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Rocky Mountain High LLC v. Lofstedt, et al., Adversary Proceeding No. 13-1025 ABC, October 16, 2014 11 U.S.C. §§ 544(a)(3); C.R.S. §§ 38-35-122, 38-35-108, and 38-22-101, et seq.
This adversary proceeding concerned the adjudication of the respective rights of the holder of a deed of trust, a purported mechanics lienor, and the Chapter 7 bankruptcy trustee in the bankruptcy estate's principal asset. The Court determined that the trustee prevailed over the claims of the deed of trust holder because of an insufficient legal description in the deed of trust and because the doctrine of equitable subrogation was not applicable against the trustee exercising her powers as a bona fide purchaser for value. The trustee prevailed over the mechanics lien because the lienor did not comply with requirements of the mechanics lien statute.
Posted: 10/23/2014 7:35:27 AM
In re SYMKA, Inc.; Case No. 11-32598 HRT; Order entered October 17, 2014 (Fed. R. Civ. P. 7; orders to show cause).
The Court dismissed the Debtor's motion for an order to show cause as procedurally and substantively deficient. Presumably unhappy with the results of the chapter 7 trustee's administration of the estate, the Debtor sought an order to show cause "as to why the Bankruptcy Trustee did not recover equipment . . . and accounts receivable . . . in an amount of several hundred thousand dollars and breached his fiduciary responsibility to the court, the Estate and the Debtor." The Court disfavors motions for orders to show cause requested by a private litigant that seek substantive relief against another private party. Where such motions are filed to vindicate private rights, as opposed to prompting compliance with Court orders or procedures, they create the appearance of the Court taking sides in a private dispute and, under those circumstances, an order to show cause improperly shifts the burden of going forward from the applicant to the target of the show cause order. In this case, the Court chose to deny the relief without prejudice instead of construing the DebtorrÃ¢Â€s motion in a more procedurally appropriate manner because of other more substantive shortcomings.
Posted: 10/21/2014 10:01:15 AM
In re Arenas; Case No. 14-11406 HRT; Order entered August 28, 2014, (The Controlled Substances Act, 21 U.S.C. § 801 et seq. & 11 U.S.C. §§ 706(a) & (d); 707(a); 1307(c); 1325(a)(3)).
The Debtors own a commercial building that contains two units. The Debtors lease one of the units to a marijuana dispensary. In the other unit, Mr. Arenas carries on his business of growing marijuana for medical marijuana patients. The Debtors originally filed their case under chapter 7 and the United States Trustee moved to dismiss for cause under § 707(a). Subsequently, the Debtors moved to convert to a case under chapter 13. The Debtors' activities constitute crimes under the federal Controlled Substances Act ("CSA") but those same activities do not violate Colorado law. The Court found cause to dismiss the Debtors' chapter 7 case under § 707(a) because the Court found that the Debtors' chapter 7 trustee would be unable to administer their case without committing crimes under the CSA. The Court also found the Debtors are ineligible to be debtors under chapter 13 because they could not satisfy the requirement that their plan be "proposed . . . not by any means forbidden by law" under § 1325(a)(3). Under Marrama, because the Debtors are ineligible to be chapter 13 debtors, their motion to convert was denied and their case was dismissed.
Posted: 10/21/2014 9:58:27 AM
In re: Flanders v. Lawrence, et al., Adv. Pro. No. 13-1456 ABC. 11 U.S.C. §§ 524(a)(1) and 362; Rooker-Feldman; issue preclusion.
Debtor sought sanctions against ex-wife and her attorneys for alleged violation of his discharge injunction and/or the automatic stay for actions taken in post-petition divorce case. The Court granted Defendants' motion for summary judgment, ruling that: (1) as determined by the Supreme Court's Rooker-Feldman doctrine, the Bankruptcy Court is without subject matter jurisdiction to review or reverse the divorce court's orders regarding property division; (2) Debtor was precluded from relitigating issues raised and decided against him in the divorce case; (3) Debtor had no standing to litigate whether a divorce court order violated the automatic stay of actions against property of his bankruptcy estate; and (4) the automatic stay as to actions against the Debtor terminated upon entry of Debtor's discharge.
Posted: 10/9/2014 4:13:26 PM
In re Briones-Coroy (United States Trustee v. Assaf), Adversary Proceeding No. 11-01311-SBB (Bankr. No. 10-40900-SBB).
The court declined to approve a stipulation between the United States Trustee and Emmanuel Assaf which was submitted to resolve and provide for payment by Mr. Assaf of prior judgments in the total amount of $501,925.98 for multiple violations of 11 U.S.C. Section 110 as a bankruptcy petition preparer. The United States Trustee obtained the judgments for and on behalf of 280 debtors.
The proposed stipulation to which the United States Trustee agreed, would have allowed Mr. Assaf to pay on the judgments at a rate of $250.00 to $2,000 per month until January 1, 2042, twenty-seven years and eight months from now.
The court declined to accept the stipulated agreement because (a) Mr. Assaf and his wife, to whom he had transferred real property shortly before and during the bankruptcy court litigation, owned real property with equity estimated at $1.5 to $2.0 million; (b) the United States Trustee had done nothing, nothing whatsoever, to execute on the judgments it obtained in October and December 2012; (c) the United States Trustee failed to file any lis pendens, transcripts of judgment, judgment liens, or similar encumbrances on the Debtor's real property for two and one-half years during litigation and after judgments entered; (d) the delay, cost and likely failure to recover and pay the 280 debtors over 27 years was shocking and unconscionable.
Posted: 8/12/2014 3:04:06 PM
MacArthur Co. v. Cupit, 13-1185 EEB
Creditor who supplied roofing materials to debtor's roofing company brought action under 11 U.S.C. § 523(a)(4), alleging that debtor's misapplication of funds under the Colorado Mechanic's Lien Trust Fund Statute amounted to either defalcation, as that term has been recently defined by the Supreme Court in Bullock v. BankChampaign, 133 S.Ct. 1754 (2013), or embezzlement. The Court held that under the new Bullock standard, to establish a debtor's "reckless disregard," a creditor must provide evidence that the debtor was subjectively aware that his conduct might violate a fiduciary duty. It was not enough that the debtor objectively should have been aware of the risk. Thus, the Court found the debtor did not commit a defalcation during the time period in which he was unaware of his statutory fiduciary duty under the Colorado Trust Fund Statute. However, after debtor had been sued by other suppliers for violations of that statute, the Court held that the debtor either consciously disregarded or was willfully blind to a substantial and unjustifiable risk that his conduct would violate a fiduciary duty. The Court further held that, although the creditor was entitled to treble damages under the Colorado theft statute for debtor's conduct, the creditor failed to prove that debtor acted with animus furandi or intention to steal, as required for an embezzlement claim under § 523(a)(4).
Posted: 8/6/2014 7:31:16 AM
Enigami Systems, Inc. and Croan v. Baca (In re Baca), Adversary No. 14-01047-SBB
In state court, the Plaintiff received a pre-petition award of attorney fees against the Defendant/Debtor under Colorado's Frivolous and Groundless Statute, C.R.S. § 13-17-102. Plaintiff, here, sought a determination that the award was nondischargeable in bankruptcy pursuant to 11 U.S.C. Section 1328(a)(4) which provides, in part, that a debt "for restitution, or damages, awarded in a civil action against the debtor as a result of willful or malicious injury . . . that caused personal injury to an individual" is not dischargeable.
Defendant/Debtor's motion to dismiss argued (a) the Plaintiff corporation is not an "individual" and therefore cannot recover under Section 1328(a)(4), and (b) an award of attorney's fees is not a "personal injury" under Section 1328(a)(4) and the Plaintiff thus could not prevail on the nondischargeability claim.
The Court ruled that (a) Defendant is correct; a corporation is not an individual and thus not entitled to make a claim under Section 1328(a)(4), and (b) an award of attorney's fees can qualify as a "personal injury" not limited exclusively to physical or bodily injuryyÃ¢Â€and may be found non-dischargeable under Section 1328(a)(4). The motion to dismiss was GRANTED in part and DENIED in part.
Posted: 8/1/2014 1:39:02 PM
In re Schmidtke, Case No. 09-18484 EEB, March 11, 2014; 11 U.S.C. §522(f).
Debtors reopened their case to avoid a judgment lien on their residence under 11 U.S.C. § 522(f). The lien creditor objected, arguing that debtors could not utilize § 522(f) to avoid the lien because they did not claim a homestead exemption prior to the closing of their case. The Court granted debtors' motion to avoid the lien, holding: (1) § 522(f) allows a lien to be avoided if it impairs an exemption to which debtors "would have been entitled," regardless of whether the property was actually claimed exempt; (2) creditor could raise debtors' lack of entitlement to an exemption as a defense to lien avoidance, but there was no basis for such a challenge in this case; (3) there was no need for debtors to amend their exemptions because the property was abandoned to debtors upon closing of their case and was no longer subject to the claims of general creditors; (4) debtors need not have equity in the property in order to avoid a judgment lien under § 522(f); and (5) applying the formula of § 522(f)(2)(A), creditor's lien impaired the homestead exemption to which debtors would have been entitled.
Posted: 7/25/2014 1:44:57 PM
In re K Lunde, LLC, Case No. 13-17775.
Chapter 11 debtors, who were co-owners of a shopping center, proposed a plan and disclosure statement that separately classified a county secured tax claim that provided for the county to retain its lien on Debtors' property and receive payments on its claim in equal monthly installments, with statutory interest, over a one-year period. A creditor objected to the adequacy of Debtor's disclosure statement, arguing that the Debtors could not separately classify and deem impaired the secured tax claim. The Court acknowledged that such confirmation issues are not normally considered in the context of a disclosure statement objection, but held it was proper to do so in this case because the classification and impairment issues presented could make the plan patently unconfirmable. The Court then determined that § 1129(a)(9)(D), added to the Bankruptcy Code in 2005, applied to the county's secured tax claim. Because § 1123(a)(1), which controls the classification of claims, does not contain an express exclusion for § 1129(a)(9)(D) claims, the Court held those secured tax claims must be separately classified. The Court further held that the secured tax claim was not impaired because the foundation of § 1124's concept of impairment is built on plan impairment. In this case, the secured tax claims were impaired, but that impairment was dictated by the Bankruptcy Code, not the Debtors' plan. The Court concluded that when a plan merely provides the statutorily prescribed treatment afforded claims that fall within the purview of § 1129(a)(9)(D), and does not otherwise alter the secured tax claimant's non-bankruptcy rights, the plan itself is not the source of the claim's impairment. Because the secured tax claim was not impaired, the county could not vote on the plan and Debtors could not secure an accepting vote of at least one impaired class as required by § 1129(a)(10), rendering the proposed plan unconfirmable.
Posted: 7/25/2014 1:39:13 PM
Sender v. Cygan (In re Rivera), Adversary Proceeding No. 11-01378-SBB, Bankruptcy Case No. 09-23209-SBB.
This case has a long and tortured history. It concerns a Trustee's strong arm powers under 11 U.S.C. Section 544(a) and whether a bankruptcy Trustee qualifies as a bona fide purchaser and can thus avoid a deficient deed of trust, or if the Trustee has sufficient notice of the deficient deed of trust - and thus cannot qualify as a BFP, and thus cannot avoid the deficient deed of trust.
The case came before the Court on remand from the Colorado Supreme court to interpret and examine the recent amendments made to Colorado's real property title recording statute, C.R.S. § 38-35-122, by the Colorado legislature during and in response to the litigation in the instant case. An adversary proceeding was initiated by the Chapter 7 Trustee against holders of a deed of trust on Debtor's property pursuant to the Trustee's "strong arm powers" under 11 U.S.C. § 544(a)(3). At the commencement of the adversary case, the issue before this Court was whether a recorded deed of trust in Colorado provides sufficient notice of a party's interest in the property if the deed of trust contained no legal description of the property, but identified the property by a street address alone. This Court certified the legal inquiry under State law to the Colorado Supreme Court, which initially accepted this Court's certification and issued an opinion answering the question in the negative. However, following the Colorado Supreme Court's opinion, and in direct response to that opinion, the Colorado legislature passed House Bill 13-1307 intending to clarify Colorado law on the issue and specifically nullifying the opinion issued by the Colorado Supreme Court. In response, Colorado Supreme Court withdrew its opinion and remanded the case back to this Court again.
On remand, the original issued remained before the court: did the Trustee qualify as a BFP under the recent amendments to the Colorado real property recording statute, and thus he could avoid the deficient deed of trust, or did he have sufficient notice of the deed of trust, and thus he did not qualify as a BFP and could not avoid the deficient deed of trust.
But after remand, an additional threshold issue came before the court: whether the legislative amendments could apply to the facts of this case in disposing of the legal inquiry before the Court or whether application of the new amendments to the previously pending case would be unconstitutionally retrospective. This Court applied a three factor test articulated by the Colorado Supreme Court in City of Golden v. Parker, 138 P.3d 285 (2006) and found that under the facts of the case, application of the new amendments was not unconstitutionally retrospective. Specifically, the Court determined that: (a) the new amendment advanced the public interest by providing an explicit, consistent, and predictable recording statute in the State; (b) in this case, the Trustee's rights under 11 U.S.C. § 544 were subject to and contingent upon State law and therefore the Trustee did not have a reasonable expectation of a vested right during the pending litigation in this case; and (c) there was no surprise and reliance on contrary law by the Trustee because Colorado recording statutes were not clear as to the effect of a missing legal description on the validity of a lien.
The Court concluded that the Trustee did not qualify as a BFP and was not entitled to avoid the deed of trust pursuant to 11 U.S.C. § 544(a)(3). Summary Judgment was entered in favor of the Defendants and against the Trustee.
Posted: 7/24/2014 12:48:16 PM
Midwest Motor Supply Co., Inc. v. Jeffrey A. Hruby (In re Hruby); Case No. 14-11849 HRT; Order entered May 16, 2014, (§ 362(d)(1) cause to continue pre-petition litigation).
Movant, based in Ohio, employed Debtor as a salesman to service accounts primarily located in Colorado. Following the Debtor's resignation, Movant sued the Debtor in Ohio seeking breach of contract damages and injunctive relief. After commencement of Debtor's chapter 7 case, Movant sought relief from stay to continue that pre-petition litigation with respect to the injunctive relief. In cases of this type, Bankruptcy courts in the 10th Circuit frequently look to the Curtis factors, In re Curtis, 40 B.R. 795, 799-800 (Bankr. D. Utah, 1984), for considerations relevant to a finding of cause under § 362(d)(1). A factor that does not appear on the Curtis list, and which is frequently considered by courts outside of the 10th Circuit, is the likelihood the movant will prevail on the merits of the litigation. In In re Gindi, 642 F3d 865 (10th Cir. 2011), the movant sought relief from the automatic stay for cause under § 362(d)(1) in order to pursue a state court appeal. The 10th Circuit held "that the bankruptcy court should have lifted the stay under § 362(d)(1) only if [the movant] showed that his appeal was likely to succeed," Id. at 873, and discussed the likelihood of success on the merits in cases of this type. In light of Gindi, the Court considered whether it was necessary to address likelihood of success on the merits in this case and determined that it was. The Court determined that Movant was likely to succeed on 2 of its 3 injunctive relief claims and lifted the stay as to those 2 claims.
Posted: 7/10/2014 8:24:27 AM
In re Fogel, Case No. 10-38010 ABC, Docket #66, (Bankr. D. Colo. June 20, 2014) (Notice of Appeal filed 7/1/14 at Docket #69); Fed.R.Bankr.P. 1016
The wife of a deceased Chapter 13 debtor, the personal representative of the debtor's probate estate ("PR"), moved the Court to reconsider its order published at In re Fogel, 507 B.R. 734 (Bankr. D.Colo. 2014). The order denied the PR's request to waive the requirement that the debtor complete a course in personal financial management because of his death. The order also dismissed the deceased debtor's Chapter 13 case relying, in part, on Fed.R.Bankr.P. 1016. The PR urged the court to consider her interests and the interests of her children as among the interests referred to in Fed.R.Bankr.P. 1016. The Court denied the PR's motion to set aside the dismissal order concluding again that dismissal was the appropriate course in the case before it and that the PR is not entitled to obtain and receive the benefit of a discharge in a bankruptcy case which she did not file
Posted: 7/3/2014 8:12:36 AM
In re Lopez, Case No. 13-22220- HRT, Chapter 13; Order entered July 1, 2014 (Application of 11 U.S.C. § 506(a)(1) and 1322(b)(2) to the Colorado Common Interest Ownership Act, Colo. Rev. Stat. § 38-33.3-316 (the "Act")).
A condominium owners association ("COA") filed an objection to the Debtor's Chapter 13 plan that proposed to pay the COA six months of assessments under the Act and "strip off" the remaining past due assessments under § 506(a)(1), where the parties agreed that the Debtor's primary residence was valued at less than the first mortgage on the residence. The COA argued that part of its lien for assessments was secured due to the priority given the six months of assessments under the Act, and that, pursuant to § 1322(b)(2) and Nobelman v. American Sav. Bank, 508 U.S. 324(1993), its lien could not be stripped off in a Chapter 13 Plan. Debtor contended that under the Act, the COA had a super priority lien over the first mortgage holder's otherwise senior deed of trust in the event of a foreclosure, but that by the terms of the Act, the lien was limited to the assessments accruing within six months of the initiation of foreclosure proceedings. The Debtor argued that the remainder of the COA's lien could be stripped off in the Chapter 13 Plan under § 506(a)(1) and (d). The Court held in Debtor's favor, finding that under the plain terms of the Act, the COA's lien was a statutory lien, and not a "security interest" as defined in the Bankruptcy Code, the Act, or the COA Declarations. Because the COA's lien was not a security interest, it was not subject to the anti-modification clause of § 1322(b)(2), and was subject to 506(d), making the unsecured portion of the COA's lien void upon completion of the Chapter 13 Plan. The Court noted that Debtor's obligation to pay post-petition assessments was unaffected by the Court's order.
Posted: 7/3/2014 8:03:36 AM
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