Bertoia v. Galaxy Management Co.
2025 COA 55. No. 23CA2110. Bankruptcy—Breach of Contract—Abuse of Process—Sixth Amendment—Federal Supremacy—Preemption.
June 5, 2025
Bertoia was the sole owner and manager of WPB Hospitality, LLC (WPB). WPB received construction financing from American Lending Center (ALC) to build a hotel near Denver International Airport, but the project failed. ALC then brought a foreclosure action against WPB. Subsequently, WPB filed for Chapter 11 bankruptcy (the WPB bankruptcy), which stayed the foreclosure and allowed Bertoia to find alternative financing. Bertoia then contracted to sell her ownership interest in WPB to Frisco Acquisition, LLC (Frisco) (the WPB contract) and contracted with Frisco and Abbas Consulting, Inc. (Abbas) for them to purchase the hotel property (the hotel contract). The execution of these contracts was contingent on the bankruptcy court’s approval of the subject sales. The WPB contract provided that Frisco would indemnify Bertoia for claims caused by Frisco’s breach of or failure to perform the contract. Before the stay was lifted, and while ostensibly trying to close on the hotel contract and the WPB contract, Bertoia separately sought refinancing with third parties that would allow her to pay off the ALC loan and keep control of WPB and the hotel property. Meanwhile, the bankruptcy court did not approve the WPB contract or the hotel contract. Rather, it granted ALC relief from the bankruptcy stay to pursue its foreclosure action, delaying the effective date of the relief from stay until mid-May 2019.
Frisco eventually learned of Bertoia’s attempts to obtain third-party financing, and on May 7, 2019, it notified Bertoia that it was terminating the WPB contract, stating that Bertoia’s actions and omissions had led to the total devaluation of WPB. The foreclosure sale of the hotel property occurred about two weeks later. ALC was the successful bidder at the foreclosure sale, and it then sued Frisco after Frisco filed notices of its intent to redeem the hotel property based on mechanics’ liens it had obtained while the WPB bankruptcy was pending. ALC and Frisco settled, and Frisco acquired ALC’s interest in the hotel property. Frisco was owned by Kaur but was allegedly controlled by Dhillon, the sole member and manager of Galaxy Management Company, LLC (Galaxy), which had assisted Frisco financially with the purchase of the hotel property. Frisco later assigned its rights in the hotel property to Denver Gateway, LLC (Gateway), a recently formed company wholly owned by Dhillon’s wife. Frisco thus became an assetless company, and it filed a Chapter 7 bankruptcy in Texas (Frisco bankruptcy).
Subsequently, Bertoia and WPB collectively, and Bertoia individually, asserted numerous claims against the parties allegedly involved in these transactions. Before trial, the court entered summary judgment in favor of Frisco, Dhillon, and Galaxy and against Bertoia on her claims for breach of the hotel contract determining, as a matter of law, that the hotel contract was null and void because the bankruptcy court did not approve it, as required, within 30 days of its execution. The court also determined that the indemnity provision in the WPB contract was valid and enforceable. A jury later returned verdicts for Frisco on Bertoia’s claim for breach of the WPB contract and for Frisco and Dhillon on her fraud claims. In its written judgment on the verdicts, the court determined that Frisco was the prevailing party under the WPB contract. The court awarded Frisco $509,516.61 in attorney fees against Bertoia and awarded $27,795.42 in costs to Dhillon and Frisco against Bertoia and WPB.
On appeal, Bertoia argued that the trial court erred by not finding that Frisco breached the indemnity provision as a matter of law. Bertoia maintained that because Frisco failed to close on the WPB contract, it failed to perform—rather than breached—the contract, so its obligation to indemnify Bertoia for the resulting losses was triggered. She thus asserted that Frisco is liable for not closing on the WPB contract, regardless of whether its decision to terminate was justified under the contract’s terms. However, the factual disputes about whether Bertoia had breached the WPB contract or frustrated its performance were properly submitted to the jury. And by returning a verdict in favor of Frisco on Bertoia’s breach of contract claim, the jury necessarily determined either that Bertoia had breached the contract, which thus excused Frisco’s performance, or that Frisco did not breach. Either way, Frisco did not fail to fulfill any obligation it had under the WPB contract. Further, indemnity clauses are generally triggered when a third party sues the nonbreaching contracting party resulting in a loss to the nonbreaching party, which did not happen here. Accordingly, the indemnity provision was not triggered, and the trial court did not err.
Bertoia also argued that the trial court abused its discretion by precluding evidence from the Frisco bankruptcy and affidavits from that proceeding. However, the court properly ruled that evidence of the lawsuit between ALC and Frisco and Frisco’s assignment of its interest in the hotel to Gateway was not material or relevant under CRE 401 and 402, and was outweighed by prejudice under CRE 403. Further, because Kaur was not a named party in this case, his affidavits do not qualify as admissions by a party-opponent, so the trial court did not abuse its discretion by excluding them.
Bertoia and WPB asserted that the court should not have submitted the breach of contract claim to the jury. For the reasons stated above, the court of appeals rejected this argument to the extent it was based on the contention that there was no dispute whether Bertoia or Frisco breached the contract.
Bertoia and WPB also apparently contended that the court should have instructed the jury that the bankruptcy court’s approval of the WPB contract was not required. However, there was no error because the trial court instructed the jury that it had determined, as a matter of law, that the contract between Frisco and Bertoia did not require bankruptcy court approval.
Bertoia and WPB further asserted that the trial court erred by dismissing an abuse of process claim against Frisco and Dhillon as preempted by federal bankruptcy law. However, preemption precludes state law abuse of process claims predicated on conduct that occurred in bankruptcy proceedings, so the court did not err.
Frisco cross-appealed the trial court’s award to Bertoia of bankruptcy funds that were previously interpleaded into the court registry, arguing that the trial court erred by not distributing the bankruptcy funds in accordance with 11 USC § 726. As an initial matter, the court also concluded that notwithstanding the fact that Galaxy and Frisco could only be represented in this case by a licensed attorney, their counsel’s withdrawal did not prevent the court from addressing the merits of Frisco’s and Galaxy’s contentions because the principal briefs were properly submitted before counsel withdrew. Here, during the Frisco bankruptcy, Bertoia purchased the bankruptcy trustee’s potential claim against Frisco, Gateway, and Dhillon for fraudulent transfers arising out of Frisco’s assignment of its rights in the hotel to Gateway. A portion of the proceeds from Bertoia’s purchase of the trustee’s claims ($540,809.95) remained in the bankruptcy court’s registry. In advance of dismissal of the bankruptcy proceedings, the parties stipulated to transfer the proceeds to the trial court’s registry. After trial, Bertoia moved for a declaratory judgment that only she was entitled to receive the interpleaded funds. Applying equitable principles, the trial court entered a declaratory judgment ordering that all funds in the registry be distributed to Bertoia. Friso maintained that when Bertoia purchased the trustee’s rights, the money she paid for that purchase became part of the bankruptcy estate, so once the bankruptcy case was dismissed, the funds should have been distributed to Frisco, as the debtor. However, the stipulated order did not dictate how the interpleaded funds were to be distributed, nor did it suggest or imply that the funds should be distributed pursuant to § 726(a)(6) or another Bankruptcy Code provision. Accordingly, how to distribute the disputed funds was left to the trial court’s authority in accordance with equitable principles. Here, the trial court did not err by concluding that distribution of the disputed funds to Frisco would have resulted in an unjust windfall, while distributing those funds to Bertoia would produce an equitable result.
Bertoia and WPB also contested the trial court’s award of attorney fees. The WPB contract states that the prevailing party is entitled to recover reasonable attorneys’ fees and other costs. Here, the trial court did not abuse its discretion in applying the fee-shifting provision and determining that Frisco was the prevailing party or in calculating the award of fees and costs where the jury returned verdicts for Frisco and Dhillon on all three claims against them.
Lastly, because Frisco is the prevailing party on appeal, it is entitled to an award of fees and costs incurred on appeal.
The judgments and orders were affirmed and the case was remanded to determine and award Frisco its reasonable appellate attorney fees under the WPB contract.