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In re Centrix Financial, LLC

United States District Court, D. Colorado

April 2, 2014

In re: CENTRIX FINANCIAL, LLC, et al., Debtors.
v.
ROBERT E. SUTTON, et al., Defendants. CENTRIX FINANCIAL LIQUIDATING TRUST, et al., Plaintiffs,

ORDER

PHILIP A. BRIMMER, District Judge.

This matter is before the Court on defendants' Renewed Request for Ruling on Rule 12(b) "Motion to Dismiss" [Docket No. 98].[1] The Sutton defendants state that, in June 2009, they moved to dismiss this adversary proceeding in the United States Bankruptcy Court for the District of Colorado (the "bankruptcy court") and that no ruling has been entered on that motion. Docket No. 98 at 2, ¶ 3.

I. BACKGROUND

A. Chapter Eleven Bankruptcy Proceeding

In September 2006, CMGN, LLC and a number of related entities entered bankruptcy under chapter eleven of the United States Bankruptcy Code.[2] Case No. 06-16403-EEB (Bankr. D. Colo. 2006); 11 U.S.C. § 1101 et seq. Plaintiffs Centrix Financial Liquidating Trust and Jeffrey A. Weinman, as trustee, allege that, at all relevant times, defendant Robert Sutton ("Sutton") controlled the bankrupt entities. Case No. 08-01593-EEB, Docket No. 129 at 9, ¶ 27.

On June 21, 2007, Sutton and defendant 6762 Potomac, LLC ("Potomac") filed proofs of claim for general unsecured prepetition claims totaling approximately $280 million. Case No. 06-16403-EEB, Docket Nos. 1391 at 1 and 1391-1 at 16. On September 7, 2007, Sutton and Potomac filed motions for allowance and payment of administrative claims totaling close to $250 million. Docket Nos. 1548 and 1550.

On April 15 and 16, 2008, Sutton and Potomac filed over seventy objections to proofs of claims filed by other claimants. Case No. 06-16403-EEB, Docket No. 2164. On April 16, 2008, the bankruptcy court ordered Sutton and Potomac to cease filing claims objections pending a decision regarding their standing to file such objections. Id., Docket No. 2164. The bankruptcy court held in abeyance the claims objections that Sutton and Potomac had already filed and ordered Sutton and Potomac to file a brief on the issue of standing. Id.

On May 16, 2008, the bankruptcy court confirmed the Second Amended Liquidating Chapter 11 Plan Proposed by Debtors and Creditors' Committee Dated January 25, 2008. Id., Docket Nos. 1831 and 2203. Sutton and Potomac, along with defendants Roland Anderson and John Schreven, had objected to the plan on a number of grounds, including that it stripped all parties in interest-other than the liquidating trustee-of standing to file claims objections. Id., Docket No. 1943 at 3; see also Docket No. 1831 at 11, Art. 9, ¶ A. The bankruptcy court overruled their objection in reliance on In re Adelphia Communications Corp., 371 B.R. 660 (S.D.N.Y. 2007), and In re Western Asbestos Co., 313 B.R. 832 (Bankr. N.D. Cal. 2003). Id., Docket No. 2188 (Oral Ruling on Plan Confirmation and Sutton's Applications for Admin Expense) at 11, ll.17-20 ("This Court follows the lead of these other courts in holding that a plan may specify that the right to object to claims post-confirmation rests in the successor to the debtors, here the liquidating trustee.").

On May 27, 2008, Sutton and Potomac filed a brief on the issue of standing. Id., Docket No. 2230. The same day, Sutton, Potomac, and Centrix Consolidated, LLC jointly appealed the following bankruptcy court rulings:

• the bankruptcy court's May 16, 2008 Orders confirming the liquidating chapter eleven plan over appellants' objections, which were related to their inability to file claims objections under the plan;
• the May 15, 2008 Order and Judgment disallowing Sutton's administrative expense claim; and
• "all underlying orders and rulings that became final upon" confirmation of the plan, including, "without limitation":
• the January 16, 2008 ruling denying Sutton and Potomac's motion to conduct examination pursuant to Federal Rule of Bankruptcy Procedure 2004;
• the January 17, 2007 Order Approving Disclosure Statement and Setting Confirmation Hearing;
• the April 21, 2008 ruling disallowing certain of Sutton's administrative claims and estimating Sutton and Potomac's remaining administrative claims at zero;
• the April 16, 2008 Order directing Sutton and Potomac to cease filing claims objections; and
• the April 21, 2008 ruling authorizing amendments to the Second Amended Plan of Reorganization and announcing the bankruptcy court's intent to confirm the plan.

Id., Docket No. 2227 at 1-2; Case No. 08-cv-1130-PAB. Appellants argued in part that, "[ t ] o the extent that Sutton and Potomac are threatened with litigation claims seeking to subject them to liability for the Debtors' unpaid obligations while the Plan strips them of the right to object to the validity and amount of those claims due ...


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