Decisions of 2014

BdS Quant Capital, LLC v. Simonsen, Chapter 7, Summary Judgment, Nondischargability

Case no.14-60015, Adversary no 14-00008

All four claims for relief in the Plaintiffs’ complaint stem from 11 U.S.C. § 523. It is well-settled that the Bankruptcy Code's central purpose is to provide a fresh start to the honest but unfortunate debtor. However, under certain circumstances, a creditor may seek to except from a debtor's discharge certain debts. Nevertheless, consistent with effectuating the underlying purposes of the Bankruptcy Code, exceptions to discharge under § 523 are to be narrowly construed.

11 U.S.C. § 523(a)(2)(A)

Plaintiffs, in their first claim for relief, seek to except $19,284,888.52 from Simonsen’s discharge pursuant to 11 U.S.C. § 523(a)(2)(A) based upon his failure to place a copy of the licensed Trading Software in escrow. The Bankruptcy Code excepts from discharge any debt for money, property, services, or credit obtained by false pretenses, a false representation, or actual fraud. § 523(a)(2)(A). To prevail on a claim under § 523(a)(2)(A), a creditor must demonstrate 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.

Plaintiffs allege, and Simonsen does not dispute, that a copy of the Trading Software was never placed in escrow. While such failure may constitute a mere breach of contract, it may also result in a § 523(a)(2)(A) claim if Plaintiffs prove at trial that Simonsen did not intend to place a copy of the Software in escrow at the time he entered into the Settlement Agreement and/or licensing agreements. Simonsen’s mere assertion that "breach of contract is not fraud" does not satisfy his summary judgment burden.

II. 11 U.S.C. § 523(a)(4)

Plaintiffs’ claim under § 523(a)(4) is based on the allegation that Simonsen committed fraud and defalcation while acting in a fiduciary capacity, embezzled, or stole money, property, or services from BdS Quant and BdS Quant Capital., namely Simonsen took clientele from Plaintiffs and converted the clientele to his own use and profit. Given Simonsen’s failure to address either embezzlement or larceny, and given Simonsen’s failure to address whether he might have been a fiduciary after the settlement agreement, the Court denies Simonsen’s request to dismiss Plaintiffs’ Second Claim.

III. 11 U.S.C. § 523(a)(6)

Plaintiffs allege in their Third Claim for Relief that Simonsen willfully and maliciouslyinjured property of Plaintiffs by using information gained from Plaintiffs to solicit clients and causing those clients to transfer thier trading relationship to Simonsen. Subsection 523(a)(6), excepts from discharge any debt for willful and malicious injury by the debtor to another entity or to the property of another entity. Whether a particular debt is for willful and malicious injury by the debtor to another or the property of another under § 523(a)(6) requires application of a two-pronged test to the conduct giving rise to the injury. The creditor must prove that the debtor's conduct in causing the injuries was both willful and malicious.

"Willfulness" requires proof that the debtor deliberately or intentionally injured the creditor or the creditor's property, and that in doing so, the debtor intended the consequences of his act, not just the act itself. For conduct to be malicious, the creditor must prove that the debtor: (1) committed a wrongful act; (2) done intentionally; (3) which necessarily causes injury; and (4) was done without just cause or excuse.As acknowledged by Simonsen, the License Agreements were entered into after the Settlement Agreement and Mutual Release. Because Simonsen’s summary judgment argument focuses only on the Settlement Agreement and Mutual Release, and does not consider the subsequent License Agreements, the Court finds that material issues of fact preclude summary judgment on this claim.

IV. 523(a)(19)

Plaintiffs’ fourth claim for relief is brought under § 523(a)(19)(A)(ii) and/or §523(a)(19)(B)(i). Those sections require that the claim stem from "common law fraud, deceit, or manipulation in connection with the purchase or sale of any security; and (B) results, before, or, or after the date on which the petition was filed, from – (i) any judgment, order, consent order, or decree entered in any Federal or state judicial or administrative proceeding[.]" While the counterclaim and order would not permit this Court to enter a judgment of nondischargability based on issue or claim preclusion, the Court finds there are material facts that preclude entry of summary judgment. For purposes of summary judgment, the Plaintiffs need only plead sufficient allegations that Simonsen’s pre-petition conduct constituted a "common law fraud . . . in connection with the purchase or sale of any security . . . ."

BDS Quant Capital, LLC v. Simonsen, November 18, 2014, Michael F. McGuinness and James A. Patten for BDS Quant Capital, LLC and BdS Quant., LLC, Gary S. Deschenes for Simonsen

2014 Mont.B.R. 629

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Bellamy, Chapter 13, Motion for Reconsideration, (unpublished)

Case no. 13-60391

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. and as set forth above,  Debtor is only seeking reconsideration under Rule 60(b)(1).  Under Rule 60(b)(1), a court may relieve a party from a final judgment for mistake, inadvertence, surprise, or excusable neglect.  Courts will not grant relief for an attorney’s negligent conduct, however, except in very limited circumstances, such as the attorney’s death or the diagnosis of a debilitating medical condition. 

As the Ninth Circuit Court of Appeals has cautioned:  Counsel for litigants...cannot decide when they wish to appear, or when they will file those papers required in a lawsuit.  Chaos would result....  There must be some obedience to the rules of the court; and some respect shown to the convenience and rights of other counsel, litigants, and the court itself.

In addition, “[r]elief under Rule 60(b) requires a party to show ‘extraordinary circumstances,’ suggesting that the party is faultless in the delay.”  Such relief “normally will not be granted unless the moving party is able to show both injury and that the circumstances beyond its control prevented timely action to protect its interests.”  Applying the foregoing to the facts in the instant case, the Court finds that Debtor has not satisfied his burden under F.R.B.P. 9024.   Debtor’s counsel could have easily requested a further continuance on or before January 3, 2014, but failed to do so.  For the reasons discussed above, IT IS ORDERED that Debtor’s Motion for Relief from This Court’s Order Denying Debtor’s Motion to Reinstate Bankruptcy and Convert to Chapter 7 is denied

 In re Bellamy, January 14, 2014, Craig Martinson for Bellamy

2014 Mont. B.R. 19

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Blixseth, Chapter 7, Trustee’s Disbursement, Prior Memorandum

Case no. 09-60452

Following a four day trial in June of 2012, the Court entered on March 18, 2013, an order sustaining in part the Trustee’s objection to Western Capital Partners, LLC’s proof of claim, and allowing Western Capital Partners, LLC’s claim as a $6,746,105.08 general unsecured claim, rather than a $13,965,144.17 secured claim. The Court also entered judgment in favor of the Trustee and against Western Capital Partners, LLC, setting aside Debtor’s guarantee of the Western Capital Partners, LLC loan to Crocker. In setting aside Debtor’s guarantee, the Court found, under 11 U.S.C. § 548, that Debtor was insolvent at all times between June 15, 2007, when she signed the personal guarantee for Crocker, and March 26, 2009, when she filed her bankruptcy petition. The Court also found that on June 15, 2007, Debtor’s liabilities exceeded her assets by at least $80 million and that Debtor did not receive reasonably equivalent value for her guarantee of her son’s loan with Western Capital Partners, LLC. Because Western Capital Partners, LLC had already disposed of various assets, on which the Court determined Western Capital Partners, LLC had no security interest, the Court awarded Samson the sum of $4,013,410.99, and directed Western Capital Partners, LLC to return to Debtor’s bankruptcy estate all of the "[p]roperty transferred on August 24, 2010. The above-mentioned Order and Judgments were supported by an 81-page Memorandum of Decision, all of which were appealed by Western Capital Partners, LLC. The Trustee elected to have Western Capital Partners, LLC’s appeal heard by the United States District Court for the District of Montana. That appeal remains pending before Chief Judge Dana L. Christensen. In a Memorandum of Decision and Order entered April 11, 2014, the Court denied Western Capital Partners, LLC’s motion to stay enforcement of the judgment.

On January 21, 2014, proceeds from the escrow account in the sum of $18,965.49 were wire transferred and deposited into the Datsopoulos, MacDonald & Lind, P.C. trust account. Samson now requests an Order from this Court authorizing disbursements from the trust account Western Capital Partners, LLC opposes Samson’s proposed distribution arguing "the estate lost any and all of its interest in Edra Blixseth’s 82% membership interest in Sunrise Ridge by operation of 11 U.S.C. § 362(h) as a result of Western Capital Partners, LLC’s perfected security interest in all of Edra Blixseth’s personal property."

Western Capital Partners, LLC’s reading of the Court’s March 18, 2013, Judgment completely ignores the supporting Memorandum of Decision. In that Memorandum of Decision, the Court found on page 61 that "Samson has demonstrated his right to set aside Debtor’s [June 15, 2007] guarantee of the Western Capital Partners, LLC loan under § 548." Adversary Proceeding No. 10-00094, docket 133. The Court continued on pages 65 and 66 that "[b]y setting aside Debtor’s guarantee, Debtor’s personal property no longer secures Western Capital Partners, LLC’s claim, and as a result, Western Capital Partners, LLC can no longer claim the stay terminated automatically under § 362(h)." Id. The Court is not persuaded by Western Capital Partners, LLC’s arguments, which are directly at odds with this Court’s ruling, as set forth in the Memorandum of Decision entered March 18, 2013.

In re Blixseth, July 10, 2014, David B. Cotner for Samson, Joseph J. Novak for Western Capital Partners, LLC

2014 Mont. B.R. 449

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Blixseth v. Glasser, Chapter 11. Adversary Proceeding, Close Debtors Exam (unpublished)

Case no. 08-61570, Adversary no. 09-00014

Following a brief hearing counsel for Blixseth and YCLT agreed to retire to a convenient location and conduct the requested examination. Shortly after the examination began, the Court was advised that other persons wanted to attend or observe the examination. Blixseth opposed anyone but the Liquidating Trustee and his counsel attending the examination. The Court advised all parties at that time that if the examination was taking place in the courtroom, it would be open to the public. However, because the examination was not taking place before this Court or a referee appointed by this Court, and because the Court was playing no role in the examination, the Court concluded the examination was not a proceeding before this Court and that absent consent from Blixseth, the Liquidating Trustee and their counsel, the examination was not a judicial proceeding that was open to the public.

The Associated Press and the Bozeman Daily Chronicle argue that this Court’s ruling that they could not attend YCLT’s examination of Blixseth did not meet the minimum procedural requirements for restricting the public’s access to judicial proceedings. This Court agrees with the Associated Press and the Bozeman Daily Chronicle that the public generally has a constitutional right to judicial proceedings, including judicial documents and records. However, on these facts, YCLT’s examination of Blixseth was not a proceeding before this Court and the transcript of that examination is not, at least at this time, a document or record that has been filed with this Court.

Contrary to the arguments of the Associated Press and the Bozeman Daily Chronicle, this case is analogous to In re Thow, 392 B.R. 860 (Bankr. W.D. Wash 2007), wherein the court, in a well-reasoned decision, found that the "statutes, rules, and case law regarding the open nature of court proceedings and documents [were] simply inapplicable" to Rule 2004 examinations because such examinations, similar to the debtor examination in this case, were not presumptively public and the transcripts, if any, of such examinations were not judicial records unless they were filed with the Court. As in Thow, YCLT’s post-judgment examination of Blixseth was not a court proceeding and any transcript of that examination is not at this time a court record.

Blixseth v. Glasser, November 25, 2014, Philip H. Stillman for Blixseth, Charles W. Hingle, Steven Hoard, John G. Turner III and Robert Bell for Glasser, Martha Sheehy for Associated Press and Bozeman Daily Chronicle

2014 Mont. B.R. 648

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Bodeker, Chapter 7, Exemption Surcharge, Homestead Exemption, Waiver of Discharge

Case no. 12-60137

Renn Bodeker is 91 years old and lives in a home he built on ten acres at 11 Freedom Lane near Plains in Sanders County, Montana. In a stipulation, Bodeker affirmatively agrees to the waiver of his homestead exemption, and to the immediate sale of his residence by the trustee, . . . ." Ex. 3. The exhibits discussed above of email exchanges between Renn and Morgan make clear that Renn understood that the stipulation provided for waiver and sale of his homestead. He had reservations, but ultimately he signed the stipulation on the advice of counsel. 

Renn argues that he was deprived due process because no hearing was scheduled and held on approval of the stipulation after notice. While in hindsight scheduling a hearing on important matters such as waiver of a discharge or homestead exemption might be appropriate, in this Court’s view, the lack of a hearing did not deprive Renn of due process. He agreed to the stipulation and signed it. After the stipulation was approved he did not timely request a hearing on the stipulation and neither did anyone else. Accordingly, the Court finds and concludes that Renn was not deprived of due process when the Court approved the stipulation without a hearing.

In Law v. Siegel the bankruptcy court granted a trustee’s motion to equitably surcharge the entirety of Law’s homestead exemption to defray the trustee’s attorney’s fees incurred overcoming Law’s fraudulent misrepresentations. The Supreme Court reversed. The Court concluded that the bankruptcy court’s equitable surcharge under 11 U.S.C. § 105(a) was unauthorized because it contravened a specific provision of the Code, i.e., 11 U.S.C. § 522. Based on Law v. Siegel and the unavailability of the application of an equitable surcharge, which the evidence shows was the main reason Renn agreed to waive his homestead exemption, this Court concludes that this case warrants considering the continuing viability of applying the law of the case doctrine with respect to Renn’s waiver of his homestead exemption. This decision is a close call, and should not be construed as approval of or to excuse the Debtor’s conduct. Rather, the Court grants Renn relief from his waiver of homestead exemption because if he appealed, Law v. Siegel not Latman would be controlling authority. Reconsideration of Debtor’s waiver of his homestead exemption warrants also reconsidering and vacating the Court’s Order for Renn to vacate his homestead, the Court’s show cause Order to sanction him for contempt, and the Order approving employment of the realtor to market and sell the homestead. Since the Court grants Debtor’s motion to rescind waiver of his homestead exemption, the Trustee may not sell it and the Debtor does not need to vacate his homestead, and thus the Debtor should not be held in contempt for failure to vacate his homestead.

Since Law v. Siegel is the main reason this Court grants reconsideration of Renn’s waiver of his homestead exemption but provides no support to reconsider waiver of his discharge, the Court finds no intervening controlling authority or other reason sufficient to exercise its discretion in favor of reconsidering Debtor’s waiver of his discharge. Debtor’s testimony in numerous hearings and transcripts, and his attorney’s testimony establish that Renn lied on his Schedules.

In re Bodeker, June 11, 2014, Kyle W. Nelson for Christy Brandon, Trustee, Kevin E. Vainio for Bodeker, Dan McKay for the United States Trustees

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2014 Mont. B.R. 381

Boyce v. Samson, (In re Moss), Chapter 7, Appeal, Ninth Circuit BAP, Claim Preclusion

Case no. 12-61093, BAP no. MT-13-1412

Pursuant to the Full Faith and Credit Act, bankruptcy courts must give preclusive effect to a state court judgment to the same extent courts from that state would give such judgment preclusive effect. Montana courts will apply res judicata or claim preclusion if four criteria are satisfied: "The parties or their privies are the same; the subject matter of the claim is the same; the issues are the same and relate to the same subject matter; and the capacities of the persons are the same in reference to the subject matter and the issues." As the sole basis for their claim, Boyce and Sayer attached to their proof of claim copies of the third party claims they filed against Moss in the Missoula County District Court. In its February 2012 order, the District Court disposed of these claims by ruling that, on their face, the claims were meritless as a matter of law and that Moss was entitled to a judgment on the pleadings as to each of these claims.

The record in this appeal reflects that Boyce and Sayer had ample opportunity to raise their voidness arguments in the District Court. They also could have raised them in a direct appeal following the entry of the District Court’s July 2012 final judgment. In accordance with Bragg, Searight and Wellman, we cannot permit Boyce and Sayer to proceed with these voidness arguments now, in a collateral attack on the District Court’s judgment.

Boyce v. Samson, (In re Moss), April 3, 2013, Sharon Boyce and Kyeann Sayer, Pro-se, Richard Samson, Pro-Se.

2014 Mont. B.R. 230

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Brandon v. GMAC Mortgage, Chapter 7, Appeal, Ninth Circuit Court of Appeals, Trust Indenture as Mortgage (unpublished)

District court case no. 12-cv-00099, Circuit case no. 12-35068

The plain meaning of Mont. Code Ann. 71-1-321 is clear: trust indentures are considered to be mortgages if the trust indentures are not executed in conformity with the Small Tract Financing Act.  Moreover, Amsterdam Lumber v. Dyksterhouse, 586 P.2d 705 (Mont. 1978), does not control this case because MCA  71-1-321 was not enacted until after Amsterdam Lumber was decided. Likewise, Earls v. Chase Bank of Texas, N.A., 59 P.3d 364 (Mont. 2002), does not govern the effect of a purported STFA trust indenture on a property greater than 40 acres. Finally, because MCA' 71-1-321 is unambiguous, there is no reason to engage in a discussion of its legislative history.

Brandon v. GMAC Mortgage, May 8, 2013, Christy Brandon, Pro se, Kevin Jones for GMAC Mortgage, Thomas Pardy for Mountain West Bank

2014 Mont. B.R. 365

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Brown, Chapter 11, Motion for Final Approval of Auction Sale

Case no. 11-62288

The dispute in this case is not about whether to grant the Debtor’s motion for final approval of the auction sale of ranch property. Rather, the issue is whether Hamwey is entitled to a $30,000 commission from the sale proceeds based on his listing agreement with the Debtor. If Hamwey was requesting an award of professional fees from the estate, he would be required under Montana Local Bankruptcy Rule ("LBR") 2016-1(a) to file an application for compensation in conformity with Local Bankruptcy Form ("LBF") 17. Rule 2016-1(a) states specifically: "No compensation or reimbursement of expenses shall be paid a professional . . . until allowed by order of the Court under this Rule." Hamwey has not filed an application for compensation in conformity with LBF 17 and this Court declines to interpret Hamwey’s objection as an application for compensation. Instead of crafting arguments for equitable relief, professionals seeking compensation from this Court need to comply with applicable rules.

F.R.B.P. 2016 includes a similar requirement of an application. A professional seeking retroactive employment must establish the presence of exceptional circumstances and, in particular, must satisfy two requirements:

(1) satisfactorily explain their failure to receive prior judicial approval; and

(2) demonstrate that their services benefitted the bankrupt estate in a significant manner.

The post-petition renewals of the listing agreements between Hamwey and the Debtor were not disclosed and were not approved by this Court. As such, they are of no legal effect and the listing agreement expired by the terms of Ex. A. This Court declines to award Hamwey equitable relief based upon an expired listing agreement and their long-undisclosed attempts to renew the listing agreement. Hamwey’s accusations against the Debtor and Debtor’s attorney are not persuasive,7 because the evidence shows that this Court’s rules were not followed, for whatever reason. It is within the bankruptcy court’s discretion to enforce the Bankruptcy Rules and local bankruptcy rules.

In re Brown, April 3, 2014, Gary S. Deschenes for Brown, David T Sulzbacher for Hamwey, William D Lambdin for First Interstate Bank, Bob Sullivan and Jeff Hathorn for J.P. King Auction Company

2014 Mont. B.R. 196

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Carpenter, Chapter 11, Priority Claim, Individual Liability for Corporate Officer

(Affirmed at Carpenter, 2015 Mont. B.R. 546)

Case no. 13-61192

Debtors object to Proof of Claim No. 5 filed by the Montana Department of Labor and Industry Unemployment Insurance Contributions Bureau. arguing the claim should be allowed as a general unsecured claim, rather than a priority claim. Proof of Claim No. 5 stems from unpaid unemployment insurance taxes owed by Big Sky Fire Protection, Inc.,1 which, pursuant to Mont. Code Ann. ("MCA") 39-51-1105,2 makes Debtors, as officers of Big Sky Fire Protection, Inc. "liable for the taxes, penalties and interest due." The total amount owed of $78,757.29 consists of unemployment taxes in the amount of $71,441.99 owed from the 4th quarter of 2011 through the 2nd quarter of 2013; interest of $9,838.62; and penalties of $125.00; less payments applied of $2,648.32. Debtors and UID agree that the unemployment taxes in question are excise taxes.

Debtors agree that they are or were corporate officers of Big Sky Fire Protection, Inc. who, under MCA § 39-51-1105(1), are liable for the taxes, penalties and interest due by Big Sky Fire Protection, Inc. for unpaid unemployment taxes. Moreover, based upon the testimony of Daniel Carpenter, Debtors are, under MCA § 39-51-1105(2), individually liable with Big Sky Fire Protection, Inc. because they "(i) possessed the responsibility to file reports and pay taxes on behalf of the corporation; and (ii) possessed the responsibility on behalf of the corporation to direct the filing of reports or payment of other corporate obligations and exercised the responsibility that resulted in failure to file reports or pay taxes due." Consequently, with the exception of $125.00, the unemployment taxes set forth in Proof of Claim No. 5 are entitled to priority treatment.

The unemployment taxes are an involuntary pecuniary burden imposed by this State’s legislature for the public purpose set forth in MCA §§ 39-51-101, et. seq. Moreover, the obligation at issue meets the two additional elements articulated by the Suburban I Court in that the particular assessment is universally applicable to similarly situated officers in that all officers who are responsible for paying the taxes, interest and penalties of corporations are liable for such taxes, interest and penalties. Additionally, the unemployment insurance fund is administered exclusively by the State of Montana’s department of labor and industry and thus, there can be no private creditors with claims similar to the instant claim of the UID.

As to the $125.00 referenced above, UID’s claim identifies $125.00 of the amount owed as a penalty. The penalty in this case, as permitted under MCA § 39-51-1301(2), is clearly penal in nature, and is thus not allowed as a tax.

In re Carpenter, October 3, 2014, Harold Van Dye for Debtors, Joseph Nevin for State of Montana

2014 Mont. B.R. 583

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Drummond v. Luedtke, (In re Luedtke), Chapter 13, Appeal, 9th Circuit BAP, Disposable Income

(Reversing In re Luedtke, 2013 Mont. B.R. 31)

Case no. 13-60098, BAP no. MT-13-1313

Even though the older vehicle operating expense is not mentioned in the National Standards, the Local Standards or in the Financial Analysis Handbook, the Luedtkes assert that a broad interpretation of the phrase "National Standards and Local Standards . . . issued by the Internal Revenue Service" contained in § 707(b)(2)(A)(ii)(I) should include the older vehicle operating expense.  The bankruptcy court agreed with the Luedtkes. The bankruptcy court in essence held that the "use and incorporation" of IRM Chapter 8 into the Collection Financial Standards, particularly Chapter 8's $200 older vehicle operating expense, was "not at odds" with § 707(b)(2)(A)(ii)(I) and that the older vehicle operating expense should be considered part of the IRS’s Collection Financial Standards.

We believe that the plain meaning of the language in § 707(b)(2)(A)(ii)(I) controls the resolution of this issue. The statutory text dictates that debtors’ monthly expenses under the means test "shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards . . . issued by the Internal Revenue Service."  The older vehicle operating expense is not set forth in the expense amount schedules identified in the IRS’s Financial Analysis Handbook as the IRS’s National and Local Standards. Nor is it otherwise mentioned in the Financial Analysis Handbook, which identifies, describes and interprets the National Standards and Local Standards. Instead, the older vehicle operating expense is mentioned only in IRM Part 5, Chapter 8, which deals with compromise proposals received from delinquent taxpayers.

While Chapter 8 explicitly references, incorporates and applies the procedures set forth in Chapter 15, see IRM 5.8.5.1 (2008), this incorporation is not reciprocal. Nowhere in the Financial Analysis Handbook, IRM Part 5, Chapter 15, Section 1, is there a general incorporation of the procedures and policies set forth in Chapter 8. Nor did we find any specific reference, incorporation or application of the older vehicle operating expense in the Financial Analysis Handbook. Accordingly, because the older vehicle operating expense is not set forth or referenced in the National Standards, in the Local Standards, or in the IRM commentary identifying and interpreting those standards, it was improper for the bankruptcy court to allow the older vehicle operating expense for purposes of calculating the Luedtkes’ disposable income.

Ransom instructs that the Financial Analysis Handbook, IRM Part 5, Chapter 15, Section 1, may be relevant and even persuasive authority to the extent it helps interpret the National Standards and Local Standards and to the extent it does not conflict with the Bankruptcy Code. But nothing in Ransom supports the proposition that bankruptcy courts may look to other aspects of IRS policy and procedure in order to interpret and supplement the National Standards and Local Standards.

Drummond v. Luedtke, (In re Luedtke) April 9, 2014, Robert Drummond, pro se, Edward A. Murphy for Luedtke

2014 Mont. B.R. 231

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Glasser v. Desert Ranch, (In re Yellowstone Mountain Club, LLC), Chapter 11, Fraudulent Transfer, Issue Preclusion

Case no. 08-61570, Adversary Proceeding no. 10-00015

YCLT filed a Motion for Summary Judgment Against Defendant Thornton Byron LLP, seeking avoidance of the $207,587.00 that Thornton Byron LLP received for professional services rendered to Debtors, Timothy Blixseth and others. The Trustee also requested that the Court take judicial notice of a Memorandum of Decision entered by this Court and certain trial testimony given by John Thornton in AP 14.

Factors a plaintiff must establish under § 548 are: (1) that the debtor incurred an obligation; (2) within two years of its bankruptcy petition date; (3) that the debtor received less than reasonably equivalent value for the obligation incurred; and either (4) was insolvent at the time the obligation was incurred or was rendered insolvent as a result of the obligation, or was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital.

The Supreme Court recognized that preclusion can be applied to non-parties notwithstanding the often repeated general rule that "one is not bound by a judgment in personam in a litigation in which he is not designated as a party or to which he has not been made a party by service of process." The Supreme Court noted that as with most rules, this one is subject to certain pliable exceptions: (1) the nonparty agreed to be bound by the litigation of others; (2) a substantive legal relationship existed between the person to be bound and a party to the judgment; (3) the nonparty was adequately represented by someone who was a party to the suit; (4) the nonparty assumed control over the litigation in which the judgment was issued; (5) a party attempted to relitigate issues through a proxy; or (6) a statutory scheme foreclosed successive litigation by non-litigants. A brief discussion of AP-14 shows why none of the exceptions discussed in Taylor apply in this case. Blixseth’s role in Part I of the trial was more akin to that of an observer as opposed to a litigant. Blixseth did, however, take an active role in Part II of the trial.

Subject to the principles of res judicata (claim preclusion) and collateral estoppel (issue preclusion), each separate proceeding should stand on its own merit. The test in Montana to apply collateral estoppel (issue preclusion) is: (1) the issue decided in the prior adjudication is identical with the one presented in the action in question; (2) there was a final judgment on the merits; and (3) the party against whom collateral estoppel is asserted was a party or in privity with a party to the prior adjudication; Issue preclusion cannot apply in this case because the Judgment stemming from the Court’s decision in AP-14 is on appeal and is thus not final. In addition, as for the exceptions discussed in Taylor, Thornton Byron LLP has not agreed to be bound by the litigation in AP-14; the Court is not persuaded that Thornton Byron LLP and Blixseth had a substantive legal relationship as to the matters tried in AP-14; Thornton Byron LLP’s was not adequately represented by Blixseth in AP-14; Thornton Byron LLP did not assume control over the litigation in AP-14; Thornton Byron LLP is not attempting to bring a suit as the designated representative or agent of Blixseth; and YCLT has not shown or argued that a statutory scheme forecloses successive litigation by Thornton Byron LLP. In sum, YCLT has not established that Thornton Byron LLP was in privity with Blixseth in AP-14 as it related to the Debtors’ release of Blixseth.

Glasser v. Desert Ranch, (In re Yellowstone Mountain Club, LLC), March 14, 2014, Shane P Coleman for YCLT, Daniel J Gibbons for Thornton Byron, LLP.

2014 Mont. B.R. 133

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Glasser v. Desert Ranch, (In re Yellowstone Mountain Club, LLC), Chapter 11, Adversary Proceeding, Summary Judgment

Case no. 08-61570, Adversary no. 10-00015

The modified scheduling order provided that all discovery was to be completed by June 12, 2014, that all expert witnesses for the parties were to be identified and their written reports submitted to opposing counsel on or before April 29, 2014, that depositions of disclosed expert witnesses were to be conducted on or before June 12, 2014, that any and all requests for amendments to the pleadings or to join additional parties in the action, if allowed, were to be filed not later than May 6, 2014, and that any and all pretrial motions, together with supporting memoranda or other materials, were to be filed and served on or before July 14, 2014. The foregoing deadlines have expired and YCLT has not identified an expert or provided Thornton Byron with any expert reports. In June of 2014, YCLT responded to an interrogatory that it had yet to determine whom, if anyone, it would call as a retained expert witness. By separate Order, the Court has ruled that YCLT may not call any expert witnesses to testify against Thornton Byron in YCLT’s case-in-chief.

Thornton Byron argues that summary judgment in its favor is appropriate because first, it cannot be bound by this Court’s findings in AP-14. At this juncture, the Court agrees. Res judicata, or claim preclusion, bars the relitigation of a claim that a party has already had an opportunity to litigate or that the party could have litigated in the first action. The elements of claim preclusion are: (1) the parties or their privies are the same in the first and second actions; (2) the subject matter of the actions is the same; (3) the issues are the same in both actions, or are ones that could have been raised in the first action, and they relate to the same subject matter; (4) the capacities of the parties are the same in reference to the subject matter and the issues between them; and (5) a valid final judgment has been entered on the merits in the first action by a court of competent jurisdiction. The Judgment in AP-14 is on appeal, and is thus not final. In addition, YCLT has not shown that Thornton Byron was in privity with Mr. Blixseth.

Thornton Byron then argues that absent reliance on the Judgment in AP-14 that YCLT cannot otherwise prove its case without an expert witness. The Court is not persuaded by such argument. An expert witness may testify to help the trier of fact determine the evidence or a fact at issue. FED.R.EVID. 702. This is particularly so when scientific, technical, or other specialized knowledge will assist the trier of fact to decide a fact in issue. Thronton Byron’s argument, at its core, is that this Court cannot make a determination that the Debtors were insolvent when they made the payments to Thornton Byron. While an expert witness may assist the Court in understanding the evidence presented, the Court is not convinced that an expert is necessary for the Court to determine whether the Debtors were or were not solvent on the relevant dates in 2008. Rather than present relevant facts, for example, facts tending to show that the Debtors were solvent in 2008, Thorton Byron simply argues that they believe YCLT will not be able to prove their case at trial. This Court is not able to make that conclusion until YCLT first presents its case in chief.

Glasser v. Desert Ranch, August 19, 2014, Mark A. Ellingson for Thorton Bryan, Charles W. Hingle for Glasser

2014 Mont B.R. 494

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Glasser v. Desert Ranch, (In re Yellowstone Mountain Club, LLC), Chapter 11, Summary Judgment, Trustee Transferor Liability

Case no. 08-61570, Adversary no. 10-00015

Defendant George Mack ("Mack") filed a Renewed Motion for Summary Judgment seeking his dismissal from this action or, in the alternative, that the Court find that Mack may not be held personally liable for any of the claims asserted in YCLT’s complaint. In evaluating the appropriateness of summary judgment the Court must first determine whether a fact is material; and if so, it must then determine whether there is a genuine issue for the trier of fact, as determined by the documents submitted to the Court. As to materiality, the applicable substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude entry of summary judgment.

Mack relies on Exhibits to support his assertion that he resigned as trustee of the Blixseth Trusts on December 31, 2010. Exhibit B found at docket no. 272 is a letter from Mack to Mr. Blixseth dated January 24, 2011, which reads: "Pursuant to our conversation of December 11 , 2010, that we have mutually agreed that I resign as manager and trustee of all Blixseth Trusts effective December 31, 2010."

While Mack’s letter was addressed only to Mr. Blixseth, the Trust Agreement specifically provides:

                     11.5 RESIGNATION OF TRUSTEE. Any Trustee may resign at any time as Trustee of any Trust by

                     delivering a signed and acknowledged written notice of resignation to:

                     • each Primary Beneficiary of such Trust; and

                     • each acting Trustee, or if no other Trustee is acting, to each immediate successor Trustee, if any.

Mack has not presented any evidence that he has complied with either the foregoing or Washington Probate and Trust Law. Moreover, Mack’s recollection of his alleged withdrawal was not quite as clear during a deposition taken January 24, 2014. Additionally, the deposition testimony of Mr. Blixseth and Beau Blixseth does not provide further support for Mack’s contention that he is no longer the trustee of the Blixseth Trusts. Having thoroughly reviewed the evidence presented by Mack, the Court finds that Mack has not met his initial burden of showing he withdrew as trustee of the Blixseth Trusts. The Court finds a genuine issue of material fact on this point.

Mack further contends that he did not receive any compensation for serving as trustee of the Blixseth Trusts. Mack’s deposition testimony on this subject, while initially clear, proceeds to raise a question of doubt whereby a reasonable finder of fact could conclude that Mack did indeed receive some type of compensation for his role as trustee of the Blixseth Trusts. The Court tends to agree with Mack that he cannot be held personally liable for any judgment rendered against Mack in his capacity as trustee of the Blixseth Trusts. However, unlike the trustees in the cases cited by Mack in his brief, Mack is a litigant in this case not only in a trustee capacity, but also in an individual capacity. Mack’s motion for summary judgment does not seek an order providing that Mack may not be held personally liable for the claims against him in his trustee capacity, but rather, seeks "an order providing that Mack may not be held personally liable for any of the claims asserted in plaintiff’s complaint.". Mack cites no authority for such a broad and absolute release from liability. Furthermore, Mack does not allege any facts on the issue of whether he did or did not act in a manner that would establish personal fault.

Glasser v. Desert Ranch, et al, October 3, 2014, Harold V. Dya and Kerry J Shepard for Mack, Charles W. Hingle, Athanasious Basdekis, Scott C. Helmholz and Steven Hoard for Glasser

2014 Mont. B.R. 595

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Gotcher v. Duffie, Chapter 13, Adversary Proceeding, Motion to Amend Answer, Motion to Dismiss

Case no. 13-61593, Adversary no. 14-00013

Because an answer has been filed in this matter, the Court deems it appropriate to treat Debtor’s motion to amend as a request for judgment on the pleadings under Rule 12(c). In addressing a Rule 12(c) challenge, as with a Rule 12(b)(6) challenge, the Court accepts all nonconclusory factual allegations in the complaint as true and construes the pleading in the light most favorable to the nonmoving party. To survive a motion to dismiss under Fed.R.Civ.P. 12(c), the pleadings "must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’" "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

MOTION TO AMEND

Rule 15(a) allows a party to amend its pleading once as a matter of course under certain circumstances not present here. Rule 15(a)(2) provides that a party "may amend its pleading only with the opposing party’s written consent or the court’s leave. The Court should freely give leave when justice so requires." Plaintiffs do not consent. Debtor’s motion to amend was filed within the time for amendment provided in the pretrial order. After review of Debtor’s amended answer, Plaintiffs’ objection, and given the "extreme liberality" with which Rule 15(a) must be interpreted. Debtor’s motion to amend is granted.

MOTION TO DISMISS

a. 11 U.S.C. § 523(a)(4)(6)

Plaintiffs’ complaint is not a model of clarity. Given the complete absence of any facts addressing the alleged conversion of the pickup truck, the Court cannot conceive of any way that Plaintiffs’ claims under either § 523(a)(4) or § 523(a)(6) could be saved by amendment. Consequently, Plaintiffs’ claims under §523(a)(4) and §523(a)(6) of the complaint are dismissed with prejudice.

b. 11 U.S.C. § 523(a)(2)(B)

Section 523(a)(2)(B) excepts from discharge debt for money obtained by the use of a written statement concerning a debtor’s (or insider’s) financial condition. The Ninth Circuit has reworded these requirements as follows:

(1) a representation of fact by the debtor,

(2) that was material,

(3) that the debtor knew at the time to be false,

(4) that the debtor made with the intention of deceiving the creditor,

(5) upon which the creditor relied,

(6) that the creditor’s reliance was reasonable,

(7) that damage proximately resulted from the representation.

One of the elements that Plaintiffs must prove under §523(a)(2)(B) is that Debtor made a statement in writing with regard to her financial condition. Plaintiffs make no allegation on this element and the Court cannot find anything in the record to suggest that Debtor misrepresented her financial condition to the Plaintiffs in writing. Amendment to the pleadings would not cure the deficiencies in Plaintiffs’ §523(a)(2)(B) claim and Debtor is entitled to dismissal of that claim with prejudice.

c. 11 U.S.C. § 523(a)(2)(A)

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.'"

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. 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. 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. Accepting all factual allegations in the complaint as true and construing the pleadings and attachments thereto in the light most favorable to the Plaintiffs, the Court concludes that Plaintiffs’§ 523(a)(2)(A) claim has facial plausibility. Accordingly, Debtor’s motion to dismiss the §523(a)(2)(A) claim is denied.

Gotcher v. Duffie, November 13, 2014, Kevin E. Vanio for Gotcher, James C. White for Duffie

2014 Mont. B.R. 612

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Green, Chapter 7, Compromise, Settlement

Case no. 13-61650

After a foreclosure sale of Debtor’s residence, the Debtor, pro se, commenced Case No. CV 13-159-M in the United States District Court for the District of Montana against Seterus, Fannie Mae, Suntrust, and MERS asserting ten causes of action against defendants under federal and state law. Defendants filed motions to dismiss Debtor’s claims. The U.S. Magistrate Judge recommended that the motions to dismiss be granted and that all ten of the Debtor’s claims for relief be dismissed with respect to Suntrust, Fannie Mae and MERS. The U.S. District Court adopted the magistrate judge’s Findings and Recommendations in full.

The Debtor, pro se, filed a complaint initiating Adv. Pro. No. 14-00004 on January 29, 2014, naming among others as defendants Fannie Mae, Suntrust, MERS, and Seterus. The Trustee filed his motion to approve compromise settlement between the Trustee and Suntrust and MERS seeking approval of a settlement and release of all claims in Adv. Pro. 14-00004 against Suntrust and MERS in exchange for payment of the sum of $1,800.00. The Debtor objected on the grounds she is being denied her civil rights and due process of law and wants to be able to conduct discovery. The Trustee filed a second motion to approve compromise settlement with Seterus and Fannie Mae seeking approval of a settlement and release of all claims in Adv. Pro. 14-00004 against Seterus and Fannie Mae in exchange for payment of $1,800.00.

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.’

The first factor is probability of success in the litigation. The Trustee testified that the probability of success in Adv. Pro. 14-00004 is low because of the decision by the U.S. District Court. The Debtor wants to conduct discovery in the hope of proving her claims. Recognizing that a risk always exists in litigation, the Court agrees with the Trustee that the estate has low probability of success in the litigation. The second A & C Properties factor is the difficulties, if any, to be encountered in the matter of collection. Defendants are large institutions. The second A & C Properties factor does not weigh in favor of settlement. The third A & C Properties factor to be considered is the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it. The Court finds that this third factor weighs in favor of approval of the settlements. The Debtor’s legal theories are complex, but the Trustee would have to pursue those theories. The Defendants are large financial institutions who can afford to defend the case vigorously. The fourth A & C Properties factor requires the Court consider the paramount interest of the creditors and a proper deference to their reasonable views of the premises. No objection to approval of the settlements was filed by any creditor. The Trustee’s support of approval of the settlements suggests that the settlements are in the best interest of the creditors.

In re Green, August 27, 2014, Richard J. Samson Trustee, Charlotte Green, Pro Se

2014 Mont. B.R. 504

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Green Tree v. Staggs, ( In re Staggs), Chapter 13, Adversary Proceeding, Summary Judgment, Parole Evidence

Case no. 12-60517, Adversary no. 13-00039

Green Tree’s complaint seeks a declaratory judgment that its lien is senior and superior to Fleischhauer’s lien because his lien does not satisfy Montana’s lien statutes and is invalid. Fleischhauer’s answer and counterclaim requests that his lien be deemed valid and therefore first in time and first in right over Green Tree’s lien. Debtor’s answer requests that judgment be entered in favor of Green Tree against Fleischhauer, but that the complaint be dismissed against her and requests attorney fees.

§ 28-2-905(1)(b), quoted by Fleischhauer in his brief, provides that extrinsic evidence concerning a written agreement may be considered, "(b) when the validity of the agreement is the fact in dispute." In interpreting Montana’s statutes, the Court looks first to the plain meaning of the words used in interpreting a statute. At oral argument Green Tree’s counsel argued that Green Tree is challenging the validity of Fleischhauer’s lien, and further argued that the statements in Staggs’ affidavit are not hearsay to the extent they include statements of an opposing party, Fleischhauer. The Court agrees. Green Tree’s complaint seeks a declaratory judgment that Fleischhauer’s lien is defective and subject to Green Tree’s senior and superior lien, because Fleischhauer's lien does not comply with Montana’s lien statutes. In this Court’s view these averments raise the validity of Fleischhauer’s agreements with the Debtor which allegedly gave rise to his lien, and thereby invoke § 28-2-905(1)(b). Parol evidence may be permitted under MCA § 28-2-905 when mistake or the validity of the agreement is called into question. Bill Staggs’ affidavit which Fleischhauer moves to strike includes statements of a party-opponent, Fleischhauer, which are not hearsay under Rule 801(d)(2)(A).

Considering these cross motions for summary judgment together, this Court finds that neither Green Tree nor Fleischhauer has satisfied their heavy burden under Rule 56 to show that there are no disputed facts warranting disposition of the case on the law without trial. Frankly, at this stage of this adversary proceeding it appears to the Court that Fleischhauer has an uphill climb to prove that his "Mechanic’s Lien" satisfies the requirements of Montana lien statutes. However, this Court cannot in good faith conclude that the facts as shown at present, are such that a rational or reasonable jury might return a verdict in Green Tree’s favor based on the evidence, or instead in favor of Fleischhauer. It appears instead that there remain, at least, mixed questions of facts and law regarding whether Fleischhauer’s "Mechanic’s Lien" satisfies the requirements of Montana’s lien statutes.

Green Tree Sevicing LLC v. Staggs and Fleischhauer, (In re Staggs), March 14, 2014, Mark M. Smith for Green Tree, K. Michael Sol for Fleischhauer, Andrew W. Pierce for Staggs

2014 Mont. B.R. 122

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Green Tree v. Staggs and Fleischhauer, (In re Staggs), Chapter 13, Adversary Proceeding, Summary Judgment, Dismissal

Green Tree’s complaint seeks a declaratory judgment that its lien is senior and superior to the lien of Defendant James Fleischhauer ("Fleischhauer") because his lien does not satisfy Montana’s lien statutes and is invalid. Fleischhauer’s answer and counterclaim requests that his lien be deemed valid and therefore first in time and first in right over Green Tree’s lien. Debtor’s answer requests that judgment be entered in favor of Green Tree against Fleischhauer, but further requests that the complaint be dismissed against her, and requests attorney fees. Green Tree included Christine as a party-defendant in its complaint for declaratory judgment. Christine’s answer admits the validity of Green Tree’s lien, but denies any liability to Green Tree, or to Fleischhauer, and she asks for dismissal of all claims against her and an award of attorney fees.

Christine may or may not have standing to object to Fleischhauer’s claim, but she does not have a pending objection to Fleischhauer’s claim, and she does not want to be part of this adversary proceeding. Instead, Debtor opts to let Green Tree take the lead in objecting to Fleischhauer’s claim and seeking to declare it invalid and/or subject to Green Tree’s prior lien in this adversary proceeding. No obligation exists for the Debtor to participate in this adversary proceeding as a party-defendant, nor is her presence as a party-defendant necessary to determine the relative priority of liens, or the validity or allowance of Fleischhauer’s claim and lien. On the other hand, having opted to let Green Tree take the lead, Debtor will be bound by the results,

In the main case, the Debtor’s Chapter 13 Plan was confirmed by Order entered on May 29, 2012. The confirmed Plan treats Green Tree’s predecessor’s secured claim as an unimpaired secured claim which shall receive no payments through the Plan. Therefore, between the Debtor and Green Tree no pending case or controversy exists. Green Tree’s secured claim is allowed and unimpaired. Green Tree’s declaratory judgment request does not seek any relief against Christine except its attorney fees, but she does not dispute Green Tree’s lien or claim. In this Court’s view the result of this adversary proceeding and its effect on property of the estate is insufficient reason to force Christine to remain a defendant in this adversary proceeding, and summary judgment shall be entered dismissing Christine as a party-defendant.  With respect to Christine’s request for attorney fees, she cites no contractual or statutory basis for such fees. The American Rule denies attorney’s fees in the absence of contract, applicable statute, or other exceptional circumstances, and any exceptions to the American Rule are narrowly circumscribed. Since the record shows that Green Tree’s claim is unimpaired, and no suggestion is made of a breach by Christine or Green Tree of the loan agreements, the American Rule applies, and Christine’s request for attorney fees is denied in accordance with that rule.

Green Tree Servicing LLC v. Staggs and Fleischhauer, (In re Staggs), March 18, 2014, Mark M. Smith for Green Tree, Andrew W. Pierce for Staggs

2014 Mont. B.R. 149

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Green Tree v. Fleischhauer, (In re Staggs), Chapter 13, Adversary Proceeding, Lien Priority

Case no. 12-60517, Adversary no. 13-00039

The instant adversary proceeding does not involve a state law counterclaim by the estate under § 157(b)(2)(C), but rather is a core proceeding between creditors to determine the validity, extent, or priority of the parties’ respective liens under § 157(b)(2)(K). Green Tree’s pre-trial brief contends that Defendant’s Mechanic Lien does not satisfy the Montana statutes governing a construction lien, and does not satisfy the statutes governing mortgages because there are no words granting Defendant a lien against Debtor’s residence, and the Mechanic Lien is not notarized. Defendant’s pretrial brief argues that the promissory note, Ex. A, was signed by Christine and notarized, that it includes language that her residence would be security for repayment of the note, and the note was recorded with the Mechanic Lien.

Defendant contends that Christine listed his lien on her Schedule D as a valid obligation, and she did not raise the objection of lack of consideration or otherwise contest the validity of the obligation. Chapter 3 of Title 71 governs "Liens10." The list of liens in Chapter 3 does not include "mechanics’ liens." Defendant claims a lien based on the Mechanic Lien in Ex. B and 7. It is not just the title of Ex. B as Defendant argues which is faulty, but rather the opening sentence which claims the lien under Title 71, Chapter 3, MCA. Defendant offered no evidence, and offered little if any argument that his lien satisfies the requirements for any of the liens listed in Chapter 3. Construction liens provided for at Part 5 of Title 71, Chapter 3, MCA, appear to be the closest thing to a mechanic’s lien, but only a person who furnishes services or materials pursuant to a real estate improvement contract may claim a construction lien. MCA § 71-3-523.

Ex. B completely fails the requirements of the notice of right to claim a construction lien provided at MCA § 71-3-532, and fails to satisfy the lien notice content required under MCA § 71-3-536. Defendant’s own evidence, Ex. A, states that the note is for payment of several pieces of equipment in Montana and Mississippi. Based on this evidence, this Court finds and concludes that Defendant’s Mechanic Lien is invalid and void as a lien claimed pursuant to Title 71, Chapter 3, MCA, as asserted in the first sentence of Ex. B.

"Although an unrecorded instrument is valid as between the parties and those who have notice thereof, MCA § 70–21–102, before a deed transferring real property can be recorded with the county clerk and recorder in a Montana county, its execution must be acknowledged by the person executing, and the acknowledgment must be certified by an official authorized to do so. [MCA 70–21–203]." The recording of a mortgage must be accompanied by the same formalities as a grant of real property. MCA §§ 71-1-203 and -207(1). The Mechanic Lien of Ex. B and 7 does not satisfy these formalities. Not having been properly acknowledged, Ex. B could not be recorded pursuant to MCA § 70-21-203.

Green Tree Servicing v. Fleischhauer, May 6, 2014, Mark Smith for Green Tree, K Michael Sol for Fleischhauer

2014 Mont. B.R. 268

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Hamilton, Chapter 13, Administrative Procedure

Case No. 08-60225

Debtor asks this Court to hold the IRS “in contempt for its willful and continuing failure to apply Chapter 13 plan payments in accordance with the confirmed Chapter 13 Plan and its violation of the discharge injunction.”  The IRS asserts three arguments in opposition to Debtor’s Motion.  First, the IRS argues Debtor’s remedies fall under 11 U.S.C. § 524(i), and that the application of the payments received by the Trustee was a mistake in conflict with the normal procedures of the IRS.  Second, the IRS argues that Debtor has not exhausted his administrative remedies as required under 26 U.S.C. § 7433(e).  Finally, the IRS maintains that it was not intending to cause harm or intending to violate Debtor’s discharge.  At the hearing, Debtor conceded that he must exhaust his administrative remedies in order to recover damages from the IRS for any contempt.  Thus, even though Debtor previously requested compensation for his attorneys fees and costs, Debtor is only asking at this time that the IRS be held in contempt.

Whether Debtor is seeking a determination of contempt under § 524(a)(2) or § 524(a)(3), or perhaps both, the IRS argues that Debtor must exhaust his administrative remedies before proceeding with his contempt action.  Debtor counters that “[c]ontempt, and damages for contempt, are two different things.  A contempt can occur in the absence of damages.”  The foregoing regulation sets forth the administrative process for seeking redress for violations of § 524 by the IRS.  For instance, a debtor must send a written administrative claim for damages to the Chief, Local Insolvency Unit, for the judicial district in which the debtor filed the underlying bankruptcy case.  The administrative claim is to include, among other things, a description of the alleged violation and the injuries incurred by the debtor.  Debtor has not complied with the foregoing.  In addition, with one exception not applicable to this case, no civil action is to be maintained in the bankruptcy court for violation of § 524 before either a decision is rendered on the administrative claim or six months have passed since the administrative claim was filed. 

Debtor’s request for contempt is a civil action that simply cannot be brought before this Court because Debtor has not yet filed an administrative claim with the Chief, Local Insolvency Unit.  Debtor’s Motion for Contempt is premature at this time.

In re Hamilton, James A. Patten for Hamilton, Victoria Francis for the IRS, January 22, 2014

2014 Mont. B.R. 24

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Hardin & Company, LTD., Chapter 7, Objection to Claim, State Court Judgment

Case no. 13-60413

Debtor commenced, Cause No. DV-11-1013A against Stafford/Lovgren and American Land Title Company of Montana, seeking payment of a commission under the Commercial Listing Agreement. District Court Judge Holly Brown entered an order granting summary judgment in favor of Stafford/Lovgren, dismissing Debtor’s cause of action, and awarding attorney fees to Stafford/Lovgren. In her Order, Judge Brown found there were no communications between Stafford/Lovgren and Dr. Anderson regarding the lease of Stafford/Lovgren’s property to Dr. Anderson prior to October 30, 2010, when the Commercial Listing Agreement expired. Judge Brown also found that the Protection Period Provision of the Commercial Listing Agreement was not triggered because Dr. Anderson did not lease or purchase Stafford/Lovgren’s property as a result of Debtor’s "advertising, promoting and/or marketing." As provided in the Commercial Listing Agreement, Stafford/Lovgren filed a bill of costs, supporting affidavit and motion for fees in the State Court action, asserting they had incurred costs of $1,789.95, attorney’s fees totaling $44,572.50 and certain other recoverable costs of $592.06 in defending the State Court action. Before Judge Brown held a hearing on Stafford/Lovgren’s request for attorney’s fees, Debtor filed a voluntary Chapter 7 bankruptcy petition

Stafford/Lovgren’s proof of claim is based upon the fees and costs they maintain were incurred in defending the lawsuit commenced by the Debtor, which lawsuit resulted in a favorable summary judgment ruling for Stafford/Lovgren. Hardin does not dispute the reasonableness of Stafford/Lovgren’s requested fees and costs. Given the absence of any objection to the reasonableness of Stafford/Lovgren’s requested fees and costs, and the apparent admission that fees and costs owed to Stafford/Lovgren, as the prevailing party, are allowed under the Commercial Listing Agreement, the Court finds that Stafford/Lovgren’s Proof of Claim is procedurally proper. Hardin argues that Judge Brown’s summary judgment ruling was based upon a legal misreading of the Commercial Listing Agreement. This Court declines to revisit Judge Brown’s summary judgment decision. Hardin’s objection to Stafford/Lovgren’s proof of claim is, at its core, a de facto appeal forbidden under the Rooker-Feldman doctrine, which bars suits "brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments." While Judge Brown had not yet entered a final judgment when Debtor commenced this case, the Ninth Circuit Court of Appeals in Marciano v. White, 431 F. App'x 611, 613 (9th Cir.2011) rejected the argument that the Rooker-Feldman doctrine did not apply simply because the plaintiff filed his federal action before his state court appeals had concluded.

In re Hardin & Company, LTD., March 10, 2014, Quentin M. Rhoades for Hardin, Bruce Jacobs for Stafford/ Lovegren

2014 Mont. B.R. 59

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Hardin & Company, LTD.,  Chapter 7, Motion to Abandon

Womack concluded that the exposure to additional liability outweighed any potential benefit of pursuing the appeal. Womack has now reached an agreement with Stafford/Lovgren to fully and finally settle the State Court litigation, which settlement is opposed by Hardin and is scheduled for hearing on April 1, 2014. Womack has investigated Debtor’s alleged claim against Stafford/Lovgren and has concluded that neither pursuing nor abandoning the claim would be in the best interest of the Estate.

Hardin’s right to compel abandonment arises under § 554(b) which states:

(b) On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.

Hardin has not shown that Debtor’s asserted claim against Stafford/Lovgren is burdensome to the bankruptcy estate. Thus, abandonment is only appropriate if the asserted claim is of inconsequential value and benefit to the estate. Womack observes that for him to pursue an appeal of Judge Brown’s summary judgment decision, the bankruptcy estate would incur considerable expense because Womack has not been able to find an attorney who would pursue the matter on a contingency fee basis. In the unlikely event the appeal is successful, the state court action would be remanded to the district court for trial. If Womack were successful at trial, the most that would come directly into the estate would, by this Court’s calculation, be the 6% commission on $735,000, or $44,100. However, Stafford/Lovgren’s claim would also be eliminated, which would arguably benefit the remaining creditors. But as Womack points out, the other remaining creditor in this case is Hardin himself.

Womack’s fear, however, is that the appeal will be unsuccessful. In the event the appeal is not successful, the bankruptcy estate would then be liable for Stafford/Lovgren’s additional costs and expenses incurred during the appeal. Womack argues there is value to the bankruptcy estate of retaining and controlling the Stafford/Lovgren claim, and there is further value to the estate of capping the fees and costs that Stafford/Lovgren can claim against the bankruptcy estate. Based upon the evidence presented, the Court agrees that the benefit of the Stafford/Lovgren claim is derived from the bankruptcy estate retaining and controlling such claim. The benefit of retaining and controlling the claim outweighs the $2,000 offer of purchase made by Hardin, which offer is coupled with the bankruptcy estate’s exposure to additional attorney’s fees and costs.

In re Hardin & Company, LTD.,, March 21, 2014, Quentin M. Rhoades for Hardin, James A. Patten for Womack

2014 Mont. B.R. 159

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Hardin & Company, LTD., Chapter 7, Compromise and Settlement

Case no. 13-60413

Womack has now reached an agreement with Stafford/Lovgren to fully and finally settle the State Court litigation, which settlement is now before the Court and is opposed by Hardin. The claim of the Bankruptcy Estate at issue is the right to appeal the summary judgment ruling entered by the State District Court and if successful, prosecute the action in the State District Court against Stafford/Lovgren.

Womack is concerned that Stafford/Lovgren’s fees have already increased as a result of Hardin’s objection to Stafford/Lovgren’s proof of claim, Hardin’s motion to abandon, and now pursuing approval of the settlement between Stafford/Lovgren and Womack. Womack seeks to put an end to Stafford/Lovgren’s mounting fees by agreeing not to appeal Judge Brown’s summary judgment ruling. Hardin counters that Womack’s agreement with Stafford/Lovgren is merely a waiver and release of the Estate’s claim against Stafford/Lovgren for no consideration.

Compromises and settlements are governed by Rule 9019(a), F.R.B.P., which provides in pertinent part: "On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement . . . ." The bankruptcy court is vested with considerable iscretion in approving compromise agreements and settlements. Rather than allowing Judge Brown’s summary judgment ruling to become final, and appeal that judgment to the Montana Supreme Court, Hardin made the decision to place the Debtor in a voluntary Chapter 7 bankruptcy proceeding. After Womack was appointed Trustee, the decision as to whether to pursue an appeal of Judge Brown’s summary judgment ruling became his, and not Hardin’s. The Court agrees with Womack that the probability of a successful appeal of the summary judgment ruling is low, and the Estate simply does not have the financial wherewithal to withstand the expense, inconvenience and delay associated with such an appeal. Womack and Stafford/Lovgren seek to put an end to litigation commenced by Hardin, and to put a stop to further attorney’s fees and costs. Instead of pursuing an appeal of Judge Brown’s summary judgment ruling, Hardin voluntarily elected to put the Debtor into bankruptcy. Based upon the record, the Court is not inclined to follow Hardin’s whim and deny approval of the agreement between Womack and Stafford/Lovgren.

In re Hardin & Company, LTD., May 8, 2014, James A. Patten for Womack, Quentin M. Rhoads for Hardin, Bruce Jacobs for Stafford/Lovgren

2014 Mont. B.R. 356

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Hill, Chapter 7, Sanctions, Violation of Automatic Stay

Case no. 14-60302

Hill informed NWC of her bankruptcy and that the debt for which NWC sent a collection notice was included in her bankruptcy. Hill gave NWC her bankruptcy case number. Hill testified that the NWC employee she spoke to told her that the matter would be taken care of it.

The long-standing rule followed by this and other courts is that a violation of the stay is willful if (1) the creditor knew of the stay and (2) the creditor’s actions which violated the stay were intentional. A party with knowledge of bankruptcy proceedings is charged with knowledge of the automatic stay. Further, "once a creditor or actor learns or is put on notice of a bankruptcy filing, any actions intentionally taken thereafter are ‘willful’ within the contemplation of § 362([k])."

Given the broad, self-executing, automatic stay described above, the Court finds and concludes that NWC willfully violated the automatic stay. Heihn testified that his company NWC violated the stay numerous times. NWC had an affirmative duty to conform its conduct to the automatic stay once Hill filed for bankruptcy. NWC is a corporation in the business of collections. Corporations are expected to have in place procedures to ensure that they comply with all areas of the law. Just as NWC’s action of May 15, 2014, when its computer system automatically forwarded the account queue for Hill’s account to the CRAs, was a violation of the stay and therefore void, so too is NWC’s post-petition collection fee in the amount of $127.30 included in its Proof of Claim void.

Emotional distress damages are permitted under § 362(k) if the debtor "(1) suffer[s] significant harm, (2) clearly establish[es] a causal connection between that significant harm and the violation of the automatic stay (as distinct, for instance, from the anxiety and pressures inherent in the bankruptcy process)." Hill testified that she was a wreck, lost it a few times, and that it caused her stress at a time when she was preparing for her upcoming wedding. The Court finds and concludes that Hill satisfied her burden of clearly establishing that she suffered significant harm and she demonstrated a causal connection between that significant harm and NWC’s violation of the automatic stay After consideration of the record, the Court awards Hill the sum of $300 for emotional distress damages under § 362(k).

Section 362(k) provides for punitive damages "in appropriate circumstances." An award of punitive damages requires "some showing of reckless or careless disregard for the law or rights of others. NWC is in the business of collections, and its failure to affirmatively conform its computer system to prevent  violations of the stay, along with and balanced by the other evidence discussed above, persuade the Court to award Hill limited punitive damages in the amount of $300 for NWC’s reckless or callous disregard for the bankruptcy stay and Hill’s rights."

Under Roman the Court must examine whether the Debtor could have mitigated her damages and in determining the appropriate amount of attorney’s fees to award courts look "to two factors: (1) What expenses or costs resulted from the violation; and (2) what portion of those costs was reasonable, as opposed to costs that could have been mitigated." NWC is the one which sent Hill’s account to the CRAs in willful violation of the stay. The stay violation was not ended until May 20, 2014, when Hill’s Beaches account was removed from her credit report. Accordingly, the Court awards Hill attorney’s fees in the amount of $312.50 incurred on May 19, 2014, related to remedying NWC’s stay violation under § 362(k).

In re Hill, December 4, 2014, Randy L. Tarum for Hill, Elizabeth A. Ries-Simpson for Northwest Collectors.

2014 Mont. B.R. 653

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Jolie v. US Department of Education, (In re Jolie), Chapter 7, Adversary Proceeding, Student Loan, Discharge

Case no. 12-61188, Adversary no. 13-00009

Jolie seeks a determination that excepting her student loan debt owed to the Defendant US Department of Education ("DoE") would impose an undue hardship on her and therefore is dischargeable under11 U.S.C. § 523(a)(8). Defendant filed an answer denying that Debtor satisfies the test for undue hardship.

The discharge of student loan obligations is governed by 11 U.S.C. § 523(a)(8). The Bankruptcy Code does not define "undue hardship." Courts have held, however, that Congress intended the term to be interpreted strictly, and on a case-by-case basis. The United States Court of Appeals for the Second Circuit established the Brunner test for determining "undue hardship" in the educational loan context. According to Brunner, in order to receive a discharge under 11 U.S.C. §523(a)(8) a debtor must show:

(1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans; (2) 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; and (3) that the debtor has made good faith efforts to repay the loans.

The Ninth Circuit Court of Appeals follows the Brunner test to determining if a debtor hasshown undue hardship under § 523(a)(8). The first prong of the Brunner test requires that Jolie 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 Court finds the evidence is clear and overwhelming that Jolie cannot maintain, based on her current income and expenses, a minimal standard of living if forced to repay the $149,176 in student loan debt.

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. This evidence is uncontroverted, and it shows that her student loan debt prevents her, because of its effect on her credit score, from increasing her income, and this predicament will persist while the student loan debt remains.

The third prong requires that the debtor has made good faith efforts to repay the student loans. Based on the witness testimony and the uncontroverted evidence that Jolie’s estate paid $1,600 on the student loans, and Jolie’s investigation and calculation of the IBR the fact she has been fully employed in her field of study since 2008 and has minimized her expenses, the Court finds and concludes that Jolie has satisfied her burden under the "good faith" third prong of the Brunner test.

Jolie v. US Department of Education, (In re Jolie), March 10, 2014, Scott M. Radford for Jolie, George F Darrah Jr. for US Department of Education.

2014 Mont. B.R. 101

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Keith, Chapter 7, Adversary Proceeding, Turnover, Default Judgment, Exemption Surcharge

Case no. 10-61722, Adv. no 12-00054

Womack commenced this Adversary Proceeding seeking to revoke Keith’s discharge under 11 U.S.C. §§ 727(d)(1) and/or (2), and to surcharge Keith’s exemptions and/or exempt property in an amount no less than $79,000.00. Womack’s complaint and a summons were served upon Keith by first class, postage fully prepaid.  After Keith failed to answer or otherwise respond, Womack sought entry of Keith’s default, which default was entered on December 11, 2012.  Nothing further transpired until nine months later, when Womack filed the pending Motion for Entry of Default Judgment.  Because of the surcharge remedy requested in Count II of  Womack’s complaint, the Court set the matter for hearing.  Keith, other than his request for continuance, has not responded to Womack’s request for default judgment.

Keith has asserted many theories as to where Kacy’s money went, none of which are supported by credible evidence.  What the evidence does show is that there were three cashier’s checks located in a safe deposit box that Womack learned of from Heather.  The checks are made payable to Heather, but Heather claims no interest in the checks.  The checks were made on behalf of entities which Keith either owned or controlled.  The checks are dated prior to Keith’s bankruptcy petition date, but were not disclosed in Keith’s schedules.  Womack has established good cause for the turnover of the cashier’s checks.  Therefore, Womack’s Motion for Turnover is thus granted.  

Since the conversion of this case to Chapter 7 of the Bankruptcy Code, Womack has discovered numerous assets that were not disclosed in Keith’s schedules.  Womack has also learned of a safe deposit box that, as of July 16, 2010, was in Heather’s name, but which is now in Keith’s name.  That safe deposit box contains checks totaling $41,250 that were dated prior to July 16, 2010, and also contains $36,000 cash.  Heather contends the cash was in the safe deposit box in September of 2009, well before Keith’s July 16, 2010, petition date.  Womack has also discovered the existence of a bank account that was used by Keith between March of 2011 and June of 2012.  Keith -- despite having no source of income between March of 2011 and June of 2012, other than social security income -- deposited $70,428.40 into said account. 

The Court finds that Keith knowingly and fraudulently failed to disclose and actively concealed monies held in a safe deposit box.  Keith’s failure to disclose the contents of the safe deposit box justifies the revocation of Keith’s discharge.  Keith’s misconduct also justifies a surcharge against Keith’s exempt assets in the amount of $69,728.40.  The Ninth Circuit Court of Appeals has held that a bankruptcy court may equitably surcharge a debtor’s statutory exemptions, in addition to revoking the debtor’s discharge, when reasonably necessary both to protect the integrity of the bankruptcy process and to ensure that a debtor exempts an amount no greater than what is permitted by the Code’s exemption scheme.

In re Keith, January 7, 2014, Eli J. Patten for Womack, Philip Dennis Keith, Pro se

2014 Mont. B.R. 1

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Kirkpatrick and Stonebraker, Chapter 13, Priority Claim

Case no. 14-60878

Nicholson filed Proof of Claim No. 3 asserting a priority claim under 11 U.S.C. § 507(a)(1) in the amount of $23,568.77. Section 507(a)(1) grants priority status for "domestic support obligations," which term is defined at § 101(14A). In the case of a chapter 13 bankruptcy, a plan cannot be confirmed unless the chapter 13 debtor proposes a plan that pays all prepetition domestic support obligations in full by the end of the plan term. Additionally, chapter 13 debtors cannot receive a discharge of their debts until they certify that all amounts due under a domestic support obligation have, at the time of the certification, been paid. In addition, the pre-petition domestic support obligations are excepted from a chapter 13 discharge. In contrast, pre-petition, non-support, divorce-related debts covered by § 523(a)(15) are not identified in § 1328(a)(2) as debts excepted from discharge, meaning they can be discharged in a chapter 13 case.

The Court agrees with Kirkpatrick that interest in this case is governed by Judge Baugh’s decision and money judgment. The decision states that simple interest was payable "for any months that the monthly payment is not made." While Debtors appear to suggest that wage garnishment pursuant to a writ satisfies the monthly payment requirement of both the decision and money judgment, the Court need not decide that particular issue because the money judgment specifically provides that "the full balance, accrued interest and accruing interest at ten per cent (10%) simple per annum may be accelerated if the judgment debtor becomes in arrears by a total of four or more months." The Court agrees with Kirkpatrick that interest in this case is governed by Judge Baugh’s decision and money judgment. However, the decision and money judgment must be read together, and not in isolation. The decision states that simple interest was payable "for any months that the monthly payment is not made." While Debtors appear to suggest that wage garnishment pursuant to a writ satisfies the monthly payment requirement of both the decision and money judgment, the Court need not decide that particular issue because the money judgment specifically provides that "the full balance, accrued interest and accruing interest at ten per cent (10%) simple per annum may be accelerated if the judgment debtor becomes in arrears by a total of four or more months." When he missed payments for four months or more, he became liable for the "full balance, accrued interest and accruing interest at ten per cent (10%) simple per annum[.]"

Debtors next argue that $2,150.00 of the money judgment does not qualify as a domestic support obligation. Under the Bankruptcy Code, a debt must satisfy the four requirements of 11 U.S.C. § 101(14A) to be considered a "domestic support obligation." Of the four elements set forth in § 101(14A), the parties here dispute only one—whether the entire $4,300 of the money judgment is "in the nature of alimony, maintenance, or support . . . without regard to whether such debt is expressly so designated." Pursuant to the Decree of Dissolution, Kirkpatrick was obligated to provide medical care and health insurance for the children. Kirkpatrick did not comply with that component of the Decree of Dissolution, causing Nicholson to incur $4,300.00 in deductibles and uninsured health care for her children. Under MCA § 40-5-822(4), Kirkpatrick, by defaulting on his medical support order, was required to indemnify Nicholson for "the cost of obtaining health benefit coverage and for all medical expenses of the[ir] child[ren]."5 MCA § 40-5-822 deals specifically with family law, "enforcement of support" and the consequences to a parent for his or her failure to pay a medical expense obligation. Debtors’ Objection to Proof of Claim No. 3 is overruled in part and sustained in part; and Proof of Claim No. 3 shall be allowed in the total amount of $22,797.70, of which $19,896.58 shall be treated as priority.

In re Kirkpatrick and Stonebraker, December 22, 2014, Juliane E. Lore for Kirkpatrick, Rodd Hamman for Nicholson

2014 Mont. B. R. 712

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Lemaster, Chapter 13, Sanctions, Post Discharge Collection

Case no. 08-60093

Debtors’ Plan treated Green Tree as an unimpaired secured creditor, and provided that Green Tree would receive no payments through the Trustee, except with regard to an arrearage in the amount of $11,647.54. Green Tree filed a motion to modify stay, representing in the motion that Debtors had failed to make their postpetition payments for the months of February 2008 through June 2008 in the total amount of $3,096.60. Green Tree’s motion to modify stay was resolved by a stipulation. The amended stipulation required that Debtors make additional payments through the Trustee. The Trustee filed a notice that Debtors’ had completed their Plan payments, and Debtors received a Chapter 13 discharge of their debts. The Trustee then filed a Notice of Final Cure Payment, indicating that Green Tree’s allowed prepetition default of $11,647.54 had been paid in full. The Notice of Final Cure Payment also provides that creditors must file a serve "a Statement indicating whether it agrees that the Debtor has paid in full the amount required to cure the default and whether, consistent with 11 U.S.C. § 1322(b)(5), the Debtor is otherwise current on all the payments." Green Tree did not respond to the Trustee’s Notice of Final Cure Payment. Thereafter, Green Tree sent Debtors a Monthly Billing Statement indicating Debtors’s account was seriously past due. Green Tree advised Debtors that it would continue to take legal action to repossess or foreclose on its collateral unless Debtors tendered the additional $1,375.82 past due.

Debtors filed a motion to reopen this case. Debtors filed their motion for sanctions. Exhibit 20 reflects that prior to the hearing, Debtors incurred legal fees and costs of $2,115.11 in connection with trying to obtain an accounting from Green Tree, which they still have not received, even though they requested such accounting on January 24, 2014. Green Tree did not dispute the Trustee’s Notice of Final Cure Payment. In addition, the Court deems Green Tree’s failure to otherwise respond to the Trustee’s Notice of Final Cure Payment a tacit admission that Debtors were current on all post-petition payments.

Based upon the thorough record presented by Debtors, the Court cannot fathom why these Debtors would owe additional fees and charges as they have made regular monthly payments to Green Tree since their discharge. All matters considered, the Court finds that Green Tree is in contempt of court and civil contempt sanctions, as requested by Debtors, are appropriate. Those sanctions consist of attorney’s fees and costs in the total amount of $2,685.11 and Debtors’ mileage of $232.96. In addition, Green Tree shall immediately adjust its records to properly reflect that Debtors have made all their post-discharge payments through July of 2014, and after making such adjustments, Green Tree shall provide Debtors a detailed accounting of their account balance.

In re Lemaster, August 11, 2014, Phillip Oliver for Debtors

2014 Mont. B.R. 458

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Meikle v. Olsen (In re Olsen), Chapter 13, Adversary Proceeding, Discharge, Corporate Officer

Case no. 13-60733, Adversary no. 13-00032

Olsen filed his voluntary Chapter 13 bankruptcy petition on May 29, 2013. Meikle did not file a Proof of Claim in Olsen’s bankruptcy case. Debtor’s Chapter 13 Plan was confirmed with the Trustee’s consent and without objection. Despite not filing a Proof of Claim Meikle commenced this adversary proceeding seeking exception from Olsen’s discharge under §§523(a)(2)(A) and 523(a)(6).

To prevail on a § 523(a)(2)(A) claim, a creditor must establish five elements: (1) that the debtor made material misrepresentations, fraudulent omission or deceptive conduct; (2) that the debtor knew the misrepresentations or conduct were false at the time they were made; (3) that the debtor made the misrepresentations, omissions or conduct with the intent to deceive the creditor; (4) that the creditor justifiably relied on the misrepresentations or conduct; and (5) that damage to the creditor was proximately caused by the creditor’s reliance on the debtor’s statement or conduct. The creditor bears the burden of proof to establish all five of these elements by a preponderanceof the evidence.

1. Material misrepresentations, fraudulent omission or deceptive conduct.

Meikle contends that Olsen represented to him that Meikle was a principal of Great Bear. These contentions are discussed above. The Court enforces the integration agreement signed by Meikle which provides: "This constitutes the entire agreement and the parties are not relying on verbal discussions or commitments."

2. Whether Debtor knew the misrepresentations or conduct were false at the time they were made.

On this second element, this Court concludes that Meikle failed to satisfy his burden to overcome the presumption in favor of discharge. The only relevant representations are in Ex. 2, as limited by the integration clause. As HIPinc’s president Olsen had the authority over HIPinc’s accounting practices, policies and, Olsen had the specific discretion over Meikle’s bonus and profit sharing. No evidence exists in the record showing that Olsen knew his representations or conduct in Ex 2 were false at the time they were made.

3. Whether Debtor made the misrepresentations, omissions or conduct with the intent to deceive Meikle.

The Court finds and concludes that Meikle failed to satisfy the third element to show that Olsen made misrepresentations, omissions or conduct with the intent to deceive Meikle. The contentions have been addressed above. Ex. 2's integration clause provides that the parties are not relying on verbal discussions or commitments. Olsen had authority and discretion as HIPinc’s president to formulate and amend HIPinc’s policies and accounting practices.

4. Whether Meikle justifiably relied on the misrepresentations or conduct.

The Court previously concluded in this decision that Meikle failed to show misrepresentations, omissions or deceptive conduct by Olsen, or that Olsen knew they were false at the time they were made or that Olsen made the representations with intent to deceive. Those elements having not been shown, it follows no justifiable reliance occurred based on misrepresentations or conduct.

5. Whether damage to Meikle was proximately caused by Olsen’s statements or conduct.

Since the Court previously found in this decision that Meikle failed to satisfy his burden to show the first four elements under § 523(a)(2), the Court need not decide the fifth element. The Court finds that Meikle failed to overcome the strict construction in favor of discharge under §523(a)(2).

§ 523(a)(6).

Meikle’s second claim for relief seeks exception from Olsen’s discharge under §523(a)(6). Section 523(a)(6) excepts from discharge any debt "for willful and malicious injury by the debtor to another entity or to the property of another entity."

1. Willful.

Willfulness requires proof that the debtor deliberately or intentionally injured the creditor or the creditor's property and that in doing so, the debtor intended the consequences of his act, not just the act itself. Olsen’s decisions regarding allocation of G&A and fringe to the Great Bear Restoration profit center were within Olsen’s authority and discretion. Olsen made those decisions trying to keep HIPinc from becoming insolvent. Olsen’s actions and Meikle’s alleged "injury" in the form of loss of bonus and profit sharing are not are not proof, in this Court’s opinion, that Olsen subjectively knew to a substantial certainty that injury to Meikle would result from Olsen’s actions.

2. Malicious

For conduct to be malicious, the creditor must prove that the debtor: (1) committed a wrongful act; (2) done intentionally; (3) which necessarily caused injury; and (4) was done without just cause or excuse. The Court finds and concludes that Meikle failed to satisfy his burden to prove each of the four elements required to find malicious injury. Meikle failed to show that Olsen committed a wrongful act because Olsen acted within his authority under Montana law as a corporate president and under his discretion agreed to in Ex. 2.

Meikle v. Olsen, August 28, 2014, Brian J Miller for Meikle, Nik Geranios and Richard Weber for Olsen

2014 Mont. B.R. 514

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Miller, Chapter 11, Executory Contract, Bankruptcy Procedure

Case no. 13-61417

Rule 7001(2) of the Federal Rules of Bankruptcy Procedure provides that "a proceeding to determine the validity, priority, or extent of a lien or other interest in property, . . . " is an adversary proceeding governed by Part VII ("Adversary Proceedings"). To the extent Debtor seeks to determine the extent of his leases and grazing preference on real property owned by another, his motion is improper procedure and must be denied on procedural grounds. It is settled law in this circuit that it is error for a bankruptcy court to determine property interests outside of an adversary proceeding Starcrest objects to Debtor’s motion on the grounds it is barred by the Rooker-Feldman doctrine, in addition to other legal arguments. In light of improper procedure followed by Debtor’s motion to assume grazing leases and grazing preferences, this Court does not reach or decide the merits of the parties’ arguments until they are presented to the Court following proper procedure.

In re Miller, June 11, 2014, Douglas E. Miller, Pro Se, Ross Richardson and Douglas J Suits for Starcrest

2014 Mont. B.R. 412

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Moore v. Couture, (In re Couture), Chapter 7, Adversary Proceeding, Dischargability

Case no. 12-61434, Adversary No. 13-00019

Plaintiff, who is pro se in this adversary proceeding seeking exception from Defendant/Debtor’s discharge, has filed a motion seeking summary judgment or judgment on the pleadings that debts awarded to her in the Decree of Dissolution of the parties’ marriage excepted from Defendant’s discharge under several provisions of 11U.S.C. § 523(a).  Defendant/Debtor filed a response repeating his belief stated in his answer that the debts awarded in the Decree of Dissolution are nondischargeable, that summary judgment is appropriate and that a trial is unnecessary.

Plaintiff’s complaint seeks exception from Defendant’s discharge of a judgment in the amount of $675,000 plus accrued interest thereon, and an arrearage on alimony in the amount of $98,904.00, and a mortgage arrears in the amount of $95,179.52. The complaint is accompanied by a copy of the Decree of Dissolution of Marriage.  Under § 523(c)(1), a debtor shall be discharged from debts of a kind specified in paragraphs (2) and (6) of § 523(a) unless a creditor requests a determination of dischargeability.  However, § 523(c)(1) does not include debts under § 523(a)(5) or (a)(15) among the subsections of debts which are discharged unless the creditor requests a determination.  If Congress wished to include subsections 523(a)(5) and (a)(15) among the debts discharged under § 523(c)(1), it would have included them with the other subsections listed.  Indeed, Congress so demonstrated by adding subsection (a)(15) to § 523(c)(1) in 1994 and then deleting it in 2005.  Since §§ 523(a)(5) and (a)(15) are not listed in § 523(c)(1), Plaintiff’s claims based upon §§ 523(a)(5) and (a)(15) arising from the Decree of Dissolution are excepted from the Defendant’s discharge without the need for her to initiate an adversary proceeding.

Moore v. Couture, (In re Couture), Crystal Moore, Pro Se, Alan Couture, Pro Se, January 27

2014 Mont. B. R. 33

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Morrow v. Bank of America, Montana Supreme Court, Fraud, Fiduciary Duty, Montana Consumer Protection Act

The Morrows have alleged facts which, if proven, would establish that Bank of America owed them a fiduciary duty. The Morrows claim Bank of America advised them it would be in their best interests to deliberately miss a payment and default on their loan. The Morrows contend they relied on this advice when they intentionally defaulted on their mortgage hoping to qualify for a modification. The Morrows were not advised by any other parties when they made this decision. The pattern of active advising alleged by the Morrows continued for over a year, with regular and frequent contacts between the parties. Throughout this period, the Morrows claim Bank of America continued to advise them to pay a reduced amount each month and ignore notices of default. Instructing a borrower not to repay a loan, to pay less than the amount required by the loan documents, or to ignore notices of impending foreclosure and avoid curing a default is not the type of advice "common in the usual arms-length debtor/creditor relationship." Some courts have found, as we do today, that special circumstances, if proven, could support a fiduciary duty where "Defendant went beyond its conventional role as a loan servicer by soliciting Plaintiffs to apply for a loan modification and by engaging with them for several months . . . ." Under the facts alleged, Bank of America owed a duty to manage the modification process in a manner that would not cause the Morrows to suffer loss or injury by reason of its negligence. The Morrows allege that on several occasions, Bank of America said their application would be processed under HAMP. While HAMP does not provide a private right of action and does not itself create a duty of care, reference to its provisions may provide evidence of a breach of an already existing duty.

We are faced today with defining the appropriate duty of care owed by a bank to its customers, and so we find it necessary to resolve this disparity with respect to banking transactions. We hold that a claim of negligent misrepresentation against a financial institution is governed by the definition in the Restatement (Second) of Torts § 552. The conflicting  communications issued by Bank of America raise genuine questions of material fact regarding whether the Morrows’ reliance was justified. Finally, the allegations by the Morrows raise questions of fact regarding whether Bank of America "exercise[d] reasonable care or competence in obtaining or communicating the information." Restatement (Second) of Torts § 552. At the least, the Morrows’ allegations that they received directly conflicting information from Bank of America regarding the status of their loan indicates a lack of reasonable care in communicating the information. The District Court erred in granting summary judgment to Bank of America on the Morrows’ claim of negligent misrepresentation.

The Morrows have produced evidence of a multitude of conflicting communications from Bank of America regarding the status of both their existing loan and their application for a modification. They have also produced evidence of communications regarding Bank of America’s loan servicing policies, which Bank of America says do not accurately represent its policies. This evidence raises genuine issues of material fact regarding whether the representatives who allegedly made these statements did so despite their ignorance of whether the statements were true. The Morrows have stated a prima facie case of fraud, and the factual issues they have raised should now be resolved by a jury.

Morrow v. Bank of America, May 7, 2014, David. K.W. Wilson and John Heenan for Morrows, Kenneth Lay and Christopher K Oliveira for Bank of America

2014 Mont. B.R. 306

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Mullendore, Chapter 11, Employment of Professional

Case no.11-62141

Debtor commenced this Chapter 11 case by filing a voluntary petition on November 9, 2011. Debtor’s Amended Plan was confirmed on September 7, 2012. Paragraph 3.01 in Article III of the Plan governs payment of administrative expenses, including realtor fees. Debtor’s Application to employ Hayes is for the purpose of selling real property located in Dawson County, Montana Paragraph 8.01 provides that "Upon confirmation, the Debtor shall be revested with all assets and shall retain all property during the terms of the Plan as provided herein."

A proceeding "arises under" the Bankruptcy Code if its existence depends on a substantive provision of bankruptcy law, i.e., if it involves a cause of action created or determined by a statutory provision of the Code. A matter "arises in" a bankruptcy case "if it is an administrative matter unique to the bankruptcy process that has no independent existence outside of bankruptcy and could not be brought in another forum. Since Debtor’s application to employ Hayes is brought under § 327(a) of the Bankruptcy Code, it seems evident that it is an administrative matter unique to the bankruptcy process and this case and the Court has "arising in" jurisdiction. Discussing "related to" jurisdiction the Ninth Circuit observed: "Although ‘postconfirmation bankruptcy court jurisdiction is necessarily more limited than pre-confirmation jurisdiction,’ the set of cases ‘related to’ a bankruptcy case is ‘much broader’ than the set of ‘arising under’ cases. Debtor’s Application to employ Hayes to sell property as proposed in the confirmed plan is, in this Court’s opinion, a close enough nexus to the Plan to support "related to" jurisdiction.

"Debtor" and "debtor in possession" are not the same term. "Debtor" is defined at 11 U.S.C. § 101(13) as "person or municipality concerning which a case under this title has been commenced." "Debtor in possession," as defined at 11 U.S.C. § 1101(1), "means debtor exceptwhen a person that has qualified under section 322 of this title is serving as trustee in the case."  Having been revested with all assets, the Debtor upon confirmation no longer has the status and trustee powers of a debtor in possession under § 1107(a), including the trustee’s power to employ professionals under § 327(a), or the trustee’s power to compensate professionals under § 330(a)(1). Because of that Debtor cannot, pursuant to trustee powers under § 330(a)(1), seek from the court an award for a professional person employed under § 327. Because the Debtor cannot obtain an award of fees from this Court for Hayes pursuant to § 330(a)(1), his application to employ Hayes as professional is futile.

This conclusion does not result in a hardship to the Debtor or Hayes, even though this Chapter 11 Debtor no longer is a debtor in possession. As COLLIER notes: "An individual debtor may also pay his or her attorney fees for postpetition services from property that is not property of the estate, such as postpetition earnings. Based upon § 1141(b) and paragraph 8.01 of the confirmed Plan, the Debtor has been revested with all property of the estate, and is free to hire and compensate professionals from property that is not property of the estate.

In re Mullendore, September 22, 2014, James A Patten for Mullendore, Neal G. Jensen for the United States Trustees

2014 Mont.B.R. 573

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Pulliam, United States District Court, Settlement Agreement, Criminal Prosecution

Case no. CR-14-12-M-DWM-1

Timothy Pulliam stands charged by Indictment with two counts of concealment of property and one count of falsely testifying under oath before the United States Bankruptcy Court for the District of Montana in, In re: Timothy James Pulliam and Deaydre Lea Pulliam, Case No. 10-60725, ("the bankruptcy case"). Pulliam’s Motion to Dismiss the Indictment is now before the Court.

Pulliam requests that this Court take judicial notice of documents from the bankruptcy case. in support of his Motion is the Settlement Agreement entered in the bankruptcy case. Pulliam’s Motion for Judicial Notice is well-taken. It will be granted. The Court takes notice of the existence of the Settlement Agreement, the Bankruptcy Court’s Order Approving Settlement, and the Bankruptcy Court’s Order dismissing the bankruptcy case. The Settlement Agreement was entered into on May 10, 2012 between Debtors United States Trustee Richard Sampson, and attorneys Victoria Francis for the United States of America, Edward Murphy for Timothy Pulliam, and Trent Gardner for Sampson. The agreement includes the following language that Pulliam cites as grounds for his Motion:

      Various issues have arisen in the context of the Debtors’ Bankruptcy Case which it is the intention of this Settlement Agreement to fully and finally resolve.

Pulliam’s immunity claim is without merit. The Settlement Agreement plainly does not contain any offer of immunity from criminal prosecution. There is no mention in any provision of the agreement of crimes, criminal action, prosecution, or an offer of immunity. The absence of such statements leads the Court to the conclusion that the Settlement Agreement is not reasonably susceptible to the meaning Pulliam proposes and therefore it poses no obstacle to the present prosecution. The language of the cited passage confines this intention to the bankruptcy case. Pulliam’s subjective belief is irrelevant, because the agreement in issue here was clear and unambiguous. The criminal claims at issue in this case and the claims brought in the bankruptcy case are not identical and the parties are not in privity. Therefore res judicata does not bar this action.

United States of America v. Pulliam, July 21, 2014, Phillip DeFelice for Pulliam, Chad Spraker for the United States

2014 Mont. B.R. 450

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Rasmussen, Chapter 13, Dismissal with Prejudice

Case no. 14-60151

In the case of In re Rosson, 545 F.3d 764 (9th Cir. 2008), the Ninth Circuit Court of Appeals held that "a debtor's right to voluntarily dismiss a Chapter 13 case under § 1307(b) is not absolute, but is qualified by an implied exception for bad-faith conduct or abuse of the bankruptcy process." Now, under Mont. LBR 1017-1(a)(3), "[a] debtor seeking dismissal under 11 U.S.C. § . . . 1307(b) shall file a motion for dismissal, with the notice required under Mont. LBR 9013-1."

Debtor’s home was the subject of a nonjudicial foreclosure in 2012, and following a public auction held March 9, 2012, a Trustee’s Deed was recorded in the name of Federal National Mortgage Association. In an attempt to circumvent the aforementioned foreclosure proceeding, Debtor, individually, filed in the Montana First Judicial District Court, a complaint seeking injunctive relief against BAC Home Loan Servicing, LP and Recon Trust Company, N.A. That matter was removed to the United States District Court for the District of Montana. United States Magistrate Judge Keith Strong entered Findings and Recommendations that Bank of America, N.A.’s motion to dismiss for failure to state a claim should be granted, that Debtor’s motion for leave to amend his complaint should be denied as futile because his complaint, as amended, would be subject to dismissal for failure to state a claim on which relief could be granted, and alternatively, that Debtor’s motion for leave to amend his complaint should be denied as futile because the complaint, as amended, would be subject to dismissal for lack of subject matter jurisdiction. United States District Court Judge Dana L. Christensen adopted Judge Strong’s Findings and Recommendations and dismissed Debtor’s complaint with prejudice. Debtor appealed that decision to the Ninth Circuit Court of Appeals. The appeal was fully briefed, but the Ninth Circuit Court of Appeals has not entered its ruling.

The facts in this case do not show that Debtor filed the instant petition with fraudulent intent. Fraudulent intent, however, is not a requirement for dismissal of a case with prejudice. Instead, dismissal with prejudice for bad faith "involves the application of the ‘totality of the circumstances’ test." Debtor does not have a history of filings and dismissals and the Court would not characterize his behavior as egregious. Id. However, Debtor is ultimately seeking to defeat state court litigation and his schedules are inaccurate and misleading. In this case, Debtor is seeking to use the bankruptcy process to obtain what he could not successfully obtain in either the State or Federal District Courts, namely revesting title of the home in his name. Debtor’s decision to "go a different direction" and pursue bankruptcy, instead of appealing the State District Court’s judgment or pursuing his now pending appeal in the Ninth Circuit is an abuse of the bankruptcy process. This Court simply cannot afford Debtor the relief he seeks and further proceedings will only result in unnecessary and frivolous litigation, which makes Debtor an atypical litigant who is not entitled to the relief available to the typical debtor. Therefore, this Court concludes that dismissal, with conditions relating to future filings, is appropriate.

In re Rasmussen, May 7, 2014, Robert Drummond, Trustee, A. Thomas Rasmussen, Pro-se

2014 Mont. B.R. 299

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Reisbeck, Chapter 13, Turnover, Stay Relief

Case no. 13-60925

The IRS has moved for nunc pro tunc relief from the stay, and § 362(d) vests this Court with discretion to grant appropriate relief, including retroactive annulment of the stay.  Debtor moves for turnover of the $25,050.56 to use in his reorganization.  The instant case presents a case of federal statutes in conflict, which in this Circuit has been decided in favor of bankruptcy statutes over tax laws.  The facts are agreed that the IRS received and deposited the $25,050.56 in commissions owed to the Debtor, without first requesting and being granted relief from the stay.

While several factors may be considered, the general trend is for a court to focus on two factors in determining whether cause exists to annul the stay: “(1) whether the creditor was aware of the bankruptcy petition; and (2) whether the debtor has engaged in unreasonable or inequitable conduct, or prejudice would result to the creditor.”  As to the first factor, the creditor IRS was aware of the bankruptcy petition.  In considering whether prejudice would result to the creditor IRS if nunc pro tunc relief is not granted, this Court concludes that the IRS is more likely to receive payment on its claims if the Debtor has the $25,050.56 to reorganize his debts in a repayment plan.

The BAP cited and repeated the list of factors which can be used as a general guideline for assessing the equities.  Having considered the factors  and having balanced the equities, this Court concludes that nunc pro tunc relief from the stay as requested by the IRS is not an appropriate exercise of the Court’s discretion, and that Debtor’s motion for turnover of the $25,050.56 should be granted and the IRS’s motion for nunc pro tunc relief from the stay should be denied so that the Debtor may proceed to propose a repayment plan.

In re Reisbeck, February 13, 2014, Gary S. Deschenes for Reisbeck, George F. Darragh for the United States

2014 Mont. B.R. 38

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Salminen v. Morrison & Frampton, Montana Supreme Court, Execution, Conversion, Exempt Property

Case no. DA 14-0179

The Salminens commenced this action with a complaint filed in August 2011, alleging wrongful levy, abuse of process, conversion and other claims. Centennial and Leonard obtained a judgment against the Salminens in the amount of $482,499.00. Defendant Morrison & Frampton law firm represented Centennial and Leonard in that litigation. Frampton requested and the District Court issued a writ of execution and garnishment. Frampton levied against a bank account and wages with modest results. Salminens filed a notice of claimed exemptions and request for a hearing, and a description of property that they claimed to be exempt from execution. Frampton obtained a warrant of execution. The affidavit in support of the warrant contained false statements of fact, including that the writ of execution had been returned unsatisfied; that there was no other property available to levy; that the judgment creditor was entitled to execute upon all of the Salminens’ personal property, none of which was exempt from execution; that the warrant without notice to the Salminens was proper based upon a demand letter in 2007; and that the Salminens had paid nothing toward the judgment. Frampton did not file any copies of the application, affidavit or the warrant with the District Court.

Frampton associate Joos met Deputy Sheriff Tyler at the Salminen residence in Columbia Falls. Joos falsely told Tyler that the Salminens knew that a seizure would happen that morning but that he had no way to contact them. Joos then alerted a moving company waiting nearby and directed them to remove the contents of the house. Joos called Frampton who gave the direction to "take everything that is not nailed down." The movers then began to pack up the contents of the house at the direction of Joos, while Deputy Tyler remained primarily outside. The property included used and soiled clothing, dirty dishes from the kitchen sink; open boxes of perishable food; canned goods, plastic utensils, paper plates and Tupperware; the entire contents of the kitchen "junk drawer"; used toiletries, medications and eyeglasses; children’s toys, crayons and coloring books; family heirlooms including the cremated ashes of Sue Salminen’s aunt; and thousands of other articles of personal property that had no economic value and from which the judgment creditor could not realize any value. The seizure and possession of the Salminens’ exempt property was undertaken to leverage the Salminens and to coerce them to satisfy the underlying judgment so that they could get back their property and avoid such seizures in the future.

Proof of a claim for conversion requires that plaintiff own the property; that plaintiff have the right to possess the property; that defendant exercise unauthorized control over the property; and that plaintiff suffer damages. The District Court erred in determining that the Salminens failed to state a claim for conversion. A writ of execution is issued and is directed to a "sheriff or levying officer." The writ allows a levy or seizure of assets, as was done in this case against the Salminens’ bank account and wages. A judgment debtor can claim the right to certain exemptions from execution for personal property, by filing a claim for exemption. The Salminens did so in this case, and just a few days later Frampton appeared at their house and seized their possessions. The Salminens were entitled to a hearing on the claims for exemption within ten days. Although they requested a hearing, the District Court did not hold one for almost three months. The decision on their request for exemption was not rendered for several more months, but was ultimately in favor of the Salminens.

A judgment creditor may enter a debtor’s home to seize and execute upon personal property only by obtaining a warrant of execution. If there is "reason to believe that there is personal property subject to execution" in the debtor’s residence, the creditor may "file" an application for a warrant with the district court. The application must be supported by an affidavit stating that the writ of execution has been issued and returned unsatisfied in whole or in part; that the affiant has reason to believe that there is "property subject to execution" in the debtor’s residence; that there is no other property available for levy and execution; and describing the property sought. If the "judge" determines that reasonable cause exists, the judge may issue a warrant authorizing entry into the residence and seizure of the property. The Salminens stated a claim for abuse of process by alleging that Frampton used the execution process as a "threat or a club" to deprive them of personal property that the law protects as basic life necessities, in order to coerce payment.

Salminen v. Morrison & Frampton, December 2, 2014, John Heenan for Salminen, Fred Simpson for Morrison & Frampton, Angela Jacobs Persicke for Centennial Contracting and Development and Leonard Investments

2014 Mont. B.R. 695

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Samson v. Western Capital Partners LLC., Chapter 7, Adversary Proceeding, Stay Enforcement of Judgment

Case no. 09-60452, Adversary no. 10-00094

WCP seeks to continue the stay of enforcement to maintain the status quo while allowing the appellate process to continue. Judicial discretion in exercising a stay is to be guided by the following legal principles, as distilled into a four factor analysis in Nken: "(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies."

The first factor, likelihood of success on the merits, is not satisfied by a mere showing that the likelihood is "better than negligible" or that there is a "mere possibility of relief." While it is not necessary for WCP to show that it is more likely than not that it will win on the merits, "at a minimum" the petitioner must show that there is a "substantial case for relief on the merits." In deciding this first factor, the Court notes that, even if WCP’s arguments based on Stern v. Marshall ultimately prevail, the most that would happen is that, instead of entering a final judgment, this Court would submit proposed findings of fact and conclusions of law to the district court for de novo review under 28 U.S.C. § 157(c)(1). As far as the ultimate result on the merits, this Court concludes that WCP has fallen short of satisfying its burden to show a substantial case for relief on the merits.

The second factor which WCP must show is whether the applicant will be irreparably injured absent a stay. The Court finds, based on the admissions of WCP’s counsel, that WCP failed to show any injury, other than the cost of continued litigation in Colorado, and completely failed to show a probability of irreparable injury if its motion to stay enforcement of judgment is not granted. Simply put, the automatic stay remains in place in WCP’s Colorado bankruptcy case even if this Court denies WCP’s motion for stay pending appeal.

The third Nken factor is whether issuance of the stay will substantially injure the other parties interested in the proceeding. Because of the automatic stay in Colorado in WCP’s Chapter 11 proceeding, the Court finds that issuance of the stay would not substantially injury other parties interested in the proceeding. Other parties would be in the same position they are in now if the stay were granted.

The fourth factor is where the public interest lies. In order to further the public interest in moving this adversary proceeding and Chapter 7 bankruptcy case along, this Court concludes that the balance of the public interest lies against granting WCP’s motion to stay enforcement pending appeal. By denying WCP’s motion WCP can appeal to the district court, and if it does, after that decision, if the stay is not granted the parties can return to WCP’s Colorado bankruptcy case and argue whether relief from the stay can be granted.

Samson v. Western Capital Partners LLC., April 11, 2014, Anna C Conley and Bradley R Duncan for Samson, Richard Hatch for WCP

2014 Mont. B.R. 247

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Samson v. Western Capital Partners LLC, Appeal, District Court

 (affirming Samson v. Western Capital Partners LLC, 2013 Mont. B.R. 16)

Case no. CV 13-24-BU-DLC

Appellant Western Capital Partners, LLC, ("WCP") appeals the judgment entered against it by the United States Bankruptcy Court for the District of Montana in favor of Richard J. Samson ("the Trustee"), trustee for the Chapter 7 estate of Edra D. Blixseth ("Edra"). The Trustee brings this action to set aside Edra's personal guaranty in June of 2007 for a $13,065,000 loan ("Loan") provided by WCP to entities owned by Edra's son, Matthew Crocker ("Crocker"), as a constructively fraudulent transfer under 11 U.S.C. § 548(a).

The Trustee contends the guaranty was constructively fraudulent because Edra: (1) was insolvent on a balance sheet basis; (2) was unable to pay her bills as they came due; and (3) lacked adequate capital for the business in which she was engaged. Judge Kirscher determined that the guaranty was constructively fraudulent and entered judgment in favor of the Trustee. This appeal followed.

This case fits within the exception set forth in Stern and In re Global. Here, Judge Kirscher had the constitutional authority to make a final ruling on the Trustee's fraudulent transfer claim because it was not possible to rule on WCP's proof of claim without first resolving the fraudulent transfer issue. Additionally, the Trustee's claim stems from the bankruptcy proceeding and could not be litigated outside it.

Constitutional Authority of the Bankruptcy Court

WCP argues that Judge Kirscher was prevented from issuing a final ruling because of the Ninth Circuit's holding in Bellingham. This Court disagrees. In Bellingham, the Court held the bankruptcy judge could not issue a final ruling on a fraudulent conveyance action because the case concerned a non-creditor who was involuntarily brought into the bankruptcy proceeding. Thus, the Court's holding in Bellingham was limited to non-creditors who did not file a proof of claim against the bankruptcy estate. Here, by contrast, WCP is a creditor who voluntarily injected itself into the realm of the bankruptcy court by filing a proof of claim.

Solvency

1. Balance Sheet Test

Congress has generally left the determination of property rights in the assets of a bankrupt's estate to state law." Applying this framework, Karas properly excluded the community property in his analysis because Edra did not control it. Karas stated that control of an asset is generally "not a factor under the general balance sheet concept, but ... control is a critical factor when looking at solvency because all three solvency tests come back to what an asset can generate in terms of cash on a forward looking basis."

First, Edra was separated from her husband in June of 2007. California law provides that community property cannot be used to pay post-separation debts. Second, WCP's argument ignores the reality of the situation: Edra was insolvent in June of 2007 because she could not access or liquidate the community property to pay her creditors. Like Judge Kirscher, this Court finds Karas's opinion persuasive as to Edra's insolvency in June of2007. Unlike Cook, Karas looked at the reality of the situation and accounted for factors that Cook did not. Karas's methodology in forming his opinion was reasonable. Ultimately, Karas's opinion was more credible than Cook's.

2. Adequate Capital Test

This Court is persuaded by Karas's opinion that "a solvency analysis should always start by looking at an entity's operating or future cash flows in order to ascertain the supportable level of debt."

Edra was spending upwards of two million dollars per month maintaining her properties. She was also borrowing massive amounts of money to pay her creditors, but was not generating capital through business operations. In other words, Edra was borrowing money to pay for earlier borrowed money, frequently at increased interest rates, slowly but surely digging an ever-deepening financial hole. The only way Edra could create positive cash flow was the sale of assets. This lack of a positive cash flow, coupled with Edra's growing liabilities, resulted in unreasonably small capital.

This Court finds that the ability to borrow additional cash is not an adequate alternative to the production of a positive cash flow. Instead, the Court agrees with the Trustee and finds that taking on additional debt to replace one creditor with another, is not a substitute for adequate capital. In June of2007, Edra did not have adequate capital to maintain her cash flows.

3. Cash Flow Test

As described by Karas, ''this test examines whether an entity has the ability to pay going forward, and it's probably the dominant test that people use to determine solvency."

Here, due to Edra's limited ability to generate capital, and the fact that any assets Edra did control required large amounts of money to operate and maintain, she could not reasonably believe that she could pay her debts as they matured. Also, Edra's intent to pay her debts is also not as clear as WCP argues. Edra stated that in June of 2007 she struggled to pay her bills and described this period of time as ''trying to pay [for] $100 worth of stuff with 10 cents." This statement goes directly to the reasonableness of whether Edra actually believed that she could pay her bills as they came due.

Damages

1. Remedies under Section 550

If the transferred property is a security interest, bankruptcy courts retain the discretion under § 550 to either "award the trustee recovery of the property transferred or the value of the property transferred." This reflects the goal of § 550, which is "to restore the estate to the financial condition it would have enjoyed If the transfer had not occurred."

Judge Kirscher did not abuse his discretion in determining that the appropriate remedy for returning the bankruptcy estate to its pre-transfer financial condition was to award to the Trustee the money WCP received from the sale of Edra's assets.

2. Lot 176

The Bankruptcy Code provides that if a transfer is avoided under § 548 the trustee may recover the property or the value of the property from "the entity for whose benefit the transfer was made ...." Here, Lot 176 was transferred from Monarch GoBuild to Montana Specs purely to benefit WCP. Edra had a 45% ownership interest in Lot 176 before the Loan, valued at $1,258,949.27. After the Loan, Edra had no ownership interest in Lot 176. In fact, Lot 176 was transferred to Montana Specs at the request of WCP. Judge Kirscher's reasoning is sound.

Usury

The Federal Rules of Civil Procedure require that an affirmative defense must be pleaded in the initial pleadings to avoid waiver of that defense. Here, WCP did not raise the defense of claim preclusion until its final pretrial order. WCP has waived its defense of claim preclusion. WCP's arguments pertaining to claim preclusion are deemed moot by the Court and will not be addressed.

Samson v. Western Capital Partners LLC, August 12, 2013, David B. Cotner, Bradley R. Duncan and Hugh R McCullough for Samson, Trevor L. Uffelman for WCP

2014 Mont. B.R. 464

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Simonsen Chapter 7, Relief from Stay

Case no. 14-60015

Krohne Fund’s Motion to Modify Stay states that it is based on § 362(d)(1) for "cause." Pretrial preparation has concluded and the Civil Cause case is ready for trial. Based on these facts, the Court finds that Krohne Fund has established a prima facie case that cause exists for relief from the stay under § 362(d)(1), and so the Debtor has the burden of proof to show that the stay should not be modified.

Bankruptcy judges have a narrower power to hear a proceeding that is not a core proceeding and to submit proposed findings of fact and conclusions of law to the district court for entry of final judgment. The Debtor argues that this Court can decide Krohne Fund’s fraud, contract and other claims for relief from the Civil Cause. However, § 157(b)(2)(O) specifically excludes from core proceedings personal injury tort claims. Krohne Fund’s claims include a claim for punitive damages on its claim for actual fraud. Fraud is a claim found under Title 28, Chapter 2 ("Contracts") of the Montana Code Annotated ("MCA"), and actual fraud is defined at MCA §28-2-405 ("What constitutes actual fraud"). "Actual fraud is always a question of fact." § 28-2-404.

The United States Supreme Court held that bankruptcy courts lack the constitutional authority to enter final judgments on state law counterclaims that are not resolved in the claims allowance process. Like Bellingham, the Supreme Court interpreted § 157(c)(1) as instructing bankruptcy judges to submit proposed findings in a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. The Supreme Court also wrote: "Core proceedings are, at most, those that arise in title 11 cases or arise under title 11." This Court notes that, at present, this is a no-asset case and no claims bar date has been fixed. Based upon the status of the Civil Cause, versus the barest preliminary stage in the instant case, this Court deems it appropriate in its exercise of its discretion to grant Krohne Fund’s Motion and allow the parties to proceed to judgment in the Civil Cause in the district court, with the limitation that the stay shall remain in place to prohibit Krohne Fund from enforcing any judgment entered in the Civil Cause without first requesting and obtaining further relief from this Court.1 The Court believes that this result will result in a more prompt determination of the parties’ respective claims than if the case remains in this Court.

In re Simonsen, April 15, 2014, Joel E. Guthals for Krohne Fund, Gary S. Deschenes for Simonsen

2014 Mont. B. R. 258

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Southern Montana Electric Generation and Transmission Cooperative, Inc., Chapter 11, Attorneys Fees, Trustees Fees

Case no. 11-61031

In their Final Application for Professional Fees and Costs, Horowitz & Burnett, P.C., counsel for the former Chapter 11 Trustee Lee A. Freeman, makes its final application, seeking an aggregate final award in the amount of $2,458,418.76.

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.

The Court finds that subject to three exceptions, the new fees and services set forth in Horowitz & Burnett, P.C.’s Final Application are reasonable and necessary. With regard to the three exceptions, the first relates to the fees requested by Horowitz & Burnett, P.C. for preparation of their fee applications. In light of the amounts spent to prepare the Interim Applications, the Court disallows $20,000 of the requested fees associated with preparing and filing the Final Application. Notwithstanding the motion for the Trustee’s removal and the fact that this Court granted the Trustee’s motion for additional time to respond to the Members’ three motions Horowitz & Burnett, P.C. forged full steam ahead, incurring additional fees of $24,741.00 between the date the three motions were filed, researching and drafting pleadings that were never filed. Allowing the time prior to November 8, 2013, and allowing time to receive and review the motions and allowing the time to draft and file the motion for extension of time, the Court finds it appropriate to deny $22,851.00 of the requested fees. It simply was not prudent of the Trustee to pursue with vigor, pending resolution of the motion seeking his removal, the matters in Adversary Proceeding No. 13-47. Consequently, the fees of $19,421.00 are denied.

In his Eighth and Final Application for Professional Fees and Costs, Lee A. Freeman seeks an aggregate final award in the amount of $682,633.27. Based upon the laudable performance by Freeman in this case, and after review of his Final Application, billing statements and the record, the Court finds that the services provided for which Freeman requests final approval are actual, reasonable and necessary for the estate.

In re Southern Montana Electric Generation and Transmission Cooperative, Inc. April 1, 2014 John Cardinal Parks for Horowitz and Burnett, P.C., Harold V. Dye for the Unsecured Creditors Committee, Malcolm H Goodrich for Debtor

2014 Mont B.R. 179

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Southern Montana Electric Generation and Transmission Cooperative, Inc., Chapter 11, Administrative Expense

Case no. 11-62031

EWM and EWR request that all amounts billed by them pursuant to the Energy WestAgreements be allowed as administrative claims against the estate, arguing that it had no choice but to continue to perform pursuant to the Energy West Agreements, that the Trustee elected to continue to receive all of the benefits under the Energy West Agreements pending a decision to assume or reject such contracts, and that the bankruptcy estate is obligated to pay for thereasonable value of the goods and services it received under the Energy West Agreements.

Debtor counters that the amount Energy West seeks as an administrative claim arose prepetition and is not associated with any goods delivered or services provided to the Debtor, and relate to minimum amounts the Debtor would owe under the Energy West Agreements, regardless of whether goods or services were provided. Debtor further argues that Energy West has failed to demonstrate how the postpetition amounts owing under the Energy West Agreements preserved or benefitted the Debtor or Debtor’s creditors. The Noteholders’ objection echos Debtor’s objection, and also argues that the Bankruptcy Code does not authorize implied assumption and that the Noteholders do not consent to the use of their cash collateral for payment of Energy West’s alleged administrative claims.

Section 503(b)(1)(A) allows postpetition administrative expenses for "the actual, necessary costs and expenses of preserving the estate." To establish such a claim, the claimant must show that the debt: (1) arose from a transaction with the debtor in possession; and (2) directly and substantially benefitted the estate. In the case sub judice, the Court finds and concludes that Energy West failed to satisfy its burden of proof to show that it satisfied the requirements for an administrative expense in the amount of $2,293,306.89 under § 503(b)(1)(A) and under the narrow construction applied in this Circuit. Debtor paid all amounts due for safety maintenance services that were due under the EWM Operating Agreement and similarly prepaid for a designated amount of natural gas to conduct three limited test runs. In the above two instances, Debtor either received services or goods that benefitted the estate. With respect to the other amounts, Energy West was simply billing Debtor for the minimum payments due under prepetition contracts that were entered into by Tim Gregori, CEO and General Manager of Southern Montana Electric Generation and Transmission Cooperative, Inc., the prepetition entity, and not the Debtor-in-Possession. Furthermore, with respect to the contractual minimum payments, Energy West has wholly failed to show a commensurate benefit to the estate or Debtor.

In re Southern Montana Electric Generation and Transmission Cooperative, Inc., June 11, 2014, Malcolm H. Goodrich for Southern Montana Electric Generation and Transmission Cooperative Company, Jonathan B Alter for Noteholders, James A. Patten for EPC Services Company, Dean A. Stensland for Yellowstone Electric Co., Jean E Faure and James W. Ehrman for Energy West Montana

2014 Mont. B.R. 367

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Spanish Peaks Holdings II LLC., Chapter 7, Settlement, Sale Free and Clear

Case Nos. 12-60041; 12-60042; 12-60043

The Trustee’s request for approval of the settlement with the Debtor-Affiliates is opposed by Boyne USA, Inc., Big Sky Resort LLC, First American Title Insurance Co., CH SP Acquisition, LLC, and The Spanish Peaks Ad Hoc Members Group, Inc. Boyne USA, Inc. and Big Sky Resort LLC oppose the settlement arguing the Trustee circulated a draft complaint wherein the Trustee was alleging claims in the liquidated amount of $3,771,234.37, along with additional unliquidated damages against the Debtor-Affiliates. Just days later and without any discussion, the Trustee then filed on October 14, 2013, a notice of settlement and then filed the pending motion. Under the proposed settlement, the Debtor-Affiliates agree to assign $593,000 of the KeyBank litigation settlement to the Debtors’ bankruptcy estates, which Boyne USA, Inc. and Big Sky Resort LLC characterize as "16% of the face amount of the liquidated claims with no apparent payment for unliquidated claims." Boyne USA, Inc. and Big Sky Resort LLC also object to the Trustee’s proposed allocation of the settlement proceeds arguing Spanish Peaks Holdings II, LLC is not receiving sufficient consideration for the claims that the Trustee is releasing. The Spanish Peaks Ad Hoc Members Group, Inc. joins in Boyne USA, Inc. and Big Sky Resort LLC’s objection to the Trustee’s motion for approval of the Debtor-Affiliates 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 in the premises.’

Objecting parties argue the Trustee is seeking to settle claims in excess of $3,771,234.37 for $593,000.00, without explanation. The Court disagrees. The Trustee maintained, without opposition, that the possible defenses the Debtor-Affiliates could assert against the Trustee’s alleged claims would be legally and factually complex. The pending settlement poses no collection issue because the funds will be paid to the Bankruptcy Estates by KeyBank. The Court finds such allocation fair and equitable. Giving deference to the Trustee’s views on the matter, the Court finds that the Debtor-Affiliate settlement is fair, equitable and in the best interest of the creditors.

The dispositive issue in this case is thus whether the § 363(f) sale was free and clear of the Debtor-Affiliates’ possessory interests. The Debtor-Affiliates also argue that under the facts of this case, even if § 363(f) trumps § 365(h) that they are entitled to adequate protection under § 365(h). The Debtor-Affiliates have provided no evidence that they will suffer any economic harm if their possessory interests are terminated. In the absence of any request for adequate protection or allegation that some harm will result, the Court finds that any claim the Debtor-Affiliates may have for adequate protection pursuant to § 363(e) has not been established

In re Spanish Peaks Holdings II LLC., March 10, 2014, John Amsden for Trustee Ross Richardson, James F Wallack and Steven M Johnson for CH SP Acquisition, LLC., Michael J Roeschenthaler Brad A Funari, Scott Schulster and Malcolm H Goodrich for "Debtor Affiliates", Michael R Lastowski and James A Patten for Boyne and Big Sky Resort, Trent Gardner for First American Title.

2014 Mont. B.R. 65

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Stefani v. Peterson, Chapter 7, Adversary Proceeding, Discharge, Actual Fraud

Case no. 13-60973 Adversary no 14-00009

Among the state court Findings of Fact set forth in Ex. 1 are: That Peterson made representations to Stefani about his experience as a roofer which were false and material;that Peterson knew his representations were false and that Stefani was ignorant of the falsity of Peterson’s representations; that Peterson intended that Stefani rely on Peterson’s representations and that Stefani did rely on Peterson’s fraudulent and false representations; that Stefani had a right to rely on Peterson’s representations; and that Stefani was proximately injured by his reliance on Peterson’s false representations. Among the state court’s conclusions of law is that Peterson breached his contract with and committed actual fraud upon Stefani, which proximately caused Stefani damage in the amount of $25,460.

Although Stefani is not listed in Schedule F, Debtors’ SOFA filed with their original Schedules lists Stefani’s state court lawsuit against Peterson at Item 4. Despite listing Stefani in the SOFA, Debtors did not include Stefani in the master mailing list. As a result, the notice of commencement of Debtors’ bankruptcy case, creditors’ meeting and deadlines was sent to creditors, but was not sent to Stefani. Stefani commenced the instant adversary proceeding seeking exception of his claim against Peterson under § 523(a)(2) for fraud and under §523(a)(3)(B) because Stefani was not notified of Peterson’s bankruptcy in time to permit the timely filing of a proof of claim.

I. § 523(a)(3).

Section 523(a)(3)(B) excepts from discharge a debt "neither listed nor scheduled . . . in time to permit . . . timely filing of a proof of claim and timely request for a determination of dischargeability of such debt," unless the creditor "had notice or actual knowledge of the [bankruptcy] case in time for such timely filing and [complaint]." Based on the evidence showing that Stefani had no notice or knowledge of Peterson’s bankruptcy case in time to permit timely filing of a proof of claim, Stefani is entitled to judgment excepting from Peterson’s discharge the judgment for breach of contract in the amount of $25,625.00 under § 523(a)(3)(A).

II. 523(a)(2)(A) & § 523(a)(3)(B).

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.'" The state court concluded that Peterson "committed actual fraud upon Stefani" and awarded Stefani judgment in the total amount of $25,625.00.

A four part test that must be met for res judicata or claim preclusion to apply. "[T]he parties or their privies are the same; the subject matter of the claim is the same; the issues are the same and relate to the same subject matter, and the capacities of the persons are the same in reference to the subject matter and the issues." All four parts of that test are shown as present. The doctrine of collateral estoppel or issue preclusion applies in dischargeability proceedings to preclude relitigation of state court findings relevant to exceptions to discharge.

The test in Montana to apply collateral estoppel or issue preclusion is: (1) the issue decided in the prior adjudication is identical with the one presented in the action in question; (2) there was a final judgment on the merits; and (3) the party against whom collateral estoppel is asserted was a party or in privity with a party to the prior adjudication;  This Court exercises its discretion to apply collateral estoppel (issue preclusion) to the Findings of Fact, Conclusions of Law and Judgment entered against Peterson for actual fraud in Cause No. BDV-09-1175 and enters judgment against Peterson excepting his debt to Stefani from his discharge under § 523(a)(2)(A) and § 523(a)(3)(B) for actual fraud in the amount of $25,625.00.

Stefani v. Peterson, December 9, 2014, Steven T. Potts for Stefani, Gary Peterson, Pro se.

2014 Mont. B.R. 679

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Vieyra v. Etzel, Chapter 11, Adversary Proceeding, Collateral Estopple

Case no. 13-61353, Adversary no. 14-00001

Plaintiff seeks exception from the Defendant/Debtor Kelly Rose Etzel’s discharge, under 11 U.S.C. § 523(a)(6), of a debt arising from a Montana Human Rights Commission ("HRC") agency decision against Defendant for unlawful sex discrimination. Defendant argues that genuine issues remain as to what portion of Plaintiff’s claim is nondischargeable under § 523(a)(6) and whether issue preclusion applies.

Issue preclusion or collateral estoppel refers to "the preclusive effect of a judgment in foreclosing relitigation of issues that have been actually and necessarily decided in earlier litigation." The test in Montana to apply collateral estoppel or issue preclusion is (1) the issue decided in the prior adjudication is identical with the one presented in the action in question; (2) there was a final judgment on the merits; and (3) the party against whom collateral estoppel is asserted was a party or in privity with a party to the prior adjudication.

The issue decided in the prior adjudication in HRC decision is not identical with the one presented in this adversary proceeding, and the judgment is not final. Simply put, issues of sex discrimination in employment are not, in this Court’s view, identical to whether a debt is for willful and malicious injury under § 523(a)(6) of the Bankruptcy Code.

Although some overlap may exist between the two prongs the Ninth Circuit requires a separate analysis for both the "willful" and "malicious" prongs. There is no analysis in the HRC decision that both prongs of § 523(a)(6) were analyzed separately as required in this Circuit. This Court finds the Plaintiff has failed to satisfy her burden under both the "willful" and "malicious" prongs. No evidence exists in the record that Defendant intended the consequences to Plaintiff of here actions, either by a subjective intent to harm Plaintiff or a subjective belief that harm to Plaintiff was substantially certain. As the record stands, the Court finds that Plaintiff failed to satisfy her burden by a preponderance of the evidence to prove the "malicious" prong of § 523(a)(6) that Defendant’s acts of sex discrimination necessarily caused Plaintiff injury.

Application of collateral estoppel requires that the party against whom preclusion is asserted must have been afforded a full and fair opportunity to litigate any issues which may be barred." It is clear that the Defendant was not given a full and fair opportunity in the HRC action to litigate issues under § 523(a)(6) which Plaintiff seeks herein to preclude. The HRC did not have jurisdiction to hear or decide issues under § 523(a)(6) of the Bankruptcy Code.

Vieyra v. Etzel, June 20, 2014, Philip Alder Hohenlohe for Vieyra, Jon R. Binney for Etzel

2014 Mont. B.R. 422

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Womack v. Bar Nothing Ranch Partnership,  Chapter 7, Adversary Proceeding, Summary Judgment

Case no. 12-61225, Adversary no. 13-00034

In this Adversary Proceeding, the Plaintiff Trustee filed a Motion for Partial Judgment on the Pleadings requesting pursuant to Rule 12(c), FED.R.CIV.P., and Rule 7012(b), F.R.B.P., an order declaring that the trust indenture claimed by Bar Nothing Ranch Partnership) is invalid and unenforceable, and that Womack is entitled to judgment on Counts I and II of his First Amended Complaint. Womack seeks various relief in his First Amended Complaint, but relying on this Court’s recent decision in B-Bar Tavern, Inc. v. Prairie Mountain Bank (In re B-Bar Tavern, Inc.), 2013 Mont. B.R. 38 (Bankr. D. Mont.), seeks a ruling at this time declaring that the trust indenture claimed by Bar Nothing is invalid and unenforceable because the trust indenture purports to secure what Womack refers to as "a non-existent debt." Bar Nothing counters that Michael represented that he had authority to pledge Parcel A as security to Bar Nothing for a loan made to Michael. Bar Nothing concedes that its Trust Indenture mistakenly references Lowe/Amen, LLC as the maker of the April 6, 2010 Promissory Note dated April 6, 2010. However, Bar Nothing has counterclaimed seeking reformation of the trust indenture to reflect that it secures the April 6, 2010 Promissory Note between Michael and Bar Nothing.

The sole grounds for Womack’s pending motion for judgment on the pleadings is that the trust indenture is invalid because it purports to secure a promissory note which does not exist. Womack argues that judgment in his favor on Counts I and II of the First Amended Complaint is appropriate because the relief requested in Counts I and II are separate and distinct from Bar Nothing’s reformation counterclaim, which is not properly before the Court at this time, and is not ready for decision. The Court agrees that Bar Nothing’s reformation counterclaim is not before the Court at this time and is not ready for decision. However, Womack attempts to dismiss Bar Nothing’s reformation counterclaim as irrelevant at this juncture. Bar Nothing’s counterclaim, if successful, would, based upon this Court’s discussion of reformation in In re B-Bar Tavern, Inc., permit Bar Nothing’s lien on Parcel A, even if invalidated in the first instance, to pass through Debtors’ bankruptcy unaffected. For that reason, the Court concludes that it cannot, based upon the arguments raised by Womack at this time, invalidate and cancel Bar Nothing’s lien, and quiet title to Parcel A, thereby permitting Womack to proceed with "the orderly administration of the bankruptcy estate" when ultimately, Bar Nothing may have a lien that passes through the bankruptcy estate. The relief sought by Womack in Counts I and II of the First Amended Complaint are simply too intertwined with Bar Nothing’s counterclaim to permit the Court to consider Counts I and II, without also considering Bar Nothing’s counterclaim, which is, as argued by Womack, not properly before the Court.

Womack v. Bar Nothing Ranch Partnership, May 7, 2014, Robert K. Baldwin and Trent Gardner for Womack, W. Scott Green and James A Patten for Bar Nothing

2014 Mont. B.R. 290

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Womack v. Madill, (In re Madill), Chapter 7, Adversary Proceeding, Fraudulent Transfer, Post-petition Transfer

Case no 11-61317, Adversary no. 13-00022

Womack seeks, under 11 U.S.C. §§ 362, 544, 548, 549, and 550, and the Montana Uniform Fraudulent Transfer Act ("UFTA"), to avoid and recover damages caused by DeWin’s transfer of two vehicles to his nondebtor spouse. Defendants deny that the transfers were fraudulent and contend that they were prepetition transfers for reasonably equivalent value, deny that Plaintiff is entitled to recover any damages for the transfers and contend that no violation of the automatic stay occurred. DeWin also seeks damages for the Trustee’s alleged violation of the discharge injunction.

The threshold inquiry in this case is what interest, if any, the bankruptcy estate had in the 2005 Escalade and the 2007 Escalade on the date DeWin filed his bankruptcy petition. In Montana, holding title to a vehicle does not provide conclusive evidence of ownership and strict adherence with certificate of title statutes is not required for a change of vehicle ownership. Absent a statutorily proscribed title transfer creating legal ownership, common law requires determination of equitable ownership by a facts and circumstances test.

Equitable Ownership

A claimant must establish two elements to prove equitable ownership. First, the vehicle must be the subject of an arrangement concerning the vehicle. Second, the claimant must possess the vehicle after an intentional ownership transfer. Absent an arrangement, the vehicle’s possessor is not the equitable owner when another party holds legal title. The second component of equitable ownership requires the claimant to possess the vehicle after an intentional transfer of ownership. The Court is not persuaded that an intentional transfer of ownership occurred. The Court finds DeWin still possesses the 2005 Escalade. Therefore, Rochelle was not the owner of the 2005 Escalade under an equitable ownership theory. The Court similarly finds, under the particular facts of this case, that Rochelle’s possession of the 2007 Escalade was not incident to an intended transfer of ownership under an equitable ownership theory.

Legal Ownership

Having failed to satisfy the equitable ownership theory, the Court next looks for compliance with statutory vehicle transfer provisions under a legal ownership theory. Absent a finding of equitable ownership and absent compliance with statutory requirements transferring vehicle ownership until after July 6, 2011, the Court finds ownership was vested in the owner reflected on the certificates of title. The Court’s above finding negates DeWin’s contention that Womack violated the discharge injunction. DeWin’s post-petition transfer of the 2005 Escalade and the 2007 Escalade to Rochelle after DeWin’s petition date, without authorization under the Bankruptcy Code or from this Court, is avoided pursuant to 11 U.S.C. § 549(a).

Womack v. Madill, (In re Madill), April 1, 2014, Joseph V. Womack, Pro-se, Harold V. Dye for DeWin Madill, Ross P. Richardson for Rochelle Madill

2014 Mont. B.R. 180

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Womack v. Fousek, (In re Amen), Chapter 7, Adversary Proceeding, Summary Judgment

The deadline for filing pretrial motions fixed by this Court in its Order entered on December 5, 2013 (Doc. 8) which provides in pertinent part:

 

 Any and all pretrial motions, together with supporting memoranda or other

materials, must be filed and served on or before February 28, 2014. Any motions

filed after this deadline will not be considered by the Court.

After the deadline expired, Defendant filed an affidavit of Samuel Fousek including statements relating to the ownership of cattle, which affidavit was notarized on March 3, 2014.  Defendant did not seek an extension of the February 28, 2014, deadline prior to its expiration.  This Court has considerable discretion to enforce its orders, deadlines and pretrial procedures, and based upon Defendant filing Fousek’s affidavit after the deadline this Court exercises its discretion and grants Plaintiff’s motion to strike Fousek’s affidavit. This Court expects its orders and deadlines to be complied with, and this decision to grant Plaintiff’s motion to strike Fousek’s affidavit is an example to the parties and other practitioners of the consequences of a missed deadline.

When seeking summary judgment, the moving party must initially identify those portions of the record before the Court which it believes establish an absence of material fact.  Fousek asserts that he never informed the Department of Livestock that the cattle were owned by him instead of his corporation, that he was not at Amens when the certificates were created, and that someone other than Fousek must have informed the Brand Inspector how to fill out the certificates. Fousek maintains that neither his personal brand, nor his corporation’s brand were ever placed on the cattle. Rather, Fousek contends the cows were eventually branded with Griemsman Livestock’s brand. Fousek’s affidavit (Doc. 32) mirrors what is alleged in his Statement of Uncontroverted Facts, but that affidavit is stricken.

Plaintiff’s memorandum in opposition contends that Fousek has admitted ownership of the cattle in his pleadings, discovery responses, and judicial admissions, which create a genuine issue of material fact regarding ownership of the cattle.1 Plaintiff’s statement of genuine issues complains that Fousek’s statement of uncontroverted facts fails to specify the portion of the evidentiary record supporting several of the alleged facts. Plaintiff filed two affidavits, one of Jeffrey J. Tierney accompanied by copies of Defendant’s answers to three sets of written discovery, plus an affidavit of the Debtor Michael A. Amen.  After review of the motion, response, statements of uncontroverted facts and genuine issues, and affidavits of Tierney and Amen, this Court concludes that the Defendant has failed his heavy burden to show that there are no disputed facts warranting disposition of the case on the law without trial. The issue of whether Fousek personally owned the cattle during the relevant period of time remains a genuine issue of fact for trial.

Womack v. Fousek, (In re Amen), March 5, 2013, Robert K. Baldwin, Trent M. Gardner and Jeffry J. Tierney  for Womack, Gary S. Deschenes for Fousek

2014 Mont. B.R. 53

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Womack . Hardin, Chapter 7, Settlement Agreement

Case no. 13-60413, Adversary no. 14-00003

Two issues are presented by the Defendants’ motion. The first is whether there is a binding agreement between the Trustee and the Defendants. If the answer to the previous question is yes, the second issue is whether that agreement should be approved by the Court. The Court answers no to both of the foregoing questions. Essential elements of a contract are parties capable of contracting, their consent, a lawful object and adequate consideration. Mont. Code Ann. ("MCA") § 28-2-102. The Trustee’s intent, as reflected in the proposed settlement, was that he receive $77,000.00 from the Defendants and $43,350.00, less certain described amounts, from Gerovac, or roughly $113,452.00. Paragraph 5 of the proposed settlement would cause the Trustee to lose the proceeds from the Gerovac settlement Before signing the agreement, the

Trustee realized the mistake. "[t]he requisite consent to a contract must be given freely, and consent cannot be given freely when it is based on a mistake." The contract here lacks the requisite intent. In addition, the negotiations between the parties were just that; negotiations, and it is clear that the parties were contemplating a written contract executed by both the Trustee and the Defendants. The written contract would be the consummation of the parties’ negotiations and would be what was necessary to submit to the Court for approval pursuant to a Rule 9019 motion. This Court finds that under the facts of this case, absent the Trustee’s signature, no binding agreement exists between the parties.

In this case, the Defendants, as the moving parties, failed to sustain their burden of proving any of the elements as articulated in A & C Properties. The record, on the other hand, reflects that both the Trustee and Stafford/Lovgren (the only creditor in this case besides Dennis Hardin) oppose approval of the settlement agreement because it is not in the best interest of the bankruptcy estate or the creditors. Considering all relevant factors, and the record, the Court can only conclude that the agreement is not fair and equitable as required by A&C Properties.

Womack v. Hardin, December 22, 2014, James A. Patten for Womack, Quentin M., Rhoades for Hardin, Bruce Jacobs for Stafford//Lovgren

2014. Mont. B.R. 723

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