jlg Doc 159 Filed 04/27/17 Entered 04/27/17 16:33:37 Main Document Pg 1 of 21 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

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1 Pg 1 of 21 COLORADO DEPARTMENT OF LAW James B. Holden, Senior Assistant Attorney General Ralph L. Carr Colorado Judicial Center 1300 Broadway, 8th Floor Denver, Colorado Telephone: james.holden@coag.gov UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: SquareTwo Financial Services Corporation, et al., 1 Debtors. ) ) ) ) ) ) ) Chapter 11 Case No (JLG) (Jointly Administered) OBJECTION TO CONFIRMATION OF DEBTORS PLAN Julie Ann Meade ( Meade ), as Administrator of the Colorado Consumer Credit Code, objects as follows to confirmation of the Joint Prepackaged Chapter 11 Plan for SquareTwo Financial Services Corporation and Its Affiliated Debtors (the Debtors Plan, Docket No. 20): 1 The Debtors in these chapter 11 cases and the last four digits of each Debtor's federal taxpayer identification number and/or Canadian equivalent are as follows: Astrum Financial, LLC (2265); Autus, LLC (2736); CA Internet Marketing, LLC (7434); CACH, LLC d/b/a Fresh View Funding (6162), CACV of Colorado, LLC (3409); CACV of New Jersey, LLC (3499); Candeo, LLC (2809); CCL Financial Inc. (7548); Collect Air, LLC (7987); Collect America of Canada, LLC (7137); Healthcare Funding Solutions, LLC (2985); Metropolitan Legal Administration Services, Inc. (6811); Orsa, LLC (2864); Preferred Credit Resources Limited (0637); ReFinance America, Ltd. (4359); SquareTwo Financial Canada Corporation (EIN: 1034; BN: 0174); SquareTwo Financial Corporation (1849); and SquareTwo Financial Services Corporation d/b/a Fresh View Solutions (5554).

2 Pg 2 of The Debtors maintain their headquarters in Centennial, Colorado. 2 As of March 6, 2017, the Debtors had approximately 283 employees, approximately 198 of whom worked in the Centennial office performing executive, operations, business development, and corporate services functions, with additional Centennial employees working on recovery efforts The Debtors acknowledge that they must comply with federal statutes such as the Fair Debt Collection Practices Act { FDCPA ) and similar state and local statutes and regulations According to the Debtors, in 2009 and thereafter, certain Debtors were named in several lawsuits challenging the Debtors debt collection practices In fact, a PACER search reveals, in 2009 and thereafter, 54 cases in which SquareTwo Financial Services Corporation was named as a defendant, 119 cases in which CACV of Colorado LLC was named as a defendant, and approximately 822 cases in which CACH, LLC was named as a defendant. The vast majority of these cases allege violations of the FDCPA or similar laws. The Colorado Fair Debt Collection Practices Act 5. In Colorado, collection agencies and debt collectors are subject to the Colorado Fair Debt Collection Practices Act (the Colorado Act ), found at Section et seq., Colorado Revised Statutes ( C.R.S. ). Pertinent provisions of the 2 Declaration of J.B. Richardson, Jr. (the Richardson Declaration, Docket No. 3), Richardson Declaration Richardson Declaration Richardson Declaration 37. 2

3 Pg 3 of 21 Colorado Act, including provisions impacted by the Debtors Plan, are summarized below. 6. The Colorado Act is administratively enforced by Meade, as Administrator of the Colorado Consumer Credit Code. 6 The Colorado Act also may be enforced through civil actions, including class actions, filed by private plaintiffs A collection agency must be licensed pursuant to the Colorado Act. 8 It is unlawful for collection agencies to engage in unlawful acts specified by the Colorado Act. 9 A collection agency may surrender its license at any time, but such surrender shall not affect the licensee s liability for violations of the Colorado Act prior to the date of surrender A collection agency must maintain accurate summaries or records of all communication in connection with the collection or attempted collection of a debt with consumers, a consumer s attorney or representative, the consumer s employer, consumer reporting agencies, and persons contacted to obtain location information, for two years following the date of communication The Colorado Act provides for third party liability. It is unlawful for any person to aid or abet any person operating or attempting to operate in violation of the Colorado Act. 12 Any officer or agent of a corporation who personally participates in a 6 Sections (1) and , C.R.S. 7 Section , C.R.S. 8 Section , C.R.S. 9 Section (1), C.R.S. 10 Section (5), C.R.S Colorado Code of Regulations 903-1, Rule Section (2), C.R.S. 3

4 Pg 4 of 21 violation of the Colorado Act is subject to penalties. 13 A collection manager who violates the Colorado Act may be barred from being hired as a collection manager for five years. 14 The District Court for the City and County of Denver may issue injunctions restraining any person from a violation of the Colorado Act, and may order civil restitution and impose civil penalties In furtherance of Meade s duty to administratively enforce the Colorado Act, the Colorado Act gives Meade extensive powers to investigate collection agencies and debt collectors. As administrator, Meade may conduct an investigation of any person concerning compliance with the Colorado Act, and may issue subpoenas to require the attendance of witnesses or production of documents. 16 She may examine the books, records, and files of any licensee. 17 She may compel witnesses to testify under oath, and may seek the issuance of a contempt order by a Colorado state district court against witnesses who fail to comply Violations of the Colorado Act are enforced in Colorado through administrative and court proceedings. Administrative proceedings are conducted by a state administrative law judge. 19 Proceedings are conducted in accordance with the Colorado Administrative Procedure Act. 20 Final actions and orders of Meade, as 13 Section (6), C.R.S. 14 Section (10)(d), C.R.S. 15 Section , C.R.S. 16 Section (2), C.R.S. 17 Section (5), C.R.S. 18 Section (7), C.R.S. 19 Section (8), C.R.S. 20 Section (9), C.R.S. 4

5 Pg 5 of 21 administrator of the Colorado Act, are subject to review by the Colorado Court of Appeals Prior to the filing of the Debtors bankruptcy petitions, Meade received complaints from consumers alleging violations of the Colorado Act by one or more of the Debtors. Meade commenced an examination of certain licensed Debtor entities and an investigation of certain unlicensed entities. 13. An onsite examination of SquareTwo Financial Services Corporation, CACH, LLC, CACV of Colorado, LLC, and Refinance America Ltd. commenced in January 2017 at the Debtors Centennial, Colorado headquarters. Examiners requested certain documents and information, including a list of all Colorado accounts from January 2015 to the present. From the accounts reviewed, approximately 1,400 accounts were selected for further review and additional documents were requested. Additional requests for information were made in February and March 2017, and an additional onsite examination occurred on April 7, In January 2017, administrative subpoenas were served on four unlicensed entities with offices located in Colorado, SquareTwo Financial Corporation, Healthcare Funding Solutions, LLC, Collect America of Canada, LLC, and CACV of New Jersey, LLC. The subpoenas sought information that would allow Meade to determine whether the unlicensed entities were engaged in activity for which a collection agency license was required under Colorado law. Upon initial 21 Section (11), C.R.S. 5

6 Pg 6 of 21 review of the information provided by the unlicensed entities, Meade identified conduct for which a Colorado collection agency license was required Specifically, SquareTwo Financial Corporation reported that after surrendering its Colorado collection agency license in 2016, it acted on behalf of its subsidiaries to place debt with third party collection agencies, provide back office services to aid in their collection of debt, and communicate with third party debt collectors with which it placed debt. Healthcare Funding Solutions, LLC reported that following the expiration of its Colorado collection agency license in 2015, it received and collected payments from consumers, communicated with credit reporting bureaus, and responded to consumer account inquiries and complaints. CACV of New Jersey, LLC reported that although it has never been licensed as a collection agency in Colorado, it owns debt, has been plaintiff in collection lawsuits filed against consumers, and has placed accounts for collection with third parties. 16. Meade s investigation and examination of Debtor entities is ongoing. OBJECTIONS 17. The Debtors Plan (1) provides for bankruptcy discharges to debtors not entitled to a discharge and plan injunctions that go beyond the scope of a bankruptcy discharge, (2) provides for releases of nondebtors who are not entitled to such relief, and (3) fails to preserve records for Meade s inspection. The Debtors Plan thus blocks Meade s ability to enforce the Colorado Act, not only against the Debtors but against nondebtors. In addition, the Debtors Plan improperly bars the assertion of setoff 22 Colorado licensing requirements apply to, among others, businesses located in Colorado who regularly collect debt or attempt to collect debt (whether directly or indirectly) and those who take assignment of debt for collection purposes. Section (2)(a), C.R.S. 6

7 Pg 7 of 21 rights by account obligors who may have claims against the Debtors under the Colorado Act, the FDCPA, or similar laws, and who have received no notice of these bankruptcy cases. Debtor Discharges and Plan Injunctions 18. Section 1.68 of the Debtors Plan defines Dissolving Debtors to include Astrum Financial, LLC; Autus, LLC; CACV of New Jersey, LLC; CA Internet Marketing, LLC; Collect Air, LLC; Collect America of Canada, LLC; Orsa, LLC; ReFinance America, Ltd.; Healthcare Funding Solutions, LLC; Candeo, LLC; SquareTwo (also referred to herein as Wind Down Co on and after the Effective Date); and SquareTwo Financial Services Corporation (d/b/a Fresh View Solutions) (and any of their respective successors). 19. Section 7.13(c) of the Debtors Plan provides that [f]ollowing the Effective Date, none of the Dissolving Debtors shall engage in any business activities or take any actions, except those necessary to effectuate the Plan, including under the Plan Funding Agreement, and under any and all transition services required pursuant to the TSA, and the Wind Down U.S.C. 1141(d)(3) provides that the confirmation of a plan does not discharge a Chapter 11 debtor who is not an individual if the plan provides for the liquidation of all of substantially all property of the estate and the debtor does not engage in business after consummation of a plan. See also Dutcher v. Reorganized Pettibone Corporation, 193 B.R. 667, 668 (S.D.N.Y. 1996) ( Confirmation of a plan discharges a corporation of all its debts unless it is a liquidating plan ). 21. Section 12.2 of the Debtors Plan nonetheless provides that except as otherwise provided herein or in the Confirmation Order each Person that is a 7

8 Pg 8 of 21 holder of a Claim or Interest shall be deemed to have forever waived, released, and discharged the Debtors, to the fullest extent permitted by section 1141 of the Bankruptcy Code, of and from any and all Claims, Interests, rights and liabilities that arose prior to the Effective Date. 22. The discharges for the Dissolving Debtors set forth in Section 12.2 are [e]xcept as otherwise provided herein or in the Confirmation Order. The Confirmation Order should provide that no discharge is granted to the Dissolving Debtors. In the absence of such provision, confirmation of the Debtors Plan should be denied on the grounds that the plan does not comply with applicable provisions of Title 11, as required by 11 U.S.C. 1129(a)(1). 23. To the extent that the Acquired Debtors, as opposed to the Dissolving Debtors, are entitled to a bankruptcy discharge, the effect of such discharge is set forth in 11 U.S.C. 524(a), the primary effect of which is an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover, or offset a debt as a personal liability of the debtor. 24. A discharge of the Acquired Debtors under the express terms of 11 U.S.C. 524(a) would not, for example, preclude Meade from seeking injunctive relief against the Acquired Debtors barring future violations of the Colorado Act based on past violations of the Colorado Act. A discharge also would not preclude Meade from conducting an investigation concerning compliance with the Colorado Act, issuing subpoenas to require the attendance of witnesses or production of documents, examination of the books, records, and files of any licensee, compelling witnesses to testify under oath, or seeking the issuance of contempt orders. All of these powers are enforceable in the administrative and judicial courts of the State of Colorado. 8

9 Pg 9 of However, all of these powers would be barred by the injunctive provisions in Section 12.5 of the Debtors Plan, which would, among other things, enjoin Meade from commencing, conducting or continuing in any manner, directly or indirectly, any suit, action or other proceeding of any kind (including any proceeding in a judicial, arbitral, administrative or other forum) against or affecting the Reorganized Debtors, including the Acquired Debtors, and the Dissolving Debtors. 26. Meade objects to the plan injunctions to the extent they prevent her from exercising her police and regulatory powers, other than acts to collect, recover, or offset a debt as a personal liability of the Acquired Debtors. 27. The injunctions set forth in Section 12.5 are [e]xcept as otherwise provided in this Plan or the Confirmation Order. The Confirmation Order should except Meade s exercise of her police regulatory powers as set forth above. In the absence of such exception, confirmation of the Debtors Plan should be denied on the grounds that the plan does not comply with applicable provisions of Title 11. Nondebtor Releases and Injunctions 28. In consumer protection cases, it is not uncommon for regulators to assess penalties or obtain an order for civil restitution against a corporate entity, only to find that the entity is an empty shell. Similarly, it is not uncommon for regulators to obtain injunctions against corporate entities, only to have the corporation s principals form a new corporate entity and resume their prior activities. To address these problems, the Colorado Act permits penalties to be assessed against officers or agents who participate in a violation of the Colorado Act, permits collection managers to be barred from being employed in that capacity for five years, and permits injunctive relief, civil restitution, and civil penalties to be ordered against any person. 9

10 Pg 10 of Although relief against third parties is fundamental to enforcement of the Colorado Act, the Debtors Plan imposes releases and injunctions that would bar such enforcement. 30. Section 12.6(c) of the Debtors Plan provides that on the Effective Date, each of the directors and officers of the Debtors serving in such capacities as of the Petition Date, each in their capacities as such, shall be deemed to be released from all claims, obligations, suits, judgments, demands, debts, rights, Causes of Action and liabilities whatsoever whether liquidated or unliquidated, fixed or contingent, matured or unmatured, known or unknown, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that are based in whole or in part on any act or omission, transaction, event or other occurrence taking place on or prior to May 24, 2016 in any way relating to the Debtors. There are exceptions in Sections 12.6(c) and (d) for obligations arising under the Debtors Plan itself, liabilities arising under tax laws and criminal laws, and claims against directors that cannot be released under Canadian law. 31. Section 12.5 of the Debtor s Plan permanently enjoins all Persons who may hold claims against the Debtors from, among other things, commencing or continuing any suit, action, or proceeding of any kind against or affecting the Released Parties (defined in Section of the plan to include the Debtors current and former officers, directors, managers, managing members, and employees), and enforcing any judgment, award, decree or order against the Released Parties on account of or in connection with any released claims. 32. Section 12.8 of the Debtors Plan provides that the confirmation order shall permanently enjoin the commencement or prosecution by any Person, whether directly, derivatively or otherwise, of any claims, obligations, suits, judgments, 10

11 Pg 11 of 21 damages, demands, debts, rights, Causes of Action or liabilities released pursuant to this Plan, including the claims, obligations, suits, judgments, damages, demands, debts, rights, Causes of Action or liabilities released in or encompassed by Sections 12.6 and 12.7 of this Plan. 33. The proposed releases and injunctions would bar Meade s administrative enforcement of the Colorado Act against the Debtors officers, directors, managers, and employees, and would bar private enforcement of the Colorado Act by consumers against such persons. Among other things, Meade would be precluded from imposing fines for violations of the Colorado Act, seeking civil restitution for victims, and seeking injunctions barring the Debtors officers, directors, and managers from engaging in future violations of the Colorado Act U.S.C. 524(e) provides that except with respect to certain community property claims, the discharge of a debt of the debtor does not affect the liability of any other entity on such debt. See, e.g., this Court s decision in In re Chemtura Corp., 2016 Bankr. LEXIS 4056, *55 (Bankr. S.D.N.Y. 2016) (Section 524(e) reveals that Congress sought to free the debtor of his personal obligations while ensuring that no one else reaps a similar benefit, quoting Green v. Welsh, 956 F.2d 30, 33 (2d Cir. 1992)). 35. In the Tenth Circuit, where the Debtors are headquartered, nondebtor releases and injunctions in bankruptcy cases are prohibited except in the context of asbestos releases provided for in 11 U.S.C. 524(g) or with consent. In re Western Real Estate Fund, Inc., 922 F.2d 592 (10 th Cir. 1990) (barring post-confirmation injunctions that relieve non-debtors from their own liability to a creditor). 36. The Tenth Circuit, together with the Ninth Circuit, are in the minority in this regard, but other circuits are only slightly more tolerant. In the Second 11

12 Pg 12 of 21 Circuit, Metromedia Fiber Network, Inc., 416 F.3d 136 (2d Cir. 2005), states that releases of nondebtors are permitted only in rare cases. Id. at 141. The court noted: [A] nondebtor release is a device that lends itself to abuse. By it, a nondebtor can shield itself from liability to third parties. In form, it is a release; in effect, it may operate as a bankruptcy discharge arranged without a filing and without the safeguards of the Code. The potential for abuse is heightened when releases afford blanket immunity. Here, the releases protect against any claims relating to the debtor, whether for tort, fraud, contract, violations of federal or state securities laws, or otherwise, whether known or unknown, foreseen or unforeseen, liquidated or unliquidated, fixed or contingent, matured or unmatured. Id. at 142. The nondebtor releases sought in the present case are virtually identical to the nondebtor releases sought in Metromedia. 37. Metromedia notes that nondebtor releases have been approved when the estate received substantial consideration; when enjoined claims were channeled to a settlement fund rather than extinguished; when enjoined claims would impact the reorganization by way of indemnity or contribution; when the plan otherwise provided for the full payment of enjoined claims; and when the affected creditors consent. Id. 38. In the present case, the estate is not receiving substantial consideration for the nondebtor releases, there is no settlement fund for consumer or regulatory claims, and consumer and regulatory claims are not being paid in full. Meade does not consent to the proposed nondebtor releases and injunctions. 39. With respect to indemnification, Section of the Debtors Plan provides that notwithstanding the proposed releases of the Debtors directors and officers, the Debtors existing obligations to indemnify the Debtors directors and officers against causes of action relating to the Debtors shall be preserved. Moreover, 12

13 Pg 13 of 21 D&O insurance currently in effect to cover those claims shall not be terminated or reduced. These provisions minimize the possibility of indemnification claims against the estate. In any event, indemnification claims by directors and officers arising in the United States appear to be Class 7A claims (U.S. General Unsecured Claims), and such claims receive no distributions under the Debtors Plan. Accordingly, the proposed nondebtor releases and injunctions have no impact on plan distributions. 40. As noted in Metromedia, [a] nondebtor release in a plan of reorganization should not be approved absent the finding that truly unusual circumstances render the release terms important to success of the plan, focusing on the considerations discussed above. Id. at The plan provisions with respect to nondebtor releases and injunctions do not comply with the applicable provisions of Title 11, and are not proposed in good faith. The Debtors Plan therefore fails to satisfy the confirmation requirements set forth in 11 U.S.C. 1129(a)(1) and (3), rendering the plan unconfirmable. 42. The Debtors directors and officers undoubtedly would like to receive releases, but the proposed nondebtor releases and injunctions are not an important component of the Debtors Plan. If the proposed releases and injunctions are jettisoned, the sale of the loan portfolios will go forward and the Debtors will be reorganized or dissolved as set forth in the Debtors Plan. The only difference is that the nondebtors will need to cope with the consequences of any violations of the Colorado Act and similar laws, as Congress intended. Preservation of Records 43. As previously noted, the Colorado Act and regulations promulgated thereto require collection agencies to maintain accurate summaries or records of all 13

14 Pg 14 of 21 communication in connection with the collection or attempted collection of a debt with consumers, a consumer s attorney or representative, the consumer s employer, consumer reporting agencies, and persons contacted to obtain location information, for two years following the date of communication. 44. Section 6.2(b) of the Plan Funding Agreement between SquareTwo and Resurgent provides that for a period of six (6) years after the Closing Date, the Plan Investor shall not cause or permit the destruction or disposal of any books and records of SquareTwo or any of the Reorganized Entities or Acquired Subsidiaries related to the pre-closing period without first offering to surrender them to the Debtors Representative. During such six (6)-year period, the Plan Investor shall, and shall cause its subsidiaries and Affiliates (including, for the avoidance of doubt, the Reorganized Entities and the Acquired Subsidiaries) to, allow the Debtors Representative access to all such books and records related to the pre-closing period during regular business hours upon reasonable advance notice for any legitimate purpose, which, for the avoidance of doubt, shall include (iv) in connection with any audit, assessment or reassessment of the Debtors or any of their subsidiaries or Affiliates by any Governmental Entity. 45. As drafted, the Plan Funding Agreement would permit the Plan Investor to dispose of the Debtors books and records at any time with the consent of the Debtors Representative. Preservation of the Debtors books and records should be required to the extent required by the Colorado Act, the FDCPA, and other applicable laws, if any. In the absence of that change, the Debtors Plan is proposed by means forbidden by law, contrary to the confirmation requirement set forth in 11 U.S.C. 1129(a)(3), rendering the plan unconfirmable. 14

15 Pg 15 of 21 Discharge of Setoff Claims Against Debtors Held by Account Obligors 46. As noted by the Official Committee of Unsecured Creditors, the Debtors Plan evidently requires individuals subject to collection proceedings to release their counterclaims for possible violations of the FDCPA without receiving any consideration or adequate notice As previously noted, the Colorado Act provides for administrative enforcement by Meade when violations of the Act occur, but also provides for private enforcement by obligors on accounts being collected by the Debtors. 24 The FDCPA has similar private enforcement provisions, as do many of the laws of other states. Private enforcement is an important tool to curb unlawful debt collection practices. 48. As previously noted, many hundreds of account obligors have sued one or more of the Debtors for violations of the FDCPA. 25 The number of account obligors who have claims, as yet unasserted, for violations of the Colorado Act, the FDCPA, or similar state laws, is unknown. 49. The Debtors Plan preserves the Debtors ability to collect debts owed by account obligors, but denies those obligors the ability to assert, as offsets, defenses, or counterclaims, violations of the FDCPA, the Colorado Act, or similar laws. 23 Motion of Official Committee of Unsecured Creditors to Amend Order: (A) Scheduling Combined Hearing on Adequacy of Disclosure Statement and Confirmation of Prepackaged Plan, (B) Establishing Procedures for Objecting to Disclosure Statement and Prepackaged Plan, (C) Approving Form and Manner of Notice of Combined Hearing, (D) Waiving Requirement for Filing List of Creditors and List of Equity Holders, (E) Authorizing Debtors to File Consolidated List of Unsecured Creditors, (F) Postponing or Waiving Section 341(a) Meeting and (G) Granting Related Relief (Docket No. 137) at supra supra. 15

16 Pg 16 of Specifically, Section 12.2 of the Debtors Plan provides that all claim holders shall be deemed to have waived, released, and discharged the Debtors, to the fullest extent permitted by 11 U.S.C. 1141, of all claims and liabilities that arose prior to the Effective Date. All claim holders are enjoined from asserting any such discharged claim against any Debtor. Meanwhile, Section 12.9 of the Debtors Plan provides that the Debtors shall have, retain, reserve, and be entitled to assert all such claims, Causes of Action, rights of setoff, or other legal or equitable defenses as fully as if the Chapter 11 Cases had not been commenced. This one-sided relinquishment of offsets by account obligors does not comply with the Bankruptcy Code. 51. Subject to certain limitations set forth therein, 11 U.S.C. 553(a) provides that the Bankruptcy Code does not affect a creditor s right to offset a prepetition debt owed to the debtor against a pre-petition debt owed by the creditor. 52. [T]he right to assert a setoff against a mutual, prepetition debt owed the bankrupt estate survives even the Bankruptcy Court s discharge of the bankrupt s debts. In re Davidovich, 901 F.2d 1533, 1539 (10 th Cir. 1990). It would be unfair to deny a creditor the right to recover an established obligation while requiring the creditor to fully satisfy a debt to the debtor. Id., quoting In re G.S. Omni Corp., 835 F.2d 1317, 1318 (10 th Cir. 1987). 53. There is some disagreement among the Circuits about whether the survival of setoff claims is unconditional. The Ninth Circuit, in accord with the Tenth Circuit, has stated that the language of Section 553 seems intended to control notwithstanding any other provision of the Bankruptcy Code. In re De Laurentiis Entertainment Group, 963 F.2d 1269, (9 th Cir. 1992). However, the Third Circuit has stated that a right of set-off is preserved under 553 in a bankruptcy 16

17 Pg 17 of 21 proceeding but we believe that the right must be exercised by the creditor in timely fashion and appropriately asserted in accordance with other provisions of the Bankruptcy Code." In re Continental Airlines, 134 F.3d 536, 541 (3d Cir. 1998). 54. In this district, Judge Drain concluded that [t]he clear majority and better view, however, is that filing a proof of claim is not a prerequisite to asserting an otherwise valid setoff. In re M. Silverman Laces, Inc., 404 B.R. 345, 365 (Bankr. S.D.N.Y. 2009), citing Davidovich and other cases. 55. There is no need to resolve this question here, because to the extent obligors on accounts being collected by the Debtors have claims against the Debtors, they are to receive nothing under the Debtors Plan and therefore there is no reason for them to file claims. In any event, the account obligors have not been given an adequate opportunity to file proofs of claims or otherwise assert their rights in these bankruptcy cases. 56. According to the case record, a Non-Voting Parties Combined Notice regarding these bankruptcy cases has been provided to holders of claims who will not receive payment and are presumptively deemed to reject the Prepackaged Plan. 26 For notice to persons who did not otherwise receive notice pursuant to the Combined 26 Debtors Motion: (i) for Order (a) Scheduling Combined Hearing on Adequacy of Disclosure Statement and Confirmation of Prepackaged Plan, (b) Establishing Procedures for Objecting to Disclosure Statement and Prepackaged Plan, (c) Approving Form and Manner of Notice of Combined Hearing, (d) Waiving Requirement for Filing List of Creditors and Equity Holders, (e) Authorizing Debtors to File Consolidated List of Creditors, (f) Postponing or Waiving Section 341(a) Meeting, and (g) Granting Related Relief; and (ii) for Order (a) Approving Prepetition Solicitation Procedures, (b) Approving Adequacy of Disclosure Statement, and (c) Confirming Prepackaged Chapter 11 Plan (the Manner of Notice Motion, Docket No. 6),

18 Pg 18 of 21 Notices, the Debtor is relying on notice by publication in The New York Times and The Denver Business Journal to satisfy due process requirements Despite the representation that notice by mail will be provided to holders of claims who will not receive payment and are presumptively deemed to reject the Prepackaged Plan, the matrix in these bankruptcy cases indicates that the Debtors have included account obligors who asserted litigation claims prior to the Debtors bankruptcy filings, but not account obligors who have not previously asserted claims. 58. Claims in bankruptcy cases include a right to payment, whether or not reduced to judgment, liquidated or unliquidated, fixed or contingent, disputed or undisputed. 11 U.S.C. 101(5). The holders of claims against the Debtors thus include the holders of unasserted claims. 59. Based on the hundreds of claims under the FDCPA or similar laws previously asserted against the Debtors, it is entirely foreseeable that many current account obligors who have not, to date, asserted claims against the Debtors, nonetheless hold unasserted claims. 60. In In re Chemtura Corp., 2016 Bankr. LEXIS 4056 (Bankr. S.D.N.Y. 2016), this Court upheld the adequacy of a bar date notice program that called for direct mailings of general and site specific bar date notices to known creditors, and publication of general and site specific notices to unknown creditors. Id. *10; emphasis added. Notice was published in The New York Times, USA Today, and 112 local newspapers across the country. Id. * Manner of Notice Motion

19 Pg 19 of Chemtura involved tort claimants who were not part of a class of claimants that the debtor knew existed at the time of the notice. Id. *47. This Court held that [f]or creditors who are not 'reasonably ascertainable,' publication notice can suffice," but that known claimants are entitled to actual notice of the bar date. Id. * 43; internal quotes and case citations omitted. 62. The holders of unasserted FDCPA claims and similar claims against the Debtors are current or former account obligors of the Debtors, most of whose identities and addresses are known to the Debtors. These obligors are reasonably ascertainable and are entitled to actual notice. Moreover, they are consumers located throughout the United States, and it is highly unlikely that most of them are readers of The New York Times or The Denver Business Journal. 63. The fact that account obligors hold general unsecured claims that receive nothing under the Debtors Plan means that they are conclusively presumed to have rejected the Debtors Plan, but that does not mean that they are unaffected by these proceedings. Among other things, their right to assert FDCPA and similar claims are extinguished by the Debtors Plan. Accordingly, they are entitled to notice. The fact that notice by mail may be burdensome to the Debtors is not the test for whether notice by publication will suffice. 64. Because the Debtors Plan affects the right of the account obligors to assert offsets in contravention of 11 U.S.C. 553, confirmation should be denied on the ground that the plan does not comply with applicable provisions of Title 11, as required by 11 U.S.C. 1129(a)(1). To the extent that the account obligors are receiving insufficient notice of these proceedings, their right to assert offsets, defenses, or counterclaims should be left unimpaired. Account obligors should retain, reserve, and be entitled to assert all such claims, Causes of Action, rights of 19

20 Pg 20 of 21 setoff, or other legal or equitable defenses as fully as if the Chapter 11 Cases had not been commenced, the same right that the Debtors reserved to themselves under Section 12.9 of the Debtors Plan. WHEREFORE, Meade requests that the Court deny confirmation of the Debtors Plan, and provide such other and further relief as the Court deems proper. Respectfully submitted this 27th day of April, CYNTHIA H. COFFMAN, Colorado Attorney General /s/ James B. Holden By: JAMES B. HOLDEN Senior Assistant Attorney General Colorado Reg. No Ralph L. Carr Colorado Judicial Center 1300 Broadway, 8th Floor Denver, Colorado Telephone:

21 Pg 21 of 21 CERTIFICATE OF SERVICE I certify that on April 27, 2017, a true and correct copy of the foregoing OBJECTIONS TO CONFIRMATION OF DEBTORS PLAN was served by placing same with Federal Express, overnight delivery, addressed to the following: Office of the U.S. Trustee 201 Varick Street, Suite 1006 New York, NY Attn: Susan A. Arbeit and Richard C. Morrissey SquareTwo Financial Services Corporation 6300 South Syracuse Way, Suite 300 Centennial, CO Attn: Alan Singer Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY Attn: Matthew A. Feldman and Debra C. McElligott Schulte Roth & Zabel LLP 919 Third Avenue New York, NY Attn: Frederic L. Ragucci and Adam C. Harris Foley & Lardner LLP 321 North Clark Street, Suite 2800 Chicago, IL Attn: Michael J. Small Foley & Lardner LLP 777 East Wisconsin Avenue Milwaukee, WI Attn: Benjamin F. Rikkers Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY Attn: Alan W. Kornberg and Elizabeth R. McColm /s/ James B. Holden James B. Holden 21