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Trapnell & Associates LLC v. Legacy Resorts LLC

Court of Appeals of Utah

December 20, 2018

Trapnell & Associates LLC, Appellant,
v.
Legacy Resorts LLC, Jax Pettey, and America First Credit Union, Appellees and Cross-appellants,
v.
Praia LLC and Trapnell & Associates LLC, Cross-appellees

          Fourth District Court, Heber Department The Honorable Samuel D. McVey No. 140500081

          Matthew G. Grimmer and Jacob R. Davis, Attorneys for Appellant and Cross-appellees

          Mark R. Gaylord and Zaven A. Sargsian, Attorneys for Appellees and Cross-appellants, America First Credit Union

          David M. Wahlquist, Peter C. Schofield, Rod N. Andreason and Justin Starr, Attorneys for Appellees and Cross-appellants, Legacy Resorts, LLC

          Judge Ryan M. Harris authored this Opinion, in which Judges Gregory K. Orme and Jill M. Pohlman concurred.

          HARRIS, JUDGE.

         ¶1 In August 2010, Legacy Resorts, LLC (Legacy), one of the creditors of the Zermatt Resort (Zermatt) in Midway, Utah, foreclosed on the Zermatt property, which sold at a trustee's sale for $14.5 million. Because the note associated with the trust deed being foreclosed had an outstanding balance of $17.2 million, the trustee credited the entire $14.5 million to the noteholder. Four years later, another creditor (Praia, LLC (Praia), the predecessor-in-interest of Appellant Trapnell & Associates, LLC (Trapnell)) sued, claiming that it had at least partial priority over the foreclosing noteholder, and that it should have been paid at least $9.8 million from the 2010 sale proceeds. In a series of rulings, the district court rejected Praia's claims, dismissed its lawsuit, and entered judgment against it.

         ¶2 Soon after the district court entered its final judgment against Praia, Trapnell filed a "Notice of Substitution," notifying the court that it was Praia's "assignee" and was "the real party in interest who shall prosecute this action." That same day, Trapnell-and not Praia-filed a notice of appeal, purporting to appeal the district court's final judgment and subsidiary orders. After a remand to consider whether Praia should be given extra time to file its own notice of appeal, the district court ruled that there was no need for Praia to be given extra time to appeal, because Trapnell had "already . . . substituted in as the real party in interest" and "[i]ts rights are now Trapnell's," and that the court's intent in previously denying Praia's request for additional time was "that Trapnell as the real party in interest could raise any issue on appeal Praia could have raised."

         ¶3 Both sides appeal certain decisions of the district court. Trapnell appeals the court's rejection of Praia's claim regarding division of the foreclosure sale proceeds. Legacy appeals the court's determination that Trapnell had properly substituted in as the real party in interest; Legacy maintains that no such substitution was ever properly effected, and that because Praia (as opposed to Trapnell) failed to file a timely notice of appeal, this court lacks jurisdiction to adjudicate Trapnell's appeal.

         ¶4 For the reasons set forth herein, we conclude that we have jurisdiction to consider Trapnell's appeal. On the merits, however, we conclude that the district court's decision to reject Praia's claim regarding the division of foreclosure sale proceeds was correct, and therefore affirm.

         BACKGROUND

         ¶5 In order to get its development off the ground, Zermatt needed funding, and it obtained that funding by taking out a series of large loans from various creditors. First, in 2005, George W. Perkins, Jr. (Perkins) loaned Zermatt $6 million, secured by a trust deed on the Zermatt property. A year later, in 2006, Zermatt obtained a second loan, this time for $16.5 million, from America First Credit Union (AFCU). This loan was also secured by a trust deed on the Zermatt property. At about the same time AFCU made this second loan, AFCU and Perkins entered into a subordination agreement in which Perkins agreed to subordinate his interest in the property to AFCU's interest.

         ¶6 By 2009, Zermatt was struggling to meet its obligations under the first two loans, and both Perkins and AFCU had filed notices of default. Zermatt and AFCU worked together to address the situation. First, some of the individuals affiliated with Zermatt formed a new entity (Legacy), and in 2010 AFCU agreed to loan an additional $12.5 million to this new entity, secured by a trust deed on the Zermatt property. Legacy used the proceeds from the new $12.5 million loan to purchase AFCU's 2006 note and trust deed, thereby succeeding to AFCU's interests on that loan. Legacy then agreed to subordinate its position to AFCU's new position, thus subordinating its newly-acquired $16.5 million interest to AFCU's new $12.5 million interest. Perkins was not a party to this second subordination agreement. After this transaction was completed, Perkins's $6 million interest remained subordinated to Legacy's (formerly AFCU's) $16.5 million interest, while Legacy's interest was in turn subordinated to AFCU's $12.5 million interest.

         ¶7 Legacy then foreclosed on its newly-purchased loan (AFCU's interest from 2006), which remained in default. By the time of foreclosure, Legacy's interest had grown from $16.5 million to approximately $17.2 million. Legacy auctioned the property at a trustee's sale on August 9, 2010, having first published notice of the sale in public newspapers and mailed notice directly to Perkins and AFCU. The highest bidder at the auction was Legacy itself, which made a $14.5 million credit bid. The trustee credited Legacy's bid amount against the amount it was owed and, because the credit bid amount ($14.5 million) was less than the outstanding amount on the loan Legacy was foreclosing ($17.2 million), in Legacy's view there were no excess proceeds to distribute to junior creditors. The trustee then transferred title to the property to Legacy by means of a trustee's deed. The foreclosure sale had the effect of extinguishing the trust deed being foreclosed (Legacy's), as well as all trust deeds junior thereto, including Perkins's. All parties agree, however, that AFCU's new $12.5 million lien was senior to Legacy's interest, and was not extinguished by Legacy's foreclosure. AFCU did not foreclose on that loan, and instead retained its $12.5 million interest in the form of a lien on the foreclosed property. That is, Legacy purchased the property at the trustee's sale, but took the property subject to AFCU's $12.5 million lien.

         ¶8 Over the next few years, a series of transactions resulted in Perkins's now-extinguished interest being transferred to Praia. On August 8, 2014, Praia[1] filed a lawsuit against Legacy and AFCU, alleging that Perkins had been "entitled to a portion of the foreclosure sale proceeds" that had been credited to Legacy.

         ¶9 Legacy/AFCU and Praia each filed cross-motions for summary judgment, and stipulated to many of the material facts. In their motion, Legacy and AFCU argued that Perkins had not been entitled to any proceeds from the foreclosure sale because his interest was subordinated to approximately $17.2 million of higher-priority interests, and the sale proceeds were only $14.5 million. In response, Praia argued that, "because a portion of Legacy's [interest] was subordinated" to AFCU's new interest, Legacy was only entitled to keep roughly $4.7 million of the sale proceeds (the difference between Legacy's total $17.2 million interest and AFCU's new $12.5 million interest), and that Perkins was entitled to the remainder.

         ¶10 After full briefing and oral argument, the district court agreed with Legacy and AFCU, and determined that Perkins had intended for his position to be subordinated to Legacy's $16.5 million (now $17.2 million) position, and that this subordination was not affected by AFCU's decision not to foreclose on its new $12.5 million interest that was senior to Legacy's. The court concluded that "there were never enough funds to pay anything to [Perkins] after satisfying the $16.5 million position [that Perkins] was always behind," and that "[t]he amount of the bid, $14.5 million, cannot satisfy the $16.5 million position and still have anything left over." In keeping with this ruling, the district court eventually entered a final order dismissing Praia's claims.

         ¶11 At some point prior to this appeal, Praia assigned its interest in the Perkins loan to Trapnell. After the district court entered final judgment against Praia on Praia's claims, Trapnell filed a "Notice of Substitution of Real Party in Interest" indicating that Praia had assigned its claims to Trapnell and declaring that, "pursuant to Rule 17 of the Utah Rules of Civil Procedure," Trapnell was "the real party in interest who shall prosecute this action." On the same day as it filed its "Notice of Substitution," Trapnell filed a notice of appeal indicating that it, as "assignee ...


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