Liberty Bankers Life Ins. Co. v. Witherspoon, Kelley, Davenport & Toole, P.S., Corp.
| Decision Date | 06 January 2016 |
| Docket Number | No. 41993.,41993. |
| Citation | 159 Idaho 679,365 P.3d 1033 |
| Parties | LIBERTY BANKERS LIFE INSURANCE COMPANY, an Oklahoma insurance company, Plaintiff–Appellant, v. WITHERSPOON, KELLEY, DAVENPORT & TOOLE, P.S., a Washington corporation, Defendant–Respondent, and The Point at Post Falls, LLC, an Idaho limited liability company; Post Falls Landing Marina, LLC, an Idaho limited liability company; and John and Jane Does 1–100, Defendants. |
| Court | Idaho Supreme Court |
Stoel Rives, LLP, Boise, and Lukins & Annis, P.C., Coeur d'Alene, attorneys for appellant. Christopher Pooser argued.
John F. Magnuson, Coeur d'Alene, attorney for respondent.
This appeal involves the competing security interests of Liberty Bankers Life Insurance Company ("Liberty" or "Appellant") and Witherspoon, Kelley, Davenport, & Toole, P.S. ("Witherspoon" or "Respondent") in certain real and personal property located in Post Falls, Idaho ("Post Falls Landing" and the "Marina" respectively), which were formerly owned by the Point at Post Falls, LLC and Post Falls Landing Marina, LLC (collectively, "The Point").
In September of 2001, The Point, a business entity associated with Harry A. Green, purchased thirty-four acres of real property in Post Falls, Idaho. Witherspoon provided legal representation to The Point during the purchase. In September of 2004, to secure payment of legal fees and costs, The Point granted Witherspoon a promissory note in the principal amount of $164,171.85 ("Witherspoon's Original Promissory Note"). Witherspoon's Original Promissory Note was secured by a deed of trust to Post Falls Landing ("Witherspoon's Original Deed of Trust"). Witherspoon's Original Deed of Trust was recorded on October 4, 2004, in Kootenai County.
On August 26, 2005, Liberty and The Point entered into an agreement (the "Original Loan Agreement") by which Liberty would loan $3,934,390 to The Point in exchange for a promissory note in the amount of the loan ("Liberty's Original Promissory Note"), which was secured by a deed of trust to Post Falls Landing ("Liberty's Original Deed of Trust"). Liberty's Original Deed of Trust provides that "[n]o release of the conveyance [of the Post Falls property], or of the lien, security interest or assignment created and evidenced hereby, shall be valid unless executed by Beneficiary."
As a condition to the Original Loan Agreement, Witherspoon entered into an agreement subordinating Witherspoon's Original Deed of Trust to Liberty's Original Deed of Trust (the "Original Subordination Agreement"). The Original Subordination Agreement stated that "[Liberty's Original Deed of Trust] and any renewals or extensions thereof, shall unconditionally be and remain at all time [sic] a lien or charge on [Post Falls Landing], prior and superior to the lien or charge of [Witherspoon's Original Deed of Trust]." (emphasis added). The Original Subordination Agreement was recorded on August 26, 2005.
Thereafter, Liberty subsequently modified its loan agreement with The Point six times. Witherspoon executed additional subordination agreements in conjunction with each of these loan modifications.
On August 30, 2006, and December 11, 2006, Liberty agreed to extend additional funds to The Point. These funds were used to construct the Marina. The Marina consists of 142 boat slips, a floating convenience store, and fuel pumps. The Point began operating the Marina in the summer of 2008.
On or around April 30, 2010, Liberty and The Point entered into a seventh modification of their loan agreement (the "Seventh LMA"). Under the Seventh LMA, the parties agreed to increase the outstanding principal balance of Liberty's Original Promissory Note from $6,786,108.10 to $9,290,000.00 and to extend its maturity date to June 30, 2011. Like all of the previous loan modifications, the Seventh LMA was secured by Liberty's Original Deed of Trust. The Seventh LMA was recorded on September 3, 2010.
On August 6, 2010, Witherspoon entered into the third modification of Witherspoon's Original Deed of Trust. This modification granted Witherspoon a security interest in the Marina and its improvements, including any rents, income, profits, insurance proceeds, and accounts receivable. On September 7, 2010, Witherspoon perfected its security interest in the Marina by filing a UCC financing statement.
On August 10, 2010, Witherspoon entered into a final amended subordination agreement with The Point (the "Final Subordination Agreement"). The Final Subordination Agreement stated that "[Liberty's original Deed of Trust] shall unconditionally be and remain at all time [sic] a lien or charge on [Post Falls Landing], prior and superior to the lien or charge of [Witherspoon's Original Deed of Trust]." Unlike the prior subordination agreements, the Final Subordination Agreement did not include the "and any renewals or extensions thereof" language. The Final Subordination Agreement was recorded on September 3, 2010.
On June 30, 2011, Liberty's Original Promissory Note—secured by Liberty's Original Deed of Trust—matured. On August 12, 2011, Liberty directed the successor trustee of Liberty's Original Deed of Trust to foreclose on Post Falls Landing. On August 18, 2011, the successor trustee recorded a notice of default.
In September of 2011, Liberty and The Point entered into an eighth modification of their loan agreement (the "Eighth LMA"). Under the terms of the Eighth LMA, Liberty agreed to reduce the amount of Liberty's Original Promissory Note to $6,744,156.69 and to execute a release of Blocks A, D, and E of the Post Fall Landing property from Liberty's Original Deed of Trust (the "Partial Release of Lien"). The Point, in turn agreed to issue a new promissory note in the amount of $2,545,843.31 ("Liberty's New Promissory Note"), which would be secured by a new deed of trust ("Liberty's New Deed of Trust") on Blocks A, D, and E. This would have the effect of dividing Liberty's $9.29 million dollar loan to The Point into two separate loans (a construction loan and a non-construction loan).1
In this respect, the Eighth LMA stated:
Liberty and The Point both executed the Eighth LMA, but it was never recorded. The Point executed Liberty's New Promissory Note and Liberty's New Deed of Trust, which also were never recorded. Liberty never executed the Partial Release of Lien.
On December 19, 2011, The Point filed for bankruptcy, which automatically stayed the trustee's sale of the Point at Post Falls. On December 20, 2011, Liberty filed suit against Green, individually as a guarantor, to recover the debt owed to Liberty. Liberty v. Green, Kootenai County Case No. CV–11–10121.
On April 18, 2012, Liberty filed a proof of claim in The Point's first bankruptcy proceeding and attached the Eighth LMA in support of its claim. In Liberty's motion for relief from the automatic stay, filed July 12, 2012, Liberty stated that "On September 8, 2010, the parties agreed to and executed an Eighth Loan Modification Agreement...."
On September 6, 2012, the Point's bankruptcy proceeding was dismissed. The trustee rescheduled the foreclosure sale, which was pursued in accordance with the Seventh LMA, for October 8, 2012.
As the date of the foreclosure sale approached, The Point moved to intervene in Liberty v. Green and enjoin the sale. In a memorandum decision and order, filed October 4, 2012, the district court granted both motions, but conditioned the injunction of the foreclosure sale on The Point posting an $875,000 bond. The district court acknowledged in its order that there was a substantial likelihood that the Eighth LMA, rather than the Seventh LMA, would govern the foreclosure. The Point did not post the bond required to enjoin the trustee's sale.
On October 17, 2012, Witherspoon sent a letter to the trustee asserting its first priority security interest on the Marina. In the letter, Witherspoon acknowledged that: "We understand that, if completed, the effect of the Foreclosure Sale will be elimination of our second priority lien against [Post Falls Landing]."
The trustee's sale took place on November 14, 2012, which resulted in the conveyance of the real property of Post Falls Landing, including Blocks A, D, and E, to Liberty in exchange for a credit bid of $3,404,000.00.
On February 5, 2013, Liberty filed an action against Witherspoon seeking a judicial declaration that the Marina was a fixture on Post Falls Landing real property, a judicial declaration that the trustee's deed conveyed to Liberty all interest in the Marina, and entry of a decree quieting title to the Marina in Liberty's name. Witherspoon answered and filed counterclaims seeking declaratory relief that: (1) Liberty's Original Deed of Trust had been null and void at the time of the foreclosure sale for failing to comply with the terms of the Eighth LMA; (2) the foreclosure sale had failed to comply with the terms of the Eighth LMA; (3) Witherspoon did not subordinate any security interest or rights with respect to the Eighth LMA; (4) Liberty was estopped from denying the...
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