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attorneys and practitioners of the Bankruptcy Court for the District of Colorado)
In re Michael Theodor George Burch and Ashley Rae Burch, Case No. 11-27539 ABC; Fed. R. Civ. P. 60(b)(1); November 20, 2013
The Court entered an order granting Debtor's motion to redeem motor vehicle after creditor failed to appear at a scheduled hearing. Creditor filed motion, under Fed. R. Civ. P. 60(b)(1), for relief from the order, arguing that its default was the result of excusable neglect. Creditor attributed its failure to appear to its counsel's lack of actual knowledge of the hearing date. In the absence of evidence that counsel's lack of knowledge was the result of any defect in the Court's electronic notification system, the Court ruled that creditor'Â€s neglect was not excusable.
Posted: 11/20/2013 2:02:35 PM
In re Dunlap; Case No. 12-30710 HRT; Order entered October 3, 2013 (Rule 3001).
The Court considered a chapter 13 debtor's claim objection. Creditor's proof of claim failed to comply with the documentation requirements under Rule 3001(c)(3). Debtor's counsel wrote the creditor a letter requesting the omitted information and the creditor failed to supply it. Debtors chose to object to allowance of the claim based solely upon the creditor's failure to comply with the rule; they advanced no substantive objection to the claim. Because the Debtors advanced no substantive objection, the Court denied the claim objection for the reasons explained in In re Reynolds, 470 B.R. 138 (Bankr. D. Colo. 2012). The Debtors also sought to sanction the creditor under Rule 3001(c)(2)(D). Debtors sought to preclude the creditor from supplying the omitted documents in the future and sought an award of attorney fees. As to the former, because the creditor had made no attempt to provide the omitted documents, the Court found that issue not ripe for consideration. Under Rule 3001(c)(2)(D)(ii), the Court found that the rule states two requirements for an award of attorney fees: 1) the fees must have been "caused" by the creditor's failure to comply with the rule; and 2) the fees must be reasonable. The Court found that the creditor's failure to comply with the rule "caused" the fees incurred in requesting the omitted information. But the Court could not find that the fees incurred were reasonable. The objection was lodged in a chapter 13 case where unsecured creditors would receive $69.96 over the course of a five year plan. With over $80,000.00 of unsecured claims, the dividend to unsecured creditors would be less than one-tenth of one percent. Disallowance of the claim under consideration would result in less than $ .50 to be divided up among the remaining creditors. Under the circumstances, the Court found the expenditure of attorney time to be unreasonable.
Posted: 10/4/2013 9:49:16 AM
In re Valley Mortgage, Inc. (VMI Liquidating Trust v. The Harvey Maveal Trust), Bankr. Case No. 10-19101-SBB; Adversary No. 12-01231-SBB, Order entered September 18, 2013.
(Action to Recover Fraudulent Transfers under section 544, 546, and the Colorado Uniform Fraudulent Transfer Act (CUFTA))
Defendant, the Harvey Maveal Trust, invested money with the Debtor, Valley Mortgage, Inc., while the Debtor was being used as a means to carry on a Ponzi scheme perpetrated by its President, Phillip R. Lochmiller. Defendant invested a total of $150,000 and received $218,713.48 from the Debtor. Thus, the Defendant is what is commonly referred to as a "net winner." The trustee of the Debtor now seeks to recover, pursuant to Bankruptcy Code section 544 and CUFTA, the net winnings received by the Defendant. The Defendant moved for summary judgment on the basis that: (1) the Defendant received the net winnings in good faith and for reasonably equivalent value; and (2) the recovery action is barred by the statute of limitations under Bankruptcy Code section 546 and CUFTA.
First, in arguing for summary judgment on the basis of receiving its net winnings in good faith and for reasonably equivalent value, the Defendant applied law which represents a minority view with respect to Ponzi schemes. In contrast, the law which represents the prevailing and majority view, as applied in Donnell v. Kowell, 533 F.3d 762 (9th Cir. 2008), affords no safe harbor for Ponzi scheme investors who receive their net winnings in good faith or for reasonably equivalent value. The Court declined the Defendant's invitation to follow the minority view and, under a prevailing and majority view of the law, the Court denied the Defendant's motion for summary judgment.
Second, the Court found that section 544 of the Bankruptcy Code allowed the recovery action to proceed pursuant to CUFTA. Furthermore, the Court found that under section 546 of the Bankruptcy Code, the Debtor had two years to from the petition date to bring the CUFTA action, so long as CUFTA's own statute of limitations had not run prior to the petition date. Finally, the Court found that CUFTA's statute of limitations did not expire pre-petition and, therefore, the recovery action was timely filed and could proceed.
Posted: 9/23/2013 8:42:41 AM
In re Valley Mortgage, Inc. (VMI Liquidating Trust v. United States of America on behalf of Internal Revenue Service), Bankr. Case No. 10-19101-SBB; Adversary No. 12-01277-SBB, Order entered September 18, 2013
(Action to Recover Fraudulent Transfers under section 544, 546, and the Colorado Uniform Fraudulent Transfer Act (CUFTA))
The Debtor, Valley Mortgage, Inc., was used as a means to carry on a Ponzi scheme perpetrated by its President and majority owner, Phillip R. Lochmiller. From February 2005 through July 2007, Lochmiller used funds which he drew from the Debtor's general account to pay his personal federal tax liabilities. In all, Lochmiller transferred $161,341.40 from the Debtor to the Defendant, the Internal Revenue Service ("IRS"). The trustee of the Debtor now seeks to recover, pursuant to Bankruptcy Code section 544 and CUFTA, the Debtor's funds which Lochmiller transferred to the IRS in satisfaction of his personal tax liabilities.
The IRS moved for summary judgment. In so doing, the IRS argued that the recovery action: (1) was barred by the applicable statute of limitations; (2) was barred by the doctrine of sovereign immunity; and (3) was preempted by the administrative claims process provided for under section 7422 of the Internal Revenue Code. The IRS also argued that it received the challenged transfers in good faith and for reasonably equivalent value.
First, the Court found that section 544 of the Bankruptcy Code allowed the recovery action to proceed pursuant to CUFTA. Furthermore, the Court found that under section 546 of the Bankruptcy Code, the Debtor had two years to from the petition date to bring the CUFTA action, so long as CUFTA'Â€s own statute of limitations had not run prior to the petition date. Finally, the Court found that CUFTA's statute of limitations did not expire pre-petition and, therefore, the recovery action was timely filed and could proceed.
Second, the Court found that section 106 of the Bankruptcy Code waived the protection otherwise afforded by the doctrine of sovereign immunity to claims brought under section 544 of the Code. Furthermore, the Court found this waiver applied even in the case where application of section 544 is predicated on state law, such as CUFTA.
Third, the Court found that section 7422 was entirely inapplicable to the facts at hand and, thus, did not preempt the fraudulent transfer action.
Finally, the Court found that questions of good faith and reasonably equivalent value are inherently factual and that those facts were in dispute. Therefore, the Court denied the United States' motion for summary judgment.
Posted: 9/23/2013 8:37:13 AM
In re Timothy P. Haran and Sheila M. Haran; Case No. 10-36018-HRT; Order entered August 14, 2013 (Objection to Amended Proof of Claim under FED.R.BANKR.P. 3002(c)(3) and 7015).
The creditor, Green Tree Servicing, LLC ("Green Tree"), held a junior lien which was partially secured by the Debtors' residence. Following confirmation and subsequent modification of their Chapter 13 plan, the Debtors surrendered their residence to the senior lien holder and their home was auctioned off at a foreclosure sale. Green Tree received proceeds from the sale which partially satisfied its lien. To account for the remaining deficiency, Green Tree amended its timely filed secured proof of claim to an unsecured proof of claim in the amount of the deficiency. The Debtors objected to Green Tree's amended proof of claim on two grounds: first, that Green Tree's amended proof of claim was time-barred by FED.R.BANKR.P. 3002(c)(3), which states that claims arising from judgments must be filed within 30 days of the judgment; and second, that Green Tree's amended proof of claim was improper and untimely because it asserted an entirely new and separate claim from Green Tree's prior and timely secured proof of claim.
In considering the merits of the Debtors' objection, the Court held that a plain reading of FED.R.BANKR.P. 3002(c)(3) reveals that the rule's 30 day time limit is invoked only when a judgment seeks recovery of a preference payment to a creditor or avoids a creditors interest in property. The rule does not place a time limit on filing an amended proof of claim when a creditor's collateral is merely sold at a foreclosure sale. Next, the Court applied the Tenth Circuit test for allowing amended proofs of claim, as stated in Tanaka Bros. Farms, Inc. v. Berger, 36 F.3d 996 (10th Cir. 1994), and found that Green Tree's timely filed secured proof of claim provided adequate notice of the existence, nature, and amount of the claim and that Green Tree would likely continue to hold the estate liable for the claim following foreclosure. In fact, the terms of the modified plan explicitly and unconditionally allowed for the filing of an amended claim for any deficiency which remained following foreclosure. The Court overruled the Debtors' objection and allowed Green Tree's amended proof of claim.
Posted: 8/29/2013 9:46:33 AM
In re Rentie, Case No. 10-18997 ABC, Docket #66, entered on August 8, 2013; The "hanging paragraph" of 11 U.S.C. § 1325(a) and 11 U.S.C. §§ 1327, 1328 and 1329.
Debtors moved to modify their plan post confirmation to surrender their home to the first mortgage holder and a vehicle to the purchase money lender secured by the vehicle. Judge Campbell denied Debtors' motion relying on In re Knapp, 08-24134 ABC, Docket #51 (July 5, 2013). Furthermore, the Court ruled Debtors could not modify their plan post confirmation to surrender their vehicle so as to effect a bifurcation and discharge of any deficiency balance. Debtors are bound to the treatment provided for secured creditors in their confirmed plan and section 1329 does not permit the type of modification of such claims which Debtors proposed.
Posted: 8/16/2013 7:38:40 AM
In re Knapp, Case No. 08-24134 ABC, Docket #51, entered on July 5, 2013; 11 U.S.C. §§ 1327, 1328 and 1329.
Debtors proposed in their modified plan to surrender their home and discharge any deficiency balance owed to the first mortgage holder. The Court denied Debtors' motion to modify holding that: (1) the Debtors were bound to the provisions of their confirmed plan; (2) section 1329 does not contemplate the bifurcation of a secured claim previously not subject to bifurcation; (3) Debtors could not seek to discharge any deficiency because the claim of the first mortgage holder was one excepted from discharge by section 1328(a)(1).
Posted: 8/16/2013 7:37:14 AM
In re Norwood, Case No. 12-23027- HRT; Order entered August 8, 2013 (Factors relevant to "good faith" analysis on motions to reconsider conversion pursuant to Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007)).
Former Chapter 7 Trustee, United States Trustee, and creditors filed motions to reconsider the Court's order converting the debtor's case from Chapter 7 to Chapter 13 by operation of Local Bankruptcy Rule 1017-1(a)(1), alleging that the debtor had moved to convert in bad faith and had proposed a Chapter 13 plan in bad faith. The Court, following the Supreme Court's directive in Marrama to evaluate whether the case would be converted or dismissed "for cause" under the non-exhaustive list of factors in § 1307(c), noted that the factors for evaluating good faith under § 1307(c), listed in In re Gier, 986 F.2d 1326 (10th Cir. 1993) differ slightly from those for evaluating good faith in filing a plan under § 1325(a)(3), enumerated in Flygare v. Boulden, 709 F.2d 1344 (10th Cir.1983). The Court also recognized that the Tenth Circuit narrowed the Flygare factors in In re Cranmer, 697 F.3d 1314 (10th Cir. 2012). The Court thus evaluated the debtor's good faith in filing the conversion motion using the Gier factors, and the debtor's good faith in filing the plan using the Flygare and Cranmer factors. The Court determined that the debtor had filed neither the conversion motion nor the plan in good faith and therefore reconverted the debtor's case to one under Chapter 7.
Posted: 8/15/2013 9:49:17 AM
In re: Gardner; Case No. 12-12485 HRT; Order entered July 19, 2013 (11 U.S.C. § 522(b); COLO. REV. STAT. § 13-54-102(1)(s); objections to exemptions; pre-bankruptcy transfers).
The Debtors are experienced accountants who sold their accounting practice. When a dispute arose between Debtors and the buyer, the parties took the matter to arbitration and judgment was entered against the Debtors in excess of $400,000.00. After the interim arbitration award was entered, the Debtors caused their new successor accounting practice to create a 401(k) profit sharing plan. The Debtors transferred funds directly from their personal brokerage accounts into the new 401(k) accounts contrary to governing statutes and regulations. The Colorado case of Dillabaugh v. Ellerton, 259 P.3d 550, 554 (Colo. Ct. App. 2011), has held that a retirement plan may qualify for exemption even though it is not ERISA-qualified or qualified for special tax treatment. Here, the Court found that the accounts did not qualify for exemption under COLO. REV. STAT. § 13-54-102(1)(s). The Debtors' failure to comply with I.R.S. regulations for 401(k) accounts went beyond the question of whether the accounts are tax-qualified. The accounts are a sham because money used to fund the 401(k) accounts was not deferred compensation from the Debtors' business but was personal funds. In addition, the Court found indicia of fraudulent intent in making the transfers that serves as an independent ground for denial of the exemption claim.
Posted: 8/12/2013 7:36:16 AM
Wadsworth v. High Speed Aggregate, Inc. (In re Trick Technologies, Inc.); Adversary Pro. No. 12-01622 HRT; Order entered July 22, 2013 (Initial Transferee under §550).
The following facts were undisputed, for purposes of the parties' cross-motions for summary judgment. The Debtor's principal (Mr. Lindsey) was a defendant in a state court criminal theft/fraud case, in connection with which he owed a restitution obligation. Lindsey caused the Debtor to transfer the Debtor's funds to the trust account of the law firm that represented Lindsey in the criminal case. The law firm then wrote a check to the state court for the restitution amount, which in turn wrote a check to the victim of Lindsey's fraud. An involuntary petition was filed against the Debtor, and the subsequently appointed Chapter 7 Trustee sought to recover the amount received by the fraud victim as a fraudulent transfer. The Court found that the law firm and the state court were conduits, and the fraud victim was the initial transferee. Lindsey was the entity for whose benefit the transfer was made. The Court was not persuaded that Lindsey, who may have had some degree of control over the funds while they were in the law firm's trust account, should be considered the initial transferee, given Tenth Circuit precedent requiring actual receipt of funds in order to be considered a transferee.
Posted: 7/23/2013 8:46:07 AM
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