Metropolitan News-Enterprise


Friday, August 11, 2023


Page 1


Panel Approves $1.85 Million Settlement

Federal Court, State Appeals Court Appear Unaware of

Status of Respective Proceedings Involving Bankrupt


By a MetNews Staff Writer


The Ninth U.S. Circuit Court of Appeals Bankruptcy Appeals Panel has approved a $1.85 million settlement between a bankruptcy estate and an elderly couple bilked by a third-party who took their savings for investment purposes and disappeared.

The bankrupt is Joseph L. Sanders who received two loans from the third party. He proclaims a lack of liability to the couple, John and Mabel Watcher, saying he hasn’t even met them.

Meanwhile, litigation is continuing in Orange Superior Court in the Watcher’s action against Sanders and others.

Tuesday’s opinion by the Bankruptcy Appeals Panel reflects no awareness that Div. Three of California’s Fourth District Court of Appeal on June 29 reversed an order granting Sanders relief from a $3,386,000 default judgment against him, and the unpublished Court of Appeal opinion, by Acting Presiding Justice William W. Bedsworth does not make mention of the settlement reached by the trustee in bankruptcy and the Watchers.

Panel’s Opinion

The panel held, in finding the settlement—reached over Sanders’s protest—reasonable:

“Assuming the Watchers’ appeal in state court was unsuccessful, their claim would have to be liquidated. That would be a contested matter resulting in motions, discovery, and likely a lengthy trial. The litigation would be both legally and factually complex. There had been no significant activity in the state court case other than the default prove-up hearing.

“Absent the settlement the estate faced either a potential reversal of the set-aside order resulting in affirmance of the full amount of the judgment plus interest for at least two years, or litigation which was likely to be lengthy and expensive. The attorney’s fees and costs incurred in continuing the litigation would likely approximate some meaningful portion of the settlement amount of $1,125,000. The Trustee’s failure in the litigation could lead to the full amount of the judgment being allowed, or a $4 to $5 million claim after the expense of litigation.”

The panel added:

“Even if Sanders agreed to shoulder the cost of the litigation, which he did not and has not offered, the cost to the estate would be significant. The bankruptcy court properly considered the expense, inconvenience, and delay which would be caused if the litigation continued. The bankruptcy court did not err in concluding that this factor weighed in favor of the settlement.”

The Watchers’ non-dischargeablity adversary proceeding against Sanders is pending.

The case is In re Sanders, CC-23-1003.

Bedsworth’s Opinion

Bedsworth’s June 29 unpublished opinion reverses an order by Orange Superior Court Judge Gregory H. Lewis granting Sanders relief from default and from a default judgment in the Watchers’s action against him.

Lewis found that Sanders had not received actual notice of the action against him. Sanders maintained that it was only after he declared bankruptcy on Aug. 17, 2021, that, in looking over the court’s file, he discovered that he had been served by publication and that a default judgment had been entered against him,

Bedsworth said of Sanders:

“His numerous residences and transient lifestyle made him difficult for anyone but a clairvoyant to pin down. But that is the more generous view. What he characterizes as his ‘lifestyle’ fluidity of residence could just as easily be avoidance of service. Because the trial court did not determine whether defendant was at fault for the lack of notice, we must reverse its order vacating his default and remand so a proper analysis may be undertaken.”

Bedsworth said the issues on remand are the timeliness of Sanders’s motion for relief under Code of Civil Procedure §473.5 and whether he is credible in saying that he was unaware of the litigation against him.

However, in his opinion, the justice himself determined that the motion for relief was untimely as to the entry of default though timely as to the default judgment. He did not explain how Sanders could be allowed to testify given that he was in default.

The next hearing in the Orange Superior Court, set for Aug. 18, is on a motion by Cumming & Associates to be relieved as Sanders’s counsel.


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