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Weinman v. Crowley (In re Peter H. Blair), Adv. Case No.17-1195 TBM Docket No. 212 (Bankr. D. Colo. Nov. 9, 2018), on appeal BAP Case No.18-98 11/09/2018

The Chapter 7 trustee commenced an adversary proceeding against the Debtor’s (non-debtor) widow to recover fraudulent transfers under the Colorado Uniform Fraudulent Transfer Act (“CUFTA”), Colo. Rev. Stat. §38-8-105(1)(a) and (1)(b), and 11 U.S.C. §544. In addition, the trustee brought an unjust enrichment claim to obtain a declaratory judgment that the bankruptcy estate held an interest in residential real property which was solely owned by the widow. After a three-day trial, the Court held that the trustee had not sustained his burden on any of his eight (8) claims for relief. The Court entered judgment in favor of the defendants and against the trustee.

The Court’s findings of fact and conclusions of law included legal analysis of the following: the elements of both actual and constructive fraud under CUFTA and the “badges of fraud”; CUFTA’s narrow definition of “insider” in contrast to the broader Bankruptcy Code definition of “insider” at 11 U.S.C. § 101(31); “reasonably equivalent value” under CUFTA and whether “love and affection” in exchange for a transfer constitutes reasonably equivalent value; the balance sheet insolvency test under CUFTA and its definition of “assets” which excludes property to the extent encumbered by a lien or property to the extent exempt before the time of the transfer; fair valuation of contingent liabilities; constructive fraud under CUFTA and the transferor’s “ability to pay debts as they become due”; analysis of CUFTA’s “ability to pay debts as they come due” does not exclude exempt assets as a source of repayment; 11 U.S.C. § 551 and preservation of avoided transfers requires that the transfer be avoided in fact, not merely alleged to be avoidable; 11 U.S.C. § 502(d) and disallowance of the claim of a target of avoidance action requires that the target be adjudged liable for a fraudulent transfer; 11 U.S.C. § 544(a) encompasses trustee’s claim for unjust enrichment and constructive trust and are subject to statute of limitations under 11 U.S.C. § 546(a); elements of unjust enrichment under Colorado law; 11 U.S.C. § 108(c) applies only to actions against the debtor and does not toll the time for the trustee to bring his claim for unjust enrichment claim against the widow of Debtor.

In re Robert and Shelly Withington, Case No. 17-14318 EEB, Chapter 7, September 18, 2018 09/18/2018

The Debtors in this case moved from Colorado to Illinois shortly before filing bankruptcy.  They initially claimed a homestead exemption for their Illinois home under Colorado law because the domiciliary provision of § 522(b)(3)(A) required them to apply Colorado exemption law since they had not lived in Illinois for two years prior to filing their bankruptcy case. The chapter 7 trustee objected to the Debtors’ use of a Colorado homestead exemption because Colorado’s homestead exemption does not have extraterritorial effect.  It only applies to real property located within the state. The Debtors then amended to claim the federal homestead exemption under § 522(d)(1).  The Court had to determine whether the “safety net” that BAPCPA added at the end of § 522(b) allowed the Debtors to claim the bankruptcy homestead exemption instead. The “safety net” provides that, if the effect of the domiciliary requirement in § 522(b)(3)(A) “is to render the debtor ineligible for any exemption,” the debtor may elect the bankruptcy exemptions.  The trustee argued that, since the Debtors could still utilize Colorado’s personal property exemptions, the safety net did not apply.  The Court discussed four approaches that courts and commentators have used to analyze the interplay of the § 522 domiciliary requirement and the opt-out clause.  Ultimately, the Court adopted a flexible reading of “any exemption” in the safety net, listing several reasons for its interpretation, and allowed the Debtors to exempt their homestead under § 522.

In re 1075 S. Yukon LLC, Case No. 18-14781 07/30/2018

Chapter 11 debtor-in-possession filed for relief hours prior to the expiration of a pre-petition contractual option to purchase real property. Invoking the 60-day extension of time periods granted by 11 U.S.C. § 108(b), the debtor filed a motion seeking authority to exercise the purchase option, an order compelling the option counterparty to sell the real property to the debtor, and approval of post-petition borrowing to accomplish the purchase of the real property. The issue of whether § 108(b) applies to the exercise of purchase options was a matter of first impression within this District and the Court found no clear guidance on this specific question from the United States Court of Appeals for the Tenth Circuit. The Court held the “any other similar act” catch-all provision should not be read so broadly as to include acts having no similarity or commonality with those listed within § 108(b). Whether an action qualifies as “any other similar act” under § 108(b) must be determined in light of the more specifically enumerated actions preceding that phrase. The Court determined the exercise of the purchase option did not constitute filing any pleading, demand, notice, or proof of claim or loss, or curing a default. The Court also found it a strain to say the exercise of a purchase option was “similar,” under the ordinary usage of that term, to these specifically enumerated actions. Therefore, the debtor could not invoke § 108(b) to extend the time to exercise its purchase option. Because the purchase option expired by its own terms and § 108(b) was of no use to the debtor, the Court denied the debtor’s motion.

In re Wolfson, Case No. 17-14388 EEB 06/26/2018

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.

In re James Joseph Anthony Alonzo and Cynthia Anne Alonzo, Case No. 17-20589 JGR Order entered June 12, 2018 (11 U.S.C. § 109(e) and student loan debt) 06/12/2018

The Chapter 13 trustee objected to the debtors’ plan on the basis that their unsecured debts exceeded the debt limitations in 11 U.S.C. § 109(e). The debtors argued that the majority of their unsecured debt was student loan debt, and such debt was not cause for dismissal. Specifically, the debtors asserted that the standard is the best interest of the creditors and bankruptcy estate; the decision to convert or dismiss is uniquely within the discretion of the bankruptcy court; and the Court should exercise such discretion and allow them to continue in Chapter 13 because the creditors and debtors would fare better in a Chapter 13 case with a repayment plan than the alternatives. The debtors also contended that because § 1307 uses the words “may” dismiss and not “shall,” and because exceeding the debt limitations is not one of the eleven enumerated reasons for cause for dismissal, the Court should examine the legislative history and public policy behind the Bankruptcy Code to find in their favor.   

The Court acknowledged the split of authority on the issue and analyzed the opposing views and policy arguments. Ultimately, the Court found that § 109(e) is clear on its face that a debtor is not eligible for Chapter 13 if such debtor exceeds the unsecured debt limitations. The Court also concluded that if the debtor is not eligible, the debtor cannot proceed in a Chapter 13 case, reasoning that although ineligibility is not expressly identified as cause under § 1307, simple logic indicates that ineligibility is cause for dismissal.

DVR, LLC, Case No. 16-17064 EEB and Ute Lake Ranch, Inc. 16-17054 EEB 03/30/2018

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.  

In re Galvin, Case 17-13786- JGR; Order entered March 2, 2018 (Colorado Homestead Exemption, Colo. Rev. Stat. § 38-41-201) 03/02/2018

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.

In re Humes, Case No. 11-39684 EEB 01/23/2018

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.

Associated Mortgage Corp. v. Weaver, Adversary Procedure No. 13-1292 EEB 01/05/2018

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.

In re Atna Resources, Inc., et al., Case 15-22848- JGR; Order entered November 1, 2017 (28 U.S.C. §§ 1930(a)(6)) 11/01/2017

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.

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