In re Tiel Tr. I Fbo Douglass

Chapter 11

MEMORANDUM OPINION AND ORDER DISMISSING CASE

Thomas B. McNamara, Bankruptcy Judge.

I. Introduction.

The Debtor, Tiel Trust I FBO Paula T. Douglass (the “Trust”), recently filed for protection under Chapter 11 of the Bankruptcy Code.^[1] The Trust is a spendthrift trust created decades ago by Ira J. Terry (the “Grantor”) under Texas law through a Trust Agreement. The Trust was created for the “primary benefit” of the Grantor's daughter, Paula T. Douglass (“Ms. Douglass”). So, the Trust is strictly a family affair. According to the Trust Agreement, the main purpose of the Trust was to “distribute” to Ms. Douglass “such amounts of trust income and principal as are necessary . . . to provide for the health, support, and maintenance” of Ms. Douglass to allow her to maintain her “accustomed standard of living.”

The main asset of the Trust is a luxury residence located at 42400 Highway 82, Aspen, Colorado (the “Aspen Home”). According to the Trust, the Aspen Home is worth about $13 million. Ms. Douglass is the only resident of the Aspen Home and enjoys living there rent-free. Some years ago, in connection with the Trust's previous unsuccessful bankruptcy case, the Trust acknowledged that it was obligated to pay not less than $5,286,070.80 to creditors 42400 Highway 82 Acquisition, LLC and 42400 Highway 82 Acquisition Sub Debt, LLC (together, the “Secured Creditors”). Such debt is secured by liens against the Aspen Home. The debt owed to the Secured Creditors has grown substantially since then because the Trust has not paid anything to the Secured Creditors in many years. The Trust sought bankruptcy relief solely to avoid foreclosure on the Aspen Home by the Secured Creditors. Other than the Aspen Home (and antiques and artwork located therein), the Trust owns little else (two financial accounts with nominal balances and some old railroad tank cars). Besides the Secured Creditors, the Trust has only three creditors: a lawn and garden service; the Pitkin

County Public Trustee; and Ms. Douglass' step-son who claims to be entitled to receive reimbursements for Trust expenses he fronted.

The Secured Creditors filed a Motion to Dismiss raising two arguments. First, the Secured Creditors contend that the Trust is not eligible for bankruptcy protection (per Sections 101(9), 101(41), 109(a), and 109(d)) because the Trust is not a "business trust." Second, the Secured Creditors argue that the Trust filed this case (its second recent bankruptcy) in bad faith such that dismissal is appropriate under Section 1112(b).

Regarding eligibility, both the Trust and the Secured Creditors agree that the Bankruptcy Code limits the eligibility of trusts to file for bankruptcy. Only a "business trust" may do so. Consequently, the eligibility issue boils down to a single question: Is the Trust a "business trust"? The definition of the phrase "business trust" must be derived from the ordinary legal meaning of the term when Congress passed the Bankruptcy Code. Based on such legal meaning and the undisputed facts (introduced by way of a proffer process), the Court concludes that the Trust is not a "business trust." That result is patent because the Trust was not created and maintained for a business purpose and does not have any of the other attributes of a "business trust." Since the Trust is not a "business trust," it is not eligible for bankruptcy protection and the case must be dismissed. Given the Court's determination on eligibility, the Court need not consider the bad faith filing argument for dismissal also raised by the Secured Creditors.

II. Jurisdiction and Venue.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. The dispute over the Trust's bankruptcy eligibility and alleged bad faith filing constitutes a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) (matters concerning administration of the estate) and (b)(2)(O) (other proceedings affecting liquidation of assets of the estate). Venue is proper in the Court pursuant to 28 U.S.C. §§ 1408 and 1409. Neither the Trust nor the Secured Creditors have contested the Court's jurisdiction to enter final judgment regarding the Trust's eligibility to seek bankruptcy protection. And, neither party has attacked the propriety of venue in the Court.

III. Procedural Background.

A. The Trust's First Bankruptcy Case.

On November 6, 2018, the Trust filed for protection under Chapter 11 of the Bankruptcy Code in the case captioned: In re Tiel Trust FBO Paula T. Douglass, Case No. 18-19697 TBM (Bankr. D. Colo.) (the "First Case").^[2] A few weeks later, the Trust submitted its Statement of Financial Affairs and Schedules.^[3] In its Schedule A/B, the Trust identified ownership of the Aspen Home (located at 42400 Highway 82, Aspen,

Colorado) as its most significant asset.^[4] The Trust listed the value of the Aspen Home as $11,600,000.00.^[5] In its initial Schedule D, the Trust noted that it owed the Secured Creditors at least $3,369,385.19.^[6] The Trust later amended its Schedule D to increase the amount of the debt owed to one of the two Secured Creditors for a new total of $4,969,385.19.^[7] The Trust filed the First Case to stop the Secured Creditors from foreclosing on the Aspen Home.^[8]

Early in the First Case, on December 17, 2018, the Secured Creditors filed a "Motion to Dismiss" (the "First Case Motion to Dismiss").^[9] In the First Case Motion to Dismiss, the Secured Creditors contended that the Trust is not eligible for bankruptcy protection (per Sections 101(9), 101(41), 109(a), and 109(d)) because the Trust is not a "business trust." Second, the Secured Creditors argued that the Trust filed the First Case in bad faith such that dismissal was appropriate under Section 1112(b).^[10] The Trust objected to the First Case Motion to Dismiss.^[11] However, the First Case Motion to Dismiss was not prosecuted to decision. The Trust filed two proposed Chapter 11 reorganization plans in the First Case.^[12] Neither was confirmed. Later, the Trust and the Secured Creditors stipulated to dismissal of the First Case.^[13] On March 25, 2020, the Court dismissed the First Case.^[14]

B. The Trust's Second Bankruptcy Case.

On October 24, 2023, the Trust filed for protection under Chapter 11 of the Bankruptcy Code in the case captioned: In re Tiel Trust FBO Paula T. Douglass, Case No. 23-14888 TBM (Bankr. D. Colo.) (the "Second Case").^[15] As it did with the First Case, the Trust filed for bankruptcy protection to stop the Secured Creditors from foreclosing on the Aspen Home.^[16] A few weeks later, the Trust submitted its Statement of Financial Affairs, Summary of Assets and Liabilities and Schedules,^[17] none of which have been amended. The Trust has not filed a proposed Chapter 11 plan of reorganization.

1. The Trust's Assets.

In its Schedule A/B, the Trust identified as its most significant asset ownership o the Aspen Home (located at 42400 Highway 82, Aspen, Colorado).^[18] The Trust listed the value of the Aspen Home as $13,000,000.00.^[19] In addition to the Aspen Home, the Trust noted the following additional assets:

Asset Type	Asserted Current Value
Plains Capital Account	$ 1,606.61
Union Bank of Switzerland Account	$ 2,979.27
Accounts Receivable	$ 0.00
Mutual Funds and Stock	Unknown
Artwork and Antiques in Aspen Home	$500,000.00
Rail Road Tank Cars	$300,000.00
Notes Receivable	$ 0.00
Property Damage Claim	Unknown
Lender Liability Claim	Unknown[20]

2. The Trust's Liabilities.

In its Schedule D, the Trust reported that the Secured Creditors held the only secured claims against the Trust in the aggregate amount of $9,300,415.93 (albeit that the Trust checked the box: "disputed").^[21] With respect to unsecured claims, the Trust listed only three claims:

Creditor	Amount
Alpine Lawn & Garden Services LLC	$ 2,004.38
Pitkin County Public Trustee	$ 2,677.44[22]
S. Preston Douglass Jr.	$511,801.00[23]

S. Preston Douglass Jr. is the step-son of Ms. Douglass and also serves as a co-Trustee of the Trust along with his step-mother.

3. The Motion to Dismiss and Objection.

On December 8, 2023, the Secured Creditors filed their "Motion to Dismiss Bankruptcy Case" (the "Motion to Dismiss").^[24] The Secured Creditors raised two

arguments. First, the Secured Creditors contend that the Trust is not eligible for bankruptcy protection (per Sections 101(9), 101(41), 109(a), and 109(d)) because the Trust is not a "business trust." Second, the Secured Creditors argue that the Trust filed this case (its second recent bankruptcy) in bad faith such that dismissal is appropriate under Section 1112(b). The Secured Creditors elected to proceed pursuant to L.B.R. 2081-3 and provided notice of the objection deadline as well as the date selected for the initial hearing. The Trust filed an "(I) Objection to Motion to Dismiss Chapter 11 Bankruptcy Case, and (II) Request for Evidentiary Hearing" (the "Objection").^[25]

The Court conducted a Hearing on the Motion to Dismiss and Objection as scheduled on January 4, 2024.^[26] Counsel for the Secured Creditors appeared in person. Counsel for the Trust appeared by telephone. Consistent with L.B.R. 2081-3, the Secured Creditors proffered testimony of Ms. Douglass, S. Preston Douglass, Jr. (Ms. Douglass' step-son), and Anne Marie McPhee (foreclosure counsel for the Secured Creditors). The Secured Creditors also proffered Exhibits 1-17. The Trust did not object. So, the Court admitted into evidence the Secured Creditors' Exhibits 1-17. The Trust failed to comply...