In Re Michael F. Montagne, Bankruptcy No. 08-10916.

Decision Date18 May 2010
Docket Number08-1023.,Adversary No. 08-1022,Bankruptcy No. 08-10916.
Citation431 B.R. 72
CourtU.S. Bankruptcy Court — District of Vermont
PartiesIn re Michael F. MONTAGNE, Debtor.Michael Montagne, Plaintiff,v.Ag Venture Financial Services, Inc., Defendant.Ag Venture Financial Services, Inc., Plaintiff,v.Michael F. Montagne, et al., Defendants.

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Jess T. Schwidde, Esq., John R. Harrington, Esq., Rutland, VT & Concord, NH, for Michael Montagne.

Gary L. Franklin, Esq., Douglas J. Wolinsky, Esq., Burlington, VT, for Ag Venture Financial Services, Inc.

MEMORANDUM OF DECISION

COLLEEN A. BROWN, Bankruptcy Judge.

Granting in Part & Denying in Part Summary Judgment to Ag Venture Financial Services, Inc. as to Remaining Claims and Counterclaims of Michael Montagne

Ag Venture Financial Services, Inc. (Ag Venture) filed an amended complaint (AP # 08-1023, doc. # 30) in state court, in which four counts [for breach of contract (Count I), replevin (Count V), fraudulent conveyance (Count IX), and conversion (Count XI) ] sought relief against Michael Montagne. Mr. Montagne responded by filing an answer asserting sixteen affirmative defenses, with a counterclaim interposing eleven causes of action against Ag Venture (AP # 08-1023, doc. # 113). The action was subsequently removed to this Court. On October 2, 2008, Michael Montagne filed a complaint against Ag Venture (AP # 08-1022, doc. # 1), in essence objecting to Ag Venture's amended proof of claim (claim # 12 in case # 08-10916), and seeking avoidance of transfers he alleged to be preferential. Ag Venture responded by filing an answer asserting eight affirmative defenses (AP # 08-1022, doc. # 139).

On January 26, 2010, Ag Venture filed a motion for summary judgment on the claims and counterclaims of Michael Montagne (AP # 08-1023, doc. # 381; AP # 08-1022, doc. # 119). In Michael Montagne's opposition to Ag Venture's motion for summary judgment (AP # 08-1023, doc. # 404; AP # 08-1022, doc. # 129) and in the parties' joint stipulation concerning Michael Montagne's withdrawal of certain claims and counterclaims (AP # 08-1023, doc. # 425; AP # 08-1022, doc. # 135), Michael Montagne withdrew all of his claims and counterclaims against Ag Venture except for the following:

(1) his counterclaims in adversary proceeding AP # 08-1023 for

(A) breach of contract (Count I);
(B) breach of contractual duty of good faith and fair dealing (Count II);
(C) negligence in loan underwriting and administration (Count III);
(D) promissory estoppel (Count VIII); and
(E) recoupment and setoff (Count IX), to the extent based on recoupment;

as well as

(2) his claims in adversary proceeding AP # 08-1022 for

(A) objection to proof of claim (Count I) except to the extent based on indemnity;
(B) preference (Count V); and
(C) money damages (Count VI) to the extent based on breach of contract and breach of the implied covenant of good faith and fair dealing.

For the reasons set forth below, the Court grants in part and denies in part Ag Venture's motion for summary judgment.

Undisputed Facts

Based upon the extensive record in this case, and in the absence of a stipulation of undisputed material facts, the Court finds the following facts to be undisputed: 1

1. Michael Montagne is a farmer with a residence in the Town of St. Albans, Vermont (AP # 08-1022, doc. # 1, ¶ 1; doc. # 139, ¶ 1).

2. Ag Venture is a Vermont licensed lender created in or about 1998 pursuant to the laws of the State of Vermont (AP # 08-1022, doc. # 1, ¶ 2; doc. # 139, ¶ 2).

3. Michael Montagne became a customer of Ag Venture shortly after its formation (AP # 08-1022, doc. # 1, ¶ 9; doc. # 139, ¶ 9).

4. Between December 31, 1998, and the present, a lending relationship has existed between Michael Montagne and Ag Venture (AP # 08-1023, doc. # 113, ¶ 1; doc. # 128, ¶ 1).

5. Proceeds from the sale of milk from the Montagne farm were assigned to Ag Venture in connection with various loan agreements (AP # 08-1022, doc. # 1, ¶ 10; doc. # 139, ¶ 10).

6. On or about December 31, 1998, Michael Montagne executed a promissory note in favor of Ag Venture in the original principal amount of $580,000. The promissory note was secured by a commercial mortgage dated December 31, 1998 (AP # 08-1023, doc. # 30, ¶ 9; doc. # 113, ¶ 9).

7. On or about November 8, 2000, Michael Montagne signed a promissory note in favor of Ag Venture in the original principal amount of $425,000 (AP # 08-1023, doc. # 30, ¶ 10; doc. # 113, ¶ 10).

8. On or about January 14, 2002, Michael Montagne signed a promissory note in favor of Ag Venture in the original principal amount of $442,400 (AP # 08-1023, doc. # 30, ¶ 11; doc. # 113, ¶ 11).

9. On or about June 13, 2002, Michael and Diane Montagne signed a promissory note in favor of Ag Venture in the original principal amount of $882,000 (AP # 08-1023, doc. # 30, ¶ 12; doc. # 113, ¶ 12).

10. On or about March 17, 2004, Michael Montagne signed a promissory note in favor of Ag Venture in the original principal amount of $470,000 (AP # 08-1023, doc. # 30, ¶ 13; doc. # 113, ¶ 13).

11. On or about June 16, 2005, Michael Montagne signed a promissory note in favor of Ag Venture in the original principal amount of $800,000 (AP # 08-1023, doc. # 30, ¶ 14; doc. # 113, ¶ 14).

12. On or about June 16, 2005, Michael Montagne signed a promissory note in favor of Ag Venture in the original principal amount of $100,000 (AP # 08-1023, doc. # 30, ¶ 15; doc. # 113, ¶ 15).

13. On or about June 23, 2005, the payment on Loan # 36 in the amount of $276,549.17 was reversed (AP # 08-1022, doc. # 1, ¶ 14; doc. # 139, ¶ 14).

14. On or about November 18, 2005, Michael Montagne co-signed a Montagne Heifers, Inc. (“MHI”) promissory note in favor of Ag Venture in the original principal amount of $457,000 (AP # 08-1023, doc. # 30, ¶ 18; doc. # 113, ¶ 18).

15. On or about November 18, 2005, Michael Montagne executed an unlimited guaranty in favor of Ag Venture (AP # 08-1023, doc. # 30, ¶ 19; doc. # 113, ¶ 19).

16. The loans by Ag Venture to Michael Montagne are documented (AP # 08-1023, doc. # 113, ¶ 4; doc. # 128, ¶ 4).

17. On or about November 24, 2007, most of the MHI livestock was sold to a third-party buyer for a price of $500,000 (AP # 08-1023, doc. # 30, ¶ 21; doc. # 113, ¶ 21).

18. The third-party buyer paid the purchase price for the livestock in three installments. The first payment was in the approximate amount of $240,000, the second payment was in the approximate amount of $185,000, and the third payment was in the amount of $75,000 (AP # 08-1023, doc. # 30, ¶ 22; doc. # 113, ¶ 22).

19. The sum of $240,000 was not distributed to Ag Venture (AP # 08-1023, doc. # 30, ¶ 23; doc. # 113, ¶ 23).

20. The sum of $185,000 was not distributed to Ag Venture (AP # 08-1023, doc. # 30, ¶ 24; doc. # 113, ¶ 24).

21. The check for the sum of $75,000 was made payable to Ag Venture and MHI (AP # 08-1023, doc. # 30, ¶ 25; doc. # 113, ¶ 25).

22. In or about September 2008, Ag Venture applied payments to Loan # 36 as indicated in Ag Venture's summary of application of escrow proceeds, which indicates that payments were applied to pay off $109,932.41 in principal and $3,445.15 in interest, leaving $4,176.36 (AP # 08-1022, doc. # 1, ¶ 15; doc. # 139, ¶ 15; doc. # 1-17, p. 2).

23. On or about September 26, 2008, Ag Venture applied payments to Loan # 584 as indicated in Ag Venture's summary of application of escrow proceeds, which indicates that payments were applied to pay off $299,997.96 in principal and $14,633.57 in interest, totaling $314,631.53 (AP # 08-1022, doc. # 1, ¶ 17; doc. # 139, ¶ 17; doc. # 1-17, p. 2).

24. On or about September 26, 2008, Ag Venture applied payments as indicated in Ag Venture's summary of application of escrow proceeds, which indicates that payments were applied to Loan # 517 to pay off $99,348.04 in principal and $2,319.12 in interest, totaling $101,667.16 (AP # 08-1022, doc. # 1, ¶ 19; doc. # 139, ¶ 19; doc. # 1-17, p. 2).

25. On or about September 26, 2008, Ag Venture applied payments as indicated in Ag Venture's summary of application of escrow proceeds, which indicates that payments were applied to a pre-closing account to pay off $183,959.08 in principal and $23,073.41 in interest, totaling $207,031.49 (AP # 08-1022, doc. # 1, ¶ 19; doc. # 139, ¶ 19; doc. # 1-17, p. 2).

26. Ag Venture was aware that Michael Montagne separated from his wife, Diane Montagne prior to the commencement of this litigation (AP # 08-1023, doc. # 113, ¶ 23; doc. # 128, ¶ 23).

27. Ag Venture was generally aware that Michael and Diane Montagne had reached an agreement in late 2006 to divide their property (AP # 08-1022, doc. # 1, ¶ 66; doc. # 139, ¶ 66).

28. Michael Montagne declined to sign a loan application to refinance the farm debt in early January 2008 (AP # 08-1022, doc. # 1, ¶ 69; doc. # 139, ¶ 69).

29. Within approximately two weeks of Michael Montagne declining to sign a loan application for a refinancing, Bourdeau Brothers, Inc. (“BBI”) commenced suit and obtained an ex parte writ of attachment against the assets of Michael Montagne. Shortly thereafter, on or about January 29, 2008, Ag Venture commenced its action (AP # 08-1023, doc. # 113, ¶ 34; doc. # 128, ¶ 34).

30. On October 2, 2008, Michael Montagne filed for bankruptcy protection as an individual; MHI has not separately filed for bankruptcy protection (AP # 08-1023, doc. # 381-2, ¶ 2; doc. # 404, p. 2; AP # 08-1022, doc. # 122, ¶ 2; doc. # 129, p. 2).

Summary Judgment Standard

Summary judgment is proper if the record shows no genuine issue as to any material fact such that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Fed. R. Bankr.P. 7056. A genuine issue exists only when “the evidence is such that a reasonable [trier of fact] could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); see also Celotex Corp. v. Catrett, ...

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