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

FILED

JUN 06 2016

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NOT FOR PUBLICATION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

n re: ) BAP No. CC-15-1371-KiTaL

)

YOUNG W. KONG, ) Bk. No. 2:11-bk-48629-BR

)

Debtor. )

 )

)

YANG JIN COMPANY, LTD., )

)

Appellant, )

)

v. ) M E M O R A N D U M1

)

ELISSA D. MILLER, Chapter 7 )

Trustee; YOUNG W. KONG; BBCN )

BANK; IL GUN LEE, )

)

Appellees. )

______________________________)

Argued and Submitted on May 19, 2016, 

at Pasadena, California

Filed - June 6, 2016

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Barry Russell, Bankruptcy Judge, Presiding

 

Appearances: Peter Jazayeri of Jaz, A Professional Legal

Corporation argued for appellant Yang Jin Company,

Ltd.; David John Richardson of SulmeyerKupetz, APC

argued for Elissa D. Miller, Chapter 7 Trustee;

Raymond H. Aver of Law Offices of Raymond H. Aver,

APC argued for appellee Young W. Kong. 

 

1 This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have, it has no precedential value. See 9th Cir. BAP Rule 8024-1.
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

Before: KIRSCHER, TAYLOR and LANDIS,2 Bankruptcy Judges.

Appellant Yang Jin Co., Ltd. ("Yang Jin") appeals an order

approving the chapter 73 trustee's compromise with debtor Young W.

Kong and the sale of certain stock to Debtor. Appellee Trustee

has moved to dismiss the appeal as moot. We DENY the motion to

dismiss and VACATE and REMAND the settlement order. 

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A. Debtor's bankruptcy filing

Prior to Debtor's bankruptcy filing, Yang Jin obtained a

judgment against Debtor for approximately $5.8 million. Yang Jin

is Debtor's largest unsecured creditor. 

Debtor filed a skeletal chapter 7 bankruptcy case on

September 12, 2011. Elissa D. Miller was appointed as trustee. 

In his later-filed schedules and statement of financial affairs,

Debtor disclosed an ownership interest in three companies but

failed to disclose his interest in a fourth — a 33.33% interest in

Lekos Dye & Finishing, Inc. (the "Lekos Stock").

B. First settlement between Debtor and Trustee

Before the settlement at issue, Debtor and Trustee entered

into a settlement of various disputes between them. Trustee had

filed an adversary proceeding against Debtor and his non-debtor

wife, Clara Kong (now deceased), seeking to avoid an alleged

fraudulent transfer of real property from Debtor to Mrs. Kong. 

2 Hon. August B. Landis, Bankruptcy Judge for the District

of Nevada, sitting by designation.

3 Unless specified otherwise, all chapter, code and rule

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

the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The

Federal Rules of Civil Procedure are referred to as “Civil Rules.”

-2-
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

Mrs. Kong denied the allegations, contending the real property was

her sole and separate property. Debtor then filed a motion to

compel abandonment of the estate's interest in his entity GGFB,

which Trustee opposed. Mrs. Kong then moved for a temporary

restraining order in the fraudulent transfer action, which Trustee

also opposed.

Debtor, Mrs. Kong and Trustee then entered into negotiations

for a global settlement to resolve all issues between them,

including the fraudulent transfer action, the abandonment motion

and the TRO motion (the "First Settlement"). Debtor agreed to pay

Trustee $90,000; the parties agreed to dismiss all pending actions

between them. The First Settlement contained a mutual release

clause between the parties and the Kong estate. It also contained 

an integration clause which stated that it was the entire

agreement among the parties and that it superceded all prior and

contemporaneous oral and written agreements and discussions.

The bankruptcy court approved the First Settlement on

October 1, 2014. 

In December 2014, Debtor's counsel emailed Trustee to confirm

that the First Settlement included a release of any claim by

Debtor's bankruptcy estate to the Lekos Stock. In her response

the next day, Trustee stated: "Confirmed. EDM." 

C. Trustee's sale motion

Several months later, Trustee filed a motion for order: 

(1) authorizing sale of the estate's interest in the Lekos Stock,

subject to the Nara Bank lien but free and clear of any other

creditor's liens or interests; (2) confirming sale to buyer or the

highest bidder appearing at the hearing; (3) approving overbid

-3-
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

procedures; and (4) waiving the 14-day stay under Rule 6004(h)

("Sale Motion"). In the Sale Motion, Trustee explained that after

discovering the Lekos Stock, she investigated and found that it

had been pledged to Nara Bank as collateral for a loan made to one

of Debtor's defunct entities. Because the outstanding loan amount

of $4 million exceeded the stock's value, Trustee concluded it had

no value for the estate and was proceeding to close the case when

approached by buyer, Il Gun Lee, president and 1/3 owner of Lekos. 

Trustee proposed to sell the Lekos Stock to Lee for $35,000,

which Lee had already tendered to the Trustee. The sale was

subject to overbids, with the initial overbid to be at least

$5,000 and subsequent bids to be in increments of not less than

$2,000 (or $3,000; the motion contains both figures). Trustee

asserted that the proposed sale of the Lekos Stock was supported

by her sound business judgment and was in the best interest of the

estate. Trustee further asserted that the sale price was fair and

reasonable given the Lekos Stock had no value over the Nara Bank

lien; thus, the proposed sale would provide a clear benefit to the

estate. Trustee's declaration in support contained several

errors, referencing another debtor in much of it. All creditors,

including Yang Jin, received notice of the Sale Motion. 

Lee filed a joinder to the Sale Motion, asking that Debtor be

barred from participating in the bidding process because of his

prior bad-faith conduct. Nara Bank also filed a joinder to the

Sale Motion but disagreed with Lee that Debtor should be barred

from bidding.

Debtor opposed the Sale Motion on the grounds that the

bankruptcy court lacked jurisdiction over the Lekos Stock, which

-4-
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

Debtor contended was no longer property of the estate based on the

mutual release of claims provided for in the First Settlement. 

Debtor argued that the First Settlement, which had been fully

consummated, included the estate's claims to the Lekos Stock. 

Debtor claimed the Lekos Stock had been specifically discussed

between Trustee and Debtor's counsel prior to entering into the

First Settlement. It was only after Trustee was satisfied that

Nara Bank held a perfected security interest in the Lekos Stock

that she agreed to accept the $90,000 settlement payment. She had

also confirmed in the December 2014 email, before Debtor had made

all of the settlement payments, that any claim by the estate to

the Lekos Stock had been released. Debtor contended he would not

have agreed to pay Trustee $90,000 if he had known she would take

the position that the First Settlement did not include a

settlement of any and all claims to the Lekos Stock. 

In reply, Trustee maintained that the First Settlement did

not include any release of the estate's interest in the Lekos

Stock, which she contended was still property of the estate. 

Trustee maintained that the First Settlement addressed only the

fraudulent transfer action, the abandonment motion and claims by

and against the parties. Trustee objected to Debtor's attempt to

introduce extrinsic evidence to now claim that the estate somehow

released its interest in the Lekos Stock. 

Trustee admitted "confirming" in the December 2014 email to

Debtor's counsel that the estate released its interest in the

Lekos Stock. However, she claimed that this was in error. In a

follow-up email in April 2015, Trustee advised Debtor's counsel

that she had received an offer to purchase the estate's interest

-5-
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

in the Lekos Stock:

Ray – this issues [sic] has arisen yet again as I

recently received an offer to purchase the estate's

interest in the Lekos Stock. I went back to the [First

Settlement] agreement and reviewed it again and guess

what. The agreement does not in any way deal with Lekos. 

Therefore, the Lekos' [sic] Stock is still an estate

asset subject to the pledge from [Nara Bank]. If you

disagree, please point me to any relevant language in the

pleading filed with the Court.

Debtor's counsel responded, stating that the estate no longer had

an interest in the Lekos Stock as it was sold to Debtor as part of

the global settlement between Debtor and the Kong estate. 

Attorney David Lally, who had previously represented Trustee and

Yang Jin in another matter against Debtor and was involved in the

prior settlement negotiations, agreed with Trustee; the Lekos

Stock was not addressed in the First Settlement nor abandoned, so

it remained property of the estate. Lally also disclosed that the

First Settlement approved by the bankruptcy court was drafted by

Debtor's counsel and it made no reference to the Lekos Stock.

In response to the Sale Motion, Debtor filed an adversary

complaint against Trustee and Lee for breach of contract, breach

of the covenant of good faith and fair dealing, equitable

estoppel, intentional interference with contractual relations and

injunctive relief. 

D. The Sale Motion hearing and the second settlement with Debtor

Debtor, Trustee and Lee appeared at the Sale Motion hearing. 

No one appeared on behalf of Yang Jin or for any other creditor. 

After noting that as a purchaser Lee lacked standing to file a

joinder to the Sale Motion, the bankruptcy court announced it was

denying Debtor's requested injunctive relief to stop the sale of

the Lekos Stock. 

-6-
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

The bankruptcy court noted that it never approved as part of

the First Settlement anything involving the Lekos Stock; that

issue was never before it. The court characterized Debtor’s claim

that he was misled as to whether the Lekos Stock was included in

the First Settlement as a distinct issue and declined to resolve

it at the Sale Motion hearing. In any event, the court considered

the Lekos Stock property of the estate. No creditors had ever

received notice of any alleged sale of it to Debtor, and the

mutual release in the First Settlement did not include it.

The bankruptcy court then pointed out to Trustee the mistakes

made in her moving papers for the Sale Motion, particularly in her

declaration. Trustee apologized for the mistakes, admitting she

was a poor proofreader and had been representing herself for this

motion. However, she had counsel appearing at the hearing because

she felt "personally attacked," she was "very emotional" about

this case and she did not like being sued and having to report it

to the U.S. Trustee. 

The bankruptcy court then heard from Debtor's counsel, who

requested a brief recess to speak to his client. The court agreed

to give him ten minutes and encouraged him to discuss a possible

settlement. At that point, Lee's counsel asked if the sale was

still going forward, to which the court replied: "Oh,

absolutely." Hr'g Tr. (Sept. 22, 2015) 16:12-14. 

Upon returning after recess, Trustee's counsel informed the

court that Trustee and Debtor had reached a settlement and that

Debtor's counsel would be reading the terms into the record. As a

procedural matter, Trustee's counsel asked the court: if Trustee

should just withdraw the Sale Motion; or if the court could

-7-
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

approve the sale of the Lekos Stock to Debtor on the specific

terms agreed amongst the parties; or if a 9019 motion should be

drafted, which would cost the estate more money. Before the court

responded to those questions, Debtor's counsel read the settlement

terms into the record. Debtor would release any and all claims

against Trustee respecting the sale of the Lekos Stock. Trustee

would sell the Lekos Stock to Debtor. In return, Debtor would pay

Trustee $40,000 within two days. Debtor would also dismiss his

adversary proceeding against Trustee and Lee with prejudice. The

court ultimately concluded that Trustee was withdrawing the Sale

Motion, even though the settlement recited in the record provided

that if Debtor failed to pay the balance owing within two days,

Trustee could proceed with the sale to which Debtor would not

object. Id. at 17:21-18:2; 19:12-22; 22:21-25.

Lee's counsel objected, stating that his client wished to

overbid Debtor's $40,000 offer and offer $41,000 or whatever the

next number was. Id. at 21:6-22:4. The court overruled Lee's

objection, stating that he lacked standing as a purchaser with a

sale contract subject to court approval.

After hearing Lee's objection, the bankruptcy court approved

the settlement between Debtor and Trustee as read into the record

(the "Lekos Settlement"). When Trustee's counsel asked if the

court was comfortable approving the Lekos Settlement in the

context of the Sale Motion, the court said: 

THE COURT: Oh, yes. Yes. Yeah, it is – yes,

absolutely. The other creditors in the estate they've

all had notice and they didn't even – obviously nobody

else really cared. . . . [Y]ou are essentially

withdrawing the old motion that was before me and

everybody's got notice. I'm not concerned there's

anybody else out there, so I will allow it. I think from

-8-
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

the estate's standpoint it makes a lot of sense and I

will approve it. 

Id. at 24:1-7, 24:17-22. 

The order approving the Lekos Settlement (the "Lekos Order")

stated that the Lekos Settlement was approved pursuant to

Rule 9019. It further stated that the Lekos Stock was being sold

to Debtor under the terms of the instant settlement and remained

subject to Nara Bank's lien. Debtor dismissed his adversary

proceeding with prejudice two days later. Yang Jin timely

appealed the Lekos Order.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334

and 157(b)(2)(A) and (N). We discuss our jurisdiction under

28 U.S.C. § 158 below. 

III. ISSUES

1. Is the appeal moot? 

2. Did the bankruptcy court err by approving the Lekos 

Settlement without notice to creditors under Rule 2002(a)(3)? 

3. Did the bankruptcy court abuse its discretion in approving 

the Lekos Settlement?

IV. STANDARDS OF REVIEW

We review our jurisdiction, including questions of mootness,

de novo. Ellis v. Yu (In re Ellis), 523 B.R. 673, 677 (9th Cir.

BAP 2014).

 Whether notice was sufficient for due process purposes is

reviewed de novo. See Frates v. Wells Fargo Bank, N.A.

(In re Frates), 507 B.R. 298, 301 (9th Cir. BAP 2014) ("We review

the bankruptcy court's application of procedural rules and whether

-9-
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

a particular procedure comports with due process de novo.").

We review the bankruptcy court's decision to approve a

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

Props.), 784 F.2d 1377, 1380 (9th Cir. 1986); Goodwin v. Mickey

Thompson Entm't Grp., Inc. (In re Mickey Thompson Entm't Grp.,

Inc.), 292 B.R. 415, 420 (9th Cir. BAP 2003). The court abuses

its discretion if it applied the wrong legal standard or its

findings were illogical, implausible or without support in the

record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820,

832 (9th Cir. 2011).

V. DISCUSSION

A. The appeal is not moot.

Trustee has moved to dismiss this appeal on the basis that it

is both constitutionally and equitably moot.4 Debtor agrees with

Trustee's contention that the appeal is equitably moot. 

We lack jurisdiction to hear moot appeals. I.R.S. v.

Pattullo (In re Pattullo), 271 F.3d 898, 900 (9th Cir. 2001). We

must dismiss the appeal if it is constitutionally moot and may

dismiss if we deem it equitably moot. See Clear Channel Outdoor,

Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25, 33-35 (9th Cir. BAP

2008). We conclude this appeal is neither constitutionally moot

nor equitably moot. Accordingly, Trustee's motion to dismiss is

DENIED.

1. Constitutional mootness

Federal courts may only adjudicate actual cases and

4 On March 11, 2016, the motions panel entered an order

deferring consideration of the motion to dismiss to the merits

panel.

-10-
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

controversies. Motor Vehicle Cas. Co. v. Thorpe Insulation Co.

(In re Thorpe Insulation Co.), 677 F.3d 869, 880 (9th Cir. 2012). 

Whether a case is constitutionally moot turns on whether the Panel

can give the appellant "any effective relief in the event that it

decides the matter on the merits in his favor." Id. If so, the

matter is not moot. Id. The party claiming mootness bears the

"heavy burden" of demonstrating that no effective relief remains

for the court to provide. Suter v. Goedert, 504 F.3d 982, 986

(9th Cir. 2007). Trustee has failed to meet her burden that this

appeal is constitutionally moot. 

"Where the order appealed involves the distribution of money

and the party who received the funds is a party to the appeal, the

appeal is not moot because the appellate court has the power to

fashion effective relief by ordering the party to return the

money." United States v. Gould (In re Gould), 401 B.R. 415, 421

(9th Cir. BAP 2009), aff'd, 603 F.3d 1100 (9th Cir. 2010). Here,

Trustee received funds from Debtor in exchange for the Lekos Stock

and dismissal of the adversary proceeding against Trustee and Lee. 

Both Debtor and Trustee are parties to this appeal. We can

fashion effective relief by vacating the Lekos Order, thereby

undoing the Lekos Settlement, and order Trustee to return the

money to Debtor and Debtor to return the Lekos Stock to Trustee.

While Trustee does not dispute that the money and Lekos Stock

can be returned, she does contend the appeal is still moot because

the adversary proceeding was dismissed with prejudice and cannot

be revived. "Where the asset 'sold' without a stay is a lawsuit

and 'disposal' of the asset is a dismissal, the appropriate

inquiry is whether the dismissal of the lawsuit could be undone." 

-11-
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

Suter, 504 F.3d at 987; Fitzgerald v. Ninn Worx Sr, Inc.

(In re Fitzgerald), 428 B.R. 872, 881 (9th Cir. BAP 2010). Here,

the dismissed "lawsuit" is an action in the bankruptcy court, not

the state court over which we have no power. The adversary

dismissal is part of the Lekos Settlement and Lekos Order, which

we have the power to vacate, and we could also direct the

bankruptcy court to vacate the dismissal of the adversary

proceeding. Alternatively, the dismissal order could be vacated

under Civil Rule 60(b)(5), applicable in the adversary proceeding

by Rule 9024, as an order "based on an earlier judgment that has

been reversed or vacated." 

The cases cited by Trustee regarding undoing a dismissal are

inapposite. N'Genuity Enters. v. Pierre Foods, Inc., 2010 WL

3023869 (D. Ariz. Aug. 2, 2010), involved a trial court's

reluctance to reinstate the plaintiff's claim in an amended

complaint where an identical claim in a prior complaint already

had been dismissed with prejudice. That is not the situation

here. Likewise, Holdeman v. Devine, 2007 WL 3254969 (D. Utah

Nov. 2, 2007), involved a plaintiff who tried to revive a claim

previously dismissed with prejudice. Although the district court

noted the fact the claim was dismissed with prejudice in and of

itself militated against any determination that it was revivable,

more significant was the fact that plaintiff never explicitly

sought revival of the claim or made any legal argument for its

revival. As a result, the defendants were never on notice that

the trial involved such a claim. Id. at *3. Holdeman does not

add anything beneficial to Trustee's argument. 

/ / /

-12-
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. Equitable mootness

Equitable mootness arises "when there has been a

comprehensive change of circumstances . . . so as to render it

inequitable for this court to consider the merits of the appeal." 

Rev Op Grp. v. ML Manager LLC (In re Mortgs., Ltd.), 771 F.3d

1211, 1214 (9th Cir. 2014) (internal quotation marks and citation

omitted) ("Mortgages I"). For an appeal to be equitably moot,

"[t]he question is whether the case presents transactions that are

so complex or difficult to unwind that the doctrine of equitable

mootness would apply." In re Thorpe Insulation Co., 677 F.3d at

880 (internal quotation marks and citation omitted). See

In re PW, LLC, 391 B.R. at 33 (courts examine "the consequences of

the remedy and the number of third parties who have changed their

position in reliance on the order that is being appealed."). 

"Ultimately, the decision whether to unscramble the eggs turns on

what is practical and equitable." Id.

The Ninth Circuit follows a four-step process to determine

whether an appeal is equitably moot: 

We will look first at whether a stay was sought, for

absent that a party has not fully pursued its rights. If

a stay was sought and not gained, we then will look to

whether substantial consummation of the plan has

occurred. Next, we will look to the effect a remedy may

have on third parties not before the court. Finally, we

will look at whether the bankruptcy court can fashion

effective and equitable relief without completely

knocking the props out from under the plan and thereby

creating an uncontrollable situation for the bankruptcy

court.

In re Thorpe Insulation Co., 677 F.3d at 881. Although Thorpe

focused on plan consummation, we think the general principles

apply to any equitable mootness analysis. 

It is undisputed Yang Jin did not seek a stay of the Lekos

-13-
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

Order. Trustee contends failure to seek a stay in the face of

changing circumstances equitably moots the appeal. In

Mortgages I, the Ninth Circuit Court of Appeals recognized the

"tension" in Ninth Circuit authority concerning the issue of an

appellant's failure to seek a stay and whether that failure

conclusively moots an appeal. 771 F.3d at 1215-16 (discussing

Suter, 504 F.3d at 990 and Platinum Capital, Inc. v. Slymar Plaza,

L.P. (In re Slymar Plaza, L.P.), 314 F.3d 1070, 1074 (9th Cir.

2002) on the one hand, and Thorpe, 667 F.3d at 881 and Trone v.

Roberts Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793, 798

(9th Cir. 1981) on the other). What we glean from Mortgages I and

other Ninth Circuit authority on this issue is that while an

appellant's failure to seek a stay pending appeal, at least

without an adequate excuse, may render an appeal equitably moot

and require dismissal, "there must also be some subsequent event

that would render consideration of the issues on appeal

inequitable, and thereby trigger an equitable mootness analysis." 

The Zuercher Tr. of 1999 v. Kravitz (In re Zuercher Tr. of 1999),

2014 WL 7191348, at *7 (9th Cir. BAP Dec. 17, 2014) (string

citation omitted). Importantly, Mortgages I does not stand for

the proposition that an appeal is always equitably moot if the

appellant fails to seek a stay, but only narrow exceptions may

exist. 771 F.3d at 1216.

While Yang Jin did not seek a stay of the Lekos Order, it

clearly was not dilatory or "sat on its rights" as Debtor

contends. Yang Jin contends it did not pursue a stay because of

the lack of notice of the Lekos Settlement. Yang Jin first

learned about the settlement when the Lekos Order was entered and

-14-
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

contends it did not understand what happened at the sale hearing

until it obtained a transcript. Since the adversary proceeding

was dismissed only two days after the Lekos Order was entered,

Yang Jin contends it was not practical for it to move for a stay

prior to the dismissal, because it could not even articulate the

basis for one due to the lack of notice and a transcript, let

alone justify the costs associated with embarking on such a

nebulous journey. 

Given that the exchange of funds and Lekos Stock and the

dismissal of the adversary occurred essentially before anyone

other than Trustee, Debtor and Lee knew what was going on, we

believe Yang Jin has provided an adequate excuse for not seeking a

stay of the Lekos Order. Thus, the first Thorpe factor does not

weigh in favor of mootness.

As for the second Thorpe factor, the exchange of funds and

Lekos Stock has occurred, and the adversary proceeding has been

dismissed with prejudice — all facts which weigh in favor of

mootness. 

The third and fourth Thorpe factors require us to consider

the effects on third parties not before the court of any available

remedy and whether such remedy would create a difficult and

essentially unmanageable situation for the bankruptcy court. Both

of these factors weigh against mootness. The transactions at

issue here — the exchange of funds and the Lekos Stock — are not

complex or difficult to unwind; the parties at issue are before

us. Moreover, as we explained above, the adversary proceeding

could be revived despite its dismissal with prejudice. In other

words, no comprehensive change of circumstances has occurred in

-15-
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 case to render vacating the Lekos Order inequitable. 

Therefore, Trustee has failed to meet her burden that this appeal

is equitably moot.

 With our jurisdiction established, we now turn to the merits

of the appeal. 

B. The bankruptcy court erred when it dispensed with notice to

creditors of the Lekos Settlement.

Yang Jin contends the bankruptcy court erred in approving the

Lekos Settlement because notice was not given to creditors. We

agree. 

Rule 9019(a) states that "after notice and hearing, the court

may approve a compromise or settlement." Rule 9019(a) goes on to

provide that notice shall be given in accordance with Rule 2002,

which provides for twenty-one days' notice of the hearing on a

motion to approve a compromise or settlement "unless the court for

cause shown directs that notice not be sent[.]" See

Rule 2002(a)(3) (emphasis added). The purpose of the notice

requirement of Rule 2002 is to provide parties with a pecuniary

interest in the settlement an opportunity to object to a

settlement agreement that is unsatisfactory. Triple E. Transp.,

Inc. v. Caterpillar, Inc. (In re Triple E Transp., Inc.), 169 B.R.

368, 373 (E.D. La. 1994) (citing Saccurato v. Masters, Inc.

(In re Masters, Inc.), 149 B.R. 289, 293 (E.D.N.Y. 1992));

In re W. Point Props., 249 B.R. 273, 282 (Bankr. E.D. Tenn. 2000).

Yang Jin argues that notice for a proposed compromise or

settlement under Rule 9019 is mandatory. Not so. The notice

requirement of Rule 2002(a) is not mandatory and can be waived by

the court for "cause" shown. Kowal v. Malkemus (In re Thompson),

-16-
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

965 F.2d 1136, 1140-41 n.5 (1st Cir. 1992); Advantage Healthplan,

Inc. v. Potter, 391 B.R. 521, 550-51 (D.D.C. 2008), aff'd,

586 F.3d 1 (D.C. Cir. 2009); In re Triple E. Transp., Inc.,

169 B.R. at 373; Patel v. Patel (In re Patel), 43 B.R. 500, 503-04

(N.D. Ill. 1984) (bankruptcy court may waive such notice for "good

cause" shown); In re Szabo Contracting, Inc., 283 B.R. 242, 252

(Bankr. N.D. Ill. 2002); 9 COLLIER ON BANKRUPTCY ¶ 2002.02[6][c]

(Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2012)

("Ordinally, there is no final compromise and settlement without

notice, but notice of these hearings may be waived 'for cause

shown.'"). If the bankruptcy court did not expressly make

findings of cause to waive the notice period, we may find that

cause existed as long as the record reflects it. Advantage

Healthplan, Inc., 391 B.R. at 551; In re Triple E. Transp., Inc.,

169 B.R. at 373 n.8; In re Patel, 43 B.R. at 503; 9 COLLIER ON

BANKRUPTCY at ¶ 2002.02[6][c].

Clearly, the bankruptcy court could waive the notice

requirement for the Lekos Settlement under Rule 2002(a)(3). It

did not make any findings for why it was dispensing with notice,

other than to say that "nobody else really cared," and that it was

"not concerned there's anybody else out there." Hr'g Tr.

(Sept. 22, 2015) 14:6-7, 14:19-20. Unfortunately, somebody else

was out there and did care. Even though the lack of "cause"

findings is not fatal if we determine cause existed for the

bankruptcy court to dispense with notice, we conclude that cause

did not exist in this case and the bankruptcy court abused its

discretion in waiving notice of the Lekos Settlement. 

While bankruptcy courts have discretion to reduce or

-17-
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

eliminate the notice period for settlements or compromises, that

discretion is limited. Burtch v. Avent, Inc., 527 B.R. 150, 156

(D. Del. 2015) (reversing bankruptcy court's decision to waive

notice under Rule 2002(a)(3) where creditor's committee did not

receive any notice of the settlement's terms even though the

committee had been active in the case); In re Masters, Inc.,

149 B.R. at 292-93. In cases where the bankruptcy court was found

to have properly dispensed with formal notice requirements under

Rule 2002(a)(3) for a compromise or settlement under Rule 9019,

generally some exigent circumstance existed where the court needed

to act quickly or providing notice to all creditors was unduly

burdensome. For example, in In re Patel, the district court

affirmed the bankruptcy court's approval of the trustee's

compromise with a third party in a fraudulent conveyance action

without formal notice to creditors because an important redemption

period for an estate asset was about to expire, a deadline over

which the court had no control and, if the court did not act, the

asset would be lost forever. 43 B.R. at 503-04. 

In In re Triple E. Transport, Inc., the debtor's president

and a third party had entered into a settlement agreement without

court approval. 169 B.R. at 370. Five months later, when the

agreement seemed to be working against the debtor's favor, the

debtor filed a motion to upset and disallow the agreement on the

ground that it did not have court approval. Id. at 371. The

bankruptcy court denied the motion and approved the settlement. 

The district court found that cause existed to waive the notice

requirement because: (1) the debtor's president knew that the

settlement agreement had to be approved by the bankruptcy court;

-18-
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) the debtor waited five months before moving to upset and

disallow the settlement agreement; (3) in that five-month period

the parties had complied with the terms of the settlement; and

(4) it would be unduly burdensome and complex to return the

parties to their original position. Id. at 373.

Finally, in In re Szabo Contracting, Inc., 283 B.R. at

252-53, the bankruptcy court found cause existed to approve a

settlement of the trustee's objection to a creditor's proof of

claim without notice to all creditors, because requiring notice to

be sent to over 500 creditors for every claim objection settlement

would be unnecessarily expensive to the estate and those creditors

who objected to the settlement had actual notice of the claim

dispute and were given ample opportunity to participate. See also

Advantage Healthplan, Inc., 391 B.R. at 550-51 (bankruptcy court

had "good cause" for shortening notice of hearing on motion to

approve compromise to seven days where settlement of attorney's

fee claims for less than amount of attorney's bill was expressly

conditioned upon attorney's receipt of reduced fee prior to end of

the calendar year, which was prior to expiration of the twenty-day

notice period) (applying former twenty-day notice rule).

The facts of this case do not support the bankruptcy court's

decision to dispense with any notice to creditors of the Lekos

Settlement. No exigent circumstances existed where the court had

to act quickly or a valuable asset would be lost forever. Nor

does it appear that noticing creditors of the Lekos Settlement

would be unduly burdensome or costly to the estate. Trustee

offered no basis for cause to dispense with notice other than to

say that filing a proper Rule 9019 motion would cost the estate

-19-
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

money. Granted, it will cost the estate something for Trustee to

file the proper motion and notice, assuming a settlement with

Debtor is still desired as opposed to a straight sale of the Lekos

Stock. However, the minimal cost involved does not outweigh the

due process afforded creditors in this case under Rule 9019. 

Arguably, Yang Jin could have attended the sale hearing and

raised any objections to the proposed Lekos Settlement there

(assuming of course it had any inkling that the sale would turn

into a settlement). But, the notice requirement in Rule 9019(a)

cannot be ignored merely because a proposed settlement is made in

open court rather than on papers submitted to the bankruptcy

court. In re Masters, Inc., 149 B.R. at 293 (bankruptcy court

erred in finding that Rule 9019(a) notice requirement did not

apply to settlement agreement because the settlement terms were

read into the record in open court after two days of trial and

with all relevant parties present and assenting). "Certainly the

plain language of the Rule makes no such distinction." Id.

Here, unlike some of the cases discussed above, creditors had

no notice whatsoever of any possible settlement between Trustee

and Debtor at the sale hearing or what those terms might be even

if a settlement at the sale hearing was contemplated. Trustee

noticed the matter as a sale of stock to a third party with

overbid procedures and that is what creditors expected. The

bankruptcy court erred in assuming that because creditors got

notice of the Lekos Stock sale (with no objections) that notice of

the Lekos Settlement was not necessary. Trustee is wrong in her

assertion that notice of the First Settlement somehow served as

notice for the Lekos Settlement. 

-20-
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

Where creditors have expressed sufficient interest in a

bankruptcy case to have their names added to the service list, as

did Yang Jin, such creditors have a right to actual notice under

Rule 9019(a) and to make objections to any proposed settlement

agreement prior to final approval by the bankruptcy court. Id. A

twenty-one-day notice of the proposed Lekos Settlement, or even

something less than twenty-one days if necessary, could have been

given to creditors without catastrophic consequences. 

Furthermore, and just as troubling, because Lee wished to overbid

but was precluded from doing so by the bankruptcy court, it is not

clear the Lekos Settlement was even in the best interest of

creditors and the estate.

VI. CONCLUSION

We conclude this appeal is not moot and DENY the motion to

dismiss. Because the bankruptcy court did not have "cause" to

dispense with notice of the Lekos Settlement to creditors, we

VACATE and REMAND the Lekos Order for further proceedings in

accordance with this decision.

-21-