In re Boddie

• Decision Date: 24 May 2017
• Docket Number: Case No. 07–51645
• Citation: 569 B.R. 297
• Parties: IN RE: Karen Elaine BODDIE, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

569 B.R. 297

IN RE: Karen Elaine BODDIE, Debtor.

Case No. 07–51645

United States Bankruptcy Court, S.D. Ohio, Eastern Division.

Dated: May 24, 2017

OPINION AND ORDER GRANTING TRUSTEE'S MOTION TO APPROVE SETTLEMENT BETWEEN THE TRUSTEE AND PNC BANK, N.A.

C. Kathryn Preston, United States Bankruptcy Judge

This cause came on for hearing on September 16, 2016 (the "Hearing"), upon the Motion to Approve Settlement between the Trustee and PNC Bank, N.A. (Doc. # 311) (the "Compromise Motion"), filed by the Chapter 13 Trustee, Frank M. Pees ("Trustee"), and the response thereto (Doc. # 313) (the "Response"), filed by Karen Elaine Boddie ("Debtor"). Present at the hearing were Trustee, attorney Don Mains ("Mr. Mains") as counsel for Trustee, and Debtor, who appeared pro se .

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and General Order 05–02 entered by the United States District Court for the Southern District of Ohio, referring all bankruptcy matters to this Court. Venue in this Court is proper pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O).

The Court, having considered the testimony of witnesses, exhibits admitted into evidence, and the documents of which it has taken judicial notice,¹ makes the following findings of fact and conclusions of law.

I. Factual Background and Arguments of the Parties

A. Procedural History

On March 12, 2007, Debtor filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code. In due course, Debtor's proposed Chapter 13 Plan was confirmed. Sometime after the filing of the Chapter 13 case, Debtor acquired additional assets, including a civil claim (the "PNC Claim") against PNC Bank ("PNC"). These additional assets are property of the bankruptcy estate. See 11 U.S.C. § 1306. Debtor did not initially disclose the PNC Claim by filing amended schedules² ; she was under the impression she had properly disclosed the PNC Claim because she advised her counsel of its existence.³

In the latter half of 2011, Debtor engaged attorney Joseph S. Tann, Jr. ("Mr. Tann") to pursue the PNC Claim. At the time of the engagement, neither Debtor nor Mr. Tann filed an application with this Court seeking approval of his engagement and authorizing him to perform services on behalf of the Debtor or her bankruptcy estate. Mr. Tann (proceeding without court authority) ultimately prepared and filed a complaint against PNC.⁴

After Debtor completed the payments set forth in the Plan,⁵ Debtor filed the Third Motion of Debtor Karen Elaine Boddie for a Determination under Section 1325(c) of [Title] 11 of the United States Code (Doc. # 133) (the "Determination Motion"). According to the Determination Motion, the District Court had directed Debtor to seek a determination from this Court whether any recovery from the PNC Claim must be paid into Debtor's plan for the benefit of creditors. In addition, Debtor sought a determination whether the PNC Claim, along with other post-petition assets, were property of the bankruptcy estate. After a hearing held on May 10, 2013, this Court ruled, inter alia , that the PNC Claim was property of Debtor's bankruptcy estate. See Order Granting Third Mot. of Debtor Karen Elaine Boddie for a Determination under Section 1325(c) of Chapter [sic ] 11 of the United States Code and Directing United States Trustee to Review Case (Doc. # 138).

On May 27, 2013, Debtor filed a motion seeking authority to prosecute the PNC Claim on behalf of the estate (Doc. # 142), to which Trustee objected (Doc. # 152). After a hearing held on August 8, 2014, the Court denied Debtor's request and held that Trustee was the proper party to prosecute the PNC Claim. See Order Den. Debtor's Mot. for Authority to Proceed on Behalf of the Estate (Doc. # 207).

Subsequently, Debtor twice filed motions seeking approval of the employment of Mr. Tann as special counsel with respect to the PNC Claim. Objections were interposed by Trustee and the United States Trustee (the "UST"),⁶ and both motions were denied after a hearing.⁷

B. The PNC Claim and the Settlement

The PNC Claim resulted from Debtor's experience at a PNC branch located in or near Bexley, Ohio ("PNC Bexley"). On July 30, 2011, Debtor entered the PNC Bexley branch and requested transfer of $10,000.00 from her business account to her personal account, and sought to withdraw $6,000.00 in cash from her business account. Debtor had opened the PNC business account just three (3) days prior—on July 27, 2011—at a different PNC branch. At the time the business account was opened, Debtor deposited a check for approximately $54,000.00 from the Ohio Public Employee Retirement System (the "OPERS Check") into the account. PNC Bexley refused to honor Debtor's request to withdraw $6,000.00 in cash. According to Debtor, when she challenged PNC Bexley's refusal to honor the request, PNC Bexley summoned the police. Debtor was ultimately allowed to withdraw $1,000.00 in cash and transfer $15,000.00 to other accounts.⁸

Debtor alleges that PNC Bexley stated that it could not honor Debtor's request to withdraw $6,000.00 because it did not have sufficient funds on hand to honor it. Debtor—who is African–American—contends that this explanation was pretext, and that the refusal to honor her request, the use of such pretext, and the summons of the police department in response to her actions, were racially motivated and racially discriminatory.

Debtor claims that such discrimination has caused her to suffer emotional distress, that she has had to attend therapy as a result of the discrimination, and that she has been unable to work for five (5) years as a result of the discrimination.

Pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure, Trustee's Compromise Motion seeks authority to accept $50,000.00 in exchange for the full and final release of any and all claims against PNC (the "Settlement"). Trustee contends that the Settlement is reasonable in light of the circumstances of the case, and would result in a substantial increase in the dividend paid to general unsecured creditors. During his testimony at the Hearing, Trustee also expressed concerns regarding the feasibility of funding any continued litigation of the PNC Claim.

Debtor, however, urges the Court to reject Trustee's proposed settlement. In the Response, Debtor contends that Trustee (and his staff) do not have the necessary expertise to prosecute and/or negotiate settlement of the PNC Claim, that Trustee failed to avail himself of all relevant information prior to settling the matter, and that Trustee failed to involve Debtor in the settlement negotiations, which Debtor asserts was in contravention of this Court's order.⁹ At the Hearing, Debtor reasserted her complaint about not being involved in the settlement process, and argued that the Settlement is unreasonably low given the amount of mental anguish she has suffered (and continues to suffer) due to the alleged racial discrimination by PNC.¹⁰

II. Analysis

Rule 9019(a) of the Federal Rules of Bankruptcy Procedure provides, in pertinent part: "On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement." Fed. R. Bankr. P. 9019. The rule offers no guidance on the criteria to be used in evaluating whether a compromise should be approved; however, the Sixth Circuit Court of Appeals has articulated a "fair and equitable" standard that must be applied by bankruptcy courts when reviewing a proposed compromise. Waldschmidt v. Commerce Union Bank (In re Bauer) , 859 F.2d 438, 441 (6th Cir. 1988) (citing LaSalle Nat'l Bank v. Holland (In re American Reserve Corp. ), 841 F.2d 159, 161 (7th Cir. 1987) ).

In determining whether a compromise is fair and equitable, bankruptcy courts should consider the following factors:

(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.

Fishell v. Soltow (In re Fishell) , 47 F.3d 1168, 1995 WL 66622 at *3 (6th Cir. Feb 16, 1995) (quoting Martin v. Kane (In re A & C Properties) , 784 F.2d 1377, 1381 (9th Cir. 1986) ).

The responsibility of the bankruptcy court "is not to decide the numerous questions of law and fact raised by [the objecting party] but rather to canvass the issues and see whether the settlement ‘fall[s] below the lowest point in the range of reasonableness[.]’ " Cosoff v. Rodman (In re W.T. Grant Co.) , 699 F.2d 599, 608 (2d Cir. 1983) (citing Newman v. Stein , 464 F.2d 689, 693 (2d Cir. 1972) ). A bankruptcy court must make an "informed and independent judgment as to whether a proposed compromise is fair and equitable." Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson , 390 U.S. 414, 424, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968). However, "[t]he [bankruptcy] judge ... is not to substitute her judgment for that of the trustee, and the trustee's judgment is to be accorded some deference." Hicks, Muse & Co., Inc. v. Brandt (In re Healthco Int'l, Inc.) , 136 F.3d 45, 50 n.5 (1st Cir. 1998) (quoting Hill v. Burdick (In re Moorhead Corp.) , 208 B.R. 87, 89 (1st Cir. B.A.P. 1997) ) (brackets and ellipsis in original).

Moreover, "the Court must consider the principle that law favors compromise." In re Goldstein , 131 B.R. 367, 370 (Bankr. S.D. Ohio 1991) (citation omitted).

[T]he very uncertainties of outcome in litigation, as well as the avoidance of wasteful litigation and expense, lay behind the Congressional infusion of a power to compromise. This is a recognition of the policy of the law generally to encourage settlements. This could hardly be achieved if the test on hearing for approval meant establishing success or failure to a certainty.

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