MISSOULA — A state judge has upheld a $17 million jury award to a Western Montana logging company that went out of business after a bank seized stimulus money from its checking account to repay a loan that was not in default.

District Judge Ed McLean also ordered First Interstate Bank to pay $7.6 million in attorney’s fees and costs incurred by Kelly Logging Inc. 

McLean’s ruling, filed Tuesday, said jurors heard testimony that First Interstate helped Kelly Logging apply for the federal stimulus loan, knowing it likely would not be enough to keep the company in business. 

In August 2009, after the $1.1 million was deposited into Kelly’s account, the bank took $762,000 and then violated its loan agreement with Kelly by withholding further credit. The company said the bank also refused to release its lien on equipment securing the loan, preventing the company from using that collateral to seek credit elsewhere.

Kelly did logging work in Western Montana and Idaho and employed up to 70 loggers, depending on the time of year and the work available, attorney David Paoli said.

Paoli said First Interstate helped Kelly Logging apply for a stimulus loan as the company sought to survive the recession, all the while intending to use part of the money to cover the loan the bank made to the company. 

The $1.1 million from a state loan program had been electronically deposited into the company’s checking account just minutes before the bank took $762,000, Paoli said.

The bank “gave Kelly Logging an umbrella by way of the stimulus loan and, then, when the first drop of rain in the storm ... hit the umbrella, First Interstate surreptitiously stole the umbrella back,” McLean wrote in the 42-page order he issued upholding the verdict.

He also approved an application for attorney’s fees and costs.

McLean’s ruling notes that state law caps punitive damages at $10 million or 3 percent of a company’s net worth, whichever is less. However, he found the $10 million cap unconstitutional and upheld the $17 million verdict.

The cap is being challenged in a case before the state Supreme Court, but McLean is retiring at the end of the month, so he issued his ruling with a contingency if the cap is upheld.

In that case, he would adjust the punitive damages to $10 million and adjust the attorneys’ fees to about $4.4 million, plus costs. McLean’s ruling says the verdict includes interest starting in August 2014.

First Interstate CEO Ed Garding issued a statement saying he was disappointed the court didn’t reduce the amount of punitive damages.

“We believe the verdict was wrong and should have been reduced substantially by the court,” he said, adding that the bank plans to appeal the decision to the Montana Supreme Court.