Pinnacle Bank of Cody, Wyo., must pay more than $4.7 million to a Miles City ranching couple for cutting off funding while they were trying to build an affordable housing subdivision in Billings.
After a weeklong trial before Yellowstone County District Judge Gregory R. Todd, the jury decided that Pinnacle Bank had breached its loan contract with the Krutzfeldt Ranch and owners Butch and Julie Krutzfeldt.
“We are grateful to the jury for their hard work. Our position was vindicated, that your word is your bond,” Butch Krutzfeldt said about the jury's Oct. 26 decision.
He is a third-generation rancher and until 15 years ago practiced law in Miles City.
In June 2008, Pinnacle Bank’s Cody branch president, Dusty Schutzman, agreed to loan the Krutzfeldts up to $5 million to build Mont Vista, a 64-acre housing subdivision at Rimrock Road and 54th Street West in Billings. Plans called for 328 homes costing $180,000 to $220,000 each.
The bank approved the subdivision plans, and the Billings City Council unanimously approved the preliminary plat in June 2009, according to court records. By then, the Krutzfeldt Ranch had borrowed $3.6 million of its $5 million financial package.
When some residents of nearby subdivisions, including the Yellowstone County Club, objected to the design, including potential development of some commercial lots, the Krutzfeldts spent $160,000 of their own money being “good neighbors,” said Billings attorney Don Harris. He and Billings attorney Steve Harman represented the Krutzfeldts.
The couple then redesigned Mont Vista, restricting the commercial lots to multifamily housing use, and working with their critics until all the neighbors were happy, Harris said.
On Aug. 19, 2009, Pinnacle signed off on the redesign.
But two weeks later, the bank cut off funding, even though the Krutzfeldts were current on their payments. Pinnacle also refused to sign documents needed to get the city’s final approval unless the ranchers used their own funds to finish the subdivision, Harris said.
The bank argued that market conditions had changed.
“It had received unbiased information from an appraiser that the subdivision was no longer economically viable and it was in the best interest of the bank and Krutzfeldts to stop loaning money at that point,” said Great Falls attorney Max Davis, who defended Pinnacle.
The original $8 million appraisal included all the infrastructure improvements, which can add up to one-quarter of the cost of a subdivision, Harris said. The second appraisal of $5.4 million only valued improvements on one one-third of the land, he said.
“We called it a rigged appraisal,” Harris said.
The market for higher-end homes in Billings had died during the housing crisis that began in 2007, Harris said. But affordable houses like the ones his clients wanted to build were still selling.
Pinnacle also required the Krutzfeldts to keep $5 million in savings, the maximum amount of Pinnacle’s loan, and to pledge land at their ranch north of Miles City as collateral, he said.
“The bank never was at risk for losing a dime, no matter what happened with the project,” Harris said.
On June 24, 2010, branch president Schutzman sent a letter to the Krutzfeldts that their loan payment of $166,828 was two weeks overdue. On Oct. 6, they were told to pay their debt of $3,793,312 in full within 10 days or face accelerated foreclosure on both the Billings subdivision and their Miles City ranch. The Krutzfeldts suffered physically from the stress, Harris said.
The next step in the case is for Todd to award fees of $1.5 million, one-third of the judgment, to Krutzfeldts’ attorneys. Then the bank will decide whether to appeal.
If Pinnacle pays the judgment, the subdivision is likely to become bank property, Harris said, then be resold and developed by someone else.
Pinnacle began in Wyoming in the early 1900s, and today the Nebraska-based bank operates 115 locations, including 11 in Wyoming.
Davis said the bank is “extremely disappointed” in the verdict, especially the high damages for emotional harm. The jury awarded the ranchers $2.5 million for mental distress and emotional anguish, and $2,225,000 for lost profits.
“It’s almost a done deal when the bank changes its mind and decides to foreclose,” Harris said. “What the jury really understood is this couple in their late 60s is facing financial ruin at a time in their lives when they could no longer replace that wealth.”