Justia U.S. 10th Circuit Court of Appeals Opinion Summaries

Articles Posted in Bankruptcy
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Eric Rajala, the bankruptcy trustee for Generation Resources Holding Company, LLC, initiated separate adversary proceedings against Spencer Fane LLP and Husch Blackwell LLP (collectively, “the firms”) to recover legal fees he alleged were proceeds of a fraudulent transfer. The bankruptcy court denied the firms’ motions to dismiss, but then certified the decisions for immediate appeal. The Tenth Circuit consolidated the appeals and agreed to hear them on an interlocutory basis. The Tenth Circuit concluded that because the firms were not “transferees,” as that term is used in 11 U.S.C. 550, the Court reversed and remanded with instructions to dismiss Rajala’s adversary complaints. Consequently, Rajala may not recover the fees from the firms. View "Rajala v. Spencer Fane" on Justia Law

Posted in: Bankruptcy
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Appellant Tom Connolly, the trustee for the Chapter 7 case of Appellee Samuel Morreale, sought compensation based upon moneys disbursed in Morreale’s Chapter 7 case and in a related Chapter 11 case. Morreale owned the sole membership interest in Morreale Hotels, LLC (Hotels LLC), which in turn owned two properties in Denver, Colorado. Morreale also acted as Hotels LLC’s manager and personally guaranteed certain loans that Hotels LLC obtained on the properties it owned. In 2012, Hotels LLC filed a petition for Chapter 11 bankruptcy protection and pursued reorganization. In 2013, Morreale filed his own Chapter 11 bankruptcy petition, which the bankruptcy court later converted to Chapter 7. The U.S. Trustee appointed Connolly as the Chapter 7 trustee in the Chapter 7 Case. As trustee, Connolly assumed Morreale’s membership interest in Hotels LLC. Exercising that interest, Connolly appointed himself the new manager of Hotels LLC, thereby replacing Morreale. The bankruptcy court approved this replacement. Connolly abandoned reorganization of Hotels LLC and decided instead to liquidate Hotels LLC’s properties. In his application for compensation, Connolly sought $260,000, an amount based on the moneys disbursed in both the Chapter 7 Case and to creditors who also held claims in the Chapter 11 Case. The bankruptcy court and the Tenth Circuit’s bankruptcy appellate panel (the BAP) both rejected Connolly’s request, concluding that the language of 11 U.S.C. section 326(a) did not support it. After review, the Tenth Circuit Court of Appeals agreed that the plain language of section 326(a) permitted awarding compensation to a Chapter 7 trustee based only on moneys disbursed in the case in which that trustee served, and not on moneys disbursed in a related Chapter 11 case in which the trustee did not serve. View "Connolly v. Morreale" on Justia Law

Posted in: Bankruptcy
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Debtor Abengoa Bioenergy Biomass of Kansas (ABBK), an American subsidiary of the Spanish engineering conglomerate, Abengoa, S.A., financed construction of an ethanol conversion facility in Hugoton, Kansas. Financing was accomplished through inter-company loans from other American subsidiaries of Abengoa, S.A. ABBK experienced financial difficulties and eventually filed for bankruptcy protection in Kansas. Four other Abengoa subsidiaries filed for bankruptcy protection in Missouri. The ABBK trustee pursued a plan of liquidation, which classified the inter-company loans ABBK had received beneath claims of general unsecured creditors, effectively ensuring no recovery for inter-company creditors. Acting as liquidating trustee in the Missouri bankruptcy, Drivetrain, LLC objected to this plan of liquidation. The bankruptcy court nevertheless confirmed the plan. Drivetrain sought a stay of enforcement and implementation of the plan of liquidation, pending appeal to the district court. But both the bankruptcy court and the district court, on appeal, denied Drivetrain’s motion for a stay. At this point, the ABBK trustee began to implement the plan, paying priority claims and distributing settled unsecured claims. After substantially consummating the plan, the ABBK trustee moved to dismiss Drivetrain’s appeal of the confirmed plan as equitably moot. The district court granted that motion, citing the potential harm that innocent third-party creditors would face from unwinding the plan at this juncture. Drivetrain appealed, but the Tenth Circuit affirmed, finding the district court did not abuse its discretion in concluding the potential harm to innocent third-party creditors justified this dismissal. View "Drivetrain v. Kozel" on Justia Law

Posted in: Bankruptcy
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Rumsey Land Company, LLC (“Rumsey”) owned a property subject to a first deed of trust held by Pueblo Bank & Trust Company, LLC (“PBT”). In 2010, Rumsey filed for bankruptcy. Resource Land Holdings, LLC (“RLH”) offered to purchase the property, but the bankruptcy court did not approve the sale. Shortly thereafter, PBT purchased the property at a bankruptcy auction. PBT then transferred the land to RLH. In 2015, Rumsey discovered that during the bankruptcy proceedings, RLH had entered a loan purchase agreement to purchase PBT’s interest in the property. The agreement eventually led to litigation in state court between RLH and PBT, which culminated with a settlement agreement allowing RLH to purchase Rumsey’s property from PBT for $4.75 million. Rumsey believed the loan agreement, lawsuit, and settlement influenced the price at its bankruptcy auction. It initiated this adversarial proceeding in bankruptcy court against RLH and PBT (collectively “Defendants”), alleging: (1) fraudulent concealment in violation of state law; and (2) collusive bidding activities in violation of 11 U.S.C. 363(n). The case was transferred to federal district court, which granted summary judgment to defendants on both claims. The Tenth Circuit affirmed finding: (1) Rumsey forfeited its arguments about PBT’s duty to disclose its transaction with RLH and did not argue plain error on appeal; and (2) in the section 363(n) collusive bidding claim, it was time-barred by a one-year limitations period in Federal Rule of Civil Procedure 60(c)(1), and Rumsey failed to demonstrate a genuine dispute of material face as to whether Defendants intended to control the sale price at the bankruptcy auction. View "Rumsey Land Company v. Resource Land Holdings" on Justia Law

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Gregory and Andrea Chernushin owned a second home in Colorado in joint tenancy with right of survivorship. Eventually, Mr. Chernushin (not Ms. Chernushin) filed for bankruptcy. During the bankruptcy proceedings, Mr. Chernushin died. The bankruptcy trustee, Robertson Cohen, then filed an adversary complaint against Ms. Chernushin, seeking to sell the home. Ms. Chernushin argued the bankruptcy estate no longer included any interest in the home because Mr. Chernushin’s joint tenancy interest ended at his death. The bankruptcy court agreed with Ms. Chernushin, as did the district court on appeal. The trustee appealed, but the Tenth Circuit concurred the bankruptcy estate had no more interest in the home than Mr. Chernushin and Mr. Chernushin’s interest extinguished when he died. View "Cohen v. Chernushin" on Justia Law

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Debtor Mark Taylor sought to avoid a set of liens that the William F. Sandoval Irrevocable Trust (the “Trust”) recorded on his home, which Taylor jointly owned with his former wife. The Bankruptcy Code provided that a debtor may avoid certain liens that impair an exemption, and set forth a formula to determine the extent to which an exemption is impaired. At issue before the Tenth Circuit Court of Appeals was how that formula applied to a homestead exemption when a home is jointly owned with a non-debtor. Based on the plain language of 11 U.S.C. 522(f) and the structure of the Bankruptcy Code as a whole, the Court concluded the impairment calculation had to use the value of other liens on the home corresponding to the debtor’s percentage of ownership, rather than the full amount of the liens. View "William F. Sandoval Trust v. Taylor" on Justia Law

Posted in: Bankruptcy
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This appeal arose out of a bankruptcy adversary proceeding, and centered on the ownership of a federal tax refund. The tax refund was issued by the Internal Revenue Service (IRS) to United Western Bancorp, Inc. (UWBI), a thrift holding company that had, under the terms of a written “Tax Allocation Agreement,” filed consolidated returns on behalf of itself and several subsidiary corporations. The tax refund was the result, however, of net operating losses incurred by United Western Bank (the Bank), one of UWBI’s subsidiaries. Simon Rodriguez, in his capacity as the Chapter 7 Trustee for the bankruptcy estate of UWBI, initiated this adversary proceeding against the Federal Deposit Insurance Corporation (FDIC), as receiver for the Bank, alleging that the tax refund was owned by UWBI and was thus part of the bankruptcy estate. The bankruptcy court agreed and entered summary judgment in favor of the Trustee. The FDIC appealed to the district court, which reversed the decision of the bankruptcy court. The Trustee appealed the district court’s decision. The Tenth Circuit agreed with the district court that the tax refund belonged to the FDIC, as receiver for the Bank. Consequently, the Court affirmed the district court and remanded to the bankruptcy court for further proceedings. View "Rodriguez v. FDIC" on Justia Law

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Plaintiffs Adrian and Angela Lee asked the bankruptcy court to declare that the automatic stay in Adam and Jennifer Peeples’ bankruptcy case applied to a separate lawsuit Adrian Lee filed in state court against defendant Scott McCardle. The Lees also asserted that the automatic stay prevented McCardle from collecting attorney’s fees levied against Adrian Lee in that state-court lawsuit. The Lees sought damages against McCardle for willfully violating the automatic stay. The bankruptcy court found, and the district court agreed, that the automatic stay didn’t apply to the state-court lawsuit, thus granting summary judgment to McCardle. The Lees appealed, arguing that the district court erred in ruling that the automatic stay didn’t apply. The Tenth Circuit did not reach that question; instead, the Court vacated the district court’s judgment against Angela Lee because she lacked Article III standing to bring this lawsuit, and affirm summary judgment against Adrian Lee because his claims didn’t fall within the Bankruptcy Code’s “zone of interests.” View "Lee v. McCardle" on Justia Law

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The Bankruptcy Appellate Panel (BAP) concluded the bankruptcy court correctly declined to apply the doctrine of marshaling in favor of a secured creditor, because the common debtor requirement imposed by Colorado law was not satisfied. This appeal arose out of an adversary proceeding brought by the trustee of a Chapter 7 bankruptcy estate to determine how to divide the proceeds from the sale of the debtor’s real property. The BAP concluded the bankruptcy court did not err in determining the bankruptcy estate was entitled to retain the proceeds from the sale of the property subject to a home equity line of credit lien, or in determining the amount due under that lien. But the BAP found the bankruptcy court erred under 11 U.S.C. 506(c) by surcharging the secured collateral (and thereby reducing a secured creditor’s share) for expenses incurred contesting the validity of that secured creditor’s lien. The Tenth Circuit conducted a complete and independent review, and with several caveats, affirmed the BAP’s judgment and formally adopted its opinion. View "Bryan v. Clark" on Justia Law

Posted in: Bankruptcy
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Plaintiffs-appellants David and Lee Ann Lankford unwittingly invested in a Ponzi scheme operated by Vaughan Company Realtors (VCR), wherein investors paid money to VCR in return for interest-bearing promissory notes. After the Ponzi scheme collapsed, VCR filed for bankruptcy under Chapter 11 of the Bankruptcy Code. Unlike many others, the Lankfords actually profited from their investment. So the court-appointed trustee of VCR’s bankruptcy estate, Judith Wagner, brought an adversary proceeding against them in the United States Bankruptcy Court for the District of New Mexico. Through this and related “clawback” proceedings, the trustee sought to avoid, or undo, pre-bankruptcy fraudulent transfers and thus recoup fictitious profits from investors with net gains for the benefit of all of VCR’s creditors. The Lankfords filed this lawsuit against the bankruptcy trustee and her counsel without first applying for and receiving permission under "Barton v. Barbour," (104 U.S. 126 (1881)), and its progeny (the “Barton doctrine”). The district court concluded that "Barton" barred the suit and dismissed for lack of subject matter jurisdiction. Finding no reversible error, the Tenth Circuit Court of Appeals affirmed. View "Lankford v. Wagner" on Justia Law