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LLC v. Palmer

Supreme Court of Utah

September 6, 2017

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.

         On Direct Appeal

         Seventh District, San Juan The Honorable Lyle R. Anderson No. 140700017

          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

          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.

          OPINION

          Lee Associate Chief Justice.

         ¶ 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.

         ¶ 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 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 ...


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