Schmalenberg v. Sunwest Bank (In re Schmalenberg), Case No. 12-45274
| Decision Date | 08 October 2020 |
| Docket Number | Adversary No. 20-04001,Case No. 12-45274 |
| Citation | 623 B.R. 858 |
| Court | U.S. Bankruptcy Court — Western District of Washington |
| Parties | IN RE: Jan W. SCHMALENBERG and Barbara A. Schmalenberg, Debtors. Jan W. Schmalenberg and Barbara Schmalenberg, Plaintiffs, v. Sunwest Bank, a banking corporation under the laws of the State of California, and Timberland Bank, a banking corporation under the laws of the State of Washington, Defendants. |
Benjamin Ellison, Salish Sea Legal, Seattle, WA, for Debtors.
On September 17, 2020, the Court heard the Motion for Partial Summary Judgment for Sunwest Bank to Disgorge Undisclosed Preconfirmation Excess Fees and Charges filed by Jan and Barbara Schmalenberg ("Schmalenbergs," "Debtors" and/or "Plaintiffs"), and Sunwest Bank's ("Sunwest") Motion for Summary Judgment seeking dismissal of the Schmalenbergs' First Amended Complaint with prejudice. The Court took the matters under advisement. Based on the evidence, arguments of counsel, and pleadings submitted, the Court makes the following findings of fact and conclusions of law.1
As a preliminary matter, both parties requested in their responsive pleadings that documents filed in support of the other party's respective motions be stricken. The Schmalenbergs sought to strike the email thread attached as Exhibit 1 to the Donahue Decl., ECF No. 71. Sunwest sought to strike the report prepared by Richard Peterson, CPA, attached as Exhibit D to Schmalenberg's Supp. Decl., ECF No. 89 ("Peterson Report"). Neither party filed a separate motion to strike. The Court, however, heard argument on both requests at the September 17, 2020 hearing and rendered oral rulings, which the Court incorporates herein.
Jan Schmalenberg describes Peterson in his supplemental declaration as a "forensic accounting expert." Schmalenberg Supp. Decl. 2:10, ECF No. 89. Sunwest moved to strike the Peterson Report arguing that it should not be considered on the cross-motions for summary judgment because Peterson does not qualify as an expert and his report does not qualify as an expert report. Sunwest cites to Fed. R. Evid. 702 and the U.S. Supreme Court decision of Daubert v. Merrell Dow Pharms., Inc. , 509 U.S. 579, 589, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). The Court agrees with Sunwest.
As indicated by the Court at the hearing and for the additional reasons stated by the Court on the record, the Schmalenbergs have failed to establish that the Peterson Report should be considered under Fed. R. Evid. 702. According to Rule 702, a witness who is qualified as an expert may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue, (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles or methods to the facts of the case.
The Peterson Report is very brief and provides little information regarding the information Peterson relied upon and methods he used to form his opinion. In addition, no foundation was provided as to his qualifications as an expert, although it is likely that this foundation could be established for purposes of trial if necessary. For purposes of summary judgment, however, as already ruled by the Court at the hearing, the Schmalenbergs have failed to establish that he is qualified as an expert and that his opinion will assist the Court in understanding the evidence or in determining any facts at issue.
In support of their Motion for Summary Judgment, Sunwest attached to their legal counsel Terry Donahue's Declaration an email string from April 14—May 14, 2015, concerning settlement negotiations with Mr. Donahue and the Schmalenbergs' two legal counsel at that time, Ben Ellison and Noel Shillito. Donahue Decl. Ex. 1, ECF No. 71. In their pleadings and at the September 17, 2020 hearing, the Schmalenbergs requested the Court exclude this evidence under Fed. R. Evid. 408 as statements made during compromise negotiations offered "to prove or disprove the validity or amount of a disputed claim[.]" Fed. R. Evid. 408(a). The Schmalenbergs argued that the emails do not reflect an integrated and mutual agreement, but if the Court determined they did, Sunwest should be held to its terms. In its pleadings, Sunwest in turn argued that the emails were offered for "another purpose" under Fed. R. Evid. 408(b) : (1) to show that the Schmalenbergs were aware that Sunwest was seeking to collect accrued interest and the dollar amounts Sunwest considered owing; and (2) to show that the Schmalenbergs were aware these amounts were not part of the ongoing bankruptcy payments but were to be collected at the end of the loans. At the hearing, the Schmalenbergs acknowledged exceptions permitting admission of evidence under Fed. R. Evid. 408(b).
An unaccepted settlement offer ordinarily is not admissible evidence to show either the existence or amount of liability. Cheyenne River Sioux Tribe v. United States , 806 F.2d 1046, 1050 (Fed. Cir. 1986) ; Fed. R. Evid. 408(a). Fed. R. Evid. 408(b), however, provides that such evidence is admissible for "another purpose," such as "negating a contention of undue delay[.]" The court has "broad discretion" as to whether to admit such evidence and should weigh the need for the evidence against the possibility of discouraging future settlement negotiations. Trebor Sportswear Co. v. The Ltd. Stores, Inc. , 865 F.2d 506, 511 (2d Cir. 1989).
Sunwest argued that the emails were admissible to negate the Schmalenbergs' argument of undue delay in providing the preconfirmation accrued interest amounts, citing PRL USA Holdings, Inc. v. U.S. Polo Ass'n, Inc. , 520 F.3d 109, 114–15 (2d Cir. 2008), and to prove estoppel, citing Bankcard Am., Inc. v. Universal Bancard Sys., Inc. , 203 F.3d 477, 484 (7th Cir. 2000). The Court agrees and thus ruled that the emails, while not admissible for purposes of establishing the amount of the accrued interest, were admissible for the other purposes articulated by Sunwest—that the Schmalenbergs were aware of the fact of accrued interest and that this interest would be collected at the end of the loans.
In support of their Motion for Partial Summary Judgment and opposition to Sunwest's cross-motion, the Schmalenbergs rely on a note or an email dated January 26, 2015, allegedly sent from Mr. Schmalenberg to "Peter Lofgrin [sic]," instructing Mr. Lofgren to provide him any "costs/charges/present value" prior to any renewal of the secured notes ("Note"). Schmalenberg Decl. Ex. B, ECF No. 67; Schmalenberg Supp. Decl. Ex. B, ECF No. 89. Sunwest disputes the admissibility of this evidence because the Schmalenbergs have not authenticated it. Specifically, the Note shows no hallmarks of an actual correspondence to another individual or entity—no to/from line; no email header; and no indication it was sent to Sunwest. Sunwest's Mot. Summ. J. 16:15—18, ECF No. 69. Sunwest represents that it has no record of this correspondence. Sunwest's Mot. Summ. J. 17:3—4, ECF No. 69.
A trial court can only consider admissible evidence in ruling on a motion for summary judgment. Fed. R. Civ. P. 56(e). "The requirement of authentication ... as a condition precedent to admissibility is satisfied by evidence sufficient to support a finding that the matter in question is what its proponent claims." Fed. R. Evid. 901(a) ; Giulio v. BV CenterCal, LLC, 815 F.Supp.2d 1162, 1168–69 (D. Or. 2011). Evidence that is not properly authenticated will not be considered by the court when reviewing a motion for summary judgment. Orr v. Bank of America, NT & SA , 285 F.3d 764, 773 (9th Cir. 2002).
The parties did not raise this issue at the September 17, 2020 hearing. Based on the record before it, the Court finds that the Note has not been properly authenticated for the reasons articulated by Sunwest and thus is not admissible for purposes of the cross-motions for summary judgment. Additionally, for reasons set forth in this Memorandum Decision, even if the Court admitted this evidence, it would have no effect on the resolution of the cross-motions before it.
The material facts relevant to the Court's decision are undisputed. Below is a chronology of the key dates and events in this case.
July 30, 2012: The Schmalenbergs file a voluntary chapter 11 bankruptcy petition listing 36 outstanding loans with various commercial banks including 9 obligations to Westside Community Bank ("Westside").
December 31, 2012: Westside files Claim No. 12-1 ("Claim No. 12") in the amount of $1,028,124.33, of which $836,412.34 is designated as secured and $191,711.99 as unsecured.
January 11, 2013: The FDIC is named as receiver for Westside. Sunwest acquires all of Westside's contractual rights from the FDIC, including the Schmalenbergs' loans. The loan agreements contractually obligated the Schmalenbergs to pay attorneys' fees and late fees. The three promissory notes contained substantially identical provisions expressly allowing the lender to include a 5% late fee on any unpaid balances (and default interest of 15%). The loan documents further provided that the "Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them." Haden Decl. 2:25—26 & Ex 1, ECF No. 70.
September 29, 2014: The Court enters an Order Confirming Second Amended Chapter 11 Plan Dated August 26, 2013 ("Confirmed Plan" and "Confirmation Order"). ECF No. 446 (Bankr. Case No. 12-45274). The Confirmation Order amends the earlier filed plan dated August 26, 2013 and addresses each of Sunwest's secured claims: Class II-M designated as loan no. xxxx-4103, Class II-I...
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