Decisions of 2012

Anderson - Chapter11 - Avoid Judicial Liens - Homestead April 2, 2012

Case No. 11-61845-11



Pending in this Chapter 11 case is the Debtor’s Motion (Docket No. 45) to avoid judicial liens of Specialty Forest Products, Inc. (“SFP”), Hardwoods Specialty Products US LP (“Hardwoods”), and Chase Bank USA, N.A. (“Chase”) under 11 U.S.C. § 522(f)(1)(A). SFP filed the only objection on the grounds that Debtor is not entitled to claim a homestead exemption because he is a resident of California and intends to sell the real property, and does not reside in it.

At the hearing the Debtor objected to SFP’s questions to Deaton related to whether the Debtor was residing at 80 Rock Place, on the ground the exemption could not be challenged. SFP contends that it can defend a lien avoidance proceeding on the grounds a debtor is not entitled to the asserted exemption even though it did not object to the exemption. The Court overruled the objection. In Morgan, the Ninth Circuit Bankruptcy Appellate Panel outlined a
four-part test for avoidance of a lien:
(1) There must be an exemption to which the debtor “would have
been entitled” under subsection (b) of § 522;
(2) The property must be listed on the debtor's schedules and
claimed as exempt;
(3) The lien at issue must impair the claimed exemption; and
(4) The lien must be either a judicial lien or another type of lien
specified by the statute.

Anderson’s actions in listing the property for sale, moving to California, and failing to
cure the reasons for foreclosure are inconsistent with his stated intent to return to Montana. His
leaving behind some possessions at 80 Rock Place do not tip the scales in his favor when
weighed against the record showing that Anderson resides in California with his daughter, where
he works. The Court finds and concludes that SFP satisfied its burden of proving that the
exemption was not properly claimed.

In re Anderson, April 2nd, 2012, James Patten for the Debtor, Harold Dye for SFP

 

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Anderson - Confirmation - August 1, 2012

Case No. 11-61845-11

Chapter 11, Confirmation

Based on the decisions of the Court sustaining Debtor’s objections to claims1, the Court finds that Class V voted to accept Debtor’s First Amended Plan, since under 11 U.S.C. § 1126(c) the Plan was accepted by creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims of such class. Four out of five Class V creditors (general unsecured claims less than $1,000) voted to accept the Plan, except for the Class VI ballot of Express Services which elected treatment as a Class V claimant. As a result, the Court finds that at least one class of impaired claims has accepted the plan in satisfaction of 11 U.S.C. § 1129(a)(10). Class VI accepts the Plan, since 3 of 4 ballots accept the Plan while only Specialty rejects.

Debtor testified that his purpose in filing his Chapter 11 case is to repay his creditors, and
not to evade tax laws or his creditors. He testified that his Plan pays Class IV restitution
creditors in full because without paying the restitution he would not be not able to travel, and that
he is threatened with revocation of his probation and incarceration. He explained that he has
experienced problems traveling such as delays, because of allegations that his restitution is
unpaid, and that he cannot operate his business, Stronkin USA, and earn income unless he can
travel.

Specialty objects to the reclassification of its claim to Class I as illegal because there has
been no objection filed to its Proof of Claim and it is entitled to treatment as an unsecured
creditor with respect to the unsecured portion of its claim, as is Chase Bank. At the least
Specialty requests that a supplemental disclosure statement and re-balloting be required.
Specialty objects that the discrimination against Class VI is unfair and prohibited by this
Court’s reasoning in Dykstra, and cases cited therein, which hold that to allow felons to
discriminate in favor of restitution is to allow them to shift the cost of their punishment onto
innocent unsecured creditors. Specialty argues that this being a chapter 11 case while Dykstra
was a chapter 13 case makes no difference because 11 U.S.C. § 1322(b)(1) incorporates 11
U.S.C. § 1122, and because Debtor’s restitution obligations arose out of business debts.

The instant case presents the issue of whether the facts require that the Debtor satisfy the
“cramdown” requirements of § 1129(b). The Court concludes that cramdown is not applicable
under the specific facts of this case. Specialty next argues, notwithstanding the Plan’s Article 5.01 plan statement that “The Class I creditors will not be impaired[,]” that its claim is in fact impaired. A class of claims is impaired under a plan, as provided at 11 U.S.C. § 1124(1) the plan “leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest . . . .” Congress intended to define impairment broadly, and any alteration of a creditor’s legal rights constitutes impairment. Section 1122(b) provides authority for the Debtor’s convenience class of claims of less
than $1,000 in Class V. The Debtor classed the criminal restitution claims into Class IV. The
Debtor’s testimony that he must pay the restitution claims in order to be able to travel and
generate income to pay all creditors under the Second Amended Plan is uncontroverted. No
evidence exists in the record showing that claims which are not substantially similar are classed
together. Specialty’s deficiency claim, if any, will be unsecured and substantially similar to the
other Class VI unsecured nonpriority claims. This Court concludes that it is within its discretion
under § 1122(a), as explained in Zante and COLLIER, to conclude that the Debtor may place the
restitution claims into a different class than the other unsecured nonpriority claims.

In re Anderson, August 1st, 2012 James Patten for Anderson, Harold Van Dye for Specialty

2012 Mont.B.R. 41

 

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Aue - IRS Secured Claim - June 13, 2012

Case No. 11-62331-13

In this Chapter 13 bankruptcy, after due notice, a hearing was held May 22, 2012, in Billings on Debtors’ Objection to Proof of Claim No. 8 filed by the Internal Revenue Service. Ralph W. Wilkerson of Billings, Montana appeared at the hearing on behalf of the Debtors and in support of Debtors’ objection; Assistant United States Attorney Victoria L. Francis of Billings, Montana appeared on behalf of the Internal Revenue Service and in opposition to Debtors’ objection. The Court heard attorney argument and Debtors’ Exhibits 1 and 2 were admitted into evidence without objection. No witness testimony was presented.

 

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B.Y.O.B - Approval of Settlement - August 1, 2012

Case No. 11-62347-11

Chapter 11, Settlement

Pending in this Chapter 11 case is the Trustee’s Motion for Order Approving Settlement
(Docket No. 93) with the Montana Department of Revenue (“DOR”), filed on May 9, 2012,
which provides for the sale by auction by the estate (“Agent”) of a certain Montana Franchise
Agreement, Agency Liquor Store #12 (“Agency Franchise Agreement”). The DOR filed a
consent. An objection (Dkt. 105) to approval of the settlement was filed by creditors CYA, Inc.
(“CYA”) and David Stufft (“Stufft”) on the grounds that the settlement’s exclusion of Gildo,
LLC (“Gildo”) as a bidder is arbitrary and unjustified under the DOR’s police powers.

In evaluating a settlement, the Court must consider:
‘(a) The probability of success in the litigation; (b) the difficulties,
if any, to be encountered in the matter of collection; (c) the
complexity of the litigation involved, and the expense,
inconvenience and delay necessarily attending it; (d) the paramount
interest of the creditors and a proper deference to their reasonable
views of the premises.’ A & C Properties, 784 F. 2d at 1381.

The first, third and fourth A & C Properties factors weigh in favor of approving the
settlement. The second factor is not applicable. Exercising its discretion, the Court therefore
concludes that the proposed Settlement Agreement with the DOR is fair and equitable and
satisfies Rule 9019(a).

In re B.Y.O.B. Inc. August 1st, 2012 Christy Brandon, Trustee, Edward Murphy for CYA and Stufft, Keith Jones for Montana Department of Revenue

2012 Mont.B.R. 41

 

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B.Y.O.B Inc. - Automatic Stay - February 17, 2012

Case No. 11-62347-11

B.Y.O.B. Inc., Chapter 11, Automatic Stay

Pending in this Chapter 11 case is the Montana Department of Revenue’s (“DOR”)
Motion for Declaration of Inapplicability of Automatic Stay (hereinafter “Motion”) filed on
January 3, 2012 (Docket No. 7), which seeks a determination that pending state court actions
involving the DOR and the Debtor, and DOR’s administrative enforcement actions against
Debtor based on the DOR’s regulation of alcoholic beverages in Montana, are exempt from the
automatic stay under 11 U.S.C. § 362(b)(4) under the DOR’s “police and regulatory power.”

In the Ninth Circuit the phrase “police or regulatory power” is generally construed to
“refer to the enforcement of state laws affecting health, welfare, morals, and safety, but not
regulatory laws that directly conflict with the control of the res or property by the bankruptcy
court.”

Given the clear statement of policy of § 16-1-101(3) and § 16-1-103, and the
longstanding case law in this state construing that policy as an exercise of the police power of the
state, arising from the 21st amendment to the United States Constitution, and that the MABC is
an exercise of the police power of the state “for the protection, health, welfare, and safety of the
people” of Montana, the Court does not find merit in Debtor’s argument that the DOR’s
enforcement actions were transformed into mere breach of contract claims, for which damages
may be determined and paid, instead of an exercise of the State’s police power, by the mere
existence of a written Agency Franchise Agreement, Ex. 1. Section 16-1-103 provides that the
DOR “has complete regulatory control of the sale of liquor,” and that the DOR is authorized to
grant licenses to persons qualified to sell liquor at agency liquor stores.

 

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Blackfoot Land and Water LLC. - Confirmation of Chapter 11 Plan - February 21, 2012

Case No. 10-62580-11

Chapter 11, Confirmation

Trustee’s second amended chapter 11 plan is before the court for confirmation. The only objection to confirmation was filed by the Debtor’s member and sole shareholder Scott G. Cooney (“Cooney”), who has filed his own plan and disclosure statement.
A hearing on confirmation of the Trustee’s Plan was held at Missoula on February 9, 2012. The Debtor, U.S. Trustee, Treasure State Bank and the Montana Department of Revenue (“DOR”) filed a Stipulation (Dkt. 20) to appoint a Chapter 11 Examiner.
The Stipulation was approved and Shirlee G. Walker was appointed Examiner. The Examiner’s
Report (Dkt. 37) states conclusions on page 7, including that “Blackfoot’s inability to pay its
debts at the time of filing of the bankruptcy petition was the result of the $560,898.51 in cash
withdrawn by Scott Cooney for his personal needs or the use of his related business,” and that in
the Examiner’s opinion, “the net cash flow from rental operations does not appear adequate for
the Debtor to service a debt of over $1,500,000.” The Trustee commenced Adversary Proceeding No. 11-00044 against Cooney and his business entities on June 30, 2011. The complaint includes Count One (“Fraudulent Transfers”) based on 11 U.S.C. § 544(b)(1) and 11 U.S.C. § 548; Count Two (“Conversion”); Count Three (“Account Stated/Deposit of Corporate Funds into Personal Accounts”); Count Four (“Declaratory Relief”) seeking a judgment against Cooney and other Defendants in the minimum amount of $560,898.51. Cooney filed his own Chapter 11 petition on July 12, 2011.

Cooney objects to the Trustee’s Plan. He testified that he wants to block the Trustee’s
sale because it sells the houses for far less than their market value. Cooney testified that in his
opinion the Bonner Houses have a value of around $4 million7. However, his valuations attached
at the end of his disclosure statement put the market value of the Bonner Houses at
$2,820,171.00.

Based on the Trustee’s testimony, the Court finds that the Trustee’s Plan has been
proposed in good faith and not by any means forbidden by law in satisfaction of 11 U.S.C. §
1129(a)(3). The evidence shows that each class of creditors has accepted the Plan, and because
Treasure State Bank agreed to subordinate its deficiency claim the class of unsecured claims will
be paid in full, with interest. With respect to creditors then, the Court finds that the Trustee’s
Plan is fair and equitable and satisfies 11 U.S.C. § 1129(b)(2)(A) and (B). Finally, the Court
finds that, with the purchaser owning the water supply system, and closing to take place on
February 28, 2012, the Trustee has satisfied the feasibility requirement of 11 U.S.C. §
1129(a)(11), and confirmation is not likely to be followed by liquidation or the need for further
financial reorganization beyond that provided in the Trustee’s Plan.

In re Blackfoot Land and Water LLC, Scott Cooney-Pro-se, Ross Richardson, Trustee, February 21st, 2012

 

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Blixseth - July 11, 2012

Case No. 09-60452-7

In this Chapter 7 bankruptcy, after due notice, a hearing was held June 1, 2012, in Butte on approval of the Application for Professional Fees and Costs filed by Western Capital Partners, LLC on March 7, 2012, together with the Trustee’s objection thereto filed March 21, 2012.� Bradley R. Duncan of Seattle, Washington appeared at the hearing on behalf of the Chapter 7 Trustee; Robert W. Hatch II and Joseph J. Novak of Denver, Colorado appeared at the hearing on behalf of Western Capital Partners, LLC. Robert W. Hatch II, Jeffrey D. Adams, and Richard J. Samson, the Chapter 7 Trustee in the above-captioned bankruptcy case, testified. Western Capital Partners, LLC’s Exhibit A and the Trustee’s Exhibits A, B and C were admitted into evidence. At the conclusion of the hearing, the Court granted Western Capital Partners, LLC, fifteen (15) days to file an amended billing statement curing the lumping issues that existed in the billing statement attached to Western Capital Partners, LLC’s Application. Western Capital Partners, LLC filed an amended billing statement on June 15, 2012.

The Application for Professional Fees and Costs filed by Western Capital Partners, LLC on March 7, 2012, is ripe for decision. This Memorandum of Decision includes the Court’s findings of fact and conclusions of law.

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Blixseth v. Kirschner-Adversary Proceeding-December 5, 2012

 

Chapter 11, Adversary Proceeding, Motion for Entry of Final Judgment

A hearing was held on Trustee of the Yellowstone Club Liquidating Trust’s ("YCLT"), Motion for Amendment to, and Entry of, Final Judgment. This Court entered a Memorandum of Decision on August 16, 2010, a Memorandum of Decision on September 7, 2010, and an Amended Judgment against Blixseth in the amount of $40,067,962.43. On October 11, 2011, the United States District Court entered an Order concluding this Court’s Amended Judgment of September 7, 2010, was not a final judgment from which an appeal could be taken. Thus, Judge Haddon dismissed the parties’ appeals without prejudice to refiling upon entry of a final judgment. the Trustee filed the pending Motion for Amendment to, and Entry of, Final Judgment, and Blixseth filed a motion to reopen discovery pertaining to damages.

Blixseth argued for the first time, in a motion to dismiss filed October 12,2011, which was well after entry of this Court’s Amended Judgment on September 7, 2010, that based upon the United States Supreme Court’s ruling in Stern v. Marshall, this Court lacked subject matter jurisdiction to decide the matters herein. The Court disagreed and denied Blixseth’s motion to dismiss, concluding that the Supreme Court’s ruling in Stern v. Marshall did not take away a bankruptcy court’s subject matter jurisdiction.

Blixseth nevertheless continues to object to this Court conducting any further proceedings in this Adversary Proceeding. The majority of Blixseth’s objections on this point are difficult to understand. The sole illuminating argument in support of Blixseth’s objection was made at the March 6, 2012, hearing wherein Blixseth’s counsel argued this Court should "simply follow what . . . it appears Judge Kozinski is going to do in Bellingham, and apply Stern broadly." Counsel references Executive Benefits Insurance Agency v. Peter H. Arkison, Trustee (In re BellinghamInsurance Agency Inc.), No. 11-35162, 2011 WL 5307852 (9th Cir. Nov. 4, 2011), wherein the Ninth Circuit Court of Appeals accepted discretionary review and then invited supplemental briefs by amicus curiae to address whether Stern v. Marshall prohibits bankruptcy courts from entering a final, binding judgment in a fraudulent conveyance action and if so, whether the bankruptcy court may nevertheless hear the proceeding and submit a report and recommendation to the district court in lieu of entering a final judgment.

On December 4, 2012, the Ninth Circuit issued its decision in Bellingham and agreed that fraudulent conveyance claims did not fall within the public rights exception and, therefore, could not "be adjudicated by non-Article III judges." In re Bellingham Ins. Agency, Inc., — F.3d —, 2012 WL 6013836, *5 (9th Cir. 2012). However, the Ninth Circuit in Bellingham went on to conclude that "§ 157(b)(1) provides bankruptcy courts the power to hear fraudulent conveyance cases and to submit reports and recommendations to the district courts." Id. at *10. More important to this case, the Ninth Circuit in Bellingham agreed with the Supreme Court’s decision in Stern that parties can impliedly consent to a bankruptcy court’s jurisdiction. Id. at *12

Having concluded that Blixseth’s actions up to August 16, 2010, constitute implied or informal consent to this Court’s authority to render a final decision under Stern v. Marshall and Bellingham, the sole remaining task for this Court is entry of a final judgment that comports with the Court’s August 16, 2010, Memorandum of Decision.

Based upon the evidence presented during the trial in this Adversary Proceeding and after considering the arguments of counsel made at the March 6, 2012, hearing, the Court finds entry of judgment against Blixseth in an amount sufficient to pay all creditors in full, save Credit Suisse. Credible evidence exists in the record that the Debtors owed creditors, other than Credit Suisse, approximately $40,992,210.81 as of November 11, 2008. Consistent with the Court’s August 16, 2010, Memorandum of Decision, the Court once again concludes that Credit Suisse receive nothing from the $40,992,210.81 because this Proceeding deals in the first instance with Blixseth’s misappropriation of the Credit Suisse loan proceeds paid to the Debtors, which misappropriation was permitted under the express language of Credit Suisse’s Credit Agreement.

Blixseth v. Kirshner, December 5, 2012, Shane Coleman for Trustee Kirshner, Michael J. Flynn Philip Stillman, Christopher Conant, Patrick Fox for Blixseth, Ronald Bender for Ad Hoc Committee of Class B Unit Holders, Clark Whitmore for Class B Group Shareholders.

2012 Mont.B.R. 47

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Blixseth, Samson v. Cincinnati Insurance Company - Adversary Proceedings

Motion for reconsideration

Blixseth moves for reconsdieration of order denying motion to dismiss adversary proceeding Tim seeks partial reconsideration of this Court’s August 1, 2011, Order under F.R.B.P. 7012(b). Rule 7012 sets forth the time and procedures for serving responsive pleadings, for asserting factual and legal defenses and objections, and for making preliminary motions and motions for judgment on the pleadings. Rule 7012 is, by its plain language, not a rule that provides for reconsideration. Tim’s reference to such Rule is thus obviously a reference to the title of Tim’s original motion to dismiss.

the evidence presented to date does not conclusively establish that the
California Superior Court retained jurisdiction to consider the matters at issue in this Adversary
Proceeding. Moreover, the Court is not persuaded that Tim’s July 5, 2011, request for money
judgment is a parallel proceeding.

Moreover, the Court is not persuaded that Tim’s July 5, 2011, request for money
judgment is a parallel proceeding.

Moreover, the Court is not persuaded that Tim’s July 5, 2011, request for money
judgment is a parallel proceeding.

Samson v. Cincinnati Insurance Company, Marcy 12, 2012

 

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BLX Group Inc - Trustees Fees - March 8, 2012

Case No. 09-61893-11

Pending in this Chapter 11 case is the Final Application for Chapter 11 Trustee’s Fees and Expenses for the period October 29, 2009, through October 25, 2011 (hereinafter the “Application” – Docket No. 826) filed on October 31, 2011, by Trustee Carl A. Eklund (“Eklund” or “Trustee”). The Application requests an award of fees calculated under 11 U.S.C. §326(a) in the amount of $730,000 , which was calculated by including a credit bid by secured creditor American Bank in the amount of $10,676,157.19 for the purchase of estate property known as “Unit 4," plus costs in the amount of $2,269.85. No objections were filed, but the Court set the Application for hearing on February 9, 2012, to allow the Trustee to brief and argue the decision of the Ninth Circuit Bankruptcy Appellate Panel (“BAP”) in United States Trustee v. Tamm (In re Hokulani Square, Inc.), 460 B.R. 763, 777-78 (9th Cir. BAP 2011), which concluded that the plain meaning of the term “moneys disbursed” in § 326(a) as used to calculate the cap on trustee compensation cannot include secured creditors’ credit bids. The Trustee filed a brief and appeared at the hearing. After hearing argument of counsel the Court took the Application under advisement. For the reasons set forth below, based on Tamm this Court denies the Application.

 

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BLX Group Inc - Chapter 11 Confirmation - March 12, 2012

Case No. 09-61893-11

In this Chapter 11 bankruptcy, after due notice, a hearing was held October 17, 2011, in Missoula on confirmation of the Trustee’s Third Amended Plan of Liquidation filed September 8, 2011, as supplemented by the Addendum filed October 7, 2011 (the “Plan”). Vincent J. Marriott, III of Philadelphia, Pennsylvania, James P. Bickford of Denver, Colorado and Michael P. Talia of Great Falls, Montana appeared at the hearing on behalf of Carl A. Eklund, the Chapter 11 Trustee for the estate of BLX Group, Inc.; Patrick T. Fox of Helena, Montana appeared at the hearing on behalf of Timothy Blixseth (“Blixseth”); and Charles W. Hingle of Billings, Montana appeared on behalf of Marc S. Kirschner, Trustee of the Yellowstone Club Liquidating Trust (“YCLT”). Carl A. Eklund testified in support of confirmation. The Trustee’s Exhibits 1 through 19 and Blixseth’s Exhibits 1 through 6 were admitted into evidence.

 

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Bodeker - Sale of Property - June 12, 2012

Case No. 12-60137-7

After notice a hearing was held at Missoula on June 12, 2012, on (1) Trustee’s Motion for Order Requiring Debtor to Vacate Property, filed May 10, 2012 (Docket No. 49); (2) Trustee’s Motion to Sell Property Free and Clear of Liens and Interests, filed May 3, 2012 (Dkt. 45); and

(3) Trustee’s Motion to Expunge real property filings and prohibit the Debtor from filing more documents, filed May 12, 2012 (Dkt. 56). The Debtor Warren Charles Bodeker requested additional time to respond, which the Court granted, but the Debtor did not file any objection to the Trustee’s Motions, and did not appear at the hearing. The Debtor is pro se in this case after withdrawal of his attorney was granted with the Debtor’s consent. The Trustee Christy L. Brandon appeared at the hearing in support of the motions, and called prospective buyer Norma Jean Hawley (“Hawley”) to testify. Exhibit (“Ex.”) 1, the agreement for sale of the estate’s real and personal property to Hawley for the sum of $167,000, was admitted without opposition. The Debtor did not appear at the hearing, after two requests to continue filed by him were denied. Debtor’s friend and neighbor Roxsanna Ryan (“Ryan”) appeared at the hearing on behalf of the Debtor under a power of attorney and testified. Attorney Michael Klinkhammer of Missoula, 12-60137-RBK Doc#: 83 Filed: 06/12/12 Entered: 06/12/12 15:43:02 Page 2 of 3 who Debtor has stated in his court filings he may hire to represent the Debtor in this case, appeared at the hearing and advised the Court that he declined to represent the Debtor. After the parties’ concluded their cases-in-chief the Court granted the Trustee’s three Motions at the hearing.

While the Debtor was represented in this case by counsel, attorney Daniel S. Morgan of Missoula, the Debtor entered into a stipulation with the Trustee and U.S. Trustee (Dkt. 29) in which the Debtor waived his discharge and waived his homestead exemption on the real property which the Trustee’s Motion seeks to sell to Hawley. This Court approved that stipulation, and the Debtor has not filed a motion for relief from that stipulation. As a result, the real property and personal property which the Trustee moves to sell to Hawley is property of the estate which is not subject to any valid claim of exemption.

The Trustee is obligated under 11 U.S.C. § 704(a)(1) to liquidate property of the estate and close the estate as expeditiously as possible. The Trustee informed the Court that, with the sale of property to Hawley and liquidation of other assets, she expects this to be a surplus estate with money to be refunded to the Debtor after satisfaction of liens and judgments. However, without approval of the sale the Trustee would incur property taxes, insurance, expenses for repairs which may consume the estate. The sale to Hawley remains subject to contingencies, including a property inspection, but Hawley agreed to extend the inspection date to June 15, 2012, and to extend the closing date.

 

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Brandon v. GMAC et al - Adversary Proceeding, Trust Indenture, Mortgage,  May 24, 2012

Case No. 11-61928-7


Counts I and II of the complaint are based on Montana’s public policy statute that trust
indentures under the Small Tract Financing Act of Montana (“STFA”) are to be used for estates
in real property of not more than 40 acres, found at MONT. CODE ANN. § 71-1-302, and the
Plaintiff’s powers under § 544(a)(3) as a BFP. Because the subject property securing GMAC’s
and MWB’s trust indentures is greater than 40 acres, the Plaintiff contends their trust indentures
are defective, invalid and void under Montana law as stated in Amsterdam Lumber v.
Dyksterhouse (1978), 179 Mont. 133, 586 P.2d 705, and subordinate to her BFP powers under §
544. The Court notes, however, that a trust indenture under § 71-1-305 “is deemed to be a
mortgage on real property and is subject to all laws relating to mortgages on real property, except
to the extent that such laws are inconsistent with the provisions of this part, in which event the
provisions of this part shall control.”

This Court finds that the language of § 71-1-321 is unambiguous. It plainly includes
deeds of trust and trust indentures which are not executed in conformity with the SFTA, and
plainly states that they notwithstanding “are considered to be mortgages” which, from the time such mortgage is recorded as prescribed by law, is “constructive notice of its contents to
subsequent purchasers and encumbrancers.”

Therefore, under Montana law the Plaintiff cannot be a BFP if she had constructive notice
of GMAC’s and MWB’s recorded trust indentures. As discussed above, the unambiguous
language of § 71-1-321 provides that GMAC’s and MWB’s recorded trust indentures, from the
time they were filed for record, are constructive notice of their contents. The result is the
Plaintiff cannot be a BFP under Montana law, or under § 544(a)(3) as pleaded in Counts I and II.

Brandon v. GMAC Mortgage et al, May 24th, 2012

 

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Brandon v. GMAC Mortgage -  Summary Judgment, Cross claim,  June 7, 2012

Case No. 11-61928-7


Kikkerts’ cross-claim against GMAC and MWB asserts that trust indentures held by
GMAC and MWB, on real property described in the complaint, exceed the 40-acre limitation for
trust indentures under Montana’s Small Tract Financing Act (“STFA”), MONT. CODE ANN. § 70-1-304(1), and prays for judgment that the trust indentures therefore are equitable liens which are junior to Kikkerts’ judicial lien. A similar issue was pleaded in the Plaintiff/Trustee’s complaint in Counts I and II. This Court, by Memorandum of Decision (Dkt. 58) and Order entered on May 24, 2012, denied the Plaintiff’s motion for summary judgment and granted GMAC’s motion for summary judgment and dismissed Count I, which was based on the Trustee’s powers as a bonafide purchaser (“BFP”) under 11 U.S.C. § 5441. Based on MONT. CODE ANN. §§ 71-1-321, 70-20-303, and 70-20-304, discussed in the Memorandum of Decision (Dkt. 58) at pages 9, 12-13,and 14, this Court summarized at page 14: “[T]he unambiguous language of § 71-1-321 provides that GMAC’s and MWB’s recorded trust indentures, from the time they were filed for record, are constructive notice of their contents.” Under the same statutes and reasoning, Kikkerts’ Motion for Summary Judgment will be denied since they obtained their judgment against the Debtor on May 17, 2010, after GMAC’s and MWB’s trust indentures were recorded.

Brandon v. GMAC Mortgage LLC et al, June 7th, 2012

 

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Brandon v. GMAC Mortgage, District Court Appeal (affirmed Brandon v. GMAC Mortgage) October 25, 2012

 

Case no CV 12-99-M-DWM

Christy Brandon, the bankruptcy trustee for the estate of Muriel Simmons, appeals the Bankruptcy Court's decision in this case.  While the parties intended the trust indentures would be subject to Small Tract Financing Act, the Bankruptcy Court concluded that they were not because the size of the real property at issue-77 acres--exceeds the Act's 40-acre limit. See Mont. Code Ann. §§ 71-1-302,71-1-304. Since the property exceeds the 40acre limit, the Bankruptcy Court construed it as a mortgage not subject to the Act's provisions.

The Bankruptcy Court found the language of the statute is clear-trust indentures are "considered to be mortgages" if they are "not executed in conformity with [the Small Tract Financing Act]." Consequently the trust indenture must be construed as a mortgage because the property exceeds the size limitation in the Small Tract Financing Act.  The Legislature contemplated these kinds of circumstances and since the trust indenture does not conform with the Act, the balance of Section 71-1-321 applies. Thus, the trust indenture is "considered to be [a] mortgager ] and [is] subject to all laws relating to mortgages on real property."

Brandon v. GMAC Mortgage LLC, (In re Simmons), October 25, 2012, Christy Brandon, Appellant, Kevin Jones and Eli Patten for GMAC

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Cini - Reconsideration Denied - March 13, 2012

Case No. 10-62715-11


Debtors former spouse moves for reconsideration. The Court’s Order enjoined
Nigel and prohibited him from filing any further papers in this case unless he first requests and is
granted leave from this Court, and provided that the Court may summarily deny his request if the
Court determines that it is not germane to this case. The longstanding rule in this Court in deciding motions for reconsideration is as follows:

“A motion for reconsideration should not be granted, absent highly unusual circumstances, unless
the district court is presented with newly discovered evidence, committed clear error, or if there
is an intervening change in the controlling law.”

Nigel still lacks standing as a party in this case. His arguments regarding the division of
marital property are not relevant to this bankruptcy case because this Court lacks jurisdiction
over the division of marital property.

In re Cini, March 13th, 2012, James Cossett for the Debtor, Nigel Cini-Pro S
e

 

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Cini - Relief from Stay - June 22, 2012

Case No. 10-62715-11


Motion to modify stay which seeks relief from the
stay to pursue a personal injury action against the Debtor in state district court, only to the extent of the Debtor’s insurance coverage. Debtor filed an objection and “Counterclaim” seeking damages for violation of the automatic stay by Lesmeister.

Lesmeister filed a motion to strike the Counterclaim.

This Court stated at the hearing on May 10, 2012, that the filing of the First Amended
Complaint in DV-09-1431A, and service on the Debtor, appear to be in clear violation of the automatic stay. Tennant admitted knowing about the Debtor’s bankruptcy filing. Ex. RC2 shows that the Notice of the Debtor’s chapter 13 case was sent to Tennant and Lesmeister. Tennant and Hamilton testified that they knew of the stay, and Tennant filed the First Amended Complaint and had the Debtor personally served with knowledge and notice of the stay. Binney admitted at the hearing on May 10, 2012, that Hamilton’s advice that no relief from the stay was necessary, was not appropriate.

As to Hamilton’s opinion that no stay relief is necessary, Ex. 5, he simply is wrong under
longstanding case law in this District. “[T]he creditor takes the risk of being assessed for damages if he fails to obtain clarification from the bankruptcy court.” Neither is stay relief a “formality” as Hamilton states in Ex. 5. Montana Local Bankruptcy Rule (“Mont. LBR”) 4001-1 sets forth detailed requirements, including use of a Local Bankruptcy Form 8, to file a motion to modify stay. The motion must be accompanied by a fee set under 28 U.S.C. § 1930, although the parties may file a stipulation to modify the stay without a fee under Mont. LBR 4001-1(d). The foregoing explanation that relief from stay proceedings are handled in a summary fashion does not mean that they are a formality which is not necessary to undertake, as Hamilton recommended. On the contrary the summary handling of stay proceedings is an encouragement to follow the rules, not a reason to skip them as a formality. In this Court, motions to modify stay seeking relief limited to insurance coverage8 routinely are granted, with the relief usually limited to the extent of insurance coverage, as Lesmeister requests, and the moving party often is required to return to court after obtaining a judgment to request further relief.

Lesmeister moved to strike Debtor’s counterclaim for damages for willful violation of the
stay. Debtor objected on the ground that the counterclaim is based on the same statute as Lesmeister’s motion to modify stay, and based upon judicial economy because she will file a separate motion if the motion to strike is granted, and it will involve the same evidence, “or the court could just order it be docketed in that manner.  ”It is not this Court’s job to draft parties’ pleadings, or their docket entries. Rule 9013,F.R.B.P, provides in pertinent part: “A request for an order, except when an application is authorized by these rules, shall be by written motion ....” Rule 9014(a) further provides that “[i]n a contested matter not otherwise governed by these rules, relief shall be requested by motion, and reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought.” Therefore, Lesmeister’s motion to strike will be granted, but without prejudice to the Debtor’s right to file a motion for damages for willful violation of the automatic stay. The Court will leave the record open and will entertain additional evidence offered by the parties if there is any, but given the clear evidence of a willful violation of the stay shown by the record to date it may be mandatory to award damages.

In re Cini, June 22nd, 2012, James Cossitt for the Debtor, Jon Binney for Lesmeister

 

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Cini v. Viscomi & Gersh, PLLP - December 19, 2012

Adv. No. 11-00007

Attorney Client Privilege

Chapter 11, Adversary Proceeding, Attorney client Privilege

Pending in this adversary proceeding is the Motion for order of protection by Defendant Peter F. Carroll, asserting attorney-client privilege against discovery requests made to Carroll by Plaintiff Robin Jean Lyon Cini regarding communications between Carroll and Robin’s former spouse and co-Defendant Nigel Cini, who Carroll represented in the marital dissolution case.

Robin and Nigel were married until dissolution of their marriage. Nigel testified that he has used different attorneys, and that Carroll represented him during the dissolution. Carroll ceased representing Nigel in the dissolution, and Nigel obtained other counsel. Nigel testified that, after entry of the confession of judgment against him, he continued to return to Carroll’s office asking for legal advice about his child parenting issues and other legal matters. Carroll asked Nigel whether he expected that their communications would remain confidential and Nigel answered yes, and that Nigel did not waive confidentiality. On cross examination by Cossitt, Nigel repeated that he considered his attorney-client relationship with Carroll uninterrupted.

Rule 26(c)(1) allows a party from whom discovery is sought to move for a protective order. Carroll moves for a protective order to forbid the disclosure or discovery of 142 e-mails on the ground of attorney-client privilege. Montana’s attorney-client privilege is enacted at MONT. CODE ANN. § 26-1-803. The existence of an attorney-client relationship in Montana hinges on the client’s reasonable belief that it exists. The value of trained legal advice can outweigh Robin’s generalized need for discovery. The attorney-client privilege may extend to a former attorney.

The Court has reviewed all 142 e-mails. In all of them except for the above-listed 35, which shall be discussed below, all the e-mails include Nigel’s communications to Carroll asking for legal advice and help, or Carroll’s responses. Those 107 e-mails are protected by the broad attorney-client privilege. However, 35 of the e-mails are not protected by the privilege because they contain no request for legal advice or response, or were sent to Cossitt and other parties rather than just between Carroll and Nigel. Motion granted in part.

Cini v. Viscomi & Gersh, PLLP et al. December 19, 2012 Peter Carroll, Pro Se, James H. Cossitt for Robin Cini

2012 Mont.B.R. 51

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Craig -  Chapter 7, Objection to Exemption,  December 20, 2012

Case No. 12-60488

 

 

Chapter 7, Objection to Exemption, Fraud

In 2006, Debtors purchased roughly 30 acres located in Yellowstone County. Debtors leased Tract 2A to Krum for use in his farming business. Krum had, at some point, expressed an interest in purchasing Tract 2A. Debtors built a home on Tract 2B. In June of 2010, Debtors decided to sell, if possible, both Tracts 2A and 2B. In February of 2011, Debtors accepted an offer and agreed to sell Tract 2B. Krum agreed to purchase and Debtors agreed to sell Tract 2A for the sum of $60,305.00. Debtors used $59,575.30 of the proceeds from the sale of Tract 2A to pay down their home mortgage.

In his pending objection, the Trustee, relying on In re Lacounte, 342 B.R. 809, 2005 Mont.B.R. 54 (Bankr. D. Mont. 2005), seeks to deny, to the extent of $59,575.30, Debtors’ claimed homestead exemption. "It has long been the rule in this and other jurisdictions that the purposeful conversion of nonexempt assets to exempt assets on the eve of bankruptcy is not fraudulent per se. Subsection 522(o) of was added to the Bankruptcy Code as a result of the 2005 BAPCPA and is limited to conversion by a debtor of nonexempt property into a homestead exemption with the intent to hinder, delay, or defraud a creditor. Perhaps instructive in the analysis of § 522(o) are the "badges of fraud," which courts have referred to as circumstantial evidence supporting a finding that a debtor disposed of property with an intent to hinder, delay, or defraud a creditor. These "badges of fraud" include:

(1) a close relationship between the transferor and transferee; (2) that the transfer was in anticipation of a pending suit; (3) that the debtor was insolvent or in poor financial condition at the time; (4) that all or substantially all of the [debtor's property was transferred; (5) that the transfer so completely depleted the [debtor's assets that the creditor has been hindered or delayed in recovering any part of the judgment; and (6) that the debtor received inadequate consideration for the transfer.

The Trustee has not demonstrated that Debtors had an actual intent to hinder, delay or defraud creditors. First, Debtors are not related to Krum and the Trustee makes no allegation that Krum is an insider as that term is defined at 11 U.S.C. § 101(31). Also, other than this bankruptcy proceeding, it does not appear Debtors were anticipating any type of litigation, and the testimony and evidence show that Debtors’ plans to sell Tract 2A began in 2010, long before Debtors considered filing for bankruptcy. While Debtors did admittedly sell their only non-exempt asset, no evidence exists in the record that Debtors received inadequate consideration from Krum for the transfer of Tract 2A.

Applying the above standards, this Court concludes that the Trustee failed to satisfy his burden of proof to show by a preponderance of the evidence that the Debtors disposed of their nonexempt property and transferred the proceeds to their home mortgage with the intent to hinder, delay or defraud a creditor in violation of § 522(o), when Debtors sold Tract 2A and transferred the sale proceeds to pay Debtors’ mortgage on the home where Debtors claimed a homestead exemption.

In re Craig, December 20, 2012, Joe Womack Trustee, Phillip Oliver for Craigs

2012 Mont.B.R. 52

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Crittenden -  Chapter 13, Conversion, Bad faith, April 27, 2012

Case No. 12-60165-13


In approximately June of 2006, James and Betty started a used car business, Payless Auto
Sales, Inc. Payless Auto Sales, Inc. was involuntarily dissolved in 2009. Debtors filed a voluntary Chapter 13 bankruptcy petition on February 13, 2012, with the hopes of getting out from under their debt. James concedes that Debtors did not and still do not have the ability to repay their debt.

Sometime after the 341(a) meeting of creditors, the Trustee discovered that Debtors failed
to list an unsecured creditor on Schedule F and had also failed to list joint ownership in three
additional motor vehicles. Debtors thus amended their Schedules A, B, E and F on April 13,
2012.

The right to dismiss under 11 U.S.C. § 1307(b) is no longer absolute, but rather, is qualified by
an implied exception for bad-faith conduct or abuse of the bankruptcy process. Thus, this Court has the discretion to dismiss this case, or to convert the case to Chapter 7 as the Trustee requests.

After considering the Leavitt factors and the evidence in this case, the Court concludes
that conversion of the case to Chapter 7 is in the best interests of creditors and the estate.
More troubling to the Court is Debtors’ complete failure to list the monies received and
still owing from Source One Finance. Equally troubling is Debtors’ admission that they
purposely failed to disclose a creditor. Rule 1007(b), F.R.B.P., specifically requires debtors to
file “schedules of assets and liabilities.” Debtors’ obligation to St. Paul Trust/Evelyn
Heimbichner was a liability that was required to be disclosed. The amount owed from Source
One Finance is an asset that Debtors’ should have listed. Debtors’ failure to list all their assets and liabilities in their original schedules is not excused by their amendment, which was done only after the Trustee discovered the undisclosed assets and liabilities. Finally, it is clear that Debtors never had and still do not have the ability to fund a Chapter 13 plan.

In re Crittenden, April 27th, 2012. Robert Stephens for the Debtors, Robert Drummond, Trustee

 

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Crum v. Palmer - Chapter 7 - Compromise - March 26, 2012

Case No. 10-60099-7


Trustee moves to approve compromise and Navistar objects, Palmer owned JPT and other related business entities known as Jim Palmer Equipment,Inc. (“JPE”), Jim Palmer Equipment II, L.L.C. (“JPEII”), and Jim Palmer Equipment Logistics, LLC (“JPEL”). Defendants Blazo Gjorev (“Gjorev”) and Milan Kangrga (“Kangrga”) purchased Palmer’s stock in JPT and the other related business entities. Palmer was to continue his emplyment for $200,000 per year but was terminated for failure to conduct his duties–They later settled for $450,000 payable at $50,000 per year. . Trustee alleges five counts for avoidance of fraudulent transfer. Navistar objects to the proposed settlement that the Trustee failed to show difficulties in collecting the settlement amount.

When considering the settlement the court must consider:

‘(a) The probability of success in the litigation; (b) the difficulties,
if any, to be encountered in the matter of collection; (c) the
complexity of the litigation involved, and the expense,
inconvenience and delay necessarily attending it; (d) the paramount
interest of the creditors and a proper deference to their reasonable
views of the premises.’ A & C Properties, 784 F. 2d at 1381.


Based upon the A & C Factors-the settlement will be approved.

In re Palmer, Crum v. Palmer et al. March 26th 2012

Trent Gardner for Crum, Steve Johnson for Navistar

 

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Fanuzzi -  Chapter 11, Relief from Stay, Inspect Property, April 20, 2012

Case No. 12-60143-11


hearing was held at Butte on April 10, 2012, on several
motions and objections filed by the Debtors John Michele Fanuzzi (“John”) and Norah Bawn
Fanuzzi (“Norah”) (together “Fanuzzis” or “Debtors”), relating to this Court’s Orders granting
the motion to modify stay filed by the Bank of the Rockies N.A. (“Bank”) and the Bank’s
motions for Rule 2004 examinations of the Debtors, and on the Bank’s motion to enter and
inspect real property located in Emigrant, Montana (the “subject property”).

Grove testified that the Debtors still live in the building on the subject property with other persons, and that they have inventory at the subject property. Other persons are living on the subject property without the Bank’s consent, and Grove testified that the Fanuzzis refuse to permit the Bank to inspect the subject property.

Mont. LBR 5071-1 requires that a party requesting the continuance of a hearing
“shall: (a) file a motion seeking the continuance at least three (3) days prior to the scheduled
trial, hearing or conference; (b) advise the Court of the affected party’s response to such request
or what attempts have been made to gain each party’s consent; ...” Debtors did not comply with
LBR 5071-1. They did not file their motion for continuance at least 3 days prior to the April 10,
2012, hearing, and they did not advise the Court of the Bank’s response to the request. The Court finds and concludes that the Debtors failed to show good cause to continue the April 10, 2012, hearing.

“A motion for reconsideration should not be granted, absent highly unusual circumstances, unless the district court is presented with newly discovered evidence, committed clear error, or if there is an intervening change in the controlling law.” Debtors complain about the expedited nature of the Bank’s motion for relief, but that nature is embodied in the Code and Rules.
The Debtors have filed petitions seeking the benefits of bankruptcy, and they must therefore shoulder the attendant burdens. The record set forth above provides sufficient cause for this Court to order the examination of the Debtors by the Bank under Rule 2004.

In re Fanuzzi, April 20th, 2012, John and Norah Fanuzzi- Pro se, Joel Guthals and Jeffrey Hunnes for Bank of the Rockies

 

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Field of Dreams Tree Farm - Chapter 11, Relief from Stay, Cash Collateral,  March 28, 2012

Case No. 12-60074-11


Hearing was held on First Interstate Banks motion for order that stay is not applicable or in the alternative, to modify stay or for adequate protection. Debtor’s counsel conceded at the hearing that the automatic stay does not apply to the real property owned by Ernest V. Smith and Jonine K. Smith. Thus, FIB may proceed under the terms of the October 18, 2011 Judgment, which provides for the sale of the real property. Notwithstanding the stipulated Judgment, which directs the order in which assets are to be liquidated, Debtor opposes FIB’s motion to proceed against the personal property owned by Debtor, as listed in the Judgment, arguing FIB is adequately protected by real property owned by Ernest V. Smith and Jonine K. Smith. Because Debtor argues FIB is adequately protected, Debtor does not offer to make any adequate protection payments to FIB and in fact, based upon Debtor’s allegation that FIB’s collateral has a value of $874,590, Debtor seeks permission to use all cash collected from sales and/or collection of accounts receivable during the next six months to fund its operations.

FIB’s motion for an order holding that the automatic stay does not apply to real property is granted. As for the only other property of the bankruptcy estate3, FIB’s motion to modify stay is
based upon 11 U.S.C. § 362(d)(1), which allows for the granting of relief from the automatic stay
“for cause, including the lack of adequate protection of an interest in property of such party in
interest[.]”However, for purposes of valuation, an owner is competent to give his or her opinion
on the value of his or her property, most often simply by stating the conclusion without stating a
reason. See Hon. Barry Russell, BANKRUPTCY EVIDENCE MANUAL, 2010 ed. § 701:2; South
Central Livestock Dealers, Inc. v. Security State Bank of Hedley, Tex., 614 F.2d 1056, 1061 (5th
Cir. 1980). While a debtor’s estimate of value may be acceptable in certain cases, the Court may
give little weight to an opinion if not based upon sufficient facts. The Court finds that Debtor has
not satisfied Debtor’s burden of proof to show that relief from the stay should not be granted for
“cause” under § 362(d)(1). The evidence in this case shows no equity cushion.

In re Field of Dreams Tree Farm, March 28th, 2012, James Patten for FIB, Gary Deschenes for the Debtor

 

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Garcia v. Burkhartsmeier - Dischargability, Fraud, October 24, 2012

Case no. 11-61667-13, Adversary No. 11-600069

 

Ernie filed his Amended Complaint in this Adversary Proceeding on March 20, 2012, seeking to except $194,322.06 from Debtors' discharge under 11 U.S.C. § 523(a)(2). Section 523(a)(2)(A) provides that, "a discharge under . . . this title does not discharge an individual debtor from any debt – (2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by – (A) false pretenses, a false representation, or actual fraud, . .. ." To prevail on a § 523(a)(2)(A) claim, a creditor must establish five elements: "‘(1) misrepresentation, fraudulent omission or deceptive conduct by the debtor; (2) knowledge of the falsity or deceptiveness of his statement or conduct; (3) an intent to deceive; (4) justifiable reliance by the creditor on the debtor's statement or conduct; and (5) damage to the creditor proximately caused by its reliance on the debtor's statement or conduct.'" Consistent with effectuating the underlying purposes of the Bankruptcy Code, exceptions to discharge under §§ 523 are to be narrowly construed. See Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154 (9th Cir. 1992). Notwithstanding the weighty burden, a creditor bears the burden of proof to establish each of the five elements by a preponderance of the evidence.

The first three elements of § 523(a)(2)(A), when taken together, establish the element of intent to deceive, which the creditor must establish by a preponderance of the evidence. In other words, a creditor must establish that a debtor knowingly made a false representation, either express or implied, with the intent of deceiving the creditor. In a two-party transaction, as distinguished from a three-party credit card transaction, the alleging party must prove the elements of misrepresentation and reliance directly and by a preponderance of the evidence and not by reference to the totality of the circumstances. As to the remaining elements, a creditor sustains its burden of proof under § 523(a)(2)(A), if a Court, after considering the facts and circumstances of a particular case, answers the following two inquiries in the affirmative: 1) did the creditor justifiably rely on the debtor’s representation–reliance; and 2) was the debt sought to be discharged proximately caused by the first two elements–causation.

A creditor must establish that it relied on the false representations made by the debtor. Finally, to prevail under 11 U.S.C. § 523(a)(2)(A), a creditor must establish that a claim sought to be discharged arose from an injury proximately resulting from his or her reliance on a representation that was made with the intent to deceive. For the reasons discussed above, the Court finds that Ernie is entitled to judgment under 11 U.S.C. § 523(a)(2)(A). In April of 2011, Judge Fagg entered judgment in favor of Ernie in the amount of $194,322.06. That judgment stems from Ernie’s down payment of $73,500.00 made in February 2004 and his final payment of $73,500.00 made in September 2005. Because the judgment stems from two equal payments, the Court finds it appropriate, in this Adversary Proceeding, to enter judgment in favor of Ernie for one-half the amount of Judge Fagg’s judgment, or $97,161.03, which corresponds to the damages associated with the failure of disclosure by Brenda and Dennis and the fraudulent statements made by Brenda which induced Ernie to make the second payment in September 2005.

In re Burkhartsmeier, Garcia v. Burkhartsmeier, October 24, 2012

Martin Smith and Burt Hurwitz for Garcia, Gary S. Deschenes for Burkhartsmeier

2012 Mont.B.R. 45

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Hart and Dyrud v. Luckman  Domestic Support Obligation, Exception to Discharge, December 26, 2012

Case No. 12-60036, Adv. No. 12-00013

Plaintiffs Scott L. Hart ("Hart"), who is the former spouse of the Debtor/Defendant Margot Elizabeth Luckman ("Debtor" or "Margot"), and Hart’s attorney in the marital dissolution case, Kenneth R. Dyrud ("Dyrud"), seek exception from Debtor’s discharge of $78,607.96 in attorney fees awarded by the state court, as a "domestic support obligation" under 11 U.S.C. § 523(a)(5). Plaintiffs argue that their claim arises from attorney fees incurred in a dispute over child support under the Settlement Agreement, and Hart was awarded his attorney fees from having to defend against Margot’s meritless claim. Defendant disputes that the debt is a domestic support obligation under § 523(a)(5), and she argues that Hart did not object to her Chapter 13 Plan which was confirmed and therefore binds the Plaintiffs, and that Hart filed two (2) proofs of claim asserting the debt as an unsecured, nonpriority claim.

Domestic support obligations, as that term is defined at § 101(14A), are non-dischargeable under § 523(a)(5) which provides that a discharge under 11 U.S.C. § 1328(b) does not discharge an individual from any debt . . . "(5) for a domestic support obligation." Section 1328(a)(2) governing discharge in a chapter 13 case repeats that after completion of plan payments a court shall grant the debtor a discharge of all debts provided for by the completed plan or disallowed under section 502 "except any debt – . . . (2) of the kind specified in . . .paragraph . . . (5) . . . of section 523(a)."

Based on the final decisions by the Montana Supreme Court set forth above, this Court finds and concludes that the $78,607.96 judgment against Margot in Cause No. DR-93-77700 is a domestic support obligation of the Debtor as defined at § 101(14A). The Court finds that it is in the nature of support because it was incurred in the course of litigating the child support obligations of the parties. The fact that Margot also owes the $78,607.96 to Hart’s attorney and co-Plaintiff Dyrud does not impact the dischargeability of such fees, because direct payments to a third party, such as an attorney, may be deemed to be an obligation to the former spouse where it would elevate form over substance to fail to treat it as such.

This Court confirmed Debtor’s Plan on February 27, 2012. Plaintiffs had notice of the amended Plan and did not object. However, the provisions of the confirmed Plan cannot bind Plaintiffs with respect to the dischargeability of their claim because the Plan included no provision relating to discharge of their claim. Indeed, a proceeding to determine the dischargeability of a debt is an adversary proceeding governed by Part VII of the Federal Rules of Bankruptcy Procedure. Rule 7001(6). To attempt to determine dischargeability of debt in confirmation of a chapter 13 plan would violate Rule 7001(6). Plaintiffs followed proper procedure by initiating an adversary proceeding under Rule 7001(6), and the fact that they did not claim priority status on their proofs of claim is not determinative of dischargeability.

Hart and Dyrud v. Luckman (In re Luckman), December 26, 2012

Daniel S. Morgan for Plaintiffs, Nik Geranios for Luckman

2012 Mont.B.R. 53

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Hefty-Hefty v. Mountain West - February 13, 2012

Case No. 11-60039-11

Chapter 11, Avoidance of Trust Indenture

Corner Development LLC executed a Construction Deed of Trust to secured loans from Mountain West. Parties entered into a workout agreement together with quit claim deeds. Deeds of Trust were recorded but workout agreement and quit claim deeds were not. As Debtors-in-Possession, Plaintiffs have rights and powers of a trustee pursuant to 11 U.S.C. §1107(a), including a trustee’s “strong-arm powers” which include a perfected lien on the real property as a judicial lien creditor under 11 U.S.C. § 544(a)(1), and in addition hypothetical status as a perfected bona fide purchaser (“BFP”) of real property to avoid any transfer of property of the debtor that is voidable by a bona fide purchaser of real property under §544(a)(3).

The quit claim deeds are unperfected and are subject to avoidance by the Debtors under § 544(a)(1) and § 544(a)(3). Plaintiffs have failed to specify
any contract provision of the Workout Agreement which provides that the recorded deeds of trust
are vitiated and superceded. Plaintiffs argue that nowhere in the Workout Agreement are the
recorded deeds of trust preserved. Plaintiffs have it backwards. The Workout Agreement
explains the specific modifications to Loans 2007 and 2516 at sections 4 and 5, which renew or
extend the terms of the loans. Otherwise the evidence specifically shows in the change in terms
agreements for the loans, Ex. J and R, that all other terms and conditions of Loans 2007 and 2516
are to “remain the same.” In the absence of any evidence to the contrary, those provisions
preserve the recorded deeds of trust.

Montana case law thus provides no support for Plaintiffs’ contention that the Workout
Agreement and quit claim deeds were in violation of § 71-1-202 because they took away
Plaintiffs’ right to foreclosure.

In re Hefty, Hefty and Corner Development LLC v. Mountain West Bank, February 13th, 2012
Harold Van Dye for Plaintiffs, Thomas Pardy for Defendant

 

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Henry - Motion to Stay - August 1, 2012

Case No. 12-60134-11

 

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Hilliard-Priority Claim-Nondischargable Tax-September 26, 2012

Case No. 12-60309

 

Pending in this Chapter 13 case is the Debtor’s Objection (Docket No. 20) to Proof of Claim No. 2 filed by the Montana Department of Labor & Industry Employment Relations Division, Uninsured Employers Fund ("UEF") on the grounds the claim is not a nondischargeable tax debt to a government unit under 11 U.S.C. § 507(a)(8)(c). In Garvida the objecting debtors satisfied their burden of going forward by proffering evidence at a hearing proving they made payments, and as a result the burden shifted to the creditor to prove the validity and amount of its claim, which it failed when it failed to provide an accounting.  In the instant case, by contrast, the Debtor offered no witness testimony or exhibits at the hearing. Under Garvida, UEF’s Proof of Claim No. 2 is entitled to an evidentiary presumption, which is rebuttable. The only evidence in the record are the four stipulated facts which establish that an employee of the Debtor was injured while the Debtor had no workers’ compensation insurance as required by law; UEF accepted the employees claim for benefits; and UEF filed its Proof of Claim No. 2, including a priority claim, interest and penalties. Based upon this record this Court cannot but conclude that the Debtor has failed to rebut the evidentiary presumption of UEF’s Proof of Claim, which is therefore prima facie evidence of the validity and amount of Proof of Claim No. 2. The Court concludes that the Debtor has failed to establish that a private creditor similarly situated to the State of Montana UEF can be hypothesized. Accordingly, the Court concludes that Debtor has failed to rebut the evidentiary presumption to which UEF’s Proof of Claim is entitled, and Debtor’s Objection must be overruled.

In re Hilliard, September 26th, 2012 Mike Klinkhammer for Hilliard, Joseph Nevin for the State of Montana

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Hinsley Limited Partnership No. 1 - Application of Professional Fees - January 13, 2012

Case No. 10-61822-7

Notwithstanding the absence of any opposition, this Court has an independent obligation
to review each application for compensation to ensure that applicants provide an adequate
summary of work performed and costs incurred.

The above excerpt demonstrates that this Court is obligated to review each request for
fees and costs to determine whether the applicant provided:
1. a description of the services provided, setting forth, at a minimum, the parties involved
and the nature and purpose of each task;
2. the date each service was provided;
3. the amount of time spent performing each task; and
4. the amount of fees requested for performing each task.

To further complicate this matter, the Debtor was not able to propose a confirmable
Chapter 11 plan, and upon request of creditors, the Court entered an Order on October 12, 2011,
converting this case to Chapter 7 of the Bankruptcy Code. Given the conversion of this case to
Chapter 7, the lack of disinterestedness and given that Spencer Thunell, Michael Stewart and
LEP’s employment did not ultimately assist the Debtor in securing confirmation of a Chapter 11
plan, the Court exercises its broad discretion and denies approval of the pending fee applications.

In re Hinsley Limited Partnership No, 1., January 12th, 2012, Joe Womack, Trustee, James Andrew Patten, Attorney for Hensley

 

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Holliday - Chapter 13, Adequate Protection, Confirmation,  February 23, 2012

Case No. 11-62315-13



Section 1322(b)(8) allows a plan to be partially funded through the sale of property of the
estate or property of a debtor, but issues of good faith, feasibility and adequate protection arise
when a plan proposes only token monthly payments to the secured creditor. In Mellor the Ninth Circuit Court of Appeals recognized that an “equity cushion”, while not specifically mentioned in the Bankruptcy Code, is a common form of adequate protection. The contentions stated in TD’s
and Kenco’s objections are attorney argument, not admissible in evidence and therefore not
relevant. Therefore, based on the evidence in the record, the Court finds that TD and Kenco are adequately protected during the pendency of the Plan by the $100 monthly adequate protection payments. Debtors’ proposed Plan protects TD and Kenco’s secured positions from further decline while Debtors sell their residence. Debtors’ Plan, as proposed, provides adequate protection to TD and Kenco while they try to sell their residence for 1 year. Robin testified that if their residence does not sell they will turn over the vehicles and equipment, and that testimony corroborates the Plan provision. Contrasted with prior proceedings in Debtors’ bankruptcy cases, Debtors have produced evidence as to their marketing efforts, the state of the market, current sale prospects, and their equity cushion, which tend to show that TD and Kenco have a reasonable way of seeing their way out of this case financially whole. The Court finds that Debtors have satisfied their burden.

In re Holliday, May 4th, 2012, Ben Tiller for the Debtors, Brian Marty for T.D. Finance, Dan Manson for Kenco

 

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Holliday - February 23, 2012

Case No. 11-62315-13

In this Chapter 13 bankruptcy, after due notice, a hearing was held February 7, 2012, in Butte on confirmation of the Debtors’ First Amended Chapter Thirteen Plan filed January 25, 2012, together with objections thereto filed by the Chapter 13 Trustee, TD Auto Finance, LLC and Kenco Equipment Lease Co. Robert G. Drummond of Great Falls, Montana, the Chapter 13 Standing Trustee, appeared at the hearing. In addition, Debtors were represented at the hearing by Benjamin C. Tiller of Helena, Montana; TD Auto Finance, LLC was represented by Brian Marty of Billings, Montana; and Kenco Equipment Lease Co. was represented by Daniel D. Manson of Butte, Montana. Debtor Robin Holliday testified and Debtors’ Exhibits 5 through 9 were admitted into evidence.

This Court has exclusive jurisdiction in this Chapter 13 bankruptcy under 28 U.S.C. § 1334(a). Confirmation of Debtors’ Plan is a core proceeding under 28 U.S.C. § 157(b)(2)(L).� This Memorandum of Decision includes the Court's finding of fact and conclusions of law.

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2012\js makreting.pdf

JS Marketing - January 24, 2012

Case No. 05-65426-7

In this Chapter 7 case, after due notice hearing was held at Missoula on January 10, 2008, on the Request for Payment of Administrative Expenses filed by Jeff M. Smith (hereinafter “Smith”) and JS Tower Management Services, Inc. (“JS Tower”) on October 19, 2007 (Docket No. 263) (“Request”), asking for $67,392.73 in building rent as an administrative expense for the period from December 2005 through October 2006 under a written lease. The Trustee filed an objection and was represented at the hearing by attorney Harold V. Dye (“Dye”) of Missoula, Montana. Smith and JS Tower were represented by attorney Edward A. Murphy (“Murphy”) of Missoula, Montana. Smith testified in support of his and JS Tower’s Request. Smith’s Exhibits (“Ex.”) A and B, and the Trustee’s Ex. A,1 B, C, D, and E, all were admitted into evidence. In addition the Court granted the Trustee’s request for judicial notice (Docket No. 278). After the conclusion of the parties’ cases-in-chief the Court took the matter under advisement. After review of the record and applicable law, and for the reasons set forth below, the Request for Payment of Administrative Expenses filed by Smith and JS Tower will be denied by separate Order.

This Court has jurisdiction over this Chapter 7 case under 28 U.S.C. § 1334(a). The Request for Payment of Administrative Expenses filed by Smith and JS Tower is a core proceeding under 28 U.S.C. § 157(b)(2).

Smith and JS Tower request $67,392.11,2 including late fees and interest, for post-petition rent incurred by the Debtor in premises owned by JS Tower under the terms of an expired written lease of business premises, Smith’s and JS Tower’s Ex. A, which the Debtor continued to use and occupy post-petition and which Smith and JS Tower contend thereby “was clearly for the benefit of the estate and the creditors thereto.” The Trustee objects to the Request on the grounds that Smith received transfers from the Debtor which are recoverable under 11 U.S.C. §§ 502(d), 547 and 548, that Smith is a controlling shareholder of the Debtor and an insider who made the decision not to pay the rent, that Smith and JS Tower voluntarily subordinated their claims under a prior confirmed Chapter 11 plan involving the Debtor but did not abide by the subordination

1The Court admitted Trustee’s Ex. A, but clarified that the $302,359.10 total amount stated on the last page of the exhibit and described thereon as “Due from Jeff Smith” is not correct.

2$67,392.11 is the amount set forth in the Request. Smith’s and JS Tower’s Ex. B states the total amount due as $67,392.73.

provisions of the confirmed plan, and that the lease expired prepetition and was not renewed. The Trustee asks that Smith’s and JS Tower’s Request be denied until Smith provides a complete accounting of all transfers to him or for his benefit since December 20, 2002.
 

 

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Jonas - Disclosure Statement - July 17, 2012

Case No. 10-60248-11

Pending in this Chapter 11 case are several matters, including: (1) motion to dismiss filed by Debtor’s former spouse Linda Jonas (“Linda”) (Docket No. 227), and Debtor’s objection thereto; (2) Debtor’s motion to extend time to file a chapter 11 plan and disclosure statement (Dkt. 241) and objection thereto filed by Linda; (3) motion for reconsideration (Dkt. 243) filed by Creditors and Linda’s objection thereto. These matters were held in abeyance pending a final decision of the Debtor’s appeal in his divorce case in the New Jersey state court system. Debtor’s attorney filed a Report on April 30, 2012, stating “[a]ll appellate avenues in New Jersey have been exhausted and no further appeals are possible.” Consequently, the Court held a status hearing on these matters at Missoula on May 10, 2011. The parties were represented by counsel. The Court granted the parties time to file briefs on the pending matters, which have been filed and reviewed by the Court together with the record and applicable law. These matters are ready for decision. For the reasons set forth below Debtor’s motion to extend time is denied and this case will be dismissed with prejudice pursuant to the approved Stipulation (Dkt. 198) between The moving “Creditors” are: John Bloomquist, Gough, Shanahan, Johnson & Waterman, RLK Hydro, Inc., Roderick V. Hannah and Sandra Hochman. the Debtor, Chapter 7 trustee and U.S. Trustee.

This Court has exclusive jurisdiction of this chapter 11 case under 28 U.S.C. § 1334(a). The pending matters are core proceedings under 28 U.S.C. § 157(b)(2).At the hearing on May 20, 2012, Debtor was represented by attorney Edward A. Murphy of Missoula. The “Creditors” were represented by attorney Ronald F. Waterman (“Waterman”) of the Gough law firm of Helena, Montana. Linda was represented by attorney Robert Erickson, Sullivan, Tabaracci & Rhoades, P.C., Missoula.

 

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Jonas - Stay Pending Appeal - July 23, 2012

Case No. 10-60248-11

Chapter 11, Motion for stay pending appeal

This Chapter 11 case was dismissed. The Debtor filed a motion for stay pending appeal and a motion for expedited hearing. Debtors former spouse filed an objection. Debtor is not offering a supersedeas bond. Therefore, Debtor as the moving party seeking a stay pending appeal must satisfy the requirements of F.R.B.P. Rule 8005. A party seeking relief under Rule 8005 must show (1) that he will suffer irreparable harm unless the stay is granted; (2) a likelihood of success on the merits of the appeal; (3) that the other parties will suffer no substantial harm if the
stay is granted; and (4) that the public interest will not be harmed if the stay is granted.


As far as Jonas’ interest, the Court finds that he has failed his burden to show that he will suffer irreparable harm if the stay is not granted. Jonas has admitted in his testimony that he failed to keep control of the LLC’s cattle. The LLC’s cattle appear to be in more harm under his control than they would be under a receiver’s control. It is inaccurate to state that this Court did not give the Creditors due process to prove their objection to Linda’s claim. They had notice and a hearing and an opportunity to offer evidence. They offered no evidence, so their objection to Linda’s claim was overruled after a hearing. The third element Debtor must prove is that the other parties will suffer no substantial harm if the stay is granted. The Debtor’s testimony that the LLC’s cattle are wandering loose, by itself, defeats Debtor’s argument relative to this third element.

In re Jonas, July 23rd 2012, Edward Murphy for the Debtor, Quentin Rhoades for Linda, Ronald Waterman for creditors


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Junkert - June 22, 2012

Case No. 11-60839-7

Plaintiff seeks to quiet title to Tract 2 of Certificate of Survey 3227, and also seeks punitive damages, attorney’s fees and immediate turnover and possession of Tract 2 and his equipment located thereon stemming from an alleged breach of contract, breach of fiduciary duty, and actual and constructive fraud.

For the past 40 to 45 years, Steve has lived on a 19.809 acre parcel of Albert and
Julia Junkert’s property. A dispute arose between Steve and Albert’s Estate over some personal assets, a claim Steve was asserting against the Estate, and a claim the Estate was asserting against Steve for gravel extracted by Steve from the property. Steve hired an attorney to help him with the dispute.

At some point, Aldora joined Steve in the action against Albert’s Estate. According to Aldora,she wanted to help Steve with his claims and the paperwork. The parties agree that Steve has not paid Debtors the full amount owed for Tracts 1 and 2.

The parties also agree that they had a verbal agreement that Steve would get title to Tracts 1 and2 as soon as Steve paid the purchase price attributable to Tracts 1 and 2. Steve, however, has never known what he owed to Debtors and the parties at this time have no idea what Steve still owes. Debtors have similarly never informed Steve that he was in default under the terms of the oral agreement. Debtors contend at this time that Steve owes $45,532.01.

In Hayes v. Hartelius (1985), 215 Mont. 391, 697 P.2d 1349, the parties entered into an
oral contract for the sale of real property and in that case, the Supreme Court of Montana
concluded the statute of frauds did not render the oral contract invalid. The Supreme Court of Montana in Hayes held that it would “not allow the statute of frauds, the object of which is to prevent fraud, to be used to accomplish fraudulent purposes.” In this case, Debtors and Steve both acknowledge their oral agreement regarding Tracts 1
and 2. In particular, Steve understood that if he paid some undisclosed sum of money to Debtors, he would in return receive Tracts 1 and 2. Debtors never told Steve what he would have to payor when he would have to make payments. Debtors also never told Steve that he would have to pay interest on the obligation. Debtors have similarly never told Steve that he was in default under the oral agreement.

Based upon the evidence, the Court finds Steve was originally obligated to pay Debtors
$39,293.42. The Court reached said number by first looking at the acreage Steve and Debtors sought to receive. The Court concludes that Debtors and Steve had an oral agreement that is enforceable under Montana law. Steve has tried to fulfill his obligations under the oral contract, but his efforts have been thwarted by Debtors. Thus, the Court finds that Debtors shall, upon Steve’s payment of $27,956.25, transfer Tract 2 to Steve.

Junkert v. Aldrich, June 22nd, 2012, Jack Sands for the plaintiff, Craig Martinson for the defendant.

 

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Launderville - Chapter 13 - Creditor Attorney Fees - January 11, 2012

Case No. 11-6

This case was commenced on June 7, 2011. Boomer Oil seeks payment of legal fees
incurred between June 10, 2011, and October 20, 2011, and seeks reimbursement of expenses
incurred between July 12, 2011, and October 4, 2011. Boomer Oil’s application includes
“Courtesy Fee Reduction[s]” totaling $4,000. Debtors filed their objection to Boomer Oil’s
request for fees and costs on November 28, 2011, setting forth objections to $4,821.21 of the
requested fees and costs.

This Court has awarded reasonable attorney’s fees under § 506(b) to oversecured
creditors who found it necessary to engage counsel to defend their secured status. In re Copper
King Inn, 10 Mont. B.R. 146, 148 (Bankr. D. Mont. 1991). In the instant case Boomer Oil’s
secured status as represented in its Proof of Claim was never challenged.

Notwithstanding the “Courtesy Fee Reduction” of $4,000.00, the Court exercises its
broad discretion to deny additional fees totaling $9,336.00, bringing the reasonable fees to
$9,249.50. The Court finds Boomer Oil’s request for reimbursement of $3,237.09 in expenses
reasonable.

In re Launderville, Dan Sweeney -Attorney for Debtors, Eli Patton for Creditor, 1-11-2012

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Marsh-Motion for Enlargement of Time- September 26, 2012

Case No. 12-60195

 

Pending in this Chapter 7 case is the Trustee’s Motion for Enlargement of Time to seek denial of discharge under 11 U.S.C. § 727, and Debtor’s objection thereto. A complaint or motion objecting to a debtor’s discharge shall be file no later than 60 days after the first date set for the 11 U.S.C. § 341(a) meeting of creditors under F.R.B.P. Rule 4004(a). The Trustee asked for and was granted one extension of time to file a complaint, and the instant Motion requests another 3-month extension. The Trustee did not offer even a scintilla of evidence at the hearing in support of her Motion. She also did not establish a reasonable degree of due diligence to be accorded the requested extension. Bomarito, 448 B.R. at 248. She declined to testify and did not offer any exhibits at the hearing. The Court finds nothing in the case docket upon which it can find cause for another 3-month extension. Even if the Trustee’s arguments that the Debtor is enjoying the use of a nice car and Harley are true, it is not clear that such facts establish cause for an extension. Denying the Trustee’s Motion for extension does not deprive the Trustee, a creditor, or the United States Trustee of the ability to request revocation of the Debtor’s discharge under 11 U.S.C. § 727(d) and (e) for at least one year after a discharge is granted. The Court deems those provisions sufficient to ensure that the Trustee has the ability to preserve the integrity of the bankruptcy process in this case.

In re Marsh, September 26th 2012, Christy Brandon Trustee, James Cossett for Marsh

2012 Mont.B.R. 42

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Perry v. Fleury-Nondischargable Debt- December 5. 2012

 

Chapter 7, Adversary Proceeding, Nondischargeable debt

Trial was held on Plaintiff’s complaint to except $8,800.00 from Debtor/Defendant’s discharge pursuant to 11 U.S.C. § 523(a)(15). Perry and Fleury were married for eight years and during their marriage, had two children. Perry and Fleury divorced in May of 2008 and they have a 50/50 parenting plan where each has the two children, who are now ages 9 and 11, two weeks on and two weeks off. Perry filed a request for attorney’s fees, which Judge Sherlock awarded in the amount of $7,500.00.

Two provisions of the Bankruptcy Code, when read together, make almost all orders arising from a dissolution proceeding non-dischargeable in a Chapter 7 bankruptcy. First, "domestic support obligations," as that term is defined at 11 U.S.C. § 101(14A), are non-dischargeable under 11 U.S.C. § 523(a)(5). Second, 11 U.S.C. § 523(a)(15) excepts from discharge obligations owed "to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record..." Fleury counters that the real issue in this Adversary Proceeding is who is owed the attorney’s fees. Judge Sherlock’s orders are clear. Fleury owes $7,500.00 in fees and costs to Perry and $1,300.00 to McMahon, Wall and Hubley, PLLC. The fact that Fleury owes $1,300.00of the fees to Perry’s attorney does not impact the dischargeability of such fees, because direct payments to a third party, such as an attorney, may be deemed to be an obligation to the former spouse where it would elevate form over substance to fail to treat it as such.

Perry v. Fleury (In re Fleury), December 5, 2012 Stefan T.Wall for Perry, James E Fleury, Pro-se,

2012 Mont.B.R. 48

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Pulliam-Pulliam v. Jensen - Substantial Abuse - January 27, 2012

Case No. 10-60725-7

In this adversary proceeding Defendants United States of America and Richard Samson, Trustee in the above-captioned Chapter 7 case, each have filed motions to dismiss. The Plaintiff/Debtor Deaydre Lea Pulliam (“Deaydre” or “Plaintiff”) filed objections. A hearing on both motions was held at Missoula on January 12, 2012. Samson and the United States each appeared represented by counsel. Deaydre appeared pro se. The Court heard argument of the parties, and at the conclusion of the hearing the Court closed the record and took both motions to dismiss under advisement. After review of the record and applicable law, both motions to dismiss will be granted for the reasons set forth below.

Samson appeared at the hearing on January 12, 2012, represented by attorney Trent M. Gardner (“Gardner”) of Goetz, Gallik & Baldwin, Bozeman, Montana. The United States was represented by Assistant U.S. Attorney Victoria L. Francis (“Francis”). No testimony or exhibit were admitted.

This Court has jurisdiction of this adversary proceeding arising in or related to the above-captioned bankruptcy case under 28 U.S.C. § 1334(b). The Plaintiff’s complaint alleges various torts by Samson and Assistant U.S. Trustee Neal G. Jensen (“Jensen”), negligent acts, defamation and breach of fiduciary duties, which are core proceedings concerning the administration of the estate under 28 U.S.C. § 157(b)(2)(A).

The United States substituted itself for Jensen, and moves to dismiss on several provisions of the Federal Tort Claims Act (“FTCA ”) contending that statutory exceptions at 28U.S.C.A. §§ 2680(a) and (h) bar Plaintiff’s claims against the United States because it has not waived sovereign immunity against claims based on tort or discretionary functions. Samson moves to dismiss under Rule 12(b)(6) (applicable in adversary proceedings under F.R.B.P. 7012(b)) asserting derived quasi-judicial immunity, federal preemption of Deaydre’s state law claims, and contending that she has failed to plead any plausible claims. Deaydre asked for more time at the hearing to consult with an attorney who she stated is considering representing her, and she argued that Samson does not have immunity from her claims.
 

 

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Pulliam-Application for Administrative Expenses - September 26, 2012

Case No. 10-60725

 

"Notice of Application for Payment of Professional Fees and Costs" filed by the Debtor Deaydre Lea Pulliam ("Deaydre") on July 5, 2012 (Docket No. 474) requests payment of professional fees, costs, unpaid taxes, and lost items in the total amount of $368,582.71, including $312,000 for her own labor billed at $300 per hour, and $27,000 for co-Debtor Timothy James Pulliam’s ("Tim") labor billed at $60 per day. The Trustee Richard J. Samson filed an objection.  Deaydre’s Application does not cite any section of the Bankruptcy Code or Rule upon which she bases her request for payment for her labor and costs in this case. Her employment as a professional has not been applied for under 11 U.S.C. § 327, and her employment as a professional has not been approved by the Court. Montana Local Bankruptcy Rule 2014-1 provides in part: "Absent compelling circumstances, no compensation may be earned by professionals retained by the trustee or debtor in possession until after the filing of the application [for employment]." Therefore, Deaydre is not entitled to fees and costs as a professional under § 327. By failing to offer any evidence in support of her application at the hearing, Deaydre failed to satisfy her burden of proof to show that she satisfied the requirements for an administrative expense under § 503 under the narrow construction in this Circuit.

In re Pulliam, September 26th, 2012 Deaydre Pulliam, Pro Se, Richard Samson, Trustee

2012 Mont.B.R. 41

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Rose - April 27, 2012

Case No. 11-62057-7

In this Chapter 7 bankruptcy, after due notice, the Court held a hearing on April 12, 2012, in Missoula on Debtors’ Motion to Avoid Judicial Lien filed February 6, 2012, wherein Debtors seek to avoid First Montana Bank, Inc.’s judicial lien. Daniel S. Morgan of Missoula, Montana, represented Debtors at the hearing; Martin S. King of Missoula, Montana, represented First Montana Bank, Inc. Debtor Edward Rose (“Edward”) testified. The Court admitted Debtors’ Exhibits 1 and 2 and First Montana Bank’s Exhibits A through G into evidence without objection. At the conclusion of the hearing, the Court granted the parties ten days to file briefs in support of their respective positions. Debtors and First Montana Bank have filed their briefs and the matter is ready for decision. This Memorandum of Decision includes the Court’s findings of fact and conclusions of law.

 

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Samson v. Blixseth - Adversary Proceeding - January 3, 2012

Case No. 09-60452-7

Pending in this Adversary Preceding is Defendant Timothy Blixseth ("Tim") Motion for Reconsideration of this Court's August 1, 2011 Order Denying Motion to Dismiss Adversary Complaint Pursuant to Fed.R.Bankr.P 7012(b) filed August 15, 2011.  Tim's motion is accompanied by a request for judicial notice.  On the same date that Tim filed for his motion reconsideration, the Court entered an Order agreeing to hold all matters in this Adversary Proceeding in abeyance pending resolution of a motion to withdraw the reference filed with the United States District Court for the District of Montana ('District Court").  The District Court declined to withdraw the reference.  Thus, Tim's motion for reconsideration is ready for decision.  This Memorandum of Decisions sets fourth the Court's findings of fact and conclusion of law.  For the reasons discussed below, Tim's request or reconsideration is denied.

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Samson v. Rocky Mountain Recreational Properties, LLC- Motion to Dismiss-October 23, 2012

Case No 10-61045, Adversary Proceeding no 12-00020

 

Chapter 7, Adversary proceeding, Motion to dismiss

In this adversary proceeding the court considers a Motion to Dismiss counts of the complaint based upon F.R.B.P. Rule 7012(b) (applying Fed. R. Civ. P. 12(b)(6) in adversary proceedings, for failure to state a claim upon which relief can be granted.  For a long time in the Ninth Circuit the rule stated that a complaint should not be dismissed for failure to state a claim "unless it appears beyond a doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." The United States Supreme Court explained a more recent applicable "plausibility standard" Defendants have not moved for a more definite statement under Rule 12(e).  Movants request dismissal of Counts One and Three based on § 548(a) because the Trustee is seeking avoidance of transfers made outside the 2-year lookback period stated in § 548(a). They argue that 18 of the alleged transfers occurred prior to May 3, 2008, which is more than 2 years before RMRC filed its bankruptcy petition in 2010. Plaintiff responds that Defendants’ Motion is procedurally and substantively deficient because it seeks only a limitation of damages for transfers beyond the 2-year limit of 548(a)(1), and contends that RMRC transferred funds within the 2 year lookback. Counts One and Three contain sufficient factual matter, accepted as true, to state § 548 claims that are plausible on their face to a certain extent Movants contend that Montana law determines the applicable statutes of limitations. They argue that Counts Four and Five are barred because they are not brought within the 4-year statute of limitations under § 31-2-333 and § 31-2-334. § 31-2-341.

Count Sixteen avers alter ego claims. Movants move to dismiss under Rule 12(b)(1) for lack of standing. The Court agrees, and views the Trustee’s allegations in paragraph 104 of the complaint under Count Sixteen as little more than a statement of the Trustee’s statutory duties under 11 U.S.C. § 704(a)(1) to collect and reduce to money the property of the estate, and to distribute the property of the estate according to the provisions of 11 U.S.C. § 726. Movants have not moved for a more definite statement under Rule 12(e), which might clarify the Trustee’s intentions. This Court finds lack of sufficient cause to dismiss Count Sixteen due to any lack of clarity in paragraph 104.

In re Rocky Mountain Recreational Communities LLC, Samson v. Rocky Mountain Recreational Communities, LLC, et al October 23, 2012

David Cotner for Trustee Samson, Eric Henkel for Rocky Mountain Communities, LLC

2012 Mont.B.R. 44

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Samson v. Western Capital Partners-June 1, 2012

Adversary Proceeding, Preference, Claim allowance, Summary Judgment

The Trustee’s seeks in Count I of the Amended Complaint to avoid obligations incurred
and payments made by Debtor in June 2007, additional collateral pledged in May 2008 and a
garnishment in February 12, 2009, on grounds said obligations and transfers were fraudulent
under 11 U.S.C. §§ 548 and 550 and further seeks in Count II to set avoid the same obligations
and transfers pursuant to Cal. Civ. Code §§ 3439.04 and 3439.05, Mont. Code Ann. §§ 31-2-333
and 31-2-334, Colo. Rev. Stat. §§ 38-8-105 and 38-8-106, and other comparable state laws, and
11 U.S.C. §§ 544 and 550. In Count III, the Trustee alleges that a transfer of $45,200.63 in cash
to Western Capital is an avoidable preference under 11 U.S.C. § 547; in Count V, the Trustee
seeks disallowance of Western Capital’s claim; and in Count VI, the Trustee alleges Western
Capital’s loan was usurious under Montana law.2

All matters considered, the Court concludes that the only item of value that
Debtor could possibly have received from the loan transaction with Western Capital was the
desire of a mother to see her son succeed financially. While such value may have been
monumental to Debtor, the fact that Debtor agreed personally to guarantee a loan in excess of
$13 million and release the interest she had in Lot 176 could not, under any circumstances, be
viewed by Debtor’s creditors as conferring any benefit upon Debtor, whether direct or indirect
and Western Capital has similarly failed to assert any fact or facts which would suggest Debtor
had any “chance of obtaining any substantial economic benefit in the future” from her personal
guarantee and the transfer of Lot 176 to Montana Specs. The Trustee has satisfied the first prong
of § 548 by showing that Debtor did not receive reasonably equivalent value when she agreed to
transfer Lot 176 from Monarch GoBuild, in which Debtor held a 45% ownership interest through
Monarch Designs, to Montana Specs, and when she agreed to assume personal liability for the
$13,065,000.00 loan.

In considering the Trustee’s judicial estoppel argument, it is important to understand that
“[j]udicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by
asserting one position, and then later seeking an advantage by taking a clearly inconsistent
position. The Ninth Circuit in Hamilton also explained that “[a]bsent success in a prior proceeding, a party's later inconsistent position introduces no ‘risk of inconsistent court determinations,’ and thus no threat to judicial integrity.

The only unresolved issue is whether the Trustee has satisfied prong 5 under § 547(b)(5). The Court finds a material issue of fact as to prong 5 and thus denies the Trustee’s request for summary judgment on this issue.

Samson v. Western Capital Partners, June 1, 2012

 

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Southern Montana Electrical - May 15, 2008

Case No. 11-62031-11

Chapter 11, Abstention, Automatic Stay

Yellowstone Valley Electric Cooperative, Inc.’s (“YVEC”) combined Motion for: (1)
Abstention Regarding Its Pending Litigation Against Southern Montana, and (2) Entry of an Order Granting Relief From the Automatic Stay. YVEC filed its combined motion for abstention or for relief from the automatic stay on February 17, 2012. YVEC asks this Court to abstain from hearing any arguments or issues raised in the State Court action pursuant to 28 U.S.C. § 1334(c)(2) arguing: (a) the request for abstention is timely; (b) the State Court action is based on Montana State law claims; (c) the State Court action is a non-core proceeding; (d) absent 28 U.S.C. § 1334(b) the State Court action could not have been commenced in federal court; and (e) the State Court action is ready for a jury trial, and can be timely adjudicated therein.

The Ninth Circuit has set forth several factors that bankruptcy courts employ in
evaluating whether permissive abstention is proper:
(1) the effect or lack thereof on the efficient administration of the estate if
a court recommends abstention; (2) the extent to which state law issues
predominate over bankruptcy issues; (3) the difficulty or unsettled nature of the
applicable law; (4) the presence of a related proceeding in state court or other
nonbankruptcy court; (5) the jurisdictional basis, if any, other than 28 U.S.C. §
1334; (6) the degree of relatedness or remoteness of the proceeding to the main
bankruptcy case; (7) the substance rather than form of an asserted core
proceeding; (8) the feasibility of severing state law claims from core bankruptcy
matters to allow judgment to be entered in state court with enforcement left to the
bankruptcy court; (9) the burden on the bankruptcy court's docket; (10) the
likelihood that the commencement of the proceeding in bankruptcy court involves
forum shopping by one of the parties; (11) the existence of a right to a jury trial;
and (12) the presence in the proceeding of nondebtor parties.

There is no pending proceeding before this Court from which to abstain.

Several courts have recently concluded that Stern v. Marshall does not deprive bankruptcy courts of subject matter jurisdiction. The twelve factors referenced in Sonnax are:
(1) [W]hether relief [from the automatic stay] would result in a partial or complete resolution of the issues;
(2) lack of any connection with or interference with the bankruptcy case;
(3) whether the other proceeding involves the debtor as a fiduciary;
(4) whether a specialized tribunal with the necessary expertise has been
established to hear the cause of action;
(5) whether the debtor’s insurer has assumed full responsibility for defending it;
(6) whether the action primarily involves third parties;
(7) whether litigation in another forum would prejudice the interests of other
creditors;
(8) whether the judgment claim arising from the other action is subject to equitable subordination;
(9) whether movant’s success in the other proceeding would result in a judicial
lien avoidable by the debtor;
(10) the interests of judicial economy and the expeditious and economical
resolution of litigation;
(11) whether the parties are ready for trial in the other proceeding; and
(12) impact of the stay on the parties and the balance of harms.
Id. The Ninth Circuit Bankruptcy Appellate Panel agrees that the twelve Sonnax factors “are
appropriate, nonexclusive, factors to consider in deciding whether to grant relief from the
automatic stay to allow pending litigation to continue in another forum.”


The Court finds it in the economic interests of both YVEC and the Debtor that this Chapter 11 case proceed and that the bankruptcy process not be usurped by YVEC’s pending State Court litigation. If the Trustee is unable to formulate a confirmable plan within a reasonable period of time or if this case is later converted to Chapter 7, the Court would, as appropriate, entertain a renewed motion to abstain or lift the automatic stay.

In re Southern Montana Electric Generation and Transmission Cooperative Inc, May 15th, 2012

 

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Spanish Peaks Holding - May 3, 2008

Case No. 12-60041-7, Case No. 12-60042-7, Case No. 12-60043-7

Chapter 7, Automatic Stay

Movants’ Motion does not seek relief from the stay to proceed against the Debtors in state
court. In addition they admit that liquidation of property of the estate is to be conducted in the
bankruptcy court, which this Court takes to mean that they will not attempt to enforce any
judgment obtained regarding relative priority of liens without leave of this Court. This Court
often crafts relief from the stay to ensure that parties return to this Court after obtaining judgment
in state court. Movants’ counsel admitted at hearing that they seek only a priority determination
and declaratory judgment. Given the limited relief sought, allowing Movants to litigate their
declaratory judgment action against Citigroup and construction lien priority claims against Dick
would not constitute acts to enforce liens against property of the estate stayed by § 362(a)(4).

The Court finds that Movants have established a prima facie case that cause exists for
relief under § 362(d)(1) because Dick and Citigroup are not debtors, Movants seek limited relief
and agree not to seek enforcement of their liens except in this Court, DV-09-1023A has been
pending for years and approaches being ready for trial, and allowing Movants to proceed in state
court would reduce the administrative costs which could otherwise fall on the estate for litigating the lien priority in bankruptcy court. The Debtors and Trustee have not filed a response to Movants’ Motion, and therefore the burden of proof under § 362(g) to show that relief should not be granted is on Dick and Citigroup.

While the Court has flexibility in determining whether to grant Movants’
Motion for relief from the stay, by granting the Motion Dick and Citigroup would retain
whatever claims and defenses they may have against Movants and the joining lienholders in DV-
09-1023A or other nonbankruptcy forum, including their argument that the Debtor is an
indispensable party under Montana Rules of Civil Procedure.

In re Spanish Peaks Holdings LLC, May 3rd, 2012, Jessica Penkal Hodges (“Hodges”) and Dorie Refling for CTA, Morrison Maierle Inc, Specialty Systems, Stresscon, Williams, JTL and Walker Excavation. Brad J. Brown and John M. Steiner for Dick. Alexander L. Roots for SPAP/Citigroup1

 

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Stampley-Chapter 13 Confirmation-Avoid Judicial Lien- November 13, 2012

 

Case No. 12-60732

 

Chapter 13, Avoid Judicial lien, Chapter 13 Confirmation

Pending in this Chapter 13 case are: (1) Confirmation of Debtor’s Amended Chapter 13 Plan; (2) Debtor’s motion to void judicial lien of his ex-spouse Susan Clarion ("Clarion"); and (3) Debtor’s Objection to Clarion’s Proof of Claim No. 7. Stampley and Clarion filed a joint petition for dissolution of their marriage on August 12, 2012.

Debtor moves to avoid Clarion’s judicial lien, which arose from the Decree of Dissolution under § 522(f)(1)(A) on the grounds that it impairs an exemption to which the Debtor is entitled under § 522(b). Chiu repeated the Ninth Circuit’s analysis that "under § 522(f)(1) a debtor may avoid a lien if three conditions are met: (1) there was a fixing of a lien on an interest of the debtor in property; (2) such lien impairs an exemption to which the debtor would have been entitled; and (3) such lien is a judicial lien. The decision hinges on Condition 1 – whether there was a fixing of a lien on an interest of the debtor in property. Clarion’s judicial lien stemming from the dissolution proceeding does not fix on an interest of the Debtor which existed prior to the dissolution, and is thus not avoidable under § 522(f)(1)(A).

As a result of the above discussion and denial of Debtor’s motion to avoid Clarion’s lien under § 522(f)(1), it follows that Debtor’s Objection to Clarion’s secured claim must be overruled. At the hearing Murphy admitted that Debtor’s Amended Plan cannot be confirmed because it does not treat the secured claim of First Security Bank in the amount stated in Proof of Claim in Proof of Claim No. 6. For the same reason, confirmation of Debtor’s Amended Plan must be denied because paragraph 2(b) makes no provision of Clarion’s allowed secured claim as required under § 1325(a)(5)(B)(ii) which provides that the plan provides that "the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of the claim." As a result of the above-discussed denial of Debtor’s motion to avoid Clarion’s judicial lien, Clarion’s Proof of Claim No. 7 is allowed as a secured claim in the amount of $74,031.07, and confirmation of Debtor’s Amended Plan must be denied regardless of whether it is a domestic support obligation.

In re Stampley, November 13, 2012 Edward Murphy for Stampley, Reid Perkins for Clarion

2012 Mont.B.R. 46

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Standley - Motion for Valuation - December 7, 2012

Case No. 12-62373

 

Chapter 12, Motion for Valuation

Debtors filed their Chapter 12 petition on December 29, 2011, and filed their Schedules and Statement of Financial Affairs on January 23, 2012. They filed their application to employ J.T. Korkow and his firm Powder River Ag Consulting, LLC, as "consultants" on March 20, 2012. The application (Dkt. 26) states that the purposes of Korkow’s employment included to determine Debtors’ financial condition, assist with cash flow projections and feasibility analysis for their chapter 12 plan, and provide expert testimony with respect to the appropriate market rate of interest for holders of secured claims, and restructuring terms. Nothing in the application to employ Korkow suggested that he would testify as an expert regarding the valuation of the Debtors’ real property. The Court approved the application to employ Korkow on March 21, 2012.

Section 506(a) provides that a claim is secured only to the extent of the value of the property on which the lien is fixed, while the remainder is considered unsecured. The second sentence of § 506(a) provides that "valuation is to be done variously depending on the context, in light of two factors, the purpose of the valuation and the use or disposition to be made of the interest." Debtors argue that Robinson and Foster require that this Court value the Home Place based solely on the ag use they propose in their Plan. In Foster this Court rejected a creditor’s appraisal of debtors’ agricultural land which the appraiser valued for use as subdivision tracts.

In the instant case neither Gourley nor Urick valued the Home Place as a subdivision tract. On the contrary both appraisals state that the highest and best use of the Home Place is as an agricultural tract. Gourley described the highest and best use as "an add-on/part time agricultural tract, recognizing there are nonagricultural amenities included in the subject property that may affect value and enlarge the pool of buyers." Urick described the highest and best use as "Livestock grazing and dryland cropland with some positive recreational influence."  This Court specifically stated in Robinson: "In Chapter 12 cases where the property will be held as a going-concern for the production of income to pay reinstated mortgages and subsequent debts, the value under 11 U.S.C. § 506(a) should be based on a fair market value, not a liquidating value." The ensuing years have not changed this Court’s rule.

Gourley valued the Home Place at $800 per acre, while Urick valued Tract 1 at $1,075 per acre and Tract 2 at $600 because of access. The Court will not split the difference, because the Court considers Gourley’s experience as a real estate broker in the sale of agricultural properties entitles his opinion to additional weight. In particular, a fair market value of Tract 1 must account for the access problems inherent if the property were sold without the Debtors’ homesite, which the evidence shows is not part of the Home Place. In that event the Home Place would also lose the Site’s well. Urick recognized this as well, but the Court believes that Gourley is better placed to reconcile those problems in the valuation. On the other hand the Court believes that Urick’s appraised value cannot be disregarded. Gourley’s valuation of the Home Place is $627,000, while State Bank’s calculation of Urick’s valuation of the Home Place is $801,556.25. After weighing the evidence and consideration of applicable authority, this Court finds, concludes, and fixes the value of the Home Place in the amount of $650,000.

In re Standley, December 7, 2012, Gary S. Deschenes for the Debtors, John H Grant for State Bank, Randall Lester for U.S. National Bank, James Volk, Trustee

2102 Mont. B.R. 49

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Thompson v. National Collegiate Trust - Motion to Dismiss - April 3, 2008

 

Case No. 11-61284-7

Trial of this adversary proceeding to determine dischargeability of the Debtor/Plaintiff’s student loan debt under 11 U.S.C. § 523(a)(8) is scheduled to begin on April 13, 2012. On March 16, 2012, Defendant National Collegiate Trust (“NCT”) filed a “Motion to Dismiss Adversary Proceeding” and a supporting brief. The Plaintiff filed a memorandum of law in opposition, and set NCT’s motion for hearing on April 12, 2012. After review of the Motion and brief, and Plaintiff’s memorandum in opposition, and applicable law, the Court deems no hearing is necessary, and denies NCT’s Motion to Dismiss for failure to satisfy its burden under applicable rules.

 

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Thompson v. National Collegiate Trust - June 7, 2008

Case No. 11-61284-7

Adversary Proceeding, Student loans, Discharge
Leslie is divorced. She is not disabled. She testified that she graduated from high school
in 1978 and graduated from beauty school, but has never worked as a beautician. Leslie cosigned
the loan agreements so that Tyler could attend college in Denver, Colorado. She testified
that Tyler graduated with a bachelor’s degree in biology, that he is now pursuing a master’s
degree in education but is not otherwise employed except at temporary jobs during the summer,
and is otherwise unemployed. Leslie testified that in 2008, when Tyler’s student loans first came
due, he had not finished his degree, and she paid NCT approximately $3,000 for forbearance.
She testified that her ex-spouse is not providing any support.

At trial Leslie testified that she plans on working until she dies. She testified she could
possibly pay $50 per month to NCT for the student loan debt, but no more, but that the payments
required for the student loan debts under Ex. B, E, H, K, and N would required a total of
approximately $9992 per month, not including interest, while her take home pay totals $1,300 per month. If she paid NCT $50 per month for 25 years, she testified, that would total $15,000
compared with the total debt of $120,966.71.

The first prong of the Brunner test requires that Leslie establish "that she cannot
maintain, based on current income and expenses, a 'minimal' standard of living for herself and
her dependents if forced to repay the loans. The second prong requires a debtor prove that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans. The third prong requires that the debtor has made good faith efforts to repay the student loans. Given Leslie’s stated ability and willingness to pay NCT $50 per month, the Court concludes that she is not entitled to a complete discharge of the $120,966.71 student loan debt under § 523(a)(8) for undue hardship, even though her Schedules I and J show that she is living at a monthly deficit without making any loan payments. However, the Court finds and concludes that Leslie has satisfied her burden under § 523(a)(8) for all student loan debt in excess of the$50 per month the evidence shows she is willing to pay.

Thompson v. National Collegiate Trust, June 7th, 2012 Jennifer Beardsley for Thompson, Christian Nygren for NCT

 

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Yellowstone Mountain Club LLC - Kirschner v. Blixseth - Enjoining Actions to Sell -

March 15, 2008

Case No. 08-61570-11

In this Adversary Proceeding, four matters are pending: (1) the Motion of the Plaintiff, Marc S. Kirschner, as Trustee of the Yellowstone Club Liquidating Trust, requesting entry of an immediate order enjoining Defendant Timothy L. Blixseth (“Blixseth”) from any actions to sell, transfer, dispose of, encumber or otherwise liquidate, or causing any entity owned or controlled by him to sell, transfer, dispose of, encumber or otherwise liquidate, the Tamarindo property without prior order of the Court, which Motion was filed on September 8, 2009, and has been held in abeyance as a result of various Stipulations wherein the Defendants and others acting on behalf or in concert with them, shall not sell, transfer, dispose of, encumber, or otherwise liquidate the Tamarindo resort property described in Count III of the Complaint; (2) Plaintiff’s Amended Motion for Summary Judgment filed July 12, 2010 (see docket entry nos. 65, 67, 87, 88 and 89); (3) the Defendants’ Motion for Summary Judgment filed July 26, 2010 (see docket entry nos. 66, 88, 89, 90 and 91); and (4) the Defendants’ Motion to Vacate Preliminary Injunction filed July 27, 2010. The Court held the above matters in abeyance for various reasons, including further consideration regarding confirmation of the Debtors’ Third Amended Joint Plan of Reorganization, which matter was remanded to this Court by United States District Court Judge Sam E. Haddon on November 2, 2010. This Court has since entered a Memorandum of Decision and Order, as instructed by Judge Haddon, providing all parties-in-interest with notice of a certain Settlement Term Sheet attached to Debtors’ Third Amended Joint Plan of Reorganization, setting forth additional reasons why said Settlement Term Sheet should be approved, and identifying and delineating the scope of an exculpation clause contained in the Debtors’ Third Amended Joint Plan of Reorganization.

 

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Yellowstone Mountain Club LLC - Reconsideration of Allowance of Claim -

March 9, 2008

Case No. 08-61570-11

Chapter 11, Reconsideration of allowance of claim
In this Chapter 11 bankruptcy, after due notice, a hearing was held March 6, 2012, in
Butte on Timothy L. Blixseth’s (“Blixseth”) Motion for Reconsideration of Allowance of Claim
in Favor of the 7 Non-Settling Class B Shareholders filed November 11, 2011, at docket entry
no. 2387.
At the time the Court confirmed Debtors’ Third Amended Joint Plan of Reorganization, the 7 Class B shareholders were plaintiffs in Adversary Proceeding 09-00018, commenced March 3, 2009. Relying on 11 U.S.C. § 502(j), Blixseth, in his Motion filed November 11, 2011, “moves
the Court for reconsideration of the allowance of the so-called ‘7 Non-Settling Class B
Shareholders’ of a Class 4 general unsecured claim of $22 million pursuant to this Court’s March
24, 2010 Order [Docket No. 1729], and on reconsideration, that the claim be disallowed in its
entirety.”

Blixseth’s pending Motion is defective in the first instance because Blixseth seeks
reconsideration of an Order that did nothing more than grant YCLT leave to file an amended
motion. The Order Blixseth arguably wants this Court to reconsider is the Order entered April
19, 2010, at docket entry no. 1806, and not the Court’s Order entered March 24, 2010, at docket
entry no. 1729. The Court also agrees with YCLT and the 7 Class B Shareholders that § 502(j) is not, under the facts presented in this case, the proper procedural vehicle to seek reconsideration of the 7 Class B Shareholders’ allowed claim.

Rule 90241 limits requests for reconsideration to matters involving mistake, inadvertence,
excusable neglect, newly discovered evidence and fraud. The provisions of Rule 60(b) set forth
in subsections (3) through (5) are by their plain terms, not applicable to this proceeding because
Blixseth does not claim that he has discovered new evidence that would impact the Court’s April
19, 2010, Order; that the Order was procured by fraud, misrepresentation or misconduct; that the
Order is void; or that the Order has been satisfied or is based on an order that has been reversed
or otherwise vacated. Thus, the only other applicable provisions are Rule 60(b)(1) and (6).
Under Rule 60(b)(1), a court may relieve a party from a final judgment for mistake,
inadvertence, surprise, or excusable neglect. Blixseth does not assert any mistake, inadvertence,
surprise or excusable neglect.

In re Yellowstone Mountain Club, LLC, March 9th, 2012, Michael J. Flynn of Boston, Massachusetts, Patrick T. Fox of Helena, Montana, Philip H. Stillman of Miami Beach, Florida and Christopher J. Conant of Denver, Colorado appeared at the hearing on behalf of Blixseth and in support of the Motion for Reconsideration; Shane P. Coleman and Charles W. Hingle of Billings, Montana appeared at the hearing on behalf of Marc S. Kirschner (“Trustee”), Trustee of the Yellowstone Club Liquidating Trust (“YCLT”); and Clark T. Whitmore of Minneapolis, Minnesota and Ronald A. Bender of Missoula, Montana appeared at the hearing on behalf of the 7 Class B Shareholders, namely Michael L. Snow, Greg Branch, Robert P. Watson and Katharine M. Watson, A. C. Markkula and Linda K. Markkula, as trustees of the Arlin Trust, Bankers Financial Corporation, a Florida corporation, Spano Yellowstone Holdings Limited Partnership and Mountain Vista Properties AG.

 

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Yellowstone Mountain Club LLC - Blixseth v. Kischner - Motion to Quash -

March 12, 2008

Case No. 08-61570-11

Chapter 11, Adversary proceeding, injunction
Four matters are pending: (1) the Motion of the Plaintiff, Marc S. Kirschner, as Trustee of the Yellowstone Club Liquidating Trust, requesting entry of an immediate order enjoining Defendant Timothy L. Blixseth (“Blixseth”) from any actions to sell, transfer, dispose of, encumber or otherwise liquidate, or causing any entity owned or controlled by him to sell, transfer, dispose of, encumber or otherwise liquidate, the Tamarindo property without prior order of the Court, which Motion was filed on September 8, 2009, and has been held in abeyance as a result of various Stipulations wherein the Defendants and others acting on behalf or in concert with them, shall not sell, transfer, dispose of, encumber, or otherwise liquidate the Tamarindo resort property described in Count III of the Complaint; (2) Plaintiff’s Amended Motion for Summary Judgment filed July 12, 2010 (see docket entry nos. 65, 67, 87, 88 and 89); (3) the Defendants’ Motion for Summary Judgment filed July 26, 2010 (see docket entry nos. 66, 88, 89, 90 and 91); and (4) the Defendants’ Motion to Vacate Preliminary Injunction filed July 27, 2010. The Court held the above matters in abeyance for various reasons, including further consideration regarding confirmation of the Debtors’ Third Amended Joint Plan of Reorganization, which matter was remanded to this Court by United States District Court Judge Sam E. Haddon on November 2, 2010. This Court has since entered a Memorandum of Decision and Order, as instructed by Judge Haddon, providing all parties-in-interest with notice of a certain Settlement Term Sheet attached to Debtors’ Third Amended Joint Plan of Reorganization, setting forth additional reasons why said Settlement Term Sheet should be approved, and identifying and delineating the scope of an exculpation clause contained in the Debtors’ Third Amended Joint Plan of Reorganization.

With respect to Blixseth’s request for summary judgment, which is premised on the
argument that the MSA conclusively bars Plaintiff’s claims as a matter of law, the Court would
note that the MSA is arguably the subject of attack in various proceedings. Based upon the other proceedings, particularly the matter pending before the Honorable Gary Allen Feess in the United States District Court for the Central District of California, this Court declines to enter any summary ruling that would uphold or void the Releases associated with the MSA or otherwise enter a decision that would impact the MSA. Therefore, Blixseth’s Motion for Summary Judgment or Adjudication of Issues is denied. The Honorable Sam E. Haddon of the United States District Court for the District of Montana entered an Order on October 11, 2011, concluding this Court’s amended judgment entered in Adversary Proceeding 09-00014 was not a final judgment from which an appeal could be taken. This Court is not inclined to enter a summary ruling in this proceeding based upon a finding in another proceeding that is not the subject of a final judgment which has been upheld on appeal. Accordingly, Plaintiff’s Amended Motion for Partial Summary Judgments denied.

In re Yellowstone Mountain Club LLC, Kirschner v. Blixseth, March 15th, 2012

 

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Yellowstone Mountain Club - July 17, 2012

Case No. 08-61570-11

Plaintiff commenced this Adversary Proceeding on September 2, 2009, and on September 8, 2009, filed a motion for preliminary injunction. On September 18, 2009, the parties filed a “Stipulation for Extension of Time and for Entry of Interim Preliminary Injunction,” which was approved by the Court on September 21, 2009. The aforementioned stipulation was extended by stipulations filed November 5, 2009, December 29, 2009, February 5, 2010, February 25, 2010,

March 30, 2010, and May 7, 2010. In the Stipulation filed May 7, 2010: The parties agree that the Stipulated Order (dkt. 9) shall remain in full force and effect through judgment in this case, without prejudice to either party’s right to seek modification or dissolution of this stipulated-to injunction by motion and hearing on any grounds that exist currently or may exist during the pendency of this action. This stipulation is entered into without waiver of any argument concerning whether injunctive relief is either warranted or appropriate. Pursuant to the Stipulated Order, the Defendants and others acting on behalf or in concert with them, shall not sell, transfer, dispose of, encumber, or otherwise liquidate the Tamarindo resort property described in Count III of the Complaint (the

“Tamarindo Property”). Defendants filed a Motion to Vacate Preliminary Injunction on July 27, 2010. Defendants also filed on April 2, 2012, an Expedited Motion to Reconsider Order Overruling Objection to Purported Order Denying Defendants’ Motion for Summary Judgment. After due notice, a hearing was held May 8, 2012, in Butte on Defendants’ July 27, 2010, Motion to Vacate Preliminary Injunction and on Defendants’ April 2, 2012, Expedited Motion to Reconsider Order Overruling Objection to Purported Order Denying Defendants’ Motion for Summary Judgment. Plaintiff was represented at the hearing by Steven L. Hoard of Amarillo, Texas and Shane P. Coleman of Billings, Montana; Defendants were represented by Patrick T. Fox of Helena, Montana. The Court heard attorney argument, but no witness testimony was offered. Plaintiff’s Exhibits 1 through 48 and Defendants’ Exhibits 1 through 6 were admitted into evidence without objection.

 

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Ziegler- December 12, 2012

Case No. 12-61681-11

 

Chapter 11, Stay Relief, Cash Collateral

Pending in this Chapter 11 case are: (1) Debtor’s motion for turnover of commercial rental income monies held by a receiver appointed by a Washington state court; (2) NW Evergreen Opportunities I, LLC’s ("Evergreen") motion to excuse compliance with turnover requirements of 11 U.S.C. § 543(a) and for stay relief under 11 U.S.C. § 362(a) concerning receivership; and (3) Debtor’s motion to use cash collateral and for adequate protection of mortgage holders’ interest.

Debtor filed his motions for turnover of property and for use of Evergreen’s cash collateral on October 22, 2012. The motion for turnover requests the Court order Evergreen and the receiver Ted Durant & Associates to turn over rental income monies, which are held by the receiver under a Washington Superior Court order6, to the Debtor under 11 U.S.C. §§ 105, 361 and 363 in order to provide the Debtor with operating capital and liquidity and avoid irreparable harm to the estate. Debtor’s motion to use cash collateral seeks interim and final orders authorizing Debtor to use cash collateral to address liquidity constraints, and to grant Evergreen adequate protection. In Evergreen’s opposition to turnover it argues that prepetition rents are encumbered by an absolute and present assignment of rents in favor of Evergreen, under which the Debtor has no interest in the rents, and therefore are not property of the estate under 11 U.S.C. § 541 and not subject to turnover under § 543.

Use of cash collateral is governed by 11 U.S.C. § 363(c)(2) which forbids a debtor from using cash collateral without either the consent of the secured creditor or the authorization of the Court. The Ninth Circuit has found that "the purposes underlying § 363(c)(2) and (4) require that a debtor seek affirmative express consent from all parties involved before using cash collateral." If the creditor does not consent, the Court may approve the use of cash collateral, which will normally require adequate protection for the secured creditor.

Ziegler proposes to make adequate protection payments equal to the payments required under the promissory notes in the amounts of $10,000 and $1,905.03 per month, respectively. The two properties both are insured, as shown by the evidence. Evergreen is protected by an equity cushion, shown according to the evidence, ranging from more than $600,000 up to more than $800,000. The evidence further shows that the Debtor needs use of Evergreen’s cash collateral for operating capital and to reorganize. Based on this uncontroverted evidence , the 11 Court will grant Debtor preliminary use of cash collateral.

To determine the estate’s interest in the rents, the Court must examine state law because state law determines the extent of a party’s interests in property and when such interests expire. In a judicial foreclosure of a deed of trust in Washington, the grantor retains title to the property until the sheriff’s deed is delivered to the purchaser after the sheriff’s foreclosure sale. Based on its lack of evidence, the Court does not consider that Evergreen has established a prima facie case that cause exists for relief from the stay under § 362(d)(1). It called no witnesses, offered no exhibits, and failed to establish under Washington law that a sheriff’s sale had been concluded to make it owner of the rents. Furthermore, assuming that Evergreen had established a prima facie case under § 362(d)(1), the Court finds and concludes that the Debtor has satisfied its burden of proof that relief from the stay should not be granted to Evergreen. The Debtor has shown, by uncontroverted testimony, that Evergreen is adequately protected by monthly payments, a substantial equity cushion, and insurance. The Debtor also established that he needs the rents for working capital and for his successful reorganization. Evergreen’s motion to modify stay will be denied and Debtor’s motion for turnover of the Washington rents will be granted.

In re Ziegler, December 12, 2012, Jon Binney for Zeigler, Erika Peterman for Evergreen

2012 Mont B.R. 50

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