In re Eagle Bear Inc.

656 B.R. 249

IN RE: EAGLE BEAR INC., Debtor.

Case No. 4:22-bk-40035-WLH

United States Bankruptcy Court, D. Montana

Signed October 24, 2023

Robert K. Baldwin, Baldwin Law, PLLC, Bozeman, MT, Uriah J. Price, Crowley Fleck PLLP, Bozeman, MT, for Special Counsel.

Molly Considine, James A. Patten, Patten, Peterman, Bekkedahl & Green PLLC, Billings, MT, for Debtor.

Thane P. Johnson, Johnson, Berg & Saxby, PLLP, Kalispell, MT, for Special Councel.

Jason R. Naess, Office of the United States Trustee, Boise, ID, for U.S. Trustee.

Griffin B. Stevens, Crowley Fleck PLLP, Bozeman, MT, Special Counsel, Pro Se.

Neil G. Westesen, Crowley Fleck PLLP, Bozeman, MT, Special Counsel, Pro Se.

Derek E. Kline, Attorney at Law, Center Harbor, NH, Evan M.T. Thompson, Browning, Kaleczyc, Berry & Hoven, P.C., Helena, MT, for Creditor Blackfeet Nation.

AMENDED MEMORANDUM OPINION

WHITMAN L. HOLT, UNITED STATED BANKRUPTCY JUDGE

As the idiom goes, nothing is certain except death and taxes. But sometimes there is uncertainty about the applicability or amount of an asserted tax, which can lead to disputes and thus require courts to decide the extent of any tax owed.

In this case, debtor Eagle Bear Inc. objects to the Blackfeet Indian Nation's claims for various taxes and other amounts. The court has fully considered the record and arguments developed by the parties and now resolves these disputes.

BACKGROUND & PROCEDURAL POSTURE

Since approximately April 1996, Eagle Bear has operated a Kampgrounds of America (or KOA) campground and recreational facility on real property owned by the Blackfeet Nation. For at least some period of time, the relationship between Eagle Bear and the Blackfeet Nation was governed in part by a Recreation and Business Lease Agreement entered into as of April 11, 1997 (the "Lease").¹

After many years of disputes between Eagle Bear and the Blackfeet Nation, Eagle Bear filed a chapter 11 bankruptcy petition in mid-2022. Eagle Bear continues to operate its business as a debtor in possession.

The Blackfeet Nation filed a proof of claim in the bankruptcy case, which proof of claim was designated as claim number 11 and has been amended several times. In its proof of claim, the Blackfeet Nation asserts rights to payment under the Lease, several tribal laws, and Bankruptcy Code section 507(a)(8).

Eagle Bear objected to the Blackfeet Nation's proof of claim and the court conducted an evidentiary hearing on August 14 and 15, 2023. At the hearing, the court admitted numerous exhibits and deposition excerpts.² The parties presented the following testimony:

• Danielle Weber (testimony via Zoom). Ms. Weber is an accountant with Holmes & Turner, which has prepared tax returns and provided other accounting services for Eagle Bear. Ms. Weber testified about certain schedules included with Eagle Bear's 2021 federal income tax return, including information and calculations contained in the related 2021 federal depreciation schedule. The court found Ms. Weber professional and credible. Ms. Weber's testimony was narrowly focused and easy to follow.

• William Brooke. Mr. Brooke is one of Eagle Bear's owners and longtime managers. Mr. Brooke testified about an array of subjects, including (i) the history of Eagle Bear and the campsite; (ii) his understanding of the terms and conditions of the Lease, as well as certain laws, rules, and regulations applicable to Eagle Bear;³ (iii) various interactions and communications among Eagle Bear, the Blackfeet Nation, and the Bureau of Indian Affairs (or BIA) over the years; (iv) his experience regarding whether competing or similar campsites charge tribal or state lodging taxes; (v) pending litigation against the State of Montana regarding tax issues; and (vi) theoretical calculations prepared by Eagle Bear regarding the possible amounts of some of the Blackfeet Nation's claims in certain scenarios. Overall, the court found Mr. Brooke honest and sincere in his testimony, although at times he was somewhat antagonistic toward the Blackfeet Nation's counsel.

• Joe Gervais. Mr. Gervais is the Treasurer of the Blackfeet Nation. Most of Mr. Gervais's testimony focused on his calculations and underlying assumptions regarding the specific amounts of the Blackfeet Nation's asserted claims. Mr. Gervais also provided his layperson's opinion and understanding regarding tribal laws and practices applicable to Eagle Bear's business. The court generally found Mr. Gervais credible, including when he admitted that certain issues were beyond his knowledge and when he testified that the Blackfeet Nation's practices regarding lodging taxes are partially inconsistent with the Blackfeet Nation's asserted claim amounts.

The court requested post-hearing briefing and heard closing argument. The matter is now ready for decision.

GENERAL PRINCIPLES

Jurisdiction & Power

The court has subject matter jurisdiction regarding this bankruptcy case and Eagle Bear's claim objection pursuant to 28 U.S.C. §§ 157(a) & 1334(b) and Standing Order No. BMM-20 (D. Mont. Aug. 19, 2022). The parties' disputes regarding the allowance or disallowance of claims against the bankruptcy estate are statutorily "core" and the issues presented will "be completely resolved in the bankruptcy process of allowing or disallowing claims."⁴

Bankruptcy Code section 106(a) "unequivocally abrogates the sovereign immunity of any and every government that possesses the power to assert such immunity," including federally recognized Indian tribes, for purposes of myriad Bankruptcy Code sections.⁵ Bankruptcy Code section 502 (governing the allowance of claims or interests) is included in section 106(a)'s list, which means a governmental unit cannot assert sovereign immunity as a defense during the claims-allowance process.⁶ Indeed, the law has recognized for generations that the claims-allowance process is an inherent part of the bankruptcy system and that bankruptcy courts should therefore fully resolve the entitlements of any parties choosing to assert claims against the estate, specifically including governments.⁷

Based on the foregoing, this court may properly exercise the jurisdiction and judicial power necessary to finally decide all the parties' disputes regarding the Blackfeet Nation's proof of claim.

Allocation of Burdens

The bankruptcy claims process involves a series of shifting presumptions and burdens. Proofs of claim that are "executed and filed in accordance with" the Federal Rules of Bankruptcy Procedure "constitute prima facie evidence of the validity and amount of the claim" and will be "deemed allowed" unless a party in interest objects.⁸ If an objection is filed, then "the party objecting to a proof of claim has the burden of presenting substantial factual basis to overcome the prima facie validity of a proof of claim and the evidence must be of probative force equal to that of the creditor's proof of claim."⁹ If the objector meets this shifted burden, then the burden reverts back to the claimant to prove up its claim by a preponderance of the evidence, which means "[t]he ultimate burden of persuasion remains at all times upon the claimant."¹⁰ In attempting to meet this ultimate burden, the claimant can no longer rely on the initial evidentiary effect of the proof of claim and must produce additional admissible evidence to prove the claim's validity.¹¹ Likewise, the objector is not required to disprove the asserted claim.¹² "The burden is, therefore, just as it would be in a non-bankruptcy lawsuit in which the creditor is attempting to recover money from the debtor."¹³

Here, the Blackfeet Nation filed a proof of claim that carried prima facie force, but Eagle Bear satisfied its burden of presenting a substantial factual basis to overcome that prima facie validity, including the testimony and exhibits offered by Eagle Bear at the evidentiary hearing. As such, the Blackfeet Nation must now be held to its ultimate burdens of proof and persuasion, including establishing all necessary elements of the asserted claims by a preponderance of the evidence.

Applicable Nonbankruptcy Law

Bankruptcy Code section 502(b) contains several bases for disallowance of bankruptcy claims, including when "such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured."¹⁴ Section 502(b)(1) thus operates to disallow "any claim unenforceable under applicable nonbankruptcy law."¹⁵

Federally recognized Indian tribes have a right to make and be ruled by their own substantive law in internal matters as a result of their retained sovereignty.¹⁶ As such, for purposes of the disputes now before the court, the tribal law of the Blackfeet Nation applicable to business activities occurring on the Blackfeet Indian Reservation is the applicable nonbankruptcy law, which in turn means the Blackfeet Nation must establish that its asserted claims are enforceable rights to payment under such law.

Neither party has cited—and the court's own research has not revealed—any special principles that should guide a bankruptcy court's application of substantive tribal law.¹⁷ Therefore, in the absence of binding precedent from the Blackfeet Tribal Court (which neither party cites regarding any of the issues presented), this court's role is to predict what decision that "court would make if faced with the same facts and issue," which in turn allows this court to consider "decisions of other states, federal decisions, and the general weight and trend of authority."¹⁸

Statutory Claim Priority

In crafting federal bankruptcy law, Congress codified an ordered list of ten categories of "priority" claims.¹⁹ Classification of a given debt as a priority claim, among other things, affords that claim a privileged position in the distributional waterfall and imposes limitations on how that claim may be treated in a chapter 11 plan.²⁰ In light of these consequences and the resulting deviations from "the equal...