Decisions of 2018



Aguirre, Motion Practice
Case no. 15-60035

Debtor, through counsel, filed a Motion to Continue Confirmation Hearing. The matter Debtor seeks to continue is a hearing on Wells Fargo Bank, N.A.’s Motion to Modify Stay, and not a hearing on confirmation of Debtor’s plan. The Court speculates that the erroneous title of Debtor’s Motion is the latest casualty of the "cut and paste" function that permit the speedy preparation of pleadings.The Court also uses “cut and paste” and is aware of its own errors. Despite this recognition by the Court, this Order joins a series of orders the Court has recently entered calling attention to such mistakes. Although efficient, “cut and paste” often produces errors. Debtor seeks a continuance of the stay relief hearing because Debtor and Wells Fargo Bank, N.A. have reached a resolution, prepared a stipulation and are waiting for approval from their clients.

In re Aguirre, August 27, 2018, Ralph W. Wilkerson for Debtor, Hillary R. McCormick for Wells Fargo Bank

2018 Mont. B.R. 392 (August 27, 2018)

Aguirre, Motion Practice, Failure to Request Continuance
Case no. 15-60035

In preparation for the February 13, 2018, hearing and in accordance with Mont. LBR 5074-1(c)2, Debtor filed an exhibit and witness list on February 8, 2018. BONY did not file any witness or exhibit lists. Additionally, neither Debtor nor BONY filed a timely request for continuance in accordance with Mont. LBR 5071-1(a) which requires that “[a]ny party requesting the continuance of a trial, hearing or conference shall . . . (a) file a motion seeking the continuance at least three (3) business days prior to the scheduled trial, hearing or conference[.]”

Instead, counsel for BONY appeared at the hearing and requested that the Court continue the hearing on its Motion to afford BONY and Debtor additional time to resolve the matter by agreement. This approach is inconsistent with Mont. LBR 5071-1(a). As any scheduled hearing on a contested matter draws closer, counsel must be prepared,at least three business days prior to the hearing, to either file a motion to continue or file witness and exhibit lists. Although the Court encourages parties to direct their efforts at reaching resolutions and entering stipulations, if the parties have failed to reach an agreement that can be reduced to a stipulation and need additional time within which to negotiate, a motion to continue the hearing must be filed “at least three (3) business days prior to the scheduled trial, hearing or conference[.]” Mont. LBR 5071-1(a).

Absent filing a motion to continue, parties “shall exchange proposed witness and exhibit lists and copies of all proposed exhibits, and file such lists and exhibits with the Court, at least three (3) business days prior to a hearing or trial,” consistent with Mont. LBR 5074-1(c), and be prepared to prosecute their matter. If, however, after filing their witness and exhibit lists, parties continue to negotiate and resolve their matter, parties may appear on the consent calendar and advise the Court of the terms of any stipulation and request time within which to reduce their agreement to writing, at which point the Court will vacate the scheduled hearing and grant the parties time to file their written agreement.

It was not proper for BONY to appear at the hearing and request a continuance after BONY failed to timely file a request for continuance in accordance with Mont. LBR 5071-1(a), and was not prepared to prosecute its Motion at the scheduled hearing (i.e., had not disclosed any witnesses or exhibits). Accordingly, IT IS ORDERED that BONY’s Motion to Modify Stay is denied without prejudice.

In re Aguirre, February 14th, 2018, Ralph W. Wilkerson for Aguirre, Joe Solseng for Bank of New York

2018 Mont. B.R. 73 (February 14, 2018)

Anderson v. Bank of America, Foreclosure, Breach of Contract, Estopple, Negligence, Statute of Limitations
Case no. 17-cv-00161-DWM

A breach of contract is an actionable wrong regardless of whether actual damages stemmed from the breach. It is undisputed that a valid contract existed between the parties beginning in March 2006 when the Andersons obtained the Mortgage. Count I of the Amended Complaint alleges that Bank of America breached its obligations under the Mortgage. The Andersons also allege they suffered "general and special damages" because of the breach. Under Montana law, a failure to plead actual damages for a contractual breach is not fatal. Thus, the Andersons "state a claim to relief that is plausible on its face."

There are four elements to a promissory estoppel claim in Montana: "( 1) a promise clear and unambiguous in its terms; (2) reliance on the promise by the party to whom the promise is made; (3) reasonableness and foreseeability of the reliance; [and] ( 4) the party asserting the reliance must be injured by the reliance." The terms of the promise must be certain, as there can be no promissory estoppel without a real promise. Promissory estoppel cannot be based on preliminary negotiations and discussions or an agreement to negotiate the terms of a contract. The Andersons allege that Bank of America "clearly and unambiguously promised the Andersons that, 'After all trial period payments are timely made, your mortgage will be permanently modified.'" In reliance upon that promise, the Andersons allege they acted to their detriment in making the required trial period payments. Whether the Andersons can prove the essential elements to sustain their claim "presents a matter to be determined by the trier of fact based upon the evidence adduced at trial." Taking the allegations as true, the Andersons have sufficiently pied a claim for promissory estoppel to survive a Rule 12( c) motion.

It is undisputed that the Andersons' negligence claim is subject to a three year statute of limitations. Montana recognizes the continuing tort theory: "[a] continuing tort is one that is not capable of being captured by a definition of time and place of injury because it is an active, progressive[,] continuing occurrence ... taking place at all times." "The continuing tort exception may be applied to injuries that are ongoing or in some way recurring," and requires a reviewing court "to consider whether a [tort] is temporary or permanent in character." "A permanent [tort] is one where the situation has stabilized and the permanent damage is reasonably certain." Id. (citations omitted). With a permanent tort or injury, the limitations period begins to run from the completion of the tort itself, i.e. from the time the situation has stabilized. Id. A temporary tort is "terminable" and "abatable," and "its repetition or continuance gives rise to a new cause of action [for which] recovery may be had for damages accruing within the statutory period next preceding the commencement of the action."

The Andersons claim that Bank of America breached its duty of care and its fiduciary duty "during the modification process," which started in 2009 and continued over a period of nearly three years. All such events giving rise to a negligence claim took place more than three years before suit was filed on June 3, 2016. Moreover, neither the discovery rule nor continuing tort theory toll the applicable statutes of limitations.

Nor can Bank of America's actions be reasonably considered a continuing tort. The distinguishing characteristic of a continuing tort is one that "can be reasonably abated." However, "If the continuing tort doctrine were applied in cases where abatement is only possible through the payment of money for past wrongs, any suit seeking damages would arguably qualify as a continuing tort." Further, in those cases where conduct is deemed "abatable," the tortfeasor is generally aware that an injury has occurred. To say that the Andersons' injuries and Bank of America's actions were "abatable" would presume the tortiousness of Bank of America's conduct, and would presume that any defendant could identify when they had knowingly or unknowingly committed a tort. "Were the Court to conclude that a tort is continuing because a defendant can always choose to stop acting in the manner which a plaintiff alleges is tortious, the continuing tort exception would see a vast expansion and would subvert the purpose of statutes of limitations."

Taking the allegations as true, the Andersons have sufficiently pled a tortious breach of the implied covenant in their Amended Complaint to survive a Rule 12( c) motion. That said, it appears that the Andersons' tortious breach claim is also untimely. While breach of the implied covenant of good faith and fair dealing customarily sounds in contract, a tortious breach claim is governed by the three year
statute of limitations generally applicable to tort claims. The Andersons' claim for tortious breach of
the implied covenant of good faith and fair dealing arose from the same events as those in Counts V (negligence) and VII (negligent misrepresentation), all of which occurred prior to June 3, 2013. However, because the parties did not brief this issue, the Andersons will be given an opportunity to show cause why this claim is not time-barred.

Anderson v. Bank of America, November 20, 2018, David A. Mattingley for Anderson, Mark D. Etchart for Bank of America

2018 Mont. B.R. 507 (November 20, 2018)

Armitage v. Caliber Home Loans, Service, Trust Assignments, (Watters)
Case no. CV-16-27-BLG-SPW

Because Armitage undisputedly had an interest in the Property at the time of the 2012 lawsuit, she was properly served by publication under Rule 4(D)(4)(a). The undisputed facts demonstrate that the default judgment against Armitage is not void for lack of proper service. Armitage argues that Bank of America could not serve her by publication in 2012 because she did not have any actual or contingent lien or interest in the Property after the Trustee's sale on April 19, 2010. But Armitage's attempt to end run around the rule by disclaiming her interest in the Property in 2012 to avoid summary judgment now is unavailing. Because Armitage undisputedly had an interest in the Property at the time of the 2012 lawsuit, she was properly served by publication under Rule 4(D)(4)(a). The undisputed facts demonstrate that the default judgment against Armitage is not void for lack of proper service.

Armitage' s second argument is that all the assignments of the trust indenture since Countrywide was assigned are void because none of the subsequent assignments were executed by Countrywide. As Caliber points out, however, Armitage lacks standing to challenge these assignments because she was not, and is not, a party to any of the transactions. Courts faced with similar complaints have repeatedly found that a homeowner does not have standing to claim that the individual signing the assignment lacked proper authority, or to raise other alleged deficiencies. Armitage does not allege any material facts otherwise establishing that she has standing to dispute the assignment.

Even if she had standing, Armitage' s claim still fails. Armitage executed the Deed of Trust, which identified MERS as "a separate corporation that is acting solely as a nominee for Lender and Lender's successor and assigns." This is authorized under the STFA in Montana. The Court finds that MERS was authorized to exercise Mann Mortgage's rights under the Deed of Trust, including assigning beneficial interest in the Deed of Trust, as Mann's agent. As a result, the assignments are valid.

Armitage v. Caliber Home Loans, January 22, 2018, Raymond G Kuntz, Anthony W Kendall for Armtaige, Aaron R Goldsiien for Caliber, Michael J Lilly for LSF9, Mark D. Etchhart for Bank of America

2018 Mont. B.R. 30 (January 22, 2018)

Baldwin v. Atlantis Water Solutions, LLC., Alter Ego, Limited Liability Company
Case no 18-00016

As a general rule, members of a limited liability company (“LLC”) are not subject to personal liability for obligations of the company. Baldwins’ urge this Court to follow the analysis outlined In re Storer, and apply the traditional two-prong test to determine whether the corporate veil can be pierced. The test requires, first, that the defendant must be shown to be an alter ego, instrumentality, or agent of the corporation. Second, substantial evidence must exist that the corporate entity was used as a “subterfuge to defeat public convenience, justify wrong or perpetrate fraud.”

With regard to LLCs, the Montana Supreme Court has held that piercing the veil may be appropriate if a member “operates an LLC as an empty shell to perpetuate fraud and avoid personal responsibility.” Atlantis and Iofina argue that this Court must determine: (i) whether Atlantis and its sole member, Iofina, complied with the formalities required of LLCs under Montana law; and, (ii) whether Iofina used Atlantis as a subterfuge to perpetuate fraud and avoid personal liability.

Atlantis and Iofina persuasively argue that the established law in Montana for piercing the veil of corporations, and in particular, the first prong of the test involving the alter ego or agent analysis and the 14 factors set forth in Peschel are not appropriate for LLCs. Atlantis and Iofina highlight the distinctions between corporations and LLC’s to support this argument. For example, Atlantis and Iofina note that, while corporations are generally required to observe a variety of formalities in their governance and operations, LLCs are not. An LLC may consist of a single member. An LLC can be managed directly by its members instead of managers or officers and directors. In a member-managed LLC, a member is an agent of the LLC for the purposes of its business or affairs. LLCs are not required to have an operating agreement. Finally, and importantly, “the failure of a limited liability company to observe usual company formalities or requirements relating to the exercise of its company powers or management of its business is not a ground for imposing personal liability on the members or managers of the limited liability company.”

Baldwins’ have failed to point to any indicia of a subterfuge to defeat public convenience, wrongdoing, fraud or efforts to avoid personal responsibility. Instead, Baldwins admit that they “have no reason to believe that Iofina was merely using Atlantis as a subterfuge, or using Atlantis to defeat public convenience[.]” In addition, Baldwins “admit that they have no reason to believe that Iofina was . . . using Atlantis to . . . commit crime, justify wrong or perpetuate fraud.” Id. Finally, “Baldwins concede that Atlantis and Iofina were not out to cheat them.” Baldwins sole argument is that notwithstanding their admissions, Iofina’s undercapitalization of Atlantis from its inception is indicative of bad faith sufficient to pierce the corporation veil. Under the specific facts of this case, the Court disagrees.

Even if Baldwins satisfied the first prong , there simply is not the slightest scintilla of evidence tending to establish the second prong, that Iofina and Atlantis acted improperly, engaged in fraud, constructive fraud, or used the entity to justify wrong. The Baldwins present no evidence that the relationships among Iofina and Atlantis were created in bad faith or for purposes of allowing Atlantis to avoid liability for their actions. Rather, the Baldwins’ acknowledge that Atlantis was not used by Iofina as a subterfuge to defeat public convenience, to justify wrong, or to perpetrate fraud and that Atlantis and Iofina were not out to cheat them. As a result, the Court concludes that under both the standard articulated by the Montana Supreme Court in Peschel and in Weaver, disregarding the separate and distinct identity of Atlantis is not appropriate. Therefore, the Baldwins’ alter ego claim against Iofina fails.

Baldwin et al v. Atlantis Water Solutions, LLC., November 5, 2018, Tanis M. Holm and Ben T. Sather for Baldwin, Frederick P. Landers and James A. Patten for Atlantis

2018 Mont. B.R. 480 (November 5, 2018)

Bank of Baker v. Robertus, Chapter 7 Discharge, Willful and Malicious Injury
Case no. 17-00026

In order to prevail on summary judgment, the Bank needs to establish there are no genuine issues of material fact factual concerning the nondischargeability of Debtors’ debt under § 523(a)(6). Section 523(a)(6) excepts from discharge debts resulting from “willful and malicious injury by the debtor to another entity or to the property of another entity.” The willful and malicious requirements are conjunctive. “The willful injury requirement of § 523(a)(6) is met when it is shown either that the debtor had a subjective motive to inflict the injury or that the debtor believed that injury was substantially certain to occur as a result of his conduct.” Thus, negligent or reckless acts which inflict consequential injury do not fall within the ambit of § 523(a)(6). An injury is malicious if it “involves ‘(1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.’” Determinations of whether conduct was willful or malicious depend upon the Debtors’ scienter at the time the acts occurred. Other courts that have been tasked with considering scienter at the summary judgment stage of proceedings have noted:

[W]hen asked to infer scienter at the summary judgment stage of a proceeding, a court must proceed with care. Generally, summary judgment is inappropriate in cases where intent is an element of a claim, such as § 523(a)(2)(A)... [since] [i]ntent is a subjective state of mind and cannot be easily assessed from a record on summary judgment.   MMM Healthcare, Inc. v. Santiago (In re Santiago), 563 B.R. 457, 468 (Bankr. D.P.R. 2017)(citations omitted).

The record available at this stage of the proceeding does not establish that the Debtors’ acts were willful or malicious. At best, drawing all reasonable inferences in favor of the Debtors, the record before the Court demonstrates there exists genuine issues of material fact that preclude granting summary judgment. At a minimum there exist issues related to Debtors’ subjective motivation, beliefs as to the substantial certainty that their conduct would cause injury to the Bank, and further, their explanation for their actions. Resolution of these issues will require determinations of credibility and such determinations cannot be made based upon the affidavits submitted by the parties.

Bank of Baker v. Robertus, March 19, 2018, Blake A. Robertson for Bank of Baker, Juliane E Lore and Elizabeth M. Varela for Robertus

2018 Mont. B.R. 155 (March 19, 2018)

Bank of Baker v. Robertus, Chapter 7, Discharge, Attorneys Fees
Case no. 17-60071, Adversary no. 17-00026

Section 523(a)(6) excepts from discharge debts resulting from “willful and malicious injury by the debtor to another entity or to the property of another entity.” The willful and malicious requirements are conjunctive. However, the court considers the “willful” and “malicious” prongs of §523(a)(6) separately. “The willful injury requirement of § 523(a)(6) is met when it is shown either that the debtor had a subjective motive to inflict the injury or that the debtor believed that injury was substantially certain to occur as a result of his conduct.” The injury itself must be deliberate or intentional, “not merely a deliberate or intentional act that leads to injury.” Thus, negligent or reckless acts which inflict consequential injury do not fall within the ambit of § 523(a)(6).

An injury is malicious if it “involves ‘(1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.’” There is no dispute that: (i) the Bank had a perfected security interest in the barley; (ii) the Bank’s lien extended to the proceeds that resulted from the sale of that barley; and, (iii) Jeremy cashed various checks from the sale of the barley, and used the proceeds to fund Debtors’ continuing operating expenses in 2016. However, the Court has concluded, after careful consideration of the testimony, that the Bank has failed to show that Jeremy had a subjective motive to inflict injury on the Bank, or that Jeremy believed that injury was substantially certain to occur as a result of cashing the checks from Muggli Brothers and using the barley sales proceeds to further fund the farming operation. The Court cannot conclude that Jeremy acted with the requisite mental state required under § 523(a)(6). The Bank has failed to demonstrate by a preponderance of the evidence that Jeremy either had a subjective motive to inflict injury on the Bank, or believed that injury was substantially certain to occur. If the evidence is viewed in the light most favorable to the Bank, one might conclude Jeremy acted negligently or recklessly, but that is insufficient to prevail on a claim under §523(a)(6).

Having prevailed, Debtors seek attorney’s fees and costs as permitted under § 523(d). Fees and costs to a prevailing debtor are provided for in § 523(a)(2) proceedings pursuant to § 523(d). “The purpose of § 523(d) is to deter creditors from bringing frivolous challenges to the discharge of consumer debts. To recover attorney's fees under § 523(d), a debtor must prove: (1) the creditor requested a determination of the dischargeability of the debt under § 523(a)(2); (2) the debt is a consumer debt; and (3) the debt was discharged. Debtors have satisfied factors 1 and 3, but they have not met their burden with respect to factor 2. “Consumer debt” is defined in § 101(8) as “debt incurred by an individual primarily for a personal, family or household purpose.” “It is settled in this circuit that the purpose for which the debt was incurred affects whether it falls within the statutory definition of ‘consumer debt’ and that debt incurred for business ventures or other profit-seeking activities does not qualify.” In this case, Debtors secured the loan from the Bank to primarily fund their farming operation, with the hopes of making a profit on their crops. Debtors have failed to meet their burden of showing that the loan proceeds from the Bank were consumer debts. Therefore, Debtors’ request for fees under § 523(d) is denied.

Bank of Baker v. Robertus, June 19, 2018, Michael F McGuiness, Blake A. Robertson for Bank of Baker, Juliane E. Lore, Elizabeth M Varela for Robertus

2018 Mont. B.R. 335 (June 19, 2018)

Berger, Chapter 11, Voluminous Exhibits, Local Rules
Case no.18-60032-11

Effective December 1, 2017, this Court adopted amendments to local rules. The following rules are applicable and absent leave of Court, or extraordinary circumstances, parties should endeavor to comply with the rules:
All exhibits shall be filed with the pleading or proof of claim to which they belong. Each
exhibit shall be filed as a separate .pdf document; or as a single .pdf document, with each
exhibit bookmarked and identified therein. Entities filing exhibits not prepared in
electronically produced text shall scan and electronically file only excerpts of the
documents that are directly germane to the matter under consideration by the Court.
Excerpted material must be clearly and prominently identified as such, and the complete
exhibit must be made available forthwith to the attorneys and the Court on request.
Entities filing excerpts do so without prejudice to their right to file by electronically
scanning additional excerpts or the complete document with the Court. Responding
entities may file by electronically scanning additional germane excerpts. Oversized and
voluminous attachments will not be filed and will be returned by the Clerk. Filing
attachments by other than
electronic means is not encouraged, but may be permitted at
the discretion of the Court.
Mont. LBR 5003-2.

The Committee Note explains:
Each exhibit must be filed separately or book marked separately, so that the Court and
other parties may easily retrieve each individual exhibit from the electronic filing.
Transcripts from Rule 2004 examinations or § 341 creditor meetings that are to be used
for impeachment purposes do not need to be filed with the Court. Such transcripts only
need to be filed with the Court if they will be used for evidentiary purposes.

If parties intend to rely on any exhibit to a pleading, or expect the Court to review any exhibit to a pleading, exhibits should be filed in conformity with Mont. LBR 5003-2. Although not presently an issue, for the benefit of counsel, the Court will highlight other applicable local rules that will insure exhibit lists are filed properly and hearings are conducted efficiently.

(c) Exchange of Exhibit and Witness Lists. The parties involved in video and in-person
conferences and hearings shall exchange proposed witness and exhibit lists and copies
of all proposed exhibits, and file such lists and exhibits with the Court, at least three
(3) business days prior to a hearing or trial.
(1) Witness and exhibit lists may be combined into one document. Copies of all
proposed exhibits shall be attached to such list, and each individual exhibit
must be electronically filed as a separate .pdf document; or as a single .pdf
document, with each exhibit book marked and identified therein. The location
of any witness appearing remotely shall be disclosed in the witness list so
counsel can coordinate exhibits necessary for that witness.
(2) The moving party in a contested matter and the plaintiff in an adversary
proceeding shall identify exhibits in numerical sequence commencing with the
number 1. The responding party in a contested matter and the defendant in an
adversary proceeding shall identify exhibits in alphabetical sequence. If
multiple parties are involved, the parties prior to hearing or trial shall
determine an identification sequence that eliminates any duplicative sequence.
(3) Failure to timely exchange and file proposed witness and exhibit lists and
copies of proposed exhibits in accordance with this rule may result in the
Court barring any undisclosed witness testimony and denying the admission
of any exhibit not disclosed or exchanged.
(4) Except as otherwise may be allowed by the Court, all exhibits shall be
electronically filed.
(5) For purposes of any hearing or trial, counsel for the proponent of the exhibit
shall be responsible for ensuring that sufficient copies of any exhibit that may
be utilized are available for any witness in the courtroom.

Mont. LBR 5074-1.

And, finally, to the extent there are circumstances in which a party files voluminous exhibits, and by agreement all or a significant portion of the exhibits are admitted without objection, the party submitting the voluminous exhibits must direct the Court either through its presentation at the hearing, or in briefing to the specific exhibit and any particular page that it is relying on in its argument, or otherwise. Absent doing so, the Court will not undertake an independent review of voluminous submissions and attempt to divine the significance of any individual exhibit buried therein. With the forgoing as context for the benefit
of the parties.

In re Berger, February 5, 2018, James A. Patten for Berger, John O’Brien and Scott C Sanberg (pro hac vice) for Bank of Colorado

2018 Mont. B.R. 65 (February 5, 2018)

Berger, Motion Practice.
Case no 18-60032

Debtors, and Bank of Colorado filed a Stipulation seeking to extend the stay pending mediation in this matter an additional week, to August 31, 2018. The stay currently in place expires on August 24, 2018. The Stipulation does not contain any explanation or basis for the extension, omits any reference to one of the pending adversary proceedings, and incorrectly identifies another. Despite the lack of explanation for the request, the parties previously participated in mediation with retired Judge Leif Clark, and the stay was intended to permit the completion of those efforts. Presumably this extension relates to those efforts. Accordingly, IT IS ORDERED that the Stipulation is approved, but any future stipulation by the parties to extend the stay will require a more robust explanation by them in their stipulation or other pleading as to the purpose and necessity of the extension.

In re Berger, August 22, 2018, Trent M. Gardner, Kyle W. Nelson for Bank of Colorado, James A. Patten, Blake A. Robertson for Berger

2018 Mont. B.R. 390 (August 22, 2018)

Berger, Chapter 11, Contempt, Violation of Automatic Stay
Case no 18-60032

Debtors, in their Sanction Motion, request an award of their fees and costs incurred in bringing their Sanction Motion, and for punitive damages because the Bank sent Debtors a loan payment notice on or about June 18, 2018, demanding payment of $3,443,111.41, despite the Bank’s knowledge the stay had been in place since January 16, 2018. The Bank does not dispute that it sent the notice to Debtors post-petition, but argues the notice was generated and sent electronically due to an incorrect code and that the Bank has corrected the code and no further notices will be sent.

Although the Court appreciates the stay violation might have been unintentional, inadvertence does not excuse the Bank’s conduct. At a minimum, the Bank’s conduct was reckless, and the failure to have appropriate protocols in place, or to follow the protocols in place, so as to avoid violating the stay merit an award of Debtors’ attorney’s fees as well as a further award for the Bank’s contempt.

IT IS ORDERED that Motion for Order of Sanctions for Violation of Automatic Stay is granted; Debtors are awarded their attorney fees and costs incurred in connection with filing and prosecuting their Sanction Motion in the sum of $990.00; Debtors are also awarded the additional sum of $86,077.79 as an award for the Bank of Colorado’s contempt, which represents two and one-half percent of the amount requested by the Bank of Colorado ($3,443,111.41) in its loan payment notice. Although the Court could have picked a higher or lower percentage, the Court concluded that, when considering the overall circumstances of the case, imposition of a punitive award of 2.5% of the $3,443,111.41 the Bank sought to collect in violation of the stay would serve to deter the Bank from future reckless conduct. The Bank of Colorado is prohibited from requesting any fees or costs in in connection with defending Debtors’ Sanction Motion.

In re Berger, October 9, 2018, James A Patten for Berger, John O’Brien, Scott Sandberg, Trent Gardner for Bank of Colorado

2018 Mont. B.R. 421 (October 9, 2018)

Berger, Chapter 11, Contempt, Violation of Automatic Stay
Case no 18-60032

Debtors maintain that the Bank of Colorado violated the automatic stay by either making a post-petition principal advance on the Debtors’ pre-petition promissory note, further obligating the Debtors and increasing the Bank’s secured claim, in violation of the automatic stay, or, in the alternative, unilaterally extending credit to the Debtors without authority. Debtors’ request that the Bank of Colorado be held in contempt, that the Debtors be awarded their fees and costs incurred in filing and prosecuting the Contempt Motion, that the Court award Debtors punitive damages, and that the Court order Bank of Colorado to reverse the post-petition principal advances.

Tthe Court concurs that the Bank of Colorado cannot, unilaterally expand its lien against Debtors’ property post-petition without satisfying the requirements of 11 U.S.C. § 364. Because the Bank of Colorado unilaterally increased Debtors’ principal balance, a principal balance that was secured by Debtors’ real and personal property, after Debtors’ petition date, without authorization from this Court and without the express consent of Debtors, and because the Bank of Colorado failed to reverse those so called principal advances from Debtors’ payment history, as asked by Debtors’ counsel on May 29, 2018.

Debtors are awarded their attorney fees in the amount of $2,500.00 in connection with filing and prosecuting their Contempt Motion; the Bank of Colorado is prohibited from requesting any fees or costs in in connection with defending Debtors’ Contempt Motion; the Bank of Colorado shall reverse the principal advances totaling $23,631.00 from Debtors’ payment history, and the Bank of Colorado shall not be entitled to any interest on such amount until such amount is allowed by this Court as an approved “reimbursable expense” as may be allowed under Fed. R. Bank. P. 2016; Debtors’ request for punitive damages is denied.

In re Berger, October 9, 2018, James A Patten for Berger, John O’Brien, Scott Sandberg, Trent Gardner for Bank of Colorado

2018 Mont. B.R. 423 (October 9, 2018)

Berger, Chapter 11 Special Counsel, Attorneys Fees
Case no. 18-60032

Debtors retained Tucker P. Gannett and Amanda B. Sowden of Gannett Sowden Law, PLLC as special legal counsel pursuant to 11 U.S.C. § 327(e) to represent Debtors relative to litigation involving the Bank of Colorado pending in the U.S. District Court for the District of Montana. In this case, the Court is reluctant to approve the requested fees because the fees were incurred in connection with litigation that was doomed to fail from its inception. All of the litigation and fees flowed from a pre-petition complaint filed by Debtors alleging various claims against the Bank of Colorado.

With the record before it, this Court cannot discern any reasonable basis under which counsel could sign and file the July Complaint, while at the same time fulfilling their obligations under Fed. R. Bankr. P. 9011(b), or its civil counterpart. First, the claims alleged by Debtors in the July Complaint were the subject of a release executed approximately 6 months prior to filing suit. Second, Debtors agreed to the application of Colorado law in the same agreement that included the release, but alleged clasm based on Montana law. Third, the arguments put forth by Debtors in their effort to set aside the release and avoid the choice of law provision were, at best, spurious An objective analysis of the facts and law, after a reasonable inquiry as required by Fed. R. Bankr. P. 9011(b), should have weighed in favor of never filing the July Complaint. Applicants did not sign the July Complaint. The complaint was signed by another attorney, Donald L. Harris (“Harris”). Harris did not seek to be employed by this Court post-petition, and Harris’ fees are not included in the Application.

While troubled by the underlying July Complaint, the delay that flowed from it, and the accrued interest and attorneys’ fees that accompanied it, the Court will not penalize Applicants for work done by another attorney pre-petition. Further, this Court’s Order should not be construed as criticism of Applicants because neither Applicant signed the July Complaint. Ultimately, Debtors and the Bank of Colorado resolved their issues, and Applicants efforts contributed to that result in a meaningful way. The work performed by Applicants ostensibly contributed to Debtors’ efforts to extract themselves from the litigation morass that followed the July Complaint.

Indeed, the time records submitted with the Application reflect Applicants worked constructively with their co-counsel, and participated in discussions that ultimately resulted in the Second Omnibus Stipulation, which provided for the dismissal of litigation pending in the District Court for the District of Montana, various adversary proceedings, and otherwise provided for the resolution of issues between the parties. After review of the Application and billing statements, the Court finds that the requested fees and costs are actual, reasonable, and necessary and should be awarded without further notice or hearing. IT IS ORDERED that Debtors’ Final Application for Professional Fees and is approved; and Tucker P. Gannett and Amanda B. Sowden of Gannett Sowden Law, PLLC are awarded professional fees in the amount of $16,810.00 plus expenses of $626.53, as an administrative expense of the estate.

In re Berger, December 20, 2018, Tucker P Gannettt and Amanda Snowden, Special Counsel for Berger, James A. Patten for Berger

2018 Mont. B.R. 564 (December 20, 2018)

Boltz, Chapter 13, Relief From Stay Denied
Case no 17-60037

The parties did not file a stipulation fully resolving the Motion prior to the hearing, and absent a settlement, the parties also did not file a timely request for a continuance in accordance with Mont. LBR 5071-1 to permit additional time within which to finalize a stipulation resolving the matter. In addition to having failed to resolve the Motion prior to the scheduled hearing, or continue the hearing on the Motion in a timely matter under Mont. LBR 5071-1, LSF9 failed to file any witness or exhibits lists in accordance with Mont. LBR 5074-1(c) and was thus unable to prosecute its Motion. For the reasons stated above, IT IS ORDERED that LSF9 Master Participation Trust’s Motion to Modify Stay and CoDebtor Stay filed November 17, 2017, is denied.

In re Boltz, January 17, 2018, Ralph W Wilkerson for Boltz, Joe Solseng for LSF9 Master Participation Trust

2018 Mont. B.R. 26 (January 16, 2018)

Conover, Chapter 13, Motion to Modify Stay, Attorney Signature
Case no 18-60003-13

Although no response or objection has been filed, and the time to file a response or objection has not expired, the Motion is denied. Mont. LBR 1074-1 states as follows:

Other than at meetings of creditors held pursuant to 11 U.S.C. § 341(a), corporations,
including corporate creditors, partnerships, limited liability companies, trusts,
associations, and other legal entities shall be represented in Court proceedings by an
attorney. Such entities are not required to retain attorneys to file proofs of claim,
reaffirmation agreements or stipulations to modify stay.

The Motion is signed by Shelley Edwards as authorized representative of Cornwell Tech-Credit. Mont. LBR 1074-1 is applicable to Cornwell Quality Tools Company. Shelley Edwards is not an attorney admitted to practice before this Court, pro hac vice or otherwise. As a result, the Court denies without prejudice the Motion because the Motion is not signed by an attorney.  If Cornwell had filed a stipulation consistent with Mont. LBF 8B, the signature of an attorney would not be necessary.

In re Conover, August 6, 2018, Stuart R. Whitehair for Conover

2018 Mont. B.R. 383 (August 6, 2018)

Dague, Chapter 13, Serial Filer

Case no. 18-61098

On April 26, 2016, this Court entered an Order granting the Chapter 13 Trustee’s motion to dismiss Case No. 16-60333-13 for cause. Case No. 16-60333-13 was another case filed by Debtor, and the Court’s Order dismissing that case reads in part:

[T]he Court finds that the Trustee’s Motion to dismiss is filed for good cause under 11 U.S.C. § 1307(c) for the reasons stated in the Trustee’s Motion, which states that the Debtor has filed four bankruptcy cases in this district and the Central District of California, all of which have been dismissed, and contends that the Debtor’s bankruptcy filings are an abuse of the bankruptcy process and a waste of judicial resources. Pursuant to 11 U.S.C. § 105(a), the bankruptcy court is authorized to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” In re Reinertson, 241 B.R. 451, 455, 18 Mont. B.R. 72, 77 (9th Cir. BAP 1999). The Court finds and concludes that dismissal with prejudice is an appropriate exercise of the Court’s equitable power under § 105(a) to prevent an abuse of process. The Court further finds that dismissal is in the best interests of creditors and the estate.

The above Order also precluded Debtor from filing another bankruptcy petition for two years. Debtor commenced another Chapter 13 case on February 5, 2018, but that case was dismissed on the same date because Debtor was precluded from filing another bankruptcy in this District for a period of 2 years from April 26, 2016. The Court’s Order of April 26, 2018, does not preclude Debtor from commencing this bankruptcy case. However, given Debtor’s past practices and to prevent further abuse of the bankruptcy process by Debtor, IT IS ORDERED that if Debtor fails to timely file any of the items listed in the Deficiency Notice entered November 20, 2018, or if Debtor fails to pay any of the installment payments set forth in the Application to pay his filing fee in installments, the Court will enter an order, without further notice or hearing, dismissing this case and Debtor will be precluded from filing another bankruptcy petition for a period of two years.

In re Dague, November 21, 2018. Ronald Dague, Pro se

2018 Mont. B.R. 523 (November 21, 2018)

Downing, Chapter 13 , Dismissal
Case no 17-60219
The Court granted Debtors the extension to January 4, 2018, with notice to the Debtors that if they did not file an application to approve employment of realtor and amended Plan by January 4, 2018, “this case may be dismissed without further notice or hearing.” Debtors filed an application to approve employment of realtor on January 4, 2018, but failed to file their amended Plan. Thus, Debtors have failed, after being granted an extension of time, to file their amended Plan. This failure by Debtors to perform their duties under Chapter 13, and their failure to comply with this Court’s Order is wholly a function of their failure, since November 30, 2017, to communicate with their counsel. To be clear, this Order is directed at Debtors, and shall not be construed as critical of counsel or his efforts. Debtors conduct is not acceptable, particularly after the Court gave them relief from dismissal at the last hearing. Debtors’ failure to communicate with their counsel constitutes a breach of their duties under the Bankruptcy Code and establishes cause, in this Court’s judgment, to dismiss this case under 11 U.S.C. §1307(c).

In re Downing, January 4, 2018, Andrew W. Pierce for Downing

2018 Mont. B.R. 1 (January 5, 2018)

Ernst, Chapter 13, Dismissal, Failure to Comply with Filing Requirements
Case no 18-60817

The Court entered a Deficiency Notice advising Debtors that several items were omitted from their filing, and that if the items were not filed within 14 days of her petition date, the case may be dismissed. One of the identified items missing was a “Record of any interest that you have in an account or program of the type specified in Section 521(c) of the Code as it relates to an education individual retirement account. No form needed, just a statement.” Debtors filed all missing documents except the record of any interest that they have in an account or program of the type specified in Section 521(c) of the Code as it relates to an education individual retirement account. The Court sent Debtors’ counsel a courtesy reminder on that the 521(c) statement had still not been filed.

To date, Debtors still have not filed their 521(c) statement. Complete compliance with F.R.B.P. 1007(c), which sets forth the Schedules and other documents necessary for the filing of a case, is required. Mont. LBR 1007-1(d) provides that:

If the schedules, statement of financial affairs and other required forms are not filed with
the petition, they shall be filed within fourteen (14) days of the filing of the petition or
within the time permitted by Court Order granting a motion for extension of time filed
prior to the expiration of the fourteen (14) day period. If the schedules, statement of
financial affairs, statement of intentions and other required forms are not timely filed, the
Court shall dismiss the case, without notice or hearing to debtors or their counsel.

As a result, since there remain specific documents that have not been filed with the Court, dismissal of this case is appropriate at this time. Accordingly, IT IS ORDERED this case is dismissed pursuant to F.R.B.P. 1007 and Mont. LBR 1007- 1(d) for Debtors’ failure to timely file their 521(c) statement. Debtors shall have fourteen (14) days from the date of this Order to request reconsideration of the instant Order, accompanied by the outstanding item, and with an explanation as to why Debtors did not timely file their 521(c) statement.

In re Ernst, September 14, 2018, Mike Klinkhammer for Ernst

2018 Mont. B.R. 396 (September 14, 2018)

Ewing, Chapter 13, Confirmation ,Good Faith, Feasibility
Case no. 17-60803-13

Section 1325(a) of the Code lists the standards for confirmation of chapter 13 plans. Although both Debtor and the Trustee contend that all of the requirements for confirmation in § 1325(a) have been satisfied, Dahlman objects to confirmation arguing that: (i) the Plan is speculative and not feasible under 11 U.S.C. § 1325(a)(6); (ii) Debtor's Petition and Plan were not filed in good faith under 11 U.S.C. §1325(a)(3) & (7); (iii) the Plan cannot be confirmed because it is in violation of § 1325(a)(5) of the
Bankruptcy Code in that Dahlman has not accepted the Plan, and Debtor proposes to retain the property constituting the collateral of Dahlman; and, (iv) the Plan cannot be confirmed because Dahlman has a secured interest in the arbitration proceeds described in paragraph 11 of the Debtor’s Plan and as theonly creditor entitled to these proceeds, Dahlman should be given the authority to settle the arbitration claim on his own behalf.

The feasibility requirement found at § 1325(a)(6) provides for confirmation if “the debtor will be able to make all payments under the plan and to comply with the plan.” To demonstrate that a plan is feasible, chapter 13 debtors must show that their plan has a “reasonable chance of success.” Debtor’s Schedules I and J show that the Debtor has almost the $200 from his farm labor income alone, without counting his income from driving a school bus and as a crop adjuster, or his income from custom farming which willcommence after he begins spraying. “In accord with the philosophy of the bankruptcy code that debtors are entitled to at least one chance for rehabilitation, this Bankruptcy Court holds that Debtors will be able to make the payments called for by their Chapter 13 Plan, assuming good weather, fair crop prices, and a market for Debtors' crops.” Dahlman questioned Debtor how an injury or a hailstorm would impact his reorganization efforts. If such speculative inquiries were relevant, it is hard to imagine any chapter 13 plan that would be feasible. No debtor can guarantee that their employment will not be interrupted by injury at some point during the plan term, and feasibility does not require such an extraordinary showing. Instead, Debtor must demonstrate that he will be able to make all payments under the plan and to comply with the plan. After considering the evidence and the Trustee’s consent, the Court finds that the Debtor has satisfied his burden of proof on the issue of feasibility under § 1325(a)(6) by a preponderance of the evidence.

Under the Plan, Debtor will retain Dahlman’s collateral, Dahlman will retain his lien, and Dahlman will receive payments of $14,900 with an interest rate of 5%. In a prior proceeding this Court determined that Dahlman had a secured claim in the amount of $14,900. At that proceeding, the only evidence of the value of the Dahlman collateral was introduced by Debtor. Here, the Plan is consistent with the cram down option. Thus, Dahlman’s objection under § 1325(a)(5) is overruled.

There was virtually no evidence to support a finding of bad faith in connection with the filing of the petition. To date, Debtor’s conduct has not been egregious in any sense. To the contrary, Debtor has diligently moved his case towards confirmation of a plan. Debtor has no history of filings and dismissals. And, there is no indicia that Debtor misrepresented facts in his petition, unfairly manipulated the Code, or otherwise filed his petition in an inequitable manner. Although Debtor filed bankruptcy in response to Dahlman’s actions before the state court, that factor alone, under a totality of circumstances test, does not in this case tip the scales towards a finding of bad faith. Debtor’s candor and demeanor when he testified, along with his willingness to commit his earnings from multiple sources towards funding his plan, is wholly inconsistent with Dahlman’s contention that Debtor filed his petition in bad faith. Instead, the evidence and record shows Debtor filed his petition in good faith. The Plan represents Debtor’s best effort to reorganize, and the Plan is consistent with the requirements of the Code. Dahlman introduced no evidence that the Debtor misrepresented facts in his Plan, unfairly manipulated the Code, or otherwise filed his Plan in an inequitable manner. Debtor proposes to pay Dahlman’s secured claim in full and Dahlman will receive the largest pro rata share of the distribution to unsecured creditors. Dahlman’s treatment under the Plan is consistent with the Code. As a result, and absent evidence indicative of bad faith, Debtor’s Plan was filed in good faith.

In re Ewing, February 28, 2018. Jon R. Binney for Ewing, Trevor Carlson and Neal Dubois for Dahlman

2018 Mont. B.R. 83 (February 28, 2018)

Flammond, Chapter 13, Motion for Continuance Denied
Case no.18-60116

In this Chapter 13 bankruptcy, Debtor, through counsel, filed on May 15, 2018, at 2:26 p.m. a Motion to Continue Confirmation Hearing (“Motion”), requesting a continuance of the hearing on confirmation of Debtor’s Plan scheduled for May 17, 2018. The reason stated for the requested continuance is that “Debtor is still working on dividing this case from 16-60738 from which it was bifurcated.” Debtor’s Motion was not timely filed under Mont. LBR 5071-1, and Debtor offers no explanation as to why his Motion was not timely filed. For Debtor’s failure to timely request a continuance in accordance with Mont. LBR 5071-1, IT IS ORDERED that Debtor’s Motion to Continue Confirmation Hearing is denied.

In re Flammond, May 16, 2018, Edward R. Murphy for the Debtor

2018 Mont. B.R. 250 (May 6th, 2018)

Foster v. EBF Partners LLC, (Myers), Choice of Law, Summary Judgment
Case no. 17-00047-TLM

The chapter 11 trustee, filed an adversary complaint against EBF Partners, LLC (“EBF”) seeking relief on eight counts. In Count I, Trustee requests a declaratory judgment that Montana and Washington laws govern the agreements. EBF answered Trustee’s complaint and filed a motion for summary judgment on Count I.

In non-bankruptcy cases, federal courts sitting in diversity apply the choice of law rules of the state in which they sit. However, “‘[i]n federal question cases with exclusive jurisdiction in federal court, such as bankruptcy’ . . . we apply federal choice of law rules.” Thus, even though Montana is the “forum” state, this Court must examine federal law to determine which state’s laws should be applied in this adversary proceeding.

After Casarotto, the Montana Supreme Court laid out a three-prong framework for evaluating parties’ contractual choice of law provisions under the Restatement: Section 187 provides that we will apply the “law of the state chosen by the parties to govern their contractual rights” unless the following three factors, as restated by this Court, are met: (1) but for the choice of law provision, Montana law would apply under § 188 of the Restatement;[ (2) Montana has a materially greater interest in the particular issue than the parties’ chosen state; and (3) application of the chosen state’s law would contravene a Montana fundamental policy. In applying the test to the instant case, Florida law will govern unless (1) Montana or Washington law would apply under §188 in the absence of the parties’ choice of law provision, (2) Montana or Washington has a materially greater interest in the issue than Florida, and (3) the application of Florida law would contravene a fundamental public policy of Montana or Washington.

EBF, failed to submit any affidavits with its motion or provide a “Statement of Uncontroverted Facts” as required by Local Rule 7056-1. Under the circumstances, this omission is fatal to EBF’s motion. As discussed above, choice of law analysis under §§ 187 and 188 of the Restatement (Second) of Conflict of Laws requires this Court to evaluate, inter alia, which state’s laws would apply in the absence of the choice of law provision included in the parties’ agreements. Specifically, § 188(2) requires the Court to determine the place of contracting, place of negotiation of the contract, the place of performance, the location of the subject matter of the contract, and the domicile, residence, nationality, place of incorporation and place of business of the parties. Evaluation of these factors is a fact-specific inquiry, and EBF has failed to proffer sufficient evidence of facts establishing these factors in its motion. Here, EBF’s failure to attach the required “Statement of Uncontroverted Facts” violated Local Rule 7056-1, establishing grounds for denial of the motion. Moreover, as a result of this failure, EBF did not meet its burden at summary judgment by pointing to specific facts in the record that would establish its entitlement to judgment as a matter of law.

Foster v. EBF Partners LLC, November 8, 2018, Trent Baker, David B Cotner, Eric R. Henkel, Kyle C Ryan for Foster, Doug James, Morgan Brett Hoyt for EBF Partners

2018 Mont B.R. 496 (November 8, 2018)

French, Chapter 13, Debtor’s Attorney Fees
Case no 17-60953

Debtors’ confirmed Plan states at paragraph 2(a) that they incurred prepetition attorney fees and costs of
$16,044.39, all of which were paid prepetition, plus estimated postpetition attorney fees and costs at $20,236.67, plus another $3,000 estimated after 3/1/18 to confirmation, for a total postpetition fees and costs of $23,236.67, less a security deposit of $3,859.00. The first paragraph of the Interim Application seeks approval of an award of fees in the amount of $43,447.00 and costs of $1,395.88.

At the hearing the Court enquired of Cossitt whether he would be asking for additional fees at his hourly rate if Debtors were to file a further modified Plan, and Cossitt answered in the affirmative. As of the date the confirmed Plan was filed, March 15, 2018, Cossitt’s billing records shows that he had incurred postpetition fees and costs in the total amount of $24,692.38. That exceeds the $23,236.67 total estimated postpetition fees and costs stated in paragraph 2(a) of the confirmed Plan.

This Court’s Montana Local Bankruptcy Rule (“Mont. LBR”) 9006-1(b) requires that a Chapter 13 plan conform to Local Bankruptcy Form (“LBF”) 19. LBF 19 includes at paragraph 2(a) a place for estimating attorney fees and costs, and fees and costs to be paid through the plan. It does not call for a statement of prepetition fees and costs incurred, like Cossitt included in Debtors’ amended Plan.

The stipulation between the parties provides for approval of Cossitt’s Interim Application, to be followed by a modified plan at some future date. In the Court’s view the better approach is to file a modified plan first, followed by an interim application consistent with amounts stated in the modified plan. Pursuant to the Court’s broad discretion in awarding interim fees, the Court sustains the Trustee’s objection and awards Cossitt interim fees and costs in the total amount of $23,236.67, consistent with paragraph 2(a) of Debtors’ confirmed Plan. Debtors are free under the Code to seek modification of their confirmed Plan and an award of additional fees and costs.

In re French, July 17, 2018, James H. Cossitt for French, Robert Drummond Trustee

2018 Mont. B.R. 357 (July 17, 2018)

Higgins v. First Horizon National Corp, et al, United States District Court, (Morris), Contract, Good Faith and Fair Dealing, MCPA
Case no CV-15-101-GF-BMM

Every enforceable contract “contains an implied covenant of good faith and fair dealing. The Loan and promissory note contain an accompanying “implied covenant of good faith and fair dealing.” The covenant constitutes a “mutual promise implied in every contract that the parties will deal with each other in good faith, and not attempt to deprive the other party of the benefits of the contract through dishonesty or abuse of discretion in performance.” The standard of conduct imposed by the implied covenant maintains “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” Neither party offered any evidence to explain clearly the delay between when First Horizon Home Loans sent the Forbearance Agreement to Higgins on June 19, 2009, and Higgins’s apparent acceptance of the Forbearance Agreement on September 11, 2009. Defendants have not violated the implied covenant of good faith and fair dealing under these circumstances.

To prove his Montana Consumer Protection Act claim under the Montana Consumer Protection Act, Higgins must prove the following elements:
a. That he should be considered a consumer as defined in Mont. Code Ann. § 30-14-102(1);
b. That he suffered an ascertainable loss of money or property, real or personal; and
c. That the loss of money or property existed as a result of the use or employment by another person of a method, act, or practice declared unlawful by Mont. Code Ann. § 30-14-103.

Section 103 declares unlawful “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce. An unfair act or practice offends established public policy and constitutes an act or practice deemed either immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers. Higgins offered no evidence that any of the Defendants acted in a manner that breached the Montana Consumer Protection Act. As the letter of March 7, 2012, from Nationstar Mortgage LLC to Higgins explained, Nationstar Mortgage LLC could not guarantee that it would be able to suspend the scheduled foreclosure sale if he submitted his financial information fewer than 37 days before the March 26, 2012, foreclosure sale. Higgins submitted his complete financial information on March 14, 2012.

The Court finds no need to address Defendants’ pending motion to dismiss a number of parties, including First Horizon National Corp and Nationstar Mortgage Holding, Inc. Higgins has failed to set forth sufficient evidence to support a finding of liability for any of the Defendants under the implied covenant of good faith and fair dealing, Montana’s Consumer Protection Act, or a theory of unjust enrichment.

Higgins v. First Horizon National Corp, et al, March 8, 2018, Helge Nabor for Higgins, Michelle M Sullivan and Adrian A. Miller for First Horizon

2018 Mont. B.R. 108 (MArch 8, 2018)

Knight v. Wells Fargo Bank, (Ninth Circuit Court of Appeals), (Unpublished), (Rawlinson, Christen, Freudenthal), Statute of Limitations, Tort, Contract, affirming Knight v. Wells Fargo Bank, 2016 Mont. B.R. 384
Case no. 16-35895

The district court properly held that the continuing tort doctrine did not toll the statutes of limitations for the Knights’ negligence, negligent misrepresentation, constructive fraud, and MCPA claims. The continuing tort doctrine affords no relief from the statutes of limitation because the Knights were “aware of [their] injuries, of the cause of those injuries and of the fact that [they] had a cause of action” due to Wells Fargo’s initiation of foreclosure proceedings. Dismissal of their claims was warranted because the Knights did not file their action until 2015, well beyond the applicable statutes of limitation. The eight-year statute of limitations for contract actions pursuant to Mont. Code Ann. § 27-2-202(1) does not govern the Knights’ declaratory judgment claim. The gravamen of the Knights’ complaint is that Wells Fargo engaged in tortious conduct involving conversion of the deed of trust during the assignment process. Interpretation of the deed of trust is unnecessary to resolve the Knights’ declaratory judgment claim because the Knights do not “point to the violation of a specific contractual provision” in the deed of trust as required for their complaint “to sound in contract.” The district court correctly determined that the three-year statute of limitations for conversion barred the Knights’ declaratory judgment claim based on the gravamen of their complaint.

Knight v. Wells Fargo, April 5, 2018, Brian J. Miller for Knight, Kenneth Lay for HSBC and Wells Fargo

2018 Mont. B.R. 206, (April 5, 2018)

Knox, Chapter 7, Reaffirmation Agreement
Case no. 17-61086

Although the Agreement includes the required attorney certification, the Court cannot conclude based on the terms of the Agreement and record before it that approval of the Reaffirmation Agreement is appropriate. Consider for example:
The collateral securing the debt are tires with value that is substantially less than the debt; the value of the tires diminishes as additional miles are incurred, which conceivably may be daily; and, the interest rate is 18%.

Further, consider Example 4 to Official Comments of Mont. Code Ann. § 30-9A-335.
Debtor owns an automobile subject to a security interest in favor of SP-1. The security interest is perfected by notation on the certificate of title. Debtor buys tires subject to a perfected-by-filing purchase-money security interest in favor of SP-2 and mounts the tires on the automobile's wheels. If the security interest in the automobile attaches to the tires, then SP-1 acquires priority over SP-2. The same result would obtain if SP-1's security interest attached to the automobile and was perfected after the tires had been mounted on the wheels.

In re Knox, January 8, 2018, Edward A. Murphy for Knox

2018 Mont. B.R. 9 (January 8, 2018)

Lacy, Chapter 13, Attorneys Fees, Inadequate Detail
Case no. 18-60304

The attorney for the Debtors filed an Application for Professional Fees and Costs (“Application”) requesting an award of professional fees in the amount of $8,970.00 plus reimbursement for costs in the sum of $614.18. Applicants must provide an adequate summary of work performed and costs incurred so the Court can evaluate the propriety of the compensation requested. Filed with Binney’s Application are billing statements which include time records setting forth a description of the services provided, the dates such services were provided, time increments, the fees requested for such services, and an itemization of costs beginning 4/11/2018 through 10/31/2018. After review of the time records, with four (4) exceptions the Court finds that Binney provided adequate detail to enable this Court to undertake its independent investigation. The 4 exceptions are: two phone calls with the Chapter 13 Trustee dated 6/25/18 (.1 hours and $20) and 10/4/18 (.1 hours and $20); and two conferences with clients dated 5/3/18 (.7 hours and $140) and 9/13/18 (.6 hours and $120). Those four entries totaling $300 are disallowed for insufficient detail of the purpose or subjects discussed in the conferences and phone calls.

After review of the Application, based upon its independent investigation and the results in this case, and with the Trustee’s consent and the absence of any objection, the Court finds that Binney’s professional fees and costs in the amounts requested, less $300 disallowed for insufficient detail, were for work performed that was actual, reasonable and necessary for the estate. Binney’s Application for Professional Fees and Costs is approved in part and denied in part; and Jon R. Binney and Binney Law Firm, P.C., are awarded reasonable professional fees in the total amount of $8,670.00 plus reimbursement for costs in the sum of $614.18. Binney is authorized to apply the $4,000.00 received from Debtors and the Trustee against this award, with the remainder allowed as an administrative expense payable through the confirmed Plan in full satisfaction of this award.

In re Lacy, December 12, 2018, Jon R. Binney for Lacy

2018 Mont. B.R. 561

Lamoreaux, Chapter 7, Contempt, Dismissal
Case no. 17-60726

The Court entered an order directing Debtor to do the following prior to December 30, 2017: (i) to file amended schedules and locate titles to the waverunners; and, (ii) sign them over to Schmidt. Prior to the hearing on January 11, 2018, Schmidt filed a report with the Court advising that Debtor had amended her schedules, but the titles had not been delivered. The Court addressed the Debtor directly at the hearing, advising that: contempt is defined generally as “conduct that defies the authority or dignity of a court . . . .; and, that civil contempt is defined as “the failure to obey a court order that was issued for another party’s benefit.”

The Court explained that the goal of contempt was to coerce the contemnor into compliance with the court order and, compensate for the contemnor’s noncompliance. The Court noted that defenses ordinarily available in contempt proceedings were not present. Debtor responded affirmatively when asked by the Court if she understood that her ongoing refusal to comply with the Order would result in imposition of sanctions for contempt. In response to the Court’s question whether she would comply with the Order, the Debtor answered “no.” The Court indicated at the hearing that it would enter an Order dismissing this case as the sanction for contempt flowing from Debtor’s willful failure to abide by an Order of this Court.

Pursuant to § 105(a) of the Bankruptcy Code, “[t]he court may “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.” Bankruptcy courts thus have civil contempt authority under § 105(a) to impose civil penalties which must be either compensatory or designed to coerce compliance, but cannot be punitive. The Court finds that Debtor’s willful failure to comply with this Court’s Order that required her to sign and turn over the waverunner titles to Schmidt is willful misconduct more egregious than mere negligence or recklessness. The Court finds that the Debtor knowingly violated this Court’s definite and specific Order which required her to sign and turn over the waverunner titles by December 30, 2017.

Ultimately, the benefits afforded a debtor under the bankruptcy code are significant, but these benefits come with corresponding obligations, not least of which is compliance with orders of the court. At a minimum Debtor’s steadfast refusal to comply with the Order wastes judicial resources and frustrates the orderly administration of the estate. Absent compliance with this Court’s orders, Debtor should not entitled to the benefits available under the bankruptcy code. Thus, the Court concludes that cause exists to dismiss this case under 11 U.S.C. § 707(a), and that dismissal is an appropriate sanction for Debtor’s willful failure to abide by this Court’s Orders.

In re Lamoreaux, January 12, 2017, Martin J. Elison for Lamoreaux, Harold V. Dye for Schmidt

2018 Mont. B.R. 21 (January 12, 2018)

Lapaine, Chapter 7, Reaffirmation Agreement, Attorney Certification
Case no. 18-60694

A reaffirmation agreement between Debtor and A2 Auto Sales was filed on September 12, 2018, in the amount of $1,401.54. The reaffirmation agreement is not accompanied by a signed Certification by Debtor’s attorney Gary W. Wolfe as required under 11 U.S.C. § 524(c)(3).  Because reaffirmation agreements are not favored, strict compliance with § 524(c) is mandatory. For Debtor’s failure to satisfy the requirements of § 524(c)(3) and provide the signed attorney’s declaration with respect to the reaffirmation agreement, the Court declines to approve the reaffirmation agreement but will set approval of the reaffirmation agreement for hearing pursuant to § 524(d). If Debtor is not able to participate in the telephonic hearing, the Court will not approve Debtor’s reaffirmation agreement with A2 Auto Sales.

In re Lapaine, September 12, 2018, Gary W. Wolfe for Lapaine

2018 Mont. B.R. 394 (September 12, 2018)

Leedy, Reaffirmation Agreement Denied
Case no 18-60725

Debtor and creditor Santander Consumer USA Inc., d/b/a Chrysler Capital, entered into a reaffirmation agreement. According to the Agreement, Debtor seeks to reaffirm a debt with Creditor in the principal amount of $27,857.30. The debt is secured by a 2017 Jeep Compass.

Notwithstanding Debtor’s affirmative responses, the Agreement provides for an interest rate of 17.92% per annum. Debtor is also seeking to reaffirm a debt in the amount of $27,857.30, even though the Collateral is worth only $19,775.00. Because of the foregoing, the Court finds that the Agreement is not in Debtor’s best interest. However, Debtor has complied with the requirements of 11 U.S.C. §§ 362(h) and 521(2)(a) & (b) by timely indicating her intent to reaffirm the debt and by entering into the Reaffirmation Agreement.

Accordingly, IT IS ORDERED:
1. Debtor's motion to approve the Reaffirmation Agreement is denied.
2. 11 U.S.C. § 521(d), which makes "ipso facto default" clauses enforceable, does not apply in this case because Debtor has complied with the requirements of 11 U.S.C. §§ 362(h), 521(a)(2), 521(a)(6) and 521(b). Accordingly, Creditor cannot use the absence of a reaffirmation agreement or the Debtor’s bankruptcy as a basis to repossess the Collateral.
3. Because the Debtor has complied with the requirements of §§ 362(h), 521(a)(2), and 521(b)(6), Debtor may retain the Collateral so long as she continues to make timely voluntary payments, and satisfy the other obligations, as provided for in Creditor's loan documents.
4. In the event the Debtor retains the Collateral pursuant to paragraph 3 above, and timely makes the required payments on the obligation secured by the Collateral, Creditor may continue sending bills, payment coupons, and statements to the Debtor as it has in the past, and continue accepting payments until either: (1) Creditor is notified by the Debtor to cease sending such bills, payment coupons, and statements or taking funds from the Debtor’s bank accounts; (2) any creditor secured by the Collateral repossesses it and disposes of it pursuant to applicable non-bankruptcy law; or (3) the secured obligation is paid in full.
5. Acceptance of voluntary payments from the Debtor, pursuant to the terms of this Order, is not a violation of 11 U.S.C. § 524(a)(2).
6. In the event that the Debtor retains the Collateral pursuant to paragraph 3 above, and thereafter defaults in her obligations as set forth in any loan documents she signed, Creditor may collect its debt by enforcing its rights against the Collateral pursuant to applicable non-bankruptcy law. Such collection may include written, electronic, and/or telephonic communication to the Debtor to notify the Debtor of any default and Creditor’s intention to repossess or foreclose on the Collateral unless the default is cured.
7. Because the reaffirmation is denied, Creditor may not take or threaten to take any action to collect its debt as a personal liability of the Debtor. However, compliance with the terms of this order will not be construed as an attempt to collect or recover any pre-bankruptcy debt as a personal liability of the Debtor.

In re Leedy, October 3, 2018, Nik G. Geranios for Leedy

2018 Mont. B.R. 417 (October 3, 2018)

Lenz v. FSC Securities Corp, Montana Supreme Court, Contract, Arbitration Clause
Case no. DA 17-0124

Enacted in 1925 to offset “widespread judicial hostility to arbitration agreements,” the Federal Arbitration Act (FAA) mandates that arbitration agreements involving interstate commerce are valid and enforceable “on equal footing with all other contracts. Consequently, courts must stay litigation and compel arbitration on all claims subject to a valid and enforceable arbitration agreement. Arbitration agreements are “valid, irrevocable, and enforceable” except “upon such grounds as exist at law or in equity for the revocation of any contract.” Arbitration agreements governed by the FAA are subject to all generally applicable state law contract principles “such as fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.”

All contracts must contain four essential elements: (1) identifiable parties capable of contracting; (2) consent of the parties; (3) a lawful object; and (4) consideration. Here, Investors do not dispute that they entered into the subject brokerage agreements based on mutual consent and consideration. In both formats, the transaction documents clearly, conspicuously, and unambiguously stated and explained that the customer agreement form was an essential part of the contract terms to which Investors were assenting, the nature of arbitration in contrast to litigation, that all disputes arising from the agreement were subject to binding arbitration, and that the agreement effected a waiver of the rights to full legal redress and jury trial. No evidence indicates that Investors’ assent to the arbitration agreements was the product of non-disclosure, mistake, fraud, misrepresentation, coercion, or duress.

We have repeatedly held that arbitration agreements in otherwise validly formed contracts of adhesion are unenforceable only if not within the “reasonable expectations” of the weaker party or nevertheless “unduly oppressive, unconscionable, or against public policy.” Unfortunately, this oft-repeated rule is a circular intermix of our traditional two element equitable unconscionability analysis and the incompatible, insurance-specific reasonable expectations doctrine. Rather than continue to perpetuate this analytical imprecision and error, we briefly digress for analytical clarification. As a threshold matter, violation of public policy is an independent, generally applicable ground for invalidating a contract provision, separate and distinct from equitable unconscionability or the reasonable expectations of the weaker party. In contrast, in modern contract law, unconscionability is a two-element equitable doctrine rendering an otherwise validly formed contract or term unenforceable13 if (1) the contract or term is a contract of adhesion and (2) the contract or term unreasonably favors the stronger party or is unduly oppressive to the weaker party.

While we have attempted to clarify the “‘reasonable expectation’ analysis” as a mere “subset of whether a contract is ‘unconscionable,’” Even more problematic in particular regard to arbitration agreements, we have failed to recognize the manifest incompatibility of the insurance-specific reasonable expectations doctrine as a generally applicable contract principle. Contrary to our attempt to merge the reasonable expectations doctrine with equitable unconscionability, they are two wholly separate and distinct legal concepts. The reasonable expectations doctrine is a special, public policy-based rule requiring liberal construction of insurance policies in favor of coverage when the policy language is such that “an ordinary, objectively reasonable person . . . would fail to understand” that the policy technically does not provide the coverage at issue or where “circumstances attributable to” the insurer would cause an “an ordinary, objectively reasonable person” to believe that the coverage exists. The reasonable expectations doctrine is a special, insurance specific rule that supplements generally applicable contract principles in the insurance context. In contrast to the special public policy justification for the reasonable expectations doctrine, no similar or analogous public policy mandates narrow enforcement of arbitration agreements. To the contrary, subject only to generally applicable contract principles, Congress has set a paramount public policy strongly favoring arbitration agreements in interstate commerce.

Thus, clarifying our oft-stated rule: (1) the reasonable expectations doctrine is not a generally applicable contract principle; (2) whether the terms of a contract of adhesion are unduly oppressive to the weaker party is a relevant consideration of equitable unconscionability rather than a separate concept; and (3) the Kortum factors remain relevant to whether a valid waiver of applicable Montana constitutional rights has occurred and whether a contract or term of adhesion is unconscionable.

As in our foregoing analysis of the sufficiency of Investors’ waiver of their Montana constitutional rights, the Kortum factors similarly indicate that the FSC arbitration agreements were not unreasonably favorable to FSC/RMF or unduly oppressive to Investors. As manifest in this case, standard-form arbitration agreements are common, if not pervasive, in securities brokerage contracts.

Lenz v. FCS Securities Corp., April 3, 2018, John M. Morrison for Lenz, Charles H. Carpenter, Kevin Feeback and Edward S Zusman for Appellees

2018 Mont. B.R. 175 (April 3, 2018)

Little, Chapter 13, Registered ECF User, Admission to Practice
Case no. 18-60092

Scott Marinelli of Synergy Law, LLC filed a Chapter 13 bankruptcy petition on behalf of the Debtors. Marinelli mailed Debtors’ bankruptcy petition to the Court. Mont. LBR 1002-1(b)1 provides that “[a] petition commencing a case under the U. S. Bankruptcy Code shall be filed by electronic means through CM/ECF, unless the filer is in proria persona (pro per), and then by filing with the Clerk’s Office.” Similarly, Mont. LBR 1001-1(e) provides that “FILING THROUGH CM/ECF IS MANDATORY FOR ALL USERS IN ALL BANKRUPTCY CASES AND IN ALL ADVERSARY PROCEEDINGS, EXCEPT PRO PER ENTITIES[,]” and Mont. LBR 5005-1 provides that “ [e]ectronic filing through CM/ECF is mandatory for all users, except for pro per filers. Documents shall be filed, signed, or verified by electronic means through CM/ECF and according to rules and procedures adopted by the Court.” It does not appear that Marinelli is registered to use this Court’s electronic case filing system. Marinelli is precluded from filing any further pleadings on Debtors’ behalf until he becomes a registered user of this Court’s electronic case filing system.

It also appears that Marinelli is not a member of the State Bar of Montana. Marinelli must, therefore, seek admission by pro hac vice, pay the applicable fee, and unless he receives a waiver, associate with local counsel. Marinelli shall not be allowed to practice before this Court until he either establishes that he is a member of the State Bar of Montana or seeks admission pro hac vice in accordance with Mont. LBR 2090-1.

In re Little, February 12, 2108, Scott Marinellli for Little

2018 Mont. B.R. 71 (February 12, 2018)

Little, Unauthorized Practice of Law
Case nos. 18-60092, 18-60583, 18-60713

The Court recited on the record at the hearing on October 11, 2018, its findings of fact, case authorities, legal reasoning, and its conclusions of law that Marinelli and Synergy are engaged in the unauthorized practice of law and violation of the Bankruptcy Code and both the Federal Rules of Bankruptcy Procedure and this Court’s Local Rules, that they cavalierly disregarded this Court’s prior Orders to Show Cause.

This Court has inherent authority, and in addition has equitable powers under 11 U.S.C. 105(a), to punish wrongdoers for contempt and prevent abuse of the Bankruptcy Code. The evidence admitted in prior hearings establishes that Marinelli and Synergy received fees from the Debtors Little in the total amount of $7,500 over the course of three bankruptcy filings; and that they received $750 from Debtor Balas and $750 from Debtor Bullock. The Court ordered disgorgement of these fees by Marinelli and Synergy, who are jointly and severally liable.

In addition the Court imposed civil penalties against Marinelli and Synergy, for which they are jointly and severally liable, in the amount of five (5) times the amount of the disgorged fees in each case. The Court deems these civil penalties necessary and appropriate to punish Marinelli and Synergy, and to compel their compliance with the Bankruptcy Code, Rules, and Orders of this Court. These penalties are necessary to punish and deter Marinelli and Synergy from their continued and far reaching predations on desperate citizens, which undermine the integrity of the nation’s system of bankruptcy laws and bankruptcy courts.

In re Little, October 12, 2018

2018 Mont. B.R. 425 (October 12, 2018)

Mac’s Market, Inc, Chapter 11, Small Business Case, Disclosure Statement
Case no. 17-60709

In a small business case, 11 U.S.C. § 1125(f)(3) and F.R.B.P. 3017.1 permit the Court, on its own initiative, to conditionally approve a disclosure statement subject to final approval after notice and a hearing. In addition, while F.R.B.P. 2002(b) generally requires 28 days notice for a hearing on approval of a disclosure statement or confirmation of a Chapter 11 plan, F.R.B.P. 9006(c) permits the Court to reduce the notice periods referenced in Rule 2002. After reviewing the Debtor’s Plan and Disclosure Statement, the Court concludes that Debtor’s Disclosure Statement contains adequate information and should be conditionally approved.

A. Debtor’s Disclosure Statement filed March 8, 2018, is conditionally approved. Any party in interest may nonetheless file an objection to final approval of the Disclosure Statement by the deadline fixed for filing of objections to approval of Debtor’s Plan of Reorganization. If final approval of Debtor’s Disclosure Statement is denied, approval of Debtor’s Plan of Reorganization will not be considered.
B. On or before March 13, 2018, counsel for the Debtor shall transmit a copy of this Order, Debtor’s Disclosure Statement, Debtor’s Plan of Reorganization and a ballot conforming substantially to the appropriate official form as approved by the Court, by mail to creditors, equity security holders, the United States Trustee, and other parties in interest as provided in F.R.B.P. 3017(d).C. Hearing on confirmation of Debtor’s Plan of Reorganization and on final approval of Debtor’s Disclosure Statement shall be held, on shortened notice, Thursday, April 5, 2018, at 09:00 a.m., or as soon thereafter as the parties can be heard, in the BANKRUPTCY COURTROOM, RUSSELL SMITH COURTHOUSE, 201 EAST BROADWAY, MISSOULA, MONTANA.
D. Pursuant to F.R.B.P. 3020(b)(1), March 29, 2018, is fixed as the last day for filing and serving written objections to confirmation of Debtor’s Plan of Reorganization, and for filing written acceptances or rejections of said Plan. A copy of any objection to approval of the Plan shall be mailed to counsel for the proponent at the address listed on that Plan, to the United States Trustee at: Office of the United States Trustee, Liberty Center Suite 204, 301 Central Avenue, Great Falls, Montana 59401, and to counsel (or chairperson) of the official committee of unsecured creditors, if any.

In re Mac’s Market, March 9, 2019, Edward R. Murphy for Debtor

2018 Mont. B.R. 153 (March 9, 2018)

Malek, Chapter 13, Bad Faith, Conversion
Case no. 15-61179-13

While the language of § 1307(b) is absolute (i.e., shall), a debtor’s right to dismiss their case § 1307(b) is not. The right to dismiss under § 1307(b) is qualified by an implied exception for bad-faith conduct or abuse of the bankruptcy process. Section 1307(c) delineates the basis upon which the Trustee may request conversion. It states:
... [O]n request of a party in interest, or the United States trustee and after notice and a
hearing, the court may convert a case under [chapter 13] to a case under chapter 7 of this
title, or may dismiss a case under this chapter, whichever is in the best interests of
creditors and the estate, for cause, including....

Cause under § 1307(c) includes bad faith. When considering bad faith, the “totality of the circumstances” may include, but is not limited to: (1) whether the debtor misrepresented facts in his or her petition or plan, unfairly manipulated the Code, or otherwise filed his or her petition or plan in an inequitable manner; (2) the debtor's history of filings and dismissals; (3) whether the debtor intended to defeat state court litigation; and (4) whether egregious behavior is present.

This Court considers Debtor’s failure to list the Properties for sale for 10-12 months of the approximate 18 month marketing period proposed in the Plan, conspicuously bad. When a plan is confirmed it becomes binding upon the debtor and the creditors. Confirmation is a two-way street. It binds debtors as well as creditors. Debtor was bound to list the Properties throughout the marketing period because selling the Properties was the lynchpin of the Plan. Debtor was aware of this obligation as demonstrated by the initial listing agreement. Debtor wholly disregarded the Plan by failing to enter new listing agreements when the initial agreements expired, resulting in the Properties not being listed for the majority of the marketing period. Instead of complying with his Plan, he requested an additional 12 months to sell the Properties even though he had failed to do so in the previous 18 months. If Debtor were permitted to dismiss his case now, after accomplishing nothing except delay over the course of his case, he would effectively convert his cure by sale plan to a “pay to delay” plan. The Court concludes that this conduct is sufficiently “egregious behavior” to constitute bad faith and denial of Debtor’s request for dismissal under § 1307(b). Despite the Trustee’s intervening motion to modify the Plan, conversion to Chapter 7 is in the best interest of creditors for the reasons discussed above. Thus, the Debtor’s Motion to Dismiss will be denied and this case will be converted to Chapter 7.

In re Malek, April 11, 2018, Jon R Binney for Malek, Michael Joyner for US Bank, Robert G. Drummond, Trustee

2018 Mont. B.R. 210 (April 11, 2018)

McCaul v. First Montana Bank, et al., United States District Court, (Lynch), RICO, Mail Fraud
Case no. CV 17-41-BU-BMM-JCL

To succeed on a RICO claim under section 1962(c) “a plaintiff must show: ‘(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity[]’” that damaged the plaintiff’s business or property. The allegations must establish that each defendant personally conducted, or participated in the conduct of the enterprise that engaged in the pattern of racketeering activity.

RICO defines an “enterprise” to include “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity[.]” To establish the existence of an “enterprise” comprised of a “union or group of individuals associated in fact”, a plaintiff must show that the individuals are “a group of persons associated together for a common purpose of engaging in a course of conduct[,]” that the group is an “ongoing organization, formal or informal,” and that “the various associates function as a continuing unit.”

The requisite “common purpose” is a purpose to engage in a course of conduct. The facts must demonstrate all the participants acted with the same purpose in mind pursuant to a unified agenda. Also “[t]o show a common purpose, plaintiffs must allege that the group engaged in enterprise conduct distinct from their own affairs.” The “common purpose” element is not satisfied by facts demonstrating the individual participants conducted only their own ordinary business affairs and purposes. In view of the foregoing law and definitions, the Court finds McCaul’s pleading contains no factual allegations plausibly suggesting an associated-in-fact enterprise existed.

The events plausibly represent nothing more than a routine attorney/client business relationship in which an attorney is hired to represent and defend a client’s independent interests and purposes. Where two actors have a common purpose seeking only to assist one of the two actors in carrying on that actors’ own business affairs, such circumstances are insufficient to reflect the requisite common purpose of a RICO associated-in-fact enterprise.

McCaul’s allegation do not reflect the requisite ongoing activities of a RICO enterprise which would be
necessary to demonstrate it is plausible that First Montana Bank, duToit, Black and King functioned as a “continuing unit.” The allegations simply do not reflect the existence of an enterprise that has the requisite longevity necessary to permit the alleged associates to pursue any continuing purpose. McCaul’s RICO allegations fail in this respect.

A “racketeering activity” is defined at 18 U.S.C. § 1961(1) as an act that constitutes one of the criminal offenses specifically identified in the statute. That list includes mail fraud under 18 U.S.C. § 1341, and extortion. A “pattern of racketeering activity” under RICO requires unique factual proof. A pattern “requires at least two acts of racketeering activity” within a ten year period of time.

Conduct that is indictable as mail fraud under 18 U.S.C. § 1341 qualifies as racketeering activity. 18 U.S.C. § 1961(1). To plead a mail fraud claim the allegations must plausibly demonstrate (1) the formation of a scheme to defraud, (2) the use of the mails in furtherance of that scheme, and (3) the defendant’s specific intent to defraud.

McCaul’s allegations regarding the December 30, 2015 letters plausibly describe only First Montana Bank’s conduct of its own affairs in making reports to state and federal banking agencies, not the affairs of the alleged enterprise. McCaul does not allege facts suggesting the December 30, 2015 letters were mailed in furtherance of the enterprise’s affairs which allegedly were to conceal from McCaul evidence of First Montana Bank’s misconduct in handling McCaul’s accounts at the bank. McCaul alleges only that the letters damaged his creditworthiness, not that they concealed misconduct from him. Thus, the letters are not predicate acts of mail fraud which served the alleged purpose of the enterprise.

McCaul asserts extortion occurred when Defendants’ attorneys “refused and rebuffed” McCaul’s attempts to obtain the bank transaction records, and told McCaul his requests for the records were “moot”. But again, these allegations do not identify a threat made to McCaul, or an act of extortion committed by either Defendants or their attorneys. Finally, McCaul alleges Black and King mailed “threatening letters to McCaul demanding McCaul to ‘remain silent’ or McCaul would be sued and lose his businesses.” The Court concludes that “the threat by an attorney to bring a lawsuit is not a predicate” act of extortion as required for a RICO claim.

McCaul v. First Montana Bank, October 29, 2018, Gregory G. Constanza, Adam Owens for McCaul, Ronald A. Bender for First Montana Bank

2018 Mont. B.R. 443 (October 29, 2018)

Millard, Chapter 13, Relief from Stay, Telephonic Hearing
Case no. 15-60419

Debtors filed a response in opposition to the motion to modify stay filed by Wilmington, setting that motion for hearing on March 8, 2018. That date is beyond the 30-day deadline for a preliminary hearing fixed by 11 U.S.C. § 362(e)(1), by the terms of which the stay is terminated 30 days after the motion. Debtors’ response states that counsel for Wilmington Savings Funds Society, FSB agrees to waive the preliminary hearing. However, there is no such consent on the record.

Mont. LBR 4001-1(a) provides: “To avoid the need for a preliminary telephonic hearing, a creditor may, in its motion to modify stay, consent to waiver of the 30-day rule set forth in 11 U.S.C. § 362(e).” Wilmington Savings Funds Society, FSB did not consent to waiver of the 30-day rule in its motion.

IT IS ORDERED Wilmington Savings Funds Society, FSB is deemed to have waived the 30-day deadline of § 362(e)(1); PROVIDED, HOWEVER, NOTICE HEREBY IS GIVEN that Wilmington Savings Funds Society, FSB is granted 14 days from the date of this Order to request reconsideration of this Order deeming § 362(e)(1) waived.

In re Millard, February 8. 2018, Ralph W. Wilkerson for Millard, Jason J. Henderson for Wilmington

2018 Mont. B.R. 69 (February 8, 2018)

Miller, Chapter 7, Vacate Fee Waiver
Case no. 17-61088

The Court entered an Order concluding that Debtor was unable to pay the chapter 7 filing fee in installments. The Court’s Order of November 2, 2017, reads in relevant part:
IT IS ORDERED that Debtor’s application for waiver of the chapter 7 filing fee
for individuals who cannot pay the filing fee in full or in installments is granted;
Debtor’s filing fee is waived; and this Order is subject to being vacated at a later
time if developments in the administration of the bankruptcy case demonstrate
that the waiver was unwarranted.

Subsequently, the Trustee filed a report that Debtor’s case was an asset case. The designation of this case as an asset case demonstrates that waiver of Debtor’s Chapter 7 filing fee may be unwarranted.

IT IS ORDERED that the Court’s Order granting Debtor’s Application for Waiver of the Chapter 7 Filing Fee is VACATED to the extent that Trustee recovers assets for the estate; Debtor’s filing fee shall be paid from the assets recovered by the Trustee and shall be paid to the Clerk pursuant to the priority of distribution required pursuant to 11 U.S.C. §§ 726 and 507; and to the extent insufficient assets are recovered for the estate from which the filing fee can be paid, the waiver of fee originally granted at docket number 9 shall remain in full force and effect.

In re Miller, January 9, 2018) Darcy Crum, Trustee

2018 Mont. B.R. 28 (January 19th 2018)

MobileDirect, Inc. Chapter 11, Default, Dismissal
Case no. 16-60596-11

Section 1112(b)(4)(N) provides that “cause” to convert or dismiss includes “material default by the debtor with respect to a confirmed plan.” This Court must determine (i) whether the Metadirect Transaction is bonafide, or a sham; (ii) if it is a sham, did Debtor materially defaulted on its Plan; and, (iii) if there was a material default, whether the case should be converted to Chapter 7, dismissed, or whether unusual circumstances exist in this case.

A. The Metadirect Transaction, the Plan and § 1112(b)(4)(N).
The Plan contemplated liquidation not reorganization. The Plan provided for, “payment of allowed claims from sale or liquidation of Debtor’s assets, including its intellectual property.” Debtor was obligated to accomplish this goal within the Marketing Term, which was defined as “six months following entry of a final order of confirmation.” If Debtor failed to accomplish this goal within the Marketing Term, “any party may move to dismiss or convert the Debtor’s Chapter 11 case.”. The Metadirect Transaction, although completed within 6 months, failed to generate sufficient proceeds for payment of allowed claims. At its best, the Metadirect Transaction represents a questionable prospect of future performance that may generate a slight revenue stream, or sale of the technology in 60 months.

The Metadirect Transaction has no measurable economic benefit for Debtor.Like the debtor in Kenny G, the Debtor in this case acted in a manner inconsistent with its confirmed Plan. Debtor’s change in strategy is essentially a modification of Debtor’s Plan, and a switch from liquidation to reorganization. Had Debtor wanted to modify the Plan, it could have done so by filing a motion under § 1127(b) which allows for modification after confirmation, subject to §§ 1122, 1123, 1129, notice and a hearing. The circumstances surrounding the formation of Metadirect, the timing of the transaction between Debtor and Metadirect, the absence of any material economic benefit to Debtor from the Metadirect Transaction, and the Court’s determination that Neu’s testimony at the hearing could not be reconciled with the Disclosure Statement, or the Plan’s formulation and confirmation, all weigh in favor of concluding the Metadirect Transaction was inconsistent with the Plan’s overarching purpose, liquidation. Further, the Court cannot conclude that it was a bona-fide transaction. At its best, the Metadirect Transaction deviated from the terms of the confirmed Plan and represents a material default. At its worst, the Metadirect Transaction was a deliberate
attempt by Debtor to avoid the consequences of the confirmed Plan, resulting in a “sham” agreement between 2 identities whose composition, management and names are remarkably similar and intertwined. Ultimately, Debtor did not, for purposes of the Plan, enter into an agreement that generates revenue for the Debtor post-confirmation within the 6-month Marketing Term. The Metadirect Transaction constitutes a material default with respect to the confirmed Plan under § 1112(b)(4)(N).

B. Conversion or Dismissal of Debtor’s case under 11 U.S.C. 1112(b)(4)(N).
After determining cause exists, the bankruptcy court must consider whether dismissal or conversion would best serve the interests of creditors. Having considered conversion, dismissal and whether unusual circumstances permeate the case, this Court has determined that dismissal is the corresponding outcome that must accompany its finding that a material default under the Plan occurred. Although the Court is cognizant that dismissal does not benefit any of the creditors, perhaps with the exception of Milliken, the Court notes that dismissal is wholly consistent with the Plan. Creditors cannot complain that dismissal is at odds with their expectations because the Plan specifically allowed for dismissal as a remedy, should Debtor fail to liquidate the property within the Marketing Term. Should a debtor encounter circumstances which require it to modify its plan post confirmation under § 1127(b), a debtor must do so. This Court cannot conceive of circumstances under which a debtor’s unilateral decision to deviate from a confirmed plan and switch from a liquidation to a reorganization, or vice versa, without court approval under § 1127(b) would not constitute a material default under § 1112(b)(4)(N).

In re MobileDirect, Inc., May 24th 2018, Sean M. Morris for Milliken, Steven M. Johnson for Mobile Direct, Aaron G. York for UST

2018 Mont. B.R. 310 (May 24, 2018)

Moore v. Couture, Relief from Judgment
Case no. 12-61434-7, Adversary no. 13-00019-BPH

Three years and nine months after Judge Kirscher determined that the debts owed by Debtor to Moore stemming from the Decree of Dissolution were not dischargeable, Debtor filed the instant Motion under Civil Rule 60(b)(4)-(6) arguing Judge Kirscher’s Judgment of nondischargeability is void because the debt was previously discharged in Debtor’s Indiana bankruptcy case. While not clear from the record or Judge Kirscher’s Memorandum of Decision, it does not appear that Judge Kirscher was aware of Debtor’s prior bankruptcy case in Indiana.

Civil Rule 60(b)(5) allows for relief where a court's judgment has been satisfied, released, discharged, or is based upon a vacated or reversed judgment. Debtor fails to specify why he is entitled to relief under this section. This Court's judgment has not been satisfied, released, or discharged. Additionally, it is not based upon a vacated or reversed judgment. Debtor has failed to show that he is entitled to relief under Civil Rule 60(b)(5). Subsection (6) of Civil Rule 60(b) is a “catch-all provision” that provides for relief from a final order for “any justifiable reason.” Based on public policy favoring the finality of judgments and termination of litigation, a party seeking relief under Civil Rule 60(b)(6) must demonstrate the existence of “extraordinary circumstances.” Nothing in Debtor’s instant motion meets the stringent requirements of Rule 60(b)(6).

This leaves remaining Debtor’s request for relief under Civil Rule 60(b)(4); that the judgment is void. When Debtor filed his Indiana bankruptcy petition in 2004, “any debt - - to a spouse [or] former spouse . . . for alimony to, maintenance for, or support of such spouse . . . in connection with a . . . Decree of Dissolution” was excepted from a debtor’s discharge. See § 523(a)(5). A separate proceeding to make a dischargeability determination under § 523(a)(5) was not necessary. By contrast, under § 523(c), a debt under § 523(a)(15) could only be excepted from discharge if the former spouse requested that such debt be excepted from discharge. Moore did not seek to except the marital tort judgment from Debtor’s discharge under § 523(a)(15) and thus, the only way Judge Kirscher’s judgment is not void is if the marital tort judgment constitutes a debt that falls under § 523(a)(5). The Decree of Dissolution in this case is
ambiguous and the skeletal facts presented by Debtor preclude this Court from ascertaining whether the marital tort judgment fell under the § 523(a)(5) umbrella.

This Court has long adhered to the belief that “[i]It is appropriate for bankruptcy courts to avoid incursions into family law matters ‘out of consideration of court economy, judicial restraint, and deference to our state court brethren and their established expertise in such matters.’” While it is certainly within this Court’s, and the Indiana bankruptcy court’s, jurisdiction to determine whether the debt was excepted from Debtor’s discharge, given the record as it is, this Court deems it appropriate to direct that the parties continue with the matter in the Hancock County Circuit Court of the State of Indiana. The Court will hold Debtor’s Motion for Relief Pursuant to Rule 9024, F.R.B.P., and Rule 60, Fed.R.Civ.P. in abeyance so that the parties can return to the Hancock County Circuit Court to calculate the exact dollar amount of the payments that Debtor made to Moore between the date of the Decree of Dissolution and Debtor’s August 31, 2004, petition date and to allocate those payments between the mortgage payments, child support, alimony and the marital tort debt, and to calculate the amounts still owing for each of the foregoing categories of debt as of August 31, 2004.

Moore v. Couture, May 24, 2018, Crystal Moore, Pro se, Mark Hilario for Couture

2018 Mont. B.R. 299 (May 24, 2018)

Mountain Divide, LLC, Chapter 11, Sale Order, Contempt
Case no. 16-61015

Movants request this Court employ its contempt power and find that the Counterclaims violate specific language in the Sale Order. To prevail on their request, Movants must establish by “clear and convincing evidence that the contemnors violated a specific and definite order of the court.” Movants reason that the Deep River Counterclaims are interests under § 363(f), that the sale was free and clear of “interests” under § 363(f), and that holders of interests were “forever barred, estopped and permanently enjoined from asserting, prosecuting or otherwise pursuing such interests.”

A. Whether Deep River’s Counterclaims Are Interests Under § 363(f)
Pursuant to §§ 363(f) and 1107, a debtor in possession is authorized to “sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate” if any of the conditions listed thereunder are satisfied. While the trend seems to be in favor of a broader definition of “interests,” and one that encompasses other obligations that may flow from ownership of the property, the cases cited by Movants do not stand for the proposition that any claim against any successful bidder in a § 363 sale, by third-parties, constitutes an “interest” for “free and clear” purposes of § 363(f).

The Counterclaims are not successor liability claims that Deep River initially had against the Debtor, and now seeks to enforce against Movants, or the assets acquired by Movants. Instead, Deep River’s Counterclaims are independent claims based on the Bid Agreement. The Bid Agreement was executed post-petition by Deep River and FAC. To conclude that the Counterclaims must be “connected to, or arise from, the property being sold” sufficient for constituting an interest under § 363(f) merely because FAC ultimately acquired the assets, ignores the successor liability component of the Trans World and Leckie analysis. The rationale urged by Movants under these circumstances stretches the definition of “interests” far beyond the holdings of the cases on which they rely. The Counterclaims do not flow from the ownership of the property by FAC sufficient to conclude that they are “interests” under § 363(f). It is difficult to conclude that the Counterclaims are “connected to, or arise from, the property being sold,” as urged by Movants.

B. Whether Deep River's Counterclaims directly conflict with any provision of the Sale Order
The evidence presented to the Court does not establish that the Counterclaims directly conflict with the Findings or Conclusions in the Sale Order. The Court cannot conclude that Deep River violated a specific and definite order of the court. Consideration of the Sale Order’s specific language, not Movant’s characterization of the Sale Order, supports this conclusion. At this stage of the Texas Litigation, this Court cannot conclude on the record before it that the Counterclaims are inconsistent with, or
otherwise violate the Sales Order in a manner that would support, much less warrant a finding of contempt.

C. Whether § 363(m) Protects Movants From Deep River’s Counterclaims
While § 363(m) is implicated by the facts of this case, given Movants’ reference to § 363(m), the Court will, for purposes of completeness, address that section. Section 363(m) protects the interests of good faith purchasers who buy property pursuant to a sale authorized under § 363(b) or (c), when a party in interest has failed to stay the sale pending appeal. The scope and breadth of §363(m) protections is not limitless. “The protection applies only if the court, upon reversing or modifying the order authorizing the sale, would affect the validity of the sale.” Section 363(m) serves the limited purpose of protecting a good faith purchaser when there is a risk of reversal or modification of the sale following appeal. There is no risk of reversal or modification on appeal in this case. At this point in the Texas Litigation, with the record before this Court, this Court cannot conclude that its good faith finding for purposes of § 363(m), precludes or otherwise supports enjoining Deep River from pursuing its Counterclaims or concluding that it has acted contemptuously.

In re Mountain Divide, LLC., April 30, 2018, Jon E. Doak and Ira I. Herman for FAC, LLC, Shane P. Coleman and Hannah E. Tokerud for Deep River Operating, LLC, Jeffery A. Hunnes and Laura T. Myers for Mountain Divide, LLC.

2018 Mont. B.R. 233 (April 30, 2018)

Mullin, United States District Court, (Molloy), Claim and Delivery
Case no. CV-17-BLG-DWM

Before the Court is Farm Credit Leasing's motion for claim and delivery pursuant to Montana Code Annotated§§ 27-17-101, et seq., requesting pre-judgment possession of the equipment at issue. Under Montana law, "[t]he plaintiff in an action to recover possession of personal property may, at the time of issuing summons or at any time after issuing summons and before answer, claim the delivery of the property, as provided in this chapter." A motion for claim and delivery is to be accompanied by an affidavit setting forth:

(1) facts that establish reasonable belief that the person claiming the property is the owner or is lawfully entitled to possession and that the seizure is necessary to prevent the removal or destruction of the property;
(2) that the property is wrongfully detained by the defendant;
(3) that the property has not been taken for a tax, assessment, or fine, pursuant to statute, or seized under an execution or an attachment against the property of the person claiming the property or, if seized, that it is by statute exempt from seizure; and
( 4) a particular description of the property and the actual value of the property.

The Court may then issue an order for claim and delivery after notice and hearing.

In her first affidavit, Ms. Tollefson states that "[i]f [Mullin] is permitted to possess the equipment until final judgment, there exists real fear of Farm Credit Leasing that [Mullin] will use, move, dispose, transport, conceal, waste, sell, hypothecate, dismantle, or otherwise alter the condition of the equipment," which would "impair[]" "Farm Credit Leasing's right to recovery." This vague allegation is insufficient to show seizure is necessary to prevent the removal or destruction of the property. Farm Credit Leasing submitted a supplemental affidavit, however, identifying two specific concerns: depreciation of value through continued use and the chance that the Equipment is currently uninsured. (Doc. 19 at~ 4.) As to the first concern, the statute at issue specifically uses the word "destruction." "Destruction" is defined as "[t]he act of destroying or demolishing; the ruining of something" or "[h]arm that substantially detracts from the value of the property, esp. personal property." Farm Credit Leasing presents no evidence that Mullin's continued use of the equipment would "demolish" the equipment or "substantially detract[]" from its value. Regarding insurance, Farm Credit Leasing presents no evidence that the Equipment is uninsured, only stating that it has not been provided with notice of continued coverage. Discussion at oral argument also indicated to the contrary, i.e., that the Equipment is insured. Farm Credit Leasing fails to establish by a preponderance of the evidence the right to immediate possession.

Farm Credit Leasing Services v. Mullin, July 2, 2018, Steven M. Johnson and Eric Biehl for Farm Credit Leasing Services, Gary S. Deschenes for Mullin

2018 Mont. B.R. 362 (July 2, 2018)

O’Brien, Chapter 13, Motion Practice, Waiver of Notice Denied
Case no. 18-61226

Debtor, through counsel, fileda Final Application for Professional Fees and Costs seeking an award of fees in the amount of $6,900.00 on behalf of Damian Forrester of EXP Realty of Montana. Debtor also filed a “Notice of Application for Professional Fees; and Request for Waiver of Notice” wherein Debtor requests an expedited order on the Application and waiver of the notice period required by Mont. LBR 2002-4 and Mont. LF 18. First, Debtor’s Notice is not a motion and does contain a prayer for relief. In addition, Debtor gives no reason for waiver of the notice required by Mont. LBR 2002-4 and Mont. LF 18, other than the sale of Debtor’s real property, to which the fees requested in the pending Application relate, was scheduled to close on November 12, 2018. Debtor filed both the Application and the Notice on November 12, 2018, which was a federal holiday. Given that November 12, 2018, was a federal holiday, there is no way this Court could have acted upon Debtor’s improper request for waiver of the notice period required by Mont. LBR 2002-4 and Mont. LF 18. Because the November 12, 2018, date has expired. IT IS ORDERED that Debtor’s improperly filed request for waiver of the notice required by Mont. LBR 2002-4 and Mont. LF 18 is denied, without prejudice to being refiled in
conformity with the local rules.

In re O’Brien. November 13, 2018, Juliane E. Lore for O’Brien

2018 Mont. B.R. 505 (November 13. 2018)

Olson v. Aspire Resources Inc., Student Loan, Interest, Discharge
Case no 18-00008

Under 34 C.F.R. § 682.209(b)(1), payments under the Federal Family Education Loan program are applied as follows:
Except in the case of payments made under an income-based repayment plan, the lender may credit the entire payment amount first to any late charges accrued or collection costs and then to any outstanding interest and then to outstanding principal.

A confirmed Chapter 13 plan binds the debtor and creditor, whether or not the claim of a creditor is provided for by the plan. The plan acts as a contract between the Debtors and Debtors’ creditors. Creditors who do not object to the Chapter 13 plan are deemed to accept the plan, including any modifications to the terms of the debt that are clearly and conspicuously provided in the plan. Provisions seeking to discharge student loan debt can be binding upon a creditor if the creditor does not object to the plan.

The Plan provides for Debtors’ student loan debts, noting “no interest shall be paid nor accrue on any general, allowed, unsecured claims during the pendency of the Chapter 13 Plan, excluding non-dischargeable student loan debt pursuant to 11 U.S.C. § 523(a)(9) [sic]. Notably, Debtors’ Chapter 13 plan contains no language modifying the application of payments to ECMC’s loans. Since the Plan does not modify the application of funds to ECMC’s loans, the terms of the underlying contracts between Debtors and ECMC that are consistent with the Plan remain in effect.

The bankruptcy code prohibits claims for post-petition interest to avoid unfairness among competing creditors and to ease administration of the estate. “Debt” is defined broadly under the bankruptcy code and constitutes a “liability on a claim.” The term debt encompasses liabilities on allowed and disallowed claims. Thus, a creditor’s claim against the bankruptcy estate may be limited by § 502, even though the underlying liability against a debtor continues to increase by accruing post-petition interest.

Section 502 does not mention “debts,” and it does not direct the application of payments a creditor receives from the bankruptcy estate. Without an explicit prohibition in § 502, the applicable regulations of 34 C.F.R. § 682.209(b)(1) and 34 C.F.R. § 682.404(f) apply to the outstanding obligation. A creditor is only entitled to collect the amounts asserted in its proofs of claim from the estate pursuant to §502, but § 502 does not prohibit creditors from applying Chapter 13 plan payments to outstanding post-petition interest prior to paying down the principal balance.

The Chapter 13 trustee paid the full Claim amounts under Debtors’ Plan to ECMC. While ECMC cannot collect additional funds from the bankruptcy estate, ECMC properly applied the payments to its underlying debt obligation, and the remaining outstanding balance is not discharged under § 523 and remains an outstanding obligation payable by Debtors to ECMC. The Plan specifically provides that interest would continue to accrue post-petition on Debtors’ nondischargeable student loan debt. Further, Debtors have not asserted undue hardship in this case. Since the undisputed facts provide no exception to § 523(a)(8), ECMC’s debts remain outstanding and enforceable against Debtors following completion of the Chapter 13 plan.

Olson v. Aspire Resources Inc., October 26, 2018, Robert M. Farris-Olson for Olsen, Steven M. Johnson for Aspire

2018 Mont. B.R. 429 (October 26, 2018)

Paulbeck, Chapter 13 Confirmation, Form of Plan
Case no. 17-60805

Effective December 1, 2017, this Court amended its Local Rules and Forms. As part of that amendment, the Court amended Mont. LBF 19. Debtor utilized the old Local Form 19 that was effective prior to December 1, 2017, when she filed her Amended Plan. While all debtors are now encouraged to use the new Local Form 19, the Court will allow this Debtor to utilize the old Local Form that was effective prior to December 1, 2017, because Debtor commenced her case on August 12, 2017, a date that was prior to the amendments that took effect on December 1,

In re Paulbeck, December 8th, 2018, Mark Hilario for Paulbeck

2018 Mont. B.R. 6 (December 8, 2018)

Peeler v. Rocky Mountain Log Homes, Montana Supreme Court, Arbitration, Waiver
Case no DA-18-0086

In determining the threshold question of whether a matter is subject to arbitration, state and federal courts distinguish between two types of arbitrability—substantive arbitrability and procedural arbitrability. Substantive arbitrability is the gateway question of whether a party agreed to arbitrate a particular dispute or type of dispute. Substantive arbitrability involves two distinct considerations—whether the parties formed a valid and enforceable agreement to arbitrate and whether the terms of the arbitration agreement require arbitration of the particular matter or type of matter at issue.

When an arbitration agreement is included as part of a larger contract, the court must determine its threshold validity and enforceability based on generally applicable contract principles but with narrow focus on the agreement to arbitrate without regard for the validity or enforceability of the balance of the larger contract. This statute-based severability of arbitration agreements prevents a party who validly agreed to arbitrate from subsequently avoiding arbitration by pleading claims asserting that the larger contract, or other aspects thereof, are void or voidable due to fraud, illegality, or other contract defect not specifically related to the agreement to arbitrate. Except as otherwise clearly and unequivocally provided, contract language broadly requiring arbitration of all disputes “arising hereunder” or “out of” the larger contract extend to and encompass arbitration of all claims predicated on alleged facts that relate to the contract object or duties regardless of whether technically based on legal duties that arise from the contract or those that arise independently as a matter of law. Here, the first sentence clearly and unambiguously described the broad scope of matters that would be subject to arbitration. The language is plainly mandatory, not discretionary or permissive.

Matters of procedural arbitrability include issues of satisfaction of contract-specified procedural conditions precedent to arbitration and related issues of procedural waiver, timeliness, notice, laches, estoppel, and similar defenses that have no bearing on what issues or type of issues the parties agreed to arbitrate. Except as clearly and unequivocally otherwise provided by contract, matters of procedural arbitrability are matters for resolution by arbitration, not in court. Here, Peeler’s assertion that the Defendants waived their right to compel arbitration by failing to timely demand it within 30 days of the initial dispute is an assertion of procedural timeliness or waiver that neither limits nor otherwise affects the scope of substantive issues or types of issues the parties agreed to arbitrate. Whether a party waived the right to compel arbitration by failing to timely demand it in compliance with procedural requirements of the agreement is “a classic question of procedural arbitrability” for determination by an arbitrator rather than the court.

A party asserting an equitable waiver has the burden of showing: (1) another’s “knowledge of [an] existing right”; (2) conduct deliberately inconsistent with the right; and (3) resulting prejudice to the party asserting the waiver if the other is allowed to reverse course and subsequently assert the right. Ddue to the express federal and state statutory preferences for arbitration, proof of equitable waiver of an otherwise valid agreement to arbitrate must be clear, convincing, and unequivocal. Here, Peeler has shown no substantial basis upon which to conclude that either Defendant engaged in affirmative conduct inconsistent with the right to arbitrate. Peeler’s equitable waiver theory similarly fails on the prejudice element. He asserts that the Defendants’ failure to sooner demand arbitration substantially prejudiced his right to a jury trial and will now further render wasted the substantial costs expended on litigation to date. However, this asserted prejudice is self-inflicted.  Included in the attachment to Peeler’s complaint, the arbitration agreement was a simple, clear, and unambiguous agreement to arbitrate all prospective “disputes, claims and questions regarding the rights and obligations of the parties under the terms of” the larger agreement. In clear, unequivocal, and unmistakable statements of the respective public policies of the United States and the State of Montana, the FAA and MUAA authorize and strongly favor such agreements. The arbitration agreement was
thus facially valid and the proposed amended complaint was devoid of any well-pled factual averments upon which the arbitration agreement could otherwise conceivably violate public policy.

Delegation clause disputes arise in the narrow circumstance where the party seeking to avoid arbitration asserts that threshold arbitrability issues exist for judicial determination and the party seeking to compel arbitration counters that the language of the arbitration agreement reserved or delegated those issues to arbitration. No such dispute exists here. The District Court addressed the cognizable arbitrability issues raised by Peeler and the Defendants neither assert that the arbitration agreement included a delegation provision, nor otherwise contest the court’s authority to address the arbitrability issues addressed.

Peeler v. Rocky Mountain Log Homes, Cory R. Gangle for Peeler, Paul A Sandry, Mark Williams for Rocky Mountain Log Homes and White River Contracting

2018 Mont. B.R. 528 (December 11, 2018)

Preston, Chapter 7, MDOR Motion for Turnover of Tax Returns
Case no. 17-61211-7

The DOR is a requesting this Court issue an order requiring Debtors to file their original Montana Individual Income Tax Returns for tax years 2014, 2015, and 2016. Debtor’s argue that any relief sought under LBR 1007-1(h)(2), must be consistent with § 521, and § 521 does not provide a basis for compelling Chapter 7 Debtors to file unfiled prepetition state tax returns.

The Motion is predicated on Mont. LBR 1007-1(h)(2). The impetus for the adoption of this local rule is not clear. The rule explicitly provides for its application, “in accordance with § 521.” Thus, any construction and application of Mont. LBR 1007-1(h)(2) must be consistent with § 521. Consideration of § 521 shows that §§ 521(e)(2), subparts (A), (B), (C) are relevant to determining the scope of Mont. LBR 1007-1(h)(2). First, not later than 7 days before the date first set for the first meeting of creditors, a debtor “shall provide” to the trustee a copy of the Federal income tax return required under applicable law (or at the election of the debtor, a transcript of such return) for the most recent tax year ending immediately before the commencement of the case and for which a Federal income tax return was filed. This requirement is limited to Federal income tax returns and does not reference state tax returns. Thus, it contemplates prepetition Federal income tax returns. A creditor that timely requests a copy of the return or transcript delivered to the trustee is entitled to a copy. Should a debtor fail to comply with either subparts (i) or (ii) of 11 U.S.C. § 521(e)(2)(A), the court shall dismiss the case unless the debtor demonstrates that the failure to comply is due to circumstances beyond the control of the debtor.

Section 521(e) neither authorizes the DOR to independently request prepetition state tax returns of a debtor nor does it provide a basis for compelling a debtor to file a prepetition state tax return solely for the purpose of complying with the DOR’s request. Section 521(e) refers to “Federal income tax return,” not state income tax returns. Unlike § 521(e) in which references to tax return are modified by “Federal income”, § 1308(c) explicitly defines return to include those prepared in accordance with State or local law, demonstrating that Congress could have drafted § 521(e) to include prepetition state tax returns, had it desired to do so. Finally, § 521(e) imposes on the debtor an obligation to turnover the Federal income tax return to the trustee, not the DOR. Under § 521(e), DOR is only entitled to copies of any Federal income tax returns (or transcripts) delivered by the debtor to the trustee. Notwithstanding DOR’s reliance on LBR 1007-1(h)(2), this Court concludes that § 521(e) only requires a debtor to deliver to the trustee, and to the DOR upon request, “whatever was, in fact, filed for the described tax year.” Ultimately, under § 521(e), the DOR is only entitled to a copy of whatever the debtor delivers to the trustee, and nothing more.

In re Preston, March 26, 2018, Teresa B Whitney for MDOR, Gary S. Deschenes for Preston

2018 Mont. B.R. 168 (March 26, 2018)

Puryer v. HSBC Bank USA, Montana Supreme Court, Small Tract Financing, Deed of Trust, Implied Covenant, Statute of Limitations, FDCPA, MCPA
Case no. DA-17-0475

The Uniform Declaratory Judgments Act provides a district court with the “power to declare rights, status, and other legal relations whether or not further relief is or could be claimed." Under Montana law, "a mortgage of real property . . . is good against all from the time it is recorded until 8 years after the maturity of the entire debt or obligation secured." Thus, upon maturity of the entire debt a lender has eight years to enforce the mortgage unless the lender seeks to renew the period of mortgage. Although acceleration of a debt requiring payment of the entire debt may trigger the eight-year statute of limitation the plain language of the Deed of Trust provides that the Notices of Sale did not accelerate the entire debt.

Acceleration of the debt due under the Deed of Trust was not self-executing. Upon default, the lender was required to give notice to the borrower. The notice must specify (1) the default, (2) the action required to cure the default, (3) a date by which default must be cured, and (4) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Deed of Trust. The plain language of the Deed of Trust does not create a self-executing acceleration clause. We conclude, based on the plain language of the Deed of Trust, that upon default, an implementing action—providing notice—was required to accelerate Puryer’s debt.

A Notice of Sale does not cause maturity of the entire debt owed if a borrower, at any point, may cure the default by only paying the amount due at that time, rather than being required to pay the entire loan balance. We determine based on the language of the § 71-1-312(1), MCA, the Notices of Sale did not accelerate the entire debt due. As provided in § 71-1-312(1), MCA, payment of only the amount in arrears reinstates the trust indenture. Therefore, the maturity date remains April 1, 2036, because the Notices of Sale failed to accelerate the entire debt. Accordingly, we conclude the eight-year statute of limitations was not triggered and enforcement of the Deed of Trust is not time-barred.

Puryer’s breach of contract claim alleged Lenders breached the Deed of Trust by failing to give Puryer the required notice under the Deed of Trust prior to initiating non-judicial foreclosure. The District Court dismissed Puryer’s breach of contract claim because she failed to allege actual damages. However, based on established Montana law, a failure to plead actual damages for a breach of contract claim does not defeat the cause of action. As such, the District Court incorrectly dismissed Puryer’s breach of contract claim.

Puryer also claimed Lenders breached the implied covenant of good faith and fair dealing. Puryer alleged Lenders “attempted to deprive [her] from receiving the benefit of the contract by attempting to foreclose on the mortgage” and not providing the required notice setting forth her ability to cure the default. Construing the complaint in the light most favorable to Puryer and taking all allegations as true, we determine that Puryer has sufficiently pled a claim for contractual breach of the implied covenant to survive a 12(b)(6) motion to dismiss. Furthermore, the District Court made no analysis regarding whether a “special relationship” as set forth in Story existed under the facts of this case.

Puryer’s asserted § 1692f violation is based on Lenders conduct of threatening a non-judicial foreclosure by sending repeated Notices of Sale. An alleged § 1692f violation includes threatening a consumer with non-judicial foreclosure. Consequently, the District Court erred in dismissing Puryer’s alleged § 1692f violation as a matter of law. Therefore, based on Puryer’s Amended Complaint, any violations alleged under the FDCPA were properly dismissed except Puryer’s alleged § 1692f violation. The plain language of § 1692k(d) states Puryer must bring a FDCPA violation “within one year from the date on which the violation occurs.” Puryer alleged nine separate FDCPA violations with the final violation—Notice of Sale— occurring on July 5, 2016. Puryer initiated suit within the one-year statute of limitations of this last alleged violation. Thus, we determine Puryer is not barred by § 1692k(d) with regards to the alleged violation occurring on July 5, 2016.

Puryer also alleged violations under the MCPA. The MCPA declares “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful.” Therefore, we cannot conclude, as the District Court did, that Puryer’s factual allegations could not give rise to a violation under the MCPA. We have rejected Lenders’ argument that under the MCPA “ascertainable loss of money and property” requires a showing of “actual damages” such as a foreclosure sale. Puryer sufficiently pled damages recognized by this Court, even if no foreclosure sale took place, to overcome a 12(b)(6) motion to dismiss.

Puryer v. HSBC Bank USA, May 18, 2018, Evan F. Danno for Puryer, Mark D. Etchart for HSBC

2018 Mont. B.R. 270 (May 18, 2018)

Renova, Chapter 7, Homestead Exemption, Motion to Vacate Order
Case no. 18-60023

Debtor’s § 341(a) meeting of creditors was held February 20, 2018. On April 23, 2018, creditor Trevino filed an objection to Debtor’s claimed homestead exemption. Trevino’s Objection was filed in accordance with Mont. LBR 4003-3, and accompanied by a “NOTICE” provision which granted Debtor fourteen days to respond to Trevino’s Objection and schedule the matter for hearing. The “NOTICE” attached to Trevino’s Objection also provided that “[i]f no objections are timely filed, the Court may grant the relief requested, as a failure to respond by any entity shall be deemed an admission that the relief requested should be granted.” The fourteen-day period expired and Debtor did not file a response. In accordance with Mont. LBR 4003-3, Mont. LBF 29 and the Notice provision attached to Trevino’s Objection, the Court deemed Debtor’s failure to respond an admission by Debtor and Debtor’s counsel that the averments in Trevino’s Objection were well taken and that Trevino’s Objection should be sustained without further notice or hearing.

“Amendment or alteration is appropriate under Rule 59(e) if (1) the district court is presented with newly discovered evidence, (2) the district court committed clear error or made an initial decision that was manifestly unjust, or (3) there is an intervening change in controlling law.” A Rule 59(e) motion may not be
used to raise arguments or present evidence for the first time when they could reasonably have
been raised earlier in the litigation. reconsideration under Rules 59(e) and 9023 “is appropriate only if the moving party demonstrates (1) manifest error of fact; (2) manifest error of law; or (3) newly discovered evidence.” Applying the above test to Debtor’s Motion, the Court concludes that Debtor has failed to
satisfy her burden under Rule 59. The pending Motion does not allege or show newly discovered evidence, or an intervening change in controlling law. Rather, because Trevino’s Objection was filed more than 30 days after Debtor’s § 341 Meeting, Debtor argues that she should have been “rationally” and “legally” released from responding to a “time-barred ‘dead’ or moot motion.” Debtor had actual notice of Trevino’s Objection and Debtor had an obligation to timely respond, notwithstanding that Trevino’s Objection may have been legally flawed.

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. In addition, “[r]elief under Rule 60(b) requires a party to show ‘extraordinary circumstances,’ suggesting that the party is faultless in the delay.” Applying the foregoing to the facts in the instant case, the Court finds that Debtor’s counsel’s mistaken belief that he did not need to respond to a legally flawed objection is not grounds for relief under Rule 9024. Debtor has not satisfied her burden under either Rule 9023 or Rule 9024. While Debtor is not entitled to the relief she seeks, Debtor is, as noted above, entitled to her claimed exemption of $125,000 in her one-half interest in her home and the 20 acres on which it is located.

In re Renova, June 18, 2018, Lee Rindal for Renova

2018 Mont. B.R. 328 (June 18, 2018)

Reynolds, Chapter 13, Motion Practice
Case no. 18-60742

A pattern of routinely submitting filings without citation to any code section, rule or other authority has developed before this Court and the Court acknowledges that it has historically enabled such practice by practitioners by presuming or divining the basis of such motions, particularly when the motion was procedurally routine or unopposed. The Court has signaled to practitioners its unwillingness to continue this practice.1 Practitioners are reminded that Mont. LBR 9013-1(c) provides in part:

Motions, in the body of the motion or in an accompanying brief, shall state with
particularity the relevant law by section and the relevant procedure by rule upon which
the moving party relies, shall specify all relief requested, and shall include a brief
statement explaining why the relief should be granted. . . . .

The Motion does not refer to any code section, rule or authority in connection with the request as required by Mont. LBR 9013-1(c). While practitioners will have to exercise their discretion and determine the extent of the authority cited for any request, in this Motion, the following would suffice, “hereby move the Court for an order pursuant to Mont. LBR 1007(e) for an extension of time under Fed. R. Bankr. P. 1007(c) . . . .” The Court remains sensitive to the rigors of practice and has no interest in compounding those burdens, but considers its insistence on a citation to some authority even in something as noncontroversial as a motion for extension of time, as a modest request of practitioners. Ordinarily, procedurally routine and unopposed matters will only require a brief reference to the applicable rule, while more complex requests will require more attention.

In re Reynolds, August 21, 2018. Juliane E. Lore for Reynolds

2018 Mont. B.R. 385 (August 21, 2018)

Richardson v. Wolf Auto Center, Chapter 7, Adversary Proceeding, Summary Judgment
Case no. 18-60011-7, Adversary no. 18-00009-BPH

Civil Rule 56(a), incorporated in this adversary proceeding by Rule 7056, states: “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” "The proponent of a summary judgment motion bears a heavy burden to show that there are no disputed facts warranting disposition of the case on the law without trial." Once that burden has been met, "the opponent must affirmatively show that a material issue of fact remains in dispute." To demonstrate that a genuine factual issue exists, the objector must produce affidavits which are based on personal knowledge and the facts set forth therein must be admissible in evidence. If a rational trier of fact might resolve disputes raised during summary judgment proceedings in favor of the nonmoving party, summary judgment must be denied. Thus, the Court’s ultimate inquiry is to determine whether the “specific facts” set forth by the nonmoving party, viewed along with the undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence.

Local Bankruptcy Rule 7056-1, which supplements Civil Rule 56 and Rule 7056, requires that a motion for summary judgment be accompanied by a separate statement of uncontroverted facts, setting forth each fact in a separate, numbered paragraph “and shall specify the specific portion of the record where the fact can be found (e.g., affidavit, deposition, etc.)”. LBR 7056-1(a)(1). The nonmoving party must respond to each asserted undisputed fact, also by a separate statement and with citation to the record. While Debtor’s Motion does not comply with this Court’s Local Rules, the Court will nonetheless discuss the merits of Debtor’s Motion.

Debtor is correct that under LBR 1074-1 that Wolf Auto must be represented in this adversary proceeding by counsel. The fact that Wolf Auto initially appeared in the adversary proceeding without counsel does not entitle Debtor to summary judgment on his claim that Wolf Auto violated the automatic stay by unlawfully seizing the Jeep Cherokee and tool box.

After carefully reviewing the record, the Court cannot conclude that Debtor owned the Jeep Cherokee or the tool box on his January 8, 2018, petition date. The title to Debtor’s Jeep Cherokee shows that the Jeep Cherokee was not sold to Debtor until January 19, 2018, which was after Debtor’s petition date. Section 362(a) operates as a stay of “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” The term “property of the estate” includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” § 541(a)(1) (emphasis added). Despite the temporal limitation in § 541(a)(1), property of the estate also includes certain kinds of property coming into existence after bankruptcy. For example, the estate will also include “any interest in property that the estate acquires after the commencement of the case.” § 541(a)(7).  At this stage of the case, the Court cannot conclude as a matter law that the Jeep Cherokee and tool box were property of the estate on January 8, 2018, and Debtor does not allege that the Jeep Cherokee and tool box are not otherwise subject to the temporal limitations of § 541(a)(1). As a consequence, the Court similarly cannot conclude as a matter of law that Wolf Auto has violated the automatic stay.

Richardson v. Wolf Auto Center, May 23, 2018, Brad R Richards, Pro se, Marshal L. Mickelson for Wolf Auto Center

2018 Mont. B.R. 293 (May 23, 2018)

Roman Catholic Bishop of Great Falls, (Pappas) Unsecured Creditors Committee, Avoidance Powers
Case no. 17-60271

The Official Committee of Unsecured Creditors filed a motion seeking “exclusive and irrevocable” authority to commence, prosecute, and settle adversary proceedings against the parishes and other affiliates of the Debtor-in-Possession. The Bankruptcy Code clothes a bankruptcy trustee with special powers to “avoid”, or undo, certain voluntary or involuntary transfers made by a debtor to others, in some situations, even several years before a bankruptcy case is commenced. In a Chapter 11 case, unless a trustee has been appointed, the debtor-in-possession exercises the avoiding powers. If a debtor-in-possession or trustee unjustifiably refuses to prosecute avoidance actions, the creditors’ committee in the chapter 11 case may, with approval of the bankruptcy court, be granted derivative standing to pursue them.

In determining whether to confer derivative standing to assert avoiding powers on a creditors’ committee, this Court considers the four factors often identified by courts:
1. Whether a demand has been made upon the statutorily-authorized party to take action;
2. Whether the demand is declined;
3. Whether a colorable claim that would benefit the estate if successful exists, based on a cost-benefit analysis performed by the court; and
4. Whether the inaction is justified in light of the debtor-in-possession’s duties in a chapter 11 case.

The Diocese’s objection to the Committee’s Motion is limited. In particular, the Diocese does not dispute that factors 1 and 2 are, with the exception of Billings Catholic Schools, satisfied as to all of the proposed defendants named in the Committee’s modified complaints. The Diocese effectively concedes that the Committee asked it to pursue avoidance actions against CASC and the Parishes, and that is has declined to do so. Concerning factor 4, the Diocese has not admitted that it abused its discretion as a debtor-in-possession in any way by not pursuing the affiliates via avoidance actions because, in its view, the Parishes and others are the true owners of the real property and other assets, and that the Avoiding Actions therefore lack merit. However, as noted above, the Diocese’s objection is limited, and the Diocese does not attack the Committee’s Motion on this basis.

Given the Diocese’s limited objection, and the modifications to its proposals made by the Committee in response to the Diocese’s limited objection, for these reasons, Court will grant the Committee’s Motion and authorize the Committee to pursue the Avoidance Actions. However, in doing so, the Court admonishes all involved to stay focused on the overarching goals and purposes of this chapter 11 case. As the parties have acknowledged, at bottom, this case is not so much about money as it is about helping heal the wounds of those impacted by the tragic events that led to the filing of the bankruptcy, while allowing the Diocese and its affiliates to continue to provide their commendable services. The Court is frustrated with the parties’ inability to reach a consensus and their unwillingness to recognize that, in a real sense, every dollar expended on litigation is a dollar less to contribute to the eventual solution. In the event it later appears that the litigation the Committee proposes is not assisting the parties in settling their claims, the Court reserves the option to reconsider whether the Avoiding Actions should continue.

Roman Catholic Bishop of Great Falls, March 1, 2018, Bruce A. Anderson for the Diocese, Kenneth H. Brown and James Stand for UCC

2018 Mont. B.R. 97 (March 1, 2018)

Roman Catholic Bishop of Great Falls, Chapter 11, (Pappas), UCC Attorney’s Fees
Case no. 17-60271-11

Because the record does not support it, the Court declines, at least at this time, to award the full amount of interim compensation requested in the Application. The Court’s principal concerns with approving the full amounts requested in the Application revolve around the rates charged by Counsel for the services provided.  The Application seeks compensation for the services of lawyers in Counsel’s firm at rates ranging from $325 (for travel time) to $650 per hour for the most experienced lawyers, with the bulk of the attorneys’ time billed at that higher rate.  In addition, Counsel seeks approval for non-attorney4 services at rates that range from $150 to $350 per hour.  Put simply, the record before the Court at this stage of this chapter 11 case does not support such rates. 

Though no party has objected, the Court has an independent duty to review the reasonableness of any requested compensation by estate professionals.  However, the process of reviewing a fee request of this size was is complicated because the Court has not had the benefit of any sort of response to the Application from the U.S. Trustee (“UST”).   Under 28 U.S.C. § 586(a)(3), Congress instructed the UST, when appropriate, to file comments with the Court respecting estate professional fee applications in chapter 11 cases.  Given the large amounts requested by Counsel, the Court is unaware of any reason why such UST comments would not be appropriate here; the Court is not inclined to accept the UST’ silence as an indication of support for a fee application.  In addition, in the Court’s opinion, Counsel and the parties in this case are entitled to know what the position of the UST is concerning the compensation it requested in the Application.  Absent a thoughtful response from the entity designated by Congress to monitor professional compensation in bankruptcy cases, the Court is reluctant to simply grant the Application for the full amount requested.

While Counsel has not provided an adequate record to support its rates, there is other evidence in the record to show what a reasonable rate in this case may be.  The Court notes that Debtor’s counsel is providing similar attorney services for its client in this case concerning the very same projects and issues described in the Application at rates of $325.00 to $375.00 per hour.  To the Court, the rates charged by other highly competent attorneys in the same case, as compared to those charged by Counsel, should not be ignored. While the rates for Counsel’s attorney services are high, the Court is frankly astounded by the rates proposed by Counsel for its non-attorney services.  The Court is skeptical that a “clerk”,7 paralegals and a “research librarian” can reasonably command compensation from the bankruptcy estate at rates of $255 to $350 per hour.  Again, these rates are nearly double those charged for similar services by other estate professionals in this and other cases in this District.   To finally approve such rates, the Court will require substantially more information about the credentials of these “non-attorneys” to justify such rates.

Finally, the Court is reluctant to award compensation at the high rates requested by Counsel at this stage of the chapter 11 case without a more thoughtful consideration of the potential impact of that decision on the interests of the other parties, including the creditors.  Candidly, the Court harbors doubts that this reorganization can successfully proceed if estate professionals’ fees are approved at the rates requested by Counsel, something that the Court would certainly expect Counsel to understand. 

Accordingly, the Court elects to make an interim award of compensation and to approve payment to Counsel of $225,000.  This amount was very roughly computed by reference to the hourly rates for attorneys and non-attorneys comparable to those requested by and approved for the other similarly-skilled estate professionals.  It is also deemed to be a reasonable amount based upon the record, and based upon this Court’s experience as a bankruptcy judge. Counsel may seek additional amounts for compensation for the services reflected in the Application, provided it can factually support them, in connection with its final fee application in this case.    

In re Roman Catholic Bishop of Great Falls, March 8, 2018, James I. Stang and Ilan D. Scharf for UCC

2018 Mont. B.R. 141 (March 8, 2018)

Rothwell, Motion to Continue Denied
Case no 18-60710

Bank of America, N.A., filed a Motion for Continuance of Hearing which the Court cannot reconcile with the docket text or the record. In the Motion, Bank of America, N.A. seeks a continuance of “the hearing on their Motion to Modify Stay.” Bank of America, N.A. does not have a pending Motion to Modify Stay. In addition, Bank of America, N.A.’s counsel docketed the Motion as a “Motion to Continue Hearing On Confirmation of the Plan.” If the Motion is indeed a request to continue the hearing on confirmation of Debtor’s Chapter 13 plan, the Motion should so state and should indicate whether the Trustee also consents to the requested continuance. Because the Court cannot reconcile the Motion with the docket text or the record,

IT IS ORDERED that Bank of America, N.A.’s Motion for Continuance of Hearing is denied without prejudice.

In re Rothwell, October 3, 2018, Jason J Henderson for Bank of America, Gary S. Deschenes for Rothwell

2018 Mont. B.R. 420 (October 3, 2018)

Sand, Chapter 13, Prior Case, Automatic Stay
Case no. 18-60205

Montana Board of Housing seeks an order under ' 362(j) confirming that the automatic stay terminated under 11 U.S.C. ' 362(c)(3), and that Montana Board of Housing may proceed with its foreclosure and liquidation of real property in accordance with non-bankruptcy law. In support of its Motion, Montana Board of Housing avers, and the Court’s records confirm, that Debtor previously filed a Chapter 13 bankruptcy petition on February 27, 2017. Debtor did not request that the stay be extended under 11 U.S.C. ' 362(c)(3)(B). Because this case was commenced within one year of the dismissal of Debtor’s prior bankruptcy, and because more than 30 days have passed since Debtor commenced the instant case and Debtor did not request a continuation of the automatic stay under ' 362(c)(3)(B), this Court concludes that the automatic stay terminated under ' 362(c)(3)(A) on April 20, 2018. While Debtor maintains that his plan in this case was filed in good faith, that fact would only be relevant had Debtor filed a motion for continuance of the automatic stay under ' 362(c)(3)(B), which he did not. IT IS ORDERED that Montana Board of Housing’s Motion in Individual Case for Order Confirming Termination of Stay Under 11 U.S.C. ' 362(c)(3) is GRANTED; and the Court confirms that pursuant to 11 U.S.C. ' 362 (c)(3), the automatic stay has been terminated in its entirety.

In re Sand, June 15, 2018, Lee Rindall for Sand, Burt Ward for MBOH

2018 Mont. B.R. 325 (June 15, 2018)

Sayer, Chapter 7, Reaffirmation Agreement Signature
Case no 18-60726

A reaffirmation agreement was filed for reaffirmation of an debt owed to Missoula Federal Credit Union in the amount of $963.93, which is not signed by the Debtor or the creditor at the required Part B. Because reaffirmation agreements are not favored, strict compliance with § 524(c) is mandatory.  In the absence of an agreement which is properly executed or completed, this Court declines to exercise its discretion under 11 U.S.C. § 524(c) to approve the agreement. IT IS ORDERED approval of the reaffirmation agreement which is not executed by the Debtor or Missoula Federal Credit Union at Part B, is DENIED, with leave to refile in conformity with 11 U.S.C. § 524(c) & (k).

In re Sayer, September 27, 2017, Gary W Wolfe for Sayer

2018 Mont. B.R. 416 (September 27, 2018)

Siefke, Chapter 11, Status Conference
Case no. 17-60607-11

This Order is directed to the Debtors, counsel for Debtors, and to all other interested parties. The Bankruptcy Code requires that this Court “shall hold such status conferencesas are necessary for further the expeditious and economical resolution of the case . . . .” 11 U.S.C. § 105(d). At, or as a result of, such a conference, the Court may issue orders it deems appropriate concerning the management and progress of the case to a proper conclusion, including setting deadlines for actions to be taken by the parties. See 11 U.S.C. § 105(d)(2).

1. Debtors and counsel for Debtors, shall appear in person at and participate in a Status
Conference in this Chapter 11 case to be conducted by the Court.  2. Debtors and counsel shall be prepared to generally discuss the status of this Chapter 11 case, and in addition, if appropriate, to address each of the following topics:

A. The nature of the Debtors’ operations; the factors leading to the filing of this Chapter
11 case; Debtors’ objectives in the case, and the means by which Debtors hope to achieve
those objectives.
B. Any unique issues existing in this case, including those related to secured or priority
debt, executory contracts, cash collateral, the value of assets, management of the Debtors’
operations, or equity.
C. Whether Debtors are complying in all respects with the U.S. Trustee’s operating
guidelines, and in particular, whether Debtors have properly established all required bank
accounts, whether Debtors are current on and otherwise complying with all requirements
for periodic financial reports; whether Debtors are current on and complying with all of
their post-bankruptcy obligations under applicable tax laws; and whether Debtors have in
place appropriate insurance on its assets and operations.
D. A brief summary of Debtors’ post-petition operations, including their income and
expenses, a brief description of all significant assets disposed of or acquired, and an
estimate of all administrative expenses incurred and/or paid as of the date of the Status
Conference .
E. The date by which Debtors expect to file a disclosure statement and plan, and the facts
and reasons supporting that deadline.
F. The status of any litigation, pending or anticipated, involving the Debtors and/or other
interested parties that may impact the Chapter 11 case.
G. Debtors will be given the opportunity to address any other topic of significance in this
Chapter 11 case.

2. In addition to appearing at the Status Conference, Debtors shall file a Status Conference Report with the Court that addresses the general status of this Chapter 11 case, and, if practicable, provides an outline of the terms of Debtors’ anticipated Chapter 11 plan, at least fourteen (14) days business days prior to the date of the Status Conference.

3. The parties are encouraged to confer and discuss the above topics prior to the date set for the Status Conference. Any other interested party, including the U.S. Trustee, and any committee, may appear and be heard at the Status Conference concerning the status of this case, including the topics identified above.

In re Siefke, February 27, 2018, Edward A. Murphy for Siefke

2018 Mont. B.R. 80 (Febraury 27, 2018)

Siefke, Relief From Stay, Burden of Proof, Witness and Exhibit Lists
Case no. 17-60607

As the party seeking relief, Ocwen must first establish a prima facie case that cause exists
for relief under § 362(d)(1). Once a prima facie case has been established, the burden shifts to the Debtors to show that relief from the stay is not warranted. Id. The bankruptcy court’s decision on a motion for relief from the automatic stay is subject to the discretion of the court, and subject to review for an abuse of discretion.

This Court denied Ocwen’s motion to modify stay because Ocwen did not offer witness testimony or exhibits which established a prima facie case. Montana Local Bankruptcy Rule (“Mont. LBR”) 5074-1(c) (“Exchange of Exhibit and Witness Lists”) provides: “The parties involved in video and in-person conferences and hearings shall exchange proposed witness and exhibit lists and copies of all proposed exhibits, and file such lists and exhibits with the Court, at least three (3) business days prior to a hearing or trial.” Local Rule 5074-1(c)(3) states plainly: “Failure to timely exchange and file proposed witness and exhibit lists and copies of proposed exhibits in accordance with this rule may result in the Court barring any undisclosed witness testimony and denying the admission of any exhibit not disclosed or exchanged.”

Ocwen’s counsel’s statement that there were no disputed facts was presumptuous, and incorrect in light of Debtor’s counsel’s assertions at the hearing. “[A]rguments and statements of counsel are not evidence.” The Court denied Ocwen’s motion, enforcing Mont. LBR 5074-1(c)(3)2. Since assuming the bench this Court has vocally urged counsel to confer prior to contested hearings, and to comply with the Local Rules in order to be best prepared to represent their clients’ interests at contested hearings.

In re Siefke, April 6, 2018, Benjamin J Mann for Ocwen, Edward A Murphy for Siefke

2018 Mont. B.R. 203, (April 6, 2018)

Slattery, Motion Practice
Case no 16-61185-7

The Trustee filed a Motion for Authority to Sell property Free and Clear of Liens and Encumbrances and for Surcharge of Secured Creditor’s collateral. The Trustee’s Motion sought approval of a short sale of property of the estate “with valid liens attaching to the sale proceeds.” Wells Fargo filed a response to the Trustee’s Motion
stating that it had no objection provided it was paid in full satisfaction of its note and requests that the Trustee contact Wells Fargo to obtain a payoff.

The Trustee filed a reply to Wells Fargo’s response stating he had estimated the final payoff to Wells Fargo based upon information provided by Wells Fargo and that he would submit a revised proposed Order which clarifies and requires full payment of the Wells Fargo. After reviewing the Motion, Response and Reply, the Court entered an Order setting the matter for hearing.

The Order explained as follows:
The Court views Wells Fargo Bank’s response as outside the permissible responses to a motion mandated by Mont. LBR 9013-1(f). Wells Fargo Bank could have telephoned the Trustee about its concerns and requests without involving the Court. Instead, without requesting a hearing as required under LBR 9013-1(f), Wells Fargo Bank requests relief which may or may not be consistent with the Trustee’s motion. The Court cannot determine the merits of Wells Fargo Bank’s requests with respect to the Trustee’s motion without a hearing, and thus is forced to schedule the Trustee’s motion for hearing.

It appears the agreement between the parties satisfies the Court’s concerns related to the Trustee’s Motion and the Response thereto filed by Wells Fargo. However, for the benefit of the parties, the Court offers the following observations. Having filed a response, Wells Fargo should have also set the matter for hearing.

Response to Motion. Unless otherwise provided by these Local Rules, any entity objecting to a motion shall file a response and request a hearing within fourteen (14) days of the date of the motion and shall, in the response, notice the contested matter for hearing by including in the caption of the responsive pleading the date, time and location of the hearing by inserting in the caption in bold and conspicuous print the Notice of Hearing as specified in the subpart (e) above. Mont. LBR 9013(f).

The parties used their pleadings to negotiate an agreement, and the Court was left to divine if an agreement had been reached. Rather than piecing together terms this way, the better approach would have been for Wells Fargo’s counsel to call the Trustee immediately after the Motion was filed, determine if an agreement could be reached, or any concerns be addressed, and file an appropriate pleading with the Court. Alternatively, Wells Fargo should have set the matter for hearing when it filed its
response, consistent with Mont. LBR 9013(f).
Although email is ubiquitous, it is no substitute for picking up the telephone and calling counsel. Further, after an agreement has been reached over the telephone, one can
then send an email confirming their understanding of the call. Had Wells Fargo’s counsel called the Trustee prior to filing the Response, the additional efforts by the parties and Court might have been avoided.

In re Slattery, January 29, 2018, Hillary McCormick for Wells Fargo Bank, Richard Samson, Trustee

2018 Mont. B.R. 568 (January 30, 2018)

Spanish Peaks Holdings II LLC, Chapter 7, Adequate Protection, Lease, Sale
Case nos. 12-60041, 12-60042, 12-60043, Jointly Administered

The Supreme Court has adopted the terminology of the Restatement (Second) of Judgments, and uses “claim preclusion” in place of res judicata and “issue preclusion” in place of collateral estoppel. “Issue preclusion bars relitigation only of issues that have been actually litigated, while the broader brush of claim preclusion may also bar a cause of action that has never been litigated.” What constitutes a “claim” for purposes of claim preclusion is determined by the “transactional test” which “focuses on the transactional nucleus of operative facts and includes all rights to remedies with respect to all or any part of the ‘transaction, determined pragmatically, out of which the action arose, so long as they could conveniently be tried together.” Moreover, under claim preclusion: “Legal theories and remedies not asserted are extinguished.”

“Claim preclusion is appropriate where: (1) the parties are identical or in privity; (2) the judgment in the prior action was rendered by a court of competent jurisdiction; (3) there was a final judgment on the merits; and (4) the same claim or cause of action was involved in both suits.” Factors to be considered in determining whether the same claim or cause of action is involved are (1) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transaction or nucleus of facts.”

Upon review of this record, the Court finds and concludes that the prosecution of the AP Motion is barred by claim preclusion. The “claim” of adequate protection here asserted under the AP Motion arises out of the same transactional nucleus of operative facts as involved in the prior litigation involving the sale. As held in the above cases, claim preclusion bars grounds for recovery that were available and not asserted or not determined in the prior litigation.

In re Spanish Peaks Holdings II LLC, April 24, 2018, Malcolm H Goodrich and David W. Ross for Pinnacle Restaurant at Big Sky and Montana Optocom, LLC, Steven M. Johnson, James F. Wallack and Peter Bilowz for CH AP Acquisition LLC, John L Amsden for Ross Richardson, Trustee.

2018 Mont. B.R. 218 (April 24, 2018)

St. Clair, Sanctions, Automatic Stay, Discharge Injunction
Case no. 17-60940

In its application of § 362(k), this Court has consistently considered whether the creditor knew of the stay, and if the creditor’s actions in violation of 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).”

A debtor’s discharge, “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived[.]” A party who knowingly violates the discharge injunction can be held in contempt under § 105(a) of the bankruptcy code. To establish a violation of the discharge injunction was knowingly and willfully committed: “the movant must prove that the creditor, (1) knew the discharge injunction was applicable and (2) intended the actions which violated the injunction.” These attempts to collect the prepetition debt do not comply with the Court’s Order granting Jason’s Discharge. The Order specifically explains that no one may make any attempt to collect a discharged debt from the debtors personally and cannot contact the debtors by mail, phone, or otherwise in any attempt to collect the debt personally. Verizon’s actions violated the Discharge Order. Further, the recurring nature of the violations followed by referral to a new collection agency, North Shore, demonstrate Verizon’s conduct was intentional. Jason established that Verizon violated the discharge injunction.

Actual damages include costs and attorney’s fees. “For these reasons, § 362(k) is best read as authorizing an award of attorney’s fees incurred in prosecuting an action for damages under the statute.” A debtor may also be awarded emotional distress damages for an automatic stay violation. If it is shown that “reckless or callous disregard for the law or rights of others” led to the automatic stay violation, punitive damages may also be awarded. Here, Geranios’ fees were reasonable and necessary for addressing Verizon’s conduct. Thus, Debtors’ actual damages are $5,140.50. In addition to actual damages, damages for emotional distress may be awarded if the debtor, “(1) suffer[s] significant harm, (2) clearly establish[es] the significant harm, and (3) demonstrate[s] 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).” . Verizon’s collection efforts that violated the automatic stay included 3 billing statements for $768.13, $1,203.43, and $1,203.43, respectively. The total of these amounts is $3,174.99. Punitive damages that are twice this amount are awarded to Jason. Jason is awarded $6,349.98 in punitive damages.

Although limited, the Court may award compensatory damages, attorneys fees, and coerce the contemptuous party into compliance with civil penalties. As a result of the automatic stay violations, Debtors were awarded compensatory damages, including their attorney’s fees. As a result, this Court must determine whether there is any coercive measure that will ensure Verizon’s compliance with § 524(a). As a result, in this case the Court is going to impose a fine or penalty of $1,000 per violation for a total of $8,000. An additional penalty of $1,000 per violation will be imposed if Verizon continues to violate Debtors’ discharge. Debtors are authorized to request additional fines and attorney’s fees if Verizon continues its violations.

There is simply no excuse for Verizon’s conduct in this case, and perhaps that is why Verizon chose not to attend the hearing, or defend the Motion. Verizon shall pay the following amounts to Jason St. Clair: (a) actual damages of $5,140.50; (b) punitive damages of $6,349.98; and, (c) a coercive fine or penalty of $8,000, (subject to increase $1,000 per future violation).

In re St.Clair, July 27, 2018, Nik Geranios for St Clair

2018 Mont. B.R. 369 (July 27, 2018)

Taylor, Chapter 13, Attorney’s Fees
Case no. 15-60048

Attorney for the Debtor, filed on November 14, 2018, an Application for Professional Fees and Costs requesting an award of professional fees in the amount of $4,708.00 plus reimbursement for costs in the sum of $229.24. Applicants must provide an adequate summary of work performed and costs incurred so the Court can evaluate the propriety of the compensation requested. Filed with the Application are billing statements which include time records setting forth a description of the services provided, the dates such services were provided, time increments, the fees requested for such services, and an itemization of costs beginning 4/2/2015 through 10/31/2018. After review of the time records, with two exceptions the Court finds adequate detail to enable this Court to undertake its independent investigation.

The two exceptions are: (1) an entry dated 4/11/16 for .2 hours and $40 described as “Correspondence to Sandy Taylor;” and (2) .1 hours and $20 on 07/10/18 for .1 hours and $20 described as “Phone Call with Bob Drummond.” Those two entries totaling $60 both are disallowed for insufficient detail of the purpose of the correspondence and phone call. Binney billed for his legal services at the hourly rate of $200 and billed for his paralegals at the hourly rate of $90. After review of the Application, based upon its independent investigation and the resultsin this case, and with the Trustee’s consent and the absence of any objection, the Court finds thaBinney’s professional fees and costs in the amounts requested, less $60 disallowed for insufficient detail, were for work performed that was actual, reasonable and necessary for the estate.

In re Taylor, November 30, 2018, Jon R. Binney for Debtor

2018 Mont. B.R. 525 (November 30, 2018)

The Homestead at Whitefish, Chapter 11, Confirmed Chapter 11 Plan, Jurisdiction
Case no. 14-60353-11

“[T]he source of the bankruptcy court's subject matter jurisdiction is neither the Bankruptcy Code nor the express terms of the Plan. The source of the bankruptcy court's jurisdiction is 28 U.S.C. §§ 1334 and 157.” The mere retention of jurisdiction in a chapter 11 plan is insufficient for establishing a bankruptcy court’s post confirmation jurisdiction, absent jurisdiction under 28 U.S.C. §§ 1334 and 157. Section 1334(b) authorizes the bankruptcy courts to exercise jurisdiction of “all civil proceedings arising under title 11, or arising in or related to cases under title 11.” Matters that are core proceedings are identified by 28 U.S.C. § 157. Since a plan has already been confirmed in this case, a determination of this Court’s post-confirmation jurisdiction and its limits hinges upon the “close nexus” test.

A close nexus exists where a proceeding requires interpretation of an order confirming a bankruptcy plan. Like in Wilshire, the “ultimate merits question depends in part on the interpretation of the confirmed Plan.” This implicates the Plan, as well as the Confirmation Order. As explained in Wilshire, “interpretation” for purposes of the close nexus test broadly contemplates not only a plan, but also any confirmation order.

A bankruptcy court may enter final judgments and orders in core matters, but not in “noncore” matters. Plan confirmation is a core matter. Further, “[e]nforcement and interpretation of orders issued in core proceedings are also considered core proceedings within the bankruptcy court’s jurisdiction.” In this case, interpretation and enforcement of the Confirmation Order is a core proceeding. Further, proceedings between non-debtors involving the interpretation of rights under a sale order have been determined to be core proceedings. Although the order to be interpreted here is the Confirmation Order, it was a sale order in substance, providing for the sale of all of Debtor’s property, as well as other property in connection with the Plan. As a result, this Court concludes that although neither Maschmedts nor Movants are the debtor, consideration of the Motion remains a core proceeding. Abstention at this stage of the proceedings will not serve the interests of justice, comity with the state courts, or demonstrate respect for state law.

Given the recognition that the Court that issued the order is likely best equipped to interpret it, this Court has difficulty concluding that the interests of justice, comity, or respect for state law will be well served by asking the State Court to parse through and interpret the Plan and Confirmation Order. This is a task better suited for this Court, and a burden that it should shoulder. As a result, permissively abstaining at this stage of the proceeding would not serve the interests of 28 U.S.C. § 1334(c)(1), so the Court declines to do so at this time. Applying the close nexus test as articulated in Wilshire, this Court concludes that Movants have established this Court has related to jurisdiction under 28 U.S.C. § 1334 for purposes of determining whether the Maschmedts’ claims in the FAC are barred in whole or in part, by the injunctions, releases, and terms of the sale contained in the Plan and Confirmation Order; that the matter is core under 28 U.S.C. § 157; and, that consistent with those conclusions, this Court must review and interpret the Plan and Confirmation Order and determine which, if any, of Maschmedts’ claims are the subject to the releases and injunctions, or otherwise barred by the Plan and Confirmation Order.

In re The Homestead at Whitefish, January 31, 2018, James A Patten for Great Northern Ventures, LLC., Kyle Ryan for Maschmedt

2018 Mont. B.R. 48 (January 31, 2018)

The Homestead at Whitefish, Chapter 11, Discovery, Shorten Time
Case no. 14-60353-11

In their Motion, Movants seek an order authorizing the use of Rules 7026 through 7036, F.R.B.P., to engage in discovery upon Maschmedts, and request that the Court shorten the time for the Maschmedts to respond to discovery be fixed at seven days from the receipt, by electronic means, of the discovery. Unless requested by a party and allowed by the Court, in its discretion, the Part VII rules identified in Fed. R. Bankr. P. 9014(c) shall not apply to any contested matter. The subpoena powers of attendance and production allowed under Fed. R. Bankr. P. 9016 apply in contested matters, which are separate and distinct from the Part VII rules specified in F.R.B.P 9014(c). Mont. LBR 9014-1.

Movants state in their Motion that at a prior hearing counsel for the Marschmedts had indicated that either or both Maschmedts and their bankruptcy counsel, Harold V. Dye, may be called as witnesses at a March 1, 2018 hearing on the merits of Movants underlying Motion for Order Enforcing Injunctions and Releases Contained in Confirmed Plan of Reorganization.

The Court does not see a dispute for it to resolve. The Movants’ belief that Harold V. Dye might be called to testify at the March 1, 2018, hearing is based solely on a casual suggestion that Harold V. Dye may testify at a further hearing. Maschmedts have now represented that they may not call Harold V. Dye as a witness at the March 1, 2018, hearing. Further and notwithstanding, Maschmedts’ argument regarding disclosure of witnesses and exhibits, the Court the parties shall think critically regarding how they intend to proceed at the upcoming hearing and to confer within the next 48 hours regarding their likely witnesses and exhibits. If after that conference either party believes pre-hearing discovery is necessary, either party may seek an order authorizing the use of Rules 7026 through 7036, F.R.B.P., which the Court will hear and decide on very short notice. The Court outlined at the hearing its expectations of the parties that they confer and preview for each other how they intend to proceed at the hearing. This conference shall be sufficiently detailed that either party can assess whether discovery is necessary, and in the absence of any
agreement on discovery by the parties, a discovery motion may be filed consistent with Mont. LBR 9014-1. Such motion shall identify the scope of discovery sought, and provide an appropriate explanation for why the discovery sought is critical to the issues to be heard on March 1, 2018.

IT IS ORDERED that Movants’ Motion to Engage in Discovery and to Shorten Time is denied, without prejudice.
IT IS FURTHER ORDERED that notwithstanding Mont. 5074-1(c), Movants and the Maschmedts shall have 48 hours from the entry of this Order to confer and identify witnesses and exhibits that they intend to call at the March 1, 2018, hearing. If, after that exchange, either party feels discovery is necessary, the party may file an emergency motion to engage in discovery. Given this Court’s requirement that the parties confer within 48 hours, any motion to engage in discovery under Mont. LBR 9014-1 shall to be filed by Tuesday, February 20, 2018; any response shall be filed by Thursday, February 22, 2018, and a telephonic hearing will beheld on Friday, February 23, 2018, and the Court will rule on the motion.

In re The Homestead at Whitefish, Febraury 14th, 2018), James A Patten and Jeffrey K Garfinkle for Homestead, David B Conter and Kyle C. Ryan for Maschmedt

2018 Mont. B.R. 76 (February 14, 2018)

Thomas v. Yellowstone Capital, LLC, Motion to Dismiss Adversary Proceeding
Case no. 17-61231, Adversary no. 18-00005

Yellowstone Capital’s motion to dismiss is based upon Rule 12(b)(1), (2),and (6). With respect to the motion’s references to Rule 12(b)(1) (subject-matter jurisdiction) and Rule 12(b)(2) (personal jurisdiction), it is undisputed that the six counts of Plaintiff’s complaint do not invoke core proceedings. The most this Court could do under 28 U.S.C. § 157(c)(1) would be to hear this adversary proceeding, and then submit proposed findings of fact and conclusions of law to the district court. The Second, Fourth and Sixth Counts of the complaint against Yellowstone Capital all aver claims for relief based on state law.

Court has admonished this Plaintiff/Debtor more than once that pro se litigants must follow procedural rules. The Plaintiff once again has failed to comply with this Court’s rules by failing to file a timely response to Yellowstone Capital’s motion to dismiss, which gives rise to an admission by Plaintiff by operation of Mont. LBR 9013-1(f) that the relief requested should be granted.

Rule 12(b)(6) motions are decided under a “plausibility standard”. The Ninth Circuit settled on a two-step process for evaluating pleadings:
First, to be entitled to the presumption of truth, allegations in a
complaint or counterclaim may not simply recite the elements of a
cause of action, but must contain sufficient allegations of underlying
facts to give fair notice and to enable the opposing party to defend
itself effectively. Second, the factual allegations that are taken as true
must plausibly suggest an entitlement to relief, such that it is not
unfair to require the opposing party to be subjected to the expense of
discovery and continued litigation.

Taken together with Plaintiff’s admission by operation of Mont. LBR 9013-1(f) by failing to respond to Yellowstone Capital’s motion to dismiss, paragraphs 27 and 37 of Plaintiff’s complaint stating that the law of New York govern the construction of Yellowstone Capital loan documents with the Plaintiff, and the existence of a final judgment from the Supreme Court of the State of New York against the Plaintiff and in favor of Yellowstone Capital, this Court concludes that the complaint fails to state a claim upon which relief can be granted against Yellowstone Capital, and that the Plaintiff’s claims for relief against Yellowstone
Capital should be dismissed for lack of subject-matter jurisdiction and lack of personal jurisdiction under Rules 12(b)(1), (2), and (6). IT IS ORDERED Yellowstone Capital’s motion to dismiss is granted.

Thomas v. Yellowstone Capital, LLC., March 13, 2018, Christopher Gregg Thomas, Pro se, Doug James and Morgan Hoyt for Yellowstone Capital

2018 Mont B.R. 160 (March 13, 2018)

Western Capital Partners v. Sandoval, (Myers) Adversary Proceeding, Summary Judgment
Case no. 09-60452, Adversary no. 09-00105

As a preliminary matter, the Court must address several evidentiary issues raised by WCP. The Objection does not contain citations to the Federal Rules of Evidence, Federal Rules of Bankruptcy Procedure, Federal Rules of Civil Procedure, or case law. This lack of citation requires the Court to divine the basis for the objections. Federal Rule of Evidence 602 states in part, “[a] witness may testify to a matter only if evidence is introduced sufficient to support a finding that the witness has personal knowledge of the matter. Evidence to prove personal knowledge may consist of the witness’s own testimony.” With regard to objections (1) and (2), there is nothing in Sandoval’s affidavit establishing he had personal knowledge of the means by which Opspring generated revenue after its March 31, 2007 transfer to Blixeth or whether Blxware was a successor in interest of Opspring. Those objections will be sustained.

With regard to objection (3), Sandoval provided that, “[i]t is my understanding that no party to the Letter Agreement would have executed it without the exchange of promises and performance of obligations set forth in such Letter Agreement. . . .” Sandoval’s involvement in the events leading to the execution of the Letter Agreement are sufficient to establish his personal knowledge of the situation, enabling him to testify as to his “understanding” regarding whether the parties would have entered into the Letter Agreement had it contained different terms. WCP’s objection (3) will be overruled. Through execution of the March 31, 2007 Letter Agreement, Blixeth became the sole owner of Opspring. Blixeth’s undisputed ownership of Opspring is sufficient to support her knowledge of Opspring’s operations, including the means by which it generated revenue and whether it fulfilled its obligations to Atigeo, xPatterns and Sandoval. WCP’s objection (5) will be overruled.

Federal Rule of Civil Procedure 56 (incorporated by Federal Rule of Bankruptcy Procedure 7056) requires, with regard to motions for summary judgment, that assertions of fact must be supported by materials in the record, including “affidavits or declarations.”“An affidavit or declaration used to support or oppose a motion must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated.” Nothing in this rule requires an affiant to express an intent to testify at trial in order for his or her affidavit to be considered for purposes of a motion for summary judgment, and WCP has provided no authority for such a proposition.  The Court has not independently found such authority. WCP’s objection (4) will therefore be overruled. In order to resolve the parties’ motions, the Court must determine the severability of the provisions in the Letter Agreement. The contracting parties’ intent controls whether parts of a contract or lease, or part performance thereunder, can be separated and treated as independent legal obligations.

Here the Court has conflicting evidence of intent. While there are the parties’ affidavits expressing their intent in entering into the Letter Agreement, there are also the provisions of the Letter Agreement itself, which may be considered as evidence of the intent of the parties executing it. The Court has taken significant time and care in combing the record to ascertain the arguments of the parties and evaluate the relevant, and purportedly undisputed, facts. However, having completed that review, the Court concludes that the Letter Agreement and the affidavits of record demonstrate that questions of material fact are in dispute. Therefore, under the guiding standards, both summary judgment motions should be denied.

Western Capital Partners v. Sandoval, June 21, 2018, Robert. W. Hatch for Western Capital Partners LLC, Curt R. Hineline for Sandoval

2018 Mont. B.R. 344 (June 21, 2018)

Whiting, Chapter 7, Lien Avoidance, Homestead
Case no 16-60498-7

Debtor filed a Motion to Avoid Lien under 11 U.S.C. §522(f), seeking to avoid the Judgment Lien held by Opportunity Bank of Montana against Debtor’s homestead property. Debtor’s instant motion was filed in accordance with Mont. LBR 4003-4, which provides:

A debtor shall move to avoid liens pursuant to 11 U.S.C. § 522(f)(1) by filing Mont. LBF 24.

Opportunity Bank of Montana opposed Debtor’s Motion. Debtor asserts in the motion that Opportunity Bank of Montana’s judicial lien impairs Debtor’s homestead exemption. In support of such assertion, Debtor represents that the market value of the homestead property is $420,000.00. Debtor also maintains that the homestead property is encumbered by two consensual secured obligations (also owed to Opportunity Bank of Montana) in the sum of $285,643.09. The allowable homestead exemption on the date Debtor filed his bankruptcy petition was $250,000.00 under Mont. Code Ann. § 70-32-104. The avoidance of liens, in general, is governed by 11 U.S.C. § 522(f), which provides in relevant part:

Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is(A) a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5)[.]

Utilizing the formula set forth in 11 U.S.C. § 522(f)(2)(A) and the uncontested facts asserted byDebtor in his motion, the Court finds that Opportunity Bank of Montana’s judicial lien impairs Debtor’s homestead exemption.

In re Whiting, January 26, 2018, Gregory W Duncan for Whiting, Burt W Ward for Opportunity Bank

2018 Mont. B.R. 45 January 26, 2018)

Windy Butte Reclamation Facility, LLC, Chapter 7, Trustees Fees
Case no. 15-60615

In most chapter 7 asset cases, the chapter 7 trustee requests compensation in the form of a “commission” under § 330(a)(7).  The requested fees are most times, but not always, the maximum allowed under § 326(a) based upon the amounts to be distributed by the trustee to creditors in the case.  As interpreted by the Ninth Circuit Bankruptcy Appellate Panel (“BAP”), these Code provisions effectively restrict the role of the bankruptcy court in reviewing trustee compensation requested in routine chapter 7 cases, even in those where the trustee provided limited services to earn the fee, and unsecured creditors will benefit little, or not at all, from the those services. 

Section 330(a)(1) provides that, after notice and a hearing, a bankruptcy court may award estate professionals, including a trustee, “reasonable compensation for actual, necessary services rendered” in the case, together with reimbursement for actual, necessary expenses. Section 330(a)(3) sets forth a non-exclusive list of factors a bankruptcy court must consider in determining the “reasonableness” of a request for compensation by a trustee or estate professional, including whether the services rendered were “necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title.” § 330(a)(3)(c).  However, § 330(a)(7) is also important in this context.  It instructs that “[i]n determining the amount of reasonable compensation to be awarded to a [chapter 7] trustee, the court shall treat such compensation as a commission, based on [§] 326.”   Section 326, entitled “Limitation[s] on Trustee Compensation”, establishes a series of “caps”, or maximum amounts of chapter 7 trustee compensation, depending upon the amount of “moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims.”§ 326(a).   As can be seen, whereas § 330(a)(3) focuses on the actual services rendered and benefits bestowed by a trustee in determining “reasonable” compensation, § 330(a)(7) considers a single fact, the amount distributed to creditors, in fixing a trustee’s fees.

At bottom, there is no opposition to Trustee’s fee request, and the Court is left to wrestle on its own whether, absent any distributions to unsecured creditors, maximum trustee compensation is appropriate.  While it is a hard choice, the Court can not conclude that Trustee ought to receive less than maximum fees in this odd case. The Court’s reservations about Trustee’s request for maximum § 326(a) compensation in this case amount to disagreements with several of the decisions she made in doing her job. But the Code vests chapter 7 trustees, not bankruptcy judges, with the broad discretion to make the important decisions about how to administer bankruptcy estates.   Here, Trustee made a judgment call: an abandonment of the contaminated property may have required an extended legal contest with DEQ, while a free and clear bankruptcy sale might have generated  funds for creditors and resulted in the clean-up of the property.  So, too, Trustee’s decision to accept only a modest carve-out from the secured creditor’s proceeds to facilitate the sale was a matter committed to her discretion.  While the Court would have made different decisions, its role in this case is not to retroactively substitute its judgment for that of Trustee.  In addition, a bankruptcy court can not compel a chapter 7 trustee to seek less than the § 326(a) maximum compensation.  While this Court is accustomed to trustees who voluntarily reduce fee requests when they dwarf the dividends to unsecured creditors, the Court declines to police Trustee’s conscience.

In re Windy Butte Reclamation Facility, May 16, 2018 Darcy M Crum, Trustee, James A, Patten for Debtor

2018 Mont. B.R. 251 (May 16, 2018)

Womack v. Curran, Motion Practice
Case no 18-00024

Plaintiff filed a Motion for Entry of Default Judgment. The Motion is denied because the relief requested in the Motion is inconsistent with the relief requested in the Adversary Complaint. The Complaint alleges that "Debtors have not received a discharge because Debtors are deficient in the filing of forms." Complaint Paragraph 10. It then requests that "discharge of the Debtors' debts be denied." According to the Motion, "Plaintiff requests entry of Judgment revoking Debtors’ discharge." Consistent with this requested relief, Plaintiff submitted a proposed Order which refers to, "this proceeding having been duly considered by the Honorable Ralph B. Kirscher," and then it orders and adjudges that Defendants discharge is revoked. While the Court speculates that the Motion and Proposed Order are the latest casualties of the convenience of the "cut and paste" functions that permit the speedy preparation of pleadings, it remains unwilling to grant the relief requested.

Womack v. Curran, August 13, 2018 Joseph V. Womack, Trustee, Christopher Curran, Pro Se

2018 Mont. B.R. 388 (August 13, 2018)

Womack v. Schneider, Motion to Dismiss Counterclaim Against Trustee
Case no. 14-61357, Adversary no. 17-00021

Trustee filed a Request for Judicial Notice asking the Court to take judicial notice of the Order of Dismissal with Prejudice, dismissing Meridian’s claims against Mr. Schneider in the Arbitration, and the Findings of Fact, Conclusions of Law and Interim Award, entered in the Arbitration. A trial court may also take judicial notice of “another court’s opinion . . . not for the truth of the facts therein, but for the existence of the opinion, which is not subject to reasonable dispute over its authenticity.” The Court will grant Trustee’s request and take judicial notice of both documents as requested by Trustee. 

Under Montana Law, a “promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty.”   However, even assuming for these purposes that Mr. Schneider is a third-party beneficiary of the Meridian Settlement Agreement, Counterclaim Two fails to state a claim for relief against Trustee and must be dismissed.  The Meridian Settlement Agreement provided that Meridian would provide a full release only of “any and all
prepetition claims that Meridian may have against John Henry Schneider and/or the John Henry Schneider Bankruptcy Estate.”  The Order of Dismissal with Prejudice entered in the arbitration proceeding did just that. Second, even if Meridian somehow breached the settlement agreement, Trustee owed no duty to
Mr. Schneider to attempt to force Meridian into compliance. 

While Civil Rule 15, incorporated by Rule 7015, provides that the Court should freely grant leave to amend a complaint “when justice so requires”, a trial court may deny leave to amend a complaint (or counterclaim) if such an amendment would be futile or unduly prejudice the opposing party. After dismissal of their prior claims, it appears to the Court that Defendants moved in the wrong direction. Defendants’ decision to plead, and then not attempt to defend, dismissal of Counterclaims One and Two shows the Court that they should be dismissed with prejudice.

Womack v. Schneider, January 10th, 2018, Trent M Gardner, Jeffrey J Tierney for Womack, James H. Cossitt for Schneider

2018 Mont. B.R. 11 (January 10, 2018)

Yochim, Chapter 13, Lien Avoidance
Case no 17-60981

In the Amended Plan, Debtors seek to avoid the judgment liens of Collection Bureau Services, Midland Funding and Portfolio Recovery Associates. The avoidance of liens, in general, is governed by 11 U.S.C. § 522(f), which requires the Court to utilize a formula to determine whether a particular creditor’s judicial lien impairs an exemption to which the Debtors are entitled. While debtors are arguably entitled to avoid judicial liens in their plans, they must provide the required information so the Court can make the required findings under 11 U.S.C. §522(f). The better coarse of action would be for the Debtors in this case to follow Mont. LBR 4003-4, which provides:   A debtor shall move to avoid liens pursuant to 11 U.S.C. § 522(f)(1) by filing Mont. LBF 24.  By using a properly completed Local Bankruptcy Form 24, Debtors will insure that the Court has all the facts necessary to determine whether a particular judicial lien impairs an exemption. Because Debtors’ Amended Plan does not provide enough information for the Court to avoid the judicial liens t confirmation of Debtors’ Third Amended Chapter 13 Plan filed January 3, 2018, is DENIED.

In re Yochim, January 5th, 2018), atthew F. Shimank for Yochim

2018 Mont. B.R. 4 (January 5, 2018)

Zulkowski v. Guild Mortgage Company, United States District Court, (Cavan), Trustee’s Sale, Receipt of Notice

Case no. 17-CV-00147

Zulkowski missed payments on the Note. Therefore, Guild sent Zulkowski a Notice of Intention to Foreclose The 9/16 Notice lists Zulkowski’s address as the Property address. Zulkowski claims that she never received the 9/16 Notice. She explains that she was residing primarily in Hawaii at times pertinent to this case, and therefore that “it did not make sense to have our mail delivered to our address at 31 Snowy Lane in Red Lodge.”

Guild argues that Zulkowski’s claims against it are moot because they all relate either to the now-cancelled trustee’s sale or to a future trustee’s sale that has not been scheduled. The Court declines to accept Guild’s argument. Additionally, though Guild cancelled the trustee’s sale it initiated related to the 9/16 Notice, the 9/17 Notice remains outstanding, and Guild could initiate a trustee’s sale based on that Notice at any time. Guild does not point to any Montana statute that would result in the automatic cancellation of foreclosure proceedings absent some action on Guild’s part. Accordingly, since Zulkowski remains in the middle of a foreclosure proceeding that Guild could pursue at any time, the Court finds that her claims are not moot, and that it has subject matter jurisdiction.

Guild has submitted the declaration of James Madsen, which states that the 9/16 Notice was sent to Zulkowski at the Property address as required by the Deed of Trust. Zulkowski disputes this “to the extent that the affidavits of both John Zulkowski…and Karen Zulkowski…provide evidence that they never received any notice of intent to foreclose.” But the Deed does not require receipt of the notice. It provides that “[a]ny notice to Borrower in connection with this Security Instrument shall be deemed to have been given to Borrower when mailed by first class mail . . . to Borrower’s notice address.” Zulkowski also does not explain how she or her husband have personal knowledge as to whether Guild ever sent the required notice. “An affidavit or declaration used to support or oppose a motion must be made on personal knowledge….” The Deed does not require Guild to ensure that Zulkowski received notice of intent to foreclose, only that it give her notice according to the terms of the Deed.

Zulkowski argues that other dates listed on the Notices “are confusing and misleading” “at the very least,” and therefore contravene Section 22 of the Deed. Again, the Court finds this argument meritless. These dates and amounts simply explain to Zulkowski the ever-mounting debt she is accruing to Guild, and display to her the amount she must pay in order to cure her default at regular future intervals, as dictated by the interest rate specified in the Note and any other applicable charges and penalties.

She argues that Guild committed the tort of negligent misrepresentation because the 9/17 Notice identified Guild as the beneficiary of the Note. She alleges MERS is the beneficiary, not Guild. Again, this argument is meritless. First, Guild has been the beneficiary of the Note since 2013, pursuant to the Assignment of Trust Indenture that assigned MERS’ interest to Guild. But in addition, Zulkowski fails to plead a proper claim for negligent misrepresentation, which requires presentation of the following elements: (a) the defendant made a representation as to a past or existing material fact; (b) the representation must have been untrue; (c) regardless of its actual belief, the defendant must have made the representation without any reasonable ground for believing it to be true; (d) the representation must have been made with the intent to induce the plaintiff to rely on it; (e) the plaintiff must have been unaware of the falsity of the representation; it must have acted in reliance upon the truth of the representation and it must have been justified in relying upon the representation; (f) the plaintiff, as a result of its reliance, must sustain damage. Zulkowski does not plead any facts to support these elements, and her claim would be subject to dismissal for that reason alone under Fed. R. Civ. P. 12(b)(6).

Zulkowski v. Guild Mortgage Company, September 18, 2018, Steven L Thusen and Raymond G Kuntz for Zulkowski, Michelle M. Sullivan and Adrian A. Miller For Guild Mortgage

2018 Mont. B.R.398 (September 18, 2018)



























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