Yacovi v. Rubin & Rudman , 411 F. App'x 342 ( 2011 )


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  •                  Not for Publication in West's Federal Reporter
    United States Court of Appeals
    For the First Circuit
    No. 10-1673
    IN RE: NIR YACOVI,
    Debtor.
    NIR YACOVI,
    Appellant,
    v.
    RUBIN AND RUDMAN, L.L.P.; PETER B. FINN;
    HAROLD B. MURPHY, Chapter 7 Trustee,
    Appellees.
    APPEAL FROM THE UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF MASSACHUSETTS
    [Hon. Joseph L. Tauro, U.S. District Judge]
    Before
    Lynch, Chief Judge,
    Souter, Associate Justice,*
    and Stahl, Circuit Judge.
    Valeriano Diviacchi on brief for appellant.
    David C. Fixler and Rubin and Rudman, L.L.P. on brief for
    appellees Rubin and Rudman L.L.P. and Peter B. Finn.
    Harold B. Murphy, Christian J. Urbano and Hanify & King, P.C.,
    on brief for trustee appellee Murphy.
    March 18, 2011
    *
    Hon. David H. Souter, Associate Justice (Ret.) of the Supreme
    Court of the United States, sitting by designation.
    STAHL, Circuit Judge.      Nir Yacovi, the debtor in a
    Chapter 7 bankruptcy, appeals a decision approving the settlement
    of legal claims held by his estate.      Yacovi also asserts that the
    bankruptcy court should have granted his motion to abandon those
    claims.   We affirm.
    I. Facts & Background
    On October 5, 2005, Yacovi resigned from his position
    with URS Staffing Corporation and/or United Revenue Service, Inc.
    (collectively "URS") to start his own tax preparation business,
    IBTS, Inc., which was to provide services similar to those offered
    by his former employer.    Shortly thereafter, URS accused Yacovi of
    violating the employment agreement he had entered into with URS,
    and Yacovi retained Peter Finn, an attorney at Rubin and Rudman,
    L.L.P. (collectively "R & R"), to advise him about this contractual
    issue.
    On October 3, 2006, an arbitrator concluded that Yacovi
    had in fact breached the employment agreement and awarded URS
    $226,000.1    Although the arbitrator did not find that Yacovi was
    prohibited from competing with URS, he concluded that Yacovi
    nonetheless violated the agreement by removing, and not timely
    returning after his resignation, documents from URS (including
    lists of URS's clients and the fees they paid); retaining the fees
    1
    The agreement specified that "for any CLIENT lost as a result
    of Employee's breach of Paragraphs 22 through 26, Employee shall
    owe . . . the greater of $2,000.00, or three times the annual gross
    income derived from such CLIENT."       The arbitrator found that
    Yacovi's breach caused URS to lose 113 clients.
    -2-
    generated from some tax and financial services he provided while
    employed at URS;          soliciting URS's clients and prospective clients
    for his own benefit prior to resigning; and, after leaving URS,
    using his knowledge of URS's clients' identities and URS's rates
    (that is, URS confidential information) to solicit business for
    IBTS.        The arbitrator also noted that Yacovi's account of some
    facts lacked credibility.
    Within weeks of the arbitration decision, Yacovi filed a
    voluntary petition for Chapter 7 bankruptcy relief, and Harold B.
    Murphy ("Trustee") of Hanify & King, P.C. ("H & K") was appointed
    as the trustee.           Yacovi's petition listed R & R as holding a claim
    for legal fees and URS as holding a $226,000 claim for the
    arbitration award.           In early 2007, URS filed a complaint asserting
    that        the   arbitration    award   was     non-dischargeable   in   Yacovi's
    bankruptcy because it was the result of fraud as a fiduciary,
    embezzlement, and/or larceny.              On March 13, 2008, the bankruptcy
    court granted URS's motion for summary judgment on this issue. The
    following year, the court granted Yacovi a discharge,2 relieved the
    Trustee of his responsibilities, and closed the case.
    However, on May 13, 2009, exactly one month after the
    case was closed, Yacovi filed a motion to reopen the bankruptcy
    proceedings          to   list   various    legal     claims   against    R   &   R
    2
    In November 2006, the Trustee filed a "Report of No
    Distribution," explaining that he had "received no property nor
    paid any money on account of the estate except exempt property, and
    diligent inquiry having been made . . . there is no nonexempt
    property available for distribution to creditors."
    -3-
    (collectively "malpractice claims")3 as additional assets of the
    estate.    Specifically, Yacovi alleged that R & R had advised him
    that, because the employment agreement lacked a non-compete clause
    covering his post-employment activity, he could operate IBTS and
    service URS's clients.          In a complaint he sought to pursue against
    R & R, Yacovi contended that a lawyer with appropriate experience
    exercising the requisite standard of care, "would have advised
    [him] . . . that any services provided to clients of [URS] would
    most definitely result in expensive litigation . . . [and] that
    there was a very real possibility in such litigation that there may
    be   an   adverse    finding     against    him."      Yacovi     moved   for   the
    bankruptcy court to abandon the malpractice claims or, in the
    alternative, "administer this asset to allow him to seek a recovery
    of [the arbitration award]."
    On June 24, 2009, the bankruptcy court granted Yacovi's
    motion    to    reopen,   but    denied    his    motion   to   abandon   without
    prejudice.        Accordingly,      the   Trustee    began     investigating    the
    malpractice claims and requested all relevant documents in Yacovi's
    possession.         The   Trustee    also       successfully    applied   to    the
    bankruptcy court to have H & K employed as his own counsel to,
    among other things, advise on the merits of the malpractice claims.
    On September 29, 2009, the Trustee moved for approval of
    a settlement he had reached with R & R.             In exchange for the estate
    releasing all claims against R & R, the settlement required R & R
    3
    These claims were breach of contract/warranty, legal
    malpractice, and negligent infliction of emotional distress.
    -4-
    to pay $25,000 and waive any claims it may have had against the
    estate.   In his motion to approve, the Trustee asserted that his
    investigation of the malpractice claims consisted of the following:
    discussing the claims and defenses with Yacovi's counsel and with
    R & R, reviewing the arbitration opinion (which included a detailed
    analysis of the employment agreement), reviewing filings in URS's
    state court petition to confirm the arbitration award, reviewing
    Yacovi's proposed complaint against R & R, and reviewing Yacovi's
    letter demanding relief from R & R for the purported malpractice.
    Based on this work, the Trustee believed that there was a "real
    risk" that litigating the malpractice claims would be unsuccessful,
    and therefore concluded that the proposed settlement was in the
    best interest of the estate.          The Trustee explained that the
    arbitrator had found that the employment agreement did not prohibit
    Yacovi from competing with URS, and therefore it would be difficult
    to prove that advising Yacovi about IBTS's ability to compete with
    URS constituted negligence or was the cause of the arbitration
    award.    Moreover,   the   Trustee   found   "little   support   for   the
    allegation" that R & R told Yacovi that he could solicit URS's
    customers without running afoul of the agreement.
    Yacovi opposed the motion to approve, arguing that the
    Trustee's investigation was inadequate and consisted primarily of
    discussions with R & R.     Although acknowledging that the Trustee
    procured the relevant documents, Yacovi's counsel swore in an
    affidavit that he was never consulted by the Trustee about the
    merits of the malpractice claims.       Yacovi's counsel also expressed
    -5-
    his willingness to pursue the claims on a contingency basis with a
    percentage allocated to the estate, which was an offer he had
    previously proposed in conversations with the Trustee.
    At the conclusion of a hearing held on October 14, 2009,
    the bankruptcy court granted the motion to approve, explaining its
    decision with only a few sentences:
    It's always a tough call when you've got a
    disputed piece of litigation that the Trustee
    thinks is not worth pursuing and somebody else
    thinks is worth pursuing.       My obligation
    generally speaking is to rely on the expertise
    of the Trustee. In this particular matter I
    have no reason to doubt the amount of due
    diligence Mr. Murphy performed in evaluating
    the claim. I am going to grant the motion.
    The district court subsequently affirmed.      See In re Yacovi, No.
    09-11988, 
    2010 WL 2106171
    , at *3 (D. Mass. May 24, 2010).
    II. Discussion
    A.        The Bankruptcy Court Did Not Abuse Its Discretion in
    Approving the Settlement
    "Bankruptcy   court   orders   endorsing   settlements   are
    reviewed for manifest abuse of discretion."4    Hicks, Muse & Co. v.
    4
    There may be a question as to whether Yacovi has standing to
    pursue this appeal. See Spenlinhauer v. O'Donnell, 
    261 F.3d 113
    ,
    117-20 (1st Cir. 2001) (discussing bankruptcy code's limitations on
    a debtor's appellate standing).      Because neither party briefed
    this issue and we can dispose of Yacovi's appeal on the merits, we
    do not address the standing question. Greenwood ex rel. Estate of
    Greenwood v. N.H. Pub. Utils. Comm'n, 
    527 F.3d 8
    , 13 (1st Cir.
    2008) ("This court has consistently interpreted [Steel Co. v.
    Citizens for a Better Env't, 
    523 U.S. 83
     (1998)] as applying in its
    strict form only to issues going to Article III requirements. . .
    . [W]here any concerns over jurisdiction are a matter of statutory
    interpretation and not an Article III issue, we may bypass the
    jurisdictional inquiry." (internal citation omitted)).
    -6-
    Brandt (In re Healthco Int'l, Inc.), 
    136 F.3d 45
    , 50 n.5 (1st Cir.
    1998).   In deciding whether to approve a settlement pursuant to
    Federal Rule of Bankruptcy Procedure 9019, "The bankruptcy court
    essentially is expected to assess and balance the value of the
    claims being compromised against the value of the compromise
    proposal."   
    Id. at 50
     (internal marks omitted) (quoting Jeffrey v.
    Desmond, 
    70 F.3d 183
    , 185 (1st Cir. 1995)).       The factors the
    bankruptcy court should consider include:
    (i) the probability of success in the
    litigation   being   compromised;   (ii)   the
    difficulties, if any, to be encountered in the
    matter of collection; (iii) the complexity of
    the litigation involved, and the expense,
    inconvenience and delay attending it; and,
    (iv) the paramount interest of the creditors
    and a proper deference to their reasonable
    views in the premise.
    Jeffrey, 
    70 F.3d at 185
    ; accord Ars Brook, L.L.C. v. Jalbert (In re
    Servisense.com, Inc.), 
    382 F.3d 68
    , 72 (1st Cir. 2004).
    In addition, "[T]he trustee's judgment is to be accorded
    some deference."   In re Healthco Int'l, Inc., 
    136 F.3d at
    50 n.5
    (internal marks omitted) (quoting Hill v. Burdick (In re Moorhead
    Corp.), 
    208 B.R. 87
    , 89 (B.A.P. 1st Cir. 1997)).           Moreover,
    "'compromises are favored in bankruptcy.'"   In re Servisense.com,
    Inc., 
    382 F.3d at 71
     (quoting LeBlanc v. Salem (In re Mailman Steam
    Carpet Cleaning Corp.), 
    212 F.3d 632
    , 635 (1st Cir. 2000)).      In
    short, "'The responsibility of the bankruptcy judge, and ours on
    review, is . . . to . . . see whether the settlement falls below
    -7-
    the lowest point in the range of reasonableness.'"         Id. at 71-72
    (quoting In re Healthco Int'l, Inc., 
    136 F.3d at 51
    ).
    We conclude that the settlement in this case fell within
    the "range of reasonableness" and the bankruptcy court did not
    abuse its discretion in approving it. To be sure, $25,000 amounted
    to only a fraction of the damages5 that Yacovi alleges resulted
    from what he claims was R & R's malpractice.          Nonetheless, the
    settlement   constituted    a   "definitive,   concrete   and   immediate
    benefit[]" that the Trustee reasonably concluded outweighed the
    uncertainty and delay of litigation.       See In re Healthco Int'l,
    Inc., 
    136 F.3d at 50
    .      The Trustee was appropriately apprehensive
    about litigating the malpractice claims in light of (1) the fact
    that the arbitrator did not find that the employment agreement
    prohibited Yacovi from competing with URS, (2) the arbitrator's
    judgment that Yacovi's account of some relevant facts lacked
    credibility, and (3) the dearth of evidence that R & R actually
    advised Yacovi that he could solicit URS's clients without any
    legal repercussions. Although the Trustee made this decision using
    counsel from his own law firm, there is no indication that H & K
    offered deficient advice or otherwise undermined the Trustee's
    ability to analyze the malpractice claims.
    We are mindful of our instruction that a court approving
    a settlement must set forth its rationale "in sufficient detail
    5
    Yacovi asserts that the damages include the arbitration
    award, which has a present value, with interest, in excess of
    $300,000.
    -8-
    [such] that a reviewing court [can] distinguish it from 'mere
    boilerplate approval' of the trustee's suggestions."             In re Boston
    & Providence R.R. Corp., 
    673 F.2d 11
    , 12 (1st Cir. 1982) (quoting
    Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc.
    v. Anderson, 
    390 U.S. 414
    , 434 (1968)); see also Jeremiah v.
    Richardson,   
    148 F.3d 17
    ,   23    (1st    Cir.   1998)   ("The     court's
    consideration . . . should demonstrate whether the compromise is
    fair and equitable, and whether the claim the debtor is giving up
    is outweighed by the advantage to the debtor's estate.").                In this
    case, the bankruptcy court offered only four sentences to explain
    its decision.   Providing a more detailed statement would have been
    preferable, and under different circumstances a somewhat succinct
    explanation might prevent affirmance.           However, where, as here, an
    experienced trustee conducts an adequate investigation of the
    claims and offers a satisfactory explanation for his settlement
    decision, the record supports the reasonableness of that decision,
    and the bankruptcy court receives briefing on the motion and holds
    a hearing, a cursory explanation, in and of itself, does not rise
    to the level of an abuse of discretion.6                Cf. In re Boston &
    Providence    R.R.   Corp.,   
    673 F.2d at 12-13
       (remanding    where
    6
    This is not to say that a bankruptcy court's failure to
    independently judge a settlement can be saved by a particularly
    persuasive explanation or thorough investigation by the trustee.
    To the contrary, we remind bankruptcy courts that they are required
    to independently analyze and judge all proposed settlements before
    granting approval pursuant to Bankruptcy Rule 9019. See Jeremiah,
    
    148 F.3d at 23
     (noting "the requirement that the court's judgment
    be independent").
    -9-
    "trustee's petition and supporting affidavit gave only the most
    cursory   description    and   conclusory    evaluation"   and   the   lower
    court's "findings and order do not demonstrate an independent
    evaluation").     Indeed, in the very case this court relied on in
    issuing its caution against "boilerplate approval" of settlements,
    the Supreme Court acknowledged:
    If . . . the record contained adequate facts
    to support the decision of the trial court to
    approve the proposed compromises, a reviewing
    court would be properly reluctant to attack
    that action solely because the court failed
    adequately to set forth its reasons or the
    evidence on which they were based.        The
    deficiency in this case, however, is not a
    merely formal one.
    Anderson, 
    390 U.S. at 437
    .
    B.          Yacovi Waived His Challenge to the Denial of the Motion
    to Abandon
    In addition to his objection to the settlement, Yacovi
    contends that "equity demands that the malpractice claims be
    abandoned."
    On June 24, 2009, the bankruptcy court denied, without
    prejudice, Yacovi's motion to abandon. Over three months later, on
    September 29, the Trustee filed a motion to approve the settlement.
    Yacovi filed an opposition brief to this motion, which included two
    sentences     again   requesting   that     the   malpractice    claims   be
    abandoned.7    After a hearing on October 14, 2009, the bankruptcy
    7
    These sentences read: "[A]bandonment of the malpractice claim
    is the only fair, equitable result and is in the best interest of
    the estate. THEREFORE, Debtor asks that the Motion be denied and
    that given the Trustee's lack of any interest in seriously pursuing
    -10-
    court granted the Trustee's motion to approve.        The next day,
    October 15, Yacovi filed a notice of appeal, pursuant to Federal
    Rule of Bankruptcy Procedure 8002(a), characterizing his appeal to
    the district court as "from the Order entered in this Action on 14
    October 2009 granting the Motion filed by the Trustee to Approve
    Settlement."    Also on October 15, Yacovi filed a Statement of
    Issues and Designation of Record on Appeal ("Statement of Issues on
    Appeal").    See Fed. R. Bankr. Pro. 8006.    This filing failed to
    mention abandonment and framed the appellate issue solely as
    "[w]hether the Court erred in granting the Motion filed by the
    Trustee to Approve [S]ettlement."      On appeal, the district court
    declined to address Yacovi's abandonment argument, saying the
    following:
    As set forth in the Debtor's Statement of
    Issues, the only question on appeal is whether
    the Bankruptcy Court erred in allowing the
    Trustee's Motion to Approve . . . . To the
    extent that the Debtor also seeks to reargue
    his Motion to Abandon the Malpractice Claim,
    that issue is not properly before this court.
    On June 24, 2009, the Bankruptcy Court denied
    the Debtor's Motion to Abandon . . . . The
    Debtor did not appeal that Order, and the time
    to appeal it has since passed.
    In re Yacovi, 
    2010 WL 2106171
    , *3.
    the malpractice claim that it be abandoned."
    Yacovi contends that this passage constituted a cross-motion
    to abandon, and therefore the October 14 settlement approval also
    "acted as a denial of [that] cross-motion." Even if we accept this
    characterization of Yacovi's opposition brief, however, it would
    not explain his failure to mention abandonment in his Statement of
    Issues on Appeal and it would not materially impact our analysis of
    the waiver question. See infra.
    -11-
    There is a circuit split about whether the failure to
    list an issue in the statement of issues on appeal pursuant to
    Bankruptcy Rule 8006 results in a waiver of that issue.               Compare
    Zimmerman v. Jenkins (In re GGM, P.C.), 
    165 F.3d 1026
    , 1032 (5th
    Cir. 1999) ("We . . . hold that, even if an issue is argued in the
    bankruptcy court and ruled on by that court, it is not preserved
    for appeal under Bankruptcy Rule 8006 unless the appellant includes
    the issue in its statement of issues on appeal."), and Snap-On
    Tools, Inc. v. Freeman (In re Freeman), 
    956 F.2d 252
    , 255 (11th
    Cir. 1992) ("An issue that is not listed pursuant to [Bankruptcy
    Rule 8006] and is not inferable from the issues that are listed is
    deemed waived and will not be considered on appeal."), with Office
    of the U.S. Tr. v. Hayes (In re Bishop, Baldwin, Rewald, Dillingham
    & Wong, Inc.), 
    104 F.3d 1147
    , 1148 (9th Cir. 1997) (per curiam)
    ("We hold that Bankruptcy Rule 8006 does not limit a party's
    ability   to   appeal   from   a   bankruptcy   court's   judgment.     This
    document, filed with the trial court clerk, does not impact upon
    issue statements required by the court of appeals.")
    We do not state a position on this circuit split.           In his
    briefing to this court, Yacovi has presented neither adequate
    argument nor any citation to caselaw or even to a learned treatise.
    As a result, he has waived the issue in this court.
    III. Conclusion
    For the foregoing reasons, we affirm.
    -12-