In re Womack

• Decision Date: 20 January 2015
• Docket Number: Case No. 12-61225-7,Adv No. 13-00034
• Court: U.S. Bankruptcy Court — District of Montana
• Parties: In re MICHAEL A AMEN and CHERYLL K AMEN, Debtors. JOSEPH V. WOMACK, Plaintiff. v. BAR NOTHING RANCH PARTNERSHIP and JOHN DOES 1-10, Defendants.

In re MICHAEL A AMEN and CHERYLL K AMEN, Debtors.

JOSEPH V. WOMACK, Plaintiff. v. BAR NOTHING RANCH PARTNERSHIP and JOHN DOES 1-10, Defendants.

Case No. 12-61225-7

Adv No. 13-00034

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MONTANA

January 20, 2015

MEMORANDUM of DECISION

At Butte in said District this 20^th day of January, 2015.

The Court held a trial in this Adversary Proceeding on October 27 and 28, 2014, in Billings. Trent M. Gardner of Goetz, Baldwin & Geddes, P.C., Bozeman, Montana, represented the Chapter 7 Trustee and Plaintiff, Joseph V. Womack; James A. Patten and W. Scott Green of Patten, Peterman, Bekkedahl & Green, P.L.L.C., Billings, Montana, represented Defendant Bar Nothing Ranch Partnership. The Court approved the parties' Final Pretrial Order on October 21, 2014. Debtor Michael Amen, Elwood "Butch" Schwers, Dan Lowe, Valerie Cox and W. ScottGreen testified. The record of Exhibits filed at docket no. 111 reflects that Plaintiff's Exhibits 1 through 12, 16, 18, 19, 20, 22, 26, 28 and 29, and Defendant's Exhibits A, C, E through N, Q, R, W, X, Y, BB, CC, DD, RR, SS, TT and UU were admitted into evidence.

At the conclusion of the parties' cases-in-chief the Court granted the parties time to file post-trial briefs, which have been submitted and reviewed by the Court along with the record and applicable law. This matter is ready for decision.

This Court has jurisdiction of the above-captioned Chapter 7 case and the Trustee's Objection to Bar Nothing Ranch Partnership's Proof of Claim under 28 U.S.C. § 1334(a). The Trustee's Objection to Bar Nothing Ranch Partnership's claim and request to avoid Bar Nothing Ranch Partnership's lien are core proceedings under 28 U.S.C. § 157(b)(2)(B) and (K). This Memorandum of Decision includes the Court's findings of fact and conclusions of law pursuant to F.R.B.P. 7052 (applying FED.R.CIV.P. 52 in adversary proceedings).

BACKGROUND

Lowe/Amen, LLC

Debtor Michael Amen ("Amen") was formerly a member of Lowe/Amen, LLC, a Montana limited liability company, which according to the articles of organization filed with the Montana Secretary of State, was managed by its members. The other member of Lowe/Amen, LLC was Lowe Property Holdings, LLC. Dan Lowe is the managing member of Lowe Property Holdings, LLC. Dan Lowe was primarily responsible for the management of Lowe/Amen, LLC.

Lowe/Amen, LLC was formed in approximately 2006 and was governed by an Operating Agreement that was signed by Amen and Dan Lowe on April 27, 2006. Attorney Bruce Fain, an attorney who had done work for Amen for approximately 30 years, handled the formation ofLowe/Amen, LLC for Amen. Bruce Fain did not draft the Lowe/Amen, LLC Operating Agreement, but he reviewed it on Amen's behalf.

As set forth in paragraph 1.3 of the Operating Agreement, the initial distributional interests of Amen and Lowe Property Holdings, LLC was 50% each, but the distributional interests would thereafter be "adjusted to equal the percentage of the total capital of the Company contributed by each Member." Paragraph 3.3 of the Operating Agreement also provided:

[T]he expenses of the Company are: mortgage payment of approximately $20,000.00; real property taxes; water charges; and life insurance on each member. The Company anticipates receiving agricultural rental income of approximately $6,400.00. Additional contributions of capital by the Members shall be required only for these specific expenses and for any other expenses agreed upon by both Members. If there is not adequate cash flow from Company operations to meet the Company's cash requirements for these specific expenses, then each Member shall be required to make additional capital contributions in proportion to said Member's capital account.

Should any member not make a required capital contribution then the other Member shall have the option of paying the unpaid contribution. The additional contribution shall be a loan to the non-paying member . . . If the loan is not repaid in full within 90 days after the date the loan is made, then the loan balance shall be paid by transferring the amount of the loan balance from the capital account of the non-paying member into the capital account of the loaning member(s), and adjusting the distributional interests of the non-paying member and the lending member as provided in Section 1.3 above.

Dan Lowe testified that as of 2010, Amen was not paying his share of the annual payments to Lowe/Amen, LLC and that as a result, "there was a shifting of shares" that caused Dan Lowe to have a larger percentage of ownership than Amen in Lowe/Amen, LLC. This "shifting of shares" is not reflected in Lowe/Amen, LLC's 2008, 2009 or 2010 income tax returns, which all reflect Amen and Lowe Property Holdings as each having a 50% interest in Lowe/Amen, LLC's profits, losses and capital.

Section 5.1 of the Lowe/Amen, LLC Operating Agreement also provided that certain majorbusiness decisions, such as pledging, mortgaging, or otherwise encumbering Lowe/Amen, LLC's assets, required the affirmative vote of its members contributing fifty-one percent or more of the capital of Lowe/Amen, LLC. The Operating Agreement also precluded members from assigning their interest in Lowe/Amen, LLC without the written consent of the other member.

Lowe/Amen, LLC was formed for the purpose of "purchasing and renting real properties as long term investments, and in any other lawful activity upon which all Members may agree in writing." The Operating Agreement specifically provides that Lowe/Amen, LLC would purchase the following described real property from Dan Lowe Construction, Inc. for $320,000.00:

Parcel A:

That part of the NE ¼ SE ¼ of Section 17, Township 1 South, Range 25 East, of the Principal Montana Meridian, in Yellowstone County, Montana, described as Tract 1-A, of Amended Plat of Tract 1 of Certificate of Survey No. 2042 on file in the office of the Clerk and Recorder of said County, under Document # 1381180.

Parcel B:

Township 1 South, Range 25 East, of the Principal Montana Meridian, in Yellowstone County, Montana.

Section 17: NW ¼ SE ¼.

Dan Lowe characterized the property as farmland and testified that Lowe/Amen, LLC kept the property as farmland. Parcel A was approximately 24 acres and Parcel B was approximately 40 acres. At the time the above-described property was transferred to Lowe/Amen, LLC, it was subject to a mortgage in favor of First Interstate Bank dated October 17, 2003, as modified on February 4, 2004, July 30, 2004, and August 20, 2004. On or about April 27, 2006, Dan Lowe and Amen executed a Modification of Mortgage which removed Dan Lowe Construction, Inc. as the borrower and substituted Lowe/Amen, LLC as the borrower on the First Interstate Bank mortgage.

Bar Nothing Ranch Partnership

Butch Schwers ("Schwers") and his son have been partners in Bar Nothing Ranch Partnership ("Bar Nothing") for fifteen to twenty years. In approximately 2000, Amen started feeding cattle for Schwers and shortly thereafter, Schwers started buying cattle for Amen. According to Schwers, he had an excellent relationship with Amen until approximately 2009, when money became an issue. Schwers explained that between 2006 and 2009, Amen was making payments on the amounts he owed to Bar Nothing but by late 2009, the amount of debt Amen owed to Bar Nothing had grown substantially. Amen acknowledges that in late 2009 and early 2010 he was experiencing both major health and financial issues.

Bar Nothing's Collection Efforts Against Amen

In early 2010, Schwers consulted with attorney W. Scott Green ("Green") of Patten, Peterman, Bekkedahl & Green, PLLC about collecting the delinquent debt owed by Amen. On January 14, 2010, Green filed a complaint that names Schwers as the plaintiff and Amen as a defendant seeking the sum of $320,133.09. Schwers amended the complaint on January 21, 2010, to substitute Bar Nothing as the proper plaintiff.

According to Schwers, Amen wanted to work out an arrangement to repay Bar Nothing because he did not want notice of the lawsuit published in the newspaper. At that time, Amen did not personally own any property that was unencumbered, but Schwers testified that Amen had mentioned that he was a member of Lowe/Amen, LLC. Amen told Schwers that if he could withdraw from Lowe/Amen, LLC, he would then possibly own a piece of unencumbered real property that he could use to secure the amount owed to Bar Nothing. Amen went so far as to drive Schwers by Lowe/Amen, LLC's real property.

Even though Amen and Dan Lowe had not discussed dissolving Lowe/Amen, LLC, and even though Amen had not hired an attorney to represent him with respect to the Bar Nothing lawsuit or debt, Valerie Cox, Green's paralegal, sent Bruce Fain an email dated January 25, 2010, that was accompanied by a promissory note and Montana trust indenture. Green handwrote on his file copy of the email that "we will require mortgage insurance" and "the property will need to be transferred to Mike Amen." That information was relayed by Valerie Cox to Bruce Fain in a separate email sent later on January 25, 2010. Nothing in the record suggests that Bruce Fain responded to Valerie Cox's emails and on April 6, 2010, Amen signed a document stating he was not represented by counsel.

Consistent with his notes, Green drafted a promissory note in the amount of $320,133.09, a realty transfer certificate to transfer property from Lowe/Amen, LLC to Amen and a Montana trust indenture, whereby Amen would grant Bar Nothing a security interest in Parcel A of Lowe/Amen, LLC's real property to secure a debt in the amount of $320,133.09. Amen testified that under the terms of the Lowe/Amen, LLC Operating Agreement, he knew he lacked the authority to transfer property from Lowe/Amen, LLC to himself without Dan Lowe's consent.

In late March of 2010, Amen sought to sell some cattle he had purchased from Bar Nothing in November of 2009. According to an Agreement and Letter of Understanding between Schwers and ...