Black v. First Federal Sav. and Loan Ass'n of Fargo, North Dakota, F.A., 90CA0227

• Decision Date: 27 February 1992
• Docket Number: No. 90CA0227,90CA0227
• Citation: 830 P.2d 1103
• Parties: Charles W. BLACK, Roderick K. Blacker and Edward T. Serle, for themselves and all other persons similarly situated, Plaintiffs-on-Intervention, Appellees, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF FARGO, NORTH DAKOTA, F.A., Defendant/Plaintiff on Counterclaim and Cross-claim, Appellee, v. LA PLATA MEDICAL CENTER ASSOCIATES, LTD., a Colorado limited partnership and Thomas Usher, Defendants/Third-Party Plaintiffs, Appellants, v. LA PLATA COUNTY HOSPITAL DISTRICT, a Colorado Special District, Third-Party Defendant/Defendant-on-Intervention, Appellee. . IV
• Court: Colorado Court of Appeals

Page 1103

830 P.2d 1103

Charles W. BLACK, Roderick K. Blacker and Edward T. Serle,

for themselves and all other persons similarly

situated, Plaintiffs-on-Intervention, Appellees, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF FARGO, NORTH

DAKOTA, F.A., Defendant/Plaintiff on Counterclaim and Cross-claim, Appellee, v. LA PLATA MEDICAL CENTER ASSOCIATES, LTD., a Colorado limited partnership and Thomas Usher, Defendants/Third-Party Plaintiffs, Appellants, v. LA PLATA COUNTY HOSPITAL DISTRICT, a Colorado Special

District, Third-Party

Defendant/Defendant-on-Intervention, Appellee.

No. 90CA0227.

Colorado Court of Appeals Div. IV.

Feb. 27, 1992.

As Modified on Denial of Rehearing April 30, 1992.

Certiorari Granted December 1, 1992.

Mosley, Wells, Johnson & Ruttum, P.C., James H. Mosley, Joseph B. Dischinger, Denver, for plaintiffs-on-intervention, appellees.

Burns, Wall, Smith and Mueller, P.C., George W. Mueller, Denver, Frank J. Anesi, Durango, for defendant/plaintiff on counterclaim and cross-claim, appellee.

Carl H. Seeliger, Jr., Denver, Colo., William F. Skewes, Hughs & Dorsey, Susan Linsley, Denver, for defendants/third-party plaintiffs, appellants.

McDaniel McDaniel Baty & Nicholson, Gerald B. McDaniel, Durango, for third-party defendant/defendant-on-intervention, appellee.

Opinion by Chief Judge STERNBERG.

The La Plata County Hospital District (the District) was formed in 1959 pursuant to § 32-1-101, et seq., C.R.S., and a hospital was constructed. In the late 1970's, the District decided to construct a medical office building in an effort to encourage more doctors to use the hospital by providing attractive office space in close proximity. After unsuccessful efforts to arrange financing, the District entered into a limited partnership, La Plata Medical Center Associates, Ltd. (LPMCA), the purpose of which was to finance and construct the office building on land owned by the District.

The District was a limited partner, and Thomas J. Usher and Walter Meserole were both limited and general partners. Following default on the permanent loan, this complex litigation arose, and Usher and LPMCA appeal district court judgments finding them, but not the District, liable to the lender, First Federal Savings and Loan Association of Fargo, North Dakota (First Federal), for the deficiency on a promissory note and for fraud. We affirm.

LPMCA leased the land from the District for one dollar annually under a ninety-nine year ground lease requiring LPMCA to construct a medical office building. The lease also provided that the District could purchase the building after seven years.

Acting through the general partners, LPMCA obtained a $2,300,000 construction loan, with repayment also personally guaranteed by the District and the general partners. In addition, the District and the general partners personally guaranteed a tenant finish loan for $365,000 to LPMCA, obtained from the United Bank of Durango. The collateral for this loan was a five-year master lease, executed in October 1983. Under its terms, the District agreed to rent the building from LPMCA for $410,000 the first year, with annual increases thereafter.

The District expected to fulfill its obligations under the master lease by renting space in the office building to physicians. However, the general partners signed an agreement with the District, authorizing an annual rental credit of $100,000 in the event the District was unable to rent all the office space. The master lease was recorded, but the rental credit agreement was not.

In early 1984, LPMCA obtained a commitment for a permanent loan from Camelback Mortgage Corporation (Camelback). The proceeds were to be used to pay off the construction loan and all but $65,000 of the tenant finish loan.

Initially, Camelback declined to make the loan because the appraisal of the medical office building fell below its required loan to value ratio; but, after LPMCA submitted a copy of the master lease to the appraiser, he increased the appraised value. He did so, however, without knowledge of the rental credit agreement which, by reducing the value of the master lease, would have lowered the appraised value of the building by $500,000.

Although the commitment letter specifically required the general partners to provide fully executed copies of the master lease, including "all amendments and exhibits and all other appropriate attachments," they did not inform Camelback or First Federal of the rental credit agreement prior to the funding of the loan.

In February 1984, First Federal agreed to purchase the loan. At Camelback's request, First Federal waived its requirement that the general partners personally guarantee the loan. The loan was funded in March 1984, when the general partners, acting for LPMCA, executed a note and a deed of trust, pledging the ground lease as collateral. At the same time, the District signed an agreement subordinating its leasehold interests under the ground lease and the master lease to the interests of the mortgagees. In the subordination agreement, the District indicated that the leases, as recorded, constituted the entire lease agreement affecting the property.

Camelback continued to service the loan in accordance with an agreement with First Federal which contained Camelback's promise "to repurchase any mortgage covered by this agreement within 18 months after date of Buyer's remittance if any misstatement of material fact, intentional or otherwise, is disclosed...."

In early 1985, LPMCA defaulted on the note. First Federal and Camelback learned about the rental credit agreement in August, and First Federal gave LPMCA notice of acceleration.

In October, United Bank of Durango sued LPMCA and the general partners on its note, and First Federal was permitted to intervene. At the same time, the District filed a petition for declaratory and injunctive relief seeking to have the limited partnership agreement, the ground lease, and the master lease declared void. The two cases, involving numerous cross-claims and counterclaims, were consolidated in February 1986.

Thereafter, First Federal successfully moved to dismiss on the grounds that the District lacked standing, but Charles W Black, Roderick K. Blacker, and Edward T. Searle (taxpayers) were permitted to intervene, and both parties moved for summary judgment.

In April 1987, the court granted First Federal summary judgment, requiring specific performance of Camelback's promise to repurchase the mortgage under the terms of the servicing agreement. It held that Camelback had misstated the amount of the annual rental under the master lease when it did not inform First Federal of the rental credit agreement and that this misstatement was material because First Federal would not have purchased the loan if it had known about the rental credit agreement. It further held that, although the misstatement was "innocent," Camelback was nevertheless accountable to First Federal under the terms of the servicing agreement. The court entered judgment against Camelback for $3,704,641.33, plus continuing interest, until the judgment was paid, but it granted a stay of execution of the judgment pending the outcome of the remaining litigation.

The court then granted partial summary judgment in favor of the intervening taxpayers finding: 1) that the limited partnership agreement was void as to the District; 2) that the ground lease from the District to LPMCA was void; 3) that the master lease from LPMCA to the District was void; and 4) that the District had no liability for debts incurred by LPMCA. Consequently, only the general partners and LPMCA remained liable on the note to First Federal.

All remaining claims were consolidated and tried before the court, which rendered judgment in favor of First Federal and Camelback against the general partners and LPMCA, but not against the District. Specifically, the court entered judgment on the Camelback note "in the sum of $2,936,054.60, plus interest in the amount of $898,324.44, less $175,000 as rental received by First Federal ... plus a per diem amount of interest of $1,070.43 from November 24, 1987, plus attorneys' fees and costs to be determined at a later hearing." It entered judgment for fraud in the same amounts. All claims against the District were dismissed with prejudice, except those concerning an equitable remedy which the court proposed to fashion to resolve the issue of unjust enrichment.

This remedy, announced in November 1989, awarded First Federal $1,140,000 against the District, based on the value of the property at the time of the judgment. It permitted the District to satisfy the judgment either from the proceeds of a refinancing or by conveying title to the medical office building to First Federal. The court granted the claims of the general partners and Camelback against the District only to the extent that they were entitled to a credit or offset in their favor in those judgments previously awarded to First Federal, and it denied the claim of United Bank of Durango for a participating share of the equitable remedy.

The District opted to refinance and purchase the building; however, when it failed to make payment, the court found the District in contempt and vested title to the building in First Federal.

Usher and LPMCA filed a notice of appeal, which the taxpayers sought to have dismissed, asserting that because Usher had previously filed a petition in bankruptcy, he lacked standing. We denied this motion, but granted leave to raise the issue in the briefs on the merits. Camelback and First Federal entered into a settlement agreement whereby Camelback assigned its rights against LPMCA and the general partners to First Federal. Meserole did not appeal.

In 1991, First Federal was placed into receivership and a new entity was formed. Thereafter, this court granted a motion substituting the new entity as a party.

I. Standing

As a threshold matter, we reject the...