July 29, 2014

Tenth Circuit: Bankruptcy Reorganization Does Not Create Separate Legal Entity

The Tenth Circuit Court of Appeals issued its opinion in ASARCO LLC v. Union Pacific Railroad Co. on Monday, June 23, 2014.

ASARCO, along with Union Pacific Railroad Corp. and Pepsi Co., operated in a four-square-mile area in Denver known as the Vasquez site, which was found to be environmentally contaminated. The EPA brought a CERCLA action against ASARCO. The CERCLA action was still pending when ASARCO filed for Chapter 11 bankruptcy in the Southern District of Texas. The EPA filed proofs of claim in ASARCO’s bankruptcy case to recover its expenses for cleaning the Vasquez site. ASARCO eventually moved for approval of a settlement agreement, in which it would agree to pay over $1.5 million to resolve its CERCLA claims at the Vasquez site and other sites, and the bankruptcy court approved the settlement on June 5, 2009. The bankruptcy plan was also approved, which reorganized ASARCO as ASARCO LLC and noted that all claims, including any pending environmental claims, would be paid in full on the effective date of December 9, 2009.

ASARCO LLC filed a lawsuit against Union Pacific and Pepsi on December 10, 2012, asserting that it paid more than its fair share for environmental remediation at the Vasquez site. ASARCO LLC brought two claims: a direct contribution claim under CERCLA, and a contribution claim as debtor-ASARCO’s subrogee under CERCLA. The magistrate judge recommended dismissal of both claims – as to the first claim, it found that the claim was untimely, as it was brought more than three years after the date the bankruptcy court approved the settlement. As to the second claim, the magistrate judge rejected ASARCO’s argument that it was a separate legal entity from debtor-ASARCO and it could not be subrogated to itself. The magistrate judge also noted that CERCLA provided the exclusive legal remedy to ASARCO’s claims. The district judge accepted the magistrate judge’s recommendations and dismissed the complaint in its entirety. ASARCO appealed to the Tenth Circuit.

ASARCO first argued that its claim was not barred by the statute of limitations. The Tenth Circuit commented that the plain language of the statute did not support ASARCO’s argument, since the statute refers to the date the judicially approved settlement is entered. The Tenth Circuit also noted that all of the case law cited by ASARCO counseled the same result, that the statute of limitations had expired prior to ASARCO’s filing of the complaint. As to the second argument, the Tenth Circuit denied that ASARCO became a separate legal entity after bankruptcy reorganization, and noted that an entity cannot become subrogated to itself. Because the direct contribution claim was time-barred and because ASARCO is not a subrogee, the Tenth Circuit affirmed the district court’s order.

Inherited IRAs in Light of the U.S. Supreme Court’s Decision in Clark v. Rameker

This post originally appeared on Barbara Cashman’s Denver Elder Law blog on June 18, 2014.

CashmanBy Barbara Cashman

Everyone knows what an IRA is – right?  We think IRAs have been around a really long time, but they only came into being in 1975 with ERISA legislation, and Roth IRAs came in 1997. IRAs are classic nonprobate property that someone can pass to others without probate in many circumstances.

Q: What happens if I complete the beneficiary designation form?

A: Your beneficiaries will have much more flexibility and protections (especially on the tax front).

Q: What happens if I don’t bother with the beneficiary form?

A: Well, you won’t be around to find out – right?!  Here’s a link to a Colorado Business Magazine article about the importance of designating a beneficiary to maintain that flexibility.

Some handy IRA vocabulary words:

  • RBD – required beginning date (701/2 years of age), after which you are required to withdraw the
  • RMD – required minimum distribution, an annual distribution.

Here it is important to consider whether the decedent died after his or her RBD.  If she or he was already receiving RMDs, you will want to determine whether the distribution for that final year needs to be paid. Be sure to check with the account custodians to determine if the distribution was made before the date of death.  There are two basic types of IRAs that can be passed along to survivors:

  1. Spousal IRA 
    This is generally the simplest to accomplish and a spouse will want to consider among several choices –  to roll them over into an IRA, start receiving benefits, have them paid out in a lump sum, or disclaim some portion to minimize estate taxes in the spouse’s estate.
  2. Inherited IRA
    There is an important distinction initially regarding whether the beneficiary designation was made out to the beneficiaries or left blank. . .  There is generally much more flexibility when the designations are completed.

So here’s a question . . . . Whether inherited IRAs are generally exempt from creditors depends on where you live! Are these funds still qualified and exempt, or are they just another inherited asset?

In an inherited IRA scenario, a beneficiary (often an adult child) will need to take out the RMD in the parent’s IRA every year and declare that as income. In addition, the IRA cannot be added to by the inheritor. You might be wondering what types of protections are afforded inherited IRAs from the creditors of the inheritor. Well, I can say with all lawyerlike confidence . . .  it depends. Under Colorado law, specifically Colo. Rev. Stat. § 13-54-102(1)(s), there is an exemption from judgment creditors for certain types of retirement accounts and benefits. The definition includes IRAs “as defined under Section 408 of the Code” (this would be 26 U.S.C. § 408(d)(3)(C)(ii)). Under the Bankruptcy Abuse Preventive and Consumer Protection Act of 2005 (BAPCPA), many states opted out of the federal bankruptcy exemptions in favor of state law exemptions. Read more on this topic here from my learned colleague Laurie Hunter.

It is important to consider that there are at least three different layers to the inherited IRA treatment: federal tax law, state law relating to bankruptcy and what creditors can collect, and bankruptcy. Until just a few days ago, when the U.S. Supreme Court ruled on a writ of certiorari on the U.S. Court of Appeals for the Seventh Circuit’s 2013 decision, In re Clark, there was a split among the federal circuit courts of appeal – you can read more about it here.

The Federal Circuit Courts of Appeal Were Split Over the Meaning of the Phrase “Retirement Funds”

Two federal courts of appeal – the Fifth and Seventh Circuits (whose decisions were binding in the regions that they cover – Colorado is part of the Tenth Circuit) had come to opposite conclusions while interpreting the meaning of the same term. In 2013, the Fifth Circuit decided that the phrase “retirement funds” in the bankruptcy exemption statute quoted above means any funds “set apart” in anticipation of “withdrawal from office, active service, or business” and that the statute does not limit “retirement funds” solely to funds of the bankrupt debtor, so long as the funds were originally “set apart” for someone’s retirement. In re Chilton, 674 F.3d 486 (5th Cir. 2012). Once the funds were set apart for retirement, they maintained that same character for bankruptcy exemption purposes. The court thereby permitted the debtor in Chilton to exempt all of a $170,000 IRA inherited from her mother.

In Clark, the Seventh Circuit expressly disagreed with the Fifth Circuit, adding that it “do[es] not think the question is close.” The Seventh Circuit observed that, while inherited IRAs do shelter money from taxes until it is withdrawn, they lack many of the other attributes of an IRA. That court noted in particular that the beneficiary of an inherited IRA is prohibited from rolling those funds over into his or her own IRA and from adding her own funds to the inherited IRA. The beneficiary must take distributions from the inherited IRA within a year of the original owner’s death and complete those payouts over a defined period, often as little as five years, regardless of the beneficiary’s age and employment status. In short, once the original owned died, “the money in the inherited IRA did not represent anyone’s retirement funds.” That court of appeals declined to extend the character of a decedent’s retirement funds into the inheritance context and therefore decedent’s daughter could not then use that money as her own retirement savings, and it became no different from an inherited certificate of deposit or money market account: non-exempt and available to distribute to the daughter’s creditors.  That was the essence of the split in the circuits.

Just a few days ago, the U.S. Supreme Court ruled unanimously in Clark v. Rameker that inherited IRAs are not protected in bankruptcy. Here’s a link to the SCOTUSblog coverage of the decision. The US Supreme Court followed the line of reasoning of the bankruptcy court and the Seventh Circuit, disallowing the attempt by petitioner in bankruptcy court, Hedi Heffron-Clark, to exclude the funds in the IRA from the bankruptcy estate using the “retirement funds” exemption under Section 522 of the Bankruptcy Code, which exempts tax-exempt retirement funds from a bankruptcy estate. Just in case you are an insomniac and want to read the entire decision, rendered June 12, 2014, here it is in pdf format.

I still think that, notwithstanding the U.S. Supreme Court’s ruling, inherited IRAs are  an important legacy for a parent to leave an adult child, and it is important to not underestimate the “emotional” value of the money from a deceased parent’s retirement savings for the use of a child’s retirement. But beware, they won’t be protected from an adult child’s creditors in a bankruptcy proceeding. So please remember that an IRA and an inherited IRA are not really the same animal!

Barbara Cashman is a solo practitioner in Denver, focusing on elder law, estate law, and mediation. She is active in the Trust & Estate and Elder Law sections of the CBA and is the incoming chair of the Solo/Small Firm section. She contributes to the SOLOinCOLO blog and blogs weekly on her law firm blog, where this post originally appeared. She can be contacted at barb@DenverElderLaw.org.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Bankruptcy Plan Modification by Debtor’s Counsel – Part of Bankruptcy Update 2014

In any three- to five-year period, many of us face unanticipated financial obstacles – medical expenses, educational expenses, dependent expenses. For a bankruptcy debtor, these unexpected financial burdens can derail a payment plan. Thankfully, the Bankruptcy Code at 11 U.S.C. § 1329 allows post-confirmation plan modifications so that debtors can adapt to changing life circumstances.

Section 1329 permits a debtor, trustee, or holder of an unsecured loan to request modification to increase or reduce payments to a particular class; prolong or shorten the time for those payments; alter the amount of distribution to a creditor in order to account for another payment not covered by the plan; or reduce payments in order to cover health insurance expenses for the debtor.

Experienced bankruptcy attorney Andrew S. Trexler offers some of the common scenarios in which his clients have requested post-confirmation plan modification:

  • To remove unpaid mortgage arrears following a mortgage loan modification and reduce plan length;
  • To bring payments current and reduce payments to account for change in projected disposable income, such as from retirement;
  • To allow for debtor to transition from one job or business to another through temporary reduction in monthly payment and provide for post-petition mortgage and HOA arrears;
  • To provide for pre-petition priority support arrears and cram down secured debt;
  • To surrender property securing Class 2 or 3 debts (Note: this is explicitly allowed by Judge Tallman so long as in good faith but disallowed by Judge Campbell);
  • Generally, to accommodate any significant decrease in disposable income caused by reduction in hours, job loss, increase in taxes due to end of payroll tax holiday in 2013 or increased medical bills, insurance costs, lawsuit defense, etc.; or
  • To allow for the purchase of health insurance (now generally required by the Affordable Care Act), so long as the debtor complies with § 1329(a)(4).

Trexler also provides the sample modification request motions and projected plans for several of these scenarios. He will present on this topic at Friday’s CLE program – Bankruptcy Update 2014 – along with several bankruptcy court judges and other area bankruptcy attorneys. Click the links below to register or call (303) 860-0608.

CLE Program: Bankruptcy Update 2014

This CLE presentation will take place on June 6, 2014. Click here to register for the live program and click here to register for the webcast. You can also register by phone at (303) 860-0608.

Can’t make the live program? Order the homestudy here — CD homestudy • MP3 audio downloadVideo OnDemand

Tenth Circuit: Avoidance of Transfer to Bank Would Restore Bank’s Lien on Estate as Fully Secured Creditor

On Tuesday, April 15, 2014, the Tenth Circuit Court of Appeals issued its opinion in C.W. Mining Co. v. Bank of Utah.

In this bankruptcy matter, the Chapter 7 Trustee filed a complaint with the bankruptcy court seeking to recover a post-petition transfer to the Bank of Utah. C.W. Mining had deposited $362,000 with the bank in exchange for a certificate of deposit. C.W. Mining then was subject to an involuntary Chapter 11 proceeding, which was converted to a Chapter 7 proceeding. The bank then liquidated the certificate of deposit, which had a value of $383,099. The bank applied the proceeds to the balance owing on two of three promissory notes executed by C.W. Mining in favor of the Bank in 2005, 2006, and 2007. Although the bank knew of the bankruptcy proceeding, it did not inform the trustee, who learned of the transfer when the bank sold its rights on the third promissory note to a third-party seller and the seller sought recovery from the estate. The trustee commenced an adversary proceeding to recover $383,099 from the bank and the parties filed cross-motions for summary judgment.

The bankruptcy court awarded summary judgment to the bank, reasoning that avoidance would be pointless because a transfer to a fully secured creditor cannot be avoided under 11 U.S.C. § 549 without also reviving the secured creditor’s lien. The trustee failed to allege any injury from the bank’s transfer.

The trustee appealed to the Bankruptcy Appellate Panel, which affirmed the bankruptcy court’s judgment. He appealed again to the Tenth Circuit, but the Tenth Circuit affirmed the BAP, finding that the bankruptcy court’s decision was thorough, well-reasoned, and correct.

Tenth Circuit: In Consolidated Bankruptcy Appeal, One Case is Moot, Court Lacks Jurisdiction to Hear Other

The Tenth Circuit Court of Appeals published its opinion in Gordon v. Bank of America and Pahs v. Kiehl on Thursday, February 20, 2014.

After Pahs filed his appeal with this court, he and the Chapter 13 trustee agreed that Pahs would continue to make the payments required by the Chapter 13 plan while this appeal was pending. When Pahs failed to make those payments, one of his creditors moved for the dismissal of Pahs’ bankruptcy. After no one objected to the motion, the bankruptcy court granted it, dismissing Pahs’ bankruptcy. In light of that dismissal, the Tenth Circuit held it could no longer grant Pahs any relief and his appeal was therefore moot.

Regarding the Gordons’ appeal, The Tenth Circuit held it had no jurisdiction because it was not taken from a final appealable decision and the parties had not invoked any mechanism that might permit an interlocutory appeal.

Although the district court’s decision required the Gordons to use the model Chapter 13 plan without modification, they would be free to revise the substantive portion of their plan. And the bankruptcy court will have to give creditors notice of the new amended plan, permit time for any objections, and then conduct another confirmation hearing. All of which is to say, the district court remanded the Gordons’ case to the bankruptcy court for significant further proceedings. This did not constitute a final appealable decision, and the Tenth Circuit lacked jurisdiction to hear the appeal.

The Pahs’ appeal was DISMISSED as moot.

The Gordons’ appeal was DISMISSED for lack of jurisdiction.

Tenth Circuit: Issue Preclusion Does Not Apply in Bankruptcy Court to a Final Determination in District Court Where Party Waived Issue

The Tenth Circuit Court of Appeals published its opinion in In re Zwanziger on Tuesday, January 28, 2014.

James Hamilton and Richard Kus sued Wolfgang Zwanziger for fraud and violations of Oklahoma’s wage laws. A jury found Zwanziger liable and awarded Hamilton and Kus a combined sum of $573,000. Zwanziger appealed.

On appeal, the Tenth Circuit affirmed the jury’s verdict on liability but reversed on damages. Hamilton and Kus had failed to include damages for emotional distress in their final pretrial order, even though they listed such damages in their complaint. Thus, the Tenth Circuit concluded that the district court erred in instructing the jury to consider emotional distress damages. So the Tenth Circuit remanded to the district court to recalculate damages.

But before the district court could recalculate damages, Zwanziger declared bankruptcy. Kus and William Clark, as trustee of Hamilton’s estate, (since Hamilton had also declared bankruptcy), then filed a complaint in bankruptcy court to determine how much of Zwanziger’s liability was not dischargeable. After reviewing both sides’ damages case, the bankruptcy court awarded Clark and Kus a combined sum of $181,300 in nondischargeable damages, $50,000 of which was for emotional distress. Zwanziger appealed to the Bankruptcy Appellate Panel (BAP), arguing that res judicata precluded the bankruptcy court from including damages for emotional distress. The BAP reversed. Clark and Kus appealed the BAP’s decision.

In this appeal, the Tenth Circuit considered a novel question: Does issue preclusion apply in bankruptcy court to a final determination in district court that a party waived an issue? The court concluded issue preclusion does not apply to the waiver finding here. In this case, issue preclusion does not apply because a finding that an issue of fact or law is waived is not a decision on the merits. Waiver as a general matter is a procedural determination that governs only the case in which it is made.

Therefore, the court REVERSED the judgment of the Bankruptcy Appellate Panel and REMANDED for the bankruptcy court to REINSTATE its order.

Tenth Circuit: Bankruptcy 11 U.S.C. § 363(m) Mootness Does not Apply to Purely Statutory Claim for Money Damages

The Tenth Circuit Court of Appeals published its opinion in In re C.W. Mining Co. on Wednesday, January 22, 2014.

These appeals arise from a Chapter 7 asset sale for the liquidating bankruptcy estate of C.W. Mining Co., a former coal mining operation in Emery County, Utah. The four appellants did business with C.W. Mining before its involuntary bankruptcy. They now claim various assets that the bankruptcy trustee, Kenneth A. Rushton, sold to an unrelated entity, Rhino Energy LLC. Under 11 U.S.C. § 363(m), the court cannot grant the appellants any relief that would affect the validity of Rushton’s sale to Rhino. The district court dismissed the appeals as moot because of this statute.

The Tenth Circuit affirmed the dismissal of all the appeals with the exception of Charles Reynolds’s appeal because he raised a statutory claim for relief that did not affect the validity of the sale. Reynolds and his family lived in the mine’s scale house. Reynolds opposed Rushton’s action to evict Reynolds and return the house to the bankruptcy estate by arguing he was the rightful owner of the house and counterclaiming under the Utah Occupying Claimant Statute (UOCS).

On appeal, Reynolds sought damages under UOCS of the value of improvements to the house, not undoing the sale to Rhino. Section 363(m) mootness does not apply to this claim, nor does equitable mootness because this is a purely statutory claim for money damages. The court reversed and remanded the dismissal of Reynolds’s claim.

Tenth Circuit: If Debtor Transfers More Than 15% of GAI to Qualified Organization, Trustee May Recover Entire Amount, Not Just Amount in Excess of 15%

The Tenth Circuit Court of Appeals published its opinion in Wadsworth v. The Word of Life Christian Center on Monday, December 16, 2013.

Debtors Lisa and Scott McGough filed for bankruptcy relief under Chapter 7 in 2009. During 2008, the McGoughs made contributions to the Word of Life Christian Center (the Center), totaling $3,478. During 2009, they made contributions to the Center totaling $1,280. Their taxable income for 2008 and 2009 was $6,800 and $7,487, respectively. They also received social security benefits in 2008 and 2009 totaling $22,036 and $23,164, respectively.

The Trustee filed an adversary proceeding against the Center seeking to recover the contributions made to it by the McGoughs under 11 U.S.C. §§ 548(a)(1)(B) and 550. Both parties filed motions for summary judgment. According to the Center, because the individual amounts of each contribution made by the McGoughs did not exceed 15% of their gross annual income (“GAI”), none were avoidable under the safe harbor provision of § 548(a)(2). The Trustee took the opposite view: the contributions must be considered in the aggregate and because the total contributions made by the McGoughs exceeded 15% of their GAI in those years, he could recover them in their entirety.

The bankruptcy court agreed with the Trustee in part: for purposes of the safe harbor provision of § 548(a)(2), a debtor’s contributions must be considered in their annual aggregate. However, it sided with the Center on the avoidance issue—if the contributions exceeded 15% of a debtor’s GAI, only the amount exceeding 15% is subject to avoidance. Thus, the Trustee’s recovery was limited to the amount of the contributions exceeding 15% of the McGoughs’ GAI. The Trustee appealed to the Bankruptcy Court of Appeals (BAP). Therefore, the only issue before the BAP was whether § 548(a)(2) allows a trustee to recover the entire amount of a charitable contribution if it exceeds 15% of GIA or only the amount in excess of 15%. The BAP agreed with the bankruptcy court—only the amount exceeding 15% was avoidable.

The sole question on appeal was a narrow one: If a restricted debtor transfers more than 15% of his GAI to a qualified religious or charitable organization, may the trustee avoid the entire annual transfer or only the portion exceeding 15%? The bankruptcy court and Bankruptcy Court of Appeals (BAP) said circumstances here only permitted the trustee to avoid the portion of the transfer exceeding 15%. The issue presented was a matter of first impression in the Tenth Circuit.

The Tenth Circuit agreed with the Trustee’s argument: § 548(a)(2) is unambiguous and clearly provides a safe harbor from the trustee’s avoidance power only if the “transfer” does not exceed 15% of GAI. Thus the converse must also be true—if the “transfer” exceeds 15% of GAI, then the “transfer”—meaning the entire transfer—is subject to avoidance. Had Congress intended for only the portion of the transfer exceeding 15% of GAI to be subject to avoidance, it would have added limiting language to that effect.  It did not.

REVERSED.

Tenth Circuit: Debt to Former Spouse That Arose In Connection with a Separation Agreement Nondischargeable in Bankruptcy

The Tenth Circuit Court of Appeals published its opinion in Taylor v. Taylor on Monday, December 9, 2013.

As part of Eloisa and Matthew Taylor’s divorce, a Virginia circuit court ordered Matthew to pay $2,500 per month to Eloisa as spousal support. The payments were to continue until the remarriage of Eloisa and the final decree also stated that the spousal support obligation was governed by Va. Code § 20-109. Four years later, Matthew moved to terminate spousal support in the Virginia circuit court, arguing that Eloisa had been living with a man for the past two years and that the two were in a marriage-like relationship. Matthew claimed that Eloisa’s cohabitation should result in the termination of his spousal support obligation under the divorce decree pursuant to Va. Code § 20-109. The Virginia circuit court agreed with Matthew and retroactively terminated his spousal support obligation. The court ordered Eloisa to repay $40,660.59 in overpaid spousal support payments, plus $10,000.00 for Matthew’s attorney fees incurred in prosecuting the motion for termination. Accordingly, the Virginia circuit court entered a judgment against Eloisa for $50,660.59.

Eloisa filed for bankruptcy under Chapter 7. Matthew filed a complaint objecting to the dischargeability of the $50,660.59 judgment, alleging that the overpayment debt was not dischargeable under 11 U.S.C. § 523(a)(15) as it constituted a debt to a former spouse incurred by the debtor “in connection with a separation agreement.” He also argued that the overpayment debt constituted a “domestic support obligation” under 11 U.S.C. § 523(a)(5).

On appeal, the BAP affirmed the bankruptcy court’s ruling that the overpayment debt was not a “domestic support obligation” under § 523(a)(5), as well as the bankruptcy court’s ruling that the overpayment debt did qualify for an exception from discharge under § 523(a)(15). Finally, the BAP ruled that neither it nor the bankruptcy court had authority to award attorney fees under the Marital Settlement Agreement’s (MSA) fee-shifting agreement.

Eloisa appealed the bankruptcy court’s summary judgment ruling that the overpayment debt is nondischargeable under § 523(a)(15); Matthew cross-appealed the bankruptcy court’s dismissal of his § 523(a)(5) claim and the BAP’s ruling on attorney fees.

The Tenth Circuit first analyzed the plain language of 11 U.S.C. § 523(a)(5) and held that to qualify as a “domestic support obligation” under that section, the debt must be in the nature of support to the creditor-spouse. As this was not the case here, the court affirmed the bankruptcy court ruling on that basis.

Next, the court analyzed whether the debt to Matthew was nevertheless nondischargeable under § 523(a)(15). Pursuant to § 523(a)(15)’s plain and unambiguous language, the overpayment debt qualified as a nondischargeable debt: the debt arose as a result of a judgment against a spouse, Eloisa, in favor of her former spouse, Matthew, by the Virginia circuit court “in connection with a separation agreement [or] divorce decree.”

The court affirmed the bankruptcy court’s rulings and the BAP’s ruling that Matthew is not entitled to attorney fees under the MSA.

Colorado Court of Appeals: Bankruptcy Court Order Effectively Precludes Determination of “Successor Entity” for Unemployment Insurance Purposes

The Colorado Court of Appeals issued its opinion in Ouray Sportswear, LLC v. Industrial Claim Appeals Office on Thursday, October 24, 2013.

Unemployment Insurance—Bankruptcy—Successor Entity.

Petitioner Ouray Sportswear, LLC (employer) sought review of a final order of the Industrial Claim Appeals Office (Panel). The order was set aside.

In April 2007, Ski Country Imports, Inc. and Ouray Sportswear Wyoming, Inc. (collectively, debtor) filed for bankruptcy. As part of the bankruptcy proceeding, employer, through a related entity called Jalex Holdings, LLC (Jalex), purchased substantially all of debtor’s assets. In May 2007, the U.S. Bankruptcy Court for the District of Colorado issued an order approving Jalex’s purchase of debtor’s assets. The order expressly provided that the purchase was free and clear of any and all liens, claims, charges, and encumbrances.

In June 2012, a deputy for the Colorado Department of Labor and Employment (Department) issued a liability determination concluding that debtor’s entire unemployment insurance account (which included the unpaid premiums) would transfer to employer because employer was a successor entity to debtor under CRS § 8-76-104(1)(a). The hearing officer affirmed the deputy’ ruling, and the Panel affirmed a hearing officer’s decision that employer is a “successor” entity for unemployment taxation purposes under § 8-76-104(1)(a), because it purchased substantially all of the assets of two businesses.

Employer contended that the Panel erred in affirming the hearing officer’s determination that it is a successor entity under § 8-76-104(1)(a). The bankruptcy court’s order effectively precluded the Department and the Panel from treating employer as a statutory successor entity. Therefore, the Panel’s order holding that employer is a successor entity to debtor under § 8-76-104(l)(a) conflicts with, and is therefore preempted by, the bankruptcy court’s prior order issued pursuant to 11 USC § 363(f). Consequently the Panel’s order was set aside.

Summary and full case available here.

Tenth Circuit: Attorney Fee Award in Bankruptcy Case Reversed

The Tenth Circuit Court of Appeals published its opinion in Market Center East Retail Prop. v. Lurie on Thursday, September 19, 2013.

Debtor-Appellant Market Center East Retail Property, Inc. (“Market Center”) appealed from the Bankruptcy Appellate Panel (“BAP”), which affirmed the bankruptcy court’s award of attorney fees to Appellees Barak Lurie and his firm, Lurie & Park (collectively “Lurie”). Lurie was Market Center’s attorney in completing the sale of a retail shopping center to Lowe’s Home Center (“Lowe’s”). The bankruptcy court awarded Lurie $350,752.06 in attorney’s fees. The BAP affirmed.

Market Center raised three issues on appeal: 1) whether the bankruptcy court’s and the BAP’s construction of 11 U.S.C. § 330 to permit the bankruptcy court, in its discretion, to award a contingent fee, rather than determining a fee based on the lodestar, is consistent with the language and intent of 11 U.S.C. § 330 and with the case law construing 11 U.S.C. § 330; 2) whether both the bankruptcy court and the BAP erred as a matter of law in concluding that the factors listed in 11 U.S.C. § 330(a)(3) for determining a reasonable attorney’s fee in a bankruptcy proceeding are a “non-exclusive list” of factors which the bankruptcy court is free to consider, or not consider, in its discretion; and 3) whether Congress intended that 11 U.S.C. § 330(a)(3) be construed consistently with the case law for determining a “reasonable attorney’s fee” under the federal fee-shifting statutes such as 42 U.S.C. § 1988.

In the Tenth Circuit, the adjusted lodestar approach is used to calculate reasonable attorney fees under 11 U.S.C. § 330(a). “The lodestar analysis takes into account each of the factors specifically mentioned in § 330(a)(3) plus additional relevant factors,” including the twelve Johnson factors. The court held that “in determining reasonable attorney’s fees pursuant to § 330, the lodestar amount may be enhanced or adjusted downward based on the § 330 factors and the Johnson factors.”

The court also held that the bankruptcy court erred in assuming that it had discretion to disregard or to look outside the § 330(a)(3)/Johnson factors to evaluate the reasonableness of any attorney’s fee. It found that the bankruptcy court clearly erred in its analysis of the § 330(a)(3) factors and reversed the award of fees to Lurie and remanded for further proceedings.

Tenth Circuit: Failure to Disclose Pending Lawsuit to Bankruptcy Court Resulted in Dismissal of Suit Due to Judicial Estoppel

The Tenth Circuit Court of Appeals published its opinion in Queen v. TA Operating, LLC on Tuesday, August 20, 2013.

Plaintiffs Richard and Susan Queen (“Queens”) sued Defendant TA Operating, LLC (“TA”) in federal district court in Wyoming (“District Court Action”). They brought various claims against TA based on an injury Mr. Queen sustained when he slipped and fell in a parking lot operated by TA. During the course of the District Court Action, the Queens filed for Chapter 7 bankruptcy in California (“Bankruptcy Action”), but did not disclose the District Court Action in their bankruptcy filings. When TA discovered this failure, TA brought it to the attention of the trustee for the Bankruptcy Action (“Trustee”). The Queens subsequently amended their bankruptcy filings to include the District Court Action, but they provided an estimate of its value that was far below what they had indicated in the proceedings before the Wyoming district court, and they claimed that the lawsuit was entirely exempt. Subsequently, the Queens were granted a no-asset discharge in bankruptcy.

The district court granted summary judgment in favor of TA based on the doctrine of judicial estoppel because the Queens had not disclosed the lawsuit in their bankruptcy proceedings.

Because the Queens adopted an inconsistent position that was accepted by the bankruptcy court, and because the Queens would receive an unfair advantage if not estopped from pursuing the District Court Action, the Tenth Circuit held that it was not an abuse of discretion for the court to apply the doctrine of judicial estoppel and grant summary judgment in favor of TA. The court also rejected the Queens’ arguments of mistake and inadvertence, because the record showed that the Queens had knowledge of the claim and a motive to conceal it in their bankruptcy proceedings. The court affirmed the grant of summary judgment to TA.