FILED
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
October 8, 2015
Blaine F. Bates
NOT FOR PUBLICATION Clerk
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
IN RE LISA KAY BRUMFIEL, aka BAP No. CO-15-014
Sarah Lisa Brumfiel,
Debtor.
LISA KAY BRUMFIEL, Bankr. No. 11-39881
Chapter 7
Appellant,
v. OPINION *
DAVID E. LEWIS, Chapter 7 Trustee,
and U.S. BANK, N.A., as Successor
Trustee to Bank of America, N.A., as
Successor Trustee to LaSalle Bank,
N.A., as Trustee for the Holders of the
Merrill Lynch First Franklin Mortgage
Loan Trust, Mortgage Loan
Asset-Backed Certificates, Series
2007-FF1, and its predecessors,
successors and assigns,
Appellees.
Before KARLIN, Chief Judge, CORNISH and MICHAEL, Bankruptcy Judges.
KARLIN, Chief Bankruptcy Judge.
The debtor appeals the bankruptcy court’s order approving a settlement
agreement in the Chapter 7 case she reopened about two years after receiving her
discharge. She challenges the trustee’s compromise of her alleged claims against
the creditor that foreclosed the note and deed of trust on her residence. Having
*
This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, and
issue preclusion. 10th Cir. BAP L.R. 8026-6.
reviewed the record and applicable law, we affirm the bankruptcy court’s order
approving the settlement agreement.
I. BACKGROUND 1
In 2006, debtor Lisa Kay Brumfiel (“Debtor”) executed a note and deed of
trust as security for a loan to purchase a residence in Aurora, Colorado
(“Property”). Although the original lender was First Franklin, the note and deed
of trust were subsequently transferred to the current holder, U.S. Bank, N.A.
(“Creditor”). 2 Debtor defaulted on the note in 2010, but claims she was not
required to pay it because of her allegation that the note and deed of trust were
improperly assigned from the original lender to Creditor. As a result of her
default, Creditor began a Colorado non-judicial foreclosure proceeding 3 against
the Property in October 2011.
Debtor filed her petition for Chapter 7 bankruptcy relief in December 2011.
David E. Lewis was appointed Chapter 7 trustee (“Trustee”). After Trustee’s
administration of the no-asset case, Debtor received a discharge and her case was
closed in May 2012. Creditor then continued its non-judicial foreclosure
proceeding against the Property.
In October 2012, Debtor filed a wrongful foreclosure action in federal
district court against Creditor, 4 asserting among other things, civil rights
deprivations under 42 U.S.C. §§ 1983, 1985, and 1988. Debtor claimed that
1
Unless otherwise indicated, this factual description is taken from the
bankruptcy court’s Order on Motion to Approve Settlement (“Order Approving
Settlement”), in Appellant’s App. at 119. This order may be found at In re
Brumfiel, No. 11-39881, 2015 WL 1339837 (Bankr. D. Colo. Mar. 20, 2015).
2
Creditor holds the note and deed of trust as trustee of a Merrill Lynch
mortgage loan trust.
3
Colo. R. Civ. P. 120.
4
The assignment of the note and deed of trust was accomplished through
Mortgage Electronic Registrations Systems (a division of MERSCorp.)
(“MERS”), and thus Debtor also named MERS as a defendant in the suit.
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Colorado’s non-judicial foreclosure proceeding violated her constitutional right of
due process, and challenged a Colorado statute 5 that allowed the holder of a debt
to seek foreclosure without producing the original evidence of debt or original
deed of trust. 6 When the federal district court temporarily enjoined execution in
the non-judicial foreclosure proceeding, Creditor voluntarily elected to instead
file a judicial foreclosure action in Colorado state court in May 2013, and the
federal district court granted Debtor’s then-unopposed motion for preliminary
injunction.
In October 2013, the federal district court then dismissed Debtor’s
remaining claims against Creditor, finding Debtor was not a party in interest with
the right to pursue them. Instead, the federal district court determined that
because Debtor’s claims against Creditor accrued prepetition and she had failed to
schedule those claims in her bankruptcy filings, they still belonged to the
bankruptcy estate. 7 As a result, the Trustee of Debtor’s estate was the only party
with standing to pursue them. 8 Debtor’s motion to reconsider that dismissal was
denied, and she then appealed the dismissal to the United States Court of Appeals
for the Tenth Circuit.
Debtor also pursued Creditor and its attorneys on the same theories by
filing counterclaims in the state court judicial foreclosure action. But the state
court dismissed Debtor’s claims against Creditor in January 2014 for the same
5
Colo. Rev. Stat. Ann. § 38-38-101(1)(b)(II) (West 2015).
6
See Brumfiel v. U.S. Bank, No. 12-02716, 2013 WL 5495543, at *1 (D.
Colo. Oct. 2, 2013), aff’d, Brumfiel v. U.S. Bank, No. 14-1421, 2015 WL 4496197
(10th Cir. July 24, 2015) (summarizing Debtor’s federal district court complaint).
Debtor’s other claims against Creditor were for fraud, common law conspiracy,
and intentional and negligent infliction of emotional distress.
7
Id. at *4-5.
8
Id. at *5.
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reasons—she was not the real party in interest. 9 The state court also granted
Creditor’s motion for summary judgment, which sought to foreclose the deed of
trust, finding that Debtor was in default and that Creditor was the holder of the
original promissory note and the deed of trust, 10 and concluding Debtor’s
numerous defenses were unavailing. 11 Debtor appealed to the Colorado Court of
Appeals.
While Debtor’s appeals to the Tenth Circuit and Colorado Court of Appeals
were pending, she reopened her bankruptcy case, and Trustee was reappointed.
Trustee then filed a notice pursuant to Bankruptcy Rule 6007(a) stating his intent
to abandon:
any claim for avoidance, recovery, fraud, or other basis, asserted by
the debtor against purported lienholders, or their successors, assigns
or affiliates claiming an interest in the real property owned by the
debtor and claimed as her homestead, whether currently asserted or
asserted as some future date. 12
Creditor filed an objection to the Trustee’s notice of intent to abandon these
claims, contending “the Claims may only have value and benefit to the estate
resulting in potential proceeds available for distribution to the estate’s
9
Additionally, the state court dismissed Debtor’s affirmative claims for
failure to state a claim and failure to bring the claims within the applicable statute
of limitations.
10
U.S. Bank v. Brumfiel, No. 13CV825 (Dist. Ct., Arapahoe County, Colo.
January 14, 2014), in Appellee U.S. Bank’s App. of Doc. Subject to Judicial
Notice Under Fed. R. Evid. 201(b) at 17, BAP. ECF No. 32 (adopting the
reasoning of the Colorado federal district court decision).
11
The state court rejected Debtor’s defenses, concluding that 1) Creditor was
not required to prove it was a holder in due course, U.S. Bank v. Brumfiel, No.
14CA0464 (Colo. App. May 21, 2015) at 15, in Appellee U.S. Bank’s App. of
Doc. Subject to Judicial Notice Under Fed. R. Evid. 201(b) at 53, BAP. ECF No.
32; 2) Creditor had standing to foreclose because it was the holder of a negotiable
instrument under which Debtor had defaulted, id. at 16-17; 3) amendments made
to the Colorado foreclosure statutes in 2006 that Debtor claimed were
unconstitutional were not applicable, id. at 17-18; and 4) Colorado’s Civil Access
Pilot Project rules were applicable, and even if they were not, Debtor did not
demonstrate she was prejudiced by them, id. at 19-21.
12
Order Approving Settlement at 3, in Appellant’s App. at 121.
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creditors if [Creditor] and Trustee reach a compromise on those Claims.” 13
In August 2014, Trustee and Creditor reached a proposed settlement
agreement (“Settlement Agreement”); it called for Creditor to pay Trustee
$10,000 (the alleged nuisance value) to acquire any claims the estate may have
against Creditor. The Settlement Agreement also provided that Creditor would be
permitted to file a general unsecured claim in Debtor’s case for any deficiency
that may exist following foreclosure. Trustee filed a motion to approve the
Settlement Agreement; only Debtor and Debtor’s father (who is a creditor of the
bankruptcy estate) objected. 14
The bankruptcy court conducted an evidentiary hearing on that motion in
January 2015, which included testimony from both Trustee and Debtor. The
bankruptcy court concluded that the Settlement Agreement was in the best
interests of the creditors as a whole, and granted the Trustee’s motion (“Order
Approving Settlement”). Debtor timely filed a motion to alter or amend that
order. She argued the bankruptcy court lacked jurisdiction because of the
pendency of her appeals in both the Tenth Circuit and the state appellate court. 15
The bankruptcy court concluded it had jurisdiction over the Property as it
belonged to the bankruptcy estate, and denied Debtor’s motion to alter or
amend. 16
13
Motion to Approve Settlement Agreement at 5, in Appellee’s App. at 32.
14
Around the same time, the bankruptcy court entered an order concluding
there was no automatic stay in place with respect to the Property. Order on
Motion for Relief from Stay, in Appellee’s App. at 53. As a result, Creditor
pursued foreclosure and purchased the Property at a foreclosure sale. The
bankruptcy court’s order indicates Creditor then evicted Debtor. Order Approving
Settlement at 4, in Appellant’s App. at 122.
15
Debtor’s Motion to Alter and Amend the Court’s Order Approving the
Settlement Agreement, in Appellant’s App. at 170.
16
Order on Motion to Alter and Amend, in Appellee’s App. at 273.
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Debtor timely appealed that decision, and also filed a motion to stay the
Order Approving Settlement pending appeal (which the bankruptcy court denied).
Subsequent to Debtor’s appeal of the bankruptcy court’s Order Approving
Settlement to this Court, both the Tenth Circuit and the Colorado Court of
Appeals issued unpublished decisions affirming the federal district court and state
court dismissals of Debtor’s claims against Creditor. 17 Debtor thus had four
opportunities to persuade courts that her claims against Creditor accrued
postpetition, and failed. As a result, it is clear that the claims against Creditor that
are the subject of the Settlement Agreement belonged to the bankruptcy estate.
II. APPELLATE JURISDICTION
This Court has jurisdiction to hear timely filed appeals from “final
judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit,
unless one of the parties elects to have the district court hear the appeal. 18
Neither party elected to have this appeal heard by the United States District Court
for the District of Colorado. The parties have therefore consented to appellate
review by this Court.
A decision is considered final “if it ‘ends the litigation on the merits and
leaves nothing for the court to do but execute the judgment.’” 19 Here, the
bankruptcy court’s Order Approving Settlement is final for purposes of review. 20
17
Brumfiel v. U.S. Bank, No. 14-1421, 2015 WL 4496197 (10th Cir. July 24,
2015); U.S. Bank v. Brumfiel, No. 14CA0464 (Colo. App. May 21, 2015), in
Appellee U.S. Bank’s App. of Doc. Subject to Judicial Notice Under Fed. R.
Evid. 201(b) at 37, BAP. ECF No. 32..
18
28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8005; 10th Cir.
BAP L.R. 8005-1.
19
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996) (quoting Catlin
v. United States, 324 U.S. 229, 233 (1945)).
20
See In re The Bennett Funding Group, Inc., 439 F.3d 155, 160 (2d Cir.
2006) (a bankruptcy court order approving a settlement that brings litigation
between the parties to an end is a final order).
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III. STANDARD OF REVIEW
For purposes of standard of review, decisions by trial courts are
traditionally divided into three categories, denominated: 1) questions of law,
which are reviewable de novo; 2) questions of fact, which are reviewable for clear
error; and, 3) matters of discretion, which are reviewable for abuse of discretion. 21
On appeal, Debtor takes issue with the bankruptcy court’s exercise of jurisdiction
for a number of reasons. She alleges the claims against Creditor are not property
of the estate, that the pending appeals in other courts prevent the bankruptcy court
from acting, and that the bankruptcy court should have abstained. These are all
legal issues that are subject to de novo review. 22 De novo review requires an
independent determination of the issues, giving no special weight to the
bankruptcy court’s decision. 23 To the extent Debtor disputes the propriety of the
bankruptcy court’s decision to approve the Settlement Agreement, we review such
decision for abuse of discretion. 24 “Under the abuse of discretion standard: ‘a
trial court’s decision will not be disturbed unless the appellate court has a definite
21
Pierce v. Underwood, 487 U.S. 552, 558 (1988); Fowler Bros. v. Young (In
re Young), 91 F.3d 1367, 1370 (10th Cir. 1996).
22
See In re Wise, 346 F.3d 1239, 1241 (10th Cir. 2003) (whether an asset is
property of the estate is a legal question subject to de novo review); Henry v.
Office of Thrift Supervision, 43 F.3d 507, 511 (10th Cir. 1994) (determination of a
court’s subject matter jurisdiction is a question of law that we review de novo);
Telluride Asset Resolution, LLC v. Telluride Glob. Dev., LLC (In re Telluride
Income Growth LP), 364 B.R. 390, 398 (10th Cir. BAP 2007) (decisions
regarding abstention pursuant to 28 U.S.C. § 1334(c)(2) are reviewed de novo)
(citing Personette v. Kennedy (In re Midgard Corp.), 204 B.R. 764, 770 (10th Cir.
BAP 1997)).
23
Salve Regina Coll. v. Russell, 499 U.S. 225, 238 (1991).
24
See Reiss v. Hagmann, 881 F.2d 890, 891-2 (10th Cir. 1989) (a bankruptcy
court’s approval of a settlement “may be disturbed only when it achieves an
unjust result amounting to a clear abuse of discretion.”); In re Kopexa Realty
Venture Co., 213 B.R. 1020, 1022 (10th Cir. BAP 1997) (approval of settlement is
reversible only when it amounts to clear abuse of discretion). See also Fed. R.
Bankr. P. 9019(a)(“On motion by the trustee and after notice and a hearing, the
court may approve a compromise or settlement.”).
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and firm conviction that the lower court made a clear error of judgment or
exceeded the bounds of permissible choice in the circumstances.’” 25
IV. ANALYSIS
A. Jurisdiction of the Bankruptcy Court
1. Claims Against Creditor Are Property of the Bankruptcy Estate
On appeal, Debtor argues that her wrongful foreclosure claims against
Creditor are not property of the bankruptcy estate, and therefore the bankruptcy
court was without jurisdiction to approve the Settlement Agreement. Debtor’s
argument has no merit.
Section 541(a) of the Bankruptcy Code includes in a bankruptcy estate all
types of property, legal and equitable, tangible or intangible, and is interpreted
very broadly. 26 The Tenth Circuit has held that “[e]very conceivable interest of
the debtor, future, nonpossessory, contingent, speculative, and derivative is within
the reach of 11 U.S.C. § 541.” 27 Legal claims and causes of action, pending or
potential, that a debtor may possess as of the petition date are clearly within the
scope of § 541. 28 When Debtor filed her Chapter 7 petition, she was obligated
under § 521 to disclose all of her assets, including contingent and unliquidated
claims. 29 This obligation included disclosure of all legal claims and causes of
25
Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994) (quoting McEwen v.
City of Norman, 926 F.2d 1539, 1553-54 (10th Cir. 1991)).
26
11 U.S.C. § 541(a). Unless otherwise indicated, all future statutory
references in text are to the Bankruptcy Code, Title 11 of the United States Code.
27
In re Dittmar, 618 F.3d 1199, 1207 (10th Cir. 2010) (quoting In re Yonikus,
996 F.2d 866, 869 (7th Cir. 1993)).
28
See, e.g., Sender v. Buchanan (In re Hedged-Invs. Assocs.), 84 F.3d 1281,
1285 (10th Cir. 1996) (causes of action belonging to a debtor fall within § 541).
29
Section 521(a)(1) imposes a duty upon each debtor to file a schedule of all
assets and liabilities.
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action, pending or potential, that she may have had against Creditor as of the
petition date. 30 Debtor did not comply with this duty.
Debtor disclosed Creditor’s pending non-judicial foreclosure proceeding
against the Property in response to Question 4 on the Statement of Financial
Affairs. 31 However, she did not disclose the existence of any claims or potential
claims she might have then had against Creditor arising out of the alleged
improper assignment of the note and deed of trust, Creditor’s attempts to collect
payments under that note, or Creditor’s institution of the non-judicial foreclosure
proceeding—all of which occurred prior to her bankruptcy filing.
When a bankruptcy case is closed, § 554(c) provides that property
scheduled under § 521(a)(1), but not administered, is abandoned to the debtor.
But because Debtor failed to disclose her alleged claims against Creditor in her
bankruptcy filings, they were not abandoned to Debtor when her case was closed.
Instead, the claims remained property of the estate pursuant to § 554(d), 32 and
upon reopening of the case and reappointment of Trustee, Trustee became the
30
Eastman v. Union Pac. R.R. Co., 493 F.3d 1151, 1159 (10th Cir. 2007)
(“The bankruptcy code imposes a duty upon a debtor to disclose all assets,
including contingent and unliquidated claims. That duty encompasses disclosure
of all legal claims and causes of action, pending or potential, which a debtor
might have.” (internal citations omitted)).
31
Order Approving Settlement at 2, in Appellant’s App. at 120.
32
See U.S. ex rel. Spicer v. Westbrook, 751 F.3d 354, 364 n.13 (5th Cir.
2014) (noting that “a trustee does not abandon a claim that the debtor has failed to
disclose”); Tyler v. DH Capital Mgmt., Inc. 736 F.3d 455, 465 (6th Cir. 2013)
(“Property not administered at the closing of a bankruptcy case is ordinarily
considered abandoned. However, if the property was never scheduled, it remains
property of the estate.”(internal citations omitted)); Parker v. Wendy’s Int’l, Inc.,
365 F.3d 1268, 1272 (11th Cir. 2004) (“Once an asset becomes part of the
bankruptcy estate, all rights held by the debtor in the asset are extinguished unless
the asset is abandoned back to the debtor pursuant to § 554 of the Bankruptcy
Code. At the close of the bankruptcy case, property of the estate that is not
abandoned under § 554 and that is not administered in the bankruptcy proceedings
remains the property of the estate. Failure to list an interest on a bankruptcy
schedule leaves that interest in the bankruptcy estate.” (internal citations
omitted)).
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proper representative of the estate with the capacity to sue and be sued on its
behalf pursuant to § 323. 33 When the federal district court and the Colorado state
court considered Debtor’s claims against Creditor, they both agreed that the
claims against Creditor belonged to the bankruptcy estate. 34 As a result, they
refused to assume jurisdiction and dismissed the claims Debtor brought against
Creditor because she was not the real party in interest. Both those decisions have
been recently affirmed, by the Tenth Circuit and the Colorado Court of Appeals,
respectively, and both agree that these claims belonged to the bankruptcy estate
when they denied her appeals. 35
Debtor persists in arguing here that the claims against Creditor were not
property interests she was required to disclose on her schedules or Statement of
Financial Affairs, claiming they did not arise prior to the filing of her Chapter 7
petition. 36 Specifically, she argues that because no order authorizing the sale of
the Property had been issued in the foreclosure proceeding prior to the date she
filed her bankruptcy petition—and thus she was not yet harmed by those acts, the
claims must have arisen post-petition. But the record is clear that two months
33
Mauerhan v. Wagner Corp., 649 F.3d 1180, 1184 n.3 (10th Cir. 2011)
(citing § 323(b) for the proposition that the trustee of a bankruptcy estate “has the
sole capacity to sue and be sued over assets of the estate”).
34
Brumfiel v. U.S. Bank, No. 12-02716, 2013 WL 5495543, at *5 (D. Colo.
Oct. 2, 2013) (because Debtor’s claims against Creditor accrued prior to her
bankruptcy and she did not disclose them, Trustee was real party in interest and
Debtor lacked standing); U.S. Bank v. Brumfiel, No. 13CV825, at 6 (Dist. Ct.,
Arapahoe County, Colo. January 14, 2014), in Appellee U.S. Bank’s App. of Doc.
Subject to Judicial Notice Under Fed. R. Evid. 201(b) at 22, BAP. ECF No. 32
(adopting the reasoning of the Colorado federal district court decision).
35
Brumfiel v. U.S. Bank, No. 14-1421, 2015 WL 4496197 at *4-5 (10th Cir.
July 24, 2015) (district court properly considered claims to be part of bankruptcy
estate so Debtor was not real party in interest); U.S. Bank v. Brumfiel, No.
14CA0464 (Colo. App. May 21, 2015) at 11, in Appellee U.S. Bank’s App. of
Doc. Subject to Judicial Notice Under Fed. R. Evid. 201(b) at 49, at 11, BAP.
ECF No. 32 (claims against Creditor remained part of bankruptcy estate so only
Trustee, as the real party in interest, had standing to assert them).
36
Appellant’s Reply Br. at 16.
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prior to her bankruptcy, Creditor had filed the foreclosure proceedings that
Debtor claims were wrongful due to the purported improper assignment of the
note and deed of trust. Further, Debtor’s argument that these claims accrued post-
petition has already been rejected by the federal district court, the Colorado state
court, the Tenth Circuit Court of Appeals and the Colorado Court of Appeals.
Debtor’s argument that the claims against Creditor were not property of the
bankruptcy estate and, therefore, that the bankruptcy court had no jurisdiction to
approve the Settlement Agreement is unfounded.
2. Pendency of Appeals in Other Courts
Debtor next argues the Order Approving Settlement is void ab initio and of
no force and effect because the bankruptcy court “wrongly assumed jurisdiction
during the pendency of [appeals] of the real party in interest issue first filed in the
federal and state courts.” 37 Debtor is again incorrect. 38
After the bankruptcy court entered its Order Approving Settlement, Debtor
filed a motion to alter or amend the order. In that motion, Debtor argued, as she
does now on appeal to this Court, that her then pending appeals before the Tenth
Circuit and the Colorado Court of Appeals prevented the bankruptcy court from
exercising jurisdiction. While it is true that filing a notice of appeal has
jurisdictional consequences, conferring jurisdiction on the appellate court and
divesting the trial court of control over those aspects of the case involved in the
appeal, 39 the appeals pending before the other courts were not appeals of an order
37
Appellant’s Opening Br. at 8.
38
As support for this argument, Debtor invokes the first to file rule, the rule
against claim splitting, and judicial estoppel. Appellant’s Opening Br. at 8-10.
But as Creditor points out, none of these legal principles are applicable here.
Appellee’s Response Brief at 15-17. Therefore, we feel it unnecessary to
elaborate on them further.
39
See Griggs v. Provident Consumer Disc. Co., 459 U.S. 56, 58-61 (1982)
(summarizing the historical development of this legal cannon).
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entered in Debtor’s bankruptcy case. Moreover, by statute, the bankruptcy court
has “exclusive jurisdiction of all the property, wherever located, of the debtor as
of the commencement of [the] case, and of property of the estate.” 40 Once Debtor
filed her Chapter 7 petition, she could not divest the bankruptcy court of
jurisdiction over property of the bankruptcy estate simply by filing claims against
Creditor in other courts.
Additionally, subsequent to Debtor’s appeal to this Court of the bankruptcy
court’s Order Approving Settlement Agreement, both the appeal pending before
the Colorado Court of Appeals and the appeal pending before the Tenth Circuit
were decided. The Colorado Court of Appeals issued an unpublished opinion on
May 21, 2015, affirming the state trial court’s dismissal of Debtor’s claims
against Creditor because she was not the real party in interest. 41 The Tenth
Circuit entered an unpublished order and judgment on July 24, 2015, affirming
the federal district court’s dismissal of Debtor’s complaint against Creditor, again
because she was not the real party in interest and therefore lacked prudential
standing. 42
3. Abstention
Debtor also argues the bankruptcy court should have abstained from
hearing Trustee’s motion to approve the settlement reached with Creditor based
40
28 U.S.C. § 1334(e)(1).
41
U.S. Bank v. Brumfiel, No. 14CA0464 (Colo. App. May 21, 2015), in
Appellee U.S. Bank’s App. of Doc. Subject to Judicial Notice Under Fed. R.
Evid. 201(b) at 37, BAP. ECF No. 32. Debtor filed a petition for rehearing,
which the Colorado Court of Appeals denied on July 16, 2015. Debtor then filed
a petition for writ of certiorari with the Colorado Supreme Court. It remains
pending.
42
Brumfiel v. U.S. Bank, No. 14-1421, 2015 WL 4496197 (10th Cir. July 24,
2015). Debtor filed a petition for rehearing, which the Tenth Circuit denied and
its mandate issued on August 21, 2015.
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on either the Younger abstention doctrine, 43 or the mandatory abstention provision
of 28 U.S.C. § 1334. Neither of these abstention principles is applicable here.
Generally speaking, the Younger abstention doctrine holds that in absence
of unusual circumstances, a federal court cannot interfere with a state criminal
prosecution. 44 The doctrine has been narrowly extended to other exceptional
circumstances such as “civil enforcement proceedings, and civil proceedings
involving certain orders that are uniquely in furtherance of the state courts’
ability to perform their judicial functions.” 45 But absent such exceptional
circumstances, the pendency of a state court action is no bar to federal court
proceedings regarding the same matter. 46 This case presents no such exceptional
circumstances and the Younger abstention doctrine simply does not apply.
Debtor’s mandatory abstention argument also misses the mark. The
mandatory abstention provision of 28 U.S.C. § 1334(c)(2) requires a federal court
to abstain from hearing a case based upon a state-law claim related to a title 11
bankruptcy case but not arising under title 11, if certain requirements are met. 47
One of these requirements is that a party make a timely motion seeking
43
Younger v. Harris, 401 U.S. 37 (1971).
44
17B Charles Allen Wright & Arthur R. Miller, Federal Practice and
Procedure § 4252 (3d ed. 2015).
45
Sprint Commc’ns, Inc. v. Jacobs, ___ U.S. ___, 134 S.Ct. 584, 588 (2013)
(internal quotation marks and citation omitted).
46
Id.
47
28 U.S.C. § 1334(c)(2) provides as follows:
Upon timely motion of a party in a proceeding based upon a State
law claim or State law cause of action, related to a case under title 11
but not arising under title 11 or arising in a case under title 11, with
respect to which an action could not have been commenced in a court
of the United States absent jurisdiction under this section, the district
court shall abstain from hearing such proceeding if an action is
commenced, and can be timely adjudicated, in a State forum of
appropriate jurisdiction.
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abstention. In other words, mandatory abstention is not jurisdictional, and it can
be waived by a party who does not make a timely motion. 48 Assuming for the
sake of argument that the proceeding appealed here falls under the bankruptcy
court’s “related to” jurisdiction because it involves causes of action owned by the
Debtor that became property of the estate pursuant to § 541, 49 Debtor neglected to
file any motion with the bankruptcy court seeking abstention, much less a timely
one. Debtor has waived abstention and cannot now raise it on appeal.
Additionally, as Creditor points out, it was Debtor who invoked the bankruptcy
court’s jurisdiction by reopening her Chapter 7 case hoping to require the alleged
causes of action against Creditor to be abandoned to her. 50 Debtor will not be
permitted to invoke the bankruptcy court’s jurisdiction for her benefit and then
argue that the same court has no jurisdiction when Creditor agrees to purchase
those causes of action from the estate. Debtor’s abstention theories are not
persuasive.
B. Approval of Settlement Agreement
The bankruptcy court may approve a settlement agreement if it is fair and
equitable, and in the best interests of the estate. 51 The settlement agreement need
not be the “best result obtainable.” 52 The bankruptcy court’s charge is not to
second guess a trustee, but instead to ensure the trustee exercised sound business
judgment in reaching the compromise. 53
48
Personette v. Kennedy (In re Midgard Corp.), 204 B.R. 764, 776 (10th Cir.
BAP 1997).
49
Celotex Corp. v. Edwards, 514 U.S. 300, 308 n.5 (1995).
50
Appellee’s Response Br. at 21.
51
In re Kaiser Steel Corp., 105 B.R. 971, 976 (D. Colo. 1989).
52
Ritchie Capital Mgmt., L.L.C. v. Kelley, 785 F.3d 273, 278 (8th Cir. 2015).
53
United States v. Sterling Consulting Corp. (In re Indian Motocycle Co.),
(continued...)
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In the Tenth Circuit, the standard for determining whether a settlement in a
bankruptcy case should be approved is a four part test articulated by this Court in
In re Kopexa Realty Venture Co. 54 Pursuant to Kopexa Realty, Trustee has the
burden of proving the proposed settlement should be approved based on these
factors: 1) the probable success of the underlying litigation on the merits; 2) the
possible difficulty in collection of a judgment; 3) the complexity and expense of
the litigation; and 4) the interests of creditors in deference to their reasonable
views. 55 Here, the bankruptcy court applied those factors and concluded:
Three of the factors favor the Trustee’s settlement of the Debtor’s
claims. The claims have a low probability of success, asserting the
claims would be complex and expensive, and the Settlement Agreement
meets the best interests of creditors as a whole. One factor, the possible
difficulty in collection of any judgment, is either inapplicable or weighs
against approval of the Settlement Agreement, but that one factor has
little weight, in the Court’s opinion. Considering all the evidence
before the Court, the Court finds that the Settlement Agreement
sufficiently satisfies the Kopexa Realty factors. 56
Settlements are looked upon with favor in bankruptcy proceedings. 57 A
bankruptcy court’s order approving a negotiated settlement is entitled to
deferential review, and this Court can only reverse the Order Approving
Settlement if there has been an abuse of discretion. 58 Debtor points to no specific
53
(...continued)
289 B.R. 269, 282-83 (1st Cir. BAP 2003).
54
213 B.R. 1020, 1023 (10th Cir. BAP 1997). See also Protective Comm. for
Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424-25
(1968).
55
Kopexa Realty, 213 B.R. at 1022.
56
Order Approving Settlement at 8, in Appellant’s App. at 126.
57
See Anderson, 390 U.S. at 424; In re Jevic Holding Corp., 787 F.3d 173,
184 (3d Cir. 2015); Korngold v. Loyd (In re S. Med. Arts Co.), 343 B.R. 250, 255
(10th Cir. BAP 2006).
58
City Sanitation, LLC v. Allied Waste Servs. of Mass., LLC (In re Am.
Cartage, Inc.), 656 F.3d 82, 91 (1st Cir. 2011).
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finding or conclusion in the bankruptcy court’s analysis that constitutes error, and
we see none. In fact, the record firmly supports its findings.
Trustee testified that in his opinion Debtor’s claims had no merit and
Creditor’s proposed payment of $10,000 represented the nuisance value of the
claims. This seems likely true, given that the Colorado state trial court has
already determined that Creditor had standing to pursue foreclosure and was
entitled and allowed to foreclose on the Property, and the Colorado Court of
Appeals has affirmed that decision. Further, the bankruptcy court found that the
estate had no resources with which to pursue the claims, regardless of their merit.
Therefore, we conclude the bankruptcy court did not abuse its discretion in
approving the Settlement Agreement.
V. CONCLUSION
Contrary to Debtor’s contentions, there were no impediments to the
bankruptcy court’s exercise of jurisdiction over the proposed compromise under
which Trustee sold Debtor’s causes of action against Creditor to Creditor for their
alleged nuisance value of $10,000. Further, the bankruptcy court did not abuse its
discretion in approving the Trustee’s Settlement Agreement. Therefore, the
bankruptcy court’s Order Approving Settlement is hereby AFFIRMED. 59
59
Creditor filed two motions for this Court to take judicial notice of various
state court and federal court orders and pleadings. Judicial notice of public
records is appropriate, and Creditor’s requests for judicial notice are GRANTED.
See State Farm Mut. Auto Ins. Co. v. Boellstorff, 540 F.3d 1223, 1226 n.7 (10th
Cir. 2008) (permitting judicial notice of “documents from the public record”). To
the extent that Debtor’s response to Creditor’s second request for judicial notice
seeks a stay of this appeal, that request is DENIED.
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