In re Harpole, 98-41437-13.

• Decision Date: 23 March 2001
• Docket Number: No. 98-41437-13.,98-41437-13.
• Citation: 260 BR 165
• Parties: In re James Donald HARPOLE, and Joy Ellen Harpole, Debtors.
• Court: U.S. Bankruptcy Court — District of Montana

260 B.R. 165 (2001)

In re James Donald HARPOLE, and Joy Ellen Harpole, Debtors.

No. 98-41437-13.

United States Bankruptcy Court, D. Montana, Butte Division.

March 23, 2001.

COPYRIGHT MATERIAL OMITTED

Gary S. Deschenes, Deschenes Law Office, Great Falls, MT, for debtors.

Jeffrey T. McAllister, Conklin, Nybo, LeVeque & Lanning, P.C., Great Falls, MT, for Pierce's Flooring, Inc.

ORDER

RALPH B. KIRSCHER, Bankruptcy Judge.

In this confirmed Chapter 13 bankruptcy case, the Debtors, through their attorney, Gary S. Deschenes ("Deschenes"), filed Debtors' Motion to Avoid Lien, on November 13, 2000, involving a lien held by Pierce's Flooring, Inc. ("Pierce") and arising from a default judgment docketed by the Montana Eighth Judicial District Court, Cascade County on April 30, 1998 in Pierce's Flooring, Inc. v. James Harpole, Joy Harpole, Cascade County Treasurer, Shearson Lehman Mortgage Corp., Internal Revenue Service of the United States, and Montana Department of Revenue, Case No BVD-97-306. Pierce, on November 28, 2000, filed a response and objection to Debtors' motion and on November 29, 2000, filed an additional objection to Debtors' motion. The Court initially scheduled a hearing on Debtors' motion for December 5, 2000. Upon a motion to continue filed by Debtors and with the consent of Pierce's counsel, Jeffrey T. McAllister ("McAllister"), the Court continued the hearing on Debtors' motion and the objections thereto until January 23, 2001, which was rescheduled to January 17, 2001, given the unavailability of the Great Falls Courtroom on January 23, 2001.

At the scheduled hearing, Deschenes and McAllister appeared and provided brief statements. They stipulated to the admission of Debtors' Exhibits 1 through 6 and Pierce's Exhibit A. and indicated that no additional testimony or exhibits were necessary for the Court to decide this contested matter. The Court ordered the parties to submit simultaneous briefs on the issues raised in the motion and the objection thereto. Briefs have been filed and this matter is ready for decision. This decision constitutes the Court's findings and conclusions on the matter. F.R.B.P. 9014.

FACTS

On October 2, 1995, Pierce sold to Debtors floor coverings in the amount of $1,966.50; on November 28, 1995, Pierce provided labor to install the floor coverings in the amount of $1,265.00; and on December 10, 1995, Pierce sold additional floor coverings in the amount of $204.00, for a total sum of $3,435.50. Debtors failed to pay Pierce for the floor coverings and labor. Pierce filed on or after January 5, 1996, a construction lien against Jim Harpole for the total amount owed and described Debtors' homestead as the real property upon which the work and labor were provided. As a consequence of nonpayment, Pierce filed, through McAllister, a complaint, dated March 7, 1997, with the State District Court requesting alternative relief¹ through a personal money judgment, and for an order foreclosing its construction lien, together with fees, costs and other equitable relief that the court may grant. The complaint and its incorporated attachments set forth the foregoing facts. Ex. A.

The Commitment for Title Insurance, Ex. 6, identifies as special exceptions on the Debtors' personal residence the following²:

                   A claim of Construction Lien in the
                   Amount of                           :   $3,435.50
                   Filed By                            :   Pierce's Flooring, Inc., d/b/a Pierce
                                                              Flooring and Design Center
                   Against                             :   Jim Harpole
                   Dated                               :   January 5, 1996
                   Said lien based upon                :   floor coverings and labor
                   Furnished from                      :   October 2, 1995 to October 10, 1996
                   Date Filed                          :   January 12, 1996, Document # 14165
                and
                Judgment against James Harpole and Joy Harpole and in favor of Pierce Flooring
                Inc. in the amount of $6,436.77 plus interest and costs filed April 30, 1998 as
                Case No. BDV-07-306, records of Cascade County, Montana
                

The State District Court entered a Judgment by Default by Order of Court, dated April 30, 1998, against the Debtors for failing to appear or answer the Complaint after James Harpole was served on March 23, 1997 and Joy Harpole was served on May 23, 1997. The State District Court Judge made the following Conclusions of Law:

The defendants James Harpole and Joy Harpole presently owe plaintiff the amount of $3,435.50, plus interest from January 10, 1996, to the date of judgment in the amount of $1,567.77, plus costs in the amount of $314.00, plus attorney fees in the amount of $1,120.00, plus interest at the rate of ten percent (10%) per annum from the date of this judgment of the above amount.

IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that Pierce\'s Flooring, Inc., plaintiff, is awarded Judgment against James Harpole and Joy Harpole in the amount of $6,436.77, which includes the principal amount owed, accrued interest, costs, and attorney fees. This judgment shall from the date of this judgment, incur interest at the rate of ten percent (10%) per annum.

The Conclusions of Law and the Judgment do not make any reference to foreclosing a construction lien or that any subsequent hearing would be held to consider issuing a foreclosure decree. In fact, the personal judgment is against Debtors, even though the construction lien only names Jim Harpole. Further, no lien priority is declared in the judgment involving the liens of record, including a purchase money security interest, a federal tax lien, a property tax lien and the construction lien, and no conclusion of law is reached that the lien complies with all the requirements of Montana law or that it is superior to any other liens of record.

On May 21, 1998, Debtors filed this Chapter 13 bankruptcy case. On Schedule F, they scheduled Pierce as a creditor holding an unsecured, nonpriority claim with an unpaid account of $3,500.00. Pierce did not appear in the Chapter 13 case, did not file a proof of claim and did not object to its treatment as a creditor holding an unsecured, nonpriority claim. Debtors' Chapter 13 Plan, as modified, was confirmed by Order of this Court on October 15, 1998. The confirmed Plan was subsequently modified at the request of the Trustee on July 9, 1999.

Based upon the evidence, exhibits and the facts agreed upon by the parties, through their attorneys, the Court finds that the Debtors have an allowed homestead exemption on Lot 7, Block 11, North Riverview Terrace, Section Five, Part 3, an Addition to the City of Great Falls, Cascade County, Montana, according to the official plat thereof on file and of record in the office of the Cascade County Clerk and Recorder, a/k/a 537 Skyline Drive N.E., Great Falls, Montana. Further, the Court finds that the value of the Debtors' homestead is $98,000.00, and the homestead is subject to a trust indenture in favor of GE Capital Mortgage ("GE") which filed Proof of Claim No. 3 on June 15, 1998, asserting an allowed secured claim in the amount of $62,351.25. The current payoff is $53,086.00, including costs. Exhibit 5 further shows the homestead is subject to other liens, including a lien of Pierce in the amount of $6,436.77³ Unless Pierce's Judgment incorporates the status of the construction lien, and is considered a statutory lien, Pierce cannot prevail in its argument that its lien arising from the judgment by default should not be avoided as a judicial lien under 11 U.S.C. § 522(f). The Court concludes for the following reasons that the Judgment by Default represents a personal judgment, independent of the construction lien. The construction lien was not merged into the personal judgment. The Judgment by Default is a judicial lien that is avoidable under 11 U.S.C. § 522(f)(1)(A). The construction lien is independent of the judicial lien as Pierce did not pursue foreclosure of the construction lien at the time it applied for the Judgment by Default under its alternative claims for relief. To the extent the construction lien is not barred by the passage of time or is not otherwise determined to be unenforceable, it remains a lien on the Debtors' property.

DISCUSSION

As noted above, construction lien claimants typically allege at least four claims for relief in their complaint. In reviewing the complaint filed in State District Court by Pierce, the allegations, without a specific designation of claims, request a personal money judgment for breach of contract against Debtors and request foreclosure of the filed construction lien. Pierce on April 30, 1998, requested that a personal judgment for $6,436.77, be awarded against Debtors. Mont.Code Ann. ("MCA") § 71-3-110 provides: "The existence of a lien, as security for the performance of an obligation, does not affect the right of the creditor to enforce the obligation without regard to the lien." This general provision governs the enforcement of liens identified in Chapter 3 of Title 71, MCA. Montana mortgage law has a more specific provision that imposes the "one action" rule contained in MCA § 71-1-222. The Montana Supreme Court, in Barth v. Ely, 85 Mont. 310, 278 P. 1002, 1007 (1929), concluded that MCA § 71-3-110 applied generally to all statutory liens identified in Chapter 3 of Title 71, MCA, and the more limiting "one action" rule of MCA § 71-1-222 applied only to obligations that are defined as mortgages under MCA § 71-1-101. The Montana "one action" rule does not apply to the litigation involving the construction lien.

The Judgment by Default, based upon the language contained therein and set forth above, constitutes a personal money judgment in favor of Pierce and against Debtors for the amount of $6,436.77. No provision within the Judgment addresses the filed construction lien, the foreclosure of such lien, or that any subsequent proceeding would be scheduled to determine the priority of the liens on the...