In re Montagne, Case No. 08-10916 (Bankr.Vt. 1/22/2010)

• Decision Date: 22 January 2010
• Docket Number: Adversary Proceeding No. 08-1024.,Case No. 08-10916.
• Citation: In re Montagne, Case No. 08-10916 (Bankr.Vt. 1/22/2010), Adversary Proceeding No. 08-1024., Case No. 08-10916. (Bankr. Vt. Jan 22, 2010)
• Parties: In re: Michael F. Montagne, Chapter 12, Debtor. Bourdeau Brothers, Inc., Plaintiff, v. Michael F. Montagne, Diane Montagne, and Montagne Heifers, Inc., Defendants.
• Court: U.S. Bankruptcy Court — District of Vermont

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In re: Michael F. Montagne, Chapter 12, DebtorBourdeau Brothers, Inc., Plaintiff, v.Michael F. Montagne, Diane Montagne, and Montagne Heifers, Inc., Defendants.

Case No. 08-10916.

Adversary Proceeding No. 08-1024.

United States Bankruptcy Court, D. Vermont.

January 22, 2010.

James Spink, Esq. and Mary Peterson, Esq., for Bourdeau Brothers, Inc.

Jess Schwidde, Esq. and John Harrington, Esq., for Michael Montagne.

MEMORANDUM OF DECISION GRANTING PLAINTIFF'S RENEWED MOTION TO DISMISS AMENDED COUNTERCLAIMS OF DEBTOR AND GRANTING PLAINTIFF'S REQUEST FOR AN AWARD OF ATTORNEY'S FEES

COLLEEN A. BROWN, Bankruptcy Judge

PlaintiffBourdeau Brothers, Inc.("BBI") filed a complaint in Vermont state court against Michael F. Montagne(the "Debtor"), his wife Diane Montagne, and Montagne Heifers, Inc.("MHI"), seeking payment for feed, grain, and other farm supplies sold to Michael and Diane Montagne for use in their farming operations (doc. # 4).The original complaint asserted three causes of action: the first sought payment on two promissory notes, while the second and third sought payment on open accounts BBI had with Michael and Diane Montagne.Id.BBI subsequently filed an amended complaint (doc. # 40) which added an unjust enrichment cause of action.Id.After that proceeding was removed to this Court, BBI filed a second amended complaint (doc. # 263), and Debtor-DefendantMichael Montagne responded by filing an answer, affirmative defenses and counterclaim (the "Amended Counterclaim"¹(doc. # 270) BBI filed a motion to dismissMichael Montagne's Amended Counterclaim and requested reimbursement of the reasonable attorney's fees it had incurred in bringing the motion to dismiss(doc. # 273).

For the reasons that follow, BBI's motion to dismiss the Amended Counterclaim is granted.(Dismissal of the Debtor's Amended Counterclaim framed as an objection to claim prohibits the Debtor from raising substantive arguments against BBI's proof of claim based upon breach of contract, negligence, abuse of process, punitive damages, offset, or equitable subordination, but is without prejudice to the Debtor's right to challenge whether BBI has met its burden of proof at the objection to claim evidentiary hearing.)Further, the Court grants BBI's motion for attorney's fees to the extent that the Court deems them reasonable and attributable to Counts IV (objection to proof of claim) and VII (equitable subordination) of the Debtor's Amended Counterclaim, as explained below.

JURISDICTION

This Court has jurisdiction over this adversary proceeding and this motion to dismiss under 28 U.S.C. § 1334,28 U.S.C. § 157(b)(2)(B) and (C), and the parties' stipulation to this Court's entry of a final judgment on the causes of action relating to this Title 11 case.See doc. # 205, pp. 2-3.

PROCEDURAL HISTORY

BBI filed its complaint in December 2007, entitled BBI v. Michael Montagne, Diane Montagne, and Montagne Heifers, Inc., # S610-07 FC.Shortly thereafter, BBI moved for an exparte writ of attachment against the defendants' property (doc. # 6), which the state court granted (doc. # 7).Michael Montagne filed an answer, affirmative defenses and counterclaim (doc. # 18); BBI later successfully moved to amend its complaint (doc. # 32, 36, 40),² and extensive litigation on a variety of issues ensued in state court.On October 2, 2008, Michael Montagne sought protection under chapter 12 of the Bankruptcy Code and filed a notice of removal of the BBI lawsuit (doc. # 1).In December 2008, Michael Montagne moved to dissolve the exparte writ of attachment in favor of BBI (doc. # 186); BBI opposed that motion (doc. # 197).After additional briefing (docs. # 202, 207), this Court denied the motion (doc. # 225).

On March 26, 2009, BBI moved to amend its complaint a second time (doc. # 245, refiled a few days later as doc. # 253) to remedy certain "factual inaccuracies" contained in its earlier amended complaint.BBI explained that the previous amended complaint (doc. # 40) referred to the terms of two notes originally underlying its account with the Montagnes and that "BBI became aware that the notes themselves were paid off, and that the amounts shown due in its ledgers on the `note account' were for subsequent purchases under invoice."Id.The second amended complaint clarified that the promissory notes were no longer in issue.Id.This Court entered an order granting the motion to amend on April 24, 2009(doc. # 261); BBI filed its second amended complaint on April 27, 2009(doc. # 263).

1.Relevant Litigation in Related Adversary Proceeding (A.P. # 08-1022)

In the meantime, litigation proceeded apace in a related adversary proceeding (A.P. # 08-1022), entitled Michael Montagne v. AgVenture Financial Services, Inc. and Bourdeau Brothers, Inc., which the Debtor filed in this Court against two of his largest creditors.Of particular relevance to the instant lawsuit was BBI's motion to strike, sever claims, and compel a more definite statement (doc. # 8 in A.P. # 08-1022).In the Order granting that motion (doc. # 98 in A.P. # 08-1022), the Courtsuasponte dismissed three counts from the Debtor's complaint (in A.P. # 08-1022) that duplicated three affirmative defenses the Debtor had raised in A.P. # 08-1024 to ensure that those claims would be litigated only once, in the adversary proceeding involving the Debtor and BBI, rather than in two separate proceedings.With regard to the two remaining claims the Debtor had raised against BBI in his complaint in A.P # 08-1022 — objection to proof of claim and equitable subordination — the Court severed those claims from the complaint and permitted the Debtor to amend his counterclaim in the instant adversary proceeding (A.P. # 08-1024) to add those causes of action.The Court issued a warning to the Debtor in the context of granting BBI's motion for a more definite statement.It observed that the factual antecedents for the equitable subordination claim in the A.P. # 08-1022 complaint consisted of "slivers of fact" and that the Debtor had "not articulated what conduct by BBI — or more accurately, misconduct — would support such a claim."Id. p. 5.The Order went on to say:

In particular, none of these allegations [concerning equitable subordination] is sufficient to establish a primafacie case that BBI had a fiduciary relationship with the Debtor or that a remedy is necessary to prevent fraud or injustice.If anything, to the extent they present a coherent plea for relief, it appears from this complaint that the Debtor wishes to invoke this relief against BBI solely to punish it for its alleged misconduct.That is not a proper use of equitable subordination.

Id. p. 4(citations omitted).Addressing the objection to claim cause of action, the Court pointed out that the Debtor had not articulated "(i) which of the documents relied upon by BBI in support of its claims against the Debtor are defective and unenforceable; (ii) which balances due are incorrect and the product of erroneous and/or altered account ledgers; or (iii) on which accounts BBI had improperly capitalized interest."Id. p. 5.

The Court added that should the Debtor amend his answer, affirmative defenses, counterclaim and third party complaint, "he will have to support these claims by simple, concise, and direct allegations tied to particular facts.SeeFed. R. Bankr. P. 7008(incorporating Fed. R. Civ. P. 8(a) and 8(d))."Id.The Court then cautioned the Debtor that, should he elect to amend,

it is not sufficient for him to merely repeat the same vague and conclusory allegations against BBI that he set forth in the Complaint in A.P. # 08-1022.If the Debtor files an amended pleading in A.P. # 08-1024 that is inadequate to support the new causes of action, and this forms the basis for BBI to file another motion challenging that pleading, the Court would be inclined to find that to constitute grounds for requiring the Debtor to pay any reasonable attorney's fees BBI incurs in connection with that motion.

Id.

2.Debtor's Amended Counterclaim in this Adversary Proceeding (A.P. # 08-1024)

On March 26, 2009, the Court issued an Order in this adversary proceeding authorizing the Debtor to file a motion to amend his answer, affirmative defenses, counterclaim, and third party complaint to add the objection to claim and equitable subordination causes of action that had been severed from A.P. # 08-1022 (doc. # 246).Michael Montagne filed an amended answer, affirmative defenses, counterclaim, third party complaint and jury demand on April 4, 2009(doc. # 258); however, this filing occurred before the Court had granted BBI's motion to amend.Michael Montagne filed his answer to the second amended complaint, with affirmative defenses and counterclaim, on May 7, 2009(doc. # 270), which superseded the previously-filed amended pleading (doc. # 258).He included the following causes of action in the Amended Counterclaim: breach of contract (Count I), negligence (Count II), abuse of process (Count III), objection to proof of claim (Count IV), punitive damages (Count V), offset (Count VI), and equitable subordination (Count VII).Approximately one week later, BBI filed the motion to dismissMichael Montagne's amended counterclaims with a request for attorney's fees(doc. # 273), currently before the Court.Michael Montagne filed opposition to BBI's motion to dismiss(doc. # 276) and BBI filed a reply (doc. # 278).

DISCUSSION

I.Standard for Motion to Dismiss and Applicable Law

BBI has moved to dismiss under Federal Rule of Bankruptcy Procedure 7012(b)(6)(made applicable by Fed. R. Civ. P. 12(b)).The U.S. Supreme Court enunciated a new standard for a motion to dismiss in Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570(2007).Subsequently, the Supreme Court further clarified the Twombly standard; its clarification is reprinted here at length:

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted...