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In Re v. David K. Gottlieb

December 8, 2011

IN RE:
LENNY KYLE DYKSTRA,
DEBTOR. LENNY KYLE DYKSTRA, APPELLANT,
v.
DAVID K. GOTTLIEB, CHAPTER 7 TRUSTEE;
JP MORGAN CHASE BANK, N.A., APPELLEES.



Appeal from the United States Bankruptcy Court for the Central District of California Honorable Geraldine Mund, Bankruptcy Judge, Presiding Bk. No. SV 09-18409-GM

SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

MEMORANDUM*fn1

Argued and Submitted on November 16, 2011 at Pasadena, California

Filed - December 8, 2011

Before: HOLLOWELL, PERRIS*fn2 and PAPPAS, Bankruptcy Judges.

Lenny Kyle Dykstra (the Debtor) appeals the order of the bankruptcy court approving a compromise between the chapter 7*fn3 bankruptcy trustee, Terri Dykstra*fn4 and JP Morgan Chase Bank, N.A. (Chase). We DISMISS the appeal as moot.

I. FACTS

Background

In 2007, the Debtor and his then-wife, Terri Dykstra, entered into a loan arrangement with Washington Mutual (WaMu).

Ms. Dykstra executed a promissory note in the amount of $12 million (the Note). The Note was secured by a first priority deed of trust on real property on Newbern Court in Thousand Oaks, California (the Property). WaMu was subsequently taken over by the Federal Deposit Insurance Corporation (the FDIC). In 2008, FDIC sold WaMu's assets to Chase pursuant to a Purchase and Assumption Agreement.

Chase filed a secured proof of claim in the amount of $13.8 million on the outstanding Note. The Property is also encumbered by second and third position trust deeds held by Index Investors (Index). Index asserted a claim in the amount of $936,397 based on two loans it extended to the Debtor. The Property was damaged post-petition. It has not been appraised, but there appears to be no dispute that if Chase and Index hold valid claims, there is no equity in the Property. The Debtor asserts, however, that both WaMu and Index engaged in predatory lending practices in conjunction with the Note and violated the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601-1693r., entitling him to damages and claims of setoff or recoupment.

Settlement Agreement

On July 7, 2009, the Debtor filed a petition for chapter 11 relief. On March 23, 2010, the bankruptcy trustee*fn5 (Trustee) filed a motion for approval of a compromise between the estate and Chase (the Settlement). The Settlement proposed that Chase release the estate of all claims, including its proof of claim, pay the estate $400,000, and relinquish its interest in insurance proceeds the estate received for damages to the Property (totaling $500,000). In exchange, the estate would pay Chase $92,000 for repairs to the Property, stipulate to relief from the automatic stay so that Chase could foreclose on the Property, and release all its claims against Chase.

On March 26, 2010, the Debtor filed an objection to the 2 Settlement, contending that the TILA and other claims held by the 3 estate against Chase in connection with the Note were worth 4 millions of dollars and would result in equity in the Property 5 for the benefit of the estate. After months of briefing and 6 hearings, the Trustee submitted an independent analysis prepared 7 by his special counsel, which comprehensively evaluated each of 8 the asserted claims the Debtor argued the estate held against 9 Chase related to the Note, as well as Chase's potential defenses 10 to those claims. The conclusion of the analysis was that the 11 bulk of the ...


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