Automated Finance Corporation

- 1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re:
Automated Finance Corporation,
Debtor(s).
Case No: 1:08-bk-14339-MT
Chapter: 7
MEMORANDUM OF LAW
Re: Flagstar Bank’s Motion for Reconsideration
of Order Approving Settlement Agreement
Date: November 18, 2009
Time: 10:00 AM
Location: Courtroom 302
I. Issue
Flagstar bank’s (“Flagstar”) motion presents the issue should the court clarify an order
approving a settlement agreement or should the court reconsider the order approving the
settlement agreement. As discussed below, clarification and/or reconsideration is not proper in
this case.
II. Background
In July of 2008, a number of creditors filed an involuntary petition against Automated
Finance Corporation (“debtor” or “Automated Finance”). Automated Finance was in the home
loan business: investing in properties, lending money to borrowers, selling loans and deeds of
trust to lending institutions. The petitioning creditors alleged that Automated Finance failed to
repay loans made to the company. Debtor stipulated to relief and the court subsequently
appointed David Seror (“trustee”) as trustee for the estate. Trustee Seror almost immediately
filed an adversary proceeding to bring Automated Finance’s principal, Nurit Petri, into the
FILED & ENTERED
DEC 22 2009
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	marshall
Case 1:08-bk-14339-MT Doc 351 Filed 12/22/09 Entered 12/22/09 11:57:39 Desc
Main Document Page 1 of 9

- 2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
estate. Ms. Petri heavily contested this proceeding. The parties eventually stipulated to bring
Ms. Petri and other related companies into the estate. The settlement came up for court
approval on September 16, 2009.
The settlement had many provisions. As part of the settlement, Ms. Petri would pay the
trustee $150,000 plus proceeds from the sale of liquor licensees. Trustee did not require that
Ms. Petri file schedules, the trustee agreed not to object to discharge, and Ms. Petri exempted
partially disclosed interests in income, clothes, cars, jewelry. Paragraph 7(e) of the agreement
states that the order approving the agreement shall be controlling regarding the exemptions to
the exempt property and shall be binding on the trustee, any successor trustee, as well as on
all creditors and interested parties of the Debtor and consolidated parties.
Many parties objected to the agreement. Flagstar did not object. One party, the Dalpes,
objected to the exemptions. The Dalpes objected to the amount of property that the trustee
agreed to exempt and to the limited disclosure of what property Ms. Petri retained. No party
brought up the issue of whether the exemptions would prevent creditors with non-
dischargeable judgments from collecting against exempt property. The court considered the
objections but determined that the trustee met the test laid out in A&C Properties. In approving
the settlement, the court made sure that creditors could file non-dischargeability actions and
could object to Ms. Petri’s discharge. The court made clear that the proposed settlement
settled claims between the trustee and Ms. Petri. On October 9, 2009, the court issued the
order approving the settlement. The order did not mention the exemptions and the issue of
whether creditors could object to the exemptions in the future was never directly ruled on.
On October 15, 2009, Flagstar Bank filed a motion to reconsider/clarify the order
approving the settlement agreement.
III. Clarification
Flagstar argues that the court must clarify the order, because the settlement and order
are ambiguous as to the scope of the allowed exemptions. Flagstar argues that at the time the
court considered the settlement Flagstar believed that Section 7 of the settlement only
exempted property for purposes of the bankruptcy case, and creditors with non-
dischargeability judgments could collect against the exempt property. Flagstar argues that it
Case 1:08-bk-14339-MT Doc 351 Filed 12/22/09 Entered 12/22/09 11:57:39 Desc
Main Document Page 2 of 9

- 3
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
later became aware of another potential interpretation -- that the settlement terms prevent all
collection efforts against the exempted property. Flagstar argues that the court must clarify the
order to make clear what interpretation applies. Flagstar argues that it needs an immediate
decision because it must decide whether to file a non-dischargeability action against Ms. Petri.
Flagstar further argues that this interpretation will influence its decision as to whether to appeal
the order approving the settlement. The trustee takes the position that Flagstar does not have
standing to request reconsideration or clarification because it is not party to the settlement.
The trustee further argues that clarifying this order amounts to an unconstitutional advisory
opinion because there is no attempt, at present, to collect on exempt property. Ms. Petri
argues that the order does not need clarification because it is clear that the settlement
exempts the property in all future proceedings.
The parties do not reference cases that lay out a standard for when the court should
clarify it own order and the court on its own can find few cases that provide any guidance for
when a court should or must clarify its own order. The cases that do exist suggest that a court
should not interpret a settlement or decree before there is an actual controversy before the
court. See United States of America V. Western Electric Co., Inc. 846 F.2d 1422, 1431, 1435
(D.C. Cir. 1988)(Majority and dissenting opinions agreed that the district court, in the absence
of an actual controversy, should not provide an interpretation of a consent degree).1 These
cases suggest that a court evaluating a motion to clarify should determine if such clarification
is ripe for adjudication. A court evaluating ripeness must evaluate the fitness of the issues for
judicial decision and the hardship to the parties of withholding judicial consideration. Colwell v.
HHS, 558 F.3d 1112, 1123-1124 (9th Cir. 2008).
Clarification is not appropriate here because Flagstar does not have a judgment, non-
dischargeable or otherwise, and Flagstar has not attempted to collect on Ms. Petri’s assets.
Thus, if the court attempted to clarify the order it would be doing so in a vacuum. According to
the submitted papers, more than ten creditors have expressed interest in filing non-
1 The trustee’s arguments that Flagstar lacks standing reaches too far. A creditor has standing to object to a settlement or
request clarification of an order. A creditor has standing to contest or appeal an order if it is a “person aggrieved” by the
bankruptcy court’s order. In re P.R.T.C., Inc., 177 F.3d 774, 777 (9th Cir. 1999). Flagstar bank is likely a creditor to the
estate and was affected by the settlement.
Case 1:08-bk-14339-MT Doc 351 Filed 12/22/09 Entered 12/22/09 11:57:39 Desc
Main Document Page 3 of 9

- 4
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
dischargeability actions against Ms. Petri. If the court were to interpret the settlement as to
creditors holding non-dischargeable judgments it would have to delve into the settlement
language and possibly look at the circumstances surrounding all ten potential non-
dischargeability actions.2 In effect, the court would be ruling on an affirmative defense to
collection efforts that Flagstar may attempt once it obtains a judgment that it may be entitled
too. This is not an issue properly before the court.
Further Flagstar will not be prejudiced by waiting for an actual dispute to arise. If
Flagstar obtains a non-dischargeable judgment against Ms. Petri and attempts to collect
against assets declared exempt, the issue will be properly before the court. At that time,
parties can argue whether the language of the settlement precludes collection against the
assets listed in section 7 of the settlement agreement. Parties can argue, in the alternative,
that the trustee lacked the authority to enter into a settlement barring creditor collection or the
court lacked authority to shield such assets against non-dischargeable judgments, preventing
Ms. Petri’s interpretation of the settlement agreement.
If Flagstar chose to object to the approval of the settlement or at least note for the court
that it did not object if section 7 had no implications for creditors with non-dischargeability
judgments, then the court could have looked at the issue and determined whether further
clarification was necessary or whether the settlement should be approved. Flagstar, however,
remained silent. Clarification at this juncture, for the reasons described above, is not
appropriate. If and when a dispute arises, the court will interpret the settlement’s legal effect.
IV. Reconsideration
Reconsideration, under Federal Rule of Civil Procedure 59, is appropriate if the court (1)
is presented with newly discovered evidence, (2) committed clear error or the initial decision
was manifestly unjust, or (3) if there is an intervening change in controlling law. School District
No.1J, Moltnomah County v. ACandS, Inc., 5 F.3d 1255, 1262-63 (9th Cir. 1993). Federal Rule
2 Flagstar argues that issuing a definitive ruling would be a simple matter of interpreting the legal effect of the settlement. It is
unclear that the issue is that simple. The matter may require further factual analysis and the settlement might impact non-
dischargeable creditors differently. While this appears unlikely given the nature of the potential non-dischargeability actions,
it is a reasonable possibility.
Case 1:08-bk-14339-MT Doc 351 Filed 12/22/09 Entered 12/22/09 11:57:39 Desc
Main Document Page 4 of 9

- 5
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
of Civil Procedure 60(b) allows the court to relieve a party or its legal representative from a
final judgment, order proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered
evidence that, with reasonable diligence, could not have been discovered in time
to move for a new trial under Rule 59(b); (3) fraud; (4) the judgment is void; (5)
the judgment has been satisfied, released or discharged; judgment has been
reversed or vacated; or applying it prospectively is no longer equitable; or (6) any
other reason that justifies relief.
None of those factors are present in this case. Flagstar presents no newly discovered
evidence. Flagstar argues that reconsideration is appropriate in this case because, post-
hearing, Flagstar found out from trustee that the settlement might bar a creditor, with a non-
dischargeable claim, from ever collecting against Ms. Petri’s exempt assets. Flagstar argues
that the trustee’s statement is similar to newly discovered evidence.
This argument is not persuasive. A party’s statements as to how the settlement should
be interpreted do not amount to new evidence. Prior to the hearing, Flagstar’s counsel could
and should have considered all potential interpretations of the agreement and objected to the
agreement if he believed that the settlement could prejudice Flagstar.
Flagstar next argues that the settlement is invalid because the trustee and Ms. Petri had
different ideas about what actions the settlement entails. Flagstar indicates that the trustee
believes that the settlement does not preclude a creditor, with a claim excepted from
discharge, from pursuing the property exempted in the settlement agreement. Flagstar
indicates that Ms. Petri’s counsel believes that the bankruptcy exemptions preclude collection
against any exempt asset. This is the first time that this issue has been raised. There is no
evidence that Flagstar bank made an effort, before the settlement hearing, to determine if the
trustee and Ms. Petri had a meeting of the minds. Flagstar relies on In re Trism, for the
proposition that a court should not approve the compromise where there has been no meeting
of the minds. 286 B.R. 744 (Bankr. W.D.MO 2002). Trism, however, differs significantly from
Case 1:08-bk-14339-MT Doc 351 Filed 12/22/09 Entered 12/22/09 11:57:39 Desc
Main Document Page 5 of 9

- 6
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
the instant case. The Trism court refused to approve the settlement because there was not a
real conflict of the debtor and the creditor, the parties did not consider the impact on the other
creditors, the debtor did not look at the creditor’s claimed liens, and the creditor and the debtor
argued that the settlement would have fundamentally different effects. Id. at 752-753. In this
case, there was a very real conflict between Ms. Petri and the trustee. The parties litigated the
substantive consolidation issue for more than a year; the trustee explicitly considered the
impact that the agreement would have on other parties; and the trustee evaluated Ms. Petri’s
claims. Parties, post settlement, having different positions on how the settlement will apply in a
hypothetical situation, are not grounds to overturn the settlement agreement or find that minds
never met.
Flagstar further argues the court should not have approved the settlement because it
does not meet the fair and equitable requirement. The settlement, with its increased
exemptions, impinges on the rights of the creditors that have potentially non-dischargeable
claims. The court, in approving the settlement, considered the rights of unsecured creditors
and found it fair and equitable. Specifically, without this settlement Ms. Petri would not be a
debtor before this court. The trustee would not have authority to avoid fraudulent transactions,
the trustee would not have the significant amount of real estate that the settlement brought into
the case, and the estate would still be expending money to bring Ms. Petri into the estate. The
avoidance powers and real estate could bring money into the estate, leading to a possible
dividend for unsecured creditors. Liens on the real estate might be avoided, leading to equity
for unsecured creditors. Given the situation, the settlement was fair and equitable for the entire
creditor body. Flagstar presents no new evidence to have the court reconsider this decision.
For the above reasons, Flagstar’s motion is DENIED.
United States Bankruptcy Judge
DATED: December 22, 2009
Case 1:08-bk-14339-MT Doc 351 Filed 12/22/09 Entered 12/22/09 11:57:39 Desc
Main Document Page 6 of 9

- 7
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
NOTE TO USERS OF THIS FORM:
1) Attach this form to the last page of a proposed Order or Judgment. Do not file as a separate document.
2) The title of the judgment or order and all service information must be filled in by the party lodging the order.
3) Category I. below: The United States trustee and case trustee (if any) will always be in this category.
4) Category II. below: List ONLY addresses for debtor (and attorney), movant (or attorney) and person/entity (or
attorney) who filed an opposition to the requested relief. DO NOT list an address if person/entity is listed in category I.
NOTICE OF ENTERED ORDER AND SERVICE LIST
Notice is given by the court that a judgment or order entitled (specify) MEMORANDUM OF LAW
Re: Flagstar Bank’s Motion for Reconsideration of Order Approving Settlement Agreement
was entered on the date indicated as AEntered@ on the first page of this judgment or order and will be served
in the manner indicated below:
I. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (ANEF@) B Pursuant to controlling
General Order(s) and Local Bankruptcy Rule(s), the foregoing document was served on the following
person(s) by the court via NEF and hyperlink to the judgment or order. As of , the
following person(s) are currently on the Electronic Mail Notice List for this bankruptcy case or adversary
proceeding to receive NEF transmission at the email address(es) indicated below.
• John B Acierno ecfcacb@piteduncan.com
• Bernard D Bollinger bbollinger@buchalter.com,
IFS_filing@buchalter.com;smartin@buchalter.com
• Jeffrey W Broker jbroker@brokerlaw.biz
• Richard Burstein rburstein@ebg-law.com, ecf@ebg-law.com
• Joseph H Catmull jhc@marcin.com
• Ellen Cha echa@piteduncan.com, ecfcacb@piteduncan.com
• Aaron De Leest aed@dgdk.com
• Jesse S Finlayson jfinlayson@faw-law.com, wmills@faw-law.com
• Parisa Fishback ecfcacb@piteduncan.com
• Daniel H Gill ecf@ebg-law.com, dgill@ebg-law.com
• Robert P Goe kmurphy@goeforlaw.com, rgoe@goeforlaw.com;mforsythe@goeforlaw.com
• Kenneth R Graham krg@elaws.com
• Steven T Gubner sgubner@ebg-law.com, ecf@ebg-law.com
• Ira Benjamin Katz Ikatz@katzlaw.net
• Raffi Khatchadourian raffi@hemar-rousso.com
• Donna L La Porte vcorbin@wrightlegal.net, gtran@wrightlegal.net
• Steven M Lawrence generalmailaswlawoffice.com@alvaradoca.com
• William Malcolm bill@mclaw.org
• Elmer D Martin elmermartin@msn.com
• Aron M Oliner roliner@duanemorris.com
• Natella Royzman nroyzman@rdwlawcorp.com
• Kenneth N Russak krussak@frandzel.com, banderson@frandzel.com;efiling@frandzel.com
• Edward G Schloss egs2@ix.netcom.com
• George E Schulman GSchulman@DGDK.Com
• David Seror kpscion@ecjlaw.com, dseror@ecf.epiqsystems.com
Case 1:08-bk-14339-MT Doc 351 Filed 12/22/09 Entered 12/22/09 11:57:39 Desc
Main Document Page 7 of 9

- 8
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
• Yaron Shaham yshaham@wolfewyman.com
• United States Trustee (SV) ustpregion16.wh.ecf@usdoj.gov
• Corey R Weber ecf@ebg-law.com, cweber@ebg-law.com
• Brandon J Witkow bwitkow@lockelord.com
Service information continued on attached page
II. SERVED BY THE COURT VIA U.S. MAIL: A copy of this notice and a true copy of this judgment or order
was sent by U.S. Mail to the following person(s) and/or entity(ies) at the address(es) indicated below:
Larry M Bakman
10100 Santa Monica Blvd Ste 300
Los Angeles, CA 90067
Alfred M Clark
300 S Grand Ave Ste 800
L A, CA 90071
Gay Lee Ellis
6958 Lazy Sunset Ct
Las Vegas, NV 89156
Emmis Radio LLC
Herzlich & Blum LLP
15760 Bentura Blvd Ste 2024
Encino, CA 91436-3095
Linda S Fang
20 N Raymond Ave Ste 240
Pasadena, CA 91103
Jan Geller
1649 S Hobart Blvd
Los Angeles, CA 90006
Mallory Geller
1649 S Hobart Blvd
Los Angeles, CA 90006
Steven T Gubner
Ezra Brutzkus Gubner LLP
21650 Oxnard St Ste 500
Woodland Hills, CA 91367
Allan Herzlich
15760 Ventura Blvd Ste 2024
Encino, CA 91436
Curtis C Jung
888 S Figueroa St Suite 720
Los Angeles, CA 90017
P Kurt Peterson
Peterson Weyand & martin LLP
49 Stevenson St 10th Fl
San Francisco, CA 94105
R L Spear Co
5655 Lindero Canyon Rd Ste 521
Westlake Village, CA 91362
Case 1:08-bk-14339-MT Doc 351 Filed 12/22/09 Entered 12/22/09 11:57:39 Desc
Main Document Page 8 of 9

- 9
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Anne Mary Tramble
1610 Fermoore Dr
San Fernando, CA 91340
Service information continued on attached page
III. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this judgment or
order which bears an AEntered@ stamp, the party lodging the judgment or order will serve a complete copy
bearing an AEntered@ stamp by U.S. Mail, overnight mail, facsimile transmission or email and file a proof of
service of the entered order on the following person(s) and/or entity(ies) at the address(es), facsimile
transmission number(s) and/or email address(es) indicated below:
Service information continued on attached page
Case 1:08-bk-14339-MT Doc 351 Filed 12/22/09 Entered 12/22/09 11:57:39 Desc
Main Document Page 9 of 9