Banner Bank v. First Community Bank
Filing
40
ORDER denying 38 Motion to Compel; granting 22 Plaintiff Banner Bank's Motion for Summary Judgment in the amount of $78,000 in favor of Banner Bank and against Defendant First Community Bank, along with Plaintiff's reasonable atty fees and costs to be paid by Defendant. Let Judgment enter. Signed by Judge Charles C. Lovell on 2/28/2012. (MKB)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
HELENA DIVISION
*******
BANNER BANK, a Washington
banking corporation,
CV 11-09-H-CCL
Plaintiff,
-v-
OPINION & ORDER
FIRST COMMUNITY BANK, a
Montana banking corporation,
Defendant.
*******
Before the Court is a Motion for Summary Judgment (Doc. 22) filed by
Plaintiff Banner Bank (“Banner”). The Motion is opposed by Defendant First
Community Bank (“FCB”). Neither party has requested oral argument on the
motion. The Court has reviewed the filings of both parties and finds that the
Motion should be and hereby is submitted on the briefs. See Fed. R. Civ. P. 78;
see also D. Mont. L.R. 78.1 (Jan. 1, 2012). Having reviewed the briefs and all the
record, the Court is prepared to rule.
I.
Summary Judgment Standard.
Summary judgment is proper only if the pleadings, the discovery and
disclosure materials on file, and any affidavits, show that there is no genuine issue
as to any material fact and that the movant is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(c). The moving party is entitled to judgment as a matter of
law when the nonmoving party fails to make a sufficient showing on an essential
element of a claim in the case on which the nonmoving party has the burden of
proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L.Ed.2d
265 (1986). There is no genuine issue of fact for trial where the record, taken as a
whole, could not lead a rational trier of fact to find for the nonmoving party.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct.
1348, 89 L.Ed.2d 538 (1986) (nonmoving party must present specific, significant
probative evidence, not simply “some metaphysical doubt”). See also Fed. R. Civ.
P. 56(e). Conversely, a genuine dispute over a material fact exists if there is
2
sufficient evidence supporting the claimed factual dispute, requiring a judge or
jury to resolve the differing versions of the truth. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 253, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); T.W. Elec. Serv., Inc.
v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987). The Court
must resolve factual controversies in favor of the nonmoving party when the facts
specifically attested by that party contradict facts specifically attested by the
moving party. Conclusory, nonspecific statements in affidavits are not sufficient,
however, and missing facts will not be presumed. Lujan v. Nat’l Wildlife Fed’n,
497 U.S. 871, 888-89, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990).
II.
Facts.
Banner Bank appears as Plaintiff in this case because Banner Bank merged
with F&M Bank (“F&M”) of Spokane, Washington, and succeeded to all of F&M
Bank’s rights and interests. In 2006, F&M Bank loaned $5,000,000 to Superior
Propane, LLC (“Superior”), of Helena, Montana. Dean South and Gary Hebener1
Dean South, Gary Hebener, and Ernie Steiner were the principals of
Superior Propane, LLC. (Doc. 27, Def’s Brief in Opp. to Summ. Judg., at 2.) See
1
3
were guarantors on the Banner Bank loan. (Doc. 26-5, Exh. E, Decl. Bruce W.
Nelson.) Superior pledged all of its assets to secure the loan, and F&M perfected
a security interest in Superior’s assets by filing a UCC financing statement with
the Montana Secretary of State in 2006 as to
All Inventory, Chattel Paper, Accounts, Equipment and General
Intangibles; whether any of the foregoing is owned now or acquired
later; all accessions, additions, replacements, and substitutions
relating to any of the foregoing; all records of any kind relating to any
of the foregoing; all proceeds relating to any of the foregoing
(including insurance, general intangibles and other accounts process).
(Doc. 26-4, Ex. D, Decl. Bruce W. Nelson.)
In April, 2009, two of three principals of Superior Propane, Mr. Dean South
and Mr. Gary Hebener, took out a $400,000 personal loan with First Community
Bank (“FCB”) of Helena, Montana2. According to FCB’s brief (citing the
also Doc. 25-2, p. 3, Def’s Answer to Interrog. No. 2.)
On April 20, 2009, South and Hebener took out a personal loan with
First Community Bank in the amount of $404,035.00. South and Hebener gave
FCB a security interest in five propane tanks. The loan was supported by a
Promissory Note and Extension, a Security Agreement, and a Financing Statement
and Commercial Guaranty. Superior Propane, LLC, guarantied the loan. (Doc.
29, Aff. Russ Noonan, ¶ 18.) FCB filed a UCC Financing Statement was filed
2
4
deposition of Dean South), the purpose of this loan was to assist Superior Propane
in making payments on its loan with Banner Bank. (Doc. 27, Def.’s Brief in
Opposition, at 2.) It was to be a six-month bridge loan that would also permit
Superior Propane sufficient time to find additional financing. Mr. South and Mr.
Hebener pledged some of Superior’s assets to secure the FCB loan, although
neither South nor Hebener formally purchased any asset from Superior and did not
present any title in the assets to FCB. Nevertheless, FCB filed a U.C.C. financing
statement with the Montana Secretary of State in April 2009 which asserted a
security interest in five large propane tanks,3 listing Mr. South and Mr. Hebener as
debtors but not listing Superior as either a debtor or the owner of the assets being
secured.
The $400,000 loan proceeds were initially deposited to the H&S (Hebener
with the Montana Secretary of State on April 23, 2009, listing four 30,000 gallon
propane tanks and one 60,000 gallon propane tank. (Doc. 29-3.)
However, the FCB Security Agreement called for South and Hebener to
pledge four 30,000 gallon propane tanks, one 60,000 gallon propane tank, and one
trailer. (Doc. 29-2, Exhibit B, Aff. Russ Noonan.) The trailer is not listed on the
UCC Financing Statement.
3
5
& South) account at FCB on April 21, 2009. (Doc. 29-5, Ex. E, Aff. Russ
Noonan.) On April 22, 2009, Dean South wrote a check to Superior Propane in
the amount of $200,000, and Superior signed that check over to Banner Bank for
partial payment on its $5 million loan obligation. (Doc. 29-6, Exhibit F.) On
April 28, 2009, Dean South wrote another check to Superior Propane in the
amount of $172,000, and Superior signed that check over to Banner Bank for
another payment on its $5 million loan obligation. (Doc. 29-8, Exhibit H.) On
October 8, 2009, Dean South wrote a check on a “Harold’s Meter Service”4
account with Mountain West Bank, payable to the H&S account at FCB in the
amount of $78,000. (Doc. 29-9, Exhibit I.) On December 4, 2009, a payment of
$80,000 was made to the South/Hebener personal loan account at FCB from the
H&S account. (Doc. 29-5, Exhibit E, FCB Bank Statement for Note 8500314,
Aff. Russ Noonan.) Because it appears that the regular monthly payment on the
personal loan was approximately $2,000, the $80,000 represents a $78,000
4
Harold’s Meter Service is a dba of Superior Propane.
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payment, presumably derived from the sale of the propane tanks, and the regular
monthly payment of $2,000.
On October 15, 2009, Superior defaulted on its payment obligations to
Banner, entitling Banner to immediate possession of Superior’s assets pledged as
collateral in 2006 to secure the $5,000,000 loan. Currently, Superior owes more
than $5 million to Banner Bank.
On a date unknown but thought to have occurred at some time in 2010,
Superior sold two of the 30,000 gallon propane tanks to a Wyoming third party
(whose name Mr. South could not remember at the time of his deposition) for
approximately $80,000 ($40,000 each), according to the testimony of Mr. South.
(Doc. 25-1, 1/21/11 Dep. of Dean A. South, 83:1-86:16.) Dean South testified on
January 21, 2011, as follows:
Q.
A.
Q.
A.
Q.
A.
Q.
Okay, all right. Who owned those tanks?
Well, they were Superior inventory.
Okay. So they were owned by Superior?
Yes.
Not you?
No.
And not Mr. Hebener?
7
A.
No.
(Doc. 25-1, Ex. A, Decl. Anthony S. Wisen, p. 5, South TR 78:13-20.)
Q.
A.
Q.
A.
Okay. But you didn’t own the tanks?
No.
Superior owned the tanks?
Right.
(Doc. 25-1, Ex. A, Decl. Anthony S. Wisen, p. 5, South TR 79:10-13.)
Q.
A.
Q.
A.
...
Q.
A.
Q.
A.
Q.
A.
Q.
A.
Q.
A.
Q.
Okay. How about the other tanks?
They’ve been sold.
Okay. When were the sold?
Oh, a year or so ago. And we reduced the loan by a hundred thousand
to First Community.
For a total of how much?
80-some-thousand.
And those dollars were paid to whom?
First Community.
And I’m sorry, that happened roughly when? I mean, as specifically
as you can identify, when did that transaction occur?
Probably a year ago.
Okay. And these were tanks that belonged to Superior, right?
Well, Superior was paid for them, Superior got their money out of
them because they got the proceeds of the loan.
Let’s simplify that a little bit. The tanks you’re talking about here
were tanks that were titled in Superior’s name, correct?
They were inventory of Superior’s.
So they belong to Superior?
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A.
Q.
A.
Q.
A.
Q.
A.
...
Q.
A.
Yeah, but First Community paid Banner and Superior 3 or 4 hundred
thousand for those tanks.
You’re talking about the loan transaction?
Yeah.
Okay. So Superior owns these tanks and they were sold to somebody
within the last year, who were they sold to?
Oh, some propane company in Wyoming.
Okay. Can you be any more specific?
I don’t recall their name.
... You negotiated with this purchaser, some equipment company in
Wyoming, the name of which you can’t recall right now?
I don’t remember the name.
(Doc. 25-1, pp. 6-7, TR 83:6 - 86:11.)
According to South’s testimony, Superior sold the tanks and used the
proceeds to make a payment to FCB on South/Hebener’s personal loan. Bank
records show that South transferred $80,000 from his account to the
South/Hebener loan account on December 4, 2009. (Doc. 29-5, Exhibit E, FCB
Bank Statement for Note 8500314.) Banner was not informed by anyone about the
sale of these tanks. Prior to or contemporaneously with the making of the FCB
loan to South/Hebener, however, FCB was told by Mr. South and Mr. Hebener
that Mr. Hebener would obtain a waiver from Banner Bank of its rights to the two
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propane tanks. Despite this understanding, however, no party sought a waiver
from Banner Bank, which did not discover the sale of the propane tanks until
approximately one year after the fact. Upon learning of the sale, Banner Bank
promptly notified FCB that it (Banner Bank) had a security interest in the propane
tanks that had been sold, and based on its security interest Banner Bank demanded
payment of the proceeds of the sale of the propane tanks from FCB.
III.
Discussion.
This is a simple case of two competing security interests in two 30,000
gallon propane tanks, each tank worth approximately $40,000. Banner Bank’s
security interest in Superior’s assets was filed in 2006. FCB’s security interest in
South/Hebener’s assets was filed in 2009. FCB was aware of Banner Bank’s
security interest in the assets of Superior. Banner Bank was unaware of FCB’s
security interest in the assets of South/Hebener. Banner Bank was unaware that
Superior had sold the two tanks to a third party. The $78,000 proceeds of the sale
of the tanks was deposited by Superior on October 8, 2009, into Hebener and
South’s account at FCB. From that account, South and Hebener paid $80,000 into
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their FCB loan account on December 4, 2010. FCB’s security interest was
severely flawed in that FCB’s debtors did not own the collateral being pledged as
security for the debtors’ loan.
Now Banner Bank seeks a return of the $78,000 cash proceeds from the sale
of the two propane tanks from FCB. FCB denies that Banner Bank is entitled to
these funds. To defend against summary judgment, FCB relies primarily upon the
equitable argument of unjust enrichment and also upon its security interest in the
tanks and Montana’s U.C.C. statutes.
A. Unjust Enrichment. FCB argues that it would be unjust enrichment for
Banner Bank to receive the cash proceeds for the sale of the tanks, because Banner
Bank had already been “paid” for the tanks by Superior’s 2009 payments of
approximately $300,000. By this argument, FCB refers to the fact that out of the
$400,000 loan, South/Hebener paid $300,000 to Superior, which turned the checks
over to Banner Bank. (South and Hebener also paid $100,000 to Superior to cover
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Superior’s operating expenses.5) FCB now claims that when South/Hebener paid
$300,000 to Banner Bank they were “paying” Banner Bank for the two propane
tanks. FCB also claims that when South/Hebener paid $100,000 to Superior, they
were actually purchasing the propane tanks from Superior.
The problem with this argument is that when South/Hebener “paid”
$300,000 to Banner Bank, they did not tell Banner Bank that the payment was for
the two propane tanks upon which Banner Bank had attached a perfected security
interest and that they were essentially buying back that security interest. Banner
Bank received the $300,000 simply as partial payment for the $5 million loan it
had made to Superior. Banner Bank never was asked to release its security interest
“It was paid on the line to Rob Dietz [of Banner Bank], 300,000 to
reduce the line, . . . and the other hundred was put into Superior to operate.” (Doc.
25-1, Ex. A, Decl. Anthony S. Wisen, South TR 77:2-6.) “Yes, it was all
contributed to Superior to operate.” (Doc. 25-1, Ex. A, Decl. Anthony S. Wisen,
South TR 77:13-14.) “The other 100 was just put into Superior to try to keep
operating.” (Doc. 25-1, Ex. A, Decl. Anthony S. Wisen, South TR 79:21-22.) “Q:
Do you recall having adjusted your equity interest on account of that contribution?
A. No. Q. You just put the money in and didn’t worry about the paperwork too
much – A. Right.” (Doc. 25-1, Ex. A, Decl. Anthony S. Wisen, South TR 77:1520.)
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in the two propane tanks. FCB has made no assertion that the $300,000 paid by
Superior was above and beyond the payments then owed by Superior to Banner
Bank, and this Court cannot assume that fact under these circumstances. In fact,
the evidence shows that Superior needed cash to make a loan payment to Banner
Bank. (Doc. 29, Aff. Russ Noonan, ¶ 6.)
Similarly, when South and Hebener purportedly paid $100,000 to Superior
for the two propane tanks, they did not actually transfer title in the tanks to
themselves or otherwise record the transaction in writing. Apparently, these
transactions existed in the minds of South and Hebener only, because they did not
actually communicate the purpose of their payments to either Banner Bank or to
Superior. Moreover, South testified that he and Hebener gave $100,000 to
Superior for operating expenses, not as payment for the tanks. (Doc. 25-1, Ex. A,
Decl. Anthony S. Wisen, South TR 77:2-6.)
In spite of the complete lack of documentation, FCB accepted this series of
transactions as described to FCB by South, and on this basis FCB argues today
that Banner has been amply “paid” for the two propane tanks ($300,000 for an
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$80,000 value), and FCB was therefore entitled to take the security interest on the
tanks and then accept the proceeds of the two propane tanks from Superior. In
FCB’s opinion, paying Banner Bank’s demand of $78,000 would be “double
counting” and an unjust enrichment to Banner Bank.
The Court cannot accept FCB’s interpretation of the facts. Banner Bank did
not know it was being “paid” for a release of its security interest in the two
propane tanks. Banner Bank believed that it was being paid what it was owed on
the $5 million note. Banner Bank never granted a release of its security interest;
nor did it know that a release was being sought. Superior never actually sold the
propane tanks to South and Hebener, as evidenced by any bill of sale or other
document. FCB also presents to the Court no evidence that South and Hebener
had the power to transfer any rights to the propane tanks. Thus, the evidence does
not support FCB’s assertion that Banner Bank was already paid once for the
propane tanks, and it would be unjust enrichment for Banner to receive sale
proceeds as a result of this litigation.
B. § 30-9A-324(1) (Purchase-Money Security Interest). Under this statute,
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FCB argues that its $400,000 loan to South and Hebener allowed it to perfect a
purchase-money security interest in goods other than inventory6 or livestock
pursuant to § 30-9A-324(1), Mont. Code Ann., and such purchase-money security
interest has priority over Banner Bank’s conflicting security interest in the same
goods. Thus, FCB disputes that Banner Bank has the priority security interest.
FCB maintains that South and Hebener did in fact purchase the tanks from
Superior Propane in a transaction wherein South and Hebener gave Superior
Propane the full value of the $400,000 FCB bridge loan and received in exchange
five propane tanks and a trailer. (Doc. 27, Def’s Brief in Opp., p. 9.) FCB argues
that South produced for FCB some documents entitled “certificates of origin,” for
the propane tanks, which apparently indicated to FCB that South either owned the
tanks or had some ownership rights by virtue of possession of these certificates.
(However, FCB has not produced those certificates of origin as part of this record
The Court notes that Dean South testified repeatedly that the two
propane tanks were categorized as inventory of Superior Propane. (Doc. 25-1, Ex.
A, Decl. Anthony S. Wisen, South TR 77:24-25 - 78:13-14.)
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and, moreover, FCB does not explain how the propane tanks’ certificates of origin
would verify ownership at the time FCB made the loan to South and Hebener.7)
Continuing along with this argument, FCB concludes that Banner Bank should
have released its security interest at that point and, if it didn’t, this Court should
deem the Banner Bank security interest to be lower in priority by operation of
section 324 of Montana’s U.C.C.
This argument is convoluted, to say the least. Normally, a purchase-money
security interest has priority over a conflicting security interest because this is a
In fact, Russ Noonan testified at his deposition “I don’t know if I can
honestly tell you whether or not [South] owned [the tanks] at that point [when the
FCB security agreement was signed] or not. He was pledging them as collateral.
(Doc. 37, p. 8, TR 14:8-10.) Noonan also testified that “I don’t believe [South]
provided anything that showed an actual title or indication that these were
personal assets that he owned at that time.” (Doc. 37, p. 8, TR 14:20-23.) In fact,
it appears that FCB relied upon the verbal assurance of South that he and Hebener
could pledge these assets as collateral for their personal loan. FC B never
followed up and demanded any documentation from South and Hebener regarding
either their title, ownership, or rights in the tanks or Banner Bank’s waiver of its
perfected security interest in the tanks. FCB relied on South and Hebener’s
promises to give FCB a first lien position on the tanks and to work out the details
for FCB. (Doc. 37, p.10, TR 63:4-10.) FCB never followed up on this, however,
by demanding any documentation from South, Hebener, Superior, or Banner Bank.
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new piece of equipment, for example, being purchased by a debtor. Part of the
definition of a purchase-money security interest requires “that the money lent was
in fact used to acquire an interest in the collateral. . . .” United States v. Ballard,
645 F.Supp. 788, 791 (D. Mont. 1986). In the instant case, the Court is presented
with this proposed set of “facts”: (1) South purchases an already-existing piece of
equipment from the original debtor Superior (not a new piece of equipment from a
manufacturer or some other third party), (2) South gives the equipment back to
Superior, allowing (3) Superior to sell the item of equipment free of Banner’s prior
perfected security interest, and then (4) South receives the sale proceeds from
Superior, to enable (5) South to pay down his “purchase-money loan” from FCB.
There is no new item of equipment being purchased by the original debtor, and the
purpose of the transaction appears to be (1) to allow the debtor Superior to evade
Banner’s perfected security interest so that the previously-encumbered equipment
could be sold to a third-party; (2) to obtain a temporary infusion of cash into
Superior via the FCB loan; or (3) both to convert existing equipment into cash and
to obtain the temporary infusion of cash from another bank. As was the case in
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Ballard, no bill of sale exists to document South’s purchase of the tanks, and only
his cancelled checks to Superior are presented to evidence the purported purchase.
Moreover, it was Superior (through its d/b/a Harold’s Meter Service) that
transmitted the proceeds from the sale of the tanks to South. Finally, South
testified that Superior owned the tanks and Superior sold the tanks. FCB’s
argument that it has a purchase-money security interest is without merit, first
because the propane tanks are inventory and second because there is no record of
any purchase of the tanks from Superior by South and/or Hebener.
Banner Bank disagrees that FCB has a perfected security interest in the
propane tanks at all, on the ground that neither South nor Hebener ever owned the
tanks. Indeed, in order to maintain a perfected security interest, a security
agreement must be made in writing, the debtor must give value, and the debtor
must have rights in the collateral. § 30-9A-203(2)(a)-(c), Mont. Code Ann. The
Court finds itself in agreement with Banner Bank that FCB did not have a valid
perfected security interest in the propane tanks because South and Hebener did not
possess the requisite rights in the collateral. Even though given ample
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opportunity, FCB has failed to provide any documentation purporting to give
either South or Hebener rights in the propane tanks. There is simply no evidence
that supports their pledge of that collateral to FCB on their personal loan. The
Court understands that in South and Hebener’s minds, it was as if they were
buying the tanks from Superior by giving cash to Superior and then directing
Superior to give cash to Banner Bank. There are several problems with this
viewpoint, however. One is that Superior owed the money to Banner Bank
anyway. Another problem is that when Superior made payments to Banner Bank
in 2009, Superior never notified Banner Bank that these particular payments were
made in order to obtain a release of Banner’s security interest on the propane
tanks. Then, too, no actual release was ever sought or obtained, so that the series
of transactions that South claims to have envisioned was never communicated
with Banner Bank. The idea that South and Hebener somehow bought the tanks
(without any paperwork and without any discussion or documentation with the
relevant parties, such as Superior and Banner Bank), is simply fiction. The fact
that FCB bought into that fiction will not cure the flaw in FCB’s security interest,
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which is not valid because it lacks the requisite set forth in Mont. Code Ann. § 309A-203(2)(b): “the debtor has rights in the collateral or the power to transfer rights
in the collateral to a secured party....” FCB never demanded documentation of
ownership in the collateral from the debtors or any other proof that they had the
power to transfer rights in the collateral. South admitted numerous times during
his deposition that the tanks were owned by Superior. South’s cancelled checks to
Superior could represent anything.
Now that this summary judgment procedure has provided FCB with an
opportunity to produce its evidence of its perfected security interest, FCB has
failed to produce any evidence that South and Hebener ever possessed “rights in
the collateral or the power to transfer rights in the collateral to a secured party....”
§ 30-9A-203(b), Mont. Code Ann. Lacking this proof, FCB’s claim to have a
perfected security interest fails because FCB’s security interest is not enforceable
under Montana law.
C. § 30-9A-332(1). FCB alternatively argues that it took the $80,000
transfer of money from a deposit account on December 4, 2009, free of Banner
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Bank’s security interest, citing § 30-9A-332(1), Mont. Code Ann. That statute
provides:
30-9A-332. Transfer of money – transfer of funds from deposit
account. (1) A transferee of money takes the money free of a security
interest unless the transferee acts in collusion with the debtor in
violating the rights of the secured party.
Thus, FCB claims to be a transferee of the funds free and clear of Banner Bank’s
security interest, pursuant to Montana statute. FCB argues that In re Cumberland
Molded Products, LLC, 2009 WL 2208582 (Bkrtcy. M.D. Tenn 2009), stands for
the proposition that under Tennessee’s version of Montana’s money transfer
statute, a transferee of funds takes free and clear of the claimed security interest in
the bank account.
In Cumberland the secured interest was held by the bank wherein the
deposit account was located; the deposit account held funds lent by the bank to the
debtor. After the bank’s debtor defaulted on the loan and declared bankruptcy, the
bank simply failed to utilize its right of setoff by freezing the loan funds remaining
in the bank account and instead allowed the debtor to transfer funds to a
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bankruptcy trustee by check, not once but twice. In each instance, the secured
party bank honored the check written by the debtor to the bankruptcy trustee,
when in fact the bank could have frozen the account. The court found no
collusion between the transferee (the bankruptcy trustee) and the debtor, and
therefore granted summary judgment in favor of the trustee and the debtor and
against the secured party, the bank.
Obviously, the facts in the instant case are not similar to Cumberland
because Banner Bank had no knowledge of, much less direct control over, the
funds transferred out of Hebener and South’s FCB bank account to pay off their
FCB loan. Moreover, Cumberland Molded Products, LLC was reversed on appeal
to the U.S. Bankruptcy Appellate Panel of the Sixth Circuit, which held that the
bankruptcy trustee could not avoid the bank’s security interest which was properly
perfected prior to the date of the bankruptcy petition and the bankruptcy trustee
was not a transferee within the meaning of the Uniform Commercial Code. In re
Cumberland Molded Products, LLC. v. First National Bank of Woodbury, 431
B.R. 718 (2010).
22
Next, FCB cites Orfix Financial Services, Inc. v. Mike Kovacs, 167
Cal.App.4th 242, 83 Cal.Rptr.3d 900 (Cal. 2008), for the proposition that, under
California’s version of the Montana statute, an unsecured judgment creditor who
has garnished funds in a deposit account has a superior interest over a secured
creditor by virtue of the judgment creditor’s actual execution on the account.
Here, FCB is not a judgment creditor who has executed on the funds in South and
Hebener’s account. Also, the policy underlying this statute, which is in part to
provide finality for further transactions by innocent transferees, see Mont. Code
Ann. § 30-9A-332, Official Comment No. 3 to Uniform Commercial Code § 9-332
(policy underlying -332 is to “minimize[] the likelihood that a secured party will
enjoy a claim to whatever the transferee purchases with the funds.”), is not at issue
here. FCB is not a transferee who has received funds from South and Hebener and
then used those funds to purchase some goods or services in another, further
transaction that is entitled to finality. Indeed, the Court is uncertain whether FCB
can be a transferee for purposes of this statute for the reason that South and
Hebener’s transfer into their FCB loan account is a credit to their account, and a
23
transfer to themselves, and not an outright transfer to FCB.
Even if FCB were considered to be a transferee for purposes of the money
transfer statute, there is still the issue of collusion. FCB asserts--and this Court
agrees--that FCB’s mere awareness of Superior’s sale of Banner Bank’s collateral
does not support a finding of collusion. Therefore, FCB argues, the collusion
exception contained in § 30-9A-332(1), M.C.A., does not apply on these facts, and
it is a transferee of money that can take the money free of Banner Bank’s security
interest.
Banner bank counter-argues that Mr. Noonan’s deposition shows that FCB
did collude in the sale of the propane tanks. Banner asserts that, in consequence
of this, FCB is not entitled to the protection it would otherwise have under section
30-9A-332, Mont. Code Ann.
The Court does not find that FCB intended at the outset of its loan
transaction to collude with Superior Propane to the detriment of Banner Bank, but
little by little FCB’s conduct during the South/Hebener loan transaction edged
toward and eventually transformed into a de facto collusion with Superior against
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Banner. FCB’s complete failure to ascertain the ownership or power to transfer
rights in the collateral as pledged by South and Hebener certainly permitted
Superior Propane to defraud its primary secured creditor. Essentially FCB’s
inattention to the most important details of the loan transaction allowed South and
Hebener to pledge assets they did not own for their $400,000 personal loan.
Further, FCB’s failure to require South and Hebener to provide documentation of
Banner Bank’s waiver of its security interest effectively kept Banner Bank
completely in the dark about a potential bank conflict over Superior’s assets or
about a possibility that Superior might want to sell these encumbered assets.
The Court can accept Russ Noonan’s claim that he simply misspoke when
he testified as Vice President of FCB that “as to the tanks, I’m not sure where they
are at this point. I know that we’ve sold a couple.” (Doc. 37, p. 11, TR 6-8.) But
Noonan also testified that both he and his superior, Mr. Rick Wiedeman, FCB
Branch Manager, knew about the sales of the propane tanks. Noonan testified that
“Dean [South] asked the question whether or not if he sold assets what would
happen, and Mr. Wiedeman’s response to him was that they would be applied to
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the [FCB South/Hebener] loan.” (Doc. 37, p. 11, TR 22-25.) In fact, South
testified that this advice had indeed been given to him by FCB.8 This goes well
beyond “mere awareness” of the sale. This is evidence that FCB knew that the
sale was in the offing and directed South to apply the proceeds of Superior’s
propane tank sales to the FCB loan account, knowing that Banner Bank held a
perfected security interest on all of Superior’s assets as collateral for its $5 million
loan. Also, the evidence shows that the December 4, 2009 payment of $78,000 on
the FCB loan was not in the ordinary course of business in that it was a one-time
payment and not a regularly-scheduled payment or a regularly-scheduled sweep of
the deposit account. All other monthly payments made by South and Hebener to
FCB on their loan account were made in varying amounts, all less than $2,500.
(Doc. 29-5, Ex. E, Aff. Russ Noonan.) FCB either was aware of the wrongfulness
“Q. . . . Did you consult with First Community Bank in connection with
that sale [of the propane tanks]? A. Yes. Q. Did you tell them, I’ve been
approached, I’m gonna sell it, here’s the price? A. Yes. Q. Did they say – did they
tell you that they believed that they were entitled to the proceeds of that sale? A.
Oh, yes.” (Doc. 25-1, Ex. A, Decl. Anthony S. Wisen, South TR 95:15-24.)
8
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of this transaction or chose to remain willfully ignorant. Such willful ignorance
satisfies the collusion exception of § 30-9A-332(1), Mont. Code Ann.
The Court having found de facto collusion between FCB and Superior, FCB
cannot take the $78,000 deposited on December 4, 2009, free of Banner Bank’s
security interest. In other words, FCB knew or should have known that Superior
Propane was evading Banner Bank’s perfected security interest in its sale of the
propane tanks and transfer of the proceeds into South and Hebener’s FCB loan
account.
D. §§ 30-9A-314, 30-9A-104, 30-9A-315. FCB argues that Mont. Code
Ann. § 30-9A-314 (“Perfection by control”) gives FCB a security interest in the
H&S deposit account. That statutes provides as follows:
30-9A-314. Perfection by control. (1) A security interest in
investment property, a deposit account, a letter-of-credit right, or
electronic chattel paper may be perfected by control of the collateral
under 30-7-107, 30-9A-104, 30-9A-105, 30-9A-106, or 30-9A-107.
(2) A security interest in a deposit account, electronic chattel paper, a
letter-of-credit right, or electronic document is perfected by control
under 30-7-107, 30-9A-104, 30-9A-105, or 30-9A-107 when the
secured party obtains control and remains perfected by control only
while the secured party retains control. . . .
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FCB asserts that it had control of the H&S deposit account within the meaning of
that Montana statute. In addition, FCB cites Mont. Code Ann. § 30-9A-315
(“Control of deposit account”), which provides that
30-9A-104. Control of deposit account. (1) A secured party has
control of a deposit account if: (a) the secured party is the bank with
which the deposit account is maintained; . . .
FCB thus claims that it is a secured party that has a perfected security interest in
the tanks that were sold and, further, that it had control over the deposit account
into which the proceeds were placed (the H&S account).
FCB points out further that under Montana law, § 30-9A-315 (“Secured
party’s rights on disposition of collateral and in proceeds”), a security interest in
proceeds of the sale of collateral, such as security interest of Banner Bank in the
proceeds of the propane tank sales, is only perfected for 21 days, unless the
secured party takes control of the proceeds. Here, Banner Bank did nothing for
“more than one year after the money was deposited in First Community Bank and
transferred to the loan.” (Doc. 27, Def’s Brief in Opp., p. 7.)
Banner Bank counter-argues that Montana statute does not require it to take
28
possession of the proceeds within 21 days under the circumstances here. Banner
Bank asserts that the $78,000 that FCB applied to South and Hebener’s personal
loan was directly traceable to the sale of Banner’s propane tank collateral and all
statutory requisites are met to justify maintaining the perfected security interest
beyond the 21st day, under the exception provided by § 30-9A-315(4)(I)-(iii).
Therefore, according to this argument Banner’s security interest in the proceeds
continues to this day in proceeds of the collateral pursuant to § 30-9A-315, Mont.
Code Ann.
In the Court’s view, FCB’s statutory arguments in favor of perfection by
control, control over a deposit account, and rights to proceeds of the sale of
collateral are all made irrelevant by the fact that the Court finds that FCB does not
have a valid perfected security interest. Each of these statutes requires in the first
instance a perfected security interest, which FCB did not and does not have.
These miscellaneous statutory arguments are therefore without merit.
FCB has two other miscellaneous arguments connected to Montana’s
U.C.C. laws.
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E.
Banner Bank’s Failure to Perfect Security Interest in Wyoming. FCB
points out that “the tanks were sold to an outfit in Wyoming.” (Doc. 27, Def’s
Brief in Opp., p. 10.) FCB notes that Banner Bank did not file UCC financing
statements in Wyoming, and thus has no perfected security interest in Wyoming.
FCB suggests that the tanks might have been located in Wyoming when they were
sold. However, the Court finds nothing in the record to support such a bald
assertion as that the tanks perhaps were located in Wyoming before being sold, nor
can the Court think of any reason Banner Bank could be expected to have
perfected its security interest by filing it in Wyoming. This argument is without
merit.
F.
Identifiability/Commingling of Funds. FCB asserts that even if the
$78,000 deposit to the H&S account was made with funds from the sale of Banner
Bank’s collateral, those funds were commingled with other funds for two months
before they were transferred to the loan account and were therefore not
identifiable.
Banner Bank counter-argues that FCB does not quarrel with the fact that the
30
proceeds of the sale of the propane tanks were $78,000, that the proceeds were
deposited into the H&S deposit account (as a deposit from Mountain West Bank)
and that the proceeds were then transferred to the FCB loan account. In his
deposition, FCB Vice President Noonan testified on September 27, 2011 that Mr.
South had informed FCB that $78,000 was the proceeds of the sale of the propane
tanks and that these funds were deposited in the H&S account and then used to
pay down South/Hebener’s loan account in the amount of $80,000 on December 4,
2009:
Q.
A.
Q.
A.
Do you know the amount of proceeds that were received?
78,000.
And that was applied to the FCB loan balance; is that right?
It is my understanding that they applied loan proceeds to the loan
from the sale of assets, yes, per Mr. South.
(Doc. 37, p. 11, 74:4-11.)
Q.
Okay. I’d like to refer you to an entry dated December 4, 2009, in the
amount of $80,000. Do you see that?
A.
Yes.
Q.
What was the nature of that, what appears to be a paydown?
A.
It is my understanding today that those proceeds are what we’re
arguing over, the sale of a couple of tanks.
(Doc. 37 p. 11, 75:15-23.)
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Q.
Okay. So the $78,000 that was applied toMr. South and Mr.
Hebener’s loan, those funds originated from the Superior Propane
account, is that right?
A:
Yes.
(Doc. 37, p. 12, 78:25-79:4.)
However, following the deposition, Russ Noonan subsequently submitted
an Affidavit dated six days later in which he asserted that “Neither Mr. South, Mr.
Hebener, nor anyone else from Superior Propane discussed the deposit with
anyone at First Community Bank.” (Doc. 29, p. 5-6, ¶ 26.) This is parsing rather
finely. Although neither South nor Hebener discussed the specific deposit with
FCB officers, South did discuss what to do with the proceeds of the propane tank
sales and was told by FCB’s bank manager to use the proceeds to pay down
South’s FCB loan account, which is exactly what South did. Noonan’s Affidavit
therefore does not raise a genuine issue as to (1) whether identifiable proceeds
were deposited into the FCB loan account, or (2) whether FCB representatives
knew that identifiable proceeds of tank sales were going to be deposited into the
FCB loan account. The evidence is clear that identifiable proceeds were deposited
and that FCB knew that proceeds from the sale of collateral were going to be
32
deposited because FCB told South to give the proceeds to FCB. FCB’s attempt to
raise a genuine issue is ineffective.
IV.
CONCLUSION:
FCB takes the position that the two propane tanks sold in 2010 did not
belong to Superior but to Mr. South and Mr. Hebener. That position is not
supported by this record, and FCB makes no attempt to prove ownership or rights
of transfer in South and Hebener. All of the evidence points the other way, to
ownership in Superior Propane. Mr. South testified in his deposition that the tanks
belonged to Superior and were never purchased by him or Mr. Hebener from
Superior. (Doc. 25-1, p. 5, South TR 78:13-20, and TR 77:2-6 (explaining that
South gave $100,000 to Superior “to operate”).) South did not purchase tanks
from Superior with the FCB loan.
In 2006, Banner Bank obtained a perfected security interest on all of
Superior Propane’s assets in connection with Banner Bank’s $5 million loan to
Superior. In 2009, South and Hebener pledged some of those assets to First
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Community Bank in order to obtain sufficient cash to avoid defaulting on the
Banner Bank loan and to keep Superior Propane operating. In 2010, Superior
Propane sold some of the assets encumbered by Banner Bank and transferred the
proceeds to South and Hebener, who used the proceeds to pay down their personal
loan with First Community Bank. All the while, First Community Bank knew that
Banner Bank had perfected a security interest on Superior Propane’s assets, yet
FCB accepted a pledge of some of those assets as collateral for a personal loan of
$400,000 to South and Hebener, and FCB directed South to deposit sale proceeds
from the assets into the FCB loan account. The Court finds no genuine issue of
material fact as to Banner Bank’s perfected security interest on the two propane
tanks, and the proceeds of the sale of the two propane tanks are identifiable and
traceable to the FCB loan account. Pursuant to § 30-9A-315(1), “a security
interest . . . continues in collateral notwithstanding sale . . . therefor unless the
secured party authorized the disposition free of the security interest; and . . . a
security interest attaches to any identifiable proceeds of collateral.” The statutory
exception applies so that Banner Bank’s perfected security interest in proceeds
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continues to this day. Mont. Code Ann. § 30-9A-315(4). Therefore, FCB must
comply with Banner Bank’s demand for payment of the $78,000 proceeds from the
sale of the two tanks.
Accordingly, finding that there is no genuine issue as to any material fact
and Banner Bank is entitled to judgment as a matter of law,
IT IS HEREBY ORDERED that Plaintiff’s Motion for Summary Judgment
(Doc. 22) is GRANTED. Let Judgment enter in favor of Plaintiff Banner Bank
against Defendant First Community Bank in the amount of $78,000, along with
reasonable attorneys’ fees and costs to be paid by Defendant upon the filing of an
appropriate motion.
IT IS FURTHER ORDERED that Defendant’s Motion to Compel
Mediation, filed on February 23, 2012, is DENIED.
Done and Dated this 28th day of February, 2012.
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