Eagle Equity Fund, LLC v. TitleOne Corp. , 161 Idaho 355 ( 2016 )


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  •                IN THE SUPREME COURT OF THE STATE OF IDAHO
    Docket No. 42850
    EAGLE EQUITY FUND, LLC, an Idaho                   )
    Limited Liability Company,                         )
    )
    Plaintiff-Appellant,                         )   Boise, May 2016 Term
    )
    v.                                                 )   2016 Opinion No.139
    )
    TITLEONE CORPORATION, an Idaho                     )   Filed: November 25, 2016
    Corporation; and COREY BARTON                      )
    HOMES, INC., an Idaho Corporation,                 )   Stephen W. Kenyon, Clerk
    )
    Defendants-Respondents,                      )
    )
    and                                                )
    )
    FIDELITY NATIONAL TITLE                            )
    COMPANY (fka Land America                          )
    Transnation aka Transnation Title &                )
    Escrow, Inc.), a Delaware Corporation;             )
    CHICAGO TITLE INSURANCE                            )
    COMPANY, a Nebraska or Florida                     )
    Corporation (fka Ticor Title Insurance             )
    Company, a California Corporation); RBC            )
    REAL ESTATE FINANCE, INC.;                         )
    ALLIANCE TITLE & ESCROW CORP., a                   )
    Delaware Corporation; DAS                          )
    INVESTMENTS, LLC, an Idaho Limited                 )
    Liability Company; and JOHN DOES III-              )
    X, unknown individuals and/or companies,           )
    )
    Defendants.                                  )
    ________________________________________
    Appeal from the District Court of the Fourth Judicial District of the State of
    Idaho, Ada County. Hon. Jason Scott, District Judge.
    The judgments of the district court are affirmed. Attorney fees and costs
    on appeal are awarded to respondent TitleOne and respondent Corey
    Barton.
    1
    Eagle Law Center, LLC., Eagle, attorneys for appellant.                Paul R.
    Mangiantini argued.
    Givens Pursley, LLP, Boise, attorneys for respondent TitleOne. Thomas
    Dvorak argued.
    Richard W. Mollerup, Boise, attorney for respondent Alliance Title.
    Fisher, Pusch & Krueck, LLP, Boise, attorneys for respondent Corey
    Barton. David T. Krueck argued.
    Hawley, Troxell Ennis & Hawley, Boise, attorneys for respondent DAS
    Investment.
    _______________________
    W. JONES, Justice
    I. NATURE OF THE CASE
    This case arises out of an allegedly improper reconveyance (the “Reconveyance”) of a
    junior deed of trust (the “EEF Deed of Trust”) held by Appellant, Eagle Equity Fund, LLC
    (“EEF”). The Reconveyance, which was executed by Respondent, TitleOne Corporation
    (“TitleOne”), had the effect of divesting EEF of its security interest in the collateral property (the
    “Property”). Because EEF was divested of its security interest, it did not receive notice when the
    Property was later sold to DAS Investments, LLC (“DAS”). Being unaware of the sale, EEF had
    no opportunity to participate in the sale process. Shortly thereafter, DAS resold the Property to
    Corey Barton Homes, Inc. (“CBH”), for a profit. On discovering the sale and resale of the
    Property, EEF sued TitleOne, DAS, and CBH, among others, on a litany of counts including
    tortious interference and negligent reconveyance of the EEF Deed of Trust.
    The district court made three findings that are now challenged on appeal. First, the
    district court dismissed on summary judgment EEF’s claims for tortious interference with a
    prospective economic advantage and negligent reconveyance under Idaho Code section 45-1205.
    It reasoned that each of those claims requires a showing of damages and EEF had failed to
    provide evidence of any loss of monetary value resulting from the Reconveyance. Second, the
    district court found that even if EEF had shown damages, the three year statute of limitations on
    its claim for negligent reconveyance under Idaho Code section 45-1205, which had begun to run
    on the date of the Reconveyance, had expired. Third, the district court refused to allow EEF to
    2
    amend its complaint to add a quiet title claim against CBH. It reasoned that such an amendment
    would be futile because both DAS and CBH were bona fide purchasers.
    On appeal, EEF argues that: (1) the Reconveyance damaged EEF by depriving it of the
    opportunity to insert itself into the sale of the Property; (2) the statute of limitations had not run
    on EEF’s negligent reconveyance claim under Idaho Code section 45-1205 because it should
    have been calculated from the date of the sale rather than from the date of the Reconveyance;
    and (3) DAS and CBH were not bona fide purchasers because they had inquiry notice of EEF’s
    interest.
    II. FACTUAL AND PROCEDURAL BACKGROUND
    In November 2006, Galiano LLC (“Galiano”) acquired the Property, a 29.63 acre parcel
    of real property in Kuna, Idaho, which it planned to develop and subdivide into sixty separate
    residential lots. In order to finance the development of the Property, Galiano, through its
    managing member, Edward I. Mason, sought loans from RBC Centura Bank (“RBC”) and EEF.
    On November 17, 2006, RBC loaned Galiano $6,063,300 under two separate promissory
    notes (collectively the “RBC Loan”). The RBC Loan was secured by a first priority deed of trust
    against the Property (the “RBC Deed of Trust”), which was recorded in the real property records
    of Ada County, Idaho.
    Also on November 17, 2006, EEF loaned Galiano $725,500 (the “EEF Loan” and, with
    the RBC Loan, the “Loan Agreements”). The EEF Loan was secured by the EEF Deed of Trust,
    a second priority deed of trust against the Property, which was recorded in the real property
    records of Ada County, Idaho.
    In conjunction with the Loan Agreements, EEF, RBC, and Galiano entered into a
    subordination agreement (the “Subordination Agreement”) providing that the EEF Deed of Trust
    was junior and subordinate to the RBC Deed of Trust.
    Over three years later, on January 25, 2010, TitleOne executed the Reconveyance of the
    EEF Deed of Trust, despite the fact that the EEF Loan had not been paid by any party. TitleOne
    appears to have had no justification for executing the Reconveyance, which it did without EEF’s
    knowledge or consent.1
    1
    The district court would later find that “despite that TitleOne has not been able to explain why the reconveyance
    was executed and recorded, the reconveyance appears to reflect a mistake rather than deliberate wrongdoing.” This
    finding was not challenged on appeal.
    3
    In 2011 Galiano was unable to make payments on the RBC Loan as they came due. At
    that time Galiano still owed RBC roughly $3.4 million. In or around May 2012, Galiano sought
    and obtained RBC’s permission to short sell the Property to DAS for $860,000.2 The Property
    was sold to DAS on May 17, 2012, by general warranty deed. EEF did not receive notice of the
    sale, did not consent to the sale, and was not aware of the sale when it occurred.
    Over the course of a year after purchasing the Property, DAS sold each of the lots to
    CBH. According to EEF, the total resale price of the lots was $1.13 million, netting DAS a gross
    profit of roughly $270,000.
    In early 2013, EEF noticed renewed activity on the Property. It was at this time that it
    learned of the short sale and the Reconveyance. Shortly thereafter EEF sued TitleOne, claiming
    inter alia: (1) tortious interference with a prospective economic advantage, and (2) violation of
    Idaho Code section 45-1205 (negligent reconveyance of a deed of trust).
    On February 26, 2014, the district court issued an opinion finding that EEF’s claim under
    Idaho Code section 45-1205 was barred by the statute of limitations. The district court granted
    EEF additional time to establish that equitable estoppel prevented TitleOne from raising the
    statute of limitations as a defense.
    On September 4, 2014, EEF moved to amend its complaint to include a quiet title claim
    against CBH.
    On September 19, 2014, the district court dismissed all claims against TitleOne on
    summary judgment. The district court reasoned that: (1) “[a] claim for damages must be
    supported by competent evidence of damages or it is unfit to survive the defending party’s
    motion for summary judgment”; (2) “the measure of damages for loss or impairment of security
    is the actual value of the security in the property at the time the security was lost or impaired”;
    (3) “[EEF] offers no evidence that the property’s value, as of the date of either the apparently
    improper reconveyance or the property’s short sale, was sufficient to satisfy RBC’s senior deed
    of trust”; and (4) “without proof that the property’s value, as of at least one of those times,
    exceeded the amount owing RBC, there is no proof that EEF’s deed of trust was worth anything
    at any material time.”
    2
    A short sale occurs when a property is sold for less than the outstanding amount of debt that it secures. Short sales
    are permitted only where the seller has obtained the consent of all creditors secured by the property.
    4
    With respect to EEF’s argument that it was damaged by the Reconveyance because it was
    prevented from participating in the short sale, the district court reasoned that “EEF does not
    show damages by simply presuming that, in the absence of the apparently wrongful
    reconveyance, it would have bought the property instead of DAS and resold it to [CBH] for a
    profit, just as DAS did.”
    On October 24, 2014, the district court issued an order denying EEF’s motion to amend
    its complaint to include a quiet title claim against CBH. The district court reasoned that:
    At the time DAS purchased the property, DAS was on notice of the then-recorded
    documents affecting title to the property, as well as of such matters as might be
    learned by inquiry which the recitals in [the recorded] instruments made it a duty
    to pursue. By that time, of course, TitleOne had already reconveyed EEF’s junior
    deed of trust. In terms of form, the reconveyance . . . is nearly identical to the
    statutorily prescribed form. . . . It inarguably is in substantial compliance with the
    statutorily required form. Because its form substantially complies with the statute,
    the reconveyance extinguished the deed of trust, irrespective of any deficiency in
    the reconveyance procedure not disclosed in the . . . reconveyance itself. DAS
    therefore did not have constructive knowledge of EEF’s claimed lienholder interest in
    the property.
    [Accordingly,] DAS is a “bona fide purchaser” of the property, with the right to
    convey it free and clear of unknown claims, including EEF’s claimed lienholder
    interest. . . . DAS’s transferees and all subsequent transferees are protected by the
    “shelter rule,” absent evidence supporting a conclusion that one of the shelter
    rule’s exceptions applies. Accordingly, the transferees also own the property free
    and clear of EEF’s claimed lienholder interest. EEF’s quiet-title claim is therefore
    futile.
    III. ISSUES ON APPEAL
    1.     Did the district court err in finding that EEF failed to provide competent evidence of
    damages on summary judgment?
    2.     Did the district court err in determining when the three year statute of limitations began
    to run with respect to EEF’s claim under Idaho Code section 45-1205?
    3.     Did the district court abuse its discretion by denying EEF’s request to add a cause of
    action for quiet title?
    4.     Is any party entitled to attorney’s fees on appeal?
    IV. STANDARD OF REVIEW
    A.     This Court reviews grants of motions for summary judgment using the standard
    applied by the district court.
    On appeal from the grant of a motion for summary judgment, this Court utilizes
    the same standard of review used by the district court originally ruling on the
    motion. Summary judgment is proper “if the pleadings, depositions, and
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    admissions on file, together with the affidavits, if any, show that there is no
    genuine issue as to any material fact and that the moving party is entitled to a
    judgment as a matter of law.” I.R.C.P. 56(c). When considering whether the
    evidence in the record shows that there is no genuine issue of material fact, the
    trial court must liberally construe the facts, and draw all reasonable inferences, in
    favor of the nonmoving party.
    Golub v. Kirk-Hughes Dev., LLC, 
    158 Idaho 73
    , 75–76, 
    343 P.3d 1080
    , 1082–83 (2015)
    (quoting Conner v. Hodges, 
    157 Idaho 19
    , 23, 
    333 P.3d 130
    , 134 (2014)).
    Flimsy or transparent contentions, theoretical questions of fact which are not
    genuine, or disputes as to matters of form do not create genuine issues which will
    preclude summary judgment. Neither is a mere pleading allegation sufficient to
    create a genuine issue as against affidavits and other evidentiary materials which
    show the allegation to be false. A mere scintilla of evidence is not enough to
    create an issue; there must be evidence on which a jury might rely.
    Weisel v. Beaver Springs Owners Ass’n, Inc., 
    152 Idaho 519
    , 524-25, 
    272 P.3d 491
    , 496-97
    (2012) (quoting Petricevich v. Salmon River Canal Co., 
    92 Idaho 865
    , 871, 
    452 P.2d 362
    , 368
    (1969)).
    B.      Where there is no dispute regarding the underlying facts, the determination when a
    statute of limitations begins to run is a question of law over which this Court
    exercises free review.
    The time when “a cause of action accrues may be a question of law or a
    question of fact, depending upon whether any disputed issues of material fact
    exist.” Kimbrough v. Reed, 
    130 Idaho 512
    , 516, 
    943 P.2d 1232
    , 1236 (1997).
    Where there is no dispute over any issue of material fact regarding when the cause
    of action accrues, the question is one of law for determination by the court. 
    Id.
    Nerco Minerals Co. v. Morrison Knudsen Corp., 
    140 Idaho 144
    , 148, 
    90 P.3d 894
    , 898 (2004).
    In this case, the parties are in agreement as to the relevant underlying facts surrounding the
    Reconveyance, but disagree with respect to whether or not EEF’s cause of action accrued at the
    time the Reconveyance was executed. Accordingly, this Court exercises free review over the
    statute of limitations issue.
    C.      When reviewing a district court’s denial of a motion to amend this Court applies an
    abuse of discretion standard.
    This Court applies an abuse of discretion standard when reviewing a district court’s
    decision to deny a motion to amend a complaint in order to add additional claims. Weitz v.
    Green, 
    148 Idaho 851
    , 857-58, 
    230 P.3d 743
    , 749-50 (2010). The test to determine whether a
    trial court has abused its discretion consists of three parts: “(1) whether the lower court rightly
    perceived the issue as one of discretion; (2) whether the court acted within the outer boundaries
    6
    of such discretion and consistently with any legal standards applicable to specific choices; and
    (3) whether the court reached its decision by an exercise of reason.” Goodspeed v. Shippen, 
    154 Idaho 866
    , 869-70, 
    303 P.3d 225
    , 228-29 (2013) (quoting Schmechel v. Dillé, 
    148 Idaho 176
    ,
    179, 
    219 P.3d 1192
    , 1195 (2009)).
    V. ANALYSIS
    A.      As a preliminary matter, EEF had no claim against TitleOne for tortious
    interference with a prospective economic advantage.
    “Where the clear implication of a legislative act is to change the common law rule we
    recognize the modification because the legislature has the power to abrogate the common law.”
    Mickelsen v. Broadway Ford, Inc., 
    153 Idaho 149
    , 153, 
    280 P.3d 176
    , 180 (2012) (quoting
    McCann v. McCann, 
    152 Idaho 809
    , 818, 
    275 P.3d 824
    , 833 (2012)). Even where a statute does
    not explicitly address its common law counterpart, where the language of that statute is exclusive
    then the common law action is displaced. See, e.g., 
    Id.
     The express language of Idaho Code
    section 45-1205 provides that there will be liability “for the damages suffered as a result of such
    improper reconveyance only if the title insurer or title agent failed to substantially comply with
    the provisions of section 45-1203 or 45-1204, Idaho Code, or acted with negligence or in bad
    faith in reconveying the trust deed.” I.C. § 45-1205 (emphasis added). The use of the term “only
    if” serves to displace any existing common law causes of action creating liability for a negligent
    reconveyance.
    Here, EEF seeks to assert a common law cause of action—interference with a prospective
    economic advantage—as a theory of liability for EEF’s allegedly improper reconveyance.
    Because the express language of Idaho Code section 45-1205 precludes common law causes of
    action for improper reconveyance, EEF could not bring a claim against TitleOne for interference
    with a prospective economic advantage.
    B.      The district court did not err by dismissing EEF’s claims against TitleOne on
    summary judgment.
    “[On motion for summary judgment] the moving party is entitled to judgment when the
    nonmoving party fails to make a showing sufficient to establish the existence of an element
    essential to that party’s case on which that party will bear the burden of proof at trial.” Partout v.
    Harper, 
    145 Idaho 683
    , 688, 
    183 P.3d 771
    , 776 (2008). Evidence of damages “is sufficient if it
    proves the damages with reasonable certainty.” Griffith v. Clear Lakes Trout Co., 
    146 Idaho 613
    ,
    618, 
    200 P.3d 1162
    , 1167 (2009). “[R]easonable certainty requires neither absolute assurance nor
    7
    mathematical exactitude.” 
    Id.
     However, “the factfinder may not determine damages by mere
    speculation and guesswork, and there must be a reasonable foundation established by the
    evidence from which the factfinder can calculate the amount of damages.” Pope v. Intermountain
    Gas, Co, 
    103 Idaho 217
    , 234, 
    646 P.2d 988
    , 1005 (1982). “Damage awards based upon
    speculation and conjecture will not be allowed.” Inland Group of Companies, Inc. v. Providence
    Washington Ins. Co., 
    133 Idaho 249
    , 257, 
    985 P.2d 674
    , 682 (1999) (citing Rindlisbaker v.
    Wilson, 
    95 Idaho 752
    , 
    519 P.2d 421
     (1974)).
    The measure of damages for the improper reconveyance of a piece of property is an issue
    of first impression for this Court. We adopt the rule set forth by the California Court of Appeals
    in Stephans v. Herman: “The measure of damages for loss of security . . . is the fair market value
    of [the security property] as of the date of conversion less prior liens and taxes, not, however to
    exceed the amount due on the note.” 
    37 Cal. Rptr. 746
    , 748 (Cal. Ct. App. 1964); see also Howe
    v. City Title Ins. Co., 
    63 Cal. Rptr. 119
    , 122 (Cal. Ct. App. 1967); Rooz v. Kimmel, 
    64 Cal. Rptr. 2d 177
    , 191 (Cal. Ct. App. 1997).
    In this case, EEF failed to provide evidence that the fair market value of the Property, as
    of January 25, 2010, was greater than the amount of higher priority encumbrances (approx. $3.4
    million owed to RBC). At best, EEF provided speculation and conjecture on this issue, which is
    not sufficient to support a damages award. EEF’s alternative theory of damages, that the
    Reconveyance caused it to suffer a loss of potential profits is unavailing. Such damages are not
    available in an improper reconveyance case.
    C.      This Court does not reach the issue of whether or not the district court
    miscalculated the statute of limitations for EEF’s Idaho Code section 45-1205
    claim.
    Because we have determined that the district court did not err in dismissing EEF’s Idaho
    Code section 45-1205 claim on summary judgment, whether or not the district court
    miscalculated the statute of limitations for that claim is no longer relevant. Accordingly, we will
    not now address the statute of limitations issue.
    D.      The district court did not abuse its discretion when it refused to allow EEF to
    amend its complaint in order to add a quiet title claim against CBH.
    Idaho Rule of Civil Procedure 15(a) provides that a complaint may be amended by leave
    of Court, which shall be freely given “when justice so requires.” However, “[i]f the amended
    pleading does not set out a valid claim . . . it is not an abuse of discretion for the trial court to
    8
    deny the motion to file the amended complaint.” Black Canyon Racquetball Club, Inc. v. Idaho
    First Nat. Bank, N.A., 
    119 Idaho 171
    , 175, 
    804 P.2d 900
    , 904 (1991). A court is not required to
    permit the amendment of a complaint where such amendment would be futile. See, Carl H.
    Christensen Family Trust v. Christensen, 
    133 Idaho 866
    , 871, 
    993 P.2d 1197
    , 1202 (1999).
    Idaho Code section 6-401 provides that “[an] action [to quiet title] may be brought by any
    person against another who claims an estate or interest in real or personal property adverse to
    him, for the purpose of determining such adverse claim.” I.C. § 6-401. Although a quiet title
    action challenges the defendant’s interest, the plaintiff necessarily asserts his or her own property
    interest in bringing a quiet title action. Silver Eagle Mining Co. v. State, 
    153 Idaho 176
    , 181, 
    280 P.3d 679
    , 684 (2012). Thus a plaintiff seeking to quiet title against another must succeed on the
    strength of his or her own interest and may not rely merely upon the weakness of his or her
    adversary’s interest. Aldape v. Akins, 
    105 Idaho 254
    , 260, 
    668 P.2d 130
    , 136 (Ct. App. 1983)
    (citing Pincock v. Pocatello Gold & Copper Min. Co., Inc., 
    100 Idaho 325
    , 331, 
    597 P.2d 211
    ,
    217 (1979).
    Idaho Code section 45-1203(4) provides that “[a] reconveyance of a trust deed . . . when
    recorded shall constitute a reconveyance of the trust deed identified therein, irrespective of any
    deficiency in the reconveyance procedure not disclosed in the release or reconveyance that is
    recorded other than a forgery.” I.C. § 45-1203(4).
    When considered in conjunction, the above law leads to the inevitable conclusion that the
    district court did not abuse its discretion when it refused to allow EEF to amend its complaint in
    order to add a claim for quiet title against CBH. A court does not abuse its discretion when it
    refuses to allow a party to amend a complaint in order to include claims which, as a legal matter,
    have no possibility of success. In this instance, EEF has no valid claim to an interest in the
    Property. The Reconveyance had the legal effect of divesting EEF of any security interest that it
    held at that time. Accordingly, EEF could not possibly have succeeded on its claim for quiet title.
    Because the claim which EEF sought to add to its complaint had no legal merit, the district court
    did not abuse its discretion when it refused EEF’s motion to amend.
    E.      Attorney fees on appeal are granted to Respondents.
    An “award of attorney fees under 
    Idaho Code § 12-121
     is not a matter of right to the
    prevailing party, but is appropriate [] when the court, in its discretion, is left with the abiding
    belief that the case was brought, pursued, or defended frivolously, unreasonably, or without
    9
    foundation.” Teurlings v. Larson, 
    156 Idaho 65
    , 75–76, 
    320 P.3d 1224
    , 1234–35 (2013) (quoting
    Michalk v. Michalk, 
    148 Idaho 224
    , 235, 
    220 P.3d 580
    , 591 (2009). With respect to TitleOne,
    EEF appealed from a district court finding that it failed to present evidence of damages beyond
    mere speculation. On appeal, EEF still provides nothing but speculation. Indeed, EEF even
    admitted before the district court that any expert brought to testify with regards to damages
    “literally would have to speculate,” and yet still appealed the issue to this Court. Because the
    appeal on this issue was pursued frivolously, unreasonably and without foundation we grant
    reasonable attorney’s fees to Title One.
    With respect to CBH, EEF appeals the district court’s refusal to allow it to amend its
    complaint to bring a quiet title action against CBH. While it dedicates a significant amount of
    time to attacking CBH’s claim to title, it fails to establish its own interest in the Property. A quiet
    title claim based entirely on the weakness of the defendant’s interest has no chance of success.
    Accordingly, EEF’s appeal against CBH was pursued frivolously, unreasonably and without
    foundation. We grant reasonable attorney’s fees to CBH.
    VI. CONCLUSION
    The judgments of the district court are affirmed. Attorney’s fees to Respondents.
    Chief Justice J. JONES and Justices EISMANN, BURDICK and HORTON, CONCUR.
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