In re McInerney

• Decision Date: 07 August 2014
• Docket Number: No. 11–58953.,11–58953.
• Citation: 516 B.R. 171
• Parties: In re Michael E. McINERNEY, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

516 B.R. 171

In re Michael E. McINERNEY, Debtor.

No. 11–58953.

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed Aug. 7, 2014.

Elias Xenos, Birmingham, MI, for Debtor.

OPINION REGARDING THE CHAPTER 7 TRUSTEE'S SECOND MOTION FOR APPROVAL OF SETTLEMENT

THOMAS J. TUCKER, Bankruptcy Judge.

I. Introduction

This case is before the Court on the Chapter 7 Trustee's motion entitled “Chapter 7 Trustee's Second Motion Pursuant to Fed. R. Bankr.P. 9019 to Authorize and Approve Settlement Agreement By and Between Chapter 7 Trustee and Charles E. Becker, Charles E. Becker as Trustee under Trust Agreement of Charles E. Becker Dated September 16, 1997, as Amended, and Becker Ventures, LLC.”¹ The Motion seeks to compromise, for $1 million, claims that Debtor asserted against Charles E. Becker and Becker Ventures, LLC in a lawsuit Debtor filed prepetition, seeking in excess of $9 million in damages. The Debtor and certain creditors object to the Motion. The objecting creditors are Alan Ackerman; Ackerman Ackerman & Dynkowski; Mark W. McInerney (the Debtor's brother); James Dales; Stephen Wheeler; and Bush Seyferth & Paige, PLLC.

The Court held a hearing on the Motion, and then took it under advisement. For the reasons stated in this opinion, the Court will grant the Motion.

II. Discussion

The present Motion seeks approval of a settlement that, except for the amount, is the same as a settlement that the Court previously refused to approve, in the Court's opinion and order filed on October 17, 2013.² The Court's opinion is reported at 499 B.R. 574.

The amount of the settlement that the Court disapproved was $250,000.00. The current proposed settlement amount, by contrast, is $1 million.

In its prior opinion, the Court concluded, after a lengthy discussion, that the proposed $250,000.00 settlement was “not fair and equitable, [was] unreasonably low, [was] not in the best interests of creditors and the estate, and should not be approved.” 499 B.R. at 598–99. The question now before the Court, in effect, is whether the same things are true of the current proposed settlement. Or are things different this time?

The Court concludes that things are indeed materially different this time, and that the current proposed settlement meets the standards for approval, and should be approved.

To begin with, the Court incorporates by reference, and adopts as part of this opinion, everything the Court stated in its earlier opinion in the following parts of that opinion, all of which, the Court concludes, apply to the present (second) settlement Motion as well: Parts I (Background);³ II (Jurisdiction);⁴ III.A (Discussion: Standards for approval or disapproval of a settlement agreement);⁵ and III.C.1.a (probability of success in the pending state court appeals).⁶ And except to the extent that it is inconsistent with what the Court says in this opinion, below, the Court also incorporates by reference, and adopts as part of this opinion, what it said in Part III.C.1.b (probability of success at a trial in the state court on remand, after likely success on appeal, including probability of Debtor persuading the fact finder that the alleged 15% Oral Agreement actually existed).⁷

Next, the Court adopts and incorporates by reference into this opinion what it said in Part III.C.2 of its earlier opinion (the amount of damages and the collectibility factor),⁸ and supplements that with the following. The Trustee on the one hand, and the Debtor and objecting creditors on the other hand, continue to dispute how much in damages can be proven at any state court trial of the claim against Becker. In his Motion and at the hearing on the second settlement Motion, the Trustee argued that the provable damages would be $5.324 million, at most. The Debtor, on the other hand, argued at the hearing that the provable damages would be as high as $14.393 million. It is not necessary for the Court to decide who is right about this, however, because even if the Court assumes that the Debtor is right, the Court would still approve the presently-proposed settlement.

Next, the Court concludes that the following things are materially different at this time, and with respect to the current proposed settlement, compared to at the time of the Court's earlier opinion disapproving the earlier, $250,000.00 settlement:

1. The $1 million settlement amount proposed now is quadruple the amount proposed before, and is obviously a very substantial “bird in the hand”⁹ for the bankruptcy estate, if the settlement is approved. And the $1 million amount, if approved, would result in the payment in full of Chapter 7 and Chapter 11 administrative expenses, priority claims, and a substantial distribution to non-priority, unsecured creditors other than Becker (who has agreed as part of the settlement to subordinate his claim against the estate in favor of the other unsecured creditors).

2. At this time, the Court finds that the Debtor is unlikely to be a credible witness in any trial of the claim against Becker. The Debtor is unlikely to be believed by the state court fact-finder on his claim, which is based entirely on the alleged 15% Oral Agreement that Debtor says he made with Becker, but which Becker denies. This greatly diminishes the likelihood that the claim against Becker would prevail at trial, if the proposed settlement of that claim is not approved.

The Court bases its assessment of Debtor's credibility on the following. Several months after this Court issued its October 17, 2013 opinion denying approval of the earlier proposed settlement, the Court entered judgment, in two related adversary proceedings, denying the Debtor's discharge under 11 U.S.C. § 727(a)(4)(A). Those judgments were entered after the Court made written factual findings that the Debtor was not a credible witness; that he intentionally had been dishonest; that he had made several false oaths, with fraudulent intent, in connection with this bankruptcy case; and that he lied in his testimony at trial of the adversary proceedings.

The Court made these findings after conducting a bench trial on December 3 and 17, 2013, in two consolidated adversary proceedings brought by the Chapter 7 Trustee and the Becker parties, objecting to the Debtor's discharge.¹⁰ In the Court's written Trial Opinion, filed April 11, 2014,¹¹ which is reported at 509 B.R. 109, the Court found that “the Debtor [made] several false statements material to his bankruptcy case under oath, both knowingly and with fraudulent intent.” 509 B.R. at 117. The Court's Trial Opinion discussed those false statements in detail, and the Court incorporates that discussion into this opinion, by reference. See id. at 117–123. And the Court found that the Debtor had testified falsely under oath in several ways during the trial. See id. at 119 (“Debtor's testimony at trial [regarding a particular point] was simply false.”); 120 (finding that the Debtor's explanation of another point, in his trial testimony, was “false”); 121 (“And Debtor made another false oath under § 727(a)(4)(A), in his testimony at trial, when he knowingly gave a false explanation of his failure to list this property in his initial Schedule B.”)

One of the creditors objecting to the Trustee's second settlement motion, the law firm Bush Seyferth & Paige, PLLC, represented the Debtor for a time in his state court litigation against Becker. But that objecting creditor, in the past, has accused the Debtor of fraud and dishonesty, and even obtained a consent judgment against the Debtor in which the Debtor admitted to having committed fraud. The Court described this in detail in its Trial Opinion in the adversary proceedings, 509 B.R. at 122–23 :

The Court notes that although it would make the same findings and conclusions that it has made in this opinion, above, without the following, the following evidence seriously damaged Debtor's credibility during the trial of these cases. And the following further supports the Court's findings and conclusions above.

Before Debtor filed this bankruptcy case, he was sued in the Oakland County Circuit Court by the law firm Bush Seyferth & Paige, for fraud. Debtor consented to a judgment for $300,000 in favor of the Bush Seyferth firm, and a consent judgment was entered on or about May 23, 2011. In connection with that consent judgment, Debtor signed a settlement agreement with the Bush Seyferth firm dated April 26, 2011, in which the Debtor specifically admitted “that he committed fraud in the manner alleged by [Bush Seyferth in its complaint]” and specifically admitted “the truth of the allegations set forth in paragraphs 35 through 67 [of the Bush Seyferthcomplaint].” Thus, Debtor admitted in writing the following allegations: that the Debtor induced Bush Seyferth to agree to represent him, and to continue representing him, in Debtor's litigation against the Becker Parties, by knowingly making false representations to Bush Seyferth that Debtor had set aside funds to pay Bush Seyferth for the litigation, but Debtor knew these statements were false when he made them. Debtor further admitted, as the complaint

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