The U.S. District Court for the District of Colorado announced a courthouse closure. On Friday, December 9, 2016, from 12:45 to 6 p.m., the courthouse will be closed for business due to a law enforcement training exercise. The Alfred A. Arraj Courthouse will be closed to the public. The Byron G. Rogers Courthouse will remain open, but no court business will be conducted. Court business in the Durango and Grand Junction courthouses will be conducted as scheduled. All electronic systems to include CM/ECF and PACER will remain in operation during this time period. For more information, click here.
You are cordially invited to
a retirement reception
HONORABLE HOWARD R. TALLMAN
United States Bankruptcy Court for the District of Colorado
Thursday, December 1, 2016
The Marriott Denver City Center
1701 California Street, Downtown Denver
5:30 – 8:00 p.m.
Complimentary hors d’oeuvres and a cash bar will be provided.
This event is proudly co-sponsored with the Bankruptcy Subsection of the Colorado Bar Association.
After an already impressive legal career and service as the U.S. Trustee for Region 19, Judge Tallman was appointed to the United States Bankruptcy Court for the District of Colorado in 2002 and served as Chief Judge from 2007 to 2014. Judge Tallman will officially retire on Tuesday, January 3, 2017.
We hope you will join us for this retirement reception to honor Judge Tallman for his exemplary judicial service during his tenure with the U.S. Bankruptcy Court and his contributions to the practice of law throughout his legal career.
The Colorado Court of Appeals issued its opinion in People v. Foos on Thursday, September 22, 2016.
Bankruptcy—Discharge ofRestitution Order—Bad Faith.
In 2012, the U.S. Bankruptcy Court discharged Foos’s debts against the three victims in this case. Prior to his bankruptcy proceedings, Foos owed money to these victims. In 2013, Foos was charged with two counts of felony theft and one count of defrauding a secured creditor. Foos resolved these charges by pleading guilty to the charge of defrauding a secured creditor in exchange for dismissal of the other two counts. He stipulated to a deferred judgment and sentence with a requirement for full restitution.
On appeal, Foos argued that it was error to order him to pay restitution because he discharged his debts in bankruptcy before the charges were filed against him. C.R.S. § 18-1.3-603(4)(d) precludes the discharge of restitution orders in bankruptcy, and restitution serves a different purpose than bankruptcy. Accordingly, the district court did not err in ordering Foos to pay restitution.
Foos also argued that he was prosecuted in bad faith. The court of appeals noted that although the original prosecutor had a “cozy relationship” with Foos’s creditors, she was replaced with a special prosecutor who had no personal connection to the case and who made an independent decision to move forward with the prosecution. Moreover, Foos waived his right to challenge the validity of the charges by pleading guilty.
Finally, Foos argued that he was ordered to pay restitution to a listed victim in a theft count that was dismissed as part of the plea agreement. Colorado case law is clear that, for purposes of restitution, a victim does not have to be one of the named victims of a conviction.
The order was affirmed.
Summary provided courtesy of The Colorado Lawyer.
The U.S. District Court for the District of Colorado announced that it is accepting applications for a bankruptcy judge in the District of Colorado. The position is located in Denver and will be available January 4, 2017, pending successful completion of a background investigation. Bankruptcy judges are appointed for 14-year terms pursuant to 28 U.S.C. § 152.
Qualified applicants must be members in good standing of the highest bar of at least one state, the District of Columbia, or the Commonwealth of Puerto Rico, and must be in good standing in every bar in which the applicant is a member. Applicants must possess, and have a reputation for, integrity and good character; possess, and have demonstrated, a commitment to equal justice under the law; possess, and have demonstrated, outstanding legal ability and competence; indicate by demeanor, character, and personality that the applicant would exhibit judicial temperament if appointed; and be of sound physical and mental health sufficient to perform the essential duties of the office. Applicants must have been engaged in the practice of law or other suitable law-related occupation for the last five years, must not be related by blood or marriage to any judge of the Tenth Circuit or District of Colorado or a member of the Tenth Circuit Judicial Council, must comply with financial disclosure requirements, and must be willing to serve.
Application forms are available on the Tenth Circuit website and will be accepted through August 15, 2016. For more information, click here.
The Tenth Circuit Court of Appeals issued its opinion in Tripodi v. Welch on Wednesday, January 13, 2016.
Nathan Welch was a real estate developer, and beginning in 2006, he worked to procure funding for the Talisman project. Robert Tripodi invested in the Talisman project, ultimately putting $1 million into the development, secured by promissory notes from Welch. When Talisman failed, Welch defaulted on the notes, and Tripodi filed a complaint against Welch in federal district court in 2009, alleging violations of federal and state securities laws. Welch answered the complaint, but a few months later his counsel moved to withdraw. The district court granted counsel’s motion and gave Welch 20 days to find new counsel or appear pro se. Several months later, Tripodi moved for default judgment, and, because Welch did not respond to the motion, the district court entered default judgment against him in April 2010. For the next year, Tripodi presented proof of damages, costs, and attorney fees, and the district court found Tripodi was owed $729,161.65 plus post-judgment interest.
Welch filed a voluntary petition for Chapter 7 bankruptcy in August 2011. Nearly two years later, Tripodi filed a motion for relief from the automatic stay. The district court granted Tripodi’s motion and directed its clerk to enter final monetary judgment. The clerk entered judgment in his favor for $729,161.65 plus post-judgment interest accruing since May 2011. Welch opposed a determination of damages and filed a cross-motion to set aside entry of default. The district court denied his motion as untimely. Each party then filed post-judgment motions. Tripodi moved for an order determining that the default judgment against Welch was non-dischargeable under 11 U.S.C. § 523(a)(19), while Welch moved for the court to reconsider its order refusing to set aside the default, to set aside the default, and to enter a judgment on the pleadings in his favor. The district court granted Tripodi’s motion and denied Welch’s.
Welch appealed, arguing the district court erred in denying his motion for judgment on the pleadings and granting Tripodi’s motion that default is non-dischargeable under § 523(a)(19). The Tenth Circuit disagreed. The Tenth Circuit characterized Welch’s appeal as a roundabout way to challenge the entry of default against him by challenging the sufficiency of the pleadings. The Tenth Circuit addressed the district court’s grant of default judgment. The Tenth Circuit found that the pleadings were legally sufficient, as they showed (1) Tripodi invested in Talisman because he thought it would be a high-yeilding investment opportunity, (2) the investment was structured for broad distribution to unsophisticated investors such as himself, (3) the investing public would consider the notes to be securities, and (4) the collateral provided little security for investors. These four factors led the Tenth Circuit to conclude that the district court correctly ruled the notes were securities and Welch violated securities laws. The Tenth Circuit found no abuse of discretion.
Welch next contended that the district court erred in finding that the debt was non-dischargeable in bankruptcy under § 523(a)(19). The Tenth Circuit again disagreed. The Tenth Circuit noted that § 523(a)(19) renders debts non-dischargeable when they arise in connection with a violation of state or federal securities laws. Two factors prevent the debt from being discharged: (1) the debt must stem from a violation of federal or state securities law, and (2) the debt must be memorialized in a judicial order or settlement agreement. The Tenth Circuit found that Welch’s debt to Tripodi satisfied both factors.
The judgment of the district court was affirmed.
Tenth Circuit: Bankruptcy Creditor Has Standing to Object to Potentially Fraudulent Conveyance of Real Property
The Tenth Circuit Court of Appeals issued its opinion in In re Lavenhar: Lavenhar v. First American Title Insurance Co. on Thursday, December 17, 2015.
On October 28, 2010, First American Title Insurance Company (“First American”) earned a judgment and damages award in its favor in the amount of $434,913.39, plus interest, in Colorado state court against Jeffrey Lavenhar. During the pendency of this litigation, Jeffrey and his then-wife Laurie initiated dissolution proceedings, resulting in the issuance of a divorce decree in November 2010, which incorporated a separation agreement dated October 26, 2010. The separation agreement required Jeffrey pay Laurie $4,400 per month in spousal maintenance, and also contained a provision stating the property located on Antelope Ridge Trial is and always has been the sole property of the Laurie H. Lavenhar Living Trust.
In seeking to collect its damages, First American filed suit against the Lavenhars and the Laurie H. Lavenhar Living Trust, asserting the transfer of Jeffrey’s interest in the Antelope Ridge Trail property to the Laurie H. Lavenhar Living Trust was a fraudulent conveyance. In addition to that independent lawsuit, First American sought to intervene in the Lavenhars’ divorce, seeking a declaration that the Lavenhars’ divorce proceeding was a fraud upon the court designed to hinder its ability to collect on the judgment against Jeffrey. The state divorce court granted First American’s motion to intervene.
Before the resolution of the various legal proceedings instituted by First American against the Lavenhars, Jeffrey filed a Chapter 7 bankruptcy petition. In response, First American filed a motion to lift the automatic stay as to the Antelope Ridge Trail property, asserting it should be able to litigate its state-court fraudulent conveyance action. The bankruptcy court denied the motion, concluding only the Chapter 7 Trustee had standing to bring such an action. Shortly thereafter, Laurie filed in the bankruptcy court a priority unsecured claim for domestic support obligations in the amount of $347,400. First American then filed a new motion to lift the automatic stay, seeking permission to litigate its complain in intervention of the Lavenhars’ divorce proceeding, which was granted in part by the bankruptcy court such that both First American and the Chapter 7 Trustee could litigate the complaint in intervention as to the single issue that would affect the validity of Laurie’s proof of claim, but not as to any other issues resolved in the divorce decree.
The district court affirmed the bankruptcy court’s partial lifting of the automatic stay, and Laurie appealed, asserting the bankruptcy and district courts erred in concluding First American has standing to litigate the validity of the component of the divorce decree addressing domestic support obligations via its state-court complaint in intervention.
On appeal, the Tenth Circuit Court of Appeals determined First American has standing to object to Laurie’s potentially fraudulent proof of claim for domestic support obligations. Next, the Tenth Circuit affirmed the order of the bankruptcy court partially lifting the automatic stay to allow the state divorce court to declare whether or not the Lavenhars’ divorce decree was obtained through fraud on the court. In so ruling, the Tenth Circuit reasoned there is no indication that the state divorce court cannot or will not comply with the limited scope of the bankruptcy court’s order lifting the stay. In rejecting Laurie’s argument that the validity of the property division is not separable from the validly of the spousal maintenance provision, both of which are contained in the separation agreement, the Tenth Circuit noted the Antelope Ride Trial property is and always has been the sole property of the Laurie H. Lavenhar Living Trust. Thus, the court reasoned it is simply not true that the issue the bankruptcy court allowed to proceed in the motion in intervention is inseparably intertwined with the property-transfer issues to be litigated by the Chapter 7 Trustee in the fraudulent conveyance action. Lastly, the court noted a ruling on First American’s behalf on the limited issue the bankruptcy court allowed to be litigated in the complaint in intervention would benefit all creditors equally, such that there exists no danger of intrusion on the exclusive prerogatives of the Chapter 7 Trustee.
Max Montag is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.
The Tenth Circuit Court of Appeals issued its opinion in In re Gentry: FB Acquisition Property I, LLC v. Gentry on Tuesday, December 8, 2015.
Susan and Larry Gentry are the sole shareholders, officers, and directors of Ball Four Inc., a sports complex in Adams County. In 2005, Ball Four received a $1.9 million loan from FirsTier Bank, which was secured with various Ball Four assets and personally guaranteed by the Gentrys. After four years, Ball Four stopped making payments to FirsTier. FirsTier initiated foreclosure proceedings, and Ball Four filed for Chapter 11 bankruptcy. Ball Four proposed a reorganization plan that provided for the bank’s lien to be paid in full. Ball Four’s plan was approved in 2011.
Meanwhile, the Colorado Division of Banking closed FirsTier and the FDIC was appointed as receiver. The FDIC assigned its rights to SIP, and in December 2014 SIP was replaced by FB Acquisition.
In October 2010, one month after Ball Four filed for bankruptcy, FirsTier sued the Gentrys in Colorado state court to collect the guarantees. The Gentrys filed their Chapter 11 case in November 2011. The Gentrys filed disclosures and an amended plan, asserting that the Gentrys’ liability on the 2005 loan would be satisfied by Ball Four. The bankruptcy court confirmed the Gentrys’ plan in 2013.
FB Acquisition appealed two decisions of the bankruptcy court to the Tenth Circuit: first, that the Gentry plan was feasible, and second, that under the plan language, the Gentrys’ liability mirrors Ball Four’s liability. The Tenth Circuit first addressed the feasibility of the Gentry plan. Although FB Acquisition argued the Gentry plan did not offer a reasonable assurance of success, the Tenth Circuit noted that even though the bankruptcy court’s findings were brief, they were sufficient to satisfy a clear error inquiry.
The Tenth Circuit next addressed FB Acquisition’s contention that the bankruptcy court erred in limiting the Gentrys’ liability to the amount that Ball Four owed. The Tenth Circuit disagreed with the bankruptcy court’s evaluation of the Gentrys’ liability. The bankruptcy court found no provisions in the loan contract creating a greater obligation for the Gentrys than that owed by Ball Four, but the Tenth Circuit found three. Because the bankruptcy court misunderstood its duty to confer liability for the entirety of the debt on the guarantors, the Tenth Circuit remanded for the bankruptcy court to determine the amount of FB Acquisition’s claims under the guarantees. The Tenth Circuit noted the bankruptcy court should also reevaluate the feasibility of the plan.
The bankruptcy court’s ruling was affirmed in part, reversed in part, and remanded for further proceedings.
The Tenth Circuit Court of Appeals issued its opinion in In re Adam Aircraft Industries, Inc.: Weinman v. Walker on Thursday, October 15, 2015.
Joseph Walker was the president and a board member for Adam Aircraft Industries (AAI). On February 1, 2007, George “Rick” Adam, AAI’s board chair, informed Walker that the board had decided to replace him as president and requested his resignation in lieu of terminating his employment. AAI was engaged in debt financing negotiations with Morgan Stanley for an $80 million loan and did not want to imperil its negotiations with bad publicity from Walker’s termination. Walker returned to his office late that night to collect his belongings, and sent an email to the board chair and another board member outlining requests for his resignation. His replacement as president started working for AAI on February 2. Over the next two weeks, AAI and Walker negotiated the terms of his separation and eventually entered into Separation Agreement I and a Memorandum of Understanding (MOU) on February 13, 2007. On March 20, 2007, AAI refunded Walker’s security deposit for an airplane, plus interest, and on May 18, 2007, the parties entered into Separation Agreement II. AAI continued to make twice-monthly severance payments to Walker between February 2007 and February 2008.
On February 15, 2008, AAI filed a voluntary petition for bankruptcy, and the trustee, Weinman, sold substantially all of AAI’s assets for a gross purchase price of $10 million in April 2008. Walker filed a proof of claim in AAI’s bankruptcy case for $134,931.00, including $10,950.00 as a priority-employee claim based on wages, salaries, and commissions under the MOU and Separation Agreements. AAI filed a complaint in January 2010, seeking to avoid and recover transfers to Walker under the MOU and Separation Agreements. The bankruptcy court held a trial in February 2013 and entered its order in June 2013, ruling that Walker ceased to be a statutory insider on February 1, 2007, and did not meet criteria for a non-statutory insider; the transfers to Walker did not occur under an employment contract; and Walker gave reasonably equivalent value for the transfers. AAI appealed to the BAP, which affirmed the bankruptcy court, and again appealed to the Tenth Circuit.
AAI argued to the Tenth Circuit that its transfers to Walker were avoidable under 11 U.S.C. § 548(a)(1). The Circuit iterated five prongs that AAI must meet to prove its transfers were avoidable: (1) the transfers must have occurred within two years of the bankruptcy filing; (2) Walker must have been an insider either when the transfers were negotiated or when the money was paid; (3) the transfers must have been made under an employment contract; (4) AAI must have received less than equivalent value for the transfers; and (5) the transfers must have been made outside the ordinary course of business. The Tenth Circuit noted that the burden was on AAI to prove all five prongs, and failure to prove even one prong would mean AAI could not prevail. Since the parties did not dispute the first factor, the Tenth Circuit began its analysis by looking at whether Walker was an insider when the transfers were negotiated or the money was paid.
The bankruptcy court concluded that Walker’s insider status ceased as of February 1, 2007, and the Tenth Circuit agreed. AAI argued that because the MOU listed March 1, 2007, as Walker’s termination date, the first Separation Agreement and MOU were entered into while Walker retained insider status. The bankruptcy court found, however, that Walker did no further work for AAI after that date, he did not return to the AAI premises, and his replacement started on February 2. The Tenth Circuit found no clear error in the bankruptcy court’s determinations. The bankruptcy court also held Walker could not qualify as a non-statutory insider, which AAI argued was applicable because Walker proposed the initial terms of his separation, which AAI ultimately accepted. The Tenth Circuit found this was insufficient to satisfy AAI’s burden. The Tenth Circuit similarly rejected AAI’s contention that refusing to classify Walker as an insider would frustrate the purpose of BAPCPA, noting it could not imagine Congress intended the BAPCPA to allow businesses to negotiate separation terms with an employee, which the employee fulfilled, then avoid any reciprocal obligations to the employee.
AAI next argued its payments to Walker were recoverable under the “non-insider” portions of § 548. The statute allows avoidance of transfers if AAI received less than equivalent value at the date of each transfer and AAI was insolvent. The Tenth Circuit again noted that failure of one prong would negate the possibility of avoidance. The bankruptcy court had found that the antecedent debt created by the MOU and Separation Agreements for the severance package constituted “reasonably equivalent value” because Walker had agreed to resign instead of facing termination in order not to imperil the debt financing with Morgan Stanley and had not retained employment with competing companies. As for the airplane deposit and stock purchase refund, the Tenth Circuit found no error in the bankruptcy court’s determination that these transactions were not avoidable.
The Tenth Circuit affirmed the bankruptcy court.
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.
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.