Dillon v. S. Mgmt. Corp.

• Decision Date: 02 May 2014
• Docket Number: No. 20120145,20120145
• Citation: 2014 UT 12
• Court: Utah Supreme Court
• Parties: DOUGLAS C. DILLON and MOLLY R. DILLON, Plaintiffs and Appellees, v. SOUTHERN MANAGEMENT CORPORATION RETIREMENT TRUST, et al., Defendants and Appellants.

2014 UT 12

DOUGLAS C. DILLONand MOLLY R. DILLON, Plaintiffs and Appellees, v. SOUTHERN MANAGEMENTCORPORATION RETIREMENT TRUST, et al., Defendants and Appellants.

No. 20120145

SUPREME COURT OF THE STATE OF UTAH

Filed May 2, 2014

This opinion is subject to revision before

publication in the Pacific Reporter

Third District, Silver Summit

The Honorable Keith A. Kelly

No. 080500830

Attorneys:

Bruce A. Maak, Robyn L. Wicks, Salt Lake City, for appellees

Eric P. Lee, Kathleen E. McDonald, Salt Lake City, for appellants

ASSOCIATE CHIEF JUSTICE NEHRING authored the opinion of

the Court, in which JUSTICE PARRISH, JUSTICE LEE,

JUDGE VOROS, and JUDGE HANSEN joined.

Having recused themselves, CHIEF JUSTICE DURRANT and

JUSTICE DURHAM do not participate herein;

COURT OF APPEALS JUDGE J. FREDERICK VOROS and

DISTRICT JUDGE ROYAL I. HANSEN sat.

ASSOCIATE CHIEF JUSTICE NEHRING, opinion of the Court:

INTRODUCTION

¶ 1 Southern Management Corporation Retirement Trust (SMCRT) seeks review of the district court's grant of summary judgment in favor of Douglas C. and Molly R. Dillon. The district court determined that the trust deed encumbering the Dillons' property in Park City was invalid, that SMCRT had slandered the Dillons' title, and that SMCRT was therefore liable for damages under (a) section 57-1-38(3) of the Utah Code and (b) the trust deed itself. The district court determined that the Dillons wereentitled to recover their attorney fees and that a portion of those fees should be trebled pursuant to section 57-1-38 of the Utah Code. SMCRT argues that each of these conclusions was erroneous. We affirm the district court's grant of summary judgment and the majority of its award of damages, but reverse its grant of treble attorney fees under utah Code section 57-1-38(3).

BACKGROUND

¶ 2 SMCRT owns approximately twenty-five thousand properties, including apartments, office buildings, resort properties, and garages. SMCRT also funds loans secured by real estate. In 2005 and 2006, SMCRT agreed to use Robert Rood and his companies, Level One Capital Partners, LLC (Level One) and Blue Horseshoe Portfolio Services (Blue Horseshoe), to originate loans that would be funded by SMCRT. Under the agreement, Level One and Blue Horseshoe would find borrowers, prepare loan documents, and choose a title company to close the transactions. SMCRT funded approximately thirty-two loans through Mr. Rood and his companies.

¶ 3 In June 2006, Level One originated a $500,000 loan to Thomas gramuglia (loan or note). To secure the loan, Mr. Gramuglia signed a trust deed (trust deed) for properties he owned in New York (New York Property) and Park City (Park City Property), under which Level One was named the beneficiary. Later in June 2006, Level One assigned the trust deed and note to SMCRT, but SMCRT did not record the assignment of the trust deed until august 2008.

¶ 4 Initially, Mr. Gramuglia made loan payments to Level One, and Level One in turn made monthly interest payments to SMCRT. But despite the fact that he was making payments directly to Level One, Mr. Gramuglia soon discovered that SMCRT was involved with the loan. On August 1, 2006, SMCRT sent Mr. Gramuglia a letter stating that the "servicing of the [loan] had been transferred to [SMCRT], effective with the August 1, 2006 loan payment." In December 2006, SMCRT sent Mr. Gramuglia a similar letter. Upon Mr. Gramuglia's inquiry, SMCRT informed him to disregard the notices and continue making loan payments directly to Level One. A similar situation arose again in July 2007 when SMCRT informed Mr. Gramuglia that his loan, which "originated . . . with Level One . . . and [was]purchased by [SMCRT]," had matured and was immediately due and payable in full to SMCRT. Mr. Gramuglia's attorney sent a reply letter to SMCRT explaining that Mr. Gramuglia had extended the maturity date of the loan by exercising his option with Level One over three months prior. The letter invited questions from SMCRT. SMCRT did not respond.

¶ 5 Shortly thereafter, Mr. Gramuglia and Mr. Rood, who was acting on behalf of Level One, discussed the possibility of Mr. Gramuglia selling the Park City Property and using the proceeds to pay down the balance of his loan. Mr. Gramuglia proposed that in return for the partial prepayment, SMCRT would agree to release the Park City Property from the trust deed, and the remaining balance of the loan would then be secured solely by the New York Property.

¶ 6 On August 15, 2007, Mr. Rood met with SMCRT's investment committee to discuss the modification of Mr. Gramuglia's loan and corresponding release of the Park City Property. What happened in the meeting is a central source of dispute between the Dillons and SMCRT. Three of the four investment committee members could not recall what transpired in that meeting. One member remembered that they had discussed Mr. Gramuglia paying down part of the loan. The handwritten notes of Michael McKinley, an investment committee member, are the only significant written evidence of what happened in the meeting. His notes read, in pertinent part:

Will pay down $250,000 on Park City UT 9/15

Refi pending for NY Property

Escrowed thru 10/1

Will extend until 12/31/07

@ 250,000 Rood will prepare modification

¶ 7 Based on this evidence, the Dillons contend that during the meeting SMCRT "agreed in return for $250,000 payment from the sale of the [Park City Property] to release the [Park City Property]." In contrast, SMCRT's position is that Mr. Rood was there to ask for authority to modify the loan and that permission was granted only if three conditions were met: (1) SMCRT's receipt of a $20,000 loan extension fee, (2) SMCRT's receipt of $250,000, and (3) the preparation and execution of "a loan extension and modification agreement."

¶ 8 After Mr. Rood's meeting with SMCRT's investment committee, Mr. Gramuglia listed the Park City Property and sold it to the Dillons in September 2007. First American Title Insurance Company (FATCO) handled the closing of the sale. FATCO requested that Level One, as the record owner of the trust deed, issue a written payoff letter listing the amount necessary to pay off the note and release the trust deed on the Park City Property. Level One provided the payoff letter to FATCO, dated August 29, 2007, and in it stated that the payoff amount was $250,000. FATCO disbursed $250,000 to Level One on September 7, 2007. On the same date, Mr. Gramuglia delivered a warranty deed to the Dillons and they recorded it.¹ At the time of the purchase, neither FATCO nor the Dillons knew that the beneficial interest under the trust deed had been assigned to SMCRT because SMCRT had not recorded the assignment.

¶ 9 Sometime after the Dillon closing in late 2007, SMCRT initiated an investigation into Mr. Rood and Level One. Based on that investigation, SMCRT concluded that Mr. Rood and his entities had misappropriated money belonging to SMCRT.

¶ 10 On May 9, 2008, SMCRT filed a lawsuit in Montgomery County, Maryland, against Mr. Rood and his entities seeking to recover the allegedly misappropriated funds, including the $250,000 paid by the Dillons at the Park City Property closing (Rood Action). In the Rood Action, SMCRT asserted that "SMCRT entered into a business relationship with Rood" whereby, "acting in his individual capacity and/or through [his companies] and pursuant to the agreements between the parties, Rood would originate, process, underwrite, close and fund these private loans." SMCRT also stated that Mr. Rood and hiscompanies would "service the loan for [SMCRT] during the life of each loan," and that SMCRT did not have "any direct contact with the borrowers either when the original loan was made or during the term of the loans."

¶ 11 On July 15, 2008, David Hillman, one of SMCRT's trustees, sent an email in which he explained to the recipient that "on September 7, 2007 a closing occurred on the sale of Gramuglia's property in Utah to what appears to be innocent 3rd parties." Nevertheless, sometime that same summer, SMCRT retained Park City attorney Dwayne Vance to initiate a nonjudicial foreclosure of the Park City Property pursuant to the Gramuglia trust deed. SMCRT also directed Mr. Vance to open a dialogue with FATCO, with the hope of avoiding the foreclosure process and resolving the matter informally. Mr. Vance made several efforts to discuss resolution with both FATCO and the Dillons, but he did not receive any response.

¶ 12 On November 17, 2008, Mr. Vance prepared a "Notice of Trustee's Sale" for the Park City Property, setting December 17, 2008, as the sale date. On December 5, the Dillons filed a complaint against SMCRT. The complaint sought a restraining order to enjoin SMCRT's foreclosure sale. On December 12, the district court granted the Dillons a temporary restraining order.

¶ 13 On January 15, 2009, SMCRT filed a "Motion to Stay Proceedings," pointing out that Mr. Rood had initiated bankruptcy proceedings in Maryland. In support of its motion, it argued that the results of the bankruptcy case would materially advance the resolution of the Dillons' claims. The district court denied this motion. The Dillons filed a second amended complaint on April 30, 2009.

¶ 14 SMCRT then filed a motion to dismiss portions of the Dillons' second amended complaint. The district court granted portions of the motion and denied others. The Dillons' surviving causes of action included (1) a request for a declaratory judgment that (a) the trust deed had been discharged by Mr. Rood and (b) the trust deed should have been released and reconveyed under the Utah Recording Act, (2) a request for damages under Utah Code section 57-1-38, stemming from SMCRT's failure to release the trust deed, (3) a request for recovery of attorney fees under the terms of the trust deed, and (4) slander of title.

¶ 15 In December 2009, SMCRT executed and recorded a reconveyance of the trust deed as part of a settlement in another case it had filed in Maryland against Mr. Gramuglia ...