MEMORANDUM OF DECISION
INTRODUCTION
On November 30, 2006, the chapter 7 trustee in this case, Ford Elsaesser (“Trustee”), filed a motion seeking approval of a compromise and settlement. Doc. No. 134 (the “Motion”). Clarence Joseph Rake (“Debtor”) filed an objection to the Motion. See Doc. No. 142. There were no other objections.
The Motion and Debtor’s Objection came on for hearing on January 9, 2007. Upon the submission of post-hearing briefs on January 29, the matter was taken under advisement. Upon consideration of the parties’ arguments and the evidence presented, the Court enters the following findings of fact and conclusions of law. Fed. R. Bankr.P. 9014 and 7052 incorporated thereby.
BACKGROUND AND FACTS
In October, 2005, a few days before his October 14 petition commencing this bankruptcy case, Debtor filed an Idaho state court action against Eileen Wright, Case No. CV-05-02246 in the Second Judicial District, Nez Perce County (the “Wright suit”). 1 The parties agree that, in the Wright suit, Debtor sought to enforce and foreclose a materialman’s lien against Wright’s real property. The lien was filed of record in Nez Perce County on May 31, 2005, as Instrument No. 718117. See Rake affidavit, Doc. No. 145 at Ex. I. 2
In the lien he signed and filed of record on May 31, 2005, Debtor alleged that he “in accordance with a contract with Joe Rake ... furnished labor, services or materials consisting of ... metal fencing, roping equip, trucks, construction equip, labor, masonry & tiles, tools, personal belongings, fax machine, printer, trailers, horses, baseball equip” on property owned by Wright. Debtor’s lien alleges that the total value thereof was $93,000.00 and that all that amount was unpaid. He alleges in the lien that the first of the items was furnished “on August, 2002” and that the last of the materials was provided on May 30, 2005. 3
Debtor’s lien asserts that notice was served on Wright on May 31 by certified mail. At hearing, Debtor could not testify that he in fact mailed a copy. 4
Debtor later made arrangements with Wright to, and he did, retrieve many of these items of personal property (his tools, personal items, trucks, fork lift, jet boat, scaffolding, 6 horses, trailer). See Doc. No. 145 at 4. He did not recover the metal fencing (which is also the subject of the Dillon suit discussed below). Nor did he achieve a resolution of what he felt was compensation owed for labor and services in the development of the horse breeding operation with Wright, which included masonry work he performed on facilities as well as supervision of other laborers. Debtor also asserts his labor was provided in running the horse breeding operation itself, and composes part of the “total investment” in the operation which he feels is worth $93,000.00.
Wright later sold her real property. Of the sales proceeds, $93,000.00 was placed in her lawyer’s trust account due to the pendency of the lien and the Wright suit.
On October 14, 2005, the same day Debtor filed his bankruptcy petition, Debt- or filed a complaint in Idaho state court against Frank Dillon, Case No. CV-05-00269, Second Judicial District, Nez Perce County (the “Dillon suit”).
5
The Dillon suit seeks return (“claim and delivery”) of metal fencing panels Debtor alleges he
When Debtor filed his chapter 7 petition on October 14, 2005, Trustee was appointed. Trustee commenced asset turnover litigation against Debtor in regard to four trucks, a motorcycle, and a jet boat. In connection with that matter, Wright responded by asserting a perfected security interest in three trucks and the motorcycle. 6 See Doc. No. 25. She also sought stay relief to continue with defense of the Wright suit. See Doc. No. 26.
At this point, in May, 2006, Debtor converted the case to a chapter 11. See Doc. Nos. 30, 32. Wright’s stay relief motion was thereafter granted with Debtor’s consent. See Doc. Nos. 45 (minute entry); 62 (endorsed order). 7 However, problems quickly developed in the chapter 11. Following several hearings, the case was reconverted to a chapter 7 on October 16, 2006, and Trustee was again appointed. See Doc. No. 110.
On November 30, 2006, Trustee filed the compromise motion now before the Court. Doc. No. 134. The gist of the proposed settlement is this.
Trustee agrees to dismiss, with prejudice, both the Dillon suit and the Wright suit. In exchange, Wright will release any and all claims she might have against the estate. Specifically, she will release any claim to the three trucks, the motorcycle, and the jet boat and trailer, and she will surrender the certificates of title to the same. 8 Further, Wright will pay $5,000.00 to the estate. There is no consideration paid by Dillon under the Motion.
Debtor opposes the compromise, contending that the claims of the estate being settled have value far in excess of what is to be received under the Trustee’s negotiated resolution. 9 While notice of the compromise was appropriately given, see Fed. R. Bankr.P. 9019 and 2002(a)(3), no creditors objected.
DISCUSSION AND DISPOSITION
A. Post-hearing attempts to supplement the record
The Court must first clarify the extent of the evidentiary record. Debtor submitted evidence — his supplemental affidavit, Doc. No. 156 — after the evidentiary record was closed at the conclusion of the January 9 hearing. The Court authorized filing of post-hearing briefs, nothing more. Debtor has not requested, and the Court has not allowed, reopening of the record for addi
B. Debtor’s standing to object to the Motion
The Court must next address, as a threshold matter, whether Debtor’s objection should be considered at all.
This Court noted in
In re Olson,
06.3 I.B.C.R. 63,
The court in
Cult Awareness Network, Inc. v. Martino (In re Cult Awareness Network, Inc.),
Nothing has been presented to indicate that this is likely to be a case in which there is a surplus after full satisfaction of creditor claims. Debtor presented no direct evidence to that point, and his schedules do not show a likelihood of any surplus. See Doc. Nos. 1, 40 and 41. Further, no exemption is claimed in the causes of action or their fruits. Id. The Court concludes Debtor lacks standing to object.
However, for two reasons, the Court does not rest its decision today solely on Debtor’s lack of standing. First, the standing issue was not raised by Trustee, and the parties did not address it. Second, case law makes clear that the Court has a role to play in approving compromises, even in the absence of any objection. So, while lack of standing is a perfectly legitimate basis for summarily overruling the objection, the Court must nevertheless address the merits of the proposed compromise.
C. Trustee’s Motion
Trustee elected to present the matter with no affirmative evidentiary presentation, with the stipulated consideration of Debtor’s affidavit as direct testimony in opposition to the Motion, and with quite limited cross examination of Debtor. This made evaluation of the Motion more difficult than it otherwise needed to be. Still, for the reasons set out below, the Court concludes that Trustee carried his burden in virtually all regards, though there is one area requiring further submissions and clarification before the Motion can be granted.
1. Rule 9019 and authorities on settlement approval
Trustees have the discretion to negotiate settlements and to compromise
While a trustee’s discretion in compromising disputes is readily acknowledged by this Court, a trustee’s evaluation of the merits and wisdom of settlement is not alone determinative. The Court is “not permitted to act as a mere rubber stamp” but, rather, must make an independent determination that the compromise is fair and equitable.
In re West Pointe Props., L.P.,
[ I]t is inappropriate for the court to substitute its own judgment as to the wisdom of a proposed settlement for that of the trustee. The court need not engage in an exhaustive analysis of the law and merits of each claim, or the likelihood of the outcome, as doing so would in large part defeat the purpose of settlement. Rather, the court’s role is to ensure that the trustee has exercised proper business judgment in making the decision to agree to the proposed settlement, and that the settlement “falls above the lowest possible point in the range of reasonableness.”
In re Arkoosh Produce, Inc.,
03.3 I.B.C.R. 149, 153,
2. The A & C Properties factors
a. Probable success
The Wright suit seeks in material part to enforce a statutory materialman’s lien. Several serious impediments are presented under applicable state law, something even Debtor conceded in his scheduling of the
Under Idaho Code § 45-501,
et seq.,
a person providing labor or materials in the construction of improvements on real property has a lien on such property for the value thereof. However, since such liens “are creatures of statute, [the] statutory requirements must be substantially complied with in order to perfect a valid lien.”
See Bell v. Smith (In re Smith),
The lien laws are remedial in nature and designed to protect those laborers and materialmen who have added directly to the value of property of another by their materials or labors.
Baker,
The statutory elements are quickly summarized. To perfect the lien, § 45-507(2) requires the lienor to file a claim of lien within 90 days of the last day labor was provided or material supplied. The lien must contain (a) a statement of the lienor’s demand “after deducting all just credits and offsets,” (b) the name of the owner or reputed owner of the property, (c) the name of the person by whom the lienor was employed or to whom he furnished the materials, and (d) a sufficient description of the property. Idaho Code § 45-507(3). The claim must be verified by the oath of the claimant as just. Idaho Code § 45-507(4). The claimant must no later than five days after the lien is filed serve the same on the owner or reputed owner of the property either by personal delivery or by certified mail. Idaho Code § 45-507(5). A suit to foreclose the lien must be commenced within six months of the filing date. Idaho Code § 45-510.
Debtor’s claim of lien suffers multiple defects under this statutory framework.
The claim of lien must be filed of record within 90 days after the completion of labor or last furnishing of materials. Idaho Code § 45-507(2). “[T]he time for filing a lien starts to run when the claimant performs his last substantial work or makes his last substantial delivery of material.”
Hopkins v. Merlins Insulation, Inc. (In re Larsen),
06.3 I.B.C.R. 61, 63 (Bankr.D.Idaho 2006) (quoting
Barlow’s, Inc. v. Bannock Cleaning Corp.,
There is no certification by Debtor in his lien that the unpaid amount alleged of $93,000.00 is the net amount “after deducting all just credits and offsets.” In fact, it appears that this lien amount is but a gross estimate of all Debtor’s perceived contributions to the joint horse breeding enterprise. If there is reduction for any payments or economic benefits Debtor received, i.e., arguable “credits or offsets,” it is not evident in the lien.
The asserted basis for the lien, as contained in the document itself, includes more than just labor on or materials provided to the improvement or benefit of the
Debtor’s claims seem to presume an agreement with Wright under which Debt- or would provide labor and materials and be “paid” for the same. However, there is no showing of any contract entitling Debt- or to be paid (much less any contract the Debtor had with himself which is what his recorded lien asserts). 14 In fact, Debtor makes several arguments that might be viewed as negating the idea of a contract on which he would be paid and, instead, reflecting an “investment” on his part. 15
The claim of lien is not “verified by the oath of the claimant ... to the effect that [he] believes the same to be just.” Idaho Code § 45-507(4). While there is an acknowledgment
(ie.,
showing that Debtor was identified as the party signing the claim of lien), there is no verification by him in accord with this subsection. The claim of lien, to be valid and enforceable, must contain the verification under oath required by § 45-407(4) as well as an acknowledgment.
Commercial Elec., Inc. v. JGC Enters., LLC (In re JGC Enters., LLC),
No. 00-36002,
The foregoing are not the only issues with the potential success or failure of the Wright suit. Trustee notes, without effective contradiction, that Debtor did not timely serve the lawsuit he filed to foreclose the lien.
16
Trustee and Wright also
All in all, the survey of the issues and record indicates that numerous, serious challenges are presented and that the Wright suit has little probability of success insofar as it seeks to enforce the lien.
The Dillon suit has its own problems. There is a lack of factual detail as to whether Dillon actually has Debtor’s property (i.e., the fence panels). Additionally, if credence is given to Debtor’s arguments about how he “contributed” assets (including the fence panels) to his and Wright’s joint horse operation, this could impact any claim against Dillon for wrongful possession of Debtor’s personal property sufficient to support a claim and delivery action.
There are, in short, substantial difficulties with ascribing any potential for success to the lien enforcement and claim and delivery litigation Trustee inherited. Even if there were some possibility of success, the magnitude is decidedly unclear, and it would require substantial litigation and investment of time and money to attempt to realize it.
b.Difficulty of collection
The difficulty in collecting on any judgment against Wright is minimal. Wright’s attorney holds money in his trust account from the sale of the real property, and there is no indication that a money judgment could not be promptly satisfied. 17 The ability to collect against Dillon is unknown.
c.The litigation needed
The expense, delay and inconvenience of litigation is a credible factor. Trustee would have to overcome several hurdles to even get to trial on the lien claim merits against Wright. 18 The expense reasonably to be incurred in surviving these several initial skirmishes, and then that to be incurred in a merits trial, reduces the realizable benefit of the overall litigation. The litigation expense and the time necessary to reach a judgment, even assuming one can be reached, reduces its real value to creditors.
d.Creditors’ views
The Court is to consider the input and position of creditors. Here, no creditors have objected to the compromise; Debtor raises the sole objection. Creditor silence to a noticed compromise proposal can be equivocally viewed,
see Marples,
The weighing of these four general
A & C Properties
factors supports a conclusion that the suggested compromise is reasonable, fair and equitable. Trustee is exchanging dismissal with prejudice of the problematic Wright lien enforcement suit and the Dillon claim and delivery suit in return for $5,000.00, and for Wright’s withdrawal of any asserted secured claims to the motor vehicles, motorcycle and boat.
3. Non-lien claims
There is one other facet to this matter that must be addressed. Much of what Debtor argues in his briefing does not relate to the potential of a successfully asserted mechanics’ or materialmen’s lien claim under the Idaho statutes. Instead, it concerns an argument that Debtor and Wright had a de facto partnership and that Debtor has rights to a distributive interest of “partnership” assets, an “accounting” or some other sort of claim. See, e.g., Doc. No. 144 at 5-8. Wright argues in her briefing that Debtor’s partnership assertions are brand new. 20 That is true, at least insofar as the pleadings of record are concerned. Wright correctly observes that Debtor never listed as an asset any interest in a partnership or any claims against Wright other than the lien claim. See Doc. No. 1, 40 (at sched. B).
The compromise, as presented to the Court, includes a release of any and all of Wright’s claims against the estate. It did not expressly contain a reciprocal release of any and all claims the estate has against Wright. Instead, it simply provided for the dismissal with prejudice of the Wright suit. The problem, though, is that the state court complaint the Court has unearthed seeks a money judgment against Wright for the “labor, services and materials” he provided. Dismissal of the suit with prejudice may constitute a bar on any later assertion by the estate of non-lien, partnership claims under the claim preclusion doctrine.
See Robi v. Five Platters, Inc.,
Trustee has not addressed in any of his submissions or briefing his evaluation of the non-lien claims. There is no indication (a) whether Trustee believes such claims are separate from or otherwise survive the dismissal with prejudice of the Wright suit, or (b) if included in the overall compromise with Wright, how the A & C Properties factors apply to the settlement of these claims in return for the titles, $5,000.00 and Wright’s release of her claims.
CONCLUSION
Debtor’s objection will be overruled for lack of standing. However, the Motion cannot be granted — notwithstanding Trustee’s showing of the appropriateness of the suggested settlement when evaluated solely against the lien claims — until Trustee clarifies the issues and analysis of the non-lien claims.
Notes
. Trustee says the suit was filed October 10. Doc. No. 134 at 2. Counsel for Wright says it was October 12. Doc. No. 104 at 2. None of the parties to the instant contested matter provided the Court with a conformed copy of the complaint, or any other copy for that matter. The Court scoured its files and located what purports to be a copy of the complaint in the Wright suit. It was attached as "Ex. F” to a brief by Debtor’s ex-wife on a § 1112(b) conversion motion and it bears an October 12, 2005 date stamp. See Doc. No. 94 at Ex. F.
. By the agreement of the parties at hearing, Rake’s affidavit was admitted into evidence as his affirmative or direct testimony, subject only to in-court cross-examination. The ex
. Despite the assertion of this May 30 “last date” in the lien, Debtor testifies in his affidavit that he left the property on May 29 to purchase some tickets to an athletic event and upon returning that same afternoon found himself locked out of the premises. Doc. No. 145 at 4. There is no evidence of any provision of labor or materials on May 30.
. Debtor filed a post-hearing affidavit, Doc. No. 156, addressing the issue of providing certified mail notice, claiming that he found a receipt therefor. He alleges it is attached to the affidavit, though it is not. Trustee's brief alludes to a post-hearing provision by Debtor of a certified mail receipt. See Doc. No. 154 at 3-4 and Ex. 1. The attempted “supplementation” of the closed evidentiary record is addressed below.
.The parties also failed to provide a copy of this complaint, though all seemed to agree it was filed before Debtor's bankruptcy petition was filed. Accord, Doc. No. 1 at statement of financial affairs (referencing the Dillon suit). As with the Wright suit, the Court’s search of the files found what is purportedly a copy of the signed and filed complaint in the Dillon suit, attached to the Debtor’s ex-wife's brief. See Doc. No. 94 at Ex. G.
. Wright's pleading responding to the Trustee's turnover demand on Debtor was limited to these specific chattels. However, the proposed settlement indicates that Wright claimed a security interest in the remaining truck and the jet boat and trailer as well.
. Several months after consenting to the motion, Debtor (through new counsel) sought to "reconsider” the order granting stay relief or, alternatively, to reimpose the stay. See Doc. No. 82. That motion was heard simultaneously with the motion to convert the case back to chapter 7, discussed below, and ultimately the Court deferred ruling on that motion subject to renotice after the chapter 7 trustee had an opportunity to evaluate it. See Doc. No. 109 (minute entry). Debtor never renewed the motion.
. Trustee already sold those chattels free and clear of liens, and Wright's liens attached to the proceeds. The Court has recently entered an order at Trustee’s request authorizing new titles to be issued to the purchaser. The promised surrender of the titles is thus not significant, though the release of claims of Wright against the sales proceeds is.
. Debtor scheduled the Dillon suit as having a value of $16,100.00 (apparently the alleged value of the panels). He scheduled the Wright suit as having an "unknown" value, admitting however that "[tjhere is a question as to whether the mechanics’ lien qualifies under state statute.” See Doc. No. 1 at sched. B.
.
Olson
was not the first case in this Court addressing standing issues.
In re Stone,
03.2 I.B.C.R. 134, 135,
II. Rule 9019(a) provides:
(a) Compromise. On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement. Notice shall be given to creditors, the United States trustee, the debtor, and indenture trustees as provided in Rule 2002 and to any other entity as the court may direct.
. The "materials” in the claim of lien include Debtor’s movable personal property (e.g., horses, fax machine, printer, baseball equipment, trucks) that was never attached to or contributed to the value of the real property. The portion of the $93,000.00 attributable to Debtor’s masonry or other property-related labor or building or construction materials provided and installed on the property, as opposed to services in running the breeding business, movable property or some other theory of recovery, is decidedly unclear.
. A lien claimant must be able to separate and distinguish lienable items of labor from non-lienable items.
Boone,
. Idaho Code § 45-507(3)(c) requires the lien to set forth the name of the person the lienor was "employed by” or to whom he furnished materials. Debtor’s claim of lien alleges he provided labor and material "in accordance with a contract with Joe Rake.”
. See, e.g., Doc. No. 144 (Debtor’s brief) at 3, indicating that Debtor invested money, equipment and labor in the horse operation, and "made this investment with the expectation that he was building a business from which he could share the profits when it became profitable.” This seems to belie there was any contract, even oral, that he be paid for the labor and materials.
. Debtor concedes his former attorney failed to effect service. Doc. No. 144 at 10. He
. As noted earlier, the real property was sold, and the remedy of lien foreclosure was itself foreclosed. But the complaint in the Wright suit, as located by the Court, also seeks a money judgment as well as foreclosure of the lien against Wright’s real property.
. There has been no showing one way or the other as to what might be faced in a trial with Dillon.
. On October 26, 2006, the Court issued a notice to creditors under Fed. R. Bankr.P. 3002(c)(5) advising of the possibility of distribution and the need to file claims. See Doc. No. 115. This notice and the Rule established a claim bar date of ninety (90) days from the date of the notice, or January 23, 2007. That date has passed. A review of the proofs of claim of record reflects none filed by Wright. The release of claims therefore in one sense has little value because Wright has no filed proofs of claim. But the release has some value because it would encompass any "secured” claims to vehicles and/or their sales proceeds.
. See Doc. No. 157 at 2 (noting that this "is the first time” Debtor has asserted any arguments or contentions about an alleged partnership).