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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.

McNulty v. Palecki (In re Palecki), Adversary Proceeding No. 23-1267 TBM, Docket No. 61 (Bankr. D. Colo. Feb. 10, 2025). 02/10/2025

The dispute between the Debtor, Christopher Robert Palecki (the “Debtor”), and his Creditors, Dawn and Jacob McNulty (the “McNultys”), arose out of a construction contract gone awry.  The McNultys hired the Debtor as a general contractor to renovate a carriage house adjacent to the McNultys’ residence located in a historic neighborhood in Denver.  The McNultys wanted a general contractor who was licensed in the City and County of Denver.  The Debtor represented he was a licensed general contractor.  The McNultys hired the Debtor and gave him a deposit of $59,375.00 (the “Deposit”).  The Debtor misrepresented himself to the McNultys—he was not a licensed general contractor.  And, the Debtor and his construction company were experiencing financial difficulties.  Within a month of receiving the Deposit, the Debtor quickly spent it on other projects and personal expenses.  He did not spend any of it on the McNultys’ carriage house renovation.  He never returned the Deposit to the McNultys. 

The McNultys initiated an adversary complaint against the Debtor seeking a determination pursuant to 11 U.S.C. §§ 523(a)(2), (4) and (6) that their debt should be excepted from discharge.  In addition, they sought treble damages, attorney fees and costs under the Colorado Civil Theft Statute, Colo. Rev. Stat. § 18-4-405.  Following a trial on the complaint, the Court entered judgment in favor of the McNultys and against the Debtor on all counts.

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 Saratoga and North Creek Railway, LLC, Bankr. Case No. 20-12313 TBM (Bankr. D. Colo. Jan. 13, 2022) (confirmation of Chapter 11 Plan pursuant to 11 U.S.C. § 1129) 01/13/2022

The Debtor, Saratoga and North Creek Railway, LLC (the “Debtor”), is a “common carrier” that filed for protection under Chapter 11 of the Bankruptcy Code.  In the Debtor’s Chapter 11 plan of liquidation, the Debtor proposed to sell through auction its largest non-cash asset:  a real property easement created by virtue of a federal stipulated judgment.  The State of New York, the New York State Department of Environmental Conservation, and the New York State Olympic Regional Development Authority (together, “New York”) contested confirmation on the basis of 11 U.S.C. §§ 1129(a)(1), (3), and (7).

The Court determined that requiring bidders to assume the common carrier obligation was a valid exercise of the Debtor’s business judgment and did not violate Section 1129(a)(1), as the Debtor had reason to believe that sale to a party willing to assume the common carrier obligation would be more readily approved by the Surface Transportation Board (“STB”).  The Court further found that the plan satisfied the good-faith requirement of Section 1129(a)(3) in that the Debtor was engaged in an honest, sincere, and non-abusive effort to promptly confirm its plan, sell the easement, pay creditors, and exit bankruptcy.  The Court further found that the plan was feasible, dismissing the argument that a prior denial, on procedural grounds, of the stalking-horse bidder’s pre-sale application to the STB, demonstrated that the plan was not feasible. 

The Court dismissed the notion that determining feasibility under Section 1129(a)(3) was impossible because the plan did not provide for sale until after confirmation, noting that such procedure was common in Chapter 11 and is contemplated in Section 1123(a)(5)(D).  While STB approval of the sale was not guaranteed, the Debtor had offered evidence that it had structured the sale with the intention of maximizing the odds that the sale would be approved, and had demonstrated that there is at least a “reasonable prospect” that the stalking horse or another bidder would be able to secure STB approval.  The Court also rejected the argument that the plan was not proposed in good faith, citing the Debtor’s extensive efforts to market and sell the easement, including its establishment of a data room for potential purchasers and its entry into nondisclosure agreements with multiple potential buyers, and its securing of a stalking-horse bidder as evidence of its good faith effort. 

The Court next rejected New York’s contention that the plan did not satisfy the best interests of creditors test of Section 1129(a)(7).  The Court found the plan did not prohibit a bid in excess of the stalking horse’s bid; it merely established the requirement, deemed necessary in the Debtor’s business judgment, that a potential purchaser assume the Debtor’s common carrier obligation.  And the plan did not propose to involve a Chapter 11 trustee in the management of the debtor’s assets, but rather an unpaid plan administrator.  Since the manager would not be compensated, the proposed plan would be less expensive than liquidation by a Chapter 7 Trustee.

Having rejected New York’s objections, the Court confirmed the Debtor’s Chapter 11 plan.

 

In re Donald R. Johnson and Linda A. Johnson, Bankruptcy Case No. 20-15951 TBM, Docket No. 66 (Bankr. D. Colo. Dec. 15, 2021). 12/15/2021

The Debtors filed for bankruptcy protection under Chapter 7.  Their case started out uneventfully.  However, after the Debtors received their discharge, the Chapter 7 Trustee moved to employ a broker to sell the Debtors’ residence.  The Trustee contended that there was sufficient equity in the house to pay the mortgage, closing costs and the Debtors’ homestead exemption as well as to pay some dividend to the unsecured creditors in the case.  In response, the Debtors moved to convert their case to Chapter 13 to save their home.

The Chapter 7 Trustee objected that the Debtors were not eligible for Chapter 13 relief and that their case would be dismissed promptly upon conversion because the Debtors requested conversion in bad faith.  The Trustee relied on Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007).  

After considering the facts and law, the Court held that the Debtors were eligible for Chapter 13 relief based upon their financial circumstances at the time of conversion; and that they had not engaged in bad faith in their effort to convert to Chapter 13.  The Court analyzed the facts using a totality of the circumstances test and the seven factors endorsed by the Tenth Circuit in In re Gier, 986 F.2d 1326, 1329 (10th Cir. 1993).  When analyzing one of the Gier factors, the Debtors’ motivation for converting to Chapter 13, the Court found that the Debtors’ sole motivation was to save their home and such was a permissible motivation contemplated by Congress in enacting the provisions of Chapter 13.  The Court granted the Debtors’ motion to convert to Chapter 13.

In re NRS Properties, LLC, Bankruptcy Case No. 21-10744 TBM, Docket No. 89 (Bankr. D. Colo. November 22, 2021). 11/22/2021

The Debtor, a limited liability company claiming to be a “family farmer,” filed for protection under Chapter 12 to stop a foreclosure on the Debtor’s dry land ranch by its sole secured creditor.  The Debtor filed an initial Chapter 12 plan and then withdrew it.  The case lagged.  So, the secured creditor filed a motion to dismiss pursuant to 11 U.S.C. § 1208(c) for unreasonable delay, gross mismanagement, and continuing loss to or diminution of the estate.  The secured creditor also argued that the Debtor was ineligible to obtain relief under Chapter 12 pursuant to 11 U.S.C. § 109(f).  The Debtor contested dismissal and filed an amended Chapter 12 plan proposing a “dirt-for-debt” transfer of part of its dry land ranch to the secured creditor.  The secured creditor and the Chapter 12 Trustee objected to confirmation.  The Court conducted a combined evidentiary hearing on confirmation and dismissal.

The Court determined that the Debtor was eligible to file for protection under Chapter 12 To reach its conclusion, the Court engaged in a detailed analysis of the Chapter 12 eligibility statute coupled with other Bankruptcy Code provisions defining the terms “farmer,” “family farmer” (as applicable to corporations), and “family farmer with regular annual income.”  Factually, the Debtor satisfied the eligibility criteria.  Thereafter, the Court assessed confirmation issues and ultimately determined that the amended Chapter 12 plan could not be confirmed because: (1) the amended Chapter 12 plan was internally contradictory, unclear, and ambiguous; (2) the Debtor failed to establish that its proposed treatment of the secured creditor satisfied the “cram down” requirements of 11 U.S.C. § 1225(a)(5)(B); and (3) the Debtor otherwise failed its confirmation burdens under 11 U.S.C. § 1225(a).     

Thereafter, the Court addressed dismissal.  Based upon the facts, the Court concluded that the Debtor’s case should be dismissed under 11 U.S.C. §§ 1208(c)(1) and (9).  The Court determined that the Debtor had engaged in unreasonable delay and committed gross mismanagement by failing to comply with basic Bankruptcy Code reporting and administration requirements as well as by transfer of most of its income to a related entity for no consideration.  The Court also found that the Debtor had suffered continuing losses during the bankruptcy case with no reasonable likelihood of rehabilitation.  The Court dismissed the bankruptcy case.

In re Michael Bryan Albert, Bankr. Case No. 16-15128 TBM (Bankr. D. Colo. Oct. 27, 2021) (modification pursuant to 11 U.S.C. § 1329(d)) 10/27/2021

The Debtor committed, in his confirmed Chapter 13 plan, to make regular monthly payments to the Chapter 13 Trustee for 5 years.  He made all such payments for four years and eleven months, despite experiencing some financial hardships.  But then, he made the final payment to the Chapter 13 Trustee 23 days after expiration of the plan term (if the beginning date of the plan is calculated according to the most common way to make such calculation).  Thereafter, the Debtor requested that the Court grant him a discharge pursuant to 11 U.S.C. § 1328(a).  No one objected.  However, because the Debtor’s discharge raised complex legal issues concerning the five-year Chapter 13 plan limit, including the issue of when the five-year plan period started, and the issue of whether the Court could grant the discharge to the Debtor if he had made the payment outside of the term of the plan, the Court ordered briefing on the issue.  The Chapter 13 Trustee and the Debtor submitted briefs, and a group of Chapter 13 practitioners also submitted an amicus brief. 

In the meantime, the Debtor filed a motion asking the court to approve a modification of his Chapter 13 plan to extend the term from 60 months to 62 months, relying on 11 U.S.C. § 1329(d), a new amendment to the Bankruptcy Code designed to protect debtors who had “experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID-19) pandemic.”  In its judicial discretion, the Court elected to address the modification request first and the discharge request second. 

In its ruling, the Court noted that, while debtors must generally complete plan payments within 5 years, citing a recent binding, appellate decision, Kinney v. HSBC Bank USA, N.A. (In re Kinney), 5 F.4th 1136 (10th Cir. 2021), Section 1329(d) allowed debtors who had suffered a material hardship due, directly or indirectly, to the COVID-19 or the Coronavirus pandemic, to modify their Chapter 13 plans.  The Court then determined that, based on the circumstances set forth in the Debtor’s motion to modify, the Debtor had satisfied the requirements of Section 1329(d) such that the Court could approve his modified plan extending the term for payment to the Chapter 13 Trustee from 60 to 62 months.  Further, upon determining that the Debtor had made “all payments under the plan,” as modified, the Court granted the Debtor a discharge pursuant to 11 U.S.C. § 1328(a).

In re John Matthew Ikalowych, Bankruptcy Case No. 20-17547 TBM (Bankr. D. Colo. Apr. 15, 2021) (eligibility to be a Chapter 11, Subchapter V debtor pursuant to 11 U.S.C. § 1182). 04/15/2021

The Debtor, John Matthew Ikalowych (“the Debtor”), personally guaranteed most of the debts of Lyceum Hailco, LLC (“Hailco”), 30 percent of which was owned by the Debtor’s wholly-owned limited liability company, JMI Management, Inc. (“JMI”). When Hailco failed, the Debtor filed for bankruptcy relief under Subchapter V of Chapter 11. 

The United States Trustee, joined by Hailco’s lender, objected to the Debtor’s designation under Subchapter V, arguing that the Debtor was not eligible to be a small business debtor because the Debtor was not “engaged in commercial or business activities” when he filed for bankruptcy. The Debtor contested the UST’s objection, arguing that he was eligible to be a Subchapter V debtor by virtue of his full ownership of JMI, which remains in existence and operation, and his indirect ownership of Hailco, as well as his “wind down” work for Hailco.

After undertaking an analysis of the text of 11 U.S.C. § 1182(1)(A), the Court determined that the Debtor was a “person” within the meaning of 11 U.S.C. § 101(41); that the Debtor’s debts did not exceed the $7,500,000 debt cap of Section 1182(1)(A); that the Debtor was “engaged in commercial or business activities”; and that the Debtor’s debts “arose from” from such “commercial or business activities” within the meaning of Section 1182(1)(A).  Specifically, the Court examined the meaning of the term “commercial and business activities” and found that the phrase  is exceedingly broad.  The Court also examined the meaning of the term “engaged in” and found that such language required the Debtor to be “engaged in commercial or business activities as of the date the Debtor filed his bankruptcy petition (the “Petition Date”), deeming relevant the circumstances immediately preceding and subsequent to the Petition Date.  Applying those definitions, the Court found that the Debtor’s continued operation and management of JMI both before and after the filing date, his work to wind down Hailco both before and after the Petition Date, and his work as a wage-earner at an insurance brokerage company in which he held no ownership interest all constituted “commercial or business activities” which the Debtor was “engaged in” as of the Petition Date.  Undertaking further statutory analysis, the Court found that the Debtor’s debts, which were based primarily on his guarantees of Hailco’s debts, arose from such “commercial or business activities.”  Therefore, the Court determined, the Debtor was eligible to be a debtor in Subchapter V.

In re Grant Gosch and Tina Gosch, Bankruptcy Case No. 20-13871 TBM, Docket No. 79 (Bankr. D. Colo. March 26, 2021). 03/26/2021

Days before the Chapter 13 Debtors filed their case, they received funds compensating Mrs. Gosch for injuries related to an automobile accident (the “Funds”).   The Debtors deposited the Funds in a segregated bank account, filed their Chapter 13 case and claimed the Funds as exempt.  The Debtors did not include the Funds in their calculation of Current Monthly Income (“CMI”) and did not propose to contribute any of the Funds to pay creditors under their plan. The Debtors proposed to pay their unsecured creditors roughly 24% on their claims.

The Chapter 13 Trustee relied on Hamilton v. Lanning, 560 U.S. 505 (2010) and objected to confirmation of the Debtors’ plan contending that the Debtors had failed to commit all their “projected disposable income” to payment of creditors under their plan as required by 11 U.S.C. § 1325(b)(1)(B).   The Trustee also objected to confirmation pursuant to 11 U.S.C. § 1325(a)(3) on the grounds that the Debtors had failed to propose their plan in good faith.

Following an evidentiary hearing, the Court overruled the Trustee’s confirmation objections.  The Debtors had received the Funds after the end of the six-month lookback period for calculating CMI (11 U.S.C. 101(10A)) which ends on the “last day of the calendar month immediately preceding the date of the commencement of the case,” but before the case was filed in the early days of the next month.  Thus, the Debtors properly excluded the Funds from their CMI calculation.  In addition, they had claimed the Funds as fully exempt so the Funds did not affect the Debtors’ “best interest of creditors” test in Section 1325(a)(4).  The Trustee also argued under Section 1325(b)(1)(B) that because the Funds would be available to the Debtors to draw on in the future, Lanning would dictate that they should be included as “projected disposable income.”  The Court rejected the Trustee’s argument that the Funds were “future” income for purposes of calculating projected disposable income because the Funds had already been received pre-petition, albeit not during the Section 101(10A) period for calculating CMI.

The Trustee’s only evidence that the Debtors had not proposed their plan in good faith was that they had not included the funds in their calculation of CMI and did not commit any of the Funds to payment of creditors under their plan.  Relying on the instruction of the Tenth Circuit in Anderson v. Cranmer (In re Cranmer), 697 F.3d 1314, 1319 (10th Cir. 2012), the Court rejected the notion that the Debtors, who calculated their plan payments exactly as Congress had contemplated, could be held to have acted in bad faith.

In re Steven W. Bloom, Case No. 17-11650 TBM, Docket No. 302 (Bankr. D. Colo. Sept. 10, 2020); Glencove Holdings, LLC v. Steven W. Bloom (In re Bloom), Adv. Pro. No. 17-1255 TBM, Docket No. (Bankr. D. Colo. Sept. 10, 2020). 09/10/2020

Creditor Glencove Holdings, LLC (“Glencove”) filed a Proof of Claim against Debtor Steven W. Bloom (the “Debtor”).  The Debtor objected.  Contemporaneously, Glencove initiated an Adversary Proceeding against the Debtor for nondischargeability of debt under 11 U.S.C. §§ 523(a)(2)(A) and (a)(6).  The Debtor contested nondischargeability.  The claim objection and nondischargeability issues were joined for trial.

The dispute between the Debtor and Glencove stemmed from the purchase of a private jet.  The Debtor is an experienced aircraft broker.  Glencove met the Debtor and retained one of the Debtor’s wholly-owned companies to act as its agent in buying an airplane.  Glencove agreed to pay $120,000 as an “agent’s fee.”  The Debtor found a jet for Glencove and helped Glencove make an initial multi-million dollar offer.  The seller came back with a favorable counteroffer.  At that point, the Debtor saw an opportunity to buy the airplane himself (through another wholly-owned company) at a lower price and then simultaneously resell it to Glencove at a higher price, all without disclosing the facts to Glencove.  By engaging in a hidden back-to-back transaction, the Debtor orchestrated a complex scheme to take advantage of Glencove and effectively rob Glencove of the price differential.

In its Proof of Claim, Glencove asserted that the Debtor was liable for fraud by false representation and fraudulent concealment under Colorado state law.  The Court engaged in extensive fact-finding and analysis of all of the elements of the underlying state law claims.  The Debtor asserted a myriad of defenses.  The Court ultimately concluded Glencove met its burden of establishing both fraud by false representation and fraudulent concealment.  Thus, the Court allowed Glencove’s Proof of Claim in the amount of $458,470, plus post-judgment interest.  In doing so, the Court decided that the Debtor was Glencove’s agent.  The Court also rejected all of the Debtor’s many affirmative defenses including under the economic loss doctrine.  The Court decided that the Colorado economic loss doctrine does not apply to intentional torts such as fraud by false representation and fraudulent concealment.    

Having determined that the Debtor was indebted to Glencove, the Court considered nondischargeability.  The Court concluded that no word other than “fraud” was more apt for what the Debtor did.  Thus, the Court found that the debt was nondischargeable under 11 U.S.C. § 523(a)(2)(A) for false pretenses, false representation and actual fraud.  The Court also decided that the Debtor’s fraudulent conduct amounted to willful and malicious injury under 11 U.S.C. § 523(a)(6) too. 

 

 

In re Denise Patricia Madrid-Baskin, Bankruptcy Case No. 20-10069 TBM, Docket No. 38 (Bankr. D. Colo. Aug. 25, 2020) 08/25/2020

The Chapter 13 Debtor proposed a Chapter 13 Plan which would cram down a car lender even though the claim was subject to the hanging paragraph of 11 U.S.C. § 1325(a) (the “hanging paragraph”). The Debtor had purchased a vehicle for her personal use within 910 days before she filed her Chapter 13 case, financed both the purchase price and some miscellaneous other expenses and granted the car lender a security interest in the car. The Debtor contended that because the car lender had also financed the Debtor’s purchase of GAP insurance (insurance to cover the “gap” between the balance owed on the car loan and the value of the vehicle if it is totaled in an accident or stolen), the purchase money security interest that the lender held for the balance of the purchase price was destroyed, or “transformed,” into a non-purchase money security interest. Thus, the Debtor asserted that she was not prohibited by the hanging paragraph from cramming the car loan down to the value of the car at confirmation, an amount below the loan balance.

The Chapter 13 Trustee objected to confirmation of the Debtor’s plan stating that the proposed cram-down of the car lender to the value of the car at confirmation violated the hanging paragraph. The Trustee advocated for the application of the “dual-status” rule: for purposes of the hanging paragraph, any part of a 910 day car loan which is non-purchase money may be treated as an unsecured debt and the remainder of the debt which is directly attributed to the car purchase may not be crammed down. The parties had stipulated to the essential elements of the hanging paragraph and disputed only whether the loan lost its purchase money character because the lien secured, in part, a non-purchase money obligation. The Court held, based upon the stipulated facts and both Tenth Circuit precedent and intra-Tenth Circuit authority, that the “dual-status” rule should be applied, preventing the Debtor from cramming down the amount of the debt for the purchase of the car, and denied confirmation of the Debtor’s plan. The Court also addressed the methodology for calculating the amount of the debt which is subject to the purchase money security interest and could not be crammed down in the Plan.

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