Doty v. W. Gate Bank, Inc.

Citation292 Neb. 787,874 N.W.2d 839
Decision Date19 February 2016
Docket NumberNo. S–14–1060.,S–14–1060.
Parties Owen L. Doty et al., appellees, v. West Gate Bank, Inc., a Nebraska banking corporation, appellant.
CourtSupreme Court of Nebraska

Gregory S. Frayser, of Cline, Williams, Wright, Johnson & Oldfather, L.L.P., Lincoln, for appellant.

Joel G. Lonowski and Andrew K. Joyce, of Morrow, Poppe, Watermeier & Lonowski, P.C., L.L.O., Lincoln, for appellees.

Heavican, C.J., Connolly, Miller–Lerman, and Cassel, JJ., and Bishop, Judge.

Cassel, J.

INTRODUCTION

In this appeal, we are asked to determine whether the 3–month statute of limitations1 set forth in the Nebraska Trust Deeds Act2 (Act) bars a bank from foreclosing on the bank's remaining collateral. We conclude that it does not. Our conclusion is consistent with the plain language of the Act, our previous interpretations of the same language, and the decisions in other states under similar provisions. We therefore reverse, and remand with directions.

BACKGROUND
RELEVANT DEEDS AND NOTES

In 2002 and 2003, various members of the Doty family gave three deeds of trust to West Gate Bank, Inc. (Bank), as security for certain loans. Each deed of trust (DOT) conveyed a specific tract of real estate. The parties identify each DOT by the street name where the real estate is located. We follow the same convention. Owen L. Doty and Joy A. Doty executed and delivered the "Starr Street DOT." Owen, Joy, Clifford Doty, and Allison Doty executed and delivered the "Harwood Court DOT." And Ronald L. Doty and Angela J. Doty executed and delivered the "148th Street DOT."

The DOT's also secured future advances given by the Bank to those named in the DOT's. Later, the Bank advanced funds to Owen, Joy, Ronald, and Angela. This advance was documented by promissory note No. 3311257 (Note 257). (From this point forward, we refer to Owen, Joy, Ronald, and Angela collectively as "the Dotys.") The Dotys defaulted on Note 257, and so the Bank exercised its power of sale under the 148th Street DOT and applied the funds generated by the sale to Note 257. An unpaid balance remained on the note. Later, the Dotys brought a declaratory judgment action asking the district court to declare that the Bank was barred by § 76–1013 from recovering any amount still owed under Note 257.

While that action was pending before the district court, two other notes went into default and Owen and Joy sought to refinance the corresponding debts. At first, the Bank refused to release the Starr Street DOT and the Harwood Court DOT, asserting that those DOT's secured the balance remaining under Note 257.

Thereafter, the Dotys and the Bank executed a pledge and security agreement, a substitution of collateral agreement, and an account control agreement whereby they granted the Bank a security interest in a deposit account. But one provision of the pledge and security agreement provided that "the Debtor disputes that any amount is owed under the Note." After the refinancing was completed, the other two notes were paid in full and the Bank released the Starr Street DOT and the Harwood Court DOT.

At oral argument, the Dotys conceded that if § 76–1013 did not extinguish Note 257, the debt would survive and be enforceable against the substituted collateral. Thus, they agreed that this court needed to focus only on the interpretation of § 76–1013 by the district court.

DISTRICT COURT'S DECISION

The Dotys and the Bank filed cross-motions for summary judgment in the declaratory judgment action. In November 2014, the district court granted the Dotys' motion and denied the Bank's. It concluded that the Bank was barred by the 3–month statute of limitations in § 76–1013"from taking any action whatsoever to collect any amounts it believes it is due on Note 257." Section 76–1013 states:

At any time within three months after any sale of property under a trust deed, as hereinabove provided, an action may be commenced to recover the balance due upon the obligation for which the trust deed was given as security, and in such action the complaint shall set forth the entire amount of the indebtedness which was secured by such trust deed and the amount for which such property was sold and the fair market value thereof at the date of sale, together with interest on such indebtedness from the date of sale, the costs and expenses of exercising the power of sale and of the sale. Before rendering judgment, the court shall find the fair market value at the date of sale of the property sold. The court shall not render judgment for more than the amount by which the amount of the indebtedness with interest and the costs and expenses of sale, including trustee's fees, exceeds the fair market value of the property or interest therein sold as of the date of the sale, and in no event shall the amount of said judgment, exclusive of interest from the date of sale, exceed the difference between the amount for which the property was sold and the entire amount of the indebtedness secured thereby, including said costs and expenses of sale.

The Bank argued that § 76–1013 applies only to deficiency actions, not nonjudicial foreclosures on separate collateral. The district court declined to find a distinction between deficiency actions and nonjudicial foreclosures, concluding that the Bank's argument is "not supported by any meaningful distinction between the two types of actions or the text of Section 76–1013."

The district court also examined the policy behind the Act, which we discussed in Pantano v. Maryland Plaza Partnership .3 It noted that in Pantano, we said, " ‘In the world of deficiency judgments, [§ 76–1013 ] represents a departure from tradition’ " because " [t]raditionally, the amount of a deficiency judgment was the total indebtedness minus the price paid at public sale.’ " This traditional formula benefited creditors, who " ‘could radically underbid a valuable property, take title, and then sue the debtor for deficiency.’ " Section 76–1013 prevents this outcome, because it requires the district court to calculate the deficiency owed based upon the fair market value (hereinafter FMV) of the foreclosed property. Therefore, " [a] creditor gains no advantage by underbidding....’ "

Based upon these statements in Pantano, the district court concluded that the Pantano court and the Legislature "were clearly concerned with debtors obtaining a credit against their debts for the FMV of property sold under the Act, not just the sale price." It declared that if the Bank seeks to recover a deficiency, "regardless of whether that amount is sought against the debtor[s] personally or their property, it must comply with the Act and bring an action so that the process is overseen by the courts and the [Dotys are] given credit for" the FMV of their property.

The district court concluded that because the Bank did not bring an action within the limitations period, "receipt of the proceeds of the trustee's auction constitutes payment in full of Note 257." It reasoned that because 3 months had passed since the sale in this case, "it cannot be judicially determined how much should have been subtracted from Note 257 as a result of the sale." And because "[a] creditor cannot collect an amount of money which cannot be known," the Bank cannot recover any amount owed under Note 257.

The Bank filed a timely appeal, which we moved to our docket.4

ASSIGNMENTS OF ERROR

Although the Bank makes numerous assignments of error, we distill and combine them for analysis. Essentially, the Bank assigns that the district court erred in (1) concluding that the Bank was required to seek a deficiency judgment under § 76–1013 before resorting to its remaining collateral and (2) concluding that the debt owed on Note 257 is considered paid in full because the statute of limitations for an action pursuant to § 76–1013 has expired. Although the Bank also assigns that the district court erred in "concluding that each [DOT] is not a separate and distinct contract," we do not reach this issue.

STANDARD OF REVIEW

Summary judgment is proper when the pleadings and evidence admitted at the hearing disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law.5 In reviewing a summary judgment, an appellate court views the evidence in a light most favorable to the party against whom the judgment is granted and gives such party the benefit of all reasonable inferences deducible from the evidence.6

Statutory interpretation is a question of law, which an appellate court resolves independently of the trial court.7

When a declaratory judgment action presents a question of law, an appellate court has an obligation to reach its conclusion independently of the conclusion reached by the trial court with regard to that question.8

ANALYSIS

§ 76–1013 INAPPLICABLE

The Bank admits that it is barred from filing an action for a deficiency judgment by the 3–month statute of limitations in § 76–1013. But it argues that the running of the statute of limitations for a deficiency judgment does not prevent it from resorting to the other collateral securing Note 257. It points to the statute's use of the phrase "an action" and argues that phrase refers only to deficiency actions filed in court. It also cites several cases where we have characterized § 76–1013 as applicable to deficiency actions.

We begin by examining the text of § 76–1013. In discerning the meaning of a statute, a court must determine and give effect to the purpose and intent of the Legislature as ascertained from the entire language of the statute considered in its plain, ordinary, and popular sense, as it is the court's duty to discover, if possible, the Legislature's intent from the language of the statute itself.9 But because the Act made a change in common law, we strictly construe the statutes composing the Act, as have previous courts interpreting the Act.10 Thus, because trust...

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