Kimmes v. DL Evans Bank

Filing 13

MEMORANDUM DECISION. The bankruptcy court's judgment in favor of D.L. Evans Bank, as well as its award of fees and costs, is AFFIRMED. This case is remanded to the bankruptcy court for further proceedings consistent with this decision. (cc'd Judge and Case Administrator). Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (st)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

In re LARRY T. KIMMES,
Case No. 4:14-cv-00103-BLW
MEMORANDUM DECISION

Debtor,
_________________________________
LARRY T. KIMMES,
Plaintiff and Appellant,
v.
D.L. EVANS BANK,
Defendant and Appellee.

INTRODUCTION
Pending before the Court is Appellant Larry T. Kimmes’ appeal from the
bankruptcy court’s judgment in favor of Appellee D.L. Evans Bank. Kimmes also
appeals the bankruptcy court’s order awarding attorneys’ fees and costs to the bank. For
the reasons explained below, the Court will affirm.
BACKGROUND
Larry T. Kimmes is the president of G&L Land & Livestock, Inc. He operates a
farm near Gooding, Idaho. In 2000, Kimmes began banking with D.L. Evans Bank after

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his friend and neighbor, Kelly Human, suggested that he bring his business to D.L.
Evans. Human was a loan officer with the bank. The banking relationship went well for
several years, but Human later transferred to a different branch office, and the bank
assigned a variety of different loan officers to Kimmes over the years. The relationship
eventually soured, and Kimmes now says the bank’s conduct ultimately forced him into
bankruptcy.
The parties entered into various loan agreements over the years, but two loans are
particularly relevant to this appeal: Loan No. 4814 and Loan No. 5225. Both relate to
the construction of Kimmes’ home. 1 Kimmes obtained the first of these loans, No. 4814,
in April 2008. He used the majority of these loan proceeds to pay off prior loans, but he
used around $85,000 of the loan money to help fund the construction of his home. See
Excerpts of Record (“ER”), Dkt. 8, at 651:17. At trial, Kimmes testified that Chad
Brown – the loan officer who took over Kimmes’ account after Human left – promised
that the bank would allow Kimmes to obtain a “conventional home loan” to fund the
home construction. ER 331. No such loan was made, however, and Brown left the bank
in the Fall of 2008. Kimmes claims that if the bank had followed through on its promise
to grant him a conventional home loan, he would have owed $83,000 less than he
eventually owed the bank for financing the home construction. Opening Br., Dkt. 9, at 5.

1

Kimmes testified that proceeds from a third loan, No. 4921, were also used to fund his house
construction. See Excerpts of Record, Dkt. 8, at 780.

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Nevertheless, in May 2009, instead of refinancing his home with a conventional
mortgage, Kimmes entered into Loan No. 5225 with the bank. The stated purpose of this
loan was to refinance his home. See ER 785; Ex. 203. It was a closed-end, singleadvance, variable-rate, ten-year term loan for $297,000. Kimmes used most of the
proceeds of this loan ($236,738.70) to pay off the outstanding balance on Loan No. 4814.
As security for this loan, the Kimmes and his wife granted the bank a deed of trust on
their home. The deed of trust provide that a default would result from the “failure of
[Kimmes] within the time required by this deed of trust to make payments for taxes or
insurance, or any other payment necessary to prevent filing of or to effect discharge of
any lien.” ER 786; Ex. 204. Kimmes and his wife also expressly agreed that they “shall
pay when due . . . all taxes, special taxes, [and] assessments . . . .” ER 786; Ex. 204, at 2.
Upon default, the bank had the option to foreclose the deed of trust by notice and sale.
Ex 204, at 4.
In 2008 and 2009, the Kimmes did not timely pay their real property taxes. ER
787; Exs. 113, 115, 192. In addition, by June 2010, Kimmes was past due on several of
his loans from the bank. ER 787; Ex. 164 at 12‐13. In response, the bank commenced a
foreclosure on the deed of trust for Loan No. 5225. ER 787; Exs. 204 and 218. The bank
did not provide any informal notices to the Kimmes, despite its internal policy to provide
at least three such notices, plus an opportunity to cure the default.
After the bank commenced foreclosure proceedings, the Kimmes filed a chapter
12 bankruptcy petition. The bank filed a proof of claim in the amount of $1,375,990.60.

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Kimmes objected, stating that “although the debtor agrees that an indebtedness is owed
[to the bank], he objects as to the amount owed. It is believed that the amount owed is
less than $1,175,000.” See ER 788.
In October 2011, the bankruptcy court approved Kimmes’ second amended
chapter 12 plan. The plan stated that the bankruptcy court would resolve the parties’
dispute regarding the bank’s proof of claim and that Kimmes would pay an amount to be
determined by the bankruptcy court. After the plan was approved, Kimmes commenced
an adversary proceeding against the bank alleging, among other things, that the bank had
(1) breached an agreement to grant him a “regular home loan,” and (2) improperly failed
to remove $6,760 in fees charged for insufficient funds. Based on these and other alleged
wrongs, Kimmes’ complaint asked the bankruptcy court to find that “‘nothing is owed
with respect to [Loan Number 5225] and that the Chapter 12 Plan should be modified
accordingly.’” See ER 792 (alterations by the bankruptcy court).
After a four-day bench trial, the bankruptcy court entered judgment in favor of the
bank. See ER 819 (judgment stating that Kimmes owes “the full amount due on the loans
identified in D.L. Evans’ Proof of Claim . . . .”). The bankruptcy court also awarded the
bank approximately $23,500 in attorneys’ fees and costs. ER 912. Kimmes appeals the
judgment and the order awarding attorneys’ fees and costs to the bank.
STANDARD OF REVIEW
This Court has jurisdiction to entertain an appeal from the Bankruptcy Court under
28 U.S.C. § 158(a), which provides: “The district courts of the United States shall have

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jurisdiction to hear appeals . . . from final judgments, orders, and decrees” of bankruptcy
judges. On appeal, the bankruptcy court’s conclusions of law are reviewed de novo and
its factual findings for clear error. In re Greene, 583 F.3d 614, 618 (9th Cir. 2009). A
bankruptcy court’s denial of a motion to amend a complaint is reviewed for an abuse of
discretion. See Ventress v. Japan Airlines, 603 F.3d 676, 680 (9th Cir. 2010). An abuse
of discretion occurs when a court “makes an error of law, rests its decision on clearly
erroneous findings of fact, or when [the reviewing court is] left with a definite and firm
conviction that the district court committed a clear error of judgment.” United States v.
Hinkson, 585 F.3d 1247, 1260 (9th Cir. 2009) (internal quotation marks and citation
omitted).
ANALYSIS
Kimmes contends that the bankruptcy court erred by:
(1)

denying his motion to amend his complaint;

(2)

finding that the bank had not agreed to grant him a “regular home
loan”;

(3)

finding that the bank had not agreed to forgive various
insufficient-funds fees charged to his account;

(4)

concluding that the bank had not breached the covenant of good
faith and fair dealing;

(5)

denying Kimmes’ claim for $2,000 in attorneys’ fees related to
an alleged wrongful foreclosure on a pickup loan;

(6)

concluding that the bank did not commit any actionable wrong
despite Kimmes’ contentions that the bank generally failed to
exercise good faith toward him; and

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(7)

awarding attorneys’ fees and costs to the bank.

The Court will address each issue in turn.
1.

The Bankruptcy Court Did Not Err in Denying Kimmes’ Motion to Amend
Kimmes first argues that the bankruptcy court abused its discretion in denying his

oral motion to amend his complaint. The requested amendment, made on the first day of
trial, focused on the complaint’s prayer for relief. The prayer for relief, in turn, focused
on a single loan: Loan No. 5225. See ER 6 (“plaintiff prays that the Court find that
nothing is owed with respect to Loan No. 1814005225/04[ 2] and, that the Chapter 12 Plan
should be modified accordingly.”) In his pretrial brief, however, Kimmes did not limit
himself to Loan No. 5225. Instead, he asserted that he was entitled to an offset against
the amount owing under all his loans with D.L. Evans. On the first day of trial, the bank
objected and asked the bankruptcy court to clarify the scope of Kimmes’ action. Kimmes
then orally moved the court to amend his complaint.
The bankruptcy court denied Kimmes’ motion to amend to the extent he was
attempting to obtain a positive damages award, but reserved ruling on whether Kimmes
could seek an offset against all the loans, rather than being limited to a potential offset
against a single loan – Loan No. 5225. In the meantime, the bankruptcy court ruled that
the parties could present evidence on all loans at trial. See ER 65:17-23.

2

The parties refer to this loan by a four-digit number, 5225.

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After trial, the bankruptcy court limited Kimmes’ prayer for relief to Loan No.
5225, relying on Federal Rule of Civil Procedure 54(c), incorporated by Federal Rule of
Bankruptcy Procedure 7054.
Rule 54(c) provides that, aside from default judgments, every “final judgment
should grant the relief to which each party is entitled, even if the party has not demanded
that relief in its pleadings.” (emphasis added). The general purpose of Rule 54(c) is to
“avoid the tyranny of formalism.” Rosden v. Leuthold, 274 F.2d 747, 750 (D.C. Cir.
1960). There is, however, a significant limitation to the rule: A court cannot grant relief
that was not specifically requested if doing so will prejudice the opposing party. See
Rental Dev. Corp. v. Lavery, 304 F.2d 839, 842 (9th Cir. 1962) (“If . . . it is made to
appear that the failure to ask for particular relief substantially prejudiced the opposing
party, Rule 54(c) does not sanction the granting of relief not prayed for in the
pleadings.”).
In this case, the bankruptcy court concluded that the bank would be “severely
prejudiced” if Kimmes were allowed to seek offsets against any loans other than Loan
No. 5225. ER 799. The bankruptcy court reasoned that Kimmes’ complaint did not
adequately notify the bank that he would seek anything other than an offset against Loan
Number 5225 as a remedy for the bank’s various alleged wrongs. Further, as the bank
points out, Kimmes’ new theories as to the scope of his alleged harm raised new issues
relating to a wide range of topics, including: the economic differences between leasing
and working farm ground; the impact of pivot irrigation on crop yields; the impact of new

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equipment on crop yields; and the impact of fertilizer on crop yields. See D.L. Evans’
Br., Dkt. 11, at 10. Kimmes suggests that the bank could not have suffered any prejudice
at trial from his reliance on these new theories to support a damages claim because the
parties conducted discovery on all the loans – not just Loan No. 5225. Opening Br., Dkt.
9, at 3. This argument is not persuasive, however, because it assumes that by reviewing a
generalized group of “loan documents,” the bank would be able divine all of Kimmes’
damages theories and then prepare an adequate defense. The Court is not convinced. To
properly prepare for trial, Kimmes would need to alert the bank to these theories of
recovery in the pleadings or, at a minimum, at some point before filing his pre-trial brief.
Under these circumstances, the bankruptcy court did not abuse its discretion in
denying Kimmes’ motion to amend his complaint to seek offsets against loans other than
Loan No. 5225. The Court will therefore affirm this ruling.
2.

The Bankruptcy Court Did Not Err in Finding that Kimmes Failed to
Establish the Existence of an Oral Loan Agreement
Kimmes next attacks the bankruptcy court’s factual findings related to his claim

that the bank orally promised to grant him a conventional home loan. The bankruptcy
court concluded that the bank had not made any such promise. The bankruptcy court’s
conclusion on this point ultimately rests, at least in part, on a credibility determination,
but the analytical starting point is the statute of frauds.
The bankruptcy determined that the oral loan agreement Kimmes alleged was

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unenforceable under Idaho’s statute of frauds. See Idaho Code § 9-505(5). 3 Kimmes
does not challenge this ruling on appeal. The bankruptcy court further observed that
Kimmes could theoretically rely on the equitable-estoppel doctrine to avoid application
of the statute of frauds. See ER 803 n.10.
The elements of equitable estoppel are as follows:
(1)

a false representation or concealment of a material fact with
actual or constructive knowledge of the truth;

(2)

that the party asserting estoppel did not know or could not
discover the truth;

(3)

that the false representation or concealment was made with the
intent that it be relied upon; and

(4)

that the person to whom the representation was made, or from
whom the facts were concealed, relied and acted upon the
representation or concealment to his prejudice.

Washington Fed. Sav. v. Van Engelen, 289 P.3d 50, 57 (Idaho 2012) (citation omitted).
The bankruptcy court found that Kimmes could not rely on the equitable-estoppel
doctrine because, among other things, the bank had never made any false representations
to Kimmes. ER 803 n.10. At trial, Kimmes testified that Brown had promised the bank
would grant him a conventional home loan. Brown said he did not remember making any

3

This section of Idaho’s statute of frauds provides that various types of oral agreements are
“invalid,” including “a promise or commitment to lend money or to grant or extend credit in an original
principal amount of fifty thousand dollars ($50,000) or more, made by a person or entity engaged in the
business of lending money or extending credit.”

MEMORANDUM DECISION AND ORDER - 9

such a promise. After reviewing the relevant documentary evidence and testimony, the
bankruptcy court concluded that no such promise had been made:
Kimmes testified Evans[] promised, through Brown, to assist him in
applying for a “conventional mortgage,” but the proof is inadequate that
Evans promised anything more – i.e. to actually make him such a loan.
There was no discussion of the terms of such a loan, and certainly an
agreement was never reached as to those terms. Again, Brown testified
that, beyond agreeing to submit Kimmes’ cost figures to an Evans
mortgage loan officer, he did not recall making any promises or discuss
specific mortgage terms with Kimmes.
ER 804.
The Court finds no error in this conclusion. Kimmes argues that the bankruptcy
court should have believed him, and not Brown, in light of the bankruptcy court’s more
general observation that Brown recalled “‘surprisingly little about his conversations with
Kimmes.’” Opening Br., Dkt. 9, at 11 (quoting ER 782). But the bankruptcy court’s
observation about Brown’s memory does not mean it could not also decide that Kimmes’
testimony lacked credibility, or that there was simply insufficient proof – aside from the
credibility of either witness – to find an enforceable agreement. Further, the bankruptcy
court’s credibility determinations receive heightened deference because of “‘the fact
finder’s unique opportunity to observe the demeanor of the witnesses.’” Valenzuela v.
Michel, 736 F.3d 1173, 1176-77 (9th Cir. 2013) (citation omitted).
After reviewing the bankruptcy court’s factual findings, as well as the relevant
evidence, there is nothing that leaves this Court with a “definite and firm conviction” that
the bankruptcy court erred in reaching its factual findings related to the alleged oral loan
agreement, or in making its credibility determinations underlying these factual findings.

MEMORANDUM DECISION AND ORDER - 10

Finally, the Court is not persuaded by the bank’s argument that this Court should
not reach the equitable-estoppel issue. Kimmes raised a promissory-estoppel argument
below, but the bankruptcy court analyzed both promissory and equitable estoppel. ER
30. Under these circumstances, the Court finds that the equitable-estoppel issue is
sufficiently developed for appellate review.
3.

The Bankruptcy Court Did Not Err in Finding Kimmes Failed to Establish an
Oral Agreement Relating to Insufficient-Funds Fees
Kimmes next argues that the bankruptcy court erred by finding that the bank had

not agreed to remove insufficient-funds fees charged to Kimmes’ account. Kimmes said
Brown promised him these fees would be removed. Brown said he could not recall ever
making such a promise. The bankruptcy court determined that Brown was a more
credible witness. ER 804 (“On balance, the Court believes Brown.”)
As before, Kimmes challenges the bankruptcy court’s credibility determination.
To support this argument, Kimmes points to evidence supporting his belief that the fees
would be removed. But he has not pointed to any evidence that definitely and firmly
convinces this Court that the bankruptcy court erred in finding that no such agreement
was made, or in finding that Brown was more credible than Kimmes. In other words,
Kimmes has pointed to evidence showing that the bankruptcy court could have found that
the bank made such an agreement. But he must do more than that to succeed on appeal;
he must effectively show that the bankruptcy court’s findings are simply not plausible in
light of the factual record. As the Supreme Court has explained,
If the district court’s account of the evidence is plausible in light of the

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record viewed in its entirety, the court of appeals may not reverse it
even though convinced that had it been sitting as the trier of fact, it
would have weighed the evidence differently. Where there are two
permissible views of the evidence, the factfinder’s choice between them
cannot be clearly erroneous.
Anderson v. Bessemer City, 470 U.S. 564, 573-74 (1985) (as quoted in Mondaca-Vega v.
Holder, 718 F.3d 1075, 1083 (9th Cir. 2013)).
Kimmes also argues that the bank was bound to remove these fees even absent an
agreement between the parties because Brown controlled how the loan funds were
disbursed. Opening Br., Dkt. 9, at 12. The bank complained that Kimmes raised this
issue for the first time on appeal, and Kimmes did not refute that assertion in his reply
brief. The Court therefore declines to reach this issue.
4.

The Bankruptcy Court Did Not Err in Finding Kimmes Failed to Establish a
Breach of the Covenant of Good Faith and Fair Dealing
Kimmes’ next argument generally relates to the bank’s election to commence

foreclosure proceedings on his home. He argues that the bank breached the covenant of
good faith and fair dealing by failing to comply with its internal, “Special Assets Policy”
for dealing with distressed loans. Under this policy, the bank does three things before
initiating foreclosure proceedings: (1) when the loan becomes seven days overdue, the
bank notifies the borrower; (2) when the loan becomes 14 days overdue, the bank
provides a second notice; and (3) when the loan becomes 30 days overdue, the bank
accords the borrower a right to cure. See Opening Br., Dkt. 9, at 13; ER 282-85. In this
case, the bank commenced foreclosure proceedings on Kimmes’ home without taking
these steps.

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Kimmes does not point to any evidence establishing that this policy was
incorporated into any of the parties’ underlying loan agreements, and the bankruptcy
court did not make such a finding. As a result, Kimmes is effectively arguing that the
implied covenant of good faith and fair dealing should be used to inject this policy into
the parties’ loan agreements. As the Idaho Supreme Court has explained, however,
the duty of good faith does not extend to obligate a party to accept a
material change in the terms of its contract. … Nor does it inject
substantive terms into the parties contract. Rather, it requires only that
the parties perform in good faith the obligations imposed by their
agreement. ... Thus, the duty arises only in connection with terms agreed
to by the parties . . . .
Idaho First Nat’l Bank v. Bliss Valley Foods, Inc., 824 P.2d 841, 863 (Idaho 1991)
(quoting Badgett v. Sec. State Bank, 807 P.2d 356, 360 (Wash. 1991) (en banc) (internal
quotation marks omitted; emphasis supplied by Bliss)).
Kimmes next argues that the bank breached the covenant of good faith and fair
dealing by failing to comply with regulations applicable to lenders who participate in
loan programs guaranteed by the Farm Service Agency (FSA). 4 In particular, Kimmes
points to regulations in subpart (b)(3) of 7 C.F.R. § 762.143(b), which requires a lender
servicing a “distressed account” to take various steps in the event of a borrower default.
One of these steps is to arrange a meeting with the borrower within 15 days of a default
to “identify the nature of the delinquency and develop a course of action that will

4

The FSA is an agency of the United States Department of Agriculture. See 7 C.F.R. § 761.2 (a).

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eliminate the delinquency and correct the underlying problems.” 7 C.F.R.
§ 762.143(b)(3).
This argument fails for the same reasons already discussed: Kimmes cannot rely
on the implied covenant of good faith and fair dealing to inject these guidelines into the
parties’ loan agreement. Additionally, this argument fails to the extent Kimmes suggests
that the bank was independently bound by the regulations. These regulations state that
they apply to “Standard Eligible Lenders” and lenders in the “Certified Lender Program.”
D.L. Evans is a “Preferred Lender.” See ER 21, 28. Sub-part (c) of the applicable
regulation deals with lenders in the preferred lender program; it provides that such
lenders “will service defaulted loans according to their lender’s agreement.” 7 C.F.R.
§ 762.143(c).
5.

The Bankruptcy Court Did Not Err in Refusing to Award Kimmes
Attorneys’ Fees Related to the Pickup Foreclosure
Kimmes also claims that the bankruptcy court erred by failing to award him

$2,000 based on the bank’s allegedly wrongful foreclosure of his pickup. The record is
not entirely clear with respect to a loan made to finance a pickup. At trial, loan officer
Shane Hamblin testified that there was a “pickup loan,” but he did not provide details
regarding the loan amount or any other terms. ER 177:19-21; 185:25 to 186:3. Hamblin
further testified that in approximately September 2010, Mr. Kimmes attempted to make a
payment on the pickup loan, but the bank refused to accept the payment for that purpose.
ER 197:16 to 198:8. The bank then commenced a foreclosure action on the pickup. The

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parties later stipulated to a dismissal of this action – with prejudice – with each side
agreeing to bear their own attorneys’ fees. See ER 274:14 to 275:15.
In bankruptcy court, Kimmes nevertheless claimed that the bank owed him $2,000
in attorneys’ fees related to the pickup foreclosure. He did not articulate a specific legal
theory in support of his claim. The bankruptcy court observed that Kimmes might be
attempting to assert a claim for breach of contract, but concluded that such a claim would
fail because the bank “appears to have acted properly in suing to collect the loan upon
Kimmes’ default, . . . .” ER 809-10.
The Court will affirm the bankruptcy court’s ruling because Kimmes’ attempt to
circumvent the stipulated dismissal (which expressly provided that the parties bear their
own attorneys’ fees) offends the principle of finality underlying a dismissal with
prejudice. See generally In re Baker, 74 F.3d 906, 910 (9th Cir. 1996) (“For res judicata
purposes, an agreed or stipulated judgment is a judgment on the merits.”); Nesselrode v.
Provident Fin., Inc. (In re Provident Fin., Inc.), 466 Fed. Appx. 672, 673 (9th Cir. 2012)
(unpublished disposition) (“The bankruptcy court properly concluded that res judicata
barred Nesselrode from relitigating claims in connection with Provident Financial’s
foreclosure of his property because he had asserted claims arising from the same
transactional nucleus of facts in prior federal and state court actions.”). Further, under
these circumstances, Kimmes cannot properly circumvent the parties’ stipulation
regarding attorneys’ fees. Cf. Straub v. Smith, 175 P.3d 754, 758 (Idaho 2007) (party to
stipulated dismissal with prejudice did not waive claim for fees and costs where, unlike

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here, the stipulated dismissal did not address fees and costs).
6.

The Bankruptcy Court Did Not Err in Denying Relief Based on Kimmes’
General Claims that the Bank Exercised Bad Faith
Kimmes’ remaining contentions on appeal relate to his sweeping general assertion

that the bank exercised bad faith toward him, starving him of the cash he needed to
effectively run his business, which eventually forced him into bankruptcy. See Opening
Br., Dkt. 9 at 2 (Issue Nos. 5, 7, 8). The problem with this argument is that Kimmes has
not demonstrated that the bank committed any actionable wrongdoing by, among other
things, refusing to lend Kimmes more money or working with him to prevent a
bankruptcy. In hindsight, that may well have been the better course for all concerned,
and the Court understands why Kimmes would choose to bank elsewhere after his
experiences with D.L. Evans. But even accepting that the bank treated its longtime
customer poorly, this does not mean the bank’s conduct gives rise to a legal action. 5
More specifically, Kimmes has not adequately explained how the bank committed an
actionable wrong against him by: (1) placing his loans on watch lists; (2) downgrading
his rating as a potential borrower; (3) lending him money for the purpose of paying off
preexisting loans with the bank; or (4) failing to provide additional notices before

5

The bankruptcy court made a similar observation: “In aggressively seeking to collect from him
without affording him the courtesy of more or different demands that he comply with his loan
agreements, perhaps Evans treated Kimmes poorly, but this is not a basis for affirmative relief. While
Evans’ alleged failure to give him “extra” notices about his defaults, and its other hardball tactics toward
him, may have justified his cessation of business with Evans, its tactics did not amount to grounds to sue
the bank.” ER 807.

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commencing foreclosure proceedings. Ultimately, then, the Court is in no position to
afford any relief to Kimmes, as he has not identified any errors committed by the
bankruptcy court.
7.

Attorneys’ Fees and Costs
Kimmes’ attack on the bankruptcy court’s award of attorneys’ fees and costs is

contingent upon convincing this Court that Kimmes is the prevailing party in this action.
For all the reasons discussed above, Kimmes did not convince the Court on this point. As
a result, there is no need to disturb the bankruptcy court’s order awarding costs and
attorneys’ fees to the bank. The Court will affirm this order.
CONCLUSION
The bankruptcy court’s judgment in favor of D.L. Evans Bank, as well as its
award of fees and costs, is AFFIRMED. This case is remanded to the bankruptcy court
for further proceedings consistent with this decision.
DATED: March 25, 2015

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

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