Prasad v. Szilagyi
Filing
9
MEMORANDUM Opinion and Order Entered by the Honorable James F. Holderman on 11/18/2013.(gcy, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
VINEETA PRASAD,
Apellant,
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v.
GREGG SZILAGYI,
Appellee.
No. 13 C 6771
Appeal from:
U.S.B.C. No. 09-24416
MEMORANDUM OPINION AND ORDER
JAMES F. HOLDERMAN, District Judge:
Debtor Vineeta Prasad (“Prasad”) appeals from an order of the United States
Bankruptcy Court for the Northern District of Illinois (“Bankruptcy Court”) approving a
settlement between Gregg Szilagyi, Trustee (“Trustee”) of the chapter 7 estate (“Estate”) of
Prasad, and Acxiom Corporation (“Acxiom”). For the reasons set forth below, the order (Bankr.
Dkt. No. 96 1) of the Bankruptcy Court is affirmed. Civil Case Terminated.
BACKGROUND
On July 3, 2009, Prasad filed a voluntary petition for Chapter 7 bankruptcy, and the
Bankruptcy Court appointed the Trustee as administrator. After reviewing Prasad’s bankruptcy
filings—which included no mention of any pending legal claims—and examining Prasad
personally at a meeting with her creditors, the Trustee on August 14, 2009 reported that Prasad had
no assets to administer. (Bankr. Dkt. No. 12.) In October 2009, the Bankruptcy Court issued an
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In this opinion, this court will refer to documents in the docket of Prasad’s general bankruptcy
proceeding (No. 13-bk-24416) as follows: (Bankr. Dkt. No. __.). This court will refer to
documents in the docket of the adversary proceeding between Prasad and Acxiom (No.
10-cv-5943) as follows: (Adv. Dkt. No. __.).
order closing the case and discharging Prasad’s debts, which totaled $1,250,179.67. (Bankr. Dkt.
No. 19.)
In October 2008, approximately one year before filing for bankruptcy, Prasad had filed a
charge of discrimination with the Illinois Department of Human Rights (“IDHR”) and cross-filed
the same charge with the Equal Employment Opportunity Commission (“EEOC”) alleging that her
former employer, Acxiom, discriminated against her because of her race and her sex, subjected her
to sexual harassment, and retaliated against her after she complained about the alleged treatment.
(Adv. Dkt. No. 50, 1.)
On September 20, 2010, the EEOC issued Prasad a Notice of Right to Sue on her
discrimination charges and Prasad filed a complaint in this district court, captioned Vineeta Prasad
v. Acxiom Corporation, Case No. 10-cv-05943 (the “district court case”). The complaint alleged
essentially the same conduct by Acxiom about which Prasad complained to the EEOC, but was
eventually amended to include a claim for breach of contract under Illinois law. (Adv. Dkt. 18.)
On March 17, 2011, after learning that Prasad failed to disclose her legal claims in her
bankruptcy petition, Acxiom moved for summary judgment on the basis that Prasad was judicially
estopped from bringing the discrimination action. (Adv. Dkt. No. 24.) The same day, Prasad
moved to reopen her bankruptcy case in the Bankruptcy Court. (Bankr. Dkt. No. 20.) On April
5, the Bankruptcy Court granted Prasad’s motion to reopen the bankruptcy case, (Bankr. Dkt. No.
23), and on April 11, Prasad amended her Statement of Financial Affairs and other schedules to
include the charges filed with the EEOC (Bankr. Dkt. Nos. 24, 25.). Curiously, Prasad amended
her schedules to list the EEOC charge as “Dismissed,” but failed to mention the district court case
she had filed as a result of the EEOC’s decision. (Bankr. Dkt. No. 24, ¶ 4.) One day later, on
April 12, the Bankruptcy Court closed Prasad’s bankruptcy case again. (Bankr. Dkt. No. 27.)
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On April 25, 2011, after learning from attorneys for Acxiom that the district court case was
“pending before the [district] court and had the potential to yield assets to administer for [Prasad’s]
creditors,” the Trustee filed a motion to reopen the bankruptcy case for a second time. (Bankr.
Dkt. No. 28.) The Bankruptcy Court granted the Trustee’s motion to reopen Prasad’s bankruptcy
case and Prasad subsequently filed two Amended Schedules B: one on May 13 and another on July
19. Each Amended Schedule B reported the value of the district court case as $80,000. (Bankr.
Dkt. Nos. 32, ¶ 21; 47, ¶ 21.)
Shortly thereafter, the Trustee reached an agreement with Acxiom to settle the district
court case and filed a motion asking the Bankruptcy Court to approve the settlement. (Bankr.
Dkt. No. 49.) Prasad objected to the settlement, arguing that she was entitled to a portion of the
proceeds in the district court case under the personal injury exemption. (Bankr. Dkt No. 55.)
After further negotiations, all parties—including Prasad—agreed to a revised settlement
agreement. Pursuant to the revised agreement, Acxiom agreed to pay $25,000 to settle the district
court case, $12,000 of which the Trustee agreed to pay directly to Prasad and her attorney in the
district court case. On October 3, 2011, the Bankruptcy Court approved the settlement. (Bankr.
Dkt. No. 61.) Following the Bankruptcy Court’s approval, however, Prasad refused to sign the
revised settlement agreement. As a result, the Bankruptcy Court granted the Trustee’s motion to
vacate the order approving the settlement (Bankr. Dkt. No. 64) and Prasad continued to litigate her
claims against Acxiom in the district court case.
Following the collapse of the settlement agreement, the Trustee moved to substitute for
Prasad as the plaintiff on all pending claims in the district court. (Adv. Dkt. No. 41.) The district
court granted the motion and substituted the Trustee as the plaintiff for all claims for monetary
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relief, but permitted Prasad to remain in the case as a plaintiff to pursue non-monetary relief,
including reinstatement. (Adv. Dkt. No. 50.)
On June 12, 2013, the district court granted Acxiom summary judgment on all claims other
than Prasad’s breach of contract claim, in which Prasad alleged Acxiom breached its contract with
her when it failed to pay her approximately $27,000 in commissions allegedly owed Prasad under
her compensation plan. (Adv. Dkt. No. 117, 14.) On July 21, 2013, the district court denied
Prasad’s motion for reconsideration of the court’s decision granting Acxiom’s motion for
summary judgment on Prasad’s Title VII claims. (Adv. Dkt. No. 121.)
After the district court’s ruling, the Trustee and Acxiom again engaged in settlement
discussions and reached an agreement to resolve the breach of contract claim. On June 17, 2013,
the Trustee filed a motion asking the Bankruptcy Court to approve that settlement agreement.
(Bankr. Dkt. No. 80.) Under the agreement, Acxiom would pay a total of $20,000 to the Trustee:
$17,500 to settle the Estate’s breach of contract claim and $2,500 to settle the Trustee’s claim for
attorney’s fees. Prasad would receive $1,200 from the total amount as compensation for her
personal property exemption to the settlement. (Bankr. Dkt. No. 80.) Prasad objected to the
settlement. (Bankr. Dkt. No. 89.) On August 6, 2013, the Bankruptcy Court held a hearing on
the Trustee’s motion to approve the settlement (Bankr. Dkt. No. 103) and entered an order
approving the settlement the same day (Bankr. Dkt. No. 96).
On October 17, 2013, pursuant to the parties’ stipulation, the district court dismissed with
prejudice the remaining contract claim in the district court case. (Adv. Dkt. No. 131.)
Prasad now appeals the Bankruptcy Court’s ruling, arguing that the Bankruptcy Court
abused its discretion by approving the settlement between the Trustee and Acxiom. (Dkt. No. 1.)
LEGAL STANDARD
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The key question in approving a bankruptcy settlement is whether the compromise is in the
best interests of the bankruptcy estate. Doctors Hospital, 474 F.3d at 426. “The linchpin of the
‘best interests of the estate’ test is a comparison of the value of the settlement with the probable
costs and benefits of litigating.” Id. (citing In re Energy Coop., 886 F.2d 921, 927–29 (7th
Cir.1989)). Among the factors a court should consider are the litigation's probability of success,
complexity, expense, inconvenience, and delay, “including the possibility that disapproving the
settlement will cause wasting of assets.” Id. (quoting In re Am. Reserve, 841 F.2d 159, 161 (7th
Cir.1987)). “As part of this test, the value of the settlement must be reasonably equivalent to the
value of the claims surrendered. This reasonable equivalence standard is met if the settlement
falls within the reasonable range of possible litigation outcomes.” Id. In conducting such an
analysis, “a precise determination of likely outcomes is not required, since ‘an exact judicial
determination of the values in issue would defeat the purpose of compromising the claim.’” In re
Telesphere Communications, Inc., 179 B.R. 544, 553 (Bankr.N.D.Ill.1994) (quoting In re Energy
Coop., 886 F.2d at 927). Accordingly, “only if a settlement falls below the low end of possible
litigation outcomes will it fail the reasonable equivalence standard.” Doctors Hospital, 474 F.3d
at 426 (citing In re Energy Co-op., Inc., 886 F.2d 921, 929 (7th Cir.1989)).
A bankruptcy court’s decision to approve a settlement is reviewed deferentially for abuse
of discretion. Depoister v. Mary M. Holloway Foundation, 36 F.3d 582, 586-87 (7th Cir. 1994).
“If the decision demonstrates a command of the case, we will not engage in second-guessing; the
bankruptcy court is in a better position to ‘consider the equities and reasonableness of a particular
compromise.’” Doctors Hospital, 474 F.3d at 426 (quoting In re Am. Reserve, 841 F.2d at 162).
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ANALYSIS
Prasad raises a number of issues on appeal, all of which boil down to her contention that the
Bankruptcy Court abused its discretion by approving a settlement that Prasad asserts was not in the
best interests of the Estate. Prasad argues (i) the settlement fell below the low end of possible
litigation outcomes, (ii) the settlement was premature based on the disposition of her pending
claims against Acxiom, and (iii) the settlement improperly released non-monetary claims that do
not belong to the Estate. Prasad also contends in her reply brief that the Bankruptcy Court erred
in finding that she did not have standing to object to the settlement between the Trustee and
Acxiom.
I.
Standing
Bankruptcy standing is narrower than Article III standing. In re Cult Awareness Network,
Inc., 151 F.3d 605 (7th Cir. 1998) (internal citations omitted). To have standing to object to a
bankruptcy order, a person must be “directly and adversely affected pecuniarily” by the outcome
of the bankruptcy proceedings. In re Andreuccetti, 975 F.2d 413, 416 (7th Cit. 1992). Chapter 7
debtors, unlike creditors, “rarely have such a pecuniary interest because no matter how the estate's
assets are disbursed by the trustee, no assets will revert to the debtor.” In re Cult Awareness
Network, Inc., 151 F.3d at 608 (citing In re Schultz Mfg. Fabricating Co., 956 F.2d 686, 692 (7th
Cir. 1992)).
There is, however, an exception to the general rule that debtors do not have standing to
object to bankruptcy orders. On occasion, the assets of the estate may be sufficient to satisfy the
debts of the estate; in that case, any surplus assets are remanded to the debtor. This situation often
arises where a particular asset, such as a lawsuit, is difficult to value at the time of the bankruptcy
proceedings. If the debtor can show a “reasonable possibility” of a surplus after satisfying all the
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estate’s debts, the debtor has a pecuniary interest and thus has standing to object to a bankruptcy
order. See Cult Awareness Network, Inc., 151 F.3d at 608; Andreuccetti, 975 F.2d at 417.
Prasad argues that she has standing because she has shown a reasonable possibility that her
claims against Acxiom will produce a surplus for the Estate. But the Bankruptcy Court found that
Prasad had not “shown that this is a surplus estate on which [she] would have standing” to object to
the settlement. (Dkt. No. 4, 31.) This court finds no clear error with the Bankruptcy Court’s
finding. Prasad’s debts far outweigh her assets. To realize a surplus, Prasad (or the Estate)
would first require the Seventh Circuit to reverse the district court’s grant of summary judgment on
five of her six claims against Acxiom. Even if Prasad were to win a reversal on that point, she
would still need to return to the district court, win a trial on all six of her claims, and win a
judgment in excess of $500,000. (Dkt. No. 4, 31.)
The litigation could take years and there is
no guarantee—in fact, it is unlikely—that Prasad will prevail and be awarded such a large
judgment. On these facts, the Bankruptcy Court did not abuse its discretion in finding that
Prasad’s claims against Acxiom do not provide the “reasonable possibility of a surplus” necessary
to confer standing to a Chapter 7 debtor. See Cult Awareness Network, Inc., 151 F.3d at 608-09
(holding possibility of a surplus predicated on a significant trial victory was “too remote to support
standing”).
II.
Best Interests of the Estate
Despite finding that Prasad lacked the requisite standing, the Bankruptcy Court considered
the merits of her objections to the settlement. Because the court cannot be sure that the
Bankruptcy Court found conclusively that Prasad lacked standing, the court reviews the
Bankruptcy Court’s findings on the merits of Prasad’s objections as well.
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First, Prasad argues that the settlement is far too low in light her Title VII claims on appeal.
Although the district court granted summary judgment for Acxiom on all the Title VII claims,
Prasad contends that she is likely to succeed on appeal given the “mountain of direct evidence [she
has] against Acxiom.” (Dkt. No. 7, 4.) If successful, Prasad anticipates that she will recover
more than $1 million from Acxiom before accounting for statutory attorney’s fees, costs, and
punitive damages. (Id.) Notwithstanding the Title VII claims, Prasad argues that the settlement
also falls below the lowest possible recovery for her single breach of contract claim, because the
district court might award “a period of years of income, plus commissions.” (Dkt. No. 4, 4.)
Finally, Prasad argues that the settlement is inadequate because it does not provide for attorney’s
fees, which her attorney might have recovered had he successfully prosecuted the contract claim to
judgment in the district court case. (Id. at 4-5.)
The Bankruptcy Court did not err in finding that the settlement was within the reasonable
range of possible litigation outcomes. In light of the summary judgment order, the Bankruptcy
Court found that continued litigation of the Title VII claims would cause delay, expense, and
would waste the Estate’s assets with very little probability of success. (Dkt. No. 4, 33.) This
court agrees. On her Amended Schedule B, Prasad valued all of her claims, including the Title
VII claims, at $80,000. To argue now, after a loss on summary judgment, that recovery in excess
of $500,000 is “highly likely” because of a “mountain of direct evidence” is simply not reasonable.
Prasad’s argument that the remaining breach of contract claim will yield a recovery far in excess of
the settlement is similarly incredible. Prasad’s contract claim, by her own estimation, is for
approximately $27,000 in unpaid sales commissions allegedly owed to Prasad. The damages
would not include “a period of years of income.” Accordingly, the Bankruptcy Court properly
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concluded that the settlement of $20,000 was reasonably equivalent to the value of the surrendered
contract claim.
The Bankruptcy Court similarly did not err when it determined that the settlement need not
award a fee to Prasad’s attorney in the district court case. The monetary claims belonged to the
Estate—not Prasad—and the Estate chose not to retain Prasad’s attorney Chris Cooper
(“Cooper”). The Bankruptcy Court concluded that Cooper was a volunteer; to the extent that he
continued to work for the Estate post-petition, he took the risk that he would not be compensated.
(Dkt. No. 4, 35.) Consequently, Prasad’s argument that Arkansas law (i) applies to the contract
claim and (ii) provides for a fee award is irrelevant because Cooper was not the Estate’s lawyer.
Prasad’s next argument relates to the timing of the settlement. According to Prasad, the
Bankruptcy Court should not have approved the settlement because the district court had not yet
entered a final and dispositive ruling on the breach of contract claim. (Dkt. No. 4, 3-4; Dkt. No. 7,
5.) As the Bankruptcy Court explained, the fact that a case has not been fully litigated is not a
basis to reject an otherwise reasonable settlement. The purpose of settlement is to reduce risk and
save money by compromising before getting to the end. (Dkt. No. 4, 34.) Prasad’s assertion that
the Bankruptcy Court should have delayed its ruling until after a trial on the merits would entirely
undercut the purpose of settlement and waste the resources of the litigants and the court.
Accordingly, the Bankruptcy Court did not err when it approved a reasonable settlement in
advance of final adjudication in the district court. 2
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As an alternative to waiting for trial, Prasad argues that the Bankruptcy Court should have
conducted an evidentiary hearing to test the merits of her claim. As the Bankruptcy Court
noted, Rule 9019 does not obligate the court to hold an evidentiary hearing. Depoister, 363
F.3d at 586. Here, there was no need to do so because the district court fully and fairly
considered the merits of Prasad’s claims on summary judgment.
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Prasad further contends that the settlement was premature and overbroad because it
improperly released her right to seek non-monetary relief for her Title VII claims on appeal.
(Dkt. No. 4, 3.) As a preliminary matter, the Bankruptcy Court did not approve a settlement
releasing Prasad’s non-monetary claims because those claims did not belong to the Estate. (Dkt.
No. 4, 35-37.) The Bankruptcy Court correctly observed that it did not have the authority to do
so. (Id.); see Matthews v. Potter, 316 F. App’x 518, 524 (holding claims for injunctive relief are
of no value to the bankruptcy estate and thus of “no consequence to the trustee or the creditors”).
Notwithstanding Prasad’s assertion to the contrary, the settlement agreement simply does not
preclude Prasad from pursuing her claims for non-monetary relief. Pursuant to the parties’
settlement agreement, the district court dismissed with prejudice only the contract claim that had
not been resolved on summary judgment. (Adv. Dkt. No. 131.) Consequently, Prasad is free to
pursue non-monetary relief for her Title VII claims on appeal.
Prasad’s remaining arguments do not merit extended discussion. First, with regard to the
argument that the settlement did not provide for Prasad’s exemption rights, Prasad argues for the
first time in her reply brief that she is entitled to personal bodily injury exemption of $15,000 on
account of Irritable Bowel Syndrome and Colitis caused by Acxiom. (Dkt. No. 7, 5.) Prasad
failed to raise this argument in the Bankruptcy Court and thus waived it on appeal. Second,
Prasad argues that the Bankruptcy Court “really stretched to find any case law applicable to grant a
settlement to the Trustee.” (Dkt. No. 4, 2.) Prasad provides no support for this argument in her
briefs; instead, she merely recites her various claims against Acxiom. Moreover, because the
Bankruptcy Court correctly applied the Doctors Health framework, the court rejects this
argument. Third, Prasad contends that her claims against Acxiom should not be considered
pre-petition legal claims and thus do not belong to the Estate. (Dkt. No. 7, ¶ 7.) The court rejects
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this argument because (i) Prasad failed to raise this argument in the Bankruptcy Court and (ii)
Prasad raised the same argument, unsuccessfully, in the district court case. (See Adv. Dkt. No.
50, 3-4 (holding Prasad’s monetary claims against Acxiom belong to the Estate).) Fourth, Prasad
contends that the Trustee is not entitled to $1.1 million from her Estate because only $102,326 in
creditor claims have been filed to date. In October 2009, the Bankruptcy Court issued an order
discharging Prasad’s debts, which totaled $1,250,179.67. (Bankr. Dkt. No. 19.) Prasad cannot
challenge that determination, now more than four years later, in an appeal concerning the
settlement of her Title VII case.
CONCLUSION
The decision of the Bankruptcy Court to grant the Trustee’s motion to approve the
settlement (Bankr. Dkt. No. 96) is affirmed. Civil Case Terminated.
ENTER:
_______________________________
JAMES F. HOLDERMAN
District Judge, United States District Court
Date: November 18, 2013
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