Interstate Income Properties Inc. v. La Jolla Loans Inc.

• Decision Date: 09 June 2011
• Docket Number: No. 20100025–CA.,20100025–CA.
• Citation: 684 Utah Adv. Rep. 46,257 P.3d 1073,2011 UT App 188
• Parties: INTERSTATE INCOME PROPERTIES, INC.; a Utah corporation; and BRB–5 A, LLC, a Utah limited liability company, Plaintiffs and Appellees,v.LA JOLLA LOANS, INC.; KVB Enterprises, Inc.; Thomas L. Black; and Wilma J. Black; et al., Defendants and Appellants.
• Court: Utah Court of Appeals

257 P.3d 1073

684 Utah Adv. Rep. 46

2011 UT App 188

INTERSTATE INCOME PROPERTIES, INC.; a Utah corporation; and BRB–5 A, LLC, a Utah limited liability company, Plaintiffs and Appellees,

v.LA JOLLA LOANS, INC.; KVB Enterprises, Inc.; Thomas L. Black; and Wilma J. Black; et al., Defendants and Appellants.

No. 20100025–CA.

Court of Appeals of Utah.

June 9, 2011.

Bryce D. Panzer and Brett N. Anderson, Salt Lake City, for Appellants.Stephen Quesenberry and Aaron R. Harris, Provo, for Appellees.Before Judges McHUGH, THORNE, and CHRISTIANSEN.

OPINION

McHUGH, Associate Presiding Judge:

¶ 1 Defendant La Jolla Loans, Inc. (La Jolla) appeals from the trial court's ruling that its trust deeds, to the extent that the deeds created encumbrances on the property of Plaintiff Interstate Income Properties (Interstate), are null and void; and that such trust deeds are wrongful liens pursuant to Utah Code sections 38–9–1 to –7 (the wrongful lien statute), see Utah Code Ann. § 38–9–1 to –7 (2005 & Supp.2010). La Jolla also appeals the trial court's award to Interstate for its costs and attorney fees incurred in nullifying the liens. We remand to the trial court for clarification of the legal basis of its decision and entry of the factual findings necessary to show that its conclusions are supported by the evidence.

BACKGROUND

¶ 2 In 1988, Robert and Barbara Busch (collectively, the Busches) incorporated BE2, Inc., which they later named Interstate. The Busches and their son-in-law, D. Gregory Hales, were the directors of Interstate. Around 1994, Interstate obtained a parcel of property it referred to as Pad A.

¶ 3 On September 1, 1997, the Busches signed articles of organization for BRB–5, a limited liability company organized to engage in real estate development and real estate investments. The Busches were listed in the articles as both members and owners of BRB–5. On October 22, 1997, Barbara Busch, the sole shareholder and vice president of Interstate, signed a quitclaim deed purporting to convey Pad A to BRB–5 (the 1997 Deed), but BRB–5 was not yet in existence because the articles of organization had not been filed with the Utah Division of Corporations (the Division). Barbara Busch did not expressly indicate on the face of the 1997 Deed that she was signing it in a representative capacity for Interstate. Two days after executing the 1997 Deed, on October 24, 1997, the Busches had the 1997 Deed recorded and the articles of organization for BRB–5 filed with the Division.¹

¶ 4 In 2006 and 2007, respectively, Hales organized Carlsbad Development, LLC (Carlsbad I) and Carlsbad Development II, LLC (Carlsbad II). Hales was the sole manager of both Carlsbad I and Carlsbad II. On May 10, 2007, while purporting to be an authorized vice president of Interstate, Hales signed a quitclaim deed purporting to transfer Interstate's interest in Pad A to Carlsbad I (the 2007 Deed). Subsequently, Hales, acting on behalf of Carlsbad I and II, executed two deeds of trust in favor of La Jolla, pledging Pad A as collateral to secure a $3,245,000 loan. At La Jolla's request, the deeds of trust were recorded against the property.²

¶ 5 On May 4, 2009, Interstate and BRB–5 (collectively, Plaintiffs) filed a complaint seeking to quiet title to Pad A in BRB–5. On June 5, 2009, Plaintiffs filed a petition to nullify the trust deeds on the ground that they were wrongful liens against the property. Plaintiffs argued that Pad A had been validly conveyed from Interstate to BRB–5 by the 1997 Deed before Hales fraudulently executed the 2007 Deed, which attempted to convey the same property from Interstate to Carlsbad I. Plaintiffs claimed that because Interstate no longer had any interest in Pad A to transfer, Carlsbad I never obtained an interest in Pad A and could not use it to secure the loan from La Jolla. Therefore, the Plaintiffs sought to have the trust deeds nullified as wrongful liens.

¶ 6 In opposition, La Jolla asserted that the conveyance from Interstate to BRB–5 was invalid “because the [1997 D]eed was not properly signed or acknowledged, and because the entity to which title was being conveyed did not, in fact, exist at the time of the instrument.” La Jolla also argued that Hales had both actual and apparent authority to convey Pad A to Carlsbad I on behalf of Interstate and had properly executed the 2007 Deed as its representative. Because it claimed that the 1997 Deed was ineffective to transfer Pad A, La Jolla claimed that the 2007 Deed transferred the property to Carlsbad I, thereby making the trust deeds enforceable.³ As another basis for its opposition to the petition to nullify the trust deeds as wrongful liens, La Jolla argued that BRB–5 had been dissolved two years before the petition was filed and that the nullification action was not consistent with the powers remaining with a defunct organization in winding up its affairs. See Utah Code Ann. § 48–2c–1203 (2007) (governing post-dissolution activities).

¶ 7 Plaintiffs replied to La Jolla's opposition memorandum, asserting that the 1997 Deed was valid. Specifically, they argued that Barbara Busch had the requisite authority to transfer Pad A from Interstate to BRB–5 because she had actual authority to do so as a director of Interstate, rendering her failure to sign in a representative capacity immaterial. Plaintiffs further asserted that all of the requirements for a valid quitclaim deed as set forth by Utah Code section 57–1–13, which does not mandate the inclusion of the official title of the agent who executes the deed, were met. See id. § 57–1–13 (2010). Thus, Plaintiffs argued that the 1997 Deed was entitled to the presumption set forth in Utah Code section 57–4a–4(g) that Barbara Busch had the authority to execute it.⁴ With respect to La Jolla's argument that the transfer was invalid because BRB–5 had not yet been formed at the time Barbara Busch executed the 1997 Deed purporting to transfer Pad A to BRB–5, Plaintiffs argued that the transfer constituted business “incidental to [BRB–5's] organization,” which could be conducted before filing the articles of organization pursuant to Utah Code section 48–2c–404. See id. § 48–2c–404 (2007). In the alternative, Plaintiffs claimed that, although not yet formed by the filing of its articles of organization, “BRB–5 was a legitimate artificial person that was capable of taking and holding Pad A.”

¶ 8 On August 17, 2009, the trial court held an evidentiary hearing on the petition to nullify La Jolla's trust deed as a wrongful lien, during which it heard the testimony of witnesses for each side and received documentary evidence. At the conclusion of the hearing, the parties reiterated and refined their respective positions in closing argument. With respect to Barbara Busch's execution of the 1997 Deed, Plaintiffs again argued that, once recorded, the deed was entitled to a presumption that Barbara Busch's execution was valid, including that she was authorized to act as Interstate's agent. In response, La Jolla asserted that the application of Utah Code section 57–4a–4(g) was limited to situations in which the person executing the deed actually signs as an agent of the entity, which Barbara Busch did not do. La Jolla claimed that, unlike the 1997 Deed signed by Barbara Busch in her individual capacity, Interstate's 2007 Deed to Carlsbad I was entitled to the section 57–4a–4(g) presumption because Hales did execute it as the agent of Interstate. La Jolla also refuted Plaintiffs' contention that the 1997 Deed constituted preformation activity based upon its analysis of the cases defining the limits of such activities. Because it viewed the 1997 Deed as invalid, La Jolla further claimed that BRB–5 was not a “record title holder” with standing to assert a wrongful lien claim. See Utah Code Ann. § 38–9–7 (2005) (“Any record interest holder of real property against which a wrongful lien ... has been recorded may petition the trial court ... to nullify the lien.”); id. § 38–9–1(4)(a) (Supp.2010) (“ ‘Record interest holder’ means a person who holds or possesses a present, lawful property interest in certain real property, including an owner, titleholder, mortgagee, trustee, or beneficial owner, and whose name and interest in that real property appears in the county recorder's records for the county in which the property is located.”).

¶ 9 Upon completion of closing arguments, the trial court asked some questions concerning the parameters of preformation activities and the application of the wrongful lien act. The trial court then stated its ruling from the bench, which we quote in its entirety:

All right. I have determined that the—they should be declared void ab initio. Property should be—the property should be released from these liens. Pursuant to the statute, I do not think I have an alternative but to award costs and fees. However, I do decline to award the statute that—the penalty that's provided by statute. I think that knowledge or reason to know is not quite the situation here and so I don't—I don't think that that's applicable many [sic].

The trial court asked counsel for Plaintiffs to take the lead in drafting the written version of the order.

¶ 10 On September 29, 2009, the trial court entered an Order Re: Plaintiffs' Petition To Nullify Wrongful Lien (Order), which was approved as to form by Interstate, BRB–5, and La Jolla. The Order states, in relevant part:

3. On October 22, 1997, Interstate Income Properties, Inc. Transferred Pad A, by Quit–Claim Deed, to an entity named BRB–5, LLC.

4. This Quit–Claim Deed satisfied the statutory requirements of U.C.A. § 57–1–13 and was signed by Interstate's authorized agent.

5. The October 22, 1997 Quit–Claim Deed transferred all of Interstate's interest in Pad A to BRB–5, LLC.

6. This Quit Claim Deed was properly recorded on October 24, 1997 at the Salt Lake County Recorder's Office.

The Order then declares the subsequent trust deeds securing the loans from La Jolla to...