In re Granoff

In re ANDREW SCOTT GRANOFF Debtor

Case No. 3:17-bk-30295-SHB

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TENNESSEE

August 13, 2020

Not for publication. This opinion has limited precedential value.

Chapter 7

MEMORANDUM OPINION

APPEARANCES:

LACY, PRICE & WAGNER, P.C.

W. Allen McDonald, Esq.

249 N. Peters Road, Suite 101

Knoxville, Tennessee 37923

Attorneys for Debtor

MOORE & BROOKS

Brenda G. Brooks, Esq.

6223 Highland Place Way, Suite 102

Knoxville, Tennessee 37919

Attorneys for W. Grey Steed, Chapter 7 Trustee

WOOLF, McCLANE, BRIGHT, ALLEN & CARPENTER, PLLC

M. Aaron Spencer, Esq.

Post Office Box 900

Knoxville, Tennessee 37901

Attorneys for Cheryl Jones, a Personal Representative of the Estate of David Jones and as Trustee of the David L. Jones 2006 Revocable Trust

SUZANNE H. BAUKNIGHT UNITED STATES BANKRUPTCY JUDGE

Before the Court are the Motion to Compromise State Court Action filed by W. Grey Steed, Chapter 7 Trustee ("Motion to Compromise") [Doc. 36] and the Objection by Debtor to Proposed Settlement [Doc. 38]. The Chapter 7 Trustee seeks to compromise a postpetition lawsuit filed on July 5, 2018, in the Chancery Court for Jefferson County, Tennessee, styled as Andrew S. Granoff v. Cheryl Jones, as Personal Representative of the Estate of David Jones and as Trustee of the David L. Jones 2006 Revocable Trust (the "Jones Estate"), case number 18-cv-96 (the "State Court Complaint"). Following several preliminary skirmishes between the parties, the Court set this contested matter for trial for October 26, 2020, and set deadlines for the parties to file summary judgment motions as well as responses thereto and motions to strike and responses thereto (which were anticipated because the Court determined that the Tennessee Dead Man's statute likely is implicated). [Doc. 86.] In addition to the Motion to Compromise, presently pending before the Court are the following motions:

• Motion for Summary Judgment by the Estate of David Jones and the David L. Jones 2006 Revocable Trust and related filings in support ("Jones Estate's Motion for Summary Judgment") [Docs. 91, 92, 93, 101, 104];

• Motion for Summary Judgment filed by the Chapter 7 Trustee, as amended, and related filings in support ("Chapter 7 Trustee's Motion for Summary Judgment") [Docs. 94, 95, 96];

• Debtor's Motion for Summary Judgment and related filings in support ("Debtor's Motion for Summary Judgment") [Docs. 97, 98, 99, 100];

• Motion to Strike by the Estate of David Jones and the David L. Jones 2006 Revocable Trust and related filing in support ("Jones Estate's First Motion to Strike") [Docs. 102, 103];

• Debtor's Motion to Strike Declarations of Elizabeth Jones [Doc. 91-12] and Johnny Herndon [Doc. 91-14] ("Debtor's Motion to Strike") [Doc. 111]; and• Motion to Strike Debtor's Supplemental Declaration [Doc. 116] by the Estate of David Jones and the David L. Jones 2006 Revocable Trust and related filing in support ("Jones Estate's Second Motion to Strike") [Docs. 119, 120].

Debtor opposes the Chapter 7 Trustee's Motion for Summary Judgment and the Jones Estate's Motion for Summary Judgment [Doc. 115], the Jones Estate's First Motion to Strike [Doc. 117], and the Jones Estate's Second Motion to Strike [Doc. 122]. The Jones Estate supports the Chapter 7 Trustee's Motion for Summary Judgment [Doc. 107] and opposes Debtor's Motion for Summary Judgment [Doc. 109] and Debtor's Motion to Strike [Doc. 121]. The Chapter 7 Trustee responded to the Debtor's Statement of Undisputed Material Facts [Doc. 108] but did not file a legal brief in opposition, apparently choosing to stand on his own motion.

Indeed, assuming that all of the related filings have been reduced to paper, much ink has been spilled over this contested matter, with the parties filing more than 1,500 pages in connection with the initial motion and objection, three motions for summary judgment, and three motions to strike (not including other related motions already decided by the Court). After attempting to digest these voluminous filings, the Court concludes that this matter is much more simple than the filings suggest. The Court need answer only two questions:¹ (1) is the asset related to the State Court Complaint² property of the estate under 11 U.S.C. § 541 and (2) if so, is the compromise proposed by the Chapter 7 Trustee fair and equitable under Federal Rule of Bankruptcy Procedure 9019?

I. LEGAL STANDARDS AT ISSUE

A. Property of the Estate

Debtor correctly asserts that "[t]he question before the Court is who owns the State Court [Complaint], not 'whether the claim has merit.'" [Doc. 99 at p. 2 n.3 (quoting Holstein v. Knopfler (In re Holstein), 321 B.R. 229, 238 n.3 (Bankr. N.D. Ill. 2005) and citing Alipour v. Thomas (In re Alipour), 252 B.R. 230, 235 (Bankr. M.D. Fla. 2000) (noting that decision about whether legal malpractice claim was property of the bankruptcy estate "in no way" amounted to a decision on the merits of the claim)).] The threshold question here is whether the asset at issue in the State Court Complaint (the Property) is property of the bankruptcy estate.

As explained in In re Davis, 589 B.R. 146, 148-49 (Bankr. E.D. Tenn. 2018):

The commencement of a bankruptcy estate "creates an estate . . . comprised of . . . all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). "The main thrust of [§ 541] . . . is to secure for creditors everything of value the [debtor] may possess in alienable or leviable form when he files his petition. To this end the term 'property' has been construed most generously and an interest is not outside its reach because it is novel or contingent or because enjoyment must be postponed." Segal v. Rochelle, 382 U.S. 375, 379 (1966). To constitute property of the debtor at the time the petition is filed and so to come into the bankruptcy estate at that time, a right must be "sufficiently rooted in the pre-bankruptcy past and so little entangled with the [debtor's] ability to make an unencumbered fresh start that it should be regarded as 'property' under [what is now § 541]." Id. at 380.

Davis concerned whether a cause of action in a multidistrict, tort class action was property of the estate. Here, although the Chapter 7 Trustee asks to settle a lawsuit, the asset in question is not the cause of action but Debtor's interest in a partnership.

The question, then, is whether the partnership existed prepetition. The burden of proof concerning whether the asset at issue is property of the estate belongs to the Chapter 7 Trustee, who must meet his burden by a preponderance of the evidence. See Harris v. Nelson (In reDunn), 436 B.R. 744, 747 (Bankr. M.D. Ga. 2010) (citing Schaffer v. Weast, 546 U.S. 49, 56 (2005); Grogan v. Garner, 498 U.S. 279, 286 (1991)).

B. Rule 9019 Standard

If the Chapter 7 Trustee meets his burden to prove that the asset at issue is property of the estate, the Court then must determine whether the proposed compromise is fair and equitable and in the best interest of the estate. See In re High Tech Packaging, Inc., 397 B.R. 369, 371 (Bankr. N.D. Ohio 2008). This determination lies "within the sound discretion of the bankruptcy judge," In re W. Pointe Props., L.P., 249 B.R. 273, 282 (Bankr. E.D. Tenn. 2000), with the Chapter 7 Trustee bearing the burden of persuasion, although "the judgment of the trustee deserves some deference." In re Boone, No. 3:18-bk-30150-SHB, 2018 WL 5885451, at *4 (Bankr. E.D. Tenn. Nov. 6, 2018) (quoting In re W. Pointe Props., L.P., 249 B.R. at 281, and citing In re Boddie, 569 B.R. 297, 303 (Bankr. S.D. Ohio 2017)).

As this Court recently explained:

To assess the fairness and equity of the proposed compromise, courts generally weigh the following factors:

(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; and (d) the paramount interest of the creditors and a proper deference to their reasonable views.

In re Boddie, 569 B.R. at 302 (quoting Fishell v. Soltow (In re Fishell), 47 F.3d 1168, 1995 WL 66622 at *3 (6th Cir. Feb. 16, 1995)). "'[W]hen assessing a compromise, courts need not rule upon disputed facts and questions of law, but only canvass the issue[s].'" Suter v. Goedert, 396 B.R. 535, 548 (D. Nev. 2008) (quoting Burton v. Ulrich (In re Schmitt), 215 B.R. 417, 423 (B.A.P. 9th Cir. 1997)).

In re Boone, 2018 WL 5885451, at *3.

Of particular importance here given the voluminous filings and issues raised, "[i]n evaluating a Rule 9019 settlement, a bankruptcy court need not 'conduct a mini-trial todetermine the probable outcome of any claims waived in the settlement.' Rather, the bankruptcy court must 'apprise [itself] of the relevant facts and law so that [it] can make an informed and intelligent decision.'" Id. (quoting Official Comm. of Unsecured Creditors v. Moeller (In re Age Refining, Inc.), 801 F.3d 530, 541 (5th Cir. 2015) (quoting Official Comm. of Unsecured Creditors v. Cajun Elec. Power Coop., Inc. (In re Cajun Elec. Power Coop.), 119 F.3d 349, 356 (5th Cir. 1997))). The Court's duty is to review the issues and "see whether the settlement 'fall[s] below the lowest point in the range of reasonableness[,]'" and "[t]he Court 'need not be convinced that the settlement is the best possible compromise. The Court need only conclude that the settlement falls within the reasonable range of litigation possibilities somewhere above the lowest point in the range of reasonableness.'" In re Nortel Networks, Inc., 522 B.R. 491, 510 (Bankr. D. Del. 2014) (quoting In re Nutritional Sourcing Corp., 398 B.R. 816, 833 (Bankr. D. Del. 2008)).

II. ANALYSIS

A. Property of the Estate

Debtor describes his relationship with David Jones as a partnership. [Doc. 98-1 at ¶ 34.] He, however, asserts that a partnership did not arise between them until after Debtor filed his Chapter 7...