Burma Jean Martin v. Richard L. Cox

UNITED STATES BANKRUPTCY APPELLATE PANEL
FOR THE EIGHTH CIRCUIT
No. 97-6039
In re: *
*
BURMA JEAN MARTIN *
*
Debtor. *
*
*
BURMA JEAN MARTIN *
*
Appellant *
* Appeal from the
United States
v. * Bankruptcy Court for
the
* Eastern District of
Arkansas
RICHARD L. COX, TRUSTEE *
*
Appellee *
Submitted: August 13, 1997
Filed: September 23, 1997
Before Chief Judge, KOGER, DREHER and SCHERMER
SCHERMER, United States Bankruptcy Judge:
Burma Jean Martin (the “Debtor”) appeals from the
bankruptcy court’s order approving a settlement of
litigation between the Debtor and Barrent Goodstein
2
(“Goodstein”). This settlement resolved claims
asserted by Goodstein against the Debtor for unpaid
legal fees, as well as claims by the Debtor against
Goodstein for fraud, breach of contract and other
related causes of action. We affirm the order of the
bankruptcy court approving the settlement.
I
Burma Jean Martin filed a voluntary petition for
relief under Chapter 7 of the United States Bankruptcy
Code on September 20, 1995. At the time of the
voluntary petition, the Debtor was involved in two
pending state court proceedings with her former counsel
and his law firm, Goodstein & Starr, P.C. (The
“Goodstein Litigation”)1. In the first action, the
Debtor defended against claims of counsel for recovery
of outstanding legal fees in the amount of $37,181.02.
In the second action, the Debtor as plaintiff, sought
1
The Goodstein Litigation consists of the following:
1) Goodstein & Starr, P.C. v. Burma Jean Martin v. Barnett Goodstein, Cause No.
CC8810654-E, County of Law No. 5, Dallas County, Texas; and
2) Burma Jean Martin v. Barnett Goodstein, Cause No. 92-3900 in the 44th District for
Dallas County, Texas.
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recovery against Goodstein on the basis of fraud and
other theories stemming from an alleged promise by
Goodstein that his law firm would not charge the Debtor
for its legal services after the Debtor and Goodstein
became romantically involved in early 1985. Upon
termination of the
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romantic relationship, Goodstein began collection
activity and the Debtor responded with her lawsuit.
After the Debtor filed her petition in bankruptcy,
she removed the Goodstein Litigation to the bankruptcy
court where the Chapter 7 Trustee, Richard L. Cox, (the
“Trustee”) intervened. After independent
investigation, the Trustee was of the opinion that it
was in the best interest of the estate to settle the
Goodstein Litigation and Goodstein’s claim against the
estate. The record reveals that the Trustee initially
reached an agreement with Goodstein, (the “Initial
Settlement”) whereby Goodstein would release all claims
against the estate (for fees in the amount of
$37,181.02) and would pay the estate $8,500.00 in full
resolution of the Debtor’s claims against Goodstein.
Trustee provided notice of the Initial Settlement on or
about May 16, 1997, but the Debtor, together with her
parents, objected. The Debtor asserted that the offer
of $8,500.00 was insufficient and therefore was not
reasonable. Her parents contended that the claim
against Goodstein had been assigned to them by the
5
Debtor pre-petition and therefore, the estate had no
interest in the claim.
Although the parents’ objection was overruled, the
court did not approve the Initial Settlement,
concluding that the Debtor’s parents should be allowed
an opportunity to bid an amount in excess of the
Goodstein offer of $8,500.00. The
6
Trustee then issued a second Notice of Compromise
Settlement, (the “Second Settlement”) reciting the same
offer from Goodstein and indicating that the Debtor’s
parents were afforded an opportunity to bid on the
claim. The Debtor then filed an objection to the
Second Settlement, again contesting the reasonableness
of the Goodstein offer, and the Debtor’s parents then
bid $10,000.00 to purchase the Goodstein claim.
Goodstein thereafter increased his offer to $10,500.00,
and the Trustee provided notice of this, the third
settlement (the “Third Settlement”). Again, the Debtor
reiterated her prior objection. The court considered
approval of the Third Settlement on April 17, 1997,
almost a full year after the Initial Settlement had
been noticed for approval and nearly ten years after
the Goodstein Litigation commenced.
Debtor appeared and testified at the hearing as did
the Trustee. After careful consideration of the
reasonableness of the settlement in light of the
evidence offered, the bankruptcy court approved the
Third Settlement, finding that the compromise with
7
Goodstein was in the best interest of the estate. In
reaching this decision, the court considered the merits
of the Debtor’s underlying fraud claim2, as
2
While the Debtor plead several causes of action in her state court lawsuit, the Debtor
rested her objection to the settlement only on her cause of action for fraud and offered no
evidence at the bankruptcy court on her remaining causes of action. Thus, the bankruptcy court
and this court, consider only the merits of the claim for fraud.
8
well as the extent to which rejection of the settlement
would expose the trustee to lesser recovery and subject
the estate to “undue waste or needless expense.” In re
Burma Jean Martin, 208 B.R. 463, 466 (Bankr. E.D.
Ark.1997). Addressing the merits of the Debtor’s
fraud claim, the court looked to the elements of fraud
under applicable Texas law and concluded that the facts
offered by the Debtor could not support a finding that
Goodstein made a false representation, nor that he
intended the Debtor to rely upon, or take any specific
action in response to, any statements or assertions he
had made. Additionally, the court found that the
debtor offered no evidence concerning the value of her
lawsuit against Goodstein to refute the reasonableness
of the Third Settlement. Accordingly, the bankruptcy
court held that the Debtor failed to establish by any
credible evidence, that the Trustee would be able to
effect recovery in excess of the proffered settlement
of $10,500.00 together with elimination of Goodstein’s
claims against the estate. In considering the
evidence and testimony offerred, the court also
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carefully weighed the credibility of the Trustee and
the Debtor as witnesses, finding on one occasion that
the Debtor’s tearful presentation was disingenuous.
II
The Debtor enumerates several issues on appeal,
all of which derive from a
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basic challenge to the court’s conclusion that the
$10,500.00 cash settlement and waiver of claims was
reasonable and was in the best interest of the estate.
The Debtor submits that the court failed to properly
consider the Trustee’s “motives” for settlement; that
it failed to consider the validity of Goodstein’s
claim; that the court’s findings of facts were clearly
erroneous; and that its legal conclusions constituted
an abuse of discretion.
III
A bankruptcy appellate panel shall not set aside
findings of fact unless clearly erroneous, and due
regard shall be given to the opportunity of the
bankruptcy court to judge the credibility of the
witness. Fed.R.Bankr.P. 8013. First Nat’l Bank of
Olathe Kansas v. Pontow, 111 F.3d 604, 609 (8th
Cir.1997). “A finding is ‘clearly erroneous’ when
although there is evidence to support it, the
reviewing court on the entire evidence is left with
the definite and firm conviction that a mistake has
11
been committed.” Anderson v. City of Bessemer, 470
U.S. 564, 573 (1985) (quoting U.S. v. U.S. Gypsum Co.,
333 U.S. 364, 395 (1948)). We review the legal
conclusions of the bankruptcy court de novo. First
Nat’l Bank of Olathe Kansas, 111 F.3d at 609; Estate
of Sholdan v. Dietz, (In re Sholdan), 108 F.3d 886,
888 (8th Cir.1997). A bankruptcy court’s approval of
a settlement will
12
not be set aside unless there is plain error or abuse
of discretion. New Concept Housing, Inc. v. Arl W.
Poindexter, (In re New Concept Housing, Inc.) 951
F.2d 932, 939 (8th Cir. 1991).
IV
“The standard for compromise and approval of a
settlement is whether the settlement is ‘fair and
equitable’ and ‘in the best interests of the estate.’”
In re Apex Oil Company, et al., 92 B.R. 847, 867
(Bankr. E.D. Mo. 1988), quoting, Protective Comm. for
Indep. Stockholders of TMT Trailer Ferry, Inc. v.
Anderson, 390 U.S. 414, 424, 88 S. Ct. 1157, 1163,
(1968). “The purpose of a compromise is to ‘allow the
trustee and creditor[s] to avoid the expenses and
burdens associated with litigating sharply contested
and dubious claims.’” Apex Oil Company, 92 B.R. at
866, quoting, United States v. Alaska Nat’l Bank, (In
re Walsh Constr., Inc.) 669 F.2d 1325,1328 (9th Cir.
1982). In so doing, it is not necessary for a
bankruptcy court to conclusively determine claims
13
subject to a compromise, nor must the court have all
of the information necessary to resolve the factual
dispute, for by so doing, there would be no need of
settlement. New Concept Housing, Inc., 951 F.2d at
939. Neither must the court find that the settlement
constitutes the best result obtainable. Rather, the
court need only
14
canvass the issues to determine that the settlement
does not fall “‘below the lowest point in the range of
reasonableness.’” Apex Oil Company, 92 B.R. 67,
quoting, Cosoff v. Rodman (In re W.T. Grant Co.,), 699
F.2d 599, 608 (2d Cir.), cert denied, 464 U.S. 822,
104 S. Ct. 89, 78 L. Ed. 2d 97 (1983). See also, New
Concept Housing, Inc., 951 F.2d at 938. The court
does not substitute its judgment for that of the
trustee, but reviews the issues to see if the
settlement falls below the lowest point of
reasonableness. In re Bates, No. BKY4-95-4063, 1997
WL 392434 at *5 (Bankr. D. Minn. July 9, 1997).
After considering all of the factors involved, the
court should approve a proposed settlement only if it
is “fair and equitable and in the best interests of
the estate.” Id. See also, Protective Comm. For
Indep. Stockholders of TMT Trailer Ferry, Inc. v.
Anderson, 390 U.S. 414, 424, 88 S. Ct. 1157 (1968).
In assessing the reasonableness of a settlement,
the factors to be considered can be summarized as
follows:
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(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, ad
the expense, inconvenience and delay necessarily
attending it; and
(D) the paramount interest of the creditors and a
proper deference to their reasonable views in the
premises.
Id., quoting, Drexel v. Loomis, 35 F.2d 800, 806 (8th
Cir. 1929). Accord, In re
16
Bowman, 181 B.R. 836, 843 (Bankr. D. Md. 1995).
V
In the instant case, the bankruptcy judge brought
to the final settlement hearing, a long history of
experience in dealing with the Goodstein litigation.
Indeed, the notice of settlement of these matters had
been served on three occasions with hearings and
appearances by the Debtor in opposition to each
announced settlement. Additionally, the Debtor
petitioned the bankruptcy court for removal of the
Goodstein litigation when her Chapter 7 petition was
filed and then, again, sought to remove the litigation
from the court by her attempted conversion to Chapter
13. In each of the foregoing instances, the
bankruptcy judge had the opportunity to assess the
relevant facts underlying the Goodstein litigation, as
well as an opportunity to assess the credibility of
the witnesses.
The bankruptcy court, after a full evidentiary
hearing, made an independent determination of the
merits of the Debtor’s claims against Goodstein,
17
finding that under Texas law, the Debtor’s claims
against Goodstein were “notably deficient.” The
record also reflects that the court considered the
appropriateness of the amount of the proposed
settlement in light of the release of Goodstein’s
claims against the estate, as well as the expenses and
inconvenience of continued litigation in this already
protracted and aging law suit. While the Debtor
challenges the sufficiency
18
of the value of the settlement to the estate, she
offered no evidence concerning the value of her claims
against Goodstein. Moreover, the Debtor’ efforts
through her parents to bid $10,000.00 for purchase of
the claims against Goodstein supports rather than
contradicts the reasonableness of the Third Settlement.
Finally, the Debtor contests the court’s failure
to consider the Trustee’s “motive” in settling the
Goodstein litigation. The record reflects that the
court properly considered the correct legal standard in
evaluating the Third Settlement, and allegations of the
Trustee’s alleged “ill motive” remain unsupported.
In this proceeding, the bankruptcy court was
sufficiently informed of the facts and employed the
appropriate legal analysis in reaching its
determination that the proposed settlement was
reasonable.
Accordingly, the decision of the bankruptcy court
is affirmed.
A true copy.
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Attest:
CLERK, U.S. BANKRUPTCY
APPELLATE PANEL
FOR THE EIGHTH
CIRCUIT
20