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Porter v. Bull Mountain Development Co.

January 11, 2007

DAVID E. PORTER, ET AL., PLAINTIFFS,
v.
BULL MOUNTAIN DEVELOPMENT CO., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Phillips

MEMORANDUM AND ORDER

This is an action to recover on promissory notes issued by defendant Bull Mountain Development Company, and to recover coal royalties under agreements with defendant BMP Investments, Inc. Plaintiffs have moved for summary judgment. Because there are disputed issues of fact as to the claims in this case, plaintiffs' motion will be denied.

Background

The events giving rise to this litigation began in 2001. At that time, John Baugues, a principal of Bull Mountain Land Company, LLC, an affiliate of defendants, met Joseph Dickey through a mutual acquaintance. At the time, Dickey was a principal in the consulting firm FGS & Associates, LLC.

FGS contracted with Bull Mountain Land Company to perform services related to the feasibility of constructing a coal-fired electric plant in Montana near Bull Mountain's property. FGS originally agreed to do this work in exchange for a royalty of 10 cents (10ó) per ton of coal mined on Bull Mountain's property. Bull Mountain Development Corporation (BMDC) was formed in 2002, with Dickey becoming its twenty percent (20%) owner and president. The plan was for BMDC, with Dickey's help, to obtain the permits, contracts and other approvals that would be needed to commence the power plant project. Once the approvals were obtained by BMDC, Dickey hoped to find a third-party that would purchase, for a substantial sum, the permits for and right to pursue the power plant project.

Throughout 2002, FGS performed work and incurred expenses related to obtaining the necessary approvals and permits for the power plant project, for which it rendered monthly invoices to defendants. The amount due on the FGS invoices grew to approximately $1,300,000 by February 2002. Defendants could not pay FGS and this resulted in FGS having to pay subcontractors using its own funds. In January 2003, Dickey and John Baugues began to discuss the possibility of soliciting loans from individuals to raise the funds needed to pay FGS's subcontractors. Because they knew that the money had to be raised quickly, they agreed to offer potential lenders an extra incentive to induce them to lend money to BMDC.

Dickey and Baugues decided to offer potential lenders the right to choose between two different incentives. In addition to a fifteen percent (15%) interest rate, lenders could choose to receive either (1) a bonus payment on the due date of their loan equal to the full principal amount of their loan, or (2) an eighty (80) year royalty on coal sales from the mining of 4,216 acres of land held by BMP Investments. All plaintiffs chose a coal royalty.

Each of the notes executed by FGS in favor of the plaintiffs in early 2003 provided for interest at the rate of fifteen percent per annum. Dickey at the same time arranged for defendant BMP to execute Overriding Royalty Agreements in favor of each of the note holders as the "extra inducement" for the loans evidenced by the FGS notes. BMP investments asserts it received no consideration in exchange for the royalty agreements beyond the loans to FGS. Defendant BMP made payments to the plaintiffs in accordance with the formulas provided for under the Overriding Royalty Agreements, until August 2004.

When the original FGS notes came due in late 2003, Dickey approached lenders about renewing those notes and rolling the unpaid 15% interest into the principal balance of their respective loans. Plaintiffs Dixon, Evans, Jorgensen, Morrison and Warren (the "Non-Note plaintiffs")insisted on repayment of their loans and were repaid in full with interest at the 15% stated rate on the face of their notes. The Note Plaintiffs agreed to a renewal; some agreed to roll accrued interest into the renewal, and others agreed to renew on the condition that previously accrued interest be paid at the time of renewal. Those who demanded an interest payment (Washington and Murphy) received payment based on accrual at a rate of 15%. Those who agreed to roll the interest into the renewal note (Porter, Chang, Dowgielewicz, EPOD, Laliberte, Voight and Watts) received notes that included in their principal amounts capitalized interest on the original FGS Note balances at the rate of !5% per annum.

BMDC executed the renewal notes to the Note Plaintiffs. The BMDC notes provide that BMDC will pay interest on the principal amount of the notes at 15% per annum. The notes also provide that "in no event and under no circumstances shall the Borrower be liable for the payment of interest in excess of the maximum rate permitted by such applicable law, from time to time in effect." While BMDC obtained the necessary permits to build the Montana power plaint in 2003, no third-party has purchased the rights to develop this plant. Defendant BMDC has not paid in full the amounts due under the BMDC notes.

Plaintiffs Porter, Chang, Dowgielewicz, EPOD, Inc., Laliberte, Murphy, Voight, Washington and Watts (the Note Plaintiffs) have sued to recover amounts due in respect of the loans evidenced by the promissory notes issued by BMDC. In addition, all plaintiffs sue to recover amounts due under the Overriding Royalty Agreements executed in favor of each plaintiff by Defendant BMP. These agreements, which purport to run for eighty years through 2083, were executed as an additional inducement for the loans plaintiffs originally made to FGS.

Plaintiffs have moved the court for partial summary judgment (1) establishing that the plaintiffs are entitled as a matter of law to recover from BMDC the principal amounts of the promissory notes sued on, together with the interest provided by applicable law; and (2) establishing that the Overriding Royalty Agreements between plaintiffs and BMP Investments are binding obligations of BMP, and for an accounting of all royalties due plaintiffs under said agreements. Defendants have responded in opposition stating that there exist genuine issues of material fact (1) as to whether the underlying loans evidenced by the promissory notes were ever fully funded; (2) as to whether the promissory notes are usurious on their face, rendering the notes unenforceable; and (3) whether the Overriding Royalty Agreements are disguised agreements to pay additional usurious interest on the loans evidenced by the promissory notes.

Analysis

Summary judgment is proper if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In ruling on a motion for summary judgment, the court views the evidence, all facts, and any inferences that may be drawn from the facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). To withstand summary judgment, the non-movant must show sufficient evidence to create a genuine issue of material fact. Klepper v. First Am. Bank, 916 F.2d 337, 342 (6th Cir. 1990). A mere scintilla of evidence is insufficient; there must be evidence on which the jury could reasonably find for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Entry of summary judgment is appropriate ...


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