FILED
DEC 18 2019
NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-18-1235-TaSG
BERNADETTE CHAPMAN, Bk. No. 6:16-bk-20430-SC
Debtor.
BERNADETTE CHAPMAN,
Appellant,
v. MEMORANDUM*
KARL T. ANDERSON, Chapter 7 Trustee;
U.S. BANK, N.A.; WENJING DAI,
Appellees.
Argued and Submitted on November 21, 2019
at Pasadena, California
Filed – December 18, 2019
Appeal from the United States Bankruptcy Court
for the Central District of California
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
Honorable Scott C. Clarkson, Bankruptcy Judge, Presiding**
Appearances: Richard Lawrence Antognini argued for appellant;
Jonathan Fink of Wright Finlay & Zak, LLP argued for
appellee U.S. Bank, N.A.
Before: TAYLOR, SPRAKER, and GAN, Bankruptcy Judges.
INTRODUCTION
U.S. Bank, N.A. obtained an order granting in rem relief from the
automatic stay under § 362(d)(4)1 as to real property owned by Bernadette
Chapman. Immediately before foreclosure commenced, Ms. Chapman filed
her third bankruptcy. U.S. Bank relied on its in rem order and foreclosed.
In an adversary proceeding, Debtor argued that the foreclosure was
void because the in rem order was void: U.S. Bank obtained it in another
parties’ bankruptcy case in violation of the automatic stay in Debtor’s
second bankruptcy. In preliminary hearings, the bankruptcy court
expressed agreement.
After Debtor’s chapter 11 case was converted to chapter 7, trustee
Karl Anderson evaluated the adversary proceeding’s merits, negotiated a
**
Although Judge Clarkson signed the order on appeal, Judge Jury decided the
matter and entered the relevant findings of fact and conclusions of law.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532, and all “Rule” references are to the Federal
Rules of Bankruptcy Procedure.
2
$31,000 settlement, and filed a Rule 9019 motion seeking approval of the
resolution. Debtor opposed because she thought $31,000 undervalued the
case.
The bankruptcy court, after analyzing the settlement under the
factors required by relevant caselaw, granted the motion. Although Debtor
appeals she does not, in the main, dispute the bankruptcy court’s factor-
based analysis. As a result, she does not show that the bankruptcy court
abused its discretion when it approved the Trustee’s exercise of business
judgment to settle the case.
Accordingly, we AFFIRM.
FACTS
Debtor owned real property in San Dimas, California (the
“Property”). She was employed by the elder-care facility that operated
thereon. U.S. Bank held a debt secured by a senior trust deed on the
Property.
In the fourth bankruptcy impacting U.S. Bank’s ability to foreclose, a
chapter 13 case filed by Debtor’s sister, it obtained and recorded an in rem
stay relief order as to the Property. It then scheduled another foreclosure,
but, before the foreclosure sale commenced, Debtor filed the present
bankruptcy case. U.S. Bank relied on its in rem order and completed the
foreclosure.
Debtor then sought, by motion, damages and a declaration that the
3
in rem order was void because it was obtained while her second
bankruptcy was pending. The bankruptcy court denied the motion on
procedural grounds and required an adversary proceeding. At the hearing,
the bankruptcy judge also expressed an initial belief that the in rem order
was stay-violative, and then suggested that retroactive stay relief might be
appropriate.
Debtor filed her adversary proceeding and sought: declaratory relief
that the in rem order was void; set aside of the foreclosure sale and trustee’s
deed; damages for wrongful foreclosure; and § 362(k) sanctions. She again
alleged that both the in rem order and the foreclosure finalized in reliance
thereon were void.
U.S. Bank then sought and obtained retroactive stay relief. But when
the bankruptcy judge annulled the stay, she reserved on issues related to
the alleged stay violation. She acknowledged, however, that her conclusion
that a stay violation existed was not final.
The bankruptcy court subsequently converted the case to chapter 7,
and Debtor filed updated schedules identifying the adversary proceeding
as an estate asset and claiming an exemption in it.
Accordingly, the Trustee proceeded to administer the adversary
proceeding as an asset of the estate, and he moved to approve a settlement
4
thereof under Rule 9019.2 The settlement agreement provided that the
Trustee would dismiss the adversary proceeding with prejudice in
exchange for $23,000 from U.S. Bank and $8,000 from the individual who
purchased the Property at the foreclosure sale. The Trustee anticipated that
$27,865 would be paid to Debtor on account of her exemption, leaving
$3,135 for the estate.
Debtor opposed; she argued that $31,000 undervalued the case.
At a hearing, the bankruptcy court made findings of facts and
conclusions of law on the record and approved the settlement.
First, it identified and evaluated the factors relevant to a bankruptcy
settlement. It found that there was a substantial question about whether the
Trustee would prevail on the merits: despite its original conclusion that
there was a stay violation, it acknowledged there were no cases on either
side of the matter. So, it continued, there was no guaranteed victory. As to
the difficulties of collection, the bankruptcy court noted that it could be
difficult to collect from the third-party purchaser. Next, the bankruptcy
court found the factors of complexity and legal costs particularly relevant;
they weighed strongly in favor of compromise because the estate had no
funds to prosecute litigation on a novel and complex legal issue through
2
No party in interest has contested, either at the trial level or on appeal, that the
adversary proceeding was an estate asset or that the Trustee had standing to settle it.
This Court therefore expresses no opinion on such issues.
5
determination and likely appeal. Finally, in evaluating whether creditors
would benefit from the settlement, the bankruptcy court acknowledged
that Debtor was set to receive most of the funds. But it noted that having
the case pending for years when it was unlikely to return anything to
creditors was not in the best interest of the bankruptcy system.
The bankruptcy court also evaluated the quantum of the settlement
and found that the Trustee properly exercised business judgment in
accepting $31,000 for the case. It concluded that Debtor would have a
difficult time proving damages because the foreclosure was more or less
inevitable. In her first chapter 11 case, Debtor stopped making adequate
protection payments; and Debtor had not made any payments for a year
and a half pre-foreclosure. As a result, the bankruptcy court reasoned,
Debtor and her employer (the elder care facility) would have to move out
of the Property and relocate patients anyways—indeed, the bankruptcy
court noted that there was evidence the moving process was underway
before foreclosure.
The bankruptcy court also reasoned that the inevitability of
foreclosure would discredit Debtor’s allegations of emotional distress
because Debtor had to know she would lose the Property. And this
problem was exacerbated by what it identified as Debtor’s significant
credibility issues. Hr’g Tr. (June 19, 2018 ) 5:9–11 (“I mean, if it’s true that
she was lying to the Court from the beginning of her Chapter 11, which is
6
not a good thing.”), 15:22–24 (“So, this is all very dubious. And her
credibility is really in question after what I read in the deposition
transcript.”). Finally, the bankruptcy court observed that there were no
allegations that U.S. Bank acted in an outrageous manner.
In sum, the bankruptcy court concluded that the settlement should be
approved and that the Trustee appropriately exercised his business
judgment.
It entered an order approving the settlement. Debtor appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Does Debtor have standing?
Did the bankruptcy court abuse its discretion when it approved the
Rule 9019 settlement?
STANDARD OF REVIEW
We consider appellate standing de novo. Motor Vehicle Cas. Co. v.
Thorpe Insulation Co. (In re Thorpe Insulation Co.), 677 F.3d 869, 879 (9th Cir.
2012). We review the bankruptcy court’s approval of a settlement for an
abuse of discretion. Martin v. Kane (In re A & C Props.), 784 F.2d 1377, 1380
(9th Cir. 1986). A bankruptcy court abuses its discretion if it applies the
wrong legal standard, misapplies the correct legal standard, or makes
7
factual findings that are illogical, implausible, or without support in
inferences that may be drawn from the facts in the record. See
TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing
United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).
DISCUSSION
On appeal, Debtor argues that the bankruptcy court erred in
approving the settlement because: first, the Trustee’s counsel had a conflict
of interest; and, second, it discounted Debtor’s damages to nothing. We
first discuss the Trustee’s threshold assertion that Debtor lacks standing.
A. We decline to dismiss the appeal based on Debtor’s alleged
lack of standing.
Only “persons who are directly and adversely affected pecuniarily by
an order of the bankruptcy court have” standing to appeal. Fondiller v.
Robertson (In re Fondiller), 707 F.2d 441, 442 (9th Cir. 1983). This is known as
the “person aggrieved” test. Id. at 443. So a “hopelessly insolvent debtor
does not have standing to appeal orders affecting the” estate’s size because
those orders “would not diminish the debtor’s property, increase his [or
her] burdens, or detrimentally affect his [or her] rights.” Id. at 442. And in
the claim objection context, we have noted that a chapter 7 debtor generally
has standing to object to claims only when “there is a sufficient possibility
of a surplus . . . or when the claim involved will not be discharged.”
Wellman v. Ziino (In re Wellman), 378 B.R. 416, 2007 WL 4105275, at *1 n.5
8
(9th Cir. BAP 2007) (unpublished).
The Trustee argues that Debtor lacks standing because she has not
shown that the case will result in a surplus and her claim of exemption will
be paid in full. Debtor argues that she also has standing because any
increase in the amount of the settlement would result in payment of
priority, nondischargeable taxes. On this record, we conclude that Debtor
has a sufficient pecuniary interest to have appellate standing given the
nondischargeable tax debt.
B. The Trustee’s choice of counsel does not support reversal.
Debtor asserts, correctly, that California’s Rules of Professional
Conduct apply. See Tevis v. Wilke, Fleury, Hoffelt, Gould & Birney, LLP (In re
Tevis), 347 B.R. 679, 688 (9th Cir. BAP 2006). She then argues that the
Trustee’s counsel had a clear conflict of interest because he represented
Debtor in the adversary proceeding and then negotiated the Trustee’s
settlement of that adversary proceeding over Debtor’s objection. But in her
opening brief she never explains why the alleged conflict requires reversal.
In particular, it was the Trustee—not the law firm—that exercised business
judgment in deciding whether and how to settle the lawsuit. The
bankruptcy court approved that decision, and that is the order on appeal.
Instead, Debtor cites and extensively discusses In re Tevis, 347 B.R. at
689. But In re Tevis concerned an appeal from an order awarding a law firm
its attorney fees. Id. at 684. It was in that context that the bankruptcy court
9
and the Ninth Circuit Bankruptcy Appellate Panel evaluated whether the
law firm complied with the California Rules of Professional Conduct and
was entitled to fees under the Code. Id. at 687–95. In this case, the law firm
did not seek fees through the settlement, and its entitlement to fees was not
adjudicated by the bankruptcy court in the order on appeal.
In her appellate reply papers, Debtor goes one step farther and
asserts that the conflict of interest renders the settlement void: “When an
attorney has a conflict of interest, any judgment against the attorney’s
client is void and must be vacated.” Appellant’s Reply Br. at 8. To support
this proposition, she cites State of Arizona ex rel. Arizona Dep't of Revenue v.
Yuen, 179 Cal. App. 4th 169, 180 (2009). We decline to consider this
argument for two reasons: first, she never presented it to the bankruptcy
court; second, she never raised it in her opening appellate brief. Orr v.
Plumb, 884 F.3d 923, 932 (9th Cir. 2018) (“The usual rule is that arguments
raised for the first time on appeal or omitted from the opening brief are
deemed forfeited.”); Christian Legal Soc. Chapter of Univ. of California v. Wu,
626 F.3d 483, 487 (9th Cir. 2010) (“[W]e won’t consider matters on appeal
that are not specifically and distinctly argued in appellant’s opening
brief.”). And in any event, even assuming that Yuen stands for the broad
rule that Debtor asserts, it does not apply to the present case because the
Trustee did not obtain a judgment against Debtor.
To the extent conflict issues exist, the Debtor may raise them in the
10
context of a fee application.
C. The bankruptcy court did not abuse its discretion when it
granted the settlement motion.
Governing law. Rule 9019 provides that, on the trustee’s motion, the
bankruptcy court may approve a compromise or settlement. Fed. R. Bankr.
P. 9019(a). Bankruptcy courts have considerable latitude in approving
compromise agreements. Woodson v. Fireman’s Fund Ins. Co. (In re Woodson),
839 F.2d 610, 620 (9th Cir. 1988). But that discretion “is not unlimited.” Id.
The compromise must be “fair and equitable.” Id. The “purpose of a
compromise agreement is to allow the trustee and the creditors to avoid the
expenses and burdens associated with litigating sharply contested and
dubious claims.” In re A & C Props., 784 F.2d at 1380-81. The law “favors
compromise and not litigation for its own sake . . . .” Id. at 1381.
When deciding whether a compromise is fair and reasonable, a
bankruptcy court should consider:
(a) The probability of success in the litigation; (b) the
difficulties, if any, to be encountered in the matter of collection;
(c) the complexity of the litigation involved, and the expense,
inconvenience and delay necessarily attending it; (d) the
paramount interest of the creditors and a proper deference to
their reasonable views in the premises.
Id. The trustee has the burden to persuade the bankruptcy court that the
compromise is fair and equitable. Id. And we must affirm the bankruptcy
court’s decision if it “amply considered the various factors that determine[]
11
the reasonableness of the compromise . . . .” Id.
The bankruptcy court correctly analyzed and weighed the A & C
Properties factors. The bankruptcy court discussed, analyzed, and weighed
the various A & C Properties factors. It concluded that several of the factors
favored settlement; notably, it did not find that any counseled against
compromise. On appeal, Debtor does not address this reasoning, much less
argue that the bankruptcy court was wrong. We treat any contrary
suggestion as waived. McKay v. Ingleson, 558 F.3d 888, 891 n.5 (9th Cir.
2009) (“Because this argument was not raised clearly and distinctly in the
opening brief, it has been waived.”). Thus, Debtor provides no cognizable
argument about why the bankruptcy court, in evaluating the relevant
factors, abused its discretion.
Debtor’s appellate arguments do not show that the bankruptcy
court abused its discretion. Instead, Debtor adopts the same tactic on
appeal that she did before the bankruptcy court: she argues that the
settlement amount was too low. But Debtor did not offer to purchase the
lawsuit from the Trustee; nor did she request overbidding procedures.
In particular, Debtor argues that the bankruptcy court erred because
it under-valued her alleged damages for attorney’s fees, lost wages, and
emotional distress. But on appeal she provides no calculation of what her
actual damages would be; she merely suggests that we consider the math
of the settlement and her alleged “hard damages” of $40,000 in attorney’s
12
fees and then conclude that the $31,000 settlement is insufficient.
But that is not how the “math” (i.e., a risk-weighted calculation)
works. Debtor has not disputed and ignores the bankruptcy court’s
conclusions that liability was not a certainty. And she similarly fails to
address the estate’s lack of funds to prosecute the action and the years of
litigation required to reach finality after any appeal.
In an attempt to elevate the value of her case, Debtor argues that this
case is comparable to Sundquist v. Bank of America (In re Sundquist), 566 B.R.
563, 620–21 (Bankr. E.D. Cal. 2017), vacated in part, 580 B.R. 536 (Bankr. E. D.
Cal. 2018). The bankruptcy court disagreed. So do we. Sundquist involved
outrageous facts; Debtor never addresses the bankruptcy court’s analysis
that U.S. Bank did nothing comparable to the bank in Sundquist.3
And as for the emotional distress component, Debtor concedes on
appeal that “credibility [issues] may have required that the value of her
damage claims be discounted.” Opening Br. at 37; Id. (“Chapman’s
credibility issues may have justified a substantial discount of her emotional
distress damages . . . .”).
3
In addition, Sundquist involved two plaintiffs and here there is just Debtor. We
acknowledge that she spends considerable time discussing her children. Following
Sundquist, however, we see no need to evaluate their potential damages because they
are not parties to this action. In re Sundquist, 566 B.R. at 608 n.102 (“A plausible case
could be made that the two Sundquist minor children also suffered emotional distress
as a proximate result of Bank of America’s stay-violating conduct. However, they are
not, at least not as yet, parties.”).
13
As a result, we cannot say that the bankruptcy court erred in
concluding that the Trustee properly exercised his business judgment to
settle for $31,000. Debtor has not shown any abuse of discretion.
CONCLUSION
Based on the foregoing, we AFFIRM.
14