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Unpublished Opinions

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Judge Joseph G. Rosania, Jr. (JGR)

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.

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.

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.

Autotech Technologies, LP v. Palmer Drives Controls and Systems, Inc. (In re Palmer Drives Controls and Systems), Bankruptcy Case No. 23-1223-JGR, Docket No. 17 (Bankr. D. Colo. Jan. 30, 2024). 01/25/2024

The Plaintiff brought a complaint under 11 U.S.C. § 523(a)(4) to except its allowed general, unsecured claim from discharge for fraud while acting in a fiduciary capacity against the Defendant, a Chapter 11 Subchapter V debtor. The Plaintiff relied on In re Cleary Packaging, LLC, 36 F.4th 509, 513 (4th Cir. 2022), a recent case that allowed a debt owed by a corporate debtor in Subchapter V to be excepted from discharge under § 523(a), a section of the code previously only available to individual debtors. The Defendant filed a motion to dismiss for failure to state a claim in response, arguing that the Cleary decision was flawed and non-binding. During the pendency of this proceeding, the Debtor-Defendant had their second amended plan confirmed by the Court, despite a late ballot rejecting the plan and a late objection to confirmation from the Plaintiff.

The Court reviewed In re Cleary against other decisions denying the use of § 523(a) in proceedings involving corporate debtors. The Court found that all cases cited by the parties were not relevant because they pertained to non-consensual discharges which are governed by 11 U.S.C. § 1192, and the plan confirmed by the Court here was consensual. The discharge of debts in a consensual plan is governed under an entirely different section of the Code, 11 U.S.C. § 1141(d)(2), which expressly limits the use of § 523 to individuals. The Court found that because all Creditors had either accepted the plan or were deemed to have accepted the plan, the plan was consensual and governed under § 1141(d)(2). The Court further found that even if it permitted the late ballot to be counted, which it had not, the plan was still accepted under 11 U.S.C. § 1126(c) and was consensual. The Court granted the Defendant’s motion, and the complaint was dismissed.

Together Real Estate Holdings, LLC v. Karen S. Bordner, 22-01047-JGR. Findings of Fact and Conclusions of Law and Judgment entered on August 15, 2023 (Docs. 47 and 48). 08/15/2023

Karen S. Bordner and her husband Donald H. Ellis, sought bankruptcy relief in a Chapter 11 case.  Prior to the bankruptcy filing, Together Real Estate Holdings, LLC was involved in various real estate renovation projects with companies owned by Bordner.  TRE filed a Proof of Claim in Bordner’s personal bankruptcy case and filed an adversary proceeding raising claims for relief under 11 U.S.C. § 523(a)(2)(A) for false representations, false pretenses, and actual fraud to except two loans from discharge.  The Court combined the trial on the Complaint with Bordner’s Objection to TRE’s Proof of Claim.  The Court entered an order finding in favor of Bordner and against TRE on the dischargeability claims and granted Bordner’s Objection to the Proof of Claim.

The dispute centered around two loans made by TRE to Bordner, her business partner, Victoria Roberts, and their company, Artemis Realty Investments.  The first loan was made in the amount of $20,000.  A promissory note for the loan was executed after the fact, which was personally guaranteed by Bordner and Roberts.  The second $260,000 loan was also made without the execution of a promissory note and without signed personal guarantees by Bordner and Roberts.

The loans were made for the proposed purchase of a property located on Race Street in Denver.  When the purchase fell through, Artemis located a substitute property on Emerson Street and the parties agreed that the TRE loan proceeds could be used for its purchase.

The renovation project experienced complications and delays as a result of the worldwide pandemic and was eventually foreclosed upon by the first mortgage lender.  Interest payments on the TRE loans were made for a period of time, but the balance of the loans remain unpaid.

In its Complaint, TRE claimed that Bordner represented that she would repay the loans, that she and Roberts were going to contribute personal funds to the project, that the loans would be secured by Deeds of Trust, and that both promissory notes would be personally guaranteed.

The Court held that the $20,000 note (and the $260,000 loan) were dischargeable as TRE failed to establish that they were obtained through false representations, false pretenses, or actual fraud.  The Court further held that the $260,000 loan was not personally guaranteed in a writing as required by the Colorado Statute of Frauds and was not enforceable against Bordner.  The Court granted the Debtors’ Objection to the Proof of Claim filed by TRE and allowed the claim in the reduced principal amount of $20,000 to be treated as a general unsecured claim in the Debtors’ Chapter 11 Plan.

In Re XBridge, LLC, Case No. 23-10045-JGR. Order entered July 12, 2023 (Doc. 124) (denying cross-motions for attorney’s fees sanctions). 07/12/2023

Overall, the Court denied cross-motions for attorney’s fees sanctions that arose out of an involuntary bankruptcy case from which the Court abstained under Section 305.

In the beginning, the Court granted an uncontested involuntary petition against the debtor who was in a pre-petition state court receivership. Then one of the debtor’s co-owners moved the Court to abstain from the case under Section 305. The state court receiver joined in seeking abstention, largely because the petition had been filed one hour after the receiver had closed the bidding on a sale of the debtor’s assets, but before the sale was finalized. The debtor’s co-owner submitted the only bid in the receiver’s sale and was the presumptive new owner. A group of three creditors, including the debtor’s other co-owner, opposed abstention and moved for the appointment of a Chapter 11 trustee. The Court held a multi-day evidentiary hearing and decided to abstain from the bankruptcy case.

Following the Court’s abstention ruling, the co-owner who sought abstention filed a motion for attorney’s fees sanctions against the three creditors (including the other co-owner) and their attorneys. The motion explicitly eschewed Section 303(i) as a source of sanctions, instead proceeding under Rule 9011 and Section 105(a). However, the motion did not comply with Rule 9011’s 21-day safe harbor provision. The motion sought fees because (1) the involuntary petition was allegedly filed in bad faith and (2) the creditors and their attorneys allegedly presented false allegations to the Court. 

For the filing of involuntary petition itself, the Court found that Rule 9011 sanctions were available because the rule’s 21-day safe harbor requirement does not apply to petitions. However, the Court denied sanctions. The Court based its decision on a lack of evidence of sanctionable conduct (which the Court distinguished from simply advancing losing arguments), an involuntary petition that met the statutory requirements, and the petitioning creditor’s legitimate purposes for seeking bankruptcy. 

For the alleged false representations made to the Court, the Court found that Rule 9011 sanctions were not available due to the movant’s noncompliance with Rule 9011’s 21-day safe harbor. The Court found that sanctions under Section 105(a) were available but denied sanctions on this basis as well. Vital to the Court’s decision was an expert opinion provided to the creditors mere days before state court bidding for the business closed and the involuntary petition was filed. Such an opinion, although the Court found it largely unjustified, provided a reasonable basis for the factual allegations advanced by the three creditors and their attorneys—especially under the expedited schedule imposed by the Court.

Finally, two of the creditors cross-moved for sanctions under Rule 9011(c)(1)(A) for their fees incurred in defending against the sanctions motion. The Court denied these sanctions, concluding that the original sanctions motion was a close call and not deserving of the rare and drastic remedy of sanctions.

Donald Kalil v. Susan Ann Hall, 18-01427-JGR, consolidated with Donald Kalil v. Aubrey Gavin Hall, 19-01004-JGR. Order Granting Summary Judgment entered June 14, 2023 (Doc. 97). 06/14/2023

The Court entered an Order Granting Summary Judgment against both Debtor-Defendants and in favor of the Plaintiff on claims for relief for a non-dischargeable debt under 11 U.S.C. § 523(a)(2)(A) for fraud and fraud by use of a writing, and for a non-dischargeable debt under 11 U.S.C. § 523(a)(6) for willful and malicious injury.

The Debtors established Hall Brewing Company (“HBC”) and opened a taproom in Parker, Colorado to sell Colorado brewed craft beer.  In 2016, the Plaintiff loaned $477,000 to HBC and the Debtors for use in the business.  HBC significantly misrepresented its assets and liabilities and the loaned funds were used to pay other creditors and personal debts.  In 2017, after the brewery failed, Plaintiff sued the Debtors and HBC in state court for breach of contract, fraud, breach of fiduciary duty, civil theft, and an accounting, and demanded a jury trial on all claims.

Relief from stay was granted to allow the state court proceeding to continue to its conclusion.  A jury trial was conducted in the fall of 2019, which resulted in a jury verdict and final judgment awarding damages in favor of Plaintiff in the amount of $1,497,278, plus fees, costs, and post-judgment interest.  The state appellate court affirmed the judgment in its entirety on December 29, 2022.  The Court found that the jury verdict and the final judgment entered in the state court action were entitled to preclusive effect in the discharge litigation.  The issues necessary to determine the non-dischargeability of the debt were actually litigated, and necessary to the resulting final judgment in the state court.

The Bankruptcy Court rejected the Debtors’ argument that they were denied a full and fair opportunity to litigate in the state court proceeding.  They listed various counterclaims against the Plaintiff in their bankruptcy filings and they argued the Chapter 7 Trustee of their bankruptcy cases was the only real party in interest and had a duty to pursue the counterclaims and defend them and HBC.  The Debtors also argued that because the alleged counterclaims were the property of the respective bankruptcy estates, they were unable to assert the alleged counterclaims at trial.  The Court found the Debtors had the opportunity to seek timely abandonment of the counterclaims, but did not.  The Court found the Halls were collaterally estopped from challenging the state court jury verdict and final judgments of fraud and civil theft in the bankruptcy court.  The bankruptcy dischargeability issues were identical to two of the issues decided by the state court: fraud (Section 523(a)(2)(A)) and civil theft (Section 523(a)(6)).

Judge Thomas B. McNamara (TBM)

In re Signia, Ltd., Bankruptcy Case No.23-14384 TBM, Docket No. 168 (Bankr. D. Colo. Jan. 29, 2024). 01/29/2024

The Debtor, a debtor under Subchapter V of Chapter 11, sought an extension of the 90- day period set by 11 U.S.C. § 1189(b) to file its plan. Section 1189(b) permits the Court to grant an extension only “if the need for the extension is attributable to circumstances for which the debtor should not justly be held accountable.” The only reason asserted by the Debtor to justify extension of the Section 1189(b) period was that a hearing was set in the near future on an objection to the Debtor’s post-petition financing agreement, resolution of which the Debtor asserted was a threshold plan issue. However, after the Debtor requested the extension of time, the Debtor withdrew its financing motion and requested that the hearing be vacated. Nevertheless, the Debtor continued to seek an extension of time to file its plan.

The Court reviewed the decisions of courts which have examined the Section 1189(b) phrase and case law interpreting Section 1221 which uses the same phrase. The Court adopted a “Beyond-the-Debtor’s-Control” standard and concluded that extensions of time to file Subchapter V plans “should not be routinely granted. Instead, debtors bear the stringent or high burden of proving that the requested extension is based on circumstances ‘for which the debtor should not justly be held accountable.’ That means circumstances beyond the debtor’s control.” Having so concluded, the Court found that the Debtor had failed to meet its burden insofar as the circumstances asserted were entirely within the Debtor’s control. The Court denied the requested extension of time.

Together Real Estate Holdings, LLC v. Roberts, Adv. Pro. No. 22-01043 TBM (In re Victoria P. Roberts) (nondischargeability of debt pursuant to 11 U.S.C. § 523(a)(2)(A)) 03/17/2023

In this adversary proceeding, Plaintiff Together Real Estate Holdings, LLC (“TRE”), sought a determination that Debtor Victoria P. Roberts (“Ms. Roberts”) owed it debts pursuant to two promissory notes, and that such debts were nondischargeable under 11 U.S.C. § 523(a)(2)(A).   The Court determined that Ms. Roberts was obligated on the first promissory note, but that such debt was dischargeable.  The Court decided that Ms. Roberts was not indebted on the second promissory note.  In reaching its verdict, the Court emphasized two key points:  (1) a borrower’s promise to pay a promissory note and failure to do so cannot constitute actionable misrepresentation pursuant to Section 523(a)(2)(A) unless the creditor proves that the borrower had no present intention to make payments when the promissory note was signed; and (2) because Section 523(a)(2)(A) requires that a plaintiff show evidence of a debt for money, property, services or credit that was “obtained by . . . false pretenses, a false representation, or actual fraud” (emphasis added), a false representation made after the plaintiff has loaned money to the defendant cannot serve as a basis for a finding of nondischargeability under Section 523(a)(2)(A).

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