Court Opinion

ID: 4293483
Source: CourtListenerOpinion
Date Created: 2018-07-12 00:01:01.832694+00
Date Added: 2024-06-11T14:38:42.011670
License: Public Domain

FILED
                                                                           JUL 11 2018
                           NOT FOR PUBLICATION
                                                                      SUSAN M. SPRAUL, CLERK
                                                                         U.S. BKCY. APP. PANEL
                                                                         OF THE NINTH CIRCUIT

             UNITED STATES BANKRUPTCY APPELLATE PANEL
                       OF THE NINTH CIRCUIT

In re:                                              BAP No. AZ-17-1310-SBaF

HARRY DELBERT DALTON,                               Bk. No. 0:17-bk-06058-PS

                    Debtor.

HARRY DELBERT DALTON,

                    Appellant,                       MEMORANDUM*

v.

LAWRENCE J. WARFIELD, Chapter 7
Trustee,

                    Appellee.

                     Argued and Submitted on June 21, 2018
                             at Phoenix, Arizona

                                Filed – July 11, 2018

         *
        This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
                Appeal from the United States Bankruptcy Court
                          for the District of Arizona

               Honorable Paul Sala, Bankruptcy Judge, Presiding

Appearances:         Appellant Harry Delbert Dalton argued pro se; Terry A.
                     Dake argued for appellee.

Before: SPRAKER, BASON,** and FARIS, Bankruptcy Judges.

                                  INTRODUCTION

       Chapter 71 debtor Harry Delbert Dalton appeals from an order

authorizing the chapter 7 trustee to enter into a compromise under Rule 9019

to settle Dalton’s prepetition claims against his former insurance agent, Wade

Atchison, for payment of $5,000. At the time of his chapter 7 petition filing,

Dalton’s claims against Atchison already had been disposed of by summary

judgment in favor of Atchison. Shortly after Dalton commenced his

bankruptcy case, Dalton filed a notice of appeal from the summary judgment,

but the notice of appeal was untimely, and the district court presiding over

       **
        Hon. Neil W. Bason, United States Bankruptcy Judge for the Central District of
California, sitting by designation.
       1
       Unless specified otherwise, all chapter and section references are to the Bankruptcy
Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal Rules of
Bankruptcy Procedure. All “Appellate Rule” references are to the Federal Rules of
Appellate Procedure.

                                            2
Dalton's claims denied Dalton's motion for an extension of time to appeal.

       Under these circumstances, we agree with the bankruptcy court that

there were considerable obstacles to any recovery on the prepetition claims.

In light of these considerations, the bankruptcy court did not err in concluding

that the estate’s creditors would be best served by approval of the

compromise. Accordingly, we AFFIRM the bankruptcy court’s order

authorizing the compromise.

                                           FACTS2

A. Dalton’s Litigation Against Atchison.

       In December 2015, Dalton filed, pro se, a verified civil complaint against

Atchison and other unidentified defendants in the Mohave County Superior

       2
        This recitation of facts is based, in part, on our review of court documents filed in
Dalton’s bankruptcy case and in his civil lawsuit against Atchison. Even though the parties
did not include all of these documents in their excerpts of record, we can take judicial
notice of the filing and contents of these documents. See Fed. R. Evid. 201; Lee v. City of L.A.,
250 F.3d 668, 690 (9th Cir. 2001); Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R.
721, 725 n.2 (9th Cir. BAP 2008). Additionally, Dalton has filed motions requesting that we
permit him to supplement the record on appeal by taking into consideration all of the
papers filed in his civil lawsuit and some of the papers filed in his appeal from the
disposition of the civil lawsuit. These motions are hereby ORDERED GRANTED IN PART
AND DENIED IN PART. To the extent we already have reviewed these papers for
purposes of framing this recitation of facts, or to the extent the papers were presented to
the bankruptcy court at or before the time of the bankruptcy court’s ruling on the
compromise motion, the motions are GRANTED. But, to the extent Dalton is asking us to
consider papers not presented to the bankruptcy court for consideration, the motions are
DENIED. See Oyama v. Sheehan (In re Sheehan), 253 F.3d 507, 512 n.5 (9th Cir. 2001); Kirschner
v. Uniden Corp. of Am., 842 F.2d 1074, 1077–78 (9th Cir. 1988).

                                               3
Court for breach of contract and intentional infliction of emotional distress.3

Generally, Dalton alleged that in April 2013, Atchison, acting as his insurance

agent, provided him with an insurance policy covering Dalton’s residence

then under construction in Arkansas. According to Dalton, he asked Atchison

to obtain for him a “builders’ risk policy” insuring all contractors and laborers

working on the property, including himself, from accident and loss. Dalton

claimed that the policy as originally written did not insure either him or any

of his workers against bodily injury occurring while building the house.

Dalton also claimed that Atchison persuaded him to change his insurance

coverage in May 2013. As a result of this change, Dalton asserted, he and his

workers were left uncovered for any injury occurring while working on the

home construction.4

       Apparently, sometime in May 2013, Dalton was injured while operating

a bulldozer on the property. While recuperating from that injury, Dalton

alleges that roughly $1,200 in wiring was stripped from the interior of the

       3
       Dalton never amended his complaint to specifically identify any other defendants.
Nor did he ever serve them. Consequently, the district court dismissed all other unnamed
defendants from the action.
       4
        The documentary evidence accompanying Atchison’s court papers indicates that
Allstate Insurance did not modify Dalton’s insurance coverage until June 11, 2013. As
Dalton has alleged, the accident and the theft from which his claims against Atchison arose
both occurred before the end of May 2013. Consequently, the modification of the insurance
coverage does not appear relevant to the merits of Dalton’s claims against Atchison.

                                            4
house and stolen. In December 2013, Dalton’s insurer, Allstate Insurance,

denied his claims resulting from both the bulldozer accident and the wiring

theft. According to Dalton, his insurance claims were denied because Atchison

sold him the wrong type of insurance or because Atchison wrongly advised

him to change his insurance.

      Dalton, then living in Arizona, sued Atchinson in the state court of

Arizona. In his initial complaint, Dalton claimed, among other things, $54,000

in damages resulting from his eventual loss of his real property, as well as

another $41,000 in unspecified bills he was unable to pay allegedly as a result

of Atchison’s conduct. In addition, Dalton claimed an unspecified amount of

damages for pain and suffering and sought punitive damages. In his second

amendment to the complaint, Dalton requested recovery of a drastically

increased amount of damages, including but not limited to: (1) $247,000 for

the loss of his home, his truck, and his tools; (2) $750,000 in medical costs;

(3) $300,000 for damage to his credit rating; and (4) $750,000 in punitive

damages.

      Atchison removed the civil lawsuit to the United States District Court

for the District of Arizona. The Arizona district court then ordered the case

transferred to the United States District Court for the Eastern District of

Arkansas, where Atchison resided. The Arkansas district court eventually

disposed of the lawsuit based on Atchison’s motion for summary judgment.

Citing Scott–Huff Insurance Agency v. Sandusky, 887 S.W.2d 516 (Ark. 1994), and

                                       5
Buelow v. Madlock, 206 S.W.3d 890, 893 (Ark. App. 2005), the district court

ruled that: (1) absent a “special relationship,” Atchison did not owe Dalton

any duty, contractual or otherwise, to provide Dalton with adequate or correct

advice or assistance in obtaining insurance for his coverage needs; and (2)

under the undisputed facts as presented to the court, there was no special

relationship between Dalton and Atchison from which a higher duty could

have arisen.

      As for the intentional infliction of emotional distress claim, the district

court explained that Arkansas requires extreme and outrageous conduct

going “beyond all possible bounds of decency” before an intentional infliction

of emotional distress claim will arise. The court pointed out that Dalton had

neither alleged nor set forth facts demonstrating this type of conduct on the

part of Atchison.

      The Arkansas district court entered judgment in favor of Atchison and

against Dalton on May 15, 2017. Dalton mailed his notice of appeal to the

Arkansas district court on June 14, 2017, but the district court did not receive

and file it until June 19, 2017.

      On June 30, 2017, Dalton filed a motion for leave to appeal in forma

pauperis and a motion to extend the time to appeal, because he did not file his

notice of appeal within thirty days of entry of the judgment. The district court

denied both of these motions by order entered September 15, 2017.

                                       6
B. Dalton’s Bankruptcy Case And Warfield’s Compromise Motion.

      Meanwhile, on May 31, 2017, after the Arkansas district court entered

judgment but before the 30-day appeal period ran, Dalton commenced his

bankruptcy case in the United States Bankruptcy Court for the District of

Arizona by filing a voluntary petition for relief under chapter 7 of the Code.

Lawrence J. Warfield was appointed to serve as the chapter 7 trustee. Shortly

after his appointment, Warfield sought and obtained the bankruptcy court’s

authorization to employ bankruptcy counsel, Terry Dake, to assist him in

administering Dalton’s bankruptcy estate.

      Within days of his retention as bankruptcy counsel, Dake moved for

court approval of a settlement Warfield had reached with Atchison. Pursuant

to the settlement, Atchison agreed to pay the bankruptcy estate $5,000 to fully

and finally resolve Dalton’s claims against Atchison. Warfield asserted that,

based on his review of the pleadings in the litigation and the Arkansas District

Court’s summary judgment ruling, the settlement was reasonable and in the

best interests of the estate’s creditors. As Warfield put it, there was no

likelihood of success in the litigation, and the costs and uncertainties of

continued litigation far exceeded any likely recovery therefrom. The

compromise motion was less than three pages long and was not accompanied

by any evidence.

      In response, Dalton filed a variety of papers pertaining to his lawsuit

against Atchison. On these papers, Dalton interlineated comments. The papers

                                       7
and the interlineated comments comprise Dalton’s opposition to Warfield’s

compromise motion. In large part, Dalton asserted that the compromise

undervalued his claims and that approval of the compromise would violate

his due process rights by not giving him a full and fair chance to litigate his

claims. At the heart of Dalton’s assertions was his contention that the

Arkansas district court committed reversible error when it granted summary

judgment in Atchison’s favor. According to Dalton, the district court

impermissibly accepted Atchison’s asserted facts as true, ignored Dalton’s

asserted facts, and did not read the papers Dalton submitted in opposition to

Atchison’s summary judgment motion, as reflected by the numerous errors

the district court supposedly made in reciting the basic chronology of events

leading up to the dispute between Dalton and Atchison.

      In support of his reversible error contention, Dalton presented an

account of Atchison’s alleged misconduct that differed from what he

presented in his initial Complaint against Atchison. According to Dalton,

Atchison said he was providing Dalton with builder’s risk insurance but

instead provided him with a homeowner’s policy with a dwelling under

construction endorsement. As explained by Atchison, the homeowner’s policy

covered persons injured on the property other than the insured.

      As Dalton now puts it, Atchison had a duty to tell Dalton the true name

of the policy, and if Dalton actually had received a copy of the policy stating

that it was a homeowner’s policy with a dwelling under construction

                                      8
endorsement, he would have realized immediately that the policy Atchison

procured did not meet his insurance needs with respect to the risk of bodily

injury.5 Citing Lawrence v. Francis, 267 S.W.2d 306 (Ark. 1954), and Derby v.

Blankenship, 230 S.W.2d 481 (Ark. 1950), Dalton in effect asserts that Atchison

agreed to provide him with insurance to cover his risk of bodily injury and

that Atchison breached his contractual duty by not actually providing him

with the requested insurance coverage. Dalton further asserts that the

Arkansas district court erred because it ignored Atchison’s breach of this

contractual duty.

      On October 12, 2017, the bankruptcy court held a hearing on the

compromise motion. Warfield and Dalton reiterated their positions. The

bankruptcy court largely agreed with Warfield. The bankruptcy court

acknowledged that, in assessing the desirability of the compromise to the

bankruptcy estate, the court needed to consider the factors set forth in Martin

v. Kane (In re A & C Properties), 784 F.2d 1377 (9th Cir. 1986). The court then

addressed the first A & C Properties factor, the probability of success in the

litigation. The court found, based on the papers submitted by both parties,

      5
        Dalton also refined his argument regarding modification of the policy, now
claiming that Atchison committed fraud against him by modifying and changing his policy
without Dalton having signed an application requesting such a change. As explained in
footnote 4 above, because Dalton’s losses occurred in May 2013, and the policy was not
modified until June 2013, the modification of the policy does not seem to have caused a
change in coverage that would have affected Dalton’s rights at the time the subject losses
occurred.

                                            9
that there was no likelihood of success in the appeal from the Arkansas

district court’s ruling and that Dalton could not prosecute the claims to

successful resolution. In so finding, the bankruptcy court explained that the

summary judgment ruling against Dalton as well as the denial of Dalton’s

motion to extend the time to appeal were “huge roadblocks” to the estate ever

recovering any more for the claims than would be realized as a result of the

proposed compromise. The court was also concerned that Dalton was the only

person willing to prosecute the claims.

      The bankruptcy court specifically mentioned the second and third A &

C Properties factors, difficulty of collection and complexity of litigation. But the

court did not say much about them. In essence, the court determined that

these factors were eclipsed by the complete lack of likelihood of Dalton and

the estate prevailing in the litigation.

      As for the fourth and final A & C Properties factor, the paramount

interest of the estate’s creditors and deference to their reasonable views, the

bankruptcy court found that their interest was best served by approving the

settlement and thereby bringing into the estate the $5,000 settlement amount,

which it concluded was as much as the creditors could expect to get from the

litigation.

      On October 13, 2017, the bankruptcy court entered its order approving

the compromise. Dalton timely appealed the order.

                                           10
                                  JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.

                                        ISSUE

      Did the bankruptcy court abuse its discretion when it approved the

compromise of the appeal rights pursuant to Rule 9019?6

                            STANDARD OF REVIEW

      We review for an abuse of discretion the bankruptcy court’s approval

of the compromise. Goodwin v. Mickey Thompson Entm't Grp., Inc. (In re Mickey

Thompson Entm't Grp., Inc.), 292 B.R. 415, 420 (9th Cir. BAP 2003).

      A bankruptcy court abuses its discretion if it applies an incorrect legal

rule or if its factual findings are illogical, implausible or without support in

the record. United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en

banc).

                                   DISCUSSION

      Under Rule 9019, the bankruptcy court is authorized to approve a

compromise of a dispute involving the bankruptcy estate. In re Mickey

Thompson Entm't Grp., Inc., 292 B.R. at 420 (citing In re A & C Props., 784 F.2d

at 1381). The compromise must be fair and equitable. Id. To determine the

      6
        At the hearing on the compromise motion, Dalton orally requested that the
bankruptcy court dismiss his bankruptcy case. The court orally denied that request.
Nothing in Dalton’s appeal papers suggests that he is challenging on appeal that denial.
Therefore, we will not address it.

                                          11
fairness and equity of the proposed compromise, the bankruptcy court is

required to analyze the transaction with the following factors in mind:

             (a) The probability of success in the litigation; (b) the
       difficulties, if any to be encountered in the matter of collection;
       (c) the complexity of the litigation involved, and the expense,
       inconvenience and delay necessarily attending it; [and] (d) the
       paramount interest of the creditors and a proper deference to their
       reasonable views in the premise.

In re A & C Props., 784 F.2d at 1381.

       Importantly, so long as the trustee and the bankruptcy court work

within the confines of the above-referenced analytical framework, their

informed decisions and judgment as to what sort of transaction was desirable

and appropriate are entitled to deference and “great latitude.” Id.

       The bankruptcy court correctly identified all four A & C Properties

factors. Furthermore, Dalton only has challenged on appeal the bankruptcy

court’s determination that there is little or no likelihood that Dalton would

prevail on appeal or recover on his claims for the benefit of the estate an

amount greater than what was realized as a result of the $5,000 settlement.7

In support of his argument, Dalton reiterates the same points he raised in the

       7
         Dalton has not challenged on appeal the bankruptcy court’s analysis concerning
the difficulty of collection, the complexity of the litigation and the paramount interest of
the estate’s creditors. For purposes of this appeal, it suffices for us to say that, if the
bankruptcy court was correct about there being little or no chance of Dalton prevailing,
then the court’s determination that none of the other A & C Properties factors militated
against the compromise was logical, plausible and supported by the record.

                                            12
bankruptcy court regarding why he thinks the Arkansas district court’s

summary judgment ruling was wrong. He contends that the district court

impermissibly accepted Atchison’s asserted facts as true, ignored Dalton’s

asserted facts, and did not read all of the papers Dalton submitted in

opposition to Atchison’s summary judgment motion.

       Importantly, however, Dalton does not address perhaps the biggest

obstacle he would face in attempting to obtain reversal of the Arkansas district

court’s summary judgment. Dalton’s notice of appeal was not filed within the

30-day time period required under Appellate Rule 4(a)(1)(A). Even though

Dalton filed a motion to extend the time to file his notice of appeal, the

Arkansas district court denied that motion, as well as his motion for leave to

appeal in forma pauperis.

       Simply put, Dalton’s appeal of the district court’s judgment is subject to

dismissal by the Eighth Circuit Court of Appeals because the appeal was

untimely filed. The 30-day appeal filing deadline is mandatory and

jurisdictional. See, e.g., Dieser v. Cont'l Cas. Co., 440 F.3d 920, 923 (8th Cir.

2006); Arnold v. Wood, 238 F.3d 992, 994–95 (8th Cir. 2001).8

       8
         Because the 30-day appeal period is set forth in both the controlling statute, 28
U.S.C. § 2107(a), and in Appellate Rule 4(a)(1)(A), the recent Supreme Court case of Hamer
v. Neighborhood Housing Services of Chicago, 138 S. Ct. 13 (2017), does not dictate a different
result. See Gordon v. James, ___ F.3d ___, 2018 WL 2386818, at *1 (5th Cir. Mar. 27, 2018);
Evans v. Greentree Servicing, LLC, 2018 WL 1326651, at *1 (unpublished order) (6th Cir. Feb.
8, 2018); see also Wilkins v. Menchaca (In re Wilkins), ___ B.R. ___, 2018 WL 3197481 (9th Cir.
BAP June 28, 2018 ) (post-Hamer decision holding that the time for filing an appeal from a
                                                                                 (continued...)

                                              13
       Thus, regardless of the merits of the issues Dalton seeks to raise before

the Eighth Circuit, we agree with the bankruptcy court’s determination

concerning Dalton’s chance of prevailing on appeal. Because his appeal of the

district court’s judgment was untimely filed, Dalton faced a very high hurdle.9

In sum, the bankruptcy court’s assessment of Dalton’s probability of success

was not clearly erroneous, and Dalton has not challenged on appeal any other

aspect of the bankruptcy court’s ruling approving the compromise.

                                      CONCLUSION

       For the reasons set forth above, we AFFIRM the bankruptcy court’s

order approving the compromise of Dalton’s appeal rights.

       8
      (...continued)
bankruptcy court order is mandatory and jurisdictional).
       9
         Even though Dalton commenced his chapter 7 bankruptcy case before the appeal
period expired, § 108(b) does not help Dalton. That Code section would have given his
chapter 7 trustee an extra sixty days to file a notice of appeal, but the statute on its face does
not apply to chapter 7 debtors. See generally Santa Fe Dev. & Mortg. Corp. v. McCormack (In
re Santa Fe Dev. & Mortg. Corp.), 16 B.R. 165, 167 (9th Cir. BAP 1981) (“The purpose of
section 108 is to permit the trustee, when he steps into the shoes of the debtor an extension
of time for filing an action or doing some other act that is required to preserve the debtor's
rights.”). Some courts have offered reasoned legal analyses for extending the application
of § 108 to chapter 11 debtors in possession, see id. at n.1, and to chapter 13 debtors, see
Stephenson v. Chase Home Fin. LLC, 2011 WL 2006117, at *5 (S.D. Cal. May 23, 2011). But we
know of no legal or logical basis for extending § 108 to chapter 7 debtors. Nor has Dalton
posited any.

                                               14