Submitted on Briefs: August 16, 2017
Court of the Eleventh Judicial District, In and For the
County of Flathead, Cause No. DV-12-614D Honorable David M.
Ortley, Presiding Judge
Appellants: Elizabeth L. Griffing, Axilon Law Group, PLLC,
Helena, Montana Frederick P. Landers, Axilon Law Group, PLLC,
Appellee: Charles E. Hansberry, Jenny M. Jourdonnais,
Hansberry & Jourdannais, PLLC, Missoula, Montana.
Richard G. Anderson (Anderson) and Limegrove Overseas, Ltd.,
(Limegrove) appeal from an Eleventh Judicial District Court,
Flathead County, order granting HSBC Bank USA, N.A.'s
(HSBC) two motions for summary judgment and motion to exclude
Anderson's expert. We affirm.
Anderson presents the following issues for review:
1. Did the District Court abuse its discretion in
excluding Anderson's expert witness?
2. Did the District Court err when it concluded Montana
law governs HSBC's underlying foreclosure and New York
law governs any defenses and counterclaims?
3. Did the District Court err in granting HSBC summary
judgment to foreclose?
4. Did the District Court err in granting HSBC summary
judgment on Anderson's counterclaims?
AND PROCEDURAL BACKGROUND
Anderson, a Canadian citizen, is the Chairman and Chief
Executive Officer of Wilton Resources, Inc., a publicly
traded oil and gas exploration company, headquartered in
Calgary. Limegrove is a corporation organized under the laws
of the British Virgin Islands. Anderson informally runs the
day-to-day operations of Limegrove and its sole shareholder
is the Karesmay Trust, an irrevocable offshore trust
organized under the laws of Jersey, Channel Islands.
Anderson's two adult children are the only beneficiaries
of the Karesmay Trust. Limegrove's only asset is a
vacation property located at 3542 East Lakeshore Drive,
Whitefish, Montana (the Limegrove Property). The Limegrove
Property consists of "nine (9) cultivated acres of land
situated on Whitefish Lake and includes a 10, 000-plus square
foot vacation home, a four-bay garage, 538 feet of lakeshore,
and a 2-boat docking system." Anderson may use the
Limegrove Property under an oral lease agreement. The
ownership arrangement was set up for tax and estate planning
purposes at Anderson's attorneys' suggestion.
Anderson is not a shareholder in Limegrove and does not own
property in Montana. Anderson spends no more than 90 days per
year at the Limegrove Property.
HSBC is a federally chartered bank with offices in various
cities throughout the United States, primarily New York City.
Anderson contacted HSBC in the spring of 2006 looking for
financing to facilitate the $17.5 million acquisition of
the Limegrove Property. Anderson worked with Frank Drury, an
HSBC domestic private banking "Relationship
Manager" specializing in customers with high net-worth.
After negotiating, HSBC and Anderson agreed to a two-year
loan for $15.5 million with a $2 million down payment. The
loan required Anderson pay down the balance by half during
the first year so the outstanding principal would be no more
than $8.75 million. Trust indentures on the Limegrove
Property, the Roxbury Property,  and 750, 000 shares in First
Calgary Petroleum secured the loan as collateral.
In accordance with these terms, three loan documents were
drafted and executed. The loan documents consisted of (1) a
Promissory Note (Note); (2) a Term Loan Agreement (TLA); and
(3) a Trust Indenture Security Agreement and Fixture Filing,
and Assignment of Leases, Rents and Agreements (Trust
Indenture). The TLA, executed on May 9, 2006, stated a
maturity date of May 8, 2008.
The Note and TLA contained choice of law provisions
indicating New York law governed the agreements. The Trust
Indenture is the only loan document containing a provision
indicating Montana law governed the agreement. HSBC and
Limegrove are the parties to the Trust Indenture and
Limegrove's director signed the agreement. Anderson was
not a party to or signatory of the Trust Indenture. The Trust
Indenture pledged the Limegrove Property as collateral for
the obligations under the Note and TLA. The Trust Indenture
provided for certain events of default including if Anderson
failed to pay any obligation or if the closing price of a
share of First Calgary Petroleum fell below $6 Canadian
(CAD). An event of default entitled HSBC the right to take
possession or foreclose on the Limegrove Property.
Two events of default occurred by August 16, 2007. Anderson
failed to pay down the outstanding principal amount of the
loan by half and the value of a First Calgary Petroleum share
fell below $6 CAD. HSBC transferred Anderson's loan to
its Special Credit Unit and assigned it to Salvatore Gullo
(Gullo) to manage. Anderson and Gullo discussed entering a
forbearance agreement to give Anderson additional time to
perform the loan obligations. HSBC does not have formal
policies concerning forbearance agreements, although they are
"common practice." On May 6, 2008, two days prior
to the loan's maturity date, Anderson and Gullo executed
a Forbearance Agreement, in which HSBC agreed to forbear
exercising its rights due to existing defaults until February
9, 2009, and Anderson agreed to pay down the principal by $2,
750, 000 and pledge 400, 000 additional shares of First
Calgary Petroleum as collateral.
In the Forbearance Agreement, Anderson reaffirmed the
obligations under the TLA, Note, and Trust Indenture. The
Forbearance Agreement was subsequently amended seven times,
each time allowing Anderson additional time, ranging from two
to nine months, to perform his obligations. In between the
second and third amendments, on September 15, 2009, Anderson
signed a Replacement Promissory Note (Replacement Note)
subject to the terms and conditions of the TLA. The
Replacement Note contained a choice of law provision
indicating New York law governed the agreement.
Most of the seven amendments to the Forbearance Agreement
required Anderson to make a payment toward the outstanding
principal in exchange for HSBC extending the maturity date of
the loan. Two amendments required Anderson pay an extension
fee, one for $100, 000 and another for $5, 000. Each of the
seven amendments contained a choice of law provision
indicating New York law governed the amendment. Before the
seventh amendment, Anderson had paid down the principal to $9
million. The seventh and final extension required several
payments be made by specific deadlines and matured completely
on January 15, 2012.
During the seventh amendment's extension period, Anderson
and Gullo discussed an eighth amendment. However, in an email
Gullo sent to Anderson, Gullo indicated he did "not have
credit approval to extend" Anderson's loan. Anderson
failed to make one of the required payments and did not pay
off the loan by its January 15, 2012, maturity date. Anderson
acknowledged he had not fulfilled his obligations and that he
withheld payment because he assumed he would get another
On February 16, 2012, HSBC sent Anderson a formal default
letter and demanded payment in full by February 29, 2012.
Anderson did not pay. On June 8, 2012, HSBC initiated a
judicial foreclosure action against Anderson and Limegrove in
Montana's Eleventh Judicial District Court, Flathead
County. Anderson and Limegrove asserted affirmative defenses
of estoppel and waiver and counterclaimed breach of the
implied covenant of good faith and fair dealing, breach of
implied contract, and violation of the Montana Consumer
The District Court entered a scheduling order and set the
close of discovery for November 24, 2015. At Anderson's
request, the parties informally agreed to delay expert
disclosures from the original deadline of November 13, 2015,
by eleven days to coincide with the close of discovery on
November 24, 2015. On that date, HSBC disclosed two expert
witnesses, a banking expert and an appraiser. Anderson
disclosed one, an appraiser. On January 19, 2016, pursuant to
a stipulation between the parties, Limegrove dismissed its
affirmative defenses and counterclaims, leaving only
Anderson's. Prior to trial, HSBC moved for summary
judgment on the foreclosure, Anderson's affirmative
defenses, and Anderson's counterclaims.
On March 11, 2016, after the discovery deadline, Anderson
filed a supplemental expert disclosure disclosing an
additional expert witness, a banking expert, James Shires
(Shires). Anderson also filed Shires's declaration.
Anderson did not ask for leave to file the supplemental
expert disclosure or declaration. On March 21, 2016, HSBC
filed a pretrial motion to exclude Shires's testimony at
trial and strike his affidavit. HSBC relied on M. R. Civ. P.
37(c)(1) and argued Anderson's late disclosure of
Shires's testimony merited its exclusion. Anderson
responded and argued the late disclosure was
"substantially justified due to HSBC's late
disclosure of certain written policies."
On March 22, 2016, the District Court held a hearing on the
pretrial motions. The District Court found that
Anderson's "failure to timely disclose Shires as
an expert witness was not substantially justified and was not
harmless." Further, the District Court found Anderson
"did not move for or suggest an alternative
sanction." The District Court, relying on Doherty v.
Fannie Mae, 2014 MT 56, ¶ 15, 374 Mont. 151, 319
P.3d 1279, concluded that absent substantial ...