606 B.R. 80
D. Colo.2019Background
- DVR, LLC and Ute Lake Ranch, Inc. (Debtors) were majority-controlled by Freedman; Hamon was a minority owner. Freedman formed New Lake, LLC and purchased a $2.5M promissory note and mortgages (the FNB Note/Mortgages) after DVR defaulted.
- Colorado state court found Freedman breached fiduciary duties, imposed a constructive trust order (CTO) on the FNB Note/Mortgages, and ordered releases extinguishing the mortgages; appeals by Freedman were dismissed as untimely but he later attempted appeals and other challenges.
- New Lake filed a secured proof of claim in the Debtors’ bankruptcy cases for the note balance. Hamon commenced an adversary proceeding seeking disallowance, recharacterization, and equitable subordination of New Lake’s claim based on the CTO.
- Trustees sold the property, yielding ~$1.764M net. Trustees negotiated a Rule 9019 settlement with New Lake: allow a $1.3M secured claim in exchange for releases and waiver of CTO challenges as to the estate; Trustees sought bankruptcy-court approval over Hamon’s objection.
- Bankruptcy Court held it could hear and approve the settlement under Rule 9019 despite Hamon’s pending §502 objection, and after an evidentiary hearing approved the settlement. Hamon appealed. District Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bankruptcy Court may approve a trustee’s Rule 9019 settlement of a creditor’s claim while a third party’s §502 claim objection remains pending | Hamon: §502(b) "shall" requires the court to resolve claim objections before settling—settlement would abridge his statutory right to have the claim determined | Trustees/New Lake: Rule 9019 and trustee authority allow settlement; §502 and Rule 9019 can be harmonized; settlement can address the claim without abrogating non-debtor rights | Court: Allowed settlement hearing to proceed; §502 duty can be discharged within a Rule 9019 settlement so long as non-debtor third-party rights are not compromised without consent |
| Whether Hamon’s objection was an individualized claim-precluding settlement | Hamon: His objection affects his individual rights as creditor/equityholder and co-maker, so settlement usurps his interests | Trustees: Hamon’s claims sought relief on behalf of creditors/estate (equitable subordination/recharacterization) and thus challenge entitlement to estate proceeds, not a competing individual lien right | Court: Hamon’s objection was to New Lake’s entitlement to estate proceeds (collective), not an individual competing lien; settlement did not improperly extinguish Hamon’s individual claim rights |
| Whether the settlement was fair, reasonable, and in the estate’s best interests under Rule 9019 / Kopexa factors | Hamon: Settlement inadequate; risk of larger recovery for creditors if CTO upheld; settlement harms creditors | Trustees: Litigation over CTO is risky, complex, and costly; settlement yields immediate recovery for estate and is supported by creditors and trustees’ review | Court: Affirmed approval—applied Kopexa factors and found settlement within reasonable range given appeal risk, complexity, cost, and limited creditor recovery absent settlement |
| Whether appellate and procedural authorities (Part VII adversary rules) preclude resolving an adversary claim through a Rule 9019 settlement | Hamon: Part VII requires adversary resolution and does not permit disposing of the claim via Rule 9019 | Trustees: Part VII doesn’t preclude compromise under Rule 9019; hearing and notice satisfy procedural protections | Court: Declined to adopt that argument (not preserved); held Part VII does not bar settlement of claims via Rule 9019 when third-party objections are considered in the settlement process |
Key Cases Cited
- Sender v. Buchanan (In re Hedged-Invs. Assocs., Inc.), 84 F.3d 1286 (10th Cir. 1996) (standards of appellate review for bankruptcy decisions)
- Reiss v. Hagmann, 881 F.2d 890 (10th Cir. 1989) (bankruptcy settlement approval reversible only for clear abuse of discretion)
- United States v. Towers (In re Pac. Atl. Trading Co.), 33 F.3d 1064 (9th Cir. 1994) (procedural rules cannot abridge substantive statutory rights; conflicts resolved for statute)
- Rich Dad Operating Co. v. Zubrod (In re Rich Global, LLC), [citation="652 F. App'x 625"] (10th Cir. 2016) (court should ensure settlement is within the reasonable range without litigating all issues)
- Kopp v. All Am. Life Ins. Co. (In re Kopexa Realty Venture Co.), 213 B.R. 1020 (10th Cir. BAP 1997) (four-factor framework for evaluating Rule 9019 settlements)