
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.  John and  Marsha Jeffrey (the                    TORRUELLA, Chief  Judge.                               ____________          "appellants")  appeal   the  decision  of  the   district  court,          affirming the  bankruptcy court's decision to  compromise a claim          belonging  to  the  appellants'  Chapter 7  estate.    Appellants          contend that the bankruptcy court  abused its discretion when  it          approved the  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.   701  et seq. (1988),                                                            __ ___          and John O. Desmond, an appellee in  this case, was appointed the          Chapter  7 Trustee  (the "Trustee").   As  required by  11 U.S.C.            521(1), appellants  filed a statement of  financial affairs and          schedule  of  assets  and  liabilities.    Appellants  failed  to          schedule  as an asset, however, a pending state court action they          commenced  in 1990  against  Brooks Drug,  Inc., ("Brooks  Drug")          (also  an appellee  in this  case),  seeking damages  for alleged          discrimination against  John J. Jeffrey in  employment, under the          Massachusetts  Civil Rights Act, Mass. Gen. L. ch. 12,    11H, I,          and the Federal Civil Rights Act, 42 U.S.C   1983.1                                           ____________________          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,  127  F.2d  894,  897  (7th  Cir.  1942)                   ______________          ("[B]ankruptcy  law imposes  upon  one seeking  its benefits  the          positive  duty to schedule for  the benefit of  creditors all his          interest  and property  rights.")),  cert. denied,  488 U.S.  967                                               ____________          (1988).                                         -2-                    After the Trustee filed a Report of No Assets on May 1,          1992, appellants received  a discharge under 11  U.S.C.   727(b),          and  their  Chapter  7   case  was  closed  on  June   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  that  appellants  had  filed  for          bankruptcy or had received  a discharge without administration of          the state court action in the Chapter 7 proceedings.                      On June  10, 1993, on the eve  of trial in state court,          Brooks Drug  learned of appellants' bankruptcy  and their failure          to schedule the  state court  action.  Brooks  Drug notified  the          trial  judge of these facts  and moved to  dismiss with prejudice          the  state  court action,  on  the grounds  that  appellants were          judicially estopped  from asserting pre-petition claims that were          not disclosed  during the bankruptcy case.  Subsequently, on July          27,  1993,  the state  court stayed  the  state court  action and          ordered Brooks Drug to  notify the Trustee about its  pendency in          order to  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  state court  action.   On  March 24,          1994,  the  bankruptcy  court  granted the  Trustee's  motion  to          compromise the state court action for $10,000.  The U.S. District          Court for  the District of Massachusetts  affirmed the bankruptcy          court's  decision   on  February  17,  1995,   finding  that  the                                         -3-          bankruptcy court did  not abuse its  discretion in approving  the          compromise.                                        DISCUSSION                                      DISCUSSION                                      __________                    On an appeal from  the district court, we independently          review  the bankruptcy  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  Cir. 1991)  (collecting cases).    The approval  of a          compromise  is  within the  sound  discretion  of the  bankruptcy          judge,  however, and this court  will not overturn  a decision to          approve  a compromise absent a clear  showing that the bankruptcy          judge abused her discretion.  In re Anolik, 107 B.R. 426, 429 (D.                                        ____________          Mass.  1989)  (collecting  cases).   "The  cask  which  encases a          judge's discretion,  though commodious,  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).               ________________________                    A  bankruptcy  judge has  the  authority  to approve  a          compromise  of a claim pursuant to Bankruptcy Rule 9019(a).2  The          ultimate  issue on appeal is whether  the bankruptcy court abused                                        ____________________          2  Bankruptcy Rule 9019(a) provides as follows:                      On  motion  by the  trustee  and after  a                      hearing  on  notice  to   creditors,  the                      debtor and indenture trustees as provided                      in  Rule  2002(a)   and  to  such   other                      entities as the  court may designate, the                      court   may   approve  a   compromise  or                      settlement.                                         -4-          its  discretion when  it  approved  the  compromise, which  is  a          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).  T h e          ________________________          specific factors  which a bankruptcy court  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  litigation involved,  and the expense,  inconvenience and          delay  attending it;  and,  (iv) the  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  a  careful  review   of  the  record,  and  upon          consideration of the  briefs and  oral arguments  of counsel,  we          find  no abuse  of  discretion by  the  bankruptcy court  in  its          approval  of the  compromise.   As the  district court  held, the          record  reveals that  before  the bankruptcy  court approved  the          Trustee's   compromise  proposal,  it   spent  considerable  time          evaluating three of  the four factors set  forth in In  re Anolik                                                              _____________          when  it assessed  the  value to  the  estate of  the  compromise          proposal.                     Although  nothing  more   need  be  said,  we   respond          specifically to two of appellants' arguments.  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  contend that  the state          court action was "abandoned" to  appellants by operation of  law,          within the meaning of 11 U.S.C.   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  agree with          the district court that the alleged discussion with  the Trustee,          even if true, has no bearing on  the outcome of this appeal.  The          law is abundantly clear that the burden is on the debtors to list          the asset and/or  amend their  schedules, and that  in order  for          property  to  be abandoned  by operation  of  law pursuant  to 11          U.S.C.   554(c),  the debtor must formally schedule  the property          pursuant to  11 U.S.C.    521(1)  before the close  of the  case.          See, e.g.,  In re Rothwell,  159 B.R.  374, 377 (Bankr.  D. Mass.          ___  ____   ______________          1993).3                                        ____________________          3   Furthermore, by operation of 11  U.S.C.   554(c) and (d), any          asset  not properly  scheduled remains  property of  the bankrupt          estate, and  the debtor loses all rights to enforce it in his own          name.   Vreugdenhill  v. Navistar  Int'l Transportation  Co., 950                  ____________     ___________________________________          F.2d 524, 526  (8th Cir. 1991)  (Chapter 7 debtor  who failed  to          schedule  potential  claim  cannot  prosecute  the  claim   after          emerging from bankruptcy).                                         -6-                    What matters  here is not what the  appellants or their          counsel said,  it is  what they  did or,  rather, failed to  do.4          The state court action was not  scheduled as an asset at any time          during the bankruptcy proceedings.  There   is  simply   no  such          concept  of  "assumed  abandonment,"  which  is  essentially what          appellants ask us to find.  Id. (citing Vreugdenhill, 950 F.2d at                                      __          ____________          526 ("It  is not enough that  the trustee learns  of the property          through other means;  the property must be scheduled  pursuant to          [11 U.S.C.]    521(1).")); see also In re  Medley, 29 B.R. 84, 86                                     ________ _____________          (Bankr.  M.D. Tenn. 1983) (court does not have to address factual          question of  trustee's knowledge because    554 makes  clear when          abandonment  occurs).   Neither  the  bankruptcy  court, nor  the          district  court,  abused  their  discretion  when  they  rejected          appellants' abandonment claim.5                     Second, appellants  contend that because  their alleged          oral  disclosure  disproves any  intent  to commit  fraud  on the                                        ____________________          4  We note, again,  that throughout the state court  action begun          in 1990 and the  Chapter 7 proceedings begun in  1992, appellants          were represented by the same attorney.  This fact alone amplifies          "'the  silence'  in  [appellants'] bankruptcy  record  concerning          [their  state  court   action],  [which]  as  they   say  in  the          vernacular, 'is deafening'."   Payless, 989 F.2d at  571 (quoting                                         _______                    _______          Oneida Motor Freight, 848 F.2d at 417).           ____________________          5  In  a similar vein, appellants  also contend that their  state          court action  would be exempt from  the Chapter 7 estate.   It is          well settled in this Circuit  that "theories not raised  squarely          in the  district court cannot be  surfaced for the  first time on          appeal." McCoy v. Massachusetts Institute of Technology, 950 F.2d                   _____    _____________________________________          13, 22  (1st Cir.  1991).   We therefore  treat this  argument as          unpreserved  for appellate  review.   Id. at  22 ("If  claims are                                                __          merely insinuated  rather than actually articulated  in the trial          court, we  will  ordinarily refuse  to  deem them  preserved  for          appellate review.").                                          -7-          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  of whether  Payless, by                                                                _______          itself, would justify dismissal,  we find no abuse of  discretion          by  the bankruptcy  court  when it  found  that there  was  "some          likelihood" Brooks Drug would  prevail in state court based  on a          Payless defense.  In addition, we find no abuse of  discretion by          _______          the bankruptcy  court when it took Payless  into consideration as                                             _______          one of the factors it weighed when  it assessed the likelihood of          appellants'  success were  appellants to  proceed with  the state          court action.                    We  merely add  that  appellants'  argument  that  they          brought  the  state  court  action  to  the  Trustee's  attention          completely overlooks both the importance of the Bankruptcy Code's          disclosure requirements  and the fact that  appellants signed the          schedules under penalties of  perjury.  Oneida, 848 F.2d  at 416;                                                  ______          In re Giguere,  165 B.R.  531, 536 (D.R.I.  1994).   Furthermore,          _____________          whether or not appellants' initial  failure to schedule the state                                        ____________________          6   In Payless we held  that where a debtor  obtains relief under                 _______          Chapter 11  of the Bankruptcy  Code based on  his representations          under penalty of  perjury that he had no  assets other than those          scheduled, that debtor is judicially estopped from asserting pre-          petition claims  not disclosed  during the bankruptcy  case, even          though  the judicial estoppel might  result in a  windfall to the          defendant.    Id.   For  cases recognizing  this  proposition but                        __          distinguishing Payless on the facts, see, e.g., In  re Envirodyne                         _______               ___  ____  _________________          Industries, Inc., 183 B.R.  812, 824 (N.D. Ill. 1995);  In re Mai          ________________                                        _________          Systems Corporation, 178 B.R. 50, 54 (D. Del. 1995).            ___________________                                         -8-          court asset  was intentional, the glaring fact  remains that, but          for  the   investigation  made   by  counsel  for   Brooks  Drug,          appellants'  failure to  list  on the  schedule  the state  court          action at any  time during the bankruptcy proceedings would never          have come to  the attention  of the state  court, the  bankruptcy          court, or the  Trustee.   As we have  already noted,  appellants'          "silence" here is thoroughly "deafening."                     Moreover,  assuming  arguendo  that  appellants'  state          court  action  was  not   precluded  under  Payless,  appellants'                                                      _______          argument  would  not affect  the outcome  of  this appeal.   Even          without  considering the possibility  of dismissal under Payless,                                                                   _______          the  record nonetheless  reveals  a "serious  question" regarding          appellants' likelihood of  success.   In re Anolik,  107 B.R.  at                                                ____________          430.   This, coupled  with the  bankruptcy court's  inquiries and          findings regarding the inconvenience and expense to the estate in          attending  the  state  court  action,  and   the  fact  that  the          compromise would provide creditors  with an immediate and certain          payment  of   a  large   percentage  of  the   outstanding  debt,          illustrates  that   the  bankruptcy  court  did   not  abuse  its          discretion in approving the compromise.  Id.                                                   __                    For the foregoing reasons, and having found no merit to          appellants'  other  arguments,  we affirm  the  district  court's          decision, finding no abuse of discretion by  the bankruptcy court          in its approval of the compromise.  Finally, because we view this          appeal  to  have  been  frivolous,  we  impose  double  costs  on          appellants.  The judgment of the district court is affirmed.                                         -9-                    Affirmed.                    ________                                         -10-
