IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
|DO NOT PUBLISH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.
JOHN R. JONES, JR., No. 95-13208
Memorandum of Decision
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.
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
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.
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.
, 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.
B.R. 457, 470 (Bankr.S.D.N.Y.1984), aff'd 50 B.R. 764 (S.D.N.Y.1985); 10 Collier on
(15th Ed. rev.) para. 9019.02, p. 9019-4.
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,
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
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.
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 _______________________