Kearney v. Unsecured Creditors Committee

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS February 24, 2021
Christopher M. Wolpert
FOR THE TENTH CIRCUIT Clerk of Court
VICTOR P. KEARNEY,
Appellant,
v. No. 19-2209
UNSECURED CREDITORS
COMMITTEE, KEVIN YEAROUT,
UNITED STATES TRUSTEE, and
LOUIS ABRUZZO and BENJAMIN
ABRUZZO, Trustees of the Mary Pat
Abruzzo Kearney Testamentary Trusts B
and C,
Appellees.
Appeal from the Bankruptcy Appellate Panel
No. NM-19-010
(Bankr. No. 17-12274)
Stacy R. Obenhaus, Marcus A. Helt, Debbie E. Green, Foley & Lardner LLP, Dallas,
Texas, for Appellant.
Thomas D. Walker and Chris W. Pierce, Walker & Associates, P.C., Albuquerque, New
Mexico, for Official Committee of Unsecured Creditors; Paul M. Fish and Spencer L.
Edelman, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, New Mexico, for
Louis Abruzzo and Benjamin Abruzzo, as Trustees of the Mary Pat Abruzzo Kearney
Testamentary Trusts B and C; and James Askew, Askew& White, LLC, Albuquerque, New
Mexico, for Kevin Yearout.
Before KELLY, SEYMOUR, and MATHESON, Circuit Judges.
SEYMOUR, Circuit Judge.
Victor P. Kearney was the lifetime income beneficiary of two spendthrift trusts
when he filed for bankruptcy in 2017. The United States Trustee’s office appointed an
unsecured creditors committee (“UCC”) which proposed a reorganization plan
contemplating a one-time trust distribution to pay off Mr. Kearney’s debts. After a New
Mexico state court modified the trusts to authorize the distribution, the bankruptcy court
approved the plan. Mr. Kearney appealed. The Bankruptcy Appellate Panel (“BAP”) of
the Tenth Circuit concluded that the bankruptcy court did not deny Mr. Kearney due
process, made no errors in its findings of fact, and did not abuse its discretion in settling
Mr. Kearney’s claims. See In re Kearney, No. NM-19-010, 2019 WL 6523171 (10th Cir.
BAP Dec. 4, 2019). Mr. Kearney appeals that decision, arguing that using spendthrift trust
assets to fund the reorganization plan violated the trusts’ spendthrift provision and the law,
and that approving the settlement of Mr. Kearney’s claims amounted to an abuse of the
bankruptcy court’s discretion. Exercising jurisdiction pursuant to 28 U.S.C. § 158(d)(1),
we affirm.
2
I.
Factual Background
A. The Trusts under Mary Pat Abruzzo’s Last Will and Testament
The facts of this case were set out by the bankruptcy court and the BAP as follows.
Alvarado Realty Company (“ARCO”), owned by Benjamin and Pat Abruzzo, developed
the Sandia Peak Ski Area and the Sandia Peak Tramway. ARCO is a closely held
company that also owns the Santa Fe Ski Area and other real estate investments in New
Mexico, Colorado, and Arizona. Mr. and Mrs. Abruzzo died in a plane crash in 1985 and
their children—Louis, Benny, Richard, and Mary Pat—took over the management of the
company.
Mary Pat married Victor Kearney in 1988, at the age of twenty-two. She passed
away in 1997. Mary Pat’s last will and testament conveyed her 18.5% ownership interest
in ARCO to two spendthrift trusts (the “MPK Trusts” or “Trusts”), of which Mr. Kearney
is the income beneficiary during his life. After he dies, Mary Pat’s will distributes the
Trusts’ corpus to her siblings, Louis, Benny, and Richard, or their surviving issue.1 Louis
and Benny Abruzzo (the “Abruzzos”) and Mr. Kearney were appointed as co-trustees
(“Trustees”).
1
Richard Abruzzo passed away in December 2010 and left behind two minor children,
Rico and Mary Pat, who are represented by their mother, Nancy Abruzzo.
3
B. The New Mexico State Court Action
Between 1997 and 2013, the Trusts’ distributions to Mr. Kearney grew by 800%
and totaled about $16 million. Wanting more, Mr. Kearney sued the Abruzzos in New
Mexico state court in 2013, alleging that ARCO’s long-standing policy of distributing only
70% of its income and retaining 30% amounted to an illegal suppression of dividends and
the breach by the Abruzzos of their fiduciary duties.2 The Abruzzos countersued for
breach of fiduciary duty, for modification of the trusts, and for other relief.
The first trial commenced in June 2015. In that proceeding, Mr. Kearney made his
case to the jury for over five days and asked for more than $7 million in damages. Once he
rested, the Abruzzos moved for a directed verdict. In granting it, the court noted that the
“Abruzzos’ efforts on behalf of ARCO [had] been extremely successful” and concluded
that their success did “not translate into a starvation or a partiality on behalf of ARCO over
and against the interest of either Mr. Kearney or the remainder beneficiaries.” Aplt. App.,
vol. XX at 41 (modifications omitted). The court concluded that a reasonable jury could
not award Mr. Kearney “damages of any particular amount, let alon[e] 7-some-odd million
dollars.” Id. The court also granted the Abruzzos’ motion for litigation costs, awarding
them $510,000 in attorneys’ fees and $155,915.60 in taxes and costs.3
2
Notably, ARCO’s dividend policy was set before Mr. Kearney married Mary Pat and did
not change after her death.
3
Under N.M.S.A. § 46A-10-1004 (1987), a court can award costs and expenses in a
proceeding involving the administration of a trust, “as justice and equity may require.”
4
Mr. Kearney resigned as trustee on December 6, 2016. On April 7, 2017, the state
court imposed a $100,000 sanction against Mr. Kearney to address his “affront to the
integrity and processes of the Court . . . .” Aplt. App., vol. XXIII at 51. The court
admonished Mr. Kearney for his lack of “credibility when testifying” and for his repeated
violation of the court’s confidentiality order and his discovery obligations. See id. at 48-
51.
The court then held a bench trial to adjudicate the Abruzzos’ counterclaims. The
evidence showed that Mr. Kearney’s conduct had resulted in a toxic relationship between
him and the Abruzzos that made it “difficult or impossible for Louis Abruzzo or Benjamin
Abruzzo to effectively serve as Trustee,” “and that modification of the trust is appropriate
under 46A-4-412 NMSA.” Id. at 229. The court accordingly scheduled an evidentiary
hearing on September 5, 2017 to appoint a successor trustee and to establish “directives for
further administration of the Trust and its assets in a manner which will effectively protect
all beneficiaries equally.” Id. Mr. Kearney filed for bankruptcy mere days before that
hearing and the bankruptcy court stayed the state court proceeding.
C. The Bankruptcy Proceedings
Since 1997, the MPK Trusts have distributed about $800,000 a year to Mr. Kearney.
Yet he managed to accumulate over $7 million in debts by the time he filed for Chapter 11
bankruptcy on September 1, 2017. It is apparent from the evidence in this case that Mr.
Kearney’s financial problems arise not from illness, accident, or bad luck, but from a
pattern of his own bad choices. The UCC was appointed to negotiate with Mr. Kearney
over the terms of a reorganization plan. Failing to agree on a joint plan, Mr. Kearney
5
proposed the first of seven plans on June 12, 2018. The UCC’s competing plan (the “UCC
Plan” or “Plan”), filed on July 12, 2018, calls for the following actions:
First, ARCO is to buy its shares from the Trusts for $12,571,799;
Second, the Trustees will then pay $3 million to Mr. Kearney to pay his creditors;
and
Third, the Trusts will pay the IRS the $350,890.55 in taxes Mr. Kearney owes from
his share of income.
Aplt. App., vol. XX at 44. These proposals have been called the “Three Actions” or the
“Three Issues.” Under the Plan, the remaining Trust corpus of approximately $8 million
will continue to generate income to Mr. Kearney for his lifetime, and Mr. Kearney’s legal
claims against the Abruzzos, ARCO, and others will be settled.
Mr. Kearney “reacted to the UCC Plan with outrage and threats,” accusing many
people of breaching their fiduciary duties to him by pursing the UCC Plan. Id. Once again
he sued the Abruzzos in state court for breach of fiduciary duties.
On August 30, 2018, the Abruzzos filed a motion for relief from the bankruptcy
stay, seeking the bankruptcy court’s permission to ask the state court to determine whether
the Trusts could be modified to allow the Three Actions. The bankruptcy court granted the
motion.4 The state court held an evidentiary hearing on October 23, 2018, and a week later
ruled that the proposed Trusts’ modifications were proper and consistent with New Mexico
4
Once the bankruptcy court granted the Abruzzos’ motion and after the state court had set
a hearing date, Mr. Kearney unsuccessfully tried to remove the action to the Federal
District Court for the District of New Mexico.
6
laws. See generally, Aplt. App., vol. XXIV at 265-80. The state court modified the Trusts
“to allow the Trustees to make a one-time $3,000,000.00 distribution from principal to Mr.
Kearney . . . .” in order to pay off his creditors.5 Id. at 278.
Subsequently, the bankruptcy court moved forward with a vote by creditors on the
plans: 71% of votes and 96% of the voting dollars voted against Mr. Kearney’s plan, while
84% of votes and 97% of the voting dollars voted for the UCC Plan. Aplt. App., vol. XX
at 48, n. 13. The bankruptcy court then confirmed the UCC Plan.
D. Appeals
Mr. Kearney appealed to the BAP. He first claimed the bankruptcy court denied
him due process by rejecting his seventh amended plan. In re Kearney, 2019 WL 6523171at *3. The BAP disagreed because Mr. Kearney had not served notice of intent to file that
plan until ten days before the hearing, which was less than the required twenty-eight-days.
Id. at *4.
The BAP next dismissed Mr. Kearney’s claims that the UCC Plan was not proposed
in good faith and that it was proposed by means forbidden by law. Id. at *5. It brushed
aside the argument that “allowing the state court to consider the Trust Modifications in
effect removed the issue of good faith from the Bankruptcy Court’s purview” because, as
the BAP explained, Mr. Kearney had not alleged that the bankruptcy court’s decision was
in error. Id. The BAP also rejected Mr. Kearney’s argument that the Plan was proposed by
5
The state court denied Mr. Kearney’s motion for reconsideration in an order filed on
January 4, 2021. FRAP 28(j) Letter from Official Committee of Unsecured Creditors, et.
al (Jan. 7, 2021).
7
means forbidden by law because, after the modifications, “the [UCC Plan] complied with
New Mexico law and the applicable provisions of the Bankruptcy Code.” Id.
Finally, the BAP dismissed Mr. Kearney’s claim that the bankruptcy court
erroneously analyzed the first and third of the four factors set forth in In re Kopexa Realty
Venture Co., 213 B.R. 1020, 1022 (10th Cir. BAP 1997), and abused its discretion in
settling his legal claims. The Kopexa factors include the probable success of the
underlying litigation on the merits, the possible difficulty in collection of a judgment, the
complexity and expense of the litigation, and the interests of creditors in deference to their
reasonable views. Id. As to the first factor, the BAP held the record supported the finding
that Mr. Kearney’s causes of action lacked merit because he did not prevail in his 2013
state court litigation and he was sanctioned for $100,000. In re Kearney, 2019 WL
6523171 at *8. As to the third factor, the bankruptcy court did not err in assessing the
complexity and expense of litigation even though Mr. Kearney’s representation was on a
contingency basis. Pursuing the claims could still be costly because (1) Mr. Kearney was
previously ordered to pay the opposing counsel’s attorneys’ fees as a sanction and (2) the
contingency fee agreement required pre-judgment payments. Id.On appeal before us, Mr. Kearney argues that the UCC Plan violates 11 U.S.C.
§ 1129(a)(3)’s requirements that a plan be “proposed in good faith and not by any means
forbidden by law.” He also maintains that the bankruptcy court abused its discretion by
approving the settlement of Mr. Kearney’s legal claims.
8
II.
Discussion
Although Mr. Kearney appeals the BAP’s decision, “we do not rely on the
substance of [BAP’s] order and instead conduct a plenary review of the bankruptcy court’s
decision.” Amerson v. King (In re Amerson), 839 F.3d 1290, 1298 (10th Cir. 2016)
(quoting Mathai v. Warren, 512 F.3d 1241, 1248 (10th Cir. 2008)). “[W]e treat the BAP as
a subordinate appellate tribunal whose rulings are not entitled to any deference (although
they certainly may be persuasive).” Id.A. Violation of U.S.C. § 1129(a)(3)
Under 11 U.S.C. §1129(a)(3), “[t]he court shall confirm a plan only if . . . [t]he plan
has been proposed in good faith and not by any means forbidden by law.” Mr. Kearney
first contends the UCC Plan violates this provision, claiming the plan uses means forbidden
by law and was not proposed in good faith. When reviewing confirmation of a settlement,
we review the bankruptcy court’s legal conclusions de novo and its underlying factual
findings for clear error. In re Paige, 685 F.3d 1160, 1177 (10th Cir. 2012). A finding of
fact is clearly erroneous if it lacks factual support in the record or if, after reviewing all the
evidence, we are left with the firm conviction that a mistake has been made. In re Ford,
492 F.3d 1148, 1153 (10th Cir. 2007) (citation omitted).
1. The UCC Plan was not proposed by means forbidden by law
Mr. Kearney argues that the UCC Plan as proposed violates the law because it “uses
trust assets to pay creditors of the estate, contrary to the trusts’ spendthrift provisions,” and
because the New Mexico Uniform Trust Code § 46A-5-502 (1978) prohibits attachment by
9
Mr. Kearney’s creditors of his income or principal distributions from the spendthrift Trusts.
Aplt. Br. at 19, 20-21. He reasons the $3 million distribution to pay off his creditors
requires modifying the Trusts’ spendthrift provision, which he claims the state court did
not allow. Id. at 21. Under Mary Pat’s last will and testament, the Trusts each include the
following spendthrift provision:
Except as otherwise provided herein, all payments of principal and income
payable, or to become payable, to the beneficiary of any trust created hereunder
shall not be subject to anticipation, assignment, pledge, sale or transfer in any
manner, nor shall any said beneficiary have the power to anticipate or
encumber such interest, nor shall such interest, while in the possession of my
Executor or Trustee, be liable for, or subject to, the debts, contracts,
obligations, liabilities or torts of any beneficiary.
Aplt. App., vol. XXIII at 73.
Section 541(a)(1) of the Bankruptcy Code incorporates into the bankruptcy estate,
with some exceptions, “all legal or equitable interests of the debtor in property as of the
commencement of the case.” One such exception is set forth in Section 541(c)(2) of the
Code, which provides that “[a] restriction on a transfer of a beneficial interest of the debtor
in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case
under this title.” 11 U.S.C. § 541(c)(2). “A beneficial interest in an ordinary spendthrift
trust would clearly qualify for the exemption if the state courts would hold that creditors
could not reach the interest.” In re Harline, 950 F.2d 669, 670 (10th Cir. 1991) (emphasis
added). “Thus, to determine whether the Debtor’s interests in the Trusts were excluded
from his estate, we must analyze the nature of that interest, under applicable state law . . . .”
10
In re Hilgers, 279 F. App’x 662, 664-65 (10th Cir. 2008) (unpublished);6 see In re Neuton,
922 F.2d 1379, 1383 (9th Cir. 1990) (including one-fourth of a spendthrift trust into a
debtor’s bankruptcy estate because state laws allowed payment out of a trust for which the
debtor was a beneficiary, so long as the payment did not ‘exceed[] 25% of the payment that
otherwise would be made to . . . the beneficiary.’”).
Here, Mr. Kearney contends the Three Actions at the heart of the UCC Plan violate
section 541(c)(2)’s mandate to exclude his interest in the Trusts from his bankruptcy estate.
We disagree because, according to the state court, the Three Actions were consistent with
New Mexico laws.
As an initial matter, we are not persuaded by Mr. Kearney’s argument that the UCC
Plan was proposed by means forbidden by law because the state court had not yet modified
the Trusts. As the UCC points out, its plan as proposed and as amended recognized not
only the Trusts’ spendthrift provision but also the state court’s exclusive jurisdiction to
determine whether the Trusts could be changed to effectuate the Three Actions.7
We also reject Mr. Kearney’s position that the UCC Plan violates the Trusts’
spendthrift provision even after the modifications. He concedes that the state court ordered
6
We may cite unpublished opinions for their persuasive value pursuant to Fed. R. App. P.
32.1 and 10th Cir. R. 32.1.
7
The first version of the UCC Plan, in pertinent parts, provided: “Upon Confirmation of
the Plan, the automatic stay is modified to allow the State Court Litigation to proceed to
permit the MPK Trustees to obtain approval of the ARCO Stock Redemption, approval of
the Trust Payment, appointment of a Successor Trustee pursuant to the MPK Trust,
approval of an amended Trust Agreement consistent with the foregoing . . . .” Aplt. App.,
vol. VII at 33. As amended, the Plan notes that the Abruzzos have obtained the state
court’s approval of the Three Actions. Aplt. App., vol. XV at 161.
11
a one-time $3 million distribution but says that money remains out of the creditors’ reach
because the Trusts’ spendthrift provision was not explicitly modified. But the sequence of
the events leading up to the approval of the UCC Plan as well as the state and bankruptcy
courts’ findings show the futility of his argument.
The process concluding with the approval of the UCC Plan establishes that the state
court approved a one-time circumvention of the Trusts’ spendthrift provisions. First, the
Plan was equipped with a mechanism to obtain the state court’s approval of the $3 million
distribution to pay Mr. Kearney’s creditors; second, the bankruptcy court triggered that
mechanism by lifting the stay on the state court action; third, the state court, which was
intimately familiar with the case8 exercised its exclusive jurisdiction over the Trusts9 and
modified them to facilitate a $3 million distribution to pay Mr. Kearney’s creditors; and
fourth, the bankruptcy court relied on the modifications to confirm the UCC Plan. As this
sequence illustrates, inherent in the state court’s endorsement of the Three Actions was its
permission to bypass the Trusts’ spendthrift provision.
8
As the bankruptcy court put it: “Judge Malott presided over the State Court Action for
four years (2013-2017), took weeks of trial testimony, heard arguments of counsel, read
many briefs and motions, and ruled on at least four motions for summary judgment. It is
undisputed that Judge Malott has significant knowledge about and history with the parties,
the MPK Trusts, and the disputes that were litigated in his court.” Aplt. App., vol. XIII at
108.
9
New Mexico law vests exclusive subject-matter jurisdiction in the state district courts for
proceedings involving New Mexico trusts. See NMSA § 46A-2-203 (1978) (“The district
court has exclusive jurisdiction of all proceedings involving a trust.”).
12
Separately, the record belies Mr. Kearney’s assertion that the $3 million distribution
remains subject to the Trusts’ spendthrift provision. When deciding the appropriateness of
the Three Actions, the state court set forth the following facts:
The payment by the Trustees of $3,000,000.00 from principal to Mr.
Kearney, with him then being required to deliver it to the Creditor Trustee as
proposed, is a proper action by the Trustees and is in accordance with their
fiduciary duties to Mr. Kearney and to all beneficiaries.
The Trusts should be modified to allow, on a one-time basis, the
payment by the Trustees of the $3,000,000.00 from principal to Mr. Kearney
as provided in the Three Actions.
Aplt. App., vol. XXIV at 277. The bankruptcy court adopted these facts. See Aplt.
App., vol. XX at 47-48.
The state court also offered the following conclusions of law:
The transactions contemplated by “The Three Issues” are actions
within the scope of the Trustees’ powers and responsibilities as authorized by
The MPK Testamentary Trust.
The transactions contemplated by “The Three Issues” are approved by
the Court as appropriate and proper under the totality of the circumstances and
are in the best interests of all the beneficiaries, including the remaindermen.
The transactions contemplated by “The Three Issues” are not voidable
transactions under Section 46A-8-802.
The MPK Testamentary Trusts should be modified, and hereby are so
modified, to allow the Trustees to make a one-time $3,000,000.00 distribution
from principal to Mr. Kearney, but only upon approval of the pending UCC
Plan by the Bankruptcy Court.
...
The actions of the Trustees contemplated in “The Three Issues” are
within the powers and responsibilities of the Trustees under the terms of the
trust document.
...
The Trusts are modified to permit the one-time distribution of
$3,000,000.00 of principal to Mr. Kearney as contemplated by the UCC Plan.
The distribution of the $3,000,000.00 to Mr. Kearney by the Trustees is
proper and not a breach of their fiduciary duty.
13
The Trustees distribution of $3,000,000.00 from Trust principal to be
paid to Mr. Kearney and then immediately over to the UCC is in keeping with
the Trustee’s powers and duties and is not a breach of same.
The Trustees’ performance of the acts encompassed in “The Three
Issues,” and each of those actions, are proper and appropriate actions for them
to take under the totality of the circumstances.
The Trusts are hereby modified to add a provision applicable to Trusts
B and C which states as follows: The Trustees are authorized on a one-time
basis to distribute $3 million of principal to Kearney if the UCC Plan is
confirmed by a Final Order of the Bankruptcy Court.
Aplt. App., vol. XXIV at 278-79 (emphasis added).
Despite these clear pronouncements, Mr. Kearney contends the state court did not
really authorize the Three Actions because it did not explicitly modify the Trusts’
spendthrift clause. But Mr. Kearney does not explain how to reconcile this position with
the state court’s explicit license to the Trustees to effectively pay Mr. Kearney’s creditors
with the Trusts’ assets. How can the “Trusts [be] modified to permit the one-time
distribution of $3,000,000.00 of principal to Mr. Kearney as contemplated by the UCC
Plan” if the Trusts’ spendthrift provision blocks it? How could that distribution be “a
proper action by the Trustees” and simultaneously a breach of the Trusts’ spendthrift
provision? Mr. Kearney does not suggest an answer. Agreeing with Mr. Kearney would
require interpreting the state court’s words to mean the opposite of what they say in plain
English. That we will not do. Instead, we uphold the bankruptcy court’s finding that the
state court’s modifications of the Trusts enabled the Three Actions, including the
distribution to Mr. Kearney’s creditors, and therefore they do not violate the Trusts’
spendthrift provision.
14
In sum, the bankruptcy court understood the state court’s extensive finding of facts
and conclusions of law to authorize bypassing of the Trusts’ spendthrift provision to
effectuate the Three Actions. That finding is amply supported by the record and therefore
is not clearly erroneous.10
2. UCC Plan Was Proposed in Good Faith
Mr. Kearney next argues that the UCC Plan was not proposed in good faith as
required by § 1129(a)(3). “Good faith for purposes of § 1129(a)(3) is ordinarily a finding
of fact that we review for clear error.” In re Paige, 685 F.3d at 1178.
Although the statute does not define good faith, “[c]ase law under the Code[] has
tended to define the good-faith requirement as requiring only that there is a reasonable
likelihood that the plan will achieve a result consistent with the standards prescribed under
the Code.” Id. (citation omitted). The Supreme Court teaches that “a central purpose of
the [Bankruptcy] Code is to provide a procedure by which certain insolvent debtors can
reorder their affairs, make peace with their creditors, and enjoy ‘a new opportunity in life
with a clear field for future effort, unhampered by the pressure and discouragement of
preexisting debt.’” Grogan v. Garner, 498 U.S. 279, 286 (1991) (quoting Local Loan Co.
v. Hunt, 292 U.S. 234, 244 (1934)).
10
It is noteworthy that despite Mr. Kearney’s outrage about paying creditors from the
Trusts, his own proposed chapter 11 plans envisioned a similar mechanism. See, e.g., Aplt.
App., vol. IV at 63 (stating “if [Kearney’s] plan is approved, the Debtor may use a
specified amount of money received from the MPK Trust to pay Allowed General
Unsecured Claims . . . .”).
15
Here, the bankruptcy court specifically found the Plan to be in Mr. Kearney’s best
interest:
He will get a bankruptcy discharge. $3,000,000 will pay his debts of more than
$8,600,000. He will no longer be able to waste time and money pursuing
questionable litigation against his in-laws. He may be forced for a time into
gainful employment, which might not be a bad thing. It is time for him to move
on. While Debtor cannot see that, it is obvious to most others. After four years
or so of reasonable belt-tightening, Debtor can live post-bankruptcy with a
fresh start and the prospect of a healthy lifetime income most people would
consider a godsend. The Plan was proposed and developed in good faith.
Aplt. App., vol. XX at 55. The bankruptcy court’s finding of good faith is sound and
complies with a central purpose of the Bankruptcy Code as explained in Grogan. As such,
due deference to the court’s well-reasoned conclusion compels us to affirm.11
In the final analysis, we are not persuaded that the UCC Plan was proposed in bad
faith or by means prohibited by law. Mr. Kearney’s arguments do not establish a clear
error by the bankruptcy court but rather show “his mistaken belief that only he should be
allowed to control the reorganization process, whatever the cost, delay, or acceptability of
payment proposals.” Id. at 79.
11
We reject Mr. Kearney’s argument that the UCC Plan was not proposed in good faith
because it was “collusive,” Aplt. Br. 42, and we do not share his concern that if we uphold
the Plan “there is no limit to the schemes a creditor could concoct and employ in and out of
bankruptcy to penetrate a spendthrift trust.” Id. at 44. We do not foresee this funereal
future because, as explained, inherent in the state court’s changes to the Trusts was a
license to bypass the Trusts’ spendthrift provision. Accordingly, our decision here does
not disturb this Circuit’s precedent that generally exempt a spendthrift trust from a debtor’s
bankruptcy estate. See In re Amerson, 839 F.3d at 1300 (“a beneficial interest in a
spendthrift trust that is recognized and protected by applicable state law, would generally
qualify for the § 541(c)(2) exception. In other words, it typically would not be considered
part of the bankruptcy estate.”).
16
B. Approval of Settlement
Mr. Kearney next argues the bankruptcy court erred in approving the settlements in
the UCC Plan because (1) some of the claims are not property of the estate, (2) the court
did not form an independent judgment as to the claims’ merits, (3) the Plan lacked
adequate consideration, and (4) the expense and complexity of the litigation weigh against
settlement. The parties agree that we review the bankruptcy court’s approval of the
settlements for abuse of discretion. We review de novo whether an asset is property of the
estate. See In re Wise, 346 F.3d 1239, 1241 (10th Cir. 2003).
In evaluating the UCC Plan’s proposed settlements, the bankruptcy court analyzed
the four factors set forth in In re Kopexa Realty Venture Co., 213 B.R. at 1022: (1) the
chance of success on the merits; (2) possible problems in collecting judgment; (3) the
expense and complexity of the litigation; and (4) the interest of the creditors. The court
determined that every factor except the second favored settlement, compelling the
conclusion that “[o]verall, the Kopexa factors weigh heavily in favor of the settlement.”
Aplt. App., vol. XX at 52-53. Mr. Kearney disagrees with the bankruptcy court’s analysis
of the first and third factors.
We begin by noting that settlements are favored in bankruptcy. In re S. Med. Arts
Co., Inc., 343 B.R. 250, 255 (10th Cir. BAP 2006). But settlement should be approved
only based on the informed and objective assessment of the facts in their totality. In re
Kopexa Realty Venture Co., 213 B.R. at 1022 (citing Reiss v. Hagmann, 881 F.2d 890, 892
(10th Cir. 1989)). A mini-trial on the matters under consideration is unnecessary; it is
enough for the court to “canvass . . . ‘the issues and see whether the settlement falls below
17
the lowest point in the range of reasonableness.’” In re Dennett, 449 B.R. 139, 145 (Bankr.
D. Utah 2011). We affirm a bankruptcy court’s approval of a settlement unless we find it
either lacking in evidentiary support or disconnected to the evidence in the record. Id. at
144 (citations omitted).
1. The settled claims are property of the estate
As an initial matter, Mr. Kearney argues the bankruptcy court wrongly settled the
following legal claims because they are not property of the estate: (1) his state court trust
litigation and its appeal; (2) his lawsuit against the Abruzzos for breach of fiduciary duty in
the bankruptcy proceedings and their proposal of the UCC Plan; and (3) his proposed
double derivative litigation against the Abruzzos and ARCO for minority shareholder
suppression. He maintains these legal claims are related to the Trusts, are not estate
property, and therefore cannot be settled under the Plan. We disagree.
As referenced above, section 541(a)(1) of the Bankruptcy Code includes in the
bankruptcy estate, with some exceptions, a debtor’s property at the start of the proceeding,
including his causes of action. Sender v. Simon, 84 F.3d 1299, 1305 (10th Cir. 1996)
(citations omitted). Subsection (c)(2) gives a debtor the choice as to whether to include in
the bankruptcy estate the debtor’s beneficial interest in a trust that cannot otherwise be
transferred under applicable nonbankruptcy law. In re Amerson, 839 F.3d at 1299 (“the
exception outlined in subsection (c)(2) is worded in permissive . . . fashion” and gives the
debtor the choice of “whether or not to include such an interest in the bankruptcy estate.”).
In In re Amerson, a Chapter 7 trustee sought approval of a settlement agreement
related to a debtor’s interest in a spendthrift trust under her father’s will and her interest in
18
a related probate contest. Although the debtor initially listed no assets under Schedule B to
her petition, where she was required to list any interests in the estate of a decedent or a
trust, she later amended that schedule to list her interest in the trust and the probate contest.
Id. at 1293-94. The bankruptcy court approved the settlement over the debtor’s objections.
The debtor appealed, arguing that under 11 U.S.C. § 541(c)(2), the bankruptcy court lacked
subject matter jurisdiction over her interest in the spendthrift trust or its related litigation.
We disagreed. While recognizing that a debtor’s beneficial interest in a spendthrift trust
generally qualifies for that exclusion, we affirmed because the debtor had effectively
chosen to incorporate that interest into her bankruptcy estate by referencing it in her
petition. Id. at 1299.
Here, Mr. Kearney’s amended reorganization plan defines “Assets” as “all assets of
the Estate, including, without limitation, all property of the Estate pursuant to § 541 of the
Bankruptcy Code, Cash (including the Sale Proceeds), Causes of Action, . . . .” Aplt. App.,
vol. X at 12. It then defines “Causes of Action” as:
any and all unliquidated and contingent rights, claims, and causes and rights
of action of the Estate, direct or indirect, derivative or non-derivative,
including Avoidance Actions, that exist or may have existed as of the Petition
Date, including, without limitation, any related to Louis Abruzzo, Benjamin
Abruzzo, Nancy Abruzzo, Rico Abruzzo, Mary Pat Abruzzo, Alvarado Realty
Company, the Abruzzo Litigation, any such rights, claims, causes of action,
suits, and proceedings that the Debtor may have as debtor and debtor-in-
possession (exercising the rights and powers of a trustee pursuant to § 1107(a)
of the Bankruptcy Code), whether or not brought by or on behalf of the Debtor
and/or the Estate, and/or any holder of any Claim, . . . .
Id. at 12-13. Further, Appendix 5 to that plan incorporates “a non-exclusive list of the
Causes of Action and other similar claims, counterclaims, rights, defenses, setoffs,
19
recoupments, and actions in law or equity,” including: Case No. D-202-CV-2013-07676,
Mr. Kearney’s lawsuit against the Abruzzos as trustees of the MPK Trusts; Adversary No.
18-01031-t, his lawsuit against the Abruzzos for “[a]voidance and recovery of preferential
and fraudulent transfers, avoidance and recovery of unauthorized post-petition transfers,
injunction against stay violations, [and] declaratory judgment”; and his potential lawsuit
against ARCO and the Abruzzos for “shareholder oppression, breaches of controlling
shareholders’ fiduciary duties, unjust enrichment, and statutory violations.” Id. at 64-66.
Mr. Kearney also demonstrated his belief that derivative claims against ARCO were
property of the estate in his discovery motion before the bankruptcy court under Federal
Rule of Bankruptcy Procedure 2004. In that motion, he sought to examine ARCO’s
corporate records. To justify the examination of those records, he argued that the “Debtor
has the right to pursue these derivative claims on behalf of the Trusts in their role as ARCO
shareholders” and “[a]ny recovery by the Trusts could ultimately benefit creditors in this
case.” Aplt. App., vol. III at 141. When ARCO objected to the motion, Mr. Kearney
stated in response that “[t]he potential claims also belong to the Debtor’s estate” because
“Section 541 broadly defines the estate” and “[c]ourts have held that the right to bring a
derivative claim is an asset of the estate.” Supp. Aplt. App., vol. II at 20. By arguing that
potential claims against ARCO were property of the estate for purposes of his
reorganization plans and the Rule 2004 motion, Mr. Kearney “effectively chose” to include
the potential causes of action against ARCO as part of his estate. See Amerson, 839 F.3d at
1300.
20
The UCC suggests an additional reason why the legal claims are property of the
bankruptcy estate. As we have discussed, section 541(a)(1) of the Bankruptcy Code
incorporates into the bankruptcy estate, with some exceptions, a debtor’s entire property at
the commencement of a proceeding. Sender v. Simon, 84 F.3d at 1305. In 2005, Congress
temporally expanded the definition of estate property to include “all property of the kind
specified in section 541 that the debtor acquires after the commencement of the case but
before the case is closed, dismissed, or converted . . . .” 11 U.S.C.A. § 1115(a)(1).
Against this backdrop, Mr. Kearney’s incorporation of the legal claims in his bankruptcy
plans shows they were developed before the close of the bankruptcy proceeding and thus
are the property of the estate. See also In re Amerson, 839 F.3d at 1300 (holding that a
cause of action is a distinct asset of its own and is included in a debtor’s bankruptcy estate)
(citing Moratzka v. Morris (In re Senior Cottages of Am., LLC), 482 F.3d 997, 1001 (8th
Cir. 2007), and Sender v. Buchanan (In re Hedged–Invs. Assocs., Inc.), 84 F.3d 1281, 1285
(10th Cir. 1996)).
In sum, the bankruptcy court properly concluded that the legal claims are property
of Mr. Kearney’s bankruptcy estate.
2. Mr. Kearney is not likely to succeed on his claims
Mr. Kearney disagrees with the bankruptcy court’s assessment of the first Kopexa
factor: the chance of his various claims succeeding on the merits. In reaching its
conclusion, the court recounted Mr. Kearney’s failed litigations against the Abruzzos and
ARCO that cost him millions in attorney fees, costs, and sanctions and concluded that Mr.
Kearney is not a sympathetic plaintiff. Yet Mr. Kearney argues the court failed to “fulfill
21
its duty to form an ‘intelligent and objective opinion of the probabilities of ultimate success
should the claim be litigated’” instead of settled, asserting the court’s conclusion is
supported by “no evidence whatsoever.” Aplt. Br. at 48-49. We disagree.
The bankruptcy court considered the vast universe of facts supporting the futility of
Mr. Kearney’s lawsuits. First, it quoted the state court’s finding about the Trustees’ proper
conduct and Mr. Kearney’s meritless theory of the case in his 2013 litigation:
I don’t find that the Abruzzos misused any control they may have had
in this circumstance. The totality on which the entire Plaintiff’s case rests is if
it’s good for ARCO, it must be bad for Victor Kearney. That’s not the law;
that’s not the evidence in this case.
The Abruzzos’ efforts on behalf of ARCO have been extremely
successful. The fact that the Abruzzos have run their company properly does
not translate into a starvation or a partiality on behalf of ARCO over and
against the interest of either Mr. Kearney or the remainder beneficiaries. The
appropriate totality appears to be in this situation, a rising tide lifts all the boats.
Kearney has made an increased distribution of over 800 percent
through one of the worst recessions this country has ever seen. The Abruzzos
do not control the board. There is not a single incident in which it was shown
they had their way or forced their agenda onto anyone else.
The fact that ARCO has grown as large over these last 15 years has
made the whole pie bigger and everybody’s slice bigger. How that could
translate to a reasonable jury into an award of damages of any particular
amount, let alon[e] 7- some-odd million dollars, does not compute to the
Court.
Aplt. App., vol. XX at 40-41 (emphasis added) (modifications omitted).
The bankruptcy court also relied on the state court’s opinion granting the Abruzzos’
motion for attorney’s fees and costs:
Plaintiff argues that Defendants should not be allowed to recover fees
incurred in Defendants’ opposition to his attempts to obtain corporate
documents and information from ARCO, the separate, closely held,
corporation involved in this matter but not a party hereto. A significant pillar
of Plaintiff’s case was his claim that his status as a Trustee and Life Income
Beneficiary under his deceased wife’s Trust entitled him to effect [sic] the
22
management of ARCO from which the Trust’s income flows. Another pillar
was his claim that Defendants operated ARCO so as to profit ARCO more than
the Trust and, therefore, to minimize income to Plaintiff. . . [H]e was not
successful in establishing his core charges that Defendants managed ARCO to
his financial detriment. The fees incurred in context of the ARCO document
discovery dispute are a reasonable and necessary part of this overall litigation.
[I]t is also indisputable that Plaintiff was, after two (2) years of
litigation, not able to support his allegations with substantial evidence at trial.
While Plaintiff believes he “had legitimate claims against the Defendants”
which “survived vigorous summary judgment motions” Plaintiff could not,
and did not, prove those claims at trial.
Id. at 41-42 (emphasis added) (modifications omitted).
Finally, in sanctioning Mr. Kearney, the bankruptcy court quoted from the state
court’s “extensive findings and conclusions” that condemned Mr. Kearney for failing to
appear for cross-examination after testifying at trial, for his repeated violation of the
court’s confidentiality orders, for his repeated breach of his trustee duties, for his
“significant credibility issues,” for his failure to mediate in good faith, and for poisoning
his relationship with the Abruzzos. Id. at 42-43. The bankruptcy court concluded:
The Court finds the Debtor has little chance of obtaining any substantial net
recovery through continued litigation. To date, his claims against the Abruzzos
and ARCO have cost him nearly two million dollars in attorney fees, costs,
and sanctions. He is not a sympathetic plaintiff. The evidence presented in his
first trial supports Judge Malott’s finding that neither ARCO nor the Abruzzos
breached any duties to him, the MPK Trusts, or any other party. Debtor’s first,
best chance for a litigation recovery was in his first lawsuit; he lost badly.
Id. at 52. The bankruptcy court’s exhaustive explanations bely Mr. Kearney’s accusation
that its conclusion was based on “no evidence whatsoever.”
Mr. Kearney also attacks the bankruptcy court’s finding that “[h]e is not a
sympathetic plaintiff,” saying the court made this erroneous finding “[b]ecause it had no
evidence before it that Kearney’s claims are without merit . . . .” Aplt. Br. at 50-51. To the
23
contrary, the record is replete with evidence of Mr. Kearney’s obnoxious conduct
supporting that finding, including his misconduct with respect to the Trusts, his credibility
issues, his contempt for the courts and the judicial process, and his appalling litigation
habits.
i.
Mr. Kearney has long complained that the Abruzzos breached their fiduciary duties
to him and colluded with the UCC to harm the Trusts. Yet, the evidence shows that his
own wrongdoings, both as trustee and since his resignation, pose the most direct threat to
the Trusts.
First, Mr. Kearney has time and again undermined the Trusts’ spendthrift provision.
For example, he promised to pay his largest creditor, Kevin Yearout, first from monies he
receives from the Trusts. He also pledged to “take any necessary actions, including
authorizing charging Orders against the Mary Pat Abruzzo Kearney Trust, to protect and
further Yearout’s security as Kearney’s creditor . . . .” Id. Additionally, he repeatedly
asked the Abruzzos to lend him money secured by his future distributions.12 Aplt. App.,
vol. XXIII at 224.
Second, Mr. Kearney has acted in brazen contradiction to Mary Pat’s ardent wish to
keep the shares of ARCO with her family. For example, he conspired with third parties to
forcefully take over ARCO and to liquidate its “Trophy Properties.” Id. at 225-27. He
12
For example, Mr. Kearney asked the Abruzzos for a $150,000 loan in 2005 and a
$8,500,000 loan in 2011.
24
provided ARCO’s confidential financial and proprietary information to Mr. Yearout and
others, who in turn distributed some or all that information to over two dozen other persons
and entities. Id. at 225. Also, in violation of the state court’s confidentiality order, Mr.
Kearney gave his expert’s classified report to Mr. Yearout to help negotiate for the sale of
the Trusts’ assets.13 Id. He then signed a series of documents to give the appearance that
Mr. Yearout had control over the Trusts’ shares of ARCO, including a document
delegating Mr. Kearney’s right to vote the Trusts’ shares in ARCO.14 Id. at 226. If
successful, Mr. Kearney’s $2 million debt to Mr. Yearout would have been converted to
equity in ARCO. Id. at 227.
Third, Mr. Kearney has time and again reneged on his promises to pay income taxes
despite knowing that nonpayment could force liabilities on the Trusts. Id. at 228. For
example, despite his written pledges to file and pay the taxes, Mr. Kearney did not file any
tax returns with New Mexico between 2008 and 2015, making him responsible for “$7
million in unreported income to answer for.” Id. His tax liabilities posed a direct risk to
the Trusts and the remainder beneficiaries’ interests. Id. at 228-29.
This sampling of Mr. Kearney’s unsavory conduct underscores his refusal to act
responsibly and illustrates his contempt for the Trusts’ governing provisions, Mary Pat’s
wishes, and the remainder beneficiaries’ interest.
13
While Mr. Kearney was conspiring to help third parties like Mr. Yearout to take over
ARCO, Mr. Kearney was fully aware of their plans to substantially change ARCO’s
operations and to liquidate its “Trophy Properties.” Aplt. App., vol. XXIII at 227.
14
The terms of the delegation obligated Mr. Yearout to act in Mr. Kearney’s best interest,
not those of all beneficiaries.
25
ii.
As previewed, Mr. Kearney also has significant credibility issues and seems
comfortable lying under oath and otherwise. After conducting a 5-day jury trial, the state
court found that Mr. Kearney “had little or no credibility” when testifying before the court.
Aplt. App., vol. XXIII at 50.
Examples of Mr. Kearney’s dishonesty include signing off on disclosure of
protected information as “Trustee” a week after resigning from that position, id. at 49-50,
and falsely alleging diversity of citizenship to remove the state action on Trust
modifications to the federal district court, Aplt. App., vol. XXVI at 280-82. Furthermore,
despite indicating in open court his willingness to mediate with the Abruzzos, Mr. Kearney
secretly promised third parties not to resolve his legal disputes at that mediation in order to
help them acquire the Trusts’ ARCO shares. Aplt. App., vol. XXIII at 231.
As such, “Mr. Kearney has impressed the Court as an individual who bears no
allegiance to the truth, but who will say whatever he thinks will achieve his goals.” Id. at
50. Indeed, Mr. Kearney’s many lies suggest that he has an ever-decreasing believability
reserve that continues to dwindle at every encounter with the judicial system, making him
an unsympathetic plaintiff and supporting the bankruptcy court’s conclusion that he was
not likely to succeed in further litigation.
iii.
Mr. Kearney also has a well-established disdain for courts and the judicial processes
which, unsurprisingly, is not promising for his prospect as a plaintiff. As commented by
the state court, “[b]oth the frequency and level of Mr. Kearney’s misbehavior make [even]
26
severe sanctions appear well deserved and appropriate.” Aplt. App., vol. XXIII at 51. His
actions have continued to be an affront to “the entire judicial process.” Id. at 50.
In his first lawsuit against the Abruzzos, for example, Mr. Kearney “repeatedly
exhibited bad faith non-compliance with his discovery obligations throughout [the]
litigation both generally and by failing to comply with specific discovery orders.” Id. He
also regularly violated lawful state court orders by distributing ARCO’s protected
information to third parties. When confronted, he claimed his actions were allowed under
the order, which the court “adamantly reject[ed].” See id. Instead, “Mr. Kearney released
the protected confidential information . . . for the primary if not sole purpose of furthering
his agenda to gain control of ARCO.” Id.
Furthermore, as referenced above, after an unsuccessful mediation attempt in 2016
it was revealed that Mr. Kearney had entered the mediation having already promised third
parties that he would not settle his claims against the Abruzzos. Because of his antics, he
was ordered to bear the full costs of that failed mediation.
He also demonstrated his disrespect for the state court during his first trial when he
testified in his case-in-chief but refused to show up for his scheduled cross-examination.
Although he used the pretext of an unexpected medical condition, the court remained
doubtful of his true motives because he never substantiated his excuse.
Moreover, after the bankruptcy court granted the Abruzzos’ motion to allow the
state court to determine the lawfulness of the Three Actions, and after the state court
scheduled a hearing, Mr. Kearney removed the action to federal court, falsely claiming
27
diversity of citizenship. The federal district court promptly remanded the action,
explaining:
Kearney’s diversity allegations are frivolous. The notice of removal claims,
for the first time, that Kearney is a Nevada citizen. However, he filed the
original lawsuit against the Abruzzos in New Mexico’s Second Judicial
District Court in 2013 and the New Mexico bankruptcy case in 2017. . . .
Kearney’s attempt to remove the actions directly to this Federal District Court
appears to be a sham litigation tactic to avoid a ruling by the Bankruptcy Court.
Aplt. App., vol. XXVI at 281-82. Mr. Kearney had also used an Albuquerque address
when filing his then most recent monthly operating report in the bankruptcy proceeding.
There is more. Back at the bankruptcy court, Mr. Kearney spearheaded improper
contacts with the UCC members to take control of the UCC and force the withdrawal of its
Plan. Even his own counsel condemned this “skullduggery.” Aplt. App., vol. XX at 84-
85. Another time, the court expressed concern that Mr. Kearney filed a Bankruptcy Rule
2004 motion15 to harass the Abruzzos and ARCO and surmised that Mr. Kearney’s
requests were “motivated by a vendetta.” Aplt. App., vol. XIII at 14, 16.
Mr. Kearney’s contempt for the judicial process reached its zenith when he tried to
avoid complying with the bankruptcy court’s order to pay professional fees by emptying
his bank account. Because Mr. Kearney refused to pay professional fees throughout his
bankruptcy proceeding, the UCC filed a motion on November 14, 2018 to order him to
pay, which the court granted. Mr. Kearney refused to pay, claiming he did not have the
money. But, evidence produced at a later hearing showed that immediately after the UCC
15
Federal Rules of Bankruptcy Procedure Rule 2004 allows any party in interest to ask the
court to order the examination of any entity.
28
filed its motion, Mr. Kearney transferred $153,511.88 out of his account—including a
$60,306 transfer to his ex-wife. Aplt. App., vol. XX at 85. All told, in the three-week
period between the UCC’s motion and the Court’s order, Mr. Kearney reduced his account
balance from $173,000 to $16,700 to avoid paying his obligations. Id.
In sum, Mr. Kearney’s established contempt for the judicial system and courts does
not bode well for his litigations. His skullduggery not only diminishes his chances of
future success as a plaintiff, but also exposes him and the Trusts to further sanctions.
iv.
Finally, Mr. Kearney’s demonstrated litigious approach over the years undermines
his claim that he is likely to succeed in his future litigation. The courts before us have
commented on Mr. Kearney’s seemingly obsessive desire to sue. His conduct compelled
the state court to conclude that Mr. Kearney had brought that action without an honest
belief in its merits:
The evidence which has developed in this matter since June 2015 is clear and
convincing that Mr. Kearney initiated this litigation with the purpose of
damaging the Abruzzos individually and to foster his apparent plan to force a
hostile takeover of the Abruzzo interests and the assets of ARCO by gaining
access to financial and in-house information and documentation through
discovery which he could not have accessed otherwise, and then disseminating
such information to third parties in repeated violation of the Court’s Orders
and admonishments and in spite of significant monetary sanctions.
Aplt. App., vol. XV at 129.
The state court’s final pretrial order reprimanded Mr. Kearney for his lawsuits,
saying his “reckless and unfair actions” have harmed the Trusts and the interests of the
remainder beneficiaries. Aplt. App., vol. XXIII at 189. The court further noted that Mr.
29
Kearney has engaged in “protracted, very expensive, and ever more desperate litigation
that shows no sign of waning in view of the list of Mr. Kearney’s intended lawsuits filed in
the Bankruptcy matter.” Aplt. App., vol. XXIV at 271.
Mr. Kearney’s repeated failure to substantiate his numerous claims has not
convinced him to stop; he wants to sue fifty persons and entities, including the Abruzzos,
their family members, and the attorneys opposing Mr. Kearney in the bankruptcy
proceeding. Id. at 272. The list of “nonexclusive” causes of action Mr. Kearney wants to
prosecute includes:
unfair practices acts, loan sharking, violations of protective order, aiding and
abetting breach of fiduciary duty, fraud when Louis Abruzzo was not a trustee,
numerous bankruptcy law violations, unjust enrichment, shareholder
oppression, ‘statutory violations,’ quasi contract claims, constructive eviction,
tortious interference, conversion, trade-secret misappropriation, breach of
warranty claims, suit on sworn account, usury, libel, slander, malicious
prosecution, premises liability, fraudulent transfers, conspiracy, aiding and
abetting, defamation, improper assignment, unconscionability, wrongful set
off, and violations of statutes and regulations ‘to name a few.’
Id. at 271-72. To this partial list, Mr. Kearney has added “any claims or causes of
action related to any matter.” Id.
Against this backdrop, it is not surprising that Mr. Kearney has labeled proceeds
from litigations his “bankruptcy estate’s most valuable asset,” saying they represent “the
best opportunity for a meaningful recovery to creditors.” Aplt. App., vol. XIII at 15.
Indeed, the cornerstone of Mr. Kearney’s reorganization plans appear to be endless
litigations.
In sum, Mr. Kearney has shown a tendency to exploit the judicial system as a club
to beleaguer anyone who stands in his way. His litigiousness threatens the integrity of the
30
courts and undermine his chances of success in pursuing future litigations. See Gharb v.
Mitsubishi Elec. Corp., 148 F. Supp. 3d 44, 55 (D.D.C. 2015) (discussing injunctive
remedies against a litigious plaintiff to “protect the integrity of the courts and the orderly
and expeditious administration of justice.”); Bradshaw v. Zoological Soc’y of San Diego,
844 F.2d 791 (9th Cir. 1988) (unpublished) (describing the financial burden of a
defendant’s successful defense against the meritless claims of a litigious plaintiff as
“miscarriage of justice.”); Pondexter v. Allegheny Cnty., C.A. No. 11-857, 2011 WL
5328562 at *4 (W.D. Pa. Nov. 4, 2011) (explaining that some courts “have enjoined overly
litigious plaintiffs from filing actions involving ‘groundless and vexatious litigation.’”).
v.
Although any one of the above-referenced facets of Mr. Kearney’s conduct—his
abuse of the Trusts, his incessant lies, his mockery of the judicial system, or his litigious
approach—may be enough to render him unsympathetic, their collective force surely
depicts Mr. Kearney as a plaintiff interested only in his own short-term gains. They give
ample support for the bankruptcy court’s finding that Mr. Kearney “is not a sympathetic
plaintiff.”16
16
We note, in the abundance of caution, that our analysis here is not a comment on the
merits of any future lawsuits. It is intended to demonstrate only that the bankruptcy court’s
finding that Mr. Kearney is not a sympathetic plaintiff is supported by the record.
31
3. The settlements are backed by consideration
Mr. Kearney says the bankruptcy court’s finding that the proposed settlement is
supported by adequate consideration is clearly erroneous because “ARCO suffers no
detriment on account of this transaction.” Aplt. Br. at 52. We are not persuaded.
The bankruptcy court found enough consideration to approve the Plan because,
among other things, in “exchange for the releases, ARCO is borrowing money, redeeming
$12.6 million of its stock, and releasing its claim against [Mr. Kearney].” Aplt. App., vol.
XX at 88. As the UCC points out, ARCO must pay interest on any money it borrows and
paying the Trusts $12.6 million to purchase its stock precludes ARCO from engaging in
other investment opportunities. Therefore, the bankruptcy court’s finding of adequate
consideration is not clearly erroneous.
4. The expense and complexity of litigations favor settlement
Mr. Kearney next disagrees with the bankruptcy court’s finding that the third
Kopexa factor, expense and complexity of litigation, weighs in favor of settlement. On that
issue, the bankruptcy court offered the following analysis:
The litigation Debtor wishes to bring against the Abruzzos, ARCO, and others
would be expensive, even though Debtor’s new law firm would take the case
on a contingent fee. In the State Court Action, Debtor had to pay his counsel
(which he has yet to do), the Abruzzos’ counsel, costs, and a $100,000
sanction.
Id. at 87.
Mr. Kearney does not contend that his litigations will be simple or inexpensive.
Instead, he relies on In re C.R. Stone Concrete Contractors, 346 B.R. 32 (Bankr. D. Mass.
2006), to argue that the court conducted its analysis incorrectly given the contingency
32
nature of his legal representation. Commenting on the court’s decision, he says “[t]he law
is to the contrary.” Aplt. Br. at 55.
In re C.R. Stone Concrete Contractors is factually inapposite and is not even
persuasive. In that case, the bankruptcy court relied on the fact that the contingent basis of
representation “remove[d] any burden upon the estate.” 346 B.R. at 50. But here, Mr.
Kearney has not pointed to any evidence that litigation will not impose “any” burden on
the bankruptcy estate. To the contrary, as the BAP noted, Mr. Kearney’s “contingency fee
agreement provided counsel would seek reimbursement of costs and expenses from [Mr.
Kearney] periodically during the litigation, requiring pre-judgment payment.” In re
Kearney, 2019 WL 6523171 at *8.
Moreover, the record supports the conclusion that Mr. Kearney’s lawsuits are likely
to be expensive regardless of his contingency representation. As the bankruptcy court
noted, Mr. Kearney has so far had to pay not only his opponents’ litigation costs, but also a
six-figure sanction. And nothing in the record suggests that Mr. Kearney has changed his
litigious approach or his less-than-honest tactics that resulted in sanctions. For these
reasons, the bankruptcy court’s finding that the expense and complexity of the litigation
favor settlement is amply supported by the record.
C. Public Policy
Mr. Kearney’s final argument is that public policy militates against approving the
settlement because “The UCC Plan settlement—an agreement between creditors and
trustees designed to avoid spendthrift trust restrictions—contravenes public policy.” Aplt.
Br. at 56. Here again, Mr. Kearney taps into his brief’s underlying theme that the UCC
33
Plan violates the Trusts’ spendthrift provisions. Having debunked that myth at length, we
are unpersuaded.
D. Conclusion
The UCC Plan was sufficiently considered and properly confirmed by the
bankruptcy court. Accordingly, we affirm.
34