Montoya v. Ferguson, et al.
- Summarized by Jaden Banks , Nyemaster Goode P.C.
- 1 month 4 days ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 24-2028 (10th Circuit, Dec 04,2024) Not Published
- Tag(s):
-
- Ruling:
- The Tenth Circuit Court of Appeal, following appeal from the Bankruptcy Appellate Panel for the Tenth Circuit, affirmed the bankruptcy court's use of quasi-estoppel principals to find the debtor and its principal could not take conflicting positions on the legal and equitable ownership of the debtor's assets, transfers or funding of the debtor, the debt and equity contributions to the debtor, and ownership of the debtor.
- Procedural context:
- Defendant Ferguson formed Debtor Motiva in 2007. In November 2019, following an adverse state court ruling and subsequent determination that various assets were subject to execution, the Debtor filed a petition for bankruptcy relief under Chapter 11 of the Bankruptcy Code, but was later converted to a case under Chapter 7. In September 2021, the Chapter 7 Trustee filed an adversary complaint against Defendant Ferguson and various entities owned by Defendant Ferguson alleging claims for turnover, voidable transfer under bankruptcy and state law, breach of fiduciary duties, alter ego/veil piecing, and disallowance of claims. Following trial, the bankruptcy court issued its opinion and judgment in favor of the Chapter 7 Trustee. Defendant Ferguson appealed to the Bankruptcy Appellate Panel for the Tenth Circuit which affirmed the bankruptcy court. Defendant Ferguson then appealed to the Tenth Circuit Court of Appeals challenging the BAP conclusions and challenging the bankruptcy court's factual findings and legal conclusions. The Tenth Circuit Court of Appeals affirmed.
- Facts:
- In 2007, Defendant Ferguson along with several other people, formed Motiva as a limited liability company that would operate a auto shop modifying customer vehicles using aftermarket parts, sell high performance or modified vehicles on consignment, and develop and market products to high performance vehicle enthusiasts. Defendant Ferguson funded Motiva and claimed those expenses and the businesses ongoing losses on his taxes. Defendant Ferguson used Motiva's dealer license to purchase at least 23 vehicles, which he paid for with his own money, but tilted in the Motiva's name and which Mr. Ferguson used for his own purposes without paying New Mexico excise tax. Defendant Ferguson also directly funded and used Motiva assets to develop aftermarket turbocharging kits, but between 2011 and 2017 there was no separate entity for carrying out the turbo kit project nor were there any writings memorializing any agreements for the project. The turbo kits were stored at Motiva's facility and Motiva's name appeared on purchase orders, invoices, ad marketing material, even though Mr. Ferguson had formed Armageddon High Performance Solutions (AHPS) to carry out the project. Eventually the turbo kits were transferred to AHPS, but Mr. Ferguson treated that entity like Motiva on his federal tax returns, asserted that it was a sole proprietorship, and filed papers with the secretary of state reflecting that he was the sole member and manager. As with Motiva and now AHPS, Defendant Ferguson was not the sole owner.
In 2014, a customer sued Motiva asserting that Motiva's work rendered the customer's vehicle unsafe to drive and in October 2018, a New Mexico jury found in favor of the customer awarding a judgment of around $337,317.90. Thereafter, Defendant Ferguson began transferring vehicles he had purchased in Motiva's name on Motiva's deal license to Dealerbank, another entity owned by Defendant Ferguson. Those vehicles were sold to Dealerbank for approximately 1/5 of their purchase price and there was no evidence that Dealerbank paid Motiva for the vehicles. Shortly after the state court issued a writ of execution directing the courtly sheriff to seize Motiva's assets, including the turbo kits, Defendant Ferguson asserted that another company he owned held a landlord lien on the assets and the writ was returned unsatisfied. The customer applied for a preliminary injunction freezing Motiva's assets, including the transferred vehicles, and the state court granted the injunction. But before the injunction terms were finalized Defendant Ferguson borrowed money and caused Dealerbank to pledge one of the vehicles as collateral. The customer then requested a declaration that Motiva owned the vehicles and the turbo kits, but while that motion was pending Mr. Ferguson transferred five more vehicles titled in Motiva's name to himself, Dealerbank, and another of his companies. In late October 2019, the state court issued an order finding that Motiva owned the collateral vehicle and the turbo kits followed days later by Motiva filing its Chapter 11 bankruptcy petition.
Following conversion of Motiva's case to one under Chapter 7 and the Chapter 7 Trustee's adversary proceeding the bankruptcy court conducted trial and found in favor of the Trustee on seven claims. In so doing the bankruptcy court fond that Motiva never filed federal tax returns, that Defendant Ferguson's tax returns reflected that he treated Motiva's as a disregarded entity under New Mexico law and the bankruptcy court concluded that Defendant Ferguson was the sole owner of Motiva and he had at points convenient to him taken conflicting positions on whether Motiva owned any vehicles in its name; whether the vehicles were worth what was paid for them; whether he was the sole owner of Motiva; whether Motiva invested in the turbo project; whether Motiva was involved in the Turbo project; whether Motiva was and had always been insolvent; whether he loaned money to Motiva; whether he had any partners on the Turbo project; when the turbo project started and was formally organized, among other issues. The bankruptcy court found that Motiva, AHPS and the other entities owned by Defendant Ferguson comprised alter egos of him, were used for an improper purpose to avoid excise taxes, income taxes, and creditor claims, he had breached his fiduciary duty to Motiva, and he was liable for Motiva's debt. Defendant Ferguson and Debtor appealed and the BAP affirmed.
On appeal to the Tenth Circuit, Defendant Ferguson and Motiva argued that the bankruptcy court improperly applied the doctrine of quasi-estoppel and duty of consistency and in so doing challenged the BAP ruling, but the Tenth Circuit flatly rejected the argument after recognizing that they review the bankruptcy court and not BAP decision and because this argument was not raised before the bankruptcy court or preserved for appeal. The Tenth Circuit likewise rejected arguments that the bankruptcy court improperly concluded that Defendant Ferguson was equitably estopped from claiming Motiva lacked an equitable ownership in the vehicles and turbo kits, after taking a different position in other filings and tax statements.
- Judge(s):
- TYMKOVICH, McHUGH, and MORITZ
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