Opinion ID: 3034719
Heading Depth: 4
Heading Rank: 2

Heading: Rains’s Mental Competency to Enter Into the

Text: Settlement Agreement [2] The parties agree that California state law applies to the issue of the validity of the settlement. See Houston v. Holder 15220 IN RE: RAINS (In re Omni Video, Inc.), 60 F.3d 230, 232 (5th Cir. 1995) (holding that the validity of settlements in bankruptcy cases is best resolved by reference to state contracts law); see also Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15, 20 (2000) (observing the “basic federal rule . . . that state law governs the substance of claims [in bankruptcy cases]”) (citation and internal quotation marks omitted). California law provides that “[a] conveyance or other contract of a person of unsound mind, but not entirely without understanding, made before the incapacity of the person has been judicially determined, is subject to rescission . . . .” Cal. Civ. Code § 39(a). Pursuant to this statute, “a party is entitled to rescission of a contract if, when he entered into the contract, he was not mentally competent to deal with the subject before him with a full understanding of his rights . . .” Smalley v. Baker, 262 Cal. App. 2d 824, 832 (1968), overruled on other grounds by Weiner v. Fleischman, 54 Cal. 3d 476 (1991). “[T]he test . . . in each instance [ ] [is] whether he understood the nature, purpose and effect of what he did.” Smalley, 262 Cal. App. 2d at 832 (citations omitted). [3] Rains argues that the bankruptcy court clearly erred in finding him mentally competent to enter into the settlement agreement. However, the record contained sufficient evidence to support a finding that Rains understood the nature, purpose and effect of his actions when he agreed to settle with the trustee and the creditor. Witnesses who personally observed Rains during the negotiations reported that Rains participated actively and appeared to have a full understanding of what was transpiring and of the terms of the settlement. Rains argued over certain terms and suggested alternatives to those he disliked. After the settlement was negotiated, Rains reviewed the written agreement and asked his attorney questions about it. [4] Rains does not seriously dispute the veracity of the witness statements offered by the trustee. Rather, he relies heavily on the opinions of his treating physician and psychologist IN RE: RAINS 15221 that a person with his diagnosis would not have had the mental capacity to conduct business affairs at the time of the negotiations. However, the weight to be given expert medical testimony is within the discretion of the trier of fact. Wong Ho v. Dulles, 261 F.2d 456, 460 (9th Cir. 1958). The bankruptcy court was not bound to follow these expert opinions. See United States v. Honolulu Plantation Co., 182 F.2d 172, 178 (9th Cir. 1950). In the face of conflicting testimony, the bankruptcy court did not clearly err in discounting the theoretical speculation of Rains’s experts, or in finding that Rains was mentally competent to enter into the settlement agreement. See Prescod v. AMR, Inc., 383 F.3d 861, 869 (9th Cir. 2004) (observing that the trier of fact is in the best position to resolve conflicts in the evidence).