Judge in Montagne case: Ag Venture broke the law Written By Michelle Monroe Monday, November 16, 2009 Ruling says firm illegally collected interest By MICHELLE MONROE Messenger Staff Writer ST. ALBANS — Ag Venture Financial Services, a local farm lender, violated Vermont’s licensed lender act by taking $477,000 in borrower loan proceeds and placing them in its own interest bearing checking account, according to federal judge Colleen Brown.                 Brown’s Friday ruling was issued as part of a lawsuit filed last January by Ag Venture against local farmer Michael “Mitch” Montagne and his estranged wife, Diane. Ag Venture claimed Montagne owed the company nearly $3.4 million. That lawsuit was transferred to bankruptcy court in fall 2008, when Montagne filed bankruptcy.     In May, Brown had conducted a two-day “mini-trial” focused on just one of the Montagne loans, loan 321, for $882,000. By keeping $477,000 of those loan funds in its checking account, Ag Venture violated the law by collecting interest on loan funds that were not disbursed, Brown ruled.     Ag Venture also broke the law by earning interest on the funds through its own checking and investment account, according to Brown.     Because Ag Venture violated the licensed lender act, it will not be allowed to collect any additional payment on the loan, which is the penalty allowed under Vermont law, Brown ruled. However, it will not be required to return to Montagne funds already collected.     In June 2002, the Montagnes borrowed $882,000 from Ag Venture for the stated purpose of refinancing loans from Ag Venture, Yankee Farm Credit, and Roger Luneau, from whom the Montagnes had purchased farmland.     The Yankee Farm Credit loan and some Ag Venture debt were paid off as planned. However, the Luneau mortgage and other Ag Venture debts were not. As a result the $477,000 was left in Ag Venture’s checking and investment account.     “That $477,000 was applied toward suspense account for loan 171… it found its way into our general interest checking account,” Ag Venture president Tom Bellavance testified.     The Montagnes were charged interest on the full amount of the loan, even though nearly half-a-million dollars remained undisbursed for more than a year.     Under Vermont’s licensed lender law, licensed lenders must follow all of the rules laid out in Title 9 of Vermont statutes, the portion dealing with interest. Section 41a of Title 9 states that interest may only be charged on “the outstanding balance.”     At trial, Bellavance maintained that the funds had been disbursed. They had been disbursed to a “suspense account” for another Montagne loan.     Brown found the suspense account argument unpersuasive, noting that the remaining loan funds were completely under Ag Venture’s control and that to obtain access to the funds, the Montagnes would have had to ask Ag Venture for the funds. Standing to collect     Montagne also challenged Ag Venture’s right to collect the loan after Ag Venture revealed it could not locate the original loan documents.     Despite more than a year of discovery efforts, Ag Venture did not disclose its inability to locate the original promissory note until the trial in May.     Ag Venture had borrowed the $882,000 it loaned to the Montagnes from First Community Bank, now Lake Sunapee Bank. Bellavance testified that when Ag Venture could not find the documents, he contacted Lake Sunapee to ask if they had the documents.     However, the agreement between Ag Venture and Lake Sunapee (another document that was not produced until the trial) required -- in four separate notations -- that only a copy of the promissory note be sent to Lake Sunapee.     Under statute, a lender who cannot produce the original of a promissory note must have lost the note while it was in their possession in order to collect. Since only a copy of the note needed to be sent to Lake Sunapee, Brown concluded the note must have been lost while it was in Ag Venture’s possession and that there was no reason to believe Ag Venture had transferred the note to another party who might in the future attempt to collect from Montagne. Therefore, Brown ruled, Ag Venture had standing to collect the loan.     However, while under oath Bellavance acknowledged, in response to a question from Montagne attorney John Harrington, that it was possible for the note to have been sent to a lender other than Lake Sunapee.     During the trial, Tavian Mayer, attorney for the bankruptcy trustee, who represents Montagne’s unsecured creditors, pointed out that Montagne had been prevented from conducting discovery that might have revealed if the note had been assigned to a different bank. The initial ruling narrowing the scope of discovery was made by Judge Ben Joseph in Franklin County Superior Court and was later upheld by Brown.     In a 2001 letter to her employer, former Ag Venture vice president Lisa Steadman, now a bookkeeper for Montagne, stated Bellavance was “double booking” loans, offering the same promissory note as collateral on more than one bank loan.     Steadman left Ag Venture’s employ in 2002.

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