Court Opinion

ID: 2743043
Source: CourtListenerOpinion
Date Created: 2014-10-16 16:01:00.213381+00
Date Added: 2024-06-11T10:05:21.185573
License: Public Domain

FILED
                                                     United States Court of Appeals
                        UNITED STATES COURT OF APPEALS       Tenth Circuit

                                FOR THE TENTH CIRCUIT                  October 16, 2014

                                                                     Elisabeth A. Shumaker
                                                                         Clerk of Court
In re:

LAWRENCE A. BROCK;
DIANE MELREE BROCK,

               Debtors.                              Nos. 14-1040 & 14-1057
                                                      (BAP No. 12-001-CO)
------------------------------------------                    (BAP)

LAWRENCE A. BROCK;
DIANE MELREE BROCK,

               Appellants/Cross-Appellees,

v.

ALEC J. GLASSER, Trustee of Alec J.
Glasser Defined Benefit Pension Plan,

               Appellee/Cross-Appellant.

                                 ORDER AND JUDGMENT*

Before KELLY, PORFILIO, and MATHESON, Circuit Judges.

*
      After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
      Case No. 14-1040 is an appeal by Lawrence A. Brock and Diane Melree Brock

(Brocks) from an opinion of the Bankruptcy Appellate Panel of the Tenth Circuit

(BAP), which affirmed an order of the United States Bankruptcy Court for the

District of Colorado (bankruptcy court), that denied their objection to a claim filed by

the Alec J. Glasser Defined Benefit Pension Plan (Glasser Pension Plan), and allowed

the Plan an unsecured claim against their Chapter 11 bankruptcy estate. The gist of

the bankruptcy court’s order was that the Brocks, as settlors of the Lawrence A.

Brock and Diane Melree Brock Revocable Inter Vivos Trust (Brock Trust), were

individually liable to the Plan for the obligations of the Trust. Case No. 14-1057 is a

cross appeal by the Plan as to the amount of the claim. Exercising jurisdiction under

28 U.S.C. § 158(d)(1), we reverse the court’s order in Case No. 14-1040, and dismiss

as moot the Plan’s cross appeal in Case No. 14-1057.

                                           I.

      The relevant facts are undisputed. In 1995, the Brocks, who are husband and

wife, settled the Brock Trust. In 2007, the Trust contracted to buy commercial real

estate in Laguna Beach, California (California Property), from Forest Partners I

(Forest Partners), an entity controlled by Alec J. Glasser, for approximately

$4 million. Shortly before the closing, the Brocks’ financing fell through, and the

Trust subsequently arranged for payment to Forest Partners of approximately

$1 million in cash and loans totaling approximately $3 million from two entities

controlled by Mr. Glasser, namely AJG Property LP (AJG) and the Glasser Pension

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Plan. To that end, the Brocks, solely in their representative capacities as trustees of

the Trust, executed two promissory notes: one to AJG for $2.45 million and the other

to the Plan for $500,000 (Brock Trust Note). The Note was secured by a junior deed

of trust encumbering the California Property.

      In 2008, the Brock Trust reached an agreement with Bank of the West (Bank)

to refinance the California Property. As part of this transaction, the Glasser Pension

Plan agreed to subordinate its lien encumbering the California Property to a new deed

of trust executed in favor of the Bank. Citing concerns about the Bank’s draconian

subordination agreement, the Plan obtained from the Brocks a Colorado form Deed of

Trust that encumbered their residential property in Boulder, Colorado (Colorado

Deed of Trust), as additional security for the Brock Trust Note.

      The Brocks filed a voluntary Chapter 11 petition in bankruptcy in 2010.

Initially, the Glasser Pension Plan filed a secured claim against the Brocks’

bankruptcy estate in the amount of $554,365 (the loan amount plus interest). The

Brocks objected to the claim “on several grounds[,]” including “the entity which

purchased [the California Property] from Glasser in 2007, Lawrence A. Brock and

Diane Melree Brock, as trustees of the [Brock Trust], is a legal entity separate from

[Lawrence A. Brock and Diane Melree Brock] individually.” Aplt. App. Vol. 1

at 129. But because the Colorado Deed of Trust was not recorded until after the

Brocks filed their petition, the Plan amended its filing to assert a general unsecured

                                          -3-
claim. Using slightly different language, the Brocks again raised the objection that

the Brock Trust was a separate legal entity.

       In 2011, the bankruptcy court conducted a hearing regarding the Brocks’

objection to the Glasser Pension Plan’s claim. In its subsequent written order, the

court overruled the Brocks’ objection and found that the Plan held a general

unsecured claim for $500,000 against the Brocks’ bankruptcy estate. Relevant to the

Brocks’ argument that they were not to be individually liable for a debt owed by the

Brock Trust, the court acknowledged that the Brock Trust Note was between the

Trust and the Plan, and executed by the Brocks in their capacities as trustees – not

individually. It also acknowledged that the Brocks did not personally guarantee the

Note. Nonetheless, the court concluded that the Brocks, individually, were liable for

the Note for two reasons: because the Colorado Deed of Trust “shows it was made

by Lawrence Brock and Diane Brock, with no reference to the Trust,”1 and as “both

the settlors and beneficiaries of the Trust[] . . . creditors can reach their interests.”2

Id. at 156.

1
       The Colorado Trust Deed was evidence of security for a debt owed by the
Brock Trust, and not evidence of a separate debt. See generally Plymouth Capital
Co. v. Dist. Court of Elbert Cnty., 955 P.2d 1014, 1015 (Colo. 1998) (explaining
difference between a deed of trust and the debt secured by trust deed).
2
       The Glasser Pension Plan argues that the Brocks failed to preserve this issue
for appeal by failing to adequately raise it in the bankruptcy court. To the contrary,
the issue was raised in the Brocks’ objections and their trial brief, and was expressly
addressed, albeit briefly, in the court’s written order.

                                            -4-
         The Brocks appealed to the BAP. While that appeal was pending, the Brocks

and Glasser Pension Plan entered into a settlement agreement and filed it for

bankruptcy court approval. In the meantime, the Bank, which was in litigation with

the Brocks over its right to a deficiency claim, filed an objection. The Brocks, with

the consent of the Plan, obtained a postponement of the appeal pending the outcome

of the Bank’s litigation. Following the court’s resolution of the Bank’s claim, which

it denied, the Brocks moved to withdraw the settlement agreement. The court

granted the motion over the objection of the Plan. Noting the pendency of not only

the Brocks’ appeal, but also an appeal filed by the Bank, the court reasoned that

“the landscape of the instant case would change significantly [because the outcome

of the appeals] would certainly impact any proposed plan of reorganization and any

settlement between the parties,” and found “cause exists to permit withdrawal.”

Aplee. App. Vol. II at 944.

         In the BAP, the Glasser Pension Plan moved to dismiss the appeal on the

grounds that the Brocks made “false representations to [the BAP] and to [it] in order

to induce [the BAP] and [the Plan] to delay appeal proceedings in this case.”

Id. at 888. The BAP denied the motion. It noted that the “decision was made by the

bankruptcy court, whose approval of any such settlement is required,” and refused to

“sanction a party based on the action of the bankruptcy court.” Aplt. App. Vol. 1 at

42-43.

                                          -5-
       As to the merits, the BAP reasoned that because the assets of the Brock Trust

are included in the Brocks’ bankruptcy estate, it would be “illogical” to deprive

creditors of the Brock Trust a recovery of those assets:

       The [Glasser Pension Plan’s claim is] to a proportionate share of what
       may be netted from disposition of all estate assets, including Brock
       Trust assets. To deny that recovery would illogically deprive the Plan
       of assets that belonged to the Brock Trust when the bankruptcy petition
       was filed, while allowing recovery from those same assets to non-trust
       creditors. Avoidance of such an illogical result is precisely why the
       Brocks’ and the Brock Trust’s debts and assets must be treated as one
       and the same.

Id. at 48.
                                            II.

       “When reviewing a decision of the BAP, this Court reviews only the

Bankruptcy Court’s decision, treating the BAP as a subordinate appellate tribunal

whose rulings may be persuasive, but are entitled to no deference.” In re Borgman,

698 F.3d 1255, 1259 (10th Cir. 2012). We review the bankruptcy court’s legal

conclusions de novo, including “state law legal issues.” Id. (internal quotation marks

omitted).

                                            III.

       For its first argument, the Glasser Pension Plan asks this court to dismiss the

appeal outright for alleged fraud on the court relating to the bankruptcy court’s order

permitting the Brocks to withdraw the settlement agreement. There is no merit to

this argument, which is nothing more than an end run on an order that has not been

appealed to either the BAP or this court.

                                            -6-
       As to the merits, the parties agree that Colorado law applies. They also agree

that Colorado law recognizes the general rule that a creditor can reach a debtor’s

assets placed in trust to the same extent that the debtor is entitled to reach such

assets. See, e.g., In re Cohen, 8 P.3d 429, 433 (Colo. 1999) (holding creditors can

reach assets of trust “to the same extent as the maximum amount that would be

payable to the beneficiary in the trustee’s discretion.”) (internal quotation marks

omitted). They disagree, however, whether this general rule can be extrapolated to

mean, as the bankruptcy court held, that the settlor of a trust is liable for obligations

incurred by the trust. We agree with the Brocks that it cannot.

       The linchpin of the bankruptcy court’s holding was § 156 of the Restatement

(Second) of Trusts, applied by the Colorado Supreme Court in Cohen, 8 P.3d at

432-33, and sets forth the general rule that a creditor may reach assets placed in trust

by the settlor of a trust created for the benefit of the settlor. Restatement (Second) of

Trusts § 156 (1959). We agree with the Brocks, however, that this case “presents the

opposite situation from that described in the Restatement. Here, a lender (the Glasser

Pension Plan) agreed to look solely to a trust (the Brock Trust) for repayment of a

loan and elected not to require the settlors of the trust to assume personal liability for

the loan.” Aplt. Opening Br. at 10. As such, § 156 does not support the bankruptcy

court’s holding that property held individually by the Brocks can be reached in

satisfaction of the debts of the Brock Trust.

                                           -7-
      Nor are we persuaded by the BAP’s reasoning that it “would [be] illogical[]

[to] deprive the [Glasser Pension] Plan of assets that belonged to the Brock Trust

when the bankruptcy petition was filed, while allowing recovery from those same

assets to non-trust creditors.” Aplt. App. Vol. 1 at 48. While such a result may

appear “illogical” to the BAP, this is what the parties agreed to.

      We also disagree with the Glasser Pension Plan’s argument that the Brock

Trust is a “sham.” As a preliminary matter, Colorado recognizes that a trust is a

separate entity distinct from its settlor, trustee or beneficiaries. “Only when the trust

is completely illusory, such as when the putative settlor reserves possession and

control in all particulars, will it be deemed invalid.” Exch. Nat’l Bank of Colo.

Springs v. Sparkman, 554 P.2d 1090, 1092 (Colo. 1976) (internal quotation marks

omitted). There is no evidence in the record to support the Plan’s argument that the

Trust was a “sham,” nor is there any evidence that the trust formalities were ignored.

      We also disagree that the Glasser Pension Plan was misled from presenting

evidence of a “sham” trust. According to the Plan, a remark made by the Brocks’

lawyer in his opening statement that he would not rely on the Brock Trust “[a]s a

shield,” Aplt. App. Vol. 2 at 178, amounted to a judicial admission that excused the

Plan from presenting any evidence that the Brock Trust was a “sham.” To the

contrary, a judicial admission is a “formal admission[] . . . which ha[s] the effect of

withdrawing a fact from issue and dispensing wholly with the need for proof of the

fact.” Guidry v. Sheet Metal Workers Int’l Ass’n, Local No. 9, 10 F.3d 700, 716

                                          -8-
(10th Cir. 1993) (internal quotation marks omitted), abrogated in part on other

grounds on reh’g, 39 F.3d 1078 (1994) (en banc). Counsel’s remark does not meet

this test, especially because it was a legal argument, and the doctrine does not apply

to “proposition[s] of law.” Id.

      Last, because we have determined that the Glasser Pension Plan does not have

a claim against the Brocks’ bankruptcy estate, the amount of that claim is moot. We

therefore dismiss Case No. 14-1057.

      This matter is remanded to the BAP with instructions to remand to the

bankruptcy court for further proceedings consistent with this order and judgment.

                                               Entered for the Court

                                               Paul J. Kelly, Jr.
                                               Circuit Judge

                                         -9-