Trustee Blog

Settling case with Trustee: Lynda Bui

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THIS is an interesting argument Ms. Bui made from the case mentioned in the last post of August 28, 2013:

(These are Judge Houle’s comments in his tentative ruling ¬†and discusses the trustee’s authority to settle a case.)

Applicable Law Federal Bankruptcy Law

Federal Rule of Bankruptcy Procedure 9019 provides, “On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement.” Fed. R. Bankr. P. 9019(a). The purpose of a compromise is to allow the trustee and the creditors to avoid the expenses and burdens associated with litigating “sharply contested and dubious claims.” In re Walsh Constr., Inc., 669 F.2d 1325, 1328 (9th Cir. 1982) (citing Cal. Associated Prods. Co., 183 F.2d 946, 945-50 (9th Cir. 1950)). The law favors compromise and not litigation for its own sake. In re Blair, 538 F.2d 849, 851 (9th Cir. 1976). The bankruptcy court must amply consider the various factors that determine the reasonableness of the compromise. Walsh, 669 F.2d at 1329.

In In re A&C Properties, 784 F.2d 1377, 1381 (9th Cir. 1986), the Ninth Circuit stated that the compromise must be “fair and equitable.” See also Citibank, N.A. v. Baer, 651 F.2d 1341, 1345-46 (10th Cir. 1980.) Additionally, the court in A&C Properties held that “the fairness, reasonableness, and adequacy of a proposedsettlement agreement” must be considered in light of 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; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises.

784 F.2d at 1381 (citing In re Flight Transp. Corp. Sec. Litig., 730 F.2d 1128, 1135 (8th Cir. 1984)).

Thus, the settlement entered into by the trustee must be reasonable, given the particular circumstances of the case. A&C Props., 784 F.2d at 1381 (citing In re Equity Funding Corp. of Am., 519 F.2d 1274, 1277 (9th Cir. 1975)).



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