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Unpublished Opinions

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Judge Joseph G. Rosania, Jr. (JGR)

Plaintiff and Debtor/Defendant had been involved in a romantic relationship.  Using funds received from the sale of the Debtor’s home in California, Plaintiff purchased a home in Denver.  Title to the home was held solely in the Plaintiff’s name.  The Debtor and her daughter relocated to Colorado sometime after the home was purchased and moved into the home.  Although Plaintiff and Debtor lived together, they never married.

An altercation occurred at the home which resulted in a criminal complaint for assault and disturbing the peace and the issuance of a protective order preventing Plaintiff from contacting the Debtor or her daughter.

As the criminal case advanced to trial, Plaintiff demanded the Debtor drop the criminal charges, enter into a settlement agreement providing for the sale of the home and division of the sale proceeds, and for a division of personal property. If she refused, Plaintiff threatened to sell the home and retain all the proceeds.

The settlement agreement provided certain personal property be retained by Plaintiff: Specifically, a Rolex watch, a Bulova watch, a gold medallion, a gold chain, and two rings (collectively, “jewelry”). 

The Debtor received $100,000 from the sale of the home pursuant to the terms of the settlement but Plaintiff claimed she wrongfully withheld the jewelry.  Plaintiff filed a replevin complaint in county court seeking return of two watches, a Bulova and a Rolex.  After an evidentiary hearing at which the Debtor, who does not speak English, was not represented by counsel, a money judgment of $15,000 was entered against the Debtor who later sought bankruptcy relief.

Plaintiff’s Complaint sought to except the judgment obtained in county court from discharge under the provisions of 11 U.S.C. § 523(a)(4) or, alternatively, (a)(6).

The evidence received at trial consisted primarily of conflicting testimony of the Plaintiff and a corroborating witness, and the testimony of the Debtor.  The Court found the Debtor’s testimony to be more credible, by a wide margin.

The Court questioned whether the settlement agreement was enforceable as a product of duress, but determined it was precluded from revisiting the issue as the obligation had been reduced to judgment.

The Court rejected the Plaintiff’s contention that the prior romantic relationship created a fiduciary duty within the meaning 11 U.S.C. § 523(a)(4).  The Court held the Plaintiff failed to establish by a preponderance of the evidence that the Debtor committed larceny or embezzlement, and further held Plaintiff failed to prove his claim that the Debtor committed any act of willful and malicious injury to his property under 11 U.S.C. § 523(a)(6).

 

Debtors in jointly administered Chapter 11 cases moved the Court for entry of final decrees and closure of their cases. Schedule C to their Chapter 11 Final Reports and Applications for Final Decree reflected that payments completed under their confirmed Chapter 11 plan were as follows: Total administrative payments/fees and taxes - $222,436.11; and Total priority payments - $210,000. The debtors’ largest unsecured creditor objected, arguing that the cases had not been fully administered or substantially consummated because no payments had been made to secured or unsecured creditors.

The Court held a preliminary hearing on the applications and the objection and heard argument of the parties. The debtors argued that the cases should be closed for three reasons: (i) the plan provided for it; (ii) to minimize payment of United States Trustee fees; and (iii) to escape the stigma of bankruptcy. The confirmed plan provided that “[t]he Debtors will request entry of a final decree closing the case on or before the later of the date all Claim objections and any pending litigation is concluded or 180 days after the Effective Date of the Plan.”

The Court noted that, in the context of Chapter 11 reorganizations, courts have determined that a case has been “fully administered” when it has been “substantially consummated” under 11 U.S.C. § 1101(2). It was undisputed that under the facts of the cases before the Court, the first two elements of “substantial consummation” under 11 U.S.C. § 1101(2) had been satisfied. What remained at issue was whether distributions had “commenced” under the plan pursuant to 11 U.S.C. § 1101(2)(C).

The Court acknowledged the split of authority regarding the “commencement of distributions” element of the substantial consummation analysis and noted that the Tenth Circuit had adopted the majority view in the case of In re Centrix Fin., LLC, 394 F. App’x 485 (10th Cir. 2010). The Court cited to Judge Romero’s summary of the Tenth Circuit’s position on “commencement of distribution” in the case of In re W. Capital Partners LLC, No. 13-15760 MER, 2015 WL 400536 (Bankr. D. Colo. Jan. 28, 2015). Judge Romero explained: “in the Tenth Circuit, ‘commencement of distribution’ for the purposes of § 1101(2)(C) is satisfied when the reorganized debtor begins distributions under the confirmed plan. The Tenth Circuit’s position also disposes of [movant’s] contention [that] this Court should follow the minority position explained in In re Dean Hardwoods, Inc that ‘commencement should mean not just the beginning of payments to a single creditor, but the commencement of distribution to all or substantially all creditors.’”

The Court noted that the creditor had effectively argued the minority position by arguing that the plan had not been substantially consummated because no payments had been made to secured or unsecured creditors. The Court also noted that it was undisputed that distributions had been made to both administrative and priority claimants under the plan. Thus, the Court found that under the Tenth Circuit’s definition of “commencement of distribution,” 11 U.S.C. § 1101(2)(C) had been satisfied. The Court further found that, because the parties agreed that the remaining elements of the substantial consummation analysis under 11 U.S.C. § 1101(2) had been satisfied, the plan had been substantially consummated.

The Court acknowledged that, at the evidentiary hearing on plan confirmation, it had agreed to retain jurisdiction over the “execution and delivery” of a certain participation agreement by stipulation of the parties. The Court ordered the debtors to correct, file, and serve a finalized, fully executed, and complete copy of the participation agreement. The Court found that after the debtors complied with the Court’s order regarding the participation agreement, the plan having been substantially consummated, the cases would be fully administered. Accordingly, it would be appropriate for final decrees to enter and the cases to close.

Debtors filed for relief under Chapter 7 of the Bankruptcy Code.  At the time of filing they were the sole shareholders and officers and directors of a Colorado corporation.  The Debtors listed on their schedule of assets a wage claim against the company and claim for monies loaned to the company.

The Chapter 7 Trustee hired counsel and filed an action against the company in state court.  The complaint was properly served on Mrs. Sheahan, the registered agent for the company, but no answer was filed.  Thereafter the Trustee obtained a default judgment against the company in the amount of $117,587.75, issued a Writ of Garnishment against the company’s bank, and recovered funds held in the company’s account in the amount of $28,875.34.

The Debtors objected to a fee application filed by Trustee’s counsel.  The objection did not contest the reasonableness of the compensation but argued the funds held by the Trustee were wrongfully obtained.

The Objection was overruled.  First, the Court held the objection was barred by the Rooker-Feldman Doctrine.  The Debtors, as officers and directors of the company, could have defended the Trustee’s lawsuit and made their state law arguments as to the alleged impropriety of the Trustee’s actions in state court, but did not.  They cannot later advance those theories in Bankruptcy Court to undo the state court judgment.

Second, the Court rejected the Debtors’ characterization of the garnishment as “de facto distribution” to the Trustee as a shareholder prohibited by Colorado law.  The Trustee never was, and never became, an officer or director of the company.  Under Colorado law, a shareholder, as an owner, does not owe a fiduciary duty to creditors.  The fiduciary duty is imposed upon the officers and directors, who are empowered by state law to run the day-to-day operations of the entity and make the business decisions.  The Trustee commenced litigation against the company to collect a debt in his capacity of a creditor.  The Debtors remained the officers and directors of the company and retained the authority to defend the lawsuit.  

Finally, because the bankruptcy estate is insolvent, the Court found the Debtors lacked standing to object to the fee application.

Over the span of ten years, the debtors owned two parcels of real property which secured three notes held by the bank. During that time, the debtors and the bank engaged in various legal proceedings as a result of the debtors’ inability to make payments on the notes. After a short sale of one of the properties and the payoff of another of the notes through a cured foreclosure action, all that remained was one note secured by a first deed of trust in the debtors’ principal residence, from which the debtors also operated their businesses. The note provided that the bank was entitled to reasonable attorney’s fees incurred to protect its security interest in the property. 
 
The debtors filed this Chapter 13 case approximately one year after they received a discharge under Chapter 7 (i.e., a “Chapter 20” case). The bank filed a proof of claim asserting a cure amount of approximately $120,000, of which about $60,000 was for pre- and post-petition attorney’s fees and expenses that the bank allegedly incurred in enforcing the note at issue, and another $60,000 was for default interest, late fees, escrow advances, and other allowable expenses. The debtors objected to the bank’s claim, arguing that the $60,000 attributable to the bank’s attorney’s fees was unreasonable. The bank objected to confirmation and requested dismissal of the case under the Flygare/Pioneer Bank factors. 
 
The Court held an evidentiary hearing on the objections to the bank’s claim and confirmation. The Court received documentary evidence and testimony which established that the bank incurred attorney’s fees for the following: the debtors’ Chapter 13 case and discovery conducted in connection therewith; the debtors’ Chapter 7 case; and four foreclosure actions on the various notes secured by the property, of which three were cured by the debtors and the fourth was contested by the debtors on the basis of the amount of the bank’s attorney’s fees. 
 
The Court found that Mr. Vinson credibly testified at the hearing, and it concluded that the debtors’ case and proposed plan did not violate the Flygare/Pioneer Bank factors and were proposed in good faith. The Court reasoned that, although the debtors historically had considerable difficulty paying the bank, they were entitled to pursue their legal rights in contesting the foreclosure, entitled to dispute the amount of the bank’s attorney’s fees and expenses, entitled to attempt to retain the property, and entitled to file bankruptcy. The Court noted that the debtors legitimately sought a judicial determination of the amount of the bank’s claim.
 
The Court undertook an a review of the bank’s 134 pages of legal fee statements and a summary thereof. The Court noted that the bank’s submissions were deficient in several respects, including, inter alia, a math error that took several errors to uncover, lumped attorney time, lumped categories, categories combined between the three notes, and random allocation of fees between categories, all of which caused the Court to spend hours to decipher a reasonable fee. 
 
The Court separated the legal fee statements into three categories—(i) Chapter 7, (ii) note at issue, (iii) post-petition—and analyzed the fees using L.B.R. 2016-1 and the lodestar factors as a guide. The Court excluded all legal fees that pertained to other notes and/or the previously-sold property, and it applied an adjusted, blended hourly rate to determine a reasonable amount for the remaining fees. The Court granted the debtors’ objection to the bank’s claim in part and reduced the bank’s attorney’s fees to $8,900 and awarded expenses in the amount of $2,800.85, for a total of $11,700.85.

Plaintiff Jeffrey Weinman, Chapter 7 Trustee of the Haimark bankruptcy estate (“Trustee”), filed fifty-six avoidance actions in October 2017.  He sued Vantage Travel Services, LLC (“Vantage”) for recovery of an alleged preferential transfer in the amount of $474,718.  The parties agreed the Trustee met his burden to establish all elements of a preferential transfer under 11 U.S.C. § 547, except 11 U.S.C. § 547(b)(2), that the transfer was made for or on account of an antecedent debt.

Vantage was a tour operator which entered into several contracts with Haimark Line under which it purchased allotments for cruises on the MS Saint Laurent.  In turn, Vantage sold those cruise spaces to its own customers.

In June 2015, during its maiden voyage, the MS Saint Laurent collided with a concrete canal lock on the St. Lawrence River near Massena, New York (the “Allision”).  The ship was damaged, numerous passengers were injured, and an insurance dispute arose regarding responsibility for the Allision.  These events caused Haimark to file a Chapter 11 bankruptcy case.

Vantage entered into several contracts with Haimark, which required Vantage to pay deposits ranging from 15-20% of the contract prices.  In August 2015, Vantage paid Haimark $915,288, of which $499,193 was paid by mistake.  After discovering the mistake, the parties agreed to apply $416,094 of the $915,288 to deposits due for other cruise allotments.  Haimark wired the remaining $491,913 to Vantage from its general operating account for “the overpayment that was made on the MS Saint Laurent products.”

The matter came before the Court on cross motions for summary judgment. The parties agreed there were no facts in dispute.  The Trustee asserted that Haimark had a legal obligation to refund the overpayment to Vantage, such that Haimark owed an antecedent debt to Vantage.  Vantage argued that Haimark made an advance payment which was not for or on account of antecedent debt.

The Bankruptcy Code does not define what constitutes an antecedent debt.  The test for when a debt is incurred is whether the debtor is legally obligated to pay.  The Trustee relied on a line of cases for the proposition that a refund due as a result of an overpayment, made by a debtor to a creditor, was made for or on account of antecedent debt such as In re Twin Contracting Corp., 582 B.R. 400 (Bankr. E.D. Va. 2017) and In re Farr, 407 B.R. 343 (B.A.P. 8th Cir. 2009).

Vantage relied on a line of cases for the proposition that advance payments made by a debtor to a creditor for goods or services to be provided in the future are not made for or on account of antecedent debt such as In re New Page Corp., 569 B.R. 593 (D. Del. 2017) and In re Dots, LLC, 533 B.R. 432 (Bankr. D.N.J. 2015).   Thus, the dispositive issue was whether the overpayment made by Vantage could be characterized as an advance payment.  If so, no debt existed at the time of the transfer, so the transfer was not made for or on account of antecedent debt.

Here, Vantage (the creditor) made payments to Haimark (the debtor) pursuant to an agreement that required the debtor to provide future services (spots on cruises).  Under the agreement, the debtor was required to provide the future services, so Vantage held a claim against the debtor for the value of any future services that were not provided.  Once the overpayment occurred, the debtor had a legal obligation to repay that amount to Vantage and Vantage became the debtor’s creditor.

The case did not involve an advance payment by a debtor to a creditor for future goods and services to be provided.  The cases cited by Vantage were distinguishable because they involved fact patterns in which the debtor made an advance payment to a creditor for future goods and service to be provided.  While the distinction seems thin, it turns on the purpose of the transfer.  If the transfer was made by a debtor to a creditor to refund an overpayment, the cases uniformly hold it was made for or on account of antecedent debt.  On the other hand, if the transfer was an advance payment by a debtor to a creditor for good or services to be provided in the future, there is no antecedent debt owed to the creditor when the money is returned.

The Court held that the payment was a refund made on account of an antecedent debt and granted summary judgment in favor of the Trustee in the amount of $474,718.

Pre-petition, an employee-creditor worked for the debtor in contract management and sales, earning salary and commission. Under the terms of his compensation agreement, the creditor earned commissions as a percentage of gross sales on contracts that he assisted in procuring. The debtor’s employee handbook provided that commissions were “paid once the [debtor] is paid in full” on a contract, and “on the last payday of the month following the end of the quarter.” The debtor’s compensation and incentive plan confirmed that commissions were “paid on the Quarter of receipt of payment” on a contract.

The creditor assisted in procuring a certain contract with the USDA 194 days pre-petition. The USDA paid the debtor in full on the contract 178 days pre-petition. The debtor failed to pay the creditor his commission on the USDA contract. 

Post-petition, the creditor filed a proof of claim for unpaid wages, a portion of which the creditor claimed was entitled to priority status under 11 U.S.C. § 507(a)(4). The debtor objected, arguing that no portion of the creditor’s claim was entitled to priority status because his commission was earned outside the 180 days prescribed by the statute. On cross-motions for summary judgment, the debtor argued that for priority purposes, the date that the creditor’s commission was earned was the date that the creditor assisted in procuring the USDA contract. The creditor argued that the date that his commission was earned was the date that the USDA paid the debtor in full on the contract. In support of his position, the creditor argued, “The point at which commissions are ‘earned’ can vary depending upon the particular contract between the parties at issue.” The creditor construed the debtor’s employee handbook as a contract between the parties.

The Court found that the creditor offered no evidence to suggest that there was a contract between himself and the debtor which dictated when commissions were earned. The Court acknowledged that other courts that have interpreted the meaning of “earned” in the context of the priority wage statute have uniformly held that wages are earned when the employee provides the services that give rise to the wages. This is true regardless of when, if ever, the wages are actually paid. The Court concluded that the creditor’s commission was earned 194 days pre-petition when the debtor and the USDA entered into the contract, even though the creditor’s commission was not payable until the USDA subsequently paid the debtor in full on the contract. Accordingly, the Court held that no portion of the creditor’s claim was entitled to priority status.

Pre-petition, the debtor-defendant invented a clip which holds mesh against solar panels to prevent animals from damaging the panels. The debtor did not patent or copyright his invention. The debtor was contacted by and entered into an oral agreement with a certain company, whereby the company would manufacture, market, and sell the clip and make monthly payments to the debtor. The payments to the debtor varied based on the amount of sales generated by the clip in the preceding month, and there was no agreement between the debtor and the company as to the duration of the payments.

The debtor subsequently filed for relief under Chapter 7 of the Bankruptcy Code and listed his interest in the payments in his Schedules. At the 341 meeting, where the debtor was represented by appearance counsel, the Chapter 7 trustee questioned the debtor about the payments and requested, inter alia, that any further payments from the company be forwarded to the trustee. The debtor forwarded payments to the trustee for the two months that followed the 341 meeting. Thereafter, the debtor received his discharge. 

Based on conversations with his retained counsel, the debtor believed that his bankruptcy case was “done and over” after he received his discharge. As a result, the debtor did not forward any of the eight payments he received post-discharge to the trustee, which prompted the trustee to move for turnover of the payments. The debtor was subsequently contacted by his counsel to discuss the motion for turnover, after which the debtor, again, believed that his bankruptcy case was completed. The debtor’s counsel then moved to withdraw from the case.

The following month, the trustee commenced an adversary proceeding against the company directly for turnover of the payments. Several months later, the trustee commenced an adversary proceeding against the debtor for revocation of discharge under 11 U.S.C. §§ 727(d)(2) and 727(d)(3), and turnover of the payments in the amount of about $5,000. Approximately two weeks later, the trustee settled with the company in the amount of about $5,000. The company then ceased making any further payments to the debtor. The debtor believed that because the company paid the $5,000 to the trustee, he was no longer required to pay that amount to the trustee.   

The Court found in favor of the debtor on the trustee’s first claim under 11 U.S.C. § 727(d)(2) for the debtor’s failure to deliver the payments to the trustee. Citing In re Reid, No. 02-34592, 2006 WL 2475332 (Bankr. W.D. Ky. Aug. 25, 2006), aff’d, appeal dismissed sub nom. Schilling v. Reid, 372 B.R. 1 (W.D. Ky. 2007), the Court found that the debtor lacked a knowing intent to defraud because his failure to deliver property resulted from a reasonable belief that his bankruptcy case was completed. The Court noted that at two critical junctures in his bankruptcy case—the 341 meeting and the filing of the motion for turnover—the debtor was all but abandoned by his retained counsel. As a layperson, the debtor acted under the reasonable understanding that he was relieved from the obligation to provide the payments to the trustee because (i) his bankruptcy case was closed, and (ii) the trustee recovered a similar amount directly from the company.

The Court also found in favor of the debtor on the trustee’s second claim under 11 U.S.C. § 727(d)(3) for the debtor’s failure to comply with the turnover order. Citing various Tenth Circuit precedent, the Court noted that a debtor’s non-compliance with a court order must be willful or intentional for revocation of discharge. The Court found that the debtor’s non-compliance with the turnover order was neither willful nor intentional because it resulted from his reasonable belief that his bankruptcy case was completed.

The Court found in favor of the trustee on his third claim for turnover under 11 U.S.C. § 542(a). However, citing Hill v. Muniz (In re Muniz), 320 B.R. 697, 699–700 (Bankr. D. Colo. 2005), the Court limited the trustee’s recovery to the payments that the debtor had in his possession at the time that the turnover motion was filed. The Court found that the debtor only had about $1,500, not $5,000, in his possession when the turnover motion was filed and granted.

Judge Thomas B. McNamara (TBM)

The Chapter 7 Trustee moved to dismiss a Debtor’s bankruptcy case for the Debtor’s failure to present a Social Security Card at the Section 341 Meeting of Creditors.  The Debtor appeared and provided a Colorado Driver’s License and a self-prepared tax return but did not bring her Social Security Card.  The Debtor offered to provide it shortly thereafter.  The Chapter 7 Trustee, who had already continued the Section 341 Meeting of Creditors once, refused.  The Chapter 7 Trustee did not examine the Debtor and told the Debtor that the only option was dismissal.  In response to the Chapter 7 Trustee’s motion to dismiss, the Debtor provided her Social Security Card to the Chapter 7 Trustee.  
 
The Court analyzed the applicable Sections of the Bankruptcy Code, including Sections 341, 343 and 521, and concluded that the Bankruptcy Code does not include any requirement that a debtor provide proof of a Social Security Number at the Section 341 Meeting of Creditors.  Rather, such requirement is contained in Fed. R. Bankr. P. 4002(b)(1)(B).  The Debtor failed to strictly comply with that Rule.  However, exercising its discretion, the Court determined that the Social Security Card snafu was not sufficient cause for dismissal under Section 707(a)(1). 

Judge Elizabeth E. Brown (EEB)

Chapter 13 debtor confirmed a five-year plan that required her to make direct payments to her mortgage lender.  When she failed to make the last three mortgage payments, the lender moved to dismiss the case.  The debtor then cured the arrearage but did so two and one-half months after the end of her plan.  Applying its earlier decision in In re Humes, 579 B.R. 557 (Bankr. D. Colo. 2018), the Court granted the lender’s motion to dismiss.  The Debtor filed a motion to reconsider.  Surmising that the debtor intended to appeal the issue, the Court gave more background on chapter 13 practice in this district for appellate court consideration in ruling on the debtor’s motion for reconsideration.

Chapter 13 debtor confirmed a five-year plan that required her to make direct payments to her mortgage lender.  When she failed to make the last three mortgage payments, the lender moved to dismiss the case.  The debtor then cured the arrearage but did so two and one-half months after the end of her plan.  Applying its earlier decision in In re Humes, 579 B.R. 557 (Bankr. D. Colo. 2018), the Court granted the lender’s motion to dismiss.  The Debtor filed a motion to reconsider.  Surmising that the debtor intended to appeal the issue, the Court gave more background on chapter 13 practice in this district for appellate court consideration in ruling on the debtor’s motion for reconsideration.

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