2DP Blanding, LLC v. Palmer , 847 Utah Adv. Rep. 41 ( 2017 )

This opinion is subject to revision before
publication in the Pacific Reporter
2017 UT 62
IN THE
SUPREME COURT OF THE STATE OF UTAH
2DP BLANDING, LLC,
Appellee,
v.
RAY W. PALMER, et al.,
Appellants,
BLACK OIL CO.,
Third-Party Plaintiff and Appellee,
v.
FIRST NATIONAL BANK OF LAYTON,
Third-Party Defendant.
No. 20150670
Filed September 6, 2017
On Direct Appeal
Seventh District, San Juan
The Honorable Lyle R. Anderson
No. 140700017
Attorneys:
Richard E. Mrazik, Adam E. Weinacker, Salt Lake City, for appellee
2DP Blanding, LLC
Craig C. Halls, Blanding, for appellants
Ronald G. Russell, Royce B. Covington, Jeffery A. Balls, Salt Lake City,
for appellee Black Oil Company
2DP BLANDING v. PALMER
Opinion of the Court
ASSOCIATE CHIEF JUSTICE LEE authored the opinion of the Court, in
which CHIEF JUSTICE DURRANT, JUSTICE HIMONAS, JUSTICE PEARCE, and
JUDGE HOLMBERG joined.
Having recused herself, JUSTICE DURHAM does not participate herein;
DISTRICT JUDGE KENT R. HOLMBERG sat.
ASSOCIATE CHIEF JUSTICE LEE, opinion of the Court:
¶ 1 The district court proceedings in a prior case resulted in the
entry of a court order authorizing a foreclosure sale of parcels of real
property. That order was not stayed pending appeal. And the sale was
executed while the appeal went forward. The property was eventually
purchased by an entity that was not a party to the litigation. We are
asked whether the third-party purchaser took the property subject to
the resolution of the case on appeal. We answer this question in the
negative. We conclude that an appellant who takes no action to
preserve his interests in property at issue on appeal has no recourse
against a lawful third-party purchaser.
I
¶ 2 This case is an offshoot of a lien dispute between Ray Palmer
and First National Bank. In July 2003, Palmer agreed to sell two parcels
of commercial real estate to JDJ Holdings, Inc. JDJ obtained two loans to
finance the purchase—one from First National and one from Palmer.
Both loans were secured by trust deeds. First National recorded its
deed on December 5, 2003, and had first position. Palmer recorded his
deed on December 12, 2003, and had second position.
¶ 3 Due to a flaw in the initial loan approval, First National was
required to record a new deed after Palmer recorded his deed. Before
recording the new deed, First National got an erroneous title report that
failed to show the Palmer deed. And despite having knowledge of
Palmer’s loan at its inception, First National relied on the erroneous
title report and simply revoked its original deed and recorded the new
deed on March 8, 2004. The bank did not obtain a subordination
agreement from Palmer. The new deed accordingly appeared to elevate
Palmer’s deed to first position. But no one discovered this repositioning
at the time.
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Opinion of the Court
¶ 4 Five years later JDJ defaulted on both loans. Palmer and First
National both claimed that their deed was entitled to senior position.
The deed holders initiated legal proceedings to settle the dispute, and
the district court granted summary judgment to First National. The
court held that the bank was entitled to equitable reinstatement of its
original deed. It also authorized First National to “exercise all rights
and remedies provided by its Trust Deed with respect to the Property,”
including proceeding with a foreclosure sale.
¶ 5 Palmer appealed the court’s decision on April 8, 2011. He
challenged the lien priority established by the district court’s order. But
he did not formally seek or obtain a stay of the order. And he did not
file a lis pendens on the property at any point during the litigation.
¶ 6 On June 29, 2011, First National issued a Notice of Trustee’s
Sale under its reinstated trust deed. First National then purchased the
parcel at issue in this case, Parcel 2, at the trustee’s sale on August 8,
2011. It subsequently conveyed the parcel to Black Oil Company.
¶ 7 In February 2013, the Utah Court of Appeals overturned the
district court’s order. The court concluded that the district court erred
in reinstating First National’s first deed. And it remanded for further
proceedings in light of Palmer’s senior deed.
¶ 8 2DP Blanding, LLC entered the scene shortly thereafter. It
purchased Parcel 2 from Black Oil on July 7, 2013. The following day,
Palmer recorded a Notice of Default and Election to Sell under his
original trust deed. And the day after that, 2DP recorded its warranty
deed for the parcel.1
¶ 9 Three months later 2DP filed suit, seeking to quiet title to
Parcel 2 and to enjoin Palmer’s foreclosure sale. The parties filed
competing motions for partial summary judgment. 2DP argued that it
owned the parcel free and clear of Palmer’s trust deed because Palmer
failed to obtain a stay of the court’s order authorizing the original
foreclosure sale and the parcel was properly sold pursuant to that
order. Palmer countered that because First National bought the parcel
at the foreclosure sale, all subsequent purchasers of the parcel took
1 Palmer does not assert that 2DP had knowledge of his intention to
foreclose Parcel 2 at the time it purchased the property.
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2DP BLANDING v. PALMER
Opinion of the Court
subject to First National’s knowledge of Palmer’s appeal of the court
order.
¶ 10 The district court granted summary judgment in 2DP’s favor.
It concluded that Black Oil and 2DP were both bona fide purchasers
and neither had actual knowledge of Palmer’s appeal. It also
emphasized that the foreclosure order was the only recorded document
relating to the First National case.
¶ 11 Palmer did not obtain a stay of that order or provide notice of
his appeal by recording a lis pendens. So, the court concluded, Black Oil
and 2DP “had no notice to suggest that the order was subject to an
appeal” and had no independent duty to inquire and determine
whether Palmer had appealed the order.
¶ 12 Palmer filed a timely appeal. We review the court’s grant of
summary judgment for correctness. Heslop v. Bear River Mut. Ins. Co.,
2017 UT 5, ¶ 15, 390 P.3d 314.
II
¶ 13 A party who appeals an adverse final order may obtain a stay
of that order pending the decision on appeal. UTAH R. CIV. P. 62(d).
When such a stay is entered, all parties are barred from executing the
stayed order. But a stay is conditioned upon the payment of a
supersedeas bond. Id. And some parties accordingly elect not to obtain
a stay. In that event, the adverse order and any resulting judgments
“remain[] valid and enforceable during the pendency of an appeal.”2
See, e.g., Cheves v. Williams, 1999 UT 86, ¶ 47, 993 P.2d 191; Skeen v. Pratt,
48 P.2d 457, 458 (Utah 1935); see also Franklin Fin. v. New Empire Dev. Co.,
659 P.2d 1040, 1043 (Utah 1983).
¶ 14 Mr. Palmer finds himself in that position. He failed to obtain a
stay of the order authorizing First National to proceed with a
foreclosure sale—a decision that paved the way for the lawful sale of
the property to third parties, first to Black Oil and later to 2DP. Yet
Palmer asks us to allow him to avoid the consequences of his decision
not to seek a stay of the order in question. He notes that he has now
secured a reversal of the order in the decision of the court of appeals.
And he now asks us to reinstate his property interest in Parcel 2.
2 Hughes v. Brown, 575 N.E.2d 1186, 1190 (Ohio Ct. App. 1989)
(citation omitted).
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Opinion of the Court
¶ 15 The threshold question presented is whether an appeal of an
unstayed foreclosure order creates a cloud on title of the subsequently
foreclosed property. If it does, Black Oil and 2DP purchased Parcel 2
subject to Palmer’s appeal of First National’s foreclosure order—and
Palmer maintains a valid and actionable interest in the property. If it
doesn’t, 2DP owns Parcel 2 free and clear of that appeal—and Palmer
has no further recourse against the property or 2DP.
¶ 16 2DP asserts that its title to Parcel 2 is not clouded by Palmer’s
appeal of the foreclosure order because the subsequent, lawful
foreclosure sale extinguished Palmer’s trust deed by operation of law.
Palmer, on the other hand, claims that his appeal fully preserved his
interest in Parcel 2. Under his theory, Black Oil and 2DP were both on
inquiry notice of his appeal because First National recorded the
foreclosure sale order. And, in Palmer’s view, Black Oil and 2DP
should have looked to the court docket, seen that the order had been
appealed, and realized that Palmer still had a claim to the property.
¶ 17 Palmer also proffers two additional grounds for reversing the
district court. First he argues the original foreclosure sale and
subsequent transfers were invalid because First National did not
properly record the foreclosure sale order. And second he claims that
2DP was barred from challenging the survival of his trust deed under
the doctrine of collateral estoppel.3
¶ 18 We reject each of Palmer’s arguments and agree with 2DP. We
first hold that an appeal from an unstayed foreclosure order does not
create a cloud on title. Then we reject Palmer’s alternative grounds for
reversal.
3 The parties frame their arguments on this point as arising under
the doctrine of res judicata. And we acknowledge that that terminology
is sometimes used to encompass issue preclusion or collateral estoppel.
But we use the terminology of collateral estoppel here because we find
it more precise in distinguishing issue preclusion from claim preclusion
(which is often what we mean when we speak of res judicata). See Oman
v. Davis Sch. Dist., 2008 UT 70, ¶ 28, 194 P.3d 956 (“Issue preclusion,
which is also known as collateral estoppel, ‘prevents parties or their
privies from relitigating facts and issues in the second suit that were
fully litigated in the first suit.’” (citation omitted)).
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2DP BLANDING v. PALMER
Opinion of the Court
A
¶ 19 Palmer asserts that 2DP had inquiry notice of the litigation
and subsequent appeal regarding Parcel 2. And on that basis he claims
that 2DP took the property subject to his trust deed, and thus that the
district court erred in ruling that 2DP was a bona fide purchaser that
acquired title to Parcel 2 free and clear of Palmer’s prior interest in the
property.
¶ 20 Palmer’s position would require us to rule that an appeal
automatically creates a cloud on the title of property affected by an
appealed order—even if the appellant does not obtain a stay of the
appealed order. We decline to do so.
¶ 21 When an appeal is taken without supersedeas bond or stay,
“the judgment or order appealed from is enforceable as though no
appeal had been taken.” Skeen, 48 P.2d at 458 (citation omitted). “Any
other result would nullify the requirement that the appellant obtain a
stay pending appeal.” Richards v. Baum, 914 P.2d 719, 721 (Utah 1996).
¶ 22 Granted, a litigant is not entitled to keep all the proceeds of its
executed judgment when the underlying order is reversed.4 But an
appellant cannot retroactively invalidate a foreclosure sale if the sale
was executed during the appeal and the appellant did not obtain a stay
of execution.5
¶ 23 The question presented here is whether this latter principle
extends to this case. Palmer contends that it does not. Palmer insists
that a successful appellant instead maintains an interest in the property
4 See Franklin Fin. v. New Empire Dev. Co., 659 P.2d 1040, 1043 (Utah
1983) (“[A]ppellants seek not to prevent the sale, but to establish their
right to a share of the sale proceeds. That relief could be granted even
though the sale is already completed and the time for redemption has
elapsed.”).
5 Id. (“[I]f appellants were seeking on this appeal to prevent the
foreclosure sale, and because of their failure to obtain a stay of
execution, the sale were legally carried out during the pendency of the
appeal and the time for redemption had run, the appeal would be
moot.” (citing Crim v. Sorrow, 255 S.E.2d 19 (Ga. 1979); DuBose v.
Gastonia Mut. Sav. & Loan Ass’n, 286 S.E.2d 617 (N.C. Ct. App.
1982); Lord v. City of Tucson, 455 P.2d 1004 (Ariz. Ct. App. 1969))).
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Opinion of the Court
(with a cloud on its title without a stay) after the property is lawfully
sold to a third party during the appeal. We disagree.
¶ 24 It has long been held that “[a] person, other than the judgment
creditor or his attorney, who purchases at a valid execution sale upon a
judgment . . . which is subsequently reversed is entitled to retain the
subject matter if, before reversal, he has obtained the legal title and has
paid value therefor.” RESTATEMENT (FIRST) OF RESTITUTION § 74 cmt. i
(AM. LAW INST. 1937). The purchaser, in other words, is “protected as a
bona fide purchaser” even if “he has knowledge that an appeal is
pending or even that he has knowledge of the grounds for appeal,
except where he knows that the judgment was obtained by fraud.” Id.6
¶ 25 We adopt this general rule.7 Where there is no stay, an
appellant loses all actionable rights to the property that has been
lawfully conveyed to a third party. And any cloud his prior rights
created on the property’s title is thereby extinguished.
¶ 26 We recognize one exception to this general rule. When a third
party purchases the property subject to a recorded lis pendens, it
“acquires only the grantor’s interest therein, as determined by the
outcome of the litigation.” Timm v. Dewsnup, 921 P.2d 1381, 1392 (Utah
1996) (citing Hidden Meadows Dev. Co. v. Mills, 590 P.2d 1244, 1248 (Utah
1979)). This exception applies “[e]ven absent a stay” or supersedeas
bond. Richards, 914 P.2d at 720 n.1 (citing Hidden Meadows Dev. Co., 590
P.2d at 1247).
6 We cite the First Restatement on this point because it is the clearest
articulation of the rule of relevance to this case. But we view this
statement of the rule to be consistent with the law as stated in many
jurisdictions and in subsequent restatements of the law of restitution.
See RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT
§ 18(f) cmt. f (AM. LAW INST. 2011); see also infra ¶ 25 n.7 (citing cases
adopting a similar rule).
7 See Richards, 914 P.2d at 722 (determining that an appeal of an
unstayed foreclosure sale order was moot once the relevant property
was lawfully sold to a third party because “[n]o action which we could
now take would affect the litigants’ rights to the property”); see also
Spahi v. Hughes-Northwest, Inc., 27 P.3d 1233, 1236–37 (Wash. Ct. App.
2001) (adopting the First Restatement’s standard).
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2DP BLANDING v. PALMER
Opinion of the Court
¶ 27 Where the appellant takes no steps to “prevent the [appellee]
from legally conveying the disputed land to a third party,” however, it
loses all rights in the legally conveyed property. Id. Thus, when an
appellant neither obtains a stay of execution nor timely records a lis
pendens, he has no recourse against third parties who lawfully acquire
the property. And Palmer’s failure to take either action in the
underlying case accordingly bars him from asserting any interest in
Parcel 2 now that it has been lawfully conveyed to a third-party owner.
¶ 28 This conclusion holds regardless of whether Black Oil or 2DP
had inquiry or even actual notice of the litigation and pending appeal.
Palmer had multiple chances to either limit the conveyed property
interests (by recording a lis pendens at the beginning of the litigation) or
altogether prohibit any conveyance of the property (by obtaining a stay
of execution). The purchasers’ general knowledge of the litigation does
not save Palmer from his failure to take those preventive measures.
B
¶ 29 Palmer also challenges the district court’s decision on an
alternative ground. He says that the original foreclosure sale did not
affect his interest in the properties because First National failed to
record the foreclosure order in accordance with the terms of the
judgment registry statute, Utah Code section 78B-5-201. That statute
prohibits a judgment creditor from establishing a lien or “affect[ing] the
title to” the judgment debtor’s real property “unless the judgment is
filed in the Registry of Judgments of the office of the clerk of the district
court of the county in which the property is located.” UTAH CODE § 78B-
5-201(2). It also lists several pieces of information that must be included
on the filed judgment, id. § 78B-5-201(4), and declares that no lien is
created if any of the information is omitted on the filing, id. § 78B-5-
201(6).
¶ 30 First National failed to include some of the required
information when it recorded the initial district court order. And on
that basis Palmer asserts that the foreclosure sale and subsequent
conveyances of the property could not have affected his lien.
¶ 31 But Palmer’s argument relies on a faulty view of the judgment
registry statute. The statute applies only to judgment creditors who
wish to create a lien on the judgment debtor’s property. See generally id.
§ 78B-5-201 (imposing duties on judgment creditor to obtain a lien on
judgment debtor’s real property). First National’s foreclosure order
does not create that kind of relationship. Palmer did not owe First
National anything as a result of the order. So there was no debt as
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Opinion of the Court
envisioned by the statute.8 The order instead established the relative
priority of First National’s trust deed against Palmer’s deed and
authorized the bank to foreclose on the properties against a separate
debtor. The judgment registry statute consequently did not govern the
recording of First National’s foreclosure order.
¶ 32 The recording was instead governed by Utah Code section 57-
3-102(1). That section provides that documents “shall, from the time of
recording with the appropriate county recorder, impart notice to all
persons of their contents.” Id. Thus, where an order grants a party a
greater lien priority than another and authorizes the foreclosure on the
relevant property, the foreclosing party need only record the order to
give it effect. No further requirements are necessary. Unlike a monetary
judgment that does not explicitly grant interests in any property, the
recorded order at issue in this case expressly gives notice of the
adjudged rights and their impact on the property. So First National
properly recorded the order under section 57-3-102.
C
¶ 33 Palmer also claims that the district court erred in upholding
arguments advanced by 2DP but rejected by the court of appeals in
Palmer’s litigation with First National. The court of appeals twice
rejected First National’s assertion that the litigation was moot in light of
the foreclosure sale. First, in Palmer’s rule 54(b) appeal of the initial
district court order, the court of appeals declined to dismiss the appeal
on mootness grounds because “[t]he parties are still before the court,
and it appears that the rights of the parties can be adjusted as
appropriate.” First Nat’l Bank of Layton v. Palmer, 2013 UT App 50, ¶ 7
n.2, 362 P.3d 904. The court’s second consideration of the mootness
question came when the court later summarily denied an unrelated
petition for extraordinary relief. Here again First National asserted that
the case was moot. A majority denied the petition for extraordinary
relief without opinion. But Judge Orme wrote a special concurrence
8 See id. § 78B-5-201(4)(b)(iii) (requiring the judgment to include “the
amount of the judgment as filed in the Registry of Judgments”); see also
BLACK’S LAW DICTIONARY (10th ed. 2014) (defining “judgment debtor”
as “[a] person against whom a money judgment has been entered but
not yet satisfied” and “judgment creditor” as “[a] person having a legal
right to enforce execution of a judgment for a specific sum of money”).
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2DP BLANDING v. PALMER
Opinion of the Court
outlining his view that the earlier court of appeals opinion had
reinstated Palmer’s lien in first position.
¶ 34 In Palmer’s view the court of appeals’ first decision should be
interpreted in light of Judge Orme’s special concurrence, which
reasoned that Palmer’s trust deed was reinstated in first position
following the reversal and thus survived the foreclosure sale. Palmer
asserts that 2DP, as a subsequent owner of the foreclosed property, was
bound by the doctrine of collateral estoppel and could not relitigate the
issue of whether the foreclosure sale extinguished Palmer’s interest in
the property.
¶ 35 But this argument is premised on a misunderstanding of the
doctrine of collateral estoppel. This doctrine does not prohibit a party
from relitigating an issue unless that issue was fully litigated to a final
judgment.9 And there is no definitive final judgment on whether
Palmer’s interest in Parcel 2 survived the foreclosure sale. The court of
appeals in the underlying case ruled only that Palmer’s appeal was not
moot. It did not explain the rationale for its holding, other than to say
that “it appears that the rights of the parties can be adjusted as
appropriate.” First Nat’l Bank, 2013 UT App 50, ¶ 7 n.2. And a
subsequent special concurrence from a single judge does nothing to
inform that holding.
¶ 36 In the first appeal, Palmer asserted only that the case was not
moot because he could still recover proceeds from the foreclosure sale.
Judge Orme issued a special concurrence in a later appeal—following
additional proceedings after the initial court of appeals decision—
articulating his view on how Palmer’s interest might have survived the
foreclosure sale. But this was not the express basis for the original court
of appeals holding. At a minimum, there are two possible grounds for
9 “We apply a four-part test to determine whether the doctrine of
issue preclusion is applicable: First, the issue challenged must be
identical in the previous action and in the case at hand. Second, the
issue must have been decided in a final judgment on the merits in the
previous action. Third, the issue must have been competently, fully,
and fairly litigated in the previous action. Fourth, the party against
whom collateral estoppel is invoked in the current action must have
been either a party or privy to a party in the previous action.” Macris &
Assocs., Inc. v. Neways, Inc., 2000 UT 93, ¶ 37, 16 P.3d 1214 (citation
omitted).
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Opinion of the Court
the court of appeals’ determination that Palmer’s appeal in the First
National case was not moot. The court could have been recognizing
Palmer’s right to assert a claim for proceeds on remand. Or it could
have concluded that Palmer’s interest in the property survived the sale.
And this ambiguity precludes application of the doctrine of collateral
estoppel, as the relevant issue has not been resolved by a final
judgment.10
III
¶ 37 We affirm the district court’s grant of summary judgment to
2DP. 2DP is entitled to title of Parcel 2 free and clear of any interest
Palmer may have previously had in the property.
10 Because we dismiss Palmer’s collateral estoppel arguments on this
baseline issue, we do not determine whether 2DP is in privity with First
National for purposes of this doctrine.
11