, to entry of a final order by a bankruptcy court. See Wellness Int'l Network, Ltd. v. Sharif,

, 684–85 (2015). Debtor likely consented to entry of a final order by non-Article III judges by appealing to this Panel. Richards v. Richards (In re Richards),

, 795 (9th Cir. BAP 2023). 22 Settlement Agreement, ¶ 9 (emphases added).

Debtor focuses on a single sentence within this clause that reads:

“nothing contained herein shall be interpreted to create a liability of the

Estate or the Trustee to pay the Claims Settlement Amount.” According to

Debtor, this sentence absolves the estate of any obligation to disburse

$475,000 to W+F.

Debtor’s interpretation would render void the remaining language in

¶ 9. Under Washington law, 11 “we harmonize clauses that seem to conflict.

Our goal is to interpret the agreement in a manner that gives effect to all

the contract’s provisions.” Nishikawa v. U.S. Eagle High, LLC,

(Wash. Ct. App. 2007) (citation omitted). Contracts must be

considered “as a whole” and given “a fair, reasonable, and sensible

construction.” Kut Suen Lui v. Essex Ins. Co.,

(Wash. 2016)

(internal quotation marks omitted) (emphasis added).

The Settlement Agreement requires satisfaction of the Claims

Settlement Amount from one of two sources: the Auction Proceeds or

disbursement of funds from the estate. See Settlement Agreement, ¶ 9 (the

Claims Settlement Amount “shall” be paid from the earliest available of the

two sources). 12 To obtain satisfaction from the latter source, the Settlement

11 Pursuant to ¶ 17 of the Settlement Agreement, the parties agreed that Washington law governs interpretation of the Settlement Agreement. 12 The record is clear that the Auction Proceeds did not generate sufficient funds

to pay any portion of the Claims Settlement Amount. Thus, the only source left to satisfy the Claims Settlement Amount was a disbursement by the estate. 23 Agreement states that the Trustee can pay W+F only if the distribution is

approved by the bankruptcy court and “as part of the Trustee’s final report

and accounting.”

Under basic principles of bankruptcy administration, the Trustee has

the power to distribute estate funds in accordance with the Code and

bankruptcy court authorization. §§ 323, 704(a)(9), 1106. Had the Settlement

Agreement envisioned distribution by an entity other than the estate

and/or the Trustee, or contemplated the distribution of funds that were not

property of the estate, there would be no reason at all for ¶ 9 to mention

distribution by the Trustee in connection with a final report or require

authorization by the bankruptcy court. Thus, a holding that ¶ 9 does not

obligate the Trustee or the estate would render meaningless all of the

language regarding the Trustee, the final report, and court authorization.

The more harmonious reading of the language shielding the estate

from liability is that it protects the estate in case the conditions set forth in

the Settlement Agreement were not satisfied. Those conditions, contained

in the sentence directly after the one referenced by Debtor, are: (i) approval

by the bankruptcy court; and (ii) the availability of “funds remaining in the

possession of the Trustee for the Estate that are to be turned over to the

post-bankruptcy Debtor.” 13 Reading the sentence regarding liability in

conjunction with these conditions leads us to the conclusion that the estate

13 There is no dispute that both of these conditions occurred. 24 was shielded from liability if the court did not approve disbursement

and/or the estate did not have sufficient funds in its possession.

This interpretation gives effect to every word in ¶ 9. Debtor’s

interpretation, on the other hand, would require a distribution from the

estate only to immediately state in the very next sentence that distribution

from the estate was not required. This interpretation would neither be

“sensible” nor give effect to every provision in the Settlement Agreement.

Kut Suen Lui,

; Nishikawa,

.

Because our interpretation of the Settlement Agreement obligated the

estate to disburse funds to W+F, Debtor’s argument that the Settlement

Agreement improperly bound Debtor to act by transferring its own

property (i.e., any surplus distributed to Debtor) is without merit. 14 Apart

from the liability language in ¶ 9 discussed above, Debtor’s arguments on

this point appear to stem from two points: (i) first, that the Settlement

Agreement states that the distribution to W+F will come from the

“surplus”; and (ii) second, that the Trustee stated in the body of the

Settlement Motion that the distribution to W+F would be a “post-

bankruptcy transfer.”

With respect to the first argument, although the parties nominally

referred to the Claims Settlement Amount as being sourced from the

14Nor was Debtor a necessary party to the Settlement Agreement. At the time the parties executed the Settlement Agreement, the Trustee was the representative of the bankruptcy estate with full control of the estate’s claims and liabilities and the ability to resolve them. 25 “surplus,” in effect, the parties essentially agreed to pay the Claims

Settlement Amount ahead of Debtor. As discussed above, ¶ 9 of the

Settlement Agreement explicitly provides for distribution “by the Trustee if

it is approved by the Bankruptcy Court as part of the Trustee’s final report

and accounting.” If the distribution were to come instead from a surplus

already paid to Debtor, the Trustee would not be tasked with distribution

along with the final report, and bankruptcy court authorization would not

be required.

Debtor’s second argument suffers for much the same reason. A clause

that contemplates distribution by the Trustee, with approval by the

bankruptcy court, is by definition not a “post-bankruptcy transfer.” In any

event, the Trustee’s characterization of the Settlement Agreement in the

Settlement Motion is not pertinent to our interpretation of the Settlement

Agreement. Under Washington law, courts do not consider extrinsic

evidence if “the parties’ intent can be divined from the actual words within

the four corners of the document.” Seattle Times Co. v. LeatherCare, Inc.,

(W.D. Wash. 2018) (citing Hearst Comms., Inc. v. Seattle

Times Co.,

(Wash. 2005)). Here, we can glean the parties’ intent

from the four corners of the Settlement Agreement; our interpretation gives

full effect to the provisions, and we need not consult another document to

make sense of the provisions in the Settlement Agreement.

In light of the above, the estate was obligated to disburse the Claims

Settlement Amount to W+F before paying Debtor any remaining surplus.

26 C. The distribution to W+F does not run afoul of the priority scheme set forth in § 726(a). Finally, Debtor contends that the distribution to W+F violates the

priority scheme of § 726(a). See Czyzewski v. Jevic Holding Corp.,

(2017). Specifically, Debtor contends that § 726(a)(6) mandates distribution

to the debtor after payment of all claims against the estate.

In Jevic, the Supreme Court considered whether a bankruptcy court

could dismiss a chapter 11 without reverting to the prepetition status quo

or adhering to the priority scheme set forth in the Code. Id. at 456. In other

words, the Court assessed whether bankruptcy courts could order

“structured dismissals” through which the bankruptcy court not only

dismissed the case but altered the prepetition relationship between the

debtor and creditors. Id.

The Court held that any such “structured dismissal” must follow the

ordinary priority rules set forth in the Code. Id. at 464. In so holding, the

Court referred to the Code’s statutory priority scheme as “a basic

underpinning” of bankruptcy law and “fundamental to the Bankruptcy

Code’s operation.” Id. at 464-65.

Significantly, the Court specified that its holding applied only to

nonconsensual alterations in the Code’s priority scheme. See id. at 464

(framing the issue presented as whether a bankruptcy court may “approve

a structured dismissal that provides for distributions that do not follow

ordinary priority rules without the affected creditors’ consent”) (emphasis

27 added); and id. at 465 (dismissal does not allow for “nonconsensual

priority-violating distributions of estate value”) (emphasis added).

That parties may consent to the alteration of the Code’s priority

scheme is uncontroversial. In fact, the Code itself contemplates such

alterations. For instance, § 726(a) – the statute Debtor contends requires

distribution to Debtor ahead of W+F – explicitly provides that § 510 may

alter the distribution scheme set forth in the statute. Section 510(a), in turn,

allows parties to agree to subordinate their claims to other claims against

the estate. The Code also, for example, permits chapter 11 plans to alter the

priority scheme with the consent of impacted creditors. § 1129; see also In re

Arnold,

(Bankr. C.D. Cal. 2012) (“The heart of the Chapter

11 process is creditor consent.”) (citing Elizabeth Warren & Jay Westbrook,

THE LAW OF DEBTORS AND CREDITORS 677 (6th ed. 2009)).

Here, even if the distribution to W+F would otherwise violate

§ 726(a), 15 Debtor consented to the distribution scheme ordered by the

bankruptcy court. Debtor’s arguments to the contrary are unconvincing.

15 Although Debtor contends that it had a right to payment of surplus, the Code is structured such that debtors are very last in line to receive a distribution from the estate, behind satisfaction of all other obligations of the estate. As discussed above, the Settlement Agreement created an obligation of the estate to pay W+F. Thus, payment to W+F ahead of Debtor may not have violated the Code’s priority scheme at all. Nevertheless, because Debtor consented to the distribution of funds to W+F ahead of Debtor, we need not reach the question of whether the distribution to W+F would otherwise violate § 726(a) without Debtor’s consent. 28 Debtor places immense weight on the fact that it did not sign the

Settlement Agreement. 16 But this argument ignores fundamental aspects of

the bankruptcy process. Unlike the usual two-party disputes in state court,

where the effect of contracts is generally litigated, a chapter 11 bankruptcy

case involves a collective process with several parties in interest. § 1109(b).

Those parties in interest, including the debtor, “may raise and may appear

and be heard on any issue in a case under this chapter.” Id.; see also Truck

Ins. Exch. v. Kaiser Gypsum Co., Inc.,

, 280–81 (2024) (holding

that § 1109(b) allows for “broad participation” by all parties in interest).

This participation includes the ability to object to settlement

agreements involving the estate. As a result, even where a party is not a

signatory to the settlement agreement itself, if it is a “party in interest,” the

party may object and raise concerns regarding the impact of the agreement

on the party’s rights in the estate.

In this case, Debtor took advantage of its standing as a party in

interest and objected to the Settlement Agreement’s provision allowing

W+F a distribution of $475,000 ahead of Debtor. Although Debtor did not

sign the Settlement Agreement itself, Debtor was afforded a full and fair

opportunity to argue its concern regarding the order of distribution of

funds. The record demonstrates that the court considered Debtor’s

16 Of course, the Settlement Agreement was signed by Mr. Somarakis, who is both the manager and majority owner of Debtor, and thus would presumably be the signatory on behalf of Debtor as well. 29 argument and allowed Debtor and other parties in interest an opportunity

to modify the Settlement Order in a manner that satisfied all of the parties.

Debtor fully consented to entry of the Settlement Order in its final

form. While the Settlement Order did modify the Settlement Agreement

with respect to distribution of the Auction Proceeds, it left intact the

Settlement Agreement’s provision regarding distribution to W+F ahead of

Debtor in the case of a surplus estate. Debtor did not appeal the Settlement

Order, and the time to appeal that order has long since expired.

Accordingly, even if the distribution to W+F altered the Code’s order of

distribution, Debtor consented to the alteration.

For all the reasons stated above, the court’s order directing the

Trustee to distribute $475,000 to W+F from the estate was appropriate.

CONCLUSION

The bankruptcy court did not err in ordering distribution of $475,000

to W+F ahead of any distribution to Debtor. We therefore AFFIRM.

30