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SA Group Properties Inc. v. Highland Marketplace LC

Court of Appeals of Utah

August 24, 2017

SA Group Properties Inc., Appellee,
Highland Marketplace LC, High Noon LC, Solana Beach Holdings LC, Thomas A. Hulbert, and Bret B. Fox, Appellants.

         Fourth District Court, Provo Department The Honorable James R. Taylor No. 120401312

          James E. Magleby and Kennedy D. Nate, Attorneys for Appellants

          Steven T. Waterman and Nathan S. Seim, Attorneys for Appellee.

          Judge David N. Mortensen authored this Opinion, in which Judges J. Frederic Voros Jr. and Kate A. Toomey concurred. [1]



         ¶1 Highland Marketplace LC, High Noon LC, Solana Beach Holdings LC, Thomas A. Hulbert, and Bret B. Fox (collectively, Highland) invested in a land-development project that ran up against the economic recession of 2008. Highland defaulted on its multimillion-dollar loan, and SA Group Properties Inc. (SA Group) foreclosed on Highland's investment property, an incomplete commercial development in Highland, Utah, just east of an area known as Silicon Slopes (the Property). The foreclosure sale price was less than the loan balance, leading to this deficiency action. After a bench trial, a judgment of almost $5, 000, 000 was entered against Highland. On appeal, Highland contends that the trial court erroneously denied its motion to amend its answer. Highland also contends that the court erred when it concluded that the fair market value of the Property was $10, 568, 000, essentially rejecting Highland's expert's opinion on the market value of the Property at the time of the foreclosure sale. We affirm.


         ¶2 Highland obtained a $28, 000, 000 loan, secured by the Property, from First Community Bank in September 2007. It used the loan to develop the Property, including connecting utilities, building roads and sidewalks, and constructing commercial buildings on several lots. Development eventually stalled and Highland defaulted on the loan. SA Group, as successor to First Community Bank, foreclosed on the Property.

         ¶3 At the time of foreclosure, Highland owed $14, 685, 370 on the loan. The foreclosure sale yielded $8, 565, 000. SA Group commenced this deficiency action[2] against Highland in August 2012.

         ¶4 In March 2014, Highland filed its second motion to amend seeking to extend fact discovery and to assert counterclaims against SA Group based on First Community Bank's alleged failure to fund a draw request.[3] By this time, fact discovery had concluded and a motion for summary judgment filed by SA Group had been decided. However, no trial date had been set.

         ¶5 Although SA Group provided 29, 000 pages of discovery in nine separate disclosures between April 2013 and February 2014, the proposed amended answer was purportedly based on five documents produced between April and September 2013. Other documents long in Highland's possession-the draw request, loan forms, and a 2010 email chain[4]-show that Highland was aware of the unfunded draw request prior to the commencement of the deficiency action.

         ¶6 The trial court denied the motion to amend, concluding that the motion to amend was "untimely based on [Highland's] previous knowledge of the failed draw requests and the completion of significant procedural stages in the case." The court also concluded that the delay in filing the motion to amend was not justified, due to Highland's long-held knowledge of the operative facts.

         ¶7 The trial court held a three-day bench trial in May and August 2015. The only issue at trial was the fair market value of the Property as of the foreclosure date. Three experts testified; Kerry Jorgensen and Darrin Liddell testified for SA Group and Philip Cook testified for Highland. Jorgensen valued the Property at $10, 568, 000. Liddell valued the Property at $9, 240, 000. Cook valued the Property at $14, 710, 000. The trial court ultimately adopted Jorgensen's opinion and rejected the valuations of the other experts. The court entered a judgment against Highland for $4, 747, 891 plus attorney fees and costs.

         ¶8 The trial court referenced several reasons for its decision to reject Cook's valuation of the Property. First, it found that Cook ascribed too much value-$475, 000-to a letter of intent from a restaurant chain, Jack in the Box (the Letter of Intent). The court noted that the Letter of Intent was "dated days prior to the foreclosure sale and was signed by Highland as the Landlord, " even though Highland no longer owned the Property at the time.[5]

         ¶9 The trial court also found that Cook used unreliable facts and data in valuing one of the lots on the Property known as the Anchor Pad. The trial court based this conclusion on Cook's testimony that he valued the Anchor Pad as multi-unit housing because Highland "said [it was] going to do multi-family, and so [he] started down that road . . . [and] just sort of finished it on that basis." However, Cook also opined in a report that the multi-unit housing appraisal is in effect the same as a commercial property appraisal because "the value of the underlying land for commercial use is roughly the same as the value of the underlying land for multifamily use." Cook testified at trial that he valued the Anchor Pad as commercial property, and Jorgensen testified that Cook "did it correctly for the anchors." The trial court determined that Cook's valuation was unreliable because he

valued the "Anchor Pad" of [the Property] using the condition that the Anchor Pad would function as multi-family housing, even though, (1) [the Property] was not zoned for multi-family housing; (2) [the Property] was not equipped with a sewer system or other necessary infrastructure to handle multi-family housing; [(3)] Highland City has stated that it is against re-zoning the property; and (4) there is no indication, other than [Highland's] own statements to Mr. Cook, that Highland City was ever willing to [re-zone] the Highland Property for multi-family use.

         ¶10 In addition to Cook's valuation of the Anchor Pad, the trial court criticized Cook's appraisal of these and other lots for his use of assumed conditions. Those assumed conditions are

(1) the relied-upon letter of intent would be executed and that a "Jack in the Box" would be constructed; (2) the zoning of the anchor pads would be changed; (3) a Walgreens would be timely constructed; (4) Pad I would be subdivided into two parcels; (5) the fitness club lease would be terminated; (6) the fitness space lease would be converted to retail space; and (7) the entire project would be leased to stabilized occupancy.

         The trial court made these findings despite Jorgensen's testimony that he and Cook each assumed that Walgreens would be constructed and deducted costs to determine the actual value of the lease, the subdivision of Pad I was irrelevant to the valuation, [6] and each expert performed a stabilized estimate to arrive at an "as is" appraisal value.

         ¶11 There was some discussion at trial about the methods the experts used to reach their valuations, especially whether Cook used the "land residual method."[7] Jorgensen conceded that Cook used "a slightly different technique" than the land residual method but explained that "what [Cook] used was still a land residual technique" and that "all land residual techniques . . . have that same problem." Jorgensen also conceded that this same critique of Cook's approach could be applied to his "incremental value enhancement" in the Walgreens lot.

         ¶12 Based on the above findings, the trial court determined that Cook's valuation was less reliable than the other experts' valuations. Specifically, the court found that Cook based his appraisal on unsupported and unreliable facts and data, used unestablished and unreliable methods to reach his valuation, and did not value the Property "as is." Accordingly, the trial court adopted Jorgensen's valuation.


         ¶13 Highland presents two issues for our review. First, Highland contends that the trial court erred in denying its motion to amend its answer. We review a trial court's denial of leave to amend for an abuse of discretion. Estrada v. Mendoza, 2012 UT App 82, ¶ 19, 275 P.3d 1024. A trial court abuses its discretion if there is "no reasonable basis for the decision." Tschaggeny v. ...

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