Obendorf v. F.D.I.C.
| Decision Date | 16 October 2009 |
| Docket Number | Case No. CV 06-475-S-MHW. |
| Citation | 667 F.Supp.2d 1223 |
| Parties | Greg OBENDORF, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Washington Mutual Bank, Defendant. |
| Court | U.S. District Court — District of Idaho |
Julie Klein Fischer, Shelli Dawn Stewart, Morrow & Fischer, PLLC, Nampa, ID, for Plaintiff.
Sheila R. Schwager, Hawley Troxell Ennis and Hawley LLP, Boise, ID, J. Stephen Peek, Patricia C. Halstead, Rachel Kait McLendon Kent, Hale Lane Peek Dennison and Howard, Reno, NV, Tamara Jankovic, Holland and Hart LLP, Reno, NV, for Defendant.
Currently pending before the Court are Plaintiff's Motion for Partial Summary Judgment on Plaintiff's Mutual Mistake Claim (Docket No. 62), filed May 30, 2008 and Defendant's Motion for Summary Judgment (Docket No. 63), filed May 30, 2008. For the reasons expressed below, the Plaintiff's Motion for Partial Summary Judgment will be denied and Defendant's Motion for Summary Judgment will also be denied.
This litigation revolves around the purchase in 2006 of the Paradise Valley Farm by Plaintiff, Greg Obendorf ("Obendorf") from Defendant Washington Mutual Bank ("Washington Mutual"). The Paradise Valley Farm is located in Humbolt County, Nevada, and was one of three properties that Obendorf purchased as a package from Washington Mutual, the other two properties being located in Idaho and Oregon. These other two properties are not involved in this lawsuit. Obendorf contends that the purchase price for the Paradise Valley Farm should be reformed to reduce the amount he paid Washington Mutual for this property. He contends the property was represented to him as being an irrigable farm, when in fact the water rights had been cancelled by the State of Nevada before he purchased the property. Obendorf's causes of action are based on theories of mutual mistake of fact, breach of the implied covenant of good faith and fair dealing, and/or fraud.
The three properties were originally owned by Phillip and Marilyn Geertson, ("Geertson") who had large operating loans and mortgages on the three properties with Washington Mutual. In 2001, Roger Johnson ("Johnson"), Vice President and Special Assets Officer at Washington Mutual, became responsible for overseeing the Geertsons' loans.
As of December 27, 2001, the Geertsons were substantially in default of their loan obligations to Washington Mutual. Over the next several years there were various forbearance and work out agreements between Washington Mutual and the Geertsons which culminated in settlement agreement in January, 2004. This agreement provided that the Geertsons would place in escrow Deeds in Lieu of Foreclosure, along with estoppel affidavits and bills of sale in lieu of foreclosure, to guarantee that Washington Mutual would be repaid in accordance with the agreement. At that time, the Geertsons owed Washington Mutual more than 4 million dollars. The Geertsons failed to make full payment of the first installment due in April of 2004. Washington Mutual sought to record the deeds and litigation to prevent the recording was initiated in Nevada and a petition for bankruptcy was also filed.
Washington Mutual actively managed the Geertson's loan file between 2001 and 2006, when the property was sold to Obendorf. Obendorf contends that during this time frame Washington Mutual became very familiar with the property through on-site visits and appraisals it ordered. The knowledge that Washington Mutual developed during this period of time as to the nature of the property, i.e. whether it was irrigated and had valid water rights, or lack thereof, is relevant to arguments the parties now present to the Court. Also relevant is what Obendorf knew or did not know at the time he purchased the farm. Therefore the Court will discuss the course of events in some detail.
After the Geertson file was transferred to Johnson, he visited the Paradise Valley Farm to inspect Washington Mutual's collateral.1 During his visit, Johnson observed acres of farmland, pumps and irrigation equipment. Johnson did not recall whether he observed actual irrigation during that visit but believed part of the property to be irrigated.
In May 2002, Washington Mutual retained appraiser Ken Brush to conduct an independent evaluation of the value of its collateral. This appraisal identified that Paradise Valley Farm consisted of 2,095.44 acres with 1,467.06 acres of water rights. The appraisal also identified various irrigation equipment on the property and eight wells. Mr. Brush estimated the fair market value of the property to be $1,450,000.
Mr. Brush conducted another appraisal for Washington Mutual in September 2004. This appraisal contained similar references to water rights and irrigated land as the 2002 appraisal. Washington Mutual also had a technical review performed by Rhoda Van Engelen, an appraiser in Washington Mutual's commercial appraisal department. The purpose of the technical review was to critique and confirm the value of the collateral set forth in the appraisal conducted by Mr. Brush. Id. The technical review likewise identified the property as a 2,095.44 acre farm with 1,467.06 acres of water rights. Both the 2004 appraisal and technical review estimated the fair market value of the property to be $1,050,000.
As mentioned earlier, on January 16, 2004, the Geertsons executed a Deed in Lieu of Foreclosure on all three of their properties to guarantee performance of the settlement agreement. However, when the first installment was not paid in full in April of 2004, it took over a year before the deeds were recorded due to state court and bankruptcy proceedings. The deed was recorded on June 17, 2005.
In between the execution of the Deed in Lieu and its recording, a letter from the Nevada Division of Water Resources dated March 11, 2005 informed the Geertsons that their water rights were in poor standing and subject to cancellation. Washington Mutual and Johnson never received a copy of this letter.
Once the deed was recorded in June 2005, Johnson began communicating with Obendorf through his agents, realtor Jack Prater ("Prater") and Wells Fargo banker Kyle Hexom ("Hexom"), about the purchase of the Geertsons' properties located in Oregon, Idaho, and Nevada.
Obendorf and Prater traveled to Nevada in late August 2005 to take a look at the Paradise Valley Farm. Obendorf observed that the property was being actively farmed, the ground was planted in alfalfa seed and a farmer was spraying crops. He also observed irrigation pumps, pump stations, and an irrigation system set up for gravity irrigation. The following month, Prater verified the water rights by calling the Nevada Division of Water Resources and confirming the information contained in the appraisals. After that time, neither Obendorf nor Prater made any further inquiries into the status of the Nevada property's water rights with the Nevada Division of Water Resources.
In September 2005, Mr. Brush conducted another appraisal and Ms. Engelen performed another technical review. The findings were consistent with the 2004 appraisal and technical review, except that the value of the property was estimated to be $1,025,000. The appraisals from 2002, 2004 and 2005 were provided to Prater and Hexom during negotiations. Based on these appraisals and his own observations of the Nevada property, Johnson believed the property to be irrigated.
On October 14, 2005, a letter addressed to the Geertsons from the Nevada Division of Water Resources notified them that the water rights for the Paradise Valley Farm had been cancelled. Johnson testified that neither he nor Washington Mutual received a copy of the letter. He also testified that the only thing he heard regarding a problem with the water rights to the Paradise Valley Farm came from Boyce Cook, a purported neighbor of the Nevada property. Although Johnson could not remember the specifics of the conversation, he testified that Mr. Cook "indicated that there was some kind of problem with the water rights."
Washington Mutual decided that because it was neither in possession or control of the property at that time, there was little, if anything, it could or should do about this issue. Johnson never discussed this information with anyone outside Washington Mutual, including Obendorf or his agents. Johnson recalls this conversation with Cook taking place before the Purchase and Sale Agreement with Obendorf was signed.
Obendorf also testified that around December 2005 or January 2006, he heard "through the grapevine" that there was a problem with the water rights to Paradise Valley Farm. Obendorf testified that he believed Prater heard this information from a real estate agent in Nevada. He also testified that he asked Prater to check on the status of the water rights with Johnson. Johnson and Prater maintain that no such conversation ever took place. Johnson also testified that neither Prater nor Hexom ever asked him about Paradise Valley Farm's water rights.
Wells Fargo, Obendorf's lender, never performed an investigation into the water rights on the property. Wells Fargo valued the property, including water rights, for its own internal purposes but did not verify the water rights since the property was not taken as collateral for the loan. Wells Fargo did visit the Idaho and Oregon properties and made a final check of the water rights in Oregon because these properties were being used as collateral.
Washington Mutual wanted to sell all three properties, Oregon, Idaho, and Nevada, together. Obendorf was primarily interested in the Oregon property and only pursued the Paradise Valley Farm because "it was part of the deal." Obendorf was not planning to farm the land, but rather resell it in order to pay down his debt. Prater testified that he and Obendorf valued the Oregon property at $7.5 million, significantly more than the asking...
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...of the statement at the time it is made, or the existence of a danger at the time the omission occurred.7 See Obendorf v. FDIC , 667 F.Supp.2d 1223, 1231-32 (D. Idaho 2009) ("The relevant time period for the falsity of a statement of fact is when it is made."). The abuse suffered by Plainti......