Weinman v. Crowley (In re Blair)

Citation: 594 B.R. 712Docket: Bankruptcy Case No. 15-15008 TBM; Adv. Pro. No. 17-1195 TBM

Court: United States Bankruptcy Court, D. Colorado; November 9, 2018; Us Bankruptcy; United States Bankruptcy Court

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Peter H. Blair, Sr., a wealthy patriarch, managed family finances and established trusts with his wife to secure their children's inheritance. After his wife's death, he became lonely and unexpectedly proposed to caregiver Suella Crowley, who had a troubled past. His children opposed the marriage, suspecting ulterior motives and fearing loss of inheritance. To appease them, Blair transferred $4.5 million back to the trusts and resigned as co-trustee. He then married Crowley and financially supported her, including paying off her mortgage. 

Despite his attempts to maintain peace, his children and the trusts accused him of mismanagement and sued him, resulting in a judgment of over $2.3 million against him. This financial blow led to his bankruptcy and subsequent death. The Chapter 7 Trustee, representing the interests of Blair's children and the trusts, initiated lawsuits against Crowley and her printing company, claiming fraudulent payments made by Blair. The court proceedings involved various testimonies, culminating in a trial that highlighted the familial conflict and the tragic unraveling of Blair's life.

Jurisdiction over the case is established under 28 U.S.C. § 1334, with the causes of action related to avoidance of fraudulent transfers and declaratory judgments classified as core proceedings per 28 U.S.C. § 157(b)(2). The Court is empowered to issue final judgments on all claims in the Adversary Proceeding, and venue is deemed proper under 28 U.S.C. § 1408 and § 1409, with all parties consenting to the jurisdiction and venue.

The Debtor, Peter H. Blair, filed for Chapter 11 bankruptcy on May 7, 2015, but after his death, the case was converted to Chapter 7 liquidation. Jeffrey A. Weinman was appointed as the Chapter 7 Trustee on August 20, 2015. On May 5, 2017, the Trustee initiated the Adversary Proceeding against Suella M. Crowley, the Debtor's widow, and First Class Printing, Inc. The Trustee accused the Debtor of making fraudulent Cash Transfers totaling $8,144 and Business Transfers of at least $55,762 to Crowley, alleging violations of the Colorado Uniform Fraudulent Transfer Act (CUFTA), and sought to preserve these transfers and disallow Crowley's claim.

The Defendants did not respond to the Original Complaint, leading to the filing of an Amended Complaint on May 24, 2017, which included additional allegations regarding mortgage payments totaling $358,593 made by the Debtor for Crowley's property. Although these Mortgage Payoff Transfers were not claimed to be fraudulent under CUFTA, the Trustee sought a declaratory judgment for entitlement to at least half of the property. The Defendants responded by denying liability, and a trial was scheduled for August 6, 2018.

Pre-trial proceedings involved extensive discovery disputes and motions, including motions to compel, quash, seal, redact, as well as motions for summary judgment and to limit evidence. The Court issued significant evidentiary rulings, particularly in an Order on June 13, 2018, related to the Chapter 7 Trustee's reliance on findings from a prior Probate Court judgment (March 27, 2015) concerning the Audrey R. Blair Revocable Trust. The Defendants contended that the findings were inadmissible hearsay since they were not parties to the Probate Case and had been excluded from observing its proceedings. Although the Trustee acknowledged the hearsay nature of the findings, they sought to invoke various exceptions under the Federal Rules of Evidence. Ultimately, the Court ruled to exclude the entire Probate Judgment from evidence, except for its Damages Order, which held the Debtor liable for $2,372,688.29 in damages for breach of fiduciary duty. The Court decided to consider only the legal effect of the Probate Judgment, not the findings themselves.

The Chapter 7 Trustee did not pursue an interlocutory appeal regarding the In Limine Order, which therefore governed the use of the Probate Judgment at trial. A significant pre-trial ruling involved expert witness testimony concerning the Debtor's financial condition during the allegedly fraudulent transfers, with the Trustee engaging Mark Dennis to provide expert analysis on solvency. Dennis concluded that the Debtor was insolvent as of May 7, 2011. The Defendants sought to exclude his testimony based on FED. R. EVID. 702 and relevant case law, specifically Daubert v. Merrell Dow Pharmaceuticals and Kumho Tire Co. Ltd. v. Carmichael. The Court held a Daubert hearing and ultimately ruled in favor of the Defendants, excluding Dennis's expert testimony due to the Trustee's failure to meet the burden of proof for admissibility. The Trustee sought reconsideration and appealed to the Tenth Circuit Bankruptcy Appellate Panel (BAP), but both requests were denied, with the BAP dismissing the appeal for lack of jurisdiction. Consequently, the Trustee proceeded to trial without the Probate Judgment and without expert testimony on solvency.

The trial occurred on August 6-8, 2018, with the parties presenting their stipulated facts, opening statements, witnesses, and exhibits. Key witnesses included the Chapter 7 Trustee and several others, while Mark Dennis did not testify due to the earlier ruling. A wide array of exhibits was admitted, although the Trustee did not introduce the Probate Judgment, which was referenced in the stipulated facts. After closing arguments, the trial record was transcribed, with the Court acknowledging the professionalism of both parties' counsel. The case is now submitted for the Court's decision.

Findings of Fact indicate that Peter H. Blair, Sr., the Debtor, filed for bankruptcy late in life and died shortly after. He was married to Audrey R. Blair from 1950 until her death in 2007; together they had three children and created the ARB Trust to manage their wealth, largely funded by Audrey’s inheritance. The Debtor was an accomplished financial planner, managing significant assets through his investment firm until retirement in 1991, after which he continued to oversee his family's financial matters and his oil and gas company, Blair Oil Investments, LLC. Following Audrey's death, he moved to a luxury retirement community in Denver and managed the ARB Trust with his son, Hy Blair.

Suella Crowley, a caregiver at the same retirement community, came from a different background. A Denver native with no college education, she worked in various jobs and founded a small printing business, First Class, which struggled after the 2008 economic downturn. In 2009, Crowley took a job at Parkplace as a caregiver to supplement her income. Her personal life included three marriages, the last ending in 2011.

Crowley worked part-time as a caregiver at Parkplace, where she met the Debtor intermittently over a year and a half. Their interactions were limited to brief conversations during work, but they developed a mutual liking. On March 9, 2011, the Debtor unexpectedly proposed marriage to Crowley, after sharing personal details about his life. Crowley initially hesitated due to her separation from her husband, but after the Debtor offered to pay for her divorce, she accepted his proposal. Following their engagement, they spent time together, discussing their lives and future. Crowley promised to care for the Debtor, who was 83, and assured him he would not need to go to a nursing home. The Debtor expressed a desire to alleviate Crowley's financial burdens by paying off her debts and suggested she stop working to focus on their relationship. They agreed that the Debtor would pay off the mortgage on Crowley's home as a gift, with the understanding that it would belong solely to her. Throughout their courtship, the Debtor frequently expressed his love for Crowley, which was corroborated by witnesses. He intended to leave her financial assets and support her financially. Crowley moved into the Debtor's apartment temporarily in August 2011 while her house was remodeled, and they married on September 14, 2011. Following their marriage, the Debtor moved into Crowley's remodeled home in January 2012.

The Debtor's announcement of his engagement to Crowley was met with immediate rejection from his children, who expressed no support or congratulations. Their opposition intensified upon learning of the Debtor's financial support for Crowley. Hy Blair, one of the Debtor's children, sent a letter articulating his concerns and accused the Debtor of being under mental disability or undue influence, citing new non-family individuals exploiting the Debtor's condition. However, the Court found no evidence of mental impairment or undue influence during 2011 or 2012. The concerns of the Debtor's children appeared to be motivated more by fears of losing their inheritance than genuine worry for their father's well-being. In Spring 2011, Hy Blair initiated an intrusive investigation into the Debtor and Crowley, contacting various acquaintances to gather information and persuade them to intervene. This approach offended the Debtor. Shortly after announcing his intention to marry, the Debtor was invited on a family trip to Hawaii, which turned into a staged intervention aimed at dissuading him from marrying Crowley. The Debtor found this tactic inappropriate and remained resolute in his commitment to Crowley.

On May 11, 2011, a meeting took place in Stamford, Connecticut, involving the Debtor, his three children, and attorney Nancy Blair. During this meeting, Hy Blair accused the Debtor of improperly transferring funds from the ARB Trust, a claim the Debtor denied. In response, the children demanded the Debtor take several actions: transfer $4.5 million from his revocable trust back to the ARB Trust, transfer a house in California to Christopher Blair, repay additional small amounts to the ARB Trust, and resign as co-trustee of the ARB Trust. Despite being furious, the Debtor complied with these demands to avoid conflict.

The Chapter 7 Trustee highlighted a significant additional demand alleged to have been made during the meeting: a claim against the Debtor for $1.1 million due to alleged malfeasance involving other withdrawals from the ARB Trust. This claim was based solely on Hy Blair’s testimony, which the Court deemed unreliable due to his evident animosity towards the Debtor and counsel for the Defendants, as well as inconsistencies and contradictions in his statements. Hy Blair initially confirmed that the Debtor had complied with his requests without mentioning the $1.1 million claim, but later contradicted himself. During his deposition, he expressed uncertainty about the specific amounts demanded, ultimately acknowledging a general obligation without specifying the $1.1 million. His testimony varied significantly during cross-examination, raising doubts about its credibility.

Hy Blair's trial testimony exhibited significant inconsistencies regarding a May 2011 meeting with the Debtor. He claimed to have demanded the return of $1.1 million, yet later stated he requested different amounts, including $1.4 million, and that the Debtor complied with his requests. These contradictions render it impossible to reconcile his accounts. Additionally, throughout the trial, Hy Blair was found to contradict himself repeatedly and diverged from his deposition testimony, leading the Court to question his credibility.

The Court examined other evidence, as none of the meeting's participants testified. On July 1, 2011, Hy Blair sent two letters to the Debtor. The first outlined new distribution requirements from the ARB Trust and did not mention any unfulfilled demand for $1.1 million. The second letter, more personal, accused the Debtor of abandoning his family but also expressed gratitude for the Debtor's actions at the May meeting, including the return of $4.2 million and his resignation as trustee. This correspondence implied that the Debtor fulfilled all requests made during the meeting.

Subsequent letters from Hy Blair throughout the summer of 2011 also lacked any mention of a demand for $1.1 million. The absence of such claims in his detailed communications suggests that no demand was made at the May meeting. Furthermore, the Debtor's own communications indicated he did not acknowledge any such claim from Hy Blair or the ARB Trust. Overall, the evidence supports the conclusion that Hy Blair did not make a valid demand for reimbursement during the May 2011 meeting.

The Debtor alleges that his family conspired against his marriage to Sue, employing tactics such as hiring private detectives and orchestrating a meeting with Nancy Blair to secure his inheritance. In an effort to gain family approval for Sue, the Debtor felt compelled to comply with demands he believed would foster peace, including returning significant funds and property to his children. He expressed a belief that he had resolved all disputes during a May 2011 meeting, which he viewed as a means to gain a "clean slate" and move forward with his life with Sue. Witness testimonies corroborate that the Debtor thought he had satisfied his children’s requests, which included transferring approximately $4 million and resigning as co-trustee of the ARB Trust. The Court determined that no demand for an additional $1.1 million was made at that meeting, and the Debtor was unaware of any further financial demands until January 2012. Following the May meeting, he made modest cash transfers to Crowley totaling $10,704.05 prior to their marriage, with documented checks issued between June and August 2011. There was no evidence presented that his children attended the wedding.

A total of $10,704.95 in cash transfers was made by the Debtor to Crowley, with checks ranging from June 23, 2011, to August 30, 2011. The checks, drawn on the Debtor's Citywide Banks account, were signed by the Debtor and included descriptions such as "Cash" and "Personal." The Chapter 7 Trustee alleged in the Amended Complaint that these transfers amounted to at least $8,144.00, with a closing argument citing $10,684.95; however, discrepancies in amounts were noted but not explained. Crowley acknowledged cashing the checks and receiving the transfers, which she described as "gifts" without providing any economic value in return, stating that she offered "love and affection" during their engagement.

Additionally, the Debtor transferred $57,733.81 to First Class between June 6, 2011, and August 30, 2011. Despite the Debtor’s checks being issued to First Class, he was neither an employee nor a stakeholder in the company; Crowley managed it. The Chapter 7 Trustee had previously claimed fraudulent transfers to Crowley through First Class totaling "not less than $55,761.99." Again, the court accepted the proven total of $57,733.81, despite discrepancies, as the Business Transfers were similarly characterized by Crowley as gifts from the Debtor without any economic return from First Class. The Court concluded that both the Cash Transfers and Business Transfers were gifts from the Debtor to Crowley and her company, with no material value provided in return.

The Chapter 7 Trustee does not claim that the Mortgage Payoff Transfers were fraudulent under the Colorado Uniform Fraudulent Transfers Act (CUFTA) but argues that the Debtor's payments on the Real Property entitle the Trustee to half of that property. Evidence shows Crowley has owned the Real Property for 21 years and was the sole titleholder. The Debtor was never a borrower or guarantor on the related mortgage and did not hold title to the property. The Debtor made total payments of $356,052.05 to pay off Crowley's mortgage before moving into the property, with $16,102.88 proven in check transfers from June to December 2011, all signed by the Debtor from his Citywide Banks account. Additionally, the Debtor transferred $339,949.17 by wire to Ocwen Loan Servicing LLC on January 19, 2012. Despite these payments, Crowley did not grant the Debtor any ownership interest in the Real Property, though the Debtor lived there rent-free for 43 months until his death in July 2015. Following these transactions, Hy Blair and the Debtor's children investigated the Debtor's conduct as co-trustee of the ARB Trust. In October 2012, Blair provided an interim accounting and requested missing funds, marking the first demand for compensation since May 2011. The Debtor denied wrongdoing, leading to Blair filing a Petition for Accounting and Surcharge against him in November 2012.

On March 27, 2015, the Probate Court ruled against the Debtor, finding him liable for $2,372,688.29 due to breaches of fiduciary and trust duties. Following this judgment, the Probate Court froze the Debtor's assets, including those of BOI, leading to the Debtor's bankruptcy and subsequent death. The bankruptcy case revealed a creditor pool primarily consisting of the Debtor's children (through the Chapter 7 Trustee) and the ARB Trust, which together represented 95% of the claims against the estate. The total claims amounted to $4,391,497.93, with nominal claims from other creditors indicating the Debtor had generally paid his debts during his lifetime.

The Chapter 7 Trustee sought to demonstrate the Debtor's insolvency at the time of certain cash and business transfers, referencing the Colorado Uniform Fraudulent Transfer Act (CUFTA). An attempt to use expert testimony from accountant Mark Dennis was thwarted due to his lack of sufficient data and methodology, resulting in the absence of expert evidence at trial. The Trustee and Defendants presented limited evidence regarding the Debtor's financial condition, focusing on three asset categories: bank accounts, IRA accounts, and ownership of BOI. Evidence from the Debtor's bank accounts showed substantial balances from May 2011 to January 2012, specifically in accounts held at UBS, Wells Fargo, and Citywide Banks.

The Debtor's financial status is outlined through detailed account balances from various financial accounts between May 2011 and November 2011. As of May 2011, the Debtor had a minimum of $719,564.36 in three financial institution accounts, with an increase to $780,725.62 by December 2011. The Defendants' argument for a "cost basis" for UBS No. 3623 suggests that the fair market value of these accounts is higher.

In addition to bank accounts, the Debtor holds substantial assets in four Individual Retirement Accounts (IRAs) at UBS. However, summaries provided by the Defendants, prepared by Heidi Mourning, were found to contain numerous errors, thus rendering them ineffective in accurately assessing the value of the IRAs. The Court identified a discrepancy in the claimed aggregate balances which fluctuated improbably between odd and even months. Consequently, these summaries were disregarded.

The Court instead relied on the underlying account statements to determine the aggregate fair market values for the IRAs over several months, concluding that the total balances for May 2011 through November 2011 varied significantly from the Defendants' claims, with detailed values listed for each individual IRA account across the specified months.

The excerpt outlines financial details related to the Debtor's ownership of BOI, an oil and gas company, from June 2011 to January 2012, during which various cash and business transfers occurred. Evidence presented at trial included BOI's Profit and Loss Statements for 2010 and 2011, revealing total incomes of $673,584.97 and $698,959.67, respectively, with corresponding total expenses leading to net losses of $304,252.20 in 2010 and $155,270.95 in 2011. The 2010 Balance Sheet indicated total assets of $971,318.71 against total liabilities of $906,137.18, resulting in equity of $65,181.53. Retained earnings were noted at $4,549,757.37, although assets were valued at book rather than fair market value. An email from Hy Blair referenced a value of $4.8 million for BOI based on a cash flow tool, not net asset valuation, and acknowledged that BOI had generally not been profitable. Blair also confirmed the Debtor's equity in BOI was approximately $70,000 as of December 2010 and unsuccessfully attempted to sell BOI assets for around $900,000 in 2011, receiving only a $500,000 offer. 

Regarding the Debtor’s financial obligations, there was limited admissible evidence of liabilities in summer 2011, but it was confirmed that the Debtor was paying bills regularly, with no overdrafts or insufficient funds in bank records. Payments included over $8,000 monthly to Parkplace, church contributions exceeding $3,000 monthly, and large estimated tax payments, among other expenses. The evidence suggested that the Debtor's obligations were current throughout this period. The document concludes with references to legal claims regarding actual fraud under Colorado Revised Statutes.

In the First Claim for Relief of the Amended Complaint, the Chapter 7 Trustee seeks to recover Cash Transfers from Crowley, leveraging the "strong arm powers" under 11 U.S.C. § 544 and Colorado's "actual fraud" statute (COLO. REV. STAT. § 38-8-105(1)(a)). In the Fifth Claim for Relief, the Trustee aims to recover Business Transfers from First Class using the same statutory basis. The court will analyze both claims together due to their shared legal framework. 

According to § 38-8-105(1)(a), a transfer is deemed fraudulent to a creditor if made with actual intent to hinder, delay, or defraud, regardless of when the creditor's claim arose. This Colorado statute closely mirrors the Uniform Fraudulent Transfer Act (UFTA) and is similar to 11 U.S.C. § 548(a)(1). The historical roots of the "actual intent" language trace back to the Statute of Elizabeth from 1570, which invalidated fraudulent transfers intended to deceive creditors. 

Claims of "actual intent to hinder, delay, or defraud" are generally classified as "actual fraud." The Chapter 7 Trustee bears the burden of proving that the Cash and Business Transfers were fraudulent under CUFTA. However, proving "actual intent" can be challenging due to the lack of direct evidence, as debtors rarely explicitly state their fraudulent intentions. The absence of a direct admission or written declaration does not preclude the possibility of establishing actual fraud through circumstantial evidence. Section 105(2) of CUFTA allows the court to consider various circumstantial factors, such as whether the transfer was made to an insider or if the debtor retained control over the transferred property.

The document outlines factors indicative of fraudulent transfers, referred to as "badges of fraud," under the Colorado Uniform Fraudulent Transfer Act (CUFTA). Key points include:

1. Factors indicating fraud include: disclosure or concealment of the transfer; pre-existing lawsuits against the debtor; transfer of substantially all assets; debtor absconding or concealing assets; receipt of consideration not reasonably equivalent to the asset's value; debtor's insolvency occurring shortly after the transfer; timing of the transfer in relation to substantial debts; and transfers to insiders via lienors.
2. The term "badges of fraud" reflects longstanding legal principles, with roots in English law, and is used to infer intent to defraud without needing to prove every listed factor.
3. The Court has broad discretion under Section 105(2) of the CUFTA to consider these factors along with other evidence of fraud, emphasizing a holistic approach that includes both supportive and contradictory evidence.
4. The Court examines whether cash and business transfers were made to "insiders," defined under CUFTA as individuals related to the debtor, partnerships where the debtor is a general partner, or corporations where the debtor holds control. Colorado's definition of "insider" is more restrictive than the model Uniform Fraudulent Transfer Act, using "means" instead of "includes."

This summary encapsulates the critical elements of fraudulent transfer indicators and the definitions relevant to insider transactions under the CUFTA.

The Colorado legislature's substitution of "means" for "includes" in statutory language carries significant implications regarding the interpretation of definitions. The U.S. Supreme Court has established that "means" indicates an exclusive definition, where the term and its definition are interchangeable, while "includes" suggests a broader class that encompasses specific instances without exhausting the definition. The distinction emphasizes that "includes" is a term of enlargement, implying a calculated indefiniteness in terms of the outer limits of a definition.

In Colorado, similar principles apply; "includes" is recognized as a term of extension rather than limitation. Legal precedents confirm that using "means" restricts the definition to enumerated items, whereas "includes" allows for illustrative examples. The Colorado Uniform Fraudulent Transfer Act (CUFTA) defines "insider" narrowly, specifically listing categories such as "relative of the debtor," which is further defined to include individuals related by blood, marriage, or adoption within the third degree. As of summer 2011, Crowley did not qualify as a "relative" since all transfers occurred before her marriage to the debtor, and she was neither a spouse nor related by blood to the debtor. Consequently, First Class, as a corporation, also did not meet the criteria of being a relative of the debtor.

Crowley and First Class do not qualify as "insiders" under Section 102(8) of the CUFTA since they do not meet the criteria of being a partnership where the debtor is a general partner, a general partner in such a partnership, or a corporation where the debtor serves as a director, officer, or controlling person. The Chapter 7 Trustee contends that Crowley should be classified as an insider due to her close relationship with the Debtor, specifically being the Debtor's fiancé. However, this argument lacks support from CUFTA case law. 

While the Bankruptcy Code recognizes a broader definition of "insider," including fiancés and significant others, CUFTA's definition is narrower. The Bankruptcy Code employs "insider includes," indicating a non-exhaustive list, which allows for the inclusion of non-statutory insiders based on relationships that are not strictly arm's length. Courts have developed tests to identify such non-statutory insiders, often considering the nature of the relationship and transactions with the debtor. The statutory list in the Bankruptcy Code is illustrative rather than exhaustive, permitting broader interpretations of who may be deemed an insider.

The term "insider" under the model Uniform Fraudulent Transfer Act (UFTA) is interpreted to include non-statutory insiders beyond the specified list. Cases such as Bloom v. Camp and Grochocinski v. Zeigler demonstrate this broader interpretation in various jurisdictions, where individuals like same-sex spouses and family members were classified as insiders despite not fitting the statutory definitions. However, when applying the Colorado Uniform Fraudulent Transfer Act (CUFTA), the court noted a significant difference in the statutory text, which is more restrictive. The court emphasized that it cannot deviate from the definitions set by the Colorado legislature, concluding that neither defendant qualifies as an "insider" under CUFTA.

Regarding the Cash Transfers to Crowley, although the court lacked solid evidence on their post-transfer use, it inferred that some funds likely contributed to Crowley's mortgage payments. The Debtor did not retain control over these transfers, nor did he control the Business Transfers to First Class, which were primarily directed toward corporate expenses. The court found no evidence of concealment; rather, the Debtor was transparent about his financial support for Crowley, indicating no intent to hide the transfers. Therefore, the factors considered do not support the Chapter 7 Trustee’s arguments regarding fraud.

The Debtor expressed a clear intention to financially support Crowley, including paying off her mortgage and managing financial assets such as a trading account and IRA. This intention was openly communicated to Hy Blair, leading to opposition from the Debtor's children and prompting investigations into the Debtor’s dealings with Crowley. The Chapter 7 Trustee alleged that the Debtor concealed Cash Transfers and Business Transfers from creditors, claiming that these actions were undisclosed at the time they occurred. However, the Trustee failed to establish that the Debtor had any creditors during the summer of 2011 or that a bankruptcy estate existed until four years later when the Debtor filed for bankruptcy. 

While Hy Blair had previously held a power of attorney, the Debtor revoked it after conflicts in May 2011. Following this, the Debtor moved funds to a new account, which the Trustee interpreted as concealment. Nonetheless, evidence indicated that the Debtor was reacting to Hy Blair's actions and was not obligated to inform his children of every financial transaction, especially after prior tensions. The Trustee's claims of concealment lacked substantiation, particularly as no lawsuits were initiated against the Debtor prior to the Cash Transfers and Business Transfers, with the first legal action occurring in November 2012, well after these transactions. The Trustee's arguments were deemed unpersuasive and unfounded.

Hy Blair claimed that the Debtor owed an additional $1.1 million, interpreting this demand as a threat of legal action. However, the Trustee recognized that the only evidence for this claim was Hy Blair's testimony, which the Court had previously deemed not credible due to numerous inconsistencies and lack of corroboration. Documentary evidence contradicted Hy Blair's assertions, as his letters to the Debtor in summer 2011 did not mention any refusal of a $1.1 million demand. Instead, these letters indicated that Hy Blair's father had fulfilled all requests made during the May 2011 Meeting. Additionally, the Debtor believed he had settled disputes with his children and the ARB Trust during that meeting, a belief supported by four witnesses. The Trustee's counsel acknowledged that a $4.5 million payment made by the Debtor was intended to resolve disputes and bring peace within the family, undermining the argument for any remaining demands or claims. Consequently, the Court concluded that the Debtor had no knowledge of any threats or lawsuits related to the Cash Transfers and Business Transfers at the time they occurred, realizing only in October 2012 that issues remained unresolved.

Regarding the question of whether the Cash Transfers and Business Transfers constituted transfers of substantially all of the Debtor's assets, the Court found that both the Trustee and Defendants provided insufficient information about the Debtor's assets in the summer of 2011. No comprehensive asset listing was presented, and the Court only had limited information to assess. The relevant law defined "assets" but excluded encumbered property and certain exempt property. Evidence was only provided for three asset categories: bank accounts, IRA accounts, and ownership of BOI.

Closing balances for UBS No. 3623, WF No. 3363, and CW No. 8916 ranged from $715,578.64 to $949,579.34, indicating substantial remaining assets for the Debtor. The Chapter 7 Trustee argued that the amounts in UBS No. 3623 should not be included in the Debtor's financial assessment due to a valid lien on the account. However, account statements indicated it was a "Pledged Collateral Account" for UBS Bank USA, without specifying any obligation owed by the Debtor. The Trustee's reference to a Credit Line Account Application as evidence of a lien was found incorrect; the application related to the ARB Trust and did not demonstrate that UBS No. 3623 was pledged as collateral by the Debtor. The Trustee failed to prove the existence or extent of any lien, leading the Court to retain UBS No. 3623 as an asset.

Additionally, the Debtor's IRA accounts had closing values between $4,459,952.39 and $6,089,135.07, which were acknowledged as generally exempt assets under Colorado law. Consequently, these amounts will not be counted in assessing the Debtor's assets under the Colorado Uniform Fraudulent Transfers Act (CUFTA), though they may be relevant for other legal matters. Furthermore, the Debtor retained full ownership of BOI, an oil and gas company, before and after the Cash Transfers and Business Transfers.

The Chapter 7 Trustee and the Defendants provided insufficient information regarding the value of the Debtor's interest in BOI in 2011, with a minimum value of $65,181.53 based on a December 2010 balance sheet, contrasting with a $4.8 million valuation presented in a 2010 email by Hy Blair. The Court concluded that the Debtor retained at least this amount and significant assets post-transfers, thus the Cash Transfers and Business Transfers did not constitute transfers of substantially all the Debtor's assets, undermining the Trustee's claim of fraud. 

Additionally, the Debtor did not abscond or conceal assets following the transfers; instead, he remained in Colorado, married Crowley, and lived with her in her home. The Court found no evidence of concealed bank accounts or IRA accounts, further weakening the Trustee's position. 

Regarding the question of whether the Debtor received "reasonably equivalent value" for the Cash Transfers and Business Transfers, Crowley admitted that these were gifts from their relationship, providing only love and affection—intangible benefits that do not qualify as economic value under CUFTA. Courts have consistently ruled that transfers motivated by love and affection do not meet the standard for reasonably equivalent value under 11 U.S.C. § 548.

Crowley did not claim to have provided economic value to the Debtor for the Cash Transfers and Business Transfers, acknowledging instead that the Debtor did not receive reasonably equivalent value for these transactions. This admission is significant as it supports a finding of fraud. The Court recognized that the Debtor's financial status is a critical factor in assessing insolvency, as defined by Section 103 of the Colorado Uniform Fraudulent Transfer Act (CUFTA). A debtor is considered insolvent if their debts exceed their assets or if they fail to pay debts as they come due. However, the Chapter 7 Trustee did not provide evidence to establish that the Debtor was not paying debts when the transfers occurred, as both Hy Blair and Crowley testified that the Debtor was generally meeting its financial obligations. Consequently, the Trustee did not argue for a presumption of insolvency. Attempting to demonstrate actual insolvency, the Trustee needed to show that the Debtor's debts exceeded its assets based on fair valuation, utilizing the balance sheet method recognized under Colorado law and the Bankruptcy Code. The Court must assess the fair value of the Debtor's assets and liabilities at the time of each contested transfer to determine insolvency.

Sufficient evidence is required for the Court to evaluate the debtor's financial condition at the time of the alleged fraudulent transfers. The Chapter 7 Trustee failed to demonstrate the debtor's insolvency in summer 2011 or on the dates of each alleged transfer. Evidence presented included only three asset categories: bank accounts, IRA accounts, and ownership in BOI. Bank account balances ranged between $715,578.64 and $949,579.34, but the Trustee did not sufficiently argue that one account was encumbered by a lien, and the use of cost basis totals rather than fair market values may have understated the total. The IRA account values ranged from $4,459,952.39 to $6,089,135.07, but these were excluded from the balance sheet as they were considered generally exempt under nonbankruptcy law. The Trustee also failed to provide adequate evidence for the fair market value of the debtor's BOI interest, suggesting a book value of at least $65,181.53, but not in compliance with statutory fair market value requirements. The defendants countered with a $4.8 million value based on an unsubmitted computer model. Ultimately, the Court lacked definitive evidence for assessing the debtor's assets. The Trustee could not establish insolvency due to insufficient proof of the debtor's assets and did not provide evidence of liabilities in summer 2011, suggesting the debtor was paying debts as they came due and likely did not have significant creditors.

The Chapter 7 Trustee argues that a Probate Judgment of $2,372,688.29 against the Debtor, entered on March 27, 2015, should retroactively count as a liability from the summer of 2011. This claim is dismissed as unreasonable, given that the Court previously determined no additional claims were raised by Hy Blair and the ARB Trust during the May 2011 Meeting. The Debtor first became aware of any demands from Hy Blair and the ARB Trust through an interim accounting in October 2012, leading to the initiation of the Probate Case on November 6, 2012, which involved extensive litigation before the Probate Judgment was issued.

The Trustee's suggestion to include this contingent claim on the Debtor's balance sheet prior to its assertion and four years before the judgment contradicts Colorado appellate law regarding insolvency. Colorado law requires that contingent liabilities, such as those arising from pending litigation not yet resolved, must be discounted based on the likelihood of them becoming actual liabilities at the time of the alleged fraudulent transfer. The *CB Richard Ellis* case exemplifies this principle, stating that liability assessment depends on whether it is certain or contingent. It confirms that no judgment existed at the time of the transfer, and the parties had a legitimate dispute over the claim's validity, thus classifying it as contingent. Other cases further illustrate that a pending lawsuit is considered a typical contingent liability as it is not enforceable until resolved. The fair value of such liabilities should be adjusted according to the probability of them materializing. Therefore, the bankruptcy court should have assessed the expected value of any potential judgment against the Debtor by accounting for the likelihood of that judgment occurring.

Most courts discount contingent liabilities based on their probability of success. The Chapter 7 Trustee failed to challenge the CB Richard Ellis ruling, as there was no claim against the Debtor at the time of the Cash and Business Transfers, and the related Probate Case was initiated over a year later. The Trustee did not provide evidence to value the unasserted contingent liability from the Probate Case, leading to the inability to establish the Debtor's insolvency at the time of the transfers. The transfers occurred between June 6 and August 30, 2011, shortly after a May 2011 Meeting where a claim for $1.1 million was allegedly asserted against the Debtor, which the Court found was not a genuine demand since the meeting resulted in a settlement. Testimonies and evidence showed that the Debtor believed he had resolved all issues before making the transfers. Furthermore, an actual demand was only presented in October 2012, leading to the Probate Case filing the following month. Consequently, the Trustee could not demonstrate that the transfers were made shortly before any substantial debt was incurred. Finally, the Trustee did not establish actual fraud, as there was a lack of direct evidence indicating that the Debtor intended to hinder, delay, or defraud creditors when making the transfers.

The Court examined circumstantial evidence and the "badges of fraud" outlined in Section 105(2) of the Colorado Uniform Fraudulent Transfers Act (CUFTA). Most of these badges negated fraudulent intent, with only one factor supporting the Chapter 7 Trustee: the Debtor received no reasonably equivalent value for the Cash Transfers and Business Transfers. While this factor is significant, it is not conclusive. The Court considered the unique circumstances of the case, noting that prior to the transfers, the Debtor believed he had settled with Hy Blair and the ARB Trust and was operating without creditors, paying bills as they came due. The claims against him arose over a year after the transfers, and the Probate Judgment was issued almost four years later. The Court found that the Trustee failed to demonstrate the Debtor's actual intent to hinder, delay, or defraud.

Regarding constructive fraud claims, the Court clarified that constructive fraud does not require actual intent to defraud but focuses on whether the Debtor received less than reasonably equivalent value for the transfers. The Chapter 7 Trustee bears the burden of proving these claims. In his Second Claim, the Trustee sought to recover Cash Transfers from Crowley under 11 U.S.C. § 544 and Colorado's constructive fraud statute (COLO. REV. STAT. § 38-8-105(1)(b)). The Sixth Claim aimed to recover Business Transfers from First Class under the same legal framework. The Court's analysis began with the requirement of lacking reasonably equivalent value in these transfers.

The Court has concluded that the Defendants failed to provide reasonably equivalent economic value to the Debtor for both Cash Transfers and Business Transfers, a point acknowledged by the Defendants. Consequently, the Chapter 7 Trustee has succeeded on this issue. The Trustee must now demonstrate compliance with either Subsection 105(1)(b)(I) or Subsection 105(1)(b)(II) of the Colorado Uniform Fraudulent Transfer Act (CUFTA). Subsection 105(1)(b)(I) pertains to whether the Debtor was engaged in a business or transaction with unreasonably small remaining assets, which raises a legal question regarding its applicability to an individual rather than a corporate entity. However, the Trustee did not plead or argue this subsection in the Amended Complaint, nor did he present evidence that the Debtor had insufficient assets for business operations. 

Instead, the Trustee relies on Subsection 105(1)(b)(II), which assesses whether the Debtor intended or reasonably believed he would incur debts beyond his repayment ability. This assessment can include exempt property, as defined under Colorado law. The evidence presented shows that in the summer of 2011, the Debtor's Cash Transfers (totaling $10,704.95) and Business Transfers ($57,733.81) were minor compared to his liquid assets (approximately $715,578.64 to $949,579.34) and substantial exempt assets in his IRAs (ranging from $4,459,952.39 to $5,872,058.24). Additionally, the Debtor consistently met his regular financial obligations and there is no evidence indicating he intended to incur new debts during that period.

The Debtor was primarily retired and looking forward to a stress-free life with his fiancée, Crowley, believing he would not incur additional debt after resolving prior disputes with his children and the ARB Trust in May 2011. The Court found that the Chapter 7 Trustee did not prove constructive fraud under the CUFTA, acknowledging that the Debtor did not receive reasonably equivalent value for certain cash and business transfers to Crowley. However, the Trustee failed to demonstrate that the Debtor intended to incur further debt.

The Chapter 7 Trustee's claims for "preservation of avoided transfers" under 11 U.S.C. § 551 were contingent on proving the avoidance of transfers, which the Court determined the Trustee had not established. Consequently, the preservation claims failed due to the lack of a ruling on avoidance.

Additionally, the Trustee's Fourth Claim sought to disallow Crowley's claim against the bankruptcy estate based on 11 U.S.C. § 502(d), which requires that a creditor be found liable for a fraudulent transfer before their claim can be disallowed. The Court noted that Section 502(d) aims to ensure compliance with judicial orders, indicating that Crowley must first be adjudged liable for the fraudulent transfer for the disallowance to apply.

Section 502(d) of the bankruptcy code stipulates that an entity's claim is not disallowed if the entity or transferee has paid the owed amount or turned over property for which they are liable. The application of this section requires the court to first find the entity liable; without such a finding, the court cannot assess the applicability of the exception. In this case, the Court has not found Crowley liable for any fraudulent transfer, nor has it ordered Crowley to return any estate property, leading to the conclusion that the Chapter 7 Trustee failed to prove his claims. Thus, Crowley’s Claim No. 8 for $210,587.76 remains valid.

The Chapter 7 Trustee's eighth claim, introduced in the Amended Complaint, seeks declaratory relief asserting that the Debtor had at least a half interest in the real property as of the Petition Date, creating an actual controversy between the Trustee and Crowley. The Trustee demands a judgment declaring that this interest is part of the Debtor's bankruptcy estate. However, the Trustee has not claimed that the mortgage payoff transfers were fraudulent under the Colorado Uniform Fraudulent Transfer Act (CUFTA) or bankruptcy law, and he acknowledged that the Debtor never held title to the property. The Trustee's rationale for claiming a legal or equitable interest lacks clarity and does not reference any legal theories such as resulting trust or unjust enrichment.

In response to a motion for partial summary judgment regarding the Eighth Claim, the Trustee presented two legal theories: first, that Crowley’s payment of the mortgage unjustly enriched her, thereby creating an equitable interest for the Debtor; second, that this payment established a resulting trust, conferring a legal or equitable interest to the Debtor. Despite these claims being based on the mortgage payoff, neither theory involves the avoidance of the transfer, making 11 U.S.C. 546 inapplicable to the Trustee's Eighth Claim.

The Chapter 7 Trustee initially abandoned a declaratory judgment claim, reformulating it into two distinct claims: unjust enrichment and resulting trust. He argued that these claims did not seek to avoid Mortgage Payoff Transfers under 11 U.S.C. § 544, thus asserting that the limitations period in 11 U.S.C. § 546 was irrelevant. The Trustee claimed the Eighth Claim was independent of avoidance actions under §§ 544 and 546, leading the Court to deny summary judgment.

Subsequently, the Trustee altered his position, stating that the unjust enrichment claim should be viewed as arising under 11 U.S.C. § 544(a), and that the resulting trust theory had transformed into a constructive trust theory. During trial, the Trustee abandoned the resulting trust argument altogether, leading the Court to conclude that the Eighth Claim would focus solely on unjust enrichment, with a proposed constructive trust remedy.

The Court noted confusion regarding the shifting legal theories presented by the Trustee. Ultimately, the Court determined that the Trustee waived the resulting trust theory and that no declaratory judgment claim was active. The only remaining issue was the unjust enrichment claim, which the Trustee acknowledged fell under § 544(a). Crowley raised the statute of limitations as a defense against the Eighth Claim, citing 11 U.S.C. § 546(a).

The statute of limitations for the Trustee to file an adversary proceeding expired on May 7, 2017. The Amended Complaint was filed on May 24, 2017, introducing new causes of action unrelated to those in the original Complaint, thereby failing to relate back under Fed. R. Civ. P. 15. Under 11 U.S.C. § 546(a), the Trustee had a two-year period from the bankruptcy filing on May 7, 2015, to initiate actions under Section 544, which expired on May 7, 2017. Although the Trustee timely filed the original Complaint on May 5, 2017, it was limited to Cash Transfers and Business Transfers, lacking allegations about the Real Property or Mortgage Payoff Transfers, and did not include an Eighth Claim for declaratory judgment. The Amended Complaint’s new allegations were filed after the statute of limitations had lapsed, and the Trustee did not argue for relation back under the relevant rules. 

In response to the statute of limitations challenge, the Trustee initially claimed the Eighth Claim was not an avoidance claim under Section 544 but instead a claim under Section 541, which temporarily sidestepped the limitations issue. However, the Trustee later asserted that the Eighth Claim was indeed based on Section 544, supported by case law indicating that unjust enrichment and constructive trust claims fall under that section.

A Chapter 7 Trustee is pursuing a constructive trust and unjust enrichment claim under Section 544 and state law. However, Section 546 bars this claim, as it stipulates that such actions must be initiated within two years of the bankruptcy relief order. The trustee's action remains valid because the debtor filed for bankruptcy before the state law limitations expired, and the trustee acted within two years of his appointment. The trustee argues that the unjust enrichment claim did not expire prior to the bankruptcy filing, suggesting it falls under Colorado's three-year statute of limitations for contract actions. However, the relevant transfers occurred more than three years before the bankruptcy, indicating the claim may indeed be expired. The trustee's assertion that the claim could be revived under Behrends is deemed irrelevant to the specific limitations defense asserted by Crowley, who contends that the Eighth Claim had to be filed by May 7, 2017, which it was not. Additionally, the trustee posits that 11 U.S.C. § 108(c) may toll the claim until the automatic stay ends, but this argument is characterized as misguided since § 108(c) pertains to claims that have not expired before the bankruptcy petition is filed.

Section 108(c) is applicable solely to civil actions concerning claims against the debtor or codebtors protected under the codebtor stay; it does not pertain to the Chapter 7 Trustee’s case since the debtor is deceased and the Trustee is pursuing claims against the debtor's wife, Crowley. The Trustee's Eighth Claim, which alleges unjust enrichment and seeks a constructive trust related to the Mortgage Payoff Transfers, is barred due to untimeliness. The claim was introduced too late in the litigation process without prior mention in the Amended Complaint, and Crowley has successfully objected to these late changes. 

Under Colorado law, unjust enrichment requires proof of three elements: (1) the defendant received a benefit, (2) at the plaintiff's expense, and (3) circumstances rendering it unjust for the defendant to retain that benefit without compensation. A constructive trust serves as a remedy to prevent unjust enrichment rather than a separate claim and requires the same proof as unjust enrichment. The burden of proof for both claims rests with the Chapter 7 Trustee.

A party seeking to invalidate a transaction on equitable grounds must demonstrate their claims by a preponderance of the evidence. In this case, the Chapter 7 Trustee claims that Crowley unjustly benefited from the Debtor through Mortgage Payoff Transfers totaling $356,052.05. The first two elements of the unjust enrichment claim are satisfied; however, the crux of the matter lies in whether it would be unjust for Crowley to retain this benefit. The Court finds that it would not be unjust for Crowley to retain the property she has owned exclusively for over 21 years, despite the Debtor's payments towards her mortgage.

The evidence indicates that the payments were intended as a generous gift from the Debtor, who had no obligation to pay Crowley's mortgage, as he was neither a borrower nor a guarantor. The Debtor's motivation for paying off the mortgage was to eliminate Crowley's debts to create a stable financial foundation for their relationship, allowing her to stop working and enjoy their life together. The Debtor understood he was making a gift, believing it would also make financial sense as they planned for him to move into the property, thus avoiding high rental costs.

Colorado law suggests that a completed gift cannot be reclaimed under unjust enrichment claims. The Colorado Court of Appeals has stated that retaining a gratuitously conferred benefit is not unjust. Furthermore, the mere existence of a gift negates any claim of unjust enrichment unless fraud or undue influence is present. The amended complaint merely reflects a series of completed gifts, as demonstrated by the Debtor’s clear intent to gift each month, which precludes recovery of those amounts. Once a gift is completed, it cannot be revoked, as established in relevant case law. This principle has been similarly recognized in Utah law as well.

A Chapter 7 trustee initiated an adversary proceeding against the debtor's spouse, alleging that asset transfers made prior to bankruptcy were fraudulent conveyances and sought a constructive trust on the spouse’s home. The bankruptcy court granted the constructive trust, but the Tenth Circuit reversed this decision, emphasizing the nature of the transaction as a gift. The court highlighted that the debtor was solvent at the time of the transfer and had made the gift willingly without intent to defraud creditors. It found no evidence of fraud, noting that the debtor continued to pay debts and maintain substantial assets during the relevant period. The trustee did not assert claims of fraud related to the transfers, and the debtor had no imminent creditors or legal threats during the time of the gifts. Ultimately, the court concluded that the imposition of a constructive trust was inappropriate, though it remained open to considering unjust enrichment claims related to the gifts.

The Court evaluates whether it would be unjust for Crowley to benefit from the Mortgage Payoff Transfers while recognizing the economic advantage she provided to the Debtor, who lived rent-free with her for 43 months, saving at least $344,000 compared to his previous rent at Parkplace. The Chapter 7 Trustee referenced the Colorado Supreme Court case Shepler v. Whalen, claiming it was relevant due to similarities such as the Debtor living with a spouse and paying off a mortgage. However, the Court distinguished Shepler because it involved a fraudulent conveyance claim rather than unjust enrichment, with the debtor in Shepler having multiple creditors he intended to defraud, which was not the case here. The Trustee failed to prove any fraud related to the Mortgage Payoff Transfers and did not establish that the Debtor had creditors at that time. Consequently, the Court determined that the Trustee did not substantiate a claim for unjust enrichment and denied all claims in the Amended Complaint, ordering judgment in favor of Crowley and First Class Printing, Inc., and denying all pending motions as moot. Requests for attorney's fees and costs must follow applicable procedural rules.

The document outlines procedural details regarding an Adversary Proceeding related to a bankruptcy case, specifically referencing multiple docket numbers and the conventions for citing documents. The Chapter 7 Trustee initiated this proceeding alongside eight other adversary actions involving similar fraudulent conveyance claims. This case was designated as the lead case and is the first to go to trial. Key claims are identified with references to specific Colorado Revised Statutes and various related documents. The testimony presented indicates a close personal relationship between the Debtor and Sue, highlighting their generosity and affection for one another. Additionally, discrepancies arose concerning the amount of a claim, with testimony reflecting confusion between figures of $1.1 million and $1.4 million. Hy Blair's testimony included an acknowledgment of a failed exception regarding the use of trust funds for paying off a house. Throughout, the document uses shorthand references to stipulations and transcripts to maintain clarity in sourcing information.

Hy Blair's testimony exhibits significant inconsistencies throughout the trial. Initially, he stated he prepared Exhibit 21 but later claimed uncertainty about its authenticity, stating he has made similar imports and transfers in the past. He further described Exhibit 21 as "inaccurate." Additionally, Blair's testimony regarding the financial return was inconsistent, referencing $4.5 million instead of $4.2 million, which the Court could not reconcile. The servicer for the mortgage on the Real Property transitioned from Litton Loan Servicing LP to Ocwen in September 2011, with checks not reflecting Ocwen's full name. The Court sustained numerous evidentiary objections to exhibits presented by the Chapter 7 Trustee, particularly regarding financial accounts where only the last four digits of account numbers were provided for privacy. The Defendants sought to use "cost basis" values for UBS No. 3623 instead of the higher fair market values, which the Court accepted despite the lack of justification from the Defendants. This decision resulted in a lower valuation of the Debtor's financial institution accounts. Lastly, the Debtor opened CW No. 8916 on June 2, 2011, indicating no closing balance for May 2011, and this amount aligned with summaries prepared by Heidi Mourning.

Heidi Mourning did not account for a small balance in the WF No. 3363 account for both July and August 2011, leading to discrepancies in the financial summaries she prepared (Ex. P and Q). The Chapter 7 Trustee argues that a $2,372,688.29 Probate Judgment from March 27, 2015, should be retroactively recognized as a liability for the Debtor related to cash and business transfers made in the summer of 2011. This argument is deemed legal in nature, not requiring further factual examination.

Both the Trustee and Defendants agree there is no case law concerning the extension of the Colorado Uniform Fraudulent Transfer Act (CUFTA) definition of "insider" to include "non-statutory insiders," like fiancés. The Bankruptcy Code defines "insider" broadly, capturing relatives and certain business relationships (11 U.S.C. § 101(31)). The Trustee references the CUFTA's Official Comment, suggesting that the term "insider" could encompass individuals living together in a close relationship. This interpretation aligns with the Bankruptcy Code's broader definition, as official commentaries are typically considered persuasive in interpreting statutes.

The Official Comment to Section 102 of the Colorado Uniform Fraudulent Transfer Act (CUFTA) conflicts with the statute's text by referencing the Bankruptcy Code's definition of "insider" and asserting that "includes" is not limiting, suggesting that a long-term household companion could qualify as an "insider." However, the CUFTA's definition of "insider" does not contain the term "includes," as the Colorado legislature chose to narrow the definition by using "means" instead. Consequently, the Official Comment does not pertain to the governing law, which is solely based on the statute. The Court declines to defer to this comment, deeming it neither instructive nor persuasive. 

The Court emphasizes that it is bound by the evidence presented during the trial and expresses uncertainty regarding the status of UBS No. 3623 as collateral for a debt owed to UBS, due to incomplete evidence from the Chapter 7 Trustee. Additionally, it clarifies that in cases converted from Chapter 11 to Chapter 7, the "order for relief" date relevant to the two-year period under Section 546(a)(1)(A) is the date of filing, not the date of conversion. The Court also notes confusion introduced by the Chapter 7 Trustee's references to the Behrends decision, which is distinguishable because the trustee in that case filed suit within the two-year timeframe after the bankruptcy filing.