USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
____________________

No. 95-1261

JOHN JEFFREY AND MARSHA JEFFREY,

Appellants,

v.

JOHN O. DESMOND, ET AL.,

Appellees.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Rya W. Zobel, U.S. District Judge]

___________________

____________________

Before

Torruella, Chief Judge,

___________

Lynch, Circuit Judge,

_____________

and Stearns,* District Judge.

______________

_____________________

Donald C. Kupperstein for appellants.

_____________________
Richard D. Wayne,
__________________

with whom

Paul F. O'Donnell III

_______________________

and

Hinckley, Allen & Snyder were on brief for appellees Brooks Drug,
________________________
et al.
John O. Desmond pro se.

_______________

____________________

November 22, 1995

____________________

____________________

Of the District of Massachusetts, sitting by designation.

TORRUELLA, Chief Judge.

TORRUELLA, Chief Judge.
____________

John and

Marsha Jeffrey (the

"appellants")

appeal

affirming the

bankruptcy court's decision to

belonging

the

to

the

decision

appellants'

Chapter 7

contend that the bankruptcy court

approved the

of

the

district

court,

compromise a claim

estate.

Appellants

abused its discretion when

it

Chapter 7 Trustee's motion to compromise the claim.

For the reasons stated below, we affirm.

BACKGROUND
BACKGROUND
__________

On February 14, 1992, appellants filed a petition under

Chapter 7 of the Bankruptcy Act, 11 U.S.C.

and John O. Desmond, an appellee in

Chapter

7 Trustee

521(1), appellants

(the "Trustee").

701

et seq. (1988),
__ ___

this case, was appointed the

As

filed a statement of

required by

11 U.S.C.

financial affairs and

schedule

of

schedule

as an asset, however, a pending state court action they

commenced

(also

assets

and

liabilities.

in 1990

against

Brooks Drug,

an appellee

in this

case),

discrimination against

Massachusetts

Appellants

failed

Inc., ("Brooks

seeking damages

John J. Jeffrey in

Drug")

for alleged

employment, under the

Civil Rights Act, Mass. Gen. L. ch. 12,

and the Federal Civil Rights Act, 42 U.S.C

to

11H, I,

1983.1

____________________

See 11 U.S.C.
___

521(a)(1) (property

of the

estate includes

". . . all legal or equitable interests of the debtor in property

as

of the

commencement of

the case.");

see also
________

Oneida Motor
____________

Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 416 (3d Cir.)
_____________
___________________
(citing

In re Hannan,
______________

("[B]ankruptcy

127

law imposes

F.2d
upon

positive

duty to schedule for

interest

and property

894,

897

one seeking

the benefit of

rights.")),

(7th

Cir.

its benefits

1942)

the

creditors all his

cert. denied,

488 U.S.

967

____________
(1988).

-2-

After the Trustee filed a Report of No Assets on May 1,

1992, appellants received

and

their

Chapter

a discharge under 11

case

was

closed

on

U.S.C.

June

727(b),

22,

1992.

Appellants' counsel, who represented appellants in both the state

court

action and the

Chapter 7 proceedings,

never informed the

state

court

or

Brooks

Drug

bankruptcy or had received

that

appellants

had

filed

for

a discharge without administration of

the state court action in the Chapter 7 proceedings.

On June

Brooks Drug

the

state court

judge of these facts

state

court action,

judicially estopped

not disclosed

27,

1993,

action.

Brooks

and moved to

on

the grounds

and their failure

Drug notified

the

dismiss with prejudice

that

appellants were

from asserting pre-petition claims that were

during the bankruptcy case.

the state

ordered Brooks Drug to

order to

of trial in state court,

learned of appellants' bankruptcy

to schedule the

trial

10, 1993, on the eve

court stayed

the

Subsequently, on July

state court

notify the Trustee about its

action and

pendency in

give the Trustee the opportunity to bring the matter to

the attention of the bankruptcy court.

On September 17, 1993, the bankruptcy court granted the

Trustee's motion to reopen appellants' Chapter 7 case in order to

administer

the unscheduled

1994,

bankruptcy

the

court

state court

action.

granted the

Trustee's

compromise the state court action for $10,000.

Court for

court's

the District of Massachusetts

decision

on

February

-3-

17,

On

March 24,

motion

to

The U.S. District

affirmed the bankruptcy

1995,

finding

that

the

bankruptcy court did

not abuse its

discretion in approving

the

compromise.

DISCUSSION
DISCUSSION
__________

On an appeal from

review

the bankruptcy

the district court, we independently

court's

decision, applying

the

clearly

erroneous standard to its findings of fact and de novo review to

________

its conclusions of

law.

In re SPM Mfg. Corp., 984 F.2d

______________________

1305,

1311 (1st Cir. 1993); see also In re G.S.F. Corp., 938 F.2d 1467,
________ __________________

1474

(1st

compromise

judge,

Cir. 1991)

is

(collecting cases).

within the

sound

however, and this court

discretion

The approval

of the

will not overturn

of a

bankruptcy

a decision to

approve

a compromise absent a clear

judge abused her discretion.

Mass.

1989)

(collecting

judge's discretion,

showing that the bankruptcy

In re Anolik, 107 B.R. 426, 429 (D.

____________

cases).

"The

though commodious,

cask

which

encases a

can be shattered

when a

reviewing tribunal is persuaded that the trial court misconceived

or

misapplied the law, or misconstrued its own rules."

Aggarwal
________

v. Ponce School of Medicine, 745 F.2d 723, 727 (1st Cir. 1984).
________________________

compromise

ultimate

bankruptcy

judge has

the

authority

to approve

of a claim pursuant to Bankruptcy Rule 9019(a).2

issue on appeal is whether

Bankruptcy Rule 9019(a) provides as follows:

On

motion

hearing

on

by the
notice

trustee
to

The

the bankruptcy court abused

____________________

and after

creditors,

a
the

debtor and indenture trustees as provided

in

Rule

2002(a)

entities as the
court

may

and

to

such

other

court may designate, the

approve

compromise

or

settlement.

-4-

its

discretion when

it

approved

the

compromise, which

is

process requiring the bankruptcy court to "assess and balance the

value of the claim that is being compromised against the value to

the

estate of the acceptance of the compromise proposal."

In re

_____

GHR Cos.,
________

50 B.R. 925, 931 (Bankr. D. Mass. 1985) (quoting In re

_______ _____

Boston & Providence R.R., 673 F.2d 11, 12 (1st Cir. 1982).
________________________

specific factors

which a bankruptcy court

T h e

considers when making

this determination include: (i) the probability of success in the

litigation being

compromised; (ii) the difficulties,

if any, to

be encountered in the matter of collection; (iii) the

complexity

of the

delay

litigation involved,

attending it;

and,

and the expense,

(iv) the

inconvenience and

paramount

interest of

the

creditors and a proper deference to their reasonable views in the

premise.

In re Anolik, 107 B.R. 426, 429 (D. Mass. 1989).

____________

After

consideration of the

careful

review

briefs and

of

the

record,

oral arguments

and

of counsel,

upon

we

find

no abuse

approval

record

of

of the

discretion by

compromise.

reveals that

Trustee's

compromise

evaluating three of

when

before

it assessed

the

bankruptcy court

As the

district court

the bankruptcy

proposal,

it

spent

the four factors set

the

value to

the

in

its

held, the

court approved

the

considerable

time

forth in In re Anolik
_____________

estate of

the

compromise

proposal.

Although

nothing

more

need

be

specifically to two of appellants' arguments.

said,

we

respond

Both arguments are

based on their claim that they, and their attorney, discussed the

-5-

state court action with the Trustee on March 23, 1992, during the

creditors' meeting held pursuant to 11 U.S.C.

341, and that the

Trustee determined the case had no value.

First,

appellants essentially

court action was "abandoned" to

within the meaning of 11 U.S.C.

contend that

the state

appellants by operation of

law,

554(c), because the Trustee had

actual knowledge

of the state court action when the report of no

assets was filed.

In support of finding abandonment by operation

of law, appellants also point to their claimed oral disclosure as

evidencing a lack of fraud and to the Trustee's zero-valuation.

Despite

appellants' persistent

claims, we

the district court that the alleged discussion with

even if true, has no bearing on

agree with

the Trustee,

the outcome of this appeal.

The

law is abundantly clear that the burden is on the debtors to list

the asset and/or

property

U.S.C.

to

be abandoned

554(c),

pursuant to

See, e.g.,
___ ____

amend their

schedules, and that

by operation

of

law pursuant

the debtor must formally schedule

11 U.S.C.

521(1)

In re Rothwell,
______________

1993).3

____________________

before the close

159 B.R.

in order

for

to 11

the property

of the

374, 377 (Bankr.

case.

D. Mass.

Furthermore, by operation of 11

asset

not properly

estate, and
name.

schedule

scheduled remains

554(c) and (d), any

property of

the bankrupt

the debtor loses all rights to enforce it in his own

Vreugdenhill
____________

F.2d 524, 526

U.S.C.

v. Navistar Int'l Transportation Co., 950

___________________________________

(8th Cir. 1991)

potential

claim

(Chapter 7 debtor

cannot

prosecute

the

who failed
claim

to

after

emerging from bankruptcy).

-6-

What matters

counsel said,

it is

here is not what the

what they

did or,

appellants or their

rather, failed to

do.4

The state court action was not

scheduled as an asset at any time

during the bankruptcy proceedings.

concept

of

"assumed

abandonment,"

appellants ask us to find.

526 ("It

[11 U.S.C.]

(Bankr.

which

simply

is

no

such

essentially what

the trustee learns

of the property

the property must be scheduled

pursuant to

521(1).")); see also In re Medley, 29 B.R. 84, 86

________ _____________

M.D. Tenn. 1983) (court does not have to address factual

question of

trustee's knowledge because

abandonment

occurs).

district

is

Id. (citing Vreugdenhill, 950 F.2d at

__
____________

is not enough that

through other means;

There

court,

abused

Neither

their

the

554 makes

bankruptcy

discretion

when

clear when

court, nor

they

the

rejected

appellants' abandonment claim.5

Second, appellants

contend that because

their alleged

oral

disclosure

disproves any

intent

to commit

fraud

on the

____________________

We note, again,

in 1990 and the

that throughout the state court

Chapter 7 proceedings begun in

were represented by the same attorney.

"'the

silence'

in

[their

state

court

vernacular, 'is deafening'."

1992, appellants

This fact alone amplifies

[appellants'] bankruptcy
action],

action begun

[which]

as

record
they

concerning
say

Payless, 989 F.2d at

_______

in

the

571 (quoting
_______

Oneida Motor Freight, 848 F.2d at 417).

____________________

In

a similar vein, appellants

court action

would be exempt from

well settled in this Circuit

in the

also contend that their

state

the Chapter 7 estate.

It is

that "theories not raised

district court cannot be

surfaced for the

squarely

first time on

appeal." McCoy v. Massachusetts Institute of Technology, 950 F.2d

_____
_____________________________________
13, 22

(1st Cir.

unpreserved

for appellate

merely insinuated
court, we

1991).

will

We therefore
review.

treat this

Id. at
__

22 ("If

rather than actually articulated

ordinarily refuse

appellate review.").

-7-

to

deem them

argument as

claims are

in the trial
preserved

for

bankruptcy

proceedings, their state

court action

would not

be

dismissed under our decision in Payless Wholesale Distribs., Inc.

_________________________________

v. Alberto Culver, Inc.,

____________________

989 F.2d 570 (1st Cir.),

cert. denied,
____________

__ U.S. __, 114 S. Ct. 344, 126 L.Ed.2d 309 (1993).6

Without

ruling on

the merits

itself, would justify dismissal,

by

the bankruptcy

court

when it

of whether

we find no abuse of

found

that there

Payless, by
_______

discretion

was

"some

likelihood" Brooks Drug would

Payless defense.
_______

the bankruptcy

prevail in state court based

In addition, we find no abuse of

court when it took Payless

_______

one of the factors it weighed when

appellants'

success were

on a

discretion by

into consideration as

it assessed the likelihood of

appellants to

proceed with

the state

court action.

We

brought

the

merely add

state

that

court

appellants'

action

to

the

argument

that

Trustee's

they

attention

completely overlooks both the importance of the Bankruptcy Code's

disclosure requirements

and the fact that

schedules under penalties of

In re Giguere,
_____________

165 B.R.

perjury.

appellants signed the

Oneida, 848 F.2d

______

531, 536 (D.R.I.

1994).

at 416;

Furthermore,

whether or not appellants' initial

failure to schedule the state

____________________

In Payless we held
_______

Chapter 11

that where a debtor

of the Bankruptcy

under penalty of

Code based on

perjury that he had no

obtains relief under

his representations

assets other than those

scheduled, that debtor is judicially estopped from asserting prepetition claims

though

not disclosed

during the bankruptcy

the judicial estoppel might

defendant.

Id.
__

For

result in a

cases recognizing

this

case, even

windfall to the

proposition but

distinguishing Payless on the facts, see, e.g., In re Envirodyne

_______
___ ____ _________________
Industries, Inc., 183 B.R.
________________

812, 824 (N.D. Ill. 1995);

Systems Corporation, 178 B.R. 50, 54 (D. Del. 1995).

___________________

-8-

In re Mai
_________

court asset

for

the

was intentional, the glaring fact

investigation

appellants'

failure to

action at any

have come to

made

list

by

counsel

on the

remains that, but

for

schedule

Brooks

Drug,

the state

court

time during the bankruptcy proceedings would never

the attention

court, or the

Trustee.

of the state

As we have

court, the

already noted,

bankruptcy

appellants'

"silence" here is thoroughly "deafening."

Moreover,

court

action

argument

without

would

was

assuming

not

arguendo

precluded

not affect

under

the outcome

considering the possibility

that

appellants'

Payless,
_______

of

state

appellants'

this appeal.

Even

of dismissal under Payless,

_______

the

record nonetheless

reveals

appellants' likelihood of

430.

This, coupled

a "serious

success.

with the

question" regarding

In re Anolik,
____________

bankruptcy court's

107 B.R.

at

inquiries and

findings regarding the inconvenience and expense to the estate in

attending

the

state

court

action,

compromise would provide creditors

payment

of

illustrates

large

that

the

and

the

fact

that

the

with an immediate and certain

percentage

of

bankruptcy

court

discretion in approving the compromise.

the

outstanding

did

not

debt,

abuse

its

Id.
__

For the foregoing reasons, and having found no merit to

appellants'

other

arguments,

we affirm

decision, finding no abuse of discretion by

in its approval of the compromise.

the

district

court's

the bankruptcy court

Finally, because we view this

appeal

to

have

appellants.

been

frivolous,

we

impose

double

costs

The judgment of the district court is affirmed.

-9-

Affirmed.
________

on

-10-