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FILED

DEC 09 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. EC-14-1371-FDJu

)

J. PEDRO ZARATE, ) Bk. No. 13-22346

)

Debtor. )

______________________________)

)

J. PEDRO ZARATE, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

UMPQUA BANK; GEOFFREY )

RICHARDS, Chapter 7 Trustee, )

)

Appellees. )

______________________________)

Argued and Submitted on November 19, 2015

at Sacramento, California

Filed – December 9, 2015

Appeal from the United States Bankruptcy Court

for the Eastern District of California

Honorable Christopher M. Klein, Bankruptcy Judge, Presiding

 

Appearances: Appellant J. Pedro Zarate argued pro se; Dana A.

Suntag of Herum Crabtree Suntag argued for

Appellee Geoffrey Richards, Chapter 7 Trustee;

David Marvin Wiseblood argued for Appellee Umpqua

Bank.

 

Before: FARIS, DUNN, and JURY, Bankruptcy Judges.

FILED

DEC 09 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

* 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.
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INTRODUCTION

When Appellant J. Pedro Zarate filed his bankruptcy

petition, he had a pending state-court lawsuit against Appellee

Umpqua Bank (“Bank”). The chapter 7 trustee, Appellee Geoffrey

Richards (“Trustee”), entered into a settlement of the lawsuit

with the Bank. The bankruptcy court approved the agreement under

Rule 9019 of the Federal Rules of Bankruptcy Procedure.1

Mr. Zarate appeals. We hold that the bankruptcy court did not

abuse its discretion in approving the compromise as fair,

equitable, and reasonable. Accordingly, we AFFIRM.

FACTUAL BACKGROUND

A. State-court litigation 

On or around November 7, 2001, Mr. Zarate took out a

commercial loan for $85,750 from Sonoma National Bank, which is a

predecessor to the Bank.2 The loan was secured by commercial

real property on East Lindsay Street in Stockton, California

(“Subject Property”). Mr. Zarate executed a promissory note and

deed of trust in favor Sonoma National Bank. The loan provided

for an adjustable interest rate and a ten-year term with a

balloon payment at the loan’s maturity.

Mr. Zarate defaulted on the loan when it matured in December

1 Unless specified otherwise, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and

all “Rule” references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037.

2 Sonoma National Bank merged with Sterling Savings Bank. 

The Bank alleges that it is the successor-in-interest to Sterling

Savings Bank. Unless otherwise indicated, the three entities

will collectively be referred to as the “Bank.”

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2011. On or around June 28, 2012, the Bank filed a complaint for

specific performance against Mr. Zarate in San Joaquin County

Superior Court. On or around July 31, 2012, the state court

granted the Bank’s motion to appoint a receiver. The order

restrained Mr. Zarate from interfering with the Subject Property

or the receiver. 

Mr. Zarate filed a second amended answer and a second

amended cross-complaint containing ten causes of action,

including fraudulent inducement, breach of fiduciary duty,

declaratory relief as to property interest, slander of title,

improper foreclosure, and quiet title. Essentially, Mr. Zarate

alleged that the loan was supposed to have a thirty-year term, a

fixed interest rate, and fully amortizing payments, rather than a

ten-year term with variable interest and a final balloon payment. 

He also argued that the lender represented that he and his wife

were both signing the promissory note, whereas, in fact, he was

the only signatory. Finally, Mr. Zarate argued that the Bank

improperly acted as its own broker and owed a fiduciary duty to

Mr. Zarate. 

Based on these allegations, Mr. Zarate claimed that the Bank

committed fraud when it represented to Mr. Zarate and his wife

that the loan was set at a fixed rate for thirty years. He

contended that the Bank knew or should have known that Mr. Zarate

could not comply with the terms of the ten-year loan and did not

understand that the loan had an adjustable interest rate and

balloon payment due when the loan matured. He similarly asserted

that the Bank fraudulently told Mr. Zarate and his wife that both

would be signatories to the promissory note, when, in actuality,

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Mr. Zarate’s wife signed the deed of trust, not the promissory

note. As a result of these allegedly wrongful acts, Mr. Zarate

argued that the Bank breached its fiduciary duties to him.

Mr. Zarate sought declaratory and injunctive relief against

the Bank. He also requested $4,538.64 in statutory damages,

$75,000 in compensatory damages, and $425,000 in general damages. 

B. Bankruptcy proceedings

On February 22, 2013, before the Bank answered Mr. Zarate’s

second amended cross-complaint, Mr. Zarate filed his chapter 13

petition. On motion by the Bank, the bankruptcy court ordered

the case converted to a chapter 7 case. The court then appointed

the Trustee to oversee administration of the estate. 

The Trustee and his counsel “investigated the facts and

circumstances relating to the Lawsuit to determine the potential

value of the Lawsuit. The investigation included review of

documents served and filed in the Lawsuit and conversations about

the Lawsuit with Appellant and his counsel in the Lawsuit and the

Bank’s counsel in the Lawsuit.” The Trustee determined that

Mr. Zarate had indisputably defaulted under the loan. He also

learned that the Bank had conducted a nonjudicial foreclosure

sale of the Subject Property in October 2012, and Mr. Zarate had

not sought to enjoin the foreclosure sale. 

The Trustee attempted to learn the factual and legal bases

for Mr. Zarate’s claims against the Bank. The Trustee reviewed

the Bank’s discovery responses and documents that it had produced

in the state-court lawsuit. He stated that Mr. Zarate and his

attorney were not “able to provide significant factual or

evidentiary information to support Appellant’s claims. In

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addition, they were unable to present persuasive legal argument

to support Appellant’s claims.” The Trustee also inquired if

Mr. Zarate’s attorney in the state-court lawsuit was willing to

continue prosecuting the lawsuit on behalf of the bankruptcy

estate; the lawyer declined.

The Trustee decided to attempt to settle the state-court

lawsuit with the Bank. The Bank agreed to pay $20,000 to the

Trustee in exchange for a dismissal of the second amended crosscomplaint with prejudice.

On February 25, 2014, the Trustee filed Chapter 7 Trustee

Geoffrey Richards’ Motion to Compromise Controversy (“Motion to

Compromise”). He argued that, under the applicable Ninth Circuit

test, the compromise was reasonable, fair, and equitable,

particularly because the state-court lawsuit lacked merit and its

success was doubtful. Only Mr. Zarate opposed the motion. The

bankruptcy court heard arguments on the Motion to Compromise on

March 25, 2014, and took the motion under submission.

On March 31, 2014, before ruling on the Motion to

Compromise, the bankruptcy court assigned the case to the

Bankruptcy Dispute Resolution Program. The parties participated

in the court-ordered mediation, but were unable to settle the

dispute.

On June 18, 2014, the bankruptcy court issued an order for

an initial Judicial Mediation Conference, in order to determine

whether it should order judicial participation in further

mediation. At the conference, presided over by Chief Judge

Ronald Sargis, the court questioned the parties regarding the

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strength of the lawsuit and the potential for settlement.3 When

the court questioned Anh Nguyen, Mr. Zarate’s state-court

counsel, about information he had provided to the Trustee

regarding the state-court lawsuit, Mr. Nguyen stated: 

I gave him as much information as I could. It’s THE

[sic] beginning stages of the case. I honestly told

him we had very little right now. It’s going to be an

uphill battle for us. We didn’t know how much this

case is worth and whether or not it would be a good

option to pursue it considering the resources that we

have to put into the case.

 

The court continued the hearing on the Motion to Compromise until

July 1, 2014.

At the July 1, 2014 hearing, Judge Klein gave Mr. Zarate an

opportunity to present the Trustee with further information

regarding the lawsuit. On July 3, Mr. Zarate submitted over

400 pages of documents in support of his lawsuit. The Trustee

claimed that the documents were “jumbled” and Mr. Zarate failed

to properly explain the documents. The court reset the hearing

for July 8.

At the continued hearing, counsel for the Trustee informed

the court: 

[Mr. Zarate] provided a series of e-mails containing a

series of documents, most of which we had already seen,

some of which we had not seen. The documents he

provided that we had not seen did not in any way change

our view of the case. He also provided some

explanations of essentially his theory of the case that

essentially restated what we had heard before and do

nothing more than confirm to us that these claims are

extremely weak.

3 Judge Klein, who oversaw the case and ultimately approved

the compromise, was not present at the judicial mediation

conference. It is unclear whether Judge Klein was aware of the

arguments and representations made before Chief Judge Sargis.

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There are significant defenses to the case, and

the settlement of $20,000, which is a significant

portion of the loan amount of $85,000, is a very good

settlement, and we are satisfied that it is the proper

settlement based on the additional materials Mr. Zarate

provided, and we would again ask that the Court grant

the Motion[.]

With that information, the court took the matter under

submission. 

On July 9, 2014, the bankruptcy court entered its order

granting the Motion to Compromise. It noted that Mr. Zarate had

been “advised on multiple occasions . . . that he needs to come

forth with facts and evidence to support facts that demonstrate

that there is more merit to his contentions than heretofore has

appeared.” Turning to the issue of “whether the compromise is

fair and equitable taking into account the probability of success

in litigation, difficulties, if any, to be encountered in the

matter of collection, complexity of litigation, the expense,

inconvenience, and delay necessarily attending it, and the

interests of the creditors[,]” the court concluded that, under

the totality of the circumstances, the compromise was fair and

equitable. The court held that

the probability of success appears to be low. 

Mr. Zarate has repeatedly been asked for evidence to

back up his contentions regarding this $85,750

commercial loan. The evidence has not been

forthcoming. What has been forthcoming are technical

assertions that Mr. Zarate was not represented by a

broker and that his spouse was not party to the loan. 

The bank has presented information that goes beyond

those assertions and other assertions made by

Mr. Zarate. Thus, there are questions of fact that

would need to be resolved.

Given that “litigation would be complex and the outcome

uncertain[,]” the court held that the $20,000 offer of settlement

“appears likely to exceed the net amount that could be achieved

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in litigation . . . .” The court also stated that “[e]xpense,

inconvenience, and delay are manifest. Litigation would be

costly, fact-specific, and consume a considerable amount of

time.” The court noted that collectibility was not a factor, as

the Bank is sufficiently solvent, and none of the creditors

opposed the compromise.

Mr. Zarate timely filed his notice of appeal on July 22,

2014.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(A) and (O). We have jurisdiction under

28 U.S.C. § 158.

ISSUE

Whether the bankruptcy court abused its discretion in

approving the compromise of Mr. Zarate’s state-court lawsuit.

STANDARD OF REVIEW

The bankruptcy court’s decision to approve a compromise is

reviewed for abuse of discretion. Martin v. Kane (In re A&C

Props.), 784 F.2d 1377, 1380 (9th Cir. 1986), cert. denied,

479 U.S. 854 (1986); CAM/RPC Elecs. v. Robertson (In re MGS

Mktg.), 111 B.R. 264, 266–67 (9th Cir. BAP 1990). We apply a

two-part test to determine objectively whether the bankruptcy

court abused its discretion, first determining de novo whether

the court identified the correct legal rule, and second examining

the court’s factual findings under the clearly erroneous

standard. Beal Bank USA v. Windmill Durango Office, LLC

(In re Windmill Durango Office, LLC), 481 B.R. 51, 64 (9th Cir.

BAP 2012) (citing United States v. Hinkson, 585 F.3d 1247,

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1261-62 (9th Cir. 2009) (en banc)). A bankruptcy court abuses

its discretion if it applied the wrong legal standard or its

findings were illogical, implausible, or without support in the

record. See TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d

820, 832 (9th Cir. 2011).

DISCUSSION

A. Rule 9019(a) allows the court to approve settlement or

compromise of claims belonging to the bankruptcy estate if

it is fair, reasonable, and adequate. 

Rule 9019(a) provides that, “[o]n motion by the trustee and

after notice and a hearing, the court may approve a compromise or

settlement. Notice shall be given to creditors, the United

States trustee, the debtor, and indenture trustees as provided in

Rule 2002 and to any other entity as the court may direct.” 

Rule 9019(a). 

“The bankruptcy court has great latitude in approving

compromise agreements.” Woodson v. Fireman Fund Ins. Co.

(In re Woodson), 839 F.2d 610, 620 (9th Cir. 1988) (citing

In re A&C Props., 784 F.2d 1380-81).

It is clear that there must be more than a mere

good faith negotiation of a settlement by the trustee

in order for the bankruptcy court to affirm a

compromise agreement. The court must also find that

the compromise is fair and equitable. See, e.g.,

Citibank, N.A. v. Baer, 651 F.2d 1341, 1345–46 (10th

Cir. 1980).

In determining the fairness, reasonableness and

adequacy of a proposed settlement agreement, the court

must consider:

(a) The probability of success in the litigation;

(b) the difficulties, if any, to be encountered in

the matter of collection; (c) the complexity of

the litigation involved, and the expense,

inconvenience and delay necessarily attending it;

(d) the paramount interest of the creditors and a

proper deference to their reasonable views in the

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premises.

In re A&C Props., 784 F.2d at 1381 (citation omitted). The Ninth

Circuit has also stated that “[t]he trustee, as the party

proposing the compromise, has the burden of persuading the

bankruptcy court that the compromise is fair and equitable and

should be approved.” Id. (citing In re Hallet, 33 B.R. 564,

565–66 (Bankr. D. Me. 1983)). 

The law favors compromise, “and as long as the bankruptcy

court amply considered the various factors that determined the

reasonableness of the compromise, the court’s decision must be

affirmed.4 Thus, on review, we must determine whether the

settlement entered into by the trustee was reasonable, given the

particular circumstances of the case.” Id. (internal citations

omitted).

Moreover, “‘[w]hen assessing a compromise, courts need not

rule upon disputed facts and questions of law, but only canvass

the issues.’ If the court were required to do more than canvass

the issue, ‘there would be no point in compromising; the parties

might as well go ahead and try the case.’” Suter v. Goedert,

396 B.R. 535, 548 (D. Nev. 2008) (citations omitted).

B. The bankruptcy court did not abuse its discretion in

determining that the probability of success on Mr. Zarate’s

state-court lawsuit was low, such that it was fair and

reasonable to approve the settlement. 

It is undisputed that the bankruptcy court employed the

4 In his reply brief, Mr. Zarate takes issue with the

Trustee’s and the Bank’s citation to this sentence in

A&C Properties. However, he does not explain how the citation is

misleading or wrong or otherwise argue that the bankruptcy court

erroneously applied this principle.

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correct legal standard. Mr. Zarate only asserts that the court

erred in its findings regarding the first of the four factors

discussed in A&C Properties, i.e., that the probability of

success in the state-court lawsuit was low.5 We hold that the

bankruptcy court did not err in finding that the compromise was

fair and equitable and granting the Motion to Compromise. 

First, Mr. Zarate argues that the court improperly forced

him “to prove up his case to show probability of success without

requiring Sterling Bank to deny the allegations by way of a

verified answer” to the second amended cross-complaint. In other

words, Mr. Zarate contends that, because the Bank had not

answered the second amended cross-complaint, “there was no

evidence contradicting the sworn to facts as alleged in the

Second Amended Cross Complaint,” and such facts must be deemed

conclusive. Mr. Zarate concludes that his responsibility “to

bring forth additional evidence to show probability of success

was premature, unreasonable, unfair and inequitable . . . .” 

Mr. Zarate does not argue that the bankruptcy court failed

to consider the evidence he presented or applied an incorrect

legal standard.6 Rather, he takes issue with the bankruptcy

court’s order requiring him to present evidence in support of his

state-court claims.

It is true that “[t]he trustee . . . has the burden of

5 The Trustee argues that the bankruptcy court properly

evaluated all four factors and found that the settlement was

reasonable. Because this appeal only concerns the first factor,

we do not address the remaining three factors.

6 Mr. Zarate agrees that the correct four-part test is

articulated by the Ninth Circuit in A&C Properties.

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persuading the bankruptcy court that the compromise is fair and

equitable and should be approved.” In re A&C Props., 784 F.2d at

1381 (citing In re Hallet, 33 B.R. at 565–66). However, the

bankruptcy court did not improperly shift the burdens of

production and persuasion to Mr. Zarate. Rather, the bankruptcy

court considered the facts and evidence in both the Trustee’s

Motion to Compromise and Mr. Zarate’s opposition, found

Mr. Zarate’s evidence insufficient, and was prepared to side with

the Trustee. The court stated that “[t]he bank has presented

information that goes beyond those assertions and other

assertions made by Mr. Zarate.” By requiring that Mr. Zarate

“come forth with evidence to support facts that demonstrate that

there is more merit to his contentions,” the bankruptcy court did

not force Mr. Zarate to prove his claims in the first instance,

but rather gave Mr. Zarate multiple chances to convince the

Trustee and the court that his chances of success on the lawsuit

were higher than the Trustee thought.7 The bankruptcy court did

not err when it credited the Trustee’s evaluation of Mr. Zarate’s

claims.

Second, the court did not err in determining that the

probability of success in the state-court lawsuit was low. The

Trustee attested that he had investigated the facts and

circumstances surrounding the state-court lawsuit. The Trustee

determined that: (1) the promissory note was clear and

7 The court gave Mr. Zarate ample opportunity to present

sufficient evidence to show that his claims had merit. The court

even sua sponte ordered the parties to mediation after it took

the Motion to Compromise under submission, because it was

concerned “whether the debtor had been treated fairly.”

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unambiguous and the parol evidence rule would prevent Mr. Zarate

from arguing that the terms of the loan differ from what is shown

on the promissory note; (2) under California law, a lender does

not owe a fiduciary duty to commercial loan customers; (3) the

state court had already found that the Bank had standing to

pursue the litigation; and (4) the terms of the deed of trust

created a rebuttable presumption that the foreclosure sale was

proper. 

The Trustee also concluded that some of Mr. Zarate’s claims

were facially insufficient. For example, Mr. Zarate’s claim

regarding his wife as signatory to the promissory note likely

lacked merit. The Bank denied that Mr. Zarate’s wife was

supposed to be a co-signer, and Mr. Zarate “has failed to show

how, even if his wife was supposed to be a cosigner on the loan,

how that could create a claim against the Bank.”

The Trustee considered that even Mr. Zarate’s own statecourt counsel declined to prosecute the lawsuit on behalf of the

estate. The Trustee’s counsel attested that he had inquired

whether Mr. Nguyen would pursue the claim, but Mr. Nguyen refused

to do so. Mr. Nguyen admitted in open court (before Chief Judge

Sargis) that “I honestly told [the Trustee] we had very little

[information] right now. It’s going to be an uphill battle for

us. We didn’t know how much this case is worth and whether or

not it would be a good option to pursue it considering the

resources that we have to put into the case.” The Trustee

further determined that the estate did not have the resources to

retain other counsel.

As such, the Trustee concluded that the probability of

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success in the lawsuit was uncertain at best. The bankruptcy

court agreed.

Mr. Zarate has not pointed to any specific error in the

Trustee’s analysis of the probability of success or the court’s

consideration thereof. Accordingly, the court did not abuse its

discretion when it determined that the compromise was fair and

reasonable, because the likelihood of success in the state-court

lawsuit was low.

Finally, Mr. Zarate appears to argue that he has established

that he will likely prevail on his state-court claims, because

the facts in his second amended cross-complaint should be treated

as conclusive (or, at least, not refuted). He contends that

“[t]he facts alleged were evidence in nature, and because

Sterling Bank had not answered Appellant’s Second Amended CrossComplaint, there was no evidence contradicting the sworn to facts

as alleged in the Second Amended Cross-Complaint.” He states

that “the Trustee could have entered default against Sterling

Bank.”

This argument is meritless. As the Trustee points out, “the

Trustee and the Bank were in communication once the Trustee was

appointed and it would have been inappropriate to file a request

for entry of default without a warning to the Bank.” We cannot

fault the Trustee for choosing to engage in settlement

discussions with the Bank, rather than continuing to litigate a

case that he found questionable at best. Moreover, given the

evidence and argument provided by the Trustee in his Motion to

Compromise, we cannot say that the bare facts alleged in the

second amended cross-complaint are sufficient to establish a

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likelihood of success.

Accordingly, the bankruptcy court did not err in holding

that the likelihood of success in the state-court lawsuit was

low, such that the compromise was fair and equitable.

C. The court did not err in allowing the Bank to be heard as an

interested party.

Mr. Zarate argues that the bankruptcy court erred in not

requiring the Bank to prove that it held an interest in the

promissory note and deed of trust. He claims that the Bank is

not properly a party in interest. He states that “Sterling Bank

has not shown, whether by way of proof of claim or otherwise that

it is a successor in interest to the Note and DOT.”

Mr. Zarate has not shown that he raised this issue before

the bankruptcy court. Moreover, the state court had already

considered and rejected this argument in connection with the

foreclosure proceedings. 

Further, the question of the Bank’s standing has no bearing

on the Trustee’s evaluation of the settlement. Mr. Zarate

complains that the “Bank has not shown that it is a party in

interest in these proceedings.” If Mr. Zarate means that the

Bank must establish its standing before the Trustee can settle

the state-court claims in bankruptcy court, he is incorrect. The

Trustee is free (subject to bankruptcy court approval) to settle

claims with anyone. Here, Umpqua Bank was willing to settle the

state-court claims for $20,000, and the Trustee utilized his

business judgment to determine that the settlement was in the

best interest of the estate. The court did not err when it

agreed with the Trustee’s evaluation that the settlement was

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fair, reasonable, and in the best interest of the estate.

D. The state court’s order to maintain the status quo applied

solely to Mr. Zarate. 

Mr. Zarate also argues that the bankruptcy court abused its

discretion when it approved the compromise after it had received

notice that the state court had ordered that the status quo was

to remain in effect.

This argument is disingenuous. The state court’s order was

directed at Mr. Zarate, not the Bank, the bankruptcy court, or

the Trustee. In its written order, the state court unequivocally

stated that “Defendant Pedro Zarate is enjoined and restrained

from committing or permitting waste of the Property; removing,

transferring, encumbering or otherwise disposing of the Property

or its fixtures; demanding, collecting, diverting or receiving

rents; or interfering in any way with the discharge of the

receiver’s duties.” By its terms, the state court’s order did

not prevent the Trustee from compromising the lawsuit.

E. Mr. Zarate had ample opportunity to conduct discovery.

Finally, Mr. Zarate argues throughout his briefs that the

court prematurely approved the compromise, because “no discovery

proceedings had been conducted.” He complains that the Bank

failed to respond to his discovery requests, implying that he

could not present the court with adequate evidence with which to

evaluate the A&C Properties factors.

However, Mr. Zarate misstates the facts when he alleges that

the Bank did not “submit[ ] itself to discovery proceedings.” 

The Trustee points out that Mr. Zarate propounded numerous form

interrogatories, special interrogatories, requests for admissions

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and document requests, all of which were answered by the Bank. 

Mr. Zarate does not deny the appellees’ arguments, but responds

in his reply brief that, although he “attempted” to conduct

discovery, “because Sterling Bank did not verify its responses to

Mr. Zarate’s discovery requests, they are incomplete and act as

no responses at all. . . . As a result, no discovery had been

conducted.” (Emphasis in original.)

Mr. Zarate’s argument is unavailing and misleading. It is

undisputed that Mr. Zarate propounded extensive discovery on the

Bank totaling 213 individual requests.8 He also does not dispute

that he received the Bank’s responses to all of the requests. He

now argues that the Bank did not “verify” its responses, but each

of the responses to the discovery requests was signed by the

Bank’s counsel and included a sheet stating, “VERIFICATION TO

FOLLOW.” While the record does not reflect whether the Bank

subsequently provided a verification, it does not matter here. 

Mr. Zarate does not explain how the lack of a verification

renders the discovery responses so deficient that he could not

present his case to the bankruptcy court. Accordingly,

Mr. Zarate’s dubious complaints regarding the discovery process

do not convince us that the bankruptcy court abused its

discretion.

Mr. Zarate also argues that, because he made two “mistakes”

in propounding his discovery requests (a mistake in describing

the deed of trust and the property), and because the Bank

8 Mr. Zarate propounded 23 requests for answers to

interrogatories, 22 requests for admissions, and 168 requests for

production of documents.

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objected to his discovery requests, “almost no request was

forthcoming with the requested information, documents, or

admissions.” Even assuming the Bank’s responses were deficient,

this matter should have properly been raised by a discovery

motion before the bankruptcy court, rather than before the Panel

on appeal.

Furthermore, even if Mr. Zarate had not conducted any

discovery, the Trustee could still compromise the state-court

lawsuit. A trustee can exercise his business judgment to settle

claims at any time, based on his evaluation of the case. 

Rule 9019 does not constrain the timing of a compromise. 

Mr. Zarate, on the other hand, appears to advocate for a brightline rule, whereby a trustee cannot settle a state-court lawsuit

until the debtor has had a chance to conduct full discovery to

prove his case. This view is nonsensical, as it would interfere

with the Trustee’s ability to administer the estate in the most

fair and efficient manner. Rather, the Trustee must be permitted

to use his business acumen and judgment in the best interest of

the estate. As such, we decline to impose any hard and fast rule

regarding the timing of the Trustee’s right to compromise claims

in the bankruptcy case. 

CONCLUSION

For the reasons set forth above, we conclude that the

bankruptcy court did not abuse its discretion in approving the

compromise of the state-court lawsuit. Accordingly, we AFFIRM.

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