Liberty Bank, F.S.B. v. D.J. Christie, Inc.
681 F. App'x 664
| 10th Cir. | 2017Background
- Meyer and Pratt obtained a federal judgment (~$7.1M) against the Christie parties; appellate mandate entered April 25, 2011. The Christie parties then acquired Iowa judgments against Meyer and Pratt totaling ~ $7.4M in late April–May 2011.
- Liberty Bank had earlier obtained two judgments against Meyer (totaling ~$948k) and served garnishment orders against the Christie parties in mid-May 2011 to reach proceeds of the Federal Judgment.
- Christie answered the garnishments, asserting an offset: Meyer (the Federal Judgment creditors) owed Christie on the newly acquired Iowa judgments, so no indebtedness to Meyer existed to garnish.
- D.J. Christie, Inc. filed Chapter 11 and an adversary action over offset; after protracted multi-jurisdictional litigation, Meyer, Pratt, and the Christie parties negotiated a settlement (offset + $1.825M payment to Meyer/Pratt counsel) that exhausted the Federal Judgment proceeds. Liberty was not a party to the settlement but intervened and opposed approval.
- The bankruptcy court approved the settlement under Fed. R. Bankr. P. 9019(a); the district court initially reversed and remanded, but on remand the bankruptcy court again approved the settlement and the district court affirmed. This appeal followed.
Issues
| Issue | Liberty's Argument | Christie/Debtor/Bankruptcy Court Argument | Held |
|---|---|---|---|
| Proper analytical framework for settlement approval | Rule 9019 analysis impairs Liberty’s rights; Local No. 93 and Sportstuff require protection of third-party claims | Bankruptcy courts evaluate fairness under Rule 9019 (chance of success, collectability, expense/complexity, creditor interests); Local No. 93 and Sportstuff are distinguishable | Bankruptcy court used correct Rule 9019 framework; no error |
| Need for evidentiary/due-process hearing on offset | Offset extinguishes Liberty’s garnishment rights and required a full evidentiary hearing | Rule 9019 requires canvassing issues, not a mini-trial; Liberty had intervention, discovery, briefing, oral argument | No due-process evidentiary trial required under Rule 9019; Liberty forfeited any claim to a full trial on this ground |
| Priority of interests (offset vs. Liberty’s garnishment) | Liberty argued its garnishment had priority and Christie had no lien because they never levied | Christie acquired Iowa judgments before Liberty’s garnishment and Kansas law preserves preexisting offsets against subsequent garnishments; garnishee bears burden to prove offsets | Christie’s Iowa judgments constituted a choate offset senior to Liberty’s garnishment; Christie’s interest prevailed |
| Abuse of discretion in approving settlement | Settlement unfairly impaired Liberty by exhausting Federal Judgment proceeds | Settlement was reasonable given litigation complexity, collectability issues, creditor support, and Liberty’s subordinate priority | No clear abuse of discretion; approval affirmed |
Key Cases Cited
- Meyer v. Christie, 634 F.3d 1152 (10th Cir. 2011) (prior merits decision in the underlying dispute)
- FB Acquisition Prop. I, LLC v. Gentry (In re Gentry), 807 F.3d 1222 (10th Cir. 2015) (standard of review for bankruptcy appeals)
- Reiss v. Hagmann, 881 F.2d 890 (10th Cir. 1989) (bankruptcy settlement approval standard)
- Rich Global, LLC v. Zubrod (In re Rich Global, LLC), [citation="652 F. App'x 625"] (10th Cir. 2016) (factors in evaluating settlements)
- Local No. 93, Int’l Ass’n of Firefighters v. City of Cleveland, 478 U.S. 501 (1986) (limits on settling parties disposing of third-party claims)
- United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979) ("lien first in time is first in right")
- Mynatt v. Collis, 57 P.3d 513 (Kan. 2002) (Kansas law on offset criteria)
- Curiel v. Quinn, 832 P.2d 1206 (Kan. Ct. App. 1992) (garnishment does not improve plaintiff’s position over defendant’s own rights)
- Richison v. Ernest Grp., Inc., 634 F.3d 1123 (10th Cir. 2011) (preservation/forfeiture of appellate arguments)