FILED
MAR 18 2020
NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-19-1175-TaFS
CARLO BONDANELLI, Bk. No. 2:14-bk-27656-WB
Debtor.
FRANCESCO TIENI; OCEAN PARK SRL,
Appellants,
v. MEMORANDUM*
PETER J. MASTAN, CHAPTER 7 TRUSTEE;
CARLO BONDANELLI; DESERT SOLIS; ST.
JOSEPH'S INVESTMENTS, INC. DEFINED
BENEFIT PENSION PLAN; ST. JOSEPH'S
INVESTMENTS, INC.; CIVITAS
INCORPORATED,
Appellees.
Argued and Submitted on February 27, 2020
at Pasadena, California
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
Filed – March 18, 2020
Appeal from the United States Bankruptcy Court
for the Central District of California
Honorable Julia Wagner Brand, Bankruptcy Judge, Presiding
Appearances: Lori Speak of Lex Opus argued on behalf of appellants;
Jack Andrew Reitman of Landau Law LLP argued on
behalf of appellee Peter J. Mastan, Chapter 7 Trustee.
Before: TAYLOR, FARIS, and SPRAKER, Bankruptcy Judges.
INTRODUCTION
Appellants Francesco Tieni and Ocean Park SRL, who collectively
hold most of the claims against debtor Carlo Bondanelli, appeal the
bankruptcy court’s order approving the chapter 71 trustee’s settlement of
§ 548(a)(1)(A) claims against Mr. Bondanelli, St. Joseph’s Investments, Inc.
Defined Benefit Pension Plan (the “Pension Plan”), Civitas Incorporated
(“Civitas”), St. Joseph’s Investments, Inc., and Desert Solis, Inc.
(collectively, the “Defendants”). We discern no abuse of discretion by the
bankruptcy court; it correctly identified the relevant legal standard and
applied it in a logical and plausible manner given the record before it. We
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
2
AFFIRM.
FACTS2
In 2004, Mr. Bondanelli, Appellants, and others formed a joint
venture to develop real property in Santa Monica, California (the
“Property”). A newly-formed entity, New West TC, LLC (“New West”),
would acquire title and Mr. Bondanelli would complete development using
joint venturer contributions and loan proceeds. But after acquisition of the
land, disputes arose regarding the amount of additional development
funding from Appellants.
Mr. Bondanelli, who was responsible for the development and had
guaranteed repayment of the acquisition loan, eventually adopted a
problematic method for obtaining cash from Appellants. He sued
Appellants to compel additional capital contributions. This part of the plan
is not troubling. And the fact that Mr. Bondanelli then entered into a
settlement with Appellants where he agreed to pay them $800,000 in
exchange for a transfer of all rights to New West and its assets, including
the Property, seems reasonable in isolation. The problem, however, is that
unbeknownst to Appellants, Mr. Bondanelli caused New West to sell the
Property and to distribute the proceeds among all Defendants before
2
We exercise our discretion to take judicial notice of documents filed in the
bankruptcy court’s dockets, as appropriate. See Atwood v. Chase Manhattan Mortg. Co. (In
re Atwood),
293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
3
entering into the settlement. Thereafter, he never paid the $800,000, and the
value of New West, now a mere former owner of the Property, was
negligible.
After Appellants learned of Mr. Bondanelli’s deception, they sued
him for fraudulent transfer, fraud, and breach of fiduciary duty. He
responded by filing a chapter 7 case. Eventually, Peter J. Marstan, the
chapter 7 trustee, filed § 548(a)(1)(A) complaints against Defendants,
alleging that New West’s transfers of the sale proceeds were made to
defraud Mr. Bondanelli’s creditors (i.e., the Appellants); he sought the
return of nearly $400,000 from the non-debtor defendants.
On the verge of trial, the parties reached a mediated settlement that,
as relevant on appeal, required payment to the estate of $60,000 (the
“Settlement”).3 Given the fraud allegations that underlaid the litigation, the
Settlement required Defendants to provide declarations under penalty of
perjury attesting that, other than the Pension Plan, none of them had assets
of significant value and that the majority of their assets were undeveloped,
raw land in the high desert of Southern California. Civitas agreed to pay
the $60,000.
3
The settlement also required Civitas to transfer to the estate its $129,382.50
claim against New West in the related bankruptcy In re New West TC, LLC,
2:17-bk-20201-WB. Appellants and the Trustee ignore this additional settlement
consideration in their analysis of whether the settlement was fair and equitable. We
cannot ascertain the value of this consideration from the record and do not address it
further.
4
The Trustee moved for approval of the Settlement; Appellants
opposed. At the hearing on the Trustee’s motion, the bankruptcy court
entertained argument, made oral findings as required by Martin v. Kane (In
re A & C Props.),
784 F.2d 1377 (9th Cir. 1986), and determined that the
settlement was fair and equitable and should be approved. Appellants
timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334(a) and
157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court abuse its discretion when it approved the
Settlement?
STANDARD OF REVIEW
The bankruptcy court’s decision to approve a compromise is
reviewed for abuse of discretion.
Id. at 1380. We apply a two-part test to
determine if it abused its discretion, first, determining de novo if it
identified the correct legal rule and, second, determining if its application
of the legal standard was illogical, implausible, or without support in
inferences that may be drawn from the facts in the record. United States v.
Hinkson,
585 F.3d 1247, 1261-62 & n.21 (9th Cir. 2009) (en banc).
In conducting our appellate review, we ignore harmless error and
may affirm on any ground supported by the record. Lakhany v. Khan (In re
5
Lakhany),
538 B.R. 555, 559-60 (9th Cir. BAP 2015).
DISCUSSION
Rule 9019(a) Standard
Rule 9019 provides that, on the trustee’s motion, the bankruptcy
court may approve a compromise or settlement. Fed. R. Bankr. P. 9019(a).
In this regard, it has considerable, but not unlimited, latitude; it must
determine that the settlement is “fair and equitable.” Woodson v. Fireman’s
Fund Ins. Co. (In re Woodson),
839 F.2d 610, 620 (9th Cir. 1988). The four
relevant factors in assessing fairness and equity are:
(a) The probability of success in the litigation; (b) the
difficulties, if any, to be encountered in the matter of collection;
(c) the complexity of the litigation involved, and the expense,
inconvenience and delay necessarily attending it; (d) the
paramount interest of the creditors and a proper deference to
their reasonable views in the premises.
Id.
The court has discretion as to the weight to be given each factor; it
need not weigh them equally. Thus, any one factor may have weight in
isolation that justifies the settlement. See In re WCI Cable, Inc.,
282 B.R. 457,
472-73 (Bankr. D. Or. 2002).
The trustee has the burden to persuade the bankruptcy court that the
compromise is fair and equitable. In re
Woodson, 839 F.2d at 620. He is
assisted in this burden by the general rule that bankruptcy courts should
give some deference to his business judgment in deciding whether to settle
6
a matter for the benefit of the estate. Goodwin v. Mickey Thompson Entm't
Grp., Inc. (In re Mickey Thompson Entm't Grp., Inc.),
292 B.R. 415, 420 (9th Cir.
BAP 2003) (citing In re A & C
Props., 784 F.2d at 1381). He is also aided by
policy considerations.
Compromise is favored where it allows the parties to avoid the
expenses and burdens associated with litigation. In re A & C
Props., 784
F.2d at 1380-81. Thus, when assessing a compromise, courts appropriately
canvass the issues and need not rule on disputed facts and questions of
law. If the court were required to do more, there would be no point in
compromising; the parties might as well try the case.
In short, we must affirm the bankruptcy court’s settlement approval
decision if it “amply considered the various factors that determine[ ] the
reasonableness of the compromise. . . .”
Id. at 1381. Here, it did.
Difficulty of Collection
The Trustee argued, and the bankruptcy court agreed, that
collectability was the dispositive factor in determining that the Settlement
was fair and equitable. The Trustee and his counsel, who identified
themselves as having many years’ experience in asset recovery and
judgment enforcement work, perceived significant difficulties in
collectability, warranting settlement. The court agreed and the record
supports this conclusion.
The Pension Plan was the only Defendant with significant assets. But
7
the Trustee anticipated thorny collection issues related to this potential
payment source; in particular, a fraudulent conveyance judgment might
cause IRS disqualification of the Pension Plan and require payment of back
taxes and penalties.
The other Defendants provided declarations evidencing their poor
financial condition. Based on these declarations and his counsel’s
independent investigation, the Trustee concluded that these Defendants
had no assets of significant value.
At the hearing, the bankruptcy court observed that:
the driving factor here is collectability of a judgment. These
companies are all out of business and . . . the transfers . . .
occurred six years ago. The money has dissipated so . . .
collecting on a judgment . . . is going to be incredibly difficult.
And I think the Trustee is allowed to make that assessment and
did appropriately make that assessment here.
Appellants claim that the bankruptcy court abused its discretion
because it erroneously stated that all—rather than some—of the entities
were out of business. By clinging to the court’s perhaps imprecise, but
certainly off-the-cuff, factual summary to assert error, they miss the point.
Collection will be difficult because none of these entities have accessible,
valuable assets. The record evidences that they either are defunct or own at
most $3,000 in cash and raw, undeveloped land in the high desert.
Appellants also question whether Defendants dissipated their assets
during Mr. Bondanelli’s bankruptcy, thereby causing the collection issue.
8
But their bald rumination is irrelevant to the extent that Defendants have
not been enjoined from transferring their assets.
Appellants also note that Civitas funded the $60,000 Settlement but
claimed it has “less than $3,000 of cash on account.” This side-eyed
comment is likewise irrelevant; Civitas apparently had access to a loan or
capital contribution. But access to outside capital to fund a settlement does
not mean it could or would access these funds to pay a judgment.
Probability of Success
Appellants argue that the bankruptcy court erred by analyzing the
merits of the Trustee’s § 548(a)(1)(A) claims under an incorrect standard;
we disagree. It is true that, at one point in its probability of success
analysis, the bankruptcy court stated that there had to be “creditors in
existence at the time of the fraudulent transfer.” Appellants maintain that
there is no such requirement under § 548(a)(1)(A). But we need not
consider this argument because Appellants failed to raise it in their
opening brief. United States v. Ullah,
976 F.2d 509, 514 (9th Cir. 1992).
And even if the bankruptcy court misinterpreted the law in some
minor respect, such error would be harmless because the record otherwise
thoroughly supported its conclusion that the likelihood of the Trustee
prevailing was far from certain in light of multiple disputed factual and
legal issues.
For example, in the Trustee’s case against the Pension Plan to recover
9
$168,958.12 (i.e., nearly half the total sum at issue in the avoidance actions),
the litigants disagree which case law controls: (1) Gill v. Stern (In re Stern),
345 F.3d 1036 (9th Cir. 2003) (holding that a debtor’s prepetition conversion
of non-exempt assets to exempt assets may not be per se fraudulent); or (2)
Wolkowitz v. Beverly (In re Beverly),
374 B.R. 221 (9th Cir. BAP 2007) (holding
that Stern does not apply if the assets were moved from entirely non-
exempt to exempt assets). Both cases are good law.
And while the Trustee and Appellants agree that the bankruptcy court
should apply Beverly, the Trustee must still prove that the transfers were
fraudulent under the facts. Contrary to Appellants’ urging, there was
evidence in the record that the transfer to the Pension Plan was made to
repay loans rather than to defraud creditors; Mr. Bondanelli testified at the
§ 341(a) meeting of creditors that, in 2013, he repaid various loans that the
Pension Plan had made to himself and other entities.4 See Mastan v.
Bondanelli et al., Adv. No. 17-ap-01547-WB, Dkt. 25, pp. 2-3. In its analysis,
the court specifically referenced a pretrial stipulation that recounted his
testimony. Further, Appellants attached to their opposition testimony of
the Pension Plan’s person most qualified witness designee that
4
Mr. Bondanelli’s testimony at past § 341(a) meeting of creditors sessions, Rule
2004 examinations, and depositions would be admissible in all of the avoidance actions,
without the Trustee’s ability to cross-examine him on such testimony, as he is now
deceased. See Civil Rule 32(a)(1) and (4)(A); Key Bank of Me. v. Jost (In re Jost),
136 F.3d
1455, 1459 (11th Cir. 1998). This would hurt the Trustee’s likelihood of success.
10
corroborated his testimony. Moreover, the checks issued to the Pension
Plan are attached to the Trustee’s complaint, and their memo sections state
that the transfers were for “repayment of loans” or “reimbursement.”
When assessing the Settlement, the bankruptcy court did not need to
rule on the disputed facts and questions of law; rather, it was required
merely to canvass the issues–which it did. See Burton v. Ulrich (In re
Schmitt),
215 B.R. 417, 423 (9th Cir. BAP 1997). And it did so on an
independent, informed basis after reviewing the moving and opposing
papers and presiding over the litigation for nearly two years.
Complexity, Expense, Inconvenience, and Delay of Litigation
The avoidance actions were on the brink of trial. Thus, the delay
caused by litigation was not a driving factor in the bankruptcy court’s
decision. That said, however, cost in particular remained an issue. Trials
are expensive. And the cost, inconvenience, and delay of collecting on any
judgment against Defendants were reasonably assumed to be significant
for the reasons set forth above.
Interests of Creditors
“The opposition of the creditors of the estate to approval of a
compromise may be considered by the court, but is not controlling and will
not prevent approval of the compromise where it is evident that the litigation
would be unsuccessful and costly.” Official Unsecured Creditors' Comm. v.
Beverly Almont Co. (In re The Gen. Store of Beverly Hills),
11 B.R. 539, 541
11
(9th Cir. BAP 1981) (emphasis added). In short, creditors have a voice but
not a veto. Thus, a bankruptcy court may approve a settlement even over
strenuous creditor objections.
Appellants assert that the bankruptcy court did not give their
objection due deference. We disagree; the court heard and considered all of
their arguments at the hearing. It simply disagreed with their view that the
Settlement was not fair, equitable, or in their best interest. In the
bankruptcy court’s view, “the paramount interest of creditors is to resolve
this litigation and try and solve these cases so that funds can be distributed
to creditors. And so [the court thinks] that the settlement is actually in the
interests of creditors.” This was not error.
Neither was it reversible error when the bankruptcy court stated that
it could not replace the Trustee’s business judgment with its own. See In re
Rake,
363 B.R. 146, 152 (Bankr. D. Idaho 2007). Despite the court’s remark
during the heat of oral argument, the record shows that it did not abdicate
its duty to undertake its own informed and independent judgment as to
whether the settlement was fair and equitable.
CONCLUSION
The bankruptcy court did not abuse its discretion. We AFFIRM.
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