Bianca Ruiz v. Stephen Rupp, Chapter 7 Trustee

BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 1 of 18
NOT FOR PUBLICATION1
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
_________________________________
IN RE BIANCA KAYLENE RUIZ, BAP No. 23-006
Debtor.
______________________________
BIANCA KAYLENE RUIZ, Bankr. No. 21-24823
Chapter 7
Appellant,
v.
OPINION
JACOB RUIZ and STEPHEN W. RUPP,
Chapter 7 Trustee,
Appellees.
_________________________________
Appeal from the United States Bankruptcy Court
for the District of Utah
________________________________________
Submitted on the briefs.2
_________________________________
Before ROMERO, Chief Judge, HALL, and LOYD, Bankruptcy Judges.
_________________________________
1
This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, and issue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.
2
The Appellant did not request oral argument, and after examining the briefs and
appellate record, the Court has determined unanimously oral argument would not
materially assist in the determination of this appeal. See Fed. R. Bankr. P. 8019(b). The
case is therefore ordered submitted without oral argument.
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 2 of 18
HALL, Bankruptcy Judge.
_________________________________
Settlements are generally favored in bankruptcy to expeditiously close the debtor’s
estate. Here, a chapter 7 trustee entered into a settlement with the debtor’s estranged
spouse regarding the bankruptcy estate’s community property interest in three vehicles,
two of which were in the estranged spouse’s possession and one of which was in the
debtor’s possession. The debtor objected to the settlement contending the community
property interests in the two vehicles in her husband’s possession should be available to
distribute to creditors of her bankruptcy estate—specifically to pay her nondischargeable
student loan debt. The Bankruptcy Court approved the settlement agreement over the
debtor’s objection, and the debtor appealed.
I. Background
a. The Vehicles and Commencement of Divorce Proceedings
In March 2017, Appellant Bianca Ruiz (“Appellant”) and non-debtor spouse Jacob
Ruiz (“Jacob”) purchased a 2013 Audi with a joint car loan (the “Audi Loan”) from Navy
Federal Credit Union (“NFCU”).3 In March 2018, Jacob purchased a 2008 Subaru with
an individual car loan from NFCU.4 Appellant and Jacob apparently already owned a
2002 Nissan (the “Nissan,” collectively with the Audi and Subaru, the “Vehicles”).
3
Debtor’s Motion for Judicial Notice #2 at 3, in Appellant’s App. at 183.
4
Id. at 6, in Appellant’s App. at 186.
2
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 3 of 18
In March 2019, Appellant and Jacob commenced divorce proceedings in
California (the “Divorce Proceedings”).5 The California court has not entered a divorce
decree, thus no property has been divided and distributed.6
b. The Bankruptcy
In November 2021, Appellant filed a petition for chapter 7 bankruptcy relief in
Utah.7 The Bankruptcy Court assigned Stephen Rupp as the chapter 7 trustee (the
“Trustee”).8 During the bankruptcy case, Appellant filed statements and schedules listing,
among other things, community property interests in all of the Vehicles, specifically: (1)
the Audi valued at $8,180.00, subject to NFCU’s $4,013 secured claim; (2) the Subaru
valued at $7,383; and (3) the Nissan valued at $4,735.30.9 Appellant claimed Utah’s
$3,000 vehicle exemption for the Audi.10 Additionally, Appellant scheduled student loan
debt totaling $70,049.35.11 When Appellant filed her bankruptcy petition, Jacob had
5
Debtor’s Motion for Judicial Notice in Support of Debtor’s Objections to Claims
at 3, in Appellant’s App. at 25.
6
Id.
7
Bankruptcy Court Docket, in Appellant’s App. at 20.
8
Id.
9
Schedule A/B ¶¶3.1, 3.2, and 3.3, in Appellant’s App. at 104-06.
10
Schedule C, in Appellant’s App. at 114.
11
Schedule E/F ¶4.4, in Appellant’s App. at 118; Proof of Claim No. 6.
3
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 4 of 18
physical possession of the Subaru and Nissan, while Appellant had physical possession of
the Audi.12 Jacob disputed the Subaru was community property.13
In December 2021, upon Jacob’s request, the California court entered an order in
the Divorce Proceedings allowing Jacob to deduct $506 from Appellant’s monthly
support to pay toward the Audi Loan.14 During the pendency of the bankruptcy case,
Jacob paid off the Audi Loan’s petition date balance.15
On December 8, 2022, the Trustee filed a Motion for Turnover Order (the
“Turnover Motion”) seeking turnover of the Audi or equivalent value of $5,181.00 and
the balance of the estate’s portion of Appellant’s 2021 tax refunds.16 The Trustee also
filed a Motion to Approve Settlement/Compromise Between Trustee and Jacob Ruiz (the
“Settlement Motion” together with the Turnover Motion, the “Motions”)17 under Federal
Rule of Bankruptcy Procedure 9019 (“Rule 9019”).18 The Settlement Motion provided
12
Amended Motion for Approval of Settlement Agreement at 2, in Appellant’s
App. at 135.
13
Id.
14
Debtor’s Motion for Judicial Notice #2 at 4, ¶4, in Appellant’s App. at 184
(noting Exhibit 3 was a copy of the California court’s order from the Divorce
Proceedings allowing Jacob to deduct $506 from the monthly exempt support income).
15
Amended Motion for Approval of Settlement Agreement at 3, in Appellant’s
App. at 136.
16
Turnover Motion, in Appellant’s App. at 127–30.
17
The initial motion was filed on December 20, 2022, Bankr. ECF No. 116, then
the Trustee filed an amended motion on December 21, 2022, to correct a typographical
error.
18
Amended Motion for Approval of Settlement Agreement, in Appellant’s App. at
134.
4
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 5 of 18
Jacob would convey to the bankruptcy estate any community property interest in, and any
claims related to, the Audi, and the Trustee would convey to Jacob the bankruptcy
estate’s interest, if any, in the Subaru and Nissan subject to any community debt and
claims (the “Settlement”).19 Appellant filed two motions requesting the Bankruptcy Court
take judicial notice of certain facts and additionally objected to the Motions.20
On January 19, 2023, the Bankruptcy Court held a hearing on the Motions and
granted Appellant’s motions requesting judicial notice of certain facts.21 On February 16,
2023, the Bankruptcy Court issued an oral ruling in favor of the Trustee on the Motions
(“the Final Order”)22 and entered judgment.23 Appellant filed her notice of appeal the
next day.24
19
Amended Motion for Approval of Settlement Agreement at 4, in Appellant’s
App. at 137. The Settlement Motion also indicated any and all claims arising from the
Audi Loan payments were meant to be for the benefit of the bankruptcy estate in the
amount of no less than $4,013.
20
Debtor’s Motion for Judicial Notice in Support of Debtor’s Objections to
Claims, in Appellant’s App. at 23; Debtor’s Motion for Judicial Notice #2 at 4, in
Appellant’s App. at 181; and Response and Objections to Trustee’s: (1) Motion to Aprove
[sic] Settlement, and (2) Motion to Turn Over Property, in Appellant’s App. at 145.
21
Bankruptcy Court Docket, in Appellant’s App. at 20.
22
February 16, 2023 Hr’g Tr. 1–10, in Appellant’s App. at 321–30.
23
Order (1) Granting Trustee’s Amended Motion for Approval of Settlement
Agreement (Docket No. 118); (2) Granting Trustee’s Motion for Turnover Order (Docket
No. 111); (3) Granting Debtor’s Motion for Judicial Notice in Support of Debtor’s
Objections to Claims (Docket No. 77); and (4) Granting Debtor’s Motion for Judicial
Notice #2 (Docket No. 123), in Appellant’s App. at 288.
24
On February 16, 2023, Appellant filed a motion for stay pending appeal with the
Bankruptcy Court, Bankr. Dkt. No. 142 (later amended on February 27, 2023, at Bankr.
Dkt. No. 162), and then filed an Emergency Motion for Stay of Bankruptcy Court Order
Pending Appeal with this Court, BAP ECF No. 6 (the “Stay Motion(s)”). This Court
entered an Order Suspending Consideration of its Stay Motion and the Bankruptcy Court
5
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 6 of 18
c. Bifurcation of the Notice of Appeal
Subsequently, this Court entered an Order Construing Notice of Appeal as Two
Notices of Appeal.25 The appeal of the order approving the Settlement Motion was
assigned as BAP Appeal No. UT-23-006, and the appeal of the Turnover Motion order
was assigned as BAP Appeal No. UT-23-007. During the pendency of these appeals, the
Trustee filed a Notice of Intent to Abandon Remaining Properties and Claims Towards
Concluding Administration of this Case stating he (i) relied on Appellant’s
representations on the exempt nature of the $4,013 of postpetition Audi equity, (ii)
received the outstanding $1,168 from Appellant in satisfaction of the bankruptcy estate’s
nonexempt claims or interests in the Audi, and (iii) abandoned any further interest or
claim in the Audi.26 Thereafter, Appellant apparently chose not to pursue BAP Appeal
No. UT-23-007 and, as a result, a prior panel of this Court dismissed the appeal for
failure to prosecute on April 14, 2023.27
d. Settlement Motion Order is before this Court on Appeal
The appeal of the order approving the Settlement Motion remains before the BAP.
held a hearing and denied its Stay Motion finding no sufficient cause to grant the stay and
noting the Trustee elected not to pursue enforcement of the settlement agreement.
Accordingly, to the extent relief is still requested, the Stay Motion is now moot and is
denied as no case or controversy remains for the Stay Motion in this Court. See Rio
Grande Silvery Minnow v. Bureau of Reclamation, 601 F.3d 1096, 1109 (10th Cir. 2010)
(“[T]he existence of a live case or controversy is a constitutional prerequisite to federal
court jurisdiction.”).
25
BAP ECF No. 8.
26
Bankr. Dkt. No. 174.
27
BAP Appeal No. UT-23-007, ECF No. 36.
6
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 7 of 18
Appellant seeks reversal contending the community property interests in the Subaru and
Nissan should be returned to the bankruptcy estate for liquidation with the proceeds
thereof distributed to creditors, specifically to pay her nondischargeable student loan
debt.
II. Jurisdiction
This Court has jurisdiction to hear timely filed appeals from “final judgments,
orders, and decrees” of bankruptcy courts within the Tenth Circuit, unless a party elects
to have the district court hear the appeal.28 Appellant timely filed her notice of appeal
after the Bankruptcy Court entered the Final Order.29 Below, the Bankruptcy Court
indicated it was uncertain whether Appellant had standing to object to the Settlement
Motion.30 Because Appellee did not appear and challenge Appellant’s standing, this
Court assumes, without deciding, Appellant has standing to appeal the Bankruptcy
Court’s denial of her objection to the Settlement Motion.31 Furthermore, no party elected
28
28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8003, 8005.
29
See In re Durability, Inc., 893 F.2d 264, 266 (10th Cir. 1990) (noting “the
appropriate ‘judicial unit’ for application of these finality requirements in bankruptcy is
not the overall case, but rather the particular adversary proceeding or discrete controversy
pursued within the broader framework cast by the petition”). See Korngold v. Loyd (In re
S. Med. Arts Cos.), 343 B.R. 250, 254 (10th Cir. BAP 2006) (concluding an order
approving a settlement agreement is a final order.).
30
February 16, 2023 Hr’g Tr. at 7:24–8:20, in Appellant’s App. at 327–28.
31
This Court may not assume Article III standing to reach the merits of
Appellant’s case. See Colorado Outfitters Ass’n v. Hickenlooper, 823 F.3d 537, 543 (10th
Cir. 2016) (citing Steele Co. v. Citizens for a Better Env’t, 523 U.S. 83, 101–02 (1998)).
We are satisfied Article III standing exists as a favorable decision to Appellant would
redress her injury by providing more assets to liquidate and pay down the bankruptcy
estate’s nondischargeable debts. See In re C.W. Mining Co., 636 F.3d 1257, 1260 n.5
(10th Cir. 2011) (citing Ne. Fla. Chapter of the Associated Gen. Contractors of Am. v.
7
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 8 of 18
to have the district court hear the appeal. Accordingly, this Court has jurisdiction to hear
this appeal.
III. Statement of Issues and Standard of Review
Appellant asserts there are seven issues on appeal.32 Appellant’s enumerated issues
on appeal all address whether the Bankruptcy Court properly considered the bankruptcy
estate’s interests in the Vehicles and the effect of the Settlement on the bankruptcy estate,
Appellant, and her creditors. However, “[a] reviewing court is not obligated to track
precisely the sub-issues raised in a litigant’s brief or to address every argument
City of Jacksonville, 508 U.S. 656, 663–64 (1993) (outlining the three conjunctive factors
required to show Article III standing)). However, standing to appeal or object to a
bankruptcy court order requires a party to be a “person aggrieved.” See id. (quoting In re
Alpex Comput. Corp., 71 F.3d 353, 357 n.6 (10th Cir. 1995)). A person aggrieved “is a
prudential limitation, not an Article III limitation.” Id. (citing In re Combustion Eng’g,
Inc., 391 F.3d 190, 214 n.20 (3d Cir. 2004)). Thus, this Court may assume, without
deciding, Appellant is a person aggrieved for purposes of this appeal to decide the case
on the merits. See id. (citing Kennedy v. Allera, 612 F.3d 261, 270 n.3 (4th Cir. 2010)).
32
Appellant identifies the following issues on appeal: did the Bankruptcy Court
err by failing to consider relevant judicially noticed facts and facts presented by the
debtor in its Kopexa analysis; (ii) did the Bankruptcy Court err by admitting and
considering evidence contrary to its own judicially noticed facts in its Kopexa evaluation;
(iii) did the Bankruptcy Court err by applying the business judgment standard in
excluding the Appellant’s objections and facts; (iv) did the Bankruptcy Court err by not
applying a community property presumption to the estate’s vehicles in the Kopexa
analysis; (v) did the Bankruptcy Court err by considering the expense of litigating facts it
already took judicial notice of in its Kopexa evaluation; (vi) did the Bankruptcy Court err
by refusing to acknowledge the exempt status of post-petition child and spousal support
used to satisfy a vehicle lien post-petition; and (vii) did the Bankruptcy Court err by
approving the Settlement that conveys over $12,000 in estate property to a third party
without receiving any consideration from that third party. Appellant Opening Br. 10–13.
8
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 9 of 18
presented.”33 Here, there is only one issue on appeal—whether the Bankruptcy Court
abused its discretion by granting the Settlement Motion. Under the abuse of discretion
standard, this Court will not disturb a bankruptcy court’s decision unless it “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.”34 An abuse of discretion occurs
when “the [trial] court’s decision is ‘arbitrary, capricious or whimsical,’ or results in a
‘manifestly unreasonable judgment.’”35 “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.”36
IV. Discussion
In a chapter 7 bankruptcy case, the trustee’s duties include, among other things, to
“collect and reduce to money the property of the estate” and close the “estate as
expeditiously as is compatible with the best interests of parties in interest[.]”37 Thus, a
chapter 7 trustee generally seeks to quickly but prudently liquidate property of the
Armstrong v. Rushton (In re Armstrong), 99 F. App’x 210, 213, n.1 (10th Cir.
33
2004) (citing 19 James Wm. Moore et al., Moore’s Federal Practice, 205–1 (3d ed.
2003)).
34
In re Arenas, 535 B.R. 845, 849 (10th Cir. BAP 2015) (quoting Moothart v.
Bell, 21 F.3d 1499, 1504 (10th Cir. 1994)).
35
Moothart, 21 F.3d at 1504–05 (quoting United States v. Wright, 826 F.2d
938, 943 (10th Cir. 1987)).
36
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)).
37
11 U.S.C. § 704(a)(1).
9
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 10 of 18
bankruptcy estate for the benefit of unsecured creditors.38 Property of the bankruptcy
estate includes all of the debtor’s community property interests,39 which are governed by
applicable state law.40 In California, community property is generally all property
acquired during marriage.41 A debtor’s interest in community property subjects the whole
community property interest to enforcement of any judgment against the debtor and
becomes part of the debtor’s bankruptcy estate.42
In an effort to efficiently close a debtor’s bankruptcy estate, a chapter 7 trustee
may enter into settlements or compromises under Rule 9019.43 As a general rule,
settlements are favored in bankruptcy44 because they avoid the expense and burden
associated with litigating contested issues at the expense of the return available to
38
See In re Moreno, 554 B.R. 504, 509 (Bankr. D. N.M. 2016).
39
11 U.S.C. § 541(a)(2).
40
See Butner v. United States, 440 U.S. 48, 54–55 (1979).
41
Cal. Fam. Code § 760 (“Except as otherwise provided by statute, all property,
real or personal, wherever situated, acquired by a married person during the marriage
while domiciled in this state is community property.”).
42
Cal. Fam. Code § 910 (“Except as otherwise expressly provided by statute, the
community estate is liable for a debt incurred by either spouse before or during marriage,
regardless of which spouse has the management and control of the property and
regardless of whether one or both spouses are parties to the debt or to a judgment for the
debt. While community property may be liable for a spouse’s debts, the spouse
personally is not liable for the debt if that spouse did not incur the debt.”). See also Cal.
C.C.P. § 695.020; In re Brace, 470 P.3d 15, 19 (Cal. 2020) (concluding if property is
community property, then the entirety of the community property interest becomes part
of the bankruptcy estate.).
43
Fed. R. Bankr. P. 9019.
44
Kearney v. Unsecured Creditors Comm., 987 F.3d 1284, 1295 (10th Cir. 2021).
10
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 11 of 18
creditors.45 Neither Rule 9019 nor the Bankruptcy Code contain the standard by which a
court must evaluate a compromise or settlement.46 The Tenth Circuit has said it will
“affirm a bankruptcy court’s approval of a settlement unless [it] find[s] it either lacking in
evidentiary support or disconnected to the evidence in the record.”47 Furthermore, in a
handful of unpublished decisions, the Tenth Circuit has held “[a] court’s general charge is
to determine whether the settlement is fair and equitable and in the best interests of the
estate.”48 Simply put, this Court must “determine whether the settlement falls below the
lowest point in the range of reasonableness.”49 Such determination “must be an informed
one based upon an objective evaluation of developed facts.”50
In evaluating whether a compromise or settlement is fair, equitable, and in the best
interest of the estate, the Tenth Circuit and the BAP have routinely applied the Kopexa
factors.51 When evaluating a proposed compromise or settlement, the Kopexa factors
45
Korngold v. Loyd (In re S. Med. Arts Cos., Inc.), 343 B.R. 250, 255 (10th Cir.
BAP 2006) (citing 10 Collier on Bankruptcy ¶ 9019.01 at 9019.2 (15th ed. 2006) and
Martin v. Kane (In re A.C. Props.), 784 F.2d 1377, 1380-81 (9th Cir. 1986)).
46
See id.47
Kearney, 987 F.3d at 1295; In re Kopexa Realty Venture Co., 213 B.R. 1020,
1022 (10th Cir. BAP 1997).
48
Rich Dad Operating Co. v. Zubrod (In re Rich Glob., 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)).
49
In re Velzaquez, No. BAP NM-18-076, 2019 WL 2511557, at *4 (10th Cir. BAP
June 18, 2019) (unpublished) (quoting In re Rich Glob., LLC, 652 F. App’x at 631).
50
Id. (quoting Korngold v. Loyd (In re S. Med. Arts Cos.), 343 B.R. 250, 256
(10th Cir. BAP 2006)); Kearney, 987 F.3d at 1295 (citing Kopexa, 213 B.R. at 1022)).
51
Kearney, 987 F.3d at 1295; Kopexa, 213 B.R. at 1022.
11
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 12 of 18
require the court to analyze “[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.”52
1. The Bankruptcy Court did not abuse its discretion by weighing the Kopexa factors
in favor of granting the Settlement Motion.
In the oral ruling, the Bankruptcy Court determined all four of the Kopexa factors
weighed in favor of settlement. With respect to the first Kopexa factor, the probability of
success of the underlying litigation on the merits, the Bankruptcy Court recognized Jacob
claimed the Subaru was his separate property rather than community property and,
therefore, was not property of the bankruptcy estate. In contrast, Appellant claimed all of
the Vehicles, including the Subaru, are community property and, thus, property of her
bankruptcy estate. The Bankruptcy Court recognized litigation to determine the relative
rights in and to the Vehicles, including the Subaru, could be costly with the possible
return to the bankruptcy estate uncertain. The Bankruptcy Court reasonably concluded
the Settlement avoids these risks entirely by eliminating possibly costly and contentious
litigation.
The Bankruptcy Court found the second Kopexa factor, the possible difficulty in
collecting any judgment, to also weigh in favor of approving the Settlement. The
Bankruptcy Court found the cost and complexity of collecting a judgment for the
52
Kopexa, 213 B.R. at 1022.
12
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Vehicles in Florida where Jacob resides weighed in favor of settlement despite the
Trustee’s expressed confidence he could collect a judgment for them. While the analysis
of the second Kopexa factor typically focuses on the defendant’s ability to pay, it can also
encompass the costs associated with collecting and enforcing any judgment.53 After all,
the second Kopexa factor “goes to the heart of the Rule 9019 inquiry: a cost-benefit
analysis.”54 It was not outside the range of reasonableness for the Bankruptcy Court to
reach such a conclusion.
As to the third Kopexa factor, the complexity and expense of litigation, the
Bankruptcy Court determined continued litigation of the bankruptcy estate’s claim to the
Vehicles, which Jacob contended were separate property, would be expensive compared
to any potential recovery. The Bankruptcy Court specifically found, but for the
Settlement, the Trustee would incur not only litigation expenses but expenses associated
with vehicle recovery, storage, and sale, all of which would be avoided by virtue of the
Settlement. Again, the Bankruptcy Court’s conclusion such potential costs weighed in
favor of approval of the Settlement is justified and entirely reasonable.
Finally, under the fourth Kopexa factor, the interests of creditors was considered
by the Bankruptcy Court, which found avoiding the cost of litigation reaped greater
benefit to the creditors. Moreover, only Appellant, and no creditors of the bankruptcy
estate, objected to the Settlement Motion. Thus, the Bankruptcy Court concluded the
53
Velasquez, 2019 WL 2511557, at *7-8.
54
Id. at *8.
13
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fourth Kopexa factor weighed in favor of approving the Settlement, and this Court finds
no error in the Bankruptcy Court’s conclusion or reasoning.
Appellant does not clearly direct her arguments to any specific Kopexa factor, but
instead holistically responds to the Bankruptcy Court’s analysis. First, Appellant
contends all three Vehicles were community property and, thus, property of the
bankruptcy estate. Accordingly, Appellant asserts the Settlement Motion results in a net
loss of $12,118 to the bankruptcy estate and is not, therefore, in the best interest of the
creditors. Appellant also emphasizes Jacob testified the Subaru is community property
under penalty of perjury in the Divorce Proceedings, and the Bankruptcy Court took
judicial notice of this fact. Consequently, Appellant argues there is a strong chance of
success on the merits of litigation related to the Subaru.
Appellant also contends the Settlement Motion is detrimental to the creditors.55
She asserts the relevant number to analyze the litigation costs is the absolute difference
between the net benefit of disregarding the Settlement Motion and net detriment of
enforcing the Settlement Motion—$24,236. Thus, to weigh in favor of settlement,
litigation costs would have to surpass $24,236 to breakeven with the harm caused by the
Settlement Motion.56
55
Appellant Opening Br. 39.
56
In her brief, Appellant provides an analysis concluding the Settlement Motion
results in $12,118 net detriment compared to the $12,118 net benefit should the
Settlement Motion not exist. Appellant’s Opening Br. 33. She then asserts these figures
support the absolute difference of $24,236 is the amount the Bankruptcy Court should
have considered in analyzing the litigation cost factor. Id.14
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 15 of 18
However, as set forth above, in weighing all of the Kopexa factors, the Bankruptcy
Court did not abuse its discretion by granting the Settlement Motion. The Bankruptcy
Court carefully considered and determined the Settlement outweighed the potential cost
of (i) litigating ownership of the Subaru, (ii) retrieving the Subaru and Nissan from
Florida, and (iii) storing and selling the Subaru and Nissan. Moreover, no creditor
objected to the Settlement Motion, much less argued the Trustee’s cost-benefit analysis in
reaching the Settlement was flawed.57 A settlement “is not required to be the ‘best result
obtainable.’ The [B]ankruptcy [C]ourt’s charge is to ensure the trustee exercised sound
business judgment in reaching the compromise, not to second guess the trustee.”58
Therefore, we conclude, based on the evidence in the record, approval of the
Settlement satisfies the Kopexa factors and does not fall below the lowest point in the
range of reasonableness.59 We further conclude the Settlement is fair, equitable, and in
the best interest of the bankruptcy estate.60
57
As set forth in Velasquez, Appellant’s arguments “highlight the conflict between
[her] personal interests and the Trustee’s duty to maximize the estate.” Velasquez, 2019
WL 2511557, at *8.
58
In re Amerson, No. BAP CO-14-045, 2015 WL 5162763, at *7 (10th Cir. BAP
Sept. 2, 2015), aff’d, 839 F.3d 1290 (10th Cir. 2016) (unpublished).
59
Kearney v. Unsecured Creditors Comm., 987 F.3d 1284, 1295 (10th Cir. 2021)
(citing In re Dennett, 449 B.R. 139, 145 (Bankr. D. Utah. 2011)).
60
In re Rich Glob., LLC, 652 F. App’x 625, 631 (10th Cir. 2016) (“[A] court’s
general charge is to determine whether the settlement is fair and equitable and in the best
interests of the estate.”).
15
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 16 of 18
2. The Bankruptcy Court did not abuse its discretion by relying on mistakes of fact
and misrepresentations to grant the Settlement Motion.
Appellant also contends the Bankruptcy Court relied on mistakes of fact and
misrepresentations to approve the Settlement Motion despite taking judicial notice of
certain facts. Appellant first asserts the Trustee misrepresented the bankruptcy estate
could recover $4,013 in Audi equity because the source of the loan payments can be
traced back to exempt support payments,61 and the Bankruptcy Court erred in ignoring
the postpetition exempt status of the $4,013. Appellant also argues the Bankruptcy Court
misapplied California community property law by considering Jacob had an interest
separable from the community property interest. Finally, Appellant further contends the
Bankruptcy Court made a legal mistake by considering evidence contrary to the judicially
noticed facts proving the Subaru was property of the bankruptcy estate.62
The Bankruptcy Court did not rely on the bankruptcy estate’s potential recovery of
the Audi equity to approve the Settlement and grant the Settlement Motion.63 Although
the Final Order references the potential estate recovery of the equity in the Audi, the
Bankruptcy Court provided Appellant an opportunity to file amended schedules showing
her interest and exemption in the $4,013 paid postpetition on the loan secured by the
61
Appellant argues the Bankruptcy Court erred in adopting misrepresentations and
stating the bankruptcy estate could recover $4,013 in equity from the Audi, thus this
Court should apply Fed. R. Civ. P. 60(b)(3) or (6) “to relieve [Appellant] from this order
by reversing the bankruptcy court’s approval of the Settlement Agreement.” Appellant
Opening Br. 25.
62
Appellant Opening Br. 14–15.
63
February 16, 2023 Hr’g Tr., in Appellant’s App. at 321.
16
BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 17 of 18
Audi. Such opportunity undermines Appellant’s position. Additionally, even if the
Bankruptcy Court misapplied California community property law, the Bankruptcy
Court’s reasoning focused on the cost of litigation to resolve the dispute created by
Jacob’s assertion that the Subaru was his separate property rather than application of the
law to the facts, which is permissible in the context of evaluating a proposed settlement.
Finally, the judicially noticed facts indicate Jacob testified under penalty of
perjury on two occasions that the Vehicles were not his separate property.64 It appears
Appellant believes these stated facts may be used to prove the Subaru is, in fact,
community property and, therefore, property of the bankruptcy estate. Appellant is likely
correct. Despite Appellant’s contention, however, the Bankruptcy Court’s recognition of
the dispute over whether the Subaru was community property does not amount to
considering evidence contrary to the judicially noticed facts. Instead, the Bankruptcy
Court noted Jacob later contended the Subaru was his own separate property, which
created a contested issue potentially requiring costly litigation. Critical to understanding
the Bankruptcy Court’s decision is its recognition of the relatively small return likely
available to the estate from the Vehicles, which would only be diminished by litigation
expenses and sale costs which could be avoided through approval of the Settlement.
Accordingly, the Bankruptcy Court did not abuse its discretion by relying on
misrepresentations and mistakes of fact to approve the Settlement Motion.
64
Debtor’s Motion for Judicial Notice # 2 at 10, in Appellant’s App. at 190.
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BAP Appeal No. 23-6 Docket No. 41 Filed: 08/14/2023 Page: 18 of 18
V. Conclusion
The record does not show the Bankruptcy Court’s decision to approve the
Settlement Motion was arbitrary, capricious, or whimsical in any way. Accordingly, we
AFFIRM the Bankruptcy Court.
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