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HSBC Bank USA, National Association v. Anderson

Supreme Court of Montana

October 24, 2017

HSBC BANK USA, National Association, Plaintiff and Appellee,
v.
RICHARD G. ANDERSON; and LIMEGROVE OVERSEAS, LTD., Defendants and Appellants.

          Submitted on Briefs: August 16, 2017

         District Court of the Eleventh Judicial District, In and For the County of Flathead, Cause No. DV-12-614D Honorable David M. Ortley, Presiding Judge

          For Appellants: Elizabeth L. Griffing, Axilon Law Group, PLLC, Helena, Montana Frederick P. Landers, Axilon Law Group, PLLC, Bozeman, Montana.

          For Appellee: Charles E. Hansberry, Jenny M. Jourdonnais, Hansberry & Jourdannais, PLLC, Missoula, Montana.

          OPINION

          Laurie McKinnon Justice.

         ¶1 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.

         ¶2 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?

         FACTUAL AND PROCEDURAL BACKGROUND

         ¶3 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.

         ¶4 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[1] 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, [2] and 750, 000 shares in First Calgary Petroleum secured the loan as collateral.

         ¶5 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.

         ¶6 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.

         ¶7 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.

         ¶8 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.

         ¶9 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.

         ¶10 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 extension.

         ¶11 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 Protection Act.

         ¶12 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.

         ¶13 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."

         ¶14 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 ...


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