In re Hughes, Case No. 08-60003-12 (Bankr.Mont. 5/15/2009)
| Decision Date | 15 May 2009 |
| Docket Number | Case No. 08-60003-12.,Adv No. 08-00030. |
| Parties | In re CHARLES R. HUGHES, Debtor. VALLEY BANK OF RONAN, Plaintiff, v. CHARLES R. HUGHES, Defendant. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Montana |
Pending in this adversary proceeding are motions for summary judgment filed by both the Plaintiff Valley Bank of Ronan ("VB") (Docket No. 144) and by Defendant Charles R. Hughes (Docket No. 145); VB's motion in limine to exclude or limit expert witnesses Cynthia Shea ("Shea") and Anne Robinson ("Robinson") (Docket No. 130), and the Defendant's motion for protective order (Docket No. 133) to prevent a third deposition of the Defendant. Objections were filed in response to all of the pending motions. Oral argument on the motions was held at Missoula on May 7, 2009. VB was represented by attorneys David B. Cotner ("Cotner") and Trent N. Baker of Missoula. Defendant was represented by attorney G. Patrick Hagestad ("Hagestad") of Missoula. No testimony or exhibits were admitted. The Court took the pending motions under advisement after oral argument concluded. After review of the record and applicable law, for the reasons set forth below all pending motions will be denied by a separate Order.
This Court has "related to" jurisdiction of this adversary proceeding, which the Defendant removed from the Montana Twentieth Judicial District Court, Lake County, under 28 U.S.C. § 1334(b). Furthermore, the parties' counsel agreed at a hearing on May 15, 2008, that the remaining matters are core proceedings and the Court has jurisdiction. The Court held a status conference, set pretrial deadlines and set trial originally to commence on January 20, 2009. The trial date was continued to February 27, 2009, and then continued again to commence on May 26, 2009 by Order entered on January 12, 2009 (Docket No. 112), which also set pretrial deadlines.
This adversary proceeding involves the Defendant's remaining claims for relief against VB, after remand from the Montana Supreme Court in Valley Bank of Ronan v. Hughes, 2006 MT 285, 334 Mont. 335, 147 P.3d 185. In Hughes the Court affirmed summary judgment granted in favor of VB by the district court on a promissory note between the parties, affirmed the district court's conclusion that VB did not violate any duty to Defendant under Montana's Uniform Commercial Code ("UCC"), and affirmed the court's exclusion of Shea's testimony regarding the UCC-defined standard of ordinary care prevailing in the area in which VB is located in Ronan, Montana. Hughes, ¶¶ 42, 45, 47. The Supreme Court reversed and remanded "for further proceedings" "to consider whether common law and equitable principles supplement the UCC-defined duty of ordinary care with respect to representations about the check settlement process." Id., ¶ 29. At oral argument Hagestad stated on the record that the Defendant is no longer asserting any claims based on provisions of Montana's UCC, and has remaining claims against VB based only upon negligence and negligent misrepresentation.
The Montana Supreme Court set forth the following facts in its Hughes decision:
The District Court's approach to the factual issues in this matter was set forth in its summary judgment order:
The facts set forth herein are Hughes' "version" of the facts. While several are contested by Valley Bank, the Court has assumed these facts to be true in analyzing the Motion for Summary Judgment presented by Valley Bank.
On appeal, the parties have utilized the same framework. In its appellate briefing, Valley Bank urges us to "likewise ... test Hughes' facts and determine whether Valley is entitled to judgment as a matter of law." Except for an argument it makes in response to defenses raised by Hughes to foreclosure of the promissory note, wherein it asserts that Hughes has not raised a genuine issue of material fact, Valley Bank urges us to rule that it was entitled to judgment as a matter of law "assuming [Hughes'] facts to be true." Thus, except as otherwise noted, we consider the issues raised herein under that portion of the summary judgment standard of review, see ¶ 14, infra, which requires us to determine whether the movant is entitled to judgment as a matter of law.
Lured by the promise of quick wealth, Hughes was conned by a " Nigerian scam." The swindlers promised Hughes a $3 million to $4.5 million commission for his aid in procuring agricultural equipment for import into Africa and then proceeded to bilk him for hundreds of thousands of dollars in advanced fees. At least some of the funds Hughes advanced were wired via the services of Valley Bank, resulting in a dispute over which party should bear the loss from the flimflam.
On Friday, March 22, 2002, Hughes received four checks from one of the con-artists and deposited them into accounts Hughes held at Valley Bank. Two of them were "official" checks, and the other two were personal checks. One official check, for $1 million, was drawn on Colonial Bank. The other official check, for $500,000, was drawn on Firstar. The personal checks were for $62,000-drawn on the account of Maximilian H. Miltzlaff-and for $70,000-drawn on a Capital One credit card account held by Sarah Briscoe and Mary Bullard.
Prior to depositing the checks, Hughes requested that Nancy Smith, a cashier and officer of Valley Bank, verify the validity of the official checks. In his deposition, Hughes described his conversation with Smith:
Well, my question was, how long do you have to hold money to have-how long do you have to hold these checks before they're sufficient funds; I think the bank calls them collected funds. And she said, these are official checks, Chuck. These two big ones are official checks. You will be transferring these? And I said I will be transferring a large sum. We'll have to determine next week what it will be. And she says, official checks, same as cash. You can do whatever you want to do.
Smith also assured Hughes that official checks were "just like" cashier's checks. Milanna Shear, another bank employee, told Hughes to believe whatever Smith said regarding the validity of the checks. According to the deposition testimony of Hughes' wife, Barbara, Hughes had told her that "everybody at the bank assured him that the checks would be good."
On Tuesday, March 26, 2002, Hughes delivered a written request to Valley Bank to wire $800,000 to Ali dh. Abbas, an accountholder at the Housing Bank for Trade and Finance in Amman, Jordan. Valley Bank executed the transfer no later than 1:51 p.m. on the same day. The transfer proceeded through two intermediary banks, Wells Fargo, near Denver, Colorado, and Citibank in New York, before being sent to Amman. Upon receipt in Amman, the funds were promptly withdrawn, never to be seen again.
At about 2:00 p.m.-approximately ten minutes after initiation of the transfer-Valley Bank and Hughes learned that one of the personal checks was being returned marked "nonsufficient funds." Hughes immediately requested the wire to be stopped. No later than 3:26 p.m. Valley Bank requested that Wells Fargo reverse the wire transfer. The record is unclear about what happened during the interim between Hughes' request for cancellation and Valley Bank's attempts to comply with the request. The efforts of the several banks involved in the transfer to reverse the transaction were unsuccessful, and the later discovery that the two official checks were counterfeit resulted in Hughes' account being overdrawn by $800,000.
Valley Bank subsequently exercised its right to charge back the account and collect the $800,000 from Hughes. Allen Buhr (Buhr), Valley Bank's president, met with Hughes on March 29, 2002, to discuss Hughes' liability and suggested at that time that Hughes could be involved in a criminal prosecution for fraud. On April 11, 2002, Hughes deposited $607,838, which he had withdrawn from his retirement account, into the Valley Bank account. Also, on April 30, 2002, Hughes executed a promissory note to Valley Bank on behalf of his trust in the amount of $400,000, secured by mortgaged property. Of the $400,000 in proceeds generated by the secured note, $202,751.21 was used to pay off a previous loan against the mortgaged property, and the balance, $197,248.79, was applied to satisfy the charge-back liability in Hughes' account. Hughes was under the impression, given by Buhr, that the bank needed the note and loan agreement because it expected to be the subject of a government audit in the near future, and though Hughes thought that a new agreement might be reached after resolution of the "fraud situation," he understood that the loan may not be forgiven. The trust subsequently made the first interest payment on the note on August 1, 2002, though it was one month late. The trust made no other payments on the note, and Valley Bank sent a notice of default and acceleration on October 15, 2002. Hughes requested that the bank forebear foreclosure until the end of the year, and the bank complied. However, when Hughes failed to make any more payments on the note, Valley Bank initiated an action for judicial foreclosure. Hughes asserted counterclaims of negligence, negligent misrepresentation, constructive fraud, unjust enrichment, breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, and intentional infliction of emotional distress (which was later abandoned).
On April 15, 2005, the District Court granted Valley Bank's motion in limine to exclude Cynthia Shea as an expert witness for Hughes. In an order dated April 20, 2005, the District Court granted Valley Bank summary judgment on Hughes' counterclaims. On the same day, the District Court granted Valley Bank summary judgment on its claims regarding the promissory note. From these orders Hughes appeals.
Hughes at ¶ 6 through ¶13, 334 Mont. at 337-39, 147 P.3d at 187-189.
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