Schoepe v. Zions First Nat. Bank

• Decision Date: 13 November 1990
• Docket Number: Civil No. 89-C-449W.
• Citation: 750 F. Supp. 1084
• Parties: Adolph SCHOEPE, sole surviving partner on Behalf of Lion Hill Mines, Plaintiffs, v. ZIONS FIRST NATIONAL BANK, a federal corporation, and John Does 1-10, Defendants.
• Court: U.S. District Court — District of Utah

750 F. Supp. 1084

Adolph SCHOEPE, sole surviving partner on Behalf of Lion Hill Mines, Plaintiffs, v.ZIONS FIRST NATIONAL BANK, a federal corporation, and John Does 1-10, Defendants.

Civil No. 89-C-449W.

United States District Court, D. Utah, C.D.

November 13, 1990.

L. Rich Humpherys and Lee C. Henning, Salt Lake City, Utah, for plaintiffs.

Gary R. Howe and R. William Orton, Salt Lake City, Utah, for defendant Zions First Nat. Bank.

MEMORANDUM DECISION AND ORDER

WINDER, District Judge.

This matter is before the court on defendant Zions First National Bank's ("Zions")motion for summary judgment on plaintiff Lion Hill Mines' ("Lion Hill") claim for breach of fiduciary duty.That motion focused on the issue of proximate cause.A hearing on that motion was held October 25, 1990.Following the hearing, the court requested the parties to identify those portions of the record bearing on the issue of Zions' duty as escrow agent.Counsel for Zions and Lions Hill complied with the court's request by letters dated October 29, 1990.A supplemental hearing on the duty issue was held October 31, 1990.During both hearings Lion Hill was represented by L. Rich Humpherys and Lee C. Henning.Zions was represented by Gary R. Howe, R. Willis Orton and Ronald F. Price.Before the hearings, the court carefully considered the memoranda, affidavits, depositions and other pleadings submitted by the parties.Since taking the matter under advisement, the court has further considered the law and facts relating to this motion and now renders the following memorandum decision and order.

BACKGROUND

The facts relevant to this motion are not in dispute.On or about October 1, 1980, Lion Hill, a Nevada joint venture/partnership, entered into a contract (the "1980 Contract") to sell certain mining properties in Douglas County, Nevada, to Pacific Silver Corporation("Pacific Silver").On or about February 6, 1981, pursuant to the terms of the 1980 Contract, Lion Hill and Pacific Silver entered into an Escrow Agreement with Zions.Under the Escrow Agreement, Pacific Silver agreed to pay installments of the purchase price of the mine properties to Zions, who, as escrow agent, would deliver the payments to Lion Hill.

On or about July 29, 1982, Lion Hill entered into an agreement with Pacific Silver to extend the payment schedule of the 1980 Contract.The 1982 payment extension, which decreased early payments in favor of increasing later payments, was made a part of the Escrow Agreement.

On or about March 20, 1984, Zions made a $1.6 million loan to Pacific Silver, and took a recorded assignment of Pacific Silver's rights under the 1980 Contract as partial security for the loan.Zions made this loan without the knowledge or consent of Lion Hill.On or about January 14, 1985, and again without the knowledge or consent of Lion Hill, Zions made a $700,000 loan to Pacific Silver.

On or about November 4, 1985, Lion Hill entered into an agreement with Pacific Silver in which the payment schedule on the 1980 Contract again was modified to decrease current payments and increase later payments.The 1985 payment extension reduced Pacific Silver's 1985 payment from $300,000 to $100,000 and reduced the 1986 payment from $350,000 to $150,000.The 1985 payment extension subsequently was made part of the Escrow Agreement.

After making the $150,000 payment in 1986, Pacific Silver made no further payments under the 1980 Contract and the contract subsequently was terminated.Lion Hill claims it would not have agreed to the 1985 payment extension had it known of the $2.3 million in loans Zions previously had made to Pacific Silver.Lion Hill claims that Zions, acting as escrow agent, owed it a duty to disclose these loans, and that such nondisclosure was the proximate cause of Lion Hill's damages.Lion Hill claims these damages include the payments it would have received from Pacific Silver had the 1985 payment extension not been made.

STANDARD OF REVIEW

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law."Fed.R. Civ.P. 56(c).In applying this standard, the court must construe all facts and reasonable inferences therefrom in the light most favorable to the nonmoving party.Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538(1986);Applied Genetics Int'l v. First Affiliated Securities,912 F.2d 1238, 1241(10th Cir.1990).

Once the moving party has carried its burden, Rule 56(e)"requires the nonmoving party to go beyond the pleadings and by ... affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'"Celotex Corp. v. Catrett,477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265(1986);Abercrombie v. City of Catoosa,896 F.2d 1228, 1230(10th Cir.1990).¹The nonmoving party must "make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial."Celotex Corp.,477 U.S. at 322, 106 S.Ct. at 2552.

In considering a summary judgment motion, this court does not weigh the evidence but instead inquires whether a reasonable jury, faced with the evidence presented, could return a verdict for the nonmoving party.SeeAnderson v. Liberty Lobby, Inc.,477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202(1986).²Finally, all material facts asserted by the moving party shall be deemed admitted unless specifically controverted by the opposing party.D.Utah Civ.R.P. 5(e).

DISCUSSION

The issue which this court considers to be dispositive of this motion is whether Zions, acting as escrow agent, owed a duty, as a matter of law, to disclose to Lion Hill the loans Zions made to Pacific Silver.³Because this court sits in diversity, it must ascertain and apply Utah state law.The parties have not cited nor could this court find any Utah authority discussing the contours of an escrow agent's duty to disclose information to its principals.Two Utah Supreme Courtcases, however, merit examination for the guidance they give regarding an escrow agent's duties in general.

A.Utah Case Law on Escrow Agency

In Freegard v. First Western Nat'l Bank,738 P.2d 614(Utah1987), the Utah Supreme Court found allegations that an escrow agent breached its agreement by failing to pay over insurance proceeds were sufficient to state a cause of action against the escrow agent for breach of fiduciary duty.Seeid. at 616.The trial court in Freegard held that the escrow agent's contractual obligation to collect payments and disburse them to seller did not include a duty to pay over insurance proceeds collected when the real property that was the subject of the sale was destroyed by fire.

In reversing the trial court, the Utah Supreme Court concluded that the complaint adequately stated a cause of action against the escrow agent based upon the fiduciary duty the agent owed to its principal.Seeid.⁴The court found that the escrow agent assumed the role of agent to both parties to the transaction and was required to exercise reasonable skill and ordinary diligence in disbursing the funds entrusted to it.Id.Thus, the court held, whether the escrow agent breached its agreement by failing to pay over the insurance proceeds was an issue of fact that appeared on the face of the complaint.Id.

In Nelson v. Ashton-Jenkins Co.,66 Utah 351, 242 P. 408(Utah1925), the Utah Supreme Court held that the defendant, who was acting as both real estate broker and escrow agent, did not breach any duty to plaintiff buyer by failing to disclose an agreement with sellers whereby defendant received as commission any monies paid for the land over a specified price.Seeid.,242 P. at 411.

In Nelson, Carlquist, an agent of defendant, acted as both broker in the real estate sale between plaintiff and sellers and as the appointed escrow agent for the transaction.Plaintiff claimed Carlquist breached a duty as plaintiff's escrow agent by failing to disclose his commission agreement with the sellers.Drawing a legal distinction between Carlquist's two roles, the Utah Supreme Court found that Carlquist's rights as a real estate broker did not conflict with his duties as plaintiff's escrow agent.On the escrow duty the court stated:

The plaintiff received exactly what she bought and paid for, and it therefore appears that the Ashton-Jenkins Company discharged every obligation imposed upon it by the terms of the escrow agreement.

Id. at 410.On Carlquist's failure to disclose his commission arrangement the court stated:

Carlquist was a real estate broker, and had the right to negotiate purchases and sales of real estate for such compensation as might be agreed upon or as was authorized by custom.The plaintiff having refused to employ him in the matter in controversy, it was not a breach of either confidence or duty for him to accept employment from the sellers.

Id. at 411.The court rejected plaintiff's argument that Carlquist became a general agent through the escrow relationship and therefore owed a duty to disclose the commission arrangement.Rather, an escrow agent's duty was "to do and perform what it is required to do by the terms of the escrow agreement."Id. at 410.

B.Nature of the Escrow Agency

Both Freegard and Nelson are factually dissimilar from the instant case.In Freegard, the issue was whether the escrow agent breached its fiduciary duty by failing to pay over proceeds as required by the escrow agreement.Here the issue is whether an escrow agent has a fiduciary duty to disclose loans it makes to one of its principals.

Nelson concerned the legal obligations of a person acting as both broker and...