Glencove Holdings, LLC v. Bloom (In re Bloom)

• Citation: 622 B.R. 366
• Decision Date: 10 September 2020
• Docket Number: Bankruptcy Case No. 17-11650 TBM,Adv. Pro. No. 17-1255 TBM
• Parties: IN RE: Steven W. BLOOM, Debtor. Glencove Holdings, LLC, Plaintiff, v. Steven W. Bloom, Defendant.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado

622 B.R. 366

IN RE: Steven W. BLOOM, Debtor.

Glencove Holdings, LLC, Plaintiff,

v.Steven W. Bloom, Defendant.

Bankruptcy Case No. 17-11650 TBM

Adv. Pro. No. 17-1255 TBM

United States Bankruptcy Court, D. Colorado.

Signed September 10, 2020

Shawn Michael Grady, Houston, TX 77035, Adam L. Hirsch, Davis Graham & Stubbs LLP, Denver, CO, for Plaintiff.

Kelsey Jamie Buechler, David M. Serafin, Denver, CO, for Defendant.

(Opinion in both Bankruptcy Case and Adversary Proceeding)

MEMORANDUM OPINION AFTER TRIAL

Thomas B. McNamara, United States Bankruptcy Judge

I. Introduction.

Bankruptcy provides a temporary safe haven for "honest but unfortunate debtor[s]"¹ who "can reorder their affairs, make peace with their creditors, and enjoy ‘a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt."² The foundation of American insolvency law is the possibility of a discharge which provides a "fresh start" — an economic second chance which acts as a sort of safety valve in our capitalist system. However, not all debtors are entitled to a discharge. The Bankruptcy Code³ "has long prohibited debtors from discharging liabilities incurred on account of their fraud ...."⁴ Those few debtors who engage in pre-bankruptcy dishonesty must continue to bear responsibility for the damages resulting from their misconduct.

At its core, this dispute requires the Court to decide whether Steven W. Bloom ("Mr. Bloom"), a debtor who filed for bankruptcy protection, is an "honest but unfortunate debtor" deserving a discharge of the debt he owes to his largest general unsecured creditor: Glencove Holdings, LLC ("Glencove"). No one really wants to be called out for fraud. However, the facts lead where they lead. This is what happened.

Jennifer and Huw Pierce, a couple of some means, were interested in buying a private jet. Mr. Bloom reached out to represent them as their broker. He suggested that they form a corporate entity, Glencove, to buy the aircraft. Glencove entered into an Agent Agreement with Mr. Bloom's wholly-owned company, Bloom Business Jets, LLC ("BBJ"). Glencove promised to pay $121,000 as an "Agent's Fee" for agency services. Mr. Bloom found a suitable jet and helped Glencove make an initial offer. The seller came back with a favorable counteroffer — better than Mr. Bloom had expected. At that point, Mr. Bloom saw an opportunity to buy the airplane himself (through another wholly-owned company) at a lower price and then simultaneously resell it to his client (Glencove) at a higher price. By engaging in a hidden back-to-back transaction, Mr. Bloom stood to take another $250,000 from Glencove. And that is what he did. Mr. Bloom brazenly lied to Glencove, again and again and again. He concealed from Glencove the favorable counteroffer received from the seller, and pretended that the seller was demanding a higher price. He orchestrated a complex scheme to take advantage of Glencove and, effectively, rob Glencove of the $250,000 price differential.

He lied and concealed many other important details too so that the transaction would close.

There really is no other word more apt for what Mr. Bloom did than "fraud." It took Glencove many months to find out what Mr. Bloom had done. When the truth surfaced, a bitter legal dispute between Glencove and Mr. Bloom ensued. Glencove asserted causes of action in state court for fraud by false representation, fraudulent concealment, and a host of other claims. So, Mr. Bloom filed for bankruptcy protection. Glencove filed a proof of claim for its damages and also sought a determination of nondischargeability of debt by reason of "false representation, false pretenses, and actual fraud" and "willful and malicious injury" under Sections 523(a)(2)(A) and 523(a)(6).⁵ Mr. Bloom contested both the debt and nondischargeability with a myriad of arguments and detours. However, there is no effective legal defense for what he did. In the end, Mr. Bloom is indebted to Glencove and such debt is nondischargeable. Mr. Bloom must continue to bear responsibility for his actions notwithstanding the bankruptcy.

II. Jurisdiction and Venue.

Pursuant to 28 U.S.C. § 1334, this Court has subject matter jurisdiction to adjudicate both of the disputes presented by the parties: allowance or disallowance of Glencove's proof of claim under Section 502; and determination of exceptions to discharge under Section 523(a). Such issues are core proceedings per 28 U.S.C. §§ 157(b)(2)(A) (matters concerning administration of the estate), (b)(2)(B)(allowance or disallowance of claims against the estate), (b)(2)(I) (determinations as to the dischargeability of particular debts), and (b)(2)(O)(other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor relationship). Further, Glencove submitted itself to the jurisdiction of this Court by filing the Glencove Claim. And, with respect to the Adversary Proceeding, both Glencove and Mr. Bloom expressly, knowingly, and voluntarily conceded that this Court has subject matter jurisdiction to enter final judgment on the claims and defenses.⁶ Accordingly, this Court has jurisdiction over the subject matter of the disputes between Glencove and Mr. Bloom. See Wellness Int'l Network, Ltd. v. Sharif , 575 U.S. 665, 135 S. Ct. 1932, 1942-49, 191 L.Ed.2d 911 (2015) (bankruptcy court may enter final judgment even with respect to Stern claims if parties consent); see also Johnson v. Riebesell (In re Riebesell) , 586 F.3d 782, 793-94 (10th Cir. 2009) (bankruptcy courts do have jurisdiction to determine nondischargeability, liquidate nondischargeable debt, and enter monetary judgment on nondischargeable debts). Further, venue is proper in this Court under 28 U.S.C. §§ 1408 and 1409.

III. Procedural Background.

A. The Pre-Bankruptcy State Court Lawsuit.

Mr. Bloom and BBJ have been embroiled in a dispute with Glencove for the last four years. The conflict relates to the acquisition and subsequent management of a private jet. BBJ sued Glencove in Colorado state court in the case captioned: Bloom Business Jets, LLC v. Glencove Holdings, LLC , Case No. 2016-CV-30114 (Pitkin County District Court, Colorado) (the "Colorado Action"). Through the Colorado Action, BBJ sought a judgment against Glencove for alleged unpaid airplane management services. Glencove counterclaimed against BBJ and also brought third-party claims against the following parties: Mr. Bloom; Big Horn Exploration, LLC ("Big Horn Exploration"), which is another company wholly owned by Mr. Bloom; Brad L. Rose, Mr. Bloom's long-time legal counsel ("Mr. Rose"); and Haggan Aviation, Inc. ("Haggan Aviation"), an aircraft repair company recommended by Mr. Bloom.⁷ Glencove's third-party claims against Mr. Bloom in the Colorado Action served as the principal impetus for Mr. Bloom deciding to seek bankruptcy relief.

B. The Bankruptcy Filing and Glencove Claim.

Mr. Bloom filed for protection under Chapter 13 of the Bankruptcy Code on the same day Glencove asserted third-party claims against him in the Colorado Action: March 3, 2017.⁸ A few months later, Glencove submitted a $602,393 general unsecured Proof of Claim⁹ (Claim No. 7-1, the "Glencove Claim"). In support of the Glencove Claim, Glencove attached a statement itemizing damages and a copy of the "Counterclaim and Third-Party Complaint" (the "Third-Party Complaint") in the Colorado Action¹⁰ through which Glencove asserted causes of action against Mr. Bloom for fraud, fraudulent concealment and inducement, negligent misrepresentation, violation of the Colorado Consumer Protection Act, negligence and gross negligence, civil conspiracy, and attorneys' fees all related to the airplane dispute. The Glencove Claim is the largest general unsecured claim against Mr. Bloom, and its treatment has been one of the major conflicts in Mr. Bloom's Bankruptcy Case.

A few months after Glencove filed the Glencove Claim, Mr. Bloom filed an "Objection" (the "Objection")¹¹ requesting that the Glencove Claim be disallowed in its entirety. Later, Glencove submitted a "Response to Debtor's Objection," further supporting the Glencove Claim.¹² And, Mr. Bloom tallied last with his "Response to Glencove Holdings, LLC's Response" (the "Response").¹³ The dispute concerning the Glencove Claim ultimately proceeded to trial and is now ripe for decision.

C. The Adversary Proceeding.

On June 19, 2017, Glencove filed its "Complaint for Determination of Non-Dischargeability of Certain Debts Pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (a)(6)" (the "Complaint") against Mr. Bloom initiating an Adversary Proceeding.¹⁴ Through the Complaint, Glencove asserted that Mr. Bloom is indebted to Glencove and that such indebtedness should be determined to be nondischargeable based upon "false pretenses, a false representation or actual fraud" under Section 523(a)(2)(A) and "willful and malicious injury" under Section 523(a)(6). In terms of underlying liability, the Complaint mirrors the Glencove Claim.

Mr. Bloom submitted an "Answer" (the "Answer")¹⁵ to the Complaint wherein he generally denied liability and nondischargeability. He also asserted certain affirmative defenses and counterclaims¹⁶ against Glencove. The dispute concerning the Complaint and Answer ultimately proceeded to trial and must be decided by the Court.

D. The State Court Detour.

On December 18, 2017, Glencove filed a "Motion for Relief from Automatic Stay Pursuant to 11 U.S.C. § 362(d)(1), Fed. R. Bankr. P. 4001(a), and L.B.R. 4001-1" (the "Motion for Relief from Stay").¹⁷ In the Motion for Relief from Stay, Glencove observed that the Colorado Action had been stayed by virtue of Mr. Bloom's bankruptcy case (at least with respect to claims by and against Mr. Bloom) but that some discovery had already been conducted and "trial is expected to begin in the summer of 2018."¹⁸ Glencove requested that the Court grant relief from stay to permit Glencove and Mr. Bloom to return to state...