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Opinions

The District of Colorado offers a database of opinions listed by year and judge. For a more detailed search, enter the keyword or case number in the search box above.

Leo Guzman and Alicia Vanessa Flores, Bankruptcy Case No. 23-13222-JGR, Docket No. 69 05/24/2024

The chapter 13 Debtors filed a Motion to Avoid Lien, which was objected to by the lien-holder Creditor. The Creditor admitted that the Debtors had properly claimed the homestead exemption under Colorado law, that exemption was impaired by the lien, and the procedural requirements of 11 U.S.C. § 522(f), Fed.R.Bankr.P 4003(d), and L.B.R. 4003-2 had been met. However, the Creditor contested the timing of when the avoidance order took effect, arguing the Debtors could obtain a windfall by avoiding the lien, selling the real property, and dismissing the case. The Creditor further argued 11 U.S.C. § 349(b)(1) did not provide absolute protection of the lien, because although the lien would be reinstated upon dismissal, the real property it had been attached to would have been sold, rendering the reinstatement meaningless. The Creditor sought to add conditions to the avoidance order, including preventing the order from taking effect until the confirmed plan was completed, restricting the Debtors from filing the avoidance order with the county clerk and recorder, or in the alternative, requiring any proceeds from the sale of the homestead be held in escrow by the Trustee until the completion of the plan. The Court ordered both parties to submit written briefs.

The Court found that under the Estate Termination doctrine adopted by the Tenth Circuit, once the plan had been confirmed the pre-petition property was revested in the Debtor. The Court further found that well-established law in this Circuit permits debtors to sell revested pre-petition property without authorization of the Court. The Court analyzed 11 U.S.C. § 522(f) under a strict statutory construction and found that there was no reading that permitted judicially crafted conditions or a delay of when the order took effect. The Court’s findings are supported by Law v. Siegel, 571 U.S. 415 (2014), in which the Supreme Court did not permit a trustee to impose conditions to an exemption under 11 U.S.C. § 522. Upon dismissal, the Creditor retains rights to all collection efforts under Colorado state law, however, the plain language of 11 U.S.C. § 522(f) does not allow the Court to impose conditions to the order and the Court granted the Motion to Avoid Lien with immediate effect.

In re Jose L. Garcia-Morales, Case No. 21-14949 KHT. Order entered August 11, 2023 (docket #67). 08/14/2023

Under Colo. Rev. Stat. § 13-54-102(1)(o), Debtor was entitled to claim an exemption of the full amount of his federal refund, as it was attributed to a refundable child tax credit.

Weinman v. Dragul (In re Cornerstar Wine & Liquor, LLC ), Adv. Pro. No. 21-1057 EEB; March 10, 2023. 03/10/2023

The trustee sued the defendant to recover four cash transfers that he claimed were preferences. The defendant raised the ordinary course and contemporaneous exchange defenses. On the parties’ cross-motions for summary judgment, the Court ruled that three transfers were protected by the ordinary course defense. The fourth transfer was not, however, because the amount transferred was fifty times the amount of the other three transactions. The Court then analyzed the contemporaneous exchange defense as it applied to the larger transfer. It applied the usual test, which has three elements: (1) the transferee must provide new value to the debtor; (2) the parties must intend the transfer to be a contemporaneous exchange; and (3) the transfer must in fact be a substantially contemporaneous exchange. What is unusual about this case is that the Court applied the contemporaneous defense to what was essentially a credit transaction. Courts are split on whether this defense applies in this context.

Kim v. White Resources, LLC, Case No. 22-01075-EEB. Order entered January 31, 2023 (Doc. 25) (granting in part and denying in part Plaintiff’s Motion for Summary Judgment) 01/31/2023

This case involves a preference action in which the defendant disputes two elements of preference liability and raises the ordinary course of business defense. The decision makes no new law nor does it apply the law to a unique fact pattern. The Court publishes this decision merely because it includes a lengthy explanation of the final element of preference liability, namely that the transfer enabled the defendant to receive more than it otherwise would have received in a hypothetical chapter 7 distribution. This is an element that it often misunderstood by non-bankruptcy attorneys representing defendants in preference litigation. This short opinion may prove useful to trustees and other preference plaintiffs who wish to educate their opponents as to this element.

In Re Michael Joseph Roberts, Sr., Case No. 22-10521-JGR. Order entered September 23, 2022 (Doc. 294) (converting Chapter 11 case to Chapter 7). 09/23/2022

In an individual Chapter 11 Subchapter V case, a group of creditors (“Creditors”) filed a motion to convert the case to Chapter 7. Finding cause for conversion under 11 U.S.C. § 1112(b) because Debtor filed the case in bad faith, the Court converted the case to Chapter 7.

Debtor filed his bankruptcy petition while he was incarcerated for civil contempt of the state trial court. The state court had adjudicated Debtor as having breached his fiduciary duties through a fraudulent scheme by which he took Mexican beachfront property from a Colorado LLC (of which he was a member and manager) for himself. During the state court litigation, Debtor lied under oath, hid his assets, and disobeyed orders of the court. His actions prompted the state court to sanction him on multiple occasions, including by granting Creditors a writ of attachment on Debtor’s assets. Debtor filed his bankruptcy petition on the eve of a state court damages hearing that had been continued twice. Debtor’s bankruptcy petition secured his release from jail without purging his contempt and further delayed the damages hearing against him for several months.

Postpetition, after the Court granted relief from stay, the state court held the damages hearing and liquidated over $21 million in damages against Debtor and in favor of Creditors. Due to the comparatively small amounts of his other debts (which were largely legal fees incurred from state court litigation), Debtor’s bankruptcy case was essentially a two-party case between himself and Creditors. Despite his dishonest prepetition conduct, Debtor filed a proposed Subchapter V plan that relied on him reinvesting funds and making $2 million in payments over five years, followed by a $22 million balloon payment at the conclusion of the plan. The Court questioned whether the proposed plan was feasible and proposed by means not forbidden by law.

Significantly, throughout the pendency of his Subchapter V case, Debtor knowingly held investments in cannabis companies. Because of these investments, Debtor argued that the Court must dismiss his case rather than have a Chapter 7 trustee administer illegal cannabis assets. The Court disagreed with Debtor, finding that based on the scant facts in the record—and because United States Trustee took no position on whether the case must be dismissed—Debtor’s seemingly attenuated connections to cannabis did not require dismissal instead of conversion.

 

In re Mercer et al. Case numbers 18-11913, 18-18619, 18-20397, 19-10971 06/02/2022

In this opinion, the Court is grappling with motions to modify in several cases that seek to extend the chapter 13 plan’s term beyond five years.  The motions were filed before § 1329(d)’s sunset on March 27, 2022, but they were not yet approved before its repeal.  The Court analyzes § 1329(b)(2), which provides “[t]he plan as modified becomes the plan unless, after notice and a hearing, such modification is disapproved.”  This provision means that, upon filing the motion to modify, it is immediately effective subject only to later disapproval.  But when Congress required in § 1329(d) that the modification be “approved,” it was signaling that (d) modifications are only effective upon approval.  Thus, the failure to obtain approval of the proposed modifications before the law’s sunset is fatal to the debtors’ cause.   Nevertheless, in one of these cases where the debtors had obtained approval of a seven-year term before the sunset and then later sought to change another term of the plan (the payment amount), the subsequent modification, which had been proposed but not yet approved before March 27, 2022, did not cause the debtors to lose their seven-year term. 

In re Hali Maeann Suazo, Bankr. Case No. 20-17836 TBM (Bankr. D. Colo. May 10, 2022 (review of attorney conduct under 11 U.S.C. §§ 526 and 105) 05/12/2022

The Court determined that counsel’s use of bifurcated fee agreements was improper because the agreements contained misrepresentations, were misleading, and did not accurately disclose counsel’s obligations under the Bankruptcy Code and the Local Rules. 

In re Frank, Case No. 18-12812 EEB, March 30, 2022. 03/30/2022

Shortly after the debtors had completed all plan payments as scheduled under their plan, the chapter 13 trustee discovered that they had failed to disclose a prepetition personal injury claim and their postpetition receipt of a substantial settlement payment.  Before the entry of discharge, the trustee filed a motion to dismiss for bad faith conduct under § 1307(c).  This raised the question of whether the existence of grounds for dismissal under § 1307 trumps the mandatory requirement of entry of discharge upon completion of the plan set forth in § 1328(a).  The court acknowledged that the debtors’ nondisclosure constituted cause for dismissal and that the trustee had acted diligently upon learning of it, but nevertheless § 1328(a) mandated the entry of the discharge on completion of plan payments.  It held that § 1307 is a more general chapter 13 statute that must give way to more specific chapter 13 statutes, namely § § 1328(a), 1328(e), 1329(a), and 1330(a).  Both §§ 1328(a) and 1329(a) make explicit that the final plan payment cuts off any further plan modifications and mandates the entry of discharge, with only a few express exceptions not applicable here.  And we have two more specific chapter 13 statutes that deal with debtor fraud.  Section 1330 revokes the confirmation order if the fraud is discovered within six months after the confirmation order.  And § 1328(e) revokes the discharge order but only if the fraud is discovered within a window of time that begins with the entry of discharge and ends by the one-year anniversary of the discharge.  The combination of these two revocation statutes leaves a wide loophole.  If the chapter 13 trustee or other interested party learns of a debtor’s fraud during the gap that is more than six months after the confirmation order but before the entry of the discharge order, which may not occur for many months or even years later, then neither form of revocation is possible.  Whether or not this gap was intentional, these two statutes signal that Congress has determined that, after a certain period of time, the principle of finality must outweigh the policy of rooting out abusers of the bankruptcy system.  

Cammarota v. Haddad, Adv. Pro. No. 20-1295 EEB, March 14, 2022. 03/14/2022

This case involved a determination of whether the debtor’s obligation to sell or refinance the marital home and distribute one half of the equity to his ex-spouse constituted a nondischargeable domestic support obligation or merely a property settlement debt, dischargeable upon completion of the debtor’s chapter 13 plan.  In the Tenth Circuit, the test for this determination is well settled.  But the court traced several Tenth Circuit precedents that demonstrate that a spouse’s obvious need for support at the time of the divorce is enough to presume that the obligation was intended as support even when it is otherwise identified in an agreement between the parties as a property settlement, even when the parties contemplated a delay in its payment, even though the ex-spouse would receive an additional amount labeled as maintenance, and even though the home equity would be paid in a lump sum.   Here the ex-spouse was unable to support herself and their three minor children without governmental assistance at the time of the divorce.  Her desperate need for everything the separation agreement provided to her overrode all other considerations.  Thus, the court found the equity payment was also in the nature of support and it further awarded the ex-spouse her attorney fees and costs incurred in bringing the nondischargeability action.

In re Sklar Exploration Co., LLC and Sklarco, LLC, Case No. 20-12377 EEB 03/14/2022

Contractor who provided services on Debtor’s oil and gas wells separately itemized in its invoices the chemicals it used and then sought a § 503(b)(9) administrative priority claim for these chemicals as “goods” sold in the twenty-day-prepetition window.  The Court applied the U.C.C.’s definition of “goods” and held the chemicals fell within this definition.  But it declined to apply the U.C.C.’s “predominate purpose” test, which would otherwise have held that the predominate purpose of the contract was a service contract, not a sale of goods.  While the predominate purpose test is utilized in contract disputes to determine whether U.C.C. law applies to a transaction, this Court held that there was nothing in § 503(b)(9) to limit its application to only those transactions that involved predominately a sale of goods.  Thus, although the claimant’s contract was predominately a service contract, it could nevertheless obtain a § 503(b)(9) claim for the cost of the chemicals sold.  

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