Sec. & Exch. Comm'n v. Mgmt. Solutions, Inc.
| Decision Date | 19 June 2014 |
| Docket Number | Case No. 2:11-CV-01165-BSJ |
| Parties | SECURITIES AND EXCHANGE COMMISSION Plaintiff, v. MANAGEMENT SOLUTIONS, INC., a Texas Corporation; WENDELL A. JACOBSON; ALLEN R. JACOBSON, Defendants. (Warner Entities v. Miller—Receiver) |
| Court | U.S. District Court — District of Utah |
This matter came before the court for evidentiary hearing on April 25, 2014. Doyle Byers, Cory Talbot, and David Broadbent appeared on behalf of the Receiver, Gil Miller. James Gilson and Zachery Shields appeared on behalf of Intervenor Plaintiff Warner Entities. The matter was continued until May 9, 2014, and closing argument occurred May 13, 2014.
Having considered the parties' briefs, the evidence presented, the arguments of counsel, the relevant law, and the equities in this receivership, the court finds the Warner Entities have not demonstrated their ownership claim by clear and convincing evidence and their claim for a 49.5 percent tenant-in-common interest in the proceeds from the sale of Tetonian Apartments is DENIED.
This is an equitable determination as part of an equitable receivership, dictated by the circumstances of this particular tenant-in-common claim asserted by the Warner Entities. It doesnot limit the Warner Entities' right to assert ownership interests in other properties, if any, or the court's ability to consider them.
On February 14, 2014, John A. Beckstead,1 as receiver for Defendants Management Solutions, Inc., related companies, Wendell A. Jacobson, Allen R. Jacobson, and others (the "Receiver"), submitted a motion seeking confirmation of the private sale of Stone Brook and Tetonian Apartments property free and clear of liens with valid liens to attach to the proceeds of that sale.2 On March 3, 2014, Intervening Plaintiffs B.C. Warner Investments, L.C.; Truckpro, L.C.; SLEA 423 L.L.C.; B.C. Warner Revocable Trust; BCW - D.O., L.L.C.; BCW - Maui, L.L.C.; BCW - S.F. L.L.C.; TMB Limited Company; Bart C. Warner; James N. Warner, Jeffrey K. Wetzel, Gerald A. Zmyslo (collectively, "Warner" or the "Warner Entities") filed an opposition to the proposed sale, wherein they claimed a 49.5 percent tenant-in-common interest in Tetonian Apartments.3
The proposed sale of Stone Brook and Tetonian Apartments and the objections thereto came before the court on March 12, 2014. After hearing arguments from counsel, the court reserved ruling and continued the hearing until March 18, 2014.4 At the March 18 hearing, counsel for Receiver asked for additional time to complete depositions and respond to theWarner Entities' newest memorandum in opposition to the proposed sale. The court granted the request and subsequently set scheduling and evidentiary hearings for April 23 and April 25, 2014, respectively.5 On April 10, 2014, the Receiver filed an additional memorandum in support of the proposed sale,6 which the Warner Entities responded to on April 18, 2014.7
At the April 25, 2014 evidentiary hearing, counsel for the Receiver and counsel for the Warner Entities informed the court that the parties had resolved certain of the Warner Entities' concerns and that, as such, the Warner Entities withdrew their objection to the Receiver's proposed sale.8 In the absence of objections to the proposed sale and based on the arguments of counsel and good cause appearing, the court confirmed the sale with proceeds subject to valid interests, if any.9 The evidentiary hearing proceeded in order to determine the nature of the Warner Entities' interest in Tetonian Apartments and any resulting attachment to sale proceeds.
While there is a paucity of express authority as to the quantum of proof required by one seeking recognition of an ownership interest in realty contrary to a public recorded deed, particularly in an equitable receivership with a multiplicity of competing interests, what guidance is available points to clear and convincing as the preferred standard.
For the matter before us, there are two deeds at play. The first is the deed held by the Receiver providing Tetonian Properties, LLC ("Tetonian Properties) with 100 percent title interest in Tetonian Apartments.10 This deed is recorded.11 The second is the deed purportedly conveying to Warner a 49.5 percent interest in Tetonian Apartments. That "original deed" is not available. That deed was not recorded.12 No one has been able to testify as to its physical delivery. Its location is unknown.13
Warner is arguing implicitly, in a sense, that the first deed, the Receiver's deed, is not accurate because it does not describe the purported conveyance to Warner. Warner asserts implicitly that the Receiver's deed is inaccurate because it overstates the Receiver's interest. The burden is on Warner to demonstrate the validity of his 49.5 percent interest by clear and convincing evidence: "The recording of a deed raises a presumption of delivery, which presumption is entitled to great and controlling weight and which can only be overcome by clear and convincing evidence." Controlled Receivables, Inc. v. Harman, 17 Utah 2d 420, 423, 413P.2d 807, 809 (1966); see 23 Am. Jur. 2d Deeds § 141. Russ Ballard & Family Achievement Inst. v. Lava Hot Springs Resort, Inc., 97 Idaho 572, 579, 548 P.2d 72, 79 (1976).
The original of the second deed was either retained by Tetonian Properties and never delivered, or it was lost. In either case, the burden is on Warner to demonstrate the deed's delivery and acceptance, or its equivalent. See Krebs v. Krebs, 114 Idaho 571, 574, 759 P.2d 77, 80 (Ct. App. 1988); 23 Am. Jur. 2d Deeds § 129. As indicated above and outlined in Utah Code Ann. § 57-4a-4 (West), it is a recorded deed that creates presumptions regarding title to the real property affected. There is no contention that the Receiver's deed was not recorded or that Tetonian Properties (and thus Receiver) is record title owner of Tetonian Apartments.14 And there is no contention that Warner's purported deed was recorded.15 As such, the validity of the Receiver's deed is entitled to "great and controlling weight." And the burden is on Warner to demonstrate by clear and convincing evidence that the Receiver's deed is incomplete and that Warner's unrecorded deed was created, delivered, and accepted.
The Warner Entities argue that in January 2009, SLEA 423, LLC ("SLEA 423") received a valid tenant-in-common interest in 49.5 percent of the Tetonian Apartments real property from Tetonian Properties.16 The sale of real property requires both delivery and acceptance. See Estate of Skvorak v. Sec. Union Title Ins. Co., 140 Idaho 16, 20-21, 89 P.3d 856, 860-61 (2004) (); Santaquin Min. Co. v. High Roller Min. Co., 25 Utah 282, 71 P. 77, 80 (1903) (); 23 Am. Jur. 2d Deeds § 149; 26A C.J.S. Deeds § 90. For the reasons discussed below, the Warner Entities failed to carry the burden of demonstrating by clear and convincing evidence that both occurred.17
The evidence of a physical delivery of an original deed from Tetonian Properties to SLEA 423 is not clear and convincing. But it is possession of this deed that the Warner Entitiesostensibly acquired by their acquisition of SLEA 423 from Summit Exchange Services, LLC ("Summit").18
Jacobson testified that there was an original deed, but he did not know what happened to it. Hr'g 05/09/14 Tr., 18:13-23. Warner, as the successor of SLEA 423 after the requisite waiting period, never saw an original deed. Hr'g 04/25/14 Tr., 98:17-20; 138:14-24. Both Jacobson and James Warner testified that they believed Ray Beck, as manager of Summit, would see that the deed was recorded. Hr'g 05/09/14 Tr., 100:18-25; Hr'g 04/25/14 Tr., 98:21-99:14. But Beck never saw the original deed. Hr'g 04/25/14 Tr., 72:14-17. Beck testified to receiving a copy of the deed, but could not testify specifically where the copy came from. Id., at 83:1-5.19
Neither Warner nor the SLEA 423 grantee recall seeing the original deed. The Purchase and Sale Agreement specifically contemplates that "Possession of the Property attributable to the Undivided Interest shall be delivered to Buyer at Closing." Ex. 19, C:5(f). In Bart Warner's deposition, this provision was identified and counsel for Receiver, Doyle Byers, asked Bart Warner whether the buyer did anything to secure possession of the property at closing:
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