Capri Sunshine, LLC v. E & C Fox Investment, LLC , 795 Utah Adv. Rep. 5 ( 2015 )

2015 UT App 231THE UTAH COURT OF APPEALS
CAPRI SUNSHINE, LLC,
Plaintiff and Appellant,
v.
E & C FOX INVESTMENTS, LLC,
Defendant and Appellee.
Opinion
No. 20140523-CA
Filed September 11, 2015
Third District Court, Salt Lake Department
The Honorable Robert P. Faust
No. 130903293
James K. Tracy, Stacy J. McNeill, and James C.
Dunkelberger, Attorneys for Appellant
R. Willis Orton and Analise Q. Wilson, Attorneys
for Appellee
JUDGE KATE A. TOOMEY authored this Opinion, in which JUDGES
J. FREDERIC VOROS JR. and MICHELE M. CHRISTIANSEN concurred.
TOOMEY, Judge:
¶1 Capri Sunshine, LLC (Capri) appeals the district court’s
decision granting E & C Fox Investments, LLC’s (Fox
Investments) motion to dismiss Capri’s complaint for failure to
state a claim upon which relief can be granted. Capri argues that
Fox Investments prevented it from paying off a foreclosed debt
when Fox Investments purportedly inflated the payoff amount
and then bought the property at auction for more than the
amount due. We affirm the district court’s dismissal.
Capri Sunshine v. E & C Fox Investments
BACKGROUND
¶2 ‚In reviewing the trial court’s decision, we accept the
factual allegations in the complaint as true and interpret those
facts and all inferences drawn from them in light most favorable
to the plaintiff as the non-moving party.‛ Oakwood Vill. LLC v.
Albertsons, Inc., 2004 UT 101, ¶ 9, 104 P.3d 1226. We therefore
recite the facts in accordance with the factual allegations in
Capri’s complaint.
¶3 Between 2007 and 2009, Scott Logan Gollaher and Sharon
Western Gollaher took out five large loans to construct The Rail
Event Center, a concert venue in Salt Lake City, Utah. Four
separate trust deeds secured repayment of the loans. The first,
and highest priority, trust deed was for a $975,000 loan from
Granite Federal Credit Union (Granite). The second trust deed
was for a $500,000 loan, also from Granite. The third trust deed
secured two loans from Vernon D. Smith totaling approximately
$2,347,000. The final trust deed was for a $1,000,000 loan from
Ernest Fox.
¶4 In 2010, the Gollahers defaulted on the Granite loans, and
Granite recorded a notice of default and intent to sell the
property. Fox Investments, an affiliate of Mr. Fox, purchased the
two Granite trust deeds, including the promissory obligations
secured by those deeds. Fox Investments then filed notice of
default and its intent to sell the property at public auction.
Although Fox Investments’ notice of sale listed the time of sale
as 9:00 a.m. on January 10, 2011, the sale was not conducted until
9:45 a.m., without proper postponement. After the January 2011
sale, in which Mr. Fox was the highest bidder, Mr. Fox’s trustee
conveyed title of the property to Fox Investments and took
possession of the property.
¶5 Mr. Smith filed a lawsuit asking the court to set aside the
sale based on Mr. Fox’s trustee’s failure to properly postpone the
time of the sale. But before the lawsuit was resolved, Mr. Smith’s
trustee held its own trustee’s sale in which Mr. Smith was the
20140523-CA 2 2015 UT App 231Capri Sunshine v. E & C Fox Investments
highest bidder. On February 15, 2012, a trustee deed was
executed purportedly conveying ownership of the property to
Mr. Smith.1
¶6 In April 2013, the district court set aside Fox Investments’
January 2011 sale, noting that ‚there were defects in the notice of
the foreclosure sale and that such did have a ‘chilling’ effect, at
the very least, to Mr. Smith’s bid.‛ Mr. Smith then recorded the
February 2012 deed and conveyed title of the property via
quitclaim deed to Capri. Capri quickly served Fox Investments a
fifteen-day notice to vacate the property. But Fox Investments
refused, claiming Mr. Smith’s foreclosure sale was invalid.
¶7 On May 1, 2013, the district court entered its final order
setting aside the January 2011 sale. Fox Investments again
gave notice of its intent to foreclose on its first trust deed and
sell the property at public auction. Capri requested a payoff
amount for Fox Investments’ first and second trust deeds. In
accordance with the requirements enumerated in Utah Code
section 57-1-31.5, Fox Investments gave Capri a payoff
calculation of approximately $1,500,000 for the first deed and
$650,000 for the second. In response, Capri hired a forensic loan
auditor to determine the accuracy of the amounts. The auditor’s
report concluded that Fox Investments’ payoff amounts had
been overstated and inaccurate after finding that late fees were
improperly incorporated into the payoff amounts, that interest
on the loans and attorney fees were miscalculated, and that
certain benefits were not properly considered.
¶8 On May 15, 2013, Capri moved the court to issue a
temporary restraining order and preliminary injunction to stop
Fox Investments from proceeding with its trustee’s sale, which
the district court denied the same day. Fox Investments held a
1. This is the date Capri claims Mr. Smith became the rightful
owner.
20140523-CA 3 2015 UT App 231Capri Sunshine v. E & C Fox Investments
trustee’s sale on May 17, 2013. Capri bid $1,000,000, but Fox
Investments countered with a $1,600,000 credit bid and won.
¶9 Capri filed another lawsuit asserting claims for
declaratory judgment, injunctive relief, accounting, waste, and
unlawful detainer.2 In response, Fox Investments filed a
counterclaim for quiet title to the property and moved to dismiss
Capri’s complaint, claiming that Capri lacked standing to assert
its claims and otherwise failed to state claims upon which relief
could be granted. The district court granted Fox Investments’
motion and dismissed Capri’s claims with prejudice. 3 Capri
appeals.
ISSUES AND STANDARDS OF REVIEW
¶10 On appeal, Capri raises several issues challenging the
district court’s order granting Fox Investments’ rule 12(b)(6)
motion. First, Capri challenges the court’s dismissal of its
declaratory judgment claims, which asked the district court to
determine that Fox Investments’ payoff statement and bid
violated Utah law. Second, it argues the court erred in
dismissing its claims for accounting, waste, and unlawful
2. In its complaint, Capri renewed its request for a preliminary
injunction to stop Fox from conducting its sale. Capri conceded
before the district court that this request was moot. On appeal, it
again argues the court erred in denying injunctive relief. This
issue is still moot. ‚An issue is moot when resolution of it cannot
affect the rights of the parties.‛ Cox v. Cox, 2012 UT App 225,
¶ 21, 285 P.3d 791. Even if Capri demonstrated some error in the
court’s decision not to enjoin Fox’s sale, this court cannot stop
the sale after it has occurred.
3. The court also issued an order granting relief on Fox
Investments’ counterclaim and its request to release a lis
pendens filed by Capri.
20140523-CA 4 2015 UT App 231Capri Sunshine v. E & C Fox Investments
detainer. Finally, Capri argues the court erred when it dismissed
Capri’s complaint with prejudice.
¶11 ‚A trial court’s decision granting a rule 12(b)(6) motion to
dismiss a complaint for lack of a remedy is a question of law that
we review for correctness, giving no deference to the trial court’s
ruling.‛ Oakwood Vill. LLC v. Albertsons, Inc., 2004 UT 101, ¶ 9,
104 P.3d 1226. ‚In reviewing the dismissal, we must keep in
mind that the purpose of a rule 12(b)(6) motion is to challenge
the formal sufficiency of the claim for relief, not to establish the
facts or resolve the merits of a case.‛ Whipple v. American Fork
Irrigation Co., 910 P.2d 1218, 1220 (Utah 1996). Thus, we note that
‚dismissal is justified only when the allegations of the complaint
clearly demonstrate that the plaintiff does not have a claim.‛ Id.ANALYSIS
¶12 Capri first challenges the district court’s decision to
dismiss its declaratory judgment claims seeking to set aside Fox
Investments’ trustee’s sale as a matter of law for failure to
comply with Utah Code sections 57-1-28, -31, and -31.5. Capri
contends that Fox Investments’ inaccurate payoff amount
deprived it of the opportunity to cure the default under section
57-1-31. And, although it concedes that Fox Investments’ payoff
statement did not technically violate section 57-1-31.5, Capri
argues the statement was nevertheless ‚substantively and
fundamentally flawed because it grossly overstate[d] the amount
actually due.‛ We disagree.
¶13 To determine the sufficiency of Capri’s complaint, we
must first examine the applicable law. Section 57-1-31 allows any
person with a subordinate lien on the trust property to cure an
existing default in the performance of any obligation secured by
the trust deed. In particular, it allows the subordinate lienholder
to ‚pay to the beneficiary . . . the entire amount then due under
the terms of the trust deed (including costs and expenses
actually incurred in enforcing the terms of the obligation, or trust
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deed, and the trustee’s and attorney’s fees actually incurred)‛ ‚at
any time within three months of the filing for record of notice of
default under the trust deed.‛ Utah Code Ann. § 57-1-31(1)
(LexisNexis 2010). Upon request, the trustee must provide a
detailed listing of the costs and fees required to pay off the
defaulted loan. See id. § 57-1-31.5(2)(a)–(b), (3). If the default is
not cured, the trustee can sell the property at public auction to
the highest bidder. See id. §§ 57-1-27, -28.
¶14 Although it has provided ample authority supporting its
right to redeem the property, Capri has not provided any legal
authority or reasoned analysis supporting the proposition that
Fox Investments’ inflated payoff amount violates the duties
prescribed under either statute. See State v. Thomas, 961 P.2d 299,
304–05 (Utah 1998) (explaining that the Utah Rules of Appellate
Procedure require ‚development of [legal] authority and
reasoned analysis based on that authority‛); see also Utah R. App.
P. 24(a)(9). Moreover, Capri does not point to any allegations in
its complaint that suggest Fox Investments actually refused
payment or otherwise denied Capri the opportunity to cure the
default. Instead, Capri suggests Fox Investments’ purportedly
inflated payoff amount prevented it from curing the default.
Without reasoned analysis or supportive legal authority, this
argument fails to demonstrate how the facts alleged in Capri’s
complaint, if proven, support a claim that entitles it to relief. See
Thomas, 961 P.2d at 305 (explaining that this court will not take
on the burden of argument or research if the appellant fails to
develop applicable authority); see also Whipple, 910 P.2d at 1221–
22 (providing that a rule 12(b)(6) dismissal is appropriate where
‚it is clear that plaintiff is not entitled to relief under any facts
that could be proved‛ (citation and internal quotation marks
omitted)).
¶15 Furthermore, Capri fails to demonstrate that the facts as
alleged show it performed the obligations necessary to redeem
the property. Under Utah law, to exercise the right to cure a
default, Capri needed to ‚pay to the beneficiary . . . the entire
amount then due under the terms of the trust deed (including
20140523-CA 6 2015 UT App 231Capri Sunshine v. E & C Fox Investments
costs and expenses actually incurred in enforcing the terms of
the obligation, or trust deed, and the trustee’s and attorney’s fees
actually incurred).‛ Utah Code Ann. § 57-1-31(1). Generally,
‚*a+n unconditional tender of performance in full by a [junior
interest holder], even if rejected by the mortgagee, if kept good
has the effect of performance.‛ Restatement (Third) of Property:
Mortgages § 6.4(g) (1997). But simply indicating a willingness to
pay without tendering payment is insufficient for performance.
Cf. Washington Nat’l Ins. Co. v. Sherwood Assocs., 795 P.2d 665, 670
(Utah Ct. App. 1990) (‚Informing an obligee that you are ready
and willing to perform the contract is insufficient.‛ (citing
Century 21 All W. Real Estate & Inv., Inc. v. Webb, 645 P.2d 52, 55–
56 (Utah 1982); Fischer v. Johnson, 525 P.2d 45, 47 (Utah 1974))). In
other words, Capri needed to allege that it made a bona fide
offer to pay the amount due on the lien or that tender was
excused. Cf. Jenkins v. Equipment Ctr., Inc., 869 P.2d 1000, 1002–03
(Utah Ct. App. 1994) (holding that tender of the amount of a lien
is required before a party can maintain a conversion claim). But
beyond asserting it was ‚ready, able, and willing to pay off
both‛ of Fox Investments’ trust deeds, nothing in the complaint
suggests Capri actually offered or tendered payment to cure the
default—even for the amount it believed to be accurate.
¶16 Capri also argues that Fox Investments ‚exceeded its right
provided under Section 57-1-28‛ by bidding higher than the
purported payoff amount at the sale. In particular, it argues
section 57-1-28 allows Fox Investments ‚to bid only the actual
balance of the [first trust deed] plus the associated fees and
expenses.‛ We disagree.
¶17 Capri’s argument quotes the statute out of context and
suggests that Utah Code section 57-1-28(1)(b) prohibits a
beneficiary from bidding more than the unpaid principal owed
and other associated fees and expenses at a trustee’s sale. But
this statute merely restricts the amount of credit that may be
applied to the beneficiaries’ bid; it does not restrict the amount
the beneficiary may bid at auction. Utah Code Ann. § 57-1-
28(1)(b) (LexisNexis 2010). It provides that ‚[t]he beneficiary
20140523-CA 7 2015 UT App 231Capri Sunshine v. E & C Fox Investments
shall receive a credit on the beneficiary’s bid in an amount not to
exceed‛ the combined amount of the ‚unpaid principal owed,‛
accrued interest, taxes, insurance, maintenance, the beneficiary’s
lien, and the ‚costs of sale, including reasonable trustee’s and
attorney’s fees.‛ Id. Moreover, ‚[s]enior trust deed holders or
lienholders may combine their interests to bid for the property at
a trustee’s sale, but only by following the statutory mandate that
*the purchaser must pay the price bid+.‛ Randall v. Valley Title,
681 P.2d 219, 222 (Utah 1984) (citing an earlier, but substantially
similar, version of Utah Code section 57-1-28(1)(a)). Allowing a
credit bid at auction by no means alters the character of the
transaction or relieves Fox Investments from its obligation to
pay, but merely offers the convenience of avoiding the ‚‘useless
ceremony’ of payment to the *trustee+ by the very party which is
entitled to receive the proceeds of the sale.‛ Jackson v. Halls, 2013
UT App 254, ¶ 8, 314 P.3d 1065 (citation omitted). Furthermore,
‚junior interests are protected by the requirement that the
trustee distribute any surplus proceeds to the person legally
entitled thereto.‛ Randall, 681 P.2d at 221–22. Nothing in Capri’s
argument demonstrates that Fox Investments’ bid exceeded the
amount prescribed by statute or that Fox Investments did not
pay its bid according to the statute’s requirements. See Utah
Code Ann. § 57-1-28.
¶18 Accordingly, Capri fails to demonstrate that the facts, if
proven, show Fox Investments violated Utah Code sections 57-1-
31 and -31.5, and Capri has not demonstrated that a remedy for
any such violation would include setting aside the trustee’s sale.
Moreover, it has not demonstrated an error in the bidding that
occurred at the trustee’s sale. We therefore conclude that the
district court did not err in dismissing Capri’s declaratory
judgment claims.
¶19 Second, Capri asserts Fox Investments ‚had the role of a
mortgagee-in-possession‛ with a duty to collect rents, and as
such Capri ‚is entitled to a full accounting of the rents that Fox
Investments could have, should have, or did receive during its
occupation . . . [and to] the extent that Fox [Investments] has
20140523-CA 8 2015 UT App 231Capri Sunshine v. E & C Fox Investments
failed to make productive use of the [property], it is liable for
waste.‛ Furthermore, Capri, somewhat contradictorily, argues
‚Fox Investments was a mortgagee in unlawful possession.‛ We
disagree and conclude that Capri has failed to meet its burden of
persuasion on appeal.
¶20 Each of these arguments depends on Capri’s ownership in
the property or successful redemption of the property. See
Osguthorpe v. Wolf Mountain Resorts, LC, 2010 UT 29, ¶¶ 22–24,
232 P.3d 999 (determining that Utah’s unlawful detainer statute
provides a mechanism for resolving conflicts over lawful
possession of property between landowners and tenants); 54A
Am. Jur. 2d Mortgages § 186 (2009) (‚The duty to account arises
upon redemption . . . . or foreclosure sale . . . .‛); 54A Am. Jur. 2d
Mortgages § 182 (‚*T+he mortgagee may pursue a remedy for
waste against the mortgagor where the mortgagor, without the
mortgagee’s consent, retains possession of rents to which the
mortgagee has the right of possession . . . .‛). But whether Capri
owned the property is a legal question—the answer turns on
whether Mr. Smith’s foreclosure and sale of the property were
proper considering his trustee’s sale occurred after a prior
trustee’s sale effectively extinguished Mr. Smith’s interests in the
property. Because we are reviewing a dismissal on the
pleadings, we assume as correct the facts that Mr. Smith’s trustee
conducted a trustee’s sale of the property from which he
purportedly conveyed ownership of the property to Capri, but
we do not similarly assume as correct the legal conclusion that
Capri had ownership in the property. Cf. Bush v. Bush, 184 P. 823,
825–26 (Utah 1919) (in the absence of pleadings concerning the
right of possession, Utah courts will not indulge in presuming
the right of possession from the asserted fact of ownership);
Capital Assets Fin. Servs. v. Lindsay, 956 P.2d 1090, 1094 (Utah Ct.
App. 1998) (determining the ownership of a property represents
a legal conclusion the parties are not qualified to make), aff’d sub
nom. Capital Assets Fin. Servs. v. Maxwell, 2000 UT 9, 994 P.2d 201.
¶21 We conclude that Capri has failed to support a necessary
element of its claims—ownership or the right to possession—
20140523-CA 9 2015 UT App 231Capri Sunshine v. E & C Fox Investments
with reasoned analysis or legal authority. Accordingly, Capri has
failed to carry its burden of persuasion on appeal.
¶22 Rule 24 of the Utah Rules of Appellate Procedure requires
the appellant’s brief to set forth ‚the contentions and reasons of
the appellant with respect to the issues presented . . . with
citations to the authorities, statutes, and parts of the record relied
on.‛ Utah R. App. P. 24(a)(9). While failure to cite the pertinent
authority may not always render an issue inadequately briefed,
it does so ‚when the overall analysis of the issue is so lacking as
to shift the burden of research and argument to the reviewing
court.‛ State v. Thomas, 961 P.2d 299, 305 (Utah 1998).
¶23 Here, Capri has done nothing in its brief or complaint to
demonstrate how the facts it alleges, if proven, support its right
to possess the property. Capri’s legal arguments assume that it is
the legal owner of the property during the relevant period. Yet
Capri does not challenge the legal correctness of the court’s
determination that Fox Investments was the owner of the
property until May 1, 2013. Rather, it advances conclusory
arguments for accounting, waste, and unlawful detainer with
only an implication of its right to own or possess the property.
Accordingly, we conclude the district court did not err in
dismissing the accounting, waste, and unlawful detainer claims,
because Capri has failed to persuade us otherwise.
¶24 Finally, Capri argues that even if we conclude the
complaint was ‚deficient on any of the foregoing claims,
dismissal with prejudice was nevertheless unwarranted‛ because
the facts of the case could have supported other claims for relief
not presented in the complaint. It argues the court erred in not
allowing it to amend its complaint and asserts that on remand it
will ‚plead trespass and injunctive relief to bar Fox Investments’
unlawful possession‛ of the property.
¶25 ‚Dismissal with prejudice . . . is a harsh and permanent
remedy when it precludes a presentation of plaintiff’s claims on
their merits.‛ Bonneville Tower Condo. Mgmt. Comm. v. Thompson
20140523-CA 10 2015 UT App 231Capri Sunshine v. E & C Fox Investments
Michie Assocs., Inc., 728 P.2d 1017, 1020 (Utah 1986) (per curiam).
Dismissal with prejudice should, therefore, be used with caution.
That said, although the district court dismissed these claims
early in the proceedings, it resolved them on their merits after
deeming them lacking. The court even reviewed the alleged facts
under different possible theories that would potentially entitle
Capri to relief and determined the arguments would still fail.
Capri has not demonstrated the court erred in its analysis of the
issues. Moreover, Capri has made no effort to show that its
claims would succeed if amended, or that claims for trespass or
injunctive relief would succeed if the facts in the complaint were
proven. Accordingly, we conclude the district court did not err
in dismissing Capri’s claims with prejudice.
CONCLUSION
¶26 The district court did not err when it dismissed Capri’s
complaint, because Capri failed to demonstrate that the facts
in the pleadings, if proven, would support a claim upon which
relief can be granted. Capri has also failed to demonstrate
that Fox Investments violated Utah Code sections 57-1-28, -31,
and -31.5 or to demonstrate that a violation of those statutes
would support setting Fox Investments’ trustee’s sale aside.
Because Capri has done nothing to support its assertion that it
had a right to possess the property, it has also failed to
demonstrate how the alleged facts support claims for
accounting, waste, and unlawful detainer. Finally, the court did
not err in dismissing Capri’s claims with prejudice, because it
decided Capri’s claims on their merits and Capri has not
demonstrated how amended pleadings would support a claim
upon which relief can be granted. We therefore affirm the
district court’s dismissal of Capri’s causes of action and we
award costs on appeal to Fox Investments.
20140523-CA 11 2015 UT App 231