Opinion
No. C 00-4719 SC
December 21, 2001
ORDER AFFIRMING BANKRUPTCY COURT HOLDING
I. INTRODUCTION
In a previous action, Appellant Stephen K. Leslie ("Appellant"), sued Grupo ICA ("ICA") for breach of contract. As a result of an unfavorable summary judgment decision and sizable attorneys' fee award in that case, Appellant was forced to file for bankruptcy protections under Chapter 13 of the Bankruptcy Code, which he later converted to Chapter 7. Subsequently, the summary judgment was reversed and the attorneys' fee award vacated. Appellant then moved the Bankruptcy Court to dismiss his bankruptcy proceedings, but the court declined to do so.
The Chapter 7 trustee for Appellant's estate ("Appellee"), being placed in control of Appellant's affairs, negotiated a settlement of the original lawsuit with ICA and moved the Bankruptcy Court for approval of the settlement. Concurrently, Appellant filed a Motion for Reconsideration of the Bankruptcy Court's refusal to dismiss the bankruptcy proceedings.
Appellant's Motion for Reconsideration and Appellee's Motion to Approve the Settlement were consolidated and argued together before the Bankruptcy Court. The Court ultimately denied the Motion for Reconsideration and approved the settlement.
Appellant now appeals both of these decisions to this Court. For the reasons stated below, the appeal is denied and the decision of the Bankruptcy Court is affirmed in full.
II. BACKGROUND
The tortured history of this case demands a brief retelling. On June 1, 1994, Appellant filed a breach of contract action against ICA in California state court. Appellant claimed that ICA had breached a set of agreements to compensate him for facilitating a joint venture between ICA and Perini Corporation. In particular, he claimed that he was due a flat fee of $100,000 and a second fee based on a percentage of the first project undertaken by the joint venture, which came to more than $1.2 million.
The facts pertaining to the underlying litigation are largely summarized in Leslie v. Grupo ICA, 198 F.3d 1152 (9th Cir. 1999).
Appellant's action was removed to the United States District Court for the Northern District of California and was assigned to Judge Vaughn Walker. During discovery, a number of letters written from Appellant to ICA were produced, in which Appellant had specifically stated that although this type of agreement often entailed a fee based on a percentage of the first job, in this case the parties were agreeing to a flat fee of $50,000-$80,000. See Leslie v. Grupo ICA, 198 F.3d 1152, 1155 (9th Cir. 1999). These correspondence, which were multiple and directly on point, so starkly contradicted Appellant's declarations as to convince Judge Walker to disregard those declarations under the so-called "sham-affidavit rule" and to award summary judgment to ICA. Judge Walker wrote, "the only reasonable conclusion to be drawn from the evidence in this case is that Leslie has committed perjury and manufactured evidence." Leslie, 198 F.3d at 1156 (quoting the district court opinion). Additionally, Judge Walker awarded ICA costs and attorneys' fees in excess of $428,000. According to Appellant, it was this sizeable fee award that forced him to seek bankruptcy protections.
On appeal of Judge Walker's order, the Ninth Circuit reversed the summary judgment, reasoning that the sham-affidavit rule only applied where the evidence contradicting the affidavit was also under oath. See id. at 1157-59. Because Appellant's sworn declarations were only contradicted by his unsworn letters to ICA, summary judgment was deemed improper. The Court noted, however, "we can understand the district court's disbelief of Leslie's assertions in his depositions and sworn declaration." Id. at 1159. The Ninth Circuit did not address the assessment of attorneys' fees, as the appeal on that award was untimely, thereby depriving the appellate court of jurisdiction on that issue. See id. at 1160.
After the Ninth Circuit's reversal of summary judgment, Appellant petitioned Judge Walker to vacate the now inconsistent award of attorneys' fees, which Judge Walker agreed to do. (Appendix to Appellant's Opening Brief ("A.A.") at 149-53.) Thereafter, Appellant moved the Bankruptcy Court to dismiss his bankruptcy on the basis that there was no longer any debt to administer. (A.A. at 121-124.) Appellee opposed the motion on the ground that Appellant had administrative expenses left to be paid. (A.A. at 129-30.) ICA also opposed the motion, arguing that it would ultimately prevail in the vexatious litigation Appellant had filed against it, and would be prejudiced if Appellant were allowed to dispose of his assets before that suit was resolved. (A.A. at 133.) The Bankruptcy Court denied Appellant's Motion to dismiss on August 31, 2000.
On October 3, 2000, Appellant filed a Motion for Reconsideration of the Bankruptcy Court's decision not to dismiss his bankruptcy proceedings. (A.A. at 139-44.) That motion was opposed by both the trustee and ICA, principally on the basis that there were no grounds for reconsideration, given that Appellant offered no new evidence. (A.A. at 186-98.)
During this time period, Appellee, acting as trustee for Appellant's estate, negotiated a settlement with ICA on the original litigation. Pursuant to that settlement, ICA was to pay Appellant $75,000 and withdraw all counterclaims and demands for fees. On or about November 9, 2000, the trustee moved the Bankruptcy Court to approve the settlement. (A.A. at 214-22.)
These motions were argued together before the Bankruptcy Court on December 1, 2000. On the record, the court ruled that it would deny the Motion to Reconsider and approve Appellee's settlement with ICA. These orders are the subject of the present appeal.
III. DISCUSSION
A. Appellant's Motion for Reconsideration was properly denied.
Both parties agree that the Bankruptcy Court's decision to deny the Motion for Reconsideration may be reversed only if it represents an "abuse of discretion." See e.g., In re Nunez, 196 B.R. 150, 155 (9th Cir. B.A.P. 1996); In re Hammer, 112 B.R. 341, 345 (9th Cir. B.A.P. 1990). As Appellee points out, Appellant did not appeal the denial of his initial motion to dismiss the bankruptcy. Such an appeal was required to be filed, if at all, within ten days of the Bankruptcy Court's decision. See Fed.R.Bankr.P. 9023 adopting the standards of Fed.R.Civ.P. 59(e). Instead, nearly one month after the deadline for filing such an appeal had passed, he filed a Motion for Reconsideration on the basis of letters from two of Appellant's creditors, Messrs. Dixon and De Kalb, asking that the bankruptcy not be prosecuted on their behalf. (Compare A.A. at 126 with A.A. at 146.)
Federal Rule of Civil Procedure 60(b), as incorporated into the Bankruptcy Code as Rule 9024, enumerates the bases on which a party may seek a Motion for Reconsideration. Under that Rule, a motion will be considered only for:
1) mistake, inadvertence, surprise, or excusable neglect, 2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b), 3) fraud, misrepresentation, or other misconduct of an adverse party, 4) the judgment is void, 5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or 6) any other reason justifying relief from the operation of the judgment.
The letters from Appellant's creditors added no meaningful evidence to the original motion to dismiss. Affirmations of the debt to both of those creditors had already been attached to the original motion. (A.A. at 126.) Thus, the Bankruptcy Court was already aware that these creditors would not likely oppose a dismissal. The Court certainly cannot conclude that it was an abuse of discretion to refuse reconsideration on this basis.
Appellant also argues that Appellee's efforts to enter into a settlement between Appellant and ICA provided an additional basis for the Bankruptcy Court to reconsider its refusal to dismiss the case. According to Appellant's original Motion to Reconsider, "[t]he possible settlement of the pending suit destroys any speculation that Grupo ICA might in the future again become a substantial creditor of Mr. Leslie." (A.A. at 141.) This argument is a canard. Appellant was simultaneously opposing that very settlement. He cannot claim that his debts have been satisfied and concurrently seek to avoid the settlement, thereby reviving the potential debts. It seems clear, in fact, from the vehemence with which Appellant opposed the settlement, then and now, that he hoped to have the bankruptcy proceedings dismissed before the settlement was finalized so that he might further prosecute his action against ICA. Appellant's contention that the consummation of a settlement that he was fighting to prevent provided additional grounds for dismissing his bankruptcy is simply nonsensical.
Under these circumstances, the Motion for Reconsideration presented no new evidence and could not be considered under the requirements of Federal Rule of Civil Procedure 60(b), as incorporated into Federal Rule of Bankruptcy Procedure 9024. The Motion for Reconsideration was a blatant effort by Appellant to submit a garden-variety appeal after the deadline for such an appeal had passed. The bulk of the arguments presented in that motion, and restated to this Court in the present motion (e.g., right to a jury trial, no remaining debt to administer) may or may not have been persuasive in a timely appeal of the denial of dismissal, but they are improper and worthy of no consideration in the context of a Motion for Reconsideration. Having elected to forego his opportunity to appeal, Appellant must live with the consequences and may not ignore concrete procedural restrictions.
For these reasons, the Motion for Reconsideration was properly denied.
B. Appellee's Motion to Approve Settlement was properly granted.
Once again, this Court must review the Bankruptcy Court's decision to approve the settlement for an abuse of discretion. In re A C properties, 784 F.2d 1377, 1380 (9th Cir. 1986). The court in In re A C Properties described the test for determining whether a trustee's proposed settlement of a debtor's litigation is "fair and equitable." Id. at 1381. The bankruptcy court is to assess 1) the probability of success in the litigation, 2) the difficulties, if any, to be encountered in the matter of collection, 3) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it, 4) the paramount interest of the creditors and a proper deference to their reasonable views in the premises. Id.
1. The Bankruptcy Court's consideration of the reversed District Court decision was not error.
Appellant contends that the Bankruptcy Court improperly relied on the reversed District Court decision in weighing the probability of Appellant's success in his suit against ICA. This claim of error betrays a serious misunderstanding of the inquiry that the Bankruptcy Court was required to perform.
Appellant argues that because the Ninth Circuit ruled that summary judgment could not be premised on the apparent contradictions between Appellant's declarations and the contemporaneous correspondence of the parties, such contradictions were also not appropriately considered by the Bankruptcy Court in weighing the probability of success in the litigation. In Appellant's words, "[i]f the district court was not allowed to use this rationale in assessing the credibility of Mr. Leslie's lawsuit, why should the Bankruptcy Court be afforded the same privilege?" (Appellant's Opening Br. at 12.)
This argument misses the critical point that the appropriate inquiry in a summary judgment motion is whether any reasonable jury could conceivably rule for the plaintiff, whereas a Bankruptcy Court considering a settlement is forced to address what is likely to occur. Even if these extremely damaging letters do not guarantee Appellant's defeat, and therefore cannot be the basis for summary judgment, they unquestionably decrease Appellant's "probability of success in the litigation." Whatever competing evidence Appellant intends to offer, he may struggle to overcome the fact that he sent a letter stating that ICA had "acknowledged and reconfirmed on multiple occasions" that ICA would pay him a fee of $80,000 "in lieu of the other post procured project option of payout of a base fee plus percentage of the first project." Leslie, 198 F.3d at 1155.
Furthermore, the basis of the Ninth Circuit's reversal of summary judgment was not one that would significantly speak to Appellant's probability of success. The Ninth Circuit did not dispute the fact that a significant volume of evidence flatly contradicted Appellant's claims, but rather held that unsworn contradictory evidence, no matter how voluminous, could not nullify sworn declarations for the purposes of summary judgment. The fineries of summary judgment jurisprudence take account of any hypothetical scenario for success, but when the Bankruptcy Court is called upon to make predictions, the remote possibility that a jury will disregard letters drafted by Appellant that directly undermine all his claims in the case cannot be accorded significant weight.
Appellant advanced the argument that the Ninth Circuit reversal verified the merit of his case during the December 1, 2000 hearing before Bankruptcy Judge Carlson. As the Judge succinctly stated during that hearing, "in a settlement, you have to anticipate what a trier-of-fact would do. We're no longer dealing with the technicalities of summary judgment. We're predicting." (Tr. of Dec. 1, 2000 hearing at 8:20-22.) The Bankruptcy Court's consideration of the district court's preliminary findings was not only appropriate, it would have been a serious oversight to ignore the outcome of a fully briefed and argued summary judgment motion. Therefore, despite the Ninth Circuit's reversal, it was not error to give weight to Judge Walker's conclusions in the summary judgment order.
2. The amount of the settlement was well within the reasonable range Appellant could hope to collect.
Appellant lastly argues that the amount of the settlement in his favor is so low as to "fall below the lowest point in the range of reasonableness." (Appellant's Opening Br. at 14.) This argument stretches the bounds of credulity.
Appellant's first attempt to collect from ICA nearly resulted in an award of over $420,000 against him. This settlement gets Appellant 75% of his demanded flat-fee in exchange for Appellant foregoing the claim for a variable, percentage-of-first-project fee. Given that Appellant's own letters specifically acknowledge that the agreement did not include a variable fee, and the fact that Appellant is avoiding the possibility of an attorneys' fee award that would drive him into bankruptcy once again, this recovery seems like a substantial coup in Appellant's favor.
That is not to say that there is no conceivable scenario in which Appellant's recovery could be greater. But rather that it is absurd to assert that this recovery is so far out of the "fair and equitable" range as to constitute an abuse of discretion.
As to Appellant's claims that he has additional favorable evidence to which neither the Bankruptcy Court nor Appellee have accorded appropriate weight, there are two primary responses. First, as the Bankruptcy Court discussed at length in its on-the-record approval of the settlement, (Tr. at 16:21-21:8,) the decision whether to hold an evidentiary hearing at the eleventh hour is within the Bankruptcy Court's discretion. "The court may exclude evidence which is relevant where such evidence creates undue delay, waste of time or needless presentation of cumulative evidence." In re A C Properties, 784 F.2d at 1384. Where, as here, a fully briefed and argued summary judgment motion was resolved in such a one-sided manner, it may well have been a waste of judicial resources to allow Appellant to restart the factual inquiry.
Second, as Appellee noted during the original hearing and in his Opposition to this motion, Appellant insists upon making vague references to a tome of favorable evidence which will somehow overcome his contemporaneous letters, but refuses to memorialize such evidence in the form of declarations or other papers that can be evaluated in an efficient manner. Appellant claims this evidence was "never heard by the trial court," but fails to explain a) why this "critical" evidence was withheld or b) why Appellant continues to refer to it in broad, rather than particular terms. As before, the inquiry Appellant demanded of the Bankruptcy Court would have been inefficient and beyond the appropriate scope of review of a trustee's proposed settlement.
This Court cannot know for certain that no evidence tending to bolster Appellant's case exists or whether that evidence could be developed at trial, but given all the facts and circumstances, it is clear that the trustee struck a fair and equitable bargain. Appellant would face an uphill battle against ICA and, were he to lose, it appears he could not withstand another award of attorneys' fees. The trustee acted in the estate's best interests and the Bankruptcy Court's approval of the settlement was well within the bounds of sound discretion.
IV. CONCLUSION
For the foregoing reasons, the decision of the Bankruptcy Court is affirmed in full.