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This weeks case update:

Schweigert, Chapter 13, Judgment, Brand Lien, Execution

Case no. 20-90044

Tamara’s alleged security interest in Debtor’s brands and branded livestock arises from a Writ of Execution (“Writ”) she obtained after recovering a judgment against Debtor in Lake County District Court.11 The district court’s “Order Granting Fees and Costs and Final Judgment” made no mention of Debtor’s brands or branded livestock. However, the Writ directed the Montana Department of Livestock (“DOL”) to satisfy the judgment “out of brands owned or maintained by [Debtor] with the [DOL].”13 Notably, the Writ did not direct the DOL to actually place a lien on Debtor’s brands or branded livestock. After obtaining the Writ, Tamara also filed a “Notice of Security Interest Covering Branded Livestock” (“Notice”) with the DOL.

Section 506 of the Bankruptcy Code governs the determination and treatment of secured claims in bankruptcy proceedings. A claim cannot be a “secured claim” for purposes of § 506(a) unless it is secured by a “lien” on property in which the bankruptcy estate has an interest. Liens generally fall into three categories: judicial liens, statutory liens, or consensual liens.

Montana law provides that from the time a judgment is docketed, it becomes a lien upon all real property of the judgment debtor located in the county.  “With regard to personal property, which, unlike real property, is not referred to in the statute as subject to a lien immediately when a judgment is docketed, a lien does not arise prior to execution on that property.” Stated more simply, a judgment does not become a lien against personal property until there has been an execution to enforce the judgment. The Montana Supreme Court has made clear that personal property includes “everything that is the subject of ownership, not coming under denomination of real estate.” Under this expansive definition, brands and branded livestock are clearly categorized as forms of personal property. The most common method by which a judgment is enforced against a judgment debtor’s personal property is by writ of execution. To execute a judgment by levy, the sheriff or levy officer simply seizes the personal property described in the writ, sells the property, collects the proceeds, and pays the judgment creditor “as much of the proceeds as will satisfy the judgment.” Until the levy occurs, personal property remains unencumbered by any interest a judgment creditor claims simply because of their status as a judgment creditor. Tamara contends that simply filing the Writ and Notice with the DOL created a nonconsensual lien on Debtor’s brands pursuant to A.R.M. § 32.15.601(3). In essence, Tamara argues that A.R.M § 32.15.601 provides an alternative procedure for satisfying a judgment by writ of execution. The Court disagrees.

An administrative rule may only go so far as a statute allows it. For this reason, administrative rules must reference the statute or other rulemaking authority pursuant to which they are adopted. Mont. Code Ann. § 2-4-305(3). To be effective, administrative rules must remain within the scope of that statutory authority. The administrative rule relied on by Tamara, A.R.M. § 32.15.601, was adopted by the DOL and addresses brand mortgages. Brand mortgages are also referred to as “notice[s] of security agreement or lien on branded livestock.” Subsection (3) of the Rule, relied on by Tamara, provides the following: (3) There are two ways to file a brand mortgage: (a) all brand owners of the brand sign the brand mortgage papers; or (b) by Writ of Execution directing the mortgage to be placed on the brand to enable the department to comply with a court order.

Nothing in A.R.M. § 32.15.601 provides for the creation of a nonconsensual security interest in the form of a brand mortgage. Rather, it sets forth the method for filing them (“There are two ways to file a brand mortgage”). Even more, both Mont. Code Ann. §§ 81-8-301 and 81-8-304 relate to the filing of brand mortgages as well. Montana law is clear that the authority of A.R.M. § 32.15.601 cannot exceed the scope set forth in those statutes.  The plain language of the rule makes clear that a brand mortgage may be filed “by Writ of Execution directing the mortgage to be placed on the brand to enable the department to comply with a court order.” Stated more simply, A.R.M. § 32.15.601(3)(b) applies only if three criteria are satisfied: 1) the filing party obtains a Writ of Execution; 2) the Writ of Execution directs the DOL to place a mortgage on the judgment debtor’s brand(s); and 3) the Writ of Execution is necessary to enable the DOL to comply with a court order. This Court will not expand the meaning of the plain language found in the A.R.M. Based on the foregoing, the Court finds that Tamara has not established she has a valid lien in Debtor’s brand or branded livestock. Additionally, the Court finds Tamara’s assertion that A.R.M. § 32.15.601 provides for the creation of a nonconsensual judgment lien simply by filing a DOL Notice not signed by the Debtor and a writ of execution that does not specifically direct the DOL to place a mortgage on a judgment debtor’s brands or branded livestock to be without merit. Even accepting Tamara’s assertion as true, the Court finds that she failed to comply with the requirements of A.R.M. § 32.15.601.

In re Schweigert, October 7, 2020 Edward  A. Murphy for Travis Schweigert, Cory R. Gangle for Tamara Schweigert

2020 Mont. B.R. 355 (October 7, 2020)



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