Bert Kuty Revocable Living Trust v. Gerry

• Citation: 175 Wash.App. 292,306 P.3d 994
• Decision Date: 27 June 2013
• Docket Number: No. 42811–3–II.,42811–3–II.
• Parties: The BERT KUTY REVOCABLE LIVING TRUST, by its trustee, David NAKANO, Appellant, v. Gerry and John Doe MULLEN, husband and wife; Michael and Jane Doe Mullen, husband and wife; D.C. Inc., d/b/a/ Northwest Properties of S.W. Washington, a Washington corporation; Columbia River Properties, Inc., a Washington corporation; Frederick and Jane Doe Lemp, husband and wife; New Enterprise, LLC, a Washington LLC; Robert and Daniele Hayes, husband and wife; Rusty and Jane Doe Fields, husband and wife; Endeavor, Inc. d/b/a Endeavor Consultants Inc.; John and Jane Does 1–10. Respondents.
• Court: Washington Court of Appeals

175 Wash.App. 292

306 P.3d 994

The BERT KUTY REVOCABLE LIVING TRUST, by its trustee, David NAKANO, Appellant,

v.Gerry and John Doe MULLEN, husband and wife; Michael and Jane Doe Mullen, husband and wife; D.C. Inc., d/b/a/ Northwest Properties of S.W. Washington, a Washington corporation; Columbia River Properties, Inc., a Washington corporation; Frederick and Jane Doe Lemp, husband and wife; New Enterprise, LLC, a Washington LLC; Robert and Daniele Hayes, husband and wife; Rusty and Jane Doe Fields, husband and wife; Endeavor, Inc. d/b/a Endeavor Consultants Inc.; John and Jane Does 1–10. Respondents.

No. 42811–3–II.

Court of Appeals of Washington,

Division 2.

June 27, 2013.

Publication Ordered June 27, 2013.

Benjamin D. Cushman, Stephanie M.R. Bird, Cushman Law Offices PS, Olympia, WA, for Appellant.

Donald Louis Anderson, Attorney at Law, Tacoma, WA, Steven Boyd Madsen, The Law Offices of Steven B. Madsen, Cougar, WA, Chrystina R. Solum, Eisenhower & Carlson, PLLC, Tacoma, WA, Michael Wayne Johns, Roberts Johns & Hemphill, PLLC, Gig Harbor, WA, for Respondent.

PART PUBLISHED OPINION

VAN DEREN, J.P.T.

[175 Wash.App. 296]¶ 1 The Bert Kuty Revocable Living Trust (Kuty Trust) appeals the trial court's summary judgment dismissal of its claim for an accounting of proceeds from a trustee's sale against Robert and Daniele Hayes and summary judgment dismissal of its successor liability claim against Columbia River Properties, Inc.¹ We affirm the trial court and award attorney fees to the Hayeses on appeal.

FACTS

¶ 2 This dispute stems from a failed real estate transaction and subsequent nonjudicial foreclosure, which the Kuty Trust alleged was an equity stripping scheme. The Kuty Trust owned various parcels of real property that it listed for sale through its real estate agent, Jerry Mullen of D.C. Inc. d/b/a Northwest Properties of S.W. Washington. Mullen introduced the Kuty Trust trustee, David Nakano, to Rusty Fields of Endeavor, Inc. Nakano understood that Endeavor assisted purchasers of real property.

¶ 3 In 2006, Mullen and Fields presented the Kuty Trust with a prospective buyer, New Enterprises, LLC,² for the undeveloped lot involved in the instant lawsuit. New Enterprises offered to purchase the lot for $80,000 with a combination of financing sources. The Kuty Trust accepted a small down payment and a promissory note secured by a deed of trust for the remainder of the purchase price. New Enterprises executed a promissory note for $56,000 and a deed of trust securing the note in favor of the Kuty

¶ 4 New Enterprises then entered into a speculative construction loan agreement with LeGrand Investments, LLC,³ in which LeGrand Investments agreed to loan up to $238,000 to New Enterprises for the lot and for funds to construct a single family residence. New Enterprises executed a promissory note for $238,000 to LeGrand Investments and secured the note through a deed of trust on the lot. This transaction required the Kuty Trust to subordinate its deed of trust to LeGrand Investments' deed of trust. Fields and Endeavor structured the deal and prepared the documents.

¶ 5 New Enterprises' promissory note to LeGrand Investments was for a face amount of $238,000, but it was labeled a “Building/Construction Line of Credit.” Clerk's Papers (CP) at 146. The note provided, “This promissory note is a line of credit and shall be disbursed to the borrower in draws that are acceptable to the lender.” CP at 146. By its provisions, the note matured on November 1.6, 2007, a year from its execution, and a balloon payment for the principal advanced and compound interest was due at that time. LeGrand Investments recorded its deed of trust on November 17, 2006. Also on November 17, 2006, LeGrand Investments, through its managing member, Darren Williams, wired New Enterprises an initial loan disbursement of $31,000 to purchase the property. On November 30, 2006, LeGrand Investments, through Williams, issued a $9,000 certified check to New Enterprises as an initial construction draw. This $40,000 was the total disbursed under the promissory note/line of Credit to New Enterprises from LeGrand Investments.

[175 Wash.App. 298]¶ 6 Robert and Daniele Hayes were looking for an investment opportunity with an attractive rate of return. The Hayeses had no involvement in the initial loan transaction or any ownership interest or other involvement with LeGrand Investments. The Hayeses purchased LeGrand Investments' interest in the promissory note/line of credit and deed of trust on the Kuty Trust lot for $40,000—which was the amount LeGrand Investments had disbursed to New Enterprises, LeGrand Investments assigned all rights and interest in its deed of trust to the Hayeses on November 29, 2006, and the assignment was recorded that same day. LeGrand Investments assigned all its rights and interest in the promissory note to the Hayeses on December 1, 2006.

¶ 7 New Enterprises defaulted on the LeGrand Investments/Hayes promissory note by failing to pay the loan balance when it matured and became due on November 16, 2007. The Hayeses commenced foreclosure proceedings. The Hayeses hired an attorney to serve as trustee for the foreclosure proceedings. New Enterprises did not respond to the Hayeses' notice of default. The trustee scheduled a trustee's sale for July 25, 2008, and sent notice of the sale by first class mail and certified mail to New Enterprises and to the Kuty Trust because it held a junior security interest in the property. The notice of trustee's sale provided that the principal owing was $40,000, plus interest, late charges, and default interest for a total of $63,724.62.

¶ 8 On April 30, 2008, the Kuty Trust's attorney requested evidence of the loan claimed in the notice of foreclosure. On May 9, the trustee sent the Kuty Trust's attorney documentation showing the $40,000 in loan disbursements to New Enterprises. On June 11, and on June 12, the Kuty Trust's new attorney requested proof of the funds advanced on the loan and a copy of the promissory note and deed of trust being foreclosed. The trustee provided the requested documentation to the new attorney.

¶ 9 On July 2, 2008, the Kuty Trust sued, alleging various claims related to an equity stripping scheme including: (1) breach of contract, negligence, negligent misrepresentation, malpractice and violation of the consumer protection act against the Mullens, D.C. Inc., and Columbia River Properties; ⁴ (2) breach of contract against New Enterprises and the Lemps; (3) fraud, violation of consumer protection act, negligent misrepresentation and/or negligence against the Fieldses, Endeavor, New Enterprises, the Lemps, LeGrand Investments, and the Hayeses; and (4) conversion of funds against the Hayeses.

¶ 10 The trustee's sale was held on July 25. The Hayeses directed the trustee to credit the entire outstanding obligation secured by the deed of trust as their opening bid at the sale. Robert Hayes testified in his declaration that he did not tender any funds or documentation as part of the bid at the trustee's sale. There were no other bidders at the sale, so the Hayeses' credit bid was successful. The trustee provided the Hayeses with a trustee's deed for the property but did not prepare or file a written notice of surplus because there were no monies paid to him at the sale.⁵

¶ 11 The Hayeses' attorney, who was also the trustee, wrote a letter to counsel for the Kuty Trust noting that the Kuty Trust had waived its right to contest the sale or the underlying obligations on the property because it had not used the statutory presale remedies.⁶ Accordingly, he requested that the Kuty Trust dismiss its lawsuit against the Hayeses.

¶ 12 The Hayeses moved for summary judgment dismissal of the claims against them. The Kuty Trust opposed the motion, moved for a continuance of the motion under CR 56(f) to allow further discovery, and filed an amended complaint adding a claim for an accounting of foreclosure proceeds. On November 14, 2008, the trial court granted partial summary judgment in favor of the Hayeses. It granted summary judgment dismissal with prejudice of the Kuty Trust's claims “challenging either the validity or the finality of the trustee's sale of the subject real property” and claims “challenging the validity of the debt as described in the Notice of Trustee's Sale and foreclosed upon by the trustee's sale.” CP at 257. But the trial court did not dismiss the Kuty Trust's claims against the Hayeses for fraudulent misrepresentation.

¶ 13 After responding to interrogatories, the Hayeses renewed their motion for summary judgment, requesting that, the trial court dismiss the remainder of the Kuty Trust's claims against them. Both Robert Hayes and the trustee provided declarations in support of the renewed motion for summary judgment. The Kuty Trust conceded that the Hayeses should be dismissed from the civil conspiracy and fraud claims, but the Kuty Trust requested that the Hayeses be dismissed without prejudice in case further discovery revealed the Hayeses were involved in the alleged equity stripping scheme. The Kuty Trust opposed summary judgment on the accounting claim and argued that it should proceed to trial. On January 30, 2009, the trial court granted the Hayeses' motion for summary judgment dismissal with prejudice of all remaining claims against them.

¶ 14 The Kuty Trust filed a second amended complaint substituting D.C. Inc. for NWREP, Inc. because the Kuty Trust learned that Mullen worked for D.C. Inc. rather than NWREP, Inc. The Kuty Trust also added Columbia River Properties as a defendant and alleged that if the Kuty Trust obtained a judgment against D.C. Inc., but was unable to recover it, Columbia River Properties should be liable as D.C. Inc.'s successor company.

¶ 15 Columbia River Properties moved for summary judgment, arguing that it was not liable as a successor company to D.C. Inc. It filed a declaration from Chris Fry, the sole shareholder of...