In re Myers

IN RE: MARTIN L. MYERS, Debtor.

CASE NO. 11-61426

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

September 8, 2015

CHAPTER 7

JUDGE RUSS KENDIG

AMENDED MEMORANDUM OF OPINION (NOT FOR PUBLICATION)¹

Now before the court, for the second time, is a joint motion to compromise, now styled as a motion for reconsideration and/or rehearing, filed by Trustee Anthony J. DeGirolamo ("Trustee"), Debtor Martin L. Myers ("Debtor") and Debtor's wife, Karen Myers ("Mrs. Myers"). The motion is opposed by MD Acquisition, LLC ("MDA") and Martin Designs, Inc. ("MDI"). The court held a hearing on May 5, 2015 and permitted post-hearing briefs to be filed. Also pending is Trustee's motion to strike a statement of Josiah L. Mason ("Mason"), the chapter 7 trustee of the related case of MDI.

Subject matter jurisdiction of this matter rests in 28 U.S.C. § 1334 and the order ofreference, General Order 2012-7, dated April 4, 2012. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O). In accordance with 28 U.S.C. § 1409, venue in this district and division is proper. This opinion represents the court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.

This opinion is not intended for publication or citation. The availability of this opinion, in electronic or printed form, is not the result of a direct submission by the court.

PROCEDURAL BACKGROUND

The original joint motion to compromise was filed on November 11, 2014. Two objections were filed, one joint objection by MDI and MDA and one by James E. Arnold & Associates, LPA ("Arnold"). The court held a hearing on December 4, 2014 and took the motion under advisement following post-hearing briefing. The court issued its opinion on January 29, 2015, denying the motion, without prejudice, after finding that Trustee failed to meet his burden of proof that the compromise was fair and equitable. Specifically, the court found Trustee presented insufficient evidence on collectability and the interest of the creditors. Regarding the latter, the court considered whether Trustee could compromise the § 727 action against Debtor and determined Trustee could, adopting a standard which included consideration of whether the public interest would be served. At the end of the opinion, the court retained Trustee's option to renew the motion in light of the court's findings.

On February 12, 2015, Trustee and the joint movants filed a motion for reconsideration and/or rehearing and presented additional evidentiary materials, including an affidavit from Trustee, a synopsis of Trustee's proposed testimony, and sealed copies of documents used by Trustee to assess the collectability of Debtor and Mrs. Myers. This motion was met with additional opposition from MDA. On March 10, 2015, the court granted the motion for rehearing and set a pretrial date, from which it entered a scheduling order. The evidentiary hearing was held on May 5, 2015. At the end of the hearing, the court entered a briefing schedule. MDA filed its brief on May 19, 2015. Trustee, Debtor and Mrs. Myers filed their briefs on June 2, 2015.

PROCEDURAL CONSIDERATIONS

Before the court reviews the merits of the underlying compromise, it will address procedural issues.

I. The renewed motion to compromise/motion for reconsideration

At points, MDA is confounded by the procedural progression of this matter.² It clearly wanted Trustee to set forth the entire theory underlying the compromise in a motion, to which itcould object, followed by an evidentiary hearing. The original motion followed this track but the renewed motion diverged slightly. Trustee requested rehearing, set forth his foundation during that hearing, and the court then permitted post-hearing briefing. MDA claims it was ambushed as a result, which the court finds incredible.

On March 23, 2015, following a status conference with MDA's participation, the court issued an Amended Scheduling and Trial order scheduling an evidentiary hearing. The scheduling order was entered after a conference to gauge the desires of the parties. That order provided for the submission of witness lists, stipulations, and trial briefs, as well as the exchange of documents to be introduced into evidence. Nothing prevented MDA from doing further discovery. A motion to compromise is a contested matter pursuant to Bankruptcy Rule 9014 and provides broad rights to parties. No one was prevent from exercising those rights.

As a specific example of MDA's protest, during the May 5 hearing, Trustee testified concerning Debtor's involvement with Primary Colors ("PC"). PC is owned by friends of Debtor but there were suspicions that Debtor held an equitable or concealed ownership interest in PC, supported in part by his signature as "President" on certain documents, his personal guaranty on a $750,000 note, PC's rent-free use of a building owned by Debtor, and other activities by Debtor that benefitted the business.³ At the hearing, Trustee testified concerning Debtor's involvement with PC, indicating Debtor did work for PC, attended trade shows, and signed documents on behalf of the company. Trustee's testimony indicated that he discounted the signatures, in part because Debtor signed on pre-printed forms that contained a line for the signature of "President," and Trustee was never able to find any documentation formally appointing Debtor as President of PC. MDA objected, arguing this information should have been provided prior to the hearing. The court overruled the objection and stated that MDA could respond post-hearing. MDA was permitted to cross-examine the trustee, given an opportunity to respond after the hearing, and actually filed a post-hearing brief and a sur-reply brief.

The "notice and hearing" requirement of Federal Rule of Bankruptcy Procedure 9019 was met. Movants provided notice and an opportunity to object to the original motion. (Ntc. of Mot., ECF No. 679) MDA filed a joint objection. (Jt. Obj., ECF No. 681) The court held a hearing and allowed post-hearing memoranda. (Order Setting Post-Hearing Briefing Schedule, ECF No. 688) When movants requested a rehearing, movants again provided notice with an opportunity to object. (Ntc. of Motion, ECF No. 714) Prior to the hearing, the court held a pretrial conference, entered a scheduling order, and the parties engaged in discovery. (Scheduling and Trial Order, ECF No. 736) At the hearing, MDA was allowed to cross-examine Trustee. After the hearing, the court provided MDA an opportunity to respond. (Post-Hearing Scheduling Order, ECF No. 766) MDA filed the following documents in connection with the compromise: Jointed Limited Objection of MD Acquisition, LLC and Martin Designs, Inc. (ECF No. 681), Post-Hearing Brief of MD Acquisition in Support of Joint Limited Objection (ECF No. 691), Response and Objection of MD Acquisition, LLC (ECF No. 726),Pre-Hearing Brief (ECF No. 764), Post-Hearing Brief (ECF No. 769), and Post-Hearing Sur-Reply (ECF No. 778).

The court finds no impingement of due process. The joint motion for reconsideration/ rehearing was nothing more than an extension of the previous compromise.⁴ The court's first opinion identified the missing components of the compromise and the motion for reconsideration/ rehearing responded to these. The issues involved were narrow and known. Trustee attached an affidavit to the renewed motion, providing a sketch of his thought process in deciding to pursue the compromise. Although more detailed, his testimony at the hearing was in accord with the affidavit and went to the heart of the two areas in which the court found against Trustee in the original motion. Prior to the hearing, MDA was given access to the sealed documents utilized to assess collectability and was able to cross-examine Trustee about the compromise at the hearing. MDA knew Trustee was going to testify on these matters. MDA not only participated in the evidentiary hearing on May 5, 2015, but was permitted to brief its counter-position following the hearing. Although the matter may not have progressed exactly as it anticipated, "the fundamental requirement of procedural due process is that an individual be given an opportunity to be heard at a meaningful time and in a meaningful manner." Systemic Recycling LLC v. City of Detroit, 2015 WL 3620267 (6^th Cir. 2015) (citing Morrison v. Warren, 375 F.3d 468, 475 (6^th Cir. 2004)). This requirement was met. MDA has been provided ample opportunity to respond, object and counter Trustee's decision to enter into this compromise.

Additionally, '[a] bankruptcy judge need not hold a mini-trial or write an extensive opinion every time he approves or disapproves a settlement. The judge need only apprise himself of the relevant facts and law so that he can make an informed and intelligent decision, and set out the reasons for his decision.' Fishell v. Soltow (In re Fishell), 47 F.3d 1168, 1995 WL 66622, * 3 (6^th Cir. 1995) (quoting In re Am. Corp., 841 F.2d 159, 163 (7^th Cir. 1987)). Trustee used the hearing to present the facts necessary for the court to determine whether Trustee exercised his sound business judgment with the terms of this compromise. In re 3D Resorts-Bluegrass, LLC, 2013 WL 6019117 (Bankr. W.D. Ky. 2013) (citing In re Dalen, 259 B.R. 586 (Bankr. W.D. Mich. 2001)). If he did, Trustee's decision is entitled to deference. In re Equine Oxygen Therapy Res., Inc., 2015 WL 1331540 (Bankr. E.D. Ky. 2015).

II. The motion to strike

On June 4, 2015, Mason filed a statement in support of MDA's objection to the renewed joint motion to compromise. The statement counters Trustee's position, based on Mason's failure to renew his objection or appear at the hearing, that Mason abandoned his objection. Mason states that he did not abandon his objection but is merely letting MDA fight the fight in order to conserve resources of the MDI estate. Trustee moved to strike the statement, finding it untimely. Motions to strike are covered by Federal Rule of Procedure 12...