Burma Jean Martin v. Richard L. Cox

• Court: Court of Appeals for the Eighth Circuit
• Decided: September 23, 1997
• Docket: 97-6039
• Status: Published

Opinion

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.

3 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

4 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

9 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

10 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

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:

15 (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.

19 Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE EIGHTH CIRCUIT