In re Boyer

• Decision Date: 01 August 2007
• Docket Number: Bankruptcy No. 01-32712 (LMW).,Civil Action No. 3:06-cv-01866 (VLB).
• Citation: 372 B.R. 102
• Parties: In re George K. BOYER, Debtor. Republic Credit Corporation I, Appellant, v. George K. Boyer, Appellee.
• Court: U.S. District Court — District of Connecticut

Page 102

372 B.R. 102

In re George K. BOYER, Debtor Republic Credit Corporation I, Appellant, v. George K. Boyer, Appellee.

Bankruptcy No. 01-32712 (LMW).

Civil Action No. 3:06-cv-01866 (VLB).

United States District Court, D. Connecticut.

August 1, 2007.

James S. Brownstein, Kantrovitz & Brownstein, P.C., Woodbridge, CT, Richard Simonson, Dubicki, Camassar, & Simonson LLP, New London, CT, for Debtor.

MEMORANDUM OF DECISION AFFIRMING BANKRUPTCY COURT ORDER

BRYANT, District Judge.

This appeal arises from the Chapter 7 bankruptcy proceeding initiated by the debtor, George K. Boyer ("debtor"), on May 24, 2001. The appellant, Republic Credit Corporation I ("Republic"), one of the debtor's unsecured creditors, appeals from the order of the bankruptcy court approving the settlement of certain constructive trust claims against numerous individuals and entities associated with the debtor. See In re Boyer, 354 B.R. 14 (Bankr.D.Conn.2006). Republic claims that the bankruptcy court improperly approved the settlement because Republic had submitted higher settlement offers to the Chapter 7 trustee, Ronald I. Chorches ("trustee"), who declined to submit the offers to the court for approval. For the reasons given below, the order of the bankruptcy court is AFFIRMED.

The following facts are relevant to this appeal. On July 18, 2003, approximately two years after the debtor filed his Chapter 7 petition, Republic filed a complaint against him, seeking a denial of discharge pursuant to 11 U.S.C. § 727(a). Section 727(a) provides, inter alia, that the bankruptcy court "shall grant the debtor a discharge" as long as the debtor has not engaged in fraudulent transfers.¹ Republic alleged that the debtor had maintained a secret interest in certain real and personal property that he transferred to his wife, Mary Boyer, for no consideration in the 1980s. Republic further alleged that the debtor's son, Kenneth Boyer, employed the debtor but paid his wages directly to Mary Boyer.

On the basis of Republic's allegations, as well as examinations of the debtor, Mary Boyer, and Kenneth Boyer pursuant to Fed. R. Bankr.P.2004, the trustee sought to impose a constructive trust on the assets transferred to Mary Boyer. Thereafter, Mary Boyer offered to settle the constructive trust claims for $85,000. On March 2, 2005, the trustee filed a motion to compromise pursuant to Fed. R. Bankr.P. 9019(a), which provides: "On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement." The trustee recommended the approval of the settlement because he believed that litigating the constructive trust claims would be too difficult, expensive, and time consuming.

Republic objected to the motion to compromise and offered to purchase all of the constructive trust claims from the trustee for $90,000. Although Republic's offer was higher than Mary Boyer's offer, the trustee determined that the bankruptcy court would not approve the sale of the constructive trust claims to an objecting creditor. The trustee therefore presented only Mary Boyer's offer to the bankruptcy court. On November 14 and December 19, 2005, the bankruptcy court held a hearing on the motion to compromise. The hearing included testimony by the debtor, the trustee, and John O'Neil, an attorney who is an expert or constructive trust claims. After the hearing began, Republic made a second offer to pay the trustee $90,000 if he abandoned the constructive trust claims pursuant to 11 U.S.C. § 554(a), which provides: "After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate." Republic's second offer also included an additional payment to the estate of 10 percent of any recovery obtained from litigating the constructive trust claims. The trustee did not respond to that offer.

The bankruptcy court issued its order approving the settlement between the trustee and Mary Boyer on October 19, 2006. The court credited the trustee's testimony that the settlement was reasonable; that the constructive trust claims otherwise had little value; and the trustee's opinion that the debtor probably had not engaged in any fraudulent transfers. The court also credited O'Neil's testimony that litigating the constructive trust claims would be fruitless. In re Boyer, 354 B.R. at 33-34. In examining alternatives to the settlement with Mary Boyer, the court concluded that it would not have approved Republic's first offer to purchase the constructive trust claims. The court noted that the trustee had not consented to that offer and that accepting the offer "would foment useless litigation and is against public policy." Id. at 35. As to Republic's second offer to pay the trustee to abandon the constructive trust claims, the court determined that abandonment was not an option available to the trustee. The court explained that the claims could be abandoned only if they were "burdensome" or "of inconsequential value to the estate" pursuant to 11 U.S.C. § 554(a). Because Mary Boyer offered to purchase those claims for $85,000, and Republic offered $90,000, they were clearly not "of inconsequential value." Id. The court accordingly granted the trustee's motion to compromise. Republic then filed this appeal.

Jurisdiction over this appeal is conferred by 28 U.S.C. § 158(a)(1). In reviewing the bankruptcy court's order, Fed. R. Bankr.P. 8013 provides in relevant part: "Findings of fact ... shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of witnesses." "A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.... The bankruptcy court's conclusions of law, however, are reviewed de novo." In re Guadalupe, 365 B.R. 17, 19 (D.Conn.2007).

"[T]he bankruptcy judge is uniquely positioned to consider the equities and reasonableness of a particular compromise, and [the judge's] evaluations and acceptance of the compromised settlements are entitled to deference on a review.... Thus the Bankruptcy Court's determination that the settlements are reasonable should not be overturned unless it is manifestly erroneous or an abuse of discretion." In re Tower Automotive, Inc., 241 F.R.D. 162, 166 (S.D.N.Y.2006). "In reviewing a settlement, it is the Bankruptcy Court's responsibility, and [the District] Court's upon review, to canvass the issues raised and see whether the settlement falls below the lowest point of reasonableness .... The reviewing court, however, may not simply rubber stamp the recommendation of a trustee or debtor in possession but, instead, must make an independent, full and fair assessment of the wisdom of the proposed compromise." Id. at 170. "Courts reviewing proposed settlements under Rule 9019 generally consider the following factors: (1) the probability of success in litigation, (2) the difficulties, if any, that might be encountered in collecting a judgment, (3) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it, and (4) the paramount interest of creditors and a proper deference to their reasonable views." Id.

On appeal, Republic claims that the bankruptcy court improperly approved the settlement between the trustee and Mary Boyer because...