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McLain v. McLain

United States District Court, D. Montana, Billings Division

January 17, 2018

FAITH MCLAIN, CHRISTEEN MCLAIN, JOHN MCLAIN, MOLLY MCLAIN, MIRA MCLAIN, AND MATTHEW MCLAIN, AS BENEFICIARIES OF THE ESTATE OF BERNARD MCLAIN, AND MARY MCLAIN, INDIVIDUALLY AS BENEFICIARY OF THE ESTATE OF BERNARD MCLAIN AND AS TRUSTEE OF THE E-3 RANCH TRUST, Plaintiffs,
v.
FRANCIS MCLAIN, INDIVIDUALLY AND AS CO-MANAGER OF TERA BANI RETREAT MINISTRIES, CAROLINE MCLAIN, INDIVIDUALLY AND AS MANAGING DIRECTOR OF TERA BANI RETREAT MINISTRIES, ALAKHI JOY MCLAIN, SOHNJA MAY MCLAIN, AND DANE SEHAJ MCLAIN, AS PURPORTED CERTIFICATE HOLDERS OF THE E-3 RANCH TRUST, Defendants. THE UNITED STATES OF AMERICA, Intervenor Defendant and Counter/Cross-Claimant,
v.
FAITH MCLAIN, CHRISTEEN MCLAIN, JOHN MCLAIN, MOLLY MCLAIN, MIRA MCLAIN, AND MATTHEW MCLAIN, as Beneficiaries of THE ESTATE OF BERNARD MCLAIN; and MARY MCLAIN, as Beneficiary of the ESTATE OF BERNARD MCLAIN, and as Trustee of the E-3 RANCH TRUST, Counterclaim Defendants and FRANCIS MCLAIN, individually, and as Co-Manager of TERA BANI RETREAT MINISTRIES; CAROLINE MCLAIN, individually, and as Managing Director of TERA BANI RETREAT MINISTRIES; and ALAKHI JOY MCLAIN, SOHNJA MAY MCLAIN, AND DANE SEHAJ MCLAIN, as Beneficiaries of the E-3 RANCH TRUST, Crossclaim Defendants and AMERICAN BANK OF MONTANA and BRAD D. HALL Additional Defendants on United States' claims.

          FINDINGS AND RECOMMENDATIONS OF UNITED STATES MAGISTRATE JUDGE

          TIMOTHY J. CAVAN UNITED STATES MAGISTRATE JUDGE

         This action for declaratory judgment principally concerns the ownership of a ranch located in the Paradise Valley known as the E-3 Ranch. (Doc. 1.) Judge Watters has referred the case to the undersigned under 28 U.S.C. § 636(b)(1)(B). (Doc. 80.) Presently before the Court are Defendants' Motion for Partial Summary Judgment Quieting Title to ½ Interest in the E-3 Ranch (Doc. 82), and Plaintiffs' Motion for Summary Judgment Re: Count III of McLain Defendants Counterclaim. (Doc. 96) The motions are fully briefed and ripe for the Court's review. (Docs. 83, 89, 90, 91, 97, 106, 112, 120.)

         Having considered the parties' submissions, the Court RECOMMENDS Defendants' Motion for Partial Summary Judgment be DENIED, and Plaintiffs' Motion for Summary Judgment be DENIED, as set forth below.

         I. BACKGROUND

         A. Factual Background [1]

         Bernard McLain (“Bernard”) and Kathryn McLain (“Kathryn”) had six children. After Kathryn and Bernard passed away, their children and grandchildren fell into a dispute concerning ownership of the E-3 Ranch, which was purportedly owned by different members of the family at various times. Plaintiffs are Faith McLain (“Faith”), Christeen McLain (“Christeen”), John McLain (“John”), Mary McLain (“Mary”), Molly McLain (“Molly”), Mira McLain (“Mira”), and Matthew McLain (“Matthew”).[2] Faith, Christeen, John, and Mary are siblings and the children of Bernard and Kathryn. Molly, Mira, and Matthew are the children of James McLain, also known as Harley McLain (“Harley”), who was also one of Bernard and Kathryn's children, and is now deceased.

         Defendants are Francis McLain, also known as Frank McLain (“Frank”), Caroline McLain (“Caroline”), Alakhi Joy McLain (“Alakhi”), Sohnja May McLain (“Sohnja”), and Dane Sehaj McLain (“Dane”).[3] Frank is one of Bernard and Kathryn's children. Caroline is Frank's wife, and Alakhi, Sohnja, and Dane are Frank and Caroline's children.

         On June 21, 1996, Frank and an individual named Brad. D. Hall (“Hall”) purchased the real property at issue in this case (referred to as the “E-3 Ranch” or “Property”) from the Dorothy H. Malcolm Revocable Living Successor Trust. (Doc. 5-1 at 1-2.) The Limited Warranty Deed conveying the Property to Frank and Hall did not contain a declaration of joint interest between Frank and Hall, or indicate the share or interest each would take. (Id.; Doc. 98 at ¶ 2.)

         In order to purchase the property, Frank and Hall obtained a loan for $1, 000, 000 from American Bank, secured by a mortgage on the property (the “American Bank Mortgage”). (Doc. 98 at ¶ 4.) The Promissory Note for the loan named Frank and Hall as the borrowers, and Frank and Hall both signed the note. (Id. at ¶¶ 5, 6.)

         On November 30, 1996, Bernard and Kathryn loaned Frank and Caroline $290, 000. (Doc. 113 at ¶ 6-7.) Frank and Caroline executed a mortgage (the “McLain Mortgage”) in favor of Bernard and Kathryn, and the E-3 Ranch was identified as collateral. (Id.; Doc. 5-1 at 14-36.)

         On February 16, 1998, an “Irrevocable Pure Trust Organization, ” referred to as the E-3 Ranch Trust, was created at the request of Frank (the “E-3 Ranch Trust” or “Trust”). (Doc. 5-2 at 1-19.) Richard Humpal, Mary, and Harley were named as trustees of the E-3 Ranch Trust. (Doc. 54 at ¶ 18.) Richard Humpal and Harley are now deceased. (Id.)

         On April 10, 1998, American Bank refinanced the $1, 000, 000 loan. (Doc. 98 at ¶ 8.) The amount of the refinanced loan was $1, 116, 865.06. (Id.) Frank and Hall both signed the Promissory Note for the refinanced loan, and were identified as borrowers. (Id. at ¶¶ 9-10.)

         In the summer of 1998, Frank “informally quit-claimed” 10 acres of the Property to Hall, and Hall began preparing a plot to build a log home. (Doc. 113 at ¶¶ 4-5.) Hall began the process of applying for an official subdivision with Park County in the summer of 1999 (the “Hall Minor Subdivision”). (Id. at ¶ 10.)

         On December 15, 1999, Frank and Caroline executed a Quit Claim Deed transferring title to the E-3 Ranch to Bernard and Kathryn, ostensibly in lieu of foreclosure on the $290, 000.00 McLain Mortgage. (Doc. 113 at ¶¶ 8-9; Doc. 5-1 at 37.)

         On August 17, 2000, Bernard executed an addendum to his Last Will and Testament, providing that the E-3 Ranch should be devised as follows: “25% to be divided equally amongst my six children: Christeen A. McLain, Francis L. McLain, Harley J. McLain, Faith McLain Kirchdorfer, Mary McLain Bram and John Bernard (J.B.) Mclain and 25% to Alakhi J. McLain, 25% to Dane W. McLain, 25% to Sohnja M. McLain.” (Doc. 5-3 at 27.) Previously, Bernard's Last Will and Testament provided all of his property, real, personal and mixed, should be devised to his children, Christeen, Frank, James, Mary, Faith, and John “equally, share and share alike.” (Doc. 5-3 at 25-26.)

         On June 13, 2002, First American Title Company prepared a Subdivision Guarantee for Hall with regard to the proposed Hall Minor Subdivision. (Doc. 114-8.)

         On July 16, 2002, after Kathryn passed away, a Deed of Conveyance was executed by Bernard, as the personal representative of Kathryn's estate, which transferred Kathryn's interest in the E-3 Ranch to Bernard. (Doc. 89 at ¶ 13; Doc. 5-2 at 27-28.)

         On July 22, 2002, a Quit Claim Deed was executed purportedly transferring Bernard's interest in the Property to the E-3 Ranch Trust.[4] (Doc. 89 at ¶ 14; Doc. 5-2 at 29.)

         On October 29, 2002, a Release of Part of Mortgaged Premises was recorded, whereby Bernard released Frank and Caroline from the McLain Mortgage as to the Hall Minor Subdivision. (Doc. 5-3 at 3-4.)

         On October 30, 2002, a Special Warranty Deed was executed between the E-3 Ranch Trust and Hall, conveying approximately 20 acres to Hall. (Doc. 5-1 at 4-9.)

         The intent of the October 30, 2002 transfer was purportedly memorialized in an agreement signed by Frank and Hall dated February 3, 2003, which stated “[f]or co-signing on the mortgage on [the E-3 Ranch] Frank McLain offered 10 acres of the property to Brad Hall in June 1996.” (Doc. 98 at ¶ 17; Doc. 5-1 at 3.) The Agreement further stated that due to county regulations that made it nearly impossible to subdivide 10 acres, Hall would obtain 20 acres and agree to hold 10 acres in trust for Caroline. (Id.) The Agreement indicated the 10 acre plot held in trust for Caroline would eventually be re-surveyed and a boundary adjustment made delineating two 10 acre plots. (Id.)

         On February 18, 2003, American Bank released Brad Hall from the American Bank Mortgage as to the 20 acre Hall Minor Subdivision. (Doc. 5-3 at 1-2.)

         On March 26, 2003, a second Subdivision Guarantee was prepared for Hall by First American Title Company regarding the proposed Hall Minor Subdivision. (Doc. 114-9.)

         On June 18, 2003, a Quit Claim Deed and the Special Warranty Deed signed on October 30, 2002 were recorded, whereby a 20.008 acre tract of land was subdivided out of the E-3 Ranch Property and deeded to Hall. (Doc. 113 at ¶ 17; Doc. 5-1 at 10-13.)

         On June 11, 2004, a “Declaration of and Claim of Rights in and to Land Patents” in the E-3 Ranch was recorded (the “Land Patents Claim”). (Docs. 114-1; 114-2.) Affidavits from Frank, Bernard, and Harley and Richard Humpal (as trustees), were attached to the Land Patents Claim. (Doc. 114-2.) In Frank's Affidavit he stated:

Brad D. Hall and I became co-signers on a Promissory Note and Mortgage to American Bank of Montana on June 21, 1996 relating to the [E-3 Ranch] property. To reimburse Brad for his part in helping with the financing of the purchase of the property by becoming a co-signer with me on the Promissory Note and Mortgage, Brad D. Hall agreed to accept 10 acres of the property and other benefits that were not real estate property. These 10 acres were informally quit-claimed by myself to him in the summer of 1998, at which time he started preparing a plot to build a log home. Because it was agreed that Brad would have his promised 10 acres “free and clear” from any lien or encumbrance, he started the process of applying for an official subdivision with Park County in the summer of 1999. It was decided that a 20-acre subdivision would be easier to get approved, and Brad would own his 10 acres within that subdivision. Brad further helped to arrange an agreement with American Bank of Montana to release any of their interest upon those 20 acres now called the Hall Minor Subdivision. The whole subdivision process took quite some time to be approved, and was not officially finalized and recorded until June 18, 2003.
Therefore, as of June 18, 2003, Brad D. Hall has been reimbursed in full for his participation in helping with the original financing of the property by being a co-signer with myself on the Promissory Note and Mortgage and, excepting the 10 acres belonging to him within that portion known as the Hall Minor Subdivision, he has no further claim on the rest of the above-described real property.

(Doc. 114-2 at 8-9.)

         In Harley and Richard Humpal's Affidavit, they asserted:

That except for that 20-acre portion known as the Hall Minor Subdivision in the Southwest Quarter (SW┬╝) of Section 26, Brad D. Hall has no interest in the title of the three above-mentioned tracts ever since the following two deeds were made and ...

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