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In re DVR, LLC

United States District Court, D. Colorado

August 21, 2019

IN RE DVR, LLC and UTE LAKE RANCH, INC., Debtors.
v.
DVR, LLC, JOLI A. LOFSTEDT - TRUSTEE FOR DEBTOR'S ESTATE, UTE LAKE RANCH, INC., and JANICE STEINLE - TRUSTEE FOR DEBTOR'S ESTATE, Appellees. BRUCE HAMON, Appellant,

          MEMORANDUM OPINION AND ORDER

          LEWIS T. BABCOCK, JUDGE.

         Appellant Bruce Hamon (“Hamon”) appeals the United States Bankruptcy Court for the District of Colorado's (the “Bankruptcy Court”) Order Allowing Settlement Hearing to Proceed dated March 26, 2018 [Doc # 1, Ex. 1] and Order Approving Settlement Agreement dated October 26, 2018 [Doc # 1, Ex. 2]. Oral argument would not materially assist in the determination of this appeal. After full consideration of the record and the parties' briefs, I affirm the orders of the Bankruptcy Court.

         I. Jurisdiction

         Under 28 U.S.C. § 158(a)(1), this Court has jurisdiction to hear appeals from “final judgments, orders and decrees” of the Bankruptcy Court. There is no dispute that the orders that are the subject of this appeal are final and that this Court has jurisdiction over this appeal.

         II. Background

         The approved settlement at issue in this appeal was entered into by the Trustees for DVR, LLC (“DVR”) and Ute Lake Ranch, Inc. (“ULR”) (collectively “Debtors”) and non-party New Lake, LLC (“New Lake”). Barry Freedman (“Freedman”) formed Debtors for the purpose of owning and developing land in New Mexico. Freedman is a majority member and shareholder of Debtors, and Hamon is a minority member and shareholder of Debtors. New Lake is another entity formed by Freedman.

         In 2006, DVR, Hamon, and Freedman, as co-borrowers, borrowed $2.5 million from First National Bank of New Mexico (“FNB”). The FNB loan was evidenced ny a promissory note (the “FNB Note”) and secured by mortgages (the “FNB Mortgages”) on real property owned by Debtors (the “Property”).

         After disputes arose between Freedman and Hamon, multiple lawsuits were filed involving Freedman, Hamon, and other related parties. In particular, Hamon and another minority owner of Debtors, filed Hamon v. ULR, Case No. 2009CV2340 in the District Court for Arapahoe County, Colorado (the “State Court Case”) wherein they asserted claims for breach of fiduciary duty and fraudulent concealment against Freedman and requested dissolution of Debtors or the appointment of a receiver.

         While the State Court Case was pending, DVR defaulted on the FNB Note after Hamon failed to execute a change in terms agreement negotiated by Freedman. Freedman formed New Lake and through it purchased the FNB Note and the FNB Mortgages.

         On November 29, 2012, following a trial, the Arapahoe County District Court (the “State Court”) issued its Findings of Fact, Conclusions of Law, and Order (the “Post-Trial Order”) in the State Court Case. In the Post-Trial Order, the State Court found that Freedman breached his fiduciary duties as manger of DVR by self-dealing with respect to the FNB Note and through mismanagement but that the plaintiffs had not proven that they suffered any resulting damages. The State Court reserved ruling on the plaintiffs' request for judicial dissolution of Debtors but appointed a receiver for them (the “Receiver”).

         Freedman appealed the Post-Trial Order. Hamon moved to dismiss the appeal on the basis that it was untimely due to important matters still pending before the State Court. The Colorado Court of Appeals agreed and dismissed Freedman's appeal. Freedman then filed a motion for clarification or, alternatively, for certification of final judgment pursuant to Colo. R. Civ. P, . 54(b). The State Court denied Freedman's motion.

         On October 24, 2013, the State Court entered an Order Imposing Constructive Trust (the “CTO”) on the FNB Note and FNB Mortgages as requested by the Receiver. In the CTO, the State Court found that New Lake was the alter ego of Freedman and further ordered that the money paid by Freedman to purchase the FNB Note would be deemed a capital contribution to DVR; that the FNB Mortgages were extinguished; and that Freedman or, should Freedman fail to do so, the Receiver execute written releases of the FNB Mortgages. The Receiver ultimately filed releases of the FNB Mortgages.

         Freedman filed a second appeal aimed at the CTO. Hamon again moved to dismiss Freedman's appeal on the basis that it was untimely since there was still no final judgment in the State Court Case. The Colorado Court of Appeals agreed and dismissed Freedman's appeal of the CTO.

         Pursuant to the orders of the State Court, the Receiver attempted to sell the Debtors' Property. To thwart the Receiver's efforts, Freedman and New Lake filed a notice of lis pendens against the Property. The State Court ordered Freedman to release the notice of lis pendens but he failed to do so and instead filed a second notice of lis pendens against the Property. On August 11, 2016, the State Court held New Lake in indirect punitive contempt and imposed a fine of $50, 000. On August 15, 2016, the State Court held Freedman in indirect punitive contempt in four separate instances and sentenced him to 1 week of imprisonment for each instance for a total sentence of 4 weeks imprisonment.

         Ultimately, the Receiver was unable to sell the Debtors' Property and filed bankruptcy petitions for both Debtors. On January 24, 2017, New Lake filed a secured proof of claim in the Debtors' bankruptcy cases in the amount of $2, 529, 713.24 (the “New Lake Claim”) representing the balance owing on the FNB Note. New Lake also filed a notice of appeal from the August 11, 2016 indirect punitive contempt finding against it. This appeal was stayed as a result of the bankruptcy filings.

         A total of forty-nine creditors filed claims in the DVR bankruptcy case, and a total of forty-four creditors filed claims in the ULR bankruptcy case. The unsecured claims asserted in the DVR bankruptcy case total $16, 477, 716.23.

         On June 13, 2017, in reliance on the CTO, Hamon commenced an adversary proceeding (the “Adversary Proceeding”) against New Lake and Freedman objecting to the New Lake Claim pursuant to 11 U.S.C. § 502 and seeking to equitably subordinate the New Lake Claim to the claims of every other unsecured creditor pursuant to 11 U.S.C. § 510(c) and to re-characterize it from a debt claim to an equity claim. Shortly thereafter, with the approval of the Bankruptcy Court, trustees for the Debtors in the bankruptcy cases (the “Trustees”) sold the Property for a purchase ...


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