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In re Schneider

United States District Court, Eastern District of New York

March 26, 2015

IN RE LYNN CAROL SCHNEIDER, Debtor.

Lynn Carol Schneider Pro Se Appellant

David Blansky Gary F. Herbst LaMonica Herbst & Maniscalco, LLP Attorneys for Appellee

MEMORANDUM & ORDER

JOAN M. AZRACK UNITED STATES DISTRICT JUDGE

Pro se appellant-debtor Lynn Carol Schneider (“Debtor”) appeals from a decision of the United States Bankruptcy Court (Eisenberg, J.) (“the Bankruptcy Court”), approving a $300, 000 settlement (“2013 Settlement”) between the appellee, Chapter 7 Trustee R. Kenneth Barnard (the “Trustee”), and the defendants in a pre-petition employment discrimination lawsuit brought by Debtor. The Bankruptcy Court approved the 2013 Settlement after previously rejecting a $150, 000 settlement of the discrimination claim (“2008 Settlement”). For the reasons set forth below, the Bankruptcy Court’s Order approving the 2013 Settlement is affirmed.

I. BACKGROUND

The following background is derived from the parties’ briefs and the bankruptcy record designated on appeal. Familiarity with the record and parties’ arguments is assumed.

A. The Debtor’s Pre-Petition Discrimination Lawsuit and Bankruptcy Case

In March 1997, Debtor filed a discrimination complaint with the New York State Division of Human Rights (the “Division”) charging Long Island Forum for Technology (“LIFT”), Richard Cordani, (collectively, “LIFT defendants”) and another defendant with sexual harassment and retaliation (hereinafter the “Discrimination Claim”). (Mar. 2007, Alt. Proposed Order (“Mar. 2007 Order”) at 1, Mason’s 2008 Objections, Ex. 1, ECF No. 1-5.) In July 2000, Debtor retained attorney Elizabeth Mason to represent her in the litigation on a contingency basis. (Retainer, Mason’s 2008 Objections, Ex. 6, ECF No. 1-5.)

In September 2004, during the pendency of the Discrimination Claim, Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. (Appellee’s Br. at 4, ECF No. 11). Although Debtor was required to disclose any assets and liabilities that she held at that time, she failed to disclose the Discrimination Claim in her petition and during the Section 341 meeting of the creditors. (See generally Voluntary Pet., ECF No. 1-1; Appellee’s Br. at 4.) Due to those omissions, the Trustee recommended a no-asset discharge. (2008 Mot. to Compromise at 5, ECF No. 1-4.) In January 2005, the Bankruptcy Court granted the discharge and closed the case. (Id.)

In January 2006, a hearing on the Discrimination Claim was held before Administrative Law Judge Robert M. Vespoli (the “ALJ”). (See Mar. 2007 Order.) The ALJ issued a recommended order finding that LIFT had retaliated against Debtor but had not subjected her to a sexually-harassing hostile work environment. (May 2008 Wenger Affirm. ¶ 8, ECF No. 1- 12).[1] In March 2007, the Division’s Adjudication Counsel issued an Alternative Proposed Order (hereinafter the “March 2007 Order”). Unlike the recommended order, the March 2007 Order sustained both the sexual harassment and retaliation claims. (Mar. 2007 Order at 25.) In April 2007, the Division adopted the March 2007 Order with some corrections and awarded Debtor approximately $500, 000 in damages (hereinafter the “2007 Determination”).[2] (See generally In the Matter of Long Island Forum for Tech., v. NYS Div. of Human Rights, 925 N.Y.S.2d 535 (2d Dep’t App. Div. 2001), Mason Pre-2013 Hr’g Objections, Ex. D, ECF No. 1-25). LIFT defendants appealed that determination.

In November 2007, the Trustee learned of the 2007 Determination and successfully moved to reopen Debtor’s bankruptcy case to administer the Discrimination Claim. (See Order Reopening Debtor’s Chapt. 7, ECF No. 1-3.) In 2008, the bankruptcy case was reassigned to Judge Dorothy Eisenberg, who presided over the case until March 2014. (See Bankr. Dkt, ECF No. 1-34.)

B. 2008 Settlement

After the Trustee identified several potential weaknesses with the Discrimination Claim, the Trustee agreed to settle with LIFT defendants for $150, 000 and sought court approval pursuant to Bankruptcy Rule 9019. (See 2008 Mot. to Compromise.) In June 2008, after additional briefing was submitted at the Bankruptcy Court’s request, the Court heard argument on the Trustee’s motion. (2008 Mason Mem. at 1, ECF No. 1-17; June 2008 Settlement Hr’g (“2008 Hr’g”), at 2, ECF No. 1-23.) LIFT defendants supported the motion and pointed out that the Division’s 2007 Determination was not “well-reasoned” as demonstrated by the differences between the ALJ’s recommended order and the March 2007 Order. (See supra at 2-3.) Debtor, Mason, and Alfred Dimino from the Office of the United States Trustee (“UST Dimino”) opposed the settlement.[3]

The Bankruptcy Court denied the Trustee’s motion. (2008 Hr’g at 36-39.) The Court found: (1) that there was “no reasoned determination” as to why a $150, 000 settlement would be reasonable; (2) the Debtor’s interests were not accounted for; and (3) the risk of an appeal was “worth taking.” (Id. at 37-39.)

Following the hearing, the Trustee retained Mason as special counsel to oppose the 2007 Determination appeal. (Order on Appl. to Employ, ECF No. 1-22.) In April 2012, the Division issued a final order confirming the $500, 000 damage award against LIFT defendants. (Appellee Br. at 5.) LIFT defendants appealed that determination.

C. 2013 Settlement

In 2013, the Trustee and LIFT defendants agreed on a revised $300, 000 settlement. (2013 Mot. for Compromise, ECF No. 1-24.) In November 2013, the Trustee sought court approval of the settlement. (Id.) At that time, the unsecured creditors’ claims totaled approximately $40, 000. (2013 Hr’g at 11.) Neither the unsecured creditors nor the Division objected to the settlement. (Appellant Br. at 8-9.)

In December 2013, the Bankruptcy Court heard argument on the Trustee’s motion. (2013 Hr’g at 2.) The Trustee asserted, among other things, that the new agreement took into account the benefit to Debtor and the likelihood of success on the merits of the Discrimination Claim appeal. (Id. at 8.) According to the Trustee, it was only after “substantial negotiations” with LIFT defendants that the parties reached what the Trustee characterized as “a very reasonable number under the circumstances and in the face of this ...


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