Court Opinion

ID: 4644772
Source: CourtListenerOpinion
Date Created: 2020-12-18 21:00:23.635599+00
Date Added: 2024-06-11T08:00:47.751572
License: Public Domain

NOT FOR PUBLICATION                       FILED
                        UNITED STATES COURT OF APPEALS                     DEC 18 2020
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                                 FOR THE NINTH CIRCUIT

In re: RALPH DEAN ISOM; PAULA                   No.    20-60019
ISOM; I & S FARMS,
                                                BAP No. 19-1198
                   Debtors,

------------------------------                  MEMORANDUM*

RALPH DEAN ISOM; PAULA ISOM; I &
S FARMS, a general partnership,

                   Appellants,

  v.

R. SAM HOPKINS, Chapter 7 Trustee;
BRAD HALL & ASSOCIATES, INC.;
FARMS, LLC,

                   Appellees.

                            Appeal from the Ninth Circuit
                             Bankruptcy Appellate Panel
              Brand, Gan, and Lafferty III, Bankruptcy Judges, Presiding

                         Argued and Submitted December 8, 2020
                                  Seattle, Washington

Before: BERZON, MILLER, and BRESS, Circuit Judges.

       *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      Petitioners Ralph Dean Isom, Paula Isom, and I&S Farms (collectively

“Isoms”), debtors in this Chapter 7 bankruptcy proceeding, appeal the Ninth

Circuit Bankruptcy Appellate Panel’s affirmance of the bankruptcy court’s order

approving a compromise agreement between the Chapter 7 trustee, R. Sam

Hopkins, and the bankruptcy estate’s major secured creditor, Brad Hall &

Associates and Farms, LLC (collectively “Hall”). We affirm.

      We review an order approving a compromise agreement for abuse of

discretion. In re A & C Props., 784 F.2d 1377, 1380 (9th Cir. 1986). We review de

novo whether the bankruptcy court applied the correct legal rule. In re Taylor, 599

F.3d 880, 887 (9th Cir. 2010). If it did, we uphold the court’s application of the

legal standard to the facts unless it was “(1) illogical, (2) implausible, or (3)

without support in inferences that may be drawn from the facts in the record.” Id.

(quoting United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)).

      1. The bankruptcy court correctly identified its legal obligation to find

Hopkins’s compromise proposal “fair and equitable” under A & C before

approving the settlement. 784 F.2d at 1381. Although the bankruptcy court did not

consider any surplus that might have gone to the debtors in its analysis of the A &

C factors, it did consider this issue under its general “fair and equitable” analysis.

Similarly, although the bankruptcy court did not explicitly identify the trustee’s

fiduciary duty to the debtors in this potential surplus case, see U.S. Dep’t of

                                            2
Justice, Executive Office for United States Trustees, Handbook for Chapter 7

Trustees 4–2 (2012), it nevertheless considered whether the trustee fulfilled this

duty before approving the compromise proposal. We therefore hold that the

bankruptcy court applied the correct legal standard in analyzing the compromise

proposal.

      2. The bankruptcy court’s application of the law was logical, plausible, and

supported by inferences drawn from the facts in the record. In his oral ruling

granting Hopkins’s motion to compromise, the bankruptcy judge fully addressed

each party’s arguments on each of the four A & C factors before making findings

of its own. When analyzing the first factor—the likelihood that the Isoms would

ultimately prevail in their avoidance suit against Hall—the bankruptcy court

considered evidence that the Isoms were insolvent, were left with unreasonably

small capital, or incurred debts beyond their ability to pay under 11 U.S.C. § 548

(a)(1)(B)(ii)(I) and (II). Relying extensively on the record, the bankruptcy court

concluded it would be difficult to prove these issues because “many important

records were alternatively stolen and thrown in a canal or destroyed by a fire set by

Mr. Isom.”

      The bankruptcy court also reasonably concluded that the third A & C

factor—the complexity of the avoidance suit and the likely expense and delay of

continued litigation—weighed in favor of the settlement. As the bankruptcy court

                                          3
properly noted, Hall’s profit from rents on the Isom Farm would offset any

improvements Hall made to the Farm—including the property taxes it paid and the

money it paid to the Farm’s other secured creditors—under 11 U.S.C. §

550(e)(1)(A). But it remains unclear whether this profit would affect any of Hall’s

claims to accruing interest should the deed-in-lieu be voided and Hall’s secured

claim over the Farm be reinstated. The bankruptcy court reasonably concluded that

the difficulties in calculating interest owed and the likelihood of further litigation

arising out of that calculation, as well as the immense expense the estate would

bear if it owed Hall interest in full, supported the settlement.

      The bankruptcy court also carefully weighed the facts in the record before

determining that a compromise agreement guaranteeing full payment of all

creditors, rather than the possibility of a post-avoidance sale, best served the

interests of the creditors under the fourth A & C factor. The bankruptcy court

reasonably found that the complications in calculating the estate’s tax liability on

any proceeds, along with the estate’s potential obligation to pay interest to Hall,

significantly detracted from the possibility of a surplus in a post-avoidance sale.

Hopkins testified that there were no actual offers on the Farm at the time of the

settlement negotiations, and several witnesses attested to the difficulty of

validating the Isoms’ tax records. The record therefore supported the bankruptcy

court’s conclusion that the likelihood of any surplus was speculative.

                                           4
      Because the bankruptcy court “reached a decision that falls within any of the

permissible choices [it] could have made,” Hinkson, 585 F.3d at 1261, we hold the

bankruptcy court did not abuse its discretion in approving the motion to

compromise.

      AFFIRMED.

                                         5