Farms, LLC v. Isom
| Docket Number | 49633 |
| Decision Date | 26 October 2023 |
| Parties | FARMS, LLC, an Idaho Limited Liability company, Plaintiff-Respondent- Cross-Appellant v. RALPH D. ISOM and PAULA ISOM, a married couple, Defendants-Appellants- Cross-Respondents. |
| Court | Idaho Supreme Court |
Appeal from the District Court of the Seventh Judicial District of the State of Idaho, Bonneville County. Bruce L. Pickett District Judge.
The district court's judgment is affirmed in part, vacated in part, and remanded.
Johnson May, Boise, attorneys for Appellant. Michelle R Points argued.
Olsen Taggart PLLC, Idaho Falls, attorneys for Respondent. Steven L. Taggart argued.
This appeal centers on a district court's application of state law and federal bankruptcy law to determine the statute of limitations for three breach of contract claims following an automatic stay in bankruptcy. Ralph and Paula Isom (the Isoms), facing foreclosure, entered into a deed in lieu of foreclosure agreement with Farms, LLC ("Farms"). The Isoms then leased the real property (a farm and various houses) back from Farms, subsequently defaulted on their obligations under the lease agreement, and filed a Chapter 11 bankruptcy, which was later converted to a Chapter 7 bankruptcy. During the Isoms' bankruptcy, Farms also acquired several third-party claims against the Isoms from other independent creditors of the Isoms. The bankruptcy court denied the Isoms a discharge, and after the bankruptcy case closed, Farms sued the Isoms personally, alleging three counts of breach of contract. Following a one-day bench trial, the district court awarded Farms a judgment of $1,281,501.68 as to Count III-related to Farms' purchase of the third-party claims- but concluded that Farms' remaining two claims related to the lease were barred by the applicable statute of limitations. The Isoms timely appealed, arguing that the district court erred in determining the applicable statute of limitations as to Count III. Farms timely cross-appealed, arguing the district court erred in applying the statutes of limitation as to Counts I and II. For the reasons discussed below, we affirm the district court's judgment as to Count III but reverse and vacate the judgment on Counts I and II.
On September 26, 2014, facing foreclosure, the Isoms signed a deed in lieu of foreclosure agreement transferring their interest in several parcels to Brad Hall &Associates (BHA). On September 30, 2014, the Isoms leased back the same property from BHA. The annual rent under the lease was $614,601.79 from September 30, 2014, through October 31, 2015, due in two payments: the first was $460,951.31 due February 1, 2015, and the second was $153,650.45 due August 1, 2015. On November 4, 2014, BHA quitclaimed its interest in the property to Farms, LLC. The Isoms made the first rent payment to Farms on January 30, 2015. On April 28, 2015, Farms sued the Isoms for claims unrelated to this appeal.[1] On July 31, 2015, the Isoms filed for Chapter 11 bankruptcy, which triggered an automatic stay under the Bankruptcy Code.
The Isoms then failed to make the August payment on the lease, which resulted in a termination of the lease under its terms. As a result, Farms incurred $22,568.50 in legal fees in a post-bankruptcy petition action to remove the Isoms from the property. Farms filed a motion with the bankruptcy court to: (1) compel the assumption or rejection of the lease; (2) compel performance of lease obligations; (3) determine that the lease had been terminated as of October 31, 2015; and (4) lift the automatic stay prohibiting Farms from taking action to recover possession of the property.
The bankruptcy court later ordered:
(This order will be referred to as the "Bankruptcy Order.").
The Isoms failed to assume the lease by October 31, 2015, but remained on the property until July 29, 2016. By November 14, 2017, the Isoms' Chapter 11 bankruptcy had been converted to Chapter 7 after they could not get a reorganization plan confirmed by the bankruptcy court. On June 13, 2019, the bankruptcy court denied the Isoms a Chapter 7 discharge and dismissed the case.
On March 23, 2021, Farms filed a complaint against the Isoms, alleging three counts of breach of contract. Count I sought damages against the Isoms for failure to pay rent under the lease. Count II sought holdover rent damages. Finally, Count III sought damages for the Isoms' failure to pay amounts due on several claims purchased by Farms from other creditors during the bankruptcy.
Following a one-day bench trial, the district court dismissed Counts I and II as untimely under the statute of limitations but concluded that Farms was entitled to an award of $1,281,501.68 for Count III, damages related to Farms' third-party claims. The Isoms timely appealed from the district court's decision, and Farms timely cross-appealed.
"This Court exercises free review over the trial court's conclusions of law." Syringa Networks, LLC v. Idaho Dept. of Admin., 159 Idaho 813, 822, 367 P.3d 208, 217 (2016) (citing Quiring v. Quiring, 130 Idaho 560, 563, 944 P.2d 695, 698 (1997)).
"Following a bench trial, this Court's review 'is limited to ascertaining whether the evidence supports the findings of fact, and whether the findings of fact support the conclusions of law.'" Morgan v. New Sweden Irr. Dist., 160 Idaho 47, 51, 368 P.3d 990, 994 (2016) (quoting Borah v. McCandless, 147 Idaho 73, 77, 205 P.3d 1209, 1213 (2009)). The province of weighing conflicting evidence and testimony, and judging the credibility of witnesses, belongs to the trial court. Borah, 147 Idaho at 77, 205 P.3d at 1213. Thus, "this Court will liberally construe the trial court's findings of fact in favor of the judgment entered." Id. (citing Rowley v. Fuhrman, 133 Idaho 105, 107, 982 P.2d 940, 942 (1999)). The Court will not set aside the trial court's findings of fact unless they are clearly erroneous, nor will the Court "substitute its view of the facts for that of the trial court." Id. (quoting Ransom v. Topaz Mktg., L.P., 143 Idaho 641, 643, 152 P.3d 2, 4 (2006)); see also I.R.C.P. 52(a)(7) ().
Even in the face of conflicting evidence, clear error will not be found to exist where the findings are supported by substantial and competent evidence. Mortensen v. Berian, 163 Idaho 47, 50, 408 P.3d 45, 48 (2017) (citing Pandrea v. Barrett, 160 Idaho 165, 171, 369 P.3d 943, 949 (2016)). "If there is evidence in the record that a reasonable trier of fact could accept and rely upon in making the factual finding challenged on appeal, there is substantial and competent evidence." Id. (citing Greenfield v. Wurmlinger, 158 Idaho 591, 598, 349 P.3d 1182, 1189 (2015)).
This appeal and cross-appeal turn on the intersection of federal and state statutes to determine the applicable statute of limitations for claims filed after termination of an automatic stay in bankruptcy. The Isoms argue that a bankruptcy statute, 11 U.S.C. section 108(c)(2), provided a thirty-day statute of limitation period for Farms to file its complaint following the dismissal of the Isoms' bankruptcy case, making Farms' entire complaint untimely. Farms alternatively asserts that the Isoms misconstrue section 108(c), in that it specifically directs that state law controls this issue, in particular Idaho Code section 5-234, which extends the statute of limitation during a stay (here the automatic stay of bankruptcy), making the filing of Farms' complaint timely. Thus, Farms asks in its cross-appeal that the district court's statute of limitation analysis be overturned with respect to Counts I and II of its complaint. Farms also raises the additional issue of whether Farms is entitled to attorney fees and costs on appeal.
Section 108(c) of the Bankruptcy Code addresses when state law claims may be filed following termination of the automatic bankruptcy stay, and thus it applies to the Isoms' claims in this case. However, the parties interpret 11 U.S.C. section 108(c) in diametrically different ways. That statute provides that upon "termination or expiration of the [bankruptcy] stay," a statute of limitations for a civil action outside of bankruptcy expires at the later of (1) the time allowed under nonbankruptcy (state) law, or (2) thirty days after the termination of the bankruptcy stay:
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