Court Opinion

ID: 2963778
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:15:05.980229+00
Date Added: 2024-06-11T11:37:22.157546
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

          No. 95-1261

                           JOHN JEFFREY AND MARSHA JEFFREY,

                                     Appellants,

                                          v.

                               JOHN O. DESMOND, ET AL.,

                                      Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                       [Hon. Rya W. Zobel, U.S. District Judge]
                                           ___________________

                                 ____________________

                                        Before

                               Torruella, Chief Judge,
                                          ___________

                                Lynch, Circuit Judge,
                                       _____________

                            and Stearns,* District Judge.
                                          ______________

                                _____________________

               Donald C. Kupperstein for appellants.
               _____________________
               Richard  D.  Wayne,  with whom  Paul  F.  O'Donnell III  and
               __________________              _______________________
          Hinckley, Allen & Snyder were on brief for appellees Brooks Drug,
          ________________________
          et al.
               John O. Desmond pro se.
               _______________

                                 ____________________

                                  November 22, 1995
                                 ____________________

                              
          ____________________

          *  Of the District of Massachusetts, sitting by designation.

                    TORRUELLA, Chief  Judge.  John and  Marsha Jeffrey (the
                    TORRUELLA, Chief  Judge.
                               ____________

          "appellants")  appeal   the  decision  of  the   district  court,

          affirming the  bankruptcy court's decision to  compromise a claim

          belonging  to  the  appellants'  Chapter 7  estate.    Appellants

          contend that the bankruptcy court  abused its discretion when  it

          approved the  Chapter 7 Trustee's motion to compromise the claim.

          For the reasons stated below, we affirm.

                                      BACKGROUND
                                      BACKGROUND
                                      __________

                    On February 14, 1992, appellants filed a petition under

          Chapter 7 of the Bankruptcy Act, 11 U.S.C.   701  et seq. (1988),
                                                            __ ___

          and John O. Desmond, an appellee in  this case, was appointed the

          Chapter  7 Trustee  (the "Trustee").   As  required by  11 U.S.C.

            521(1), appellants  filed a statement of  financial affairs and

          schedule  of  assets  and  liabilities.    Appellants  failed  to

          schedule  as an asset, however, a pending state court action they

          commenced  in 1990  against  Brooks Drug,  Inc., ("Brooks  Drug")

          (also  an appellee  in this  case),  seeking damages  for alleged

          discrimination against  John J. Jeffrey in  employment, under the

          Massachusetts  Civil Rights Act, Mass. Gen. L. ch. 12,    11H, I,

          and the Federal Civil Rights Act, 42 U.S.C   1983.1   

                              
          ____________________

          1   See 11 U.S.C.    521(a)(1) (property  of the  estate includes
              ___
          ". . . all legal or equitable interests of the debtor in property
          as  of the  commencement of  the case.");  see also  Oneida Motor
                                                     ________  ____________
          Freight, Inc. v. United  Jersey Bank, 848 F.2d 414, 416 (3d Cir.)
          _____________    ___________________
          (citing  In  re  Hannan,  127  F.2d  894,  897  (7th  Cir.  1942)
                   ______________
          ("[B]ankruptcy  law imposes  upon  one seeking  its benefits  the
          positive  duty to schedule for  the benefit of  creditors all his
          interest  and property  rights.")),  cert. denied,  488 U.S.  967
                                               ____________
          (1988).

                                         -2-

                    After the Trustee filed a Report of No Assets on May 1,

          1992, appellants received  a discharge under 11  U.S.C.   727(b),

          and  their  Chapter  7   case  was  closed  on  June   22,  1992.

          Appellants' counsel, who represented appellants in both the state

          court  action and the  Chapter 7 proceedings,  never informed the

          state  court  or  Brooks  Drug  that  appellants  had  filed  for

          bankruptcy or had received  a discharge without administration of

          the state court action in the Chapter 7 proceedings.  

                    On June  10, 1993, on the eve  of trial in state court,

          Brooks Drug  learned of appellants' bankruptcy  and their failure

          to schedule the  state court  action.  Brooks  Drug notified  the

          trial  judge of these facts  and moved to  dismiss with prejudice

          the  state  court action,  on  the grounds  that  appellants were

          judicially estopped  from asserting pre-petition claims that were

          not disclosed  during the bankruptcy case.  Subsequently, on July

          27,  1993,  the state  court stayed  the  state court  action and

          ordered Brooks Drug to  notify the Trustee about its  pendency in

          order to  give the Trustee the opportunity to bring the matter to

          the attention of the bankruptcy court.  

                    On September 17, 1993, the bankruptcy court granted the

          Trustee's motion to reopen appellants' Chapter 7 case in order to

          administer  the unscheduled  state court  action.   On  March 24,

          1994,  the  bankruptcy  court  granted the  Trustee's  motion  to

          compromise the state court action for $10,000.  The U.S. District

          Court for  the District of Massachusetts  affirmed the bankruptcy

          court's  decision   on  February  17,  1995,   finding  that  the

                                         -3-

          bankruptcy court did  not abuse its  discretion in approving  the

          compromise.  

                                      DISCUSSION
                                      DISCUSSION
                                      __________

                    On an appeal from  the district court, we independently

          review  the bankruptcy  court's  decision, applying  the  clearly

          erroneous standard to its findings of fact and de  novo review to
                                                         ________

          its conclusions of  law.  In  re SPM Mfg.  Corp., 984 F.2d  1305,
                                    ______________________

          1311 (1st Cir. 1993); see also In re G.S.F. Corp., 938 F.2d 1467,
                                ________ __________________

          1474  (1st  Cir. 1991)  (collecting cases).    The approval  of a

          compromise  is  within the  sound  discretion  of the  bankruptcy

          judge,  however, and this court  will not overturn  a decision to

          approve  a compromise absent a clear  showing that the bankruptcy

          judge abused her discretion.  In re Anolik, 107 B.R. 426, 429 (D.
                                        ____________

          Mass.  1989)  (collecting  cases).   "The  cask  which  encases a

          judge's discretion,  though commodious,  can be shattered  when a

          reviewing tribunal is persuaded that the trial court misconceived

          or  misapplied the law, or misconstrued its own rules."  Aggarwal
                                                                   ________

          v. Ponce School of Medicine, 745 F.2d 723, 727 (1st Cir. 1984).  
             ________________________

                    A  bankruptcy  judge has  the  authority  to approve  a

          compromise  of a claim pursuant to Bankruptcy Rule 9019(a).2  The

          ultimate  issue on appeal is whether  the bankruptcy court abused
                              
          ____________________

          2  Bankruptcy Rule 9019(a) provides as follows:

                      On  motion  by the  trustee  and after  a
                      hearing  on  notice  to   creditors,  the
                      debtor and indenture trustees as provided
                      in  Rule  2002(a)   and  to  such   other
                      entities as the  court may designate, the
                      court   may   approve  a   compromise  or
                      settlement.

                                         -4-

          its  discretion when  it  approved  the  compromise, which  is  a

          process requiring the bankruptcy court to "assess and balance the

          value of the claim that is being compromised against the value to

          the  estate of the acceptance of the compromise proposal."  In re
                                                                      _____

          GHR Cos.,  50 B.R. 925, 931 (Bankr. D. Mass. 1985) (quoting In re
          ________                                            _______ _____

          Boston & Providence R.R., 673 F.2d 11, 12 (1st Cir. 1982).  T h e
          ________________________

          specific factors  which a bankruptcy court  considers when making

          this determination include: (i) the probability of success in the

          litigation being  compromised; (ii) the difficulties,  if any, to

          be encountered in the matter of collection; (iii) the  complexity

          of the  litigation involved,  and the expense,  inconvenience and

          delay  attending it;  and,  (iv) the  paramount  interest of  the

          creditors and a proper deference to their reasonable views in the

          premise.  In re Anolik, 107 B.R. 426, 429 (D. Mass. 1989).
                    ____________

                    After  a  careful  review   of  the  record,  and  upon

          consideration of the  briefs and  oral arguments  of counsel,  we

          find  no abuse  of  discretion by  the  bankruptcy court  in  its

          approval  of the  compromise.   As the  district court  held, the

          record  reveals that  before  the bankruptcy  court approved  the

          Trustee's   compromise  proposal,  it   spent  considerable  time

          evaluating three of  the four factors set  forth in In  re Anolik
                                                              _____________

          when  it assessed  the  value to  the  estate of  the  compromise

          proposal. 

                    Although  nothing  more   need  be  said,  we   respond

          specifically to two of appellants' arguments.  Both arguments are

          based on their claim that they, and their attorney, discussed the

                                         -5-

          state court action with the Trustee on March 23, 1992, during the

          creditors' meeting held pursuant to 11 U.S.C.   341, and that the

          Trustee determined the case had no value.

                    First,  appellants essentially  contend that  the state

          court action was "abandoned" to  appellants by operation of  law,

          within the meaning of 11 U.S.C.   554(c), because the Trustee had

          actual knowledge  of the state court action when the report of no

          assets was filed.  In support of finding abandonment by operation

          of law, appellants also point to their claimed oral disclosure as

          evidencing a lack of fraud and to the Trustee's zero-valuation. 

                    Despite  appellants' persistent  claims, we  agree with

          the district court that the alleged discussion with  the Trustee,

          even if true, has no bearing on  the outcome of this appeal.  The

          law is abundantly clear that the burden is on the debtors to list

          the asset and/or  amend their  schedules, and that  in order  for

          property  to  be abandoned  by operation  of  law pursuant  to 11

          U.S.C.   554(c),  the debtor must formally schedule  the property

          pursuant to  11 U.S.C.    521(1)  before the close  of the  case.

          See, e.g.,  In re Rothwell,  159 B.R.  374, 377 (Bankr.  D. Mass.
          ___  ____   ______________

          1993).3

                              
          ____________________

          3   Furthermore, by operation of 11  U.S.C.   554(c) and (d), any
          asset  not properly  scheduled remains  property of  the bankrupt
          estate, and  the debtor loses all rights to enforce it in his own
          name.   Vreugdenhill  v. Navistar  Int'l Transportation  Co., 950
                  ____________     ___________________________________
          F.2d 524, 526  (8th Cir. 1991)  (Chapter 7 debtor  who failed  to
          schedule  potential  claim  cannot  prosecute  the  claim   after
          emerging from bankruptcy).

                                         -6-

                    What matters  here is not what the  appellants or their

          counsel said,  it is  what they  did or,  rather, failed to  do.4

          The state court action was not  scheduled as an asset at any time

          during the bankruptcy proceedings.  There   is  simply   no  such

          concept  of  "assumed  abandonment,"  which  is  essentially what

          appellants ask us to find.  Id. (citing Vreugdenhill, 950 F.2d at
                                      __          ____________

          526 ("It  is not enough that  the trustee learns  of the property

          through other means;  the property must be scheduled  pursuant to

          [11 U.S.C.]    521(1).")); see also In re  Medley, 29 B.R. 84, 86
                                     ________ _____________

          (Bankr.  M.D. Tenn. 1983) (court does not have to address factual

          question of  trustee's knowledge because    554 makes  clear when

          abandonment  occurs).   Neither  the  bankruptcy  court, nor  the

          district  court,  abused  their  discretion  when  they  rejected

          appellants' abandonment claim.5 

                    Second, appellants  contend that because  their alleged

          oral  disclosure  disproves any  intent  to commit  fraud  on the

                              
          ____________________

          4  We note, again,  that throughout the state court  action begun
          in 1990 and the  Chapter 7 proceedings begun in  1992, appellants
          were represented by the same attorney.  This fact alone amplifies
          "'the  silence'  in  [appellants'] bankruptcy  record  concerning
          [their  state  court   action],  [which]  as  they   say  in  the
          vernacular, 'is deafening'."   Payless, 989 F.2d at  571 (quoting
                                         _______                    _______
          Oneida Motor Freight, 848 F.2d at 417). 
          ____________________

          5  In  a similar vein, appellants  also contend that their  state
          court action  would be exempt from  the Chapter 7 estate.   It is
          well settled in this Circuit  that "theories not raised  squarely
          in the  district court cannot be  surfaced for the  first time on
          appeal." McCoy v. Massachusetts Institute of Technology, 950 F.2d
                   _____    _____________________________________
          13, 22  (1st Cir.  1991).   We therefore  treat this  argument as
          unpreserved  for appellate  review.   Id. at  22 ("If  claims are
                                                __
          merely insinuated  rather than actually articulated  in the trial
          court, we  will  ordinarily refuse  to  deem them  preserved  for
          appellate review."). 

                                         -7-

          bankruptcy  proceedings, their state  court action  would not  be

          dismissed under our decision in Payless Wholesale Distribs., Inc.
                                          _________________________________

          v. Alberto Culver, Inc.,  989 F.2d 570 (1st Cir.),  cert. denied,
             ____________________                             ____________

          __ U.S. __, 114 S. Ct. 344, 126 L. Ed. 2d 309 (1993).6  

                    Without  ruling on  the merits  of whether  Payless, by
                                                                _______

          itself, would justify dismissal,  we find no abuse of  discretion

          by  the bankruptcy  court  when it  found  that there  was  "some

          likelihood" Brooks Drug would  prevail in state court based  on a

          Payless defense.  In addition, we find no abuse of  discretion by
          _______

          the bankruptcy  court when it took Payless  into consideration as
                                             _______

          one of the factors it weighed when  it assessed the likelihood of

          appellants'  success were  appellants to  proceed with  the state

          court action.

                    We  merely add  that  appellants'  argument  that  they

          brought  the  state  court  action  to  the  Trustee's  attention

          completely overlooks both the importance of the Bankruptcy Code's

          disclosure requirements  and the fact that  appellants signed the

          schedules under penalties of  perjury.  Oneida, 848 F.2d  at 416;
                                                  ______

          In re Giguere,  165 B.R.  531, 536 (D.R.I.  1994).   Furthermore,
          _____________

          whether or not appellants' initial  failure to schedule the state

                              
          ____________________

          6   In Payless we held  that where a debtor  obtains relief under
                 _______
          Chapter 11  of the Bankruptcy  Code based on  his representations
          under penalty of  perjury that he had no  assets other than those
          scheduled, that debtor is judicially estopped from asserting pre-
          petition claims  not disclosed  during the bankruptcy  case, even
          though  the judicial estoppel might  result in a  windfall to the
          defendant.    Id.   For  cases recognizing  this  proposition but
                        __
          distinguishing Payless on the facts, see, e.g., In  re Envirodyne
                         _______               ___  ____  _________________
          Industries, Inc., 183 B.R.  812, 824 (N.D. Ill. 1995);  In re Mai
          ________________                                        _________
          Systems Corporation, 178 B.R. 50, 54 (D. Del. 1995).  
          ___________________

                                         -8-

          court asset  was intentional, the glaring fact  remains that, but

          for  the   investigation  made   by  counsel  for   Brooks  Drug,

          appellants'  failure to  list  on the  schedule  the state  court

          action at any  time during the bankruptcy proceedings would never

          have come to  the attention  of the state  court, the  bankruptcy

          court, or the  Trustee.   As we have  already noted,  appellants'

          "silence" here is thoroughly "deafening." 

                    Moreover,  assuming  arguendo  that  appellants'  state

          court  action  was  not   precluded  under  Payless,  appellants'
                                                      _______

          argument  would  not affect  the outcome  of  this appeal.   Even

          without  considering the possibility  of dismissal under Payless,
                                                                   _______

          the  record nonetheless  reveals  a "serious  question" regarding

          appellants' likelihood of  success.   In re Anolik,  107 B.R.  at
                                                ____________

          430.   This, coupled  with the  bankruptcy court's  inquiries and

          findings regarding the inconvenience and expense to the estate in

          attending  the  state  court  action,  and   the  fact  that  the

          compromise would provide creditors  with an immediate and certain

          payment  of   a  large   percentage  of  the   outstanding  debt,

          illustrates  that   the  bankruptcy  court  did   not  abuse  its

          discretion in approving the compromise.  Id.
                                                   __

                    For the foregoing reasons, and having found no merit to

          appellants'  other  arguments,  we affirm  the  district  court's

          decision, finding no abuse of discretion by  the bankruptcy court

          in its approval of the compromise.  Finally, because we view this

          appeal  to  have  been  frivolous,  we  impose  double  costs  on

          appellants.  The judgment of the district court is affirmed.

                                         -9-

                    Affirmed.
                    ________

                                         -10-