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Liberty Bank, F.S.B. v. D.J. Christie, Inc.

United States District Court, Tenth Circuit

December 19, 2013

LIBERTY BANK, F.S.B., Appellant,
v.
D.J. CHRISTIE, INC., et al., Appellees.

MEMORANDUM AND ORDER

CARLOS MURGUIA, District Judge.

Intervenor and party-in-interest Liberty Bank appeals from the bankruptcy court's May 17, 2013 order and judgment approving the settlement agreement between bankruptcy debtor D.J. Christie, Inc. ("Debtor"), David J. Christie, and Alexander Glenn (collectively "the Christie Parties") on the one hand and Alan E. Meyer and John R. Pratt on the other hand ("Settlement Agreement") (Doc. 8). For the following reasons, the court reverses in part, vacates the order, and remands for further proceedings.

I. FACTUAL BACKGROUND

The underlying dispute originates from a failed joint venture to build a residential housing complex. Meyer and Pratt sued the Christie Parties for damages in 2007. After a nine-day trial, the jury returned a verdict in favor of Meyer and Pratt. This court entered judgment on September 9, 2008, for, among other things, actual damages totaling $7, 170, 000.00, and punitive damages totaling $100.00 ("Initial Judgment").

The Christie Parties appealed. This court stayed execution of the judgment pending appeal upon deposit of a supersedeas bond. The Tenth Circuit affirmed the lost damages award and the punitive damages award to Meyer and Pratt in the total amount of $7, 170, 703.00, as well as the joint and several liability of the Christie Parties for that amount. The Tenth Circuit reversed and remanded other issues to this court. The mandate issued on April 25, 2011. And this court resolved the remanded issues on July 15, 2011, and entered an amended judgment ("Amended Judgment").

On May 20, 2011, Debtor commenced a Chapter 11 case. Debtor listed the Initial Judgment as a disputed claim. Debtor contended the Initial Judgment was a disputed claim because it was more than offset by Iowa judgments held by the Christie Parties against Meyer and Pratt ("the Iowa Judgments").

On July 29, 2011, Debtor commenced an adversary proceeding against, among others, Meyer, Pratt, Christie, and Glenn ("the Adversary Proceeding") to resolve whether Debtor was entitled to offset its liability to Meyer and Pratt based on the Iowa Judgments. Liberty Bank intervened in the Adversary Proceeding based on its position that an offset would negatively impact its garnishment liens against Debtor and Christie.

The following additional facts are relevant to the Adversary Proceeding:

• Bickel & Brewer. The law firm Bickel & Brewer represented Meyer and Pratt in the federal lawsuit pursuant to a March 2009 contingent-fee arrangement.
• The Payment Assignments. In June 2010, while the federal appeal was pending, Meyer assigned payment interests in the Initial Judgment in the total amount of $723, 508.71 to certain third-party creditors and filed copies of the assignments with this court ("the Payment Assignments").
• The Iowa Judgments. After the mandate issued, the Christie Parties acquired the Iowa Judgments by assignments dated April 29, 2011; May 2, 2011; May 4, 2011; and May 18, 2011. The total amount of the Iowa Judgments at the time of acquisition by the Christie Parties was $7, 402, 677.22.
• Liberty Bank's Garnishment Liens. Liberty Bank obtained two judgments against Meyer in Iowa state court in 2010. After registering those judgments in Kansas, Liberty Bank filed a Kansas state court garnishment action against Christie and Debtor in May 2011. Liberty Bank served a garnishment order against Christie on May 16, 2011, and one against Debtor on May 19, 2011. Christie and Debtor answered on May 31, 2011, asserting they had no liability to Meyer because the Initial Judgment was not final (as this court was still resolving the remanded issues) and because of offset with the Iowa Judgments.

Effective December 6, 2012, Meyer, Pratt, and the Christie Parties ("the Settling Parties") entered the Settlement Agreement. Liberty Bank is not a party to the Settlement Agreement and was excluded from settlement negotiations. Under the Settlement Agreement, the Settling Parties agree that the Iowa Judgments will be offset in full against the Amended Judgment. They also agree that the Christie Parties will pay Meyer and Pratt $1.825 million in cash.

Debtor moved the bankruptcy court to approve the Settlement Agreement. Liberty Bank objected, arguing that the Settling Parties were using the Settlement Agreement to "evade lawful obligations owed to Liberty Bank" based on its garnishment liens. The bankruptcy court approved the Settlement Agreement over Liberty Bank's objection. The bankruptcy court noted the standard for the approval of settlement agreements under Bankruptcy Procedure 9019(a). After considering the various factors under this rule, the bankruptcy court determined that "each of the four factors ...


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