Opinion
NOT FOR PUBLICATION
Argued and Submitted, Las Vegas, Nevada, February 18, 2011
Appeal from the United States Bankruptcy Court for the District of Nevada. Bk. No. 09-19942-BAM. Honorable Bruce A. Markell, Bankruptcy Judge, Presiding.
Layke M. Stolberg for Appellant Wishengrad Law Office, LLC.
Elizabeth E. Stevens for Appellee Yvette Weinstein.
Before: DUNN, HOLLOWELL and KIRSCHER, Bankruptcy Judges.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
Creditor Wishengrad Law Offices, LLC, represented by Evan Wishengrad, its name partner (collectively, " Wishengrad"), appeals the bankruptcy court's order granting the chapter 7 trustee's motion to approve the settlement of a personal injury lawsuit initiated prepetition by the debtor, Kimmi Hall. We AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
FACTS
Four years before filing for bankruptcy, the debtor sustained injuries during an armed robbery at a Wells Fargo bank branch in Las Vegas, Nevada. The debtor initiated a personal injury lawsuit against Wells Fargo Bank, NA (" Wells Fargo") with Wishengrad as her attorney.
The debtor asserted vicarious liability, negligence, negligent infliction of emotional distress, negligent hiring and premises liability. She also included a loss of consortium claim on behalf of her husband.
The debtor filed her chapter 7 petition on June 11, 2009. The debtor did not file any schedules with her petition. Soon after the petition date, Wishengrad contacted Yvette Weinstein, the chapter 7 trustee (" trustee"), advising her of the personal injury lawsuit. He also informed the trustee that the personal injury lawsuit had a potential recovery of $2 to $3 million.
The trustee filed an application to employ Wishengrad as special counsel to litigate the personal injury lawsuit and a breach of contract lawsuit on behalf of the bankruptcy estate (" Wishengrad employment application"). The debtor objected to the Wishengard employment application. Before the bankruptcy court could hold a hearing on the Wishengrad employment application, the debtor converted her bankruptcy case from chapter 7 to chapter 13 on September 4, 2009.
The debtor scheduled Jae Ha as a creditor with a general unsecured claim in the amount of $280,000, based on a state court judgment against her. See docket nos. 58 and 100. Ha initiated the breach of contract lawsuit against the debtor, which arose out of his purchase of the debtor's business. See docket no. 53. The debtor appealed the state court judgment. See docket no. 54. The debtor apparently filed for bankruptcy to prevent Ha from executing on the state court judgment against her. Id.
As a result, the trustee became an administrative claimant (docket nos. 127 and 156).
The debtor soon filed an application to employ another attorney, Peter Christiansen, to prosecute the personal injury lawsuit (" Christiansen employment application"). The bankruptcy court granted the Christiansen employment application over the trustee's objection.
According to Christiansen's declaration (docket no. 49) in support of the debtor's objection to Wishengrad's employment application, the debtor had filed a complaint against Wishengrad with the Nevada State Bar Association. The debtor substituted Christiansen for Wishengrad on July 24, 2009.
In granting the Christiansen employment application, the bankruptcy court found that Wishengrad held interests adverse to the debtor and/or the bankruptcy estate, as he was both a creditor and fiduciary of the debtor.
Wishengard subsequently filed two proofs of claim: an unsecured claim in the amount of $102,505.46 for attorney's fees and costs for the breach of contract lawsuit, and a secured claim in the amount of $370,569.50 for attorney's fees and costs for the personal injury lawsuit.
Before the chapter 13 plan confirmation hearing could take place, the trustee filed a motion to re-convert the bankruptcy case to chapter 7. On March 18, 2010, the bankruptcy court re-converted the bankruptcy case to chapter 7, with the trustee reappointed by the U.S. Trustee to administer it (docket no. 212).
The debtor and Wells Fargo meanwhile entered into settlement negotiations. Wells Fargo offered to settle the personal injury lawsuit for $225,000 (" settlement funds"), in exchange for the release of any claims against it (" settlement"). The settlement provided that the settlement funds were to be turned over to the trustee for distribution. The settlement further provided for the distribution of the settlement funds among the debtor, her husband, and certain secured and administrative claimants (collectively, " settlement creditor claims"), which did not include Wishengrad. The settlement expressly reserved $7,500 of the settlement funds to be distributed among the general unsecured creditors.
On June 22, 2010, the trustee filed a motion to approve the settlement (" settlement motion"). She submitted her own declaration and a declaration by Christiansen (" Christiansen declaration") in support of the settlement motion (collectively, " settlement declarations"). She filed and served notice of the hearing (" hearing notice")(docket no. 255) on the settlement motion. The hearing notice provided that any opposition must be supported by affidavits or declarations pursuant to Local Bankruptcy Rule (" LBR") 9014(d)(1). The hearing notice made no mention that evidence would be received at the hearing.
During the pendency of the chapter 13 case, on March 2, 2010, the debtor filed a motion for an order approving the settlement between her and Wells Fargo (" debtor's settlement motion"). The debtor's settlement motion was withdrawn (docket no. 235) after the bankruptcy court re-converted the bankruptcy case to chapter 7 and the debtor received notice that the trustee intended to file her own motion for approval of the settlement.
Christiansen actually provided the declaration in support of the debtor's settlement motion. The trustee apparently obtained a copy of Christiansen's declaration and appended it to the settlement motion.
In the settlement motion, the trustee evaluated the settlement under the criteria set forth in Martin v. Kane (In re A& C Props.), 784 F.2d 1377, 1381 (9th Cir. 1986). The trustee emphasized that she participated in the settlement negotiations and carefully considered the legal opinions given on the personal injury lawsuit.
The trustee referenced the Christiansen declaration in support of the settlement motion. In the Christiansen declaration, Christiansen asserted that, in his professional opinion, the settlement was reasonable. He also opined that the debtor would have difficulty in proving Wells Fargo's liability for a third-party criminal act. Christiansen noted that the debtor's own medical experts only were able to connect 20% of her medical costs to her injuries. Christiansen moreover noted that Wells Fargo's expert economic and occupational witness offered testimony that refuted the testimony of the debtor's economic and occupational witness. The trustee concluded that, based on her business judgment, the settlement was in the best interests of the creditors and the bankruptcy estate.
Wishengrad objected to the settlement motion (" settlement objection"). Based on his assessment of the personal injury action, as well as his own evaluation of the settlement under the A& C Props. factors, Wishengrad contended that Wells Fargo's settlement offer was too low. He argued that the bankruptcy court should allow the personal injury action to proceed to trial or allow for further settlement negotiations.
The bankruptcy court held a hearing on the settlement motion. At the hearing, the bankruptcy court asked counsel for Wishengrad whether he had evidence demonstrating that the personal injury lawsuit was " a multimillion-dollar case." Hr'g Tr. (July 27, 2010) at 9:22. Counsel for Wishengrad answered that the evidence lay in the fact that Wishengrad had conducted two mock jury trials.
When the bankruptcy court asked where that evidence was, counsel for Wishengrad admitted that he did not provide an affidavit in support of his contentions. The bankruptcy court told counsel for Wishengrad that he was " making allegations without evidentiary support" and noted that he had been " on notice" before the hearing that " this was going to be an issue at [the] hearing." Hr'g Tr. (July 27, 2010) at 10:8-11. Counsel for Wishengrad explained that he believed the evidentiary issues related to the timeliness of the settlement objection and again admitted that he did not provide a declaration in support of his arguments. He offered to have Wishengrad testify at the hearing, as Wishengrad was present. The bankruptcy court apparently declined to hear Wishengrad's testimony.
At the hearing, counsel for Wishengrad alluded to certain arguments made by Interim Funding, Inc. (" IFI") in its reply (docket no. 271) to the settlement objection. (IFI had advanced money to the debtor to fund her personal injury lawsuit; IFI had filed a proof of claim, indicating that it was secured by a lien in any proceeds from the personal injury lawsuit.) In its reply to the settlement objection, IFI contended that Wishengrad had filed the settlement objection more than ten days after the 14-day deadline to file objections under LBR 9014(d) of the United States Bankruptcy Court for the District of Nevada. IFI also argued that Wishengrad failed to provide declarations in support of the settlement objection, as required under LBR 9014(d).
After listening to argument from counsel, the bankruptcy court approved the settlement motion. It approved the settlement motion on the following two independent grounds.
First, the bankruptcy court determined that Wishengrad had provided no evidence to support his objections to the settlement motion. The bankruptcy court noted that " [i]t's clear from the local rules and from the discussion and from the objections filed that if one wishes to attack a settlement supported by declarations from the PI counsel, Mr. Christiansen, and from the trustee one must take issues with the evidence as presented." Hr'g Tr. (July 27, 2010) at 14:16-20. It found that Wishengrad had no evidentiary support for the allegations made in his opposition and in his counsel's statements at the hearing. The bankruptcy court thus took Wishengrad's objection as without evidentiary support and overruled it.
Second, the bankruptcy court found that approval of the settlement motion was appropriate under the A& C Props. factors. The bankruptcy court analyzed the settlement under each of the four A& C Props. factors.
The bankruptcy court first determined that the personal injury case would not automatically result in a favorable verdict for the debtor or the estate. Although it acknowledged that the potential verdict " on one side might be high, " the bankruptcy court relied on Christiansen's and the trustee's views that there might be no verdict in the estate's favor, and hence, no distribution. Hr'g Tr. (July 27, 2010) at 15:14.
Based on the arguments of the trustee and the debtor, the bankruptcy court found that the personal injury case would be complex, more complex than the " standard fender-bender personal-injury accident case, " because it involved " difficult issues both as to liability and as to damages . . . ." Hr'g Tr. (July 27, 2010) at 16:1-4.
The bankruptcy court did agree with Wishengrad's counsel that the trustee likely would be able to collect on a judgment against Wells Fargo. However, relying on the trustee's evidence and analysis, the bankruptcy court found that the settlement was in the best interests of creditors in that it tried to leave some amount for distribution to the general unsecured creditors.
The bankruptcy court concluded that the first, second and fourth factors under A& C Props. favored settlement of the personal injury lawsuit on the terms proposed. Although it found that the third factor did not favor settlement of the personal injury lawsuit, the bankruptcy court believed that, on balance, approval of the settlement motion was appropriate under Rule 9019 and A& C Props.
On August 9, 2010, the bankruptcy court entered an order approving the settlement motion (" settlement order"). Wishengrad timely appealed the settlement order.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § § 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
(1) Did the bankruptcy court abuse its discretion in declining to allow Wishengrad to testify before approving the settlement motion?
(2) Did the bankruptcy court abuse its discretion in granting the settlement motion?
STANDARDS OF REVIEW
We review the bankruptcy court's decision to approve a settlement for an abuse of discretion. A& C Props., 784 F.2d at 1380. We also review the bankruptcy court's evidentiary rulings, including whether to hear witness testimony, for an abuse of discretion. See Zurich Am. Ins. Co. v. Int'l Fibercom (In re Int'l Fibercom), 503 F.3d 933, 940 (9th Cir. 2007); Lee-Benner v. Gergely (In re Gergely), 110 F.3d 1448, 1452 (9th Cir. 1997).
We follow a two-part test to determine objectively whether the bankruptcy court abused its discretion. United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009). First, we " determine de novo whether the bankruptcy court identified the correct legal rule to apply to the relief requested." Id . Second, we examine the bankruptcy court's factual findings under the clearly erroneous standard. Id . at 1252 & n.20. We must affirm the bankruptcy court's factual findings unless those findings are " (1) 'illogical, ' (2) 'implausible, ' or (3) without 'support in inferences that may be drawn from the facts in the record.'" Id . If we determine that the bankruptcy court erred under either part of the test, reversal for an abuse of discretion may be appropriate. Id.
We may affirm on any ground supported by the record. Shanks v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008).
DISCUSSION
The impetus for this appeal originates in Wishengrad's obvious dissatisfaction with the amount of Wells Fargo's settlement offer. Wishengrad believes Wells Fargo's settlement offer is too low, based on his own assessment of the personal injury lawsuit. He essentially wants the bankruptcy court to require the trustee and Wells Fargo to re-negotiate the settlement to reach a higher settlement amount. Based on the record before us, however, we conclude that the bankruptcy court properly exercised its discretion in approving the settlement proposed.
A. Exclusion of testimony
Wishengrad challenges the bankruptcy court's refusal to allow him to testify at the hearing as to whether the settlement satisfied the A& C Props. criteria. He argues that the trustee did not provide sufficient evidence demonstrating that the settlement was fair and equitable. Because of his extensive involvement in and knowledge of the personal injury action, Wishengrad asserts that he is the best person to apprise the bankruptcy court as to the probability of success and the complexity, expense and delay in litigating the personal injury lawsuit. The bankruptcy court thus abused its discretion, Wishengrad contends, by approving the settlement motion without allowing and considering his testimony.
" The use of written testimony is an accepted and encouraged technique for shortening bench trials." Adair v. Sunwest Bank (In re Adair), 965 F.2d 777, 779 (9th Cir. 1992)(quoting Phonetele, Inc. v. AT& T, 889 F.2d 224, 232 (9th Cir. 1989)(internal quotation marks omitted)). A bankruptcy court does not abuse its discretion when it excludes evidence that was not submitted pursuant to specified procedures. See Gergely, 110 F.3d at 1451-52; see also Adair, 965 F.2d at 779 (trial court does not abuse its discretion " in accepting only declarations and exhibits on a particular issue where the parties were afforded ample opportunity to submit their evidence.")(quoting Vieux v. East Bay Regional Park Dist., 906 F.2d 1330, 1342 (9th Cir. 1990)(internal quotation marks omitted)).
Here, LBR 9014(d)(1) requires that an opposition to a motion be supported by affidavits or declarations. Moreover, the hearing notice expressly provided that the opposition must be supported by affidavits or declarations pursuant to LBR 9014(d)(1). The hearing notice even included an excerpt of LBR 9014(d)(1). As demonstrated by his failure to submit declarations with the settlement objection and by his counsel's own admissions at the hearing, Wishengrad clearly did not follow the specific local procedures, though he was apprised of the opportunity to do so in the notice of hearing and was required to do so under LRB 9014(d)(1).
LBR 9014(d) in relevant part provides:
Additionally, Wishengrad and his counsel should have known what issues would be raised at the hearing. Wishengrad is an attorney and he was represented by counsel at the hearing; based on their knowledge and experience and upon reading the settlement motion, they surely anticipated the issues. As the bankruptcy court noted at the hearing, Wishengrad had been on notice of the issues to be addressed at the hearing. Also, as we discuss below, the bankruptcy court had sufficient factual basis for its conclusions to render further testimony unnecessary.
Based on the record before us, we conclude that the bankruptcy court did not abuse its discretion in refusing to allow Wishengrad to testify at the hearing.
B. Approval of the settlement motion
1. Trustee's burden of proof
Wishengard argues that the trustee failed to meet her burden in demonstrating that the settlement was fair and equitable under the A& C Props. factors. He asserts that, contrary to the evidence presented by the trustee, the factors weigh against approving the settlement. Wishengrad, in particular, challenges the adequacy of the trustee's evidence, claiming that she failed to provide evidence in support of certain factors and that the settlement declarations were unsupported by any specific expert reports.
Wishengard also asserts, erroneously, that the trustee did not attach a copy of the settlement to the " briefs." Presumably, Wishengrad is referring to the settlement motion. We reviewed the settlement motion as filed in the debtor's bankruptcy case docket; the trustee indeed appended a copy of the settlement to the settlement motion.
Wishengrad, not the trustee, failed to provide any evidence in support of his contention that the settlement did not satisfy the A& C Props. criteria. As we noted above, Wishengrad did not submit any declarations in support of the settlement objection, even though local court procedures required him to do so. The bankruptcy court even explicitly acknowledged that " the only evidence in the record [before it was] from Mr. Christiansen and . . . the trustee's declaration which have not been challenged by cross-examination or otherwise . . . ." Hr'g Tr. (July 27, 2010) at 15:7-9. The bankruptcy court properly exercised its discretion in considering only the evidence presented to it. See Adair, 965 F.2d at 779.
2. Bankruptcy court's factual findings
Wishengrad contends that the bankruptcy court did not set forth in the settlement order any factual findings supporting its approval of the settlement motion. He cites Rule 7052, which incorporates Fed.R.Civ.P. 52, and requires the bankruptcy court to state its factual findings and legal conclusions orally or in writing.
The bankruptcy court did not need to include its factual findings in the settlement order. See Polo Bldg. Group, Inc. v. Sims (In re Shubov), 187 F.3d 648 (9th Cir. 1999)(unpublished table)(stating that it never required bankruptcy courts to set forth their findings and reasons for approving settlements in their settlement orders). As Wishengrad points out, a bankruptcy court may make its factual findings and legal conclusions orally under Fed.R.Civ.P. 52. Here, the bankruptcy court issued its findings orally at the hearing, as shown in the transcript.
3. Fairness of the settlement agreement
Rule 9019(a) authorizes the bankruptcy court to approve a settlement on motion by the trustee and after notice and a hearing. The bankruptcy court must conduct an inquiry into all " factors relevant to a full and fair assessment of the wisdom of the proposed compromise." Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968). That is, the bankruptcy court must find that the settlement is fair and equitable in order to approve it. A& C Props., 784 F.2d at 1381.
In conducting this inquiry, the bankruptcy court must consider the following factors:
(a) the probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises.
Id.
The bankruptcy court has considerable discretion in evaluating a proposed settlement because it " is uniquely situated to consider the equities and reasonableness [of it] . . . ." United States v. Alaska Nat'l Bank (In re Walsh Construction, Inc.), 669 F.2d 1325, 1328 (9th Cir. 1982). As the party proposing the compromise, the trustee bears the burden in proving to the bankruptcy court that the settlement is fair and equitable and should be approved. A& C Props., 784 F.2d at 1382.
We stress that the " law favors compromise and not litigation for its own sake." Id . at 1381. " As long as the bankruptcy court amply considered the various factors that determined the reasonableness of the compromise, the [bankruptcy] court's decision must be affirmed." Id . We must determine whether the settlement was reasonable, in light of the particular circumstances of the case. Id . " [W]here the record supports approval of the compromise, the bankruptcy court should be affirmed." Id . at 1383.
Wishengard challenges the bankruptcy court's determinations under each A& C Props. factor. Before we go through the bankruptcy court's analysis of each of the factors, we note that the bankruptcy court reviewed and explicitly considered the evidence before it and the arguments of counsel and the trustee.
a. Probability of success in the litigation
The bankruptcy court made a specific finding on the record that the settlement was " within the range of reasonableness given the probability of success." Hr'g Tr. (July 27, 2010) at 15:10-11. The bankruptcy court determined that the personal injury lawsuit was not one that would " automatically result in a verdict." Hr'g Tr. (July 27, 2010) at 15:13. The bankruptcy court particularly relied on the settlement declarations wherein both Christiansen and the trustee considered the fact that there could " be no verdict and no distribution whatsoever." Hr'g Tr. (July 27, 2010) at 15:16-17.
The trustee relied on Christiansen's assessment of the personal injury lawsuit. She advised the bankruptcy court of his considered views, including the difficulty in proving Wells Fargo's liability, the potential decrease in the pain and suffering award, and the possibility of an appeal. The trustee also advised the bankruptcy court that the bankruptcy estate might not benefit if the trustee decided to litigate the settlement creditor claims, as such litigation would be costly.
Although Wishengrad claims that he conducted two mock jury trials which resulted in a $2 to $3 million award, he did not submit any supporting evidence. The record, as presented to us, supports the bankruptcy court's finding as to this factor.
b. Difficulty of collection
On this factor, the bankruptcy court agreed with Wishengrad's counsel that it would not be difficult to collect against Well Fargo, one of the largest financial institutions in the country. Even the trustee conceded that " [c]learly, Wells Fargo has adequate assets to collect upon, " which weighed against approval of the settlement. The bankruptcy court thus concluded that this second factor did not weigh in favor of approving the settlement.
c. Complexity, inconvenience and expense of the litigation involved
Wishengrad argued in the settlement objection that discovery had been closed and completed and that the personal injury lawsuit was ready for trial in November 2009. Aside from his allegations, he did not submit any evidence demonstrating that the personal injury lawsuit would not be complex, expensive, inconvenient and lengthy.
The bankruptcy court recognized that the personal injury lawsuit was not a " standard fender-bender" type of case. Given the issues concerning Wells Fargo's liability and the debtor's damages, the bankruptcy court determined that the personal injury lawsuit was complex.
The record indicates (and the parties seem to agree) that the personal injury lawsuit had taken several years to reach the trial stage. As Wishengard himself attests, it has taken hundreds of hours to prosecute and thousands of dollars to fund the litigation.
d. Paramount interest of the creditors and a proper deference to their reasonable views in the premises
Wishengrad contended that he would likely receive nothing on his claims under the settlement. At the hearing, the bankruptcy court recognized that general unsecured creditors would receive little under the Wells Fargo settlement agreement, as only $7,500 had been set aside for their claims. It pointed out, however, that the general unsecured creditors receiving even a little on their claims was better than nothing at all.
Wishengrad did not submit any evidence demonstrating that the bankruptcy estate would receive a $2 to $3 million judgment award, if the personal injury lawsuit went to trial. The bankruptcy court again noted that " the only evidence that [it could] really rely upon [was] that provided by the trustee." Hr'g Tr. (July 27, 2010) at 16:10-12. There is no evidence in the record supporting Wishengrad's allegation that the creditors would receive a larger distribution if the personal injury lawsuit goes to trial.
CONCLUSION
Based on the record before us, we agree with the bankruptcy court that, on balance, the A& C Props. factors weigh in favor of approving the settlement. We note that the bankruptcy court made appropriate findings orally at the hearing. We further determine that the bankruptcy court did not abuse its discretion in declining to allow Wishengrad to testify as to the propriety of approving the settlement motion. We thus conclude that the bankruptcy court did not abuse its discretion in approving the trustee's settlement motion. We AFFIRM.
(1) Except as set out in subsection (3) below, any opposition to a motion must be filed, and service of the opposition must be completed on the movant, no later than fourteen (14) days preceding the hearing date for the motion. The opposition must set forth all relevant facts and any relevant legal authority. An opposition must be supported by affidavits or declarations . . . .