Ralph Isom v. R. Hopkins ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS DEC 18 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: RALPH DEAN ISOM; PAULA No. 20-60019
ISOM; I & S FARMS,
BAP No. 19-1198
Debtors,
------------------------------ MEMORANDUM*
RALPH DEAN ISOM; PAULA ISOM; I &
S FARMS, a general partnership,
Appellants,
v.
R. SAM HOPKINS, Chapter 7 Trustee;
BRAD HALL & ASSOCIATES, INC.;
FARMS, LLC,
Appellees.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Brand, Gan, and Lafferty III, Bankruptcy Judges, Presiding
Argued and Submitted December 8, 2020
Seattle, Washington
Before: BERZON, MILLER, and BRESS, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Petitioners Ralph Dean Isom, Paula Isom, and I&S Farms (collectively
“Isoms”), debtors in this Chapter 7 bankruptcy proceeding, appeal the Ninth
Circuit Bankruptcy Appellate Panel’s affirmance of the bankruptcy court’s order
approving a compromise agreement between the Chapter 7 trustee, R. Sam
Hopkins, and the bankruptcy estate’s major secured creditor, Brad Hall &
Associates and Farms, LLC (collectively “Hall”). We affirm.
We review an order approving a compromise agreement for abuse of
discretion. In re A & C Props., 784 F.2d 1377, 1380 (9th Cir. 1986). We review de
novo whether the bankruptcy court applied the correct legal rule. In re Taylor, 599
F.3d 880, 887 (9th Cir. 2010). If it did, we uphold the court’s application of the
legal standard to the facts unless it was “(1) illogical, (2) implausible, or (3)
without support in inferences that may be drawn from the facts in the record.” Id.(quoting United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)).
1. The bankruptcy court correctly identified its legal obligation to find
Hopkins’s compromise proposal “fair and equitable” under A & C before
approving the settlement. 784 F.2d at 1381. Although the bankruptcy court did not
consider any surplus that might have gone to the debtors in its analysis of the A &
C factors, it did consider this issue under its general “fair and equitable” analysis.
Similarly, although the bankruptcy court did not explicitly identify the trustee’s
fiduciary duty to the debtors in this potential surplus case, see U.S. Dep’t of
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Justice, Executive Office for United States Trustees, Handbook for Chapter 7
Trustees 4–2 (2012), it nevertheless considered whether the trustee fulfilled this
duty before approving the compromise proposal. We therefore hold that the
bankruptcy court applied the correct legal standard in analyzing the compromise
proposal.
2. The bankruptcy court’s application of the law was logical, plausible, and
supported by inferences drawn from the facts in the record. In his oral ruling
granting Hopkins’s motion to compromise, the bankruptcy judge fully addressed
each party’s arguments on each of the four A & C factors before making findings
of its own. When analyzing the first factor—the likelihood that the Isoms would
ultimately prevail in their avoidance suit against Hall—the bankruptcy court
considered evidence that the Isoms were insolvent, were left with unreasonably
small capital, or incurred debts beyond their ability to pay under 11 U.S.C. § 548(a)(1)(B)(ii)(I) and (II). Relying extensively on the record, the bankruptcy court
concluded it would be difficult to prove these issues because “many important
records were alternatively stolen and thrown in a canal or destroyed by a fire set by
Mr. Isom.”
The bankruptcy court also reasonably concluded that the third A & C
factor—the complexity of the avoidance suit and the likely expense and delay of
continued litigation—weighed in favor of the settlement. As the bankruptcy court
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properly noted, Hall’s profit from rents on the Isom Farm would offset any
improvements Hall made to the Farm—including the property taxes it paid and the
money it paid to the Farm’s other secured creditors—under 11 U.S.C. §
550(e)(1)(A). But it remains unclear whether this profit would affect any of Hall’s
claims to accruing interest should the deed-in-lieu be voided and Hall’s secured
claim over the Farm be reinstated. The bankruptcy court reasonably concluded that
the difficulties in calculating interest owed and the likelihood of further litigation
arising out of that calculation, as well as the immense expense the estate would
bear if it owed Hall interest in full, supported the settlement.
The bankruptcy court also carefully weighed the facts in the record before
determining that a compromise agreement guaranteeing full payment of all
creditors, rather than the possibility of a post-avoidance sale, best served the
interests of the creditors under the fourth A & C factor. The bankruptcy court
reasonably found that the complications in calculating the estate’s tax liability on
any proceeds, along with the estate’s potential obligation to pay interest to Hall,
significantly detracted from the possibility of a surplus in a post-avoidance sale.
Hopkins testified that there were no actual offers on the Farm at the time of the
settlement negotiations, and several witnesses attested to the difficulty of
validating the Isoms’ tax records. The record therefore supported the bankruptcy
court’s conclusion that the likelihood of any surplus was speculative.
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Because the bankruptcy court “reached a decision that falls within any of the
permissible choices [it] could have made,” Hinkson, 585 F.3d at 1261, we hold the
bankruptcy court did not abuse its discretion in approving the motion to
compromise.
AFFIRMED.
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