Chapter 7 trustee filed an application to employ his own law firm as litigation counsel. Section 327(d) requires a showing that such employment is “in the best interests of the estate.” While the employment of any professional must be in the best interests of the estate, Congress’ addition of this requirement when the trustee seeks to hire his own firm is intended to signal that there must be special circumstances to justify keeping legal work “in-house.” The Court traced the relevant legislative history and the various multi-factor tests employed by the courts. It found that the underlying concerns with “in-house” retention boil down to two issues: an appearance of impropriety and a lessening of independent judgment. Given these two concerns, the trustee must justify employment of his firm by demonstrating substantial, tangible benefits to the estate that could not also be achieved with outside counsel. The Court detailed possible examples of such benefits, but concluded that the application in this case did not meet any of these criteria.
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Non-profit debtor corporation that co-owned real property with its former president, confirmed a chapter 11 plan that vested property of the estate in the Debtor upon confirmation “free and clear” of claims and interests. Following confirmation, the former president sought to partition the property in state court, and the Debtor filed a motion seeking a determination whether the plan’s language extinguished the co-owner’s partition rights. The Court determined that neither 11 U.S.C. § 1141(c) nor the Debtor’s plan eliminated the former president’s co-ownership interest in the property or prevented him from seeking partition in the state court.
Counsel for chapter 11 debtor sought retroactive approval of its employment as counsel for the debtor for the seven-day period between the debtor’s petition date and the date counsel filed its application. The Court denied the request, finding counsel had failed to make the required showing of extraordinary circumstances necessary to obtain nunc pro tunc approval under Tenth Circuit precedent. Even though the delay was relatively short, that factor alone was not an extraordinary circumstance.
Public utility creditor, PacifiCorp d/b/a Rocky Mountain Power (“PacifiCorp”), supplied electrical energy to the Debtor, Escalera Resources Co. (“Escalera”), before and after the Debtor sought protection under Chapter 11 of the Bankruptcy Code. PacifiCorp filed an Application under 11 U.S.C. § 503(b)(9) seeking approval of an administrative expense priority claim for the value of the electrical energy supplied by PacifiCorp to the Debtor during the 20-day period prior to the bankruptcy petition date. The Debtor opposed the Application arguing that electrical energy does not constitute “goods” under Section 503(b)(9). The issue is of first impression for federal courts within the geographical bounds of the U.S. Court of Appeals for the Tenth Circuit.
The Court focused on the plain meaning of the word “goods” within the statutory framework. Since the term is not defined in the Bankruptcy Code, the Court analyzed the ordinary and legal meaning of the word “goods” in dictionaries and under a variety of legal regimes including the Uniform Commercial Code, federal antitrust law, federal labor law, federal energy regulatory law, state tort law, tax law, and international treaties. Informed by those sources, the Court ultimately adopts the definition of “goods” in the UCC Section 2-105 for purposes of Section 503(b)(9) and determines that electrical energy constitutes “goods” within the ambit of Section 503(b)(9). Accordingly, the Court granted administrative expense priority status for the value of electrical energy supplied by PacifiCorp to the Debtor during the 20-day period prior to the bankruptcy petition date.
Debtor filed for Chapter 13 and made multiple misrepresentations in her petitions and proposed plans during the subsequent nine-month period. Several creditors moved to convert Debtor’s case to Chapter 7, citing 11 U.S.C. § 1307(c), on the grounds of bad faith. Debtor then moved to voluntarily dismiss her case under § 1307(b), arguing she had an absolute right to dismissal, despite the pending motions to convert.
Noting the lack of Tenth Circuit authority on this issue, the Court ordered briefing and held an evidentiary hearing on the pending motions. Two creditors cited cases holding a bad faith exception to the absolute right to dismiss should allow the Court to determine whether dismissal or conversion was in the best interests of creditors. Another creditor, and the Trustee, sided with Debtor, citing cases holding the plain language of § 1307(b) mandated the Court to dismiss, rather than convert, the case notwithstanding Debtor’s bad faith conduct.
The Court examined the split of authority on this issue, as well as the implications of Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) and Law v. Siegel, 134 S.Ct. 1188 (2014). The Court ultimately determined the statutory language of the Code, and the conflicting case law addressing the issue, compelled dismissal, rather than conversion, of Debtor’s case. Importantly, the Court agreed with cases determining the right to dismissal was not “self executing”; that is, after a debtor’s motion under § 1307(b) is filed, a court can hold a hearing on the motion to determine whether conditions should be placed on dismissal if it finds them appropriate.
Therefore, the Court dismissed the case with sanctions for Debtor’s bad faith conduct, pursuant to § 109(g) (180-day filing bar) and § 349(a) (barring discharge of debts in future bankruptcy cases). Additionally, the Court held that, should Debtor file a bankruptcy case after 180 days, but within three years, Debtor was required to provide notice to all creditors, including those in the current case, giving them an opportunity to object. Finally, the Court noted that nothing in its Order prohibited the filing of an involuntary bankruptcy case against Debtor under § 303.
The Unsecured Creditors’ Committee served subpoenas to produce documents (subpoenas duces tecum) on two non-parties pursuant to Fed. R. Bankr. P. 2004 and 9016, as well as Fed. R. Civ. P. 45. The subpoenas properly were issued by the United States Bankruptcy Court for the District of Colorado (and signed by counsel for the Committee) but required that the entities produce documents in New York, New York. The targets of the subpoenas contested the subpoenas by filing a motion to quash in the United States Bankruptcy Court for the District of Colorado. But, the new version of Fed. R. Civ. P. 45(d)(3) mandates that attacks on subpoenas initially must be prosecuted in “the court for the district where compliance is required.” Since the subpoenas unequivocally required compliance in New York, the Court held that it lacked authority to adjudicate the motion to quash and that the non-parties must seek relief in the United States District Court for the Southern District of New York (or possibly the United States Bankruptcy Court for the Southern District of New York).
The State of Colorado filed a Complaint under 11 U.S.C. § 523(a)(2)(A) seeking to determine the nondischargeability of a debt owed to it by the Debtor/Defendant for overpayments of unemployment compensation, plus statutory penalties and collection fees, on the ground that the Debtor/Defendant had fraudulently and under false pretenses obtained overpayments of unemployment to which he was not entitled.
The Defendant moved to dismiss the claim to the extent that the State sought to establish the nondischargeability of the statutory penalties and collection fees, arguing that pursuant to 11 U.S.C. § 1328(a), those components of the debt were not barred from a discharge entered in a Chapter 13 case. Based on the plain reading of Section 523 and the Colorado Employment Security Act, the Court concluded that the State had adequately alleged a claim against the Defendant. The Court further held that the Supreme Court’s decision in Cohen v. de la Cruz, 523 U.S. 213 (1998) dictates that penalties and collection fees arising from overpaid unemployment compensation obtained by “false pretenses, a fraudulent representation, or actual fraud” are nondischargeable under Section 523(a)(2)(A) to the same extent as the restitutionary debt for overpaid unemployment compensation. Such penalties do not become dischargeable under Section 523(a)(7).