Memorandum of Decision Re: Novation

In re JEFFREY E. HAYNES, No. 02-10148 Debtor(s). ______________________________________/ LARRY L. RUSSELL, Plaintiff(s), v. A.P. No. 02-1109 JEFFREY E. HAYNES, Defendant(s). _______________________________________/
Memorandum on Motion for Summary Judgment

Ordinarily, litigants in non-bankruptcy proceedings are not required to conduct their litigation with an eye toward possible future bankruptcy proceedings. Brown v. Felson, 442 U.S. 127, 135, 60 L.Ed.2d 767, 774 (1979). However, if a settlement in state court clearly expresses the mutual intent for a complete novation, erasing all prior claims, then a plaintiff cannot revive a pre-settlement claim in a subsequent bankruptcy case. In re Fischer, 116 F.3d 388, 390 (9th Cir. 1997).

In this case, the agreement does not qualify as a novation. While part of it recites that it is in full settlement of all claims, it also says that “[a]ll claims not expressly granted or reserved herein are hereby denied.” (emphasis added). The concept of reserved rights is inconsistent with novation.

A review of the settlement agreement makes it clear that a novation was not intended. There is an express reservation of rights as to one claim in paragraph 1. In two other places (paragraphs 12 and 16), the stipulation refers to disputes concerning the “underlying litigation” as well as the stipulation itself. These provisions disprove the debtor’s claim to a novation.

For the foregoing reasons, the debtor’s motion for summary judgment will be denied. Counsel for plaintiff shall submit an appropriate form of order.

Dated:   August 28, 2002                                                 ___________________________
                                                                                          Alan Jaroslovsky
                                                                                          U.S. Bankruptcy Judg