Jefferson County’s legal effort to reverse the dismissal of Montana Tunnels Mining Inc.’s long-running bankruptcy case — and to collect the $3.1 million back taxes Montana Tunnels owes — hit a snag last week.
The County filed a motion with the U.S. Bankruptcy Court of Montana on Oct. 22 asking it to overturn the dismissal it had ordered in July. The County hopes the court ultimately will convert Montana Tunnels’ case into a Chapter 7 liquidation, which could lead to a sale of the company’s long-shuttered gold mine outside Jefferson City.
But on Oct. 30, the U.S. Trustee overseeing Tunnels’ bankruptcy filed an objection to the county’s motion. Brett R. Cahoon wrote that the Trustee did not disagree with the County’s assertion that a Chapter 7 liquidation “may be, or may have been, in the best interest of creditors and the estate.” In fact, the Trustee advocated unsuccessfully for that alternative before the case was dismissed.
But Cahoon noted that Judge Benjamin Hursh decision to dismiss, issued in July, hinged explicitly on language in Montana Tunnels’ bankruptcy plan that called for the case to be dismissed if the company failed to make payments to the state Department of Environmental Quality (DEQ) to meet a bond to ensure the reclamation of lands damaged by mining activities. In fact, Tunnels missed payments shortly after the bankruptcy plan was confirmed.
“Because the Court held that conversion to chapter 7 was not an alternative under the Plan’s language, the United States Trustee does not believe the relief requested by the County can be granted,” Cahoon wrote in the objection. He noted that the Court’s decision to dismiss was not appealed at the time.
In its motion, the County had observed that CEO Patrick Imeson misrepresented in a court hearing his company’s intention or ability to pay what it owed another creditor, LD Construction. Montana Tunnels has not repaid LD, which since has itself sought bankruptcy protection, and, the County’s motion argued, “the Debtor has no ability or intention to pay creditors.” That misrepresentation, the County argued, amounted to a “mistake,” a technical term that, in some instances, can trigger reexamination of a legal decision.
But the U.S. Trustee argued that the County’s logic was “inconsistent with the Court’s actual decision and holding.”
Not surprisingly, Goldfields Funding Partners, LLC, another company controlled by Imeson, also objected to the County’s motion. Goldfields was assigned a lien in 2021 on the Montana Tunnels mine property after it paid overdue property taxes; it now stands to take title to that property, which the County and the DEQ have argued will diminish the likelihood of Montana Tunnels’ debts ever being repaid.
In a response filed with the court on Nov. 6, Goldfields argued that “issuance of a tax feed to Goldfields would not prejudice or affect the County’s current tax liens on the property.” The company said it was prepared to pay the county “the full balance” of property taxes owed after the issuance of a tax deed. “Because of Goldfields, Jefferson County is able to collecty all delinquent taxes on the real property,” wrote the company’s attorney, Joseph D. Houston.
Goldfields noted that, a week before the expiration in August of the tax lien redemption period, DEQ had threatened court action against Goldfields and the County to block the issuance of a tax deed. Goldfields agreed to join talks with DEQ aimed at resolving the question, and the County deferred issuing the tax deed.
The Court has scheduled a hearing on the County’s motion for Dec. 11.
