CFD Payson, LLC v. Christensen ( 2015 )

2015 UT App 251THE UTAH COURT OF APPEALS
CFD PAYSON, LLC,
Plaintiff and Appellant,
v.
STEVE S. CHRISTENSEN; HIRSCHI CHRISTENSEN, PLLC; KIM DAHL;
CHRISTENSEN THORNTON, PLLC; AND LISA THORNTON,
Defendants and Appellees.
Memorandum Decision
No. 20140412-CA
Filed October 8, 2015
Fourth District Court, Provo Department
The Honorable Darold J. McDade
No. 130401268
Rosemond G. Blakelock, Attorney for Appellant
Patrick C. Burt, Attorney for Appellees Steve S.
Christensen; Hirschi Christensen, PLLC; Christensen
Thornton, PLLC; and Lisa Thornton
Steve S. Christensen, Attorney for Appellee
Kim Dahl
JUDGE MICHELE M. CHRISTIANSEN authored this Memorandum
Decision, in which JUDGE GREGORY K. ORME concurred. JUDGE
JAMES Z. DAVIS concurred in the result.
CHRISTIANSEN, Judge:
¶1 CFD Payson, LLC challenges the district court’s dismissal
of the wrongful-lien and slander-of-title claims it asserted
against Kim Dahl and her attorneys. Because we agree with CFD
Payson that Kim Dahl does not have an ownership interest in
CFD Payson’s real property that would authorize the liens
against that property, we reverse the district court’s dismissal of
CFD Payson, LLC v. Christensen
CFD Payson’s claims and remand the matter to the district court
for further proceedings.
¶2 This case has its genesis in the divorce of Charles Dahl
and Kim Dahl in 2010. See generally Dahl v. Dahl, 2015 UT 79. In
dividing the Dahl’s marital estate, the divorce court ordered the
liquidation of the ‚Pheasant Run investment,‛ a real-estate
investment owned by Charles Dahl. The divorce court
concluded that Charles Dahl’s interest in the real-estate
investment was marital property and ordered that this interest
be immediately liquidated and that the proceeds from
liquidating his interest in the investment be divided equally
between Kim Dahl and Charles Dahl. At the time of the divorce,
the real-estate investment was, at its core, a partial ownership
interest in a parcel of real property located in Spanish Fork,
Utah. The real property itself was fully owned by Pheasant Run
at Spanish Fields, LLC (the Pheasant Run land). CFD Payson
owned a one-third interest in Pheasant Run at Spanish Fields,
LLC. CFD Payson was, in turn, wholly owned by Charles Dahl.
¶3 In March 2012, Kim Dahl recorded a Notice of Lien on the
Pheasant Run land, asserting a lien ‚upon one-half of all
proceeds from the sale of the described property.‛ The same day,
Kim Dahl’s attorney, Steve S. Christensen, recorded a Notice of
Lien on the Pheasant Run land on behalf of himself; Hirschi
Christensen, PLLC; and Christensen Thornton, PLLC
(collectively, the Attorney Defendants) asserting a lien ‚on all
equitable or legal interest now held by Kim Dahl‛ (the Attorney
Lien). The Attorney Lien described the basis of the lien as an
arrearage in legal fees owed by Kim Dahl to the Attorney
Defendants in the amount of $1,660,000.
¶4 On April 4, 2012, CFD Payson served demand letters on
Kim Dahl and the Attorney Defendants requesting the release of
the liens. CFD Payson asserted that the liens were wrongful liens
under the Wrongful Lien Act. See Utah Code Ann. § 38-9-1
20140412-CA 2 2015 UT App 251CFD Payson, LLC v. Christensen
(LexisNexis 2010). Kim Dahl released her lien on April 25, 2012,
but the Attorney Defendants did not release their lien—a
problematic choice because their lien purported to attach to Kim
Dahl’s interest in the Pheasant Run land rather than to the real
property itself.
¶5 CFD Payson then filed a complaint in district court,
claiming that Kim Dahl and the Attorney Defendants had
slandered CFD Payson’s title by recording their liens against the
Pheasant Run land, and sought a declaratory judgment that the
liens were wrongful pursuant to the Wrongful Lien Act. In
response, the Attorney Defendants filed a motion to dismiss and
Kim Dahl filed a motion for summary judgment on CFD
Payson’s claims. Both motions were based on the argument that
Kim Dahl had a vested ownership interest in the Pheasant Run
land by virtue of the divorce decree’s award to her of one-half
the proceeds of the sale of the Pheasant Run investment. The
Attorney Defendants therefore claimed that the liens were
proper because Kim Dahl was an owner of the real property
owned by Pheasant Run.
¶6 The district court granted both the Attorney Defendants’
motion to dismiss and Kim Dahl’s motion for summary
judgment on the same basis. The court determined that ‚the
Dahl divorce decree awarded [Kim] Dahl [a] vested interest, and
therefore ownership, in the Property in question.‛ The court
therefore concluded that ‚the liens in question were not
wrongful and defendants did not slander the title of the
Property.‛ The district court dismissed CFD Payson’s claims
with prejudice. CFD Payson now appeals.
¶7 CFD Payson argues that the district court erred in
concluding (1) that Kim Dahl had an ownership interest in the
Pheasant Run land and (2) that the liens were therefore valid and
enforceable. We review the district court’s grant of both a motion
to dismiss and a motion for summary judgment for correctness.
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See Francis v. State, 2013 UT 65, ¶ 19, 321 P.3d 1089 (summary
judgment); Osguthorpe v. Wolf Mountain Resorts, LC, 2010 UT 29,
¶ 10, 232 P.3d 999 (motion to dismiss). A lien is wrongful if, at
the time it is recorded, the lien is not (1) expressly authorized by
statute, (2) authorized by or contained in a court order, or (3)
signed by or authorized by the owner of the real property. Utah
Code Ann. § 38-9-1(6) (LexisNexis 2010). ‚A slanderous
statement is one that is derogatory or injurious to the legal
validity of an owner’s title or to his or her right to sell or
hypothecate the property; second, the statement must be false;
third, the statement must have been made with malice; and,
fourth, the statement must cause actual or special damages to the
plaintiff.‛ Bass v. Planned Mgmt. Servs., Inc., 761 P.2d 566, 568
(Utah 1988) (footnote omitted). We read the district court’s
ruling as a determination that, because Kim Dahl had an
ownership interest in the proceeds from the sale of the Pheasant
Run investment, neither her lien on the Pheasant Run land nor
the Attorney Lien recorded against Kim Dahl’s interest in the
Pheasant Run land were wrongful or ‚false‛ because the liens
were authorized by the owner and authorized by statute,
respectively.1
¶8 CFD Payson argues that the district court erred in
concluding that the divorce decree gave Kim Dahl an ownership
interest in the Pheasant Run land. CFD Payson observes that, at
the time the decree was entered, the real property as issue was
owned by Pheasant Run at Spanish Fields, LLC which was itself
owned, in part, by CFD Payson. CFD Payson contends that
1. Utah law permits an attorney to record a lien ‚for the balance
of compensation due from a client on any money or property
owned by the client that is the subject of or connected with work
performed for the client.‛ Utah Code Ann. § 38-2-7(2)
(LexisNexis 2010).
20140412-CA 4 2015 UT App 251CFD Payson, LLC v. Christensen
Charles Dahl, the sole owner of CFD Payson, ‚therefore had no
legal ownership in the [real property] owned by the [Spanish
Fields] LLC.‛ CFD Payson further contends that ‚*t+he lack of
any legal ownership in the real property by [Charles] Dahl
logically precludes Kim Dahl’s claim *of ownership+.‛ We agree.
¶9 At all times relevant here, formation and operation of a
limited liability company (LLC) under Utah law was governed
by the Utah Revised Limited Liability Company Act. See Utah
Code Ann. §§ 48-2c-101 et seq. (LexisNexis 2010). ‚A company
formed under this chapter is a legal entity distinct from its
members.‛ Id. § 48-2c-104. The nature of a member’s interest in
an LLC is ‚personal property regardless of the nature of the
property owned by the company‛ and ‚*a+ member has no
interest in specific property of a company.‛ Utah Code Ann.
§§ 48-2c-701(1), -701(2). A membership interest in an LLC
therefore does not give the member any interest in the real
property owned by the company. See, e.g., In re McCauley, 520
B.R. 874, 882 (Bankr. D. Utah 2014) (concluding that, under Utah
law, a membership interest in an LLC did not give a debtor or
his wife any interest in the LLC’s real property); TenEyck v.
TenEyck, 885 So.2d 146, 153 (Ala. Civ. App. 2003) (concluding
that, under a substantially similar Alabama law, ‚a member of
an LLC has no interest in property owned by the LLC‛). Thus,
even though Charles Dahl is the sole member of CFD Payson, he
had no personal ownership interest in the Pheasant Run land
itself either at the time of the divorce decree or at the time the
liens were filed. Likewise, although Kim Dahl was awarded
proceeds from the ordered sale of the Pheasant Run investment,
she necessarily had no legally cognizable interest in the Pheasant
Run land itself, as would support recordation of a lien against
the Pheasant Run land.
¶10 For a marital asset to be distributed, the asset must be in
the legal possession of one or both of the marital parties. Endrody
v. Endrody, 914 P.2d 1166, 1169 (Utah Ct. App. 1996). Thus, assets
20140412-CA 5 2015 UT App 251CFD Payson, LLC v. Christensen
in the rightful legal possession of a separate entity generally ‚are
not available for distribution as marital assets.‛2 Id. Because the
Pheasant Run land was not in the actual legal possession of
either Charles Dahl or Kim Dahl at the time of their divorce, the
Pheasant Run land itself cannot be subject to distribution in the
divorce decree, even though proceeds from the eventual
liquidation of the Pheasant Run investment could be subject to
distribution when characterized, as they were here, as marital
property.3
2. Utah has a long-established policy in favor of the equitable
distribution of property in divorce cases. See Dahl v. Dahl, 2015
UT 79, ¶ 25. We do not hold here that the separate property of
one spouse may not be awarded to the other spouse in
‚extraordinary situations where equity so demands.‛ Mortensen
v. Mortensen, 760 P.2d 304, 308 (Utah 1988). Here, the Pheasant
Run land itself was not a marital asset subject to distribution by
the divorce court. Thus, the court’s equitable powers were not
invoked as to the Pheasant Run land itself. Rather, as correctly
determined by the divorce court—Charles Dahl’s interest in the
Pheasant Run investment was a marital asset subject to
distribution. The divorce court’s award to Kim Dahl of one-half
the proceeds from liquidating that interest was correct.
3. An exception to this general rule permits the court to
‚disregard the corporate entity‛ in circumstances where the
owner ‚conducts his private and corporate business on an
interchangeable or joint basis as if they were one.‛ Colman v.
Colman, 743 P.2d 782, 786 (Utah Ct. App. 1987). ‚Former spouses
attempting to shield assets from a court-ordered property
distribution by using a corporate form are especially looked
upon with judicial disfavor.‛ Id. at 787. But nothing in the record
or the divorce court’s order suggests that the divorce court here
pierced the corporate veil in the divorce proceedings.
20140412-CA 6 2015 UT App 251CFD Payson, LLC v. Christensen
¶11 We therefore conclude that the divorce decree cannot be
understood to award an ownership interest in the Pheasant Run
land itself to Kim Dahl. Charles Dahl had no ownership interest
in the Pheasant Run land by virtue of his membership in CFD
Payson. Because neither Charles Dahl nor Kim Dahl legally
possessed the Pheasant Run land, it could not be subject to
distribution in the divorce decree, although Charles Dahl’s
interest in the entity which owned an interest in Pheasant Run at
Spanish Fields, LLC could be distributed as it was. See id. We
therefore understand the divorce decree as awarding to Kim
Dahl only an interest in the proceeds from the liquidation of
Charles Dahl’s interest in CFD Payson, the only asset relating to
the Pheasant Run investment that was properly subject to
distribution by the divorce court.4
¶12 The Attorney Defendants nevertheless argue that Kim
Dahl has a vested ownership interest in the Pheasant Run land.
They rely on Jeffs v. Stubbs, 970 P.2d 1234 (Utah 1998), for the
principle that ‚*o+wnership is a collection of rights to possess, to
use and to enjoy property, including the right to sell and
transmit it‛ and therefore the term ‚owner is often used to
characterize the possessor of an interest less than that of absolute
ownership.‛ Id. at 1241–42 (alteration in original) (citation and
internal quotation marks omitted). The Attorney Defendants
argue that Kim Dahl’s interest here is an ownership interest that
4. For this reason we reject Kim Dahl’s argument that she had an
ownership interest in the Pheasant Run land because she bore
the risk of the land being sold at a loss. Kim Dahl’s risk of loss
relates to Charles Dahl’s interest in CFD Payson, not to the
Pheasant Run land itself. Thus, her argument that ‚the
individual who must sustain the loss of property in case of
destruction is considered the owner‛ has no application to the
real property at issue in the posture of this case.
20140412-CA 7 2015 UT App 251CFD Payson, LLC v. Christensen
encompasses ‚many of the ‘bundled sticks’ necessary to
constitute a vested ownership interest.‛5 But, as discussed above,
we cannot read the divorce decree as having awarded to Kim
Dahl any rights with respect to the land itself, because the
Pheasant Run land was not subject to distribution. Moreover,
nothing in the divorce decree purports to give Kim Dahl the
right to possess, use and enjoy, sell, or transmit the Pheasant
Run land. We therefore do not agree that Kim Dahl has any of
the ‚bundled sticks‛ necessary to constitute an ownership
interest with respect to the Pheasant Run land itself.
¶13 We conclude that Kim Dahl was not awarded an
ownership interest in the Pheasant Run land by virtue of the
divorce decree’s property division. The district court therefore
erred in dismissing CFD Payson’s wrongful-lien and slander-of-
title claims on the basis that Kim Dahl had a vested ownership in
the real property owned by Pheasant Run at Spanish Fields,
LLC. We reverse the district court’s grant of the Attorney
Defendants’ motion to dismiss and Kim Dahl’s motion for
summary judgment. We remand the matter to the district court
for further proceedings consistent with this opinion.
5. The metaphor of ‚bundled sticks‛ refers of course to the
numerous rights and privileges attendant to ownership of
property, which collectively are often ‚compared to a bundle of
sticks, each of which may be violated, removed, or dealt with
separately.‛ Provo City Corp. v. Knudsen, 558 P.2d 1332, 1334
(Utah 1977).
20140412-CA 8 2015 UT App 251