In re: Alicia Marie Richards

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: April 8, 2024
• Docket: 23-1038
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION APR 8 2024 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT OF THE NINTH CIRCUIT

In re: BAP No. CC-23-1038-CFG ALICIA MARIE RICHARDS, Debtor. Bk. No. 8:21-bk-10635-SC

ALICIA MARIE RICHARDS, Appellant, v. MEMORANDUM∗ RICHARD A. MARSHACK, Chapter 7 Trustee; EUGENE V. ZECH, Appellees.

Appeal from the United States Bankruptcy Court for the Central District of California Scott C. Clarkson, Bankruptcy Judge, Presiding

Before: CORBIT, FARIS, and GAN Bankruptcy Judges.

INTRODUCTION

Chapter 71 debtor Alicia Marie Richards (“Richards”) appeals the

bankruptcy court’s order approving a Rule 9019 compromise between the

chapter 7 trustee and creditor Eugene Zech (“Zech”), who was Richards’s

∗ 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 8024-1. 1 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure. 1 previous counsel during part of her marital dissolution proceedings. We

AFFIRM.

FACTS

A. Pre-bankruptcy events

Zech, a family law attorney, represented Richards during her marital

dissolution. As part of the attorney’s fees payment agreement, Richards

executed and notarized a Family Law Attorney’s Real Property Lien in

favor of Zech in the principal amount of $35,000, with 5% interest per

annum from the date the lien was recorded. On October 7, 2016, Zech

recorded the lien with the Orange County Recorder’s Office, creating a

secured interest in Richards’s interest in the real property located on

Catalina Drive in Newport Beach, CA (“Residence”) pursuant to California

Family Code § 2033. 2

After the dissolution proceedings concluded, Richards refused to pay

Zech as agreed. Consequently, Zech filed a complaint against Richards in

California superior court in January 2018 for payment of his attorney’s fees.

After a multi-day trial, a jury found in favor of Zech, and judgment for

2 As part of the dissolution proceedings, Richards and her former husband Ryal Richards entered into a stipulation giving Richards several weeks to refinance the Residence and buy out Ryal’s community property interest. If she was unable or unwilling, the stipulation required the sale of the Residence and mandated that Richards and Ryal split the proceeds. The stipulation was affirmed by the California Court of Appeal. Richards v. Richards (In re Richards), Case No. G055927, 2020 WL 104357, at *9-13 (Cal. Ct. App. Jan. 9, 2020). 2 Zech in the amount of $70,263.40 was entered on April 24, 2019 (“Zech

Judgment”).

Richards disagreed with the jury’s determinations and immediately

began appealing. Shortly thereafter, Richards filed a chapter 13 petition

(“2019 Bankruptcy”). Richards’s 2019 Bankruptcy was dismissed on

October 2, 2019, without Richards receiving a discharge. After the 2019

Bankruptcy was dismissed, Zech recorded an abstract of judgment with

respect to the Zech Judgment.

B. Richards’s bankruptcy

On March 12, 2021, Richards again filed for bankruptcy protection,

this time filing a chapter 7 bankruptcy petition (“2021 Bankruptcy”).

Richard Marshack was appointed chapter 7 trustee (“Trustee”). Zech

subsequently filed a proof of claim based on the Zech Judgment. Zech later

filed an amended proof of claim in the amount of $83,488.32 (Zech

Judgment plus $13,224.92 in accrued interest) (“Zech POC”). Richards

objected to the Zech POC. Richards also sought an order compelling

Trustee to abandon all claims related to her appeal of the Zech Judgment

and the malpractice claims she allegedly held against Zech (together the

“Zech Claims”). Because Trustee had already determined that the Zech

Claims were meritless and a burden to the estate, Trustee agreed that the

claims should be abandoned. The bankruptcy court subsequently granted

Richards’s motion, and Trustee abandoned the Zech Claims.

3 Before the Zech Judgment was affirmed on appeal, Trustee moved to

sell the Residence free and clear of all liens, with liens attaching to the sale

proceeds pursuant to § 363(f). The sale price was more than the aggregate

amount of liens against the property. In Trustee’s motion to sell, Trustee

included the Zech Judgment (as described in the Zech POC) as one of the

liens that would attach to the sale proceeds. The bankruptcy court

approved the sale of the Residence over both Richards’s and Richards’s

father’s objections. The order approving the sale was affirmed on appeal.3

On March 8, 2022, the same day the sale of the Residence closed, the

California Court of Appeal affirmed the Zech Judgment in its entirety

(approximately three years after the appeal was filed). Zech v. Richards, No.

G057798, 2022 WL 682764 (Cal. Ct. App. Mar. 8, 2022), reh’g denied (Mar. 25,

2022), review denied (June 1, 2022).

C. The compromise between Trustee and Zech

Several months later, on November 29, 2022, Trustee filed a motion to

approve a compromise with Zech which provided that Zech would agree

to a reduced claim amount of $70,000 in return for immediate payment

from the Residence sale proceeds (“Zech Compromise”). In the motion,

Trustee detailed why the proposed settlement satisfied the factors

identified in Martin v. Kane (In re A & C Properties), 784 F.2d 1377, 1380-81

(9th Cir. 1986) which a bankruptcy court must consider when evaluating a

3 Richards v. Marshack (In re Richards), BAP Nos. CC-21-1262-SGL, CC-21-1266- SGL, 2022 WL 16754394 (9th Cir. BAP Nov. 7, 2022). 4 proposed compromise. Trustee maintained that the Zech POC represented

a valid secured lien against the estate that was not subject to reasonable

dispute because the Zech Judgment had been affirmed on appeal and the

judgment lien was recorded outside the preference period. Trustee also

asserted that the Zech Judgment continued to accrue interest such that the

current amount of the claim was “in excess of $90,000, and may exceed

$100,000.” Trustee further maintained that the Zech Compromise would

allow the estate “to avoid the expense, inconvenience, and delay of further

litigation” over the allowance of the Zech POC and would “permit Zech to

receive his long-awaited payment for legal service.”

Richards filed an untimely objection to the Zech Compromise.

Richards objected on the grounds that the Zech Judgment was allegedly

void and therefore not a valid lien. Richards continued to argue that the

judgment was obtained in the “wrong court without subject matter

jurisdiction” despite the affirmance of the Zech Judgment on appeal.

Richards next argued that the sale of the Residence was void despite the

affirmance of the order approving the sale on appeal (“the BAP entered its

void order affirming the void sale that is equally void as a matter of law”)

and that Trustee was not authorized to distribute funds from an “unlawful

void sale.” Finally, Richards argued that a tentative ruling in her 2019

Bankruptcy precluded Zech from claiming a secured lien in her 2021

Bankruptcy.

5 In his reply, Trustee argued that Richards’s opposition was frivolous,

nonsensical, and a delay tactic. Trustee maintained that the Zech POC

represented a valid secured lien. Trustee also explained that contrary to

Richards’s assertions the compromise was not settling the abandoned Zech

Claims, and Richards would have the ability to pursue the Zech Claims

even if the bankruptcy court approved the Zech Compromise. Therefore,

Trustee argued that the compromise was in the best interest of creditors

and should be approved.

The bankruptcy court agreed. After a hearing on the matter, the

bankruptcy court entered an order granting Trustee’s motion to approve

the Zech Compromise (“Zech Compromise Order”). Richards timely

appealed.

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.

ISSUE

Did the bankruptcy court abuse its discretion by approving the Zech

Compromise?

STANDARD OF REVIEW

We review a bankruptcy court’s decision to approve a settlement

under Rule 9019 for an abuse of discretion. Goodwin v. Mickey Thompson

Ent. Grp., Inc. (In re Mickey Thompson Ent. Grp., Inc.), 292 B.R. 415, 420 (9th

Cir. BAP 2003). A bankruptcy court abuses its discretion if it applies the

6 wrong legal standard, misapplies the correct legal standard, or if its factual

findings are illogical, implausible, or without support in inferences that

may be drawn from the facts in the record. United States v. Hinkson, 585

F.3d 1247, 1261-62 (9th Cir. 2009) (en banc).

DISCUSSION

A. The legal standards for a settlement and compromise.

Rule 9019(a) provides that, “[o]n motion by the trustee and after

notice and a hearing, the court may approve a compromise or settlement.”

The bankruptcy court has great latitude in approving a compromise or

settlement under Rule 9019. In re Mickey Thompson Ent. Grp., Inc., 292 B.R. at

420. Even so, the compromise must be fair, reasonable, equitable, and in the

best interests of the estate. Id.

In determining whether a proposed compromise is fair, reasonable,

and equitable, the bankruptcy court must consider: (1) the probability of

success in the litigation; (2) the difficulties, if any, of collection; (3) the

complexity of the litigation involved, and the expense, inconvenience, and

delay necessarily attending it; and (4) the paramount interest of the

creditors and a proper deference to their reasonable views in the premises.

In re A & C Props., 784 F.2d at 1381. The bankruptcy court can make general

findings supporting the settlement when the record clearly reflects that

application of these factors weighs in favor of the settlement. Spark Factor

Design, Inc. v. Hjelmeset (In re Open Med. Inst., Inc.), 639 B.R. 169, 181 (9th

Cir. BAP 2022), aff'd, No. 21-51678, 2023 WL 7123763 (9th Cir. Oct. 30, 2023), 7 and aff'd sub nom., Spark Factor Design, Inc. v. Kogelnik (In re Kogelnik), No.

22-60018, 2023 WL 7122577 (9th Cir. Oct. 30, 2023). The reviewing court

should affirm where the record supports approval of the settlement, even if

the findings are general. Id. The court may “give weight to the opinions of

the trustee, the parties, and their attorneys.” Port O'Call Inv. Co. v. Blair (In

re Blair), 538 F.2d 849, 851 (9th Cir. 1976).

B. The bankruptcy court did not abuse its discretion in approving the Zech Compromise.

Richards does not allege specific errors of law or fact made by the

bankruptcy court when evaluating the Zech Compromise under the A & C

Properties factors. Rather, Richards generally argues that the bankruptcy

court abused it discretion in approving the Zech Compromise because it

was premature. Richards argues that the bankruptcy court should not have

ruled on the Zech Compromise until the conclusion of both the litigation

related to her objection to the Zech POC and the litigation related to her

pursuit of the Zech Claims. Richards’s assertions are without merit. Indeed,

as further discussed below, the bankruptcy court properly found that part

of the benefit to creditors of the Zech Compromise was the avoidance of

litigation related to Richards’s objection to the Zech POC. Because the

bankruptcy court properly evaluated the Zech Compromise under the

A & C Properties factors, the Zech Compromise Order was not an abuse of

discretion.

8 After adopting Trustee’s reply in full, the bankruptcy court evaluated

the proposed compromise under the A & C Properties factors. First, the

bankruptcy court evaluated “the probability of success in the litigation.”

See In re A & C Props., 784 F.2d at 1381. The bankruptcy court found that the

likelihood of Richards’s “success of disputing Mr. Zech’s pre-petition claim

(which underlies the judgment lien to be reduced via settlement) [was] nil”

because Zech’s entitlement to the amount represented in the Zech POC was

“fully litigated in a jury trial and affirmed on appeal.” This finding is not

clearly erroneous.

Second, the bankruptcy court evaluated the difficulties, if any, of

collecting any resulting judgment. See id. The bankruptcy court found that

the estate had no plausible claims against Zech and thus, there was no

possible judgment to collect upon. Therefore, the bankruptcy court found

that this element supported approving the Zech Compromise. The

bankruptcy court’s findings and analysis are not erroneous.

Before the bankruptcy court and again on appeal, Richards argues

the untenable and unsupported notion that the bankruptcy court was

required to consider her right to setoff when evaluating the Zech

Compromise. The bankruptcy court did not err in disregarding this

argument. As the bankruptcy court correctly explained, the Zech

Compromise involved only estate property and claims against the estate.

The bankruptcy court explained that the Zech Claims (upon which

Richards argues she will eventually prevail, resulting in a judgment against

9 Zech that would provide her setoff) are no longer part of the estate because

Trustee abandoned those claims as Richards requested. Furthermore, the

bankruptcy court found that the Zech Compromise did not attempt to

settle any of the abandoned Zech Claims. Consequently, the bankruptcy

court did not err in refusing to consider Richards’s dubious and unlikely

success in litigating and collecting on the Zech Claims when evaluating the

Zech Compromise.

Third, the bankruptcy court considered the complexity of the

litigation and the expense, inconvenience, and delay associated with it. See

id. The bankruptcy court found that the issue was not complex: Zech had a

secured claim against the estate that was without reasonable dispute.

However, the bankruptcy court found that, given the history and nature of

Richards’s litigiousness, the estate would incur further expense,

inconvenience, and delay by allowing Richards to litigate the validity of the

Zech POC. These findings are supported by the record and are not error.

Fourth, the bankruptcy court considered the interest of the creditors.

See id. The bankruptcy court found that no creditors had objected to the

Zech Compromise and the only objection was that of Richards. The

bankruptcy court also found that despite Zech holding a valid secured

claim for the full amount of the Zech POC, Zech was willing to discount his

claim by almost 30% as part of the compromise. The bankruptcy court

found that the discount was in the best interest of the creditors. These

findings are not clearly erroneous. Based on the bankruptcy court’s

10 analysis of the A & C Properties factors, the bankruptcy court properly

determined the settlement was fair and equitable and its approval of the

Zech Compromise was not an abuse of discretion.

CONCLUSION

For the reasons stated above, we AFFIRM.