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Unpublished Opinions

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Judge Thomas B. McNamara (TBM)

In re Blair Oil Investments, LLC, Case No. 15-15009 TBM; 11 U.S.C. §§ 326, 327 and 503(b)(1)(A) and who is a “professional person” under Section 327 06/01/2018

The Chapter 7 Trustee appointed in the case of an individual debtor (the “Individual Case”) exercised control of an asset of the Chapter 7 estate, a 100% member interest in a limited liability company (the “LLC”). The LLC was also in bankruptcy, but in Chapter 11 (the “LLC Case”). The Chapter 7 Trustee, on the authority of In re Albright, 291 B.R. 538, 541 (Bankr. D. Colo. 2003), elected to take over control and appointed himself as Manager of the LLC.

The Chapter 7 Trustee, in his role as Manager of the LLC, did not request Court approval of his employment as a “professional person” under Section 327 of the Code. Instead, almost two years after taking over management of the LLC, he filed in the LLC Case a motion to have a compensation package approved as an administrative expense under Section 503(b)(1)(A).

The United States Trustee (the “UST”) objected arguing that the Chapter 7 Trustee may only be compensated in the Individual Case in accordance with the formula for calculating trustees’ commissions embodied in Section 326 of the Code. The UST contended that the Chapter 7 Trustee could not capitalize on an asset of the Chapter 7 case for his personal benefit and to augment that commission. The UST asserted the Chapter 7 Trustee was a “professional person” for purposes of Section 327(a) of the Code who had not obtained approval of his employment and, thus, could not be paid. Moreover, the UST urged that Section 503(b) could not be used as a vehicle to circumvent the requirements for employment under Section 327.

Following an evidentiary hearing, the Court denied the Chapter 7 Trustee’s application for allowance of an administrative expense. The Court held that the Chapter 7 Trustee was a “professional person” within the meaning of Section 327. Because he had not been employed as Manager under Section 327 in the LLC Case, the Chapter 7 Trustee could not be paid. Moreover, as a “professional person,” the Chapter 7 Trustee could not bypass the requirements of Section 327 by claiming entitlement to an administrative expense under Section 503(b). The Court agreed with the UST that a Chapter 7 trustee may only be compensated in the Chapter 7 case in which the trustee serves as a fiduciary and that a trustee’s compensation is limited by and to the commission calculated according to the formula of Section 326. Finally, even if the Chapter 7 Trustee had moved to be employed under Section 327, the Court expressed grave doubt as to whether, in a case such as this, the Trustee could pass the “disinterestedness” test of Section 327.

In re Chamberlain, Bankr. Case No. 15-22234 TBM; Order entered August 4, 2016 08/04/2016

In re Chamberlain, Bankr. Case No. 15-22234 TBM; Order entered August 4, 2016 (attorney’s fees award to prevailing party in contested matter under Fed. R. Bankr. P. 9014 and 7054 and Fed. R. Civ. P. 54 and order of payment to priority claimholders under 11 U.S.C. §§ 507, 1322, and 1326)

            In this Chapter 13 case, the court held a trial in which it ruled on a contested proof of claim filed by the Debtor’s ex-wife (the “Creditor”), ordering that her proof of claim be allowed in a reduced amount as a “domestic support obligation” (“DSO”) under 11 U.S.C. § 101(14A) and entitled to priority under 11 U.S.C. § 507(a)(1)(A).  Following the ruling, the Creditor did not seek an award of fees or costs pursuant to Fed. R. Bankr. P. 7054 and Fed. R. Civ. P. 54.  Instead, well after the Fed. R. Civ. P. 54 deadline had expired, the Creditor amended her proof of claim unilaterally to include a claim for attorney’s fees incurred in the bankruptcy proceeding.   She also objected to the amended Chapter 13 plan filed by the Debtor, which provided for payment of her DSO in the amount allowed by the Court’s ruling, but did not provide for payment of the amounts now claimed by the Creditor in her amended proof of claim.  The Creditor also objected that the Debtor’s Third Plan did not comply with Sections 507(a)(1)(A) and 1322(a)(2) because it provided for the payment of the Debtor’s Class One attorney’s fees prior to paying in full the Class One DSO owed to the Creditor. 

            The Court held that the Debtor’s objection to the amount and priority of the Creditor’s proof of claim, which was also a dispute regarding the priority of the Creditor’s claim, was a “contested matter” under Fed. R. Bankr. P. 9014.  The Court also held its ruling on the contested matter had ended the litigation on the merits.  Because Rule 7054 governed the Creditor’s rights to recover fees and costs incurred in the bankruptcy case, and because the Creditor failed to seek an award of fees and costs within the time limits in that Rule and in Fed. R. Civ. P. 54(d) the Creditor waived her right to request fees and costs in this case.  Accordingly, the Court sustained the Debtor’s objection to the Creditor’s amended proof of claim and overruled the Creditor’s objection that the plan did not provide for payment in full of her claim.

            The Court also rejected the Creditor’s contention that the Debtor’s amended Chapter 13 Plan could not be confirmed because it provided for payment of the Debtor’s attorney’s fees and costs prior to payment of the Creditor’s DSO claim.  Though Section 507 provides first-priority status to claims for DSOs, it is a statute of general application that in Chapter 13 is more specifically modified by Sections 1322(a)(2) and 1326(b)(1). Under Section 1322(a)(2), the plan is required to provide for the “full payment, in deferred cash payments, of all claims entitled to priority under section 507” but does not require that claims entitled to priority under Section 507 be paid in the order listed in Section 507.  And under Section 1326(b)(1), unpaid claims of the kind specified in Section 507(a)(2) – that is, claims for administrative costs, including attorney’s fees – must be paid ahead of, or at least concurrently with, other priority claims.   Accordingly, the Court overruled the Creditor’s objection.

In re Matthew Edward Autterson, 13-30184 TBM (Bankr. D. Colo. February 26, 2016) (Docket No. 432). 11 U.S.C. §§ 1122(b), 1129(a) and (b); competing plans; bad faith; gerrymandering; and improper use of an administrative convenience class. 02/26/2016

In an individual Chapter 11 case involving competing plans of reorganization, the Court denied confirmation of both plans, one propounded by the debtor, and the other propounded by debtor's only significant non-insider creditor. After denying confirmation of both plans, albeit on different grounds, the Court dismissed the case on the non-insider creditor's motion to dismiss.

The individual debtor, a man who had amassed considerable wealth in a 30 year career in the financial services industry, filed Chapter 11 immediately after a bank obtained a $2,600,000 judgment against him on a guaranty. When debtor filed his case, he had only two other significant creditors, a family partnership and a family trust. In addition, debtor owed a total of $11,000 to a handful of other unsecured creditors, including his law firm.

The day after the bank obtained a judgment against the debtor, the debtor effected a change in the ownership structure of the family partnership to dilute his control. The Court found that debtor's conduct was done to thwart the bank's effort to collect on its judgment. Another pre-petition planning device the debtor employed was to inflate the claims of the family partnership and the family trust.

After a contested evidentiary trial, the Court found that the debtor's prepetition conduct as well as the manner and methods used to prosecute his plan epitomized bad faith. In prosecuting his plan, the debtor created an artificially impaired "administrative convenience class," and improperly placed his law firm in that class in an effort to gerrymander the affirmative vote of that class.

The Court denied confirmation of debtor's plan. In addition, the Court found that the competing plan propounded by the bank was not confirmable because the mechanism it proposed to pay the family partnership and the family trust was neither feasible nor fair and equitable. The bank's plan also suffered from classification infirmities.

Finally the Court found that "cause" existed for dismissal or conversion and then considered which was in the best interests of the creditors and the estate. Among the factors which weighed heavily in the Court's decision to dismiss, rather than convert the case, were the unique structural alignment of the parties, the amounts of their respective claims, the history of the dispute between the debtor and the bank, the debtor's bad faith, and the apparent futility of involving a Chapter 7 trustee in this two party dispute.

Judge Joseph G. Rosania, Jr. (JGR)

Atna Liquidating Trust, Kenneth J. Beuchler, Liquidating Trustee v. Black Diamond Blade Company, d/b/a Cutting Edge Supply, Adv. Pro. No. 17-1156 JGR Order entered March 23, 2018 (preference avoidance and ordinary course defense under 11 U.S.C. § 547) 03/23/2018

The liquidating trustee sued the defendant under 11 U.S.C. §§ 547 and 550  to avoid certain preferential transfers. The defendant moved for summary judgment, arguing that the transfers were made in the ordinary course of business pursuant to 11 U.S.C. § 547(c)(2)(A). For two years before the petition was filed, the debtor contracted for the defendant to provide products, tools, and equipment for the debtor’s business operations. The agreement was silent as to payment terms. During the earlier part of the two-year period, the debtor paid twenty-two of the defendant’s invoices in full. In the ninety days before the petition was filed, the debtor made payments toward two invoices. The debtor did not pay either of the invoices in full. Rather, the debtor made split payments in equal amounts toward one of the invoices and a partial payment toward the other invoice. The defendant did not engage in any unusual collection activities with respect to the split and partial payments.

Comparing the pre-preference period payments to the preference period payments, the Court found that the amount of the payments made by the debtor during the preference period differed markedly from the amount of the payments made by the debtor before the preference period. Specifically, the debtor paid the pre-preference period invoices in full but made split and partial payments toward invoices during the preference period. Examining the factors set forth in In re Sunset Sales, 220 B.R. 1005 (10th Cir. B.A.P. 1998), and citing In re Ewald, 45 B.R. 52 (Bankr. D. Minn. 1984) and In re Radnor Holdings Co., 2009 WL 2004226 (Bankr. D. Del. 2009), the Court found that the split and partial payments differed fromthe debtor’s pre-preference period payment practices such that the payments made during the preference period were not made in the ordinary course of business.

Judge Howard R. Tallman (HRT)

Reeves v. Arnold , Case No. 15-01496-HRT; Order entered June 9, 2016 (domestic support obligations under 11 U.S.C. §§ 523(a)(5) and (a)(15)). 06/09/2016

In this Chapter 7 case, Debtor’s ex-wife (“Plaintiff”) filed an adversary proceeding against Debtor alleging certain debts were nondischargeable under 11 U.S.C. §§ 523(a)(5) and (a)(15). The debts at issue included an amount due under a state court contempt citation as well as attorney fees awarded in state court arising out of the contempt proceeding. Debtor argued the debts were not in the nature of support and therefore dischargeable. Plaintiff contended the debts were nondischargeable, either under § 523(a)(5) or (a)(15). Plaintiff also asked the Court to award attorney fees incurred in pursuing the adversary proceeding.

The Court found it did not need to determine whether the debts were in the nature of support under § 523(a)(5), because after BAPCPA, in Chapter 7 cases, “the distinction between a domestic support obligation and other types of obligations arising out of a marital relationship is of no practical consequence in determining the dischargeability of the debt.” The Court found the debts were nondischargeable under § 523(a)(15) because they were incurred in connection with a state domestic court order.

The Court also determined it did not have the authority to award attorney fees to Plaintiff for pursuing the adversary proceeding, citing In re Taylor, 737 F.3d 670, 680 (10th Cir. 2013), because the separation agreement in the Court’s record did not contain any provision regarding attorney fees. The Court noted the state court has concurrent jurisdiction to determine that issue.

In re Peter Allen Payer and Jennifer Lee Payer; Case No. 10-33656 HRT; Order entered May 5, 2016 (FED. R. BANKR. P. 3002.1). 05/05/2016

This is a series of cases upon which the Court has entered orders addressing issues that have arisen involving Rule 3002.1.

In re Ryan J. Freyta; Case No. 10-39595 HRT; Order entered May 5, 2016 (FED. R. BANKR. P. 3002.1). 05/05/2016

This is a series of cases upon which the Court has entered orders addressing issues that have arisen involving Rule 3002.1.

In re Alan Eugene Abila and Elizabeth Christina DuPont; Case No. 10-18353 HRT; Order entered April 20, 2016 (FED. R. BANKR. P. 3002.1). 04/20/2016

This is a series of cases upon which the Court has entered orders addressing issues that have arisen involving Rule 3002.1.

John Eugene Notary; Case No. 13-12382 HRT; Order entered March 15, 2016. Removal and Remand, 28 U.S.C.§ 1452; Abstention, 28 U.S.C. §; 1334. 03/15/2016

Previously, the Debtor had moved, under 11 U.S.C. § 522(f), to avoid judgment liens held by attorneys who had represented his former spouse in a pre-petition domestic case. Those § 522(f) motions were dismissed with prejudice, however, after the Debtor failed to cooperate with discovery. Thereafter, the attorneys moved in state court for writs of execution to force the sale of the Debtor's home to satisfy their judgment liens. The pro se Debtor filed notices removing those state court cases to this Court. Upon the Court's consideration of the attorneys' motion for remand, the Court determined that it must abstain from hearing the state court matters under 28 U.S.C. § 1334(c)(2)'s mandatory abstention provisions and, even if abstention were not mandatory, discretionary abstention was appropriate. The bankruptcy case had been fully administered; the removed cases presented exclusively state law issues and forum shopping by the Debtor was a distinct possibility. Each side also sought sanctions against the other. The Debtor claimed the attorneys violated the discharge injunction and the attorneys sought Rule 9011 sanctions based on the Debtor's removal of the state cases. The Court found that the attorneys had not violated the discharge injunction both because their judgment liens were unaffected by the Debtor's chapter 7 discharge and because the underlying attorney fee awards in the domestic case were not dischargeable debts in any case. The Court also declined to consider Rule 9011 sanctions even though the attorneys' case for such sanctions was much stronger. The Court found the utility of further proceedings on the sanctions issue was outweighed by its concerns over multiplying legal proceedings and by the fact that, following remand, the parties would be back under the jurisdiction of a state court with a long history dealing with the same parties and the power to sanction improper conduct.

Tolliver v. CitiMortgage et al., Adversary Proceeding No. 15-01322 HRT; Order entered December 3, 2015 (11 U.S.C. § 362) 12/03/2015

The Debtor filed an adversary proceeding against the servicer of his mortgage, and the law firm and individually-named attorneys employed by the law firm representing the servicer, which had instituted a foreclosure proceeding after the Debtor's case was dismissed and before it was reinstated. The Court found that the defendants' actions did not violate any stay that may have been reimposed on the reinstatement of the Debtor's Chapter 13 case. The Debtor's complaint, seeking sanctions under 11 U.S.C. § 362(k)(1), was dismissed. Because the Debtor did not respond to the servicer's motion for relief from stay, the Court granted that relief by separate order.

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