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

Articles Posted in Bankruptcy
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Appellant Victor Kearney was the lifetime income beneficiary of two spendthrift trusts when he filed for bankruptcy in 2017. The United States Trustee’s office appointed an unsecured creditors committee (“UCC”) which proposed a reorganization plan contemplating a one-time trust distribution to pay off appellant's debts. After a New Mexico state court modified the trusts to authorize the distribution, the bankruptcy court approved the plan. Appellant appealed. The Bankruptcy Appellate Panel (“BAP”) of the Tenth Circuit concluded that the bankruptcy court did not deny appellant due process, made no errors in its findings of fact, and did not abuse its discretion in settling appellant's claims. On appeal of that decision, appellant argued that using spendthrift trust assets to fund the reorganization plan violated the trusts’ spendthrift provision and the law, and that approving the settlement of his claims amounted to an abuse of the bankruptcy court’s discretion. Finding no reversible error, the Tenth Circuit affirmed the BAP. View "Kearney v. Unsecured Creditors Committee" on Justia Law

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This case arose from a bankruptcy filing by Thomas Crow, who owned substantial property and investment accounts in Wyoming. His bankruptcy petition sought an exemption for approximately $2 million contained in a Fidelity account, which he claimed was jointly held with his wife (who did not file for bankruptcy) and therefore was shielded from creditors under Wyoming law. The Trustee and a creditor, Radiance Capital Receivables Nineteen, L.L.C., objected to the claimed exemption. After a hearing, the bankruptcy court upheld the exemption, and a Bankruptcy Appellate Panel (BAP) affirmed. On appeal, Radiance appealed the BAP’s affirmance. Crow argued the Tenth Circuit lacked jurisdiction over this appeal because the BAP’s affirmance of the bankruptcy court’s ruling on the claimed exemption was not “final” within the meaning of 28 U.S.C. 158(d)(1). Radiance also challenged the BAP’s affirmance of the bankruptcy court’s ruling that an adversary proceeding was required to determine the amount of joint debt held by the Crows before any portion of the Fidelity account must be turned over to the Trustee. Finding it had jurisdiction, and deciding on the merits, the Tenth Circuit Court of Appeals affirmed. Applying Wyoming law, Court concluded the Crows jointly held the Fidelity account with a right of survivorship (“tenancy by the entirety” at common law) and was therefore exempt from the bankrupt estate. Furthermore, the tenancy by the entirety was not severed by the Crows’ subsequent conduct. The Court determined Radiance lacked standing to challenge that portion of the BAP’s ruling with regard to the adversary proceeding, and therefore dismissed that aspect of its appeal. View "Radiance Capital v. Crow" on Justia Law

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Plaintiffs-appellees Byron and Laura McDaniel claimed they discharged some private student loans in their Chapter 13 bankruptcy. Defendant-Appellant Navient Solutions, LLC (“Navient”), the loans’ creditor, moved to dismiss the McDaniels’ claim under Federal Rule of Civil Procedure 12(b)(6), contending that the loans were excepted from discharge under 11 U.S.C. 523(a)(8)(A)(ii). This case raised a question of first impression to the Tenth Circuit of whether an educational loan constituted “an obligation to repay funds received as an educational benefit,” within the meaning of section 523(a)(8)(A)(ii). The Court concluded that it did not, therefore, the Court affirmed the bankruptcy court’s interlocutory order denying Navient’s motion, and remanded the case for further proceedings. View "McDaniel v. Navient Solutions" on Justia Law

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Eric Wagenknecht and his wife, Susan Colbert, filed for relief under Chapter 13 of the Bankruptcy Code in January 2016 (the “Petition Date”). The case was converted to Chapter 7 in April 2017. Jared Walters was appointed as the Chapter 7 trustee for the estate (the “Trustee”). Prior to the Petition Date, the Law Firm provided legal services to Eric. By the end of 2015, Eric owed the law firm of Stevens, Littman, Biddison, Tharp & Weinberg, LLC (the “Law Firm”) over $20,000. Eric borrowed money from his mother to pay the Law Firm, and executed a promissory note to repay her. In January 2018, the Trustee initiated an adversary proceeding against the Law Firm. The Trustee alleged that the payment to the Law Firm was a preferential transfer under 11 U.S.C. 547. The Trustee therefore sought to avoid and recover the payment under 11 U.S.C. sections 547 and 550. The parties cross-moved for summary judgment, and the bankruptcy court entered an order denying the Law Firm’s motion for summary judgment and granting the Trustee’s cross-motion for summary judgment. The Tenth Circuit reversed, finding that because Eric did not exercise control or dominion over the payment to the Law Firm, and because the payment did not diminish Eric’s bankruptcy estate, the payment did not constitute a “transfer of an interest of the debtor in property” under section 547(b). Therefore, the bankruptcy court erred in entering summary judgment in favor of the Trustee. View "Walters v. Stevens, Littman, Biddison" on Justia Law

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Attorney Ruston Welch received approximately $350,000 in fees for representing David and Terry Stewart in their Chapter 7 bankruptcy proceedings. This appeal stemmed from Welch's failure to disclose his fee arrangements and payments until ordered to do so by the bankruptcy court more than two years after he should have disclosed his fee agreement, and more than a year after he should have disclosed the payments. For these violations the bankruptcy court sanctioned Welch, requiring him to pay $25,000 to the bankruptcy estate. The bankruptcy appellate panel (BAP) affirmed the sanction after the Stewarts’ largest creditor, SE Property Holdings (SEPH), which had initiated the proceedings as an involuntary bankruptcy, challenged the sanction as so inadequate as to constitute an abuse of discretion. SEPH appealed that decision. The Tenth Circuit concurred, reversed and remanded the matter for further consideration. "The presumptive sanction ... is forfeiture of the entire fee. For good reason the bankruptcy court can impose a lesser sanction. But the court thus far has not provided good reason. It assumed facts that were not in evidence and, most importantly, apparently assumed good faith without examining the possible motives for nondisclosure." View "SE Property Holdings v. Stewart" on Justia Law

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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