Desmond v . Notinger CV-06-264-PB 03/30/07

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Bob Desmond

v. Case N o . 06-cv-264-PB Opinion N o .

Steven M . Notinger, Ch. 7 Trustee & ASR Acquisition Corp.

MEMORANDUM AND ORDER

Bob Desmond appeals numerous Orders of the United States

Bankruptcy Court for the District of New Hampshire arising from

an adversary proceeding related to his Chapter 7 bankruptcy.

Steven Notinger, the Chapter 7 Trustee, and ASR Acquisition Corp.

(collectively “the Appellees”) have moved to dismiss the appeal

as untimely and for lack of standing. For the reasons discussed,

Appellee’s motion is granted in part and denied in part.

I. BACKGROUND

Beginning no later than 1989, Desmond entered into numerous,

complex business and financial agreements with ASR Acquisition

Corp. (“ASR”), a private investment and lending entity. (Complaint in ASR Adversary Proceeding at ¶ 1 et seq., Doc. N o .

3-1 (“Complaint”)). During the lending relationship, Desmond

either assigned to or gave ASR various outstanding mortgages or

liens on Desmond’s real property known as Strawberry Hill Farm

located in Orford, New Hampshire. Id. at ¶ 4 ( B ) .

On November 1 3 , 2003, Desmond filed a voluntary Chapter 11

bankruptcy petition. (Settlement Memorandum Opinion of May 1 7 ,

2006 at 3 , Doc. N o . 9-5 (“Settlement Memorandum”)). In January

2004, ASR filed a proof of claim against the bankrupt estate in

the amount of $3,173,851.40 as an allegedly secured claim as of

the petition date. (Complaint at ¶ 2 ; Motion to Compromise at ¶

2 , Doc. N o . 1 1 - 1 ) . In May 2004, Desmond filed an Adversary

Proceeding against ASR (the “ASR Adversary Proceeding”),

challenging, inter alia, the amount of ASR’s proof of claim.

(Complaint at ¶ 4(A)). 1

Throughout the course of the Chapter 11 proceeding, Desmond

was unemployed, had no earned income, and apparently survived on

loans or gifts. (Chapter 7 Conversion Memorandum Opinion of Aug.

1 Desmond’s original complaint contained additional claims that were either dismissed or disallowed as amendments. Motion to Compromise at ¶ 4 .

-2- 2 6 , 2005 at 2 , Doc. N o . 10-4 (“Conversion Memorandum”)). On

August 2 6 , 2005, upon the United States Trustee’s third motion

and over Desmond’s objection, the Bankruptcy Court converted the

proceeding to a Chapter 7 bankruptcy and appointed Steven

Notinger as Chapter 7 Trustee. Id. The Bankruptcy Court

concluded that the “estate is apparently administratively

insolvent, the Debtor has not been able to effectuate a plan

where there is a reasonable likelihood of confirmation, and

continued delay in Chapter 11 is and will be prejudicial to

creditors.” Id. at 3 .

By operation of law, Notinger stepped into Desmond’s place

and took over representation of the estate, including both its

adjudication of the main bankruptcy case and the prosecution of

the ASR Adversary Proceeding. (Settlement Memorandum at 3 ) .

Initial negotiations between Notinger, ASR and Desmond failed to

produce an acceptable settlement. (Motion to Compromise at ¶ 4 ) .

Following further negotiations without Desmond, Notinger came to

an agreement with ASR and sought the Bankruptcy Court’s approval

of a Release and Settlement Agreement between the Trustee and

ASR. Id. at ¶¶ 5-6. In the Motion to Compromise, Notinger

stated that the estate’s “best case scenario” if the litigation

-3- continued would be to reduce ASR’s claim to $1.3 million, “with

perhaps an additional reduction of several hundred thousand

dollars if [he could] prove[] that fees and expenses charged to

the FDIC obligation were improperly charged.” Id. at ¶ 5 . He

based his estimates on the opinions of accounting and lending

experts he hired to assist him. Id.

The pertinent terms of the settlement are as follows:

First, the Trustee and ASR agreed to reduce ASR’s allowed claim

to $2.4 million. (Settlement Agreement at ¶ 5 , Doc. N o . 8 - 2 ) .

Second, the Trustee granted ASR a release from all past, present

and future related claims. Id. at ¶¶ 12-13. Third, the Trustee

agreed to abandon any interest in the Strawberry Hill Farm.2 Id.

at ¶ 2 . Fourth, following this abandonment, the parties agreed

that ASR could foreclose on Strawberry Hill Farm without further

interference from the Trustee or the estate. Id. at ¶ 3 . Fifth,

to account for the fact that the parties estimated the fair value

of the Strawberry Hill Farm to be approximately $1.5 million but,

under the Trustee’s “best case scenario,” ASR’s claim might be

2 In conjunction, the Trustee also filed a separate motion to abandon Strawberry Hill Farm in the main bankruptcy case. The Bankruptcy Court resolved both motions in the May 1 7 , 2006 memorandum and order.

-4- worth only $1.3 million, the Settlement Agreement obligated ASR

to make a $120,000 payment to the estate. Id. at ¶ 5 .

On April 2 0 , 2006, the Bankruptcy Court held a hearing on

the matter.3 (Settlement Memorandum at 2 ) . On May 1 7 , 2006,

over Desmond’s objection, the court approved the settlement and

granted Notinger’s motion to abandon Strawberry Hill Farm. Id.

at 5 . Citing relevant law, the Bankruptcy Court first

established Notinger’s authority to settle the claims, stating

that “[u]pon conversion and appointment of a Chapter 7 trustee,

all claims held by the estate belong to the trustee . . . .

[T]he Trustee alone may assert the causes of action against ASR

in the ASR Adversary [Proceeding].” Id. at 3 . The court

acknowledged that “the settlement does release any and all claims

against ASR that the Debtor or the estate could assert [against

3 Appellees argue that I must dismiss Desmond’s appeal because he has failed to file with his appeal a transcript of the April 2 0 , 2006 settlement hearing as is required by Federal Rule of Bankruptcy Procedure 8006. Rule 8019 of the same, however, grants district courts broad discretion to suspend most procedural requirements, including Rule 8006. See Fed. R. Bankr. P. 8019. Because the transcript may be useful in deciding the merits of Desmond’s appeal and because Appellees have presented no persuasive evidence of bad faith on the part of Desmond or prejudice to the Appellees, I grant Desmond leave to supplement the record on appeal with the missing transcript. See In re Dawley,

at *2 (E.D.Pa.).

-5- A S R ] , as those claims belong to the Trustee upon conversion to

Chapter 7.”

(citing ¶ 13 of the Settlement Agreement). The

court then analyzed the terms of the proposed settlement in light

of the factors set out in Jeffrey v . Desmond,

(1st Cir. 1995), and concluded that “the Trustee has competently

and fairly assessed the costs, merits, and possible outcomes of

the ASR Adversary [Proceeding] and has reached a settlement that

is probably at the higher end of the range of potential outcomes

if the matter proceeded to trial.” (Settlement Memorandum at 5 ) .

On May 2 4 , 2006, the Bankruptcy Court denied Desmond’s

motion to reconsider. (Reconsideration Order, Doc. N o . 1 0 - 2 ) .

Desmond filed a Notice of Appeal on June 5 , 2006 (Doc. N o . 1-2)

and a Statement of Issues To Be Presented On Appeal (Doc. N o . 2-

1 ) on June 1 5 , 2006. In his appeal, Desmond challenges

Bankruptcy Court Orders issued on September 1 2 , 2005, February

1 5 , 2006, March 2 2 , 2006, April 1 9 , 2006,4 as well as the

Settlement Order of May 1 7 , 2006.

4 In separate orders on these dates, the Bankruptcy Court dismissed several of Desmond’s claims and denied several of his motions. Because, as discussed below, Desmond’s appeal of these orders is untimely, I need not provide further factual detail.

-6- II. ANALYSIS

A. Untimely Appeal

Appellees argue that Desmond’s appeals of the Bankruptcy

Court’s Orders dated September 1 2 , 2005, February 1 5 , 2006, March

2 2 , 2006, and April 1 9 , 2006 must be dismissed because they are

untimely. Desmond makes no argument in response.

Federal Rule of Bankruptcy 8002 gives parties ten days from

the date of entry of a judgment, order, or decree in which to

appeal. Fed. R. Bankr. 8002(a). See also In re Robbins v .

Thomson McKinnon Secs.,

(S.D.N.Y. June 1 1 , 1997)

(rule applies to both final judgments and interlocutory orders).

Because this ten-day requirement is mandatory, an “[u]ntimely

notice of appeal deprives the district court of jurisdiction to

review the bankruptcy court’s order.” In re Abdallah,

5 , 77 (1st Cir. 1985). Desmond failed to submit the required

notice of appeal within 10 days of entry of the these four

Orders. Nor has he suggested any exception to Rule 8002(a) that

is applicable in this case. Accordingly, I am without

jurisdiction to review these claims.

-7- B. Standing

Appellees next argue that Desmond lacks standing to appeal

the May 1 7 , 2006 settlement Order because the Chapter 7 Trustee

alone had the responsibility and authority to prosecute and

settle the ASR Adversary Proceeding.

“It is well established that a Chapter 7 debtor generally

lacks standing to challenge a bankruptcy court judgment

confirming” a settlement agreement between the Trustee/Estate and

its creditors. See Mark Bell Furniture Warehouse, Inc. v . D.M.

Reid Assocs., Ltd.,

, 10 (1st Cir. 1993). This rule

reflects the fact that the Chapter 7 Trustee divests the debtor

of all “right, title and interest” in property of the estate.

Spenlinhauer v . O’Donnell,

(1st Cir. 2001).

A Chapter 7 debtor does have standing to appeal a final

bankruptcy judgment, however, if he is a “person aggrieved” by

such judgment. Spenlinhauer,

; In re Thompson,

, 1142 n.9 (1st Cir. 1992). A debtor is “aggrieved”

by an order approving a settlement only where “the challenged

order directly and adversely affects [his] pecuniary interests.”

Spenlinhauer,

. In the ordinary Chapter 7

-8- case, a debtor meets this standard by showing either that (1)

nullification of the settlement would result in an “overall

surplus in the Chapter 7 estate,” or (2) the settlement “would

adversely affect the terms and conditions of his Chapter 7

discharge.”

, 119 n.7; see also In re El San Juan

Hotel,

5 1 , 155 n.6 (1st Cir. 1987).

Whether a debtor has appellate standing to challenge a

bankruptcy order is a question of fact for the district court.

El San Juan Hotel,

n.3. Faced with a challenge

to his standing, a debtor must adduce evidence sufficient to

demonstrate his pecuniary harm. See Spenlinhauer,

. Although Desmond’s brief alleging standing is grossly

muddled on this point, a glimmer of a claim emerges from between

the lines.

This case does not fit the mold of the ordinary Chapter 7

“aggrieved person” case. Instead, the documents Desmond

submitted in support of his appeal suggest that he became an

aggrieved person when the estate abandoned its interest in the

Strawberry Hill property as a part of the settlement. At that

point, Desmond reacquired title to the property subject to ASR’s

security interest. I f , as Desmond claims, the Settlement

-9- Agreement assigned an excessive value to ASR’s claim, he stands

to suffer financially as the owner of the Strawberry Hill

property from the foreclosure proceeding contemplated by the

settlement. This is all that is required to qualify Desmond as

an aggrieved party with standing to appeal.

III. CONCLUSION

For the reasons discussed, Notinger’s motion to dismiss

(Doc. N o . 15-1) is granted in part and denied in part.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

March 3 0 , 2007

cc: William S . Gannon, Esq. Debra Ann Notinger, Esq. William Pribis, Esq. Geraldine L . Karonis, Esq. Clerk, US Bankruptcy Court - NH

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