Dennis Hecker v. Randall Seaver , 703 F.3d 1112 ( 2013 )

United States Court of Appeals
For the Eighth Circuit
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No. 11-3523
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In re: Dennis E. Hecker
lllllllllllllllllllllDebtor
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Dennis E. Hecker
lllllllllllllllllllllAppellant
v.
Randall L. Seaver, Trustee
lllllllllllllllllllllAppellee
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: October 18, 2012
Filed: January 11, 2013
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Before LOKEN, BEAM, and SMITH, Circuit Judges.
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LOKEN, Circuit Judge.
In September 2005, GELCO Corporation (“GELCO”) entered into a sales-
commission agreement (“SCA”) with Dennis Hecker and two of Hecker’s companies
whereby GELCO acquired vehicle fleet-leasing assets in exchange for $20 million
plus a series of deferred, formula-based incentive payments. Hecker petitioned for
protection under Chapter 7 of the Bankruptcy Code in June 2009, listing the SCA as
non-exempt personal property with an estimated value of $6 million. He did not claim
that payments owed under the SCA were exempt property on Schedule C of the
petition. Hecker twice amended Schedule C, but never claimed an exemption for the
SCA or its proceeds.
Hecker’s Chapter 7 Trustee and two secured creditors, CorePointe Capital
Finance LLC and U.S. Bank, asserted claims against GELCO for monies allegedly
owed under the SCA. Following extensive negotiations, GELCO and these claimants
agreed to a settlement in which GELCO would pay $2.07 million to the bankruptcy
estate, $500,000 to CorePointe, and $1.53 million to U.S. Bank in exchange for a
complete release of liability for all claims related to the SCA. On May 23, 2011, the
Trustee filed a motion for bankruptcy court approval of the settlement. On June 10,
the last day for filing objections, bankruptcy debtor Hecker filed an objection, arguing
for the first time that the SCA was an employment agreement and therefore some
payments owed by GELCO were exempt earnings under Minnesota law.
On June 15, the bankruptcy court held a hearing on the Trustee’s motion to
approve the settlement. Conceding that Hecker had not filed a motion to amend
Schedule C to claim an exemption for SCA payments, counsel for Hecker moved to
continue the settlement approval hearing so that he could file that motion. The
bankruptcy court1 denied this oral request for a continuance, overruled Hecker’s
objection, and approved the settlement, explaining:
1
The Honorable Robert J. Kressel, United States Bankruptcy Judge for the
District of Minnesota.
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[T]oday is about the settlement. . . . Mr. Hecker is making [claims]
based on something that hasn’t happened. He could have claimed this
exempt [property] any time in the last two years. He didn’t. As we sit
here . . . whatever claims there are is property of the estate. . . .
[W]hether [Hecker] . . . can make a claim later or not, I don’t know and
I express no opinion on that. But certainly the settlement is a terrific one
....
So all the Loomis v. Drexel [settlement approval] factors have
been met here which is really all . . . I’m required to address today.
Seems to me Mr. Hecker has no standing. He has no interest in any of
this money. . . . Really no right to make any claims here. [His] claims
and arguments . . . are outside the scope of today’s hearing . . . . But the
settlement’s a good one. It’s certainly deserving of approval . . . .
Hecker appealed to the district court,2 which granted the Trustee’s motion to dismiss
the appeal. Hecker appeals, arguing the bankruptcy court erred by disregarding his
request to amend his schedule of exempt property and approving the settlement.
Concluding that the bankruptcy court did not abuse its discretion in denying a
continuance and approving the settlement, we affirm.
1. Bankruptcy Rule 9019 provides: “On motion by the trustee and after notice
and a hearing, the court may approve a compromise or settlement.” Here, the Trustee
moved to approve a settlement of disputed claims against GELCO, giving proper
notice. In ruling on that motion at the June 15 hearing, the bankruptcy court properly
looked to discretionary settlement approval factors first set forth by this court in
Drexel v. Loomis, 35 F.2d 800, 806 (8th Cir. 1929).
Hecker has never disputed that the settlement was an appropriate compromise
of disputed claims against GELCO for payments under the SCA. Rather, Hecker’s
2
The Honorable Paul A. Magnuson, United States District Judge for the District
of Minnesota.
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objection to the settlement was based on his allegation that Minnesota exemption law
gave him a superior interest in all or part of the settlement proceeds. The bankruptcy
court overruled that objection because Hecker had no “standing,” that is, no legitimate
basis to object to the settlement at the time of the June 15 hearing, because he had
never claimed the exemption. That conclusion was of course correct. In prior
bankruptcy filings and representations to creditors, Hecker as bankruptcy debtor had
repeatedly disclaimed any personal interest in the SCA and its proceeds. No motion
or request to amend his claimed exemptions was pending, simply counsel’s assertion
that Hecker might have an exemption-based interest in the settlement proceeds some
time in the future. As counsel for Hecker conceded at oral argument, if his request for
a continuance was properly denied, Hecker had no valid ground for objecting to
approval on June 15. Thus, the critical issue on appeal is whether the bankruptcy
court erred in denying Hecker’s oral request for a continuance at the June 15 hearing.
2. “The decision to grant a continuance of a hearing is within the discretion of
the trial court and is only reversible upon showing abuse of discretion.” In re Rice,
357 B.R. 514, 517 (B.A.P. 8th Cir. 2006), aff’d per curiam, 271 Fed. App’x 538 (8th
Cir. 2008). Here, Hecker listed the SCA as non-exempt personal property worth an
estimated $6 million when he filed for bankruptcy in 2009. Over the next two years,
he twice amended his Schedule C exemptions without claiming an exemption for
payments owing under the SCA, and he repeatedly represented to creditors that he was
“self-employed” or “unemployed” and had no prospective “wages, salary or
commissions.” Relying on these representations, the Trustee on behalf of the
bankruptcy estate, GELCO, and two secured creditors negotiated a multi-million
dollar settlement resolving SCA payment disputes. Hecker, promptly served notice
of the settlement, waited until the last day to file an objection, claiming for the first
time that payments owed under the SCA are earnings of the debtor that are exempt
under Minnesota law. But he did not file or move for leave to file an amended
exemption schedule, instead seeking a last-minute continuance at the June 15 hearing
to resolve the Trustee’s motion to approve the settlement. “The debtor’s duty of
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disclosure requires updating schedules as soon as reasonably practical after he or she
becomes aware of any inaccuracies or omissions.” In re Bauer, 298 B.R. 353, 357
(B.A.P. 8th Cir. 2003). In this case, Hecker’s lack of diligence (if not outright
deception) is apparent, as is the prejudice to the parties to the settlement agreement
had a continuance been granted.
Hecker argues that the bankruptcy court ignored Bankruptcy Rule 1009(a),
which provides that a debtor may amend his bankruptcy schedules “as a matter of
course at any time before the case is closed.” This contention puts the cart before the
horse. Hecker did not move to amend his schedule of exemptions before the June 15
hearing. Therefore, whether to allow an amendment was not before the bankruptcy
court. Hecker complains that counsel was not retained until just before his last-minute
objection and did not have time to file a motion to amend his claimed exemptions.
We are unmoved. The delay and any resulting prejudice were attributable entirely to
Hecker’s own lack of diligence. See In re Rice, 357 B.R. at 517-18; accord In re
Martwick, 60 F.3d 482, 483-84 (8th Cir. 1995). In these circumstances, we have no
difficulty concluding that the bankruptcy court did not abuse its discretion in denying
Hecker’s last-minute oral request for a continuance of the settlement approval hearing.
Relying on In re Woodson, 839 F.2d 610 (9th Cir. 1988), Hecker further argues
that the bankruptcy court erred in refusing to consider his potential exemption claim
before approving the settlement. But in Woodson, a major creditor objected to the
debtor’s amended claim of a $1 million exemption and then objected to a proposed
settlement disbursing most of the $1 million to the debtor. The bankruptcy court
concluded the creditor’s original objection was untimely and therefore did not
consider its objection to the settlement. The Ninth Circuit concluded the creditor’s
objection to the exemption was not untimely, and therefore the bankruptcy court erred
in refusing to consider the merits of the objection before approving a settlement that
put the proceeds at issue beyond the reach of creditors. Here, by contrast, there was
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no claim by Hecker to the SCA proceeds pending when the motion for settlement
approval was submitted for decision to the bankruptcy court. Moreover, as the
bankruptcy court expressly recognized, a significant portion of the settlement
proceeds would be paid to the bankruptcy estate, and the court in approving the
settlement did not decide whether Hecker might in the future be able to establish a
superior right to that portion of the proceeds.3
3. On appeal, the Trustee argues, as he did to the district court, that we should
dismiss the appeal for lack of subject matter jurisdiction because (i) Hecker’s claim
of an exemption is not ripe for judicial review, and (ii) Hecker lacks standing to object
to settlement approval because the SCA is an asset of the bankruptcy estate. We
disagree. The Trustee gave Hecker notice of the Trustee’s motion to approve the
settlement. Hecker objected and appeared at the June 15 hearing to oppose the
motion. Hecker had standing to object to the motion, the bankruptcy court had
jurisdiction to rule on the motion and Hecker’s objection, and both the district court
and this court have subject matter jurisdiction to review the bankruptcy court’s order
denying Hecker’s request for a continuance and approving the settlement. Cf. In re
Marlar, 267 F.3d 749, 753 n.1 (8th Cir. 2001). We also deny the Trustee’s motion to
dismiss the appeal as moot because the settlement proceeds have been distributed, a
contention based on facts not contained in the record on appeal. See Fed. R. App.
P. 10(a); United States for Use of Lighting and Power Servs., Inc. v. Interface Constr.
Corp., 553 F.3d 1150, 1155 n.4 (8th Cir. 2009).
3
Like the bankruptcy court, we do not consider whether Hecker may amend his
Schedule C to claim an exemption for SCA proceeds and, if so, whether he is entitled
to the claimed exemption. See generally In re Kaelin, 308 F.3d 885, 889 (8th Cir.
2002) (recognizing exceptions to Rule 1009(a)’s liberal rule for “bad faith on the part
of the debtor and prejudice to the creditors”); In re Harris, 886 F.2d 1011, 1015-16
(8th Cir. 1989) (making clear that the two issues are distinct). We do not affirm the
district court’s statement that the bankruptcy court “correctly denied Hecker’s request
to amend his Schedule C.” As no “request” was filed prior to the June 15 hearing, that
issue remains unresolved.
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We affirm the bankruptcy court’s Order dated June 15, 2011, and deny the
Trustee’s motion to dismiss the appeal.
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