BMO Harris Bank, N.A. v. McM, Inc. et al
MEMORANDUM OPINION AND ORDER. 1. Defendants' Motion to Dismiss, or in the Alternative, to Transfer Venue (Doc. No. 19 ) is DENIED. 2. BMO's Motion for Appointment of Receiver Over the Assets of McMartin Jr. (Doc. No. 24 ) is GRANTED. A se parate Order appointing a receiver will be issued. 3. BMO's Motion for Leave to Supplement the Record and Requesting that the Court take Judicial Notice (Doc. No. 50 ) is GRANTED. (Written Opinion) Signed by Judge Donovan W. Frank on 8/8/2017. (BJS)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
BMO Harris Bank, N.A.,
Civil No. 17-335 (DWF/KMM)
OPINION AND ORDER
McM, Inc. and Ronald G. McMartin, Jr.,
Davit T. B. Audley, Esq., and Michael T. Benz, Esq., Chapman & Cutler, LLP; and
Thomas J. Lallier, Esq., Foley & Mansfield, PLLP, counsel for Plaintiff.
Jon R. Brakke, Esq., Vogel Law Firm, counsel for Defendants.
This matter is before the Court on a Motion to Dismiss, on the Alternative, to
Transfer Venue brought by Defendant Ronald G. McMartin Jr. (“McMartin Jr.”) (Doc.
No. 19); a Motion to Appoint Receiver Over the Assets of McMartin Jr. brought by
Plaintiff BMO Harris Bank, N.A. (“BMO”) (Doc. No. 24); and a Motion for Leave to
Supplement the Record and Requesting that the Court Take Judicial Notice brought by
BMO (Doc. No. 50). For the reasons set forth below, the Court denies the motion to
dismiss or transfer, grants the motion to appoint a receiver, and grants the motion to
supplement and take judicial notice.
This diversity action involves allegations by BMO that McMartin Jr. personally
guaranteed a revolving line of credit extended by BMO to Defendant McM, Inc. (“McM,
Inc.”). McM, Inc. was a farming and cattle operation before filing for bankruptcy. 1
McM, Inc. is a North Dakota corporation with its principal place of business in
St. Thomas, North Dakota. (Doc. No. 1 (“Compl.”) ¶ 6; Doc. No. 22 (“McMartin Jr.
Aff.”) ¶ 1.) McMartin Jr. is a citizen of the State of North Dakota and the sole owner and
officer of McM, Inc. (Compl. ¶¶ 1, 7; McMartin Jr. Aff. ¶ 1.). 2 BMO is a national
banking association with its primary office in Chicago, Illinois. (Compl. ¶ 5.) BMO
alleges that McM, Inc. borrowed approximately $43 million from BMO and that McM,
Inc.’s obligations have now matured. The Complaint details the loan agreements and
related documents. (Compl. ¶¶ 8-36.) In addition, the Complaint alleges that McMartin
Jr. executed and delivered to BMO a Guaranty dated July 31, 2012. (Compl. ¶ 30,
Ex. 17; Doc. No. 34, Ex. 1 (the “Guaranty”).) The Guaranty contains a forum selection
The case against McM, Inc. is stayed by virtue of the bankruptcy filing.
In its Complaint, BMO alleges that McMartin Jr. is a citizen of the state of North
Dakota. (Compl. ¶ 7.) Despite that allegation, BMO now argues that evidence suggests
McMartin Jr. actually resides in Minnesota. In support, BMO attaches an article
published in Lake and Home Magazine in the fall of 2016 featuring McMartin Jr.’s lake
home on Island Lake in Minnesota and reporting that McMartin Jr. divides his time
between his home in Grand Forks, North Dakota and the Minnesota property. (Doc. No.
34, Ex. 2.) BMO also asserts, without citation to evidence, that McMartin Jr. sold his
home in Grand Forks, North Dakota in October 2016, and suggests that McMartin Jr. is
now domiciled in Minnesota for purposes of venue. In his reply, McMartin Jr. submitted
additional evidence of his residency, stating that he is residing at his parents’ home in St.
CHOICE OF VENUE GUARANTOR HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY GUARANTOR AND
ARISING DIRECTLY OR INDIRECTLY OUT OF THIS GUARANTY
OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN
THE DISTRICT COURT OF BROWN COUNTY, MINNESOTA, OR AT
LENDER’S DISCRETION IN THE UNITED STATES DISTICT COURT
FOR THE DISTRICT OF MINNESOTA. GUARANTOR HEREBY
EXPRESLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED
BY LENDER IN SUCH COURT. GUARANTOR WAIVES ANY
CLAIM THAT . . . THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF MINNESOTA IS AN INCONVENIENT FORUM OR
AN IMPROPER FORUM BASED ON LACK OF VENUE. THE
EXCLUSIVE CHOICE OF FORUM FOR GUARANTOR SET FORTH IN
THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED IN
ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY
ACTION TO ENFOCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION, AND GUARANTOR HEREBY WAIVES THE RIGHT,
IF ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR
(Guaranty ¶ 13.)
In addition, BMO alleges that McMartin Jr. granted BMO a security interest in all
of his personal property (collateral). (Compl. ¶ 32.) BMO also alleges that McMartin Jr.
breached the Guaranty, and further that McM, Inc. and McMartin Jr. fraudulently
misrepresented (by millions of dollars) the financial statements and financial information
that they delivered to BMO in support of the loans received and requests for advances
under its revolving credit line with BMO. (See generally Compl. ¶¶ 37-58; see generally
Doc. No. 26 (“Mueller Decl.”).)
Thomas, North Dakota. (Doc. No. 36 ¶ 2.) McMartin Jr. also attached a copy of a North
Dakota driver’s license issued December 14, 2016 using a St. Thomas, North Dakota
address. (Id. ¶ 3 & Ex. 1.) The record supports a finding that McMartin Jr. is a North
On February 1, 2017, BMO filed the present Complaint and a Motion for
Appointment of a Receiver over the assets of McM, Inc. On the day that the motion was
scheduled to be heard, McM, Inc. filed a voluntary petition under chapter 7 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the District of
North Dakota. By operation of law, this case is stayed as to McM, Inc. Subsequently,
BMO filed the present Motion for the Appointment of a Receiver Over the Assets of
McMartin Jr. McMartin Jr. moves to dismiss this case or to transfer it to the U.S. District
Court for the District of North Dakota. Finally, BMO moves for leave to supplement the
record and requests that the Court take judicial notice. The Court considers the motions
Motion to Dismiss or Transfer
McMartin Jr. moves to dismiss this action pursuant to Rules 12(b)(3), 28 U.S.C.
§ 1391(b), and 28 U.S.C. § 1406(a), or, in the alternative, to transfer the action under
28 U.S.C. § 1406(a) and/or § 1404(a). Specifically, McMartin Jr. argues that this case
should be dismissed for improper venue or transferred to the District Court of
Under 28 U.S.C. § 1391(b), venue in diversity cases is only appropriate in:
(1) a judicial district in which any defendant resides, if all defendants are
residents of the State in which the district is located; (2) a judicial district in
which a substantial part of the events or omissions giving rise to the claim
occurred, or a substantial part of property that is the subject of the action is
situated, or (3) if there is no district in which an action may otherwise be
brought as provided in this section, any judicial district in which any
defendant is subject to the court’s personal jurisdiction with respect to such
28 U.S.C. § 1391(b). For purposes of venue, a natural person “resides” in the judicial
district in which that person is domiciled. 28 U.S.C. §1391(c). Here, McMartin Jr. bears
the burden of demonstrating that BMO’s chosen venue is improper. See United States v.
Orshek, 164 F.2d 741, 742 (8th Cir. 1947).
McMartin Jr. argues that: (1) none of the Defendants reside in Minnesota; (2) the
events giving rise to BMO’s claims did not arise in Minnesota; and (3) North Dakota is
the proper district for this action. In the alternative, McMartin Jr. contends that the Court
should transfer this action pursuant to § 1404(a) on convenience grounds. BMO alleges
that venue is proper because Defendants expressly consented to venue by agreeing to the
forum-selection clause and therefore expressly waived any claim that this District would
be improper based on a lack of venue or an inconvenient forum.
Both parties cite to the Supreme Court’s decision in Atlantic Marine Construction
Co. v. United States District Court for the Western District of Texas, 134 S. Ct. 568
(2013). In Atlantic Marine, the Supreme Court expressed support for the enforcement of
contractual forum-selection clauses “[i]n all but the most unusual cases.” Atl. Marine
Constr. Co., 134 S. Ct. at 583. In doing so, the Supreme Court distinguished between
forum-based challenges under §1404(a) (applying convenience factors) and challenges
based on alleged improper venue under §1406(a). See id. at 577-78. The Supreme Court
explained that the existence of a forum-selection clause has “no bearing” on whether
venue is improper under § 1406 because that source of authority applied where venue
itself (rather than forum) was improper. Id. at 577 (“Whether venue is ‘wrong’ or
‘improper’ depends exclusively on whether the court in which the case was brought
satisfies the requirements of federal venue laws, and those provisions say nothing about a
forum-selection clause.”). Thus, the Court must determine whether venue in this case is
proper under §1391(b) in this District.
Here, Defendants reside in North Dakota and there is no evidence that a
substantial part of the events or omissions giving rise to BMO’s claims against McMartin
Jr. occurred in Minnesota. Thus, venue is not proper under § 1391(b)(1) or § 1391(b)(2).
Moreover, § 1391(b)(3) applies only if there is no district in which the action may
otherwise be brought. It is evident that this action could have been brought in North
Dakota. Thus, the Court concludes that the provisions of § 1391 have not been met.
Therefore, venue is not proper in this Court unless McMartin Jr. has waived his right to
object to venue in this District by agreeing to the forum-selection clause. See, e.g.,
Servpro Indus., Inc. v. JP Penn Restoration Servs., Civ. No. 16-298, 2016 WL 5109947,
at *2 (M.D. Tenn. Sept. 20, 2016). As explained in Servpro, Atlantic Marine involved a
case where a party attempted to dismiss or transfer a case in order to enforce a forumselection clause. In that case, the court could not consider the forum-selection clause in
determining whether the non-agreed upon forum was proper under venue laws. Here,
however, McMartin Jr. is attempting to dismiss or transfer the case away from an agreed
upon forum. The court in Servpro explained that the principle that a valid
forum-selection clause should be given controlling weight applies more strongly where a
defendant, such as McMartin Jr. here, seeks to transfer the case out of the agreed upon
forum. Id. at *2-3. The Court agrees and also reiterates the premise that when a party
agrees to a forum-selection clause, that party waives the right to challenge the preselected
forum as inconvenient. See id. at *3-4.
In this case, there is no dispute that McMartin Jr. expressly consented to and
waived any objections to venue in this District. (See Guaranty ¶ 13 (“GUARANTOR
WAIVES ANY CLAIM THAT . . . THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF MINNESOTA IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE.”). Having agreed to the
forum-selection clause, McMartin Jr. cannot now argue that venue is improper or
inconvenient. Accordingly, McMartin Jr.’s motion to dismiss or transfer is denied.
Motion to Supplement the Record and Requesting that the Court Take
BMO moves to supplement the record and requests that the Court take judicial
notice. In particular, BMO seeks to supplement the record with the Declaration of
Randall T. Boushey (Doc. No. 50-2 (“Boushey Decl.”)), which BMO argues supports its
assertion that McMartin Jr. has diverted and will continue to divert BMO’s
collateral-lease payments. BMO contends that the Boushey Declaration is relevant to
BMO’s motion to appoint a receiver and, in particular, to the assertion that there is
imminent risk of dissipation of McMartin Jr.’s assets. BMO also asks the Court to take
judicial notice of the existence of the Order on Motion for Contempt, entered on April 17,
2017, by the Grand Forks County District Court for the Northeast Central Judicial
District, the court presiding over McMartin Jr.’s state court divorce proceeding. (Doc.
No. 50-3 (“Contempt Order”).) BMO asserts that taking judicial notice is appropriate
under the Eighth Circuit’s decision in McIvor v. Credit Control Service, Inc., 773 F.3d
909, 914 (8th Cir 2014) (explaining that judicial notice of another court’s opinion takes
notice of the existence of the opinion, not the facts summarized therein). 3
Randall Boushey is the president of A&L Potato Company. (Boushey Decl. ¶ 2.)
A&L Potato Company entered into an equipment lease with McMartin Jr. (Id. ¶¶ 2-4,
Ex. 1.) In his declaration, Boushey states that under the lease, A&L Potato Company
made rent payments to McMartin Jr. in 2016 and 2017. (Id. ¶ 5.) In addition, Boushey
states that after McM, Inc. filed for bankruptcy on February 10, 2017, McMartin Jr. has
been demanding payments under the lease. (Id. ¶ 6.) Boushey attaches an e-mail that
included a letter from McMartin Jr.’s attorney in which the attorney explains to
McMartin Jr. that lease payments are not “tied up in the McM bankruptcy.” (Id. ¶ 7,
Ex. 2.) BMO contends that this evidences McMartin Jr.’s attempt to divert BMO’s
collateral (the lease payments from A&L Potato).
McMartin Jr. opposes the motion as it pertains to the Boushey Declaration on
three primary grounds. First, McMartin Jr. asserts that BMO fails to provide a procedural
basis under which to supplement the record at this stage of the proceeding. Second,
McMartin Jr. asserts that the Boushey Declaration is unauthenticated, not based on
Boushey’s personal knowledge, and constitutes inadmissible hearsay. Third, McMartin
Jr. maintains that the information contained in the Boushey Declaration is irrelevant as to
BMO points out that it seeks no relief against McM, Inc., as it is a debtor in
the issue of an existing danger of dissipation of McMartin Jr.’s assts. As to the issue of
judicial notice of the Contempt Order, McMartin Jr. argues that judicial notice may be
taken only as to the existence of the Contempt Order, but not the facts summarized
within. See McIvor, 773 F.3d at 914.
First, the Court discerns nothing procedurally improper about seeking to
supplement the record while a motion is pending. Second, the Court determines that the
Boushey Declaration, and in particular the attached Exhibit 2 (a letter to McMartin Jr.
from counsel concerning the A&L Potato lease), is admissible. The declaration
demonstrates that McMartin Jr. e-mailed the attorney letter to Boushey. In addition,
BMO contends that the letter is not offered for the truth of the matters therein, but instead
to show that McMartin Jr. sent the letter as part of his request that lease payments be
made to him after McM, Inc. filed for bankruptcy. Third, the Court finds that the
Boushey Declaration is relevant, as it demonstrates that McMartin Jr. has received
proceeds of BMO’s collateral from Boushey. Thus, the Court will allow BMO to
supplement the record with the declaration. As to the Contempt Order, the Court will
take judicial notice of the aspects that are not subject to reasonable dispute, including the
title of the Contempt Order and the fact that the court entered the Contempt Order against
McMartin Jr. based on its conclusion that McMartin Jr. made intentional, willful financial
decisions to benefit himself with his assets instead of meeting his obligations to his
ex-wife. (Doc. No. 50-3 ¶ 41.)
Based on the above, the Court grants BMO’s motion to supplement the record and
takes judicial notice as explained above.
Motion for Appointment of Receiver
BMO also moves for appointment of a receiver over the assets of McMartin Jr.
BMO argues that a receiver is warranted. Specifically, BMO asserts that: it has a valid
breach of contract claim against McMartin Jr. for breach of the Guaranty that is likely to
be decided in BMO’s favor; Defendants, and in particular McMartin Jr., have engaged in
fraudulent conduct designed to induce BMO into making loans to McM, Inc.; imminent
danger exists that BMO’s collateral will be concealed, lost or diminished in value;
BMO’s legal remedies are inadequate; and the balance of harm weighs in BMO’s favor.
BMO asserts that in light of McMartin Jr.’s fraudulent behavior, combined with the fact
that BMO simply has no idea how McMartin Jr.’s collateral is being used or may have
been diverted, the appointment of a receiver is necessary.
McMartin Jr. opposes the motion. McMartin Jr. contends that the case is in its
early stages, no discovery has been conducted, and even a possibility of success is not a
critical factor in deciding whether to appoint a receiver. In addition, McMartin Jr. asserts
that BMO, at least in its opening papers, only alleges fraudulent conduct in relation to the
underlying claims related to the extension of credit and loans by BMO, not fraudulent
conduct with respect to personal property in which McMartin Jr. granted BMO a security
interest (or collateral). McMartin Jr. also asserts that BMO fails to present any evidence
suggesting that McMartin Jr. has concealed collateral with the purpose of defrauding
BMO or that any collateral is in imminent danger of dissipation. Finally, McMartin Jr.
argues that other adequate and less drastic remedies are available and appointing a
receiver will do more harm than good.
The appointment of a receiver in a diversity case is a procedural matter governed
by federal law and federal equitable principles. See Fed. R. Civ. P. 66; Aviation Supply
Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314, 316 (8th Cir. 1993); American Express
Travel Related Servs. Co., Inc. v. Forest Lake Ford, Inc., Civ. No. 08-138, 2008 WL
227800, at *2 (D. Minn. Jan. 24, 2008). A receiver is an extraordinary equitable remedy
that is only justified in extreme situations. See Aviation Supply Corp., 999 F.2d at 316.
The appointment of a receiver lies within the discretion of the court. Id. at 317.
Although there is no precise formula for determining when a receiver may be appointed,
courts typically look at six factors: (1) a valid claim by the party seeking the
appointment; (2) the probability that fraudulent conduct has occurred or will occur to
frustrate that claim; (3) imminent danger that property will be concealed, lost, or
diminished in value; (4) inadequacy of legal remedies; (5) lack of a less drastic equitable
remedy; and (6) likelihood that appointing the receiver will do more good than harm. See
id. at 316-17.
In this case, BMO alleges that via the Guaranty, McMartin Jr. promised to repay
the indebtedness of McM, Inc. and that McMartin Jr. now owes BMO more than
$43 million. In addition, BMO points out that McMartin Jr. previously granted to BMO
security interests in all of his personal property assets, and that BMO only seeks a
receiver over assets in which it already has valid security interests. Finally, McMartin Jr.
argues that fraud by McMartin Jr., by definition, presents the danger of loss.
Having carefully considered BMO’s Complaint, BMO’s receivership motion and
all supporting papers, including the Declaration of Lauren K. Mueller, and
McMartin Jr.’s opposing papers, the Court grants the receivership motion. The Court
will issue a separate order appointing a receiver.
Based upon the parties’ submissions and arguments, and for the reasons set forth
above, IT IS HEREBY ORDERED that:
Defendants’ Motion to Dismiss, or in the Alternative, to Transfer Venue
(Doc. No. ) is DENIED.
BMO’s Motion for Appointment of Receiver Over the Assets of McMartin
Jr. (Doc. No. ) is GRANTED. A separate Order appointing a receiver will be issued.
BMO’s Motion for Leave to Supplement the Record and Requesting that
the Court take Judicial Notice (Doc. No. ) is GRANTED.
Dated: August 8, 2017
s/Donovan W. Frank
DONOVAN W. FRANK
United States District Judge
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