Following confirmation of Debtors’ chapter 13 plan, Debtors’ attorneys applied for attorney fees, and the Court set the matter for hearing due to the amount requested. The Court finds and concludes that the representation was necessary and beneficial, though the amount of time spent on the case was high. Applying the § 330(a)(3) and Johnson factors, the Court grants the fee application in part.

Pursuant to Section 1112(b) of the Bankruptcy Code, the Court has discretion to dismiss a chapter 11 case for cause. Cause for dismissal includes lack of corporate authority and bad faith. Debtor is a New Mexico non-profit corporation that was established in 2005 by a New Mexico Freemason lodge to operate a museum.   Pursuant to the corporation’s 2009 bylaws and a Resolution agreed upon by the corporation and the lodge in 2010, the lodge controlled the corporation by controlling the composition of its board of directors. In an apparent effort to eliminate the lodge’s control over the corporation, an invalidly comprised board of directors purported to amend the bylaws in 2019, changing the requirements for board composition. After the lodge sued the corporation in state court, another invalidly comprised board purported to amend the bylaws in 2020. The 2019 and 2020 bylaws were void. On the eve of a dispositive-motions hearing in state court, the board (comprised in accordance with the 2020 bylaws) filed bankruptcy on behalf of the corporation. The lodge moved to dismiss. The Court granted the motion, holding that: (1) the board as it was comprised on the petition date did not have authority to file bankruptcy on behalf of the corporation; (2) laches did not validate the void 2019 and 2020 bylaws, nor were the elements of this defense satisfied; and (3) the petition was filed in bad faith.

Defendants moved for summary judgment on Plaintiffs complaint that Defendants violated Debtor’s discharge injunction for recovering funds associated with Debtor’s probate estate’s attempted redemption of property purchased by Defendants from a special master’s sale. Defendants believed their actions were shielded by a previous BAP regarding the same parties. Because the question of retention or remittance of funds applied to a failed redemption attempt is different than the issue of repeated foreclosures addressed by the BAP, summary judgment for Defendants was not warranted but may be appropriately granted for Plaintiffs as to liability.

11 U.S.C. Section 550(a)(1) allows a case trustee to recover property that is subject to an avoidable transfer claim from an “initial transferee.”  In the Tenth Circuit an initial transferee is someone who has a beneficial interest in, or possesses dominion or control over, the property.  A person who acts as a “mere conduit” for a transfer is not an initial transferee. In this case, Defendant (the daughter of Debtor’s then owner and president) worked for Debtor as a “runner” when she was 17 years old. Debtor wrote 3 checks payable to Defendant, who was instructed to deposit them into her father’s personal or business accounts. Defendant endorsed the checks and deposited them as instructed. Defendant was a mere conduit of the funds between Debtor and her father; she was not an initial transferee. This otherwise uncomplicated disposition was affected by two procedural matters that worked against Defendant: (1) the fact that Defendant failed to plead the conduit theory as an affirmative defense, and (2) the fact that Defendant admitted and stipulated that the funds were “transferred” to her. To avoid an unjust and legally erroneous outcome, the Court granted Defendant’s day-of-trial motion to amend her pleadings to include the conduit defense and set aside the stipulation which, arguably, could be construed as a concession of liability under Section 550(a)(1).