Morris, et al. v. Davis (In re Morris)

Citation:
BAP No. SC-15-1222-FJuKi (BAP 9th Cir. Mar. 29, 2016) (unpublished)
Tag(s):
Ruling:
The BAP for the 9th Circuit affirmed the ruling of the bankruptcy court (S.D. Cal.) approving a settlement agreement, finding the bankruptcy court did not abuse its discretion in granting the motion to settle as fair and equitable. Bankruptcy court properly applied Rule 9019 methodology to evaluate merits of proposed settlement and properly exercised discretion in approving settlement. Appellant's failure to raise objections before bankruptcy court under s 363 prevented consideration of s 363 arguments by BAP. The BAP agreed that bankruptcy court properly disregarded creditor-appellant's undocumented proposed offer to acquire claims raised the day of the hearing, including because creditor appeared to be aligned with misbehaving debtor. Regardless, settlement of mutual claims made 363 inapplicable, and based on reduction of claim in proposed settlement, "value" of alternate offer was no clearly greater than value of approved settlement. of Bankruptcy Code BAP agreed that debtor's joinder to creditor's objection negated question of whether chapter 7 debtor had standing to oppose settlement and appeal ruling. Creditor's clear standing was sufficient.
Procedural context:
Chapter 7 trustee filed motion to approve a property division settlement, and debtor objected. Bankruptcy court granted motion to approve, and debtor appealed to BAP.
Facts:
Chapter 7 debtor (Morris) and former common-law wife (McGee) were involved in contentious divorce proceedings prior to debtor's bankruptcy. Family court approved a consent decree of dissolution, which incorporated property settlement. Property settlement provided for 50% division of substantial assets, including "Cadence" lawsuit, and including potential malpractice claims related to Cadence lawsuit. A few months later, Morris initiated a malpractice action against his original attorneys in the Cadence lawsuit, and three years later settled the malpractice suit for $1,125,000. Net proceeds after payment of attorneys was $875k, with McGee claiming half of the net proceeds, i.e., $437k. Both before and after the settlement of the Cadence malpractice litigation, Morris assured McGee she would participate in the settlement payment if she abandoned claims for spousal maintenance, but threatened to hide the money, and prevent her from obtaining any other funds, if she pursued spousal maintenance. Thereafter, Morris took position that McGee was not entitled to any portion of settlement proceeds. Morris also filed spurious suit in other state to attempt to forum shop dispute with McGee. McGee pursued collection of unpaid maintenance and her share of the settlement proceeds in state court. State court ordered Morris's counsel to free the net settlement proceeds in their account. Morris then filed chapter 11 bankruptcy. Morris's friend and business partner asserted a claim for $959k. Morris's sister filed a claim for $1.15m. McGee filed a priority claim for $497k. US Trustee moved to convert case to chapter 7, and bankruptcy court granted motion, citing debtor's failure to properly disclose assets and unauthorized transfers. Following conversion, chapter 7 trustee filed motion to settle McGee's claims to settlement funds, with McGee agreeing to accept approximately $396,000 (i.e., $41k than the 50% amount she claimed), plus reduction of her claim against estate from $497k to approximately $60k, along with dismissal of 523(a)(6) claim.
Judge(s):
Faris, Jury, Kirscher

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