Eaton v. Citizens Tri-County Bank

Filing 13

MEMORANDUM. Signed by District Judge Todd J. Campbell on 11/28/12. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(tmw)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION

IN RE: JAMES K. EATON, SR.,
DEBTOR

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) BANKRUPTCY COURT NO. 3-10-9709
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) DISTRICT COURT NO. 3-12-0626
) JUDGE CAMPBELL
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JAMES K. EATON, SR.
v.
CITIZENS TRI-COUNTY BANK

MEMORANDUM
Pending before the Court is an appeal of the Bankruptcy Court’s Order Approving
Compromise and Settlement (Docket No. 1-21), dated May 7, 2012. Also pending is Appellant’s
Motion to Stay Appeal or in the Alternative Remand to the Bankruptcy Court and Motion to
Supplement the Record (Docket No. 7).
For the reasons stated herein, the Order of the Bankruptcy Court is AFFIRMED. The
Appellant’s Motion to Stay Appeal or Remand and Motion to Supplement the Record (Docket No.
7) is DENIED.
STANDARD OF REVIEW
The Court has jurisdiction to hear appeals of final judgments and orders of the Bankruptcy
Court pursuant to 28 U.S.C. § 158(a). On appeal from a Bankruptcy Court, a district court applies
the clearly erroneous standard of review to findings of fact and reviews questions of law de novo.
Bankruptcy Rule 8013; In re Gardner, 360 F.3d 551, 557 (6th Cir. 2004); Messick v. Ascend Federal
Credit Union, 424 B.R. 344, 345 (E.D. Tenn. 2010). The bankruptcy court’s approval of a settlement
agreement is reviewed for an abuse of discretion. In re MQVP, Inc., 2012 WL 1233019 at ** 2 (6th

Cir. April 13, 2012). Bankruptcy courts and district courts in this jurisdiction generally accord
some deference to the trustee’s decision to settle a claim. Id. at ** 3.
ISSUE ON APPEAL
Whether the Bankruptcy Court abused its discretion in approving, pursuant to Fed. R. Bankr.
Proc. 9019, a compromise and settlement between the Chapter 7 Trustee (on behalf of Appellant,
the Debtor) and Citizens Tri-County Bank.
DISCUSSION
Appellant Eaton filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy
Code on September 20, 2010. The case was converted to one under Chapter 7 of the U.S.
Bankruptcy Code, and a Trustee was appointed. Appellee Citizens Tri-County Bank filed an
Adversary Complaint seeking an exception from discharge for an alleged debt owed by Appellant
to Appellee. Appellant filed an Answer and Counterclaim to Appellee’s Adversary Complaint.
On January 23, 2012, the Trustee and Citizens Tri-County Bank filed a Joint Motion for
Approval of Compromise and Settlement, pursuant to Fed. R. Bankr. P. 9019. Following a hearing
on May 1, 2012, the Bankruptcy Court entered an Order Approving Compromise and Settlement
(Docket No. 1-21) in which the Court granted the Joint Motion, approved the Settlement Agreement
between the parties (including its provisions concerning foreclosure and division of proceeds from
collateral), granted the pending Motion for Relief from Stay, and held: “The Counterclaim is
DISMISSED with prejudice and any other claim that the estate may have against Citizens is hereby
released and extinguished.” Docket No. 1-21, p. 2.
Appellant argues that the Bankruptcy Court’s Order should be reversed (or the appeal should
be stayed or the case should be remanded to the Bankruptcy Court) because it does not address

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Appellant’s decision to claim an exemption in his Counterclaim and because Appellee’s Motion to
Dismiss the Counterclaim in the Adversary Proceeding was reserved by the Bankruptcy Court. See
Docket No. 29 in the adversary proceeding.
Appellant’s first argument is moot because, since the filing of this appeal, the Bankruptcy
Court sustained the objection to Appellant’s attempt to amend his Schedule C exemptions to add the
Counterclaim. Docket No. 234, Case 3-10-bk-9709, Bankruptcy Court.
As for the Counterclaim, as noted above, the Bankruptcy Court Order from which Appellant
appeals specifically dismissed the Counterclaim (Docket No. 1-21). Any Orders from the Adversary
Proceeding, Case 3-11-ap-0411, Bankruptcy Court, are not yet final and are not before the Court on
this appeal. This appeal is not from the adversary proceeding.
A trustee in bankruptcy has the authority to seek a settlement of claims available to the
debtor, but any proposed settlement is subject to the approval of the bankruptcy court, which enjoys
“significant discretion.” In re MQVP, Inc., 2012 WL 1233019 at ** 2 . The very purpose of such
a compromise agreement is to allow the trustee and the creditors to avoid the expenses and burdens
associated with litigating sharply contested and dubious claims. Id. “All potential claims of the
Debtor against Citizens, including but not limited to the Counterclaim, are property of the estate in
the Bankruptcy Case and, therefore, under control of Trustee.” Docket No. 1-21, p. 4.
The bankruptcy court may not rubber stamp the agreement or merely rely upon the trustee’s
word that the settlement is reasonable. Rather, it is charged with an affirmative obligation to apprise
itself of the underlying facts and to make an independent judgment as to whether the compromise
is fair and equitable. In re MQVP at ** 3. Factors to be considered include the probabilities of
ultimate success should the claim be litigated; an estimate of the complexity, expense and likely

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duration of such litigation; the possible difficulties of collecting on any judgment which might be
obtained, and all other factors relevant to a full and fair assessment of the wisdom of the proposed
compromise. In re MQVP at ** 3 (citing Protective Committee for Independent Stockholders of
TMT Trailer Ferry, Inc. v. Anderson, 88 S.Ct. 1157, 1163 (1968).
The Court has reviewed both the Order and the transcript from the hearing on the Joint
Motion for Approval of Compromise and Settlement and finds that the Bankruptcy Court properly
considered the relevant factors and applied the applicable law. The Court finds that the Bankruptcy
Court’s findings as to the Compromise and Settlement are supported by the record and do not
constitute an abuse of discretion. Therefore, the Order Approving Compromise and Settlement is
AFFIRMED.
Appellant’s Motion to Stay Appeal or in the Alternative Remand to the Bankruptcy Court
and Motion to Supplement the Record (Docket No. 7) is DENIED for the reasons stated above.
IT IS SO ORDERED.

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TODD J. CAMPBELL
UNITED STATES DISTRICT JUDGE

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