U.S. Bankruptcy Court - District of Colorado

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Recent Tenth Circuit Opinions (You will be taken to the 10th Circuit website)
In re: Kevin Fred McCarthy Bankruptcy Case No. 08-28502EEB
Bank alleged certain loan obligations owed by debtor should be nondischargeable under 11 U.S.C. § 523(a)(2)(B) and debtor counter-claimed, alleging Bank officer wilfully violated the automatic stay. The Court determined that the debt owed to the bank was nondischargeable because debtor incurred the debt through use of a false financial statement, which failed to list substantial contingent loan guaranty obligations. The Court found that the contingent nature of debtor's guaranty obligations did not lessen the materiality of those obligations, given that the liabilities were significant and debtor, a sophisticated businessman, admitted he was aware of nature and existence of the liability. Even assuming debtor's belief that the guaranty obligations would never be called on was true, the Court held that debtor acted with a reckless disregard to the truth. The Court also determined that the Bank reasonably relied on debtor's financial statement because there were no "red flags" that required a more thorough investigation of debtor’s finances.

On debtor's counterclaim under § 362(k), the Court found that the Bank's vice president had wilfully violated the automatic stay by making threatening postpetition call to debtor and demanding that debtor reaffirm his debt to the Bank. Bank officer also violated the stay by sending a postpetition letter to debtor, as a guarantor of business debt, which threatened legal action against debtor individually.
Posted: 12/18/2009 8:51:27 AM
Hill v. Gibson Dunn & Crutcher LLP (In re ms55, Inc.), Adversary Proceeding No. 04-1650 ABC.
11 U.S.C. §544. Chapter 7 trustee was unsuccessful in his claims against law firm for aiding and abetting and conspiring to breach fiduciary duties owed by directors and officers of debtor corporation to unsecured creditors. The Court found that, under Delaware law, directors and officers owed no duties to creditors. Even if Colorado law applied, limited duty of officers and directors of insolvent corporation not to favor their interests at the expense of general creditors' claims was not breached by the conduct of officers and directors in granting a security interest for antecedent debt to insider in connection with new loan which was intended to rehabilitate the debtor.
Posted: 12/10/2009 7:51:30 AM
In re: 7677 EAST BERRY AVENUE ASSOCIATES, L.P., ET AL. Case No. 09-28000-MER
A creditor objected to Brownstein Hyatt Farber Schreck, LLP's ("BHFS") application to be employed as debtors' counsel for three jointly administered cases. The Court considered each debtor's assets, liabilities, relationships and transfers, as well as BHFS's prior and current representation of the debtors and certain creditors in the jointly administered case. The Court reviewed the statutory requirements in 11 U.S.C. § 327, as well as non-statutory case law on the "appearance of impropriety." The Court ultimately found BHFS complied with the statutory requirements in § 327. Warning that "BFHS is walking on the edge of a sword," the Court also found the facts and circumstances did not present the "appearance of impropriety" sufficient to prevent the attorneys' employment.
Posted: 11/30/2009 8:48:15 AM
In re Bryan (Peters v. Bryan), Adversary Proceeding No. 08-01102-SBB
The Trustee brought an adversary proceeding against the Debtor, his wife, and a company owned by the Debtor. The Trustee sought a declaratory judgment that property ("Property") placed in a trust ("Trust") - specifically, Debtor's residence and the proceeds of a sale of a Range Rover - were property of the estate. The Trustee further sought turnover of the Property and authority to sell the turned-over property.

The Court concluded that the Property placed in a spendthrift trust wherein the settlor and beneficiary were the same person was invalid under Colorado. Relying on the Restatement(Second) of Trusts and In re Alagna, 107 B.R. 301 (Bankr. D. Colo. 1989), the Court concluded that where, as here, the Debtor was plainly and unambigously named as settlor and beneficiary, the Trust was not valid. The Court further concluded that the Trust created by the Debtor and his wife was a "sham trust" because of the dominion and control that they exercised over the Trust and because of the disregard for formalities of the trust. In effect, the Debtor and his wife used the Trust assets - the Property - as their own. Consequently, the Court concluded that the Trust Property was property of the estate and must be turned over to the Trustee for sale consistent with 11 U.S.C. § 542. The Court further concluded that, alternatively, the imposition of a constructive trust was appropriate here to prevent unjust enrichment. Because (a) the Debtor retained possession of his real property, (b) the transfers of assets was concealed, (c) the value of consideration for certain transfer was not the reasonable equivalent to the asset transferred, and (d) the Debtor was insolvent or became insolvent soon after the transfer, the imposition of a constructive trust was appropriate also.
Posted: 9/4/2009 3:46:08 PM
In re Perez (United States Trustee v. Perez), Bankruptcy Case No. 05-31631-SBB, Adversary Proceeding No. 06-01202-SBB.
On remand from the District Court, the Bankruptcy Court concluded that where a Debtor had used a false Social Security number to procure debt, file bankruptcy, and seek a discharge using a false Social Security number, where the Complaint seeking denial of discharge was not going to be pursued by the United States Trustee, the Court would Order the Debtor to provide notice of the impending dismissal of the discharge complaint to all the creditors in his case. Moreover, the Court ordered the Debtor, to the extent possible, to notify the person whose Social Security number was used of the bankruptcy case, the adversary proceeding, and dismissal.

Relying, as the District Court did, on the Peterson-Marone Const., LLC v. McKissack (In re McKissack),decision, the Court concluded that creditors in the Debtor's bankruptcy case could object to the dismissal of this case and substitute as party-plaintiff. Moreover, the Court concluded that the unknown person who actually was issued the Social Security number fraudulently used by the Debtor was a party in interest in this case and could be substituted as a party in interest or could even intervene in this action as a right.
Posted: 9/3/2009 9:53:04 AM

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