In re Lush
| Decision Date | 01 October 2015 |
| Docket Number | CASE NO. 10–15774–NPO |
| Citation | 544 B.R. 575 |
| Parties | In re: Mary Jean Lush, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Mississippi |
Susan C. Smith, Greenville, MS, for Debtor.
This matter came before the Court for hearing on August 13, 2015 (the "Hearing") on the Trustee's Motion to Modify Confirmed Plan (the "Motion to Modify") (Dkt.146) filed by Locke D. Barkley, the chapter 13 trustee (the "Trustee"), and the proposed Agreed Order Re: Motion to Modify (Dkt.# 146) (the "Agreed Order") (Dkt.159) submitted by the Trustee in the above-styled chapter 13 bankruptcy case (the "Case"). At the Hearing, Susan C. Smith ("Smith") represented the debtor, Mary Jean Lush (the "Debtor"), and G. Adam Sanford ("Sanford") appeared on behalf of the Trustee. Having fully considered the matter, the Court finds as follows:
Jurisdiction
The Court has jurisdiction over the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L).
1. The Debtor filed a voluntary petition for relief pursuant to chapter 13 of the Bankruptcy Code1 on November 23, 2010 (the "Petition") (Dkt.1).
2. The Debtor filed her chapter 13 plan (the "Plan") on December 7, 2010 (Dkt.14). The Plan provided for a sixty (60) month term and a minimum 5% pro rata distribution to unsecured creditors that filed timely proofs of claim. The Plan was confirmed on June 6, 2011 (Dkt.68).
3. The Debtor filed an amended Schedule B–Personal Property2 on March 30, 2015 (Dkt.139) showing that she ‘gained possession of a money market account (the ‘Account‘) containing $51,926.00.‘3 (Mot. to Modify at ¶ 3).
4. On April 23, 2015, the Trustee filed the Motion to Modify informing the Court, upon information and belief, that the Debtor had inherited $51,926.00. The Trustee asked the Court to require the Debtor to withdraw the inherited funds from the Account and turn them over to the Trustee for distribution to the unsecured creditors that filed timely proofs of claim.
5. The parties submitted the Agreed Order to the Court for approval on July 21, 2015. The Agreed Order provided that the Debtor would remit $26,000.00 to the Trustee for distribution to the unsecured creditors, except Sallie Mae, Inc. ("Sallie Mae"), a student loan creditor. The Debtor would pay Sallie Mae directly, and the student loan debt would not be subject to discharge under § 523(a)(8). The balance in the Account, approximately $25,826.00, would remain with the Debtor. The effect of the Agreed Order would be to remove Sallie Mae from the Plan so that it has no assurance that it will be paid from the funds kept by the Debtor.
6. At the Hearing, Sanford deferred to Smith, who argued that because the Debtor is "69–years–old, frail, and unemployed," the Agreed Order should be signed. She stated that the Debtor is in poor health and rents a home near her daughter. She argued that Sallie Mae and the remaining general unsecured creditors somehow would receive the same treatment because student loans are nondischargeable. At the end of the Hearing, the Court instructed the parties to submit legal authority supporting the Agreed Order's treatment of Sallie Mae.
7. On September 3, 2015, Sanford submitted a brief in the form of a letter in support of the Agreed Order (the "Letter").4 Sanford argued that student loans are distinguishable from general unsecured debt because they are nondischargeable. Sanford concluded, however, that under the unfair discrimination test set forth in Chacon v. Bracher (In re Chacon), 202 F.3d 725, 726 (5th Cir.1999), removing Sallie Mae from the Plan "should be considered unfair discrimination." (Letter at 2). Sanford noted that absent the discrimination against Sallie Mae, general unsecured claims would not be paid in full. (Id. ) He further argued that the discrimination would allow the Debtor to pay her student loans post-discharge. (Id. )
8. On September 7, 2015, Smith submitted a brief (the "Brief"), essentially reneging the Agreed Order. Smith explained that after the Debtor paid the required taxes, she received $51,826.00 from the decedent's assets, $21,276.29 of which was directly attributable to the decedent's life insurance policy. She stated that the Debtor no longer agreed to use any part of her inherited assets to fund the Plan. Smith argued that at least $50,000.00 of the funds from the Account are exempt under Mississippi's wildcard exemption. She argued in the alternative that the proceeds of the decedent's life insurance policy, $21,276.29, should be exempt from the Debtor's bankruptcy estate (the "Bankruptcy Estate") altogether under MISS. CODE ANN. § 85–3–11. Apparently, the Debtor intends to retain the entire sum of the Account to pay for health expenses due to complications from diabetes.
After the Plan was confirmed, the Debtor inherited $51,826.00. The Trustee filed the Motion to Modify so that he could distribute the money to all general unsecured creditors, including Sallie Mae, on a pro rata basis. Then, the parties executed the Agreed Order. After the Hearing, the Debtor submitted the Brief, reneging the Agreed Order and stating that she would keep all of the money for herself. The issue before the Court is whether the entire sum of the Account is property of the Bankruptcy Estate subject to pro rata distribution to all of the Debtor's unsecured creditors, including Sallie Mae.
Both parties initially argued that the Agreed Order does not unfairly discriminate against Sallie Mae. When Smith filed the Brief, however, she abandoned that argument and reneged on the Agreed Order. Either way, the Debtor's student loans have been outstanding for twenty-five to thirty years, and she seeks to delay repayment even longer. The Debtor now asks this Court to exempt the entire sum of the Account from the Bankruptcy Estate. Alternatively, she asks the Court to exempt at least the life insurance proceeds pursuant to MISS. CODE ANN. § 85–3–11. The Court will begin by determining whether the Agreed Order is binding and enforceable. Next, the Court will determine whether any amount of the Debtor's inheritance is exempt from the Bankruptcy Estate. Finally, the Court will determine whether the Motion to Modify should be granted.
After the parties executed the Agreed Order modifying the Plan, Smith filed the Brief arguing that the Debtor would not honor the agreement because she needed to keep all of the money to pay medical expenses. The Agreed Order is binding on the Debtor despite her attempt to renege.
The Fifth Circuit Court of Appeals has always looked positively upon settlement agreements as a "favored means of resolving disputes." Hyperion Found., Inc. v. Academy Health Center, Inc. (In re Hyperion Found., Inc.), Adv. Proc. 09–05043–NPO, 2009 WL 3633878, *3 (Bankr.S.D.Miss. Oct. 27, 2009) (citing Thomas v. La., 534 F.2d 613, 615 (5th Cir.1976) ). Additionally, it is clear that "settlement agreements, when fairly arrived at and properly entered into, are generally viewed as binding, final, and as conclusive of the rights of the parties as is a judgment entered by the court." Rodriguez v. V IA Metro. Transit Sys., 802 F.2d 126, 128 (5th Cir.1986) (citing Thomas, 534 F.2d at 613 ) and Cia Anon Venezolana de Navegacion v. Harris, 374 F.2d 33 (5th Cir.1967) ). Settlement agreements may not be repudiated "[a]bsent fraud, deception, coercion or overarching." Id. at 129 (citing Strange v. Gulf & S. Am. Steamship Co., Inc., 495 F.2d 1235 (5th Cir.1974) ).
In light of these principles, the bankruptcy court has the inherent power to not only recognize and encourage settlements, but also to enforce such agreements. Hyperion Found., Inc., 2009 WL 3633878, at *3 (citing Bell v. Sche x nayder, 36 F.3d 447, 449 (5th Cir.1994) ). Such power to recognize and enforce settlements supports what the Fifth Circuit has described as "three important goals encouraged by our judicial system: voluntary settlements of disputes, the enforcement of agreements according to the objective intent of the parties, and an end to litigation." Bell, F.3d at 450.
Unless there is a federal jurisdiction issue involved in the creation of the agreement, a federal court must determine whether an agreement was reached under applicable state law. Resolution Trust Corp. v. Accardo, No. 93–0976, 1995 WL 479720 (E.D.La. Aug. 11, 1995). The same holds true in the bankruptcy court's enforcement of settlements. See, e.g., Equity Mgmt. II Corp. v. Carroll Canyon Assocs. (In re Carroll Canyon Assocs.), 73 B.R. 236, 238 (S.D.Miss.1987). The Fifth Circuit addressed a bankruptcy trustee's motion to enforce the terms of a settlement agreement in Houston v. Holder (In re Omni Video, Inc.), 60 F.3d 230, 232 (5th Cir.1995), finding that because bankruptcy law does not address the validity of settlement agreements, courts should look to state law in determining enforceability.
To that end, Mississippi recognizes that settlements are contracts, which are enforceable according to their terms. Parmley v. 84 Lumber Co., 911 So.2d 569, 572 (Miss.Ct.App.2005) ; Middlesex Banking Co. v. Field, 84 Miss. 646, 37 So. 139, 149 (1904) (Truly, J., specially concurring). Based on the foregoing law, this Court applied Mississippi law in determining whether the parties entered into a contract, and, if so, whether it should be enforced in Hyperion Foundation, Inc., 2009 WL 3633878 at *6. It is "elementary" that in order for there to be a settlement, the minds of the parties must meet as to the material terms of the agreement. Id. (). No "meeting of the minds" can occur until the terms of an offer are accepted. See, e.g., In re Estate of Davis, 832 So.2d 534, 537 (Miss.Ct.Ap...
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