FILED
FEB 3 2022
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK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-21-1163-FLS
AGUINA AGUINA,
Debtor. Bk. No. 6:17-bk-17472-WJ
AGUINA AGUINA,
Appellant,
v. MEMORANDUM*
CHOONG-DAE KANG; MYUNG-JA
KANG; KWANG-SA KANG; KARL T.
ANDERSON, Chapter 7 Trustee,
Appellees.
Appeal from the United States Bankruptcy Court
for the Central District of California
Wayne E. Johnson, Bankruptcy Judge, Presiding
Before: FARIS, LAFFERTY, and SPRAKER, Bankruptcy Judges.
INTRODUCTION
Chapter 71 debtor Aguina Aguina has been embroiled in contentious
dissolution proceedings and other state court litigation with his ex-wife,
*
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.
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.
appellee Choong-Dae Kang, for over thirteen years. He filed for
bankruptcy protection, and the dispute continued in the bankruptcy court.
Four years after he filed his bankruptcy petition, the bankruptcy court
approved a compromise between the bankruptcy trustee and Ms. Kang and
her siblings.
Mr. Aguina appeals the compromise order. We discern no error and
AFFIRM.
FACTS
A. Prepetition events
Mr. Aguina and Ms. Kang were married in 1999. In 2008, Mr. Aguina
filed an action for marital dissolution in state court. The parties finalized
the divorce, but issues remained as to child and spousal support and
property division.
The disputes engendered additional litigation in state court.
Ms. Kang and her siblings, appellees Myung-Ja Kang and Kwang-Sa Kang
(collectively, the “Kang Parties”), sued Mr. Aguina in state court on a loan
that the Kang Parties’ late mother had made to Mr. Aguina. The state court
entered judgment in favor of the Kang Parties and against Mr. Aguina in
the amounts of $497,500 for fraud and $77,000 for breach of contract.
The dissolution proceedings were extremely contentious. Mr. Aguina
accused Ms. Kang of failing to disclose all of her assets and of using
various corporate entities to conceal community property. Among other
things, Mr. Aguina claimed that an inheritance that Ms. Kang received in
2
2011 at her father’s passing was community property.
Ms. Kang did not comply with some of the family court’s orders,
including an order to disclose her assets. In December 2016, the family
court found that Ms. Kang had failed to comply with mandatory disclosure
requirements, awarded monetary sanctions against her, and issued
terminating sanctions preventing her from presenting evidence on issues
about which she should have made disclosures.
In 2020, the family court stated, at least preliminarily, that some of
the disputed assets were no longer within its jurisdiction, including four
condominium units in Japan.
B. Mr. Aguina’s chapter 11 petition and conversion to chapter 7
Meanwhile, in September 2017, while the divorce proceedings were
ongoing, Mr. Aguina filed a chapter 11 petition. Soon thereafter, the
bankruptcy court converted the case to one under chapter 7. Chapter 7
trustee Karl T. Anderson (“Trustee”) was appointed trustee to administer
Mr. Aguina’s estate.
The Kang Parties filed five proofs of claim. The first three claims
(Claim 9 filed by Myung-Ja Kang, Claim 10 filed by Kwang-Sa Kang, and
Claim 11 filed by Ms. Kang) asserted a secured claim for $781,454.51, based
on the state court judgment described above.2 (The judgment amount had
2
The bankruptcy court later determined that the fraud portion of the judgment
that the Kang Parties had recovered against Mr. Aguina was nondischargeable under
§ 523(a)(2). The district court affirmed.
3
increased due to the accrual of postjudgment interest.) In Claim 12,
Ms. Kang asserted a priority unsecured claim for $9,762.80, based on a
domestic support obligation. In Claim 13, Ms. Kang asserted a general
unsecured claim for $500,000, based on a pending state court lawsuit. Other
creditors asserted general unsecured claims totaling about $11,000.
In January 2019, the bankruptcy court granted limited relief from the
automatic stay for the state court dissolution proceedings to continue. The
stay relief order stated that the stay was lifted so that the family court
could determine “the characterization only of the assets of the Debtor and
Ms. Kang as community property, separate property of the Debtor, or
separate property of Ms. Kang.” It specified that “[a]ll community property
and separate property of the Debtor shall remain property of this
bankruptcy estate and subject to the Trustee’s administration in this case.”
The Trustee joined the divorce proceedings as a party in interest and
took the position that some of the assets at issue were community property
and therefore were property of the estate. In a Rule 2004 examination,
Ms. Kang provided documents and testimony to the Trustee supposedly
establishing that the assets at issue were separate property. Ms. Kang
began making monthly payments to the Trustee toward the family court
sanctions.
C. The Trustee’s motion for compromise
The Trustee filed a motion for an order approving settlement and
compromise of disputes between the Trustee and the Kang Parties
4
(“Compromise Motion”). The salient terms of the settlement agreement
were as follows: (1) Ms. Kang would pay the Trustee $49,726.77; (2) the
Kang Parties would waive and withdraw all claims against the estate and
would not receive any distribution in the bankruptcy case; (3) the parties
would exchange releases concerning certain assets; and (4) the settlement
agreement would not affect anything in the state court dissolution action
other than the division of assets.
The Trustee asserted that the compromise agreement comported with
the standard set forth in Martin v. Kane (In re A & C Properties),
784 F.2d
1377, 1380-81 (9th Cir. 1986), and Woodson v. Fireman’s Fund Insurance Co.
(In re Woodson),
839 F.2d 610, 620 (9th Cir. 1988).
Mr. Aguina opposed the Compromise Motion. He argued that he had
cooperated with the Trustee but that the Trustee had never shared with
him the information obtained from the Rule 2004 examination of Ms. Kang,
and he had been unable to get necessary information about Ms. Kang’s
assets in any forum. He also contended that the Kang Parties’ offer to
withdraw and waive their proofs of claim was of little value to the estate.
Mr. Aguina offered to purchase the estate’s interest in the community
assets for $53,000. He argued that, because this amount was more than the
cash portion of the settlement, his proposal was superior.
Mr. Aguina also argued that it was unfair for Ms. Kang to hide her
assets from the family court and the bankruptcy court and then seek to
settle with the Trustee without ever having to disclose her assets.
5
Finally, he argued that the proposed settlement would interfere with
proceedings in the state court. He pointed out that the bankruptcy court
had granted partial stay relief and left to the family court all issues
concerning the characterization of the parties’ assets.
In a reply brief, the Trustee argued that Mr. Aguina did not refute his
position that Rule 9019 weighs in favor of the compromise and did not
address many of the considerations raised in A & C Properties. He
contended that Ms. Kang had provided sufficient information
demonstrating that the assets at issue were her separate property. He
argued that the bankruptcy court had exclusive jurisdiction over estate
property and did not need to abstain or defer to the family court.
Ms. Kang joined in the Trustee’s reply brief. She attached her
declaration in which she discussed her interests in the various assets at
issue and explained how she had inherited most of those assets from her
parents after she separated from Mr. Aguina. She also traced the ownership
of the condos in Japan, as well as the fraud judgment against Mr. Aguina.
She attached corporate documents of her business interests and documents
concerning the condo units.
D. The hearings and supplemental briefing on the Compromise
Motion
At the hearing on the Compromise Motion, Mr. Aguina objected that
the Kang Parties’ joinder introduced new arguments and evidence to
which he had no opportunity to reply.
6
The bankruptcy court continued the hearing to allow Mr. Aguina an
opportunity to respond. It also directed the settling parties to clarify some
provisions of the proposed settlement agreement.
The Trustee filed a revised version of the settlement agreement, and
the parties filed additional briefs. 3 Among other things, Mr. Aguina argued
that the court should hold an evidentiary hearing. He did not address
Ms. Kang’s factual assertions concerning the assets.
At the continued hearing, the bankruptcy court granted the
Compromise Motion. It analyzed each of the four A & C Properties factors
and held that they favored the compromise. The bankruptcy court
concluded that the compromise was “an elegant solution, a peaceful
solution, a common solution.” Mr. Aguina timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under
28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under
28 U.S.C. § 158.4
3
A few days before the hearing, Mr. Aguina filed objections to the Kang Parties’
five proofs of claim. The bankruptcy court later overruled the objections as moot, given
that it had approved the compromise and the Kang Parties had withdrawn their claims.
4 The Trustee argues that Mr. Aguina lacks standing to prosecute this appeal,
because there is no reasonable possibility of the estate having any surplus available to
pay him. However, we cannot rule out the possibility that, if we reverse on appeal, the
state court might recognize Mr. Aguina’s interests in enough community property to
pay all administrative claims, unsecured claims, and exemptions and result in a surplus.
Thus, he is a “person aggrieved” who has standing to appeal. Fondiller v. Robertson (In re
Fondiller),
707 F.2d 441, 442 (9th Cir. 1983).
7
ISSUE
Whether the bankruptcy court erred in approving the compromise
between the Trustee and the Kang Parties.
STANDARD OF REVIEW
“The bankruptcy court’s decision to approve a compromise is
reviewed for abuse of discretion.” Goodwin v. Mickey Thompson Ent. Grp.,
Inc. (In re Mickey Thompson Ent. Grp., Inc.),
292 B.R. 415, 420 (9th Cir. BAP
2003); see In re A & C Props., 784 F.2d at 1380. Similarly, “[a] court’s decision
whether to hold an evidentiary hearing is also reviewed for an abuse of
discretion.” Zurich Am. Ins. Co. v. Int'l Fibercom, Inc. (In re Int'l Fibercom,
Inc.),
503 F.3d 933, 939-40 (9th Cir. 2007).
To determine whether the bankruptcy court has abused its discretion,
we conduct a two-step inquiry: (1) we review de novo whether the
bankruptcy court “identified the correct legal rule to apply to the relief
requested” and (2) if it did, we consider whether the bankruptcy court's
application of the legal standard was illogical, implausible, or without
support in inferences that may be drawn from the facts in the record.
United States v. Hinkson,
585 F.3d 1247, 1262-63 & n.21 (9th Cir. 2009) (en
banc).
8
DISCUSSION
A. The bankruptcy court properly identified the A & C Properties
factors to evaluate the fairness and reasonableness of the
compromise.
Rule 9019(a) provides that, “[o]n motion by the trustee and after
notice and a hearing, the court may approve a compromise or settlement.”
“The bankruptcy court has great latitude in approving compromise
agreements.” In re Woodson,
839 F.2d at 620. The Ninth Circuit has directed
that the bankruptcy court must determine that the compromise is “fair and
equitable” based on four factors:
In determining the fairness, reasonableness and adequacy
of a proposed settlement agreement, the court must 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.
In re A & C Props., 784 F.2d at 1381 (citation omitted). The law favors
compromise, “and as long as the bankruptcy court amply considered the
various factors that determined the reasonableness of the compromise, the
court’s decision must be affirmed.” Id. (citations omitted).
“Each factor need not be treated in a vacuum; rather, the factors
should be considered as a whole to determine whether the settlement
9
compares favorably with the expected rewards of litigation.” Grief & Co. v.
Shapiro (In re W. Funding Inc.),
550 B.R. 841, 851 (9th Cir. BAP 2016), aff’d,
705 F. App’x 600 (9th Cir. 2017). Ultimately, “[t]he trustee, as the party
proposing the compromise, has the burden of persuading the bankruptcy
court that the compromise is fair and equitable and should be approved.”
In re A & C Props., 784 F.2d at 1381.
Moreover, the bankruptcy court “need not rule upon disputed facts
and questions of law, but only canvass the issues. A mini trial on the merits
is not required.” Burton v. Ulrich (In re Schmitt),
215 B.R. 417, 423 (9th BAP
1997) (citations omitted). Otherwise, “there would be no point in
compromising; the parties might as well go ahead and try the case.” Suter
v. Goedert,
396 B.R. 535, 548 (D. Nev. 2008) (citation and quotation marks
omitted).
B. The bankruptcy court did not err in applying the A & C Properties
factors.
1. Probability of success
The bankruptcy court properly considered the Trustee’s probability
of success in the dissolution action. The Trustee represented that he had
reviewed evidence and testimony from Ms. Kang that he thought likely
established her assets as separate property. As a result, he was not
confident that he could prevail in state court. The parties were highly
combative, they had drawn out the dissolution litigation for over a decade,
and any further litigation would likely require application of foreign law.
10
Given these uncertainties, it was not error for the bankruptcy court to find
that this factor weighed in favor of the compromise.
Mr. Aguina argues that the court could not have properly assessed
the probability of success because Ms. Kang never fully disclosed her
assets. He faults the Trustee for failing to share with Mr. Aguina or the
bankruptcy court the limited information that Ms. Kang had provided. He
also complains that the Trustee’s evaluation of the assets was insufficiently
detailed.
While the Trustee could have provided more information to the
bankruptcy court to support his assessment, we find no reversible error.
The bankruptcy court needed only to canvass the issues and was not
required to consider evidence and make factual findings as to the nature
and value of each asset. See
id.
It is also significant that, after Ms. Kang filed her declaration about
her assets, the bankruptcy court continued the hearing so Mr. Aguina
could respond. Inexplicably, Mr. Aguina did not take advantage of this
opportunity.
Thus, the bankruptcy court did not err in relying on the Trustee’s
assessment as to the probability of success.
2. Difficulty of collection
The bankruptcy court properly considered the difficulty of collecting
any judgment from the Kang Parties if the Trustee prevailed. Their
attorney represented that the settlement funds were in his account, so there
11
would be no difficulty in collecting the settlement from the Kang Parties.
Conversely, the Trustee had argued that recovery in the state court
litigation would likely be extremely difficult, given that most of the assets
were located abroad. The bankruptcy court did not err.
Mr. Aguina argues that the bankruptcy court could not have properly
evaluated the difficulty of collection because it needed Ms. Kang’s
disclosure as to her assets and interests. But the bankruptcy court did not
need to hold a mini-trial on the compromise; for the reasons discussed
above, we reject this argument.
3. Difficulty of continuing litigation
Third, the bankruptcy court considered the litigation involved and
the attendant expense, inconvenience, and delay. It noted that the
contentious dissolution proceedings had been pending for many years and
that Mr. Aguina would likely continue the litigation indefinitely if he
could. Particularly in light of the parties’ mutual animosity and the
Trustee’s estimate that it would cost at least $50,000 to resolve the state
court litigation (with doubtful chances of success), the bankruptcy court
did not err in concluding that continued litigation would have been
expensive and difficult.
Mr. Aguina fails to address any of the bankruptcy court’s well-
founded concerns. Rather, he simply concedes that the complexity,
difficult, and expense “might be true as to the assets the Trustee identified”
yet argues it might not be true as to unknown assets. The bankruptcy court
12
did not abuse its discretion when it credited the Trustee’s views based on
his investigation and rejected Mr. Aguina’s speculation.
4. Best interests of the creditors
Finally, the bankruptcy court considered the best interests of the
creditors. Although Mr. Aguina argued that he could pay more than what
the Kang Parties offered in settlement, the Trustee pointed out that he
offered nothing comparable to the Kang Parties’ waiver of their sizeable
claims. The bankruptcy court did not err in finding that the compromise
was in the best interests of the creditors.
Mr. Aguina does not contest this factor. 5 Instead, he only complains
that the compromise was unfair to him. As discussed below, this is not a
relevant consideration, and the bankruptcy court was correct to ignore it.
Accordingly, the bankruptcy court did not abuse its discretion in
evaluating the A & C Properties factors and holding that the compromise
was reasonable.
C. We reject Mr. Aguina’s attempt to augment the A & C Properties
factors.
The bankruptcy court properly identified and applied the A & C
Properties factors. Mr. Aguina incorrectly attempts to impose additional
5
In his reply brief, Mr. Aguina argues that the creditors did not benefit from the
compromise because he had already paid all remaining creditors before the second
hearing on the Compromise Motion. This argument ignores the fact that the Kang
Parties were also creditors, with presumptively allowed claims based in large part upon
a state court judgment. Mr. Aguina offered nothing on account of those claims.
13
requirements.
1. Sale of estate assets under § 363
Mr. Aguina argues that the bankruptcy court erred by failing to
evaluate the compromise as a sale under the more rigorous standard of
§ 363. He is wrong.
We have held that a settlement agreement transferring estate assets
must be evaluated both as a compromise under Rule 9019 and a sale under
§ 363. See In re Mickey Thompson Ent. Grp., Inc.,
292 B.R. at 421 (“[T]he
disposition by way of ‘compromise’ of a claim that is an asset of the estate
is the equivalent of a sale of the intangible property represented by the
claim . . . .”). However, we made this ruling because the claims in Mickey
Thompson ran in only one direction:
[T]his settlement is in essence a sale of potential claims to the
Settling Parties. While the Agreement purports to act as a
mutual release of claims, no party has identified any claims
which the Settling Parties could assert against the estate or
Trustee. The record does not contain any evidence that a release
of claims by the Settling Parties has value.
Id.
Conversely, in the present case, the Trustee and the Kang Parties
agreed to execute a mutual release of claims, and each party had claims
against the other. Cf. Fuchs v. Snyder Tr. Enters. (In re Worldpoint Interactive,
Inc.),
335 F. App’x 669, 670 (9th Cir. 2009) (“We are not persuaded by
[appellant’s] contention that the settlement amounted to an asset sale
14
under [Mickey Thompson], because both parties to the settlement here
released claims.”); Morris v. Davis (In re Morris), BAP No. SC-15-1222-FJuKi,
2016 WL 1254357, at *7 (9th Cir. BAP Mar. 29, 2016) (“[B]oth parties
released claims, rendering the settlement a mutual compromise, rather
than a sale. Accordingly, the court did not need to analyze the proposed
settlement under § 363.”).
The Kang Parties held large claims against the estate. The claims had
substance; some of them had already been reduced to judgment. The Kang
Parties agreed to waive their claims in return for (among other things) the
Trustee’s waiver of sanctions claims and the estate’s claims to the alleged
community property. Because this settlement resolved mutual claims, it
was not a sale requiring scrutiny under § 363.
2. Fairness to Mr. Aguina
Mr. Aguina further argues that, in addition to the A & C Properties
factors, the bankruptcy court was required to assess the fairness of the
compromise to not only creditors, but also the debtor. There is no authority
for this proposition because it would create an irreconcilable conflict of
interest for trustees.
All litigation is risky. Plaintiffs settle cases to gain the certainty of
recovering something and avoid the risk of recovering nothing. But when
the plaintiff is a bankruptcy trustee, creditors and the debtor have different
tolerance for litigation risk. The rewards and risks of litigation fall
unequally on creditors and debtors, because creditors must get paid in full
15
before the debtor receives any distribution. Therefore, a settlement that
produces money for creditors may be worthless to the debtor. This means
that debtors often want the trustee to pursue risky litigation, rather than
settle, in the hope that the recovery will be big enough to pay all creditor
claims in full and leave something for the debtor. If the gamble does not
pay off and the litigation is unsuccessful, the creditors have lost the benefit
of the settlement, while the debtor is no worse off (the debtor would have
gotten nothing under the settlement and still gets nothing when the
litigation fails).
The bankruptcy court correctly understood that A & C Properties
avoids this conflict. In the context of a settlement, the trustee and the court
must consider the paramount interest of creditors and need not consider
the debtor’s interest. 6
3. Public policy
Mr. Aguina also contends that the bankruptcy court failed to consider
public policy when evaluating the compromise. He acknowledges that the
Ninth Circuit authority does not require the bankruptcy court to examine
this factor.
6
DeBilio v. Golden (In re DeBilio), BAP No. CC-13-1441-TaPaKi,
2014 WL 4476585
(9th Cir. BAP Sept. 11, 2014), has nothing to do with fairness of a settlement to the
debtor. Rather, we reversed in that case because the bankruptcy court “approved the
settlement and sale motion at the hearing without reference to the A & C factors or any
findings to support its decision.”
Id. at *5. The bankruptcy court in this case explicitly
addressed each of the A & C Properties factors.
16
Even if we were to consider public policy concerns, we would find no
error. The law favors the peaceful resolution of disputes through
compromise. This settlement promoted the amicable resolution of
protracted and acrimonious litigation between Mr. Aguina and Ms. Kang.
If anything, public policy favors the settlement over that wasteful and
destructive course of action. Mr. Aguina argues that the settlement
circumvented the public policy in favor of open disclosure of assets in
dissolution proceedings and repeatedly references the family court’s
comments that “millions” in assets went missing under Ms. Kang’s watch.
But that was only a preliminary comment, it has never been substantiated,
and the Trustee concluded after an investigation that he was satisfied with
the disposition of the assets.
D. The settlement agreement had adequate consideration.
Mr. Aguina argues that the settlement agreement lacked sufficient
consideration to constitute a binding contract, because Ms. Kang did not
offer anything of value that she was not already obligated to provide. We
are not persuaded by this argument.
As the Trustee pointed out, the Kang Parties were waiving about $1.3
million in claims against the estate, most of which had already been
reduced to judgment. This is more than enough consideration to support a
contract.
Mr. Aguina’s argument that the waiver was illusory is misguided. He
claims that his objections to the Kang Parties’ claims (filed a few days
17
before the continued hearing) demonstrated that the claims were worthless
and that the bankruptcy court should have forced the Trustee to prove that
the claim objections lacked merit. The fact that Mr. Aguina did not file the
objections until just days before the hearing, and four years after he
commenced his bankruptcy case, raises serious questions about his own
confidence in his objections and his motives. In any event, the bankruptcy
court was only required to canvass the issues, and, at the time it decided
the Compromise Motion, the Kang Parties’ claims were deemed allowed
and presumptively valid. See Garner v. Shier (In re Garner),
246 B.R. 617, 622
(9th Cir. BAP 2000).
E. The bankruptcy court did not need to defer to the family court.
Mr. Aguina argues that the bankruptcy court erred in making a final
determination on the nature of the disputed property, because it had earlier
lifted the automatic stay to allow the family court to decide whether the
property was community or separate. He is wrong.
All of Mr. Aguina’s assets, including any community property, were
property of the bankruptcy estate and subject to the bankruptcy court’s
exclusive jurisdiction. See
28 U.S.C. § 1334(e)(1); § 541(a)(2); In re DeBilio,
2014 WL 4476585, at *3 (“The bankruptcy court has exclusive jurisdiction
over property of the estate, including community property. This is so even
when there is a concurrent dissolution proceeding in state court.” (citations
omitted)). The grant of stay relief to allow the family court to determine the
nature of the disputed assets does not change this conclusion. Granting
18
relief from the stay permitted the family court to make certain
determinations, but it did not remove any property from the estate or limit
the bankruptcy court’s jurisdiction.
In any event, the bankruptcy court did not make a final
determination that the property at issue was Ms. Kang’s separate property,
nor did it need to. Rather, it canvassed the issues and determined that the
compromise was fair and reasonable.
F. The bankruptcy court did not err in declining to hold an
evidentiary hearing.
Finally, Mr. Aguina argues that the bankruptcy court erred in
rejecting his request for discovery and an evidentiary hearing.
The bankruptcy court was within its discretion when it declined to
draw out the proceedings any further with discovery and an evidentiary
hearing. It was not required to make factual determinations on every
disputed issue, which would defeat the point of settlement. See In re Int’l
Fibercom, Inc.,
503 F.3d at 946 (holding that, where there was an adequate
factual basis for the bankruptcy court’s decision, an evidentiary hearing
was unnecessary); In re Kent, Case No. 07-BK-03238-SSC,
2008 WL 5047821,
at *1 (Bankr. D. Ariz. July 25, 2008) (“Rule 9019 does not require an
evidentiary hearing on every settlement agreement presented to the
Court.”).
CONCLUSION
The bankruptcy court did not abuse its discretion in approving the
19
compromise between the Trustee and the Kang Parties. We AFFIRM.
20
