UNITED STATES BANKRUPTCY COURT
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NORTHERN DISTRICT OF CALIFORNIA
CARL SCHNEIDER, No. 91-12917
Memorandum on Motion for Reconsideration
Debtor Carl Schneider filed his Chapter 11 petition in 1991. In 1992, his former law firm, Hale,
Skemp, Hanson & Skemp, filed a timely proof of claim for $235,431.04. Schneider's plan of
reorganization was confirmed in 1994. Instead of either objecting to the claim or paying it, as was his
duty as a debtor in possession, Schneider just ignored it. Worse, he attempted to obtain a final decree
closing the case without dealing with the claim. Only when the law firm objected to the final decree in
late 1998 did Schneider finally object to the claim.
When the objection to the law firm's claim finally came before the court, it appeared to have
little or no merit. The law firm produced detailed supporting invoices. Schneider's objection was based
on the argument that he had a claim for malpractice against the firm and that the attorney who had
worked on his cases, Bill Skemp, had entered into an agreement with him whereby in return for not
asserting the claim the law firm's bill would "go away." Schneider also alleged that he had failed to
receive credit for payments he had made, that the law firm had failed to "charge the proper legal entity"
for its services, and that the claim was barred by the statute of limitations.
At the hearing on the motion, Schneider's objections seemed patently without merit. His proof
of the "agreement" was a copy of a letter written by his controller to Skemp in late 1993 reciting what
Schneider had told him about the agreement. However, Skemp had left the law firm two years earlier
and accordingly had no authority to agree to compromise the law firm's claim. The other allegations in
the controller's declaration were very vague, completely unsubstantiated, and based mostly on
inadmissible hearsay. The statute of limitations argument completely ignored the open account nature
of the debt. The court overruled the objection and converted the case to Chapter 7. However, the
court left the door open for the trustee to seek reconsideration.
After conversion, the trustee examined the law firm's claim and concluded that some portions of
its billings were not well supported. She then reached a compromise whereby the claim would be
reduced to $125,000.00 and allowed in that amount. The only objection to the claim was from
Schneider. The court overruled the objection. Schneider now seeks reconsideration.
The court's task in considering a compromise is not to determine who would win if the dispute
were litigated, but rather whether the compromise is fair and reasonable. In re Woodson
, 839 F.2d 610,
Cir. 1988). Factors to be considered include the probability of success, the difficulties in
collection, and the expense of litigation. The interests of the creditors are paramount. In re A & C
, 784 F.2d 1377, 1381 (9th
The court has never believed Schneider had much of a case. He argues that the court "refused
to hear the evidence" and overruled his objection on procedural grounds, but that is not so. The court
reviewed the declarations Schneider produced in support of his objection and found them to be
substantially without merit. Schneider and his counsel seemed to be in deep denial of the fact that
Skemp was not a member of the firm and had no authority to agree to waive the claim. The O'Meara
declaration established nothing and was rife with hearsay to boot.
Even though Skemp has submitted a declaration in support of Schneider's motion, he does not
admit to any malpractice nor does he say that he entered into an agreement with Schneider. All he says
is that the bills were the "subject of dispute." Thus, establishing "malpractice" would not be the easy
matter Schneider thinks it would be. Even if it were proved, the most likely result would be a reduction
of the amount due, not its total elimination.
If this matter were litigated, Schneider's chances of prevailing would be very low. Despite three
hearings, he has failed to produce any evidence that the billings are improper or that he has a setoff for
malpractice. Even if he were to somehow prove malpractice, he has made no showing that the setoff
would come close to cancellation of his debt. His other allegations are either unsupported or patently
without merit. The compromise is a fair and equitable way of resolving the claim, given the length of
time that has passed. It makes far more sense than litigating the issues so long after the fact.
For the foregoing reasons, Schneider's motion for reconsideration will be denied. Counsel for
the trustee shall submit an appropriate form of order.
Dated: December 12, 1999 ____________________________
United States Bankruptcy