United States District Court, D. Colorado
In re PETER H. BLAIR, Debtor.
ORDER DENYING SUELLA CROWLEY BLAIR’S MOTION TO INTERVENE AND MOTION TO RECONSIDER CONVERSION
Thomas B. McNamara, United States Bankruptcy Judge
The death of Debtor Peter H. Blair (the “Debtor”) during the early stages of his bankruptcy case has created a series of challenging legal issues at the undeveloped intersection of bankruptcy and probate law. Prior to his demise (and in another forum), the Debtor was engaged in internecine litigation with his own offspring by his former (deceased) spouse, Audrey R. Blair. The Debtor’s children successfully alleged that the Debtor had breached fiduciary duties and engaged in self-dealing effectively robbing the children of part of their substantial inheritance. The Debtor suffered an adverse surcharge judgment of $2, 372, 688 which prompted the Debtor’s petition for reorganization under Chapter 11 of the Bankruptcy Code. Shortly after his death, the Court converted this case to a Chapter 7 liquidation.
Now, the Debtor’s second wife and widow, Suella Crowley Blair (in various capacities), seeks authorization to “intervene generally” in the administration of this case. Furthermore, if general intervention is granted, she requests that the Court reconsider and vacate the key decision converting this proceeding from Chapter 11 to Chapter 7. Mrs. Crowley Blair insists that dismissal of this case is the only permissible course. Creditors holding the vast majority of the claims in this case disagree.
So, the threshold question is this: May Suella Crowley Blair intervene generally in her deceased husband’s Chapter 7 liquidation proceeding? Mrs. Crowley Blair admits that she is not a creditor in this bankruptcy case. She concedes that she is not a party in interest either. In state court, Mrs. Crowley Blair has applied for approval as the personal representative of her husband’s separate probate estate. However, her appointment is contested by the Debtor’s children. As a result, a neutral special administrator has been appointed on a temporary basis to administer the Debtor’s probate estate. So, as it stands now, Mrs. Crowley Blair is not a personal representative or administrator for her husband’s probate estate.
Suella Crowley Blair proposes to intervene generally as “Trustee of the Peter H. Blair Retirement Trust #1, as Trustee of the Peter H. Blair Revocable Trust, and as nominee personal representative [of the Debtor’s probate estate].” As set forth below, and based upon the record developed in this case, the Court exercises its discretion and determines that Mrs. Crowley Blair’s purported interests are so attenuated and indirect that general intervention is not warranted in this case. Mrs. Crowley Blair (in her various capacities) also does not have a sufficient basis to intervene in case administration matters (including the decision to convert from Chapter 11 to Chapter 7). Accordingly, the Court denies both the pending “Motion to Intervene Pursuant to Fed.R.Bankr.P. 2018(a)” (Docket No. 182, the “Motion to Intervene”) and the “Motion Seeking Relief from Order Converting Case Under Chapter 11 to Case Under Chapter 7 Pursuant to Fed.R.Civ.P. 60(b)(4) and (6) and Fed.R.Bankr.P. 9024” (Docket No. 183, the “Motion to Reconsider”).
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. The matters raised in and by the Motion to Intervene and the Motion to Reconsider are core proceedings under 28 U.S.C. §§ 157(b)(2)(A) and (O). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
A. The Pre-Petition Probate Surcharge Judgment.
The Debtor was married to Audrey R. Blair from 1950 until her death in 2007. They had three children: Peter Heyliger Blair, Jr. (“Hy Blair”), Christopher Blair (“Christopher Blair”), and Audrey Black (“Audie Black”). At her death, Audrey R. Blair’s substantial assets passed (at least in part) to the Audrey R. Blair Revocable Trust (the “ARB Revocable Trust”) and at least two sub-trusts: the GST-Exempt Marital Trust (the “GST Exempt Trust”) and the Non-Exempt Marital Trust (the “Non-Exempt Trust”). Together the ARB Revocable Trust, the GST Exempt Trust and the Non-Exempt Marital Trust are referred to hereinafter as the ARB Trusts. The Debtor acted as a trustee of the ARB Trusts from 2007 until 2011.
In 2012 (after the Debtor married Suella Crowley Blair), Hy Blair, as the trustee of the ARB Trusts, brought an action against his father, the Debtor, in the Probate Court for the City and County of Denver (the “Probate Court”): In the Matter of The Audrey R. Blair Revocable Trust, GST-Exempt Marital Trust, and Non-Exempt Marital Trust, Case No. 2012-PR-2227 (Probate Court, City and County of Denver)(the “Probate Surcharge Action”). In the Probate Surcharge Action, Hy Blair alleged that the Debtor breached fiduciary duties and engaged in self-dealing with respect to the ARB Trusts, thereby justifying a surcharge against the Debtor. In addition to Hy Blair and the ARB Trusts, Christopher Blair and Audie Black joined in the Probate Surcharge Action. Thereafter, Christopher Blair became the sole trustee of the ARB Trusts in place of Hy Blair.
On March 27, 2015, the Probate Court entered its “Findings of Fact, Conclusions of Law and Order” in the Probate Surcharge Action (the “Probate Surcharge Judgment”). (Docket No. 32, Exhibit A.) The Probate Court determined that the Debtor has committed malfeasance, granted surcharge, and entered an award of damages against the Debtor in the amount of $2, 372, 688. Shortly thereafter, the Probate Court also froze the Debtor’s assets.
During his lifetime, the Debtor contested the Probate Surcharge Action. Subsequently, he also appealed the Probate Surcharge Judgment. However, it is common ground that the entry of the Probate Surcharge Judgment and the related freeze order prompted the Debtor to seek bankruptcy protection.
B. The Bankruptcy Case.
On May 7, 2015, the Debtor filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code and initiated this case. Contemporaneously, the Debtor filed his Statement of Financial Affairs and Schedules. (Docket No. 3.)
1. The Creditors.
In his bankruptcy case, the Debtor listed just 6 creditors as follows:
Audrey R. Blair Revocable Trust (Note Payable) $1, 034, 673
Christopher Blair (Damages for Probate Surcharge Judgment) $2, 372, 688
GHP Horwath, PC $ 5, 082
Dymond Reagor Colville, LP $ 2, 732
Capital One $ 1, 557
Safeco Homeowners Insurance $ 1, 268
In addition, the Debtor listed Christopher Blair, Hy Blair, and Audrey Black, individually, in relation to the $2, 372, 688 Probate Surcharge Judgment for “notification” purposes. Thus, according to the Debtor’s Schedules, the interests of the ARB Trusts (and/or Christopher Blair, Peter H. Blair, Jr., and Audrey Black) totaled 99.7 percent of all scheduled claims. Subsequently, Christopher Blair, Hy Blair, and Audrey Black also filed proofs of claim including additional amounts for legal fees and costs. The Internal Revenue Service also filed a poof of claim.
The net result of the foregoing is that the bankruptcy case started as primarily a “two party dispute, ” pitting the Debtor on the one hand against the interests of his children (i.e., the ARB Trusts and Christopher Blair, Hy Blair, and Audrey Black) on the other hand.
Importantly, neither Suella Crowley Blair, the Peter H. Blair Retirement Trust #1, nor the Peter H. Blair Revocable Trust was listed by the Debtor as a creditor in this case. Further, neither Suella Crowley Blair, the Peter H. Blair Retirement Trust #1, nor the Peter H. Blair Revocable Trust ...