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Sandra Malul filed a Chapter 7 Bankruptcy Case in 2011.  She received a discharge and her case was closed.  At the time, Malul did not disclose a previous $50,000 investment in Heartland Caregivers, LLC, an entity formed by John Fritzel to grow and sell medicinal marijuana.  Malul never received a return on her investment in Heartland Caregivers and thought it had been lost.  Years later, after reviewing a Denver Post article featuring Fritzel’s success in the marijuana industry, Malul brought litigation claims in Denver District Court arising from her interest in Heartland Caregivers.

Malul then moved to reopen her bankruptcy case to disclose the initial Heartland Caregivers investment.  The Court conditionally granted the Motion to Reopen, and a Chapter 7 Trustee was re-appointed. Shortly thereafter, Malul filed a motion to compel the trustee to abandon her interest in Heartland Caregivers, because any efforts by the Trustee to administer the asset would violate the Federal Controlled Substances Act (21 U.S.C. § 101, et seq.).  Meanwhile, the Trustee reached an agreement with Fritzel to settle Malul’s lawsuit for $100,000.  Later, the United States Trustee filed a motion to vacate the Order re-opening the bankruptcy case, arguing any administration of Malul’s interest in Heartland Caregivers would necessarily violate the Controlled Substances Act.

The Court concluded Malul’s ownership in Heartland Caregivers is an ongoing violation of the Controlled Substances Act.  Although Heartland Caregivers never produced or sold marijuana in violation of CSA § 841(a)(1), Malul’s stake in Heartland Caregivers was intended as an illegal investment in the proceeds of a criminal enterprise in violation of CSA ڊ 854.  Because Malul’s ownership of Heartland Caregivers is an ongoing criminal act, Malul is also engaged in an ongoing CSA violation by asserting rights arising from her Heartland Caregivers investment in the Denver District Court lawsuit.  Accordingly, the Court held any administration of Malul’s interest in Heartland Caregivers by the Trustee, whether by abandoning the interest or settling the ensuing litigation claims, would involve the Court and the Trustee with an ongoing violation of federal law.  The Court granted the US Trustee’s motion and vacated its Order re-opening this Bankruptcy Case.

The chapter 11 trustee (the “Trustee”) of Bearcat Energy LLC (the “Debtor”) sued the Defendant to recover payments the Defendant received for its services as a court-appointed special master in the divorce proceedings between Bearcat’s principal and his former spouse.  The Trustee alleged the payments were preferential and/or fraudulent transfers. The Defendant moved to dismiss the complaint based on the Barton doctrine, a principle of federal common law that requires a litigant to obtain permission from the court that appointed a receiver before he may sue the receiver in a different court.  If the Barton doctrine applies and the plaintiff has not obtained prior permission from the appointing court, the court where the suit is brought lacks subject matter jurisdiction and must dismiss the case.

Though some courts have extended the Barton doctrine to state court special masters, the Court held that doctrine did not apply to the types of claims asserted by the Trustee in this adversary proceeding.  According to the Tenth Circuit, the Barton doctrine applies to “claims based on alleged misconduct in the discharge of a [court-appointed official’s] official duties,” Satterfield v. Molloy, 700 F.3d at 1234-35, or “claims based on acts that are related to the official duties of the trustee.”  Id. at 1236.  The Court analyzed the Trustee’s claims and found they were unrelated to the Defendant’s performance of its official duties as special master.  Instead, the claims centered on the timing of the payments received, the Debtor’s financial condition, and whether the Debtor received consideration for the payments. 

In addition, the Court determined that the purposes behind the Barton doctrine were not jeopardized by the Trustee’s action.  Since the divorce case was closed, the doctrine’s concerns over forum shopping, interference with, and usurpation of the powers of the divorce court were not present.  The Trustee’s suit would not affect the equitable division of marital property in the divorce case and it was not an attempt to obtain an advantage over the parties in the divorce case or an attempt to harass or extort the Defendant in the performance of its duties.  The Court observed that if the Trustee succeeded in recovering recover the payments from the Defendant, the Defendant might pause when considering future special master appointments, but no more so than any supplier, service provider, or professional that provides services to an insolvent entity or who receives payment from one and later has to disgorge the payments.  The Court reasoned that suits for the recovery of preferential or fraudulently transferred payments to a court-appointed official would not cause the officials to incur higher malpractice premiums or increase the costs of state court proceedings because the official would not be able to recoup its losses from either source.  Because none of the purposes of the Barton doctrine were furthered by applying it to this case, the Court declined to do so and denied the Defendant’s motion to dismiss.

The Chapter 13 Trustee objected to confirmation of an above-median-income debtor’s proposed Chapter 13 plan for several reasons.  First, the Chapter 13 Trustee asserted that the Debtor did not meet the disposable income requirement of 11 U.S.C. § 1325(b)(1)(B) and (b)(2) because the Debtor failed to include as income bonuses earned during the term of the plan.  Second, the Chapter 13 Trustee asserted that the Debtor’s proposed charitable and religious contributions were not reasonable nor consistent with a prior documented history and thus could not be included as expenses for purposes of calculating projected disposable income.  Third, the Chapter 13 Trustee asserted that the Debtor did not satisfy the projected disposable income mandate because he failed to provide for an increase (or “step-up”) of his plan payments when he paid off loans from his 401(k) account.  Finally, the Chapter 13 Trustee objected that the Debtor had not proposed the plan in good faith under 11 U.S.C. § 1325(a)(3).  
Looking to the statutory formula for calculating disposable income for above-median-income debtors set forth in 11 U.S.C. § 1325(b)(2) and (b)(3), the Court concluded that the Debtor had properly calculated his disposable income on Form 122C-1 and Schedule I without including bonus income.  But  then, using the forward-looking approach to calculating projected disposable income set forth in Hamilton v. Lanning, 560 U.S. 505 (2010), the Court considered whether this was one of the “unusual cases” where information about the Debtor’s future bonus income was “known or virtually certain” such that such income should be included in the projected disposable income calculation.  
Based on the Debtor’s bonus history, which reflected receipt of bonuses of varying amounts in three of the five years prior to the bankruptcy filing; the parties’ agreement that the Debtor had only the “potential to receive bonus income” in the future; and the Debtor’s uncontroverted, credible testimony that he was highly unlikely to receive a bonus for 2019 because his company was not on track to meet its revenue targets, the Court, applying the Lanning standard, concluded that because the Debtor’s receipt of bonus income was not “known or virtually certain,” he was not required to include it in his projected disposable income calculation.  While overruling the Chapter 13 Trustee’s first objection, however, the Court noted that the Bankruptcy Code provided a number of avenues through which creditors and the Chapter 13 Trustee could investigate the Debtor’s future financial condition so that they could later seek modification of the plan, if appropriate.
The Chapter 13 Trustee also objected that the Debtor’s proposed charitable and religious contributions were not reasonable or consistent with the amounts historically claimed in the Debtor’s tax returns.  Examining case law regarding the allowance of charitable and religious contributions prior to and after the enactment of the “Religious Liberty and Charitable Donation Protection Act,” P.L. 05-183, 112 Stat. 517 (1998); the Bankruptcy Abuse Prevention and Consumer Protection Act,” P.L. 109-8, 119 Stat. 37 (2005); and the Religious Liberty and Charitable Donation Clarification Act, Pub. L. 109-439 120 Stat. 3285 (2006); and the language of 11 U.S.C. § 1325(b)(2) and (3), the Court held that it was required to determine both whether the Debtor’s charitable and religious contributions were in excess of 15 percent of the Debtor’s gross annual income and whether the debtor’s expenditure of such contributions was “reasonably necessary.” 
On the basis of the Debtor’s credible, uncontroverted testimony that he made regular cash contributions to his church and to Alcoholics Anonymous in addition to those charitable and religious contributions for which he had receipts and which he claimed on his tax returns, the Court determined that the Debtor’s proposed charitable contributions added up to only about 3 percent of his gross annual income.  The Court further determined that such expenses, which were about half of the amount the Debtor proposed to pay to his creditors through the plan, were “reasonably necessary” within the context of 11 U.S.C. § 1325(b)(2) and could be subtracted from his current monthly income as part of the projected disposable income calculation under 11 U.S.C. § 1325(b)(1)(B).  Thus, the Court overruled the Chapter 13 Trustee’s second objection.
Utilizing the Lanning standard, the Court sustained the Chapter 13 Trustee’s objection that the Debtor needed to “step up” his plan payments upon payoff of the loans on his 401(k) account, finding that the date of the payoff of the Debtor’s loans on his 401(k) account was both “known” and “virtually certain.”  Meanwhile, the Court rejected the Debtor’s argument that, because he would have to incur additional future expenses for car repairs, home maintenance and mortgage payments, and health care costs, such future expenses should operate as a sort of “offset” to the additional projected disposable income resulting from payoff of the loans.  The Court found that the Debtor’s additional future expenses were likely, but did not meet the “known or virtually certain” threshold.
The Court rejected the Chapter 13 Trustee’s contention that the Debtor had proposed the Plan in bad faith, noting that under the totality of the circumstances test set forth in Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983) as refined in Anderson v. Cranmer (In re Cranmer), 697 F.3d 1314, 1318-19 (10th Cir. 2012), the Debtor had stated his material debts and expenses accurately, had not made any fraudulent misrepresentation to mislead the Court, and had not unfairly manipulated the Bankruptcy Code.  Since the Court had ruled in favor of the Debtor with respect to most of the objections related to his projected disposable income, assuming the Debtor would amend his plan to incorporate “step up” payments when his 401(k) loans were paid off, the Court would ascertain no lack of good faith under Section  11 U.S.C. § 1325(a)(3).
Finally, in light of its determination that the Debtor’s bonus income need not be included in his projected disposable income calculation, the Court considered the Trustee’s alternative request that the Debtor should be required to (1) provide his federal income tax returns to the Chapter 13 Trustee each year; and (2) report annually whether or not he received a bonus and, if so, how much (since bonus information is not identified separately on federal income tax returns).  
Noting that the Chapter 13 Trustee had a duty to investigate the Debtor’s financial circumstances to ensure that he was paying the maximum possible to his creditors, and noting that the Debtor had the duty to provide information related to his finances during the term of the plan, and under the particular circumstances of the case, the Court found that the Debtor should be required to provide his tax returns and to report annually about his income and expenses.  
The Court denied confirmation of the Debtor’s plan as unconfirmable in its present form, but allowed him to submit an amended plan that conformed with the terms of the Court’s Order.

The Colorado Department of Labor and Employment (the “State”) sued the Debtor seeking a determination that a debt for an overpayment of unemployment benefits, a 65% statutory penalty, and a 25% collection fee should be excepted from the Debtor’s discharge pursuant to 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(7).  The Debtor used the State’s “CUBLine” automated phone system to apply for weekly benefits and to certify his eligibility for the unemployment benefits.  The State contended that the Debtor had lied during the telephone calls by misrepresenting his income and employment.
After a trial, the Court found that the State failed to prove its case under Section 523(a)(2)(A). The State was unable to prove that the Debtor made any specific representations during the telephone calls.  And, even if the Debtor had lied about his income and employment, such representations would have been statements “respecting the debtor’s financial condition”; and thus, not actionable under Section 523(a)(2)(A) pursuant to the recent decision of the United States Supreme Court in Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752 (2018).  For that reason, the Court held that the debt for the overpayment of unemployment benefits was dischargeable.
With respect to the State’s Section 523(a)(7) claim, the Court determined that the 65% statutory penalty assessed by the State was nondischargeable.  However, the debt for the overpayment of unemployment benefits and the 25% collection fee was dischargeable because that part of the debt was not “a fine, penalty, or forfeiture” within the meaning of Section 523(a)(7).

Debtors Badlands Prod. Co. and Badlands Energy, Inc. (together, “Badlands”), a consolidated natural gas and petroleum exploration, development and production company, owned oil and gas assets in the Uintah Basin, Utah (the “Riverbend Assets”).  In the Chapter 11 cases, the Court authorized the sale of the Riverbend Assets to Wapiti Utah, LLC, f/k/a Wapiti Newco, LLC (“Wapiti”).  The sale was free and clear of all liens, claims, encumbrances and interests pursuant to Section 363(f) of the Bankruptcy Code, but as stated in the Sale Order, the sale was subject to the outcome of certain claims brought by Monarch Midstream, LLC (“Monarch”) in the adversary proceeding.

Monarch is a midstream provider of gas gathering, processing, and saltwater disposal services.  Monarch sued Badlands and Wapiti seeking a determination its midstream agreements with Badlands were covenants running with the land under Utah law.   Monarch also sought to hold Wapiti liable for Badlands’ prepetition default under those agreements, in the amount of approximately $1.2 million.

Applying Utah law, the Court held Monarch’s midstream agreements with Badlands constituted covenants running with the land.  Accordingly, Wapiti took the Riverbend Assets subject to those agreements notwithstanding Section 363(f).  The Court held all of the requirements for a covenant to run with the land under Utah law were met:  the covenants “touched and concerned” the land; the parties intended for the covenants to run with the land; and privity was satisfied.  Although the respective interests of the parties did not fall within the traditional paradigm for mutual privity, to the extent Utah law requires mutual privity, the Court found it was satisfied by the mutual property interests of the parties within the “area of mutual interest” (AMI), including the dedicated oil reserves dedicated by Badlands to Monarch for processing pursuant to the agreements.  In reaching its decision, the Court distinguished the contracts from those at issue in In re Sabine Oil & Gas Corp., 547 B.R. 66 (Bankr. S.D.N.Y. 2016), aff’d, 567 B.R. 869 (S.D.N.Y. 2017), aff’d, 734 Fed. Appx. 64 (2nd Cir. 2018), which involved dedications of produced gas and application of Texas law.

The Court further held Wapiti was not liable for Badlands’ prepetition defaults under the agreements, however.  Once the covenants were breached, they became causes of action.  Under Section 363(f), the Riverbend Assets were sold free and clear of such claims.

After he received his Chapter 7 discharge, the debtor, certain business entities in which he had an interest, and other defendants were sued in state court by the State of Colorado, alleging violations of  the Colorado Consumer Protection Act (“CCPA”) and the Colorado Fair Debt Collection Practices Act (“CFDCPA”). After a bench trial, the state court found in favor of the State, imposed civil penalties on the defendants, and awarded the State attorney’s fees and costs. In a post-trial motion, the debtor moved to amend the findings and conclusions and accompanying judgment to bar the State’s recovery of attorney’s fees and costs against him personally, based upon his bankruptcy discharge. The state court declined to address his argument, finding that the debtor presented no evidence of his bankruptcy during trial, and determined the amount of the fees judgment.

The debtor appealed the fees judgment to the Colorado Court of Appeals, arguing that although the bankruptcy discharge did not preclude the award of civil penalties issued in the underlying judgment, it did preclude the fees judgment against the debtor personally. The State argued that the fees judgment was non-dischargeable under 11 U.S.C. § 523(a)(7), as a debt for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, that is not compensation for actual pecuniary loss. Assuming that the debtor properly preserved the consideration of the effect of his bankruptcy discharge on the fees judgment during trial, the Court of Appeals reached the merits of the debtor’s argument, affirmed the state court in a 19-page opinion, and explicitly found that the fees judgment was non-dischargeable under 11 U.S.C. § 523(a)(7). The Court of Appeals relied on In re Jensen, 395 B.R. 472 (Bankr. D. Colo. 2008), to conclude that the fees judgment awarded under the CFDCPA and the CCPA was sufficiently penal to constitute a fine, penalty, or forfeiture under 11 U.S.C. § 523(a)(7). The debtor declined to seek rehearing or appeal the fees judgment to the Colorado Supreme Court, and the Court of Appeal’s order became final.

Thereafter, the debtor filed an adversary proceeding, seeking a determination that the fees judgment was dischargeable under 11 U.S.C. § 523(a)(7). The State moved to dismiss, arguing that the Rooker-Feldman Doctrine barred the debtor’s request for a determination of the dischargeability of the fees judgment by the bankruptcy court. The debtor responded, asserting that a dischargeability determination under 11 U.S.C. § 523 is an “independent claim” for relief that arises exclusively under the Bankruptcy Code, such that the Rooker-Feldman Doctrine was not implicated.

After hearing oral argument and receiving post-hearing briefs, the Court found in favor of the State and dismissed the adversary proceeding with prejudice. The Court noted that state courts have concurrent jurisdiction over most claims to determine the dischargeability of particular debts, including claims under 11 U.S.C. § 523(a)(7). The Court found that, because the Court of Appeals considered the debtor’s arguments, reached the merits, and concluded in an exercise of its concurrent jurisdiction that the fees judgment was non-dischargeable under 11 U.S.C. § 523(a)(7), the Rooker-Feldman Doctrine deprived it of subject matter jurisdiction to review the Court of Appeals’ non-dischargeability determination.

Plaintiffs and Debtor/Defendant had been embroiled in litigation over family trusts in which the Debtor served as trustee. On the eve of a scheduled deposition, the Debtor filed his Chapter 7 bankruptcy case.

Plaintiffs actively participated in the bankruptcy case, scheduling a Rule 2004 examination and requesting the production of various documents. Throughout this process, the Debtor resisted production and engaged in a pattern of delay.

In May 2019, within a year after the granting of the Debtor’s discharge but well after the expiration of the dischargeability deadline, Plaintiffs filed their Complaint, alleging claims under 11 U.S.C. § 727 for revocation of discharge and to except their claims from discharge under 11 U.S.C. §523(a)(4), (a)(2), and (2)(6). The Debtor filed a Motion to Dismiss the dischargeability claims on the basis that no timely extension was sought and the claims were filed after the expiration of the deadline established by Fed.R.Bankr.P. 4007(c).

The Court, relying on Kontrick v. Ryan, 540 U.S. 443, 447 (2004), wherein the United States Supreme Court held that the time period within which to object to discharge under 11 U.S.C. § 727 prescribed in Fed. R. Bankr. P. 4004(a) is not “jurisdictional,” concluded the deadlines to object the dischargeability established by Fed.R.Bankr.P. 4007(c) are similarly “procedural” and therefore subject to equitable defenses including equitable tolling.

Recognizing the Plaintiffs bear the burden of proof to establish the doctrine of equitable tolling applies, the Court looked to the factual allegations set forth in the Complaint and held they were sufficient to withstand a Motion to Dismiss.

Individual and corporate debtors in two consolidated chapter 7 cases formerly provided accounting and payroll services to clients. Prior to filing, the debtors engaged in a fraudulent scheme pursuant to which they stole in excess of $11 million dollars from their clients by filing false payroll tax returns with the IRS and stealing client funds meant to pay payroll taxes. Some of the debtors’ clients, including the defendant, discovered the fraudulent scheme prepetition and forced the Debtors to pay funds to the IRS during the preference period. The chapter 7 trustee sought to recover the payments from defendant as a preference. The defendant moved for summary judgment, arguing the payments were not recoverable as preferences because they were not the debtors’ property but were instead either trust funds of the IRS under 26 U.S.C. § 7501 or stolen property. The Court granted summary judgment in part, holding that the defendant had only established a portion of the funds transferred were covered by the § 7501 statutory trust. The Court further held the defendant had failed to adequately trace those funds it alleged were its stolen property.

Debtor inadvertently omitted an unsecured creditor from his schedules and his creditor matrix and the creditor did not receive timely notice of the case. The creditor later filed a late proof of claim and motion to deem the proof of claim timely. The chapter 13 trustee objected, arguing that Fed. R. Bankr. P. 3002(c) lists the only circumstances in which a creditor may file a late proof of claim and that none of them applied to this case. The Court overruled the objection, concluding that Rule 3002(c)(6) applied. That subsection, by its express terms, permits a late filed proof of claim if notice was insufficient because the debtor failed to file the creditor matrix required by Rule 1007(a). Under a plain language interpretation, this Rule would not apply because the Debtor had timely filed a creditor matrix, albeit an incomplete one. However, the Court concluded that this interpretation would render the Rule superfluous because other requirements would dictate the dismissal of the bankruptcy case due to the untimely filing of a creditor matrix long before any creditor would face a bar against an untimely proof of claim. Thus, the Court held that Rule 3002(c)(6) should be read to apply where a debtor fails to list a particular creditor on the creditor matrix, thereby preventing adequate notice to that creditor.

The above-median income Debtors proposed a Chapter 13 Plan providing for monthly payments of $681 over a sixty-month period.  The Debtors sought to reduce their calculated monthly disposable income of $1,701.27 by claiming special circumstances deductions of $210 per month for cigarettes and $900 per month for medical marijuana.
The Chapter 13 Trustee and the United States Trustee objected to confirmation of the Plan.  Specifically, the UST argued the Plan failed to meet the requirements of 11 U.S.C. § 1325(a) and (b) in that the Plan was not proposed in good faith and failed to provide for the payment of all disposable income.
The Court declined to address the good faith argument but sustained the UST’s objection and denied confirmation because the Plan did not provide for the payment of all disposable income as required under 11 U.S.C. § 1325(b)(1)(B). Marijuana use, whether for medical or recreational purposes, remains illegal under federal law.  The Court held the deduction of a medical marijuana expense cannot be allowed as either an ongoing out-of-pocket medical expense or as a deduction for special circumstances.