IN RE LECLAIR (Bankr.E.D.Va. 2001)

Case No. 98-35239-TUnited States Bankruptcy Court, E.D. Virginia
October 9, 2001

MEMORANDUM OPINION
DOUGLAS TICE, Chief Judge, Bankruptcy

On July 10, 2001, the chapter 7 trustee, Sherman B. Lubman, filed a motion to approve compromise between the chapter 7 trustee and Arthur M. LeClair, Jr., trustee for the Arthur M. LeClair Family Trust (trust). Debtor, one of four beneficiaries of the trust, filed an objection to the motion to approve compromise on August 2 seeking 1) to dismiss the request to compromise for lack of subject matter jurisdiction, 2) removal of trustee and counsel for trustee for impropriety and possible criminal activity and 3) for a stay pending appeal in the United States District Court.

At hearing held August 8, 2001, the court allowed debtor until September 4 to submit additional evidence to support her position. This evidence was received on September 4 and has been reviewed.

The court finds no basis to deny the motion to approve compromise.

Facts and Procedural History. Pro se debtor filed her chapter 13 petition on July 15, 1998, and converted her case to chapter 7 on March 29, 1999.[1]

Chapter 7 Trustee’s Objection to Certain Personal PropertyClaimed as Exempt and Motion

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Seeking Authority to Execute Deed Transferring Interest

On July 1, 1999, the chapter 7 trustee filed an objection to certain personal property claimed as exempt by the debtor under § 34-4 of the 1950 Code of Virginia, including debtor’s one-fourth interest in the trust.[2] The objection was based on debtor’s failure to timely file a homestead deed claiming exemption of the personal property in accordance with Virginia Code § 34-17.[3]

On December 1, 2000, trustee filed a motion seeking authority to execute a deed transferring any interest which the bankruptcy estate may have in real estate held by the trust.[4] The chapter 7 trustee asserted that: 1) he had the right to liquidate the personal property listed in schedule C of debtor’s bankruptcy petition as no exemption was properly claimed and 2) execution of the deed would facilitate the sale of the real property by the trust which would allow for prompt liquidation of the trust and distribution of the debtor’s one-fourth share to the bankruptcy estate.

On July 16, 1999, debtor filed a response to trustee’s objection to certain personal

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property claimed as exempt; however, she does not address the trust. In her response, debtor asked only that the court deny the order to “liquidate personal and tools of the trade” and “return property seized unlawfully on May 26, 1999.”[5] Debtor further asserted that she executed and recorded a Homestead Deed in Chesterfield County, Virginia, in 1995 and that the trustee is incorrect in stating that the Homestead Deed was untimely filed.

On December 11, 2000, debtor filed a response to the chapter 7 trustee’s motion to execute deed asserting that: 1) the property is declared exempt on her petition schedules, 2) the matter is being brought before Middlesex County, Massachusetts Probate Court regarding the legality of authorization, 3) the trust is irrevocable, 4) the Middlesex Probate court has exclusive jurisdiction regarding the trust, and 5) a homestead deed was recorded in Chesterfield County Circuit Court.

Hearing on the objection to personal property claimed as exempt and motion to execute deed was held on December 20, 2000. The trustee’s motion to execute deed was granted by order entered on the same day, and his objection to exemptions was sustained by order entered January 4, 2001.[6]

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Trustee’s Motion to Approve Compromise

On July 10, 2001, trustee filed a motion to approve compromise pursuant to F.R.Bankr.P. 9019(a).[7] Proper notice of the compromise was given, and only debtor filed an objection. The compromise, reached between the chapter 7 trustee and trustee for the Family Trust, would result in a distribution by the trust to the Bankruptcy Estate of $39,662.41 in full satisfaction of debtor’s claim to a one-fourth share in the trust. The compromise is conditioned upon the release from liability of Arthur M. LeClair, Jr., trustee for the family trust. The primary assets of the trust are a checking, savings, and certificate of deposit accounts totaling approximately $26,000.00 and real estate.[8]
As of April 1, 2001, the trust held $157,393.21 in cash. Since 1995, the trust has received interest income of approximately $20,000.00 with net sale proceeds from the sale of the real estate of approximately $156,000.00. Since 1995, the trust has paid out $80,000.00 in various costs, including attorney’s fees, repayment of loans made to the trust by Arthur M. LeClair, Jr., and insurance, repairs, utilities, taxes and sales costs related to the real estate. The trustee of the trust further proposed that approximately $16,000.00 be paid for trustee, attorney and accountant fees.

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The chapter 7 trustee acknowledged that grounds may exist for challenging certain payments that make up the distribution proposed by the trustee for the family trust[9] . However, the chapter 7 trustee concluded that such a challenge might not be successful. Furthermore, even if it were, a successful challenge “would be unlikely to result in a substantial increase in the amount that would be distributed to the bankruptcy estate” as the costs and delay to pursue such a challenge would render it worthless. Lastly, the chapter 7 trustee has determined that the creditors of the estate would benefit as the trustee could immediately obtain funds for distribution.

Debtor’s Objection to Trustee’s Motion to ApproveCompromise.

On August 2, debtor filed an objection to motion to approve compromise seeking 1) to dismiss the request to compromise for lack of subject matter jurisdiction, 2) removal of trustee and counsel for trustee for impropriety and possible criminal activity and 3) for a stay pending appeal in the United States District Court. Debtor asserts lack of jurisdiction pursuant to the Mass. Gen. Laws ch. 203 § 25, ch. 206 § 1 and ch. 215 § 8. She further asserts that the case is currently pending in the United States District Court, that the trustee has failed to file an adversary proceeding, and that the property in question is exempt and “[i]rreparable harm to all heirs involved are at stake if any proceedings are allowed to continue.”

At hearing held August 8, the court heard argument on the chapter 7 trustee’s motion for approval of the compromise agreement. Debtor argued that the Massachusetts probate court has exclusive jurisdiction over the matter and that according to Massachusetts’ law, the property is

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exempt. Debtor stated that the only issue before the United States District Court for the Eastern District of Virginia is whether the property is also exempt under Virginia law. Debtor further asserted that the trust settlement amount of $39,662.41 is too low because her brother embezzled funds from the trust. Debtor was given until September 4 to present submit additional evidence to support her position.

On September 4, debtor filed various papers which she believes support her “defense of property exemption and amount due from trusts.”[10]

Conclusions of Law.
The narrow issue before the court is whether the court should grant the trustee’s motion to approve compromise. This court has previously determined that in considering a proposed compromise under Rule 9019(a), “the court is to consider the probability of the trustee’s success in any ensuing litigation, any collection difficulties, the complexity, time and expense of the litigation, and the interests of the creditors with proper deference to their reasonable views. In re Austin, 186 B.R. 397, 400 (E.D. Va. 1995) (citations omitted); see also In reFrye, 216 B.R. 166,

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174 (Bankr. E.D. Va. 1997).

It appears that the trustee has given a full and adequate explanation for the basis of the compromise, and he believes the settlement is fair and in the best interest of the bankruptcy estate and creditors. No creditor has objected to the settlement. It is apparent that litigation of the various claims would be lengthy and costly. Further, the trustee has made an informed analysis of the potential litigation; the trustee’s recommendation in light of his extensive experience as a bankruptcy trustee and lawyer give significant weight to his settlement proposal.In re Austin, 186 B.R. at 401; see also In re Culmtech,Ltd., 118 B.R. 237, 239 (Bankr. M.D. Pa. 1990). The court has reviewed the additional evidence submitted by debtor to support her objection and finds no basis to deny the motion to approve compromise. None of the evidence submitted by debtor persuades the court that the trustee’s motion to approve compromise should not be approved or that this court does not have jurisdiction over the motion.

The debtor may, of course, appeal the court’s ruling, and in that connection she may file a motion for stay pending appeal. However, there is at present no stay pending appeal of debtor’s other pending appeal. The court rejects debtor’s assertion that all heirs involved will suffer irreparable harm if the motion to approve compromise is granted. There is no merit to debtor’s claim that the court does not have subject matter jurisdiction over the trustee’s motion. Moreover, debtor’s assertion that the trustee and his counsel should be removed for impropriety and possible criminal activity is groundless. Accordingly, the court finds no basis to deny the trustee’s motion to approve compromise.

A separate order will be entered.