Dimeo v. Gesik

• Decision Date: 22 September 2004
• Citation: 98 P.3d 397,195 Or. App. 362
• Parties: David DIMEO, Respondent, v. Darren B. GESIK, Joseph E. Chrisman, and Bonita Jewell Chrisman, Defendants, and Western Bank, a division of Washington Mutual, Appellant.
• Court: Oregon Court of Appeals

98 P.3d 397

195 Or. App. 362

David DIMEO, Respondent, v. Darren B. GESIK, Joseph E. Chrisman, and Bonita Jewell Chrisman, Defendants, and Western Bank, a division of Washington Mutual, Appellant.

972918; A119453.

Court of Appeals of Oregon.

Argued and Submitted January 28, 2004.

Decided September 22, 2004.

Jonathan M. Radmacher, Portland, argued the cause for appellant. With him on the briefs was McEwen Gisvold, LLP.

Thomas H. Anderson, Mcminnville, argued the cause and filed the brief for respondent.

Before EDMONDS, Presiding Judge, and WOLLHEIM and SCHUMAN, Judges.

WOLLHEIM, J.

This is the second time this case has been before us. In Dimeo v. Gesik, 164 Or.App. 567, 993 P.2d 183 (1999), we reversed the trial court's grant of summary judgment in favor of plaintiff Dimeo and against defendant Western Bank (the bank). On remand, plaintiff prevailed at trial, and the bank does not challenge that result. After trial, however, the trial court entered a supplemental judgment¹ awarding attorney fees to plaintiff under ORS 20.105(1) on the ground that the bank had asserted a counterclaim for which it had no objectively reasonable basis.² The bank appeals from that judgment, raising five assignments of error. Because we conclude that the bank's counterclaim — although ultimately unsuccessful — was objectively reasonable, we address only the bank's first assignment of error. We reverse the trial court's judgment awarding attorney fees.

We take the facts from our prior opinion. The subject property originally was owned by Dorcia Johnson. She sold the property to Damen Gesik, subject to two trust deeds that Johnson had placed against the property. Gesik then gave two additional trust deeds to secure two separate $100,000 loans, one to Dimeo and one to Joseph and Bonita Chrisman (the Chrismans). All parties' interests were properly recorded.

Thereafter, Gesik sought financing from the bank to pay off Johnson. The bank offered Gesik a $110,000 home equity line of credit, conditioned on the issuance of a standard title insurance policy showing the bank's trust deed in the first position. The bank received a preliminary title report from Lincoln County Title and Escrow showing the Dimeo and Chrisman interests in the property. According to the bank, it then received a title policy from Stewart Title, an affiliate of Lincoln County Title and Escrow. The title policy showed the bank in first position and made no reference to the Dimeo and Chrisman liens. After the funds were disbursed, Gesik used part of the funds to pay off the two trust deeds that Johnson had placed against the property.

"Dimeo then initiated this action seeking judicial foreclosure of his trust deed, naming as defendants both the Chrismans and Western Bank. * * * Western Bank counterclaimed against Dimeo and cross-claimed against the Chrismans, alleging that it was entitled to superior position by virtue of the doctrine of equitable subrogation on the ground that it was justifiably unaware that the Dimeo and Chrisman liens had not been discharged. Western Bank moved for summary judgment on its theory of equitable subrogation. Dimeo also moved for summary judgment, arguing that the bank's reliance on the doctrine of equitable subrogation was unavailing, given that it had not acted in justifiable ignorance of the intervening liens. The trial court allowed Dimeo's motion, denied Western Bank's, and entered judgment accordingly."

Dimeo, 164 Or.App. at 570, 993 P.2d 183. As noted, on appeal, we reversed.

The bank does not dispute that it initially knew of the Chrisman and Dimeo liens. But the bank claims that it was excusably ignorant of the continued existence of those liens at the time it released the funds for the loan to Gesik. Before examining the record in that regard, we emphasize that the question is not whether the bank should have prevailed on its equitable subrogation claim. See Mattiza v. Foster, 311 Or. 1, 8, 803 P.2d 723 (1990)

("A failure to prevail does not, alone, render a party's position meritless or even suggest that it is."). Rather, the narrow question is whether the bank had an objectively reasonable basis for asserting that it was excusably ignorant of the Chrisman and Dimeo liens when it released the loan funds.

When it filed its first amended answer asserting the equitable subrogation claim, the bank had an affidavit from James McGinnis, the manager of the bank's Tillamook branch. In that affidavit, McGinnis stated:

"I phoned Lincoln County Title Company immediately after receiving and reviewing their preliminary title report to discuss that Western Bank required that David Dimeo and the Chrisman's [sic] liens * * * would have to be subordinated to Western Bank's required first trust deed position or removed otherwise. I was assured this would occur, and I thereafter concluded Western Bank's position would be protected by our instruction to the title company and their assurances the Dimeo and Chrisman liens would be subordinated or removed.

"On or about October 8, 1996, the loan was disbursed and about that time Western Bank received a title policy stating that Western Bank had a first position in that no other liens were noted on the policy."

In his deposition testimony, McGinnis also stated that he was assured by a Lincoln County Title employee that "she would not disburse [the] funding until [the bank] would be in a first lien position." McGinnis testified, "I funded the loan based on Vickie Ames['s] assurances that my deed of trust would be in a first position, and that was affirmed when I got my title insurance."³ Ames, in turn, testified that it was part of her job to obtain a reconveyance or subordination. Ames stated that she had spoken with Gesik before the loan closed and that — although she did not remember the specifics of the conversation — they had talked about Dimeo and Chrisman "releas[ing] their interest so that Western [Bank] could go into first position[.]" Ames also testified at deposition (and later at trial) that she would not have handled the transaction differently if she had received McGinnis's instructions in writing, instead of orally.

The parties disagreed about when McGinnis reviewed the "final" title insurance policy. As set out above, when this case previously was before us the bank represented that, in disbursing the funds, McGinnis had relied on the title insurance policy showing the bank in first position. At trial following remand, McGinnis testified that he did not receive any updated title information until after closing. The bank now concedes that McGinnis did not consider the title insurance policy in deciding to disburse the funds.

Following trial on remand, the trial court made findings of fact and conclusions of law on plaintiff's motion for attorney fees. The court found that its earlier summary judgment had been reversed by this court

"based upon Western Bank's representation that it was excusably ignorant of the Dimeo and Chrisman liens at the time of closing its loan because it was relying upon the escrow officer's verbal assurances that it would be in first position and a final title report that showed the bank in first position. That representation by Western Bank was false."

The trial court found that the bank on several occasions "falsely represented in its brief" to this court that it had relied on the written title policy in disbursing the funds. Finally, the court found:

"The bank manager[, McGinnis], and the escrow officer[, Ames], also both admitted at trial that they had no evidence that the title company had given the bank verbal assurances that it would be in first priority. McGinnis and Ames both testified that they had no recollection of talking to each other about this transaction, and no recollection of any verbal assurances that Western Bank's trust deed would be put in first priority."

The trial court concluded that "Western Bank had no objectively reasonable basis for asserting the defense of equitable subrogation, and it actively misrepresented to the court that facts existed to support its claim for equitable subrogation when such facts did not exist." We turn to that issue on appeal.

In our opinion in the bank's prior appeal, we explained the relevant legal inquiry:

"[W]e must determine whether, as a matter of law, Western Bank was excusably ignorant of the intervening Dimeo and Chrisman liens. There is no dispute that Western Bank initially had actual knowledge of the liens. The preliminary title report revealed the existence of the liens. The bank manager even called a representative of the title company to talk about the necessity of obtaining the discharge of the liens. Not surprisingly, therefore, Western Bank concedes that it had actual knowledge of the liens, at least as of the time of the receipt of the preliminary title report.

"Western Bank nevertheless argues that, at the time that it released the funds, it was ignorant of the intervening liens, because it had instructed the title company to make sure that the liens were either paid or subordinated, and because, consistent with those instructions, a final title report made no mention of the liens. Dimeo argues that, as a matter of law, the bank's actual knowledge of the intervening liens cannot have been, in effect, erased by the subsequent title report. According to Dimeo, it was grossly negligent of Western Bank to rely on a subsequent title report that did not explain what had happened to the intervening liens. Western Bank argues that it is routine for lenders to rely on final title reports that provide different information from what was provided in a preliminary title report."

Dimeo, 164 Or.App. at 571-72, 993 P.2d 183 (emphasis in original). We suggested that the existence of excusable ignorance might depend, at least in part, on "what is commercially reasonable under these circumstances." Id. at 572, 993 P.2d 183.

The controversy in this attorney fee dispute now centers on...