Memorandum of Decision Re: Malpractice/Personal Injury

DO NOT PUBLISH This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
In re JOHN R. JONES, JR.,                                                                                           No. 95-13208                Debtor. ___________________________/
Memorandum of Decision
I. Introduction      The trustee in this Chapter 7 case has asked the court to approve his compromise with the debtor whereby a $217,000.00 recovery from the debtor's former counsel would be split evenly between the debtor and the estate. Creditor Joan McNair has objected, arguing that she has a lien in the recovery, that she should be granted an equitable lien in the recovery, that the settlement is unfair, and that the court must hold an evidentiary hearing. The court finds all of McNair's arguments without merit, and accordingly overrules her objection. II. Facts      Debtor John R. Jones is a quadraplegic. With proceeds from the settlement of a lawsuit arising out of the accident which caused his injuries, he purchased a condominium unit as an investment and later sold it. The purchaser, Joan McNair, sued Jones for fraud on the basis of representations made to her by the real estate broker who represented both of them in the action. Jones hired attorney A. Keyes Fort to represent him.      Jones commenced the subject lawsuit against Fort after Jones lost the McNair lawsuit. Jones alleged that Fort so negligently represented him as to constitute abandonment. Not only did he lose the case, but he also lost his right to seek indemnity from the true wrongdoer, the mutual broker, when Fort failed to name the broker in a cross-complaint and failed to object to a nominal settlement McNair reached with the broker. Fort did not even notify Jones of the hearing or its consequences.      Jones claimed a portion of the lawsuit against Fort as exempt pursuant to section 704.140 of the California Code of Civil Procedure. That section allows a debtor to exempt actions for personal injuries without limitation.      Both Jones and the trustee agreed to settle the suit against Fort for $217,000.00, reserving their dispute over the exemption. Their compromise, whereby the proceeds are split evenly, is the matter now before the court. III. Procedure      Counsel for McNair appeared unprepared at the hearing on his objection, with some sort of expectation that a further hearing would be held at which time the court would take evidence. There is nothing in the record to give rise to such an erroneous notion. There is no requirement that a bankruptcy court take evidence in order to approve a compromise. Depoister v. Mary M. Holloway Foundation, 36 F.3d 582, 586 (7th Cir.1994). The role of the court is to apprise itself of the issues being compromised, not resolve them on their merits. In re Carla Leather, Inc. 44 B.R. 457, 470 (Bankr.S.D.N.Y.1984), aff'd 50 B.R. 764 (S.D.N.Y.1985); 10 Collier on Bankruptcy (15th Ed. rev.) para. 9019.02, p. 9019-4. IV. Discussion      Contrary to McNair's position, the personal injuries alleged by Jones were not an afterthought raised in a sham attempt to keep some of the proceeds of the lawsuit. In correspondence with Fort's counsel long before the settlement became an issue Jones' counsel was stressing the personal injury aspect of the case, noting "the medical evidence of stress related visits to the emergency room, numerous doctor visits and sessions with his psychiatrist since the bankruptcy, is overwhelming."      The state of California law regarding the ability of a victim of legal malpractice to recover damages for personal injuries was discussed extensively by counsel in the Fort litigation. The case cited by McNair as dispositive on the issue, Merenda v. Superior Court (1992) 3 Cal.App.4th 1, was specifically and effectively distinguished by Jones' counsel. That counsel made a strong argument that Jones' extraordinary pre-existing condition, and Fort's full knowledge of it, made physical injuries foreseeable and compensable.      It is not for this court to decide how state courts would decide the issue. On the basis of the cases cited by Jones' counsel and the trustee, the court has no trouble finding that Jones might be entitled to such damages and fear of such a finding by Fort played a significant role in his agreeing to pay a substantial sum to settle the case.      In addition to considering the probabilities of success and the complexities of the case being settled, the court must also take into account the expense, inconvenience and delay attendant in litigating the dispute rather than settling it. In re A & C Properties, 784 F.2d 1377, 1381 (9th Cir.1986). All such factors militate in favor of settlement. Even if the trustee were to prevail against Jones, the net to the estate is not likely to exceed the $108,000.00 it is to receive under the settlement after the costs of litigation are considered, and payment to creditors could be delayed for several years if appeals are taken. While McNair may be the single largest creditor, there are other creditors in the case. It is pointless to force them to wait for years while McNair pursues Jones, especially when they would fare little or no better even if the trustee were to ultimately fully prevail. V. Legal and Equitable Liens      Despite continuance of the hearing at least once as an accommodation to McNair's counsel, he has put forth no justification for his client's claim to some sort of lien on the litigation proceeds. There is certainly no equity at all in giving McNair an equitable lien, thereby denying other creditors, the trustee and his counsel the right to share in the proceeds of the settlement.      McNair claims that she "liened all real and personal property of the debtor." By this, the court assumes she means that she recorded an abstract of judgment and filed a notice of judgment lien with the Secretary of State pursuant to California Code of Civil Procedure section 697.510. However, McNair cites no basis for her proposition that such a filing creates a lien on a lawsuit, and such a position is contrary to section 697.530, which limits the lien to specified assets. VI. Conclusion      The proposed settlement between Jones and the trustee makes eminent good sense. Jones has a colorable claim to a substantial portion of the proceeds of the Fort lawsuit. Resolution of the exact amount through litigation could take years, and the trustee would have little more, and quite possibly less, for the estate even if he prevailed on every issue.      McNair's procedural objections are without merit, as are her claims to a lien on the lawsuit. Accordingly, her objection will be overruled and the compromise approved. Counsel for the trustee shall submit an appropriate form of order. Dated: March 30, 1998                                                                                            _______________________                                                                                                                                Alan Jaroslovsky                                                                                                                                U.S. Bankruptcy