Pratt v. Charles Pugh

• Citation: 238 P.3d 1073
• Decision Date: 12 August 2010
• Docket Number: No. 20090067-CA.,20090067-CA.
• Parties: Richard PRATT, Petitioner and Appellee, v. Charles PUGH, Respondent and Appellant.
• Court: Court of Appeals of Utah

238 P.3d 1073

Richard PRATT, Petitioner and Appellee,
v.
Charles PUGH, Respondent and Appellant.

No. 20090067-CA.

Court of Appeals of Utah.

Aug. 12, 2010.

238 P.3d 1073

James C. Haskins and Graham J. Haskins, Salt Lake City, for Appellant.

Ronald D. Wilkinson, Orem, for Appellee.

Before Judges DAVIS, McHUGH, and VOROS.

238 P.3d 1074

OPINION

VOROS, Judge:

¶ 1 Respondent Charles Pugh appeals the trial court's entry of summary judgment in favor of Petitioner Richard Pratt. The trial court ruled that the liens created by Pugh's two trust deeds against Pratt's property were wrongful under the Wrongful Lien Act (the Act) and released them. See Utah Code Ann. §§ 38-9-1 to -7 (2005 & Supp.2009). We reverse.

BACKGROUND

¶ 2 The wrongful lien question before us is nested in a sprawling and hotly disputed transaction only hinted at by the briefs on appeal. Real Estate Investment Specialists, Inc. (REISI), of which Pugh is a shareholder, and Chris Pugh, Pugh's son, agreed to finance a business venture undertaken by Sovren Group, LLC (Sovren) involving “high grade concentrate ore.” The investors hoped to provide financing of $4 million and reap “investment returns” of approximately $80 million paid over a period of twenty years. In connection with this transaction, on April 7, 2006, Jan W. Carlson, Bruce H. Coles, and Russell L. Robinson signed on behalf of Sovren a $4 million Promissory Note/Security Agreement payable to REISI. REISI was to disburse $4 million in three phases; Phase I was a disbursement of $500,000 to be paid after the delivery of unspecified trust deeds and security agreements. Sovren agreed to repay, over ten years, the principal of $4 million together with “return on investment” of $42 million. On April 11, 2006, Carlson, Coles, and Robinson signed on behalf of Sovren what purports to be a $2 million Promissory Note/Security Agreement payable to Pugh and Arnold E. Gilliam. The note in fact provides that Pugh and Gilliam were to disburse $4 million over three phases; Phase I was again a disbursement of $500,000 to be paid after the delivery of trust deeds against Pratt's two properties pursuant to a “Guaranty Agreement/Security Agreement.” Sovren agreed to repay, again over ten years, the principal of $4 million together with “return on investment” of $22 million.

¶ 3 According to Pratt's affidavit, he allowed two properties to be encumbered by Pugh as “collateral for the investment.” In a “Security Agreement” dated April 7, 2006, Pratt granted to Pugh a security interest in two properties. Pratt also signed a Guaranty Agreement/Security Agreement dated April 10, 2006, in which he guaranteed “Phase I collateral performance of the Sov[re]n/Charles D. Pugh Promissory Note/Security Agreement.” Sovren executed two trust deeds encumbering Pratt's two properties (the trust deeds). Although Sovren was not the record title owner of the properties, Pratt has acknowledged that he signed a document authorizing Sovren to sign the trust deeds. ¹ He may have been referring to one or both of the security agreements or to some other document. In any event, the parties do not dispute Sovren's authority to execute the trust deeds encumbering Pratt's properties. On April 11, 2006, Guardian Title recorded the two trust deeds and disbursed $500,000 to Sovren from Pugh's escrow account.

¶ 4 On or about April 21, 2006, REISI, Gilliam, and Pugh sent a letter to Sovren, Carlson, Coles, and Robinson repudiating the $2 million Note dated April 11, 2006, but affirming the $4 million Note dated April 7, 2006. ² Within a few months, REISI filed suit against Pratt, Sovren, Carlson, Coles, Robinson, Guardian Title, and others seeking damages for breach of contract and a host of other causes of action, including defamation, tortious interference with contract, and intentional interference with economic relations. Sovren, Carlson, Coles, and Robinson filed a third party complaint against Pugh, Gilliam, and one other person. In his answer to this third party complaint, Pugh alleged that “the [trust] deeds were supposed to be

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additional collateral for the April 7, 2006 agreements ... and only became collateral for the April 11, 2006 agreement through fraud and extortion to take REISI's $500,000, and to obtain better terms.” The answer also stated that Pugh “repudiated the April 11, 2006 agreement due to Pratt's and the other Defendants' fraud, lies, extortion, and coercion.”

¶ 5 On September 26, 2006, counsel for Pratt sent a letter to Pugh demanding a release of the “wrongful lien” and threatening suit in the event the liens created by the trust deeds were not released. Pugh responded with a letter re-affirming the trust deeds on the ground that they secured contracts that were “under a cloud of dispute and legal proceedings.” Pugh's letter further stated that the trust deeds would not be released until the debt they secured was paid according to the terms of “the note” or “when the legal proceedings are culminated.” Pratt responded with the instant petition under the Act.

¶ 6 In a motion for summary judgment, Pratt argued that the liens created by the trust deeds were wrongful because, based on the positions Pugh had taken in the main case, either (a) there was no meeting of the minds and, thus, no valid contract was ever formed, or (b) Pugh had repudiated the agreement. Pratt did not propose to return or to have Sovren return the proceeds of the $500,000 loan secured by the trust deeds. Pugh responded that, having initially authorized the trust deeds, Pratt, “because of his own fraud in changing the terms of the agreements without disclosing the same to Mr. Pugh, is trying [to] capitalize on his fraud and remove the liens.” The trial court entered summary judgment in favor of Pratt and ordered the liens released. It reasoned that the liens were wrongful “since it [was] undisputed that the contract between the parties failed at its inception.” This ruling effectively converted a secured half-million-dollar loan into an unsecured half-million-dollar loan. The court also awarded Pratt statutory damages and attorney fees.

ISSUE AND STANDARD OF REVIEW

¶ 7 On appeal, Pugh contends that the trial court erred by ruling on summary judgment that the liens created by the trust deeds against Pratt's property were wrongful under the Act. “Summary judgment is appropriate only where (1) ‘there is no genuine issue as to any material fact’ and (2) ‘the moving party is entitled to a judgment as a matter of law.’ ” Poteet v. White, 2006 UT 63, ¶ 7, 147 P.3d 439 (quoting Utah R. Civ. P. 56(c)). “Therefore, [w]e review the [trial] court's decision to grant summary judgment for correctness, granting no deference to the [trial] court.” Eldridge v. Farnsworth, 2007 UT App 243, ¶ 18, 166 P.3d 639 (internal quotation marks omitted). Whether a lien is wrongful as defined in Utah Code section 38-9-1 is a “question of law which we review for correctness, giving no deference to the trial court's legal conclusions.” See id. ¶ 21 (internal quotation marks omitted); see also Russell v. Thomas, 2000 UT App 82, ¶ 8, 999 P.2d 1244 (stating that whether a lien is wrongful under the Act requires statutory interpretation and, therefore, is reviewed for correctness).

ANALYSIS

¶ 8 Pursuant to the Act, “[a]ny record interest holder of real property against which a wrongful lien ... has been recorded may petition the district court in the county in which the document was recorded for summary relief to nullify the lien.” Utah Code Ann. § 38-9-7(1) (2005); see also Gardiner v. York, 2010 UT App 108, ¶ 14, 233 P.3d 500. The statutory language does not make clear whether the legislature intended the petition “to act as a motion for an expedited proceeding addressing one issue within the context of a larger civil action, like a motion for partial summary judgment on the wrongful lien issue, or as a separate and independent action designed to resolve the wrongful lien claim.” Anderson v. Wilshire Invs., LLC, 2005 UT 59, ¶ 14, 123 P.3d 393. Here, Pratt elected to file a petition separate from the main case involving this investment transaction.

¶ 9 “The summary proceeding contemplated by this statute is limited in a number of respects.” Id. ¶ 10. For example, the summary proceeding “is only to determine

238 P.3d 1076

whether or not a document is a wrongful lien.” Utah Code Ann. § 38-9-7(4). The court “shall not determine any other property or legal rights of the parties nor restrict other legal remedies of any party.” Id.

¶ 10 The Act “defines ‘wrongful lien’ narrowly.” Anderson, 2005 UT 59, ¶ 10, 123 P.3d 393.

“Wrongful lien” means any document that purports to create a lien, notice of interest, or encumbrance on an owner's interest in certain real property and at the time it is recorded or filed is not:

(a) expressly authorized by this chapter or another state or federal statute;

(b) authorized by or contained in an order or judgment of a court of competent jurisdiction in the state; or

(c) signed by or authorized pursuant to a document signed by the owner of the real property.

Utah Code Ann. § 38-9-1(6) (Supp.2009). This section is explicit that the wrongfulness of a lien must be...