FILED
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
NOT FOR PUBLICATION June 18, 2019
UNITED STATES BANKRUPTCY APPELLATE PANEL
Blaine F. Bates
OF THE TENTH CIRCUIT Clerk
_________________________________
In re GEORGE VELASQUEZ, BAP No. NM-18-076
Debtor.
___________________________________
GEORGE VELASQUEZ, Bankr. No. 12-10670
Chapter 7
Appellant,
v.
OPINION *
YVETTE GONZALES, Chapter 7 Trustee,
& LOS ALAMOS NATIONAL BANK,
Appellees.
_________________________________
Appeal from the United States Bankruptcy Court
for the District of New Mexico
_________________________________
Submitted on the briefs. **
_________________________________
Before SOMERS, MOSIER, and MARKER, 1 Bankruptcy Judges.
*
This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, and issue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.
**
After examining the briefs and appellate record, the Court has determined
unanimously to honor the parties’ request for a decision on the briefs without oral
argument. See Fed. R. Bankr. P. 8019(b). The case is therefore submitted without oral
argument.
1
Joel T. Marker, U.S. Bankruptcy Judge, United States Bankruptcy Court for the
District of Utah, sitting by designation.
_________________________________
MOSIER, Bankruptcy Judge.
Successfully challenging a trustee’s decision to settle litigation is a difficult task.
To do so, the party opposing the settlement must establish that the settlement falls below
the lowest point in the range of reasonableness. 2 The Appellant did not make that
showing, and we therefore affirm the Bankruptcy Court’s decision.
I. FACTUAL AND PROCEDURAL HISTORY
A. The Business Loan
Debtor George Velasquez owned and operated a corporation called Professional
Business Assistants, Inc. (PBA), which borrowed $396,000 from Los Alamos National
Bank (LANB) in August 2006 (Business Loan). The Business Loan had a thirty-year
term and a variable interest rate. LANB secured the Business Loan with a mortgage
against PBA’s commercial building in Santa Fe, New Mexico. The Debtor also
personally guaranteed the Business Loan.
PBA defaulted on the Business Loan but LANB agreed to renew the note, re-
amortizing principal and interest, though retaining the same maturity date. After PBA
defaulted on the first renewal, LANB and PBA executed a second renewal note in June
2010, which provided PBA would make one balloon payment of the remaining loan
balance on December 1, 2010 (June Renewal). PBA defaulted on the June Renewal’s
balloon payment, resulting in a final renewal, which extended the maturity date until
2
Rich Dad Operating Co.v. Zubrod (In re Rich Global, LLC), 652 F. App’x 625,
631 (10th Cir. 2016) (unpublished).
2
April 1, 2011 (December Renewal). On March 1, 2011, the Debtor and PBA signed a
one-month promissory note for $13,846.14, due April 1, 2011 (Short Term Loan).
B. The Personal Loan
The Debtor borrowed $273,000 from LANB in March 2007 (Personal Loan).
LANB secured the Personal Loan with a mortgage against the Debtor’s residence in
Santa Fe, New Mexico. The Debtor defaulted on the Personal Loan in March 2010. The
Debtor and LANB executed a modification agreement, re-amortizing the principal
balance of, and accrued interest on, the Personal Loan.
C. LANB’s Collection Actions and the Debtor’s Bankruptcy
By the spring of 2011, the Debtor and PBA had defaulted on the Business,
Personal, and Short Term Loans and all subsequent renewals. Accordingly, LANB sent a
notice of default in April 2011. The Debtor held six personal bank accounts with LANB,
and PBA held two business bank accounts. The deposit account agreements authorized
LANB to freeze and offset account balances against outstanding obligations. In early
June 2011, LANB froze the Debtor’s and PBA’s bank accounts and offset $3,840.62
from those bank account balances on account of the outstanding obligations. 3
LANB filed a state court foreclosure action against PBA and the Santa Fe
commercial property to recover on the Business and Short Term Loans in July 2011. The
3
LANB initially offset $5,570.13, but returned $1,729.51 upon discovering it was
drafted from a joint account held by the Debtor and his daughter.
3
Debtor and PBA paid off the balance of the Business and Short Term Loans in November
2011, and LANB dismissed the foreclosure action.
LANB also filed a state court foreclosure action against the Debtor and his Santa
Fe residence to recover on the Personal Loan in August 2011. The Debtor filed his
bankruptcy case on February 24, 2012, staying the foreclosure. The Debtor received a
discharge on June 6, 2012, and the case closed later that month on June 18. The Debtor
reopened the case nine days later on June 27, alleging LANB had violated the automatic
stay. While the case was reopened, the Debtor amended his schedules to list his interest
in PBA, valuing it at $1, and to list a claim against LANB for wrongful foreclosure, also
valuing it at $1. The state court entered a final foreclosure judgment in August 2016, and
the foreclosure sale of the Debtor’s home occurred in September 2016. LANB filed a
proof of claim for approximately $164,259 on account of the deficiency resulting from
that sale.
In February 2017, the Debtor filed a state court lawsuit against LANB alleging
thirteen claims relating to the Business Loan and setoff. The Debtor alleged that LANB
had breached the terms of the Business Loan and renewals 4 and that the offsets from his
bank accounts constituted conversion.
In the meantime, the Debtor’s bankruptcy case closed and reopened three times,
the last of which occurred in March 2017. Yvette Gonzales was appointed as Chapter 7
4
The Debtor claimed the purpose of the modification was to extend the maturity
date and that he did not learn of LANB’s misrepresentations until January 2016. Exhibit
D, Affidavit of George Velasquez at 1-4, in Appellant’s App. at 163-66.
4
trustee (Trustee). The Debtor amended his schedules to value his claims against LANB at
$6,748. He also amended his Schedule C to exempt any recovery on the claims against
LANB. 5 The Trustee investigated the lawsuit against LANB and the parties began
settlement negotiations.
D. The Motion to Approve Compromise
The Trustee filed the Motion to Approve Compromise of Controversy on
December 11, 2017 (Motion to Compromise). 6 The Trustee and LANB proposed to settle
the estate’s claims against LANB in exchange for payment of $10,000 to the estate and
waiver of LANB’s $164,259 proof of claim. The Debtor filed his Objection to Motion to
Approve Compromise of Controversy (Objection) on January 2, 2018. 7 At a preliminary
hearing on April 9, 2018, the Bankruptcy Court set a discovery deadline of June 4, 2018,
and scheduled a final hearing on the Motion to Compromise for June 20, 2018.
LANB and the Debtor agreed to an informal extension of discovery deadlines until
June 8, 2018. After receiving LANB’s discovery responses on June 8, the Debtor filed a
motion to continue the hearing (Motion to Continue), arguing he needed an additional
two weeks to review the responses. LANB objected to the Motion to Continue and the
Bankruptcy Court held a hearing to address the matter on June 18, 2018. The Bankruptcy
5
The Debtor stipulated to the denial of his claim of exemption of any award for the
claims against LANB in September 2017.
6
Appellant’s App. at 135.
7
Appellant’s App. at 142.
5
Court denied the Motion to Continue the same day, requiring the Debtor to tender his
witness list by June 18 at 5:00 pm and his exhibit list by June 19 at 5:00 pm.
The Bankruptcy Court proceeded with the hearing on the Motion to Compromise
on June 20, as scheduled. At that hearing the Debtor testified that he was unaware the
maturity date of the Business Loan had been reduced by the renewals and he suggested
that LANB had fraudulently foreclosed based on altered notes. He also testified that he
had suffered damages in the form of lost business profits as a result of the account freeze
and offset, estimating his damages between $15,000,000 and $30,000,000.
The Trustee testified that, after evaluating the Debtor’s claims against LANB, she
believed the likelihood of success on the claims was “slim to none.” 8 Furthermore, she
did not believe the Debtor’s claim that LANB had misrepresented the maturity date was
credible or that his damage claim could be supported. Finally, the Trustee testified that
she believed the compromise to be in the best interest of creditors because it removed the
largest unsecured claim from the estate, allowing remaining creditors to receive a
distribution of over fifty percent.
The Bankruptcy Court made its findings of fact and conclusions of law on the
record at a July 6, 2018 hearing. 9 The Bankruptcy Court did not find the Debtor’s
testimony credible, observing that because the maturity dates were “not buried in the fine
print, but [were] set out very plainly at the top of the note,” the Debtor, a sophisticated
8
Tr. June 20, 2018 Hearing at 7, in Appellant’s App. at 207.
9
Tr. July 6, 2018 Hearing, in Appellant’s App. at 228.
6
businessman, should have had knowledge of them. 10 Furthermore, the Bankruptcy Court
took issue with the Debtor’s $6,748 scheduled valuation of his claims against LANB
compared to his testimony that he suffered up to $30,000,000 in damages.
The Bankruptcy Court applied the four factors from Kopp v. All American Life
Insurance Company (In re Kopexa Realty Venture Company) 11—which are widely
referred to in this Circuit as the Kopexa factors—and concluded that (1) the Trustee
would be unlikely to prevail on the claims; (2) a resulting judgment might only net
$25,000 or so for creditors; (3) litigation would require counsel and expert witnesses,
making pursuit of the claims cost-prohibitive; and (4) creditors had “more to gain with
greater certainty through the settlement.” 12 The Bankruptcy Court entered the Order
Granting Trustee’s Motion to Approve Compromise of Controversy on July 6, 2018
(Order Approving Compromise). 13
II. JURISDICTION AND STANDARD OF REVIEW
“With the consent of the parties, this Court has jurisdiction to hear timely-filed
appeals from ‘final judgments, orders, and decrees’ of bankruptcy courts within the Tenth
Circuit.” 14 An order granting a motion to approve a compromise of claims is final for
10
Tr. July 6, 2018 Hearing at 9-10, in Appellant’s App. at 231.
11
213 B.R. 1020 (10th Cir. BAP 1997).
12
Tr. July 6, 2018 Hearing at 19, in Appellant’s App. at 233.
13
Appellant’s App. at 199.
14
Straight v. Wyo. Dep’t of Transp. (In re Straight), 248 B.R. 403, 409 (10th Cir.
BAP 2000) (first quoting 28 U.S.C. § 158(a)(1), and then citing 28 U.S.C. § 158(b)(1),
(c)(1) and Fed. R. Bankr. P. 8002).
7
purposes of 28 U.S.C. § 158(a)(3). 15 None of the parties in this case elected for this
appeal to be heard by the United States District Court for the District of New Mexico
pursuant to 28 U.S.C. § 158(c). Accordingly, this Court has jurisdiction over this appeal.
We review a bankruptcy court’s approval of a settlement agreement brought
pursuant to Federal Rule of Bankruptcy Procedure Rule 9019 16 for an abuse of
discretion. 17 “Under the abuse of discretion standard[,] a trial court’s decision will not be
disturbed unless the appellate court has a definite and firm conviction that the lower court
made a clear error of judgment or exceeded the bounds of permissible choice in the
circumstances.” 18 An abuse of discretion occurs when a trial court “makes an ‘arbitrary,
capricious or whimsical,’ or ‘manifestly unreasonable judgment.’” 19 “A clear example of
an abuse of discretion exists where the trial court fails to consider the applicable legal
standard or the facts upon which the exercise of its discretionary judgment is based.” 20
We review a bankruptcy court’s findings of fact for clear error. “A factual finding
is ‘clearly erroneous’ when ‘it is without factual support in the record, or if the appellate
court, after reviewing all the evidence, is left with the definite and firm conviction that a
15
See Korngold v. Loyd (In re S. Med. Arts Cos.), 343 B.R. 250, 254 (10th Cir. BAP
2006).
16
All references to Rule or Rules are to the Federal Rules of Bankruptcy Procedure
unless otherwise indicated.
17
In re S. Med. Arts Cos., 343 B.R. at 256.
18
Arenas v. U.S. Tr. (In re Arenas), 535 B.R. 845, 849 (10th Cir. BAP 2015)
(quoting Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994)).
19
Id. (quoting Moothart, 21 F.3d at 1504-05).
20
Jackson v. Los Lunas Cmty. Program, 880 F.3d 1176, 1191 (10th Cir. 2018)
(quoting Ohlander v. Larson, 114 F.3d 1531, 1537 (10th Cir. 1997)).
8
mistake has been made.’” 21 But if the bankruptcy court’s “factual findings are premised
on improper legal standards or on proper ones improperly applied, they are not entitled to
the protection of the clearly erroneous standard, but are subject to de novo review.” 22
We review questions of law de novo, which “requires an independent
determination of the issues, giving no special weight to the bankruptcy court’s
decision.” 23
III. DISCUSSION
A. The Applicable Law
Rule 9019(a) governs approval of a compromise or settlement. But that rule only
provides the procedure used to obtain that approval; it does not contain the standard by
which courts evaluate compromises or settlements. Nor does the Bankruptcy Code offer
any statutory guidance on that front. The development of this area of the law has been left
to the courts.
The Tenth Circuit Court of Appeals has not yet issued a published decision
addressing what standard a Rule 9019 settlement must achieve before it can be approved.
Even though there is no controlling circuit law on the subject, the Tenth Circuit has stated
21
LTF Real Estate Co. v. Expert S. Tulsa, LLC (In re Expert S. Tulsa, LLC), 522
B.R. 634, 643 (10th Cir. BAP 2014) (quoting Las Vegas Ice & Cold Storage Co. v. Far
W. Bank), 893 F.2d 1182, 1185 (10th Cir. 1990)).
22
Minerals Techs., Inc. v. Novinda Corp. (In re Novinda Corp.), 585 B.R. 145, 152
(10th Cir. BAP 2018) (quoting Osborn v. Durant Bank & Tr. Co. (In re Osborn), 24 F.3d
1199, 1203 (10th Cir. 1994), abrogated in part on other grounds by Eastman v. Union
Pac. R.R., 493 F.3d 1151 (10th Cir. 2007)).
23
In re Expert S. Tulsa, LLC, 522 B.R. at 643 (citing Salve Regina Coll. v. Russell),
499 U.S. 225, 238 (1991)).
9
in a handful of unpublished decisions that “[a] court’s general charge is to determine
whether the settlement is fair and equitable and in the best interests of the estate.” 24 Put
another way, the court should “review the issues and determine whether the settlement
falls below the lowest point in the range of reasonableness.” 25 In reaching this
determination, a court need not conduct a mini-trial or decide the numerous questions of
law and fact, 26 but its decision to approve a settlement “must be an informed one based
upon an objective evaluation of developed facts.” 27
To fulfill the duties articulated by the Tenth Circuit, bankruptcy courts in this
Circuit invariably, if not inveterately, review Rule 9019 settlements through the lens of
the Kopexa factors. But there is no binding precedent that requires analyses of such
settlements to use those factors. The Tenth Circuit has never endorsed them in a
published decision, likely because parties have not presented the factors’ applicability as
24
Rich Dad Operating Co. v. Zubrod (In re Rich Global, LLC), 652 F. App’x 625,
631 (10th Cir. 2016) (unpublished) (citing Official Comm. of Unsecured Creditors of W.
Pac. Airlines, Inc. v. W. Pac. Airlines, Inc. (In re W. Pac. Airlines, Inc.), 219 B.R. 575,
579 (D. Colo. 1998)). Under the Tenth Circuit Rules, unpublished decisions, such as In re
Rich Global, LLC, “are not precedential, but may be cited for their persuasive value.”
10th Cir. R. 32.1(A).
25
In re Rich Global, LLC, 652 F. App’x at 631 (quoting 8 Norton Bankruptcy Law &
Practice § 167:2 (3d ed. 2011)).
26
E.g., In re Brutsche, 500 B.R. 62, 71 (Bankr. D.N.M. 2013).
27
Korngold v. Loyd (In re S. Med. Arts Cos.), 343 B.R. 250, 256 (10th Cir. BAP
2006) (quoting Reiss v. Hagmann, 881 F.2d 890, 892 (10th Cir. 1989)); see also
Armstrong v. Rushton (In re Armstrong), 285 B.R. 344, 2002 WL 471332, at *2 (10th
Cir. BAP Mar. 28 2002) (unpublished) (“There can be no informed and independent
judgment as to whether a proposed compromise is fair and equitable until the bankruptcy
judge has apprised himself of all facts necessary for an intelligent and objective opinion
of the probabilities of ultimate success should the claim be litigated.” (quoting Protective
Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414,
424 (1968))), aff’d, 99 F. App’x 210 (10th Cir. 2004) (unpublished).
10
an issue on appeal. 28 Even our own prior decisions leave some uncertainty regarding
whether the Kopexa factors constitute an exhaustive list of criteria. Kopexa itself merely
stated that it is appropriate to consider the four now well-known factors in evaluating
settlements; it did not mandate their application or exclude others. 29 But in 2006 this
Court issued a decision that characterized Kopexa as having “adopted” the four-factor test
“for evaluating the factual circumstances of a compromise.” 30
We have not revisited the issue in a published decision since that time, but in a
series of unpublished decisions the BAP incrementally advanced towards mandatory
application of the Kopexa factors, 31 finally reaching that position in Isho v. Loveridge (In
re Isho). 32 In that case, we held that bankruptcy courts must consider the Kopexa factors
in reviewing proposed settlements, though there was no discussion of whether additional
28
See, e.g., In re Rich Global, LLC, 652 F. App’x at 631 (“The parties do not argue
that the bankruptcy court erred in identifying [the Kopexa factors] as the appropriate
factors, and so we assume without deciding that they are.”). In fact, the only published
Tenth Circuit opinion to cite Kopexa, Scott v. King (In re Amerson), 839 F.3d 1290 (10th
Cir. 2016), did not have occasion to address whether the Kopexa factors are the correct
standard by which to evaluate Rule 9019 settlements because the appellant did not raise
the issue. See In re Amerson, 839 F.3d at 1298.
29
See Kopp v. All American Life Insurance Company (In re Kopexa Realty Venture
Company), 213 B.R. 1020, 1022 (10th Cir. BAP 1997).
30
In re S. Med. Arts Cos., 343 B.R. at 256.
31
See Allen v. Loveridge (In re Log Furniture, Inc.), 356 B.R. 787, 2007 WL
496784, at *3 (10th Cir. BAP Feb. 16, 2007) (unpublished) (stating that the “[f]actors to
consider” in approving a settlement agreement are the Kopexa factors), aff’d 257 F.
App’x 101 (10th Cir. 2007) (unpublished); Lewis v. McCallum (In re Lewis), 378 B.R.
418, 2007 WL 2189343, at *4 (10th Cir. BAP July 31, 2007) (repeating the “adopted”
language of Southern Medical Arts).
32
498 B.R. 391, 2013 WL 1386208 (10th Cir. BAP Apr. 5, 2013) (unpublished).
11
factors could apply. 33 Subsequent decisions have reached the same conclusion. 34
Although there is no controlling circuit law requiring the application of the Kopexa
factors on the one hand or precluding consideration of supernumerary factors on the
other, we conclude that using the Kopexa factors in evaluating Rule 9019 settlements is
consistent with the standard stated by the Tenth Circuit in Rich Global.
As stated previously, the Kopexa factors are: “[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.” 35 “[T]he court need not resolve all of these issues,
but must only identify them ‘so that the reasonableness of the settlement may be
evaluated.’” 36
B. Application of Controlling Law
The Bankruptcy Court applied the Kopexa factors, concluding that they weighed
in favor of approving the settlement agreement. After reviewing the Order Approving
33
Id. at *3. In fact, the Isho panel did not have reason to address whether the Kopexa
factors had been satisfied; it summarily affirmed the bankruptcy court’s approval of the
settlement because the appellant failed to provide an adequate record for review on that
issue. Id. at *4.
34
See Amerson v. King (In re Amerson), No. CO-14-045, 2015 WL 5162763, at *7
(10th Cir. BAP Sept. 2, 2015) (unpublished) (“The Tenth Circuit standard for
determining whether a settlement in a bankruptcy case should be approved is a four-part
test articulated by this Court in [Kopexa].”), aff’d sub nom. Scott v. King (In re Amerson),
839 F.3d 1290 (10th Cir. 2016); Brumfiel v. Lewis (In re Brumfiel), No. CO-15-014, 2015
WL 5895213, at *7 (10th Cir. BAP Oct. 8, 2015) (unpublished) (same).
35
In re Kopexa Realty Venture Co., 213 B.R. at 1022 (citations omitted).
36
Official Comm. of Unsecured Creditors of W. Pac. Airlines, Inc. v. W. Pac.
Airlines, Inc. (In re W. Pac. Airlines, Inc.), 219 B.R. 575, 579 (D. Colo. 1998) (quoting In
re The Hermitage Inn, Inc., 66 B.R. 71, 72 (Bankr. D. Colo. 1986)).
12
Compromise, we are not left with a definite and firm conviction that the Bankruptcy
Court made a clear error of judgment or exceeded the bounds of permissible choice under
the circumstances. However, as the Debtor assigns multiple errors to the Bankruptcy
Court’s findings and conclusions, we review each assignment of error in turn, beginning
with the Bankruptcy Court’s analysis of the Kopexa factors.
1. Factor 1: The Probable Success of the Underlying Litigation
The Debtor argues that the Bankruptcy Court disproportionately emphasized
circumstances that diminished the likelihood of success of the litigation. First, the Debtor
argues the Bankruptcy Court incorrectly applied the four-year statute of limitations for
oral contracts instead of the six-year statute for written contracts. In particular, he asserts
that because the Business Loan and subsequent renewals are ambiguous, evidence of
contemporaneous oral agreements would be allowed to interpret the written contract. And
since contemporaneous oral agreements of an ambiguous contract merge into the written
agreement, the Debtor concludes that the six-year statute of limitations applies. 37 The
Debtor argues “there is no question that the contract is ambiguous” because “the contract
states plainly that its purpose is to extend the maturity date of the loan.” 38 However, the
June Renewal of the Business Loan modified the maturity date to December 1, 2010.
Therefore, as the June Renewal eliminated the thirty-year term, the December Renewal
37
Mark V, Inc. v. Mellekas, 845 P.2d 1232, 1235 (N.M. 1993) (“The court may
consider collateral evidence of the circumstances surrounding the execution of the
agreement in determining whether the language of the agreement is unclear.” (citing C.R.
Anthony Co. v. Loretto Mall Partners, 817 P.2d 238, 242-43 (N.M. 1991))).
38
Appellant’s Br. 17.
13
served to extend the maturity date from December 1, 2010, to April 1, 2011. Regardless,
the Bankruptcy Court correctly identified the statute of limitations defense, at the very
least, as an impediment to the Trustee’s success in the litigation. 39
Next, the Debtor argues that the Bankruptcy Court erred in assessing his
credibility and finding no evidence of fraud in the acceleration of the maturity date. We
defer to the Bankruptcy Court’s judgment of a witness’s credibility. 40 In addition to its
assessment of the Debtor’s testimony, the Bankruptcy Court based its credibility findings
on the Debtor’s own contradictions, noting that he scheduled the value of the litigation
claims at $6,748 but testified he suffered approximately $30,000,000 in damages. The
record supports this finding. With respect to the Debtor’s fraud claim, he argues that the
Bankruptcy Court failed to consider the twenty-year banking relationship he had with
LANB, which he claims lends credibility to his “contention that he was advised by
LANB the renewal agreement was . . . an agreement extending the maturity date.” 41
Although courts may rely on circumstantial evidence to deduce fraudulent intent, 42 the
banking relationship is insufficient to support the Debtor’s claim of fraud. The
Bankruptcy Court’s decision must “bear a ‘rational relationship to the supportive
39
See In re W. Pac. Airlines, Inc., 219 B.R. at 579 (explaining the bankruptcy court
is not required to resolve issues but only identify and weigh them as factors).
40
See Fed. R. Civ. P. 52(a)(6), made applicable in adversary proceedings by Fed. R.
Bankr. P. 7052; Gillman v. Ford (In re Ford), 492 F.3d 1148, 1157 (10th Cir. 2007)
(“When findings are based on determinations regarding the credibility of witnesses, [Fed.
R. Civ. P.] 52(a) demands even greater deference to the trial court’s findings.” (quoting
Dalton v. IRS, 77 F.3d 1297, 1302 (10th Cir. 1996))).
41
Appellant’s Br. 19.
42
Job v. Calder (In re Calder), 907 F.2d 953, 956 (10th Cir. 1990).
14
evidentiary data.’” 43 It is clear from the record that LANB worked with the Debtor,
providing him two extensions on the acceleration of the Business Loan. Furthermore,
LANB’s subsequent foreclosure suggests that it intended to collect on the defaulted
obligation despite the longstanding relationship.
The Debtor also assigns error to the Bankruptcy Court’s conclusion that the claims
were likely barred by a preclusion doctrine. The Debtor points out that LANB and the
Trustee argued the claims were mandatory counterclaims in the foreclosure of the
Personal Loan, not the Business Loan. The Bankruptcy Court admitted such a defense
may not be “bulletproof” because LANB’s initial foreclosure claim subject to mandatory
counterclaims was dismissed. Thus, the Bankruptcy Court did not place substantial
weight on this defense but instead recognized it as an additional nuisance the Trustee
would have to overcome to prevail on the estate’s claims.
Finally, the Debtor argues the Bankruptcy Court erred in (1) determining LANB
was entitled to offset; and (2) failing to recognize the account freeze was just as harmful
as the offset. The record does not support the suggestion the Debtor was not in default.
The promissory notes and subsequent renewals evidence the maturity dates on their face
and the Debtor’s uncorroborated and incredible testimony does not suggest otherwise.
Furthermore, the Debtor admitted to defaulting on the Business, Personal, and Short
Term Loans in an affidavit attached to the Objection. Accordingly, even if the
43
In re Ford, 492 F.3d at 1157 (quoting Gillman v. Sci. Research Prods. Inc. of Del.
(In re Mama D’Angelo, Inc.), 55 F.3d 552, 555 (10th Cir. 1995)).
15
Bankruptcy Court failed to consider the impact of the account freeze, nothing in the
records supports finding the freeze was unauthorized. Thus, the Debtor’s argument fails.
2. Factor 2: The Possible Difficulty in Collection of a Judgment
The Debtor asserts the Bankruptcy Court did not analyze the difficulty of
collecting on a judgment but instead suggested recovery must exceed $400,000 to offer a
greater distribution to creditors than under the settlement. While analysis of the second
factor typically focuses on the defendant’s ability to pay, it can also encompass problems
that the Bankruptcy Court identified, including costs that would have to be incurred in
pursuing the judgment. 44 Those costs undoubtedly make collection more difficult, and we
assign no error to the Bankruptcy Court’s consideration of those costs. But even if the
second Kopexa factor refers exclusively to the defendant’s ability to pay, “the court need
not resolve all of [the factors] but must only identify them ‘so that the reasonableness of
44
Analysis of the second factor in this case acutely brings to the forefront the
question of whether the Kopexa factors are exhaustive. As a contrast to Kopexa, the court
In re Remsen Partners, Ltd., 294 B.R. 557 (Bankr. S.D.N.Y. 2003), for example, phrased
the second factor as “the difficulties, if any, to be encountered in the matter of
collection.” Id. at 565. The use of the plural broadens the categories of problems parties
and bankruptcy courts may consider in evaluating the second factor. As the Bankruptcy
Court’s analysis in this case demonstrates, problems other than the defendant’s ability to
pay can be relevant to the Rule 9019 inquiry. Reading Kopexa—with its singular
“difficulty”—to refer only to the defendant’s ability to pay could ignore other
collectability issues that may bear on the reasonableness of settlement and therefore
circumscribe a judge’s purview. We do not read “difficulty” so narrowly and, indeed,
have on occasion used the plural form in prior decisions. See Lewis v. McCallum (In re
Lewis), 378 B.R. 418, 2007 WL 2189343, at *4 (10th Cir. BAP July 31, 2007)
(unpublished) (rendering the second Kopexa factor as the “possible problems in
collecting the judgment”). But these interpretative problems highlight the need to answer
the question whether Kopexa’s standard must be followed to the letter, or whether its
factors can be modified or even added to.
16
the settlement may be evaluated.’” 45 Failure to consider the defendant’s ability to pay, by
itself, is not grounds for reversal.
Moreover, the Bankruptcy Court’s discussion of the second factor goes to the
heart of the Rule 9019 inquiry: a cost-benefit analysis. 46 The Bankruptcy Court’s review
of the cost-benefit analysis contributed to its decision to approve the settlement, and we
find no error with that analysis.
3. Factor 3: The Complexity and Expense of the Litigation
The Debtor assigns error to the Bankruptcy Court’s conclusion that hiring expert
witnesses and counsel would be cost-prohibitive. The Debtor argues his experience as a
“sophisticated businessman” qualified him to serve as an expert on damages. 47 Again, we
defer to the Bankruptcy Court’s findings as to the Debtor’s credibility, and the record
does not persuade us to believe the Debtor’s unsupported testimony regarding potential
damages. The Debtor also suggests the Trustee could prosecute the claims herself instead
of hiring counsel. This argument also asks the Court to substitute its judgment for the
judgment of the Bankruptcy Court, which we determine made an informed decision
based on an objective analysis of the facts. No matter which counsel pursued the claims
against LANB, it would not be done without compensation. The Trustee considered
45
In re W. Pac. Airlines, Inc., 219 B.R. at 579 (quoting In re The Hermitage Inn,
Inc., 66 B.R. at 72).
46
See Suter v. Goedert, 396 B.R. 535, 547-48 (D. Nev. 2008).
47
Appellant’s Br. 26.
17
prosecution of the claims cost-prohibitive based on the likelihood of success on the
merits and the Bankruptcy Court agreed. We see no reason to overturn this finding. 48
4. Factor 4: The Interest of Creditors
The Debtor argues the Bankruptcy Court erred in concluding that a settlement for
$10,000 was in the creditors’ best interest when potential damages exceeded total claims.
The Debtor’s arguments highlight the conflict between his personal interests and the
Trustee’s duty to maximize the estate. 49 The only evidence to support the Debtor’s
valuation of the claims is his uncorroborated testimony that damages were between
$15,000,000 and $30,000,000. However, the Bankruptcy Court found the Debtor’s
scheduled valuation of the claims—$6,748—contradicted his later testimony.
Furthermore, the Debtor testified he was not willing to purchase the claims from the
bankruptcy estate despite their purported value, casting doubt on his valuation. These
findings are not clearly erroneous.
The Debtor’s argument also discounts the withdrawal of LANB’s $164,259 claim
in addition to payment of $10,000. The Trustee testified that the only remaining claims
were for credit card debt totaling approximately $7,300, and none of the holders of those
48
See, e.g., Kowal v. Malkemus (In re Thompson), 965 F.2d 1136, 1146 (1st Cir.
1992) (“[I]t is not surprising that appellants are attracted by the glitter of further litigation
financed at the expense of the chapter 7 estate . . . . [I]t is apparent that appellants’
intuitive confidence in their own ability to outguess the chapter 7 trustee’s settlement
decision . . . has more . . . to do with the insignificance of their stake in the settlement.”).
49
Id. (“[The debtors’] purpose is inapposite to the duty imposed on a chapter 7
trustee under the [Bankruptcy] Code, since it is not so much the interests of the chapter 7
estate, as it is their self-interest, which [they] would have the chapter 7 trustee champion
by refusing to settle the . . . litigation.”).
18
claims objected to the settlement. Since the withdrawal of LANB’s claim substantially
increased the distribution to the remaining creditors, approval of the settlement was in the
best interest of the estate and the Bankruptcy Court did not abuse its discretion in
concluding that creditors “stand more to gain with greater certainty through the
settlement.” 50
5. Remaining Findings and Conclusions
The Debtor also argues the Bankruptcy Court erred in finding the Debtor had
knowledge of the modified maturity dates and concluding the Debtor was liable for
PBA’s debts. The Debtor mischaracterizes the Bankruptcy Court’s findings: instead of
finding the Debtor knew of the modified maturity dates, the Bankruptcy Court found the
Debtor “should have known” of the dates as his signature was on the documents he
signed and LANB instituted foreclosure proceedings. 51 The Debtor argues LANB did not
authenticate any of the promissory notes or renewals. However, the Debtor did not object
50
Tr. July 6, 2018 Hearing at 19, in Appellant’s App. at 233. See Slovak Republic v.
Loveridge (In re EuroGas, Inc.), 755 F. App’x 825, 833 (10th Cir. 2019) (unpublished)
(affirming approval of settlement that eliminated $113,000,000 in burdensome claims and
providing payment of $250,000); Korngold v. Loyd (In re S. Med. Arts Cos.), 343 B.R.
250, 257-58 (10th Cir. BAP 2006) (finding no abuse of discretion where settlement
provided 60% distribution to creditors that otherwise would have received nothing);
Geltzer v. Original Soupman Inc. (In re Soup Kitchen Int’l Inc.), 506 B.R. 29, 43 (Bankr.
E.D.N.Y. 2014) (approving settlement that allowed unsecured creditors to receive a 43%
distribution on their claims).
51
Tr. July 6, 2018 Hearing at 15, in Appellant’s App. at 232.
19
to the admission of the promissory notes or renewals and such documents are self-
authenticating pursuant to Federal Rule of Evidence 902(9). 52
The Debtor also argues that N.M. Stat. Ann 1978 § 53-11-4.1 shielded him from
liability for PBA’s debts. However, the Debtor’s personal guaranty of PBA’s debts is in
the record and included “any extensions, renewals, modifications and substitutions” of
the original debt. 53 The Debtor did not object to the Bankruptcy Court’s review of the
personal guaranty. Therefore, the Bankruptcy Court’s finding that the Debtor guaranteed
PBA’s obligations is not clear error, and the Debtor’s argument fails.
6. Denial of Motion to Continue Hearing
Finally, the Debtor argues the Bankruptcy Court erred in denying his Motion to
Continue. Denial of a motion to continue is reviewed for an abuse of discretion, and
reversal is not appropriate unless “the denial was arbitrary or unreasonable and materially
prejudiced the appellant.” 54 The Tenth Circuit provides several factors to consider in
determining whether denial of a continuance constitutes an abuse of discretion. Those
factors include:
the diligence of the party requesting the continuance; the likelihood that the
continuance, if granted, would accomplish the purpose underlying the party’s
expressed need for the continuance; the inconvenience to the opposing party,
its witnesses, and the court resulting from the continuance; [and] the need
52
Niederquell v. Bank of Am. N.A., 696 F. App’x 321, 324 (10th Cir. 2017) (citing
31 Charles Alan Wright & Arthur R. Miller, Fed. Practice and Pro. § 7143 (1st ed.
2017)).
53
Exhibit I to Amended Complaint for Foreclosure of Mortgages and For Debt and
Money Due, Guaranty at 1, in Appellant’s App. at 64.
54
Rogers v. Andrus Transp. Servs., 502 F.3d 1147, 1151 (10th Cir. 2007) (quoting
United States v. West, 828 F.2d 1468, 1469 (10th Cir. 1987)).
20
asserted for the continuance and the harm that appellant might suffer as a
result of the [bankruptcy] court’s denial of the continuance. 55
The Debtor argues he did not have sufficient time to review the renewal notes
prior to the hearing based on LANB’s delays in turning them over. Yet these documents
were not new to the Debtor as they bear his signature and served as the basis of LANB’s
July 2011 foreclosure action. Furthermore, the Debtor failed to provide a transcript of the
hearing on the Motion to Continue in the record, thus we summarily affirm the denial of
the Motion to Continue. 56
IV. CONCLUSION
The Bankruptcy Court developed facts and made an objective evaluation of those
facts, as required by Tenth Circuit law, in reviewing the proposed settlement. Its
conclusion that the settlement fell well within the range of reasonableness was informed
by an analysis of the Kopexa factors. We assign no error to the use of those factors, the
Bankruptcy Court’s application of them to the facts of this case, or the Bankruptcy
Court’s ultimate decision to grant the Motion to Compromise and approve the underlying
settlement. Because we do not have a definite and firm conviction that the Bankruptcy
55
Id. (quoting West, 828 F.2d at 1470).
56
Tollefsen v. US Bank Nat’l Ass’n (In re Tollefsen), No. NO-07-057, 2008 WL
762487, at *1 (10th Cir. BAP Mar. 11, 2008) (unpublished) (“[T]he failure to provide a
trial transcript on appeal warrants affirming the trial court when the issue on appeal
requires the appellate court to review the record in the trial court.” (citing McGinnis v.
Gustafson, 978 F.2d 1199, 1201 (10th Cir. 1992))); OU Fed. Credit Union v. Inkster (In
re Inkster), Nos. WO-00-063, 00-12923, 2001 WL 169758, at *2 (10th Cir. BAP Feb. 21,
2001) (unpublished) (“Without a transcript, we have an inadequate record, giving us
grounds to summarily affirm the bankruptcy court.”).
21
Court made a clear error of judgment or exceeded the bounds of permissible choice in the
circumstances, the Order Approving Settlement is AFFIRMED.
22