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Brown v. Brown

United States District Court, Sixth Circuit

May 28, 2013

JAM ES A. BROWN, et al., Appellees. BRENDA KAY BROWN, Appellant,
RICHARD M. WEHRLE, et al., Appellees.


AMUL R. THAPAR, District Judge.

Sometimes bankruptcy proceedings are more like soap opera episodes. While her husband James was recovering from a stroke, Brenda Brown transferred millions of dollars from his estate to her name and went on a spending spree. When James's attorney caught wind of her scheme, he froze the assets, filed suit against Brenda, and initiated divorce proceedings.[1] Unable to access her accounts, and taking on debt from the purchases she had made, Brenda filed for bankruptcy. She also brought an adversary proceeding in the Bankruptcy Court seeking to void the couple's antenuptial agreement ("Antenuptial") and secure ownership of the disputed assets. Her plan backfired. The Chapter 11 proceeding soon became a Chapter 7 proceeding, and the Trustee quickly settled the adversary proceeding in James's favor ("Settlement"). The Settlement included an endorsement of the Antenuptial as valid and binding ("Antenuptial Endorsement"). On appeal, Brenda claims that the Bankruptcy Court did not have jurisdiction to approve the Antenuptial Endorsement and erred in approving the Settlement.

Brenda's challenges are meritless. The Antenuptial Endorsement was within the Bankruptcy Court's jurisdiction because it resolved a core bankruptcy proceeding, and the Bankruptcy Court did not abuse its discretion in approving the Settlement because its terms reflected the relative strength of the parties' positions. The Court will therefore affirm the Bankruptcy Court's orders.


When James and Brenda Kay Brown married in 2008, James was an extremely wealthy man. No. 12-110, R. 1-2 at 2 ¶¶ 1, 3.[2] Thanks to a series of business investments, he had amassed a personal fortune of more than $114 million. Id. at 2 ¶ 3. While Brenda was by no means poor, her net worth of $236, 000 paled in comparison to James's. Id. Like many wealthy people who marry late in life, James took steps to secure the fortune he had amassed. Id. at 2 ¶ 2; see Wehrle, R. 1 at 6 ¶ 21.

The day of their wedding, James had Brenda sign an antenuptial agreement ("Antenuptial").[3] No. 12-110, R. 1-2 at 2 ¶¶ 2-4. Under the Antenuptial, all the real and personal property James and Brenda owned when they were married would remain their separate property, both during and after marriage. Id. at 2 ¶ 2. Furthermore, the Antenuptial provided that Brenda would not receive anything from James's estate if they divorced. Id. at 2 ¶ 7. Similarly, James's will stipulated that Brenda would not receive anything from his estate if he died. Id. The Antenuptial was not slapped together and signed on a whim. Both parties had to gather their financial information weeks earlier in order to define their separate assets. Id. at 14-15. And James hired separate attorneys to review the Antenuptial with both parties before the wedding. Id. at 2 ¶¶ 4-5, 15-16. Brenda's attorney, John Keith, reviewed the Antenuptial for Brenda and met with her several times to discuss it. Id. at 16-17; see also In re Brown, R. 260-10 (detailing attorney John Keith's consultation with Brenda). She repeatedly rebuffed the concerns he raised about the Antenuptial because she believed she could get James to change it once they were married. No. 12-110, R. 1-2 at 17. Later, Brenda would claim that the Antenuptial was foisted on her with no warning, little time to review its terms, and no chance to consult an attorney. See id. at 15.

Ten months after the wedding, James suffered a debilitating stroke that confined him to a nursing home. Id. at 3 ¶ 8, 17-18. Several months after the stroke, Brenda had James sign documents giving her limited authority to handle his financial affairs ("Power of Attorney"). Id. at 3 ¶¶ 9-10, 17-18. She then used her Power of Attorney to a number of questionable ends, including: naming herself the joint owner of $5 million in Certificates of Deposit ("CDs") of which James had been the sole owner; buying an $800, 000 home solely in her name; buying a $64, 000 Mercedes Benz solely in her name; and having a new will drafted for James that left his entire estate to Brenda or her children. Id. at 3-4 ¶ 15.

But Brenda's spending spree would not last long. Richard Wehrle, James's attorney, filed suit in state court to challenge Brenda's actions. Id. at 3 ¶ 12. The suit sought to name Wehrle as conservator of James's estate and to prevent Brenda from selling a nursing home owned by James. Id. After a hearing, the state court appointed Wehrle as James's conservator, and named James's brother, Paul, as his health care guardian. Id. at 3 ¶ 13. The order appointing Wehrle as James's conservator instructed him to "vigorously pursue the recoupment of [James's] assets." Id. at 3 ¶ 14 (quoting Conservator Order).

Wehrle's pursuit was indeed vigorous. He quickly returned the $5 million in CDs to James's sole ownership and filed three lawsuits against Brenda in state court. Id. at 4-5 ¶¶ 16-17. Wehrle also filed a divorce suit and a petition for legal separation. Id. at 5 ¶¶ 17-18.

Without access to James's estate, Brenda soon filed for bankruptcy. Id. at 5 ¶ 19. Shortly thereafter, she filed an adversary proceeding that sought, among other things, declarations that: (1) the Antenuptial was invalid and unenforceable; (2) the new will was valid and enforceable; and (3) half the value of the CDs was property of Brenda's estate ("Estate"). Id. at 5-6 ¶ 20. She also filed her initial schedules and statement of financial affairs which listed among her personal property: (1) her interests in all of James's assets and (2) all other interests she had in James's estate. Id. at 6 ¶ 21 (citing In re Brown, R. 32 at 8). She listed those same interests as her personal property in the First Amended Schedules she filed several weeks later. Id. at 6 ¶ 23 (citing In re Brown, R. 86 at 4-5). Then, in March of 2012, Brenda's bankruptcy proceeding was converted from a Chapter 11 to a Chapter 7 proceeding, and James Westenhoefer became the trustee for the Estate ("Trustee"). Id. at 1, 6 ¶¶ 24-25.

The Trustee acted quickly to take stock of the Estate. He filed a second amended set of schedules, which still included Brenda's claims to James's assets. Id. at 6 ¶ 26 (citing In re Brown, R. 178). At that point, eight parties-comprised of James and his various businesses-had filed proofs of claim against the Estate totaling tens of millions of dollars. Id. at 6-7 ¶ 28. The Trustee began investigating the various claims the Estate had against those creditors. Id. at 7 ¶¶ 28-29. That investigation led the Trustee to conclude that Brenda's claims were certain to fail, and he began settlement negotiations with the Estate's creditors. Id. at 7 ¶ 31, 14.

The Trustee soon reached a settlement agreement with the creditors ("Settlement"), and the parties filed a joint motion to approve the Settlement in July of 2012. Id. at 7 ¶ 31. The Settlement was not a one-way street, though it did reflect the relative strength of the parties' positions. The Estate would be allowed to liquidate various assets without litigating their ownership rights. Id. at 7-8. In return, the Trustee would allow the creditors to make various claims against the Estate and disclaim any interests the Estate had in James's real estate holdings. Id. at 8-9; see also id. at 4 ¶ 15(f) (explaining that "Brown Real Properties" refers to James's real estate holdings). Also, the Estate would transfer various properties to the creditors-free and clear-once the Estate obtained possession of them. See id. at 8-9. Finally, the Settlement called for the parties to enter into an agreed order declaring that: (1) the Antenuptial was valid and enforceable ("Antenuptial Endorsement"); and (2) the new will Brenda had drafted was void ab initio and James's initial will was valid and controlling. Id. at 9. Brenda filed an objection to the Settlement. See Wehrle, R. 44.

The Bankruptcy Court then considered the motion to approve the Settlement and Brenda's objection. The court reviewed the filings and held three hearings on the issues raised in her motion. See No. 12-110, R. 1-2 at 2. The Bankruptcy Court ultimately approved the Settlement and its transfer of assets, except for the provisions addressing the wills. Id. at 20-21.[4] Two of the issues addressed in its opinion are relevant on appeal.

First, the Bankruptcy Court addressed the jurisdictional issue that Brenda had raised. Id. at 9. Brenda argued that Antenuptial Endorsement was outside the bounds of bankruptcy jurisdiction. Id. Specifically, she argued that it fell within the "domestic relations" exception, which prevents bankruptcy courts from addressing three family-law issues: divorce, alimony, and child custody. Id. (citing Marshall v. Marshall, 547 U.S. 293, 307-08 (2006)). The Bankruptcy Court, however, determined that the Antenuptial did not fall into one of the three discrete issues covered by the "domestic relations" exception because it was not a divorce decree, an award of alimony, or a determination of child custody. Id. at 12-13 (citing Marshall, 547 U.S. at 307-08 and In re Protan, No. 2:11-cv-0057-TEJ, 2011 WL 4597343, at *17 (S.D. W.Va. 2011)). Therefore, the court concluded that it had jurisdiction to approve the Antenuptial Endorsement. R. 1-2 at 12-13.

The Bankruptcy Court then considered the merits of the Settlement itself. It reviewed the testimony presented at the evidentiary hearings, including testimony from Brenda herself, and concluded that it was "unlikely that the Estate would prevail if it litigated the claims against the Conservator Parties." Id. at 18. The Bankruptcy Court also found that the Trustee's evaluation of the Estate's claims was "well reasoned and well supported by the overwhelming weight of the evidence." Id. at 14. Thus, when the Bankruptcy Court reviewed the Settlement's terms under Bankruptcy Rule 9019, it concluded that the Settlement was "fair and equitable" under the standard four-factor analysis. Id. at 18-20 (quotation omitted). The Bankruptcy Court therefore approved the Settlement and ordered its terms be enforced, except for those involving the wills. Id. at 20-21.

Brenda then filed two appeals. One challenges the Bankruptcy Court's order in the main bankruptcy case approving the Settlement. See 12-110, R. 1. The other challenges the order in the adversary proceeding approving the Settlement. See 12-120, R. 1. Since the Bankruptcy Court's orders are substantively identical, ...

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