             By order of the Bankruptcy Appellate Panel, the precedential effect
              of this decision is limited to the case and parties pursuant to 6th
              Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1(c).

                                    File Name: 07b0012n.06

           BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: STEVEN M. OELRICH,                           )
                                                    )
            Debtor.                                 )
______________________________________              )
                                                    )
JAMES R. WARREN, TRUSTEE,                           )
                                                    )
             Appellant,                             )            No. 07-8002
                                                    )
             v.                                     )
                                                    )
SECURITY NATIONAL BANK,                             )
                                                    )
             Appellee.                              )
                                                    )
                                                    )
______________________________________              )


                          Appeal from the United States Bankruptcy Court
                  for the Southern District of Ohio, Western Division, at Dayton.
                                          No. 06-31614.

                                   Submitted: August 1, 2007

                             Decided and Filed: September 11, 2007

       Before: GREGG, LATTA, and WHIPPLE, Bankruptcy Appellate Panel Judges.

                                     ____________________

                                           COUNSEL

ON BRIEF: James R. Warren, Springfield, Ohio, for Appellant. Brandin Marlow, W.D. Shane
Latham, GORMAN, VESKAUF, HENSON & WINEBERG, Springfield, Ohio, for Appellee.
                                       ____________________

                                             OPINION
                                       ____________________

        MARY ANN WHIPPLE, Bankruptcy Appellate Panel Judge. Appellant James R. Warren
(“Warren”), the Chapter 7 Trustee, appeals the bankruptcy court’s order denying his objection to the
secured claim asserted by Appellee Security National Bank and Trust Company (“the Bank”).
Warren challenges the validity of a security interest claimed by the Bank in Debtor Steven Oelrich’s
interest in cash distributions under his father’s testamentary trust (“the Trust”).1 For the reasons that
follow, the bankruptcy court’s order is AFFIRMED.

                                      I. ISSUE ON APPEAL

        The issue presented in this appeal is whether the bankruptcy court erred in denying Warren’s
objection to the Bank’s secured claim and concluding that the Bank holds a valid security interest
in Debtor’s interest in distributions under the Trust.

                     II. JURISDICTION AND STANDARD OF REVIEW

        The Bankruptcy Appellate Panel (“BAP”) of the Sixth Circuit has jurisdiction to hear this
appeal. The United States District Court for the Southern District of Ohio has authorized appeals
to the BAP, and neither party has timely elected to have this appeal heard by the district court.
28 U.S.C. §§ 158(b)(6), (c)(1). A “final order” of a bankruptcy court may be appealed by right
under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it “ends the litigation on the
merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v.


        1
          This dispute originally arose in the context of a motion for relief from stay filed by the
Bank. Although the validity of a lien is normally determined in the context of an adversary
proceeding, see Fed. R. Bankr. P. 7001(2), at the hearing on the motion for relief from stay the
parties agreed that no further discovery was necessary and that all relevant facts were before the
court. The bankruptcy court, therefore, granted the parties’ request to treat the issue regarding the
validity of the Bank’s lien as if on a motion for summary judgment filed by Warren and set a further
briefing schedule. In the meantime, the automatic stay terminated upon Debtor’s discharge thereby
rendering the motion for relief from stay moot. The bankruptcy court’s order, therefore, addresses
only the validity of the Bank’s security interest.

                                                   -2-
United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations omitted). The bankruptcy
court’s order denying Warren’s objection to the Bank’s secured claim and determining the validity
of the Bank’s lien is a final order. Morton v. Morton (In re Morton), 298 B.R. 301, 303 (B.A.P. 6th
Cir. 2003); Rabin v. Shanker (In re Shanker), 347 B.R. 115 (Table), 2006 WL 1520082, at *1
(B.A.P. 6th Cir. June 5, 2006).

        The facts are not in dispute. The Panel reviews a bankruptcy court’s conclusions of law de
novo. Adell v. John Richards Homes Bldg. Co. (In re John Richards Homes Bldg. Co.), 439 F.3d
248, 254 (6th Cir. 2006). Under a de novo standard of review, the reviewing court decides an issue
independently of, and without deference to, the trial court’s determination. Treinish v. Norwest Bank
Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (B.A.P. 6th Cir. 2001).

                                            III.   FACTS

        The following facts are not in dispute. Melvin C. Oelrich executed his last will and testament
on February 12, 1991. His will established a testamentary trust for the benefit of his two children,
one of whom is Debtor Steven Oelrich (“Debtor”), and a church as contingent beneficiary in the
event of the death of both his children before termination of the Trust. After Melvin Oelrich’s death
in 1997, the Trust was established, with the Bank serving as trustee since that time. Under the terms
of the Trust, the Bank is required to make nondiscretionary distributions to Debtor and his sister, or
to the survivor of them, in a predetermined amount to be paid monthly over a period of twenty years,
after which all trust funds will have been distributed and the trust will terminate. Except for payment
to the contingent beneficiary in the event of the death of both Debtor and his sister before the
termination of the Trust, the Trust provides for no other distributions. The Trust contains no specific
anti-alienation language or spendthrift provision. The Trust granted the Bank broad powers,
including the power to “rent, exchange, sell, convey, and transfer at public or private sale . . . all or
any part of the real or personal property comprising the trust estate” and “deal with the property
comprising the trust estate as fully and freely as if it were the absolute owner of the same.” (J.A. at
41.)

        In 2001, Debtor executed a Variable Rate Consumer Note, Disclosure and Security
Agreement in favor of the Bank, financing approximately $44,000. As part of this loan transaction,
Debtor granted the Bank a security interest in his future distributions under the Trust. On October

                                                   -3-
6, 2005, Debtor refinanced the earlier loan by executing a promissory note in favor of the Bank in
the principal amount of $47,989.40 and again granted the Bank a security interest in distributions
to which he was entitled under the Trust. As of March 31, 2006, the Trust had a value of $151,081.
Debtor filed his Chapter 7 bankruptcy petition on June 22, 2006.

        Warren did not dispute the validity of the Bank’s loan documentation or the perfection of its
security interest. Rather, he argued that the security interest is invalid because the Trust does not
authorize a beneficiary to grant, or the trustee to accept, such an interest. Warren also argues that
the security interest is invalid because the Bank violated its fiduciary duty as trustee in that it
benefitted from the secured loan transaction. The bankruptcy court rejected Warren’s argument that
the Trust does not authorize the security interest because the Trust contains no spendthrift provision
or anti-alienation language and confers extremely broad powers on the Bank, as trustee. The
bankruptcy court also rejected Warren’s breach of fiduciary duty argument, finding that the secured
loan transaction “was with the beneficiary, not with the Trust, and it had no impact whatsoever on
the Trust corpus.” (J.A. at 63.) The court further found that “[a]t most, the transaction represented
a conflict of interest for the Bank in that the Bank was a trustee with a fiduciary duty to the Trust and
its beneficiaries while it was at the same time a lender to one of the beneficiaries who pledged his
future distributions from the Trust as collateral for the loan.” (J.A. at 64.) Relying on Saba v. Fifth
Third Bank, Case No. L-01-1284, 2002 WL 31002781 (Ohio App. Sept. 6, 2002) and McDaniel v.
Hughes, 111 A.2d 204 (Md. 1955), the court concluded that because there were no allegations that
the Bank acted in bad faith or that the beneficiary was in any way misinformed or prejudiced by the
transaction with the Bank, a potential conflict of interest does not invalidate the security interest.

                                        IV.    DISCUSSION

        In arguing that the Bank’s security interest is invalid, Warren advances several arguments.
In his first two arguments, Warren relies on the provisions of the Trust itself. He first argues that
the loan transaction with Debtor was a breach of the Bank’s duty to the Trust in that it upset the
intent of the testator to have trust funds paid out to his children over a period of twenty years. Next,
he argues that the Trust does not give power to the Debtor to borrow against his interest in the trust
or to give a security interest with respect to future distributions, nor does the Trust confer power on
the Bank to accept a security interest in Debtor’s right to future distributions.


                                                   -4-
        A basic tenet of Ohio law in the construction of a will or trust is to ascertain the intent of the
testator or settlor. Domo v. McCarthy, 66 Ohio St. 3d 312, 314 (1993). When the language of a
testamentary trust is not ambiguous, intent must be ascertained from the words contained in the
instrument. Id.; Nat’l City Bank, N.E. v. Beyer, 89 Ohio St. 3d 152, 156 (2000). In determining
whether a trust imposes a restraint on the voluntary or involuntary transfer of a beneficiary’s interest
in the trust property, “no particular form of language is necessary . . . but the settlor must manifest
[his] intention in language which is clear and unequivocal.” Scott v. Bank One Trust Co. (In re
Baldwin), 142 B.R. 210, 213 (Bankr. S.D. Ohio 1992); see Scott v. Bank One Trust Co., 62 Ohio St.
39, 44 (1991) (finding that the settlor intended to create a spendthrift trust where the trust included
language that the trustee shall distribute the trust property unless, among other things, the beneficiary
“would not personally enjoy the property” since such language, while not expressly restraining
alienability, has the same effect).

        The language of the Trust in this case is not ambiguous. It requires the Bank to pay monthly
distributions to Debtor and his sister, the amounts of which are determined by a specific formula,
for a period of twenty years, after which all trust funds will have been disbursed and the Trust will
terminate. The only contingency to receiving the distributions is that Debtor remains alive. In the
event of the death of either Debtor or his sister, the monthly distributions will be paid in their entirety
to the survivor of them. There is no express language in the Trust prohibiting Debtor’s alienation
of his interest in the Trust and no other language that would accomplish the same goal as a
spendthrift trust.

        Warren contends that the Bank upset the intent of the testator since its loan transaction with
Debtor, upon Debtor’s default, results in future distributions under the Trust to be paid to the Bank
rather than Debtor as required by the Trust. The terms of the Trust, however, granted Debtor an
alienable right to distributions over a period of twenty years. Nothing about the Bank’s secured loan
transaction with Debtor upsets this intent. Although a trustee has a duty to carry out a trust in
accordance with its terms, the fact that the Bank permitted Debtor to exercise his right to transfer his
interest in the Trust to the Bank rather than to a third-party creditor does not breach that duty. As
the bankruptcy court observed:

               The secured transaction objected to did not even effect the Trust corpus, but
        merely attached to monthly distributions from the Trust. Those distributions were

                                                    -5-
        not accelerated but were disbursed and will continue to be disbursed in the exact
        amounts and on the exact dates prescribed by the Trust instrument. It is true that the
        beneficiary obtained the benefit of those funds in advance by using the future stream
        of payments as collateral for his loan, but he might have achieved the same result by
        using different collateral or obtaining an unsecured loan.
(J.A. at 63.)

        Warren’s argument that the Bank’s security interest is invalid because the Trust does not
confer power on either the Debtor or the Trustee to grant or accept a security interest in future
distributions under the Trust is contrary to Ohio law. Under Ohio law, a Trust need not expressly
grant a beneficiary the power to transfer his interest in trust property. Rather, as discussed above,
a beneficiary has the right to transfer his interest in a trust unless the trust contains clear and
unequivocal language imposing a restraint on alienation. The Bank’s acceptance of the security
interest simply recognizes Debtor’s right under the terms of the Trust to transfer such an interest.

        In support of his remaining arguments, Warren relies on the following principles set forth in
Cleveland Clinic Foundation v. Humphrys, 97 F.2d 849 (6th Cir. 1938):

                It is an elementary principle of law that in the execution of a trust the trustee
        is bound to comply strictly with the directions contained in the instrument defining
        the extent and limits of his authority and the nature of his powers and duties. He is
        prohibited from using the advantage of his position to gain any benefit for himself
        at the expense of the cestuis que trustent; or from placing himself in any position
        where his self-interest will or may conflict with his duties as trustee. Any agreement,
        contract, or dealing with the trust fund, which would result in a benefit to the trustee
        is invalid.
Id. at 856.

        Warren argues that the Bank’s security interest is invalid because it used the advantage of
its position to gain a benefit for itself. While it is true, as Warren argues, that the Bank benefitted
from its secured loan transaction with Debtor by charging interest on the funds loaned, there is no
evidence that the Bank coerced Debtor to borrow money from it instead of another lender or
improperly used its position as Trustee in any manner in order to gain such a benefit.

         Warren also argues that the Bank placed itself in a position where its self interest will or
may conflict with its duties as trustee. He suggests that a conflict could arise in determining what
investments included in the Trust’s portfolio would make the loan secure and what would be in the


                                                   -6-
best interests of the beneficiaries. While transactions involving a potential conflict of interest must
be carefully scrutinized by the courts, they are not per se invalid under Ohio law. See Squire v.
Emsley, 137 Ohio St. 26, 33-34 (1940) (“Such transactions . . . call for the utmost good faith, and
when questioned, the courts will scrutinize them with care. . . .”); Saba v. Fifth Third Bank, Case No.
L-01-1284, 2002 WL 31002781, at *4 (Ohio App. Sept. 6, 2002).

       Warren did not present or even allege any facts impugning the fairness of the secured
transaction at issue in this case or of any of the investments in the Trust’s portfolio. As the
bankruptcy court found, there is no evidence that the Bank acted in bad faith or that Debtor was in
any way misinformed or prejudiced by the transaction with the Bank. While “extreme diligence and
fair dealing” are required of a trustee where a potential conflict of interest may arise, Squire, 137
Ohio St. at 35, the mere possibility of such a conflict does not render the Bank’s secured transaction
with Debtor invalid.

       Finally, in his reply brief, Warren argues that the crux of this case is the principle stated in
Humphrys that “[a]ny agreement, contract, or dealing with the trust fund, which would result in a
benefit to the trustee is invalid.” Humphrys, 97 F.2d at 856. However, the secured transaction at
issue was between the Bank and a beneficiary, not the Bank and the Trust. The security interest
received by the Bank was intangible property owned by Debtor, namely, his future interest in trust
distributions. The security interest does not encumber the trust funds themselves. Thus, the Bank
received no benefit through dealings with the trust fund.

                                        V. CONCLUSION

       For the foregoing reasons, the bankruptcy court’s judgment denying Warren’s objection to
the Bank’s secured claim is AFFIRMED.




                                                  -7-
