Source: http://montanabankruptcyreporter.com/members/2016_main.html
Timestamp: 2019-11-12 10:35:00
Document Index: 762405681

Matched Legal Cases: ['§ 25', '§ 25', '§ 223', '§ 223', '§ 223', '§ 213', '§ 223', '§ 25', '§ 223', '§ 223', '§ 25', '§ 157', '§ 330', '§ 157', '§ 542', '§ 542', '§ 106', '§ 542', '§ 101', '§ 106', '§ 2412', '§ 1442', '§ 2412', '§ 1442', '§ 2412', '§ 2412', '§ 2412', '§ 2412', '§ 2412', '§ 542', '§ 101', '§ 541', '§ 541', '§ 541', '§ 323', '§ 1107', '§ 1107', '§ 521', '§ 521', '§ 542', '§ 542', '§ 363', '§ 157', '§ 502', '§ 507', '§ 168', '§ 1681', '§ 523', '§ 70', '§ 1692', '§ 1692', '§ 1692', '§ 30', '§ 1692', '§ 1692', '§ 1692', '§ 30', '§ 1692', '§ 1692', '§ 1692', '§ 30', '§ 22', '§ 71', '§ 71', '§ 30', '§ 30', '§ 71', '§ 71', '§ 101', '§ 28', '§ 30', '§ 362', '§ 362', '§ 362', '§ 362', '§ 324', '§ 324', '§ 324', '§ 324', '§ 521', '§ 324', '§ 365', '§ 365', '§ 362', '§ 502', '§ 362', '§ 707', '§ 707', '§ 707', '§ 101', '§ 101', '§ 101', '§ 101', '§ 707', '§ 523', '§ 727', '§ 31', '§ 31', '§ 727', '§ 707', '§ 523', '§ 27', '§ 158', '§ 1327', '§ 1329', '§ 1329', '§ 1306', '§ 330', '§ 1112', '§ 1112', '§ 1129', '§ 1112', '§ 1112', '§1112', '§ 1104', '§ 721', '§ 704', '§ 521', '§ 521', '§ 727', '§ 521', '§ 105', '§ 105', '§ 521', '§ 522', '§ 522', '§ 522', '§ 31', '§ 522', '§ 31', '§ 70', '§ 331', '§ 331', '§ 331', '§ 331', '§ 503', '§ 365', '§ 365', '§ 503', '§ 365', '§ 365', '§ 365', '§ 365', '§ 365', '§ 365', '§ 365', '§ 365', '§ 365', '§ 365', '§ 365', '§ 502', '§ 28', '§ 70']

Montana Bankruptcy Reporter 2015 Decisions
DECISIONS OF 2016
Berdecia-Rodriguez, Exemptions, Health Savings Account
Case no. 16-60400
This Court agrees that, if the Debtor used the funds in Debtor's HSA for anything other than medical, surgical, or hospital care, then those funds would not be exempt under the plain language of § 25-13-608(1)(0. The Debtor does not argue otherwise. However, stipulated fact No. 6 set forth above establishes that the Debtor's withdrawal of funds from the HSA "have been applied exclusively to qualified medical expenses and for no other purpose." Based on the agreed facts, so long as the Debtor applies funds from the HSA to qualified medical expenses, Debtor's HSA is exempt under § 25-13-608(1)(f). In addition to state statutory restrictions on the use of the funds, 26 U.S.C. § 223(d)(1) limits HSA to "the purpose of paying the qualified medical expenses of the account beneficiary." "Account beneficiary" is defined at § 223(d)(3) as "the individual on whose behalf the health savings account was established." The definition of "qualified medical expenses" at § 223(d)(2) limits the expenses to medical care for the account beneficiary, spouse and dependents, as defined at 26 U.S.C. § 213(d), to the extent such amounts are not compensated for by insurance. The adverse tax consequences of amounts not used for qualified medical expenses are at 26 U.S.C. § 223(f).
The Montana Supreme Court in Archer concluded that "benefits" under § 25-13-608(1)(f) did not include payments received pursuant to a promissory note from a sale of stock in a business, because no contractual restrictions existed in the note on the debtor's use of the proceeds. In the instant case, by contrast, the use of the HSA funds is restricted specifically by statute, 26 U.S.C. § 223(d). Section 223(d) does not list "benefits" directly, but it does refer in subsections (1) and (2) to the term "beneficiary." If this Court, like the court in Stanger, refers to a dictionary it finds the term "benefits," which the Trustee argues the Debtor's HSA is not, in a common definition of "beneficiary": "The person named (as in an insurance or annuity policy) as the one who is to receive proceeds or benefits accruing." Webster's Third New International Dictionary (1961).
The Montana Supreme Court's decision in Archer was not unanimous. Four Justices joined in the opinion. Justice James C. Nelson filed a blunt dissent. In this Court's view, given the lack of contractual restrictions on the debtor's use of sale proceeds in Archer compared with the detailed statutory restrictions on the use of HSA funds under 26 U.S.C. § 223(d) and other federal statutes in the instant case, under Montana's liberal construction of exemption statutes the Trustee's Objection to Debtor's claim of exemption in the HSA account must be overruled to the extent Debtor uses the HSA account to pay for medical, surgical, or hospital care under § 25-13608(1)(f).
In re Berdecia-Rodriguez, Blake Robertson and James A. Patten for Berdecia-Rodriguez, Robert Drummond, Chapter 13 Trustee
2016 Mont. B.R. 496
Blixseth v. Brown, Ninth Circuit Court of Appeals, (Published), (Kozinski, Paez, Berson), Barton Doctrine, Pre-petition Claim
(On appeal from 2014 Mont. B.R. 15)
9th Circuit Case no. 14-25263
The Barton doctrine traditionally applies to actions against receivers and bankruptcy trustees. The touchstone of the Barton inquiry is whether a suit challenges “acts done in [a trustee’s] official capacity and within his authority as an officer of the Court.” No court of appeals has held that Barton applies to suits against UCC members, but some have extended Barton to actors who aren’t bankruptcy trustees or receivers.
UCC members are statutorily obliged to perform tasks related to the administration of the estate: They “investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor’s business and the desirability of the continuance of such business.” They “participate in the formulation of a plan.” And they examine the debtor. A lawsuit challenging any of these actions could seriously interfere with already complicated bankruptcy proceedings. We conclude that Barton applies to UCC members like Brown who are sued for acts performed in their official capacities. Any such suit must be brought in the bankruptcy court, or in another court only with the express permission of the bankruptcy court.
The bankruptcy court held that these claims are “so intertwined with and dependent upon Brown’s actions as a member of the Unsecured Creditors Committee” that it is “impossible” to separate the pre-petition claims from Brown’s activities on the UCC. But Blixseth’s pre-petition claims have nothing to do with Brown’s position on the UCC. These claims sound in tort, contract and fraud, and are untethered to Brown’s position as Chair of the UCC. And in his Barton motion, Blixseth clearly separated his pre-petition claims from the post-petition claims that implicated Brown’s activities on the UCC. Accordingly, Blixseth didn’t need permission from the bankruptcy court before bringing his prepetition claims in district court. The courts below erred in concluding otherwise.
Bankruptcycourts have applied a five-factor test to decide whether to grant leave to sue in another forum pursuant to Barton, or to retain jurisdiction over the claims in bankruptcy court. These factors are: (1) whether the acts complained of “relate to the carrying on of the business connected with the property of the bankruptcy estate,” (2) whether the claims concern the actions of the officer while administering the estate, (3) whether the officer is entitled to quasi-judicial or derived judicial immunity, (4) whether the plaintiff seeks a personal judgment against the officer and (5) whether the claims seek relief for breach of fiduciary duty, through either negligent or willful conduct. Blixseth sought a personal judgment against Brown, thereby satisfying the fourth Kashani factor. The bankruptcy court didn’t abuse its discretion in denying Blixseth’s Barton motion to bring his post-petition claims in district court.
A suit against a bankruptcy court officer for actions undertaken in his official capacity necessarily “stems from the bankruptcy itself.” We conclude that Stern doesn’t preclude bankruptcy courts from adjudicating Barton claims.
Blixseth raised three post-petition claims that relate to Brown’s actions as Chair of the UCC. The bankruptcy court held that Brown, as an officer of the court, was entitled to derivative judicial immunity for actions taken as Chair of the UCC. But Brown’s position on the UCC doesn’t entitle him to immunity for all actions as Chair. For derived judicial immunity to apply, Brown must have acted within the scope of his authority and “candidly disclosed [his] proposed acts to the bankruptcy court.” Additionally, the debtor must have had notice of his proposed acts and the bankruptcy court must have approved these acts. We remand for the bankruptcy court to consider whether Brown is entitled to derived judicial immunity for Blixseth’s post-petition claims. Unless he is, we see no reason Blixseth couldn’t proceed to discovery on these claims.
Blixseth v. Brown, November 28, 2016, John C. Doubek, Michael J. Ferrigno for Blixseth, Dale R. Cockrell, Mikel L Moore for Brown
2016 Mont. B.R. 569
Brandon v. Sherwood, Chapter 7, Sovereign Immunity
Case no. 14-61370, Adversary no. 15-00023
This Court previously has recognized that the United States may not be sued absent a waiver of its sovereign immunity. The Federal Defendants have not unequivocally expressed a waiver of their sovereign immunity and they have not consented to be sued by Defendants. Instead, they move to dismiss Defendants’ Third Party Complaint based on their sovereign immunity. The Ninth Circuit in Balser leaves no doubt that the Defendants’ Third Party Complaint against United States, DOJ, and UST and Neal Jensen, is a cause of action against the United States to which sovereign immunity applies unless waived. Defendants/Third Party Plaintiffs in the instant adversary proceeding are required to show an unequivocally expressed waiver of sovereign immunity by the United States; they have failed to show such a waiver.
Neither do 28 U.S.C. § 157(b)(2) or 11 U.S.C. § 330 provide for unequivocally expressed waiver of sovereign immunity by the United States. Neither of those statutes mention sovereign immunity at all in their statutory text. Section 157(b)(2) lists core proceedings, including the core proceedings based upon which the Plaintiff seeks recovery of property from the Defendants in this adversary proceeding. However, 11 U.S.C. § 157(b)(2) does not provide for the unequivocally expressed waiver of sovereign immunity required under Balser and Harger and, thus, cannot overcome the lack of jurisdiction which results from Federal Defendants’ sovereign immunity.
A leading bankruptcy commentator writes: "With respect to the federal government, section 106 specifies the circumstances under which Congress has waived the sovereign immunity of the United States in bankruptcy proceedings." Section 106(a)(1) includes 11 U.S.C. §§ 542 and 543, which are the bases for Plaintiffs’ complaint to recover property from Defendants. However, the Plaintiff did not sue the Federal Defendants based upon 11 U.S.C. §§ 542 and 543, so 11 U.S.C. § 106(a)(1) did not abrogate their sovereign immunity. Plaintiff sued the Defendants. Defendants’ Third Party Complaint against the Federal Defendants is not based upon 11 U.S.C. §§ 542 and 543, but rather on principles of agency and the EAJA.
As for the UST, because of the definition of the term "governmental unit" at § 101(27), the Ninth Circuit wrote in Balser: "Thus, by its plain terms, the Bankruptcy Code does not contain an unequivocally express waiver of sovereign immunity for United States trustees. To the contrary, United States trustees expressly are excepted from the § 106(a) sovereign immunity waiver."
The lack of jurisdiction means Defendants’ EAJA claim for attorneys fees and costs against the Federal Defendants must be dismissed. Section 2412(b) of the EAJA limits an award of fees and expenses in any civil action brought by or against the United States or its agency or official to "any court having jurisdiction of such action." Since this Court lacks jurisdiction based on the Federal Defendants’ sovereign immunity and Defendants’ failure to show an unequivocally expressed waiver of sovereign immunity, attorney fees and costs are not available to Defendants under the EAJA.
Brandon v. Sherwood, February 26, 2016, Robert K. Baldwin, Trent M. Gardner, Kyle Nelson for Brandon, Victoria Frances for United States, Michael J Sherwood, Pro se
2016 Mont. B.R. 83
Brandon v. Sherwood, Attorneys Fees, EAJA
Dismissal under F.R.Civ.P. Rule 12(b)(6) "may be based on either the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory." "The EAJA permits a prevailing party, other than the United States, to recover attorneys' fees and expenses in civil actions involving the United States as a party." "‘United States’ includes any agency and any official of the United States acting in his or her official capacity." 28 U.S.C. § 2412(d)(2)(C). Plaintiff in the instant adversary proceeding is not the United States, nor is she an agency or official of the United States. Previously in the instant adversary proceeding the United States, its Department of Justice, and its agency and official the Office of U.S. Trustee were dismissed as parties based upon the United States’ sovereign immunity, and Defendants’ failure to show an unequivocally expressed waiver thereof. Without the United States or its agencies or officials of the United States as parties, relief cannot be granted to Defendants based on the EAJA.
In the instant adversary proceeding the Plaintiff’s complaint seeks recovery of purported property of the estate, most of which the parties agree the Defendants have turned over already, and an accounting. Both goals are within the statutory duties of a trustee. Defendants’ citation to Montana statutes and principles of bailment to excuse their opposition5 to the Trustee’s demands are unavailing, because the Bankruptcy Code pre-empts state laws which conflict with a bankruptcy trustee’s statutory duties, under the Supremacy Clause.
Bell is distinguishable from the case at bar because Bell construed the federal officer removal statute, 28 U.S.C. § 1442(a)(1), while the instant case involves the EAJA. Section 1442(a)(1) contains language including the "United States or any agency thereof or any officer (or any person acting under that officer) of the United States thereof, in an official or individual capacity . . . ." Section 2412(b) of the EAJA, by contrast, provides different and less expansive language, providing for liability "against the United States or any agency or any official of the United States in his or her official capacity." Section 1442(a)(1) of the
federal officer removal statute includes the phrase "or any person acting under that officer." "Acting under" was critical to the decision in Bell. By contrast, EAJA § 2412(b) does not include language equivalent to the "acting under" language of 28 U.S.C. § 1442(a)(1). Neither does § 2412(b) include the phrase "in an official or individual capacity." EAJA § 2412(b) is limited to the United States or any agency or any official "acting in his or her official capacity."
Thus, this Court must strictly construe § 2412(b) of EAJA and not expand liability beyond that explicitly consented to by Congress. Id. Congress drafted 28 U.S.C. § 2412(b) to limit liability payable thereunder in a civil action brought "by or against the United States or any agency or any official of the United States acting in his or her official capacity . . . ." Section 2412(b) does not include the "acting under" clause of the federal officer removal statute upon which the Fifth Circuit decided in Bell. Defendants’ counterclaim for attorney fees under EAJA depends upon an expansion of liability by implication which is not explicitly and unequivocally expressed in 28 U.S.C. § 2412(b), and therefore must fail.
There is no general right to recover attorney's fees under the Bankruptcy Code. With the EAJA having been found above not to apply, there does not appear to be any other applicable statute or contract upon which to base a claim for attorney fees. At this time there is no prevailing party in this adversary proceeding. While there might remain grounds for an award of attorney’s fees under a bad faith exception to the American Rule, or under Rule 9011(c), Fed. R. Bankr. P., relief under either of those theories is premature.
Brandon v. Sherwood, February 26, 2016, Robert K. Baldwin, Trent M. Gardner, Kyle Nelson for Brandon, Michael J Sherwood, Pro se
2016 Mont. B.R. 98
Brandon v. Sherwood, Chapter 7 Adversary Proceeding, Summary Judgment, Procedure
Defendants filed a motion for summary judgment seeking judgment in their favor on all of Plaintiff’s remaining claims. Defendants’ motion is accompanied by a Statement of Uncontroverted Facts, exhibits and supporting brief. The first amended complaint ("FAC"), seeks turnover, pursuant to § 542(a), of the sum of $53,532 still held in Defendants’ trust account, after Defendants turned over $487,756.20 from their trust account. Defendants filed an answer to the FAC contending that the funds were not estate property, because they were subject to a stipulated injunction order issued by the United States District Court that lack of notice occurred and that the obligation was extinguished by an earlier turnover of funds, allowing Plaintiff a double recovery. Defendants’ Statement of Uncontroverted Facts (Document No. 81) avers 113 uncontroverted facts related to the background of the asset freeze imposed by the district court and Sherwood’s disbursement of funds from the trust account. Defendants contend that they do not meet the definition of "custodian" as set forth in 11 U.S.C. § 101(11) (Fact #87). This contention is without merit given the allegations contained in the FAC.
Summary judgment is governed by F.R.B.P. 7056. Rule 7056, incorporating Rule 56(c) Fed. R. Civ. P., states that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "The proponent of a summary judgment motion bears a heavy burden to show that there are no disputed facts warranting disposition of the case on the law without trial." Once that burden has been met, "the opponent must affirmatively show that a material issue of fact remains in dispute."
The moving party must initially identify those portions of the record before the Court which it believes establish an absence of material fact. If the moving party adequately carries its burden, the party opposing summary judgment must then "set forth specific facts showing that there is a genuine issue for trial." Thus, the Court’s ultimate inquiry is to determine whether the "specific facts" set forth by the nonmoving party, viewed along with the undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence.
This Court concludes that Defendants failed to satisfy their heavy burden to show that no genuine issue of material fact exists. Genuine issues of material fact remain with respect to the following crucial factual issues: whether the $53,532 in Defendants’ trust account is property of the estate or whether prior orders of this court and the district court preclude any further factual determination; and whether the $53,532 was already paid to the Plaintiff in earlier turnovers.
While Defendants’ Statement of Uncontroverted Facts and the supporting exhibits constitute a substantial number of facts, this Court concludes that the specific facts of Plaintiff’s Statement of Genuine Issues, particularly related to whether the $53,532 is property of the estate, unless precluded by prior orders, and has not been turned over previously, viewed along with the undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in Plaintiff’s favor. As the Court noted above, if a rational trier of fact might resolve disputes raised during summary judgment proceedings in favor of the nonmoving party, summary judgment must be denied.
Brandon v. Sherwood, April 28, 2016, Robert K. Baldwin, Trent M. Gardner, Kyle W. Nelson for Brandon, Michael J. Sherwood, Pro se
2016 Mont. B.R. 286
Brandon v. Sherwood, Property of Estate, Turnover
Case no. 15-00023
Section 541(a)(1) provides that the commencement of a case creates an estate which “is comprised of all the following property, wherever located and by whomever held . . . [e]xcept as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.” Thus, the fact that the $53,532 was held by Sherwood in his trust account, and not yet deposited into Debtor’s bank account, does not exclude it from property of the estate. Based on the broad scope of § 541(a), the trust funds from the sale of apartments which were deposited into Defendants’ IOLTA accountare property of the estate of the Debtor under § 541(a)(1). Furthermore, § 541(a)(1) includes all of the Debtor’s legal and equitable interests pursuant to the SPI as property of the estate after commencement of this bankruptcy case. The decision whether to impose a constructive trust or grant other equitable relief to the FTC lies in the future with the district court in the FTC action. At that future date, the district court’s decision on whether to impose a constructive trust or not depends on the merits of the FTC’s claims. Whether or not the funds at issue are property of the estate is irrelevant to the FTC’s claims. If the district court imposes a constructive trust, it may be enforceable regardless of whether or not the funds are property of the estate.
The Montana Uniform Trust Code has set forth specific methods of creating a trust, such as by “(1) transfer during the settlor’s lifetime or by will or other disposition taking effect upon the settlor’s death; (2) declaration by the owner of property that the owner holds identifiable property as trustee; or (3) exercise of a power of appointment in favor of a trustee.” The only possible method applicable in the instant case is a declaration by the owner of property that the owner holds identifiable property as trustee. Nothing in the 23 pages of SPI, Ex. A, can reasonably be interpreted as a declaration by Sann that he holds property as trust for himself and the FTC.
Plaintiff argues that upon conversion of the case the Trustee “stepped into the Debtor’s shoes,” succeeding to all the Debtor’s rights and interest in property of the estate by operation of law. That is correct. Section 323(a) of the Code provides: “(a) The trustee in a case under this title is the representative of the estate.” § 323(a). While the instant case was pending under Chapter 11 no trustee was appointed. The Debtor was a debtor-in-possession with rights, powers and duties of a trustee serving under Chapter 11 under § 1107(a). Upon conversion to Chapter 7 the Debtor no longer had trustee powers under § 1107, but rather was left with the duties enumerated under § 521, including the duty to cooperate with a trustee serving in the case “as necessary to enable the trustee to perform the trustee’s duties under this title[.]” § 521(a)(3). Thus, after this case was converted to Chapter 7, the Trustee was the sole representative of the estate and the Debtor and Defendants had no authority over the bankruptcy estate.
Debtors’ bankruptcy counsel told Sherwood not to send the monthly draws after conversion of the case. Sherwood could have interpleaded the funds or held the monthly draws until he had further clarification and avoided liability under § 542(a). Instead, Sherwood continued to send the Debtor $17,532 in monthly draws, even refusing the Trustee’s demand letter for turnover. The Trustee may seek turnover of the $53,532 from the Defendants whether or not they had possession, custody or control of the trust funds at the time the FAC was filed. Despite having possession of more than a half million dollars of Debtor’s property in their IOLTA account Defendants ignored the bankruptcy proceedings and now ask to be excused from liability based upon the SPI and the press of other business.
The plain language of § 542(a) requires Defendants to deliver to the Trustee property of the Debtor that the Trustee can use under § 363. Sherwood failed to avail himself the opportunity to sign up for immediate notice of the Debtor’s bankruptcy proceedings. The evidence shows that the Trustee informed him that the trust funds were property of the estate, and that the FTC agreed. This Court found that the trust funds were property of the estate. Debtor’s bankruptcy counsel told him not to disburse the trust funds after conversion. Sherwood did not heed these repeated admonitions from other parties and the Courtand continued to send the Debtor $17,844 monthly draws after conversion of the case. In this Court’s view Defendants have not demonstrated that they acted in accordance with equity sufficiently to be awarded equitable relief.
Brandon v. Sherwood, August 16, 2016, Kyle W Nelson for Brandon, Michael J. Sherwood and Sarah J Rhoades for Sherwoods
2016 Mont. B.R. 403
Burgi Engineers LLC, Burgi Corporation, Prima Facia Validity of Claim, Collateral Estopple
Jointly Administered Case nos. 16-60770, 16-60771
The Court finds that REC’s Proof of Claim constitutes prima facie evidence of its validity and amount under Rule 3001(f). Proof of Claim No. 25 is accompanied by the Settlement Agreement, Ex. 1, a certified copy of the Judgment, Ex. A, and an itemized statement of the amount due. The Debtor has the burden of going forward and bringing forth evidence to rebut the presumption of validity and amount of REC’s Proof of Claim. This Court finds that the Debtor has failed to satisfy its burden of going forward.
The Debtor failed to offer any evidence, either in the form of exhibits or witness testimony at trial, which shows facts tending to defeat REC’s claim by probative force sufficient to rebut the prima facie evidence of the validity and amount of REC’s Proof of Claim under Rule 3001(f). Since the Debtor failed to offer evidence sufficient to rebut the presumption under Rule 3001(f), BELLC failed its burden of going forward and the burden does not shift back to REC to provide additional evidence to support its claim. REC argues that this Court lacks jurisdiction over the Judgment entered in California. BELLC by its Objection asks the Court alternatively to disallow entirely or drastically reduce REC’s claim, essentially by rewriting the Settlement Agreement.
This Court has the inherent power to enforce the terms of a settlement agreement in litigation before it. In addition, by statute this Court has exclusive jurisdiction over this Chapter 11 bankruptcy case and matters arising therein. Allowance or disallowance of REC’s and other claims against the estate are core proceedings under 28 U.S.C. § 157(b)(2)(B). BELLC argues extensively about issues of California law including waiver, estoppel, forfeiture, penalty, equity, the lack of a “time is of the essence” clause in Ex. 1, and inequitable liquidated damages, all of which is attorney argument. Attorney argument is not admissible in evidence and therefore not relevant.
The parties argue about whether the district courts’ denial of BELLC’s motions for injunctive relief have preclusive effect. This Court does not reach those arguments, because in its view preclusion arises earlier from the entry of the final Judgment, Ex. A. California law provides: “ ‘Collateral estoppel precludes relitigation of issues argued and decided in prior proceedings.’ California also places an additional limitation on issue preclusion: courts may give preclusive effect to a judgment if it would be fair and consistent with sound public policy to impose preclusion in the particular setting.
BELLC seeks to relitigate what constitutes REC’s claim, which is based on the Judgment. The identical issue of what REC’s claim consists was decided in the settlement of the California litigation. The second requirement for collateral estoppel is that the issue must have been actually litigated in the prior proceeding. The evidence shows this requirement is met. The third requirement for collateral estoppel is that the issue must have been necessarily decided in the former proceeding. The third requirement is present, because as the district court noted in paragraph 15 of the Judgment, Ex. A, REC was entitled to costs and attorneys fees for its breach of contract claim pursuant to the contract provisions. The fourth requirement is that the decision in the former proceeding must be final and on the merits. Paragraph 17 of the Judgment, Ex. A, states: “This is a final Judgment.” There is no evidence in the record of a timely notice of appeal. The fifth requirement is the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding. The parties in the instant contested matters are the same parties reflected in Ex. 1 and A. All five threshold requirements for collateral estoppel under California law are present and satisfied.
The evidence in the instant case does not show a pattern of conduct implying waiver by REC of the payment schedule or BELLC’s late payment. REC accepted the $50,000 wire payment but put it into a segregated account and has not spent it. No evidence exists that REC accepted any further payments under Ex. 1 , and no evidence exists that REC 9 continued performance for any extended period of time without noticing BELLC of the breach. This is not a pattern of conduct implying waiver by REC. This Court finds and concludes that BELLC’s delay in payment was not waived and that it breached the Settlement Agreement.
Burgi Engineers LLC, Buri Corporation, Jointly Administered, December 6, 2016, James A. Patten for BELLC, Malcolm H. Goodrich for Burgi Corporation, Edward R. Murphy for REC
2016 Mont. B.R. 583
Carpenter, Chapter 11, Objection to IRS Proof of Claim, Stock Valuation
Case no. 13-61192
The IRS filed its original Proof of Claim asserting an estimated claim of $49,647.68 because Debtors
had not yet filed their 2012 income tax return. Around this same time, Debtors filed their 2012 U.S. Individual Income Tax Return, reporting the long-term capital gain of $707,992 from Gavriel’s September 2012, sale of its real property. Debtors did not, at this time, claim that their stock in Big Sky Fire Protection was worthless. After the IRS filed its amended Proof of Claim on May 2, 2014, Debtors amended their 2012 U.S. Individual Income Tax Return seeking to offset the gain of $707,992 from the sale of Gavriel’s real property with a write off of $1,128,842 representing the value of Debtors’ stock in Big Sky Fire Protection. Debtor Daniel Carpenter testified that in his opinion, Big Sky Fire Protection’s stock was worthless as of December 31, 2012, even though Big Sky Fire Protection continued to do business and had not liquidated its assets.
Debtors decision to writeoff their Big Sky Fire Protection stock in 2012, without some other “identifiable event,” was simply arbitrary because Debtors could or should have written off the value of their Big Sky Fire Protection stock as early as 2010, which they did not do. Contrary to Debtor Daniel Carpenter’s testimony that First Interstate Bank’s line of credit was essential for Big Sky Fire Protection’s operations, Big Sky Fire Protection continued its operations without the line of credit as evidenced by the fact that Big Sky Fire Protection continued to generate gross revenues withoutthe line of credit, including gross receipts of $1,984,416 during the first eight months of 2013. Additionally, while Gavriel’s real estate may have been a source of capital for Debtors, it was not an asset of Big Sky Fire Protection and Debtors have failed to show how its sale specifically impacted Big Sky Fire Protection; Big Sky Fire Protection’s debt to First Interstate Bank was paid off and was arguably replaced with a debt owed to the Debtors or Gavriel, resulting in an accounting wash for Big Sky Fire Protection.
Other than uninterrupted and ruinous operating losses between 2008 and August of 2013, Debtors failed to show any identifiable event that caused the unequivocal termination of Big Sky Fire Protection’s stock value in 2012. Rather, the evidence shows that neither Debtors nor their accountant were contemplating that Big Sky Fire Protection’s stock was worthless at anytime in 2012 or as of late 2013, when Debtors filed their 2012 income tax return. In fact, Debtors were infusing cash into Big Sky Fire Protection in September of 2012, which indicates that Debtors believed that Big Sky Fire Protection had potential value at that time. It was not until sometime after Debtors filed their bankruptcy petition that Debtors’ counsel concluded that Debtors could save a substantial sum of money by offsetting the gain from the sale of Gavriel’s building with a worthless stock writeoff. Unfortunately for Debtors, the evidence shows that Big Sky Fire Protection’s stock became worthless not in 2012, but in 2013 when Debtors ceased operating Big Sky Fire Protection and when First Interstate Bank seized its collateral.
In re Carpenter, September 15, 2016, Harold V. Dye for Carpenter, Ryan S. Watson and Victoria L Francis for IRS
2016 Mont. B.R. 481
Carpenter, Chapter 11, Amendment of Claim
Debtors’ Chapter 11 Plan was confirmed on July 28, 2015. That Plan provides for payment of UID’s "disputed" claim in the amount of $78,757.29. On July 29, 2015, one day after confirmation of Debtors’ Plan and after this Court entered its decision on October 3, 2014, but prior to the BAP’s decision on November 18, 2015, UID amended its Proof of Claim to include additional unemployment taxes of Big Sky Fire Protection, Inc. in the amount of $2,457.66 and interest of $147.46 owed for the third quarter of 2013, which quarter began on July 1, 2013 (a date prior to Debtors’ August 30, 2013 petition date), and ended on September 30, 2013, after Debtors’ petition date. On February 18, 2016, Debtors filed an objection to UID’s amended Proof of Claim No. 5 arguing this Court’s "order of October 3, 2014 is res judicata as to the amount of the claim and is binding on both Debtors and Claimant." Debtors did not again raise that argument in their report to the Court filed March 29, 2016, but instead argue that their objection to amended Proof of Claim No. 5 should be sustained because UID did not file a response to Debtors’ further objection, because UID did not appear at the hearing on Debtors’ objection and because the Court’s October 3, 2014 decision was an order allowing or disallowing a claim against the Estate and, thus, UID could only amend its claim by filing a request for reconsideration.
The question is not whether UID must file a response to Debtors’ objection, appear at a hearing or file a request for reconsideration, particularly as UID’s amendment to Proof of Claim No. 5 has nothing to do with the portion of the claim addressed by the Court in its October 3, 2014 decision. Rather, the issue is whether UID’s amendment of its Proof of Claim, filed after the bar date, should be allowed.
Under 11 U.S.C. § 502(i), "[a] claim that does not arise until after the commencement of the case for a tax entitled to prior under section 507(a)(8) . . . shall be determined, and shall be allowed . . . the same as if such claim had arisen before the date of the filing of the petition." UID’s original Proof of Claim included Debtors’ liability for Big Sky Fire Protection, Inc.’s unpaid unemployment insurance taxes owed by for the fourth quarter of 2011 through the second quarter of 2013. UID’s claim did not include any amount for the third quarter of 2013. However, Debtors’ case was commenced and UID filed its original Proof of Claim prior to the end of the third quarter in 2013, September 30, 2013. Under the facts of this case, the Court finds that UID, when it amended its Proof of Claim, was not attempting to stray beyond the perimeters of its original Proof of Claim No. 5. Instead, UID was merely amending its claim to incorporate the additional prepetition § 507(a)(8) tax liability from the third quarter of 2013, that arose after the commencement of Debtors’ case.
In re Carpenter, March 31, 2016, Harold v. Dye for Debtors
2016 Mont. B.R. 216
Daniel v. National Park Service, United States District Court, Fair Credit Reporting Act, Sovereign Immunity
Case no.CV-16-18-BLG-SPW
Daniel purchased an entrance pass to Yellowstone National Park with her debit card. The debit card receipt contained the month and year of her card's expiration date. Sometime after the transaction, Daniel's debit card was fraudulently used, and Daniel suffered damages from the stolen identity. Daniel claims that the identity fraud was caused in part by the inclusion of the expiration date on her debit card receipt from the Park Service. Daniel brought this action and alleges that the Park Service violated FCRA by printing her card's expiration date on the receipt.
Rule 12(b)(6) requires a complaint to be dismissed if it fails "to state a claim upon which relief can be granted." "Dismissal under Rule 12(b)(6) is proper only when the complaint either (1) lacks a cognizable legal theory or (2) fails to allege sufficient facts to support a cognizable legal theory." While all factual allegations are presumed true, the complaint must contain "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. It is axiomatic that the United States may not be sued without its consent and that the existence of consent is a prerequisite for jurisdiction. A waiver of sovereign immunity "must be unequivocally expressed in statutory text...and will not be implied.
Daniel alleges that the Park Service violated the FCRA by printing her card's expiration date on the receipt. Relevant to Daniel's claim, the FCRA provides that:
[N]o person that accepts credit cards or debit cards for the transaction
of business shall print more than the last 5 digits of the card number or
the expiration date upon any receipt provided to the cardholder at the
point of the sale or transaction.
A "person" is defined as "any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity." A person who willfully fails to comply is liable for automatic statutory damages and possible punitive damages.
A number of district courts in this Circuit have determined that the FCRA does not contain an unequivocal waiver of sovereign immunity. After reviewing these authorities, the Court believes that the district court opinions from this circuit are persuasive and finds that the FCRA does not contain an unequivocal waiver of sovereign immunity. The FCRA is ambiguous as to whether plaintiffs can recover damages against government entities, as federal statutes typically waive sovereign immunity in clearer terms. Including the phrases "government" or "governmental agency" in the FCRA's definition of "person" is not as unequivocal as specifically mentioning the United States in the remedial provisions. The fact that Congress explicitly named the United States in the remedial provisions found at § 168] u(j) but not in the remedial provisions found at §§ 1681n and 16810 demonstrates the equivocal nature of any purported waiver of sovereign immunity.
The Court finds that including the United States as a "person" every time the term is used in the FCRA would lead to inconsistent usage and potentially absurd results. Given these findings, the Court concludes that Congress did not "speak unequivocally" in waiving the government's sovereign immunity in the FCRA.
Daniel v. National Park Service, August 17, 2016, Timothy M. Bechtold for Daniel, Victoria L. Francis for National Park Service
2016 Mont. B.R. 447
Foster v. Bloemendaal, Motion to Dismiss, Amended Complaint
Case no. 16-60059, Adversary no. 16-00047
Amendment of a complaint is governed by Rule 15(a), applicable to this Adversary Proceeding under F.R.B.P. 7015. Rule 15(a) allows a party to amend its pleading once as a matter of course under certain circumstances not present here. In these circumstances Rule 15(a)(2) provides that a party “may amend its pleading only with the opposing party’s written consent or the court’s leave. The court should freely give leave when justice so requires.” Bankruptcy Rule 7008 sets forth general rules for pleadings in adversary proceedings in bankruptcy. Rule 7008(a) provides that Civil Rule 8 generally applies in adversary proceedings. Civil Rule 8 lays out general rules for pleading in litigation in federal court. Rule 8(a)(2) provides that a claim for relief must contain no more than “a short and plain statement of the claim showing that the pleader is entitled to relief . . . .” Rule 12(b)(6) authorizes a party to assert by motion a defense of “failure to state a claim upon which relief can be granted[.]” dismissal under Rule 12(b)(6) “may be based on either the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory.” Factual allegations in a complaint “must be enough to raise a right to relief above the speculative level,” However, dismissal on the pleadings is appropriate only if the complaint fails to plead facts sufficient “to raise a reasonable expectation that discovery will reveal evidence” supporting relief.
After review of the FAC, this Court concludes that the “Factual Background” section does not merely recite the elements of a cause of action, or unsupported legal conclusions or conclusory statements, or legal conclusions couched as factual allegations that were inadequate in Twombly and Iqbal. Paragraphs 8 through 20 aver Defendant’s active involvement in STM and acts which caused STM’s financial losses and ultimate bankruptcy, including commingling funds and misrepresenting STM’s financial affairs, while at the same time averring that Defendant received specific avoidable payments from STM of over $1,140,000 during specific periods of time, and that Defendant transferred specific properties, viz., his residence and Flathead Lake property, to QPRTs in what Defendant characterizes as “estate planning.” This Court considers these allegations well-pleaded factual allegations, which it assumes to be true. After assuming their veracity, the Court next determines whether they plausibly give rise to an entitlement to relief.
The reference to “long held” in Ritz’s conclusion refers to the Court’s observation that “from the beginning of English bankruptcy practice, courts and legislatures have used the term ‘fraud’ to describe a debtor’s transfer of assets that, like Ritz’ scheme, impairs a creditor’s ability to collect the debt.” Ritz, 136 S. Ct. at 1587. This quote describes the allegations in Plaintiff’s FAC, which allege that Defendant took transfers of money from STM, during the period prior to STM’s bankruptcy, and then conveyed his residence and Flathead Lake property to QPRTs to put them out of the reach of creditors seeking to collect their debts. Taking these factual statements as true, in this Court’s view, the FAC states a claim to relief that is plausible on its face. Whether such transfers are encompassed within the historical meaning of fraud as discussed in Ritz is not before the Court at this time; but after due consideration the Court finds and concludes that Plaintiff’s § 523(a)(2)(A) claims in the FAC are plausible enough to survive Defendant’s Rule 12(b)(6) Motion to Dismiss.
Foster v. Bloemendaal, December 22,2016, Trent N. Baker for Foster, Trent M. Gardner for Bloemendaal
2016 Mont. B.R. 646
Global Client Solutions v. Ossello, Montana Supreme Court, Arbitration, Contracts, Mutuality, Unconscionability
Case no. DA-15-0301
Susan Ossello faced more than $40,000 in unsecured debt that she owed to Bank of America, Discover Bank and Citibank. She received an unsolicited mailing from an entity called World Law, advertising that it could provide her with debt relief services. The solicitation represented that World Law would furnish legal counsel concerning her debt issues; that it would negotiate with her creditors for a reduction of her debt; that it would prevent her from going into bankruptcy; and that under its plan she could be debt free in two to four years. Global’s Dedicated Account Agreement (DAA) established a non-interest-bearing account in an undisclosed bank, funded by an automatic monthly withdrawal of $589.29 from Ossello’s existing bank account. The agent represented, and Ossello believed, that Global would use the proceeds in the account to pay her debts as they were negotiated and reduced. In reliance upon the advice of the agent and in a belief that she would benefit from a debt reduction plan, Ossello stopped making payments on her credit card debt. A year later, Discover Bank brought a collection action against her.
Ossello filed an amended answer to Discover Bank’s complaint, and a third-party complaint against World Law and Global. The complaint alleges that World Law and Global used deceptive and fraudulent representations to solicit her participation in an illegal debt settlement plan. Ossello alleges that World Law and Global misrepresented to her that attorneys were providing her with legal services, and deceptively promised to significantly reduce her debt without ever actually doing so. She alleged at the time her third-party complaint was filed, that Global had taken $6567.90 from the account in fees but that she had received no debt relief or actual legal services. The DAA also contained a lengthy arbitration clause. The clause requires arbitration of "any controversy, claim or dispute . . . arising out of or relating to" the DAA. The arbitration clause states that it applies to the "breach, termination, enforcement, interpretation or validity [of the Agreement], including the termination of the scope or applicability of this agreement to arbitrate." It provides that the arbitration would be "administered by the American Arbitration Association ("AAA") pursuant to its rules and procedures," before an arbitrator selected by the AAA.
The Federal Arbitration Act governs arbitration issues arising from transactions in interstate commerce. A primary purpose of the FAA is to ensure that arbitration agreements exist upon the "equal footing" as all other contractual provisions. Under Montana law, when parties agree to arbitrate disputes, a district court upon application must order them to proceed to arbitration. An enforceable agreement to arbitrate must therefore have the same elements as any contract: namely, identifiable parties with the capacity to contract; the consent of the parties; a lawful object; and consideration.
Issue 1: Whether the District Court erred in reserving to itself the determination of arbitrability
There is no "clear and unmistakable" agreement in Global’s language or elsewhere in the facts of this case to arbitrate questions of arbitrability. It is black-letter law that contract language should be interpreted most strongly against the party responsible for the language. The language is ambiguous and confusing. It does not clearly delegate to the arbitrator the determination of the scope or applicability of the agreement to arbitrate; rather it delegates to the arbitrator the "termination of the scope or applicability of this agreement to arbitrate." The purported delegation provision here therefore falls far short of the required clear and unmistakable standard. The arbitration clause in the DAA provides that the arbitration be "administered by the American Arbitration Association ("AAA") pursuant to its rules and procedures. . . . ." (Emphasis added.) Administration of the conduct of arbitration proceedings pursuant to AAA rules suggests implementation of procedural and logistical rules; it declares nothing concerning delegation. There is no language in the arbitration clause that imposes a clearly-defined and unmistakable agreement to supplant the general rule that courts determine arbitrability.
Issue 2: Whether the District Court erred in determining that the arbitration provision was unconscionable and therefore not enforceable against Ossello.
A contract provision can be unconscionable and therefore unenforceable if "when considered in its context, [it] is unduly oppressive, unconscionable or against public policy. The arbitration provision at issue in this case obligates both parties to arbitrate any controversy or dispute arising out of the DAA, including matters with respect to breach or enforcement of the agreement. However, a separate provision in the DAA provides that if Ossello’s account has a negative balance at any time, "collection actions may be pursued against you. If any such collection action is undertaken, you agree to pay all court costs and collection fees, including reasonable attorney’s fees, to the extent permitted by applicable law." Global is entitled to sue Ossello in a court of law for breach of the agreement, but she cannot sue it for breach of the agreement. In sum, the obligation to arbitrate is one-sided, not mutual. We conclude that the District
Court’s finding of unfavorable treatment and unconscionability was correct because the arbitration clause lacked mutuality. Global had the right to sue Ossello in a court of law at any time the Dedicated Account lacked funds to cover Global’s payment demands or withdrawals. Because virtually the only breach of contract with which Global would be concerned would be lack of payment, Global reserved to itself the right to litigate its primary claim while requiring Ossello to arbitrate any and all claims she might have under the DAA. This arbitration provision unreasonably favors Global to the detriment of Ossello and is therefore unconscionable and unenforceable.
Global Client Solutions v. Ossello, March 2, 2016, Brendon J. Rohan, Emma R. Armstrong, Richard W.Epsein for Global, A Clifford Edwards for Ossello
2016 Mont. B.R. 116
623 Partners v. Hunter, Montana Supreme Court, Homestead Exemption, Fraudulent Transfer, Offset
Case no. DA16-0234
Homesteads generally are “exempt from execution or forced sale.” Section 70-32-201, MCA. The homestead exemption applies to the UFTA. We have not directly considered whether a person may claim a homestead on property that he or she has never lawfully owned. We have, however, addressed whether a person could protect the proceeds from the sale of a home she owned when she filed a homestead declaration after selling the home. Snyder had sold her home in February, filed her homestead exemption in September, and filed for Chapter 7 bankruptcy in October. In concluding that she had the right to exempt a portion of the proceeds from the sale of her home from the bankruptcy estate, we noted that the UFTA “provides protection for traceable proceeds from [properties that have been sold or taken by condemnation] if the properties ‘could have been claimed as an exempt homestead’ . . . at the time of disposal.” Snyder thus establishes that a claimant does not have to own the property when she files a homestead exemption so long as the property could have been claimed as a homestead in the first place.
Significantly, § 70-32-103, MCA, entitled, “From whose property homestead may be selected,” provides that a married couple may select a homestead “from the property of either spouse,” and an unmarried person may select a homestead “from any of the claimant’s property.” (Emphasis added.) The statute’s plain language establishes that a person may select a homestead from his or her property only. Reading the Homestead Act as a whole supports this conclusion.
Restricting a person to claiming a homestead on property the person owns—or has owned—furthers one of the homestead exemption’s primary purposes: “to promote the stability and welfare of the state by encouraging property ownership.” While the homestead exemption may protect property from execution or forced sale under the UFTA, the property has to qualify as a homestead in the first place, Todd’s title to the Fortine property derived from a fraudulent transaction. Because that transaction was declared void, Todd never owned the property. Todd could not claim the property as a homestead. The District Court correctly applied the law on this point.
It is not our responsibility “to conduct legal research on behalf of a party or to develop legal analysis that might support a party’s position.” Consequently, we decline to determine whether any established principles of law and equity could entitle Todd to recover the value of his labor and improvements made to the property. We accordingly conclude that the District Court properly determined that Todd was not entitled to an offset.
623 Partners, LLC, v. Hunter, December 20, 2016, J. Tiffin Hall for Hunter, Sean S. Frampton for 623 Partners
2016 Mont. B.R. 633
Jacobson v. Bayview Loan Servicing, Montana Supreme Court, FDCPA. MCPA
Case no. DA 15-0108
The District Court determined that Bayview engaged in deceit, negligent misrepresentation, and intentional violations of the FDCPA and the MCPA. The court awarded money damages under the FDCPA and the MCPA to the Jacobsons including emotional distress damages and statutory damages totaling $226,408.14. The court awarded the Jacobsons their costs and attorney fees in the case of $109,108.50.
The FDCPA is a strict liability statute which specifically prohibits "[t]he use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information regarding a consumer." 15 U.S.C. § 1692e(10). The FDCPA was enacted "to eliminate abusive debt collection practices by debt collectors, to ensure that those debts collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." When applying the "least sophisticated consumer" standard, the misleading statement must also be materially false or misleading to violate FDCPA 15 U.S.C. § 1692e. "The materiality standard simply means that in addition to being technically false, a statement would tend to mislead or confuse the reasonable unsophisticated consumer."
Bayview’s arguments offered here were thoroughly weighed by the District Court. The court found Robin Jacobson’s testimony regarding Bayview’s questionable HAMP application procedures and subsequent negotiations for modification to be reliable, and gave it the greater weight in light of the false statements made by Bayview’s witnesses to the court. The District Court gave proper weight to testimony based on its evaluation of the witnesses and supported its conclusions with substantial evidence. Bayview advised the Jacobsons to stop making payments on their home while beginning foreclosure and negotiating in bad faith regarding in-house loan modification. These false representations caused the Jacobsons to question how they could modify or cure their default, and whether they could trust any representation by Bayview regarding their loan. We conclude the District Court relied on substantial evidence and properly found the false representations regarding the loan modification were materially misleading and violations of 15 U.S.C. § 1692(e) and § 30-14-103, MCA.
Foreclosure—False Representation of Debtor’s Rights
Bayview failed to properly notify the Jacobsons regarding the timing of their right to cure. Bayview’s argument does not hold up when compared to the statute. The FDCPA provides that false representations connected to debt collection and "attempts to collect any debt" are violations of the law. 15 U.S.C. § 1692e(10). Bayview’s misrepresentations regarding the time for cure changed the contractual and statutory rights provided to the Jacobsons by cutting short the time available for cure. Further, no specific date for cure was provided to the Jacobsons, materially affecting their rights. The District Court correctly concluded Bayview’s false representations about the Jacobsons’ legal rights are a violation of 15 U.S.C. § 1692e(10) and under 15 U.S.C. § 1692f are an unfair practice; the FDCPA violations also constitute violations of § 30-14-103, MCA.
The District Court found that Bayview was never the beneficiary on the Jacobsons’ loan. Accordingly, the court concluded that Bayview misrepresented itself as the beneficiary in both notices of trustee’s sale when Bayview stated: "[t]he beneficial interest is currently held by Bayview Loan Servicing, LLC" as servicer for CitiMortgage. We conclude the misrepresentation was material because the Jacobsons were misled regarding the identity of the beneficiary, which directly affected their ability to resolve the debt. In addition, Bayview created a false corporation to hold the note, made false representations regarding the note, and made an improper beneficiary designation; the result is materially misleading to the consumer. Given the wide range of misrepresentations, the "least sophisticated consumer" would clearly have difficulty ascertaining who owns the loan, and who can foreclose or resolve the loan.
Bayview’s Improper Communications
The FDCPA prohibits a debt collector from communicating with a consumer in connection with the collection of any debt "if the debt collector knows the consumer is represented by an attorney . . . ." 15 U.S.C. § 1692c(a)(2). Bayview argues that these communications were not violations of 15 U.S.C. § 1692c because they were not attempts to collect a debt. However, the argument fails because the letters state "[t]his letter is an attempt to collect a debt . . . ." Bayview knew the Jacobsons were represented by counsel but persisted in sending debt collection notices in violation of the statute. The District Court’s conclusions regarding Bayview’s direct communications with the Jacobsons are properly based on substantial evidence.
False Assignments
Bayview falsely told the Jacobsons that U.S. Bank was the "current" beneficiary of the Trust Indenture and Bayview was servicing on U.S. Bank’s behalf; Bayview then falsely represented that CBO-6 REO Corp. existed and that the loan was transferred to the entity on June 10, 2010; Bayview also falsely represented that it was servicing the loan on behalf of the non-existent entity; Bayview recorded the false assignment without authority (because it was not the beneficiary and was not attorney-in-fact for the beneficiary), to a non-existent entity, CBO-6 REO Corp. It did not stop there. Bayview then misinformed the District Court that Bayview was the current beneficiary of the loan when it was not. Bayview also provided false discovery answers claiming to have no communications with either U.S. Bank or CBO-6 REO Corp. and Bayview representative Gerardo Trueba admitted at trial that he prepared false discovery responses regarding the misrepresentations. The District Court concluded that this long series of Bayview’s actions was in violation of 15 U.S.C. § 1692e and § 30-14-103, MCA.
The Montana Consumer Protection Act declares "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful." Here, the District Court found that Bayview told the Jacobsons not to make payments, while at the same time commencing foreclosure. Bayview also violated provisions of the Trust Indenture § 22© and § 71-1-306(2), MCA. These violations are very similar to those addressed in Morrow and clearly constitute violations of Montana law while also in violation of the FDCPA.
Bayview violated Admin. R. M. 23.19.101(1)(l) when it failed to provide an option for cure of the default in the five days preceding the Trustee’s sale. The result of this violation would be "substantially injurious" to the Jacobsons and falls well within unfair or deceptive practices prohibited by the MCPA. The District Court also found specific grounds for Peterson’s liability, as he acted pursuant to an invalid Trustee substitution when he twice initiated foreclosure proceedings against the Jacobsons. The District Court properly concluded the action was a violation of § 71-1-306(2), MCA, and § 30-14-103, MCA.
Here, in addition to its deception and unfair practices, Bayview imposed late charges and interest on the Jacobsons’ loan, increasing the amount of their default. Bayview instructed the Jacobsons to miss payments and default on their loan. That default led to subsequent misrepresentations by Bayview regarding the Jacobsons’ rights, including their ability to cure the default. While Bayview was making misrepresentations to the Jacobsons and using unfair practices, it was simultaneously increasing the amount of their liability on their loan through late charges and interest. Similar to Morrow, this increase in the loan liability is substantially injurious to the Jacobsons. The District Court correctly found that the Jacobsons suffered a financial detriment because their loan liability was wrongfully increased as a result of Bayview’s actions.
The District Court properly awarded damages under the MCPA based upon testimony regarding the emotional distress of the Jacobsons and on the sum of the damages "the Jacobsons were forced to endure" as a result of Bayview’s misconduct. Robin Jacobson’s testimony and the extensive record of Bayview’s misdeeds are substantial evidence offered by the court to support the damages. Further, we note that under the FDCPA, witness testimony alone is sufficient to support an award for emotional distress damages with no requirement for substantial evidence to support the damages.
The District Court issued two additional orders in the case. The August 20, 2014 Order was on a Motion for Additional Damages, Equitable Relief, and Sanctions sought by the Jacobsons because Bayview, after trial, directly contacted them to collect on the loan and attorney fees in violation of the Judgment in the case, the MCPA, and the FDCPA. The two damage awards are well within the court’s discretion under § 30-14-133(1), MCA. The damages serve as a proper deterrent under the Act to stop Bayview’s improper conduct and to "further the purpose of the [MCPA]" by providing warning to Bayview and other loan servicers that improper debt collection conduct will not be tolerated.
The Jacobsons contend that attorney fees are available for consumers who successfully defend a verdict in their favor under the MCPA. In this action, the Jacobsons are entitled to fees and costs because they necessarily defended the verdict in their favor. Bayview has not objected to an award of attorney fees and costs on appeal. Accordingly, we remand this matter to the District Court to determine a reasonable award of attorney fees incurred by the Jacobsons in the defense of their claims on appeal.
Jacobson v. Bayview Loan Servicing, May 4, 2016, Raymond G. Kuntz for Jacobsons, Maxon R Davis, Derek J. Oestreicher for Bayview
2016 Mont. B.R. 291
JAS Inc., v. Eisele, Montana Supreme Court, Voided Trustee’s Sale, Notice
1. Whether Bank of America’s actual or constructive notice of the Trustee’s Sale precludes it from objecting to the sale on the basis of failure of strict compliance with the Small Tract Financing Act of Montana.
The Small Tract Financing Act of Montana (STFA), §§ 71-1-301 to -321, MCA, allows the use of trust indentures to finance estates of real property that are smaller than 40 acres. A Trustee may foreclose a trust indenture by advertisement and sale. "[T]he trustee is subjected to strict notice requirements before crying the sale . . . ." Notice of the sale must be mailed to "any successor in interest to the grantor whose interest and address appear of record at the filing date," and "any person who has a lien or interest . . . whose lien or interest and address appear of record at the filing date . . . ." The STFA also requires that, "[o]n or before the date of sale, there must be recorded in the office of the clerk and recorder . . . affidavits of mailing, posting, and publication showing compliance with the requirements of this section."
BOA argues that the STFA requires strict compliance, and the failure to file an Affidavit of Mailing voided the sale. In this case, we cannot know which, if any, party with an interest of record received notice of the November 15, 2011 Trustee’s Sale because no Affidavit of Mailing was filed with the District Court. The STFA contains strict notice requirements. It does not provide for an actual or constructive notice exception, and we decline to adopt one here. The District Court properly voided the sale because no Affidavit of Mailing was filed as required by § 71-1-315(2), MCA. The District Court also correctly found that, as in Bell, the proper relief is to hold a second Trustee’s Sale of the Bristlecone property.
2. Whether Bank of America was entitled to notice of the Trustee’s Sale when it did not have a recorded interest in the property at the time of the sale.
It bears noting that Countrywide, BOA’s predecessor-in-interest who undisputedly had an interest of record in the Bristlecone property, was entitled to notice of the Trustee’s Sale under the STFA, and we have no way of knowing whether Countrywide received the required notice because of the failure to file the required Affidavit of Mailing. More to the point for our consideration, however, JAS did not raise this argument in the District Court. As a general rule, "this Court will not address either an issue raised for the first time on appeal or a party’s change in legal theory."
3. Whether JAS is entitled to repayment of the funds it paid to OneWest Bank for the property purchased at the Trustee’s Sale.
In its order granting summary judgment to BOA, the District Court recognized that "the nullity of the sale has grave implications for the Zimmers" and expressed its expectation that the parties would pursue an "equitable result" in resolution of this case. We likewise recognize that, in light of the need to conduct a new Trustee’s Sale, equity favors JAS’s recovery of the funds it paid to OneWest Bank rather than those funds bestowing a windfall on another party. However, the District Court did not err by refusing to consider this issue, which it correctly concluded had not been properly raised. Nor is this issue properly before this Court on appeal. While it may conceivably become an issue after the second Trustee’s Sale is concluded, it is not within our province to address it at this juncture.
JAS, Inc.,v. Eisele, February 16, 2016, W. Scott Green for JAS, Inc, Charles K. Smith for Eisele
2016 Mont. B.R. 69
Johnson, Chapter 13, Attachments to Proof of Claim
Case no. 15-60227
Morans used Official Form 10 (04/13) for their Proof of Claim 2. The instructions to Official Form 10 include "Items to be completed in Proof of Claim form" including: "2. Basis for Claim: State the type of debt and how it was incurred . . . . 7. Documents: Attach redacted copies of any documents that show the debt exists . . . ." Rachelle testified that she was aware of No. 7's requirement for documents showing the debt exists, and that they are in possession of a letter stating that Johnson consents to the amount stated on their Proof of Claim. Debtor’s Objection to Morans’ Proof of Claim No. 2 must be sustained because Morans did not attach any documentation, which they argue they have, which shows the basis of their claim. They attached some of Johnson’s discovery responses and his invoices for his work on their lake cabin, with the invoice stating that Morans owe Johnson the sum of $11,682.32.
The only evidence in Proof of Claim No. 2 of a debt owed by Debtor to Morans is the number itself at the bottom of the first page, $11,942.76. Morans did not attach any documents showing the basis for their claim. Rule 3001(a), F.R.B.P., requires that a proof of claim conform substantially to the appropriate Official Form. The instructions on Official Form 10, of which Rachelle testified she was aware, required Morans to attach documents showing the basis of their $11,942.76 claim. Rule 3001(c)(1) requires supporting information to be filed with a proof of claim, including a copy of a writing on which a claim is based. Morans did not attach any documents showing the basis of their right to payment from Johnson.
Finally, Mont. LBR 5003-2 provides in pertinent part: "All exhibits shall be filed with the pleading or proof of claim to which they belong." Mont. LBR 5074-1(b) provides in part: "The parties involved in video and in-person conferences and hearings shall exchange proposed witness and exhibit lists and copies of all proposed exhibits, and file such lists and exhibits with the Court, at least three (3) days prior to a hearing or trial." Morans did not comply. At the hearing Morans referred to their letters and supporting documents. However, they did not file those documents with their Proof of Claim. As a result, the Court finds that the Debtor’s Objection to Morans’ Proof of Claim No. 2 on the grounds of lack of supporting documentation is well taken and must be sustained.
In the interests of justice, because Morans are pro se, and based on Johnson’s testimony that he owes Johnson’s some amount and they owe him some amount and there is a balance due, the Court will grant Morans leave to file an amended Proof of Claim with their supporting documents attached. If Morans file an amended Proof of Claim No. 2 and required attachments within the time allowed, and if the Debtor files another objection to Morans’ claim, Debtor’s attorney shall notice the matter for another evidentiary hearing, at which time the Court will review the documents and any additional exhibits and testimony which are timely disclosed, and enter findings and conclusions about the amount owed.
In re Johnson, January 14, 2016, Andrew W.Pierce for Johnson, Greg and Tachelle Moran, Pro Se
2016 Mont. B.R. 17
Johnson, Chapter 13, Objection to Claim, Contractor, Practice in Trade
Morans own an auto repair shop. Johnson testified that he and Greg were friends. They worked out a barter/trade agreement to exchange Greg’s work on Johnson’s vehicles for Johnson’s carpentry services at Morans’ cabin. A dispute arose between the parties regarding Johnson’s work at Morans’ cabin. Greg testified that Johnson’s work was incomplete, that Johnson installed the wrong wood and that Johnson failed to construct proper structural support for a wall in the master bathroom. Johnson testified that he could have cured the problems complained of by Morans, but that before he could finish Morans ordered him off their property and to stay away. Morans sued Johnson in state court. Morans filed amended Proof of Claim 2 on January 20, 2016, asserting an unsecured nonpriority claim in the amount of $11,942.76.5 Debtor filed an objection contending that, as a result of his flooring and carpentry work on Morans’ cabin, he owes them nothing.
"Debt" means liability on a claim. 11 U.S.C. § 101(12). "Claim" is defined broadly and means (A) "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured; or (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment . . . ." "All contracts may be oral except such as are specially required by statute to be in writing." Although it appears from the evidence that Johnson’s work at Morans’ cabin extended over one year, the parties do not contend that the statute of frauds found at MCA § 28-2-903(1)(a) applies. Thus, the Court finds that the parties had an oral contract for vehicle repairs by Greg in exchange for Johnson’s work at their cabin.
In the absence of a written agreement to the contrary, the Court finds insufficient evidence to penalize Johnson for his choice of materials or other expenses on his invoice. As for the unfinished condition of Johnson’s work, A "usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law.
MCA § 30-1-205(4) provides in pertinent part that a usage of trade "in the vocation or trade in which [the parties] are engaged or of which they are or should be aware is relevant to ascertaining the meaning of the parties’ agreement and may supplement or qualify the terms of the agreement . . . ." Johnson and Josh Green each testified that the practice in the trade is for a contractor to be given a chance to address the problems raised by a dissatisfied customer. No evidence exists in the record to the contrary. Johnson could have addressed Morans’ complaints, but Greg became livid and ordered Johnson to stay away from the cabin without written permission. The evidence shows that Johnson was not given the opportunity, which the usage of trade evidence shows is regularly observed in the trade, to cure Morans’s complaints. As a result of Morans’ failure to observe the usage of trade, the Court declines to penalize Johnson for the unfinished or substandard condition of his work which he was not given the opportunity to correct.
What remains is simple arithmetic. Debtor does not dispute that Morans provided him or his business with vehicle repairs valued in the sum of $11,942.76. The Court finds that Johnson’s invoice for the work he performed at Morans’ cabin is in the sum of $11,682.32. The difference and the amount of Morans’ allowed claim pursuant to the undisputed oral agreement between the parties is the amount of $260.44.
In re Johnson, April 25, 2016, Andrew W. Pierce for Johnson, Greg and Rachelle Moran, Pro se
2016 Mont. B.R. 268
Jurgens, Chapter 7, Relief from Stay
Case no. 15-60592
Creditor Gary Martin filed a Motion to Modify Stay seeking relief from the stay in order to file a "Declaratory Judgment Action" in Texas, in which Martin seeks a declaratory judgment that certain statements made by the Debtor are defamatory, false and made with actual malice or negligence. The Debtor filed an objection.
Gary filed his will contest in Midland County Texas court. Frohlin testified that Gary contested the January 19, 2011 will because Alice lacked competence to sign a new will. Gary filed a declaratory judgment action in District Court of Burnet County, Texas, seeking a declaratory judgment that several statements Brenda made in documents she filed in the will contest are false and were made with actual malice or negligence. Brenda filed a response denying Gary’s allegations. On October 8, 2015, the Court overruled Brenda’s objection and granted Gary’s first motion to modify stay. On November 5, 2015, the Court overruled the Debtor’s objections, granted the motion to convert filed by Gary and Victor Properties and converted the case to a case under Chapter 7. Gary filed his pending Motion to Modify Stay seeking relief to proceed with litigation of his declaratory judgment action against Brenda for defamation in Texas, district court., to final judgment. Brenda filed an objection contending that any claim of Gary for defamation would be a dischargeable debt for which the deadline to file dischargeability complaints has expired and that Gary is "attempting to generate a litigation storm" and conduct additional discovery unrelated to the will contest.
Gary moves for relief from the stay for "cause" under § 362(d)(1). As the party seeking relief, Gary must first establish that cause exists for relief under § 362(d)(1). Section 362 vests this Court with wide latitude in granting appropriate relief from the automatic stay. A decision to lift the automatic stay is within a bankruptcy court’s discretion and subject to review for an abuse of discretion. Gary must first establish a prima facie case that cause exists for relief under § 362(d)(1). Once a prima facie case has been established, the burden shifts to the Debtor to show that relief from the stay is not warranted. Gary’s claims are not finally decided in this summary relief from stay proceeding. Frohlin admitted that Gary does not seek any monetary relief in the declaratory judgment action, but rather only seeks to have certain statements made by Brenda related to the will contest be declared false in order to remedy alleged defamation. Debtor objects that Gary’s claim would be dischargeable if she is granted a discharge, and that she should not be subject to another "litigation storm." The Court agrees. In exercising its discretion, this Court concludes that justice is better served by denying Gary’s pending Motion to Modify Stay. The parties need to litigate the Texas will contest to conclusion in order that this Court can utilize the findings and/or conclusions to decide pending contested matters, and conclude this case and Adversary Proceeding No. 16-00009 without further delay. The Court finds and concludes that sufficient cause has not been shown by the record to grant Gary further relief from the stay to proceed with a declaratory judgment action, which would not only impose additional burdens on the Debtor regarding matters which may be dischargeable, but also might distract the parties from concluding the Texas will contest which must be their focus.
In re Jurgens, March 30, 2016, Edward R. Murphy for Jurgens, Jenny M Jourdonnais and Charles E Hansberry for Martin
2016 Mont. B.R. 205
Keuffer v. Mossberg & Sons et al, Montana Supreme Court (Wheat, McGrath, Shea, Rice), Attorney Disqualification
Case no. DA 15-0349
The District Court disqualified Mossberg’s counsel pursuant to Rule 1.20(c) of the Montana Rules of Professional Conduct. The basis for the court’s disqualification order was a prospective client consultation that Luke Keuffer had with an attorney from Tarlow & Stonecipher, which was later used in a deposition of Stephanie Keuffer by the Renzulli Law Firm. The court found that the continued involvement in the case by Mossberg’s counsel gave the Keuffers reason to question whether their case can proceed fairly and cause to question what they may have disclosed in the consultation to Tarlow & Stonecipher that may later be used against them in the current litigation.
Rule 1.20(a)
Neither party disputes that under Rule 1.20(a) Luke became a prospective client to Tarlow & Stonecipher when he called the law firm and discussed his case with Weamer. Because Luke was a prospective client of Tarlow & Stonecipher, certain duties were triggered under the Rule. These duties must be followed by the attorneys that participate in the prospective client relationship.
Rule 1.20(b)
Under Rule 1.20(b), a prospective client’s conversation is protected and no information gained from the consultation may be used or revealed by the lawyer with whom the client consults. Mossberg argues on appeal that a conflict occurs not because of the fact of the consultation, but because of the passing of confidential information from the client to the attorney that may be "significantly harmful." Mossberg asserts no such information was passed and implies that the "use" of information as determined by the District Court is error. We disagree. When the fact of a consultation is used to attack and intimidate a party, such conduct constitutes a violation of Rule 1.20 and will support a motion for sanctions, including disqualification. Rule 1.20(b) does not require that an attorney use a verbatim transcript of the information obtained during a prospective client consultation in order for it to constitute a violation of the rule. Nor does Rule 1.20(b) require that the information used or revealed be "significantly harmful," as would be required to form the basis for disqualification under Rule 1.20(c). Rule 1.20(b) places an absolute prohibition against using or revealing any information learned in the consultation.
Although the District Court based its ruling on Rule 1.20©. We conclude the disqualification was proper because of the violation of Rule 1.20(b) and the prejudice to the Keuffers resulting from the violation. It is well-established that a district court’s ruling may be sustained under the "wrong-reason, right-result" appellate rule. The District Court incorrectly relied on Rule 1.20(c) as the basis for disqualifying defense counsel; however, it correctly concluded that Renzulli’s conduct warranted disqualification of Renzulli as well as Tarlow & Stonecipher.
Keuffer v. Mossberg , May 31, 2016, Monte D. Beck, Jus tin P. Stalpes for Keuffer, Robert K. Baldwin, J. Devlan Geddes for Mossberg
2016 Mont. B.R. 333
Knight v. Wells Fargo, United States District Court, Summary Judgment, Estopple, Standing, Statute of Limitations
Case no. CV-15-56-M-DLC
This case presents a familiar set of facts arising in the wake of the financial crisis of 2008 and 2009, and involves allegations of mishandling and illegal practices with regard to servicing, modifying, and attempting to foreclose upon a home loan. Defendants move for judgment on the pleadings on three grounds. First, Defendants contend that the Knights are judicially estopped from pursuing their claims because they failed to disclose them in their schedules the first time they filed for bankruptcy, under Chapter 7, in April 2009. Second, Defendants argue that the Knights lack standing to challenge the transfer of the beneficial interest in their deed of trust from beneficiary-nominee MERS to HSBC-the transfer that forms the heart of Count I of the Knights' Amended Complaint. Third, Defendants assert that each of the Knights' claims are time-barred.
Judicial estoppel is a discretionary equitable doctrine designed to "protect the integrity of the judicial process by prohibiting parties from deliberately changing positions according to the exigencies of the moment." Courts deciding whether to apply judicial estoppel typically consider the following: (1) whether "a party's later position [is] 'clearly inconsistent' with its earlier position;" (2) "whether the party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled;" and (3) "whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped."
It is well-established that "[i]n the bankruptcy context, ... [i]f a plaintiff/debtor omits a pending (or soon-to-be-filed) lawsuit from the bankruptcy schedules and obtains a discharge (or plan confirmation), judicial estoppel bars the action." "The reason is that the plaintiff-debtor represented in the bankruptcy case that no claim existed, so he or she is estopped from representing in the lawsuit that a claim does exist."
The timing and circumstances of this case in relation to the Knights' 2009 bankruptcy filing make application of the doctrine of judicial estoppel inappropriate here. While the Knights' Amended Complaint contains factual allegations pre-dating their April 2009 bankruptcy schedules and August 2009 discharge order, the Court cannot conclude as a matter of law that enough had transpired to make a potential lawsuit against Defendants apparent to the Knights in 2009.
Next, Defendants contend that the Knights lack standing with respect the declaratory claim wherein the Knights challenge whether Wells Fargo and HSBC hold a beneficial interest in the Missoula property. Defendants argue that the Knights were strangers to the contract assigning the beneficial interest in the Knights' deed of trust from MERS to HSBC, and therefore cannot seek declaratory relief invalidating the assignment. At this stage of the litigation-and in light of the fact that the Knights were the original grantors of the beneficial interest created under the MSTFA and purportedly assigned from MERS to HSBC-the Court concludes that the Knights have standing to proceed with Count I of their Amended Complaint.
Under Montana law, the limitations period on a cause of action begins to run "when all elements of the claim or cause exist or have occurred." "[T]he fact that a party does not know that he or she has a claim, whether because he or she is unaware of the facts or unaware of his or her legal rights, is usually not sufficient to delay the beginning of the limitations period." Based on the allegations in the Knights' Amended Complaint, the Court finds that their tort claims accrued in 2011. The Court recognizes that the Knights allege various examples of Defendants' tortious conduct occurring after January 2011. However, the Court discerns no substantive difference between Defendants' actions before and after that date, meaning that no independent claims arose after January 2011 and within the applicable statutes of limitations. The conduct underlying the Knights' tort claims began well before 2011, and continued well past that date in substantially the same manner.
Knight v. Wells Fargo, June 8, 2016, Brian J. Miller, David K. W. Wilson, Scott L Peterson for Knight, Doug James, Jessica Teresa Fehr, Adam J. Warren for Wells Fargo
2016 Mont. B.R. 384
Knoll, Chapter 13, Reconsideration
Case no. 15-60271
The Court granted Nissan Motor Acceptance Company’s ("Nissan") motion to modify stay and the Debtor did not file a response within the 14 days notice period provided in Nissan’s motion. The Debtor Renae Knoll ("Renae"), who is pro se, filed a motion to vacate the Order modifying stay on the grounds that she was not given notice and that no basis existed to grant Nissan relief from the stay. Debtor filed her motion to vacate order with notice to Nissan of the opportunity to respond and request a hearing. Debtor’s motion contends that she was not notified of Nissan’s motion to modify stay and that she was current on her plan payments and her monthly payments to Nissan so no basis existed for granting Nissan relief from the stay.
Renae agreed that Nissan probably sent its motion to her at her address. However, she testified that her mail delivery is a "mess" and that she did not receive Nissan’s motion until after the motion already had been granted. She did not receive the Trustee’s consent to Nissan’s motion until sometime in November.
Nissan filed its motion to modify stay on the grounds that the Debtor defaulted in monthly car payments. The Chapter 13 Trustee filed a consent. The Debtor did not timely file an objection, and the Court entered its Order granting Nissan’s motion based on the uncontested allegations that the Debtor was in default under the note. Debtor’s confirmed Plan treated Nissan as a creditor with an unimpaired secured claim which she was treating outside of the Plan. Given the Trustee’s consent, and the uncontested allegations of Nissan’s motion, this Court correctly granted Nissan’s motion to modify stay because Nissan established cause under § 362(d)(1).
The Debtor moved for reconsideration. "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 Debtors’ motion to vacate Order granting Nissan’s motion to modify stay does not present newly discovered evidence which was not available to the Debtor earlier in this case, does not show an intervening change in controlling law, and does not show highly unusual circumstances which warrant granting Debtor equitable relief.
Where notice of Nissan’s motion was properly addressed, stamped, and mailed, a presumption arises that the Debtor received it. Where the notice was not returned the presumption is strengthened and the Debtor’s statement that she did not receive the notice is not sufficient to rebut the presumption. Because the Debtor failed to show that Nissan did not serve her with its motion properly and because she admitted at the hearing that she was in default to Nissan of monthly payments on its secured claim outside of the Plan, the Court finds and concludes that the Debtor failed to satisfy her burden for reconsideration of its Order modifying the stay, or that the Court abused its discretion when it granted Nissan’s motion to modify stay.
In re Knoll, January 12,2016, Jon R. Binney for Nissan, Renae Knoll, Pro Se
2016 Mont. B.R. 1
Martin v. Jurgens, Chapter 7, Temporary Restraining Order, Bond
Case no. 15-60592, Adversary no. 16-00009
Martin filed an application for an immediate temporary restraining order (“TRO”), combined with a motion for preliminary injunction to replace the TRO after hearing in order “to preserve the status quo,” and to prevent First American Title Company of Montana, Inc. from disbursing the $250,000 in homestead exemption proceeds to Defendant at closing of the sale of her homestead, until final disposition of will contest litigation pending in Midland County, Texas and this adversary proceeding. This Court granted Martin’s Application for a TRO, but only on the condition that he file a bond pursuant to Fed. Rule Civ. P. 65(c) in the amount of $260,000. The Court noted that “issuance of a TRO to deprive Brenda possession and use of $250,000 while she is in bankruptcy necessarily will cause her hardship.” As a result, the TRO explains “This Court exercises its discretion and concludes that a bond in the amount of $260,000 as security from the Plaintiff is considered proper to pay any costs and damages which Brenda and/or First American Title might sustain if her $250,000 homestead exemption is found to have been wrongfully enjoined or restrained under Rule 65(c).” The parties entered into a stipulation whereby the $250,000 in proceeds from the sale of Debtor’s homestead were tobe deposited into the Court’s registry. That stipulation was approved.
Martin filed the instant Motion to return his $260,000 or replace it with a bond in some lesser amount. His attorney stated on the record that no dispute exists that the proceeds from the sale of Defendant’s homestead are the Debtor’s. Despite the Court’s urging, the Texas litigation remains with summary judgment proceedings undecided, and Martin initiates a contested matter in an adversary proceeding which is being held in abeyance.
The TRO was entered on the condition that Martin deposit $260,000 in the Court’s registry, for the stated purpose “to pay any costs and damages which Brenda might sustain if her $250,000 homestead exemption is found to have been wrongfully enjoined or restrained . . . .” That exercise of discretion was appropriate when made. Martin accepted the condition when he voluntarily deposited $260,000 into the registry. The Court deems Martin’s Motion untimely, inequitable, and insufficient reason to depart from this Court’s determination to hold this adversary proceeding in abeyance. If Martin wishes release of his $260,000 bond, he may accomplish that by filing a decision and judgment from the Texas litigation; or by otherwise filing a resolution of this adversary proceeding with the Defendant.
Martin v. Jurgetns, September 15, 2016, Jenny M. Jourdonnais for Martin, Edward A. Murphy for Jurgens
2016 Mont. B.R. 490
McConkey, Chapter 7, Trustee Removal
Case no. 15-60092 -7
The Debtors’ Motion to Remove Trustee is based on 11 U.S.C. § 324 which provides: "(a) The court, after notice and a hearing, may remove a trustee, other than the United States Trustee, for cause." Removal under § 324 for cause "is left to the sound discretion of the bankruptcy court." The party seeking removal has the burden to prove specific facts which support removal for cause. Cossitt’s statement regarding his concern for his own administrative claim, and the prayer of the Moving Parties’ Motion to Remove Trustee, show Cossitt’s economic motivation for a particular result, rather than to give an objective expert opinion. Cossitt’s economic incentive in the result leaves this Court with no alternative, in its view, than to give little probative weight to Cossitt’s opinion testimony and conclusions.
The Moving Parties first contend that Brandon breached her duties of diligence and to liquidate the DIP accounts in a timely manner. If the Debtors had closed the DIP accounts as Brandon requested, or if they had provided her with the correct address for Glacier Bank, the DIP account at Glacier Bank would have been closed sooner. No fault regarding Warren’s social security benefits can be attributed to the Trustee based on the evidence in this record. Thus with respect to the DIP accounts, the Moving Parties have failed to satisfy their burden to show any cause under § 324(a) for removal.
The Moving Parties’ second contentions allege the Trustee breached duties of due care and diligence and to liquidate vehicle assets in a timely manner. The Trustee began administering the estate’s vehicles on November 24, 2015, when she gave notice of sale of a care and trailer to Debtors. The evidence shows that may of the remaining vehicles were stored outside in poor repair. After the auctioneer informed the Trustee that the vehicles were overvalued the Trustee moved to abandon the vehicles; they were abandoned without objection. The Moving Parties failed to satisfy their burden to show any cause under § 324(a) for removal of the Trustee based on vehicles.
The Moving Parties’ third set of contentions allege that the Trustee breached duties of due care and diligence based on her failure to liquidate crops in a timely manner. They contend that the Trustee failed to take possession and control or insure crops of the estate and that her delay during a drop in hay prices resulted in a $2,550 loss to estate asset value. No evidence exists in the record showing that the Trustee caused the decline in hay prices or that she knew prices would decline. Like other commodities, hay prices are cyclical. If hay prices had risen instead of declined the value of the estate’s interests in hay would have increased.
Cossitt’s emails to the Trustee and her professionals acknowledge Debtors’ duty to cooperate, but he then repeatedly tried to limit Debtors’ cooperation such as insisting on one single on-site inspection or conditioning the Trustee’s inspection of the estate’s pellet equipment. Finally Cossitt outright refused another inspection in Ex. 32, stating that the Trustee abandoned the real estate and no longer has permission to access it and that the two prior inspections by the Trustee "have fulfilled the duty of reasonable cooperation."
This Court specifically rejects, as a matter of law, the Moving Parties’ contention that they fulfilled some duty of "reasonable cooperation." The Trustee did not, nor was she required to, limit herself to a single on-site inspection of property of the estate. Cossitt argued that the Debtors wondered when it would end and did not want to submit to requests for inspection ad infinitum. This Court need not decide based on this record how much cooperation would be unreasonable. It simply is not a debtor’s or a debtor’s attorney’s decision to make, whether to cooperate with a trustee under § 521(a)(3), or how much cooperation is reasonable.
The Moving Parties request that Brandon be removed as Trustee, that chapter 7 administrative expenses be subordinated to the chapter 12 administrative claims of Cossitt and other administrative claimants, that the Trustee be prohibited from any compensation and that Brandon be ordered to pay all of the Debtors’ legal expenses related to the Motion to Remove. Having considered the "full panoply of events and elements" in this case, this Court in its discretion declines to find sufficient "cause" under § 324(a) to remove Brandon as Trustee. Frankly, the Court is struck by the severity of the relief requested when the only specific facts shown by the evidence, which questionably support removal, are that the Trustee failed to utilize local forms, a failure which she rectified by withdrawal.
In re McConkey, March 28, 2016 Robert K. Baldwin, Kyle W. Nelson for Brandon, James H Cossitt pro se and McConkey
2016 Mont. B.R. 164
Miller, Chapter 12, Motion to Assume Executory Contracts and Leases
With respect to Farm Service Agency ("FSA") leases, Miller testified that he has no FSA contracts at present, although he may receive a disaster payment in the approximate amount of $600 and that there is no downside to him assuming FSA contracts. Debtor’s Schedule G lists five (5) executory contracts and unexpired leases. One is described as "all farm programs with Farm Service Agency." CHS filed its objections on February 16, 2016, on the grounds the Debtor has not produced theleases or shown the terms of the leases or whether they have expired and has not shown that assumption of the leases would be beneficial to the estate under 11 U.S.C. § 365.
A debtor in Chapter 12, as trustee, may assume or reject any executory contract or unexpired lease of the debtor. 11 U.S.C. § 365(a). A debtor’s decision to assume unexpired leases is subject to bankruptcy court approval. While a debtor or trustee, in exercising business judgment, must demonstrate that assumption will benefit the estate, "[a]s long as assumption of a lease appears to enhance a debtor’s estate, a bankruptcy court should normally grant its approval, unless the debtor in possession’s judgment is clearly erroneous, too speculative, or contrary to the provisions of the Bankruptcy Code."
Thus, this Court does not apply, as CHS contends, "a more probing standard" but rather undertakes "a summary proceeding that involves only a cursory review of a trustee’s decision to reject the contract." Id. Miller moves to assume the leases with FSA, Carl Elliott, estate of Theresa Hansmann, and Mike's Muffler. He testified about the terms of the leases and his opinion that assumption would be beneficial to the estate. His testimony is uncontroverted. The evidence shows that Miller may receive funds from FSA. He has longstanding leases with Carl Elliott and the estate of Theresa Hansmann which produces advantageous crop shares by which he has profited.
This Court focuses on the business judgment of the Debtor, not on its own business judgment. The Court presumes that the Debtor acted prudently, on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the bankruptcy estate. The Court should approve the decision to assume the leases unless it finds that the Debtor’s conclusion that acceptance would be advantageous is so manifestly unreasonable that it could not be based on sound business judgment, but only on bad faith, whim or caprice. Based on Miller’s uncontroverted testimony that assumption of the leases would benefit the estate, the Court concludes that the Debtor’s conclusion that the leases with Carl Elliott and his mother’s estate is not manifestly unreasonable and not based on bad faith, whim or caprice.
In re Miller, April 1, 2016, Gary S. Deschenes for Miller, Eric E Nord for CHS
2016 Mont. B.R. 221
Morin, Chapter 7, Relief From Stay
Case no 16-60426
The Debtor Tracey Lin Morin and Carey, by agreement, participated in an arbitration, which meanwhile stayed a lawsuit between the parties. The Arbitrator entered a decision in favor of Carey and awarded damages against Morin. Before the Arbitrator entered a judgment to be submitted to the Montana State District Court, Morin filed a Chapter 7 petition on May 5, 2016, and the automatic stay of 11 U.S.C. § 362(a) took effect and stayed a final judgment from the Arbitrator. Carey filed Proof of Claim No. 3 asserting an unsecured, nonpriority claim in the amount of $867,370.93 based on the arbitration award. Attached to Carey’s Proof of Claim is a 37-page copy of the Arbitrator’s findings of fact, conclusions of law, and final order. To date, no objection to allowance of Carey’s Proof of Claim has been filed by the Debtor
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. A party seeking relief need only establish that it has a colorable claim to enforce a right against property. In the instant case Carey does not seek to enforce a right against property. Carey is not a mortgagee. Its attorney Nord repeatedly stated on the record that Carey will not assert judicial liens against property of the estate with respect to the Trustee if relief from the stay is granted.
Nord’s suggestion that the state court proceedings would further judicial economy because of the preclusive effect of a final state court decision is not persuasive. Neither the Arbitrator nor state courts have jurisdiction over the Bankruptcy Code’s provisions governing objection to discharge or exception to dischargeability. This Court would have to undertake a detailed analysis of any state court findings and conclusions to determine whether principles of preclusion apply. On the other hand, if this Court denies Carey’s Motion then its adversary proceeding against the Debtor can proceed without delay. If the Debtor elects to file an objection to allowance of Carey’s Proof of Claim No. 3 under 11 U.S.C. § 502, then that contested matter may be combined with Adversary Proceeding No. 16-00057 for trial and decisions in a single proceeding, rather than in three possible additional proceedings in arbitration, state district court and the Montana Supreme Court before returning to the Bankruptcy Court. Based upon the policy of judicial economy, the absence of security interests, the burden to the Debtor from the expense of participating in multiple proceedings, and the ability of this Court to hear and determine allowance of Carey’s claim and issues of discharge and dischargeability without delay, the Court finds that the Debtor satisfied her burden of proof under 11 U.S.C. § 362(g)(2) to show that the stay should not be lifted.
In re Morin, October 7, 2016, Edward A. Murphy for Morin, Eric E Nord for Carey Law Firm
2016 Mont. B.R. 504
Muller v. Flathead Bank, Montana Supreme Court, IRS Form 1099-C, Discharge of Debt
Case no. DA-16-0226
Between March 2010 and May 2013, Masonry by Muller, Inc. and Flathead Bank entered into four promissory notes totaling $170,622.88. Muller signed the promissory notes, individually and as president of Masonry, and he personally guaranteed three of the loans through separate commercial guaranties. Masonry and Muller failed to pay the installments due on the promissory notes and Flathead Bank subsequently issued an IRS Form 1099-C to Muller. Muller denied owing the amount requested by Flathead Bank and stated that Masonry was insolvent and nonexistent. He also argued that Flathead Bank’s filing of the IRS Form 1099-C cancelled his debt to the Bank. Flathead Bank contended that the filing of the Form 1099-C is an IRS requirement, even where a debt has not been discharged, and that the form alone did not cancel the debt.
The majority view reflects the position of recent IRS Information Letters, which treats the form as a means of satisfying the agency’s reporting requirements and does not prohibit a creditor from collecting payment on a debt. There are eight identifiable events in the regulations that trigger the reporting obligation via a Form 1099-C; however, such an event may or may not involve an actual or intended discharge of indebtedness by a creditor. In other words, under the plain language of the regulation, the IRS Form 1099-C reporting obligation can be triggered even where “an actual discharge of indebtedness had not yet occurred or is not contemplated.” Based on the foregoing, we adopt the majority position regarding the purpose of the Form 1099-C and hold that the issuance of an IRS Form 1099-C is not prima facie evidence of a creditor’s intent to discharge a debt; rather, it is a means of satisfying the agency’s reporting requirements and does not, in and of itself, prevent a creditor from seeking collection of a debt.
Here, Muller purported to act on behalf of Masonry, a Montana Corporation, in the District Court proceedings. However, he does not have a license to practice law in Montana, nor was Masonry separately represented by an attorney licensed to practice law in Montana. Accordingly, the District Court correctly found that Muller could only represent himself personally and could not appear on behalf of Masonry. Given that the decision to hold a person in contempt rests in the court’s discretion, we also cannot say that the District Court erred in failing to hold Muller in contempt of court for attempting
to represent Masonry.
Flathead Bank v. Muller, October 25, 2016, Randy S. Ogle for Flathead Bank, William Muller, pro se
2016 Mont. B.R. 538
Norenberg, Chapter 7, Dismissal, Current Monthly Income
Case no. 15-61171
Elska, Inc. filed a Motion to Dismiss for abuse under 11 U.S.C. § 707(b) alleging that erroneous statements regarding Debtor’s non-filing spouse’s income and expenses on Debtor’s Forms 122A-1 and 122A-2 resulted in an erroneous determination that the presumption of abuse under § 707(b) does not arise. Section 707(b)(2)(A)(ii) sets forth the analysis for determining whether a court shall presume abuse, based on the debtor’s CMI reduced by certain claims and expenses specified under the National Standards and Local Standards issued by the Internal Revenue Service (“IRS”). Official Forms 122A-1 and 122A-2 embody the objective test under § 707(b)(2)(A) & (B). CMI is calculated by averaging the debtor’s monthly income during a 6-month look-back period which consists of the six full months preceding the filing of the bankruptcy petition’s filing.
One of the largest single components of Christie’s income at issue is the $10,000 royalty check she received from the Sullivan Family Entity. The evidence is undisputed that Christie received the $10,000 royalty from the Sullivan Family Entity in a single payment. To prorate that payment during the 6-month period preceding the date of commencement of the case, as urged by Elska, would be to ignore the 6-month period defined by § 101(10A)(A)(I). Income derived after the 6-month period but before the petition date may be omitted from CMI under § 101(10A)(A)(I).
The next contested items at issue are Christie’s draws and dividends from her American Funds account. Elska argues that the $823.27 in dividends should be considered current monthly income. Debtor argues that the dividends were reinvested and not paid for household expenses of Debtor or Debtor’s dependents and should not be included in Debtor’s CMI. The evidence shows that all of Christie’s dividends were reinvested in her American Funds accounts. No evidence exists as to what Christie did with the $9,000 in redemptions from her American Funds. Elska examined Christie under oath, but simply failed to ask her about how she spent or used the redemptions. Because Elska failed to satisfy its burden of proof on whether or not the redemptions were paid on a regular basis for the household expenses of the Debtor and his dependent, the Court need not address whether the redemptions were income, or rather as Debtor contends simply a conversion of Christie’s assets from one form to another. The plain language of § 101(10A)(B) “includes any amount paid by an entity other than the debtor, or a regular basis for the household expenses of the debtor or the debtor’s dependents . . . .” The only exceptions from “any amount” are specified later in § 101(10A)(B) and do not include household expenses paid for with a nonfiling spouse’s credit card. The $110 reduction of CMI on Line 3 should be removed because Christie testified that she paid for “family things, family bills” with her credit cards.
As for Form 122A-2, two changes are required which flow throughout the form. The first change requires removal of $110 for “Wife’s debts” on Line 3, because that refers to credit card payments by Christie for household expenses. That change increases CMI on Line 4 and Line 39a to $6,261.05. The second change requires replacing $898.95 on Lines 25, 32, and 38 with $706.95. As a result of these two changes, the total deductions on Lines 38 and 39b are reduced to $6,956.58; and the difference between adjusted CMI ($6,261.05) and total deductions ($6,956.58) becomes a negative number (-$695.53) on Line 39c. Multiplying that negative number by 60 on Line 39d equals -$41,731.80. Since -$41,731.80 is less than $7,475, the same box would be filled in on Line 40 as the Debtor filled in concluding that “There is no presumption of abuse.” Under the objective test of § 707(b)(2)(A)(i), this Court concludes there is no
In re Norenberg, July 21, 2016, Marcel A Quinn for Elska, Edward A Murphy for Norenberg
2016 Mont. B.R. 383
Norenberg, Chapter 13, Dischargeability, Summary Judgment
Case no. 15-61156, Adversary no. 16-00015
Plaintiff seeks: exception of its $90,000 claim against Defendants from Debtors’ discharge under 11 U.S.C. §§ 523(a)(2)(A), 523(a)(2)(B); seeks judgment against Defendants under Montana common law fraud and constructive fraud; objects to the Debtors’ discharge under 11 U.S.C. §§ 727(a)(2)(A), 727(a)(2)(B), 727(a)(3), and 727(a)(4)(A); seeks judgment to avoid a sale as fraudulent under Montana Code Annotated § 31-2-333 and § 31-2-339; seeks judgment based on breach of contract; and seeks judgment holding Defendants liable as alter ego of Common Landscaping, Inc. Defendants filed answers and affirmative defenses denying most material allegations of the complaint.
Summary judgment is governed by F.R.B.P. 7056. Rule 7056, incorporating Rule 56(c), Fed. R. Civ. P., states that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "The proponent of a summary judgment motion bears a heavy burden to show that there are no disputed facts warranting disposition of the case on the law without trial." f the moving party adequately carries its burden, the party opposing summary judgment must then "set forth specific facts showing that there is a genuine issue for trial."
To prevail under a § 727(a)(4)(A) claim for denial of discharge, a plaintiff must show by a preponderance of the evidence that: “(1) the debtor made a false oath in connection with the case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oath was made fraudulently.” The required intent under § 707(a)(4)(A) must be actual rather than constructive intent.
To prevail under § 523(a)(2)(A) a creditor must establish five elements: (1) misrepresentation, fraudulent omission or deceptive conduct by the debtor; (2) knowledge of the falsity or deceptiveness of his statement of conduct; (3) intent to deceive; (4) justifiable reliance by the creditor on the debtor’s statement or conduct; and (5) damage to the creditor proximately caused by his reliance on the debtor’s statement or conduct.
A trial court "is not to make credibility determinations when making or denying summary judgment." For purposes of the instant motion for summary judgment, this Court concludes that the Defendants’ asserted genuine issues of material fact regarding fraudulent intent, viewed along with the undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in the non-moving party’s favor based on that evidence. As the Court noted above, if a rational trier of fact might resolve disputes raised during summary judgment proceedings in favor of the nonmoving party, summary judgment must be denied.
Elska Inc., v. Norenberg, November 9, 2016, Marcel A Quinn for Elska, Edward A Murphy for Norenberg
2016 Mont. B.R. 562
Prather v. Bank of America, United States District Court, Statute of Limitations, Negligence, Trespass
Case no. 15-CV-00163-DLC
BANA argues that the Prathers’ claim for negligence should be dismissed for two reasons: (1) the claim is time-barred; and (2) the Prathers failed to plead two essential elements of their claim, duty and damages. Because the Court ultimately determines that the Prathers’ claim is time-barred, it does not consider
whether it is well-pled. Under Montana law, negligence actions are subject to a three-year statute of limitations. Mont. Code Ann. § 27–2–204(1). Because the Prathers filed their complaint on December 14, 2015, their claim for negligence may survive only if it accrued on or before December 14, 2012.
Under Montana law, a negligence claim has four elements: (1) existence of a duty; (2) breach of the duty; (3) causation; and (4) damages. The claim 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. Assuming for the sake of this Order that BANA was negligent, the Court must determine when the negligent conduct occurred and its consequences were realized.
BANA’s allegedly negligent conduct occurred before it offered the modification, when BANA counseled the Prathers to stop making payments and the Prathers incurred interest charges. However, even if BANA had been negligent in making the modification offer itself, its breach occurred when the offer was made. It cannot reasonably be argued that BANA breached its duty later by accepting the Prathers’ agreement to the modification. The Prathers have not alleged damages arising from any letters BANA sent after the modification was complete. They have not claimed to have been charged additional interest on their loan following the modification. They have not alleged that their homeownership is threatened despite their compliance with the terms of the modification commitment. They have not claimed that BANA has failed to fulfill its obligations under the modification agreement. Nor have they advanced any legal argument in favor of their claim that BANA should be estopped from claiming that the statute of limitations has run because BANA sent letters stating that the modification is not yet complete. Thus, as to the Prathers’ claim for negligence arising from the loan modification itself, BANA’s breach necessarily occurred—at the latest—on November 24, 2012, when BANA offered its commitment to modify the mortgage.
The Prathers’ damages were realized before BANA extended the modification offer. The Court cannot determine that the Prathers’ incurred damages after November 1, 2012, the end of the period during which interest on their loan accrued. Where the modification agreement did not bind the Prathers to pay anything more than was already legally owing, the Court cannot determine that they suffered an injury upon their agreement to pay preexisting financial obligations.
Generally, a party’s ignorance of a potential claim cannot stop the statute of limitations from running. However, the continuing tort doctrine provides an exception to the general rule. 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.” The “dispositive factor” in determining whether a tort is temporary or permanent is “reasonable abatability.” In other words, the defendant’s unwillingness to correct a correctable problem may fairly be seen as the tort for statute of limitations purposes Here, the allegations against BANA are allegations of a permanent and not a temporary tort. By the time BANA sent the modification offer to the Prathers in November 2012, the parties’ course of dealing had “stabilized,” and any damages they suffered were “reasonably certain.”
A claim for intentional trespass to real property under Montana law follows the elements outlined in the Restatement (Second) of Torts, § 158: One is subject to liability to another for trespass, irrespective of whether he thereby causes harm to any legally protected interest of the other, if he intentionally (a) enters land in the possession of the other, or causes a thing or a third person to do so, or (b) remains on the land, or (c) fails to remove from the land a thing which he is under a
duty to remove. Restated, Montana “defines a trespass as an intrusion on a party’s right to exclusive possession of her property.”
The Prathers have not admitted that their account was in arrears after they signed the modification agreement. At this point, disputes remain as to whether the Prathers defaulted on their loan after the modification and whether the Deed authorized the particular entries made by BANA’s agents. Confined to the complaint, the Court must assume that the loan was not in default and that BANA’s actions were unauthorized by the Deed. Taking the material allegations of the complaint as true, the Court determines that the Prathers have raised a plausible claim for trespass. The Prathers’ claim for invasion of privacy survives BANA’s challenge. As explained above, a dispute remains as to whether BANA had a legal right to enter the Property. Moreover, even if BANA had a legal right to enter the Property, that right would not excuse BANA’s actions if they rose to the level of harassment.
Prather v. Bank of America, August 22, 2016, Brian J. Miller for Prather, Mark D. Etchart for Bank of America
2016 Mont. B.R. 460
Rankin, Chapter 13, Post Petition Inheritance
Case no. 10-62340
Debtor argues that the 3-year commitment period for his plan expired before Anita Bartz’s death; thus, he had no right to the inheritance during the applicable commitment period. Debtor concedes that the 3-year duration can be increased up to 60 months for cause, but he argues that "cause should be focused on the debtor’s needs, such as curing a mortgage arrearage and not on paying more money to creditors." The Trustee’s proposed Modified Plan has the same 60-month term as the Debtor’s confirmed plan. Under Section 1327(a), the provisions of a confirmed plan "bind the debtor and each creditor . . . ." Debtor proposed a 60-month plan even though his applicable commitment period was 36 months; his plan was confirmed. Under § 1327(a), confirmation binds the Debtor and undermines his contention based on the 3-year commitment period. The Court confirmed Debtor’s Plan on January 21, 2011. Sixty months after the date of confirmation ended in January 2016, which is approximately three months after the Trustee filed his motions for turnover and to modify plan. The Chapter 13 Trustee filed his motions before the five-year limitation of § 1329(c) expired and filed them promptly after discovering the existence of the inheritance.
In this Court’s view, since the Debtor’s confirmed plan already provides for a 60 month term, and based upon the large amount of unsecured claims for which the Debtor seeks a discharge in this Chapter 13 case and his failure to promptly disclose the inheritance, adequate "cause" has been shown by the record for this Court to approve payments in the Chapter 13 Trustee’s Modified Plan over the same 60-month period under § 1329(c). The Trustee contends that Debtor should be equitably estopped from claiming the inheritance as his own when he failed to disclose it to the Chapter 13 Trustee as required by Fed. R. Bank. P. Rule 1007(h) ("Interests Acquired or Arising After Petition") and Rule 4002(a)(3) (Duties of Debtor to inform the trustee immediately as to name and address of every person holding money or property subject to the debtor’s withdrawal or order if a schedule of property has not yet been filed pursuant to Rule 1007). This Court agrees. Given Debtor’s failure to notify the Chapter 13 Trustee of the inheritance and file a supplemental schedule as required by Rules 1007(h) and 4002(a)(3), under the above-cited Ninth Circuit authority this Court deems it appropriate that the Debtor be estopped from claiming the inheritance as his own.
Section 1306(a)(1) provides:
"Property of the estate includes, in addition to the property specified in section 541 of this title –
(a) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first . . . ." The longstanding rule in this district is that, based on § 1306(a)(1), a chapter 13 bankruptcy estate includes interests in property acquired after the date of filing a chapter 13 petition.
In re Rankin, March 14, 2016, Edward A Murphy for Rankin, Robert Drummond, Trustee
2016 Mont. B.R. 153
Red Door Lounge, Inc., Chapter 11, Paralegal Fees
The amended Application discloses Patten’s hourly billing rate as $330.00, and hourly rates for other attorneys at their customary rates ranging from $175.00 to $330.00 per hour. Also disclosed are hourly rates for paralegals Diane S. Kephart at $160.00; April J. Boucher, Valerie Cox and Phyllis Dahl at $125.00; and $110.00 per hour for Leanne Beatty.
Under § 330(a)(1)(A) the Court, after notice and a hearing, and subject to other sections, "may award to a trustee, a consumer privacy ombudsman appointed under section 332, and examiner, an ombudsman appointed under section 333, or a professional person employed under section 327 or 1103 – (A) reasonable compensation for actual, necessary services rendered by the trustee, examiner, ombudsman, professional person, or attorney and by any paraprofessional person employed by any such person."
In 2003 this Court entered a Memorandum of Decision concerning the UST’s objection to hourly rates charged by a law firm with a national bankruptcy practice. In that case, In re Jore Corporation, 20 Mont. B.R. 158 (Bankr. D. Mont. 2003), the law firm included hourly rates for paralegals of $170. The result was the Court departed from application of any locality rule for hourly fees and adopted a market approach for establishing reasonable compensation for actual and necessary services. The Court approved the applications to employ attorneys, including the $170 hourly billing rate in 2003, subject to this Court reviewing the magnitude of compensation requested after a fee application is submitted. Jore remains good law in this district. Based on Patten’s amended Application, the Stipulated Statement of Facts, and sworn statements of Patten and Doug James, the Court deems that an approach similar to the approach followed in Jore is appropriate in the instant case.
No dispute exists about Patten’s specialized practice in bankruptcy. No dispute exists about Kephart’s specialized practice justifying her $160 hourly rate or about Patten’s statement that he does not use Kephart in bankruptcy cases anymore at the request of his partners. Likewise the $125 and $110 hourly rates for Patten’s other paralegals are within the range of rates on the Stipulated Statements of Fact and are less than the approved rates in Jore. As in Jore, this Court will review the magnitude of any compensation requested by Patten after a fee application is submitted for actual, necessary services reasonably likely to benefit the estate.
In re Red Door Lounge, Inc., February 12, 2016, James A. Patten for Red Door Lounge, Inc., Neal G. Jensen for United States Trustees
2016 Mont. B.R. 63
Red Door Lounge, Inc., Chapter 11, Conversion
Case no 15-61151
Conversion or dismissal is provided for at § 1112(b), which sets forth a nonexclusive list of factors that warrant conversion of dismissal. The determination under § 1112(b) rests with the sound discretion of the court. Based on the evidence admitted at the hearing, this Court finds that “cause” is established under elements (A) (substantial or continuing loss or diminution of the estate and absence of a reasonable likelihood of rehabilitation) and (N) (material default by the debtor with respect to a confirmed plan). First, Debtor is in material default under the terms of Debtor’s confirmed plan in Case No. 11-61605-11. Debtor has not made a monthly payment to First Interstate Bank since June 2014, and it has not paid any real property taxes since 2010. Second, the Court finds that Debtor has no reasonable likelihood of rehabilitation.
The Court has a duty under § 1129(a)(11) to protect creditors against “visionary schemes. While a reorganization plan’s success need not be guaranteed, the Court cannot confirm a plan unless it has at least a reasonable chance of success. While Debtor cannot control whether its units are rented, or whether tenants are paying their rent in a timely fashion, Debtor’s historical performance shows that Debtor’s plan is not feasible.
Section 1112(b)(4)(A) requires the bankruptcy court to find an absence of a reasonable likelihood of rehabilitation. “The issue of rehabilitation for purposes of § 1112(b)(4)(A) is not the technical one of whether the debtor can confirm a plan, but, rather, whether the debtor’s business prospects justify continuance of the reorganization effort.” Debtor’s historical performance, coupled with the uncertainty surrounding Foster’s contributions, the $14,000 discrepancy and the fact that Debtor’s cash projections and budget provide for a monthly payment of $5,490 to First Interstate Bank, when such payment should be $5,962, shows that Debtor’s Plan simply has no chance of success and that Debtor has no reasonable likelihood of rehabilitation. Moreover, the Court cannot envision any set of circumstances that would change such finding. For the reasons discussed above, cause exists for the dismissal or conversion of this case under § 1112(b)(1).
The Court must next decide whether dismissal, conversion, or the appointment of a trustee is in the best interests of creditors, and whether unusual circumstances exist that establish whether dismissal or conversion is not in the best interests of creditors and the estate.
This Court can find no unusual circumstances contemplated in §1112(b) in this record which establish that converting or dismissing the case is not in the best interests of creditors in the estate. Turning to the evidence relating to the best interests of the creditors, this Court initially notes that First Interstate Bank seeks conversion of this case to Chapter 7. Dismissal of the case would force First Interstate Bank to proceed with foreclosure against the Debtor in district court. The loss of assets to foreclosure would harm the unsecured creditors if the case is dismissed. On the other hand, if the case is converted to chapter 7 or a trustee is appointed in chapter 11, the automatic stay would remain in place and a trustee would be appointed to investigate the Debtor’s business affairs and marshall assets. No evidence exists in the record that the unsecured creditors “have any avenue for prompt or meaningful payment outside a bankruptcy case.” This Court, when considering whether to dismiss the case, convert to chapter 7, or appoint a trustee, is convinced that the evidence shows that dismissal would be “far less advantageous for all creditors of the estate” than conversion.
Turning to conversion versus appointment of a trustee in chapter 11, the Court concludes that conversion to chapter 7 is in the best interests of creditors and the estate. While the Debtor has an ongoing business, appointment of a trustee in chapter 11 pursuant to § 1104(a) would impose distractions and, in this Court’s view, unnecessary and substantial costs and expenses related to the preparation of a disclosure statement and plan, approval of a disclosure statement, dissemination to creditors, solicitation, voting and participating in chapter 11 plan confirmation proceedings. In a chapter 7 case a trustee would eliminate all of those administrative burdens and expenses and would be able to investigate the Debtor’s financial affairs and liquidate Debtor’s assets. What limited authority a trustee may need to operate a business of the Debtor in chapter 7, the trustee can request from this Court under 11 U.S.C. § 721.
Red Door Lounge, Inc., October 14, 2016, James A Patten for Debtor, Benjamin P. Hursch for First Interstate Bank, Neal G. Jensen for United States Trustees
2016 Mont. B.R. 510
Samson v. Franz, Chapter 7, Adversary Proceeding, Turnover, Summary Judgment
Case no. 10-61754-67, Adversary no. 16-00029
Plaintiff’s motion for summary judgment is accompanied by a separate brief in support and a Statement of Uncontroverted Facts which avers uncontroverted facts. The Plaintiff’s motion, brief and Statement of Uncontroverted Facts were served upon Franz. Franz filed a response and makes numerous unsubstantiated allegations therein, but Franz did not file a separate statement of disputed issues as required by Mont. LBR 7056-1(a)(2). Pursuant to Mont. LBR 7056-1(a)(3), all material facts in Plaintiff’s Statement of Uncontroverted Facts are deemed admitted.
Summary judgment is governed by F.R.B.P. 7056. Rule 7056, incorporating Rule 56(c). Fed. R. Civ. P., states that summary judgment “shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” “The proponent of a summary judgment motion bears a heavy burden to show that there are no disputed facts warranting disposition of the case on the law without trial. Once that burden has been met, “the opponent must affirmatively show that a material issue of fact remains in dispute.” That is, the opponent cannot assert the “mere existence of some alleged factual dispute between the parties. Instead, to demonstrate that a genuine factual issue exists, the objector must produce affidavits which are based on personal knowledge and the facts set forth therein must be admissible in evidence. The moving party must initially identify those portions of the record before the Court which it believes establish an absence of material fact. If the moving party adequately carries its burden, the party opposing summary judgment must then “set forth specific facts showing that there is a genuine issue for trial. Thus, the Court’s ultimate inquiry is to determine whether the “specific facts” set forth by the nonmoving party, viewed along with the undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence.
This Court concludes that Plaintiff has satisfied his burden of showing that no genuine issue of material fact exists. This Court previously concluded in AP# 15-3 that Franz knowingly failed, despite being told by his attorney and the Plaintiff on numerous occasions, to keep Plaintiff informed about the sale of the Marcus Place Apartments, of which one-third of the net proceeds were property of the estate, and that Franz knowingly failed to report the acquisition of or entitlement to such property, or to deliver such property to Plaintiff. Franz testified in AP# 15-3 that his one-third share of the proceeds from the sale of the Marcus Place Apartments was $130,000 and Franz did not dispute that he spent the proceeds from sale of the Marcus Place Apartments. The Court noted in its November 5, 2015, Memorandum of Decision entered in AP# 15-3 that the Trustee had specific statutory duties under 11 U.S.C. § 704(a) to collect and reduce to money the property of the estate for which the trustee serves. The Debtor also had a specific statutory duty under 11 U.S.C. § 521(a)(4) to “surrender to the trustee all property of the estate” and any information relating to property of the estate. By taking the $130,000, a one-third inheritance share of the sale of the Marcus Place Apartments, and spending it on himself and family members, Franz failed to perform his duty under § 521(a)(4) and hindered the Plaintiff in the performance of his trustee duties. The uncontroverted facts show that Plaintiff is now entitled to judgment against Franz in the amount of $100,883.46.
Samson v. Franz, October 17, 2016, Richard J. Samson, Trustee, Randall A Franz, Pro se
2016 Mont. B.R. 526
Sann, Chapter 7, Retroactive Employment, Reconsideration
Case no. 14-61370-7
The background facts are set forth in this Court’s Order which denied Debtor’s applications to approve special employment of Lustigman and Sherwood nunc pro tunc based upon Lustigman’s testimony that the Trustee’s interests in the case Federal Trade Commission v. American eVoice, Ltd., et al., are adverse to the Debtor’s interests, the Court reasoning "it necessarily follows that if the Trustee’s interests are adverse to Debtor’s, so too are the bankruptcy estate’s." Based on Lustigman’s testimony, this Court concluded that his and Sherwood’s representation of Debtor in Federal Trade Commission v. American eVoice, Ltd., et al., is adverse to the bankruptcy estate, and denied the Debtor’s applications to approve special employment of them nunc pro tunc. Debtor filed his Motion to Amend.
Debtor’s Motion argues that this Court’s Order included an erroneous finding regarding the period of time the case was pending between the commencement and the filing of Debtor’s employment applications, that the Court overlooked that the employment applications were filed before conversion and before the adverse interest arose, that the Court also overlooked that upon conversion Debtor’s professionals were no longer representing the estate and overlooked the stipulation between Debtor’s counsel Samuel Schwartz and the U.S. Trustee which reduced Schwartz’s fees accruing between the commencement of the case and the filing of his fee application in order to resolve the UST’s objections.
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." Debtor argues that this Court committed clear error in its calculation of the time period from the commencement of the case to the date the Debtor filed his applications to employ Lustigman and Sherwood nunc pro tunc. Debtor is correct. Instead of one and one-half years, the correct time period is just over six and one half months. That difference is not material, however, because the applications still sought nunc pro tunc approval of employment of professionals, and whether the delay was a year and a half or six and one-half months "professionals who perform services for a debtor in possession cannot recover fees for those services rendered to the estate unless those services havebeen previously authorized by a court order."
Attorneys seeking retroactive employment must establish the presence of "exceptional circumstances," and in particular must satisfy two requirements: They must (1) satisfactorily explain their failure to receive prior judicial approval; and (2) demonstrate that their services benefitted the bankrupt estate in a significant manner. This Court has nothing upon which it could base a finding that the Debtor satisfactorily explained his failure to receive prior judicial approval of his employment of Lustigman and Sherwood. The Debtor having failed to satisfactorily explain his failure to receive prior judicial approval, the Court must conclude that Debtor failed to demonstrate the "exceptional circumstances" required for retroactive approval of employment of Lustigman and Sherwood.
In re Sann, January 19, 2016, James A. Patten for Sann, Amanda L. Myers for State of Montana
2016 Mont. B.R. 26
Sann, Chapter 7, Stay Pending Release from Prison, Due Process
Case no.14-61370
The district court accepted Sann’s guilty plea to two felony counts, and in addition his forfeiture of $500,000 in property involved in money laundering charges. Sann was sentenced to two years of imprisonment which he currently is serving in Taft, California, with a release date in early 2017.
After conversion a Trustee was appointed and has initiated several adversary proceedings to recover property. In addition the Trustee filed and served Adversary Proceeding No. 16-00005 seeking denial of Sann’s discharge under 11 U.S.C. §§ 727(a)(2)(B), 727(a)(6)(A), and 727(a)(3). A summons was issued, and service of process was made to Sann at his regular mailing address of record and to his address while incarcerated at Taft Correctional Institution in California. The time for Sann to file an answer has not expired.
Patten argued that Debtor’s motion to stay all proceedings should be granted because Sann cannot meaningfully participate in the several pending adversary proceedings, including Adv. No. 16-5, because of his incarceration, which prevents him from meaningfully participating in discovery. Thus, Debtor argues he is not being afforded due process.
Given the reasons this case was converted to Chapter 7, no reasons exist to stay administration of this case based upon Sann’s present incarceration. The Trustee, MDOR and FTC all want administration of the estate to go forward. If the Trustee wishes to proceed with administration notwithstanding Sann’s incarceration, and only Sann objects and seeks a stay, the Court views his motion to stay proceedings as merely a continuation of his efforts to delay and prevent the Trustee’s performance of her statutory duties. Such an objection is inconsistent with Sann’s duties as Debtor under § 521(a)(3) to cooperate. He has duties, not a choice, under the Bankruptcy Code.
As to Sann’s main argument for a stay, "[a] primary purpose of the notice required by the Due Process Clause is to ensure that the opportunity for a hearing is meaningful." The current status of Adv. Pro. No. 16-5 shows nothing which prevents Sann from a meaningful opportunity for a hearing. Since the commencement of Adv. Pro. No. 16-5 Sann has been listed as pro se. Nothing done by the Trustee, MDOR, or the FTC, prevents Sann from obtaining counsel in Adv. Pro. No. 16-5. If Sann chooses to remain pro se that is his right, but "[p]ro se litigants must follow the same rules of procedure that govern other litigants."
In re Sann, February 10, 2016, James A. Pattenfor Debtor, Trent M. Gardner for Brandon, Amanda Myers for MDOR, Michael Mora for FTC
2016 Mont. B.R. 42
Sann, Chapter 7, Contempt
Case no. 14-61370
The Trustee filed a motion for turnover of estate property requesting that Debtor turn over a tax refund from the IRS in the amount of $78,400.00, all funds in the bank accounts listed in Debtor’s Schedules, and all funds received by Debtor pursuant to an "Injunction Order" entered by the United States District Court. The Court entered an Order granting the Trustee’s motion for turnover. The Debtor did not request reconsideration of this Court’s Order, Ex. 1. Debtor did not file an appeal. Debtor’s request for stay of all proceedings during his incarceration was denied. The Trustee testified that the Debtor turned over to her some but not all of the money which the Court ordered turned over. The Trustee testified that the Debtor has failed to comply with the turnover Order by the sum of approximately $124,000.
Contempt proceedings are governed by F.R.B.P. 9020, which states that F.R.B.P. 9014 governs a motion for an order of contempt made by a party in interest. Prior to Congress reform of Rule 9020 in 1987, bankruptcy courts did not have the inherent power of contempt in the Ninth Circuit. The Ninth Circuit later held that with Congress enacting Rule 9020 and § 105(a), Chambers supersedes Sequoia and bankruptcy courts have the inherent power to sanction for contempt. The inherent sanction authority allows a court to deter and provide compensation, but not punitive sanctions, for a broad range of improper litigation tactics, provided that the Court make an explicit finding of bad faith or willful misconduct more egregious than mere negligence or recklessness. In addition, bankruptcy courts have civil contempt authority under § 105(a) to impose civil penalties which must be either compensatory or designed to coerce compliance, but cannot be punitive. Section 105(a) authorizes those remedies "necessary" to enforce the Bankruptcy Code. To find a party in civil contempt the court must find that the offending party knowingly violated a definite and specific court order.
This Court finds and concludes that the Trustee has satisfied her burden of showing by clear and convincing evidence that the Debtor knowingly violated a definite and specific order. Under 11 U.S.C. § 521(a)(3), the Debtor has a statutory duty to cooperate with the Trustee as necessary to enable the Trustee to perform her duties. The Debtor failed to satisfy his duty when he or his entities continued to use and spend assets of the estate instead of preserving them for the Trustee. Debtor violated this Court’s specific and definite Order, Ex. 1, to turn over approximately $124,000 of funds ordered turned over immediately. Under Ninth Circuit authority, sanctions against the Debtor are appropriate under this Court’s civil contempt authority under 105(a).
This Court concludes that holding the Debtor in civil contempt, without a monetary sanction, is reasonable, necessary and appropriate at this time to coerce Sann’s compliance with his duties under the Bankruptcy Code. The Court specifies that Sann has the opportunity to reduce or avoid this sanction through compliance. The Trustee will be granted leave to file subsequent motions and request an evidentiary hearing to calculate compensatory sanctions should the Debtor fail to cure his contempt.
In re Sann, April 5, 2016, Kyle W. Nelson for Brandon, Steven Sann, Pro Se
2016 Mont. B.R. 233
Sann, Chapter 7, Exempt Property
Debtor listed his homestead exemption and exemptions in accounts, stock and Sann, LLC, in his amended Schedule C pursuant to 11 U.S.C. § 522(b)(2) and F.R.B.P. 4003(a). The provision of § 522(b)(2) in effect in this case applies state or local exemption law that is applicable to the debtor under paragraph (3)(A). The bankruptcy court in Nevada changed venue to this district in Montana. Debtor did not seek or obtain reconsideration of that venue change and did not file a notice of appeal; the venue change to Montana appears to be final.
Pursuant to § 522(b)(2), Montana has opted out of the federal exemption scheme by means of MCA § 31-2-106. This Court thus looks to Montana state law rather than federal law, or Nevada law, to determine the allowance of the Debtor’s claimed exemptions in a homestead, bank accounts, stock and Sann, LLC.
Because Montana exemption statutes control under § 522(b)(2) and MCA § 31-2-106, this Court must sustain the Trustee’s Objection to each of the Debtor’s claimed exemptions on procedural grounds because all of his claimed exemptions on amended Schedule C are based on Nevada statutes, not Montana statutes. With the change of venue of this case to Montana, Nevada exemption statutes simply do not apply. The Debtor recognized that in his response where he suggests that he is entitled to exemptions in the homestead and checking accounts under Montana statutes.
This Court must decide the Trustee’s Objection pending before it; subject, however, to the Debtor’s right to file amended Schedules. In addition to denying Debtor’s exemptions on procedural grounds, the Court sustains the Trustee’s Objection on other grounds. Debtor’s response does not address the Trustee’s Objection with respect to his claims of exemptions in stock and Sann, LLC. Accordingly, the Trustee’s Objection to Debtor’s claims of exemption in corporate stock and Sann, LLC, may be and are sustained based on the Debtor’s failure to respond to those objections with specificity.
With respect to the homestead at 4661 Torrey Lane on 26.760 acres, the Trustee testified that there is no recorded declaration of homestead for the 26.760 acres on which the house on Tract A-1 is located. The Trustee’s testimony is uncontroverted. The Objection also is sustained because Debtor claims a homestead exemption in the sum of $550,000, which exceeds the $250,000 limitation on value of MCA § 70-32-104.
In re Sann, April 6, 2016, Kyle W. Nelson for Brandon, Steven Sann, Pro se
2016 Mont. B.R. 245
Sann, Attorneys Fees, Interim Application
Case no 14-61370
The Trustee’s Application requests an award of interim compensation for the Goetz Firm. Interim fee awards are authorized by 11 U.S.C. § 331 which provides: A trustee, an examiner, a debtor's attorney, or any professional person employed under section 327 or 1103 of this title may apply to the court not more
than once every 120 days after an order for relief in a case under this title, or more often if the court permits, for such compensation for services rendered before the date of such an application or reimbursement for expenses incurred before such date as is provided under section 330 of this title. After notice and a hearing, the court may allow and disburse to such applicant such compensation or
This Court liberally allows interim payments under § 331 to alleviate economic hardship in protracted causes and thereby facilitate competent and efficient administration. The evidence admitted at the hearing establishes that this is a complicated and protracted case. The case began as a Chapter 11 case filed by the Debtor in Nevada, after the FTC case began and the Asset Freeze Order was issued. Venue was changed to Montana. The case was converted to a case under Chapter 7. Property of the estate was disbursed among several separate entities, including law firms and charitable entities. The Trustee made a determination that she needed to employ the Goetz firm, first on an hourly basis and then adding a contingency fee basis for avoidance actions and turnover proceedings. Gardner’s testimony that the Goetz firm has expended approximately 1,450 hours and more than $350,000 worth of attorneys’ fees is uncontroverted by any competent evidence. Neither the Debtor nor Terry Sann testified at the hearing, which would have subjected them to cross examination. That is their right, but as a result the testimony of Gardner and the Trustee is uncontroverted. Therefore, based on the policy under § 331 to alleviate economic hardship in protracted causes and thereby facilitate competent and efficient administration, and the uncontroverted testimony of the Trustee and Gardner, the Court finds that it is appropriate to award the Goetz firm the interim compensation requested. The evidence shows that the Goetz firm has received no compensation for 1,450 hours of attorneys’ time on the matters subject to the contingency fee with respect to which, to date at least, the Goetz firm has been successful in recovering property. The Debtor offered no expert testimony or other evidence which supports his arguments that the matters were not complicated and the Trustee is overreaching by supporting a fee request. Rule 9013 provides that a request for an order “shall be by written motion . . . .” Debtor’s request that approval of the contingency fee arrangement for the Goetz firm be revoked is included in Debtor’s oppositions and Sur-Reply, which do not comply with the Rule 9013 requirement of a written motion. Pro se litigants must follow procedural rules.
Further, in two respects the Debtor’s and Terry Sann’s objections to the requested interim contingency fee award are premature. First, interim fee awards under § 331 are interlocutory only and not a final adjudication of the issue of compensation. Second, Debtor’s and Terry Sann’s objections are premature, in this Court’s view, because the Debtor’s optimistic predictions for his future success have not come to pass.
This Court approves the use of contingency fee awards to attorneys in bankruptcy cases if the employment and fee arrangements are properly disclosed and approved. In the instant case the Goetz firm’s contingency fee arrangement was disclosed in the interim employment application, Ex. 3, and approved by the Court and forms the basis of the requested compensation. The Debtor did not file an objection or motion for reconsideration of the contingency fee arrangement until he filed his oppositions to the instant Application.
In re Sann, December 15, 2016, Trent M. Gardner for Brandon, Steven Sann, Pro se
2016 Mont. B.R. 608
Shoot the Moon, LLC, Chapter 11, Assumption of Leases, Administrative Claim
Case no. 15-60979
Prime filed its Motion to Compel seeking an order compelling the Trustee to assume or reject the two leases in the Gateway Marketplace, for allowance of unpaid rent as an administrative claim under § 503(b)(1)(A), and to compel immediate payment of the rent in the minimum amount of $59,329 under § 365(d)(3). The Trustee filed his objection combined with a motion to extend the deadline by which the Debtor must assume or reject the two leases. The Trustee’s objection states that the Debtor closed the OTB restaurant in the Gateway Marketplace prior to the filing of the bankruptcy petition, but that it remains subject to the lease with Prime. Describing the "complete disarray" of Debtor’s books, the Trustee’s objection states that he cannot accurately determine the financial status of the restaurant obligations, the amounts of the various lease obligations owing or amount of cash the Debtor has available to pay the leases.
With the approved stipulation between Prime and the Trustee, the only issues before the Court involve: the amount of the unpaid postpetition lease payments due on the OTB lease; and whether the Trustee must pay Prime that amount immediately or whether Prime should be awarded an administrative claim as this Court awarded in Overland Express. The instant case is distinguishable from Overland Express. Prime has filed its Motion to Compel timely payment of lease payments pursuant to § 365(d)(3), while the creditor in Overland Express did not file its claim until after the case was converted. The Trustee concedes Prime has an administrative claim for the unpaid OTB lease payments, so § 503(b)(1) is not in dispute.
The Trustee’s motion and his counsel at the hearing each stated that the amount of unpaid postpetition OTB lease payments owed to Prime is $83,600. The Trustee’s motion to reject the OTB lease requested that rejection be retroactive to the date of the Trustee’s motion. The Trustee’s motion (Doc. 288) was served on Prime’s attorneys of record, including local counsel. The Court treats the statements of the Trustee in his motion as an admission of the $83,600 amount of unpaid postpetition lease payments owing to Prime; the Court also deems Prime’s failure to respond to the Trustee’s motion after notice as its admission under Mont. LBR 9013- 1(f) that the relief requested in the Trustee’s motion should be granted, including the $83,600 amount. Based on those admissions the Court finds that the amount of postpetition lease payments owed by the estate to Prime for the OTB lease at Gateway Marketplace is $83,600.
Turning to the final issue under § 365(d)(3), the Trustee requests that the estate not be ordered to pay Prime its administrative claim immediately because of the condition of the Debtor’s books and the harm immediate payment would inflict on other creditors and interested parties. The 60-day period after the order for relief specified in § 365(d)(3), beyond which "the time for performance shall not be extended[,]" has expired. The language of § 365(d)(3) that the "trustee shall timely perform all the obligations of the debtor . . . under any unexpired lease of nonresidential real property, until such lease is assumed or rejected," is unambiguous. The Trustee’s failure to pay immediately the lease obligations owing to Prime under the OTB lease is inconsistent with the broad interpretation of § 365(d)(3) and clear holdings of the Ninth Circuit that § 365(d)(3) requires immediate payment under the lease. Rather than timely and immediately paying Prime under the OTB lease as required by § 365(d)(3), the Trustee seeks an unspecified delay before it pays Prime its administrative claim. Further, while depriving Prime of prompt performance under its bargained-for lease, the Trustee applies for an award of interim fees in the sum of $218,458.50. The Trustee’s position is without support under the unambiguous language of § 365(d)(3) and controlling Ninth Circuit authority.
In re Shoot The Moon, LLC, April 12, 2016, Ryan D. O’Dea and Doug James for Prime A Investments, LLC, Trent N. Baker for Foster (Trustee)
2016 Mont B.R. 255
Shoot The Moon, LLC, Chapter 11, Motion for Reconsideration
Case no. 15-60979-11
The Trustee’s Motion to Reconsider asks for relief under Rule 59. Rule 59(e) includes motions for reconsideration. The District Court, in affirming this Court’s decision, discussed amendment of an order under Rule 59(e): "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 Trustee’s Motion to Reconsider does not present newly discovered evidence which was not available to the Trustee earlier in this case, and does not argue that there was an intervening change in the controlling law.
The Trustee’s Motion to Reconsider does little more than repeat the same arguments which the Court considered and rejected in its Memorandum of Decision and Order. Section 365(d)(3) requires immediate payment under the lease. The allowance of unpaid lease payments as an administrative expense in Cukierman occurred only because the trustee in that case had failed to pay lease payments asrequired by § 365(d)(3). This Court finds no grounds to reconsider and grant the Trustee relief when he seeks to delay making timely payment of shopping center lease payments required under The Trustee argues that the estate has insufficient funds to timely pay Prime A under the lease as required by § 365(d)(3), while at the same time the Trustee has pending, at the time of the Memorandum of Decision, applications requesting interim fee awards for himself in the amount of $218,458.50.
WAB argues that it has a super-priority claim based on the DIP financing order. WAB’s joinder is untimely. Lease payments due under § 365(d)(3) must, in this Court’s view, be considered ordinary and necessary operating expenses for the estate’s business and thus were already authorized under and consistent with the DIP financing order. WAB did not argue or show that the DIP financing motion or DIP financing order sought relief from payment of the unexpired lease of nonresidential real property from Prime A, or cite any authority under which this Court could or should grant relief from § 365(d)(3).
In re Shoot The Moon, LLC, June 7, 2016, Trent N Baker for the Trustee, Ronald Bender for Western Alliance Bank, Ryan O’Dea and Doug James for Prime A
2016 Mont. B.R. 360
Spokane Law Enforcement Credit Union v. Barker et al, Ninth Circuit Court of Appeals, (Published), (Fletcher,Gould, N.R.Smith), Late Filed Claim, Informal Proof of Claim
Ninth Circuit no. 14-60028
The Credit Union argues first that, under the doctrine of judicial admissions, Barker must pay all the debts she listed in her bankruptcy schedules. The Ninth Circuit has acknowledged the doctrine of judicial admissions. Judicial admissions are “conclusively binding on the party who made them.” A creditor who wishes to participate in a Chapter 13 plan has an affirmative duty to file a proof of claim. A debtor’s acknowledgment of debt in a bankruptcy schedule—whether or not that is a judicial admission—does not satisfy this affirmative duty. Congress chose to require Chapter 13 creditors to file proofs of claims that demonstrate their intent to enforce their claims; a judicial admission by a debtor does not fulfill this strict requirement or its purpose.
Creditors, failing to file a timely formal proof of claim, often assert that an informal proof of claim can function to establish the creditor’s claims. The Ninth Circuit has two requirements for a document to qualify as an informal proof of claim: (1) the document “must state an explicit demand showing the nature and amount of the claim against the estate,” and (2) the document must “evidence an intent to hold the debtor liable.” The filing of a proof of claim (which evidences the creditor’s decision to hold the debtor liable) plays an important role in Chapter 13 bankruptcy proceedings. This function applies equally to an informal proof of claim. In order to establish an informal proof of claim, a creditor must have taken some affirmative action to assert its claim within the statutorily prescribed time frame.
Barker’s bankruptcy schedules simply do not meet either of the prongs required to establish an informal proof of claim. The Barker-drafted documents are not an explicit demand and do not demonstrate the Credit Union’s intent to hold Barker liable for the listed debt. Accordingly, we affirm the bankruptcy court’s conclusion that the informal proof of claim doctrine does not apply in this case.
Barker’s bankruptcy schedules do not qualify as a debtor’s proof of claim. Congress adopted Rule 3004 in addition to the Rules requiring Chapter 13 debtors to file schedules of their assets and liabilities. Therefore, Rule 3004 requires that debtors make an additional showing of their desire to include an unasserted claim in their Chapter 13 plan after receiving notice of which creditors intend to enforce their claims. Barker never made this additional showing. Therefore, the filing requirements of Rule 3004 have not been satisfied, and Barker’s bankruptcy schedules do not constitute a debtor’s proof of claim.
The Ninth Circuit has repeatedly held that the deadline to file a proof of claim in a Chapter 13 proceeding is “rigid,” and the bankruptcy court lacks equitable power to extend this deadline after the fact. Further, allowing the bankruptcy court to retroactively extend the deadline in this case would thwart the purpose of Chapter 13. In order to participate in distributions of Barker’s assets under her Chapter 13 plan, the Credit Union was required to file a proof of claim by the prescribed deadline. Because the Credit Union’s proof of claims were untimely, the bankruptcy court properly rejected them.
Spokane Law Enforcement Credit Union v. Barker and Drummond, October 27, 2016, Quentin M. Rhoades for Spokane Law Enforcement Credit Union, Robert Drummond, pro-se, Kraig C. Kazda for Barker
2016 Mont. B.R. 546
Stafford v. Fockaert, Montana Supreme Court, Sanctions, Prejudgment Interest
Case no. DA 15-0345
In reviewing a district court’s decision regarding the imposition of sanctions, we engage in a two-step inquiry: (1) "whether there was an actual failure to comply with the judicial process," and (2) "whether the severity of the sanction was appropriate."
The District Court was in the best position to assess the merits of Fockaert’s explanation for the cancellation and to determine whether Fockaert complied in good faith with court’s order requiring that the parties mediate. Before sanctioning Fockaert, the court conducted a lengthy hearing in which both parties submitted evidence. Fockaert testified and the court listened to Fockaert’s explanation for the cancellation. Fockaert conceded that he told Edwards that he did not need to mediate and that he would not "negotiate" with Stafford, but that he nonetheless always intended to "mediate" and Edwards misunderstood his comments. The court also reviewed several exhibits submitted by Stafford. After reviewing the evidence presented to the District Court, we conclude that sufficient evidence existed for the court to find that Fockaert failed to participate in good faith in the court ordered mediation. The District Court did not abuse its discretion by imposing default judgment pursuant to M. R. Civ. P. 16(f) for Fockaert’s failure to comply with the court’s order.
The parties dispute whether Stafford is entitled to prejudgment interest, and if so, when such interest accrues. We have explained that the statute has three requirements: "(1) an underlying monetary obligation, (2) an amount of recovery that is certain or capable of being made certain by calculation, and (3) a right to recover that vests on a particular day." If these elements are met an award of interest is not discretionary; instead, a trial court is required to award prejudgment interest.
A dispute over the defendant’s liability giving rise to the damages does not suffice to make damages uncertain. Rather, the statute "merely requires that the damages be certain, or capable of ascertainment by calculation." The damages in this case were clearly ascertainable prior to the court’s entry of liability. While Fockaert contested Stafford’s allegations of fraud, Fockaert agreed he received $100,000 from Stafford. Thus, though Fockaert contested the claim, he did not contest the damages arising from the claim. We next turn to whether Stafford’s right to recover the $100,000 vested on a particular day, and if so, the particular day on which that occurred. Our analysis here is guided by the court’s issuance of default judgment in favor of Stafford on her claim of actual fraud. We have explained the effect of a default judgment is that "the facts alleged by the plaintiff in the complaint are deemed admitted." Accepting Stafford’s allegations as true, the underlying monetary obligation due to Stafford was sum certain, in the amount of $100,000, on July 19, 2010, and Stafford had a right to recover that sum certain on that particular day. The elements of fraud were satisfied as soon as Stafford was injured by her reliance on Fockaert’s misrepresentation, which occurred when Stafford transferred $100,000 into Fockaert’s account on July 19, 2010. Since that date, Stafford has had a right to recover, and Fockaert has been obligated to return, the fraudulently obtained funds. Furthermore, accruing the interest from July 19, 2010, is fully consistent with the purpose of prejudgment interest. Prejudgment interest is "simply an ingredient of full compensation that corrects judgments for the time value of money."
Stafford v. Fockaert, February 9, 2016, Quentin M. Rhoads, Nicole L. Siefert for Stafford, Charles Fockaert, pro se
2016 Mont. B.R. 50
The Cimmaron Group Inc., Chapter 7, Realtor Commission, Objection to Claim
A timely proof of claim, filed in accordance with Rule 3001, constitutes prima facie evidence of the validity and amount of the claim. 11 U.S.C. § 502(a); Rule 3001(f). The party objecting to the allowance of a claim bears the burden "to produce evidence sufficient to negate the prima facie validity of the filed claim. If the objector produces evidence sufficient to negate the validity of the claim, the ultimate burden of persuasion remains on the claimant to demonstrate by preponderance of the evidence that the claim deserves to share in the distribution of the debtor’s assets."
Debtor’s Objection to Kissock’s Proof of Claim must be sustained. First, Kissock failed to attach any supporting documentation to its Proof of Claim as required by FED.R.BANKR.P. 3001(c). Thus, Kissock’s claim is not entitled to the prima facie evidentiary effect afforded by Rule 3001(f); Kissock must prove the validity of its claim by a preponderance of the evidence.
A broker, such as Kissock, is not entitled to a selling commission until her or she procures "a purchaser ready, able, and willing to purchase the seller’s property on the terms and conditions specified in the contract of employment." Generally, such rule "mean[s] that a broker employed to ‘sell or effect a sale’ (as is the case here) does not earn his commission until the purchase price is paid, title is conveyed and the sale completed." Here, the sale to Butte Hospitality did not close and Kissock is not claiming a right to a selling commission, nor could it under Montana law or the Listing Contract, which specifically provides that "Seller’s acceptance of an agreement to sell and purchase containing contingencies shall not entitle the Broker to a commission unless or until the contingencies have been removed, or unless the Seller breaches the agreement."
Kissock is also deemed to concede, through his and its silence, that the Agreement between Debtor and Butte Hospitality is first and foremost a purchase and sale agreement with contingencies. Indeed, when all agreements between the parties are taken together, as they must be under MONT. CODE ANN. ("MCA") § 28-3-203, it is clear the transaction between these parties was a purchase and sale agreement. Similarly, Kissock does not argue that Debtor entered into a stand alone lease for the Hotel or that the Agreement is a lease with an option to purchase. Rather, Kissock’s sole argument is that it is entitled to a ten percent commission because under the Agreement, which is clearly a purchase and sale agreement, the Buyer, Butte Hospitality, was permitted to take possession of the Hotel and operate it for a three and one-half month period in furtherance of Butte Hospitality’s efforts to secure financing from the Montana Community Development Corporation. Kissock found a buyer for the Hotel, but unfortunately for Debtor and Kissock, the buyer was not ready, able, and willing to purchase the Debtor’s property; the purchase price was never paid, title was never conveyed and the sale was not completed. Butte Hospitality’s three and one-half month possession of the Hotel under the terms of the Agreement did not trigger Kissock’s right to a commission.
In re THE CIMMARON GROUP INC., January 26,2016, James A Patten for THE CIMMARON GROUP, Bernard J. Everett for Kissock
2016 Mont. B.R. 32
Thornbrugh, Chapter 13 , Motion to Reconsider, Proof of Claim Filed by Debtor
Case no. 15-60352
The notice of commencement of the case, meeting of creditors, and deadlines for matters such as proofs of claim, was mailed to creditors. including to SRM. The notice sets a deadline for filing proofs of claim and explains that to be paid, a creditor must file a proof of claim even if its claim is listed in the debtor’s schedules. The claims bar date expired and SRM had not filed a proof of claim. Asked why SRM did not file a proof of claim, Bapties testified that he did not know and that it was probably an oversight by SRM. Debtor’s attorney filed Proof of Claim No. 16 for SRM pursuant to F.R.B.P. Rule 3004, which provides that if a creditor does not timely file a proof of claim, "the debtor or trustee may file a proof of claim within 30 days after the expiration of the time for filing claims . . . . The clerk shall forthwith give notice of the filing to the creditor, the debtor and the trustee." No certificate of mailing is attached to Proof of Claim No. 16 indicating that it was served on SRM.
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." No newly discovered evidence has been submitted or offered in the record, which was not available earlier in the case, and no intervening change in controlling law has occurred. Turning to the Trustee’s argument that SRM was not given due process because the Debtor failed to serve Proof of Claim No. 16 on SRM, the Court first notes that Rule 3004 concludes with: "The clerk shall forthwith give notice of the filing to the creditor, the debtor and the trustee." Rule 3004 does not require that a debtor give notice of the filing of a proof of claim to a creditor. Further, Rule 3004 does not require that the proof of claim be served on the creditor, rather it requires that "notice of the filing" be given to the creditor.
A basic maxim of equity provides: "The law aids the vigilant before those who sleep on their rights." SRM was mailed notice of Debtor’s bankruptcy filing, notice of the deadline for filing proofs of claim, notice of the Debtor’s modified Plan’s treatment of its secured claim, and notice of the hearing on confirmation and its objection. Instead of retaining an attorney as required by Mont. LBR 1074-1, SRM ignored the claims deadline and dispatched a non-attorney to prosecute its objection to Debtor’s modified Plan. SRM has not acted diligently to protect its rights, and cannot expect equitable relief. Because SRM received actual notice of the filing and contents of Debtor’s modified Plan, which it acknowledged by filing its objection, this more than satisfied SRM’s due process rights.
In re Thornbrugh, January 13, 2016, Andrew W., Pierce for Thornbrugh, Robert Drummond, Trustee
2016 Mont. B.R. 10
Weinrich, Chapter 7, Settlement
Case no 10-62170-7
The Trustee filed a motion to reopen Debtor’s bankruptcy case to pursue a medical malpractice claim against the University of Utah Health Sciences Center, which claim was not disclosed in Debtor’s schedules. The Trustee thereafter filed the pending Motion to Approve Settlement, seeking to settle Debtor’s medical malpractice claim for $35,000.00. Gruber will receive one-third of the settlement for his contingency fee, and after payment of Gruber’s fee and pursuant to the approved stipulation between Debtor and the Trustee, Debtor and the Estate will each receive one-half of the remaining settlement proceeds. Debtor opposes the settlement and contacted two additional attorneys regarding her medical malpractice claim; Dave Lambert and George Tait. Attorney Dave Lambert did not review Debtor’s records. Attorney George Tait reviewed Debtor’s records, including the expert deposition testimony, and decided against taking Debtor’scase, estimating that Debtor’s case had a forty percent chance of success and a sixty percent chance of failure.
In deciding whether to approve the Trustee’s settlement with the University of Utah Health Sciences Center, the Court considers the factors articulated in Martin v. Kane (In re A&C Properties), 784 F.2d 1377, 1381 (9th Cir. 1986):
While collection and the complexity of the litigation are not issues in this case, somebody will have to fund the expense of proceeding forward with litigation. The Trustee does not appear to have an interest or the financial wherewithal to fund a case that has only a low probability of success. As the Trustee stated, he believes approval of the settlement is the only chance for Debtor and the creditors of the Estate to receive a single cent from the medical malpractice claim. Consequently, having considered all relevant factors, the Court finds that the Trustee’s agreement with the University of Utah Health Sciences Center is "fair and equitable" as required by In re A&C Properties.
In re Weinrich, May 4, 2016, Joeseph V. Womack, Trustee, Lucy Weinrich, Pro se
2016 Mont. B.R. 327
Welu v. Twin Hearts Smiling Horses, Inc., Montana Supreme Court, (Shea,Baker,Wheat), Property, Fixtures, Contract, Unjust Enrichment
Case no. DA-16-0139
Personal property may become a fixture pursuant to § 70-15-103, MCA, which provides, in relevant part, that “[a] thing is deemed to be affixed to land when it is . . . permanently attached to what is thus permanent as by means of cement, plaster, nails, bolts, or screws.” We consider the following factors when determining whether personal property has become affixed to the realty: “‘(1) annexation to the realty, (2) an adaptation to the use to which the realty is devoted, and (3) intent that the object become a permanent accession to the land.’” The specific question of whether an irrigation system is a fixture requires application of the annexation, adaptation, and intent test that is unique to the facts of each case.
A. Annexation
“The clearest cases of annexation are those in which the equipment has some characteristic of permanent physical attachment to the land, such as being buried within the land, or consisting in part of concrete slabs partially buried within the land.” There is no evidence in the record that the parties intended the pivot irrigation system to be moved to different locations on different fields. Instead of removing and stacking the pipes as the parties did in Schwend, this pivot irrigation system was winterized in place. We note further that this pivot irrigation system was not specifically designed to be used in more than one location, as the Schwend irrigation pipe was. Given these particular facts, we find that there was substantial evidence tending to show annexation in this instance which outweighed any evidence against such a conclusion. Therefore, we hold that the District Court did not err in concluding that the pivot irrigation system was factually annexed to THSH’s real property within the meaning of our precedent involving fixtures.
The second factor considered when determining whether a piece of personal property constitutes a fixture is whether the property has been adapted to the use to which the realty is devoted. The determinative question here is whether the pieces of the pivot irrigation system Welu sought to remove were an integral part of the pivot irrigation system as a whole, and whether the removable components were adapted to the particular real property at issue. Under these factual circumstances, we determine that the components Welu sought to remove from THSH’s property were specifically adapted to the realty. Therefore, because we determine that the components at issue were both an integral part of the pivot irrigation system and were specifically adapted to the realty at issue, we conclude that the pivot irrigation system as a whole was adapted to the realty.
The objective intent of the installing party “is deduced by the court from all of the circumstances surrounding the installation of the purported fixture.” Filling in portions of the existing irrigation ditches located on THSH property is further evidence of the fact that Welu intended the pivot irrigation system to be permanent. We determine that the objective circumstances surrounding Welu’s installation of the pivot irrigation system illustrate that it was his intent for the system to become a permanent fixture on the land. Therefore, because the pivot irrigation system was annexed to the realty, adapted to the realty, and installed with the intent to remain permanently on the realty, the District Court did not err in holding that the pivot irrigation system was a fixture attached to the realty owned by THSH.
“A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” Further, “[t]he whole of a contract is to be taken together so as to give effect to every part if reasonably practicable, each clause helping to interpret the other.” Held had not breached the parties’ agreement as of the time that Welu directed that Agri not undertake any more work on the pivots, because there was still sufficient time for Held to repair the pivot irrigation system and cultivate green fields for hunting prior to the start of the 2012 hunting season, but for Welu’s interference. The District Court did not err in determining Held had not breached the parties’ agreement.
“Unjust enrichment is an obligation created by law in the absence of an agreement between the parties.” In other words, courts have applied the doctrine of unjust enrichment when a contract in law is implied by the facts and circumstances of the case, but no actual contract exists between the parties. Neither party disputes the existence of a contract involving the pivot irrigation system at issue. Because it is undisputed that a contract exists, Welu’s unjust enrichment arguments are not well taken.
Welu v. Twin Hearts Smiling Horses, Inc, Michael E. Begley and Adam J. Tunning for Welu, Stephen C. Mackey for Twin Hearts and Held
2016 Mont. B.R. 660
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