Landes v. Capital City Bank

Decision Date10 July 1990
Docket NumberNo. 890067,890067
PartiesMichael LANDES, Sidney Seftel, and Theresa Seftel, Plaintiffs and Petitioner, v. CAPITAL CITY BANK, a Utah corporation, Defendant and Respondent. CAPITAL CITY BANK, a Utah corporation, Counterclaimant, v. Michael LANDES, Sidney Seftel, Theresa Seftel, Utah State Tax Commission, Crossroads Plaza Associates, a Utah joint venture and general partnership, Young Electric Sign Company, a Utah corporation, and Olympus Hills Shopping Center, Ltd., a Utah limited partnership, Counterclaim Defendants.
CourtUtah Supreme Court

Daniel W. Jackson, David M. Connors, Salt Lake City, for Michael Landes.

Herschel J. Saperstein, Steven T. Waterman, Salt Lake City, for Capitol City Bank.

ZIMMERMAN, Justice:

Petitioner Michael Landes challenges a decision of the court of appeals upholding a grant of summary judgment in favor of respondent Capital City Bank ("Capital") on a guarantee agreement, signed by Landes and the other plaintiffs, that was appurtenant to a note held in part by the Small Business Administration ("SBA"). Landes had opposed the grant of summary judgment on grounds that, inter alia, the SBA was an indispensable party. The trial court disagreed. Before the court of appeals, Landes argued that the trial court failed to explain adequately its conclusion that the SBA was not indispensable under rule 19 of the Utah Rules of Civil Procedure. The court of appeals held that the trial court erred by failing to explain its rule 19 analysis, but performed its own analysis and upheld the trial court's decision on the ground that the SBA was, in fact, not an indispensable party. On certiorari, Landes again raises the rule 19 issue, this time contending that the court of appeals' analysis is flawed. We hold that the court of appeals misanalyzed the facts under rule 19, but we affirm on grounds that the SBA is not a necessary party.

On December 24, 1979, Bagel Nosh Intermountain, Ltd. ("Bagel Nosh"), executed a promissory note in favor of Capital in the amount of $300,000. The SBA participated in the note by guaranteeing 90 percent of the outstanding unpaid balance. Sidney Seftel, Theresa Seftel, and Michael Landes ("guarantors") executed personal guaranties for the note, secured by trust deeds to certain condominium units at Snowbird, a ski resort in Utah. The guaranties were on SBA forms and were executed in favor of both Capital and SBA. On March 30, 1983, after Bagel Nosh had fallen several months behind in payments, Capital and Bagel Nosh executed a modification of the loan agreement, in which the guarantors agreed personally to guarantee the full amount of the loan. 1

On November 29, 1984, Bagel Nosh filed a voluntary petition for bankruptcy under chapter 11 of the bankruptcy code. On March 12, 1986, the guarantors filed this action in the district court, naming Capital as defendant and seeking a declaratory judgment that the guaranties were void and that the guarantors were discharged from any obligation under the guaranties. Capital filed an answer and a counterclaim, seeking a judgment against the guarantors for the outstanding balance of the loan plus interest. Capital also sought judicial foreclosure against the real property and a declaration that the claims of other creditors were subordinate to Capital's claims.

On July 25, 1986, Capital filed a motion for summary judgment, claiming that the guaranties entitled Capital to judgment as a matter of law. With its motion, Capital submitted the affidavit of M.A. Allem, executive vice president of Capital, in which he stated that the "SBA is a participating lender in the loan of Capital City to Bagel Nosh to the extent of ninety percent (90%) of the outstanding balance."

In response, the guarantors argued that Capital was entitled to sue only on its proportionate share of the loan, which was 10 percent. The guarantors contended that the SBA held a 90 percent interest in the loan and, therefore, that the SBA was a necessary and indispensable party to the action. The guarantors also argued that summary judgment was improper because a genuine issue of fact existed with regard to the effect of the loan modification agreement.

On September 5th, Capital filed a supplemental affidavit of Mr. Allem in which he stated, "Capital City is the legal holder of the note and guaranties ... and has been authorized in writing by SBA to sue upon the note and guaranties and accelerate the maturity thereof."

On February 4, 1987, the trial court granted Capital's motion for summary judgment. The court awarded Capital a judgment for the full amount of the loan plus interest, $293,379.64, and issued a decree of foreclosure against the condominium units. In granting summary judgment, the trial court addressed several of the guarantors' arguments, including the effect of the loan modification agreement. The trial court, however, did not address the issue of any legal distinction that might exist between the 10 percent portion of the loan attributable to Capital and the 90 percent portion attributable to the SBA. The trial court also treated the issue of the indispensability of the SBA's joinder summarily, stating:

Plaintiffs have further alleged that an indispensable party, the Small Business Administration, has not been joined. That defense is without merit. In the first instance, the defense has not been pled, [sic] but additionally, the SBA is not under the present interpretation of the Rules of Procedure an indispensable party to this action.

The guarantors appealed, and the court of appeals affirmed. See Seftel v. Capital City Bank, 767 P.2d 941 (Utah Ct.App.1989). The court of appeals held that the trial court erred in failing to explain the basis for its conclusion that the SBA was not indispensable under rule 19. The court of appeals nevertheless affirmed the trial court on grounds that the SBA was not indispensable to the action, but it did so without first addressing the preliminary rule 19(a) issue of whether the SBA was a necessary party.

Landes petitioned for certiorari, contending that the court of appeals erred by failing to consider the issue of whether the SBA was a necessary party before determining that the SBA was an indispensable party. We granted certiorari and now affirm.

We note at the outset the procedural posture of this case. It comes to us on certiorari from the court of appeals, which considered Landes's appeal from a grant of summary judgment. Summary judgment is appropriate only when no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Utah R.Civ.P. 56(c); Utah State Coalition of Senior Citizens v. Utah Power & Light, 776 P.2d 632, 634 (Utah 1989); Geneva Pipe Co. v. S & H Ins. Co., 714 P.2d 648, 649 (Utah 1986). We accord no particular deference to conclusions of law, whether made by the trial court or the court of appeals, but review such conclusions for correctness. Madsen v. Borthick, 769 P.2d 245, 247 (Utah 1988).

Landes argues that the court of appeals erred by failing to add the SBA as a necessary party. He asserts that under a proper rule 19 analysis, a trial court should first determine whether a party is necessary under the criteria of rule 19(a). If the party is necessary and can be joined, the rule requires that the party be joined. Landes argues that a court must first find that a party is necessary before it proceeds to the issue of indispensability; therefore, because the court of appeals based its disposition of his appeal on the issue of indispensability, it must have held that the SBA was a necessary party, even though that holding was not articulated in the decision. Landes argues further that because joinder of the SBA was feasible, it was also mandatory under rule 19(a). Therefore, he argues, the court of appeals erred by failing to require joinder of the SBA.

In response, Capital argues that the SBA is not a necessary party because the SBA authorized Capital to assert SBA's rights under the guaranty. Alternatively, Capital argues that the court of appeals used the terms "necessary" and "indispensable" interchangeably.

Because the disposition of this case turns on rule 19(a) of the Utah Rules of Civil Procedure, we set it forth here:

(a) Persons to be joined if feasible. A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject of action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party. If he should join as a plaintiff but refuses to do so, he may be made a defendant, or, in a proper case, an involuntary plaintiff. If the joined party objects to venue and his joinder would render the venue of the action improper, he shall be dismissed from the action.

Utah R.Civ.P. 19(a). Rule 19(b), which deals with indispensable parties and is also at issue, states:

(b) Determination by court whenever joinder not feasible. If a person as described in Subdivision (a)(1)-(2) hereof cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable. The factors to be considered by the court include: first, to what extent a judgment rendered in the person's absence might be prejudicial to him or those already parties; second, the extent to which, by protective provisions in...

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