Gardner v. First Heritage Bank, Bank Corp.

• Decision Date: 16 May 2013
• Docket Number: No. 67375–1–I.,67375–1–I.
• Citation: 175 Wash.App. 650,303 P.3d 1065
• Court: Washington Court of Appeals
• Parties: Roger GARDNER, Appellant, and Lyle Sinclair, Defendant, v. FIRST HERITAGE BANK, a Washington Bank Corporation; Sel, Inc., a Washington Corporation, Respondents.

175 Wash.App. 650

303 P.3d 1065

Roger GARDNER, Appellant,andLyle Sinclair, Defendant,

v.FIRST HERITAGE BANK, a Washington Bank Corporation; Sel, Inc., a Washington Corporation, Respondents.

No. 67375–1–I.

Court of Appeals of Washington,

Division 1.

Decided March 25, 2013.

Publication Ordered May 16, 2013.

Richard Llewelyn Jones, Richard Llewelyn Jones PS, Bellevue, WA, Michael T. Schein, Sullivan Law Firm, Seattle, WA, for Appellant.

Thomas Andrew Lerner, Joan Elizabeth Hemphill, Stokes Lawrence PS, Seattle, WA, for Respondents.

LAU, J.

[175 Wash.App. 652]¶ 1 Developer Roger Gardner defaulted on loans secured by deeds of trust on three contiguous parcels of real property. First Heritage Bank conducted nonjudicial foreclosures in succession on each parcel. We hold the deed of trust act's (chapter 61.24 RCW) antideficiency provisions do not restrict the bank's ability to exhaust multiple items of collateral in a series of nonjudicial foreclosure proceedings. And because no disputed material facts remain as to the properties' nonagricultural use on the deed of trust grant date under RCW 61.24.030(2), we affirm the trial court's summary judgment order in the bank's favor and its award of attorney fees.

FACTS AND PROCEDURAL HISTORY

¶ 2 In 2004, through an entity then called “Younggardner LLC,” developers Roger Gardner and Stuart Young purchased approximately 153 acres of undeveloped land in Snohomish County to subdivide as a residential development they later named Sky River Estates. They platted this land into ten 10–acre lots and three contiguous lots varying in acreage and commonly referred to as lots 10, 11, and 12. As declarants, Gardner and Young also formed the Sky River Estates Home Owners Association. Sometime in 2006, Younggardner recorded covenants on all 13 lots, which restricted the property's use to “single family residence” and expressly limited any commercial activity on the property to “a cottage business.” Gardner chose lot 10 to build his new single-family residence. ¹ He selected lot 11 to build a large barn facility for a new horse boarding and training business,² which he planned to operate with his partner, Lyle Sinclair.³

¶ 3 On February 27, 2007, Gardner and Sinclair obtained a construction loan from the bank secured by a construction deed of trust on lot 10 in the principal amount of $750,000. Gardner and Sinclair used the proceeds to finance construction of Gardner's lot 10 residence and to “pay down various personal debts [and] miscellaneous other expenses.” The deed of trust also contained a statement that lot 10 “is not used principally for agricultural purposes.” SEL Inc. served as successor trustee on the February 2007 deed of trust and on all deeds of trust relevant to this appeal. On October 31, 2007, Gardner obtained a second loan from the bank in the principal amount of $212,160.26, secured by a deed of trust on separate Snohomish property owned by Gardner.

¶ 4 In November 2007, Gardner obtained a $100,000 extension of credit from the bank on the construction loan to cover construction cost overruns and to pay down other debt, resulting in a modified deed of trust.

¶ 5 On April 22, 2008, Gardner refinanced the February 27, 2007 loan by executing a new $869,688.17 promissory note, secured principally by lots 10 and 12, with a maturity date of April 20, 2009. By the terms of the deeds of trust, the loans were all cross collateralized, such that any indebtedness that had been secured by one property was also secured by each other property. ⁴ The parties agree that the February 2007 and April 2008 deeds of trust secured the same obligation—i.e., the April 22, 2008 note. ⁵

¶ 6 Due to a general economic downturn, the horse boarding and training business suffered a significant loss of customers and earnings in the third quarter of 2008. When Gardner's three loans matured in April 2009, Gardner defaulted due to nonpayment, and the bank issued a statutory notice of default.⁶ The next month, the trustee issued a notice of sale for lots 10, 11, and 12 and the Snohomish property. Gardner filed a chapter 11 bankruptcy petition resulting in a stay of the nonjudicial foreclosure proceedings. The bankruptcy court lifted the stay on March 18, 2010, as to all of Gardner's properties except lot 10. Gardner never sought to enjoin the sale.

¶ 7 On May 14, 2010, the trustee's sale occurred on lots 11 and 12 and the Snohomish property.⁷ In June 2010, however, the bankruptcy court dismissed Gardner's chapter 11 petition. The trustee issued a new notice of sale for lot 10.⁸ The sale was later continued to November 5, 2010. As noted above, on November 4, 2010, Sinclair, a joint tenant and coborrower with Gardner, filed for bankruptcy and the trustee's sale was again continued to February 9, 2011, when automatic stay relief was granted.

¶ 8 In the meantime, on October 19, 2010, Gardner and Sinclair sued the bank, the foreclosing trustee, and various unnamed defendants, seeking a restraining order, injunctive relief, declaratory relief, and an order quieting title in lot 10. They also sought damages for intentional trespass to land and consumer protection act (CPA) violations, chapter 19.86 RCW. Gardner filed a separate motion to enjoin the trustee's sale of lot 10. The CPA claim alleged that the bank deceptively conducted a sale of “agricultural property” and then unlawfully sought a “deficiency judgment.” Their main claims alleged that the sale of lot 10 would violate the deed of trust act's antideficiency provision under RCW 61.24.100(1) and that the sale would violate the deed of trust act's prohibition on nonjudicial foreclosure of land “used principally for agricultural purposes,” found at RCW 61.24.030(2).⁹

¶ 9 The bank opposed the restraining order and the injunctive relief motion, claiming that it never sought a deficiency judgment as a matter of law and that the property was not “used in an operation that produces crops, livestock, or aquatic goods.” RCW 61.24.030(2). On October 27, 2010, the trial court denied the motion, premised mainly on Gardner and Sinclair's failure to present sufficient evidence of the property's use for agricultural purposes. The court explained, “Plaintiffs' request for injunctive relief rests entirely on the conclusory statement in their Complaint that the property at issue is used for agricultural purposes. This statement remains unsupported by factual evidence....”

¶ 10 In December 2010, the bank and SEL moved for summary judgment or, alternatively, for dismissal of Gardner and Sinclair's claims. In January 2011, Gardner and Sinclair moved for summary judgment. Due to the Sinclair bankruptcy proceedings, the court postponed hearing the motions. In February 2011, Gardner and Sinclair refiled their summary judgment motion, which the court denied. In March 2011, with the trustee's sale of lot 10 drawing near, Gardner and Sinclair moved again for a temporary restraining order, asserting the same arguments rejected by the court's February 2011 order denying Gardner and Sinclair's summary judgment motion.

¶ 11 After the bankruptcy court lifted the automatic stay, the trustee's sale of lot 10 occurred on April 1, 2011. The bank purchased lot 10 by credit bid. On the same day, Gardner and Sinclair unsuccessfully moved for reconsideration of the order denying their summary judgment motion.

¶ 12 On April 15, 2011, the bank and SEL moved for summary judgment, arguing that “[n]othing remains of Plaintiffs' claims after the completion of the foreclosure sales.” Just before the summary judgment hearing, Gardner requested leave to remove Sinclair as a party and to add a new claim based on a fraudulent boundary line adjustment allegedly committed by the bank before the April 1, 2011 trustee's sale. The court granted Gardner's motion to remove Sinclair but denied his motion to amend to add the fraud claim.

¶ 13 On May 25, 2011, the court granted the defendants' motion for summary judgment in an oral ruling.¹⁰ The court found as a matter of law that the bank's nonjudicial foreclosure sale of lot 10 did not constitute a “deficiency judgment.” Verbatim Report of Proceedings (VRP) (May 25, 2011) at 35, 38. The court also found no factual dispute as to whether Gardner's loan was “commercial in nature.” VRP (May 25, 2011) at 34. On June 10, 2011, the court entered judgment in favor of the defendants and awarded $47,537.23 in attorney fees. The court also granted the bank's motion to substitute Columbia State Bank, as successor in interest, to First Heritage Bank.¹¹ This appeal followed.

ANALYSIS

¶ 14 Gardner appeals the trial court's (1) March 22, 2011 order denying his motion for summary judgment; (2) April 12, 2011 order denying his motion for reconsideration;¹² (3) March 31, 2011 order denying his motion for a temporary restraining order; ¹³ (4) June 10, 2011 order imposing terms; ¹⁴ and (5) final judgment entered June 10, 2011, following the grant of summary judgment in favor of the bank and SEL. In his opening brief, Gardner also assigned error to the court's oral ruling granting the bank and SEL's motion for summary judgment.¹⁵ We affirm the trial court's grant of summary judgment in favor of the bank and SEL and its award of attorney fees.

[175 Wash.App. 659]¶ 15 We review a grant or denial of summary judgment de novo. Tiffany Family Trust Corp. v. City of Kent, 155 Wash.2d 225, 230, 119 P.3d 325 (2005). Summary judgment is proper only where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c); Jones v. Allstate Ins. Co., 146 Wash.2d 291, 300–01, 45 P.3d 1068 (2002).

Deficiency Judgment

¶ 16 Gardner claims that the April 2011 trustee's sale of lot 10 constituted an unlawful attempt by the bank to seek a “deficiency judgment” on the obligation outstanding after the May 2010 trustee's sale of lots 11 and 12. He claims that successive or “serial” trustee's sales of multiple items of collateral securing the...