Depoister v. Mary M. Holloway Foundation

• Decision Date: 21 September 1994
• Docket Number: No. 93-4065,93-4065
• Citation: 36 F.3d 582
• Parties: Bankr. L. Rep. P 76,101 Randy DEPOISTER, Debtor-Appellant, v. MARY M. HOLLOWAY FOUNDATION, an Illinois not-for-profit corporation, the Estate of Randy M. Depoister, by James E. Stevens, Trustee, Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 582

36 F.3d 582

Bankr. L. Rep. P 76,101

Randy DEPOISTER, Debtor-Appellant, v. MARY M. HOLLOWAY FOUNDATION, an Illinois not-for-profit corporation, the Estate of Randy M. Depoister, by James E. Stevens, Trustee, Appellees.

No. 93-4065.

United States Court of Appeals Seventh Circuit.

Submitted June 3, 1994.

Decided Sept. 21, 1994.

Thomas A. Green, Barrick, Switzer, Long, Balsley & Van Evera, Rockford, IL, for trustee-appellee.

James E. Stevens, pro se.

Samuel S. McHard, Stephen T. Fieweger, Katz, McAndrews, Balch, Lefstein & Fieweger, Rock Island, IL, for appellee.

Eric C. Redman, Steven J. Halbert, Cohen & Malad, Indianapolis, IN, for debtor-appellant.

Before CUDAHY and MANION, Circuit Judges, and GORDON, District Judge. ^*

GORDON, District Judge.

The appellant, Randy Depoister, is the debtor in the underlying bankruptcy proceeding from which this appeal stems. He appeals the judgment of the district court affirming the bankruptcy court's approval of the trustee's settlement of the claims made against the bankruptcy estate by the Mary Holloway Foundation ["Foundation"]. Mr. Depoister maintains that approval of the compromise was improper because the procedure followed by the bankruptcy judge in reviewing the proposed compromise was deficient and because the approval lacks a sufficient factual basis. We affirm.

I. FACTS

Two estates are involved in this appeal: (1) the estate created by the death of Mary M. Holloway, and (2) the bankruptcy estate created by the involuntary bankruptcy petition of Mr. Depoister, the former director and president of the Foundation. Before the commencement of his involuntary bankruptcy proceeding, Mr. Depoister was appointed the executor of the estate of Ms. Holloway. Pursuant to the last will and testament of Ms. Holloway, which was executed on September 18, 1985, most of her estate was devised to the Foundation; this included a parcel of real estate consisting of approximately 160 acres referred to by Ms. Holloway as the "home place." The Foundation was formed on September 23, 1985, for various charitable and educational purposes.

The first codicil to her will was executed on October 8, 1985. In such codicil, Ms. Holloway stated her desire that the home place real estate not be sold by the Foundation. According to the second codicil to the will, executed on November 10, 1988, Ms. Holloway revoked the first codicil and devised the home place real estate to Mr. Depoister. On April 16, 1991, Ms. Holloway died, and her will and second codicil to the will were admitted to probate in the Lee County, Illinois, circuit court on May 6, 1991.

A petition to place Mr. Depoister into an involuntary liquidation proceeding under Chapter 7 of the Bankruptcy Code, 11 U.S.C. Secs. 701-766, was filed on June 5, 1991, in the United States bankruptcy court for the northern district of Illinois, western division. By court order of October 16, 1991, Mr. Depoister was placed into involuntary bankruptcy.

On October 15, 1991, the Foundation filed a petition contesting the second codicil of the will in the probate proceeding. The petition alleged that Mr. Depoister, as the director and president of the Foundation and Ms. Holloway's fiduciary, had exercised undue influence over Ms. Holloway in securing the second codicil to the will. The bankruptcy court, by order of February 13, 1992, found that the dispute over the second codicil was a "core proceeding" and that it would exercise jurisdiction over it.

In addition to contesting the will, the Foundation filed an adversary complaint against the bankruptcy estate in which it claimed that it had an expectancy interest in the home place real estate under a 1983 pledge agreement. It also claimed that Mr. Depoister had violated the fiduciary duty he owed to the Foundation and to Ms. Holloway. The Foundation sought the imposition of a constructive trust in connection with the home place real estate and a determination under 11 U.S.C. Sec. 541(d) that the home place real estate was not property of the bankruptcy estate.

In the adversary proceeding, the Foundation moved to disqualify Edward Maher as the lawyer representing the trustee on the ground that Mr. Maher had a conflict of interest. Also, the Foundation filed a motion, on behalf of the estate of Ms. Holloway, for leave to file a late claim against the bankruptcy estate.

In December 1992, the Foundation and the trustee agreed to settle all of the Foundation's claims against the bankruptcy estate. Pursuant to the settlement agreement, the Foundation was to pay $117,500 to the bankruptcy estate. In exchange, the bankruptcy estate was to waive any claim it had to the home place real estate under the second codicil of Ms. Holloway's will. The Foundation and the trustee were to stipulate that the second codicil of the will is null and void and that the bankruptcy court was to enter an order to this effect. In addition, the Foundation and the estate of Ms. Holloway agreed not to file any claims in Mr. Depoister's bankruptcy proceeding and the adversary proceeding was to be dismissed, with prejudice. With respect to the pending motions filed by the Foundation in the adversary proceeding, the Foundation was to withdraw its motion to disqualify Mr. Maher; the motion for leave to allow a late claim on behalf of the estate of Ms. Holloway was to be denied.

On January 29, 1993, the trustee filed a motion to approve the compromise between the bankruptcy estate and the Foundation. Mr. Depoister filed an objection to an approval of the compromise on February 17, 1993. A hearing on the motion to compromise was held by the bankruptcy court on February 23, 1993. When it was discovered that all of the creditors of the debtor's estate had not received notice, a second hearing was held on April 7, 1993.

In the course of these two hearings, the bankruptcy court received testimony from the trustee and arguments from counsel for the trustee, the Foundation, Mr. Depoister and various creditors. The bankruptcy court set forth its analysis of the dispute in a ten-page memorandum opinion issued on May 6, 1994. Over Mr. Depoister's objections, the bankruptcy court approved the settlement in an order dated May 7, 1993.

Mr. Depoister appealed to the district court raising two challenges to the bankruptcy court's approval of the compromise between the trustee and the Foundation. Specifically, he argued that: (1) the bankruptcy court failed to conduct an evidentiary hearing prior to approving the compromise in violation of Bankruptcy Rule 9019(a); and (2) the approval of the compromise lacked a sufficient factual basis. The Foundation maintained that the appeal should be dismissed because Mr. Depoister lacked standing to object to the bankruptcy court's order.

The district court rejected Mr. Depoister's contentions and affirmed the order of the bankruptcy court approving the compromise between the bankruptcy estate and the Foundation. The district court did not address the standing issue raised by the Foundation.

On appeal before this court, Mr. Depoister contests the bankruptcy court's order approving the compromise on the same grounds he advanced before the district court. In addition, the Foundation renews its argument that Mr. Depoister lacks standing. The parties waived oral argument, and their appeal was submitted to this court on the briefs alone.

II. ANALYSIS

A. Standing

The Foundation seeks dismissal of Mr. Depoister's appeal on the ground that he does not have standing to appeal the bankruptcy court's order approving the compromise of its claims against the bankruptcy estate. As this court has previously noted:

In order to appeal a bankruptcy court's order, a litigant must qualify as a "person aggrieved" by the order. In re El San Juan Hotel, 809 F.2d 151, 154 (1st Cir.1987). A "person aggrieved" by a bankruptcy order must demonstrate that the order diminishes the person's property, increases the person's burdens, or impairs the person's rights. See In re Fondiller, 707 F.2d 441, 442 (9th Cir.1983).

Matter of Andreuccetti, 975 F.2d 413, 416 (7th Cir.1992). In general, " '[o]nly those persons who are directly and adversely affected pecuniarily by an order of the bankruptcy court have been held to have standing to appeal that order.' " Matter of Andreuccetti, 975 F.2d at 416 (quoting Fondiller, 707 F.2d at 442).

Whether an appellant is a person aggrieved is ordinarily a question of fact for the district court. El San Juan, 809 F.2d at 154 n. 3 (citing In re E.C. Ernst, Inc., 2 B.R. 757, 760 (D.C.N.Y.1980)). However, in the instant case, the district court did not make this factual determination; we deem it appropriate to accept Mr. Depoister's calculations, as set forth in his schedule of assets and liabilities filed in connection with his bankruptcy proceeding, for the purpose of recognizing his standing to appeal the order of the bankruptcy court.

B. Procedural Challenge

Under Bankruptcy Rule 9019(a), the bankruptcy court may approve a compromise or settlement "[o]n motion by the trustee and after a hearing on notice to creditors the debtor and indenture trustee...." In conducting a hearing under Rule 9019(a), the bankruptcy court is to determine whether the proposed compromise is fair and equitable, Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424, 88 S.Ct. 1157, 1163, 20 L.Ed.2d 1 (1968), and in the best interests of the bankruptcy estate, In re American Reserve Corp., 841 F.2d 159, 161 (7th Cir.1987). In making this determination, a bankruptcy judge is required to apprise himself "of all facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should the claim be litigated." TMT Trailer Ferry, Inc., 390 U.S. at 424, 88 S.Ct. at 1163; see also American Reserve Corp., 841 F.2d at 161. To this end, the bankruptcy judge should:

form an educated estimate of the complexity, expense, and likely...