Court Opinion

ID: 2645424
Source: CourtListenerOpinion
Date Created: 2013-12-11 01:01:38.917218+00
Date Added: 2024-06-11T12:50:50.507138
License: Public Domain

FILED
                                                            DEC 9 2013
 1
                                                        SUSAN M. SPRAUL, CLERK
 2                                                        U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                        )        BAP No.   ID-13-1107-JuKiKu
                                   )
 7   BRUCE LEE ALLEN, dba Bruce    )        Bk. No.   ID-09-41567-JDP
     Allen Construction,           )
 8                                 )
                    Debtor.        )
 9   ______________________________)
     BRUCE LEE ALLEN,              )
10                                 )
                    Appellant,     )
11                                 )
     v.                            )        M E M O R A N D U M*
12                                 )
     GARY L. RAINSDON, Chapter 7   )
13   Trustee; ZIONS FIRST NATIONAL )
     BANK,                         )
14                                 )
                    Appellees.     )
15   ______________________________)
16                 Argued and Submitted on November 22, 2013
                            at Pasadena, California
17
                            Filed - December 9, 2013
18
                 Appeal from the United States Bankruptcy Court
19                          for the District of Idaho
20            Honorable Jim D. Pappas, Bankruptcy Judge, Presiding
                             _______________________
21
     Appearances:     Appellant Bruce Lee Allen argued pro se;
22                    Daniel C. Green, Esq., of Racine, Olson, Nye,
                      Budge & Baily, Chartered, argued for appellee
23                    Gary L. Rainsdon.
                           _________________________
24
     Before:    JURY, KIRSCHER, and KURTZ, Bankruptcy Judges.
25
26        *
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8013-1.

                                      -1-
 1            Chapter 71 debtor Bruce Lee Allen appeals from the
 2   bankruptcy court’s order approving a settlement agreement
 3   pursuant to Rule 9019 between appellee-trustee, Gary L.
 4   Rainsdon, and Zions First National Bank (Zions).         We AFFIRM.
 5                                  I.   FACTS2
 6   A.       Prepetition Events
 7            Debtor owned and operated Bruce Allen Construction, Inc., a
 8   construction and land development business located in Hailey,
 9   Idaho.      In connection with his business, debtor purchased
10   commercial real property in Hailey known as the Davis Business
11   Park that he wanted to develop into three commercial lots.
12            In April 2007, debtor borrowed $1,170,000 from Zions to
13   refinance3 and develop the property.         The loan was secured by a
14   deed of trust against the property.          After the loan closed,
15   debtor used some of the proceeds to make infrastructure
16   improvements to the property.
17            A dispute later arose between the parties over Zions’
18   alleged agreement with debtor to purchase one of the lots and
19   have debtor construct a Zions branch on it.         Debtor asserted
20   that:      Zions agreed to purchase one of the three lots for
21
22        1
            Unless otherwise indicated, all chapter and section
23   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     “Rule” references are to the Federal Rules of Bankruptcy
24   Procedure.
25        2
            Most of the undisputed facts are contained in the
26   Settlement Agreement and the first amended complaint.
          3
27          Debtor used approximately $750,000 of the loan proceeds to
     discharge an existing debt with U.S. Bank which had been
28   previously secured by the property.

                                         -2-
 1   $1,499,000; Zions hired debtor to construct a Zions branch
 2   office on the lot; Zions agreed that debtor should build the
 3   bank branch on a cost plus ten percent (10%) basis; and, in
 4   September 2007, Zions informed debtor that it wished to
 5   construct a kiosk/ATM on debtor’s property prior to constructing
 6   a full bank branch.     Debtor further alleged that Becky Kearns
 7   (Kearns), an employee of Zions, assured him on several occasions
 8   that Zions’ Board of Directors approved the purchase of the lot
 9   and debtor’s construction of the Hailey branch.     However, in
10   November 2008, Zions informed debtor that it could not complete
11   the purchase of the lot for financial reasons.4
12            Zions acknowledged that it investigated the possibility of
13   using one of debtor’s lots for a branch office in Hailey or to
14   construct a kiosk on the site.     Zions also admitted that it had
15   discussions with debtor, but contended that a contract was never
16   reached.     Zions denied debtor’s other allegations.
17            On October 1, 2008, debtor became obligated to repay
18   Zions’ loan in full.     Zions and debtor agreed to extend the
19   maturity date for three months by way of a written loan
20   extension agreement.     Debtor failed to timely pay the loan when
21   the extension expired and Zions commenced foreclosure
22   proceedings.
23   B.       Bankruptcy Events
24            To stop the foreclosure, debtor filed for relief under
25
26        4
            Around this same time, Zions had ordered an   appraisal of
27   the property through Mountain States Appraisal and   Consulting,
     Inc., which was certified as completed on November   7, 2008,
28   showing the fair market value of the three lots as   $3.42 million.

                                       -3-
 1   chapter 11 on October 6, 2009.    On June 3, 2010, the
 2   U.S. Trustee moved to have the case dismissed or converted to
 3   chapter 7 due to debtor’s failure to file monthly operating
 4   reports and pay quarterly trustee fees.   Debtor agreed to the
 5   conversion of the case.   By order, the case converted to
 6   chapter 7 on July 20, 2010.
 7        Shortly after the conversion of the case, debtor entered
 8   into an agreement for representation with the law firm of
 9   Johnson and Montelone, LLP (J&M), to pursue a lawsuit against
10   Zions on a contingency basis.    This agreement was not binding,
11   since trustee had control of the claim.   Thereafter, the
12   bankruptcy court entered an order authorizing trustee to employ
13   J&M as special counsel to pursue the estate’s claims against
14   Zions in the state court.   During the pendency of the case,
15   Zions was granted relief from stay so that it could foreclose
16   upon the property, but the order authorizing the stay relief was
17   subject to a stipulation that the order was without prejudice to
18   the estate’s claims against Zions.
19        In March 2011, J&M filed suit in the District Court of the
20   Fifth Judicial District for the State of Idaho, County of
21   Blaine, Case No. CV-2011-204, on behalf of trustee against Zions
22   and Kearns.   On June 28, 2011, J&M filed a first amended
23   complaint alleging eleven counts, including counts for breach of
24   contract and misrepresentation, among others.   In lieu of an
25   answer Zions moved to compel arbitration, which was granted.
26   The parties agreed on a arbitrator with the American Arbitration
27   Association (AAA).
28        As part of the arbitration process, Zions moved for summary

                                      -4-
 1   judgment, arguing that debtor had released Zions from all claims
 2   by executing the loan extension agreement.      J&M filed a motion
 3   for partial summary judgment on count five for misrepresentation
 4   based on the deposition testimony of Kearns and other evidence.
 5   The arbitrator denied both motions finding that there were
 6   disputed issues of material fact.5      Neither trustee nor his
 7   general counsel participated personally in this proceeding.
 8            Thereafter, the parties participated in a mediation that
 9   resulted in the settlement between Zions and trustee.      Zions
10   agreed to pay trustee $550,000, to withdraw its proofs of claim
11   against the estate which totaled approximately $1.28 million,
12   and to waive any other claims against the bankruptcy estate.
13   Trustee agreed to waive all claims that the estate had against
14   Zions.     In due course, trustee filed a notice of intent to
15   settle the potential claims against Zions.      Debtor objected to
16   the proposed settlement based upon the dollar amount.6      Trustee
17   contended that debtor had no standing to object to the
18   settlement.
19            In response to the objection, the bankruptcy court held an
20   evidentiary hearing at which Mr. Johnson of J&M and trustee
21   testified in support of the settlement and debtor testified
22   against.     Besides hearing the testimony, the bankruptcy court
23
24        5
            The arbitrator’s findings for the rulings were not
     included in the record.
25
          6
26          Debtor had calculated his damages in excess of six
     million, including three million in punitive damages. At the
27   evidentiary hearing, debtor’s counsel stated that debtor’s range
     of reasonableness was approximately half that amount, or three
28   million.

                                       -5-
 1   frequently questioned the witnesses or their counsel about the
 2   underlying merits of the state court case and the calculation of
 3   damages.    The bankruptcy court closed the evidence and continued
 4   the matter to February 15, 2013, so that it could review the
 5   record in detail.
 6           After hearing final arguments, the court orally stated its
 7   findings of fact and conclusions of law approving the settlement
 8   on the record.    The bankruptcy court also overruled trustee’s
 9   objection to debtor’s standing to contest the settlement.            The
10   court found that debtor had standing to object to the settlement
11   because he had put on the kind of evidence to suggest that there
12   was at least some prospect that if the litigation were to turn
13   out favorable that there may be a surplus.7            The court entered
14   the order approving the settlement on February 27, 2013.            Debtor
15   timely appealed.
16                                II.    JURISDICTION
17           The bankruptcy court had jurisdiction over this proceeding
18   under 28 U.S.C. §§ 1334 and 157(b)(2)(A).            We have jurisdiction
19   under 28 U.S.C. § 158.
20                                      III.    ISSUE
21           Did the bankruptcy court abuse its discretion in approving
22   the settlement?
23                          IV.    STANDARD OF REVIEW
24           We review the bankruptcy court’s decision to approve a
25   settlement for an abuse of discretion.             Martin v. Kane
26   (In re A & C Props.), 784 F.2d 1377, 1381 (9th Cir. 1986).            The
27
28       7
             No one has challenged debtor’s standing on appeal.

                                               -6-
 1   court abuses its discretion if it applied the wrong legal
 2   standard or its findings were illogical, implausible or without
 3   support in the record.   TrafficSchool.com, Inc. v. Edriver Inc.,
 4   653 F.3d 820, 832 (9th Cir. 2011).      Because the bankruptcy court
 5   identified and applied the correct legal standard, the only
 6   question on appeal is whether its determinations that the
 7   settlement was fair and equitable and in the best interest of
 8   the estate were clearly erroneous.
 9                               V.   DISCUSSION
10        Rule 9019(a) authorizes the bankruptcy court to approve a
11   settlement on motion by the trustee and after notice and a
12   hearing.    As the party proposing the compromise, the trustee
13   bears the burden of proving that the settlement is fair and
14   equitable and should be approved.       In re A & C Props., 784 F.2d
15   at 1382.
16        The bankruptcy court must conduct an inquiry into all
17   “factors relevant to a full and fair assessment of the wisdom of
18   the proposed compromise.”    Protective Comm. for Indep.
19   Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S.
20   414, 424 (1968).   In conducting this inquiry, the bankruptcy
21   court must consider: (a) the probability of success in the
22   litigation; (b) the difficulties, if any, to be encountered in
23   the matter of collection; (c) the complexity of the litigation
24   involved, and the expense, inconvenience and delay necessarily
25   attending it; and (d) the paramount interest of the creditors
26   and a proper deference to their reasonable views in the
27   premises.   In re A & C Props., 784 F.2d at 1381.
28        The bankruptcy court has considerable discretion in

                                       -7-
 1   evaluating a proposed settlement because it “is uniquely
 2   situated to consider the equities and reasonableness [of
 3   it]. . . .”   United States v. Alaska Nat’l Bank (In re Walsh
 4   Constr., Inc.), 669 F.2d 1325, 1328 (9th Cir. 1982).   “[A]s long
 5   as the bankruptcy court amply considered the various factors
 6   that determined the reasonableness of the compromise, the
 7   court’s decision must be affirmed.”    In re A & C Props.,
 8   784 F.2d at 1381.
 9        In this case, the bankruptcy court explicitly addressed
10   each of the A & C Props. factors in its February 15, 2013, oral
11   ruling.   Point by point, the bankruptcy court extracted from the
12   record facts addressing each of the factors necessary to a
13   determination that the compromise was fair and equitable.
14        In addressing the probability of success factor, the
15   bankruptcy court examined the strengths and weaknesses of both
16   debtor’s and Zions’ cases.   The court noted there were legal
17   issues on both sides in contract and tort including (1) whether
18   the statute of frauds precluded enforcement of an oral contract,
19   (2) whether there was part performance of an oral agreement;
20   (3) whether debtor’s release of his claims against Zions in the
21   loan extension agreement was enforceable; and (4) whether debtor
22   could satisfy the elements for his claim of misrepresentation
23   under the clear and convincing burden of proof under Idaho law.
24   On the misrepresentation claim, the court noted that the
25   heightened burden of proof could be a “substantial burden,
26   especially in any close case.   This appears to be a case that
27   might be described as a close case.”   The court also observed
28   that the case involved factual issues which ultimately could be

                                     -8-
 1   decided in either side’s favor.   Finally, the bankruptcy court
 2   considered the difficulty of calculating damages in light of the
 3   economic downturn which may have caused debtor’s loss as opposed
 4   to any wrongdoing by Zions.   Based upon the evidence, the
 5   bankruptcy court indicated that “the possibilities of success
 6   for Trustee and [debtor] in this action against the bank are, at
 7   best, uncertain, and the prospects for success are challenging
 8   . . . .”   Consequently, in the bankruptcy court’s view, it was
 9   unclear which party would be successful.
10        In considering the second factor - the difficulties, if
11   any, to be encountered in the matter of collection - the
12   bankruptcy court attributed no weight to this factor because
13   trustee conceded that collection of a judgment against Zions
14   would probably not be an issue.
15        In addressing the third factor, the complexity of the
16   litigation and the expense, inconvenience and delay in pursing
17   it, the bankruptcy court found that the litigation was “complex”
18   and that it would take the parties considerable time to prepare
19   for and complete the arbitration.    The court also noted the
20   possibility that any decision by the arbitrator could be
21   appealed and that there would be additional costs beyond the
22   special counsel’s contingent fees.   Finally, the court observed
23   that the delay factor in light of time value of money weighed in
24   favor of settlement.
25        When considering the interests of creditors, the bankruptcy
26   court found that this factor weighed in favor of settlement
27   because the settlement would provide a significant distribution
28

                                    -9-
 1   to unsecured creditors.8     The court observed that if trustee
 2   pursued the lawsuit there was no guarantee that there would be a
 3   distribution, but, then again, there may be a large
 4   distribution.     After taking into account the time value of
 5   money, and acknowledging that this factor was not “crystal
 6   clear,” the bankruptcy court concluded that the scales tipped
 7   slightly in favor of the settlement because it was significant
 8   in amount.
 9            On appeal, debtor does not tell us which of the bankruptcy
10   court’s factual findings were clearly erroneous nor does he
11   point out why.     Instead, debtor spends significant time
12   responding to trustee’s challenge to debtor’s standing to object
13   to the settlement.     However, debtor’s standing is not relevant
14   to our review in this appeal because the bankruptcy court
15   overruled trustee’s objection and found debtor had standing.
16   Trustee did not cross appeal on this issue.     Further, debtor
17   raises many issues which were not raised in the trial court and,
18   therefore, not considered.     We do not address these arguments
19   for the first time on appeal.     Cold Mountain v. Garber, 375 F.3d
20   884, 891 (9th Cir. 2004).     Any remaining issues raised are
21   without merit.
22            In sum, in approving the settlement, the bankruptcy court
23   applied the correct legal rule, measuring the reasonableness of
24   the compromise under the factors articulated in A & C Props.
25   The bankruptcy court’s findings and conclusions were supported
26
          8
27          At the evidentiary hearing, trustee stated that unsecured
     creditors would receive a dividend of approximately thirty-three
28   percent.

                                       -10-
 1   by competent evidence in the record and were not illogical,
 2   implausible, or without support in inferences that may be drawn
 3   from the record.   Accordingly, the court did not abuse its
 4   discretion in approving the settlement.
 5                            VI.   CONCLUSION
 6        For these reasons, we AFFIRM.
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                                    -11-