KT Group, LLC v. Christensen, Glaser, Fink, Jacobs, Weil & Shapiro, LLP , 492 F. App'x 854 ( 2012 )

FILED
United States Court of Appeals
Tenth Circuit
July 16, 2012
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court
KT GROUP, LLC; EAGLE
MOUNTAIN PARTNERS, LLC,
Plaintiffs - Appellants, No. 10-4194
v. (D.C. No. 2:07-CV-00790-DB)
CHRISTENSEN, GLASER, FINK, (D. Utah)
JACOBS, WEIL & SHAPIRO, LLP;
ROGER HOWARD, an individual;
JOSEF BOBEK, an individual; JERRY
KATZ, an individual,
Defendants - Appellees.
ORDER AND JUDGMENT *
Before MURPHY, HOLLOWAY, and HARTZ, Circuit Judges.
I. Introduction
In 2006, North Silver Lake Lodge, LLC (“NSLL”) and plaintiff-appellant
KT Group entered into a purchase agreement to sell property located near the
Deer Valley Resort in Park City, Utah, (the “Property”) for $30 million. NSLL
*
This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
was one of over 150 companies created and controlled from 1990 to 2006 by Val
Southwick in furtherance of an extensive Ponzi scheme, which resulted in his
eventual felony convictions. As the parties to the purchase agreement proceeded
to closing, Covenant Group, a collection of real estate development companies
which had dealt with Southwick on a number of other investment projects for
many years, demanded repayment from escrow for two loans it had made to
Southwick entities in connection with the Property. These demands ultimately
thwarted the sale because the demands on the escrow exceeded the purchase price
of the Property. Throughout the relevant time period, Covenant Group was
represented by defendant-appellees Christensen, Glaser, Fink, Jacobs, Weil &
Shapiro, LLP and attorneys Roger Howard, Josef Bobek, and Jerry Katz (the “CG
Defendants”). KT Group brought suit against the CG Defendants, alleging
intentional interference with contractual relations and civil conspiracy. The
district court granted summary judgment to the CG Defendants on both claims,
concluding their actions were not “improper” as a matter of law and their actions
were privileged because they took place within the scope of the attorney-client
relationship. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court
affirms.
II. Background
Southwick, acting through NSLL, purchased the Property for $12 million in
2001. The Property was subject to a $12 million first mortgage in favor of U.S.
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Bank. In his efforts to further develop the Property, Southwick obtained two
loans from the Covenant Group. The first loan, in the amount of $2.6 million,
was made to Five Star Lending, LLC (“Five Star”), a Southwick entity which held
a second mortgage on the Property. The Five Star loan was secured by a
fractional interest in Five Star’s second mortgage. The second loan was made to
7101 Silver Lake, LLC (“7101”), another Southwick entity, for $9.7 million to
prevent foreclosure on the Property by its previous owner, Harrison Horn. In
exchange for the 7101 loan, Southwick promised to subdivide a portion of the
Property known as the Cottage Lots and pledge a deed of trust in favor of
Covenant Group securing the 7101 loan with the Cottage Lots. Southwick caused
NSLL and 7101 to enter into a purchase and sale agreement in 2005, pursuant to
which NSLL agreed to convey the Cottage Lots to 7101 for $9.7 million. Further,
on November 10, 2005, Southwick, through 7101, executed a deed of trust in
favor of Covenant Group giving Covenant Group a security interest in the Cottage
Lots. Ultimately, the deed of trust was never recorded on the advice of
Southwick’s attorney, who believed recording the deed would adversely affect
NSLL’s ongoing efforts to develop the Property with Ritz Carlton. A deed of
trust between NSLL and Covenant Group purporting to secure the $9.7 million
note with the Cottage Lots was also prepared, but never signed.
On May 8, 2006, NSLL agreed to sell the Property to KT Group for $30
million. The agreement identified both NSLL and 7101 as sellers of the Property,
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noting “NSL[L] is the record owner, but 7101 . . . is the beneficial owner of the
portion of the Property described as [the Cottage Lots].” Stewart Title Guaranty
Company was the escrow agent retained to close and insure the sale of the
Property, and a target closing date was set for November 13, 2006. On September
20, 2006, the CG Defendants sent an “Escrow Demand” letter to Stewart Title.
The letter demanded repayment of the Five Star loan, the 7101 loan, and the
Kenton loan. 1 Because Covenant Group’s demands exceeded the funds in escrow,
the sale was stalled.
In early October, 2006, Southwick requested beneficiary statements from
each of the sixty-two sub-lenders of the Five Star Mortgage. All but five signed
and returned the statements, waiving their rights to interest payments after May,
2006. Four of the five lenders who did not return the statements were Covenant
Group entities. For the next six months, the CG Defendants negotiated with
Southwick’s attorneys regarding what consideration Covenant Group would
accept for waiver of its 7101 rights and Kenton rights. The CG Defendants, by
email on November 9, 2006, clarified that their escrow demands had not been
rescinded and Covenant Group was not ready to release the Five Star beneficiary
statements. The sale did not close as scheduled on November 13. On November
14, 2006, the CG Defendants sent an “Amended Escrow Demand,” which still
1
The Kenton loan was an unsecured $4 million loan from Covenant Group
to another Southwick entity, Kenton Investments, LLC.
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demanded repayment of the Five Star and 7101 loans, but no longer demanded
repayment of the Kenton loan. The escrow agent replied by email:
To All:
I am in receipt of a revised Escrow Demand (copy attached) which
now is placing a demand on this escrow for additional accrued
interest on the funds we are allocating to certain sub-lenders under
the Five Star loan and demanding payment for an unsecured loan
from 7101 Silver Lake, LLC. This entity was never in title and as
such any loan from them to additional lenders is not a recorded lien
against the property.
This escrow is in a position to pay to certain sub lenders of the Five
Star loan the funds they agreed was [sic] owed to them pursuant to
payoff letters signed by them (copies attached) in the total amount of
$2.6 Million. Also, all sub lenders under the Five Star loan executed
a Loan Management Agreement with Five Star that it could reconvey
the Deed of Trust upon on agreed payoff number which number on
the 10/26/06 closing statement was $14,279,617.17. The payoff
amount due to Five Star is being distributed from this escrow directly
to all of the sub lenders per their executed and notarized payoff
letters. This amount will not be paid to any outside party as your
Demand Letter seems to dictate.
Each day that now passes while this escrow awaits the receipt of the
original payoff statements from Covenant/Heritage Orcas sub
lenders, decreases any amount the Seller may receive from the
closing. Daily interest is accruing on the US Bank loan, the
delinquent taxes and the Mechanic’s lien. As you can easily see,
there are no funds available to pay any unsecured lien, to pay
additional interest to any of the sub lenders, nor to pay any attorney
fees. If there is a payoff due from the Seller for an unsecured lien
and/or attorney fees due with respect to that lien, then those matters
need to be handled with the Seller outside of this escrow.
The Buyer is ready, willing and able to fund and instruct her Lender
to fund this escrow so that we can close. I need the original
Beneficiary payoff statements in my hand before I tell her to fund.
All we are waiting for is to know that all issues are resolved as far as
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this closing is concerned with the Covenant/Heritage Orcas sub
lenders and that they accept the total payment of $2.6 Million.
Hours later, the CG Defendants responded with their own email:
The purpose of this e-mail is to clarify certain statements in your e-
mail.
(1) Our demand is for principal and accrued interest under the
secured Five Star loan and the unsecured [7101 loan] (which was to
be secured by a deed of trust, which was never recorded).
(2) The Beneficiary Statements have never been released or
submitted to escrow.
(3) Our clients’ demand has always included principal and interest due and
owing under the [7101 loan].
[4] Our clients’ demand does not include attorney’s fees or legal
costs.
Almost immediately, the escrow agent responded. In response to the CG
Defendants’ first numbered statement, she stated, “The interest of 7101 . . . (if
any) is only reflected in [KT Group’s agreement to purchase the Property]—not
of County record. Therefore, this is an unsecured loan and between the Seller and
your clients—not escrow on this sale.”
Two days later, the CG Defendants delivered to the escrow agent all of the
beneficiary statements in their possession (four for the Five Star loan and two for
the 7101 loan). Enclosed with the statements was a letter, which read in part:
Please be advised that your closing escrow and reconveying the Five
Star Lending, LLC, deed of trust without both paying all sums due
Covenant as set forth in the enclosed Beneficiary Statement will
cause Covenant substantial damages, for which we shall hold Escrow
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Holder and Stewart Title Company liable for [sic]. If you believe the
Loan Management Agreement grants you and Stewart Title the
authority to close escrow and not pay all funds due and owing to
Covenant, then you are proceeding at your own risk and we will hold
all parties responsible for any damages incurred by Covenant.
The assertion of the 7101 loan caused the amounts claimed against the escrow to
exceed the purchase price of the Property. As a result, escrow was terminated on
November 20, 2006. KT Group brought suit against the CG Defendants on
October 15, 2007, alleging intentional interference with economic relations and
civil conspiracy. The district court granted summary judgment to the CG
Defendants on both claims, and KT Group appeals.
III. Discussion
This court reviews the grant of summary judgment de novo, applying the
same standard as the district court. Lundstrom v. Romero, 616 F.3d 1108, 1118
(10th Cir. 2010). Summary judgment is appropriate “if the movant shows that
there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). The court must view the
evidence and draw inferences in the light most favorable to the nonmoving party.
Lundstrom, 616 F.3d at 1118. Failure of proof of an essential element of a claim
renders all other facts immaterial. Koch v. Koch Indus., 203 F.3d 1202, 1212
(10th Cir. 2000).
To prevail on a claim of intentional interference with economic relations
under Utah law, the plaintiff must prove “(1) that the defendant intentionally
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interfered with the plaintiff’s existing or potential economic relations, (2) for an
improper purpose or by improper means, (3) causing injury to the plaintiff.”
Leigh Furniture & Carpet Co. v. Isom, 657 P.2d 293, 304 (Utah 1982). The
second element of the tort can be proved in one of two ways. To prove the
defendant acted with an improper purpose, the plaintiff must show the
predominant purpose of the defendant was to injure the plaintiff. Ferguson v.
Williams & Hunt, 221 P.3d 205, 216 (Utah 2009). To prove the defendant acted
by improper means, the plaintiff must show “the defendant’s means of
interference were contrary to statutory, regulatory, or common law or violated an
established standard of a trade or profession.” Id. (quotations omitted).
Before the district court, counsel for KT Group acknowledged it lacked
sufficient basis to allege the CG Defendants’ predominant purpose was to harm
KT Group and opted to proceed under the improper means theory. Additionally,
the parties agreed that the disposition of the case ultimately turned on whether the
CG Defendants’ assertion of the 7101 loan against the Property constituted
improper means. The district court concluded, inter alia, that it did not. Before
the district court, KT Group argued the improper means employed by the CG
Defendants included the misuse of a valid lien, violation of Rule 4.4(a) of the
Utah Rules of Professional Conduct, wrongful appropriation, extortion, slander of
title, and violation of a common law rule of conduct set forth in the Restatement
(Third) of Property: Mortgages, § 1.6. On appeal, however, as counsel for KT
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Group acknowledged at oral argument, KT Group develops only the first of these
theories. KT Group thus argues the improper means used by the CG Defendants
consisted of attempting to secure payment of the allegedly unsecured 7101 loan
for their clients by refusing to release the indisputably secured Five Star loan.
While KT Group’s briefs also contain a handful of isolated references to other
allegedly improper means, such as slander of title 2 and extortion 3, these
“perfunctory and cursory” references to legal argument are insufficiently
2
KT Group’s Opening Brief contains three references to a possible “slander
of title” theory. Two of the three references appear in KT Group’s recitation of
the facts and are unaccompanied by any developed argumentation. The third
reference occurs in the course of KT Group’s argument that the CG Defendants’
conduct was not privileged. KT Group cites Olsen v. Kidman, 235 P.2d 510,
512–13 (Utah 1951), wherein a real estate broker who wrongfully recorded a lien
for commissions was held liable for slander of title, notwithstanding his having
reasonable grounds to believe he had a right to a lien. KT Group does not use
Olsen to contend the CG Defendants slandered title to the Property. Instead,
Olsen is cited for the proposition that Utah courts disapprove of conduct which
shifts from one party to another the burden of seeking court relief. See id. at 512.
Even with respect to this proposition, the argument is unpersuasive. Unlike the
real estate broker in Olsen, the CG Defendants never attempted to record a lien
against the Property. Therefore, far from shifting the Covenant Group’s burden to
seek judicial relief onto KT Group, the CG Defendants acknowledged that the sale
of the Property could proceed but reserved their clients’ rights to sue for damages
in the event it did.
3
KT Group’s Opening brief contains five brief references to an “extortion”
theory, only three of which appear in the “Argument” section of its brief. KT
Group does not set forth the elements of a potential extortion theory until its reply
brief, and even then does so only in a footnote which makes no effort to
demonstrate how the CG Defendants’ actions satisfied those elements. This
argument therefore need not be considered. See Aviva Life & Annuity Co. v.
FDIC, 654 F.3d 1129, 1136 n.6 (10th Cir. 2011).
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developed to be considered on appeal. See United States v. Almaraz, 306 F.3d
1031, 1041 (10th Cir. 2002); Fed. R. App. P. 28(a)(9)(A).
The parties vigorously dispute whether the 7101 loan was actually secured
by the Property. The CG Defendants argue Southwick’s unfulfilled promise to
record a security interest in exchange for the 7101 loan created an equitable lien
in favor of the Covenant Group. KT Group contends an equitable lien
encumbering real property cannot come into existence absent a court order, and
that Southwick’s promise to record a lien on behalf of 7101 cannot encumber the
Property because 7101 never held a pledgeable interest in the Property. In their
responsive brief, the CG Defendants argue, inter alia, that regardless of whether
the 7101 loan was secured by equitable lien or otherwise, no reasonable jury
could conclude the CG Defendants’ assertion of an unsecured loan on behalf of
their clients in this context was improper. This court agrees.
The CG Defendants’ November 16, 2006, letter to Stewart Title made clear
it believed Covenant Group was entitled to payment from the proceeds of the sale
of the Property for both the Five Star and the 7101 loans. Enclosed with the letter
were beneficiary statements for both loans. No reasonable jury could conclude
the November 16 letter conditioned the release of Covenant Group’s security
interest in the Five Star loan on payment of the 7101 loan. Urging a contrary
conclusion, KT Group emphasizes language in the November 16 letter demanding
“all sums due Covenant as set forth in the enclosed Beneficiary Statement[s].”
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No reasonable reading of this language, however, indicates Covenant Group was
unwilling to release its lien on one loan unless it received payment on another.
Rather, the clear import of the November 16 letter was that, while the Covenant
Group would no longer obstruct the sale of the Property, for instance, by
withholding the beneficiary statements for its shares in the Five Star mortgage, it
would hold any and all parties liable for damages it incurred if the Property were
conveyed but the debts it believed were secured by the Property were not
satisfied. 4
Aside from its tying argument, KT Group advances no other theories under
which a jury could conclude the CG Defendants’ demand for payment of the 7101
loan constituted improper means for the purposes of KT Group’s intentional
interference claim. This court is not obliged to develop any such arguments on
KT Group’s behalf. O’Neal v. Ferguson Constr. Co., 237 F.3d 1248, 1257 n.1
(10th Cir. 2001) (“We will not make arguments for [a party] that it did not make
in its briefs.”). Because no reasonable jury could conclude the CG Defendants
conditioned the release of the Five Star mortgage on satisfaction of the 7101 loan,
4
At oral argument, KT Group conceded its claims did not hinge on the
delay occasioned by the CG Defendants’ initial refusal to provide beneficiary
statements for the Five Star loan. Therefore, even assuming the evidence
supports an inference the CG Defendants were tying the 7101 loan to the Five
Star loan prior to November 16, KT Group’s claim still fails as a matter of law
because any such tying was not what ultimately caused the failure of the sale.
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the court need not decide whether the Covenant Group actually had an equitable
lien at the time it made the demand for repayment of the 7101 loan from escrow.
In its Reply Brief, KT Group acknowledges the CG Defendants would not
be liable for notifying the escrow agent of their interest in the Property had they
done so in the form of a “polite letter” which contained no “obfuscation or
intimidation.” For good reason, KT Group does not attempt to argue the CG
Defendants’ assertion of the 7101 loan constituted improper means because it was
insufficiently polite. Even KT Group’s oblique references to the CG Defendants’
“obfuscation” and “intimidation,” however, are unsupported by the record. KT
Group points to no evidence indicating the CG Defendants ever misrepresented
the nature of their clients’ claimed interest in the Property to the escrow agent
during the relevant timeframe. 5 To the contrary, in both their November 14 email
clarifying their Amended Escrow Demand and their November 16 letter to
Stewart Title, the CG Defendants described the 7101 loan accurately. The
November 14 email referred to “the secured Five Star loan and the unsecured
[7101 loan] (which was to be secured by a deed of trust, which was never
recorded).” Moreover, the responsive email from the escrow agent characterized
the 7101 loan as “an unsecured loan . . . not escrow on this sale,” making clear
she was not under the impression the 7101 loan encumbered the Property.
5
In fact, KT Group argues the Covenant Group “did not even claim a lien
(equitable or otherwise) securing the 7101 Note prior to this lawsuit.”
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Based on the undisputed facts, no reasonable jury could conclude any of the
CG Defendants’ actions constituted improper means for purposes of an intentional
interference claim. The district court therefore did not err in granting summary
judgment in favor of the CG Defendants.
IV. Conclusion
For the foregoing reasons, this court AFFIRMS the order of the district
court.
ENTERED FOR THE COURT
Michael R. Murphy
Circuit Judge
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