Opinion ID: 3034719
Heading Depth: 3
Heading Rank: 2

Heading: The First Appeal (Court Approval of the

Text: Settlement) Immediately following the conclusion of the mediation, Rains drove himself to a hospital emergency room where he was admitted and diagnosed with a ruptured cerebral aneurysm, sub-arachnoid hemorrhage, and stroke. Rains underwent surgery the next day and was placed in the intensive care unit for approximately one month prior to his eventual discharge from the hospital. Rains claims to have no recollection of the events preceding his hospitalization. Sometime after Rains underwent medical treatment, counsel for Rains informed the trustee’s attorney that Rains did not intend to comply with the settlement agreement. This development prompted the trustee to file with the bankruptcy court a Motion for Court Approval of Settlement; for Enforcement of Settlement; and for Entry of Judgment Thereon (motion to approve). In support of the motion, the trustee submitted a declaration in which he stated that he had personally observed 15214 IN RE: RAINS Rains at the settlement conference. According to the trustee, “Rains evinced a clear understanding of what was transpiring, the issues inherent in the settlement process, and the terms of the agreement as it evolved.” Rains opposed the motion to approve and sought rescission of the agreement on the ground that he was not mentally competent to enter into a contract at the time the agreement was negotiated and signed. In his opposition, Rains expressly “consent[ed] to the Court’s resolution of any disputed material fact issues pursuant to Federal Rule of Evidence 43(e) as made applicable by Federal Rule of Bankruptcy Procedure 9017.” Rains submitted several declarations in support of his contention that he was mentally incompetent, including those of a neurologist who treated him for the aneurysm and a clinical psychologist who provided follow-up care. The neurologist opined that “Mr. Rains would have been without the mental capacity to engage in business affairs on September 23, the date of his hospital admission, and for a number of days on each side of that date.” The psychologist concurred, stating that at the time Rains negotiated the settlement, he “would not have had his normal mental capacity and would have been incapable of conducting business affairs with competence.” The trustee filed a reply controverting Rains’s contention that he was mentally incompetent during the settlement conference. Accompanying the reply was a declaration from Gregory J. Hughes, counsel for the trustee. Hughes stated that he had a chance to observe Rains at the settlement conference. According to Hughes, Rains participated actively in the negotiations, arguing over the due date for a cash payment and over the use of funds in his retirement plan as security for the payment. After the settlement was reduced to writing, Rains reviewed the document carefully and asked his attorney questions about it. Hughes’s overall impression also was that “Mr. Rains evinced a clear understanding of what was transpiring, the issues inherent in the settlement process, and the terms of IN RE: RAINS 15215 the settlement as it evolved.” Rains’s creditor and her attorney submitted similar declarations. The bankruptcy court heard oral argument on the motion to approve the settlement agreement, but did not hold a separate evidentiary hearing. After taking the matter under advisement, the bankruptcy court issued oral findings of fact and conclusions of law and announced that it was not “persuaded that [Rains] lacked the capacity to enter into an agreement.” The court ruled from the bench, granting the motion to approve. Its decision was memorialized in a minute order entered on February 20, 2003 (settlement order). Rains filed a notice of appeal from the order approving the settlement agreement, and elected to have the appeal heard by the district court. The district court affirmed the bankruptcy court’s decision, and Rains appealed.