AG New Mexico, FCS, ACA et al v. Borges et al

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UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO

In re:
JOE BETTENCOURT BORGES and
MARIA ROCHA BORGES, D/B/A
J&M DAIRY,
Debtors. Case no. 11-10-12800-NLJ

AG NEW MEXICO, FCS, FLCA,

AG NEW MEXICO, FCS, PCA, and

AG NEW MEXICO, FCS, ACA,
Plaintiffs,

v. Adv. No. 10-1170-NLJ

JOE BETTENCOURT BORGES and
MARIA ROCHA BORGES,
Defendants.

JOE BETTENCOURT BORGES and
MARIA ROCHA BORGES,
Plaintiffs,

v. Adv. No. 11-1012-NLJ

AG NEW MEXICO, FCS, FLCA,

AG NEW MEXICO, FCS, PCA, and

AG NEW MEXICO, FCS, ACA,
Defedants.

JOE BETTENCOURT BORGES and
MARIA ROCHA BORGES,
Plaintiffs,

Vv. Adv. No. 11-1105-NLJ

NAT’L MILK PRODUCERS FEDERATION
D/B/A/ COOPERATIVES WORKING TOGETHER
AG NEW MEXICO, FCS, FLCA,
AG NEW MEXICO, FCS, PCA, and
AG NEW MEXICO, FCS, ACA,

Defedants.

INFORMATION

GPO

Sees 10-01170-nlj Doc 227 Filed 05/02/13 Entered 05/02/13 11:15:26 Page 1 of 9

MEMORANDUM OPINION ON DEFENDANTS’
MOTION TO TAX COSTS AND VERIFIED BILL OF COSTS

This matter is before the Court on Defendants!’ Motion to Tax Costs and Verified Bill of
Costs (doc 204)(“Motion”), and the objection thereto filed by the Plaintiffs” (doc 208).
Defendants are represented by their attorneys Arland & Associates, LLC (William J. Arland, II
and Karla K. Poe). Plaintiffs are represented by their attorneys the Rowley Law Firm (Richard F.
Rowley, II and Richard F. Rowley, III) and Linda S. Bloom, PA (Linda S. Bloom). This is a core
proceeding. 28 U.S.C. § 157(b)(2). For the reasons set forth in more detail below, the Court
finds that the Motion to Tax Costs must be denied.

The Motion relates to a trial conducted by Judge James S. Starzynski’, now retired,
during the late summer of 2012. In December, 2012 Judge Starzynski issued a Memorandum
Opinion‘ and Judgment. Both Plaintiffs and Defendants have appealed the rulings to the Tenth
Circuit Bankruptcy Appellate Panel. A bankruptcy court retains jurisdiction after an appeal is
filed, however, to award costs under Bankruptcy Rule 7054. Roth v. Mims, 298 B.R. 272, 299

(N.D. Tex. 2003).

‘Although the Debtors were the plaintiffs in two of the adversaries, throughout this
Memorandum “Defendants” will refer to the Debtors, Mr. and Ms. Borges.

The term “Plaintiffs” will refer to the three related federally chartered agricultural
lenders 1) AG New Mexico, FCS, FLCA, 2) AG New Mexico, FCS, PCA and 3) Ag New
Mexico, FCS, ACA. Although the National Milk Producers Federation appears in the caption it
was no longer involved in the matters at issue.

Before filing this Memorandum Opinion, the undersigned judge filed a Certification of
Familiarity with the Record Pursuant to Bankruptcy Rule 9028. See Canseco v. United States, 97
F.3d 1224, 1227 (9" Cir. 1996).

‘The memorandum opinion (“Memorandum”) appears at 485 B.R. 743 (Bankr. D. N.M.
2012).

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LAW REGARDING AWARD OF COSTS

Bankruptcy Rule 7054(b) governs the award of costs to a prevailing party in an adversary

proceeding in bankruptcy court. That rule provides, in relevant part:
(b) Costs

The court may allow costs to the prevailing party except when a statute of the

United States or these rules otherwise provides.

Fed.R.Bankr.P. 7054(b). This rule differs from the corresponding rule that applies in civil cases
in the United States District Courts. That rule provides, in relevant part:

(1) Costs Other Than Attorney's Fees. Unless a federal statute, these rules, or a

court order provides otherwise, costs--other than attorney's fees--should be

allowed to the prevailing party.

Fed.R.Civ.P. 54(d)(1).

A comparison of the two rules makes it obvious that costs are presumptively awarded to
prevailing parties in civil cases, but an award of costs in bankruptcy cases is discretionary.
Compare Klein v. Grynberg, 44 F.3d 1497, 1506 (10 Cir.), cert. denied, 516 U.S. 810
(1995)(“This court has held that Rule 54(d) creates a presumption that the prevailing party shall
recover costs.”)(Citation omitted) and In re Williams Securities Litigation - WCG Subclass, 558
F.3d 1144, 1147 (10" Cir. 2009) (“[T]he district court must provide a valid reason for denying
such costs,”) (Citations and internal quotation marks omitted) with Northwestern Corp. v.
Margin Asset Mgt. Corp. (In re Northwestern Corp.), 326 B.R. 519, 529 (Bankr. D. Del. 2005),
affd., 369 B.R. 775 (D. Del. 2007)(“It is clear an award of costs under Rule 7054(6) is
discretionary.”)(Citation omitted.) and In re Nichols, 221 B.R. 275, 280 (Bankr. N.D. Okla.

1998)(Same) and Turner v. Davis, Gillenwater & Lynch (In re the Investment Bankers, Inc.), 135

B.R. 659, 670 (Bankr. D. Colo. 1991), aff'd, 161 B.R. 507 (D. Colo. 1992), aff'd., 4 F.3d 1556

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(10 Cir.), cert. denied, 510 U.S. 1114 (1993)(“[T]here is no presumption that costs be taxed to
the unsuccessful party.”)(citing 9 Collier on Bankruptcy, § 7054.07 at p. 7054-8 (15" ed. 1990).

The bankruptcy courts that recognize their discretion also find that the grounds for which
they should award costs are within their discretion. See In re Clansy, 2008 WL 177779, at *3
(Bankr. $.D. Tex. 2008)(The court considers factors such as bad faith by the prevailing party in
incurring unnecessary costs and the inability of a losing party to pay the prevailing party’s costs.);
Northwestern Corp., 326 B.R. at 531 (“[T]he complaint was not filed in bad faith, nor for
vexatious or harassment purposes, but rather to preserve the integrity of the reorganization
process.” No costs were awarded.); V.M. v. S.S. (In re S.S.), 271 B.R. 240, 243 and 248 (Bankr.
D. N.J. 2002)(Court awards nondischargeability plaintiff his costs in obtaining judgment from
the defendant/debtor who had committed fraud on the state court by obtaining paternity and child
support orders knowing that plaintiff was not the father.); Nichols, 221 B.R. at 280 (Court
declined to award costs because it found lack of subjective bad faith or wanton, vexatious or
opressive conduct.); and Investment Bankers, Inc., 155 B.R. at 670-71. In declining to award
costs, the court stated:

The findings and conclusions made by each of the various courts involved

in this proceeding to date substantiate Defendants’ contention that the legal and

factual issues underlying the parties’ litigation are significant, have been hotly

contested, and clearly are subject to legitimate differences in opinion. There is no

evidence in the record that Defendants’ pleadings or arguments have been

frivolous or raised in other than good faith defense to the Trustee's claims,

notwithstanding the ongoing delays in finally pursuing those defensive arguments

with evidence at trial.

In summary, the bankruptcy court will award prevailing party costs only if there is some

reason that tips the scales toward the prevailing party other than simply the fact that that side

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won. In other words, either the losing party was a bad actor or the plaintiff ran up its costs in bad
faith.
REQUIREMENT THAT THERE BE A PREVAILING PARTY

The award of costs is conditioned on the person seeking the costs being the “prevailing
party.” Fed.R.Bankr.P. 7054(b). See Baker v. T.D. Williamson, Inc., 254 F.3d 1223, 1233-34
(10" Cir. 2001)(“As is apparent from the language of Rule 54(d)(1), the determination of who
qualifies as a prevailing party is central to deciding whether costs are available.”)(Citing Wright
& Miller, Federal Practice & Procedure, § 2667).

In the Tenth Circuit there can be only one prevailing party. Baker, 254 F.3d at 1234 (The
magistrate judge ruled that both the plaintiff and defendant were prevailing parties because each
side obtained some relief, The Tenth Circuit vacated the cost awards and remanded to determine
which of the parties had, in fact, prevailed. The Tenth Circuit also noted that costs awards are
subject to broad discretion and if one party was only partially successful the costs could be
apportioned or reduced, or denied altogether if neither side truly prevailed.) Accord Shum v. Intel
Corp., 629 F.3d 1360, 1367 (Fed. Cir. 2010)(“In our view, the plain language of Rule 54
unambiguously limits the number of prevailing parties in a given case to one because the
operative term, ‘prevailing party’ is singular.”); Hillside Enter. v. Carlisle Corp., 69 F.3d 1410,
1416 (8" Cir. 1995)(If the amount of plaintiff's judgment is larger than the amount of
defendant’s judgment on the counterclaim, the plaintiff is the prevailing party.”)

DISCUSSION
The Court finds that the Motion should be denied for two reasons. First, the Court finds

nothing in the record and no finding by the prior (trial) judge that Plaintiffs engaged in any of the

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types of behavior that would justify a cost award against them. There is also no suggestion that
Defendants filed anything in bad faith or ran up their costs. Second, the Court finds that
Defendants are not the prevailing parties.

First, in the Memorandum Judge Starzynski repeatedly cited to the good faith
demonstrated by Plaintiffs and the reasonableness of their requirements and actions. See, e.g.
Memorandum, 485 B.R. at 767:

In consequence, AGNM's actions to collect the maximum amount it could from

the collateral it indisputably retained rights in were reasonable, and thus the

affirmative defenses or counterclaims that require some sort of malfeasance or
misfeasance on the part of AGNM cannot stand.

Id. at 769:

AGNM (and probably the Borges’ originally) never intended to have AGNM only
partially secured, and so AGNM acted reasonably in attempting to put itself in a
position of having $2.67 million of collateral value (even assuming the remaining
collateral was that valuable) securing a repayment obligation of $1.8 million, for a
loan to value ratio of roughly 1 to 1.5.

In summary, then, AGNM was acting reasonably in attempting to protect
its collateral position by not agreeing to permit the Borges’ to keep $1.3 million or
so of the sale proceeds. Thus, any cause of action that requires a finding that
AGNM was acting in bad faith by insisting on receiving all the proceeds must fail.
That would at a minimum apply to the counterclaims of lack of good faith and fair
dealing (counter claim count 2) and prima facie tort (count 10).

[AgNM] could, and ultimately did, insist reasonably that it receive all the proceeds.
Id. at 770:

[T]he evidence is simply not there that AGNM acted unreasonably in the
circumstances.

Id. at 771:

As cold as that result might be, the fact is that AGNM had no obligation to
put any part of its recovery at risk in order to in effect provide support for Ms.

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Borges or to assure that her other creditors were paid. Ms. Borges has cited no
authority that holds otherwise, and the Court is not aware of any either.

Id. at 779:

What is relatively clear from a review of all the evidence is that there was
no breach of good faith or fair dealing. First, the terms of the notes and security
documents are, for the most part, quite clear. The lending and repayment
arrangements—the heart of relationship between Borges’ and AGNM-—are
reasonably explicit, including the use of the collateral proceeds to repay debt.
Enforcing those requirements does not violate the covenants of good faith and fair
dealing. Throughout AGNM sought to protect its own interests (and even at times
had the attitude of facilitating Ms. Borges’ attempts to work things out); at no time
did it seek to deprive Ms. Borges of some contractual benefit, implicit or explicit,
to which she was entitled.

(Footnotes omitted.) Jd. at 780:
And to be clear, the Court rejects the claim that AGNM hoped to torpedo
the Corley transaction with Ms. Borges in order to obtain the cattle, sell them for a
higher price, and at the same time realize the full value of the real estate pledged
to it, so as to recover as much as $14 million for a $9.4 million debt. That
scenario is incredible[.]
Regarding the Defendants’ three counter-claims for interference with contract, the Court noted
that New Mexico law in this area allows an exception to liability: “If one is protecting their own
legally protected interest which they believe may be impaired or destroyed by performance of the
contract, they are privileged to interfere.” Id. at 783. “AGNM was justified and privileged to
assert its rights to receive all the net sale proceeds.” Id. at 788:
After reviewing the evidence, the Court concludes that AGNM did not
knowingly make any false representations to Ms. Borges in connection with the
facility loan. Borges' claim under the UPA is therefore dismissed.

Id. at 790:

Before addressing the specific allegations made by the Borges' relating to
this count [prima facie tort], the Court first makes the overall observation that

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from the evidence presented at the trial of this matter the Court is unable to find
that AGNM intended to injure the Borges’.

Id. at 790-91:

However, in addition to finding a lack of intent to injure, the Court finds that
most, if not all, actions taken by AGNM were justifiable, justified, and generally

not culpable. Some actions taken were specifically authorized in the written

agreements between the parties. Some actions were imposed on AGNM by its

regulatory agency. Some actions taken were ordinary and customary business

practices in the industry. It is truly unfortunate that Ms. Borges ended up in the

situation in which she finds herself. But, nothing done by AGNM caused the

economy to crash or [ ] the price of feed to rise or the demand and price for milk

to drop. Those are the events primarily responsible for Ms. Borges' problems.

AGNM was not a guarantor of a good economy.
and Id. at 792:

“AGNM has clean hands.”

(Footnote omitted.)

Defendants did have a few valid objections to Plaintiffs’ behavior. One, the refiling of
the mortgage, looks sinister. In fact, however, the refiling was declared ineffectual by the
bankruptcy court and caused no harm. Furthermore, there appears to be no New Mexico caselaw
directly on all fours with the exact issue and one cannot say that AGNM acted maliciously.
Another, the failure to apply suspense account payments, was troubling. Again, however, this
resulted in no damages and the evidence did show an attempt by the Plaintiffs to call attention to
the funds in this account which was not responded to. Judge Starzynski classified these actions
“not so much fraudulent or inequitable as they were mere contract violations.” Id.

Second, the Court finds that Defendants were not the prevailing party. In terms of overall

relief, the Plaintiffs obtained possession of the $4 million in the Court registry as proceeds of its

collateral and obtained foreclosure on the dairy. Defendants defeated a mortgage on 220 acres

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plus some water rights, but also obviously only due to a clerical error in the original recording of
the mortgage. And, Defendants convinced the Court that it was improper to sit on the suspense
account funds and to retroactively raise the interest rate. Overall, however, Plaintiffs are clearly
the prevailing party. Therefore the Defendants are not entitled to prevailing party costs.

CONCLUSION

The Court will enter an Order denying the Motion to Tax Costs.

Honorable . Jackson
Entered on docket: 5/2/13 Unit ates Bankruptcy Judge
Copies to:
Linda S Bloom 201 Third Street NW, Suite 505
PO Box 218 Albuquerque, NM 87102

Albuquerque, NM 87103-021 8
William J Arland, III

Richard F Rowley, II PO Box 1089

Rowley Law Firm, P.C. Santa Fe, NM 87504-1357
PO Box 790

305 Pile

Clovis, NM 88102-0790

George M Moore

Moore, Berkson & Gandarilla, P.C.
3800 Osuna Rd NE, STE #2
Albuquerque, NM 87109

Karla K Poe

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