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In re Muth

United States District Court, D. Colorado

March 11, 2016

In re STEVEN E. MUTH, Debtor.
v.
KIMBERLEY KROHN, Appellee. STEVEN E. MUTH, Appellant,

OPINION AND ORDER ON APPEAL

Marcia S. Krieger Chief United States District Judge

THIS MATTER comes before the Court on the Debtor Steven E. Muth’s appeal of the United States Bankruptcy Court for the District of Colorado’s March 5, 2015 Order awarding attorney fees to Creditor Kimberly Krohn. In reviewing this matter, the Court has considered the designated record and written arguments of the parties, including Mr. Muth’s Opening Brief (#23), Ms. Krohn’s Response Brief (#28), and Mr. Muth’s Reply Brief (#30).

Exercising jurisdiction pursuant to 28 U.S.C. § 158(a), the Court REVERSES the Bankruptcy Court’s March 5, 2015 Order awarding fees, and REMANDS the case to the Bankruptcy Court for further proceedings.

I. Background

The Debtor, Mr. Muth, and Ms. Krohn are former spouses who have been litigating issues from their domestic case in state court for several years. In those proceedings, a judgment entered for Ms. Krohn against Mr. Muth. Mr. Muth filed his voluntary Chapter 11 bankruptcy petition on August 13, 2012, thereby staying Ms. Krohn’s collection on the judgment.

In the bankruptcy case, Ms. Krohn filed a proof of claim for a non-dischargeable domestic support obligation of approximately $45, 000. She also filed a motion to dismiss the bankruptcy case under 11 U.S.C. § 1112(b)(1), asserting as “cause” that Mr. Muth had no reasonable likelihood of rehabilitation and that the bankruptcy case had been filed in bad faith. In the same motion, Ms. Krohn requested that sanctions be imposed against Mr. Muth in the form of an award of attorney fees and costs that were incurred as a result of the bankruptcy filing. The Bankruptcy Court held an evidentiary hearing on the motion.

On July 3, 2013, the Bankruptcy Court granted Ms. Krohn’s motion and dismissed Mr. Muth’s case for cause, finding that Mr. Muth had demonstrated no reasonable likelihood of rehabilitation and that he filed his case in bad faith. The Bankruptcy Court further determined that Ms. Krohn was entitled to recover attorney fees and costs incurred as a result of the bankruptcy filing. Relying on its inherent authority and equitable powers under 11 U.S.C. § 105(a), the Bankruptcy Court found that imposition of sanctions against Mr. Muth was appropriate because he had filed the bankruptcy case, in part, “to disrupt his domestic proceedings and “implement a scheme to divert money to his fiancee.” The Bankruptcy Court noted that Mr. Muth had many months to consider withdrawing his bankruptcy case after Ms. Krohn contested the filing, but he declined to do so. For these reasons, the Bankruptcy Court concluded that Ms. Krohn “should not be required to bear the full cost of Mr. Muth’s bad faith filing.” The Bankruptcy Court directed Ms. Krohn to file a detailed fee application and motion for entry of judgment, which she did.

Before the Bankruptcy Court had an opportunity to quantify the fee award, Mr. Muth appealed the July 3, 2013 Order to the United States Bankruptcy Appellate Panel (BAP) of the Tenth Circuit. See 28 U.S.C. § 158(b). Proceeding pro se, Mr. Muth identified portions of the Bankruptcy Court’s ruling to which he objected. As to the attorney fee award, he argued that because he did not file his bankruptcy petition in bad faith, he should not have to pay any attorney fees. He urged the BAP to “deny attorney fees for [the Bankruptcy Court’s] false findings for fact.” The BAP found no error in the dismissal of the bankruptcy case. Although the BAP did not separately address the fee award in its opinion, it found no error in the Bankruptcy Court’s finding that Mr. Muth had filed his case in bad faith. In the introduction of its opinion, the BAP states that it was addressing Mr. Muth’s appeal of both the dismissal of his case and the award of attorney fees. Ultimately, the BAP affirmed both the dismissal and the award of attorney fees to Mr. Krohn. Mr. Muth did not appeal from the BAP decision.

The appeal having been resolved, the Bankruptcy Court addressed quantification of the fee award. An evidentiary hearing was held, and on March 5, 2015, the Bankruptcy Court entered an order awarding fees to Ms. Krohn in the amount of $19, 546.17 plus interest. The Bankruptcy Court iterated that it had previously dismissed the bankruptcy case because it was filed in bad faith and determined that Ms. Krohn was entitled to her reasonable fees. The Bankruptcy Court quantified the sum awarded by applying the lodestar method. Mr. Muth appeals from the Bankruptcy Court’s March 5, 2015 Order.

II. Issues Presented

Mr. Muth presents two issues:

1. Did the Bankruptcy Court lack authority to impose the attorney fee award against him?

2. Did the Bankruptcy Court err by failing to expressly consider the factors articulated in White v. General Motors Corp., 908 F.2d 675 (10th Cir. 1990), ...


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