Jayampath P Dharmasuriya

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NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
In re: ) Case No. 2:09-bk-28606-PC
)
JAYAMPATH P. DHARMASURIYA, ) Chapter 7
)
) MEMORANDUM DECISION
)
) Date: March 3, 2014
) Time: 9:00 a.m.
) Place: United States Bankruptcy Court
Debtor. ) Courtroom # 1468
) 255 East Temple Street
____________________________________) Los Angeles, CA 90012
Before the court is the motion of Jeffrey I. Golden, Chapter 7 Trustee (“Golden”) seeking
approval of a proposed settlement between Golden and Defendants, Malkanthi Wedage,
individually and as trustee of the Malkanthi Wedage Revocable Living Trust dated September
28, 2005 (collectively, “Wedage”); 507 Broad Avenue, LLC; 2030 El Segundo Blvd, LLC;
13802 Cerise Ave, LLC; and 1342 West 251st LLC (collectively, the LLC Defendants”) of the
disputed claims between the parties pending in Adversary No. 12-ap-02087-PC, Golden v.
Wedage, et al, pursuant to FRBP 9019.1 Peter Edirisinghe (“Edirisinghe”), a creditor holding
1 Unless otherwise indicated, all “Code,” “chapter” and “section” references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1330 after its amendment by the Bankruptcy Abuse
FILED & ENTERED
MAR 04 2014
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	egarcia
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unsecured non-priority claims against the estate in excess of $2.4 million, objects to the proposed
compromise. No other creditor or party in interest, including the United States trustee, has filed
a response in opposition to the relief requested in Golden’s motion. The court, having
considered the pleadings, evidentiary record, and arguments of counsel, makes the following
findings of fact and conclusions of law pursuant to F.R.Civ.P. 52(a)(1), as incorporated into
FRBP 7052 and applied to contested matters in bankruptcy cases.
I. STATEMENT OF FACTS
On October 8, 2012, Golden commenced the above referenced adversary proceeding
seeking to avoid as fraudulent certain transfers of the Debtor’s alleged interest in 13 properties
and to recover each of the transfers for the benefit of the estate. The transfers at issue involve the
following properties:
2517 W. 54th St., Los Angeles, CA 90043. On November 21, 2000, Wedage
took title as a single woman.
1607 W. Redondo Beach Blvd., Gardena, CA 90257. On December 17, 2001,
Wedage took title as a single woman to a 50% tenant in common interest.
1342 &1344 251st St., Harbor City, CA 90710. On December 20, 2001,
Wedage took title as a single woman.
1127 N. Wilmington Blvd., Los Angeles, Ca 90744. On June 26, 2003, Wedage
took title as a single woman.
2301 W. Cameron St., Long Beach, CA 90810. On May 28, 2004, Wedage took
title as a single woman.
1201 Myrtle Ave., Inglewood, CA 90301. On September 27, 2004, Wedage took
title as a single woman.
1131 Alta Loma Rd., No. 324, West Hollywood, CA 90069. On January 4,
2005, Wedage took title as a single woman.
13442 Cerise Ave & 3507 W. 135th St., Los Angeles, CA 90250. On March 8,
2005, Wedage took title as an unmarried woman.
706-708 W. 78th St., Los Angeles, CA 90044. On March 25, 2005, Wedage took
title as an unmarried woman.
100 E. Buckthorn St., Inglewood, CA 90301. On April 22, 2005, Wedage took
title as an unmarried woman.
Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (2005). “Rule”
references are to the Federal Rules of Bankruptcy Procedure (“FRBP”), which make applicable
certain Federal Rules of Civil Procedure (“F.R.Civ.P.”). “LBR” references are to the Local
Bankruptcy Rules of the United States Bankruptcy Court for the Central District of California
(“LBR”).
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13115 S. Penrose Ave., Compton, CA 90222. On November 14, 2006, Wedage
took title as an unmarried woman.
2030 W. El Segundo Blvd., Gardena, CA 90249. On March 7, 2008, Wedage
took title as an unmarried woman.
13802 Cerise Ave., Hawthorne, CA 90250. On May 27, 2008, Wedage took title
as an unmarried woman.
Wedage is the Debtor’s spouse. Wedage denies that the Debtor owned a community
property interest in any of the subject properties on the petition date as a result of their marriage.
Wedage claims, among other things, that each of the subject properties was acquired and held by
her as separate property pursuant to a premarital agreement executed between the Debtor and
Wedage on September 6, 1989. She also denies that any community funds were used to acquire
an interest in any of the properties. She further claims that, after acquiring each of the properties,
she transferred the properties to the Malkanthi Wedage Revocable Living Trust dated September
28, 2005, and later from the trust to one or more of the LLC Defendants. At no time did the
Debtor have an interest in any of the properties, according to Wedage.
The adversary proceeding between the parties has been pending for 16 months. The
discovery deadline, as extended, expired on April 30, 2013. By order entered on February 19,
2013, the court set the adversary proceeding for trial to commence on July 24, 2013. On that
date, the parties had exchanged witness lists, exhibits and trial briefs, and were ready for trial.
However, the court continued the trial date to November 5, 2013; and again thereafter, in part, to
permit Golden, Wedage and the LLC Defendants to engage in final settlement discussions and a
mediation before Honorable Sheri Bluebond, United States Bankruptcy Judge.
On October 15, 2013, Wedage and the LLC Defendants filed a motion seeking the
imposition of sanctions in the form of attorneys’ fees and costs in excess of $126,992 against
Golden and his counsel pursuant to FRBP 9011. Wedage and the LLC Defendants argue that the
claims made the basis of Golden’s complaint lack evidentiary support and are not warranted by
existing law; and further, that Golden and his counsel continued to prosecute the adversary
proceeding after having been requested by Wedage and the LLC Defendants to dismiss. On
October 24, 2013, Golden and his counsel responded seeking a denial of the motion on both
substantive and procedural grounds.
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Trial of the adversary proceeding ultimately was set for March 3, 2014. After five days
of mediation with Judge Bluebond, the parties reached a resolution of all disputed claims
asserted between the parties in the adversary proceeding.
Under the terms of the proposed settlement, Wedage, on behalf of herself and as trustee
of the trust, and the LLC Defendants, collectively, will, upon entry of an order approving the
compromise, pay the sum of $50,000 to Golden and withdraw the motion for sanctions pending
against Golden and his counsel. In consideration therefor, Golden will withdraw the lis pendens
on the subject properties, the parties will exchange mutual releases, and the adversary proceeding
will be dismissed as to Wedage and the LLC Defendants with prejudice.2
II. DISCUSSION
This court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 157(b) and
1334(b). Golden’s motion is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (H) and
(O). Venue is appropriate in this court. 28 U.S.C. § 1409(a).
A. Standard for Approval of Compromise Under FRBP 9019
On a motion by the trustee after notice and a hearing, the court may approve a
compromise or settlement under FRBP 9019(a) upon a finding that it is “fair and equitable” to
creditors. Woodson v. Fireman’s Fund Ins. Co. (In re Woodson), 839 F.2d 610, 620 (9th Cir.
1988); Martin v. Kane (In re A&C Props.), 784 F.2d 1377, 1381 (9th Cir. 1986), cert. denied sub.
nom. Martin v. Robinson, 479 U.S. 854 (1986). The trustee has the burden of persuading the
court that the compromise is fair and equitable and is in the best interests of the estate. A&C
Props., 784 F.2d at 1381; CAM/RPC Elecs. v. Robertson (In re MGS Mkg.), 111 B.R. 264, 266-
67 (9th Cir. BAP 1990). In Protective Comm. for Indep. Stockholders of TMT Trailer Ferry,
Inc. v. Anderson, 390 U.S. 414 (1968), the Supreme Court stated that “[t]here can be no
informed and independent judgment as to whether a proposed compromise is fair and equitable
until the bankruptcy judge has apprised himself of all facts necessary for an intelligent and
objective opinion of the probabilities of ultimate success should the claim be litigated. Further,
2 The adversary proceeding would remain pending against the only remaining Defendant, Jayani
Manikkage, who did not participate in the mediation and is not a party to the proposed
compromise.
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the judge should form an educated estimate of the complexity, expense, and likely duration of
such litigation, the possible difficulties of collecting on any judgment which might be obtained,
and all other factors relevant to a full and fair assessment of the wisdom of the proposed
compromise.” Id. at 424. However, the bankruptcy court need not conduct an exhaustive
investigation nor a mini-trial on the validity or merits of the claims sought to be compromised.
See, e.g., U.S. v. Alaska Nat'l Bank (In re Walsh Constr., Inc.), 669 F.2d 1325, 1328 (9th Cir.
1982); In re Schmitt, 215 B.R. 417, 423 (9th Cir. BAP 1997). The court's proper role is "to
canvas the issues and see whether the settlement falls below the lowest point in the range of
reasonableness." In re Drexel Burnham Lambert Group, Inc., 134 B.R. 493, 496-97 (Bankr.
S.D.N.Y. 1991).
In determining the fairness, reasonableness and adequacy of a proposed settlement, the
Ninth Circuit has directed the court to consider: “(a) The probability of success in the litigation;
(b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the
litigation involved, and the expense, inconvenience and delay necessarily attending it; and (d) the
paramount interest of the creditors and a proper deference to their reasonable views in the
premises.” Woodson, 839 F.2d at 620 (quoting A&C Props., 784 F.2d at 1381). However,
“while creditors’ objections to a compromise must be afforded due deference, such objections
are not controlling . . . .” A&C Props., 784 F.2d at 1382. The court may give weight to the
opinions of the trustee, the parties, and their attorneys. Port O'Call Inv. Co. v. Blair (In re Blair),
538 F.2d 849, 851 (9th Cir. 1976). A court generally should give deference to a trustee’s
exercise of business judgment. In re Mickey Thompson Entm’t Group, Inc., 292 B.R. 415, 420
(9th Cir. BAP 2003). Consideration must also be given to the principle that the law favors
compromise and not litigation for its own sake. Blair, 538 F.2d at 851. Finally, Wedage is an
insider as that term is defined in § 101(39). 11 U.S.C. § 101(39); see In re Schuman, 81 B.R.
583, 585 (B.A.P. 9th Cir. 1987). Insider status is not fatal to approval of a compromise under
FRBP 9019, but such dealings are subject to a higher level of scrutiny. In re HyLoft, Inc., 451
B.R. 104, 113 -14 (Bankr. D.Nev. 2011).
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B. Probability of Success on the Merits
With respect to probability of success on the merits, the court must estimate both the
value of the proposed settlement and the likely outcome of litigating the claims proposed in the
settlement. In re Telesphere Commc’ns, Inc., 179 B.R. 544, 553 (Bankr. N.D. Ill. 1994). Golden
believes the probability of success on the merits is “good,” but maintains that the compromise
should be approved because of the uncertainty, substantial costs, and difficult issues that must be
faced in the litigation.3 Golden asserts that the administrative burden of fees and costs through
litigation of the adversary proceeding to judgment would be substantial, and “exacerbated by any
appeal.”4 In light of the issues discussed in the parties’ respective trial briefs, victory in
Golden’s view is by no means assured for the estate.
First, Wedage’s claim that the Debtor had no community property interest in any of the
subject properties hinges on the validity and scope of the premarital agreement. Golden asserts
that the premarital agreement is not valid or enforceable. He has also objected to the
admissibility of the agreement at trial. Even if the Golden was successful in convincing the court
to exclude the premarital agreement, Golden would still have the burden of establishing that each
of the subject properties was acquired by the Debtor and Wedage as community property or by
Wedage with funds of the community estate notwithstanding language of each deed to the
contrary. There is a presumption that each property at issue is separate property because record
title to each property expressly states that Wedage owns the property as a “single” or
“unmarried” individual.5
3 Motion to Approve Compromise Pursuant to Federal Rule of Bankruptcy Procedure 9019,
4:21-22.
4 Id., 4:24-25.
5 In California, there is a presumption that property is held by the owner as declared on title
unless it is rebutted by clear and convincing evidence. See Cal. Evid. Code § 662; see also Cal.
Fam. Code § 2581(a) and (b). Pursuant to Cal. Fam. Code § 2581, the California presumption of
community property is rebutted by either (a) a clear statement in the deed or other evidence
indicating that the property is separate property; or (b) proof that the parties have made a written
agreement that the property is separate property.
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Second, Golden has the burden of proof on other disputed issues identified in his trial
brief, including: (1) whether the Debtor received value in exchange for the direct or indirect
transfers that benefitted Wedage; (2) whether the transfers were done with the actual intent to
hinder, delay or defraud a creditor; (3) whether the Debtor received reasonably equivalent value
in exchange for each of the subject transfers; (4) whether the Debtor was insolvent at the time of
each transfer, or rendered insolvent as a result of the transfer; and (5) whether Wedage intended
to defraud creditors by representing herself to be single or unmarried in each of the deeds by
which she acquired and then transferred each of the subject properties.
Finally, Wedage has asserted that avoidance of one or more of the subject transfers is
barred by applicable statutes of limitations and that Golden’s complaint itself is time barred.
Given these facts, it is possible the trustee could expend significant amounts of money in
pursuing this adversary through trial and ultimately recover nothing for the estate. This factor
weighs in favor of approving the proposed compromise.
B. Difficulties to Be Encountered in the Matter of Collection
Even if successful on the merits through any appeal of a favorable judgment at trial,
Golden would still be compelled to incur further administrative expenses in the form of
additional attorneys’ fees and costs to collect the judgment. Approval of the compromise
eliminates the estate’s exposure to liability stemming from the disputed sanctions motion and
results in an immediate payment of $50,000 to the estate in settlement of the disputed claims
with no additional collection costs. This factor weighs in favor of approving the compromise.
C. Complexity of the Litigation, Inconvenience, Delay, and Expense
The complexity of the litigation, the continuing expense of the litigation, and the delay
attendant to the litigation all weigh in favor of approving the compromise. Golden has already
expended significant resources to investigate the estate’s claims and to prepare for trial. The
proposed compromise is the result of months of settlement negotiations, including at least five
days of mediation before Judge Bluebond in which the parties considered each of the disputed
issues, and weighted the strengths and weaknesses of Golden’s claims and the defenses thereto.
Not only has there been delay in the trial of this adversary proceeding, but the Debtor has been in
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bankruptcy since 2009. Golden acknowledges that, if the settlement is not approved, a trial will
be costly, time consuming, result in additional litigation expenses, and further delay a final
administration of the Debtor’s bankruptcy estate. Golden has a statutory responsibility to
administer the estate as expeditiously as is compatible with the best interest of creditors. He
believes in the exercise of his business judgment that the proposed settlement is the best possible
result under the circumstances.
D. Paramount Interest of Creditors
Golden believes that the proposed settlement is in the best interest of all creditors of the
estate in that it will end the disputed litigation, stop the accrual of administrative expenses
associated with the litigation, eliminates the estate’s exposure to liability stemming from the
disputed sanctions motion, and result in an immediate payment of $50,000 to the estate.
According to the motion, Golden did not reach this conclusion lightly. The proposed
compromise is the product of months of good faith negotiation that considered all evidence and
issues that would have been litigated at trial.
In his objection, Edirisinghe argues that $50,000 is insufficient and far from equitable to
creditors. Edirisinghe raises a number of issues in his objection that are not relevant to Golden’s
motion and the proposed compromise because the facts are outside the scope of the claims made
the basis of Golden’s complaint in the adversary proceeding. Edirisinghe claims that he has not
seen the premarital agreement between the Debtor and Wedage. However, a copy of the
premarital agreement has been on file with the court since July 17, 2013, attached as Exhibit A to
Wedage’s Trial Brief. [Adv. Dkt. # 59]. Edirisinghe further claims that there is “substantial
evidence” that the Debtor and Wedage “are not, in fact, husband and wife;” that the alleged
premarital agreement should therefore not apply; and that “the properties assigned to Wedage are
not community property.”6 But it is undisputed that at all material times the Debtor and Wedage
were married. Moreover, Edirisinghe’s counsel conceded at oral argument that the estate would
recover nothing in the adversary proceeding if it was established that the transfers sought to be
6 Response/Opposition to the Motion to Approve Compromise of Controversy Between Chapter
7 Trustee and Malkanthi Wedage, the Wedage Trust and Various LLCs, 2:19-21; 9:14-15.
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avoided by Golden involved the separate property of Wedage rather than the community
property of the Debtor and Wedage. Finally, it is not necessary for the trustee to prove the
validity or invalidity of claims and defenses in conjunction with approval of a compromise under
FRBP 9019. As previously stated, the bankruptcy court need not conduct an exhaustive
investigation nor a mini-trial on the validity or merits of the claims sought to be compromised.
See Walsh Constr., Inc., 669 F.2d at 1328.
Edirisinghe admits in his objection that “[m]uch investigation and discovery has been
conducted by the Trustee and creditors into whether the Estate has a direct or indirect interest in
dozens of properties,” but believes that “additional investigation should be undertaken with
regard to the true value of the Estate.”7 At oral argument, however, Edirisinghe’s counsel was
unable to identify any specific disputed issue involved in the litigation upon which additional
discovery was necessary or should have been undertaken by the trustee. In response to questions
by the court, Edirisinghe’s counsel conceded that no further discovery was necessary because all
relevant evidence was already in the hands of the trustee. Edirisinghe’s concern boils down to
the absence of an analysis by the trustee of the equity in each of the properties identified in
Golden’s complaint, i.e., the value of each property less the amount of liens, taxes and other
encumbrances asserted against the property. While such information might be helpful to the
court and creditors in assessing the merits of a settlement, it is not essential to a finding that the
proposed compromise is fair and equitable.
The court will approve the compromise. Approval of the compromise resolves the claims
of Golden, Wedage, and the LLC Defendants arising out of the multiple transfers of the 13
properties identified in Golden’s complaint, eliminates the estate’s exposure to liability
stemming from the disputed sanctions motion, results in an immediate payment of $50,000 to the
estate without further collection costs, and circumvents the accrual of administrative expenses
associated with the continued litigation of disputed claims in the adversary proceeding. The
trustee believes that the settlement is fair and equitable, and in the best interest of the creditors
and the estate. The court has weighed the four Woodson factors, given deference to the trustee’s
7 Id., 2:11-12; 10:11-13.
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business judgment, and determined based on the facts of the case that the proposed settlement is
fair and equitable and does not fall below the lowest point in the range of reasonableness.
III. CONCLUSION
For the reasons stated, Edirisinghe’s objection to Golden’s motion will be overruled and
the proposed compromise will be approved as fair and equitable and in the best interests of
creditors and the estate pursuant to FRBP 9019.
A separate order will be entered consistent with this memorandum decision.
###
Date: March 4, 2014
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