Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-01371/USCOURTS-cand-5_06-cv-01371-3/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In Re: Constance Dudley

 /

NO. C 06-01371 JW

(Bankruptcy case no. 03-52149)

RELATED CASE: C-06-01671-JW

ORDER REGARDING APPEAL FROM

DECISION OF BANKRUPTCY COURT

I. INTRODUCTION

Creditor Charles K. Clapp appeals from an Order of the Bankruptcy Court granting a motion

to approve a compromise and from a related discovery Order. This Court has jurisdiction based on

Appellant’s election.

Both Orders are review for abuse of discretion. In re A&C Properties, 784 F.2d 1377 (9th

Cir. 1986). Applying this standard, the Court affirms the Order of the Bankruptcy Court as to both

Orders.

II. BACKGROUND

On April 4, 2003, Constance Dudley filed a voluntary petition for bankruptcy relief. Among

her properties, Dudley listed her interest in the “Lincoln Trust.” Indeed, Constance and her husband

created the Lincoln Trust pursuant to a settlement in a California Superior Court dissolution

proceeding. The Trust document and Settlement Agreement contained provisions which provided

Case 5:06-cv-01371-JW Document 34 Filed 09/06/06 Page 1 of 4
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 2

that the Trust was for the benefit of their minor children with Dudley being entitled to the net

income during her lifetime. Distribution of income was subject to control by the Trustees. A

dispute developed among the Debtor, the Trustee and the Lincoln Trustees over whether the

circumstances under which the Trust was created made the income to which Dudley was entitled

subject to the claims of her creditors. Summary judgment motions were made to the Bankruptcy

Court to determine the issue and for relief from the automatic stay to allow the parties to seek

reformation of the Trust in the Monterey Superior Court. 

With the summary judgment motions pending, the Bankruptcy Court referred Dudley, the

Lincoln Trust and the Bankruptcy Trustee to voluntary mediation. Although initially, Dudley

refused to enter into the settlement, she eventually she agreed. The settlement was subject to

approval by the Bankruptcy Court and the Monterey County Superior Court. The Trustee and the

Lincoln Trustee reached a settlement. 

On December 10, 2005, the Bankruptcy Trustee filed a motion with the Bankruptcy Court to

approve the settlement. Charles K. Clapp, a creditor and the Appellant on this appeal filed an

opposition to the settlement. Clapp also sought to subpoena information relating to the creation of

the Trust. Dudley moved to quash the subpoenas.

After considering the legal issues with respect to the character of the Trust, the nature of the

compromise, the positions of the Bankruptcy Trustee, the Debtor and the objections by Clapp, the

Bankruptcy Court approved the compromise and granted the motion to quash Clapp’s subpoenas. 

Thus, the issue on appeal is whether the Bankruptcy Court properly exercised its discretion to

approve the settlement and to quash the subpoenas. 

III. DISCUSSION

The Bankruptcy Court has great latitude in approving compromises in cases pending before

it. In re A&C Properties, 784 F.2d at 1380-1381. In this case, the Bankruptcy Court gave due

consideration to the complexity of the legal dispute with respect to the nature of the Trust. The

declarations of its creators and the fact that it was created as part of marital dissolution proceedings,

Case 5:06-cv-01371-JW Document 34 Filed 09/06/06 Page 2 of 4
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 3

created a substantial risk that the creditors would not receive any benefit from its existence. The

compromise provided substantial income to the estate and even made provisions such that

Appellant, if he disagreed with the assessment, could outbid the settlement. There was no abuse of

discretion.

The judgment with respect to the acceptability of the settlement meant that the subpoenas

were unnecessary. There was no abuse of discretion in quashing the subpoenas.

IV. CONCLUSION

The Orders of the Bankruptcy Court are affirmed. The stay pending appeal is lifted. (See

Docket Item No. 4.) The case is remanded to the Bankruptcy Court for further proceedings

consistent with this Order.

Dated: September 6, 2006 

JAMES WARE

United States District Judge

Case 5:06-cv-01371-JW Document 34 Filed 09/06/06 Page 3 of 4
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

THIS IS TO CERTIFY THAT COPIES OF THIS ORDER HAVE BEEN DELIVERED TO:

Amy E Wallace Potter amy.wallace@dlapiper.com

Christopher Alliotts calliotts@sulmeyerlaw.com

Rebecca Connolly Rebecca.Connolly@grunskylaw.com

Sandi Meneely Colabianchi smcolabianchi@luce.com

Dated: September 6, 2006 Richard W. Wieking, Clerk

By: /s/ JW Chambers 

Elizabeth Garcia

Courtroom Deputy

Case 5:06-cv-01371-JW Document 34 Filed 09/06/06 Page 4 of 4