In Re: David Lee Smith and Mary Julia Hook

CourtDistrict Court, D. Colorado
DecidedApril 27, 2021
Docket1:18-cv-03259
StatusUnknown

This text of In Re: David Lee Smith and Mary Julia Hook (In Re: David Lee Smith and Mary Julia Hook) is published on Counsel Stack Legal Research, covering District Court, D. Colorado primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re: David Lee Smith and Mary Julia Hook, (D. Colo. 2021).

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Judge Raymond P. Moore

Civil Action No. 18-cv-03259-RM (Bankruptcy No. 17-16354-TBM) (Adversary Proceeding No. 18-01265-TBM)

IN RE: DAVID LEE SMITH, and MARY JULIA HOOK,

Debtors. ______________________________________________________________________________

DAVID LEE SMITH, and MARY JULIA HOOK,

Appellants,

v.

DENNIS W. KING, Chapter 7 Trustee, and COLORADO DEPARTMENT OF REVENUE,

Appellees. ______________________________________________________________________________

ORDER ______________________________________________________________________________

This matter is before the Court on Appellants Smith and Hook’s appeal of the following orders issued by the Bankruptcy Court arising from or related to their Chapter 7 bankruptcy case: (1) “Order and Notice of Evidentiary Hearing”1 (the “Notice”) dated July 17, 2018; (2) “Minutes of Proceedings/Minute Order”2 (the “Minute Order”) dated August 2, 2018; (3) “Order Accepting Trustee’s Report and Closing Case” (the “Closure Order”) dated October 5, 2018; (4)

1 ECF No. 1, pp. 4-12; Appendix, ECF No. 11-1, pp. 51-52. As used in this Order, the page references are to the page numbers assigned to the document by the court’s CM/ECF system and found in the upper right-hand corner of the document. References to cases other than this bankruptcy appeal are preceded by the case at issue, e.g., Bankruptcy Court or B. Ct. 2 ECF No. 11-1, p. 62. “Order Denying Debtors’ Motion to Vacate and Set Aside Order Accepting Trustee’s Report and Closing Case; and Order Denying Debtors’ Motion to Continue Automatic Stay Pending Disposition of Motion to Vacate” (the “Post-Closure Order”) dated December 4, 21083; and (5) “Order Granting the Colorado Department of Revenue’s Motion to Dismiss or Abstain”4 (the “CDOR Dismissal Order”) dated February 5, 20195 (all five orders, collectively, the “Appealed

Orders”). Essentially, as to the first four orders, Appellants appeal the Bankruptcy Court’s acceptance of the Chapter 7 Trustee’s Final Report and Account, discharge of the Trustee, and closure of the bankruptcy case. As to the last order, issued in Appellants’ adversary proceeding against the Colorado Department of Revenue (“CDOR”), Appellants appeal the Bankruptcy Court’s dismissal of their complaint against CDOR. After considering the Appealed Orders and relevant parts of the bankruptcy record, taking judicial notice of LNV Corp. v. Hook, No. 18-cv- 00955-RM-SKC (D. Colo.) (the “Foreclosure Action”),6 reviewing the applicable law, and being otherwise fully advised, the Court finds and orders as follows. I. BACKGROUND

Appellants filed a Chapter 7 proceeding on July 11, 2017. There was, however, already a civil foreclosure action pending against Appellants at that time which is relevant to the issues here. Accordingly, the Court starts with the civil action. In 2014, LNV Corporation (“LNV”) filed the Foreclosure Action against Appellants and others, including the United States. The Foreclosure Action sought a determination of the rights and priorities of various interests related to Appellants’ real property located in Denver, Colorado (the “Denver Property”) and a judicial foreclosure of the Denver Property. The United

3 ECF No. 11-3, pp. 175-178. 4 ECF No. 22-8, pp. 25-34. 5 See Notice of Appeal and Supplemental/Amended Notice of Appeal, ECF Nos. 1 & 21. 6 Appellants refer to and rely on the Foreclosure Action in their papers. States asserted it had numerous valid liens on the Denver Property. After Appellants filed for bankruptcy in July 2017, the Foreclosure Action was administratively closed. Just days prior to Appellants’ bankruptcy filing, the Court in the Foreclosure Action ruled in favor of LNV on its claim for judicial foreclosure on the Denver Property.7 The action was reopened when LNV obtained relief from the automatic stay.

Many proofs of claim were filed in the bankruptcy case. CDOR filed a proof of claim, alleging Appellants owed state taxes. The United States filed a proof of claim, alleging Appellants owed federal taxes. LNV also filed a proof of claim based on a promissory note and deed of trust on the Denver Property.8 On November 8, 2017, Appellants obtained a discharge from personal liability on certain debts. Meanwhile, the Foreclosure Action proceeded against Appellants and the Denver Property. By Order dated June 21, 2018, the Court found all issues in the Foreclosure Action resolved except for the manner and method of judicial foreclosure to be had on the Denver Property.9

On June 29, 2018, the Chapter 7 Trustee (“Trustee”) filed his Final Account and Report (the “Initial Report”), to which Appellants objected. No creditor or any other person objected. On August 2, 2018, after giving the Notice, the Bankruptcy Court held a hearing on the Initial Report and Appellants’ objection. Appellants argued the Trustee should take action on the proof of claims filed by the United States and by LNV. Their objection was based on the same arguments they raised against the United States and LNV in the Foreclosure Action, e.g., that the United States had erroneously or illegally assessed or collected taxes from Appellants and that

7 Foreclosure Action, ECF No. 320, p. 14, issued June 28, 2107. 8 LNV’s proof of claim was filed after Appellants’ discharge. 9 Foreclosure Action, ECF No. 404, p. 10. LNV lacked standing to sue on the promissory note and deed of trust. At bottom, Appellants wanted the Trustee to pursue actions against the United States and LNV but the Trustee chose to abandon such actions to Appellants.10 The Bankruptcy Court orally overruled Appellants’ objection, finding they lacked standing to object.11 The Minute Order was entered that day.12 Thereafter, Appellants filed several adversary proceedings. As relevant here, on August

3, 2018, Appellants filed an adversary proceeding against the United States, seeking to recover the allegedly overpaid and illegally assessed taxes.13 On August 5, 2018, Appellants filed an adversary proceeding against LNV.14 And, on August 21, 2018, Appellants filed an adversary proceeding against CDOR, which is part of this appeal.15 On September 4, 2018, the Trustee filed his second Final Report and Account (the “Second Report”). No objections were filed by Appellants or anyone else. In the October 5, 2018 Closure Order, the Bankruptcy Court discharged the Trustee and closed the bankruptcy case.16 Thereafter, on October 17, 2018, Appellants filed “Debtors’ Motion to Vacate and Set Aside Order Accepting Trustee’s Report and Closing Case; and Motion to Continue Automatic Stay

Pending Disposition of Motion to Vacate and Set Aside Order,” which the Bankruptcy Court construed as two motions – a Motion to Vacate and a Motion to Stay.17 In the Post-Closure Order, the Bankruptcy Court denied the Motion to Vacate, finding

10 There may have been other actions which Appellants wanted the Trustee to pursue but Appellants focused on the United States and LNV. Appellants listed assets of $11 million in the form of taxes and damages allegedly owed by the United States/IRS and $1.2 million in the Denver Property in which LNV claimed an interest via a promissory note and deed of trust. 11 B. Ct., Dkt. Nos. 61, 64, 69; ECF No. 11-3, p. 62; ECF No. 12-1 (transcript). 12 B. Ct., Dkt. No. 83; ECF No. 1, p. 7 & No. 23-1, p. 89. 13 ECF No. 23-1, pp. 13-14; Adversary Proceeding No. 18-1248. The Court has withdrawn the reference on that proceeding and is dismissing it concurrently with this case. 14 ECF No. 23-1, p. 14; Adversary Proceeding No. 18-1250. The Court has withdrawn the reference on that proceeding and is dismissing it concurrently with this case. 15 ECF No. 23-1, pp. 14-15; Adversary Proceeding No. 18-1265. 16 B. Ct., Dkt. Nos. 75, 80; ECF No. 23-1, pp. 16-17. 17 B. Ct., Dkt. Nos.

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