In re Kurth Ranch

• Decision Date: 08 May 1990
• Docket Number: Bankruptcy No. 88-40629,0042.,Adv. No. 289
• Parties: In re KURTH RANCH; Kurth Halley Cattle Company; Richard M. and Judith Kurth, husband and wife; Douglas M. and Rhonda I. Kurth, husband and wife; and Clayton H. and Cindy K. Halley, husband and wife, Debtors. Robert G. DRUMMOND, Trustee; Kurth Ranch; Kurth-Halley Cattle Company; Richard M. and Judith M. Kurth; Douglas M. and Rhonda I. Kurth; and Clayton H. and Cindy K. Halley, Plaintiffs, v. DEPARTMENT OF REVENUE OF the STATE OF MONTANA, Defendants.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Montana

145 B.R. 61 (1990)

In re KURTH RANCH; Kurth Halley Cattle Company; Richard M. and Judith Kurth, husband and wife; Douglas M. and Rhonda I. Kurth, husband and wife; and Clayton H. and Cindy K. Halley, husband and wife, Debtors Robert G. DRUMMOND, Trustee; Kurth Ranch; Kurth-Halley Cattle Company; Richard M. and Judith M. Kurth; Douglas M. and Rhonda I. Kurth; and Clayton H. and Cindy K. Halley, Plaintiffs, v. DEPARTMENT OF REVENUE OF the STATE OF MONTANA, Defendants.

Bankruptcy No. 88-40629, Adv. No. 289,0042.

United States Bankruptcy Court, D. Montana.

May 8, 1990.

Neal Jensen, Great Falls, Mont., Asst. U.S. Trustee.

Keith A. Maristuen, Havre, Mont., for debtors.

John C. Doubek, Helena, Mont., for trustee.

Robert G. Drummond, Great Falls, Mont., trustee.

Arthur G. Matteucci, Great Falls, Mont., for Norwest Bank.

R. Bruce McGinnis, Tax Counsel, Office of Legal Affairs, David W. Woodgerd, Chief Legal Counsel, Paul Van Tricht, Tax Counsel, Mont. Dept. of Revenue, Helena, Mont., for defendants.

James H. Goetz, Jim W. Vogele, Bozeman, Mont., for plaintiffs.

ORDER

JOHN L. PETERSON, Bankruptcy Judge.

The Plaintiff/Trustee and Debtors filed a Complaint under Bankruptcy Rule 7001 to contest the tax assessed pre-petition against the Debtors by the Defendant, Montana Department of Revenue (D.O.R.) under the Montana Dangerous Drug Tax Act, Section 15-25-101, et seq., Mont.Code Ann. (1987). The Complaint states thirteen different counts for relief, all of which are denied by the D.O.R. Following answer and discovery, each party sought summary judgment under Bankruptcy Rule 7056, which motions were denied in toto by the Court. The case proceeded to trial on March 27 and 28, 1990. Briefs have been filed by the respective parties and the matter is ripe for decision.

The parties concede this Court has jurisdiction to try and decide this matter under 28 U.S.C. Section 1334 and 11 U.S.C. Section 505, because the tax claim has not been contested by the Debtors and adjudicated by a judicial or administrative tribunal of competent jurisdiction before the filing of the Chapter 11 case. In re Lipetsky, 64 B.R. 431 (Bankr.Mont.1986); Quattrone Accountants, Inc. v. I.R.S., 895 F.2d 921 (3rd Cir.1990). Lipetsky states:

"The determination of a debtor\'s tax liability is a core proceeding under Section 157 of the Code, and this Court thus has jurisdiction under Section 505 to determine the amount and legality of the tax, except where said tax has been fixed by final order of an administrative or judicial tribunal, after being reasonably contested by the taxpayers." Id. at 434.

The final Pre-Trial Order signed in this adversary proceeding sets forth Agreed Facts as follows in paragraphs 1-27, to-wit:

1. The Plaintiff, Richard M. Kurth, is a former rancher/farmer who, along with the other Plaintiffs in this action, engaged in a mixed grain and livestock operation on their Choteau County, Montana, farm.

2. The Plaintiff, Judith M. Kurth, is the wife of Richard M. Kurth. Mrs. Kurth assisted her husband and the other Plaintiffs in the operation of the Plaintiffs' ranch and farm.

3. The Plaintiff, Douglas M. Kurth, is the son of Richard and Judith Kurth and participated in the farm and ranch operations conducted on the Plaintiffs' Choteau County, Montana, ranch and farm.

4. The Plaintiff, Rhonda I. Kurth, is the wife of Douglas M. Kurth and participated in the farm and ranch operations conducted on the Plaintiffs' Choteau County, Montana, ranch and farm.

5. The Plaintiff, Clayton H. Halley, is the son-in-law of Richard and Judith Kurth and participated in the Plaintiffs' farm and ranch operations in Choteau County, Montana.

6. The Plaintiff, Cindy K. Halley, is the wife of Clayton Halley and daughter of Richard and Judith Kurth. Mrs. Halley assisted in the farm and ranching activities conducted on the Plaintiffs' ranch and farm.

7. The Kurth-Halley Cattle Company was a family partnership engaged in the business of raising and selling livestock. The partners in the Kurth-Halley Cattle Company were Doug and Rhonda Kurth and Clayton and Cindy Halley.

8. The Plaintiff, Kurth Ranch, was the name for the general farm and ranch operations conducted by the above-named Plaintiffs on their Choteau County ranch and farm.

9. The Plaintiff, Robert G. Drummond, is the Trustee of the bankruptcy estate.

10. The Defendant, State of Montana, Department of Revenue, is an executive branch agency created by MCA § 2-15-1301.

11. The Plaintiffs (Richard and Judith Kurth, Clay and Cindy Halley, and Doug and Rhonda Kurth) were formerly engaged in a mixed grain and livestock operation on their Choteau County, Montana, farm.

12. After suffering for several years from drought and low market prices, the Plaintiffs incurred large debts and faced the prospect of losing their family farm.

13. The Plaintiffs, in December, 1985 or January, 1986, began growing and selling marijuana.

14. The Plaintiffs' marijuana operation continued until October 18, 1987, when state and federal law enforcement personnel raided the Plaintiffs' farm.

15. On October 18, 1987, the State of Montana seized the following alleged items from the Plaintiffs:

"Item # 1: 2155 marijuana plants in various stages of growth,

Item # 2: 7 gallons of hash oil,

Item # 3: 4 bags of marijuana at two pounds each,

Item # 4: 65/one gram vials of hash tar,

Item # 5: 14 baby food size jars of hash tar,

Item # 6: 7 pint jars of hash tar,

Item # 7: 1 bag of marijuana, ¼ pound,

Item # 8: 5 plastic bags of marijuana; total 2230 grams,

Item # 9: approximately 100 pounds of marijuana stems, leaves, parts, etc."

16. The Plaintiffs were subsequently charged by Information with criminal possession and sale of dangerous drugs.

17. On July 18, 1988, after the Plaintiffs entered guilty pleas, the Honorable District Court Judge Chan Ettien of the Montana Twelfth Judicial District, Choteau County, sentenced the Plaintiffs to the following prison terms:

a. Richard M. Kurth: Count I: The Defendant is sentenced to a term of twenty (20) years in the Montana State Prison with the last fifteen (15) years suspended for the commission of the offense of criminal sale of dangerous drugs, marijuana, in violation of Montana law Section 45-9-101, MCA; Count II: The Defendant is sentenced to a term of twenty (20) years in the Montana State Prison with the last fifteen (15) years suspended for the commission of the offense of criminal possession of a dangerous drug, marijuana, with intent to sell in violation of Montana law, Section 45-9-103, MCA; Count III: The Defendant is sentenced to a term of twenty (20) years in the Montana State Prison with the last fifteen (15) suspended for the commission of the offense of solicitation to commit the offense of criminal possession of a dangerous drug, marijuana, with intent to sell, in violation of Section 45-4-101, MCA; and Count IV: The Defendant is sentenced to a term of five years in the Montana State Prison for the commission of the offense of criminal possession of a dangerous drug, hashish, in violation of Montana law Section 45-9-102, MCA.

b. Judith M. Kurth: The Defendant . . . is hereby sentenced to a term of five (5) years in the Women\'s Correctional Center in Warm Springs, Montana, or such other authorized place, with the last four (4) years suspended for the commission of the crime of conspiracy to commit the offense of criminal possession of a dangerous drug, marijuana, with intent to sell, a felony, in violation of Montana law, Section 45-4-102, MCA;

c. Douglas Kurth: The Defendant . . . is hereby sentenced to a term of twenty (20) years in the Montana State Prison, Deer Lodge, Montana, with all twenty (20) years suspended for the commission of the crime of conspiracy to commit the offense of criminal possession of a dangerous drug, marijuana, with intent to sell, a felony, in violation of Montana law, Section 45-4-102, MCA;

d. Rhonda Kurth: The imposition of sentence upon the Defendant, Rhonda Kurth, is deferred for a period of three (3) years for the commission of the crime of conspiracy to commit the offense of criminal possession of a dangerous drug, marijuana, with intent to sell, a felony, in violation of Montana law, Section 45-4-102, MCA;

e. Clay Halley: The Defendant . . . is hereby sentenced to a term of ten (10) years in the Montana State Prison with all of that time suspended for the commission of the crime of conspiracy to commit the offense of criminal possession of a dangerous drug, marijuana, with intent to sell, a felony, in violation of Montana law, Section 45-4-102, MCA f. Cindy Halley: The imposition of sentence upon the Defendant, Cindy Halley, is deferred for three (3) years for the commission of the crime of conspiracy to commit the offense of criminal possession of a dangerous drug, marijuana, with intent to sell, a felony, in violation of Montana law, Section 45-4-102, MCA.

18. MCA § 15-25-111(1) provides "a tax on the possession and storage of dangerous drugs," and imposes liability for the "tax" on "each person possessing or storing dangerous drugs."

19. MCA § 15-25-111(2) provides that the amount of the "tax" due is the greater of the following:

(a) 10% of the assessed market value of the drugs, as determined by the department; or

(b)(i) $100 per ounce of marijuana, as defined in XX-XX-XXX, or its derivatives, as determined by the aggregate weight of the substance seized;

(ii) $250 per ounce of hashish, as defined in XX-XX-XXX, or its derivatives, as determined by the aggregate weight of the substance seized;

(iii) $200 per gram of any substance containing or purported to contain any amount of a dangerous drug included in Schedule I pursuant to XX-XX-XXX(1), (2), (4), and (5), or Schedule II pursuant to XX-XX-XXX(1) through (4), as determined by the aggregate weight of the substance seized;

(iv) $10 per 100 micrograms of any substance containing or purported to contain any amount of lysergic acid diethylamide (LSD) included

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