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.
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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
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.
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.
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.
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.
After the Debtor, Touchstone Home Health, LLC, terminated its pre-petition representation by the Santangelo Law Offices, P.C. (the “Law Firm”), the Law Firm continued to assert that it was owed substantial attorneys’ fees, costs, and interest for its work; but the Debtor contested such obligation. In 2015, as a result of the parties’ impasse, the Law Firm initiated an arbitration proceeding under its fee agreement with the Debtor.
Before the arbitration was scheduled to proceed to a final evidentiary hearing, and just one day prior to an important deadline in the arbitration, the Debtor filed for relief under Chapter 11 of the Bankruptcy Code. The Law Firm moved for relief from the automatic stay pursuant to 11 U.S.C. § 362(d)(1) to proceed with liquidation of its claims against the Debtor through arbitration.
After a preliminary hearing at which the Court received oral offers of proof and exhibits and heard legal arguments from the parties, the Court determined that relief from stay “for cause” was warranted and the parties must be compelled to liquidate the Law Firm’s claim by arbitration. Finding no inherent conflict between arbitration and bankruptcy law in the context of the case, the Court concluded that it was required to enforce the arbitration agreement. The Court further concluded that, even if it had discretion to refuse to compel arbitration, it would exercise such discretion in favor of allowing the arbitration to proceed. Under the circumstances, bankruptcy did not eclipse the right to continue the arbitration.
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.
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.