EL ECTRONI C CI TATI ON: 2007 FE D App. 0011P (6th Cir.) File Na me: 07b0011p.06
BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT
In r e : GR EG OR Y AN DERS ON a nd RO SE ANDERSON,
De bto rs .

______________________________________ COL L EEN M. OL SON, Trustee ,

Pla int if f- Ap pe lla nt,

v. DAV I D A. ANDERSON and DAVID AL L EN ANDERSON,
De fe nd ants -A pp e lle e s.

______________________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. 06-8105

Appea l from the United States B ankruptc y Court for the Wester

n District of Michig an, Nor thern Division, at Marque tte. Case No. 04- 90467, Adver sary Procee ding N o. 06-99002. Submit ted: August 1, 2007
Dec ided and F iled: November 7, 2007
B e fo re : LAT TA , PA RSO NS, and SCO TT , B ank

ru ptc y Ap pe llate Pane l Judg e s.

____________________ CO UN SEL O N B RI E F: Steven L

. Ray man, Steven M. Ellis, RAYMAN & STONE, Kalamazoo, Michiga n, for Ap pe lla nt.- 2- ____________________ OP IN ION

____________________ J OSEPH M. SC OTT, JR ., Ba nkruptcy Appellate Pane l J udg e. Appe llant Colleen M. Olson (the “ Trustee ) appe als the bankr uptcy court’s or der disappr oving the settlement agree ment enter ed in t o b y the Trustee and De fenda nts David Allen Ande rson and Da vid A. Ander son (the “De fenda nts”). F or the rea sons that follow, the panel conclude s that althoug h the bankruptcy court abused its discre tion by

applying a

n err oneous l ega l s t andard, the cour t’s decision should be aff irmed.
I. ISSU ES ON AP P EAL
Th e ov e ra

rc hin g issue on

a pp e a l is wh e the r t

he ba nk ru ptc y c ourt a bu se d it s d isc re tio n in disapprovingthe settlement agree ment ente re dinto between the Trustee and the De fenda nts by applying a

n err oneous leg al standard. Neve rtheless, under the particula r fac ts of this c ase, r esolution of thi s is su e is n ot d e te rm inativ e . T he un de rl yingiss ue is wh e the r the Tr us te e ’s fa ilure to o bje c t to the Debtor s’ claimed exemption wit hin the deadline imposed by Fe dera l Rule of Ba

nkruptcy Procedur e 4003(b) remove d the prope rty in its entirety

from the ba

nkruptcy estate.
II. JU RI SDI CT ION AND STANDARD OF RE VI EW
The Bankr

uptcy Appellate Pane l of the Six th Circuit (the “B AP”) ha s jurisdiction to hear and decide this appeal. 28 U.S.C. § 158(b)( 1). The United States District Court for the Wester n District of Mic hig an h a s a

uth or ize d a

pp e a ls t o th e BAP , and neithe r p art y ha s ti me ly

e le c te d to have thi s appea l hear d by

the district court. 11 U.S.C. §§ 158(b)( 6), (c )(1) . A final orde r of a bankruptc y court may

be appe aled by

rig ht u n d er 2 8 U. S

. C. § 158(a)( 1). An orde r is final if it “ends the litigation on the mer its and leave s nothing for the cour t to do but ex ecute the judg ment.” Midland Asphalt Corp. v. United States , 489 U.S. 794, 798, 109 S. C t. 1494, 1497 ( 1989) (citations omitted). Ordinar ily , an orde r disapprovinga settlement is not considere d final for purposes of appea l by

rig ht under 28 U .S.C. § 158(a )(1)

. Howeve r, in the prese nt c ase, the order s on appea l e ntirely dispose of the Trustee ’s claims ag ainst the Def endants. “ [A] n order

that co n cludes a particular adver sarial matter within the larg er c ase should b e d ee m ed fina l and re viewable in a bankr uptcy setting.”- 3-

Ge be re ge or gis v . G am ma rin o (

In reGe be re

ge or gis ) , 310 B.R. 61, 63 (B .A.P. 6th Ci r. 2004) (citations omitted).
A bankr uptcy court ’s d ecision t o approve or disapprove a settlement re sts in the sound discretion of the bankruptc y judge . A re viewingcourt will not disturb o r s et aside the decision unless it a chieve s such an unjust re sult as to amount to an abuse of disc retion. Ma c hin e ry Te rm ina ls, Inc. v. W oodward (

In re Albe rt-Harris, Inc.) , 313 F.2d 447, 449 (6th Cir. 1963) (c itations omi tted). Gene rally , a cour

t “abuse s its dis cre tion only when it relies upon clea rly err oneous findings of fa ct or whe n it improperly

applies the lawor uses a n err oneous l egal standa

rd.” Fleischut v. Nixon Detroit Diesel, Inc

. , 859 F.2d 26, 30 (6th Cir. 1988). Whether the ba nkruptcy court’s discr etionary decision is ba sed upon an err oneous interpre tation of the law is a leg al question that is review ed de

novo . Slutsky v. Am. Express Travel Related Servs. Co. ( In re W illiam Cargile Contractor, Inc.) , 209 B.R. 435, 436 (B .A.P. 6th Ci r. 1997). Re g ardle ss, the decision of the ba nkruptcy court c an be aff irmed “if it is corr ect for any rea son, including a reason not considere d by that court.” Gibson v. Gibson ( In re Gibson) , 2 1 9 B. R

. 1 9 5 , 2 0 0 (B

. A. P

. 6 thC i r. 1 9 9 8 ) ( qu o t i n g McD owell v. Krawchison , 125 F.3d 954, 957 ( 6th Cir. 1997)).
III . F AC TS On May 24, 2004, Gre g ory

Ander son and Rose Ande rson (the “De btors”) f iled their cha

pter 7 petition a

n d a c c o mp a nying sc hedules, a

nd Colleen M. Olson (the “T rustee” ) wa s appointed cha pter 7 truste e . O n O c tob e r 4 , 2 00 4, the De bto rs ame nd e d Sc he du le s Aand C to inc lud e a

pr e vio us ly undisclosed intere st in real prope rty located in the T ownship of Cry stal Fa lls, Count y of Iron, Mich ig a n ( th e “ Ca b in p r operty”). A ccor ding to those Sche dules, the De btors possessed an undivided
on e -h a lf int e re st i n th e Ca

bin pr op e rt y a s te na nts by the e nti re ty , with

the re ma ini ngon e -h a lf

int e re st he ld i n jo int

te na nc y by the De fe nd ants . A me nd e d Sc he du le C lis te d th e pr op e rt y a s f oll ow s: 1⁄2 interest in old cabin. The debtors own a 1⁄2 interest in an old cabin that may have a total value of

about $30,000. The de btors’ intere st would be $15,000. (A pp e lla nt’ s App . at 42. ) Th e sc he du le a lso ide nti fi e d 1 1 U .S. C. § 52 2( d) (5 ) a s th e statut or y ba sis for the e x emption and listed the value of the claimed e x emption as well as the current market value of t he Debtors’ i ntere st in the C abin property as $15,000. At no poi nt did the Trustee obje ct to the claimed e x emption.Sect i on 363 ( h) per mi t s t he s al e of proper t y of t he es t at e, un der § 36 3(b) , al ong w i t h t he i nt er es t of a c o- owner 1 of t he propert y , i f

at t he t i me of

t he com mencemen t of t he cas e t he debt or h el d an u ndi vi ded i nt er es t i n t he propert y as a t e n a n t i n c om mo n , j oi n t t e n a n t , or t e n a n t by t h e e n t i r e t y , a n d i f f ou r a dd i t i on a l s t a t u t or y c on di t i on s a r e me t

. 11 U. S. C. § 36 3 (h)

. I t i s di f

f i cul t t o under s t and i n pract i cal t er ms how t he s et t l ement wo ul d work

. T he T r us t ee propo s ed i n h er 2

mo t i on t o s et t l e t he adver s ar y procee di ng by conve y i ng t o t he D ef endan t s t he es t at e’ s i nt er es t i n t he C abi n pr op er t y “ af t er t aki ng i nt o acco unt t he D eb t o rs ’ avai l ab l e exem p t i o n. ” D i d t hi s m e a n t hat af t er t he co nveyance by t he T rus t ee t o t he D ef end ant s, t he D ef

end ant s wo ul d ow n t he ent i ret y of t he C ab i n pro p ert y , s ub ject only t o t hei r ob l i gat i o n t o pa y t he D eb t o rs t hei r $1 5 , 0 0 0 ? O r di d i t m ean t hat be cause t he D eb t o rs ’ exem p t i o n was $1 5 , 0 0 0 , whi ch eq uat ed t o 1/4t h of t he v a lue , t h a t afte r th e sa le the D e b to rs w o u ld o w n a n u n d ivid e d 1 /4 th i n te re st in t h e C a b in p ro p e rty, w ith the D e fen d a n ts owni ng t he r emai ni ng 3/ 4t hs o f t he propert y ? A s s umi ng t he f ormer s cen ar i o wer e t he one c ont emp l at ed by t he T r us t ee, i t i s d i f f i cu l t t o see ho w t he sale co uld ha ve g o ne fo rw ard o ve r t he D eb t o rs’ o b je cti o n since t he D eb t o rs wo uld ha ve l o st t he i r o w ne rship i ntere st i n the re alt y wit ho ut any gu ara nty t ha t t he y co uld rec o ve r t he i r $ 1 5 ,00 0 f ro m t he D efen d an t s.

- 4- Almost a y ear

later, on September 19, 2005, the Trustee obtained a drive-by appra isal of the Cabin proper

ty . Although the Deb t o rs h ad i n d i cate d that the prope rty “may have a total value of about $30,000,” the T rustee’ s appra isal g ave a n estimated value of $60,000. As a result of t his newfound equity , the Trustee filed an adver sary proce eding ag ainst the Def endants, the co- owner s of the Cabin proper

ty , seekingauthority

under 11 U .S.C. § 363(h) to sell both t h e es t at e’ s and the D e f e n d an t s ’ i n t e r e s t s i nth e p r o p e rty. 1 On April 7 , 2 0 0 6 , t h e Trustee filed a motion to approve her se ttlement of the adve rsar y proce edingwith the Def

endants pursua

nt to Fede ral Rule of Ba

nkruptcy Procedur e 9019. Among other ter ms, the proposed settlement a g ree ment provided th a t t h e T rustee w ould acc ept $13,560 from the Def en d an t s i n exchang e for

the estate ’s intere st in the Cabin property , takinginto account the Debtors’ claimed e x emption of $15,000. 2 On April 12, 2006, the De btors filed an obje ction to the motion premised on their belief that the settlement would pre clude r ecove ry of their c laimed exemption of $15,000. U pon lear ning that the se ttl e me nt a g re e me nt c onte mpl ate d th e ir re te nti on of the c la ime d $ 15 ,0 00 int e re st i n th e Ca bin proper ty , the Debtor s withdrew their objection. On April 25, 2006, the ba nkruptcy court conducted a hearing on the m otion for approval of the se ttl e me nt. At

the he ari ng , th e De bto rs ’ c ouns e l c on fi rm e d th at hi s c lie nts ha d w ith dr awn the ir ob je c tio n to the se ttl e me nt a nd tha t a ll p art ie s p re se nt at th e hearin gwe rein a g re e me nt w ithits terms. The ba

nkruptcy court then su a s

po nte raised the issue of whe ther the ba nkruptcy estate ha d

an inte re st i n th e Ca

bin pr op e rt y to co nv e y to the De fe nd ants , g ive n th e a bs e nc e of an o bje c tio n to the De bto rs ’ c la ime d e xemp tio n. Re sp on din g to the c ourt ’s c omm e nts , the De bto rs re ins tate d th e irDe s p i t e t h e o v e r l a p i n t e r m i n o l o g y , t h e “ f a i r a n d e q u i t a b l e ” s t a n d a r d a s a p p l i e d t o Ru l e 9 0 1 9 d o e s n ot 3

m easure a set t l em ent ’ s co nf o rmit y wi t h t he ab sol ut e p ri o ri t y rul e o f 11 U

. S.C

. § 1 1 2 9 (b)(2), but i nst ead i s “f ai rnes s” and “e q u ity” in the tra d iti o n a l se n se . See M ot or ol a, Inc

. v. O f f i ci alC om m
. of

U ns ec ur ed Cr edi t or s ( I n r e I r i di um O per at i ng LL C) , 47 8 F.3d 45 2 , 46 3 (2nd C i r. 20 0 7 ). W hether a part i cul ar s et t l em ent ’ s d i st ri b ut i o n s chem e co m p l i es wi t h t he B ankruptcy C o d e’ s p ri o ri t y s chem e i s, how ever, a cruci al f act o r f o r t he co urt t o co nsi d er when de t erm i ni ng whet her a se ttl e m e n t i s “fa ir a n d e q u itab le ” un d e r R u le 9 0 1 9

. I d. a t 464.

- 5- or ig ina l ob

je c tio n a nd a dd iti on a lly ob

je c te d on the ba sis that th e Ca bin pr op e rt y ha d b e e n p ro pe rl y exempted and was no long er pr operty of the e state subject to sale by the Trustee

. On October 20, 2006, the bankruptc y court issued its opinion and enter ed an orde r deny ing the Trustee ’s motion for appr oval o f h er s ett lement with the Def endants be cause the bankr uptcy estate no longe r had an interest in the Cabin proper ty , as a result of the De b t o rs ’ unchalleng ed exemption. On October 30, 2006, the Tr ustee filed a

motion to re consider, reque sting that the cour t
reve rse its Octobe r 20 d ec i s i o n beca use, in part, it was in dire ct conf lict with the holding in In re He fli n , 215 B.R. 530 (B ankr. W.D. Mich. 1997), a decision by

a diffe rent ba

nkruptcy judge in the
same dis tr ic t. O n N ov e mbe r 2 8, 20 06 , the bankr up tc y c ourt de nie d th e Tr

us te e ’s mot ion

to
rec onsider.
On De c e mbe r 8 , 2 00 6, the Tr us te e tim e ly

fi le d h e r a

pp e a l of bo th o rd e rs . IV . D ISC USS ION
A. St anda r d forappr ov al o rdisa ppr ov al o f a se tt le m e ntag r e e m e nt
Rule 9019 of the F eder al Rules of B ankruptc y Procedur e provide s: “On motion by the trustee and af ter notice and a he aring , the cour t may approve a compr omise or settlement.” The rule offe rs no guidance as to the cr iteria to be used in e valuating whether a settlement should be a pproved, but courts uniformly

have dr awn f

rom the languag e of the Supreme C o u rt ’s dec ision in TMT T railer Fe rry in establishing a

“fa ir and e quitable” threshol d f o r s e tt lement appr oval. See ProtectiveComm. 3 for Indep. Stock

holders of TMT T

railer Ferry, Inc . v. Ande rson , 390 U.S. 414, 424, 88 S. C t. 1157, 1163 (1968). Although the T M T T ra i l e r Fe rry case was de c ide d und e r t he B ank ru ptc y Ac t, “ its principles have been broadly held applicable t o settlements under the Ba nkruptcy Code.” 2 Norton Bankr. L. &Prac

. 2d § 41:10 ( 2007). Many Rule 9019 opinions have re lied on TM T Tra ile r F

e rry

“ bo th f or the su bs tanti ve re qu ir e me nt t

hat se ttl e me nt r e pr e se nt a

fa ir c omp ro mis e of

dis pute d is su e s, and for the re quirement that such se ttlement be pre cede d by adequate inquiry .” Id.A rs B ro o kL L C v . Ja lb e rt (In re S e rv ise n se .c o m , In c .) , 3 8 2 F .3 d 6 8 (1 st C ir. 2 0 0 4 ); M ot or ol a, I nc. v
. O f f i ci al 4 Comm

. of

Uns e c ur e d Cr e di t ors (

I n r e I r i di um O pe r at i ng L LC) , 4 7 8 F .3 d 4 5 2 (2 n d C ir. 2 0 0 7 ); Wi l lv. No r t hw es t er n Uni v. (In re N u tra q u e st, In c .) , 4 3 4 F .3 d 6 3 9 (3 rd C ir. 2 0 0 6 ); O f f i ci al C om m
. o

f U nse cur ed C r edi t ors v. C aj un E l ec. P ow er C o -o p , In c . ( In re C a ju n E le c . P o w e r C o -o

p , In c .) , 1 1 9 F .3 d 3 4 9 (5 th C ir. 1 9 9 7 ); D epoi s t erv
. M ar y M

. H ol l oway Found. , 3 6 F .3 d 5 8 2 ( 7 th C ir. 1 9 9 4 ); D r ex el Bur nham Lam ber t , I nc. v
. Fl ightTr ans

p. Cor p. ( I n r e Fl ightTr ans

p. Cor p. S e c . L iti g .) , 7 3 0 F .2 d 1 1 2 8 (8 th C ir. 1 9 8 4 ); M a rt i n v. K a n e (In re A & C P ro p erti es) , 7 8 4 F.2d 1 3 7 7 (9th C ir. 1 9 8 6 ); Rei s s v
. Hagm ann , 8 8 1 F .2 d 8 9 0 ( 1 0 th C ir. 1 9 8 9 ); W a lli s v
. J u stice O a k

s II , L td

. (In re J

u stice O a k

s II , L td .) , 898 F. 2d 1 5 4 4 (11 t h C i r. 19 9 0 ).

- 6- The Six th Circuit Court of Appeals has he ld that “the ba nkruptcy court is cha

rg ed with an aff irmative obl igation to apprise itself of the unde rlying f acts a nd to make an inde pendent judgment
a s to wh e the r t

he c omp ro mis e is fai r a nd e qu ita ble .” Rey nolds v. Comm’r , 861 F .2 d 469 , 473 (6 th Cir . 1 98 8) (e mph a sis a dd e d) . T he c ourt mus t we igh the c on fl ic tin gint e re sts of a ll r e le va nt p art ie s, “conside ringsuch fa ctors as the probability of succ ess on the merits, the complexity and expense of litigation, and the r easona ble views of cre ditors.” Bauer v. Comm erceUnion Bank, 859 F.2d 438, 44 1 ( 6th Cir . 1 98 8) (c itatio n omi tte d)

. “ A b ank ru ptc y jud g e ne e d n ot c on du c t a min i- tr ia l or

wr ite an extensive opinion every time he approve s or disapprove s a settlement. The judge need only be apprised of

the re levant fa cts and lawso that he can make a n informed a

nd intelligent de cision and set out the rea sons for that dec ision.” Fi sh e ll v . S oltow ( In reFi sh e ll) , 4 7 F

. 3 d

1 1 6 8 , 1 9 9 5 WL 6 6 6 2 2 , at * 3 (6 th C i r. Fe b

. 1 6 , 1 9 9 5 ) (unp u b l i s h ed t ab l e d e c i s i o n ) ( q u o t i n g LaSalle Nat ’l Bank v

. Holland ( In re Am . Reserv e Corp.) , 8 41 F .2 d 1 59 , 1 63 (7 th Cir . 1 98 7) ); se eals o TM T Tra ile r F

e rry , 390 U.S. at 437 (holdingthat bankruptc y court must have the fac ts in order to make an informed a nd independe nt decision).
Al tho ugh p ub lis he d Si xth Circ uit c a se law on Rule 90 19 se ttl e me nts is re lativ e ly sp ars e , in
un pu bli sh e d d e c isi on s th e Court of A ppe a ls a

nd B ank ru ptc y Ap pe llate Pane l ha

ve c on sis te ntl y
rea ffirme d their adherenc e to the “fair and equitable” sta ndard. Se eLy nd

on Prop . I

ns . Co . v . Ka tz , 19 6 F e d. Ap px. 3 83 , 3 87 (6 th C ir . 2 00 6) ; Bard v. Siche rman ( In re Bard) , 49 Fe d. Appx. 528, 530 (6 th C ir . 2 00 2) ; In re F

ish e ll , 47 F.3d 1168, 1995 WL66622, at *3 (6th Cir. Fe b. 16, 1995) (u np ub lis he d ta

ble de c isi on ); Cook v. Terlec ky ( In re Cook) , 336 B.R. 600, 2006 WL13114, at *3 (B .A .P. 6th Cir . Jan . 4 , 2 00 6) (u np ub lis he d ta

ble de c isi on ); Porter Drywall Co. v. Have n, Inc. ( In re Hav en, Inc .) , 326 B.R. 901, 2005 WL927666, at *3 (B .A.P. 6th Ci r. April 7, 2005) ( unpublished table dec ision). Furthe r, the va st majority of appe llate cour

ts that have a ddresse d the issue have relied upon the same or similar c riteria. No appe llate cour t has reje cted, ei t her e x pressly or 4 implicitl y , the ef

fica cy of this approa ch.T h e cou r t r ea s on ed t h at i n dr af t i n g Rul e 9019 Cong r es s i n t en ded t h e s et t l eme n t a pp roval p roces s t o be 5

e n tire ly d isc re tio n a r y : “ R u le 9 0 1 9 (a ) is inte n d e d to b e no thin g m o re tha n a sa fe h a rb o r fo r tru ste e s w h o w ish to a v a il t hems el ves of t he bankr upt cy cour t ’ s prot ect i on pri or t o e nt er i ng i nt o s et t l ement ag r eement s wh i ch may ha ve s ubs t ant i al c o n seq uences t o t he est at e. . . . [T he t rus t ee] ma y pursue and co nsumm at e a set t l em ent wi t ho ut ba nkruptcy co urt i nt er ven t i on i f

s he s o choose s . ” I

n r e D al en , 259 B

. R. a t 599.
“ A cons entdecr ee i s a s t r ang e hy bri d i n t he l aw [ t y pi cal l y us ed i n f eder al empl oy ment di s cr i mi nat i on l aw 6

s ui t s ]

. I t i s bot h a vol un t ar y s et t l ement agr eement whi ch coul d be f ul l y ef f ect i ve wi t hout j udi ci al i nt er ven t i on an d a f i nal ju d ic ia l o rd e r p la c ing the p o w e r a n d p re stige fo r t h e c o u rts b e h ind the c o m p ro m ise stru c k b y the p a rtie s. H e n c e , a cons ent decr ee i s a s et t l ement ag r eement s ubj ect t o cont i nu ed j udi ci al pol i ci ng . ” Vangua rds o f Cl ev el and v

. Ci t

y of Cl ev el and , 2 3 F .3 d 1 0 1 3 , 1 0 1 7 -1 8 (6 th C ir. 1 9 9 4 ) (c itatio n s o m itt e d ).

- 7- Despite this uniformity

in application, the bankr

uptcy court here chose to rejec t the fair a nd equitable standard in favor of a standard it enunciated in In re Dale n , 259 B.R. 586 (B ankr. W.D. Mich. 2001). Ac cording to Dalen , “the ultimate question ra ised in a h ea ri n g concerningcourt approva l of a trustee ’s pro p o s ed settlement is whethe r the trustee , in rea chingthat settlement, has
c omp lie d w ithhe r f

idu c iary dutie s [of

c are , lo y a lty , a

nd ob e die nc e ] to the ba

nk ru ptc y e state , it s
cre ditors, and other pa

rties in interest.” Id. at 611. This fiduciar y standard pur

portedly is derived 5 fr om “ a we ll d e ve lop e d b od

y of Sixth C ir c uit

c a se law c on c e rn ing the pr oc e ss by wh ic h a c ourt is to a pp ro ve c on se nt d e c re e s, ” and , a c c or din gto t he ban kruptc y

c ourt , “ of

fe r[s ] co ns ide ra

ble 6 assistance in determininghow a ba nkruptcy court should e valuate a settlement agree ment which has been pr esente d to it by

a trustee for a

pproval.” In re Dale n , 2 59 B .R. at 6 04

. I n reac hin gthi s conclusion, the ba

nkruptcy court reasone d that it was not bound by the Supreme Court c ase of TMT T ra i l e r Fe rry b ecause that c ase, involvingthe absolute prior ity rule, ha d been misinterpr eted a nd misapplied. Id. Th e ba

nk ru ptc y c ourt fu

rt he r re a so ne d that it wa s no t bo un d by the Six th Circ uit de c isi on s Rey nolds and Ba ue r beca use they wer e “not on point.” Id. at 604. The c ourt also did not believe that it was bound by the re asoningin the Six th Circuit decision In reFi sh e ll , which off

ere d “the most extensive discussion” of the proc ess for a pprovingproposed se ttlements in bankruptcy
case s, beca

use Fi sh e ll is an unpublished decision. The pa nel disagree s. Although TM T Tra ile r F

e rry conce rned the absolute priority rule, the Supreme Court, in discussing the importance of settlements in bankruptc y case s, stated: Th e re c an be no inf

or me d and ind e pe nd e nt jud g me nt a s to wh e the r a pr op os e d c omp ro mis e is fair a nd equitable until the bankr uptcy judge has appr ised himself of all fa cts nec essar y for an inte lli g e nt a

nd ob je c tiv e op ini on

of the pr ob a bil iti e s o f u lti mate su c c e ss s ho uld the c la im be litigated. Fur

ther, the judg e should form an educated estimate of the complexit y , expense, and likely duration of suc h litigation, the possible dif ficulties of collec ting on a ny judgme nt which mig ht be obtained, an d al l o ther fa ctors re levant to a f ull and fair a ssessment of theAl t houg h t he D al en co urt l o o ked t o co nsent de cree d eci si o ns, i n pa rt i cul ar Un i t e d St a t e s v
. Ci t y o f Mi a mi , 7 6 1 4 F

. 2 d 1322 ( 5t h Ci r . 1980) , f or g u i dan ce i n de t er mi n i n g h ow a ban k r u pt cy c ou r t s h ou l d e v al u at e a s et t l em ent agr e e me n t , t h a t pa r t i c u l a r de c i s i on s t a t e s t h a t t h e pr oc e s s f or c ou r t a pp r ov a l of a c on s e n t de c r e e r e pr es ent s an “i nt erm ed i at e” ap p roac h be t ween t he st and ard f o r app roval o f

a s et t l em ent i n t y p i cal l i t i gat i o n and of a set t l em ent i n a b a n k ru p tc y c a se . I

d. at 13 3 1

. I n f

act , t he Fif

t h C i rcui t i n C ity o

f M ia m i m ak es c l ea r t ha t all b an kru p t cy sett l em en t s m ust be approved by t he bankr upt cy c o urt a s “fai r a nd equi t abl e. ” I d. at 13 3 0

. T he p roce ss f o r court ap p roval o f

co nsent d ec ree s wa s no t d ev elo p ed t o serve as a tem p l ate f o r b an kru p t cy co urt sett l em en t s. R athe r, t he p re-estab l i she d p ro ce ss f o r bankrup t cy set t l em ent ap p roval (i

. e. , m and at o ry co urt ap p roval, noti ce t o i nt erest ed pa rt i es, a n d the “f ai r and e q u itab le ” r e q u ire m e n t) w a s a lter e d a n d a d ju ste d to fi t t h e p a rtic u la rities o f co n se n t d e c re e s. See , e
. g. , i d. a t 1332 n

. 18. ( “ U nl i ke s i t uat i ons i n w hi ch t he part i es ar e a t t emp t i ng t o s ecu r e a s et t l ement i n a bank r upt cy procee di ng . . . , we nee d not f ear he r e t hat an y par t y i s at t emp t i ng t o prof i t at t he expen s e of

un r epre s ent ed i ndi vi dual s . ”) T he D al en cour t ha s appl i ed a s t an dar d t h at i s e s s en t i al l y a c opy of a n a men ded copy , a s s er t i n g t h at i t i s a mor e ac cu r at e r epr es en t at i on of the o rig ina l t h a n the o rig ina l i tse lf.

- 8- wi sd om o f t

he pr op os e d c omp ro mis e . B a sic to thi s pr oc e ss in e ve ry ins tanc e , o f c ours e , is the nee d to compare the terms of the compromise with the likely rew ards of

litigation. TM T Tra ile r F

e rry , 390 U.S. at 424-25. Clearly , the bankr

uptcy court wa s in error

in ignor ing the Supreme Cour t ’s direc tive. Nowher e in TM

T Tra ile r F

e rry does the court discuss, much less promote, a fiduciar y standard f

or
re vie w of pr op os e d se ttl e me nt a g re e me nts

. It wa s e rr or fo r t he ba nk ru ptc y c ourt to i g no re the Sixth Circuit’s d i s cu s s i o n in Rey nolds and Bauer , b e c a us e tho se c a se s, a lth ou g h n ot b ank ru ptc y c a se s,
a c kn ow le dg e that TM

T Tra ile r F

e rry established a standard for ever y court to a

pply when e valuating

a pr op os e d s e ttl e me nt a gre e me nt.
In summary , the bankr

uptcy court wa s bound by

the “f air a nd equitable” standard e stablished by the Six th Circuit Court of Appeals in Rey nolds and Bauer , a st andar d that is in harmony with the BA P’s own, alb e it

unpublished, decisions in Have n and Cook, and with the we ight of j u d icial authority expressed by

numerous other

circ uits. There is no p re cede nt–binding, per suasive, or otherwise–a dvocatingthat a bankr uptcy court’s a pproval of a

Rule 9019 settlement is to be judge d
acc ordingto a trustee’ s adher ence to his or her fiduciar y duties. Consequently , this P anel holds that

7 the bankr uptcy court a pplied an improper

standard in disapproving the settlement agree ment enter ed int o b y the Tr us te e and the De fe nd ants

. Ev e n so , un de r the fa c ts of thi s c a se , the c ourt ’s fa ilure to
us e the c or

re c t st and ard

is a ha rm le ss e rr or , n ot m and atin gre ve rs a l, f or the fo llo wi ngre a so ns . The de cision of the bankr

uptcy court to disapprove the settlement agree d to by the par ties was pr e dic ate d s ole ly on its c on c lus ion that the De bto rs ’ u nc ha lle ng e d e xemp tio n o f t he Ca bin pr op e rt y
remove d the prope rty

in its entirety

from the ba

nkruptcy estate.T h e b a n k ru p tc y c o u rt re c o g n iz e d a s m u c h in a fo o tno te to its d e c isio n : “I t is d iff ic u lt to s e e ho w a c o u rt c o u ld 8 appr ov e as f

ai r a n d e qu i t abl e a s et t l eme n t

. . . w h er e t h e ban k r u pt cy e s t at e i s t o r ec ei v e $13, 500 [ s i c] i n e x ch an g e f or propert y i f

t he bankr upt cy es t at e h as no i nt er es t i n t he propert y t o conve y . ” I d. a t 143 n

. 7.
T h e B an k r u pt cy Code i s c on t ai n ed i n 11 U

. S. C. §§ 101- 1330. 9

- 9- [T]he Cha pte r 7 Tr us te e ’s se ttl e me nt wit

h the owne rs of the oth e r u nd ivi de d o ne -h a lf interest in the [Cabin] proper ty cannot be approve d, for, a s alrea dy discussed, that se ttl e me nt c onte mpl ate s th e Cha pte r 7 Tr us te e c onve yingto t

ho se owne rs an inte re st in t he [Ca bin ] prop e rt

y tha t th e ba nk ru ptc y e state in a ll l ike lih oo d n o lo ng e r o wn s. The ba nkruptcy es t at e’s r ece ipt of consideration from the Def endants unde r such circ umstances would be tantamount to fra ud and, ther efor e, would be in violation of the Chapter 7 Trustee ’s fiduciar y duty to a dminist er the bankruptc y estate in a lawf ul manner . (Appe llant’s App. at 169-70)

. I f the ba nkruptcy court wa s corr ect in its conclusion that the estate no longe r possessed a n inte r e s t i nth e Ca

b in p r o p e rty , b e c a

u s e o f th e T r u s te e ’ s f a il ur e to o b

je c t t o th e D e b to r s ’ c la imed
e xemp tio n w ith in t

he Rul e 40 03 (b ) d e a dli ne , th e n t he B AP c ann ot s anc tio n a

se ttl e me nt t

hat pu rp or ts to c onve y that inte re st, re g ard le ss of the ba nk ru ptc y c ourt ’s imp ro pe r us e of a fi du c iary sta nd ard in dis a pp ro vin gthe se ttl e me nt. Th e pr op ri e ty , o r l a c k th e re of , o f t he ban kru ptc y

c ourt ’s ult imate 8 de c isi on do e s n ot t ur n o n whe the r t

he c ourt us e d th e mand ate d s tand ard fo r a pp ro va l of

a se ttl e me nt, but instead turns on whethe r the c ourt was c orre ct in deter mining that the Cabin property was no longe r prope rty

of the ba nkruptcy estate. That i s, if the cour t was cor rec t reg ardingthe exemption is s u e, then it also was cor rec t in disapproving the proposed se ttlement, and its decision must be aff irmed. On the othe r hand, if the court was wrong reg ardingthe exemption objection issue, then it also was in err or in disapprovingthe proposed se ttlement, and its decision must be reve rsed.
B. F ail ur e to obj e c t t o a c lai m e d e xe m pt ion with in R ule 40 03 (b ) d e adl ine Up o n th e f

i l i n g o f a b an kr

u p t c y p e t i t i o n , “ a l l l e g a l o r e qu i t a b l e i n t e r e s t s o f the de bto r i n proper ty” become the prope rty

of the ba nkruptcy estate. 11 U .S.C. § 541. The Ba nkruptcy Code 9 pe rm its the de bto r t o p re ve nt t he dis tr ibutio n o f c e rt a in e state pr op ert y by c la imi ngit a s e xemp t. 11 U.S.C. § 522(b). A prope rly filed exemption removes prope rty from the ba

nkruptcy estate, a nd conseque ntly from the rea ch of cre ditors and the ba nkruptcy trustee. Le bo v itz

v . H age rm e y e r ( In re Le bo v itz ) , 3 60 B .R. 61 2, 61 8 (B .A .P. 6th Cir

. 20 07 ). In Mic hig an, a de bto r is p e rm itt e d to c ho os e- 10-

fr om t he e xemp tio ns a ff

or de d b y state law o r f

ro m th e fe de ra l e xemp tio ns lis te d in § 522 (d). In th is
c a se , th e De bto rs se le c te d th e fe de ra l e xemp tio ns . Section 522(l) of the Ba nkruptcy Code requir es a de btor to file with the cour t a list of proper ty that he or she wishes to exempt from the bankruptcy estate. These pr oposed exemptions must be listed on the debtor’s Sche dule C and must include a de scription of the prope rty exempted, the statutory

section authorizing the ex em p t i on, the value of the exemption, and the marke t value (l e ss a pp lic a ble lie ns ) o f t

he e xemp te d p ro perty

. F e d. R. B ank r. P. 4 00 3( a ). Un le ss a

pa rt y in interest objec ts to the list ed exemption within 3 0 day s of the close of the mee ting of cre ditors or wi thi n 3 0 d ay s a ft e r a

su bs e qu e nt a

me ndme nt t o th e sc he du le , th e pr op e rt y c la ime d a s e xemp t is
e xemp t, r e ve sts in t

he de bto r, and

is n o lo ng e r p ro pe rt

y of the e state . 1 1 U. S .C

. § 52 2(l); F e d. R. B ank r. P. 4 00 3( b) ; In reBrown , 178 B.R. 722, 727 (B ankr. E.D . Tenn. 1995).
Wit h respe ct to the exemption list filed by the Debtor s here in, the bankruptc y court stated: In this inst ance , Debtor' s “list of prope rty” [ i.e., De bto r' s ame nd e d Sc he du le C] clea rly descr ibes the exemption claimed as the u n d ivided one-ha lf interest in the hunting pr operty . Moreove r, t he amount Debtors set as t he value of the e x emption claimed, $15,000, not only was within the limits established under the Sec tion 522(d)( 5) exemption claimed, but also was the e x act amou nt Debtors set a s the overa ll value of the undivided inter est in que stion. It w ould se em then that Debtors intended to kee p as their own the undivided interest in the hunting p roperty when the y a dd e d th at pr op e rt

y to t he ir ame nd e d Sc he dule C. C on se qu e ntl y , th at inte re st would have c ease d being proper ty of the estate by operation of Section 522(l) whe n ne ith e r t he Cha pte r 7 T ru ste e no r a

ny oth e r p art

y in i nte re st f

ile d a n o bje c tio n w ith in the Novembe r 3, 2004 dea dline. (Appe llant’s App. at 146).

Ba sed on this conclusion, the bankr uptcy court re fused to ap p rove the Trustee ’s proposed
se ttl e me nt wi th t

he De fe nd ants , whic h c onte mpl ate d a sa le of the e state ’s int e re st i n th e Ca bin proper ty

. The bankruptcy court reasone d that its int erpr etation of § 522(l) was c onsistent with the Supreme Court’ s d ec i s i o n in Taylor v. Free land &Kronz , 503 U.S. 638, 112 S. C t. 1644 (1992), wh er ei nth e C o urt a d d r e s s e dth e s i gn i fi can ce o f t i m el i n es s i nth e f i l i n g o f ano b

j ec t i o n . T ak i n g a strict approa ch, the Court held t hat a trustee may not contest t he validit y of an e x emption after

the 30-day objection dea dline has passe d, even if the debtor ha d no colorab l e b as i s fo r claiming the exemption. Id

.- 11-

In Taylor , th e de bto r ha d disc los e d an e mpl oy me nt dis c ri min atio n law su it on h e r s c he du le s, lis te d its v a lue a s “ unkn own, ” and c la ime d th e fu ll amou

nt o f t he “ unkn own” pr oc e e ds a s e xemp t. Id. at 640. (The debtor a

nd the trustee later a g ree d that the debtor c ould not have prope rly exempted more than a

small portion, approxi mately $2,500, of any potential rec overy . Id. at 642.) The trustee did not object to the debtor’ s claimed e x emption, believingthat the lawsuit was of no value. Id. at 641. Howeve r, whe n the lawsuit was ultimately settled for $110,000, t h e t ru s t ee objected to the claimed exemption on the basis that it was not filed in g ood faith. Id. at 643. Affirming the lower
c ou rt s’ r u l i n g s d e nyi n gth e tr

u s t e e ’ s o b

j e c t i o na s un t i m e l y , th e S u p r e m e C o urtr e a s o n e d , “ Rul e 40 03 (b) gives th e tr

us tee andcred it ors 30 day s fr omth e in it ial c r e di to rs’ mee ti ng to ob jec t. By

n e g at i v e i mp l i c at i o n , th e R u l e i n d i c at e s th atc r e d i t o r s [ o r th e tr u s t e e ] m ay n o to b

j e c ta f t e r 3 0 d ays ‘unless, within such period, further time is gra nted by the cour t.’” Id. at 643. As explained by the Court :
Dea dlines may

lead to unwe lcome re sults, but t hey prompt parties to ac t and they produce finality

. . . . I f [t he trustee] did not know the value of the potential proc eeds of t he lawsuit, he could have sought a hearing on the issue, see Rule 4003(c) , or he c ou ld h ave a sk e d the B ank ru ptc y Court

fo r a n e xten sio n o f t ime to o bje c t, s e e Rul e 4003(b). Having done neither, [t he trustee] cannot now seek to deprive [the debtor] of the e x emption. Id. at 644.
The Taylor

decision is clea

r that wh en a debtor make s an unambiguous manifestation of int e nt t o s e e k a

n unli mit e d e xemp tio n in pr op e rt y , the n, a bs e nt a time ly

ob je c tio n, that pr op e rt

y is
e xemp t in its e nti re ty , e ve n if

its a c tua l va lue e xce e ds statut or y lim its , and it is n o lo ng e r p ro pe rt y of the e state . T he qu e sti on

he re is what c on sti tut e s su c h a n inte nt.
The D efendants ar gue, and the bankruptc y court a g ree d, that when a debtor sche dules an
e xemp tio n wi th ide nti c a l mark e t and e xemp tio n va lue s, a s in thi s c a se , the de bto r is c le arl y indicatingthe intention to ex empt the property in full, reg ardle ss of i ts actual va lue. In contra st, the Trustee contends that a debtor’s mere listi ng of identical marke t a nd exemption values is insuffic ient to manifest the re quired intent. Ac cordingto the Trustee , listi ng identical values simply indicates that the debto r d es i re s t o exempt an interest in proper ty up to the specific dollar amount shown. There fore , maintains the Trustee , if a debtor wants to e x empt a piece of proper ty in its entirety , he- 12-

or she must list it s market va lue as unknown and its exempted value as 100%, or make some similar
no tatio n e vid e nc ingsu c h a n inte nt. We rejec t this argument. As t h e b an kru p tcy court c orre ctly

noted, there is nothing on the fo rm Sc he du le C th at a le rt s a de bto r that the re qu ir e d way to as se rt an in- kin d exem pti on is to li st the value unknown and the e x emption as 100%. T o the contra ry , the form whic h is entitled “Proper ty Claimed As Ex empt” si mply asks a debtor to list the property claimed e x empt and to place values on the e x emption and the prope rty

. T h e Debtor complied with these instructions by specify ing that the proper

ty claimed as exempt wa s a “1⁄2 interest in old cabin.” The De btors stated that the Cabin proper

ty “may have a total value of a

bout $30,000,” clea

rly an estimation of value,

and that th e re fo re , th e ir

on e -h a lf int e re st “ wo uld

be $1 5, 00 0. ” (A

pp e lla nt’s App

. at 42 .) Thus , it
was c lear that th e Debtors we re se ekingto exempt t heir full intere st in the Cabin property , which they believed ha d a value of $15,000.
Moreove r, we are persua ded gene rally that a debtor’s listi ng of an exemption i n an amount sufficie nt to ex empt all of the available ( i.e., unencumbere d) value in the prope rty indicates his or her intent to exempt the property in full. “[A] n unstated pre mise of the Court’s holding[i n Taylor ]
wa s th at a

de bto r who e xemp ts the e nti re re po rt e d v a lu e of an a sse t is c la imi ngthe ‘f ull amou nt’ whateve r it turns out to be.” Allen v. Gre en ( In re Gre en) , 31 F.3d 1098, 1100 (11th Cir. 1994). A contra ry ruling wo u l d re v erse the burde n of proof place d on an objec ting pa rty to challeng e the propriety of an exemption in Rule 4003(c) and re nder the 30-day objection per iod meaning less. In re Harrington , 306 B.R. 172, 181-183 (B ankr. E.D . Tex. 2003). As expl ained by the Supreme Court in Taylor , if a trustee is uncerta in a bout an exemption claimed by a debtor , the trustee ma

y seek a hear ing on the i ssue or reque st an ex tension of time to object. Taylor , 50 3 U. S. at 64 4. “ F a ilure to timely object will l ea v e t h e t rustee w ithout recourse if the cour t later de termines that the de btor intended to exempt the property in full, even if suc h a ruling results in an ex emption g reater that the statutory limit s.” Mu lli

s v. Ag ge or gia Fa rm Cre dit

, A CA ( In reJ on es) , 357 B.R. 888, 897 (B ankr. M.D. Ga. 2005)

. We rec og nize that there is a split of opinion by the bankr uptcy courts on this issue. See, e .g., In reHe fli n , 215 B .R. 53 0, 53 4 (B ank r. W.D . Mic h. 19 97 ) (“ [W]he re the de bto r c la ims a sp e c if ic dollar amount as e x empt, the debtor is bound by t h at amount and . . . cannot claim that the e ntire- 13-

pr op e rt y is e xemp t.” ); In re Jone

s , 357 B.R. at 892 (“Claiming an ex emption sufficie nt to ex empt all the ava ilable . . . value in a proper ty should be dee med to indicate the de btor’s intent to exempt the prope rty

in full.”). Thre e cour

ts of appea ls have a ddresse d this issue. The fir st, Hyma n v . P lot k in ( In re Hyman) , 967 F.2d 1316, 1319 (9th Cir. 1992), dec ided by the Ninth Circuit immediately afte r Taylor , is distinguishable fr om the fac ts of the pre sent ca se bec ause the debtors in Hyman did not
e xemp t a ll o f t

he un e nc umb e re d va lue in the pr op e rt y . Ins te a d, the y lis te d the va lue of the ir ho me
a s $ 41 5, 00 0, su

bje c t to e nc umb ra

nc e s o f $ 34 7, 61 1, thu s p rod uci ng e qu ity of $6 7, 38 9, but on ly exempted $45,000, the maxi mum statutory amount. Id. at 1320. As such, it was not surprisingthat the court limit ed the debtors’ exemption to $45,000 when the va lue of their pr operty proved to be g reater than the value schedule d by the debtors. See I n re Pete rman , 358 B.R. 801, 804 (B ankr. D

. Colo. 2006) (

Hyman is inapplicable where the debtors li sted specific values of their prope rty , “and the va lue of

the pr op e rt

y and the va lue of

the e xemp tio n c la ime d w e re the same .” ); se eals o I n re Jones , 357 B.R. at 892 n.5 ( Ex plaining that the Hyman re su lt wa s ba se d on a pe c uli ari ty

of Ca lif or nia exemption l aw, whe re the homestead ex emption does not apply to the prope rty , but to the proce eds of the prope rty

afte r a sa le.)
In Stoebner v. W

ick ( In re W ick) , 276 F.3d 412 (8th Cir. 2002) , the Eig hth Circuit considered fac ts ide ntical to those in Taylor : a debtor who valued c erta in stock options as unknown and cla imed

an e xemp tio n in

tho se o pt io ns , a lso wi th a n unk no wn va lue . T he tr

us te e did no t make a

tim e ly objection to the exemption even t houg h the m axim um permitted by statute was $3,925. When the debtor subsequently exercised the options a nd rec eived $97,200, the trustee sought turnover of the proce eds, less $3,925. Id. at 414. Notwithstanding the simil arity with Taylor , the cour

t limi ted the de bto r’ s e xemp tio n to $3 ,9 25 , lo ok ingbe hin d th e langua g e us e d b y the de bto r in he r sc he du le s to de te rm ine he r i nte nt. Con c lud ingthat a ll o f t he pa rt ie s und e rs too d th at th e op tio ns we re on ly partially exempt, the court found Taylor to be inapplicable

. Id . at 417.
To the e xtent W

ick sug g ests that any

ambiguity

should be resolve d ag ainst the debtor, we be lie ve that Tay lor c omp e ls a c ontr ary re su lt, a s r e c ognize d b y

the El e ve nth

Cir c uit inIn re Gre en . In Gree n , the debtor, r ather than listing the va lue of the pr operty and exemption as “unknown” as in Taylor , schedule d the value of the lawsuit from a

n auto ac cident as one d o l l ar a nd the value claimed as exempt as one dollar a lso. In re Gre en , 31 F. 3d at 1098

. Th e tr us te e did no t obje c t to th e ex em p t i on and subseque ntly a dispute ar ose over

who was e ntitled to the procee ds from the- 14-

settlement of the lawsuit, the t rustee or the debtor. In aff irming the district court’s c onclusion that the debtor was entitled to the entire pr ocee ds from the settlement, the E leventh Circuit re jected the trustee’ s argument that its ruling would for ce tr ustees to file ne edless objec tions to establish t he value of conting ent assets. Id. at 1101. The court stated that the responsibility for this result re sted wi th C on g re ss a

nd the Sup re me Court , wh ic h ha d ma de it c le ar that the burd e n is on the tr us te e to ob je c t in a tim e ly mann e r t o a

ny imp ro pe r e xemp tio n c la ims

. Id.
We believe that the Gree n court’s holding promotes the fina lity contemplated by

Rule 4003

an d m an d at e d

b y Taylor

. [W]he re there i s a date whe n th e pa rt ie s’ ri g hts c an b e fi na lly de te rm ine d– in t

his case , th ir ty d ay s a f te r th e c r e d it o r s ’ me e ti n gif

n o o b je c ti o nis f

il e d

–th e p arti e s can proce ed fr om that date knowingwhich prope rty is property

of the e state and which proper ty belong s to the debtor. The debtor fr om that da y forwa rd can treat exempted pr op e rt y a s his o r h e r o wn

and is n ot f or c e d to wa it unti l so me unkn own f utu re date when the tr

ustee or a nother pa rty in inter est might ha

ul the debtor into court se eking th atp r o p e rty. In re Pe terman , 3 5 8 B. R

. at8 0 4 (qu o t i n g Taylor v. Freeland &Kronz , 938 F.2d 420, 425 (3rd Cir. 1991), aff’d , 5 03 U. S. 6 38 (1 99 2) ); see also I n re Morgan-B usby , 272 B.R. 257, 265 (B .A.P. 9th Ci r. 2002) (“ Allowing a trustee to distinguish be tween a n objection to an exemption its elf a nd the value of the prope rty

subject to that exemption does not promote finality .”).
In summary , under the fac ts of this c ase, the bankruptc y court was corr ect in holding that the Cabin pro p er t y wa s n o t property of the ba

nkruptcy estate. A s such, the cour t’s denial of the proposed se ttlement was appr opriate.
V. CO NC LU SION
For the forego i n g re asons, t he orde rs of the ba nkruptcy court de nying a

pproval of the settlement proposed by

the trustee a

re A FF I RMED.