Appeal from the United States District Court for the Eastern District of Pennsylvania
(D.C. Civil No. 94-01717) Argued: Tuesday, March 12, 1996
Before: NYGAARD, SAROKIN and ALDISERT, Circuit Judges
This appeal by a creditor arises from a district court judgment reversing a bankruptcy court's order disapproving a stipulation of settlement entered into by the Appellees and the trustee for the debtors that mutually released all claims between them relating to the sale of the debtors' home to the Appellees without any payment by either party.
The question for decision is whether the bankruptcy court abused its discretion by disapproving the stipulation after a jury verdict was entered in favor of the debtors and against the Appellees in a non-core proceeding in state court properly remanded there by the bankruptcy court. Eichenholtz v. Brennan, 52 F.3d 478, 487 (3d Cir. 1995) (standard of review). The district court had jurisdiction under 28 U.S.C. Section(s) 158(a), and reversed the bankruptcy court. We have jurisdiction under 28 U.S.C. Section(s) 158(d), and find no abuse of discretion by the bankruptcy court. We therefore will reverse the district court judgment.
This contest began with a mine-run dispute between parties to a real estate contract. In the spring of 1988, John and Sally Martin contracted to sell their house in Green Lane, Pennsylvania to Jo Ann Myers and Melvin Morane (hereafter jointly referred to as "the Myers"). After the contract was executed, the Myers refused to complete the purchase of the house, alleging, inter alia, that the septic system was in need of repair. Both parties eventually initiated actions in the Pennsylvania Court of Common Pleas for breach of contract; the Martins prayed for damages, and the Myers sought specific performance. In addition, the Myers filed a lis pendens against the Martins' property, preventing its sale and limiting its value as a source of loan collateral.
Because the Martins were relying on the real estate sale proceeds to service accumulated debts, this dispute caused them to suffer extreme economic hardship. Indeed, on February 12, 1992, the Martins filed a voluntary Chapter 7 bankruptcy petition. The Chapter 7 filing stayed the Myers' action, and the Martins' action became property of the estate. Both actions subsequently were labeled non-core proceedings and were remanded to the Court of Common Pleas.
The series of events that followed disclose some tension between the debtors and the trustee for the estate, or at least a fundamental breakdown in communications. The trustee announced to the bankruptcy judge on September 14, 1993, that she had reached an agreement with the Myers, resolving their dispute with the debtors, and providing for a mutual release of the two state court actions. Assuming that there was an open-ended trial date for the state court action (as this had been true for approximately a year-and-a-half), and that delay was detrimental to the estate, the trustee believed that she was acting in the best interests of the creditors by entering into this compromise. The terms were memorialized in a written stipulation of settlement filed by the trustee and the Myers on December 17, 1993. On December 23, 1993, the bankruptcy court approved the stipulation.
The Martins then filed an objection to the stipulation, on the ground that the bankruptcy court had approved the stipulation in violation of Rule 9019(a), Federal Rules of Bankruptcy Procedure, which provides:
On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement. Notice shall be given to creditors, the United States trustee, the debtor, and indenture trustees as provided in Rule 2002 and to any other entity as the court may direct.
The bankruptcy court acknowledged that its prior approval was premature, and vacated the prior approval. The bankruptcy court formally noticed the debtors and, on January 13, 1994, held a hearing ...