Dalton M, LLC v. N. Cascade Tr. Servs.
| Docket Number | 101149-1 |
| Decision Date | 31 August 2023 |
| Parties | DALTON M, LLC, a Washington limited liability corporation, Respondent, v. NORTH CASCADE TRUSTEE SERVICES, INC.; U.S. BANK NATIONAL ASSOCIATION, as Trustee; and DOES 1 through 10, inclusive, Petitioner. |
| Court | Washington Supreme Court |
1
DALTON M, LLC, a Washington limited liability corporation, Respondent,
v.
NORTH CASCADE TRUSTEE SERVICES, INC.; U.S. BANK NATIONAL ASSOCIATION, as Trustee; and DOES 1 through 10, inclusive, Petitioner.
No. 101149-1
Supreme Court of Washington, En Banc
August 31, 2023
GORDON MCCLOUD, J.
U.S. Bank National Association foreclosed on property owned by real estate company Dalton M, LLC. Unfortunately, the bank did not have the right to do that: Dalton M actually owned the property outright, not subject to any lien.
Dalton M ended up suing U.S. Bank to quiet title and for damages for slander of title. Dalton M prevailed at trial on both of those claims. The trial court also awarded substantial fees to Dalton M based on the slander of title claim.
But Dalton M's victory on the slander of title claim (and the fee award that it carried) was short lived. The Court of Appeals reversed on that claim, holding that
Dalton M had failed to prove its "pending sale" element. Dalton M, LLC v. N. Cascade Tr. Servs., Inc., 20 Wn.App. 2d 914, 504 P.3d 834 (2022). That wiped out the sole basis for the trial court's fee award.
The Court of Appeals, however, then sua sponte requested briefing on how else it could award attorney fees to Dalton M. After receiving that briefing, the Court of Appeals awarded fees to Dalton M on an entirely new theory that no party had pleaded or argued to the trial court and that the trial court had never considered: the theory that U.S. Bank had engaged in extensive prelitigation bad faith conduct not amounting to violation or contempt of any court order or ruling, and that this provided a new equitable exception to Washington's general rule that each party must bear their own costs of suit.
This decision violates both the Rules of Appellate Procedure (RAPs) and our controlling precedent. Under both sources of law, an appellate court may raise a new issue sua sponte if it is necessary to resolve the questions presented; an appellate court may not raise a new issue sua sponte if it is separate and distinct from the questions presented and unnecessary to resolve those questions- especially when the new "issue" is more like a whole new unpleaded claim depending on factual allegations that were never presented in or proved to the trial court. Clark County v. W. Wash. Growth Mgmt. Hr'gs Bd., 177 Wn.2d 136, 146, 298 P.3d 704 (2013); RAP 12.1. The Court of Appeals violated these rules: it
sua sponte raised a new issue that is more like an unpleaded claim, that new issue was distinct from issues or theories raised before, resolution of that new issue was not necessary to resolve the questions presented about the claims actually pleaded, and resolution of that new issue depended on facts that the parties never had a chance to develop at trial.
We therefore reverse the Court of Appeals' award of attorney fees.
FACTS
In 2006, James and Angela Fleck executed a note and a deed of trust to obtain a loan from GreenPoint Mortgage. The loan was secured by two adjoining parcels of land in Spokane County. Clerk's Papers (CP) at 765-75 (findings of fact (FF) I-II). The deed of trust contains a combined legal description of the two parcels but refers to them separately as Parcel 26071-9008 (Parcel 9008) and Parcel 26071.0402 (Parcel 0402). Ex. 101, at 3. The deed of trust identified a common property address for both parcels. Id.
Parcel 9008 had a home on it, while Parcel 0402 remained unimproved. CP at 766 (FF V-VI). Parcel 0402 contains .31 acres on the Spokane River. Verbatim Rep. of Proc. (VRP) (Dec. 17, 2019) at 92. It has no road access; it can be accessed only by water or by crossing Parcel 9008. CP at 287 (Decl. of Laura Coughlin).
By 2011, James Fleck had become delinquent on his property taxes on Parcel 0402. CP at 766 (FF IX). The Spokane County Treasurer's Office initiated a
tax foreclosure and held a public tax foreclosure sale on Parcel 0402. Id. (FF X). At that sale in December 2011, Mark Faulkes and his wife purchased Parcel 0402 for $9,100. Id. (FF XII). It is undisputed that the tax sale stripped the lien on Parcel 0402, resulting in GreenPoint Mortgage losing its security interest in Parcel 0402. Id. at 767 (FF XIX); CP at 875 (Joint Rep. at 7, ¶ D(6)).
In January 2012, a tax deed was recorded with the Spokane County Auditor's Office, conveying Parcel 0402 to the Faulkes. The same day, a real estate excise tax affidavit was filed with the Spokane County Treasurer's Office, listing the Faulkes as the grantees of Parcel 0402. In December 2013, the Faulkes conveyed Parcel 0402 via quitclaim deed to Dalton M, a real estate investment company owned by Mark Faulkes. CP at 767 (FF XXI).
In August 2012, however, GreenPoint Mortgage filed an assignment of the Fleck deed of trust with the Spokane County Auditor's Office. The assignment purported to assign GreenPoint's security interest in both Parcels 9008 and 0402 to U.S. Bank National Trust-even though the tax sale had stripped GreenPoint of its lien as to Parcel 0402. Id. (FF XIX).
By 2014, James Fleck had defaulted on his mortgage loan. U.S. Bank's loan servicer, Ocwen Loan Servicing, referred the loan to the trustee to initiate a nonjudicial foreclosure. Id. (FF XXII). The foreclosure was delayed for at least a year when an error in the named assignee was discovered on the deed of trust. VRP
(Dec. 17, 2019) at 138; CP at 767 (FF XXIII), 769 (FF XXXIX). By the time the mistake was corrected, U.S. Bank had appointed North Cascade Title Services as successor trustee; Ocwen remained its servicer. CP at 769 (FF XLI).
Between 2014 and 2016, Ocwen obtained several sets of parcel maps and information for Parcels 9008 and 0402 from the Spokane County Assessor's Office, showing James Fleck as the owner of Parcel 9008 and Dalton M, as the owner of Parcel 0402. Ocwen also received several title reports from Chicago Title Insurance, indicating that James Fleck and Dalton M had an interest in the two parcels. The documents showed a separate mailing address for Dalton M. Ocwen forwarded each set of documents to its attorney, Robinson Tait. Id. at 768 (FF XXVII, XXX).
In February 2016, foreclosure proceedings resumed, and North Cascade mailed a notice of default to James Fleck, Angela Fleck, Dalton M, and "current occupant," all sent to the parcels' shared address. Id. at 769 (FF XLIII).
On March 30, 2016, North Cascade recorded a notice of trustee's sale with the auditor's office; it stated that Parcels 9008 and 0402 were to be sold at public auction on August 12, 2016. Id. at 770 (FF XLIX). The notice listed North Cascade Trustee Services as the trustee and was mailed to the Flecks, Dalton M, and "current occupant," all at the same address. Id. No notice was mailed to Dalton
M's registered mailing address or served on Dalton M's agent. VRP (Dec. 17, 2019) at 73. Mark Faulkes never received notice of the auction. Id. at 71.
The trustee held the auction on August 12, 2016, and U.S. Bank placed the winning bid. On September 15, 2016, North Cascade recorded a trustee's deed conveying Parcel 9008 and Parcel 0402 to U.S. Bank. The same day, North Cascade filed a real estate tax affidavit referring to both parcels with the Spokane County Treasurer's Office, listing itself as grantor, U.S. Bank as grantee, and a sale price of $300,000. CP at 770 (FF LVII). Thereafter, the treasurer's office listed U.S. Bank as the owner of both parcels. Id. at 770-71 (FF LV, LX, LXII).
Dalton M's president, Mark Faulkes, did not become aware that U.S. Bank was listed as the owner of Parcel 0402 until late 2016 or early 2017. Id. at 770 (FF LIV, LVIII). He first communicated with North Cascade Trustee Services about the issue in February 2017. See Ex. 106 (Request for Production (RFP) No. 1) (emails). North Cascade told Faulkes that the matter had been "escalated" with the loan servicer, but apparently no resolution was reached. Id. Faulkes next contacted Robinson Tait, the law firm that represented North Cascade, in an attempt to have the title corrected. Id.; CP at 770 (FF LIX). In March 2017, a Robinson Tait attorney told Faulkes that the matter had been submitted to the title company to resolve. Ex. 106 (RFP No. 1) (e-mails). In May, a Robinson Tait attorney told Faulkes they were working on transferring title back to Faulkes but had
encountered issues with the legal description of the property. Id. The attorney stated that the title company recommended hiring a surveyor to create an accurate legal description of the property boundaries. Id. Neither party ever hired a surveyor.
In August 2017, Faulkes offered to sell Parcel 0402 to U.S. Bank for $300,000. Id. (e-mails between Faulkes and Robinson Tait). He then offered to buy the bank's adjacent parcel, 9008. Id. Nothing came of these offers.
In February 2018, Dalton M sued U.S. Bank. The complaint pleaded three claims against U.S. Bank: quiet title, slander of title, and unjust enrichment. CP at 7-9.[1] Dalton M sought damages "as a consequence of slander of title," and it also sought "costs and attorney's fees incurred in this matter." Id. at 10.
In its answer, U.S. Bank opposed all the relief sought by the complaint. Id. At 15.[2] Before trial, however, U.S. Bank conceded on several occasions that it had no ownership interest in Parcel 0402. Id. at 61, 141-42, 875. The parties even stipulated that the deed of trust should be reformed to reflect Dalton M's
ownership. Id. at 875 (Joint Rep. D(5)-(7)). So the focus of the trial was the slander of title claim, not the quiet title claim.
PROCEDURAL HISTORY
I. Trial court rules in favor of Dalton M on quiet title and slander of title claims and awards attorney fees and costs related to slander of title
At the bench trial in December 2019, Mark Faulkes testified that he has been a real estate investor in the Spokane area for the past 30 years. VRP (Dec. 17, 2019) at 61-62. He has...
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