Desmond v . Notinger CV-06-264-PB 03/30/07
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Bob Desmond
v. Case N o . 06-cv-264-PB Opinion N o . 2007 DNH 043 Steven M . Notinger, Ch. 7 Trustee & ASR Acquisition Corp.
MEMORANDUM AND ORDER
Bob Desmond appeals numerous Orders of the United States
Bankruptcy Court for the District of New Hampshire arising from
an adversary proceeding related to his Chapter 7 bankruptcy.
Steven Notinger, the Chapter 7 Trustee, and ASR Acquisition Corp.
(collectively “the Appellees”) have moved to dismiss the appeal
as untimely and for lack of standing. For the reasons discussed,
Appellee’s motion is granted in part and denied in part.
I. BACKGROUND
Beginning no later than 1989, Desmond entered into numerous,
complex business and financial agreements with ASR Acquisition
Corp. (“ASR”), a private investment and lending entity. (Complaint in ASR Adversary Proceeding at ¶ 1 et seq., Doc. N o .
3-1 (“Complaint”)). During the lending relationship, Desmond
either assigned to or gave ASR various outstanding mortgages or
liens on Desmond’s real property known as Strawberry Hill Farm
located in Orford, New Hampshire. Id. at ¶ 4 ( B ) .
On November 1 3 , 2003, Desmond filed a voluntary Chapter 11
bankruptcy petition. (Settlement Memorandum Opinion of May 1 7 ,
2006 at 3 , Doc. N o . 9-5 (“Settlement Memorandum”)). In January
2004, ASR filed a proof of claim against the bankrupt estate in
the amount of $3,173,851.40 as an allegedly secured claim as of
the petition date. (Complaint at ¶ 2 ; Motion to Compromise at ¶
2 , Doc. N o . 1 1 - 1 ) . In May 2004, Desmond filed an Adversary
Proceeding against ASR (the “ASR Adversary Proceeding”),
challenging, inter alia, the amount of ASR’s proof of claim.
(Complaint at ¶ 4(A)). 1
Throughout the course of the Chapter 11 proceeding, Desmond
was unemployed, had no earned income, and apparently survived on
loans or gifts. (Chapter 7 Conversion Memorandum Opinion of Aug.
1 Desmond’s original complaint contained additional claims that were either dismissed or disallowed as amendments. Motion to Compromise at ¶ 4 .
-2- 2 6 , 2005 at 2 , Doc. N o . 10-4 (“Conversion Memorandum”)). On
August 2 6 , 2005, upon the United States Trustee’s third motion
and over Desmond’s objection, the Bankruptcy Court converted the
proceeding to a Chapter 7 bankruptcy and appointed Steven
Notinger as Chapter 7 Trustee. Id. The Bankruptcy Court
concluded that the “estate is apparently administratively
insolvent, the Debtor has not been able to effectuate a plan
where there is a reasonable likelihood of confirmation, and
continued delay in Chapter 11 is and will be prejudicial to
creditors.” Id. at 3 .
By operation of law, Notinger stepped into Desmond’s place
and took over representation of the estate, including both its
adjudication of the main bankruptcy case and the prosecution of
the ASR Adversary Proceeding. (Settlement Memorandum at 3 ) .
Initial negotiations between Notinger, ASR and Desmond failed to
produce an acceptable settlement. (Motion to Compromise at ¶ 4 ) .
Following further negotiations without Desmond, Notinger came to
an agreement with ASR and sought the Bankruptcy Court’s approval
of a Release and Settlement Agreement between the Trustee and
ASR. Id. at ¶¶ 5-6. In the Motion to Compromise, Notinger
stated that the estate’s “best case scenario” if the litigation
-3- continued would be to reduce ASR’s claim to $1.3 million, “with
perhaps an additional reduction of several hundred thousand
dollars if [he could] prove[] that fees and expenses charged to
the FDIC obligation were improperly charged.” Id. at ¶ 5 . He
based his estimates on the opinions of accounting and lending
experts he hired to assist him. Id.
The pertinent terms of the settlement are as follows:
First, the Trustee and ASR agreed to reduce ASR’s allowed claim
to $2.4 million. (Settlement Agreement at ¶ 5 , Doc. N o . 8 - 2 ) .
Second, the Trustee granted ASR a release from all past, present
and future related claims. Id. at ¶¶ 12-13. Third, the Trustee
agreed to abandon any interest in the Strawberry Hill Farm.2 Id.
at ¶ 2 . Fourth, following this abandonment, the parties agreed
that ASR could foreclose on Strawberry Hill Farm without further
interference from the Trustee or the estate. Id. at ¶ 3 . Fifth,
to account for the fact that the parties estimated the fair value
of the Strawberry Hill Farm to be approximately $1.5 million but,
under the Trustee’s “best case scenario,” ASR’s claim might be
2 In conjunction, the Trustee also filed a separate motion to abandon Strawberry Hill Farm in the main bankruptcy case. The Bankruptcy Court resolved both motions in the May 1 7 , 2006 memorandum and order.
-4- worth only $1.3 million, the Settlement Agreement obligated ASR
to make a $120,000 payment to the estate. Id. at ¶ 5 .
On April 2 0 , 2006, the Bankruptcy Court held a hearing on
the matter.3 (Settlement Memorandum at 2 ) . On May 1 7 , 2006,
over Desmond’s objection, the court approved the settlement and
granted Notinger’s motion to abandon Strawberry Hill Farm. Id.
at 5 . Citing relevant law, the Bankruptcy Court first
established Notinger’s authority to settle the claims, stating
that “[u]pon conversion and appointment of a Chapter 7 trustee,
all claims held by the estate belong to the trustee . . . .
[T]he Trustee alone may assert the causes of action against ASR
in the ASR Adversary [Proceeding].” Id. at 3 . The court
acknowledged that “the settlement does release any and all claims
against ASR that the Debtor or the estate could assert [against
3 Appellees argue that I must dismiss Desmond’s appeal because he has failed to file with his appeal a transcript of the April 2 0 , 2006 settlement hearing as is required by Federal Rule of Bankruptcy Procedure 8006. Rule 8019 of the same, however, grants district courts broad discretion to suspend most procedural requirements, including Rule 8006. See Fed. R. Bankr. P. 8019. Because the transcript may be useful in deciding the merits of Desmond’s appeal and because Appellees have presented no persuasive evidence of bad faith on the part of Desmond or prejudice to the Appellees, I grant Desmond leave to supplement the record on appeal with the missing transcript. See In re Dawley, 2005 WL 67078 at *2 (E.D.Pa.).
-5- A S R ] , as those claims belong to the Trustee upon conversion to
Chapter 7.” Id. (citing ¶ 13 of the Settlement Agreement). The
court then analyzed the terms of the proposed settlement in light
of the factors set out in Jeffrey v . Desmond, 70 F.3d 183, 185
(1st Cir. 1995), and concluded that “the Trustee has competently
and fairly assessed the costs, merits, and possible outcomes of
the ASR Adversary [Proceeding] and has reached a settlement that
is probably at the higher end of the range of potential outcomes
if the matter proceeded to trial.” (Settlement Memorandum at 5 ) .
On May 2 4 , 2006, the Bankruptcy Court denied Desmond’s
motion to reconsider. (Reconsideration Order, Doc.
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Desmond v . Notinger CV-06-264-PB 03/30/07
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Bob Desmond
v. Case N o . 06-cv-264-PB Opinion N o . 2007 DNH 043 Steven M . Notinger, Ch. 7 Trustee & ASR Acquisition Corp.
MEMORANDUM AND ORDER
Bob Desmond appeals numerous Orders of the United States
Bankruptcy Court for the District of New Hampshire arising from
an adversary proceeding related to his Chapter 7 bankruptcy.
Steven Notinger, the Chapter 7 Trustee, and ASR Acquisition Corp.
(collectively “the Appellees”) have moved to dismiss the appeal
as untimely and for lack of standing. For the reasons discussed,
Appellee’s motion is granted in part and denied in part.
I. BACKGROUND
Beginning no later than 1989, Desmond entered into numerous,
complex business and financial agreements with ASR Acquisition
Corp. (“ASR”), a private investment and lending entity. (Complaint in ASR Adversary Proceeding at ¶ 1 et seq., Doc. N o .
3-1 (“Complaint”)). During the lending relationship, Desmond
either assigned to or gave ASR various outstanding mortgages or
liens on Desmond’s real property known as Strawberry Hill Farm
located in Orford, New Hampshire. Id. at ¶ 4 ( B ) .
On November 1 3 , 2003, Desmond filed a voluntary Chapter 11
bankruptcy petition. (Settlement Memorandum Opinion of May 1 7 ,
2006 at 3 , Doc. N o . 9-5 (“Settlement Memorandum”)). In January
2004, ASR filed a proof of claim against the bankrupt estate in
the amount of $3,173,851.40 as an allegedly secured claim as of
the petition date. (Complaint at ¶ 2 ; Motion to Compromise at ¶
2 , Doc. N o . 1 1 - 1 ) . In May 2004, Desmond filed an Adversary
Proceeding against ASR (the “ASR Adversary Proceeding”),
challenging, inter alia, the amount of ASR’s proof of claim.
(Complaint at ¶ 4(A)). 1
Throughout the course of the Chapter 11 proceeding, Desmond
was unemployed, had no earned income, and apparently survived on
loans or gifts. (Chapter 7 Conversion Memorandum Opinion of Aug.
1 Desmond’s original complaint contained additional claims that were either dismissed or disallowed as amendments. Motion to Compromise at ¶ 4 .
-2- 2 6 , 2005 at 2 , Doc. N o . 10-4 (“Conversion Memorandum”)). On
August 2 6 , 2005, upon the United States Trustee’s third motion
and over Desmond’s objection, the Bankruptcy Court converted the
proceeding to a Chapter 7 bankruptcy and appointed Steven
Notinger as Chapter 7 Trustee. Id. The Bankruptcy Court
concluded that the “estate is apparently administratively
insolvent, the Debtor has not been able to effectuate a plan
where there is a reasonable likelihood of confirmation, and
continued delay in Chapter 11 is and will be prejudicial to
creditors.” Id. at 3 .
By operation of law, Notinger stepped into Desmond’s place
and took over representation of the estate, including both its
adjudication of the main bankruptcy case and the prosecution of
the ASR Adversary Proceeding. (Settlement Memorandum at 3 ) .
Initial negotiations between Notinger, ASR and Desmond failed to
produce an acceptable settlement. (Motion to Compromise at ¶ 4 ) .
Following further negotiations without Desmond, Notinger came to
an agreement with ASR and sought the Bankruptcy Court’s approval
of a Release and Settlement Agreement between the Trustee and
ASR. Id. at ¶¶ 5-6. In the Motion to Compromise, Notinger
stated that the estate’s “best case scenario” if the litigation
-3- continued would be to reduce ASR’s claim to $1.3 million, “with
perhaps an additional reduction of several hundred thousand
dollars if [he could] prove[] that fees and expenses charged to
the FDIC obligation were improperly charged.” Id. at ¶ 5 . He
based his estimates on the opinions of accounting and lending
experts he hired to assist him. Id.
The pertinent terms of the settlement are as follows:
First, the Trustee and ASR agreed to reduce ASR’s allowed claim
to $2.4 million. (Settlement Agreement at ¶ 5 , Doc. N o . 8 - 2 ) .
Second, the Trustee granted ASR a release from all past, present
and future related claims. Id. at ¶¶ 12-13. Third, the Trustee
agreed to abandon any interest in the Strawberry Hill Farm.2 Id.
at ¶ 2 . Fourth, following this abandonment, the parties agreed
that ASR could foreclose on Strawberry Hill Farm without further
interference from the Trustee or the estate. Id. at ¶ 3 . Fifth,
to account for the fact that the parties estimated the fair value
of the Strawberry Hill Farm to be approximately $1.5 million but,
under the Trustee’s “best case scenario,” ASR’s claim might be
2 In conjunction, the Trustee also filed a separate motion to abandon Strawberry Hill Farm in the main bankruptcy case. The Bankruptcy Court resolved both motions in the May 1 7 , 2006 memorandum and order.
-4- worth only $1.3 million, the Settlement Agreement obligated ASR
to make a $120,000 payment to the estate. Id. at ¶ 5 .
On April 2 0 , 2006, the Bankruptcy Court held a hearing on
the matter.3 (Settlement Memorandum at 2 ) . On May 1 7 , 2006,
over Desmond’s objection, the court approved the settlement and
granted Notinger’s motion to abandon Strawberry Hill Farm. Id.
at 5 . Citing relevant law, the Bankruptcy Court first
established Notinger’s authority to settle the claims, stating
that “[u]pon conversion and appointment of a Chapter 7 trustee,
all claims held by the estate belong to the trustee . . . .
[T]he Trustee alone may assert the causes of action against ASR
in the ASR Adversary [Proceeding].” Id. at 3 . The court
acknowledged that “the settlement does release any and all claims
against ASR that the Debtor or the estate could assert [against
3 Appellees argue that I must dismiss Desmond’s appeal because he has failed to file with his appeal a transcript of the April 2 0 , 2006 settlement hearing as is required by Federal Rule of Bankruptcy Procedure 8006. Rule 8019 of the same, however, grants district courts broad discretion to suspend most procedural requirements, including Rule 8006. See Fed. R. Bankr. P. 8019. Because the transcript may be useful in deciding the merits of Desmond’s appeal and because Appellees have presented no persuasive evidence of bad faith on the part of Desmond or prejudice to the Appellees, I grant Desmond leave to supplement the record on appeal with the missing transcript. See In re Dawley, 2005 WL 67078 at *2 (E.D.Pa.).
-5- A S R ] , as those claims belong to the Trustee upon conversion to
Chapter 7.” Id. (citing ¶ 13 of the Settlement Agreement). The
court then analyzed the terms of the proposed settlement in light
of the factors set out in Jeffrey v . Desmond, 70 F.3d 183, 185
(1st Cir. 1995), and concluded that “the Trustee has competently
and fairly assessed the costs, merits, and possible outcomes of
the ASR Adversary [Proceeding] and has reached a settlement that
is probably at the higher end of the range of potential outcomes
if the matter proceeded to trial.” (Settlement Memorandum at 5 ) .
On May 2 4 , 2006, the Bankruptcy Court denied Desmond’s
motion to reconsider. (Reconsideration Order, Doc. N o . 1 0 - 2 ) .
Desmond filed a Notice of Appeal on June 5 , 2006 (Doc. N o . 1-2)
and a Statement of Issues To Be Presented On Appeal (Doc. N o . 2-
1 ) on June 1 5 , 2006. In his appeal, Desmond challenges
Bankruptcy Court Orders issued on September 1 2 , 2005, February
1 5 , 2006, March 2 2 , 2006, April 1 9 , 2006,4 as well as the
Settlement Order of May 1 7 , 2006.
4 In separate orders on these dates, the Bankruptcy Court dismissed several of Desmond’s claims and denied several of his motions. Because, as discussed below, Desmond’s appeal of these orders is untimely, I need not provide further factual detail.
-6- II. ANALYSIS
A. Untimely Appeal
Appellees argue that Desmond’s appeals of the Bankruptcy
Court’s Orders dated September 1 2 , 2005, February 1 5 , 2006, March
2 2 , 2006, and April 1 9 , 2006 must be dismissed because they are
untimely. Desmond makes no argument in response.
Federal Rule of Bankruptcy 8002 gives parties ten days from
the date of entry of a judgment, order, or decree in which to
appeal. Fed. R. Bankr. 8002(a). See also In re Robbins v .
Thomson McKinnon Secs., 1997 WL 811534 (S.D.N.Y. June 1 1 , 1997)
(rule applies to both final judgments and interlocutory orders).
Because this ten-day requirement is mandatory, an “[u]ntimely
notice of appeal deprives the district court of jurisdiction to
review the bankruptcy court’s order.” In re Abdallah, 778 F.2d
7 5 , 77 (1st Cir. 1985). Desmond failed to submit the required
notice of appeal within 10 days of entry of the these four
Orders. Nor has he suggested any exception to Rule 8002(a) that
is applicable in this case. Accordingly, I am without
jurisdiction to review these claims.
-7- B. Standing
Appellees next argue that Desmond lacks standing to appeal
the May 1 7 , 2006 settlement Order because the Chapter 7 Trustee
alone had the responsibility and authority to prosecute and
settle the ASR Adversary Proceeding.
“It is well established that a Chapter 7 debtor generally
lacks standing to challenge a bankruptcy court judgment
confirming” a settlement agreement between the Trustee/Estate and
its creditors. See Mark Bell Furniture Warehouse, Inc. v . D.M.
Reid Assocs., Ltd., 992 F.2d 7 , 10 (1st Cir. 1993). This rule
reflects the fact that the Chapter 7 Trustee divests the debtor
of all “right, title and interest” in property of the estate.
Spenlinhauer v . O’Donnell, 261 F.3d 113, 118 (1st Cir. 2001).
A Chapter 7 debtor does have standing to appeal a final
bankruptcy judgment, however, if he is a “person aggrieved” by
such judgment. Spenlinhauer, 261 F.3d at 117; In re Thompson,
965 F.2d 1136, 1142 n.9 (1st Cir. 1992). A debtor is “aggrieved”
by an order approving a settlement only where “the challenged
order directly and adversely affects [his] pecuniary interests.”
Spenlinhauer, 261 F.3d at 117-18. In the ordinary Chapter 7
-8- case, a debtor meets this standard by showing either that (1)
nullification of the settlement would result in an “overall
surplus in the Chapter 7 estate,” or (2) the settlement “would
adversely affect the terms and conditions of his Chapter 7
discharge.” Id. at 119, 119 n.7; see also In re El San Juan
Hotel, 809 F.2d 1 5 1 , 155 n.6 (1st Cir. 1987).
Whether a debtor has appellate standing to challenge a
bankruptcy order is a question of fact for the district court.
El San Juan Hotel, 809 F.2d at 155 n.3. Faced with a challenge
to his standing, a debtor must adduce evidence sufficient to
demonstrate his pecuniary harm. See Spenlinhauer, 261 F.3d at
119. Although Desmond’s brief alleging standing is grossly
muddled on this point, a glimmer of a claim emerges from between
the lines.
This case does not fit the mold of the ordinary Chapter 7
“aggrieved person” case. Instead, the documents Desmond
submitted in support of his appeal suggest that he became an
aggrieved person when the estate abandoned its interest in the
Strawberry Hill property as a part of the settlement. At that
point, Desmond reacquired title to the property subject to ASR’s
security interest. I f , as Desmond claims, the Settlement
-9- Agreement assigned an excessive value to ASR’s claim, he stands
to suffer financially as the owner of the Strawberry Hill
property from the foreclosure proceeding contemplated by the
settlement. This is all that is required to qualify Desmond as
an aggrieved party with standing to appeal.
III. CONCLUSION
For the reasons discussed, Notinger’s motion to dismiss
(Doc. N o . 15-1) is granted in part and denied in part.
SO ORDERED.
/s/Paul Barbadoro Paul Barbadoro United States District Judge
March 3 0 , 2007
cc: William S . Gannon, Esq. Debra Ann Notinger, Esq. William Pribis, Esq. Geraldine L . Karonis, Esq. Clerk, US Bankruptcy Court - NH
-10-