BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 1 of 16
NOT FOR PUBLICATION 1
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
_________________________________
IN RE JEANETTE WELLERS, BAP No. CO-20-040
Debtor.
__________________________________
JEANETTE WELLERS, Bankr. No. 18-10240
Chapter 7
Appellant,
v.
OPINION
M. STEPHEN PETERS, Chapter 7
Trustee, SIMON E. RODRIGUEZ, Chapter
7 Trustee, and GREAT AMERICAN
INSURANCE COMPANY,
Appellees.
_________________________________
Appeal from the United States Bankruptcy Court
for the District of Colorado
_________________________________
Before CORNISH, MICHAEL, and HALL, Bankruptcy Judges.
_________________________________
CORNISH, Bankruptcy Judge.
_________________________________
This unpublished opinion may be cited for its persuasive value, but is not
1
precedential, except under the doctrines of law of the case, claim preclusion, and issue
preclusion. 10th Cir. BAP L.R. 8026-6.
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 2 of 16
This appeal involves the proceeds of the sale of a chapter 7 debtor’s residence.
After selling the residence with court approval, the chapter 7 trustee proposed a
settlement agreement between the trustee and a secured creditor, resolving the estate’s
civil claims against the creditor in exchange for a reduction in the amount of the
creditor’s secured claim. The United States Bankruptcy Court for the District of Colorado
(the “Bankruptcy Court”) approved the settlement agreement over the debtor’s objection.
The debtor appeals, arguing the settlement resulted in denial of her homestead exemption.
Because the Bankruptcy Court expressly did not decide the issue of the debtor’s
homestead exemption, we will not consider that issue on appeal. Finding no abuse of
discretion in approving the settlement agreement, we AFFIRM the Bankruptcy Court’s
order.
I. Background and Procedural History
According to her schedules, Jeanette Wellers (the “Debtor”) is the owner of a
contractor business called JBlanco Enterprises, Inc. (“JBE”). 2 In 2011, Great American
Insurance Company (“GAIC”) issued a performance bond in connection with a JBE
construction project at the United States Air Force Academy in Colorado Springs,
Colorado. Prior to the bond issuance, the Debtor signed an indemnity agreement,
agreeing to indemnify GAIC for any payments made under the bond. The indemnity
agreement provided the Debtor waived the right to claim any property, including a
homestead, exempt from levy or execution in the event GAIC sought to collect under the
2
Statement of Financial Affairs at 9, in Appellant’s App. at 23.
2
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 3 of 16
agreement. At the time, the Debtor lived at 12570 East Dakota Avenue, Lakewood,
Colorado.
In November 2016, GAIC paid out $549,271.25 on JBE’s behalf to cover claims
for flawed roof work. Being personally liable for the debt, the Debtor entered into a
settlement agreement with GAIC requiring her to sign a confession of judgment 3 and a
promissory note in the amount of $549,271.25. 4 GAIC secured the promissory note with
a mortgage against (1) the Debtor’s current residence at 140 Humboldt Street, Denver,
Colorado (the “Residence”) 5 and (2) a commercial property at 1 Park Street, Broomfield,
Colorado (“Park Street”). 6 The Debtor owned the Residence with her husband. Park
Street was owned by Evan Charles Properties, LLC (“ECP”), a company wholly owned
by the Debtor.
The Debtor filed a chapter 11 petition on January 12, 2018. Her husband,
Frederick Wellers, filed a chapter 7 petition on February 1, 2018. The Bankruptcy Court
converted the Debtor’s case to chapter 7 on July 20, 2019. Stephen Peters is the trustee in
the Debtor’s case, and Simon Rodriguez is the trustee in her husband’s case (the
“Trustees”).
Before the conversion of her case, the Debtor filed an adversary proceeding
against GAIC to set aside the confession of judgment, promissory note, and mortgages as
3
Confession of Judgment, in Appellant’s App. at 96.
4
Promissory Note, in Appellant’s App. at 100 (providing for monthly payments of
$3,500, an annual payment of $25,000, and a five-year balloon payment of $343,666.80,
interest to accrue at 5%).
5
Mortgage, in Appellee’s App. at 93.
6
Mortgage, in Appellee’s App. at 104.
3
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 4 of 16
fraudulent transfers pursuant to
11 U.S.C. §§ 544 and 548(a)(1) 7 and to seek recovery and
preservation pursuant §§ 550 and 551. 8 GAIC filed counterclaims seeking to deny the
Debtor’s discharge. To facilitate the sale of the Residence and Park Street, the Debtor’s
trustee sought to settle the adversary proceeding involving GAIC. Because the liens
securing GAIC’s $972,000 claims in the Debtor’s and Frederick Wellers’ bankruptcy
cases were cross-collateralized, obtaining any equity for distribution to unsecured
creditors required the sale of both the Residence and Park Street. Therefore, the Trustees
negotiated a global settlement agreement in both bankruptcy cases providing GAIC
would reduce its claim from $972,000 to $650,000 in exchange for the Debtor’s estate’s
release of its claims against GAIC. The Bankruptcy Court approved the global settlement
allowing the Trustees to split the proceeds from the sale of the Residence and Park Street
equally between Mr. and Mrs. Wellers’ estates. 9
As part of the global settlement, the Trustees filed a motion to sell the Residence
for $2.3 million (the “Motion to Sell”), which was approved by the Bankruptcy Court,
over the Debtor’s objection, on August 20, 2020. 10 Proceeds of the sale went to JP
Morgan Chase Bank’s first mortgage of $1,072,421.42, TBK Bank’s second mortgage of
$769,912.53 (secured by both the Residence and Park Street), and a $988.63 mechanics
7
All future references to “Bankruptcy Code,” “Code,” or “§,” refer to Title 11 of
the United States Code.
8
Complaint, in Appellant’s App. at 81.
9
Order Approving Settlement Agreement Between Chapter 7 Trustee and Trustee
Simon Rodriguez, in Appellant’s App. at 191.
10
Order: (1) Granting Trustee’s Motion to Sell; (2) Denying Debtor’s Motion to
Abandon; and (3) Granting, in Part, Trustee’s Motion to Compel Turnover (the “Order
Approving Sale”), in Appellee’s App. at 390.
4
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 5 of 16
lien. 11 The Order Approving Sale projected after payment of these liens and closing costs
$310,070.85 in proceeds would remain. 12 This provided $248,056.68 to GAIC and
$62,014.17 to be split by the Trustees for benefit of the respective estates. The Debtor’s
Trustee had proposed to pay the Debtor $105,000.00 for her homestead exemption but
GAIC objected, claiming the Debtor had waived her exemption. The Bankruptcy Court’s
Order Approving Sale noted that the Debtor, through her counsel, had indeed waived her
homestead exemption. The Bankruptcy Court expressly stated that the expected
distribution of funds from the sale of the Residence did not include any payment to the
Debtor attributable to her homestead exemption. The Bankruptcy Court noted that the
liens on her Residence exceeded its value – a fact that was conceded by the Debtor − so
there was no equity to which her homestead could attach. The Bankruptcy Court did not
foreclose the possibility that funds may be available to the Debtor upon its future
consideration of the proposed stipulation (the “Carve-Out Stipulation”). 13 The Debtor did
not appeal the Order Approving Sale.
The Trustees filed the Motion to Approve Carve-Out Stipulation (the “Carve-Out
Motion”) on August 5, 2020. 14 The Carve-Out Motion provided GAIC would receive 80
percent of the remaining proceeds from the sale of the Residence, and the Trustees of
each estate would split the remaining 20 percent. Once GAIC obtained $650,000 from the
11
Id. at 5, in Appellee’s App. at 394.
12
Id. at 3, in Appellee’s App. at 392.
13
Id.
14
Appellant’s App. at 454. Carve-Out Stipulation, in Appellant’s App. at 460.
5
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 6 of 16
proceeds of both the Residence and Park Street, 15 any remaining funds would go to the
Trustees for their commission and distribution. The Carve-Out Motion did not
specifically provide for the Debtor’s $105,000 homestead exemption claimed in the
Residence. None of the funds made available to the Trustees would come from the
Debtor’s homestead exemption amount; instead, the Trustees would recover from
GAIC’s reduction of its claim. Therefore, the Debtor’s homestead exemption was not at
issue in the Carve-Out Motion. GAIC would receive the Debtor’s $105,000 homestead
exemption as part of the satisfaction of its $650,000 claim. The stipulation noted GAIC
disputed the Debtor’s claim of a homestead exemption because of her waiver of the
exemption in the 2011 indemnity agreement.
The Debtor objected to the Carve-Out Motion and approval of the stipulation. She
argued (1) there was no equity in the Residence; (2) attempts to sell property when there
is no equity and a debtor will not receive a homestead exemption are suspect; (3) the
Trustees sought to enrich themselves through a $94,000 commission on the sale of the
Residence instead of properly abandoning the encumbered property; and (4) the sale
would not generate proceeds for unsecured creditors. 16 The Debtor also filed a brief in
15
The Trustees negotiated a sale of Park Street for $1,750,000, although pleadings
related to that sale are not contained in the record on appeal. See Trustee’s Motion for
Authority to (a) Sell Property of the Bankruptcy Estate, 1 Park Street, Broomfield . . . .,
Bankr. ECF No. 630.
16
*Corrected* Debtor’s Objection to Trustee’s Motion to Approve Carve-Out
Stipulation at 3-5, in Appellant’s App. at 496-98. The Trustees filed a motion to strike the
Debtor’s objection to the Carve-Out Motion, but the Bankruptcy Court indicated “striking
the objection would not give these parties the clearest and surest path toward finality of
this dispute.” Order and Notice of Non-Evidentiary Hearing at 1, in Appellee’s App. at
387.
6
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 7 of 16
support of her objection. 17 The brief largely repeated the same objections, asserted the
Trustees mismanaged the Park Street property after a fire, and asserted the Debtor did not
waive her homestead exemption because the 2011 indemnity agreement pertained to her
home on the date she executed the agreement (her prior home in Lakewood, Colorado),
not to the Residence. The Debtor argued equity should be calculated based on the total of
“non-avoidable, consensual liens and encumbrances,” 18 leaving $430,143.10 in equity.
Therefore, the Debtor argued she was entitled to her entire $105,000 homestead
exemption.
The Bankruptcy Court conducted an evidentiary hearing on the Carve-Out Motion
on September 3, 2020. The Debtor again argued that she had not in fact waived her
homestead exemption, but the Bankruptcy Court declined to consider any challenge to
waiver in considering the Carve-Out Motion. 19 The Bankruptcy Court advised the parties
to be prepared to address the homestead waiver issue at a future hearing. 20 In the Order
Granting Trustees’ Motion to Approve Carve-Out Stipulation (the “Carve-Out Order”),
the Bankruptcy Court observed that in her objection to the Motion to Sell, the Debtor
conceded she waived the homestead exemption. 21 The Bankruptcy Court analyzed the
Carve-Out Motion and stipulation under the factors adopted by In re Kopexa Realty
17
Debtor’s Brief Regarding Trustee M. Stephen Peters’ and Trustee Simon
Rodriquez’s Motion to Approve Carve-Out Stipulation and the Objection filed by Debtor
Jeanette Wellers, in Appellant’s App. at 540.
18
Id. at 7, in Appellant’s App. at 546.
19
Tr. Sept. 3, 2020 Hearing at 9, 30-36, in Appellee’s App. at 563, 584-90.
20
Id. at 36, in Appellee’s App. at 590.
21
Carve-Out Order at 2, in Appellant’s App. at 565.
7
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 8 of 16
Venture Co. 22 and approved the stipulation. The Bankruptcy Court concluded (1) the
Debtor did not challenge the Trustees’ assertion that they investigated the claims against
GAIC and believed they were meritless, (2) the complexity and expense of litigation
would burden the Debtor’s estate, and (3) other creditors’ approval of the stipulation all
supported granting the Carve-Out Motion. 23 The Bankruptcy Court conceded the
difficulty of collection factor did not weigh in favor of approval. The Bankruptcy Court
also noted the Debtor’s objection centered on the homestead exemption, an issue not
before the court, and failed to point out how the stipulation was unfair, inequitable, or not
in the best interests of the estate. 24 Accordingly, the Bankruptcy Court granted the Carve-
Out Motion and approved the stipulation.
The Debtor filed a timely notice of appeal on September 14, 2020. The Debtor did
not seek a stay pending appeal from the BAP or the Bankruptcy Court—however, the
appellees do not suggest the appeal is moot.
II. Jurisdiction and Standard of Review
“With the consent of the parties, this Court has jurisdiction to hear timely-filed
appeals from ‘final judgments, orders, and decrees’ of bankruptcy courts within the Tenth
Circuit.” 25 An order granting a motion to approve a compromise of claims is final for
22
213 B.R. 1020 (10th Cir. BAP 1997).
23
Carve-Out Order at 3-4, in Appellant’s App. at 566-67.
24
Id.
25
Straight v. Wyo. Dep’t of Transp. (In re Straight),
248 B.R. 403, 409 (10th Cir.
BAP 2000) (first quoting
28 U.S.C. § 158(a)(1), and then citing
28 U.S.C. § 158(b)(1),
(c)(1) and Fed. R. Bankr. P. 8002).
8
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 9 of 16
purposes of
28 U.S.C. § 158(a)(3). 26 None of the parties in this case elected for this
appeal to be heard by the United States District Court for the District of Colorado
pursuant to
28 U.S.C. § 158(c). Accordingly, this Court has jurisdiction over this appeal.
We review a bankruptcy court’s approval of a settlement agreement brought
pursuant to Rule 9019 for an abuse of discretion.27 “Under the abuse of discretion
standard[,] ‘a trial court’s decision will not be disturbed unless the appellate court has a
definite and firm conviction that the lower court made a clear error of judgment or
exceeded the bounds of permissible choice in the circumstances.’” 28 An abuse of
discretion occurs when a trial court “makes an ‘arbitrary, capricious or whimsical,’ or
‘manifestly unreasonable judgment.’”29 “A clear example of an abuse of discretion exists
where the trial court fails to consider the applicable legal standard or the facts upon
which the exercise of its discretionary judgment is based.”30
We review a bankruptcy court’s findings of fact for clear error. “A factual finding
is ‘clearly erroneous’ when ‘it is without factual support in the record, or if the appellate
court, after reviewing all the evidence, is left with the definite and firm conviction that a
mistake has been made.’”31 But if the bankruptcy court’s “factual findings are premised
26
See Korngold v. Loyd (In re S. Med. Arts Cos.),
343 B.R. 250, 254 (10th Cir.
BAP 2006).
27
Id. at 256.
28
In re Arenas,
535 B.R. 845, 849 (10th Cir. BAP 2015) (quoting Moothart v.
Bell,
21 F.3d 1499, 1504 (10th Cir. 1994)).
29
Id. (quoting Moothart,
21 F.3d at 1504-05).
30
Jackson v. Los Lunas Cmty. Program,
880 F.3d 1176, 1191 (10th Cir. 2018)
(quoting Ohlander v. Larson,
114 F.3d 1531, 1537 (10th Cir. 1997)).
31
LTF Real Estate Co. v. Expert S. Tulsa, LLC (In re Expert S. Tulsa, LLC),
522
B.R. 634, 643 (10th Cir. BAP 2014) (quoting Las Vegas Ice & Cold Storage Co. v. Far
9
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 10 of 16
on improper legal standards or on proper ones improperly applied, they are not entitled to
the protection of the clearly erroneous standard, but are subject to de novo review.” 32
We review questions of law de novo, which “requires an independent
determination of the issues, giving no special weight to the bankruptcy court’s
decision.” 33
III. Analysis
a. Debtor’s Issue on Appeal
The Debtor asks this Court to review her claim of the homestead exemption, an
issue she admits the Bankruptcy Court did not consider. In the “Rulings Presented for
Review” section of Appellant’s Brief, the Debtor states:
The [Bankruptcy] Court has not ruled on the homestead exemption if it is
applicable as per the carve-out agreement. The [Bankruptcy] Court simply
passed on the ruling but should have ruled because that issue was in front
of the Court. So Debtor is asking the BAP to review and issue a ruling in
our favor, based on the evidence. 34
W. Bank),
893 F.2d 1182, 1185 (10th Cir. 1990)), aff'd,
619 F. App'x 779 (10th Cir.
2015) (unpublished).
32
In re Novinda Corp.,
585 B.R. 145, 152 (10th Cir. BAP 2018) (quoting Osborn
v. Durant Bank & Tr. Co. (In re Osborn),
24 F.3d 1199, 1203 (10th Cir. 1994), abrogated
in part on other grounds by Eastman v. Union Pac. R.R. Co.,
493 F.3d 1151 (10th Cir.
2007)).
33
In re Expert S. Tulsa, LLC, 522 B.R. at 643 (citing Salve Regina Coll. v. Russell,
499 U.S. 225, 238 (1991)).
34
Appellant’s Br. 22. The Debtor reiterates this is her only argument in her
responses to the appellees’ briefs. Appellant’s Reply Br. 8 (“It is about the Bankruptcy
Court’s erroneous failure to rule on the Appellant’s Homestead Exemption as it is defined
in the Carve-out agreement.”).
10
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 11 of 16
The Carve-Out Order expressly states, “[t]he only issue before the Court at this
time is whether to approve a fairly simple settlement agreement.” 35 The Bankruptcy
Court also stated the Debtor’s “only arguments against the Carve-Out [Motion] were her
contention that she is entitled to her homestead exemption and collateral challenges to
this Court’s approval of the sale of [the Residence]. Neither matter is presently before the
Court.” 36 Thus, the Bankruptcy Court expressly declined to rule on the Debtor’s stated
issue on appeal.
As has been held numerous times, “[i]t is the general rule, of course, that a federal
appellate court does not consider an issue not passed upon below.” 37 An issue is not
passed on below if it has not been “presented to, considered [and] decided by the trial
court.” 38 Policy reasons for limiting review to issues actually considered by a lower court
include preventing surprise on appeal, allowing whatever evidence there may be to be
presented, and allowing parties the opportunity to present legal arguments. 39 The Tenth
Circuit Court of Appeals (the “Tenth Circuit”) enumerated other reasons for not
considering such issues, including the need to frequently remand for evidentiary hearings,
the need for finality in litigation, and the conservation of judicial resources. 40 The noted
35
Carve-Out Order at 3, in Appellant’s App. at 566.
36
Id. at 4, in Appellant’s App. at 567; Tr. Sept. 3, 2020 Hearing at 36, in
Appellee’s App. at 590 (suggesting the Bankruptcy Court would consider future
challenges to the waiver of the homestead exemption).
37
Singleton v. Wulff,
428 U.S. 106, 120 (1976).
38
Lyons v. Jefferson Bank & Tr.,
994 F.2d 716, 721 (10th Cir. 1993) (quoting
Cavic v. Pioneer Astro Indus. Inc.,
825 F.2d 1421, 1425 (10th Cir. 1987)).
39
Singleton,
428 U.S. at 120.
40
Lyons,
994 F.2d at 721 (quoting Hicks v. Gates Rubber Co.,
928 F.2d 966, 970-
71 (10th Cir. 1991)).
11
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 12 of 16
exceptions to this rule are the need to address the court’s jurisdiction or when sovereign
immunity is raised 41 or other situations “where ‘injustice might otherwise result.’” 42
Thus, the Tenth Circuit exercises its “discretion to hear issues for the first time on appeal
only in the most unusual circumstances.” 43
The Debtor fails to point to any unusual circumstances or injustice that would
convince us to consider an issue not addressed or decided in the order on appeal. The
Debtor suggests the Trustees improperly (i) sold the Residence, which lacked equity, to
earn a commission and (ii) allowed GAIC to enhance its claim. The Debtor also attacks
findings made by the Bankruptcy Court in the Order Approving Sale, which she did not
appeal. She ignores the fact that the Residence and Park Street were cross-collateralized.
The Trustees’ negotiation and global settlement in both bankruptcy cases resulted in a
sale of both properties and a reduction of GAIC’s claim, which generated equity for the
Trustees to distribute. She has always conceded that the Residence itself lacked sufficient
equity to satisfy all liens against it and her homestead exemption. Therefore, regardless of
the waiver issue, after satisfaction of the secured claims, there were no funds available to
pay her the homestead exemption. 44 The dispute over the Debtor’s homestead exemption
41
Id. (citing Hicks,
928 F.2d at 920).
42
Id. (quoting Singleton,
428 U.S. at 121).
43
Id. (citing cases as examples of unusual circumstances).
44
Motion to Abandon Interest in Property Pursuant to 11 U.S.C. Section 554(b)
(the “Motion to Abandon”) at 3-4, in Appellant’s App. at 277-78. The Debtor admitted
that there was a lack of equity in the Residence during the proceedings on the Motion to
Sell and the Motion to Abandon. The Debtor argued that the Residence was of
inconsequential value to the estate and should thus be abandoned to her. Order: (1)
Granting Trustee’s Motion to Sell; (2) Denying Debtor’s Motion to Abandon; and (3)
12
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 13 of 16
is between the Debtor and GAIC, as clearly stated in the Carve-Out Motion and by the
Bankruptcy Court in its Carve-Out Order. We do not believe the Debtor has identified
any unusual circumstances that would justify deviation from the well-established rule that
an appellate court does not consider an issue not ruled on below. Therefore, we decline to
address the issue of her homestead exemption.
b. Bankruptcy Court’s Approval of the Carve-Out Stipulation
The Debtor does not challenge the Bankruptcy Court’s findings and conclusions
regarding the Carve-Out Stipulation on appeal. However, as the Debtor argues that the
Carve-Out Motion should never have been approved by the Bankruptcy Court and that
some courts have found carve-out deals to be improper where an asset is fully
encumbered, we will review the Bankruptcy Court’s analysis of the settlement.
Federal Rule of Bankruptcy Procedure 9019 (“Rule 9019") governs the approval
of a compromise or settlement. In interpreting a bankruptcy court’s duty under Rule 9019,
case law suggests “[t]here can be no informed and independent judgment as to whether a
proposed compromise is fair and equitable until the bankruptcy judge has apprised
himself of all facts necessary for an intelligent and objective opinion of the probabilities
of ultimate success should the claim be litigated.”45 A court need not conduct a mini-trial
Granting, in Part, Trustee’s Motion to Compel Turnover at 3-5, in Appellee’s App. at
392-94.
45
In re Armstrong,
285 B.R. 344,
2002 WL 471332, at *2 (10th Cir. BAP March
28, 2002) (unpublished) (quoting Protective Comm. for Indep. Stockholders of TMT
Trailer Ferry, Inc. v. Anderson,
390 U.S. 414, 424 (1968)), aff’d, 99 F. App’x 210, 213
(10th Cir. 2004).
13
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 14 of 16
or decide the numerous questions of law and fact, 46 but its decision to approve a
settlement “must be an informed one based upon an objective evaluation of developed
facts.” 47 Accordingly, this Court has held that a bankruptcy court must evaluate the
factual circumstances of a compromise in light of: “(1) the chance of success on the
litigation on the merits; (2) possible problems in collecting the judgment; (3) the expense
and complexity of the litigation; and (4) the interest of the creditors.” 48 “[T]he court need
not resolve all of these issues, but must only identify them ‘so that the reasonableness of
the settlement may be evaluated.’” 49 Thus, these factors 50 facilitate a “court’s general
charge [ ] to determine whether the settlement is fair and equitable and in the best
interests of the estate.” 51
The Bankruptcy Court evaluated the stipulation and Carve-Out Motion utilizing
the Kopexa factors. In considering the first factor, the Bankruptcy Court determined the
46
See In re Brutsche,
500 B.R. 62, 71 (Bankr. D.N.M. 2013).
47
Korngold v. Loyd (In re S. Med. Arts Cos.),
343 B.R. 250, 256 (10th Cir. BAP
2006) (quoting Reiss v. Hagmann,
881 F.2d 890, 892 (10th Cir. 1989)); see also In re
Armstrong,
2002 WL 471332, at *2 (“There can be no informed and independent
judgment as to whether a proposed compromise is fair and equitable until the bankruptcy
judge has apprised himself of all facts necessary for an intelligent and objective opinion
of the probabilities of ultimate success should the claim be litigated.” (quoting Anderson,
390 U.S. at 424 )).
48
Loyd v. Foxglove, Inc. (In re S. Med. Arts Companies, Inc.),
343 B.R. 250, 256
(10th Cir. BAP 2006) (citing In re Kopexa Realty Venture Co.,
213 B.R. 1020, 1022
(10th Cir. BAP 1997)); see also In re Armstrong, 99 F. App’x 210, 213 (10th Cir. 2004)
(unpublished).
49
In re W. Pac. Airlines, Inc.,
219 B.R. 575, 579 (D. Colo. 1998) (quoting In re
The Hermitage Inn, Inc.,
66 B.R. 71, 72 (Bankr. D. Colo. 1986)).
50
Hereinafter referred to as the Kopexa Factors, established by In re Kopexa
Realty Venture Co.,
213 B.R. 1020 (10th Cir. BAP 1997).
51
In re Rich Global, LLC, 652 F. App’x 625, 631 (10th Cir. 2016) (unpublished)
(quoting W. Pac. Airlines Inc.,
219 B.R. at 579).
14
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 15 of 16
settlement that included a $322,000 reduction in GAIC’s secured claim in exchange for
dismissal of the estate’s claims was “eminently reasonable and a proper exercise of the
[T]rustees’ business judgment” based on the “[T]rustees’ assertion that they have
investigated the [claims against GAIC] and believe they are wholly without merit.” 52 It
noted that the Debtor did not challenge this assertion. 53 The Bankruptcy Court found the
second factor regarding the complexity and expense of continuing the litigation supported
approval of the settlement since continuation of the litigation would result in additional
administrative expenses that would burden the Debtor’s estate. There was no concern
regarding the third factor of collecting a judgment against GAIC so the Bankruptcy Court
found this factor did not support approval. As to the fourth factor, the Bankruptcy Court
noted that no creditor objected to the settlement, thus weighing in favor of approving the
stipulation. Importantly, the Bankruptcy Court found the stipulation freed up $770,000 in
equity in Park Street, and the combination of the sales of the Residence and Park Street
resulted in a significant distribution to unsecured creditors in both bankruptcy estates.
These facts satisfy any objection to a carve-out deal of the fully encumbered Residence
since this agreement resulted in a meaningful distribution to creditors. 54
The Bankruptcy Court carefully considered and set forth the facts and made an
objective evaluation of those facts utilizing the Kopexa factors, the appropriate legal
52
Carve-Out Order at 3, in Appellant’s App. at 566.
53
Id.
54
See In re Bird,
577 B.R. 365, 378 (10th Cir. BAP 2017) (“[C]arve out
agreements are only permitted if they result in meaningful distributions to creditors. And
the definition of meaningful depends on the totality of circumstances.”).
15
BAP Appeal No. 20-40 Docket No. 52 Filed: 07/13/2021 Page: 16 of 16
standard for analyzing a settlement. 55 After reviewing the Carve-Out Order, we see no
reason to overturn the Bankruptcy Court’s findings and conclude it did not abuse its
discretion in approving the Carve-Out Motion.
IV. Conclusion
The Debtor appeals the Carve-Out Order on the grounds it deprives her of her
claimed homestead exemption. The Bankruptcy Court expressly stated the homestead
exemption issue was not before it and did not decide that issue. Accordingly, this Court
may not review that issue raised by the Debtor. This Court finds no error in the
Bankruptcy Court’s analysis and approval of the Carve-Out Motion utilizing the Kopexa
factors. Because we do not have a definite and firm conviction that the Bankruptcy Court
made a clear error of judgment or exceeded the bounds of permissible choice in the
circumstances presented, the Carve-Out Order is AFFIRMED.
Isho v. Loveridge (In re Isho),
498 B.R. 391(10th Cir. BAP 2013)
55
(unpublished).
16
