Opinion ID: 52508
Heading Depth: 2
Heading Rank: 1

Heading: Authority to Approve the Settlement Agreement

Text: Romagosa argues that the bankruptcy court did not have the authority to approve a settlement agreement that included a broad release of third party nondebtors and that enjoined Romagosa from pursuing her state law claims against those third party non-debtors. After receiving the FLSA judgment against the P.A. 5 Brown did not join in the appeal. 6 in state court, Romagosa and Brown filed supplemental proceedings against the P.A., Van Diepen, and OIM pursuant to Fla. Stat. § 56.29. Section 56.29(6)(b) states that “[w]hen any gift, transfer, assignment or other conveyance of personal property has been made or contrived by defendant to delay, hinder or defraud creditors, the court shall order the gift, transfer, assignment or other conveyance to be void . . . .” Fla. Stat. § 56.29(6)(b). The purpose of § 56.29 is to assist judgment creditors in reaching the assets of judgment debtors. Morton v. Cord Realty, Inc., 677 So.2d 1322, 1324 (Fla. Dist. Ct. App. 1996). Once the P.A. filed for bankruptcy, Romagosa’s supplementary proceeding action was properly stayed by the bankruptcy court. See In re Saunders, 101 B.R. 303, 306 (Bankr. N.D. Fla. 1989) (holding that the plaintiff’s § 56.29 action against the defendant for alleged fraudulent transfers was subject to the automatic stay provision, 11 U.S.C. § 362(a)). The bankruptcy court ordered the Trustee to evaluate the claims asserted by Romagosa. Pursuant to 11 U.S.C. § 544, the Trustee has the power to avoid the transfer of property of the debtor that is voidable under state law. Munford Inc. v. Valuation Research Corp., 98 F.3d 604, 609 (11th Cir. 1996). The bankruptcy code also permits the Trustee: to step into the shoes of a creditor for the purpose of asserting causes of action under state fraudulent conveyance acts for the benefit of all creditors, 7 not just those who win a race to judgment. A trustee acting under section 544 acts as a representative of creditors, and any property recovered is returned to the estate for the eventual benefit of all creditors. In re Zwirn, No. 04-40306, 2007 WL 549328, at  (Bankr. S.D. Fla. Feb. 21, 2007) (internal quotation marks and citations omitted). The Trustee identified various fraudulent conveyance claims against Van Diepen and OIM and proposed to settle those claims in lieu of litigating them. Since any money recovered from these claims is property of the estate, the Trustee had the power to assert these claims on behalf of the P.A. for the benefit of all creditors. Therefore, the bankruptcy court had the authority to approve an agreement settling these claims and an agreement that would enjoin Romagosa from pursuing these same claims against Van Diepen and OIM in state court. Romagosa argues that the bankruptcy court did not have authority to include in a settlement agreement a release of third party non-debtors, such as Van Diepen and OIM, where their property is not part of the bankruptcy estate. Although we agree with this proposition, any money recovered from the fraudulent conveyances from the P.A. to Van Diepen and to OIM is property of the estate. Therefore, the bankruptcy court had jurisdiction over any claims that would recover such property, and it had authority to enjoin Romagosa from pursuing these claims against Van Diepen and OIM in state court. See id.; see also 11 U.S.C. § 541. 8 Romagosa also argues that the FLSA judgment she obtained in state court holds Van Diepen jointly and severally liable for the judgment entered against the P.A., and the bankruptcy court did not have the authority to bar her from pursuing this form of recovery. While this claim does not appear to have been pursued by Romagosa in her state court action, we agree with Romagosa’s argument. If the FLSA state court judgment entered against the P.A. actually holds Van Diepen jointly and severally liable for the judgment, then Romagosa can pursue that claim independent of the P.A. and personally against Van Diepen, because any money recovered from this claim would not be trust property. However, whether or not the FLSA judgment holds Van Diepen personally liable is for the state court to decide. Accordingly, we find that the bankruptcy court had the authority to approve the settlement agreement of the fraudulent conveyance claims that the Trustee pursued on behalf of the P.A. and for the benefit of all creditors. Furthermore, we find that the bankruptcy court had the authority to enjoin Romagosa from pursuing these same claims against Van Diepen and OIM in state court.6 6 As previously stated, Romagosa’s §56.29 complaint did not allege separate claims. Therefore, we can not be certain as to the extent of her claims against Van Diepen and OIM. However, the bankruptcy court only had the authority to approve an agreement settling claims and authority to enjoin Romagosa from pursuing claims that the Trustee had standing to pursue on behalf of the P.A. for the benefit of all the P.A.’s creditors. The record is not clear as to whether the bankruptcy court actually entered an order enjoining Romagosa from pursuing her state court claims. 9