November 24, 2015

Tenth Circuit: No Avoidance of Transaction Made Within Ordinary Course of Business

The Tenth Circuit Court of Appeals issued its opinion in In re C.W. Mining Co.: Jubber v. SMC Electrical Products, Inc. on Monday, August 10, 2015.

C.W. Mining was forced into bankruptcy after creditors filed a petition for involuntary bankruptcy on January 8, 2008. In June 2007, C.W. had entered into an agreement with SMC Electrical Products, Inc., to purchase equipment in order to switch from a continuous method of mining to a longwall method. On September 18, 2007, SMC submitted an invoice to C.W. for $808,539.75, due in 30 days. C.W. made a $200,000 payment on the invoice on October 16, 2007, two days before it was due. The bankruptcy trustee initiated an adversary proceeding to avoid the transfer under 11 U.S.C. § 547(b). The bankruptcy court granted SMC summary judgment and rejected the trustee’s claim on the grounds that the transfer was made in the ordinary course of business. The BAP affirmed, and the trustee appealed to the Tenth Circuit.

The Tenth Circuit analyzed avoidance and the ordinary course of business exception, including the scrutiny applied to first-time transactions. The Tenth Circuit explained the purpose of the ordinary course of business transaction in detail, and examined its application as to both parties in the business transaction. Applying its analysis to the circumstances of this case, the Tenth Circuit found that the transaction between C.W. and SMC was within the ordinary course of business. The purchase was an arms’ length transaction for the purpose of assisting in mining operations. The Tenth Circuit dismissed the trustee’s arguments, characterizing them as an argument against a first-time transaction and finding that was not enough to avoid the transfer.

The bankruptcy court’s ruling was affirmed.

Tenth Circuit: Cases Properly in Federal Court but Arising Under State Law Trigger Article III Protections

The Tenth Circuit Court of Appeals issued its opinion in In re Renewable Energy Development Corp.: Loveridge v. Hall on Friday, July 10, 2015.

Renewable Energy Development Corporation (REDCO) entered into Chapter 7 bankruptcy proceedings and attorney George Hofmann was appointed the bankruptcy trustee. Hofmann consulted with Summit Wind Power, LLC, to determine the value of REDCO’s wind leases on private properties, and eventually discovered that REDCO had failed to pay consideration for some of the leases. Hofmann concluded REDCO’s options were unenforceable and encouraged Summit to pursue its own leases with the private property owners, which it did. Later, Hofmann decided the property owners could not cancel their leases with REDCO in favor of Summit without first offering REDCO the opportunity to cure, so he asked Summit to forgo its leases, but Summit refused. Eventually Hofmann brought adversarial claims in bankruptcy on behalf of REDCO against his other client, Summit. Summit responded with state law claims against Hofmann and his firm for malpractice, breach of fiduciary duty, and more. Hofmann was replaced as REDCO’s bankruptcy trustee. Summit filed suit against Hofmann in federal district court, alleging diversity jurisdiction and the right to have the case resolved in an Article III court. Hofmann argued the case should be resolved in an Article I bankruptcy court, and the district court agreed, removing the case to the bankruptcy court but certifying its decision for immediate appeal.

The Tenth Circuit evaluated Article III jurisdiction under the test articulated in Stern v. Marshall, 131 S. Ct. 2594 (2011) and the public rights doctrine. The Tenth Circuit recognized the conflict between the public rights doctrine and bankruptcy cases, noting that the Supreme Court has suggested certain aspects of public rights may properly find resolution in Article I courts. The Tenth Circuit analyzed Stern‘s holding that when a claim is a state law action not necessarily resolvable by a ruling on the creditor’s claim in bankruptcy, it implicates private rights and thus cannot be finally resolved in bankruptcy court. The Circuit found this scenario present, since the Summit’s claims against Hofmann were far removed from the bankruptcy proceeding. The Tenth Circuit recognized that perhaps cases involving similar factual scenarios should create a new exception to Article III, but declined to issue such a rule. The Tenth Circuit also found that the bankruptcy court could hear the case but not decide the issues, acting as a sort of magistrate or special master, and then deferring to the district court for decisionmaking. The Tenth Circuit also found that the district court retained diversity jurisdiction over the case.

The Tenth Circuit remanded the case to district court.

Hon. Janice Karlin Appointed 10th Circuit BAP Chief Judge

On Monday, August 31, 2015, the Tenth Circuit Court of Appeals announced that Hon. Janice Karlin will be the new Chief Judge of the Tenth Circuit Bankruptcy Appellate Panel, effective September 4, 2015. Judge Karlin will replace Judge Thurman, Bankruptcy Judge for the District of Utah, as Chief Judge of the BAP. Judge Thurman will continue to serve as a recalled bankruptcy judge despite his retirement.

Judge Karlin has been a judge on the Bankruptcy Appellate Panel since 2008, and prior to that was a Bankruptcy Judge for the District of Kansas since 2002. She was an Assistant United States Attorney for 22 years prior to her appointment to the bench, where she practiced civil litigation and was in charge of the Kansas City office. She received both her undergraduate and law degrees from the University of Kansas.

For more information about the appointment, click here.

Tenth Circuit: Bankruptcy Exemption for Retirement Plan Property Not Applicable When Property Withdrawn from Plan

The Tenth Circuit Court of Appeals issued its opinion in In re Gordon: Gordon v. Wadsworth on Friday, June 26, 2015.

In this bankruptcy appeal, the Gordons claimed $2,051 in their savings account as an exempt asset under C.R.S. § 13-54-102(1)(s) because the money represented a lump-sum distribution from their retirement plan and had not been commingled with other funds. The bankruptcy trustee objected on the ground that the exemption for retirement plans does not apply once the money is withdrawn from the plan. The bankruptcy judge agreed with the trustee’s objection and denied the Gordons’ motion for reconsideration. On appeal, the U.S. District Court for the District of Colorado affirmed, as did the Tenth Circuit.

The Tenth Circuit evaluated the language of C.R.S. § 13-54-102(1)(s), which exempts property held in or payable from retirement plans from levy and sale under writ of execution. The Gordons argued that the legislature intended to create an exemption from all retirement funds, regardless of whether they remained in the plan. The Tenth Circuit disagreed, finding the plain language of the statute precluded this reading. The Tenth Circuit found no statutory support for the Gordons’ argument.

The Tenth Circuit affirmed the district court and denied the Gordons’ request to certify questions of law to the Colorado Supreme Court.

Tenth Circuit: Sole Shareholders Should Not Be Discouraged from Infusing Capital Into Failing Businesses

The Tenth Circuit Court of Appeals issued its opinion in In re Alternate Fuels, Inc.: Redmond v. Jenkins on Friday, June 12, 2015.

Alternative Fuels, Inc. (AFI) is a Kansas corporation that formerly engaged in surface coal mining operations in Missouri. AFI filed for Chapter 11 bankruptcy in Kansas in 1992 and briefly continued operations while its bankruptcy was pending. John Warmack acquired 100% of AFI’s stock and formed Cimarron Energy Co. to continue the mining operations for which AFI still held permits. Mr. Warmack provided the State of Missouri with new reclamation bonds to assure that AFI would reclaim the mining land when its mining operations were finished. The bonds were secured with 24 certificates of deposit, worth approximately $1.4 million.

Mr. Warmack finished mining in 1999 and entered into an agreement with Mr. Jenkins where Mr. Jenkins would fulfill the reclamation obligations and obtain the proceeds of the 24 certificates of deposit and Cimarron’s remaining mining equipment. Mr. Jenkins paid Mr. Warmack $549,250 in exchange for 100% of AFI’s stock and 99% of Cimarron’s stock, certain equipment owned by Cimarron, and the 24 certificates of deposit. On the same day, AFI executed a promissory note for $500,000 to Mr. Jenkins. AFI executed three promissory notes to Mr. Jenkins altogether—two for $500,000 and one for $1,000,000. In 2002, AFI filed a lawsuit against certain state officers and employees, alleging tortious interference with the reclamation efforts. AFI assigned $3,000,000 of its potential recovery to Mr. Jenkins.

Judgment entered for AFI in the tort suit for $6.4 million, which, following an appeal and payment of attorney fees and costs, resulted in a recovery of about $5 million. AFI’s creditors began making claims against the proceeds, and in 2009 AFI applied for help from the bankruptcy court in distributing the funds. Mr. Jenkins filed a proof of claim against AFI’s estate for about $4.3 million. Exercising discretion and applying the Tenth Circuit test for recharacterization, the bankruptcy court recharacterized the transfers evidenced by the promissory notes as equity infusions and found he no longer held a claim secured by the alleged assignment of the suit proceeds. The bankruptcy court held in the alternative that Mr. Jenkins failed to provide sufficient documentation to prove the amount of his claim, and additionally held in the alternative that equitable subordination would be appropriate since Mr. Jenkins had acted inequitably to the detriment of AFI’s creditors and his claim should be subordinated to the level of an unsecured creditor. Mr. Jenkins appealed. The Tenth Circuit Bankruptcy Appellate Panel affirmed, and Mr. Jenkins again appealed.

The Tenth Circuit first rejected Mr. Jenkins’ argument that two recent Supreme Court decisions overruled Tenth Circuit precedent in In re Hedged Investments. The two cases relied on by Mr. Jenkins dealt with disallowance, not recharacterization, so the Tenth Circuit found the 13-step Hedged Investments recharacterization test applied. The bankruptcy court found three steps superficially supported treating Mr. Jenkins’ advances as loans: the names given to the certificates evidencing indebtedness, no increased participation in management as a result of the advances, and the extent to which the advances were used to acquire capital assets. The Tenth Circuit agreed that these three steps supported treating the advances as loans, but averred they did so more than superficially.

The Tenth Circuit found little support for the bankruptcy court’s determination that other factors necessitated recharacterization. It discounted the bankruptcy court’s decision that the ninth factor, the identity of interest between creditor and shareholder, pointed to recharacterization, finding that because there was only one shareholder this factor did not apply. As for the second factor, the presence or absence of a fixed maturity date, the Tenth Circuit disagreed with the court’s finding that the notes lacked a maturity date, finding instead they each required full payment after five years. The fact that Mr. Jenkins did not seek repayment did not render the requirement meaningless. Concerning the eighth factor, recapitalization, the Tenth Circuit found that placing too much emphasis on the factor could discourage investors from funding “rescue efforts” for failing businesses. As to the seventh factor, the intent of the parties, the Tenth Circuit found the parties intended the capital contributions to be treated as loans. The Tenth Circuit balanced the remaining factors and decided the bulk of the Hedged Investments factors weighed against recharacterization. The Tenth Circuit painted a picture of Mr. Jenkins as a sole shareholder loaning money to a failing business in hopes of keeping it afloat.

The Tenth Circuit similarly rejected the bankruptcy court’s alternative holding discharging Mr. Jenkins’ claim because he failed to meet his burden of persuasion as to amount. The Tenth Circuit found the copies of the three promissory notes proved his claim amount. The Tenth Circuit also declined to accept the bankruptcy court’s determination that if Mr. Jenkins’ claim were allowed to proceed it should be equitably subordinated. The Tenth Circuit noted that equitable subordination is an extraordinary remedy that should be employed sparingly and only if three factors are present: inequitable conduct, injury to the other creditors, and consistency with the provisions of the Bankruptcy Code. The Tenth Circuit further noted that the inequitable conduct warranting subordination must be egregious, tantamount to fraud, or involving moral turpitude. The Tenth Circuit found no such conduct from Mr. Jenkins.

The Tenth Circuit reversed the bankruptcy court’s judgment, finding neither recharacterization nor equitable subordination appropriate to Mr. Jenkins’ claims. Judge Phillips wrote a thoughtful and detailed dissent.

Tenth Circuit: CEA Allows Nationwide Service of Process for Receivers Pursuing Receivership Property

The Tenth Circuit Court of Appeals issued its opinion in Klein v. Cornelius on Wednesday, May 27, 2015.

R. Wayne Klein was appointed receiver of Winsome Investment Trust, a business entity whose founder, Robert J. Andres, caused it to illegally distribute funds as part of a Ponzi scheme. William Cornelius and his Houston law firm, Cornelius & Salhab, received some of the illegally obtained funds as payment for a New Hampshire criminal defense representation of one of Andres’ friends. Klein, as receiver, brought suit against Cornelius in Utah federal court to void the fraudulent transfer to Cornelius for approximately $90,000 in legal fees. The Utah court granted summary judgment to Klein, and Cornelius appealed, raising several points of error.

The Tenth Circuit first addressed Cornelius’ three jurisdictional challenges. Cornelius first argued the Commodity Exchange Act (CEA) does not authorize a receiver to bring state fraudulent transfer claims in federal court against a third-party recipient of Ponzi scheme funds. The Tenth Circuit found that the CEA authorizes the Commodities Futures Trading Commission (CFTC) to bring civil actions in federal court to enjoin violations of the CEA, and does not prohibit a receiver from pursuing state law claims in federal court. The Tenth Circuit concluded the district court had subject matter jurisdiction to resolve Klein’s Uniform Fraudulent Transfer Act (UFTA) claims on Winsome’s behalf.

Cornelius next challenged standing, arguing Klein lacked standing to bring a UFTA claim because Winsome itself could not bring such a claim. Cornelius reasoned that because Winsome was unincorporated and under Andres’ control, it was an alter ego for Andres and therefore had no authority to sue in its own right. Although he conceded Klein could sue as a receiver for Andres, the Tenth Circuit disagreed with Cornelius’ contention that Winsome could not sue in its own right. The Tenth Circuit found that as a business entity abused as part of a Ponzi scheme, Winsome became a defrauded creditor. The Tenth Circuit found that Winsome was its own entity under Utah law and therefore Klein had standing to pursue the UFTA claim.

Cornelius also argued the district court lacked personal jurisdiction because he did not have sufficient contacts with Utah and because he was not properly served with a complaint. The Tenth Circuit first found the CEA allowed nationwide service of process for receivers pursuing receivership property. The Tenth Circuit next looked at Cornelius’ argument that he had minimum contacts with Utah, and found that in federal question cases where nationwide service of process invokes jurisdiction, the defendant must establish that the chosen forum burdens the defendant with “constitutionally significant inconvenience.” Because Cornelius made no jurisdiction arguments other than the minimum contact argument, the Tenth Circuit found no error in the district court’s determination that it had jurisdiction. Cornelius also argued that in personam jurisdiction was inappropriate and only in rem jurisdiction would apply, but the Tenth Circuit disagreed, finding personal jurisdiction applied under the particular statutory scheme.

Next, Cornelius argued three points of error regarding the district court’s application of UFTA: (1) Texas law applies, (2) the transfer was not fraudulent, and (3) regardless, Klein’s claim is barred by the statute of limitations. The Tenth Circuit addressed each argument in turn. Because the relevant provisions of Texas law use the same language as Utah, the Tenth Circuit found Cornelius’ first argument of no practical significance. Next, the Tenth Circuit found that because Ponzi schemes are inherently insolvent, there is a presumption that transfers from such entities involve an intent to defraud. Cornelius argued that neither he nor the criminal defendant he represented knew of the Ponzi scheme, but the Tenth Circuit noted that nothing in the UFTA requires a transferee to have knowledge of the fraud. The Tenth Circuit also declined to adopt Cornelius’ assertion that he provided “reasonably equivalent value” for his payment, noting that his legal services conferred no benefit on Winsome and the payments to Cornelius only served to diminish its net worth.

Finally, the Tenth Circuit addressed the statute of limitations argument. Claims alleging actual intent to defraud under the UFTA must be brought within four years of when the transfer was made or one year after the transfer could reasonably have been discovered. Klein brought suit against Cornelius in December 2011. The payments to Cornelius for his legal services were made between September 2006 and July 2007, and Cornelius argued the suit was untimely because it was brought well after the four year statute of limitations had expired. However, Klein was appointed as receiver in January 2011, and he could not have reasonably discovered the fraud until his appointment. The Tenth Circuit found the claim was timely since it was brought within one year of Klein’s appointment as receiver.

The district court’s grant of summary judgment to Klein was affirmed.

Tenth Circuit: “Reverse Preemption” Deprived District Court and Tenth Circuit of Subject Matter Jurisdiction

The Tenth Circuit Court of Appeals issued its opinion in Western Insurance Co. v. A & H Insurance Inc. on Friday, April 24, 2015.

Western Insurance is insolvent and being liquidated in Utah state court. The liquidator brought suit against several of Western’s “affiliates” to recover funds Western had transferred to them. The defendants removed the ancillary proceeding to federal court under diversity jurisdiction, and the liquidator sought a remand, which the district court granted. Defendants appealed.

Because insolvent insurers are exempt from federal bankruptcy protection, state law governs insurer insolvency proceedings. After the defendants removed the case to federal court, liquidators argued the McCarran-Ferguson Act barred removal, as it is essentially a “reverse preemption” doctrine. The district court remanded “for the reasons stated on the record.”

The Tenth Circuit first evaluated its jurisdiction and found it could only proceed to entertain the appeal if the remand order was not based on lack of subject matter jurisdiction. In its order, the district court made several contradictory statements regarding its rationale for remand, leaving it unclear whether it relied on the McCarran-Ferguson Act’s “reverse preemption” in its remand order. However, the Tenth Circuit found that the bulk of the district court’s decision focused on the McCarran-Ferguson Act. Because the district court’s remand was based to a fair degree on lack of subject matter jurisdiction, the Tenth Circuit found it lacked jurisdiction to hear the appeal.

The appeal was dismissed.

Tenth Circuit: FDIC Exclusively Holds Claims Against Failed Bank’s Holding Company

The Tenth Circuit Court of Appeals issued its opinion in Barnes v. Harris on Tuesday, April 21, 2015.

The Barnes Banking Company (“bank”) began engaging in risky lending practices in the 2000s, leading to its ultimate demise in January 2010. The FDIC was appointed as receiver. In January 2012, J. Canute Barnes filed a derivative shareholder complaint in Utah state court against Barnes Bancorporation (“holding company”), parent of the bank, alleging breach of fiduciary duty. Attached to the Utah complaint was a demand letter alleging the bank was the holding company’s sole asset. The initial complaint stated the defendants were sued in their capacity as officers and directors of the holding company and not the bank. The FDIC filed a motion to intervene in state court, arguing it possessed sole statutory authority under FIRREA to assert the derivative claims at issue. The FDIC then removed the case to federal court.

The district court granted a motion to amend the complaint to include two additional shareholders, W. King Barnes and Robert Jones. Plaintiffs filed a motion to remand to state court, arguing the FDIC was not a party to the case because it had not filed a pleading, which motion was denied. Plaintiffs then moved to dismiss the FDIC for failure to state a claim. The FDIC filed its own motion to dismiss, and defendants moved for judgment on the pleadings. The district court denied plaintiffs’ motion to dismiss, granted in part the motions filed by defendants and the FDIC, and dismissed most of plaintiffs’ claims with prejudice while allowing some to be re-pled. Plaintiffs’ second amended complaint attempted to re-describe the bank as the holding company’s “primary asset,” but the focus of the complaint was still the harm suffered by the bank’s failure. The second amended complaint also alleged the bank received a $9 million tax return, which should have been in part distributed to the holding company, and that the holding company misused $265,000 by paying insurance premiums and retaining counsel. Both FDIC and defendants moved to dismiss the second complaint, which the district court granted. Plaintiffs appealed.

The Tenth Circuit first considered the district court’s jurisdiction. Through FIRREA, the FDIC is deemed a party, and the case is deemed to arise under federal law. The district court therefore had jurisdiction to hear the complaints. Plaintiffs argue the FDIC lacked jurisdiction because it never filed a pleading. The Tenth Circuit found the case on which plaintiffs relied inapposite to that assertion. Because FDIC was permitted to intervene in state court, it became a party to the proceeding, and jurisdiction was exclusive in the district court under FIRREA.

The Tenth Circuit proceeded to examine the merits. Once the FDIC is appointed as a receiver, FIRREA grants it all rights, powers, and privileges of the bank with respect to the assets of the bank, including those of the holding company. The question of whether FIRREA applies to cases in which a breach of fiduciary duty suit is brought against a bank holding company’s officers after the bank has gone into receivership was one of first impression in the Tenth Circuit. The Tenth Circuit examined similar cases from other jurisdictions, as well as Utah corporate law, and determined that FIRREA applies. The majority of plaintiffs’ claims were derivative, reaching the holding company only because of the harms of the bank. Those claims belong to the FDIC.

The Tenth Circuit found similarly that the $9 million tax return belonged exclusively to the bank and therefore the FDIC was the only party entitled to the return. The tax refund due from a joint return generally belongs to the company responsible for the losses that formed the basis for the return, and due to the receivership, the entire refund belongs to the FDIC.

Finally, the Tenth Circuit addressed the claims that the holding company misused $265,000 by using the funds to pay insurance premiums and legal fees. The Tenth Circuit, like the district court, found these claims inadequately pleaded. Plaintiffs were in a privileged position and could have examined the holding company’s records to find support for their claims. Plaintiffs further failed to explain how the expenditures constituted an actionable wrong. The Tenth Circuit upheld the district court’s dismissal of this claim.

Expressing sympathy for the plaintiffs’ position, the Tenth Circuit recognized the broad scope of the FDIC’s authority in dealing with the aftermath of a bank failure, and admonished bank holding company shareholders to take action prior to the bank’s collapse to stave off the collapse and protect their assets. The Tenth Circuit affirmed the district court.

Tenth Circuit: Bare Legal Title Is Not An Interest that Can Be Avoided in Bankruptcy

The Tenth Circuit Court of Appeals issued its opinion in In re Nguyen: Davis v. Pham on Monday, April 13, 2015.

In September 2007, Hoa Thi Pham purchased property in joint tenancy with her now common law husband, Noel Esplund, so that Pham had a two-thirds interest in the property and Esplund had a one-third interest. Pham then conveyed her interest to the couple’s children, Tung Nguyen and Lisa Dang (now Lisa Stirrat), as joint tenants with rights of survivorship. In May 2008, Nguyen transferred his interest to Esplund and Dang via quit claim deed for no compensation. In May 2009, Nguyen and his wife filed for Chapter 7 bankruptcy protection. The bankruptcy trustee, Carl Davis, filed a complaint in Bankruptcy Court, seeking to avoid the transfer from Nguyen under 11 U.S.C. § 548(a)(1)(B), alleging that Nguyen transferred his interest in the property less than two years before filing from bankruptcy, was insolvent at the time of the transfer, and received inadequate consideration for the transfer.

The Bankruptcy Court concluded Nguyen possessed only bare legal title to the property and his mother possessed equitable ownership of his one-third share, finding the transfer created a resulting trust under a Kansas statute that allows a trust to form when a payor provides consideration for a piece of property and then enters into an agreement with another “without fraudulent intent” to hold the property in trust. The Bankruptcy Court based its decision on the circumstances of the agreement, to which Pham and Nguyen testified at the evidentiary hearing, and concluded that bare legal title, when transferred for no consideration, is not an “interest in property” that may be avoided. The trustee appealed to the BAP, which affirmed the Bankruptcy Court’s decision.

The Tenth Circuit first noted that the parties do not dispute the correctness of the Bankruptcy Court’s determination that if Nguyen possessed solely “bare legal title” to the property, § 548(a)(1)(B) could not be used to avoid the transfer. The Tenth Circuit further found no dispute as to the Bankruptcy Court’s factual finding regarding the intent of the parties in the transfer. Therefore, the issue on appeal was whether such transfers are contrary to Kansas law.

Davis argued that a resulting trust is incompatible with a joint tenancy under Kansas law and Tenth Circuit precedent. The Tenth Circuit first found that the precedent on which Davis relied had been impliedly overruled by the Kansas Supreme Court. Analysis of the Kansas case law revealed that Kansas law does allow resulting trusts in joint tenancy situations. Because Davis did not challenge the Bankruptcy Court’s factual finding that Pham and Nguyen intended to create a resulting trust, or its conclusion that bare legal title is not an interest that can be avoided under § 548(a)(1)(B), the Tenth Circuit affirmed the findings of the Bankruptcy Court.

Colorado Court of Appeals: Partial Subordination Approach to Lien Priority Best Reflects Colorado Law

The Colorado Court of Appeals issued its opinion in Tomar Development, Inc. v. Friend on Thursday, June 4, 2015.

Lien—Subordination Agreement—Partial Subordination Approach.

The Friend family sold its ranch to Friend Ranch Investors Group (FRIG) to develop it into a resort-style golf course community. In 2010, FRIG conveyed the property to Mulligan, LLC, and at that time, the relevant order of priority was (1) Colorado Capital Bank’s (CCB) senior lien; (2) Tomar Development (Tomar); (3) the Damyanoviches; (4) the Friends; and (5) CCB’s junior lien. Bent Tree, Mulligan, and CCB then entered into a subordination agreement whereby CCB’s senior lien became subordinate to CCB’s junior lien. Neither Tomar, the Damyanoviches, nor the Friends was involved in or an intended beneficiary of the subordination agreement. CCB’s senior lien was never released. Bent Tree then foreclosed on CCB’s senior lien and, in November 2010, Bent Tree bought the property at a public trustee’s foreclosure sale for approximately $11,800. Tomar, the Friends, and the Damyanoviches filed claims, each of which sought declaratory judgments as to the priority of their interests, which were dismissed by the trial court under CRCP 12(b)(5).

On appeal, Tomar, the Friends, and the Damyanoviches argued that the trial court erred in applying the partial subordination approach to the subordination of liens. The partial subordination approach applies when the most senior lienholder (A) agrees to subordinate his interest to the most junior lienholder (C) without consulting the intermediary lienholders (B). Under this approach, when A subordinates to C, C becomes the most senior lienholder, but only to the extent of A’s original lien. Under this partial subordination approach, B is not affected by the agreement between A and C, to which it was not privy. Colorado adopts the partial subordination approach, and it was properly applied in this case. Accordingly, the trial court did not err in dismissing Tomar’s, the Damyanoviches’, and the Friends’ claims seeking a declaratory judgment that each of their interests was senior to all other interests.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Automatic Bankruptcy Stay Deprives Tenth Circuit of Appellate Jurisdiction

The Tenth Circuit Court of Appeals issued its opinion in Eastom v. City of Tulsa on Monday, April 20, 2015.

Dustin Eastom filed § 1983 claims for malicious prosecution against the City of Tulsa, a Tulsa police officer (Mr. Henderson), and an ATF agent (Mr. McFaddon). Mr. Eastom also filed a negligence claim against the city under Oklahoma’s Governmental Tort Claims Act. After Mr. Eastom filed suit, Mr. McFaddon filed for bankruptcy, and Mr. Eastom’s claim against him was automatically stayed by 11 U.S.C. § 362. The district court entered summary judgment for the City and Mr. Henderson, dismissing Mr. Eastom’s claims with prejudice. It declined to exercise jurisdiction over Mr. Eastom’s state law claims against the City and also dismissed them with prejudice.

Mr. Eastom appealed the summary judgment order, and the Tenth Circuit issued an order to show cause why the appeal should not be dismissed because there was no final judgment as to all parties. Mr. Eastom voluntarily dismissed his district court claim against Mr. McFaddon without prejudice and responded to the show cause order that his appeal was now final because he was time-barred from refiling the claim. However, under Oklahoma’s savings statute, Mr. Eastom had an additional year to re-file his voluntarily withdrawn claims against Mr. McFaddon despite the time bar.

Mr. Eastom waited a year and again appealed to the Tenth Circuit. However, the § 362 stay was still in place, and the Tenth Circuit again ordered Mr. Eastom to show cause why his appeal should not be dismissed for lack of jurisdiction. Mr. Eastom contended the district court’s summary judgment was final because the time for refiling under the savings statute had elapsed.

The Tenth Circuit examined the interplay between the applicable statute of limitations, the savings statute, and the bankruptcy stay, and found that Mr. Eastom’s claims were still not final because the bankruptcy stay was still in place, tolling the statute of limitations. Because the automatic stay prevented Mr. Eastom from exercising legal remedies against the debtor, Oklahoma law prevents the running of the savings statute while the stay is in place.

The Tenth Circuit dismissed the appeal for lack of jurisdiction.

Application Period Open for Bankruptcy Judge Vacancy in District of Colorado

The United States Court of Appeals for the Tenth Circuit seeks applicants for a bankruptcy judgeship in the District of Colorado. The position will be created effective January 4, 2016, and will be in Denver, Colorado.

Eligible applicants must be a member in good standing of the bar of the highest court of any state, DC, or Puerto Rico, and must be in good standing in every other bar in which he or she is admitted. Applicants must be committed to equal justice under the law, have good character, possess and have demonstrated outstanding legal ability, exhibit judicial temperament, and be of sound mental and physical health. Applicants may not be related by blood or marriage to any other judge of the Tenth Circuit or District of Colorado or any member of the Judicial Council of the Tenth Circuit. Finally, applicants must have been admitted to practice law for at least five years.

Application forms are available from the Tenth Circuit website, and must be received no later than May 22, 2015. For more information about the vacancy, or to obtain an application form, click here.