AG N.M., FCS, ACA v. Mexico (In re Borges)

• Decision Date: 31 December 2012
• Docket Number: Adversary Nos. 10–1170–s, 11–1012–s, 10–1170–s, 11–1105–s.,Bankruptcy No. 11–10–12800–s11.
• Citation: 485 B.R. 743
• Parties: In re Joe Bettencourt BORGES, dba J & M Dairy, Debtor. AG New Mexico, FCS, ACA, AG New Mexico, FCS, PCA, AG New Mexico, FCS, FLCA, Plaintiffs, v. Joe Bettencourt Borges, aka Joe Borges, aka Joe B. Borges; Maria Rocha Borges, aka Maria Borges, aka Maria R. Borges; David Borges, a married man, dealing in his sole and separate estate; Frank Borges, a single man; Atkins Engineering Associates, Inc., a New Mexico Corporation; Cliff Waide; Alvin F. Jones dba Waide Irrigation Service and Supply; Internal Revenue Service, an agency of the United States of America; Pecos Valley Pump, Inc., a New Mexico Corporation; Jordan Dairy Service, LLC, a New Mexico Corporation; CWBC, Inc., a New Mexico Corporation; and All Unknown Claimants of Interest, In The Premises Adverse To The Plaintiffs, Defendants. Joe Bettencourt Borges and Maria Rocha Borges, Plaintiffs, v. AG New Mexico, FCS, PCA, AG New Mexico, FCS, ACA, and AG New Mexico, FCS, FLCA, Defendants. Joe Bettencourt Borges and Maria Rocha Borges, Plaintiffs, v. National Milk Producers Federation dba Cooperatives Working Together; AG New Mexico FCS, ACA, AG New Mexico, FCS, FLCA, and AG New Mexico, FCS, PCA, Defendants.
• Court: U.S. Bankruptcy Court — District of New Mexico

485 B.R. 743

In re Joe Bettencourt BORGES, dba J & M Dairy, Debtor.

AG New Mexico, FCS, ACA, AG New Mexico, FCS, PCA, AG New Mexico, FCS, FLCA, Plaintiffs,

v.Joe Bettencourt Borges, aka Joe Borges, aka Joe B. Borges; Maria Rocha Borges, aka Maria Borges, aka Maria R. Borges; David Borges, a married man, dealing in his sole and separate estate; Frank Borges, a single man; Atkins Engineering Associates, Inc., a New Mexico Corporation; Cliff Waide; Alvin F. Jones dba Waide Irrigation Service and Supply; Internal Revenue Service, an agency of the United States of America; Pecos Valley Pump, Inc., a New Mexico Corporation; Jordan Dairy Service, LLC, a New Mexico Corporation; CWBC, Inc., a New Mexico Corporation; and All Unknown Claimants of Interest, In The Premises Adverse To The Plaintiffs, Defendants.

Joe Bettencourt Borges and Maria Rocha Borges, Plaintiffs,

v.AG New Mexico, FCS, PCA, AG New Mexico, FCS, ACA, and AG New Mexico, FCS, FLCA, Defendants.

Joe Bettencourt Borges and Maria Rocha Borges, Plaintiffs,

v.National Milk Producers Federation dba Cooperatives Working Together; AG New Mexico FCS, ACA, AG New Mexico, FCS, FLCA, and AG New Mexico, FCS, PCA, Defendants.

Bankruptcy No. 11–10–12800–s11.

Adversary Nos. 10–1170–s, 11–1012–s, 10–1170–s, 11–1105–s.

United States Bankruptcy Court, D. New Mexico.

Dec. 31, 2012.

Bonnie Bassan Gandarilla, George M. Moore, Koo Im Sakayo Tong, Moore, Berkson & Gandarilla, P.C., Michael K. Daniels, Albuquerque, NM, Wiley F. James, III, James & Haugland, PC, El Paso, TX, William J. Arland, III, Santa Fe, NM, for Debtors.

Leonard K. Martinez–Metzgar, Albuquerque, NM, U.S. Trustee.

MEMORANDUM OPINION AFTER TRIAL ON THE MERITS IN SUPPORT OF JUDGMENT AND AWARD OF RELATED RELIEF

JAMES S. STARZYNSKI, Bankruptcy Judge.

This matter came before the Court for trial on the merits of the claims of AG NEW MEXICO, FCS, ACA (“ACA”), AG NEW MEXICO, FCS, PCA (“PCA”), and AG NEW MEXICO, FCS, FLCA (“FLCA”) (collectively “Plaintiffs” or “AGNM”) against Joe Bettencourt Borges (“Mr. Borges”) and Maria Rocha Borges (“Ms. Borges”) (collectively “Borges' ” or “Debtors”) and Debtors' Counter-claims against the Plaintiffs. For the reasons set out below, the Court will grant judgment and other relief in part to AGNM and to the Debtors, and will remand Adversary Proceeding 10–1170 to the state court from whence it was removed.¹

Procedural Background and Pleadings

Debtors filed a joint chapter 11 petition for themselves dba J & M Dairy. Case no. 10–12800. Maria Borges was dismissed from the case without prejudice for failing to obtain the requisite prepetition credit counseling. Main case, doc 92. She promptly filed another chapter 11 case, no. 10–14903, which was quickly substantively consolidated with the earlier filed no. 10–12800. Doc 113.

AGNM had filed a complaint for money due and for foreclosure against Borges and others (none of the latter, except Frank and David Borges, remain in the action), seeking to collect proceeds from the liquidation of the Borges' dairy herd and to collect on other collateral, and to foreclose on and sell a dairy facility and an adjacent farm. The action was filed in the Fifth Judicial District Court, County of Eddy, State of New Mexico (CV–09–610) (“State Court Action”) on August 28, 2009. Debtors had answered and raised affirmative defenses and counterclaims against AGNM. Id. Debtors removed the State Court Action to this Court. Adversary Proceeding No. (“AP”) 10–1170. Debtors filed an adversary proceeding against AGNM, seeking avoidance of AGNM's liens and turnover of the proceeds in the Court registry. AP 11–1012. Debtors also filed an adversary proceeding against AGNM and the National Milk Producers Federation dba Cooperatives Working Together ², seeking turnover of the proceeds from the sale of the Borges' dairy herd which resulted in, among other things, the deposit into the registry of this Court of those proceeds in the sum of slightly over $4 million. AP 11–1105.³

AGNM filed proofs of claims in the main case—nos. 15, 16 and 17—to which Debtors objected (coincidentally docs 115, 116 and 117 respectively). The parties then usefully entered into stipulations that Plaintiff's claims and Debtors' affirmative defenses and counterclaims, set out in AP 10–1170, would be deemed to have been asserted fully in the chapter 11 case and AP 11–1012 as if fully set forth therein, without the need to file them again in the case or the adversary proceeding. Main Case, doc 127; AP 11–1012, doc 4. Thus the primary claims, affirmative defenses and counterclaims ⁴ are sufficiently arrayed as pleadings in each proceeding for trial purposes.⁵

On September 6, 2011, the Court entered its memorandum opinion (doc 78) and order (doc 79) in AP 10–1170, granting partial summary judgment to Plaintiffs that all three plaintiffs hold a security interest in the funds in the registry of the Court and that PCA has a perfected secured claim in the funds. However, the Court declined to award the registry funds to AGNM because the issue of whether AGNM was owed anything at all was not and could not be decided by the summary judgment. In consequence, the $4 million remains in the registry of the Court in connection with AP 11–1105. Several additional motions for summary judgment were filed by the parties (AP 10–1170 docs 53, 55, 57 and 129), but the Court entered an order deferring ruling on those motions (doc 132). Thereafter the trial on the merits commenced May 21, 2012, with the presentation of evidence concluding on May 31. Closing arguments in the form of briefing concluded on July 16, 2012, at which time the matter was submitted.

As noted, in the State Court Action, and now in AP 10–1170 and the other proceedings, AGNM seeks a judgment establishing the debts owed to it and permitting it to foreclose or otherwise collect on its collateral. The collateral includes, according to the complaint, the proceeds of the bid which CWT accepted to take the dairy herd out of production ⁶—about $4 million, the dairy facility and adjacent farmland (and water rights) mortgaged or pledged to AGNM, and proceeds of milk sales. AGNM is also claiming (1) the right to approximately $360,000 held by it as “cash collateral,” received by it from sales of cattle and receipt of $90,000 of milk proceeds, and put into a “Funds Held” account and not yet applied to reduce the amount owed on any of the notes, and (2) application of $1,000 of FLCA stock to repay the debt owed to it.

In response, Borges' deny many of the allegations of the complaint (mostly for lack of information and belief). AP 10–1170, doc 5, at 1–7. Borges' also raise affirmative defenses of unclean hands, failure to mitigate damages, waiver and estoppel, breach of good faith and fair dealing, breach of contract, duress, voluntary payment or tender of payment, offset, accord and satisfaction, Plaintiffs' settlement of claims with Dairy Farmers of America, promissory estoppel and failure to state a claim upon which relief can be granted. Id. at 7–8. And finally Borges' assert counterclaims of breach of contract, breach of obligation of good faith and fair dealing, promissory estoppel, interference with Devine contract, interference with CWT contract, interference with Lewis contract, conversion of CWT proceeds, conversion of payments, violation of the (New Mexico) Unfair Practices Act, and prima facie tort. Id. at 8–29. AGNM answered the counterclaims, denying liability and asserting affirmative defenses that were much the same as the affirmative defenses and counterclaims asserted by Borges' against AGNM. Doc 6.

On May 21, 2012, the Court commenced an eight-day trial on the merits of the claims and counterclaims. The parties then submitted simultaneous closing arguments and responses to the closing arguments in writing. Docs 168 (“Borges Closing”), 169 (“AGNM Closing”), 180 (“AGNM Reply”), and 181 (“Borges Reply”). ⁷

Factual Background

Plaintiffs are federally chartered agricultural lenders. PCA (Production Credit Association) and FLCA (formerly the Federal Land Bank) are wholly owned subsidiaries of ACA (Agricultural Credit Association). ACA is under the supervision of Farm Credit Bank of Texas (“FCBT”), headquartered in Austin, Texas.

Joe and Maria Borges were dairy farmers for decades, first in California and then in New Mexico. In 2006, the Borges' dba J & M Dairy in Artesia, New Mexico began dealing with AGNM.

On June 6, 2006, the Borges' dba J & M Dairy signed a promissory note to PCA—loan no. 216100056 (variously “Note 56”, “Cow Note”, “Operating Note”, or “[Revolving] Line of Credit Note”)—for a line of credit in the original principal amount of $4,750,000. AGNM exhibit A (“Ex. A”). That note was renewed by a note dated and signed July 13, 2007 in the amount of $5,575,000. Ex. B. That note in turn was renewed by a note dated and signed May 29, 2008 in the amount of $6,100,000. Ex. C. Loan 56 was continuously directly collateralized by over 7,000 cattle (mostly dairy cattle, plus their offspring and bulls), including any replacements, as well as by, among other things, all milk and milk proceeds, all crops including hay and other feed, the farm equipment and any accounts receivable. Commercial Security Agreement, dated June 6, 2006. Ex. G. The Borges' executed renewal security agreements on July 13, 2007, Ex. H, and May 29, 2008. Ex. I. The security agreements were perfected by filing a financing statement with the Secretary of State. Ex. J–1. Repayment of Note 56 was also collateralized by a Line of Credit Mortgage dated June 6, 2006 (“2006 Mortgage”). Ex. 15.⁸

On August 17, 2006 Borges' signed a single advance promissory note to PCA—loan no. 216100060 (variously “Note 60”, “Equipment Note” or “ITL Note”)—in the original principal amount of $101,788.75 for the purchase of dairy equipment. Ex. L. Repayment of that note was also secured by Exs. G, H and I, and the lien perfected by a filing with the New Mexico Secretary of State, Ex....