Individual chapter 11 debtor-in-possession who had recently converted her case from chapter 7, filed application to employ an attorney who had also represented her during her chapter 7 case. A creditor objected, arguing that the attorney failed to meet the requirements of 11 U.S.C. § 327(a) because, during his pre-conversion representation of the Debtor, he effectively represented interests “adverse to the estate.” The Court held that the attorney’s pre-conversion representation of the Debtor did not create a conflict or disqualifying bias under § 327(a) because the Debtor’s duties to creditors were distinctly different during the chapter 7 case than in the chapter 11 case. In addition, 11 U.S.C. § 1107(b) instructs that an attorney’s prior representation of a debtor, standing alone, should not disqualify that professional from representing the debtor-in-possession. To hold otherwise would require every debtor who converts from chapter 7 to chapter 11 to obtain brand new counsel upon conversion.
You are here
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.
Trustees of two related cases sought court approval of a settlement that compromised a purported secured creditor's claim against the estates. An individual creditor had already filed claim objections against the secured creditor's claims. The trustees sought to end the claim objection litigation through settlement. This raised the legal question of whether the statutory right of a party in interest to object to a claim and obtain a court ruling on it, conferred by § 502(a), can be trumped by a trustee's right to settle that same claim objection under Rule 9019. The Court concluded that sec 502(a) and Rule 9019 work in tandem. Any party may file a claim objection, bringing the validity of the claim into question, but then a trustee may usurp the claims allowance process with a settlement that is in the best interests of the estate, with one exception. A trustee may only settle claims by and against the estate, not the rights of nondebtor third parties. If the nature of the claim objection involves the individual rights of the objector, such as the rights of creditors under an inter-creditor agreement, then a trustee may not settle it absent the objector's consent. Since this case did not involve the objector's individual rights, the Court overruled the objector's request to proceed with a determination on the merits of his claim objection before holding an evidentiary hearing on the settlement.
The Debtor filed for relief under chapter 13 and listed a Winnebago Motor Home ("RV") on Schedule A/B and claimed the RV completely exempt as a homestead under Colorado law on Schedule C. The Chapter 13 Trustee objected to the claimed exemption and a hearing was held.
The Debtor testified he purchased the RV using the proceeds from the sale of his former residence and a commercial property. He further testified he and his wife lived in the RV and it was their intent to use the RV as their home going forward.
The Trustee contended that because the RV had a motor, it fit within the Colorado statutory definition of a motor home: "a vehicle designed to provide temporary living quarters and which is built into, as an integral part of or a permanent attachment to, a motor vehicle chassis or van" under Colo. Rev. Stat. § 42-1-102(57). Because the RV was a motor home, rather than a "mobile home" or "manufactured home," the Homestead Exemption did not apply.
The Court agreed with the Trustee, noting the Homestead Exemption had been expanded to include "mobile homes" and "manufactured homes," but not "motor homes." The statutory definitions of mobile home and manufactured home both specified that such homes did not have motive power. In contrast, the RV had motive power and was licensed as a motor vehicle, which likened it to the Peterbuilt Truck found not entitled to the Homestead Exemption in the case of In re Romero, 533 B.R. 807 (Bankr. D. Colo. 2016), aff'd, Romero v. Tyson, 579 B.R. 551 (D. Colo. 2016).
Thus, because the RV had motive power, it did not fit into the Colorado statutory definition of a "mobile home" or "manufactured home" and therefore was not entitled to the Homestead Exemption. The Court granted the Trustee's objection to Debtor's exemption.
Chapter 13 debtors modified their confirmed plan to lower their monthly payment after debtor-husband lost his job and committed to file another modified plan if he found new employment. Debtor did eventually get a new job, but nevertheless failed to file a modified plan. After completion of the Debtors’ sixty month plan, the chapter 13 trustee discovered this omission and moved to dismiss. The parties reached a stipulation that would have allowed Debtors to pay a substantial cure amount seven months after the end of their sixty-month plan and thereby obtain a discharge. The Court denied the motion to approve the stipulation, ruling that extending a plan’s repayment period beyond five years would violate 11 U.S.C. §§ 1322, 1325, and 1329. In addition, the Court determined that it lacked discretion to allow a reasonable period of time for a cure, disagreeing with the holding of in In re Klaas, 858 F.3d 820 (3d Cir. 2017). Even if it had such discretion, the Court held it would not exercise it to approve the stipulation given the circumstances of the case.
Plaintiff asserted claim for nondischargeability against debtor, a former employee. The Court determined that debtor, while employed as a mortgage underwriter, had fraudulently manipulated a loan file to ensure that her brother could obtain a loan from the Plaintiff to refinance his mortgage. After her brother closed on the loan, he immediately defaulted, leading to foreclosure and a loss to Plaintiff. Although the Plaintiff's complaint had only alleged a claim under § 523(a)(2)(A), the Court held that Plaintiff's claim was really one under § 523(a)(2)(B) involving false statements in writing concerning an insider's financial condition. The Court held that Plaintiff sufficiently established all elements of a § 523(a)(2)(B) claim, even though it was her brother that received the direct benefit of her fraudulent conduct. The debtor owed a nondischargeable "debt" to Plaintiff in the amount of damages caused by her fraudulent inducement. In a separate order, the Court further determined that Plaintiff was entitled to prejudgment interest. Construing Colorado law, the Court held that such interest began to accrue on the date of "wrongful withholding," or the date Plaintiff was forced to repurchase the loan after the brother's loan default. The Court then examined how to account for Debtor's recovery of title of house several months later and, after an extended marketing period, the Plaintiff's receipt of proceeds from the sale of the house. After analyzing several possible approaches, the Court determined that the accumulated interest would be offset at the point Plaintiff received the net sale proceeds.
The Court considered the issue of whether a liquidating trustee (“LT”), whose sole
existence flowed from the Debtors and their assets, liabilities, and confirmation of their Chapter
11 bankruptcy cases, could avoid payment of post-confirmation statutory fees to the United States
Trustee (“UST”) through administrative closure.
Debtors filed for Chapter 11 and moved to consolidate their cases. After approximately one
year of negotiation, the Debtors and the Unsecured Creditors Committee agreed upon a Joint Plan
of Liquidation, which the Court confirmed in November 2016. Under the Plan, all assets and
claims of the Debtors were transferred to a Trust, the Debtors were deemed liquidated, and all
equity interests in any Debtor were automatically canceled and extinguished.
The LT was appointed, and, beginning in March 2017, initiated 24 adversary proceedings
for recovery of avoidance claims against third parties, moved for several Rule 2004 exams and
asserted various claims objections. Shortly thereafter, the LT moved to administratively close the
Debtors’ cases to stop the accrual of quarterly fees due the UST under 28 U.S.C. § 1930(a)(6).
The UST objected, arguing the LT was attempting to circumvent the fee system mandated by
Congress.
The Court ultimately agreed with the UST, examining the plain language of the statute
and the Tenth Circuit case of United States Trustee v. CF & I Fabricators of Utah, Inc. (In re
CF & I Fabricators of Utah, Inc.), 150 F.3d 1233, 1237 (10th Cir. 1998). The Court also
distinguished the administrative closure of individual Chapter 11 cases, with a subsequent
reopening to enter discharge once all payments are completed. Further, the Court determined
the LT could not use 11 U.S.C. § 105 to bypass the requirements of Fed. R. Bankr. 3022 to
obtain a Final Decree and case closure. Accordingly, the Court denied the LT’s motion to
administratively close the Debtors’ cases.
Chapter 7 trustee brought claims against debtor’s non-filing wife and a limited liability company determined to be debtor’s alter ego, seeking to recover fraudulent transfers of money and to impose implied trusts on assets purchased with Debtor’s funds but titled in his wife’s name. The Court held that, under 11 U.S.C § 544(b), the trustee could “stand in the shoes” of the IRS (another creditor in the case) and invoke the Internal Revenue Code’s longer 10-year statute of limitations to recover fraudulent money transfers debtor made to his wife over seven years prepetition. Trustee could not recover, however, amounts for which the debtor received reasonably equivalent value in the form of payment of living expenses for himself and his family. In addition, the Court found that the trustee was entitled to impose resulting and constructive trusts on two homes and three vehicles that the Debtor had purchased with his funds, but titled in her name in an effort to shield those assets from creditors. The debtor’s wife was entitled to retain a one-half interest in one of the homes based on evidence that she had contributed her own funds to make some mortgage payments on the home.
In 2013, the Debtor filed a chapter 13 case and the Court confirmed a plan that required the Debtor to pay his monthly disposable income of $4,857 over 60 months to his creditors. When he still had fifteen months to pay under his 2013 plan, and without dismissing his 2013 case, the Debtor filed another chapter 13 case in 2017. In the 2017 case, the Debtor’s plan proposed to pay $500 per month for sixty months on three unsecured debts that arose after the Debtor filed his 2013 case. The Court dismissed the 2017 case because his 2013 case was still pending. The Debtor filed a motion to reinstate the 2017 case. He argued that one of his new debts was an award issued by the Financial Industry Regulatory Authority, Inc. (FINRA) and that he needed to treat that debt in his 2017 bankruptcy case in order to maintain his FINRA license.
The Court noted that no section of the Bankruptcy Code expressly prohibits simultaneous cases and there is no prohibition in the Bankruptcy Rules either. Though Fed. R. Bankr. P. 1015 contemplates there may be more than one pending case by or against the same debtor at the same time, the rule’s intended scope is limited to certain narrow circumstances very different from the Debtor’s situation. The Court reviewed a long line of case law, beginning with the Supreme Court’s decision in Freshman v. Atkins, 269 U.S. 121 (1925), that has established a general rule that a debtor may not have two pending bankruptcy cases at the same time. In addition, many courts bar simultaneous cases based on the “single estate rule” that states that the same property cannot simultaneously be property of two different bankruptcy estates. The Court recognized that a growing number of courts permit the filing of simultaneous “chapter 20” cases when a debtor files a chapter 13 case after receiving a chapter 7 discharge. The Court found very few reported decisions involving two pending chapter 13 cases, and most involved a very brief period of overlap between the two cases.
From all the reported decisions, the Court distilled and adopted the general rule that a debtor should have only one bankruptcy case pending, with a limited exception for simultaneous chapter 20 cases, provided that the chapter 7 case is essentially a “no-asset” case and the debtor has already received a discharge. The Court noted many problems with simultaneous reorganization cases. First, allowing debtors to split their debts between two different cases effectively allows debtors to do an end run around the eligibility requirements of 11 U.S.C.
§ 109(e). Additionally, simultaneous reorganization cases poses the danger of discriminatory treatment of like claims. Finally, simultaneous reorganization cases are administratively untenable because, among other things, the debtor must commit his entire disposable income to plan payments. The Court concluded that these statutory and administrative concerns outweigh the debtor’s need for two pending reorganization cases, other than for a very brief period. Therefore, the Court denied the debtor’s motion to reinstate his second chapter 13 case.
After it substantially consummated its chapter 11 plan, the reorganized Debtor filed an adversary proceeding against its primary secured lender and a company the Debtor hired to manage its golf courses as part of the plan’s treatment of the lender’s claim. The Debtor’s claims against the lender required the Court to interpret and enforce the confirmed plan. The Debtor’s tort and breach of contract claims against the management company involved only state law. The Debtor and lender settled their dispute and the Debtor dismissed all its claims against the lender. The Debtor then completed its plan payments and the Court had nothing further to administer in the underlying case. On the Debtor’s and management company’s cross motions for summary judgment in the adversary proceeding, the Court had to assess whether it had subject matter jurisdiction over the remaining state law tort and contract claims.
Despite the parties’ arguments to the contrary, the Court determined that it did not have post-confirmation related-to jurisdiction over the state law tort and contract claims by the Debtor against the management company. The Court adopted and applied the “close nexus” test from Binder v. Price Waterhouse & Co., LLP (In re Resorts Int’l, Inc.), 372 F.3d 154, 165 (3d Cir. 2004). Under the close nexus test, bankruptcy courts typically have post-confirmation related-to jurisdiction over matters that affect the interpretation, implementation, consummation, execution or administration of a confirmed plan. Here, the required close nexus did not exist because the Debtor had substantially consummated its plan prior to filing the adversary proceeding, the remaining dispute did not require the Court to interpret or enforce the plan, the management company’s alleged bad acts did not prevent the Debtor from fulfilling its plan obligations, and any recovery from the lawsuit would go to the Debtor, not to creditors’ claims. The Debtor’s claims were no different than any post-confirmation dispute between a reorganized debtor and its suppliers or service providers. The Court further ruled that neither sections 105, 1141, or 1142 of the Bankruptcy Code nor the plan’s broad retention of jurisdiction language could expand its subject matter jurisdiction beyond the statutory limits of 28 U.S.C. §§ 1334 and 157.
Alternatively, the Court held that even if it had subject matter jurisdiction at the outset of the case, it had to exercise its discretion to determine whether to retain or dismiss the state law claims when subsequent events destroyed the original basis for jurisdiction. Analogizing to the situation presented when federal courts decide whether to continue to exercise jurisdiction over pendent state law claims after dismissing all federal claims, the Court considered the following factors to analyze whether it should retain the case: (1) judicial economy; (2) fairness and convenience to the litigants; (3) the degree of difficulty of the related legal issues involved; (4) any prejudice the parties would suffer, and (5) whether principles of comity dictate that the matter should be left to the state court. Other than the relatively minor inconvenience involved in refiling the case in a state court, the factors favored dismissal. The Court gave particular weight to the factor of judicial comity because the Debtor’s tort claims implicated a complex and unsettled issue of Colorado law on which the Colorado Supreme Court recently granted certiorari. The Court dismissed the adversary proceeding without prejudice.
The Debtor filed for chapter 11 and moved to approve the retention of a Chief Restructuring Officer (“CRO”) under 11 U.S.C. §§ 105 and 363(b). The United States Trustee (“UST”) objected and an evidentiary hearing was held. No creditors or other parties in interest objected to the motion.
The UST argued that Mr. Smith, the principal of Alliance, should be employed as a professional person governed by 11 U.S.C. § 327(a) and its disinterested standard, and Alliance’s compensation governed by 11 U.S.C. § 330 for reasonableness.
The Debtor contended that many bankruptcy courts around the country have approved the employment of a CRO under 11 U.S.C. §§ 363(b) and 105(a), and urged the Court to approve the retention of Alliance with its fees reviewable under 11 U.S.C. §§ 330 and 328.
The Court held that under the circumstances of this case, the twin goals of impartiality and court review of fees were met, especially where Alliance agreed to subject its hourly fees and success fee to final review by the Court. The Court granted the motion to approve the retention of the CRO.