In re: Carlo Bondanelli

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: March 18, 2020
• Docket: CC-19-1175-TaFS
• Status: Unpublished

Opinion

FILED MAR 18 2020 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. CC-19-1175-TaFS

CARLO BONDANELLI, Bk. No. 2:14-bk-27656-WB

Debtor.

FRANCESCO TIENI; OCEAN PARK SRL,

Appellants,

v. MEMORANDUM*

PETER J. MASTAN, CHAPTER 7 TRUSTEE; CARLO BONDANELLI; DESERT SOLIS; ST. JOSEPH'S INVESTMENTS, INC. DEFINED BENEFIT PENSION PLAN; ST. JOSEPH'S INVESTMENTS, INC.; CIVITAS INCORPORATED,

Appellees.

Argued and Submitted on February 27, 2020 at Pasadena, California

* 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. Filed – March 18, 2020

Appeal from the United States Bankruptcy Court for the Central District of California

Honorable Julia Wagner Brand, Bankruptcy Judge, Presiding

Appearances: Lori Speak of Lex Opus argued on behalf of appellants; Jack Andrew Reitman of Landau Law LLP argued on behalf of appellee Peter J. Mastan, Chapter 7 Trustee.

Before: TAYLOR, FARIS, and SPRAKER, Bankruptcy Judges.

INTRODUCTION

Appellants Francesco Tieni and Ocean Park SRL, who collectively

hold most of the claims against debtor Carlo Bondanelli, appeal the

bankruptcy court’s order approving the chapter 71 trustee’s settlement of

§ 548(a)(1)(A) claims against Mr. Bondanelli, St. Joseph’s Investments, Inc.

Defined Benefit Pension Plan (the “Pension Plan”), Civitas Incorporated

(“Civitas”), St. Joseph’s Investments, Inc., and Desert Solis, Inc.

(collectively, the “Defendants”). We discern no abuse of discretion by the

bankruptcy court; it correctly identified the relevant legal standard and

applied it in a logical and plausible manner given the record before it. We

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure.

2 AFFIRM.

FACTS2

In 2004, Mr. Bondanelli, Appellants, and others formed a joint

venture to develop real property in Santa Monica, California (the

“Property”). A newly-formed entity, New West TC, LLC (“New West”),

would acquire title and Mr. Bondanelli would complete development using

joint venturer contributions and loan proceeds. But after acquisition of the

land, disputes arose regarding the amount of additional development

funding from Appellants.

Mr. Bondanelli, who was responsible for the development and had

guaranteed repayment of the acquisition loan, eventually adopted a

problematic method for obtaining cash from Appellants. He sued

Appellants to compel additional capital contributions. This part of the plan

is not troubling. And the fact that Mr. Bondanelli then entered into a

settlement with Appellants where he agreed to pay them $800,000 in

exchange for a transfer of all rights to New West and its assets, including

the Property, seems reasonable in isolation. The problem, however, is that

unbeknownst to Appellants, Mr. Bondanelli caused New West to sell the

Property and to distribute the proceeds among all Defendants before

2 We exercise our discretion to take judicial notice of documents filed in the bankruptcy court’s dockets, as appropriate. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

3 entering into the settlement. Thereafter, he never paid the $800,000, and the

value of New West, now a mere former owner of the Property, was

negligible.

After Appellants learned of Mr. Bondanelli’s deception, they sued

him for fraudulent transfer, fraud, and breach of fiduciary duty. He

responded by filing a chapter 7 case. Eventually, Peter J. Marstan, the

chapter 7 trustee, filed § 548(a)(1)(A) complaints against Defendants,

alleging that New West’s transfers of the sale proceeds were made to

defraud Mr. Bondanelli’s creditors (i.e., the Appellants); he sought the

return of nearly $400,000 from the non-debtor defendants.

On the verge of trial, the parties reached a mediated settlement that,

as relevant on appeal, required payment to the estate of $60,000 (the

“Settlement”).3 Given the fraud allegations that underlaid the litigation, the

Settlement required Defendants to provide declarations under penalty of

perjury attesting that, other than the Pension Plan, none of them had assets

of significant value and that the majority of their assets were undeveloped,

raw land in the high desert of Southern California. Civitas agreed to pay

the $60,000.

3 The settlement also required Civitas to transfer to the estate its $129,382.50 claim against New West in the related bankruptcy In re New West TC, LLC, 2:17-bk-20201-WB. Appellants and the Trustee ignore this additional settlement consideration in their analysis of whether the settlement was fair and equitable. We cannot ascertain the value of this consideration from the record and do not address it further.

4 The Trustee moved for approval of the Settlement; Appellants

opposed. At the hearing on the Trustee’s motion, the bankruptcy court

entertained argument, made oral findings as required by Martin v. Kane (In

re A & C Props.), 784 F.2d 1377 (9th Cir. 1986), and determined that the

settlement was fair and equitable and should be approved. Appellants

timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334(a) and

157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Did the bankruptcy court abuse its discretion when it approved the

Settlement?

STANDARD OF REVIEW

The bankruptcy court’s decision to approve a compromise is

reviewed for abuse of discretion. Id. at 1380. We apply a two-part test to

determine if it abused its discretion, first, determining de novo if it

identified the correct legal rule and, second, determining if its application

of the legal standard was 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 & n.21 (9th Cir. 2009) (en banc).

In conducting our appellate review, we ignore harmless error and

may affirm on any ground supported by the record. Lakhany v. Khan (In re

5 Lakhany), 538 B.R. 555, 559-60 (9th Cir. BAP 2015).

DISCUSSION

Rule 9019(a) Standard

Rule 9019 provides that, on the trustee’s motion, the bankruptcy

court may approve a compromise or settlement. Fed. R. Bankr. P. 9019(a).

In this regard, it has considerable, but not unlimited, latitude; it must

determine that the settlement is “fair and equitable.” Woodson v. Fireman’s

Fund Ins. Co. (In re Woodson), 839 F.2d 610, 620 (9th Cir. 1988). The four

relevant factors in assessing fairness and equity are:

(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; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises.

Id.

The court has discretion as to the weight to be given each factor; it

need not weigh them equally. Thus, any one factor may have weight in

isolation that justifies the settlement. See In re WCI Cable, Inc., 282 B.R. 457,

472-73 (Bankr. D. Or. 2002).

The trustee has the burden to persuade the bankruptcy court that the

compromise is fair and equitable. In re Woodson, 839 F.2d at 620. He is

assisted in this burden by the general rule that bankruptcy courts should

give some deference to his business judgment in deciding whether to settle

6 a matter for the benefit of the estate. Goodwin v. Mickey Thompson Entm't

Grp., Inc. (In re Mickey Thompson Entm't Grp., Inc.), 292 B.R. 415, 420 (9th Cir.

BAP 2003) (citing In re A & C Props., 784 F.2d at 1381). He is also aided by

policy considerations.

Compromise is favored where it allows the parties to avoid the

expenses and burdens associated with litigation. In re A & C Props., 784

F.2d at 1380-81. Thus, when assessing a compromise, courts appropriately

canvass the issues and need not rule on disputed facts and questions of

law. If the court were required to do more, there would be no point in

compromising; the parties might as well try the case.

In short, we must affirm the bankruptcy court’s settlement approval

decision if it “amply considered the various factors that determine[ ] the

reasonableness of the compromise. . . .” Id. at 1381. Here, it did.

Difficulty of Collection

The Trustee argued, and the bankruptcy court agreed, that

collectability was the dispositive factor in determining that the Settlement

was fair and equitable. The Trustee and his counsel, who identified

themselves as having many years’ experience in asset recovery and

judgment enforcement work, perceived significant difficulties in

collectability, warranting settlement. The court agreed and the record

supports this conclusion.

The Pension Plan was the only Defendant with significant assets. But

7 the Trustee anticipated thorny collection issues related to this potential

payment source; in particular, a fraudulent conveyance judgment might

cause IRS disqualification of the Pension Plan and require payment of back

taxes and penalties.

The other Defendants provided declarations evidencing their poor

financial condition. Based on these declarations and his counsel’s

independent investigation, the Trustee concluded that these Defendants

had no assets of significant value.

At the hearing, the bankruptcy court observed that:

the driving factor here is collectability of a judgment. These companies are all out of business and . . . the transfers . . . occurred six years ago. The money has dissipated so . . . collecting on a judgment . . . is going to be incredibly difficult. And I think the Trustee is allowed to make that assessment and did appropriately make that assessment here.

Appellants claim that the bankruptcy court abused its discretion

because it erroneously stated that all—rather than some—of the entities

were out of business. By clinging to the court’s perhaps imprecise, but

certainly off-the-cuff, factual summary to assert error, they miss the point.

Collection will be difficult because none of these entities have accessible,

valuable assets. The record evidences that they either are defunct or own at

most $3,000 in cash and raw, undeveloped land in the high desert.

Appellants also question whether Defendants dissipated their assets

during Mr. Bondanelli’s bankruptcy, thereby causing the collection issue.

8 But their bald rumination is irrelevant to the extent that Defendants have

not been enjoined from transferring their assets.

Appellants also note that Civitas funded the $60,000 Settlement but

claimed it has “less than $3,000 of cash on account.” This side-eyed

comment is likewise irrelevant; Civitas apparently had access to a loan or

capital contribution. But access to outside capital to fund a settlement does

not mean it could or would access these funds to pay a judgment.

Probability of Success

Appellants argue that the bankruptcy court erred by analyzing the

merits of the Trustee’s § 548(a)(1)(A) claims under an incorrect standard;

we disagree. It is true that, at one point in its probability of success

analysis, the bankruptcy court stated that there had to be “creditors in

existence at the time of the fraudulent transfer.” Appellants maintain that

there is no such requirement under § 548(a)(1)(A). But we need not

consider this argument because Appellants failed to raise it in their

opening brief. United States v. Ullah, 976 F.2d 509, 514 (9th Cir. 1992).

And even if the bankruptcy court misinterpreted the law in some

minor respect, such error would be harmless because the record otherwise

thoroughly supported its conclusion that the likelihood of the Trustee

prevailing was far from certain in light of multiple disputed factual and

legal issues.

For example, in the Trustee’s case against the Pension Plan to recover

9 $168,958.12 (i.e., nearly half the total sum at issue in the avoidance actions),

the litigants disagree which case law controls: (1) Gill v. Stern (In re Stern),

345 F.3d 1036 (9th Cir. 2003) (holding that a debtor’s prepetition conversion

of non-exempt assets to exempt assets may not be per se fraudulent); or (2)

Wolkowitz v. Beverly (In re Beverly), 374 B.R. 221 (9th Cir. BAP 2007) (holding

that Stern does not apply if the assets were moved from entirely non-

exempt to exempt assets). Both cases are good law.

And while the Trustee and Appellants agree that the bankruptcy court

should apply Beverly, the Trustee must still prove that the transfers were

fraudulent under the facts. Contrary to Appellants’ urging, there was

evidence in the record that the transfer to the Pension Plan was made to

repay loans rather than to defraud creditors; Mr. Bondanelli testified at the

§ 341(a) meeting of creditors that, in 2013, he repaid various loans that the

Pension Plan had made to himself and other entities.4 See Mastan v.

Bondanelli et al., Adv. No. 17-ap-01547-WB, Dkt. 25, pp. 2-3. In its analysis,

the court specifically referenced a pretrial stipulation that recounted his

testimony. Further, Appellants attached to their opposition testimony of

the Pension Plan’s person most qualified witness designee that

4 Mr. Bondanelli’s testimony at past § 341(a) meeting of creditors sessions, Rule 2004 examinations, and depositions would be admissible in all of the avoidance actions, without the Trustee’s ability to cross-examine him on such testimony, as he is now deceased. See Civil Rule 32(a)(1) and (4)(A); Key Bank of Me. v. Jost (In re Jost), 136 F.3d 1455, 1459 (11th Cir. 1998). This would hurt the Trustee’s likelihood of success.

10 corroborated his testimony. Moreover, the checks issued to the Pension

Plan are attached to the Trustee’s complaint, and their memo sections state

that the transfers were for “repayment of loans” or “reimbursement.”

When assessing the Settlement, the bankruptcy court did not need to

rule on the disputed facts and questions of law; rather, it was required

merely to canvass the issues–which it did. See Burton v. Ulrich (In re

Schmitt), 215 B.R. 417, 423 (9th Cir. BAP 1997). And it did so on an

independent, informed basis after reviewing the moving and opposing

papers and presiding over the litigation for nearly two years.

Complexity, Expense, Inconvenience, and Delay of Litigation

The avoidance actions were on the brink of trial. Thus, the delay

caused by litigation was not a driving factor in the bankruptcy court’s

decision. That said, however, cost in particular remained an issue. Trials

are expensive. And the cost, inconvenience, and delay of collecting on any

judgment against Defendants were reasonably assumed to be significant

for the reasons set forth above.

Interests of Creditors

“The opposition of the creditors of the estate to approval of a

compromise may be considered by the court, but is not controlling and will

not prevent approval of the compromise where it is evident that the litigation

would be unsuccessful and costly.” Official Unsecured Creditors' Comm. v.

Beverly Almont Co. (In re The Gen. Store of Beverly Hills), 11 B.R. 539, 541

11 (9th Cir. BAP 1981) (emphasis added). In short, creditors have a voice but

not a veto. Thus, a bankruptcy court may approve a settlement even over

strenuous creditor objections.

Appellants assert that the bankruptcy court did not give their

objection due deference. We disagree; the court heard and considered all of

their arguments at the hearing. It simply disagreed with their view that the

Settlement was not fair, equitable, or in their best interest. In the

bankruptcy court’s view, “the paramount interest of creditors is to resolve

this litigation and try and solve these cases so that funds can be distributed

to creditors. And so [the court thinks] that the settlement is actually in the

interests of creditors.” This was not error.

Neither was it reversible error when the bankruptcy court stated that

it could not replace the Trustee’s business judgment with its own. See In re

Rake, 363 B.R. 146, 152 (Bankr. D. Idaho 2007). Despite the court’s remark

during the heat of oral argument, the record shows that it did not abdicate

its duty to undertake its own informed and independent judgment as to

whether the settlement was fair and equitable.

CONCLUSION

The bankruptcy court did not abuse its discretion. We AFFIRM.