Nancy Akbari-Shahmirzadi and Associated Case in US District Court

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
NANCY AKBARI-SHAMIRZADI, 	Case No. 11-15351-ta7
Debtor.
MEMORANDUM OPINION
Before the Court is a motion to approve a settlement of the estate’s claims against one of
the Debtor’s former lawyers. The Debtor objected to the settlement, arguing that the estate has a
valuable malpractice claim against the attorney, so the proposed consideration is inadequate.
The movant disagrees, asserting that the malpractice claim is worthless. The Court held a final
hearing on the motion on April 10, 2015. For the reasons set forth below the Court will approve
the settlement.
I. 	FACTS
The court finds1 the following facts:2
1 To the extent any finding of fact is construed as a conclusion of law, it is adopted as such, and
vice versa. The Court may make additional findings of fact and conclusions of law as it deems
appropriate or as may be requested by any of the parties.
2 In making these findings, the Court took judicial notice of the docket. See St. Louis Baptist
Temple, Inc. v. Fed. Deposit Ins. Corp., 605 F.2d 1169, 1172 (10th Cir.1979) (holding that a
court may, sua sponte, take judicial notice of its docket); LeBlanc v. Salem (In re Mailman Steam
Carpet Cleaning Corp.), 196 F.3d 1, 8 (1st Cir.1999) (citing Fed.R.Evid. 201 and concluding
that “[t]he bankruptcy court appropriately took judicial notice of its own docket”); In re Quade,
496 B.R. 520, 524 (Bankr.N.D.Ill.2013), affirmed, 498 B.R. 852 (N.D. Ill. 2013) (a “bankruptcy
court [is authorized] ... to take judicial notice of its own docket”).
Case 11-15351-t11 Doc 326 Filed 05/15/15 Entered 05/15/15 15:16:36 Page 1 of 10

-2-
Debtor commenced this case as a voluntary Chapter 7 case on December 14, 2011.3
Debtor’s major creditor, the Estate of Eleanor Jacoby (the “Jacoby Estate”)4 promptly filed an
adversary proceeding seeking a determination that its debt was nondischargeable, and also
objecting to entry of a general discharge. 	The United States Trustee’s office (“UST”) filed a
separate § 727 proceeding. 5
Debtor’s attorney, Steven “Tal” Young (“Young”), filed a motion to convert the case to
Chapter 11 on June 21, 2013. The case trustee and the Jacoby Estate objected, and over the next
several months Young negotiated a settlement of the contested matter. A settlement was reached
and the following terms were read into the record at an October 8, 2013 hearing:
• 	Debtor would waive her Chapter 7 discharge;
• 	The case would be converted to Chapter 11;
• 	Debtor would waive her Chapter 11 discharge;
• 	Debtor would not object to the validity of the Jacoby Estate claim,
but reserved the right to verify the claim amount, as there might have been
uncredited payments;
• 	Debtor reserved the right to object to the interest rate of the Jacoby
Estate claim;
• 	Debtor, in her capacity as managing member of limited liability
companies she owns, would sign deeds conveying five parcels of improved real
property in Las Cruces, New Mexico (two commercial properties, two rental
properties, and her personal residence) to the bankruptcy estate, within ten days
after conversion to Chapter 11 (together, the “Real Property”);
• 	Debtor would employ Thomas Whatley of Steinborn & Associates
to market the Real Property;
• 	The order of conversion would represent that Debtor has in her
possession all of the personal property sought in the turnover action (12-1021),
which would be stayed but not dismissed.
• 	The Jacoby Estate’s § 523/727 adversary proceeding would be
dismissed;
3 Steve Mazer was Debtor’s counsel when the case was filed. 	The Debtor terminated Mr.
Mazer’s services and then retained Steven “Tal” Young and Ron Holmes in about June, 2013.
Young entered his appearance in the Chapter 7 case on June 24, 2013. He apparently received a
$12,000 retainer. No order authorizing the estate to employ Young was ever entered.
4 The Jacoby Estate’s unsecured claim was about 70% of the unsecured claims pool when a plan
of liquidation was confirmed in this case.
5 Unless otherwise stated, all statutory references are to Title 11 of the United States Code.
Case 11-15351-t11 Doc 326 Filed 05/15/15 Entered 05/15/15 15:16:36 Page 2 of 10

-3-
• 	The 	U.S. 	Trustee’s 	§ 	727 	adversary 	proceeding 	would 	be
dismissed;
• 	If the case were reconverted, the same Chapter 7 trustee would be
reappointed;
• 	Any plan of reorganization/liquidation the Debtor filed would
contain the following provisions:
o 	The Debtor would follow Mr. Whatley’s recommendations
about pricing and marketing the Real Estate;
o 	The Debtor would agree to reductions to the listing prices if
the properties did not sell within six to nine months;
o 	The Debtor would agree to minimum acceptable prices for
each parcel;
o 	Within ten days of the sale of any parcel of Real Property,
the Debtor would distribute the net proceeds to creditors, pro rata;
o 	The Debtor agreed to payment of reasonable Chapter 7
trustee fees, and also to reasonable compensation to the Chapter 7 trustee’s
counsel. Such fees would be paid on confirmation;
o 	If there was a surplus after paying unsecured creditor
claims, unsecured creditors would be paid interest at .18%; and
o 	The Debtor’s personal residence would be sold only if the
other property did not sell for enough to pay creditors in full. 	Pricing for the
Debtor’s house would follow the same procedure as price for the other real estate
(i.e. dropping price after six to nine months).
At the hearing, Young said he would get a plan filed “fairly soon,” albeit after he had set a bar
date and sought to retain an accountant.
On November 13, 2013 the Court entered a Stipulated Order on Debtor’s Motion to
Convert Case to a Case Under Chapter Eleven. 	Nine days later the Court entered a Stipulated
Order Converting Case to a Case Under Chapter Eleven. The orders reflect many but not all of
the terms agreed to at the October 8, 2013 hearing.6
The Debtor’s reorganization faltered after conversion to Chapter 11. 	She and Young
parted ways, acrimoniously, on February 22, 2014.7 She decided to continue pro se. She did not
file an application to retain Mr. Whatley until March 6, 2014, almost five months after the
6 For example, the agreement about what Debtor’s plan would contain is not in the orders.
7 Ronald Holmes, another lawyer Debtor had sought to retain in this case, moved to withdraw on
February 22, 2014 also. After termination, Young applied his $12,000 retainer to his fees.
Case 11-15351-t11 Doc 326 Filed 05/15/15 Entered 05/15/15 15:16:36 Page 3 of 10

-4-
settlement hearing. 	She never sought to fix a bar date or retain an accountant. 	Her operating
reports did not contain adequate information. 	Perhaps most importantly, she did not file a plan
of reorganization by March 24, 2014, so her § 1121(c)(2) “exclusivity” period expired.8
On April 10, 2014, the Jacoby Estate filed a liquidating plan. Debtor filed a plan on May
5, 2014. Both plans were amended and ultimately sent out to creditors for voting. Debtor’s plan
received no accepting votes and could not be confirmed. 	The Court confirmed the Jacoby
Estate’s Plan on October 27, 2014. 	Under the plan, Philip Montoya was appointed the
Liquidating Trustee (the “Trustee”) of the Debtor’s bankruptcy estate.
The Debtor asserts that Young committed malpractice while representing her. She gives
the following instances of alleged malpractice:
• 	He did not advise her that property held by a limited liability
company (“LLC”) could not be reached by the creditors of an LLC’s member;
• 	He did not tell her that the case could be reconverted to Chapter 7,
and/or did not insist that reconversion be prohibited as part of the settlement;
• 	He did not tell her that another party would be able to file a plan of
liquidation in her case when the “exclusivity” period set out in § 1121(c)(2) ends.
She apparently was under the impression that she should have had the exclusive
right to file and confirm a plan; and
• 	He neglected to insist on a settlement term that the Real Estate
must continue to be managed by her husband’s management company, Mesquite
Realty LLC.
The Trustee reviewed the allegations and disagrees with the Debtor. In his view:
• 	The LLC assets in question could be obtained using the fraudulent
transfer statutes;
• 	He never would have agreed to a bar on reconversion;
• 	He never would have agreed that only Debtor could file a plan of
reorganization or liquidation;
• 	He had a very strong opposition to Debtor’s motion to convert, and
8 On March 24, 2014, Debtor filed a Motion to Extend Time for Filing of a Final Chapter 11
Plan. Nowhere in the motion did the Debtor ask that exclusivity be extended. The Jacoby Estate
had filed a plan before the hearing on the motion to extend. 	At the hearing, the Court set
deadlines for the Debtor to file a plan, so that her plan and the Jacoby Estate plan could be on the
same confirmation track. The Court did not extend the § 1121(c)(2) exclusivity period.
Case 11-15351-t11 Doc 326 Filed 05/15/15 Entered 05/15/15 15:16:36 Page 4 of 10

-5-
would not have given up more than he did to settle the conversion motion; and
• 	With respect to the agreement to sell Debtor’s house last, that was
a term of the deal even if not reflected in the Conversion Order, and in any event
is part of the plan of liquidation.
• 	The Debtor would be a poor witness, lacking credibility;
• 	It would be difficult to retain a good lawyer on any basis,
especially on a contingent fee. 	The claim is too weak to pursue on an hourly
basis;
• 	The estate would have to retain a good expert witness, which
would be hard to do and very expensive;
• 	The estate does not have much ready cash to devote to a lawsuit;
• 	The Debtor suffered no damages because of Young’s actions or
inactions.
According to the Trustee’s counsel, at one point Debtor urged the Trustee to pursue the
malpractice claim because Young had insurance.9 The Trustee’s counsel testified that he would
never bring a meritless claim simply to “get some of the insurance company’s money.”
The Trustee negotiated with Young about the estate’s outstanding claims against him and
reached an agreement, subject to Court approval. 	Under the settlement, Young would pay the
estate $12,000 in full satisfaction of all estate claims against Young, including the claim for the
$12,000 retainer, the Fed.R.Bankr.P 2017 claim for the return of “excessive” payments, and any
malpractice claims.
Debtor objects to the proposed settlement because it releases any malpractice claims. She
believes such claims have substantial value, not adequately reflected in the settlement price of
$12,000.
9 The Debtor did not dispute this assertion.
Case 11-15351-t11 Doc 326 Filed 05/15/15 Entered 05/15/15 15:16:36 Page 5 of 10

-6-
The Trustee offered several times to sell Debtor all of the estate’s claims against
Young.10 Surprisingly, the Debtor declined to offer even $12,001, saying she was “not
interested.”11 The Debtor insists, nevertheless, that the Trustee pursue the malpractice claim.
The UST also objected to the settlement to the extent it would preclude the UST from
reviewing and possibly objecting to Young’s attorney fees charged to the estate in this case.
That objection has been resolved.
II. 	DISCUSSION
A. 	Rule 9019(a).
Federal Rule of Bankruptcy Procedure 9019(a) “allows a court, after notice and a
hearing, to approve a compromise or settlement of a claim belonging to the bankruptcy estate,
including a debtor's cause of action against a third party.” 	In re Brutsche, 500 B.R. 62, 70
(Bankr. D.N.M 2013). 	“Compromises are favored in bankruptcy.” 	9 Collier on Bankruptcy
¶ 9019.03[1] (15th ed. 1993). “The purpose behind compromises ‘is to allow the trustee and the
creditors to avoid the expenses and burdens associated with litigating sharply contested and
dubious claims.’” Korngold v. Loyd (In re S. Med. Arts Cos. Inc.), 343 B.R. 250, 255 (10th Cir.
BAP 2006) (quoting Martin v. Kane (In re A & C Props.), 784 F.2d 1377, 1380–81 (9th Cir.
1986)).
The party seeking approval of a compromise bears the burden of showing “that the
proposed settlement is fair, equitable, and in the best interests of the estate.” In re Brutsche, 500
B.R. at 70. A court’s decision to approve a compromise “must be an informed one based upon
10 The Liquidating Trustee proposed that, if Debtor agreed to pay $12,001 for all claims, an
auction could be arranged whereby the Debtor could bid against Young for the claims.
11 In her email correspondence with the Trustee, Debtor stated that she did not have the money to
buy the claim. 	In her testimony, however, she stated that she could raise the money if needed,
but that she was not interested in buying the claims.
Case 11-15351-t11 Doc 326 Filed 05/15/15 Entered 05/15/15 15:16:36 Page 6 of 10

-7-
an objective evaluation of developed facts.” 	Reiss v. Hagmann, 881 F.2d 890, 892 (10th Cir.
1989). However, the Court need not engage in a mini-trial addressing the merits of the proposed
compromise. 	See Ars Brook, LLC v. Jalbert (In re Servisense.com, Inc.), 382 F.3d 68, 71–72
(1st Cir. 2004) (the responsibility of the bankruptcy judge is to canvass the issues and see
whether the settlement is within the range of reasonableness).
B. 	The Kopexa Factors.
In approving a compromise under Rule 9019(a), a court must consider “(1) the probable
success of the underlying litigation on the merits, (2) the possible difficulty in collection of a
judgment, (3) the complexity and expense of the litigation, and (4) the interests of creditors in
deference to their reasonable views.” 	Kopp v. All Am. Life Ins. Co., (In re Kopexa Realty
Venture Co.), 213 B.R. 1020, 1022 (10th Cir. BAP 1997) (citations omitted); In re Log
Furniture, Inc., 257 Fed. Appx. 101, 103 (10th Cir. 2007) (citing In re Kopexa).
1. 	Probability of Success. 	The estate’s malpractice claim against Young has a
number of substantial problems, including:
• 	Young faced a difficult situation when he was retained in the case. 	He had a weak
negotiating position because of Debtor’s pre- and post-petition conduct. Young ended up
with what appears to be a reasonable agreement, all things considered;
• 	The Debtor, who would have to be the estate’s main witness, lacks credibility and likely
would not appeal to a state court judge or jury;
• 	The Debtor, an attorney, would be held to a higher standard than most clients;
• 	The Debtor retained and then fired three bankruptcy lawyers;
• 	It is difficult to see how the estate would be able to prove any substantial damages;
• 	It would be hard to find a good lawyer to take the case on a contingent fee;
• 	Finding and paying an expert witness would not be easy;
• 	The Debtor’s actions after firing Young caused most or all of her problems, e.g., failing
to file a plan within her exclusivity period.
The Debtor’s refusal to purchase the claim herself, even though she testified that she
could obtain the funds to do so, further highlights the claim’s weakness. The Court is persuaded
Case 11-15351-t11 Doc 326 Filed 05/15/15 Entered 05/15/15 15:16:36 Page 7 of 10

-8-
that the probability of success in litigation on the merits is quite low.12 This factor weighs in
favor of settlement.
2. 	Collection Risk. If the estate got a judgment against Young, collection should not
be difficult because of Young’s professional liability insurance. 	This factor weighs against the
settlement.
3. 	Complexity and 	Expense. 	The malpractice 	claim 	against 	Young is 	fairly
complex. 	The reasonableness of Young’s advice and conduct is open to interpretation. 	This is
particularly true given that the Debtor is an experienced attorney (albeit not a bankruptcy
lawyer), and would be held to a higher level of knowledge and sophistication than the average
client. For example, Debtor’s argument that Young should have told her that LLC assets are not
available to creditors of LLC members is substantially weakened by the fact that she should have
known it anyway—it is an elementary facet of corporate law. 	Similarly, Debtor should have
read the Conversion Order and made sure it contained all the settlement terms important to her.
Proof of damages would be complicated and problematic. 	The Trustee would have to
argue, in effect, that his efforts to liquidate estate assets will result in a lower return than if the
Debtor had remained in control; a difficult position to take, and completely at odds with the
Trustee’s actual view. Further, the difference would have to be quantified.
Litigation would be expensive. It is unlikely that a good malpractice attorney would take
the case on a contingency, so the estate likely would have to pay a lawyer by the hour.13 In
addition, the estate would have to retain an expert witness. 	Finding such an expert would be
difficult and expensive.
12 The Court agrees wholeheartedly with Trustee’s counsel that no claim should ever be asserted
simply because the target is insured.
13 The Debtor argues she could litigate the case herself. 	The Court believes it would be very
inadvisable for the estate to retain the Debtor to pursue the claim.
Case 11-15351-t11 Doc 326 Filed 05/15/15 Entered 05/15/15 15:16:36 Page 8 of 10

-9-
Overall, the court finds that this factor weighs in favor of settlement.
4. 	Interests of Creditors. 	The largest creditor in the case favors the proposed
settlement. No other creditor expressed a view. This factor weighs in favor of the settlement.
Taken as a whole, the Kopexa factors decidedly weigh in favor of the proposed
settlement. 	Any judgment obtained likely would be collectible, but the remaining factors favor
settlement. 	Given all of the evidence, the Court is convinced that the malpractice claim is of
little or no merit and has little or no value. 	Such claims are burdensome and stressful for all
parties and should not be brought unless they have substantial merit, with substantial damages.
If the Debtor wanted to preserve the claims against Young, she should have bought them
from the Trustee. 	She chose not to, for reasons that are difficult to fathom. 	Debtor cannot be
heard to complain when the Trustee makes the same decision she did.
III. 	CONCLUSION
Of the four Kopexa factors, three weigh strongly in favor of settlement. 	Based on this
analysis, the Court finds that the proposed settlement with Young is fair, equitable, and in the
best interest of creditors. A separate order will be entered approving the settlement.
___________________________
Hon. David T. Thuma
United States Bankruptcy Judge
Entered: May 15, 2015
Copies to:
George M Moore
3800 Osuna Rd NE, Ste. #2
Albuquerque, NM 87109
Case 11-15351-t11 Doc 326 Filed 05/15/15 Entered 05/15/15 15:16:36 Page 9 of 10

-10-
Nancy Akbari-Shahmirzadi
540 North Mesquite St.
Las Cruces, NM 88001
Alice Nystel Page
P.O. Box 608
Albuquerque, NM 87103
Case 11-15351-t11 Doc 326 Filed 05/15/15 Entered 05/15/15 15:16:36 Page 10 of 10