Justia Bankruptcy Opinion Summaries

The debtor in this case voluntarily filed for Chapter 7 bankruptcy and listed his anticipated 2021 federal and state income tax refunds as assets, asserting that they were fully exempt from the bankruptcy estate under Colorado law. The debtor and his spouse, who did not join the bankruptcy petition, filed joint tax returns. The returns showed a federal refund of $1,455 and a state refund of $554, with the federal refund paid to the bankruptcy trustee and the state refund paid to the debtor. The parties stipulated that the debtor would file his tax returns and turn over any refunds to the trustee, who would return any exempt portion to the debtor.After receiving the refunds, the trustee moved to compel turnover of the non-exempt portion of the federal tax refund, arguing that only a portion of the refund was exempt and that a pro-rata calculation should be used to determine the exempt amount. The United States Bankruptcy Court for the District of Colorado denied the trustee’s motion, concluding that the entire federal refund was exempt because it was caused by a refundable child tax credit. The trustee appealed, and the United States District Court for the District of Colorado affirmed the bankruptcy court’s decision.The United States Court of Appeals for the Tenth Circuit reviewed the case de novo and affirmed the district court’s judgment. The Tenth Circuit held that, under Colorado law, the phrase “attributed to” in the relevant exemption statute means “caused by,” and that the full amount of a federal income tax refund is exempt if it would not have occurred but for the refundable child tax credit. The court rejected the trustee’s argument for a pro-rata method and emphasized that Colorado law requires liberal construction of exemption statutes in favor of debtors. View "In re: Garcia-Morales" on Justia Law

The case involves a Chapter 7 bankruptcy proceeding for debtors Theodore William White, Jr., and Porscha Shiroma. White and Lynn E. Wardley had previously started a business that failed. The Chapter 7 Trustee initiated an adversary proceeding against Wardley, alleging a constructively fraudulent obligation and transfer under federal bankruptcy statutes and the Utah Uniform Fraudulent Transfer Act (UFTA). The Trustee sought to avoid a $750,000 obligation and transfer made by White to Wardley.The United States Bankruptcy Court for the District of Utah granted summary judgment in favor of Wardley, rejecting the Trustee’s claims. The court found that White received reasonably equivalent value for both the guaranty obligation and the $750,000 transfer. The Trustee appealed to the Tenth Circuit Bankruptcy Appellate Panel (BAP), which affirmed the bankruptcy court’s decision.The United States Court of Appeals for the Tenth Circuit reviewed the case. The court affirmed the bankruptcy court’s summary judgment orders, agreeing that White received reasonably equivalent value for the guaranty obligation and the $750,000 transfer. The court found that White’s benefits, including employment, a 15% equity stake in the business, cash and equity incentives, and a business opportunity, were approximately equivalent to the value of the debt he took on. The court also held that the guaranty obligation was unconditional, making the $750,000 transfer a dollar-for-dollar exchange that constituted reasonably equivalent value. View "White v. Wardley" on Justia Law

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

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

Plaintiff Jared Trent Cowen’s 2000 Peterbilt 379, a commercial truck, was in need of repair. To cover the cost, Cowen borrowed money from Defendant WD Equipment, which is owned and managed by Defendant Aaron Williams, in exchange for a lien on the truck and the promise of repayment. After the Peterbilt broke down again only a few weeks after the repairs, it was towed to a local repair company, which estimated that fixing the truck again would cost more than Cowen could afford. Because his Peterbilt was in the shop, Cowen could not make installment payments to WD Equipment. So, in early August, 2013, Cowen began taking steps to refinance the loan. Williams gave Cowen several, contradictory responses as to how much Cowen would need to pay to settle the debt, and he accelerated the payoff date several times, before ultimately setting a deadline. Around the same time, Cowen defaulted on another loan secured by another one of his trucks, a 2006 Kenworth T600. This loan was owed to Defendant Bert Dring, the father-in-law of Williams, who held a purchase-money security interest in the truck. Dring lured Cowen under false pretenses to his place of business to repossess the Kenworth. Cowen filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on the day of the deadline for paying off the Peterbilt, and which was within the ten-day cure period for the Kenworth. He notified Defendants of the filing and requested the immediate return of both trucks. But Defendants refused. Cowen moved the bankruptcy court for orders to show cause why Defendants should not be held in contempt for willful violations of the automatic stay. The bankruptcy court granted the motions and ordered Defendants to “immediately turn over” the trucks to Cowen. When Defendants did not comply with the bankruptcy court’s turnover order, Cowen filed an adversary proceeding for violations of the automatic stay. A few months later, the bankruptcy court dismissed the underlying bankruptcy case because, without the trucks, Cowen had no regular income, which rendered him ineligible for Chapter 13 relief. However, the bankruptcy court expressly retained jurisdiction over the adversary proceeding. During the adversary proceeding, Defendants again asserted that Cowen’s rights in the trucks had been properly terminated by Defendants before the bankruptcy petition was filed, and so they could not have violated the automatic stay. The court disagreed, and Defendants timely appealed this decision to the district court, which reversed on the calculation of damages but otherwise affirmed the bankruptcy court’s order. Defendants then appealed to the Tenth Circuit, arguing, among other things, that the bankruptcy court exceeded its jurisdiction, that it lacked constitutional authority to enter a final judgment in this adversary proceeding, and that the bankruptcy court misinterpreted section 362 (the automatic stay provision). The Tenth Circuit agreed, reversed and remanded. View "WD Equipment v. Cowen" on Justia Law

Plaintiff-Appellant Asarco, LLC appeals the entry of summary judgment against it in its contribution action against Noranda Mining, Inc., under Section 113(f) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"). The district court held that Asarco was judicially estopped from pursuing its claim because of representations it made to a bankruptcy court concerning its settlement agreement with the EPA for the site in question. After review, the Tenth Circuit reversed, finding that the district court abused its discretion in applying judicial estoppel: "The overall context of the CERCLA settlement approved by the bankruptcy court makes it apparent that Asarco's positions are not clearly inconsistent, that to allow Asarco to pursue its claim would not create the perception that a court was misled, and that Asarco would not necessarily gain an unfair advantage by being allowed to pursue its claim now." View "Asarco v. Noranda Mining" on Justia Law

Bobby Long, the debtor in this Chapter 7 bankruptcy proceeding, claimed an exemption in $60,000 worth of life insurance proceeds that he received as a beneficiary shortly prior to filing his bankruptcy petition. The Trustee objected to the claimed exemption, but the bankruptcy court overruled the objection and sustained Long’s claimed exemption. The Trustee appealed to the district court, which affirmed the bankruptcy court’s decision. The Trustee appealed, but finding no reversible error, the Tenth Circuit affirmed the bankruptcy court's decision. View "Nelson v. Long" on Justia Law

Expert South Tulsa, a debtor in bankruptcy, sought to set aside as a fraudulent transfer its own sale of real estate that was encumbered by a mortgage far exceeding the sale price. It contended that it did not receive reasonably equivalent value in exchange for the property. Regardless of its motive, the Tenth Circuit rejected Expert South Tula's claim: because the debtor received reasonably equivalent value from the sale of the property, it could not prevail under Oklahoma law or the fraudulent-transfer provision of the Bankruptcy Code. In particular, the Court rejected its contention that it remained liable on the mortgage note after the sale and that the bankruptcy court therefore miscalculated the value it received. The Court therefore affirmed the Bankruptcy Appellate Panel. View "Rebein, Trustee v. Cornerstone Creek Partners" on Justia Law

Frances Scott and her husband Galen Amerson filed for Chapter 7 bankruptcy protection. Scott amended her petition to identify as an asset her interest in a Florida state action that she and her half-sister had filed contesting the legitimacy of their father’s will. The bankruptcy trustee retained Florida counsel, who in turn reached a tentative settlement of the ongoing probate contest. The trustee then moved the bankruptcy court to approve the settlement agreement. The bankruptcy court granted the trustee’s motion over Scott’s objection and approved the settlement agreement. Scott appealed to the Tenth Circuit Bankruptcy Appellate Panel (BAP), which affirmed the bankruptcy court’s decision. Scott appealed the BAP’s decision to the Tenth Circuit Court of Appeals. At issue was whether Scott’s interest in a spendthrift trust created by her late father was properly treated as property of the bankruptcy estate, or if that interest was excluded. Finding no error in the BAP's conclusion, the Tenth Circuit affirmed inclusion of that Florida interest in Scott's bankruptcy estate. View "Scott v. King" on Justia Law

Debtor-Appellant Nathan Welch appealed a district court’s order denying his motion for judgment on the pleadings and determining that a default judgment was nondischargeable in bankruptcy. This case arose from the failure of the Talisman project, a high-end real estate development project in Wasatch County, Utah. Appellee Robert Tripodi was one of these investors, eventually putting $1 million into Talisman. To secure Tripodi’s investment, Welch issued three promissory notes to Capital Concepts, which in turn, assigned the notes to Tripodi. Welch ultimately defaulted on the notes. In January 2009, Tripodi filed a complaint against Mr. Welch in federal district court, alleging violations of state and federal securities laws. For seven months, Welch did not respond. In March 2010, Tripodi filed a motion for entry of default. The court granted the motion for entry of default and issued an order to show cause as to why a default judgment should not be entered. Receiving no response, the district court entered an order granting the entry of default judgment against Welch. Welch filed a voluntary petition for Chapter 7 bankruptcy in August 2011. Nearly two years later, Tripodi sought relief from the automatic stay. In his defense, Welch opposed Tripodi's proof of damages and costs, and attempted to have the default judgment set aside. The district court denied Welch's request to set aside the judgment, ruling the judgment was nondischargable. Finding no reversible error on the district court's judgment, the Tenth Circuit affirmed. View "Tripodi v. Welch" on Justia Law