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.
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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.
The Court weighed in on the recent trend of lenders objecting to discharge at the conclusion of a Chapter 13 case because a debtor failed to make post-petition mortgage payments. In this particular case, the mortgage lender initially filed a response to the Trustee’s Notice of Final Cure Payment indicating Debtor had failed to make post-petition mortgage payments, but the parties were in the process of a loan modification. As a result, the Trustee filed a motion to dismiss under § 1307 for failure to comply with provisions of the Debtor’s Chapter 13 Plan. Subsequently, the mortgage lender filed a supplemental response indicating the loan had been modified and the Debtor was no longer in default.
The Trustee conceded a loan modification may cure deficiencies in post-petition mortgage payments under some circumstances, but questioned the timing of the loan modification, which was not finalized until after the 60-month plan period had ended. Debtor argued it would be inequitable to deny discharge, when she had made mortgage payments for most of the plan term, but entered a loan modification with her mortgage lender when her income dropped during the last year of her plan, and, pursuant to instructions from her mortgage lender, did not make payments for a certain amount of time.
The Court recognized the holdings of other divisions of this Court that post-petition mortgage payments are “payments under the plan” pursuant to § 1328(a). However, the Court agreed with the reasoning of In re Binder, 224 B.R. 483, 490 (Bankr.D.Colo. 1998), that, for a creditor holding a “long-term debt secured only by a lien against the debtor’s residence” the debtor is allowed to “cure arrearages over a reasonable period of time” so long as they keep current with regard to other obligations. In this particular case, the Court held any default was not material under § 1307(c)(6), because it was technical and temporary, and had since been cured to the mortgage lender’s satisfaction.
The Court also determined that, while §§ 1322 and 1325 prohibit a debtor and a bankruptcy court from knowingly extending a plan that extends beyond five years, these sections do not mandate dismissal of a bankruptcy case if a debtor needs a reasonable period of time to cure an unanticipated arrearage incurred during the sixty-month period. (Citing In re Handy, 557 B.R. 625, 628 (Bankr. N.D. Ill. 2016)).
Ultimately, the Court denied the Trustee’s motion to dismiss, determined it would be inequitable in this circumstances to deny discharge, and ordered the Clerk to enter Debtor’s discharge and close the case.
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).
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 issue before the Court was whether an innocent mistake by a grandmother in titling property in her name and the names of her daughter and son-in-law is reached by the law of constructively fraudulent transfers when the son-in-law transferred his interest in the property back to the grandmother immediately upon her request almost two years before the son-in-law filed bankruptcy.
Trustee filed a complaint against Debtor’s mother-in-law, Mrs. Nelabovige (“Nelabovige”), for recovery of a constructive fraudulent transfer under 11 U.S.C. §§ 548(a)(1)(B) and 550(a)(1). Trustee alleged that when Nelabovige purchased property in Fairplay, and titled the property in her name and the names of Debtor and his wife, Nelabovige gifted a one-third interest in the property to Debtor. Trustee further contended that when Debtor quit-claimed his interest in the property to Nelabovige, he made a transfer of his property to her and received less than a reasonably equivalent value in exchange for the transfer, and was either insolvent on the date of the transfer or rendered insolvent by the transfer. The Trustee requested a judgment against Nelabovige for one-third of the amount the property sold for in December 2014. The Court held a full-day evidentiary hearing on the complaint and Nelabovige’s answer, and took the matter under advisement.
In its written opinion, the Court cited Davis v. Pham (In re Nguyen) 783 F.3d 769, 776 (10th Cir. 2015), for the proposition that an interest in property consisting of bare legal title holds no tangible economic value; accordingly, the transfer of bare legal title does not constitute a fraudulent transfer. Therefore, the question before the Court was whether under Colorado law, Nelabovige made a gift of a one-third interest in the property to Debtor. If there was no gift, since she paid for the property and did not receive any consideration from Debtor, a resulting trust would arise in Nelabovige’s favor, making the transfers to and from Debtor of bare legal title only.
The Court found by strong and convincing evidence that Nelabovige did not intend to make a gift to Debtor. Thus, Debtor only had bare legal title subject to a resulting trust in favor of Nelabovige, who held equitable title. Accordingly, the reconveyance of Debtor’s bare legal title was not a fraudulent transfer. The Court entered judgment in favor of Nelabovige and against the Trustee, and dismissed the complaint with prejudice.
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).
Prior to bankruptcy, Debtor bank holding company, United Western Bancorp, Inc. (the “Debtor”), filed consolidated federal income tax returns for itself and a group of 13 affiliated companies, including United Western Bank (the “Bank”), a failed bank now in a Federal Deposit Insurance Corporation (the “FDIC”) receivership. Post-petition, the Internal Revenue Service issued a tax refund in excess of $4 million based upon the offset of net operating losses and past income from the operations of the Bank as reported on the consolidated federal income tax returns filed by the Debtor.
Both the Chapter 7 Trustee (acting on behalf of the Debtor) and the FDIC (acting on behalf of the Bank) claimed entitlement to the tax refund. The Chapter 7 Trustee brought an adversary proceeding asserting claims under Sections 541 and 542 of the Bankruptcy Code. The FDIC counterclaimed. The Chapter 7 Trustee and the FDIC presented cross-motions for summary judgment directed to ownership of the tax refund. The facts were undisputed. The parties agreed that ownership of the tax refund should be decided primarily based upon a Tax Allocation Agreement.
The Court concluded that the Chapter 7 Trustee established a legal interest in the tax refund under the Tax Allocation Agreement, the Internal Revenue Code, and Internal Revenue Service regulations. Further, the Court determined that the FDIC failed to establish a beneficial interest in the tax refund. The Court analyzed the Tax Allocation Agreement and decided that it created a debtor-creditor relationship as between the Debtor and the Bank. Accordingly, the Court ruled in favor of the Chapter 7 Trustee and against the FDIC.
Educational Credit Management Corporation (“ECMC”) filed a proof of claim in Debtor’s
Chapter 13 bankruptcy case for a student loan debt. Debtor filed an objection, which the Court
sustained after ECMC failed to respond. Debtor then brought an adversary proceeding against
ECMC, asking the Court to declare the loans unenforceable. While Debtor cited § 523(a)(8) in
his complaint, he made no arguments regarding undue hardship, other than the contention that
paying the loans would be an undue hardship because he never received the loan funds. ECMC
moved for summary judgment, and Debtor responded.
The Court first determined it had jurisdiction, because even though Debtor was asking for a
declaratory judgment, the underlying substance of the claim was a dischargeability
determination, which is a core matter under 28 U.S.C. § 157(b)(2). The Court found the two
essential issues were (1) whether the loans were of the type excepted from discharge under
§ 523(a)(8), and (2) whether Debtor owed the debt. Because the loans were Supplemental Loans
for Students (“SLS Loans”) insured by the federal government and made under a program
funded in part by the federal government, the Court found they were the types of loans excepted
from discharge under Section 523(a)(8)(A)(i).
As to the second issue, the Court gave collateral estoppel effect to the decision of an independent
hearing officer appointed under 20 U.S.C.§ 1095a. That section authorizes the Secretary of
Education, or a guaranty agency, to withhold wages to satisfy a debt for loans made under the
Higher Education Act. In the wage garnishment proceeding before the hearing officer, Debtor
made identical arguments presented in this adversary proceeding. The hearing officer rejected
those arguments, finding the Debtor failed to prove the loans were not enforceable. The Court
specifically found the hearing officer’s decision was a final agency decision, and the hearing
procedures afforded the Debtor with sufficient due process.
Finally, the court concluded Debtor had not raised a genuine issue of material fact in his
response to summary judgment, holding “Debtor’s self-serving statements lack support in the
evidentiary record, which clearly shows Debtor continued to sign applications and promissory
notes for SLS Loans, year after year, even though he allegedly did not receive loan funds from
any of the notes.” The Court granted ECMC’s motion for summary judgment.
Examining the interplay between the Chapter 13 statutory framework and Fed. R. Bankr. P. 1016, the Court determined that a debtor who died shortly after the filing of his joint petition under Chapter 13 and prior to confirmation of his Chapter 13 plan must be dismissed as a debtor from the case, and that the plan proposed on behalf of the joint debtors could not be confirmed.