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Milbourn Properties v. Pastor

December 23, 1996

MILBOURN PROPERTIES, APPELLANT,
v.
JEROME PASTOR, TRUSTEE OF THE JEROME PASTOR, A PROFESSIONAL CORPORATION, PROFIT SHARING PLAN; RESPONDENTS, SECURITY TITLE INSURANCE COMPANY, A CALIFORNIA CORPORATION AS DEED OF TRUST TRUSTEE; DEFENDANT, ELEANOR KEEP, F/K/A ELEANOR DAHL, RESPONDENT.



Appeal from Superior Court of Snohomish County. Docket No: 94-2-08173-8. Date filed: 04/12/95. Judge signing: Hon. Joseph Thibodeau.

Authored by H. Joseph Coleman. Concurring: Faye C. Kennedy, Ronald E. Cox.

The opinion of the court was delivered by: Coleman

COLEMAN, J. -- Eleanor Dahl secured a loan from her pension plan by executing a deed of trust on property in Monroe, which she owned with her then husband Benny Dahl. The Dahls divorced, and Benny was awarded the Monroe property, subject to the Plan's deed of trust and another $20,000 deed of trust in favor of Eleanor. Eleanor was ordered to pay back the loan to the Plan but declared bankruptcy before she did so. Milbourn Properties purchased the property at a foreclosure sale subject to the Plan's deed of trust and soon defaulted on its debt to the Plan. Milbourn asks this court to apply the marshaling doctrine by forcing the Plan to recover its debt from Eleanor's vested pension plan funds. We hold that the doctrine of marshaling is inapplicable on these facts. We thus affirm the grant of summary judgment in favor of Eleanor and the Plan.

FACTS

In 1979 and again in 1981, Eleanor borrowed $5,000 from the Plan. In 1986, Eleanor consolidated the loans and executed a deed of trust on the Monroe property, which she and her then husband Benny owned, in favor of the Plan to secure the repayment of $11,450.00. The record does not indicate whether these loans were ever secured by Eleanor's interest in her pension plan. Eleanor filed the documents pertaining to the deed of trust.

In April 1993, the Dahls dissolved their marriage, at which time Benny was awarded the Monroe property subject to the deed of trust in favor of the Plan and another $20,000 deed of trust in favor of Eleanor. The divorce decree also ordered Eleanor to pay the Plan the $11,450.00, and

Benny was held harmless for the debt.

After this distribution, Eleanor assigned her $20,000 interest in the Monroe property to Michael E. Winowski, who began a nonjudicial foreclosure proceeding on the property. Milbourn bought the property at the foreclosure sale.

On November 10, 1993, Eleanor filed for bankruptcy in California, and her personal debts were discharged. The record does not indicate whether the Plan contested the discharge of Eleanor's debt. Eleanor remained a vested member of the pension plan with unborrowed credits in the fund exceeding the amount previously borrowed.

On October 19, 1994, the Plan began a foreclosure action on the property, claiming that Milbourn was delinquent on its payments. Milbourn thereafter brought a declaratory judgment action against the Plan and Eleanor to have the Plan's deed of trust declared invalid. Milbourn argued that Eleanor should be ordered to request the Plan to distribute her funds prematurely because she did not pay back the money she borrowed as ordered in the dissolution decree. Milbourn also moved to stay the Plan's foreclosure proceeding. Eleanor and the Plan brought a motion for summary judgment, which the court granted.

ANALYSIS

Milbourn asks this court to exercise equitable jurisdiction by forcing the Plan to recover its debt from Eleanor's pension plan under the marshaling doctrine. Milbourn claims that without equitable relief, Eleanor will be unjustly enriched because she will receive the benefit of the pension plan while not having to pay the debt per the dissolution decree. The Plan argues that equity does not favor Milbourn because it purchased the property subject to the existing liens, the marshaling doctrine is inapplicable, and Eleanor's property is exempt under bankruptcy law.

When reviewing an order of summary judgment, an appellate court must engage in the same inquiry as the trial court. Marincovich v. Tarabochia, 114 Wash. 2d 271, 274, 787 P.2d 562 (1990) (citing Highline School Dist. 401 v. Port of Seattle, 87 Wash. 2d 6, 15, 548 P.2d 1085 (1976)). An order of summary judgment is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Marincovich, 114 Wash. 2d at 274 (citing Wilson v. Steinbach, 98 Wash. 2d 434, 437, 656 P.2d 1030 (1982)). The court must consider the facts in the light most favorable to the nonmoving party, and the motion should be granted only if, from all the evidence, reasonable persons could reach but one Conclusion. Marincovich, 114 Wash. 2d at 274 (citing Wilson, 98 Wash. 2d at 437).

The marshaling doctrine is an equitable remedy designed to protect junior lienholders by requiring the senior lienholder to exhaust other avenues to satisfy its debt before resorting to a fund that is the junior lienholder's only avenue. Associates Realty Credit v. Brune, 89 Wash. 2d 6, 14, 568 P.2d 787 (1977). Generally, marshaling may be invoked: (1) by a junior secured or lien creditor; (2) where the debtor has two distinct funds; and (3) where its operation would work no inequity upon the debtor or a third party. In re Brazier Forest Products, 921 F.2d 221, 223 (9th Cir. 1990) (applying Washington law). In other words, the creditor requesting marshaling must show that the ...


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