Source: http://montanabankruptcyreporter.com/members/2017_main.html
Timestamp: 2019-11-12 10:34:47
Document Index: 12205797

Matched Legal Cases: ['§ 30', '§ 71', '§ 1452', '§ 1452', '§ 1334', '§ 1334', '§ 1334', '§ 1452', '§ 1334', '§ 362', '§ 1452', '§ 1334', '§ 1325', '§ 1322', '§ 1325', '§ 1325', '§ 1325', '§ 1328', '§ 523', '§ 1329', '§ 1325', '§ 1329', '§ 1927', '§ 1927', '§ 303', '§ 303', '§ 1927', '§ 1927', '§ 1927', '§ 524', '§ 524', '§ 524', '§ 522', '§ 53', '§ 541', '§ 72', '§ 541', '§ 524', '§ 521', '§ 362', '§ 362', '§ 524', '§ 506', '§ 506', '§ 506', '§ 506', '§ 506', '§ 523', '§ 523', '§ 523', '§ 327', '§ 1202', '§ 330', '§ 1202', '§ 327', '§ 25', '§ 541', '§ 25', '§ 25', '§ 223', '§ 15', '§ 25', '§ 25', '§ 25', '§ 25', '§ 25', '§ 25', '§ 524', '§ 524', '§ 1107', '§ 327', '§ 327', '§ 327', '§ 327', '§ 327', '§ 188', '§ 330', '§ 328', '§ 330', '§ 328', '§ 330', '§ 328', '§ 330', '§ 328', '§ 330', '§ 328', '§ 330', '§ 327', '§ 327', '§ 330', '§ 330', '§ 330', '§ 524', '§ 362', '§ 521', '§ 362', '§ 362', '§105', '§ 105', '§ 105', '§ 15', '§ 521', '§ 1116', '§ 521', '§ 521', '§ 521', '§521', '§ 521', '§ 521', '§ 521', '§ 1334', '§ 31', '§ 37', '§ 37', '§ 362', '§ 362', '§ 157', '§ 157', '§ 157', '§ 1328', '§ 362', '§ 524', '§ 362', '§ 203', '§ 1701', '§ 362', '§ 362', '§ 362', '§ 362', '§ 362', '§ 362', '§ 362', '§ 362', '§ 109', '§ 1325', '§ 1307', '§ 27', '§ 341', '§ 523', '§ 523', '§ 727', '§ 523', '§ 523', '§ 727', '§ 727', '§ 727', '§ 523', '§ 524', '§ 524', '§ 524', '§ 524', '§ 30', '§ 30', '§ 341', '§ 341', '§ 341', '§ 341', '§ 363', '§ 1327', '§ 363', '§ 363', '§ 363', '§ 362', '§ 362', '§ 362', '§524', '§ 362', '§ 521', '§ 362', '§ 362', '§ 524', '§ 704']

DECISIONS OF 2017
Anderson v. ReconTrust Company, Montana Supreme Court, Fraud, Negligent Misrepresentation, Montana Consumer Protection Act
Case no. DA 16-60618
The nature of the relation between lender and borrower is generally a non-fiduciary, arms-length contractual relationship limited to express contract duties and the implied duty of good faith and fair dealing. Unless otherwise provided by contract, a lender generally has no duty to modify or renegotiate a loan to provide more favorable terms to help a debtor avoid default and foreclosure. The mere offering and administration of HAMP loan modifications in accordance with program rules and guidelines is insufficient alone to give rise to any special relationship or duty between a lender and borrower. Thus, a lender generally has no duty to forego or prevent foreclosure and may “refuse to modify or renegotiate a loan” for legitimate business reasons. However, extraordinary circumstances or interaction between a lender and borrower or applicant may nonetheless independently give rise to a general or fiduciary duty of care to the borrower or applicant. Consequently, an otherwise arms-length relationship between a lender and borrower or applicant may ripen into a fiduciary relationship “of trust and confidence,” with attendant fiduciary duties, if the lender gives advice beyond that customary in arms-length lending and loan servicing transactions.
Andersons’ purported loan modification agreement with Bank of America was, as pled, no more than an executory oral agreement unenforceable under the applicable statute of frauds. In support of their negligence claim, Andersons’ amended complaint did not allege that ReconTrust made any representation to them whatsoever or that it was in any way otherwise involved in the handling of their loan modification application. The amended complaint essentially alleged no more than that Bank of America mistakenly told Andersons that they qualified for a loan modification and then, within a matter of days, backtracked and told them they did not. Viewed in the light most favorable to their negligence claim, Andersons’ amended complaint stated insufficient facts to give rise to a fiduciary relationship, and attendant duties, between them and the bank or the trustee.
As with their negligence claim, the stated factual bases for Andersons’ negligent misrepresentation and fraud claims boil down to no more than that Bank of America erroneously told them that they qualified for a loan modification and then, within a matter of days, backtracked and told them they did not. Again, the amended complaint did not allege that ReconTrust made any representation to Andersons or that it was in anyway involved in the handling of their loan modification application.
The Montana Consumer Protection Act provides a private cause of action for actual and treble damages upon proof that a consumer suffered “ascertainable loss of money or property” caused by the “use or employment” of “unfair or deceptive acts or practices in the conduct of any trade or commerce.” Consistent with federal law and similar consumer protection acts of other states, we have construed § 30-14-103, MCA, to more broadly define an unfair trade practice as a practice contrary to “established public policy and which is either immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” The amended complaint further stated no facts that would elevate the alleged bank mistake, and related conduct, to the level of an act or practice that is “immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers” within the plain meaning of those terms. Nor did the amended complaint allege in regard to Admin. R. M. 23.19.101(1)(l) that Bank of America induced Andersons to enter into any transaction by misrepresenting that the transaction “involve[d] rights,
remedies or obligations that it d[id] not involve.”
Anderson v. ReconTrust Company, December 19, 2017. Paul A. Sandry for Anderson, Mark D. Etchart for Recon Trust Company
2017 Mont. B.R. 483
Bank of America v. Alexander, Montana Supreme Court, Fraud, Contract, Statute of Limitations, Statute of Frauds
Case no. DA 16-0321
1. Whether BANA was entitled to summary judgment and a writ of assistance based on unlawful detainer.
Section 71-1-319, MCA, provides that the purchaser of property at a trustee’s sale “shall be entitled to possession of the property on the 10th day following the sale,” and that “any persons remaining in possession . . . shall be deemed to be tenants at will.” Further, § 71-1-318, MCA, provides that the recordation of the trustee’s deed constitutes prima facie evidence of the truth of the matters asserted therein and operates to convey all right, title, and interest to a successor in interest. Alexander does not challenge BANA’s right to foreclose, but argues instead that the 2014 foreclosure sale never took place. Alexander concedes that she remained in possession of the Property after the foreclosure sale and BANA became the rightful owner. The District Court concluded Alexander had failed to present any credible evidence in support of her argument. In considering the record de novo, we conclude the District Court did not err in finding there was no genuine dispute of fact regarding the location and time of the trustee’s sale and that it did, in fact, occur.
2. Whether Alexander sufficiently averred a claim of fraud.
Alexander argues that BANA assured her at the refinancing closing in 2005 that she would not be divested of her interest in the Property and that she did not know at the 2005 closing that she was giving up an interest in the Property. Alexander also argues that BANA represented at times it would allow her to assume the Loan, and then at other times she could not. According to Alexander, this pattern continued right up until the time of foreclosure. Although the conditions of a person’s mind may be alleged generally when averring fraud, “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake must be stated with particularity.” We have held that to survive a motion for summary judgment, a party alleging fraud must establish a prima facie case by providing evidence of the following elements:
(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) the speaker’s intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer’s ignorance of its falsity; (7) the hearer’s reliance upon its truth; (8) the right of the hearer to rely upon it; (9) the hearer’s consequent and proximate injury or damage.
Here, Alexander’s general allegations of fraud, appearing within other claims and never having been specifically alleged, were insufficient to satisfy the particularity required to plead fraud.
3. Whether Alexander’s claims of breach of written or oral contract are barred by the statute of limitations.
The statute of limitations for actions based on breach of contract founded upon an instrument in writing is eight years. Section 27-2-202(1), MCA. For actions based on breach of contract not founded upon an instrument, the statute of limitations is five years. Section 27-2-202(2), MCA. To the extent Alexander bases her breach of contract claim, whether written or oral, on some agreement arising out of the 2005 closing of the Loan, her claim is barred by the applicable statute of limitations. To the extent Alexander alleges formation of an oral agreement based on representations made by BANA following the 2005 closing, the latest the statute of limitations would have begun to run was in 2009, when foreclosure proceedings against Alexander were initiated by BANA. Pursuant to either scenario, a breach of contract claim is barred by the applicable statute of limitations.
4. Whether Alexander’s claims of breach of oral agreement are barred by the statute of frauds.
Alexander appears to argue the existence of an oral agreement which was breached upon the foreclosure sale in August of 2014, and therefore is not barred by the five year period of limitations applicable to a breach not founded upon an instrument in writing. Section 27-2-202(2), MCA. To the extent, however, that Alexander may be arguing that there was an oral agreement to modify the Loan, such a claim is barred by the statute of frauds. Section 71-1-203, MCA. An oral agreement to modify a loan falls within the statute of frauds and requires that the modification be in writing. Thus, although perhaps not barred by the statute of limitations, such a claim for breach of an oral agreement to modify or assume the Loan is barred by the statute of frauds.
Bank of America v. Alexander, February 21, 2017, Mark D Etchart for Bank of America, Brian J Miller for Alexander
2017 Mont. B.R. 49
Barstad v. Davidson and Ide, (Myers), Removal, Remand
Case no. 17-60586, Adversary no. 17-00030
Federal Rule of Bankruptcy Procedure 9027(a)(1) requires the notice of removal under 28 U.S.C. § 1452 to “contain a short and plain statement of the facts which entitle the party filing the notice” to removal, and it also requires that party to state whether it “does or does not consent to entry of final orders or judgment by the bankruptcy court[.]” Removal under 28 U.S.C. § 1452(a) requires the district court have jurisdiction under 28 U.S.C. § 1334. There is a “[s]trong presumption against removal [which] means the removing party bears the burden of establishing federal jurisdiction and that removal was proper.”
Under 28 U.S.C. § 1334(b), the district court has “original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” A proceeding “arises under” Title 11 when the cause of action is created or decided by a provision of Title 11. The term “arising in” refers to those matters that arise only in a bankruptcy case, i.e., matters that are not based on any right created by Title 11 but which, nevertheless, would have no existence outside of bankruptcy. The Court concludes that neither “arising under” nor “arising in” jurisdiction exists. A civil proceeding is “related to” a case under Title 11 if “the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy” including those proceedings where “the outcome could alter the debtor’s rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankruptcy estate.” The Court concludes there is “related to” jurisdiction. Therefore, this Court has jurisdiction to hear the matters.
Three additional issues must be addressed whenever jurisdiction over a removed action exists. The Court must decide if it should (1) abstain from hearing the matter, (2) remand the matter, or (3) retain the matter.
Abstention is governed by 28 U.S.C. § 1334(c). Abstention is not applicable where the case has been removed from state to federal court. “Abstention can exist only where there is a parallel proceeding in state court.” There is, on the record now before the Court, no pending parallel proceeding in Montana state court. The relevant actions that did exist have been removed. Abstention does not apply.
Under 28 U.S.C. § 1452(b), “The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground.” The “any equitable ground” language is recognized as “an unusually broad grant of authority” that “subsumes and reaches beyond all of the reasons for remand under nonbankruptcy removal statutes.” In exercising its discretion under this grant, the Court should consider several factors:
(1) the effect or lack thereof on the efficient administration of the estate if the Court recommends [remand or] abstention; (2) extent to which state law issues predominate over bankruptcy issues; (3) difficult or unsettled nature of applicable law; (4) presence of related proceeding commenced in state court
or other nonbankruptcy proceeding; (5) jurisdictional basis, if any, other than § 1334; (6) degree of relatedness or remoteness of proceeding to main bankruptcy case; (7) the substance rather than the form of an asserted core proceeding; (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court; (9) the burden on the bankruptcy court’s docket; (10) the likelihood that the commencement of the proceeding in bankruptcy involves forum shopping by one of the parties; (11) the existence of a right to a jury trial; (12) the presence in the proceeding of nondebtor parties; (13) comity; and (14) the possibility of prejudice to other parties in the action.
a. Factors favoring remand
1. Extent to which state law issues predominate
This factor weighs strongly in favor of remand. All issues that are raised regarding the construction and application of the Arbitration Agreement will be determined under Montana law or other authorities capable of analysis and application by the Montana state court.
2. The likelihood of forum shopping
The Montana state court denied the Barstads’ motion for summary judgment and granted Davidson and Ide summary judgment, entering orders requiring specific performance of the buy-sell agreements. Instead of addressing that matter further within the state court system, which might have included a request for stay pending appeal, the Barstads elected to file a bankruptcy case and, then, to remove the state court proceedings. This was manifestly an attempt at forum shopping. This factor weighs in
Comity is “the respect for and a deference to another’s jurisdiction” and it “has particular relevance when the subject matter at issue is one closely aligned with the interests of the other judicial system or body. It informs the exercise of discretion in considering abstention.” Comity clearly and heavily favors remand.
Termination of the § 362(a) stay
The analysis of accepted and recognized factors applicable under 28 U.S.C. § 1452(b) and § 1334(c) supports the remand of the removed actions, Case Nos. 16-68 and 17-12, to the Montana Third Judicial District Court, Powell County, Montana. For clarity, the stay will be lifted to allow the state court to proceed to resolve the parties’ disputes. However, once the state court has resolved matters, enforcement or application of the resulting rulings or judgments for bankruptcy purposes will require the parties to
return to this Court.
Barstad v. Davidson and Ide, December 21, 2017, Daniel s. Morgand and Quentin M Rhoads for Barstad, Charles E. Hansberry and Jenny M.Jourdonnais for Davidson and Ide
2017 Mont. B.R. 501
Bennett, Chapter 13, (Hursh), Confirmation, Bad Faith, Feasibility
Case no. 17-60065-13
It is well established law in this Circuit that for a bankruptcy court to confirm a plan, “each of the requirements of section 1325 must be present and the debtor has the burden of proving that each element has been met." Section 1325(a)(1) requires confirmation of a plan if “the plan complies with the provisions of this chapter and with the other applicable provisions of this title.” One such requirement applicable under § 1325(a)(1) is at § 1322(a)(2) which provides that the “plan -- …(2) shall provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim[.].” Under this section, priority claims must be determined and paid in full to accomplish confirmation. The feasibility requirement is found at § 1325(a)(6) which provides for confirmation if “(6) the debtor will be able to make all
payments under the plan and to comply with the plan.”
The good faith requirements are found at § 1325(a)(3), which requires that “the plan has been proposed in good faith and not by any means forbidden by law;” and § 1325(a)(7) “the action of the debtor in filing the petition was in good faith.” In determining whether a petition or plan is filed in good faith the court must review the “totality of the circumstances.” In Leavitt, the Ninth Circuit 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. The Leavitt assessment remains in use in this circuit. These four factors are not all-inclusive, and the court need not find that every factor is shown by the evidence in order to conclude that bad faith has been shown.
Based on the terms of Debtor’s Amended Plan, the Court’s decision to deny confirmation on the grounds it is not feasible is straightforward and requires only a quick review of the Amended Plan’s terms. The Amended Plan provides for six monthly payments of $100 followed by 54 monthly payments of $500, for a total in plan payments of $27,600. Paragraph 2(d) provides that Mona’s allowed priority domestic support obligation of $34,073.11 “shall be paid in full under this Plan ….” The $27,600 in total plan payments comes up short, without taking into account payment of administrative claims or any other claims, of paying the $34,073.11 amount stated at paragraph 2(d) the Amended Plan, and falls even shorter of paying the $37,926.33 amount of Mona’s Proof of Claim. Thus, Debtor’s Plan is not feasible and denial of confirmation is appropriate.
Having considered all of the evidence, the totality of the circumstances and each of the Leavitt factors, this Court cannot conclude that under a totality of the circumstances Debtor has acted in bad faith and dismissal is in the best interest of creditors – but it is a very close call. Although this Court is inclined to give debtors the benefit of the doubt, debtors must strive to be complete and accurate. Repetitious and half-hearted attempts at completeness and accuracy are not acceptable and reflect a cavalier approach that falls short of good faith. Here, the Court is convinced that Debtor made no effort to be as “complete and accurate” as possible. Instead the Court has been presented with evidence that reflects a pattern of omissions and amendments that in this Court’s view cannot be characterized as innocent mistakes or misunderstandings and is indicia of bad faith.
A finding of egregious conduct here, would result in a finding of bad faith and dismissal under Leavitt. This Court doubts dismissal is in the best interest of creditors. Debtor owes Mona approximately $37,926.33 for a priority domestic support obligation. That obligation is excepted from any discharge under § 1328(a)(2) and § 523(a)(5). If the Debtor is able to propose a chapter 13 plan which pays Mona’s domestic support obligation in full over the term of the plan, as the largest individual creditor her interests are best served by permitting Debtor one final chance to confirm a plan. A confirmed plan before this Court serves Mona’s interest, as well as other creditors, far better than any alternatives available to them in state court. If there is even the slightest scintilla of conduct by Debtor that reflects anything short of complete and accurate disclosure of assets and liabilities, steadfast cooperation with any request from the Chapter 13 Trustee, and the filing of a newly amended plan that is confirmable, such conduct will tip the scales in favor of a finding that Debtor’s conduct has been egregious and dismissal will be the corresponding result and the record in the instant proceeding will be part of the record in any subsequent proceeding requesting dismissal.
In re Bennett, May 18, 2017, Jon R. Binney for Bennett, Robert Drummond, Trustee
2017 Mont. B.R. 239
Bertelsen v. Citimortgage, Inc., United States District Court, Breach of Contract, Good Faith and Fair Dealing, Small Tract Financing Act
Case no. CV 16-2-BU-JCL
Bertelsen experienced financial difficulties due to a reduction in his income. For the next five years Bertelsen submitted applications for loan modifications or assistance programs to Citi. In 2011, Bertelsen filed a petition for Chapter 13 bankruptcy relief. The petition was dismissed in October 2013. Thereafter, Bertelsen continued to work with Citi in an attempt to secure a modification of his loan payment obligations. For two more years Bertelsen submitted further information and documents as requested by Citi. Bertelsen alleges all of Citi’s recurring conduct – inviting him to apply for loan modifications, but then rejecting his applications – caused him to suffer damages including lost time, lost income, lost money, incidental expenses and emotional distress.
As a matter of law, “a party in material breach [cannot maintain] a breach of contract action against the other contracting party.” Specifically, a party’s failure to satisfy a contractual obligation to make a payment to the other party constitutes a “material breach” and, under Montana law, relieves the other party from further performance under the contract. Because all of Bertelsen’s breach of contract claims arise from alleged contractual duties imposed upon Citi triggered by Bertelsen’s default, they are not precluded by his initial breach.
Small Tract Financing Act
Bertelsen asserts Citi failed to record with the county clerk and recorder an assignment of the beneficial interest from the original lender, AMRO, to Citi when that interest transferred to Citi when AMRO merged into Citi. Indeed, Montana law requires that as a condition precedent to foreclosure “any assignments of the trust indenture by the trustee or the beneficiary” must be recorded. But under the express terms of section 71-1-313 the obligation to record an assignment is triggered only when a trustee or beneficiary actually assigns the respective interest. Here, Bertelsen does not dispute that AMRO merged into Citi. Thus, because the transfer of the beneficial interest to Citi occurred upon the merger, there existed no
assignment for Citi to record.
The Financing Act permits a grantor who is in default to reinstate the loan. A defaulted grantor may pay to the beneficiary “the entire amount then due[,]” including costs, expenses, trustee’s fees and attorney’s fees, at which point all the foreclosure proceedings and the trustee’s sale must be cancelled, and the deed of trust is “reinstated[.]” If the entire amount due is paid and the deed of trust is reinstated under section 71-1-312, then the fees to be paid under section 71-1-312 are limited. If Bertelsen had in fact cured his default by paying the fees and the entire amount due, then the fees Bertelsen would have been obligated to pay to reinstate the deed of trust would have been limited by the provisions of section 71-1-320. But Bertelsen did not cure his default as required, has not reinstated his deed of trust, and has not been obligated to pay fees under sections 71-1-312 & 320.
As a matter of law, every enforceable contract “contains an implied covenant of good faith and fair dealing.” A breach of the covenant constitutes a breach of the contract, and a plaintiff need not first establish a breach of an express provision of the contract as a prerequisite to a claim for a breach of the implied covenant. The standard of conduct imposed by the implied covenant is “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” Where a defendant’s conduct does not deprive a claimant of a contractual benefit, then the alleged conduct cannot form the basis for a breach of the implied covenant. Here, all of Bertelsen’s arguments in support of his claim for a breach of the implied covenant of good faith and fair dealing are entirely based upon conduct which Citi allegedly engaged in during the course of his efforts to apply for either a loan modification or a loan assistance program. But it is beyond dispute that a borrower has no right to modify or renegotiate a defaulted loan, and a lender has no obligation to provide a modification or loan assistance. The Court concludes Bertelsen has not identified any action or conduct committed by Citi which attempted to deprive him of any contractual benefit conferred upon Bertelsen in either the deed of trust or the promissory note. Therefore, Bertelsen’s claim under the implied covenant of good faith and fair dealing is subject to dismissal.
Constructive fraud is statutorily defined in Montana as: (1) any breach of duty that, without an actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under the person in fault by misleading another person to that person's prejudice or to the prejudice of anyone claiming under that person; or (2) any act or omission that the law especially declares to be fraudulent, without respect to actual fraud. A prima facie claim for constructive fraud requires facts supporting allegations of: a representation; the falsity of the representation; the materiality of the representation; the speaker's knowledge of the representation's falsity or ignorance of its truth; the hearer's ignorance of the representation's falsity; the hearer's reliance upon the truth of the representation; the hearer's right to
rely upon the representation; and the hearer's consequent and proximate injury or damage caused by reliance on the representation.
Bertelsen did not continue to make any payments towards his loan obligation and, therefore, Citi did not gain any advantage because it did not collect additional payments from Bertelsen. Furthermore, Citi is not entitled to pursue a deficiency judgment against Bertelsen for any additional amounts due following a foreclosure sale. Therefore, it cannot be said that Citi gained any advantage over Bertelsen as a result of any additional growth of debt and arrearages that was not otherwise allowed by the terms of the loan.
Bertlesen v. Citimortgage Inc., April 7, 2017, Brian J. Miller, Robert Farris-Olsen for Berlesen, Michelle Millhollin Sullivan for Citimortgage
2017 Mont. B.R. 164
Bertelsen v. CitiMortgage Inc., United States District Court, (Lynch), Attorneys Fees
Case no. CV 16-2-BU-CL
Where, as here, federal jurisdiction is based on diversity of citizenship, a motion for an award of attorney fees is governed by federal procedural law and state substantive law. The procedural requirements applicable to a motion for attorney fees are set forth in Fed. R. Civ. P. 54, which states that the motion
(i) be filed no later than 14 days after the entry of judgment; (ii) specify the
judgment and the statute, rule or other grounds entitling the movant to the
award; (iii) state the amount sought or provide a fair estimate of it; and (iv)
disclose, if the court so orders, the terms of any agreement about fees for the
services for which the claim is made.
When "one party to the contract ... has an express right to recover attorneys' fees from any other party to the contract..., then in any action on the contract...the prevailing party .. .is entitled to recover reasonable attorneys' fees from the losing party or parties." Where there is a contractual provision for attorney fees, the right created is reciprocal. Generally speaking, whether to award fees is within the discretion of the court. But when a contract "requires an award of attorney's fees and the contract is conscionable," the court "lacks discretion to deny attorney's fees." The Note signed by Bertelsen contains a provision for "Payment of Note Holder's Costs and Expenses," The Deed of Trust further provides that the "Lender may charge Borrower fees for services performed in connection with Borrower's default, for the purpose of protecting Lender's interest in the Property and rights under this Security Instrument, including, but not limited to, attorneys' fees ....
As the prevailing party, CitiMortgage is entitled to an award of reasonable attorney fees based on the provisions in the Note and Deed of Trust. CitiMortgage is asking for $296,569.87 in attorney fees, which it claims is a reasonable amount based on the time and labor required. The Montana Supreme Court has endorsed a methodology for awarding and calculating reasonable attorney fees that is similar, in most respects, to the lodestar method. This method requires that the Court first identify a lodestar amount, which is accomplished by multiplying the number of hours reasonably expended by a reasonable hourly rate. "The party seeking fees bears the burden of documenting the hours expended in the litigation and must submit evidence supporting those hours and the rates claimed." When assessing the reasonableness of the hours expended, the court is free to "exclude from the fee request any hours that are 'excessive, redundant, or otherwise unnecessary."' With regard to identifying a reasonable hourly rate, the court is to consider "the experience, skill, and reputation of the attorney requesting fees." In deciding what constitutes reasonable attorney fees, Montana courts typically consider the
(1) the amount and character of the services rendered; (2) the labor, time
and trouble involved; (3) the character and importance of the litigation in
which the services were rendered; (4) the amount of money or the value of
the property to be affected; ( 5) the professional skill and experience called
for; (6) the attorneys' character and standing in their profession; and (7) the
results secured by the services of the attorneys."
Bertelsen agrees that the Sullivan's hourly rates are reasonable, but contends the rates charged by Locke Lord's attorneys and paralegals are excessive. The Court agrees. Although CitiMortgage points out that it negotiated discounted rates for each of the Locke Lord attorneys and paralegals who worked on the case,
it has not submitted any evidence establishing that those discounted rates are in line with the prevailing rates in the District of Montana for similar services by lawyers of reasonably comparable skill, experience, and reputation. Sullivan is a Montana attorney of comparable skill, experience, and reputation. She charges $200 to $215 per hour - far less than the discounted hourly rates of between $279 and $517.50 charged by Lorde Lock's attorneys in this case. The Court is familiar with prevailing rates in the Montana legal community, and finds that the hourly rates charged by Sullivan are reasonable. Because CitiMortgage has not met its burden of demonstrating that the rates charged by the other attorneys on the case are reasonable for the Montana legal community, the Court will exercise its discretion and assign a rate of $200 per hour for all Locke Lord attorney services. The $150 to $200 hourly rates charged by Lorde Lock for paralegal services are similarly excessive for the Montana community. The Court will assign a reasonable hourly rate of $75 for all paralegal services performed in this matter.
The Court has reviewed the itemized statements provided by defense counsel and agrees with Bertelsen that the nearly 800 hours billed by Lorde Lock is excessive given the scope, nature, and complexity of the case. Bertelsen's claims did not involve particularly difficult or unusual issues, and defending against them did not call for professional skill and experience beyond that possessed by a normally competent Montana attorney. The Court will exercise its discretion and reduce the number of hours for which CitiMortgage may recover fees for attorney and paralegal work by roughly half, and eliminate recovery for any claimed expenses. Taking these adjustments into account, CitiMortgage is entitled recover fees for 3 50 hours of attorney time at a rate of $200, for a total of$70,000, and 50 hours of paralegal time at a rate of $75, for a total of $3,750. Adding these amounts, along with Sullivan's fees, the lodestar calculation comes to $91,466.50.
As noted above, Bertelsen argues it would unreasonable and inequitable to award fees in this case because CitiMortgage is a large financial institution and he is an individual facing the potential loss of his home. While the Court rejects the argument that such disparities make a fee award wholly inappropriate, it does find that an equitable reduction of the fee award is warranted. The Court will reduce the fee award by an additional 50 percent, bringing the total amount of the attorney fee award in this case to $45,733.25. The Court sees no need to adjust this figure any further based on any other factors.
Bertelsen v. CitiMortgage Inc, July 26, 2017
2017 Mont. B.R. 270
Blocker, Chapter 13 Sales Plan, Good Faith
Case no 14-61198
The evidence shows Debtors are in default under the terms of the confirmed Plan, which required a sale by October 20, 2017, or the Debtors shall convert the case to Chapter 7. To date the Property has not been sold, and the case has not been converted to chapter 7. Section 1329(a) authorizes modification of a plan at the request of the debtor, the trustee, or the holder of an allowed unsecured claim. The requirements for modification are present, (i) post confirmation and (ii) payments under the existing confirmed plan have not been completed. Debtors’ and the Trustee’s proposed modified Chapter 13 Plans each must comply with 11 U.S.C. § 1329, which imposes the requirements of § 1325 to a modified plan. Debtors’ pattern of requesting odification on the eve of the expiration of the existing marketing period weighs against their present motion. This Court has no confidence that after failing to market and sell the property in the preceding 36 months that an additional 12 months will result in a sale by the Debtors. 2 Conversely the Court is confident the Trustee will undertake appropriate marketing of the Property, that Debtors and MTGLQ will cooperate with the Trustee, and the Property will be sold expeditiously. Thus, the Court concludes that the Debtors have had sufficient time to market and sell their Property, and that the Trustee’s Motion and proposed modified plan more effectively satisfies the requirements of §§ 1329 and 1325.
In re Blocker, December 7, 2017, John Binney for Blocker, Robert Drummond, Trustee
2017 Mont. B.R. 518 (December 7, 2017)
Blixseth v. Yellowstone Mountain Club, Ninth Circuit Court of Appeals, Attorneys Fees and Costs, Appellate Procedure
Case no. 12-35986
We ordered Timothy L .Blixseth and his attorney Michael J. Flynn to pay appellees’ attorneys’ fees and costs in defending against this appeal under Federal Rule of Appellate Procedure 38, ordered Flynn to pay appellees’ attorneys’ fees and costs in defending against this appeal under 28 U.S.C. § 1927, and referred to the Appellate Commissioner pursuant to Ninth Circuit Rule 39-1.9 the determination of an appropriate amount of attorneys’ fees and costs. The Appellate Commissioner entered a second amended order and amended orders awarding attorneys’ fees and non-taxable costs. We publish this order to address the
availability of fees and costs for litigating sanctions under Rule 38 and § 1927.
Flynn argued that the court may not include the expense of litigating the order to show cause in the attorney’s fees and non-taxable costs that the court ordered Blixseth and Flynn to pay as a sanction. In Sunbelt, the court noted that courts have uniformly held that time spent establishing the entitlement to and amount of the fee is compensable under federal fee-shifting provisions, and that it would be inconsistent with the policy of § 303(I) to dilute the fee award by refusing to compensate time spent establishing the rightful claim to a fee. The court also observed that, with respect to fee-shifting statutes, a court should make only one determination of fee eligibility and the fee award should encompass all aspects of the civil action. Sunbelt held otherwise, however, with respect to sanctions under the court’s inherent power against the controlling individuals. As to those sanctions, Sunbelt determined that the bankruptcy court erred in holding the individuals liable for the debtors’ fees and costs incurred on the § 303(I) motions.
Under Rule 38, appellees’ fees and non-taxable costs for preparing the statements regarding Blixseth’s pro se response and Flynn’s response to the court’s order to show cause may not be awarded. The language of Rule 38 authorizes an award of “just damages” if a court determines that an appeal is frivolous. “Just damages” under Rule 38 may include attorneys’ fees incurred in defending against the frivolous issues or frivolous portions of an appeal. The award of fees and costs under Rule 38 thus must be limited to appellees’ direct fees and costs for defending against the frivolous appeal, and may not include the fees and costs incurred regarding the imposition of sanctions.
We conclude otherwise concerning fees-on-fees for sanctions imposed under § 1927. That section does not refer to “damages” as Rule 38 does. Instead, it provides that a court may include the excess “costs, expenses, and attorneys’ fees” that the party victimized by the sanctionable conduct “incurred because of such conduct.” A different analysis therefore applies to the award under § 1927, against Flynn alone, of the fees incurred in preparing appellees’ statements regarding Flynn’s response to the order to show cause.
Section 1927 instead authorizes the award of excess costs, expenses, and attorneys’ fees for the litigation as a whole, reasonably incurred because of an attorney’s unreasonable and vexatious multiplication of the entire proceedings, including fees-on-fees. Accordingly, we hold that § 1927 allows an award of attorneys’ fees incurred in obtaining a sanctions award. Flynn’s requests in the motion and amended motion for reconsideration for recusal of this panel, appointment of a new panel, conversion of this matter to a criminal proceeding, transfer of the matter to the United States Attorney, and holding of the awards in abeyance are denied. Flynn’s suggestion for reconsideration en banc is rejected on behalf of the Court. No further filings by Blixseth or Flynn will be entertained in this closed appeal unless specifically requested by further order of the court.
Blixseth v. Yellowstone Mountain Club, April 18, 2017 Philip H. Stillman, for Appellant, Michael J. Flynn, Boston, Massachusetts, for himself, Paul D. Moore, Michael R. Lastowski, Duane Morris, Benjamin P. Hursh, for Appellees Cross Harbor Capital Partners, LLC, and CIP Sunrise Ridge Owner LLC. James A. Patten, Patten for Yellowstone Mountain Club, Robert R. Bell ,for Brian A. Glasser as Trustee, and
Yellowstone Club Liquidating Trust.
2017 Mont. B.R. 186
Branson, Chapter 7, Reaffirmation Denied
Case no. 17-61123
A reaffirmation agreement was filed by the Debtor naming the creditor as Gesa Credit Union. The reaffirmation agreement is not signed by or on behalf of Gesa Credit Union at Part III where required by Mont. LBR 9011-1(b). Because reaffirmation agreements are not favored, strict compliance with § 524(c) is mandatory. In the absence of a reaffirmation agreement which is fully executed by the creditor, this Court declines to exercise its discretion under 11 U.S.C. § 524(c) to approve the agreement notwithstanding the Debtor’s desire to reaffirm the debt. Approval of the reaffirmation agreement filed on December 18, 2017 is DENIED, with leave to refile a complete agreement including the creditor’s authorized signature and otherwise in conformity with § 524(c) & (k).
In re Branson, December 18, 2018, Cathy Branson, Pro se
2017 Mont. B.R. 482
Brandon v. Sherwood, Appeal to United States District Court, (Christensen), (Affirming Brandon v. Sherwood, 2016 Mont. B.R. 403), Property of the Estate
Case no. 16-113-M-DLC
Appellants raise two issues on appeal and argue that Judge Kirscher erred by (1) finding that the $53,532 transferred from the IOLTA trust was property of the bankruptcy estate and not exempted; and (2) rejecting Appellant's equitable defense of double recovery upon finding that Sherwood failed to heed the
warnings of the Bankruptcy Court and bankruptcy counsel instructing him to cease distributing the monthly draws.
I. Property of the Bankruptcy Estate
The commencement of a bankruptcy case creates an estate as a matter of law. The estate is comprised of"all legal or equitable interests of the debtor ... wherever located and by whomever held." Estate property is broadly construed and includes "[a]ny interest in property that the estate acquires after the commencement of the case." Thus, property "is not outside of [the estate's] reach because it is novel or contingent or enjoyment must be postponed." This includes property to which the debtor has a future interest. The policy of the Bankruptcy Code is to promote inclusion to maximize a creditor's distributions. On appeal, this Court is asked to consider whether the SPI created a valid spendthrift trust, precluding the bankruptcy court from exercising jurisdiction over those funds.
This Court concludes that the three distributions totaling $53,532 fall within the meaning and scope of "property of the estate." Section 541 (a) provides the "estate is comprised of all of the following property, wherever located and by whomever held: ... all legal or equitable interests of the debtor in property as of the commencement of the case." Property is broadly construed, includes future interest, and contingent property rights. The rights maintained by Sann in the IOLTA trust fall within the plain meaning of estate property within the Bankruptcy Code.
Section 541 ( c )(2) excludes from the estate an interest in a plan or trust that contains a transfer on restriction enforceable under nonbankruptcy law. This exclusion is narrow, as the exceptions listed in § 522(d)(l)(E) includes a broader set of exceptions, including stock payments, profitsharing, annuity, and other such accumulated interests reasonably necessary for the support of the debtor and dependants. Under Patterson, the SPI is exempted from the estate only if it forms (1) a valid trust or plan, that (2) contains a restriction on transfer, that is (3) enforceable under state or federal nonbankruptcy law. This Court is not persuaded that Appellants have met their burden to prove this exception applies. Undoubtably, the SPI's asset freeze places a restriction on funds held in the IOLTA trust. Undoubtably, the SPI is enforced under federal law, 15 U.S.C. § 53(b). Appellants's claim fails then on the first of§ 541(c)(2)'s requirements: the SPI does not create a valid trust under state or federal law.
Spendthrift trust provisions are valid in Montana. The Montana Uniform Trust Code recognizes three valid ways to create a trust, and describes them in § 72-38-401. Of the prescribed methods, only subsection (2) is applicable here: a "declaration by the owner of property that the owner holds identifiable property as trustee." Under Montana law, the party asserting the existence of a trust must prove so by "clear, unmistakable, satisfactory and convincing evidence." Looking to the language in the SPI, there is nothing which can be reasonably interpreted as a declaration by Sann that he intends to hold the $648,352.20 in trust for himself or the FTC. Consequently, Appellant's argument that the $53,532 is excluded from the estate under§ 541(c)(2) is without merit. Having so decided, there is no reason for the Court to determine whether Sann waived his right by failing to exempt the IOL TA funds on his amended bankruptcy schedules.
This Court concludes that Appellants are not relieved of the responsibility to tum over demanded funds. Their liability extends to compensate the trustee for the full amount demanded; in this case, $541,288. Sherwood made an ill-informed decision to "wait and see" instead of seeking clarification by interpleading. For these reasons, This Court concludes that the Bankruptcy Court did not abuse its discretion by finding Sherwood's actions did not warrant equitable relief.
Brandon v. Sherwood, October 17, 2017, David B. Cotner for Sherwood, Kyle W. Nelson for Brandon
Brown, Chapter 7, Reaffirmation Agreement
Case no 17-60566
Debtor and Creditor entered into a reaffirmation agreement According to the Agreement, Debtor seeks to reaffirm a debt with Creditor in the principal amount of $18,727.92. The debt is secured by a 2016 KZ Sportsmen (travel trailer) valued at $13,700.00. Although Debtor is represented by counsel, the Agreement did not include an executed Attorney Certification. The absence of the attorney certification suggests to the Court that Debtor’s counsel was incapable of making the representations required in the certification. At least one court has concluded that, “the failure of counsel to endorse Part C of the form of reaffirmation agreement provided for in § 524(k)(5) by itself renders the agreement unenforceable.” Based on the record in this case, the court’s review of the Agreement, and the disparity between the stated value of the Collateral and debt to be reaffirmed, the court finds that the proposed Reaffirmation Agreement is not in the Debtor’s best interest and if approved would impose an undue hardship on the Debtor. Accordingly, IT IS ORDERED
1. The Debtor’s motion to approve the Reaffirmation Agreement is denied.
2. 11 U.S.C. § 521(d), which makes “ipso facto default” clauses enforceable, does not apply in this case because Debtor has complied with the requirements of 11 U.S.C. §§ 362(h), 521(a)(2), 521(a)(6) and 521(b). Accordingly, USAA Federal Savings Bank cannot use the absence of a reaffirmation agreement or the Debtor’s bankruptcy as a basis to repossess the Collateral.
3. Because the Debtor has complied with the requirements of §§ 362(h), 521(a)(2), and 521(b)(6), Debtor may retain the Collateral so long as he continues to make timely voluntary payments, and satisfy the other obligations, as provided for in USAA Federal Savings Bank’s loan documents.
4. In the event the Debtor retains the Collateral pursuant to paragraph 3 above, and timely makes the required payments on the obligation secured by the Collateral, USAA Federal Savings Bank may continue sending bills, payment coupons, and statements to the Debtor as it has in the past,
5. Acceptance of voluntary payments from the Debtor, pursuant to the terms of this order, is not a violation of 11 U.S.C. § 524(a)(2).
6. In the event that the Debtor retains the Collateral pursuant to paragraph 3 above, and thereafter defaults in his obligations as set forth in any loan documents he signed, USAA Federal Savings Bank may collect its debt by enforcing its rights against the Collateral pursuant to applicable non-bankruptcy law.
7. Because the reaffirmation is denied, and unless this case is dismissed without the Debtor obtaining a discharge, USAA Federal Savings Bank may not take or threaten to take any action to collect its debt as a personal liability of the Debtor.
In re Brown, September 1, 2017, J. Colleen Herrington for Debtor
2017 Mont. B.R. 302
Dighans, Chapter 11, Creditor Attorney’s Fees
Case no. 16-61076-11
Lee Law Office PC, counsel for oversecured creditor Independence Bank (“Bank”) filed a First Amended Interim Application for Professional Fees and Expenses requesting an award of interim attorneys’ fees in the sum of $75,247.00 plus $3,115.51 in related expenses incurred by Applicants, and $3,911.14 in expenses incurred directly by Bank, for a total amount requested of $82,273.65, as part of Bank’s secured claim pursuant to 11 U.S.C. § 506(b).
This Court is obligated to review each request for fees and costs to insure that applicants provide:
1. a description of the services provided, setting forth, at a minimum, the parties involved and the nature and purpose of each task;
2. the date each service was provided;
3. the amount of time spent performing each task; and,
4. the amount of fees requested for performing each task.
In addition to reviewing the Application to insure that applicants provide the requisite detail, fee applications submitted by creditors under 11 U.S.C. § 506(b) require additional consideration.
The language of that section [§ 506(b)] is clear. The creditor is entitled to attorneys' fees if (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. This Court has awarded reasonable attorney's fees under § 506(b) to oversecured creditors who found it necessary to engage counsel to defend their secured status.
Although there were other tasks, such as reviewing and objecting to Debtor’s disclosure statement and plan, as well as other routine work, the bulk of the tasks performed corresponded to the cash collateral issues. Although the underlying amount owed to CHS is significantly less than the amount owed to the Bank, CHS has taken the same positions as the Bank throughout this case, objecting to the various cash collateral motions, the plan and disclosure statement. The pleadings produced by counsel for CHS and the Bank are analogous. A review of both applications side-by-side shows both applications refer to numerous communications between Mr. James and Mr. Lee and although CHS’ lien was junior to the Bank, their interests vis-à-vis the Debtors were aligned. It is notable that Mr. James total hours billed was 122, while Mr. Lee billed for 261 hours, and Ms. DeNevi billed an additional 105 hours. Notably, Mr. James rate is $325.00, while Mr. Lee’s rate is $200.00 and Ms. DeNevi’s is $175.00. Given this case is a Billings division case and Mr. Lee is in Shelby, MT, one might attribute the difference in hours billed to travel time, but such an explanation would not account for the difference in hours billed. This Court is compelled to conclude that its prior determination of reasonableness related to the CHS fee application should be adopted. This Court has concluded that the amount sought by CHS and approved by this Court of $43,175.00, reflects reasonable compensation to be approved by the Court for purposes of 11 U.S.C. § 506(b) and the Bank’s Application, given the similar positions advanced by CHS and the Bank.
Finally, included in the Application is a statement from the law firm of Bosch, Kuhr, Dugdale, Martin & Kaze, PLLP, in the amount of $1,281.00. This $1,281.00 is included in the $3,911.14 of expenses incurred directly by Bank. However, the time entries do not state the amount of time spent and the fees requested for each task. Instead, at the bottom it states a total fee amount of $1,281.00. The Court declines to award Bank this $1,281.00 until it provides the required detail of the time increments and fees requested for each task.
In re Dighans, June 21, 2017, Gary S. Deschenes for Dighans, Brian Lee for Independence Bank, Doug James for CHS Capital, LLC.
2017 Mont. B.R. 253
Dighans, Chapter 11, Deadline
Case no. 16-61076
Debtors’ counsel represented at that hearing that he and counsel for Town & Country were close to reaching an agreement evidenced by stipulation, which Debtors’ counsel expected to file by Monday, September 25, 2017. At the request of the parties, the Court agreed to not enter an order confirming the Plan until after counsel filed Debtors’ agreement with Town & Country. More than two weeks have elapsed since the September 25, 2017, date, yet Debtor counsel has not filed Debtors’ agreement with Town & Country.
If counsel represents that a stipulation will be filed by a date that they choose, the Court expects counsel to comply with their own deadlines. The Court should not have to enter Orders such as this, inquiring as to the status of a particular matter solely because counsel has left the Court to guess the status of a pending matter.
IT IS ORDERED and NOTICE IS HEREBY GIVEN that counsel for Debtors and Town
and Country shall appear before the Court and provide the Court with a status report as to their efforts at reaching an agreement and stipulation.
In re Dighans, October 11, 2017, Gary S. Deschenes for Dighans, Kirk D. Evenson for Town and Country
2017 Mont. B.R. 327
Duffie v. Gotcher, United States District Court, (Morris), Chapter 13 Appeal; Dischargeability, Video Appearance/ADA, (Affirming Gotcher v. Duffie, 2015 Mont. B.R. 298)
Case no. CV 15-34-BU-BMM
The bankruptcy court acted within its discretion in refusing to allow Duffie or her counsel to appear at trial by video in lieu of a physical appearance in the Butte courtroom. This issue involves the bankruptcy court's management of its docket. The Court reviews these actions for abuse of discretion. Duffie argues that the bankruptcy court abused its discretion by failing to comply the Americans with Disabilities Act ("ADA") by not allowing her and her North Carolina based counsel to appear at trial by video.
The ADA does not apply to the federal judiciary. The Ninth Circuit determined that appellate courts regularly should defer to the bankruptcy court's "assessment of what action is need to facilitate the court's management of its own docket." Judge Kirscher determined that Steve Gotcher suffers from hearing loss that cannot be improved. Judge Kirscher determined, however, that Steve Gotcher comprehended the proceedings sufficiently when counsel was present in the courtroom.l Judge Kirscher acted within his discretion to manage his docket in deciding to not allow Duffie to appear by video at the trial. Judge Kirscher previously had granted Duffie a 60-day continuance of the trial to accommodate her difficulty in traveling from California to Butte for the trial. Judge Kirscher did not abuse his discretion in denying the motion to appear by video in light of Steve Gotcher's hearing loss and the fact that Judge Kirscher previously had continued the trial for 60 days to allow Duffie to seek medical treatment in California.
The Court agrees with the bankruptcy court's determination that Gotchers had proven the exception to discharge under 11 U.S.C. § 523(a)(2)(A) by a preponderance of the evidence. The Court further agrees with the bankruptcy court's decision to allow Gotchers to seek an exception from discharge against Duffle even in light of the state court judgment against Michael.
The creditor must demonstrate the following to establish a claim for an exception to discharge under § 523(a)(2)(A): (1) the debtor made representations; (2) that at the time the debtor knew the representations were false; (3) that the debtor made representations with the intention and purpose of deceiving the
creditor; (4) that the creditor justifiably relied on such representations; and (5) that the creditor sustained the alleged loss and damage as the proximate result of the misrepresentations. Judge Kirscher determined that the totality of the circumstances indicated an intent to deceive. Judge Kirscher found that the Gotchers justifiably had relied on Duffie's representation that she would transfer a 10% ownership interest in the theaters to them. Id. at 132. Judge Kirscher further found that the Gotchers had suffered damages as the result of Duffie's failure to transfer the 100/0 interest. A review of the record supports Judge Kirscher's determination that the Gotchers had proven by a preponderance of the evidence an exception to discharge under § 523(a)(2)(A). The Court agrees with the bankruptcy court's determination that the Gotchers could seek an exception to discharge against Duffie in bankruptcy court even in light of the state court judgment against Michael. Gotchers acknowledged at oral argument that Duffie and Michael stand jointly and severally liable for this debt.
Duffie v. Gotcher, November 14, 2017, Kevin Vianio for Gotcher, Mary J. Duffie, Pro se
2017 Mont. B.R. 447
Gale, Chapter 12, Trustees Application to Employ Attorney (Pappas)
Case no 17-60077
Section § 327(a) authorizes a chapter 12 trustee, with the Court’s approval, to “employ one or more attorneys”. Any application to employ an attorney must, among other things, “state the specific facts showing the necessity for the employment, . . . [and] the professional services to be rendered . . . .” Trustee must remember that, under § 1202, as the chapter 12 trustee, she bears a broad array of duties that she must personally perform. As a result, even if employment of herself as her attorney were to be approved, Trustee must be cautious in delegating those duties to herself as her attorney. Under these facts, if she acts as both trustee and attorney, in connection with its obligation to independently review fee and expense applications under § 330(a), the Court will strictly scrutinize whether the services performed as attorney for Trustee were actual and necessary legal services, as opposed to those that should properly have been performed by Trustee. This is especially true in this case since the proposed hourly rate of compensation for Trustee’s attorney is, in the Court’s opinion, a significant one. In the Court’s experience, most of the duties of a trustee listed in § 1202 may be performed by a competent, engaged trustee without the assistance of counsel. Accordingly, the Court hereby orders that the Application is DENIED WITHOUT PREJUDICE Given the circumstances of this case, if Trustee elects to file an amended application, it must set forth, in addition to a detailed description of the nature and type of legal services to be performed by the attorney, an adequate justification for Trustee’s decision to employ herself as attorney to show that it would be “in the best interest of estate”, as required by § 327(d).
In re Gale, April 18, 2017, Gary S. Deschenes for Gale, Darcy M. Crum, Trustee
2017 Mont. B.R. 225
Giacometto, Montana Supreme Court, Certified Question, Health Savings Account Exemption
Case no. OP 16-0709
This is an original proceeding on a certified question from the United States Bankruptcy Court, the Honorable Ralph B. Kirscher, Bankruptcy Judge. The certified question is: Whether, under Montana’s liberal construction of exemptions, Debtor may claim an exemption in a health savings account (HSA) pursuant to § 25-13-608(1)(d) or (f), MCA. We answer that question "yes" within the constraints imposed by the statute.
An estate in bankruptcy consists of all legal and equitable interests of the debtor in property as of the date of filing. The debtor is allowed to exempt some property from the estate, 11 U.S.C. §§ 541(a)(1) and 522, and States may “opt out” of the exemptions provided under Federal law, as Montana has done. Article XIII, Section 5 of the Montana Constitution requires the Legislature to enact “liberal” exemptions, and Montana courts construe such exemptions liberally in favor of the debtor. The intent of the exemptions and of the principle of liberal construction is to prevent the debtor and dependents from becoming destitute.
Section 25-13-608(1)(d), MCA, allows a judgment debtor to exempt from execution “disability or illness benefits” while § 25-13-608(1)(f), MCA, exempts “benefits paid or payable for medical, surgical, or hospital care to the extent that they are used or will be used to pay for the care.” The parties have focused their arguments on § 25-13-608(1)(f), MCA, and the issue here is whether that exemption applies to the Debtor’s health savings account. An HSA is an account recognized by Federal law, 26 U.S.C. § 223, and by Montana law, §§ 15-61-201 through -205, MCA. It is funded by the Debtor and provides the Debtor a “benefit” that may be used to pay for medical, surgical or hospital care. This falls within the term “benefits” in § 25-13-608(1)(f), MCA. This Court concluded that “benefits” under that statute are those “expressly earmarked for the sole purpose of paying medical, surgical, or hospital bills.” It is plain that a debtor’s HSA provides him with a unique benefit earmarked to pay for medical care and expenses. Following the constitutional and statutory considerations outlined above, we conclude that § 25-13-608(1)(f), MCA, applies to an HSA as presented in this case, to the extent that it is “used or will be used to pay for the care” described in the statute.
Health Savings Accounts likewise were created for a specific purpose: to support the payment of medical costs. The language of § 25-13-608(1)(f), MCA, is sufficiently descriptive of the nature of HSAs to include them within its coverage. But unlike most of the specific exemptions listed in the statute, the Legislature included a fact-based qualifier in subsection (1)(f), providing explicitly that medical, surgical, or hospital benefits be exempt “to the extent they are used or will be used to pay for the care.” This leaves open the distinct possibility that some funds set aside in the HSA will not be exempt.
In the case of In re Joseph Berdecia-Rodriguez, the Bankruptcy Court reached the same conclusion. The Court determined that the HSA is a “benefit” paid or payable to the Debtor, and that it is intended to pay for medical, surgical or hospital care as provided in § 25-13-608(1)(f), MCA.
We note that the Montana Legislature in its last session also amended § 25-13-608, MCA. Senate Bill No. 216, signed by the Governor on May 4, 2017 (Ch. 298, Laws of 2017). That legislation specifically adds contributions to certain health or medical savings accounts to the list of exemptions a judgment debtor is allowed to exclude from execution. That enactment provides much more clarification of how and under what circumstances an HSA will be exempt, and it will supersede the applicability of § 25-13-608(1)(f), MCA, to such accounts. We construe the existing language of the statute for application to this case, which arose before the recent amendment.
In the Matter of Giacometto, June 29, 2017, Joseph V. Womack Trustee/Appellant, James A. Patten for Giacometto
2017 Mont.B.R. 260
Guthrie, Chapter 7, Reaffirmation Agreement
Case no. 17-60595
Debtor and Creditor entered into a reaffirmation agreement. According to the Agreement, Debtor seeks to reaffirm a debt with Creditor in the principal amount of $16,000.00. The debt is secured by a 2011 Chevrolet Silverado (the “Collateral”) with an estimated current market value of $17,900.00. Upon review, the Court finds that the instant reaffirmation agreement fulfills the requirements of 11 U.S.C. § 524(c). Although Debtor’s expenses exceed his income creating the presumption that the agreement creates a hardship, (11 U.S.C. § 524(m)(1)), Debtor, on the second page of the cover sheet, explained in detail that “his monthly housing expense has decreased and his monthly income has increased.” Debtor further identified which expenses were being reduced. Debtor was represented by counsel in connection with the entry and negotiation of the Agreement. The Agreement includes the Attorneys declaration that “this agreement does not impose an undue hardship on the debtor or any dependent of the debtor.” It was likely counsel’s involvement that contributed to a reduction in the interest rate from 23.74% to 6.00%. Given the explanation of expense reductions provided by Debtor in the Agreement, that the value of the collateral slightly exceeds the debt, that the Collateral is necessary for Debtor’s employment, and the interest rate was reduced by 17%, the Court finds that the presumption of undue hardship has been rebutted, that the debt would not impose an undue hardship on Debtor, and that the reaffirmation agreement is in Debtor’s best interest.
In re Guthrie, September 1, 2017, Charles E. Petaja for the Debtor
2017 Mont. B.R. 310
Helicraft Holdings, LLC, Chapter 11, Special Counsel, Fees
Case no. 17-60120
Prior to filing bankruptcy, Debtor in Possession, Helicraft Holdings, LLC (“Debtor”) was represented by Petit beginning in February 2016 and continuing to the petition date. In addition, Petit had represented one of Debtor’s members, Kenneth Scott for in excess of 20 years. Early in this case, Debtor sought approval of the employment of Petit as special counsel for “negotiation and non-bankruptcy legal work in connection with the sale of the Debtor’s real property. In addition to participating in the IDI and attending the 341 meeting, Petit assisted Debtor in other ways. Following a motion to dismiss or convert because no proof of liability insurance protecting the interests of the bankruptcy estate had been provided to the UST Petit actively pursued replacement insurance for the Debtor. The UST subsequently withdrew the motion to dismiss or convert because Petit was successful. Finally, as a result of the discord between the Members, Petit also facilitated and coordinated opening Debtor’s, “debtor in possession” account (“DIP account”).
Section 327(e) provides that a trustee, and therefore a debtor in possession pursuant to 11 U.S.C. § 1107(a), “with the court’s approval, may employ, for a special specified purpose, other than to represent the trustee in conducting the case, an attorney that does not represent or hold any interest adverse to the debtor or to the estate with respect to the matter on which such attorney is to be employed”. A leading commentator writes that the “special purpose” for which employment of an attorney is authorized under § 327(e) “must be unrelated to the reorganization of the debtor and must be explicitly defined or described in the application seeking approval of the attorney’s employment …. Subsection (e) ‘does not authorize the employment of the debtor’s attorney to represent the estate generally or to represent the trustee in the conduct of the . . . case.’” The Court has not reached these conclusions easily because it is clear Petit’s. involvement contributed to the filing of the Amended Plan which was confirmed.
Although here may have been non-bankruptcy related reasons for obtaining insurance coverage, those considerations cannot be divorced from Debtor’s reorganization efforts because absent withdrawal of the motion to dismiss or convert, Debtor’s reorganization efforts were in peril.
Despite this, there is no plausible way to conclude that Petit’s (i) attendance and participation at the IDI and 341 Meeting, (ii) obtaining and maintaining insurance coverage, and (iii) efforts surrounding establishing a DIP account, can credibly be characterized as unrelated to Debtor’s reorganization efforts and “negotiation and non-bankruptcy legal work,” as was stated in the Application. Courts faced with similar facts have concluded that, “since a debtor's reorganization is the principal purpose of the chapter 11 case, counsel who cannot meet the disinterestedness standard of § 327(a) should not be able to bypass this requirement through employment as special counsel.”
While Petit likely had the best of intentions, the distinctions between §§ 327(a) and (e) would be meaningless if this Court approved fees for work performed by Petit that was bankruptcy related and outside the defined scope of his approved employment. The distinctions between §§ 327(a) and (e) are important and will not be glossed over by this Court. Petit’s fees attributable to the IDI, 341 meeting, DIP account and insurance were directly related to Debtor’s reorganization efforts, and do not constitute “negotiation and non-bankruptcy legal work,” (the defined purposes for which he was employed as special counsel). With the exception of the May entry for .4 hours, $80, the remaining 48 entries and the fees associated with the work described will not be approved because approval of those fees
would be inconsistent with 11 U.S.C. § 327(e). The Trustee’s objection will be sustained in the amount of $5,280.
In re Helicraft Holdings, LLC, Harold V. Dye for Debtor, Aaron G. York for United States Trustee
2017 Mont. B.R. 353
HSBC v. Anderson, Montana Supreme Court, Choice of Law, Good Faith and Fair Dealing
Case no. DA 16-0546
The parties agree Montana law governs the foreclosure action. The parties disagree on which state’s law governs Anderson’s defenses and counterclaims. On appeal, Anderson argues Montana law was the parties’ choice in the Trust Indenture, which allowed HSBC to foreclose, and his defenses and counterclaims are “part and parcel” to the foreclosure action. Montana law should, Anderson argues, govern the entire dispute despite the choice of law provisions in the other loan documents. HSBC argues Anderson’s defenses and counterclaims arise from the other loan documents, which Anderson is a party to and all contain New York choice of law provisions.
Statute dictates choice of law as to real property. “Real property within this state is governed by the law of this state . . . .” Section 70-1-107, MCA. “A court may not act directly upon the title to real property in a foreign jurisdiction.” Statute dictates choice of law as to real property. “Real property within this state is
governed by the law of this state . . . .” Section 70-1-107, MCA. “A court may not act directly upon the title to real property in a foreign jurisdiction.”
We apply the law of the state chosen by the parties to govern their contractual rights unless the following three factors are met:
(1) but for the choice of law provision, Montana law would apply under [Restatement (Second) of the Conflict of Laws § 188]; (2) Montana has a materially greater interest in the particular issue than the parties[’] chosen state; and (3) application of the chosen state’s law would contravene a Montana fundamental policy. All three factors must be met and if a clear choice of law provision does not violate Montana public policy, there is no reason to analyze factors (1) and (2).
Ten contracts explicitly state New York law governs them. Each of the seven amendments to the Forbearance Agreement include the same provision stating, “[t]his Amendment shall be governed by, and construed under, the internal laws of the State of New York, without regard to principles of conflicts of law.” These contracts clearly and unambiguously indicate the parties agree to the application of New York law.
The District Court found it significant that Anderson was not a party to the Trust Indenture, the only contract selecting Montana law, and was a party to each of the loan documents selecting New York law. Litigants lack standing to enforce obligations of a contract if they are not a party to, or third-party beneficiary of, that contract. Anderson is not a party to the Trust Indenture and cannot enforce its choice of law provision. Anderson agreed, ten separate times, to the application of New York law, and was not a party to the only instrument indicating Montana law applied. He cannot now invoke a provision of a contract he was not a party to in order to avoid a choice of law selection he explicitly, and repeatedly, agreed to unless that provision contravenes Montana public policy.
Based on the similarity between New York and Montana law relating to Anderson’s defenses and counterclaims we conclude that applying New York law does not offend Montana public policy. Further examination of the remaining two factors is not required.
In Montana, “[t]o make a prima facie case for foreclosure, the bank is obligated to prove the following three elements: (1) the debt of defendants [Anderson and Limegrove]; (2) non-payment of the debt; and (3) ownership of the debt by the complaining party [HSBC].” Anderson argues HSBC failed to prove the second element—non-payment of the debt— because HSBC waived its right to payment. However, evidence provided to the District Court indicated HSBC only waived its rights as to maturity of the debt for the defined period indicated in the Forbearance Agreement and its amendments and had not waived its right to full, eventual payment.
The covenant of good faith and fair dealing “embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” Anderson does not argue HSBC destroyed or injured his right to receive the fruits of any of the contracts he entered into. Anderson’s argument that HSBC breached the implied covenant by failing to grant an eighth extension must fail because the implied covenant does not create obligations beyond the contract. HSBC was not obligated by the implied covenant of good faith and fair dealing to amend the forbearance agreement an eighth time. Therefore, HSBC did not breach the implied covenant of good faith and fair dealing.
HSBC v. Anderson, October 24, 2017, Elizabeth Griffing and Frederick P Landers for Anderson, Charles Hansberry and Jenny M Jourdonnais for HSBC
2017 Mont. B.R. 381
Hunt, Chapter 11, (Myers), Special Counsel Fees
Case no. 16-61163-11
A. Compensation is governed by § 330 not § 328
Initially, the Court observes that § 330 standards control the analysis and resolution of the matter. The Ninth Circuit distinguishes between employment authorized on specific preapproved terms with compensation governed by § 328 and employment authorized with compensation to be evaluated under § 330. The former limits the ability to alter the agreed upon terms or conditions only if the same “prove to have been improvident in light of developments not capable of being anticipated at the time of the fixing of such terms and conditions.” “In the absence of preapproval under § 328, fees are reviewed at the conclusion of the bankruptcy proceeding under a reasonableness standard pursuant to 11 U.S.C. § 330(a)(1).” Additionally, the order approving Counsel’s employment did not unambiguously provide
that § 328 applied; rather, it expressly indicated fees and costs would be reviewed under § 330 and Mont. LBR 2016-1. “In this Circuit, unless a professional is unambiguously employed pursuant to § 328, its professional fees will be reviewed for reasonableness
under § 330.”
The Objection does not facially contest Counsel’s $325/hour rate. The Court finds the rate to be reasonable.
b. Mr. Knowlton
i. “Outside the engagement”
The Objection assails many time entries as being outside the limited scope of Counsel’s engagement as § 327(e) special counsel. Many of these relate to services performed in dealing with Debtor’s attorneys and getting Counsel’s employment approved by the Court. Despite the White Creditors’ insistence that these were for Counsel’s personal benefit, a professional must be properly employed under § 327, which
necessarily entails some work by that professional as well as by Debtor’s counsel in order to comply with the Code and the Rules. So long as those efforts were reasonable in nature and time, they are properly compensable.
iii. Lumping
These all appear, in the context of the surrounding entries, to be involved in Mr. Knowlton’s preparation for mediation. However, Counsel did not separately identify the time spent in the two meetings and the time spent in other preparation for mediation. As these services were lumped in contravention of the Local Rule, the Court will follow Bailey and allow one hour ($325.00) and disallow the remainder. Therefore, the objection will be sustained in part and $650.00 will be disallowed.
The Objection alternatively argues that Counsel’s travel time (on April 13 and April 18) should be allowed at only one-half the standard hourly rate. While that case so holds, the Court has been unable to find subsequent reported cases in Montana citing and applying that aspect of Grosswiler Dairy. The Court has also not found (and the Objection does not cite to) other Montana case law on point. But, more importantly, Mont. LBR 2016.1(a), as adopted in 2001 and continued unchanged in revisions effective December 1, 2009, expressly provides: Professionals shall be allowed compensation at the professional’s usual hourly rate for reasonable and necessary travel time. Given the clarity of the Local Bankruptcy Rule, the citation to Grosswiler Dairy is patently improper. This objection will be overruled.
“[R]eimbursement for actual, necessary expenses” is authorized by § 330(a)(1)(B). The Objection challenges these on the same basis as it challenged Counsel’s fees for traveling to Montana for the mediation, i.e., that travel was not necessary or reasonable, and Counsel could have participated by phone. Those arguments have already been rejected in connection with allowance of fees, and they are rejected here as to the travel costs. Those costs are claimed and itemized as required by the Local Rule and will be allowed. The Court reviews the allowance of costs and expenses under § 330(a)(1)(B) and Mont. LBR 2016-1(e). And, recall, both § 330 and Mont. LBR 2016-1 were expressly identified in the order approving employment as the standard by which compensation requests would be evaluated. The methodology used by Counsel to deal with postage, photocopies, long-distance telephone and like expenses fails to meet the requirements of the Local Rule. Therefore, the requested $961.71 will be disallowed.
In re Hunt, October 30, 2017, Gary S. Deschenes for Hunt, Steven M Johnson for White Group
2017 Mont. B.R. 384
Jaqueth Chapter 13, Attorneys Fees, Estimate of Fees in Plan
Case no. 16-60351
This Court is obligated to review each request for fees and costs to determine whether the applicant provided:
1. a description of the services provided, setting forth, at a minimum, the parties
involved and the nature and purpose of each task;
3. the amount of time spent performing each task; and
A bankruptcy court may award reasonable compensation to a debtor’s attorney in a chapter 12 or chapter 13 case “for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of such services to the debtor and other factors set forth in this section.” The Application seeks approval of an award of attorney’s fees in the sum of $35,000.00
and reimbursement of costs in the amount of $1,050.04. Under ordinary circumstances, fees of this magnitude in a Chapter 13 case would be unreasonable and the Court would be inclined to reduce the fee following notice and a hearing. Eliapo, 468 F.3d at 601. Indeed, counsel did not anticipate fees of this magnitude when Debtors’ Chapter 13 Plan was filed because the Plan estimated attorney’s fees and costs to be $4,000.00. The Court recognizes an estimate is by definition a rough calculation, but if facts appear at the outset of the case that suggest the fees and costs are likely to exceed the “no look” fee established by LBR 2016-1(b), counsel should adjust their estimate upward in the initial proposed Chapter 13 Plan.
The Planwas met with multiple objections from multiple creditors, including objections by the Chapter 13
Trustee. Although initially shocked by the amount sought in the Application, the Court has scrutinized the Application and reviewed the docket and concluded that the fees and costs sought reflect reasonable compensation for representing the interests of the Debtors in connection with this bankruptcy case. The fees requested by Binney were reasonable and necessary at the time the services were rendered. Absent counsel’s diligence, confirmation of a plan was not likely, and the probability of conversion of this case to chapter 7 was high. The Court also considers it notable that counsel independently reduced the amount of fees sought from $47,296.00 to $35,000.00. As noted at the outset, this case was not an ordinary Chapter 13 case, and should other applicants come before this Court seeking approval of fees that greatly exceed the “no look” fee established by LBR 2016-1(b), the applicant should be prepared to convince the Court, even in the absence of objection, that the fees reflect reasonable compensation for representing the interests of the debtor in connection with the bankruptcy case. This task will take on greater importance if throughout the case, counsel estimated the fees to be the no look fee without regard to the circumstances of the case.
In re Jaqueth, March 8, 2017, Jon R. Binney for Jaqueth
2017 Mont. B.R. 83
Jeffries, Chapter 7, Reaffirmation Agreement
Case no. 17-60403
Debtor and Creditor entered into a reaffirmation agreement. According to the Agreement, Debtor seeks to reaffirm a debt with Creditor in the principal amount of $9,715.26. The debt is secured by a 2014 Ford Fiesta with approximate mileage of 58,000 (the “Collateral”). Although Debtor is represented by counsel, the Agreement did not include an executed Attorney Certification. As a result of Debtor’s counsel’s exclusion of representation of Debtor in preparation and filing of reaffirmation agreements, the Court must comply with certain requirements delineated at 11 U.S.C. §§ 524(c)(6) and (d). Upon review of the Proof of Claim, Creditor confirmed that Debtor was not a borrower, she was a grantor, and had pledged the collateral to secure the loan in favor of a third-party. However, Creditor further advised that although not a “borrower” under the loan, Creditor was accurately reporting that Debtor was making payments on the loan. The Court accepted the statements of the parties, and based on those statements, and its own independent review of Creditor’s proof of claim, and the Agreement, the court finds that (1) the proposed Agreement is not in the Debtor’s best interest and if approved would impose an undue hardship on the Debtor; and, (2) based on Debtor’s mistaken belief that she was a “borrower” Debtor complied with the requirements of 11 U.S.C. §§ 362(h) and 521(2)(a) and (b) by timely indicating her intent to reaffirm the debt by entering the Agreement.
2. 11 U.S.C. § 521(d), which makes “ipso facto default” clauses enforceable, does not apply in this case because Debtor has complied with the requirements of 11 U.S.C. §§ 362(h), 521(a)(2), 521(a)(6) and 521(b). Accordingly, Missoula Federal Credit Union cannot use the absence of a reaffirmation agreement or the Debtor’s bankruptcy as a basis to repossess the Collateral.
3. Because the Debtor has complied with the requirements of §§ 362(h), 521(a)(2), and 521(b)(6), even if she did so based on the mistaken belief she was the “borrower”, Debtor may retain the Collateral so long as she continues to make timely voluntary payments, and satisfy the other obligations, as provided for in Missoula Federal Credit Union’s loan documents.
4. In the event the Debtor retains the Collateral pursuant to paragraph 3 above, and timely makes the required payments on the obligation secured by the Collateral, Missoula Federal Credit Union may continue sending bills, payment coupons, and statements to the Debtor as it has in the past, and continue accepting payments until either: (1) Missoula Federal Credit Union is notified by the Debtor to cease sending such bills, payment coupons, and statements or taking funds from the Debtor’s bank accounts; (2) any creditor secured by the Collateral repossesses it and disposes of it pursuant to applicable non-bankruptcy law; or (3) the secured obligation is paid in full.
6. In the event that the Debtor retains the Collateral pursuant to paragraph 3 above, and thereafter defaults in her obligations as set forth in any loan documents she signed, Missoula Federal Credit Union may collect its debt by enforcing its rights against the Collateral pursuant
7. Because the reaffirmation is denied, and unless this case is dismissed without the Debtor obtaining a discharge, Missoula Federal Credit Union may not take or threaten to take any action to collect its debt as a personal liability of the Debtor.to applicable non-bankruptcy law.
In re Jeffries, September 1, 2017
2017 Mont. B.R. 306
King v. Federal National Mortgage Association and Onewest, Motion to Dismiss Adversary
Case no. 11-60514. Adversary no. 16-00030
The second amended complaint contains three causes of action asking for declaratory judgments which would state: (1) that various assignments of King’s note and trust indenture between Defendants and other entities are invalid and void; (2) that FNMA is absent from any ownership interest in King’s note; and (3) that LSF9 is absent from any ownership interest in the note. King requests an award of punitive damages, costs and attorney’s fees from OneWest Bank. At the hearing King stated that he is trying to find out who is the owner or holder of the note on his residence. Counsel for FNMA and OneWest Bank stated on the record at the hearing that FNMA and OneWest Bank do not currently hold or own the note on King’s residence. Counsel for Defendants stated that King has been told that LSF9 is the holder of the note, and that his second amended complaint recognizes LSF9's interest; but their concern is that mortgage loans can be transferred multiple times, and King’s mortgage loan might in the future be transferred back to FNMA or OneWest Bank.
Defendants’ Motion is based upon Rule 12(b)(6). For a long time in the Ninth Circuit the rule stated that a complaint should not be dismissed for failure to state a claim “unless it appears beyond a doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief.”
The Ninth Circuit settled on a two-step process for evaluating pleadings:
First, to be entitled to the presumption of truth, allegations in a
complaint or counterclaim may not simply recite the elements of a cause of
action, but must contain sufficient allegations of underlying facts to give fair
notice and to enable the opposing party to defend itself effectively. Second, the
factual allegations that are taken as true must plausibly suggest an entitlement to
relief, such that it is not unfair to require the opposing party to be subjected to
the expense of discovery and continued litigation.
The first and second causes of action in Plaintiff’s second amended complaint challenge the validity of various assignments involving FNMA and OneWest Bank. Under the abovequoted law from Paatalo, King does not have standing to challenge the validity of those assignments. The standing requirement cuts both ways, however. FNMA and OneWest have no standing with respect to King’s claims against LSF9, particularly under Plaintiff’s third cause of action. Yet, their Motion seeks dismissal of the entire adversary proceeding with prejudice, when Plaintiff has gained a default against LSF9. Counsel for FNMA and OneWest Bank stated on the record that they are not the owner or holder of the notes secured by Plaintiff’s residence. Based on that representation to the Court, made by counsel as an officer of the court and under the professional responsibility of candor to the Court, this Court concludes that no case or controversy exists between Plaintiff and Defendants FNMA and OneWest Bank. FNMA and OneWest Bank have made what this Court accepts in its discretion as a judicial admission that they are not owners or holders of the note and/or mortgage against King’s residence. since counsel for FNMA and OneWest Bank attempted to clarify their judicial admission that they are not owners or holders of the note secured by King’s residence, by expressing their concern that King’s mortgage loan might in the future be transferred back to FNMA or OneWest Bank, this Court declines to dismiss Plaintiff’s second amended complaint’s claims against them with prejudice. Prior to dismissal with prejudice, the Court would be obligated to consider giving King leave to amend. If FNMA or OneWest reacquires King’s mortgage loan, the Court would entertain such a motion. It is unjust, in this Court’s view, for mortgagees to play a shell game with homeowners by assigning notes and mortgages back and forth between themselves without keeping the homeowner informed about where he or she needs to send the required mortgage payment. To keep a borrower informed, and to prove that the borrower has received adequate
notice, is neither complicated nor unduly burdensome.
King v. Federal National Mortgage Assn and OneWest Bank, January 17, 2017, David P. King Pro Se, Paul J. Lopach and Cynthia Lowery-Graber for FNMA and OneWest
2017 Mont. B.R. 39
Lewis, Chapter 7, Discharge Injunction, Damages
Case no. 16-60898
A party who knowingly violates the discharge injunction can be held in contempt under §105(a) of the bankruptcy code. The court's contempt authority under § 105(a) is only civil contempt authority and allows only for civil sanctions as the appropriate remedy. “Compensatory civil contempt allows an aggrieved debtor to obtain compensatory damages, attorney’s fees, and the offending creditor's compliance with the discharge injunction.” Debtor’s testimony, exhibits, and itemization reflect damages that can be characterized as: (a) compensatory; (b) emotional distress; and, (iii) coercive.
Debtor is entitled to an award of compensatory damages. As a result of Verizon’s violation of Debtor’s discharge, Debtor had to retain counsel to insure that Verizon would discontinue its conduct and her discharge would be recognized. “[C]ompensatory civil contempt allows an aggrieved debtor to obtain compensatory damages, attorneys’ fees, and the offending creditor’s compliance with the discharge injunction.” Geranios’ affidavit of fees and costs reflects $2,586.05 in attorneys’ fees and costs was incurred by Debtor. Here, Geranios’ fees were reasonable and necessary for eliminating Verizon’s conduct. Debtor is entitled to an award of $2,586.05 for her attorneys’ fees incurred to date. In order to attend the hearing, and testify in support of her request for damages, Debtor missed work and incurred travel expenses. Debtor provided an itemized list of her mileage to attend the hearing, lodging, travel costs, and lost wages. Debtor is entitled to recover these amounts, which total $1,330.08.
B. Debtor’s Request for damages for Emotional Distress
This Court cannot award damages for emotional distress in the matter. Debtor seeks damages for emotional distress in an unspecified amount. Although damages in the form of compensation for emotional distress may be recoverable, one court considering Dawson, in connection with an alleged discharge injunction violation, explained as follows: For violations of the automatic stay, a claim for emotional distress damages is onlyappropriate if the individual: (1) suffers significant harm; (2) clearly establishes the significant harm; and (3) demonstrates a causal connection between the harm and
violation of the stay. This standard protects against frivolous claims with only fleeting or trivial anxiety insufficient to warrant compensatory damages. Here, Debtor provided testimony of certain medical conditions that pre-dated the violation of the discharge injunction. As a result of the testimony regarding the pre-existing medical issues, this Court cannot conclude that the harm Debtor complained of, was
casually, or otherwise attributable to Verizon’s violation of the discharge. As a result, damages for emotional distress cannot be awarded by this Court in this case on this record.
C. Civil Penalty to Coerce Compliance.
Debtor requested imposition of a coercive fine and punitive damages. There are limitations on bankruptcy courts under the contempt authority of § 105(a). For each Verizon’s violations of the discharge the Court imposes a fine of $500.00 per incident. Thus, for 3 separate invoices, and 7 separate calls, Verizon shall pay Debtor anadditional $5,000.00, and more importantly, it shall file with this Court a notice within 30 days of the date of this Order that affirmatively represents that it: (i) has tendered payment to the Debtor in the total amount of all damages and the fine, $8.916.13 to Debtor via her counsel; (ii) has taken all necessary steps to insure that Debtor will not receive another invoice for prepetition services that correspond to the pre-petition debt of $629.36 in violation of the discharge; (iii) that Verizon has advised its agents and third-parties to cease and desist all efforts to collect $629.36 from Debtor; and (iv) that Verizon has submitted all appropriate information to any third-party credit reporting entity, so that the debt for $629.36 is reported accurately. Absent timely filing of the Notice required herein, Verizon shall be subject to an Order to Show Cause to be issued by the Court.
In re Lewis, April 3, 2017, Nik G. Geranios for Lewis
2017 Mont. B.R. 156
Marek, Chapter 7, Turnover of Tax Returns
Case no. 17-60467
The Montana Department of Revenue filed a “Motion for Order for Turnover of Tax Returns”. The Motion seeks turnover of Montana individual tax returns for tax years 2008, 2009, 2010, 2012, 2013, and 2015 pursuant to Mont. Code Ann. (“MCA”) § 15-30-2602 and Montana Local Bankruptcy Rule (“LBR”) 1007-1(h)(2). The narrow issue to be decided in this chapter 7 case is whether to require the Debtor to turnover tax returns to the DOR for the 5-year period prior to the commencement of the case, as argued by the DOR’s counsel at the hearing, or only order turnover of those tax returns that are within the 3-year period ending on the date of commencement of this case, as urged by the Debtor.
DOR’s Motion is based on LBR 1017-1(h)(2) which provides:
(2) Filing Tax Returns. Except where the Court orders otherwise for good cause shown, a debtor must file all required tax returns with the proper taxing authority;
and provide the trustee a copy of any tax return for the tax years subject to the Court’s tax turnover order contained in Mont. LBF 35, in accordance with 11 U.S.C.
§§ 521, 1116, 1308, and 1325. Failure to do so may be grounds for dismissal or conversion.
In the instant Chapter 7 case, neither §§ 1116, 1308, or 1325 are applicable, so any reading of LBR 1017-1(h)(2) must be consistent with § 521. Section 521(f) permits any party in interest to request that an individual chapter 7 debtor file with the court, “at the same time filed with the taxing authority, a copy of each Federal income tax return required under applicable law (or at the election of the debtor, a transcript of such tax return) with respect to each tax year of the debtor ending while the case is pending under such chapter.”
Along with tax returns that are due while the case is pending § 521 also contemplates, filing with the bankruptcy court, any federal tax return “that had not been filed with such authority as of the date of the commencement of the case and that was subsequently filed for any tax year of the debtor ending in the 3-year period ending on the date of the commencement of the case.” LBR 1017-1(h)(2)’s incorporation of § 521 mandates that it be construed in a manner that is harmonious with §521.
If Congress had wanted to require debtors, at the request of a party in interest, to file with the bankruptcy court tax returns older than 3 years before the commencement of the case in a chapter 7 case, it could have included a period longer than the 3-year period found in § 521(f)(2). DOR did not articulate a compelling basis upon which it should be entitled to turnover of tax returns for any greater period of time than the analogous 3-year filing period found in § 521(f)(2). Although styled as a turnover motion, as a practical matter if the tax return was never filed, entry of an order for turnover of the return compels the debtor to file the return (so that there exists a return to be turned over), or risk loss of discharge, dismissal of the case or other consequence. Given these consequences, LBR 1017-1(h)(2) must be construed narrowly in chapter 7 cases and limited to the 3-year period ending on the date of the commencement of the case, unless circumstances establishing good cause exist. Under LBR 1017-1(h)(2), absent a showing of good cause, requests by the DOR for turnover of pre-petition tax returns in chapter 7 cases, shall be limited to returns of the debtor for tax years ending in the 3-year period ending on the date of the commencement of the case. Here, the DOR did not establish good cause, so applying the analogous 3-year filing period of § 521(f)(2) to the DOR’s Motion, the Debtor will be required to turnover to the DOR a Montana Individual Income Tax Return for tax year 2015.
In re Marek, August 1, 2017, Edward A. Murphy for Marek, Joseph Nevin for the Montana Department of Revenue
2017 Mont. B.R. 287
Meriwether v. NextGear Capital, Inc., Chapter 11, Adversary Proceeding, 12(b)(6) Motion to Dismiss (Myers)
Case no. 15-60002, Adversary no. 16-00042
At the conclusion of its oral argument, NextGear made an motion to admit exhibits which are the Note; Debtors’ guarantees; and NextGear’s proof of claim. Debtors did not object. Civil Rule 12(d) provides: “If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56.” The Court has determined, in the exercise of its discretion, that it will not consider the exhibits proffered by NextGear. It chooses, instead, to limit its analysis to the pleadings, in order to determine if this is the unusual case that warrants a judgment of dismissal on those documents alone.
NextGear seeks dismissal of Debtors’ complaint pursuant to Civil Rule 12(b)(1), arguing that the Court lacks subject matter jurisdiction over the Debtors’ usury claim. This adversary proceeding was commenced as a result of NextGear filing a proof of claim and Debtors disputing the validity and amount of such claim. Debtors allege that NextGear violated Montana usury law and that the penalties for such violation would offset Debtors’ liability to NextGear on its proof of claim. The filing of a proof of claim is a matter that exists based on “a substantive provision of bankruptcy law.” Resolving disputes as to proofs of claim is an important aspect of bankruptcy administration, central to adjustments in debtor/creditor relationships. The resolution of such disputes requires the Court to look to the underlying substantive law creating a debtors’ obligations. The fact that Debtors’ usury claim might be able to proceed in Indiana state court is not determinative. The confirmed plan in the Chapter 11 case specifically addressed and reserved for this adversary proceeding Debtors’ objection to NextGear’s claim.
The resolution of claim disputes using state substantive law squarely fits within the definition of “arises in.” As applied here, resolving the claim dispute using Montana usury law is an administrative matter unique to the bankruptcy process that has no independent existence outside of bankruptcy and could not be
brought in another forum (resolution of claim disputes in the bankruptcy court), but whose cause of action is not expressly rooted in the Bankruptcy Code (in this case, Montana usury law). The Court holds that Debtors’ Montana state law usury claim against NextGear in the context of its claim dispute arises in a case under Title 11 and this Court has jurisdiction pursuant to 28 U.S.C. § 1334(b). NextGear’s Civil Rule
12(b)(1) motion to dismiss for lack of jurisdiction will therefore be denied.
Pursuant to Rule 12(b)(6), NextGear argues that Debtors’ complaint should be dismissed because it fails to state a claim upon which relief can be granted. In addressing a Civil Rule 12(b)(6) challenge, a court accepts all nonconclusory factual allegations in the complaint as true, and construes the pleading in the light most favorable to the nonmoving party. At this early stage in the adversary proceeding and given the limitations of what the Court can properly, and here does, consider on a Civil Rule 12(b)(6) motion, the Court cannot determine that NextGear is exempt from usury interest limits under Montana Code § 31-1-112(2) or that Debtors lack standing to bring a usury claim against NextGear. Taking all allegations of fact in the complaint as true and construing them in the light most favorable to Debtors, the Court finds that Debtors’ complaint has facial plausibility. Thus, it would be error for the Court to dismiss the complaint
for failing to state a claim.
Meriwether v. NextGear Capital., Inc., March 23, 2017, David B Cotner for Meriwether, Martin S. Smith For NextGear
2017 Mont. B.R. 98
Morin, Chapter 7, Compromise
Case no. 16-60426
Prior to filing bankruptcy, Debtor represented Vincent Shepard. Ultimately, the Shepard Litigation was resolved short of trial and a confidential settlement was entered by the parties. Debtor and the Law Firms were incapable pre-petition of agreeing on the division of the Contingency Fee. Following the settlement, funds in the amount of $214,500.00 (the “Contingency Fee”) were deposited into the trust account of Julie McGarry, Esq.. Debtor disclosed the existence of the Disputed Funds and the Lake County action. Once disclosed and following the Trustee’s investigation of the probable outcomes, the Trustee’s options included (I) litigate the issues associated with division of the funds in the Lake County action; (ii) negotiate a division of the funds; or, (iii) abandon the funds.
In assessing the reasonableness of a compromise, the Ninth Circuit requires that the bankruptcy court evaluate: (a) The probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises.
A. Probability of Success in the Litigation.
Here, absent the filing of Debtor’s bankruptcy, and an agreement by the parties, the Contingency Fee would be subject to disbursement to Debtor and the Law Firms based on a quantum meruit theory. Debtor’s efforts, irrespective of the actual hours Debtor spent on the case, were rather futile. It was ultimately Buley who filed the singular complaint that was not dismissed with prejudice. Debtor’s probability of success is low. And, since the Trustee would have to prosecute that litigation, his chances of success are not much greater than Debtor’s. The Court finds and concludes that the first A & C Properties factor favors approval of the settlement.
B. Difficulty in Collection.
That factor is not applicable in this case because the funds to be distributed are available to be disbursed upon entry of any Order directing the manner of disbursement.
C. The complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it. Consideration of the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it, weighs in favor of approval of the settlement. In order for the expense and delay associated with the litigation to be economically worthwhile to the estate, Debtor would have to establish that the Law Firms were not entitled to more than 25% of the Contingency Fee, and not entitled to the separate fee. Again, the probability of this outcome occurring is low, based on the Court’s review of the exhibits, and the testimony of the witnesses. These considerations support approval of the Settlement Motion.
D. The paramount interest of the creditors.
No creditors objected to approval of the settlement. The evidence shows that as creditors, their interests are aligned with approval of the settlement. Absent approval of the Settlement Motion, creditors risk an outcome that has no economic, or less economic benefit than the outcome presented in the Settlement Motion.
The first, third and fourth A & C Properties factors weigh in favor of approving the Settlement Motion. The second factor is not applicable. Exercising its discretion, this Court concludes that the proposed Settlement between the Trustee and the Law Firms is fair and equitable and satisfies Rule 9019(a).
In re Morin, March 16, 2017, Edward A Murphy for Morin, Richard J Samson, Trustee
2017 Mont. B.R. 89
Mulroy v. Morgan Pierce, PLLP, Montana Supreme Court, Attorneys Lien
Case no. DA 16-0141
Morgan Pierce filed a notice of an attorney’s lien against five pieces of Lee’s real property. The lien notice provided, in relevant part:
This lien is claimed for legal services rendered by Morgan Pierce, PLLP in
2014-15 pursuant to a Representation and Legal Services Agreement dated
December 6, 2014 for legal services and costs advanced in Ms. Lee’s
Chapter 13 bankruptcy proceedings and related matters . . . . The
reasonable value of the services is up to $25,000.
Mulroy filed a petition for interpleader and declaratory relief, asking the District Court to determine, among other issues, the validity of Morgan Pierce’s attorney’s lien. The District Court granted Mulroy’s motion for summary judgment.
The statute governing attorney’s liens, § 37-61-420(1), MCA, provides: “The compensation of an attorney and counselor for services is governed by agreement, express or implied, which is not restrained by law.” Thus, an attorney’s lien is a contract for services. Section 28-2-102, MCA, sets forth the essential elements of a contract: “(1) identifiable parties capable of contracting; (2) their consent; (3) a lawful object; and (4) a sufficient cause or consideration.”
As Morgan Pierce points out, all of the cases upon which the District Court relied are distinguishable from this case because they all involved the application of statutes that specifically required a property description. By contrast, the attorney’s lien statute, § 37-61-420, MCA, contains no such requirement. “In the construction of a statute, the office of the judge is simply to ascertain and declare what is in terms or in
substance contained therein, not to insert what has been omitted or to omit what has been inserted.” By holding that Lee did not consent to the attorney’s lien because the lien did not include legal descriptions of her real property, the District Court inserted a requirement that does not exist in the statute, or in case law, governing attorney’s liens.
Mulroy v. Morgan Pierce, January 10, 2017, Elizabeth A Brennan for Morgan Pierce, Amy N. Guth for Morgan Pierce
2017 Mont. B.R. 21
Pederson, Relief from Stay, Marital Settlement Agreement
Case no. 16-60101
The Debtors’ filing of their Chapter 13 bankruptcy petition gave rise to an “automatic stay.” Debtors object to Renfro’s Motion and oppose granting relief from the stay, which would burden them with time and legal expenses of returning to the state district court where Renfro would seek a determination of responsibility for the judicial liens and seek modification of the MPSA so that he can refinance instead of sell the marital residence.
With respect to Renfro’s request for retroactive relief from the stay, the Court denies that request on procedural grounds. Rule 9014(a), Fed. R. Bankr. P., provides in pertinent part: “In a contested matter not otherwise governed by these rules, relief shall be requested by motion . . . .” Renfro’s did not request retroactive relief from the stay by motion. His request is in a “Memorandum Opposing Kelly’s Objection” to his original Motion. The difference is not minor, nor is it immaterial. Inserting requests for relief in a responsive pleading creates procedural and due process concerns, which do not occur when a party requests relief by motion as required by Rule 9014(a).
Renfro’s Motion is based in part on § 362(d)(2). He contends that Kelly does not have an equity in the property because she has no exemption in the marital residence and that it is not necessary for her reorganization because of the turnover provision in the confirmed Plan. The latter argument defeats itself. The confirmed Plan provides at paragraph 7(c) that Kelly shall turn over to the Trustee any amounts paid to her under Ex. 1. Thus, the evidence shows that the proceeds from the sale of the marital residence pursuant to Ex. 1 are necessary to Kelly’s effective reorganization through her confirmed Plan.
Finally, Renfro’s Motion is based upon § 362(d)(1), which allows for the granting of relief from the automatic stay “for cause, including the lack of adequate protection of an interest in property of such party in interest[.]” Renfro does not seek to enforce an existing right against property. He is not a mortgagee. His Motion seeks relief from the stay to modify the MPSA so that he can refinance the marital residence instead of listing and selling it as the MPSA requires. In addition he seeks relief from stay so that the state court can determine responsibility for judicial liens.
Proofs of Claim have been filed in this Chapter 13 bankruptcy case, after notice was sent out to Kelly’s creditors. Allowance or disallowance of claims against the estate is a core proceeding under 28 U.S.C. § 157(b)(2)(B). Determination of the validity, priority or extent of liens also is a core proceeding under § 157(b)(2)(K). Core proceedings even include the sale of property in certain circumstances under § 157(b)(2)(N). In other words this Court has jurisdiction to hear and decide objections to claims, or a proceeding to determine the validity or extent of judicial liens against the marital residence which are attributable to Kelly, or even to sell Kelly’s interest in the marital residence pursuant to the MPSA. While the state court also is empowered to determine the liability for the judicial liens, that alone is not cause to modify the stay over the Debtors’ objections. If Debtors complete payments required under their confirmed Plan they may be entitled to a discharge of all debts provided for by the plan or disallowed, under 11 U.S.C. § 1328. Entry of a discharge under Chapter 13 terminates the stay under the provisions of § 362(c)(2)(C). At some point, the automatic stay will be ended and the parties can return to the state court if they still desire to litigate remaining issues, subject possibly to the results in this case and the effect of the permanent injunction arising from 11 U.S.C. § 524. Based on the foregoing, this Court
exercises its discretion and denies Renfro’s Motion to Modify Stay.
In re Pederson, January 10, 2017, Andrew W Pierce for Pederson, Robert Terrazas and Matt Shimanek for Renfro
2017 Mont. B.R. 7
Posen v. Ozier, United Stated District Court, (Watters), Judicial Estopple
Case no. CV-17-07-BLG-SPW
Posen does not object to the factual history nor the fact that Judge Cavan took judicial notice of his bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York. In his Amended Complaint, Posen alleges that failing to include his claim against Defendants in his bankruptcy schedules had no effect on the bankruptcy settlement, he had sufficient assets to pay all the creditors in full so the settlement was not premised on his assets or wherewithal to pay, neither the Simonsen trustee nor the Bankruptcy Court relied on his bankruptcy schedules, and his assets exceeded his liabilities at the time the bankruptcy case was dismissed, so inclusion of his claim against defendants would have had no impact on his creditors if it had not been dismissed. Because the allegations in were contradicted by the bankruptcy filings, Judge Cavan appropriately rejected them.
Posen concludes that the Simonsen trustee and Bankruptcy Court did not rely on his asset schedules because the Bankruptcy Court never issued an order adopting or accepting the schedules. This is not afactual allegation, however. It is a legal conclusion; and an incorrect legal conclusion under the law. There is no requirement that the Bankruptcy Court issue an order formally adopting the asset schedules in order for the Bankruptcy Court to rely on them. The Bankruptcy Court's reliance on the schedules is inferred by the requirement that a debtor's duty to disclose assets continues for the entirety of the bankruptcy proceedings, as well as the Court's duty to apprise itself of acts.
Judicial estopped precludes a party from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position. The court must look to three factors to determine whether judicial estoppel is warranted in the bankruptcy context: (1) a party takes clearly inconsistent positions by failing to disclose a legal claim in bankruptcy and then subsequently brings suit on the undisclosed claim; (2) there was judicial acceptance or reliance on the party's prior position; and (3) the party receives an unfair advantage by failing to disclose the claim.
A. Clearly Inconsistent Positions
Posen admits that he did not schedule his malpractice claim on his bankruptcy schedule and thus concedes the first factor.
B. Judicial acceptance or reliance
As Defendants point out, the Ninth Circuit restricts judicial estoppel "to cases where the court relied on, or 'accepted' the party's previous inconsistent position." Posen's argument ignores the fact that a bankruptcy court does not have to permanently discharge debts or confirm a plan in order to satisfy this factor. This Court agrees with Judge Cavan's determination that the Bankruptcy Court's approval of the settlement constitutes judicial acceptance. Considering that by law, the Bankruptcy Court is obligated to apprise itself of the facts, make an independent determination of fairness, and protect the interest of all creditors when approving payment from the bankruptcy estate on the basis of a party's assertion, courts have routinely found this conclusion reasonable.
Moreover, it is undisputed that Posen had sufficient facts to know a potential cause of action against Defendants existed, but nevertheless failed to amend his schedules. This inaction alone is sufficient to trigger judicial estoppel.
3. Posen Obtained an Unfair Advantage
Posen's failure to disclose his claim against Defendants deceived the Bankruptcy Court and thus undermined the integrity of the bankruptcy process. Because he failed to include in his bankruptcy schedule his potential malpractice claim against Defendants, Posen gained the advantage of being able to settle out with other creditors in bankruptcy and retain the claim as an asset for his benefit later. This fact alone demonstrates that Posen definitely obtained an unfair advantage. Additionally, the law is clear: because he received the benefit of an automatic stay under 11 U.S.C. § 362(a) and a discharge of debt,
Posen received an unfair advantage.
Posen v. Ozier, September 26, 2017, Charles Carpenter for Posen, Eric Nord for Ozier and Tolliver
2017 Mont. B.R. 315
Prather v. Bank of America, United States District Court, (Christensen), Trespass, Intrusion upon Seclusion
Case no. CV 15-163-M-DLC
A BANA property inspector visited the Property to conduct inspections. Although the inspector took pictures of the exterior of the Prathers' home, he never entered or attempted to enter the home or garage. On occasion, the inspector would walk to the front door and leave a door hangar. The exterior of the home is highly visible and "there isn't a whole lot" of privacy. The Prathers have not posted any signage or otherwise restricted the ability of delivery drivers, postal workers, or other service providers from entering onto the Property.
The Prathers' claim that BANA violated the Housing and Urban Development ("HUD") regulation 24 C.F .R. § 203 .3 77, which would supersede any contractual right BANA had in the Deed. BANA argues that under the National Housing Act, 12 U.S.C. § 1701, et seq., there is no private right of action available to a mortgagor for a mortgagee's noncompliance. The Court agrees with BANA. By its structure, the National Housing Act "govem[s] relations between the mortgagee and the government, and give[ s] the mortgagor no claim for duty owed or for the mortgagee's failure to follow" the statute or its implementing regulations. Consequently, courts have held that the National Housing Act generally does not contain a private right of action. Thus, it is improper for the Prathers to base their claim of trespass on a HUD violation rather than the contractual obligation found in the Deed. Based upon this case law, the Court concludes that the Deed is not superseded by the HUD regulations. Because there is no dispute of fact that the loan was in default at the time BANA's agents entered onto the property, the Court finds that as matter of law, BANA is entitled to summary judgment on the Prathers' claim for trespass.
The Prathers' claim argues that BANA tortiously intruded upon their privacy. The Prathers argue that under the Montana Constitution they had an objectively reasonable expectation of privacy in their home and the curtilage outside the home. "To prevail on the tort of intrusion upon seclusion, a plaintiff must show: (a) an actual, subjective expectation of seclusion or solitude, and (b) that the expectation was objectively reasonable". Montana has not recognized this common law tort to include intrusion upon land in public view. It is clear from the facts that BANA's entry upon the Property did not intrude into the Prathers' private activities. The Prathers thus fail to show that they had any expectation of seclusion in the open, apparent and freely accessible area of their Property. Further, the tort of intrusion upon seclusion requires some form of concealment from the public. BANA was taking photos of the exterior of their home, which was freely accessible and viewable to the public. Although the Prathers' felt this was an invasion of their privacy, the exterior of their home cannot be considered a secluded area because it is in public view.
Prather v. Bank of America, May 9, 2017, Brian J. Miller for Prather, Mark D. Etchart for Bank of America
2017 Mont. B.R. 228
Reeves v. US Bank National Association, Montana Supreme Court, Scrivners Error on Deed of Reconveyance, Automatic Stay
Case no DA16-0390
After securing two loans with deeds of trust on the same property, one for $136,000 and another for $34,000, Appellants Reeves paid off the smaller loan. A title agent filed a Deed of Reconveyance containing a scrivener’s error that mistakenly released the Reeves’ interest in their property from the larger lien of $136,000. The Reeves contended U.S. Bank was precluded from holding the trustee’s sale because U.S. Bank did not have a valid, perfected lien prior to commencement of the bankruptcy proceedings. Although the Reeves conceded that a lien properly filed and perfected prior to bankruptcy proceedings survives bankruptcy, the Reeves argued that the scrivener’s error rendered the lien invalid, and thus not perfected, at the time bankruptcy proceedings were initiated. Accordingly, the Reeves maintained that the trustee’s sale violated the “automatic stay” provision of the Bankruptcy Code, 11 U.S.C. § 362(a)(4)-(5), which enjoins an action to create, perfect or enforce any lien against the property of an estate when that action is commenced after the estate’s case seeking a discharge in bankruptcy has begun. The District Court denied the Reeves’ motion for summary judgment and granted U.S. Bank’s motion for judgment on the pleadings, reasoning that the scrivener’s error did not affect the relationship between the Reeves and U.S. Bank and that the error would have only misled third parties, such as junior creditors.
The Reeves’ essential, unsupported argument is that the scrivener’s error effectively discharged the lien that was established in the contract that created the First Deed of Trust. It is well-established, however, that the law does not require a mortgagee to relinquish the property to a mortgagor free of the lien unless the corresponding debt is paid in full. Indeed, “[a] creditor’s lien stays with the real property until the foreclosure. That is what was bargained for by the mortgagor and the mortgagee.” We are left then, when reviewing the record, to examine the contract to determine under what conditions a full reconveyance of the property was contemplated by the parties. In examining that contract, we find that it was “[u]pon payment of all sums secured by this Security Instrument [that] Lender shall request Trustee to reconvey the Property and shall surrender this Security Instrument and all notes evidencing debt secured by this Security Instrument to Trustee.”
U.S. Bank was therefore not required under the terms of its trust indenture with the Reeves to accept First American’s faulty reconveyance deed as partial performance. The agreement was between the Reeves and their lender. First American, who committed the error, was merely the trustee—a third party who was not tendering performance on behalf of the Reeves. The record undisputedly reflects that First American’s filing was a mistake. But even if the filing could be considered a tender of performance, U.S. Bank was not required to accept it. Thus, we do not find that the mistaken reconveyance caused by First American’s scrivener’s error controverted the well-established law of Dewsnup: a lien stays with the property until the debt is paid in full or foreclosure proceedings are complete. that basis, we conclude the lien on the Reeves’ property, as it relates to U.S. Bank, was not invalidated, discharged, or in any way left unperfected when the Reeves commenced their bankruptcy proceedings.
The performances bargained for in the contract for the First Deed of Trust were that the Reeves would pay the full sum of $136,000 and the lender would then reconvey the title to the Reeves, free of the lien. The agreement clearly specified the payment of all sums secured by the instrument as the sole condition that would trigger the lender’s promise to reconvey the property. Without payment of the full sum, the Reeves had a duty under the contract to pay the note timely, or risk foreclosure. Full performance of a duty under a contract discharges that duty.
Reeves v. US Bank National Association, March 28, 2017, Gary S Deschenes for Reeves, Maxon R. Davis for US Bank National Association
2017 Mont. B.R. 143
Russell, Relief from Stay, Adequate Protection
Case no. 16-61174
The Motion is based on §§ 362(d)(1) and (d)(2). Section 362(g) provides that a party seeking relief from the stay has the burden of proof on the issue of debtor’s equity in property, and the party opposing relief has the burden of proof on all other issues. Cause exists under 11 U.S.C. § 362(d)(1) to grant stay relief. Section 362(d)(1) allows for the granting of relief from the automatic stay “for cause, including the lack of adequate protection of an interest in property of such party in interest[.]” Cause under § 362(d)(1) includes a lack of adequate protection. Movants have the burden of establishing there is no equity in the Property. The testimony of Frazier and his appraisal satisfy this burden. According to Frazier it was his opinion that the Property had a bulk sale value of $1,350,000.00. Although Frazier also opined that after improvements the Property could be sold for $2,736,000.00 in “Aggregate Sum of Retail Sales”, this outcome would require capital investment. And, in addition to the capital investment, the final outcome would not be realized for 5-6 years.
Debtor’s testimony regarding valuation was at odds with Frazier. For purposes of valuation, an owner is competent to give his or her opinion on the value of his or her property, most often simply by stating the conclusion without stating a reason. Without considering the costs of sale, which Frazier testified was a concern, if the Court were to accept Debtor’s testimony that all 38 lots could be sold for $50,000, the gross proceeds would be $1,900,000. Here, the Court finds this testimony to be less than credible. Merry Moose’s counsel questioned Debtor at length about the accuracy of his schedules, values included on those schedules, and a host of other omissions and inaccuracies. This questioning and Debtor’s responses, combined with the lack of cogent detail offered by Debtor in support of his valuation testimony leave this Court with no alternative but to adopt Frazier’s bulk sale opinion of value, $1,350,000.00, for purposes of determining whether there is equity in the Property. As of the petition date, the Merry Moose liens secured approximately $1,065,783.00 owed to Merry Moose by Debtor. After deducting the Merry Moose debt from the value of the Property, there remains approximately, $284,217.00. However, as discussed earlier, KS Ventures and the IRS have junior liens against the Property. Setting aside the KS Ventures lien in light of the pending objection, the remaining $284,217.00 will be eliminated by the lien of the IRS, any other junior liens, or real estate taxes, and any costs of sale. Movants satisfied their burden of proof under § 362(g)(1) and§ 362(d)(1) to show that the Debtor does not have any equity in Movants’ security.
The Court has already concluded Debtor does not have any equity in the Property. In addition, Debtor offers Movants no other form of adequate protection. Based upon the forging, and the Court’s conclusion that there is no equity in the Property, the Court finds that Movants’ have established cause for modification of the stay. Debtor’s testimony fails to convince the Court that stay relief is not warranted. To the contrary, Debtor’s own testimony established cause exists for modifying the stay under § 362(d)(1) as requested by Movants.
Stay relief is also appropriate under 11 U.S.C. § 362(d)(2). Section 362(d)(2) provides for the granting of relief from the stay if “(A) the debtor does not have an equity in such property; and (B) such property is not necessary to an effective reorganization.” The Court has already concluded that Debtor has no equity in the Property and the issue of whether the Property is necessary to an effective reorganization is moot, because a reorganization is not contemplated in a Chapter 7 liquidation.
In re Russell, February 27, 2017, Jon R. Binney for Russell, Martin S. King for Merry Moose, Richard J. Samson , Chapter 7 Trustee
2017 Mont. B.R. 62
Russell, Dismissal, Accuracy of Schedules
Merry Moose’s Motion to Dismiss is based on § 109(e) for lack of eligibility for Chapter 13 relief because the amount of Debtor’s secured debt and because he is not an individual with regular income; and under § 1325(a)(7) alleging the Debtor filed his petition in bad faith. Under § 1307(c), the court may dismiss a case or convert the case to a case under Chapter 7, whichever is in the best interests of creditors and the estate. This Court already has converted the case to a case Chapter 7, by an Order which remains in effect. As a result, Merry Moose’s arguments based on lack of eligibility for Chapter 13 relief and bad faith filing of a Chapter 13 petition are moot. Having reviewed Merry Moose’s Motion to Dismiss and the record, the Court sees no reason to revisit its conversion of the case to Chapter 7, when such an analysis could arrive at the same result.
Debtor testified that, if the Court dismisses this case without a bar against refiling, he will file a petition for relief under Chapter 11 of the Code. The evidence in the record shows that the Debtor made several mistakes in his petition and Schedules. He testified that he has no intention of correcting his mistakes. That is unacceptable. This Court has a longstanding rule about a debtor’s duty to prepare schedules completely and accurately, and to correct inaccuracies. The Debtor is obligated to correct his mistakes in his Schedules. Allowing the Debtor to dismiss the instant case without correcting his Schedules, and then refile for bankruptcy relief under the more complex requirements of Chapter 11 of the Code, would excuse the Debtor’s failure to perform his duty. This Court declines to dismiss the case and allow the Debtor to escape the performance of his duty.
In re Russell, February 28, 2017, Jon R. Binney for Russell, Martin S. King for Merry Moose, Richard J Samson, Chapter 7 Trustee
2017 Mont. B.R. 74
Rustad v. Bank of America, United States District Court, Consumer Protection Act, Fraud, Statutes of Limitation
Case no 16-cv-00072-DLC
BANA argues that Counts I and II, CPA violations, and Count III, fraud, are barred by the statutes of limitations. Under Montana law, CPA and fraud actions are subject to a two-year statute of limitations. Because Rustad filed his complaint on June 8, 2016, his claims for CPA violations and fraud may survive only if they accrued on or after June 8, 2014. Montana Code Annotated § 27-2-102(2) provides that the statute of limitation "begins when the claim or cause of action accrues." Thus, "a claim or cause of action accrues when all elements of the claim or cause exist or have occurred, the right to maintain an action on the claim or cause is complete, and a court or other agency is authorized to accept jurisdiction of the action." The Court finds that the damages associated with Rustad's CPA violation claims were present prior to June 8, 2014, and, therefore, the statute of limitations bars Rustad's CPA violation claims.
The discovery rule provides that a statute of limitations period does not begin until the party discovers, or in the exercise of reasonable diligence would have discovered, the facts constituting the claim." "However, this rule only applies when the facts constituting the claim are concealed, self-concealing, or when the defendant has acted to prevent the injured party from discovering the injury or cause." Rustad was personally aware of all these facts while they were occurring. Thus, the actions of BANA from 2009 to 2013 were not concealed or self-concealing. Further, Rustad's consultation with an attorney does not toll the statute of limitations because lack of knowledge of one's legal rights is not sufficient to apply the discovery rule.
Claims for deceit where no penalty is sought are also subject to a three-year statute of limitations. Because Rustad does not dispute that BANA initiated the alleged pattern of negligence in 2009, when he first sought a modification, the theory can only succeed under the continuing tort doctrine. Generally, a party's ignorance of a potential claim cannot stop the statute of limitations from running. "A continuing tort is one that is not capable of being captured by a definition of time and place of injury because it is an active, progressive and continuing occurrence. It is taking place at all times." Application of the continuing tort doctrine depends on whether a tort is temporary or permanent. The continuing tort doctrine "applies to a temporary injury that gives rise to a new cause of action each time that it repeats." BANA would offer loan modifications and then deny those loan modifications due to inadequate documentation. This act by BANA was repetitive and continuous. Rustad's loan modification process with BANA did not "stabilize" until the final denial. Therefore, the allegations against BANA can be classified as a temporary tort. Consequently, Rustad's negligence claims fall within the three year statute of limitations. Furthermore, Rustad did not realize any "permanent" damage until the loss of his house through the foreclosure sale, since during the loan modification process he assumed he would be keeping ownership in his home and foreclosure was not reasonably certain.
BANA argues that Rustad improperly seeks enforcement of the National Mortgage Settlement and the Consent Judgment. Rustad argues that his claims are not attempts to enforce the Consent Judgment, but rather that his claims simply rely upon the Consent Judgment as evidence of liability. The Court agrees.
Deceit and negligent misrepresentation are essentially grounded in fraud, therefore, Rule 9(b)' s heightened pleading standard applies. Rule 9(b) of the Federal Rules of Cvil Procedure requires that a party plead fraud-based claims "with particularity [of] the circumstances constituting fraud." These allegations are sufficient to put BANA on notice of their alleged misconduct, and are sufficient to permit BANA to mount a defense. Therefore, the Court finds that Rustad's complaint provides the requisite particularity to support the negligent misrepresentation and deceit claims.
BANA also argues that Rustad did not assert facts constituting breach of the covenant of good faith and fair dealing because the complaint does not allege facts giving rise to a special relationship. The Court has already determined that Rustad pled sufficient facts to support the conclusion that BANA went beyond the duty owed by a conventional loan servicer. Therefore, the Court finds that Rustad's complaint sufficiently alleges facts that could give rise to a special relationship between BANA and Rustad.
Rustad v. Bank of America, April 20, 2017, David R Paoli and Paul M Leisher for Rustad, Mark Etchart for Bank of America
2017 Mont. B.R. 201
Smith v. Wall, Chapter 13, Violation of Discharge Injunction
Case no. 16-60490, Adversary no. 16-00050
Julia filed a Chapter 7 bankruptcy petition in 2012. A discharge was entered in the Prior Case. The BNC served the discharge in the Prior Case to Joan. On May 20, 2016, Debtor filed a voluntary Chapter 13 bankruptcy petition. Notice of Julia’s Chapter 13 case was sent by the BNC to Joan Smith and Estate of Merwin Smith. The § 341(a) meeting of creditors was held. The Debtor appeared and testified.
Smiths commenced this adversary proceeding by filing a “Complaint to Deny and Except Discharge. The Complaint avers a claim for relief seeking exception of Smiths’ claim from Debtor’s discharge under 11 U.S.C. § 523(a)(2)(A), and further alleges that the New Case was filed in bad faith. Debtor’s counterclaims allege: (i) violation of the discharge injunction when Smiths initiated the state court action to collect a discharged debt, and ultimately obtained the State Court Judgment; and (2) violation of the discharge injunction when Smiths filed the Claim, a claim premised on a discharged debt.
A. Rule 12(b)(6) Motion to Dismiss.
Having identified the factual allegations that are entitled to be taken as true, the Court concludes that they do not plausibly suggest that Smiths are entitled to the relief requested. The legal theories are explicit or otherwise well pled, so for purposes of its analysis, the Court went to great lengths to give Smiths the benefit of the doubt on the facts and law, but ultimately, the facts are not disputed, and the legal issues are not novel. Simply put, the discharge Debtor received in 2012 voids the State Judgment. Smiths were enjoined by Julia’s discharge in the Prior Case from commencing this adversary proceeding or filing a proof of claim, and Debtor is entitled to damages to be determined at a subsequent hearing.
Count 1 is subject to dismissal for failure to state a claim because Smith has failed to state a claim that is plausible under 11 U.S.C. § 523(a)(2)(A) or 11 U.S.C.§ 727(d).
Any claim under Count One by Smiths for exception of the Smith Debt from Julia’s 2012 discharge under 11 U.S.C. § 523(a)(2)(A) is time barred. Under Rule 4007(c) Smiths had 60 days after the first date set for the meeting of creditors, until August 3, 2012, to file their complaint objecting to discharge under 11 U.S.C. § 523(a)(2)(A), or any other grounds. Smiths did not request an extension of time, and they did not file a timely complaint seeking exception of their claims from Julia’s discharge or objecting to discharge.
Per § 727(e), under the terms of which, any request for revocation of discharge must be made within the later of one year after the granting of such discharge, or the date the case was closed. The discharge in the Prior Case was entered on August 6, 2012. Smiths did not file their complaint commencing the instant adversary proceeding until August 16, 2016, which is beyond the deadlines delineated under § 727(d). The Court finds and concludes that Smiths’ request for revocation of Debtor’s discharge is wholly implausible because it is barred by the applicable deadlines of § 727(d).
Count 2 is subject to dismissal for failure to state a claim because Smith has failed to state a claim that is plausible under 11 U.S.C. § 523(a)(2)(A).
Count Two seeking an exception to discharge for the Smith Debt in the New Case fails for the obvious reason that the debt was already discharged in the Prior Case. However, even if that were not the case, Smiths’ claim would still be subject to dismissal because the alleged representations upon which the Smiths’ fraud claim are premised were made by Debtor in 2012, at least 6 or 7 years after the Smith Debt was incurred.
A claim by Smiths that the discharge in the Prior Case should be revoked because the Smith Debt was not scheduled is also subject to dismissal because Smiths admittedly had notice of the Prior Case.
Although there is an exception to discharge in § 524(a)(3)(B) for certain debts which are not listed or scheduled, the rule is not absolute, as demonstrated by the plain language of its text. Joan was listed as a creditor in Julia’s 2012 bankruptcy Schedules, and while the Smith Debt which Debtor and Gregory owed her and Merwin Smith was not scheduled, that did not relieve Joan and Merwin Smith of their obligation to protect their claim when they had notice and actual knowledge. Joan and Merwin Smith failed to file an adversary proceeding objecting to or seeking an exception from Julia’s discharge within the 60-day deadline in Rule 4007(c), and did not ask for an extension. Smiths’ claim against Debtor for the Smith Debt was discharged in the Prior Case.
The term “debt” means “liability on a claim.”“Claim” means “right to payment ….” Based on the discharge injunction of § 524(a)(2), the Debtor no longer had personal liability for Smiths’ claim, and Smiths no longer had a right to payment
Debtor did not have the burden of proving to Smiths the existence of the discharge injunction or to persuade them that the discharge applied and enjoined their state court collection action or their filing of a proof of claim. Debtor’s attorney warned Joan at the meeting of creditors that her debt was discharged, but Smiths proceeded to file Proof of Claim No. 6 notwithstanding his warning. As a result, Smiths’ state court collection action and judgment against the Debtor was void ab initio because they were in violation of the discharge injunction of § 524(a)(1), just as violations of the automatic stay are void ab initio. Although void, Debtor suffered damages as a result of Smiths’ violations of the discharge injunction, including Smiths’ garnishment of Debtor’s wages and possible adverse credit rating from the judgment. Debtor is entitled to recover damages and attorney fees. This Court can impose upon a creditor who violates the § 524(a)(2) injunction sanctions for civil contempt, which may consist of remedial and compensatory, but not punitive, sanctions. Thus, the Debtor will be allowed a trial to offer evidence to establish her damages sought from Plaintiffs, but not an award of punitive damages which are not available for violation of the discharge injunction.
Smith v. Wall, March 24, 2017, Howard Toole for Smiths, Nik G Geranios for Wall
2017 Mont. B.R. 109
Stevenson v. Big Sky RV, Inc., Montana Supreme Court, Montana Consumer Protection Act, Venue
Case no. DA 17-0139
The MCPA provides, in pertinent part:
A consumer who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by another person of a
method, act, or practice declared unlawful by 30-14-103 may bring an individual . . . action under the rules of civil procedure in the district court
of the county in which the seller, lessor, or service provider resides or has its principal place of business or is doing business to recover actual
damages or $500, whichever is greater. Section 30-14-133(1), MCA (emphasis added).
This Court has previously explained the difference between jurisdiction and venue in the following way:
This Court has long recognized the distinction between “jurisdiction” and “venue.” In general terms, jurisdiction is a court’s authority to
hear and determine a case, and goes to the “power” of the court. Jurisdiction cannot be waived or conferred by consent of the parties
where there is no basis for jurisdiction under the law. Venue, on the other hand, refers to the place where the case is to be heard, or where
the power of the court can be exercised. Venue is a personal privilege of the defendant and, thus, may be waived.
Like the statute considered in McGurran, § 30-14-133(1), MCA, merely sets forth the proper place where an MCPA claim can be heard, and does not involve a district court’s power to hear and dispose of a case. As such, we conclude that § 30-14-133(1), MCA, is a venue provision. Given that the statute does not confer jurisdiction, we further conclude that the District Court did not err in concluding that it had subject matter jurisdiction in this case.
We must now determine whether venue was proper in Chouteau County. With respect to the MCPA’s venue provision, this Court has not determined which acts are sufficient to constitute “doing business” in a Montana county, when a transaction occurs between a Montana consumer, located in one county, and a corporation registered in, and having its principal place of business, in another Montana county. However, at least one other state has interpreted a similar venue statute and determined that “a single transaction is sufficient to establish venue if it forms the basis of the lawsuit.” In this case, the transaction at issue involved the agreement of Big Sky and Stevenson that the trailer be delivered to Chouteau County. Since there is sufficient evidence to show that Big Sky entered into a sales contract with Stevenson, a Chouteau County resident, and, pursuant to the contract, delivered the purchased good to Stevenson there, we conclude that theDistrict Court did not err in determining that venue was proper in Chouteau County.
Stevensen v. Big Sky RV, Inc., August 8, 2017, Stuart F. Lewin for Stevensen, John L Wright for Big Sky RV, Inc.
2017 Mont. B.R. 294
Stokes, Reconsideration, Vacate Dismissal, F.R.B.P. 9023, 9024
Case no. 16-60720
The Debtor testified that he has been the debtor in prior bankruptcy cases filed in this district and attended § 341 meetings in those cases, and that he is familiar with the proceedings. He admitted that he received the Notice of the instant case and the scheduled § 341 meeting. Notwithstanding, Debtor testified that he forgot about the § 341 meeting and did not attend. The above-captioned Chapter 13 bankruptcy case was dismissed after the Chapter 13 Trustee filed a Notice stating that the Debtor failed to appear at the meeting of creditors and requested that the case be dismissed. The Debtor filed a Motion to Vacate Dismissal so that assets can be restored from which Debtor can pay his creditors and so that Debtor can pursue sanctions against various parties.
Debtor’s Motion does not cite any rule, statute, or case authority upon which he bases his Motion to Vacate Dismissal. In fact, Debtor’s Motion does not address his failure to attend the § 341 meeting at all, instead arguing the merits of his request for sanctions against FATCO and other parties. The objections all argue that Debtor cited no authority and made no satisfactory showing under Fed. R. Bankr. P. 9023(applying Fed. R. Civ. P. 59 in cases under the Code) and 9024 (applying Rule 60 in cases under the Code) for relief from dismissal.
Ignorance of court rules does not constitute excusable neglect, even if a litigant appears pro se. Relief from judgments are available under Rule 59. Relief from a judgment or order also is available under Rule 60. Rule 59(e) includes motions for reconsideration. “Amendment or alteration is appropriate under Rule 59(e) if (1) the district court is presented with newly discovered evidence, (2) the district court committed clear error or made an initial decision that was manifestly unjust, or (3) there is an intervening change in controlling law. “A motion for reconsideration should not be granted, absent highly unusual circumstances, unless the district court is presented with newly discovered evidence, committed clear error, or if there is an intervening change in the controlling law.” The Debtor’s Motion does not argue that this Court committed clear error of law or fact when it dismissed his case, nor does it present newly discovered evidence which was not available to the Debtor earlier in this case, nor does it argue or prove that there was an intervening change in the controlling law. The Court also may relieve a party from an order under Rule 60(b)(1) for “mistake, inadvertence, surprise, or excusable neglect.” Relief under Rule 60(b)(1) requires a party to show “‘extraordinary circumstances,’ suggesting that the party is faultless in the delay.” Such relief “normally will not be granted unless the moving party is able to show both injury and that the circumstances beyond its control prevented timely action to protect its interests.” Simply forgetting to attend a creditors’ meeting is not sufficient grounds for relief under Rule 60(b)(1), even for a pro se debtor.
In re Stokes, January 9, 2017, John P. Stokes, Pro se, Robert Drummond, Chapter 13 Trustee, Robert Sullivan for Boone Creditor Group, Elizabeth M. Roberts, for MDOR, Danielle A.R. Coffman for FATCO
2017 Mont. B.R. 1
Stoos, Sale of Property, Professional Fees
Case no. 12-60252
Several Plans were filed by the Debtor and have been confirmed. They provided that proceeds from the sale of Debtor’s real properties would be sufficient to pay all creditors in full. Debtor has sold all of his real property except Tracts 9 and 35. The latest confirmed Plan provided for a 56 month term for the Debtor to sell his real property and pay the secured creditors. Paragraph 2(b) of the confirmed Plan provides: “In the event the properties do not sell by September 30, 2016, the liened property will be surrendered to the appropriate secured creditors.”
The stipulation at Doc. 206 provides that, in return for the withdrawal of the Chapter 13 Trustee’s motion for order compelling Debtor to perform under the confirmed Plan, Stoos “shall procure a sale of real property selling the remaining parcel for at least $100,000 prior to June 30, 2016. Doc. 206 concludes: “The parties further stipulate and agree that if the Debtor fails to procure the sale of real property by June 30, 2016, the Trustee shall be entitled to procure a Buy Sell Agreement subject to the approval of the court for administration under the terms of the confirmed Plan.” The Trustee’s Motion is based on the stipulation in which Debtor agreed that if he failed to procure a sale of the property by June 30, 2016, the Trustee shall be entitled to sell the property under the confirmed Plan. On October 28, 2016, the Debtor filed an objection to the Trustee’s Motion on the grounds “that the purchase price is insufficient.”
A trustee may use, sell or lease, other than in the ordinary course of business, property of the estate. 11 U.S.C. § 363(b)(1). Sale of all of Debtor’s real property is required under the terms of Debtor’s confirmed Plan, after several modifications by the Debtor which were approved after notice and hearing. Among the modifications were a stipulation with Mountain West Bank giving the Debtor an additional 2 years to complete the sales. That period of time was extended further by the current confirmed Plan which gave the Debtor until September 30, 2016, to sell or the property would be surrendered to the secured creditor. Under 11 U.S.C. § 1327(a) “the provisions of a confirmed plan bind the debtor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.” Stoos’ confirmed Plan, as modified, gave him until September 30, 2016, to complete the sale of his properties. In this Court’s view, Stoos is bound by the confirmed Plan and is not entitled to any further time to sell Tracts 9 and 35. A later stipulation with the Chapter 13 Trustee provided that the Debtor would sell his property by June 30, 2016, after which Debtor agreed the Chapter 13 Trustee shall be entitled to procure a buy sell agreement of the property subject to court approval. Debtor voluntarily entered into Doc. 206, and Debtor’s attorney signed it. This Court has the inherent power to enforce the terms of a settlement agreement in litigation before it.
The Court finds that the Trustee’s proposed $57,000 sale free and clear of liens satisfies § 363(f)(3) because the sale price is greater than the value of all liens on such property. Based on the binding effect of the confirmed Plan, and Debtor’s stipulation with the Chapter 13 Trustee and First Interstate Bank, this Court finds and concludes that the Trustee’s Motion satisfies the requirements of § 363(f)(2) and § 363(f)(3) for sale free and clear of liens. The Trustee’s Motion to sell free and clear is based on the stipulation agreed to by the Debtor and First Interstate Bank, and the confirmed Plan’s provision for surrender of Lots 9 and 35 if theDebtor failed to sell within the allowed time means that there would be nothing left over for the estate under the confirmed Plan.
In re Stoos, January 17, 2017, Robert Drummond Trustee, Gary S. Deschenes for Stoos
2017 Mont.B.R. 26
Stoos, Chapter 13, Attorneys Fees (Pappas)
Case no 12-60252
A bankruptcy court may award reasonable compensation to a debtor’s attorney in a chapter 12 or chapter 13 case “for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of such services to the debtors and other factors set forth in this section.” Section 330(a)(3) lists factors to be considered in determining whether to allow fees.
To this Court, Deschenes’ hourly rates are at the very highest end of the “range of reasonableness” for services provided in representing a debtor in a chapter 13 case. Indeed, it is a rare case where charging these rates will both promote a debtor’s hope for a financial fresh start, while treating creditors in a fair and equitable manner. No one, be it debtor, creditor, or counsel, benefit from administrative costs that are so high as to endanger a debtor’s ability to confirm a plan and pay creditors more than they would receive in a liquidation.
However, after a review of the complicated record and event in this case, the services described in the Application and billing statements, with the Chapter 13 Trustee’s consent, and in the absence of any objection by other parties after notice to them, the Court finds that the services provided by Deschenes and costs incurred, for which he requests an award of professional fees and costs, were reasonable.
Having so found in this case, though, should not be interpreted by Deschenes (or other attorneys) that, at least to this bankruptcy judge, such hourly rates for services will be presumed to be reasonable in all, or even most, of the chapter 13 cases he files. Instead, the Court’s approval of this rate in this case should be regarded as exceptional, and not to be blessed in other cases without a similar and adequate factual showing to support the compensation requested.
In re Stoos, March 27, 2017, Gary S. Deschenes for Stoos
2017 Mont. B.R. 221
Tillman, Chapter 7, Reconsideration, Relief from Automatic Stay
Case no. 17-60831
Santander requested stay relief so that it could pursue foreclosure and liquidation of its interest in the 2008 Chevy Avalanche in accordance with non-bankruptcy law. The Santander Motion included the following notice, consistent with Mont. LBF 8 and LBR 4001-1(a):
If you fail to file a written response to the above Motion to Modify Stay with the
particularity required by Mont. LBR 4001-1(b), and request a hearing, within fourteen
(14) days of the date of this Notice with service on the undersigned and all parties entitled
to service, under all applicable rules, then your failure to respond or to request a hearing
will be deemed an admission that the motion for relief should be granted without further
In addition, the Santander Motion was accompanied by a certificate of service showing that a copy of the motion was mailed to Debtors at 1900 Riverwood Drive, Columbia Falls.
Hedstroms requested stay relief so that they could pursue foreclosure and liquidation of their interest in 1900 Riverwood Drive, Columbia Falls, in accordance with non-bankruptcy law. The Hedstrom Motion included the notice, consistent with LBF 8 and LBR 4001-1(a). The Hedstrom Motion included a certificate of service showing that a copy of the motion was mailed to Debtors at 1900 Riverwood Drive, Columbia Falls. Debtors did not file or otherwise respond to the Santander and Hedstrom Motions. On September 26, 2017, the Court entered 2 separate Orders granting Santander and Hedstrom the relief requested.
I. The Reconsideration Motion
Although Debtors did not cite any specific authority for their Reconsideration Motion, a liberal construction of Debtors’ Reconsideration Motion lends itself to a request to alter or amend a judgment under either Civil Rule 59(e) incorporated by Rule 9023, or relief from a final judgment, order, or proceeding Civil Rule 60, incorporated by Rule 9024. Amendment or alteration is appropriate under Civil Rule 59(e) if (1) the district court is presented with newly discovered evidence, (2) the district court committed clear error or made an initial decision that was manifestly unjust, or (3) there is an intervening change in controlling law. Nothing presented to the Court in the form of argument or evidence supports relief under Rule 9023. Debtors decision to move their mailbox and the problems that have arisen as a result, do not amount to newly discovered evidence, indicate a clear error was made, or correspond to a change in controlling law. Debtors have not argued or otherwise offered any evidence to support relief under Civil Rule 59(e). Thus, relief cannot be granted on this basis.
The provisions of Civil Rule 60(b) set forth in subsections (2) through (5) are by their plain terms, not applicable to this proceeding. While the problems with Debtors’ receipt of mail could be characterized as “any other reason that justifies relief” under subsection (6), Courts faced with similar fact patterns, generally consider such requests under subsection (1) and consider whether a party’s failure to timely respond to a motion was attributable to excusable neglect.
A Court’s determination of whether a litigant should be granted relief from a final judgment, order or proceeding due to excusable neglect hinges upon consideration of all relevant circumstances including, (1) the danger of prejudice to the non-moving party, (2) the potential impact on judicial proceedings, or length of delay (3) the reason for the delay, including whether it was within the reasonable control of the movant, and (4) whether the moving party's conduct was in good faith.” Nothing suggests that Debtors have acted in bad faith, so that factor will not be discussed in any detail. However, consideration of the remaining 3 factors does not support relieving Debtors from the Orders granting stay relief to Santander and Hedstrom.
A. Prejudice to parties or judicial administration
Prejudice to the non-moving party or to judicial administration of the case weighs in favor of denying the Reconsideration Motion. there is not any equity in the 2008 Chevy Avalanche, and as the vehicle incurs additional miles, its value diminishes, resulting in a tangible loss to Santander. Further, Debtors affirmatively represented that they intended to surrender the vehicle to Santander. Debtors’ present position is irreconcilable with their statement of intention which tends to undermine the administration of the case. Hedstroms relied on this Court’s Order granting stay relief and would be prejudiced by any effort to revisit the issue. By implication, in order to grant Debtors effective relief this Court would have to devise a way to set aside the Hedstroms’ foreclosure sale. This would result in prejudice to Hedstroms, and any third-party purchaser.
The length of delay to date has not been significant.
Debtors are responsible for any problems they encountered with receipt of their mail. “Where notice is properly addressed, stamped, and mailed, it creates a rebuttable presumption of receipt.” Forrest’s testimony and consideration of the certificates of service and statements of counsel at the hearing demonstrate that any difficulty Debtors encountered receiving mail is attributable to Debtors’ failure to maintain a mailbox at their mailing address, and failure to retrieve mail from the post office after the problems with their mailbox were encountered.
II. The BONY Stay Relief Motion
Section 362 vests this Court with wide latitude in granting appropriate relief from the automatic stay, and a decision to lift the automatic stay is within a bankruptcy court’s discretion, and subject to review for an abuse of discretion. Under § 362(g)(2), Debtors as the party opposing relief have the burden of proof under all other issues to show that relief from the stay should not be granted. Debtors have not fulfilled this burden. To the contrary, as noted above, the parties virtually agree on the amount of the BONY Debt, and agree on the value of the collateral. Given the lack of equity in the Hungry Horse property, Debtors’ failure to file a written response to BONY’s motion and their consequent admissions, and Debtors’ statement of intention to surrender the property, for purposes of this Court’s discretion under § 362(d), this Court is satisfied that BONY has satisfied its initial burden, and finds that Debtors have failed to satisfy their burden of proof under § 362(g)(2), as the parties opposing relief, to show that the stay should not be lifted.
In re Tillman, November 9, 2017, Forrest Tillman, Pro Se, Jon R. Binney for Santander, Richard J Samson for Hedstrom, Steven Watkins for BONY
2017 Mont. B.R. 431
Weiler, Chapter 7, Reaffirmation Agreement
Case no. 17-60081-BRH
The Court notes that Debtors signed the reaffirmation agreement on March 1, 2017, but a representative of Creditor did not sign the reaffirmation agreement until September 21, 2017. Debtors’ Chapter 7 discharge was entered on May 23, 2017. Pursuant to 11 U.S.C. §524(c)(1):
(c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case
under this title is enforceable only to any extent enforceable under applicable on bankruptcy law, whether or not discharge of such debt is waived, only if–
(1) such agreement was made before the granting of the discharge under section 727 . . . of this title[.]
Because Debtors’ reaffirmation agreement with Creditor was signed by Creditor and made after Debtors’ Chapter 7 discharge was entered on May 23, 2017, such agreement is not enforceable under the Bankruptcy Code. Notwithstanding the foregoing, Debtors complied with the requirements of 11 U.S.C. §§ 362(h) and 521(2)(a) and (b) by timely indicating their intent to reaffirm the debt by entering the Agreement. Accordingly,
1. Approval of the Reaffirmation Agreement between Debtors and Creditor is denied.
2. 11 U.S.C. § 521(d), which makes “ipso facto default” clauses enforceable, does not apply in this case because Debtors have complied with the requirements of 11 U.S.C. §§ 362(h), 521(a)(2), 521(a)(6) and 521(b). Accordingly, Creditor cannot use the absence of a reaffirmation agreement or the Debtors’ bankruptcy as a basis to foreclose any interest it may claim under in the Collateral based on its Deed of Trust.
3. Because the Debtors have complied with the requirements of §§ 362(h), 521(a)(2), and 521(b)(6), Debtors may retain the Collateral so long as they continue to make timely voluntary payments, and satisfy the other obligations, as provided for in Creditor’s loan documents and Deed of Trust.
4. In the event the Debtors retain the Collateral pursuant to paragraph 3 above, and fulfill the obligations under the loan documents and Deed of Trust, including timely making the required payments on the obligation secured by the Collateral, Creditor may continue sending bills, payment coupons, and statements to the Debtors as it has in the past, and continue accepting payments until either: (1) Creditor is notified by the Debtors to cease sending such bills, payment coupons, and statements or taking funds from the Debtors’ bank accounts; (2) any other creditor with a debt secured by the Collateral forecloses its interest and disposes of it pursuant to applicable non-bankruptcy law; or (3) the secured obligation of Creditor is paid in full.
5. Acceptance of voluntary payments from the Debtors, pursuant to the terms of this Order, is not a violation of 11 U.S.C. § 524(a)(2).
6. In the event that the Debtors retain the Collateral pursuant to paragraph 3 above, and thereafter default on their obligations as set forth in any loan documents they signed, Creditor may collect its debt by enforcing its rights against the Collateral pursuant to applicable nonbankruptcy law. Such collection may include written, electronic, and/or telephonic communication to the Debtors to notify the Debtors of any default and Creditor’s intention to foreclose on the Collateral unless the default is cured.
7. Because the reaffirmation is denied, Creditor may not take or threaten to take any action to collect its debt as a personal liability of the Debtors. However, compliance with the terms of this Order will not be construed as an attempt to collect or recover any pre-bankruptcy debt as a personal liability of the Debtors.
In re Weiler, September 22, 2017, Stuart Whitehair for Weiler
Womack v. Schneider, Chapter 7, Adversary Proceeding, (Pappas), Trustee Quasi Judicial Immunity
Trustee commenced this adversary proceeding alleging that Defendants have breached the AP 15-15 In the motion, Plaintiff argues that the Counterclaims fail to state a claim against him upon which relief may be granted. Rule 7012(b) instructs that Civil Rule 12(b)(6) is applicable in adversary proceedings
Quasi Judicial Immunity
In moving to dismiss them, Trustee asserts that all of Defendants’ claims against him are barred as a matter of law under the doctrine of quasi judicial immunity. Defendants disagree. “Bankruptcy trustees are entitled to broad immunity from suit when acting within the scope of their authority and pursuant to court order.” This protection against the claims of others is referred to as quasi judicial immunity because it provides bankruptcy trustees immunity for their “actions that are functionally comparable to those of judges, i.e., those functions that involve discretionary judgment.” Under the doctrine, immunity “attaches to only those [trustee] functions essential to the authoritative adjudication of private rights to the bankruptcy estate.” Thus, in deciding whether quasi judicial immunity applies, courts “must examine the particular [trustee] function at issue.”
The Ninth Circuit has explained that for quasi judicial immunity to apply, bankruptcy trustees must show that: “(1) their acts were within the scope of their authority; (2) the debtor had notice of their proposed acts; (3) they candidly disclosed their proposed acts to the bankruptcy court; and (4) the bankruptcy court approved their acts.”
Defendants argue that they lacked notice that Trustee intended to ask that the notice period for approval of the Meridian Settlement be shortened at the time they entered into the AP 15-15 Settlement Agreement. Defendants’ But even assuming this is true, the Harris test does not specify when a trustee must give notice of a proposed act to debtors and others, it only requires that notice be given. When Trustee filed the May 20, 2016, Motion to Shorten Time in Debtor’s bankruptcy case, Defendants, through counsel in the bankruptcy case received electronic notice of the motion. Defendants’ attorney also received electronic notice of the entry of the Court’s order. Defendants’ counsel has not disputed this. Though the objection period was shortened, through the filings, Defendants nonetheless are deemed to have been aware that the Meridian Settlement could be approved by the bankruptcy court before the AP 15-15 Settlement was to be approved, and that they could object to the timing of the bankruptcy court’s approval. Importantly, while they could have done so, Defendants did not object to approval of the Meridian Settlement. Moreover, they also could have promptly asked the bankruptcy court for relief from the order shortening time before approval of the AP 15-15 Settlement. They did not do so, nor do they now suggest there was any good cause for not doing so.
Next, Defendants argue Trustee failed to candidly disclose to the Court that the shortened notice period for approval of the Meridian Settlement may arguably create a “loophole” that undermined one of the alleged key goals of the Meridian Settlement in Defendants’ eyes. But again, the Harris test does not require that a trustee disclose all possible repercussions of a proposed act to be taken in a bankruptcy case in order for quasi judicial immunity to apply. Instead, the Harris test requires only that a trustee disclose his or her “proposed acts” to the Court. Here, Trustee candidly and effectively disclosed that he was proposing to shorten the notice time for approval of the Meridian Settlement in his Motion to Shorten Time filed with the Court.
Third, Defendants argue that because Trustee did not disclose to the Court that approval of the Motion to Shorten Time would result in an opportunity for Meridian to later argue it was not restricted by the AP 15-15 Settlement, the bankruptcy court did not approve that outcome. But, even were it possible for the bankruptcy court to understand all of the potential implications of approving the Meridian Settlement before the AP 15-15 Settlement, under Harris, the bankruptcy court need not necessarily acknowledge all of those implications for Trustee to be protected by quasi judicial immunity from claims against him for the “early” approval of the Meridian Settlement. Instead, the bankruptcy court need only approve “the act” taken by Trustee, i.e., the shortening of time for notice. Here, the bankruptcy court apparently found that Trustee’s justification and explanation for the need to shorten the notice period for objections to the Meridian Settlement was adequate when it entered the order granting the Motion to Shorten Time. Thus, the fourth element of the Harris test is also met.
Finally, and while not contested by Defendants, the Court concludes that, in filing the Motion to Shorten Time, Trustee was indeed acting within his statutorily-conferred authority to administer the bankruptcy estate as a chapter 7 bankruptcy trustee. Trustee was acting to “reduce to money the property of the estate . . . and close such estate as expeditiously as is compatible with the best interests of parties in interest[.]” § 704(a)(1). Trustee was also clothed with authority to seek bankruptcy court approval of the Meridian Settlement as a compromise under Rule 9019(a) (providing that “On motion by the trustee, and after notice and a hearing, the [bankruptcy] court may approve a compromise or settlement.”).
The Court also concludes that Defendants’ Counterclaims based upon the alleged representations made by Trustee during negotiations resulting in the AP 15-15 Settlement should be dismissed based upon quasi judicial immunity. Courts must be “cautious not to construe the immunity doctrine too narrowly by focusing on the underlying act. Rather, we identify the ‘ultimate act’ in determining whether a particular function is judicial in nature.” Here, while the “act” complained of by Defendants is Trustee’s alleged misrepresentations about the settlement’s finality made during the parties’ negotiations, the “ultimate act” was the settlement of AP 15-15, which culminated in the bankruptcy court’s approval of the AP 15-15 Settlement. Under the Harris test, Trustee’s acts in negotiating and entering into the AP 15-15 Settlement also qualify for quasi judicial immunity.
Because Trustee satisfies the four Harris elements, he qualifies for quasi judicial immunity for his conduct during all aspects of the settlement process for AP 15-15. Thus, Counterclaim Three, wherein defendants assert Trustee made negligent misrepresentations to them during the negotiations of the AP 15-15 Settlement, will also be dismissed.
In Counterclaim Four, Defendants allege Trustee committed fraud. But at the minimum, for this argument to support a fraudulent inducement claim, Trustee would have had to know or believe Defendants would be required to spend substantial sums of monies to enforce the AP 15-15 Settlement at the time it was settled, and failed to disclose it. in the inducement by making various misrepresentations to Defendants.
Under Montana’s parol evidence rule, the parties’ execution of the agreement to evidence the AP 15-15 Settlement would normally mean its terms superseded any alleged oral representations Trustee made preceding, and in connection with, the execution of that agreement. But Defendants hope to establish that the negotiations were tainted by Trustee’s fraud, and therefore, the parol evidence rule may not apply. But the fraud exception to the parol evidence rule only applies if (1) the alleged fraud does not relate directly to the subject of the contract, and (2) the oral promises do not contradict the terms of the written contract. In addition to the fact that the interpretation and validity of a real property instrument is not at issue in this case, here, the circumstances under which extrinsic evidence may be considered are not present. First, the Defendants have not alleged the extrinsic evidence is necessary for the Court to determine whether the AP 15-15 Settlement provisions at issue are ambiguous, nor have Defendants alleged that the Court must consider the extrinsic evidence to determine whether a certain interpretation would lead to an absurd result.
Womack v. Schneider, November 7, 2017, Trent M. Gardner, Jeffrey J. Tierney for Womack, James Cossitt for Schneider