In re Patel

• Decision Date: 17 October 1984
• Docket Number: No. 84 C 5289.,84 C 5289.
• Citation: In re Patel, 43 B.R. 500 (N.D. Ill. 1984)
• Court: U.S. District Court — Northern District of Illinois
• Parties: In re Babu K. PATEL, Debtor. ESTATE OF Babu PATEL, Ilene F. Goldstein, Plaintiff, v. Babu PATEL, Meena Patel, Jean Trudan, individually; Babu Patel d/b/a Patel Management; MAJS Investment Corp., an Illinois corporation; MBA Management Corp., an Illinois corporation; Albany Bank & Trust Company, a national banking association, as Trustee under Trust Agreement dated October 13, 1980, and known as Trust No. 11-3962; Lake View Trust & Savings; and Sheriff of Cook County, Illinois, Defendants.

43 B.R. 500 (1984)

In re Babu K. PATEL, DebtorESTATE OF Babu PATEL, Ilene F. Goldstein, Plaintiff, v.Babu PATEL, Meena Patel, Jean Trudan, individually; Babu Patel d/b/a Patel Management; MAJS Investment Corp., an Illinois corporation; MBA Management Corp., an Illinois corporation; Albany Bank & Trust Company, a national banking association, as Trusteeunder Trust Agreement dated October 13, 1980, and known as Trust No. 11-3962; Lake View Trust & Savings; and Sheriff of Cook County, Illinois, Defendants.

No. 84 C 5289.

United States District Court, N.D. Illinois, E.D.

October 17, 1984.

Ilene F. Goldstein, Chicago, Ill., trustee on behalf of debtor's estate,

James N. Mrowicki, Chadwell & Kayser, Ltd., Chicago, Ill., for plaintiff and trustee-appellee,

Stan Papuga, Kropik, Papuga & Shaw, Chicago, Ill., for defendantJean Trudan,

Eugene Crane, Crane, Heyman & Haas, Chicago, Ill., for defendantMeena Patel.

Gary Tucker, and John H. Redfield, Chicago, Ill., for defendant and debtor-appellantB. Patel.

ORDER

BUA, District Judge.

Babu Patel("Debtor") appeals an order entered by Bankruptcy Judge Frederick Hertz in 84 A 0486(83 B 11544—Chapter 11 Proceedings)(Bankr.N.D.Ill. April 30, 1984).The issues presented on appeal are: (1) whether the Court has jurisdiction to hear this appeal; (2) whether the notice under Rule 2002(a)(3) was required in this case; (3) whether the bankruptcy court was clearly erroneous in denying debtor's request to amend his Chapter 11 schedules; and (4) whether the bankruptcy court abused its discretion in approving the settlement order.For the reasons stated herein, the Court concludes that: (1) it has jurisdiction to hear this appeal; (2) notice under Rule 2002(a)(3) was excused for good cause shown by the bankruptcy court; (3)the bankruptcy court was not clearly erroneous in denying the debtor's request to amend his schedules; and (4)the bankruptcy court did not abuse its discretion in approving the settlement order.Therefore, the April 30, 1984 order is affirmed.

I.FACTS

Prior to November, 1980, Jean Trudan owned legal title to property commonly known as 4328-36 North Hermitage, Chicago ("Hermitage").On or about November 3, 1980, Hermitage was conveyed by Trudan to the Albany Bank as Trustee under a land trust arrangement.At that time, debtor was the 100 percent owner of the beneficial interest in the land trust and possessed the sole power of direction over the trust.Subsequently, Albany Bank at the debtor's direction executed an installment note and mortgage to Trudan, as mortgagee, in the amount of $335,000.Further, debtor personally guaranteed the entire indebtedness to Trudan.Debtor, individually and through Patel Management Corp., collected rents, leased apartments, and generally managed, operated and controlled Hermitage.

On or about June 17, 1982, debtor transferred without consideration his interest in the land trust (Hermitage) to MAJS Investment Corporation.The stock in MAJS, incorporated 27 days earlier, is purportedly owned by debtor's wife, Meena Patel.However, debtor remained personally liable on the mortgage note executed by Albany Trust and MAJS assumed no liability towards Trudan.Further, debtor individually and through Patel Management Corp. and MBA Management Corp. continued to manage, operate and control Hermitage.

On or about September 20, 1983, debtor filed a Chapter 11 petition.In re Babu Patel,83 B 11544(Bankr.N.D.Ill. filed September 20, 1983).The initial schedules filed by debtor in his bankruptcy proceedings listed no interest in Hermitage.Later, however, debtor attempted to amend his Chapter 11 schedule to list Hermitage as real property of the debtor.

Prior to the Chapter 11 filing, on March 23, 1983, Trudan filed a complaint to foreclose the mortgage on Hermitage.Named as defendants were Albany Bank as Trustee; the debtor individually and doing business as Patel Management and Patel Management Inc.; and MAJS Investment Corp. Trudan v. Albany Bank & Trust Co., 83 CH 2373(Cir.Ct. Cook Co.March 23, 1983).On September 30, 1983, the Circuit Court entered a foreclosure judgment providing for a six-month period of redemption from the date of the foreclosure sale.The foreclosure sale was held on October 26, 1983 and a certificate of sale was issued to Trudan as the purchaser at a price of $357,471.96.According to the certificate of sale, the period of redemption expires on April 27, 1984, at which time a deed will be issued to Trudan.

On February 17, 1984, Ilene F. Goldstein's appointment to serve as Trustee for the debtor's estate was accepted.On April 24, 1984, the Trustee filed this action, an Adversary Complaint on behalf of the debtor's estate to recover Hermitage, which was allegedly fraudulently conveyed by the debtor to his wife and MAJS and to recover rents received by his wife and MAJS from that property and for other relief.Named as defendants in this action are: the debtor, his wife, Trudan, MAJS, MBA, Patel Management Corp. and other nominal defendants.The Trustee and Trudan settled their dispute on April 26, 1984.The action is still pending concerning various claims against the other defendants.

The settlement gives the Trustee the right to sell Hermitage, collect the proceeds from the sale in order to distribute them according to the agreement, and to manage the building and collect rental payments up to the time of the sale.The Trustee has the right to sell Hermitage for six months from the latter of, the date of the issuance of the sheriff's deed or the final determination of the state court proceedings.In return, Trudan receives a monthly payment of $3,457 (the minimum Trudan would have received under Sections 363and364 of the Bankruptcy Code,11 U.S.C. §§ 363and364, as adequate protection payments) during the period the Trustee manages Hermitage.If the Trustee sells Hermitage, Trudan will receive the amount of the foreclosure judgment, payment of her reasonable attorneys' fees, and $25,000 in consideration for the agreement.If Hermitage is sold for more than $600,000, Trudan will receive 50 percent of the proceeds necessary to recover missing security deposits up to $12,000.The Trustee is entitled to the remaining amounts.Trudan also has the right to an apartment in Hermitage for life.

If the Trustee can't sell Hermitage, Trudan may offer it for sale, subject to the estate's right of first refusal.The right of first refusal by the estate is for six months after the expiration of the Trustee's six-month period.The sale proceeds will be distributed in the same manner as if the Trustee sold Hermitage.The sale and all costs attendant to it are subject to the bankruptcy court's approval.

The settlement did not dismiss the adversary proceedings, since recovery for rental payments and other relief is still being pursued.The bankruptcy court held two days of hearings on April 26 and 27, 1984, regarding the settlement order.On April 30, 1984, the bankruptcy court entered an order approving the settlement agreement between the Trustee and Trudan.

II.DISCUSSION

In reviewing a decision of the bankruptcy court, the district court must accept the bankruptcy court's findings of fact unless they are clearly erroneous.Rule 8013 of the Rules of Bankruptcy Procedure.Nigro v. Estate of Chung King, Inc.,35 B.R. 420, 422(N.D.Ill.1983).Legal determinations by the bankruptcy court generally may be reversed if they are "contrary to law."Id.

1.Jurisdiction To Hear Appeal

Debtor-appellant argues that the Court has jurisdiction to review this appeal from the bankruptcy court.He contends that an order by a bankruptcy court approving a compromise or settlement is final and therefore appealable under 28 U.S.C. § 1334(a).Trustee-appellee counters with authority that a denial of a compromise or settlement is not an appealable order under § 1334(a).Therefore, she concludes that no decision relating to a settlement is appealable under either § 1334(a) or (b).

Section 1334 governs appeals from bankruptcy courts and states that a district court"shall have jurisdiction of appeals from all final judgments, orders, and decrees of bankruptcy courts."28 U.S.C. § 1334(a)(1984).An order denying or disapproving of a compromise or settlement is clearly not a final order under § 1334(a), In re Tidewater Group, Inc.,22 B.R. 500, 504(N.D.Ga.1982).However, a bankruptcy order approving a settlement is final and appealable under § 1334(a) because it determines the rights of the parties to the settlement.In the Matter of Merle's, Inc.,481 F.2d 1016, 1018(9th Cir.1973).While the opinion in Merle's applied to 11 U.S.C. § 47(a), which preceded 28 U.S.C. § 1334(a) in defining the appealability of bankruptcy orders, the Court finds that the same reasoning should apply to § 1334(a).

In the present case, the Trustee and Trudan entered into the settlement order which was approved by the bankruptcy court.The order provides for the dismissal of Trudan as a defendant in this action and settles the Trustee's claim in Hermitage.With respect to the parties to the settlement, it determines finally their rights in this action as against each other.Therefore, the bankruptcy court's order approving the settlement is final and appealable under § 1334(a).

2.Notice UnderRule 2002(a)(3)

Debtor-appellant argues that the settlement order should be set aside since the bankruptcy court did not give the required notice to creditors under BankruptcyRule 2002(a)(3).He contends that failure to find good cause to waive the notice and failure to give notice to unsecured creditors of the proposed settlement constitute a fatal error to its validity.The Trustee counters that debtor waived the notice issue on appeal because he did not raise it in the bankruptcy court.

Under Rule 2002(a)(3), the bankruptcy court must give 20-day notices to debtor, Trustee, and creditors of a hearing to approve a compromise or settlement of a...