Weinman v. Crowley (In re Blair)

• Decision Date: 09 November 2018
• Docket Number: Adv. Pro. No. 17-1195 TBM,Bankruptcy Case No. 15-15008 TBM
• Citation: 594 B.R. 712
• Parties: IN RE: Peter H. BLAIR, Debtor. Jeffrey A. Weinman, Chapter 7 Trustee, Plaintiff, v. Suella M. Crowley, First Class Printing, Inc., Defendants.
• Court: U.S. Bankruptcy Court — District of Colorado

594 B.R. 712

IN RE: Peter H. BLAIR, Debtor.Jeffrey A. Weinman, Chapter 7 Trustee, Plaintiff,

v.Suella M. Crowley, First Class Printing, Inc., Defendants.

Bankruptcy Case No. 15-15008 TBM

Adv. Pro. No. 17-1195 TBM

United States Bankruptcy Court, D. Colorado.

Signed November 9, 2018

Kenneth J. Buechler, Jonathan Dickey, Denver, CO, for Plaintiff.

F. Brittin Clayton, III, Anne E. Zellner, Denver, CO, for Defendants.

MEMORANDUM OPINION AFTER TRIAL

Thomas B. McNamara, United States Bankruptcy Judge

I. Introduction.

This is a true Shakespearean tragedy — but written in dry legal prose. The main character, Peter H. Blair, Sr., served as the patriarch of his family. Married to an heiress for almost 60 years, they were the beneficiaries of great wealth. He managed the money and served as an investment counselor for his extended family as well as other families of means. Peter H. Blair, Sr. and his wife sought to protect their wealth and provide for their three children by creating a series of trusts funded mostly by her inheritance. Together, they served as co-trustees. They lived in privilege for decades until she died after a long illness.

By the time his wife died, Peter H. Blair, Sr. was retired. He moved to a luxury retirement community but was very lonely. Enter Suella Crowley. She worked as a caregiver for his friend. He became enamored with her even though they didn't really know each other. He skipped the courting and moved to a surprise and unconventional proposal of marriage in March 2011. She had suffered some hard times including several divorces and debt. They came from very different backgrounds and circumstances. He promised to take care of her financially and otherwise. She agreed and felt like Cinderella. They started to plan their life together.

When they informed Peter H. Blair, Sr.'s three children, there were no "congratulations" or "well wishes." There was only conflict. His eldest son seemed to despise her from the start. It got worse as their father professed his love and intention to support his fiancé. They investigated her and engaged in a campaign trying to convince their father not to marry her. She was not right for him, they thought. Perhaps he was deranged or mentally unstable? And, if their elderly father really was going to support her, well, then there would be less inheritance for them.

They investigated their father and accused him of misappropriating money from the trusts. Bitterly, he denied it; but he did all they asked. He transferred $4.5 million back to the trusts, he signed over a house to one son, and he resigned as co-trustee of the trusts allowing his children to manage them instead. He thought he bought peace by settling with his children and the trusts. He still had more than $700,000 in bank accounts plus another $6,000,000 in IRAs. Now, he could marry his new-found love and live his golden years. But he was wrong. Perhaps it was all preordained.

Peter H. Blair, Sr. started to make good on his promises to his fiancé. He gave her and her small printing company about $70,000. He started to pay her mortgage. They got married in September 2011. They remodeled her house to make it more comfortable for him. He moved in. And, then he paid off her entire mortgage: more than $350,000. He wanted her to be stress-free and financially secure. All the while, he continued to pay his other bills: rent (until he moved), country clubs, church pledges, life insurance, health insurance, credit cards, accountants, and attorneys.

Estranged from his children, he carried on his new life. But about a year later, one of his sons and the trusts made new demands against him. They accused him of mismanagement and breach of trust. They sued their father. The litigation was acrimonious. But, the trusts emerged victorious. In March 2015, they won a judgment in excess of $2.3 million against Peter H. Blair, Sr. It destroyed him. He filed for bankruptcy. And, then he died a broken man.

The Chapter 7 Trustee came in to pick up the pieces of what remained. The Debtor's children and the trusts filed 95% of the claims. There really were no other significant creditors. Armed with the fruits of the children's investigation of their father's financial affairs and the $2.3 million judgment, the Chapter 7 Trustee sued the Debtor's wife, Suella Crowley, and her printing company to recover money for the bankruptcy estate. He accused the Debtor of engaging in actual and constructive fraud when the Debtor paid her and her company the $70,000 many years earlier. He sought to disallow her claim against the bankruptcy estate. And, he demanded one-half of the house that she had owned for more than 20 years because her husband had paid off the mortgage.

Another year of litigation and the final act played out in this Court. A trial. The Court heard from an assortment of characters: Suella Crowley, one of the Debtor's sons, one of Suella Crowley's sons, an attorney, some friends, and an accountant. The Court listened to the lawyers and their arguments. And, now the final curtain closes. Although one party will win, and one will lose, the truth is a tragedy.

II. Jurisdiction and Venue.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. The avoidance, fraudulent transfer, claim disallowance, and declaratory judgment causes of action are core proceedings under 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)(H) (proceedings to determine, avoid, or recover fraudulent conveyances), and (b)(2)(O) (other proceedings affecting liquidation of assets of the estate). This Court also has jurisdiction over the declaratory judgment claim under 28 U.S.C. § 2201 et seq. Accordingly, the Court may enter final judgment on all causes of action and defenses in the Adversary Proceeding. Venue is proper in the Court pursuant to 28 U.S.C. §§ 1408 and 1409. All of the parties repeatedly have acknowledged and consented to the Court's exercise of jurisdiction and the propriety of venue in the Court.¹

III. Procedural Background.

A. The Bankruptcy Case, Adversary Proceeding, and Causes of Action.

The Debtor, Peter H. Blair (the "Debtor"), filed for protection under Chapter 11 of the Bankruptcy Code² on May 7, 2015 in the case captioned: In re Peter H. Blair , Case No. 15-15008 TBM (Bankr. D. Colo.) (the "Bankruptcy Case").³ Shortly after initiating the Bankruptcy Case, the Debtor died.⁴ Thereafter, the Court converted the Bankruptcy Case from a Chapter 11 reorganization to a Chapter 7 liquidation.⁵ On August 20, 2015, the United States Trustee appointed Jeffrey A. Weinman as the Chapter 7 Trustee for the Debtor's estate in the Bankruptcy Case.⁶

About two years after the commencement of the Bankruptcy Case, on May 5, 2017, the Chapter 7 Trustee initiated this Adversary Proceeding against Suella M. Crowley ("Crowley"), the Debtor's widow, and First Class Printing, Inc. ("First Class"), an entity affiliated with Crowley.

(Docket No. 1, the "Original Complaint.")⁷ In the Original Complaint, the Chapter 7 Trustee alleged that the Debtor: (1) gave at least $8,144 in cash to Crowley (the "Cash Transfers"); and (2) transferred at least $55,762 to Crowley "through her business First Class ..." (the "Business Transfers"). The Chapter 7 Trustee claimed that the Debtor made the Cash Transfers and the Business Transfers with actual intent to defraud in violation of Colorado Uniform Fraudulent Transfer Act (the "CUFTA").⁸ He also asserted that the Cash Transfers and Business Transfers constituted constructive fraud under the CUFTA.⁹ Further, the Chapter 7 Trustee sought to "preserv[e] any and all avoided transfers" and to disallow Crowley's claim in the Bankruptcy Case.¹⁰ The Defendants did not respond to the Original Complaint.

Instead, on May 24, 2017, the Chapter 7 Trustee filed an Amended Complaint. (Docket No. 6, the "Amended Complaint.") The Amended Complaint is the operative pleading and is virtually identical to the Original Complaint except that the Chapter 7 Trustee added: (1) a series of new allegations concerning Crowley's home located at 2777 South Elmira Street, Denver, Colorado (the "Real Property"); and (2) a new cause of action for declaratory relief.¹¹ The Chapter 7 Trustee asserted that "between June 7, 2011 and January 19, 2012, the Debtor made payments in the amount of not less than $358,593" to pay off Crowley's mortgage on the Real Property (the "Mortgage Payoff Transfers").¹² Based upon the alleged Mortgage Payoff Transfers, the Chapter 7 Trustee requested a declaratory judgment determining that he is entitled "to not less than one-half of the [Real] Property."¹³ The Chapter 7 Trustee did not assert that the Mortgage Payoff Transfers were fraudulent under the CUFTA. The Defendants answered the Amended Complaint and denied any liability. (Docket No. 15, the "Answer.") The Court set the case for a three-day trial commencing on August 6, 2018.

B. The Pre-Trial Proceedings and Evidentiary Rulings.

In the run-up to trial, the parties engaged in unusually extensive discovery skirmishes and motions practice including, motions to compel, motions to quash, a motion to seal documents, a motion to redact documents, motions for summary judgment, and motions to limit or exclude evidence. During the pre-trial jockeying, the Court made two key rulings on evidentiary issues that ultimately had an impact on the trial.

On June 13, 2018, the Court issued its "Order Regarding Defendants' Motion In Limine ." (Docket No. 136, the "In Limine Order.") The Chapter 7 Trustee intended to rely heavily at trial in this Adversary Proceeding on certain factual findings made by the Probate Court for the City and County of Denver (the "Probate Court") in its "Findings of Fact, Conclusions of Law and Order" issued on March 27, 2015 (the "Probate Judgment") in the probate proceeding: In the Matter of The Audrey R. Blair Revocable Trust, GST-Exempt Marital Trust, and...