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Thomas v. JLC Wyoming, LLC

Supreme Court of Wyoming

January 31, 2019

STANLEY E. THOMAS, Appellant (Defendant),
v.
JLC WYOMING, LLC, a Wyoming limited liability company, Appellee (Plaintiff).

          Appeal from the District Court of Sublette County The Honorable Marvin L. Tyler, Judge

          Representing Appellant: Lucas E. Buckley and Tyler J. Garrett, Hathaway & Kunz, LLP, Cheyenne, Wyoming. Argument by Mr. Garrett.

          Representing Appellee: Kim D. Cannon, Hayden F. Heaphy, Jr., and Benjamin N. Reiter, Davis & Cannon, LLP, Sheridan, Wyoming. Argument by Mr. Reiter.

          Before DAVIS, C.J., and FOX, KAUTZ, BOOMGAARDEN, and GRAY, JJ.

          FOX, JUSTICE.

         [¶1] Fourth Quarter Properties 86 (FQP), a Georgia LLC, and its sole member, Stanley E. Thomas, obtained a $30-million loan from MetLife Insurance (MLIC), with the Little Jennie Ranch in Sublette County as collateral. Mr. Thomas signed for the loan and mortgage on behalf of himself and on behalf of FQP. When they could no longer make the payments, MLIC obtained a judgment against FQP and Mr. Thomas for the outstanding balance, plus interest (the "Wyoming Judgment"). On the eve of the foreclosure sale, however, FQP filed for bankruptcy protection in Georgia. In the bankruptcy case, FQP agreed to repay MLIC a reduced amount for the outstanding Wyoming Judgment, and MLIC agreed to allow FQP more time to sell the ranch. When FQP was unable to sell the ranch, MLIC proceeded with the foreclosure sale and ultimately purchased the ranch at the sale. MLIC then sold its rights to the ranch and the remaining balance on the Wyoming Judgment to JLC, the appellee in this case. In the district court, JLC obtained a deficiency judgment against Mr. Thomas for the unpaid amount of the Wyoming Judgment, approximately $10-million. The issue on appeal is whether Mr. Thomas, who was not a party to FQP's bankruptcy case, was entitled to the reduced amount FQP negotiated with MLIC in the bankruptcy case. We conclude that he was not. However, we also conclude that the district court failed to properly credit Mr. Thomas for prior payments he and FQP made against the Wyoming Judgment and, thus, we affirm in part, reverse in part, and remand for further proceedings.

         ISSUES

         [¶2] We rephrase the issues as:

1. Did the bankruptcy court's Consent and Confirmation Orders in the FQP bankruptcy alter Mr. Thomas's liability for the Wyoming Judgment?
2. Was JLC's motion for a deficiency judgment barred by res judicata based on the bankruptcy court's Consent and Confirmation Orders?
3. Did the district court err when it did not credit Mr. Thomas with the $3-million February 2014 payment against the Wyoming Judgment?

         FACTS

         [¶3] On December 18, 2006, Mr. Thomas, individually, and as the sole member of his company, FQP, obtained a loan from MLIC for $30-million.[1] Mr. Thomas, individually and as the sole member of FQP, signed a promissory note and granted MLIC a mortgage on the Little Jennie Ranch in northern Sublette County.

         [¶4] After Mr. Thomas and FQP defaulted on the loan, MLIC sought to foreclose on the Little Jennie Ranch. On November 15, 2013, the district court granted MLIC summary judgment for a total of $31, 948, 180.15 against Mr. Thomas and FQP "jointly and severally," which was to accrue interest at $9, 144.17 per day until they paid the judgment in full. MLIC vacated the foreclosure sale set for February 14, 2014, and instead entered into another agreement with Mr. Thomas and FQP that required them to make three payments of $3-million on or before January 15, 2015, and monthly payments of $237, 230.77. Mr. Thomas and FQP made two of these $3-million payments, including one in February 2014. MLIC filed a Notice of Partial Satisfaction of Judgment that reflected the February 2014 payment. When Mr. Thomas and FQP failed to meet their remaining obligations under the new agreement, however, MLIC scheduled another foreclosure sale for January 23, 2015.

         [¶5] On January 22, 2015, FQP filed for Chapter 11 bankruptcy protection in Georgia, and the automatic stay requirements of 11 U.S.C. § 362 prevented the foreclosure sale. In response, MLIC filed a claim in bankruptcy court for $27, 925, 194.25 as the outstanding balance on the Wyoming Judgment. This amount credited Mr. Thomas and FQP with only one of the two $3-million payments they had made. FQP argued that based on its calculations, it only owed $24, 232, 222.67.

         [¶6] Eventually, MLIC and FQP agreed to allow MLIC a secured claim of $26, 817, 815.96. On December 2, 2015, the bankruptcy court entered a Consent Order reflecting this amount and gave FQP until October 31, 2016, to sell the Little Jennie Ranch, after which the automatic stay would expire. The only provision of the Consent Order that mentioned Mr. Thomas was Paragraph 22, which required that he and FQP vacate the property on October 31, 2016.

         [¶7] On March 15, 2016, at the conclusion of the bankruptcy process, the bankruptcy court entered a Confirmation Order confirming FQP's Plan of Reorganization, with some modifications based on MLIC's objections to FQP's proposed plan. In the Confirmation Order, MLIC reserved its rights against Mr. Thomas under the Wyoming Judgment:

3.2.3 Treatment of Claims in Class 2. The Allowed Secured Claims of [MLIC] in the stipulated amount of $26, 817, 815.96 as of the Petition Date, plus interest at the non-default rate of 5% per annum accrued from the Petition Date to the Closing Date, plus post-petition reasonable attorney's fees and costs . . ., collateralized by a security interest in the Real Property is included in Class 2 [the Little Jennie Ranch] and shall be paid in full on the Effective Date from the Net Proceeds from the sale of the Real Property. . . . No Provision of this Plan shall impair the credit bid rights of . . . [MLIC] [.] Except as provided in Section 4.2.9 of the Plan, and in this Order, the Plan shall not be deemed or construed to impair the rights, powers, or remedies available to the Class 2 claimant [MLIC], whether under the Class 2 claimant's loan, transaction documents, or Pre-Petition Wyoming Judgment, at law, or in equity, against any non-debtor (including, without limitation, any co-maker of any note, any guarantor, or any other co-obligor of the Debtor) with respect to the indebtedness giving rise to the Allowed Class 2 Claim.

         (Emphasis added.)

         [¶8] Section 4.2.9, known as a "Channeling Injunction," provided:

4.2.9 Channeling Injunction Prohibiting Collection Action Against Guarantors and Affiliates and Prohibiting dissipation of assets by Guarantor During Plan Consummation. Commencing as of the Confirmation Date and . . . until further order of the Bankruptcy Court, all Holders of Allowed Guarantor Claims in Class 2 [i.e., MLIC] that are designated to be paid in full on the Effective Date from the Net Proceeds of the sale of the Real Property [i.e., the Little Jennie Ranch], shall look solely to the provisions of this Plan for payment of their Allowed Guarantor Claims, and are hereby restrained and enjoined from pursuing or continuing collection of any Allowed Guarantor Claim against Guarantor [i.e., Mr. Thomas] or any Affiliate. Until all such Allowed Guarantor Claims provided for under this Plan which have been guaranteed by Guarantor are paid in full, or until further order of the Bankruptcy Court, Guarantor is hereby restrained and enjoined from transferring any interest in real or personal property not in the ordinary course of business . . . or otherwise . . . that impairs the post-judgment remedies of . . . [MLIC]. In furtherance of such injunction, . . . [MLIC] shall, with respect to Guarantor or Affiliate, make any demand . . . commence or continue any . . . judicial . . . foreclosure . . . of any real or personal property of Guarantor.

         [¶9] The basis for this Channeling Injunction was the bankruptcy court's finding that FQP and Mr. Thomas "share an identity of interest, such that a suit against [Mr. Thomas] . . . is, in essence, a suit against [FQP] and would impair their ability to fund operating shortfalls, thereby jeopardizing consummation." In essence, it prevented MLIC from attempting to satisfy its Wyoming Judgment against Mr. Thomas until "further order of the Bankruptcy Court," because such an attempt could interfere with FQP's ability to satisfy its obligations under the Plan.

         [¶10] FQP and Mr. Thomas were unable to sell the ranch before October 31, 2016. In November 2016, the bankruptcy court lifted the stay and, on January 6, 2017, the ranch was sold at a foreclosure auction, and MLIC was the highest bidder with its $26, 857, 929.42 judgment bid.[2] On January 18, 2017, the district court entered an order confirming the foreclosure sale and MLIC's winning bid. In March 2017, MLIC assigned its rights to the ranch and the Wyoming Judgment to JLC, the appellee in this case.

         [¶11] On October 12, 2017, JLC filed a motion for a deficiency judgment against Mr. Thomas for the outstanding balance on the Wyoming Judgment, plus interest. As of August 31, 2017, this amount was $10, 111, 714.21. JLC filed an affidavit from its financial advisor that listed the Wyoming Judgment amount, added costs and attorney fees the district court awarded in its summary judgment order, and then credited Mr. Thomas with only one $3-million payment and other payments Mr. Thomas and FQP had made against the Wyoming Judgment since 2013. It also credited Mr. Thomas with MLIC's $26, 857, 929.42 credit bid for the ranch.

         [¶12] Mr. Thomas argued that the bankruptcy court's Consent and Confirmation Orders constituted a novation of the original loan agreement and that he only owed the reduced amount in FQP's bankruptcy court Consent Order-which MLIC used as its credit bid. Thus, he maintained that the outstanding balance was only $993, 810.26, which was the accumulated interest from October 31, 2016. He also asserted that res judicata precluded JLC's deficiency judgment for much the same reason. The following table illustrates the difference between the parties' calculations following the Wyoming Judgment and FQP's bankruptcy case:

MLIC/JLC

Mr. Thomas

Explanation

1/22/2015: Balance when FQP filed for bankruptcy

$31, 377, 481.94

$26, 817, 515.96

MLIC/JLC used

amount from

Wyoming Judgment

Mr. Thomas used

amount FQP

obtained in

Consent Order

Interest from 1/22/15 (date of bankruptcy filing) through 1/6/2017 (date of foreclosure sale)

$6, 538, 081.55

$2, 622, 973.48

MLIC/JLC used

11% rate from

Wyoming Judgment

Mr. Thomas used

5% rate from

Consent Order

Interest from date of foreclosure sale through August 31, 2017 (date JLC used in its motion for the deficiency judgment)

$674, 080.14

$31, 250.24

MLIC/JLC used

11% rate from

Wyoming Judgment

Mr. Thomas used

5% rate from

Consent Order

Interest Payments

$1, 620, 000

$1, 620, 000

Same

Foreclosure Bid

$26, 857, 929.42

$26, 857, 929.42

Same

Balance

$10, 111, 714.21

$993, 810.26


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