. | . □ □
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO | IN THE MATTER OF : TVAN ACOSTA RIVERA & ANA A. 3 CASE NO. 06-00559({SEA) BALSEIRO CHACON, DEBTORS CHAPTER foo cence cen eee □□□ eee eens FILED & ENTERED | 0 4 MAY 2007 . OPINION AND ORDER CLERK US, BANKRUPTCY COURT JUAN, PUERTO RICO Pending before the court are the Trustee"s motions for lapproval of a compromise. Debtors object claiming the Trustee has | ot met his burden of showing the settlement compensates the Ihosses of co debtor Iv4n Acosta Rivera (“Acosta”) related to his hformer employment and wrongful dismissal, awaiting trial in the state courts?. For reasons that follow, we approve the compromise. Procedural Background and Factual Findings Debtors filed this second voluntary petition for bankruptcy under Chapter 13 on March 2, 2006. They did not schedule a suit poset filed in state court against his former employer for . junpaid wages, vacation, yearly bonuses, and damages caused by a | etaliatory dismissal, and a request for job reinstatement ("the pee . Two months later, Debtors converted the case to Chapter 17. As soon as the current Chapter 7 Trustee became aware of the
he state court in this case is the Superior Court for the Commonwealth of Puerte Rico, Arecibo Part.
suit, he hired special counsel to prosecute the unscheduled suit on behalf of the estate’. Debtors amended their schedules to include the suit, and to claim an exemption over the causes of action three days before the Trustee’s initial request for authorization to settle the suit: for $200,000. We held an evidentiary hearing to consider the Trustee’s recommendation and Debtors’ objections to the proposed compromise, The Trustee called Counsel for the employer who testified, inter alia, that the parties had been litigating the suit before the state court for nine years, having appealed to the Supreme Court of Puerto Rico on at least two occasions. once the trial began, the state court Judge called for a recess after the testimony of the first witness began, and asked counsel for the parties if they wished to discuss a settlement. The Judge took this action because the issue concerning unpaid wages, acation and bonuses hinged upon a factual finding involving whether Acosta was employed ag a professional engineer, or as a salesman who happened to have an engineering degree. This question was crucial, as the remedies sought in the suit depended upon employment laws which do not cover professionals. The arties were apparently net able to reach a settlement. The trial was not immediately continued due to the employer's request
? He hired Debtors’ Counsel who was familiar with the case and able to adhere to impending trial date.
for the Judge’s recusal. ‘This request was denied and confirmed on appeal. The Judge then rescheduled the trial for April 30, 2007. At our hearing, Counsel for the employer testified that apparently there was some sense that the cause of action for ages, etc. was worth $200,000, a sum equal to the settlement the Trustee was recommending, and to the scheduled value of the suit completed by the Debtors under oath when. they first amended schedules to disclose its existence. Counsel also stated the reasons why he thought Acosta could not prevail in the cause of action for retaliation. He opined that the offer was fair, negotiated at arm's length, beneficial to creditors as it would provide the estate with a prompt resolution ef a suit with a long history of litigation, and provide funds to pay 100% of allowed unsecured claims, plus interest. His testimony was followed by that of the Trustee's, basically corroborating what had been said. The Trustee also called Special Counsel to the stand. He confirmed the suit's procedural history before the local court. However, Special Counsel handling the case for about a ear and half, with two and half years as a licensed ractitioner, explained that he thought Acosta had a very good chance of prevailing on all three counts. Therefore, he could not recommend the $200,000 settlement. He also stated there was no attachment to ensure collection of a judgment, and he had no ©
information concerning the financial situation of the employer, Whose main offices were in Mexico. Both Acosta and the employer's representatives testified, but their testimony did not add any further information to pertinent to the igsue at hand. All the Trustee's documentary evidence was admitted, including a copy of the suit and an expert witnesses’ analysis of the value of compensatory damages should costa prevail. We took both the motion for nonsuit raised by Debtors when the Trustee rested his case,? and all evidence and arguments of the parties under advisement. Before we issued our opinion, on pril 26, 2007, Trustee filed a supplemental motion indicating the employer had increased the settlement offer to $400,000. We ordered the Debtor to reply by the 27% at 5:00 P.M. He rejected the offer as too low, stating that the short time period revented him from raising further arguments. On April 30°, when the parties informed the state court Judge of the situation, she graciously called us to confirm. Via telephone conference call with the Judge and all Counsel for the parties, we ordered all parties and the Trustee to appear before us at 9:00 A.M. on ay 1* , to argue in favor or against the increased offer. The state court Judge adjourned the trial until May 2", During the course of the May lst hearing, the employer
° Fed. R. Bankr. P. 7052(c). ¢
increased the offer to $600,000 in full settlement of all costa’s claims. The Trustee again recommended the settlement to the court. Special Counsel did likewise, stating he still thought Acosta could prevail, but could offer no information concerning collection of a favorable judgment. Acosta, represented by his counsel, reiterated his dissatisfaction, pointing out the expert valued the suit at about $2 million more than the settlement at hand, and indicating that he could win, He also stated he endorsed the settlement provided Ihe were allowed to continue litigating before the local courts, a proviso we rejected. The matter was again submitted to our consideration. We approved the settlement, indicating we would enter factual findings and conclusions of law in writing together
with a separate judgment to preserve rights of appeal, as soon as the agreement was reduced to writing and filed. The settlement agreement was filed and is attached as exhibit A. Discussion and Conclusions of Law |
“When a debtor files a bankruptcy petition, all of his roperty becomes property of a bankruptcy estate.” 5 Collier on Bankruptcy, { 541.04 (ise ed. rev.) “sit includes all kinds of property, including both tangible and intangible property, causes of action, and all other forms of property.” (Our emphasis) Ibid. The Trustee is the real party in interest who has the duty to administer estate property, including the power to recommend a
settlement of a cause of action for court approval.‘ Should a arty in interest with standing object, the court hears the atter, subsequently entering its factual findings and conclusions of law and separate judgment. Fed. R. Bank. P. 9019, 9014(c) & 7052.
We review the compromise keeping in mind the following guidance given by the U.S. Court of Appeals for the First Circuit.
Free access — add to your briefcase to read the full text and ask questions with AI
. | . □ □
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO | IN THE MATTER OF : TVAN ACOSTA RIVERA & ANA A. 3 CASE NO. 06-00559({SEA) BALSEIRO CHACON, DEBTORS CHAPTER foo cence cen eee □□□ eee eens FILED & ENTERED | 0 4 MAY 2007 . OPINION AND ORDER CLERK US, BANKRUPTCY COURT JUAN, PUERTO RICO Pending before the court are the Trustee"s motions for lapproval of a compromise. Debtors object claiming the Trustee has | ot met his burden of showing the settlement compensates the Ihosses of co debtor Iv4n Acosta Rivera (“Acosta”) related to his hformer employment and wrongful dismissal, awaiting trial in the state courts?. For reasons that follow, we approve the compromise. Procedural Background and Factual Findings Debtors filed this second voluntary petition for bankruptcy under Chapter 13 on March 2, 2006. They did not schedule a suit poset filed in state court against his former employer for . junpaid wages, vacation, yearly bonuses, and damages caused by a | etaliatory dismissal, and a request for job reinstatement ("the pee . Two months later, Debtors converted the case to Chapter 17. As soon as the current Chapter 7 Trustee became aware of the
he state court in this case is the Superior Court for the Commonwealth of Puerte Rico, Arecibo Part.
suit, he hired special counsel to prosecute the unscheduled suit on behalf of the estate’. Debtors amended their schedules to include the suit, and to claim an exemption over the causes of action three days before the Trustee’s initial request for authorization to settle the suit: for $200,000. We held an evidentiary hearing to consider the Trustee’s recommendation and Debtors’ objections to the proposed compromise, The Trustee called Counsel for the employer who testified, inter alia, that the parties had been litigating the suit before the state court for nine years, having appealed to the Supreme Court of Puerto Rico on at least two occasions. once the trial began, the state court Judge called for a recess after the testimony of the first witness began, and asked counsel for the parties if they wished to discuss a settlement. The Judge took this action because the issue concerning unpaid wages, acation and bonuses hinged upon a factual finding involving whether Acosta was employed ag a professional engineer, or as a salesman who happened to have an engineering degree. This question was crucial, as the remedies sought in the suit depended upon employment laws which do not cover professionals. The arties were apparently net able to reach a settlement. The trial was not immediately continued due to the employer's request
? He hired Debtors’ Counsel who was familiar with the case and able to adhere to impending trial date.
for the Judge’s recusal. ‘This request was denied and confirmed on appeal. The Judge then rescheduled the trial for April 30, 2007. At our hearing, Counsel for the employer testified that apparently there was some sense that the cause of action for ages, etc. was worth $200,000, a sum equal to the settlement the Trustee was recommending, and to the scheduled value of the suit completed by the Debtors under oath when. they first amended schedules to disclose its existence. Counsel also stated the reasons why he thought Acosta could not prevail in the cause of action for retaliation. He opined that the offer was fair, negotiated at arm's length, beneficial to creditors as it would provide the estate with a prompt resolution ef a suit with a long history of litigation, and provide funds to pay 100% of allowed unsecured claims, plus interest. His testimony was followed by that of the Trustee's, basically corroborating what had been said. The Trustee also called Special Counsel to the stand. He confirmed the suit's procedural history before the local court. However, Special Counsel handling the case for about a ear and half, with two and half years as a licensed ractitioner, explained that he thought Acosta had a very good chance of prevailing on all three counts. Therefore, he could not recommend the $200,000 settlement. He also stated there was no attachment to ensure collection of a judgment, and he had no ©
information concerning the financial situation of the employer, Whose main offices were in Mexico. Both Acosta and the employer's representatives testified, but their testimony did not add any further information to pertinent to the igsue at hand. All the Trustee's documentary evidence was admitted, including a copy of the suit and an expert witnesses’ analysis of the value of compensatory damages should costa prevail. We took both the motion for nonsuit raised by Debtors when the Trustee rested his case,? and all evidence and arguments of the parties under advisement. Before we issued our opinion, on pril 26, 2007, Trustee filed a supplemental motion indicating the employer had increased the settlement offer to $400,000. We ordered the Debtor to reply by the 27% at 5:00 P.M. He rejected the offer as too low, stating that the short time period revented him from raising further arguments. On April 30°, when the parties informed the state court Judge of the situation, she graciously called us to confirm. Via telephone conference call with the Judge and all Counsel for the parties, we ordered all parties and the Trustee to appear before us at 9:00 A.M. on ay 1* , to argue in favor or against the increased offer. The state court Judge adjourned the trial until May 2", During the course of the May lst hearing, the employer
° Fed. R. Bankr. P. 7052(c). ¢
increased the offer to $600,000 in full settlement of all costa’s claims. The Trustee again recommended the settlement to the court. Special Counsel did likewise, stating he still thought Acosta could prevail, but could offer no information concerning collection of a favorable judgment. Acosta, represented by his counsel, reiterated his dissatisfaction, pointing out the expert valued the suit at about $2 million more than the settlement at hand, and indicating that he could win, He also stated he endorsed the settlement provided Ihe were allowed to continue litigating before the local courts, a proviso we rejected. The matter was again submitted to our consideration. We approved the settlement, indicating we would enter factual findings and conclusions of law in writing together
with a separate judgment to preserve rights of appeal, as soon as the agreement was reduced to writing and filed. The settlement agreement was filed and is attached as exhibit A. Discussion and Conclusions of Law |
“When a debtor files a bankruptcy petition, all of his roperty becomes property of a bankruptcy estate.” 5 Collier on Bankruptcy, { 541.04 (ise ed. rev.) “sit includes all kinds of property, including both tangible and intangible property, causes of action, and all other forms of property.” (Our emphasis) Ibid. The Trustee is the real party in interest who has the duty to administer estate property, including the power to recommend a
settlement of a cause of action for court approval.‘ Should a arty in interest with standing object, the court hears the atter, subsequently entering its factual findings and conclusions of law and separate judgment. Fed. R. Bank. P. 9019, 9014(c) & 7052.
We review the compromise keeping in mind the following guidance given by the U.S. Court of Appeals for the First Circuit. The propriety of bankruptcy settlements is judged under a four-part standard: In deciding whether to approve a compromise of a law suit, the specific factors a bankruptcy court should consider include: ‘(i) the probability of success in the litigation being compromised; (ii) the difficulties, if any to be encountered in the matter of collection; (iii) the complexity of the litigation involved, and the expense, inconvenience and delay attending it; and, (iv) the paramount interest of the ereditors and a proper deference to their reasonable views in the premise.’ The court’s consideration of these factors should demonstrate whether the compromise is fair and equitable, and whether the claim the debtor is giving up is outweighed by the advantage to the debtor‘’s estate. In re Servisense. Com, 382 F, 3d 68, 72 (1% Cir. 2004); citing Jeremiah v. Richardson, 148 F. 34.17, 23 (1% Cir. 1998) (quoting Jeffrey v. Desmond, 70 F. 34 183, 185 (1° Cir. 1995)). The Trustee here agreed with his Special. Counsel's
* Besides failing to disclose the suit when they first filed their schedules, Debtors also belatedly amended schedule C to increase the exemption claimed over any favorable award that ight be entered by the state court. Trustee objected, and the matter is under submission. . 7
assessment that Acosta could prevail in the cause of action involving wages, vacation and bonuses. He however, seems to adopt employer’s counsel’s views concerning the retaliatory dismissal. Counsel felt Acosta could not prevail based on the timing of events and applicable non bankruptcy law. The Trustee recommended settling for $400,000 which was twice the amount of the value given to the suit by Debtors when they first disclosed its existence. We also asked the Trustee to review the expert's report before coming to his final conclusions.® We recessed. The Trustee then brought to our attention his third recommendation for settling the suit for $600,000, and allowing costa to continue litigating the matter for his own benefit. Our greatest concern centered on the possible difficulties in collecting any favorable judgment. The evidence showed the corporation’s main office is in Mexico. The Trustee and Special Counsel had no employer financial information. There is no pre judgment attachment. The likelihood of appeals from any judgment were real, given the case history, further delaying collection efforts. The third offer provides for a $300,000 payment within sixty days, and the delivery of the second $300,000 installment within six months. It calls for the employer's submission to the jurisdiction of this court; and agrees that the laws of Puerto
> We mistakenly stated in open court that the report did consider Acosta’s income after his dismissal. The report was admitted as the Trustee's Exhibit XXxI without its exhibits. □
Rico and the U.S. Bankruptcy code govern any dispute concerning the compromise. Thus, collection difficulties are certainly diminished as a result of this settlement, While the suit does not involve complex issues, the retaliatory dismissal hinges on credibility and timing and its resolution has certainly proven to be protracted, inconvenient, and will most likely cause delay in the distribution to creditors. Acosta is an articulate, educated man, who does not hesitate to represent himself, and for whom this case has consumed a great deal of his time and efforts. Both sides have not hesitated to appeal all the way up to the Supreme Court of Puerto Rico. We have no doubt that any judgment entered by the local court will also be appealed. The protracted history of the case has caused Acosta to hire about five attorneys to represent him, and there is no guarantee that current Special Counsel, hired on a contingency basis, will be able to represent the estate throughout a lengthy appeal and collection proceedings. The creditors in this case have been silent. Debtors have strenuously opposed all three offers. While Debtors have “prudential standing”® to be heard, once they chose to
‘ In re Godon, Inc., 275 B. R. 555 (Bkrtcy. E.D. CA 2002). His disagreement is considered in so far as he is affected by the settlement, as payment to allowed unsecured claims with 6% interest in this case adds up to about $125,663.16, with administrative expenses disclosed by the Trustee at $37,500. The . . 8
oluntarily file for bankruptcy and convert the case to Chapter 7, they surrendered the causes of action in the suit to the estate in bankruptcy, and the coritrol over its prosecution to the Trustee.’ Hence, he has authority to settle it over their objections, and his authority to do so is subject to court approval as discussed above.
After a review of the entire Situation, we conclude the Trustee exercised his business judgment in a fair and equitable anner when recommending the compromise of $600,000... The claim costa is giving up, that is the trial of his suit by the state court Judge, is outweighed by the interest of the estate’s creditors to have a real expectation of receiving complete payment of their claims, plus interest, within a reasonable period of time. The compromise at hand is the best assurance we have that this will indeed happen. Hence, the compromise is approved. We order the Clerk to. also notify a copy of this opinion and order to the Hon. Gloria Sierra at the following address, P.O.
only secured debt on file is held by the mortgagor whose collateral is Debtors’ residence. Although arrears are claimed, it may be that these are updated, as we have no request fora lift of stay filed in this case. Hence, Debtors may receive around $393,737, exclusive of arrears payable under the terms of the mortgage. 7 In re Mercury; 280 B. R. 35, 58-49 (Bkrtcy. $.D.N.Y. 2002), citing 2 Collier On Bankruptcy, { 323.03[2], at 323-8 (15 ed. rev.).
Box 6005, Arecibo, P.R. 00613-6005. All other creditors and arties in interest shall be notified electronically, or by regular mail to their addresses as these appear in the Clerk’s aster address list. SO ORDERED, in San Juan, Puerto Rico, on May 4, 2007.
DE ie . . U.S./ Bankruptcy Judge
Case:06-00559-SEK7 Doc#:160 Filed:05/04/2007 Page 1 of 4
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO IN RE: CASE NO. 06-00559 SEK IVAN ACOSTA RIVERA fe ANA A. BALSEIRO CHACON CHAPTER 7 DEBTORS MOTION TO SUBMIT AGREEMENT FOR SETTLEMENT OF CLAIMS AGAINST INSECO TO THE HONORABLE COURT: COME NOW, Chapter 7 Trustee, Wilfredo Segarra Miranda, represented by his attorneys ia Bankruptcy Court and before the Superior State Court of Arecibo and storey for INSECO In case pending before the Superior State Court of Arecibo and most respectfitlly states and prays: 1. On April 26%, 2006 Trustee Gled “Supplemental Motion two Trustee's Request for Authorization ta Settle Claim and Motion to Inform Increase of ‘Settiement” requesting the authorization of this Court to settle all claims pending In the civil cass number 98-0296 (404) before the Superior State Coust of Arecibo, Ivan Acosta ve. Industrial Systems and Equipment Co. (INSECO), Inc. , for the amount of $400,000.00. 2, Counsel for plaintiff and defeadant in the State Court Case have met with appearing Trustee and have agreed to settle al | claims pending before this Court and before the Superior State Court of Arecibo subject to the following terms and conditions: 8) Parties hereby acknowledge that the cause ofaction pending beforethe Superior State Court of Arecibo in case number 98-0296 (404) is part of the bankruptoy estate in case number 05-009!7 SEK, subject to the administration of the Chapter 7 Trustee and the jurisdiction of this Honorable Court to enter any order or Judgment in relation
- Case:06-00559-SEK7 Doc#:160 Filed:05/04/2007 Page 2 of 4
. perior State Court of Arecibo. . to the action ponding before mess the bankruptcy estate in “ty way the Chapter 7 Trustee for the benefit of b) INSECO will pay th . ims and $600,000.00 in payment all claims case number 06-0559 SEK, the amount of SOD°, uneriog State Court of Arecibo in case number causes of action set forth before the Superior . cums ns follows: First payment □□ 98-0296 (404), which shall be paid in two 1ump § bei ling of this $300,000.00 to be made within the next 60 days from the day of the ling with! 16 months motion and Second payment of $300,000.00 to be made within the nex
from the day of the filing of this motion. c) Appearing attorneys for pluintiff and defendant in the Superior Statc Co!
Acecibo will submit this agreement for the entry of judgment by the State Cour
pursuant to the terms and conditions af this agreement, which shall be final upon the entry of judgment end unappealable. d) Judgment entered by this Court approving the Instant stipulation shill be final and uneppealsble and shal! have res judicata effect upon any other proceeding pending before the U.S. Dissriot Court for the District of Puerto Rico, the Superior State Court of Puerto Rico or the Bankruptcy Court for the District of Puerto Rico. 3. Parties hereby specifically acknowledge and agree that the judgment entered by this Court authorizing the settlement set forth in this tnotion shall be binding to both parties, plaintiff □□□ _ defendant, in the case before the Superior State Court of Arectbo case number CPE 98-0296 (404) so that the State Court of Arecibo any enter judgment finalizing the state court case pursuant to the "terms of this Court's judgment. 4, INSECO hereby submits to the Jurisdiction of the Bankruptcy Court for the District of Puerto Rico so that it may enter any order or remedy necessary for the collection of the amount
Case:U6-QUS09-SEK/ VUocH 100 Filed Vo/U4i2uur rage 3 Or4
herein stipulated in any jurisdiction were INSECO may have operations included but not limited to operations in Puerto Rico and Mexico. Parties agree that the collection of the amounts stipulated herein shai] be made pursuant to the laws of the Bankruptcy Code, 11 U.S.C. sec. 101 et. seq. and supplementary by the Laws of the Commonwealth of Puerto Rico and INSECO hereby voluntarily
submits to the jurisdiction of the Bankruptcy Court for the District of Puerto Rico so that it may enter any order or remedy necessary for the collection of the amounts object of this motion. Parties further stipulate that the Bankruptcy Court for the District of Puerto Rico, honorable Judge Sura de Jesus shall retain jurisdiction over INSECO for the purposes of collecting the amounts stated herein, 5. Tho instant agreement does not constitute a waiver of Trustee's powers or duties to ise any and all other actions nevessary to administer the instant case pursuant to the provisions of the Bankruptcy Code,
WHEREFORE itis her chic us. : weno respectfully requested that this Honorabic Court grant this motion and thorize transaction in the amount of $600,000.09 pursuant to the tenns it □ the instant motion, and conditions ect forth in
□ HEREBY CERTiry : That : ai at the presen: moUOn was filed using the CM/ECR e] j ine System which will automati . eomonic. my BaUfy ottomey for debtors, Pablo oo Babloleeal@nree net and Mandrau Pirazzi, Esq, a debtors Ivan Acosta Ri and Ane A. Beles Within the system: and tp . Chactn at Ape B
Case:06-00559-SEK7 □ Doc#:160 Filed:05/04/2007 Page 4 of 4
RESPECTFULLY SUBMITTED, In San Juan, Puerto Rico this 1* day af May 2007,
fat Noe] Torres Rosado AZ □ aati Rivera PR Coleziado 16696 3 aisst0 e t f rd Poe Tustee in State Court Case Gunsel for Trustee Arecibo, bo, PR 00613 Gk yotho, PR Ct. / Fax. (787) 878. : ere 00570 (787) 878-8400 Tel. (787) 774-0224 Fax, (787) 793-1004 PR Cale ase feves 1 f oO romeo Cidra, PR 00739 (787) 258-344} (787) 258-3633