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Unpublished Opinions

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Estate of Cheryl M. Shega v. Stephen Patrick Craig and Laura Stephanie Craig, 25-01012-JGR. Order Regarding Cross-Motions for Summary Judgment (Doc. 24). 05/19/2026

The estate of Cheryl M. Shega (“Plaintiff”) filed this adversary proceeding against Laura and Stephen Craig (collectively “Craigs”; individually “Laura”) seeking a determination that a state court jury verdict in the amount of $918,522.81 was excepted from discharge under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6).

The dispute arose after Cheryl M. Shega changed the designated beneficiary to Laura on four certificates of deposit totaling approximately $250,000.  Cheryl Shega was not formally diagnosed with a disability until later in life but she suffered from mental illness, maintained a “childlike approach to life,” was unable to maintain gainful employment and was supported by her parents through most of her life.

After Cheryl Shega’s passing, Plaintiff filed a state court action in Minnesota, which included claims against the Craigs for undue influence, exploitation of a vulnerable adult, unjust enrichment, tortious interference, deception/fraud, and intentional misrepresentation.  During the course of the proceedings, the Craigs filed motions for summary judgment, which were entered in their favor as to the claims for tortious interference and intentional misrepresentation.  After a two-week jury trial, a special jury verdict awarded compensatory damages to Plaintiff against Laura for undue influence and against the Craigs for tortious interference with prospective economic advantage, unjust enrichment, and financial exploitation of a vulnerable adult.

A final judgment was entered in favor of the estate and against the Craigs in the total amount of $918,522.81.  The compensatory damages were reduced to a single recovery in the amount of $250,000 which were trebled to $750,000.  The balance of the judgment consisted of attorney fees in the amount of $151,454.06 and costs in the amount of $17,068.75.

The Craigs filed a motion for summary judgment seeking the dismissal of the claim for relief under 11 U.S.C. § 523(a)(2)(A) based on the earlier summary judgment entered in the state court action.

Plaintiff filed a motion for summary judgment on the claims for relief under 11 U.S.C. § 523(a)(4) and (a)(6) based on the state court special jury verdict.

The Court analyzed the preclusive effect of the state court ruling on summary judgment and granted Craigs’ motion for summary judgment on the claim for relief under 11 U.S.C. § 523(a)(2)(A).  The Court then analyzed the preclusive effect of the special jury verdict and granted Plaintiff’s motion for summary judgment on the claims for relief under 11 U.S.C. § 523(a)(4) and (a)(6), and held the final judgment entered in the state court action was excepted from discharge.

Judge Joseph G. Rosania, Jr. (JGR)

In re Robert M. Koffler, Case No. 25-14914-JGR. Opinion and Order Granting Motion to Dismiss Case (Doc. 262) 05/18/2026

In an individual chapter 11 case, 530 Mashta, LLC and Tri-Cap Holdings, LLC moved to dismiss the case for cause under 11 U.S.C. § 1112(b)(1). The Debtor filed the case after the Judgment Creditors obtained final judgments exceeding $17 million and began collection activity. The Debtor’s proposed plan depended on three primary sources of value: consulting income from Black Dove, Inc., potential recovery in the BAA / BA Tech Litigation, and monetization of alleged equity in the 115 Blue Spruce Lane property (the "BSL Property").

The Court granted the motion to dismiss, finding cause under § 1112(b). Applying the totality of the circumstances and the bad-faith factors used in chapter 11 cases, the Court found that the case was filed and prosecuted in bad faith. Although the case did not present itself as a classic single-asset real estate case, the Court found that, when the layers were peeled back, the case was effectively about the Debtor’s effort to remain in and monetize the BSL Property. The Court found the Debtor’s proposed funding sources were contingent, disputed, and speculative.

The Court found that the case was effectively a two-party dispute between the Debtor and the Judgment Creditors. The Judgment Creditors held the dominant liquidated claims. The Court discounted the $119 million claim filed by the Estate of ngena, GmbH, which had not been scheduled by the Debtor and was filed only after the Debtor traveled to Germany and met with the insolvency administrator. The Court viewed that claim as a “friendly” claim used to make the case appear less like a two-party dispute and to create a potential impaired accepting class.

The Court also found that the Debtor had no operating business, no employees, no trade creditors, and no revenue-generating enterprise capable of rehabilitation. His plan depended primarily on litigation outcomes rather than business operations. The filing occurred after entry of the Florida judgments and during active collection activity, and the Court found that the Debtor had attempted to use bankruptcy as a forum-shopping and delay mechanism, including in connection with the Pitkin County litigation concerning the BSL Property.

The Court rejected the Debtor’s proposed funding sources as insufficient to support a confirmable plan. The Black Dove consulting arrangement produced limited and inconsistent income, was terminable on 30 days’ notice, and did not provide a reliable basis for plan funding. The Debtor’s expectation of increased compensation or equity from Black Dove was speculative. The Court also discounted testimony from Black Dove’s CEO because of his friendship with the Debtor, Black Dove’s failure to pay all amounts due under the consulting agreement, uncertainty over future funding, and the witness’s failure to comply with a subpoena.

The Court found that the BSL Property did not provide a reliable source of value. The Special Master in the Pitkin County litigation had ruled against the Debtor, determined that Dinamo owned the membership interests in 115 Blue Spruce Lane, LLC, rejected the Debtor’s constructive trust and fraudulent transfer theories, and concluded that the governing agreements created an equitable mortgage requiring judicial foreclosure. Although the Debtor objected to that ruling, the Court found that any realization of value from the property remained disputed, delayed, and uncertain.

The Court also found the BAA / BA Tech Litigation too speculative to support a plan. The Debtor did not present credible evidence explaining the claims, the likelihood of success, or collectability. Any recovery would also be reduced by a 40% contingency fee and subject to the Judgment Creditors’ charging order before any value could benefit the bankruptcy estate.

The Court separately found cause under § 1112(b)(4)(A) for continuing loss or diminution of the estate and the absence of a reasonable likelihood of rehabilitation. Monthly operating reports showed expenses exceeded income, and those figures did not include substantial unpaid post-petition carrying costs associated with the Debtor’s continued occupancy of the BSL Property, attorney’s fees, special master fees, or special counsel fees. The Court also noted disclosure problems, including omitted art-sale proceeds, an unscheduled Venmo account, unexplained redactions in the contingency fee agreement, inaccurate plan statements, and a possible tax liability that had not been addressed in the Debtor’s projections.

The Court held that the exception under § 1112(b)(2) did not apply. The Debtor’s compliance with basic chapter 11 requirements, including filing reports, attending meetings, producing documents, maintaining insurance, and filing a plan, did not constitute unusual circumstances. The Debtor also failed to show a reasonable likelihood of confirming a plan within a reasonable time or curing the grounds for dismissal.

The Court determined that dismissal, rather than conversion to chapter 7, was in the best interests of creditors and the estate. The Debtor admitted there would be no distribution in chapter 7, and the estate lacked cash or readily administered non-contingent assets. A chapter 7 trustee would inherit expensive, uncertain litigation in multiple forums without a clear net benefit to creditors. Dismissal would allow the parties to proceed in the non-bankruptcy forums where their disputes were already pending.

Although the Court found bad faith and dismissed the case, it declined to impose a refiling bar. The Court recognized the risk of future abuse but found no record of multiple successive filings by the Debtor, no violation of prior bar orders, and no showing that the Debtor was poised to refile immediately. The Court concluded that dismissal was sufficient to address the present misuse of chapter 11, while any future filing would be subject to scrutiny based on the record developed in the case.

 

Franklin v. 255 St. Paul Owner, LLC, Adv. Pro. No. 25-01328-JGR. Order Denying Second Motion to Dismiss Adversary Proceeding (Doc. 24). 05/14/2026

In a Subchapter V chapter 11 case, the Debtors filed an adversary proceeding seeking to avoid and recover a $100,781.76 payment made to 255 St. Paul Owner, LLC as a preferential transfer under 11 U.S.C. §§ 547(b) and 550(a). The Debtors alleged that the payment was made from their personal bank account on June 15, 2025, within 90 days before their July 28, 2025 petition date, and was made on account of guaranty obligations arising from a retail lease default.

The Defendant moved to dismiss the amended complaint, arguing that the Debtors failed to plead facts satisfying the “reasonable due diligence” requirement added to § 547(b), including consideration of known or reasonably knowable affirmative defenses under § 547(c). The Defendant also argued that the § 550(a) recovery claim failed if the preference claim failed, and alternatively requested a more definite statement.

The Court held that the amended complaint plausibly alleged each element of a preference claim under § 547(b). The Debtors alleged a transfer of their property, to or for the benefit of a creditor, on account of an antecedent debt, while insolvent, within the 90-day preference period, and in a manner that enabled the Defendant to receive more than it would have received in a hypothetical chapter 7 liquidation if the transfer had not been made.

The Court recognized that courts are split on whether the SBRA amendment to § 547(b) created a new element of a preference claim. The Court did not decide whether the amended language is an element, a condition precedent, or another pre-suit limitation. Assuming without deciding that the language must be plausibly pleaded, the Court held that the amended complaint satisfied that burden.

The Court found that the amended complaint alleged more than a bare conclusion of due diligence. The Debtors alleged they were the personal guarantors whose obligations were triggered by RHW CC’s default, that they were 50% owners of RHW CC, that they made the payment, that the payment came from funds belonging to them in a personal bank account, that the payment resolved an existing debt, and that they received no new value in exchange. The Court held that those allegations plausibly supported the Debtors’ first-hand knowledge of the circumstances surrounding the transfer. The Court further held that a debtor-in-possession with first-hand knowledge is not required, at the pleading stage, to interview itself, send a demand letter, or conduct a formal document review before filing a preference complaint.

The Court also held that the amended complaint alleged facts directed to known or reasonably knowable § 547(c) defenses, including allegations that there was no new value, no ordinary-course transfer, no security interest, no statutory lien, no domestic support obligation, and that the transfer exceeded the small-preference threshold. The Court did not decide whether those allegations were true or whether any § 547(c) defense could later be established. Those issues could be tested through discovery and were not appropriate for resolution on a Rule 12(b)(6) record.

Because the § 547(b) claim survived, the § 550(a) claim also survived. The amended complaint alleged that the Defendant was the initial transferee of the June 15, 2025 payment and sought recovery of the value of that payment if avoided under § 547(b). The Court held that no further transferee-chain pleading was required against an alleged initial transferee.

The Court also denied the Defendant’s request for a more definite statement. The amended complaint identified the challenged transfer by date, amount, transferee, source of funds, debt, petition date, and statutory theory, which was sufficient for the Defendant to reasonably frame a response. The Court denied the motion to dismiss and denied the alternative request for a more definite statement.

Sender v. Pearl Delta Funding, LLC, 25-01360-JGR. Opinion and Order Denying Motion to Dismiss Adversary Proceeding (Doc. 15). 05/14/2026

In a converted chapter 11 case, the chapter 7 Trustee filed an adversary proceeding seeking to avoid nine weekly payments of $12,500.01 each made by the Debtor to the Defendant under a merchant cash advance agreement (“mca agreement”) during the preference period pursuant to 11 U.S.C. § 547(b).  The complaint also sought to recover one post-petition payment of $2,156.70 pursuant to 11 U.S.C. § 549(a).  Defendant moved to dismiss the adversary proceeding for failure to state a claim under Fed.R.Civ.P. 12(b)(6).

The Defendant argued the mca agreement constituted a true sale of future receipts as opposed to a loan transaction and that the Trustee failed to specifically allege that the mca agreement was a loan as opposed to a sale.  Because the mca agreement constituted a true sale, the Defendant argued the Debtor held no interest in the future receipts that were used to make the payments.  However, the complaint alleged the Debtor borrowed $488,722 from the Defendant.  The Court held the well-pleaded allegations in the complaint were sufficient to raise factual issues as to whether the mca agreement was a sale or a loan that could not be resolved at the motion to dismiss stage.

The Defendant argued for the first time in its reply that an additional ground to dismiss existed due to the Trustee’s failure to affirmatively plead “based on reasonable due diligence in the circumstances of the case and taking into account a party’s known or reasonably knowable affirmative defenses under subsection (c).”  The Defendant argued the addition of the language to the introductory paragraph of 11 U.S.C. § 547 under the Small Business Reorganization Act of 2019 created the new element that must be pleaded when stating a preference claim. 

The Court recognized a split in cases with some courts holding due diligence must be affirmatively pleaded as an element of a preference claim, while others look to the allegations of the complaint to determine whether due diligence was exercised by the plaintiff in pursuing the preference claim by taking the alleged facts in the complaint as true and construing them in the light most favorable to the plaintiff.

The Court held that under the circumstances, the allegations in the complaint satisfied the condition precedent of due diligence and that the adversary complaint stated a plausible claim for relief under 11 U.S.C. § 547(b) and 549(a). 

The motion to dismiss also argued the Defendant held an absolute defense to the preference claims under the ordinary course of business defense under 11 U.S.C. § 547(c)(2) preventing recovery of the payments as preferential transfers.

The Court held that the ordinary course defense required factual determinations, including the circumstances under which the transaction was entered into within 6 months of the bankruptcy case filing, which prevented the use of the affirmative defense at the motion to dismiss stage.

Alsenaidi v. Alforahy, 24-01118-JGR. Opinion and Order Denying Objection to Discharge Under 11 U.S.C. § 727(a)(4)(A) and 11 U.S.C. § 727(a)(5). 05/20/2025

The Debtor-Defendant moved from Saudi Arabia to the United States.  The Plaintiff, a resident of the Kingdom of Saudi Arabia, obtained a default judgment in Saudi Arabia against the Defendant for $349,142.78.  After the Plaintiff domesticated the judgment in Colorado, the Defendant sought bankruptcy relief under Chapter 7.

The Plaintiff filed a complaint objecting to the dischargeability of the default judgment under 11 U.S.C. § 523(a)(2) and objecting to the Debtor’s discharge under 11 U.S.C. § 727(a).

At the final pretrial conference, the Court dismissed Plaintiff’s claim under 11 U.S.C. § 523(a)(2) for failure to state a claim, finding the complaint failed to make any specific factual allegations of the circumstances of the fraud, the intent to deceive, or that the Plaintiff relied on the alleged misrepresentation or omission.

The dispute involved loans allegedly made by the Plaintiff to the Defendant in 2017 and 2018.  The debts in question consisted of approximately $19,000 used by the Defendant to make credit card payments.  It was not disputed that additional loans totaling approximately $53,000 were made by the Plaintiff.  The Plaintiff testified the loans were made in connection with the Defendants’ business.  The Defendant testified the loans were used for expenses relating to his nephew’s cancer treatment in Germany.  The Plaintiff claimed the loans were made upon the representation that the Defendant was entitled to an inheritance that would allow him to repay the loans.

The Plaintiff testified another $275,000 loan was made to invest in real property in Turkey.  The Defendant denied he received the $275,000 loan or any moneys from a sale of the land in Turkey.  The Defendant claimed he was coerced into signing a document acknowledging the $275,000 loan when he was approached by the Plaintiff and another witness as he was preparing to leave for Germany.

The Defendant testified that his family owned real estate in Saudi Arabia, but that he did not own title to any of the land.  The Defendant testified he resided in an apartment in Denver, but paid no funds in connection with its acquisition, and received no proceeds when the apartment was sold in February 2022.

The Plaintiff’s claim under 11 U.S.C. § 727(a)(4)(A) was dismissed with prejudice.  The Court rejected Plaintiff’s contention that not listing the claim as disputed was a material misrepresentation.  The default judgment was entered, and the Defendant admitted to receiving the funds used for credit card payments and the loans used in connection with caring for his nephew.

The Court dismissed the Plaintiff’s claims under 11 U.S.C. § 727(a)(5) with prejudice.  The loans were made in 2017 and 2018.  The Plaintiff failed to identify any loss of assets that would cause the Defendant to be unable to meet his liabilities.

Henry W. Sutton and Tabatha L. Sutton v. Michael D. Nordike, Adversary Proceeding No. 23-01014-JGR, Docket No. 57 05/16/2025

Pre-petition, the Defendant obtained a judgment against the Plaintiffs in state court. The Defendant filed a contempt motion after the Plaintiffs failed to provide answers to the Defendant’s post-judgment interrogatories, and a hearing was set. Prior to the state court hearing, the Plaintiffs filed for Chapter 13 bankruptcy protection but did not notify the state court. At the hearing, the state court was informed that the Plaintiffs had filed for bankruptcy, but the presiding Magistrate set a final hearing. Soon thereafter, the Plaintiffs’ counsel and Defendant exchanged a series of contentious emails. The Defendant stated that the Plaintiffs would stand trial for their contempt and that he would take legal action against any improper filings against him. The Plaintiffs’ counsel demanded that the Defendant immediately stay the pending contempt hearing. After an unavoidable delay, the Defendant stayed the contempt motion forty days prior to the hearing.

The Plaintiffs filed an adversary proceeding and sought damages under 11 U.S.C. § 362(k)(1) for violations of the automatic stay of 11 U.S.C. § 362(a)(1), (2), and (6). The amended complaint alleged that the Defendant violated the automatic stay by (i) causing a contempt citation to issue; (ii) refusing to withdraw the contempt motion; (iii) insisting that the Plaintiffs answer interrogatories; (iv) scheduling a contempt hearing; and (v) continuing to pursue collection of a debt through a post-petition email exchange.

After a trial where the Plaintiffs and Defendants testified, the Court found that the automatic stay had not been violated. The Court found that the Defendant did not have actual notice of the Plaintiffs’ bankruptcy until Plaintiffs’ counsel appeared at the state court hearing and therefore could not have violated the stay by appearing at the hearing. Citing City of Chicago v. Fulton, Margavitch v. Southlake Holdings, LLC, and In re Iskric, the Court further found that because the Defendant had not taken an affirmative action to advance the contempt motion and stayed the state court action as soon as feasible, the status quo was not upset and therefore a stay violation had not occurred. The Defendant credibly testified that because he was out of the country for work on behalf of the United States Department of Defense, he could not consult with bankruptcy counsel, however, upon his return he promptly secured appropriate legal representation and stayed the state court action. The Plaintiffs failed to produce any evidence that this delay in filing for the stay caused harm.

The Court also found that the Defendant’s emails did not constitute a stay violation as they consisted of statements of facts as they were at the time, and the referenced legal action did not come to fruition. The Defendant also mitigated some of the perceived threats by stating his intention to stay the state court action and clarifying that he was not attempting to collect the judgment.

Ranta, 23-13269-JGR. Opinion and Order Reducing Claimed Homestead Under 11 U.S.C. § 522(o). 09/05/2024

The Debtor filed his bankruptcy case disclosing a 1% ownership interest in a residence, referred to as the Rose Mallow Property, located in Parker, Colorado.  The Property was acquired in February 2022.  The Debtor valued the Property in the amount of $1,636,021.50 and his 1% interest in the amount of $16,360.22 and 99% of the Property was vested in the Debtor’s non-filing spouse, and justified the split as his wife made the down-payment for the Property.

Initially, the Debtor claimed his interest in the residence as exempt using the enhanced disability Colorado Homestead Exemption in the amount of $175,000.  Because the Debtor had not lived in Colorado for two years prior to the bankruptcy filing, an Amended Schedule C was filed utilizing California exemptions, his prior domicile.

The Debtor filed a Motion to Compel Abandonment of his 1% interest in the Property, and the judgment creditors objected and filed a separate objection to the claimed California exemptions.  An evidentiary hearing was held on the combined motions.  The Court held Debtor’s claimed exemptions under California law were proper under the requirements of 11 U.S.C. § 522(b)(3)(A) and that California’s Homestead Exemption could be applied extraterritorially.

Evidence established that the down-payment could be traced to nonexempt property of the Debtor. The Court determined that value in the Property was attributable to non-exempt property disposed of by the Debtor with the intent to hinder, delay, or defraud the judgment creditors and pursuant to 11 U.S.C. § 522(o), the Homestead Exemption was reduced to $0.00.

The Court denied the Motion to Compel Abandonment of the Interests as premature pending the Chapter 7 Trustee’s evaluation of potential avoidance claims regarding the Rose Mallow Property.

303 Investments, Inc., 22-14267-JGR. Order Confirming Nonconsensual Subchapter V Plan of Reorganization (Doc. 253) 06/24/2024

The Debtor is a real estate development company in Parker, Colorado.  An affiliated company to the Debtor obtained construction financing to develop the initial infrastructure for a housing subdivision.  The construction loans are secured by lots owned by the affiliated company located in the second phase of the development.  The Debtor owns lots located in the first phase of the development.  The construction lender filed state court litigation seeking an equitable lien in the phase one properties and recorded a lis pendens against the lots.

As a result of the litigation, the Debtor sought relief under Subchapter V of Chapter 11.  The Debtor negotiated with creditors and reached a settlement with the construction lender. After filing different iterations of its Subchapter V Plan, the Debtor resolved all of the objections, except of one secured creditor.  That bank voted to reject the Plan, objected to confirmation, and moved for the case to be converted to chapter 7.

The Court examined confirmation of the non-consensual plan under 11 U.S.C. § 1191(b), which eliminates the requirements of 11 U.S.C. § 1129(a)(8)(each impaired class has accepted the plan) and (10)(at least one impaired class has accepted the plan), provided that the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interest that is impaired under, and has not accepted, the plan.

The Court found a number of the requirements of 11 U.S.C. § 1129 were not contested and were satisfied through an offer of proof.  An evidentiary hearing was conducted regarding the remaining contested issues.

The Court found that Debtor acted in good faith pursuant to 11 U.S.C. § 1129(a)(3).  The Debtor utilized the bankruptcy process to negotiate a Plan that has been accepted by all of its creditors with the exception of the bank.  The Plan’s modification of the bank’s claims is permissible under the Bankruptcy Code and has a reasonable chance of success.  The Plan met the requirements of 11 U.S.C. § 1129(a)(7)’s Best Interests of Creditors Test.  Creditors will receive more through the Plan than they would in a chapter 7 and because the Plan incorporates the settlement with the construction lender, it avoids potential risks and delays of further litigation relating to the equitable lien.

The Court found the terms of the settlement agreement with the construction lender incorporated into the Plan were fair and reasonable and in the best interests of the estate.

The Plan proposes to pay all of the claims in full through the sale of the lots.  The Court found the Plan did not discriminate unfairly and is fair and equitable with respect to the objecting bank.  The unrebutted evidence established the objecting bank’s modified claim was adequately protected and that the twelve-month injunction for the sale of the lots and enjoining the bank from collection, after which point it may seek state law remedies if applicable, is reasonable and permissible.  The Court confirmed the Plan over the bank’s objection.

Waunsch et al. v. Weston Educational, Inc., 16-01516-JGR. Order and Judgment Denying Plaintiffs’ Motion for Class Certification entered on March 28, 2024 (Docs. 125 and 126). 03/28/2024

This Adversary Proceeding presented unusual procedural facts.  Weston Educational, Inc.(“Weston”), operated eleven campuses across the United States.  Its headquarters were in Colorado.

The Debtor’s Chapter 7 bankruptcy was filed on November 21, 2016.  Approximately one week later, the Plaintiffs filed this Adversary Proceeding alleging violations of the WARN Act for failure to notify employees of the closing of the business on November 1, 2016. 

The parties recognized legitimate concerns over whether the chapter 7 bankruptcy estate would be solvent on an administrative level.  As a result, numerous stipulations were filed holding the Adversary Proceeding in abeyance.

At the beginning of the bankruptcy case, the Trustee issued a Notice of Possible Dividends.  71 employees filed Proofs of Claim for unpaid wages, including three of the four named Plaintiffs in the Adversary Proceeding.  The Trustee reports that the bankruptcy estate currently has sufficient funds to pay the timely filed wage claims totaling approximately $315,000, in full, with some funds being available to pay general unsecured creditors.

Eventually, the Trustee commenced litigation seeking to recover funds for the estate under a D&O insurance policy.  With the prospect of significant funds being recovered through the litigation, the Plaintiff sought class certification of the Adversary Proceeding.

After the motion was briefed and argued, the D&O litigation was dismissed, creating a situation where allowance of the WARN claims would potentially prejudice the holders of timely filed wage claims.

Fed.R.Bankr.P. 7023 incorporates Fed.R.Civ.P. 23.  Examining the four prerequisites for class actions of Fed.R.Civ.P. 23(a), the Court found three prerequisites were not met: (1) the class is so numerous that joinder of all members is impracticable; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

The Court found that even though Weston had approximately 600 employees, the numerosity requirement was not met as the punitive class was not so numerous that the joinder of all members was impractical.  The Court found the typicality requirement was not met as the majority of former employees did not include WARN damages in their claims.  The Court found the fourth requirement of adequacy of representation was not met as three of the four putative class members timely filed wage claims that stand to be paid in full and would receive more money if the WARN claims were not allowed.

The Court found that the superiority requirement of Fed.R.Civ.P. 23(b) was not met as the Plaintiffs proposed to provide notice of the class action using the dated information used to prepare Weston’s bankruptcy schedules over 7 years ago. 

The Court recognizes that class actions can be appropriate in bankruptcy cases but denied the motion for class certification under the facts presented in this bankruptcy case.  The Court found that any class wide recovery of WARN Act claims would unfairly punish former employees who timely filed priority wage claims.

Michael Joseph Roberts, Sr., Bankruptcy Case No. 22-10521-JGR, Docket No. 777 03/28/2024

The Debtor filed a chapter 11 bankruptcy petition on the eve of a pending damages hearing. After this Court granted relief from stay, a Denver District Court entered a $22.8 million award against the Debtor for his breach of fiduciary duty as a result of certain pre-petition actions. During the state court litigation, the Debtor was jailed for contempt and was subject to harsh discovery sanctions as a result of his misconduct. This Court later converted the case from chapter 11 to chapter 7, finding that the case was filed in bad faith and a chapter 7 trustee was appointed.

The Trustee negotiated a settlement with the judgment creditors, inter alia, which reduces the claim to an allowed $19 million unsecured claim in exchange for dismissing the appeal of the damages award in state court. The Trustee submitted a joint motion for approval with the judgment creditors on the grounds that the settlement agreement was the best result for the estate, citing the need to end the ongoing litigation to achieve the most efficient administration of the estate.

This Court held a 3-day hearing, where each side presented expert witness testimony and heard testimony on the Kopexa factors, which govern the approval of a settlement agreement. The only creditor to object to the settlement agreement was the Debtor’s state court attorney. The Court granted the motion to approve the settlement as it was reasonable and fulfilled the Kopexa factors. The Court found that on the balance of probabilities the underlying appeal would not succeed, the ongoing litigation costs were burdensome to the estate, and reducing the damages to $19 million while ending the litigation was in the best interest of the creditors.

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