• In re Clifford N. Fast and Rosina M. Fast, Debtors; Case No. 02-14167-SBB In a matter of apparent first impression in this District, the Court considered an objection filed by a Chapter 7 Trustee to an undersecured creditor’s claim for postpetition interest at the contract rate and an award of postpetition attorney fees. The objection by the Trustee argued that 11 U.S.C. § 502(b)(2) precluded postpetition interest as it is for “unmatured interest.” The Court agreed that a bare reading of section 502(b)(2), alone, would seem to suggest that postpetition interest must be disallowed. However, the Court analyzed section 502(b)(2) in conjunction with sections 726(a)(5) and (a)(6) and existing persuasive, but not controlling, case law. The Court determined, under the three factors set forth in In re Kentucky Lumber Co., 860 F.2d 674, 677 (6th Cir. 1988), that where: (1) the debtor proves solvent, (2) the collateral produces a return, and (3) the collateral is sufficient to pay interest as well as the principal of the claim, interest can be allowed. The Court further added that two additional factors could also be considered here. These two additional factors were that: (1) the creditor assisted substantially in the recovery of undisclosed assets from a dishonest debtor and (2) the debtor did not object to the claim of the creditor. The Court further concluded that interest, under the specific circumstances of this case, should be the contract rate of interest. Moreover, the Court concluded that the Bank is entitled to attorney’s fees in accordance with its contract with the debtor under the reasoning of In re New Power Company, 313 B.R. 496 (Bankr.N.D.Ga. 2004).   Posted 11/29/2004

• In re Telluride Income Growth Limited Partnership, 03-13632 ABC, Docket #70, (March 4, 2004). The court dismissed a voluntary Chapter 7 petition on the grounds it had been filed by an entity acting on the debtor’s behalf without authority. The debtor was a limited partnership. The parties who successfully set aside the petition were limited partners. The petition had been signed for the debtor by a limited liability company that had once been a general partner, but who had been first statutorily suspended, and then dissolved, and thus had lost its own legal capacity to operate.   Posted 07/01/2004

• In re Barnes, 03-24760 MER, Docket # 123,(June 1, 2004). The issue presented in this Chapter 11 case was whether a Debtor, after missing the 160-day deadline for filing a plan of reorganization as mandated by 11 U.S.C. § 1121(e)(2), could withdraw the small business election. The Court noted that the Bankruptcy Code did not specifically provide for the withdrawal or abrogation of a debtor’s election to be treated as a “small business” under 11 U.S.C. § 1121(e). Rather than create a “bright-line” test as to if and when such a withdrawal is to be allowed, the Court determined the better approach was to employ the balancing test implicit in 11 U.S.C. §105(a). The Court determined under the facts of the case that since the withdrawal of the small business election was made shortly after the expiration of the 160-day deadline, there was minimal prejudice to creditors, potential for abuse or potential for confusion of creditors. The Debtor should be allowed to withdraw its small business election and the U.S. Trustee’s Motion to Convert is denied.   Posted 06/02/2004

• In re Colorado Springs Symphony Orchestra Association; Case No. 03-10421 HRT; Order entered April 8, 2004. Normally, workers who perform no direct post-petition labor for the debtor will have a hard time supporting a claim for administrative expenses. But the very unique structure of this particular collective bargaining agreement led to a different result. It was significant that the agreement involved was a union labor contract to which § 1113 is applicable. Normally, in this Circuit, the analysis exemplified by the case of In re Mammoth Mart, Inc., is used to examine a claim for administrative expenses. But the Court did not find that analysis to be consistent with the requirements of § 1113. The Court discusses the interaction of § 1113 with §§ 503 and 507 and also discusses the analysis used in other circuits that have adopted the Mammoth Mart test when those courts examine administrative expense claims in the union labor contract context.   Posted 04/15/2004

• In re Barnes, 03-24760 MER, Docket # 95, (March 30, 2004). The issue presented in this Chapter 11 case was whether a Debtor, who made the election to be considered a small business as defined in 11 U.S.C. §§ 101(51C) and 1121(e), could move the Court to extend the 160-day deadline to file a plan of reorganization either under Section 1121(e), or if not, under the Court’s equitable powers enunciated in 11 U.S.C. §§ 105(a) and (d). The United States Trustee objected to the extension based on the plain language of Section 1121(e). In analyzing the Debtor’s request, the Court employed a two-step process. First, the Court looked at the language of 1121(e) and determined the language of the statute to be clear in its preclusion of the requested extension. Second, the Court looked to its equitable powers under Sections 105(a) and (d) to determine whether the requested extension was permitted. In its analysis, the Court determined, based on Tenth Circuit precedent, that its broad equitable powers may only be exercised in a manner consistent with the express provisions of the Bankruptcy Code. Because the Court previously determined 1121(e) prohibited extension of the 160-day plan filing deadline, the Court determined it could not use its equitable powers to contravene the plain language of Section 1121(e). The Court further determined Fed.R.Bankr.P. 9006(b), and its enlargement provisions, could not trump the substantive provisions provided in the Bankruptcy Code.   Posted 04/09/2004

• Weinman v. Miscio & Stroud, et al., Adv. Pro. No. 03-1109-SBB (In re Steele’s Market, Inc., Bankruptcy Case No. 01-11323-SBB) The Trustee filed a Complaint pursuant to 11 U.S.C. § 547 and 550 to avoid preferential transfers against a corporation (“Corporation”) and two individuals (“Individual Defendants”). The Trustee alleged that Debtor made two separate payments totaling $29,000 to the corporation within ninety days prior to the filing of the bankruptcy petition. The Complaint further alleged that the Corporation subsequently transferred these payments to the Individual Defendants in separate installments.
  
  The Complaint asserted two claims for relief. The first claim contends that the transfer of funds to the Corporation, totaling $29,000, are voidable as a preference pursuant to 11 U.S.C. § 547(b). The second claim in the Complaint states:
  
  In the alternative, the [Corporation] upon receipt of the funds was obligated to immediately disburse the funds to the [two individuals]. Therefore, the Corporation was merely a conduit, and [the two individuals] are initial transferees.
  
  The Trustee alleged that the transfers to the Individual Defendants are voidable as preferences pursuant to 11 U.S.C. § 547(b).
  
  The Corporation did not file an Answer or otherwise plead, but its purported counsel did file a letter with the Court stating that the Corporation “agree[d] to accept the default judgment.” The attorney stated further, in this correspondence, that the Corporation had been dissolved, had not business, no assets, no officers or directors. Thereafter, Default Judgment was entered against the Corporation.
  
  After the entry of the Default Judgment, the Individual Defendants filed a Motion for Judgment on the Pleadings asserting that under the doctrines of election of remedies, claim and issue preclusion, the case must be dismissed as against the Individual Defendants. In a matter of apparent first impression before this Bankruptcy Court, the Court concluded that under the facts and circumstances of this case, that the election of remedies doctrine did not warrant dismissal at this time because: (1) the Plaintiff could not recover twice here, (2) there were many questions and concerns with respect to the authority—if any—the purported counsel for the dissolved Corporation had to accept a Default Judgment and (3) there were questions the Court had regarding the question of whose authority counsel was acting.
  
  The Court further concluded that issue and claims preclusion were not applicable to these proceedings because there was no previous action between the parties and the issue was not previously decided as to the remaining Individual Defendants.   Posted 01/30/2004

• In re Spelts, 03-11988 ABC, Docket # 64, (December 1, 2003) . The issue presented in this Chapter 13 case was whether a debt for I.R.C. §6672 trust fund taxes for which the debtor was liable as a “responsible person” was (a) discharged in a prior Chapter 7 case as a nonpriority penalty, or (b) a debt which survived that discharge and was entitled to priority treatment in the debtor’s Chapter 13 plan. In the debtor’s prior Chapter 7 case, the IRS had filed a priority proof of claim for “trust fund taxes” but labeled them “CIV PEN.” The Chapter 7 trustee in his final report treated that claim as a penalty which was not compensation for actual pecuniary loss and was subject to subordination under section 726(a)(4). The IRS was not paid its priority claim despite the fact that neither the trustee nor the debtor objected to the proof of claim of the IRS. Years later, when the debtor filed his Chapter 13 case, he did not treat the amounts attributable to that claim as a priority debt. The IRS, however, filed its proof of claim which included those trust fund taxes plus interest as a priority claim. The IRS also objected to the debtor’s plan because the plan did not pay the priority claim of the IRS.
  
  The debtor’s position in the Chapter 13 case was that the claim of the IRS was discharged as a penalty for nonpecuniary loss related to an event that occurred before three years before the date of the Chapter 13 petition pursuant to section 523(a)(7)(B). Alternatively, the debtor argued that the IRS was bound by the Chapter 7 trustee’s unilateral action in subordinating the priority claim of the IRS in the final report because the IRS was served with it and did not object. The IRS asserted its entitlement to priority treatment pursuant section 507(a)(8)(C) because the trust fund taxes were not discharged by operation of section 523(a)(1)(A). The Court concluded that the taxes for which the IRS claimed priority status in the Chapter 7 and later Chapter 13 cases were for IRC §6672 trust fund taxes, and they fell squarely within the priority status of section 507(a)(8)(C) as “a tax required to be collected or withheld and for which the debtor is liable in whatever capacity.” The fact that the IRS called the tax a “CIV PEN” was inconsequential. Having so concluded, the Court looked to the language of section 523(a)(1)(A) which excepts such taxes from a 727 discharge “whether or not a claim for such tax was filed or allowed” to further conclude that those taxes were not discharged in the prior Chapter 7 case. The Court also relied on the Tenth Circuit authority of DePaolo v. United States (In re DePaolo), 45 F.3d 373, 376 (10th Cir. 1995) and its construction of the “whether or not a claim for such tax was filed or allowed” language to reject the debtor’s argument that the IRS was bound by the prior Chapter 7 final report. HELD: Debtor’s motion to confirm was denied and the claim of the IRS was allowed.   Posted 01/28/2004

• Lucre Management Group, LLC v. Schempp Real Estate, LLC (In re Schempp Real Estate, LLC); Case No. 03-1927 HRT; Order entered December 19, 2003. The issue in this case was whether to take jurisdiction over a civil case removed to this Court by the Debtor/Defendant shortly after it filed its bankruptcy petition. A little history is in order. The ongoing legal disputes between these, and related, parties has spawned two chapter 11 bankruptcy cases and numerous pieces of civil litigation. The subject of the current litigation is an office condominium project in Adams County, Colorado. Lucre previously owned the property. At least partly due to legal disputes between Lucre and one Mr. Schempp, Lucre defaulted on its deed of trust and the lender started foreclosure proceedings. Lucre filed a short-lived bankruptcy proceeding in 2001. Meanwhile, Mr. Schempp formed Schempp Real Estate, LLC, (“Schempp”) for the purpose of buying that note and deed of trust from the lender. Schempp then obtained a lift on stay in Lucre’s case and foreclosed on the property to become the owner. As one might expect, Lucre then sued Schempp and placed a lis pendens on the property, cutting off Schempp’s ability to market the properties and putting it into financial difficulty. Schempp filed its current bankruptcy case and removed the civil litigation to this Court for determination. Lucre seeks to have the civil case remanded back to state court. This case provides a general discussion of mandatory and discretionary abstention under 28 U.S.C. § 1334(c). Despite Schempp’s attempt to amend its counterclaims asserted in the removed case to recharacterize them as arising under § 544, this litigation involves strictly state court causes of action. The Court found no core bankruptcy matters in this prepetition state court case. As a consequence, the Court’s analysis of the mandatory abstention factors led to a finding that abstention is appropriate. The Court also analyzed discretionary abstention and found that, even if it were not obliged to abstain under § 1334(c)(2), it would use its discretion to abstain under § 1334(c)(1). High on the Court’s list of concerns were: 1) the appearance that Schempp was attempting to invoke this Court’s jurisdiction as nothing more than another litigation strategy in an ongoing legal dispute; and 2) that the interests of comity dictated that the state court is the best forum to decide this case which consisted exclusively of state law issues, including an unsettled “reverse piercing” issue, and that the state court has the strongest interest in addressing issues revolving around real estate within that court’s jurisdiction.   Posted 01/16/2004

• In re Electrical Contracting Services Company; Case No. 03-26582 HRT; Order entered November 6, 2003. In this case, the Court addressed the Debtor’s motion under 11 U.S.C. § 1113(b) to reject its collective bargaining agreement [the “CBA”] with Local 68 of the International Brotherhood of Electrical Workers [the “Union”]. Part of the Debtor’s strategy in the reorganization case is to refocus its business on the market for smaller jobs and service work. It argues that it cannot be competitive in that different market niche if it remains bound to the CBA. Among its other arguments, the Union contended that the motion to reject should be denied because the Debtor took unilateral action to hire replacement workers in violation of § 1113(f) without seeking interim relief from the Court under § 1113(e). The Court did find that the Debtor acted in violation of § 1113(f). However, it rejected a per se rule that would automatically deny relief to the Debtor as a consequence of that violation. The hiring of replacements without seeking interim relief was considered as part of the Court’s analysis of Debtor’s good faith. Given the totality of the Debtor’s actions, the Court ultimately found that the Debtor satisfied the statute’s good faith requirement. But, good faith is only one of the nine elements required under the statute. After examining the remaining elements in light of the evidence, the Court granted the Debtor’s motion.   Posted 01/16/2004

• National Labor Relations Board v. Gordon (In re Gordon); Adversary No. 03-1330 HRT; Order entered December 1, 2003. In this case, the Court denied an NLRB motion for summary judgment. Prior to the bankruptcy, the NLRB obtained a judgment against the Debtor in an administrative proceeding and the Tenth Circuit Court of Appeals issued various orders enforcing that administrative judgment. After the bankruptcy was filed, NLRB filed this adversary action under 11 U.S.C. § 523(a)(6). In its summary judgment motion, NLRB argued that it was entitled to judgment in its favor by means of collateral estoppel. The Court did apply collateral estoppel to make certain findings based upon the judgment in the administrative proceeding. The Court found that Gordon intentionally discharged his union workers; that he did so in order to convert his business from a union operation to a non-union operation; that Gordon committed unfair labor practices under § 8(a) of the NLRA; that his employees were injured by those unfair labor practices; and the amount of damages suffered by those employees. But the factual issue of Gordon’s specific intent was not established by the record in the administrative proceedings. The Supreme Court case of Kawaauhau v. Geiger, 523 U.S. 57, 118 S. Ct. 974 (1998), requires the Court to find that Gordon’s actions were committed with an intent to harm the employees. But, with nothing in the record of the administrative proceedings to establish that specific intent, the Court could not find that NLRB had established all of the elements necessary for it to be entitled to judgment under § 523(a)(6). Nonetheless, the doctrine of collateral estoppel would prevent the Defendant from re-litigating many factual issues that have been previously decided and the remaining issue for trial could be narrowed down to the question of whether Gordon acted with a specific intent to harm his workers.   Posted 01/16/2004

• Congress Financial Corp. v. Airwalk International, LLC (In re Airwalk International, LLC); Case No. 03-32709 HRT; Order entered December 11, 2003. On November 13, 2003, a group of three far eastern footwear and apparel manufacturers filed an involuntary chapter 11 petition against Airwalk International, LLC, (Airwalk) claiming debts in excess of $13 million. Congress Financial (“Congress”), a secured creditor, was in the process of completing a proceeding in New York state to foreclose its security interest in substantially all of Airwalk’s assets. Those assets consist largely of patents, copyrights and licensing agreements. The involuntary petition stayed that proceeding. Following shortly upon the heels of the involuntary petition, this relief from stay action was filed for the purpose of allowing Congress to complete the foreclosure. The relief was vigorously opposed by the proponents of the involuntary petition. As of the petition date, Airwalk owed Congress about $14 million. Sunrise Capital Partners, LP, (“Sunrise”) had a second position lien in the assets and was owed about $91 million. Sunrise is also the 100% owner of Airwalk’s stock and formed the entity which submitted the high bid of $26 million at the foreclosure sale for all of Airwalk’s assets. The Court allowed the objecting creditors to present evidence to support their theories that the Sunrise debt should be equitably subordinated or recharacterized as an equity contribution. But the creditors failed to present persuasive evidence to support those defenses. In light of the apparent value of the assets, as determined by the high bid at the New York foreclosure sale, and the amount of the debt which those assets secured, the Court found no equity in the assets and that no reorganization was in prospect. It granted the relief.   Posted 01/16/2004

Other Opinions of Note*:
(Opinions contained in this section are included for information only and are intended for the interest of local attorneys and practitioners of the Bankruptcy Court for the District of Colorado)

• In re Sharon Epperson, Case No. 03-32027 ABC
  Chapter 7 Trustee and creditor objected to Debtor’s claim that her right to recover damages in state court action against insurance company for alleged wrongful breach of contract was exempt under Colorado statute as “damages for personal injuries.” The Court ruled that the Trustee’s joinder in the creditor’s exemption was timely, thus obviating any issue of creditor’s standing. The Court noted that, under Colorado law, a plaintiff may recover a complete range of non-economic damages for the willful and wanton breach of an insurance contract and that these damages would be exempt as “damages for personal injury” to the extent they were compensation for an injury to the well-being or mental or physical health of the victim. The Court held the matter in abeyance to allow the extent and nature of the Debtor’s claims against the insurance company to be determined in the state court.   Posted 03/16/2005

• In re Raouf Bugaighis; Case No. 03-12112 (chapter 7); Order entered November 5, 2004.
  The focus of the Debtor’s efforts in this case has been to salvage some value from a business deal gone spectacularly bad. After the Debtor’s pizza business was shut down by the Colorado Department of Revenue for overlooking its tax obligations, the Debtor entered into a deal to sell the business to a white knight (or the devil, depending upon your perspective). The Debtor sold the business for the amount of past-due state taxes and retained an option to buy back a minority interest. The business relationship between the Debtor and the purchaser quickly soured. The Debtor originally filed a chapter 13 case and filed an adversary action against the purchaser to rescind the deal and for damages. The Debtor later converted the case to chapter 7 and, after the conversion, the Chapter 7 trustee assumed control of the adversary case. The trustee reached a settlement with the purchaser and moved for approval. The Debtor objected to the proposed settlement and the Court held this hearing on the objection.   Posted 02/17/2005

• Lakeside at Pole Creek, et al. v. Tabernash Meadows, LLC, et al.; Case No. 03-1899 HRT; Order entered February 15, 2005.
  Tabernash, the Debtor, entered into an agreement to sell 28 subdivision lots to Lakeside. A liquidated damages provision in the agreement called for a $250,000.00 letter of credit to be provided by Lakeside to secure its performance. Before Lakeside could complete purchase of the lots, a foreclosure was initiated against the property. In addition, Disputes arose between the parties, both prior to and during the main bankruptcy case, and the Debtor refused to sell additional lots absent a resolution of those disputes. Because Lakeside was unable to close on lot purchases within the time frame set out in the purchase agreement, and despite the fact that it was the Debtor’s own actions which caused that failure, the Debtor sought to collect the $250,000.00 letter of credit. This case requires the Court to examine the “independence principal” with respect to letters of credit and involves the interaction of letter of credit law under the U.C.C. and executory contract law under the Bankruptcy Code.   Posted 02/17/2005

• In re EZ Links Golf,LLC, Case No. 04-28150-SBB
  Counsel sought employment as Debtor’s counsel in a Chapter 11 case. Counsel disclosed that it received a $25,000 retainer from “an affiliate of the Debtor” which turned out to be the sole member of the Debtor LLC. In addition, counsel stated that it presently represents a bank creditor of the Debtor and a gentleman “who may be an insider of the Debtor...” The parties whom the firm represented agreed to waive any conflict or potential conflict, provided that the firm cannot represent a party seeking affirmative relief against them. After a status and scheduling conference in the Chapter 11 case, the Court requested further disclosures and definitions regarding the relationships of the parties and the law firm. The original application and amended application and disclosures did not reveal, fully, that the bank was owed $1.1 million at the time of filing and that it was owned by a trust, the sole beneficiary of which was the aforementioned man “who may be an insider of the Debtor” who owned 50% of a corporation which owns 80% of the outstanding shares of the sole member of the Debtor LLC. Disclosures were also not forthcoming that the sole member of the Debtor LLC was also a co-obligor on the loan to the bank and that this sole member also may be liable for significant tax debt of the Debtor. The Court concluded that the variety of important and consequential connections with parties who are integral to and somewhat inseparable from the Debtor was not fully disclosed and that counsel was not disinterested.   Posted 12/10/2004

• In re: Sharon Kay Ruetz; Case No. 04-16216 HRT (chapter 7); Order entered December 2, 2004.
  This is an action where the Trustee moved for turnover of a real estate sales commission received by the Debtor postpetition but which was related to a prepetition sale contract. The Court found that the commission was property of the estate because it was earned prepetition. The Court rejected the Debtor’s contention that the full value of the commission did not become property of the estate because many unsatisfied contingencies existed with respect to the sale contract on the petition date.   Posted 11/29/2004

• In re Anita J. Wappes; Case No. 04-30153 HRT (chapter 7); Order entered November 10, 2004.
  Ms. Wappes is a frequent filer. In 2001, she received a chapter 13 discharge after completion of her plan. This case is the fourth in a string of somewhat less successful cases filed within the past two years. In all of these recent cases, Ms. Wappes has taken advantage of her ability, under the Rules, to pay filing fees in installments. All three of the most recent prior cases were dismissed for failure to pay filing fees. In this order, the Court explores the options available to sanction and discourage abusive filings.   Posted 11/29/2004

• LaFarge West, Inc. f/k/a Western Mobile Southern, Inc., d/b/a LaFarge Southern v. Patrick G. Riley and Ralph W. Walker, Case No. 03-1082 ABC, Docket #119 (September 17, 2004).
  Concrete supplier brought an adversary proceeding against the Chapter 7 debtors (who were principals of subcontractor) seeking to establish that a $192,878.48 debt arising from a breach of the Colorado mechanic’s lien trust fund statute (C.R.S. § 38-22-127) was nondischargeable under 11 U.S.C. § 523(a)(4). In concluding that $160,276.50 of this debt was nondischargeable, the Court held (i) preserving mechanic’s lien rights is not a requisite to a claim under the mechanic’s lien trust fund statute; (ii) where a supplier has identified trust funds disbursed to a subcontractor on multiple properties, the subcontractor must account for disposition of those trust funds on a property-by-property basis or face liability to the supplier to the extent it cannot; (iii) the Colorado Supreme Court’s ruling in Leonard v. McMorris, 63 P.3d 323 (Colo. 2003) does not extend to relieve corporate officers from individual liability when a corporation has breached its fiduciary duties under C.R.S. § 38-22-127, and the officers have been in a position of full control of the corporation’s financial affairs.   Posted 10/08/2004

• Stetson Ridge Associates, Ltd. and Tri-C Construction Co., Inc. v. Ralph W. Walker, Case No. 03-1317 ABC, Docket #55 (September 17, 2004).
  Owner and general contractor on an apartment project brought an adversary proceeding against the Chapter 7 debtor (who was a principal of subcontractor) seeking to establish that a debt arising from breach of the Colorado mechanic’s lien trust fund statute (C.R.S. § 38-22-127) was nondischargeable under 11 U.S.C. § 523(a)(4). The Court dismissed plaintiffs’ claims, holding that owners and general contractors are without standing under C.R.S. § 38-22-127. The Court declined to follow an earlier ruling of this Bankruptcy Court which had reached the opposite conclusion. In re Specialized Installers, Inc., 12 B.R. 546 (Bankr. Colo. 1981)   Posted 10/08/2004

• Timothy Duca v. Shannon Duca (In re Shannon Duca); Case No. 03-2161 HRT; Order entered August 9, 2004.
  This case went to trial as a § 523(a)(5) action to find a hold harmless provision in a divorce decree nondischargeable as a debt for maintenance and support. The Court found the provision to be part of the property settlement and discharged the obligation. The Court discusses the effect of the parties' pre-trial statement to set the scope of the trial and the non-admissibility of evidence going to issues not appearing in the pre-trial statement. The Court also discusses the standards for finding a provision in a divorce decree to be support-related and the effect of language in the decree purporting to determine the nature of an obligation for purposes of Title 11.   Posted 10/08/2004

• In re Denver Community Development Credit Union; Case No. 04-23761 HRT (involuntary chapter 11); Order entered October 5, 2004.
  In this case, an involuntary petition was filed and later dismissed on the basis that a credit union may not be a debtor under the § 109 of the Bankruptcy Code. The successor in interest of the alleged debtor filed a motion for sanctions against both the petitioning creditor’s counsel and against a board member of the petitioning creditor. The motion requested relief under both § 303(i) and under Rule 9011. Under the circumstances, the Court found that sanctions would generally be in order, but it ultimately denied the sanctions request. The denial was based on a failure of the movant’s evidence as to the amount of fees and costs.   Posted 10/08/2004

• In re Denver Community Development Credit Union; Case No. 04-23761 HRT (involuntary chapter 11); Order entered October 5, 2004.
  In this case, an involuntary petition was filed and later dismissed on the basis that a credit union may not be a debtor under the § 109 of the Bankruptcy Code. The successor in interest of the alleged debtor filed a motion for sanctions against both the petitioning creditor’s counsel and against a board member of the petitioning creditor. The motion requested relief under both § 303(i) and under Rule 9011. Under the circumstances, the Court found that sanctions would generally be in order, but it ultimately denied the sanctions request. The denial was based on a failure of the movant’s evidence as to the amount of fees and costs.   Posted 10/08/2004

• In re Barbara Jean Boan, Case No. 02-17613-SBB
  In a case of first impression, the Court concluded that 11 U.S.C. § 726(a) is an exception to the general rule under Colorado law—and common law—that a creditor may apply payments on a debt in any way it pleases.
  
  Specifically, the Court concluded that 11 U.S.C. § 726(a)(1), (2), (3) and (4) breaks up claims into essentially two portions: (1) the portion(s) constituting compensation for an actual pecuniary loss and (2) the portion(s) constituting a penalty for wrongdoing. Consequently, where a creditor reaches a settlement with a trustee in a bankruptcy case, it must apply the sums to its claim in accordance with section 726 and not as it pleases and as allowed under state law in the absence of bankruptcy.   Posted 08/25/2004

• Bank One Delaware, NA f.k.a. First USA v. Johnny D. Hamilton (In re Hamilton), Adversary Proceeding No. 04-01560-SBB
  Plaintiff brought a complaint, generally, under 11 U.S.C. § 523(a)(2)--that is, it did not expressly set forth if it was relying on section 523(a)(2)(A), (B) or (C). Defendant brought a Motion to Dismiss and Motion for Summary Judgment noting the flaws in the complaint and seeking dismissal of the case for the reason that the transfer in question was a balance transfer from one credit card to another and that no charges were incurred in the 60 days before filing.
  
  The Plaintiff did not respond to the Motion to Dismiss and Motion for Summary Judgment, but did file a letter with the Court indicating that a settlement may be filed in the near future. No formal request to stay these proceedings was filed, however. After the passage of over 25 days after receipt of the letter, no further pleadings were filed by the Plaintiff. In the absence of any contradictory evidence, the Court concluded that this debt did not fall into the type of debt that would not be dischargeable under 11 U.S.C. § 523(a)(2)(C) because: (1) no credit card charges were incurred in the 60 days prior to filing and (2) in accordance with In re Poor, 219 B.R. 332, 336 (Bankr.D.Me. 1998), and the facts of this case, the credit card balance transfer did not constitute a cash advance for the purpose of 11 U.S.C. § 523(a)(2)(C).  Posted 08/25/2004

• In re: Chamness; Case No. 03-35099 HRT; Oral ruling entered on the record May 28, 2004.
  Chapter 7 Debtor objected to a motion to extend the deadline to file a complaint to dismiss Debtor's case under § 707(b) filed by the United States Trustee ["UST"]. After a contested hearing on the motion, the Court allowed the extension of the deadline. Cause for the extension under Rule 1017(e) existed both 1) because the case had been selected for a detailed audit under a pilot Debtor Audit Program and the UST was proceeding, pursuant to its statutory duties, to conduct that audit; and 2) notwithstanding the audit program, the UST acted diligently in investigating the activities of the Debtor under the facts and circumstances of the case.  Posted 07/22/2004

• In re: Phouminh; Case No. 03-26899 HRT; Oral ruling entered on the record June 10, 2004.
  Chapter 7 Debtor objected to a motion to extend the deadline to object to Debtor's discharge filed by the United States Trustee ["UST"]. After a contested hearing on the motion, the Court allowed the extension of the deadline. In this case, the UST did not have reason to investigate the Debtor until it sat in on a creditor's 2004 exam of the Debtor conducted seven days before the complaint deadline expired. Rule 4004(b) requires "cause" for an extension. While the Court does not necessarily endorse a "liberal" policy with respect to the granting of such extensions, it granted the motion. Cause existed because the UST is required by statute to investigate the activities of the Debtor when information to justify such investigation comes to its attention. The UST had no control over the fact that information, not apparent from the schedules, came to its attention just a few days before expiration of the complaint deadline. The Court found that the UST acted diligently, under the circumstances of the case.  Posted 07/22/2004

• In re: Castre, Inc.; Case No. 03-22159 HRT; Oral ruling entered on record May 28, 2004.
  Motion, pursuant to § 363, to sell virtually all of Debtor's assets. After soliciting offers, Debtor selected a "stalking horse" bid from All Copy Products, Inc., ["All Copy"] for the assets and gave notice of the planned sale. Advanced Copy Systems, Inc. ["Advanced"] submitted a competing bid and the Debtor conducted an auction sale. At the conclusion of protracted bidding, Debtor selected the bid of All Copy as the winning bid. The Court characterized the winning bid as a "leveraged buy-out" of the assets because All Copy will draw down an existing line of credit to make the down payment and would pay the remainder over 12 months depending, in large part, on future operations of the Debtor's assets for the payment. By contrast the competing Advanced bid was not dependent on any financing for the down payment and would be fully paid in four months without depending on future operation of the purchased assets. However, the total bid of All Copy was the highest bid. While the Court acknowledged that the risk involved in the All Copy bid may have caused the Court to choose differently than the Debtor did, the Court was obliged to approved the Debtor's decision so long as the Debtor could demonstrate that it exercised sound business judgment. Despite some concerns regarding the All Copy Bid, the Court approved the sale because a debtor-in-possession is entitled to great judicial deference in exercising its business judgment. The evidence demonstrated that the Debtor had adequately considered the bids and explained its reasons for choosing the All Copy bid.  Posted 07/22/2004

• In re: Global Water Technologies, Inc.; Case No. 03-19278 HRT; Order entered July 1, 2004.
  The Debtor moved for confirmation of its chapter 11 plan and the Securities and Exchange Commission ["SEC"] and United States Trustee ["UST"] objected. The Debtor was engaged in the business of providing water treatment programs for commercial cooling water systems. Debtor lost a significant part of its business after the Enron bankruptcy because it had large contracts with an Enron subsidiary. In 2003, Debtor sold off one of its wholly owned subsidiaries in an effort to maintain its core business. Debtor alleges that the buyer failed to perform on the purchase contract and, as a result, debtor ceased its operations and filed a chapter 11 case. Debtor's most significant asset is its cause of action against the buyer of its subsidiary business. Debtor's plan involves the proposed auction sale of the cause of action with the Debtor to receive a share of any recovery. Creditors would be paid from proceeds of the lawsuit. Debtor's plan provides for it to resume its business operations. The plan was approved by a vote of the creditors. Grounds for the objections included 1) that the plan provides for a discharge in violation of § 1141(d)(3); 2) bad faith; and 3) feasibility. The Court agreed with the objectors that the plan, in effect grants the Debtor a discharge, but found that Debtor's plan to resume business operations takes the case outside the ambit of § 1141(d)(3). The Court further found the plan to be proposed in good faith and to be feasible. The Court confirmed the plan. The primary thrust of the objections was the concern that the post-petition Debtor would be a shell public corporation cleansed of liabilities by the bankruptcy. By merging with such a shell, a private corporation may "go public" and avoid some of the SEC disclosure regulations. But the Debtor's plan complied with the plain language of the statute and the fact that the post-petition Debtor may be an attractive merger candidate for those reasons could not form a basis for denial of confirmation to a Debtor who met all statutory confirmation requirements.  Posted 07/22/2004

• The Nobelman/Tanner Debate–Can a Chapter 13 debtor seek to modify the rights of a lender secured only by the debtor’s principal residence when the lender makes a wholly unsecured loan against the residence in the first instance?
  Judge Campbell in three unpublished rulings has: (1) dismissed an adversary case seeking to avoid such a lien relying on the language of section 506(a) of the Code which requires such valuation to be determined “in conjunction with any hearing . . . on a plan affecting such creditor’s interest,” (Smith v. Beneficial Mortgage of Colorado, 03-1390 ABC, Docket # 28 (March 31, 2004)); (2) denied a motion to confirm containing the same provision, refusing to follow Tanner v. Firstplus Financial, Inc., 217 F.3d 1357 (11th Cir. 2000) and its progeny ( In re Anderson, 03-24723 ABC, Docket # 31 (March 29, 2004)); and (3) denied a motion to void lien pursuant to section 506(d), again relying on the language of section 506(a) of the Code (In re Anderson, 03-24723 ABC, Docket # 41 (May 17, 2004)).  Posted 07/22/2004

• In re Randall Clarence Cromer; Case No. 03-23512 HRT; Order entered March 1, 2004.
  The Court sustained the objection of a major unsecured creditor and denied confirmation of Debtor’s chapter 13 plan after a contested hearing on the motion to confirm. The creditor objected on the basis of feasibility and bad faith. The basis for the Court’s denial was feasibility under § 1325(a)(6) and failure to present complete evidence of income and expenses to demonstrate compliance with § 1325(b)(2)(B) and also demonstrate feasibility. The fact that Debtor claimed to have filed his case to deal his tax problems, yet had failed to pay estimated taxes post-petition, was a factor weighing against confirmation. He also failed to explain what happened to significant funds budgeted for housing which he did not need to use for that purpose.  Posted 04/15/2004

• Loretta Partee v. Albert Leon White and Gwendolyn Juanita White (In re Albert Leon White and Gwendolyn Juanita White; Case No. 03-15860 HRT; Order entered March 12, 2003.
  Partee moved for lift of stay to pursue litigation in state court against the Debtors. The opinion contains a discussion of the Curtis factors used to analyze motions for stay relief in order to litigate in another venue. Several Curtis factors applied and weighed in favor of granting relief. A major consideration was the fact that this is a chapter 7 no asset case where the Debtors had enjoyed the benefits of the automatic stay for 11 months. None of the interests which the automatic stay is designed to advance could be served by maintenance of the stay in this case.  Posted 04/15/2004

• Jon S. Nicholls v. Gladys L. Jones (In re Keith Alan Jones); Case No. 03-1203 HRT; Order entered February 5, 2004.
  The Court denied the Trustee a recovery in this preference action. The creditor is Debtor’s mother rather than a commercial creditor. Debtor is also her attorney in fact and holds a power of attorney for her because she has multiple medical problems – including Alzheimer’s. The evidence at trial indicated that the money transferred from the Debtor to his mother was in connection with his receipt of medical insurance benefits on her behalf and not in connection with the debt which he owed to her.  Posted 04/15/2004

• In re Antonio Tim Broadus and Beverly Kay Broadus; Case No. 03-16471 HRT; Order entered March 5, 2004.
  The Court addressed the Debtors’ objection to the IRS claim in connection with a hearing on their motion to confirm their chapter 13 plan. The Debtors’ claim objection was denied along with confirmation. The opinion contains some discussion of the shifting burden of proof with respect to a proof of claim. Even though the claimant bears the ultimate burden, the objecting party must make a prima facie case with respect to the basis for their objection before the burden shifts to the claimant. In this case, Debtors’ testimony was inconsistent with information contained in their schedules and was wholly uncorroborated by documentary evidence. They failed to make a prima facie case with respect to their objection.  Posted 04/15/2004

• In re Stairs, 02-28453 MER, Docket # 112, (February 5, 2004).
  The issue presented in this Chapter 13 case was whether a Debtor who converted his Chapter 7 case to Chapter 13 was eligible for Chapter 13 relief pursuant to 11 U.S.C. 109(e). In the Debtor’s Chapter 7 case, two adversary proceeding were filed against the Debtor and his non-debtor spouse. In partial response to the two adversary proceeding the Debtor converted his case to Chapter 13. Thereafter, while in Chapter 13, the creditor’s obligation was substantially reduced. Subsequent to the conversion the Standing Chapter 13 Trustee and the United States Trustee lodged objections asserting the Debtor’s prepetition debts exceeded the amount allowed under 11 U.S.C. § 109(e). In its analysis the Court determined, pursuant to Section 109(e), prepetition debts are to be determined on the date of filing the original petition and not on the date of the conversion of the Debtor’s Chapter 7 case to Chapter 13 or at a later time. The Court looked primarily to the Debtor’s schedules and the timely-filed proofs of claim in the case and determined the Debtor’s debts exceeded the statutory amount allowed at the time the Debtor filed his Chapter 7 case. The Court determined, because the Debtor was not eligible to convert his Chapter 7 case to Chapter 13, he could not properly be a debtor under Chapter 13 and his alleged conversion was void ab initio.  Posted 04/09/2004