Dalton M, LLC v. N. Cascade Tr. Servs., Inc.

• Decision Date: 17 February 2022
• Docket Number: 37448-3-III
• Parties: DALTON M, LLC, a Washington limited liability corporation, Respondent, v. NORTH CASCADE TRUSTEE SERVICES, INC., Defendant, U.S. Bank National Association, as Trustee; and Does 1 through 10 inclusive, Appellants.
• Court: Washington Court of Appeals

504 P.3d 834

DALTON M, LLC, a Washington limited liability corporation, Respondent,

v.NORTH CASCADE TRUSTEE SERVICES, INC., Defendant,U.S. Bank National Association, as Trustee; and Does 1 through 10 inclusive, Appellants.

No. 37448-3-III

Court of Appeals of Washington, Division 3.

FILED FEBRUARY 17, 2022

Emilie Ka-Aw Edling, Houser LLP, 9600 Sw. Oak St. Ste. 570, Portland, OR, 97223-6503, Robert W. Norman Jr., Houser LLP, 600 University St. Ste. 1708, Seattle, WA, 98101-1129, for Appellants.

Dennis Patrick Thompson, Kayla Farrell Goyette, T&G Attorneys, A Professional Services C, 823 W. 7th Ave. Ste. 101, Spokane, WA, 99204-2850, for Respondent.

PUBLISHED OPINION

Fearing, J.

On what principle of justice can a plaintiff wrongfully run down on a public highway recover his doctor's bill but not his lawyer's bill? Ehrenzweig, Reimbursement of Counsel Fees and the Great Society , 54 Calif. L. Rev. 792, n. 4 (1966).

¶1 Defendant U.S. Bank foreclosed on a parcel of land owned by plaintiff Dalton M, LLC despite records in its agent's possession showing Dalton M to be the owner of the land and the bank's deed of trust no longer encumbering the property. For thirteen months, Dalton M entreated U.S. Bank to remove its cloud on the title. U.S. Bank never disputed that it wrongfully foreclosed on the land, but the bank's ears turned deaf to Dalton M's plea. The inaction of the bank forced Dalton M to file suit. The superior court held in Dalton M's favor on slander of title and quiet title causes of action. The superior court awarded Dalton M reasonable attorney fees as the only damages on the successful slander of title action.

¶2 We must reverse the superior court's judgment in favor of Dalton M on the slander of title claim because the bank's darkening of the land title did not interfere in any pending sale by Dalton M. We still affirm an attorney fees award, however, because of the equitable exception to the American rule that generally denies an award of attorney fees to the prevailing party. In a case of first impression, we hold that fees can be awarded for the prelitigation bad faith of a party that entails a refusal to honor a valid claim, thereby forcing the plaintiff to file suit to rectify a problem.

FACTS

¶3 This appeal involves the clouding of title on a parcel we coin "Parcel 0402." The appeal pits Dalton M, LLC against U.S. Bank National Association, as trustee, successor in interest to Bank of America, National Association, as trustee, successor by merger to Lasalle Bank National Association as trustee for Morgan Stanley Mortgage Loan Trust 2007-IXS Mortgage pass-through certificates, series 2007, IXS. Instead of constantly referring to the bank with its exorbitant name, we refer to it as "U.S. Bank" or "the bank." Dalton M's owner purchased Parcel 0402 at a tax sale. U.S. Bank held a deed of trust on the property that the tax sale erased. Nevertheless, U.S. Bank thereafter foreclosed on the land and filed papers falsely claiming ownership of Parcel 0402.

¶4 The case's story begins fifteen years ago with the ownership of Parcel 0402 by James and Angela Fleck. On August 16, 2006, during the heyday of profligate jumbo loans and subprime mortgage-backed securities sold as collaterized debt obligations, James and Angela Fleck executed a note and deed of trust to obtain a $536,250 loan issued by GreenPoint Mortgage Funding. The deed of trust appointed Pacific Northwest Title as trustee and named the ubiquitous Mortgage Electronic Registration Systems (MERS), rather than GreenPoint Mortgage, as the beneficiary. The deed of trust secured two parcels of property owned by the Flecks in Spokane County, parcels number 26071-9008 (Parcel 9008) and 26071-0402 (Parcel 0402). Parcel 9008 had a home thereon. The adjacent Parcel 0402 remained an undeveloped lot.

¶5 The August 16, 2006 deed of trust contained a single combined legal description for Parcels 9008 and 0402. The deed of trust also listed a single common property address, 12021 N. Nine Mile Road, Nine Mile Falls, WA 99026, although immediately above the listing of the street address, the document listed the numbers of the two separate parcels. After execution of the loan documents, Angela Fleck deeded her interest in the two parcels to James Fleck, as his separate property, by a quitclaim deed.

¶6 James Fleck failed to pay property taxes for the vacant lot, Parcel 0402. On December 9, 2011, Mark and Tracy Faulkes purchased Parcel 0402 at a tax foreclosure sale. A treasurer's deed, recorded January 5, 2012, conveyed the lot to the Faulkes. Mark Faulkes is an experienced real estate investor, who often purchased property in a tax or a mortgage foreclosure. A real estate excise tax affidavit, filed with the deed, listed Mark and Tracy Faulkes' address as P.O. Box 141023, Spokane Valley, Washington 99214. After the 2011 tax sale of Parcel 0402, only Parcel 9008 remained encumbered by the Flecks' deed of trust to MERS as nominee of GreenPoint Mortgage.

¶7 On July 2, 2012, MERS assigned its beneficiary's interest in the Flecks' deed of trust to Morgan Stanley Mortgage Loan Trust 2007-IXS, Mortgage Pass-Through Certificates, Series 2007-IXS, U.S. Bank National Association, as Successor in Interest to Bank of America, National Association as Successor by Merger to LaSalle Bank National Association. The parties acknowledge that the assignment of deed of trust misstated the assignee of the beneficiary's interest. They agree, however, that, as a result of the assignment of the deed, U.S. Bank became the note holder for the loan, then secured only by Parcel 9008. Unfortunately, however, the assignment contained the same legal description as the initial deed of trust. In other words, the assignment purportedly transferred an interest in the vacant lot, Parcel 0402, to U.S. Bank. On August 2, 2012, U.S. Bank recorded the assignment of the beneficial interest under the deed of trust.

¶8 For some unknown reason, megabanks decline to service their own loans. On November 1, 2013, U.S. Bank appointed Ocwen Loan Servicing, LLC (Ocwen), of West Palm Beach, Florida, to service the Fleck loan secured by Parcel 9008. U.S. Bank gave Ocwen a limited power of attorney to act on its behalf. The power of attorney authorized, among other conduct, Ocwen to sign documents, on behalf of U.S. Bank, related to the Fleck loan, including actions to foreclose on the secured property. A broad provision in the document empowered Ocwen to "transact business of any kind regarding the Loans, as the Trustee's act and deed. ..." Exhibit P-13 at 536. On appeal, U.S. Bank concedes an agency relationship with Ocwen. The bank does not argue that Ocwen took any step, in the course of the foreclosure on Parcel 0402, contrary to its authority as agent of the bank.

¶9 Ocwen Loan Servicing is a large corporation with thousands of employees. Banks, such as U.S. Bank, hire a loan servicer, such as Ocwen, to handle daily servicing of a loan, which includes communication with borrowers, receiving loan payments, and commencing foreclosure proceedings when directed by the trustee.

¶10 For each loan it services, Ocwen Loan Servicing retains a file with the entire history of the loan. Ocwen daily documents in the file any communications regarding or events about the loan. The company claims that it maintains accurate and updated information on each loan.

¶11 On December 3, 2013, Mark and Tracy Faulkes recorded a quitclaim deed, by which they transferred Parcel 0402 to their company, Dalton M, LLC. Mark Faulkes serves as president of Dalton M. The deed listed the Faulkes' address as 212 South McDonald Road, Spokane, Washington 99216. The deed legally described Parcel 0402 as "MANHATTAN BEACH SLY 100FT B14, Parcel No. 26071-0402." Exhibit P-13 at 248.

¶12 In 2014, James Fleck defaulted on the loan secured by the 2006 deed of trust on Parcel 9008 and formerly Parcel 0402. Ocwen then initiated foreclosure efforts. Ocwen ceased efforts when Ocwen discovered that the 2012 assignment of deed of trust named Morgan Stanley, rather than U.S. Bank, as assignee of the beneficial interest in the deed of trust.

¶13 Between April 2014 and 2015, Ocwen procured numerous title reports from Chicago Title Insurance Company and parcel information from the Spokane County Assessor's Office for purposes of commencing and recommencing the foreclosure process. On April 4, 2014, Ocwen ordered from Chicago Title a title report for Parcels 0402 and 9008. Ten days later Ocwen received, from the title company, a report with the legal description the same as the 2006 deed of trust executed by James and Angela Fleck. The report listed as owners of the property:

James J. Fleck, who acquired title as a married man as his sole and separate property, as to a portion of said premises and Dalton M, LLC, as to the remainder

Exhibit 13 at 225. Note that the report did not suggest coownership of both parcels. The report did not separate ownership of the property by parcel number. The title report did not mention the 2011 treasurer's tax deed to Mark and Tracy Faulkes or the 2013 quitclaim deed from the Faulkes to Dalton M. Nevertheless, the package that arrived with the title report included a copy of the treasurer's deed to Mark and Tracy Faulkes for Parcel 0402.

¶14 Ocwen Loan Servicing trial witness, Harrison Whittaker, acknowledged Ocwen uploaded the title report package into its records system in April 2014. Thus, by April 2014, Ocwen, agent of U.S. Bank, possessed the treasurer's deed showing the transfer of Parcel 0402 to Mark and Tracy Faulkes.

¶15 On April 15, 2014, Ocwen forwarded the title report to its counsel Robinson Tait, P.S. U.S. Bank also maintained an attorney-client relationship with the law firm, Robinson Tait.

¶16 On May 12, 2015, Ocwen received another title report from Chicago Title Insurance Company. This 2015 report read similarly to the 2014 report with the owners listed as James J. Fleck as owner of a portion and Dalton M, LLC as owner of another portion,...