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A business deal could backfire on investors who last month bought the mortgage from a Utah savings and loan on the financially troubled Madison Addition subdivision here, not knowing that developer Lewis Robinson III had already filed for reorganization under federal bankruptcy laws.

At the same time, Robinson and his attorney, Mike Lilly of Bozeman, have notified the federal bankruptcy court at Butte that they intend to sue the investors and the Utah S&L for $13 million.Robinson alleges West Yellowstone businessmen John Costello and Jerry Schmier and Deseret Federal Savings and Loan worked out a deal to buy the 160-acre subdivision's mortgage, prohibiting him from selling the property to other buyers.

Deseret Federal is insolvent and operating under the federal government's conservatorship program for troubled S&Ls.

Robinson claims Schmier, Costello and the Utah savings and loan should have told him they were planning the deal. He said he went to Deseret Federal several times with names of people who wanted to purchase Madison Addition property, but the company refused to allow him to sell the property and never gave him a reason for the refusal.

Robinson alleged the S&L would not help him because it was dealing with Schmier and Costello. Robinson said a major factor in his filing bankruptcy was the bank's refusal to release lots to him to sell.

The investors bought the mortgage at a discount rate from the Utah S&L, assuming Robinson would have to repay them the full face value of the mortgage, but the bankruptcy filing may mean Robinson has to pay only the discounted price, according to Lilly.

He said the bankruptcy judge could rule the best way to facilitate Robinson's reorganization is to allow him to repay the mortgage quickly.

Lilly said Madison Addition Investments, the Idaho-based investment firm formed last month by Costello and several other investors, paid $1.06 million for the mortgage, which was valued at nearly $2.5 million plus interest.

Costello, one of the real estate agents who lists Robinson's Madison Addition holdings, is the general partner in the investment company. He and Schmier, a West Yellowstone gas station and snowmobile business owner who has the largest stake in the investment company, said they bought the mortgage to get sales going again in the subdivision and boost the local economy.

"It's for the good of the town," Schmier said.

He said he would not have bought the mortgage if he had known Robinson had filed Chapter 11 bankruptcy. Costello said he would not comment on the issue.