In re Miller

• Decision Date: 04 March 1994
• Docket Number: Bankruptcy No. 93-30866-11.
• Parties: In re Margueritte L. MILLER, Debtor.
• Court: U.S. Bankruptcy Court — District of Montana

164 B.R. 644 (1994)

In re Margueritte L. MILLER, Debtor.

Bankruptcy No. 93-30866-11.

United States Bankruptcy Court, D. Montana.

March 4, 1994.

Ronald A. Bender, Worden, Thane & Haines, P.C., Missoula, MT, for First Interstate Bank of Commerce.

James A. Patten, West, Patten, Bekkedahl & Green, Billings, MT, for debtor.

ORDER

JOHN L. PETERSON, Bankruptcy Judge.

At Butte in said District this 4th day of March, 1994.

In this Chapter 11 case, the Debtor-In-Possession (DIP) has filed an objection to the proof of secured claim filed by First Interstate Bank of Commerce (Bank) in the sum of $69,578.17, plus post-petition interest, costs and attorneys' fees. The latter items are not quantified in the Proof of Claim. The objection filed pursuant to F.R.B.P. Rule 3007 denies any obligation whatsoever, and in the alternative, states the Debtor is entitled to an offset for damages, including attorney fees, which Debtor has sustained as a result of the Bank's attempted sale of real property of the Debtor to Mullan Trail Enterprises. While the objection is framed as to a complete denial of any sum owing, the parties have submitted the matter to the Court on an agreed statement of facts which solely places into issue the validity, not amount, of the claim as a secured claim.

The Debtor's objection has been filed pursuant to F.R.B.P. Rule 3007. Under such Rule, it is provided, in pertinent part, "If an objection to a claim is joined with a demand for relief of the kind specified in Rule 7001, it becomes an adversary proceeding." Since the stipulated facts request a determination of the validity of the Bank's lien, this proceeding is an adversary proceeding. See, In re Jones, 122 B.R. 246, 250 (W.D.Pa.1990); In re National Oil Co., 112 B.R. 1019, 1020 (Bankr.D.Colo.1990) (where objection is joined with demand for relief of the kind specified in Rule 7001, the matter becomes an adversary proceeding). Therefore, the fact the parties do not invoke procedures ordinarily available in an adversary proceeding is not fatal to the determination of the pending objections. Matter of Chapman, 132 B.R. 132, 144 (Bankr.N.D.Ill.1991); In re Zobenica, 109 B.R. 814, 816 (Bankr. W.D.Tenn.1990). In sum, the parties have had full opportunity to raise any issue concerning the validity, priority or extent of the Bank's lien. Rule 7001(2).

The agreed facts with the Exhibits attached are as follows:

1. On January 17, 1992, Margueritte L. Miller executed a trust agreement naming First Interstate Bank as trustee. Exhibit

1. On the same date, she conveyed by deed approximately 890 acres of real property comprising the Kona Ranch in trust to First Interstate Bank. Exhibit 2.

2. First Interstate in May of 1992, retained Nick Kaufman of WGM Company, a land-use planning and engineering firm in Missoula, Montana, for consulting services on behalf of the trust.

3. On November 30, 1992, First Interstate Bank executed an earnest money agreement for the sale of a 20-acre parcel known as COS 4166 on the south border of Kona Ranch to Hartungs. Exhibit 3. The engineering firm of Eli & Associates who had staked the parcel was retained by the First Interstate to complete the survey.

4. In November of 1992, First Interstate Bank on behalf of the trust retained Steven Hall, an M.A.I. appraiser, of Hall-Widdoss, to give advice as to the sale of the property and to perform an appraisal.

5. First Interstate on February 10, 1993, executed an earnest money agreement with Mullan Trail. Exhibit 4.

6. On January 26, 1993, First Interstate Bank as trustee filed a Petition for Judicial Supervision, pursuant to MCA § 72-35-101, et seq., seeking authority to sell the real property comprising the trust assets and to borrow $16,000 from First Interstate Bank, with $12,000 to satisfy a prior Herndon judgment and $4,000 to be paid to the appraiser.

7. By ex parte order, dated January 26, 1993, Judge Harkin authorized the trust to borrow $16,000 at eight percent (8%) interest, payable on demand for the purposes contained in the petition, with such loan being repaid from the sale of any real property and also authorized the trust to distribute the remaining funds of $8,500 for Margueritte\'s (Debtor) benefit.

8. By motion, dated February 22, 1993, First Interstate Bank requested an order from state court approving the sale of the property to Hartung and a sale of the property to Mullan Trail Enterprises, Inc.

9. Margueritte L. Miller, Doug and Phil Miller filed formal objections to the motion requesting approval of the Mullan Trail Enterprises sale.

10. On March 30, 1993, pursuant to written demand of Margueritte L. Miller, the provisions of the trust agreement itself and Montana law, First Interstate Bank, by Quit Claim Deed, dated March 30, 1993, and recorded March 30, 1993, at 9:43 a.m., in Vol. 376 of Micro Records of the county of Missoula on page 1092 (Exhibit 5), conveyed the real property back to Margueritte L. Miller, "as is" subject to all outstanding claims, rights and interest. Exhibit 6.

11. The motion to approve the Mullan Trail Enterprises, Inc., sale and the Hartung sale came on for hearing before state court on April 22, and April 23, 1993, pursuant to notice duly given to all interested parties. First Interstate Bank was represented by Ronald A. Bender, Esq. Margueritte L. Miller was represented by Alan R. Andersen, Esq. and Paul C. Drecksel, Esq. J. Philip Miller was represented by William K. VanCanagan, Esq. Douglas E. Miller was represented by Jon R. Binney, Esq. Mullan Trail was represented by Donald V. Snavely, Esq. Witnesses testified and exhibits were introduced, briefs were submitted by all parties.

12. On May 21, 1993, Judge Larson entered his order in regard to the Hartung sale. Exhibit 7. On May 27, 1993, Judge Larson entered his Findings of Fact, Conclusions of Law and Order in regard to the Mullan Trail sale. Exhibit 8.

13. First Interstate incurred and paid Hall-Widdoss fees in the amount of $9,112.50 for appraisal work. Of that amount $2,612.50 comprised First Interstate\'s own funds and remains unreimbursed from trust funds. Exhibit 9.

14. First Interstate incurred and paid WGM Group fees in the amount of $9,379.75 for consulting and survey work. The total amount comprised First Interstate\'s own funds and remains unreimbursed from trust funds. Exhibit 9.

15. From January 21, 1992, through February 28, 1993, the law firm of Boone, Karlberg & Haddon (James Benn and Dave Cotner primarily) provided legal advice and services to First Interstate as trustee in the amount of $20,875.07 of attorney fees and $2,042.97 of costs. Exhibit 9. First Interstate has incurred this amount of attorneys fees which remains unpaid outstanding.

16. From March 1993, through June 16, 1993, the law firm of Worden, Thane & Haines provided legal advice and services to First Interstate as trustee in the amount of $15,879.50 of attorney fees and $1,627.39 of costs. Exhibit 9. This amount was incurred and paid by First Interstate with its own funds which remains unreimbursed from trust funds.

17. In March of 1993, Galusha, Higgins & Galusha was retained by First Interstate to prepare the tax returns with fees amounting to $700 which was incurred and paid by First Interstate with its own funds which remain unreimbursed from trust funds. Exhibit 9.

18. In February of 1993, First Interstate had a refrigerator repaired by John\'s appliance in the amount of $73.45 which amount was incurred and paid by First Interstate with its own funds which remain unreimbursed from trust funds. Exhibit 9.

19. First Interstate incurred trustee fees and additional time and expenses from January 17, 1992, through April 23, 1993, in the amount of $15,135 which amounts remain unreimbursed from trust funds. Exhibit 9.

20. On November 23, 1993, First Interstate filed its secured claim for a trustee\'s lien in the amount of $69,578.17 pursuant to Mont. Code Ann. Section 72-33-632 as former trustee against the trust property comprising the real estate known as the Kona Ranch for the following advances made for the protection of the trust and for expenses, losses and liabilities sustained in the administration of the trust property or because of ownership or control of the trust property for Hall-Widdoss fees of $2,612.50; WGM fees of $9,379.75; Eli & Associates fees of $1,252.51; John\'s Appliance fees $73.45; attorney fees of Boone, Karlberg & Haddon $22,918.07; trustee fees and expenses $15,135; Galusha, Higgins & Galusha fees $700, and attorney fees of Worden, Thane & Haines, P.C., $17,506.89. Exhibit 9.

21. On November 23, 1993, First Interstate filed its unsecured claim in the amount of $16.504.99 in regard to a loan dated January 28, 1993, in the amount of $16,000 with interest at 8% pursuant to an order dated January 26, 1993, in Cause No. A-1667 Montana Fourth Judicial District Court, Missoula County.

22. On December 2, 1993, Debtor filed an objection to both claims denying any obligation to First Interstate, or in the alternative, that Debtor is entitled to an offset for damages including attorney fees, which Debtor has sustained as a result of the claimant\'s attempted sale of real property of the Debtor to Mullan Trail Enterprises.

Pursuant to another stipulation by the parties, this Court entered an Order on February 8, 1994, framing the issue to be determined by the Court on the secured claim as to whether the claim is secured or unsecured. Therefore, the Debtor does not contest the amount of the claim, or the validity of each expenditure in this proceeding, but only contests whether the Bank has a valid secured claim under Montana law. The Debtor, nevertheless, has reserved the right to claim an offset and damages, and to contest each separate item of the Bank's claim in a separate proceeding.

The Bank relies on Mont.Code Ann. Section 72-33-632 as the basis for its secured position. That section provides:

The trustee has an equitable lien on the trust property as against the

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