John P. Lovejoy and Kathryn E. McInnis

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
JOHN P. LOVEJOY and KATHRYN E. McINNIS, No. 04-11490
Debtor(s).
______________________________________/
Memorandum re Objection to Compromise
_________________
Debtor John Lovejoy and creditor Peter Cho are both medical doctors. At one time, they were
partners in a medical practice before a dispute and litigation arose between them. Lovejoy and his wife
filed their Chapter 11 petition on June 18, 2004.
Lovejoy languished in Chapter 11 for over a year without obtaining confirmation of a plan.
During that time, the court became convinced that Lovejoy was using the Chapter 11 process to facilitate
his feud with Cho, which was pending in state court. It did not appear that Lovejoy had any regard for
his creditors or his bankruptcy estate. He did not appear capable of a rational and dispassionate
evaluation of his legal position, and caused the estate to incur large legal bills fighting Cho both before
this court and in state court.
In August, 2005, the court rejected Lovejoy’s proposed plan of reorganization and confirmed a
plan proposed by Cho. This plan called for appointment of a Liquidating Trustee to manage the
bankruptcy estate and binding arbitration to resolve the pending legal disputes. The plan specifically
provides that the Liquidating Trustee shall “[r]epresent the interests of the estate in the partnership
Entered on Docket
December 12, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 04-11490 Doc# 160 Filed: 12/12/05 Entered: 12/12/05 12:11:16 Page 1 of
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dissolution arbitration and arbitration of related issues with the power to compromise or otherwise
liquidate interests of the Debtors therein . . .”
The Liquidating Trustee appears to have properly undertaken his responsibilities, and has
retained competent counsel to represent him and a qualified accountant to advise him regarding the
financial issues involved in the case. He has entered into a compromise with Cho whereby Cho would
receive all of the estate’s partnership interest for a cash payment of $75,000.00 and waiver of any right
to payment of administrative expenses (of which $26,200.00 has already been approved), payment of all
expenses of partnership dissolution including the state-court-appointed receiver, and release of all
claims against the estate except for an unsecured claim reduced to $18,000.00. True to form, Lovejoy
has objected.
Lovejoy’s objection nowhere states that the compromise reached by the Liquidating Trustee is
unreasonable. He only carts out the same “battle of the accountings” the court has heard about for a year
and a half, seeming to expect that the court should reject the compromise because he has claims against
Cho which may be valid. The court has many more things to take into account, as Lovejoy should have
when he was debtor in possession. These include the costs of further litigation, the certainty of victory
(always overstated by Lovejoy), the reasonableness of the settlement, tax consequences, and numerous
other matters which go into determining if a compromise is prudent.
The Liquidating Trustee’s response demonstrates that he has diligently analyzed the estate’s
position, including all information provided by Lovejoy. The Liquidating Trustee’s accountant does not
agree with Lovejoy’s position. However, more importantly, the Liquidating Trustee has concluded that
the possibility that Lovejoy is correct is inadequate to justify expensive litigation over complicated
accounting issues. It is this determination, which Lovejoy has never made, which is at the heart of
approval of a compromise, not whether one position or another is right or wrong. The L:iquidating
Trustee has listened to Lovejoy’s accountant, Cho’s accountant and his own independent accountant. He
has made a determination that the compromise he has reached with Cho is better for the estate than
litigating the issues, taking into account both the expense involved and the odds of prevailing. He also
Case: 04-11490 Doc# 160 Filed: 12/12/05 Entered: 12/12/05 12:11:16 Page 2 of
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fears, with good reason, that the estate could end up administratively insolvent due to possible tax
consequences. His analysis appears to the court to be well-informed and sound.
Moreover, Lovejoy’s standing to oppose the compromise is doubtful. He concedes that there
will be no surplus, so rejection of the compromise and litigation of the disputed issues will not result in
an economic benefit to him. He merely wishes, as he did for over a year before his affairs were vested
in the Liquidating Trustee, to use his scant estate resources to pursue his personal issues with Cho. The
Liquidating Trustee, recognizing that this is not in the best interests of the estate, has rejected continued
litigation in favor of a reasonable compromise.
For the foregoing reasons, Lovejoy’s objection will be overruled and the compromise will be
approved. Counsel for the Liquidating Trustee shall submit an appropriate form of order.
Dated: December 12, 2005
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 04-11490 Doc# 160 Filed: 12/12/05 Entered: 12/12/05 12:11:16 Page 3 of
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