Decisions of 2020
Adkins, Chapter 7, Post-Petition Fees,
“ Return to the Fray”, Sanctions
In Ybarra, the Ninth Circuit noted that the bankruptcy court had held that the debtor’s former employer “could collect the portion of the fees and costs incurred after Ybarra filed for bankruptcy.”The Ninth Circuit reiterated that when a debtor returns to the fray post-petition, the “claims for attorney fees and costs incurred post-petition are not discharged[,]” and that by affirmatively reviving the state suit, the debtor in Ybarra “returned to the fray” and thus, the debtor’s former employer’s “claim for attorney fees and costs incurred post-petition were not discharged in the bankruptcy.”
One day before his discharge was entered in this bankruptcy case, Debtor elected to be an active participant in the Florida Litigation. Creditors correctly conclude that, “Pursuant to the ‘return to the fray’ analysis, the claim arose based entirely on Debtor’s postpetition conduct.”This Court agrees and concludes that the fees and costs incurred post-petition included in the Florida Judgment are not subject to Debtor’s discharge under §727, or the injunction under § 524.Ybarra is clear that when a debtor returns to the fray, only the fees and costs incurred after a bankruptcy petition is filed are outside the scope of the debtor’s discharge. The Court considers the Creditors’ concession, “the claim arose based entirely on Debtor’s post-petition conduct,” irreconcilable with their alternative arguments that the award and collection of prepetition fees is consistent with Ybarra, §§ 524 and 727. The parties can calculate the exact amount of fees and costs that were incurred after November 19, 2013, and Creditors may collect that amount.
A discharge under 11 U.S.C. § 524(a)(2) “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....”Civil contempt is the normal sanction for violation of the discharge injunction. In order to hold a creditor in civil contempt for violating a discharge order, the debtor must show there was no objectively reasonable basis for concluding that the creditor’s conduct might be lawful. The Court is not persuaded that imposition of civil contempt is appropriate, or required.
Creditors are not entitled
to sanctions under Rule 9011, the Court’s Inherent Authority, or §
1927. First, although Debtor multiplied the proceedings before the
Florida court, in this case Debtor appropriately defended against
Creditors attempt to collect a post-petition award of pre-petition
attorney’s fees and cost which was inconsistent with §§ 727, 524 and
Ybarra. Despite this, the Court concluded that sanctions against
Creditors were not warranted and it similarly concludes sanctions
against Debtor, or his counsel are equally unwarranted.
2020 Mont B.R. 20 (January 30, 2020)
Case no. 19-60484
Debtor’s continuing and unresolved objection to Wilmington’s Claim is premised on the parties’ stipulation that the collateral securing Wilmington’s claim has a value of $145,000, and a chapter 7 discharge she received in a prior case. The loan that is the basis of Wilmington’s claim was obtained by Debtor in 2005. Debtor received a chapter 7 discharge on September 23, 2014.
According to the Proof of Claim, the balance owing on the 2005 Loan on the petition date was $276,960.58. In essence, Debtor argued that under § 506(a)(1), Wilmington’s secured claim is limited to the stipulated value of the collateral, $145,000, and her prior chapter 7 discharge extinguished any personal liability that would permit Wilmington to have an unsecured claim for the difference between $145,000 and $276,960.58, or $131,960.58. The parties neither dispute that § 506(a)(1) provides for the bifurcation of claims into secured and unsecured components, nor that any unsecured claim would be the amount of the claim in excess of $145,000.
Ultimately, Wilmington has not persuaded this Court that under the facts and circumstances of this case, it should have an allowed unsecured claim in the amount of $131,960.58. Debtor’s discharge in 2014 eliminated her personal liability for repayment of the debt associated with the 2005 Loan. § 727(b). Further, the 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.”The parties stipulated that the value of the collateral securing the 2005 Loan was $145,000. Under § 506(a), the secured, in rem portion of Wilmington’s claim is $145,000. Any remaining obligation would be unsecured and in personam, which was effectively discharged in 2014. Wilmington’s arguments are hard to reconcile with §§ 727(b) and 524(a)(2), and the Court is not persuaded that Debtor’s personal liability should be revived under the legal theories presented.
There are no continuing objections to confirmation of Debtor's Plan. Additionally, no appearance was made at the hearing in opposition to confirmation. Upon review of the Debtor's Plan, in the absence of any continuing objection, and after notice and a hearing, this Court finds that Debtor's Plan has reasonable income and expense projections and that it satisfies all of the provisions of 11 U.S.C. § 1225. Accordingly, the Plan is confirmed.
2020 Mont. B.R. 34 (February 5, 2020)
Case no. 20-90204
Debtor and creditor Clearwater Federal Credit Union entered into two reaffirmation agreements. According to the Agreements, Debtor seeks to reaffirm debts with Creditor in the principal amounts of $1,000.00 and $500.00. Neither debt is secured. The Court set the Agreements for hearing because the underlying debts are unsecured. Reaffirming an unsecured debt or a debt that is significantly undersecured is at odds with the broader goal of obtaining a discharge through chapter 7.
Despite this Court’s concerns regarding the wisdom of reaffirming an unsecured debt, or a debt that is undersecured, there are three circumstances under the Bankruptcy Code that necessitate court review of a reaffirmation agreement: if the certification is not proper, if a presumption of undue hardship arises, or if the debtors are unrepresented.
Although this Court has questioned whether reaffirmation agreements are in debtor’s best interest and set reaffirmation hearings based on circumstances that would not fall outside the circumstances outlined above, it will not continue to do so. If the attorney declaration is signed, properly submitted and there is no presumption of undue hardship, this Court will not substitute its judgment for counsel and set the matter for hearing. If reaffirmation agreements are accompanied by signed attorney declarations, the Court will only set such reaffirmation agreements for hearing if there is a presumption of undue hardship under 11 U.S.C. § 524(m). If counsel has doubts about whether a reaffirmation agreement is in a debtor’s best interest, counsel should not sign the attorney declaration.
In re Brorson, November 4, 2020, Nik G. Geranios for Brorson
2020 Mont. B.R. 379 (November 4, 2020)
Case no. 15-60979, Adversary no. 17-00028
An entity needing liquidity can monetize its present or future accounts receivable in two primary ways: it can sell the receivables at a discount to a buyer or it can use the receivables as collateral for a loan. The courts have responded by formulating a holistic, multipart framework to examine the substance of a given transaction. A notable law review article cataloged factors that are often considered: (1) whether the buyer has a right of recourse against the seller; (2) whether the seller continues to service the accounts and commingles receipts with its operating funds; (3) whether there was an independent investigation by the buyer of the account debtor; (4) whether the seller has a right to excess collections; (5) whether the seller retains an option to repurchase accounts; (6) whether the buyer can unilaterally alter the pricing terms; (7) whether the seller has the absolute power to alter or compromise the terms of the underlying asset; and (8) the language of the agreement and the conduct of the parties. One consideration that transcends and unites the specific factors, however, is the nature of how the parties allocated risk – in sales, the risk of loss from the purchased assets typically passes to the buyer whereas in disguised loans, various methods may be used to allocate risk such that the putative seller remains exposed to the underlying receivables or has otherwise provided the putative buyer recourse to sources of recovery beyond the receivables. Absent compelling evidence to the contrary, this record supports a determination that the transactions between the Shoot the Moon entities and CapCall are loans. Factors (1), (2), and (8) support a loan characterization. Moreover, the overall economic substance and risk allocation of these transactions appear substantially similar to a loan. The multifaceted support for the Trustee's position in the current record means that CapCall is not entitled to summary judgment regarding this issue.
Choice of Law
The parties disagree about which state’s law governs; CapCall maintains that New York law should apply while the Trustee urges application of Montana law. This disagreement tees up a potential choice-of-law issue on which both sides have sought declaratory relief and cross-moved for summary judgment. The court is constrained, however, by the principle that “[a] choice-of-law determination is necessary only when a difference in the law will result in a different outcome.” The court perceives no material difference in particular states’ laws regarding the substantive issues presently before the court (i.e., whether the transactions between CapCall and the Shoot the Moon entities were so plainly true sales or loans such that one side is entitled to summary judgment). Nor do the parties –each citing case law from assorted jurisdictions – clearly frame any outcome-determinative difference.
Disposition of CapCall’s Substantive Issues True Sale v. Loan
As discussed, CapCall asks the court to declare that the financial transactions at issue here were sales rather than loans. Even without viewing the record in the Trustee’s favor, however, there are several legitimate reasons why the transactions would be classified as loans. First, the security interests reflected in the parties’ documents are significantly broader than one would expect from a sale. Second, the transactions include various loan-like features that give CapCall recourse against property other than the receivables. Although none of these features is dispositive, their collective effect appears to provide CapCall with at least conditional recourse against the Shoot the Moon entities and the personal guarantor more generally. At a minimum, these provisions all reflect an allocation of risk whereby CapCall is protected by significantly more than just the value of the receivables it purportedly bought while the Shoot the Moon entity remains exposed. Such an overall arrangement is consistent with a debtor-creditor relationship, not a seller-buyer relationship. Third, the parties’ course of performance reflects a debtor-creditor relationship. The Trustee provided copies of emails in which the business principals describe the relationship as one involving “loans” with “terms.
The evidence of the parties’ course of dealing and understanding of the true substance of their relationship could be more fully developed at trial, but certainly the Trustee has provided evidence of conduct deeply inconsistent with true sales of receivables. Absent compelling evidence to the contrary, this record supports a determination that the transactions between the Shoot the Moon entities and CapCall are loans. Factors (1), (2), and (8) from the Aicher and Fellerhoff article support a loan characterization. Moreover, the overall economic substance and risk allocation of these transactions appear substantially similar to a loan. The multifaceted support for the Trustee’s position in the current record means that CapCall is not entitled to summary judgment regarding this issue.
Trustee’s Avoidance Actions
Finally, CapCall is not entitled to summary judgment regarding the Trustee’s avoidance action claims. The Trustee has provided a declaration and spreadsheet detailing numerous transfers totaling more than $1.1 million made to or for the benefit of CapCall within the 90 days before the Shoot the Moon bankruptcy filing. Moreover, there is no dispute that CapCall actually received some restaurant receipts generated by the Shoot the Moon entities pursuant to the parties’ Merchant Agreements – i.e., that property was in fact transferred to CapCall before the bankruptcy. Although it remains to be seen whether CapCall merely received a conveyance of property it previously purchased (pursuant to a true sale) or was the transferee of property in which the Shoot the Moon entities otherwise had an interest (pursuant to a secured loan), the Trustee has presented evidence of transfers that suffices to establish genuine issues of material fact regarding the Trustee’s avoidance action claims.
Disposition of the Trustee’s Substantive Issues
In contrast to CapCall, the Trustee asks the court to summarily determine that the transactions at issue constitute loans. As described above, there is significant evidence supporting the Trustee’s position. Nevertheless, at least when viewed in the light most favorable to CapCall, the record contains some evidence that could support a determination that the transactions were true sales. In sum, when viewed in the light most favorable to CapCall, the evidence creates some possibility that the court could ultimately conclude that the transactions were true sales. To be sure, the Trustee looks to have the better side of the dispute, but a final resolution either way requires the development of a complete record that the court can analyze through an impartial lens (rather than in the light most favorable to the nonmoving party as required at the summary judgment stage). At day’s end, distinguishing true sales from loans is a fact intensive and holistic exercise ill suited for resolution under Rule 56.
The court concludes that neither CapCall nor the Trustee is entitled to summary judgment on any issue. At this stage, it is premature for the court to decide which state’s law should apply. Likewise, the court cannot decide whether these transactions constitute loans or true sales at the summary judgment stage. Although the evidence supporting the Trustee’s side of this issue is much more robust, the court ultimately cannot resolve such a highly factual question without development of a complete record at trial. Finally, there are sufficient factual questions related to the Trustee’s avoidance actions for those claims to survive a Rule 56 motion. Because neither party is entitled to partial summary judgment, the court denies both motions.
CapCall v. Foster, November 6, 2020, Steven M. Johnson, Roland C. Jones for CapCall,LLC., David B. Cotner for Foster
2020 Mont. B.R. 38 (November 6, 2020)
Case no. 20-10003
Debtor filed a chapter 7 case, without paying the filing fee. On that same date, Debtor filed an application for waiver of the chapter 7 filing fee for individuals who cannot pay the filings fee in full or in installments. Debtor disclosed on the application a family size of 1, and a monthly net income of $950.80. Debtor’s income is less than 150% of the income official poverty line for 2020 as defined by the Office of Management and Budget.
However, the Court is not satisfied that Debtor has an inability to pay the filling fee in installments, which is the second factor required by 28 U.S.C. § 1930(f). In particular, Debtor appears to have $48,508.75 equity in her home and $3,567.65 equity in a 2005 GMC Sierra. Generally, debtors who receive a fee waiver have little or no equity in either a home or a vehicle. Accordingly, a hearing on Debtor’s application for waiver of the chapter 7 filing fee for individuals who cannot pay the filing fee in full or in installments shall be held Tuesday, February 4, 2020, at 09:00 a.m.
In re Capito, January 21, 2020, Juliane E. Lore for Capito
2020 Mont. B.R. 12, (January 21, 2020)
Dailey, Emerson, Protective Order
The UST alleges, among other
things, that Law Solutions Chicago LLC d/b/a UpRight Law LLC
(“UpRight Law”) and a former Montana local “Partner” “failed to
disclose completely and accurately the compensation arrangement in
this case” and have engaged in numerous violations of the Montana
Rules of Professional Conduct (and their counterparts in the American
Bar Association’s Model Rules of Professional Conduct).In response,
UpRight Law has discontinued internet marketing in Montana, has
stopped accepting new clients in Montana, and has refunded more than
$300,000 to clients and former clients in Montana. UpRight Law
represents that it is “now essentially shut down in Montana.”
Notwithstanding the foregoing, the UST seeks a permanent injunction
under § 526 prohibiting UpRight Law from operating in Montana.
2020 Mont. B.R. 46 (February 11, 2020)
Case nos. 15-61088, 16-60056
The underlying dispute between the UST and Upright relates to Upright’s business model and its interactions with individuals in Montana. The UST alleges the process did not work as intended resulting in significant problems in Montana. Based on these allegations, the UST seeks injunctive relief under § 526(c)(5), which states: Notwithstanding any other provision of Federal law and in addition to any other remedy provided under Federal or State law, if the court, on its own motion or on the motion of the United States trustee or the debtor, finds that a person intentionally violated this section, or engaged in a clear and consistent pattern or practice of violating this section, the court may-- (A) enjoin the violation of such section; or (B) impose an appropriate civil penalty against such person. According to the UST, Upright is a debt relief agency that misrepresented to its clients and prospective clients the services it would provide, which is a violation of § 526(a)(3)(A).
The UST seeks to conduct the deposition of 15 Montana consumers and 11 present, or, past employees, or partners of Upright. Upright broadly objects to the additional depositions arguing that the UST has not met its burden of making a particularized showing of the need for additional depositions, the additional depositions would be cumulative and duplicative, and the UST can obtain the information through less burdensome methods.
Absent leave of court, a party is limited to 10 depositions. Rule 7030(a)(2). The Advisory Committee Notes explains that this presumptive 10 deposition limitation serves 2 purposes: (1) “to assure judicial review under the standards stated in Rule 26(b)(2) before any side will be allowed to take more than ten depositions in a case without agreement of the other parties;” and, (2) “to emphasize that counsel have a professional obligation to develop a mutual cost-effective plan for discovery in the case.” See Advisory Committee Notes to 1993 Amendments. The Court must permit more than ten depositions when it is “consistent with Rule 26(b)(2).” Rule 26 provides that additional discovery should be allowed unless the Court determines that: (1) the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive; (2) the moving party has had ample opportunity to obtain the information by discovery in the action; or (3) the burden or expense of the proposed discovery outweighs its likely benefit, in light of the factors listed in the Rule. Rule 26(b)(2)(C)(i)-(iii).
Upright’s argument that the additional depositions would be cumulative or duplicative of the 19 depositions previously taken is not persuasive. First, the additional depositions are necessary in part because the UST conducted depositions without the benefit of significant discovery that Upright was ultimately compelled to produce. To the contrary, new depositions are only necessary in part because Upright withheld this production for as long as it did. Although 19 depositions have been taken in this case, discovery has shown that Upright contacted and collected fees from in excess of 500 Montana consumers. If permitted to take an additional 15 depositions of Montana consumers, the total number of Montana consumers deposed in this case will be 30, just over 5% of all those that had contact with Upright. When considered within the broader context of this case, and in particular, the “clear and consistent pattern” required under § 526, Upright’s cumulative and duplicative argument is not persuasive. Similar to the Court’s analysis above, given Upright had contact with in excess of 500 Montanans, and for each Montanan there might have been multiple contacts or communications, permitting 13 employees to be deposed does not strike the Court as duplicative or cumulative, particularly when the UST must show “a clear and consistent pattern or practice” to prevail under §526.
Having surveyed the entirety of the record in this case in conjunction with this Order, this Court would characterize its handling of Upright’s approach to discovery in this case as indulgent. Having elected to object and litigate the discovery process at length, the Court cannot credibly entertain Upright’s stated concerns now regarding convenience, burden, and expense. To the extent the discovery process has been inconvenient and expensive, it appears to the Court that result flows from the approach Upright has chosen to take to the discovery process.
When called upon to consider the burden or expense of proposed discovery and weigh its benefit, this Court is mindful of the following Advisory Committee Comment: The elements of Rule 26(b)(1)(iii) address the problem of discovery that is disproportionate to the individual lawsuit as measured by such matters as its nature and complexity, the importance of the issues at stake in a case seeking damages, the limitations on a financially weak litigant to withstand extensive opposition to a discovery program or to respond to discovery requests, and the significance of the substantive issues, as measured in philosophic, social, or institutional terms. Thus, the rule recognizes that many cases in public policy spheres, such as employment practices, free speech, and other matters, may have importance far beyond the monetary amount involved. The court must apply the standards in an even-handed manner that will prevent use of discovery to wage a war of attrition or as a device to coerce a party, whether financially weak or affluent. Federal Rule 26(b) advisory committee's note to 1983 amendment. At the hearing, the Court noted that the UST’s allegations that Upright collected fees in excess of $500,000, from 521 affected Montana clients, but only filed cases for 109 clients, and in excess of 400 cases were not filed, justified additional discovery. If there exists a pattern or practice that violates § 526, and it involved in excess of 500 Montana clients and more than $500,000 in fees, that is a matter of extraordinary importance for institutional and social reasons.
In re Emerson, In re Dailey, July 30, 2020, Paul R. Thomas, Alison E. Goldenberg for UST, Charles W. Hingle, Shane Coleman, Brianne McClafferty for Upright Law
2020 Mont. B.R. 279 (July 30, 2020)
Allied filed proof of claim 4-1 (“Claim”). At part 2, question 9, Allied indicated that the Claim was not secured. Id. Consistent with its representation that its Claim was not secured, the remainder of part 9 is blank (nature of property and basis for perfection). There is no mention of a UCC financing treatment or other lien perfection document. Pursuant to a Stipulation and Agreement between Debtors and Allied, “Allied’s Proof of Claim is allowed as filed.” The Stipulation was approved. Plan was confirmed.
Allied makes quite a fuss about Debtors’ request that it execute the lien waiver explaining it “is uncomfortable signing the lien waiver form because the form makes implicit admissions about the scope and nature of Allied World’s claim.” Allied is bound by the terms of the confirmed Plan. The scope and nature of Allied’s Claim can be readily determined by resort to the Court’s docket. Allied filed its Claim as an unsecured claim, and the Claim was allowed as filed.
Allied alleges, “Allied World filed a UCC-1 financing statement on June 26, 2016, with the Montana Secretary of State’s Office.”Despite more than 600 docket entries in this case, this appears to the Court to be the first mention by Allied of any alleged security interest. If Allied is for the first time asserting a security interest in crops attributable to a UCC Financing filed in June 2016, pre-petition, the Court has difficulty reconciling this new assertion with the res judicata effect of the Plan, and § 1141(c). First, the confirmation process may extinguish a lien. More importantly, per the Stipulation, Allied’s allowed Claim was unsecured, not secured. Having filed its claim as unsecured, and stipulated to its treatment under the Plan as unsecured, the Court questions the legal basis and strength of Allied’s contention now, that it is secured creditor.
In this Court’s experience when the bulk of the exhibits counsel intends to introduce are emails between counsel, the dispute often has far more to do with counsel than the clients or the law. In response to a request from Allied’s counsel seeking additional information, counsel replied by cutting and pasting a Wikipedia entry, and retorted, “Easy to Google.” Its difficult to imagine any circumstances under which such a reply would advance a client’s interest. Indeed, in this case it did not. Following the “Google” email, Allied only sought to leverage the request for its benefit. Allied may simply be unwilling to cooperate or otherwise provide the waiver requested by Debtors solely because they do not want to do so, even if it is clear there is no basis for Allied to assert an interest in crops. The Court would take a very dim view of such an approach, particularly if there is no factual basis to assert an interest in crops (Allied’s pre-filed exhibits do not include a security agreement or UCC financing statement from 2016), and a compelling legal reason to justify Allied’s position.
In re Dighans, April 1, 2020, Gary S. Deschenes for Dighans, Jennifer L Kneeland, Joshua L. Campbell for Allied World Specialty Insurance
2020 Mont. B.R. 107 (April 1, 2020)
Case no. 16-61076
Although relief under § 364 is not appropriate, Debtors’ confirmed Second Amended Plan (“Plan”) provides this Court with jurisdiction to, “re-examine any claim that has been allowed.”The immediate dispute involves Allied’s allowed claimant whether Allied has a security interest in Debtors’ crops. Debtors’ allege that postconfirmation they sought a loan from Commodity Credit Corporation. As a condition of any loan, CCC requires completion of a lien waiver form by any creditor that holds a lien on commodities described in the form. Allied put forth different arguments to support its refusal tossing the form.
This Court cannot reconcile Allied’s position and arguments with § 1141(a) and (c), and the res judicata effect of the confirmation order. In this case, Allied refers to § 1141(d)(5)(A),and at the conclusion of the argument reasons, “the terms of the Plan are in force, including Allied World’s retention of all its interests (i.e., UCC lien) until it is paid as set forth under the Plan.”First, the provisions of a confirmed plan bind the debtor, any entity issuing securities or acquiring property under the plan, and any creditor of, or equity security holder or general partner in, the debtor. The confirmed plan is a binding final order accorded full res judicata effect, and this principle is broadly applied. The issue of whether Allied was secured or unsecured was not litigated prior to confirmation, because there was nothing to litigate. Allied affirmatively asserted that it was unsecured, Debtors agreed and stipulated to the allowance and treatment of Allied’s Claim as unsecured. The res judicata effect of plan confirmation is not limited to issues that were litigated, but also extends to and bars relitigation of any issues that could have been raised in the confirmation proceedings. Allied abandoned its lien in connection the claims allowance process and confirmation. The record demonstrates Allied had the opportunity to assert and litigate its status as secured. It chose not to do so. On the record before the Court, there is no basis to conclude that Allied has any interest or lien in Debtors’ 2019 crops. To the contrary, it is an unsecured creditor, and any effort to relitigate this issue is barred.
Finally, Allied has argued that a plan default and failure is inevitable. As the Court noted at the hearing, neither party has a crystal ball, so it gives little attention to these arguments. Interestingly, Allied seems to confuse its rights today with the rights it may enjoy in the future, if Debtors’ fail to fully perform under the Plan. This Court will not opine on the parties’ respective rights at some later date, but would encourage the parties to consider § 552’s effect on any future dispute between the parties’ involving post-petition crops and any alleged security interest in those crops.
If counsel for both parties had engaged in a more disciplined discussion of the issues, devoid of posturing, this Court’s involvement would not have been necessary. Allied’s counsel should have been capable of drafting a statement for Debtors and CCC that articulated justifiable position regarding its rights under the Plan that is in effect and the 2019 crop. If Allied’s counsel had given such a statement the same time and attention it invested in drafting its pleadings and participating in the hearing, a hearing would likely not have been necessary. Debtors’ did little to invite Allied’s cooperation as evidenced by the emails the parties filed as exhibits. Based on the record, the Court concludes Allied’s refusal to cooperate was far more attributable to an underlying unwillingness to assist Debtors, than the strength of any legal position it could assert.7 As counsel continued to exchange emails, Allied’s intransigence became fixed. Counsel for Debtors and Allied played apart in transforming a simple request into a fiasco that required the Court’s assistance. As a result, sanctions will not be awarded to Debtors.
In re Dighans, April 1, 2020, Gary S. Deschenes for Dighans, Jennifer L Kneeland, Joshua L. Campbell for Allied World Specialty Insurance
Case no. 17-36010
The bankruptcy court properly granted appellees an exception from Duffiè’s bankruptcy discharge because appellees demonstrated by a preponderance of the evidence that Duffiè intentionally made false representations to obtain their agreement to make monetary payments to Duffiè; the appellees justifiably relied on those misrepresentations and made such payments; and they sustained damages as a result. See 11 U.S.C. § 523(a)(2)(A) (prohibiting the discharge of any enforceable obligation for money, property, services, or credit that was obtained by fraud, false pretenses, or false representations); In re Sabban, 600 F.3d 1219, 1221 (9th Cir. 2010) (discussing the five elements a creditor must establish by a preponderance of the evidence to demonstrate a claim of non-dischargeability under § 523(a)(2)(A)). The bankruptcy court did not abuse its discretion in denying, on the basis of Gotcher’s demonstrated hearing issues, Duffiè’s motion to appear at trial via videoconference. See S. Cal. Edison Co. v. Lynch, 307 F.3d 794, 807 (9th Cir.) (stating standard of review and holding that courts have “inherent power” to control their dockets).
Duffie v. Gotcher, April 17, 2020, Mary K. Duffie, Pro se. Kevin Vainio for Gotcher
2020 Mont. B.R. 152 (April 16, 2020)
Case no. 20-40086
Kinetic Leasing, Inc. (“KLI”) filed a Motion requesting that the Court shorten the time for Debtors and the Trustee to respond to KLI’s Motion to Assume Unexpired Lease and that a hearing on KLI’s Original Motion to Compel be held. Subsequently, KLI filed a “1st Amended & Substituted Motion to Compel Trustee or DIP to Assume Unexpired Lease,” KLI docketed the Amended & Substituted Motion as a Notice and included the word “Substituted” in the title of the Amended & Substituted Motion. This suggests to the Court that KLI intended that the Amended & Substituted Motion would be substituted for the Original Motion to Compel. However, the Amended & Substituted Motion is accompanied by a new 14- day notice. It was filed shortly after the Motion, but does not refer to the Motion.
Amended and substituted pleadings are generally treated as superseding any prior related pleading in the docket, and if the new pleading has a notice, that becomes the operative notice for objecting parties. In this case, it is unclear to the Court whether KLI is now requesting that the Amended & Substituted Motion be heard on an expedited basis with a shortened notice period. A short statement at the beginning of the Amended & Substituted Motion explaining that the prior filing was no longer operative, an explanation of any material differences between the original and later Amended & Substituted Motion, and an indication if the request for expedited treatment related to the Amended & Substituted Motion would assist the Court. These comments benefit a wider audience than just KLI and Debtors. Amended filings occur frequently and it is important to consider the effect of an amended filing on any notice, pending motion to expedite or shorten notice, or scheduled hearing and clearly set forth for the Court and parties the relationship between the amended filing and any filing(s) it amends and supersedes. Given the uncertainty, the Court concludes that the 14-day notice attached to the Amended & Substituted Motion is now the operative notice and supersedes the 14-day notice attached to the Original Motion to Compel, and the Motion itself.
In re Fenner, November 30, 2020, Gary S. Deschenes
for Fenner, James H. Cossitt for Kinetic Leasing
2020 Mont. B.R. 417 (November 30, 2020)
Case no. 15-60979, Adversary no. 17-00060
Before the Court is a Civil Rule 12(b) motion filed by IOU Central, Inc., seeking to dismiss this adversary proceeding brought by chapter 11 trustee. Trustee contends the Motion must be denied because IOU waived Civil Rule 12(b) defenses by not asserting those defenses in response to the Initial Complaint. Rule 7012(b) adopts Civil Rule 12(b). Civil Rule 12(b) provides: “Every defense to a claim for relief in any pleading must be asserted in the responsive pleading if one is required. But a party may assert the following defenses by motion: (1) lack of subject-matter jurisdiction; . . . (3) improper venue; . . . (6) failure to state a claim upon which relief can be granted[.]”(emphasis added) Civil Rule 12 continues on: “A party waives any defense listed in Rule 12(b)(2)– (5) . . . by . . . failing to . . . include it in a responsive pleading or in an amendment allowed by Rule 15(a)(1) as a matter of course.” Here, Defendant’s Motion, filed after its original answer and before any responsive pleading to the FAC, invokes defenses under Civil Rule 12(b)(1), (3), and (6). Contrary to Trustee’s assertions, Defendant raised the defenses of lack of subject matter jurisdiction and improper venue—Civil Rules 12(b)(1), (3)—in its answer to the Initial Complaint. Thus, Defendant did not waive its defenses under Civil Rules 12(b)(1), (3), or (6).
Defendant argues Trustee does not have standing to bring his claims, and this Court is, thus, without subject matter jurisdiction over this adversary proceeding. Section 547(b) gives the trustee the authority to avoid preferential transfers. Section 550 grants the trustee authority to “recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from (1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial transferee.” Section 550(a). A well-respected treatise on bankruptcy addresses the standing of an appointed or elected trustee: “Ordinarily, a trustee assumes the authority to bring preference actions immediately upon being appointed or, if elected, upon being elected.”
Defendant argues that any purported merger was made in violation of antiassignment provisions in two of the four promissory notes between Debtor’s predecessors and Defendant—the note between Defendant and Shoot the Moon 22, LLC, and the note between Defendant and Shoot the Moon III, LLC. Here, any distinction between Montana and Georgia law is immaterial because the anti-assignment provisions in the promissory notes at issue are not generally worded prohibitions on assignment. Rather, the provisions narrowly exclude only the assignment of the obligations of Shoot the Moon 22, LLC, and Shoot the Moon III, LLC. Nowhere in these promissory notes is Shoot the Moon 22, LLC, or Shoot the Moon III, LLC, prohibited from assigning their rights under the contracts. Therefore, the anti-assignment provisions in the promissory notes executed by Defendant, Shoot the Moon 22, LLC, and Shoot the Moon III, LLC, did not prohibit transfer of the rights of Shoot the Moon 22, LLC, and Shoot the Moon III, LLC, to Debtor via the merger; and, thus, Trustee’s standing is not defeated by these antiassignment provisions.
Defendant also contends Trustee is without standing because the alleged preferential transfers were made by Debtor’s predecessors for debts on which Debtor only became liable upon completion of the merger. However, the merger statutes under which the applicable entities were merged into Debtor11 support the conclusion that Debtor, as the surviving entity, would be able to assert the rights of the merged entities. The surviving entity steps into the shoes of the merging entities, and is vested with all the “rights, privileges, immunities, powers and purposes” of the merged entities. Thus, if the merged entities maintained the right to avoid a transfer as preferential, the surviving entity would be vested with that same right upon merger under either of these statutes. In addition, if the merged entities could pursue a claim of usury under Montana law, so too would the surviving entity. Upon merger, all the rights of the merged entities vested in Debtor, and it could pursue such rights.
Here, the U.S. Bankruptcy Court for the District of Montana is the proper venue as Debtor is an LLC registered in Montana and this proceeding arises out of Debtor’s bankruptcy. Enforcement of the forum selection clauses recited in Defendant’s motion would cut against the “strong public policy favoring consolidating these core proceedings in the bankruptcy court.” Taking the factual allegations recited above as true, Trustee alleges sufficient facts to “state a claim to relief that is plausible on its face.” There are enough facts for Trustee to make an argument that Montana and Idaho law should apply despite the choice of law provisions. Here, the Court need not finally determine whether Georgia, Montana, and/or Idaho law applies but merely whether sufficient facts have been pled to make the claim plausible on its face. Thus, Defendant’s motion as to Count I of the FAC will be denied.
In sum, Defendant’s Motion is properly before the Court as Defendant did not waive the 12(b) defenses raised in its motion. The Court concludes under Civil Rule 12(b)(1) and (3) Trustee has standing, the Court has subject matter jurisdiction over this action, and venue is proper. Further, the Court finds Defendant’s Motion under Civil Rule 12(b)(6) is not well taken. Therefore, Defendant’s Motion will be denied.
Foster v. IOU Central, INC., May 21, 2020, David B. Cotner, Kyle Ryan for Foster, Timothy E. Dailey, Paul Wesant for IOU Central
2020 Mont. B.R. 177 (May 21, 2020)
Case no. CV 18-84-GF-BMM
The Bankruptcy Code, 11 U.S.C. § 547(b), authorizes a bankruptcy trustee to avoid any transfer of an interest of the debtor in property if the following five conditions are satisfied: (1) the transfer benefits a creditor; (2) the transfer was made on account of antecedent debt; (3) the transfer was made while the debtor was insolvent; (4) the transfer was made within 90 days of bankruptcy; and, (5) the transfer enables the creditor to receive a larger share of the estate than if the transfer had not been made. The fifth condition of a preferential transfer claim requires satisfying the “greater-amount test.” To satisfy the “greater-amount test,” the bankruptcy trustee must prove that the creditor received from the alleged preferential transfer a greater amount than the creditor would have received from the bankruptcy proceeding.
The Bankruptcy Code provides several exceptions to a preferential transfer claim. Under the ordinary course of business exception, the trustee may not avoid a transfer under § 547(b) if the transfer was (1) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee; (2) made in the ordinary course of business or financial affairs of the debtor and the transferee; and, (3) made according to ordinary business terms.
The first element of the ordinary course of business exception requires that Conner prove that the debtor made the transfer in payment of a debt incurred in the ordinary course of business or financial affairs of the debtor and the transferee. This element requires an inquiry into the “pattern of interaction between the actual creditor and the actual debtor in question.” Conner loaned STM a large amount of money on multiple occasions. These loans present a pattern of interaction between Conner and STM in which STM regularly secured loans from Conner. Conner satisfies the first element of the ordinary course of business exception.
The second element of the ordinary course of business exception requires that the transfer be made in the ordinary course of business or financial affairs of the debtor and the transferee. Conner provided history of payments on the promissory note that STM made to Conner. STM’s payments to Conner prove remarkably consistent in amount and regularity. Conner satisfies the second element of the ordinary course of business exception.
The third element of the ordinary course of business exception requires that the transfer be made according to ordinary business terms. The ordinary course of business exception applies to preferential transfers under § 547, and preferential transfers require that the debtor be insolvent. The statute’s effect requires that every preferential transfer excluded under the ordinary course of business exception necessarily occurs while the debtor is in financial distress. Conner satisfies the third element of the ordinary course of business exception. The parties disagree about the applicable test for the final element of a preferential transfer—the greater-amount test. The Court need not resolve this dispute because Conner established that the transfers are excluded from scope of § 547 preferential transfers under the ordinary course of business exception.
The Amended Complaint alleges three different claims against Conner for fraudulent transfer. Count II alleges fraudulent transfer under 11 U.S.C. § 548. Count III alleges fraudulent transfer under Mont. Code Ann. § 31-2-333(1)(b).Count IV alleges transfer fraudulent as to creditors under Mont. Code. Ann. § 31-2-334(1). Each of these claims for fraudulent transfer requires the plaintiff to prove that the debtor transferred property without receiving something of “reasonably equivalent value.”
Conner did not provide STM direct consideration for the bank property, but determining “reasonably equivalent value” requires considering the totality of the circumstances. The trier of fact may consider any indirect benefits that a party may have received if the benefits are sufficiently concrete and identifiable. The values of any benefit to STM remains unclear at this point. The parties remain free at trial to introduce evidence of these disputed values.. The Court cannot in the meantime determine whether either party is entitled to judgment as a matter of law.
The parties possess verified sale prices for the bank property from the purchase by STM in 2013 and the sale by Conner in December 2014. These sales presumably involved arms’ length transactions between willing buyers and willing sellers. The parties remain free, subject to the Federal Rules of Evidence, to introduce evidence of the 2013 and December 2014 sale prices. Connor, as a former owner of the bank property, also may testify as to the value of the bank property during the time he was an owner. The landowner-witness rule allows a landowner in eminent domain cases, subject to limitations, to estimate the value of the landowner’s property.
The landowner-witness rule limits the landowner’s testimony in several ways. The landowner’s testimony regarding the value of the property must be reasonable. The landowner-witness rule also limits a landowner’s testimony when the landowner seeks to testify about the value of the property regarding uses of the property different than how the landowner used the property. Before a landowner may testify to the value of his land for other uses, he must lay a foundation that demonstrates the basis for his knowledge. There remains a dispute regarding the value of the bank property. Summary judgment is inappropriate.
Foster v. Conner, November 13, 2020, David B. Cotner for Foster, Gregory G. Pinski for Conner
2020 Mont. B.R. 396 (November 13, 2020)
Hagadone, Chapter 12, Motion for Valuation, Objection to
Rule 3012 sets forth the procedure for valuing collateral under § 506(a). It provides: The court may determine the value of a claim secured by a lien on property in which the estate has an interest on motion of any party in interest and after a hearing on notice to the holder of secured claim and any other entity as the court may direct. As explained by the Ninth Circuit Bankruptcy Appellate Panel in In re Chagolla, judicial valuation of collateral under § 506(a) divides allowed claims into secured claims and unsecured claims, “which in turn affects how the bankruptcy code treats them.” Here, valuation is necessary for confirmation and § 1225(a)(5)(B)(ii). In the case of In re Cool, 81 B.R. 614 (Bankr. D. Mont. 1987), Judge John L. Peterson explained that “valuation for the purposes of 1225(a)(5)(B)(ii) is to be fixed ‘as of or close to the effective date of the Plan’.
The Bank maintains that Debtors’ real property has a value of $2,250,000. Debtors counter that the real property has a value of $2,051,765. The difference is $198,235. Debtors’ only dispute the value assigned to Structural Improvements. Both Toews and Korkow were credible. However, Toews’ Appraisal together with the more recent comparable sales at support Korkow’s opinion that current buyers are buying bare land, not improved land. Such conclusion is found in Toews’ Appraisal wherein she states: “Typical buyers in the area are local owner/operators who are looking to add on to their existing operations, while typical sellers are estates or operators scaling down.” Further, a review of Exhibit VV, shows that of the 9 additional recent sales, only 2 (1 & 5) included improvements, and those improvements were grain bins, and quonsets. Based upon the foregoing, the Court concludes that the value of Debtors’ real property is $1,959,717 (Land $1,659,717 and Structural Improvements $300,000).
Without consideration of the Clark Farm Property, the difference between the Bank’s valuation of equipment and Debtors’ valuation is $197,200. Having considered the testimony of both Korkow and Toavs credible, and reliable, and the methodology employed by both virtually the same, the Court has elected to resolve the issue by adopting in part and rejecting in part, each of the valuations and splitting the difference between each valuation. As a result, the Court finds the values of these items are as follows: 7720 John Deere Tractor, $52,500; 9630 John Deere Tractor, $105,000; 4430 Self Propelled Sprayer, $131,750. The result of this finding is a reduction in Toavs’ overall equipment valuation of $885,250 by $46,750.
As a result of the various security instruments executed by the Debtors, the Bank has a “blanket lien” that encumbers Debtors’ machinery and equipment, and may extend to after acquired property. To the extent Debtors acquired the Clark Farm property, subject to a security interest perfected by the Clarks that necessitates a lien release at some future point, the Bank has a lien on the Clark Farm property to the extent there exists value beyond the secured claim of Clarks. Debtors will assume the executory contract between Clark and Debtors, and the arrearages will be paid pursuant to a stipulation. The stipulation requires payment of $100 prior to December 31, 2019. Next, Clarks agreed to release their lien upon finalization of Debtors’ Chapter 12 Plan. The stipulation provides that Clark shall have an unsecured claim in the amount of $195,000. Finally, the parties agreed the stipulation would be effective upon its approval. Clarks have stipulated to plan treatment that allows them an unsecured claim in the amount of $195,000. This agreement was effective on February 5, 2020, when it was approved. The logical conclusion to draw from the stipulation is that the entirety of the Clark Farm property may be subject to the Bank’s lien.
At various times in this case, Debtors
sought an order from this Court authorizing Debtors to use the
Bank’s cash collateral. In exchange for use of the Bank’s cash
collateral, Debtors granted the Bank replacement liens in “all of
Debtor’s 2019 crop and proceeds, federal crop insurance, government
payments, and hail loss insurance payments[.]” Debtors present
calculation of the cash collateral component of the Bank’s claim and
replacement liens associated with it is irreconcilable with the
prior position taken by Debtors. The record in this case does not
support unilaterally reducing the value of the replacement liens by
$160,000. Based upon the foregoing, the Court finds that the Bank’s
claim is secured as follows:
In re Hagaone, March 24, 2020, Gary S. Deschenes, Katherine A Sharp for Hagadone, Charles W Hingle, Brianne C. McClafferty for American State Bank
2020 Mont. B.R. 89 (March 24, 2020)
Case no. 19-60551
To assist the Court with its preparation for the Confirmation Hearing, the Chapter 12 Trustee, counsel for Debtors and the Bank participated in a Status Hearing, and that conference assisted the Court. First, the Bank’s opposition is centered on “feasibility.” To buttress their arguments, the Bank has assembled a carefully curated set of pre-filed exhibits that include: Historical Income and Expenses 2011 – 2018; Proof of Loss crop insurance 2019; Redacted Tax Returns 2011-2018; and Monthly Operating Reports. Debtors’ counsel explained that the Fourth Amended Plan was intended reflect “better treatment” for the Bank that the Third Amended Plan. However, the Bank advised the Court that in its view, its treatment under the Third Amended Plan was better. When the Court inquired to the extent of time Debtors’ counsel and the Bank spent on the telephone “negotiating” plan treatment, the consensus was very little.
Whether a chapter 12 plan satisfies the feasibility test for confirmation under § 1225(a)(6) is a factual determination that is reviewed by the appellate court for clear error. The Court’s comments were informed by its familiarity with the following discussion of § 1225(a)(6):
[t]he debtor is not required to guarantee the ultimate success of his plan, but only to provide a reasonable assurance that the plan can be effectuated. However, this reasonable assurance must rise above bare agronomic feasibility. . . . a technical agronomical feasibility determination generally includes a variety of assumptions and the likelihood that these assumptions will occur must be determined by the Court. . . . Because past behavior and productivity are excellent indicators of future productivity courts have frequently rejected plans which are premised on highly optimistic projections of increased production.
This Court is prepared to adjudicate the disputes that exist between debtors and creditors, but before doing so, the parties should invest efforts that are commensurate with the problem and strive to find a solution that if not ideal, falls within a range of reasonable expectations (which counsel should manage). In this case, the problem between Debtors and American Bank is a $3,000,000 problem. Based on the statements of counsel, it appears to the Court that the parties have tried to litigate their way to a solution having spent “very little” time on the telephone discussing plan treatment. To afford the parties a final opportunity to bridge the gulf between them, and focus on the material terms of the Bank’s plan treatment including, term, interest rate, amortization, balloon, and potentially, remedies if there is a default, the parties shall engage a mediator consistent with the parties agreement at the Status Conference.
2020 Mont. B.R. 112 (April 2, 2020)
Case no. 12-60679-11
Debtor’s Chapter 11 Plan was confirmed by the Court on March 20, 2013. This case was closed on May 31, 2013. The Debtor filed an Unopposed Motion to Defer Payments Under Debtors’ Ch. 11 Plan. Debtor seeks to defer until August 2020 the payments owing to Independence Bank and Kaycee Groven under Debtor’s confirmed Chapter 11 Plan. Debtor seeks to defer the payments because due to the current COVID-19 pandemic, the Debtor’s bar and restaurant, which generate revenue to enable the Debtor to make such payments, have been temporarily closed.
Debtor cites paragraph 7.01.j as authority to grant the relief requested. This paragraph of Debtor’s confirmed Plan reads: “The Bankruptcy Court shall retain and have exclusive jurisdiction over the Reorganized Case . . . [t]o approve or confirm a modification of this Plan proposed by the Debtor after the Confirmation Date and to grant moratoria, extensions of payments to any of the Classes of Claims for any reasonable period of time due to circumstances presently unforeseeable[.]
Section 1127(b) permits modification of a Chapter 11 plan “at any time after confirmation of such plan and before substantial confirmation of such plan[.]” While the foregoing appears to give this Court jurisdiction to consider the post-confirmation relief requested by Debtor, Debtor makes no mention of whether its Plan has been substantially consummated and whether the relief it seeks is a permissible modification of Debtor’s Plan under § 1127(b). Furthermore, Debtor has not moved to reopen this case nor has Debtor paid the reopening fee of $1,167. As a practical matter, it would seem that Debtor could enter into agreements with Independence Bank and Kaycee Groven to extend the plan payment dates during Debtor’s closure as a result of the COVID-19 pandemic without the need to reopen this case or involve the Court. Unless and until this case is reopened, Debtor’s Motion filed at ECF No. 138 is denied.
In re Havre Aerie #166 Eagles, April 16, 2020, Steven M Johnson for Havre Aerie Eagles, Phil Hohenlohe for Groven
2020 Mont. B.R. 150 (April 16, 2020)
Case no. 20-10006
This Court may authorize the obtaining of credit to the extent necessary to avoid immediate and irreparable harm to the estate pending a final hearing. The credit sought under the Motions relates to: (i) inventory financing; and, (ii) automotive, parts, clothing and merchandise inventory critical to the Debtor’s continued operation, and a feasible chapter 11 plan. The post-petition continuation of these arrangements is in the best interests of the Debtor’s bankruptcy estate during the interim period pending a final hearing. If a debtor-in-possession is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt with priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) of this title. Usher testified that despite attempts to do so, the Debtor has been unable to obtain unsecured credit, even if the post-petition debt was treated as an administrative expense. Absent continuing access to the Capital One credit card, and more importantly the line of credit, Debtor may suffer immediate harm that may render its reorganization effort futile. Pending a final hearing, the Usher, and Cebull and Usher Motions are approved on an interim basis.
Absent interim approval of the credit requested in the various motions, Debtor’s reorganization effort would fail before it even begins. Debtor would lack access to lines of credit that it uses in its day to day operations to acquire inventory and more importantly, that provide liquidity. Operations would be complicated if not stymied without access to the $60,000 line of credit. Similarly, Debtor’s business of buying inventory for rental or sales purposes would be significantly inhibited if it were unable to acquire new inventory with new post-petition financing, as existing inventory is sold. Such an outcome would portend a liquidation, and essentially stall any nascent reorganization effort. This would hamper Debtor’s efforts and cause it immediate and irreparable harm.
Section 1108 allows the Debtor to operate in the ordinary course of business, which includes the authority to make post-petition transfers of property if doing so is in the ordinary course of business. Section 363(c) authorizes the sale of assets, which includes the motor vehicle inventory, in the ordinary course of business. Absent the availability of the flooring lines post-petition, Debtor would be unable to operate its business in the ordinary course. The Wells, AFC and Mahindra Motions to obtain credit are approved on an interim basis pending the final hearing. Section 361 requires the provision of adequate protection of the interest of an entity in property of the estate which can be provided by, among other things, a cash payment to the extent a sale of property results in a decrease” in the value of such entity’s interest in the property sold. The payment of cash upon the sale of any part of such inventory is appropriate as adequate protection. The adequate protection provisions of the Wells, AFC and Mahindra Motions are approved on an interim basis pending the final hearing.
In re Hawaii Motor Sports, LLC, February28, 2020 James A. Patten, Molly Considine for Hawaii Motor Sports, Doug James, Bryce Burke for Hawaii State FCU, Malmcolm H. Goodrich, Maggie W. Stein for Cycle City, LTD.
2020 Mont. B.R. 51 (February 18, 2020)
Case no 20-10006
To be approved a disclosure statement must contain “adequate information.” “Adequate information means information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor’s books and records, including a discussion of the potential material federal tax consequences of the plan to the debtor, any successor to the debtor, and a hypothetical investor typical of the holders of claims or interests in the case, that would enable such a hypothetical investor of the relevant class to make an informed judgment about the plan.”
Debtor conceded at the beginning of the hearing that it would amend the Disclosure Statement and include the most recent and updated information related to Hawaii’s quarantine Order. Following arguments by counsel and based on the UST’s comments, Debtor shall amend the Disclosure Statement as follows: A secured creditor has alleged Debtor sold collateral out of trust, and provided Debtor with information regarding this allegation. Debtor disputes this allegation and is in the process of checking its books and records and investigating the claim. As a result, Hawaii State FCU’s objection on “quarantine” and “out of trust” objections are sustained. The remainder of Hawaii State FCU’s objection is overruled.
At the hearing the Debtor characterized some of Hawaii State FCU’s objections as “make work” objections. Ordinarily, this Court would expect the U.S. Trustee to scrutinize the Disclosure Statement and lodge objections to ensure that the Disclosure Statement included adequate information that would enable a hypothetical investor of the relevant class, (i.e. any less sophisticated or unsecured class of creditors) to make an informed judgment about the plan. Absent an objection by the UST regarding the accessibility of the information for less sophisticated creditors, the Court overruled the objection, but this is not synonymous with the adoption of Debtor’s “make work” argument.
Debtor shall file an Amended Disclosure Statement that addresses the limited objections that the Court sustained. Specifically, the Amended Disclosure Statement shall include (i) the quarantine amendment, and the (ii) out of trust amendment consistent with this Order. approved and Debtor shall transmit the Amended Disclosure Statement, any further Amended Plan, a copy of this Order, 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 Rule 3017(d). The Court expects the further Amended Disclosure Statement will be materially unchanged from the Disclosure Statement that was considered at the September 4, 2020 hearing, except as to the quarantine and out of trust amendments. For purposes of § 1125(b), the notice and hearing requirement was satisfied by the September 4, 2020 hearing, which thoroughly addressed the objections, and explicitly addressed the limited amendments necessitated by the objections.
Hawaii Motor Sports LLC., September 10, 2020, Molly Considine, James A Patten for Hawaii Motor Sports, Doug James for Hawaii State Federal Credit Union, Charles W. Hingle for 150 Dairy Road, LLC., William D. Lamdin, Dylan D. Crouse for Wells Fargo Commercial Distribution Finance, Joseph Soueidi for Automotive Finance Corporation, Steven Johnson for American Honda Finance
2020 Mont. B.R. 345 (September 10, 2020)
Case no. 19-60541
Debtors’ counsel attempted to convert Debtor Ryan Kale’s case to Chapter 7 of the Bankruptcy Code. Joint debtors cannot file a single case with one debtor operating in a Chapter 13 and the other in a Chapter 7. If Debtor Ryan Kale wants to convert to a Chapter 7, Debtors must file a motion to bifurcate their case, with notice to all parties of an opportunity to respond. Debtors must also pay the fee of $310.00 to split their Chapter 13 case. Once Debtors’ case is bifurcated, Debtor Ryan Kale may voluntarily convert his Chapter 13 case to one under Chapter 7. Until Debtors properly file a motion to bifurcate and pay the appropriate fee, they may not jointly operate under two chapters of the Bankruptcy Code. This case will remain as a Chapter 13 case until both Debtors convert their case to Chapter 7 or until the case is bifurcated.
In re Kale, August 4, 2020, Phillip R. Oliver for Kale
2020 Mont. B.R. 332 (August 4, 2020)
Case no 20-10140
Debtor timely filed an Amended Motion for Sale of Property, Free and Clear of Liens (“Amended § 363 Motion”) and a Motion for Approval of Settlement Pursuant to F.R.B.P. Rule 9019(a) (“Rule 9019 Motion”). The Rule 9019 Motion was filed jointly by Debtor and Pender West Credit REIT LLC.
In deciding whether to approve the parties’ agreement, the Court considers the factors articulated in Martin v. Kane (In re A&C Properties), 784 F.2d 1377, 1381 (9th Cir. 1986):
(a) the probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises.
As explained in A & C Properties:
The purpose of a compromise agreement is to allow the trustee and the creditors to avoid the expenses and burdens associated with litigating sharply contested and dubious claims. The law favors compromise and not litigation for its own sake, and as long as the bankruptcy court amply considered the various factors that determined the reasonableness of the compromise, the court's decision must be affirmed.
As the parties explained in their jointly filed Rule 9019 Motion, the parties are embroiled in litigation in no less than 3 separate suits before 3 different courts, excluding the bankruptcy case. These cases involve foreclosure of Pender’s security interest in the Debtor’s real and personal assets. The Debtor asserted counterclaims in some of those actions which involve usury. The Debtor and Pender, each represented by counsel, independently determined that settlement of those cases was preferable to protracted and expensive litigation, the success of which was by no means assured (by any party). Considering all relevant factors, the Court finds that the parties’ agreement is “fair and equitable” as required by In re A&C Properties.
The Amended § 363 Motion requests approval of a sale of property by Debtor to HAB Development Corporation, or its assignee, (“HAB”) for real property and furnishings, fixtures and equipment. Nothing in the record suggests HAB has any relationship to Debtor, other than third party purchaser. The sales price is allocated as follows: $1,480,000 to real property; and, $160,000, furnishings, fixtures and equipment. The sales terms are indicative of an arms-length transaction. For purposes of § 363(m), HAB is a good faith purchaser. Pender filed a conditional consent to Debtor’s Amended § 363 Motion. The Rule 9019 Motion filed at ECF No. 56 is granted; and Debtor and Pender shall be bound by and shall perform according to the terms and conditions of the Settlement Agreement and Release attached to the 9019 Motion.
Khan Real Estate LLC, October 6, 2020, Gary S. Deschenes for Khan Real Estate, LLC,, Doug James for Pender West Credit 1 REIT, LLC, Brett R. Cahoon for UST
2020 Mont. B.R. 351 (October 6, 2020)
Case no. 11-61291
Pending before the Court is the Trustee’s Motion for approval of a settlement under Rule 9019. In the context of that Motion, the parties have raised the issue of whether the settlement proceeds from Lori’s Initial and Corrective surgeries are property of the bankruptcy estate. The filing of a bankruptcy case creates an estate comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” “Legal causes of action are included within the broad scope of § 541.” Since § 541(a)(1) is limited to the legal or equitable interests existing at the time of filing, pre-petition causes of action are part of the bankruptcy estate and post-petition causes of action are not. Property of the estate includes a debtor's contingent interest in future payments, as long as that interest is “sufficiently rooted” in the debtor's prepetition past, even if that interest is reliant on future contingencies that have not occurred as of the filing date.
Bankruptcy law looks to state law to determine the property rights of the debtor. “Under Montana law, the elements of a strict products liability claim are the same for design defect, manufacturing defect, and failure to warn claims: (1) the product was in a defective condition, “unreasonably” dangerous to the user or consumer; (2) the defect caused the accident and injuries complained of; and (3) the defect is traceable to the defendant.”
Lori opposes the Trustee’s Motion and argues the Class Action settlement proceeds are not property of the bankruptcy estate because her underlying claim was not sufficiently rooted in her prebankruptcy past. The cases cited by Lori generally hold that a cause of action is not sufficiently rooted in a debtor’s prebankruptcy past without proof of a prepetition injury. This case is factually distinguishable because there is evidence of a prepetition injury (i.e. the prepetition insertion of the TVM). With regard to her injury, Lori first argues that she did not learn of her injuries until after Debtors’ case was closed. That argument is not persuasive. The cases cited by Lori recognize that a debtor’s lack of knowledge of a cause of action is irrelevant. Second, and more importantly, the estate’s attorney, Katen, testified that Lori’s injury occurred when the TVM was implanted. In Katen’s words, the “implant itself . . . created the injury[.]” It was the insertion of the TVM that entitled Lori to receive settlement proceeds from the Class Action. “[E]verything except the knowledge of the cause of action occurred prepetition.”
In deciding whether to grant the Trustee’s Motion, the Court considers (a) the probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and, (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises. Considering all relevant factors, the Court finds that the settlements discussed in the Trustee’s Motion are "fair and equitable" as required by A&C Properties.
In re Knudsen, October 30, 2020 , Darcy M
Crum, Trustee, Steven and Lori Knudsen, pro se
, Darcy M Crum, Trustee, Steven and Lori Knudsen, pro se
2020 Mont. B.R. 370 (October 30, 3030)
Kucera, Montana Supreme Court, Judicial Estopple
A City water line near Kucera’s residence burst, sending thousands of gallons of water into his neighborhood. Evidently, after speaking with his insurance company, Kucera believed he had a claim against the City. The City denied Kucera’s claim. Nearly ten months after filing his claim against the City, Kucera filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. Kucera concurrently filed a personal property schedule in which he stated under penalty of perjury that he had no “contingent and unliquidated claims of any nature” despite the fact that he already asserted a claim for damages against the City and had a potential cause of action. Kucera filed a complaint in District Court against the City for negligence, nuisance, and inverse condemnation, alleging the City was liable for compensatory damages caused by the water leak. The City filed its first Motion for Summary Judgment, arguing that Kucera’s claims were barred by judicial estoppel because he failed under penalty of perjury to disclose the potential claims on his bankruptcy petition. Kucera re-opened his bankruptcy case and amended his personal property schedule to disclose his lawsuit against the City. The District Court granted the City’s motion and dismissed Kucera’s claims, holding that both of Kucera’s claims were barred by judicial estoppel, and alternatively, that Kucera’s negligence claim was barred by the statute of limitations.
Judicial estoppel is an equitable doctrine intended to protect the integrity of the judicial process from manipulation by litigants who seek to prevail, twice, on opposite theories. Judicial estoppel precludes a party to an action from taking a position inconsistent with the party’s prior judicial declarations. Generally, a debtor who fails to disclose a contingent and unliquidated claim in a bankruptcy proceeding is judicially estopped from pursuing that claim after being discharged from bankruptcy. As a threshold consideration, the court must also determine whether the party being estopped sought to intentionally manipulate the courts by taking inconsistent positions; the doctrine does not apply when a party’s prior position was based on inadvertence or mistake.
It is undisputed that Kucera did not disclose his potential claims against the City in his bankruptcy petition and schedules. Unlike Dovey, however, Kucera did not present any evidence to the District Court, nor does he argue now, that his failure to include the potential claims on his bankruptcy schedule was a result of inadvertence or mistake. Rather, Kucera argues judicial estoppel does not apply because he eventually re-opened and amended his bankruptcy petition to include his claims against the City. Kucera’s argument rests entirely on one sentence from a Ninth Circuit opinion: “Judicial estoppel will be imposed when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy, but fails to amend his schedules or disclosure statements to identify the cause of action as a contingent asset.”Kucera’s argument is unfounded. Hamilton stands for the proposition that so long as a debtor updates a bankruptcy schedule or disclosure during the pendency of the bankruptcy, not after bankruptcy has closed, then judicial estoppel will not apply. As Hamilton further explains, “The debtor’s duty to disclose potential claims as assets does not end when the debtor files schedules, but instead continues for the duration of the bankruptcy proceeding.”
When Kucera filed for
bankruptcy in June 2012, he had a duty to disclose his potential
claim at the time of filing, or at the very least, prior to closure
of bankruptcy in February 2013.Kucera’s omission can hardly be
interpreted as a result of a mistake or inadvertence. The District
Court did not err in granting summary judgment in favor of the City
of Billings. Because judicial estoppel is dispositive of the issue,
we need not address whether Kucera’s claims were time-barred.
Case no. 15-60592-7, Adversary nos. 16-00032, 16-00009
Issue preclusion or collateral estoppel may apply in nondischargeability litigation. Here, the underlying judgment comes from Texas, and issue preclusion “under Texas law prevents the relitigation of identical issues of law or fact that were actually litigated and were essential to the final judgment in a prior suit.” More specifically, Texas law precludes a party from relitigating an issue if “(1) the facts sought to be litigated in the second case were fully and fairly litigated in the first; (2) those facts were essential to the prior judgment; and (3) the parties were cast as adversaries in the first case.”
The Texas court specifically found reasons why the sanctions should, and would, be entered, and that the “imposition of death penalty sanctions was directly in relation to Defendant’s misconduct.” It expressly found Defendant abused her position as a fiduciary under both the power of attorney and as executor, committed active fraud and fraud by non-disclosure, and misappropriated funds belonging to Alice’s estate including taking and using such funds to improve, maintain, and dispose of liens on the Property. Given the record, the Court concludes the death penalty default judgment entered in the Texas Litigation satisfies the full and fair litigation element and collateral estoppel may apply to the current litigation to the extent the facts were at issue and essential to that litigation.
Section 523(a)(4) excepts from discharge any debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny[.]” State law is to be referenced in order to ascertain if the requisite fiduciary relationship existed. Defendant’s exercise of the power of attorney prior to Alice’s death qualifies. Here, the FF/CL entered by the Texas court relevant to § 523(a)(4) liability are clear and unambiguous. The Texas court found Defendant’s conduct caused injury and damages to Plaintiff and to the Estates of Alice Jean Martin and Billy Martin. It concluded damages of $79,978.39 were suffered by, and had to be paid to, the Estates. Plaintiff’s Motion will be granted and summary judgment will be entered, establishing the damages as found by the Texas court are nondischargeable under § 523(a)(4). Liability for Plaintiff’s attorneys’ fees in the Texas Litigation are also nondischargeable.
Plaintiff also contends Debtor’s discharge should be denied in full under § 727(a)(4)(A). That proposition relies upon inconsistencies between Defendant’s depositions in the Texas Litigation and her schedules, statement of financial affairs, and § 341(a) testimony in her bankruptcy case. The Court concludes that summary judgment on this aspect of the dispute would be improper.
Volk recognized that “[a] constructive trust serves as a proper remedy to unjust enrichment. ‘A constructive trust arises when a person holding title to property is subject to an equitable duty to convey it to another on the ground that the person holding title would be unjustly enriched if he were permitted to retain it.’” The Montana Supreme Court also recognized a court’s broad discretion to impose a constructive trust despite even a lack of wrongdoing by the party holding the property. There is authority to the effect that a constructive trust is a remedy which cannot affect rights in the res until it is imposed. But while the remedy here is identified and imposed postpetition, it is fundamentally a declaration of the nature of and interests in the Property as of the commencement of Defendant’s bankruptcy case. Such is the result of a declaratory judgment recognizing the unjust enrichment and constructive trust.
The nature of that interest as of the date of the bankruptcy filing is subject to § 541(d) of the Code. The decision of the Texas court, which is entitled to full faith and credit and issue preclusive effect, established that Defendant misappropriated monies of Alice Jean Martin both while holding power of attorney and, later, while administering the Estates. In violation of her fiduciary duties, Defendant used funds to pay lawyers to assist her in eliminating liens on the Property. The taking and use of funds for personal benefit is wrongful, and retention of such benefit would be and is an unjust enrichment. Therefore, grounds exist for a declaratory judgment and the imposition of a constructive trust to the extent the record demonstrates the misappropriated funds were used to unjustly enrich Defendant through her Property.
Ordinarily in order to impose a constructive trust, strict tracing rules apply, and a plaintiff bears the burden to trace the alleged trust property “specifically and directly” back to the illegal transfers. However, as Plaintiff correctly argues, a liberal tracing rule may apply depending on the facts of the case. The Ninth Circuit BAP has recognized that “it is not an abuse of discretion to allow liberal tracing when no creditors will be harmed.” Here, a constructive trust on the homestead funds will not harm any other creditors, and the equities, as found by the Texas court, would allow for such a liberal tracing approach. But a liberal tracing standard on this record would require the Court to make inferences. Such inferences may not be drawn in Plaintiff’s favor at the summary judgment stage. Therefore, the lack of specificity regarding the transactions and the precise amounts either in the evidence before the Court or in the Texas FF/CL, precludes the Court from imposing a constructive trust under Plaintiff’s summary judgment motion. The Court therefore finds and concludes that the motion for summary judgment will be granted in part as the funds remaining from the sale of the Property shall be impressed with a constructive trust to the benefit of Martin and any other heirs of Alice Jean Martin and/or the Estates of Alice Jean Martin and Billy Martin. However, the amount of such trust must be established at trial.
Further, the Court finds and concludes that by virtue of the existence of such a trust, arising effective as of the time of the misappropriations and misconduct by Defendant, the equitable interests of the trust beneficiaries removes such funds from property of the estate by reason of § 541(d) of the Code. Such funds shall not be administered and Defendant’s asserted homestead exemption in the Property will be denied to that extent.
Martin v. Jurgens, July 30, 2020, Charles E. Hansberry, Jenny M. Jourdonnais for Martin, Edward A. Murphy for Jurgens
2020 Mont. B.R. 291 (July 30, 2020)
Micone, Objection to Claim
While the Court will reserve its final ruling on Debtor’s Objection until conclusion of the continued hearing, FED. R. BANKR.P. 3001(f), provides that a proof of claim completed and filed in accordance with 11 U.S.C. § 501 and any applicable Bankruptcy Rules constitutes prima facie evidence of the validity and amount of the claim. Thus, if a procedurally proper claim is filed, an objecting party carries the burden of going forward with evidence contesting the validity or amount of the claim. However, once the objecting party succeeds in overcoming the prima facie effect given to the claim by Rule 3001(f), the burden shifts to the claimants to prove the validity of their claims by a preponderance of the evidence. Proof of Claim 1-2 filed by Micone was completed and filed in accordance with 11 U.S.C. § 501. Three documents are attached to Micone’s Claim: (1) Findings of Fact, Conclusions of Law, and Decree of Dissolution (“Decree of Dissolution”) entered in the Montana Eleventh Judicial District Court, Flathead County, which were signed by the State Court Judge on June 8, 2017 (consisting of 37 pages plus attached exhibits); (2) Order on Motion to Amend Judgment; or in the alternative, for Relief From Judgment filed in the State Court on May 15, 2019; and (3) Amendment to Findings of Fact, Conclusions of Law, and Decree of Dissolution signed by the State Court Judge on July 21, 2017.
Debtor still resides in the marital home, the marital home has not yet been foreclosed, and Debtor has not paid Micone the $31,100 she was required to pay him by approximately August 8, 2017. Unless and until the home is foreclosed upon, Micone has an interest in the home to the extent of $31,100. Nothing in Debtor’s testimony suggests anything to the contrary. Micone asserts he is owed $2,495 as a priority debt for child support. Debtor testified that she and Micone owe each other offsetting child support. The Order filed in the State Court on May 15, 2019, provides that “[t]he total amount [Debtor] owes [Micone] for arrearage and overpayment of child support is $2,495.” The Order on Motion also provides that “[a]part from the $2,495 [Debtor] owes [Micone], there are no other arrearages.” The foregoing comports with Micone’s priority child support Claim. Debtor’s testimony that is inconsistent with the Order on Motion does not overcome the prima facie validity of Micone’s Claim.
Pursuant to his Claim,
Micone also asserts a general unsecured claim of $7,490. Pursuant to
the attachments to the Claim, Micone was to receive various items of
personal property in the parties’ divorce. Micone did not receive
many of the items. Debtor does not dispute that the items were
awarded to Micone. Instead, Debtor testified that she either did not
know the whereabouts of the items, or she had sold them. Nothing in
Debtor’s testimony has overcome the prima facie validity afforded
the unsecured component of Micone’s Claim.
2020 Mont. B.R. 7 (January 21, 2020)
McVicker, Objection to Claim Overruled
Debtors filed an Objection to the Proof of
Claim filed by Todd and Stephanie Foster. The Objection is
accompanied by a “NOTICE” which grants Fosters thirty days to
respond and schedule the matter for hearing. Fosters’ failure to
respond does not end the Court’s inquiry. Debtors ask that the Court
disallow Proof of Claim No. 18 arguing “the amount of claim #18 has
been paid in full as of 10/3/19 and can be verified by the
creditor’s own motion to dismiss the eviction proceeding for which
it claimed damages to be. The Claim is moot. Enclosed is the local
order, dismissing the case without prejudice, dated roughly 6 Nov
19.” The “local order” referenced in Debtors ’Objection is not
Moderie, Conversion from Chapter 13 to Chapter 7, Form 122
The Deficiency Notice raises an issue, whether the means test applies in cases converted from Chapter 13 to Chapter 7. As of Spring 2019, at least 23 courts have addressed whether the means test applies to bankruptcy cases voluntarily converted from Chapter 13 to Chapter 7. See 3 Bus. Entrepreneurship & Tax L. Rev. 36, Harmonizing Conversion and the Means Test in Bankruptcy. According to the article:
These courts are divided, with a majority
holding, for a variety of reasons that the means
This article’s analysis highlights the problems with adopting either the majority or minority view. The authors explain:
Courts adopting the view that the means
test applies in converted cases uniformly concluded that, when a
case is converted to another chapter, it is deemed filed under the
destination chapter. As a result, each court found that treating the
case as filed under Chapter 7 required it to apply the means test to
determine whether the filing constituted abuse of the bankruptcy
. . . stress the inability of courts to
apply the means test fairly when the debtor converts from Chapter 13
to Chapter 7 years after the initial bankruptcy filing. These cases
point out that a calculation would require debtors to use outdated
income figures in calculating their current monthly income and it
would make it impossible for court clerks to timely comply with
their obligations under § 342(d).
Like the majority view, this view creates
other interpretive problems, and is at odds with §§ 704(b)(1)(A),
707(b) and Rule 1019(2). In this case, the Order to Show Cause
is discharged and absent the UST, Chapter 7 Trustee or other party
making this an issue, the Court will direct the Clerk’s Office not
to file a deficiency notice when a case converts from Chapter 13 to
Chapter 7 and Form B122A is not included or completed.
Case no. 19-60384
Debra Montoya and Big D’s Auto entered into a reaffirmation agreement. Pursuant to the Agreement, Debra agreed to “pay off remainder of balance for 2010 Dodge Journey in amount of $500.00.” The Agreement was approved on August 28, 2019. Debtors’ case was closed on that same date. On September 30, 2020, Debra filed a pleading averring she paid all amounts required by the Agreement, but that Creditor failed to release its lien on Debra’s 2010 Dodge Journey. The Court treated Debra’s pleading as a motion to reopen and a request for an order to show cause consistent with footnote 1 of the Order. Debra appeared at the Show Cause hearing and represented that she paid Creditor all amounts due under the Agreement prior to this Court’s approval of the Agreement. Debra is selling the 2010 Dodge Journey, but cannot get Creditor to release its lien. Creditor did not appear at the Show Cause Hearing. Creditor also did not release its lien by October 20, 2020, or otherwise respond to the Court’s Order. Therefore, IT IS ORDERED and NOTICE IS HEREBY GIVEN to: Department of Justice - Motor Vehicle Division, Vehicle Services Bureau, PO Box 201431, Helena, MT 59620-1431 Debra Rose Montoya has satisfied in full the security interest of Big D’s Auto. This Order serves as a Release of Security Interest or Lien.
In re Montoya, October 21, 2020, Debra and Jacob Montoya, Pro se
2020 Mont. B.R. 368 (October 21, 2020)
Case no. 19-60844
Under Montana law, “a final judgment may have a preclusive effect on future litigation by way of either res judicata or collateral estoppel.” Res judicata applies when: (1) the parties or their privies are the same; (2) the subject matter of the present and past actions is the same; (3) the issues are the same and relate to the same subject matter; (4) the capacities of the persons are the same in reference to the subject matter and to the issues between them; and (5) a final judgment has been entered on the merits in the first action.
Although similar, the requirements for collateral estoppel are different and include: (1) the identical issue raised was previously decided in a prior adjudication; (2) a final judgment on the merits was issued in the prior adjudication; (3) the party against whom the plea is now asserted was a party or in privity with a party to the prior adjudication; and (4) the party against whom preclusion is now asserted was afforded a full and fair opportunity to litigate the issue.
All four elements must be met before collateral estoppel may be invoked While the specific requirements vary, a final judgment is essential to both res judicata and collateral estoppel. The State Court Order was not a final judgment for purposes of res judicata or collateral estoppel.
As of the petition date, the State Court Order in the Second Action was a not a final judgment. The Certification Motion filed the day before Debtors’ bankruptcy petition was filed demonstrates the State Court Order in the Second Action was not a final judgment. The Montana Supreme Court has explained, “A final judgment is one which constitutes a final determination of the rights of the parties; any judgment, order or decree leaving matters undetermined is interlocutory in nature and not a final judgment for purposes of appeal.” The State Court Order addressed Glastonbury’s summary judgment motion. In order to render it a final judgment, Glastonbury filed the Certification Motion pursuant to M. R. Civ. P. Rule 54(b). Therefore, on the petition date, there was no final order for purposes of res judicata, because the Certification Motion was pending.
A more relaxed requirement for finality exists for collateral estoppel purposes under Montana law. To decide “whether to give preclusive effect to issues resolved in a judgment or order that has not been entered as final[,]” state courts consider the following factors: (1) whether the prior decision was adequately deliberated and firm and not avowedly tentative; (2) whether the parties were fully heard; (3) whether the court supported its decision with a reasoned opinion; [and] (4) whether the court's prior decision was subject to appeal or was in fact reviewed on appeal. Based on the record before this Court, even under the relaxed standard articulated in Baltrusch, Glastonbury has not established that as of the petition date, the State Court Order was “final” and entitled to preclusive effect.
The rationale outlined in the State Court Order in the Second Action, concluding that Debtors’ homestead exemption should not apply to a basic money judgment for attorneys’ fees in the First Action is not persuasive, particularly given the liberal construction to be applied to exemption claims. The reasoning of the State Court seems to encourage multiple suits on the same transaction, permit the splitting of causes of action, and ignore concepts of merger and bar. Taken to its logical extreme, it is the antithesis of judicial efficiency or economy and promotes the piecemeal adjudication of claims. Further, it is irreconcilable with the liberal construction afforded the homestead exemption. On this record, this Court cannot conclude the State Court Order was reasoned or adequately deliberated. Absent a well reasoned decision that is adequately deliberated, the State Court Order cannot be final for collateral estoppel purposes.
This Court has jurisdiction of this Chapter 7 case under 28 U.S.C. § 1334(a). Proceedings in bankruptcy cases are referred to as “core” and “non-core.” The distinction between core and none-core is important because “[c]ongress identified as ‘[c]ore’ a nonexclusive list of 16 types of proceedings, § 157(b)(2), in which it thought bankruptcy courts could constitutionally enter judgment.” “Congress gave bankruptcy courts the power to hear and determine core proceedings and to ‘enter appropriate orders and judgments’ subject to appellate review by the district court. Id. Core proceedings include allowance or disallowance of exemptions from property of the estate. 28 U.S.C. § 157(b)(2)(B).
Resolution of Debtors’ exemption in their homestead is a matter to be determined by this Court in this bankruptcy proceeding, not the State Court in the Second Action. State court intrusions on all bankruptcy court orders or other “core” bankruptcy proceedings are barred in this circuit The explicit statutory recognition that exemption matters are “core” demonstrates the significance these issues have to the broader administration of bankruptcy cases and Debtor’s “fresh start.” Not only did Congress intend that bankruptcy be handled exclusively in a federal forum, it designated as “core” those matters it considered integral to the administration of cases, including debtors’ exemptions. Given this exclusivity, this Court cannot discern any basis upon which the State Court might have enjoyed jurisdiction to enter its Certification Order while this case was pending. Absent jurisdiction, the Certification Order has no effect, is not binding on this Court and is not entitled to any preclusive effect.
Less relevant to the Court’s analysis, but worth noting, if Glastonbury requested from the State Court a ruling on its Certification Motion on December 16, 2019, Glastonbury violated the automatic stay under § 362. On December 16, 2019, the stay under § 362 had not been modified and was in effect. To the extent Glastonbury sought a ruling on December 16, 2019, on its Certification Motion adverse to Debtors, the request violated § 362(a)(1). Further, “judicial proceedings, taken in violation of the automatic stay are void.” Bankruptcy Courts are not obliged to extend full faith and credit to such judgments that stem from judicial proceedings in violation of the stay because such proceedings are void ab initio.
The specific exemptions available to debtors are statutorily defined. Montana has opted out of the federal exemption scheme. When a state opts out of the federal exemption scheme, state law is applicable to the determination of homestead exemptions in bankruptcy. Thus, this Court considers Montana’s exemption statutes, rather than federal law to determine the allowance of a debtor’s claimed homestead exemption. Homestead exemption statutes must be liberally construed in favor of debtors. Debtors listed their homestead exemption in Schedule C in the amount of $1,804.56, pursuant to § 522(b)(2) and Rule 4003(a).
Under Montana law, to be eligible for the homestead exemption, the debtor must have executed a homestead declaration on the subject property and filed it with the county clerk and recorder. Further, a declaration of homestead must include a statement by the claimant that they are “residing on the premises.” Montana’s homestead exemption is currently limited to $250,000, which amount is limited by the proportionality rule of Mont Code Ann. § 70-32-104(2). Glastonbury has not challenged Debtors’ homestead exemption on any of these grounds. Based on the record presented to this Court, there is no binding decision that this Court must adopt or follow. To the contrary, the prepetition decision of the State Court was interlocutory and not final, so res judicata is not applicable. Collateral estoppel is not available to Glastonbury because it has failed to establish the State Court Order was the subject of adequate deliberation and “final.” Further, the postpetition effort by Glastonbury to make the interlocutory summary judgment decision “final” for purposes of full faith and credit, res judicata and collateral estoppel, impermissibly intruded into a core matter over which this Court has jurisdiction. Glastonbury’s Objection is overruled.
The avoidance of liens, in general, is governed by § 522(f). In Chiu, the Ninth Circuit noted that “under § 522(f)(1) a debtor may avoid a lien if three conditions are met: (1) there was a fixing of a lien on an interest of the debtor in property; (2) such lien impairs an exemption to which the debtor would have been entitled; and (3) such lien is a judicial lien.” As a threshold matter, under § 522(f)(2)(A) Debtors can only avoid the fixing of a judgment lien “on an interest of the debtor in property[.]” Debtors own a 1% interest in the property. Debtors cannot use § 522(f)(2)(A) to avoid Glastonbury’s lien on the remaining 99% interest owned by their daughters, who are not debtors. This Court has determined that Debtors are entitled to the homestead exemption. As a result, Glastonbury’s Judgment lien is subject to being avoided under § 522(f).
In re O’Connell, April 27, 2020, Michael R. Klinkhammer for O’Connell, James Screnar for Glasonbury HOA
2020 Mont. B.R. 161 (April 27, 2020)
Olson v. Pro Co-op et al, Stipulation of Facts Approved in Part
The parties jointly moved the Court to
approve a Statement of Stipulated Facts. According to the Joint
Motion, the parties agree that the facts included in their
“Statement of Facts” are true and require no further proof. The
Joint Motion concludes by stating, “the Statement of Stipulated
Facts does not limit or prohibit any party from submitting
additional evidence for the Court’s consideration on Bank’s Motion
for Summary Judgment.” This reservation of rights to “submit new
evidence” which may be tantamount to merely new allegations that are
contested, gives the Court pause. Ordinarily, pursuant to Mont. LBR
7056-1(a)(1), the moving party submits a Statement of Uncontroverted
Facts. The party opposing summary judgment is obligated to file with
the brief a Statement of Genuine Issues, “setting forth the specific
facts which the opposing party asserts establish a genuine issue of
material fact precluding summary judgment in favor of the moving
party.” Mont. LBR 7056-1(a)(2). Finally, all “material facts in the
moving party's Statement of Uncontroverted Facts are deemed to be
admitted unless controverted by a Statement of Genuine Issues filed
by the opposing party.” Mont. LBR 7056-1(a)(3).
Olson, Relief From Stay, Confirmation
Creditor requests stay relief under §§ 362(d)(1) and (2). Debtor opposed the Motion arguing the issues presented in the Motion were res judicata as a result of plan confirmation. Citing In re Evans and In re Wellman, Debtor argues that Creditor is bound by Debtor’s confirmed Third Amended Chapter 12 Plan. Confirmation of a chapter 12 plan, like that of a chapter 13 plan, binds the debtor, creditors, and equity security holders. 11 U.S.C. § 1227(a) and 1327(a) (“the provisions of a confirmed plan bind”); In re Dillon, 16 Mont. B.R. 1, 4-5 (Bankr. D. Mont. 1997), aff'd, (D. Mont. 1998). In discussing a confirmed chapter 13 plan and § 1327(a), the BAP in Evans explained:
Dillon, 16 Mont. B.R. at 5.
The Motion alleges cause exists under § 362(d)(1) for stay relief because Debtor has failed to make the payments required by the pre-petition contract. Alternatively, the Motion seeks relief based on § 362(d)(2), allegedly because there is no equity in the collateral and the property is not necessary for an effective reorganization. As Evans explained and concluded, these issues are res judicata post-confirmation. Although Evans is a chapter 13 case, its reasoning is applicable in this chapter 12 case. The Court appreciates that Creditor is not scheduled to receive a payment under Debtor’s Plan until November of 2020. However, if the proposed treatment of Claim 10 in the Plan was not acceptable to Creditor, Creditor had the opportunity to, and should have objected to confirmation of Debtor’s Plan. The Motion filed February 3, 2020 was no substitute for a plan objection. Allowing a creditor to obtain stay relief post-confirmation based on a pre-petition contractual default in payments, after the pre-petition obligation has been replaced with new payment terms provided in the confirmed plan, finds no support in the law. In this case, the prepetition contract does not provide the terms of the credit relationship post-confirmation. Instead, the Plan provides new payment terms between Debtor and Creditor that are controlling. The Creditor is bound by the terms of Debtor’s confirmed Plan. The confirmed Plan’s terms of payment are binding on Creditor. Debtor is not in default under the terms of the confirmed Plan.
In re Olson, March 4, 2020, Jon R. Binney for Ford, Molly L. Considine for Olson
2020 Mont. B.R. 61 (March 4, 2020)
Case no. 19-60465
More than 30 years ago, this Court stated that it had an “independent obligation to review each application for compensation to ensure that applicants provide an adequate summary of work performed and costs incurred. Past decisions by this Court have emphasized the following factors when evaluating whether applicants provided an adequate summary of work performed and costs incurred:
1. a description of the services
provided, setting forth, at a minimum, the parties involved and the nature and purpose
of each task;
The Ninth Circuit has distilled the language of § 506(b) into 4 distinct elements that, if satisfied, entitle a secured creditor to recover attorney’s fees: (1) the claim is an allowed secured claim; (2) the creditor is oversecured; (3) the fees are reasonable; and (4) the fees are provided for under the agreement.
The burden of proof on the reasonableness of an oversecured creditors' claim for attorneys is upon the creditor.
Although often overlooked, LBR 2016-1(f), allows for the inclusion of “prepetition fees, prepetition costs, or prepetition charges incurred prior to the date of debtor filing the bankruptcy petition in the creditor’s proof of claim,” so long as the fees are itemized. LBR 2016-1(f) does not require a fee application for pre-petition fees.
This distinction between prepetition and postpetition fees and their treatment in LBR 2016-1(f), corresponds to a revision to the rule that occurred in 2009. Prior to the revision in 2009, LBR 2016-1(f) did not distinguish between prepetition and postpetition fees of secured creditors and broadly referred to “reasonable fees.” The impetus and rationale for this revision to the local rule change was discussed in In re Ransom, 361 B.R. 895, 898 (Bankr. D. Mont. 2007). In Ransom, Judge Kirscher explained the BAP’s reasoning in Atwood permitted a creditor to disclose all prepetition fees and costs in the proof of claim without the need to file a fee application. Despite the Ransom decision and the 2009 revision to LBR 2016-1(f), many practitioners continue to exclude their prepetition fees from their proof of claim, and include those fees later in a request for approval of fees under § 506.
With the record before it, the Court cannot discern whether the Creditor will remain (or ever was) “oversecured,” if the adversary proceeding is resolved in Pro Co-Op’s favor. Perhaps more importantly the amount of Creditor’s Claim as of the petition date and the value of Creditor’s collateral for § 506(b) purposes is unclear to the Court. First, all indications in the record are that until the Court rules on the validity of Pro Co-Op’s lien, there is no way to determine whether Creditor qualifies as “oversecured” for § 506(b) purposes. If the Pro Co-Op lien is valid and senior to Creditor’s lien in the crops, Creditor may be unsecured. How these issues intersect is not clear to the Court with the record before it. Second, with the information available, the fees requested greatly exceed any equity that might be available. In this case, the Amended Application seeks approval of postpetition fees and expenses totaling $66,323.16. Without a valuation of the collateral, this Court has no way to determine the extent to which the Creditor is oversecured. Setting aside the lien issues with Pro Co-op, if Creditor is alleging its secured claim is $92,577.92, and the value of the collateral securing that is claim is $143,396, up to $50,000, in reasonable postpetition fees could be added to its claim, not $66,323.16. If this Court were to blindly approve the Amended Application, the total allowed secured claim would exceed the alleged value of the collateral by $15,505.
In its more recent Orders, this Court has
consistently cited In re Dalessio,
74 B.R. 721 (9th Cir. BAP 1987), and its observation that, “An
oversecured creditor should not be paid attorney's fees for
unnecessary or redundant tasks or for doing the very thing any
creditor, unsecured as well as secured, is entitled to do under the
Bankruptcy Code” This Court’s emphasis on excluding from § 506(b)
fee applications, fees for tasks that any creditor might undertake
is new. Although the emphasis is new, the reasoning is not novel.
Oversecured creditors obliged to defend their secured status were
awarded their fees under § 506(b) in
In re Copper King Inn,
10 Mont. B.R. 146, 148 (Bankr. D. Mont. 1991). In
Judge Peterson reasoned that the fees were “incurred in the
creditor’s successful resistance” to the challenge to the creditor’s
secured status. Not every creditor, or even every secured creditor
in a case will be called upon to defend their secured status. This
Court will not delineate a list of tasks that are universal to all
creditors in a case, but generally, universal tasks would include,
filing a notice of appearance, filing a proof of claim, reviewing
pleadings, including plans, routine motions (stay relief depending
on the circumstances), and generally advising the client of the
status of the matter. Along with distinguishing between tasks, some
courts have delineated lists of factors to consider when evaluating
the reasonableness of a fee application under § 506(b). These
Here, the Amended Application seems to seek approval of fees and expenses that are 71% of its actual claim. Ultimately, there will never be a “bright-line” test for determining the reasonableness of attorney’s fees, but these factors, and the distinction between tasks that all creditors must undertake, and those that are unique to the secured creditor seeking fees under §506(b) are all worthy of consideration when determining reasonableness.
The Application and Amended Application have caused this Court to ponder whether there are any circumstances in which a secured creditor could establish that attorney’s fees and expenses totaling $80,388.50, or $$66,323.16, are reasonable when the claim is $92,577.92, or even $115,377.10, (per the parties’ Stipulation). The Court’s initial inclination is, “no.” However, in order to afford Creditor, the Applicant and any other party in this case, an opportunity to address the Court’s concerns, a hearing on the Amended Application will be conducted and, at a minimum, the Court would seek from Applicant clarity on the following, and anything else Applicant would like the Court to consider in conjunction with the Amended Application.
1. Can this
Court rule on the Amended Application without deciding the pending
In re Olson, April 13, 2020, Molly Considine, James A. Patten for Olson, Keturah N. Shaules, Doug James for Opportunity Bank
2020 Mont. B.R. 137 (April 13,2020)
Case no. 19-60465, Adversary no. 19-00032
The Bank seeks judgment as a matter of law that it has a first position perfected lien on Debtor’s 2018 crops. Pro Co-Op maintains that it holds a valid agricultural lien on Debtor’s 2018 grain and proceeds that is enforceable and prior in right to the Bank and FSA.
What the pleadings show is that the parties were overly optimistic in their deadline for filing agreed facts because additional facts were filed after January 24, 2020. The Bank then proceeded to file a statement of uncontroverted facts, which was not contemplated by the Court’s agreed scheduling order and which the Farm Service Agency and Pro Co-Op have sought to clarify. In filing its statement of uncontroverted facts, and arguably taking some liberty with those facts, the Bank opened the door and invited responses and clarifications, including a clarification from the FSA who joins in the Bank’s Motion for Summary Judgment.
The parties agree that in the spring of 2018, Pro Co-Op sold fertilizer, pesticides and other chemicals to Debtor. In July of 2018, Pro Co-Op completed and filed with the Montana Secretary of State a Montana Title 71 Agricultural Lien Form (“Lien Form”). When completing the Lien Form, a creditor is required to identify the type of lien as: Farm Laborer’s Lien (71-3- 402); Crop Lien for Seed or Grain (71-3-703); Crop Lien for Spraying or Dusting (71-3-902); Thresher’s Lien (71-3-802); and Crop Lien for Hail Insurance (71-3-712). On its Lien Form, Pro Co-Op mistakenly identified its lien as Crop Lien for Seed or Grain under Mont. Code Ann. § 71-3-701, et seq. instead of a Crop Lien for Spraying or Dusting under Mont. Code Ann. § 71-3- 901, et seq. In the description box of the Lien Form, Pro Co-Op describes the service or product furnished as “Fertilizer, chemicals, fuel, materials, labor and services for crop year 2018.”
Based upon the agreed facts, the Bank proceeds to argue that the Stipulated Facts do not contain “any evidence that demonstrates that Pro Co-Op complied with the statutory requirements of § 71-3-902, MCA, to perfect a statutory lien for providing chemical or fertilizer. There is no lien filing under § 71-3-902(1), MCA, and there is no certified mail reflecting notice to Debtor, as required by § 71-3-902(2), MCA.” The Court agrees that the stipulated facts do not show that Pro Co-Op complied with Mont. Code Ann. § 71-3-902(2), by giving Debtor notice of its intent to file a lien under § 71-3-901, et. seq. However, the stipulated facts similarly do not show that Pro Co-Op did not comply with Mont. Code Ann. § 71-3-902(2). When Pro Co-Op attempts to clarify the Bank’s conclusion, the Bank takes offense. This is not a game of gotcha. As the Court noted earlier, the Bank opened the door when it filed its statement of uncontroverted facts. Public policy favors resolution on the merits. The instant dispute between the Bank and Pro Co-Op suggests that there is at least one material issue of fact that precludes summary judgment. The appropriate course of action in such situation is denial of the Bank’s motion for summary judgment so the parties can proceed to a trial on the merits.
Olson v. Pro CO-OP, Western Bank of Wolf Point and Farm Service Agency, April 23, 2020, Molly Considine for Olson, Jeffrey A. Hunnes, Joseph A. Soueidi for PRO CO-OP, Doug James, Keturah N. Shaules for Opportunity Bank, Victoria Francis, Tyson Lies for FSA
2020 Mont. B.R. 155 (April 23, 2020)
Case no. 19-60456
Applicant filed a First Interim Application for Professional Fees and Costs. In the prayer for relief, Applicant requests “an Order awarding Applicant reasonable professional fees in the amount of $59,642.50 and reimbursement of costs and expenses in the amount of $5,028.12.” Applicant does not state in the Application whether fees are being sought under 11 U.S.C. §§ 330 or 331. The Court is having trouble reconciling the request for approval of fees and costs with the title of the Application, which requests an interim award of fees and costs. Debtor’s Chapter 12 Plan was confirmed on February 4, 2020. At this juncture of a case, where a debtor’s plan has been confirmed, the Court would generally see counsel file a fee application under 11 U.S.C. § 330. The Court is not inclined to guess whether this is an interim request for fees under 11 U.S.C. § 331 as opposed to a request for fees that are not interim under 11 U.S.C. § § 330.
Accordingly, IT IS ORDERED approval of the Application filed at ECF No. 233 is DENIED; and Applicant is granted leave to refile the Application. If the request is for approval of interim fees, the Court would direct Applicant to cite 11 U.S.C. § 331 and include in the prayer for relief some indication that Applicant is requesting an interim award of fees. If Applicant is seeking an award of fees under 11 U.S.C. § § 330, Applicant is directed to cite 11 U.S.C. § 330 and remove the word “Interim” from the title of the Application.
In re Olson, November 30, 2020, Molly Considine, James A. Patten for Olson
2020 Mont. B.R. 420 (November 30, 2020)
Rickert v. Specialized Loan Servicing, Ninth Circuit Bankruptcy Appellate Panel, (Unpublished), (Lafferty, Brand, Gan), Negotiable Instrument; Affirming In re Rickert, 2019 Mont. B.R. 144 (April 29, 2019)
Case no. MT-19-1120 LBG
SLS’s proof of claim was executed by an authorized agent of SLS and attached copies of the relevant promissory note, recorded deed of trust and assignments, a statement of the amounts owing, and the amount necessary to cure default, as required under Rule 3001. Such a proof of claim constitutes “prima facie evidence of the validity and amount of the claim.” Rule 3001(f). To defeat a prima facie valid claim under § 502, “the objector must come forward with sufficient evidence and ‘show facts tending to defeat the claim by probative force equal to that of the allegations of the proofs of claim themselves.’
Case no. 18-60937, Adversary no. 20-01003
Defendants seek dismissal of this case under Civil Rule 12(b)(6).In addressing a Civil Rule 12(b)(6) challenge, the Court accepts all nonconclusory factual allegations in the complaint as true and construes the pleading in the light most favorable to the nonmoving party. In essence, Plaintiff’s factual allegations mirror and duplicate her objection to the SLS proof of claim. Even if, under the liberal standard afforded pro se litigants, Plaintiff satisfied the first element of the test, Plaintiff cannot “plausibly suggest an entitlement to relief.”At best, Plaintiff’s allegations challenge SLS’ standing and assert some ongoing fraud on the court by SLS and their counsel, claims that have already been adjudicated and reviewed on appeal. At worst, Plaintiff’s complaint is an amalgamation of citations to disparate statutes and cases that the Defendants must ferret through to find some thread, or theory to defend against.
Plaintiff cannot establish that she is entitled to relief, because this Court and the BAP already considered Plaintiff’s claims against SLS in conjunction with Plaintiff’s objection to the SLS proof of claim. “The law of the case doctrine generally precludes reconsideration of an issue that has already been decided by the same court, or a higher court in the identical case.”“[W]hen matters are decided by an appellate court, its rulings, unless reversed by it or a superior court, bind the lower court.“To show that an issue is not controlled by the law of the case, parties must show that it was not decided explicitly or by necessary implication by a prior decision.” The complaint repeats, mirrors and duplicates issues that have already been finally adjudicated by this Court and the BAP, both explicitly and implicitly.
Per a Memorandum of Decision and an Order entered in Debtor’s main bankruptcy case, the Court found “SLS ha[d] standing to file its proof of claim as the party entitled to enforce the Deed of Trust signed by Debtor under Montana law” and granted Specialized Loan Servicing, LLC (“SLS”) relief from the automatic stay. The Court also overruled Debtor’s objection to SLS’s Proof of Claim No. 5.The BAP affirmed this Court’s decision. After reciting in part her various arguments on appeal, including that “SLS committed fraud upon the court,” the BAP concluded “there is no basis in law or fact to support any of these arguments.” The cognizable portions of Plaintiff’s complaint are a reassertion of the very claims and arguments that have already been addressed explicitly and implicitly by this Court and the BAP.
Law of the case doctrine bars Plaintiff from relitigating matters that were previously decided by this Court, and the BAP. Virtually none of the facts alleged by Plaintiff are entitled to any presumption of truth. Further, after considering this Court and the BAP’s prior decisions, many of the alleged facts are contrary to the findings and conclusions of those decisions. Plaintiff’s complaint is implausible and allowing Plaintiff to amend her complaint would not cure its deficiencies. IT IS ORDERED that the Motion filed at ECF No. 4 is granted; and this Adversary Proceeding is dismissed.
2020 Mont. B.R. 130 (April 9, 2020)
Case no. 18-60937
Following an evidentiary hearing, the Court overruled Debtor’s objection to SLS’s proof of claim. The Court concluded that SLS was the party entitled to enforce the note, and granted SLS stay relief to pursue its non-bankruptcy remedies under the deed of trust that secured the note. Implicit, if not explicit in this decision was a determination that the Note was enforceable, and SLS could enforce its interest under the deed of trust in another form under non-bankruptcy law. The BAP affirmed this Court’s decision.
Just days before the BAP’s decision was entered, Debtor filed an adversary complaint against SLS, challenging the validity, priority or extent of its lien. The Court relied on the BAP decision from the first appeal in its decision to grant SLS’s motion to dismiss the adversary proceeding.. Debtor filed her second appeal to the BAP, and that appeal is pending.
Rule 8007(a)(1)(A) provides for the filing of a stay of judgment, order, or decree of the bankruptcy court pending appeal. To obtain a stay pending appeal, a party must demonstrate: (1) a likelihood of success on the merits, (2) irreparable injury if stay is denied, (3) no substantial harm to appellee from grant of stay, and (4) that the stay will do no harm to public interest.
Debtor has not presented any argument or evidence that suggests she enjoys a likelihood of success on the merits. To the extent Debtor complains that this Court’s analysis considered extrinsic evidence, the extrinsic evidence she is referring to seems to be the BAP’s decision affirming this Court’s prior decision on the same and similar issues, which this Court had authority to do. Debtor has not established that she will suffer irreparable injury if a stay is denied. This Court acknowledges that denial of a stay and dismissal may give rise to an argument that Debtor’s appeal is equitably moot. However, “[a] majority of courts have held that a risk of mootness, standing alone, does not constitute irreparable harm.
This Court granted SLS’ request for stay relief under § 362, and that decision was affirmed. The BAP’s decision affirming this Court’s grant of stay relief under § 362 was not appealed and is a final order. A stay pending appeal would have no effect on any pending foreclosure or other action by SLS under non-bankruptcy law. As a result, SLS would be free to enforce its interests in the note and deed of trust under non-bankruptcy law. Finally, the “do no harm to the public interest” factor weighs in favor of denying a stay.
A comparison of Debtor’s initial schedules E/F with the Amended Schedules supports finding that during the pendency of this case Debtor has made direct payments to nonpriority unsecured creditors on prepetition claims, reducing the total nonpriority unsecured claims disclosed on her initial Schedule E from $13,161.22 to $2,468.37. While Debtor’s payment of these claims is perhaps, noble, it has created potentially different outcomes for creditors in the same class and conflicts with § 1322(a)(3).
The Ninth Circuit has held that in determining whether a chapter 13 plan was proposed in good faith a bankruptcy court should consider (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.
As to factor 1, Debtor has amended her schedules E/F repeatedly. The Trustee notes in his objection that determining who the unsecured creditors are in this case is a moving target. This makes plan formulation and administration impossible, and completely ignores the significance of the petition date in determining a creditor’s status and claim amount. Further the conduct reflects a pattern of misrepresentation and a manipulation of the Code.
Factors 2 and 3 weigh in favor of bad faith. This is Debtor’s second bankruptcy filing in less than 4 years. Debtor’s conduct in the case cause this Court to question the sincerity of her “reorganization” efforts under Chapter 13. Since filing her petition, more than 18 months have passed and a plan has not been confirmed, despite no less than 7 plans having been considered. While enjoying the protection of the stay, Debtor has made payments to certain preferential unsecured creditors while paying others in the same class nothing, and avoiding a foreclosure action that was scheduled to be completed 18 months ago.
Rule 8007(a)(1)(D) incorporates subsection (e) of Rule 8007, which states that “[d]espite Rule 7062 and subject to the authority of the district court, BAP, or court of appeals, the bankruptcy court may: (1) suspend or order the continuation of other proceedings in the case; or (2) issue any other appropriate orders during the pendency of an appeal to protect the rights of all parties in interest. The issues on appeal are not closely related to the Trustee’s objection to the Plan, or confirmation of the Plan. Trustee’s objections hinge on §§ 1322, 1325, and Debtor’s duties under the Code. Although the Trustee characterized Debtor’s approach as cavalier, he could have just as easily characterized it as bad faith. The issues on appeal are limited to Debtor’s dispute with SLS, and neither the Trustee’s objections nor the Court’s rationale for denying confirmation relate to that dispute or the SLS claim. The appeal did not divest this Court of jurisdiction to administer this case, including confirmation proceedings and any dismissal that may result from Debtor’s inability to confirm a plan under § 1307(c)(5). The issues in Debtor’s second BAP appeal are narrow and involve a limited dispute between Debtor and SLS.
Ultimately, this Court concludes that the merits weigh in favor of dismissal for cause under § 1307(c)(5). Failing to dismiss this case enables conduct that perverts the objectives of the Code. Nothing that has transpired in the last 18 months of this case suggests or justifies allowing Debtor yet another opportunity to amend her plan. Instead, dismissal of this case under § 1307(c)(5) is appropriate.
In re Rickert, June 2, 2020, Leilani Rickert, pro se
2020 Mont. B.R. 204 (June 2, 2020)
Rickert v. Specialized Loan Servicing, Ninth Circuit Bankruptcy Appellate Panel, (Unpublished), (Brand, Gan, Faris), Dismissal, Law of the Case, Affirming Rickert v. Specialized Loan Servicing, 2020 Mont. B.R. 204 (June 2, 2020)
Case no. MT-20-1100-BGF
Rickert argues that the bankruptcy court denied her due process by dismissing her complaint without a hearing. This argument lacks merit. Rickert specifically requested that the court rule on the Motion to Dismiss "without a hearing" given the governor's current Stay-at-Home Directive and the lengthy drive from her home to the courthouse. Thus, we fail to see how Rickert was denied due process when she got exactly what she asked for.
In what also appears to be a due process argument, Rickert contends the bankruptcy court erred by considering the "extrinsic evidence" of the BAP's decision in the first appeal, which affirmed the bankruptcy court's rulings that SLS was the party entitled to enforce the note and could pursue its non-bankruptcy remedies under the deed of trust. The BAP's decision is not "extrinsic evidence" but rather is a matter of public record of which the bankruptcy court could take judicial notice. And the court's doing so did not convert the Motion to Dismiss to one for summary judgment requiring notice and an opportunity to respond.
Rickert next argues that the Motion to Dismiss suffered from various defects including improper service. The bankruptcy court did not address this argument. Rickert argues that the Notice and Motion to Dismiss were mailed to her on March 19, not March 18 as counsel for SLS had represented, and therefore the Motion to Dismiss should have been "dismissed" for not complying with Local Bankruptcy Rules 1017-1(c) and 9013-1(e), "Montana Code Annotated Rule 5," and Civil Rule 12(b)(4) and (5). Even if factually correct, the authority Rickert cites does not help her. Local Bankruptcy Rule 9013-1(e) provides generally that motions must state conspicuously that any opposition is to be filed within 14 days of the motion, which is what the Motion to Dismiss stated. Local Bankruptcy Rule 1017-1(c) applies to the dismissal or conversion of bankruptcy cases based on a debtor's default under a confirmed plan. It has nothing to do with the dismissal of an adversary proceeding. No Montana service rule would apply here, since the bankruptcy court is a federal court with its own rules of civil procedure. Rickert's reliance on Civil Rule 12(b)(4) and (5) to dismiss the Motion to Dismiss is also misplaced; one does not respond to a Civil Rule 12(b) motion with a Civil Rule 12(b) motion. Because Rickert's complaint was nothing more than an attempt to repeat the same allegations and arguments that were already decided against her, or to raise new claims she failed to raise before, the bankruptcy court did not err in dismissing it.
Rickert v. Specialized Loan Servicing, December 2, 2020
2020 Mont. B.R. 422 (December 2, 2020)
2020 Mont. B.R. 422 (December 2, 2020)
Sande, Consolidated Chapter 12, Pro Hac Vice
Local counsel’s duties include:
Local counsel must participate actively in all phases of the case, including, but not limited to, attendance at depositions and court proceedings, preparation of briefs and discovery requests and responses, and all other activities to the extent necessary for local counsel to be prepared to go forward with the case at all times. Unless otherwise ordered, local counsel must sign all pleadings, motions, and briefs. The court, in extraordinary circumstances and on motion by local counsel, may suspend or modify local counsel’s duties. If the court alters local counsel’s duties or waives this rule—neither of which will occur routinely—all documents subsequently filed must be signed by counsel actively involved in the case.
LBR 2090-1(d) contemplates a waiver of the
association of local counsel requirement on a case-by-case basis.
However, when the requirement is not waived, “the local attorney
shall be served with copies of all pleadings, shall attend all
hearings or trials, shall be continually informed by the attorney
admitted by pro hac vice of the current status of all
negotiations and matters occurring in the case or proceeding.”
2020 Mont. B.R. 68 (March 10, 2020)
Sande, Chapter 12, Confirmation, Preconfirmation Conference,
Deere objected to confirmation of the Plan arguing Debtors assumption of Lease No.1001 with Deere, does not comply with the requirements of § 365(b)(1), and as a result does not satisfy § 1225(a)(1).
Collectively, the First and Second Stipulations conclusively resolved the issues involving Lease 1001, between Debtors and Deere. Further, under the Second Stipulation, Deere agreed to consent to Debtors’ plan, so long as the plan was consistent with the terms of the Second Stipulation. In this Circuit generally, “stipulations are not to be lightly set aside. But at the same time bankruptcy courts, as courts of equity, have the power to reconsider, modify or vacate their previous orders, so long as no intervening rights have become vested in reliance on the orders.
In this reorganization case, the Court will not reconsider, modify or vacate its prior orders approving the First and Second Stipulations. Reorganization under Chapter 12 is intended to proceed expeditiously. Pursuant to §1221, not later than 90 days after the order for relief under this chapter the debtor shall file a plan. Once a plan is filed, §1224, requires that the court hold a hearing on confirmation not later than 45 days after the filing of the plan, except for cause. To facilitate this process, this Court has ordered parties to attend plan conferences because often, the debtor’s ability to reach an agreement with one creditor is dependent on the terms agreed to with other creditors. Certain efficiencies are achieved by requiring all counsel to commit themselves to this process in one location on the same day. In this case, the process was successful. All issues were resolved between Debtors and their creditors, except FBN (which was subsequently resolved) at the Plan conference.
If payment of $60,000 was an important plan term to Deere, the time to raise it was at the plan conference. Having failed to raise the issue and include it as a term of the Second Stipulation, Deere waived it as a material term of its negotiated plan treatment. As a practical matter, Deere is asking this Court to modify its prior Orders approving the First and Second Stipulations with Debtors, and set aside every other agreement Debtors reached with its creditors, agreements that form the basis of the Plan. On this record, doing so would be inequitable and unjust for every constituency in the case, except Deere. Deere is bound by the terms of the Stipulations and Agreements it reached with the Debtors. Therefore, Deere's objection to confirmation of the Debtors’ Plan is overruled.
Case no. 20-90039
The Chapter 7 Trustee filed a Motion to Reset § 341 Meetings consistent with General Orders 2020-4 and 2020-5. One premise underlying the General Orders was, “Permitting these scheduled § 341 Meetings to go forward at the Courthouses creates an unacceptable risk of exposure to the Virus to the Court Security Officers, case Trustees, individual debtors, creditors, attorneys and other Court personnel.”
Debtors objected to the Court’s Order arguing that, “to the extent the Court’s Order approves the ‘UST Directives’ constitutes an impermissible intrusion on the attorney client relationship, an inappropriate extension of executive branch control over the independence of lawyers, an unwarranted extension of the provisions of § 521(h) to the private bar and presents other problems as noted below.” Debtors argue that requiring their counsel to perform ministerial acts and then further obligating him to make representations on the record: (i) constitutes an impermissible delegation of the Trustee’s authority; (ii) impermissibly redefines the scope of the attorney-client relationship between debtor and counsel; and, (iii) are tantamount to an extension of executive branch control over the private bar.
Contrary to Debtors’ arguments or characterizations of the instructions, debtor’s counsel are simply being asked to confirm that they have reviewed appropriate identification, confirm that the individuals appearing at the § 341 Meeting are the same individuals that filed the case, and that the information provided to counsel before the § 341 Meeting by debtors “matches what was reported to the court in the debtor’s bankruptcy case.” Having considered the existing circumstances, the UST instructions appear to reflect an effort by the UST that allows cases to proceed expeditiously and economically, despite the existing health crisis, and are consistent with guidelines that discourage and prohibit social interaction.
Under the immediate circumstances the Court expects counsel and all parties to temper their advocacy with common sense, practicality, and extend the benefit of the doubt to any opposing party that seeks an accommodation, including the UST and panel trustees. Motions and pleadings that do not further the just, speedy, and inexpensive determination of every case and proceeding, or that ignore the realities the parties and Court are facing are not welcome. If compliance with the UST instructions proves to be the herculean task counsel suggests that it will be, or counsel chooses to take a stand on principle and refuses to assist the assigned trustee in any manner that would permit the assigned trustee to satisfy Rule 4002(b), counsel shall simply explain that to the assigned Trustee at the § 341 Meeting. Such an approach would disappoint the Court and be inconsistent with the Court’s expectations of counsel and the parties. Finally, the Court would encourage counsel and the assigned trustee to work together and endeavor to find a solution prior to or following the § 341 Meeting that does satisfy Rule 4002(b). If after such efforts, the assigned trustee harbors a concern that Rule 4002(b) has not been satisfied and the individuals attending the § 341 Meeting are not the debtors in the case, the Court will consider any real controversies that arise at the § 341 Meeting by appropriate motion.
2020 Mont. B.R. 116 (March 31, 2020)
Case no. 20-40002
Debtor commenced this Chapter 11 bankruptcy on January 3, 2020. On May 1, 2020, Debtor amended its petition electing to: (1) be a small business debtor as defined in § 101(51D) and (2) proceed under Subchapter V of Chapter 11. On that same date, Debtor filed a Motion for Extension of Exclusivity Period and for an Order Setting Deadlines in Accordance with the Small Business Reorganization Act of 2019.
The Small Business Reorganization Act of 2019 (“SBRA”), was signed into law on August 23, 2019. It became effective on February 19, 2020. In well-reasoned decisions under the new subchapter V of Chapter 11, courts found there was no legal reason that a small business debtor in a case pending on the effective date of the SBRA was prohibited from amending its bankruptcy petition to elect to proceed under subchapter V.
Debtor’s election does create issues related to holding a timely Initial Debtor Interview, and a timely § 341(a) Meeting of Creditors that would include a Subchapter V Trustee’s participation. The Court can find no Statute or Rule which would prohibit the Court from extending the time to hold the status conference or submit a report. The Court will treat today’s date as the new Entry of Order for Relief date.
In re Schmaus Family Properties, LLC, Gary S. Deschenes, Katherine A. Sharp for Schmaus Famiily Properties, LLC.
2020 Mont. B.R. 200 (May 18, 2020)
Case no. 20-90044
Debtor seeks to avoid a Judicial Lien held by Tamara Schweigert (“Tamara”) against Debtor’s homestead property. Debtor asserts in the Motion that Tamara’s judgment lien impairs his homestead exemption. In support of such assertion, Debtor alleges that the market value of the homestead property is $170,000.00. Debtor also maintains that the homestead property is encumbered by a consensual secured obligation held by Valley Bank of Ronan (“Valley Bank”) in the sum of $147,106.00. According to the Motion, Debtor is asserting a homestead exemption in the amount of $125,000.00.
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)[.]
Tamara’s reliance on Mont. Code Ann. § 70-32-104(1) is misplaced. It provides: A homestead may not exceed $250,000 in value. In a proceeding instituted to determine the value of the homestead, the assessed value of the land with included appurtenances, if any, and of the dwelling house as it appears on the last-completed assessment roll preceding the institution of the proceeding is prima facie evidence of the value of the property claimed as a homestead. The matter before the Court involves the avoidance of a judgment creditor’s lien under § 522(f)(1), not a “proceeding instituted to determine the value of the homestead” under Mont. Code Ann. § 70-32-104(1).
Debtor’s counsel argued that even if Tamara’s reliance on Montana’s homestead statutes was correct, those statutes also provide for the payment of the costs of proceedings under the statutes to be shouldered by the execution creditor in the first instance. Equally important, and overlooked by Tamara, a debtor’s testimony regarding the value of property is acceptable. In re Schmitt, 20 Mont. B.R. 57, 75 (Bankr. D. Mont. 2002). The determination of the weight to be given a debtor’s opinion of value is within the discretion of this Court.
The Motion and Objection establish a factual dispute: whether Debtor’s homestead property is worth $170,000 as alleged by Debtor, or something greater as suggested by Tamara. Hearings before the Court can serve many purposes, but when the pleadings reflect a factual dispute between the parties, the Court anticipates that the parties intend to introduce evidence either in the form of exhibits or witness testimony. In this case, Tamara did not file a witness and exhibit list 3 business days before the hearing. As a result, at the outset of the hearing, the Court questioned how Tamara intended to refute Debtor’s anticipated evidence that the value of the property was $170,000. After explaining the applicability of LBR 5074-1(c) and the Court’s prohibition on allowing undisclosed evidence, Tamara conceded that she would be incapable of refuting or controverting Debtor’s testimony of value. Based on the statements of counsel, the Court adopted Debtor’s valuation of the property, $170,000. This total value for the property is consistent with Debtor’s Schedules A/B. The aggregate amount of the liens along with the allowed exemption amount exceeds the value that the Debtor’s interest in the property would have in the absence of any liens. Tamara’s lien is subject to being avoided under § 522(f).
At the beginning of the hearing, Tamara’s counsel advised the Court that a new argument had come to light that might render adjudication of this issue, “premature.” Counsel noted that the objection to discharge deadline had not passed, and based on new research Tamara’s debt may be excepted from discharge. The basis for this new argument is “§ 523(a)(19)(B).” However, as the Court pointed out, counsel could not rely solely on, the language “any settlement agreement entered into by the debtor,” but had to read the statute as a whole. Ultimately, Tamara’s counsel realized the language in (B)(ii) could not be read in isolation and had to be read in conjunction with subsection (A) above.
In re Schweigert, June 5, 2020, Edward A. Murphy for Travis Schweigert, Cory R. Gangle for Tamara Schweigert
2020 Mont. B.R. 219 (June 5, 2020)
Case no. 20-90044
Tamara’s alleged security interest in Debtor’s brands and branded livestock arises from a Writ of Execution (“Writ”) she obtained after recovering a judgment against Debtor in Lake County District Court.11 The district court’s “Order Granting Fees and Costs and Final Judgment” made no mention of Debtor’s brands or branded livestock. However, the Writ directed the Montana Department of Livestock (“DOL”) to satisfy the judgment “out of brands owned or maintained by [Debtor] with the [DOL].”13 Notably, the Writ did not direct the DOL to actually place a lien on Debtor’s brands or branded livestock. After obtaining the Writ, Tamara also filed a “Notice of Security Interest Covering Branded Livestock” (“Notice”) with the DOL.
Section 506 of the Bankruptcy Code governs the determination and treatment of secured claims in bankruptcy proceedings. A claim cannot be a “secured claim” for purposes of § 506(a) unless it is secured by a “lien” on property in which the bankruptcy estate has an interest. Liens generally fall into three categories: judicial liens, statutory liens, or consensual liens.
Montana law provides that from the time a judgment is docketed, it becomes a lien upon all real property of the judgment debtor located in the county. “With regard to personal property, which, unlike real property, is not referred to in the statute as subject to a lien immediately when a judgment is docketed, a lien does not arise prior to execution on that property.” Stated more simply, a judgment does not become a lien against personal property until there has been an execution to enforce the judgment. The Montana Supreme Court has made clear that personal property includes “everything that is the subject of ownership, not coming under denomination of real estate.” Under this expansive definition, brands and branded livestock are clearly categorized as forms of personal property. The most common method by which a judgment is enforced against a judgment debtor’s personal property is by writ of execution. To execute a judgment by levy, the sheriff or levy officer simply seizes the personal property described in the writ, sells the property, collects the proceeds, and pays the judgment creditor “as much of the proceeds as will satisfy the judgment.” Until the levy occurs, personal property remains unencumbered by any interest a judgment creditor claims simply because of their status as a judgment creditor. Tamara contends that simply filing the Writ and Notice with the DOL created a nonconsensual lien on Debtor’s brands pursuant to A.R.M. § 32.15.601(3). In essence, Tamara argues that A.R.M § 32.15.601 provides an alternative procedure for satisfying a judgment by writ of execution. The Court disagrees.
An administrative rule may only go so far as a statute allows it. For this reason, administrative rules must reference the statute or other rulemaking authority pursuant to which they are adopted. Mont. Code Ann. § 2-4-305(3). To be effective, administrative rules must remain within the scope of that statutory authority. The administrative rule relied on by Tamara, A.R.M. § 32.15.601, was adopted by the DOL and addresses brand mortgages. Brand mortgages are also referred to as “notice[s] of security agreement or lien on branded livestock.” Subsection (3) of the Rule, relied on by Tamara, provides the following: (3) There are two ways to file a brand mortgage: (a) all brand owners of the brand sign the brand mortgage papers; or (b) by Writ of Execution directing the mortgage to be placed on the brand to enable the department to comply with a court order.
Nothing in A.R.M. § 32.15.601 provides for the creation of a nonconsensual security interest in the form of a brand mortgage. Rather, it sets forth the method for filing them (“There are two ways to file a brand mortgage”). Even more, both Mont. Code Ann. §§ 81-8-301 and 81-8-304 relate to the filing of brand mortgages as well. Montana law is clear that the authority of A.R.M. § 32.15.601 cannot exceed the scope set forth in those statutes. The plain language of the rule makes clear that a brand mortgage may be filed “by Writ of Execution directing the mortgage to be placed on the brand to enable the department to comply with a court order.” Stated more simply, A.R.M. § 32.15.601(3)(b) applies only if three criteria are satisfied: 1) the filing party obtains a Writ of Execution; 2) the Writ of Execution directs the DOL to place a mortgage on the judgment debtor’s brand(s); and 3) the Writ of Execution is necessary to enable the DOL to comply with a court order. This Court will not expand the meaning of the plain language found in the A.R.M. Based on the foregoing, the Court finds that Tamara has not established she has a valid lien in Debtor’s brand or branded livestock. Additionally, the Court finds Tamara’s assertion that A.R.M. § 32.15.601 provides for the creation of a nonconsensual judgment lien simply by filing a DOL Notice not signed by the Debtor and a writ of execution that does not specifically direct the DOL to place a mortgage on a judgment debtor’s brands or branded livestock to be without merit. Even accepting Tamara’s assertion as true, the Court finds that she failed to comply with the requirements of A.R.M. § 32.15.601.
In re Schweigert, October 7, 2020 Edward A. Murphy for Travis Schweigert, Cory R. Gangle for Tamara Schweigert
2020 Mont. B.R. 355 (October 7, 2020)
Case no. 14-60353
This Court is obliged to read the Plan and Confirmation Order as a whole, and endeavor to give effect to every part if reasonably practicable, each clause helping to interpret the other. Based on this review, Paragraph 35 is not ambiguous. The objective and subjective evidence support finding and concluding that Paragraph 35 is not ambiguous. This Court is unpersuaded that Maschmedts’ broad interpretation of Paragraph 35 is correct, because the evidence does not support such an interpretation and it does not account for the “whole” Plan or Confirmation Order. Instead, the consistent thread in Maschmedts’ analysis is their isolated focus on limited phrases or terms, while ignoring other provisions or terms that are inconsistent with their theory of the case. Maschmedts’ analysis defies applicable Montana law that commands the whole of a contract is to be taken together and effect given to every part if reasonably practicable, each clause helping to interpret the other.
Based on this review, Paragraph 35 is not ambiguous. The objective and subjective evidence support finding and concluding that Paragraph 35 is not ambiguous. There is no basis in the record to conclude that Paragraph 35 “expressly reserved [Maschmedts] right to pursue such litigation under the terms of the Plan,” as Maschmedts state. The subject matter and circumstances surrounding Paragraph 5 demonstrate it is not ambiguous and was intended by the parties to be limited to preservation of Maschmedts’ fee simple interest in their real property and property rights granted or evident in the Covenants.
Having concluded that neither the Plan nor Confirmation Order are ambiguous, and only a narrow interpretation gives effect to the whole, the First Amended Complaint must be dismissed. “[A] chapter 11 bankruptcy case ‘comprise[s] all matters pertaining to the debtor-creditor relationship that [the debtor] or any creditors might ... raise[ ] to advance their interests the proceeding’ Maschmedts’ First Amended Complaint asserts claims and interest that greatly exceed the narrow real estate interests Paragraph 35 preserved. Paragraph 35 did not preserve Maschmedts’ prepetition tort, contract or statutory claims for damages or equitable relief. Paragraph 35 was never intended to permit Maschmedts’ to launch a broad collateral attack on the Confirmation Order.
With few exceptions, the causes of action included in the First Amended Complaint were released by Maschmedts. Under the Code, “Claim” is defined broadly and encompasses all of a debtor’s obligations, “no matter how remote or contingent. In addition to being duplicative, the First Amended Complaint asserts new claims that make no allowance for Debtor’s intervening bankruptcy, the Plan or the confirmation Order. These allegations are a reassertion of Maschmedts’ prepetition claims against the Debtor and attempt to tag Movants with those claims under a piercing the veil, alter ego, or successor liability theory. This Court cannot ignore the striking similarity between the allegations and causes of action in Claim 2-2, the complaint by the other homeowners attached to Claim 2-2, and the causes of action in the First Amended Complaint, which are dependent on no less than 3 exhibits that involve prepetition representations and conduct by the Debtor. These similarities irrefutably establish Maschmedts are attempting to circumvent the terms of the Plan and assert causes of action that were released under Article VIII, § A.
Maschmedts’ Limited Objection does not permit the extraordinary collateral attack on the Plan and Confirmation Order evidenced by the First Amended Complaint. “Once a bankruptcy plan is confirmed, it is binding on all parties and all questions that could have been raised pertaining to the plan are entitled to res judicata effect. Where a “creditor fails to protect its interests by timely objecting to a plan or appealing the confirmation order, it cannot later complain about a certain provision contained in a confirmed plan” by bringing a collateral attack in another court. The relief sought in the First Amended Complaint, particularly in the Declaratory Judgment actions reflects a brazen disregard for this Court’s Confirmation Order and the explicit language found in it. Although Maschmedts timely objected to the Plan, as already noted, it was a Limited Objection. When the entire record of this bankruptcy case is considered in conjunction with the whole Plan and Confirmation Order, the relief requested in the First Amended Complaint equates to a collateral attack by Maschmedts on the confirmed Plan.
the causes of action in the First Amended Complaint seek to set
aside a significant portion of the relief afforded under the Plan
and Confirmation. Prepetition claims that were released and enjoined
would proceed against Movants would be prosecuted. In many cases
Maschmedts seek to impose liability on Movants for a cause of action
that Maschmedts had against the Debtor. Further, aspects of their
claims directly attack the proceedings in this Court and seek to
impose liability on Movants solely for implementing the Plan, which
is prohibited by the exculpation clause. There is no construction of
Maschmedts’ Limited Objection, or Paragraph 35 that would permit
Maschmedts broad collateral attack on the Plan evidenced by the
First Amended Complaint.
In re The Homestead at Whitefish, LLC, June 15, 2020, David Cotner for Maschmedts, James A. Patten for collectively, K2M, Great Northern,PMJ, Kvamme, Johannsen
2020 Mont. B.R. 226 (June 15, 2020)
2020 Mont. B.R. 226 (June 15, 2020)
Case no. 14-60653
Movants filed a Motion to Quash Subpoena and an amended Motion to Prohibit New or Supplementary Evidence in conjunction with the hearing on the pending Motion to Alter or Amend or Sanctions. Federal Rule of Civil Procedure 45(d) 1 provides in part:
(d) Protecting a Person Subject to a Subpoena; Enforcement. (1) Avoiding Undue Burden or Expense; Sanctions. A party or attorney responsible for issuing and serving a subpoena must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena. The court for the district where compliance is required must enforce this duty and impose an appropriate sanction--which may include lost earnings and reasonable attorney's fees--on a party or attorney who fails to comply. (3) Quashing or Modifying a Subpoena. (A) When Required. On timely motion, the court for the district where compliance is required must quash or modify a subpoena that: (i) fails to allow a reasonable time to comply; (ii) requires a person to comply beyond the geographical limits specified in Rule 45(c); (iii) requires disclosure of privileged or other protected matter, if no exception or waiver applies; or (iv) subjects a person to undue burden.
Having considered each of the 9 categories of documents identified in the subpoena, the arguments of counsel at the hearing and the procedural context of this case, the subpoena is quashed because: (i) it fails to allow a reasonable time to comply; and, (ii) and is unduly burdensome.
The subpoena required production of 9 categories of documents in 3 business days, which strikes the Court as unreasonable and burdensome under these circumstances. This matter has been ongoing for more than 2 years, and the nexus between the items requested and the Sanctions Motion is tenuous at best.
Along with the Subpoena, Maschmedts served a Notice of Deposition. As the Court noted at the hearing, more than 12 years ago Judge Kirscher explained:
As for the depositions and discovery directed to CrossHarbor, the Ad Hoc Committee of the Yellowstone Club Members and Discovery Land Company, this Court’s policy in limiting application of discovery rules to contested matters is embodied in its Local Rules. Mont. LBR 9014-1 provides that [u]pon the request of any party, the Court, in its discretion, will determine whether the provisions of F.R.B.P. 7016, 7026, and any other rules should apply to any contested matter, given the facts and the issues alleged in such matter. . . . . This Court has steadfastly required that parties adhere to Mont. LBR 9014-1 and the Court will not waive such Rule at this time.
This explanation is applicable here, and to the extent the subpoena, or notice of deposition imposes on Patten an obligation to appear for a deposition, it is quashed, and of no force or effect. The Quash Motion filed at ECF No. 325 is granted; the subpoena dated August 6, 2020, is quashed pursuant to Fed.R.Civ.P. 45(d)(3)(i) and (iv); and the Notice of Deposition to James A. Patten is quashed for failure to comply with this Court’s Local Rules.
In re The Homestead at Whitefish, David Cotner, Kyle Ryan for Maschmedt, James A. Patten and Jeffrey Garfinkle for Great Northern Ventures and others.
2020 Mont. B.R. 334 (August 11, 2020)
Case no. 20-10186
Debtor, who is pro se, delivered to the Court the following documents: Official Form 101 (Voluntary Petition, with Chapter 13 check marked), Official Form 121 (Statement About Your Social Security Numbers), Official Form 103B (Application to have the Chapter 7 Filing Fee Waived), and a Certificate of Counseling. In accordance with Debtor’s Official Form 101, the Court will commence this case as a Chapter 13 bankruptcy case. Although Debtor filed a Chapter 13 bankruptcy petition, he also filed an Application to have the Chapter 7 Filing Fee Waived (“Application”). As the Application itself states, and as provided in 28 U.S.C. § 1930(f), waiver of the filing fee is only available in Chapter 7 bankruptcies. Debtor filed a Chapter 13 petition, not a Chapter 7 petition. Therefore, Debtor’s Application is denied. Debtor must either pay the Chapter 13 filing fee $310.00 or file an application to pay such fee in installments. In the alternative, Debtor may convert this case to Chapter 7, and refile his Application.
IT IS ORDERED that Debtor’s Application is denied. On or before October 26, 2020, Debtor must either pay the Chapter 13 filing fee of $310.00 or file an application to pay such fee in installments. In the alternative, Debtor may convert this case to Chapter 7, and refile his Application. IT IS FURTHER ORDERED that on or before October 26, 2020, Debtor shall file a master mailing list. Failure to timely file the master mailing list will result in the dismissal of this case without further notice or hearing. IT IS FURTHER ORDERED that Debtor shall have through November 2, 2020, to file the following: · Summary of Schedules · Statement of Financial Affairs · Employee Income Record · Statement of Current Monthly Income and Means Test Form 22A · Means Test Calculation Form 22A-2 · Schedules A/B-J · Statement of Financial Affairs · Summary of Assets and Liabilities · A copy of Debtor’s 2019 Federal Income Tax Return IT IS FURTHER ORDERED that Debtor’s failure to comply with any of the deadlines set forth above will result in the immediate dismissal of this case without further notice of hearing.
In re Salas, October 20, 2020
2020 Mont. B.R. 365 (October 19, 2020) ,Sergio Valdez Salas, Pro se
Case no. 18-cv-00049
Federal Rule of Civil Procedure 60(b) provides, as pertinent: “On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for . . . . : (6) any other reason that justifies relief.” The motion must be brought within a “reasonable time.” However, the Rule is to be “used sparingly as an equitable remedy to prevent manifest injustice. The rule is to be utilized only where extraordinary circumstances prevented a party from taking timely action to prevent or correct an erroneous judgment.” Relief is not available where “the party seeking reconsideration has ignored normal legal recourses.”
Bowler argues that he is entitled to relief under Rule 60(b)(6) because, in sum, the pandemic is an extraordinary circumstance that prevented him from obtaining financing or opposing the sale. Wells Fargo argues that Bowler could have challenged the sale: (1) through a motion to stay or for an injunction; or (2) retrospectively, by opposing judicial confirmation of the sale or filing a timely appeal. The Court agrees.
Bowler argues that the extraordinary nature of the pandemic itself warrants setting aside the foreclosure sale, regardless of his conduct. However, the pandemic does not provide an excuse to every litigant seeking to set aside the adverse effect of a legal action. Despite Bowler’s mistaken belief that the sale would not occur based on news articles and twitter posts, the sale was not a surprise. By failing to challenge the sale through the normal legal channels, Bowler is precluded from relief under Rule 60(b). Two days after the sale, counsel for Wells Fargo filed a motion to confirm sale, and Bowler did not oppose the motion. Nor did he timely file an appeal. It is well settled that a motion for relief under Rule 60(b) is not a substitute for appeal. As a result of his inaction, Bowler does not meet the high standard necessary to obtain relief under Rule 60(b).
Wells Fargo Bank v. Bowler, August 19, 2020, Brianne C. McClafferty, Scott Mitchell for Wells Fargo, Colleen M. Dowdall for Bowler
2020 Mont. B.R. 339 (August 19, 2020)
Winger, Chapter 13, Claim, Equitable Remedy
Guthrie filed a proof of claim explaining: It is creditor’s position that she is entitled to an equitable remedy that does not give rise to a right to payment and therefore she does not have a claim as defined by 11 U.S.C. § 101(5)(B). She is filing this claim to protect her rights in the event that it is determined that she does have a claim as defined by that section.
The Court’s analysis of Guthrie’s claim begins with the Code’s definition of “claim” which includes, “right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. ”Guthrie contends that the narrow domestic relations exception applies here and this Court should defer to the State Court. Contrary to her arguments for purposes of this case, this Court must determine whether she has a “claim” as that term is defined under the Code.
If Guthrie has a right to specific performance under the Agreement, it is not absolute. First, specific performance may be necessary when pecuniary compensation for a defendant's failure to perform pursuant to the terms of a contract does not afford adequate relief. Further, the Montana Supreme Court has concluded, “we will not compel specific performance when it becomes oppressive upon the party required to specifically perform.”
Ultimately, this Court does not have to identify how the State Court might resolve the issue, only that one alternative is a right to payment. A right to payment or judgment is one of the alternatives available to Guthrie under state law. Under these circumstances, this Court is not persuaded that Guthrie would not have a right to payment of $250,000 under the Agreement. A Montana marital property settlement agreement is enforced as if it is a contract. Ordinarily an award of damages is the remedy for a breach of contract. This Court’s analysis of the Agreement and conclusion that Guthrie has a claim is not tantamount to a modification of the divorce decree, or a violation of the narrow domestic relations exception to the subject-matter jurisdiction of the federal courts for proceedings for the issuance of a divorce decree, an order for child support, or for alimony under Ankenbrandt v. Richards, 504 U.S. 689 (1992). Instead, it is a determination that Guthrie has a claim under § 101(5)(B) in this case. The claim amount is $250,000.
In re Winger, January 17, 2020, Daniel S. Morgan for Winger, Edward R. Murphy for Guthrie
2020 Mont. B.R. 1 (January 17, 2020)
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