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David E. Leta (1937) Engels Tejeda (11427) SNELL & WILMER L.L.P. 15 West South Temple, Suite 1200 Salt Lake City, UT 84101 Telephone: (801) 257-1900 Emails: dleta@swlaw.com etejeda@swlaw.com Attorneys for Debtor Neldon P. Johnson IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH JOINT MOTION FOR ENTRY OF AN ORDER AUTHORIZING A SETTLEMENT BETWEEN NELDON JOHNSON, INA MARIE NEWMAN AND INTERNATIONAL AUTOMATED SYSTEMS, INC. Bankruptcy Case No. 11-20679 Chapter 7 Honorable William T. Thurman

In re NELDON P. JOHNSON, Debtor.

Pursuant to Federal Rule of Bankruptcy Procedure 9019, Plaintiff, Ina Marie Newman (Newman), Debtor and Defendant Neldon P. Johnson (Johnson), and Creditor International Automated Systems, Inc. (IAS) (collectively, the Movants), through their respective counsel, hereby jointly move the Court for entry of an order authorizing the Movants to enter into that certain Settlement Agreement (the Agreement) attached hereto as Attachment 1. In support of this Motion, the Movants submit the following memorandum of points and authorities.

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JURISDICTION 1. This Court has jurisdiction to entertain this Motion pursuant to 28 U.S.C. 1334

and 157. This Motion is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(A), (I), (J). Venue in this district is proper pursuant to 28 U.S.C. 1408 and 1409. BACKGROUND 2. Through the Agreement, the Movants seek to resolve several interrelated disputes

that originated with the separation of Newman and Johnson more than a decade ago, and have since resulted in several lawsuits filed in state court, including an appeal to the Utah Supreme Court, the filing of the Debtors bankruptcy, and multiple adversary proceedings currently pending before this Court. 3. On or about July 20, 2000, Newman filed a petition for divorce in Fourth District

Court in and for Utah County, State of Utah, Case No. 004401468 DA (the Divorce Action), alleging that she was married to Johnson and seeking, among other things, a divorce and division of purported marital property. 4. On or about June 6, 2001, the state court entered in the Divorce Action a

Bifurcated Decree of Divorce (Bifurcated Decree), granting the parties a divorce and making certain temporary orders relating to the parties. [A copy of the Bifurcated Decree is attached as Exhibit A.] 5. On or about May 29, 2001, Newman and Johnson entered into an oral stipulation

(Divorce Stipulation), which was memorialized in writing and filed with the state court on or about July 3, 2001. [A copy of the Divorce Stipulation is attached as Exhibit B.] 6. On or about June 27, 2001, the state court entered an Amended Decree of

Divorce, a copy of which is attached as Exhibit C. 7. Since then, Newman and Johnson have been litigating the meaning of the terms of

the Amended Decree, including the intent of the parties in stipulating to entry of the same. In

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particular, they dispute the meaning of the provisions of the Amended Decree relating to the division of real property and to that certain Trust Deed (the Divorce Trust Deed) recorded against certain real property located in Salem, Utah (the Salem Property). [A copy of the Divorce Trust Deed is attached as Exhibit D.] The Debtor disputes that the Divorce Trust

Deed is effective, prompting Newman to record a document titled CLAIM OF LIEN (the Newman Lien) against the Salem Property. [A copy of the Newman Lien is attached as Exhibit E.] Johnson also challenged the validity of the Divorce Decree and the Amended Decree on the theory that he and Newman were never legally married. 8. On or about July 29, 2009, IAS and Johnson filed a lawsuit in Third District

Court, Salt Lake County, State of Utah, Case No. 090912428, against Newman, Donnel Johnson and Brenda Smith (the U-Check Lawsuit), alleging, among other things, that the named defendants had converted certain property. prejudice. 9. On or about July 7, 2010, Newman filed a lawsuit in the Fourth Judicial District The U-Check Lawsuit was dismissed without

Court, in and for Utah County, State of Utah, Case No. 100402314, (the Newman IAS Lawsuit), against Johnson, IAS and Glenda Johnson, who is the Debtors wife. Newman alleged, among other things, that Johnsons transfer of certain parcels of real property located in Millard County, State of Utah (the Millard Property) to IAS or Glenda Johnson were fraudulent transfers under Utah Code Ann. 25-6-1 et seq. The Newman IAS Lawsuit is currently stayed pursuant 11 U.S.C. 362. 10. On or about January 11, 2011, Johnson filed the above-captioned chapter 7 Case

No. 11-20679 (the Johnson Bankruptcy Case). 11. On April 25, 2011, Johnson filed adversary proceeding No. 11-02395 (the

Johnson Adversary Proceeding), wherein he seeks a declaration of dischargeability of his remaining obligations under the Amended Decree. In sum, Johnson argues that he and Newman

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were never legally married, and thus that she is not a former spouse whose claim arising out of the Amended Decree is nondischargeable under 11 U.S.C. 523(a)(5) or (a)(15). 12. Also on April 25, 2011, Newman filed an adversary proceeding No. 11-02393

(the Newman Adversary Proceeding), wherein she seeks a declaration of nondischargeability of Johnsons remaining obligations under the Amended Decree under 11 U.S.C. 523, arguing that she is former spouse of the Debtor.1 Newman also objected to the Debtors discharge under 11 U.S.C. 727, alleging that he has not explained the dissipation of certain assets, including the Millard Property. This Court consolidated the Johnson and Newman Adversary Proceeding under the Newman Adversary Proceeding. 13. On or about July 28, 2011, IAS filed adversary proceeding No. 11-02548 (the

IAS Adversary Proceeding), seeking, among other things, a declaration of the Bankruptcy Court that IAS is the sole owner of the Millard Property. 14. On or about July 7, 2011, Zions Bank assigned to IAS all of its rights and interests

under that certain Trust Deed (the Salem Trust Deed), which was recorded against the Salem Property on or about June 3, 1999. [A copy of the Salem Trust Deed is attached as Exhibit F.] [See also, Notice of Transferred Claims (Zions Assignment), Dkt. No. 41.] 15. On May 25, 2012, the Court entered an order determining that Newmans claim

was nondischargeable under 523(a)(15). [See Newman Adversary Proceeding, Dkt. No. 52.] Johnson appealed that decision, but the Bankruptcy Appellate Panel for the Tenth Circuit denied Johnsons appeal as premature. 16. On March 27, 2013, the Court continued to April 10, 2013, a pretrial conference

in the Newman-Johnson Adversary Proceedings. If the parties are unable to resolve enter into the Agreement, the Court will set Newmans 727 claim for trial.
1

The Johnson and Newman Adversary Proceedings are sometimes referred to as the Consolidated Adversary Proceedings and, together with the IAS Adversary Proceeding, as the Adversary Proceedings.

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17.

On March 6, 2013, pursuant to 11 U.S.C. 554 and Local Rule 6007-1, the

Chapter 7 Trustee gave notice to all parties in interest that he intended to abandon the Salem Property unless he received objections to abandonment no later than March 22, 2013. [See Request for Abandonment and Notice of Abandonment, Dkt. No. 62.] The Trustees decision to abandon the Salem Property was based in part on the Salem Propertys having an estimated fair market value of $1,171,400, and being subject to claims in excess of $3,424,637.20. [See id.] No party-in-interest objected to abandonment of the Salem Property, and consequently, the same was abandoned effective March 22, 2013. [See id.] The Trustee, through Counsel, also conducted extensive examinations of the allegations raised by Newman against the Debtor. Among other things, the Trustee, through counsel, conducted examinations of Newman and Johnson under Federal Rule of Bankruptcy Procedure 2004. [See Notices of 2004 Exams for Newman and Johnson, Dkt. Nos. 28, 31.] 18. On March 27, 2013, the Court granted the Movants oral motion to set this

Motion for hearing on an expedited basis for April 10, 2013. [See Newmans Adversary Proceeding, Dkt. Entry dated March 27, 2013]. 19. Newman, Johnson, their children, IAS and Glenda Johnson now desire to enter

into the Agreement, whereby all of the disputes related to the Divorce Action, the Johnson Bankruptcy, the Consolidated Adversary Case, the Newman IAS Lawsuit, the IAS Adversary Proceeding, the U-Check Lawsuit, and the IAS shareholder actions, as well as all other disputes existing between Newman, Johnson, their children, IAS and Glenda Johnson may be resolved, thereby eliminating further attorney fees, court costs, and loss of productivity of the persons involved, and thereby promoting an improvement of the discord between the persons involved. 20. The Movants have executed the Agreement, the principal provisions of which are: a. Johnson will transfer all of his interests in the Salem Property to Newman;

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b. IAS will deposit $50,000.00 in escrow for the payment of certain taxes and fees related to the transfer of the Salem Property to Newman, with the balance to be distributed to Newman; c. Newman will withdraw her proof of claim from the Johnson Bankruptcy Case; d. Newman will release the Newman Lien; e. IAS will release its lien against the Salem Property under the Salem Trust Deed; f. The Movants and parties to the Agreement will dismiss with prejudice the Consolidated Adversary Proceedings, IAS Adversary Proceeding, and the Newman IAS Lawsuit; and, g. The Movants and parties to the Agreement will release each other from any and all obligations related to the claims and allegations addressed in the Agreement. ARGUMENT 21. The Court should approve the Settlement Agreement pursuant to Federal Rule of

Bankruptcy Procedure 9019. 22. Rule 9019 provides, in relevant parts, [o]n motion by the trustee and after notice

and a hearing, the court may approve a compromise or settlement. Fed. R. Bank. P. 9019(a). Although it refers to the trustee, [t]he scope of this rule is not settled. In re Hall, 2010 Bankr. LEXIS 1487, * 26 (Bank. D. Kan. 2010) (unpublished opinion) (applying Rule 9019 in a chapter 12 case). For example, the United States Bankruptcy Court for the District of Arkansas held that Rule 9019(a) does not apply to a dischargeability action between a creditor and the debtor, and therefore, no court approval is required, and any legal settlement reached by the parties is enforceable. In re McKay, 443 B.R. 511, 524 (Bankr. E.D. Ark. 2010) (analyzing Rule

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9019 in a chapter 7 case). In this circuit, there is little case law construing Rule 9019, but the one Tenth Circuit case would support a broad reading of its applicability. Hall, 2010 Bankr. LEXIS 1487 at * 26 (analyzing In re Blehn Land & Cattle Co. 859 F.2d 137 (10th Cir. 1988)). Accordingly, out of an abundance of caution, the Movants seek approval of the Agreement since it provides for (1) the transfer of the abandoned Salem Property to Newman, (2) Newmans withdrawal of her proof of claim, (3) the dismissal of a the Newman Adversary Proceeding, which includes as claim under 727, and (4) the dismissal of IAS Adversary Proceeding, which asserts a claim regarding the Millard Property. 23. When determining whether to approve a settlement under Rule 9019, the Court

should consider the following factors: (1) the chance of success of the litigation on the merits; (2) possible problems in collecting a judgment; (3) the expense and complexity of the litigation; and (4) the interest of creditors. In re Armstrong, 99 F.3d Appx. 210, 213 (10th Cir. 2008) (citing In re Kopexa Realty Venture Co., 213 B.R. 1020, 1022 (B.A.P. 10th Cir. 1997)). In essence, under the Kopexa standard, the Court should balance the costs against the potential benefits to the estate of dismissing the case. Here, the Agreement meets all of the applicable Kopexa factors. 24. The first and third factors weigh in favor of approval of the Agreement because

the Movants chances of success in the Adversary Proceedings are uncertain and the Adversary Proceedings involved complex questions of law or fact. Although the Court has determined that Newmans claim is nondischargeable under 523(a)(15), the Debtor has appealed the decision on purely legal grounds. The Debtors appeal raises a question of first impression in the Tenth Circuit: whether Newman is a former spouse of the Debtor given that he and Newman were never legally married. The Debtors argument also relies on the Defense of Marriage Act, the constitutionality of which is the subject of a case pending before the United States Supreme Court. See United States v. Windsor, 133 S. Ct. 786 (2012). Moreover, after conducting a

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thorough investigation of Newmans allegation that the Debtor has not adequately explained the purported pre-petition dissipation of his assets, the Trustee declined to object to the Debtors discharge under 727. And while the Court entered a Declaratory Judgment that IAS owns the Millard Property, the Court expressly exempted Newman from that judgment. [See IAS

Adversary Proceeding, Dkt. No. 15.] Thus, each of the Adversary Proceedings involves either complex legal issues or complex questions of facts. 25. The second Kopexa factor the collectivity of the judgment is not relevant

because the Trustee has abandoned any interests in the Salem Property and stipulated to entry of a declaratory judgment that IAS owns the Millard Property. Thus, the Adversary Proceedings do not involve a potential judgment in favor of the estate. To the extent that the analysis applies to the claims amongst the Movants, however, the second factor weighs in favor of approving the Agreement because even if Newman were to prevail on her claim that she owns half of the Salem Property, it is not disputed that IAS holds a lien against that Property pursuant to the Zions Assignment. Moreover, there is no evidence that the Debtor has any assets beyond those disclosed in his schedules. Thus, her recovery would be limited at best. 26. Finally, the fourth Kopexa factor the interest of the creditors weighs in favor

of authorizing the Debtor to enter into the Agreement. Newmans claim constitutes forty-percent (40%) of all of the claims filed in Johnsons Bankruptcy Case. [See Case No. 11-20679, Claim Register.] If the Court authorizes the Debtor enter into the Agreement, she will withdraw her proof of claim, thereby increasing the potential distribution to the remaining creditors by as much as forty-percent.

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CONCLUSION AND RELIEF REQUESTED For the foregoing reasons, the Court should enter an order authorizing the Debtor to enter into the Agreement.

DATED this April 1, 2013. Snell & Wilmer L.L.P.

/s/ Engels Tejeda David E. Leta Engels Tejeda Attorneys for Neldon P. Johnson DATED this April 1, 2013. Bennett Tueller Johnson & Deere /s/ Shane L. Keppner Shane L. Keppner Counsel for Ina Marie Newman DATED this April 1, 2013. Nelson, Snuffer, Dahle & Poulsen, P.C. /s/ David Nelson J. David Nelson Robert D. Dahle Counsel for International Automated Systems, Inc.

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CERTIFICATE OF SERVICE I hereby certify that on April 1, 2013, I caused a copy of the foregoing to be served by first class mail, U.S. postage pre-paid, upon the attached Mailing Matrix, and upon the following by electronic mail: Shane L. Keppner Bennett Tueller Johnson & Deere email:skeppner@btjd.com Counsel for Ina Marie Newman J. David Nelson Nelson Snuffer Dahle & Poulsen, P.C. e-mail: nsdpnelson@aol.com Counsel for Intermountain Automated Systems, Inc. Duane H. Gillman Durham Jones & Pinegar email:dhgnotice@djplaw.com Counsel for the Chapter 7 Trustee Phillip G. Jones Chapter 7 Trustee email:pgjones4@hotmail.com

By: /s/ Engels Tejeda

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