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Banner Bank v. Real Estate Investor Education, LLC

United States District Court, D. Utah

May 6, 2019

BANNER BANK, successor by merger of AmericanWest Bank which formerly did business in Utah as Far West Bank, Plaintiff,
v.
REAL ESTATE INVESTOR EDUCATION, LLC, a Nevada limited liability company; REAL ESTATE INVESTOR SUPPORT, LLC, a dissolved Nevada limited liability company; JAMES M. SMITH, a Utah resident, JMS MARKETING L.L.C., a Utah limited liability company; LOREE C. SMITH, an individual and JOHN DOES 1-10, Defendants. JAMES M. SMITH Counterclaimant,
v.
BANNER BANK, Counterclaim Defendant. LOREE C. SMITH, Counterclaimant,
v.
BANNER BANK, Counterclaimant,

          MEMORANDUM DECISION & ORDER

          Clark Waddoups United States District Court Judge.

         Introduction

         A three-day bench trial was held in this matter beginning on June 5, 2017, during which the court heard Banner Bank's claims against James Smith (“James”) and Loree Smith's (“Loree”) counterclaims against Banner Bank. Specifically, Banner Bank sought an order to foreclose on twelve parcels of land in Oregon that it alleged James pledged as collateral for a 2009 loan, and Loree alleged that Banner Bank breached the terms of a Consent, Waiver and Release Agreement. Before the parties presented their closing arguments, James filed for Chapter 7 Bankruptcy, and the bankruptcy trustee ultimately abandoned those Oregon properties, mooting Banner Bank's attempts to foreclose on his land. The court heard closing arguments on Loree's counterclaims against Banner Bank on February 28, 2019. The issues concerning Loree's counterclaims have been fully briefed and are ripe for resolution.

         Factual Background

         On or about July 30, 2009, Real Estate Investor Support, LLC (“Real Estate Investor Support”) and AmericanWest Bank, Banner Bank's predecessor in interest, entered into a loan agreement. Real Estate Investor Support executed a promissory note in the amount of $2, 300, 000 in favor of AmericanWest Bank (the “Loan”). James, who was an owner of Real Estate Investor Support, personally guaranteed payment of the Loan and placed his signature on a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (the “Deed of Trust”) that offered as collateral twelve parcels of land situated in Lane County, Oregon (the “Oregon Properties”). The Oregon Properties consisted of eleven undeveloped lots (the “Eleven Parcels”) and a condominium (“Unit 7”). At the time James placed his signature on the Deed of Trust, July 30, 2009, James was the sole owner of the Eleven Parcels, and he and Loree jointly owned Unit 7 as tenants by the entirety.[1] Although the Deed of Trust listed James and Loree jointly as “Owner” and included a signature block for both James and Loree, Loree refused to sign it. James placed his signature on the Deed of Trust but did not change the language naming him and Loree as the “Owner.” He also did not change the signature block which required both James and Loree to sign. Banner Bank proceeded to close and fund the Loan without the fully executed Deed of Trust. Banner Bank then held the defective Deed of Trust without recording it. Once the Loan went into default, Banner Bank attempted to record it. After the Deed of Trust was rejected for recording, someone altered it to cross out Loree's name and the part of the signature block that required her signature. Almost two years after the Loan closed, Banner Bank then recorded the altered Deed of Trust among the land records of Lane County, Oregon, on July 13, 2011. At one point, in an attempt to cure the defective Deed of Trust, Banner Bank prepared a revised deed of trust with only James's name as the Owner. The revised deed of trust did not encumber Unit 7, but only the Oregon Properties that were held by James. James placed his signature on the revised deed of trust but refused to deliver it to Banner Bank, instead delivering it to his lawyer to hold in trust pending resolution of the pending disputed issues. The revised deed of trust was never delivered to Banner Bank.

         James began to experience financial difficulties soon after agreeing to the Loan. On December 31, 2010, Real Estate Investor Support, James, and Loree sold all of Real Estate Investor Support's assets to Real Estate Investor Education, LLC (“Real Estate Investor Education”) under an Asset Purchase Agreement. As part of this agreement, Real Estate Investor Education agreed to assume the Loan, and on or about December 31, 2010, Real Estate Investor Support, Real Estate Investor Education, James, and Far West Bank, a division of AmericanWest Bank, Banner Bank's predecessor in interest, entered into a Consent, Waiver and Release Agreement (the “Release”). Material to this case is Paragraph 4 of the Release, which states:

In consideration of this Agreement, the Borrower and Lender, on behalf of themselves, their successors, assigns, legal representatives (collectively and individually the “Releasing Parties”), hereby fully, finally and completely RELEASE and FOREVER DISCHARGE Loree Smith of and from any and all claims, controversies, disputes, liabilities, obligations, demands, damages, debts, liens, actions and causes of action of any and every nature whatsoever relating to the Loan.

(Pl. Ex. 11, at ¶ 4 (emphasis in original).) The “Loan” referenced in the Release is the Loan described above. The Release did not modify or release James's personal guaranty to repay the Loan.

         Real Estate Investor Education failed to repay the Loan, and James did not make payments pursuant to his guaranty. Thus, on August 6, 2012, Banner Bank initiated this action by filing a complaint against Real Estate Investor Education, Real Estate Investor Support, James, JMS Marketing L.L.C., Loree, and 10 John Does, in which it sought, inter alia, an order to foreclose on the Deed of Trust, a writ directing the sale of James's interest in the Oregon Properties, and declaratory judgment against Loree determining that she does not hold any interest in the Eleven Parcels. (ECF No. 2 at ¶¶ 67, 68, 73-77, Compl.)

         Real Estate Investor Education, Real Estate Investor Support, and JMS Marketing L.L.C. failed to answer the Complaint, and on February 1, 2016, default judgment was entered against them. After her initial motion to dismiss was denied, Loree filed an Answer to Banner Bank's Complaint in which she requested that the Deed of Trust be canceled and asserted counterclaims against Banner Bank for slander of title, civil conspiracy, abuse of process, and breach of contract. (ECF No. 75.) James similarly raised counterclaims against Banner Bank, alleging improper securitization of pledged property located in South Carolina and breach of contract regarding the sale of intellectual property. (ECF No. 24.)

         Banner Bank moved for summary judgment on all of these counterclaims. By Order dated February 21, 2017, the court granted Banner Bank summary judgment as to James's liability under the guaranty; dismissed with prejudice both of James's counterclaims; granted Banner Bank summary judgment on all of Loree's counterclaims except for her claim that Banner Bank breached the Release; and determined that Banner Bank's claims for declaratory judgment as to Loree's ownership in the Oregon Properties were moot. (ECF No. 196.)

         At a three-day bench trial beginning June 5, 2017, the court heard the two remaining issues in this case-Banner Bank's request for an order to foreclose on and a writ to sell the Eleven Parcels and Loree's counterclaim that Banner Bank breached the Release. The court heard testimony and received evidence from James; Loree; Oana Cosmina Norman, an employee of Banner Bank (“Ms. Norman”); and Carrie Hurst, a paralegal for the law firm that represents Banner Bank. The parties offered substantial evidence regarding the alteration and recordation of the Deed of Trust. The evidence at trial supported the facts set forth above as to Banner Bank's efforts to obtain signatures on the Deed of Trust and record it.

         When Banner Bank offered the original Deed of Trust into evidence during the second day of trial, it was discovered that the document had received additional alterations. At some point between the execution and recordation of the Deed of Trust, the numbers “132” were written on the upper left-hand corner of the first page in blue ink, a series of numbers were written on the top of the first page and subsequently whited-out, and a note was written on the right-hand corner of the first page in pencil. Someone subsequently attempted to erase the penciled note. It appears the note reads: “Not [r?] . . d as per Rick S Dan Eag.”[2] Loree implies that this erased language indicates that Banner Bank had knowledge that the Deed of Trust was defective, but the court does not reach a conclusion on what the language meant. While a copy of the recorded version of the Deed of Trust was attached to Banner Bank's Complaint and disclosed in discovery, that copy did not depict the numbers that were written on the top of the first page and whited-out or the note that was written on the right-hand corner of the first page and erased-it did, however, show the written “132.”

         At the close of evidence, the court directed the parties to submit written briefs for their closing arguments, which they did on August 10, 2017. Closing arguments were scheduled to be heard on October 12, 2017, but on or about September 5, 2017, James filed for Chapter 7 Bankruptcy, and the matter was stayed. Subsequently, the Trustee in James's bankruptcy proceeding abandoned the Oregon Properties, thereby mooting Banner Bank's request for an order to foreclose on the Eleven Parcels.

         On February 28, 2019, the court heard oral argument on the only remaining issue in this case-Loree's counterclaim that Banner Bank breached the Release. Loree asserts that she is entitled to recover the attorney fees she incurred as a result of this breach. Because it is undisputed that Loree did not make, and therefore waived, a claim for her attorney fees as a type of consequential damages, she pursues those fees under a theory that Banner Bank acted in bad faith. Following oral argument, Banner Bank submitted a Motion for Leave for the Court to Receive Corrections and/or Clarifications Concerning Inaccurate Statements or Arguments Made and/or Asserted at Hearing (ECF No. 285), which was opposed by Loree (ECF No. 288). The court has reviewed Banner Bank's motion and its reply brief in support of that Motion (ECF No. 289) and has considered the submissions and arguments contained therein in making this ruling.

         Findings of Fact

         The court enters these findings of fact based on a preponderance of the evidence. In assessing the credibility of the witnesses, the court has considered the source and basis of each witness's knowledge; the ability of each witness to observe; the strength of the witness's memory; each witness's interest, if any, in the outcome of the litigation; the relationship of each witness to either side in the case; and the extent to which each witness's testimony is either supported or contradicted by other evidence presented at trial. To the extent that any of the above statement of background facts is not expressly included below, those statements are additional findings of fact by the court. In addition, if any findings of fact that may be viewed as conclusions of law, or if any conclusions of law that may be viewed as findings of fact, the court intends that they be so interpreted.

         The 2009 Deed of Trust

         1. On July 30, 2009, Real Estate Investor Support and Far West Bank, a division of AmericanWest Bank, predecessor in interest to Banner Bank, entered into a Term Loan Agreement. Pl. Ex. 3.

         2. As part of the Term Loan Agreement, Real Estate Investor Support gave Far West Bank a promissory note in the amount of $2.3 million (the “Loan”). Pl. Ex. 2.

         3. In order to provide assurance for the repayment of the Loan, James, who was an owner of Real Estate Investor Support, placed his signature on a Guaranty on July 30, 2009, in which he guaranteed the payment and performance of the Loan. Pl. Ex. 4.

         4. James also placed his signature on a Deed of Trust on July 30, 2009 that pledged as collateral for the Loan the Oregon Properties, which consisted of the Eleven Parcels and Unit 7. Pl. Ex. 7, 52, 53.

         5. On July 30, 2009, the Eleven Parcels were owned by James. Trial Tr., 56:1-5.

         6. On July 30, 2009, Unit 7 was owned jointly by James and Loree. Def. Ex. 148; Trial Tr., 56:1-10.

         7. Banner Bank knew that Unit 7 was owned jointly by James and Loree. Id. As such, the Deed of Trust identified both James and Loree as “Owner” and provided a signature block and notary acknowledgement for both James and Loree. Pl. Ex. 7, 52, 53.

         8. After James placed his signature on the Deed of Trust on July 30, 2009, he gave it, along with other Loan documents, to Aaron Osmond, the manager of Real Estate Investor Support. Trial Tr., 414:11-22. James was aware that Loree had not signed the Deed of Trust, but he believed that she would sign it before it was recorded. Id. Mr. Osmond delivered those documents to Banner Bank. Trial Tr., 41:13-21. Loree refused to sign the Deed of Trust. Pl. Ex. 7, 52, 53.

         9. Sometime after 2009, but likely just before July 13, 2011, Banner Bank attempted to record the Deed of Trust, but Lane County, Oregon recorder's office rejected it because the instrument was not signed by Loree. Pl. Ex. 44, at 42:8-43:24; 62:16-63:24; Def. Ex. 163, Ex. 4.

         The Release

         10. On December 31, 2010, Real Estate Investor Support, James, and Loree sold all of Real Estate Investor Support's assets to Real Estate Investor Education under an Asset Purchase Agreement. Pl. Ex. 10. As part of this agreement, Real Estate Investor Education agreed to assume the Loan. Id.

         11. In connection with this Asset Purchase Agreement, on or about December 31, 2010, Real Estate Investor Support, Real Estate Investor Education, James, and Far West Bank, a division of AmericanWest Bank, Banner Bank's predecessor in interest, entered into the Release. Pl. Ex. 11.

         12. Paragraph 4 of the Release states that “[i]n consideration of this Agreement, the Borrower and Lender, on behalf of themselves, their successors, assigns, legal representatives (collectively and individually the “Releasing Parties”), hereby fully, finally and completely RELEASE and FOREVER DISCHARGE Loree Smith of and from any and all claims, controversies, disputes, liabilities, obligations, demands, damages, debts, liens, actions and causes of action of any and every nature whatsoever relating to the Loan.” Id. at ¶ 4 (emphasis in original).

         Negotiations to Revise Deed of Trust

         13. On September 21, 2010, Ms. Norman, an employee of Banner Bank, emailed Dan Eagan, counsel for Banner Bank, and informed him that the Deed of Trust needed to be revised to remove Loree's name and signature line. Def. Ex. 163, Ex. 4. Mr. Eagan prepared a revised deed of trust that eliminated Unit 7 from the property securing the loan and removed Loree's name and signature block. Def. Ex. 163, Ex. 7. The revised deed of trust therefore only required James's signature.

         14. James placed his signature on the revised deed of trust on December 30, 2010. Id. However, he only sent Banner Bank an electronic version of the document's signature page and retained the original. Pl. Ex. 44, 115:11-17. James told Banner Bank (through his counsel) that the original was to be held in trust “to allow time to discuss and make changes needed to the language of the underlying agreements with the attorney drafters.” Def. Ex. 163, Ex. 7. No. ...


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