2DP Blanding, LLC v. Palmer

• Decision Date: 06 September 2017
• Docket Number: No. 20150670,20150670
• Citation: 423 P.3d 1247
• Parties: 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.
• Court: Utah Supreme Court

423 P.3d 1247

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.

No. 20150670

Supreme Court of Utah.

Filed September 6, 2017

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.

On Direct Appeal

Associate Chief Justice Lee, opinion of the Court:

¶ 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 order was the only recorded document relating to the First National case.

¶ 11 Palmer did not obtain a stay of that order or provide notice of his appeal by recording a lis pendens . So, the court concluded, Black Oil and 2DP "had no notice to suggest that the order was subject to an appeal" and had no independent duty to inquire and determine whether Palmer had appealed the order.

¶ 12 Palmer filed a timely appeal. We review the court's grant of summary judgment for correctness. Heslop v. Bear River Mut. Ins. Co. , 2017 UT 5, ¶ 15, 390 P.3d 314.

II

¶ 13 A party who appeals an adverse final order may obtain a stay of that order pending the decision on appeal. UTAH R. CIV. P. 62(d). When such a stay is entered, all parties are barred from executing the stayed order. But a stay is conditioned upon the payment of a supersedeas bond. Id. And some parties accordingly elect not to obtain a stay. In that event, the adverse order and any resulting judgments "remain[ ] valid and enforceable during the pendency of an appeal."² See, e.g. , Cheves v. Williams , 1999 UT 86, ¶ 47, 993 P.2d 191 ; Skeen v. Pratt , 87 Utah 121, 48 P.2d 457, 458 (1935) ; see also Franklin Fin. v. New Empire Dev. Co. , 659 P.2d 1040, 1043 (Utah 1983).

¶ 14 Mr. Palmer finds himself in that position. He failed to obtain a stay of the order authorizing First National to proceed with a foreclosure sale—a decision that paved the way for the lawful sale of the property to third parties, first to Black Oil and later to 2DP. Yet Palmer asks us to allow him to avoid the consequences of his decision not to seek a stay of the order in question. He notes that he has now secured a reversal of the order in the decision of the court of appeals. And he now asks us to reinstate his property interest in Parcel 2.

¶ 15 The threshold question presented is whether an appeal of an unstayed foreclosure order creates a cloud on title of the subsequently foreclosed property. If it does, Black Oil and 2DP purchased Parcel 2 subject to Palmer's appeal of First National's foreclosure order—and Palmer maintains a valid and actionable interest in the property. If it doesn't, 2DP owns Parcel 2 free and clear of that appeal—and Palmer has no further recourse against the property or 2DP.

¶ 16 2DP asserts that its title to Parcel 2 is not clouded by Palmer's appeal of the foreclosure order because the subsequent, lawful foreclosure sale extinguished Palmer's trust deed by operation of law. Palmer, on the other hand, claims that his appeal fully preserved his interest in Parcel 2. Under his theory, Black Oil and 2DP were both on inquiry notice of his appeal because First National recorded the foreclosure sale order. And, in Palmer's view, Black Oil and 2DP should have looked to the court docket, seen that the order had been appealed, and realized that Palmer still had a claim to the property.

¶ 17 Palmer also proffers two additional grounds for reversing the district court. First he argues the original foreclosure sale and subsequent transfers were invalid because First National did not properly record the foreclosure sale order. And second he claims that 2DP was barred from challenging the survival of his trust deed under the doctrine of collateral estoppel.³

¶ 18 We reject each of Palmer's arguments and agree with 2DP. We first hold that an appeal from an unstayed foreclosure order does not create a cloud on title. Then we reject Palmer's alternative grounds for reversal.

A

¶ 19 Palmer asserts that 2DP had inquiry notice of the litigation and subsequent appeal regarding Parcel 2. And on that basis he claims that 2DP took the property subject to his trust deed, and thus that the district court erred in ruling that 2DP was a bona fide purchaser that acquired title to Parcel 2 free and clear of Palmer's prior interest in the property.

¶ 20 Palmer's position would require us to rule that an appeal automatically creates a cloud on the title of property affected by an appealed order—even if the appellant does not obtain a stay of the appealed order. We decline to do so.

¶ 21 When an appeal is taken without supersedeas bond or stay, "the judgment or order appealed from is enforceable as though no appeal had been taken." Skeen , 48 P.2d at 458 (citation omitted). "Any other result would nullify the requirement that the appellant obtain a stay pending appeal." Richards v. Baum , 914 P.2d 719, 721 (Utah 1996).

¶ 22 Granted, a litigant is not entitled to keep all the proceeds of its executed judgment when the underlying order is reversed.⁴ But an appellant cannot retroactively invalidate a foreclosure sale if the sale was executed during the appeal and the appellant did not obtain a stay of execution.⁵

¶ 23 The question presented here is whether this latter principle extends to this case. Palmer contends that it does not. Palmer insists that a successful appellant instead maintains an interest in the property (with a cloud on its title without a stay)...