In re Rains

• Decision Date: 08 November 2005
• Docket Number: No. 04-15743.,No. 03-16538.,03-16538.,04-15743.
• Citation: 428 F.3d 893
• Parties: In re Omer L. RAINS, Omer L. Rains, Appellant, v. Kenny W. Flinn, Appellee. In re D.W. and O.L. Rains, Omer L. Rains, Appellant, v. Kenny W. Flinn, Appellee, and Office of the United States Trustee, Trustee.
• Court: U.S. Court of Appeals — Ninth Circuit

428 F.3d 893

In re Omer L. RAINS,

Omer L. Rains, Appellant, v. Kenny W. Flinn, Appellee.

In re D.W. and O.L. Rains,

Omer L. Rains, Appellant, v. Kenny W. Flinn, Appellee, and Office of the United States Trustee, Trustee.

No. 03-16538.

No. 04-15743.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 8, 2005.

Filed November 8, 2005.

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George C. Hollister, Sacramento, CA, for debtor-appellant Omer L. Rains.

Gregory J. Hughes, Roseville, CA, for trustee-appellee Kenny W. Flinn.

Appeal from the United States District Court for the Eastern District of California; Garland E. Burrell, District Judge, Presiding. D.C. Nos. CV-03-00388-GEB, CV-03-01524-GEB.

Before: WALLACE, RAWLINSON, and BYBEE, Circuit Judges.

RAWLINSON, Circuit Judge:

These consolidated appeals arise from the bankruptcy court's approval of, and subsequent enforcement of, a settlement agreement resolving adversary proceedings brought by the trustee-appellee and a creditor against the debtor-appellant. Because we conclude that the settlement agreement was valid, and that enforcement of the agreement was proper, we affirm the district court's decision upholding the approval of the settlement agreement. Although the district court erred in ruling that the appeal of the judgment enforcing the settlement was untimely, we affirm the entry of judgment in favor of the trustee.

I. BACKGROUND

A. The Settlement Agreement

Omer L. Rains is an attorney and a debtor in bankruptcy. Kenny W. Flinn is the bankruptcy trustee. In September 2002, the bankruptcy court appointed a mediator in connection with adversary proceedings involving Rains, Flinn, and a creditor. A settlement conference was held on September 23, 2002, and after a full day of negotiations, the parties reached a settlement agreement (settlement or agreement). The agreement was reduced to writing and the parties (including Rains) and their attorneys signed it.

Pursuant to the terms of the settlement, Rains and his wife, also a debtor, agreed to pay the trustee $250,000 by March 31, 2003. Upon timely payment, the trustee and the creditor agreed to dismiss the adversary proceedings and withdraw their objections to claimed exemptions from the bankruptcy estate. Among the exemptions claimed by Rains was his interest in a retirement plan sponsored by the American Bar Association (retirement plan). The agreement alternatively provided that:

[i]n the event that payment is not timely made by the defendants, judgment shall be entered denying the debtors' discharge and an order shall be entered denying the debtors' exemption claim to the ABA pension plan up to the amount of $250,000 unless before the due date for payment the debtors have posted an irrevocable standby letter of credit ... (or other instrument or collateral acceptable to the trustee and to [the creditor]) to support the $250,000 payment.

B. The First Appeal (Court Approval of the Settlement)

Immediately following the conclusion of the mediation, Rains drove himself to a hospital emergency room where he was admitted and diagnosed with a ruptured cerebral aneurysm, sub-arachnoid hemorrhage, and stroke. Rains underwent surgery the next day and was placed in the intensive care unit for approximately one month prior to his eventual discharge from the hospital. Rains claims to have no recollection of the events preceding his hospitalization.

Sometime after Rains underwent medical treatment, counsel for Rains informed the trustee's attorney that Rains did not intend to comply with the settlement agreement. This development prompted the trustee to file with the bankruptcy court a Motion for Court Approval of Settlement; for Enforcement of Settlement; and for Entry of Judgment Thereon (motion to approve). In support of the motion, the trustee submitted a declaration in which he stated that he had personally observed Rains at the settlement conference. According to the trustee, "Rains evinced a clear understanding of what was transpiring, the issues inherent in the settlement process, and the terms of the agreement as it evolved."

Rains opposed the motion to approve and sought rescission of the agreement on the ground that he was not mentally competent to enter into a contract at the time the agreement was negotiated and signed. In his opposition, Rains expressly "consent[ed] to the Court's resolution of any disputed material fact issues pursuant to Federal Rule of [Civil Procedure] 43(e) as made applicable by Federal Rule of Bankruptcy Procedure 9017." Rains submitted several declarations in support of his contention that he was mentally incompetent, including those of a neurologist who treated him for the aneurysm and a clinical psychologist who provided follow-up care. The neurologist opined that "Mr. Rains would have been without the mental capacity to engage in business affairs on September 23, the date of his hospital admission, and for a number of days on each side of that date." The psychologist concurred, stating that at the time Rains negotiated the settlement, he "would not have had his normal mental capacity and would have been incapable of conducting business affairs with competence."

The trustee filed a reply controverting Rains's contention that he was mentally incompetent during the settlement conference. Accompanying the reply was a declaration from Gregory J. Hughes, counsel for the trustee. Hughes stated that he had a chance to observe Rains at the settlement conference. According to Hughes, Rains participated actively in the negotiations, arguing over the due date for a cash payment and over the use of funds in his retirement plan as security for the payment. After the settlement was reduced to writing, Rains reviewed the document carefully and asked his attorney questions about it. Hughes's overall impression also was that "Mr. Rains evinced a clear understanding of what was transpiring, the issues inherent in the settlement process, and the terms of the settlement as it evolved." Rains's creditor and her attorney submitted similar declarations.

The bankruptcy court heard oral argument on the motion to approve the settlement agreement, but did not hold a separate evidentiary hearing. After taking the matter under advisement, the bankruptcy court issued oral findings of fact and conclusions of law and announced that it was not "persuaded that [Rains] lacked the capacity to enter into an agreement." The court ruled from the bench, granting the motion to approve. Its decision was memorialized in a minute order entered on February 20, 2003 (settlement order).

Rains filed a notice of appeal from the order approving the settlement agreement, and elected to have the appeal heard by the district court. The district court affirmed the bankruptcy court's decision, and Rains appealed.

C. The Second Appeal (Court Enforcement of the Settlement Agreement)

While the first appeal was pending before the district court, Flinn filed an ex parte application for entry of judgment pursuant to the terms of the settlement agreement. This request was prompted by Rains's failure to pay $250,000 by the March 31, 2003 due date. The bankruptcy court entered judgment in favor of Flinn, ruling that Rains's "claim of exemption against the ABA Retirement Plan is hereby denied up to the sum of $250,000.00, and $250,000.00 of the funds in that Retirement Plan is hereby held to be property of the Chapter 7 estate." The judgment further required Rains to "forthwith withdraw the sum of $250,000.00 from the ABA Retirement Plan, and ... pay said amount to the Trustee immediately upon receipt."

Rains filed a Motion to Alter or Amend Judgment (motion to amend judgment) in the bankruptcy court, contending that the court exceeded its jurisdiction when it declared that $250,000 of the ABA retirement plan was part of the bankruptcy estate and ordered Rains to pay that amount from the retirement plan to the bankruptcy trustee. The bankruptcy court heard oral argument and denied the motion. Although the first appeal was pending in district court, neither party notified the district court of these later developments in bankruptcy court. Rains subsequently appealed the bankruptcy court's order denying the motion to amend judgment and its judgment enforcing the settlement agreement. Once again, Rains elected to have the appeal heard by the district court.

The district court's rationale for the disposition of this second appeal rested on a complicated interplay of procedural rules involving both the first and second appeals. Finding that the second appeal also challenged the order approving the settlement agreement, rather than merely challenging its enforcement, the district court altered the analysis of its prior ruling and determined that the original order approving the settlement agreement was not final after all.¹ The court reasoned that because the first appeal was taken from what proved to be an interlocutory order, it was premature, and should be treated as having been filed on the day the final judgment was entered, pursuant to Fed. R. Bankr.P. 8002(a).² As the premature but subsequently cured notice of appeal was deemed filed on the date judgment was entered (May 23, 2003), but before the motion to amend judgment was filed (June 2, 2003), the district court concluded that the bankruptcy court lacked jurisdiction over the motion to amend judgment because of the appeal then pending in district court. See Dressler v. The Seeley Co. (In re Silberkraus), 336 F.3d 864, 869 (9th Cir.2003) (observing that "the filing of a notice of appeal generally divests the trial court of jurisdiction.") (citations omitted). The district court then reasoned that because the bankruptcy court lacked jurisdiction over the motion to amend judgment, the filing of the motion did not toll the time allowed for appealing the judgment to the district court. Accordingly, the district court dismissed the...