510 B.R. 306
10th Cir. BAP2014Background
- Debtors Borgeses own J&M Dairy in New Mexico and had cross-collateralized loans from AG New Mexico, FCS, ACA (AGNM) secured by cattle, milk proceeds, crops, equipment, and accounts, with a 2006 Mortgage including water rights recorded in 2006.
- AGNM later recorded a Corrected Mortgage in March 2009 to add 220 acres (Additional 220 Acres) after discovering a deficient legal description, but the Corrected Mortgage was not signed by the Borgeses.
- Change of Ownership of Water Right forms were filed with the State Engineer and recorded, naming ACA as mortgagee but lacking attachments, affecting water-right interests.
- Dairy faced ongoing losses in 2008-2009; Borgeses pursued herd sale plans to pay debts, while AGNM sought overall payoff under cross-collateralization and retained control of sale proceeds.
- Corley/Devine Farms attempted to purchase the herd; closing failed after AGNM provided a full-payoff figure of $9.4 million for all debts, prompting litigation over liens and proceeds.
- Bankruptcy court found AGNM’s lien on the Additional 220 Acres avoidable under § 544(a)(3) and rejected AGNM’s water-right perfection theory; it also upheld AGNM’s rights to CWT proceeds and denied counterclaims; the court’s rulings were affirmed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the lien on the Additional 220 Acres is avoidable under § 544(a)(3). | Borgeses argue Corrected Mortgage was unrecorded/unacknowledged and did not give constructive notice. | AGNM contends Corrected Mortgage was valid and provided notice. | Lien on Additional 220 Acres is avoidable under § 544(a)(3). |
| Whether AGNM’s interest in water rights was perfected, and whether the water-right lien is avoidable. | AGNM claims perfection via mortgage recordation suffices. | Borgeses contend perfection required water-right filings; forms were defective. | Water-right lien perfection theory not preserved; avoidance affirmed. |
| Whether AGNM acted reasonably in demanding full sale-proceeds and in other dealings; counterclaims were valid. | Borgeses challenge reasonableness and good faith; seek reversal of counterclaims. | AGNM acted within rights to protect collateral given cross-collateralization. | Bankruptcy court’s finding of reasonableness affirmed; counterclaims denied. |
| Whether post-petition interest and related calculations were premature or improperly awarded. | Post-petition interest not awarded under § 506; calculations sustained as part of § 502 analysis; affirmed. | ||
| Whether unclean hands, UPA, and prima facie tort defenses were properly rejected. | Bankruptcy court’s rejection of these counterclaims affirmed. |
Key Cases Cited
- Geddes v. United Staffing Alliance Empl. Med. Plan, 469 F.3d 919 (10th Cir. 2006) (preservation of new legal theories and plain-error standards guidance)
- Richison v. Ernest Grp., Inc., 634 F.3d 1123 (10th Cir. 2011) (plain-error standard for forfeited theories on appeal)
- Trierweiler v. Croxton & Trench Holding Corp., 90 F.3d 1523 (10th Cir. 1996) (guidance on reviewing issues not raised below; discretionary review)
- In re Colon, 563 F.3d 1171 (10th Cir. 2009) (mixed questions of law and fact in avoidance)
- Crowder v. Crowder (In re Crowder), 225 B.R. 794 (Bankr. D. N.M. 1998) (state of title and notice considerations in disputes over liens)