Bank of Colorado v. Lebsock.

2026 COA 38. No. 24CA2217. Bankruptcy—Trusts—Rights of Beneficiary’s Creditor or Assignee—Spendthrift Provisions—Final Judgment on the Merits—Issue Preclusion—Claim Preclusion—State Replevin Action.

May 21, 2026

Janice M. Lebsock settled the “Janice M. Lebsock Irrevocable Income-Only Trust” (the trust), naming Janice and Sandra Kutz as the trust’s cotrustees. Janice was the trust’s sole beneficiary during her lifetime, and following her death, the trust directed the trustees to distribute the trust’s remaining principal and income to Janice’s three living children: Gregory, Sandra, and David. The trust also provided that “[a]ll principal and income shall, until actual distribution to the [b]eneficiary, be free of debts, contracts, alienations, and anticipations of any beneficiary, and the same shall not be liable to any levy, attachment, execution, or sequestration while in the possession of the Trustees.” In 2020, the Bank of Colorado (the bank) sued David (and others) in a replevin action that was initially unrelated to the trust. As relevant here, the bank sought to foreclose on general intangibles in which David had granted the bank a security interest. The district court entered a stipulated order for possession and granted the receiver authority to take and deliver David’s collateral, including his general intangibles, to the bank.

In 2022, David petitioned for bankruptcy in federal bankruptcy court, and the state court replevin action was stayed. The bankruptcy trustee and the bank entered into a settlement agreement that allowed lifting the automatic stay in the replevin action to let the bank foreclose on its security interests in David’s collateral, including a beneficial interest in the trust. David, independently of the bankruptcy trustee, objected to lifting the bankruptcy stay, arguing that the bank did not have a valid security interest in the trust. The bankruptcy court held that David lacked prudential bankruptcy standing to oppose lifting the stay, but the court did not address the parties’ arguments about the bank’s security interest in the trust. The bankruptcy court lifted the stay and allowed the bank to foreclose on David’s collateral. On the bank’s motion, the district court then vacated its order staying the replevin action. The bank then moved the district court to order Sandra (as trustee) to pay David’s distributions from the trust to the bank or, upon Janice’s death, to the receiver pursuant to the trust’s terms. It also argued that David lacked standing in the replevin action because his interest in the trust was surrendered to the bankruptcy trustee, subject to the bank’s lien. David responded, arguing that bankruptcy standing does not apply in state court actions and that the bank’s lien could not attach to the trust because the trust had a valid spendthrift provision. Sandra, as trustee of the trust, then intervened in the replevin action for declaratory relief, requesting declarations that (1) the trust had a valid spendthrift provision; (2) David could not and did not validly assign his future beneficial interest in the trust to his creditors; and (3) David’s creditors could collect trust distributions only after he received them following Janice’s death. The district court granted the bank’s motion, finding that David pledged his interest in the trust to secure his indebtedness to the bank, and the bank’s right to David’s trust interest was the law of this case because prior orders in the state and bankruptcy courts included it as collateral upon which the bank could foreclose. The court then held that any distribution of the trust’s assets to which David was entitled was assets to be paid into the court registry, and that the bankruptcy stay relief order was res judicata, so David was estopped from asserting any interest in the trust’s income and principal. The court struck David’s response for lack of standing. It found that David had a future beneficial interest in the trust, which contained a valid spendthrift provision, and thus David could not and did not validly assign his future beneficial interest in the trust to his creditors. But the court then seemingly concluded that, because David could not assign his interest in the trust, he lacked standing to object to the bank’s requested relief.

The court also granted Sandra’s motion for declaratory relief, declaring that (1) the trust had a valid spendthrift provision; (2) David could not and did not validly assign his interest in the trust to the bank; and (3) the bank could collect trust assets only from David directly after a payment to him under the trust’s terms. But that order reiterated the instruction requiring Sandra to pay David’s portion of trust income and principal into the court registry, and it restated the court’s conclusions about res judicata and judicial estoppel. Janice died in December 2024. One of the district court’s November 2024 orders stated that, under Janice’s will, David was entitled to one-third of the trust assets and that Janice lacked capacity to change her will such that the trust’s distributions upon her death would be fixed.

On appeal, David and Sandra argued that the bankruptcy court’s orders did not have a preclusive effect on the state replevin action. They maintained that the district court erred by applying res judicata to preclude David from asserting an interest in the trust’s assets. The court of appeals first concluded that issue preclusion did not apply here because the bankruptcy court did not and could not adjudicate the substantive merits of the bank’s claim or David’s defenses. The stay relief order was premised largely on David’s lack of standing to object; it was not a final judgment on the merits, and it did not adjudicate whether David validly assigned his interest, if any, in the trust. Second, the court concluded that claim preclusion did not apply because there was no identity of subject matter in the two cases. The district court thus erred by concluding that the bankruptcy court’s stay relief order precluded David from arguing that the trust’s spendthrift provision invalidated the bank’s security interest in the trust’s assets.

David contended that the district court erred by concluding that he lacked standing and that he was judicially estopped from asserting an interest in the trust’s distributions. As to standing, bankruptcy standing principles do not apply to defendant-debtors in state court, so the bankruptcy standing order did not have a preclusive effect in the replevin action. Further, even assuming that defendant-debtors must establish standing, the spendthrift provision excluded the trust from the bankruptcy estate. Accordingly, the district court erred in its standing analysis. Regarding judicial estoppel, the district court abused its discretion by applying that doctrine to prevent David from asserting an interest in the trust because, first, no evidence exists that David tried to mislead the court by initially agreeing that he validly assigned his interest in the trust and then later arguing that any such assignment was invalid. And second, David’s stipulation to the bank’s interest in his general intangibles did not necessarily preclude his argument that the spendthrift clause prevented him from assigning his future interest in the trust.

Sandra and David additionally contended that the trust’s spendthrift clause prevented David from alienating his interest in the trust during Janice’s lifetime, so the court erred by ordering Sandra to pay David’s share of the trust’s assets into the court registry. Here, the district court’s conflicting conclusions about the bank’s ability to reach David’s purported interest in the trust—finding the trust’s spendthrift provision valid while simultaneously allowing the bank to preferentially invade the trust’s funds contingently reserved for David—were irreconcilable and did not comport with Colorado law. The spendthrift provision prevented David from alienating his interest in the trust before Janice’s death; that David may have broadly agreed that his general intangibles included his purported interest in the trust did not permit the Bank to get around trust law. And to the extent the bankruptcy court purported to allow the bankruptcy trustee to pursue all of the bank’s security sources, the bankruptcy court’s orders had no effect on nonparties, including Janice, while she was alive, and her designated trustees under the trust and her will after her death. The district court therefore erred by ordering Sandra to pay any portion of the trust assets into the court registry.

The judgment was reversed and the case was remanded with directions.